EX-10 10 ex10-4.txt EXHIBIT 10.4 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