EXHIBIT 4.5
SUBORDINATION AGREEMENT
WHEREAS, Xxxxxx Welding Co., a Michigan corporation ("Borrower"), is
indebted to the Undersigned, pursuant to a Promissory Note dated April 2, 2004,
in the original principal amount of $670,000 (the "Subordinated Note"), which is
secured by a guaranty of even date therewith from Tarpon Industries, Inc. and a
Stock Pledge Agreement dated April 2, 2004 (collectively, the "Junior Debt
Instruments"), and will or may from time to time hereafter be otherwise indebted
to the Undersigned in various sums;
WHEREAS, the Undersigned is desirous of having STANDARD FEDERAL BANK N.A.
("Lender") extend and/or continue the extension of credit to Borrower from time
to time as Lender in its sole discretion may determine, and Lender has refused
to consider the extension and/or continued extension of such credit until the
Junior Debt (as defined below) and the Undersigned's Collateral (as defined
below) is subordinated to the Senior Debt (as defined below) and the Lender's
Collateral (as defined below) in the manner hereinafter set forth; and
WHEREAS, the extension and/or continued extension of credit, as aforesaid,
by Lender is necessary or desirable to the conduct and operation of the business
of Borrower, and will inure to the personal and financial benefit of the
Undersigned.
NOW, THEREFORE, in consideration of the extension and/or continued
extension of credit by Lender to Borrower, as Lender may, in its sole
discretion, determine, and for other good and valuable consideration to the
Undersigned, the receipt and sufficiency of which is hereby acknowledged, the
Undersigned hereby:
(A) subordinates the indebtedness of Borrower evidenced by the
Junior Debt Instruments, as well as any and all other indebtedness for
borrowed money now or at any time or times hereafter owing by Borrower, or
any successor or assign of Borrower, including without limitation, a
receiver, trustee, or debtor-in-possession (the term "Borrower" as used
hereinafter shall include any such successor or assign) to the
Undersigned, whether such indebtedness is absolute or contingent, direct
or indirect and howsoever evidenced, including without limitation all
interest thereon (collectively, the "Junior Debt") to any and all
indebtedness now or at any time or times hereafter owing by Borrower to
Lender (whether absolute or contingent, direct or indirect and howsoever
evidenced, including without limitation all interest thereon, whether or
not such interest is allowed in a bankruptcy or similar proceeding) and
all other demands, claims, liabilities or causes of action for which
Borrower may now or at any time or times hereafter in any way be liable to
Lender, whether under any agreement, instrument, or document executed and
delivered or made by Borrower to Lender or otherwise (collectively, the
"Senior Debt");
(B) agrees not to ask for or receive from Borrower any security
for the Junior Debt not specifically granted by the Junior Debt
Instruments; agrees to subordinate all security interests, liens,
encumbrances and claims, whether now existing or hereafter arising, which
in any way secure the payment of the Junior
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Debt (the "Undersigned's Collateral") to all security interests, liens,
encumbrances and claims, whether now existing or hereafter arising,
including without limitation claims under guaranties of the Senior Debt,
which in any way secure the payment of the Senior Debt (the "Lender's
Collateral"); agrees that it will not take any action to enforce any of
its liens or claims on the Undersigned's Collateral or otherwise under the
Junior Debt Instruments, except that upon or after the due date of the
Subordinated Note, the Undersigned may upon the non-payment by Borrower of
such Subordinated Note upon or after the due date thereof, (i) institute
suit for a money judgment to collect any such payments from Tarpon or any
other persons (other than Borrower) liable for such payments, or (ii)
institute suit against Tarpon or any other persons (other than Borrower)
liable for such payments to collect all or any portion of the Subordinated
Note and foreclose on any of the Undersigned's Collateral that is owned by
Tarpon (other than its ownership interest in Borrower) or any other
persons (other than Borrower) liable for such payments and not owned by
Borrower or used by Borrower in the ordinary course of its business;
(C) agrees that in the event Lender forecloses or realizes upon or
enforces any of its rights with respect to Lender's Collateral, or
Borrower sells any of Lender's Collateral in a transaction consented to by
Lender, the Undersigned shall, upon demand, execute such terminations,
partial releases and other documents as Lender requests in its sole
discretion to release the Undersigned's lien and claims upon such Lender's
Collateral to the extent of Lender's interest therein; agrees that it
shall have no right to possession of any assets included in the
Undersigned's Collateral if it is included in the Lender's Collateral or
is otherwise used by Borrower in the ordinary course of its business,
whether by judicial action or otherwise, unless and until Lender has, in
writing, notified the Undersigned that all the Senior Debt has been paid
in full and all obligations arising in connection therewith have been
discharged; agrees that it will not contest the validity, perfection,
priority or enforceability of any lien or security interest now or
hereafter granted to secure the Senior Debt; and agrees that, as between
Lender and the Undersigned, the terms of this Subordination Agreement
