Document:

Exhibit
10.2

 

THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS.

 

SUBORDINATED PROMISSORY NOTE

 

	
  $1,719,706.50

  	
  May 16, 2009

  

 

FOR VALUE RECEIVED, the
undersigned, Hy-Tech Machine, Inc., a Delaware corporation (including its
successors, the “Borrower”), hereby promises to pay to the order of Hy-Tech
Holdings, Inc., a Delaware corporation (successor in interest by merger to
Hy-Tech Machine, Inc., a Pennsylvania corporation) (the “Holder”), in
lawful money of the United States of America and in immediately available funds
the principal sum of One Million Seven Hundred Nineteen Thousand Seven Hundred
Six and Fifty One-Hundredths ($1,719,706.50) Dollars, together with interest on
the unpaid principal balance at the rate and on the terms and conditions
provided in this subordinated promissory note (the “Note”).

 

1.             Acquisition
Agreement.  This Note
evidences payment of a portion of the purchase price payable under that certain
Asset Purchase Agreement, dated as of February 12, 2007 (the “Original
Purchase Agreement”), by and among Holder, Quality Gear Holdings, Inc., a
Delaware corporation (successor in interest by merger to Quality Gear &
Machine, Inc., a Pennsylvania corporation (together with Holder, “Sellers”),
HTM Associates, a Pennsylvania general partnership (“HTM”), Robert H. Ober,
Elizabeth Smail, James J. Browne, Daniel Berg and James Hohman (collectively,
the “Shareholders”) and Hy-Tech Machine, Inc., a Delaware corporation (“Borrower”),
as amended by that certain Amendment No. 1 to the Original Purchase Agreement,
dated as of June 26, 2009, by and between the Sellers, HTM, the Shareholders
and Borrower (the “Amended Purchase Agreement”). This Note is the Promissory
Note referred to in the Amended Purchase Agreement. Unless otherwise defined
herein, capitalized terms used in this Note have the same meanings set forth in
the Amended Purchase Agreement.

 

2.             Interest;
Principal.  Interest on
the unpaid principal balance of this Note shall accrue (i) from the date hereof
at the rate of six (6.0%) percent per annum, (ii) from and after any Payment
Date, as defined herein, by which the applicable Installment Payment, as
defined herein, has not been made and continuing until such Installment Payment
is made, or during the continuance of an Event of Default pursuant to Section 6(b),
(c), (d) or (e), at the rate set forth in (i) plus six (6.0%) percent, or (iii)
if less than the rates applicable under (i) and (ii), the maximum rate
permitted by law.  Interest shall be calculated
on the basis of a 365 day year for the actual days elapsed.  The Borrower shall pay to the Holder all
accrued interest on each Payment Date (as defined below). Subject to the terms
and conditions hereof, the Borrower shall repay the outstanding Principal Sum
hereunder in six (6) installments of Two Hundred Eighty Six Thousand Six
Hundred Eighteen ($286,618) Dollars (each, an “Installment Payment”) on each of
the dates set forth below (each, a “Payment Date”):

 

August 16, 2009;

November 16, 2009;

February 16, 2010;

May 16, 2010;

August 16, 2010; and

November 16, 2010.

 

 

If any such interest or
principal payment is not permitted to be made under the Subordination Agreement
(as defined below), such amounts shall be paid on the first Business Day that
such payment is permitted to be made under the Subordination Agreement.

 

3.             Manner and
Application of Payment.  If a
payment to be made by the Borrower hereunder shall become due on a Saturday,
Sunday or bank holiday in either New York City, New York, or Pittsburgh,
Pennsylvania, such payment shall be made on the next succeeding day that is a business
day in both of the above-referenced cities. 
All payments of principal and interest shall be made to the Holder in
immediately available funds to an account designated by the Holder in writing.
Any payment made hereunder shall be applied first to costs and expenses due
hereunder, then to accrued interest and thereafter to principal.

 

4.             Prepayment.  Subject to the Subordination Agreement,  Borrower may at its option, prepay the
outstanding principal balance of this Note, in whole or in part, at any time
or, from time to time, without premium or penalty; provided, that any
such prepayment shall also include all accrued but unpaid interest on the Note
through the repayment date.

