EXECUTION VERSION
WAIVER AND FOURTH AMENDMENT TO LOAN AGREEMENT
AND REAFFIRMATION OF GUARANTY
This WAIVER AND FOURTH AMENDMENT TO LOAN AGREEMENT AND REAFFIRMATION OF
GUARANTY (this "Agreement") is made and entered into as of the 30th day of
March, 2007, by and among LASALLE BANK MIDWEST N.A., a national banking
association, successor to Standard Federal Bank, N.A. ("Lender"), as the lender,
XXXXXX WELDING CO., a Michigan corporation, as the borrower ("Borrower") and
TARPON INDUSTRIES, INC., a Michigan corporation, as a guarantor and Obligor
("Tarpon"). All capitalized terms used but not otherwise defined herein shall
have the respective meanings ascribed to such terms in the Loan Agreement (as
defined below).
RECITALS
A. Lender has made or agreed to make to Borrower (i) certain revolving
loans (the "Revolving Loans") in the original principal sum of up to $7,000,000,
as evidenced by that certain Revolving Note dated as of August 11, 2004, and
(ii) a certain term loan (the "Term Loan") in the original principal sum of
$1,394,000, as evidenced by that certain Term Note dated August 11, 2004.
B. The aforementioned loans were made pursuant to and secured by, inter
alia, (i) that certain Loan and Security Agreement, dated as of August 11, 2004
(as heretofore or hereafter amended, restated, supplemented or otherwise
modified from time to time, including, without limitation, pursuant to this
Agreement, the "Loan Agreement"), between Borrower and Lender, (ii) that certain
Securities Pledge Agreement, dated as of August 11, 2004 (as heretofore or
hereafter amended, restated, supplemented or otherwise modified from time to
time, the "Pledge Agreement"), from Borrower in favor of Lender, (iii) that
certain Continuing Unconditional Guaranty, dated as of August 11, 2004 (as
heretofore or hereafter amended, restated, supplemented or otherwise modified
from time to time, the "Guaranty"), made by Tarpon in favor of Lender, and (iv)
the "Other Agreements," as such term is defined in the Loan Agreement.
C. Pursuant to that certain First Amendment to Loan Agreement and
Reaffirmation of Guaranty, entered into in December, 2004 (the "First
Amendment"), Lender and Borrower amended the Loan Agreement to increase the
Maximum Revolving Loan Limit from $7,000,000 to $9,000,000, and for the other
purposes and on the terms set forth therein.
D. Pursuant to that certain Second Amendment to Loan Agreement and
Reaffirmation of Guaranty, dated as of December 12, 2005 (the "Second
Amendment"), Lender and Borrower further amended the Loan Agreement (i) to reset
certain financial covenants and waive certain covenant defaults, (ii) to permit
certain loans and other payments to be made to Tarpon, (iii) to increase the
interest rate on the Loans, and (iv) for the other purposes and on terms set
forth therein.
E. Pursuant to that certain Third Amendment to Loan Agreement and
Reaffirmation of Guaranty, dated as of March 22, 2006 (the "Third Amendment"),
Lender and Borrower further amended the Loan Agreement to (i) establish a
$750,000 sublimit within the Revolving Loan Limit for issuance of letters of
credit, and (ii) allow Borrower to repay certain cash advances made by Tarpon
for the purpose of creating sufficient availability for the issuance of letters
of credit under the Loan Agreement.
F. The Loan Agreement, the Pledge Agreement, the Guaranty and the Other
Agreements are collectively referred to herein as the "Financing Agreements."
G. As of the date hereof, numerous Events of Default, including, without
limitation, those Events of Default referenced in the October 2, 2006 default
notice and reservation of rights letter delivered by Lender to Borrower, have
occurred and are continuing under the Loan Agreement.
H. Tarpon recently advised Lender that Tarpon and Laurus Master Fund, Ltd.
("Laurus") have entered into the Laurus Restructuring Letter Agreement, pursuant
to which Laurus agreed, subject to the terms and conditions set forth therein,
to restructure the secured indebtedness owing by Tarpon to Laurus under the
Laurus Secured Convertible Note.
I. Tarpon and Borrower have requested, and Lender has agreed, to further
amend the Loan Agreement to, among other things: (i) permit Tarpon to perform
its obligations under the Laurus Restructuring Letter Agreement, (ii) permit
proceeds of the Supplemental Equity Raises to be used to fund, among other
things, working capital expenditures incurred by, or for the direct benefit of,
Borrower, (iii) modify the interest rate on the Loans, (iv) reset the financial
covenants set forth in the Loan Agreement and add certain new financial
covenants thereto, (v) extend the Original Term and modify the prepayment
premium provisions, (vi) cross-default the Loan Agreement with the Steelbank
Loan Agreement (as defined below), the Laurus Secured Convertible Note and the
Laurus Restructuring Letter Agreement, and (vii) waive an existing Defaults and
Events of Default under the Loan Agreement, in each case subject to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and mutual
covenants and conditions contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Acknowledgement of Outstanding Loans. Borrower and Tarpon each
acknowledges and agrees that, as of March 29, 2007, (i) the outstanding
principal balance of the Term Loan was $720,233.43, and (ii) the outstanding
principal balance of the Revolving Loans was $5,300,295.20.
