EXHIBIT 10.1







Exhibit 10.1




SECURED PROMISSORY NOTE




			
	 	 	 
	$2,000,000 
	 	February 20, 2009






     FOR VALUE RECEIVED, ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania corporation (“Maker”),
does hereby promise to pay to the order of H.F. LENFEST, an individual residing in the Commonwealth
of Pennsylvania (“Payee”), at Payee’s offices located at 300 Barr Harbor Drive, Suite 450,
Conshohocken, Pennsylvania 19428, or at such other place as the holder hereof may from time to time
direct Maker in writing, the aggregate principal sum of TWO MILLION DOLLARS ($2,000,000) in lawful
money of the United States of America, together with interest accruing on the unpaid outstanding
principal balance under this Secured Promissory Note (this “Note”) as provided below. This Note is
being issued to Payee in connection with Payee’s providing working capital funding to support
Maker’s bid on a contract (the “Government Contract”) with the United States government or a
division thereof (the “Government”) by providing evidence of Maker’s financial abilities to perform
the Government Contract.


Interest Rate. Interest shall accrue on the outstanding principal amount hereof at a rate
of fifteen percent (15%) per annum, compounded annually (the “Interest Rate”), until paid in full;
provided, however, that the Interest Rate shall be reduced automatically to ten percent (10%) per
annum, compounded annually, retroactively from the date hereof in the event the Company receives
the Shareholder Approval (as hereinafter defined). Interest may be payable, in the sole discretion
of Payee, (a) in cash, (b) in shares of a new series of preferred stock that will be created in the
event the Shareholder Approval is obtained or (c) in shares of Common Stock (as hereinafter
defined), which number of shares of Common Stock to be determined by dividing the amount of
interest due on an interest payment date by the Market Price (as hereinafter defined) of the Common
Stock on such date. For purposes of this Note, the “Market Price” of a share of Common Stock shall
mean, as of any date, (i) the closing sale price for the shares of Common Stock as reported on NYSE
Alternext US LLC, the successor to the American Stock Exchange (“AMEX”) by Bloomberg Financial
Markets (“Bloomberg”) for the trading day immediately preceding such date, or (ii) if AMEX is not
the principal trading market for the shares of Common Stock, the average of the reported closing
sale prices reported by Bloomberg on the principal trading market for the Common Stock during the
one hundred twenty (120) day period immediately preceding such date, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market Price shall be
determined in good faith by the Board of Directors of the Company. Interest shall be payable, at
the option of Payee, on each anniversary date of this Note, with any accrued and unpaid interest
payable on the Maturity Date. Payee shall deliver Maker at least five (5) days prior written
notice if it wishes to elect to be paid interest on an anniversary date.



Origination Fee. The Company shall pay to Payee an origination fee payable in shares of
common stock, par value $0.05 per share, of Maker (the “Common Stock”), equal to 20,000 shares (the
“Origination Fee Shares”). As soon as practicable following the date hereof, the Company shall
issue the Origination Fee Shares and deliver to Payee a certificate evidencing such shares. In
addition and in further consideration of this Note, Maker is also issuing to Payee a Common Stock
Purchase Warrant exercisable for 143,885 shares of Common Stock in


 









 






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:  	 	 
	 	Name:  	 	 
	 	Title: