exv10w1






Exhibit 10.1




 

 






SECURED CREDIT FACILITY AND WARRANT PURCHASE AGREEMENT




by and between




ENVIRONMENTAL TECTONICS CORPORATION

and

H.F. LENFEST




Dated as of




April 24, 2009




 

 






 









 












TABLE OF CONTENTS




	 	 	 	 	 	 	 
	RECITALS	 	 	1	 
	ARTICLE I DEFINITIONS	 	 	1	 
	1.1

	 	Certain Definitions
	 	 	1	 
	1.2

	 	Accounting Principles
	 	 	12	 
	1.3

	 	Other Definitional Provisions; Construction
	 	 	12	 
	ARTICLE II ISSUE AND SALE OF SECURITIES	 	 	12	 
	2.1

	 	Authorization, Advances, Issuance and Purchase of Notes
	 	 	12	 
	2.2

	 	Lender Guaranties
	 	 	14	 
	2.3

	 	Authorization, Issuance and Purchase of the Warrants
	 	 	15	 
	2.4

	 	Sale and Purchase
	 	 	16	 
	2.5

	 	Issue Price
	 	 	16	 
	2.6

	 	The Closing
	 	 	16	 
	2.7

	 	2009 Bridge Note
	 	 	16	 
	ARTICLE III REPAYMENT OF THE NOTES; EXCHANGE OF EXISTING SECURITIES	 	 	16	 
	3.1

	 	Interest
	 	 	16	 
	3.2

	 	Repayment of the Initial Note
	 	 	17	 
	3.3

	 	Repayment of the Additional Notes
	 	 	17	 
	3.4

	 	Maturity; Surrender, etc
	 	 	17	 
	3.5

	 	Exchange of Existing Securities
	 	 	17	 
	ARTICLE IV CONDITIONS
	 	 	18	 
	4.1

	 	Conditions to the Purchase of the Securities
	 	 	18	 
	4.2

	 	Waiver
	 	 	21	 
	ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER	 	 	21	 
	5.1

	 	Representations and Warranties of the Borrower
	 	 	21	 
	ARTICLE VI REPRESENTATIONS, WARRANTIES AND COVENANTS OF LENDER	 	 	29	 
	6.1

	 	Authorization; Enforceable Obligations
	 	 	29	 
	6.2

	 	No Breach
	 	 	29	 
	6.3

	 	Governmental Approvals
	 	 	29	 
	6.4

	 	Restricted Securities
	 	 	29	 
	6.5

	 	Legends; Lender’s Representations
	 	 	29	 
	6.6

	 	Reliance on Exemptions
	 	 	30	 






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	6.7

	 	Prohibition on Short Sales
	 	 	30	 
	6.8

	 	Transfer of Notes
	 	 	30	 
	6.9

	 	Replacement of Lost Securities
	 	 	30	 
	ARTICLE VII COVENANTS	 	 	31	 
	7.1

	 	Affirmative Covenants
	 	 	31	 
	7.2

	 	Negative Covenants
	 	 	35	 
	7.3

	 	Financial Covenant
	 	 	39	 
	ARTICLE VIII EVENTS OF DEFAULT	 	 	39	 
	8.1

	 	Events of Default
	 	 	39	 
	8.2

	 	Consequences of Event of Default
	 	 	41	 
	8.3

	 	Security
	 	 	41	 
	ARTICLE IX MISCELLANEOUS	 	 	41	 
	9.1

	 	Survival
	 	 	41	 
	9.2

	 	Successors and Assigns
	 	 	42	 
	9.3

	 	Modifications and Amendments
	 	 	42	 
	9.4

	 	No Implied Waivers; Cumulative Remedies; Writing Required
	 	 	42	 
	9.5

	 	Reimbursement of Expenses
	 	 	42	 
	9.6

	 	Holidays
	 	 	42	 
	9.7

	 	Notices
	 	 	42	 
	9.8

	 	Governing Law and Consent to Jurisdiction
	 	 	43	 
	9.9

	 	Severability
	 	 	44	 
	9.10

	 	Headings
	 	 	44	 
	9.11

	 	Counterparts
	 	 	44	 
	9.12

	 	Integration
	 	 	44	 
	9.13

	 	Subordination
	 	 	44	 
	9.14

	 	Indemnification
	 	 	44	 
	9.15

	 	Waiver of Jury Trial
	 	 	45	 
	9.16

	 	Confession of Judgment
	 	 	45	 
	SIGNATURE PAGE	 	 	47	 
	ANNEXES	 	 	48	 
	SCHEDULES	 	 	48	 
	EXHIBITS	 	 	48	 







ii











 





SECURED CREDIT FACILITY AND WARRANT PURCHASE AGREEMENT




     THIS SECURED CREDIT FACILITY AND WARRANT PURCHASE AGREEMENT (this “Agreement”), dated as of
April 24, 2009, is made by and between Environmental Tectonics Corporation, a Pennsylvania
corporation (the “Borrower”), and H.F. Lenfest (the “Lender”). Capitalized terms used and not
defined elsewhere in this Agreement are defined in Article 1 hereof.



RECITALS




     WHEREAS, the Borrower is in need of additional funds in order to meet the Borrower’s working
capital requirements;



     WHEREAS, the Borrower has requested that the Lender make available to the Borrower a secured
line of credit facility in the principal amount of up to $7,500,000 and the collateralized guaranty
of an additional $5,000,000 of Senior Debt, with the proceeds of each to be used for, in addition
to transaction expenses, working capital and general corporate purposes directly related to the
growth of the business of the Borrower and the performance of one or more Major Contracts; and the
Lender has agreed to make such funds and/or guaranties available to the Borrower on the terms and
conditions set forth herein; and



     WHEREAS, on February 20, 2009, pursuant to a Secured Promissory Note (the “2009 Bridge Note”)
and Common Stock Warrant executed by the Borrower, the Lender deposited $2,000,000 in a restricted
bank account of the Borrower, which funds shall be deemed part of the $7,500,000 for purposes of
this Agreement and are to be used solely in connection with working capital funding to support the
Borrower’s bid on, and if successful its performance under, one of the Major Contracts.



     NOW, THEREFORE, the parties hereto, in consideration of the foregoing premises and their
mutual covenants and agreements herein set forth and intending to be legally bound hereby, covenant
and agree as follows:



ARTICLE I

DEFINITIONS




     1.1 Certain Definitions. In addition to other words and terms defined elsewhere in
this Agreement, the following words and terms shall have the meanings set forth below (and such
meanings shall be equally applicable to both the singular and plural form of the terms defined, as
the context may require):



     “2003 Note” shall mean that certain Senior Subordinated Convertible Note, dated as of February
18, 2003, issued by the Borrower to the Lender in the original principal amount of $10,000,000.



     “2009 Bridge Note” shall have the meaning assigned to such term in the Recitals hereof.



 









 





     “2009 Bridge Loan Documents” shall have the meaning assigned to such term in Section 2.7
hereof.



     “Additional Personal Guaranty” shall have the meaning assigned to such term in Section 2.2(a).



     “Additional Note” shall have the meaning assigned to such term in Section 2.1(c).



     “Additional Note Maturity Date” shall have the meaning assigned to such term in Section 3.3.



     “Additional Warrant” shall have the meaning assigned to such term in Section 2.3(b).



     “Advance” or “Advances” shall mean a cash advance or cash advances under the line of credit
facility provided pursuant to the terms of this Agreement.



     “Affiliate” shall mean with respect to any Person, any other Person that is directly or
indirectly controlling, controlled by or under common control with such Person or entity or any of
its Subsidiaries, and the term “control” (including the terms “controlled by” and “under common
control with”) means having, directly or indirectly, the power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting securities or by
contract or otherwise. Without limiting the foregoing, the ownership of ten percent (10%) or more
of the voting securities of a Person shall be deemed to constitute control. Notwithstanding
anything contained herein to the contrary, neither the Lender nor any of his respective Affiliates
shall be deemed to be Affiliates of the Borrower by virtue of the transactions contemplated by this
Agreement.



     “Agreement” shall mean this Secured Credit Facility and Warrant Purchase Agreement, as the
same may be amended, restated, supplemented or otherwise modified from time to time.



     “Annual Guaranty Shares” shall have the meaning assigned to such term in Section 2.2(a).



     “Borrower” shall have the meaning assigned to such term in the preamble hereto.



     “Business” shall mean the principal business of the Borrower as set forth in Section 5.1(d)
herein and as such shall continue to be conducted following the purchase and sale of the
Securities.



     “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banking
institutions in the Commonwealth of Pennsylvania are authorized or required by law to close.



     “Bylaws” shall mean the bylaws of the Borrower and the Guarantor, including all amendments and
supplements thereto.



     “Capital Lease” shall mean a lease with respect to which the lessee is required to recognize
the acquisition of an asset and the incurrence of a liability in accordance with GAAP.



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     “Capital Lease Obligation” shall mean at any time, the amount of the obligations of a Person
under Capital Leases which would be shown at such time as a liability on a Consolidated balance
sheet of such Person prepared in accordance with GAAP.



     “CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act
(42 U.S.C. § 9601, et seq.), as amended, and all rules, regulations, standards guidelines and
publications issued thereunder.



     “Charter Documents” shall mean the Articles of Incorporation of the Borrower and the Articles
of Incorporation or Certificate of Incorporation, as the case may be, of the Guarantor, including
all amendments and supplements thereto.



     “Closing” shall mean a closing of the purchase and sale of the Securities pursuant to this
Agreement and shall include the Initial Closing and any subsequent Closing.



     “Closing Date” shall mean the date and time for delivery of each of the Notes as finally
determined pursuant to Section 2.6 hereof.



     “Code” shall mean the Internal Revenue Code of 1986, as amended.



     “Common Stock” shall mean shares of common stock, par value $0.05 per share, of the Borrower.



     “Compliance Certificate” shall have the meaning assigned to such term in Section 7.1(f)(ii).



     “Consolidated” or “consolidated” shall mean with reference to any term defined herein, that
term as applied to the accounts of the Borrower and its Subsidiaries, consolidated in accordance
with GAAP.



     “Consolidated Tangible Net Worth” shall mean as of any date of determination, an amount equal
to (a) the aggregate amount of all assets of the Borrower and its Subsidiaries on a consolidated
basis at such date as may be properly classified as such in accordance with GAAP, excluding such
other assets as are properly classified as intangible assets under GAAP, minus (b) the aggregate
amount of all liabilities of the Borrower and its Subsidiaries and minority interests in the
Borrower or any of its Subsidiaries on a consolidated basis at such date, as may be properly
classified as such in accordance with GAAP, plus (c) the outstanding balances under the 2003 Note,
the 2009 Bridge Note and the Notes.



     “Contingent Obligation” shall mean as to any Person, without duplication, any guarantee of
payment or performance by such Person of any Indebtedness or other obligation of any other Person,
or any agreement to provide financial assurance with respect to the financial condition, or the
payment of the obligations of, such other Person (including, without limitation, purchase or
repurchase agreements, reimbursement agreements with respect to letters of credit or acceptances,
indemnity arrangements, grants of security interests to support the obligations of another Person,
keep well agreements and take-or-pay or through-put arrangements) which has the effect of assuring
or holding harmless any third Person against loss with respect to one or more obligations owed to
such third Person;



3









 




provided, however, the term Contingent Obligation shall not include endorsements of
instruments for deposit or collection in the ordinary course of business. The amount of any
Contingent Obligation of any Person shall be deemed to be the lower of (a) an amount equal to the
stated or determinable amount of the primary obligation in respect of which such Contingent
Obligation is made and (b) the maximum amount for which such contingently liable Person may be
liable pursuant to the terms of the instrument embodying such Contingent Obligation, unless such
primary obligation and the maximum amount for which such contingently liable Person may be liable
are not stated or determinable, in which case the amount of such Contingent Obligation shall be
such contingently liable Person’s maximum reasonably anticipated liability in respect thereof as
determined by such Person in good faith.




     “Contractual Obligation” shall mean as to any Person, any provision of any security issued by
or operating agreement or organizational or formation documents of such Person or any provision of
any agreement, instrument or other undertaking to which such Person is a party or by which it or
any of its property is bound.



     “Credit Facility” shall mean the loan in the aggregate principal amount of up to $7,500,000
(including the principal amount of the 2009 Bridge Note) to be made to the Borrower by the Lender
hereunder, subject to the terms and conditions set forth herein.



     “Default” shall mean any event or condition that, but for the giving of notice or the lapse of
time, or both, would constitute an Event of Default.



     “Drawdown Request” shall have the meaning assigned to such term in Section 2.1(c).



     “Environmental Laws” shall mean any Laws that address, are related to or otherwise are
concerned with environmental, health or safety issues, including, without limitation, any Laws
relating to any emissions, releases or discharges of Pollutants into ambient air, surface water,
ground water or land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, handling, clean-up or control of Pollutants or any
exposure or impact on worker health and safety.



     “Environmental Liabilities” shall mean any obligations or liabilities (including, without
limitation, any claims, suits or other assertions of obligations or liabilities) that are:




     (a) related to environmental, health or safety issues (including, without limitation,
on-site or off-site contamination by Pollutants of surface or subsurface soil or water, and
occupational safety and health); and




     (b) based upon or related to (i) any provision of past, present or future United States
or foreign Environmental Law (including, without limitation, CERCLA and RCRA) or common law,
or (ii) any judgment, order, writ, decree, permit or injunction imposed by any court,
administrative agency, tribunal or otherwise.


The term “Environmental Liabilities” includes among other things, all: (i) fines, penalties,
judgments, awards, settlements, losses, damages, costs, fees (including, without limitation,
attorneys’ and consultants’ fees), expenses and disbursements; (ii) defense and other responses to


4









 






any administrative or judicial action (including, without limitation, claims, notice letters,
complaints, and other assertions of liability); and (iii) financial responsibility for (1) cleanup
costs and injunctive relief, including any Removal, Remedial or other Response actions, and natural
resource damages, and (2) any other compliance or remedial measures.




     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may from
time to time be amended, and the rules and regulations of any governmental agency or authority, as
from time to time may be in effect, promulgated thereunder.



     “Event of Default” shall mean any of the events of default described in Section 8.1 hereof.



     “Executive Officer” shall mean the chief executive officer, the president, the chief financial
officer, and the chief operating officer of the Borrower and the Guarantor, as applicable.



     “Financing Statements” shall have the meaning assigned to such term in Section 4.1(e)(i)
hereof.



     “Fiscal Quarter” or “fiscal quarter” shall mean during each Fiscal Year of the Borrower, each
three-month fiscal period that ends at the end of May, August, November and February, as designated
in such respective year.



     “Fiscal Year” or “fiscal year” shall mean each twelve-month period ending on the last Friday
in February.



     “Form 10-K” shall have the meaning assigned to such term in Section 5.1(e) hereof.



     “Form 10-Q” shall have the meaning assigned to such term in Section 5.1(e) hereof.



     “GAAP” shall have the meaning assigned to such term in Section 1.2 hereof.



     “Governmental Approvals” shall have the meaning assigned to such term in Section 5.1(aa)
hereof.



     “Governmental Authorities” shall mean any nation or government, any state or other political
subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.



     “Guarantor” shall mean Entertainment Technology Corporation, a Pennsylvania corporation, and
each other Subsidiary of the Borrower that at any time hereafter is formed, created or acquired, or
has any assets or operations if formed prior to the date hereof, and their respective successors
and permitted assigns.



     “Guaranty” shall mean any guaranty of the payment or performance of any Indebtedness or other
obligation and any other arrangement whereby credit is extended to one obligor on the basis of any
promise of another Person, whether that promise is expressed in terms of an obligation to pay the
Indebtedness of such obligor, or to purchase an obligation owed by such



5









 







obligor, or to purchase goods and services from such obligor pursuant to a take-or-pay
contract, or to maintain the capital, working capital, solvency or general financial condition of
such obligor, whether or not any such arrangement is reflected on the balance sheet of such other
Person, firm or corporation, or referred to in a footnote thereto, but shall not include
endorsements of items for collection in the ordinary course of business. For the purpose of all
computations made under this Agreement, the amount of a Guaranty in respect of any obligation shall
be deemed to be equal to the maximum aggregate amount of such obligation or, if the Guaranty is
limited to less than the full amount of such obligation, the maximum aggregate potential liability
under the terms of the Guaranty.



     “Guaranty Agreement” shall mean the Guaranty Agreement of even date herewith executed and
delivered by the Guarantor to the Lender, as the same may be amended, modified, supplemented or
restated from time to time hereafter.



     “Guaranty Share Issuance Date” shall have the meaning assigned to such term in Section 2.2(a).



     “Guaranty Shares” shall have the meaning assigned to such term in Section 2.2(a).



     “Guaranty Warrants” shall have the meaning assigned to such term in Section 2.3(c).



     “Indebtedness” shall mean:




     (a) all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services (other than current trade liabilities incurred in the ordinary
course of business and payable in accordance with customary practices);




     (b) any other indebtedness which is evidenced by a note, bond, debenture or similar
instrument;




     (c) all Capital Lease Obligations of such Person;




     (d) all obligations of such Person in respect of outstanding letters of credit,
acceptances and similar obligations created for the account of such Person;




     (e) all liabilities secured by any Lien on any property owned by such Person even
though such Person has not assumed or otherwise become liable for the payment thereof;




     (f) all obligations of such Person with respect to interest rate protection agreements
(calculated on a basis satisfactory to the Lender and in accordance with accepted practice);
and




     (g) withdrawal liabilities of such Person or any Affiliate under a Plan.



     “Initial Closing” shall mean the closing of the purchase and sale of the Initial Securities
pursuant to this Agreement.



6









 





     “Initial Closing Date” shall mean the date and time for delivery of the Initial Securities as
finally determined pursuant to Section 2.6 hereof.



     “Initial Guaranty Shares” shall have the meaning assigned to such term in Section 2.2(a).



     “Initial Note” shall have the meaning assigned to such term in Section 2.1(b).



     “Initial Note Maturity Date” shall have the meaning assigned to such term in Section 3.2.



     “Initial Securities” shall mean the Initial Note, the Initial Warrant and the shares of Series
D Preferred Stock issuable in payment of origination fees on the Credit Facility.



     “Initial Warrant” shall have the meaning assigned to such term in Section 2.3(a).



     “Insolvency Proceeding” shall have the meaning assigned to such term in Section 8.1(g).



     “Investment” as applied to any Person shall mean the amount paid or agreed to be paid or
loaned, advanced or contributed to other Persons, and in any event shall include, without
limitation, (i) any direct or indirect purchase or other acquisition of any notes, obligations,
instruments, stock, securities or ownership interest (including, without limitation, partnership
interests and joint venture interests) and (ii) any capital contribution to any other Person.



     “Laws” shall mean all U.S. and foreign federal, state or local statutes, laws, rules,
regulations, ordinances, codes, decrees, binding agreements, rules of common law, and the like, now
or hereafter in effect, including, any judicial or administrative interpretations thereof, and any
judicial or administrative orders, consents, decrees, judgments or rulings.



     “Lender” shall have the meaning assigned to such term in the preamble hereto and in Section
6.5 hereof.



     “Lien” shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), charge or other security interest or any preference,
priority or other security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention agreement and any
Capital Lease having substantially the same economic effect as any of the foregoing).



     “Major Contract” shall mean a major contract entered into by the Borrower and any third party
that the Lender and the Borrower agree is a “Major Contract” that is projected to be “profitable”
using reasonable metrics consistent with the Borrower’s projections on a historic basis.



     “Market Price” shall mean, as of any date, (i) the closing sale price for the shares of Common
Stock as reported on the NYSE AMEX 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 the AMEX is not the principal trading market for the



7









 







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) period
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.



     “Material Adverse Change” shall mean any set of circumstances or events which (a) has or could
reasonably be expected to have a material adverse effect upon the validity or enforceability of
this Agreement or any other Transaction Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition or results of
operations of the Borrower and its Subsidiaries taken as a whole, (c) impairs materially or could
reasonably be expected to impair materially the ability of the Borrower to duly and punctually pay
or perform its obligations under the Transaction Documents, or (d) impairs materially or could
reasonably be expected to impair materially the ability of the Lender to enforce its legal remedies
pursuant to this Agreement and the other Transaction Documents.



     “Material Adverse Effect” shall mean an effect that results in or causes or has a reasonable
likelihood of resulting in or causing a Material Adverse Change.



     “Maturity Date” shall have the meaning assigned to such term in Section 3.3 hereof.



     “Meeting” shall have the meaning assigned to such term in Section 7.1(m) hereof.



     “Moody’s” shall have the meaning assigned to such term in Section 7.2(g) hereof.



     “Mortgage” shall mean the Amended and Restated Open-End Mortgage and Security Agreement, dated
the date hereof, in the form attached hereto as Exhibit H, encumbering and granting a
second mortgage lien in favor of the Lender on the Borrower’s real property at 125 James Way,
Southampton, Pennsylvania, as the same may be amended, supplemented or otherwise modified from time
to time.



     “Multiemployer Plan” shall mean a multiemployer plan (within the meaning of Section 3(37) of
ERISA) that is maintained for the benefit of the employees of the Borrower.



     “Notes” shall have the meaning assigned to such term in Section 2.1.



     “Obligations” shall mean all debt, principal, interest, expenses, fees and other amounts owed
to the Lender by the Borrower pursuant to this Agreement or any other agreements, whether absolute
or continent, due or to become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any debt, liability or
obligation owing from the Borrower to any other Person that the Lender has guaranteed or may have
obtained by assignment or otherwise.



     “PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A
of Title IV of ERISA, or any other governmental agency, department or instrumentality succeeding to
the functions thereof.



8









 





     “Permitted Indebtedness” shall have the meaning assigned to such term in Section 5.1(c)
hereof.



     “Permitted Liens” shall have the meaning assigned to such term in Section 7.2(b) hereof.



     “Person” shall mean any individual, partnership, limited partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture, unincorporated
organization or governmental entity or department, agency or political subdivision thereof.



     “Personal Guaranty” shall have the meaning assigned to such term in Section 2.2(a) hereof.



     “Plan” shall mean any employee benefit plan (within the meaning of Section 3(3) of ERISA),
other than a Multiemployer Plan, established or maintained by the Borrower.



     “Pledge” shall have the meaning assigned to such term in Section 2.2(a) hereof.



     “PNC Letter Agreement” shall mean that certain letter agreement, dated the date hereof, by and
among the Borrower, the Lender and the Senior Lender pursuant to which the Senior Lender has agreed
to amend the terms of the Senior Credit Agreement.



     “Pollutant” shall include any “hazardous substance” and any “pollutant or contaminant” as
those terms are defined in CERCLA; any “hazardous waste” as that term is defined in RCRA; and any
“hazardous material” as that term is defined in the Hazardous Materials Transportation Act (49
U.S.C. § 1801 et seq.), as amended (including as those terms are further defined, construed, or
otherwise used in rules and regulations issued pursuant to, or otherwise in implementation of, said
Environmental Laws); and including, without limitation, any petroleum product or byproduct,
solvent, flammable or explosive material, radioactive material, asbestos, polychlorinated biphenyls
(PCBs), dioxins, dibenzofurans, heavy metals, and radon gas; and including any other substance or
material that is reasonably determined by any Governmental Authority or pursuant to any Law to
present a threat, hazard or risk to human health or the environment.



     “Preferred Stock” shall mean shares of preferred stock, par value $0.05 per share, of the
Borrower.



     “Properties and Facilities” shall have the meaning assigned to such term in Section 5.1(q).



     “Proprietary Rights” shall mean all patents, patents pending, trademarks, trade names, service
marks, copyrights, inventions, production methods, licenses, formulas, technology, know-how,
processes and trade secrets, regardless of whether such are registered with any Governmental
Authorities, including applications therefor.



     “RCRA” shall mean the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et seq.), as
amended, and all rules and regulations issued thereunder.



9









 





     “Registration Rights Agreement” shall have the meaning assigned to such term in Section
4.1(e)(ii).



     “Removal,” “Remedial” and “Response” actions shall include the types of activities covered by
CERCLA, RCRA, and other comparable Environmental Laws, and whether the activities are those which
might be taken by a government entity or those which a government entity or any other person might
seek to require of waste generators, handlers, distributors, processors, users, storers, treaters,
owners, operators, transporters, recyclers, reusers, disposers, or other persons under “removal,”
“remedial,” or other “response” actions.



     “Reportable Event” shall mean any of the events which are reportable under Section 4043 of
ERISA and the regulations promulgated thereunder, other than an occurrence for which the thirty
(30) day notice contained in 29 C.F.R. § 2615.3(a) is waived.



     “S&P” shall have the meaning assigned to such term in Section 7.2(g) hereof.



     “SEC” shall mean the Securities and Exchange Commission and any governmental body or agency
succeeding to the functions thereof.



     “Securities” shall mean the Notes, the Guaranty Shares, the Warrants, the Guaranty Warrants,
the shares of Common Stock issuable upon exercise of the Warrants and/or the Guaranty Warrants, the
shares of Series D Preferred Stock issuable in payment of origination fees and that may be issuable
in payment of interest on the Notes, and the shares of Series E Preferred Stock issuable in
conversion of and exchange for existing securities.



     “Securities Act” shall mean the Securities Act of 1933, as amended.



     “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.



     “Security Agreement” shall have the meaning assigned to such term in Section 4.1(e)(i) hereof.



     “Security Documents” shall mean the Security Agreement, the Mortgage, the Guaranty, the
Financing Statements, and all other documents, instruments and other materials necessary to create
or perfect the security interests created pursuant to the Security Agreement.



     “Senior Credit Agreement” shall mean that certain Credit Agreement by and between the Borrower
and PNC Bank, National Association, dated July 31, 2007, and the collateral agreements thereto, as
the same may be amended, modified, supplemented, restated or refinanced from time to time, and any
replacement agreement with another Senior Lender as permitted hereunder.



     “Senior Debt” shall mean the outstanding obligations of the Borrower under the Senior
Financing and any other obligation that by its terms ranks senior to the Indebtedness contemplated
under this Agreement.



     “Senior Financing” shall mean all obligations, liabilities and indebtedness of the Borrower to
the Senior Lender, whether principal, interest, fees, expenses, indemnification or



10









 







otherwise under or in respect of a Senior Credit Agreement (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 the Borrower).



     “Senior Lender” shall collectively mean the bank party to the Senior Credit Agreement, and any
successor or assign thereto.



     “Series B Preferred Stock” shall mean shares of Series B convertible preferred stock, par
value $0.05 per share, of the Borrower, which has a stated value of $1,000 per share.



     “Series C Preferred Stock” shall mean shares of Series C convertible preferred stock, par
value $0.05 per share, of the Borrower, which has a stated value of $1,000 per share.



     “Series D Preferred Stock” shall mean shares of Series D convertible preferred stock, par
value $0.05 per share, of the Borrower, which has a stated value of $1,000 per share.



     “Series E Preferred Stock” shall mean shares of Series E convertible preferred stock, par
value $0.05 per share, of the Borrower, which has a stated value of $1,000 per share.



     “Shareholder Approval” shall mean such time as all of the following events shall have
occurred: (i) the affirmative vote of the shareholders of the Borrower to restore in full the
Lender’s voting rights on his Common Stock and Preferred Stock in the Borrower, including any
shares of Common Stock or Preferred Stock issuable upon conversion or exercise of securities
convertible into or exercisable for Common Stock, which shall include any shares of Preferred Stock
and/or Common Stock that may be issued on conversion of securities issued prior to the date hereof
or as a result of this conversion; (ii) the approval of all other necessary actions relating to the
Transactions; and (iii) the election of a slate of directors approved by the Lender.



     “Shareholder Meeting Date Deadline” shall mean July 2, 2009; provided, however, that if the
SEC provides any comments to the proxy statement that the Borrower is filing in accordance with
Section 7.1(l) hereof, the Shareholder Meeting Date Deadline shall mean forty-five (45) days after
the SEC comments are resolved, but in no event later than August 13, 2009. 



     “Shareholders Voting Agreement” shall have the meaning assigned to such term in Section
4.1(e)(v).



     “Subordination Agreement” means that certain Second Amended and Restated Subordination and
Intercreditor Agreement, dated of even date herewith, among the Lender, the Senior Lender and the
Borrower.



     “Subsidiary” shall mean as to any Person, a corporation, partnership, limited liability
company or other entity of which shares of stock or other ownership interests having ordinary
voting power (other than stock or such other ownership interests having such power only be reason
of the happening of a contingency) to elect a majority of the board of directors or other managers
of such corporation, partnership or other entity are at the time owned, or the management of which
is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by
such Person. Unless otherwise qualified, all references to a



11









 




“Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.




     “Transaction Documents” shall mean this Agreement, the Notes, the Warrants, the Guaranty
Warrants, the Registration Rights Agreement, the Security Documents and all other agreements,
instruments and documents delivered in connection therewith as any or all of the foregoing may be
supplemented, amended or restated from time to time.



     “Transactions” shall mean the incurrence of debt and the issuance of securities and/or
guaranties, as contemplated by this Agreement, the Notes, the Warrants, the Guaranty Warrants, the
other Transaction Documents and all other agreements contemplated hereby and/or thereby.



     “UST” shall mean an underground storage tank, including as that term is defined, construed and
otherwise used in RCRA and in rules and regulations issued pursuant to RCRA and comparable state
and local laws.



     “Warrants” shall have the meaning assigned to such term in Section 2.3(b).



     1.2 Accounting Principles. The character or amount of any asset, liability, capital
account or reserve and of any item of income or expense to be determined, and any consolidation or
other accounting computation to be made, and the construction of any definition containing a
financial term, pursuant to this Agreement shall be determined or made in accordance with generally
accepted accounting principles in the United States of America consistently applied (“GAAP”),
unless such principles are inconsistent with the express requirements of this Agreement.



     1.3 Other Definitional Provisions; Construction. Whenever the context so requires,
neuter gender includes the masculine and feminine, the singular number includes the plural and vice
versa. The words “hereof” “herein” and “hereunder” and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not in any particular provision of this
Agreement, and references to section, article, annex, schedule, exhibit and like references are
references to this Agreement unless otherwise specified. A Default or Event of Default shall
“continue” or be “continuing” until such Default or Event of Default has been cured, or waived by
the Lender. References in this Agreement to any Persons shall include such Persons, successors and
permitted assigns. Other terms contained in this Agreement (which are not otherwise specifically
defined herein) shall have meanings provided in Article 9 of the Pennsylvania Uniform Commercial
Code on the date hereof to the extent the same are used or defined therein.



ARTICLE II

ISSUE AND SALE OF SECURITIES




     2.1 Authorization, Advances, Issuance and Purchase of Notes.



          (a) Subject to the terms and conditions set forth in this Agreement, the Lender shall make
Advances from time to time during the period from the date hereof until December 31, 2010 in such
sums as are set forth or determined in accordance with this Section 2.1, provided that all such
Advances shall not exceed $7,500,000 in the aggregate (inclusive of the




12









 







principal amount of the 2009 Bridge Note). Each Advance hereunder by the Lender shall be
memorialized by the issuance and sale by the Borrower to the Lender, at a Closing, of a Note in the
principal amount of the Advance. In addition, the Borrower agrees to sell and issue to the Lender,
and the Lender agrees to purchase from the Borrower, at each Closing, a warrant to purchase shares
of the Company’s Common Stock on the terms provided herein. Interest shall be payable at such
times and in such amounts as provided herein and in the Notes in cash or in shares of Series D
Preferred Stock, at the option of the Lender, in his sole discretion, to be provided in writing to
the Borrower on an annual basis no later than January 31st of each year. In the event
the Lender elects to receive interest payments in shares of Series D Preferred Stock, the number of
shares of Series D Preferred Stock shall be determined by dividing the amount of interest due on an
interest payment date by $1,000.00, the stated value of the Series D Preferred Stock. As
consideration to the Lender for making the Advances available to the Borrower, in addition to the
origination fee received by the Lender in consideration of funding the 2009 Bridge Note, the Lender
shall receive an origination fee on the date of the Initial Closing equal to 1% of the aggregate
amount of the Credit Facility less the amount of the 2009 Bridge Note, such origination fee to be
payable to the Lender through the issuance to the Lender of 55 shares of Series D Preferred Stock.




          (b) The Borrower has duly authorized the issuance and sale to the Lender of, and the Lender
has agreed to purchase subject to the terms and conditions of this Agreement, on the Initial
Closing Date, the Borrower’s Senior Secured Subordinated Note in the original principal amount of
$1,000,000 (the “Initial Note”) to be substantially in the form attached hereto as Exhibit
A-1, such Initial Note to have an initial maturity date of that is five (5) Business Days after
the Shareholder Meeting Date Deadline and an interest rate of 15% per annum; provided, however,
that if the Shareholder Approval is received, then the maturity date of the Initial Note shall be
extended automatically until the date that is three (3) years after the date of issuance of the
Initial Note and the interest rate on the Initial Note shall be reduced to 10% per annum
retroactively from the date of issuance.




          (c) To the extent that the Borrower requires working capital to perform its obligations under
any of the Major Contracts, including without limitation to purchase necessary equipment and
materials, prior to receiving payment therefor from the customer of such Major Contract, at any
time after the date that such Major Contract is entered into by the Borrower and the customer and
prior to the Maturity Date, the Borrower may send notice to the Lender requesting an Advance by the
Lender under the Credit Facility (a “Drawdown Request”), which Drawdown Request shall include (1)
the date of the request; (2) the principal amount requested, which amount shall be at least
$500,000 but not more than $2,500,000 (provided, however, that with respect to the Major Contract
to which the 2009 Bridge Note relates, the principal amount requested may be any amount not
exceeding $500,000, exclusive of the amount of the 2009 Bridge Note; and provided, further, that
the aggregate principal amount of all Drawdown Requests, exclusive of the amounts funded under the
2009 Bridge Note and the Initial Note, shall not exceed $4,500,000); (3) a description of the
applicable Major Contract, including reasonable pro forma projections of its profitability and how
the proceeds of the Advance will be used by the Borrower to perform the Major Contract; and (4) the
date by which the Borrower requires the additional funds. The Lender shall have ten (10) days in
which to notify the Borrower whether the Drawdown Request will be approved, which approval shall be
granted if and in the event that the conditions to borrowing set forth in subsection (d) below are
satisfied as determined in the




13









 







sole discretion of the Lender. If the Drawdown Request has been approved by the Lender, the
Lender shall make the Advance requested and the Borrower shall issue and sell to the Lender a
senior secured subordinated promissory note in the principal amount of the Advance on an Additional
Closing Date (each an “Additional Note” and together with the Initial Note, the “Notes”) until the
aggregate principal balance of all Notes is $7,500,000, inclusive of the principal amount of the
2009 Bridge Note, such Notes to be substantially in the form attached hereto as Exhibit
A-2, to have a maturity date that is the earlier of three (3) years from the date of issuance
thereof and December 31, 2012 and an interest rate of 10% per annum.




          (d) Notwithstanding anything to the contrary in the foregoing, in order for the Borrower to be
eligible to receive any Advances from the Lender under the Credit Facility provided for herein,
after the issuance of the Initial Note, (i) the Borrower must have received the Shareholder
Approval; (ii) the Borrower must provide a Drawdown Request to the Lender that does not exceed
$2,500,000 and with all other Advances already extended does not exceed $7,500,000, inclusive of
the principal amount already extended under the 2009 Bridge Note; (iii) a Major Contract must have
been awarded to the Borrower and be in full force and effect, for which the Borrower needs the
proceeds of the requested Advance to perform; (iv) the conditions in Article IV hereof shall have
been satisfied by the Borrower or waived by the Lender in his sole discretion; and (v) the Lender
shall have determined in his sole discretion that no Material Adverse Change has occurred.




     2.2 Lender Guaranties.



          (a) In connection with the Transaction and in accordance with the terms of the PNC Letter
Agreement, the Senior Lender has agreed to increase the maximum principal amount of loans available
to the Borrower under the Senior Credit Agreement from $15,000,000 to $20,000,000 subject to the
Lender agreeing to continue to personally guarantee the Senior Debt including such increase (the
guaranty of such additional $5,000,000 is referred to herein as the “Additional Personal Guaranty”
and the entire amount guaranteed by the Lender is referred to herein as the “Personal Guaranty”)
and to pledge as collateral for the Personal Guaranty cash, cash equivalents, marketable securities
or other liquid assets with a value of least $10,000,000 (the “Pledge”). At the request of the
Borrower and in accordance with the terms of the PNC Letter Agreement, the Lender has agreed to
provide the Additional Personal Guaranty and the Pledge if the Borrower obtains the Shareholder
Approval, provided that the Shareholder Approval is obtained prior to the Shareholder Meeting Date
Deadline. If and when the Shareholder Approval is obtained and the maximum principal amount
available under the Senior Credit Agreement is so increased, the Lender shall promptly execute and
deliver signature pages to the Personal Guaranty and Pledge (the forms of which are attached to the
PNC Letter Agreement) and such other agreements as may be reasonably requested by the Senior Lender
in connection with the transactions contemplated under the PNC Letter Agreement. In consideration
of providing the Additional Personal Guaranty and the Pledge, the Borrower shall issue to the
Lender (i) one hundred (100) shares of Series D Preferred Stock (the “Initial Guaranty Shares”) on
the date the Lender is required to make the Pledge (the “Guaranty Share Issuance Date”) and (ii) on
each anniversary of the Guaranty Share Issuance Date (or portion thereof) in which the Pledge
remains outstanding, a number of shares of Series D Preferred Stock equal to the product of (A) (x)
the average daily balance of the Pledge during such yearly period (or portion thereof) (provided,
however, in no event shall such amount exceed $10,000,000)




14









 







divided by (y) $10,000,000 multiplied by (B) 200 (the “Annual Guaranty Shares” and together
with the Initial Guaranty Shares, the “Guaranty Shares”). The number of Annual Guaranty Shares
issuable for any partial year period shall be reduced on a pro-rata basis based on the number of
days that the Pledge was outstanding during such period. The Borrower shall issue the Annual
Guaranty Shares to the Lender on each anniversary date of the Initial Closing Date while the Pledge
is outstanding and, with respect to any partial year period, upon the termination of the Pledge,
within ten (10) Business Days of the termination of the Pledge. The Lender agrees to pledge such
collateral as security for his obligations under the Personal Guaranty under the terms agreed to by
the Senior Lender and the Lender and set forth in the Pledge Agreement by the Lender in favor of
the Senior Lender.




          (b) Without limiting any other provision contained in this Agreement, in the event the
Borrower defaults on any of its obligations to the Senior Lender and, as a result, the Lender has
liability to the Senior Lender as a result of the Personal Guaranty, any amounts that the Lender is
required to remit to the Senior Lender on behalf of the Borrower under the Personal Guaranty shall
become Obligations that are immediately due and payable to the Lender, together with all costs and
expenses, including reasonable attorneys’ fees, arising from negotiations with and payment to the
Senior Lender and collections from the Borrower, and all such Obligations shall accrue interest at
the Default Rate (as defined in the Notes) from the date the Lender remits payment to the Senior
Lender until repaid by the Borrower to the Lender in full.




     2.3 Authorization, Issuance and Purchase of the Warrants.



          (a) In connection with the issuance of the Initial Note, the Borrower has duly authorized the
issuance and sale on the Initial Closing Date to the Lender of detachable common stock purchase
warrants substantially in the form attached hereto as Exhibit B-1 evidencing the Lender’s
right to acquire shares of Common Stock (the “Initial Warrant”). The Initial Warrant shall provide
the Lender with the right to acquire shares of Common Stock equal to 10% of the value of the
Initial Note based on the Market Price as of the Initial Closing Date, have an exercise price equal
to such Market Price and a term of seven (7) years; provided, however, that if the Borrower fails
to obtain the Shareholder Approval on or before the Shareholder Meeting Date Deadline, the warrant
coverage on the Initial Warrant shall be adjusted automatically to 50% of the value of the Initial
Note based on the foregoing Market Price and the exercise price shall be adjusted automatically to
50% of the foregoing Market Price.




          (b) In connection with the issuance of each Note following the issuance of the Initial Note,
the Borrower has duly authorized the issuance and sale to the Lender on each Closing Date of
detachable common stock purchase warrants substantially in the form attached hereto as Exhibit
B-2 (each, an “Additional Warrant” and together with the Initial Warrant, the “Warrants”)
evidencing the Lender’s right to acquire the number of shares of Common Stock equal to 10% of the
value of the applicable Note based on the Market Price as of the applicable Closing Date, have an
exercise price equal to such Market Price and a term of seven (7) years.




          (c) In connection with the Additional Personal Guaranty, the Borrower has duly authorized the
issuance and sale to the Lender, on the Guaranty Share Issuance Date, of a detachable common stock
purchase warrant substantially in the form attached hereto as Exhibit B-3 (the “Guaranty
Warrant”) evidencing the Lender’s right to acquire the number of




15









 







shares of
Common Stock equal to $500,000 divided by the Market Price as of the Guaranty Share Issuance
Date, with an exercise price equal to such Market Price and a term of seven (7) years.




     2.4 Sale and Purchase. Subject to the terms and conditions and in reliance upon the
representations, warranties and agreements set forth herein, (i) on each Closing Date, the Borrower
shall sell to the Lender, and the Lender shall purchase from the Borrower, the Notes and Warrants
at the purchase price equal to 100% of the principal amount of the applicable Note; and (ii) on the
Guaranty Share Issuance Date, the Borrower shall issue to the Lender the initial Guaranty Shares
and the Guaranty Warrant.



     2.5 Issue Price. The Borrower and the Lender agree for U.S. federal income tax
purposes (a) that the present value as of the Closing Date of all payments under the Notes and
Warrants shall be such value; and (b) that (x) the aggregate “issue price” under §1273(b)
of the Code of the Notes to be issued hereunder, and (y) that the aggregate purchase price
under §1273(b) of the Code of all of the Warrants to be issued hereunder, shall be such value and
purchase prices, respectively, as determined by the Borrower.



     2.6 The Closing. Delivery of and payment for the Initial Securities (the “Initial
Closing”) shall be made at the offices of Royer & Associates, LLC, 681 Moore Road, Suite 321, King
of Prussia, Pennsylvania, commencing at 10:00 a.m., local time, on any Business Day that is at
least five (5) Business Days prior to the Shareholder Meeting Date Deadline and upon at least five
(5) Business Days prior written notice to the Lender, or at such place or on such other date as may
be mutually agreeable to the Borrower and the Lender. The date and time of the Initial Closing as
finally determined pursuant to this Section 2.6 shall be referred to herein as the “Initial Closing
Date.” On each Closing Date following the Initial Closing Date, delivery of and payment for the
Securities at each Closing shall be made at a place and time as mutually agreed upon by the
Borrower and the Lender.



     2.7 2009 Bridge Note. On February 20, 2009, the Lender deposited $2,000,000 in a
restricted bank account of the Borrower that the Borrower established with PNC Bank in exchange for
that certain Secured Promissory Note executed by the Borrower in favor of the Lender in the amount
of $2,000,000, a Common Stock Warrant, as amended by Amendment No. 1 thereto dated the date hereof,
to purchase 143,885 shares of the Common Stock of the Company and a Security Agreement
(collectively, the “2009 Bridge Loan Documents”). The 2009 Bridge Loan Documents are attached
hereto as Exhibit M, and the 2009 Bridge Note is intended to be part of the Transactions
contemplated hereby.



ARTICLE III

REPAYMENT OF THE NOTES; EXCHANGE OF EXISTING SECURITIES




     3.1 Interest.



          (a) Interest Rates and Interest Payments. Interest on the Notes shall accrue on the
outstanding principal amount at the applicable interest rate and compound annually. Interest on
the Notes will be computed on the basis of a year of 365 days, for the number of actual days
elapsed during which principal is outstanding.




16









 








          (b) Deferral of Interest Payments. During the term of the Notes, interest shall
accrue and such interest shall not be due currently but shall be added to the outstanding principal
balance of the Notes and become due and payable on the applicable Maturity Date.




     3.2 Repayment of the Initial Note. The Borrower covenants and agrees to repay to the
Lender no later than the date that is five (5) Business Days after the Shareholder Meeting Date
Deadline, the unpaid principal balance of, together with all accrued and unpaid interest, fees and
other amounts due on, the Initial Note; provided, however, that if the Shareholder Approval is
received, such date shall be extended automatically until the date that is three (3) years after
the date of issuance of the Initial Note (such date, the “Initial Note Maturity Date”), subject to
any prior repayment obligations as set forth herein.



     3.3 Repayment of the Additional Notes. The Borrower covenants and agrees to repay to
the Lender the unpaid principal balance of, together with all accrued and unpaid interest, fees and
other amounts due on, each Additional Note no later than the date that is the earlier of three (3)
years after the date of issuance of each Additional Note and December 31, 2012 (each such date, an
“Additional Note Maturity Date” and together with the Initial Note Maturity Date, sometimes
referred to herein as the “Maturity Date”).



     3.4 Maturity; Surrender, etc. Upon payment of the amounts due and owing under each
Note, each such Note shall be surrendered to the Borrower and canceled and shall not be reissued.



     3.5 Exchange of Existing Securities. In the event: (i) the Borrower obtains the
Shareholder Approval; (ii) there shall have been no Material Adverse Change and (iii) that all
representations and warranties contained in this Agreement shall remain true and correct in all
material respects (except for such representations and warranties that relate to a specific date,
which such representations and warranties shall be true and correct in all material respects as of
such date, and except for such representations and warranties that are qualified by materiality
and/or knowledge, which such representations and warranties shall be true and correct in all
respects), the outstanding principal amount of the 2003 Note and all accrued and unpaid interest
thereon of the Borrower owed to the Lender and all 6,000 shares of Series B Preferred Stock and
3,300 shares of Series C Preferred Stock held by the Lender, representing all of the issued and
outstanding shares of Series B Preferred Stock and Series C Preferred Stock, together with accrued
and unpaid dividends thereon shall be converted into and exchanged for such number of shares of
Series E Preferred Stock as determined by dividing (a) (i) the aggregate principal and
accrued and unpaid interest under the 2003 Note plus (ii) the stated value per share of the
Series B Preferred Stock multiplied by the number of shares of Series B Preferred Stock outstanding
plus (iii) the stated value per share of the Series C Preferred Stock multiplied by the
number of shares of Series C Preferred Stock outstanding plus (iv) the aggregate amount of
the accrued and unpaid dividends on the Series B Preferred Stock plus (v) the aggregate
amount of the accrued and unpaid dividends on the Series C Preferred Stock by (b) $1,000 per share
of Series E Preferred Stock. The Series E Preferred Stock shall have the same rights, preferences
and terms and conditions as the Series D Preferred Stock, except that the conversion price of the
Series E Preferred Stock into Common Stock initially shall be $2.00 per share, subject to
adjustment as set forth in the Statement With Respect to Shares of the Series E Preferred Stock
substantially in



17









 







the form attached hereto as Exhibit C. Such conversion shall occur as of the date on
which the Shareholder Approval is obtained.



ARTICLE IV

CONDITIONS




     4.1 Conditions to the Purchase of the Securities. The obligation of the Lender to
purchase the Securities is subject to the satisfaction, prior to or at each Closing, of the
following conditions:



          (a) Due Diligence. With respect to the Initial Closing, the Lender shall have
completed his due diligence of the Borrower to his satisfaction, in his sole discretion.




          (b) Representations and Warranties True. The representations and warranties contained
in Article 5 hereof shall be true and correct in all material respects at and as of the respective
Closing Date as though then made.




          (c) Material Adverse Change. With respect to the Initial Closing, there shall have
been no Material Adverse Change since February 29, 2008. With respect to each Closing following
the Initial Closing, there shall have been no Material Adverse Change since the prior Closing.




          (d) Board Approval. The Borrower shall have received approval of the Board of
Directors of the Borrower to the Transactions.




          (e) Certain Agreements.





          (i) Security Agreement. The Borrower, the Guarantor and the Lender shall have
entered into a security agreement, in form and substance as set forth in Exhibit E
attached hereto (as the same may be amended, modified, supplemented or restated from time to
time in accordance with the terms thereof, the “Security Agreement”). The Borrower shall
have authorized the Lender to file, or shall have delivered to the Lender, such financing
statements and other instruments (collectively, “Financing Statements”) as the Lender shall
require in order to perfect and maintain the continued perfection of the security interest
created by the Security Agreement. The Lender shall have received reports of filings with
appropriate government agencies showing that there are no Liens on the assets of the
Borrower other than Permitted Liens.




          (ii) Registration Rights Agreement. The Borrower shall have executed and
delivered to the Lender the Amended and Restated Registration Rights Agreement,
substantially in the form of Exhibit F (the “Registration Rights Agreement”).




          (iii) Guaranty Agreement. The Guarantor shall have executed and delivered to
the Lender the Guaranty Agreement, substantially in the form of Exhibit G,
unconditionally and irrevocably guaranteeing to the Lender the full and prompt payment and
performance of the Borrower’s obligations under the Note.



18









 






          (iv) Mortgage. The Borrower shall have executed and delivered to the Lender
the Mortgage.




          (v) Shareholders Voting Agreement. William F. Mitchell, Sr. shall have
executed and delivered a shareholders voting agreement, substantially in the form of
Exhibit I (the “Shareholders Voting Agreement”).




          (vi) Series D Preferred Stock. The Series D Preferred Stock Statement With
Respect to Shares in substantially the form of Exhibit D hereto shall have been filed with
the Department of State of the Commonwealth of Pennsylvania.



          (f) Specific Conditions for the Purchases of Additional Notes. With respect to the
purchase of Securities following the Initial Closing:





          (i) Shareholder Approval. The Borrower shall have received the Shareholder
Approval.




          (ii) Major Contracts. The Borrower shall have been awarded a Major Contract and
such Major Contract shall be in full force and effect.




          (iii) Financial Conditions. The Lender shall have determined at the time of
each subsequent Closing, in his sole discretion, that the Borrower’s prospects in the long
range for reaching consistent cash flow positive operations are continuing to improve.




          (iv) Employees. The Borrower shall have entered into amendments to the
employment agreements with the employees set forth on Schedule 4.1(f)(iv) hereto in
form and substance reasonably satisfactory to the Lender.




          (v) Series E Preferred Stock. The Series E Preferred Stock Statement With
Respect to Shares in substantially the form of Exhibit C hereto shall have been
filed with the Department of State of the Commonwealth of Pennsylvania.



          (g) Closing Documents. At each Closing, the Borrower will have delivered or caused to
be delivered to the Lender all of the following documents in form and substance satisfactory to
Lender:





          (i) the applicable Note, duly completed and executed by the Borrower;




          (ii) the applicable Warrant evidencing the right to acquire the number of shares of
Common Stock set forth in Section 2.3;




          (iii) certificates of good standing dated not more than ten (10) Business Days prior to
the applicable Closing Date for the Borrower and the Guarantor certified by its jurisdiction
of organization;



19









 






          (iv) with respect to the Initial Closing, a copy of the Charter Documents of the
Borrower and the Guarantor, certified by the appropriate governmental official of the
jurisdiction of its incorporation as of a date not more than ten (10) Business Days prior to
the Initial Closing Date;




          (v) with respect to the Initial Closing, a copy of the Bylaws of the Borrower and the
Guarantor, certified as of the Initial Closing Date by the secretary or assistant secretary
of the Borrower and the Guarantor;




          (vi) a certificate of the secretary or assistant secretary of the Borrower and the
Guarantor, certifying as to the names and true signatures of the Executive Officers of the
Borrower and the Guarantor authorized to sign this Agreement and the other Transaction
Documents to which it is a party;




          (vii) copies of the resolutions duly adopted by the Borrower’s and the Guarantor’s
board of directors, authorizing the execution, delivery and performance by the Borrower and
the Guarantor of this Agreement and each of the other Transaction Documents to which it is a
party, such other instruments and documents contemplated hereby to which the Borrower or the
Guarantor is a party, and the consummation of all of the other Transactions, certified as of
the applicable Closing Date by an Executive Officer of the Borrower or the Guarantor, as the
case may be;




          (viii) a certificate dated as of the applicable Closing Date from an Executive Officer
of the Borrower stating that the conditions specified in this Section 4.1 have been fully
satisfied by the Borrower or waived by the Lender, substantially in the form set forth in
Exhibit L;




          (ix) certificates of insurance evidencing the existence of all insurance required to be
maintained by the Borrower pursuant to Section 7.1(c), together with loss payable
endorsements, all satisfactory in the type and extent of such coverage to the Lender; and




          (x) such other documents relating to the Transactions contemplated by this Agreement as
the Lender may reasonably request.



          (h) Consents, Agreements. The Borrower shall have obtained all consents and waivers,
under any term of any agreement or instrument to which it is a party or by which it or any of its
properties is bound, or any term of any applicable Law of any Governmental Authority, or any term
of any applicable order, judgment or decree of any court, arbitrator or governmental authority,
necessary or appropriate in connection with the transactions contemplated by this Agreement, and
such consents and waivers shall be in full force and effect on the applicable Closing Date.




          (i) Compliance with Securities Laws. The offering and sale of the Notes and Warrants
to the Lender shall have complied with all applicable requirements of federal and state securities
laws.




20









 








          (j) No Adverse U.S. Legislation, Action or Decision, etc. No legislation shall have
been enacted by Congress, no other formal action shall have been taken by any Governmental
Authority, whether by order, regulation, rule, ruling or otherwise, and no decision shall have been
rendered by any court of competent jurisdiction, which would materially and adversely affect the
Notes or the Warrants being purchased by the Lender hereunder.




          (k) No Actions Pending. There shall be no suit, action, investigation, inquiry or
other proceeding by any Governmental Authority or any other Person or any other legal or
administrative proceeding pending or, to the Borrower’s knowledge, threatened which questions the
validity or legality of the Transactions or injunctive or other equitable relief in connection
therewith.




          (l) Fairness Opinion. With respect to the Initial Closing, the Borrower shall have
received a fairness opinion in a form acceptable to the Lender that the transaction is fair with
respect to the shareholders of the Borrower.




     4.2 Waiver. Any condition specified in Section 4.1 hereof may be waived by the Lender
on or prior to the applicable Closing Date.



ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE BORROWER




     5.1 Representations and Warranties of the Borrower. As a material inducement to the
Lender to enter into this Agreement and purchase the Notes and the Warrants, the Borrower hereby
represents and warrants to the Lender as follows:



          (a) Organization, Qualification and Power. Each of the Borrower and the Guarantor is
a corporation duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each of the Borrower and the Guarantor is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary and where the failure so
to qualify would have a Material Adverse Effect. Each of the Borrower and the Guarantor has all
requisite corporate or other organizational power and authority and all material licenses, permits,
approvals and authorizations necessary to own and operate their properties, to carry on their
businesses as now conducted and presently proposed to be conducted and to enter into each
Transaction Document to which it is a party, to carry out the terms of each such Transaction
Document, and, in the case of the Borrower, to issue and sell the Notes and the Warrants.




