EXHIBIT 4.2
LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 11, 2004
BETWEEN
STANDARD FEDERAL BANK N.A.
THE LENDER,
AND
▇▇▇▇▇▇ WELDING CO.
THE BORROWER
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (as amended, modified or supplemented
from time to time, this "Agreement") made this 11th day of August, 2004 by and
between STANDARD FEDERAL BANK N. A., a national banking association ("Lender"),
▇▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇ WELDING CO., a
Michigan corporation, having its principal place of business at ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ("Borrower").
WITNESSETH:
WHEREAS, Borrower may, from time to time, request Loans from Lender, and
the parties wish to provide for the terms and conditions upon which such Loans
or other financial accommodations, if made by Lender, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) hereafter made to Borrower by Lender, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:
1. DEFINITIONS.
"ACCOUNT," "ACCOUNT DEBTOR," "CHATTEL PAPER," "COMMERCIAL TORT CLAIMS,"
"DEPOSIT ACCOUNTS," "DOCUMENTS," "ELECTRONIC CHATTEL PAPER," "EQUIPMENT,"
"FIXTURES," "GENERAL INTANGIBLES," "GOODS," "INSTRUMENTS," "INVENTORY,"
"INVESTMENT PROPERTY," "LETTER-OF-CREDIT RIGHT," "PROCEEDS" and "TANGIBLE
CHATTEL PAPER" shall have the respective meanings assigned to such terms in the
Michigan Uniform Commercial Code, as the same may be in effect from time to
time.
"AFFILIATE" shall mean any Person (i) which directly or indirectly through
one or more intermediaries controls, is controlled by, or is under common
control with, Borrower, (ii) which beneficially owns or holds five percent (5%)
or more of the voting control or equity interests of Borrower, or (iii) five
percent (5%) or more of the voting control or equity interests of which is
beneficially owned or held by Borrower.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or any
day that banks in Detroit, Michigan are required or permitted to close.
"CAPITAL EXPENDITURES" shall mean with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including expenditures for capitalized lease obligations) by Borrower and
its Subsidiaries during such period that are required by generally accepted
accounting principles, consistently applied, to be included in or reflected by
the property, plant and equipment or similar fixed asset accounts (or intangible
accounts subject to amortization) on the balance sheet of Borrower and its
Subsidiaries.
"COLLATERAL" shall mean all of the property of Borrower described in
Section 5 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Lender to secure, either
directly or indirectly, repayment of any of the Liabilities.
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"DEBT SERVICE COVERAGE" shall mean, with respect to any period, the ratio
of (i) Borrower's and its Subsidiaries' net income after taxes for such period
(excluding any after-tax gains or losses on the sale of assets (other than the
sale of Inventory in the ordinary course of business) and excluding other
after-tax extraordinary gains or losses), plus depreciation and amortization
deducted in determining net income for such period, minus Capital Expenditures
for such period not financed, minus any cash dividends paid or accrued and cash
distributions paid or accrued to shareholders for such period which were not
accounted for in determining net income after taxes, minus any cash advances or
loans made by Borrower during such period which were not accounted for in
determining net income after taxes, and plus the after-tax increase in LIFO
reserves, or minus the after tax decrease in LIFO reserves for such period, all
on a consolidated basis, to (ii) Borrower's and its Subsidiaries' current
principal maturities of indebtedness (including capitalized leases and loans
from Affiliates) paid or scheduled to be paid during such period (except trade
payables and revolving loans), plus any prepayments on indebtedness (including
capitalized leases and loans from Affiliates) owed to any Person and paid during
such period (except trade payables and revolving loans); provided, however,
amounts paid or scheduled to be paid to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ under that certain
promissory note dated April 2, 2004, shall not be included in the denominator of
the foregoing ratio to the extent paid in accordance with the Subordination
Agreement of even date herewith between Lender, Borrower and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
and then only to the extent paid from proceeds of Tarpon Industries, Inc.'s
underwritten initial public offering of its common shares registered with the
United States Securities and Exchange Commission.
"ELIGIBLE ACCOUNT" shall mean an Account owing to Borrower which is
acceptable to Lender in its sole discretion for lending purposes. Without
limiting Lender's discretion, Lender shall, in general, consider an Account to
be an Eligible Account if it meets, and so long as it continues to meet, the
following requirements:
(i) it is genuine and in all respects what it purports to be;
(ii) it is owned by Borrower, Borrower has the right to subject it
to a security interest in favor of Lender or assign it to Lender and it is
subject to a first priority perfected security interest in favor of Lender and
to no other claim, lien, security interest or encumbrance whatsoever, other than
Permitted Liens;
(iii) it arises from (A) the performance of services by Borrower in
the ordinary course of Borrower's business, and such services have been fully
performed; or (B) the sale or lease of Goods by Borrower in the ordinary course
of Borrower's business, and (x) such Goods have been completed in accordance
with the Account Debtor's specifications (if any) and shipped to the Account
Debtor, (y) such Account Debtor has not refused to accept, returned or offered
to return, any of the Goods which are the subject of such Account, and (z)
Borrower has possession of, or Borrower has delivered to Lender (at Lender's
request) shipping receipts evidencing shipment of such Goods;
(iv) it is evidenced by an invoice rendered to the Account Debtor
thereunder, is due and payable within thirty (30) days after the date of the
invoice and does not remain unpaid ninety (90) days past the invoice date
thereof; provided, however, that if more than twenty-five percent (25%) of the
aggregate dollar amount of invoices owing by a particular
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Account Debtor remain unpaid ninety (90) days after the respective invoice dates
thereof, then all Accounts owing by that Account Debtor shall be deemed
ineligible;
(v) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor thereunder, and is not subject to setoff,
counterclaim, or adjustment by such Account Debtor (other than credits and
allowances for early payment), or to any claim by such Account Debtor denying
liability thereunder in whole or in part;
(vi) it does not arise out of a contract or order which fails in
any material respect to comply with the requirements of applicable law;
(vii) the Account Debtor thereunder is not a director, officer,
employee or agent of Borrower, or a Subsidiary, Parent or Affiliate;
(viii) it is not an Account with respect to which the Account Debtor
is the United States of America or any state or local government, or any
department, agency or instrumentality thereof, unless Borrower assigns its right
to payment of such Account to Lender pursuant to, and in full compliance with,
the Assignment of Claims Act of 1940, as amended, or any comparable state or
local law, as applicable;
(ix) it is not an Account with respect to which the Account Debtor
is located in a state which requires Borrower, as a precondition to commencing
or maintaining an action in the courts of that state, either to (A) receive a
certificate of authority to do business and be in good standing in such state;
or (B) file a notice of business activities report or similar report with such
state's taxing authority, unless (x) Borrower has taken one of the actions
described in clauses (A) or (B); (y) the failure to take one of the actions
described in either clause (A) or (B) may be cured retroactively by Borrower at
its election; or (z) Borrower has proven, to Lender's satisfaction, that it is
exempt from any such requirements under any such state's laws;
(x) the Account Debtor is located within the United States of
America or Canada;
(xi) it is not an Account with respect to which the Account
Debtor's obligation to pay is subject to any repurchase obligation or return
right, as with sales made on a ▇▇▇▇-and-hold, guaranteed sale, sale on approval,
sale or return or consignment basis;
(xii) it is not an Account (A) with respect to which any
representation or warranty contained in this Agreement is untrue; or (B) which
violates any of the covenants of Borrower contained in this Agreement;
(xiii) it is not an Account which, when added to a particular
Account Debtor's other indebtedness to Borrower, exceeds 10% of all Accounts of
Borrower, or 20% of all Accounts of Borrower with respect to Account Debtors
▇▇▇▇▇▇ Engineering and ▇▇▇▇▇▇▇ Storage, or other credit limits determined by
Lender in its sole discretion for that Account Debtor (except that Accounts
excluded from Eligible Accounts solely by reason of this clause (xiii) shall be
Eligible Accounts to the extent of such credit limit), all as determined by
Lender in its sole discretion; and
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(xiv) it is not an Account with respect to which the prospect of
payment or performance by the Account Debtor is or will be impaired, as
determined by Lender in its sole discretion determined in good faith.
