Exhibit 10.4
PLEDGE AGREEMENT
Pledge Agreement, dated as of February 18, 2003, made by
ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania corporation (the "Pledgor"),
in favor of PNC BANK, NATIONAL ASSOCIATION (the "Bank").
W I T N E S S E T H :
WHEREAS, the Pledgor and the Bank have entered into a Credit
Agreement, dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement");
WHEREAS, pursuant to the provisions of the Credit Agreement
and upon the terms and subject to the conditions set forth therein, the Bank has
agreed to make certain loans to, and to issue letters of credit for the account
of, the Pledgor;
WHEREAS, the Pledgor is the legal and beneficial owner of the
shares of Pledged Stock (as hereinafter defined) of the entities listed on
Schedule I hereto (individually, an "Issuer," and collectively, the "Issuers");
and
WHEREAS, it is a condition precedent to the obligation of the
Bank to make its loans to, and to issue letters of credit for the account of,
the Borrower under the Credit Agreement that the Pledgor shall have executed and
delivered this Pledge Agreement to the Bank.
NOW, THEREFORE, in consideration of the premises and to induce
the Bank to enter into the Credit Agreement and make its loans to, and to issue
letters of credit for the account of, the Pledgor thereunder, the Pledgor hereby
agrees with the Bank, as follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein are so used as so defined,
and the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code from time to time in
effect in the Commonwealth of Pennsylvania.
"Collateral" means the Pledged Stock and all Proceeds.
"Obligations " shall mean the unpaid principal amount of, and
interest on (including, without limitation, 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 Revolving Credit Note and
all other obligations and liabilities of the Borrower to the Bank,
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 Credit Agreement, the Revolving Credit
Note, the Letters of Credit, this Pledge Agreement, the other Loan
Documents, any Interest Hedge Agreement with the Bank 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 Bank that are required to be
paid by the Borrower pursuant to the terms of the Credit Agreement) or
otherwise.
"Pledge Agreement" means this Pledge Agreement, as amended,
supplemented or otherwise modified from time to time.
"Pledged Stock" means the shares of capital stock of the
Issuers listed on Schedule I hereto, together with all stock
certificates, options or rights of any nature whatsoever that may be
issued or granted by any Issuer to the Pledgor while this Pledge
Agreement is in effect.
"Proceeds" means all "proceeds" as such term is defined in
Section 9102(a) of the Code and, in any event, shall include, without
limitation, all dividends or other income from the Pledged Stock,
collections thereon or distributions with respect thereto.
2. Pledge; Grant of Security Interest. The Pledgor hereby
agrees on the date hereof to deliver to the Bank, the Pledged Stock and hereby
grants to the Bank a first priority security interest in the Collateral, 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.
3. Stock Powers. Concurrently with the delivery to the Bank of
each certificate representing one or more shares of Pledged Stock, the Pledgor
shall deliver an undated stock power covering such certificate, duly executed in
blank by the Pledgor with, if the Bank so requests, signature guaranteed.
4. Representations and Warranties. The Pledgor represents and
warrants that:
(a) the Pledgor is the owner of the shares of capital stock
of each Issuer listed on Schedule I and the shares of Pledged Stock
listed on Schedule I constitute all of such issued and outstanding
shares except in the case of any Issuer which is a controlled foreign
corporation (as defined in Section 957(a) or a successor provision of
the Internal Revenue Code), in which case it constitutes no more than
65% of the issued and outstanding vesting shares of such Issuer;
(b) all the shares of the Pledged Stock have been
duly and validly issued and are fully paid and nonassessable;
(c) the Pledgor is the record and beneficial owner
of, and has good and marketable title to, the Pledged Stock listed on
Schedule I, free of any and all Liens or options in favor of, or claims
of, any other Person, except the Lien created by this Pledge Agreement;
and
2
(d) upon delivery to the Bank of the stock certificates
representing the Pledged Stock, the Lien granted pursuant to this
Pledge Agreement will constitute a valid, perfected first priority Lien
on the Collateral, enforceable as such (i) in the United States against
all creditors of the Pledgor and any Persons purporting to purchase any
Collateral from the Pledgor and (ii) in any other jurisdiction, to the
furthest extent permitted by applicable law.