          (b) Power; Authorization; Enforceable Obligations. This Agreement, the Notes, the
Warrants and the other Transaction Documents have been duly authorized by all necessary corporate
action on the part of the Borrower and the Guarantor, as applicable, except for shareholder
approval of the transactions contemplated by this Agreement as required under Section 713 of the
Listing Standards, Policies and Requirements of AMEX. This Agreement, the Notes, the Warrants and
the other Transaction Documents have been duly executed and delivered by the Borrower and the
Guarantor, as applicable, and constitute legal, valid and binding obligations of the Borrower, and
the Guarantor, as applicable, enforceable against it in accordance with their respective terms,
except (i) that such enforceability may be limited by




21









 







applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
transfer and similar laws of general application relating to or affecting the rights and remedies
of creditors, and (ii) that acceleration of the Notes may affect the collectability of that portion
of the stated principal amount thereof which might be determined to constitute unearned interest
thereon.




          (c) No Other Indebtedness. Neither the Borrower nor the Guarantor has any outstanding
Indebtedness to any person or entity other than the Senior Debt, the Indebtedness contemplated by
this Agreement and the Indebtedness set forth on Schedule 5.1(c) hereto (“Permitted
Indebtedness”).




          (d) Business. The Borrower and the Guarantor are primarily engaged in the business of
designing, manufacturing and selling software-driven products and services used to (i) create and
monitor the physiological effects of motion on humans and equipment; (ii) control, modify, simulate
and measure environmental conditions; and (iii) other activities incidental to the business (the
“Business”).




          (e) Financial Statements. The Borrower has delivered to the Lender complete and
correct copies of (i) its annual report on Form 10-K for the fiscal year ended February 29, 2008 as
filed with the SEC (the “Form 10-K”), and (ii) its quarterly report on Form 10-Q for the Fiscal
Quarters ended May 30, 2008, August 29, 2008 and November 28, 2008 each as filed with the SEC
(collectively, the “Form 10-Q”). The Form 10-K correctly describes, in all material respects, as
of their respective dates, the business then conducted and proposed to be conducted by the
Borrower. There are included in the Form 10-K financial statements of the Borrower for the fiscal
year ended February 29, 2008, accompanied by the opinion thereon of Friedman LLP, independent
registered public accounting firm, and in the Form 10-Q financial statements of the Borrower for
the Fiscal Quarters ended May 30, 2008, August 29, 2008 and November 28, 2008. All financial
statements included in the foregoing materials delivered to the Lender (except as otherwise
specified therein) have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods specified and present fairly the financial position of the Borrower and its
Subsidiaries as of the respective dates specified and the results of their operations and cash
flows for the respective periods specified.




          (f) Capitalization and Related Matters. As of the Initial Closing Date, the
authorized capital stock of the Borrower will consist of 20,000,000 shares of Common Stock and
1,000,000 shares of Preferred Stock, par value $0.05 per share, of which 15,000 has been designated
Series B Preferred Stock, 3,300 has been designated Series C Preferred Stock, 11,000 has been
designated Series D Preferred Stock and 25,000 has been designated Series E Preferred Stock. On
the Initial Closing Date, 9,049,351 shares of the Common Stock are issued and outstanding, 6,000
shares of Series B Preferred Stock are issued and outstanding, 3,300 shares of Series C Preferred
Stock are issued and outstanding and no shares of Series D Preferred Stock and no shares of Series
E Preferred Stock are issued and outstanding. The shares of Series E Preferred Stock issuable upon
conversion of the 2003 Note, the Series B Preferred Stock and Series C Preferred Stock in
accordance with Section 3.5 above, the Series D Preferred Stock issuable as the original fee, as
interest payments under the Notes and in connection with the Additional Personal Guaranty and the
shares of Common Stock issuable upon conversion of such Series E Preferred Stock and Series D
Preferred Stock and the exercise of the Warrants shall be




22









 







duly authorized and validly reserved for issuance upon such conversion and exercise and, when
so issued in accordance with their terms, will be validly issued, fully paid and non-assessable.
Except as set forth on Schedule 5.1(f), as of the applicable Closing Date, the Borrower
will not have outstanding securities convertible into or exchangeable for any shares of its capital
stock, nor will it have outstanding any rights to subscribe for or to purchase, or any options for
the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any shares of its capital stock or any
securities convertible into or exchangeable for any shares of its capital stock.




          (g) No Breach. Except as specifically provided by the Transaction Documents, the
execution and delivery by the Borrower and the Guarantor of the Transaction Documents, as
applicable, and the consummation of the Transactions do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a default under,
(iii) except as created pursuant to the Security Documents, result in the creation of any Lien upon
the Borrower’s or the Guarantor’s capital stock or assets pursuant to, (iv) give any third party
the right to accelerate any obligation under, (v) result in a violation of, or (vi) require any
authorization, consent, approval, exemption or other action by or notice to any Governmental
Authority pursuant to, the Charter Documents or the Bylaws of the Borrower or the Guarantor, or any
Law to which the Borrower or the Guarantor is subject, or any agreement, statute, rule or
regulation, instrument, order, judgment or decree to which the Borrower or the Guarantor is a party
or to which they or their assets are subject.




          (h) Governmental Approvals. Except as specifically provided by the Transaction
Documents, no registration with or consent or approval of, or other action by, any Governmental
Authority or any other Person is or will be required in connection with the consummation of the
Transactions by the Borrower or the Guarantor and the performance of their obligations thereunder.




          (i) No Material Adverse Change and no Material Adverse Effect. Since February 29,
2008, there has been no event or occurrence that would constitute a Material Adverse Change or that
is likely to have a Material Adverse Effect, except as set forth in the Form 10-K or the Form 10-Qs
or in any Form 8-K filed by the Borrower.




          (j) Litigation. Except as set forth on Schedule 5.1(j) hereto, there are no
actions, suits or proceedings at law or in equity or by or before any arbitrator or any
Governmental Authority now pending or, to the knowledge of the Borrower’s management after due
inquiry, threatened against or filed by or affecting the Borrower or the Guarantor or their
directors or officers or the businesses, assets or rights of the Borrower or the Guarantor.




          (k) Compliance with Laws. Neither the Borrower nor the Guarantor is in violation of
any applicable Law, the effect of which violation could have a Material Adverse Effect. Neither
the Borrower nor the Guarantor is in default with respect to any judgment, order, writ, injunction,
decree, rule or regulation of any Governmental Authority. Neither the Borrower nor the Guarantor
is in, and the consummation of the Transactions will not cause any, default concerning any
judgment, order, writ, injunction or decree of any Governmental Authority, and there is no
investigation, enforcement action or regulatory action pending or threatened against or affecting
the Borrower or the Guarantor by any Governmental Authority, except as set forth




23









 







on Schedule 5.1(k). Except as set forth on Schedule 5.1(k), there is no
remedial or other corrective action that the Borrower or the Guarantor is required to take to
remain in compliance with any judgment, order, writ, injunction or decree of any Governmental
Authority or to maintain any material permits, approvals or licenses granted by any Governmental
Authority in full force and effect.




          (l) Environmental Protection. Except as set forth on Schedule 5.1(l) and
after giving effect to the Transactions: (i) the Business of the Borrower and the Guarantor, the
methods and means employed by the Borrower and the Guarantor in the operation thereof (including
all operations and conditions at or in the properties of the Borrower and the Guarantor), and the
assets owned, leased, managed, used, controlled, held or operated by the Borrower and the
Guarantor, comply in all material respects with all applicable Environmental Laws; (ii) with
respect to the Properties and Facilities, and except as disclosed on Schedule 5.1(l), the
Borrower and the Guarantor have obtained, possess, and are in full compliance with all permits,
licenses, reviews, certifications, approvals, registrations, consents, and any other authorizations
required for material compliance with any Environmental Laws; (iii) neither the Borrower nor the
Guarantor has received (x) any claim or notice of violation, lien, complaint, suit, order or other
claim or notice to the effect that the Borrower or the Guarantor is or may be liable to any Person
as a result of (A) the environmental condition of any of its Properties and Facilities or any other
property, or (B) the release or threatened release of any Pollutant, or (y) any letter or request
for information under Section 104 of the CERCLA, or comparable Laws, and to the best of the
Borrower’s knowledge, none of the operations of the Borrower and the Guarantor are the subject of
any investigation by a Governmental Authority evaluating whether any remedial action is needed to
respond to a release or threatened release of any Pollutant at the Properties and Facilities or at
any other location, including any location to which the Borrower or the Guarantor has transported,
or arranged for the transportation of, any Pollutants; (iv) except as disclosed on Schedule
5.1(l), neither the Borrower or any Guarantor nor any prior owner or operator has incurred in
the past, or is now subject to, any material Environmental Liabilities; (v) except as disclosed on
Schedule 5.1(l), there are no Liens, covenants, deed restrictions, notice or registration
requirements, or other limitations applicable to the Properties and Facilities, based upon any
Environmental Laws; (vi) there are no USTs located in, at, on or under the Properties and
Facilities other than the USTs identified on Schedule 5.1(l) as USTs; and each of those
USTs is in material compliance with all Environmental Laws and other legal obligations; and (vii)
except as disclosed on Schedule 5.1(l), to the Borrower’s knowledge, there are no PCBs,
lead paint, asbestos (of any type or form), or materials, articles or products containing PCBs,
lead paint or asbestos, located in, at, on, under, a part of, or otherwise related to the
Properties and Facilities (including, without limitation, any building, structure or other
improvement that is a part of the Properties and Facilities), and all of the PCBs, lead paint,
asbestos, and materials, articles and products containing PCBs, lead paint or asbestos identified
in the Environmental Schedule are in full compliance with all Environmental Laws and other legal
obligations. To the knowledge of the Borrower, the Borrower is not subject to liability under any
Environmental Laws that would result in a Material Adverse Effect.




          (m) Use of Proceeds; Legal Investments. The Borrower will apply any proceeds of the
sale of the Notes and Warrants, simultaneously with the Closing, (a) in accordance with the terms
of Article 2 above and (b) to the payment of fees and expenses




24









 







incurred in connection with the offering and sale of the Notes and Warrants, the refinancing
of the Senior Debt and the obtaining of the Shareholder Approval.




          (n) Taxes. Each of the Borrower and the Guarantor has filed or caused to be filed all
tax returns which are required to be filed and have paid all taxes shown to be due and payable on
said returns or on any assessments made against it or any of its property and all other taxes, fees
or other charges imposed on it or any of its property by any Governmental Authority (other than any
amount or validity of which are currently being contested in good faith by appropriate proceedings
and with respect to which reserves, if any, in conformity with GAAP have been provided on the books
of the Borrower); no tax Lien has been filed against the Borrower or the Guarantor, and, to the
knowledge of the Borrower, no claim is being asserted, with respect to any such tax, fee or other
charges.




          (o) ERISA; Labor and Employment.





          (i) The Borrower is and each of its Plans is in compliance in all material respects
with those provisions of ERISA, the Code, the Age Discrimination in Employment Act, and the
regulations and published interpretations thereunder which are applicable to the Borrower or
any such Plan. As of the date hereof, no Reportable Event has occurred with respect to any
Plan as to which the Borrower is or was required to file a report with the PBGC. No Plan
has any material amount of unfunded benefit liabilities (within the meaning of Section
4001(a)(18) of ERISA) or any accumulated funding deficiency (within the meaning of Section
302(a)(2) of ERISA), whether or not waived, and the Borrower has not incurred nor reasonably
expects to incur any material withdrawal liability under Subtitle E of Title IV of ERISA to
a Multiemployer Plan. The Borrower is in compliance in all material respects with all labor
and employment laws, rules, regulations and requirements of all applicable domestic and
foreign jurisdictions. There are no pending or threatened labor disputes, work stoppages or
strikes.




          (ii) The Borrower is not a party to any collective bargaining agreement, and there are
no strikes, work stoppages, material grievances, disputes or controversies with any union or
any other organization of the Borrower’s employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or organization, except
to the extent that such strikes, work stoppages, material grievances, disputes or
controversies could not reasonably be expected to have a Material Adverse Effect. The
Borrower has not, within the two-year period preceding the Initial Closing Date, taken any
action which would have constituted or resulted in a “plant closing” or “mass layoff” within
the meaning of the Federal Worker Adjustment and Retraining Notification Act of 1988 or any
similar Law. The procedures by which the Borrower has hired or will hire its employees
comply and will comply in all material respects with each collective bargaining agreement to
which the Borrower is a party and any applicable Law. The Borrower is in compliance with
the Fair Labor Standards Act, as amended, and has paid all minimum and overtime wages
required by law to be paid to its respective employees, except for violations which could
not have a Material Adverse Effect.




25












 






          (p) Investment Company Act; Public Utility Holding Company Act. The Borrower is not
(i) an “investment company” or “controlled” by an investment company within the meaning of the
Investment Company Act of 1940, as amended, or (ii) a “holding company” or a “subsidiary company”
of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a
“holding company,” within the meaning of the Public Utility Holding Company Act of 1935, as
amended.




          (q) Condition of and Title to Properties. The real property owned or leased by the
Borrower and the Guarantor in the United States as of the Initial Closing Date is described on
Schedule 5.1(q) hereto. Each of the Borrower and the Guarantor has good title to or valid
leasehold interest in all properties, assets and other rights which it purports to own or lease or
which are reflected as owned or leased on its books and records (the “Properties and Facilities”),
free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and
conditions of the applicable leases. Except as described on Schedule 5.1(q), all leases of
property are in full force and effect. No consent under any lease is required in connection with
the consummation of the transactions contemplated hereby. Except for financing statements
evidencing Permitted Liens, no effective financing statement under the Uniform Commercial Code is
in effect in any jurisdiction and no other filing which names the Borrower or the Guarantor as
debtor or which covers or purports to cover any of the assets of the Borrower or the Guarantor is
currently effective and on file in any state or other jurisdiction, and neither the Borrower nor
the Guarantor has signed any such financing statement or filing or any security agreement
authorizing any secured party thereunder to file any such financing statement or filing. All of
the assets and properties of the Borrower and the Guarantor that are necessary for the operation of
their respective businesses are in good working condition and are able to serve the functions for
which they are currently being used, except for ordinary wear and tear.




          (r) Proprietary Rights. Each of the Borrower and the Guarantor owns, or is licensed
to use its Proprietary Rights necessary for the conduct of its business as currently conducted.
Except as set forth on Schedule 5.1(r), no claim has been asserted and is pending by any
Person challenging or questioning the use of any such Proprietary Rights, nor does the Borrower
know of any valid basis for any such claim. The use of such Proprietary Rights by the Borrower and
the Guarantor does not infringe the rights of any Person, except for such claims and infringements
that, in the aggregate, do not have a Material Adverse Effect. To the best knowledge of the
Borrower, except as set forth on Schedule 5.1(r), no slogan or other advertising, device,
product, process, method, substance, part or component or other material now employed, or now
contemplated to be employed, by any of the Borrower and the Guarantor infringes upon or conflicts
with any rights owned by any other Person, and no claim or litigation regarding any of the
foregoing is pending or, to the knowledge of the Borrower, threatened. No patent, invention,
device, application, and no statute, law, rule, regulation, standard or code involving the
Borrower’s or the Guarantor’s Proprietary Rights is pending or, to the knowledge of the Borrower,
proposed, except where the consequences in the aggregate could not reasonably be expected to have a
Material Adverse Effect.




          (s) [Intentionally omitted]




26









 








          (t) Subsidiaries. As of the Closing Date, the Borrower has no Subsidiaries except for
those set forth on Schedule 5.1(t), each of which was duly formed and is existing under the
law of the jurisdiction set forth opposite their names. All of the issued and outstanding shares
of capital stock of the Subsidiaries are duly and validly authorized and issued and fully paid and
nonassessable and are owned by the Borrower (except for directors’ qualifying shares). There are
no options, warrants or other rights outstanding to purchase any capital stock of any of the
Subsidiaries, nor are any securities of any of the Subsidiaries convertible into or exchangeable
for capital stock of the Subsidiaries except as described on Schedule 5.1(t).




          (u) Broker’s or Finder’s Commissions. No broker’s or finder’s or placement fee or
commission will be payable to any broker or agent engaged by the Borrower or any of its officers,
directors or agents with respect to the issuance and sale of the Notes, the Warrants or the
Transactions. The Borrower agrees to indemnify the Lender and hold the Lender harmless from and
against any claim, demand or liability for broker’s or finder’s or placement fees or similar
commissions, alleged to have been incurred in connection with such transactions, other than any
broker’s or finder’s fees payable to Persons engaged by the Lender.




          (v) Absence of Undisclosed Liabilities. Except as set forth on Schedule
5.1(v), the Borrower has no liabilities or obligations, either accrued, absolute, contingent or
otherwise, except:





          (i) those liabilities or obligations set forth on the Financial Statements and not
heretofore paid or discharged;




          (ii) liabilities arising in the ordinary course of business under any agreement,
contract, commitment, lease or plan specifically disclosed on the schedules or not required
to be disclosed because of the term or amount involved or otherwise; and




          (iii) those liabilities or obligations incurred, consistently with past business
practice, in or as a result of the normal and ordinary course of business.



          (w) Federal Regulations. No part of the proceeds of the Credit Facility will be used
for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of the
quoted terms under Regulation U or for any purpose which violates the provisions of Regulation U or
any other Regulations of the Board of Governors of the Federal Reserve System. If requested by the
Lender, the Borrower will furnish to the Lender a statement to the foregoing effect in conformity
with the requirements of FR Form U-l referred to in said Regulation U. No part of the proceeds of
the Credit Facility hereunder will be used for any purpose which violates, or which is inconsistent
with, the provisions of either of Regulations T and X.




          (x) Complete Disclosure. All statements and material furnished by or on behalf of the
Borrower to the Lender for purposes of or in connection with this Agreement or the Transactions is,
and all other statements and material hereafter furnished by or on behalf of the Borrower will be,
true and accurate in all material respects on the date as of which such information is furnished
and not incomplete or misleading by omitting to state any fact necessary to make such information
not misleading at such time in light of the circumstances under which such information was
provided.




27









 








          (y) Security Interests. At all times after execution and delivery of the Security
Documents by the party or parties thereto and completion of the filings and recordings listed on
Schedule 5.1(y), the security interests created for the benefit of the Lender pursuant to
the Security Documents will constitute valid, perfected security interests in the collateral
subject thereto, subject to no other Liens whatsoever, except Permitted Liens.




          (z) Insurance. The Borrower currently maintains insurance which meets or exceeds the
requirements of Section 7.1(c) and the applicable insurance requirements set forth in the other
Transaction Documents. Schedule 5.1(z) hereto lists, as of the Initial Closing Date, all
insurance policies and other bonds to which the Borrower is a party, all of which are valid and in
full force and effect. No written notice has been given or claim made and the Borrower has no
knowledge that any grounds exist to cancel or avoid any of such policies or bonds or to reduce the
coverage provided thereby or any replacements thereof. Such policies and bonds or any replacements
thereof provide adequate coverage from reputable and financially sound insurers in amounts
sufficient to insure the assets and risks of the Borrower in accordance with prudent business
practice in the industry of the Borrower.




          (aa) Authorizations.





          (i) Except as set forth on Schedule 5.1(aa), each of the Borrower and the
Guarantor possesses all material approvals of each Governmental Authority (the “Governmental
Approvals”) necessary for the operations of its business and is not in material violation
thereof. All such Governmental Approvals are in full force and effect, and no event has
occurred that permits, or after notice or lapse of time could permit, the revocation,
termination or material and adverse modification of any such Governmental Approval.




          (ii) Except as set forth on Schedule 5.1(aa), neither the Borrower nor the
Guarantor has knowledge of any investigation, notice of apparent liability, violation,
forfeiture or other order or complaint issued by or before any Governmental Authority, or of
any other proceedings of or before any Governmental Authority, which could reasonably be
expected to have a Material Adverse Effect.



          (bb) No Consents. Except as set forth in Schedule 5.1(bb), no consent,
approval or authorization of any Person is required for the valid execution and delivery of this
Agreement or the valid offer, issue, sale and delivery of the Notes and Warrants pursuant to this
Agreement.




          (cc) Shareholders Voting Agreement. Pursuant to the terms of the Shareholders Voting
Agreement, William Mitchell, Sr. has agreed to vote the shares of Common Stock owned by him in
favor of the transactions contemplated by this Agreement. The Borrower covenants to use its
reasonable best efforts to obtain the agreement of other shareholders of the Borrower owning, or
controlling the voting power of, greater than five percent (5%) of the issued and outstanding
shares of Common Stock to vote the shares of Common Stock owned by them in favor of the Shareholder
Approval.




28









 








          (dd) Foreign Corrupt Practices. Neither the Borrower, nor any of its Subsidiaries,
nor any director, officer, agent, employee or other person acting on behalf of the Borrower or any
Subsidiary has, in the course of his actions for, or on behalf of, the Borrower, used any corporate
funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in violation of any provision
of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic government official or
employee.




          (ee) No Defaults. Except as set forth on Schedule 5.1(ee), neither the
Borrower nor the Guarantor is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material Adverse Effect.
No Default or Event of Default has occurred and is continuing.




ARTICLE VI

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE LENDER




     6.1 Authorization; Enforceable Obligations. This Agreement and the other Transaction
Documents to which the Lender is a party have been duly executed and delivered by the Lender and
constitute legal, valid and binding obligations of the Lender, enforceable against him in
accordance with their respective terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and transfer
and similar laws of general application relating to or affecting the rights and remedies of
creditors.



     6.2 No Breach. The execution and delivery by the Lender of the Transaction Documents
to which he is a party and the consummation of the Transactions do not and will not (i) conflict
with or result in a breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) give any third party the right to accelerate any obligation under, (iv) result in a
violation of, or (v) require any authorization, consent, approval, exemption or other action by or
notice to any Governmental Authority pursuant to, any Law to which the Lender is subject, or any
agreement, statute, rule or regulation, instrument, order, judgment or decree to which the Lender
is a party or to which he or his assets are subject.



     6.3 Governmental Approvals. Except as specifically provided by the Transaction
Documents, no registration with or consent or approval of, or other action by, any Governmental
Authority or any other Person is or will be required in connection with the consummation of the
Transactions by the Lender and the performance of his obligations thereunder.



     6.4 Restricted Securities. The Lender acknowledges that the Securities have not been
registered under the Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available, and, except as provided in
the Registration Rights Agreement, that the Borrower is not required to register any of the
Securities.



     6.5 Legends; Lender’s Representations. The Lender hereby represents and warrants to
the Borrower that he is an “accredited investor” within the meaning of Rule 501(a) under the



29









 







Securities Act and is acquiring the Securities for investment for the Lender’s own account,
with no present intention of dividing his participation with others (except for a potential
transfer or transfers of the Securities to an affiliate or affiliates of the Lender) or reselling
or otherwise distributing the same in violation of the Securities Act or any applicable state
securities laws. The Borrower may place an appropriate legend on the Securities owned by the
Lender concerning the restrictions set forth in this Article 6. Upon the assignment or transfer by
the Lender or any of his successors or assignees of all or any part of the Securities, the term
“Lender” as used herein shall thereafter mean, to the extent thereof, the then holder or holders of
such Securities, or portion thereof.



     6.6 Reliance on Exemptions. The Lender understands that the Securities are being
offered and sold to him in reliance upon specific exemptions from the registration requirements of
United States federal and state securities laws and that the Borrower is relying upon the truth and
accuracy of, and the Lender’s compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Lender set forth herein in order to determine the
availability of such exemptions and the eligibility of the Lender to acquire the Securities.



     6.7 Prohibition on Short Sales. The Lender will not engage in any short sale of any
shares of Common Stock or have in effect a short position with respect thereto (whether such short
sale or position is against the box and regardless of when such position was entered into).



     6.8 Transfer of Notes. Subject to Section 6.5 hereof, a holder of a Note may transfer
such Note to a new holder, or may exchange such Note for Notes of different denominations (but in
no event of denominations of less than $500,000 or increments of $100,000 in excess thereof in
original principal amount), by surrendering such Note to the Borrower duly endorsed for transfer or
accompanied by a duly executed instrument of transfer naming the new holder (or the current holder
if submitted for exchange only), together with written instructions for the issuance of one or more
new Notes specifying the respective principal amounts of each new Note and the name of each new
holder and each address therefor. The Borrower shall simultaneously deliver to such holder or its
designee such new Notes, shall mark the surrendered Notes as canceled. The Borrower shall not be
required to recognize any subsequent holder of a Note unless and until the Borrower has received
reasonable assurance that all applicable transfer taxes have been paid. Notwithstanding the
foregoing, a holder of a Note may not transfer such Note or any of the other Securities to a
competitor of the Borrower or any Subsidiary or Affiliate of the Borrower.



     6.9 Replacement of Lost Securities. Upon receipt of evidence reasonably satisfactory
to the Borrower of the mutilation, destruction, loss or theft of any Securities and the ownership
thereof, the Borrower shall, upon the written request of the holder of such Securities, execute and
deliver in replacement thereof new Securities in the same form, in the same original principal
amount and dated the same date as the Securities so mutilated, destroyed, lost or stolen; and such
Securities so mutilated, destroyed, lost or stolen shall then be deemed no longer outstanding
hereunder. If the Securities being replaced have been mutilated, they shall be surrendered to the
Borrower; and if such replaced Securities have been destroyed, lost or stolen, such holder thereof
shall furnish the Borrower with a written indemnity, in form satisfactory to the Borrower, to save
it harmless in respect of such replaced Security.



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ARTICLE VII

COVENANTS




     7.1 Affirmative Covenants. The Borrower covenants that, so long as all or any of the
principal amount of the Notes or any interest thereon shall remain outstanding, the Borrower shall
and cause the Guarantor to:



          (a) Existence. Do or cause to be done all things necessary to preserve, renew and
keep in full force and effect its legal existence.




          (b) Businesses and Properties; Compliance with Laws. At all times (i) do or cause to
be done all things necessary to preserve, renew and keep in full force and effect the rights,
licenses, registrations, permits, certifications, approvals, consents, franchises, Proprietary
Rights which may be material to the conduct of the Business; (ii) comply in all material respects
with all Laws applicable to the operation of such business, including but not limited to, all
Environmental Laws, whether now in effect or hereafter enacted and with all other applicable Laws,
(iii) take all action which may be required to obtain, preserve, renew and extend all rights,
Proprietary Rights, franchises, registrations, certifications, approvals, consents, licenses,
permits and any other authorizations which may be material to the operation of such business, (iv)
maintain, preserve and protect all property material to the conduct of such business, and (v)
except for obsolete or worn out equipment, keep their property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and proper repairs,
renewals, additions, improvements and replacements thereto necessary in order that the business
carried on in connection therewith may be properly conducted at all times.




          (c) Insurance. Maintain insurance required by the Transaction Documents and any and
all contracts entered into by the Borrower under policies issued by financially sound and reputable
insurers in such amounts as are customary with companies similarly situated and in the same or
similar business. The Borrower shall pay all insurance premiums payable by it and shall deliver
the policy or policies of such insurance (or certificates of insurance with copies of such
policies) to the Lender. All insurance policies of the Borrower shall contain endorsements, in
form and substance reasonably satisfactory to the Lender, providing that the insurance shall not be
cancelable except upon thirty (30) days’ prior written notice to the Lender. The Lender shall be
shown as a loss payee and an additional named insured party under all such insurance policies.




          (d) Obligations and Taxes. Pay and discharge promptly when due all taxes, assessments
and governmental charges or levies imposed upon them or upon their income or profits or in respect
of their properties before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might give rise to Liens
or charges upon such properties or any part thereof; provided, however, that neither the Borrower
nor the Guarantor shall be required to pay and discharge or to cause to be paid and discharged any
such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be
contested in good faith by appropriate proceedings and the Borrower or such Guarantor shall have
set aside on their books adequate reserves with respect thereto.




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          (e) Financial Statements; Reports. Furnish to the Lender:





          (i) not later than the ninetieth (90th) day after the end of each fiscal year of the
Borrower, Consolidated balance sheets of the Borrower and its Subsidiaries as at the end of
such year and the related Consolidated statements of income, shareholders’ equity and cash
flows of the Borrower and its Subsidiaries for such fiscal year, setting forth in each case
in comparative form (x) the Consolidated figures for the previous fiscal year and (y) the
figures set forth in the budget for such period, all in reasonable detail and accompanied by
a report of Friedman LLP or other reputable firm of independent registered public accounting
firm, which report shall state that the Consolidated financial statements of the Borrower
for such period present fairly the financial position of the Borrower and its Subsidiaries
as at the dates indicated and the results of their operations and their cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent with prior years
(except as otherwise specified in such report) and that the audit by such accountants in
connection with such Consolidated financial statements has been made in accordance with
GAAP; provided that so long as the Borrower is subject to the reporting provisions of the
Securities Exchange Act, timely delivery of copies of the Borrower’s annual report on Form
10-K for such period will satisfy the requirements of this paragraph (i) (except for the
requirement included in clause (y) above);




          (ii) not later than the forty-fifth (45th) day after the end of each of the
first three quarterly fiscal periods in each fiscal year of the Borrower, Consolidated
balance sheets of the Borrower and its Subsidiaries as at the end of such period and the
related Consolidated statements of income, shareholders’ equity and cash flows of the
Borrower and its Subsidiaries for such period and (in the case of the second and third
quarterly periods) for the period from the beginning of the current fiscal year to the end
of such quarterly period, setting forth in each case in comparative form (x) the
consolidated figures for the corresponding periods of the previous fiscal year and (y) the
figures set forth in the budget for such period, all in reasonable detail and certified by a
principal financial officer of the Borrower as presenting fairly, in accordance with GAAP
(except for the absence of notes thereto) applied (except as specifically set forth therein)
on a basis consistent with such prior fiscal periods, the information contained therein,
subject to changes resulting from normal year-end audit adjustments; provided that so long
as the Borrower is subject to the reporting provisions of the Securities Exchange Act,
timely delivery of copies of the Borrower’s quarterly report on Form 10-Q for such period
will satisfy the requirements of this paragraph (ii) (except for the requirement included in
clause (y) above);



          (f) Certificates; Other Information. Furnish to the Lender:





          (i) [Intentionally omitted];




          (ii) concurrently with the delivery of the financial statements referred to in
subsections 7.1(e)(i) and (ii), a compliance certificate, in substantially the form attached
as Exhibit N (the “Compliance Certificate”), executed by an Executive Officer;



32









 






          (iii) within five (5) days after the same are sent, copies of all financial statements
and reports which the Borrower sends to any of its shareholders and within five days after
the same are filed, copies of all financial statements and reports which the Borrower may
make to, or file with, the Securities Exchange Commission or any successor or analogous
Governmental Authority;




          (iv) promptly upon their becoming available to the Borrower, any reports including
management letters submitted to the Borrower by independent accountants in connection with
any annual, interim or special audit;



          (g) Litigation and Other Notices. Give the Lender prompt written notice of the
following:





          (i) Orders; Injunctions. The issuance by any Governmental Authority of any
injunction, order, decision or other restraint prohibiting, or having the effect of
prohibiting, the making of any loan or the initiation of any litigation or similar
proceeding seeking any such injunction, order or other restraint.




          (ii) Litigation. The notice, filing or commencement of any action, suit or
proceeding against the Borrower or the Guarantor whether at law or in equity or by or before
any court or any federal, state, municipal or other governmental agency or authority and
that, if adversely determined against the Borrower or the Guarantor, could result in
uninsured liability in excess of $150,000 in the aggregate.




          (iii) Environmental Matters. (A) Any release or threatened release of any
Pollutant required to be reported to any Governmental Authority under any applicable
Environmental Laws, (B) any Removal, Remedial or Response action taken by the Borrower or
any other person in response to any Pollutant in, at, on or under, a part of or about the
Borrower’s or either Guarantor’s Properties and Facilities, or any other property for which
the Borrower or either Guarantor is responsible, (C) any violation by the Borrower or the
Guarantor of any Environmental Law, in each case, that could result in a Material Adverse
Effect, or (D) any notice, claim or other information that the Borrower or the Guarantor
might be subject to an Environmental Liability.




          (iv) Default. Any Default or Event of Default, specifying the nature and
extent thereof and the action (if any) that is proposed to be taken with respect thereto.




          (v) Material Adverse Effect. Any development in the Business or in the affairs
of the Borrower or the Guarantor that could have a Material Adverse Effect.



          (h) ERISA. Comply in all material respects with the applicable provisions of ERISA
and the provisions of the Code relating thereto and furnish to the Lender (i) as soon as possible,
and in any event within thirty (30) days after the Borrower knows thereof, notice of (A) the
establishment by the Borrower of any Plan, (B) the commencement by the Borrower of contributions to
a Multiemployer Plan, (C) any failure by the Borrower or any of its Affiliates to make
contributions required by Section 302 of ERISA (whether or not such requirement is waived pursuant
to Section 303 of ERISA), or (D) the occurrence of any Reportable Event with respect to any Plan or
Multiemployer Plan for which the reporting requirement is not waived,


33









 








together with a statement of an officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event given to the PBGC if any such notice was provided by the Borrower,
and (ii) promptly after receipt thereof, a copy of any notice the Borrowers may receive from the
PBGC relating to the intention of the PBGC to terminate any Plan or Multiemployer Plan, or to
appoint a trustee to administer any Plan or Multiemployer Plan, and (iii) promptly after receipt
thereof, a copy of any notice of withdrawal liability from any Multiemployer Plan.




          (i) Maintaining Records; Access to Premises and Inspections. Maintain financial
records in accordance with generally accepted practices and, on no more than two (2) occasions
during any twelve (12) month period, during business hours and after reasonable notice has been
provided, permit an authorized representative of the Lender to visit and inspect the properties and
financial records of the Borrower and to make extracts from such financial records, all at the
Borrower’s reasonable expense, and permit any authorized representative to discuss the affairs,
finances and conditions of the Borrower with the Borrower’s Executive Officers, and the Borrower’s
independent public accountants.




          (j) Covenants Regarding Formation of Subsidiaries and Acquisitions. At the time of
the formation of any new domestic Subsidiary of the Borrower which is permitted under this
Agreement, (i) provide the Lender an executed joinder agreement, in form and substance acceptable
to the Lender, pursuant to which such domestic Subsidiary shall become a Guarantor under the
Guaranty and a Security Agreement and appropriate financing statements so that all of the assets of
such domestic Subsidiary shall be pledged to the Lender, (ii) provide a statement of an Executive
Officer that no Default or Event of Default exists or would be caused by the formation; and (iii)
provide all other documentation, including one or more opinions of counsel, reasonably satisfactory
to the Lender, which in his reasonable opinion is appropriate with respect to the formation of such
domestic Subsidiary. Any document, agreement or instrument executed or issued pursuant to this
subsection 7.1(j) shall be a “Transaction Document” for purposes of this Agreement.




          (k) Board of Directors. Ensure that the Board of Directors of the Borrower consists
of five (5) members, two (2) of which members shall be the Lender (or his designee) and the
Borrower’s Chief Executive Officer. Prior to the date on which the Borrower obtains the
Shareholder Approval, the Lender shall have the right to consent to one (1) of the other nominees
to the Board of Directors of the Borrower, such consent to be granted or withheld in the Lender’s
reasonable discretion. After the date on which the Borrower obtains the Shareholder Approval, the
Lender shall have the right to consent to all other nominees to the Board of Directors of the
Borrower, such consent to be granted or withheld in the Lender’s reasonable discretion; provided,
however, that this right shall not be construed to mean Lender has the right to appoint or nominate
such directors, rather than to consent to their nomination or appointment.




          (l) Proxy Statement and Form 10-K. As soon as practicable but in no event later than
twenty (20) days following the date hereof, file with the SEC an annual report on Form 10-K for its
fiscal year ended February 28, 2009 and a preliminary proxy statement on Schedule 14A that
provides, in addition to any disclosure generally required in a proxy statement for a registered
corporation’s annual meeting, that the shareholders of the Borrower will vote on the proposals set
forth in the definition of Shareholder Approval in Article I above. The Borrower


34









 








shall, as soon as practicable but in no event later than five (5) days after notice from the
SEC that the SEC has no comments or no further comments to the proxy statement, mail a definitive
proxy statement on Schedule 14A to its shareholders of record as of the record date for the Meeting
that provides for the vote by the shareholders on the foregoing shareholder actions. The Lender
agrees to cooperate and timely respond to any questions or other requests made by the Borrower
relating to the Lender that are reasonably necessary to respond to any such SEC comments.




          (m) Shareholder Approval. As soon as practicable, but in no event later than the
Shareholder Meeting Date Deadline, hold an annual meeting of its shareholders (the “Meeting”) to
obtain the Shareholder Approval. In connection therewith, the Borrower shall use its best efforts
to obtain the Shareholder Approval at the Meeting.




          (n) Payment of Principal, Interest and Other Amounts Due. Pay when due all
Obligations to the Lender and all other amounts payable by it hereunder and under the Notes;
provided, however, that notwithstanding the respective Maturity Dates of the Notes, the Borrower
covenants to make partial principal payments under the Notes from time to time after June 30, 2010
upon the Borrower’s reasonable determination, upon consultation with the Lender, that the Borrower
has more working capital than it reasonably projects that it will require to cover its expenses
over a rolling ninety (90) day period, and the Borrower does not have any other foreseeable longer
term obligations that it projects it would not otherwise be able to repay through cash flow
generated from operations or other available sources of capital without the use of such excess
working capital; provided, further, that the making of any such partial payments does not violate
the terms of the Subordination Agreement as then in effect, or if any such payments would result in
such violation, the Senior Lender shall have waived such violation or consented to the payments.




          (o) Filing of Series E Preferred Stock Statement With Respect to Shares and Conversion and
Exchange of the 2003 Note, Series B Preferred Stock and Series C Preferred Stock into Series E
Preferred Stock. As soon as practicable following the receipt by the Borrower of the
Shareholder Approval, but in no event later than two (2) business days thereafter, the Borrower
shall file the Series E Preferred Stock Statement With Respect to Shares in substantially the form
of Exhibit C hereto with the Department of State of the Commonwealth of Pennsylvania and shall
effect the conversion and exchange of the 2003 Note, Series B Preferred Stock and Series C
Preferred Stock into Series E Preferred Stock as contemplated by Section 3.5 hereof.




     7.2 Negative Covenants. The Borrower covenants that, so long as all or any part of
the principal amount of the Notes or any interest thereon shall remain outstanding:



          (a) Indebtedness. The Borrower and the Guarantor shall not create, incur, assume,
guarantee or be or remain liable for, contingently or otherwise, or suffer to exist any
Indebtedness, except:





          (i) Indebtedness under this Agreement;




          (ii) Indebtedness under the Senior Financing, to which payment under the Notes will be
subordinated pursuant to the terms of the Subordination Agreement;



35









 







provided, however, that the principal amount of indebtedness that may be incurred under
the Senior Financing may not exceed $15,000,000 prior to the Borrower obtaining the
Shareholder Approval, and $20,000,000 after the Borrower obtains the Shareholder Approval,
plus indebtedness that may be incurred under the confirmation letter between the Borrower
and the Senior Lender dated September 12, 2008 setting forth the terms and conditions of an
interest rate swap transaction (the ‘Existing Swap”) entered into under and pursuant to the
terms and conditions of that certain ISDA Master Agreement between the Borrower and the
Senior Lender dated as of August 6, 2007 and the Schedule related thereto (together, the
“ISDA Agreement”); and provided, further, that the Borrower may not enter into any other
swap or other transactions under the ISDA Agreement, enter into any other agreement similar
to the ISDA Agreement or amend or modify the terms of the Existing Swap or the ISDA
Agreement without the prior written consent of the Lender, which may be granted or withheld
in his sole discretion;




          (iii) Indebtedness incurred in the ordinary course of business with respect to customer
deposits, trade payables and other unsecured current liabilities not the result of borrowing
and not evidenced by any note or other evidence of indebtedness; and




          (iv) Permitted Indebtedness; and




          (v) Extensions, renewals and replacements of any Permitted Indebtedness; provided,
however, that there shall be no increase in the principal amount of Permitted Indebtedness
without the prior written consent of the Lender, which may be granted or withheld in his
sole discretion.



          (b) Negative Pledge; Liens. The Borrower and the Guarantor shall not create, incur,
assume or suffer to exist any Lien of any kind on any of its properties or assets of any kind,
except the following (collectively, “Permitted Liens”):





          (i) Liens now existing or hereafter created in connection with the Senior Financing, to
which Liens the Lender will subordinate its Liens to on the terms set forth in the
Subordination Agreement;




          (ii) Liens for or priority claims imposed by law that are incidental to the conduct of
business or the ownership of properties and assets (including mechanic’s, warehousemen’s,
attorneys’ and statutory landlords’ liens) and deposits, pledges or liens to secure
statutory obligations, surety or appeal bonds or other liens of like general nature incurred
in the ordinary course of business and not in connection with the borrowing of money;
provided, however, that in each case, the obligation secured thereby shall not be overdue,
or, if overdue, is being contested in good faith and adequate reserves have been set up by
the Borrower;




          (iii) Liens securing the payments of taxes, assessments and governmental charges or
levies incurred in the ordinary course of business that either (a) are not delinquent, or
(b) are being contested in good faith by appropriate legal or administrative proceedings and
as to which adequate reserves have been set aside on their books, and so long as during the
period of any such contest, the Borrower shall suffer no



36









 







loss of any privilege of doing business or any other right, power or privilege
necessary or material to the operation of the Business;




          (iv) Liens listed on Schedule 7.2(b) hereto; and




          (v) Extensions, renewals and replacements of Liens referred to in clauses (i) through
(iv) of this Section 7.2(b); provided, however, that any such extension, renewal or
replacement Lien shall be limited to the property or assets covered by the Lien extended,
renewed or replaced and that the obligations secured by any such extension, renewal or
replacement Lien shall be in an amount not greater than the amount of the obligations
secured by the Lien extended, renewed or replaced.



          (c) Contingent Obligations. Neither the Borrower nor the Guarantor shall create,
incur, assume or suffer to exist any Contingent Obligation other than guarantees by the Borrower of
Indebtedness of a Subsidiary, but only to the extent such Indebtedness is permitted hereunder.




          (d) Mergers, etc. The Borrower shall not merge into or consolidate or combine with
any other Person, or purchase, lease or otherwise acquire (in one transaction or a series of
related transactions) all or any part of the property or assets of any Person other than purchases
or other acquisitions of inventory, materials, leases, property and equipment in the ordinary
course of business. Except as expressly permitted by the Security Documents, the Borrower shall
not sell, transfer or otherwise dispose of, lease or let others manage any of its assets, including
the collateral under the respective Security Documents.




          (e) Affiliate Transactions. Except as set forth on Schedule 7.2(e), neither
the Borrower nor the Guarantor shall make any loan or advance to any director, officer or employee
of any Borrower or any Affiliate, or enter into or be a party to any transaction or arrangement
with any Affiliate of the Borrower or such Guarantor, including, without limitation, the purchase
from, sale to or exchange of property with, any merger or consolidation with or into, or the
rendering of any service by or for, any Affiliate, except pursuant to the reasonable requirements
of the Business and upon fair and reasonable terms no less favorable to the Borrower or such
Guarantor than would be obtained in a comparable arm’s length transaction with a Person other than
an Affiliate.




          (f) Dividends and Common Stock Purchases. Neither the Borrower nor the Guarantor will
declare or pay any dividend, or make any distribution on its outstanding capital stock or any other
payment of any kind to any of its shareholders or its or their Affiliates, other than with respect
to the Series D Preferred Stock or Series E Preferred Stock, provided that Subsidiaries not formed
under the laws of the United States of America or any U.S. state may declare and pay dividends to
their shareholders other than the Borrower and any other Subsidiaries, in an aggregate amount not
exceeding $25,000 per year.




          (g) Advances, Investments and Loans. Neither the Borrower nor the Guarantor shall
purchase, or hold beneficially any stock, other securities or evidences of Indebtedness of, or make
or permit to exist any loan, Guaranty or advance to, or make any


37









 








investment or acquire any interest whatsoever in, any other Person (including, but not limited
to, the formation or acquisition of any Subsidiaries), except:





          (i) securities issued or directly and fully guaranteed or insured by the United States
of America or any agency or instrumentality thereof having maturities of not more than six
(6) months from the date of acquisition;




          (ii) United States dollar denominated time deposits, certificates of deposit and
bankers acceptances of any bank or any bank whose short-term debt rating from Standard &
Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), is at least A-1
or the equivalent or from Moody’s Investors Service, Inc. (“Moody’s”) is at least P-1 or the
equivalent with maturities of not more than six (6) months from the date of acquisition;




          (iii) commercial paper with a rating of at least A-1 or the equivalent by S&P or at
least P-1 or the equivalent by Moody’s maturing within six (6) months after the date of
acquisition;




          (iv) marketable direct obligations issued by any state of the United States of America
or any political subdivision of any such state or any public instrumentality thereof
maturing within six (6) months from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;




          (v) Investments in money market funds substantially all the assets of which are
comprised of securities of the types described in clauses (i) through (iv) above;




          (vi) Investments (including debt obligations) received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement of delinquent
obligations of, and other disputes with, customers and suppliers arising in the ordinary
course of business;




          (vii) receivables owing to the Borrower created or acquired in the ordinary course of
business and payable on customary trade terms of the Borrower;




          (viii) deposits made in the ordinary course of business consistent with past practices
to secure the performance of leases or in connection with bidding on government contracts;
and




          (ix) advances to employees in the ordinary course of business for business expenses;
provided, however, that the aggregate amount of such advances at any time outstanding shall
not exceed $100,000.



          (h) Use of Proceeds. The Borrower shall not use any proceeds from the sale of the
Notes hereunder, directly or indirectly, for the purposes of purchasing or carrying any “margin
securities” within the meaning of Regulations T, U or X promulgated by the Board of Governors of
the Federal Reserve Board or for the purpose of arranging for the extension of


38









 








credit secured, directly or indirectly, in whole or in part by collateral that includes any
“margin securities”.




          (i) Amendment of Charter Documents. Neither the Borrower nor the Guarantor shall
amend, terminate, modify or waive or agree to the amendment, modification or waiver of any material
term or provision of its Charter Documents or Bylaws, except as specifically contemplated herein.
The Borrower shall not, without the prior written consent of the Lender, issue any shares of its
Preferred Stock other than to the Lender.




          (j) Business. Neither the Borrower nor the Guarantor shall engage, directly or
indirectly, in any business other than the Business.




          (k) Fiscal Year; Accounting. The Borrower shall not change its Fiscal Year from
ending on the last Friday of each February or method of accounting (other than immaterial changes
in methods), except as required by GAAP.




          (l) Establishment of New or Changed Business Locations. The Borrower shall not
relocate its principal executive offices or other facilities or establish new business locations or
store any inventory or other assets at a location not identified to the Lender on or before the
date hereof, without providing not less than thirty (30) days advance written notice to the Lender.




          (m) Changed or Additional Business Names. Neither the Borrower nor the Guarantor
shall change its corporate name or establish new or additional trade names without providing not
less than thirty (30) days advance written notice to the Lender.




     7.3 Financial Covenant. The Borrower will maintain as of the end of each Fiscal
Quarter a Consolidated Tangible Net Worth of at least $3,500,000.



ARTICLE VIII

EVENTS OF DEFAULT




     8.1 Events of Default. An Event of Default shall mean the occurrence of one or more
of the following described events:



          (a) the Borrower shall default in the payment of principal and interest on the Notes when due,
whether at maturity, by acceleration or otherwise;




          (b) the Borrower shall default in the payment of, or any agreement related to, any of its
Obligations, including without limitation if the Lender is required to make any payment to the
Senior Lender under the Personal Guaranty;




          (c) the Borrower shall default in the payment of (i) interest on any Senior Debt on its due
date or (ii) principal on any Senior Debt, whether at maturity, upon any scheduled payment date or
by acceleration or otherwise;




          (d) the Borrower shall default under any agreement related to the Senior Financing or under
any agreement under which any Indebtedness in an aggregate principal


39









 








amount of $300,000 or more is created in a manner entitling the holder of such Indebtedness to
accelerate the maturity of such Indebtedness;




          (e) any representation or warranty herein made by the Borrower, or any certificate or
financial statement furnished pursuant to the provisions hereof, shall prove to have been false or
misleading in any material respect as of the time made or furnished or deemed made or furnished;




          (f) the Borrower or the Guarantor shall default in the performance of any other covenant,
condition or provision of this Agreement, the Notes or the other Transaction Documents, and such
default shall not be remedied for a period of thirty (30) days after the earlier of (i) written
notice from the Lender of such default or (ii) actual knowledge by the Borrower of such default;




          (g) a proceeding shall have been instituted in a court having jurisdiction in the premises
seeking a decree or order for relief in respect of the Borrower in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or for the
appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Borrower or for any substantial part of its property, or for the winding-up or
liquidation of their affairs (an “Insolvency Proceeding”), and such Insolvency Proceeding shall
remain undismissed or unstayed and in effect for a period of sixty (60) days;




          (h) the Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, shall consent to the entry of an order for relief
in an involuntary case under any such law, or shall consent to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Borrower or for any substantial part of its property, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay their debts as they become
due, or shall take any action in furtherance of any of the foregoing;




          (i) both the following events shall occur: (i) a Reportable Event, the occurrence of which
would have a Material Adverse Effect which could cause the imposition of a Lien under Section 4068
of ERISA, shall have occurred with respect to any Plan or Plans; and (ii) the aggregate amount of
the then “current liability” (as defined in Section 412(l)(7) of the Internal Revenue Code of 1986,
as amended) of all accrued benefits under such Plan or Plans exceeds the then current value of the
assets allocable to such benefits by more than $1,000,000 at such time;




          (j) a final judgment which, with other undischarged final judgments against the Borrower,
exceeds an aggregate of $300,000 (excluding judgments to the extent any Borrower are fully insured
or the deductible or retention limit does not exceed $300,000 and with respect to which the insurer
has assumed responsibility in writing), shall have been entered against the Borrower if, within
thirty (30) days after the entry thereof, such judgment shall not have been discharged or execution
thereof stayed pending appeal, or if, within thirty (30) days after the expiration of any such
stay, such judgment shall not have been discharged;




40









 








          (k) any Transaction Document or Security Document shall at any time after the Closing Date
cease for any reason to be in full force and effect or shall cease to create perfected security
interests in favor of the Lender in the collateral subject or purported to be subject thereto,
subject to no other Liens other than Permitted Liens, or such collateral shall have been
transferred to any Person without the prior written consent of the Lender;




          (l) the Borrower or the Guarantor (except as otherwise provided herein) shall terminate its
existence, cease to exist, permanently cease operations or abandon the operation of any material
portion of its business; or




          (m) any of the following shall have occurred: (1) a final non-appealable order is issued by
any Governmental Authority, including, requiring the Borrower or the Guarantor to divest a
substantial portion of its assets pursuant to any antitrust, restraint of trade, unfair
competition, industry regulation, or similar requirement of Law, or (ii) any Governmental Authority
shall condemn, seize or otherwise appropriate, or take custody or control of all or any substantial
portion of the assets of the Borrower or the Guarantor.




     8.2 Consequences of Event of Default.



          (a) Bankruptcy. If an Event of Default specified in paragraphs (g) or (h) of Section
8.1 hereof shall occur, the unpaid principal balance of the Notes and interest accrued thereon and
all other liabilities of the Borrower to the Lender hereunder and thereunder shall be immediately
due and payable, without presentment, demand, protest or (except as expressly required hereby)
notice of any kind, all of which are hereby expressly waived.




          (b) Other Defaults. If any other Event of Default shall occur, the Lender may at his
option, by written notice to the Borrower, declare the entire unpaid principal balance of the
Notes, the 2003 Note and the 2009 Bridge Note and interest accrued thereon and all other
liabilities of the Borrower hereunder and thereunder to be forthwith due and payable, and the same
shall thereupon become immediately due and payable, without presentment, demand, protest or (except
as expressly required hereby) notice of any kind, all of which are hereby expressly waived.




          (c) Default Interest. Following the occurrence and during the continuance of any
Event of Default, the Lender shall be entitled to receive, to the extent permitted by applicable
law, interest on the outstanding principal of, and premium and overdue interest, if any, on, the
Notes at a rate per annum equal to the interest rate thereon (determined as provided in Section
3.1) plus six percent (6%).




     8.3 Security. Payments of principal of, and interest on, the Notes and all other
obligations of the Borrower under this Agreement or the Notes are secured pursuant to the terms of
the Security Documents.



ARTICLE IX

MISCELLANEOUS




     9.1 Survival. All covenants, agreements, representations and warranties made in any of the Transaction
Documents or any certificate or instrument delivered to the Lender pursuant to



41









 







or in connection with any of the Transaction Documents, shall survive the execution and delivery of all of the
Transaction Documents, and the issuance, sale and delivery of the Notes and the Warrants. For the
avoidance of doubt, no payment shall be deemed to have been indefeasibly paid in full, whether made
by the Borrower or the Guarantor or any other person, which is required to be refunded pursuant to
any bankruptcy or insolvency law; it being understood that no payment so refunded shall be
considered as a payment of any portion of the Credit Facility, nor shall it have the effect of
reducing the obligation or the liability of the Borrower or the Guarantor hereunder or any
Transaction Document.



     9.2 Successors and Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns, except that (i) the
Borrower may not assign or transfer its rights or obligations hereunder or any interest herein or
delegate their duties hereunder and (ii) the Lender shall have the right to assign his rights
hereunder and under the Securities in accordance with Article 6.



     9.3 Modifications and Amendments. The provisions of this Agreement may be modified,
waived or amended, but only by a written instrument signed by the Borrower and the Lender.



     9.4 No Implied Waivers; Cumulative Remedies; Writing Required. No delay or failure in
exercising any right, power or remedy hereunder shall affect or operate as a waiver thereof; nor
shall any single or partial exercise thereof or any abandonment or discontinuance of steps to
enforce such a right, power or remedy preclude any further exercise thereof or of any other right,
power or remedy. The rights and remedies hereunder are cumulative and not exclusive of any rights
or remedies that the Lender would otherwise have. Any waiver, permit, consent or approval of any
kind or character of any breach or default under this Agreement or any such waiver of any provision
or condition of this Agreement must be in writing and shall be effective only to the extent in such
writing specifically set forth.