shall govern even if all or part of the Lender's claim or the liens or
security interests securing payment thereof, are avoided, disallowed, set
aside or otherwise invalidated;
(D) agrees to instruct Borrower not to pay, and agrees not to
accept payment of, or assert, demand, xxx for or seek to enforce against
Borrower, by setoff or otherwise, all or any portion of the Junior Debt or
any of the Junior Debt Instruments unless and until Lender has, in
writing, notified the Undersigned that the Senior Debt has been paid in
full and all obligations arising in connection therewith have been
discharged; except, however, (i) until the occurrence of an event that
would constitute an Event of Default (with or without notice or lapse of
time) under the agreements and instruments evidencing or relating to the
Senior Debt (the "Senior Debt Instruments"), Borrower may make and the
Undersigned
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may accept payments of principal and interest under the Junior Debt
Instruments on an unaccelerated basis at or after stated maturity, to the
extent such payments are made from proceeds of loans or equity
contributions made by Tarpon Industries, Inc., after completion of the
sale of common shares by Tarpon Industries, Inc., pursuant to an
underwritten initial public offering of such shares pursuant to an
effective registration statement filed with the United States Securities
and Exchange Commission (the "IPO"), and (ii) Borrower may make and the
Undersigned may accept payments of all or any portion of the principal and
interest under the Junior Debt Instruments on an unaccelerated basis at or
after stated maturity, if, and to the extent that: (a) the Junior Debt has
matured, (b) Tarpon has not yet completed the IPO, (c) at the time of any
such payment and immediately thereafter there is no Event of Default nor
any event that with notice or lapse of time would constitute an Event of
Default under the Senior Debt Instruments other than Tarpon's and
Borrower's failure to have paid when due the Subordinated Note, other
indebtedness due the Undersigned or other indebtedness subordinated to
Lender under a written subordination agreement of even date herewith, and
(d) Borrower has Excess Availability (as defined in the Senior Debt
Instruments) of at least $1,000,000 immediately after such payment and has
an average Excess Availability over the period of 90 days ending on the
date of such payment of at least $1,000,000 plus the amount of such
payment;
(E) during the continuance of an Event of Default under the Senior
Debt of which the Undersigned has actual notice, other than Tarpon's and
Borrower's failure to have paid when due the Subordinated Note, other
indebtedness due the Undersigned or other indebtedness subordinated to
Lender under a written subordination agreement of even date herewith, or
in the event of a breach by the Undersigned of its obligations hereunder,
subrogates Lender to the Junior Debt and the Undersigned's Collateral and
irrevocably authorizes Lender (i) to collect, receive, enforce and accept
any and all sums or distributions of any kind that may become due, payable
or distributable on or in respect of the Junior Debt or the Undersigned's
Collateral, whether paid directly by Borrower or paid or distributed in
any liquidation, bankruptcy, arrangement, receivership, assignment,
reorganization or dissolution proceedings or otherwise, and (ii) in
Lender's sole discretion, to make and present claims therefor in, and take
such other actions as Lender deems necessary or advisable in connection
with, any such proceedings, either in Lender's name or in the name of the
Undersigned; and agrees that, during the continuance of an Event of
Default under the Senior Debt Instruments of which the Undersigned has
actual notice, other than Tarpon's and Borrower's failure to have paid
when due the Subordinated Note, other indebtedness due the Undersigned or
other indebtedness subordinated to Lender under a written subordination
agreement of even date herewith, or in the event of a breach by the
Undersigned of its obligations hereunder, he will upon the written request
of Lender promptly assign, endorse and deliver to and deposit with Lender
all agreements, instruments and documents evidencing the Junior Debt,
including without limitation the Junior Debt Instruments;
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(F) agrees to receive and hold in trust for and promptly turn over
to Lender, in the form received (except for the endorsement or assignment
by the Undersigned where necessary), any sums at any time paid to, or
received by, the Undersigned in violation of the terms of this Agreement
and to reimburse Lender for all costs, including reasonable attorney's
fees, incurred by Lender in the course of collecting said sums should the
Undersigned fail to voluntarily turn the same over to Lender as herein
required. If the Undersigned fails to endorse or assign to Lender any
items of payment received by the Undersigned on account of the Junior Debt
or the Undersigned's Collateral to the extent required hereby, the
Undersigned hereby irrevocably makes, constitutes and appoints Lender (and
all persons designated by Lender for that purpose) as the Undersigned's
true and lawful attorney and agent-in-fact, to make such endorsement or
assignment in the Undersigned's name; and
(G) agrees that it shall not modify or amend any agreement,
instrument or document evidencing or securing the Junior Debt, including
without limitation the Junior Debt Instruments, without the prior written
consent of Lender.