2. Acknowledgement and Waiver of Existing Events of Defaults. Borrower and
Tarpon each acknowledges and agrees that numerous Events of Default have
occurred and are continuing under the Loan Agreement as of the date hereof, and
that based thereon Lender has, since no later than October 1, 2006, had the
right to charge, and has been charging, interest on all Loans at the default
rate. Subject to the effectiveness of this Agreement, Lender hereby waives any
and all Events of Default that had occurred and were continuing under the Loan
Agreement or any Other Agreement as of the date hereof (collectively, the
"Existing Senior Defaults"); provided, however, that such waiver shall be
limited precisely as written and shall not be deemed or otherwise construed to
constitute a waiver of any other Default, Event of Default or any other term or
condition set forth in the Financing Agreements, nor shall it be deemed to
waive, affect or diminish any right of Lender hereafter to demand strict
compliance and performance with all of the terms and conditions of the Financing
Agreements, all of which rights, powers, defenses and remedies are hereby
expressly reserved by Lender.
3. Amendments to Loan Agreement. Upon the effectiveness of this Agreement,
the Loan Agreement shall be amended as follows:
a. Section 1 of the Loan Agreement is hereby amended by adding in proper
alphabetical order or amending and restating in its entirety, as applicable,
each of the following definitions:
""Applicable Margin" shall mean a percentage equal to: (i) during the
period commencing on the Fourth Amendment Closing Date and ending on
the Supplemental Raise 3 Closing Date, two percent (2.00%); (ii)
during the period commencing on the day immediately following the
Supplemental Raise 3 Closing Date and ending on June 30, 2008, the
percentage set forth in the "Margin" column opposite Level IV in the
table below; and (iii) beginning in the next calendar month
thereafter, and as of each date of determination (and until the next
such date of determination), a percentage equal to the percentage set
forth below in the "Margin" column opposite the Level at which both
the Debt Service Coverage Ratio test and the Excess Availability test
corresponding thereto are satisfied as of the last day of the then
most recently ended calendar month (provided, that if either such test
corresponding to Level IV is satisfied, the percentage opposite Level
IV below shall apply):
------------- ------------------------------------- -------------------------------- ----------------------
Level Debt Service Coverage Ratio Excess Availability Margin
------------- ------------------------------------- -------------------------------- ----------------------
I Greater than or equal to 3.00 to Greater than or equal to 0.25%
1.00 $750,000
------------- ------------------------------------- -------------------------------- ----------------------
II Greater than or equal to 2.50 to Greater than or equal to 0.50%
1.00 $750,000
------------- ------------------------------------- -------------------------------- ----------------------
III Greater than or equal to 2.00 to Greater than or equal to 1.00%
1.00 $500,000
------------- ------------------------------------- -------------------------------- ----------------------
IV Less than 2.00 to 1.00 Less than $500,000 1.50%
------------- ------------------------------------- -------------------------------- ----------------------
Each date of determination for the calculation of Applicable Margin
shall be the first day of the month immediately following the delivery
by the Borrower to Lender of a new Compliance Certificate for the most
recently ended calendar month. Notwithstanding anything to the
contrary set forth in this Agreement (including, without limitation,
the then effective Debt Service Coverage and Excess Availability),
each of the following shall result in the immediate increase in the
Applicable Margin to the percentage set forth in the appropriate
column opposite Level IV in the table above:
(i) if any Default or Event of Default has occurred and is continuing
as of any date of determination for the calculation of Applicable
Margin, the Level IV percentage in the table above shall remain
in effect until the first date of determination for the
calculation of Applicable Margin following the date on which all
Defaults and Events of Default have been cured by Borrower or
waived by Lender in its sole discretion;
(ii) if the Borrower fails to timely deliver a Compliance Certificate
and corresponding quarterly financial statements for any calendar
month as required under Section 9(c) hereof, the Level IV
percentage in the table above shall remain in effect until the
first date of determination for the calculation of Applicable
Margin with respect to which the Borrower delivers a Compliance
Certificate and all corresponding monthly financial statements
supporting a reduction to the Applicable Margin until the next
date of determination; and
(iii) if any Compliance Certificate or corresponding monthly financial
statement is shown to be inaccurate (regardless of whether this
Agreement or the commitments of Lender hereunder are in effect
when such inaccuracy is discovered), and such inaccuracy, if
corrected, would have led to the application of a higher
Applicable Margin for any period (each, an "Applicable Period")
than the Applicable Margin actually applied for such Applicable
Period, then: (A) the Borrower shall immediately deliver to
Lender a corrected Compliance Certificate for such Applicable
Period, (B) the Applicable Margin for such Applicable Period
shall be equal to the percentage set forth in the "Margin" column
opposite Level IV in the table above; and (C) Borrower shall
immediately pay to Lender the additional accrued interest owing
hereunder as a result of such increased Applicable Margin for
such Applicable Period (it being understood that this clause
(iii) shall not in any way limit the rights and remedies of
Lender with respect to any Default or Event of Default).
"Compliance Certificate" shall mean a compliance certificate in
the form attached hereto as Exhibit B, which shall include a
calculation of all financial covenants required to be tested for such
period pursuant to Section 14 hereof.
"Default" shall mean any event or circumstance which, with the
passage of time and/or the giving of notice, will become an Event of
Default.
"EBITDA" shall mean, with respect to any period, Borrower's net
income after taxes for such period; minus all after-tax gains or
losses on the sale of assets (other than the sale of Inventory in the
ordinary course of business) and all other after-tax extraordinary
gains and losses, in each case for such period; plus interest expense,
income tax expense, depreciation and amortization for such period;
plus all accrued unpaid management fees payable to Tarpon to the
extent permitted under Section 13(k) hereof; minus all dividends,
distributions and other payments of any kind made to, on behalf of or
for the direct benefit of Tarpon by Borrower; plus or minus, as
applicable, any other non-cash charges or gains which have been
subtracted or added, as the case may be, in calculating Borrower's net
income after taxes for such period.