     9.5 Reimbursement of Expenses. The Borrower shall, within two (2) business days after
each Closing, reimburse the reasonable fees and out-of-pocket expenses of Royer & Associates LLC,
counsel to the Lender, in an amount not to exceed $35,000 in the aggregate. In the alternative,
the Lender may effect such reimbursement at any Closing by withholding from the amount of the
applicable Note specified in Article II the amount to which the Lender’s counsel is entitled to
reimbursement pursuant to the preceding sentence. Notwithstanding the withholding of such amount,
the Lender shall be deemed to have loaned to the Borrower the full amount so withheld.



     9.6 Holidays. Whenever any payment or action to be made or taken hereunder or under
the Notes shall be stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day, and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment or action.



     9.7 Notices. All notices and other communications given to or made upon any party
hereto in connection with this Agreement shall, except as otherwise expressly herein provided, be
in writing (including telecopy, but in such case, a confirming copy will be sent by another



42









 







permitted means) and mailed via certified mail, telecopied or delivered by guaranteed overnight
parcel express service or courier to the respective parties, as follows:


to the Borrower:



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



to the Lender:



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



or in accordance with any subsequent written direction from the recipient party to the sending
party. All such notices and other communications shall, except as otherwise expressly herein
provided, be effective upon delivery if delivered by courier or overnight parcel express service;
in the case of certified mail, three (3) Business Days after the date sent; or in the case of
telecopy, when received.




     9.8 Governing Law and Consent to Jurisdiction.



          (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.



43









 









          (b) The Borrower irrevocably and unconditionally agrees that any suit, action or other legal
proceeding arising out of this Agreement shall be brought exclusively 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.




     9.9 Severability. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law in any jurisdiction,
such provision shall be ineffective only to the extent of such prohibition or invalidity, without
invalidating any other provision of this Agreement.



     9.10 Headings. Article, section and subsection headings in this Agreement are
included for convenience of reference only and shall not constitute a part of this Agreement for
any other purpose.



     9.11 Counterparts. This Agreement may be executed in any number of counterparts and
by either party hereto on separate counterparts, each of which, when so executed and delivered,
shall be an original, but all such counterparts shall together constitute one and the same
instrument.



     9.12 Integration. This Agreement and the other Transaction Documents set forth the
entire understanding of the parties hereto with respect to all matters contemplated hereby and
supersede all previous agreements and understandings among them concerning such matters. No
statements or agreements, oral or written, made prior to or at the signing hereof, shall vary,
waive or modify the written terms hereof.



     9.13 Subordination. The obligations evidenced hereby are subordinate in the manner
and to the extent set forth in the Subordination Agreement, to the indebtedness and other
liabilities owed by the Borrower under and pursuant to the Senior Credit Agreement and each related
“Loan Document” (as defined therein), and the Lender, by his acceptance of the Notes, acknowledges
and agrees to be bound by the provisions of the Subordination Agreement.



     9.14 Indemnification. The Borrower shall, with respect to the representations,
warranties and agreements made by it herein, indemnify, defend and hold the Lender and the Lender’s
respective officers, directors, stockholders, employees and agents and their respective Affiliates
(the “Indemnitees”), harmless against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever, including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitees in connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitees shall be designated a party thereto, which may be
(i) imposed on such Indemnitees, (ii) incurred by such Indemnitees, or (iii) asserted against
such Indemnitees by a third party, as a result of the misrepresentation or breach of any
representation, warranty or covenant of the Borrower under this Agreement or in any other
Transaction Document or to the nonfulfillment of or failure to perform any covenant or agreement on
the part of the Borrower contained in this Agreement or any other Transaction Document. The
Borrower



44









 







and the Lender hereby agree to resolve any claim for indemnification under this Section
9.14 pursuant to the procedures for indemnification set forth in Section 6 of the Registration
Rights Agreement.



     9.15 WAIVER OF JURY TRIAL. THE BORROWER 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
AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
IN ANY OF SUCH DOCUMENTS. THE BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND
VOLUNTARY.



     9.16 CONFESSION OF JUDGMENT. THE BORROWER 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 THE BORROWER AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF
AN EVENT OF DEFAULT UNDER THIS AGREEMENT, THE NOTE(S) OR THE SECURITY AGREEMENT, IN ANY SUCH COURT
IN ANY ACTION BROUGHT AGAINST THE BORROWER BY THE LENDER 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 THE BORROWER FOR ALL SUMS PAYABLE BY THE BORROWER TO THE LENDER HEREUNDER,
AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A DULY AUTHORIZED DESIGNEE OF THE LENDER SETTING FORTH SUCH
AMOUNT THEN DUE FROM THE BORROWER TO THE LENDER, PLUS AN ATTORNEY’S COMMISSION EQUAL TO TEN PERCENT
(10%) OF THE SUMS THEN OUTSTANDING UNDER THIS AGREEMENT AND THE NOTES, BUT IN NO EVENT LESS THAN
$25,000, 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 AGREEMENT AND/OR A 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. THE BORROWER 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 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 THE LENDER SHALL ELECT
UNTIL ALL AMOUNTS PAYABLE TO THE LENDER HEREUNDER, SHALL HAVE BEEN PAID IN FULL. THE EXERCISE
BY THE LENDER OF HIS RIGHTS AND REMEDIES AND THE ENTRY OF ANY JUDGMENT BY THE LENDER UNDER THIS
SECTION SHALL NOT AFFECT IN ANY WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER AMOUNTS DUE TO
THE LENDER, BUT INTEREST



45









 







SHALL CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT RATE (AS DEFINED
IN THE NOTES).



* * *




46









 








SIGNATURE PAGE TO SECURED CREDIT FACILITY AND

WARRANT PURCHASE AGREEMENT




     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.



	 	 	 	 	 
	 	BORROWER:



ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	/s/
Duane D. Deanes	 
	 	 	Name:  	Duane D. Deanes	 
	 	 	Title:  	CFO	 
	 
	 	LENDER:



/s/ H.F. Lenfest	 
	 	H.F. Lenfest
 	 
	 	 	 
	 	 	 



Joy
Tartar 


Witness




47









 








ANNEXES




SCHEDULES




	 	 	 
	Certain Employees

	 	(Schedule 4.1(f)(iv)
	Permitted Indebtedness

	 	(Schedule 5.1(c))
	Capitalization

	 	(Schedule 5.1(f))
	Litigation

	 	(Schedule 5.1(j))
	Compliance with Laws

	 	(Schedule 5.1(k))
	Environmental

	 	(Schedule 5.1(l))
	Properties

	 	(Schedule 5.1(q))
	Intellectual Property

	 	(Schedule 5.1(r))
	Subsidiaries

	 	(Schedule 5.1(t))
	Absence of Undisclosed Liabilities

	 	(Schedule 5.1(v))
	Security Documents

	 	(Schedule 5.1(y))
	Insurance

	 	(Schedule 5.1(z))
	Authorizations

	 	(Schedule 5.1(aa))
	Consents

	 	(Schedule 5.1(bb))
	Defaults

	 	(Schedule 5.1(ee))
	Permitted Encumbrances

	 	(Schedule 7.2(b))
	Affiliate Transactions

	 	(Schedule 7.2(e))






EXHIBITS 




	 	 	 
	EXHIBIT A-1

	 	Form of Senior Secured Subordinated Initial Note
	EXHIBIT A-2

	 	Form of Senior Secured Subordinated Additional Note
	EXHIBIT B-1

	 	Form of Initial Stock Purchase Warrant
	EXHIBIT B-2

	 	Form of Additional Stock Purchase Warrant
	EXHIBIT B-3

	 	Form of Guaranty Warrant
	EXHIBIT C

	 	Form of Statement With Respect to Shares of Series E Stock
	EXHIBIT D

	 	Form of Statement With Respect to Shares of Series D Stock
	EXHIBIT E

	 	Form of Security Agreement
	EXHIBIT F

	 	Form of Registration Rights Agreement
	EXHIBIT G

	 	Form of Guaranty Agreement
	EXHIBIT H

	 	Form of Mortgage
	EXHIBIT I

	 	Form of Shareholders Voting Agreement
	EXHIBIT J

	 	[Intentionally deleted.]
	EXHIBIT K

	 	[Intentionally deleted.]
	EXHIBIT L

	 	Form of Closing Certificate
	EXHIBIT M

	 	2009 Bridge Loan Documents
	EXHIBIT N

	 	Form of Compliance Certificate






 









 






	 	 	 	 	 



ENVIRONMENTAL TECTONICS CORPORATION

125 James Way

County Line Industrial Park

Southampton, Pennsylvania, 18966




April 24th, 2009



H.F. Lenfest

300 Barr Harbor Drive, Suite 460

West Conshohocken, PA 19428



Dear Mr. Lenfest:





     The attachments hereto (the “Schedules”) constitute the disclosures of Environmental
Tectonics Corporation, a Pennsylvania corporation (the “Borrower”, “ETC” or the
“Company”), to that certain Secured Credit Facility and Warrant Purchase Agreement by and
between Borrower and H.F. Lenfest (the “Lender”), dated as of April 24th, 2009 (the
“Agreement”). The representations and warranties made by the Borrower in the Agreement are
qualified by, and subject to the exceptions noted in, the information set forth in the Schedules.
The disclosure of, but not the failure to disclose, any item or information in the Schedules shall
not be construed as an admission that such item or information is material to the Borrower, and any
inclusion in the section shall expressly not be deemed to constitute an admission, or otherwise
imply, that any such item or information is material or creates measures for materiality for the
purposes of the Agreement.



     Nothing in the Schedules constitutes an admission of any liability or obligation of the
Borrower to any third party, nor an admission to any third party against any of the Borrower’s
interests.



     The section numbers referred to in the Schedules correspond to the section numbers in the
Agreement. Capitalized terms not otherwise defined in the Schedules and this letter shall have the
meanings set forth in the Agreement.



	 	 	 	 	 
	 	Sincerely,



ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	/s/ Duane D. Deaner
 	 
	 	 	Name:  	Duane D. Deaner 	 
	 	 	Title:  	Chief Financial Officer 	 



 









 






	 	 	 	 	 



Schedule 4.1(f)(iv)




Certain Employees




	1.	 	Chris Stephenson
	 
	2.	 	David A. Mitchell
	 
	3.	 	Duane D. Deaner
	 
	4.	 	Eric D. Sprague
	 
	5.	 	Eugene A. Davis
	 
	6.	 	Husnu Onus
	 
	7.	 	Thomas G. Loughlin
	 
	8.	 	William F. Mitchell, Jr.




 









 











Schedule 5.1(c)




Permitted Indebtedness


Operating Leases




	 	 	 	 	 	 	 	 	 
	Lessor	 	Service / Equipment	 	Term	 	Monthly Payment	 
	Alafaya
	 	Orlando facility lease	 	7 years — 12/15/04 to 12/15/11	 	$	8,094	 
	Canon Financial
	 	3 Copiers	 	60 months — 8/06 to 7/11	 	$	1,721	 
	Pitney Bowes
	 	2 Postage machines	 	72 months — Sept 04 to Sept 09	 	$	686	 
	James Peppleman
	 	Heaton Road storage facility	 	 	 	$	1,400	 





Vehicle Debt




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Lender	 	Vehicle description	 	Term	 	Monthly Payment	 	 	Approx Balance
	Chrysler Financial
	 	2008 Dodge Caravan	 	36 months Nov 07 thru Oct 10	 	$	745.05	 	 	$16,391 as of Feb 9, 2009






 









 






Schedule 5.1(f)




Capitalization




	1.	 	Employee Stock Purchase Plan filed on July 6, 1988 as Exhibit A to the Prospectus
included in the Borrower’s Registration Statement on Form S-8.
	 
	2.	 	Stock Award Plan adopted April 7, 1993 and filed as Exhibit 10(ix) to the Borrower’s
Form 10-K for the Fiscal Year ended February 25, 1994.
	 
	3.	 	1998 Stock Option Plan filed on Form S-8 on October 8, 1998.
	 
	4.	 	Convertible Note and Warrant Purchase Agreement, dated as of February 18, 2003, by and
between the Borrower and the Lender filed on February 25, 2003 as Exhibit 10.8 to Form 8-K.
	 
	5.	 	2005 Non-Employee Director Stock Option Plan filed on Form S-8 on January 27, 2006.
	 
	6.	 	Series B Preferred Stock Purchase Agreement, dated as of April 6, 2006, by and between
the Borrower and the Lender.
	 
	7.	 	Registration Rights Agreement, dated as of April 6, 2006, by and between the Borrower
and the Lender.
	 
	8.	 	Series C Preferred Stock Purchase Agreement, dated as of August 23, 2007, by and
between the Borrower and the Lender.
	 
	9.	 	Secured Promissory Note dated February 20, 2009 by and between the Borrower and the
Lender
	 
	10.	 	Common Stock Warrant, dated February 20, 2009 issued by the Borrower to the Lender.




 









 











ENVIRONMENTAL TECTONICS CORP.

STOCK OPTION ROLLFORWARD




	 	 	 	 	 	 	 	 	 	 	 	 	 
	Grant	 	 	Price	 	 	Employee	 	2/27/2009	 
	 	1/3/2001	 	 	 	7.375	 	 	T. Loughlin
	 	 	2881	 
	 	1/3/2001	 	 	 	7.375	 	 	R. Leland
	 	 	2373	 
	 	1/3/2001	 	 	 	7.375	 	 	D. Deaner
	 	 	2881	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	Fiscal 2001	 	 	 	 	 	 
	 	 	8,135	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	9/15/2004	 	 	 	7.24	 	 	B. Richter
	 	 	7006	 
	 	9/15/2004	 	 	 	7.24	 	 	D. Deaner
	 	 	6978	 
	 	9/15/2004	 	 	 	7.24	 	 	T. Loughlin
	 	 	6978	 
	 	9/15/2004	 	 	 	7.24	 	 	J. Sigda
	 	 	6368	 
	 	9/15/2004	 	 	 	7.24	 	 	R. Leland
	 	 	6256	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	Fiscal 2005	 	 	 	 	 	 
	 	 	33,586	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	9/21/2006	 	 	 	6.07	 	 	Emp. Award-See List
	 	 	35931	 
	 	2/28/2006	 	 	 	5.12	 	 	Dr. George Anderson — BOD
	 	 	50000	 
	 	2/28/2006	 	 	 	5.12	 	 	Howard Kelly — BOD
	 	 	25000	 
	 	2/28/2006	 	 	 	5.12	 	 	Mark Gremmill — BOD
	 	 	5000	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	Fiscal 2007	 	 	 	 	 	 
	 	 	115,931	 
	 	 	 	 	 	 	 	 	 
	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 
	 	 	 	 	 	 	 	 	Total Options
	 	 	157,652	 






 









 






Schedule 5.1(j)




Litigation



Mends International, Ltd.




     On May 29, 2008, a Request for Arbitration was filed against us with the Secretariat of the
International Court of Arbitration by Mends International Ltd. (“Mends”). Mends’ Request for
Arbitration arises out of a February 3, 1999 contract between us and Mends wherein Mends purchased
aeromedical equipment for sale to the Nigerian Air Force. Mends asserted a claim for breach of
contract and demanded $797,486.00, plus interest and costs. On September 16, 2008, Mends filed an
Amended Request for Arbitration, adding tort claims for conversion and breach of fiduciary duty and
seeking punitive damages. In response, we have asserted a counterclaim seeking damages for other
disputes with Mends that have arisen under the contract that Mends has put at issue in this
arbitration. On April 27, 2009 we participated in an arbitration hearing in the United Kingdom on
this matter. The results of this hearing are not expected until June 2009. We are contesting this
arbitration case vigorously. However, as of February 27, 2009 we had recorded a reserve in this
matter.



Other Matters




     Certain other claims, suits, and complaints arising in the ordinary course of business have
been filed or are pending against the Borrower. In the Borrower’s opinion, after consultation with
legal counsel handling these specific matters, all such matters are reserved for or adequately
covered by insurance or, if not so covered, are without merit or are of such kind, or involve such
amounts, as would not have a significant effect on the Borrower’s financial position or results of
operations if disposed of unfavorably.



 









 





Schedule 5.1(k)




Compliance with Laws



     The Borrower is party to an Administrative Agreement with the Department of the Navy,
effective December 12, 2007, the purpose of which is to ensure that the Borrower has and will
continue to have a program of acceptable contracting practices and procedures, by establishing and
implementing a program of compliance reviews, audits, and reports. The Administrative Agreement is
in effect until December 12, 2010, or until the completion of any investigation of suspected
misconduct that is ongoing as of December 12, 2010.



 









 





Schedule 5.1(l)




Environmental



     There is no investigation, enforcement action or regulatory action pending or threatened
against the Company. Also, the Company has not incurred during fiscal 2009, nor does it anticipate
incurring during fiscal 2010, any material capital expenditures to maintain compliance with
federal, state and local statutes, rules and regulations concerning the discharge of materials into
the environment, nor does it anticipate that compliance with these provisions will have a material
adverse effect on the Company’s earnings or competitive position.



 









 





Schedule 5.1(q)




Properties


Owned Real Property




125 James Way Road

County Line Industrial Park

Southampton, PA 18966



Leased Property




12001 Science Drive

Suite 180

Orlando, FL 32810




1,600 square feet storage facility

Heaton Road

Huntingdon Valley, PA




 









 





Schedule 5.1(r)




Intellectual Property


No claim has been asserted and is pending by any Person challenging or questioning the use of the
Borrower’s Proprietary Rights, nor does the Borrower know of any valid basis for any such claim.







 









 








Schedule 5.1(t)




Subsidiaries



	 	 	 	 	 	 	 
	Name	 	Jurisdiction	 	% of Ownership	 
	Entertainment Technology Corp.
	 	Pennsylvania	 	 	100	%
	125 James Way

Southampton, PA 18966
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	NASTAR Center Holdings Corporation
	 	Delaware	 	 	100	%
	125 James Way

Southampton, PA 18966
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	NASTAR Center LLC
	 	Delaware	 	 	100	%
	125 James Way

Southampton, PA 18966
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ETC/Europe
	 	United  Kingdom	 	 	99	%
	45 St. Andrews Gardens

Cobham, Surrey KT11 1 HG UK
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ETC-PZL Aerospace Industries Sp.z.o.o.
	 	Poland	 	 	95	%
	AL. Krakowska 110/114

02-256 Warsaw, Poland
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ETC/Delaware, Inc.
	 	Delaware	 	 	100	%
	103 Foulk Road, Suite 202

Wilmington, DE 19803
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ETC/International (Inactive)
	 	Delaware	 	 	100	%
	Box 7048

Wilmington, DE 19803
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	ETC/IS Turkey
	 	Turkey	 	 	48	%
	Turan Gunes Bulvari

Korman Sitesi 51/F

06450 Ankara, Turkey
	 	 	 	 	 	 
	 
	 	 	 	 	 	 










 









 








Schedule 5.1(v)




Absence of Undisclosed Liabilities


None.









 









 








Schedule 5.1(y)




Security Documents




	1.	 	Mortgage to be filed with the Recorder of Deeds for Bucks County, Pennsylvania.
	 
	2.	 	UCC-1 Financing Statement listing the Borrower as Debtor and Lender as Secured Party to
be filed with the Department of State of the Commonweatlh of Pennsylvania.






 











 





Schedule 5.1(z)




Insurance




	1.	 	Policy No. 2210284200900 Pa. Manufacturers Indemnity Co. Workers Comp. Ins.
	 
	2.	 	Policy No. IRG99357 First Specialty Ins. Co. General Liability Ins.
	 
	3.	 	Policy No. 73178821 Great Northern Ins. Co. Foreign Coverage Ins.
	 
	4.	 	Policy No. 81457307 Federal Ins. Co. D & O Ins.
	 
	5.	 	Policy No. OC06400194 St. Paul Fire & Marine Ins. Co. Ocean Cargo Ins
	 
	6.	 	Policy No. TE06401810 St. Paul Fire & Marine Ins. Co. Property Ins
	 
	7.	 	Policy No. IRU99358 First Specialty Ins. Co. Umbrella Ins





 









 





Schedule 5.1(aa)




Authorizations


The Borrower possesses all material approvals of each Governmental Authority necessary for the
operation of its business and is not in material violation thereof. Additionally, the Borrower has
no knowledge of any investigation, notice of apparent liability, violation, forfeiture or other
order or complaint issued by or before any Governmental Authority, or of any other proceedings of
or before any Governmental Authority, which could reasonably be expected to have a Material Adverse
Effect on the Borrower.






 









 








Schedule 5.1(bb)




No Consents


No additional consents, approvals or authorizations required.






 









 








Schedule 5.1(ee)




No defaults


No Defaults exist.




 









 





Schedule 7.2(b)(iv)




Permitted Encumbrances




	1.	 	All exceptions set forth on that certain Information Search conducted by Abstract Services
and Products (No. 138788-SFA “C”) with respect to the Mortgaged Property.
	 
	2.	 	Liens of Canon Financial Services (UCC-1 Pa. Dept. of State filing numbers 2006081003196
and 2008073104930).




 









 











Schedule 7.2(e)




Affiliate Transactions


Borrower purchases industrial products from Industrial Instruments Corp. which is owned by
Christine and Charles Walter, the daughter and son-in-law of William F. Mitchell, Borrower’s
President and Chief Executive Officer. During fiscal 2008, 2007 and 2006, the Company purchased
$314,928, $265,092 and $380,461, respectively, from Industrial Instruments. Borrower also rents
office space to Industrial Instruments at Borrower’s corporate headquarters. During fiscal 2008,
2007 and 2006, Industrial Instruments paid to Borrower rent in the amounts of $8,450, $7,750 and
$9,000, respectively.



Borrower purchases travel accommodations from Jet Set, a company that employs Kathleen Mahon, the
daughter of Mr. Mitchell. During fiscal 2008, 2007 and 2006, Borrower purchased travel through Jet
Set totaling $254,000, $217,492 and $231,116, respectively, and Ms. Mahon received approximately
$12,000 from her employer in each fiscal period in commissions on account of such purchases. Ms.
Mahon is also engaged by Borrower as a consultant to review expense reports submitted by Borrower
employees. During fiscal 2008, 2007 and 2006, Ms. Mahon received $11,000, $10,000 and $10,000,
respectively in consideration of such services.



Borrower also employs William F. Mitchell, Jr., the son of Mr. Mitchell, as its Vice President,
Contracts/Purchasing, and David Mitchell, the son of Mr. Mitchell, as its Business Unit Manager for
Sterilizers. In fiscal 2008, David Mitchell received $141,000 in compensation from Borrower.







 









 





EXHIBIT A-1

FORM OF SENIOR SECURED SUBORDINATED INITIAL NOTE



NEITHER THIS NOTE NOR THE SHARES OF PREFERRED STOCK THAT MAY BE ISSUABLE UPON PAYMENT OF INTEREST
HEREON HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED HEREIN, AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (B) AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW.




			
	 	 	 
	$1,000,000
	 	____________, 2009






ENVIRONMENTAL TECTONICS CORPORATION




SENIOR SECURED SUBORDINATED PROMISSORY NOTE




     ENVIRONMENTAL TECTONICS CORPORATION (the “Company”), a Pennsylvania corporation, for value
received, and intending to be legally bound, hereby unconditionally promises to pay to the order of
H.F. Lenfest (the “Lender”), or any assignee or holder hereof (together with the Lender, a
“Holder”), the principal sum of One Million Dollars ($1,000,000), plus all accrued and unpaid
interest at the rates provided herein, in lawful money of the United States of America. The
obligations of the Company under this Senior Secured Subordinated Promissory Note (this “Note”) are
secured as set forth in the Security Agreement dated as of April 24, 2009 between the Company and
the Lender. Capitalized terms used herein and not defined herein shall have the meanings assigned
to them in the Secured Credit Facility and Warrant Purchase Agreement, dated as of April 24, 2009,
by and between the Company and the Lender (as amended, restated or otherwise modified, the
“Purchase Agreement”).



     Payments of principal or interest on this Note shall be made in lawful money of the United
States of America by wire transfer to a bank account designated by the Holder.



     1. Principal Payments. The outstanding principal balance of this Note, together with
all accrued and unpaid interest thereon, shall be due and payable five (5) Business Days following
the Shareholder Approval Date (the “Maturity Date”), unless such payment obligation is accelerated
pursuant to Section 5 hereof; provided, however, that the Maturity Date shall be extended
automatically to ____, 2012 in the event the Company receives the Shareholder Approval by the
initial Maturity Date.



 









 





     2. Interest.



          (a) 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 of issuance of this Note (the
“Issue Date”) in the event the Company receives the Shareholder Approval.




          (b) Payment of Interest. Interest shall be payable, at the option of the Lender, on
each anniversary date of this Note, with any accrued and unpaid interest due and payable on the
Maturity Date. The Lender shall deliver to the Company at least five (5) days prior written notice
if it wishes to elect to be paid interest on any anniversary date. Interest payable hereunder will
be computed on the basis of a year of 365 days, for the number of actual days elapsed during which
principal is outstanding. Interest may be payable, in the sole discretion of the Lender, in cash
or in shares of Series D Convertible Preferred Stock, par value $0.05 per share, of the Company
(“Series D Preferred Stock”), which number of shares of Series D Preferred Stock to be determined
by dividing the amount of interest due on an interest payment date by $1,000.00, the stated value
of the Series D Preferred Stock.




          (c) Default Rate. If an Event of Default (hereinafter defined) shall occur and be
continuing, then, and in any such event, interest shall accrue on the unpaid principal balance from
time to time outstanding hereunder at the rate of the Interest Rate plus six percent (6%) per annum
(the “Default Rate”) until the entire principal evidenced by this Note and all accrued interest
thereon is paid in full or the Event of Default is cured within the applicable cure period.




     3. Subordination.



          (a) To the extent there is any conflict between the provisions of this Section 3 and the other
provisions of this Note, the provisions of this Section 3 shall control. By its acceptance of this
Note, the Lender and any subsequent holder hereof agrees to the terms and conditions of this
Section 3.




          (b) The Lender hereby subordinates this Note and the right to receive payments of principal
and interest on this Note to the Senior Lender. Notwithstanding the respective dates of attachment
or perfection of any security interest of the Lender and the security interest of the Senior
Lender, the security interest of the Senior Lender in the property of the Company shall at all
times be prior to the security interest of the Lender. The Lender hereby agrees to execute and
deliver to the Senior Lender any reasonable subordination agreement in favor of the Senior Lender
that the Senior Lender may require the Lender to execute.




     4. Transfer of Securities.



          (a) Restrictions on Transfer. Except as expressly set forth herein, by accepting this
Note, the Holder hereby acknowledges that this Note, and except as expressly set forth in the
Registration Rights Agreement, the shares of Series D Preferred Stock that may be issuable in
payment of interest on this Note, will not be registered under the Securities Act of 1933, as
amended (the “Securities Act”), or any state securities laws. The Holder represents that it is
acquiring this Note for its own account, for investment purposes only and not with a view to,




(2)









 







or for sale in connection with, any distribution of such securities. Notwithstanding the
foregoing, subject to all applicable securities laws, the Holder may transfer this Note or any
shares of Series D Preferred Stock (or any interest therein) without violation of the Securities
Act or any applicable state securities law; provided, however, that the Holder shall not transfer
this Note or any shares of Series D Preferred Stock to a competitor of the Company, or its
subsidiaries or affiliates. No transfer of this Note shall be deemed effective to the extent that
such transfer conflicts with applicable federal or state securities laws.




          (b) Recording of Transfer. The transfer of the Note, or of any right to the principal
thereof, and stated interest thereon, may be effected only by surrender of the Note to the Company
and the issuance of a new note in the name of the transferee.




     5. Default. If any of the following conditions or events (each an “Event of Default”)
shall occur and be continuing, then, and in any such event, the Holder may at any time (unless such
Event of Default shall theretofore have been remedied) at its option, by written notice to the
Company, declare the Note to be due and payable, whereupon the Note shall forthwith mature and
become due and payable, without presentment, demand, protest or notice, all of which are hereby
waived. In addition, in such case the Company will pay to the Holder such further amount as shall
have been incurred by the Holder as the costs and expenses of collection, including reasonable
attorneys’ fees.



          (a) If the Company shall default in the payment of principal or interest on this Note when the
same becomes due and payable, whether on the Maturity Date or by declaration of acceleration or
otherwise and such default shall not have been remedied within five (5) days after the date such
payment was due.




          (b) If an Event of Default shall have occurred under the Purchase Agreement and such Event of
Default shall not have been cured within the applicable cure period.




     6. Miscellaneous.



          (a) All notices, requests or instructions hereunder shall be in writing and delivered
personally, sent by telecopy, sent by nationally recognized, overnight courier service, or sent by
registered or certified mail, postage prepaid, as follows:



If to the Holder:



c/o The Lenfest Group

300 Barr Harbor Drive, Suite 460

West Conshohocken, PA 19428

Attn: H.F. Lenfest

Telecopier: (610) 940-0602




(3)









 







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 the Company:



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



Any of the above addresses may be changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be effective only upon receipt. All
notices, requests or instructions given in accordance herewith shall be effective on the earlier of
(i) the date of delivery to the addressee, or (ii) five business days after it has been mailed, or
(iii) three business days after delivery by a nationally recognized courier service.




          (b) The Lender shall have the right, without obligation, to grant extensions of time or
indulgences without affecting the liability of the Company, including periods when payment is not
permitted under the Subordination Agreement.




          (c) Upon receipt by the Company from a Holder of (i) evidence of the loss, theft, destruction
or mutilation of any Note and (ii) (y) in the case of loss, theft or destruction, of indemnity
(without any bond or other security) reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of any Note, the Company shall execute and deliver a
new Note of like tenor and date. However, the Company shall not be obligated to reissue such lost
or stolen Note if the Holder contemporaneously requests the Company to convert such Note.




          (d) Nothing contained in this Note shall be construed as confessing upon the Holder or any
other person the right to vote or to consent or to receive notice as a shareholder of the Borrower.




(4)









 








          (e) This Note shall be governed by the laws of the Commonwealth of Pennsylvania without regard
to the conflict of law provisions thereof. The Company 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.




          (f) Notwithstanding any provision contained in this Note to the contrary, the Company’s
liability for payment of interest shall not exceed the limits imposed by applicable usury law. If
any provision hereof requires interest payments in excess of the then legally permitted maximum
rate, such provision shall automatically be deemed to require such payment at the then legally
permitted maximum rate; provided, however, that in such event the Conversion Price shall be
adjusted to preserve the economic effects of the transaction contemplated by the Purchase
Agreement.




          (g) Subject to Section 4 hereof, this Note shall be binding on the Company, its successors and
assigns, and shall inure to the benefit of the Holder and the Holder’s successors, assigns, legal
representatives, heirs and guardians.




          (h) In the event of the commencement of a lawsuit or other proceeding to enforce any of the
terms of this Note, the prevailing party shall be entitled to recover reasonable attorney’s fees
and related out-of-pocket expenses.




          (i) WAIVER OF JURY TRIAL. THE COMPANY 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. THE COMPANY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.




          (j) CONFESSION OF JUDGMENT. THE COMPANY 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 THE COMPANY AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT UNDER THIS NOTE, THE PURCHASE AGREEMENT OR THE SECURITY AGREEMENT, IN ANY SUCH COURT IN ANY
ACTION BROUGHT AGAINST THE COMPANY BY THE LENDER 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 THE COMPANY FOR ALL SUMS PAYABLE BY THE COMPANY TO THE LENDER HEREUNDER, AS
EVIDENCED BY AN AFFIDAVIT SIGNED BY A DULY AUTHORIZED DESIGNEE OF THE LENDER SETTING FORTH SUCH
AMOUNT THEN DUE FROM THE COMPANY TO THE LENDER, PLUS AN ATTORNEY’S COMMISSION EQUAL TO TEN PERCENT
(10%) OF THE SUMS THEN OUTSTANDING UNDER THIS NOTE OR THE PURCHASE




(5)









 







AGREEMENT, BUT IN NO EVENT LESS THAN $25,000, 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 AND/OR THE PURCHASE AGREEMENT, 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. THE COMPANY 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 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 THE LENDER
SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO THE LENDER HEREUNDER, SHALL HAVE BEEN PAID IN FULL. THE
EXERCISE BY THE LENDER OF HIS RIGHTS AND REMEDIES AND THE ENTRY OF ANY JUDGMENT BY THE LENDER UNDER
THIS SECTION SHALL NOT AFFECT IN ANY WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER AMOUNTS
DUE TO THE LENDER, BUT INTEREST SHALL CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT RATE.



THIS NOTE WAS ISSUED WITH “ORIGINAL ISSUE DISCOUNT.” FOR INFORMATION REGARDING THE ISSUE PRICE,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY, HOLDERS SHOULD
CONTACT ENVIRONMENTAL TECTONICS CORP., ATTENTION: CHIEF FINANCIAL OFFICER, 125 JAMES WAY,
SOUTHAMPTON, PENNSYLVANIA 18966-3877, TELEPHONE NUMBER: (215) 355-9100.




* * *




(6)









 








     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by its duly
authorized officer as of the day and year first above written.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




(7)











 





EXHIBIT A-2

FORM OF SENIOR SECURED SUBORDINATED ADDITIONAL NOTE



NEITHER THIS NOTE NOR THE SHARES OF PREFERRED STOCK THAT MAY BE ISSUABLE UPON PAYMENT OF INTEREST
HEREON HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED HEREIN, AND MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS,
OR (B) AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAW.




			
	 	 	 
	$____________
	 	____________ ___, 2009






ENVIRONMENTAL TECTONICS CORPORATION




SENIOR SECURED SUBORDINATED PROMISSORY NOTE




     ENVIRONMENTAL TECTONICS CORPORATION (the “Company”), a Pennsylvania corporation, for value
received, and intending to be legally bound, hereby unconditionally promises to pay to the order of
H.F. Lenfest (the “Lender”), or any assignee or holder hereof (together with the Lender, a
“Holder”), the principal sum of _______________ Dollars ($____________), as increased pursuant to
Section 2(c) hereof, plus all accrued and unpaid interest at the rates provided herein, in lawful
money of the United States of America. The obligations of the Company under this Senior Secured
Subordinated Promissory Note (this “Note”) are secured as set forth in the Security Agreement dated
as of April 24, 2009 between the Company and the Lender. Capitalized terms used herein and not
defined herein shall have the meanings assigned to them in the Secured Credit Facility and Warrant
Purchase Agreement, dated as of April 24, 2009, by and between the Company and the Lender (as
amended, restated or otherwise modified, the “Purchase Agreement”).



     Payments of principal or interest on this Note shall be made in lawful money of the United
States of America by wire transfer to a bank account designated by the Holder.



     1. Principal Payments. The outstanding principal balance of this Note, together with
all accrued and unpaid interest thereon, shall be due and payable on the earlier of (i) three (3)
years from the date hereof or (ii) December 31, 2012 (such earlier date, the “Maturity Date”),
unless such payment obligation is accelerated pursuant to Section 5 hereof.



 









 





     2. Interest.



          (a) Interest Rate. Interest shall accrue on the outstanding principal amount hereof
at a rate of ten percent (10%) per annum, compounded annually (the “Interest Rate”), until paid in
full.




          (b) Payment of Interest. Interest shall be payable at the option of the Lender, on
each anniversary date of this Note, with any accrued and unpaid interest due and payable on the
Maturity Date. The Lender shall deliver to the Company at least five (5) days prior written notice
if he wishes to be paid interest on an anniversary date. Interest payable hereunder will be
computed on the basis of a year of 365 days, for the number of actual days elapsed during which
principal is outstanding. Interest may be payable, in the sole discretion of the Lender, in cash
or in shares of Series D Convertible Preferred Stock, par value $0.05 per share, of the Company
(“Series D Preferred Stock”), which number of shares of Series D Preferred Stock to be determined
by dividing the amount of interest due on an interest payment date by $1,000.00, the stated value
of the Series D Preferred Stock.




          (c) Default Rate. If an Event of Default (hereinafter defined) shall occur and be
continuing, then, and in any such event, interest shall accrue on the unpaid principal balance from
time to time outstanding hereunder at the rate of the Interest Rate plus six percent (6%) per annum
(the “Default Rate”) until the entire principal evidenced by this Note and all accrued interest
thereon is paid in full or the Event of Default is cured within the applicable cure period.




     3. Subordination.



          (a) To the extent there is any conflict between the provisions of this Section 3 and the other
provisions of this Note, the provisions of this Section 3 shall control. By its acceptance of this
Note, the Lender and any subsequent holder hereof agrees to the terms and conditions of this
Section 3.




          (b) The Lender hereby subordinates this Note and the right to receive payments of principal
and interest on this Note to the Senior Lender. Notwithstanding the respective dates of attachment
or perfection of any security interest of the Lender and the security interest of the Senior
Lender, the security interest of the Senior Lender in the property of the Company shall at all
times be prior to the security interest of the Lender. The Lender hereby agrees to execute and
deliver to the Senior Lender any reasonable subordination agreement in favor of the Senior Lender
that the Senior Lender may require the Lender to execute.




     4. Transfer of Securities.



          (a) Restrictions on Transfer. Except as expressly set forth herein, by accepting this
Note, the Holder hereby acknowledges that this Note, and except as expressly set forth in the
Registration Rights Agreement, the shares of Series D Preferred Stock that may be issuable in
payment of interest on this Note, will not be registered under the Securities Act of 1933, as
amended (the “Securities Act”), or any state securities laws. The Holder represents that it is
acquiring this Note for its own account, for investment purposes only and not with a view to, or
for sale in connection with, any distribution of such securities. Notwithstanding the foregoing,
subject to all applicable securities laws, the Holder may transfer this Note or any




(2)









 







shares of Series D Preferred Stock (or any interest therein) without violation of the
Securities Act or any applicable state securities law; provided, however, that the Holder shall not
transfer this Note or any shares of Series D Preferred Stock to a competitor of the Company, or its
subsidiaries or affiliates. No transfer of this Note shall be deemed effective to the extent that
such transfer conflicts with applicable federal or state securities laws.




          (b) Recording of Transfer. The transfer of the Note, or of any right to the principal
thereof, and stated interest thereon, may be effected only by surrender of the Note to the Company
and the issuance of a new note in the name of the transferee.




     5. Default. If any of the following conditions or events (each an “Event of Default”)
shall occur and be continuing, then, and in any such event, the Holder may at any time (unless such
Event of Default shall theretofore have been remedied) at its option, by written notice to the
Company, declare the Note to be due and payable, whereupon the Note shall forthwith mature and
become due and payable, without presentment, demand, protest or notice, all of which are hereby
waived. In addition, in such case the Company will pay to the Holder such further amount as shall
have been incurred by the Holder as the costs and expenses of collection, including reasonable
attorneys’ fees.



          (a) If the Company shall default in the payment of principal or interest on this Note when the
same becomes due and payable, whether on the Maturity Date or by declaration of acceleration or
otherwise and such default shall not have been remedied within five (5) days after the date such
payment was due.




          (b) If an Event of Default shall have occurred under the Purchase Agreement and such Event of
Default shall not have been cured within the applicable cure period.




     6. Miscellaneous.



          (a) All notices, requests or instructions hereunder shall be in writing and delivered
personally, sent by telecopy, sent by nationally recognized, overnight courier service, or sent by
registered or certified mail, postage prepaid, as follows:



If to the Holder:



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




(3)









 







If to the Company:



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



Any of the above addresses may be changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be effective only upon receipt. All
notices, requests or instructions given in accordance herewith shall be effective on the earlier of
(i) the date of delivery to the addressee, or (ii) five business days after it has been mailed, or
(iii) three business days after delivery by a nationally recognized courier service.




          (b) The Lender shall have the right, without obligation, to grant extensions of time or
indulgences without affecting the liability of the Company, including periods when payment is not
permitted under the Subordination Agreement.




          (c) Upon receipt by the Company from a Holder of (i) evidence of the loss, theft, destruction
or mutilation of any Note and (ii) (y) in the case of loss, theft or destruction, of indemnity
(without any bond or other security) reasonably satisfactory to the Company, or (z) in the case of
mutilation, upon surrender and cancellation of any Note, the Company shall execute and deliver a
new Note of like tenor and date. However, the Company shall not be obligated to reissue such lost
or stolen Note if the Holder contemporaneously requests the Company to convert such Note.




          (d) Nothing contained in this Note shall be construed as confessing upon the Holder or any
other person the right to vote or to consent or to receive notice as a shareholder of the Borrower.




          (e) This Note shall be governed by the laws of the Commonwealth of Pennsylvania without regard
to the conflict of law provisions thereof. The Company 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.




(4)









 








          (f) Notwithstanding any provision contained in this Note to the contrary, the Company’s
liability for payment of interest shall not exceed the limits imposed by applicable usury law. If
any provision hereof requires interest payments in excess of the then legally permitted maximum
rate, such provision shall automatically be deemed to require such payment at the then legally
permitted maximum rate; provided, however, that in such event the Conversion Price shall be
adjusted to preserve the economic effects of the transaction contemplated by the Purchase
Agreement.




          (g) Subject to Section 4 hereof, this Note shall be binding on the Company, its successors and
assigns, and shall inure to the benefit of the Holder and the Holder’s successors, assigns, legal
representatives, heirs and guardians.




          (h) In the event of the commencement of a lawsuit or other proceeding to enforce any of the
terms of this Note, the prevailing party shall be entitled to recover reasonable attorney’s fees
and related out-of-pocket expenses.




          (i) WAIVER OF JURY TRIAL. THE COMPANY 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. THE COMPANY ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.




          (j) CONFESSION OF JUDGMENT. THE COMPANY 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 THE COMPANY AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT UNDER THIS NOTE, THE PURCHASE AGREEMENT OR THE SECURITY AGREEMENT, IN ANY SUCH COURT IN ANY
ACTION BROUGHT AGAINST THE COMPANY BY THE LENDER 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 THE COMPANY FOR ALL SUMS PAYABLE BY THE COMPANY TO THE LENDER HEREUNDER, AS
EVIDENCED BY AN AFFIDAVIT SIGNED BY A DULY AUTHORIZED DESIGNEE OF THE LENDER SETTING FORTH SUCH
AMOUNT THEN DUE FROM THE COMPANY TO THE LENDER, PLUS AN ATTORNEY’S COMMISSION EQUAL TO TEN PERCENT
(10%) OF THE SUMS THEN OUTSTANDING UNDER THIS NOTE OR THE PURCHASE AGREEMENT, BUT IN NO EVENT LESS
THAN $25,000, 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 AND/OR THE PURCHASE
AGREEMENT, 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. THE COMPANY 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



(5)









 






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 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 THE LENDER SHALL ELECT UNTIL ALL
AMOUNTS PAYABLE TO THE LENDER HEREUNDER, SHALL HAVE BEEN PAID IN FULL. THE EXERCISE BY THE LENDER
OF HIS RIGHTS AND REMEDIES AND THE ENTRY OF ANY JUDGMENT BY THE LENDER UNDER THIS SECTION SHALL NOT
AFFECT IN ANY WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER AMOUNTS DUE TO THE LENDER, BUT
INTEREST SHALL CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT RATE.



THIS NOTE WAS ISSUED WITH “ORIGINAL ISSUE DISCOUNT.” FOR INFORMATION REGARDING THE ISSUE PRICE,
THE AMOUNT OF ORIGINAL ISSUE DISCOUNT, THE ISSUE DATE, AND THE YIELD TO MATURITY, HOLDERS SHOULD
CONTACT ENVIRONMENTAL TECTONICS CORP., ATTENTION: CHIEF FINANCIAL OFFICER, 125 JAMES WAY,
SOUTHAMPTON, PENNSYLVANIA 18966-3877, TELEPHONE NUMBER: (215) 355-9100.




* * *




(6)









 








     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its name by its duly
authorized officer as of the day and year first above written.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




(7)











 





EXHIBIT B-1

FORM OF INITIAL STOCK PURCHASE WARRANT



THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.




			
	 	 	 
	                    , 2009
	 	Warrant to Purchase
	 
	 	Shares of Common Stock






ENVIRONMENTAL TECTONICS CORPORATION

STOCK PURCHASE WARRANT




     THIS CERTIFIES THAT, for value received, H.F. Lenfest, or his registered assigns (each, a
“Holder”), is entitled to purchase from Environmental Tectonics Corporation, a Pennsylvania
corporation (the “Company”), at any time or from time to time during the Exercise Period (as
hereinafter defined), the number of fully paid and nonassessable shares of the Company’s common
stock, par value $0.05 per share (the “Common Stock”), set forth in Section 1 hereof, at the
exercise price set forth in Section 2 hereof, subject to adjustment as provided herein. The term
“Warrant Shares”, as used herein, refers to the shares of Common Stock purchasable hereunder. This
Stock Purchase Warrant (this “Warrant”) has been issued pursuant to, and subject to the terms of,
that certain Secured Credit Facility and Warrant Purchase Agreement, dated as of April 24, 2009, by
and between the Company and H.F. Lenfest (the “Purchase Agreement”). The term “Warrants” means
this Warrant and any warrants issued as a result of the transfer, exchange or replacement of such
warrants. Capitalized terms not otherwise defined herein shall have the meanings given to such
terms in the Purchase Agreement.



     This Warrant is subject to the following terms, provisions and conditions:



     1. Number of Shares. During the Exercise Period, the Holder shall be entitled to
purchase
                     shares of Common Stock under this Warrant, which number of shares of Common
Stock was determined by multiplying the principal amount of the applicable Note to which this
Warrant relates by 10% and dividing that number by the Market Price (as hereinafter defined) as of
the Issue Date (as hereinafter defined); provided, however, that if the Shareholder Approval is not
obtained by the Shareholder Approval Date, the Holder shall be entitled to purchase                     
shares of Common Stock, which number of shares was determined by multiplying the principal amount
of the applicable Note to which this Warrant relates by 50% and dividing by the Market Price as of
the Issue Date for the Company’s Common Stock for which this Note and this Warrant relate.



     2. Exercise Price. The exercise price of this Warrant (the “Exercise Price”) shall be
a price per share equal to $          , which is the Market Price as of the Issue Date; provided,



 









 







however, that if the Shareholder Approval is not obtained by the Shareholder Approval Date,
the Exercise Price shall be $          , which is 50% of the foregoing Market Price.



     3. Period of Exercise. This Warrant is exercisable at any time or from time to time
beginning on the date of issuance (the “Issue Date”) and ending at 5:00 p.m., Philadelphia,
Pennsylvania time on the seventh (7th) anniversary of the Issue Date (the “Exercise
Period”).



     4. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the form attached hereto
(the “Exercise Agreement”), to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the Exercise Price for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder hereof or such Holder’s designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered and payment shall have been made for
such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Holder
hereof within fifteen (15) business days after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by the Holder hereof
and shall be registered in the name of such Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, as soon as practicable after the date of exercise,
deliver to the Holder a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.



     5. Certain Agreements of the Company. The Company hereby covenants and agrees as
follows:



          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance
with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.



          (b) Reservation of Shares. During the Exercise Period, the Company shall at all times
have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant.



          (c) Listing. The Company shall use its reasonable best efforts to secure the listing
of the Warrant Shares upon each securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall use its reasonable best efforts to maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Warrant Shares.



          (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger, dissolution,



2









 







issue or sale of securities, or any other voluntary action, directly or indirectly, by
operation of law or otherwise, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed by it hereunder, but will at all times in good faith assist in
the carrying out of all the provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the Holder of this Warrant in order to protect the exercise privilege of
the Holder of this Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.



          (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding
to the Company or its assets.



     6. Antidilution Provisions. During the Exercise Period, the Exercise Price and the
number of Warrant Shares shall be subject to adjustment from time to time as provided in this
Section 6. In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded off to the nearest cent.



          (a) Sale of Securities Below Current Exercise Price. Except as otherwise provided in
Sections 6(b) and 6(d), if at any time the Company shall issue or, pursuant to the provisions
hereof, be deemed to have issued (other than as set forth in Section 6(a)(vi) hereof) any shares of
Common Stock, Convertible Securities (as hereinafter defined), Rights (as hereinafter defined) or
Related Rights (as hereinafter defined) (collectively, “Securities”) without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior to the issuance of
such Securities, then the Exercise Price in effect immediately prior to each such issuance shall
forthwith be reduced to a price determined in accordance with the following formula:



EP2 = EP1 * (A + B) ÷ (A + C).




     For purposes of the foregoing formula, the following definitions shall apply:



                    (a) “EP2” shall mean the Exercise Price for the Common Stock in effect immediately
after such issuance of Securities;



                    (b) “EP1” shall mean the Exercise Price of the Common Stock in effect immediately
prior to such issuance of Securities;



                    (c) “A” shall mean the number of shares of Common Stock actually outstanding immediately prior
to such issuance of Securities (excluding shares of Common Stock issuable on conversion or exercise
of preferred stock, convertible promissory notes, options, warrants and other options to purchase
or rights to subscribe for such convertible or exchangeable securities);



                    (d) “B” shall mean the number of additional shares of Common Stock that would have been issued
if such Securities had been issued at a price per share equal to EP1 (determined by
dividing the aggregate consideration received by the Company in respect of such issue by
EP1); and



                    (e) “C” shall mean the number of such Securities issued in such transaction.



3









 




For the purpose of this Section 6(a), the following definitions, procedures and exceptions shall be
applicable:





          (i) Rights. In the case of the issuance of options, warrants or other rights
to purchase or otherwise acquire shares of Common Stock, whether or not at the time
exercisable (collectively, “Rights”), the total number of shares of Common Stock issuable
upon exercise of such Rights shall be deemed to have been issued at the time such Rights are
issued, for a consideration equal to the sum of the consideration, if any, received by the
Company upon the issuance of such Rights and the minimum purchase or exercise price payable
upon the exercise of such Rights for the Common Stock to be issued upon the exercise
thereof; and the consideration per share shall be determined by dividing (i) the aggregate
consideration so received by and payable to the Company, by (ii) the number of shares of
Common Stock issuable upon exercise of such Rights.




          (ii) Convertible Securities and Related Rights. In the case of the issuance of
any class or series of stock or any bonds, debentures, notes or other securities or
obligations convertible into or exchangeable for Common Stock, whether or not then
convertible or exchangeable (collectively, “Convertible Securities”), or options, warrants
or other rights to purchase or otherwise acquire Convertible Securities (collectively,
“Related Rights”), the total number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities or exercise of such Related Rights shall be
deemed to have been issued at the time such Convertible Securities or Related Rights are
issued, for a consideration equal to the sum of (A) the consideration, if any, received by
the Company upon issuance of such Convertible Securities or Related Rights (excluding any
cash received on account of accrued interest or dividends) and (B)(1) in the case of
Convertible Securities, the minimum additional consideration, if any, to be received by the
Company upon the conversion or exchange of such Convertible Securities or (2) in the case of
Related Rights, the sum of (x) the minimum purchase or exercise price payable upon the
exercise of such Related Rights for Convertible Securities and (y) the minimum additional
consideration, if any, to be received by the Company upon the conversion or exchange of the
Convertible Securities issued upon the exercise of such Related Rights; and the
consideration per share shall be determined by dividing (i) the aggregate consideration so
received by and payable to the Company, by (ii) the number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities or exercise of such
Related Rights.




          (iii) Changes. On any change in the number of shares of Common Stock issuable
upon the exercise of Rights or Related Rights or upon the conversion or exchange of
Convertible Securities or on any change in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including, but not limited to, a change resulting
from the anti-dilution provisions of such Rights, Related Rights or Convertible Securities,
the Exercise Price to the extent in any way affected by such Rights, Related Rights or
Convertible Securities shall forthwith be readjusted to be thereafter the Exercise Price
that would have been obtained had the adjustment which was made upon the issuance of such
Rights, Related Rights or Convertible Securities been made after giving effect to such
change. No further adjustment shall be made in respect of such change upon the actual
issuance of Common Stock or any payment of



4









 







consideration upon the exercise of such Rights or Related Rights or the conversion or
exchange of such Convertible Securities.




          (iv) Expiration or Cancellation. On the expiration or cancellation of any such
Rights, Related Rights or Convertible Securities, if the Exercise Price shall have been
adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon the issuance of such
Rights, Related Rights or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of such Rights
or Related Rights or the conversion or exchange of such Convertible Securities.




          (v) Cash. In the case of the issuance of such Securities for cash, the amount
of consideration received by the Company shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other expenses paid or
incurred by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of such Securities for consideration other
than cash, the amount of consideration received by the Company shall be determined in good
faith by the Company’s Board of Directors.




          (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible securities
issued and outstanding on the Issue Date that are set forth on Schedule 5.1(f) of the
Purchase Agreement in accordance with the terms of such securities as of such date; (ii)
upon exercise of any stock or options which may hereafter be exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of the Warrants
issued or issuable in accordance with the terms of the Purchase Agreement; (iv) upon
exercise of the Warrants; (v) upon the issuance of any shares of Series E Preferred Stock in
exchange for existing series of Preferred Stock of the Company as provided in the Purchase
Agreement or the issuance of Common Stock in conversion thereof; (vi) upon the issuance of
any shares of Series D Preferred Stock in payment of fees and/or interest on the Notes as
provided in the Purchase Agreement or the issuance of Common Stock in conversion thereof; or
(vi) upon the issuance of securities in connection with a strategic transaction that is
approved by the Board of Directors of the Company, including the Holder if then a director.



          (b) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any time combines (by
reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record
for effecting such combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.



5









 





          (c) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 6, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained
by the adjusted Exercise Price.



          (d) Consolidation, Merger or Sale. In case of any consolidation of the Company with,
or merger of the Company into any other company, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as the Holders of the Warrants would have received had the Warrants been
exercised immediately prior to such consolidation, merger or sale or conveyance. In any such case,
the Company will make appropriate provision to insure that the provisions of this Section 6 hereof
will thereafter be applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor
or acquiring entity (if other than the Company) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation, merger or sale or conveyance
assumes by written instrument the obligations of the Company under this Warrant (including under
this Section 6) and the obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to
acquire. This Section 6(d) shall apply to any successive consolidations, mergers, sales or
conveyances.



          (e) Distribution of Assets. In case the Company shall declare or make any
distribution of its assets (including cash) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of distribution, the Holder of
this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets which would have been
payable to the Holder had such Holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.



          (f) Notice of Adjustment. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the Company shall give notice
thereof to the Holder of this Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the chief financial
officer of the Company.



          (g) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall
be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall be carried



6









 







forward and shall be made at the time and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not less than 1% of such Exercise
Price.



          (h) No Fractional Shares. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.