Upon written request by the Undersigned in each instance, Lender will
endeavor to notify the Undersigned of any conditions described in paragraph
(D)(c); however, Lender shall have no obligation to do so and shall not waive
any of its rights or interests if it fails or refuses to do so.
The Undersigned represents and warrants to Lender that the Undersigned has
not assigned or otherwise transferred the Junior Debt or the Undersigned's
Collateral, or any interest therein to any person or entity, that the
Undersigned will make no such assignment or other transfer thereof, and that all
agreements, instruments and documents evidencing the Junior Debt and the
Undersigned's Collateral will be endorsed with proper notice of this Agreement.
The Undersigned and Borrower will, within ten days following the date hereof,
deliver to Lender a certified copy of the Junior Debt Instruments, as well as
certified copies of all other agreements, instruments and documents hereafter
evidencing any Junior Debt, in each case showing such endorsement. The
Undersigned represents and warrants to Lender that the outstanding principal
amount of Junior Debt evidenced by the Junior Debt Instruments as of the date of
this Agreement is $670,000, plus accrued interest.
The Undersigned expressly waives all notice of the acceptance by Lender of
the subordination and other provisions of this Agreement and all notices not
specifically required pursuant to the terms of this Agreement, and the
Undersigned expressly waives reliance by Lender upon the subordination and other
provisions of this Agreement as herein provided. The Undersigned consents and
agrees that all Senior Debt shall be deemed to have been made, incurred and/or
continued at the request of the Undersigned and in reliance upon this Agreement.
The Undersigned agrees that Lender has made no warranties or representations
with respect to the due execution, legality, validity, completeness or
enforceability of the documents, instruments and agreements evidencing the
Senior Debt, that Lender shall be entitled to manage and supervise its financial
arrangements with Borrower in accordance with its usual practices,
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without impairing or affecting this Agreement, and that Lender shall have no
liability to the Undersigned, and the Undersigned hereby waives any claim which
it may now or hereafter have against Lender arising out of (i) any and all
actions which Lender takes or omits to take (including without limitation
actions with respect to the creation, perfection or continuation of liens or
security interests in any existing or future Lender's Collateral, actions with
respect to the occurrence of an event of default under any documents,
instruments or agreements evidencing the Senior Debt, actions with respect to
the foreclosure upon, sale, release, or depreciation of, or failure to realize
upon, any of Lender's Collateral and actions with respect to the collection of
any claim for all or any part of the Senior Debt from any account debtor,
guarantor or other person or entity) with respect to the documents, instruments
and agreements evidencing the Senior Debt or to the collection of the Senior
Debt or the valuation, use, protection or release of Lender's Collateral (ii)
Lender's election in any proceeding instituted under Chapter 11 of Title 11 of
United States Code (11 U.S.C. 101 et. seq.) (the "Bankruptcy Code"), of the
application of Section 1111(b)(2) of the Bankruptcy Code, and/or (iii) any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code by Borrower, as debtor in possession. Without limiting the generality of
the foregoing, the Undersigned waives the right to assert the doctrine of
marshalling with respect to any of the Lender's Collateral, and consents and
agrees that Lender may proceed against any or all of the Lender's Collateral in
such order as Lender shall determine in its sole discretion.