5. Covenants. The Pledgor covenants and agrees with the Bank
that from and after the date of this Pledge Agreement until the Obligations are
paid in full and the Commitments are terminated and no Letter of Credit or Bond
Letter of Credit remains outstanding:
(a) If the Pledgor shall, as a result of its ownership of
the Pledged Stock, become entitled to receive or shall receive any
stock certificate (including, without limitation, any certificate
representing a stock dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate
issued in connection with any reorganization), option or rights,
whether in addition to, in substitution of, as a conversion of, or in
exchange for any shares of the Pledged Stock, or otherwise in respect
thereof, the Pledgor shall accept the same as the agent of the Bank,
hold the same in trust for the Bank and deliver the same to the Bank in
the exact form received, duly indorsed by the Pledgor to the Bank, if
required, together with an undated stock power covering such
certificate duly executed in blank by the Pledgor and with, if the Bank
so requests, signature guaranteed, to be held by the Bank, subject to
the terms hereof, as additional collateral security for the
Obligations. Any sums paid upon or in respect of the Pledged Stock upon
the liquidation or dissolution of any Issuer shall be paid over to the
Bank to be held by it hereunder as additional collateral security for
the Obligations, and in case any distribution of capital shall be made
on or in respect of the Pledged Stock or any property shall be
distributed upon or with respect to the Pledged Stock pursuant to the
recapitalization or reclassification of the capital of such Issuer or
pursuant to the reorganization thereof, the property so distributed
shall be delivered to the Bank to be held by it hereunder as additional
collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Stock shall
be received by the Pledgor, the Pledgor shall, until such money or
property is paid or delivered to the Bank, hold such money or property
in trust for the Bank, segregated from other funds of the Pledgor, as
additional collateral security for the Obligations.
(b) Without the prior written consent of the Bank, the
Pledgor will not (i) vote to enable, or take any other action to
permit, any Issuer to issue any stock or other equity securities of any
nature or to issue any other securities convertible into or granting
the right to purchase or exchange for any stock or other equity
securities of any nature of such Issuer, (ii) sell, assign, transfer,
exchange, or otherwise dispose of, or grant any option with respect to,
the Collateral, and (iii) create, incur or permit to exist any Lien or
option in favor of, or any claim of any Person with respect to, any of
the Collateral, or any interest therein, except for the Lien provided
for by this Pledge Agreement. The Pledgor will defend the right, title
and interest of the Bank in and to the Collateral against the claims
and demands of all Persons whomsoever.
3
(c) At any time and from time to time, upon the written
request of the Bank, and at the sole expense of the Pledgor, the
Pledgor will promptly and duly execute and deliver such further
instruments and documents and take such further actions as the Bank may
reasonably request for the purposes of obtaining or preserving the full
benefits of this Pledge Agreement and of the rights and powers herein
granted. If any amount payable under or in connection with any of the
Collateral shall be or become evidenced by any promissory note, other
instrument or chattel paper, such note, instrument or chattel paper
shall be immediately delivered to the Bank, duly endorsed in a manner
satisfactory to the Bank, to be held as Collateral pursuant to this
Pledge Agreement.
(d) The Pledgor agrees to pay, and to save the Bank
harmless from, any and all liabilities with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to
any of the Collateral or in connection with this Pledge Agreement or
the granting of security hereunder or the exercising of any rights or
remedies hereunder.
6. Cash Dividends; Voting Rights. Unless an Event of Default
shall have occurred and be continuing and the Bank shall have given notice to
the Pledgor of the Bank's intent to exercise its rights pursuant to paragraph 7
below, the Pledgor shall be permitted to receive all dividends (other than
dividends paid in additional capital stock of any Issuer) paid in the normal
course of business of each Issuer and consistent with past practice, to the
extent permitted in the Credit Agreement, in respect of the Pledged Stock and to
exercise all voting and corporate rights with respect to the Pledged Stock,
provided, however, that no vote shall be cast or corporate right exercised or
other action taken which, in the Bank's reasonable judgment, would impair the
Collateral or which would be inconsistent with or result in any violation of any
provision of the Credit Agreement, the Revolving Credit Note or any of the other
Loan Documents.