"ELIGIBLE INVENTORY" shall mean Inventory of Borrower which is acceptable
to Lender in its sole discretion for lending purposes. Without limiting Lender's
discretion, Lender shall, in general, consider Inventory to be Eligible
Inventory if it meets, and so long as it continues to meet, the following
requirements:
(i) it is owned by Borrower, Borrower has the right to subject it
to a security interest in favor of Lender and it is subject to a first priority
perfected security interest in favor of Lender and to no other claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(ii) it is located on one of the premises listed on Exhibit A (or
other locations of which Lender has been advised in writing pursuant to
subsection 12(b)(i) hereof) and is not in transit;
(iii) if held for sale or lease or furnishing under contracts of
service, it is (except as Lender may otherwise consent in writing) new and
unused and free from defects which would, in Lender's sole determination, affect
its market value;
(iv) it is not stored with a bailee, consignee, warehouseman,
processor or similar party unless Lender has given its prior written approval
and Borrower has caused any such bailee, consignee, warehouseman, processor or
similar party to issue and deliver to Lender, in form and substance acceptable
to Lender, such Uniform Commercial Code financing statements, warehouse
receipts, waivers and other documents as Lender shall require;
(v) it is not "work-in-progress" Inventory;
(vi) it is not raw materials other than coiled or slitted steel,
wide flange steel, angle or flat bar steel or junior beam steel;
(vii) Lender has determined, in accordance with Lender's customary
business practices, that it is not unacceptable due to age, type, category or
quantity; and
(viii) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue; or (B)
which violates any of the covenants of Borrower contained in this Agreement.
"ENVIRONMENTAL LAWS" shall mean all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business or
facilities owned or operated by Borrower, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or
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subsurface strata) or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, modified or restated from time to time.
"EVENT OF DEFAULT" shall have the meaning specified in Section 15 hereof.
"EXCESS AVAILABILITY" shall mean, as of any date of determination by
Lender, the excess, if any, of the lesser of (i) the Maximum Revolving Loan
Limit less the sum of the outstanding Revolving Loans and (ii) the Revolving
Loan Limit less the sum of the outstanding Revolving Loans, in each case as of
the close of business on such date and assuming, for purposes of calculation,
that all accounts payable which remain unpaid more than sixty (60) days after
the due dates thereof as the close of business on such date are treated as
additional Revolving Loans outstanding on such date.
"FISCAL YEAR" shall mean each twelve (12) month accounting period of
Borrower, which ends on December 31 of each year.
"HAZARDOUS MATERIALS" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
"INDEMNIFIED PARTY" shall have the meaning specified in Section 18 hereof.
"LIABILITIES" shall mean any and all obligations, liabilities and
indebtedness of Borrower to Lender or to any parent, affiliate or subsidiary of
Lender of any and every kind and nature, howsoever created, arising or evidenced
and howsoever owned, held or acquired, whether now or hereafter existing,
whether now due or to become due, whether primary, secondary, direct, indirect,
absolute, contingent or otherwise (including, without limitation, obligations of
performance), whether several, joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.
"LOANS" shall mean all loans and advances made by Lender to or on behalf
of Borrower hereunder.
"LOCK BOX" and "LOCK BOX ACCOUNT" shall have the meanings specified in
subsection 8(a) hereof.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
business, property, assets, prospects, operations or condition, financial or
otherwise, of a Person.
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"MAXIMUM LOAN LIMIT" shall mean Eight Million Three Hundred Ninety-Four
Thousand Dollars ($8,394,000).
"MAXIMUM REVOLVING LOAN LIMIT" shall have the meaning specified in
subsection 2(a) hereof.
"OBLIGOR" shall mean Borrower and each other Person who is or shall become
primarily or secondarily liable for any of the Liabilities.
"ORIGINAL TERM" shall have the meaning specified in Section 10 hereof.
"OTHER AGREEMENTS" shall mean all agreements, instruments and documents,
other than this Agreement, including, without limitation, guaranties, mortgages,
trust deeds, pledges, powers of attorney, consents, assignments, contracts,
notices, security agreements, leases, financing statements and all other
writings heretofore, now or from time to time hereafter executed by or on behalf
of Borrower or any other Person and delivered to Lender or to any parent,
affiliate or subsidiary of Lender in connection with the Liabilities or the
transactions contemplated hereby, as each of the same may be amended, modified
or supplemented from time to time.
"PARENT" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding equity of Borrower and, if Borrower is a partnership,
the general partner of Borrower.
"PBGC" shall have the meaning specified in subsection 12(b)(v) hereof.
"PERMITTED AFFILIATE TRANSACTIONS" shall be as defined in subsection 11(i)
hereof.
"PERMITTED LIENS" shall mean (i) (a) statutory liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers, (b)
liens of governmental entities, agencies or subdivisions, and (c) utilities
deposits and lease deposits, all to the extent incurred in the ordinary course
of business and securing amounts not yet due or declared to be due by the
claimant thereunder; (ii) liens or security interests in favor of Lender; (iii)
zoning restrictions and easements, licenses, covenants and other restrictions
affecting the use of real property that do not individually or in the aggregate
have a material adverse effect on Borrower's ability to use such real property
for its intended purpose in connection with Borrower's business; (iv) liens in
connection with purchase money indebtedness and capitalized leases otherwise
permitted pursuant to this Agreement, provided, that such liens attach only to
the assets the purchase of which was financed by such purchase money
indebtedness or which is the subject of such capitalized leases; (v) liens set
forth on Schedule 1; (vi) judgment liens not resulting in an Event of Default
under Section 15(i), and (vii) liens specifically permitted by Lender in
writing.
"PERSON" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or foreign or United
States government (whether federal, state, county, city, municipal or
otherwise), including, without limitation, any instrumentality, division,
agency, body or department thereof.
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"PLAN" shall have the meaning specified in subsection 12(b)(v) hereof.
"PREMISES" shall mean those certain parcels of land, and all appurtenances
thereon and improvements thereto, located at the locations described in
paragraph A of Exhibit A.
"PRIME RATE" shall mean Standard Federal Bank's publicly announced prime
rate (which is not intended to be Standard Federal Bank's lowest or most
favorable rate in effect at any time) in effect from time to time.
"RENEWAL TERM" shall have the meaning specified in Section 10 hereof.
"REVOLVING LOAN LIMIT" shall have the meaning specified in subsection 2(a)
hereof.
"REVOLVING LOANS" shall have the meaning specified in subsection 2(a)
hereof.
"SUBSIDIARY" shall mean any corporation of which more than fifty percent
(50%) of the outstanding capital stock having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
at the time stock of any other class of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned by Borrower, or any partnership, joint venture or
limited liability company of which more than fifty percent (50%) of the
outstanding voting and/or equity interests are at the time, directly or
indirectly, owned by Borrower or any partnership of which Borrower is a general
partner.
"TANGIBLE NET WORTH" shall have the meaning specified in subsection 14(a)
hereof.
"TERM LOAN" shall have the meaning specified in subsection 2(b) hereof.
2. LOANS.
(a) REVOLVING LOANS.
Subject to the terms and conditions of this Agreement and the Other
Agreements, during the Original Term and any Renewal Term, Lender may, in its
sole discretion, make revolving loans and advances (the "REVOLVING LOANS") in an
amount up to the sum of the following sublimits (the "REVOLVING LOAN LIMIT"):
(i) Eighty-five percent (85%) of the face amount (less discounts,
credits and allowances which may be taken by or granted to Account Debtors in
connection therewith in the ordinary course of Borrower's business) of
Borrower's Eligible Accounts; plus
(ii) The lesser of (i) an amount equal to sixty-five percent (65%)
of the lower of cost or market value of Borrower's Eligible Inventory
(determined on a FIFO basis) that is raw materials, plus an amount equal to
fifty percent (50%) of the lower of cost or market value of Borrower's Eligible
Inventory (determined on a FIFO basis) that is finished goods, or (ii) Three
Million Five Hundred Thousand Dollars ($3,500,000); minus
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(iii) such reserves as Lender elects, in its sole discretion, to
establish from time to time;
provided, that the Revolving Loan Limit shall in no event exceed Seven Million
Dollars ($7,000,000) (the "MAXIMUM REVOLVING LOAN LIMIT").
The aggregate unpaid principal balance of the Revolving Loans shall not at
any time exceed the lesser of the (i) Revolving Loan Limit and (ii) the Maximum
Revolving Loan Limit. If at any time the outstanding Revolving Loans exceeds
either the Revolving Loan Limit or the Maximum Revolving Loan Limit, or any
portion of the Revolving Loans exceeds any applicable sublimit within the
Revolving Loan Limit, Borrower shall immediately, and without the necessity of
demand by Lender, pay to Lender such amount as may be necessary to eliminate
such excess and Lender shall apply such payment to the Revolving Loans to
eliminate such excess in such order as Lender shall determine in its sole
discretion.
Borrower hereby authorizes Lender, in its sole discretion, to charge any
of Borrower's accounts or advance Revolving Loans to make any payments of
principal, interest, fees, costs or expenses required to be made under this
Agreement or the Other Agreements.
A request for a Revolving Loan shall be made or shall be deemed to be
made, each in the following manner: Borrower shall give Lender same day notice,
no later than 1:00 P.M. Detroit, Michigan, time for such day, of its request for
a Revolving Loan. As an accommodation to Borrower, Lender may permit telephone
requests for Revolving Loans and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by Borrower. Unless Borrower
specifically directs Lender in writing not to accept or act upon telephonic or
electronic communications from Borrower, Lender shall have no liability to
Borrower for any loss or damage suffered by Borrower as a result of Lender's
honoring of any requests, execution of any instructions, authorizations or
agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower and Lender
shall have no duty to verify the origin of any such communication or the
authority of the Person sending it.