 

5.             Subordination.  ALL OBLIGATIONS UNDER THIS NOTE ARE SUBJECT
TO THE TERMS OF A SUBORDINATION AGREEMENT, DATED ON OR ABOUT JUNE 26, 2009,
AMONG THE BORROWER, THE HOLDER AND CITIBANK, N.A., AS ADMINISTRATIVE AGENT (AS
AMENDED, RESTATED, SUPPLEMENTED OR MODIFIED, FROM TIME TO TIME (THE “SUBORDINATION
AGREEMENT”).

 

6.             Default.  Each of the following events shall be an “Event of Default” hereunder:

 

(a)           the Borrower fails to pay
any of the principal, interest or any other amounts payable under this Note
when and as the same becomes due and payable, which is not cured within fifteen
(15) days of such nonpayment, except to the extent such payment is not
permitted under the Subordination Agreement;

 

(b)           the Borrower files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law or any other law for the relief of, or relating to, debtors,
now or hereafter in effect, or seeks the appointment of a custodian, receiver,
trustee (or other similar official) of the Borrower or all or any substantial
portion of the Borrower’s assets, or makes any assignment for the benefit of
creditors or takes any action in furtherance of any of the foregoing, or fails
to generally pay its debts as they become due;

 

(c)           an involuntary petition is
filed, or any proceeding or case is commenced, against the Borrower (unless
such proceeding or case is dismissed or discharged within sixty (60) days of
the filing or commencement thereof) under any bankruptcy, reorganization,
arrangement, insolvency, adjustment of debt, liquidation or moratorium statute
now or hereafter in effect, or a custodian, receiver, trustee, assignee for the
benefit of creditors (or other similar official) is applied for, appointed for
the Borrower or to take possession, custody or control of any property of the
Borrower, or an order for relief is entered against the Borrower in any of the
foregoing;

 

(d)           the Borrower shall fail to
perform any material covenant, condition or agreement under this Note; or

 

(e)           any representation or
warranty made or deemed made by the Borrower under this Note shall have been
false or misleading in any material respect when made or deemed made;

 

2

 

7.             Remedies.  Upon the occurrence and
during the continuance of an Event of Default hereunder:

 

(a)           all unpaid principal,
accrued interest and other amounts owing hereunder shall, at the option of the
Holder, be immediately due, payable and collectible by the Holder pursuant to
applicable law;

 

(b)           any and all unpaid
principal, interest or other amounts due under this Note shall thereafter bear
interest at the maximum rate set forth in Section 2 hereof; and

 

(c)           the  Holder may exercise any and all rights and remedies it may have under
this Note or under applicable law.

 

All rights and remedies shall be cumulative and not
exclusive.  The failure of the holder
hereof to exercise all or any of its rights, remedies, powers or privileges
hereunder or applicable law in any instance shall not constitute a waiver
thereof in that or any other instance.

 

8.             Governing
Law; Consent to Jurisdiction.  This Note and
any disputes hereunder shall be governed by and construed in accordance with
the internal laws of the State of New York without giving effect to any choice
or conflict of law provision or rule (whether of the State of New York or any
other jurisdiction) that would cause the application of laws of any
jurisdiction other than those of the State of New York.  Each of the Borrower and the Holder (a) submits
to the exclusive jurisdiction of any state or federal court sitting in New
York, New York in any action or proceeding arising out of or relating to this
Note, (b) agrees that all claims in respect of such action or proceeding may be
heard and determined only in any such court, (c) waives any claim of
inconvenient forum or other challenge to venue in such court, and (d) agrees
not to bring any action or proceeding arising out of or relating to this Note
in any other court.

 

9.             Successors
and Assigns.  This Note
and all obligations of the Borrower hereunder shall be binding upon the
successors and assigns of the Borrower, and shall, together with the rights and
remedies of the Holder hereunder, inure to the benefit of the Holder, any
future holder of this Note and their respective successors and assigns,
provided, however, the Borrower may not transfer or assign its rights or
obligations hereunder without the express written consent of the Holder, which
consent may not be unreasonably withheld or delayed and any purported transfer
or assignment by the Borrower without the Holder’s written consent shall be
null and void. The Holder may assign, transfer, participate or endorse its
rights under this Note.  Upon request,
the Borrower shall, at the expense of the Holder, execute and deliver to the
assignee of this Note, a replacement Note of equal and like tenor in an amount
assigned to and assumed by such assignee.