          (i) Other Notices. In case at any time:




          (i) the Company shall declare any dividend upon the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or distributions
payable in cash out of retained earnings) to the holders of the Common Stock;




          (ii) there shall be any capital reorganization of the Company, or reclassification of
the Common Stock, or consolidation or merger of the Company with or into, or sale of all,
substantially all or a material portion of its assets to, another Company or entity; or




          (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;


then, in each such case, the Company shall give to the Holder of this Warrant (a) notice of the
date on which the books of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend or distribution or for determining
the holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in
the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation
thereof by the Company) when the same shall take place. Such notice shall also specify the date on
which the holders of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at least ten (10)
business days prior to the record date or the date on which the Company’s books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii) and (iii) above; provided that if
notice is not given in accordance with this Section 4(i), the Company will use its best efforts to
insure that the Holder of this Warrant shall nevertheless receive the same rights and benefits
received by other holders of securities of the Company from the proceedings referred to in clauses
(i), (ii) and (iii) above, unless the Holder of this Warrant chooses not to receive such rights and
benefits.




          (j) Certain Events. If any event occurs of the type contemplated by the adjustment
provisions of this Section 6 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 6(i) hereof, and the Company’s Board of Directors
will make an appropriate adjustment in the Exercise Price and the number of



7









 







shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.



          (k) Definition of Market Price. “Market Price,” as of any date, (i) means the closing
sale price for the shares of Common Stock as reported on the American Stock Exchange (“AMEX”) by
Bloomberg Financial Markets (“Bloomberg”) for the trading day immediately preceding such date, or
(ii) if the 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, (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.



     7. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of
this Warrant shall be made without charge to the Holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof.



     8. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the
Holder hereof to any voting rights, rights to dividends, or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof
to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or by creditors of
the Company.



     9. Transfer, Exchange and Replacement of Warrant.



          (a) Restriction on Transfer. This Warrant and the rights granted to the Holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or agency of the Company referred to
in Section 9(e) below; provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 9(f). Notwithstanding the foregoing, this Warrant, the shares of
Common Stock issuable upon exercise hereof, and the rights granted hereunder may not be transferred
to a competitor of the Company or any Subsidiary or affiliate of the Company.



          (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to
in Section 9(e) below, for new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be designated by the
Holder hereof at the time of such surrender.



          (c) Replacement of Warrant. Upon receipt of evidence of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or,
in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.



8









 





          (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange or replacement as provided in this Section 9, this Warrant
shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder
or transferees) and charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 9.



          (e) Register. The Company shall maintain, at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the Holder hereof), a
register for this Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.



          (f) Exercise or Transfer Without Registration. If, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel
to the effect that such exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws; provided however, that no
legal opinion shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act unless in the opinion of counsel to the Company, such transfer does not comply with
the provisions of Rule 144. Notwithstanding the foregoing, the initial Holder of this Warrant, by
taking and holding the same, represents to the Company that such Holder is acquiring this Warrant
for investment and not with a present view to the distribution thereof.



     10. Notices. Any notice which is required or provided to be given under this Warrant
shall be deemed to have been sufficiently given and received for all purposes when delivered by
hand, telecopy (if a copy of such confirmed telecopy transmission shall be contemporaneously sent
by first class mail), or nationally recognized overnight courier, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt requested, to the
following addresses:



     If to the Company:


Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966

Attention: Chief Financial Officer

Facsimile: (215) 357-4000




9









 








     With a copy to:


Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 S. Broad Street

Philadelphia, PA 19102

Attention: William Matthews, Esquire

Facsimile: (215) 568-6603




     If to a Holder hereof, at the address shown for such Holder on the books of the Company; or,
with respect to any party hereto, at any other address designated in writing by such party in
accordance with the provisions of this Section 10.



     11. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to agreements made and to
be performed in the Commonwealth of Pennsylvania (without regard to principles of conflict of
laws). The Company and the Holder hereof consent to the jurisdiction of the United States federal
courts and the state courts located in the Commonwealth of Pennsylvania with respect to any suit or
proceeding based on or arising under this Warrant or the transactions contemplated hereby and agree
that all claims in respect of such suit or proceeding may be determined in such courts. The
Company and the Holder hereof waive the defense of an inconvenient forum to the maintenance of such
suit or proceeding and agree that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party’s right to serve process in any other manner
permitted by law.



     12. Miscellaneous.



          (a) Amendments. This Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and a majority in interest of the outstanding Warrants.




          (b) Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.




[SIGNATURE PAGE FOLLOWS]




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     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title: 
 	 	 
	 	Dated as of                     , 2009 





 









 





FORM OF EXERCISE AGREEMENT




Dated:                           , 20     





			
	To:	 	[Company]

[Address]





     The undersigned, pursuant to the provisions set forth in the Warrant attached hereto, hereby
agrees to purchase                      shares of Common Stock covered by such Warrant, and makes payment
herewith in full therefor at the price per share provided by such Warrant in cash, by wire transfer
or by certified or official bank check in the amount of $                    . Please issue a certificate
or certificates for such shares of Common Stock in the name of and pay any cash for any fractional
share to:



	 	 	 	 	 
	 	 	 
	 	Name:  	 	 
	 	
Signature:  	 	 
	 	Address:  	 	 
	 	  	 	 
	 
	 	
Note:    The above signature should correspond exactly
with the name on the face of the within Warrant. 
	 


and, if said number of shares of Common Stock shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance
of the shares purchasable thereunder less any fraction of a share paid in cash.





 









 





FORM OF ASSIGNMENT




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, to:



	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 
	 	 	 	 




, and hereby irrevocably constitutes and appoints                                                             
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named Company, with full power of substitution in the premises.




Dated:                           , 20     




In the presence of:




 





	 	 	 	 	 
	 	 	 
	 	Name:  	 	 
	 	
Signature:  	 	 
	 	
Title of Signing Officer or Agent (if any):
 
	 	  	 	 
	 	Address:  	 	 
	 	  	 	 
	 
	 	
Note:    The above signature should correspond exactly
with the name on the face of the within Warrant. 
	 




 











 





EXHIBIT B-2

FORM OF ADDITIONAL STOCK PURCHASE WARRANT



THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.




			
	 	 	 
	                          , 2009
	 	Warrant to Purchase
	 
	 	Shares of Common Stock






ENVIRONMENTAL TECTONICS CORPORATION

STOCK PURCHASE WARRANT




     THIS CERTIFIES THAT, for value received, H.F. Lenfest, or his registered assigns (each, a
“Holder”), is entitled to purchase from Environmental Tectonics Corporation, a Pennsylvania
corporation (the “Company”), at any time or from time to time during the Exercise Period (as
hereinafter defined), the number of fully paid and nonassessable shares of the Company’s common
stock, par value $0.05 per share (the “Common Stock”), set forth in Section 1 hereof, at the
exercise price set forth in Section 2 hereof, subject to adjustment as provided herein. The term
“Warrant Shares”, as used herein, refers to the shares of Common Stock purchasable hereunder. This
Warrant has been issued pursuant to, and subject to the terms of, that certain Secured Credit
Facility and Warrant Purchase Agreement, dated as of April 24, 2009, by and between the Company and
H.F. Lenfest (the “Purchase Agreement”). The term “Warrants” means this Warrant and any warrants
issued as a result of the transfer, exchange or replacement of such warrants. Capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement.



     This Warrant is subject to the following terms, provisions and conditions:



     1. Number of Shares. During the Exercise Period, the Holder shall be entitled to
purchase                      shares of Common Stock, which number of shares of Common Stock was
determined by multiplying the principal amount of the applicable Note to which this Warrant relates
by 10% and dividing that number by the Market Price (as hereinafter defined) as of the Issue Date
(as hereinafter defined).



     2. Exercise Price. The exercise price (the “Exercise Price”) shall be a price per
share equal to $          , which is the Market Price as of the Issue Date.



     3. Period of Exercise. This Warrant is exercisable at any time or from time to time
beginning on the date of issuance (the “Issue Date”) and ending at 5:00 p.m., Philadelphia,
Pennsylvania time on the seventh (7th) anniversary of the Issue Date (the “Exercise
Period”).



 









 





     4. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the form attached hereto
(the “Exercise Agreement”), to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the Exercise Price for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder hereof or such Holder’s designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered and payment shall have been made for
such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Holder
hereof within fifteen (15) business days after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by the Holder hereof
and shall be registered in the name of such Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, as soon as practicable after the date of exercise,
deliver to the Holder a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.



     5. Certain Agreements of the Company. The Company hereby covenants and agrees as
follows:



          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance
with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.



          (b) Reservation of Shares. During the Exercise Period, the Company shall at all times
have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant.



          (c) Listing. The Company shall use its reasonable best efforts to secure the listing
of the Warrant Shares upon each securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall use its reasonable best efforts to maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Warrant Shares.



          (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, directly or indirectly, by operation of law or
otherwise, avoid or seek to avoid the observance or performance of any of the terms to be observed
or performed by it hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may reasonably be requested
by the Holder of this Warrant in order to protect the exercise privilege of the Holder of



2









 







this Warrant against dilution or other impairment, consistent with the tenor and purpose of
this Warrant.



          (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding
to the Company or its assets.



     6. Antidilution Provisions. During the Exercise Period, the Exercise Price and the
number of Warrant Shares shall be subject to adjustment from time to time as provided in this
Section 6. In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded off to the nearest cent.



          (a) Sale of Securities Below Current Exercise Price. Except as otherwise provided in
Sections 6(b) and 6(d), if at any time the Company shall issue or, pursuant to the provisions
hereof, be deemed to have issued (other than as set forth in Section 6(a)(vi) hereof) any shares of
Common Stock, Convertible Securities (as hereinafter defined), Rights (as hereinafter defined) or
Related Rights (as hereinafter defined) (collectively, “Securities”) without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior to the issuance of
such Securities, then the Exercise Price in effect immediately prior to each such issuance shall
forthwith be reduced to a price determined in accordance with the following formula:



EP2 = EP1 * (A + B) ÷ (A + C).




     For purposes of the foregoing formula, the following definitions shall apply:



                    (a) “EP2” shall mean the Exercise Price for the Common Stock in effect immediately
after such issuance of Securities;



                    (b) “EP1” shall mean the Exercise Price of the Common Stock in effect immediately
prior to such issuance of Securities;



                    (c) “A” shall mean the number of shares of Common Stock actually outstanding immediately prior
to such issuance of Securities (excluding shares of Common Stock issuable on conversion or exercise
of preferred stock, convertible promissory notes, options, warrants and other options to purchase
or rights to subscribe for such convertible or exchangeable securities);



                    (d) “B” shall mean the number of additional shares of Common Stock that would have been issued
if such Securities had been issued at a price per share equal to EP1 (determined by
dividing the aggregate consideration received by the Company in respect of such issue by
EP1); and



                    (e) “C” shall mean the number of such Securities issued in such transaction.


For the purpose of this Section 6(a), the following definitions, procedures and exceptions shall be
applicable:




3









 






          (i) Rights. In the case of the issuance of options, warrants or other rights
to purchase or otherwise acquire shares of Common Stock, whether or not at the time
exercisable (collectively, “Rights”), the total number of shares of Common Stock issuable
upon exercise of such Rights shall be deemed to have been issued at the time such Rights are
issued, for a consideration equal to the sum of the consideration, if any, received by the
Company upon the issuance of such Rights and the minimum purchase or exercise price payable
upon the exercise of such Rights for the Common Stock to be issued upon the exercise
thereof; and the consideration per share shall be determined by dividing (i) the aggregate
consideration so received by and payable to the Company, by (ii) the number of shares of
Common Stock issuable upon exercise of such Rights.




          (ii) Convertible Securities and Related Rights. In the case of the issuance of
any class or series of stock or any bonds, debentures, notes or other securities or
obligations convertible into or exchangeable for Common Stock, whether or not then
convertible or exchangeable (collectively, “Convertible Securities”), or options, warrants
or other rights to purchase or otherwise acquire Convertible Securities (collectively,
“Related Rights”), the total number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities or exercise of such Related Rights shall be
deemed to have been issued at the time such Convertible Securities or Related Rights are
issued, for a consideration equal to the sum of (A) the consideration, if any, received by
the Company upon issuance of such Convertible Securities or Related Rights (excluding any
cash received on account of accrued interest or dividends) and (B)(1) in the case of
Convertible Securities, the minimum additional consideration, if any, to be received by the
Company upon the conversion or exchange of such Convertible Securities or (2) in the case of
Related Rights, the sum of (x) the minimum purchase or exercise price payable upon the
exercise of such Related Rights for Convertible Securities and (y) the minimum additional
consideration, if any, to be received by the Company upon the conversion or exchange of the
Convertible Securities issued upon the exercise of such Related Rights; and the
consideration per share shall be determined by dividing (i) the aggregate consideration so
received by and payable to the Company, by (ii) the number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities or exercise of such
Related Rights.




          (iii) Changes. On any change in the number of shares of Common Stock issuable
upon the exercise of Rights or Related Rights or upon the conversion or exchange of
Convertible Securities or on any change in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including, but not limited to, a change resulting
from the anti-dilution provisions of such Rights, Related Rights or Convertible Securities,
the Exercise Price to the extent in any way affected by such Rights, Related Rights or
Convertible Securities shall forthwith be readjusted to be thereafter the Exercise Price
that would have been obtained had the adjustment which was made upon the issuance of such
Rights, Related Rights or Convertible Securities been made after giving effect to such
change. No further adjustment shall be made in respect of such change upon the actual
issuance of Common Stock or any payment of consideration upon the exercise of such Rights or
Related Rights or the conversion or exchange of such Convertible Securities.



4









 






          (iv) Expiration or Cancellation. On the expiration or cancellation of any such
Rights, Related Rights or Convertible Securities, if the Exercise Price shall have been
adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon the issuance of such
Rights, Related Rights or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of such Rights
or Related Rights or the conversion or exchange of such Convertible Securities.




          (v) Cash. In the case of the issuance of such Securities for cash, the amount
of consideration received by the Company shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other expenses paid or
incurred by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of such Securities for consideration other
than cash, the amount of consideration received by the Company shall be determined in good
faith by the Company’s Board of Directors.




          (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible securities
issued and outstanding on the Issue Date that are set forth on Schedule 5.1(f) of the
Purchase Agreement in accordance with the terms of such securities as of such date; (ii)
upon exercise of any stock or options which may hereafter be exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of the Warrants
issued or issuable in accordance with the terms of the Purchase Agreement; (iv) upon
exercise of the Warrants; (v) upon the issuance of any shares of Series E Preferred Stock in
exchange for existing series of Preferred Stock of the Company as provided in the Purchase
Agreement or the issuance of Common Stock in conversion thereof; (vi) upon the issuance of
any shares of Series D Preferred Stock in payment of fees and/or interest on the Notes as
provided in the Purchase Agreement or the issuance of Common Stock in conversion thereof; or
(vi) upon the issuance of securities in connection with a strategic transaction that is
approved by the Board of Directors of the Company, including the Holder if then a director.



          (b) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any time combines (by
reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record
for effecting such combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.



5









 





          (c) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 6, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained
by the adjusted Exercise Price.



          (d) Consolidation, Merger or Sale. In case of any consolidation of the Company with,
or merger of the Company into any other company, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as the Holders of the Warrants would have received had the Warrants been
exercised immediately prior to such consolidation, merger or sale or conveyance. In any such case,
the Company will make appropriate provision to insure that the provisions of this Section 6 hereof
will thereafter be applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor
or acquiring entity (if other than the Company) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation, merger or sale or conveyance
assumes by written instrument the obligations of the Company under this Warrant (including under
this Section 6) and the obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to
acquire. This Section 6(d) shall apply to any successive consolidations, mergers, sales or
conveyances.



          (e) Distribution of Assets. In case the Company shall declare or make any
distribution of its assets (including cash) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of distribution, the Holder of
this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets which would have been
payable to the Holder had such Holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.



          (f) Notice of Adjustment. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the Company shall give notice
thereof to the Holder of this Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the chief financial
officer of the Company.



6









 





          (g) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall
be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such Exercise Price.



          (h) No Fractional Shares. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.



          (i) Other Notices. In case at any time:




          (i) the Company shall declare any dividend upon the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or distributions
payable in cash out of retained earnings) to the holders of the Common Stock;




          (ii) there shall be any capital reorganization of the Company, or reclassification of
the Common Stock, or consolidation or merger of the Company with or into, or sale of all,
substantially all or a material portion of its assets to, another Company or entity; or




          (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;


then, in each such case, the Company shall give to the Holder of this Warrant (a) notice of the
date on which the books of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend or distribution or for determining
the holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in
the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation
thereof by the Company) when the same shall take place. Such notice shall also specify the date on
which the holders of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at least ten (10)
business days prior to the record date or the date on which the Company’s books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii) and (iii) above; provided that if
notice is not given in accordance with this Section 4(i), the Company will use its best efforts to
insure that the Holder of this Warrant shall nevertheless receive the same rights and benefits
received by other holders of securities of the Company from the proceedings referred to in clauses
(i), (ii) and (iii) above, unless the Holder of this Warrant chooses not to receive such rights and
benefits.




7









 





     (j) Certain Events. If any event occurs of the type contemplated by the adjustment
provisions of this Section 6 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 6(i) hereof, and the Company’s Board of Directors
will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the Holder shall be neither enhanced
nor diminished by such event.



     (k) Definition of Market Price. “Market Price,” as of any date, (i) means the closing
sale price for the shares of Common Stock as reported on the on the NYSE AMEX 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 the 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, (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.



     7. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of
this Warrant shall be made without charge to the Holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof.



     8. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the
Holder hereof to any voting rights, rights to dividends, or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof
to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or by creditors of
the Company.



     9. Transfer, Exchange and Replacement of Warrant.



          (a) Restriction on Transfer. This Warrant and the rights granted to the Holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or agency of the Company referred to
in Section 9(e) below; provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 9(f). Notwithstanding the foregoing, this Warrant, the shares of
Common Stock issuable upon exercise hereof, and the rights granted hereunder may not be transferred
to a competitor of the Company or any Subsidiary or affiliate of the Company.



          (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to
in Section 9(e) below, for new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be designated by the
Holder hereof at the time of such surrender.



8









 





          (c) Replacement of Warrant. Upon receipt of evidence of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or,
in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.



          (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange or replacement as provided in this Section 9, this Warrant
shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder
or transferees) and charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 9.



          (e) Register. The Company shall maintain, at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the Holder hereof), a
register for this Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.



          (f) Exercise or Transfer Without Registration. If, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel
to the effect that such exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws; provided however, that no
legal opinion shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act unless in the opinion of counsel to the Company, such transfer does not comply with
the provisions of Rule 144. Notwithstanding the foregoing, the initial Holder of this Warrant, by
taking and holding the same, represents to the Company that such Holder is acquiring this Warrant
for investment and not with a present view to the distribution thereof.



     10. Notices. Any notice which is required or provided to be given under this Warrant
shall be deemed to have been sufficiently given and received for all purposes when delivered by
hand, telecopy (if a copy of such confirmed telecopy transmission shall be contemporaneously sent
by first class mail), or nationally recognized overnight courier, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt requested, to the
following addresses:



     If to the Company:


Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966




9









 







Attention: Chief Financial Officer

Facsimile: (215) 357-4000




     With a copy to:


Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 S. Broad Street

Philadelphia, PA 19102

Attention: William Matthews, Esquire

Facsimile: (215) 568-6603




     If to a Holder hereof, at the address shown for such Holder on the books of the Company; or,
with respect to any party hereto, at any other address designated in writing by such party in
accordance with the provisions of this Section 10.



     11. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to agreements made and to
be performed in the Commonwealth of Pennsylvania (without regard to principles of conflict of
laws). The Company and the Holder hereof consent to the jurisdiction of the United States federal
courts and the state courts located in the Commonwealth of Pennsylvania with respect to any suit or
proceeding based on or arising under this Warrant or the transactions contemplated hereby and agree
that all claims in respect of such suit or proceeding may be determined in such courts. The
Company and the Holder hereof waive the defense of an inconvenient forum to the maintenance of such
suit or proceeding and agree that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party’s right to serve process in any other manner
permitted by law.



     12. Miscellaneous.



          (a) Amendments. This Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and a majority in interest of the outstanding Warrants.




          (b) Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.




[SIGNATURE PAGE FOLLOWS]




10









 





     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title: 
 	 	 
	 	Dated as of                           , 2009 




 









 





FORM OF EXERCISE AGREEMENT




Dated:                           , 20     





			
	To:	 	[Company]

[Address]





     The undersigned, pursuant to the provisions set forth in the Warrant attached hereto, hereby
agrees to purchase            shares of Common Stock covered by such Warrant, and makes payment
herewith in full therefor at the price per share provided by such Warrant in cash, by wire transfer
or by certified or official bank check in the amount of $                    . Please issue a certificate
or certificates for such shares of Common Stock in the name of and pay any cash for any fractional
share to:



	 	 	 	 	 
	 	 	 
	 	Name:  	 	 
	 	
Signature:  	 	 
	 	Address:  	 	 
	 	  	 	 
	 
	 	
Note:    The above signature should correspond exactly
with the name on the face of the within Warrant.
	 





and, if said number of shares of Common Stock shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance
of the shares purchasable thereunder less any fraction of a share paid in cash.




 









 





FORM OF ASSIGNMENT




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, to:




	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 
	 	 	 	 




, and hereby irrevocably constitutes and appoints                                                             
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named Company, with full power of substitution in the premises.



Dated:                           , 20     



In the presence of:




 





	 	 	 	 	 
	 	 	 
	 	Name:  	 	 
	 	
Signature:  	 	 
	 	
Title of Signing Officer or Agent (if any):
 
	 	  	 	 
	 	Address:  	 	 
	 	  	 	 
	 
	 	
Note:    The above signature should correspond exactly
with the name on the face of the within Warrant.
	 







 











 





EXHIBIT B-3

FORM OF GUARANTY WARRANT



THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.




			
	 	 	 
	_________ ___, 2009
	 	Warrant to Purchase

Shares of Common Stock






ENVIRONMENTAL TECTONICS CORPORATION

STOCK PURCHASE WARRANT




     THIS CERTIFIES THAT, for value received, H.F. Lenfest, or his registered assigns (each, a
“Holder”), is entitled to purchase from Environmental Tectonics Corporation, a Pennsylvania
corporation (the “Company”), at any time or from time to time during the Exercise Period (as
hereinafter defined), the number of fully paid and nonassessable shares of the Company’s common
stock, par value $0.05 per share (the “Common Stock”), set forth in Section 1 hereof, at the
exercise price set forth in Section 2 hereof, subject to adjustment as provided herein. The term
“Warrant Shares”, as used herein, refers to the shares of Common Stock purchasable hereunder. This
Warrant has been issued pursuant to, and subject to the terms of, that certain Secured Credit
Facility and Warrant Purchase Agreement, dated as of April 24, 2009, by and between the Company and
H.F. Lenfest (the “Purchase Agreement”). The term “Warrants” means this Warrant and any warrants
issued as a result of the transfer, exchange or replacement of such warrants. Capitalized terms
not otherwise defined herein shall have the meanings given to such terms in the Purchase Agreement.



     This Warrant is subject to the following terms, provisions and conditions:



     1. Number of Shares. During the Exercise Period, the Holder shall be entitled to
purchase _________ shares of Common Stock, which number of shares of Common Stock was
determined by dividing $500,000 by the Market Price (as hereinafter defined) as of the Issue Date
(as hereinafter defined).



     2. Exercise Price. The exercise price (the “Exercise Price”) shall be a price per
share equal to $______, which is the Market Price as of the Issue Date.



     3. Period of Exercise. This Warrant is exercisable at any time or from time to time
beginning on the date of issuance (the “Issue Date”) and ending at 5:00 p.m., Philadelphia,
Pennsylvania time on the seventh (7th) anniversary of the Issue Date (the “Exercise
Period”).



 









 





     4. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the form attached hereto
(the “Exercise Agreement”), to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the Exercise Price for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder hereof or such Holder’s designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered and payment shall have been made for
such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Holder
hereof within fifteen (15) business days after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by the Holder hereof
and shall be registered in the name of such Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, as soon as practicable after the date of exercise,
deliver to the Holder a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.



     5. Certain Agreements of the Company. The Company hereby covenants and agrees as
follows:



          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance
with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.




          (b) Reservation of Shares. During the Exercise Period, the Company shall at all times
have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant.




          (c) Listing. The Company shall use its reasonable best efforts to secure the listing
of the Warrant Shares upon each securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall use its reasonable best efforts to maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Warrant Shares.




          (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, directly or indirectly, by operation of law or
otherwise, avoid or seek to avoid the observance or performance of any of the terms to be observed
or performed by it hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may reasonably be requested
by the Holder of this Warrant in order to protect the exercise privilege of the Holder of



2









 






this Warrant against dilution or other impairment, consistent with the tenor and purpose of
this Warrant.




          (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding
to the Company or its assets.




     6. Antidilution Provisions. During the Exercise Period, the Exercise Price and the
number of Warrant Shares shall be subject to adjustment from time to time as provided in this
Section 6. In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded off to the nearest cent.



          (a) Sale of Securities Below Current Exercise Price. Except as otherwise provided in
Sections 6(b) and 6(d), if at any time the Company shall issue or, pursuant to the provisions
hereof, be deemed to have issued (other than as set forth in Section 6(a)(vi) hereof) any shares of
Common Stock, Convertible Securities (as hereinafter defined), Rights (as hereinafter defined) or
Related Rights (as hereinafter defined) (collectively, “Securities”) without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior to the issuance of
such Securities, then the Exercise Price in effect immediately prior to each such issuance shall
forthwith be reduced to a price determined in accordance with the following formula:




EP2 = EP1 * (A + B) ÷ (A + C).




     For purposes of the foregoing formula, the following definitions shall apply:



               (a) “EP2” shall mean the Exercise Price for the Common Stock in effect immediately
after such issuance of Securities;



               (b) “EP1” shall mean the Exercise Price of the Common Stock in effect immediately
prior to such issuance of Securities;



               (c) “A” shall mean the number of shares of Common Stock actually outstanding immediately prior
to such issuance of Securities (excluding shares of Common Stock issuable on conversion or exercise
of preferred stock, convertible promissory notes, options, warrants and other options to purchase
or rights to subscribe for such convertible or exchangeable securities);



               (d) “B” shall mean the number of additional shares of Common Stock that would have been issued
if such Securities had been issued at a price per share equal to EP1 (determined by
dividing the aggregate consideration received by the Company in respect of such issue by
EP1); and



               (e) “C” shall mean the number of such Securities issued in such transaction.


For the purpose of this Section 6(a), the following definitions, procedures and exceptions shall be
applicable:




3









 









          (i) Rights. In the case of the issuance of options, warrants or other rights
to purchase or otherwise acquire shares of Common Stock, whether or not at the time
exercisable (collectively, “Rights”), the total number of shares of Common Stock issuable
upon exercise of such Rights shall be deemed to have been issued at the time such Rights are
issued, for a consideration equal to the sum of the consideration, if any, received by the
Company upon the issuance of such Rights and the minimum purchase or exercise price payable
upon the exercise of such Rights for the Common Stock to be issued upon the exercise
thereof; and the consideration per share shall be determined by dividing (i) the aggregate
consideration so received by and payable to the Company, by (ii) the number of shares of
Common Stock issuable upon exercise of such Rights.




          (ii) Convertible Securities and Related Rights. In the case of the issuance of
any class or series of stock or any bonds, debentures, notes or other securities or
obligations convertible into or exchangeable for Common Stock, whether or not then
convertible or exchangeable (collectively, “Convertible Securities”), or options, warrants
or other rights to purchase or otherwise acquire Convertible Securities (collectively,
“Related Rights”), the total number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities or exercise of such Related Rights shall be
deemed to have been issued at the time such Convertible Securities or Related Rights are
issued, for a consideration equal to the sum of (A) the consideration, if any, received by
the Company upon issuance of such Convertible Securities or Related Rights (excluding any
cash received on account of accrued interest or dividends) and (B)(1) in the case of
Convertible Securities, the minimum additional consideration, if any, to be received by the
Company upon the conversion or exchange of such Convertible Securities or (2) in the case of
Related Rights, the sum of (x) the minimum purchase or exercise price payable upon the
exercise of such Related Rights for Convertible Securities and (y) the minimum additional
consideration, if any, to be received by the Company upon the conversion or exchange of the
Convertible Securities issued upon the exercise of such Related Rights; and the
consideration per share shall be determined by dividing (i) the aggregate consideration so
received by and payable to the Company, by (ii) the number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities or exercise of such
Related Rights.




          (iii) Changes. On any change in the number of shares of Common Stock issuable
upon the exercise of Rights or Related Rights or upon the conversion or exchange of
Convertible Securities or on any change in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including, but not limited to, a change resulting
from the anti-dilution provisions of such Rights, Related Rights or Convertible Securities,
the Exercise Price to the extent in any way affected by such Rights, Related Rights or
Convertible Securities shall forthwith be readjusted to be thereafter the Exercise Price
that would have been obtained had the adjustment which was made upon the issuance of such
Rights, Related Rights or Convertible Securities been made after giving effect to such
change. No further adjustment shall be made in respect of such change upon the actual
issuance of Common Stock or any payment of consideration upon the exercise of such Rights or
Related Rights or the conversion or exchange of such Convertible Securities.



4









 






          (iv) Expiration or Cancellation. On the expiration or cancellation of any such
Rights, Related Rights or Convertible Securities, if the Exercise Price shall have been
adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon the issuance of such
Rights, Related Rights or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of such Rights
or Related Rights or the conversion or exchange of such Convertible Securities.




          (v) Cash. In the case of the issuance of such Securities for cash, the amount
of consideration received by the Company shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other expenses paid or
incurred by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of such Securities for consideration other
than cash, the amount of consideration received by the Company shall be determined in good
faith by the Company’s Board of Directors.




          (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible securities
issued and outstanding on the Issue Date that are set forth on Schedule 5.1(f) of the
Purchase Agreement in accordance with the terms of such securities as of such date; (ii)
upon exercise of any stock or options which may hereafter be exercised under any employee
benefit plan of the Company now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of the Warrants
issued or issuable in accordance with the terms of the Purchase Agreement; (iv) upon
exercise of the Warrants; (v) upon the issuance of any shares of Series E Preferred Stock in
exchange for existing series of Preferred Stock of the Company as provided in the Purchase
Agreement or the issuance of Common Stock in conversion thereof; (vi) upon the issuance of
any shares of Series D Preferred Stock in payment of fees and/or interest on the Notes as
provided in the Purchase Agreement or the issuance of Common Stock in conversion thereof; or
(vi) upon the issuance of securities in connection with a strategic transaction that is
approved by the Board of Directors of the Company, including the Holder if then a director.



          (b) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any time combines (by
reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record
for effecting such combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.




5









 








          (c) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 6, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained
by the adjusted Exercise Price.




          (d) Consolidation, Merger or Sale. In case of any consolidation of the Company with,
or merger of the Company into any other company, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as the Holders of the Warrants would have received had the Warrants been
exercised immediately prior to such consolidation, merger or sale or conveyance. In any such case,
the Company will make appropriate provision to insure that the provisions of this Section 6 hereof
will thereafter be applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor
or acquiring entity (if other than the Company) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation, merger or sale or conveyance
assumes by written instrument the obligations of the Company under this Warrant (including under
this Section 6) and the obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to
acquire. This Section 6(d) shall apply to any successive consolidations, mergers, sales or
conveyances.




          (e) Distribution of Assets. In case the Company shall declare or make any
distribution of its assets (including cash) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of distribution, the Holder of
this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets which would have been
payable to the Holder had such Holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.




          (f) Notice of Adjustment. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the Company shall give notice
thereof to the Holder of this Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the chief financial
officer of the Company.




6









 








          (g) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall
be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such Exercise Price.




          (h) No Fractional Shares. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.




          (i) Other Notices. In case at any time:





          (i) the Company shall declare any dividend upon the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or distributions
payable in cash out of retained earnings) to the holders of the Common Stock;




          (ii) there shall be any capital reorganization of the Company, or reclassification of
the Common Stock, or consolidation or merger of the Company with or into, or sale of all,
substantially all or a material portion of its assets to, another Company or entity; or




          (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;


then, in each such case, the Company shall give to the Holder of this Warrant (a) notice of the
date on which the books of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend or distribution or for determining
the holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in
the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation
thereof by the Company) when the same shall take place. Such notice shall also specify the date on
which the holders of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at least ten (10)
business days prior to the record date or the date on which the Company’s books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii) and (iii) above; provided that if
notice is not given in accordance with this Section 4(i), the Company will use its best efforts to
insure that the Holder of this Warrant shall nevertheless receive the same rights and benefits
received by other holders of securities of the Company from the proceedings referred to in clauses
(i), (ii) and (iii) above, unless the Holder of this Warrant chooses not to receive such rights and
benefits.




7









 








          (j) Certain Events. If any event occurs of the type contemplated by the adjustment
provisions of this Section 6 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 6(i) hereof, and the Company’s Board of Directors
will make an appropriate adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the Holder shall be neither enhanced
nor diminished by such event.




          (k) Definition of Market Price. “Market Price,” as of any date, (i) means the closing
sale price for the shares of Common Stock as reported on the NYSE AMEX 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 the 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, (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.




     7. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of
this Warrant shall be made without charge to the Holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof.



     8. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the
Holder hereof to any voting rights, rights to dividends, or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof
to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or by creditors of
the Company.



     9. Transfer, Exchange and Replacement of Warrant.



          (a) Restriction on Transfer. This Warrant and the rights granted to the Holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or agency of the Company referred to
in Section 9(e) below; provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 9(f). Notwithstanding the foregoing, this Warrant, the shares of
Common Stock issuable upon exercise hereof, and the rights granted hereunder may not be transferred
to a competitor of the Company or any Subsidiary or affiliate of the Company.




          (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to
in Section 9(e) below, for new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be designated by the
Holder hereof at the time of such surrender.




8









 








          (c) Replacement of Warrant. Upon receipt of evidence of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, or,
in the case of any such mutilation, upon surrender and cancellation of this Warrant, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor.




          (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange or replacement as provided in this Section 9, this Warrant
shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder
or transferees) and charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 9.




          (e) Register. The Company shall maintain, at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the Holder hereof), a
register for this Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.




          (f) Exercise or Transfer Without Registration. If, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel
to the effect that such exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws; provided however, that no
legal opinion shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act unless in the opinion of counsel to the Company, such transfer does not comply with
the provisions of Rule 144. Notwithstanding the foregoing, the initial Holder of this Warrant, by
taking and holding the same, represents to the Company that such Holder is acquiring this Warrant
for investment and not with a present view to the distribution thereof.




     10. Notices. Any notice which is required or provided to be given under this Warrant
shall be deemed to have been sufficiently given and received for all purposes when delivered by
hand, telecopy (if a copy of such confirmed telecopy transmission shall be contemporaneously sent
by first class mail), or nationally recognized overnight courier, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt requested, to the
following addresses:



9









 




If to the Company:



Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966

Attention: Chief Financial Officer

Facsimile: (215) 357-4000



With a copy to:



Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 S. Broad Street

Philadelphia, PA 19102

Attention: William Matthews, Esquire

Facsimile: (215) 568-6603




     If to a Holder hereof, at the address shown for such Holder on the books of the Company; or,
with respect to any party hereto, at any other address designated in writing by such party in
accordance with the provisions of this Section 10.



     11. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to agreements made and to
be performed in the Commonwealth of Pennsylvania (without regard to principles of conflict of
laws). The Company and the Holder hereof consent to the jurisdiction of the United States federal
courts and the state courts located in the Commonwealth of Pennsylvania with respect to any suit or
proceeding based on or arising under this Warrant or the transactions contemplated hereby and agree
that all claims in respect of such suit or proceeding may be determined in such courts. The
Company and the Holder hereof waive the defense of an inconvenient forum to the maintenance of such
suit or proceeding and agree that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party’s right to serve process in any other manner
permitted by law.



     12. Miscellaneous.



          (a) Amendments. This Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and a majority in interest of the outstanding Warrants.




          (b) Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.




[SIGNATURE PAGE FOLLOWS]




10









 





     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	
 	 
	 
	 	Dated as of _________ ___, 2009




 









 








FORM OF EXERCISE AGREEMENT




Dated: ________ __, 20__





			
	To:	 	[Company]

[Address]






     The undersigned, pursuant to the provisions set forth in the Warrant attached hereto, hereby
agrees to purchase ______ shares of Common Stock covered by such Warrant, and makes payment
herewith in full therefor at the price per share provided by such Warrant in cash, by wire transfer
or by certified or official bank check in the amount of $_________. Please issue a certificate
or certificates for such shares of Common Stock in the name of and pay any cash for any fractional
share to:



	 	 	 	 	 
	 	 	 
	 	Name: 	
 	 
	 	 	 	 



	 	 	 	 	 
	 	Signature:   	
 	 
	 	Address: 	
 	 
	 	 	
 	 




	 	Note:	 	 The above signature should correspond exactly

with the name on the face of the within Warrant.




and, if said number of shares of Common Stock shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance
of the shares purchasable thereunder less any fraction of a share paid in cash.




 









 








FORM OF ASSIGNMENT




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, to:



	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 	 	 	 	 




, and hereby irrevocably constitutes and appoints
_____________________________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named Company, with full power of substitution in the premises.




Dated: __________ ___, 20___



In the presence of:



 






	 	 	 	 	 
	 	 	 
	 	Name: 	
 	 
	 	 	 	 



	 	 	 	 	 
	 	Signature:   	
 	 
	 	
Title of Signing Officer or Agent (if any):

	 
	 	 	                    	 
	 	Address: 	
 	 
	 	 	                    	 






	 	Note:	 	
The above signature should correspond exactly

with the name on the face of the within Warrant.






 











 






Exhibit C




Statement With Respect to Shares

of

Series E Convertible Preferred Stock

of

Environmental Tectonics Corporation




Pursuant to Section 1522(b) of the

Business Corporation Law of the Commonwealth of Pennsylvania




 






     In compliance with the requirements of 15 Pa.C.S. § 1522(b) (relating to statements with
respect to shares), Environmental Tectonics Corporation, a Pennsylvania corporation (the
“Corporation”), desiring to state the designation and voting rights, preferences, limitations, and
special rights, if any, of a class or series of its shares, hereby states that:



     FIRST: The name of the Corporation is Environmental Tectonics Corporation.



     SECOND: The resolution amending the Articles of Incorporation of the Corporation under 15 Pa.
C.S. § 1522(b) (relating to divisions and determinations by the board), set forth in full, is as
follows:



     WHEREAS, the Articles of Incorporation of the Corporation authorizes Preferred Stock
consisting of 1,000,000 shares issuable from time to time in one or more series; and



     WHEREAS, the Board of Directors of the Corporation (or an authorized committee thereof) is
authorized, subject to limitations prescribed by law and by the Articles of Incorporation to
establish and fix the number of shares to be included in any series of Preferred Stock and the par
value, designation, rights, preferences and limitations of the shares of such series; and



     WHEREAS, the Board of Directors, acting through its Audit Committee, intends to establish a
new series of Preferred Stock, called Series E Convertible Preferred Stock.



     NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article 6 of the Corporation’s Articles of
Incorporation, the designation, rights, preferences, powers, restrictions and limitations
applicable to the Series E Preferred Stock be and hereby are set forth below:



     1. Designation. The designation of this series, which consists of 25,000 shares of
Preferred Stock, $0.05 par value per share, is the Series E Convertible Preferred Stock (the
“Series E Preferred Stock”) and the stated value shall be One Thousand U.S. Dollars ($1,000.00) per
share (the “Stated Value”).



     2. Certain Definitions. For purposes of this Statement With Respect to Shares, the
following terms shall have the following meanings:



          “Common Stock” means the common stock of the Corporation, $0.05 par value per share.




 









 








          “Conversion Date” means, for any Optional Conversion (as defined below), the date specified in
the notice of conversion in the form attached hereto (the “Notice of Conversion”), so long as a
copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 4:59 p.m., Philadelphia, Pennsylvania time, on the Conversion Date indicated in
the Notice of Conversion; provided, however, that if the Notice of Conversion is not so faxed or
otherwise delivered before such time, then the Conversion Date shall be the date the Holder faxes
or otherwise delivers the Notice of Conversion to the Corporation.




          “Conversion Price” means, with respect to each share of Series E Preferred Stock, $2.00,
provided that such Conversion Price shall be subject to adjustment as provided herein.




     3. Dividends.



          (a) Accruing Dividends. From and after the date any shares of Series E Preferred
Stock are issued, the holder of any issued and outstanding shares of Series E Preferred Stock (each
a “Holder” and collectively, the “Holders”) shall be entitled to receive, out of funds legally
available therefor, cumulative dividends at a rate of ten percent (10%) per annum of the Stated
Value on each share of Series E Preferred Stock (the “Accruing Dividends”) in preference to the
holders of Common Stock or any other series of Preferred Stock issued by the Corporation after the
date hereof and pari passu to the holders of the Series D Preferred Stock of the Corporation (the
“Series D Preferred Stock”). The Accruing Dividends shall accrue on each issued and outstanding
share of Series E Preferred Stock from the date such share was issued, from day to day, whether or
not earned or declared, and shall compound annually and be cumulative. The Corporation shall only
pay the Holder the Accruing Dividends upon a Liquidation Event (as hereinafter defined) or when
otherwise declared by the Board of Directors of the Corporation.




          (b) The Corporation shall not declare, pay or set aside any dividends on shares of any other
class or series of capital stock of the Corporation (other than dividends on shares of Common Stock
payable in shares of Common Stock) unless (in addition to the obtaining of any consents required
elsewhere in the Articles of Incorporation) the holders of the Series E Preferred Stock then
outstanding shall first receive a dividend on each outstanding share of Series E Preferred Stock in
an amount at least equal to the amount of the aggregate Accruing Dividends then accrued on such
share of Series E Preferred Stock and not previously paid.




          (c) The Holders shall be entitled to receive, if and when declared by the Board of Directors
and paid by the Corporation, any dividends paid with respect to the Common Stock (other than any
dividends paid in additional shares of Common Stock). In the case of any such dividend, each
Holder shall be entitled to receive an amount per share of Series E Preferred Stock held by such
Holder as of the record date for such dividend equal to the product of: (i) the amount of the
dividend payable with respect to one share of Common Stock and (ii) the number of shares of Common
Stock that would be issued to a Holder if one share of Series E Preferred Stock were converted by
the Holder on the record date.




2









 








     4. Conversion.



          (a) Conversion at the Option of the Holder. Each Holder may, at any time and from
time to time, convert (an “Optional Conversion”) each of its shares of Series E Preferred Stock
plus all accrued but unpaid Accruing Dividends into a number of fully paid and nonassessable shares
of the Common Stock determined by dividing the Stated Value plus the aggregate amount of the
Accruing Dividends by the Conversion Price for such shares of Series E Preferred Stock.




          (b) Mechanics of Conversion. In order to effect an Optional Conversion, a Holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the
Corporation or the transfer agent for the Common Stock and (y) surrender or cause to be surrendered
the original certificates representing the Series E Preferred Stock being converted (the “Series E
Preferred Stock Certificates”), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. Upon receipt by the
Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall
promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion
has been received, the date upon which the Corporation expects to deliver the Common Stock issuable
upon such conversion and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock
upon a conversion unless either the Series E Preferred Stock Certificates are delivered to the
Corporation or the transfer agent as provided above, or the Holder notifies the Corporation or the
transfer agent that such Series E Preferred Stock Certificates have been lost, stolen or destroyed
and delivers the documentation to the Corporation required by Section 10(b) hereof.




               (i) Delivery of Common Stock Upon Conversion. Upon the surrender of Series E
Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the third (3rd) business day following the Conversion Date and (b)
the (2nd) second business day following the date of such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of indemnity pursuant to Section
10(b)) (the “Delivery Period”), issue and deliver to the Holder or its nominee (x) that number
of shares of Common Stock issuable upon conversion of such shares of Series E Preferred Stock and
Accruing Dividends being converted and (y) a certificate representing the number of shares of
Series E Preferred Stock not being converted, if any. If the Corporation’s transfer agent is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
and so long as the certificates therefor do not bear a legend and the Holder thereof is not then
required to return such certificate for the placement of a legend thereon, the Corporation shall
cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of the Holder or its nominee with DTC through its Deposit
Withdrawal Agent Commission system (“DTC Transfer”). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Corporation shall deliver to the Holder physical certificates
representing the Common Stock issuable upon conversion. Further, a Holder may instruct the
Corporation to deliver to the Holder physical certificates representing the Common Stock issuable
upon conversion in lieu of delivering such shares by way of DTC Transfer.



3









 





               (ii) No Fractional Shares. If any conversion of Series E Preferred Stock would result
in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded,
and the number of shares of Common Stock issuable upon conversion of the Series E Preferred Stock
shall be rounded off to the nearest whole number of shares.



               (iii) Conversion Disputes. In the case of any dispute with respect to a conversion,
the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in
accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion
Price, the Corporation shall submit the disputed calculations to an independent outside accountant
within two (2) business days of receipt of the Notice of Conversion. The accountant, at the
Corporation’s expense, shall review the calculations and notify the Corporation and the Holder of
the results. The accountant’s calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in accordance with
subparagraph (i) above no later than two (2) business days from the date it receives the
determination from the independent outside accountant.



     5. Rank. The Series E Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to the Series B Preferred Stock; (iii) prior to the Series C Preferred Stock; (iv) prior to
any class or series of capital stock of the Corporation hereafter created that does not, by its
terms, rank senior to or pari passu with the Series E Preferred Stock (collectively with the Common
Stock, the Series B Preferred Stock and the Series C Preferred Stock, “Junior Securities”); (v)
pari passu with the Series D Preferred Stock and any class or series of capital stock of the
Corporation hereafter created that, by its terms, ranks on parity with the Series D Preferred Stock
and Series E Preferred Stock (the “Pari Passu Securities”); and (vi) junior to any class or series
of capital stock of the Corporation hereafter created that, by its terms, ranks senior to the
Series E Preferred Stock (collectively, the “Senior Securities”), in each case as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.



     6. Liquidation Preference.



          (a) If the Corporation shall commence a voluntary case under the U.S. federal bankruptcy laws
or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due, or if a decree or order for
relief in respect of the Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the U.S. federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of its affairs, and any
such decree or order shall be unstayed and in effect for a period of ninety (90) consecutive days
and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (a “Liquidation Event”), no distribution
shall be made to the holders of any shares of Junior Securities upon liquidation, dissolution or
winding up of the Corporation unless prior thereto the Holders shall have received the Liquidation
Preference (as defined below) with respect to each share of Series



4









 






E Preferred Stock then outstanding. Any acquisition of the Corporation by means of a merger
or other form of corporate reorganization approved by the Board of Directors of the Corporation in
which all outstanding shares of Common Stock are exchanged for securities or other consideration
issued by the acquiring corporation or its subsidiary or the effectuation by the Corporation of a
transaction or series of related transactions approved by the Board of Directors of the Corporation
in which more than 50% of the voting power is disposed of or the sale, lease or other disposition
of all or substantially all of the assets of the Corporation, shall be deemed a Liquidation Event
unless the holders of a majority of the outstanding shares of Series E Preferred Stock elect to the
contrary; such election to be made by giving written notice thereof to the Corporation at least
three (3) days before the closing of such event. For clarification, none of the transactions
described in the preceding sentence shall be deemed a Liquidation Event unless any such transaction
is approved by the Board of Directors of the Corporation. In such event, the Holders will be
entitled to receive in preference to the holders of Junior Securities, the Liquidation Preference
with respect to shares of Series E Preferred Stock in the form of cash, securities or other
property as is payable in connection with the transaction deemed to be a Liquidation Event. In the
event that the Corporation sells, conveys or disposes of all or substantially all of its assets,
the Holders will be entitled to receive, prior to the holders of the Junior Securities, if and when
the Board of Directors declares a distribution of the consideration received by the Corporation in
such asset sale, the Liquidation Preference with respect to the shares of Series E Preferred Stock.
If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution
among the Holders and holders of Pari Passu Securities shall be insufficient to permit the payment
to such holders of the preferential amounts payable thereon, then the entire assets and funds of
the Corporation legally available for distribution to the Series E Preferred Stock and the Pari
Passu Securities, if any, shall be distributed ratably among such shares in proportion to the ratio
that the Liquidation Preference payable on each such share bears to the aggregate Liquidation
Preference payable on all such shares. Following payments of preferences to all holders of
preferred stock of the Corporation, all remaining assets and funds of the Corporation legally
available for distribution shall be distributed ratably to the holders of Common Stock, Series E
Preferred Stock (on an as-if converted to Common Stock basis) and any other capital stock of the
Corporation entitled to share in such distribution.




          (b) The “Liquidation Preference” with respect to a share of Series E Preferred Stock means an
amount equal to the Stated Value thereof plus any accrued and unpaid dividends thereon, including
the Accruing Dividends. The Liquidation Preference with respect to any Pari Passu Securities shall
be as set forth in the Statement With Respect to Shares filed in respect thereof.




     7. Adjustments to the Conversion Price. The Conversion Price shall be subject to
adjustment from time to time as follows:



          (a) Stock Splits, Stock Dividends, Etc. If, at any time on or after the date hereof,
the number of outstanding shares of Common Stock is increased by a stock split, stock dividend,
combination, reclassification or other similar event, the Conversion Price for each share of Series
E Preferred Stock shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or
other similar event, the Conversion Price for each share of Series E Preferred Stock shall be
proportionately increased.




5









 








          (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time after the date
hereof, there shall be (i) any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or
substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all
of the outstanding shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a “Corporate Change”), and, if such Corporate Change is not a Liquidation
Event pursuant to the terms of Section 6(a), then the Holders shall thereafter have the
right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such
shares of stock, securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of Common Stock which
would have been issuable upon conversion had such Corporate Change not taken place, and in any such
case, appropriate provisions (in form and substance reasonably satisfactory to the Holders of a
majority of the Series E Preferred Stock then outstanding) shall be made with respect to the rights
and interests of the Holders to the end that the economic value of the shares of Series E Preferred
Stock are in no way diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is not the Corporation, an immediate adjustment of the Conversion Price
for each share of Series E Preferred Stock so that the Conversion Price immediately after the
Corporate Change reflects the same relative value as compared to the value of the surviving
entity’s common stock that existed between the Conversion Price and the value of the Common Stock
immediately prior to such Corporate Change).




          (c) Adjustment Due to New Issuances of Equity Securities Below the Conversion Price.




               (i) Weighted Average Anti-Dilution Formula.



                    (A) If the Corporation issues, after the date hereof (the “Effective Date”), any Additional
Stock (as defined below) without consideration or for a consideration per share less than the
Conversion Price for the Series E Preferred Stock in effect immediately prior to the issuance of
such Additional Stock, the Conversion Price for the Series E Preferred Stock in effect immediately
prior to each such issuance shall forthwith (except as otherwise provided in this Section
7(c)(i)) be reduced to a price determined in accordance with the following formula:



CP2 = CP1 * (A + B) ÷ (A + C).




          For purposes of the foregoing formula, the following definitions shall apply:




          (1) “CP2” shall mean the Conversion Price for the Series E Preferred Stock in effect
immediately after such issue of Additional Stock



6









 






          (2) “CP1” shall mean the Conversion Price of the Series E Preferred Stock in effect
immediately prior to such issue of Additional Stock;




          (3) “A” shall mean the number of shares of Common Stock actually outstanding
immediately prior to such issuance of Additional Stock (excluding shares of Common Stock
issuable on conversion or exercise of preferred stock, convertible promissory notes,
options, warrants and other options to purchase or rights to subscribe for such convertible
or exchangeable securities);




          (4) “B” shall mean the number of additional shares of Common Stock that would have been
issued if such Additional Stock had been issued at a price per share equal to CP1
(determined by dividing the aggregate consideration received by the Corporation in respect
of such issue by CP1); and




          (5) “C” shall mean the number of such Additional Stock issued in such transaction.



                    (B) No adjustment of the Conversion Price for any series of Series E Preferred Stock will be
made in an amount less than one cent per share, provided that any adjustments that are not required
to be made by reason of this sentence will be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or will be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in Sections 7(c)(i)(E)(3) and 7(c)(i)(E)(4), no
adjustment of such Conversion Price pursuant to this Section 7(c)(i) shall have the effect
of increasing the Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.



                    (C) In the case of the issuance of Common Stock for cash, the consideration will be deemed to
be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.



                    (D) In the case of the issuance of Common Stock for a consideration in whole or in part other
than cash, the consideration other than cash will be deemed to be the fair value thereof as
determined in good faith by the Board of Directors irrespective of any accounting treatment.



                    (E) In the case of the issuance (whether before, on or after the Effective Date) of warrants,
options to purchase or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or warrants, options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions will apply for all purposes
of this Section 7(c)(i) and Section 7(c)(ii):




          (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise
(to the extent then exercisable) of such warrants, options to purchase or rights to
subscribe for Common Stock will be deemed to have been issued at the time such warrants,
options or rights were issued and for a consideration equal to the



7









 







consideration (determined in the manner provided in Sections 7(c)(i)(C) and
7(c)(i)(D)), if any, received by the Corporation upon the issuance of such warrants,
options or rights plus the minimum exercise price provided in such warrants, options or
rights the Common Stock covered thereby.




          (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion
of, or in exchange (to the extent then convertible or exchangeable) assuming the
satisfaction of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, for any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof will be deemed to have
been issued at the time such securities were issued or such options or rights were issued
and for a consideration equal to the consideration, if any, received by the Corporation for
any such securities and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional consideration, if any,
to be received by the Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be determined
in the manner provided in Sections 7(c)(i)(C) and 7(c)(i)(D)).




          (3) In the event of any change in the number of shares of Common Stock deliverable or
in the consideration payable to the Corporation upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution provisions thereof,
the Conversion Price of the Series E Preferred Stock, to the extent in any way affected by
or computed using such options, rights or securities, will be recomputed to reflect such
change, but no further adjustment will be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or rights or the
conversion or exchange of such securities.




          (4) Upon the expiration of any such options or rights, the termination of any such
rights to convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of the Series E Preferred
Stock, to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, will be recomputed to reflect
the issuance of only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.




          (5) The number of shares of Common Stock deemed issued and the consideration deemed
paid therefor pursuant to Sections 7(c)(i)(E)(1) and 7(c)(i)(E)(2) will be
appropriately adjusted to reflect any change, termination or expiration of the type
described in either Section 7(c)(i)(E)(3) or 7(c)(i)(E)(4).



