FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[x] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act OF 1934 [fee required]
For the fiscal year ended February 23, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [no fee required]
For the transition period from ____________ to ____________.
Commission File Number 1-10655
ENVIRONMENTAL TECTONICS CORPORATION
(Exact name of small business issuer in its charter)
Pennsylvania 23-1714256
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
County Line Industrial Park
Southampton, Pennsylvania 18966
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (215) 355-9100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
(Title of Class)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No ___
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained herein, and will
not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.[x]
As of May 20, 1996, the aggregate market value of the
Registrant's common stock held by non-affiliates of the
Registrant was approximately $8,400,000.
As of May 15, 1996, there were 2,928,944 shares of Registrant's
common stock, $0.10 par value per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE. Portions of Registrant's
1996 Annual Report to Stockholders are incorporated by reference
in Part II, Items 5, 6, 7, and 8.
Transitional Small Business Disclosure Format: Yes ___ No x
<PAGE>
PART I
Item 1. Description of Business
(a) Business Development
The Company, a Pennsylvania corporation, incorporated in
1969, is principally engaged in the manufacture and sale of
products used in controlling, modifying, simulating and measuring
environmental factors such as temperature, humidity, pressure,
and vacuum. These products include aircrew training systems,
sterilizers, environmental and other products which involve
similar manufacturing techniques and engineering technologies.
Since February 24, 1995, there has been no material change
in the Company's mode of conducting business.
(b) Business of the Company
Principal Products
Aircrew Training Systems. The Company's aircrew training
devices are used for medical research, advanced flight training,
and for the indoctrination and testing of military and commercial
pilots. The major devices sold in this product area are
commercial flight simulators, high altitude decompression
chambers, hyperbaric (high-pressurized oxygen) chambers, night
vision trainers, water survival training equipment,
disorientation training equipment, human centrifuges, and
ejection seat trainers. The Company provides operation and
maintenance services for installed equipment it manufactures as
well as equipment produced by others.
The aircrew training system class of products represented
52% and 35% of consolidated revenues of the Company for the years
ended February 23, 1996 and February 24, 1995, respectively.
Sterilizers. The Company manufactures steam and gas
sterilizers. Steam sterilizers are used for hospital, medical
research laboratory, and industrial purposes. Gas sterilizers
are used for the sterilization of packaged products such as food,
spices, pharmaceutical, and disposable and reusable medical
devices. The Company also furnishes military field sterilizers
on a large volume basis to the United States Defense Logistics
Agency. The Company's sterilizers range in price from
approximately $3,500 to over $1,000,000, and in chamber size from
three cubic feet to over 4,000 cubic feet, although the Company
concentrates on marketing the larger custom-designed sterilizers
to the pharmaceutical and medical device industries.
The sterilizer class of products represented 31% and 43% of
consolidated revenues of the Company for the years ended
February 23, 1996 and February 24, 1995, respectively.
Environmental Systems and Other Products. The Company's
environmental systems business consists of the design and
fabrication of sampling and analysis systems, and test equipment
and systems used in measuring, monitoring and testing air
pollution. The Company also designs and manufactures
environmental simulation systems to meet specific needs of its
customers. The simulation systems generally consist of an
enclosed chamber with instrumentation and equipment which enable
the customer to control and modify such environmental factors as
temperature, pressure, humidity, wind velocity and gas content to
produce desired conditions. These products include controlled
air systems for automotive companies and environmental chambers.
The Company also provides repair and maintenance service for
its own and other manufacturers' equipment.
Sales of these products were 17% and 22% of consolidated
revenues of the Company for the years ended February 23, 1996 and
February 24, 1995, respectively.
Marketing
The Company currently markets its products and services
primarily through its officers and employees. At February 23,
1996, approximately 20 employees were committed to sales and
marketing functions. The Company uses branch offices in the
United Kingdom, the Middle East, and Asia as well as the services
of approximately 100 independent sales organizations in seeking
foreign orders for its products.
Product Development
New products and improvements in existing products are being
continually developed in response to inquiries from customers and
to management's determination that particular products should be
produced or significantly improved. Although the Company does
not have a separate research and development group, significant
efforts are expended in developing new applications of existing
technologies.
The Company is currently focusing its product development
efforts in the aircrew training systems segment, with a
particular emphasis on enhancing the related control systems and
software, and exploring commercial possibilities. The Company is
near completion of a Firefighting Command and Control System and
Trainer for a certain foreign governmental agency. The control
system is a real-time interactive training program that provides
instructor-selective, computer-generated image scenarios that
train and test a firefighter's ability to fight various types of
aircraft fires. The trainer simulates fires in aircraft and
structures that must be physically fought and controlled by a
team of firefighters. The Company believes that this development
will provide it with the potential for establishing a new
standardized product for commercial as well as governmental use.
Additionally, the Company believes this area will expand to
training systems for other disaster situations.
The Company incurred research and development costs of
approximately $154,000 and $336,000 for the years ended
February 23, 1996 and February 24, 1995, respectively.
Supplies
The components being used in the assembly of systems and the
parts used to manufacture the Company's products are purchased
from equipment manufacturers, electronics supply firms and
others. To date, the Company has had no difficulty in obtaining
supplies. Further, all raw materials, parts, components, and
other supplies used by the Company in the manufacture of its
products can be obtained at competitive prices from alternate
sources should existing sources of supply become unavailable.
Patents and Trademarks
The Company has no patents or trademarks which it considers
significant to its operations, except a patent on the GYROLAB
Spatial Orientation Trainer which expires in December 2004.
Customers
In the current year and recent past, it has been the
Company's experience that a substantial portion of sales are made
to a small number of customers that vary within any given year.
The Company's business does not depend upon repeat orders from
these same customers. Sales of aircrew training systems are made
principally to U.S. and foreign governmental agencies. Sales of
sterilizers and environmental systems are made to commercial and
governmental entities worldwide.
In fiscal 1996, the Company's major customers included the
United Kingdom and the U.S. Government, which accounted for
$2,366,000 and $1,631,000 of the Company's sales, respectively.
These governmental entities do not have any relationship with the
Company other than as customers.
Foreign and Domestic Operations and Export Sales
During the years ended February 23, 1996 and February 24,
1995, 1994, approximately $1,631,000 (10%) and $2,643,000 (16%),
respectively, of the Company's net revenues were attributable to
contracts with agencies of the U.S. Government or with other
customers who had prime contracts with agencies of the federal
government.
During the years ended February 23, 1996 and February 24,
1995, approximately $9,198,000 (59%) and $6,310,000 (40%),
respectively, of the Company's net revenues were attributable to
export sales or sales for export. (See Note 9 to the Company's
consolidated financial statements incorporated herein by
reference to the Annual Report.) On export sales, customers'
obligations to the Company may be secured by irrevocable letters
of credit.
The Company does not believe that the distribution of its
sales for any particular period is necessarily indicative of the
distribution expected for any other period.
A large portion of the Company's sales are under long-term
contracts requiring more than one year to complete. The Company
accounts for sales under long-term contracts on the percentage of
completion basis. See Notes 1 and 3 to consolidated financial
statements.
The Company's U.S. Government contracts contain standard
terms permitting termination without cause at the option of the
Government. In the event of termination of such contracts, the
Company is entitled to receive reimbursement on the basis of work
completed (cost incurred plus a reasonable profit), recording the
amounts anticipated to be recovered from termination claims in
income as soon as those amounts can be reasonably determined
rather than at the time of final settlement. All costs
applicable to a termination claim are charged as an offsetting
expense concurrently with the recognition of income from the
claim.
Backlog
The Company's sales backlog at February 23, 1996 and
February 24, 1995 for work to be performed and revenue to be
recognized under written agreements after such dates was
approximately $20,900,000 and $12,200,000, respectively. In
addition, the Company's training and maintenance contracts
backlog at February 23, 1996 and February 24, 1995 for work to be
performed and revenue to be recognized after that date under
written agreements was approximately $2,100,000 and $3,500,000,
respectively. Of the 1996 backlog, approximately $18,100,000 is
under contracts for aircrew training systems and maintenance
support principally for U.S. (approximately $700,000) and foreign
governments (approximately $17,400,000). The U.S. Government
contracts are subject to termination at the convenience of the
Government with equitable cancellation cost recovery.
Approximately 71% of the 1996 backlog is expected to be completed
prior to February 28, 1997.
Competition
The Company's business strategy in recent years has been to
seek niche markets in which there are not numerous competitors.
However, in some areas of its business the Company competes with
well-established firms, some of which have substantially greater
financial and personnel resources.
Some competitor firms have technical expertise and
production capabilities in one or more of the areas involved in
the design and production of physiological flight training
equipment, environmental systems, and other specially designed
products, and compete with the Company for this business. The
competition for any particular project generally is determined by
the technological requirements of the project, with consideration
also being given to a bidder's reliability, product performance,
past performance, and price.
The Company faces particularly intense competition from a
number of firms in the sale of hospital sterilizers but faces
less competition in the sale of the larger custom-designed
industrial sterilizers.
The Company believes that it is a significant participant in
the markets in which it competes, especially in aircrew training
systems in which the Company believes it is a principal provider
of this type of equipment and training in its market area.
Compliance with Environmental Laws
The Company has not incurred during 1996 nor does it
anticipate incurring during fiscal 1997 any material capital
expenditures to maintain compliance with Federal, state and local
statutes, rules and regulations concerning the discharge of
materials into the environment, nor does the Company anticipate
that compliance with these provisions will have a material
adverse effect on its earnings or competitive position.
Employees
On February 23, 1996, the Company had 160 full-time
employees, of whom 10 were employed in executive positions,
33 were engineers, engineering designers, or draftpeople, 59 were
administrative (sales, accounting, etc.) and clerical personnel,
and 58 were engaged principally in production and operations.
Item 2. Description of Property
The Company owns its executive offices and principal
production facilities located on a 5-acre site in the County Line
Industrial Park, Southampton, Pennsylvania in an approximately
70,000 square foot steel and masonry building. Approximately
55,000 square feet are devoted to manufacturing, and
15,000 square feet to office space. The original building was
erected in 1969 and additions were made in 1973, 1976, 1985 and
1991. This property collateralizes the Company's revolving
credit facility.
The Company considers its machinery and plant to be in
satisfactory operating condition and adequate for the Company's
present level of business. Increases in the level of operations
beyond that expected in the current fiscal year might require the
Company to obtain additional facilities and equipment.
Item 3. Legal Proceedings
In October 1993, the Company was notified by the Royal Thai
Air Force (the "RTAF") that the RTAF was terminating a certain
$4.6 million simulator contract with the Company. Although the
Company has performed in excess of 90% of the contract, the RTAF
alleged a failure to completely perform. In connection with this
termination, the RTAF made a call on a $229 performance bond, as
well as a draw on approximately $1.1 million of advance payment
letters of credit. The RTAF has also asserted liquidated damages
pursuant to the contract against the Company. In October 1993,
the surety made payment on the $229 performance bond, and in the
first quarter of fiscal 1995, it made payment on the
approximately $1.1 million advance payment letters of credit.
The Company has commenced arbitration with the RTAF. In the
arbitration, the Company is asserting claims against the RTAF for
reimbursement of the costs incurred on the bond and letters of
credit called, as well as claims for costs incurred in connection
with RTAF-directed changes in the work and RTAF-caused delays and
damages to the Company's work. The Company is also claiming that
the termination was wrongful and that the company is entitled to
complete the work and to be paid the balance of the contract
price. The case is pending before the Thailand Arbitration
Board. Management believes the Company has meritorious claims in
excess of claims made by the RTAF, as well as meritorious grounds
to support nonpayment of the performance bond and letters of
credit. The Company has also denied the RTAF claims and believes
they are without merit. Accordingly, no provision for any
liability that may result has been made in the accompanying
financial statements. Management and legal counsel believe that
the ultimate outcome of these matters will not have a material
adverse effect on the Company's financial position or results of
operations.
Certain other claims, suits and complaints arising in the
ordinary course of business have been filed or are pending
against the Company. In the opinion of management, all such
matters are reserved for or are adequately covered by insurance
or, if not so covered, are without merit or are of such kind, or
involve such amounts as would not have a significant effect on
the financial position of the Company if disposed of unfavorably.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters
See information appearing under the heading "Market for the
Registrant's Common Stock and Related Stockholder Matters" in the
Annual Report, attached hereto as Exhibit 13 and incorporated
herein by reference.
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
See information appearing under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report, attached hereto as Exhibit 13
and incorporated herein by reference.
Item 7. Financial Statements
See the information appearing under the headings
"Consolidated Financial Statements" and "Notes to Consolidated
Financial Statements" in the Annual Report, attached hereto as
Exhibit 13 and incorporated herein by reference.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Coopers & Lybrand LLP was dismissed by the Company on
January 3, 1995. In each of the two fiscal years for the two
year period ended February 25, 1994, the accountant's reports on
the Company's financial statements contained unqualified
opinions, which were modified in fiscal 1994 for (i) an
uncertainty paragraph for unsettled litigation, and (ii) an
emphasis of a matter paragraph for contract claims receivable and
a recently renegotiated extension to the Company's credit
facility; and in fiscal 1993 for an uncertainty paragraph for
unsettled litigation. The decision to dismiss the accountant was
approved by the Company's audit committee.
In each of the two fiscal years for the two year period
ended February 25, 1994 there were disagreements which, if not
resolved to the satisfaction of the former accountant, would have
caused it to make reference to the subject matter of the
disagreement in connection with its report. In fiscal 1995,
there were no disagreements with the former accountant in the
interim periods subsequent to February 25, 1994. In fiscal 1994,
there were disagreements as to (i) the amount of revenue to be
recognized under the percentage of completion method for a
certain contract, (ii) income recognition of a certain insurance
settlement, and (iii) the capitalization of certain software
development costs. These issues were discussed with the
Company's audit committee after final resolution was made to the
satisfaction of the former accountant. There were no issues
which involved differences of opinion over material matters
related to auditing scope or procedures. The Company authorized
the former accountant to respond fully to the inquiries of the
successor accountant concerning the subject matter of each of
these disagreements. In fiscal 1993, there were no issues which
involved differences of opinion over material matters related to
accounting principles or practices, financial statement
disclosures or presentation and auditing scope procedures.
The Company engaged Grant Thornton LLP as its new
independent accountants as of February 16, 1995. During the two
fiscal years prior to February 24, 1995, and through February 24,
1995, the Company did not consult with Grant Thornton LLP on
items which (i) were or should have been subject to SAS 50 or
(ii) concerned the subject matter of a disagreement or reportable
event with the former auditors, Coopers & Lybrand LLP.
<PAGE>
PART III
Item 9. Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth certain information with
respect to the directors of the Registrant:
Served Principal Occupations
as and Positions and
Director Offices with the
Name Age Since(1) Company
- ------------ --- -------- ---------------------
William F. Mitchell(2) 54 1969 Chairman of the
Board, President and
Director
Richard E. McAdams(3) 60 1985 Vice President
and Director
Philip L. Wagner, Ph.D.(4) 59 1993 Director
Pete L. Stephens, M.D.(5) 58 1974 Director
Michael A. Mulshine(6) 56 1994 Director
_________________________________________________________________
(1) Directors serve one-year terms.
(2) Mr. Mitchell has been Chairman of the Board, President and
Chief Executive Officer of the Company since 1969, except
for the period from January 24, 1986 through January 24,
1987, when he was engaged principally in soliciting sales
for the Company's products in the overseas markets.
(3) Mr. McAdams has been with the Company since 1970. He became
a Vice President in 1978 with responsibility for contract
administration.
(4) Dr. Wagner is an organic chemist with over 30 years of
diversified experience managing research and development and
new business development at E.I. du Pont de Nemours &
Company and thereafter founded Chadds Ford Technologies,
Inc., a consulting firm. He is currently President of
Chadds Ford Technologies, Inc.
(5) Dr. Stephens has been a physician engaged in the private
practice of medicine for 30 years.
(6) Mr. Mulshine has served as a Director of VASCO Corporation,
a public company in the computer data security business,
since 1991. He has been President of Osprey Partners, a
management consulting firm, since 1977. He is Chairman of
the Board of Dynex Sport Optics, Inc., an exclusive licensee
of Wilson Sporting Goods Company, and has been a Director
and Secretary of Scangraphics, Inc., a public company, since
1985. Mr. Mulshine is an instrument-rated pilot who served
as General Manager of a flight simulator company and was
involved in simulation and modeling in his early career. He
received a Bachelor of Science degree in Electrical
Engineering in 1961 from Newark College of Engineering.
Committees of the Board of Directors
During the year ended February 23, 1996, the Company had an
Audit Committee consisting of three independent outside
directors: Messrs. Michael A. Mulshine, Philip L. Wagner and
Dr. Pete L. Stephens. These three independent outside directors
also served on the Company's Compensation Committee during the
year ended February 24, 1995. The Audit Committee is charged
with reviewing and overseeing the Company's financial systems and
internal control procedures and conferring with the Company's
independent accountants with respect thereto. The Compensation
Committee is charged with reviewing the compensation of officers
and key personnel.
During the year ended February 23, 1996, the Board of
Directors held two meetings and the Audit Committee and
Compensation Committee each held one meeting. All members of the
Board attended all of the meetings of the Board held while they
were members of the Board. All members of the Audit Committee
and Compensation Committee attended all meetings of the Committee
held while they were members thereof.
There are no executive officers of the Company who are not
also directors of the Company.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and
the American Stock Exchange. Officers, directors and greater
than ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) Forms they
file. The rules of the SEC regarding the filing of such
statement require that "late filings" of such statements be
disclosed in the Company's proxy statement.
Based solely on its review of the copies of such forms
received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, the
Company believes that, during the fiscal year ended February 23,
1996, all filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were
complied with.
Item 10. Executive Compensation
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth compensation paid by the
Company to the Chief Executive Officer for services rendered
during fiscal years 1996, 1995 and 1994. There are no other
executive officers whose total annual salary and bonus exceeds $
100,000. The footnotes to the table provide additional
information concerning the Company's compensation and benefit
programs.
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------------------------
Other
Name and Annual All Other
Principal Fiscal Compen- Compen-
Position Year Salary($) Bonus($) sation($)(1) sation($)(2)
- --------- ------ --------- -------- ------------ ------------
William F. 1996 $119,531 $ - $ - $2,473
Mitchell, 1995 131,568 - - 1,154
President 1994 165,105 - - 1,453
and Chief
Executive
Officer
(1) The Company's executive officers receive certain
perquisites. For fiscal years 1996, 1995 and 1994, the
perquisites received by Mr. Mitchell did not exceed the
lesser of $50,000 or 10% of his salary and bonus.
(2) These amounts represent the Company's contribution to the
Retirement Savings Plan.
Directors of the Company who are not officers of the Company
are paid $600 for Board of Directors meetings which they
attend. Additional compensation is not paid for committee
meetings.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth as of May 20, 1996, the
number of shares and percentage of the Company's Common Stock
owned beneficially by each director, each nominee for director,
each executive officer named in the Summary Compensation Table,
and each person holding, to the Company's knowledge, more than 5%
of the outstanding Common Stock. The table also sets forth the
holdings of all directors and executive officers as a group.
Amount and
Nature of Percent
Beneficial of
Name and Address of Beneficial Owner Ownership Class
- ------------------------------------ ---------- -------
William F. Mitchell (1) 943,949 32.2%
c/o Environmental Tectonics
Corporation
County Line Industrial Park
Southampton, PA 18966
Pete L. Stephens, M.D. (2) 310,650(3) 10.6%
1 Eleni Lane
West Chester, PA 19382
Richard E. McAdams (4) 19,526(5) *
c/o Environmental Tectonics
Corporation
County Line Industrial Park
Southampton, PA 18966
Michael A. Mulshine (6) 0(7) *
Osprey Partners
2517 Route 35
Manasquan, NJ 08736
Philip L. Wagner, Ph.D. (8) 6,000(9) *
Chadds Ford Technologies, Inc.
P.O. Box 377
Chadds Ford, PA 19317
All directors and executive
officers as a group (12 persons) 1,289,274(10) 44.0%
* less than 1%
- --------------------
(1) Chairman of the Board, President and Director of the
Corporation.
(2) Director of the Corporation.
(3) Includes 8,550 shares held by or for the benefit of
Dr. Stephens' wife and two of his children.
(4) Director of the Corporation.
(5) Includes options to purchase 6,000 shares held under the
Company's Incentive Stock Option Plan that are presently
exercisable.
(6) Director of the Corporation.
(7) Does not include warrants to purchase 125,000 shares of
stock that are exercisable only upon completion of certain
activities under a separate consulting agreement.
(8) Director of the Corporation.
(9) Includes 4,000 shares held by or for the benefit of
Dr. Wagner's wife.
(10) Includes options to purchase 36,800 shares held under the
Company's Incentive Stock Option plan that are presently
exercisable.
Item 12. Certain Relationships and Related Transactions
On October 20, 1994, the Company and Mr. Mulshine entered
into a Consulting Agreement, pursuant to which the Company has
agreed to issue warrants to Mr. Mulshine to purchase
125,000 shares of the Company's common stock at an initial
exercise price of $4.75 in consideration for Mr. Mulshine
providing certain consulting services to the Company.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Number Item
- ------ ----
3(i) Registrant's Articles of
Incorporation, as amended, was
filed as Exhibit 3(i) to
Registrant's Form 10-K for the year
ended February 25, 1994 and is
incorporated herein by reference.
3(ii) Registrant's By-Laws, as amended,
was filed as Exhibit 3(ii) to
Registrant's Form 10-K for the year
ended February 25, 1994 and is
incorporated herein by reference.
10(i) Chief Executive Compensation Plan,
Executive Management/Key Employee
Compensation Plan, General
Compensation Policy was filed as
Exhibit 10(i) to the Registrant's
Form 10-K for the year ended
February 25, 1994 and is
incorporated herein by reference.*
10(ii) Registrant's 1988 Incentive Stock
Option Plan was filed as
Exhibit 10(v) to Registrant's
Form 10-K for the year ended
February 23, 1990 and is
incorporated herein by reference.*
10(iii) Registrant's Employee Stock
Purchase Plan was filed on July 6,
1988 as Exhibit A to the Prospectus
included in Registrant's
Registration Statement (File
No. 33-42219) on Form S-8 and is
incorporated herein by reference.*
10(iv) Registrant's Revolving Credit
Agreement with the Chase Manhattan
Bank, N.A. as Agent, dated as of
November 20, 1990, filed as
Exhibit 4 to the Registrant's
Form 10-Q for the quarter ended
November 23, 1990 and is
incorporated herein by reference.
10(v) Registrant's Promissory Note to the
Chase Manhattan Bank, N.A., dated
November 20, 1990, filed as
Exhibit 4 to the Registrant's
Form 10-K for the fiscal year ended
February 22, 1991 and is
incorporated herein by reference.
10(vi) Registrant's Promissory Note to
Chemical Bank, dated November 20,
1990, filed as Exhibit 4 to the
Registrant's Form 10-K for the
fiscal year ended February 22,
1991 and is incorporated herein by
reference.
10(vii) First Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
as Exhibit 10(viii) to the
Registrant's Form 10-K for the
fiscal year ended February 25, 1994
and is incorporated herein by
reference.
10(viii) Second Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of February 28, 1993, filed
as Exhibit 10(ix) to the
Registrant's Form 10-K for the
fiscal year ended February 24, 1995
and is incorporated herein by
reference.
10(ix) Third Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of September 15, 1994,
filed as Exhibit 10(x) to the
Registrant's Form 10-K for the
fiscal year ended February 24, 1995
and is incorporated herein by
reference.
10(x) Fourth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of July 12, 1995.
10(xi) Registrant's Stock Award Plan
adopted April 7, 1993, filed as
Exhibit 10(ix) to the Registrant's
Form 10-K for the fiscal year ended
February 25, 1994 and is
incorporated herein by reference.*
10(xii) Fifth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A., as Agent,
dated as of November 20, 1995, was
filed as Exhibit 10 to the
Registrant's Form 10-QSB for the
quarter ended November 24, 1995
and is incorporated herein by
reference.
10(xiii) Form of Sixth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A., as Agent,
dated as of May 23, 1996.
10(xiv) Form of 1996 Warrant Agreement between
the Registrant and Chase Manhattan
Capital Corporation.
10(xv) Form of 1997 Warrant Agreement between
the Registrant and Chase Manhattan
Capital Corporation.
13 Portions of Registrant's 1996 Annual
Report to Shareholders which are
incorporated by reference into this
Form 10-KSB.
21 No material subsidiaries.
23 Consent of Grant Thornton L.L.P.
27 Financial Data Schedule
- ---------------
* Represents a management contract or
a compensatory plan or arrangement.
(b) Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
ENVIRONMENTAL TECTONICS CORPORATION
By/s/ William F. Mitchell
William F. Mitchell, President
and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates
indicated.
Name Position Date
---- -------- ----
/s/ William F. Mitchell Chairman of the Board, May 23, 1996
William F. Mitchell President and Director
/s/ Duane D. Deaner Chief Financial May 23, 1996
Duane D. Deaner Officer (Principal
Accounting Officer)
/s/ Richard E. McAdams Director May 23, 1996
Richard E. McAdams
/s/ Michael A. Mulshine Director May 23, 1996
Michael A. Mulshine
/s/ Pete L. Stephens, M.D. Director May 23, 1996
Pete L. Stephens, M.D.
/s/ Philip L. Wagner Director May 23, 1996
Philip L. Wagner
<PAGE>
EXHIBIT INDEX
Exhibit No. Item
- ----------- ----
3(i) Registrant's Articles of
Incorporation, as amended, was
filed as Exhibit 3(i) to
Registrant's Form 10-K for the year
ended February 25, 1994 and is
incorporated herein by reference.
3(ii) Registrant's By-Laws, as amended,
was filed as Exhibit 3(ii) to
Registrant's Form 10-K for the year
ended February 25, 1994 and is
incorporated herein by reference.
10(i) Chief Executive Compensation Plan,
Executive Management/Key Employee
Compensation Plan, General
Compensation Policy was filed as
Exhibit 10(i) to the Registrant's
Form 10-K for the year ended
February 25, 1994 and is
incorporated herein by reference.*
10(ii) Registrant's 1988 Incentive Stock
Option Plan was filed as
Exhibit 10(v) to Registrant's
Form 10-K for the year ended
February 23, 1990 and is
incorporated herein by reference.*
10(iii) Registrant's Employee Stock
Purchase Plan was filed on July 6,
1988 as Exhibit A to the Prospectus
included in Registrant's
Registration Statement (File
No. 33-42219) on Form S-8 and is
incorporated herein by reference.*
10(iv) Registrant's Revolving Credit
Agreement with the Chase Manhattan
Bank, N.A. as Agent, dated as of
November 20, 1990, filed as
Exhibit 4 to the Registrant's
Form 10-Q for the quarter ended
November 23, 1990 and is
incorporated herein by reference.
10(v) Registrant's Promissory Note to the
Chase Manhattan Bank, N.A., dated
November 20, 1990, filed as
Exhibit 4 to the Registrant's
Form 10-K for the fiscal year ended
February 22, 1991 and is
incorporated herein by reference.
10(vi) Registrant's Promissory Note to
Chemical Bank, dated November 20,
1990, filed as Exhibit 4 to the
Registrant's Form 10-K for the
fiscal year ended February 22,
1991 and is incorporated herein by
reference.
10(vii) First Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
as Exhibit 10(viii) to the
Registrant's Form 10-K for the
fiscal year ended February 25, 1994
and is incorporated herein by
reference.
10(viii) Second Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of February 28, 1993, filed
as Exhibit 10(ix) to the
Registrant's Form 10-K for the
fiscal year ended February 24, 1995
and is incorporated herein by
reference.
10(ix) Third Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of September 15, 1994,
filed as Exhibit 10(x) to the
Registrant's Form 10-K for the
fiscal year ended February 24, 1995
and is incorporated herein by
reference.
10(x) Fourth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A. as Agent,
dated as of July 12, 1995.
10(xi) Registrant's Stock Award Plan
adopted April 7, 1993, filed as
Exhibit 10(ix) to the Registrant's
Form 10-K for the fiscal year ended
February 25, 1994 and is
incorporated herein by reference.*
10(xii) Fifth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A., as Agent,
dated as of November 20, 1995, was
filed as Exhibit 10 to the
Registrant's Form 10-QSB for the
quarter ended November 24, 1995
and is incorporated herein by
reference.
10(xiii) Form of Sixth Amendment to Registrant's
Revolving Credit Agreement with the
Chase Manhattan Bank, N.A., as Agent,
dated as of May 23, 1996.
10(xiv) Form of 1996 Warrant Agreement between
the Registrant and Chase Manhattan
Capital Corporation.
10(xv) Form of 1997 Warrant Agreement between
the Registrant and Chase Manhattan
Capital Corporation.
13 Portions of Registrant's 1996 Annual
Report to Stockholders which are
incorporated by reference into this
Form 10-KSB.
21 No material subsidiaries.
23 Consent of Grant Thornton L.L.P.
27 Financial Data Schedule
- ---------------
* Represents a management contract or
a compensatory plan or arrangement.
Exhibit 10(xiii)
SIXTH AMENDMENT
TO
CREDIT AGREEMENT
DATED NOVEMBER 20, 1990
AMENDMENT dated as of May 23, 1996 (the "Sixth
Amendment"), to the CREDIT AGREEMENT dated as of November 20,
1990, as amended from time to time (the "Credit Agreement") among
ENVIRONMENTAL TECTONICS CORPORATION (the "Borrower"), THE CHASE
MANHATTAN BANK, N.A., CHEMICAL BANK, AS AGENT FOR CHEMICAL
BANKING CORPORATION, SUCCESSOR IN INTEREST TO CHEMICAL BANK NEW
JERSEY, N.A. (collectively, the "Banks") and THE CHASE MANHATTAN
BANK, N.A., as Agent (the "Agent").
WHEREAS, the Borrowers, the Banks and the Agent are
parties to the Credit Agreement (as defined above), which Credit
Agreement has been amended by the First Amendment to Credit
Agreement, dated as of November 13, 1992, an Amendment dated as
of February 28, 1993, an Amendment dated as of September 15,
1994, a Fourth Amendment (dated as of July 12, 1995) to Credit
Agreement dated November 20, 1990, and a Fifth Amendment (dated
as of October 31, 1995) to Credit Agreement dated as of
November 20, 1990 (the "Credit Agreement" being such agreement as
so amended); and
WHEREAS, the Borrower has requested the Banks and the
Agent, to amend the Credit Agreement as provided herein, to inter
alia, facilitate the Borrower's ability to comply with the terms
and conditions of the Credit Agreement and the Banks and the
Agent have consented to such amendment on the terms and subject
to the conditions set forth herein and in the other documents
entered into in connection herewith;
NOW, THEREFORE, in consideration of the premises and
under the authority of Section 5-1103 of the New York General
Obligations Law, the Borrower, the Banks and the Agent agree as
follows:
1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to
them in the Credit Agreement.
2. Amendment. Effective as of the later of (i) the
date hereof and (ii) the satisfaction of all conditions specified
in Section 3 hereof, the Credit Agreement is amended as follows:
2.1 The terms "this Agreement," "hereunder" and
similar references in the Credit Agreement shall be deemed to
refer to the Credit Agreement as amended hereby.