Borrower hereby irrevocably authorizes Lender to disburse the proceeds of
each Revolving Loan requested by Borrower, or deemed to be requested by
Borrower, as follows: the proceeds of each Revolving Loan requested under
Section 2(a) shall be disbursed by Lender in lawful money of the United States
of America in immediately available funds, in the case of the initial borrowing,
in accordance with the terms of the written disbursement letter from Borrower,
and in the case of each subsequent borrowing, by wire transfer or Automated
Clearing House (ACH) transfer to such bank account as may be agreed upon by
Borrower and Lender from time to time, or elsewhere if pursuant to a written
direction from Borrower.
(b) TERM LOAN.
Subject to the terms and conditions of this Agreement and the Other
Agreements, on the date that the conditions to the initial Loans are satisfied,
Lender shall make a term loan to Borrower in an amount equal to One Million
Three Hundred Ninety-Four Thousand Dollars
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($1,394,000) (the "TERM LOAN"). Amounts repaid with respect to the Term Loan
may not be reborrowed.
(c) REPAYMENTS. ALL LIABILITIES SHALL BE REPAID BY BORROWER UPON DEMAND
BY LENDER. Prior to such demand, Liabilities shall be repaid as follows:
(i) Repayment of Revolving Loans. The Revolving Loans and all
other Liabilities other than the Term Loan(s) shall be repaid on the last day of
the Original Term or any Renewal Term if this Agreement is renewed pursuant to
Section 10 hereof.
(ii) Repayment of Term Loan. The Term Loan shall be repaid in sixty
(60) equal monthly principal installments of Twenty-Three Thousand Two Hundred
Thirty-Three and 33/100 Dollars ($23,233.33) payable on the first day of
September, 2004, and on the corresponding day of each month thereafter;
provided, that any remaining outstanding principal balance of the Term Loan
shall be repaid at the end of the Original Term or any Renewal Term if this
Agreement is renewed pursuant to Section 10 hereof. If any such payment due date
is not a Business Day, then such payment may be made on the next succeeding
Business Day and such extension of time shall be included in the computation of
the amount of interest and fees due hereunder.
(iii) Mandatory Prepayments of the Term Loan. Upon receipt of the
proceeds of the sale or other disposition of any Equipment of Borrower which is
subject to a lien in favor of Lender and against the value of which the Term
Loan was advanced, or if any of such Equipment is damaged, destroyed or taken by
condemnation in whole or in part, the net proceeds thereof (after payment of all
costs and expenses of sale, including any taxes related to the sale) shall be
paid by Borrower to Lender as a mandatory prepayment of the Term Loan which was
advanced against the value of such asset, such payment to be applied against the
remaining installments of principal in the inverse order of their maturities
until such Term Loan is repaid in full, and then against the remaining Term Loan
as determined by Lender in its sole discretion, in the inverse order of their
maturities until repaid in full and then against the other Liabilities, as
determined by Lender, in its sole discretion.
(d) NOTES. The Loans shall, in Lender's sole discretion, be evidenced by
one or more promissory notes in form and substance satisfactory to Lender.
However, if such Loans are not so evidenced, such Loans may be evidenced solely
by entries upon the books and records maintained by Lender.
3. [RESERVED].
4. INTEREST, FEES AND CHARGES.
(a) INTEREST RATE.
Until completion by Tarpon Industries, Inc., of its 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"), each Loan shall bear interest at the Prime Rate in effect from time to
time, plus 0.375 percent per annum, payable on the first Business Day
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of each month in arrears. Following completion of the IPO, each Loan shall bear
interest at the Prime Rate in effect from time to time, payable on the first
Business Day of each month in arrears. In each case, 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.
(b) FEES AND CHARGES.
(i) Closing Fee: Borrower shall pay to Lender a closing fee of
Eighty-Three Thousand Three Hundred Ninety-Four Dollars ($83,394), which fee
shall be fully earned and payable on the date of disbursement of the initial
Loans hereunder.
(ii) Unused Line Fee: Borrower shall pay to Lender a per annum
unused line fee of one-quarter of one percent (0.25%) of the difference between
the Maximum Revolving Loan Limit and the average daily balance of the Revolving
Loans for each month, which fee shall be fully earned by Lender and payable
monthly in arrears on the first Business Day of each month. Said fee shall be
calculated on the basis of a 360 day year.
(iii) Costs and Expenses: Borrower shall reimburse Lender for all
costs and expenses, including, without limitation, legal expenses and reasonable
attorneys' fees (whether for internal or outside counsel), incurred by Lender in
connection with the (i) documentation and consummation of this transaction and
any other transactions between Borrower and Lender, including, without
limitation, Uniform Commercial Code and other public record searches and
filings, overnight courier or other express or messenger delivery, appraisal
costs, surveys, title insurance and environmental audit or review costs; (ii)
collection, protection or enforcement of any rights in or to the Collateral;
(iii) collection of any Liabilities; and (iv) administration and enforcement of
any of Lender's rights under this Agreement or any Other Agreement, including
without limitation, field examination per person days at Lender's
then-prevailing per diem rate (currently $750/day), plus all out-of-pocket
expenses. Borrower shall also pay all normal service charges with respect to all
accounts maintained by Borrower with Lender and any additional services
requested by Borrower from Lender. All such costs, expenses and charges shall,
if owed to Lender, constitute Liabilities hereunder, shall be payable by
Borrower to Lender on demand, and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder.
(iv) Capital Adequacy Charge. If Lender shall have determined that
the adoption of any law, rule or regulation regarding capital adequacy, or any
change therein or in the interpretation or application thereof, or compliance by
Lender with any request or directive regarding capital adequacy (whether or not
having the force of law) from any central bank or governmental authority enacted
after the date hereof, does or shall have the effect of reducing the rate of
return on such party's capital as a consequence of its obligations hereunder to
a level below that which Lender could have achieved but for such adoption,
change or compliance (taking into consideration Lender's policies with respect
to capital adequacy) by a material amount, then from time to time, after
submission by Lender to Borrower of a written demand therefor ("CAPITAL ADEQUACY
DEMAND") together with the certificate described below,
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Borrower shall pay to Lender such additional amount or amounts ("CAPITAL
ADEQUACY CHARGE") as will compensate Lender for such reduction, such Capital
Adequacy Demand to be made with reasonable promptness following such
determination. A certificate of Lender claiming entitlement to payment as set
forth above shall be conclusive in the absence of manifest error. Such
certificate shall set forth the nature of the occurrence giving rise to such
reduction, the amount of the Capital Adequacy Charge to be paid to Lender, and
the method by which such amount was determined In determining. such amount,
Lender may use any reasonable averaging and attribution method, applied on a
non-discriminatory basis.
(c) MAXIMUM INTEREST.
It is the intent of the parties that the rate of interest and other
charges to Borrower under this Agreement and the Other Agreements shall be
lawful; therefore, if for any reason the interest or other charges payable under
this Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Lender may lawfully charge Borrower,
then the obligation to pay interest and other charges shall automatically be
reduced to such limit and, if any amount in excess of such limit shall have been
paid, then such amount shall be refunded to Borrower.
5. COLLATERAL.
(a) GRANT OF SECURITY INTEREST TO LENDER.
As security for the payment of all Loans now or in the future made by
Lender to Borrower hereunder and for the payment or other satisfaction of all
other Liabilities, Borrower hereby assigns to Lender as security and grants to
Lender a continuing security interest in the following property of Borrower,
whether now or hereafter owned, existing, acquired or arising and wherever now
or hereafter located: (a) all Accounts (whether or not Eligible Accounts) and
all Goods whose sale, lease or other disposition by Borrower has given rise to
Accounts and have been returned to, or repossessed or stopped in transit by,
Borrower; (b) all Chattel Paper, Instruments, Documents and General Intangibles
(including, without limitation, all patents, patent applications, trademarks,
trademark applications, trade names, trade secrets, goodwill, copyrights,
copyright applications, registrations, licenses, software, franchises, customer
lists, tax refund claims, claims against carriers and shippers, guarantee
claims, contract rights, payment intangibles, security interests, security
deposits and rights to indemnification); (c) all Inventory (whether or not
Eligible Inventory); (d) all Goods (other than Inventory), including, without
limitation, Equipment, vehicles and Fixtures; (e) all Investment Property; (f)
all Deposit Accounts, bank accounts, deposits and cash; (g) all Letter-of-Credit
Rights; (h) Commercial Tort Claims listed on Exhibit C hereto (i) any other
property of Borrower now or hereafter in the possession, custody or control of
Lender or any agent or any parent, affiliate or subsidiary of Lender or any
participant with Lender in the Loans, for any purpose (whether for safekeeping,
deposit, collection, custody, pledge, transmission, or otherwise), and (j) all
additions and accessions to, substitutions for, and replacements, products and
Proceeds of the foregoing property, including, without limitation, proceeds of
all insurance policies insuring the foregoing property, and all of Borrower's
books and records relating to any of the foregoing and to Borrower's business.