"Excess Availability" shall mean, as of any date of determination
by Lender, the sum of: (a) lesser of (i) the Maximum Revolving Loan
Limit less the sum of the outstanding Revolving Loans and Letter of
Credit Obligations, and (ii) the Revolving Loan Limit less the sum of
the outstanding Revolving Loans and Letter of Credit Obligations, plus
(b) Borrower's cash and cash equivalents on hand, in each case as of
the close of business on such date of determination, and assuming, for
purposes of calculating Excess Availability, Lender may, in the
exercise of its sole discretion, and without prejudice to its ability
to establish other reserves permitted under this Agreement, establish
a reserve in an aggregate amount based on the Borrower's outstanding
debt which is in arrears (in accordance with Lender's normal
standards) or which is past due in any material respect, as of such
date of determination, to the extent thereof.
"Fourth Amendment" shall mean that certain Waiver and Fourth
Amendment to Loan Agreement and Reaffirmation of Guaranty, dated as of
the Fourth Amendment Closing Date, by and among Tarpon, Borrower and
Lender, as the same may be amended, restated or otherwise modified
from time to time in accordance with the terms thereof.
"Fourth Amendment Closing Date" shall mean March 30, 2007.
"Initial Maturity Date" shall mean the earlier to occur of (i)
August 31, 2010, and (ii) the date that is thirty (30) days prior to
the stated maturity date of the Laurus Secured Convertible Note.
"January 2007 Equity Raise" shall mean the equity financing
transaction consummated by Tarpon on or about January 25, 2007.
"LaSalle Canada" shall mean LaSalle Business Credit, a division
of ABN AMRO Bank N.V., Canada Branch.
"Laurus" shall mean Laurus Master Fund, Ltd.
"Laurus Indebtedness" shall mean all indebtedness and other
liabilities owing by any Obligor to Laurus pursuant to the Laurus Loan
Documents.
"Laurus Loan Documents" shall mean the Laurus Secured Convertible
Note, the Laurus Securities Purchase Agreement and other all
agreements, instruments and documents executed and/or delivered by any
Obligor and/or Laurus in connection therewith, as each of the same may
be amended, restated, supplemented or otherwise modified from time to
time in accordance with the respective terms thereof and of the
Subordination Agreement.
"Laurus Restructuring" shall mean the restructuring of the
Laurus Indebtedness pursuant to the terms and conditions set forth in
the Laurus Restructuring Letter Agreement.
"Laurus Restructuring Amendment" shall mean an amendment to all
applicable Laurus Loan Documents, each in form and substance
acceptable to the Lenders in its sold discretion and duly executed and
delivered by Tarpon and Laurus, pursuant to which Laurus shall have
agreed, consistent with the terms of the Laurus Restructuring Letter
Agreement, to: (a) extend the stated maturity date of the Laurus
Secured Convertible Note until a date that is three years after the
date Supplemental Raise 3 is consummated; (b) amend the default rate
of interest under the Laurus Secured Convertible Note to twelve
percent (12%) per annum; (c) amend the provision of the applicable
Laurus Loan Document(s) prohibiting Laurus from owning in excess of
4.99% of the issued and outstanding stock of Tarpon such that,
immediately after giving effect to such amendment, such maximum
percentage shall be increased to 9.99%; and (d) amend the amortization
payment schedule of the Laurus Secured Convertible Note such that the
remaining Laurus Indebtedness (after taking into account the waiver of
all Waived Default Charges pursuant to the Laurus Waiver and
Conversion Agreement) shall be amortized over a five year period
(commencing on the date Supplemental Raise 3 is consummated) with a
balloon payment due on the third anniversary of the consummation of
the Laurus Restructuring; provided, however, that if aggregate amount
of all principal payments made to Laurus under the Laurus Secured
Convertible Note during calendar year 2007 does not exceed $1,700,000,
then the outstanding principal amount of the Laurus Secured
Convertible Note shall be increased, effective as of January 1, 2008,
by an amount equal to Waived Default Charges, which added principal
shall be amortized as provided in the immediately preceding clause
(d).
"Laurus Restructuring Documents" shall mean, collectively, the
Laurus Restructuring Letter Agreement, the Laurus Waiver and
Conversion Agreement, the Laurus Restructuring Amendment and any other
document or instrument executed and delivered by Tarpon and/or any of
its Subsidiaries, on the one hand, and Laurus, on the other hand, in
connection with any of the foregoing.
"Laurus Restructuring Letter Agreement" shall mean that certain
letter agreement, dated as of February 28, 2007 (and as amended
pursuant to a letter agreement dated March 20, 2007), between Tarpon
and Laurus, pursuant to which Laurus agreed, subject to the terms and
conditions set forth therein, to restructure the Laurus Indebtedness,
as such letter agreement shall be in effect on the date hereof or be
subsequently amended, restated, supplemented or otherwise modified
with the prior written consent of Lender (provided, however, that such
consent of Lender shall be deemed given to any extension of any
deadline set forth in the Laurus Restructuring Letter Agreement solely
with respect to the consummation of the respective Supplemental Equity
Raises so long as no such extended deadline is later than the
corresponding deadline set forth in this Agreement).
"Laurus Secured Convertible Note" shall mean that certain Secured
Convertible Term Note, dated as of December 13, 2005, in the aggregate
original principal amount of $6,000,000, issued pursuant to the terms
of the Laurus Securities Purchase Agreement, as heretofore or
hereafter amended, restated, supplemented or otherwise modified from
time to time in accordance with the terms thereof and of the
Subordination Agreement, including, without limitation, pursuant to
the Laurus Restructuring Amendment (upon the effectiveness thereof).
"Laurus Securities Purchase Agreement" shall mean that certain
Securities Purchase Agreement, dated as of December 13, 2005, between
Tarpon and Laurus, as heretofore or hereafter amended, restated,
supplemented or otherwise modified from time to time in accordance
with the terms thereof and of the Subordination Agreement.