2.2 Section 1.01 of the Credit Agreement is
amended by changing the definitions of "Facility Documents,"
"Interest Coverage Ratio" and "Termination Date" to read, in
their entirety, as follows:
"Facility Documents" means this Agreement, the
Notes, the Authorization Letter, the Security Agreement, the
Mortgage, the Warrant Agreements, the Warrants and all other
instruments and documents now or hereafter executed to evidence
or secure, or otherwise in connection with, the Advances or the
Letter of Credit, in each case as the same may be amended,
modified, restated and/or replaced from time to time.
"Interest Coverage Ratio" means Net Operating
Profit minus Capital Expenditures for the relevant period divided
by the sum of interest expense plus Letter of Credit fees for the
same period.
"Termination Date" means the earlier of
(i) March 31, 1997 and (ii) the date upon which the Commitments
are reduced to zero, provided, however, that if all amounts
payable under this Agreement are declared due and payable upon an
Event of Default pursuant to the provisions of Article 9, the
Termination Date shall be the date upon which such amounts are
declared due and payable.
2.3 Section 1.01 of the Credit Agreement is
further amended by adding the following definitions at the
appropriate places in the alphabetical order:
"Additional Warrant Agreement" means a Warrant
Agreement substantially in the form of Exhibit A hereto, as the
same may be amended, modified, restated and/or replaced from time
to time.
"Additional Warrants" means warrants issued
pursuant to the Additional Warrant Agreement.
"Applicable Percentage" has the meaning given to
such term in Section 6.15.
"Carl Marks" means The Carl Marks Consulting
Group, Co.
"CCMC" means Chase Manhattan Capital Corporation,
a New York Corporation.
"Sixth Amendment" means the Amendment dated as of
May 23, 1996 amending the terms of this Agreement.
"Initial Warrant Agreement" means the Warrant
Agreement dated as of May 23, 1996 between the Borrower and CMCC,
as the same may be amended, modified, restated and/or replaced
from time to time.
"Initial Warrants" means warrants issued pursuant
to the Initial Warrant Agreement.
"Monthly Project Cash Flow Report" means a monthly
report of cash flow for each project, showing actual versus
projected results, the projected results being those contained in
the budget dated as February 23, 1996 for such project previously
submitted to the Agent.
"RTAF Contract" means, the Borrower's contract
with the Royal Thai Air Force, as the same may be amended,
restated, modified and/or replaced from time to time.
"RTAF Contract Proceeds" means any amounts
received by the Borrower (or any Subsidiary or Affiliate of the
Borrower) pursuant to, or in connection with, the RTAF Contract,
including, without limitation, any amounts received in respect of
any letter of credit issued in connection with the RTAF Contract.
"RTAF Contract Shortfall" has the meaning given
such term in Section 2.08(e).
"Warrant Agreements" means, collectively, the
Initial Warrant Agreement and the Additional Warrant Agreement.
"Warrants" means warrants issued pursuant to the
Warrant Agreement.
2.4 Section 2.08(e) of the Credit Agreement is
amended by adding the following to the end thereof:
Last business day of Amount
Month of
May, 1996 $150,000
August, 1996 $150,000
November, 1996 $150,000
plus the lesser of
(i) the RTAF Contract
Proceeds received since
the date of the Sixth
Amendment and on or prior
to the last business day
of November, 1996 and
(ii) $1,200,000
February, 1997 $150,000
plus the lesser of
(i) the excess of the
RTAF Contract Proceeds
received since the date
of the Sixth Amendment
and on or prior to the
last business day of
February, 1997 over
$1,200,000 and
(ii) $300,000
Notwithstanding the foregoing, in the event that
either (x) during the period commencing on the
date of the Sixth Amendment and ending on the last
business day of November, 1996 the Borrower has
received less than $1,200,000 of RTAF Contract
Proceeds (causing the amount of the Commitment
reduction on the last business day of November,
1996 to be less than $1,350,000), or (y) during
the period commencing on the date of the Sixth
Amendment and ending on the last business day of
February, 1997, the Borrower has received less
than $1,500,000 of RTAF Contract Proceeds (causing
the amount of the Commitment reduction on the last
business day of February, 1997 to be less than
$450,000), the Commitment shall be reduced by the
amount of any RTAF Contract Proceeds received on
any date after the last business day in November,
1996, such reduction to take effect on the next
succeeding business day following each date that
such RTAF Contract Proceeds are received,
provided, however, that the aggregate amount of
all such Commitment reductions pursuant to this
sentence shall not exceed the RTAF Contract
Shortfall in effect at the time that any RTAF
Contract Proceeds are received. As used herein,
the term "RTAF Contract Shortfall" means, on or
prior to the last business day of February, 1997,
$1,200,000 minus the aggregate amount of RTAF
Contract Proceeds received on or prior to the last
business day of November, 1996 (if a positive
number) and, after the last business day of
February, 1997, $1,500,000 minus the aggregate
amount of RTAF Contract Proceeds received on or
prior to the last business day of February, 1997
(if a positive number). For purposes of this
Section 2.08(e), a "business day" means a Banking
Day.
2.5 Section 6.08 of the Credit Agreement is
amended by deleting the word "and" at the end of subsection (j)
and adding additional subsections (l) and (m) reading as follows:
(l) within 30 days after the end of each
fiscal quarter, projections of income
and cash flow and projected balance
sheet (collectively, "Projections") of
the Borrower and its Consolidated
Subsidiaries, for the next succeeding
four fiscal quarters, in each case
broken down by business segment, all in
a form reasonably satisfactory to the
Banks, such Projections to be
accompanied by a certificate of the
chief financial officer of the Borrower
to the effect that the Projections have
been prepared on the basis of sound
financial planning practice and that
such chief financial officer has no
reason to believe that they are
incorrect or misleading in any material
respect; and
(m) within 20 days after the end of August,
1996 and each calendar month thereafter,
(i) the balance sheet of the Borrower
and its Consolidated Subsidiaries,
together with statements of income and
cash flow for such month, all broken
down in the same manner as the
Projections and stating in comparative
form the respective figures for the
elapsed portion of the fiscal quarter
ending on the last day of such month and
the most recent Projections for such
quarter and (ii) Monthly Project Cash
Flow Reports for each project for the
most recently ended calendar month, such
balance sheet, statements and Monthly
Project Cash Flow Reports to be
certified (subject to normal year-end
adjustments) as to fairness of
presentation, generally accepted
accounting principals and consistency by
the chief financial officer of the
Borrower.
2.6 Article 6 is amended by adding new Sections
6.15 and 6.16 reading as follows:
Section 6.15 Delivery of Warrants. On the
Termination Date, the Borrower shall deliver
Additional Warrants to the CMCC (or such
other party as the Banks may direct)
entitling CMCC (or such other party) to
purchase shares of the Borrower's common
stock in an aggregate amount equal to the
Applicable Percentage (as defined below) of
the outstanding shares of common stock of the
Borrower (assuming exercise thereof of the
Additional Warrants, any other Warrants
previously issued, and any other warrants,
stock options, conversion rights and any
other rights to acquire or receive common
stock of the Borrower and subject to the
antidilution provisions set forth in the
Additional Warrants) at an initial exercise
price per share of common stock equal to the
average trading price of the Borrower's
common stock for the last 10 trading days
prior to the Termination Date (as such price
may be adjusted in accordance with the terms
of the Additional Warrants) from the date of
the issuance of such Additional Warrants
until 5:00 p.m. on the April 1, 2002. As
used herein, the Applicable Percentage shall
mean the percentage opposite the range set
forth in the right-hand column of the table
below which accurately states, as of the
close of business on the last Banking Day
prior to the Termination Date, the sum of (x)
the aggregate outstanding principal balance
of the Loan plus (y) the aggregate face
amount of all outstanding Letters of Credit.
Outstanding Balance on Percentage
Day prior to Termination Date
$5,000,000 or more 3%
$4,000,000-4,999,999 2%
$3,000,000-3,999,999 1%
$0-2,999,999 0%.
Section 6.16 Cooperation with Carl Marks.
Cooperate with Carl Marks in order to enable
Carl Marks to provide the Agent and the Banks
with semi-annual reports assessing the
Borrower's compliance with the
recommendations set forth in the report
prepared by Carl Marks dated October 12, 1995
(such cooperation to include the making
available of books, records, officers,
directors and independent accountants to Carl
Marks on substantially the same terms upon
which the same are to be made available to
the Agent and the Banks pursuant to Section
6.07) and pay the fees and expenses of Carl
Marks for the preparation of such semi-annual
reports, provided, the Banks agree to request
Carl Marks to submit all requests for
information to the Borrower's chief financial
officer and to use its best efforts to
minimize the cost of its review.
2.7 Section 8.02 is amended to read, in its
entirety, as follows:
Section 8.02 Minimum Tangible Net Worth The
Borrower shall maintain a Consolidated
Tangible Net Worth of not less than the
following amounts through the following
dates:
Amount Dates
$6,145,000 February 24, 1996 - May 31, 1996;
$6,266,000 June 1, 1996 - August 31, 1996;
$6,473,000 September 1, 1996 - November 30,
1996;
$6,686,000 December 1, 1996 and thereafter.
2.8 Section 8.05 is amended to read, in its
entirety, as follows:
Section 8.05 Interest Coverage Ratio The
Borrower shall maintain at all times an
Interest Coverage Ratio of not less than the
following ratio through the following dates:
Ratio Dates
1.5 February 24, 1996 - May 31, 1996
1.3 June 1, 1996 - August 31, 1996;
1.3 September 1, 1996 - November 30, 1996;
1.7 December 1, 1996 and thereafter."
2.9 Section 8.06 is amended to read, in its
entirety, as follows:
Section 8.06 Leverage Ratio The Borrower
shall maintain at all times a ratio of
Consolidated Funded Debt to Consolidated
Tangible Net Worth of not greater than the
following ratio through the following dates:
Ratio Dates
1.52 February 24, 1996 - May 31, 1996
1.45 June 1, 1996 - August 31, 1996;
1.39 September 1, 1996 - November 30, 1996;
1.25 December 1, 1996 and thereafter.
2.10 Section 11.03 is amended by adding the
following sentence to the end thereof:
Without derogation from the following, the
Borrower shall reimburse the Agent and the
Banks on demand for all reasonable costs,
expenses, and charges (including, without
limitation, fees and charges of external
legal counsel for the Agent and each Bank and
costs allocated by their respective internal
legal departments) incurred by the Agent or
the Banks in connection with the preparation,
negotiation, performance or enforcement of
the Sixth Amendment, the Warrant Agreement or
the Warrants.
3. Conditions to Effectiveness. This Sixth Amendment
shall not become effective except upon the fulfillment of each of
the conditions set forth in Sections 3.1 through 3.5 inclusive
and the Banks (or, in the case of Section 3.2, CMCC) shall have
additionally received all the documents and payments described
below, each document being in form and substance reasonably
satisfactory to the Bank and their counsel.
3.1 Receipt of Counterparts. Signed counterparts
of this Sixth Amendment from the Borrower and each of the Banks.
3.2 Initial Warrant Agreements, Initial Warrants.
Fully executed copies of the Initial Warrant Agreement, together
with Initial Warrants entitling the Banks to purchase 100,000
shares of the Borrower's common stock, at an initial exercise
price per share equal to the average trading price of the
Borrower's common stock for the last 10 trading days prior to the
date upon which all of the conditions set forth in Sections 3.1
through 3.5 inclusive have been met, from the date of the
issuance of such Initial Warrants until 5:00 p.m. on the date
that is 5 years after the date upon which all such conditions
have been met.
3.3 Resolutions. Certified copies of the
resolutions of the Board of Directors of the Borrower,
authorizing and consenting to the Sixth Amendment.
3.4 Opinion of Counsel. An opinion of counsel to
the Borrower in respect of this Sixth Amendment in form and
substance satisfactory to the Agent and the Banks.
3.5 Payment of Expenses. Payment in immediately
available funds of the costs, expenses and charges (including,
without limitation, fees and charges of external legal counsel
for the Agent and each Bank and costs allocated by their
respective internal legal departments) incurred by the Agent and
the Banks in connection with the preparation and negotiation of
the Sixth Amendment, the Warrant Agreements and the Warrants,
provided, however, that the making of payment for costs, expenses
and charges invoiced prior to the effective date of the Sixth
Amendment shall not excuse the Borrower from its obligation under
the Credit Agreement to reimburse the Agent and the Banks for
amounts invoiced subsequent to such effective date.
4. Representations and Warranties. The Borrower
represents and warrants, with respect to itself and its
subsidiaries, to the Agent and each Bank, as of the date hereof,
that:
4.1 The Borrower is indebted to the Banks, the
outstanding amount of Letters of Credit issued pursuant to the
Credit Agreement is $189,994.20 as of the date of the execution
of this Sixth Amendment and the outstanding principal amount of
the Loan is $7,313,929.14 as of the date of execution of this
Sixth Amendment, and interest is continuing to accrue on unpaid
principal, together with other fees, costs, and expenses incurred
and to be incurred by the Banks;
4.2 The Facility Documents are in full force and
effect, were duly executed by the parties hereto, constitute
legal, valid and binding agreements and obligations of the
parties thereto, are enforceable in accordance with their
respective terms against the parties thereto and are hereby
reaffirmed and ratified, as modified by this Sixth Amendment;
4.3 The execution, delivery and performance of
this Sixth Amendment are within the corporate powers of the
Borrower and have been duly authorized by all necessary corporate
action. This Sixth Amendment has been duly executed by the
Borrower and constitutes a legal, valid and binding agreement and
obligation of the Borrower, enforceable against the Borrower in
accordance with its terms;
4.4 The Borrower has, to the best of its
knowledge, no defense, counterclaim, offset, cross-claim, claim
or demand of any kind or nature whatsoever which can be asserted
to reduce or eliminate all or any part of its liability to repay
the Loan, to pay reimbursement obligations with respect to the
Letters of Credit or to pay any other amounts outstanding under
the Credit Agreement; all of which amounts (immediately prior to
the effectiveness hereof) are in default and remain due, owing
and unpaid and in any event all defenses, counterclaims, offsets,
cross-claims, claims and demands are released under Section 5.1;
4.5 The security interests and Liens granted to
the Agent for the benefit of the Banks pursuant to the Security
Agreement and the Mortgage are valid, in existence, attached,
duly perfected and not subject to any pending dispute or direct
or indirect challenge or attack or, to the knowledge of the
Borrower, any threatened dispute or direct or indirect challenge
or attack by any party other than the Borrower, and the grant of
such security interests and Liens to the Agent for the benefit of
the Banks is hereby reaffirmed;
4.6 The Borrower has no Material Subsidiaries;
4.7 Nothing but full and complete performance of
all the obligations under the Facility Documents and payment of
the Loan, reimbursement obligations with respect to all Letters
of Credit, and all other amounts payable under the Facility
Documents in full, shall (subject to the terms of the Facility
Documents) satisfy and discharge the Borrower's liability to the
Banks under the Facility Documents; and
4.8 The representations contained in Article 5 of
the Credit Agreement and Article 2 of the Security Agreement are
true and correct as of the date hereof and no Default or Event of
Default exists as of the date hereof.
5. Release and Indemnification.
5.1 The Borrower on behalf of itself and its
successors and assigns, hereby forever and irrevocably releases
the Agent and each Bank, and their respective officers,
directors, representatives, agents, attorneys, employees,
affiliates, subsidiaries, successors and assigns, from any and
all claims, demands, suits, cross-claims, causes of action,
assertions, liabilities, debts, defenses, counterclaims or
offsets of any kind or nature whatsoever existing on the date
hereof, whether known or unknown, pertaining to, connected with
or arising out of the Credit Agreement, any amendment thereto
(including, without limitation, this Sixth Amendment), the
transactions described in the Credit Agreement and/or any
amendment thereto (including, without limitation, this Sixth
Amendment), the Facility Documents, or any document, instrument
or agreement entered into in connection therewith or herewith or
referred to therein or herein or any other obligation of the
Borrower to the Agent or any Bank or any of their respective
affiliates (collectively, "Claims").
5.2 The Borrower further agrees to defend,
protect, indemnify, and hold harmless the Agent, the Banks, each
of their Affiliates and each of the respective officers,
directors, employees, agents, attorneys and consultants
(collectively called the "Indemnitees") of the Agent, the Banks
and their Affiliates from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial
proceeding, whether or not such Indemnitees shall be designated a
party thereto), imposed on, incurred by, or asserted against such
Indemnitees, whether direct, indirect, or consequential and
whether based on any federal or state laws or other statutory
regulations, including, without limitation, securities and
commercial laws and regulations, under common law or at equity,
or on contract or otherwise, including any liability and costs
under federal, state or local environmental, health or safety
laws, regulations, or common law principles, arising from or in
connection with any Claims.
5.3 The Borrower further agrees that in the event
that the Borrower is the subject of any insolvency, bankruptcy,
receivership, dissolution, reorganization or similar proceeding,
federal or state, voluntary or involuntary, under any present or
future law or act, the Agent and the Banks shall be entitled to
the automatic and absolute lifting of any automatic stay as to
the enforcement of their rights and remedies under the Facility
Documents, including, specifically, but not limited to, the stay
imposed by Section 362 of the United States Bankruptcy Code, as
amended, and the Borrower hereby consents to the immediate
lifting of any such automatic stay, and will not contest any
motion by the Agent or any of the Banks to lift such stay.
5.4 The Borrower acknowledges that it has been
advised by counsel with respect to the Credit Agreement
(including all prior amendments) and this Sixth Amendment and the
release and indemnity contained herein.
6. Waiver of Certain Defaults. The Banks and the
Agent hereby waive any non-compliance by the Borrower prior to
November 24, 1995 with Sections 8.01 and 8.05 of the Credit
Agreement. This waiver shall not extend to any failure of the
Borrower to comply with such Sections at any time on or after
November 24, 1995. The Banks and the Agent also hereby waive any
non-compliance by the Borrower prior to February 24, 1996 with
Sections 8.02 and 8.05 of the Credit Agreement. This waiver
shall not extend to any failure of the Borrower to comply with
such Sections at any time on or after February 24, 1995.
7. Effect on Loan Documents.
7.1 Except as expressly amended above, the terms
and conditions of the Credit Agreement and the other Facility
Documents shall remain in full force and in effect and are hereby
ratified and confirmed. Although counsel for the Agent has
prepared the Credit Agreement and this Sixth Amendment, the
Borrower waives any right to require that any ambiguity or
question about the terms thereof or hereof be construed against
the Agent or the Banks.
7.2 Except as expressly provided in this Sixth
Amendment, nothing contained herein shall constitute a waiver,
release or modification of any Event of Default or of the Agent's
or the Banks' rights and remedies under, or any of the terms and
conditions of, the Facility Documents. The Agent and the Banks
expressly reserve all of their rights and remedies under the
Facility Documents.
7.3 GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS-OF-LAW RULES
WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER
JURISDICTION.
8. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY
WAIVE ANY RIGHT TO A JURY TRIAL FOR ANY CONTROVERSY ARISING OUT
OF OR PERTAINING TO THIS SIXTH AMENDMENT, THE FACILITY DOCUMENTS,
OR ANY TRANSACTION DESCRIBED HEREIN OR THEREIN.
9. Headings. Section headings in this Sixth
Amendment are included herein for convenience of reference only
and shall not constitute a part of this Sixth Amendment for any
other purpose.
10. Execution in Counterparts. This Sixth Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
instrument. Execution and delivery of this Sixth Amendment by
facsimile shall be as effective as physical delivery of a
manually executed counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Sixth Amendment to be duly executed as of the day and year first
above written.
ENVIRONMENTAL TECTONICS CORPORATION
By:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, N.A., as
Agent
By:________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, N.A.
By:________________________________
Name:
Title:
CHEMICAL BANK, AS AGENT FOR
CHEMICAL BANKING CORPORATION,
SUCCESSOR IN INTEREST TO CHEMICAL
BANK NEW JERSEY, N.A.
By:________________________________
Name:
Title:
WARRANT AGREEMENT Exhibit 10(xiv)
WARRANT AGREEMENT dated as of May , 1996, between
ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania corporation
(the "Company"), and CHASE MANHATTAN CAPITAL CORPORATION, a New
York corporation ("CMCC").
The Company proposes to issue to CMCC, and CMCC
proposes to acquire from the Company, Warrants (as hereinafter
defined) providing for the purchase of Stock Units (as
hereinafter defined) in the manner hereinafter provided.
Accordingly, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. Definitions. As used herein:
"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or
under common control with such Person. As used in this
Agreement, "control" (including, with correlative meanings,
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise). For purposes of this
Agreement, CMCC shall not be deemed an Affiliate of the Company.
"Business Day" shall mean any day except a Saturday, a
Sunday or a day on which commercial banks in the State of New
York are permitted or required by law to close.
"CMCC" shall have the meaning assigned to such term at
the head of this Agreement.
"Credit Agreement" shall mean the Credit Agreement
dated as of November 20, 1990, as amended from time to time (the
"Credit Agreement") among the Company, the Chase Manhattan Bank,
N.A., Chemical Bank, as agent for Chemical Banking Corporation,
successor in interest to Chemical Bank New Jersey, N.A. and the
Chase Manhattan Bank, N.A., as Agent.
"Commission" shall mean the Securities and Exchange
Commission or any other similar or successor agency of the
Federal government administering the Securities Act.
"Common Stock" shall mean the Company's authorized
Common Stock, $.10 par value per share, irrespective of class
unless otherwise specified, as constituted on the date of
original issuance of the Warrants, and any stock into which such
Common Stock may thereafter be converted or changed, and also
shall include any other stock of the Company of any other class,
which is not preferred as to dividends or assets over any class
of stock of the Company.
"Company" shall have the meaning assigned to such term
at the head of this Agreement.
"Sixth Amendment" shall mean the Amendment dated as of
May , 1996 amending the terms of the Credit Agreement.
"Holder" shall mean any Person who acquires any
Securities or Warrant Stock pursuant to the provisions of this
Agreement.
"include" and "including" shall be construed as if
followed by the phrase ", without being limited to,".
"Lien" shall mean, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset. For purposes of this
Agreement, the Company shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such
asset.
"Market Price" per share of Common Stock, shall be, for
any Business Day, if the Common Stock is traded on a national
securities exchange, its last sale price on the next preceding
Business Day or, if there was no sale on that day, the last sale
price on the next preceding Business Day on which there was a
sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan or, if the Common Stock is not
then eligible for reporting over such system, its last sale price
on the next preceding Business Day on such national securities
exchange or, if there was no sale on that day, on the next
preceding Business Day on which there was a sale on such national
securities exchange or, if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not
then eligible for reporting over the Consolidated Last Sale
Reporting System of the CTA Plan, but the Common Stock is quoted
on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), the last sale price reported on
NASDAQ on the next preceding Business Day or, if the Common Stock
is an issue for which last sale prices are not reported on
NASDAQ, the closing bid quotation on such day, but, in each of
the next preceding two cases, if the relevant NASDAQ price or
quotation did not exist on such day, then the price or quotation
on the next preceding Business Day in which there was such a
price or quotation, but if the Common Stock is not reported or
quoted on NASDAQ, the highest bid quotation as quoted in any of
The Wall Street Journal, the National Quotation Bureau pink
sheets, the Salomon Brothers quotation sheets, quotation sheets
of registered marketmakers and, if necessary, dealers' telephone
quotations. If the Market Price per share of Common Stock cannot
be ascertained by any of the foregoing methods, the Market Price
per share of Common Stock shall be deemed to be the net book
value per share of Nonpreferred Stock, determined in accordance
with generally accepted accounting principles consistently
applied.
"Notice" shall have the meaning assigned to such term
in Section 5.7.
"Person" shall mean any individual, corporation,
partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Proposed Sale" shall have the meaning assigned to such
term in Section 5.15.
"Registration Date" shall mean the date upon which the
Sixth Amendment becomes effective.
"Registration Statement" shall have the meaning
assigned to such term in Section 4.6.
"Rule 144" shall mean Rule 144 promulgated by the
Commission (or any successor or similar rule) under the
Securities Act.
"Rule 144A" shall mean Rule 144A promulgated by the
Commission (or any successor or similar rule) under the
Securities Act.
"Security" and "Securities" shall have the respective
meanings assigned to such terms in Section 2.2(a).
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor or similar Federal statute, and the
rules and regulations of the Commission thereunder.
"Selling Warrantholder" shall have the meaning assigned
to such term in Section 5.15.
"Stockholder" shall mean any Person who directly or
indirectly owns any shares of Common Stock.
"Stock Unit" shall have the meaning assigned to such
term in the form of Warrant Certificate attached as Annex I to
this Agreement.
"Subject Warrants" shall have the meaning assigned to
such term in Section 5.15.
"Subsidiary" shall mean, with respect to any Person,
any entity which is controlled by such Person.
"transfer" (including, with correlative meanings,
"transferable", "transferred" and "transferring") shall mean any
disposition of any Securities, or of any interest in any thereof,
which would constitute an offer or sale thereof within the
meaning of the Securities Act.
"Warrant Certificate" shall mean a certificate
evidencing the Warrants, which shall be in substantially the form
attached as Annex 1 to this Agreement.
"Warrants" shall have the meaning assigned to such term
in Section 2.1.
"Warrant Stock" shall mean the Stock Units purchased or
purchasable by the Holders of Warrants upon the exercise thereof.
"Warrantholder Notice" shall have the meaning assigned
to such term in Section 5.15.
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
Section 2.1. Authorization and Issuance of Shares and
Warrants. The Company has authorized: (a) the issue of one or
more Warrant Certificates evidencing the right to purchase, in
the aggregate, 100,000 Stock Units (such Warrant Certificates,
together with the rights to purchase Stock Units evidenced
thereby, herein sometimes called the "Warrants") for issuance to
CMCC pursuant to this Agreement; and (b) the issue of such number
of shares of Common Stock as shall permit the compliance by the
Company with its obligations to issue Common Stock pursuant to
the Warrants.
Section 2.2. The Closing. (a) On the date hereof, the
Company shall deliver to CMCC, against payment by CMCC to the
Company of the purchase price of $100, one or more Warrant
Certificates for 100,000 Warrants, each Warrant Certificate
registered in the name of CMCC. The number of Stock Units
covered by the Warrants issued under this Agreement and the price
at which a Stock Unit may be purchased upon exercise of the
Warrants shall each be subject to adjustment as provided in the
Warrant Certificate. The Warrants issued to CMCC pursuant to
this Agreement and the Warrant Certificates from time to time
evidencing the Warrants are herein sometimes individually called
a "Security" and collectively called the "Securities".
Until such time as the Registration Statement first is
declared effective, the terms "Security" and "Securities" also
shall include the Warrant Stock.
(b) The obligation of CMCC to consummate this
Agreement and the transactions contemplated hereby are subject to
CMCC having received: (i) Small Business Administration Forms 480
(relating to size status) and 652 (relating to compliance with
nondiscrimination rules), duly completed by the Company and in
sufficient counterparts to satisfy all filing and record
retention requirements set forth in the regulations issued by the
Small Business Administration under the Small Business Investment
Act of 1958, as amended; and (ii) a legal opinion from counsel
reasonably satisfactory to CMCC, which shall be in substantially
the form attached as Annex 2 to this Agreement.
Section 2.3. Purchase for CMCC's Account. CMCC
represents and warrants to the Company that CMCC is purchasing
the Securities for its own account, with no present intention of
distributing the Securities or any part thereof, and that CMCC is
prepared to bear the economic risk of retaining the Securities
for an indefinite period, all without prejudice, however, to the
right of CMCC at any time, in accordance with this Agreement,
lawfully to transfer or otherwise to dispose of all or any part
of the Securities held by it. It is understood that, in making
the representations set forth in Article 3, the Company is
relying, to the extent applicable, upon the representations and
warranties of CMCC contained in this Section 2.3.
Section 2.4. Securities Act Compliance. In reliance
upon the representations and warranties of CMCC in Section 2.3,
the Company has not registered or qualified any of the Securities
under the Securities Act or any applicable state securities laws
and CMCC agrees that it shall not offer or transfer any of the
Securities without registration or qualification under the
Securities Act or any applicable state securities laws or the
availability of an exemption therefrom.
Section 2.5. Expenses. The Company shall pay all
expenses relating to the preparation of this Agreement and the
Securities (including the reasonable fees and expenses of outside
counsel to CMCC), the cost of printing the Warrant Certificates
and the Warrant Stock, and all expenses relating to any
amendments, waivers or consents under this Agreement or the
Securities (including the reasonable fees and expenses of outside
counsel to the Holders). In addition, all expenses incurred in
connection with any registration of the Warrant Stock under this
Agreement (including the Registration Statement) shall be paid by
the Company, including (i) printing and engraving expenses, (ii)
fees and disbursements of counsel for the Company, (iii) fees of
the National Association of Securities Dealers, Inc. (or such
other national securities association or national securities
exchange, as the case may be), in connection with its review of
any offering contemplated in any registration statement, (iv)
fees of the Commission, (v) expenses of any special audits to
which the Company shall agree or which shall be necessary to
comply with governmental requirements in connection with any such
registration, and (vi) reasonable fees and expenses of counsel to
the Holders.
ARTICLE 3. WARRANTIES AND REPRESENTATIONS
The Company represents and warrants to CMCC that as of
the date hereof:
Section 3.1. Corporate Existence. The Company: (i) is
a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania; (ii)
has the corporate power and authority to execute, deliver, issue
and perform its obligations under and in respect of this
Agreement and the Securities; (iii) has the corporate power and
authority to own its property and assets and to transact the
business in which it is engaged or presently proposes to engage;
and (iv) has duly qualified and is authorized to do business and
is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which
the nature of its business requires it to be so qualified, except
to the extent that the failure to be so qualified, authorized or
in good standing would not have a material adverse effect on the
properties, business, operations, financial condition,
liabilities or capitalization of the Company.
Section 3.2. Corporate Authority. All corporate
action on the part of the Company and its officers, directors and
shareholders necessary for (i) the authorization, execution,
delivery and performance of this Agreement by the Company, (ii)
the authorization, execution, issuance, delivery and performance
of the Warrants and the Warrant Certificates by the Company, and
(iii) the authorization, delivery and issuance of the Warrant
Stock as provided in the Warrant Certificate, has been taken on
or prior to the date hereof.
Section 3.3. Due Execution and Enforceability. This
Agreement has been duly executed and delivered and constitutes a
valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general
applicability affecting the enforcement of creditors' rights, and
(ii) the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law). When issued and delivered pursuant to this
Agreement, the Warrants shall have been duly executed, issued and
delivered and shall constitute valid and legally binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws of general applicability affecting the
enforcement of creditors' rights, and (ii) the application of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
Section 3.4. Valid Issuance. The Warrant Stock
issuable upon exercise of the Warrants pursuant to the terms
hereof and of the Securities will be duly and validly authorized
and reserved for issuance, and, upon issuance in accordance with
the provisions of this Agreement and the Securities, shall be
duly and validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, and free
of any Liens of any nature whatsoever. None of the Warrant Stock
shall be issued in violation of any preemptive rights of any
Stockholder.
Section 3.5. Outstanding Securities. Upon the
issuance of the Warrants under this Agreement, the total number
of shares of capital stock which the Company has authority to
issue is 10,000,000 shares of Common Stock. The Warrants are
being issued simultaneously with the execution and delivery
hereof. The total number of shares of Common Stock issued and
outstanding is 2,928,944 shares. Upon the issuance of the
Warrants under this Agreement, the Company shall not have
outstanding any stock or securities convertible or exercisable
into or exchangeable for any shares of capital stock nor shall it
have outstanding any warrants or rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any
capital stock or stock or securities convertible or exercisable
into or exchangeable for any capital stock other than (a) the
Warrants to be issued pursuant to this Agreement, (b) options
issued in respect of Common Stock pursuant to the Company's 1979
Incentive Stock Option Plan, (c) rights to purchase Common Stock
pursuant to the Company's Employee Stock Purchase Plan, and (d)
options issued and to be issued in respect of Common Stock
pursuant to the Company's 1988 Incentive Stock Option Plan.