 

10.           Waiver of
Jury Trial.  THE BORROWER
AND THE HOLDER EACH WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION
OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS NOTE, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF ANY SUCH RIGHTS OR OBLIGATIONS.  The Borrower (i) certifies that neither the
Holder nor any representative, agent or attorney of the Holder has represented,
expressly or otherwise, that the Holder would not, in the event of litigation,
seek to enforce the foregoing waivers and (ii) acknowledges that, in entering
into this Note, the Holder is relying upon, among other things, the foregoing
waivers and certifications.

 

11.           Entire
Agreement; Amendments; Invalidity.  This Note, the Amended Purchase Agreement,
the Subordination Agreement, the Security Agreement and the Mortgage constitute
the entire agreement and understanding of the parties, and supersede and
replace in their entirety any prior discussions, agreements, etc., all of which
are merged herein and therein.  None of
the terms of this Note 

 

3

 

may be amended or otherwise
modified except by an instrument executed by each of the Borrower and the
Holder. If any term of this Note shall be held to be invalid, illegal or
unenforceable, the validity of all other terms hereof shall in no way be
affected thereby, and this Note shall be construed and be enforceable as if
such invalid, illegal or unenforceable term had not been included herein.

 

12.           Notices.  All notices, demands and other communications
provided for or permitted hereunder shall be made in writing as set forth in
the Amended Purchase Agreement.

 

13.           Counterparts.  This Note may be executed in any number of
counterparts (including by facsimile), all of which taken together shall
constitute one and the same instrument and any of the parties hereto may
execute this Note by signing any such counterpart signature page or
counterpart.

 

[Signature page follows on
next page.]

 

4

 

IN WITNESS WHEREOF, the
Borrower has caused this Note to be duly executed as of the date first above
written.

 

	
   

  	
  HY-TECH
  MACHINE, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Joseph A. Molino, Jr.

  
	
   

  	
  Name:

  	
  Joseph
  A. Molino, Jr.

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

 

GUARANTY

 

For good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
pursuant to that certain Guaranty executed as of February 12, 2007, P&F
Industries, Inc., a Delaware corporation, hereby guarantees the prompt and
faithful performance of all of the Borrower’s obligations under the terms of
the foregoing Note.  This Guaranty has been
executed as of the date first set forth above.

 

P&F
INDUSTRIES, INC.

 

 

	
  By:

  	
  /s/
  Joseph A. Molino, Jr.

  	
   

  
	
  Name:

  	
  Joseph
  A. Molino, Jr.

  	
   

  
	
  Title:

  	
  Vice
  President, Chief Operating Officer and Chief Financial Officer

  

 

 

ACKNOWLEDGMENT

 

The undersigned hereby
acknowledges and agrees to the terms of this Note, as of the date first set
forth above.

 

HY-TECH
HOLDINGS, INC.

 

 

	
  By:

  	
  /s/
  Robert Ober

  	
   

  
	
  Name:

  	
  Robert
  Ober

  	
   

  
	
  Title:
  

  	
  PresidentEXHIBIT 10.1

                       FIRST AMENDMENT TO CREDIT AGREEMENT

     This First  Amendment  to Credit  Agreement  ("Amendment")  is entered into
between WESTERN NATIONAL BANK, a national banking association, as Administrative
Agent,  and the  lenders  party to the  Credit  Agreement;  and  Gateway  Energy
Corporation,  a Delaware corporation,  as borrower,  and is dated June 25, 2009.
Terms defined in the Credit Agreement  between the  Administrative  Agent,  such
lenders and such  borrower  dated  August 23,  2007,  as amended (as  previously
amended,  the "Credit  Agreement"),  are used herein as therein defined,  unless
otherwise defined herein or the context otherwise requires.