The Undersigned agrees that Lender, at any time and from time to time
hereafter, may enter into such agreements with Borrower as Lender may deem
proper extending the time of payment of or renewing or otherwise altering the
terms of all or any of the Senior Debt or affecting any of Lender's Collateral,
and may sell or surrender or otherwise deal with any of Lender's Collateral, and
may release any balance of funds of Borrower with Lender, without notice to the
Undersigned and without in any way impairing or affecting this Agreement.
This Agreement shall be irrevocable and shall constitute a continuing
agreement of subordination and shall be binding on the Undersigned and its
heirs, personal representatives, successors and assigns, and shall inure to the
benefit of Lender, its successors and assigns until Lender has, in writing,
notified the Undersigned that all of the Senior Debt has been paid in full and
all obligations arising in connection therewith have been discharged. Lender may
continue, without notice to the Undersigned, to lend monies, extend credit and
make other accommodations to or for the account of Borrower on the faith hereof.
The Undersigned hereby agrees that all payments received by Lender may be
applied, reversed, and reapplied, in whole or in part, to any of the Senior
Debt, without impairing or affecting this Agreement.
The Undersigned hereby assumes responsibility for keeping itself informed
of the financial condition of Borrower, any and all endorsers and any and all
guarantors of the Senior Debt and the Junior Debt and of all other circumstances
bearing upon the risk of nonpayment of the Senior Debt and the Junior Debt that
diligent inquiry would reveal, and the Undersigned hereby agrees that Lender
shall have no duty to advise the Undersigned of information known to Lender
regarding such condition or any such circumstances or to undertake any
investigation not a part of its regular business routine. If Lender, in its sole
discretion, undertakes, at any time or from time to time, to provide any
information of the type described herein to the Undersigned,
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Lender shall be under no obligation to subsequently update any such information
or to provide any such information to the Undersigned on any subsequent
occasion.
The Undersigned hereby authorizes Lender to file and/or record UCC
financing statements for the purpose of providing notice to third parties of the
existence and effect of this Agreement.
No waiver shall be deemed to be made by Lender of any of its rights
hereunder unless the same shall be in writing signed on behalf of Lender and
each such waiver, if any, shall be a waiver only with respect to the specific
matter or matters to which the waiver relates and shall in no way impair the
rights of Lender or the obligations of the Undersigned to Lender in any other
respect at any other time.
THIS AGREEMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF
THE STATE OF MICHIGAN.
To induce Lender and the Undersigned to accept this Agreement, the
Undersigned and the Lender irrevocably agree that ALL ACTIONS OR PROCEEDINGS IN
ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT
SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF OAKLAND, STATE OF
MICHIGAN. THE UNDERSIGNED AND LENDER HEREBY CONSENT AND SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID COUNTY
AND STATE. THE UNDERSIGNED AND THE LENDER HEREBY WAIVE ANY RIGHT THEY MAY HAVE
TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST THE
UNDERSIGNED OR LENDER IN ACCORDANCE WITH THIS PARAGRAPH.
THE UNDERSIGNED AND LENDER HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT.
IN WITNESS WHEREOF, this Agreement has been executed as of this
11th day of August, 2004.
/s/ Xxxxxxx X. Xxxxxxx
-------------------------
Xxxxxxx X. Xxxxxxx
Address:
0000 Xxxxxxxxx XX
Xxxx Xxxxx, XX
00000
6
ACKNOWLEDGMENT OF SIGNATURES
STATE OF MICHIGAN )
) SS.
COUNTY OF XXXXX )
I, Xxxxxx X. Xxxxxxxxx, a Notary Public in and for the state and county
aforesaid, do hereby certify that before me this day personally appeared Xxxxxxx
X. Xxxxxxx, known to me to be the person that executed the foregoing Agreement,
and acknowledged to me that he executed and delivered the foregoing Agreement
for the uses set forth therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
11th day of August, 2004.