Section 3.6. No Breach. None of the execution and
delivery of this Agreement, or the issue and sale of the
Securities or the Warrant Stock, or the consummation of the
transactions herein or therein contemplated, or the compliance
with the terms and provisions hereof and thereof, will conflict
with or result in a breach of, or require any consent under, the
charter or by-laws of the Company, or any applicable law, rule or
regulation, or any order, writ, injunction or decree of any court
or governmental authority or agency, or any agreement or
instrument to which the Company is a party or by which it or its
property is bound or to which it or its property is subject, or
constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the
revenues or property of the Company pursuant to the terms of any
such agreement or instrument.
Section 3.7. Approvals. All consents, approvals,
orders or authorizations of, or registrations, qualifications,
designations, declarations or filings with, any federal, state or
local governmental authority on the part of the Company required
in connection with the consummation of the transactions
contemplated herein and the Securities (assuming without
independent investigation the accuracy of CMCC's representations
in Section 2.3 hereof) have been obtained and remain in full
force and effect on the date hereof, except for any of the
foregoing that may be required by virtue of CMCC's status as a
small business investment company licensed under the Small
Business Investment Act of 1958, as amended.
Section 3.8. Governmental Consent. Neither the nature
of the Company or of any Subsidiary of the Company, or of any of
their respective businesses or properties, nor any relationship
between the Company or any Subsidiary of the Company and any
other Person, nor any circumstance in connection with the offer,
issue or sale of the Securities and the Warrant Stock is such as
to require consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on
the part of the Company as a condition to the execution and
delivery of this Agreement or the execution and filing of any
certificate of amendment of the charter of the Company required
in connection with the authorization, sale and/or issuance of
Warrant Stock or the authorization, offer, issue or sale of the
Securities.
Section 3.9. Private Offering. (a) None of the Company
or First New York Capital, Inc. (the only Person authorized or
employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Securities or any
similar securities of the Company) has offered any of the
Securities or any similar securities of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, any
prospective purchaser, other than CMCC. The Company agrees that
neither the Company nor any Person acting on its behalf has
offered or will offer the Securities or any part thereof or any
similar securities for issue or sale to, or has solicited or will
solicit any offer to acquire any of the same from, any Person so
as to bring the issuance and sale of the Securities within (i)
the registration and prospectus delivery requirements of the
Securities Act, and (ii) the registration and qualification
requirements of applicable state securities laws.
(b) Assuming, without independent investigation, the
accuracy of CMCC's representation in Section 2.3, all stock and
securities of the Company heretofore issued and sold by the
Company were issued and sold in accordance with, or were exempt
from, (i) the registration and prospectus delivery requirements
of the Securities Act, and (ii) the registration and
qualification requirements of applicable state securities laws.
Section 3.10. Small Business Concern. The Company is
a "small business concern" (within the meaning of 15 U.S.C.
Section 684 and the regulations of the Small Business
Administration promulgated thereunder) and meets the size
eligibility criteria set forth at 13 C.F.R. Section 121.301(c).
Section 3.11. Investment Company Act. The Company is
not an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment
Company Act of 1940, as amended.
Section 3.12. Litigation. There is no action, suit,
proceeding or investigation pending or, to the best of its
knowledge after due inquiry, threatened against the Company or
any of its employees before any court or administrative agency
seeking to enjoin the transactions contemplated by this Agreement
or the Warrant Certificates.
ARTICLE 4. RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION AND LISTING OF WARRANT STOCK; ETC.
Section 4.1. Transfers to Affiliates, Prior Holders,
Banks, etc. (a) The Securities shall not be transferable except
upon the conditions specified in this Article 4, which conditions
are intended to insure compliance with the provisions of the
Securities-Act and applicable state securities laws in respect of
the transfer of.any Securities.
(b) Notwithstanding any other provision of this
Agreement or the Securities (but, in the case of CMCC, subject to
the provisions of Section 5.15), any Holder shall have the right
to transfer any securities:
(i) to any Affiliate of such Holder;
(ii) to another Person who, prior to such transfer, is
a Holder; or
(iii) in the case of any Holder which is a bank, a
bank holding company or a Subsidiary of a bank or a bank
holding company, to a third party, if, in the reasoned
opinion of counsel to such Holder, such transfer is required
to be effected by such Holder because (A) its investment in
Securities may exceed any limitation to which it is subject,
or is otherwise not permitted, under any law, rule,
regulation or other requirement of any governmental
authority, or (B) restrictions are imposed on such Holder by
any such law, rule, regulation or other requirement which,
in the reasoned opinion of such counsel to such Holder, make
it illegal to continue to hold such Securities,
in each case free of the restrictions imposed by this Article 4
other than the requirement as to the legending of the
certificates for the Securities specified in Section 4.5;
provided, however, that such transfer shall be made in compliance
with the Securities Act and all applicable state securities laws.
For purposes of clause (iii) of this Section 4.1(b), a reasoned
opinion of counsel (which is based on facts and circumstances
deemed appropriate by such counsel) to the effect that such
transfer is required shall be conclusive. If the circumstances
described in clause (iii) above arise, the Company shall use its
best efforts to assist the Holder in question to identify a
transferee willing and able to purchase the Securities. Each
transferee under this Section 4.1(b) shall be subject to the same
transfer restrictions imposed on Holders by this Agreement.
Section 4.2. Transfers of Securities Pursuant to
Registration Statements, Rule 144, Rule 144A, Etc.
Notwithstanding any other provision of this Agreement or the
Securities, the Securities may be offered or sold by the Holder
thereof pursuant to (i) an effective registration statement under
the Securities Act and in compliance with applicable state
securities laws, or (ii) to the extent applicable, Rule 144 or
Rule 144A.
Section 4.3. Notice of Certain Transfers. If any
Holder of any Security desires to transfer such Security other
than pursuant to an effective registration statement under the
Securities Act, such Holder shall deliver to the Company a notice
with respect to the proposed transfer, together with an opinion
of counsel reasonably satisfactory to the Company, to the effect
that an exemption from registration under the Securities Act is
available and that the proposed transfer would comply with
applicable securities laws.
Section 4.4. Rule 144; Rule 144A. (a) During any
period in which the Company is required to file with the
Commission information, documents and other reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (or any similar or successor provisions), in
order to permit the Holders of Securities to sell the same, if
they so desire, pursuant to Rule 144, the Company: (i) shall
comply with all rules and regulations of the Commission
applicable in connection with the use of Rule 144, including the
timely filing of all reports with the Commission; (ii) shall
furnish to such Holders forthwith upon request a written
statement by the Company as to such compliance with such rules
and regulations; (iii) shall take such other action as any such
Holder may reasonably request in connection with the use of Rule
144; and (iv) shall cause any restrictive legends to be removed
and any transfer restrictions to be rescinded with respect to any
sale of Securities which is exempt from registration under the
Securities Act pursuant to Rule 144.
(b) Each Holder of Securities and each prospective
holder of Securities who may consider acquiring Securities in
reliance upon Rule 144A shall have the right to request from the
Company, and the Company will provide upon request, such
information regarding the Company and its business, financial
results, assets and properties, if any, as is at the time
required to be made available by the Company under Rule 144A so
as to enable such Holder to transfer Securities to such
prospective holder in reliance upon Rule 144A.
Section 4.5. Restrictive Legend. (a) Unless and until
otherwise permitted by this Article 4, each Warrant Certificate
shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE WARRANTS OF ENVIRONMENTAL TECTONICS CORPORATION
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES OF
COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS, OR (ii) TO THE EXTENT APPLICABLE, RULE 144 OR RULE
144A UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT IS AVAILABLE. FURTHER, THIS WARRANT CERTIFICATE
AND THE WARRANTS EVIDENCED HEREBY MAY NOT BE TRANSFERRED IN
VIOLATION OF THE PROVISIONS OF SECTION 7 HEREOF. THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY
NOT BE ISSUED OR TRANSFERRED IN VIOLATION OF THE PROVISIONS
OF SECTION 7 HEREOF."
(b) Unless and until otherwise permitted by this
Article 4, each share of Warrant Stock shall be stamped or
otherwise imprinted with a legend in substantially the following
form:
"THE SECURITY OF ENVIRONMENTAL TECTONICS CORPORATION
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR (ii) TO THE EXTENT
APPLICABLE, RULE 144 OR RULE 144A UNDER SUCH ACT (OR ANY
SUCCESSOR OR SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE. THE SECURITY REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED IN VIOLATION OF THE PROVISIONS OF SECTION
7 OF THAT CERTAIN WARRANT CERTIFICATE, DATED [MAY , 1996],
ISSUED BY ENVIRONMENTAL TECTONICS CORPORATION."
Section 4.6. Registration and Listing on Securities
Exchanges. (a) Not later than 30 days following the occurrence
of the Registration Date, the Company shall file the Registration
Statement with the Commission to register the Warrant Stock and
shall use its best efforts to cause such Registration Statement
to be declared effective within 20 days after the date of filing
of the Registration Statement. Without limiting the Company's
obligations set forth in the next preceding sentence, if,
notwithstanding the use of such best efforts, the Registration
Statement is not declared effective within such 20-day period,
the Company will continue to use its best efforts to have the
Registration Statement declared effective promptly after the end
of such 20-day period. The Company shall use its best efforts to
keep the Registration Statement effective until the earlier of
(x) the latest date upon which any of the Warrants may be
exercised, provided, however, in the event that any Holder has
requested that the Registration Statement relate to transfers of
Warrant Stock by such Holder to other Persons, such date will be
extended, to the extent necessary, to cause the Registration
Statement to remain effective until the end of three years after
the last exercise of Warrants by such Holder and (y) such date as
all of the Holders indicate that they no longer wish the
Registration Statement to remain effective (the period from the
Registration Date until the earlier of the dates set forth in the
foregoing clauses (x) and (y) being the "Registration Period").
The "Registration Statement" means the registration statement
(including each prospectus and prospectus supplement included
therein or filed with respect thereto, in each case including all
material incorporated by reference therein) under the Securities
Act (and any amendments thereof and supplements thereto) relating
to the issuance of the Warrant Stock by the Company to the
Holders upon exercise of any of the Warrants and, to the extent
requested by any Holder, to any transaction pursuant to which
Warrant Stock may be transferred by such Holder to other Persons.
The Registration Statement: (i) shall comply as to form
in all material respects with the requirements of the Securities
Act and all the rules and regulations of the Commission
thereunder; and (ii) shall not contain any untrue statement of a
material fact or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading. If at any time during the Registration Period or
when a prospectus relating to Warrant Stock is required to be
delivered under the Securities Act or the Blue Sky or securities
laws of any applicable jurisdiction in the United States, any
event occurs as a result of which the Registration Statement or
any portion thereof (including any prospectus) relating to any
Warrant Stock as then amended or supplemented would (or the
Company becomes aware that such Registration Statement or portion
thereof does) include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend
or supplement the Registration Statement or any portion thereof
(including any prospectus) to comply with the Securities Act or
any such Blue Sky or securities laws, the Company promptly shall
notify the Holders and shall as soon as practicable prepare and
file with the Commission an amendment or supplement which will
correct such statement or omission or which will effect such
compliance. Upon request by any Holder or any managing
underwriter, the Company shall incorporate in a prospectus
supplement or post-effective amendment, to be filed as promptly
as practicable, such information as such Holder or such managing
underwriter reasonably requests to be included therein with
respect to such Holder, the underwriters, the number of shares of
Warrant Stock being sold to any underwriter(s), the purchase
price being paid therefor, and any other terms of the offering,
or other sales of Warrant Stock.
The form of the Registration Statement and all matters
relating thereto shall be reasonably satisfactory to counsel
satisfactory to the Holders. The Holders shall use their best
efforts to cause their counsel to conduct such counsel's review
of the matters referred to in the next preceding sentence on a
timely basis so as to enable the Company to fulfill its
obligations provided in the first sentence of this Section
4.6(a).
(b) The Company shall use its best efforts to ensure
that the Warrant Stock is, simultaneously with the issuance
thereof or as soon as practicable thereafter, and at all times
thereafter, listed for trading upon such national securities
exchange or exchanges or upon such national securities
association or associations as the Common Stock is then listed.
Section 4.7. Termination of Restrictions.
Notwithstanding the foregoing provisions of this Article 4, the
restrictions imposed by this Article 4 upon the transferability
of the Warrants and the Warrant Stock shall cease and terminate
as to any particular Warrant or Warrant Stock when such Warrant
or Warrant Stock shall have been effectively registered under the
Securities Act and sold by the Holder thereof in accordance with
such registration or sold under Rule 144 or Rule 144A. Whenever
the restrictions imposed by this Article 4 shall terminate as to
any particular Warrant or Warrant Stock, the Holder thereof shall
be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend otherwise required
to be borne thereby.
ARTICLE 5. MISCELLANEOUS
Section 5.1. Delivery Expenses. If any Holder
surrenders any Security or Warrant Stock to the Company or a
transfer agent of the Company for exchange for instruments of
other denominations or registered in another name or names, the
Company shall cause such new instruments to be issued and shall
pay the cost of delivering to or from the office of such Holder
from or to the Company or its transfer agent, duly insured, the
surrendered instrument and any new instruments issued in
substitution or replacement for the surrendered instrument.
Section 5.2. Taxes. The Company shall pay all taxes
(other than Federal, state or local income taxes) which may be
payable in connection with the execution and delivery of this
Agreement or the issuance and sale of the Securities hereunder or
the issuance and delivery of the Warrant Stock or in connection
with any amendments, waivers or consents under this Agreement or
the Securities and shall save each Holder harmless without
limitation as to time against any and all liabilities with
respect to all such taxes. The obligations of the Company under
this Section 5.2 shall survive any redemption, repurchase or
acquisition of Securities or Warrant Stock by the Company and the
termination of this Agreement.
Section 5.3. Replacement of Instruments. Upon receipt
by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of
any Security or Warrant Stock, and
(a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (provided that, if
the owner of the same is a bank or an institutional lender
or investor, its own agreement of indemnity shall be deemed
to be satisfactory), or
(b) in the case of mutilation, upon surrender or
cancellation thereof,
the Company, at its expense, shall execute, register and deliver,
in lieu thereof, a new Security or instrument for (or covering
the purchase of) an equal number of Warrants or Warrant Stock.
Section 5.4. Information, etc. The Company shall
deliver to each Holder one copy of each report mailed to its
security holders and each annual report on Form 10-K (or any
successor or similar form) and quarterly report on Form 10-Q (or
any successor or similar form) at or about the time such
documents become publicly available.
Section 5.5. Inspection. The Company shall afford any
Holder of at least 25% of the Warrant Stock or its agents,
access, at reasonable times, upon reasonable prior notice, to
inspect the books and records of the Company and to discuss with
management the business and affairs of the Company.
Section 5.6. Certain Restrictions. The Company shall
not at any time enter into an agreement or instrument restricting
its ability to perform its obligations under this Agreement or
under the Securities.
Section 5.7. Notices.
(a) All notices, waivers, requests and other
communications (each a "Notice") under this Agreement shall be in
writing and shall be personally delivered, sent by courier
guaranteeing overnight delivery or sent by registered or
certified mail, return receipt requested, postage prepaid,
(i) if to the Company:
Environmental Tectonics Corporation
County Line Industrial Park
Southampton, Pennsylvania 18966
Attention: William F. Mitchell, President,
(ii) if to CMCC:
Chase Manhattan Capital Corporation]
1 Chase Manhattan Plaza
New York, New York 10081
Attention: [ ],
(iii) if to any other Person who is the registered
Holder of any Securities or Warrant Stock, to the address of
such Holder as it appears in the stock or warrant ledger of
the Company; or, in the case of any Holder, at such other
address as such Holder may designate in a Notice to the
Company; or, in the case of the Company, at such other
address as the Company may designate in a Notice to CMCC and
all other Holders of Securities and Warrant Stock at the
time outstanding.
(b) Any Notice shall be deemed to have been duly given
if personally delivered, on the date delivered, (ii) if sent by
courier guaranteeing overnight delivery, on the date delivered,
or (iii) if sent by registered or certified mail, five Business
Days after being deposited in the mail, in each case given or
addressed as aforesaid.
Section 5.8. Survival. (a) All warranties,
representations and covenants made by the Company herein or in
any certificate or other instrument delivered by it or on its
behalf under this Agreement (including any Warrant Certificate)
shall be considered to have been relied upon by CMCC and shall
survive the issuance of the Securities or the Warrant Stock
regardless of the investigation made by or on behalf of CMCC.
All statements in any such certificate or other instrument so
delivered shall constitute representations and warranties by the
Company hereunder.
(b) All representations, warranties and covenants made
by CMCC herein shall be considered to have been relied upon by
the Company and shall survive the issuance to CMCC of the
Securities or the Warrant Stock regardless of any investigation
made by the Company or on its behalf.
Section 5.9. Successors and Assigns. Except as
otherwise expressly provided herein, this Agreement shall inure
to the benefit of and be binding upon the successors, legal
representatives and assigns of each of the parties.
Section 5.10. Amendment and Waiver. This Agreement
may be amended, and the observance of any term of this Agreement
may be waived, but only with the consent of the Company and the
Holders of at least 67% of the Warrant Stock; provided, however,
that no such amendment or waiver shall, without the consent of
all Holders of the Warrant Stock at the time outstanding, amend
this Section 5.10.
Section 5.11. Counterparts. This Agreement may be
signed by the parties with counterpart signature pages or in
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
Section 5.12. Severability. If any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
Section 5.13. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF NEW YORK.
Section 5.14. Acknowledgment by the Company. The
Company hereby acknowledges that this Agreement provides for the
extension to the Company by CMCC of substantial financial
accommodations and benefits, and constitutes a contract to issue
a security of the Company within the meaning of Section 365 of
Title 11 of the United States Code.
Section 5.15. Right of First Offer. (a) If CMCC
desires to sell or otherwise transfer (the "Selling
Warrantholder") any of its Warrants (the "Proposed Sale"), the
Selling Warrantholder shall first give a written notice (the
"Warrantholder Notice") of such desire to the Company. The
Warrantholder Notice shall specify (i) the number of Warrants
proposed to be sold or transferred (the "Subject Warrants"), (ii)
the aggregate consideration to be asked therefor, (iii) the date
of the closing of the Proposed Sale (which date shall be more
than 10 days following the date the Warrantholder Notice is given
to the Company), and (iv) the other terms and conditions of the
Proposed Sale.
The Company shall have the right to purchase all, but
not less than all, of the Subject Warrants for the aggregate
consideration set forth in the Warrantholder Notice and on the
other terms and conditions of the Proposed Sale specified in the
Warrantholder Notice by giving notice to the Selling
Warrantholder within 10 days after receipt by the Company of the
Warrantholder Notice.
If the Company fails to elect to purchase all the
Subject Warrants within the 10-day period specified in the
foregoing paragraph (or if the Company timely elects to purchase
all the Subject Warrants and the Company fails to close on the
date of the closing of the Proposed Sale set forth in the
Warrantholder Notice), then the Selling Warrantholder (A) shall
be under no obligation to sell any Subject Warrants to the
Company unless the Selling Warrantholder so elects, and (B) shall
have the right to sell, within a period of six months after
receipt by the Company of the Warrantholder Notice, all or any of
the Subject Warrants at a price per share not less than the
consideration set forth in the Warrantholder Notice. Any
Warrants not sold pursuant to the next preceding sentence prior
to the expiration of the six-month period referred to therein
shall once again be subject to the right of first offer set forth
in this Section 5.15.
(b) Notwithstanding anything to the contrary contained
in this Section 5.15:
(i) Each of CMCC and its Affiliates shall have the
right at any time to transfer any of or all its Warrants to
CMCC or any Affiliate of CMCC, as the case may be; provided,
however, that at the time of such transfer each such
transferee agrees in writing to be bound by all the
provisions of this Section 5.15.
(ii) If, in the reasoned opinion of counsel to CMCC or
an Affiliate of CMCC, as the case may be, a transfer of any
Warrants is required to be effected by CMCC or an Affiliate
of CMCC, as the case may be, because (A) its investment in
Securities may exceed any limitation to which it is subject,
or is otherwise not permitted, under any law, rule,
regulation or other requirement of any governmental
authority, or (B) restrictions are imposed on CMCC or such
Affiliate of CMCC, as the case may be, by any such law,
rule, regulation or other requirement which, in the reasoned
opinion of such counsel to CMCC or such Affiliate of CMCC,
as the case may be, make it illegal to continue to hold such
Warrants, then the 10-day period referred to in each of the
second and third paragraphs of Section 5.15(a) shall be
reduced to a three Business Day period.
For purposes of clause (ii) of this Section 5.15(b), a reasoned
opinion of counsel (which is based on facts and circumstances
deemed appropriate by such counsel) to the effect that such
transfer is required shall be conclusive.
Section 5.16. CMCC's Status. The Company acknowledges
that CMCC is a small business investment company licensed by the
Small Business Administration under, and subject to the
provisions of, the Small Business Investment Act of 1958, as
amended, and the rules and regulations of the Small Business
Administration promulgated thereunder. The Company shall furnish
CMCC with all information in respect of this Agreement and the
transactions contemplated thereby reasonably necessary to permit
CMCC to comply with reporting, record-keeping and informational
requirements of said Act and said rules and regulations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
ENVIRONMENTAL TECTONICS
CORPORATION,
By:_______________________________
Name:
Title:
CHASE MANHATTAN CAPITAL
CORPORATION,
By:_______________________________
Name:
Title:
<PAGE>
Annex 1
to
Warrant Agreement
[Form of Warrant Certificate]
THE WARRANTS OF ENVIRONMENTAL TECTONICS CORPORATION REPRESENTED
BY THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR (ii) TO THE EXTENT
APPLICABLE, RULE 144 OR RULE 144A UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE. FURTHER, THIS WARRANT
CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY MAY NOT BE
TRANSFERRED IN VIOLATION OF THE PROVISIONS OF SECTION 7 HEREOF.
THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH
WARRANTS MAY NOT BE ISSUED OR TRANSFERRED IN VIOLATION OF THE
PROVISIONS OF SECTION 7 HEREOF.
No. _____ _________ Warrants
WARRANT CERTIFICATE
To Subscribe for and Purchase Stock Units of
ENVIRONMENTAL TECTONICS CORPORATION
THIS CERTIFIES that CHASE MANHATTAN CAPITAL
CORPORATION, a New York corporation, or its registered successors
and assigns, is the owner of the number of Warrants set forth
above, each of which entitles the owner thereof to purchase from
Environmental Tectonics Corporation, a Pennsylvania corporation
(the "Company"), at any time during the period commencing on [the
effective date of the Sixth Amendment to the Credit Agreement],
and expiring at 5:00 p.m., New York time, on [the date that is
five years after the date of the commencement of the exercise
period] (the "Expiration Date"), one Stock Unit (as hereinafter
defined) at a price of $[to be determined in accordance with the
Sixth Amendment] per Stock Unit (the "Exercise Price") subject to
the conditions hereinafter set forth. For purposes of this
Warrant Certificate, a Stock Unit shall consist of one fully paid
and nonassessable share of Common Stock as such stock is
constituted on [the effective date of the Sixth Amendment to the
Credit Agreement] (the "Date of Issuance"), subject to adjustment
from time to time pursuant to the provisions of Section 2.
Certain defined terms not otherwise defined shall have their
respective meanings as defined in Section 9.
Section 1. Exercise of Warrant. The Warrants
evidenced hereby may be exercised by the registered holder
hereof, in whole or in part, by the surrender of this Warrant
Certificate, duly endorsed (unless endorsement is waived by the
Company), at the principal executive office of the Company
located at County Line Industrial Park, Southampton, Pennsylvania
18966, or at the office of Wilmington Trust Company, located at
1100 North Market Street; Rodney Square North; Wilmington, DE
19890 (the "Transfer Agent") (or such other office or agency of
the Company located in the United States of America as the
Company may designate by notice to the registered holder hereof
at its last address appearing on the books of the Company), and
upon payment to the Company in immediately available funds of the
purchase price of the Stock Units purchased. The Company agrees
that the shares of Common Stock of the Company comprising the
Stock Units so purchased shall be deemed to be issued to the
registered holder hereof on the date on which this Warrant
Certificate shall have been surrendered and payment made for such
Stock Units as aforesaid. The certificates for such shares shall
be delivered to the registered holder hereof within a reasonable
time, not exceeding 10 days, after Warrants evidenced hereby
shall have been so exercised and a new Warrant Certificate
evidencing the number of Warrants, if any, remaining unexercised
also shall be issued to the registered holder hereof within such
time unless such Warrants shall have expired. No fractional
shares of Common Stock of the Company, or script for any such
fractional shares, shall be issued upon the exercise of any
Warrants.
Section 2. Adjustment of Stock Unit and Exercise
Price. The number of shares of Common Stock comprising a Stock
Unit, and the price at which a Stock Unit may be purchased upon
exercise of this Warrant Certificate, shall be subject to
adjustment from time to time as set forth in this Section 2. The
Company shall not take any action with respect to its
Nonpreferred Stock of any class requiring an adjustment pursuant
to any of the following Subsections A, B, or G without at the
same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Company shall not, without the
prior written consent of the registered holder hereof (which
consent may be withheld by such holder in its sole and absolute
discretion), create any class of Nonpreferred Stock which carries
any rights to dividends or assets differing in any respect from
the rights of the Common Stock on the Date of Issuance.
A. Stock Dividends, Subdivisions and Combinations. In
case at any time or from time to time the Company shall
(1) take a record of the holders of its Nonpreferred
Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Nonpreferred
Stock, or
(2) subdivide its outstanding shares of Nonpreferred
Stock into a larger number of shares of Nonpreferred Stock,
or
(3) combine its outstanding shares of Nonpreferred
Stock into a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit
immediately after the happening of any such event shall be
adjusted so as to consist of the number of shares of Common Stock
which a record holder of the number of shares of Common Stock
comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the
happening of such event.
B. Certain Other Dividends and Distributions. In
case at any time or from time to time the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose
of entitling them to receive any dividend or other distribution
of,
(1) cash (other than a cash distribution made as a
dividend and payable out of earnings or earned surplus
legally available for the payment of dividends under the
laws of the jurisdiction of incorporation of the Company, to
the extent, but only to the extent, that the aggregate of
all such dividends paid or declared after the date hereof,
does not exceed the consolidated net income of the Company
and its consolidated Subsidiaries earned subsequent to the
date hereof as determined in accordance with generally
accepted accounting principles consistently applied), or
(2) any evidence of its indebtedness (other than
Convertible Securities), any shares of its stock (other than
Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock), or
(3) any options, warrants or other rights to subscribe
for or purchase any evidences of its indebtedness (other
than Convertible Securities), any shares of its stock (other
than Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock),
then the number of shares of Common Stock thereafter comprising a
Stock Unit shall be adjusted to that number determined by
multiplying the number of shares of Common Stock comprising a
Stock Unit immediately prior to such adjustment by a fraction (i)
the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record and (ii)
the denominator of which shall be such Current Market Price per
share of Common Stock minus the amount of any and all such cash,
and the fair value of any and all such evidences of indebtedness,
shares of stock, other securities or property, or options,
warrants or other subscription or purchase rights, so
distributable in respect of one share of Common Stock. Such fair
value shall be reasonably determined in good faith by the Board
of Directors of the Company, provided that if such determination
is objected to by the holders of Warrants entitled to purchase a
majority of the Stock Units covered thereby, such determination
shall be made by an independent appraiser selected by such Board
of Directors and not objected to by such holders. A
reclassification of the Nonpreferred Stock into shares of
Nonpreferred Stock and shares of any other class of stock shall
be deemed a distribution by the Company to the holders of its
Nonpreferred Stock of such shares of such other class of stock
within the meaning of this Subsection B and, if the outstanding
shares of Nonpreferred Stock shall be changed into a larger or
smaller number of shares of Nonpreferred Stock as a part of such
reclassification, shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Nonpreferred
Stock within the meaning of Subsection A of this Section 2.
C. Issuance of Additional Shares of Nonpreferred
Stock. In case at any time or from time to time the Company
shall (except as hereinafter provided) issue any Additional
Shares of Nonpreferred Stock for a consideration per share less
than the greater of (a) the Current Warrant Price and (b) the
Current Market Price per share of Common Stock, then the number
of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the
number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment by a fraction (i) the
numerator of which shall be the number of shares of Nonpreferred
Stock outstanding immediately prior to the issuance of such
Additional Shares of Nonpreferred Stock plus the number of such
Additional Shares of Nonpreferred Stock so issued, and (ii) the
denominator of which shall be the number of shares of
Nonpreferred Stock outstanding immediately prior to the issuance
of such Additional Shares of Nonpreferred Stock plus the number
of shares of Nonpreferred Stock which the aggregate consideration
for the total number of such Additional Shares of Nonpreferred
Stock so issued would purchase at the greater of (A) the Current
Warrant Price and (B) the Current Market Price per share of
Common Stock. For purposes of this Subsection C, the date as of
which the Current Warrant Price and the Current Market Price per
share of Common Stock shall be computed shall be the earlier of
(1) the date on which the Company shall enter into a firm
contract for the issuance of such Additional Shares of
Nonpreferred Stock and (2) the date of actual issuance of such
Additional Shares of Nonpreferred Stock. This Subsection C shall
not apply to any issuance of Additional Shares of Nonpreferred
Stock for which an adjustment is provided under Subsection A of
this Section 2. No adjustment of the number of shares of Common
Stock comprising a Stock Unit shall be made under this Subsection
C upon the issuance of any Additional Shares of Nonpreferred
Stock which are issued pursuant to the exercise of any options,
warrants or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously
have been made upon the issuance of such options, warrants or
other rights or upon the issuance of such Convertible Securities
(or upon the issuance of any option, warrant or other rights
therefor) pursuant to Subsection D or E of this Section 2.
D. Issuance of Options, Warrants or Other Rights. In
case at any time or from time to time the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose
of entitling them to receive a distribution of, or shall
otherwise issue to any other Person, any options, warrants or
other rights to subscribe for or purchase any Additional Shares
of Nonpreferred Stock or any Convertible Securities and the
consideration per share for which additional shares of
Nonpreferred Stock may at any time thereafter be issuable
pursuant to such options, warrants or other rights or pursuant to
the terms of such Convertible Securities shall be less than the
greater of (a) the Current Warrant Price and (b) the Current
Market Price per share of Common Stock, then the number of shares
of Common Stock thereafter comprising a Stock Unit shall be
adjusted as provided in Subsection C of this Section 2 on the
basis that (i) the maximum number of Additional Shares of
Nonpreferred Stock issuable pursuant to all such options,
warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to
have been issued as of (and, accordingly, the date as of which
the Current Warrant Price per share of Common Stock and the
Current Market Price per share of Common Stock shall be computed
shall be) the computation date specified in the last sentence of
this Subsection D, and (ii) the aggregate consideration for such
maximum number of additional shares of Nonpreferred Stock shall
be deemed to be the minimum consideration received and receivable
by the Company for the issuance of such Additional Shares of
Nonpreferred Stock pursuant to such options, warrants or other
rights or pursuant to the terms of such Convertible Securities.