                                R E C I T A L S:

     WHEREAS, the Borrower has requested that the Lenders release their Liens on
the  Properties  known as  "Pirates  Beach,"  "Crystal  Beach"  and  "Shipwreck"
(collectively, the "Release"); and

     WHEREAS,  the  Administrative  Agent  holds  approximately   $1,750,000  of
insurance proceeds related to the Crystal Beach Terminal ("Insurance Proceeds");
and

     WHEREAS, the Lenders are willing to deliver the Release under the terms and
conditions set forth herein; and

     WHEREAS,  WNB is currently the  Administrative  Agent and sole Lender under
the Credit Agreement;

     NOW,  THEREFORE,  in  consideration  of the premises and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged,  the Borrower,  the  Administrative  Agent and the Lenders  hereby
agree as follows:

     1. The  following  definition  is hereby added to Section 1.1 of the Credit
Agreement as follows:

     "First  Amendment to Credit  Agreement" means the First Amendment to Credit
Agreement dated June 25, 2009, between Administrative Agent, the Lenders and the
Borrower.

     2. The following  definition located in Section 1.1 of the Credit Agreement
is hereby amended and restated in its entirety as follows:

     "Borrowing  Base" means the amount most recently  determined and designated
by the  Administrative  Agent as the Borrowing  Base in accordance  with Section
2.8.1, as such Borrowing Base is reduced in accordance  with Section 2.8.2.  The
Borrowing Base under Section 2.8.1 is deemed to be  $1,861,845.83 as of the date
of the First  Amendment to Credit  Agreement,  and the  Borrowing  Base shall be
automatically  reduced to $1,561,845.83 upon the delivery to the Borrower of the
Release.

                                       1

<PAGE>

     3. Section 2.8.2 of the Credit  Agreement is hereby amended and restated in
its entirety as follows:

     "2.8.2 The Borrowing Base shall be automatically  reduced as of the 1st day
of each month,  commencing July 1, 2009, and continuing on the first day of each
month thereafter until the Final Maturity Date. Such reductions in the Borrowing
Base each month shall be in the amount of $0 per month  unless  redetermined  as
herein  permitted.  At the time of each new Borrowing Base  determination  under
Section 2.8.1,  the Required  Lenders in their sole  discretion may increase the
amount of such  monthly  reductions,  and the Lenders may decrease the amount of
such  monthly  reductions.  Any  decreases  in the  monthly  reductions  must be
approved by all of the Lenders  and shall be subject to each  Lender's  complete
credit  approval  process.  There  is no  duty,  implied  or  explicit,  on  the
Administrative  Agent or the Lenders to ever  decrease the amount of the monthly
Borrowing Base reduction amounts."

     4. The Borrower  shall pay to the  Administrative  Agent upon  execution of
this Amendment,

        (a)  an engineering fee in the amount of $5,000.

     5. The  Administrative  Agent will not be  obligated to deliver any Release
until satisfaction of the following: the creation in favor of the Administrative
Agent by instruments satisfactory to the Administrative Agent of first and prior
Liens on a deposit  account in which will be deposited the  Insurance  Proceeds,
subject to the Borrower's rights in paragraph 6 below.

     6. Subject to satisfaction of the condition set forth in paragraph 5 above,
the  Administrative  Agent will deliver the Release  covering the Pirates  Beach
Property  upon the  application  of  $300,000  of the  Insurance  Proceeds  as a
prepayment of the principal of the Notes.

     7. The Borrower shall execute and deliver or cause the  appropriate  Person
to execute and deliver such certificates, mortgages, amendments to mortgages and
other  security  instruments as the  Administrative  Agent may from time to time
reasonably request to reflect the terms of this Amendment.

     8. All of the  conditions in this  Amendment  and the Credit  Agreement are
solely  for the  benefit of the  Administrative  Agent and the  Lenders,  and no
Person other than the  Administrative  Agent and the Lenders may rely thereon or
insist on compliance therewith.

     9. Ratification.  The Borrower hereby ratifies all of its Obligations under
the Credit  Agreement and each of the Loan Documents to which it is a party, and
agrees and acknowledges that the Credit Agreement and each of the Loan Documents
to which it is a party  shall  continue  in full force and effect  after  giving
effect to this  Amendment.  Nothing in this Amendment  extinguishes,  novates or
releases any right, claim, Lien, security interest or entitlement of the Lenders
created by or contained in any of such  documents  nor is the Borrower  released
from any covenant, warranty or obligation created by or contained therein.