/s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Notary Public
Acting in Xxxxx County, Michigan
My Commission Expires: 12/30/07
Xxxxxx X. Xxxxxxxxx
Notary Public, Xxxxx County, Michigan
My Commission Expires: December 30, 2007
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BORROWER'S CONSENT
Borrower hereby consents to the foregoing Agreement (and the terms
thereof) and agrees to abide thereby and to keep, observe and perform the
several matters and things therein intended to be kept, observed and performed
by it, and specifically agrees not to make any payments contrary to the terms of
said Agreement.
A breach of any of the terms and conditions of this consent shall
constitute an "Event of Default" under the Loan and Security Agreement dated of
even date herewith between Borrower and Lender.
BORROWER:
XXXXXX WELDING CO.
By /s/ Xxxxxxx X. Xxxxxxx
-------------------------------------------
Xxxxxxx X. Xxxxxxx, Chief Executive Officer
ACKNOWLEDGMENT OF SIGNATURES
STATE OF MICHIGAN )
) SS.
COUNTY OF XXXXX )
I, Xxxxxx X. Xxxxxxxxx, a Notary Public in and for the state and county
aforesaid, do hereby certify that before me this day personally appeared Xxxxxxx
X. Xxxxxxx, known to me to be the Chief Executive Officer of the corporation
that executed the foregoing consent and acknowledged to me that he (they)
executed and delivered the foregoing consent for and on behalf of the
corporation, for the uses set forth therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
11th day of August, 2004.
/s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Notary Public
Acting in Xxxxx County, Michigan
My Commission Expires: 12/30/07
Xxxxxx X. Xxxxxxxxx
Notary Public, Xxxxx County, Michigan
My Commission Expires: December 30, 2007
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TARPON'S CONSENT
Tarpon hereby consents to the foregoing Agreement (and the terms thereof)
and agrees to abide thereby and to keep, observe and perform the several matters
and things therein intended to be kept, observed and performed by it, and
specifically agrees not to make or receive any payments contrary to the terms of
said Agreement.
A breach of any of the terms and conditions of this consent shall
constitute an "Event of Default" under the Loan and Security Agreement dated of
even date herewith between Borrower and Lender.
TARPON:
TARPON INDUSTRIES, INC.
By /s/ Xxxxxxx X. Xxxxxxx
------------------------------------------
Xxxxxxx X. Xxxxxxx, Chief Executive Officer
ACKNOWLEDGMENT OF SIGNATURES
STATE OF MICHIGAN )
) SS.
COUNTY OF XXXXX )
I, Xxxxxx X. Xxxxxxxxx, a Notary Public in and for the state and county
aforesaid, do hereby certify that before me this day personally appeared Xxxxxxx
X. Xxxxxxx known to me to be the Chief Executive Officer of the corporation that
executed the foregoing consent and acknowledged to me that he (they) executed
and delivered the foregoing consent for and on behalf of the corporation, for
the uses set forth therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
11th day of August, 2004.
/s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Notary Public
Acting in Xxxxx County, Michigan
My Commission Expires: 12/30/07
Xxxxxx X. Xxxxxxxxx
Notary Public, Xxxxx County, Michigan
My Commission Expires: December 30, 2007
9
LENDER'S CONSENT
Lender hereby consents to the foregoing Agreement (and the terms thereof).
LENDER:
STANDARD FEDERAL BANK N.A.
By /s/ Xxxx Xxxxxx
----------------------
Xxxx Xxxxxx, Vice President
STATE OF MICHIGAN )
) SS.
COUNTRY OF XXXXX )
I, Xxxxxx X. Xxxxxxxxx, a Notary Public in and for the state and county
aforesaid, do hereby certify that before me this day personally appeared Xxxx
Xxxxxx, known to me to be the Vice President of the bank that executed the
foregoing consent and acknowledged to me that he (they) executed and delivered
the foregoing consent for and on behalf of the corporation, for the uses set
forth therein.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal this
11th day of August, 2004.
/s/ Xxxxxx X. Xxxxxxxxx
---------------------------
Notary Public
Acting in Xxxxx County, Michigan
My Commission Expires: 12/30/07
Xxxxxx X. Xxxxxxxxx
Notary Public, Xxxxx County, Michigan
My Commission Expires: December 30, 2007