For purposes of this Subsection D, the computation date for
clause (i) above shall be the earliest of (A) the date on which
the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive
any such options, warrants or other rights, (B) the date on which
the Company shall enter into a firm contract for the issuance of
such options, warrants or other rights and (C) the date of actual
issuance of such options, warrants or other rights.
E. Issuance of Convertible Securities. In case at any
time or from time to time the Company shall take a record of the
holders of its Nonpreferred Stock for the purpose of entitling
them to receive a distribution of, or shall otherwise issue to
any Person, any Convertible Securities and the consideration per
share for which Additional Shares of Nonpreferred Stock may at
any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the greater of (a) the
Current Warrant Price and (b) Current Market Price per share of
Common Stock, then the number of shares of Common Stock
thereafter comprising a Stock Unit shall be adjusted as provided
in Subsection C of this Section 2 on the basis that (i) the
maximum number of Additional Shares of Nonpreferred Stock
necessary to effect the conversion, exercise or exchange of all
such Convertible Securities shall be deemed to have been issued
as of the computation date specified in the penultimate sentence
of this Subsection E, and (ii) the aggregate consideration for
such maximum number of Additional Shares of Nonpreferred Stock
shall be deemed to be the minimum consideration received and
receivable by the Company for the issuance of such Additional
Shares of Nonpreferred Stock pursuant to the terms of such
Convertible Securities. For purposes of this Subsection E, the
computation date for clause (i) above shall be the earliest of
(A) the date on which the Company shall take a record of the
holders of its Nonpreferred Stock for the purpose of entitling
them to receive any such Convertible Securities, (B) the date on
which the Company shall enter into a firm contract for the
issuance of such Convertible Securities and (C) the date of
actual issuance of such Convertible Securities. No adjustment of
the number of shares of Common Stock comprising a Stock Unit
shall be made under this Subsection E upon the issuance of any
Convertible Securities which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights
therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to
Subsection D of this Section 2.
F. Superseding Adjustment of Stock Unit. If, at any
time after any adjustment of the number of shares comprising a
Stock Unit shall have been made pursuant to the foregoing
Subsection D or E of this Section 2 on the basis of the issuance
of options, warrants or other rights or the issuance of other
Convertible Securities, or after any new adjustment of the number
of shares comprising a Stock Unit shall have been made pursuant
to this Subsection,
(1) such options, warrants or rights or the right of
conversion or exchange in such other Convertible Securities
shall expire, and a portion of such options, warrants or
rights, or the right of conversion, exercise or exchange in
respect of a portion of such other Convertible Securities,
as the case may be, shall not have been exercised, or
(2) the consideration per share, for which shares of
Nonpreferred Stock are issuable pursuant to such options,
warrants or rights or the terms of such other Convertible
Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in
such consideration per share upon the arrival of a specified
date or the happening of a specified event,
such previous adjustment shall be rescinded and annulled and the
Additional Shares of Nonpreferred Stock which were deemed to have
been issued by virtue of the computation made in connection with
the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such
options, warrants or rights or other Convertible Securities on
the basis of
(3) treating the number of Additional Shares of
Nonpreferred Stock, if any, theretofore actually issued
pursuant to the previous exercise of such options, warrants
or rights or such right of conversion or exchange were
previously exercised, as having been issued on the date or
dates of such issuance as determined for purposes of such
previous adjustment and for the consideration actually
received therefor, and
(4) treating any such options, warrants or rights or
any such other Convertible Securities which then remain
outstanding as having been granted or issued immediately
after the time of such increase of the consideration per
share for such shares of Nonpreferred Stock are issuable
under such Warrants or rights or other Convertible
Securities,
and, if and to the extent called for by the foregoing provisions
of this Section 2 on the basis aforesaid, a new adjustment of the
number of shares comprising a Stock Unit shall be made, which new
adjustment shall supersede the previous adjustment so rescinded
and annulled.
G. Other Provisions Applicable to Adjustments Under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
comprising a Stock Unit hereinbefore provided for in this
Section 2:
(1) Treasury Stock. The sale or other disposition of
any issued shares of Nonpreferred Stock owned or held by or
for the account of the Company shall be deemed an issuance
thereof for purposes of this Section 2.
(2) Computation of Consideration. To the extent that
any Additional Shares of Nonpreferred Stock or any
Convertible Securities or any options, warrants or other
rights to subscribe for or purchase any Additional Shares of
Nonpreferred Stock or any Convertible Securities shall be
issued for a cash consideration, the consideration received
by the Company therefor shall be deemed to be the amount of
cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of
Nonpreferred Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction
of any compensation, discounts or expenses paid or incurred
by the Company for and in the underwriting of, or otherwise
in connection with, the issue thereof. To the extent that
such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as
reasonably determined in good faith by the Board of
Directors of the Company, provided that if such
determination is objected to by the holders of Warrants
entitled to purchase a majority of the Stock Units covered
thereby, such determination shall be made by an independent
appraiser selected by such Board of Directors and not
objected to by such holders. The consideration for any
Additional Shares of Nonpreferred Stock issuable pursuant to
any options, warrants or other rights to subscribe for or
purchase the same shall be the consideration received or
receivable by the Company for issuing such options, warrants
or other rights, plus the additional consideration payable
to the Company upon the exercise of such options, warrants
or other rights. The consideration for any Additional
Shares of Nonpreferred Stock issuable pursuant to the terms
of any Convertible Securities shall be the consideration
received or receivable by the Company for issuing any
options, warrants or other rights to subscribe for or
purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the
Company upon the exercise of the right of conversion,
exercise or exchange in such Convertible Securities. In
case of the issuance at any time of any Additional Shares of
Nonpreferred Stock or Convertible Securities in payment or
satisfaction of any dividend upon any class of stock other
than Nonpreferred Stock, the Company shall be deemed to have
received for such Additional Shares of Nonpreferred Stock or
Convertible Securities a consideration equal to the amount
of such dividend so paid or satisfied.
(3) When Adjustments to Be Made. The adjustments
required by the preceding Subsections of this Section 2
shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no
adjustment of the number of shares of Common Stock
comprising a Stock Unit that would otherwise be required
shall be made (except in the case of a subdivision or
combination of shares of the Nonpreferred Stock, as provided
for in Subsection A) unless and until such adjustment,
either by itself or with other adjustments not previously
made, adds or subtracts at least $0.05 to the Current Market
Price of each share of Common Stock, as reasonably
determined in good faith by the Board of Directors of the
Company, provided that, in any event such adjustment shall
be made if such adjustment either by itself or with other
adjustments not previously made adds or subtracts at least
1/20th of a share to or from the number of shares of Common
Stock comprising a Stock Unit immediately prior to the
making of such adjustment. Any adjustment representing a
change of less than such minimum amount (except as
aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this
Section 2 and not previously made, would result in a minimum
adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(4) Fractional Interests. In computing adjustments
under this Section 2, fractional interests in Nonpreferred
Stock shall be taken into account to the nearest one -
thousandth of a share.
(5) When Adjustment Not Required. If the Company
shall take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and
annulled.
H. Other Action Affecting Nonpreferred Stock. In case
at any time or from time to time the Company shall take any
action affecting its Nonpreferred Stock, other than an action
described in any of the foregoing Subsections A through G
(inclusive) of this Section 2 or in Section 3, then, unless in
the reasonable opinion of the Board of Directors of the Company
such action will not have an adverse effect upon the rights of
the holders of the Warrants, the number of shares of Common Stock
or other stock comprising a Stock Unit, or the Exercise Price,
shall be adjusted in such manner and at such time as the Board of
Directors of the Company may reasonably determine in good faith
to be equitable in the circumstances.
I. Notice of Adjustment of Stock Unit Price or
Exercise Price. Whenever the number of shares of Common Stock
comprising a Stock Unit, or the Exercise Price at which a Stock
Unit may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to the provisions hereof, the Company shall
forthwith file with each transfer agent for the shares of Common
Stock or other securities of the Company a statement describing
in reasonable detail the adjustment and the method of calculation
used. As soon as practicable after any such adjustment is made,
the Company shall cause a notice of such adjustment to be mailed
to the registered holder of this Warrant Certificate at his last
address appearing on the books of the Company.
J. Evidence of Correctness of Computation. The
certificate of any independent firm of public accountants of
recognized standing selected by the Board of Directors of the
Company shall be evidence of the correctness of any computation
made pursuant to the provisions of this Section 2 absent manifest
error or negligence.
K. Fractional Shares. No fractional shares of Common
Stock or script for any such fraction, shall be issued upon the
exercise of Warrants evidenced hereby. If more than one Warrant
evidenced hereby shall be exercised at any one time, the number
of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number
of Stock Units purchased. Instead of any fractional share of
Common Stock which would otherwise be issuable upon such
exercise, the Company shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of
such exercise.
Section 3. Consolidation, Merger, etc. In case of a
consolidation or merger of the Company with another Person on or
after the Date of Issuance, or the sale, lease or transfer of all
or substantially all its assets to another Person shall be
effected on or after the Date of Issuance, then, as a condition
of such consolidation, merger, sale, lease or transfer, lawful
and adequate provision shall be made whereby the registered
holder of this,Warrant Certificate shall thereafter have the
right to purchase and receive upon the basis and upon the terms
and conditions specified herein and in lieu of each Stock Unit
immediately theretofore purchasable and receivable upon the
exercise of each Warrant evidenced hereby, such shares of stock,
securities, cash or other property receivable upon such
consolidation, merger, sale, lease or transfer by the holder of
the number of shares of Common Stock comprising a Stock Unit
immediately prior to such event. In any such case, appropriate
and equitable provision also shall be made with respect to the
rights and interest of the registered holder of this Warrant
Certificate to the end that the provisions hereof (including
Sections 2 and 5) shall thereafter be applicable, as nearly as
may be, in relation of any shares of stock, securities, cash or
other property thereafter deliverable upon the exercise of the
Warrants evidenced hereby. The Company shall not effect any such
consolidation, merger, sale, lease or transfer unless prior to or
simultaneously with the consummation thereof the successor Person
(if other than the Company) resulting from such consolidation or
merger or the Person purchasing, leasing or otherwise acquiring
such assets shall assume, by written instrument mailed to the
registered holder hereof at its last address appearing on the
books of the Company, the obligation to deliver to such holder
such shares of stock, securities, cash or other property as, in
accordance with the foregoing provisions, such holder may be
entitled to purchase. The above provisions of this Section 3
shall similarly apply to successive consolidations, mergers.,
sales, leases or transfers.
Section 4. Notice of Certain Corporate Action. If at
any time prior to the expiration of the Warrants evidenced hereby
the Company shall propose:
(a) to pay any dividend or other distribution on the
shares of Nonpreferred Stock of any class (excluding regular
cash dividends);
(b) to issue any options, warrants or rights pro rata
to all holders of shares of Nonpreferred Stock of any class
entitling them to subscribe for or purchase any shares of
stock of the Company of any class or to receive any other
rights; or
(c) to issue pro rata to all holders of shares of
Nonpreferred Stock any class of evidences of its
indebtedness or assets; or
(d) to effect any reclassification of the shares of
Nonpreferred Stock of any class, or any consolidation or
merger of the Company with or into another Person (other
than a consolidation or merger in which the Company is the
continuing Person and which does not result in any
reclassification of the shares of Nonpreferred Stock of any
class) or a sale or transfer to another Person of all or
substantially all the assets of the Company; or
(e) to effect the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company;
then, and in any one or more of such cases, the Company shall
send to the registered holder hereof at its last address
appearing on the books of the Company, as promptly as practicable
but in any event at least 20 days prior to the applicable record
date (or determination date) mentioned below, a notice stating,
to the extent such information is available, (i) the date on
which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the
date as of which the holders of shares of Nonpreferred Stock of
record to be entitled to such dividend, distribution or rights
are to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is expected to become
effective and the date as of which it is expected that holders of
shares of Nonpreferred Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up.
Section 5. Covenants of the Company.
(a) The Company covenants and agrees that all shares
of capital stock of the Company which may be issued upon the
exercise of the Warrants evidenced hereby will be duly
authorized, validly issued and fully paid and nonassessable
and free from all taxes, liens and charges with respect to
the issue thereof to the registered holder hereof.
(b) The Company covenants and agrees that from and
after the date the Registration Statement is first declared
effective, all shares of Common Stock or other stock or
securities which may be issued upon the exercise of the
Warrants evidenced hereby will be duly registered under the
Securities Act, and duly registered or qualified under all
applicable state securities laws.
(c) With respect to any registration or qualification
of shares of Common Stock or other stock or securities which
may be issued upon exercise of the Warrants evidenced hereby
that is effected or to be effected by the Company (including
that effected by the Registration Statement), the Company
shall indemnify each holder hereof, each such holder's
directors and officers, each underwriter (as defined in the
Securities Act) of the shares of Common Stock or other stock
or securities sold by such holder, each other Person who
participates or is to participate in the offering of such
holder's securities, and each Person who controls (within
the meaning of the Securities Act) any such holder,
underwriter or participating Person from and against all
claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on:
(i) any untrue statement (or alleged untrue
statement) of a material fact contained in any
prospectus, offering circular or other document
(including any related registration statement,
notification or the like), or any amendment thereof or
supplement thereto, incident to any such registration
or qualification;
(ii) any omission (or alleged omission) to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading; or
(iii) any violation by the Company of the
Securities Act or any rule or regulation promulgated
thereunder applicable to the Company, or of any blue
sky or other state securities laws or any rule or
regulation promulgated thereunder applicable to the
Company,
in each case, relating to action or inaction required of the
Company in connection with any such registration or
qualification, and shall reimburse each such Person entitled
to indemnity under this Section 5(c) for all legal and other
expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action; provided, however, that, the foregoing
indemnity and reimbursement obligation shall not be
applicable to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or
alleged omission) made in reliance upon and in conformity
with written information furnished to the Company by any
such Person specifically for use in such prospectus,
offering circular, other document, amendment or supplement.
(d) Each Person indemnified pursuant to Section 5(c)
agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign
the registration statement and each Person, if any, who
controls the Company (within the meaning of the Securities
Act) to the same extent as the foregoing indemnity from the
Company in Section 5(c), but only with reference to
information relating to such Person furnished to the Company
in writing by such Person expressly for use in the offering
circular, registration statement or the prospectus or any
amendments or supplements thereto or any preliminary
prospectus.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person for
whose benefit indemnity may be sought pursuant to either
Section 5(c) or 5(d) , such Person (the "indemnified party")
shall notify as soon as is reasonably practicable the Person
against whom such indemnity may be sought (the "indemnifying
party") in writing. The indemnified party, upon request of
the indemnifying party, shall retain counsel selected by the
indemnifying party (such counsel to be reasonably
satisfactory to the indemnified party) to represent the
indemnified party and any other Persons the indemnifying
party may designate in such proceeding; and the indemnifying
party shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain counsel
selected by it, but the fees and expenses of such
indemnified party's counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party fails to
request that the indemnified party retain counsel selected
by the indemnifying party, (ii) the indemnifying party and
the indemnified party shall have mutually agreed to the
retention of such counsel, or (iii) the representation by
the same counsel of the indemnified party and any other
Person (including any impleaded parties) would be
inappropriate due to actual or potential differing interests
between them. The fees and expenses of counsel for which
the indemnifying party is responsible pursuant to this
Section 5(e) shall be reimbursed as they are incurred if
paid by or on behalf of the indemnified party. The
indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgement
for the plaintiff, the indemnifying party agrees to
indemnify any indemnified party from and against any claim,
loss, damage or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior
written consent of an indemnified party, effect any
settlement of any pending or threatened proceeding in
respect of which such indemnified party is or could have
been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all
loss, damage and liability on claims that are the subject
matter of such proceeding.
(f) If the indemnity and reimbursement obligation
provided for in Section 5(c) is unavailable or insufficient
to hold harmless an indemnified party under Section 5(c) in
respect of any claims, losses, damages or liabilities (or
actions in respect thereof) referred to therein, then the
Company shall contribute to the amount paid or payable by
such indemnified party as a result of such claims, losses,
damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and such indemnified
party on the other hand in connection with statements or
omissions which resulted in such claims, losses, damages or
liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to
information supplied by the Company or such indemnified
party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
untrue statement or omission. The Company and the holder
hereof agree that it would not be just and equitable if
contributions pursuant to this Section 5(f) were to be
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the first sentence of this
Section 5(f). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 5(f) shall
be deemed to include any legal and other expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any claim, loss, damage,
liability or action which is the subject of this Section
5(f).
No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from the
Company if the Company was not guilty of such fraudulent
misrepresentation.
The provisions of Section 5(c) and this Section 5(f)
shall be in addition to any other rights to indemnification or
contribution which an indemnified party may have pursuant to law,
equity, contract or otherwise and shall remain in full force and
effect regardless of any investigation made by or on behalf of an
indemnified party and shall survive the transfer of the shares of
Common Stock or other stock or securities which may be issued
upon exercise of the Warrants by an indemnified party.
(g) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall not, without the prior written
consent of the registered holder hereof (which consent may
be withheld by such holder in its sole and absolute
discretion), issue (i) any options, rights or warrants to
acquire Additional Shares of Nonpreferred Stock or
Convertible Securities (other than warrants issued pursuant
to any warrant agreement entered into in connection with the
Credit Agreement and/or the Sixth Amendment), (ii)
Convertible Securities, or (iii) "phantom" stock or stock
appreciation rights, unless in each case the rights of the
holders thereof shall be limited to a fixed sum or
percentage of par value in respect of participation in
dividends and in the distribution of such assets.
(h) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall at all times reserve such
number of shares of its Common Stock or other shares of
stock or securities as may be sufficient to permit the
exercise in full of the Warrants evidenced hereby.
(i) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall at no time issue, without the
prior written consent of the registered holder hereof (which
consent may be withheld by such holder in its sole and
absolute discretion), (i) any Preferred Stock, or (ii) any
options, warrants, rights or securities exercisable or
convertible into or exchangeable for Preferred Stock.
(j) The Company covenants and agrees that the Company
shall give to each holder of a Warrant Certificate notice of
the Expiration Date. Such notice may be given by the
Company not less than 30 days but not more than 60 days
prior to the Expiration Date.
(k) The Company covenants and agrees that on or prior
to the date the Registration Statement first becomes
effective, the Company shall not declare or effect any stock
split or stock dividend on, or subdivision, consolidation or
combination of, any class of Nonpreferred Stock.
Section 6. Rights of Registered Holder; Warrant
Register. The Person in whose name this Warrant Certificate is
registered shall be deemed the owner hereof and of the Warrant
Certificate evidenced hereby for all purposes. The registered
holder of this Warrant Certificate shall not be entitled to any
rights whatsoever as a shareholder of the Company in respect of
the Warrants except as herein provided.
Any Warrants issued in connection herewith, upon
issuance, transfer or exercise in part or in whole, shall be
numbered and registered in a warrant register (the "Warrant
Register") as they are issued. The Company shall cause the
Warrant Register to be maintained by the Company or the Transfer
Agent or the then existing transfer agent of the Company in the
United States of America.
Section 7. Transfers of Warrants. The rights
represented by this Warrant Certificate (including the Warrants
evidenced hereby) may not be transferred, sold, assigned or
hypothecated, at any time, in whole or in part, except upon the
conditions specified in Article 4 of the Warrant Agreement. Any
transfer shall be effected by the surrender of this Warrant
Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered holder hereof,
at the principal office or agency of the Company referred to in
Section 1. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event
of a partial transfer, in the name of the registered holder
hereof, a new Warrant Certificate or Warrant Certificates
evidencing the right to purchase such number of Stock Units as
shall be equal to the Stock Units then purchasable hereunder.
Each taker and holder of this Warrant Certificate, the
Warrants evidenced hereby and any shares of stock of the Company
issued upon exercise of any such Warrants, by taking or holding
the same, consents to and agrees to be bound by the provisions of
this Section 7.
Section 8. Governing Law. THIS WARRANT CERTIFICATE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
Section 9. Definitions. As used herein, unless the
context otherwise requires:
"Additional Shares of Nonpreferred Stock" shall mean
shares of Nonpreferred Stock issued by the Company after the date
hereof, other than (i) Warrant Stock, and (ii) Plan Stock.
"Business Day" shall mean any day except a Saturday, a
Sunday or a day on which commercial banks in the State of New
York are permitted or required by law to close.
"Common Stock" shall mean the Company's authorized
Common Stock, $.10 par value per share, irrespective of class
unless otherwise specified, as constituted on the Date of
Issuance, and any stock into which such Common Stock may
thereafter be converted or changed, and also shall include any
other stock of the Company of any other class, which is not
preferred as to dividends or assets over any other class of any
other stock of the Company.
"Company" shall have the meaning set forth at the head
of this Warrant Certificate.
"control" (including, with its correlative, meanings,
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are
convertible or exercisable into or exchangeable for Additional
Shares of Nonpreferred Stock, either immediately or upon the
arrival of a specified date or the happening of a specified
event.
"Credit Agreement" shall mean the Credit Agreement
dated as of November 20, 1990, as amended from time to time (the
"Credit Agreement") among the Company, the Chase Manhattan Bank,
N.A., Chemical Bank, as agent for Chemical Banking Corporation,
successor in interest to Chemical Bank New Jersey, N.A. and the
Chase Manhattan Bank, N.A., as Agent.
"Current Market Price" per share of Common Stock, for
the purposes of any provision of this Warrant at the date herein
specified, shall be deemed to be the average of the daily market
prices for 30 consecutive Business Days commencing 45 Business
Days before such date. The market price for each such Business
Day shall be, if the Common Stock is traded on a national
securities exchange, its last sale price on the next preceding
Business Day or, if there was no sale on that day, the last sale
price on the next preceding Business Day on which there was a
sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan or, if the Common Stock is not
then eligible for reporting over such system, its last sale price
on the next preceding Business Day on such national securities
exchange or, if there was no sale on that day, on the next
preceding Business Day on which there was a sale on such national
securities exchange or, if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not
then eligible for reporting over the Consolidated Last Sale
Reporting System of the CTA Plan, but the Common Stock is quoted
on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), the last sale price reported on
NASDAQ on the next preceding Business Day or, if the Common Stock
is an issue for which last sale prices are not reported on
NASDAQ, the closing bid quotation on such day, but, in each of
the next preceding two cases, if the relevant NASDAQ price or
quotation did not exist on such day, then the price or quotation
on the next preceding Business Day in which there was such a
price or quotation, but if the Common Stock is not reported or
quoted on NASDAQ, the highest bid quotation as quoted in any of
The Wall Street Journal, the National Quotation Bureau pink
sheets, the Salomon Brothers quotation sheets, quotation sheets
of registered marketmakers and, if necessary, dealers' telephone
quotations. If the Current Market Price per share of Common
Stock cannot be ascertained by any of the foregoing methods, the
Current Market Price per share of Common Stock shall be deemed to
be the net book value per share of Nonpreferred Stock, determined
in accordance with generally accepted accounting principles
consistently applied.
"Current Warrant Price" per share of Common Stock, for
the purpose of any provision of this Warrant at the date herein
specified, shall mean the amount equal to the quotient resulting
from dividing the Exercise Price per Stock Unit in effect on such
date by the number of shares (including any fractional share) of
Common Stock comprising a Stock Unit on such date.
"Date of Issuance" shall have the meaning set forth at
the head of this Warrant Certificate.
"Expiration Date" shall have the meaning set forth at
the head of this Warrant Certificate.
"Exercise Price" shall have the meaning set forth at
the head of this Warrant Certificate.
"Sixth Amendment" shall mean the Amendment dated as of
May , 1996 amending the terms of the Credit Agreement.
"include" and "including" shall be construed as if
followed by the phrase ", without being limited to,".
"indemnified party" shall have the meaning assigned to
such term in Section 5(e).
"Nonpreferred Stock" shall mean the Common Stock and
also shall include stock of the Company of any other class which
is not preferred as to dividends or assets over any other class
of stock of the Company.
"Person" means any individual, corporation,
partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Plan Stock" means (i) not more than 280,421 shares of
Common Stock issuable to officers, directors and employees of the
Company pursuant to the Company's 1979 Incentive Stock Plan and
the Company's Employee Stock Purchase Plan, as such Plan is in
effect on the Date of Issuance, and (ii) not more than 50,000
shares of Common Stock issuable during each 12-month period
commencing on the Date of Issuance to officers, directors and
employees of the Company pursuant to the Company's 1988 Incentive
Stock Plan, as such Plan is in effect on the Date of Issuance.
"Preferred Stock" shall mean any stock of the Company
which is preferred as to dividends or assets over any other class
of stock of the Company.
"Registration Statement" shall have the meaning
assigned to such term in the Warrant Agreement.
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar Federal statute, and the rules and
regulations of the commission thereunder, all as the same shall
be in effect at the time.
"Stock Unit" shall mean one share of Common Stock, as
such Common Stock was constituted on the date of original issue
of this Warrant Certificate and thereafter shall mean such number
of shares of Common Stock as shall result from the adjustments
specified in Section 2.
"Subsidiary" shall mean, with respect to any Person,
any entity which is controlled by such Person.
"Transfer Agent" shall have the meaning set forth at
the head of this Warrant Certificate.
"Warrant Agreement" shall mean the Warrant Agreement
dated as of May , 1996, between the Company and Chase
Manhattan Capital Corporation, as such Warrant Agreement shall be
modified and supplemented and in effect from time to time.
"Warrant Register" shall have the meaning assigned to
such term in Section 6.
"Warrants" shall mean the Warrants dated as of the date
hereof, originally issued by the Company pursuant to the Warrant
Agreement, of which this Warrant is one, evidencing rights to
purchase up to an aggregate of 100,000 Stock Units, and all
Warrants issued upon transfer, division or combination of, or in
substitution for, any thereof. All Warrants shall at all times
be identical as to terms and conditions and date, except as to
the number of Stock Units for which they may be exercised.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be signed in its name by a duly authorized officer
and its corporate seal to be impressed hereon and attested by its
Secretary or Assistant Secretary.
Dated: ____________ 19__
ENVIRONMENTAL TECTONICS
CORPORATION,
By
Name:
Title:
[SEAL]
Attest:
Name:
Title:
<PAGE>
FORM OF EXERCISE
(To be executed by the registered holder hereof)
The undersigned hereby exercises __________ Warrants to
subscribe for and purchase Stock Units of Environmental Tectonics
Corporation evidenced by the within Warrant Certificate and
herewith makes payment of the purchase price in full. Kindly
issue certificates and/or other instruments evidencing Stock
Units in accordance with the instructions given below. The
certificate for the unexercised balance of the Warrants evidenced
by the within Warrant Certificate, if any, will be registered in
the name of the undersigned.
Dated: _______________ 19__
_______________________________
Instructions for registration
of Stock Units
Name (please print)
Social Security or Other Identifying
Number:
Address:
Street
City, State and Zip Code
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned hereby sells,
assigns and transfers all the rights of the undersigned under the
within Warrant Certificate with respect to the number of Warrants
evidenced thereby set forth hereinbelow unto:
Name of Assignee Address Warrants Number of
Dated:_______________ 19__
______________________________
<PAGE>
[Form of Opinion]
Annex 2 to
Warrant Agreement
[Letterhead of Outside Counsel to the Company]
May , 1990
Chase Manhattan Capital Corporation
1 Chase Manhattan Plaza
New York, NY 10081
Ladies and Gentlemen:
We have acted as counsel to Environmental Tectonics
Corporation, a Pennsylvania corporation (the "Company"), in
connection with the negotiation, execution and delivery of the
Warrant Agreement of even date herewith (the "Agreement") between
the Company and Chase Manhattan Capital Corporation, a New York
corporation ("CMCC"), providing for, among other things, the
issuance of 100,000 warrants to subscribe for and purchase Stock
Units of the Company (the "Warrants") , and (ii) the Warrant
Certificate of even date herewith (the "Warrant Certificate")
representing the Warrants. Capitalized terms used but not
defined herein shall have the respective meanings ascribed to
such terms in the Agreement or in the Warrant Certificate. This
opinion is being furnished to you pursuant to Section 2.2(b)(ii)
of the Agreement.
As to certain matters of fact material to our opinion,
we have relied upon the representations of the Company made in
the Agreement and upon certificates of certain officers of the
Company. We have examined original copies, in each case executed
by the Company, of the Agreement and the Warrant Certificate and
we have examined originals, or copies certified to our
satisfaction, of all such corporate records of the Company,
agreements and other instruments, certificates of public
officials and of officers and representatives of the Company and
such other documents as we have deemed necessary as a basis for
the opinions hereinafter expressed.
In our examination of such documents we have assumed
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity with the
original documents of all documents submitted to us as copies and
the authenticity of the originals of such latter documents. When
relevant facts were not independently established, we have relied
upon written statements of governmental officials and upon
representations made in or pursuant to the Agreement and the
Warrant Certificate and certificates of the Company and its
officers.
Wilmington Trust Company, the Company's Transfer Agent,
has delivered a certificate, dated May__, 1990, stating that the
total number of shares of Common Stock issued and outstanding as
of the close of business on May __, 1996 was ____________.
Based upon the foregoing and subject to the comments
and qualifications set forth below, we are of the opinion that:
1. The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, (ii) has the corporate power and
authority to execute, deliver and perform its obligations under
the Agreement, (iii) has the corporate power and authority to
execute, deliver, issue and perform its obligations under the
Warrant Certificate, (iv) has the corporate power and authority
to deliver and issue the Warrant Stock as provided in the Warrant
Certificate, (v) has the corporate power and authority to own its
property and assets and to transact the business in which it is
engaged, and (vi) has duly qualified and is authorized to do
business and is in good standing as a foreign corporation in
every jurisdiction in which it owns or leases real property or in
which the nature of its business requires it to be so qualified,
except to the extent that the failure to be so qualified,
authorized or in good standing would not have a material adverse
effect on the Company.
2. All corporate action on the part of the Company
and its officers, directors and shareholders necessary for (i)
the authorization, execution, delivery and performance of the
Agreement by the Company, (ii) the authorization, execution,
issuance,, delivery and performance of the Warrant Certificate by
the Company, and (iii) the authorization, delivery and issuance
of the Warrant Stock as provided in the Warrant Certificate, has
been taken on or prior to the date hereof.
3. The Agreement has been duly executed and delivered
by the Company. The Warrant Certificate has been duly executed,
issued and delivered by the Company.
4. Each of the Agreement and the Warrant Certificate
constitutes the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except to the extent that enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights of creditors
generally and by general principles of equity.
5. The Warrant Stock initially issuable upon exercise
of the Warrants pursuant to the terms of the Agreement and
Warrant Certificate has been duly and validly authorized and
reserved for issuance, and, upon issuance in accordance with the
provisions of the Agreement and Warrant Certificate, will be duly
and validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof.
6. Upon the issuance of the Warrants under the
Agreement, the total number of shares of capital stock which the
Company has authority to issue is 10,000,000 shares of Common
Stock. There are options to purchase an aggregate of 513,150
shares of Common Stock outstanding pursuant to the Company's 1979
Incentive Stock Option Plan and its 1988 Incentive Stock Option
Plan. There are 265,071 shares of Common Stock reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan.
