Exhibit 10.3
SECURITY AGREEMENT
This SECURITY AGREEMENT is made and entered into as of
February 18, 2003, by and between ENVIRONMENTAL TECTONICS CORPORATION (the
"Borrower"), ENTERTAINMENT TECHNOLOGY CORPORATION and ETC DELAWARE, INC. (the
latter two, the "Guarantors" and, together with the Borrower, the "Debtors"),
PNC BANK, NATIONAL ASSOCIATION (the "Bank").
W I T N E S S E T H :
WHEREAS, the Borrower and the Bank are parties to a Credit
Agreement dated as of the date hereof (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement");
WHEREAS, each Guarantor has delivered to the Bank a Guaranty,
dated as of the date hereof, in respect of the obligations of the Borrower under
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 extend certain credit facilities including loans and letters of credit
(the "Credit Facilities") to the Borrower to be evidenced in part by the note
issued by the Borrower thereunder (the "Note"); and
WHEREAS, it is a condition precedent to the obligation of the
Bank to extend the Credit Facilities to the Borrower under the Credit Agreement,
that the Debtors shall have executed and delivered this Security Agreement to
the Bank.
NOW, THEREFORE, in consideration of the premises and to induce
the Bank to enter into the Credit Agreement and to induce the Bank to extend the
Credit Facilities to the Borrower under the Credit Agreement, the Debtors hereby
agree 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; 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 Security Agreement.
"Contracts" shall mean all contracts and other agreements between
the Debtors 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 Facilities 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 Note and all other
obligations and liabilities of the Debtors 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 Note, this Security
Agreement, the Guaranty, the other Loan 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 Bank that are required to be
paid by the Debtors pursuant to the terms of the Credit Agreement or
any other Loan Document) or otherwise.
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"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 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.
"Security Agreement" shall mean this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"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 Bank 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;
(xi) all Investment Property, (including Securities
Entitlements, Securities Accounts, Commodity Accounts, and Commodity
Contracts);
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(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 Bank; Limitations on Bank'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 Bank 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 Security Agreement or the receipt by the Bank of any payment relating to
such Account or Contract pursuant hereto, nor shall the Bank 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 Bank 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 Bank and shall indicate on all billings that payments in respect thereof
shall be made directly to the Bank. The Bank 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 Bank shall have the right to make test
verifications of the Accounts through standard bank confirmations and periodic
site visits as provided in Section 5.6 of the Credit Agreement, and the Debtors
shall furnish all such assistance and information as the Bank 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 Bank's request
and at the expense of the Debtors, the Debtors shall cause independent public
accountants or others satisfactory to the Bank to furnish to the Bank reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Accounts.
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(d) Collections on Accounts. Subject to the further provisions of this
Section 3(d), the Bank 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 Bank 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 Bank and subject to the direction of the Bank, (i) the
authority hereby given to the Debtors to collect the Proceeds of Accounts may be
terminated by the Bank at any time and after being notified of such termination,
the Debtors shall deliver to the Bank 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 Bank any such Proceeds shall be deposited in a special
bank account (the "Cash Collateral Account") of the Debtors maintained with the
Bank over which the Bank 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 Bank until deposit
thereof is made in the Cash Collateral Account.
4. Representations and Warranties. The Debtors hereby represent and
warrant that:
(a) Title; No Other Liens. Except for the Lien granted to the Bank
pursuant to this Security Agreement and any other Liens permitted to exist on
the Collateral pursuant to the Credit Agreement, 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 Bank, pursuant
to this Security Agreement or as may be permitted pursuant to the Credit
Agreement.
(b) Perfected First Priority Liens. Upon the Bank taking all action
necessary under the UCC to perfect its security interest in and to the
Collateral, the Liens granted pursuant to this Security Agreement constitute
perfected Liens on the Collateral in favor of the Bank, 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 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 Bank in any
accounts receivable aging and in other reports requested by or furnished to the
Bank 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 Bank. The Debtors keep their records concerning the Accounts at
the location or locations set forth in Schedule IV.
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(d) Contracts. 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 Security 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 the Debtors in, to and under each Contract 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
Bank.
(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 Bank, 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.
(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.
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(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 Lien on the Collateral
pursuant to, this Security Agreement and have taken all necessary corporate or
other action to authorize its execution, delivery and performance of, and grant
of the Lien on the Collateral pursuant to, this Security Agreement.
(k) Enforceability. This Security 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
Security Agreement will not violate any provision of any Requirement of Law or
Contractual Obligation of any of the Debtors 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 Requirement of Law or Contractual Obligation of any of
the Debtors, except as contemplated hereby.
(m) No Consents, etc. 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 Security Agreement
(except for the filing of the UCC financing statements).
