July 31, 2007 Environmental Tectonics Corporation 125 James Way Southampton, PA 18966 Attention: Duane Deaner Re: $15,000,000 Committed Line of Credit Dear Duane:
Exhibit 10.1
July 31, 2007
Re: $15,000,000 Committed Line of Credit
Dear Xxxxx:
We are pleased to inform you that PNC Bank, National Association (the “Bank”), has
approved your request for a committed line of credit to Environmental Tectonics Corporation
(the “Borrower”). This letter agreement amends, restates and replaces (but does not constitute a
novation of) the existing Letter Agreement dated November 16, 2006 between the Bank and the
Borrower (as heretofore amended, the “Existing Loan Agreement”).
1. Facility and Use of Proceeds. This is a committed revolving line of credit under which
the Borrower may request and the Bank, subject to the terms and conditions of this letter, will
make advances to the Borrower from time to time until the Expiration Date, in an amount in the
aggregate at any time outstanding not to exceed $15,000,000 (the “Line of Credit” or the “Loan”).
The “Expiration Date” means June 30, 2009, or such later date as may be designated by the Bank by
written notice to the Borrower. Advances under the Line of Credit will be used for working capital
or other general business purposes of the Borrower.
The Borrower may request that the Bank, in lieu of cash advances, issue standby letters of
credit (individually, a “Letter of Credit” and collectively the “Letters of Credit”) having
expiration dates not later than one year after the Expiration Date. The existing Letters of Credit
heretofore issued by the Bank and listed on Schedule I (the “Existing Letters of Credit”) hereto
shall constitute Letters of Credit for all purposes hereunder. The availability of advances under
the Line of Credit shall be reduced by the face amount of each Letter of Credit issued and
outstanding (whether or not drawn). Each payment by the Bank under a Letter of Credit shall in
Bank’s discretion constitute an advance of principal under the Line of Credit and shall be
evidenced by the Note (as defined below). The Letters of Credit shall be governed by the terms of
this letter and by a reimbursement agreement, in form and content satisfactory to the Bank,
executed by the Borrower in favor of the Bank (the “Reimbursement Agreement”). Each request for
the issuance of a Letter of Credit must be accompanied by the Borrower’s execution of an
application on the Bank’s standard forms (each, an “Application”), together with all supporting
documentation. Each Letter of Credit will be issued in the Bank’s sole discretion and in a form
acceptable to the Bank. The Borrower shall pay to the Bank fees on the face amount of each Letter
of Credit for the period from and excluding the date of issuance of same to and including the date
of expiration or termination, equal to the average daily face amount of each outstanding Letter of
Credit multiplied by (x) 1.00% per annum in the case of Existing Letters of Credit and (y) .90% per
annum in the case of Letters of Credit issued after the date hereof, such fees to be calculated on
the basis of a 360-day year for the actual number of days elapsed and to be payable quarterly in
arrears on the first day of each fiscal quarter and on the Expiration Date,
provided that in no event shall such fees for any Letter of Credit be less than the standard
minimum amount charged for letters of credit issued by the Bank from time to time for its
customers, together with such other customary issuance fees, commissions and expenses therefor as
shall be required by the Bank. This letter is not a pre-advice for the issuance of a letter of
credit and is not irrevocable.
2. Note. The obligation of the Borrower to repay advances under the Line of Credit shall
be evidenced by a promissory note (the “Note”) in form and content satisfactory to the Bank. This
letter (the “Letter Agreement”), the Note, the Reimbursement Agreement and the other agreements and
documents executed and/or delivered pursuant hereto, as each may be amended, modified, extended or
renewed from time to time, will constitute the “Loan Documents.” Capitalized terms not defined
herein shall have the meaning ascribed to them in the Loan Documents.
3. Interest Rate. Interest on the unpaid balance of the Line of Credit advances will be
charged at the rates, and be payable on the dates and times, set forth in the Note.
4. Repayment. Subject to the terms and conditions of this Letter Agreement, the Borrower
may borrow, repay and reborrow under the Line of Credit until the Expiration Date, on which date
the outstanding principal balance and any accrued but unpaid interest shall be due and payable.
Interest will be due and payable as set forth in the Note, and will be computed on the basis of a
year of 360 days and paid on the actual number of days that principal is outstanding.