               (ii) Definition of Additional Stock. “Additional Stock” means any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 7(c)(i)(E)) by the Corporation
after the date hereof other than:



8









 





                    (a) shares of Common Stock issued pursuant to a transaction described in Section 7(a)
hereof;



                    (b) shares of Common Stock issued or issuable to any employee, officer, director, consultant
or advisor of the Corporation for services provided to the Corporation directly or pursuant to any
employee benefit plan which has been approved by the Board of Directors of the Corporation, so long
as the total number of shares of Common Stock so issued or issuable (and not repurchased at cost by
the Corporation in connection with the termination of employment or other provision of services to
the Corporation and not subject to options that expire unexercised) does not exceed 1,366,890
shares;



                    (c) shares of Common Stock issued or issuable pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter that generates gross proceeds
in excess of $30,000,000 and that is approved by the Board of Directors of the Corporation,
including the Series E Director Nominee;



                    (d) shares of Common Stock issued pursuant to the conversion, exchange or exercise of
convertible or exercisable securities outstanding as of the date hereof or subsequently issued
pursuant to this Section 7(c)(ii);



                    (e) shares of Common Stock issued or issuable in connection with a bona fide business
acquisition of or by the Corporation, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise that is approved by the Board of Directors of the Corporation,
including the Series E Director Nominee;



                    (f) shares of Common Stock issuable upon conversion of any shares of Series E Preferred Stock;



                    (g) shares of Common Stock issuable upon conversion of any shares of any sub-series of Series
D Preferred Stock issued in payment of fees or interest under that certain Secured Credit Facility
and Warrant Purchase Agreement dated as of April ___, 2009, by and between the Corporation and H.F.
Lenfest (the “Purchase Agreement”);



                    (h) shares of Common Stock issuable upon exercise of those certain warrants to purchase common
stock issued or issuable in connection with the transactions contemplated by the Purchase
Agreement; or



                    (i) shares of Common Stock issued pursuant to a transaction in which the Conversion Price
adjustments set forth in this Section 7(c) are waived by the holders of at least a majority
of the then outstanding shares of Series E Preferred Stock.



          (d) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Section 7, the Corporation shall promptly compute
such adjustment or readjustment and prepare and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.




9









 








     8. Voting Rights.



          (a) General. The Holders shall be entitled to vote with the holders of Common Stock,
voting together as one class, on all matters submitted to a vote of the holders of Common Stock,
and each share of Series E Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which each such share is convertible as of the record date
for the applicable vote. To the extent that under the Pennsylvania Business Corporation Law the
vote of the Holders, voting separately as a class or series, as applicable, is required to
authorize a given action of the Corporation, the affirmative vote or consent of the Holders of at
least a majority of the then outstanding shares of the Series E Preferred Stock represented at a
duly held meeting at which a quorum is present or by written consent of the Holders of at least a
majority of the then outstanding shares of Series E Preferred Stock shall constitute the approval
of such action by the class.




          (b) Election of Directors. So long as any shares of Series E Preferred Stock remain
outstanding, the Board of Directors will consist of five (5) members, one of which shall be the
Chief Executive Officer, or similar position, of the Corporation and one of which shall be
nominated by the holders of shares of Series E Preferred Stock, voting separately as a single class
(the “Series E Director Nominee”), which director may be removed from office, and any vacancy
caused by the resignation, death or removal of the Series E Director Nominee shall be filled by the
holders of a majority of the then outstanding shares of Series E Preferred Stock.




     9. Protective Provisions. So long as any of the shares of Series E Preferred Stock
are outstanding, the Corporation shall not, without first obtaining the approval (by vote or
written consent) of the Holders of a majority of the then outstanding shares of Series E Preferred
Stock (i) amend the rights, preferences or privileges of the Series E Preferred Stock set forth in
this Statement With Respect to Shares; (ii) create any new class or series of capital stock that
would constitute Senior Securities or Pari Passu Securities; (iii) redeem, or declare or pay any
dividend or other distribution on account of, any shares of Common Stock or Junior Securities
(other than pursuant to the terms of any stock option plan for directors, officers, employees,
advisors or consultants approved by the Board of Directors); (iv) amend, alter or repeal any
provision of the Articles of Incorporation or Bylaws of the Corporation; (v) effect any transaction
that would be deemed a Liquidation Event (as defined in Section 6(a)) or Corporate Change
(as defined in Section 7(b) hereof); (vi) authorize or enter into any transaction or series
or related transactions in which the holder or holders of capital stock of the Corporation
immediately prior to such transaction or series of transactions will hold, immediately after such
transaction or series of transactions, less than a majority of the aggregate voting power of the
outstanding capital stock of the surviving entity; (vii) increase or decrease the authorized number
of directors constituting the Board of Directors; (viii) decrease the number of authorized shares
of Preferred Stock; (ix) redeem or offer to redeem any shares of Series E Preferred Stock; (x)
authorize or effect a transaction in which the Corporation would incur any debt secured by the
assets of the Corporation or amend its current secured debt facility; or (xi) enter into any
transaction, other than employment or consulting agreements in the ordinary course of business on a
basis consistent with past practices, with any officer, director or beneficial owner of five
percent (5%) or more of the Common Stock or any affiliate of the foregoing. Notwithstanding the
foregoing, no consent or approval of the Holders will be required for, and the Board of Directors
is expressly authorized to provide for, the issuance of shares of Preferred Stock if such series
would constitute Junior Securities, by filing a certificate pursuant to the applicable law of the



10









 




Commonwealth of Pennsylvania, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions thereon.




     10. Miscellaneous.



          (a) Cancellation of Series E Preferred Stock. If any shares of Series E Preferred
Stock are converted pursuant to Section 4, the shares so converted shall be canceled, shall
return to the status of authorized, but unissued Preferred Stock of no designated series, and shall
not be issuable by the Corporation as Series E Preferred Stock.




          (b) Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of
the loss, theft, destruction or mutilation of any Series E Preferred Stock Certificate(s) and (ii)
(y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Series E
Preferred Stock Certificate(s), the Corporation shall execute and deliver new Series E Preferred
Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to
reissue such lost or stolen Series E Preferred Stock Certificate(s) if the Holder contemporaneously
requests the Corporation to convert such Series E Preferred Stock.




          (c) Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i)
the shares covered thereby and any accrued and unpaid Accruing Dividends thereon shall be deemed
converted into shares of Common Stock and (ii) the Holder’s rights as a holder of such converted
shares of Series E Preferred Stock shall cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such Holder because of a failure by the Corporation to comply with
the terms of this Statement With Respect to Shares.




     THIRD: With respect to the Series E Preferred Stock, the aggregate number of shares of such
class or series established and designated by (a) such resolutions, (b) all prior statements, if
any, filed under 15 Pa. C.S. § 1522 or corresponding provisions of prior law with respect thereto,
and (c) any other provision of the Articles of Incorporation is 25,000 shares.



     FOURTH: The resolution was adopted by the Audit Committee of the Board of Directors effective
as of ______ ___, 2009.



     FIFTH: The resolution shall be effective upon the filing of this Statement With Respect to
Shares in the Department of State.



* * * * * *

[Signature Page Follows]




11









 





     IN WITNESS WHEREOF, the undersigned has caused this Statement With Respect to Shares to be
signed by a duly authorized officer this ______ day of _______________, 2009.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS
 CORPORATION, a Pennsylvania
corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




 









 








NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Series E Preferred Stock)



The undersigned hereby irrevocably elects to convert _________ shares of Series E Preferred
Stock, represented by stock certificate No(s). _________ (the “Series E Preferred Stock
Certificates”), into shares of common stock (“Common Stock”) of Environmental Tectonics Corporation
(the “Corporation”) according to the conditions of the Statement With Respect to Shares of Series E
Convertible Preferred Stock, as of the date written below. If securities are to be issued in the
name of a person other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the holder for any conversion, except for transfer
taxes, if any. A copy of each Series E Preferred Stock Certificate is attached hereto (or evidence
of loss, theft or destruction thereof).



[The Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee (which is _________) with DTC
through its Deposit Withdrawal Agent Commission System (“DTC Transfer”).]



The undersigned acknowledges that all offers and sales by the undersigned of the securities
issuable to the undersigned upon conversion of the Series E Preferred Stock may only be made
pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the
“Act”), or pursuant to an exemption from registration under the Act.





	o	 	In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of DTC Transfer, the
undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing
such shares of Common Stock.]





Date of Conversion: ______________________________




Conversion Price: ________________________________




Number of Shares of Common

Stock to be Issued: _______________________________




[Holder]




	 	 	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



	 	 	 	 	 
	 	Addres:    	 	 
	 	    	 	 
	 	 	 	 
	 




 











 





Exhibit D




Statement With Respect to Shares

of

Series D Convertible Preferred Stock

of

Environmental Tectonics Corporation




Pursuant to Section 1522(b) of the

Business Corporation Law of the Commonwealth of Pennsylvania




 






     In compliance with the requirements of 15 Pa.C.S. § 1522(b) (relating to statements with
respect to shares), Environmental Tectonics Corporation, a Pennsylvania corporation (the
“Corporation”), desiring to state the designation and voting rights, preferences, limitations, and
special rights, if any, of a class or series of its shares, hereby states that:



     FIRST: The name of the Corporation is Environmental Tectonics Corporation.



     SECOND: The resolution amending the Articles of Incorporation of the Corporation under 15 Pa.
C.S. § 1522(b) (relating to divisions and determinations by the board), set forth in full, is as
follows:



     WHEREAS, the Articles of Incorporation of the Corporation authorizes Preferred Stock
consisting of 1,000,000 shares issuable from time to time in one or more series; and



     WHEREAS, the Board of Directors of the Corporation (or an authorized committee thereof) is
authorized, subject to limitations prescribed by law and by the Articles of Incorporation to
establish and fix the number of shares to be included in any series of Preferred Stock and the par
value, designation, rights, preferences and limitations of the shares of such series; and



     WHEREAS, the Board of Directors, acting through its Audit Committee, intends to establish a
new series of Preferred Stock, called Series D Convertible Preferred Stock.



     NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article 6 of the Corporation’s Articles of
Incorporation, the designation, rights, preferences, powers, restrictions and limitations
applicable to the Series D Preferred Stock be and hereby are set forth below:



     1. Designation. The designation of this series, which consists of 11,000 shares of
Preferred Stock, $0.05 par value per share, is the Series D Convertible Preferred Stock (the
“Series D Preferred Stock”) and the stated value shall be One Thousand U.S. Dollars ($1,000.00) per
share (the “Stated Value”). The Series D Preferred Stock may be issued in one or more sub-series
of Series D Preferred Stock to be designated: Series D-1 Preferred Stock, Series D-2 Preferred
Stock, Series D-3 Preferred Stock, and so on and so forth, the number of shares of each such series
to be determined by resolution of the Board of Directors of the Corporation, including the Series D
Director Nominee (as hereinafter defined). Each sub-series of Series D Preferred Stock shall have
all of the same rights, preferences and privileges as each other sub-series of Series D Preferred
Stock, except that the Conversion Price (as hereinafter



 









 







defined) shall differ based on the Market Price (as hereinafter defined) on the date of
issuance of such sub-series of Series D Preferred Stock.



     2. Certain Definitions. For purposes of this Statement With Respect to Shares, the
following terms shall have the following meanings:



          “Common Stock” means the common stock of the Corporation, $0.05 par value per share.




          “Conversion Date” means, for any Optional Conversion (as defined below), the date specified in
the notice of conversion in the form attached hereto (the “Notice of Conversion”), so long as a
copy of the Notice of Conversion is faxed (or delivered by other means resulting in notice) to the
Corporation before 4:59 p.m., Philadelphia, Pennsylvania time, on the Conversion Date indicated in
the Notice of Conversion; provided, however, that if the Notice of Conversion is not so faxed or
otherwise delivered before such time, then the Conversion Date shall be the date the Holder faxes
or otherwise delivers the Notice of Conversion to the Corporation.




          “Conversion Price” means, with respect to each share of Series D Preferred Stock, the Market
Price as of the date of issuance of such shares of Series D Preferred Stock, provided that such
Conversion Price shall be subject to adjustment as provided herein.




          “Market Price” means, as of any date, (i) the closing sale price for the shares of Common
Stock as reported on NYSE AMEX 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 Corporation.




     3. Dividends.



          (a) Accruing Dividends. From and after the date a share of Series D Preferred Stock
is issued (the “Applicable Issue Date”), the holder of such issued and outstanding share of Series
D Preferred Stock (each a “Holder” and collectively, the “Holders”) shall be entitled to receive,
out of funds legally available therefor, cumulative dividends at a rate of ten percent (10%) per
annum of the Stated Value on each such share of Series D Preferred Stock (the “Accruing Dividends”)
in preference to the holders of Common Stock or any other series of Preferred Stock issued by the
Corporation after the date hereof which does not, by its terms, provide that it is senior to or
pari passu with the Series D Preferred Stock with respect to dividends. The Accruing Dividends
shall accrue on each issued and outstanding share of Series D Preferred Stock from the Applicable
Issue Date, from day to day, whether or not earned or declared, and shall compound annually and be
cumulative. The Corporation shall only pay the Holder the Accruing Dividends upon a Liquidation
Event (as hereinafter defined) or when otherwise declared by the Board of Directors of the
Corporation.




2









 








          (b) The Corporation shall not declare, pay or set aside any dividends on shares of any other
class or series of capital stock of the Corporation (other than dividends on shares of Common Stock
payable in shares of Common Stock) unless (in addition to the obtaining of any consents required
elsewhere in the Articles of Incorporation) the holders of the Series D Preferred Stock then
outstanding shall first receive a dividend on each outstanding share of Series D Preferred Stock in
an amount at least equal to the amount of the aggregate Accruing Dividends then accrued on such
share of Series D Preferred Stock and not previously paid.




          (c) The Holders shall be entitled to receive, if and when declared by the Board of Directors
and paid by the Corporation, any dividends paid with respect to the Common Stock (other than any
dividends paid in additional shares of Common Stock). In the case of any such dividend, each
Holder shall be entitled to receive an amount per share of Series D Preferred Stock held by such
Holder as of the record date for such dividend equal to the product of: (i) the amount of the
dividend payable with respect to one share of Common Stock and (ii) the number of shares of Common
Stock that would be issued to a Holder if one share of Series D Preferred Stock were converted by
the Holder on the record date.




     4. Conversion.



          (a) Conversion at the Option of the Holder. Each Holder may, at any time and from
time to time, convert (an “Optional Conversion”) each of its shares of Series D Preferred Stock
plus all accrued but unpaid Accruing Dividends into a number of fully paid and nonassessable shares
of the Common Stock determined by dividing the Stated Value plus the aggregate amount of the
Accruing Dividends by the Conversion Price for such shares of Series D Preferred Stock.




          (b) Mechanics of Conversion. In order to effect an Optional Conversion, a Holder
shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice of Conversion to the
Corporation or the transfer agent for the Common Stock and (y) surrender or cause to be surrendered
the original certificates representing the Series D Preferred Stock being converted (the “Series D
Preferred Stock Certificates”), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. Upon receipt by the
Corporation of a facsimile copy of a Notice of Conversion from a Holder, the Corporation shall
promptly send, via facsimile, a confirmation to such Holder stating that the Notice of Conversion
has been received, the date upon which the Corporation expects to deliver the Common Stock issuable
upon such conversion and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares of Common Stock
upon a conversion unless either the Series D Preferred Stock Certificates are delivered to the
Corporation or the transfer agent as provided above, or the Holder notifies the Corporation or the
transfer agent that such Series D Preferred Stock Certificates have been lost, stolen or destroyed
and delivers the documentation to the Corporation required by Section 10(b) hereof.




               (i) Delivery of Common Stock Upon Conversion. Upon the surrender of Series D
Preferred Stock Certificates accompanied by a Notice of Conversion, the Corporation shall, no later
than the later of (a) the third (3rd) business day following the Conversion Date and (b)
the (2nd) second business day following the date of such surrender (or, in the case of
lost,



3









 




stolen or destroyed certificates, after provision of indemnity pursuant to Section
10(b)) (the “Delivery Period”), issue and deliver to the Holder or its nominee (x) that number
of shares of Common Stock issuable upon conversion of such shares of Series D Preferred Stock and
Accruing Dividends being converted and (y) a certificate representing the number of shares of
Series D Preferred Stock not being converted, if any. If the Corporation’s transfer agent is
participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer program,
and so long as the certificates therefor do not bear a legend and the Holder thereof is not then
required to return such certificate for the placement of a legend thereon, the Corporation shall
cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to
the Holder by crediting the account of the Holder or its nominee with DTC through its Deposit
Withdrawal Agent Commission system (“DTC Transfer”). If the aforementioned conditions to a DTC
Transfer are not satisfied, the Corporation shall deliver to the Holder physical certificates
representing the Common Stock issuable upon conversion. Further, a Holder may instruct the
Corporation to deliver to the Holder physical certificates representing the Common Stock issuable
upon conversion in lieu of delivering such shares by way of DTC Transfer.




               (ii) No Fractional Shares. If any conversion of Series D Preferred Stock would result
in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded,
and the number of shares of Common Stock issuable upon conversion of the Series D Preferred Stock
shall be rounded off to the nearest whole number of shares.



               (iii) Conversion Disputes. In the case of any dispute with respect to a conversion,
the Corporation shall promptly issue such number of shares of Common Stock as are not disputed in
accordance with subparagraph (i) above. If such dispute involves the calculation of the Conversion
Price, the Corporation shall submit the disputed calculations to an independent outside accountant
within two (2) business days of receipt of the Notice of Conversion. The accountant, at the
Corporation’s expense, shall review the calculations and notify the Corporation and the Holder of
the results. The accountant’s calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in accordance with
subparagraph (i) above no later than two (2) business days from the date it receives the
determination from the independent outside accountant.



     5. Rank. The Series D Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to the Series B Preferred Stock; (iii) prior to the Series C Preferred Stock; (iv) prior to
any class or series of capital stock of the Corporation hereafter created that does not, by its
terms, rank senior to or pari passu with the Series D Preferred Stock (collectively with the Common
Stock, the Series B Preferred Stock and the Series C Preferred Stock, “Junior Securities”); (v)
pari passu with any class or series of capital stock of the Corporation hereafter created that, by
its terms, ranks on parity with the Series D Preferred Stock (the “Pari Passu Securities”); and
(vi) junior to any class or series of capital stock of the Corporation hereafter created that, by
its terms, ranks senior to the Series D Preferred Stock (collectively, the “Senior Securities”),
in each case as to distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.



4









 





     6. Liquidation Preference.



          (a) If the Corporation shall commence a voluntary case under the U.S. federal bankruptcy laws
or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due, or if a decree or order for
relief in respect of the Corporation shall be entered by a court having jurisdiction in the
premises in an involuntary case under the U.S. federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of its affairs, and any
such decree or order shall be unstayed and in effect for a period of ninety (90) consecutive days
and, on account of any such event, the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (a “Liquidation Event”), no distribution
shall be made to the holders of any shares of Junior Securities upon liquidation, dissolution or
winding up of the Corporation unless prior thereto the Holders shall have received the Liquidation
Preference (as defined below) with respect to each share of Series D Preferred Stock then
outstanding. Any acquisition of the Corporation by means of a merger or other form of corporate
reorganization approved by the Board of Directors of the Corporation in which all outstanding
shares of Common Stock are exchanged for securities or other consideration issued by the acquiring
corporation or its subsidiary or the effectuation by the Corporation of a transaction or series of
related transactions approved by the Board of Directors of the Corporation in which more than 50%
of the voting power is disposed of or the sale, lease or other disposition of all or substantially
all of the assets of the Corporation, shall be deemed a Liquidation Event unless the holders of a
majority of the outstanding shares of Series D Preferred Stock elect to the contrary; such election
to be made by giving written notice thereof to the Corporation at least three (3) days before the
closing of such event. For clarification, none of the transactions described in the preceding
sentence shall be deemed a Liquidation Event unless any such transaction is approved by the Board
of Directors of the Corporation. In such event, the Holders will be entitled to receive in
preference to the holders of Junior Securities, the Liquidation Preference with respect to shares
of Series D Preferred Stock in the form of cash, securities or other property as is payable in
connection with the transaction deemed to be a Liquidation Event. In the event that the
Corporation sells, conveys or disposes of all or substantially all of its assets, the Holders will
be entitled to receive, prior to the holders of the Junior Securities, if and when the Board of
Directors declares a distribution of the consideration received by the Corporation in such asset
sale, the Liquidation Preference with respect to the shares of Series D Preferred Stock. If, upon
the occurrence of a Liquidation Event, the assets and funds available for distribution among the
Holders and holders of Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series D Preferred Stock and the Pari Passu
Securities, if any, shall be distributed ratably among such shares in proportion to the ratio that
the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference
payable on all such shares. Following payments of preferences to all holders of preferred stock of
the Corporation, all remaining assets and funds of the Corporation legally available for
distribution shall be distributed ratably to the




5









 







holders of Common Stock, Series D Preferred Stock (on an as-if converted to Common Stock
basis) and any other capital stock of the Corporation entitled to share in such distribution.




          (b) The “Liquidation Preference” with respect to a share of Series D Preferred Stock means an
amount equal to the Stated Value thereof plus any accrued and unpaid dividends thereon, including
the Accruing Dividends. The Liquidation Preference with respect to any Pari Passu Securities shall
be as set forth in the Statement With Respect to Shares filed in respect thereof.




     7. Adjustments to the Conversion Price. The Conversion Price shall be subject to
adjustment from time to time as follows:



          (a) Stock Splits, Stock Dividends, Etc. If, at any time on or after the date hereof,
the number of outstanding shares of Common Stock is increased by a stock split, stock dividend,
combination, reclassification or other similar event, the Conversion Price for each share of Series
D Preferred Stock shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or reclassification of shares, or
other similar event, the Conversion Price for each share of Series D Preferred Stock shall be
proportionately increased.




          (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time after the date
hereof, there shall be (i) any reclassification or change of the outstanding shares of Common Stock
(other than a change in par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation is the surviving or
continuing entity and its capital stock is unchanged), (iii) any sale or transfer of all or
substantially all of the assets of the Corporation or (iv) any share exchange pursuant to which all
of the outstanding shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a “Corporate Change”), and, if such Corporate Change is not a Liquidation
Event pursuant to the terms of Section 6(a), then the Holders shall thereafter have the
right to receive upon conversion, in lieu of the shares of Common Stock otherwise issuable, such
shares of stock, securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of Common Stock which
would have been issuable upon conversion had such Corporate Change not taken place, and in any such
case, appropriate provisions (in form and substance reasonably satisfactory to the Holders of a
majority of the Series D Preferred Stock then outstanding) shall be made with respect to the rights
and interests of the Holders to the end that the economic value of the shares of Series D Preferred
Stock are in no way diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in which the successor
entity or purchasing entity is not the Corporation, an immediate adjustment of the Conversion Price
for each share of Series D Preferred Stock so that the Conversion Price immediately after the
Corporate Change reflects the same relative value as compared to the value of the surviving
entity’s common stock that existed between the Conversion Price and the value of the Common Stock
immediately prior to such Corporate Change).




6









 








          (c) Adjustment Due to New Issuances of Equity Securities Below the Conversion Price.




               (i) Weighted Average Anti-Dilution Formula.



                    (A) If the Corporation issues, after the date hereof (the “Effective Date”), any Additional
Stock (as defined below) without consideration or for a consideration per share less than the
Conversion Price for any sub-series of the Series D Preferred Stock in effect immediately prior to
the issuance of such Additional Stock, the Conversion Price for such sub-series of the Series D
Preferred Stock in effect immediately prior to each such issuance shall forthwith (except as
otherwise provided in this Section 7(c)(i)) be reduced to a price determined in accordance
with the following formula:



CP2 = CP1 * (A + B) ÷ (A + C).




               For purposes of the foregoing formula, the following definitions shall apply:



               (1) “CP2” shall mean the Conversion Price for the Series D Preferred Stock in effect
immediately after such issue of Additional Stock



               (2) “CP1” shall mean the Conversion Price of the Series D Preferred Stock in effect
immediately prior to such issue of Additional Stock;



               (3) “A” shall mean the number of shares of Common Stock actually outstanding
immediately prior to such issuance of Additional Stock (excluding shares of Common Stock
issuable on conversion or exercise of preferred stock, convertible promissory notes,
options, warrants and other options to purchase or rights to subscribe for such convertible
or exchangeable securities);



               (4) “B” shall mean the number of additional shares of Common Stock that would have been
issued if such Additional Stock had been issued at a price per share equal to CP1
(determined by dividing the aggregate consideration received by the Corporation in respect
of such issue by CP1); and



               (5) “C” shall mean the number of such Additional Stock issued in such transaction.



                    (B) No adjustment of the Conversion Price for any series of Series D Preferred Stock will be
made in an amount less than one cent per share, provided that any adjustments that are not required
to be made by reason of this sentence will be carried forward and shall be either taken into
account in any subsequent adjustment made prior to three (3) years from the date of the event
giving rise to the adjustment being carried forward, or will be made at the end of three (3) years
from the date of the event giving rise to the adjustment being carried forward. Except to the
limited extent provided for in Sections 7(c)(i)(E)(3) and 7(c)(i)(E)(4), no
adjustment of such Conversion Price pursuant to this Section 7(c)(i) shall have the effect
of increasing the Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.



7









 





                    (C) In the case of the issuance of Common Stock for cash, the consideration will be deemed to
be the amount of cash paid therefor before deducting any reasonable discounts, commissions or other
expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in
connection with the issuance and sale thereof.



                    (D) In the case of the issuance of Common Stock for a consideration in whole or in part other
than cash, the consideration other than cash will be deemed to be the fair value thereof as
determined in good faith by the Board of Directors irrespective of any accounting treatment.



                    (E) In the case of the issuance (whether before, on or after the Effective Date) of warrants,
options to purchase or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or warrants, options to purchase or rights to subscribe for
such convertible or exchangeable securities, the following provisions will apply for all purposes
of this Section 7(c)(i) and Section 7(c)(ii):




          (1) The aggregate maximum number of shares of Common Stock deliverable upon exercise
(to the extent then exercisable) of such warrants, options to purchase or rights to
subscribe for Common Stock will be deemed to have been issued at the time such warrants,
options or rights were issued and for a consideration equal to the consideration (determined
in the manner provided in Sections 7(c)(i)(C) and 7(c)(i)(D)), if any,
received by the Corporation upon the issuance of such warrants, options or rights plus the
minimum exercise price provided in such warrants, options or rights the Common Stock covered
thereby.




          (2) The aggregate maximum number of shares of Common Stock deliverable upon conversion
of, or in exchange (to the extent then convertible or exchangeable) assuming the
satisfaction of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, for any such convertible or exchangeable securities or upon
the exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof will be deemed to have
been issued at the time such securities were issued or such options or rights were issued
and for a consideration equal to the consideration, if any, received by the Corporation for
any such securities and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional consideration, if any,
to be received by the Corporation upon the conversion or exchange of such securities or the
exercise of any related options or rights (the consideration in each case to be determined
in the manner provided in Sections 7(c)(i)(C) and 7(c)(i)(D)).




          (3) In the event of any change in the number of shares of Common Stock deliverable or
in the consideration payable to the Corporation upon exercise of such options or rights or
upon conversion of or in exchange for such convertible or exchangeable securities,
including, but not limited to, a change resulting from the antidilution provisions thereof,
the Conversion Price of the Series D Preferred Stock, to the extent in any way affected by
or computed using such options, rights or securities, will be recomputed to reflect such
change, but no further adjustment will be made for the



8









 







actual issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.




          (4) Upon the expiration of any such options or rights, the termination of any such
rights to convert or exchange or the expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Price of the Series D Preferred
Stock, to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, will be recomputed to reflect
the issuance of only the number of shares of Common Stock (and convertible or exchangeable
securities that remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities.




          (5) The number of shares of Common Stock deemed issued and the consideration deemed
paid therefor pursuant to Sections 7(c)(i)(E)(1) and 7(c)(i)(E)(2) will be
appropriately adjusted to reflect any change, termination or expiration of the type
described in either Section 7(c)(i)(E)(3) or 7(c)(i)(E)(4).



               (ii) Definition of Additional Stock. “Additional Stock” means any shares of Common Stock
issued (or deemed to have been issued pursuant to Section 7(c)(i)(E)) by the Corporation
after the date hereof other than:



                    (a) shares of Common Stock issued pursuant to a transaction described in Section 7(a)
hereof;



                    (b) shares of Common Stock issued or issuable to any employee, officer, director, consultant
or advisor of the Corporation for services provided to the Corporation directly or pursuant to any
employee benefit plan which has been approved by the Board of Directors of the Corporation, so long
as the total number of shares of Common Stock so issued or issuable (and not repurchased at cost by
the Corporation in connection with the termination of employment or other provision of services to
the Corporation and not subject to options that expire unexercised) does not exceed 1,366,890
shares;



                    (c) shares of Common Stock issued or issuable pursuant to a bona fide firm commitment
underwritten public offering with a nationally recognized underwriter that generates gross proceeds
in excess of $30,000,000 and that is approved by the Board of Directors of the Corporation,
including the Series D Director Nominee;



                    (d) shares of Common Stock issued pursuant to the conversion, exchange or exercise of
convertible or exercisable securities outstanding as of the date hereof or subsequently issued
pursuant to this Section 7(c)(ii);



                    (e) shares of Common Stock issued or issuable in connection with a bona fide business
acquisition of or by the Corporation, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise that is approved by the Board of Directors of the Corporation,
including the Series D Director Nominee;



9









 





                    (f) shares of Common Stock issuable upon conversion of any shares of any sub-series of Series
D Preferred Stock;



                    (g) shares of Common Stock issuable upon exercise of those certain warrants to purchase common
stock issued or issuable in connection with the transactions contemplated by that certain Secured
Credit Facility and Warrant Purchase Agreement dated as of April ___, 2009 by and between the
Corporation and H.F. Lenfest ) (the “2009 Purchase Agreement”);



                    (h) shares of Preferred Stock issued to H.F. Lenfest (or his designee) pursuant to the terms
of the 2009 Purchase Agreement; or



                    (i) shares of Common Stock issued pursuant to a transaction in which the Conversion Price
adjustments set forth in this Section 7(c) are waived by the holders of at least a majority
of the then outstanding shares of Series D Preferred Stock.



          (d) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Section 7, the Corporation shall promptly compute
such adjustment or readjustment and prepare and furnish to each Holder a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.




     8. Voting Rights.



          (a) General. The Holders shall be entitled to vote with the holders of Common Stock,
voting together as one class, on all matters submitted to a vote of the holders of Common Stock,
and each share of Series D Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which each such share is convertible as of the record date
for the applicable vote. To the extent that under the Pennsylvania Business Corporation Law the
vote of the Holders, voting separately as a class or series, as applicable, is required to
authorize a given action of the Corporation, the affirmative vote or consent of the Holders of at
least a majority of the then outstanding shares of Series D Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of the Holders of at least a
majority of the then outstanding shares of Series D Preferred Stock shall constitute the approval
of such action by the class. On all matters submitted to vote or consent of the holders of Series
D Preferred Stock, all sub-series of Series D Preferred Stock shall vote together as one class.




          (b) Election of Directors. So long as any shares of Series D Preferred Stock remain
outstanding, the Board of Directors will consist of five (5) members, one of which shall be the
Chief Executive Officer, or similar position, of the Corporation and one of which shall be
nominated by the holders of shares of Series D Preferred Stock, voting separately as a single class
(the “Series D Director Nominee”), which director may be removed from office, and any vacancy
caused by the resignation, death or removal of the Series D Director Nominee shall be filled by the
holders of a majority of the then outstanding shares of Series D Preferred Stock.




     9. Protective Provisions. So long as any of the shares of Series D Preferred Stock
are outstanding, the Corporation shall not, without first obtaining the approval (by vote or
written



10









 




consent) of the Holders of a majority of the then outstanding shares of Series D Preferred
Stock (i) amend the rights, preferences or privileges of the Series D Preferred Stock set forth in
this Statement With Respect to Shares; (ii) create any new class or series of capital stock that
would constitute Senior Securities or Pari Passu Securities (except as contemplated under the terms
of the 2009 Purchase Agreement); (iii) redeem, or declare or pay any dividend or other distribution
on account of, any shares of Common Stock or Junior Securities (other than pursuant to the terms of
any stock option plan for directors, officers, employees, advisors or consultants approved by the
Board of Directors); (iv) amend, alter or repeal any provision of the Articles of Incorporation or
Bylaws of the Corporation; (v) effect any transaction that would be deemed a Liquidation Event (as
defined in Section 6(a)) or Corporate Change (as defined in Section 7(b) hereof);
(vi) authorize or enter into any transaction or series or related transactions in which the holder
or holders of capital stock of the Corporation immediately prior to such transaction or series of
transactions will hold, immediately after such transaction or series of transactions, less than a
majority of the aggregate voting power of the outstanding capital stock of the surviving entity;
(vii) increase or decrease the authorized number of directors constituting the Board of Directors;
(viii) decrease the number of authorized shares of Preferred Stock; (ix) redeem or offer to redeem
any shares of Series D Preferred Stock; (x) authorize or effect a transaction in which the
Corporation would incur any debt secured by the assets of the Corporation or amend its current
secured debt facility; or (xi) enter into any transaction, other than employment or consulting
agreements in the ordinary course of business on a basis consistent with past practices, with any
officer, director or beneficial owner of five percent (5%) or more of the Common Stock or any
affiliate of the foregoing. Notwithstanding the foregoing, no consent or approval of the Holders
will be required for, and the Board of Directors is expressly authorized to provide for, the
issuance of shares of Preferred Stock if such series would constitute Junior Securities, by filing
a certificate pursuant to the applicable law of the Commonwealth of Pennsylvania, to establish from
time to time the number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereon.




     10. Miscellaneous.



          (a) Cancellation of Series D Preferred Stock. If any shares of Series D Preferred
Stock are converted pursuant to Section 4, the shares so converted shall be canceled, shall
return to the status of authorized, but unissued Preferred Stock of no designated series, and shall
not be issuable by the Corporation as Series D Preferred Stock.




          (b) Lost or Stolen Certificates. Upon receipt by the Corporation of (i) evidence of
the loss, theft, destruction or mutilation of any Series D Preferred Stock Certificate(s) and (ii)
(y) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation of the Series D
Preferred Stock Certificate(s), the Corporation shall execute and deliver new Series D Preferred
Stock Certificate(s) of like tenor and date. However, the Corporation shall not be obligated to
reissue such lost or stolen Series D Preferred Stock Certificate(s) if the Holder contemporaneously
requests the Corporation to convert such Series D Preferred Stock.




          (c) Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i)
the shares covered thereby and any accrued and unpaid Accruing Dividends thereon





11









 







shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a holder
of such converted shares of Series D Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any remedies provided herein
or otherwise available at law or in equity to such Holder because of a failure by the Corporation
to comply with the terms of this Statement With Respect to Shares.




     THIRD: With respect to the Series D Preferred Stock, the aggregate number of shares of such
class or Series established and designated by (a) such resolutions, (b) all prior statements, if
any, filed under 15 Pa. C.S. § 1522 or corresponding provisions of prior law with respect thereto,
and (c) any other provision of the Articles of Incorporation is 11,000 shares.



     FOURTH: The resolution was adopted by the Audit Committee of the Board of Directors effective
as of April ___, 2009.



     FIFTH: The resolution shall be effective upon the filing of this Statement With Respect to
Shares in the Department of State.



* * * * * *

[Signature Page Follows]




12









 








     IN WITNESS WHEREOF, the undersigned has caused this Statement With Respect to Shares to be
signed by a duly authorized officer this                 day of April, 2009.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS 

CORPORATION, a Pennsylvania corporation

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 









 






	 	 	 	 	 



NOTICE OF CONVERSION

(To be Executed by the Registered Holder

in order to Convert the Series D Preferred Stock)





The undersigned hereby irrevocably elects to convert                      shares of Series D Preferred
Stock, represented by stock certificate No(s).                      (the “Series D Preferred Stock
Certificates”), into shares of common stock (“Common Stock”) of Environmental Tectonics Corporation
(the “Corporation”) according to the conditions of the Statement With Respect to Shares of Series D
Convertible Preferred Stock, as of the date written below. If securities are to be issued in the
name of a person other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto. No fee will be charged to the holder for any conversion, except for transfer
taxes, if any. A copy of each Series D Preferred Stock Certificate is attached hereto (or evidence
of loss, theft or destruction thereof).



[The Corporation shall electronically transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned or its nominee (which is                     ) with DTC
through its Deposit Withdrawal Agent Commission System (“DTC Transfer”).]



The undersigned acknowledges that all offers and sales by the undersigned of the securities
issuable to the undersigned upon conversion of the Series D Preferred Stock may only be made
pursuant to registration of the Common Stock under the Securities Act of 1933, as amended (the
“Act”), or pursuant to an exemption from registration under the Act.




	o  	 	[In lieu of receiving the shares of Common Stock issuable pursuant to this Notice of Conversion by way of DTC Transfer, the
undersigned hereby requests that the Corporation issue and deliver to the undersigned physical certificates representing
such shares of Common Stock.]





	 	 	 	 
	Date of Conversion:

	 	 	 
	 	 	 	 
	Conversion Price:

	 	 	 
	 	 	 	 
	Number of Shares of Common

Stock to be Issued: _______________________________	 






	 	 	 	 	 
	 	[Holder]

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




	 	 	 	 	 
	 	Address:  	 	 
	 
	 	  	 	 
	 


 











 





EXHIBIT E

FORM OF SECURITY AGREEMENT




SECURITY AGREEMENT




          This SECURITY AGREEMENT (this “Agreement”) is made and entered into as of April 24, 2009, by
and among ENVIRONMENTAL TECTONICS CORPORATION (the “Borrower”), ENTERTAINMENT TECHNOLOGY
CORPORATION (the “Guarantor” and, together with the Borrower, the “Debtors”), and H.F. LENFEST (the
“Lender”), in connection with the transactions contemplated by that certain Secured Credit Facility
and Warrant Purchase Agreement of even date herewith by and between the Borrower and the Lender
(the “Purchase Agreement”). Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Purchase Agreement.




WITNESSETH:




          WHEREAS, the Guarantor has delivered to the Lender a Guaranty, dated as of the date hereof, in
respect of the obligations of the Borrower under the Purchase Agreement (the “Guaranty”);




          WHEREAS, pursuant to the provisions of the Purchase Agreement and upon the terms and subject
to the conditions set forth therein, the Lender has agreed to provide (i) advances under a credit
facility (the “Credit Facility”) to the Borrower to be evidenced by one or more senior subordinated
promissory notes issued by the Borrower thereunder in the aggregate principal amount of up to
$7,500,000 (the “Notes”) and/or (ii) guaranties of an additional $5,000,000 of Senior Debt as part
of an amendment to the Senior Credit Agreement (the “Purchaser Guaranties”);




          WHEREAS, it is a condition precedent to the obligation of the Lender to provide the Credit
Facility and the Purchaser Guaranties to the Borrower under the Purchase Agreement, that the
Debtors shall have executed and delivered this Agreement to the Lender;




          WHEREAS, the rights granted to the Lender herein shall be subject to the terms and conditions
of the Subordination Agreement.




          NOW, THEREFORE, in consideration of the premises contained herein and to induce the Lender to
enter into the Purchase Agreement and to induce the Lender to provide the Credit Facility and/or
the Purchaser Guaranties to the Borrower under the Purchase Agreement, the Debtors hereby agree
with the Lender, as follows:




     1. Defined Terms. Unless otherwise defined herein or in the Purchase Agreement, the
following terms which are defined in the Code are used herein as so defined: Accounts (including
Health-Care-Insurance Receivables), Chattel Paper (including Electronic Chattel Paper and Tangible
Chattel Paper), Commercial Tort Claims, Deposit Accounts, Documents, Equipment, Farm Products,
Financial Assets, General Intangibles, Instruments, Inventory, Investment Property (including
Securities Entitlements, Securities Accounts, Commodity Accounts and Commodity Contracts),
Letter-of-Credit Rights, Payment Intangibles, Software,



 









 







Supporting Obligations and Proceeds; and the following terms shall have the following
meanings:



          “Code” shall mean the Uniform Commercial Code as from time to time in effect in the
Commonwealth of Pennsylvania.




          “Collateral” shall have the meaning assigned to it in Section 2 of this Agreement.




          “Contracts” shall mean all contracts and other agreements between any Debtor and any other
Person, as the same may from time to time be amended, supplemented or otherwise modified,
including, without limitation, (a) all rights of each Debtor to receive moneys due and to become
due to it thereunder or in connection therewith, (b) all rights of each Debtor to damages arising
out of, or for, breach or default in respect thereof and (c) all rights of each Debtor to perform
and to exercise all remedies thereunder.




          “Copyrights” shall mean (a) all copyrights, registrations and applications for registration,
issued or filed, including any reissues, extensions or renewals thereof, by or with the United
States Copyright Office or any similar office or agency of the United States, any State thereof, or
any other country or political subdivision thereof, or otherwise, including, all rights in and to
the material constituting the subject matter thereof, including, without limitation, any referred
to in Schedule I hereto, and (b) any rights in any material which is copyrightable or which
is protected by common law, United States copyright laws or similar laws or any law of any State,
including, without limitation, any thereof referred to in Schedule I hereof.




          “Copyright License” shall mean any agreement, written or oral, providing for a grant by any of
the Debtors of any right in any Copyright, including, without limitation, any thereof referred to
in Schedule I hereof.




          “Obligations” shall mean the unpaid principal amount of, and interest on (including, without
limitation, interest accruing after the maturity of the Credit Facility and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to any of the Debtors, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes, any and all amounts guaranteed
under the Purchaser Guaranties and all other obligations and liabilities of the Debtors to the
Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing
or hereafter incurred, which may arise under, out of, or in connection with, the Purchase
Agreement, the Notes, this Agreement, the Guaranty, the other Transaction Documents, and any other
document made, delivered or given in connection therewith or herewith, whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all fees and disbursements of counsel to the Lender that are required to be
paid by the Debtors pursuant to the terms of the Purchase Agreement or any other Transaction
Document) or otherwise.




          “Patents” shall mean (a) all letters patent of the United States or any other country or any
political subdivision thereof, and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Schedule II hereto, and (b) all applications for
letters patent of the United States and all divisions, continuations and continuations-in-part




2









 







thereof or any other country or any political subdivision, including, without limitation, any
thereof referred to in Schedule II hereto.




          “Patent License” shall mean all agreements, whether written or oral, providing for the grant
by any of the Debtors of any right to manufacture, use or sell any invention covered by a Patent,
including, without limitation, any thereof referred to in Schedule II hereto.




          “Trademarks” shall mean (a) all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks, logos and other source or
business identifiers, and the goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in connection therewith,
whether in the United States Patent and Trademark Office or in any similar office or agency of the
United States, any State thereof or any other country or any political subdivision thereof, or
otherwise, including, without limitation, any thereof referred to in Schedule III hereto,
and (b) all reissues, extensions or renewals thereof.




          “Trademark License” shall mean any agreement, written or oral, providing for the grant by any
of the Debtors of any right to use any Trademark, including, without limitation, any thereof
referred to in Schedule III hereto.




     2. Grant of Security Interest. As collateral security for the prompt and complete
payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of
the Obligations, each of the Debtors hereby grants to the Lender a security interest in all of the
following property now owned or at any time hereafter acquired by such Debtor or in which such
Debtor now has or at any time in the future may acquire any right, title or interest (collectively,
the “Collateral”):



          (i) all Accounts (including Health-Care-Insurance Receivables);




          (ii) all Chattel Paper (including Electronic Chattel Paper and Tangible Chattel Paper);




          (iii) all Contracts;




          (iv) all Copyrights and Copyright Licenses;




          (v) all Deposit Accounts;




          (vi) all Documents;




          (vii) all Equipment;




          (viii) all General Intangibles and Commercial Tort Claims;




          (ix) all Instruments;




          (x) all Inventory;




3









 








          (xi) all Investment Property, (including Securities Entitlements, Securities Accounts,
Commodity Accounts, and Commodity Contracts);




          (xii) all Letter-of-Credit Rights;




          (xiii) all Patents and Patent Licenses;




          (xiv) all Payment Intangibles;




          (xv) all Software (in whatever form);




          (xvi) Supporting Obligations;




          (xvii) Trademarks and Trademark Licenses; and




          (xviii) to the extent not otherwise included, all Proceeds and products of any and all of the
foregoing.




     3. Rights of Lender; Limitations on Lender’s Obligations.



          (a) Debtors Remain Liable under Accounts and Contracts. Anything herein to the
contrary notwithstanding, the Debtors shall remain liable under each of the Accounts and Contracts
to observe and perform all the conditions and obligations to be observed and performed by it
thereunder, all in accordance with the terms of any agreement giving rise to each such Account and
in accordance with and pursuant to the terms and provisions of each such Contract. The Lender
shall have no obligation or liability under any Account (or any agreement giving rise thereto) or
under any Contract by reason of or arising out of this Agreement or the receipt by the Lender of
any payment relating to such Account or Contract pursuant hereto, nor shall the Lender be obligated
in any manner to perform any of the obligations of the Debtors under or pursuant to any Account (or
any agreement giving rise thereto) or under or pursuant to any Contract, to make any payment, to
make any inquiry as to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement giving rise
thereto) or under any Contract, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been assigned to it or to which
it may be entitled at any time or times.




          (b) Notice to Account Debtors and Contracting Parties. Upon the request of the Lender
at any time after the occurrence and during the continuance of an Event of Default, the Debtors
shall notify account debtors on the Accounts and parties to the Contracts that the Accounts and the
Contracts have been assigned to the Lender and shall indicate on all billings that payments in
respect thereof shall be made directly to the Lender. The Lender may in the name of the Debtors or
in the name of others communicate with account debtors on the Accounts and parties to the Contracts
to verify with them to its satisfaction the existence, amount and terms of any Accounts or
Contracts.




          (c) Analysis of Accounts. The Lender shall have the right to make test verifications
of the Accounts through periodic site visits as provided in Section 7.1(i) of the Purchase
Agreement, and the Debtors shall furnish all such assistance and information as the




4









 







Lender may reasonably require in connection therewith. At any time, and from time to time,
but in no event more than twice in any given twelve month period, upon the Lender’s request and at
the expense of the Debtors, the Debtors shall cause independent public accountants or others
satisfactory to the Lender to furnish to the Lender reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts; provided that any such reconciliation,
aging or test verification performed at the request of PNC Bank, National Association (“PNC”) and
delivered to the Lender shall satisfy a like request from the Lender if made within six (6) months
of the request from PNC.




          (d) Collections on Accounts. Subject to the further provisions of this Section 3(d),
the Lender hereby authorizes the Debtors to collect the Accounts from the account debtors. Prior
to the occurrence of an Event of Default, the Proceeds of Accounts so collected by the Debtors
shall be received and held by the Debtors in trust for the Lender but may be applied by the Debtors
in their discretion towards payment of the Obligations or other corporate purposes. Upon the
occurrence of an Event of Default which has not been waived by or cured to the satisfaction of the
Lender and subject to the direction of the Lender, (i) the authority hereby given to the Debtors to
collect the Proceeds of Accounts may be terminated by the Lender at any time and after being
notified of such termination, the Debtors shall deliver to the Lender on the date of receipt
thereof by the Debtors all Proceeds in the form of cash, checks, drafts, notes and other
remittances received in payment of or on account of the Debtors’ Accounts; (ii) following receipt
by the Lender any such Proceeds shall be deposited in a special bank account (the “Cash Collateral
Account”) of the Debtors maintained at a commercial bank chosen by the Lender over which the Lender
alone shall have power of withdrawal; (iii) all Proceeds other than cash shall be deposited in
precisely the form in which received, except for the addition thereto of the endorsement of the
Debtors when necessary to permit collection of the items, which endorsement the Debtors agree to
make; and (iv) the Debtors will not commingle any such Proceeds with any of the Debtors’ other
funds or property but will hold them separate and apart from any other funds or property and upon
an express trust for the Lender until deposit thereof is made in the Cash Collateral Account.




     4. Representations and Warranties. The Debtors hereby jointly and severally represent
and warrant that:



          (a) Title; No Other Liens. Except for the Liens granted hereby, the Liens granted to
PNC pursuant to the PNC Security Agreement and any other Permitted Liens, one or more of the
Debtors own each item of the Collateral free and clear of any and all Liens or claims of others.
No security agreement, financing statement or other public notice with respect to all or any part
of the Collateral is on file or of record in any public office, except such as may have been filed
in favor of the Lender, pursuant to this Agreement or as may be permitted pursuant to the Purchase
Agreement.




          (b) Perfected Second Priority Liens. Upon the Lender taking all action necessary
under the UCC to perfect its security interest in and to the Collateral, the Liens granted pursuant
to this Agreement constitute perfected Liens on the Collateral in favor of the Lender, which are
prior to all other Liens on the Collateral in existence on the date hereof (other than Permitted
Liens) and are enforceable as such against all creditors of and purchasers from the




5









 







Debtors and against any owner or purchaser of the real property where any of the Equipment is
located and any present or future creditor obtaining a Lien on such real property.




          (c) Accounts. The amount represented by the Debtors to the Lender in any accounts
receivable aging and in other reports requested by or furnished to the Lender as owing by each
account debtor or by all account debtors in respect of the Accounts will at such time be the
correct amount actually owing by such account debtor or debtors thereunder except for normal cash
discounts and allowances where applicable. No amount payable to the Debtors under or in connection
with any Account is evidenced by any Instrument or Chattel Paper which has not been delivered to
the Lender. The Debtors keep their records concerning the Accounts at the location or locations
set forth in Schedule IV.




          (d) Contracts. Except as contemplated hereby, no consent of any party (other than the
Debtors) to any material Contract is required, or purports to be required, in connection with the
execution, delivery and performance of this Agreement. Each material Contract is in full force and
effect and constitutes a valid and legally enforceable obligation of the parties thereto, except as
enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditor’s rights generally. No consent or authorization of, filing
with or other act by or in respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of any of the Contracts by any party
thereto other than those which have been duly obtained, made or performed, are in full force and
effect and do not subject the scope of any such Contract to any material adverse limitation, either
specific or general in nature. Neither the Debtors nor (to the best of the Debtors’ knowledge) any
other party to any Contract are in default of any material provision thereof or are likely to
become in default in the performance or observance of any of the material provisions thereof. The
Debtors have fully performed all their material obligations under each Contract. The right, title
and interest of each Debtor in, to and under each Contract to which such Debtor is a party are not
subject to any defense, offset, counterclaim or claim which would materially adversely affect the
value of such Contract as Collateral, nor have any of the foregoing been asserted or alleged
against the Debtors as to any Contract. No amount payable to the Debtors under or in connection
with any Contract is evidenced by any Instrument or Chattel Paper which has not been delivered to
the Lender.




          (e) Inventory. The types, amounts and valuations of the Inventory or any other
information regarding the same represented by the Debtors in any reports requested by or furnished
to the Lender, or any other holders of the Obligations will at such time be accurate to the best of
the Debtors’ knowledge. The Debtors keep records concerning the Inventory at the location or
locations listed on Schedule V. Except for Inventory in transit, work in progress at other
locations and consigned Inventory, the Inventory is kept at the locations listed on Schedule
VI hereto.




          (f) Equipment. The Equipment is kept at the locations listed on Schedule VII
hereto.




          (g) Chief Executive Office; Place of Organization. The locations of each Debtor’s
chief executive office, chief place of business, form of and place of organization are set forth on
Schedule VIII.




6









 








          (h) Farm Products. None of the Collateral constitutes, or is the Proceeds of, Farm
Products.




          (i) Patents, Trademarks and Copyrights. Schedule I hereto includes all
Copyrights and Copyright Licenses (except licenses to use off-the-shelf software in the ordinary
course of business) owned by the Debtors in its own name as of the date hereof. Schedule
II hereto includes all Patents and Patent Licenses owned by each of the Debtors in its own name
as of the date hereof. Schedule III hereto includes all Trademarks and Trademark Licenses
owned by each of the Debtors in its own name as of the date hereof. To the best of the Debtors’
knowledge, each Copyright, Patent and Trademark is valid, subsisting, unexpired, enforceable and
has not been abandoned. Except as set forth in any such Schedule, none of such Copyrights, Patents
or Trademarks is the subject of any licensing or franchise agreement. No holding, decision or
judgment has been rendered by any Governmental Authority which would limit, cancel or question the
validity of any Copyright, Patent or Trademark. Except as set forth in any such Schedule, no
action or proceeding is pending (i) seeking to limit, cancel or question the validity of any
Copyright, Patent or Trademark, or (ii) which, if adversely determined, would have a material
adverse effect on the value of any Copyright, Patent or Trademark.




          (j) Power and Authority; Authorization. The Debtors have the corporate or other power
and authority and the legal right to execute and deliver, to perform their obligations under, and
to grant the Liens on the Collateral pursuant to, this Agreement and have taken all necessary
corporate or other action to authorize its execution, delivery and performance of, and grant of the
Liens on the Collateral pursuant to, this Agreement.




          (k) Enforceability. This Agreement constitutes a legal, valid and binding obligation
of each of the Debtors enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors’ rights generally.




          (l) No Conflict. The execution, delivery and performance of this Agreement will not
violate any provision of any Law or any obligation under any agreement, instrument, document or
contract to which any of the Debtors is a party (each, a “Contractual Obligation”) and will not
result in the creation or imposition of any Lien on any of the properties or revenues of any of the
Debtors pursuant to any Law or Contractual Obligation of any of the Debtors, except as contemplated
hereby.




          (m) No Consents, etc. Except as contemplated hereby, no consent or authorization of,
filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no
consent of any other Person (including, without limitation, any stockholder or creditor of any of
the Debtors), is required in connection with the execution, delivery, performance, validity or
enforceability of this Agreement (except for the filing of the UCC financing statements).




          (n) No Litigation. Except as set forth on Schedule 5.1(j) to the Purchase
Agreement, no litigation, investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Debtors, threatened by or against any of the




7









 







Debtors or against any of its properties or revenues with respect to this Agreement or any of
the transactions contemplated hereby.