7. None of the execution and delivery of the
Agreement, or the issue of the Warrants, Warrant Certificates or
the Warrant Stock by the Company, or the consummation by the
Company of the transactions therein contemplated, or the
compliance by the Company with the terms and provisions thereof,
will conflict with or result in a breach of, or require any
consent under, the charter or bylaws of the Company, or (assuming
without independent investigation the accuracy of CMCC's
representations in Section 2.3 of the Agreement) any applicable
law, rule or regulation, or, to the best of our knowledge after
due inquiry, any order, writ, injunction or decree of any court
or governmental authority or agency, or the Credit Agreement
dated as of November - , 1990, among the Company, The Chase
Manhattan Bank, N.A., as Agent, and the banks listed as
signatories thereto, as amended prior to the date hereof (as so
amended, the "Credit Agreement"), or any agreement or instrument
listed on Schedule II to the Credit Agreement, or constitute a
default under the Credit Agreement or any such agreement or
instrument, or result in the creation or imposition of any Lien
upon any of the revenues or property of the Company pursuant to
the terms of the Credit Agreement or any such agreement or
instrument.
8. All consents, approvals, orders or authorizations
of, or registrations, qualifications, designations, declarations
or filings with, any federal, state or local governmental
authority on the part of the Company required in connection with
the consummation of the transactions contemplated by the
Agreement and the Warrant Certificate (assuming without
independent investigation the accuracy of CMCC's representations
in Section 2.3 of the Agreement) have been obtained and remain in
full force and effect on the date hereof, except for any of the
foregoing that may be required by virtue of CMCC's status as a
small business investment company licensed under the Small
Business Investment Act of 1958, as amended.
9. The Company is a "small business concern" (within
the meaning of 15 U.S.C. Section 684 and the regulations of the
Small Business Administration promulgated thereunder) and meets
the size eligibility criteria set forth at 13 C.F.R. Section
121.301(c).
10. The Company is not an "investment company" or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
11. Based upon the representations, warranties and
agreements contained in the Agreement and in the Warrant
Certificate, it is not necessary in connection with the issuance
and sale of the Warrants to CMCC under the circumstances
contemplated in the Agreement to register or qualify the Warrants
or the Warrant Stock under the Securities Act of 1933, as
amended, or under the securities laws of the Commonwealth of
Pennsylvania or the State of New York.
12. There is no action, suit, proceeding or
investigation pending or, to the best of our knowledge after due
inquiry, threatened against the Company before any court or
administrative agency seeking to enjoin the transactions
contemplated by the Agreement or the Warrant Certificate.
Our opinion is limited to the laws of the State of New
York, the Commonwealth of Pennsylvania and the United States of
America, and we express no opinion on the laws of any other
jurisdiction.
We are not members of the Bar of the State of New
Jersey and are not giving an opinion as to the laws of the State
of New Jersey. We have reviewed the securities laws of the State
of New Jersey as reported in standard compilations. We have not
consulted with local counsel in New Jersey. Based on our review,
and subject to the existence of broad discretionary authority of
the administrative bodies or officials having jurisdiction in New
Jersey, we believe that it is not necessary in connection with
the issuance and sale of the Warrants to CMCC under the
circumstances contemplated in the Agreement to register or
qualify the Warrants or the Warrant Stock under the securities
laws of the State of New Jersey.
This opinion is being rendered solely for the benefit
of CMCC in connection with the transactions contemplated by the
Agreement, and without the prior express written consent of the
undersigned, CMCC may not rely on this opinion for any other
purpose, and no Person other than CMCC may rely on this opinion
for any purpose. This opinion is limited to the matters set
forth herein. This opinion is rendered as of the date hereof,
and nothing herein shall obligate us to update this opinion in
the future.
Very truly yours,
By:
A Partner
WARRANT AGREEMENT Exhibit 10(xv)
WARRANT AGREEMENT dated as of March 31, 1997, between
ENVIRONMENTAL TECTONICS CORPORATION, a Pennsylvania corporation
(the "Company"), and CHASE MANHATTAN CAPITAL CORPORATION, a New
York corporation ("CMCC").
The Company proposes to issue to CMCC, and CMCC
proposes to acquire from the Company, Warrants (as hereinafter
defined) providing for the purchase of Stock Units (as
hereinafter defined) in the manner hereinafter provided.
Accordingly, in consideration of the premises and of the mutual
agreements herein contained and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1. Definitions. As used herein:
"Affiliate" shall mean, with respect to any Person, any
other Person directly or indirectly controlling, controlled by or
under common control with such Person. As used in this
Agreement, "control" (including, with correlative meanings,
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise). For purposes of this
Agreement, CMCC shall not be deemed an Affiliate of the Company.
"Business Day" shall mean any day except a Saturday, a
Sunday or a day on which commercial banks in the State of New
York are permitted or required by law to close.
"CMCC" shall have the meaning assigned to such term at
the head of this Agreement.
"Credit Agreement" shall mean the Credit Agreement
dated as of November 20, 1990, as amended from time to time (the
"Credit Agreement") among the Company, the Chase Manhattan Bank,
N.A., Chemical Bank, as agent for Chemical Banking Corporation,
successor in interest to Chemical Bank New Jersey, N.A. and the
Chase Manhattan Bank, N.A., as Agent.
"Commission" shall mean the Securities and Exchange
Commission or any other similar or successor agency of the
Federal government administering the Securities Act.
"Common Stock" shall mean the Company's authorized
Common Stock, $.10 par value per share, irrespective of class
unless otherwise specified, as constituted on the date of
original issuance of the Warrants, and any stock into which such
Common Stock may thereafter be converted or changed, and also
shall include any other stock of the Company of any other class,
which is not preferred as to dividends or assets over any class
of stock of the Company.
"Company" shall have the meaning assigned to such term
at the head of this Agreement.
Sixth Amendment shall mean the Amendment dated as of
May __, 1996 amending the terms of the Credit Agreement.
"Holder" shall mean any Person who acquires any
Securities or Warrant Stock pursuant to the provisions of this
Agreement.
"include" and "including" shall be construed as if
followed by the phrase ", without being limited to,".
"Lien" shall mean, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset. For purposes of this
Agreement, the Company shall be deemed to own subject to a Lien
any asset which it has acquired or holds subject to the interest
of a vendor or lessor under any conditional sale agreement,
capital lease or other title retention agreement relating to such
asset.
"Market Price" per share of Common Stock, shall be, for
any Business Day, if the Common Stock is traded on a national
securities exchange, its last sale price on the next preceding
Business Day or, if there was no sale on that day, the last sale
price on the next preceding Business Day on which there was a
sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan or, if the Common Stock is not
then eligible for reporting over such system, its last sale price
on the next preceding Business Day on such national securities
exchange or, if there was no sale on that day, on the next
preceding Business Day on which there was a sale on such national
securities exchange or, if the principal market for the Common
Stock is the over-the-counter market, but the Common Stock is not
then eligible for reporting over the Consolidated Last Sale
Reporting System of the CTA Plan, but the Common Stock is quoted
on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), the last sale price reported on
NASDAQ on the next preceding Business Day or, if the Common Stock
is an issue for which last sale prices are not reported on
NASDAQ, the closing bid quotation on such day, but, in each of
the next preceding two cases, if the relevant NASDAQ price or
quotation did not exist on such day, then the price or quotation
on the next preceding Business Day in which there was such a
price or quotation, but if the Common Stock is not reported or
quoted on NASDAQ, the highest bid quotation as quoted in any of
The Wall Street Journal, the National Quotation Bureau pink
sheets, the Salomon Brothers quotation sheets, quotation sheets
of registered marketmakers and, if necessary, dealers' telephone
quotations. If the Market Price per share of Common Stock cannot
be ascertained by any of the foregoing methods, the Market Price
per share of Common Stock shall be deemed to be the net book
value per share of Nonpreferred Stock, determined in accordance
with generally accepted accounting principles consistently
applied.
"Notice" shall have the meaning assigned to such term
in Section 5.7.
"Person" shall mean any individual, corporation,
partnership, association, trust or other entity or organization,
including a government or political subdivision or an agency or
instrumentality thereof.
"Proposed Sale" shall have the meaning assigned to such
term in Section 5.15.
"Registration Date" shall mean March 31, 1997.
"Registration Statement" shall have the meaning
assigned to such term in Section 4.6.
"Rule 144" shall mean Rule 144 promulgated by the
Commission (or any successor or similar rule) under the
Securities Act.
"Rule 144A" shall mean Rule 144A promulgated by the
Commission (or any successor or similar rule) under the
Securities Act.
"Security" and "Securities" shall have the respective
meanings assigned to such terms in Section 2.2(a).
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any successor or similar Federal statute, and the
rules and regulations of the Commission thereunder.
"Selling Warrantholder" shall have the meaning assigned
to such term in Section 5.15.
"Stockholder" shall mean any Person who directly or
indirectly owns any shares of Common Stock.
"Stock Unit" shall have the meaning assigned to such
term in the form of Warrant Certificate attached as Annex I to
this Agreement.
"Subject Warrants" shall have the meaning assigned to
such term in Section 5.15.
"Subsidiary" shall mean, with respect to any Person,
any entity which is controlled by such Person.
"transfer" (including, with correlative meanings,
"transferable", "transferred" and "transferring") shall mean any
disposition of any Securities, or of any interest in any thereof,
which would constitute an offer or sale thereof within the
meaning of the Securities Act.
"Warrant Certificate" shall mean a certificate
evidencing the Warrants, which shall be in substantially the form
attached as Annex 1 to this Agreement.
"Warrants" shall have the meaning assigned to such term
in Section 2.1.
"Warrant Stock" shall mean the Stock Units purchased or
purchasable by the Holders of Warrants upon the exercise thereof.
"Warrantholder Notice" shall have the meaning assigned
to such term in Section 5.15.
ARTICLE 2. PURCHASE AND SALE OF SECURITIES
Section 2.1. Authorization and Issuance of Shares and
Warrants. The Company has authorized: (a) the issue of one or
more Warrant Certificates evidencing the right to purchase, in
the aggregate, [number to be determined in accordance with
Section 6.15 of the Credit Agreement] Stock Units (such Warrant
Certificates, together with the rights to purchase Stock Units
evidenced thereby, herein sometimes called the "Warrants") for
issuance to CMCC pursuant to this Agreement; and (b) the issue of
such number of shares of Common Stock as shall permit the
compliance by the Company with its obligations to issue Common
Stock pursuant to the Warrants.
Section 2.2. The Closing. (a) On the date hereof, the
Company shall deliver to CMCC, against payment by CMCC to the
Company of the purchase price of $100, one or more Warrant
Certificates for [number to be determined in accordance with
Section 6.15 of the Credit Agreement] Warrants, each Warrant
Certificate registered in the name of CMCC. The number of Stock
Units covered by the Warrants issued under this Agreement and the
price at which a Stock Unit may be purchased upon exercise of the
Warrants shall each be subject to adjustment as provided in the
Warrant Certificate. The Warrants issued to CMCC pursuant to
this Agreement and the Warrant Certificates from time to time
evidencing the Warrants are herein sometimes individually called
a "Security" and collectively called the "Securities".
Until such time as the Registration Statement first is
declared effective, the terms "Security" and "Securities" also
shall include the Warrant Stock.
(b) The obligation of CMCC to consummate this
Agreement and the transactions contemplated hereby are subject to
CMCC having received: (i) Small Business Administration Forms 480
(relating to size status) and 652 (relating to compliance with
nondiscrimination rules), duly completed by the Company and in
sufficient counterparts to satisfy all filing and record
retention requirements set forth in the regulations issued by the
Small Business Administration under the Small Business Investment
Act of 1958, as amended; and (ii) a legal opinion from counsel
reasonably satisfactory to CMCC, which shall be in substantially
the form attached as Annex 2 to this Agreement.
Section 2.3. Purchase for CMCC's Account. CMCC
represents and warrants to the Company that CMCC is purchasing
the Securities for its own account, with no present intention of
distributing the Securities or any part thereof, and that CMCC is
prepared to bear the economic risk of retaining the Securities
for an indefinite period, all without prejudice, however, to the
right of CMCC at any time, in accordance with this Agreement,
lawfully to transfer or otherwise to dispose of all or any part
of the Securities held by it. It is understood that, in making
the representations set forth in Article 3, the Company is
relying, to the extent applicable, upon the representations and
warranties of CMCC contained in this Section 2.3.
Section 2.4. Securities Act Compliance. In reliance
upon the representations and warranties of CMCC in Section 2.3,
the Company has not registered or qualified any of the Securities
under the Securities Act or any applicable state securities laws
and CMCC agrees that it shall not offer or transfer any of the
Securities without registration or qualification under the
Securities Act or any applicable state securities laws or the
availability of an exemption therefrom.
Section 2.5. Expenses. The Company shall pay all
expenses relating to the preparation of this Agreement and the
Securities (including the reasonable fees and expenses of outside
counsel to CMCC), the cost of printing the Warrant Certificates
and the Warrant Stock, and all expenses relating to any
amendments, waivers or consents under this Agreement or the
Securities (including the reasonable fees and expenses of outside
counsel to the Holders). In addition, all expenses incurred in
connection with any registration of the Warrant Stock under this
Agreement (including the Registration Statement) shall be paid by
the Company, including (i) printing and engraving expenses,
(ii) fees and disbursements of counsel for the Company,
(iii) fees of the National Association of Securities Dealers,
Inc. (or such other national securities association or national
securities exchange, as the case may be), in connection with its
review of any offering contemplated in any registration
statement, (iv) fees of the Commission, (v) expenses of any
special audits to which the Company shall agree or which shall be
necessary to comply with governmental requirements in connection
with any such registration, and (vi) reasonable fees and expenses
of counsel to the Holders.
ARTICLE 3. WARRANTIES AND REPRESENTATIONS
The Company represents and warrants to CMCC that as of
the date hereof:
Section 3.1. Corporate Existence. The Company: (i) is
a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania;
(ii) has the corporate power and authority to execute, deliver,
issue and perform its obligations under and in respect of this
Agreement and the Securities; (iii) has the corporate power and
authority to own its property and assets and to transact the
business in which it is engaged or presently proposes to engage;
and (iv) has duly qualified and is authorized to do business and
is in good standing as a foreign corporation in every
jurisdiction in which it owns or leases real property or in which
the nature of its business requires it to be so qualified, except
to the extent that the failure to be so qualified, authorized or
in good standing would not have a material adverse effect on the
properties, business, operations, financial condition,
liabilities or capitalization of the Company.
Section 3.2. Corporate Authority. All corporate
action on the part of the Company and its officers, directors and
shareholders necessary for (i) the authorization, execution,
delivery and performance of this Agreement by the Company,
(ii) the authorization, execution, issuance, delivery and
performance of the Warrants and the Warrant Certificates by the
Company, and (iii) the authorization, delivery and issuance of
the Warrant Stock as provided in the Warrant Certificate, has
been taken on or prior to the date hereof.
Section 3.3. Due Execution and Enforceability. This
Agreement has been duly executed and delivered and constitutes a
valid and legally binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such
enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general
applicability affecting the enforcement of creditors' rights, and
(ii) the application of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law). When issued and delivered pursuant to this
Agreement, the Warrants shall have been duly executed, issued and
delivered and shall constitute valid and legally binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws of general applicability affecting the
enforcement of creditors' rights, and (ii) the application of
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
Section 3.4. Valid Issuance. The Warrant Stock
issuable upon exercise of the Warrants pursuant to the terms
hereof and of the Securities will be duly and validly authorized
and reserved for issuance, and, upon issuance in accordance with
the provisions of this Agreement and the Securities, shall be
duly and validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof, and free
of any Liens of any nature whatsoever. None of the Warrant Stock
shall be issued in violation of any preemptive rights of any
Stockholder.
Section 3.5. Outstanding Securities. Upon the
issuance of the Warrants under this Agreement, the total number
of shares of capital stock which the Company has authority to
issue is 10,000,000 shares of Common Stock. The Warrants are
being issued simultaneously with the execution and delivery
hereof. The total number of shares of Common Stock issued and
outstanding is [2,928,944] shares. Upon the issuance of the
Warrants under this Agreement, the Company shall not have
outstanding any stock or securities convertible or exercisable
into or exchangeable for any shares of capital stock nor shall it
have outstanding any warrants or rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, any
capital stock or stock or securities convertible or exercisable
into or exchangeable for any capital stock other than (a) the
Warrants to be issued pursuant to this Agreement and the warrants
previously issued pursuant to the warrant agreement dated as of
May __, 1996 between the Company and CMCC, (b) options issued in
respect of Common Stock pursuant to the Company's 1979 Incentive
Stock Option Plan, (c) rights to purchase Common Stock pursuant
to the Company's Employee Stock Purchase Plan, and (d) options
issued and to be issued in respect of Common Stock pursuant to
the Company's 1988 Incentive Stock Option Plan.
Section 3.6. No Breach. None of the execution and
delivery of this Agreement, or the issue and sale of the
Securities or the Warrant Stock, or the consummation of the
transactions herein or therein contemplated, or the compliance
with the terms and provisions hereof and thereof, will conflict
with or result in a breach of, or require any consent under, the
charter or by-laws of the Company, or any applicable law, rule or
regulation, or any order, writ, injunction or decree of any court
or governmental authority or agency, or any agreement or
instrument to which the Company is a party or by which it or its
property is bound or to which it or its property is subject, or
constitute a default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon any of the
revenues or property of the Company pursuant to the terms of any
such agreement or instrument.
Section 3.7. Approvals. All consents, approvals,
orders or authorizations of, or registrations, qualifications,
designations, declarations or filings with, any federal, state or
local governmental authority on the part of the Company required
in connection with the consummation of the transactions
contemplated herein and the Securities (assuming without
independent investigation the accuracy of CMCC's representations
in Section 2.3 hereof) have been obtained and remain in full
force and effect on the date hereof, except for any of the
foregoing that may be required by virtue of CMCC's status as a
small business investment company licensed under the Small
Business Investment Act of 1958, as amended.
Section 3.8. Governmental Consent. Neither the nature
of the Company or of any Subsidiary of the Company, or of any of
their respective businesses or properties, nor any relationship
between the Company or any Subsidiary of the Company and any
other Person, nor any circumstance in connection with the offer,
issue or sale of the Securities and the Warrant Stock is such as
to require consent, approval or authorization of, or filing,
registration or qualification with, any governmental authority on
the part of the Company as a condition to the execution and
delivery of this Agreement or the execution and filing of any
certificate of amendment of the charter of the Company required
in connection with the authorization, sale and/or issuance of
Warrant Stock or the authorization, offer, issue or sale of the
Securities.
Section 3.9. Private Offering. (a) None of the Company
or First New York Capital, Inc. (the only Person authorized or
employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Securities or any
similar securities of the Company) has offered any of the
Securities or any similar securities of the Company for sale to,
or solicited offers to buy any thereof from, or otherwise
approached or negotiated with respect thereto with, any
prospective purchaser, other than CMCC. The Company agrees that
neither the Company nor any Person acting on its behalf has
offered or will offer the Securities or any part thereof or any
similar securities for issue or sale to, or has solicited or will
solicit any offer to acquire any of the same from, any Person so
as to bring the issuance and sale of the Securities within (i)
the registration and prospectus delivery requirements of the
Securities Act, and (ii) the registration and qualification
requirements of applicable state securities laws.
(b) Assuming, without independent investigation, the
accuracy of CMCC's representation ion Section 2.3, all stock and
securities of the Company heretofore issued and sold by the
Company were issued and sold in accordance with, or were exempt
from, (i) the registration and prospectus delivery requirements
of the Securities Act, and (ii) the registration and
qualification requirements of applicable state securities laws.
Section 3.10. Small Business Concern. The Company is
a "small business concern" (within the meaning of 15 U.S.C.
Section 684 and the regulations of the Small Business
Administration promulgated thereunder) and meets the size
eligibility criteria set forth at 13 C.F.R. Section 121.301(c).
Section 3.11. Investment Company Act. The Company is
not an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment
Company Act of 1940, as amended.
Section 3.12. Litigation. There is no action, suit,
proceeding or investigation pending or, to the best of its
knowledge after due inquiry, threatened against the Company or
any of its employees before any court or administrative agency
seeking to enjoin the transactions contemplated by this Agreement
or the Warrant Certificates.
ARTICLE 4. RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION AND LISTING OF WARRANT
STOCK; ETC.
Section 4.1. Transfers to Affiliates, Prior Holders,
Banks, etc. (a) The Securities shall not be transferable except
upon the conditions specified in this Article 4, which conditions
are intended to insure compliance with the provisions of the
Securities-Act and applicable state securities laws in respect of
the transfer of.any Securities.
(b) Notwithstanding any other provision of this
Agreement or the Securities (but, in the case of CMCC, subject to
the provisions of Section 5.15), any Holder shall have the right
to transfer any securities:
(i) to any Affiliate of such Holder;
(ii) to another Person who, prior to such transfer, is
a Holder; or
(iii) in the case of any Holder which is a bank, a
bank holding company or a Subsidiary of a bank or a bank
holding company, to a third party, if, in the reasoned
opinion of counsel to such Holder, such transfer is required
to be effected by such Holder because (A) its investment in
Securities may exceed any limitation to which it is subject,
or is otherwise not permitted, under any law, rule,
regulation or other requirement of any governmental
authority, or (B) restrictions are imposed on such Holder by
any such law, rule, regulation or other requirement which,
in the reasoned opinion of such counsel to such Holder, make
it illegal to continue to hold such Securities,
in each case free of the restrictions imposed by this Article 4
other than the requirement as to the legending of the
certificates for the Securities specified in Section 4.5;
provided, however, that such transfer shall be made in compliance
with the Securities Act and all applicable state securities laws.
For purposes of clause (iii) of this Section 4.1(b), a reasoned
opinion of counsel (which is based on facts and circumstances
deemed appropriate by such counsel) to the effect that such
transfer is required shall be conclusive. If the circumstances
described in clause (iii) above arise, the Company shall use its
best efforts to assist the Holder in question to identify a
transferee willing and able to purchase the Securities. Each
transferee under this Section 4.1(b) shall be subject to the same
transfer restrictions imposed on Holders by this Agreement.
Section 4.2. Transfers of Securities Pursuant to
Registration Statements, Rule 144, Rule 144A, Etc.
Notwithstanding any other provision of this Agreement or the
Securities, the Securities may be offered or sold by the Holder
thereof pursuant to (i) an effective registration statement under
the Securities Act and in compliance with applicable state
securities laws, or (ii) to the extent applicable, Rule 144 or
Rule 144A.
Section 4.3. Notice of Certain Transfers. If any
Holder of any Security desires to transfer such Security other
than pursuant to an effective registration statement under the
Securities Act, such Holder shall deliver to the Company a notice
with respect to the proposed transfer, together with an opinion
of counsel reasonably satisfactory to the Company, to the effect
that an exemption from registration under the Securities Act is
available and that the proposed transfer would comply with
applicable securities laws.
Section 4.4. Rule 144; Rule 144A. (a) During any
period in which the Company is required to file with the
Commission information, documents and other reports pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934, as amended (or any similar or successor provisions), in
order to permit the Holders of Securities to sell the same, if
they so desire, pursuant to Rule 144, the Company: (i) shall
comply with all rules and regulations of the Commission
applicable in connection with the use of Rule 144, including the
timely filing of all reports with the Commission; (ii) shall
furnish to such Holders forthwith upon request a written
statement by the Company as to such compliance with such rules
and regulations; (iii) shall take such other action as any such
Holder may reasonably request in connection with the use of Rule
144; and (iv) shall cause any restrictive legends to be removed
and any transfer restrictions to be rescinded with respect to any
sale of Securities which is exempt from registration under the
Securities Act pursuant to Rule 144.
(b) Each Holder of Securities and each prospective
holder of Securities who may consider acquiring Securities in
reliance upon Rule 144A shall have the right to request from the
Company, and the Company will provide upon request, such
information regarding the Company and its business, financial
results, assets and properties, if any, as is at the time
required to be made available by the Company under Rule 144A so
as to enable such Holder to transfer Securities to such
prospective holder in reliance upon Rule 144A.
Section 4.5. Restrictive Legend. (a) Unless and until
otherwise permitted by this Article 4, each Warrant Certificate
shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE WARRANTS OF ENVIRONMENTAL TECTONICS CORPORATION
REPRESENTED BY THIS WARRANT CERTIFICATE AND THE SHARES OF
COMMON STOCK (OR OTHER SECURITIES) ISSUABLE UPON EXERCISE
THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933 AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
LAWS, OR (ii) TO THE EXTENT APPLICABLE, RULE 144 OR RULE
144A UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN
OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT IS AVAILABLE. FURTHER, THIS WARRANT CERTIFICATE
AND THE WARRANTS EVIDENCED HEREBY MAY NOT BE TRANSFERRED IN
VIOLATION OF THE PROVISIONS OF SECTION 7 HEREOF. THE SHARES
OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY
NOT BE ISSUED OR TRANSFERRED IN VIOLATION OF THE PROVISIONS
OF SECTION 7 HEREOF."
(b) Unless and until otherwise permitted by this
Article 4, each share of Warrant Stock shall be stamped or
otherwise imprinted with a legend in substantially the following
form:
"THE SECURITY OF ENVIRONMENTAL TECTONICS CORPORATION
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR (ii) TO THE EXTENT
APPLICABLE, RULE 144 OR RULE 144A UNDER SUCH ACT (OR ANY
SUCCESSOR OR SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL
THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE. THE SECURITY REPRESENTED BY THIS CERTIFICATE MAY
NOT BE TRANSFERRED IN VIOLATION OF THE PROVISIONS OF SECTION
7 OF THAT CERTAIN WARRANT CERTIFICATE, DATED MARCH 31, 1997,
ISSUED BY ENVIRONMENTAL TECTONICS CORPORATION."
Section 4.6. Registration and Listing on Securities
Exchanges. (a) Not later than 30 days following the occurrence of
the Registration Date, the Company shall file the Registration
Statement with the Commission to register the Warrant Stock and
shall use its best efforts to cause such Registration Statement
to be declared effective within 20 days after the date of filing
of the Registration Statement. Without limiting the Company's
obligations set forth in the next preceding sentence, if,
notwithstanding the use of such best efforts, the Registration
Statement is not declared effective within such 20-day period,
the Company will continue to use its best efforts to have the
Registration Statement declared effective promptly after the end
of such 20-day period. The Company shall use its best efforts to
keep the Registration Statement effective until the earlier of
(x) the latest date upon which any of the Warrants may be
exercised, provided, however, in the event that any Holder has
requested that the Registration Statement relate to transfers of
Warrant Stock by such Holder to other Persons, such date will be
extended, to the extent necessary, to cause the Registration
Statement to remain effective until the end of three years after
the last exercise of Warrants by such Holder and (y) such date as
all of the Holders indicate that they no longer wish the
Registration Statement to remain effective (the period from the
Registration Date until the earlier of the dates set forth in the
foregoing clauses (x) and (y) being the "Registration Period").
The "Registration Statement" means the registration statement
(including each prospectus and prospectus supplement included
therein or filed with respect thereto, in each case including all
material incorporated by reference therein) under the Securities
Act (and any amendments thereof and supplements thereto) relating
to the issuance of the Warrant Stock by the Company to the
Holders upon exercise of any of the Warrants and, to the extent
requested by any Holder, to any transaction pursuant to which
Warrant Stock may be transferred by such Holder to other Persons.
The Registration Statement: (i) shall comply as to form
in all material respects with the requirements of the Securities
Act and all the rules and regulations of the Commission
thereunder; and (ii) shall not contain any untrue statement of a
material fact or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading. If at any time during the Registration Period or
when a prospectus relating to Warrant Stock is required to be
delivered under the Securities Act or the Blue Sky or securities
laws of any applicable jurisdiction in the United States, any
event occurs as a result of which the Registration Statement or
any portion thereof (including any prospectus) relating to any
Warrant Stock as then amended or supplemented would (or the
Company becomes aware that such Registration Statement or portion
thereof does) include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend
or supplement the Registration Statement or any portion thereof
(including any prospectus) to comply with the Securities Act or
any such Blue Sky or securities laws, the Company promptly shall
notify the Holders and shall as soon as practicable prepare and
file with the Commission an amendment or supplement which will
correct such statement or omission or which will effect such
compliance. Upon request by any Holder or any managing
underwriter, the Company shall incorporate in a prospectus
supplement or post-effective amendment, to be filed as promptly
as practicable, such information as such Holder or such managing
underwriter reasonably requests to be included therein with
respect to such Holder, the underwriters, the number of shares of
Warrant Stock being sold to any underwriter(s), the purchase
price being paid therefor, and any other terms of the offering,
or other sales of Warrant Stock.
The form of the Registration Statement and all matters
relating thereto shall be reasonably satisfactory to counsel
satisfactory to the Holders. The Holders shall use their best
efforts to cause their counsel to conduct such counsel's review
of the matters referred to in the next preceding sentence on a
timely basis so as to enable the Company to fulfill its
obligations provided in the first sentence of this Section
4.6(a).
(b) The Company shall use its best efforts to ensure
that the Warrant Stock is, simultaneously with the issuance
thereof or as soon as practicable thereafter, and at all times
thereafter, listed for trading upon such national securities
exchange or exchanges or upon such national securities
association or associations as the Common Stock is then listed.
Section 4.7. Termination of Restrictions.
Notwithstanding the foregoing provisions of this Article 4, the
restrictions imposed by this Article 4 upon the transferability
of the Warrants and the Warrant Stock shall cease and terminate
as to any particular Warrant or Warrant Stock when such Warrant
or Warrant Stock shall have been effectively registered under the
Securities Act and sold by the Holder thereof in accordance with
such registration or sold under Rule 144 or Rule 144A. Whenever
the restrictions imposed by this Article 4 shall terminate as to
any particular Warrant or Warrant Stock, the Holder thereof shall
be entitled to receive from the Company, without expense, a new
certificate not bearing the restrictive legend otherwise required
to be borne thereby.
ARTICLE 5. MISCELLANEOUS
Section 5.1. Delivery Expenses. If any Holder
surrenders any Security or Warrant Stock to the Company or a
transfer agent of the Company for exchange for instruments of
other denominations or registered in another name or names, the
Company shall cause such new instruments to be issued and shall
pay the cost of delivering to or from the office of such Holder
from or to the Company or its transfer agent, duly insured, the
surrendered instrument and any new instruments issued in
substitution or replacement for the surrendered instrument.
Section 5.2. Taxes. The Company shall pay all taxes
(other than Federal, state or local income taxes) which may be
payable in connection with the execution and delivery of this
Agreement or the issuance and sale of the Securities hereunder or
the issuance and delivery of the Warrant Stock or in connection
with any amendments, waivers or consents under this Agreement or
the Securities and shall save each Holder harmless without
limitation as to time against any and all liabilities with
respect to all such taxes. The obligations of the Company under
this Section 5.2 shall survive any redemption, repurchase or
acquisition of Securities or Warrant Stock by the Company and the
termination of this Agreement.
Section 5.3. Replacement of Instruments. Upon receipt
by the Company of evidence reasonably satisfactory to it of the
ownership of and the loss, theft, destruction or mutilation of
any Security or Warrant Stock, and
(a) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it (provided that, if
the owner of the same is a bank or an institutional lender
or investor, its own agreement of indemnity shall be deemed
to be satisfactory), or
(b) in the case of mutilation, upon surrender or
cancellation thereof,
the Company, at its expense, shall execute, register and deliver,
in lieu thereof, a new Security or instrument for (or covering
the purchase of) an equal number of Warrants or Warrant Stock.
Section 5.4. Information, etc. The Company shall
deliver to each Holder one copy of each report mailed to its
security holders and each annual report on Form 10-K (or any
successor or similar form) and quarterly report on Form 10-Q (or
any successor or similar form) at or about the time such
documents become publicly available.