5. Security. The Borrower must cause to be executed and delivered to the Bank, in form and
content satisfactory to the Bank as security for the Line of Credit, a restated guaranty agreement,
under which X. X. Xxxxxxx (the “Guarantor”) will unconditionally guarantee the due and punctual
payment of all indebtedness owed to the Bank by the Borrower under the Line of Credit (the
“Guaranty”).
6. Covenants. Unless compliance is waived in writing by the Bank, until payment in full of
the Loan and all of the obligations of the Borrower in respect of the Letters of Credit and
termination of the commitment for the Line of Credit:
(a) The Borrower will promptly submit to the Bank such information as the Bank may reasonably
request relating to the Borrower’s affairs (including but not limited to annual Financial
Statements (as hereinafter defined) and tax returns for the Borrower and/or any security for the
Line of Credit.
(b) The Borrower will not make or permit any change in its form of organization or any
material change in the nature of its business as carried on as of the date of this Letter
Agreement.
(c) The Borrower will notify the Bank in writing of the occurrence of any Event of Default or
an act or condition which, with the passage of time, the giving of notice or both might become an
Event of Default.
(d) The Borrower will comply with the financial and other covenants included in Exhibit “A”
hereto.
7. Representations and Warranties. To induce the Bank to extend the Line of Credit and
upon the making of each advance to the Borrower or issuance of any Letter of Credit under the Line
of Credit, the Borrower represents and warrants as follows:
(a) The Borrower’s latest Financial Statements provided to the Bank are true, complete and
accurate in all material respects and fairly present the financial condition, assets and
liabilities, whether accrued, absolute, contingent or otherwise, and the results of the Borrower’s
operations for the period specified therein. The Borrower’s Financial Statements have been
prepared in accordance with generally accepted accounting principles consistently applied from
period to period subject, in the case of interim statements, to normal year-end adjustments. Since
the date of the latest Financial Statements provided to the Bank, the Borrower has not suffered any
damage, destruction or loss which has materially adversely affected its business, assets,
operations, financial condition or results of operations.
(b) There are no actions, suits, proceedings or governmental investigations pending or, to the
knowledge of the Borrower, threatened against the Borrower which could result in a material adverse
change in its business, assets, operations, financial condition or results of operations and there
is no basis known to the Borrower or its officers, directors or shareholders for any such action,
suit, proceedings or investigation.
(c) The Borrower has filed all returns and reports that are required to be filed by it in
connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon
the Borrower or its property, including unemployment, social security and similar taxes and all of
such taxes have been either paid or adequate reserve or other provision has been made therefor.
(d) The Borrower is duly organized, validly existing and in good standing under the laws of
the state of its incorporation or organization and has the power and authority to own and operate
its assets and to conduct its business as now or proposed to be carried on, and is duly qualified,
licensed and in good standing to do business in all jurisdictions where its ownership of property
or the nature of its business requires such qualification or licensing.
(e) The Borrower has full power and authority to enter into the transactions provided for in
this Letter Agreement and has been duly authorized to do so by all necessary and appropriate action
and when executed and delivered by the Borrower, this Letter Agreement and the other Loan Documents
will constitute the legal, valid and binding obligations of the Borrower, enforceable against the
Borrower in accordance with their terms.
(f) There does not exist any default or violation by the Borrower of or under any of the
terms, conditions or obligations of: (i) its organizational documents; (ii) any indenture,
mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which it is
a party or by which it is bound; or (iii) any law, regulation, ruling, order, injunction, decree,
condition or other requirement applicable to or imposed upon the Borrower by any law or by any
governmental authority, court or agency.
8. Fees. Beginning on the first day of the quarter after the date hereof and continuing on
the first day of each quarter thereafter until the Expiration Date, the Borrower shall pay a
commitment fee to the Bank, in arrears, at the rate of one eighth of one percent (.125%) per annum
on the average daily balance of the Line of Credit which is undisbursed and uncancelled during the
preceding quarter. For purposes of calculating such fee, outstanding Letters of Credit shall
constitute disbursements under the Line of Credit. The commitment fee shall be computed on the
basis of a year of 360 days and paid on the actual number of days elapsed.