"Laurus Waiver and Conversion Agreement" shall mean a written
agreement, in form and substance acceptable to Lender in its sole
discretion and duly executed and delivered by Tarpon and Laurus,
pursuant to which Laurus shall have agreed, consistent with the terms
of the Laurus Restructuring Letter Agreement, to: (i) waive all then
existing defaults and events of default under the Laurus Secured
Convertible Note and Laurus Securities Purchase Agreement, including,
without limitation, those events of default arising as a result of the
occurrence of the Events of Default waived by Lender pursuant to the
Fourth Amendment; (ii) convert a portion of the Laurus Indebtedness at
the per share purchase price to be used in Supplemental Raise 2 such
that, immediately after giving effect to such conversion, Laurus shall
hold no more than 4.99% of the issued and outstanding stock of Tarpon;
and (c) waive all Waived Default Charges.
"Obligor" shall mean Borrower, Tarpon and each other Person
who is or shall become primarily or secondarily liable for any of the
Liabilities.
"Steelbank Loan Agreement" shall mean that certain Loan
Agreement, dated as of February 17, 2005, by and between Steelbank, as
the borrower thereunder, and LaSalle Canada, as the lender therunder,
as heretofore or hereafter amended, restated supplemented or otherwise
modified from time to time in accordance with its terms and the
Subordination Agreement.
"Steelbank" shall mean Steelbank Tubular Inc. (f/k/a Steelbank
Inc.).
"Subordination Agreement" shall mean that certain Subordination
Agreement, dated as of December 13, 2005, by and among Lender, LaSalle
Canada and Laurus, as heretofore or hereafter amended, restated,
supplemented or otherwise modified from time to time in accordance
with its terms.
"Subordinated Debt" shall mean any indebtedness of Borrower or
any other Obligor that is expressly subordinated to the Liabilities on
terms and conditions acceptable to the Lender in its discretion,
including, without limitation, the Laurus Indebtedness.
"Supplemental Equity Raises" shall mean, collectively,
Supplemental Raise 1, Supplemental Raise 2 and Supplemental Raise 3,
which shall be consummated in accordance with the terms of the Laurus
Restructuring Letter Agreement.
"Supplemental Raise 1" shall mean the first of three equity
financing transactions comprising the Supplemental Equity Raises
pursuant to which Tarpon shall raise and receive (except to the extent
proceeds are remitted directly to pay reasonable and customary
transaction expenses) not less than $1,250,000 of cash proceeds from
the issuance of equity interests in Tarpon consummated on terms and
conditions substantially similar to those of the January 2007 Equity
Raise.
"Supplemental Raise 1 Deadline" shall mean the earlier to occur
of (i) the deadline for consummation of "Raise 1" under, and as
defined in, the Laurus Restructuring Letter Agreement, or (ii) March
23, 2007.
"Supplemental Raise 2" shall mean the second of three equity
financing transactions comprising the Supplemental Equity Raises
pursuant to which Tarpon shall raise and receive (except to the extent
proceeds are remitted directly to pay reasonable and customary
transaction expenses) not less than $1,000,000 of cash proceeds from
the further issuance of equity interests in Tarpon (in addition to
proceeds received from Supplemental Raise 1) consummated on terms and
conditions substantially similar to those of the January 2007 Equity
Raise.
"Supplemental Raise 2 Deadline" shall mean the earlier to occur
of (i) the deadline for consummation of "Raise 2" under, and as
defined in, the Laurus Restructuring Letter Agreement, or (ii) May 1,
2007.
"Supplemental Raise 3" shall mean the third of three equity
financing transactions comprising the Supplemental Equity Raises
pursuant to which Tarpon shall raise and receive (except to the extent
proceeds are remitted directly to pay reasonable and customary
transaction expenses) not less than $4,000,000 of cash proceeds (in
addition to the proceeds received from Supplemental Raise 1 and
Supplemental Raise 2) from a formal underwritten equity offering or
otherwise on terms and conditions reasonably acceptable to Lender.
"Supplemental Raise 3 Closing Date" shall mean the date on which
Supplemental Raise 3 is consummated in accordance with those terms of
this Agreement, the Fourth Amendment and the Laurus Restructuring
Documents.
"Supplemental Raise 3 Deadline" shall mean the earlier to occur
of (i) the deadline for consummation of "Raise 3" under, and as
defined in, the Laurus Restructuring Letter Agreement, or (ii) August
1, 2007.
"Tarpon" shall mean Tarpon Industries, Inc. or any successor
entity that owns one hundred percent of the issued and outstanding
capital stock of Borrower at any time.
"Waived Default Charges" shall mean all existing default
interest, fees and other charges that accrued under the Laurus Loan
Documents at any time prior to the effectiveness of the Laurus Waiver
and Conversion Agreement."
b. Section 4 of the Loan Agreement is hereby amended by amending and
restating subsection (a) thereof in its entirety as follows:
"(a) Interest Rate.