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(b) OTHER SECURITY.
Lender, in its sole discretion, without waiving or releasing any
obligation, liability or duty of Borrower under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral. All sums paid by Lender in respect thereof and all costs, fees
and expenses including, without limitation, reasonable attorney fees, all court
costs and all other charges relating thereto incurred by Lender shall constitute
Liabilities, payable by Borrower to Lender on demand and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(c) POSSESSORY COLLATERAL.
Immediately upon Borrower's receipt of any portion of the Collateral
evidenced by an agreement, Instrument or Document, including, without
limitation, any Tangible Chattel Paper and any Investment Property consisting of
certificated securities, Borrower shall deliver the original thereof to Lender
together with an appropriate endorsement or other specific evidence of
assignment thereof to Lender (in form and substance acceptable to Lender). If an
endorsement or assignment of any such items shall not be made for any reason,
Lender is hereby irrevocably authorized, as Borrower's attorney and
agent-in-fact, to endorse or assign the same on Borrower's behalf.
(d) ELECTRONIC CHATTEL PAPER.
To the extent that Borrower obtains or maintains any Electronic Chattel
Paper, Borrower shall create, store and assign the record or records comprising
the Electronic Chattel Paper in such a manner that (i) a single authoritative
copy of the record or records exists which is unique, identifiable and except as
otherwise provided in clauses (iv), (v) and (vi) below, unalterable, (ii) the
authoritative copy identifies Lender as the assignee of the record or records,
(iii) the authoritative copy is communicated to and maintained by the Lender or
its designated custodian, (iv) copies or revisions that add or change an
identified assignee of the authoritative copy can only be made with the
participation of Lender, (v) each copy of the authoritative copy and any copy of
a copy is readily identifiable as a copy that is not the authoritative copy and
(vi) any revision of the authoritative copy is readily identifiable as an
authorized or unauthorized revision.
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.
Borrower shall, at Lender's request, at any time and from time to time,
authenticate, execute and deliver to Lender such financing statements, documents
and other agreements and instruments (and pay the cost of filing or recording
the same in all public offices deemed necessary or desirable by Lender) and do
such other acts and things or cause third parties to do such other acts and
things as Lender may deem necessary or desirable in its sole discretion in order
to establish and maintain a valid, attached and perfected security interest in
the Collateral in favor of Lender (free and clear of all other liens, claims,
encumbrances and rights of third parties whatsoever, whether voluntarily or
involuntarily created, except Permitted Liens) to
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secure payment of the Liabilities, and in order to facilitate the collection of
the Collateral. Borrower irrevocably hereby makes, constitutes and appoints
Lender (and all Persons designated by Lender for that purpose) as Borrower's
true and lawful attorney and agent-in-fact to execute and file such financing
statements, documents and other agreements and instruments and do such other
acts and things as may be necessary to preserve and perfect Lender's security
interest in the Collateral. Borrower further agrees that a carbon, photographic,
photostatic or other reproduction of this Agreement or of a financing statement
shall be sufficient as a financing statement. Borrower further ratifies and
confirms the prior filing by Lender of any and all financing statements which
identify the Borrower as debtor, Lender as secured party and any or all
Collateral as collateral.
7. POSSESSION OF COLLATERAL AND RELATED MATTERS.
Until an Event of Default has occurred, Borrower shall have the right,
except as otherwise provided in this Agreement, in the ordinary course of
Borrower's business, to (a) sell, lease or furnish under contracts of service
any of Borrower's Inventory normally held by Borrower for any such purpose; and
(b) use and consume any raw materials, work in process or other materials
normally held by Borrower for such purpose; provided, however, that a sale in
the ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete, of a debt owed by Borrower.
8. COLLECTIONS.
(a) Borrower shall immediately direct all of its Account Debtors to make
all payments on the Accounts directly to a post office box (the "LOCK BOX")
designated by, and under the exclusive control and access of, Lender, or, if by
electronic funds transfer directly to the Lock Box Account, as defined below.
Borrower shall establish an account (the "LOCK BOX ACCOUNT") in Lender's name
with Lender, into which all payments received in the Lock Box shall be
deposited, and into which Borrower will immediately deposit all payments
received by Borrower on Accounts in the identical form in which such payments
were received, whether by cash or check. If Borrower, any Affiliate or
Subsidiary, any shareholder, officer, director, employee or agent of Borrower or
any Affiliate or Subsidiary, or any other Person acting for or in concert with
Borrower shall receive any monies, checks, notes, drafts or other payments
relating to or as Proceeds of Accounts or other Collateral, Borrower and each
such Person shall receive all such items in trust for, and as the sole and
exclusive property of, Lender and, immediately upon receipt thereof, shall remit
the same (or cause the same to be remitted) in kind to the Lock Box Account. The
amounts on deposit in such Lock Box and Lock Box Account are the sole and
exclusive property of Lender. Borrower agrees that all payments made to such
Lock Box Account or otherwise received by Lender, whether in respect of the
Accounts or as Proceeds of other Collateral or otherwise, will be applied on
account of the Liabilities in accordance with the terms of this Agreement.
Borrower agrees to pay all fees, costs and expenses in connection with opening
and maintaining the Lock Box and Lock Box Account. All of such fees, costs and
expenses if not paid by Borrower, may be paid by Lender and in such event all
amounts paid by Lender shall constitute Liabilities hereunder, shall be payable
to Lender by Borrower upon demand, and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder. All checks, drafts, instruments
and other items of payment or Proceeds of Collateral shall be endorsed by
Borrower to Lender, and, if that endorsement of any such item shall not be made
for
13
any reason, Lender is hereby irrevocably authorized to endorse the same on
Borrower's behalf. For the purpose of this section, Borrower irrevocably hereby
makes, constitutes and appoints Lender (and all Persons designated by Lender for
that purpose) as Borrower's true and lawful attorney and agent-in-fact (i) to
endorse Borrower's name upon said items of payment and/or Proceeds of Collateral
and upon any Chattel Paper, Document, Instrument, invoice or similar document or
agreement relating to any Account of Borrower or Goods pertaining thereto; (ii)
to take control in any manner of any item of payment or Proceeds thereof and
(iii) to have access to any lock box or postal box into which any of Borrower's
mail is deposited, and open and process all mail addressed to Borrower and
deposited therein.
(b) Lender may, at any time and from time to time after maturity of any
of the Liabilities, and at any time and from time to time after the occurrence
and during the continuance of an Event of Default, whether before or after
notification to any Account Debtor, (i) enforce collection of any of Borrower's
Accounts or other amounts owed to Borrower by suit or otherwise; (ii) exercise
all of Borrower's rights and remedies with respect to proceedings brought to
collect any Accounts or other amounts owed to Borrower; (iii) surrender, release
or exchange all or any part of any Accounts or other amounts owed to Borrower,
or compromise or extend or renew for any period (whether or not longer than the
original period) any indebtedness thereunder; (iv) sell or assign any Account of
Borrower or other amount owed to Borrower upon such terms, for such amount and
at such time or times as Lender deems advisable; (v) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other similar document
against any Account Debtor or other Person obligated to Borrower; and (vi) do
all other acts and things which are necessary, in Lender's sole discretion, to
fulfill Borrower's obligations under this Agreement and the Other Agreements and
to allow Lender to collect the Accounts or other amounts owed to Borrower. In
addition to any other provision hereof, Lender may at any time, whether before
or after the occurrence of an Event of Default, at Borrower's expense, notify
any parties obligated on any of the Accounts to make payment directly to Lender
of any amounts due or to become due thereunder.
(c) For purposes of calculating interest and fees, Lender shall, within
one (1) Business Day after receipt by Lender at its office in Troy, Michigan, of
cash or other immediately available funds from collections of items of payment
and Proceeds of any Collateral, apply the whole or any part of such collections
or Proceeds against the Liabilities in such order as Lender shall determine in
its sole discretion; provided, until maturity, and provided there is no Event of
Default (nor any event that with notice or the passage of time would constitute
an Event of Default) that has not been cured to Lender's satisfaction, Lender
shall first apply all Proceeds of Accounts and Inventory to outstanding balances
of the Revolving Loans, and then against the Liabilities in such order as Lender
shall determine in its sole discretion. For purposes of determining the amount
of Loans available for borrowing purposes, checks and cash or other immediately
available funds from collections of items of payment and Proceeds of any
Collateral shall be applied in whole or in part against the Liabilities, in such
order as Lender shall determine in its sole discretion (subject to the foregoing
proviso), on the day of receipt, subject to actual collection.