Section 5.5. Inspection. The Company shall afford any
Holder of at least 25% of the Warrant Stock or its agents,
access, at reasonable times, upon reasonable prior notice, to
inspect the books and records of the Company and to discuss with
management the business and affairs of the Company.
Section 5.6. Certain Restrictions. The Company shall
not at any time enter into an agreement or instrument restricting
its ability to perform its obligations under this Agreement or
under the Securities.
Section 5.7. Notices.
(a) All notices, waivers, requests and other
communications (each a "Notice") under this Agreement shall be in
writing and shall be personally delivered, sent by courier
guaranteeing overnight delivery or sent by registered or
certified mail, return receipt requested, postage prepaid,
(i) if to the Company:
Environmental Tectonics Corporation
County Line Industrial Park
Southampton, Pennsylvania 18966
Attention: William F. Mitchell, President,
(ii) if to CMCC:
Chase Manhattan Capital Corporation
1 Chase Manhattan Plaza
New York, New York 10081
Attention: [ ],
(iii) if to any other Person who is the registered
Holder of any Securities or Warrant Stock, to the address of
such Holder as it appears in the stock or warrant ledger of
the Company; or, in the case of any Holder, at such other
address as such Holder may designate in a Notice to the
Company; or, in the case of the Company, at such other
address as the Company may designate in a Notice to CMCC and
all other Holders of Securities and Warrant Stock at the
time outstanding.
(b) Any Notice shall be deemed to have been duly given
if personally delivered, on the date delivered, (ii) if sent by
courier guaranteeing overnight delivery, on the date delivered,
or (iii) if sent by registered or certified mail, five Business
Days after being deposited in the mail, in each case given or
addressed as aforesaid.
Section 5.8. Survival. (a) All warranties,
representations and covenants made by the Company herein or in
any certificate or other instrument delivered by it or on its
behalf under this Agreement (including any Warrant Certificate)
shall be considered to have been relied upon by CMCC and shall
survive the issuance of the Securities or the Warrant Stock
regardless of the investigation made by or on behalf of CMCC.
All statements in any such certificate or other instrument so
delivered shall constitute representations and warranties by the
Company hereunder.
(b) All representations, warranties and covenants made
by CMCC herein shall be considered to have been relied upon by
the Company and shall survive the issuance to CMCC of the
Securities or the Warrant Stock regardless of any investigation
made by the Company or on its behalf.
Section 5.9. Successors and Assigns. Except as
otherwise expressly provided herein, this Agreement shall inure
to the benefit of and be binding upon the successors, legal
representatives and assigns of each of the parties.
Section 5.10. Amendment and Waiver. This Agreement
may be amended, and the observance of any term of this Agreement
may be waived, but only with the consent of the Company and the
Holders of at least 67% of the Warrant Stock; provided, however,
that no such amendment or waiver shall, without the consent of
all Holders of the Warrant Stock at the time outstanding, amend
this Section 5.10.
Section 5.11. Counterparts. This Agreement may be
signed by the parties with counterpart signature pages or in
counterparts, each of which shall be an original but all of which
together shall constitute one and the same instrument.
Section 5.12. Severability. If any one or more of the
provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
Section 5.13. Governing Law. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF NEW YORK.
Section 5.14. Acknowledgment by the Company. The
Company hereby acknowledges that this Agreement provides for the
extension to the Company by CMCC of substantial financial
accommodations and benefits, and constitutes a contract to issue
a security of the Company within the meaning of Section 365 of
Title 11 of the United States Code.
Section 5.15. Right of First Offer. (a) If CMCC
desires to sell or otherwise transfer (the "Selling
Warrantholder") any of its Warrants (the "Proposed Sale"), the
Selling Warrantholder shall first give a written notice (the
"Warrantholder Notice") of such desire to the Company. The
Warrantholder Notice shall specify (i) the number of Warrants
proposed to be sold or transferred (the "Subject Warrants"), (ii)
the aggregate consideration to be asked therefor, (iii) the date
of the closing of the Proposed Sale (which date shall be more
than 10 days following the date the Warrantholder Notice is given
to the Company), and (iv) the other terms and conditions of the
Proposed Sale.
The Company shall have the right to purchase all, but
not less than all, of the Subject Warrants for the aggregate
consideration set forth in the Warrantholder Notice and on the
other terms and conditions of the Proposed Sale specified in the
Warrantholder Notice by giving notice to the Selling
Warrantholder within 10 days after receipt by the Company of the
Warrantholder Notice.
If the Company fails to elect to purchase all the
Subject Warrants within the 10-day period specified in the
foregoing paragraph (or if the Company timely elects to purchase
all the Subject Warrants and the Company fails to close on the
date of the closing of the Proposed Sale set forth in the
Warrantholder Notice), then the Selling Warrantholder (A) shall
be under no obligation to sell any Subject Warrants to the
Company unless the Selling Warrantholder so elects, and (B) shall
have the right to sell, within a period of six months after
receipt by the Company of the Warrantholder Notice, all or any of
the Subject Warrants at a price per share not less than the
consideration set forth in the Warrantholder Notice. Any
Warrants not sold pursuant to the next preceding sentence prior
to the expiration of the six-month period referred to therein
shall once again be subject to the right of first offer set forth
in this Section 5.15.
(b) Notwithstanding anything to the contrary contained
in this Section 5.15:
(i) Each of CMCC and its Affiliates shall have the
right at any time to transfer any of or all its Warrants to
CMCC or any Affiliate of CMCC, as the case may be; provided,
however, that at the time of such transfer each such
transferee agrees in writing to be bound by all the
provisions of this Section 5.15.
(ii) If, in the reasoned opinion of counsel to CMCC or
an Affiliate of CMCC, as the case may be, a transfer of any
Warrants is required to be effected by CMCC or an Affiliate
of CMCC, as the case may be, because (A) its investment in
Securities may exceed any limitation to which it is subject,
or is otherwise not permitted, under any law, rule,
regulation or other requirement of any governmental
authority, or (B) restrictions are imposed on CMCC or such
Affiliate of CMCC, as the case may be, by any such law,
rule, regulation or other requirement which, in the reasoned
opinion of such counsel to CMCC or such Affiliate of CMCC,
as the case may be, make it illegal to continue to hold such
Warrants, then the 10-day period referred to in each of the
second and third paragraphs of Section 5.15(a) shall be
reduced to a three Business Day period.
For purposes of clause (ii) of this Section 5.15(b), a reasoned
opinion of counsel (which is based on facts and circumstances
deemed appropriate by such counsel) to the effect that such
transfer is required shall be conclusive.
Section 5.16. CMCC's Status. The Company acknowledges
that CMCC is a small business investment company licensed by the
Small Business Administration under, and subject to the
provisions of, the Small Business Investment Act of 1958, as
amended, and the rules and regulations of the Small Business
Administration promulgated thereunder. The Company shall furnish
CMCC with all information in respect of this Agreement and the
transactions contemplated thereby reasonably necessary to permit
CMCC to comply with reporting, record-keeping and informational
requirements of said Act and said rules and regulations.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
ENVIRONMENTAL TECTONICS
CORPORATION,
By:________________________________
Name:
Title:
CHASE MANHATTAN CAPITAL
CORPORATION,
By:________________________________
Name:
Title:
<PAGE>
Annex 1
to
Warrant Agreement
[Form of Warrant Certificate]
THE WARRANTS OF ENVIRONMENTAL TECTONICS CORPORATION REPRESENTED
BY THIS WARRANT CERTIFICATE AND THE SHARES OF COMMON STOCK (OR
OTHER SECURITIES) ISSUABLE UPON EXERCISE THEREOF MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS, OR (ii) TO THE EXTENT
APPLICABLE, RULE 144 OR RULE 144A UNDER SUCH ACT (OR ANY SIMILAR
RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE. FURTHER, THIS WARRANT
CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY MAY NOT BE
TRANSFERRED IN VIOLATION OF THE PROVISIONS OF SECTION 7 HEREOF.
THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH
WARRANTS MAY NOT BE ISSUED OR TRANSFERRED IN VIOLATION OF THE
PROVISIONS OF SECTION 7 HEREOF.
No. _____ _________ Warrants
WARRANT CERTIFICATE
To Subscribe for and Purchase Stock Units of
ENVIRONMENTAL TECTONICS CORPORATION
THIS CERTIFIES that CHASE MANHATTAN CAPITAL
CORPORATION, a New York corporation, or its registered successors
and assigns, is the owner of the number of Warrants set forth
above, each of which entitles the owner thereof to purchase from
Environmental Tectonics Corporation, a Pennsylvania corporation
(the "Company"), at any time during the period commencing on
March 31, 1997, and expiring at 5:00 p.m., New York time, on
April 1, 2002 (the "Expiration Date"), one Stock Unit (as
hereinafter defined) at a price of $[to be determined in
accordance with Section 6.15 of the Credit Agreement] per Stock
Unit (the "Exercise Price") subject to the conditions hereinafter
set forth. For purposes of this Warrant Certificate, a Stock
Unit shall consist of one fully paid and nonassessable share of
Common Stock as such stock is constituted on March 31, 1997 (the
"Date of Issuance"), subject to adjustment from time to time
pursuant to the provisions of Section 2. Certain defined terms
not otherwise defined shall have their respective meanings as
defined in Section 9.
Section 1. Exercise of Warrant. The Warrants
evidenced hereby may be exercised by the registered holder
hereof, in whole or in part, by the surrender of this Warrant
Certificate, duly endorsed (unless endorsement is waived by the
Company), at the principal executive office of the Company
located at County Line Industrial Park, Southampton, Pennsylvania
18966, or at the office of Security Trust, located at 2 North
Charles Street, Baltimore, Maryland 21203 (the "Transfer Agent")
(or such other office or agency of the Company located in the
United States of America as the Company may designate by notice
to the registered holder hereof at its last address appearing on
the books of the Company), and upon payment to the Company in
immediately available funds of the purchase price of the Stock
Units purchased. The Company agrees that the shares of Common
Stock of the Company comprising the Stock Units so purchased
shall be deemed to be issued to the registered holder hereof on
the date on which this Warrant Certificate shall have been
surrendered and payment made for such Stock Units as aforesaid.
The certificates for such shares shall be delivered to the
registered holder hereof within a reasonable time, not exceeding
10 days, after Warrants evidenced hereby shall have been so
exercised and a new Warrant Certificate evidencing the number of
Warrants, if any, remaining unexercised also shall be issued to
the registered holder hereof within such time unless such
Warrants shall have expired. No fractional shares of Common
Stock of the Company, or script for any such fractional shares,
shall be issued upon the exercise of any Warrants.
Section 2. Adjustment of Stock Unit and Exercise
Price. The number of shares of Common Stock comprising a Stock
Unit, and the price at which a Stock Unit may be purchased upon
exercise of this Warrant Certificate, shall be subject to
adjustment from time to time as set forth in this Section 2. The
Company shall not take any action with respect to its
Nonpreferred Stock of any class requiring an adjustment pursuant
to any of the following Subsections A, B, or G without at the
same time taking like action with respect to its Nonpreferred
Stock of each other class; and the Company shall not, without the
prior written consent of the registered holder hereof (which
consent may be withheld by such holder in its sole and absolute
discretion), create any class of Nonpreferred Stock which carries
any rights to dividends or assets differing in any respect from
the rights of the Common Stock on the Date of Issuance.
A. Stock Dividends, Subdivisions and Combinations. In
case at any time or from time to time the Company shall
(1) take a record of the holders of its Nonpreferred
Stock for the purpose of entitling them to receive a
dividend payable in, or other distribution of, Nonpreferred
Stock, or
(2) subdivide its outstanding shares of Nonpreferred
Stock into a larger number of shares of Nonpreferred Stock,
or
(3) combine its outstanding shares of Nonpreferred
Stock into a smaller number of shares of Nonpreferred Stock,
then the number of shares of Common Stock comprising a Stock Unit
immediately after the happening of any such event shall be
adjusted so as to consist of the number of shares of Common Stock
which a record holder of the number of shares of Common Stock
comprising a Stock Unit immediately prior to the happening of
such event would own or be entitled to receive after the
happening of such event.
B. Certain Other Dividends and Distributions. In
case at any time or from time to time the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose
of entitling them to receive any dividend or other distribution
of,
(1) cash (other than a cash distribution made as a
dividend and payable out of earnings or earned surplus
legally available for the payment of dividends under the
laws of the jurisdiction of incorporation of the Company, to
the extent, but only to the extent, that the aggregate of
all such dividends paid or declared after the date hereof,
does not exceed the consolidated net income of the Company
and its consolidated Subsidiaries earned subsequent to the
date hereof as determined in accordance with generally
accepted accounting principles consistently applied), or
(2) any evidence of its indebtedness (other than
Convertible Securities), any shares of its stock (other than
Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock), or
(3) any options, warrants or other rights to subscribe
for or purchase any evidences of its indebtedness (other
than Convertible Securities), any shares of its stock (other
than Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock),
then the number of shares of Common Stock thereafter comprising a
Stock Unit shall be adjusted to that number determined by
multiplying the number of shares of Common Stock comprising a
Stock Unit immediately prior to such adjustment by a fraction
(i) the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record and
(ii) the denominator of which shall be such Current Market Price
per share of Common Stock minus the amount of any and all such
cash, and the fair value of any and all such evidences of
indebtedness, shares of stock, other securities or property, or
options, warrants or other subscription or purchase rights, so
distributable in respect of one share of Common Stock. Such fair
value shall be reasonably determined in good faith by the Board
of Directors of the Company, provided that if such determination
is objected to by the holders of Warrants entitled to purchase a
majority of the Stock Units covered thereby, such determination
shall be made by an independent appraiser selected by such Board
of Directors and not objected to by such holders. A
reclassification of the Nonpreferred Stock into shares of
Nonpreferred Stock and shares of any other class of stock shall
be deemed a distribution by the Company to the holders of its
Nonpreferred Stock of such shares of such other class of stock
within the meaning of this Subsection B and, if the outstanding
shares of Nonpreferred Stock shall be changed into a larger or
smaller number of shares of Nonpreferred Stock as a part of such
reclassification, shall be deemed a subdivision or combination,
as the case may be, of the outstanding shares of Nonpreferred
Stock within the meaning of Subsection A of this Section 2.
C. Issuance of Additional Shares of Nonpreferred
Stock. In case at any time or from time to time the Company
shall (except as hereinafter provided) issue any Additional
Shares of Nonpreferred Stock for a consideration per share less
than the greater of (a) the Current Warrant Price and (b) the
Current Market Price per share of Common Stock, then the number
of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the
number of shares of Common Stock comprising a Stock Unit
immediately prior to such adjustment by a fraction (i) the
numerator of which shall be the number of shares of Nonpreferred
Stock outstanding immediately prior to the issuance of such
Additional Shares of Nonpreferred Stock plus the number of such
Additional Shares of Nonpreferred Stock so issued, and (ii) the
denominator of which shall be the number of shares of
Nonpreferred Stock outstanding immediately prior to the issuance
of such Additional Shares of Nonpreferred Stock plus the number
of shares of Nonpreferred Stock which the aggregate consideration
for the total number of such Additional Shares of Nonpreferred
Stock so issued would purchase at the greater of (A) the Current
Warrant Price and (B) the Current Market Price per share of
Common Stock. For purposes of this Subsection C, the date as of
which the Current Warrant Price and the Current Market Price per
share of Common Stock shall be computed shall be the earlier of
(1) the date on which the Company shall enter into a firm
contract for the issuance of such Additional Shares of
Nonpreferred Stock and (2) the date of actual issuance of such
Additional Shares of Nonpreferred Stock. This Subsection C shall
not apply to any issuance of Additional Shares of Nonpreferred
Stock for which an adjustment is provided under Subsection A of
this Section 2. No adjustment of the number of shares of Common
Stock comprising a Stock Unit shall be made under this
Subsection C upon the issuance of any Additional Shares of
Nonpreferred Stock which are issued pursuant to the exercise of
any options, warrants or other subscription or purchase rights or
pursuant to the exercise of any conversion or exchange rights in
any Convertible Securities, if any such adjustment shall
previously have been made upon the issuance of such options,
warrants or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any option, warrant or other
rights therefor) pursuant to Subsection D or E of this Section 2.
D. Issuance of Options, Warrants or Other Rights. In
case at any time or from time to time the Company shall take a
record of the holders of its Nonpreferred Stock for the purpose
of entitling them to receive a distribution of, or shall
otherwise issue to any other Person, any options, warrants or
other rights to subscribe for or purchase any Additional Shares
of Nonpreferred Stock or any Convertible Securities and the
consideration per share for which additional shares of
Nonpreferred Stock may at any time thereafter be issuable
pursuant to such options, warrants or other rights or pursuant to
the terms of such Convertible Securities shall be less than the
greater of (a) the Current Warrant Price and (b) the Current
Market Price per share of Common Stock, then the number of shares
of Common Stock thereafter comprising a Stock Unit shall be
adjusted as provided in Subsection C of this Section 2 on the
basis that (i) the maximum number of Additional Shares of
Nonpreferred Stock issuable pursuant to all such options,
warrants or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to
have been issued as of (and, accordingly, the date as of which
the Current Warrant Price per share of Common Stock and the
Current Market Price per share of Common Stock shall be computed
shall be) the computation date specified in the last sentence of
this Subsection D, and (ii) the aggregate consideration for such
maximum number of additional shares of Nonpreferred Stock shall
be deemed to be the minimum consideration received and receivable
by the Company for the issuance of such Additional Shares of
Nonpreferred Stock pursuant to such options, warrants or other
rights or pursuant to the terms of such Convertible Securities.
For purposes of this Subsection D, the computation date for
clause (i) above shall be the earliest of (A) the date on which
the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive
any such options, warrants or other rights, (B) the date on which
the Company shall enter into a firm contract for the issuance of
such options, warrants or other rights and (C) the date of actual
issuance of such options, warrants or other rights.
E. Issuance of Convertible Securities. In case at any
time or from time to time the Company shall take a record of the
holders of its Nonpreferred Stock for the purpose of entitling
them to receive a distribution of, or shall otherwise issue to
any Person, any Convertible Securities and the consideration per
share for which Additional Shares of Nonpreferred Stock may at
any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the greater of (a) the
Current Warrant Price and (b) Current Market Price per share of
Common Stock, then the number of shares of Common Stock
thereafter comprising a Stock Unit shall be adjusted as provided
in Subsection C of this Section 2 on the basis that (i) the
maximum number of Additional Shares of Nonpreferred Stock
necessary to effect the conversion, exercise or exchange of all
such Convertible Securities shall be deemed to have been issued
as of the computation date specified in the penultimate sentence
of this Subsection E, and (ii) the aggregate consideration for
such maximum number of Additional Shares of Nonpreferred Stock
shall be deemed to be the minimum consideration received and
receivable by the Company for the issuance of such Additional
Shares of Nonpreferred Stock pursuant to the terms of such
Convertible Securities. For purposes of this Subsection E, the
computation date for clause (i) above shall be the earliest of
(A) the date on which the Company shall take a record of the
holders of its Nonpreferred Stock for the purpose of entitling
them to receive any such Convertible Securities, (B) the date on
which the Company shall enter into a firm contract for the
issuance of such Convertible Securities and (C) the date of
actual issuance of such Convertible Securities. No adjustment of
the number of shares of Common Stock comprising a Stock Unit
shall be made under this Subsection E upon the issuance of any
Convertible Securities which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights
therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to
Subsection D of this Section 2.
F. Superseding Adjustment of Stock Unit. If, at any
time after any adjustment of the number of shares comprising a
Stock Unit shall have been made pursuant to the foregoing
Subsection D or E of this Section 2 on the basis of the issuance
of options, warrants or other rights or the issuance of other
Convertible Securities, or after any new adjustment of the number
of shares comprising a Stock Unit shall have been made pursuant
to this Subsection,
(1) such options, warrants or rights or the right of
conversion or exchange in such other Convertible Securities
shall expire, and a portion of such options, warrants or
rights, or the right of conversion, exercise or exchange in
respect of a portion of such other Convertible Securities,
as the case may be, shall not have been exercised, or
(2) the consideration per share, for which shares of
Nonpreferred Stock are issuable pursuant to such options,
warrants or rights or the terms of such other Convertible
Securities, shall be increased solely by virtue of
provisions therein contained for an automatic increase in
such consideration per share upon the arrival of a specified
date or the happening of a specified event,
such previous adjustment shall be rescinded and annulled and the
Additional Shares of Nonpreferred Stock which were deemed to have
been issued by virtue of the computation made in connection with
the adjustment so rescinded and annulled shall no longer be
deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such
options, warrants or rights or other Convertible Securities on
the basis of
(3) treating the number of Additional Shares of
Nonpreferred Stock, if any, theretofore actually issued
pursuant to the previous exercise of such options, warrants
or rights or such right of conversion or exchange were
previously exercised, as having been issued on the date or
dates of such issuance as determined for purposes of such
previous adjustment and for the consideration actually
received therefor, and
(4) treating any such options, warrants or rights or
any such other Convertible Securities which then remain
outstanding as having been granted or issued immediately
after the time of such increase of the consideration per
share for such shares of Nonpreferred Stock are issuable
under such Warrants or rights or other Convertible
Securities,
and, if and to the extent called for by the foregoing provisions
of this Section 2 on the basis aforesaid, a new adjustment of the
number of shares comprising a Stock Unit shall be made, which new
adjustment shall supersede the previous adjustment so rescinded
and annulled.
G. Other Provisions Applicable to Adjustments Under
this Section. The following provisions shall be applicable to
the making of adjustments of the number of shares of Common Stock
comprising a Stock Unit hereinbefore provided for in this
Section 2:
(1) Treasury Stock. The sale or other disposition of
any issued shares of Nonpreferred Stock owned or held by or
for the account of the Company shall be deemed an issuance
thereof for purposes of this Section 2.
(2) Computation of Consideration. To the extent that
any Additional Shares of Nonpreferred Stock or any
Convertible Securities or any options, warrants or other
rights to subscribe for or purchase any Additional Shares of
Nonpreferred Stock or any Convertible Securities shall be
issued for a cash consideration, the consideration received
by the Company therefor shall be deemed to be the amount of
cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of
Nonpreferred Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction
of any compensation, discounts or expenses paid or incurred
by the Company for and in the underwriting of, or otherwise
in connection with, the issue thereof. To the extent that
such issuance shall be for a consideration other than cash,
then, except as herein otherwise expressly provided, the
amount of such consideration shall be deemed to be the fair
value of such consideration at the time of such issuance as
reasonably determined in good faith by the Board of
Directors of the Company, provided that if such
determination is objected to by the holders of Warrants
entitled to purchase a majority of the Stock Units covered
thereby, such determination shall be made by an independent
appraiser selected by such Board of Directors and not
objected to by such holders. The consideration for any
Additional Shares of Nonpreferred Stock issuable pursuant to
any options, warrants or other rights to subscribe for or
purchase the same shall be the consideration received or
receivable by the Company for issuing such options, warrants
or other rights, plus the additional consideration payable
to the Company upon the exercise of such options, warrants
or other rights. The consideration for any Additional
Shares of Nonpreferred Stock issuable pursuant to the terms
of any Convertible Securities shall be the consideration
received or receivable by the Company for issuing any
options, warrants or other rights to subscribe for or
purchase such Convertible Securities, plus the consideration
paid or payable to the Company in respect of the
subscription for or purchase of such Convertible Securities,
plus the additional consideration, if any, payable to the
Company upon the exercise of the right of conversion,
exercise or exchange in such Convertible Securities. In
case of the issuance at any time of any Additional Shares of
Nonpreferred Stock or Convertible Securities in payment or
satisfaction of any dividend upon any class of stock other
than Nonpreferred Stock, the Company shall be deemed to have
received for such Additional Shares of Nonpreferred Stock or
Convertible Securities a consideration equal to the amount
of such dividend so paid or satisfied.
(3) When Adjustments to Be Made. The adjustments
required by the preceding Subsections of this Section 2
shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no
adjustment of the number of shares of Common Stock
comprising a Stock Unit that would otherwise be required
shall be made (except in the case of a subdivision or
combination of shares of the Nonpreferred Stock, as provided
for in Subsection A) unless and until such adjustment,
either by itself or with other adjustments not previously
made, adds or subtracts at least $0.05 to the Current Market
Price of each share of Common Stock, as reasonably
determined in good faith by the Board of Directors of the
Company, provided that, in any event such adjustment shall
be made if such adjustment either by itself or with other
adjustments not previously made adds or subtracts at least
1/20th of a share to or from the number of shares of Common
Stock comprising a Stock Unit immediately prior to the
making of such adjustment. Any adjustment representing a
change of less than such minimum amount (except as
aforesaid) shall be carried forward and made as soon as such
adjustment, together with other adjustments required by this
Section 2 and not previously made, would result in a minimum
adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the
close of business on the date of its occurrence.
(4) Fractional Interests. In computing adjustments
under this Section 2, fractional interests in Nonpreferred
Stock shall be taken into account to the nearest one -
thousandth of a share.
(5) When Adjustment Not Required. If the Company
shall take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive a dividend or
distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and
annulled.
H. Other Action Affecting Nonpreferred Stock. In case
at any time or from time to time the Company shall take any
action affecting its Nonpreferred Stock, other than an action
described in any of the foregoing Subsections A through G
(inclusive) of this Section 2 or in Section 3, then, unless in
the reasonable opinion of the Board of Directors of the Company
such action will not have an adverse effect upon the rights of
the holders of the Warrants, the number of shares of Common Stock
or other stock comprising a Stock Unit, or the Exercise Price,
shall be adjusted in such manner and at such time as the Board of
Directors of the Company may reasonably determine in good faith
to be equitable in the circumstances.
I. Notice of Adjustment of Stock Unit Price or
Exercise Price. Whenever the number of shares of Common Stock
comprising a Stock Unit, or the Exercise Price at which a Stock
Unit may be purchased upon exercise of the Warrants, shall be
adjusted pursuant to the provisions hereof, the Company shall
forthwith file with each transfer agent for the shares of Common
Stock or other securities of the Company a statement describing
in reasonable detail the adjustment and the method of calculation
used. As soon as practicable after any such adjustment is made,
the Company shall cause a notice of such adjustment to be mailed
to the registered holder of this Warrant Certificate at his last
address appearing on the books of the Company.
J. Evidence of Correctness of Computation. The
certificate of any independent firm of public accountants of
recognized standing selected by the Board of Directors of the
Company shall be evidence of the correctness of any computation
made pursuant to the provisions of this Section 2 absent manifest
error or negligence.
K. Fractional Shares. No fractional shares of Common
Stock or script for any such fraction, shall be issued upon the
exercise of Warrants evidenced hereby. If more than one Warrant
evidenced hereby shall be exercised at any one time, the number
of full shares of Common Stock which shall be issuable upon such
exercise shall be computed on the basis of the aggregate number
of Stock Units purchased. Instead of any fractional share of
Common Stock which would otherwise be issuable upon such
exercise, the Company shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the
Current Market Price per share of Common Stock on the date of
such exercise.
Section 3. Consolidation, Merger, etc. In case of a
consolidation or merger of the Company with another Person on or
after the Date of Issuance, or the sale, lease or transfer of all
or substantially all its assets to another Person shall be
effected on or after the Date of Issuance, then, as a condition
of such consolidation, merger, sale, lease or transfer, lawful
and adequate provision shall be made whereby the registered
holder of this,Warrant Certificate shall thereafter have the
right to purchase and receive upon the basis and upon the terms
and conditions specified herein and in lieu of each Stock Unit
immediately theretofore purchasable and receivable upon the
exercise of each Warrant evidenced hereby, such shares of stock,
securities, cash or other property receivable upon such
consolidation, merger, sale, lease or transfer by the holder of
the number of shares of Common Stock comprising a Stock Unit
immediately prior to such event. In any such case, appropriate
and equitable provision also shall be made with respect to the
rights and interest of the registered holder of this Warrant
Certificate to the end that the provisions hereof (including
Sections 2 and 5) shall thereafter be applicable, as nearly as
may be, in relation of any shares of stock, securities, cash or
other property thereafter deliverable upon the exercise of the
Warrants evidenced hereby. The Company shall not effect any such
consolidation, merger, sale, lease or transfer unless prior to or
simultaneously with the consummation thereof the successor Person
(if other than the Company) resulting from such consolidation or
merger or the Person purchasing, leasing or otherwise acquiring
such assets shall assume, by written instrument mailed to the
registered holder hereof at its last address appearing on the
books of the Company, the obligation to deliver to such holder
such shares of stock, securities, cash or other property as, in
accordance with the foregoing provisions, such holder may be
entitled to purchase. The above provisions of this Section 3
shall similarly apply to successive consolidations, mergers.,
sales, leases or transfers.
Section 4. Notice of Certain Corporate Action. If at
any time prior to the expiration of the Warrants evidenced hereby
the Company shall propose:
(a) to pay any dividend or other distribution on the
shares of Nonpreferred Stock of any class (excluding regular
cash dividends);
(b) to issue any options, warrants or rights pro rata
to all holders of shares of Nonpreferred Stock of any class
entitling them to subscribe for or purchase any shares of
stock of the Company of any class or to receive any other
rights; or
(c) to issue pro rata to all holders of shares of
Nonpreferred Stock any class of evidences of its
indebtedness or assets; or
(d) to effect any reclassification of the shares of
Nonpreferred Stock of any class, or any consolidation or
merger of the Company with or into another Person (other
than a consolidation or merger in which the Company is the
continuing Person and which does not result in any
reclassification of the shares of Nonpreferred Stock of any
class) or a sale or transfer to another Person of all or
substantially all the assets of the Company; or
(e) to effect the voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Company;
then, and in any one or more of such cases, the Company shall
send to the registered holder hereof at its last address
appearing on the books of the Company, as promptly as practicable
but in any event at least 20 days prior to the applicable record
date (or determination date) mentioned below, a notice stating,
to the extent such information is available, (i) the date on
which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the
date as of which the holders of shares of Nonpreferred Stock of
record to be entitled to such dividend, distribution or rights
are to be determined, or (ii) the date on which such
reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution or winding up is expected to become
effective and the date as of which it is expected that holders of
shares of Nonpreferred Stock of record shall be entitled to
exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution or winding up.
Section 5. Covenants of the Company.
(a) The Company covenants and agrees that all shares
of capital stock of the Company which may be issued upon the
exercise of the Warrants evidenced hereby will be duly
authorized, validly issued and fully paid and nonassessable
and free from all taxes, liens and charges with respect to
the issue thereof to the registered holder hereof.
(b) The Company covenants and agrees that from and
after the date the Registration Statement is first declared
effective, all shares of Common Stock or other stock or
securities which may be issued upon the exercise of the
Warrants evidenced hereby will be duly registered under the
Securities Act, and duly registered or qualified under all
applicable state securities laws.