9. Expenses. The Borrower shall reimburse the Bank for the Bank’s expenses (including the
reasonable fees and expenses of the Bank’s outside and in-house counsel) in documenting and closing
this transaction, in connection with any amendments, modifications or renewals of the Line of
Credit, and in connection with the collection of all of the Borrower’s Obligations to the Bank,
including but not limited to enforcement actions relating to the Loan.
10. Depository. The Borrower will establish and maintain at the Bank the Borrower’s
primary depository account.
11. Additional Provisions. Before the first advance under the Loan and/or the issuance of
any additional Letter of Credit, the Borrower shall execute and deliver to the Bank the Note, an
Application for each Letter of Credit, the Reimbursement Agreement, an amended and restated
subordination and intercreditor agreement from the Guarantor in form and content satisfactory to
the Bank and the other required Loan Documents and such other instruments and documents as the Bank
may reasonably request, such as certified resolutions, incumbency certificates or other evidence of
authority. The Bank will not be obligated to make any advance or issue any additional Letter of
Credit under the Line of Credit if any Event of Default or event which with the passage of time,
provision of notice or both would constitute an Event of Default shall have occurred and be
continuing.
Prior to execution of the final Loan Documents, the Bank may terminate this Letter Agreement
if a material adverse change occurs with respect to the Borrower, the Guarantor, or any other
person or entity connected in any way with the Loan, or if the Borrower fails to comply with any of
the terms and conditions of this Letter Agreement, or if the Bank reasonably determines that any of
the conditions cannot be met.
This Letter Agreement is governed by the laws of the Commonwealth of Pennsylvania. No
modification, amendment or waiver of any of the terms of this Letter Agreement, nor any consent to
any departure by the Borrower therefrom, will be effective unless made in a writing signed by the
party to be charged, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. When accepted, this Letter Agreement and the other
Loan Documents will constitute the entire agreement between the Bank and the Borrower concerning
the Line of Credit, and shall replace all prior understandings, statements,
negotiations and written materials relating to the Line of Credit or the Letters of Credit,
including but not limited to the Existing Loan Agreement.
The Bank will not be responsible for any damages, consequential, incidental, special, punitive
or otherwise, that may be incurred or alleged by any person or entity, including the Borrower and
the Guarantor, as a result of this Letter Agreement, the other Loan Documents, the transactions
contemplated hereby or thereby, or the use of the Letters of Credit.
THE BORROWER AND THE BANK IRREVOCABLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE ARISING OUT OF THIS LETTER AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED IN ANY OF SUCH DOCUMENTS AND ACKNOWLEDGE
THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
If and when a loan closing occurs, this Letter Agreement (as the same may be amended from time
to time) shall survive the closing and will serve as our loan agreement throughout the term of the
Loan.
To accept these terms, please sign the enclosed copy of this Letter Agreement as set forth
below and the Loan Documents and return them to the Bank within thirty (30) days from the date of
this Letter Agreement, or this Letter Agreement may be terminated at the Bank’s option without
liability or further obligation of the Bank.
Thank you for giving PNC Bank this opportunity to work with your business. We look forward to
other ways in which we may be of service to your business or to you personally.
| Very truly yours, | ||||||||||
| PNC BANK, NATIONAL ASSOCIATION | ||||||||||
| By: | /s/ | |||||||||
| Title: | ||||||||||
ACCEPTANCE
With the intent to be legally bound hereby, the above terms and conditions are hereby agreed
to and accepted as of this 31st day of July, 2007.
| BORROWER: | ||||||||||
| ENVIRONMENTAL TECTONICS CORPORATION | ||||||||||
| By: | /s/ | |||||||||
| Print Name: | ||||||||||
| Title: | ||||||||||
EXHIBIT A
TO LETTER AGREEMENT
DATED JULY 31, 2007
TO LETTER AGREEMENT
DATED JULY 31, 2007
A. FINANCIAL REPORTING COVENANTS:
(1) The Borrower will deliver to the Bank:
(a) Financial Statements for its fiscal year, within 90 days after fiscal year end, audited
and certified without qualification by a certified public accountant acceptable to the Bank.
(b) Financial Statements for each of the first three fiscal quarters, within 60 days after the
quarter end, together with year-to-date and comparative figures for the corresponding periods of
the prior year, certified as true and correct by its chief financial officer.