(n) No Litigation. 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 Debtors or against any of
its properties or revenues with respect to this Security Agreement or any of the
transactions contemplated hereby.
5. Covenants. Each of the Debtors covenants and agrees with the Bank
that, from and after the date of this Security Agreement until the Obligations
are paid in full, and the Revolving Credit Commitments are terminated it will:
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(a) Notices; Further Documentation; Authorization to File Financing
Statements. Notify the Bank 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 Bank will not at that time have, and continuously
thereafter (subject to the filing of continuation statements, if necessary)
maintain, a perfected first priority security interest in (subject to 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 Bank, and at the
sole expense of the Debtors, promptly (i) deliver to the Bank 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 Bank may reasonably request for the purpose of obtaining,
preserving, and enforcing the full benefits of this Security 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 Bank security agreements, pledge agreements,
control agreements, bailee acknowledgments, assignments and waivers, all in form
and substance satisfactory to the Bank. The Debtors will mark all Chattel Paper
with a legend indicating that the Bank has a security interest in the Chattel
Paper.
The Debtors also hereby authorize the Bank 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 Bank of financing statements prior to the date hereof with respect
to the Collateral. A carbon, photographic, facsimile or other reproduction of
this Security Agreement shall be sufficient as a financing statement for filing
in any jurisdiction.
(b) Indemnification. Pay, and save the Bank 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 Requirement of 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 Security 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 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 Bank
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 Bank 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 Bank.
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(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 Bank's further security, the Bank 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 Bank or to its representatives during normal business hours at the
request of the Bank.
(d) Right of Inspection and Audit. Give to the Bank at all times upon
reasonable prior notice full and free access during normal business hours (or
following the occurrence of an Event of Default, at any time) to all of its
books, correspondence and records and the Bank 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 Bank, at
the Debtors' cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. The Bank 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
Requirements of Law applicable to the Collateral or any part thereof or to the
operation of its business; provided, however, that the Debtors may contest any
Requirement of Law in any reasonable manner which shall not, in the sole opinion
of the Bank, adversely affect the Bank's rights or the priority of their Liens
on the Collateral.
(f) Compliance with Terms of Contracts, etc. Perform and comply in all
material respects with all its material obligations under the Contracts and all
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 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 Bank 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 Credit Agreement
or otherwise agreed to in writing by the Bank.
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(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 Bank.
(k) Further Identification of Collateral. Furnish to the Bank from time
to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Bank
may reasonably request, all in reasonable detail.
(l) Notices. Advise the Bank promptly, in reasonable detail, at its
address set forth in the Credit 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 Bank 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 Schedules VI and VII hereto, (iii) change its name, identity or
corporate structure to such an extent that any financing statement filed by the
Bank in connection with this Security 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
Bank with the prior written consent of the Bank, (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 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 Bank,
for the ratable benefit of the holders of the Obligations, shall obtain a
perfected security interest in such mark pursuant to this Security 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 Bank with the prior written consent of the Bank, do any act,
or omit to do any act, whereby any Patent may become abandoned or dedicated.
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(iii) Notify the Bank immediately if it knows, or has reason to
know, that any application or registratio n 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 Bank within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Bank, the Debtors shall
execute and deliver any and all agreements, instruments, documents, and papers
as the Bank may request to evidence the Bank'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
Bank, 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 Revolving Credit Commitments are
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 Bank 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 promptly report to
the Bank, 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.
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6. Bank's Appointment as Attorney-in-Fact.
(a) Powers. The Debtors hereby irrevocably constitute and appoint the
Bank and any officer or 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 Bank's discretion, for the purpose of carrying
out the terms of this Security 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 Security Agreement, and, without
limiting the generality of the foregoing, the Debtors hereby give the Bank 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 Bank 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 Security 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 Bank or as the Bank 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 Bank may deem appropriate;
(G) to assign any Patent or Trademark (along with the 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
Bank 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 Bank were the absolute owner thereof for
all purposes, and to do, at the Bank's option and the Debtors' expense,
at any time, or from time to time, all acts and things which the Bank
deems necessary to protect, preserve or realize upon the Collateral and
the Bank's Liens thereon and to effect the intent of this Security
Agreement, all as fully and effectively as the Debtors might do; and
12
(iv) execute in its own name or on behalf of the Debtors such UCC
financing Statements forms and similar instruments as the Bank may from
time to time deem reasonably necessary or desirable to protect the
security interests of the Bank 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 Bank, 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 Bank or Holders' Part. The powers conferred on the Bank
hereunder are solely to protect the Bank's interests in the Collateral and shall
not impose any duty upon the Bank to exercise any such powers. The Bank shall be
accountable only for amounts that they actually receive 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 Bank of Debtors' Obligations. If any of the Debtors
fails to perform or comply with any of its agreements contained herein and the
Bank, as provided for by the terms of this Security Agreement, shall itself
perform or comply, or otherwise cause performance or compliance, with such
agreement, the expenses of the Bank incurred in connection with such performance
or compliance shall be payable by the Debtors to the Bank on demand and shall
constitute Obligations secured hereby, and if not promptly repaid to the Bank
shall bear interest thereon at a rate per annum equal to the Default Rate.