     5. Covenants. Each of the Debtors covenants and agrees with the Lender that, from and
after the date of this Agreement until the Obligations are paid in full and the Credit Facility is
terminated, it will:



          (a) Notices; Further Documentation; Authorization to File Financing Statements.
Notify the Lender in writing at any time that it opens, acquires, obtains, or becomes the
beneficiary of any type of Collateral (or rights therein) to the extent the Lender will not at that
time have, and continuously thereafter (subject to the filing of continuation statements, if
necessary) maintain, a perfected priority security interest in (subject to solely Permitted Liens)
such Collateral, including but not limited to: all Deposit Accounts, Securities Accounts and
Commodity Accounts and other Investment Property; all Commercial Tort Claims; all Instruments,
Documents, Tangible Chattel Paper and Electronic Chattel Paper; all other Collateral in the
possession of a third party; and all Letter-of-Credit Rights and other Supporting Obligations. At
any time and from time to time, upon the written request of the Lender, and at the sole expense of
the Debtors, promptly (i) deliver to the Lender all letters of credit and other Supporting
Obligations, Instruments, Chattel Paper, Documents and Investment Property (including any necessary
endorsements) that at any time is part of the Collateral or becomes Proceeds of any Collateral
unless in possession of a lien holder with a prior Permitted Lien, and (ii) execute and deliver
such further instruments, agreements and documents and take such further action as the Lender may
reasonably request for the purpose of obtaining, preserving and enforcing the full benefits of this
Agreement and of the rights and powers herein granted, including, without limitation, executing and
delivering and using commercially reasonable efforts to cause third parties to execute and deliver
to the Lender security agreements, pledge agreements, control agreements, bailee acknowledgments,
assignments and waivers, all in form and substance satisfactory to the Lender. The Debtors will
mark all Chattel Paper with a legend indicating that the Lender has a security interest in the
Chattel Paper.




     The Debtors also hereby authorize the Lender to file any Uniform Commercial Code financing or
continuation statement without the signature of the Debtors to the extent permitted by applicable
law. The Debtors hereby ratify any filing by the Lender of financing statements prior to the date
hereof with respect to the Collateral. A carbon, photographic, facsimile or other reproduction of
this Agreement shall be sufficient as a financing statement for filing in any jurisdiction.



          (b) Indemnification. Pay, and save the Lender and any other holders of the
Obligations harmless from, any and all liabilities, reasonable costs and expenses (including,
without limitation, reasonable 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 applicable to any of the Collateral or (iii) in connection with
protecting, storing, warehousing, appraising, insuring, handling, maintaining and shipping the
Collateral, all reasonable costs, fees and expenses of creating, perfecting, maintaining and
enforcing the security interests created by this Agreement, and any and all excise, property, sales
and use taxes imposed by any federal, state, local or foreign authority on any of the Collateral,
or with respect




8









 







to periodic appraisals and inspections of the Collateral, or with respect to the sale or other
disposition thereof. In any suit, proceeding or action brought by the Lender under any Account or
Contract for any sum owing thereunder, or to enforce any provisions of any Account or Contract, the
Debtors will save, indemnify and keep the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment or reduction of
liability whatsoever of the account debtor or obligor thereunder, arising out of a breach by the
Debtors of any obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or its successors from
the Debtors; provided, however, that such expense, loss or damage does not arise from the gross
negligence or willful misconduct of the Lender.




          (c) Maintenance of Records. Keep and maintain at its own cost and expense true,
correct and complete records of the Collateral, including, without limitation, a record of all
payments received and all credits granted with respect to the Accounts. For the Lender’s further
security, the Lender shall have a security interest in the Debtors’ books and records pertaining to
the Collateral, and the Debtors shall turn over copies of any such books and records to the Lender
or to its representatives during normal business hours at the request of the Lender.




          (d) Right of Inspection and Audit. Give to the Lender, no more than two (2) times
during any twelve (12) month period, upon reasonable prior notice full and free access during
normal business hours (or following the occurrence and during the continuance of an Event of
Default, at any time) to all of its books, correspondence and records and the Lender and its
respective representatives may examine, inspect or audit the same, take extracts therefrom and make
photocopies thereof, and the Debtors agree to render to the Lender, at the Debtors’ cost and
expense, such clerical and other assistance as may be reasonably requested with regard thereto.
The Lender and its respective representatives shall at all times during normal business hours (or
following the occurrence of an Event of Default, at any time) also have the right without breach of
the peace to enter into and upon any premises where any of the Inventory or Equipment is located
for the purpose of examining, inspecting or auditing the same, observing its use or otherwise
protecting their interests therein.




          (e) Compliance with Laws, etc. Comply in all material respects with all Laws
applicable to the Collateral or any part thereof or to the operation of its business; provided,
however, that the Debtors may contest any Law in any reasonable manner which shall not, in the sole
opinion of the Lender, adversely affect the Lender’s rights or the priority of his Liens on the
Collateral.




          (f) Compliance with Terms of Contracts, etc. Perform and comply in all material
respects with all of its material obligations under the Contracts and all of its other Contractual
Obligations relating to the Collateral.




          (g) Payment of Obligations. Pay promptly when due all taxes, assessments and
governmental charges or levies imposed upon the Collateral or in respect of its income or profits
therefrom, 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 thereof is being contested in good faith by appropriate proceedings,
(ii) such proceedings do not involve any material danger of the sale, forfeiture or




9









 







loss of any of the Collateral or any interest therein and (iii) such charge is adequately
reserved against on the Debtors’ books in accordance with GAAP.




          (h) Limitation on Liens on Collateral. Not create, incur or permit to exist, will
defend the Collateral against, and take such other action as is necessary to remove, any Lien or
claim on or to the Collateral, other than the Permitted Liens, and will defend the right, title and
interest of the Lender in and to any of the Collateral against the claims and demands of all
Persons whomsoever.




          (i) Limitations on Dispositions of Collateral. Not sell, transfer, lease or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so except as expressly
permitted pursuant to the Purchase Agreement or otherwise agreed to in writing by the Lender.




          (j) Limitations on Discounts, Compromises, Extensions of Accounts. Not adjust, settle
or compromise the amount or payment of any Account, or release wholly or partly any customer or
obligor thereof, or allow any credit or discount thereon (other than adjustments, settlements,
compromises, releases, credits and discounts in the ordinary course of business and in amounts
which are not material to the Debtors) without the prior consent of the Lender.




          (k) Further Identification of Collateral. Furnish to the Lender, from time to time,
statements and schedules further identifying and describing the Collateral and such other reports
in connection with the Collateral as the Lender may reasonably request, all in reasonable detail.




          (l) Notices. Advise the Lender promptly, in reasonable detail, at its address set
forth in the Purchase Agreement, (i) of any Lien (other than Permitted Liens) on, or claim asserted
against, any of the Collateral and (ii) of the occurrence of any other event which could reasonably
be expected to have a material adverse effect on the aggregate value of the Collateral or on the
Liens created hereunder.




          (m) Changes in Locations, Name, Place of Organization, etc. Unless it shall have
given the Lender at least 30 days prior written notice thereof, none of the Debtors will (i) change
the location of its chief executive office or chief place of business from that specified in
Schedule VIII attached hereto or remove its books and records from the location specified
in Section 4(g), (ii) permit any of the Inventory or Equipment to be kept at a location other than
those listed on Schedule VI and Schedule VII hereto, (iii) change its name,
identity or corporate structure to such an extent that any financing statement filed by the Lender
in connection with this Agreement would become seriously misleading or (iv) change the state of its
organization.




          (n) Patents, Trademarks and Copyrights.




               (i) Unless any of the Debtors deems it appropriate in the exercise of its reasonable business
judgment to do otherwise and, if after the occurrence of an Event of Default which has not been
waived or cured to the satisfaction of the Lender with the prior written consent of the Lender, (i)
continue to use each Trademark on each and every trademark class of goods applicable to its current
line as reflected in its current catalogs, brochures and price lists in order to maintain such
Trademark in full force free from any claim of abandonment



10









 







for non-use, (ii) maintain as in the past the quality of products and services offered under
such Trademark, (iii) employ such Trademark or Copyright with the appropriate notice of
registration, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless the Lender shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee thereof to) do
any act or knowingly omit to do any act whereby any Trademark or Copyright may become invalidated.



               (ii) Not, unless any of the Debtors deems it appropriate in the exercise of its reasonable
business judgment to do otherwise and, if after the occurrence of an Event of Default which has not
been waived by or cured to the satisfaction of the Lender with the prior written consent of the
Lender, do any act, or omit to do any act, whereby any Patent may become abandoned or dedicated.



               (iii) Notify the Lender immediately if it knows, or has reason to know, that any application
or registration relating to any Patent, Trademark or Copyright may become abandoned or dedicated,
or of any adverse determination or development (including, without limitation, the institution of,
or any such determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court or tribunal in any country)
regarding its ownership of any Patent, Trademark or Copyright or its right to register the same or
to keep and maintain the same.



               (iv) Whenever any of the Debtors, either by itself or through any agent, employee, licensee or
designee, shall file an application for the registration of any Patent, Trademark or Copyright with
the United States Patent and Trademark Office, the United States Copyright Office or any similar
office or agency in any other country or any political subdivision thereof, report such filing to
the Lender within five (5) Business Days after the last day of the fiscal quarter in which such
filing occurs. Upon request of the Lender, the Debtors shall execute and deliver any and all
agreements, instruments, documents, and papers as the Lender may request to evidence the Lender’s
security interest in any Patent, Trademark or Copyright and the goodwill and general intangibles of
the Debtors relating thereto or represented thereby, and the Debtors hereby constitute the Lender,
its attorney-in-fact to execute and file all such writings for the foregoing purposes, all acts of
such attorney being hereby ratified and confirmed; such power being coupled with an interest is
irrevocable until the Obligations are paid in full and the Credit Facility is terminated.



               (v) Take all reasonable and necessary steps, including, without limitation, in any proceeding
before the United States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency in any other country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant registration) and to maintain each registration
of the Patents, Trademarks and Copyrights, including, without limitation, filing of applications
for renewal, affidavits of use and affidavits of incontestability.



               (vi) In the event that any Patent, Trademark or Copyright included in the Collateral is
materially infringed, misappropriated or diluted by a third party, promptly notify the Lender after
it learns thereof and shall, unless it shall reasonably determine that such Patent, Trademark or
Copyright is of negligible economic value to it, which determination it shall



11









 







promptly report to the Lender, promptly sue for infringement, misappropriation or dilution, to
seek injunctive relief where appropriate and to recover any and all damages for such infringement,
misappropriation or dilution, or take such other actions as it shall reasonably deem appropriate
under the circumstances to protect such Patent, Trademark or Copyright.



     6. Lender’s Appointment as Attorney-in-Fact.



          (a) Powers. The Debtors hereby irrevocably constitute and appoint the Lender and any
agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Debtors and in the name of the
Debtors or in its own name, from time to time in the Lender’s discretion, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the Debtors hereby give the
Lender the power and right, on behalf of the Debtors, without notice to or assent by the Debtors,
to do the following:




               (i) in the case of any Account, at any time when the authority of the Debtors to collect the
Accounts has been curtailed or terminated pursuant to Section 3(d) hereof, or in the case of any
other Collateral, at any time when any Event of Default shall have occurred and is continuing, in
the name of the Debtors or its own name, or otherwise, to take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due
under any Account, Instrument, General Intangible or Contract or with respect to any other
Collateral and to file any claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender for the purpose of collecting any and all such
moneys due under any Account, Instrument, General Intangible or Contract or with respect to any
other Collateral whenever payable;



               (ii) to pay or discharge taxes and Liens levied or placed on or threatened against the
Collateral (other than Permitted Liens), to effect any repairs or procure any insurance called for
by the terms of this Agreement and to pay all or any part of the premiums therefor and the costs
thereof;



               (iii) upon the occurrence and during the continuance of any Event of Default, (A) to direct
any party liable for any payment under any of the Collateral to make payment of any and all moneys
due or to become due thereunder directly to the Lender or as the Lender shall direct; (B) to ask or
demand for, collect, receive payment of and receipt for, any and all moneys, claims and other
amounts due or to become due at any time in respect of or arising out of any Collateral; (C) to
sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or
any proceeds thereof and to enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against the Debtors or any of them with respect to any
Collateral; (F) to settle, compromise or adjust any suit, action or proceeding described in clause
(E) above and, in connection therewith, to give such discharges or releases as the Lender may deem
appropriate; (G) to assign any Patent or Trademark (along with the



12









 







goodwill of the business to which any such Trademark pertains), throughout the world for such
term or terms, on such conditions, and in such manner, as the Lender shall in its sole discretion
determine; and (H) subject to the terms of Section 19, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes, and to do, at the Lender’s
option and the Debtors’ expense, at any time, or from time to time, all acts and things which the
Lender deems necessary to protect, preserve or realize upon the Collateral and the Lender’s Liens
thereon and to effect the intent of this Agreement, all as fully and effectively as the Debtors
might do; and



               (iv) execute in its own name or on behalf of the Debtors such UCC financing Statements forms
and similar instruments as the Lender may from time to time deem reasonably necessary or desirable
to protect the security interests of the Lender and any other holders of the Obligations.


The Debtors hereby ratify all that said attorneys shall lawfully do or cause to be done by virtue
hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.




          (b) Other Powers. The Debtors also authorize the Lender, and any other holders of the
Obligations, at any time and from time to time, to execute, in connection with the sale provided
for in Section 8 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.




          (c) No Duty on the Lender’s Part. The powers conferred on the Lender hereunder are
solely to protect the Lender’s interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for amounts that Lender
actually receives as a result of the exercise of such powers, and neither they nor any of their
officers, directors, employees or agents shall be responsible to the Debtors for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.




     7. Performance by the Lender of Debtors’ Obligations. If any of the Debtors fails to
perform or comply with any of its agreements contained herein and the Lender, as provided for by
the terms of this Agreement, shall itself perform or comply, or otherwise cause performance or
compliance, with such agreement, the expenses of the Lender incurred in connection with such
performance or compliance shall be payable by the Debtors to the Lender on demand and shall
constitute Obligations secured hereby, and if not promptly repaid to the Lender shall bear interest
thereon at a rate per annum equal to the Default Rate (as defined in the Notes).



     8. Remedies.



          (a) If an Event of Default shall occur and be continuing and all applicable notice and cure
periods shall have expired, the Lender may exercise, in addition to all other rights and remedies
granted to it in this Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under the Code. Without
limiting the generality of the foregoing, the Lender, without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any notice required by
law referred to below) to or upon the Debtors or any other Person (all and




13









 







each of which demands, defenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing),
in one or more parcels at public or private sale or sales, at any exchange, broker’s board or
office of the Lender or elsewhere upon such terms and conditions as it may deem advisable and at
such prices as it may deem best, for cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of redemption in the Debtors, which right or
equity is hereby waived or released. The Debtors further agree, at the Lender’s request, to
assemble the Collateral and make it available to the Lender at places which the Lender shall
reasonably select, whether at the Debtors’ premises or elsewhere. The Lender shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or incidental to the
care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including, without limitation, reasonable attorneys’ fees and
disbursements, to the payment in whole or in part of the Obligations, in such order as the Lender
may elect, and only after such application and after the payment by the Lender of any other amount
required by any provision of law, including, without limitation, Section 9615 of the Code, need the
Lender account for the surplus, if any, to the Debtors. To the extent permitted by applicable law,
each of the Debtors waives all claims, damages and demands it may acquire against the Lender
arising out of the exercise by it of any rights hereunder. If any notice of a proposed sale or
other disposition of Collateral shall be required by law, such notice shall be deemed reasonable
and proper if given at least 10 days before such sale or other disposition. The Debtors shall
remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any attorneys employed by
the Lender to collect such deficiency.




          (b) The Debtors agree, upon the occurrence and during the continuation of an Event of Default,
to take any actions that the Lender may request in order to enable the Lender to obtain and enjoy
the full rights and benefits granted to the Lender under this Agreement and any other Transaction
Documents. Without limiting the generality of the foregoing, the Debtors shall upon the occurrence
and during the continuation of an Event of Default, at the Debtors’ sole cost and expense, assist
in obtaining all approvals which are then required by law for or in connection with any action or
transaction contemplated by this Agreement or Article 9 of the Uniform Commercial Code as in effect
in any applicable jurisdiction.




     9. Limitation on Duties Regarding Preservation of Collateral. The Lender’s sole duty
with respect to the custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9207 of the Code or otherwise, shall be to deal with it in the same
manner as the Lender deals with similar property for its own account. No holder of any Obligation,
nor any of their respective directors, officers, employees or agents shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of
the Debtors or otherwise.



14









 





     10. Powers Coupled with an Interest. All authorizations and agencies herein contained
with respect to the Collateral are irrevocable and powers coupled with an interest.



     11. Severability. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.



     12. Paragraph Headings. The paragraph headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.



     13. No Waiver; Cumulative Remedies. No holder of any Obligation shall by any act
(except by a written instrument pursuant to Section 14 hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Event
of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the any holder of the Obligations, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by any holder of any Obligations of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which
such holder would otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.



     14. Waivers and Amendments; Parties Bound; Governing Law. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Debtors and the Lender; provided that any provision of
this Agreement may be waived by the Lender in a written letter or agreement executed by the Lender
or by telex or facsimile transmission from the Lender. This Agreement shall be the joint and
several obligation of the Debtors; each of the Debtors shall have made all of the representations,
warranties, covenants and agreements contained herein. This Agreement shall be binding upon the
respective successors and permitted assigns of the Debtors and shall inure to the benefit of the
Lender and its successors and assigns. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.



     15. Notices. All notices hereunder to the Debtors or the Lender to be effective shall
be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be
deemed to have been duly given or made when delivered or sent in the manner and to the respective
addresses as provided in Section 9.7 of the Purchase Agreement.



     16. Submission to Jurisdiction; Waivers.



          (a) Each of the Debtors hereby irrevocably and unconditionally:




15









 








               (i) submits for itself and its property in any legal action or proceeding relating to this
Agreement, or for recognition and enforcement of any judgment in respect thereof to the exclusive
jurisdiction of the courts of Montgomery County, Commonwealth of Pennsylvania, the courts of the
United States of America for the Eastern District of Pennsylvania, and appellate courts from any
thereof;



               (ii) consents that any such action or proceeding shall be brought in such courts, and waives
(to the extent permitted by applicable law) any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or proceeding was
brought in an inconvenient court and agrees not to plead or claim the same;



               (iii) agrees that service of process in any such action or proceeding may be effected by
mailing a copy thereof by registered or certified mail (or any substantially similar form of mail),
postage prepaid, to the address set forth in the Purchase Agreement or at such other address of
which the Lender shall have been notified;



               (iv) waives and hereby acknowledges that it is estopped from raising any objections based on
forum non conveniens, any claim that any of the above-referenced courts lack proper venue or any
objection that any of such courts lack personal jurisdiction over it so as to prohibit such courts
from adjudicating any issues raised in a complaint filed with such courts against it concerning
this Agreement;



               (v) acknowledges and agrees that the choice of forum contained in this paragraph shall not be
deemed to preclude the enforcement of any judgment contained in any forum or the taking of any
action under this Agreement to enforce the same in any appropriate jurisdiction;



               (vi) waives, to the maximum extent not prohibited by law, any right it may have to claim or
recover in any legal action or proceeding referred to in this subsection any special, exemplary or
punitive or consequential damages; and



               (vii) agrees that nothing herein shall affect the right to effect service of process in any
other manner permitted by law or shall limit the right to sue in any other jurisdiction.



          (b) Each of the Debtors hereby unconditionally waives trial by jury in any legal action or
proceeding referred to in paragraph (a) above.




     17. Counterparts. This Agreement may be executed by one or more of the parties to
this Agreement on any number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement
signed by all the parties shall be lodged with the Debtors and the Lender.



     18. Further Assurances. The parties acknowledge their intent that, upon the
occurrence and during the continuation of an Event of Default, the Lender shall receive, to the
fullest extent permitted by all Laws and governmental policy, all rights necessary or desirable to
obtain, use or sell the Collateral, and to exercise all remedies available to it under this



16









 




Agreement, the Uniform Commercial Code as in effect in any applicable jurisdiction, or other
applicable law. The parties further acknowledge and agree that, in the event of any change in law
or governmental policy occurring subsequent to the date hereof that affects in any manner the
Lender’s rights of access to, or use or sale of, the Collateral, or the procedures necessary to
enable the Lender to obtain such rights of access, use or sale, the Lender and the Debtors shall
amend this Agreement in such manner as the Lender shall request, in order to provide to the Lender
such rights to the greatest extent possible consistent with all Laws and governmental policy.




     19. Release. This Agreement and related instruments delivered to the Lender hereunder
shall be released by the Lender upon the date on which the Obligations are paid in full and the
Credit Facility is terminated. This Agreement shall continue to be effective, or be reinstated, as
the case may be, if at any time payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be restored or returned by the Lender or any holder of the Obligations
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any of the Debtors
or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee
or similar officer for any of the Debtors or any substantial part of its property, or otherwise,
all as though such payments had not been made.



     20. CONFESSION OF JUDGMENT. EACH DEBTOR 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 SUCH DEBTOR AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT UNDER THIS AGREEMENT, THE PURCHASE AGREEMENT OR ANY OF THE NOTES IN ANY SUCH COURT IN ANY
ACTION BROUGHT AGAINST SUCH DEBTOR BY THE LENDER WITH RESPECT TO THE AGGREGATE AMOUNTS PAYABLE
UNDER THE PURCHASE AGREEMENT AND/OR THE NOTES, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM,
AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST SUCH DEBTOR FOR ALL SUMS PAYABLE BY SUCH DEBTOR TO
THE LENDER UNDER THE PURCHASE AGREEMENT AND/OR THE NOTES, AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A
DULY AUTHORIZED DESIGNEE OF THE LENDER SETTING FORTH SUCH AMOUNT THEN DUE FROM SUCH DEBTOR TO THE
LENDER, PLUS AN ATTORNEY’S COMMISSION EQUAL TO TEN PERCENT (10%) OF THE SUMS THEN OUTSTANDING UNDER
THIS AGREEMENT AND THE NOTES, BUT IN NO EVENT LESS THAN $25,000, 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 AGREEMENT, A NOTE AND/OR THE PURCHASE AGREEMENT, 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. EACH DEBTOR 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



17









 







FOREGOING WARRANT AND POWER 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 THE LENDER SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO THE LENDER UNDER THE PURCHASE
AGREEMENT AND/OR THE NOTES SHALL HAVE BEEN PAID IN FULL. THE EXERCISE BY THE LENDER OF HIS RIGHTS
AND REMEDIES AND THE ENTRY OF ANY JUDGMENT BY THE LENDER UNDER THIS SECTION SHALL NOT AFFECT IN ANY
WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER AMOUNTS DUE TO THE LENDER, BUT INTEREST SHALL
CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT RATE.





* * * * *




18









 








          IN WITNESS WHEREOF, the Debtors and the Lender have caused this Agreement to be duly executed
and delivered as of the date first above written.




	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	ENTERTAINMENT TECHNOLOGY CORPORATION

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 
	 	
H.F. Lenfest

 	 
	 	 	 
	 	 	 
	 	 	 



19









 








SCHEDULE I TO

Security Agreement




COPYRIGHTS AND COPYRIGHT LICENSES



None.







 









 








SCHEDULE II TO

Security Agreement




PATENTS AND PATENT LICENSES




Patents:



ETC presently holds the following patent:




	 	 	 	 	 
	Patent No.	 	Title	 	Expiration Date
	6,818,178 B2

	 	“Method for High Vacuum Sterilization
of Closures”
	 	2/8/2022






 









 






SCHEDULE III TO

Security Agreement




TRADEMARKS AND TRADEMARK LICENSES




Trademarks:



The following ETC trademarks are registered with the U.S. Patent and Trademark Office:




	 	 	 

	BARA-MED® 

Reg. No. 1,267,016

	 	Medical Hyperbaric Chamber
	 
	 	 
	ETC®

Reg. No. 1,298,508

	 	Logo for Environmental Tectonics Corporation
	 
	 	 
	GAT-II®

Reg. No. 2,602,364

	 	General Aviation Trainer
	 
	 	 
	G-LAB®

Reg. No. 1,540,289

	 	Human Centrifuge/USAF Type
	 
	 	 
	G-POINTING®

Reg. No. 3,424,619

	 	Motion control algorithm feature; namely, a feature of Flight Simulators that duplicates G-force effects experienced during tactical flight in Class 9.
	 
	 	 
	GYROLAB®

Reg. No. 1,454,987

	 	Spatial Disorientation Device
	 
	 	 
	MRC Monster Roll
Cage®

Reg. No. 3,001,401

	 	Interactive Simulator in the Nature of an Amusement Ride Machine that incorporates Virtual Reality Effects
	 
	 	 
	NASTAR® CENTER

Reg. No. 3,370,892

	 	The National Aerospace Training & Research Center
	 
	 	 
	THE RIDE WORKS®

Reg. No. 2,618,917

	 	(Facility for) Manufacture of Amusement and Entertainment Rides to the order and specification of others.





ETC also uses the following unregistered trademarks:




	 	 	 

	ADMSTM

	 	Advanced Disaster Management Simulator
	 
	 	 
	ATFSTM

	 	Authentic Tactical Fighting System
	 
	 	 
	Authentic Tactical Fighting SystemTM

	 	Authentic Tactical Fighting System






 









 






	 	 	 

	BARA-LABTM

	 	Hyperbaric Chamber

(other than medical)
	 
	 	 
	ATFS-400 (stylized)

	 	Authentic Tactical Fighting System
	 
	 	 
	BARA•PRESSTM

	 	Hyperbaric Chamber Software
	 
	 	 
	BIG MACTM

	 	Entertainment ride based on a multi-armed Centrifuge Device
	 
	 	 
	CASTM

	 	Conditioned Air Supply
	 
	 	 
	DMITM

	 	Disaster Management Institute
	 
	 	 
	EAGLE-VISIONTM

	 	Visual Performance/Procedures Trainer
	 
	 	 
	EPCTM

	 	Engine Pressure Controller/Environmental System
	 
	 	 
	ETCTM

	 	ETC Biomedical Systems (Stylized “ETC” with caduceus.).
	 
	 	 
	ETCTM

	 	Entertainment Technology Corporation (Stylized “ETC” and name in color.).
	 
	 	 
	G-FETTM

	 	Human Centrifuge (U.S. Navy type)
	 
	 	 
	G-FET-IITM

	 	Human Centrifuge (Malaysian Air Force type)
	 
	 	 
	G-MASTM

	 	Missile Avoidance System (Centrifuge feature)
	 
	 	 
	GL-6000TM

	 	Disorientation Device
	 
	 	 
	GRAPH MASTER PROGRAMMERTM

	 	Industrial Sterilizer Control
	 
	 	 
	GUARDIAN MONITORING PACKAGETM

	 	GMP features for Sterilizers
	 
	 	 
	GYRO-1TM

	 	Multi-purpose basic Instrument Flight Trainer
	 
	 	 
	GYRO-SATTM

	 	Situational Awareness Trainer

(feature of a Gyrolab)
	 
	 	 
	GYROSIMTM

	 	Gyrolab as a Simulator
	 
	 	 
	LANE MASTERTM

	 	Automobile Emissions Analyzer
	 
	 	 
	MACTM

	 	Entertainment Ride based on a Multi-Armed Centrifuge Device






 









 






	 	 	 

	OASISTM

	 	Software-driven tool to build Test and Training Systems and scoring them; curriculum development, capability assessment, etc.
	 
	 	 
	O.S.C.A.R.TM

	 	Operating System for Control Recordkeeping
	 
	 	 
	PhoenixTM

	 	High fidelity, interactive, virtual tactical air combat maneuvering flight simulator that is integrated into a state-of-the-art
high performance centrifuge motion platform.
	 
	 	 
	ProFlyerTM

	 	Commercial Flight and Navigational Procedures Trainer meeting European regulations for civilian pilot training and certification
	 
	 	 
	PRO-GENESISTM

	 	Control Unit/column for Sterilizers
	 
	 	 
	ProTrainerTM

	 	Commercial Instrument Procedures Trainer meeting FAA’s PCATD requirements
	 
	 	 
	SENTRY 84TM

	 	Automobile Emissions Analyzer
	 
	 	 
	SMOOTH RIDETM

	 	Computer Control Profile for Hyperbaric Chambers
	 
	 	 
	TACModuleTM

	 	Tactical Aircraft Configuration Module
	 
	 	 
	TNETTM and/or 

TRAINING NETTM

	 	Computer Software for training emergency personnel in firefighting, disaster management, etc.
	 
	 	 
	TESSTM

	 	Total Emissions Suppression System, EtO Sterilizer
	 
	 	 
	Thrills Without IllsTM

	 	Describing ETC’s entertainment rides, particularly those utilizing ETC’s Human Centrifuge Technology, which precludes motion
sickness commonly associated with motion-based entertainment rides.
	 
	 	 
	VPT-1000TM

	 	Visual Procedures Trainer











 









 





SCHEDULE IV TO

Security Agreement




LOCATIONS OF ACCOUNT RECORDS




Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966




 









 





SCHEDULE V TO

Security Agreement




LOCATIONS OF INVENTORY RECORDS




Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966




 









 





SCHEDULE VI TO

Security Agreement




LOCATIONS OF INVENTORY



ETC Southampton and ETC Simulation, 2100 N. Alafaya Trail, Suite 900, Orlando, FL 32826







 









 








SCHEDULE VII TO

Security Agreement




LOCATIONS OF EQUIPMENT



ETC Southampton and ETC Simulation, 2100 N. Alafaya Trail, Suite 900, Orlando, FL 32826







 









 








SCHEDULE VIII TO

Security Agreement




LOCATIONS OF CHIEF EXECUTIVE OFFICE, STATE OF ORGANIZATION




Chief Executive Office:




Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966




Chief Place of Business:




Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966




Form of and Place of Organization: PA





 












 





EXHIBIT F

FORM OF REGISTRATION RIGHTS AGREEMENT




AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT




     THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of April
24, 2009, by and between Environmental Tectonics Corporation, a corporation organized under the
laws of the Commonwealth of Pennsylvania (the “Company”), and H.F. Lenfest (“Lenfest”), a resident
of the Commonwealth of Pennsylvania. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Secured Credit Facility and Warrant Purchase Agreement of
even date herewith by and between the Company and Lenfest (the “2009 Purchase Agreement”).



RECITALS




     A. To induce Lenfest to execute and deliver that certain Note and Warrant Purchase Agreement
dated as of February 19, 2003 by and between the Company and Lenfest (the “2003 Note and Warrant
Purchase Agreement”) pursuant to which the Company issued and sold to Lenfest subordinated notes
(the “Subordinated Notes”) which are convertible into shares of the Company’s common stock, par
value $0.05 per share (the “Common Stock”), and warrants to acquire shares of Common Stock (the
“2003 Warrants”), the Company granted certain registration rights under the Securities Act of 1933,
as amended, and the rules and regulations thereunder, or any similar successor statute
(collectively, the “Securities Act”), and applicable state securities laws, to Lenfest pursuant to
that certain Registration Rights Agreement dated as of February 19, 2003 (the “2003 Registration
Rights Agreement”).



     B. To induce Lenfest to execute and deliver that certain Preferred Stock Purchase Agreement
dated as of April 6, 2006 by and between the Company and Lenfest (the “Series B Preferred Stock
Purchase Agreement”) pursuant to which the Company issued and sold to Lenfest shares of Series B
Cumulative Convertible Participating Preferred Stock of the Company, par value $0.05 per share (the
“Series B Preferred Stock”), which are convertible into shares of the Common Stock, the Company
granted certain registration rights under the Securities Act to Lenfest pursuant to that certain
Registration Rights Agreement dated as of April 6, 2006 (the “2006 Registration Rights Agreement”).



     C. To induce Lenfest to execute and deliver that certain Preferred Stock Purchase Agreement
dated as of August 23, 2007 by and between the Company and Lenfest (the “Series C Preferred Stock
Purchase Agreement”) pursuant to which the Company issued and sold to Lenfest shares of Series C
Cumulative Convertible Participating Preferred Stock of the Company, par value $0.05 per share (the
“Series C Preferred Stock”), which are convertible into shares of the Common Stock, the Company
granted certain registration rights under the Securities Act to Lenfest pursuant to that certain
Registration Rights Agreement dated as of August 23, 2007 (the “2007 Registration Rights
Agreement”).



 









 





     D. In connection with the 2009 Purchase Agreement, the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue to Lenfest shares of Series D Convertible
Preferred Stock of the Company, par value $0.05 per share (the “Series D Preferred Stock”), which
are convertible into shares of the Common Stock, in payment of origination fees on the Credit
Facility and the Lender Guaranties and payment of interest on the Notes in the event Lenfest elects
to receive such interest in shares of Series D Preferred Stock in lieu of cash, and to issue and
sell to Lenfest warrants to acquire shares of Common Stock (the “2009 Warrants”), all as provided
and described in the 2009 Purchase Agreement.



     E. In connection with the 2009 Purchase Agreement, the Company has agreed, upon the terms and
subject to the conditions contained therein, that upon the occurrence of certain triggering events
as specified in the 2009 Purchase Agreement (the “Triggering Events”), the Series B Preferred Stock
and the Series C Preferred Stock will be exchanged automatically for, and the Subordinated Notes
will be converted into and exchanged for, shares of the Company’s Series E Convertible Preferred
Stock, par value $0.05 per share (the “Series E Preferred Stock”), which are convertible into
shares of the Common Stock.



     F. To induce Lenfest to execute and deliver the 2009 Purchase Agreement, the Company has
agreed to amend and restate the 2003 Registration Rights Agreement, the 2006 Registration Rights
Agreement and the 2007 Registration Rights Agreement to provide certain registration rights under
the Securities Act for the shares of Common Stock issuable upon (i) conversion of the Series D
Preferred Stock; (ii) (a) in the event the Triggering Events described in the 2009 Purchase
Agreement do not occur, the Subordinated Notes, the Series B Preferred Stock and the Series C
Preferred Stock or (b) in the event the Triggering Events described in the 2009 Purchase Agreement
do occur, the shares of Series E Preferred Stock that were issued in conversion of and exchange for
the Series B Preferred Stock and the Series C Preferred Stock and in conversion of the Subordinated
Notes; and (iii) exercise of the 2003 Warrants and the 2009 Warrants.



     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, intending to be legally bound hereby, the Company and Lenfest hereby agree to amend
and restate the 2003 Registration Rights Agreement, the 2006 Registration Rights Agreement and the
2007 Registration Rights Agreement in their entirety as follows:



     1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings:



          (a) “Investors” means Lenfest and any transferees or assignees who agree to become bound by
the provisions of this Agreement in accordance with Section 9 hereof.




          (b) “register,” “registered,” and “registration” refer to a registration effected by preparing
and filing a Registration Statement or Registration Statements in compliance with the Securities
Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis (“Rule 415”), and the declaration or




2









 







ordering of effectiveness of such Registration Statement by the United States Securities and
Exchange Commission (the “SEC”).




          (c) “Registrable Securities” means (i) the Common Stock issuable upon conversion of the
Subordinated Notes, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock and/or the Series E Preferred Stock, as the case may be (collectively, the
“Preferred Stock”); (ii) any Common Stock issued or issuable upon exercise of the 2003 Warrants
and/or the 2009 Warrants; and (iii) any Common Stock, or any Common Stock issued or issuable
(directly or indirectly) upon conversion and/or exercise of any other securities of the Company,
acquired by the Investors after the date hereof.




          (d) “Registration Statement” means a registration statement of the Company under the
Securities Act.




     2. REGISTRATION.



          (a) Demand Registration. Upon receipt of a written request (a “Demand Request”) from
Investors holding a majority of the Registrable Securities, which Demand Request shall set forth
the number of Registrable Securities the Investors are seeking to have registered, the Company
shall prepare and file with the SEC as soon as practicable, but in no event later than sixty (60)
days from the date of its receipt of a Demand Request, a Registration Statement on Form S-3 (or, if
Form S-3 is not then available, on such form of Registration Statement as is then available to
effect a registration of all of the Registrable Securities) covering the resale of the Registrable
Securities which are the subject of the Demand Request. The Registration Statement filed
hereunder, to the extent allowable under the Securities Act and the rules promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable to prevent dilution resulting
from stock splits, stock dividends or similar transactions. The Investors shall not be entitled to
make more than six (6) Demand Requests pursuant to this Agreement; provided, however, the Investors
shall not be entitled to make more than two (2) Demand Requests during any twelve (12) month
period. A registration request pursuant to this Section 2(a) shall not be deemed to have been
effected and shall not be considered a demand registration which may be requested pursuant to this
Section 2(a) unless a registration statement filed pursuant to this Section 2(a) has been declared
effective by the SEC.




          (b) Piggy-Back Registrations. If at any time prior to the expiration of the
Registration Period (as hereinafter defined), the Company shall file with the SEC a Registration
Statement relating to an offering for its own account or the account of others under the Securities
Act of any of its equity securities (other than the amendment of a registration statement now on
file, registration statements on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee benefit plans), the
Company shall send to each Investor written notice of such filing and, if within fifteen (15) days
after the receipt of such notice, an Investor shall so request in writing, the Company shall
include in such Registration Statement all or any part of the Registrable Securities such Investor
requests to be registered, except that if, in connection with any underwritten public offering, the



3









 






managing underwriter(s) thereof shall impose a limitation on the number of shares of Common
Stock which may be included in the Registration Statement because, in such underwriter(s)’
judgment, marketing or other factors dictate such limitation is necessary to facilitate public
distribution, then the Company shall be obligated to include in such Registration Statement only
such limited portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of Registrable
Securities shall be made pro rata among the Investors seeking to include Registrable Securities, in
proportion to the number of Registrable Securities sought to be included by such Investors;
provided, however, that the Company shall not exclude any Registrable Securities unless the Company
has first excluded all outstanding securities, the holders of which are not contractually entitled
to inclusion of such securities in such Registration Statement or are not contractually entitled to
pro rata inclusion with the Registrable Securities; and provided, further, however, that, after
giving effect to the immediately preceding proviso, any exclusion of Registrable Securities shall
be made pro rata with holders of other securities having the contractual right to include such
securities in the Registration Statement other than holders of securities contractually entitled to
inclusion of their securities in such Registration Statement by reason of demand registration
rights. If an offering in connection with which an Investor is entitled to registration under this
Section 2(b) is an underwritten offering, then each Investor whose Registrable Securities are
included in such Registration Statement shall offer and sell such Registrable Securities in an
underwritten offering using the same underwriter or underwriters and, subject to the provisions of
this Agreement, on the same terms and conditions as other shares of Common Stock included in such
underwritten offering.




          (c) Registrations on Form S-3. Upon receipt of a written request (an “S-3 Request”)
from Investors holding a majority of the Registrable Securities, which S-3 Request shall set forth
the number of Registrable Securities the Investors are seeking to have registered, if the Company
is eligible at the time of such request to use Form S-3, the Company shall prepare and file with
the SEC as soon as practicable, but in no event later than sixty (60) days from the date of its
receipt of an S-3 Request, a Registration Statement on Form S-3 covering the resale of the
Registrable Securities which are the subject of the S-3 Request. The Registration Statement filed
hereunder, to the extent allowable under the Securities Act and the rules promulgated thereunder
(including Rule 416), shall state that such Registration Statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable to prevent dilution resulting
from stock splits, stock dividends or similar transactions. The Investors shall not be entitled to
make more than two (2) S-3 Requests during any twelve (12) month period.




     3. OBLIGATIONS OF THE COMPANY.



          In connection with the registration of the Registrable Securities, the Company shall have the
following obligations:




          (a) The Company shall prepare and file with the SEC the Registration Statement in accordance
with Section 2, and cause such Registration Statement relating to Registrable Securities to
become effective as soon as practicable after such filing, and keep such Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on
which all of the Registrable Securities have been sold and (ii) the date on which



4









 






all of the Registrable Securities (in the opinion of counsel to the Investors, which shall be
sought upon the request of the Company) may be immediately sold to the public without registration
or restriction pursuant to Rule 144(k) under the Securities Act or any successor provision (the
“Registration Period”), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated by reference therein)
shall not contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein, or necessary to make the statements therein not misleading, and (iii) shall
comply in all material respects with the requirements of the Securities Act and the rules and
regulations of the SEC promulgated thereunder. The financial statements of the Company included in
the Registration Statement or incorporated by reference therein will comply in all material
respects with the applicable accounting requirements and the published rules and regulations of the
SEC applicable with respect thereto. Such financial statements will be prepared in accordance with
U.S. generally accepted accounting principles, consistently applied, during the periods involved
(except in the case of unaudited interim statements, to the extent they may not include footnotes
or may be condensed on summary statements) and fairly present in all material respects the
consolidated financial position of the Company and its consolidated subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to immaterial year-end adjustments).




          (b) The Company shall prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary to keep the Registration Statement effective at
all times during the Registration Period, and, during such period, comply with the provisions of
the Securities Act with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement until the earlier of (i) such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of disposition by the
seller or sellers thereof as set forth in the Registration Statement or (ii) the expiration of the
Registration Period.




          (c) The Company shall furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel (i) promptly after the same is prepared and
publicly distributed, filed with the SEC, or received by the Company, one copy of the Registration
Statement and any amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred to in Section 2(a),
each letter written by or on behalf of the Company to the SEC or the staff of the SEC (including,
without limitation, any request to accelerate the effectiveness of the Registration Statement or
amendment thereto), and each item of correspondence from the SEC or the staff of the SEC, in each
case relating to the Registration Statement (other than any portion, if any, thereof which contains
information for which the Company has sought confidential treatment), (ii) on the date of
effectiveness of the Registration Statement or any amendment thereto, a notice stating that the
Registration Statement or amendment has been declared effective, and (iii) such number of copies of
a prospectus, including a preliminary prospectus, and all amendments and supplements thereto and
such other documents as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor.




5









 








          (d) The Company shall (i) register and qualify the Registrable Securities covered by the
Registration Statement under such other securities or “blue sky” laws of such jurisdictions in the
United States as each Investor who holds Registrable Securities being offered reasonably requests,
(ii) prepare and file in those jurisdictions such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify
the Registrable Securities for sale in such jurisdictions; provided, however, that the Company
shall not be required in connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction, (C) file a general
consent to service of process in any such jurisdiction, (D) provide any undertakings that cause the
Company undue expense or burden, or (E) make any change in its charter or bylaws, which in each
case the Board of Directors of the Company determines to be contrary to the best interests of the
Company and its shareholders.




          (e) As promptly as practicable after becoming aware of such event, the Company shall notify
each Investor of the happening of any event, of which the Company has knowledge, as a result of
which the prospectus included in the Registration Statement, as then in effect, includes an untrue
statement of a material fact or omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, promptly prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or omission, and deliver
such number of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.




          (f) The Company shall use reasonable best efforts (i) to prevent the issuance of any stop
order or other suspension of effectiveness of a Registration Statement, and, if such an order is
issued, to obtain the withdrawal of such order at the earliest practicable moment (including in
each case by amending or supplementing such Registration Statement) and (ii) to notify each
Investor who holds Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution thereof (and if such
Registration Statement is supplemented or amended, deliver such number of copies of such supplement
or amendment to each Investor as such Investor may reasonably request).




          (g) The Company shall permit a single firm of counsel designated by the Investors to review
the Registration Statement and all amendments and supplements thereto a reasonable period of time
prior to its filing with the SEC, and not file any document in a form to which such counsel
reasonably objects.




          (h) At the request of an Investor in the case of an underwritten public offering, the Company
shall furnish, on the date of effectiveness of the Registration Statement (i) an opinion, dated as
of such date, from counsel representing the Company addressed to each Investor and in form, scope
and substance as is customarily given in an underwritten public offering and (ii) a letter, dated
such date, from the Company’s independent certified public



6









 






accountants in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the underwriters, if
any, and each Investor.




          (i) The Company shall hold in confidence and not make any disclosure of information concerning
an Investor provided to the Company unless (i) disclosure of such information is necessary to
comply with federal or state securities laws, (ii) the disclosure of such information is necessary
to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction, (iv) such information has been made generally available to the public
other than by the Company or disclosure in violation of this or any other agreement, or (v) such
Investor consents to the form and content of any such disclosure. The Company agrees that it
shall, upon learning that disclosure of such information concerning an Investor is sought in or by
a court or governmental body of competent jurisdiction or through other means, give prompt notice
to such Investor prior to making such disclosure, and allow the Investor, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such
information.




          (j) The Company shall, prior to the declaration of effectiveness of any registration statement
covering Registrable Securities, cause all of the Registrable Securities covered by the
Registration Statement to be listed, at its option, on any national securities exchange on which
securities of the same class or series issued by the Company are then listed, if any, if the
listing of such Registrable Securities is then permitted under the rules of such exchange.




          (k) The Company shall provide a transfer agent and registrar, which may be a single entity,
for the Registrable Securities.




          (l) The Company shall cooperate with the Investors who hold Registrable Securities being
offered and the managing underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such certificates to be
in such denominations or amounts, as the case may be, as the managing underwriter or underwriters,
if any, or the Investors may reasonably request and registered in such names as the managing
underwriter or underwriters, if any, or the Investors may request, and, within five (5) business
days after the Registration Statement which includes Registrable Securities is ordered effective by
the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Securities (with copies to the Investors whose
Registrable Securities are included in such Registration Statement), an opinion of such counsel in
the form reasonably satisfactory to the transfer agent.




     4. OBLIGATIONS OF THE INVESTOR.



          In connection with the registration of the Registrable Securities, each Investor shall have
the following obligations:




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          (a) It shall be a condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable Securities of a particular
Investor that such Investor shall furnish to the Company such information regarding himself or
itself, the Registrable Securities held by him or it and the intended method of disposition of the
Registrable Securities held by him or it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten (10) days prior to the
anticipated filing date of the Registration Statement, the Company shall notify each Investor of
the information the Company requires from each such Investor.




          (b) Each Investor, by such Investor’s acceptance of the Registrable Securities, agrees to
cooperate with the Company as reasonably requested by the Company in connection with the
preparation and filing of the Registration Statement hereunder. The Company shall not be required
to include in any Registration Statement the Registrable Securities of any Investor who fails to
cooperate with the Company as reasonably requested in connection with the preparation and filing of
the Registration Statement.




          (c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 3(e) or 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3(e) or 3(f) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company
a certificate of destruction at the Company’s request) all copies in such Investor’s possession, of
the prospectus covering such Registrable Securities current at the time of receipt of such notice.




          (d) No Investor may participate in any underwritten distribution hereunder unless such
Investor (i) agrees to sell such Investor’s Registrable Securities on the basis provided in any
underwriting arrangements in usual and customary form entered into by the Company, (ii) completes
and executes all customary questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under underwritten offerings for selling shareholders,
(iii) agrees to pay its pro rata share of all underwriting discounts and commissions and any
expenses in excess of those payable by the Company pursuant to Section 5 below, and (iv) complies
with all applicable laws in connection therewith.




          (e) In the event that in the judgment of the Company, it is advisable to suspend the use of a
prospectus included in the Registration Statement due to pending material developments or other
events which have not yet been publicly disclosed and as to which the Company believes public
disclosure would be detrimental to the Company, the Company shall notify each Investor to such
effect, and, upon receipt of such notice, each Investor shall immediately discontinue any sales of
Registrable Securities pursuant to the Registration Statement until such Investor receives copies
of a supplemental or amended prospectus or until such Investor is advised in writing by the Company
that the then current prospectus may be used and have received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference in such prospectus
(a “Disclosure Delay Period”).




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Notwithstanding the foregoing, there shall not be more than an aggregate of ninety (90) days
in any twelve (12) month period during which the Company is in a Disclosure Delay Period.




     5. EXPENSES OF REGISTRATION. All reasonable expenses incurred by the Company or the
Investors in connection with registrations, filings or qualifications pursuant to Sections 2 and 3
above, including, without limitation, all registration, listing and qualifications fees, printers
and accounting fees, and the reasonable fees and disbursements of counsel for the Investors shall
be borne by the Company.



     6. INDEMNIFICATION. In the event any Registrable Securities are included in a
Registration Statement under this Agreement:



          (a) To the extent permitted by law, the Company will indemnify, hold harmless and defend (i)
each Investor who holds such Registrable Securities, and (ii) the directors, officers, partners,
members, employees and agents of such Investor and each person who controls any Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”), if any, (each, an “Indemnified Person”), against any joint or
several losses, claims, damages, liabilities or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization, whether commenced or
threatened, in respect thereof, “Claims”) to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact in a Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein not misleading,
(ii) any untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration Statement, or
contained in the final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein
any material fact necessary to make the statements made therein, in light of the circumstances
under which the statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, “Violations”). The Company shall reimburse the Investors and each other Indemnified
Person, promptly as such expenses are incurred and are due and payable, for any reasonable legal
fees or other reasonable expenses incurred by them in connection with investigating or defending
any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information furnished in writing to
the Company by such Indemnified Person for use in the Registration Statement or any such amendment
thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by any Investor pursuant to Section 9 hereof.




          (b) In connection with any Registration Statement in which an Investor is participating, each
such Investor agrees severally and not jointly to indemnify, hold harmless and



9









 






defend, to the same extent and in the same manner set forth in Section 6(a), the Company, each
of its directors, each of its officers who signs the Registration Statement, its employees, agents
and each person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other shareholder selling securities
pursuant to the Registration Statement or any of its directors or officers or any person who
controls such shareholder within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an “Indemnified Party”), against any Claim
to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise,
insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in connection with such
Registration Statement; and, subject to Section 6(c), such Investor will reimburse any legal or
other expenses reasonably incurred by them in connection with investigating or defending any such
Claim; provided, however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably withheld; provided,
further, however, that the Investor shall be liable in the aggregate to all Indemnified Parties
under this Agreement (including this Section 6(b) and Section 7) for only that amount as does not
exceed the net proceeds actually received by such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented.




          (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action (including any governmental action), such Indemnified
Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other indemnifying party similarly
noticed, to assume control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that such indemnifying party shall not be entitled to assume such defense and an
Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the
fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party reasonably determines that
there may be legal defenses available to such Indemnified Person or Indemnified Party which are in
conflict with those available to such indemnifying party. The indemnifying party shall pay for
only one separate legal counsel for the



10









 






Indemnified Person or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable Securities included in the
Registration Statement to which the Claim relates (with the approval of the initial Investor if it
holds Registrable Securities included in such Registration Statement), if the Investors are
entitled to indemnification hereunder, or by the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party
under this Section 6, except to the extent that the indemnifying party is actually prejudiced in
its ability to defend such action. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.




     7. CONTRIBUTION. To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with
respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent
permitted by law as is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the Indemnified Person or Indemnified Party, as the case may be, on the other hand,
with respect to the Violation giving rise to the applicable Claim; provided, however, that (i) no
contribution shall be made under circumstances where the party would not have been liable for
indemnification under the fault standards set forth in Section 6, (ii) no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any seller of Registrable Securities who was not guilty of such
fraudulent misrepresentation, and (iii) contribution (together with any indemnification or other
obligations under this Agreement) by any seller of Registrable Securities shall be limited in the
aggregate amount to the net amount of proceeds actually received by such seller from the sale of
such Registrable Securities.



     8. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to each Investor
the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit each Investor to sell securities of the Company
to the public without registration (“Rule 144”), the Company agrees to:



          (a) use its best efforts to file with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act and the Exchange
Act so long as the Company remains subject to such requirements and the filing and availability of
such reports and other documents is required for the applicable provisions of Rule 144; and




          (b) furnish to each Investor so long as such Investor owns Registrable Securities, promptly
upon request, (i) a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to permit each Investor to
sell such securities under Rule 144 without registration.




11









 








     9. ASSIGNMENT OF REGISTRATION RIGHTS. The rights of the Investors hereunder,
including the right to have the Company register Registrable Securities pursuant to this Agreement,
shall be automatically assignable by each Investor to any transferee of Registrable Securities or
any assignee of the 2009 Purchase Agreement, the Series C Preferred Stock Purchase Agreement, the
Series B Preferred Stock Purchase Agreement and/or the 2003 Note and Warrant Purchase Agreement, as
the case may be, if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company promptly after such
assignment, (ii) the Company is furnished with written notice of (A) the name and address of such
transferee or assignee, and (B) the securities with respect to which such registration rights are
being transferred or assigned, and (iii) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein.



     10. AMENDMENT OF REGISTRATION RIGHTS. Provisions of this Agreement may be amended and
the observance thereof may be waived only with written consent of the Company and Investors who
hold a majority-in-interest of the Registrable Securities or, in the case of a waiver, with the
written consent of the party charged with the enforcement of any such provision.



     11. MISCELLANEOUS.



          (a) Any notices required or permitted to be given under the terms of this Agreement shall be
sent by certified or registered mail (return receipt requested), or delivered personally or by
courier, or by confirmed telecopy, or by a reputable overnight delivery service, and shall be
effective upon receipt or refusal of receipt, in each case addressed to a party. The addresses for
such communications shall be:



If to the Company:



Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966

Telephone: (215) 355-9100

Facsimile: (215) 357-4000

Attn: Chief Financial Officer








12









 







with a copy simultaneously transmitted by like means to:



Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 South Broad Street

Philadelphia, PA 19102

Telephone: (215) 569-4281

Facsimile: (215) 568-6603

Attn: William W. Matthews, III, Esquire




               and if to any Investor, at such address as such Investor shall have provided in writing to the
Company, or at such other address as each such party furnishes by notice given in accordance with
this Section 11(a).



with a copy simultaneously transmitted by like means to:



Royer & Associates, LLC

681 Moore Road, Suite 321

King of Prussia, PA 19406

Attn: John E. Royer, Jr., Esq.

Facsimile: (610) 354-8896




          (b) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or
delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.




          (c) This Agreement shall be governed by and construed in accordance with the laws of the
Commonwealth of Pennsylvania applicable to contracts made and to be performed in the Commonwealth
of Pennsylvania. The Company and each Investor irrevocably consent to the exclusive jurisdiction
of the United States federal courts and the state courts located in Montgomery County, Commonwealth
of Pennsylvania, in any suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be determined in such courts. The
Company and each Investor irrevocably waive the defense of an inconvenient forum to the maintenance
of such suit or proceeding. The parties further agree that service of process upon the other
party, mailed by first class mail shall be deemed in every respect effective service of process
upon such party in any such suit or proceeding. Nothing herein shall affect the parties’ right to
serve process in any other manner permitted by law. Each party agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.