Each Loan shall bear interest at the Applicable Margin per annum
in excess of the Prime Rate in effect from time to time, payable on
the first Business Day of each month in arrears. Said rate of interest
shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each
such change in the Prime Rate. Upon the occurrence of an Event of
Default, each Loan shall bear interest at the rate of two percent
(2.00%) per annum in excess of the interest rate otherwise payable
thereon, which interest shall be payable on demand. All interest shall
be calculated on the basis of a 360-day year."
c. Section 10 of the Loan Agreement is hereby amended by amending and
restating such Section in its entirety as follows:
"THIS AGREEMENT SHALL BE IN EFFECT FROM THE DATE HEREOF UNTIL THE
INITIAL MATURITY DATE (THE "ORIGINAL TERM"), AND SHALL AUTOMATICALLY
RENEW ITSELF FROM YEAR TO YEAR THEREAFTER (EACH SUCH ONE-YEAR RENEWAL
BEING REFERRED TO HEREIN AS A "RENEWAL TERM") UNLESS (A) LENDER ELECTS
TO TERMINATE THIS AGREEMENT AT THE END OF THE ORIGINAL TERM OR ANY
RENEWAL TERM OR MAKES DEMAND FOR REPAYMENT PRIOR TO THE END OF THE
ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM; (B) THE DUE DATE OF
THE LIABILITIES IS ACCELERATED PURSUANT TO SECTION 16 HEREOF; OR (C)
BORROWER ELECTS TO TERMINATE THIS AGREEMENT AT THE END OF THE ORIGINAL
TERM OR AT THE END OF ANY RENEWAL TERM BY GIVING LENDER WRITTEN NOTICE
OF SUCH ELECTION AT LEAST SIXTY (60) DAYS PRIOR TO THE END OF THE
ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM AND BY PAYING ALL OF
THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH TERM. If one or more
of the events specified in the immediately preceding clauses (A), (B)
and (C) occurs or this Agreement otherwise expires, then (i) Lender
shall not make any additional Loans on or after the date identified as
the date on which the Liabilities are to be repaid; and (ii) this
Agreement shall terminate on the date thereafter that the Liabilities
are paid in full. At such time as Borrower has repaid all of the
Liabilities and this Agreement has terminated, Borrower and Lender
shall deliver to each other a release, in form and substance
satisfactory to Borrower and Lender, of all obligations and
liabilities of Borrower, Lender and their officers, directors,
employees, agents, parents, subsidiaries and affiliates to Borrower,
and if Borrower is obtaining new financing from another lender,
Borrower shall deliver an indemnification of Lender, in form and
substance satisfactory to Lender, for checks which Lender has credited
to Borrower's account, but which subsequently are dishonored for any
reason or for automatic clearinghouse or wire transfers not yet posted
to Borrower's account. If, before the end of the term of this
Agreement, Borrower prepays all of the Liabilities and this Agreement
is terminated, Borrower agrees to pay to Lender as a prepayment fee,
in addition to the payment of all other Liabilities, an amount equal
to: (i) three percent (3.0%) of the Maximum Loan Limit in the event
the Borrower terminates this Agreement and prepays all the Liabilities
within one year following the Fourth Amendment Closing Date, (ii) two
percent (2.0%) of the Maximum Loan Limit in the event the Borrower
terminates this Agreement and prepays all the Liabilities more than
one year but less than two years following the Fourth Amendment
Closing Date, or (iii) one percent (1.0%) of the Maximum Loan Limit in
the event the Borrower terminates this Agreement and prepays all the
Liabilities prior to the last date of the Original Term or any then
current Renewal Term."
d. Section 14 of the Loan Agreement is hereby amended by amending and
restating such Section in its entirety as follows:
"14. FINANCIAL COVENANTS.
Borrower shall maintain and keep in full force and effect each of
the financial covenants set forth below:
(a) Tangible Net Worth.
Borrower's Tangible Net Worth shall not, on March 31, 2007, and
on the last day of each month thereafter during the Original Term and
every Renewal Term, be less than the Minimum Tangible Net Worth;
"Minimum Tangible Net Worth" being defined for purposes of this
subsection as: (i) on March 31, 2007 and on the last day of every
month thereafter through and including December 31, 2007, an amount
equal to negative $1,800,000, and (ii) thereafter, from the first day
of each Fiscal Year of Borrower through the last day of such Fiscal
Year of Borrower, the sum of (a) the Minimum Tangible Net Worth during
the immediately preceding period plus (b) seventy-five percent (75%)
of Borrower's net income (but without reduction for any net loss) for
the Fiscal Year of Borrower ending on the last day of the immediately
preceding period as reflected on Borrower's audited year-end financial
statement; and "Tangible Net Worth" being defined for purposes of this
subsection as Borrower's shareholders' equity (including retained
earnings) less the book value of all intangible assets as determined
solely by Lender on a consistent basis plus the amount of any LIFO
reserve, plus the amount of any debt subordinated to Lender, all as
determined under generally accepted accounting principles applied on a
basis consistent with the financial statement dated June 30, 2004,
except as set forth herein.
(b) Debt Service Coverage.
Borrower shall not permit Debt Service Coverage to be less than
1.10 to 1.00 as of: (i) the last day of the calendar quarter ending on
March 31, 2008, and (ii) the last day of each calendar quarter
thereafter during the Original Term and every Renewal Term.
(c) EBITDA.
Borrower shall not permit EBITDA to be less than the amount set
forth for the corresponding period set forth below (numbers in
parentheses are negative):
Period Amount
January 1, 2007 through and including April 30, 2007 ($350,000)
January 1, 2007 through and including May 31, 2007 ($320,000)
January 1, 2007 through and including June 30, 2007 ($125,000)
January 1, 2007 through and including July 31, 2007 $0.00
January 1, 2007 through and including August 31, 2007 $275,000
January 1, 2007 through and including September 30, 2007 $525,000
January 1, 2007 through and including October 31, 2007 $875,000
January 1, 2007 through and including November 30, 2007 $1,150,000
January 1, 2007 through and including December 31, 2007 $1,275,000
Twelve month period ending January 31, 2008 $1,275,000
Twelve month period ending February 28, 2008 $1,250,000
(d) Capital Expenditure Limitations.