7. Rights of the Bank.
(a) If an Event of Default shall occur and be continuing
(i) the Bank shall have the right to receive any and all cash dividends
paid in respect of the Pledged Stock and make application thereof to
the Obligations in such order as the Bank may determine, and (ii) all
shares of the Pledged Stock shall be registered in the name of the Bank
or its nominee, and the Bank, or its nominee, after providing Pledgor
with prior written notice, may thereafter exercise (A) all voting,
corporate and other rights pertaining to such shares of Pledged Stock
at any meeting of shareholders of any Issuer or otherwise and (B) any
and all rights of conversion, exchange, subscription and any other
rights, privileges or options pertaining to such shares of the Pledged
Stock as if it were the absolute owner thereof (including, without
limitation, the right to exchange at its discretion any and all of the
Pledged Stock upon the merger, consolidation, reorganization,
recapitalization or other fundamental change in the corporate structure
of any Issuer, or upon the exercise by the Pledgor or the Bank of any
right, privilege or option pertaining to such shares of the Pledged
Stock, and in connection therewith, the right to deposit and deliver
any and all of the Pledged Stock with any committee, depositary,
transfer agent, registrar or other designated agency upon such terms
and conditions as it may determine), all without liability except to
account for property actually received by it and except for its gross
negligence or willful misconduct, but the Bank shall have no duty to
the Pledgor to exercise any such right, privilege or option and shall
not be responsible for any failure to do so or delay in so doing.
4
(b) The rights of the Bank hereunder shall not be
conditioned or contingent upon the pursuit by the Bank of any right or
remedy against any other Person which may be or become liable in
respect of all or any part of the Obligations or against any collateral
security therefor, guarantee therefor or right of offset with respect
thereto. The Bank shall not be liable for any failure to demand,
collect or realize upon all or any part of the Collateral or for any
delay in doing so, nor shall the Bank be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Pledgor
or any other Person or to take any other action whatsoever with regard
to the Collateral or any part thereof.
8. Remedies. If an Event of Default shall have occurred and be
continuing, the Bank may exercise, in addition to all other rights and remedies
granted to it in this Pledge 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 Bank, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below or otherwise specifically required hereunder) to or upon the
Pledgor, any Issuer or any other Person (all and 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, assign or 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, in the over-the-counter market, at
any exchange, broker's board or office of the Bank 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. The Bank 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 Pledgor, which right
or equity is hereby waived or released. The Bank shall apply any Proceeds from
time to time held by it and the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all reasonable
costs and expenses of every kind incurred in respect thereof 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 Bank hereunder, including, without limitation,
reasonable attorneys' fees and disbursements of counsel to the Bank, to the
payment in whole or in part of the Obligations, in such order as the Bank may
elect, and only after such application and after the payment by the Bank of any
other amount required by any provision of law, including, without limitation,
Section 9-615(f) of the Code, need the Bank account for the surplus, if any, to
the Pledgor. To the extent permitted by applicable law, the Pledgor waives all
claims, damages and demands it may acquire against the Bank arising out of the
lawful exercise by them 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 Business Days before
such sale or other disposition. The Pledgor shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral are
insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Bank to collect such deficiency.
5
9. Registration Rights; Private Sales.
(a) The Pledgor recognizes that the Bank may be unable to
effect a public sale of any or all the Pledged Stock, by reason of
certain prohibitions contained in the Securities Act of 1933, as
amended (the "Securities Act") and applicable state securities laws or
otherwise, and may resort to one or more private sales thereof to a
restricted group of purchasers which will be obliged to agree, among
other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof.
The Pledgor acknowledges and agrees that any such private sale may
result in prices and other terms less favorable than if such sale were
a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially
reasonable manner. The Bank shall be under no obligation to delay a
sale of any of the Pledged Stock for the period of time necessary to
permit any Issuer to register such securities for public sale under the
Securities Act, or under applicable state securities laws, even if such
Issuer would agree to do so.
(b) The Pledgor further agrees to use its best efforts to
do or cause to be done all such other acts as may be necessary to make
such sale or sales of all or any portion of the Pledged Stock pursuant
to this paragraph 9 valid and binding and in compliance with any and
all other applicable Requirements of Law. The Pledgor further agrees
that a breach of any of the covenants contained in this paragraph 9
will cause irreparable injury to the Bank, that the Bank has no
adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this paragraph 9 shall be
specifically enforceable against the Pledgor, and the Pledgor hereby
waives and agrees not to assert any defenses against an action for
specific performance of such covenants.