          (d) This Agreement, the 2009 Purchase Agreement, the Series C Preferred Stock Purchase
Agreement, the Series B Preferred Stock Purchase Agreement and the 2003 Note and Warrant Purchase
Agreement constitute the entire agreement among the parties hereto with respect to the subject
matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to the



13









 






subject matter hereof and thereof, including, without limitation, the 2007 Registration Rights
Agreement, the 2006 Registration Rights Agreement and the 2003 Registration Rights Agreement.




          (e) Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties hereto.




          (f) The headings in this Agreement are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.




          (g) This Agreement may be executed in two or more counterparts, each of which shall be deemed
an original but all of which shall constitute one and the same agreement. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this Agreement.




          (h) Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the transactions contemplated
hereby.




          (i) All consents, approvals and other determinations to be made by the Investors pursuant to
this Agreement shall be made by the Investors holding a majority-in-interest of the Registrable
Securities held by all Investors.




          (j) Each party to this Agreement has participated in the negotiation and drafting of this
Agreement. As such, the language used herein shall be deemed to be the language chosen by the
parties hereto to express their mutual intent, and no rule of strict construction will be applied
against any party to this Agreement.




[SIGNATURE PAGE FOLLOWS]




14









 





     IN WITNESS WHEREOF, the parties have caused this Amended and Restated Registration Rights
Agreement to be duly executed as of the date first above written.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 	 	 
	 	  	
 	 
	 	 	H. F. Lenfest 	 
	 	 	 	 
	 



[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]





 











 





EXHIBIT G

FORM OF GUARANTY AGREEMENT




GUARANTY




     THIS GUARANTY (this “Guaranty”), dated as of April 24, 2009, is made by ENTERTAINMENT
TECHNOLOGY CORPORATION, a Pennsylvania corporation, and each other subsidiary of the Borrower (as
hereinafter defined) that at any time hereafter is formed, created or acquired, or has any assets
or operations if formed prior to the date hereof, and their respective successors and permitted
assigns (collectively, the “Guarantors”), in favor of H.F. LENFEST (the “Lender”).



WITNESSETH




     WHEREAS, Environmental Tectonics Corporation (the “Borrower”) and the Lender are parties to a
Secured Credit Facility and Warrant Purchase Agreement, dated as of the date hereof (as amended,
supplemented or otherwise modified from time to time, the “Purchase Agreement”);



     WHEREAS, the Purchase Agreement provides that, as a condition precedent to the making of one
or more advances thereunder by the Lender to the Borrower (the “Credit Facility”), the Guarantors
must execute a guaranty in favor of the Lender;



     WHEREAS, the Guarantors will derive substantial benefits from the Purchase Agreement and the
Credit Facility; and



     WHEREAS, the rights granted to the Lender herein shall be subject to the terms and conditions
of the Subordination Agreement (as defined in the Purchase Agreement).



     NOW, THEREFORE, in consideration of the premises and to induce the Lender to provide the
Credit Facility, the Guarantors, intending to be legally bound, hereby agree with the Lender as
follows:



     1. Defined Terms. Capitalized terms which are not defined herein have the meaning
given to such terms in the Purchase Agreement. As used herein, “Obligations” shall mean the unpaid
principal of (which such term shall include any payments of principal the Lender is compelled to
surrender or disgorge) and interest on (including, without limitation, interest accruing after the
maturity of the Credit Facility and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Credit Facility, and all other obligations and liabilities of the Borrower to the
Lender whether direct or indirect, absolute or contingent, liquidated or unliquidated, due or to
become due, or now existing or hereafter incurred, which may arise under, out of, or in connection
with, the Purchase Agreement, the Notes, the other Transaction Documents and any other document
made, delivered or given in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without
limitation, all fees and disbursements of



1









 




counsel to the Lender that are required to be paid by the Borrower pursuant to the terms of
the Purchase Agreement or any other Transaction Document) or otherwise.




     2. Guaranty. This is a Guaranty of payment and not of collectability. The Guarantors
hereby jointly and severally, unconditionally and irrevocably guarantee to the Lender, the prompt
and complete payment and performance by the Borrower when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations. The Guarantors further agree to pay any and all
reasonable expenses (including, without limitation, all reasonable fees and disbursements of
counsel), which may be paid or incurred by the Lender in enforcing, or obtaining advice of counsel
in respect of, any of its rights under this Guaranty. This Guaranty shall remain in full force and
effect until the Obligations are paid in full and the Credit Facility is terminated,
notwithstanding that from time to time prior thereto the Borrower may be free from any Obligations.



     The Guarantors agree that whenever, at any time or from time to time, either shall make any
payment to the Lender on account of its liability hereunder, it will notify the Lender in writing
that such payment is made under this Guaranty for such purpose. No payment or payments made by the
Borrower or any other Person or received or collected by the Lender from the Borrower or any other
Person by virtue of any action or proceeding or any set-off or appropriation or application, at any
time or from time to time, in reduction of or in payment of the Obligations shall be deemed to
modify, reduce, release or otherwise affect the liability of the Guarantors hereunder which
liability shall, notwithstanding any such payment or payments, remain in full force and effect
until the Obligations are paid in full and the Credit Facility is terminated.



     3. Right of Set-off. Upon the occurrence and during the continuance of any Event of
Default, the Lender is hereby irrevocably authorized at any time and from time to time, without
notice to the Guarantors, any such notice being hereby waived by the Guarantors, to set off and
appropriate and apply any and all deposits (general or special, time or demand, provisional or
final), and any other credits, indebtedness or claims, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held or owing by the Lender to or for the
credit or the account of the Guarantors, in such amounts as the Lender may elect, on account of the
liabilities of the Guarantors hereunder and claims of every nature and description of the Lender
against the Guarantors, whether arising hereunder, under the Purchase Agreement, the Notes, or
otherwise, as the Lender may elect, whether or not the Lender has made any demand for payment and
although such liabilities and claims may be contingent or unmatured. The Lender shall notify the
Guarantors promptly of any such set-off made by it and the application made by it of the proceeds
thereof, provided that the failure to give such notice shall not affect the validity of such
set-off and application. The rights of the Lender under this Section 3 are in addition to other
rights and remedies (including, without limitation, other rights of set-off), which the Lender may
have.



     4. No Subrogation. Notwithstanding any payment or payments made by the Guarantors
hereunder, or any set-off or application of funds of the Guarantors by the Lender, the Guarantors
shall not be entitled to be subrogated to any of the rights of the Lender against the Borrower or
against any collateral security or guaranty or right of offset held by the Lender for the payment
of the Obligations, nor shall the Guarantors seek any reimbursement or indemnification from the
Borrower in respect of payments made by the Guarantors



2









 




hereunder, until all amounts owing to the Lender by the Borrower on account of the Obligations
are paid in full and the Credit Facility is terminated. If any amount shall be paid to the
Guarantors on account of such subrogation or other rights at any time when all of the Obligations
shall not have been paid in full, such amount shall be held by the Guarantors in trust for the
Lender segregated from other assets of the Guarantors, and shall forthwith upon receipt by the
Guarantors, be turned over to the Lender in the exact form received by the Guarantors (duly
indorsed by the Guarantors to the Lender, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Lender may determine.




     5. No Marshalling. Lender has no obligation to marshal any assets in favor of either
Guarantor, or against or in payment of (i) the Notes, or (ii) any other obligation owed to Lender
by Borrower or either Guarantor.



     6. Waivers; Amendments, etc. with respect to the Obligations. Each Guarantor shall
remain obligated hereunder notwithstanding that, without any reservation of rights against each
Guarantor, and without notice to or further assent by each Guarantor, any demand for payment of any
of the Obligations made by the Lender may be rescinded by the Lender, and any of the Obligations
continued, and the Obligations, the liability of any other party upon or for any part thereof, or
any collateral security or guaranty therefor or right of offset with respect thereto may from time
to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised,
waived, surrendered or released by the Lender, and the Purchase Agreement, the Notes, the other
Transaction Documents and any other documents executed and delivered in connection therewith may be
amended, modified, supplemented or terminated, in whole or in part, as the Lender may deem
advisable from time to time, and any collateral security, guaranty or right of offset at any time
held by the Lender for the payment of the Obligations may, be sold, exchanged, waived, surrendered
or released. The Lender shall not have any obligation to protect, secure, perfect or insure any
lien at any time held by it as security for the Obligations or for this Guaranty or any property
subject thereto.



     7. Guaranty Absolute and Unconditional. Each Guarantor waives any and all notice of
the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of
reliance by the Lender upon this Guaranty or acceptance of this Guaranty; the Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon
this Guaranty; and all dealings between the Borrower or the Guarantors, on the one hand, and the
Lender, on the other, shall likewise be conclusively presumed to have been had or consummated in
reliance upon this Guaranty, waives notice of acceptance of this Guaranty, notice of extensions of
credit to the Borrower from time to time, notice of default, diligence, presentment, notice of
dishonor, protest and demand for payment. This Guaranty is and shall be construed as a continuing,
absolute and unconditional Guaranty of payment without regard to (a) the validity or enforceability
of the Purchase Agreement, the Notes, any of the other Transaction Documents, any of the
Obligations or any collateral security therefor or guaranty or right of offset with respect thereto
at any time or from time to time held by or for the benefit of the Lender, (b) any defense, set-off
or counterclaim (other than a defense of payment or performance) which may at any time be available
to or be asserted by the Borrower against the Lender, or (c) any other circumstance whatsoever
(with or without notice to or knowledge of the Borrower or the Guarantors) which constitutes, or



3









 




might be construed to constitute, an equitable or legal discharge of the Borrower for the
Obligations, or of the Guarantors under this Guaranty, in bankruptcy or in any other instance. This
Guaranty is intended to be a surety of each Guarantor on behalf of Lender. When the Lender is
pursuing its rights and remedies hereunder against the Guarantors, the Lender may, but shall be
under no obligation to, pursue such rights and remedies as it may have against the Borrower or any
other Person or against any collateral security or guaranty for the Obligations or any right of
offset with respect thereto, and any failure by the Lender to pursue such other rights or remedies
or to collect any payments from the Borrower or any such other Person or to realize upon such
collateral security or guaranty or to exercise any such right of offset, or any release of the
Borrower or any such other Person or of any such collateral security, Guaranty or right of offset,
shall not relieve the Guarantors of any joint and several liability hereunder, and shall not impair
or affect the rights and remedies, whether express, implied or available as a matter of law, of the
Lender against the Guarantors.




     8. Reinstatement. This Guaranty shall continue to be effective, or be reinstated, as
the case may be, if at any time payment, or any part thereof, of any of the Obligations is
rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or upon or as a result of the
appointment of a receiver, intervenor or conservator of, or trustee or similar officer for the
Borrower or any substantial part of its property, or for any other reason, all as though such
payments had not been made.



     9. Payments. Each Guarantor hereby agrees that the Obligations will be paid to the
order of the Lender without set-off or counterclaim in United States dollars in immediately
available funds at the office of the Lender set forth in Section 14 hereof.



     10. POWER TO CONFESS JUDGMENT. THIS SECTION 10 SETS FORTH A WARRANT OF AUTHORITY FOR
ANY ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED GUARANTORS. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE UNDERSIGNED GUARANTORS, THE UNDERSIGNED GUARANTORS,
FOLLOWING CONSULTATION WITH SEPARATE COUNSEL FOR THE UNDERSIGNED GUARANTORS AND WITH KNOWLEDGE OF
THE LEGAL EFFECT HEREOF, HEREBY KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND UNCONDITIONALLY WAIVE ANY
AND ALL RIGHTS THE UNDERSIGNED GUARANTORS HAVE OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR
HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES OF AMERICA, THE
COMMONWEALTH OF PENNSYLVANIA, THE STATE OF DELAWARE, OR ELSEWHERE.



     EACH GUARANTOR 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
SUCH GUARANTOR AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT HEREUNDER, IN ANY
SUCH COURT IN ANY ACTION BROUGHT AGAINST SUCH GUARANTOR BY THE LENDER WITH RESPECT TO THE AGGREGATE
AMOUNTS PAYABLE HEREUNDER, WITH OR WITHOUT DECLARATION FILED, AS OF ANY TERM,



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AND THEREIN TO CONFESS OR ENTER JUDGMENT AGAINST SUCH GUARANTOR FOR ALL SUMS PAYABLE BY SUCH
GUARANTOR TO THE LENDER HEREUNDER, AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A DULY AUTHORIZED
DESIGNEE OF THE LENDER SETTING FORTH SUCH AMOUNT THEN DUE FROM SUCH GUARANTOR TO THE LENDER, PLUS
AN ATTORNEY’S COMMISSION EQUAL TO TEN PERCENT (10%) OF THE SUMS THEN OUTSTANDING HEREUNDER, BUT IN
NO EVENT LESS THAN $25,000, 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 GUARANTY SHALL HAVE
BEEN FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A WARRANT OF ATTORNEY.
EACH GUARANTOR 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 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 THE LENDER SHALL ELECT UNTIL ALL AMOUNTS PAYABLE TO THE LENDER HEREUNDER,
SHALL HAVE BEEN PAID IN FULL. THE EXERCISE BY THE LENDER OF HIS RIGHTS AND REMEDIES AND THE ENTRY
OF ANY JUDGMENT BY THE LENDER UNDER THIS SECTION SHALL NOT AFFECT IN ANY WAY THE INTEREST RATE
PAYABLE HEREUNDER OR ANY OTHER AMOUNTS DUE TO THE LENDER, BUT INTEREST SHALL CONTINUE TO ACCRUE ON
SUCH AMOUNTS AT THE DEFAULT RATE (AS DEFINED IN THE NOTES).




     11. Severability. Any provision of this Guaranty which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable
such provision in any other jurisdiction.



     12. Paragraph Headings. The paragraph headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.



     13. No Waiver; Cumulative Remedies. The Lender shall not by any act (except by a
written instrument pursuant to Section 14 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event
of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Lender, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by the Lender of any right or remedy



5









 




hereunder on anyone occasion shall not be construed as a bar to any right or remedy which the
Lender would otherwise have on any future occasion. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.




     14. Waivers and Amendments: Successors and Assigns; Governing Law. None of the terms
or provisions of this Guaranty may be waived, amended, supplemented or otherwise modified except by
a written instrument executed by the Guarantors and the Lender. This Guaranty shall be binding upon
the successors and assigns of the Guarantors and shall inure to the benefit of the Lender and its
successors and assigns. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.



     15. Additional Guarantors; Representations and Warranties. If at any time subsequent
to the date hereof any other Subsidiary of the Borrower becomes a party to this Guaranty (an
“Additional Guarantor”) as provided in Section 4.1(e)(iii) of the Purchase Agreement by executing a
joinder hereto, the obligations of such Additional Guarantor and any other Guarantor hereunder
shall be joint and several and all references herein to the Guarantors shall include such
Additional Guarantor. The Borrower represents and warrants that as of the date of this Guaranty,
ETC Delaware, Inc., a Delaware corporation and Subsidiary of the Borrower, conducts no business and
has no operations or assets.



     16. Notices. All notices, requests and demands to or upon the respective parties
hereto to be effective shall be in writing (including by facsimile), and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made when delivered by hand,
or three days after being deposited in the mail, postage prepaid, or, in the case of facsimile
notice, when sent during normal business hours with electronic confirmation or otherwise when
received, addressed as set forth below for the Lender and as set forth on the signature page hereto
for each Guarantor:



	 	 	 
	Lender:

	 	c/o The Lenfest Group
	 

	 	300 Barr Harbor Drive, Suite 460
	 

	 	West Conshohocken, PA 19428
	 

	 	Attn: H.F. Lenfest
	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	Royer & Associates, LLC
	 

	 	681 Moore Road, Suite 321
	 

	 	King of Prussia, PA 19406
	 

	 	Attention: John E. Royer, Jr., Esq.






     17. Submission to Jurisdiction; Waivers.



          (a) Each Guarantor hereby irrevocably and unconditionally:





          (i) submits for itself and its property in any legal action or proceeding relating to
this Guaranty or the other Transaction Documents, or for



6









 






recognition and enforcement of any judgment in respect thereof to the non-exclusive
general jurisdiction of the courts of the Commonwealth of Pennsylvania, the courts of the
United States of America for the Eastern District of Pennsylvania, and appellate courts from
any thereof;




          (ii) consents that any such action or proceeding may be brought in such courts, and
waives to the extent permitted by applicable law any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agree not to plead or claim the same;




          (iii) agrees that service of process in any such action or proceeding may be effected
by mailing a copy thereof by registered or certified mail (or any substantially similar form
of mail), postage prepaid, to it at its address set forth on the signature page hereto or at
such other address of which the Lender shall have been notified;




          (iv) waives and hereby acknowledges that it is estopped from raising any objection
based on forum non conveniens, any claim that any of the above-referenced courts lack proper
venue or any objection that any of such courts lack personal jurisdiction over it so as to
prohibit such courts from adjudicating any issues raised in a complaint filed with such
courts against such Guarantor this Guaranty or the other Transaction Documents;




          (v) acknowledges and agree that the choice of forum contained in this Section 16 shall
not be deemed to preclude the enforcement of any judgment obtained in any forum or the
taking of any action under this Guaranty or any other Transaction Documents to enforce the
same in any appropriate jurisdiction;




          (vi) waives, to the maximum extent not prohibited by law, any right it may have to
claim or recover in any legal action or proceeding referred to in this subsection any
special, exemplary, punitive or consequential damages; and




          (vii) agrees that nothing herein shall affect the right to effect service of process in
any other manner permitted by law or shall limit the right to sue in any other jurisdiction.



          (b) Each Guarantor hereby unconditionally waives trial by jury in any legal action or
proceeding relating to this Guaranty or any other Transaction Document and for any mandatory
counterclaim therein, including without limitation any action or proceeding referred to in
paragraph (a) above.




     Each Guarantor acknowledges that it has read and understood all the provisions of this
Guaranty, including the waiver of jury trial and confession of judgment, and has been advised by
counsel as necessary or appropriate.



[Signature Page Follows]



7









 







     IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly executed and delivered
as of the date first above written.



	 	 	 	 	 
	 	ENTERTAINMENT TECHNOLOGY
CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




8











 





EXHIBIT H

FORM OF MORTGAGE




AMENDED AND RESTATED OPEN-END MORTGAGE AND SECURITY

AGREEMENT

(This Mortgage Secures Future Advances)




     THIS AMENDED AND RESTATED OPEN-END MORTGAGE AND SECURITY AGREEMENT (this “Mortgage”) is made
as of the 24th day of April, 2009, by ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania
corporation with an address at 125 James Way, Southampton, Pennsylvania 18966 (“Mortgagor”), in
favor of H.F. LENFEST, an individual with an address at c/o The Lenfest Group, 300 Barr Harbor
Drive, Suite 460, West Conshohocken, Pennsylvania 19428 (“Mortgagee”).



     WHEREAS, Mortgagor is the owner of a certain tract or parcel of land described in Exhibit A
attached hereto and made a part hereof, together with the improvements now or hereafter erected
thereon;



     WHEREAS, Mortgagee executed that certain Senior Subordinated Convertible Note dated as of
February 18, 2003 (the “2003 Note”) in favor of Mortgagee in the original principal amount of Ten
Million Dollars ($10,000,000) (the “2003 Loan”), which 2003 Note was secured, in part, by that
certain Open-End Mortgage and Security Agreement made by Mortgagor in favor of Mortgagee dated
February 18, 2003 and recorded in the Office of the Recorder of Deeds in and for Bucks County,
Pennsylvania, on February 23, 2003 in Book 3148, page 1444 (the “2003 Mortgage”);



     WHEREAS, pursuant to the terms of that certain Secured Promissory Note dated February 20, 2009
(the “2009 Bridge Note”), Mortgagee extended to Mortgagor an additional loan in the original
principal amount of Two Million Dollars ($2,000,000) (the “Bridge Loan”);



     WHEREAS, pursuant to the terms of that certain Secured Credit Facility and Warrant Purchase
Agreement, dated as of the date hereof, between Mortgagor and Mortgagee (the “Credit Facility
Agreement”), Mortgagor has agreed to extend to Mortgagee a loan in the aggregate principal amount
of up to Seven Million Five Hundred Thousand Dollars ($7,500,000) (including the principal amount
of the 2009 Bridge Note) (the “Credit Facility”), which Credit Facility is intended to be secured
by this Mortgage;



     WHEREAS, pursuant to the terms and subject to the conditions of the Credit Facility Agreement,
Mortgagee has agreed to personally guarantee the repayment by Mortgagor of the maximum principal
amount of up to Twenty Million Dollars ($20,000,000) (the “Personal Guaranty”) as may be payable by
Mortgagor to PNC Bank, National Association (“Senior Lender”) in, and pursuant to the terms of, a
Letter Agreement relating to a $20,000,000 committed line of credit to be entered into by and
between Mortgagor and Senior Lender (the “Senior Credit Agreement”), in accordance with the terms
of that certain letter agreement by and between Mortgagor and Senior Lender dated the date hereof;
and



 









 





     WHEREAS, Mortgagor and Mortgagee desire to amend and restate in its entirety the 2003 Mortgage
in order to secure all of the obligations of Mortgagor to Mortgagee under the Credit Facility
Agreement.



     NOW, THEREFORE, for the purpose of securing the payment and performance of the following
obligations (collectively called the “Obligations”):



     (A) Any amounts due under the 2003 Note, the 2009 Bridge Note, all notes now or hereafter
executed by Mortgagor to memorialize an advance under the Credit Facility or pursuant to the terms
of the Credit Facility Agreement and all sums paid by Mortgagee under the Personal Guaranty
(including any interest accruing thereon before or after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding
relating to Mortgagor, whether or not a claim for post-filing or post-petition interest is allowed
in such proceeding), and any amendments, extensions, renewals or increases and all reasonable costs
and expenses of Mortgagee incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including reasonable attorneys’
fees and expenses; and



     (B) Any sums advanced by Mortgagee or which may otherwise become due pursuant to the
provisions of the Credit Facility Agreement, the Personal Guaranty, the 2003 Note, the 2009 Bridge
Note or this Mortgage or pursuant to any other document or instrument at any time delivered to
Mortgagee to evidence or secure any of the Obligations or which otherwise relate to any of the
Obligations (as the same may be amended, supplemented or replaced from time to time, the “Loan
Documents”).



     Mortgagor, for good and valuable consideration, receipt of which is hereby acknowledged, and
intending to be legally bound hereby, does hereby give, grant, bargain, sell, convey, assign,
transfer, mortgage, hypothecate, pledge, set over and confirm unto Mortgagee and does agree that
Mortgagee shall have a security interest in the following described property, all accessions and
additions thereto, all substitutions therefor and replacements and proceeds thereof, and all
reversions and remainders of such property now owned or held or hereafter acquired (the
“Property”), to wit:



          (a) All of Mortgagor’s estate in the premises described in Exhibit A, together with all of the
easements, rights of way, privileges, liberties, hereditaments, gores, streets, alleys, passages,
ways, waters, watercourses, rights and appurtenances thereunto belonging or appertaining, and all
of Mortgagor’s estate, right, title, interest, claim and demand therein and in the public streets
and ways adjacent thereto, either in law or in equity (the “Land”);




          (b) All the buildings, structures and improvements of every kind and description now or
hereafter erected or placed on the Land, and all facilities, fixtures, machinery, apparatus,
appliances, installations, machinery and equipment, including all building materials to be
incorporated into such buildings, all electrical equipment necessary for the operation of such
buildings and heating, air conditioning and plumbing equipment now or hereafter attached to,
located in or used in connection with those buildings, structures or other improvements (the
“Improvements”);




2









 








          (c) All rents, issues and profits arising or issuing from the Land and the Improvements (the
“Rents”) including the Rents arising or issuing from all leases and subleases now or hereafter
entered into covering all or any part of the Land and Improvements (the “Leases”), all of which
Leases and Rents are hereby assigned to Mortgagee by Mortgagor. The foregoing assignment shall
include all cash or securities deposited under Leases to secure performance of lessees of their
obligations thereunder, whether such cash or securities are to be held until the expiration of the
terms of such leases or applied to one or more installments of rent coming due prior to the
expiration of such terms. The foregoing assignment extends to Rents arising both before and after
the commencement by or against Mortgagor of any case or proceeding under any Federal or State
bankruptcy, insolvency or similar law, and is intended as an absolute assignment and not merely the
granting of a security interest. Mortgagor, however, shall have a license to collect, retain and
use the Rents so long as no Event of Default shall have occurred and be continuing or shall exist.
Mortgagor will execute and deliver to Mortgagee, on demand, such additional assignments and
instruments as Mortgagee may require to implement, confirm, maintain and continue the assignment of
Rents hereunder;




          (d) All proceeds of the conversion, voluntary or involuntary, of any of the foregoing into
cash or liquidated claims;




          (e) And without limiting any of the other provisions of this Mortgage, Mortgagor, as debtor,
expressly grants unto Mortgagee, as secured party, a security interest in all those portions of the
Property which may be subject to the Uniform Commercial Code provisions applicable to secured
transactions under the laws of the state in which the Property is located (the “UCC”), and
Mortgagor will execute and deliver to Mortgagee on demand such financing statements and other
instruments as Mortgagee may require in order to perfect and maintain such security interest under
the UCC on the aforesaid collateral.




     To have and to hold the same unto Mortgagee, its successors and assigns, forever, under and
subject to the terms of the Senior Credit Agreement and related documents (collectively, the
“Senior Credit Documents”). All of the duties and obligations of Mortgagor and the rights and
remedies of Mortgagee hereunder are under and subject in all respects to performance of the duties
and obligations of Mortgagor to Senior Lender and to the rights and remedies of Senior Lender under
the Senior Credit Documents. The failure by Mortgagor to perform or comply with any of the
provisions of this Mortgage shall not be an Event of Default hereunder if such failure arises
solely from Mortgagor’s performance or compliance with comparable obligations under the Senior
Credit Documents and performance or compliance with both the Senior Credit Documents and this
Mortgage is impossible.



     Provided, however, that if Mortgagor shall pay to Mortgagee the Obligations, and if Mortgagor
shall keep and perform each of its other covenants, conditions and agreements set forth herein and
in the other Loan Documents, then, upon the termination of all obligations, duties and commitments
of Mortgagor under the Obligations and this Mortgage, and subject to the provisions of the
paragraph entitled “Survival; Successors and Assigns”, the estate hereby granted and conveyed shall
become null and void.



     This Mortgage is an “Open-End Mortgage” as set forth in 42 Pa. C.S.A. §8143 and secures
obligations up to a maximum principal amount of Thirty-Seven Million Five Hundred



3









 




Thousand Dollars ($37,500,000), plus accrued and unpaid interest outstanding at any time under
the Loan Documents, including advances for the payment of taxes and municipal assessments,
maintenance charges, insurance premiums, costs incurred for the protection of the Property or the
lien of this Mortgage, expenses incurred by Mortgagee by reason of default by Mortgagor under this
Mortgage and advances for construction, alteration or renovation on the Property or for any other
purpose, together with all other sums due hereunder or secured hereby. All notices to be given to
Mortgagee pursuant to 42 Pa. C.S.A. §8143 shall be given as set forth in Section 18.




     1. Representations and Warranties. Mortgagor represents and warrants to Mortgagee
that Mortgagor has good and marketable title to an estate in fee simple absolute in the Land and
Improvements and has all right, title and interest in all other property constituting a part of the
Property, in each case free and clear of all liens and encumbrances, except as may otherwise be set
forth on an Exhibit B hereto. This Mortgage is a valid and enforceable lien on the Property
(except as set forth on Exhibit B). Mortgagor shall preserve such title as it warrants herein and
the validity and priority of the lien hereof and shall forever warrant and defend the same to
Mortgagee against the claims of all persons claiming by, through or under Mortgagor.



     2. Affirmative Covenants. Until all of the Obligations shall have been fully paid,
satisfied and discharged Mortgagor shall:



          (a) Payment and Performance of Obligations. Pay or cause to be paid and perform all
Obligations when due as provided in the Loan Documents.




          (b) Legal Requirements. Promptly comply with and conform in all material respects to
all present and future laws, statutes, codes, ordinances, orders and regulations and all covenants,
restrictions and conditions which may be applicable to Mortgagor or to any of the Property (the
“Legal Requirements”).




          (c) Impositions. Before interest or penalties are due thereon and otherwise when due,
Mortgagor shall pay all taxes of every kind and nature, all charges for any easement or agreement
maintained for the benefit of any of the Property, all general and special assessments (including
any condominium or planned unit development assessments, if any), levies, permits, inspection and
license fees, all water and sewer rents and charges, and all other charges and liens, whether of a
like or different nature, imposed upon or assessed against Mortgagor or any of the Property (the
“Impositions”) unless the amount thereof is being contested in good faith by Mortgagor by
appropriate proceedings with adequate reserves made for the payment thereof. Within thirty (30)
days after the payment of any Imposition if requested by Mortgagee, Mortgagor shall deliver to
Mortgagee evidence acceptable to Mortgagee of such payment. Mortgagor’s obligations to pay the
Impositions shall survive Mortgagee’s taking title to the Property through foreclosure,
deed-in-lieu or otherwise.




          (d) Maintenance of Security. Use, and permit others to use, the Property only for its
present use or such other uses as permitted by applicable Legal Requirements and approved in
writing by Mortgagee. Mortgagor shall keep the Property in good condition and order and in a
rentable and tenantable state of repair and will make or cause to be made, as and when necessary,
all repairs, renewals, and replacements, structural and nonstructural, exterior




4









 







and interior, foreseen and unforeseen, ordinary and extraordinary, provided, however, that no
structural repairs, renewals or replacements in excess of $100,000 shall be made without
Mortgagee’s prior written consent, not to be unreasonably withheld, conditioned or delayed.
Mortgagor shall not remove, demolish or alter any material portion of the Property or any of the
Property in a manner that materially adversely affects the same, nor commit or suffer waste with
respect thereto, nor permit the Property to become deserted or abandoned. Mortgagor covenants and
agrees not to take or permit any action with respect to the Property which will in any manner
materially impair the security of this Mortgage.




     3. Leases. Except as permitted by the Loan Documents, Mortgagor shall not (a) execute
an assignment or pledge of the Rents or the Leases other than in favor of Mortgagee; (b) accept any
prepayment of an installment of any Rents more than 30 days prior to the due date of such
installment; or (c) enter into or amend any of the terms of any of the Leases without Mortgagee’s
prior written consent, not to be unreasonably withheld, conditioned or delayed. Any or all leases
or subleases of all or any part of the Property shall be subject in all respects to Mortgagee’s
prior written consent, not to be unreasonably withheld, conditioned or delayed, shall be
subordinated to this Mortgage and to Mortgagee’s rights and, together with any and all rents,
issues or profits relating thereto, shall be assigned at the time of execution to Mortgagee as
additional collateral security for the Obligations, all in such form, substance and detail as is
satisfactory to Mortgagee in its reasonable discretion.



     4. Due on Sale Clause. Mortgagor shall not sell, convey or otherwise transfer any
interest in the Property (whether voluntarily or by operation of law), or agree to do so, without
Mortgagee’s prior written consent, including (a) any sale, conveyance, assignment, or other
transfer of (including installment land sale contracts), or the grant of a security interest in,
all or any part of the legal or equitable title to the Property, except as otherwise permitted
hereunder; or (b) any lease of all or any portion of the Property. Any default under this Section
shall cause an immediate acceleration of the Obligations without any demand by Mortgagee.



     5. Insurance. Mortgagor shall keep the Improvements continuously
insured, in an amount not less than the cost to replace the Improvements or an amount not less than
eighty percent (80%) of the full insurable value of the Property, whichever is greater, against
loss or damage by fire, with extended coverage and against other hazards as Mortgagee may from time
to time require. With respect to any property under construction or reconstruction, Mortgagor
shall maintain builder’s risk insurance. Mortgagor shall also maintain comprehensive general
public liability insurance, in an amount of not less than One Million Dollars ($1,000,000) per
occurrence and Two Million Dollars ($2,000,000) general aggregate per location, which includes
contractual liability insurance for Mortgagor’s obligations under the Leases, and worker’s
compensation insurance. All property and builder’s risk insurance shall include protection for
continuation of income for a period of twelve (12) months, in the event of any damage caused by the
perils referred to above. All policies, including policies for any amounts carried in excess of
the required minimum and policies not specifically required by Mortgagee, shall be with an
insurance company or companies satisfactory to Mortgagee, shall be in form satisfactory to
Mortgagee, shall meet all coinsurance requirements of Mortgagee, shall be maintained in full force
and effect, with premiums satisfied as collateral security for payment of the Obligations, shall be
endorsed with a standard mortgagee clause in favor of Mortgagee and shall provide for at least
thirty (30) days notice of cancellation to Mortgagee. Such insurance



5









 




shall also name Mortgagee as an additional insured under the comprehensive general public
liability policy and Mortgagor shall also deliver to Mortgagee a copy of the replacement cost
coverage endorsement. If the Property is located in an area which has been identified by any
governmental agency, authority or body as a flood hazard area or the like, then Mortgagor shall
maintain a flood insurance policy covering the Improvements in an amount not less than the
appraised value of the Property or the maximum limit of coverage available under the federal
program, whichever amount is less.




     6. Rights of Mortgagee to Insurance Proceeds. In the event of loss, Mortgagee shall
have the exclusive right to adjust, collect and compromise all Material Insurance Claims (as
defined below), and Mortgagor shall not adjust, collect or compromise any Material Insurance Claims
under said policies without Mortgagee’s prior written consent, not to be unreasonably withheld,
conditioned or delayed. Each insurer is hereby authorized and directed to make payment under said
policies, including return of unearned premiums, directly to Mortgagee instead of to Mortgagor and
Mortgagee jointly, and Mortgagor appoints Mortgagee as Mortgagor’s attorney-in-fact to endorse any
draft therefor. All Material Insurance Claims proceeds may, at Mortgagee’s sole option, be applied
to all or any part of the Obligations and in any order (notwithstanding that such Obligations may
not then otherwise be due and payable) or to the repair and restoration of any of the Property
under such terms and conditions as Mortgagee may reasonably impose; provided, however, that so long
as no Event of Default has occurred and is continuing, such proceeds shall be applied to the repair
and restoration of the Property. All other insurance claim proceeds must be applied to the repair
and restoration of the Property under terms and conditions satisfactory to Mortgagee. For purposes
of this paragraph 6, the term “Material Insurance Claim” means any insurance claim in excess of
$500,000.



     7. Installments for Insurance, Taxes and Other Charges. Upon Mortgagee’s request at
any time following the occurrence and during the continuance of an Event of Default, Mortgagor
shall pay to Mortgagee monthly, an amount equal to one-twelfth (1/12) of the annual premiums for
the insurance policies referred to hereinabove and the annual Impositions and any other item which
at any time may be or become a lien upon the Property (the “Escrow Charges”). The amounts so paid
shall be used in payment of the Escrow Charges so long as no Event of Default shall have occurred
and is continuing. No amount so paid to Mortgagee shall be deemed to be trust funds, nor shall any
sums paid bear interest. Mortgagee shall have no obligation to pay any insurance premium or
Imposition if at any time the funds being held by Mortgagee for such premium or Imposition are
insufficient to make such payments. If, at any time, the funds being held by Mortgagee for any
insurance premium or Imposition are exhausted, or if Mortgagee determines, in its reasonable
discretion, that such funds will be insufficient to pay in full any insurance premium or Imposition
when due, Mortgagor shall promptly pay to Mortgagee, upon demand, an amount which Mortgagee shall
estimate as sufficient to make up the deficiency. Upon the occurrence and during the continuance of
an Event of Default, Mortgagee shall have the right, at its election, to apply any amount so held
against the Obligations due and payable in such order as Mortgagee may deem fit, and Mortgagor
hereby grants to Mortgagee a lien upon and security interest in such amounts for such purpose.



     8. Condemnation. Mortgagor, immediately upon obtaining knowledge of the institution
of any proceedings for the condemnation or taking by eminent domain of any of the Property, shall
notify Mortgagee of the pendency of such proceedings. Mortgagee may



6









 




participate in any such proceedings and Mortgagor shall deliver to Mortgagee all instruments
requested by it to permit such participation. Any award or compensation for property taken or for
damage to property not taken in excess of $500,000, whether as a result of such proceedings or in
lieu thereof, is hereby assigned to and shall be received and collected directly by Mortgagee, and
any award or compensation shall be applied, at Mortgagee’s option, to any part of the Obligations
and in any order (notwithstanding that any of such Obligations may not then be due and payable) or
to the repair and restoration of any of the Property under such terms and conditions as Mortgagee
may reasonably impose provided, however, that so long as no Event of Default has occurred and is
continuing, such proceeds shall be applied to the repair and restoration of the Property.




     9. Environmental Matters. (a) For purposes of this Section 9, the term “Environmental
Laws” shall mean all federal, state and local laws, regulations and orders, whether now or in the
future enacted or issued, pertaining to the protection of land, water, air, health, safety or the
environment. The term “Regulated Substances” shall mean all substances regulated by Environmental
Laws, or which are known or considered to be harmful to the health or safety of persons, or the
presence of which may require investigation, notification or remediation under the Environmental
Laws. The term “Contamination” shall mean the discharge, release, emission, disposal or escape of
any Regulated Substances into the environment other than as permitted under applicable
Environmental Laws.



          (b) Mortgagor represents and warrants except as provided in the Loan Documents or otherwise
disclosed to Lender in writing (i) that no Contamination is present at, on or under the Property
and that no Contamination is being or, to the best of Mortgagor’s knowledge, has been emitted onto
any surrounding property other than as permitted under applicable Environmental Laws; (ii) all
operations and activities on the Property have been and are being conducted in accordance with all
Environmental Laws, and Mortgagor has all permits and licenses required under the Environmental
Laws; (iii) no underground or aboveground storage tanks are or have been located on or under the
Property; and (iv) no legal or administrative proceeding is pending or, to the best of Mortgagor’s
knowledge, threatened relating to any environmental condition, operation or activity on the
Property regulated under any applicable Environmental Laws, or any violation or alleged violation
of Environmental Laws. These representations and warranties shall be true as of the date hereof,
and shall be deemed to be continuing representations and warranties which must remain true, correct
and accurate during the entire duration of the term of this Mortgage.




          (c) Mortgagor shall ensure, at its sole cost and expense, that the Property and the conduct of
all operations and activities thereon comply and continue to comply with all Environmental Laws.
Mortgagor shall notify Mortgagee promptly and in reasonable detail in the event that Mortgagor
becomes aware of any violation of any Environmental Laws, the presence or release of any
Contamination with respect to the Property, or any governmental or third party claims under
applicable Environmental Laws relating to the environmental condition of the Property or the
conduct of operations or activities thereon. Mortgagor also agrees not to permit or allow the
presence of Regulated Substances on any part of the Property, except (i) to the extent such
Regulated Substances are used without violating any Environmental Laws; and (ii) those Regulated
Substances which are naturally occurring on the Property. Mortgagor agrees not to cause, allow or
permit the presence of any Contamination on the Property except



7









 






to the extent such Contamination is in compliance with all applicable Environmental Laws.




          (d) Mortgagee shall not be liable for, and Mortgagor shall indemnify, defend and hold
Mortgagee and all of its officers, directors, employees and agents, and all of their respective
successors and assigns harmless from and against all losses, costs, liabilities, damages, fines,
claims, penalties and expenses (including reasonable attorneys’, consultants’ and contractors’
fees, costs incurred in the investigation, defense and settlement of claims, as well as costs
incurred in connection with the investigation, remediation or monitoring of any Regulated
Substances or Contamination) that Mortgagee may suffer or incur (including as holder of the
Mortgage, as mortgagee in possession or as successor in interest to Mortgagor as owner of the
Property by virtue of a foreclosure or acceptance of a deed in lieu of foreclosure) as a result of
or in connection with (i) any Environmental Laws (including the assertion that any lien existing or
arising pursuant to any Environmental Laws takes priority over the lien of the Mortgage); (ii) the
breach in any material respect of any representation, warranty, covenant or undertaking by
Mortgagor in this Section 9; (iii) the presence on or the migration of any Contamination or
Regulated Substances on, under or through the Property; or (iv) any litigation or claim by the
government or by any third party in connection with the environmental condition of the Property or
the presence or migration of any Regulated Substances or Contamination on, under, to or from the
Property; provided, however, that Mortgagor shall not be liable under this Section (d) for any
damages caused by Mortgagee’s gross negligence or willful misconduct.




          (e) Upon Mortgagee’s request, Mortgagor shall execute and deliver an Environmental Indemnity
Agreement satisfactory in form and substance to Mortgagee, to more fully reflect Mortgagor’s
representations, warranties, covenants and indemnities with respect to the Environmental Laws.




     10. Inspection of Property. Mortgagee shall have the right to enter the Property upon
reasonable prior notice at any reasonable hour for the purpose of inspecting the order, condition
and repair of the buildings and improvements erected thereon, as well as the conduct of operations
and activities on the Property. Mortgagee may enter the Property (and cause Mortgagee’s employees,
agents and consultants to enter the Property), upon reasonable prior written notice to Mortgagor,
to conduct any and all environmental testing deemed appropriate by Mortgagee in his reasonable
discretion. The environmental testing shall be accomplished by whatever means Mortgagee may deem
appropriate, including the taking of soil samples and the installation of ground water monitoring
wells or other intrusive environmental tests. Mortgagor shall provide Mortgagee (and Mortgagee’s
employees, agents and consultants) reasonable rights of access to the Property as well as such
information about the Property and the past or present conduct of operations and activities thereon
as Mortgagee shall reasonably request.



     11. Events of Default. The occurrence of any one or more of the following events
shall constitute an “Event of Default” hereunder: (a) any Event of Default (as defined in the
Credit Facility Agreement); (b) the failure by Mortgagor to perform any of its other obligations
under this Mortgage or under any Environmental Indemnity Agreement executed and delivered pursuant
to Section 9(e) for a period of fifteen (15) days or more after written notice thereof is delivered
to Mortgagor; (c) falsity, inaccuracy or material breach by Mortgagor of any written warranty,
representation or statement made herein by Mortgagor; (d) any lien against or the



8









 




making of any levy, seizure or attachment of or on the Property not dismissed or adequately
bonded within ninety (90) days; (e) the failure of Mortgagee to have a mortgage lien on the
Property; (f) foreclosure proceedings are instituted against the Property upon any other lien or
claim, whether alleged to be superior or junior to the lien of this Mortgage which is not dismissed
within ninety (90) days; (g) the failure by Mortgagor to pay any Impositions as required under
Section 2(c), or to maintain in full force and effect any insurance required under Section 5; or
(h) Mortgagor or any other obligor or guarantor of any of the Obligations, shall at any time
deliver or cause to be delivered to Mortgagee a notice pursuant to 42 Pa. C.S.A. §8143 electing to
limit the indebtedness secured by this Mortgage.




     12. Rights and Remedies of Mortgagee. If an Event of Default occurs, Mortgagee may,
at its option and without demand, notice or delay, do one or more of the following:



          (a) Mortgagee may declare the entire unpaid principal balance of the Obligations, together
with all interest thereon, to be due and payable immediately.




          (b) Mortgagee may (i) institute and maintain an action of mortgage foreclosure against the
Property and the interests of Mortgagor therein, (ii) institute and maintain an action on any
instruments evidencing the Obligations or any portion thereof, and (iii) take such other action at
law or in equity for the enforcement of any of the Loan Documents as the law may allow, and in each
such action Mortgagee shall be entitled to all costs of suit and attorneys fees.




          (c) Mortgagee may, in his sole and absolute discretion: (i) collect any or all of the Rents,
including any Rents past due and unpaid, (ii) perform any obligation or exercise any right or
remedy of Mortgagor under any Lease, or (iii) enforce any obligation of any tenant of any of the
Property. Mortgagee may exercise any right under this subsection (c), whether or not Mortgagee
shall have entered into possession of any of the Property, and nothing herein contained shall be
construed as constituting Mortgagee a “mortgagee in possession”, unless Mortgagee shall have
entered into and shall continue to be in actual possession of the Property. Mortgagor hereby
authorizes and directs each and every present and future tenant of any of the Property to pay all
Rents directly to Mortgagee and to perform all other obligations of that tenant for the direct
benefit of Mortgagee, as if Mortgagee were the landlord under the Lease with that tenant,
immediately upon receipt of a demand by Mortgagee to make such payment or perform such obligations.
Mortgagor hereby waives any right, claim or demand it may now or hereafter have against any such
tenant by reason of such payment of Rents or performance of obligations to Mortgagee, and any such
payment or performance to Mortgagee shall discharge the obligations of the tenant to make such
payment or performance to Mortgagor.




          (d) Mortgagee shall have the right, in connection with the exercise of its remedies hereunder,
to the appointment of a receiver to take possession and control of the Property or to collect the
Rents, without notice and without regard to the adequacy of the Property to secure the Obligations.
A receiver while in possession of the Property shall have the right to make repairs and to make
improvements necessary or advisable in its or his opinion to preserve the Property, or to make and
keep it rentable to the best advantage, and Mortgagee may advance moneys to a receiver for such
purposes. Any moneys so expended or advanced by Mortgagee or by a receiver shall be added to and
become a part of the Obligations secured by



9









 







this Mortgage.




     13. Application of Proceeds. Mortgagee shall apply the proceeds of any foreclosure
sale of, or other disposition or realization upon, or Rents or profits from, the Property to
satisfy the Obligations in such order of application as Mortgagee shall determine in its exclusive
discretion.



     14. Confession of Judgment in Ejectment. At any time after the occurrence and during
the continuance of an Event of Default, without further notice, regardless of whether Mortgagee has
asserted any other right or exercised any other remedy under this Mortgage or any of the other Loan
Documents, he shall be lawful for any attorney of any court of record as attorney for Mortgagor to
confess judgment in ejectment against Mortgagor and all persons claiming under Mortgagor for the
recovery by Mortgagee of possession of all or any part of the Property, for which this Mortgage
shall be sufficient warrant. If for any reason after such action shall have commenced the same
shall be discontinued and the possession of the Property shall remain in or be restored to
Mortgagor, Mortgagee shall have the right upon any subsequent default or defaults to bring one or
more amicable action or actions as hereinbefore set forth to recover possession of all or any part
of the Property.



     15. Mortgagee’s Right to Protect Security. Mortgagee is hereby authorized to do any
one or more of the following, irrespective of whether an Event of Default has occurred: (a) appear
in and defend any action or proceeding purporting to affect the security hereof or Mortgagee’s
rights or powers hereunder if Mortgagor fails to so defend such action or proceeding to the
satisfaction of Mortgagee; (b) purchase such insurance policies covering the Property as he may
elect if Mortgagor fails to maintain the insurance coverage required hereunder; and (c) take such
action as Mortgagee may determine to pay, perform or comply with any Impositions or Legal
Requirements, to cure any Events of Default and to protect its security in the Property.



     16. Appointment of Mortgagee as Attorney-in-Fact. Mortgagee, or any of his officers,
is hereby irrevocably appointed attorney-in-fact for Mortgagor (without requiring any of them to
act as such), such appointment being coupled with an interest, to do any or all of the following:
(a) collect the Rents after the occurrence and during the continuance of an Event of Default; (b)
settle for, collect and receive any awards payable under Section 8 from the authorities making the
same; and (c) execute, deliver and file such financing statements and other instruments as
Mortgagee may require in order to perfect and maintain his security interest under the Uniform
Commercial Code on any portion of the Property.



     17. Certain Waivers. Mortgagor hereby waives and releases all benefit that might
accrue to Mortgagor by virtue of any present or future law exempting the Property, or any part of
the proceeds arising from any sale thereof, from attachment, levy or sale on execution, or
providing for any stay of execution, exemption from civil process or extension of time for payment
or any rights of marshalling in the event of any sale hereunder of the Property, and, unless
specifically required herein, all notices of Mortgagor’s default or of Mortgagee’s election to
exercise, or Mortgagee’s actual exercise of any option under this Mortgage or any other Loan
Document.



10









 





     18. Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be effective upon
receipt by Mortgagor or Mortgagee. Such notices and other communications may be hand-delivered,
sent by facsimile transmission with confirmation of delivery and a copy sent by first-class mail,
or sent by nationally recognized overnight courier service, to a party’s address set forth above or
to such other address as Mortgagor or Mortgagee may give to the other in writing for such purpose.



     19. Further Acts. Mortgagor will, at the cost of Mortgagor, and without expense to
Mortgagee, do, execute, acknowledge and deliver all further acts, deeds, conveyances, mortgages,
assignments, notices of assignment, transfers and assurances as Mortgagee shall, from time to time,
reasonably require for the better assuring, conveying, assigning, transferring or confirming unto
Mortgagee the property and rights hereby mortgaged, or which Mortgagor may be or may hereafter
become bound to convey or assign to Mortgagee, or for carrying out the intent of or facilitating
the performance of the terms of this Mortgage or for filing, registering or recording this
Mortgage. Mortgagor grants to Mortgagee an irrevocable power of attorney coupled with an interest
for the purpose of exercising and perfecting any and all rights and remedies available to Mortgagee
under the Note, this Mortgage, the other Loan Documents, at law or in equity, including, without
limitation, the rights and remedies described in this paragraph.



     20. Changes in the Laws Regarding Taxation. If any law is enacted or adopted or
amended after the date of this Mortgage which deducts the Obligations from the value of the
Property for the purpose of taxation or which imposes a tax, either directly or indirectly, on
Mortgagor or Mortgagee’s interest in the Property, Mortgagor will pay such tax, with interest and
penalties thereon, if any. If Mortgagee determines that the payment of such tax or interest and
penalties by Mortgagor would be unlawful or taxable to Mortgagee or unenforceable or provide the
basis for a defense of usury, then Mortgagee shall have the option, by written notice of not less
than one hundred twenty (120) days, to declare the entire Obligations immediately due and payable.



     21. Documentary Stamps. If at any time the United States of America, any State
thereof or any subdivision of any such State shall require revenue or other stamps to be affixed to
the Note or this Mortgage, or impose any other tax or charge on the same, Mortgagor will pay for
the same, with interest and penalties thereon, if any.



     22. Preservation of Rights. No delay or omission on Mortgagee’s part to exercise any
right or power arising hereunder will impair any such right or power or be considered a waiver of
any such right or power, nor will Mortgagee’s action or inaction impair any such right or power.
Mortgagee’s rights and remedies hereunder are cumulative and not exclusive of any other rights or
remedies which Mortgagee may have under other agreements, at law or in equity. Mortgagee may
exercise any one or more of its rights and remedies without regard to the adequacy of its security.



     23. Illegality. In case any one or more of the provisions contained in this Mortgage
should be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability



11









 




of the remaining provisions contained herein shall not in any way be affected or impaired
thereby.




     24. Changes in Writing. No modification, amendment or waiver of any provision of this
Mortgage nor consent to any departure by Mortgagor therefrom will be effective unless made in a
writing signed by Mortgagee, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice to or demand on Mortgagor in any
case will entitle Mortgagor to any other or further notice or demand in the same, similar or other
circumstance.



     25. Entire Agreement. This Mortgage (including the documents and instruments referred
to herein) constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between Mortgagor and Mortgagee with respect to the subject
matter hereof.



     26. Survival; Successors and Assigns. This Mortgage will be binding upon and inure
to the benefit of Mortgagor and Mortgagee and their respective heirs, executors, administrators,
successors and assigns; provided, however, that Mortgagor may not assign this Mortgage in whole or
in part without Mortgagee’s prior written consent and Mortgagee at any time may assign this
Mortgage in whole or in part; and provided, further, that the rights and benefits under the
Paragraphs entitled “Environmental Matters”, “Inspection of Property” and “Indemnity” shall also
inure to the benefit of any persons or entities who acquire title or ownership of the Property from
or through Mortgagee or through action of Mortgagee (including a foreclosure, sheriff’s or judicial
sale). The provisions of Paragraphs entitled “Environmental Matters”, “Inspection of Property” and
“Indemnity” shall survive the termination, satisfaction or release of this Mortgage, the
foreclosure of this Mortgage or the delivery of a deed in lieu of foreclosure.



     27. Interpretation. In this Mortgage, the singular includes the plural and the plural
the singular; references to statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the word “or” shall be deemed to
include “and/or”, the words “including”, “includes” and “include” shall be deemed to be followed by
the words “without limitation” and references to sections or exhibits are to those of this Mortgage
unless otherwise indicated. Section headings in this Mortgage are included for convenience of
reference only and shall not constitute a part of this Mortgage for any other purpose. If this
Mortgage is executed by more than one party as Mortgagor, the obligations of such persons or
entities will be joint and several.



     28. Indemnity. Mortgagor agrees to indemnify each of Mortgagee, his affiliated
companies, directors, officers and employees and Mortgagee’s holding company, if any (the
“Indemnified Parties”), and to hold each Indemnified Party harmless from and against any and all
claims, damages, losses, liabilities and expenses (including all reasonable fees and charges of
internal or external counsel with whom any Indemnified Party may consult and all reasonable
expenses of litigation or preparation therefor) which any Indemnified Party may incur or which may
be asserted against any Indemnified Party in connection with or arising out of the matters referred
to in this Mortgage or in the other Loan Documents by any person, entity or governmental authority
(including any person or entity claiming derivatively on behalf of



12









 




Mortgagor), whether (a) arising from or incurred in connection with any breach of a
representation, warranty or covenant by Mortgagor, or (b) arising out of or resulting from any
suit, action, claim, proceeding or governmental investigation, pending or threatened, whether based
on statute, regulation or order, or tort, or contract or otherwise, before any court or
governmental authority, which arises out of or relates to this Mortgage, any other Loan Document,
or the use of the proceeds of the Loan; provided, however, that the foregoing indemnity agreement
shall not apply to claims, damages, losses, liabilities and expenses attributable to an Indemnified
Party’s gross negligence or willful misconduct. The indemnity agreement contained in this Section
shall survive the termination of this Mortgage, payment of any Loan and assignment of any rights
hereunder. Mortgagor may participate at its expense in the defense of any such action or claim.




     29. Governing Law and Jurisdiction. This Mortgage has been delivered to and accepted
by Mortgagee and will be deemed to be made in the State where Mortgagee’s office indicated above is
located. This Mortgage will be interpreted and the rights and liabilities of Mortgagor and
Mortgagee determined in accordance with the laws of the State where Mortgagee’s office indicated
above is located, except that the laws of the State where the Property is located (if different
from the State where such office of Mortgagee is located) shall govern the creation, perfection and
foreclosure of the liens created hereunder on the Property or any interest therein. Mortgagor
hereby irrevocably consents to the exclusive jurisdiction of any state or federal court in the
county or judicial district where Mortgagee’s office indicated above is located; provided that
nothing contained in this Mortgage will prevent Mortgagee from bringing any action, enforcing any
award or judgment or exercising any rights against Mortgagor individually, against any security or
against any property of Mortgagor within any other county, state or other foreign or domestic
jurisdiction. Mortgagor acknowledges and agrees that the venue provided above is the most
convenient forum for both Mortgagee and Mortgagor. Mortgagor waives any objection to venue and any
objection based on a more convenient forum in any action instituted under this Mortgage.