(d) On a monthly basis, Lender shall deliver to Borrower an account
statement showing all Loans, charges and payments, which shall be deemed final,
binding and conclusive upon Borrower unless Borrower notifies Lender in writing,
specifying any error therein, within
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thirty (30) days of the date such account statement is sent to Borrower and any
such notice shall only constitute an objection to the items specifically
identified.
9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.
(a) WEEKLY REPORTS.
Borrower shall deliver to Lender an executed loan report and certificate
in Lender's then current form at least once each week, or more often as
requested by Lender, which shall be accompanied by copies of Borrower's sales
journal, cash receipts journal and credit memo journal for the relevant period.
Such report shall reflect the activity of Borrower with respect to Accounts for
the immediately preceding week, and shall be in a form and with such specificity
as is satisfactory to Lender and shall contain such additional information
concerning Accounts and Inventory as may be requested by Lender including,
without limitation, but only if specifically requested by Lender, copies of all
invoices prepared in connection with such Accounts.
(b) MONTHLY REPORTS.
Borrower shall deliver to Lender, in addition to any other reports, as
soon as practicable and in any event: (i) within fifteen (15) days after the end
of each month: (A) a detailed trial balance of Borrower's Accounts aged per
invoice date, in form and substance reasonably satisfactory to Lender including,
without limitation, the names and addresses of all Account Debtors of Borrower,
and (B) a summary and detail of accounts payable (such Accounts and accounts
payable divided into such time intervals as Lender may require in its sole
discretion), including a listing of any held checks; and (ii) within fifteen
(15) days after the end of each month, the general ledger inventory account
balance, a perpetual inventory report and Lender's standard form of Inventory
report then in effect or the form most recently requested from Borrower by
Lender, for Borrower by each category of Inventory, together with a description
of the monthly change in each category of Inventory.
(c) FINANCIAL STATEMENTS.
Borrower shall deliver to Lender the following financial information, all
of which shall be prepared in accordance with generally accepted accounting
principles consistently applied, subject to year-end adjustments and a lack of
footnotes for unaudited financial information, and shall be accompanied by a
compliance certificate in the form of Exhibit B hereto, which compliance
certificate shall include a calculation of all financial covenants contained in
this Agreement: (i) no later than twenty (20) days after each calendar month,
copies of internally prepared financial statements, including, without
limitation, balance sheets and statements of income, retained earnings and cash
flow of each Obligor, certified by the Chief Financial Officer of such Obligor;
and (ii) no later than ninety (90) days after the end of each of each Obligor's
Fiscal Years, audited annual financial statements by independent certified
public accountants selected by such Obligor and reasonably satisfactory to
Lender, which financial statements shall be accompanied by copies of any
management letters sent to the Obligor by such accountants.
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(d) ANNUAL PROJECTIONS.
On or prior to the date hereof, Borrower shall deliver to Lender projected
balance sheets, statements of income and cash flow for Borrower for each of the
twelve (12) months during Fiscal Year ending December 31, 2004, which shall
include the assumptions used therein, together with appropriate supporting
details as reasonably requested by Lender. As soon as practicable and in any
event prior to the beginning of each Fiscal Year thereafter, Borrower shall
deliver to Lender projected balance sheets, statements of income and cash flow
for Borrower for the coming Fiscal Year, which shall include the assumptions
used therein, together with appropriate supporting details as reasonably
requested by Lender.
(e) EXPLANATION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In conjunction with the delivery of the annual audited financial
statements referred to in subsection 9(d) above, Borrower shall deliver a
management's discussion and analysis of Borrower's financial condition and
results of operations for the most recently completed year.
(f) PUBLIC REPORTING.
Promptly upon the filing thereof, Borrower shall deliver to Lender copies
of all registration statements and annual, quarterly, monthly or other regular
reports which Borrower or any of its Subsidiaries files with the Securities and
Exchange Commission, as well as promptly providing to Lender copies of any
reports and proxy statements delivered to its shareholders.
(g) OTHER INFORMATION. Promptly following request therefor by Lender,
Borrower shall deliver to Lender such other business or financial data, reports,
appraisals and projections as Lender may reasonably request. TERMINATION;
AUTOMATIC RENEWAL.
THIS AGREEMENT SHALL BE IN EFFECT FROM THE DATE HEREOF UNTIL AUGUST 31,
2007 (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 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
16
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 from any source other than income from the
ordinary course operations of Borrower's business 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 one percent (1%) of the
Maximum Loan Limit.
11. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants to Lender, which representations
and warranties (whether appearing in this Section 11 or elsewhere) shall be true
at the time of Borrower's execution hereof and the closing of the transactions
described herein or related hereto, shall remain true until the repayment in
full and satisfaction of all the Liabilities and termination of this Agreement,
and shall be remade by Borrower at the time each Loan is made pursuant to this
Agreement.
(a) FINANCIAL STATEMENTS AND OTHER INFORMATION.
The financial statements and other information delivered or to be
delivered by Borrower to Lender at or prior to the date of this Agreement fairly
present, in all material respects, the financial condition of Borrower, and
there has been no material adverse change in the financial condition or the
operations of Borrower since the date of the financial statements delivered to
Lender most recently prior to the date of this Agreement. All written
information now or heretofore furnished by Borrower to Lender is true and
correct in all material respects as of the date with respect to which such
information was furnished.
(b) LOCATIONS.
The office where Borrower keeps its books, records and accounts (or copies
thereof) concerning the Collateral, Borrower's principal place of business and
all of Borrower's other places of business, locations of Collateral and post
office boxes and locations of bank accounts are as set forth in Exhibit A and at
other locations within the continental United States of which Lender has been
advised by Borrower in accordance with subsection 12(b)(i). The Collateral,
including, without limitation, the Equipment (except any part thereof which
Borrower shall have advised Lender in writing consists of Collateral normally
used in more than one state) is kept, or, in the case of vehicles, based, only
at the addresses set forth on Exhibit A. and at other locations within the
continental United States of which Lender has been advised by Borrower in
writing in accordance with subsection 12(b)(i) hereof.
(c) LOANS BY BORROWER.
Borrower has not made any loans or advances to any Affiliate or other
Person except for (1) advances to employees, officers and directors of Borrower
for travel and other expenses
17
arising in the ordinary course of Borrower's business, and (2) any other
Permitted Affiliate Transactions that constitute such a loan or advance.
(d) ACCOUNTS AND INVENTORY.
Each Account or item of Inventory which Borrower shall, expressly or by
implication, request Lender to classify as an Eligible Account or as Eligible
Inventory, respectively, shall, as of the time when such request is made,
conform in all respects to the requirements of such classification as set forth
in the respective definitions of "Eligible Account" and "Eligible Inventory" as
set forth herein and as otherwise established by Lender from time to time.
(e) LIENS.
Borrower is the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens.
(f) ORGANIZATION, AUTHORITY AND NO CONFLICT.
Borrower is a corporation, duly organized, validly existing and in good
standing in the State of Michigan, its state organizational identification
number is 167985 and Borrower is duly qualified and in good standing in all
states where the nature and extent of the business transacted by it or the
ownership of its assets makes such qualification necessary, except where such
failure would not have a Material Adverse Effect. Borrower has the right and
power and is duly authorized and empowered to enter into, execute and deliver
this Agreement and the Other Agreements and perform its obligations hereunder
and thereunder. Borrower's execution, delivery and performance of this Agreement
and the Other Agreements does not conflict with the provisions of the
organizational documents of Borrower, any statute, regulation, ordinance or rule
of law, or any agreement, contract or other document which may now or hereafter
be binding on Borrower, and Borrower's execution, delivery and performance of
this Agreement and the Other Agreements shall not result in the imposition of
any lien or other encumbrance upon any of Borrower's property under any existing
indenture, mortgage, deed of trust, loan or credit agreement or other agreement
or instrument by which Borrower or any of its property may be bound or affected.
(g) LITIGATION.
Except as disclosed on Schedule 11(g), there are no actions or proceedings
which are pending or threatened against Borrower which is, in the determination
of Lender, likely to have a Material Adverse Effect on Borrower, and Borrower
shall, promptly upon becoming aware of any such pending or threatened action or
proceeding, give written notice thereof to Lender. Borrower has no Commercial
Tort Claims pending other than those set forth on Exhibit C hereto as Exhibit C
may be amended from time to time.
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(h) COMPLIANCE WITH LAWS AND MAINTENANCE OF PERMITS.
Borrower has obtained all governmental consents, franchises, certificates,
licenses, authorizations, approvals and permits, the lack of which would have a
Material Adverse Effect on Borrower. Borrower is in compliance in all material
respects with all applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation, Environmental
Laws and statutes, orders, regulations, rules and ordinances relating to taxes,
employer and employee contributions and similar items, securities, ERISA or
employee health and safety) the failure to comply with which would have a
Material Adverse Effect on Borrower.
(i) AFFILIATE TRANSACTIONS.