(c) With each delivery of Financial Statements, a certificate of the Borrower’s chief
financial officer as to the Borrower’s compliance with the financial covenant set forth below for
the period then ended and whether any Event of Default exists, and, if so, the nature thereof and
the corrective measures the Borrower proposes to take. This certificate shall set forth all
detailed calculations necessary to demonstrate such compliance.
(2) With each delivery of Financial Statements pursuant to clause (a) above, the Borrower will
deliver to the Bank financial projections for the current fiscal year in a form reasonably
satisfactory to the Bank.
“Financial Statements” means the consolidated balance sheet and statements of income and cash
flows prepared in accordance with generally accepted accounting principles in effect from time to
time (“GAAP”) applied on a consistent basis (subject in the case of interim statements to normal
year-end adjustments).
B. FINANCIAL COVENANTS:
(1) The Borrower will maintain as of the end of each fiscal quarter a minimum Consolidated
Tangible Net Worth of $9,000,000.
“Consolidated Tangible Net Worth” means as of any date of determination, the sum of (a) the
aggregate amount of all assets of the Borrower and its subsidiaries on a consolidated basis at such
date as may be properly classified as such in accordance with GAAP, excluding such other assets as
are properly classified as intangible assets under GAAP, (b) minus the aggregate amount of all
liabilities of the Borrower and its subsidiaries and minority interests in the Borrower or any of
its subsidiaries on a consolidated basis at such date, as may be properly classified as such in
accordance with GAAP, plus (c) Subordinated Debt.
A-1
“Subordinated Debt” means indebtedness that has been subordinated to the Borrower’s
indebtedness to the Bank pursuant to a subordination agreement in form and content satisfactory to
the Bank.
C. NEGATIVE COVENANTS:
(1) The Borrower will not liquidate, or dissolve, or merge or consolidate with any person,
firm, corporation or other entity, or sell, lease, transfer or otherwise dispose of all or
substantially all of its property or assets, whether now owned or hereafter acquired.
(2) The Borrower will not create, assume, incur or suffer to exist any mortgage, pledge,
encumbrance, security interest, lien or charge of any kind upon any of its property, now owned or
hereafter acquired, or acquire or agree to acquire any kind of property under conditional sales or
other title retention agreements; provided, however, that the foregoing restrictions shall not
prevent the Borrower from:
(a) incurring liens for taxes, assessments or governmental charges or levies which shall not
at the time be due and payable or can thereafter be paid without penalty or are being contested in
good faith by appropriate proceedings diligently conducted and with respect to which it has created
adequate reserves;
(b) making pledges or deposits to secure obligations under workers’ compensation laws or
similar legislation; or
(c) granting purchase money security interests in personal property of the Borrower existing
or created when such property is acquired, provided that the principal amount of the indebtedness
secured by each such security interest does not exceed the purchase price of the related property;
or
(d) granting liens or security interests to secure existing or future Subordinated Debt to
X.X. Xxxxxxx; or
(e) granting liens or security interests in favor of the Bank.
A-2
SCHEDULE I
Existing Letters of Credit
| Number | Amount | Expiration Date | ||||||||
| 258078 | 500,000.00 | 11-30-07 | ||||||||
| 260691 | 21,341.75 | 6-30-07 | ||||||||
| 18101978 | 195,000.00 | 3-26-08 | ||||||||
| 18101979 | 585,000.00 | 3-26-08 | ||||||||
| 18103494 | 15,131.00 | 6-30-08 | ||||||||
| 258206 | 325,439.22 | 3-28-08 | ||||||||
| 259738 | 43,190.00 | 6-30-08 | ||||||||
| 262405 | 37,991.70 | 11-9-07 | ||||||||
| 263283 | 161,000.00 | 1-31-08 | ||||||||
| 18102384 | 710,526.32 | 12-31-07 | ||||||||
| 18104125 | 16,044.60 | 12-30-07 | ||||||||
| 18104493 | 614,579.00 | 6-30-08 | ||||||||
| 18104578 | 21,176.10 | 3-30-08 | ||||||||
| 18104640 | 1,256,743.00 | 6-30-08 | ||||||||
| 18105243 | 250,200.00 | 2-29-08 | ||||||||