(c) With respect to any registration or qualification
of shares of Common Stock or other stock or securities which
may be issued upon exercise of the Warrants evidenced hereby
that is effected or to be effected by the Company (including
that effected by the Registration Statement), the Company
shall indemnify each holder hereof, each such holder's
directors and officers, each underwriter (as defined in the
Securities Act) of the shares of Common Stock or other stock
or securities sold by such holder, each other Person who
participates or is to participate in the offering of such
holder's securities, and each Person who controls (within
the meaning of the Securities Act) any such holder,
underwriter or participating Person from and against all
claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on:
(i) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus,
offering circular or other document (including any related
registration statement, notification or the like), or any
amendment thereof or supplement thereto, incident to any
such registration or qualification;
(ii) any omission (or alleged omission) to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or
(iii) any violation by the Company of the
Securities Act or any rule or regulation promulgated
thereunder applicable to the Company, or of any blue sky or
other state securities laws or any rule or regulation
promulgated thereunder applicable to the Company,
in each case, relating to action or inaction required of the
Company in connection with any such registration or
qualification, and shall reimburse each such Person entitled
to indemnity under this Section 5(c) for all legal and other
expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage,
liability or action; provided, however, that, the foregoing
indemnity and reimbursement obligation shall not be
applicable to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue
statement (or alleged untrue statement) or omission (or
alleged omission) made in reliance upon and in conformity
with written information furnished to the Company by any
such Person specifically for use in such prospectus,
offering circular, other document, amendment or supplement.
(d) Each Person indemnified pursuant to Section 5(c)
agrees, severally and not jointly, to indemnify and hold
harmless the Company, its directors, its officers who sign
the registration statement and each Person, if any, who
controls the Company (within the meaning of the Securities
Act) to the same extent as the foregoing indemnity from the
Company in Section 5(c), but only with reference to
information relating to such Person furnished to the Company
in writing by such Person expressly for use in the offering
circular, registration statement or the prospectus or any
amendments or supplements thereto or any preliminary
prospectus.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person for
whose benefit indemnity may be sought pursuant to either
Section 5(c) or 5(d) , such Person (the "indemnified party")
shall notify as soon as is reasonably practicable the Person
against whom such indemnity may be sought (the "indemnifying
party") in writing. The indemnified party, upon request of
the indemnifying party, shall retain counsel selected by the
indemnifying party (such counsel to be reasonably
satisfactory to the indemnified party) to represent the
indemnified party and any other Persons the indemnifying
party may designate in such proceeding; and the indemnifying
party shall pay the fees and disbursements of such counsel
related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain counsel
selected by it, but the fees and expenses of such
indemnified party's counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party fails to
request that the indemnified party retain counsel selected
by the indemnifying party, (ii) the indemnifying party and
the indemnified party shall have mutually agreed to the
retention of such counsel, or (iii) the representation by
the same counsel of the indemnified party and any other
Person (including any impleaded parties) would be
inappropriate due to actual or potential differing interests
between them. The fees and expenses of counsel for which
the indemnifying party is responsible pursuant to this
Section 5(e) shall be reimbursed as they are incurred if
paid by or on behalf of the indemnified party. The
indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgement
for the plaintiff, the indemnifying party agrees to
indemnify any indemnified party from and against any claim,
loss, damage or liability by reason of such settlement or
judgment. No indemnifying party shall, without the prior
written consent of an indemnified party, effect any
settlement of any pending or threatened proceeding in
respect of which such indemnified party is or could have
been a party and indemnity could have been sought hereunder
by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all
loss, damage and liability on claims that are the subject
matter of such proceeding.
(f) If the indemnity and reimbursement obligation
provided for in Section 5(c) is unavailable or insufficient
to hold harmless an indemnified party under Section 5(c) in
respect of any claims, losses, damages or liabilities (or
actions in respect thereof) referred to therein, then the
Company shall contribute to the amount paid or payable by
such indemnified party as a result of such claims, losses,
damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and such indemnified
party on the other hand in connection with statements or
omissions which resulted in such claims, losses, damages or
liabilities, as well as any other relevant equitable
considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to
information supplied by the Company or such indemnified
party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
untrue statement or omission. The Company and the holder
hereof agree that it would not be just and equitable if
contributions pursuant to this Section 5(f) were to be
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the first sentence of this
Section 5(f). The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities
referred to in the first sentence of this Section 5(f) shall
be deemed to include any legal and other expenses reasonably
incurred by such indemnified party in connection with
investigating or defending any claim, loss, damage,
liability or action which is the subject of this Section
5(f).
No indemnified party guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from the
Company if the Company was not guilty of such fraudulent
misrepresentation.
The provisions of Section 5(c) and this Section 5(f)
shall be in addition to any other rights to indemnification or
contribution which an indemnified party may have pursuant to law,
equity, contract or otherwise and shall remain in full force and
effect regardless of any investigation made by or on behalf of an
indemnified party and shall survive the transfer of the shares of
Common Stock or other stock or securities which may be issued
upon exercise of the Warrants by an indemnified party.
(g) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall not, without the prior written
consent of the registered holder hereof (which consent may
be withheld by such holder in its sole and absolute
discretion), issue (i) any options, rights or warrants to
acquire Additional Shares of Nonpreferred Stock or
Convertible Securities (other than warrants issued pursuant
to any warrant agreement entered into in connection with the
Credit Agreement and/or the Sixth Amendment), (ii)
Convertible Securities, or (iii) "phantom" stock or stock
appreciation rights, unless in each case the rights of the
holders thereof shall be limited to a fixed sum or
percentage of par value in respect of participation in
dividends and in the distribution of such assets.
(h) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall at all times reserve such
number of shares of its Common Stock or other shares of
stock or securities as may be sufficient to permit the
exercise in full of the Warrants evidenced hereby.
(i) The Company covenants and agrees that during the
period within which the Warrants evidenced hereby may be
exercised, the Company shall at no time issue, without the
prior written consent of the registered holder hereof (which
consent may be withheld by such holder in its sole and
absolute discretion), (i) any Preferred Stock, or (ii) any
options, warrants, rights or securities exercisable or
convertible into or exchangeable for Preferred Stock.
(j) The Company covenants and agrees that the Company
shall give to each holder of a Warrant Certificate notice of
the Expiration Date. Such notice may be given by the
Company not less than 30 days but not more than 60 days
prior to the Expiration Date.
(k) The Company covenants and agrees that on or prior
to the date the Registration Statement first becomes
effective, the Company shall not declare or effect any stock
split or stock dividend on, or subdivision, consolidation or
combination of, any class of Nonpreferred Stock.
Section 6. Rights of Registered Holder; Warrant
Register. The Person in whose name this Warrant Certificate is
registered shall be deemed the owner hereof and of the Warrant
Certificate evidenced hereby for all purposes. The registered
holder of this Warrant Certificate shall not be entitled to any
rights whatsoever as a shareholder of the Company in respect of
the Warrants except as herein provided.
Any Warrants issued in connection herewith, upon
issuance, transfer or exercise in part or in whole, shall be
numbered and registered in a warrant register (the "Warrant
Register") as they are issued. The Company shall cause the
Warrant Register to be maintained by the Company or the Transfer
Agent or the then existing transfer agent of the Company in the
United States of America.
Section 7. Transfers of Warrants. The rights
represented by this Warrant Certificate (including the Warrants
evidenced hereby) may not be transferred, sold, assigned or
hypothecated, at any time, in whole or in part, except upon the
conditions specified in Article 4 of the Warrant Agreement. Any
transfer shall be effected by the surrender of this Warrant
Certificate, along with the form of assignment attached hereto,
properly completed and executed by the registered holder hereof,
at the principal office or agency of the Company referred to in
Section 1. Thereupon, the Company shall issue in the name or
names specified by the registered holder hereof and, in the event
of a partial transfer, in the name of the registered holder
hereof, a new Warrant Certificate or Warrant Certificates
evidencing the right to purchase such number of Stock Units as
shall be equal to the Stock Units then purchasable hereunder.
Each taker and holder of this Warrant Certificate, the
Warrants evidenced hereby and any shares of stock of the Company
issued upon exercise of any such Warrants, by taking or holding
the same, consents to and agrees to be bound by the provisions of
this Section 7.
Section 8. Governing Law. THIS WARRANT CERTIFICATE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
Section 9. Definitions. As used herein, unless the
context otherwise requires:
"Additional Shares of Nonpreferred Stock" shall mean
shares of Nonpreferred Stock issued by the Company after the date
hereof, other than (i) Warrant Stock, and (ii) Plan Stock.
"Business Day" shall mean any day except a Saturday, a
Sunday or a day on which commercial banks in the State of New
York are permitted or required by law to close.
"Common Stock" shall mean the Company's authorized
Common Stock, $.10 par value per share, irrespective of class
unless otherwise specified, as constituted on the Date of
Issuance, and any stock into which such Common Stock may
thereafter be converted or changed, and also shall include any
other stock of the Company of any other class, which is not
preferred as to dividends or assets over any other class of any
other stock of the Company.
"Company" shall have the meaning set forth at the head
of this Warrant Certificate.
"control" (including, with its correlative, meanings,
"controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause
the direction of management or policies (whether through
ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Convertible Securities" shall mean evidences of
indebtedness, shares of stock or other securities which are
convertible or exercisable into or exchangeable for Additional
Shares of Nonpreferred Stock, either immediately or upon the
arrival of a specified date or the happening of a specified
event.
"Credit Agreement" shall mean the Credit Agreement
dated as of November 20, 1990, as amended from time to time (the
"Credit Agreement") among the Company, the Chase Manhattan Bank,
N.A., Chemical Bank, as agent for Chemical Banking Corporation,
successor in interest to Chemical Bank New Jersey, N.A. and the
Chase Manhattan Bank, N.A., as Agent.
"Current Market Price" per share of Common Stock, for
the purposes of any provision of this Warrant at the date herein
specified, shall be deemed to be the average of the daily market
prices for 30 consecutive Business Days commencing 45 Business
Days before such date. The market price for each such Business
Day shall be, if the Common Stock is traded on a national
securities exchange, its last sale price on the next preceding
Business Day or, if there was no sale on that day, the last sale
price on the next preceding Business Day on which there was a
sale, all as made available over the Consolidated Last Sale
Reporting System of the CTA Plan or, if the Common Stock is not
then e'Ligible for reporting over such system, its last sale
price on the next preceding Business Day on such national
securities exchange or, if there was no sale on that day, on the
next preceding Business Day on which there was a sale on such
national securities exchange or, if the principal market for the
Common Stock is the over-the-counter market, but the Common Stock
is not then eligible for reporting over the Consolidated Last
Sale Reporting System of the CTA Plan, but the Common Stock is
quoted on the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), the last sale price
reported on NASDAQ on the next preceding Business Day or, if the
Common Stock is an issue for which last sale prices are not
reported on NASDAQ, the closing bid quotation on such day, but,
in each of the next preceding two cases, if the relevant NASDAQ
price or quotation did not exist on such day, then the price or
quotation on the next preceding Business Day in which there was
such a price or quotation, but if the Common Stock is not
reported or quoted on NASDAQ, the highest bid quotation as quoted
in any of The Wall Street Journal, the National Quotation Bureau
pink sheets, the Salomon Brothers quotation sheets, quotation
sheets of registered marketmakers and, if necessary, dealers'
telephone quotations. If the Current Market Price per share of
Common Stock cannot be ascertained by any of the foregoing
methods, the Current Market Price per share of Common Stock shall
be deemed to be the net book value per share of Nonpreferred
Stock, determined in accordance with generally accepted
accounting principles consistently applied.
"Current Warrant Price" per share of Common Stock, for
the purpose of any provision of this Warrant at the date herein
specified, shall mean the amount equal to the quotient resulting
from dividing the Exercise Price per Stock Unit in effect on such
date by the number of shares (including any fractional share) of
Common Stock comprising a Stock Unit on such date.
"Date of Issuance" shall have the meaning set forth at
the head of this Warrant Certificate.
"Expiration Date" shall have the meaning set forth at
the head of this Warrant Certificate.
"Exercise Price" shall have the meaning set forth at
the head of this Warrant Certificate.
"Sixth Amendment" shall mean the Amendment dated as of
May __, 1996 amending the terms of the Credit Agreement.
"include" and "including" shall be construed as if
followed by the phrase ", without being limited to,".
"indemnified party" shall have the meaning assigned to
such term in Section 5(e).
"Nonpreferred Stock" shall mean the Common Stock and
also shall include stock of the Company of any other class which
is not preferred as to dividends or assets over any other class
of stock of the Company.
"Person" means any individual, corporation,
partnership, association, trust or other entity or organization,
including a governmental or political subdivision or an agency or
instrumentality thereof.
"Plan Stock" means (i) not more than 280,421 shares of
Common Stock issuable to officers, directors and employees of the
Company pursuant to the Company's 1979 Incentive Stock Plan and
the Company's Employee Stock Purchase Plan, as such Plan is in
effect on the Date of Issuance, and (ii) not more than 50,000
shares of Common Stock issuable during each 12-month period
commencing on the Date of Issuance to officers, directors and
employees of the Company pursuant to the Company's 1988 Incentive
Stock Plan, as such Plan is in effect on the Date of Issuance.
"Preferred Stock" shall mean any stock of the Company
which is preferred as to dividends or assets over any other class
of stock of the Company.
"Registration Statement" shall have the meaning
assigned to such term in the Warrant Agreement.
"Securities Act" shall mean the Securities Act of 1933,
as amended, or any similar Federal statute, and the rules and
regulations of the commission thereunder, all as the same shall
be in effect at the time.
"Stock Unit" shall mean one share of Common Stock, as
such Common Stock was constituted on the date of original issue
of this Warrant Certificate and thereafter shall mean such number
of shares of Common Stock as shall result from the adjustments
specified in Section 2.
"Subsidiary" shall mean, with respect to any Person,
any entity which is controlled by such Person.
"Transfer Agent" shall have the meaning set forth at
the head of this Warrant Certificate.
"Warrant Agreement" shall mean the Warrant Agreement
dated as of March 31, 1997, between the Company and Chase
Manhattan Capital Corporation, as such Warrant Agreement shall be
modified and supplemented and in effect from time to time.
"Warrant Register" shall have the meaning assigned to
such term in Section 6.
"Warrants" shall mean the Warrants dated as of the date
hereof, originally issued by the Company pursuant to the Warrant
Agreement, of which this Warrant is one, evidencing rights to
purchase up to an aggregate of 100,000 Stock Units, and all
Warrants issued upon transfer, division or combination of, or in
substitution for, any thereof. All Warrants shall at all times
be identical as to terms and conditions and date, except as to
the number of Stock Units for which they may be exercised.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be signed in its name by a duly authorized officer
and its corporate seal to be impressed hereon and attested by its
Secretary or Assistant Secretary.
Dated: ____________ 19__
ENVIRONMENTAL TECTONICS
CORPORATION,
By
Name:
Title:
[SEAL]
Attest:
Name:
Title:
<PAGE>
FORM OF EXERCISE
(To be executed by the registered holder hereof)
The undersigned hereby exercises __________ Warrants to
subscribe for and purchase Stock Units of Environmental Tectonics
Corporation evidenced by the within Warrant Certificate and
herewith makes payment of the purchase price in full. Kindly
issue certificates and/or other instruments evidencing Stock
Units in accordance with the instructions given below. The
certificate for the unexercised balance of the Warrants evidenced
by the within Warrant Certificate, if any, will be registered in
the name of the undersigned.
Dated: _______________ 19__
_______________________________
Instructions for registration
of Stock Units
_______________________________
Name (please print)
Social Security or Other Identifying
Number:________________________
Address:
_______________________________
Street
_______________________________
City, State and Zip Code
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned hereby sells,
assigns and transfers all the rights of the undersigned under the
within Warrant Certificate with respect to the number of Warrants
evidenced thereby set forth hereinbelow unto:
Number of
Name of Assignee Address Warrants
Dated:_______________ 19__
___________________________________
<PAGE>
[Form of Opinion]
Annex 2 to
Warrant Agreement
[Letterhead of Outside Counsel to the Company]
March 31, 1997
Chase Manhattan Capital Corporation
1 Chase Manhattan Plaza
New York, NY 10081
Ladies and Gentlemen:
We have acted as counsel to Environmental Tectonics
Corporation, a Pennsylvania corporation (the "Company"), in
connection with the negotiation, execution and delivery of the
Warrant Agreement of even date herewith (the "Agreement") between
the Company and Chase Manhattan Capital Corporation, a New York
corporation ("CMCC"), providing for, among other things, the
issuance of 100,000 warrants to subscribe for and purchase Stock
Units of the Company (the "Warrants") , and (ii) the Warrant
Certificate of even date herewith (the "Warrant Certificate")
representing the Warrants. Capitalized terms used but not
defined herein shall have the respective meanings ascribed to
such terms in the Agreement or in the Warrant Certificate. This
opinion is being furnished to you pursuant to Section 2.2(b)(ii)
of the Agreement.
As to certain matters of fact material to our opinion,
we have relied upon the representations of the Company made in
the Agreement and upon certificates of certain officers of the
Company. We have examined original copies, in each case executed
by the Company, of the Agreement and the Warrant Certificate and
we have examined originals, or copies certified to our
satisfaction, of all such corporate records of the Company,
agreements and other instruments, certificates of public
officials and of officers and representatives of the Company and
such other documents as we have deemed necessary as a basis for
the opinions hereinafter expressed.
In our examination of such documents we have assumed
the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity with the
original documents of all documents submitted to us as copies and
the authenticity of the originals of such latter documents. When
relevant facts were not independently established, we have relied
upon written statements of governmental officials and upon
representations made in or pursuant to the Agreement and the
Warrant Certificate and certificates of the Company and its
officers.
Security Trust, the Company's Transfer Agent, has
delivered a certificate, dated March __, 1997, stating that the
total number of shares of Common Stock issued and outstanding as
of the close of business on March __, 1997 was ____________.
Based upon the foregoing and subject to the comments
and qualifications set forth below, we are of the opinion that:
1. The Company (i) is a corporation duly organized,
validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, (ii) has the corporate power and
authority to execute, deliver and perform its obligations under
the Agreement, (iii) has the corporate power and authority to
execute, deliver, issue and perform its obligations under the
Warrant Certificate, (iv) has the corporate power and authority
to deliver and issue the Warrant Stock as provided in the Warrant
Certificate, (v) has the corporate power and authority to own its
property and assets and to transact the business in which it is
engaged, and (vi) has duly qualified and is authorized to do
business and is in good standing as a foreign corporation in
every jurisdiction in which it owns or leases real property or in
which the nature of its business requires it to be so qualified,
except to the extent that the failure to be so qualified,
authorized or in good standing would not have a material adverse
effect on the Company.
2. All corporate action on the part of the Company
and its officers, directors and shareholders necessary for (i)
the authorization, execution, delivery and performance of the
Agreement by the Company, (ii) the authorization, execution,
issuance,, delivery and performance of the Warrant Certificate by
the Company, and (iii) the authorization, delivery and issuance
of the Warrant Stock as provided in the Warrant Certificate, has
been taken on or prior to the date hereof.
3. The Agreement has been duly executed and delivered
by the Company. The Warrant Certificate has been duly executed,
issued and delivered by the Company.
4. Each of the Agreement and the Warrant Certificate
constitutes the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its
terms, except to the extent that enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting the rights of creditors
generally and by general principles of equity.
5. The Warrant Stock initially issuable upon exercise
of the Warrants pursuant to the terms of the Agreement and
Warrant Certificate has been duly and validly authorized and
reserved for issuance, and, upon issuance in accordance with the
provisions of the Agreement and Warrant Certificate, will be duly
and validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof.
6. Upon the issuance of the Warrants under the
Agreement, the total number of shares of capital stock which the
Company has authority to issue is 10,000,000 shares of Common
Stock. There are options to purchase an aggregate of 513,150
shares of Common Stock outstanding pursuant to the Company's 1979
Incentive Stock Option Plan and its 1988 Incentive Stock Option
Plan. There are 265,071 shares of Common Stock reserved for
issuance pursuant to the Company's Employee Stock Purchase Plan.
7. None of the execution and delivery of the
Agreement, or the issue of the Warrants, Warrant Certificates or
the Warrant Stock by the Company, or the consummation by the
Company of the transactions therein contemplated, or the
compliance by the Company with the terms and provisions thereof,
will conflict with or result in a breach of, or require any
consent under, the charter or bylaws of the Company, or (assuming
without independent investigation the accuracy of CMCC's
representations in Section 2.3 of the Agreement) any applicable
law, rule or regulation, or, to the best of our knowledge after
due inquiry, any order, writ, injunction or decree of any court
or governmental authority or agency, or the Credit Agreement
dated as of November - , 1990, among the Company, The Chase
Manhattan Bank, N.A., as Agent, and the banks listed as
signatories thereto, as amended prior to the date hereof (as so
amended, the "Credit Agreement"), or any agreement or instrument
listed on Schedule II to the Credit Agreement, or constitute a
default under the Credit Agreement or any such agreement or
instrument, or result in the creation or imposition of any Lien
upon any of the revenues or property of the Company pursuant to
the terms of the Credit Agreement or any such agreement or
instrument.
8. All consents, approvals, orders or authorizations
of, or registrations, qualifications, designations, declarations
or filings with, any federal, state or local governmental
authority on the part of the Company required in connection with
the consummation of the transactions contemplated by the
Agreement and the Warrant Certificate (assuming without
independent investigation the accuracy of CMCC's representations
in Section 2.3 of the Agreement) have been obtained and remain in
full force and effect on the date hereof, except for any of the
foregoing that may be required by virtue of CMCC's status as a
small business investment company licensed under the Small
Business Investment Act of 1958, as amended.
9. The Company is a "small business concern" (within
the meaning of 15 U.S.C. Section 684 and the regulations of the
Small Business Administration promulgated thereunder) and meets
the size eligibility criteria set forth at 13 C.F.R. Section
121.301(c).
10. The Company is not an "investment company" or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
11. Based upon the representations, warranties and
agreements contained in the Agreement and in the Warrant
Certificate, it is not necessary in connection with the issuance
and sale of the Warrants to CMCC under the circumstances
contemplated in the Agreement to register or qualify the Warrants
or the Warrant Stock under the Securities Act of 1933, as
amended, or under the securities laws of the Commonwealth of
Pennsylvania or the State of New York.
12. There is no action, suit, proceeding or
investigation pending or, to the best of our knowledge after due
inquiry, threatened against the Company before any court or
administrative agency seeking to enjoin the transactions
contemplated by the Agreement or the Warrant Certificate.
Our opinion is limited to the laws of the State of New
York, the Commonwealth of Pennsylvania and the United States of
America, and we express no opinion on the laws of any other
jurisdiction.
We are not members of the Bar of the State of New
Jersey and are not giving an opinion as to the laws of the State
of New Jersey. We have reviewed the securities laws of the State
of New Jersey as reported in standard compilations. We have not
consulted with local counsel in New Jersey. Based on our review,
and subject to the existence of broad discretionary authority of
the administrative bodies or officials having jurisdiction in New
Jersey, we believe that it is not necessary in connection with
the issuance and sale of the Warrants to CMCC under the
circumstances contemplated in the Agreement to register or
qualify the Warrants or the Warrant Stock under the securities
laws of the State of New Jersey.
This opinion is being rendered solely for the benefit
of CMCC in connection with the transactions contemplated by the
Agreement, and without the prior express written consent of the
undersigned, CMCC may not rely on this opinion for any other
purpose, and no Person other than CMCC may rely on this opinion
for any purpose. This opinion is limited to the matters set
forth herein. This opinion is rendered as of the date hereof,
and nothing herein shall obligate us to update this opinion in
the future.
Very truly yours,
By_________________________________
A Partner
<TABLE>
<CAPTION>
EXHIBIT 13
FINANCIAL REVIEW
($ in thousands, except per share data)
Fiscal Year End 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $15,580 $16,188 $16,986 $24,363 $27,819
Cost of goods sold 10,374 12,091 14,065 17,209 20,160
Operating expenses 3,714 4,988 4,592 5,792 5,530
Net income (loss) 299 (1,405) (1,413) 373 863
Earnings (loss) per common
shares and common stock
equivalent shares .10 (.49) (.50) .13 .30
Working capital 7,878 9,038 10,130 9,457 10,977
Long-term obligations 5,514 7,133 6,718 4,383 5,130
Total assets $20,296 20,803 $ 18,024 $21,306 $24,536
</TABLE>
No cash dividends have ever been paid on the Company's common
stock, and the Company is currently prohibited from declaring any
cash dividends under the terms of its credit facility.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
FISCAL 1996 VERSUS FISCAL 1995
Fiscal year 1996 sales decreased from fiscal 1995 sales as
decreases in the Sterilizers and Environmental segments were only
partially offset by increased sales in the Aircrew Training
System segment. (For information concerning business segments,
see Note 9 to the consolidated financial statements).
Cost of goods sold as a percentage of sales decreased to 67% from
75% in fiscal year 1995 primarily reflecting higher sales in the
Aircrew Training System Segment (Aircrew Training Systems sales
historically reflect higher gross margins) coupled with the
continuing positive effects of stringent cost controls.
The Aircrew Training Systems segment reported a significantly
increased operating income in fiscal year 1996 versus fiscal year
1995 reflecting the aforementioned increased sales volume (up 40%
from the prior fiscal year). Operating income in the Aircrew
Training Systems segment was also positively impacted by the
continued expansion of the Company's Command Operations and
Maintenance (COMS) business which involves training, operation
and support, at various operations throughout the world.
The Sterilizer segment incurred a higher operating loss in fiscal
year 1996 versus fiscal year 1995 reflecting the decreased sales
volume (down 32%) partially offset by reduced operating expenses.
The Environmental segment realized a lower operating loss in
fiscal year 1996 versus fiscal year 1995 despite a 21% decrease
in sales volume. Reduced operating income from the sales
reduction was offset by the completion of higher margin projects
domestically and the positive impact of reduced operating
expenses.
International sales have been a significant portion of the
Company's business in recent years. In fiscal 1996,
approximately 59% of the Company's sales represented foreign
sales. International sales were spread across all business
segments in the recent fiscal period, representing 27% of the
total sales from the Sterilizer and Environmental segments.
Management believes that the international market will continue
to comprise a significant portion of the Company's new business
in the next fiscal year.
Operating and Other Expenses
Selling and Administrative expenses decreased in fiscal 1996
versus fiscal 1995. The reduction resulted from reduced average
headcount in fiscal 1996 coupled with continuing stringent cost
controls.
Research and development expenditures in fiscal 1996 decreased
significantly from the prior period. This primarily reflected
the completion in certain major contracts of the development
stage on new products, line extensions, software design, etc.,
and the beginning of production and attainment of technical
feasibility.
Interest expense increased in fiscal 1996 versus fiscal 1995
reflecting higher interest rates coupled with higher interest
amortization expense on long-term obligations and only partially
offset by a lower average loan balance.
Letter of credit fees and other expenses both decreased in the
current fiscal period reflecting reduced bank fees and loan
amortization costs.
Liquidity and Capital Resources
At February 23, 1996, the Company has a credit facility with two
banks which provides financing of up to an aggregate availability
of $7.7 million. The facility is a revolving credit agreement
whose expiration has been extended to March 31, 1997. The
facility has been amended for certain financial covenants and to
reduce, in stages, the availability under the credit facility to
$5.6 million by that date. Reduction of the availability under
the credit facility is conditional upon collection of
approximately $1.5 million due under a contract currently in
dispute with the Royal Thai Air Force (RTAF). (See Note 11,
Claims and Litigation.) Minimum reduction of the facility is
$600,000 with balance conditional upon the aforementioned RTAF
proceeds. The proceeds from the credit facility are utilized to
provide working capital financing and to support the issuance of
letters of credit. The credit facility includes certain
covenants related to, among other things, prohibitions on the
payment of cash dividends, minimum tangible net worth
requirements, and various financial ratios. The credit facility
is collateralized by substantially all assets of the Company.
At February 23, 1996, direct borrowings under the credit facility
are limited to the lesser of $7.5 million or the Company's
borrowing base as calculated pursuant to the terms of the
agreement (approximately $7.8 million borrowing base at
February 23, 1996). The letter of credit sublimit is $7 million.
At February 23, 1996, there were $1 million letters of credit
outstanding (of which approximately $900,000 were cash
collateralized), exclusive of a $1.0 million letter of credit for
the RTAF which was drawn against in the first quarter of fiscal
1995 (see Note 11). Interest is charged on direct borrowings at
the banks' prime rate plus 2.0%. The Company is required to pay
a commitment fee of 0.5% per annum on the average unused balance.
Fees on letters of credit outstanding are 2.0% per year.
During fiscal year 1996, the Company provided $2.6 million in
cash from operations compared to using $1.5 million in cash from
its 1995 operations. Aggressive collections activity resulting
in lower receivables coupled with increased progress billings on
new contracts were the primary sources of the increased cash
provided from operations. These funds were primarily used to
reduce the bank facility, and pay for software development costs,
and contract completions. Increased cash equivalents restricted
for letters of credit reflected increased international activity
at year-end, while increases in costs and estimated earnings in
excess of billings on uncompleted long-term contracts and
inventories resulted from higher operating activity reflecting
the increased backlog. Increased prepaids primarily reflected an
increase in prepaid commissions on a foreign contract. The
Company has recorded approximately $4.3 million in receivables
billed and unbilled costs subject to negotiation which includes
contract costs incurred through February 23, 1996, which may not
be received in full during fiscal year 1997. This amount
includes receivables billed as well as claims made or to be made
against the U.S. Government involving a Navy gyrolab contract and
a large centrifuge contract. Such claims are customary in
U.S. Government contracts. To the extent the Company is
unsuccessful in further recovering contract costs, such an event
could have a material adverse effect on the Company's liquidity
and results of operations. Historically, the Company has had
good experience in that recoveries have exceeded claims. In
addition to cash that will be provided from operations during
fiscal 1997, the new credit facility that extends to March 31,
1997 will provide the Company its necessary liquidity to meet its
increased backlog of new business. Current liabilities increased
primarily due to increased billings in excess of costs and
estimated earnings on uncompleted long-term contracts coupled
with a slight increase in current portion of long-term debt. The
increase in billings in excess of costs and estimated earnings on
uncompleted long-term contracts resulted from improved billing
terms on certain long-term contracts. These increases were
partially offset by decreases in all other liability accounts.
During the year ended February 24, 1995, the Companies principal
source of cash was the use of its credit facility coupled with
progress billings on contracts in excess of costs and estimated
earnings. These funds were primarily used for software
development costs, contract completions, cash collateralization
of letters of credit, payment on called letters of credit and
reductions of trade accounts payable and other obligations of the
Company.
There are no significant commitments for capital expenditures.
Market for the Registrant's Common Stock and Related Security
Holder Matters
The Company's Common Stock (the "Common Stock") is traded on the
American Stock Exchange under the symbol ETC. As of May 22,
1996, the Company had 434 shareholders of record.
The following table sets forth the quarterly ranges of high and
low sales prices, and the closing sale price, for shares of the
Common Stock for the periods indicated. Such prices represent
quotations between dealers and do not include mark-ups, mark-
downs or commissions, and may not necessarily represent actual
transactions.
Sale Prices
Closing
High Low Sale Price
1996
First Quarter ............. $ 3-7/8 $ 2-1/2 $ 2-3/4
Second Quarter ............ 3-5/8 2-3/4 3-1/8
Third Quarter ............. 3 2-1/4 2-13/16
Fourth Quarter ............ 4-1/8 2-5/16 3-1/2
1995
First Quarter ............. 6-1/8 2-7/8 4-1/8
Second Quarter ............ 5 3-1/4 4-1/4
Third Quarter ............. 4-1/2 2-5/8 3-3/8
Fourth Quarter ............ 4-1/2 2-3/4 3-7/8
The Company has not paid any cash dividends on the Common Stock
in the past and does not anticipate that any cash dividends will
be declared or paid in the foreseeable future. The Company's
current line of credit facility prohibits the payment of any
dividends by the Company without the lender's prior written
consent.