Borrower is not conducting, permitting or suffering to be conducted,
transactions with any Affiliate, except for transactions (1) set forth on
Schedule 11(i) hereto, (2) permitted pursuant to subsection 11(c) hereof, (3)
permitted pursuant to subsection 13(k) hereof, or (4) permitted pursuant to
subsection 13(1) hereof (collectively "Permitted Affiliate Transactions").
(j) NAMES AND TRADE NAMES.
Borrower's name has always been as set forth on the first page of this
Agreement and Borrower uses no trade names, assumed names, fictitious names or
division names in the operation of its business, except as set forth on Schedule
11(j) hereto.
(k) EQUIPMENT.
Borrower has good and indefeasible and merchantable title to and ownership
of all of Borrower's Equipment (other than Equipment subject to leases). No
Equipment is a Fixture to real estate unless such real estate is owned by
Borrower and is subject to a mortgage in favor of Lender, or if such real estate
is leased, is subject to a landlord's agreement in favor of Lender on terms
acceptable to Lender, or an accession to other personal property unless such
personal property is subject to a first priority lien in favor of Lender.
(l) ENFORCEABILITY.
This Agreement and the Other Agreements to which Borrower is a party are
the legal, valid and binding obligations of Borrower and are enforceable against
Borrower in accordance with their respective terms.
(m) SOLVENCY.
Borrower is, after giving effect to the transactions contemplated hereby,
solvent, able to pay its debts as they become due, has capital sufficient to
carry on its business, now owns property having a value both at fair valuation
and at present fair saleable value greater than the amount required to pay its
debts, and will not be rendered insolvent by the execution and delivery of this
Agreement or any of the Other Agreements or by completion of the transactions
contemplated hereunder or thereunder.
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(n) INDEBTEDNESS.
Except as set forth on Schedule 11(n) hereto, Borrower is not obligated
(directly or indirectly), for any loans or other indebtedness for borrowed money
other than the Loans.
(o) MARGIN SECURITY AND USE OF PROCEEDS.
Borrower does not own any margin securities, and none of the proceeds of
the Loans hereunder shall be used for the purpose of purchasing or carrying any
margin securities or for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase any margin securities or for any other
purpose not permitted by Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
(p) PARENT, SUBSIDIARIES AND AFFILIATES.
Except as set forth on Schedule 11(p) hereto, Borrower has no Parents,
Subsidiaries or other Affiliates or divisions, nor is Borrower engaged in any
joint venture or partnership with any other Person.
(q) NO DEFAULTS.
Borrower is not in default under any material contract, lease or
commitment to which it is a party or by which it is bound, nor does Borrower
know of any dispute regarding any contract, lease or commitment which would have
a Material Adverse Effect on Borrower.
(r) EMPLOYEE MATTERS.
There are no controversies pending or threatened between Borrower and any
of its employees, agents or independent contractors other than employee
grievances arising in the ordinary course of business which would not, in the
aggregate, have a Material Adverse Effect on Borrower, and Borrower is in
compliance with all federal and state laws respecting employment and employment
terms, conditions and practices except for such non-compliance which would not
have a Material Adverse Effect on Borrower.
(s) INTELLECTUAL PROPERTY.
Borrower possesses adequate licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, tradestyles and
trade names to continue to conduct its business as heretofore conducted by it.
(t) ENVIRONMENTAL MATTERS.
Borrower has not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates any Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder where such violation has a Material Adverse
Effect on Borrower or any other Person, and the operations of the Borrower
comply in all material respects with all Environmental Laws and all licenses,
permits, certificates,
20
approvals and similar authorizations thereunder, except where such failure to
comply would not have a Material Adverse Effect on Borrower. There is not now
pending or, to the best of Borrower's knowledge, threatened, nor, to the best of
Borrower's knowledge, except as described on Schedule 11(t), has there been any
investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other Person with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
the Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects the Borrower or its
business, operations or assets or any properties at which the Borrower has
transported, stored or disposed of any Hazardous Materials. Borrower has no
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(u) ERISA MATTERS.
Borrower has paid and discharged all obligations and liabilities arising
under ERISA of a character which, if unpaid or unperformed, might result in the
imposition of a lien against any of its properties or assets.
12. AFFIRMATIVE COVENANTS.
Until payment and satisfaction in full of all Liabilities and termination
of this Agreement, unless Borrower obtains Lender's prior written consent
waiving or modifying any of Borrower's covenants hereunder in any specific
instance, Borrower covenants and agrees as follows:
(a) MAINTENANCE OF RECORDS.
Borrower shall at all times keep accurate and complete books, records and
accounts with respect to all of Borrower's business activities, in accordance
with sound accounting practices and generally accepted accounting principles
consistently applied, and shall keep such books, records and accounts, and any
copies thereof, only at the addresses indicated for such purpose on Exhibit A.
(b) NOTICES.
Borrower shall:
(i) Locations. Promptly (but in no event less than ten (10) days
prior to the occurrence thereof) notify Lender of the proposed opening of any
new place of business or new location of Collateral, the closing of any existing
place of business or location of Collateral, any change in the location of
Borrower's books, records and accounts (or copies thereof), the opening or
closing of any post office box, the opening or closing of any bank account or,
if any of the Collateral consists of Goods of a type normally used in more than
one state, the use of any such Goods in any state other than a state in which
Borrower has previously advised Lender that such Goods will be used.
21
(ii) Litigation and Proceedings. Promptly upon becoming aware
thereof, notify Lender of any material actions or proceedings which are pending
or, to Borrower's knowledge, threatened against Borrower and of any Commercial
Tort Claims of Borrower which may arise, which notice shall constitute
Borrower's authorization to amend Exhibit C to add such Commercial Tort Claim.
(iii) Names and Trade Names. Notify Lender within ten (10) days of
the change of its name or the use of any trade name, assumed name, fictitious
name or division name not previously disclosed to Lender in writing.
(iv) ERISA Matters. Promptly notify Lender of (x) the occurrence of
any "reportable event" (as defined in ERISA) which might result in the
termination by the Pension Benefit Guaranty Corporation (the "PBGC") of any
employee benefit plan ("Plan") covering any officers or employees of the
Borrower, any benefits of which are, or are required to be, guaranteed by the
PBGC, (y) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor or (z) its
intention to terminate or withdraw from any Plan.
(v) Environmental Matters. Immediately notify Lender upon becoming
aware of any investigation, proceeding, complaint, order, directive, claim,
citation or notice with respect to any non-compliance with or violation of the
requirements of any Environmental Law by Borrower or the generation, use,
storage, treatment, transportation, manufacture handling, production or disposal
of any Hazardous Materials or any other environmental, health or safety matter
which affects Borrower or its business operations or assets or any properties at
which Borrower has transported, stored or disposed of any Hazardous Materials.
(vi) Default; Material Adverse Change. Promptly advise Lender of
any material adverse change in the business, property, assets, prospects,
operations or condition, financial or otherwise, of Borrower, the occurrence of
any Event of Default hereunder or the occurrence of any event which, if uncured,
will become an Event of Default after notice or lapse of time (or both).
All of the foregoing notices shall be provided by Borrower to Lender in writing.
(c) COMPLIANCE WITH LAWS AND MAINTENANCE OF PERMITS.
Borrower shall maintain all governmental consents, franchises,
certificates, licenses, authorizations, approvals and permits, the lack of which
would have a Material Adverse Effect on Borrower and Borrower shall remain in
compliance with all applicable federal, state, local and foreign statutes,
orders, regulations, rules and ordinances (including, without limitation,
Environmental Laws and statutes, orders, regulations, rules and ordinances
relating to taxes, employer and employee contributions and similar items,
securities, ERISA or employee health and safety) the failure with which to
comply would have a Material Adverse Effect on Borrower. Following any
determination by Lender that there is non-compliance, or any condition which
requires any action by or on behalf of Borrower in order to avoid
non-compliance, with any Environmental Law, at Borrower's expense cause an
independent environmental engineer acceptable to Lender to conduct such tests of
the relevant site(s) as are appropriate and prepare
22
and deliver a report setting forth the results of such tests, a proposed plan
for remediation and an estimate of the costs thereof.
(d) INSPECTION AND AUDITS.
Borrower shall permit Lender, or any Persons designated by it, to call at
Borrower's places of business at any reasonable times, and, without hindrance or
delay, to inspect the Collateral and to inspect, audit, check and make extracts
from Borrower's books, records, journals, orders, receipts and any
correspondence and other data relating to Borrower's business, the Collateral or
any transactions between the parties hereto, and shall have the right to make
such verification concerning Borrower's business as Lender may consider
reasonable under the circumstances. Borrower shall furnish to Lender such
information relevant to Lender's rights under this Agreement and the Other
Agreements as Lender shall at any time and from time to time request. Lender,
through its officers, employees or agents shall have the right, at any time and
from time to time, in Lender's name, to verify the validity, amount or any other
matter relating to any of Borrower's Accounts, by mail, telephone, telecopy,
electronic mail, or otherwise. Borrower authorizes Lender to discuss the
affairs, finances and business of Borrower with any officers, employees or
directors of Borrower or with its Parent or any Affiliate or the officers,
employees or directors of its Parent or any Affiliate, and to discuss the
financial condition of Borrower with Borrower's independent public accountants.