     30. WAIVER OF JURY TRIAL. MORTGAGOR 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 MORTGAGE, ANY
DOCUMENTS EXECUTED IN CONNECTION WITH THIS MORTGAGE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS. MORTGAGOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.



[Signature Page Follows]






13









 







Mortgagor acknowledges that it has read and understood all the provisions of this Mortgage,
including the waiver of jury trial, and has been advised by counsel as necessary or appropriate.



WITNESS the due execution hereof as a document under seal, as of the date first written above, with
the intent to be legally bound hereby.




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	ENVIRONMENTAL TECTONICS
CORPORATION
	 
	 	 	 	 	 	 	 	 	 	 
	ATTEST:
	 	 	 	 	 	By:	 	 	 	 
	 
	 	 	 	 	 	 	 	(SEAL)	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	Print Name: 

	 	 	 	 	 	Print Name: 

	 	 
	 

	 	Title: 
	 	 	 	 	 	Title: 
	 	 






The principal place of business

and complete post office address

of Mortgagee is:




c/o The Lenfest Group

300 Barr Harbor Drive, Suite 460

West Conshohocken, PA 19428




The address of Mortgagee for

the purposes of 42 Pa.C.S.

§8143(d) is:




c/o The Lenfest Group

300 Barr Harbor Drive, Suite 460

West Conshohocken, PA 19428




14









 





	 	 	 	 	 	 	 
	COMMONWEALTH OF PENNSYLVANIA

	 	 	)	 	 	 
	 

	 	 	)	     ss:	 	 
	COUNTY OF BUCKS

	 	 	)	 	 	 






     On this, the _________
 day of _______________, 2009, before me, a Notary Public, the undersigned
officer, personally appeared ___________________________, who acknowledged himself/herself to be the
______________________________ of Environmental Tectonics Corporation, a Pennsylvania corporation, and
that he/she, in such capacity, being authorized to do so, executed the foregoing instrument for the
purposes therein contained by signing on behalf of said corporation.



     IN WITNESS WHEREOF, I hereunto set my hand and official seal.



	 	 	 	 	 
	 	  

Notary Public

 	 



My commission expires:




15









 





EXHIBITS





	A.	 	Legal Description
	 
	B.	 	Permitted Encumbrances






16











 





OPEN-END MORTGAGE AND SECURITY AGREEMENT




(THIS MORTGAGE SECURED FUTURE ADVANCES)




 






ENVIRONMENTAL TECTONICS CORPORATION




Mortgagor




AND




H.F. LENFEST,




Mortgagee




 






Return to:




Royer & Associates, LLC

681 Moore Road, Suite 321

King of Prussia, PA 19406




 









 





Exhibit B




PERMITTED ENCUMBRANCES




     All exceptions set forth on that certain Information Search conducted by Abstract Services and
Products (No. 138788-SFA “C”), with respect to the Property.



 









 





EXHBIT I

FORM OF SHAREHOLDERS VOTING AGREEMENT




SHAREHOLDERS VOTING AGREEMENT




     THIS SHAREHOLDERS VOTING AGREEMENT (this “Agreement”) is entered into as of April 24, 2009, by
and among William F. Mitchell (“Mitchell”) and any other shareholders of Environmental Tectonics
Corporation, a Pennsylvania corporation (the “Corporation”), who have executed signature pages to
this Agreement (such persons together with Mitchell, collectively, the “Shareholders”), and H.F.
Lenfest (“Lenfest”) relating to the shares of Common Stock of the Corporation, held by the
Shareholders.



BACKGROUND:




     A. The Corporation is in need of additional funds in order to meet its working capital
requirements.



     B. The Corporation has requested that Lenfest make available to the Corporation a secured line
of credit facility in the principal amount of up to $7,500,000, of which $3,000,000 has been made
available as at the date hereof, and the collateralized guaranty of an additional $5,000,000 of
debt that the Corporation will obtain from PNC Bank, National Association (“PNC”), with the
proceeds of each to be used for working capital and general corporate purposes directly related to
the growth of the business of the Corporation and the performance of one or more significant
contracts of the Corporation (collectively, the “Credit Facility”).



     C. Lenfest has agreed to make funds and/or guaranties available to the Corporation on the
terms and conditions set forth in that certain Secured Credit Facility and Warrant Purchase
Agreement dated the date hereof between the Corporation and Lenfest (the “Purchase Agreement”).



     D. The Purchase Agreement provides for the issuance by the Corporation of secured subordinated
promissory notes in the aggregate principal amount of up to $7,500,000 (the “Notes”) and additional
guaranties of PNC indebtedness in the principal amount of up to $5,000,000 (the “Guaranties”).



     E. In connection with the Credit Facility, the Corporation is issuing to Lenfest (i) shares of
the Corporation’s Series D Convertible Preferred Stock, par value $0.05 per share (the “Series D
Preferred Stock”), which shares are convertible into the Common Stock of the Corporation, par value
$0.05 per share (the “Common Stock”), as payment of origination fees on the Credit Facility and, if
Lenfest so elects in lieu of cash, interest on the Notes; (ii) warrants to purchase shares of the
Common Stock (the “Warrants”); and (iii) upon the occurrence of certain triggering events as
provided in the Purchase Agreement, including the Corporation obtaining the Shareholder Approval
Events (as hereinafter defined), shares of the Corporation’s Series E Convertible Preferred Stock,
par value $0.05 per share (the “Series E Preferred Stock”), in



 









 







conversion of and exchange for the Corporation’s existing subordinated convertible promissory
notes (the “Subordinated Convertible Notes”), the Corporation’s Series B Convertible Preferred
Stock, par value $0.05 per share (the “Series B Preferred Stock”), and the Corporation’s Series C
Convertible Preferred Stock, par value $0.05 per share (the “Series C Preferred Stock” and together
with the Series B Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock,
the “Preferred Stock”), previously issued to Lenfest. The entering into of the Credit Facility,
including the issuance of the Notes, the Guaranties, the Warrants and the Series D Preferred Stock
and the Series E Preferred Stock shall be referred to hereinafter as the “Transactions”).



     F. The Purchase Agreement provides that in order for Lenfest to make any funds or guaranties
available to the Corporation under the Credit Facility, other than an initial loan of $1,000,000 to
be extended to the Corporation on the date hereof and the 2009 Bridge Note (as defined in the
Purchase Agreement) in the principal amount of $2,000,000 issued to the Corporation on February 20,
2009, among other things, the Corporation must obtain the affirmative vote of the shareholders of
the Corporation (i) to restore in full Lenfest’s voting rights on his Common Stock and Preferred
Stock in the Corporation, including any securities convertible into or exercisable for Common Stock
and any securities to be issued as a result of the Transactions, (ii) to approve all other
necessary actions relating to the Transactions, and (iii) to elect a slate of directors approved by
Lenfest (such events collectively referred to herein as the “Shareholder Approval Events”).



     G. As of the date hereof, each of the Shareholders is the record holder and beneficial owner
(as defined in Rule 13d-3 under the Securities Act of 1934, as amended) and/or has voting power
with respect to such number of shares of Common Stock opposite his or its name on Exhibit A
attached hereto (the “Shares”).



     H. It is a condition to the Closing (as defined in the Purchase Agreement) of the Purchase
Agreement that the Shareholders shall have executed and delivered this Agreement and agree to vote
their Shares in favor of the Transactions and the Shareholder Approval Events.



     I. The Shareholders have agreed to vote their Shares in favor of the consummation of the
Transactions and the Shareholder Approval Events.



     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties,
intending to be legally bound, hereby agree as follows:



     1. AGREEMENT TO VOTE SHARES. From and after the date of this Agreement and ending on the
Expiration Date (as defined in Section 5(c) below), each Shareholder agrees that, at any meeting of
the shareholders of the Corporation, however called (the “Meeting”), he or it shall vote all of his
or its respective Shares (a) in favor of the Transactions, (b) in favor of the Shareholder Approval
Events and (c) against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Corporation made in
connection with the Transactions.



     2. GRANT OF IRREVOCABLE PROXY. In order to ensure the voting of the Shareholders in
accordance with Section 1 of this Agreement, upon execution of this Agreement



2









 







by all parties, each Shareholder shall execute and deliver to Mitchell an irrevocable proxy,
in the form of Exhibit B hereto, granting to Mitchell the right to vote in respect of all
Shares now owned or hereafter registered in the name of such Shareholder. It is understood and
agreed that such irrevocable proxy shall be in force and effect for and relate solely to voting in
favor of the Transactions and the Shareholder Approval Events or against any action or agreement
that would result in a breach of any covenant, representation or warranty or any other obligation
or agreement of the Corporation made in connection with the Transactions and shall not constitute
the grant of any rights to said proxy to vote contrary to the foregoing express authority or as to
any other matters.



     3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Shareholder hereby represents, warrants
and covenants to Lenfest that he or it: (a) has full power to enter into this Agreement, (b) has
not, prior to the date of this Agreement, granted and is not a party to, any proxy, voting trust or
other agreement which is inconsistent with or conflicts with the provisions of this Agreement, and
such party shall not grant any proxy or become party to any voting trust or other agreement which
is inconsistent with or conflicts with the provisions of this Agreement, (c) upon completion of the
Transactions will own, directly or beneficially, at least the number of Shares set forth opposite
such party’s name on Exhibit A hereto, and (d) will not take any action inconsistent with
the intent and provisions of this Agreement, including, without limitation, the transfer, sale or
other disposition of any Shares prior to the Expiration Date, in each case, unless the proposed
transferee agrees to execute a copy of this Agreement and become bound by the terms hereof, and any
attempted transfer, sale or disposition without executing a copy of this Agreement shall be null
and void.



     4. ENFORCEABILITY. Each Shareholder expressly agrees that this Agreement shall be
specifically enforceable against him or it in any court of competent jurisdiction in accordance
with its terms.



     5. GENERAL PROVISIONS.



          (a) All of the covenants and agreements contained in this Agreement shall be binding upon, and
enure to the benefit solely of, the parties and their respective successors, assigns, heirs,
executors, administrators and other legal representatives, as the case may be, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other person or entity any
rights, benefits or remedies of any nature whatsoever under or by reason of this Agreement.



          (b) This Agreement may be executed by facsimile transmission and in one or more counterparts,
each of which will be deemed an original but all of which together shall constitute one and the
same instrument.



          (c) The terms of Sections 1 and 3, and the proxies delivered pursuant to Section 2 of this
Agreement shall remain in effect until the earlier of (i) [June 30], 2009; and (ii) the day
immediately following the date of the Meeting or the date the Transactions and the Shareholder
Approval Events are otherwise approved by a majority of the shareholders of the Corporation (the
“Expiration Date”).



3









 





          (d) If any provision of this Agreement shall be declared void or unenforceable by any court or
administrative board of competent jurisdiction, such provision shall be deemed to have been severed
from the remainder of the Agreement and this Agreement shall continue in all respects to be valid
and enforceable.



          (e) No waivers of any breach of this Agreement extended by any party hereto to any other party
shall be construed as a waiver of any rights or remedies of any other party hereto or with respect
to any subsequent breach.



          (f) Whenever the context of this Agreement shall so require, the use of the singular number
shall include the plural and the use of any gender shall include all genders.



          (g) This Agreement may not be modified, amended, altered or supplemented without the written
agreement of each of the parties hereto.



          (h) From time to time, at the request of either Lenfest or the Corporation and without further
consideration, the Shareholders shall execute and deliver such additional documents and take all
such further action as may be reasonably necessary to consummate and make effective the transaction
contemplated by this Agreement.



[SIGNATURE PAGE FOLLOWS]




4









 








     IN WITNESS WHEREOF, the Shareholder named below has caused this Agreement to be duly executed
as of the date first above written.



	 	 	 	 	 
	 	SHAREHOLDER:

 	 
	 	
 	 
	 	Name:  	 	 
	 	 	 
	 



[Shareholder Signature Page to Shareholders Voting Agreement]




 









 









     IN WITNESS WHEREOF, Lenfest has caused this Agreement to be duly executed as of the date first
above written.



	 	 	 	 	 
	 	 	 
	 	
 	 
	 	H.F. Lenfest 	 
	 	 	 
	 



[Lenfest Signature Page to Shareholders Voting Agreement]





 









 








EXHIBIT A




	 	 	 	 	 
	Shareholder	 	Shares	 	% of Voting Power
	 
	 	 	 	 
	William F. Mitchell
	 	1,081,324	 	8.77%






 









 






EXHIBIT B




IRREVOCABLE PROXY




     The undersigned agrees to, and hereby grants William F. Mitchell (“Mitchell”) an irrevocable
proxy pursuant to the provisions of the Pennsylvania Business Corporation Law to vote, or to
execute and deliver written consents or otherwise act with respect to, all shares of capital stock
of Environmental Tectonics Corporation, a Pennsylvania corporation (the “Corporation”), now owned
or hereafter acquired by the undersigned (collectively, the “Shares”) as fully, to the same extent
and with the same effect as the undersigned might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of a Pennsylvania corporation, as
provided in Section 1 of that certain Shareholders Voting Agreement, dated as of April 24, 2009
(the “Shareholders Voting Agreement”), among Mitchell, H.F. Lenfest and other signatories thereto.
The undersigned hereby affirms that this irrevocable proxy is given as a condition of the
Shareholders Voting Agreement and, as such, is coupled with an interest and is irrevocable. It is
further understood by the undersigned that this irrevocable proxy may be exercised by Mitchell for
the period beginning the date hereof and ending on the earlier of (i) August 20, 2009; and (ii) the
day immediately following the date of (A) any meeting of the shareholders of the Corporation at
which the shareholders of the Corporation vote to approve the Transactions and the Shareholder
Approval Events (each as defined in the Shareholders Voting Agreement) or (B) the date on which the
Transactions and the Shareholder Approval Events are otherwise approved by a majority of the
shareholders of the Corporation.



     THIS PROXY SHALL REMAIN IN FULL FORCE AND EFFECT AND BE ENFORCEABLE AGAINST ANY DONEE,
TRANSFEREE OR ASSIGNEE OF THE SHARES.



	 	 	 	 	 
	 	 	 
	Dated as of                     , 2009 	
 	 
	 	Shareholder 	 
	 	 	 
	 




 











 





EXHIBIT L




FORM OF CLOSING CERTIFICATE




OF




ENVIRONMENTAL TECTONICS CORPORATION




     The undersigned hereby certifies pursuant to Section 4.1(g)(viii) of that certain Secured
Credit Facility and Warrant Purchase Agreement dated as of April 24, 2009 (the “Purchase
Agreement”) by and between Environmental Tectonics Corporation, a Pennsylvania corporation (the
“Borrower”), and H. F. Lenfest (the “Lender”), an individual residing in the Commonwealth of
Pennsylvania, that no Event of Default exists and that the conditions specified in Section 4.1 of
the Purchase Agreement, other than the conditions specified in Section 4.1(f) of the Purchase
Agreement for purposes of the Initial Closing, have been fully satisfied by the Borrower or waived
by the Lender as of the Closing. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.



     IN WITNESS WHEREOF, the undersigned has executed this Closing Certificate as of this       day
of                     , 2009.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 



 









 






Exhibit M




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


 









 






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).




 









 







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


 









 






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.




 









 







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


 









 






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


 









 






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]




 









 





     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:  	/s/
Duane D. Deanes	 
	 	Name:  	Duane D. Deanes	 
	 	Title:  	CFO	 



 









 






	 	 	 	 	 






ENVIRONMENTAL TECTONICS CORPORATION




SECURITY AGREEMENT





     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”).



RECITALS




     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.



AGREEMENT




     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
reasonably request. Within ten (10) days after the date hereof, Debtor shall amend such insurance
policies, if necessary, to contain a standard mortgagee’s endorsement providing for payment of any
loss to Secured Party and to provide for ten (10) days’ written minimum cancellation notice to
Secured Party. Debtor shall furnish Secured Party evidence of compliance with the foregoing
insurance provisions before February 28, 2009.




          (m) Information. All information in any financial, credit or accounting statement
(and any statement by Debtor related thereto) provided to Secured Party prior to, contemporaneously
with or subsequent to the execution of this Agreement is and shall be true, correct, complete,
valid and genuine in all material respects.




          (n) Accounts. As to that portion of the Collateral which is accounts, Debtor
represents, warrants and agrees with respect to each such account that:




               (i) The account arose from the performance of services (including without limitation the
granting of any licenses or sales of databases and/or information derived therefrom) which have
been fully and satisfactorily performed or from the lease or the absolute sale of goods, if any, by
Debtor in which Debtor had the sole and complete ownership, and the goods have been shipped or
delivered to the account debtor.



               (ii) The account is not subject to any prior or subsequent assignment, claim, lien or security
interest other than that of Secured Party.



               (iii) The account is not subject to set-off, counterclaim, defense, allowance or adjustment
other than discounts for prompt payment shown on the invoice, or to dispute, objection or complaint
by the account debtor concerning his liability on the account, and the goods, the sale or lease of
which gave rise to the account, have not been returned, rejected, lost or damaged.



               (iv) The account arose in the ordinary course of Debtor’s business, and no notice of
bankruptcy, insolvency or financial embarrassment of the account debtor has been received by
Debtor.



     5. Secured Party’s Appointment as Attorney-in-Fact.



          (a) Powers. Debtor hereby appoints Secured Party, and any officer or agent of Secured
Party, with full power of substitution, as its attorney-in-fact with full irrevocable power and
authority in the place of Debtor and in the name of Debtor or in its own name, from time to time in
Secured Party’s discretion so long as an Event of Default has occurred and is continuing, for the
purpose of carrying out the terms of this Agreement, to take any and all



 









 






appropriate action and to execute any instrument which may be necessary or desirable to
accomplish the purposes of this Agreement. Without limiting the foregoing, so long as an Event of
Default has occurred and is continuing, Secured Party shall have the right, without notice to, or
the consent of, Debtor, to do any of the following on Debtor’s behalf:




          (i) to pay or discharge any taxes, assessments, charges, liens or levies levied or placed on
or threatened against the Collateral;




          (ii) to direct any party liable for any payment under any of the Collateral to make payment of
any and all amounts due or to become due thereunder directly to Secured Party or as Secured Party
directs;




          (iii) to ask for or demand, collect, and receive payment of and receipt for, any payments due
or to become due at any time in respect of or arising out of any Collateral;




          (iv) to commence and prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to enforce any right in respect of any Collateral;




          (v) to defend any suit, action or proceeding brought against Debtor with respect to any
Collateral;




          (vi) to settle, compromise or adjust any suit, action or proceeding described in subsection
(v) above and, to give such discharges or releases in connection therewith as Secured Party may
deem appropriate;




          (vii) to assign any patent, trademark or copyright included in the Collateral of Debtor (along
with the goodwill of the business to which any such patent, trademark or copyright pertains),
throughout the world for such term or terms, on such conditions, and in such manner, as Secured
Party shall in his sole discretion determine;




          (viii) generally, to sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral, and to take, at Secured Party’s option and Debtor’s
expense, any actions which Secured Party shall deem necessary to protect, preserve or realize upon
the Collateral and Secured Party’s lien on the Collateral and to carry out the intent of this
Agreement, in each case to the same extent as if Secured Party were the absolute owner of the
Collateral for all purposes; and




          (ix) to obtain, adjust, settle and cancel such insurance and endorsing any drafts drawn by
insurers of the Collateral. Secured Party may apply any proceeds of such insurance which may be
received by them in payment on account of the obligations secured hereby, whether due or not.



Debtor hereby ratifies whatever actions Secured Party shall lawfully do or cause to be done in
accordance with this Section 5. This power of attorney shall be a power coupled with an interest
and shall be irrevocable.




     (b) No Duty on Secured Party’s Part. The powers conferred on Secured Party by this
Section 5 are solely to protect Secured Party’s interests in the Collateral and shall



 









 




not impose
any duty upon it to exercise any such powers. Secured Party shall be accountable only for
amounts that he actually receives as a result of the exercise of such powers, and neither Secured
Party nor any of his employees or agents shall, in the absence of willful misconduct or gross
negligence, be responsible to Debtor for any act or failure to act pursuant to this Section 5.




     6. Performance by Secured Party of Debtor’s Obligations. If Debtor fails to perform
or comply with any of its agreements or covenants contained in this Agreement and Secured Party
performs or complies, or otherwise causes performance or compliance, with such agreement or
covenant in accordance with the terms of this Agreement, then the reasonable expenses of Secured
Party incurred in connection with such performance or compliance shall be payable by Debtor to
Secured Party on demand with interest thereon at the rate specified in Section 3(c) and shall
constitute Obligations secured by this Agreement.



     7. Remedies. If an Event of Default has occurred and is continuing, Secured Party may
exercise, in addition to all other rights and remedies granted to him in this Agreement and in any
other instrument or agreement relating to the Obligations, all rights and remedies of a secured
party under the UCC in effect in the local jurisdiction where the Collateral is located. Without
limiting the foregoing, Secured Party, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice which may not be waived by law) to
or upon Debtor or any other person (all of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances collect, receive, appropriate and realize upon any or all
of the Collateral, and/or may sell, lease, assign, give an option or options to purchase, or
otherwise dispose of and deliver any or all of the Collateral (or contract to do any of the
foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s
board or office of Secured Party or elsewhere upon such terms and conditions as Secured Party may
deem advisable, for cash or on credit or for future delivery without assumption of any credit risk.
Secured Party shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase all or any part of the
Collateral so sold, free of any right or equity of redemption in Debtor, which right or equity is
hereby waived or released. Secured Party shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all reasonable expenses
incurred therein or in connection with the care or safekeeping of any of the Collateral or in any
way relating to the Collateral or the rights of Secured Party under this Agreement (including,
without limitation, reasonable attorneys’ fees and expenses), to the payment in whole or in part of
the Obligations, in such order as Secured Party may elect, and only after such application and
after the payment by Secured Party of any other amount required by any provision of law, if any
surplus remains, to Debtor or whoever may be lawfully entitled thereto. To the extent permitted by
applicable law, Debtor waives all claims, damages and demands it may acquire against Secured Party
arising out of the exercise by Secured Party of any of its rights hereunder. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least five (5) days before such sale or other disposition,
unless the Collateral is perishable or threatens to decline quickly in value or is of a type
customarily sold on a recognized market, in which case notice need not be given. Debtor shall
remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations, including without limitation the fees and disbursements of
any attorneys employed by Secured Party to collect such deficiency.



 









 





     8. Limitation on Duties Regarding Preservation of Collateral. The sole duty of
Secured Party with respect to the custody, safekeeping and preservation of the Collateral, under
the Pennsylvania Uniform Commercial Code or otherwise, shall be to deal with it in good faith.
Neither Secured Party nor any of his employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the request of Debtor or
otherwise.



     9. Powers Coupled with an Interest. All authorizations and agencies contained in this
Agreement with respect to the Collateral are irrevocable and powers coupled with an interest.



     10. No Waiver; Cumulative Remedies. Secured Party shall not by any act (except by a
written instrument pursuant to Section 11(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any default under the
Note or in any breach of any of the terms and conditions of this Agreement. No failure to
exercise, nor any delay in exercising, on the part of Secured Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. A waiver by Secured Party of any right or remedy under this
Agreement on any one occasion shall not be construed as a bar to any right or remedy which Secured
Party would otherwise have on any subsequent occasion. The rights and remedies provided in this
Agreement are cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.



     11. Miscellaneous.



          (a) Amendments and Waivers. Any term of this Agreement may be amended or waived only
with the written consent of Debtor and Secured Party. Any amendment or waiver effected in
accordance with this Section 11(a) shall be binding upon the parties hereto and their respective
successors and assigns.




          (b) Transfer; Successors and Assigns. The rights and obligations of Secured Party and
Debtor hereunder may not be transferred or assigned by any party without the prior written consent
of the other parties hereto, except Secured Party may transfer or assign his rights and obligations
under this Agreement to any corporation, partnership, limited liability company or limited
liability partnership owned or controlled by Secured Party, or any shareholders, directors,
executive officers, affiliates, partners or limited partners thereof or of Secured Party or a
registered investment company with a common advisor and in such case the assignee shall be entitled
to all of the rights, privileges and remedies granted in this Agreement to Secured Party provided
that the transfer does not violate applicable securities laws; and is in connection with a
concurrent assignment or transfer of the Note held by Secured Party to such assignee or transferee;
and in such event Debtor will assert no claims or defenses, other than a defense that it has
performed its obligations under the Note and this Agreement, it may have against Secured Party
against the assignee, except those granted in this Agreement. Any permitted assignee of Debtor or
Secured Party shall agree in writing prior to the effectiveness of such assignment to be bound by
the provisions hereof. All of the stipulations, promises and



 









 






agreements in this Agreement made by
or on behalf of Debtor shall bind the successors and permitted assigns of
Debtor, whether so expressed or not, and inure to the benefit of the successors and permitted
assigns of Debtor and Secured Party.




     (c) Governing Law; Consent to Jurisdiction. This Agreement shall be governed by the
laws of the Commonwealth of Pennsylvania without regard to the conflict of law provisions thereof.
Debtor irrevocably and unconditionally agrees that any suit, action or other legal proceeding
arising out of this Agreement 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. 



     (d) WAIVER OF JURY TRIAL. DEBTOR 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 AGREEMENT, ANY
DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH
DOCUMENTS. DEBTOR ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.



     (e) CONFESSION OF JUDGMENT. DEBTOR 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 DEBTOR AT ANY TIME OR TIMES, AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT UNDER THIS AGREEMENT, OR THE NOTE, IN ANY SUCH COURT IN ANY ACTION BROUGHT AGAINST DEBTOR
BY SECURED PARTY 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 DEBTOR FOR ALL
SUMS PAYABLE BY DEBTOR TO SECURED PARTY HEREUNDER, AS EVIDENCED BY AN AFFIDAVIT SIGNED BY A DULY
AUTHORIZED DESIGNEE OF SECURED PARTY SETTING FORTH SUCH AMOUNT THEN DUE FROM DEBTOR TO SECURED
PARTY, 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. DEBTOR 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 TO BRING ANY ACTION OR
CONFESS JUDGMENT THEREIN SHALL BE DEEMED TO EXHAUST THE POWER, BUT THE POWER SHALL CONTINUE
UNDIMINISHED AND



 









 






	 	 	 	 	 



EXHIBIT N

FORM OF COMPLIANCE CERTIFICATE




	 	 	 
	TO:

	 	H.F. LENFEST
	 
	 	 
	FROM:

	 	ENVIRONMENTAL TECTONICS CORPORATION





The undersigned executive officer of Environmental Tectonics Corporation (the “Borrower”) hereby
certifies that in accordance with the terms and conditions of that certain Secured Credit Facility
and Warrant Purchase Agreement between the Borrower and H.F. Lenfest dated as of April 24, 2009
(the “Purchase Agreement”), (i) except as noted below, for the period ending                     , the
Borrower is in material compliance with all required covenants other than the covenant set forth in
Section 7.3 with which the Borrower is in complete compliance; (ii) all representations and
warranties of the Borrower stated in the Purchase Agreement are true and correct in all material
respects as of the date hereof; and (iii) no Event of Default exists. Attached herewith are the
required documents supporting the above certification. The undersigned further certifies that the
attached financial statements were prepared in accordance with GAAP consistently applied from one
period to the next except as explained in an accompanying letter or footnotes. Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to them in the
Purchase Agreement.




Please indicate compliance status by circling Yes/No under “Complies” column.




	 	 	 	 	 	 	 
	Reporting Covenant	 	Required	 	Complies
	 
	 	 	 	 	 	 
	Quarterly financial statements

	 	Within 45 days
following the end of
each fiscal quarter
	 	Yes
	 	No
	 
	 	 	 	 	 	 
	Annual (CPA Audited)

	 	Within 90 days
following the end of
each fiscal year
	 	Yes
	 	No






	 	 	 	 	 	 	 
	 	 	Actual Consolidated	 	 	 	 
	Financial Covenant	 	Tangible Net Worth	 	Complies
	 
	 	 	 	 	 	 
	The Borrower must maintain
Consolidated Tangible Net Worth
of at least $3,500,000 as of
the end of each fiscal quarter

	 	 	 	Yes
	 	No






[Signature Page Follows]




 









 








	 	 	 	 	 
	Comments Regarding Exceptions: See Attached.	 	LENDER USE ONLY
	
	 	 	 	 
	 

	 	Received by:	 	 
	 

	 	 	 	 
	Sincerely,

	 	 	 	AUTHORIZED SIGNER
	 
	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

SIGNATURE

	 	Verified:
	 	 
	 

	 	 	 	 
	 

	 	 	 	AUTHORIZED SIGNER
	 
	 	 	 	 
	 

PRINT NAME

	 	Date:
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	Compliance Status     
            
             
           Yes          No
	TITLE 
	 	 	 	 







 











 




MAY BE EXERCISED FROM TIME TO TIME AS OFTEN AS SECURED PARTY SHALL
ELECT UNTIL ALL AMOUNTS PAYABLE TO SECURED PARTY HEREUNDER, SHALL HAVE BEEN PAID IN FULL. THE
EXERCISE BY SECURED PARTY OF HIS RIGHTS AND REMEDIES AND THE ENTRY OF ANY JUDGMENT BY SECURED PARTY
UNDER THIS SECTION SHALL NOT AFFECT IN ANY WAY THE INTEREST RATE PAYABLE HEREUNDER OR ANY OTHER
AMOUNTS DUE TO SECURED PARTY, BUT INTEREST SHALL CONTINUE TO ACCRUE ON SUCH AMOUNTS AT THE DEFAULT
RATE.




     (f) Counterparts. This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original and all of which together shall constitute one
instrument.



     (g) Titles and Subtitles. The titles and subtitles used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting this Agreement.



     (h) Notices. Any notice required or permitted by this Agreement shall be in writing
and shall be deemed sufficient upon receipt if received on a business day before 4:00 p.m. local
time of recipient (if not, then on the next business day), when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or four (4) business days after being deposited
in the U.S. mail as certified or registered mail with postage prepaid, if such notice is addressed
to the party to be notified at such party’s address or facsimile number as set forth on the
signature page hereto, or as subsequently modified by written notice.



     (i) Severability. If one or more provisions of this Agreement are held to be
unenforceable under applicable law, the parties hereto agree to renegotiate such provision in good
faith in order to maintain the economic position enjoyed by each party as close as possible to that
under the provision rendered unenforceable. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision
were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its
terms.



     (j) Entire Agreement. This Agreement, and the documents referred to herein constitute
the entire agreement between the parties hereto pertaining to the subject matter hereof, and any
and all other written or oral agreements existing between the parties hereto concerning such
subject matter are expressly canceled.



     (k) Construction. “Secured Party” and “Debtor,” as used in this instrument, include
the administrators, successors, representatives, receivers, trustees and assigns of such party.



[Signature Page Follows]




 









 





     Debtor and Secured Party have caused this Security Agreement to be duly executed and delivered
as of the date first above written.



	 	 	 	 	 
	 	DEBTOR:





ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	 	 
	 	Name:  	 	 
	 	Title:  	 	 
	 


Address:   County Line Industrial Park

125 James Way

Southampton, PA 18966-3877



Facsimile Number: (___) ____________



SECURED PARTY:



                                        

H.F. Lenfest



Address:    300 Barr Harbor Drive, Suite 460



West Conshohocken, PA 19428



Facsimile Number: (610) 940-0602




 









 








EXHIBIT A



The Collateral shall consist of all assets of Debtor.




 









 







THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN,
NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR PURSUANT TO AN EXEMPTION
THEREFROM.




			
	 	 	 
	April 23, 2009

(Original Warrant Date: February 20, 2009)
	 	Warrant to Purchase

Shares of Common Stock






ENVIRONMENTAL TECTONICS CORPORATION

AMENDED AND RESTATED COMMON STOCK WARRANT




     THIS CERTIFIES THAT, for value received, H.F. Lenfest, or his registered assigns (each, a
“Holder”), is entitled to purchase from Environmental Tectonics Corporation, a Pennsylvania
corporation (the “Company”), at any time or from time to time during the Exercise Period (as
hereinafter defined), the number of fully paid and nonassessable shares of the Company’s common
stock, par value $0.05 per share (the “Common Stock”), set forth in Section 1 hereof, at the
exercise price set forth in Section 2 hereof, subject to adjustment as provided herein. This
Amended and Restated Common Stock Warrant (this “Warrant”) amends and restates in its entirety and
replaces the Common Stock Warrant issued to the Holder by the Company on February 20, 2009. This
Warrant has been issued pursuant to, and subject to the terms of, that certain Secured Promissory
Note, dated as of February 20, 2009, issued by the Company to the Holder (the “Note”). The term
“Warrant Shares”, as used herein, refers to the shares of Common Stock purchasable hereunder. The
term “Warrants” means this Warrant and any warrants issued as a result of the transfer, exchange or
replacement of such warrants. Capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Note.



     This Warrant is subject to the following terms, provisions and conditions:



     1. Number of Shares. During the Exercise Period, the Holder shall be entitled to
purchase 143,885 shares of Common Stock under this Warrant; provided, however, that if the
Shareholder Approval (as hereinafter defined) is not obtained by the Shareholder Approval Date (as
hereinafter defined), the Holder shall be entitled to purchase 719,424 shares of Common Stock under
this Warrant, unless the Company repays in full all principal, accrued interest and all other
amounts payable under the Note on or before the Shareholder Approval Date.



     2. Exercise Price. The exercise price of this Warrant (the “Exercise Price”) shall be
a price per share equal to $1.39; provided, however, that if the Shareholder Approval is not
obtained by the Shareholder Approval Date, the Exercise Price shall be $0.69 per share, unless the
Company repays in full all principal, accrued interest and all other amounts payable under the Note
on or before the Shareholder Approval Date.



 









 





     3. Period of Exercise. This Warrant is exercisable at any time or from time to time
beginning on the date of issuance (the “Issue Date”) and ending at 5:00 p.m., Philadelphia,
Pennsylvania time on the seventh (7th) anniversary of the Issue Date (the “Exercise
Period”).



     4. Manner of Exercise; Issuance of Certificates; Payment for Shares. Subject to the
provisions hereof, this Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the form attached hereto
(the “Exercise Agreement”), to the Company during normal business hours on any business day at the
Company’s principal executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company of the Exercise Price for
the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the Holder hereof or such Holder’s designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have been surrendered,
the completed Exercise Agreement shall have been delivered and payment shall have been made for
such shares as set forth above. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be delivered to the Holder
hereof within fifteen (15) business days after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by the Holder hereof
and shall be registered in the name of such Holder or such other name as shall be designated by
such Holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, as soon as practicable after the date of exercise,
deliver to the Holder a new Warrant representing the number of shares with respect to which this
Warrant shall not then have been exercised.



     5. Certain Agreements of the Company. The Company hereby covenants and agrees as
follows:



          (a) Shares to be Fully Paid. All Warrant Shares will, upon issuance in accordance
with the terms of this Warrant, be validly issued, fully paid, and nonassessable and free from all
taxes, liens, and charges with respect to the issue thereof.




          (b) Reservation of Shares. During the Exercise Period, the Company shall at all times
have authorized, and reserved for the purpose of issuance upon exercise of this Warrant, a
sufficient number of shares of Common Stock to provide for the exercise in full of this Warrant.




          (c) Listing. The Company shall use its reasonable best efforts to secure the listing
of the Warrant Shares upon each securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of issuance upon exercise
of this Warrant) and shall use its reasonable best efforts to maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Warrant Shares.




          (d) Certain Actions Prohibited. The Company will not, by amendment of its charter or
through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, directly or indirectly, by operation of



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law or otherwise, avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed by it hereunder, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the Holder of this Warrant in order to protect the exercise privilege of
the Holder of this Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant.




          (e) Successors and Assigns. This Warrant will be binding upon any entity succeeding
to the Company or its assets.




     6. Antidilution Provisions. During the Exercise Period, the Exercise Price and the
number of Warrant Shares shall be subject to adjustment from time to time as provided in this
Section 6. In the event that any adjustment of the Exercise Price as required herein results in a
fraction of a cent, such Exercise Price shall be rounded off to the nearest cent.



          (a) Sale of Securities Below Current Exercise Price. Except as otherwise provided in
Sections 6(b) and 6(d), if at any time the Company shall issue or, pursuant to the provisions
hereof, be deemed to have issued (other than as set forth in Section 6(a)(vi) hereof) any shares of
Common Stock, Convertible Securities (as hereinafter defined), Rights (as hereinafter defined) or
Related Rights (as hereinafter defined) (collectively, “Securities”) without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior to the issuance of
such Securities, then the Exercise Price in effect immediately prior to each such issuance shall
forthwith be reduced to a price determined in accordance with the following formula:




EP2 = EP1 * (A + B) ÷ (A + C).




     For purposes of the foregoing formula, the following definitions shall apply:



                    (a) “EP2” shall mean the Exercise Price for the Common Stock in effect immediately
after such issuance of Securities;



                    (b) “EP1” shall mean the Exercise Price of the Common Stock in effect immediately
prior to such issuance of Securities;



                    (c) “A” shall mean the number of shares of Common Stock actually outstanding immediately prior
to such issuance of Securities (excluding shares of Common Stock issuable on conversion or exercise
of preferred stock, convertible promissory notes, options, warrants and other options to purchase
or rights to subscribe for such convertible or exchangeable securities);



                    (d) “B” shall mean the number of additional shares of Common Stock that would have been issued
if such Securities had been issued at a price per share equal to EP1 (determined by
dividing the aggregate consideration received by the Company in respect of such issue by
EP1); and



                    (e) “C” shall mean the number of such Securities issued in such transaction.



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For the purpose of this Section 6(a), the following definitions, procedures and exceptions shall be
applicable:





          (i) Rights. In the case of the issuance of options, warrants or other rights
to purchase or otherwise acquire shares of Common Stock, whether or not at the time
exercisable (collectively, “Rights”), the total number of shares of Common Stock issuable
upon exercise of such Rights shall be deemed to have been issued at the time such Rights are
issued, for a consideration equal to the sum of the consideration, if any, received by the
Company upon the issuance of such Rights and the minimum purchase or exercise price payable
upon the exercise of such Rights for the Common Stock to be issued upon the exercise
thereof; and the consideration per share shall be determined by dividing (i) the aggregate
consideration so received by and payable to the Company, by (ii) the number of shares of
Common Stock issuable upon exercise of such Rights.




          (ii) Convertible Securities and Related Rights. In the case of the issuance of
any class or series of stock or any bonds, debentures, notes or other securities or
obligations convertible into or exchangeable for Common Stock, whether or not then
convertible or exchangeable (collectively, “Convertible Securities”), or options, warrants
or other rights to purchase or otherwise acquire Convertible Securities (collectively,
“Related Rights”), the total number of shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities or exercise of such Related Rights shall be
deemed to have been issued at the time such Convertible Securities or Related Rights are
issued, for a consideration equal to the sum of (A) the consideration, if any, received by
the Company upon issuance of such Convertible Securities or Related Rights (excluding any
cash received on account of accrued interest or dividends) and (B)(1) in the case of
Convertible Securities, the minimum additional consideration, if any, to be received by the
Company upon the conversion or exchange of such Convertible Securities or (2) in the case of
Related Rights, the sum of (x) the minimum purchase or exercise price payable upon the
exercise of such Related Rights for Convertible Securities and (y) the minimum additional
consideration, if any, to be received by the Company upon the conversion or exchange of the
Convertible Securities issued upon the exercise of such Related Rights; and the
consideration per share shall be determined by dividing (i) the aggregate consideration so
received by and payable to the Company, by (ii) the number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities or exercise of such
Related Rights.




          (iii) Changes. On any change in the number of shares of Common Stock issuable
upon the exercise of Rights or Related Rights or upon the conversion or exchange of
Convertible Securities or on any change in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including, but not limited to, a change resulting
from the anti-dilution provisions of such Rights, Related Rights or Convertible Securities,
the Exercise Price to the extent in any way affected by such Rights, Related Rights or
Convertible Securities shall forthwith be readjusted to be thereafter the Exercise Price
that would have been obtained had the adjustment which was made upon the issuance of such
Rights, Related Rights or Convertible Securities been made after giving effect to such
change. No further adjustment shall be made in respect of such change upon the actual
issuance of Common Stock or any payment of



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consideration upon the exercise of such Rights or Related Rights or the conversion or
exchange of such Convertible Securities.




          (iv) Expiration or Cancellation. On the expiration or cancellation of any such
Rights, Related Rights or Convertible Securities, if the Exercise Price shall have been
adjusted upon the issuance thereof, the Exercise Price shall forthwith be readjusted to such
Exercise Price as would have been obtained had the adjustment made upon the issuance of such
Rights, Related Rights or Convertible Securities been made upon the basis of the issuance of
only the number of shares of Common Stock actually issued upon the exercise of such Rights
or Related Rights or the conversion or exchange of such Convertible Securities.




          (v) Cash. In the case of the issuance of such Securities for cash, the amount
of consideration received by the Company shall be deemed to be the amount of cash paid
therefor before deducting any reasonable discounts, commissions or other expenses paid or
incurred by the Company for any underwriting or otherwise in connection with the issuance
and sale thereof. In the case of the issuance of such Securities for consideration other
than cash, the amount of consideration received by the Company shall be determined in good
faith by the Company’s Board of Directors.




          (vi) Exceptions to Adjustment of Exercise Price. No adjustment to the Exercise
Price will be made (i) upon the exercise of any warrants, options or convertible securities
issued and outstanding on the Issue Date in accordance with the terms of such securities as
of such date; (ii) upon exercise of any stock or options which may hereafter be exercised
under any employee benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a majority of the
non-employee members of the Board of Directors of the Company or a majority of the members
of a committee of non-employee directors established for such purpose; (iii) upon exercise
of the Warrant; (iv) upon the issuance of securities in connection with any strategic
transaction that is approved by the Board of Directors of the Company, including the Holder
if then a director; or (v) upon the issuance of securities in connection with any financing
transaction with the Holder or any of his affiliates.



          (b) Subdivision or Combination of Common Stock. If the Company at any time subdivides
(by any stock split, stock dividend, recapitalization, reorganization, reclassification or
otherwise) the shares of Common Stock acquirable hereunder into a greater number of shares, then,
after the date of record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any time combines (by
reverse stock split, recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a smaller number of shares, then, after the date of record
for effecting such combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.




          (c) Adjustment in Number of Shares. Upon each adjustment of the Exercise Price
pursuant to the provisions of this Section 6, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be adjusted by multiplying a number equal to



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the Exercise Price in effect immediately prior to such adjustment by the number of shares of
Common Stock issuable upon exercise of this Warrant immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.




          (d) Consolidation, Merger or Sale. In case of any consolidation of the Company with,
or merger of the Company into any other company, or in case of any sale or conveyance of all or
substantially all of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the Holder of this Warrant will have the right
to acquire and receive upon exercise of this Warrant in lieu of the shares of Common Stock
immediately theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities or assets as the Holder of the Warrant would have received had the Warrant been
exercised immediately prior to such consolidation, merger or sale or conveyance. In any such case,
the Company will make appropriate provision to insure that the provisions of this Section 6 hereof
will thereafter be applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation thereof, the successor
or acquiring entity (if other than the Company) and, if an entity different from the successor or
acquiring entity, the entity whose capital stock or assets the holders of the Common Stock of the
Company are entitled to receive as a result of such consolidation, merger or sale or conveyance
assumes by written instrument the obligations of the Company under this Warrant (including under
this Section 6) and the obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder may be entitled to
acquire. This Section 6(d) shall apply to any successive consolidations, mergers, sales or
conveyances.




          (e) Distribution of Assets. In case the Company shall declare or make any
distribution of its assets (including cash) to holders of Common Stock as a partial liquidating
dividend, by way of return of capital or otherwise, then, after the date of record for determining
stockholders entitled to such distribution, but prior to the date of distribution, the Holder of
this Warrant shall be entitled upon exercise of this Warrant for the purchase of any or all of the
shares of Common Stock subject hereto, to receive the amount of such assets which would have been
payable to the Holder had such Holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.




          (f) Notice of Adjustment. Upon the occurrence of any event which requires any
adjustment of the Exercise Price, then, and in each such case, the Company shall give notice
thereof to the Holder of this Warrant, which notice shall state the Exercise Price resulting from
such adjustment and the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. Such calculation shall be certified by the chief financial
officer of the Company.




          (g) Minimum Adjustment of Exercise Price. No adjustment of the Exercise Price shall
be made in an amount of less than 1% of the Exercise Price in effect at the time such adjustment is
otherwise required to be made, but any such lesser adjustment shall be carried forward and shall be
made at the time and together with the next subsequent adjustment which,



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together with any adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.




          (h) No Fractional Shares. No fractional shares of Common Stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the same fraction of the
Market Price of a share of Common Stock on the date of such exercise.




          (i) Other Notices. In case at any time:





          (i) the Company shall declare any dividend upon the Common Stock payable in shares of
stock of any class or make any other distribution (including dividends or distributions
payable in cash out of retained earnings) to the holders of the Common Stock;




          (ii) there shall be any capital reorganization of the Company, or reclassification of
the Common Stock, or consolidation or merger of the Company with or into, or sale of all,
substantially all or a material portion of its assets to, another Company or entity; or




          (iii) there shall be a voluntary or involuntary dissolution, liquidation or winding-up
of the Company;


then, in each such case, the Company shall give to the Holder of this Warrant (a) notice of the
date on which the books of the Company shall close or a record shall be taken for determining the
holders of Common Stock entitled to receive any such dividend or distribution or for determining
the holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up and (b) in
the case of any such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a reasonable approximation
thereof by the Company) when the same shall take place. Such notice shall also specify the date on
which the holders of Common Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other securities or property
deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding-up, as the case may be. Such notice shall be given at least ten (10)
business days prior to the record date or the date on which the Company’s books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii) and (iii) above; provided that if
notice is not given in accordance with this Section 6(i), the Company will use its best efforts to
insure that the Holder of this Warrant shall nevertheless receive the same rights and benefits
received by other holders of securities of the Company from the proceedings referred to in clauses
(i), (ii) and (iii) above, unless the Holder of this Warrant chooses not to receive such rights and
benefits.




          (j) Certain Events. If any event occurs of the type contemplated by the adjustment
provisions of this Section 6 but not expressly provided for by such provisions, the Company will
give notice of such event as provided in Section 6(i) hereof, and the Company’s Board of Directors
will make an appropriate adjustment in the Exercise Price and the number of



7









 






shares of Common Stock acquirable upon exercise of this Warrant so that the rights of the
Holder shall be neither enhanced nor diminished by such event.




          (k) Certain Definitions.





          (i) “Shareholder Approval” means such time as the Company obtains the affirmative vote
of the shareholders of the Company for a new financing transaction with the Holder and the
restoration in full of the Holder’s voting rights on his preferred stock and common stock in
the Company.




          (ii) “Shareholder Approval Date” means July 2, 2009; provided, however, that if the SEC
provides any comments to the proxy statement that the Company is filing in connection with
the Shareholder Approval, the Shareholder Approval Date shall mean forty-five (45) days
after the SEC comments are received but in no event shall such date be later than August 13,
2009.



     7. Issue Tax. The issuance of certificates for Warrant Shares upon the exercise of
this Warrant shall be made without charge to the Holder of this Warrant or such shares for any
issuance tax or other costs in respect thereof.



     8. No Rights or Liabilities as a Shareholder. This Warrant shall not entitle the
Holder hereof to any voting rights, rights to dividends, or other rights as a shareholder of the
Company. No provision of this Warrant, in the absence of affirmative action by the Holder hereof
to purchase Warrant Shares, and no mere enumeration herein of the rights or privileges of the
Holder hereof, shall give rise to any liability of such Holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company or by creditors of
the Company.



     9. Transfer, Exchange and Replacement of Warrant.



          (a) Restriction on Transfer. This Warrant and the rights granted to the Holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together with a properly
executed assignment in the form attached hereto, at the office or agency of the Company referred to
in Section 9(e) below; provided, however, that any transfer or assignment shall be subject to the
conditions set forth in Section 9(f). Notwithstanding the foregoing, this Warrant, the shares of
Common Stock issuable upon exercise hereof, and the rights granted hereunder may not be transferred
to a competitor of the Company or any Subsidiary or affiliate of the Company.




          (b) Warrant Exchangeable for Different Denominations. This Warrant is exchangeable,
upon the surrender hereof by the Holder hereof at the office or agency of the Company referred to
in Section 9(e) below, for new Warrants of like tenor representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be designated by the
Holder hereof at the time of such surrender.




          (c) Replacement of Warrant. Upon receipt of evidence of the loss, theft, destruction,
or mutilation of this Warrant and, in the case of any such loss, theft, or destruction,



8









 






upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the
Company, or, in the case of any such mutilation, upon surrender and cancellation of this Warrant,
the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like
tenor.




     (d) Cancellation; Payment of Expenses. Upon the surrender of this Warrant in
connection with any transfer, exchange or replacement as provided in this Section 9, this Warrant
shall be promptly canceled by the Company. The Company shall pay all taxes (other than securities
transfer taxes) and all other expenses (other than legal expenses, if any, incurred by the Holder
or transferees) and charges payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 9.



     (e) Register. The Company shall maintain, at its principal executive offices (or such
other office or agency of the Company as it may designate by notice to the Holder hereof), a
register for this Warrant, in which the Company shall record the name and address of the person in
whose name this Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.



     (f) Exercise or Transfer Without Registration. If, at the time of the surrender of
this Warrant in connection with any exercise, transfer, or exchange of this Warrant, this Warrant
(or, in the case of any exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, that the Holder or
transferee of this Warrant, as the case may be, furnish to the Company a written opinion of counsel
to the effect that such exercise, transfer, or exchange may be made without registration under the
Securities Act and under applicable state securities or blue sky laws; provided however, that no
legal opinion shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act unless in the opinion of counsel to the Company, such transfer does not comply with
the provisions of Rule 144. Notwithstanding the foregoing, the initial Holder of this Warrant, by
taking and holding the same, represents to the Company that such Holder is acquiring this Warrant
for investment and not with a present view to the distribution thereof.



     10. Notices. Any notice which is required or provided to be given under this Warrant
shall be deemed to have been sufficiently given and received for all purposes when delivered by
hand, telecopy (if a copy of such confirmed telecopy transmission shall be contemporaneously sent
by first class mail), or nationally recognized overnight courier, or five days after being sent by
certified or registered mail, postage and charges prepaid, return receipt requested, to the
following addresses:



     If to the Company:


Environmental Tectonics Corporation

125 James Way

Southampton, PA 18966

Attention: Chief Financial Officer

Facsimile: (215) 357-4000




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     With a copy to:


Klehr, Harrison, Harvey, Branzburg & Ellers LLP

260 S. Broad Street

Philadelphia, PA 19102

Attention: William Matthews, Esquire

Facsimile: (215) 568-6603




     If to a Holder hereof, at the address shown for such Holder on the books of the Company; or,
with respect to any party hereto, at any other address designated in writing by such party in
accordance with the provisions of this Section 10.



     11. Governing Law; Jurisdiction. This Warrant shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to agreements made and to
be performed in the Commonwealth of Pennsylvania (without regard to principles of conflict of
laws). The Company and the Holder hereof consent to the jurisdiction of the United States federal
courts and the state courts located in the Commonwealth of Pennsylvania with respect to any suit or
proceeding based on or arising under this Warrant or the transactions contemplated hereby and agree
that all claims in respect of such suit or proceeding may be determined in such courts. The
Company and the Holder hereof waive the defense of an inconvenient forum to the maintenance of such
suit or proceeding and agree that service of process upon a party mailed by first class mail shall
be deemed in every respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party’s right to serve process in any other manner
permitted by law.



     12. Miscellaneous.



          (a) Amendments. This Warrant and any provision hereof may only be amended by an
instrument in writing signed by the Company and the Holder.




          (b) Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for purposes of reference only, and shall not affect the meaning or
construction of any of the provisions hereof.




[SIGNATURE PAGE FOLLOWS]




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     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly authorized
officer.



	 	 	 	 	 
	 	ENVIRONMENTAL TECTONICS CORPORATION

 	 
	 	By:  	/s/
Duane D. Deanes	 
	 	 	Name:  	Duane D. Deanes	 
	 	 	Title:  	CFO	 
	 



ACKNOWLEDGED:
 




	/s/ H. F. Lenfest	 	 
	 

	 	 
	H. F. Lenfest

	 	 







 









 








FORM OF EXERCISE AGREEMENT




Dated: ___________ __, 20__





	To: 	 	 [Company]

[Address]





     The undersigned, pursuant to the provisions set forth in the Warrant attached hereto, hereby
agrees to purchase ____________ shares of Common Stock covered by such Warrant, and makes payment
herewith in full therefor at the price per share provided by such Warrant in cash, by wire transfer
or by certified or official bank check in the amount of $____________. Please issue a certificate
or certificates for such shares of Common Stock in the name of and pay any cash for any fractional
share to:





	 	 	 	 	 
	 	 	 
	 	Name: 	
 	 
	 	 	 	 



	 	 	 	 	 
	 	Signature:   	
 	 
	 	Address: 	
 	 
	 	 	
 	 







	 	Note:	 	The above signature should correspond exactly
with the name on the face of the within Warrant.




and, if said number of shares of Common Stock shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned covering the balance
of the shares purchasable thereunder less any fraction of a share paid in cash.




 









 








FORM OF ASSIGNMENT




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers all the rights of the
undersigned under the within Warrant, with respect to the number of shares of Common Stock covered
thereby set forth hereinbelow, to:



	 	 	 	 	 
	Name of Assignee	 	Address	 	No. of Shares
	 	 	 	 	 






, and hereby irrevocably constitutes and appoints _____________________________________________ as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named Company, with full power of substitution in the premises.



Dated: ________________ ___, 20 ___




In the presence of:




__________________






	 	 	 	 	 
	 	Name:   	
 	 
	 	 	                    	 
	 	Signature:   	
 	 
	 	
Title of Signing Officer or Agent (if any):

	 
	 	 	                    	 
	 	Address: 	
 	 
	 	 	                    	 





	 	Note:	 	The above signature should correspond exactly
with the name on the face of the within Warrant.