Borrower shall not make any Capital Expenditures if, after giving
effect to such Capital Expenditure, the aggregate cost of all such
fixed assets purchased or otherwise acquired would exceed $300,000
during any Fiscal Year prior to the completion of Tarpon Industries,
Inc.'s underwritten initial public offering of its common shares
pursuant to an effective registration statement filed with the United
States Securities and Exchange Commission (the "IPO"); provided
Borrower may make additional Capital Expenditures of up to $1,500,000
during the 12-month period beginning with the IPO, provided such
expenditures are made with proceeds of such offering, and up to
$750,000 per Fiscal Year after such 12-month period (pro rated for the
balance of the Fiscal Year in which the end of such 12-month period
occurs)."
e. Section 15 of the Loan Agreement is hereby amended by amending and
restating subsection (b) thereof in its entirety as follows:
"(b) Breach of this Agreement and the Other Agreements.
(i) The failure of any Obligor to perform, keep or observe any of
the covenants, conditions, promises, agreements or obligations of such
Obligor under this Agreement or any of the Other Agreements, as the
same may be amended from time to time in accordance with the
respective terms thereof."
f. Section 15 of the Loan Agreement is hereby further amended by adding as
new subsections (q), (r) and (s) thereof, the following:
"(q) Default Under Steelbank Loan Agreement.
The occurrence of any Default or Event of Default under, and as
defined in, the Steelbank Loan Agreement.
(r) Default Under Terms of Laurus Restructuring Documents.
(i) The failure by Tarpon to comply with any covenant or other
obligation set forth in any of Sections 4, 5 or 7 of the Fourth
Amendment; or (ii) the failure by any of Tarpon, Borrower, Steelbank
or Laurus to comply with any term, condition, covenant, promise,
agreement or other obligation set forth in any Laurus Restructuring
Document, including, without limitation, (a) the failure to consummate
the Laurus Waiver and Conversion Agreement concurrently with, or
immediately following, the Supplemental Raise 2 Deadline, or (b) the
failure to consummate the Laurus Restructuring Amendment concurrently
with, or immediately following, the Supplemental Raise 3 Deadline.
(s) Default Under Subordinated Debt.
The occurrence of an "Event of Default" (or term of similar
import) under the terms of any Subordinated Debt of any Obligor that
is subject to the Subordination Agreement or any other subordination
agreement to which Lender is a party, including, without limitation,
any term or condition of the Laurus Secured Convertible Note or the
Laurus Securities Purchase Agreement."
g. Schedule 11(I) of the Loan Agreement (Affiliate Transactions) shall be
amended and restated by the "Schedule 11(I) - Affiliate Transactions" attached
hereto.
4. Consummation of the Supplemental Equity Raises and Laurus Restructuring.
Tarpon shall, and to the extent necessary shall cause Borrower and Steelbank to,
diligently pursue and consummate the Supplemental Equity Raises and the Laurus
Restructuring, in each case in accordance with the terms and conditions set
forth in the Laurus Restructuring Letter Agreement. Without limiting the
foregoing, Tarpon shall, and to the extent necessary shall cause Borrower and
Steelbank to, comply with each of the following:
(i) Tarpon shall consummate Supplemental Raise 1 on or prior to the
Supplemental Raise 1 Deadline;
(ii) Tarpon shall consummate both Supplemental Raise 2 and the Laurus
Waiver and Conversion Agreement on or prior to the Supplemental Raise 2
Deadline; and
(iii) Tarpon shall consummate both Supplemental Raise 3 and the Laurus
Restructuring Amendment on or prior to the Supplemental Raise 3 Deadline.
5. Permitted Uses of Proceeds From Supplemental Equity Raises. Subject to
the terms of the Subordination Agreement, Tarpon shall use the proceeds of the
Supplemental Equity Raises solely to fund:
(i) as, when and to the extent required, working capital expenditures
incurred by, or for the direct benefit of, Borrower and/or Steelbank in the
ordinary course of business either directly or indirectly through equity
distributions to Borrower and/or Steelbank, as applicable;
(ii) payments to Laurus under the Laurus Secured Convertible Note as
and when due in accordance with the terms of the Laurus Restructuring
Letter Agreement; provided, that all such payments shall be applied to the
Laurus Indebtedness in accordance with the terms of the Laurus
Restructuring Letter Agreement; and
(iii) from and after the latest to occur of the consummation of
Supplemental Raise 3 or the consummation of the Laurus Restructuring
Amendment (but not any time prior to such time notwithstanding the waiver
of the Existing Senior Defaults or any provision to the contrary set forth
in any of the Loan Agreement, the Subordination Agreement or any Laurus
Restructuring Document), regularly scheduled payments of principal and
interest due and owing to Laurus under the Laurus Secured Convertible Note
on an unaccelerated basis as and when due thereunder.
6. Effectiveness. This Agreement shall become effective at the time (the
"Amendment Effective Date") that all of the following conditions precedent have
been met (or waived), as determined by Lender in its sole discretion:
a. Tarpon shall have duly executed and delivered to Lender the
Reaffirmation of Guaranty as set forth behind the signature pages
hereof;
b. the execution, delivery and performance by Borrower and Tarpon of this
Agreement shall have been duly authorized by all necessary corporate
action, including, without limitation, pursuant to board resolutions
in form and substance reasonably acceptable to Lender;
c. Borrower and Tarpon each shall have delivered to Lender incumbency
certificates in form and substance acceptable to Lender showing that
each signatory to this Agreement on behalf of Tarpon and Borrower has
the power and authority to execute and deliver this Agreement on such
Persons' behalf and bind such Persons to the terms hereof;
d. No Default or Event of Default (other than the Existing Senior
Defaults to be waived upon the effectiveness hereof) shall have
occurred and be continuing under this Agreement or the Steelbank Loan
Agreement;
e. Borrower shall have paid to Lender an amendment fee in immediately
available funds equal to five tenths of one percent (0.5%) of the
Maximum Loan Limit, or $45,000, which amendment fee shall be fully
earned and non-refundable upon receipt by Lender; provided, however,
that any fee previously paid to Lender pursuant to the terms of that
certain commitment letter, dated March 20, 2007, by and among
Borrower, Steelbank, Tarpon, Lender and LaSalle Canada, shall be
credited against the amendment fee required to be paid pursuant to
this subsection (e);
f. Borrower shall have paid or reimbursed, as applicable, all other fees,
costs and expenses due and owing to Lender under the Financing
Agreements and/or this Agreement as of the date hereof; and
g. Tarpon shall have consummated Supplemental Raise 1 in accordance with
the terms of the Laurus Restructuring Letter Agreement and the
commitment letter, dated as of March 20, 2007, by and among Lender,
LaSalle Canada, Tarpon, Borrower and Steelbank (the "Commitment
Letter").