Any such discussions shall be without liability to Lender or to Borrower's
independent public accountants. Borrower shall pay to Lender all customary fees
and all costs and out-of-pocket expenses incurred by Lender in the exercise of
its rights hereunder, and all of such fees, costs and expenses shall constitute
Liabilities hereunder, shall be payable on demand and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(e) INSURANCE.
Borrower shall:
(i) Keep the Collateral properly housed and insured for the full
insurable value thereof against loss or damage by fire, theft, explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks as
are customarily insured against by Persons engaged in businesses similar to that
of Borrower, with such companies, in such amounts, with such deductibles, and
under policies in such form, as shall be satisfactory to Lender. Original (or
certified) copies of such policies of insurance have been or shall be, within
thirty (30) days of the date hereof, delivered to Lender, together with evidence
of payment of all premiums therefor, and shall contain an endorsement, in form
and substance acceptable to Lender, showing loss under such insurance policies
payable to Lender. Such endorsement, or an independent instrument furnished to
Lender, shall provide that the insurance company shall give Lender at least
thirty (30) days written notice before any such policy of insurance is altered
or canceled and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of Lender to recover under
such policy of insurance in case of loss or damage. In addition, Borrower shall
cause to be executed and delivered to Lender an assignment of proceeds of any
business interruption insurance policies it may have in place from time to time.
Borrower hereby directs all insurers under all policies of insurance to pay all
proceeds payable thereunder jointly to Borrower and Lender. Borrower irrevocably
makes, constitutes and appoints Lender
23
(and all officers, employees or agents designated by Lender) as Borrower's true
and lawful attorney (and agent-in-fact) for the purpose of making, settling and
adjusting claims under such policies of insurance, endorsing the name of
Borrower on any check, draft, instrument or other item of payment for the
proceeds of such policies of insurance and making all determinations and
decisions with respect to such policies of insurance.
(ii) Maintain, at its expense, such public liability and third
party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in such amounts,
with such deductibles and under policies in such form as shall be satisfactory
to Lender and original (or certified) copies of such policies have been or shall
be, within thirty (30) days after the date hereof, delivered to Lender, together
with evidence of payment of all premiums therefor; each such policy shall
contain an endorsement showing Lender as additional insured thereunder and
providing that the insurance company shall give Lender at least thirty (30) days
written notice before any such policy shall be altered or canceled.
If Borrower at any time or times hereafter shall fail to obtain or maintain any
of the policies of insurance required above or to pay any premium relating
thereto, then Lender, without waiving or releasing any obligation or default by
Borrower hereunder, may (but shall be under no obligation to) obtain and
maintain such policies of insurance and pay such premiums and take such other
actions with respect thereto as Lender deems advisable. Such insurance, if
obtained by Lender, may, but need not, protect Borrower's interests or pay any
claim made by or against Borrower with respect to the Collateral. Such insurance
may be more expensive than the cost of insurance Borrower may be able to obtain
on its own and may be cancelled only upon Borrower providing evidence that it
has obtained the insurance as required above. All sums disbursed by Lender in
connection with any such actions, including, without limitation, court costs,
expenses, other charges relating thereto and reasonable attorneys' fees, shall
constitute Loans hereunder, shall be payable on demand by Borrower to Lender
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.
(f) COLLATERAL.
Borrower shall keep the Collateral in good condition, repair and order and
shall make all necessary repairs to the Equipment and replacements thereof so
that the operating efficiency and the value thereof shall at all times be
preserved and maintained, subject to depreciation and obsolescence in the
ordinary course of business. Borrower shall permit Lender to examine any of the
Collateral at any time and wherever the Collateral may be located and, Borrower
shall, immediately upon request therefor by Lender, deliver to Lender any and
all evidence of ownership of any of the Equipment including, without limitation,
certificates of title and applications of title. Borrower shall, at the request
of Lender, indicate on its records concerning the Collateral a notation, in form
satisfactory to Lender, of the security interest of Lender hereunder.
(g) USE OF PROCEEDS.
All monies and other property obtained by Borrower from Lender pursuant to
this Agreement shall be used solely for business purposes of Borrower and for
the Permitted Affiliate Transactions described in subsection 11(i).
24
(h) TAXES.
Borrower shall file all required tax returns and pay all of its taxes when
due, including, without limitation, taxes imposed by federal, state or municipal
agencies, and shall cause any liens for taxes due and not paid to be promptly
released; provided, that Borrower shall have the right to contest the payment of
such taxes in good faith by appropriate proceedings so long as (i) the amount so
contested is shown on Borrower's financial statements; and (ii) the contesting
of any such payment does not give rise to a new lien for taxes. If Borrower
fails to pay any such taxes and in the absence of any such contest by Borrower,
Lender may (but shall be under no obligation to) advance and pay any sums
required to pay any such taxes and/or to secure the release of any lien
therefor, and any sums so advanced by Lender shall constitute Loans hereunder,
shall be payable by Borrower to Lender on demand, and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder.
(i) INTELLECTUAL PROPERTY.
Borrower shall maintain adequate licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, tradestyles and
trade names to continue its business as heretofore conducted by it or as
hereafter conducted by it.
(j) CHECKING ACCOUNTS.
Borrower shall maintain its primary banking accounts, including general
checking/controlled disbursement and lockbox accounts with Lender. Normal
charges shall be assessed thereon. Although no compensating balance is required,
Borrower must keep monthly balances in order to merit earnings credits which
will cover Lender's service charges for demand deposit account activities.
13. NEGATIVE COVENANTS.
Until payment and satisfaction in full of all Liabilities and termination
of this Agreement, unless Borrower obtains Lender's prior written consent
waiving or modifying any of Borrower's covenants hereunder in any specific
instance, Borrower agrees as follows:
(a) GUARANTIES.
Borrower shall not assume, guarantee or endorse, or otherwise become
liable in connection with, the obligations of any Person, except by endorsement
of instruments for deposit or collection or similar transactions in the ordinary
course of business, except for the Permitted Affiliate Transactions.
(b) INDEBTEDNESS.
Borrower shall not create, incur, assume or become obligated (directly or
indirectly), for any loans or other indebtedness for borrowed money other than
the Loans, except that Borrower may (i) borrow money from a Person other than
Lender on an unsecured and subordinated basis if a subordination agreement in
favor of Lender and in form and substance satisfactory to Lender is executed and
delivered to Lender relative thereto; (ii) maintain its present indebtedness
listed
25
on Schedule 11(n) hereto and any extensions, renewals and refinancings of such
indebtedness that do not increase the aggregate amount thereof; (iii) incur
unsecured indebtedness to trade creditors in the ordinary course of business;
(iv) incur purchase money indebtedness or capitalized lease obligations in
connection with Capital Expenditures permitted pursuant to subsection 14(c)
hereof; (v) incur operating lease obligations requiring payments not to exceed
$750,000 in the aggregate during any Fiscal Year of Borrower.
(c) LIENS.
Borrower shall not grant or permit to exist (voluntarily or involuntarily)
any lien, claim, security interest or other encumbrance whatsoever on any of its
assets, other than Permitted Liens.
(d) MERGERS, SALES, ACQUISITIONS, SUBSIDIARIES AND OTHER TRANSACTIONS
OUTSIDE THE ORDINARY COURSE OF BUSINESS.
Borrower shall not (i) enter into any merger or consolidation; (ii) change
the state of Borrower's organization or enter into any transaction which has the
effect of changing Borrower's state of organization; (iii) sell, lease or
otherwise dispose of any of its assets other than in the ordinary course of
business; (iv) purchase the stock, other equity interests or all or a material
portion of the assets of any Person or division of such Person; or (v) enter
into any other transaction outside the ordinary course of Borrower's business,
including, without limitation, any purchase, redemption or retirement of any
shares of any class of its stock or any other equity interest, and any issuance
of any shares of, or warrants or other rights to receive or purchase any shares
of, any class of its stock or any other equity interest, but not including (and,
for clarity, the following transactions are permitted) any Permitted Affiliate
Transactions. Borrower shall not form any Subsidiaries or enter into any joint
ventures or partnerships with any other Person.
(e) DIVIDENDS AND DISTRIBUTIONS.
Borrower shall not declare or pay any dividend or other distribution
(whether in cash or in kind) on any class of its stock (if Borrower is a
corporation) or on account of any equity interest in Borrower (if Borrower is a
partnership, limited liability company or other type of entity), other than
Permitted Affiliate Transactions.
(f) INVESTMENTS; LOANS.