                                       2

<PAGE>

     10.  Representations  and Warranties.  The Borrower  hereby  represents and
warrants to the Administrative Agent and the Lenders that (a) this Amendment has
been duly executed and delivered on behalf of the Borrower,  (b) this  Amendment
constitutes  a valid and  legally  binding  agreement  enforceable  against  the
Borrower  in  accordance  with its terms  and (c) the  execution,  delivery  and
performance of this Amendment has been duly authorized by the Borrower.

     11. Conditions to Effectiveness. This Amendment shall be effective upon the
execution  by all  parties  of this  Amendment  and the  receipt  thereof by the
Administrative Agent.

     12. RELEASE OF CLAIMS.  The Borrower for itself, its successors and assigns
and all those at interest  therewith  (collectively,  the "Releasing  Parties"),
jointly and severally,  hereby voluntarily and forever,  RELEASE,  DISCHARGE AND
ACQUIT the Lender and its officers, directors, shareholders,  employees, agents,
successors,  assigns,   representatives,   affiliates  and  insurers  (sometimes
referred  to below  collectively  as the  "Released  Parties")  and all those at
interest  therewith  of  and  from  any  and  all  claims,   causes  of  action,
liabilities,  damages, costs (including, without limitation, attorneys' fees and
all costs of court or other proceedings),  and losses of every kind or nature at
this time known or unknown, direct or indirect,  fixed or contingent,  which the
Releasing  Parties,  have  or  hereafter  may  have  arising  out  of  any  act,
occurrence, transaction, or omission occurring from the beginning of time to the
date of  execution  of this  Amendment  if related to the Note or the other Loan
Documents (the "Released Claims"), except that the future duties and obligations
of the Lender  under the Loan  Documents  and the rights of the  Borrower to its
funds on deposit  with the Lender  shall not be  included  in the term  Released
Claims.  IT IS THE EXPRESS  INTENT OF THE  RELEASING  PARTIES  THAT THE RELEASED
CLAIMS SHALL INCLUDE ANY CLAIMS OR CAUSES OF ACTION ARISING FROM OR ATTRIBUTABLE
TO THE NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY OF THE RELEASED
PARTIES.

     13. Counterparts. For the convenience of the parties, this Amendment may be
executed  in  multiple  counterparts,  each of which for all  purposes  shall be
deemed to be an original,  and all such counterparts  shall together  constitute
but one  and the  same  agreement.  Delivery  of an  executed  counterpart  of a
signature  page of this  Amendment  by  telecopy,  e-mail,  facsimile  or  other
electronic  means  shall be  effective  as a  delivery  of a  manually  executed
counterpart of this Amendment.

     14. Effect. This Amendment is one of the Loan Documents.  Except as amended
hereby,  the  Credit  Agreement  shall  remain  unchanged  and in full force and
effect,  and the Borrower hereby ratifies the terms of the Credit  Agreement (as
amended hereby),  including,  without limitation,  the provisions of Section 9.7
thereof.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       3

<PAGE>

     15. ENTIRE  AGREEMENT.  THIS  AMENDMENT  CONSTITUTES  THE ENTIRE  AGREEMENT
BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF.  FURTHERMORE,  IN
THIS REGARD,  THIS  AMENDMENT  AND THE OTHER WRITTEN LOAN  DOCUMENTS  REPRESENT,
COLLECTIVELY,  THE FINAL  AGREEMENT  AMONG THE  PARTIES  THERETO  AND MAY NOT BE
CONTRADICTED  BY  EVIDENCE  OF  PRIOR,   CONTEMPORANEOUS,   OR  SUBSEQUENT  ORAL
AGREEMENTS OF SUCH PARTIES.

     THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.

     IN WITNESS WHEREOF,  this Amendment is deemed executed  effective as of the
date first above written.

                                            BORROWER:

                                            GATEWAY ENERGY CORPORATION

                                            By:  /s/  Robert Panico
                                               --------------------------------
                                            Name:     Robert Panico
                                            Title:    President

                                            ADMINISTRATIVE AGENT:

                                            WESTERN NATIONAL BANK

                                            By:  /s/  Mark D. McKinney
                                               --------------------------------
                                            Name:     Mark D. McKinney
                                            Title:    Senior Vice President

                                            LENDERS:

                                            WESTERN NATIONAL BANK

                                            By:  /s/  Mark D. McKinney
                                               --------------------------------
                                            Name:     Mark D. McKinney
                                            Title:    Senior Vice President

                                       4

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