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,
EUGENE 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):
<TABLE>
<CAPTION>
------------- -------------------------------------
-------------------------------- ----------------------
<S>
<C>
<C>
<C>
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%
------------- -------------------------------------
-------------------------------- ----------------------
</TABLE>
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 o