<PAGE>
Consolidated Balance Sheets
($ in thousands)
February 23, February 24,
1996 1995
------------ ------------
ASSETS
Cash and cash equivalents $ 31 $ 66
Cash equivalents restricted for
letters of credit 859 592
Accounts receivable, net 7,710 9,631
Costs and estimated earnings in
excess of billings on uncompleted
long-term contracts 4,024 3,151
Inventories 3,611 3,144
Prepaid expenses and other current assets 574 136
------- -------
Total current assets 16,809 16,720
Property, plant, and equipment, at
cost, net 2,498 2,547
Software development costs, net of
accumulated amortization of $2,563 and
$1,991 in 1996 and 1995, respectively 1,617 1,488
Other assets 2 48
------- -------
Total assets $20,926 $20,803
======= =======
LIABILITIES
Current portion of long-term obligations $ 2,441 $ 2,278
Accounts payable - trade 1,586 1,647
Billings in excess of costs and
estimated earnings on uncompleted
long-term contracts 3,355 1,343
Customer deposits 104 547
Accrued income taxes 188 205
Net arbitration award 445 746
Other accrued liabilities 812 916
------- -------
Total current liabilities 8,931 7,682
------- -------
Long-term obligations, less current
portion; Credit facility payable
to banks due March 31, 1997 5,214 6,739
Other 300 394
------- -------
5,514 7,133
------- -------
Deferred income taxes, net 370 252
------- -------
Total liabilities 14,815 15,067
------- -------
<PAGE>
STOCKHOLDERS' EQUITY
Common Stock - authorized 10,000,000
shares, $.10 par value; 2,928,944
and 2,906,980 shares issued and
outstanding in 1996 and 1995,
respectively 293 291
Capital contributed in excess of
par value of common stock 1,692 1,618
Retained earnings 4,126 3,827
------- -------
Total stockholders' equity 6,111 5,736
------- -------
Total liabilities and
stockholders' equity $20,926 $20,803
======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Consolidated Statements of Operations
($ in thousands, except per share data)
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Net sales $15,580 $16,188
Cost of goods sold 10,374 12,091
------- -------
Gross profit 5,206 4,097
------- -------
Operating expense:
Selling and administrative 3,560 4,232
Research and development 154 336
Products liability settlement - 420
------- --------
3,714 4,988
------- --------
Operating income (loss) 1,492 (891)
------- --------
Other expenses:
Interest expense 925 793
Letter of credit fees 23 32
Other, net 106 122
------- --------
1,054 947
------- --------
Income (loss) before income
taxes 438 (1,838)
Provision (benefit) for income
taxes 139 (433)
------- -------
Net income (loss) $ 299 $ (1,405)
------- --------
Earnings (loss) per share
(primary and fully diluted) $ .10 $ (.49)
======= =========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
($ in thousands)
For the years ended February 23, 1996 and February 25, 1994
<TABLE>
<CAPTION>
Capital
contributed
in excess of
par value of Retained
Shares Amount common stock earnings
------ ------ ------------ --------
<S> <C> <C> <C> <C>
Balance, February 25, 1994 2,866,252 $287 $1,531 $ 5,232
Net loss for the year - - - (1,405)
Shares issued in connection
with employee stock
purchase and stock option
plans 40,728 4 87 -
--------- ---- ------ ------
Balance, February 24, 1995 2,906,980 291 1,618 3,827
Net income for the year - - - 299
Shares issued in connection
with employee stock
purchase and stock option
plans 3,809 - 11 -
Shares issued in connection
with employee stock award 18,155 2 63 -
--------- --- ----- -----
Balance, February 23, 1996 2,928,944 $293 $1,692 $ 4,126
========= ==== ====== =======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
($ in thousands)
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) $ 299 $(1,405)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,006 933
Increase (decrease) in allowance
for doubtful accounts 29 (40)
(Increase) decrease in assets:
Accounts receivable 1,891 (2,832)
Costs and estimated earnings in
excess of billings on
uncompleted long-term contracts (873) 242
Inventories (467) (151)
Prepaid expenses and other
current assets (438) 260
(Decrease) increase in liabilities:
Accounts payable (61) (729)
Billings in excess of costs and
estimated earnings on uncom-
plicated long-term contracts 2,012 1,058
Customer deposits (443) 399
Accrued income taxes (17) 130
Other accrued liabilities (104) 933
Payments under settlement
agreements (353) -
Increase (decrease) in deferred
income taxes 118 (333)
------- -------
Net cash provided by (used in)
operating activities 2,599 (1,535)
------- -------
Cash flows from investing activities:
Acquisition of equipment (314) (151)
Software development costs
capitalized (696) (642)
Decrease in cash surrender value of
insurance policy 43 -
------- -------
Net cash used in investing
activities 967 (793)
------- -------
<PAGE>
Cash flows from financing activities:
Net (payments) borrowings under
credit facility (1,450) 2,239
Increase in cash equivalents
restricted for letters of credit (267) (592)
Increase in notes payable 2 420
Net principal payments of capital
leases and other long-term debt (28) (24)
Proceeds from issuance of capital
stock 76 91
------- -------
Net cash (used in) provided by
financing activities (1,667) 2,134
------- -------
Net decrease in cash and cash
equivalents (35) (194)
Cash and cash equivalents at
beginning of year 66 260
------- -------
Cash and cash equivalents at end of
year $ 31 $ 66
======= =======
Supplemental schedule of cash flow
information:
Interest paid $ 881 $ 764
Income taxes paid, net 38 276
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Notes to Consolidated Financial Statements
($ in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Principles of Consolidation:
The consolidated financial statements include the accounts
of Environmental Tectonics Corporation (the "Company") and
its wholly-owned subsidiary, ETC International Corporation.
All material intercompany accounts and transactions have
been eliminated. The Company's fiscal year is the 52- or
53-week annual accounting period ending the last Friday in
February.
Risks and Uncertainties:
The Company is primarily engaged in the development and
manufacture of aircrew and disaster simulation training
systems, sterilizers, and environmental systems. In prior
years, a substantial portion of the Company's business had
been in the U.S. Defense Industry. As a result of spending
cutbacks and other disruptions in the Defense sector, the
operating performance of the Company was negatively
impacted. However, the Company has now focused on product
extension, and new product development, and implemented a
cost control program. Sales of aircrew training systems are
made principally to U.S. and foreign governmental agencies.
Sales of sterilizers and environmental systems are made to
commercial and governmental entities worldwide.
In preparing financial statements in conformity with
generally accepted accounting principles, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during
the reporting period. Actual results could differ from
those estimates. The Company utilizes estimates as a basis
for revenue recognition under the percentage of completion
method (see Note 1, "Basis for Recording Revenue"). The
Company has also recorded approximately $4,325 in claims
receivable for contract costs incurred through February 23,
1996 (see Note 2), which are subject to negotiation and
audit by the U.S. and foreign governments. To the extent
the Company is unsuccessful in realizing these claims, there
could be a material adverse effect on the Company's
liquidity and results of operations.
Basis for Recording Revenue
Revenue is recognized on long-term contracts utilizing the
percentage of completion method based on costs incurred as a
percentage of estimated total costs. Revenue recognized on
uncompleted long-term contracts in excess of amounts billed
to customers is reflected as an asset. Amounts billed to
customers in excess of revenue recognized on uncompleted
long-term contracts is reflected as a liability. When it is
estimated that a contract will result in a loss, the entire
amount of the loss is accrued. The effect of revisions in
cost and profit estimates for long-term contracts is
reflected in the accounting period in which the facts
requiring the revisions became known. The effect of
revisions in estimates of contract revenues was to decrease
the net income by approximately $83 ($.03 per share) and
increase the net loss by approximately $146 ($.05 per share)
in fiscal 1996 and 1995, respectively. Contract progress
billings are based upon contract provisions for customer
advance payments, contract costs incurred, and completion of
specified contract objectives. Contracts may provide for
customer retainage of a portion of amounts billed until
contract completion. Retainage is generally due within one
year of completion of the contract. Revenue for service
contracts is recognized ratably over the life of the
contract.
Cash and Cash Equivalents:
Cash and cash equivalents include short-term deposits at
market interest rates with original maturities of three
months or less. The Company maintains cash balances at
several financial institutions located in the Northeast.
Accounts in each institution are insured by the Federal
Deposit Insurance Corporation up to $100. Uninsured
balances aggregate to $790 at February 23, 1996. The
Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Inventories.
Inventories are valued at the lower of cost or market. Cost
is determined principally by the first-in, first-out method.
The costs of finished goods and work-in-process inventories
include material, direct engineering, manufacturing labor,
and overhead components.
Depreciation of Property, Plant, and Equipment:
Property, plant, and equipment are depreciated over their
estimated useful lives by the straight-line method for
financial reporting purposes. Accelerated depreciation
methods are used for tax purposes. Upon sale or retirement
of property, plant, and equipment, the costs and related
accumulated depreciation are eliminated from the accounts.
Any resulting gains or losses are included in the
determination of net income.
Amortization of Capitalized Software Development Costs:
Capitalized software development costs are amortized on a
product-by-product basis, with amortization beginning in the
year costs are capitalized. Amortization is the greater of
the amount computed using the ratio of the current year's
gross revenues to the total of current and anticipated
future gross revenues for that product or the straight-line
method over the remaining estimated economic life of the
product. Amortization expense relating to software
development costs was $573 and $492 in 1996 and 1995,
respectively. No amounts have been written down to net
realizable value in 1996 or 1995.
Amortization of Deferred Financing Costs:
Capitalized costs relating to the acquisition of the
Company's credit facility are amortized over the term of the
credit facility. Amortization expense relating to deferred
financing costs was $3 and $39 in 1996 and 1995,
respectively.
Amortization of Discount on Settlement Payable:
The discount related to a products liability settlement the
liability for which was recognized in fiscal 1995, is
amortized over the term of the note. Amortization expense
was $55 in 1996.
Income Taxes:
The Company accounts for income taxes using the liability
method, which reflects the impact of temporary differences
between values recorded for assets and liabilities for
financial reporting purposes and values utilized for
measurement in accordance with tax laws.
Long-Lived Assets:
The Financial Accounting Standards Board (FASB) has issued
Statement No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Companies are required to adopt SFAS
No. 121 for fiscal years beginning on or after December 15,
1995. The Company intends to adopt SFAS No. 121, beginning
in the first quarter of fiscal 1997, and has not yet
estimated the effect of adopting the accounting method
required by SFAS No. 121.
Stock Options:
The FASB issued a new standard, SFAS No. 123, "Accounting
for Stock-Based Compensation," which contains a fair value-
based method for valuing stock-based compensation that
entities may use, which measures compensation cost at the
grant date based on the fair value of the award.
Compensation is then recognized over the service period,
which is usually the vesting period. Alternatively, the
standard permits entities to continue accounting for
employee stock options and similar equity instruments under
Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities that
continue to account for stock options using APB Opinion
No. 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value-based
method of accounting defined in SFAS No. 123 had been
applied. The Company has not determined which method it
will follow in the future. This statement is effective for
fiscal years beginning after December 31, 1995.
Advertising Costs:
The Company expenses advertising costs as incurred.
Advertising expense was $83 and $107 for the years ended
February 23, 1996 and February 24, 1995, respectively.
Earnings Per Common Share:
Earnings per common share in 1996 and 1995 are based on net
income divided by the weighted average number of common
shares and common stock equivalent shares (shares issuable
upon the exercise of stock purchase warrants and options,
unless anti-dilutive) outstanding. Weighted average number
of common shares and equivalents outstanding were
approximately 2,935,000 and 2,874,000 in 1996 and 1995,
respectively.
2. Accounts Receivable:
The components of accounts receivable at February 23, 1996
and February 24, 1995 are as follows:
1996 1995
---- ----
U.S. Government receivables billed
and unbilled contract costs
subject to negotiation $3,848 $3,947
U.S. receivables billed 746 1,724
International:
Receivables billed 1,866 2,681
Unbilled contract costs subject to
negotiation 1,374 1,374
------ ------
7,834 9,726
Less allowance for doubtful accounts (124) (95)
------ ------
$7,710 $9,631
====== ======
U.S. Government receivables billed and unbilled contract
costs subject to negotiation:
Unbilled contract costs subject to negotiation represent
claims made or to be made against the U.S. Government In
fiscal 1995, the Company recorded approximately $1.4 million
of claims revenue related to two certain aircrew training
systems contracts. No claims revenue was recorded in fiscal
1996. The Company has recorded claims to the extent of
contract costs incurred. These costs have been incurred in
connection with U.S. Government-caused delays, errors in
specifications and designs, and other unanticipated causes
and may not be received in full during fiscal 1997. In
accordance with generally accepted accounting principles,
revenue recorded by the Company from a claim does not exceed
the incurred contract costs related to the claim. The
Company estimates that the total net claims filed and to be
filed approximate $7.3 million, a portion of which has been
included in U.S. Government receivables billed and unbilled
contract costs subject to negotiation. Such claims are
subject to negotiation and audit by the U.S. Government.
International unbilled contract costs subject to
negotiation:
Unbilled contract costs subject to negotiation represent
claims made or to be made against a certain foreign
government. In the first quarter of fiscal 1995, the
Company recorded approximately $1.1 million of claims
receivable (but no claims revenue) for letters of credit
drawn related to the same contract. The Company has
recorded claims to the extent of the drawn letters of credit
and called performance bond, which may not be recovered in
full in fiscal 1997. The total net claim filed includes
these amounts and are subject to arbitration and negotiation
with the foreign government.
3. Costs and Estimated Earnings on Uncompleted Contracts:
The following is a summary of long-term contracts in
progress at February 23, 1996 and February 24, 1995:
1996 1995
Costs incurred on uncompleted
long-term contracts $ 19,538 $ 19,685
Estimated earnings 7,406 5,991
-------- --------
26,944 25,676
Less billings to date (26,275) (23,868)
-------- --------
$ 669 $ 1,808
======== =======
1996 1995
Included in accompanying balance
sheets under the following
captions:
Costs and estimated earnings in
excess of billings on
uncompleted long-term contracts $ 4,024 $ 3,151
Billings in excess of costs and
estimated earnings on uncompleted
long-term contracts (3,355) (1,343)
$ 669 $ 1,908
======= =======
Included in billings in excess of costs and estimated
earnings on uncompleted long-term contracts is a provision
for anticipated losses on contracts of approximately $72 and
$61 in 1996 and 1995, respectively.
4. Inventories:
Inventories consist of the following:
Raw Work in
material process Total
-------- ------- -----
February 23, 1996 $696 $2,915 $3,611
February 24, 1995 $676 $2,468 $3,144
Inventory is presented net of an inventory valuation
allowance of $100 in 1996 and 1995.
5. Property, Plant and Equipment:
The following is a summary of property, plant, and
equipment, at cost, and estimated useful lives at
February 23, 1996 and February 24, 1995:
Estimated
useful
1996 1995 lives
---- ---- ---------
Land $ 100 $ 100
Building and building
additions 1,811 1,811 40 years
Equipment under capital
lease - 437 5-10 years
Machinery and equipment 4,356 4,157 3-5 years
Office furniture and
equipment 1,153 632 10 years
Building improvements 812 768 5-10 years
------- -------
8,232 7,905
Less accumulated
depreciation (5,734) (5,358)
------- -------
Property, plant and
equipment, net $ 2,498 $ 2,547
======= +======
Depreciation expense for the years ended February 23, 1996,
February 24, 1995 and February 25, 1994 was $375 and $420,
respectively.
Accumulated amortization relating to leased assets under
capital leases was $355 as of February 24, 1995.
6. Long Term-Obligations and Credit Arrangements:
At February 23, 1996, the Company has a credit facility with
two banks which provides financing of up to an aggregate of
$7.7 million. The facility is a revolving credit agreement
whose expiration has been extended to March 31, 1997. The
facility has been amended for certain financial covenants
and to reduce, in stages, the availability under the credit
facility to $5.6 million by that date. Reduction of the
credit facility is partially conditional upon collection of
amounts due of approximately $1.5 million under a contract
currently in dispute with the Royal Thai Air Force (RTAF).
Minimum reduction of the facility is $600, with the balance
conditional upon the aforementioned RTAF proceeds. The
proceeds from the credit facility are utilized to provide
working capital financing and to support the issuance of
letters of credit. The credit facility includes certain
covenants related to, among other things, prohibitions on
the payment of cash dividends, minimum tangible net worth
requirements, and various financial ratios. during the
fiscal year ended February 23, 1996, the Company was in
noncompliance with certain financial covenants. These
events of noncompliance have been waived by the lending
institutions as part of the new credit facility that extends
through March 31, 1997. The credit facility is
collateralized by substantially all assets of the Company.
At February 23, 1996, direct borrowings under the credit
facility are limited to the lesser of $7.5 million or the
Company's borrowing base as calculated pursuant to the terms
of the agreement (approximately $7.8 million borrowing base
at February 23, 1996). The letter of credit sublimit is $7
million. At February 23, 1996, there were $1 million
letters of credit outstanding (of which approximately $900
were cash collateralized), exclusive of a $1.1 million
letter of credit for the RTAF which was drawn against in the
first quarter of fiscal 1995 (see Note 11). Interest is
charged on direct borrowings at the bank's prime rate plus
2.0%. The Company is required to pay a commitment fee of
0.5% per annum on the average unused balance. Fees on
letters of credit outstanding are 2.0%.
The approximate average loan balance, maximum aggregate
borrowings outstanding at any month-end payable to banks
during the fiscal years, and weighted average interest rate
computed by the days outstanding method are as follows:
Year Ended Year Ended
February 23, February 24,
1996 1995
Approximate average
loan balance $8,189 $ 9,283
Maximum aggregate
borrowings outstanding
at any month-end $8,938 $ 10,078
Weighted average interest rate 10.33% 8.35%
The bank's prime interest rate was 8.25% and 9.0% at
February 23, 1996 and February 24, 1995, respectively. As a
condition to the issuance of the original credit facility,
warrants to purchase 100,000 shares of the Company's common
stock at $5.00 per share were issued on November 30, 1990.
As a condition to the extension of the credit facility
through March 31, 1997, warrants will be issued to purchase
100,000 shares of the Company's common stock at a price
equal to the average trading price of the Company's stock
for the 10 days prior to issuance. The warrants will be
exercisable through 2001. If the holder desire to sell or
transfer any of its warrants, the Company has the right of
first refusal. A deferred charge associated with the
warrants will be assigned and amortized to profit and loss
over the 13-month period ending March 31, 1997. The Company
also agreed to issue warrants for purchase of up to 3% of
the Company's outstanding shares as of March 31, 1997.
Warrants issued provide for adjustments of the exercise
price and the number of shares issuable thereunder in the
event that the Company issues additional shares of common
stock or rights to purchase common stock at a price less
than the current warrant price or current market price,
whichever is greater.
During June 1995, the Company entered into a settlement
agreement with the employee of a customer who brought a
products liability claim against the Company. The
settlement of $1,195 win be satisfied with (i) funds of $547
(including accrued interest) previously deposited by the
Company's products liability insurance carrier with the U.S.
District Court and (ii) a settlement payable to the
plaintiff for the remaining amount of $648. The Company
paid $53 on or before July 20, 1995 and $100 on or before
April 20, 1996; and will pay $55 on or before July 31, 1996,
and continuing on July 31 of each year thereafter until the
amount of $648 is satisfied, unless (i) the Company is not
in compliance with all credit facility covenants and
(ii) the lenders object to such payment. If payment of any
annual installment is not made in any year, the obligation
would be extended accordingly. No interest accrues on this
settlement. The Company has recorded a discount of $173 on
this settlement, based on an imputed interest rate of 11%
which will be amortized over the term of the note.
Long-term obligations at February 23, 1996 and February 24,
1995 consists of the following:
1996 1995
---- ----
Credit facility payable to banks
due March 31, 1997 $ 7,489 $ 8,939
Products liability settlement,
non-interest bearing (net of
unamortized discount of $173
and $228, respectively, based
on imputed interest rate of 11%) 422 420
Term loans payable accruing
interest at 9.9% collateralized
by priority liens on certain
equipment 44 34
Capitalized lease obligations - 18
------- -------
7,955 9,411
Less current portion (2,441) (2,278)
------- -------
$ 5,514 $ 7,133
======= =======
The amount of long-term obligations maturing in each of the
next five fiscal years, except for capital lease obligations
and the credit facility, is $155 in 1997; $55 in 1998; $55
in 1999; $55 in 2000; and $55 in 2001; and $220 thereafter.
Included in the current portion above of $2,441 for 1996 is
a conditional payment of $1.5 million reflecting the
proceeds from the RTAF claim receivable.
Based on the borrowing rates currently available to the
Company for bank loans with similar terms and average
maturities, the fair value of long-term debt approximates
the carrying value.
7. Leases:
Operating Leases:
The Company leases certain premises and office equipment
under operating leases which expire over the next five
years. Future minimum rental payments required under
noncancellable operating leases having a remaining term
expiring after one fiscal year as of February 23, 1996 are
$128 in 1997, $31 in 1998, $5 in 1999, and $0 in 2000 and
thereafter.
Total rental expense for all operating leases for the years
ended February 23, 1996 and February 24, 1995 was
approximately $29 and $284, respectively.
8. Income Taxes:
The components of the provision (benefit) for income taxes
are as follows:
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Currently payable (benefit):
Federal $ 21 $ (88)
State - (12)
----- -----
21 (100)
----- -----
Deferred:
Federal 72 (320)
State 46 (13)
----- -----
118 (333)
----- -----
$139 $(433)
==== =====
A reconciliation of the statutory federal income tax
(benefit) to the effective tax is as follows:
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Statutory income tax 34.0% (34.0)%
State income tax, net of
federal tax benefit 8.8 (0.9)
Foreign sales corporation (13.8) -
Settlement of federal tax audit - 10.9
Other 2.7 0.4
----- -----
31.7% (23.6)%
===== =====
The tax effects of the primary temporary differences giving
rise to the Company's net deferred tax liability for the
years ended February 23, 1996 and February 24, 1995 are as
follows:
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Deferred tax liabilities:
Amortization of capitalized
software $ 629 $ 527
Depreciation 371 337
Other, net 4 29
------ -----
1,004 893
------ -----
Deferred tax assets:
Net arbitration award against
Company 174 264
Net products liability
settlement 165 148
Vacation reserve 71 85
Inventory reserve 39 35
Federal net Operating Loss 74 -
Other, net 111 109
------ ------
634 641
------ ------
Net deferred tax liability $ 370 $ 252
====== =====
9. Business Segment Information:
The Company primarily manufactures, under contract various
types of high technology equipment which it has also
designed and developed. A significant portion of the
equipment is sold directly or through distributors to
foreign markets. Except for the foreign sales activity and
certain operations and maintenance contracts, all operations
of the Company are conducted in the United States.
Information on the Company's industry segments is as
follows:
Year Ended Year Ended
February 23, February 24,
1996 1995
------------ ------------
Net sales:
Aircrew Training Systems $ 8,038 $ 5,727
Sterilizers 4,762 6,955
Environmental Systems and
other 2,780 3,506
------- -------
Total $15,580 $16,188
======= =======
Operating income (loss):
Aircrew Training Systems $ 2,240 377
Sterilizers
Excluding products liability
settlement (232) (29)
Products liability settlement - (420)
Environmental Systems and other (118) (234)
------- -------
1,890 (306)
General corporate expenses (398) (585)
------- -------
Operating income (loss) 1,492 (891)
Interest expense (925) (793)
Letter of credit fees (23) (32)
Other, net (106) (122)
------- -------
Income (loss) before income
taxes $ 438 $(1,838)
======= ========
Identifiable assets:
Aircrew Training Systems $14,154 $12,069
Sterilizers 2,376 3,065
Environmental Systems and other 1,417 1,804
Corporate assets 2,979 3,865
------- -------
Total assets $20,926 $20,803
======= =======
Operating income (loss) consists of net sales less
applicable costs and expenses relating to these revenues.
General corporate expenses, letter of credit fees, interest
expense, other expenses, and income taxes have been excluded
from the determination of segment operating income (loss).
General corporate expenses are primarily central
administrative office expenses. Property, plant and
equipment and, accordingly, depreciation and capital
expenditures are not identifiable with specific business
segments because most of these assets are used in each of
the segments.
Approximately 15% of sales in 1996 were made to one
international customer, totalling sales of $2,366 in the
Aeromedical segment. In 1995 13% of the sales were made to
one domestic customer, totalling sales of $2,127 in the
Sterilizers segment.
Included in the segment information for the year ended
February 23, 1996 are export sales of approximately $9,198.
Of these amounts, there are sales to or relating to the
Governments of Japan ($559), Bangladesh ($602) and the
United Kingdom ($2,366) for the sale of Aeromedical training
equipment. Sales to the U.S. Government and its agencies
aggregate approximately $1,631 for the year ended
February 23, 1996.
Included in the segment information for the year ended
February 24, 1995 are export sales or sales for export of
approximately $6,310, of which approximately $4,447 relates
to the Far and Middle East. Of these amounts, there are
sales to or relating to the Governments of Singapore ($755)
and the United Kingdom ($880) for the sale of Aircrew
Training Systems. Sales to the U.S. Government and its
agencies aggregate approximately $2,643 for the year ended
February 24, 1995.
10. Stock Options:
The Company has an Incentive Stock Option Plan (the Plan)
which authorizes the granting of options for the purchase of
up to 500,000 shares (including options currently
outstanding from the 1988 and 1979 Plans) of the Company's
common stock to qualifying officers and other key employees.
At February 23, 1996 and February 24, 1995, there were
367,464 and 344,564 shares available to be granted under the
Plan, respectively. The Plan provides that option prices
shall not be less than 100% of the current market price of
The stock on the date of grant. Options may be exercised on
a cumulative basis at the rate of 25% per year commencing
one year after the date of grant. The Plan will terminate
on August 24, 1998.
Stock option activity under this Plan and the 1979 Incentive
Stock Option Plan for the years ended February 23, 1996,
February 24, 1995 was as follows:
Stock options
Shares price range
------ -------------
Outstanding, February 25, 1994 156,100 1.39 - 4.25
Granted -
Exercised (37,291) 1.39 - 4.25
Canceled (16,359) 2.25 - 4.25
-------
Outstanding, February 24, 1995 102,450 2.25 - 4.25
Granted -
Exercised -
Canceled (22,900) 2.25 - 4.25
-------
Outstanding, February 3, 1996 79,550
-------
Options to purchase 79,550
shares are currently
exercisable.
11. Claims and Litigation:
In October 1993, the Company was notified by the RTAF that
the RTAF was terminating a certain $4.6 million simulator
contract with the Company. Although the Company has
performed in excess of 90% of the contract, the RTAF alleged
a failure to completely perform. In connection with this
termination, the RTAF made a call on a $229 performance
bond, as well as a draw on approximately $1.1 million of
advance payment letters of credit. The RTAF has also
asserted liquidated damages pursuant to the contract against
the Company. In October 1993, the surety made payment on
the $229 performance bond, and in the first quarter of
fiscal 1995, it made payment on the approximately
$1.1 million advance payment letters of credit. The Company
has commenced arbitration with the RTAF. In the
arbitration, the Company is asserting claims against the
RTAF for reimbursement of the costs incurred on the bond and
letters of credit called, as well as claims for costs
incurred in connection with RTAF-directed changes in the
work and RTAF-caused delays and damages to the Company's
work. The Company is also claiming that the termination was
wrongful and that the company is entitled to complete the
work and to be paid the balance of the contract price. The
case is pending before the Thailand Arbitration Board.
Management believes the Company has meritorious claims in
excess of claims made by the RTAF, as well as meritorious
grounds to support nonpayment of the performance bond and
letters of credit. The Company has also denied the RTAF
claims and believes they are without merit. Accordingly. no
provision for any liability that may result has been made in
the accompanying financial statements. Management and legal
counsel believe that the ultimate outcome of these matters
will not have a material adverse effect on the Company's
financial position or results of operations.
Certain other claims, suits and complaints arising in the
ordinary course of business have been filed or are pending
against the Company. In the opinion of management, all such
matters are reserved for or are adequately covered by
insurance or, if not so covered, are without merit or are of
such kind, or involve such amounts as would not have a
significant effect on the financial position or results of
operations of the Company if disposed of unfavorably.
12. Quarterly Consolidated Financial Information (Unaudited):
<TABLE>
<CAPTION>
Financial data for the interim periods of 1996 and 1995 were as follows:
Quarter Ended
-------------------------------------
Fiscal Year 1996 May August November February
26 25 24 23
--- ------ -------- --------
<S> <C> <C> <C> <C>
Net sales $3,712 $3,559 $4,087 $4,222
Gross profit (loss) 1,426 1,251 1,270 1,259
Operating income (loss) 330 300 447 415
Income (loss) before income tax 109 69 165 95
Net income (loss) 70 45 107 77
Earnings (loss) per common share and
common share equivalent $ .02 $ .02 $ .04 $ .02
Quarter Ended
-------------------------------------
Fiscal Year 1995 May August November February
28 27 26 25
--- ------ -------- --------
Net sales $4,214 $3,868 $3,237 $4,869
Gross profit 797 690 1,279 1,331
Operating income (loss) (505) (340) 330 (376)
Income (loss) before income tax (702) (582) 100 (654)
Net income (loss) (439) (362) 62 (666)
Earnings (loss) per common share and
common share equivalent $ (.15) $ (.13) $ .02 $ (.23)
</TABLE>
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Environmental Tectonics Corporation
We have audited the accompanying consolidated balance sheets
of Environmental Tectonics Corporation and Subsidiary as of
February 23, 1996 and February 24, 1995, and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial
statements, the Company has recorded receivables in the amount of
$4.3 million for claims made to or against the United states and
foreign governments for contract costs incurred through
February 23, 1996. The total net claims amount made and to be
made are approximately $7.3 million based on costs incurred
through February 23, 1996 and are subject to negotiation,
arbitration, and audit by the United States and foreign
governments.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Environmental Tectonics
Corporation and Subsidiary as of February 23, 1996 and
February 24, 1995, and the consolidated results of their
operations and cash flows for the years then ended in conformity
with generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
May 22, 1996
EXHIBIT 23
Consent of Independent Certified Public Accountants
We have issued our report dated May 22, 1996, accompanying
the consolidated financial statements incorporated by reference
or included in the Annual Report of Environmental Tectonics
Corporation and Subsidiary on Form 10-KSB for the year ended
February 23, 1996. We hereby consent to the incorporation by
reference of said report in the Registration Statement of
Environmental Tectonics Corporation and Subsidiary on Form S-8
(File No. 2-92407, effective August 14, 1984) and on Form S-3
(File No. 33-42219, effective September 4, 1991).
GRANT THORNTON LLP
Philadelphia, Pennsylvania
May 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-23-1996
<PERIOD-END> FEB-23-1996
<CASH> 840
<SECURITIES> 0
<RECEIVABLES> 7,834
<ALLOWANCES> (124)
<INVENTORY> 3,611
<CURRENT-ASSETS> 16,809
<PP&E> 8,232
<DEPRECIATION> 5,734
<TOTAL-ASSETS> 20,926
<CURRENT-LIABILITIES> 8,931
<BONDS> 0
0
0
<COMMON> 1,984
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,926
<SALES> 15,580
<TOTAL-REVENUES> 15,580
<CGS> 10,374
<TOTAL-COSTS> 3,714
<OTHER-EXPENSES> 129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 925
<INCOME-PRETAX> 438
<INCOME-TAX> 139
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