7. Updated Business Plan. On or prior to June 30, 2007, Tarpon shall, and
to the extent necessary shall cause Steelbank to, prepare and deliver to Lender
an updated business plan and related projections for Fiscal Years 2007 and 2008,
each in a form acceptable to Lender.
8. Representations and Warranties. Borrower and Tarpon each hereby
represents and warrants to Lender that the representations and warranties made
by it in the Financing Agreements (except to the extent any such representation
or warranty is rendered untrue solely by virtue of the existence of any Event of
Default as of the date hereof (prior to giving effect to this Agreement)) are
true and correct as if made on the date hereof, and each further represents and
warrants as follows:
a. as of the date hereof, the Financing Agreements are in full force and
effect, and except for the Events of Default to be waived pursuant to
Section 2 hereof, Borrower is not in default in the payment of any
sums, charges or obligations under the Financing Agreements or in the
payment or performance of any covenants, agreements or conditions of
Borrower contained in the Financing Agreements;
b. except for the Events of Default to be waived pursuant to Section 2
hereof, Borrower is not in default in the performance or observance of
any of its covenants, agreements and obligations under the Financing
Agreements, nor is there any other Event of Default under the
Financing Agreements or any event which, with notice or the passage of
time, would constitute an Event of Default thereunder;
c. Borrower and Tarpon each has the power and authority to execute and
deliver this Agreement and to perform its obligations under this
Agreement;
d. this Agreement constitutes a legal, valid and binding obligation of
Borrower and Tarpon, enforceable against each such Person in
accordance with its terms, except as enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally or by equitable principles
relating to enforceability;
e. the execution, delivery and performance by Borrower and Tarpon of this
Agreement has been duly authorized by all necessary corporate action,
including, without limitation, pursuant to board resolutions in form
and substance reasonably acceptable to Lender; and
f. Supplemental Raise 1 has been consummated in accordance with the terms
of the Laurus Restructuring Letter Agreement and the Commitment
Letter.
9. Counterparts. This Agreement may be executed in two or more counterparts
(including any counterpart delivered by facsimile or other electronic
transmission), each of which shall be deemed an original and all of which, taken
together, shall constitute and be taken as one and the same instrument. None of
the covenants, terms or conditions of this Agreement shall in any manner be
altered, waived, modified, changed or abandoned, except by written instrument,
duly signed and delivered by all the parties hereto.
10. Integration; Third Party Beneficiaries. This Agreement contains the
whole agreement between the parties hereto as to the subject matter hereof and
there are no other terms, obligations, covenants, representations, warranties,
statements or conditions, oral or otherwise, of any kind. This Agreement shall
extend to, be obligatory upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
11. Other Agreement. This Agreement is one of the "Other Agreements," as
defined in the Loan Agreement.
12. Effect on Loan Agreement. Except as expressly amended or otherwise
modified hereby, all of the terms, covenants, conditions, agreements,
representations, warranties and other provisions contained in the Financing
Agreements shall continue and remain unchanged and in full force and effect, are
hereby ratified and confirmed and shall be enforceable against the Obligor
parties thereto in accordance with their respective terms. All liens and
security interests granted by any Obligor to Lender pursuant to or otherwise in
connection with any Financing Agreement shall remain in full force and effect
with the same validity, enforceability and priority as such liens and security
interests have as of the date hereof. Without limiting the generality of the
foregoing, nothing in this Agreement or any other agreement or instrument
executed in connection herewith shall in any way waive, modify, alter, impair or
otherwise affect any of Lender's rights under the Subordination Agreement,
including, without limitation, any stay or other restrictions imposed thereby on
(i) any Obligor making, and Laurus accepting, payments on any Laurus
Indebtedness or (ii) Laurus taking enforcement action against any Obligor or any
Collateral. Borrower does hereby covenant and agree to pay and otherwise satisfy
the Liabilities at the times and in the manner provided therein and otherwise to
comply with all the terms, covenants, conditions and warranties contained
therein, as amended from time to time.
[Signature pages to follow]
In witness whereof, the parties hereto have duly executed this Fourth
Amendment as of the day and year first above written.