8. Remedies.
(a) If an Event of Default shall occur and be continuing and all
applicable notice and cure periods shall have expired, the Bank may exercise, in
addition to all other rights and remedies granted to it in this Security
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) to or
upon the Debtors 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, 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 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 without assumption of any credit risk. 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 Debtors,
which right or equity
13
is hereby waived or released. The Debtors further agree, at the Bank's request,
to assemble the Collateral and make it available to the Bank at places which the
Bank shall reasonably select, whether at the Debtors' premises or elsewhere. The
Bank 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 Bank 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 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 9615 of the Code, need the Bank 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 Bank 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 Bank 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 Bank may request in order
to enable the Bank to obtain and enjoy the full rights and benefits granted to
the Bank under this Agreement and any other Loan 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
Bank'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 Bank 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.
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 Security 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.
14
12. Paragraph Headings. The paragraph headings used in this Security
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 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 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 Security Agreement may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the Debtors and the Bank, provided that any provision of this Security Agreement
may be waived by the Bank in a written letter or agreement executed by the Bank
or by telex or facsimile transmission from the Bank. This Security 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 Security Agreement shall be binding upon the respective
successors and permitted assigns of the Debtors and shall inure to the benefit
of the Bank and the Bank and its successors and assigns. THIS SECURITY 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 Bank 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
subsection 8.2 of the Credit Agreement.
16. Submission to Jurisdiction; Waivers.
(a) Each of the Debtors hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to this Security 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 (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;
15
(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 Credit Agreement
or at such other address of which the Bank 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 Security Agreement;
(v) acknowledges and agrees that the choice of forum
contained in this paragraph shall not be deemed to preclude the
enforcement of any judgement contained in any forum or the taking
of any action under this Security 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 Security Agreement may be executed by one or
more of the parties to this Security 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 Security
Agreement signed by all the parties shall be lodged with the Debtors and the
Bank.
18. Further Assurances. The parties acknowledge their intent that, upon
the occurrence and during the continuation of an Event of Default, the Bank
shall receive, to the fullest extent permitted by all Requirements of Law 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
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 Bank's rights of
access to, or use or sale of, the Collateral, or the procedures necessary to
enable the Bank to obtain such rights of access, use or sale, the Bank and the
Debtors shall amend this Agreement in such manner as the Bank shall request, in
order to provide to the Bank such rights to the greatest extent possible
consistent with all Requirements of Law and governmental policy.
16
19. Release. This Security Agreement and related instruments delivered
to the Bank hereunder shall be released by the Bank upon the date on which the
Obligations are paid in full and the Revolving Credit Commitments are
terminated. This Security 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 Bank 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.
17
IN WITNESS WHEREOF, the Debtors and the Bank have caused this
Security Agreement to be duly executed and delivered as of the date first above
written.
ENVIRONMENTAL TECTONICS
CORPORATION
By: /s/ Duane Deaner
-------------------------------
Name: Duane Deaner
Title: C.F.O.
ENTERTAINMENT TECHNOLOGY
CORPORATION
By: /s/ Duane Deaner
-------------------------------
Name: Duane Deaner
Title: Secretary
ETC DELAWARE, INC.
By: /s/ Duane Deaner
-------------------------------
Name: Duane Deaner
Title: Treasurer
PNC BANK, NATIONAL ASSOCIATION
By: /s/ John G. Siegrist
-------------------------------
Name: John G. Siegrist
Title: Vice President
18
SCHEDULE I TO
Security Agreement
COPYRIGHTS AND COPYRIGHT LICENSES
19
SCHEDULE II TO
Security Agreement
PATENTS AND PATENT LICENSES
20
SCHEDULE III TO
Security Agreement
TRADEMARKS AND TRADEMARK LICENSES
21
SCHEDULE IV TO
Security Agreement
LOCATIONS OF ACCOUNT RECORDS
22
SCHEDULE V TO
Security Agreement
LOCATIONS OF INVENTORY RECORDS
23
SCHEDULE VI TO
Security Agreement
LOCATIONS OF INVENTORY
24
SCHEDULE VII TO
Security Agreement
LOCATIONS OF EQUIPMENT
25
SCHEDULE VIII TO
Security Agreement
LOCATIONS OF CHIEF EXECUTIVE OFFICE, STATE OF ORGANIZATION
Chief Executive Office:
Chief Place of Business:
Form of and Place of Organization:
26