10. Limitation on Duties Regarding Collateral. The Bank's sole
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Code or otherwise,
shall be to deal with it in the same manner as the Bank deals with similar
securities and property for its own account. Neither the Bank nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any 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 Pledgor or otherwise.
11. Powers Coupled with an Interest. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
12. Severability. Any provision of this Pledge 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 provisions in any other jurisdiction.
6
13. Paragraph Headings. The paragraph headings used in this
Pledge Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
14. No Waiver; Cumulative Remedies. The Bank shall not by any
act (except by a written instrument pursuant to paragraph 15 hereof) be deemed
to have waived any right or remedy hereunder or to have acquiesced in any
default of any obligation under any Loan Document or in any breach of any of the
terms and conditions hereof or thereof. No failure to exercise, nor any delay in
exercising, on the part of the Bank of 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
Bank of any right or remedy hereunder on any one occasion shall not be construed
as a bar to any right on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.
15. Waivers and Amendments; Successors and Assigns; Governing
Law. None of the terms or provisions of this Pledge Agreement may be amended,
supplemented or otherwise modified except by a written instrument executed by
the Pledgor and the Bank, provided that any provision of this Pledge Agreement
may be waived by the Bank in a letter or agreement executed by the Bank or by
telex or facsimile transmission from the Bank. This Pledge Agreement shall be
binding upon the successors and assigns of the Pledgor and shall inure to the
benefit of the Bank and its successors and assigns. THIS PLEDGE AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
SUBSTANTIVE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
16. Notices. All notices hereunder to the Bank, the Pledgor or
any Issuer to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given when delivered or sent in the manner and to the respective addresses as
provided in Subsection 8.2 of the Credit Agreement or in the case of each Issuer
at its address set forth on Schedule II hereto.
17. Irrevocable Authorization and Instruction to Issuers. The
Pledgor hereby authorizes and instructs each Issuer to comply with any
instruction received by it from the Bank in writing that (a) states that an
Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Pledge Agreement, without any other or further
instructions from the Pledgor, and the Pledgor agrees that each Issuer shall be
fully protected in so complying.
7
18. Submission to Jurisdiction; Waivers.
(a) The Pledgor hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal
action or proceeding relating to this Pledge Agreement, or for
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 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 such Pledgor at its address
set forth in the Credit Agreement or at such other address of
which the Bank shall have been notified; and
(iv) 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) The Pledgor hereby unconditionally waives trial by
jury in any legal action or proceeding referred to in paragraph (a)
above.
19. Counterparts. This Pledge Agreement may be executed by one
or more of the parties to this Pledge Agreement on any number of separate
counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned has caused this Pledge
Agreement to be duly executed and delivered as of the date first above written.
ATTEST: ENVIRONMENTAL TECTONICS
CORPORATION
/s/ Ann M. Allen By: /s/ Duane Deaner
- ------------------------ ---------------------------
Name: Duane Deaner
-------------------------
Title: C.F.O.
------------------------
[seal]
8
ACKNOWLEDGMENT AND CONSENT
Each Issuer referred to in the foregoing Pledge Agreement
hereby acknowledges receipt of a copy thereof and agrees to be bound thereby and
comply with the terms thereof insofar as such terms are applicable to it. Each
Issuer agrees to notify the Bank promptly in writing of the occurrence of any of
the events described in paragraph 5(a) of the Pledge Agreement. Each Issuer
further agrees that the terms of paragraph 9(b) of the Pledge Agreement shall
apply to it, mutatis mutandis, with respect to all actions that may be required
of it under or pursuant to or arising out of paragraph 9 of the Pledge
Agreement.
ENTERTAINMENT TECHNOLOGY
CORPORATION
By: /s/ Duane Deaner
---------------------------
Name: Duane Deaner
-------------------------
Secretary
ETC DELAWARE, INC.
By: /s/ Duane Deaner
---------------------------
Name: Duane Deaner
-------------------------
Title: Treasurer
------------------------
SCHEDULE I
To Pledge Agreement
DESCRIPTION OF PLEDGED STOCK
- -----------------------------------------------------------------------------------------------------------------------------------
Stock Percentage
Class of Certificate No. of of
Issuer Stock* No. Shares Issued Shares
- -----------------------------------------------------------------------------------------------------------------------------------
ETC Delaware 1 100 100%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SCHEDULE II
To Pledge Agreement
Addresses of Issuers