XXXXXX WELDING CO., a Michigan corporation
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------
Xxxxx X. Xxxxxxxx, Chairman & CEO
TARPON INDUSTRIES, INC., a Michigan corporation
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------
Xxxxx X. Xxxxxxxx, Chairman & CEO
LASALLE BANK MIDWEST N.A., successor to
Standard Federal Bank, N.A., a national
banking association
By: /s/
----------------------------------
----------------, ----------------
[SIGNATURE PAGE TO WAIVER AND FOURTH AMENDMENT TO LOAN AGREEMENT
AND REAFFIRMATION OF GUARANTY]
REAFFIRMATION OF GUARANTY
The undersigned, as guarantor of the indebtedness and other Liabilities of
Xxxxxx Welding Co. under the Loan Agreement and Other Agreements, pursuant to a
certain Continuing Unconditional Guaranty executed by it on August 11, 2004,
represents and warrants that: (i) such guaranty has not been modified or
amended, nor have any provisions thereof been waived, nor is there existing any
default thereunder, nor has there occurred any condition or event which, with
the giving of notice or the passage of time, would result in a default
thereunder, and the same is in full force and effect; and (ii) the undersigned
has no claim or right of offset against LaSalle Bank Midwest N.A. as of the date
hereof with regard to such guaranty, and waives all defenses to enforcement of
the guaranty that it may have as of the date hereof. The undersigned hereby
reaffirms, confirms and ratifies to LaSalle Bank Midwest N.A. all of the terms
and provisions of such guaranty and each and every obligation thereunder.
TARPON INDUSTRIES, INC., a Michigan corporation
By: /s/ Xxxxx X. Xxxxxxxx
---------------------------------
Xxxxx X. Xxxxxxxx, Chairman & CEO
SCHEDULE 11(I) - AFFILIATE TRANSACTIONS
1. Borrower is currently indebted to Tarpon, in the aggregate amount of
$1,450,000. The indebtedness was incurred for purposes of funding a portion of
the acquisition of assets of C & W Manufacturing, Inc., d/b/a FENCEMaster, and
for working capital purposes, and is not interest-bearing. Borrower may pay the
indebtedness to Tarpon at any time, provided (i) at the time of such payment and
immediately thereafter no Default or Event of Default shall occur, and (ii) all
such amounts shall be applied by Tarpon, until the retirement thereof, to
repayment of principal and accrued interest on the Laurus Indebtedness under the
Laurus Secured Convertible Note.
2. Borrower has executed and delivered a Subsidiary Guaranty dated December 13,
2005, in favor of Laurus, by which it guaranties the Laurus Indebtedness with
the Subsidiary Guaranty. To secure its obligations under the Subsidiary
Guaranty, Borrower has executed and delivered in favor of Laurus a Master
Security Agreement, a Stock Pledge Agreement and a Grant of Security Interests
in Trademarks, each of the same date. Borrower may maintain such guaranty and
agreements, subject to the Subordination Agreement.
3. From and after the later to occur of the consummation of Supplemental Raise 3
and the consummation of the Laurus Restructuring Amendment (but not any time
prior to such time notwithstanding the waiver of the Existing Senior Defaults or
any provision to the contrary set forth in any of the Loan Agreement, the
Subordination Agreement or any Laurus Restructuring Document), Borrower may make
loans to its shareholder, Tarpon, for the purpose of, and only to the extent
necessary for, Tarpon paying: (a) working capital expenditures incurred by, or
for the direct benefit of, Borrower and/or Steelbank in the ordinary course of
business; and (b) scheduled payments of principal and interest under the Laurus
Secured Subordinated Note, in each case on an unaccelerated basis as and when
due thereunder (but only to the extent such subordinated note payments are not
paid or payable from repayments of Tarpon's loans to Borrower and/or Steelbank
as described in Section 14 of the Second Amendment to Loan Agreement dated
December 13, 2005); provided, however, that each and every one of the following
conditions must be satisfied (and Borrower and Tarpon shall have provided
evidence reasonably satisfactory to Lender of such satisfaction) prior to the
making of any such loan:
(i) such loan is characterized as intercompany indebtedness payable by
Tarpon to Borrower;
(ii) all proceeds of such loan shall be used by Tarpon promptly upon the
receipt thereof to pay expenditures permitted under the first sentence
of this Paragraph 3;
(iii) no payment to be made by Tarpon using proceeds of such loan shall
violate any term of the Subordination Agreement;
(iv) immediately after giving effect to such loan, the sum of: (a)
Borrower's Excess Availability as of the date such loan is proposed to
be made plus (b) Steelbank's "Excess Availability" (as defined in the
Steelbank Loan Agreement) as of the date such loan is proposed to be
made, plus (c) the aggregate cash on hand of Tarpon as of the date
such loan is proposed to be made, shall equal an amount in excess of
$1,000,000;
(v) immediately after giving effect to such loan (assuming such loan was
made on the last day of the applicable testing period), the Debt
Service Coverage ratio of Borrower, Steelbank and their respective
Subsidiaries, measured and tested on a combined basis, shall not be
less than 1.10 to 1.00 for the following applicable periods: (a)
during the first year following the Fourth Amendment Closing Date,
such testing period shall run from and including the month in which
the Fourth Amendment Closing Date occurred through and including the
month immediately preceding the month in which such loan is proposed
to be made, and (b) thereafter, such testing period shall be the
trailing twelve month period ending on the last day of the month
immediately preceding the month in which such loan is proposed to be
made; and
(vi) at the time of such loan and immediately after giving effect thereto,
no Default or Event of Default shall then be continuing.
4. Borrower may incur indebtedness to Tarpon for the purposes permitted under,
and in compliance with, clauses (i) or (iv) of subsection 13(b) of the Loan
Agreement and may repay such indebtedness if at the time of such payment and
immediately thereafter no Default or Event of Default is then continuing.
5. If Borrower receives cash advances from its shareholder, Tarpon, for the
purpose of paying down the Revolving Loans to create sufficient availability for
issuance of one or more Letters of Credit, Borrower may repay such advances to
Tarpon, but only upon expiration or termination of an outstanding Letter of
Credit that was issued in connection with such cash advances, and then only to
the extent of the face amount of such expired or terminated Letter of Credit;
provided, that at the time of such repayment and immediately thereafter no
Default or Event of Default is then continuing.