Borrower shall not purchase or otherwise acquire, or contract to purchase
or otherwise acquire, the obligations or stock of any Person, other than direct
obligations of the United States; nor shall Borrower lend or otherwise advance
funds to any Person except for advances made to employees, officers and
directors for travel and other expenses arising in the ordinary course of
business and except for any Permitted Affiliate Transactions.
(g) FUNDAMENTAL CHANGES, LINE OF BUSINESS.
Borrower shall not amend its organizational documents or change its Fiscal
Year or enter into a new line of business materially different from Borrower's
current business.
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(h) EQUIPMENT.
Borrower shall not (i) permit any Equipment to become a Fixture to real
property unless such real property is owned by Borrower and is subject to a
mortgage in favor of Lender, or if such real estate is leased, is subject to a
landlord's agreement in favor of Lender on terms acceptable to Lender, or (ii)
permit any Equipment to become an accession to any other personal property
unless such personal property is subject to a first priority lien in favor of
Lender.
(i) AFFILIATE TRANSACTIONS.
Borrower shall not conduct, permit or suffer to be conducted, transactions
with Affiliates other than Permitted Affiliate Transactions and transactions for
the purchase or sale of Inventory or services in the ordinary course of business
pursuant to terms that are no less favorable to Borrower than the terms upon
which such transactions would have been made had they been made to or with a
Person that is not an Affiliate.
(j) SETTLING OF ACCOUNTS.
Borrower shall not settle or adjust any Account identified by Borrower as
an Eligible Account or with respect to which the Account Debtor is an Affiliate
without the consent of Lender, provided, that following the occurrence of an
Event of Default, Borrower shall not settle or adjust any Account without the
consent of Lender.
(k) MANAGEMENT FEES.
Borrower shall not pay any management or consulting fees to any Persons,
except for the Permitted Affiliate Transactions and except that Borrower may pay
management fees to Tarpon Industries, Inc., in a maximum amount of $250,000 per
Fiscal Year, provided at the time of any such payment and immediately after
making any such payment (a) there is no Event of Default, nor has any event
occurred that with notice or lapse of time would constitute an Event of Default,
and (b) Borrower has Excess Availability of at least $1,000,000 and has had an
average Excess Availability of at least $1,000,000 plus the amount of such
payment over the lesser of: (i) the period of 90 days ending on the date of such
payment, or (ii) the period beginning on the date hereof and ending on the date
of such payment.
(l) COMPENSATION. Except for the compensation provided under the
employment agreements described on Schedule 11(i), and except for compensation
paid to C. ▇▇▇▇▇ ▇▇▇▇▇▇ pursuant to a letter agreement dated September 27, 2002,
Borrower shall not pay annual aggregate compensation, whether as salary, bonus
or otherwise, to any director or officer of Borrower in excess of: (i) for
Fiscal Years ending December 31, 2004, and December 31, 2005, one hundred ten
percent (110%) of the aggregate compensation, whether as salary, bonus or
otherwise, of that director or officer of Borrower in effect on the date of this
Agreement, or (ii) for each subsequent Fiscal Year, one hundred ten percent
(110%) of the prior Fiscal Year's aggregate compensation of that director or
officer, except that increases in Borrower's aggregate cost of providing the
types of benefits provided on the date hereof shall not be included in the
foregoing calculation. The foregoing limitations on compensation shall not apply
to new directors and officers until the first full Fiscal Year after their date
of hire or appointment. The limitations of this subsection 13(l) shall not apply
after completion of Tarpon's underwritten
27
initial public offering of its common shares pursuant to an effective
registration statement filed with the United States Securities and Exchange
Commission.
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 the date hereof, on September
30, 2004, or on any March 31, June 30, September 30 or December 31 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 the date hereof through December 31,2004, $1,400,000,
and (ii) thereafter, the Minimum Tangible Net Worth during the immediately
preceding fiscal year plus eighty percent (80%) of Borrower's net income (but
without reduction for any net loss) for the immediately preceding Fiscal Year 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 1.50 to
1.00 on the date hereof (for the period January 1, 2004, to June 30,2004), on
September 30, 2004 (for the period January 1, 2004, to such date), on December
31, 2004 (for the period January 1, 2004, to such date), or for any period of
four consecutive calendar quarters ending on any March 31, June 30, September
30, or December 31 thereafter.
(c) 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 during each full
Fiscal Year after such 12-month period.
15. DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default" by Borrower hereunder:
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(a) PAYMENT.
The failure of any Obligor to pay when due, declared due, or demanded by
Lender, any of the Liabilities.
(b) BREACH OF THIS AGREEMENT AND THE OTHER AGREEMENTS.
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 and such failure continues for at
least 30 days after receipt by such Obligor of notice of such failure from
Lender; provided no cure period shall apply to any such failure under the terms
or provisions of any subordination agreements, or amended and restated
subordination agreements, entered into by Lender and the Obligors on the date
hereof or hereafter, as the same may be amended from time to time.
(c) BREACHES OF OTHER OBLIGATIONS.
The failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
any other agreement with any Person if such failure might have a Material
Adverse Effect on such Obligor.
(d) BREACH OF REPRESENTATIONS AND WARRANTIES.
The making or furnishing by any Obligor to Lender of any representation,
warranty, certificate, schedule, report or other communication within or in
connection with this Agreement or the Other Agreements or in connection with any
other agreement between such Obligor and Lender, which is untrue or misleading
in any material respect.
(e) LOSS OF COLLATERAL.
The loss (other than losses fully covered by insurance proceeds actually
paid to Lender for application to the Liabilities as provided herein), theft,
damage or destruction of, or (except as permitted hereby) sale, lease or
furnishing under a contract of service outside the ordinary course of business
of, any of the Collateral.
(f) LEVY, SEIZURE OR ATTACHMENT.
The making or any attempt by any Person to make any levy, seizure or
attachment upon any of the Collateral, if such action is not suspended, stayed
or reversed, or the related obligation is not paid or otherwise discharged
within 30 days.
(g) BANKRUPTCY OR SIMILAR PROCEEDINGS.
The commencement of any proceedings in bankruptcy by or against any
Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing, for the relief of debtors, or the commencement of any
29
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shall not constitute an Event of Default unless such
proceedings are not dismissed within thirty (30) days after the commencement of
such proceedings, though Lender shall have no obligation to make Loans or issue
Letters of Credit to Borrower during such thirty (30) day period or, if earlier,
until such proceedings are dismissed.
(h) APPOINTMENT OF RECEIVER.
The appointment of a receiver or trustee for any Obligor, for any of the
Collateral or for any substantial part of any Obligor's assets or the
institution of any proceedings for the dissolution, or the full or partial
liquidation, or the merger or consolidation, of any Obligor which is a
corporation, limited liability company or a partnership; provided, however, that
if such appointment or commencement of proceedings against such Obligor is
involuntary, such action shall not constitute an Event of Default unless such
appointment is not revoked or such proceedings are not dismissed within thirty
(30) days after the commencement of such proceedings, though Lender shall have
no obligation to make Loans or issue Letters of Credit to Borrower during such
thirty (30) day period or, if earlier, until such proceedings are dismissed.
(i) JUDGMENT.
The entry of any judgment or order against any Obligor which remains
unsatisfied or undischarged and in effect for sixty (60) days after such entry
without a stay of enforcement or execution.
(j) DEATH OR DISSOLUTION OF OBLIGOR.
The death of any Obligor who is a natural Person, or of any general
partner who is a natural Person of any Obligor which is a partnership, or any
member who is a natural Person of any Obligor which is a limited liability
company or the dissolution of any Obligor which is a partnership, limited
liability company, corporation or other entity.
(k) DEFAULT OR REVOCATION OF GUARANTY.
The occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and delivered by
any Person to Lender pursuant to which such Person has guaranteed to Lender the
payment of all or any of the Liabilities or has granted Lender a security
interest in or lien upon some or all of such Person's real and/or personal
property to secure the payment of all or any of the Liabilities.
(l) CRIMINAL PROCEEDINGS.
The institution in any court of a criminal proceeding against any Obligor,
or the indictment of any Obligor for any crime.
30
(m) CHANGE OF CONTROL.
The failure of Tarpon Industries, Inc., to own and have voting control of
one hundred percent (100%) of the issued and outstanding voting equity interest
of Borrower.
(n) CHANGE OF MANAGEMENT.
If ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall cease to be the Chief Executive Officer of
Borrower at any time.
(o) MATERIAL ADVERSE CHANGE.
Any material adverse change in the Collateral, business, property, assets,
prospects, operations or condition, financial or otherwise of any Obligor, as
determined by Lender in its sole judgment or the occurrence of any event which,
in Lender's sole judgment, could have a Material Adverse Effect.
16. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in subsection
15(g) hereof, all of the Liabilities shall immediately and automatically become
due and payable, without notice of any kind. Upon the occurrence of any other
Event of Default, all Liabilities may, at the option of Lender, and without
demand, notice or legal process of any kind, be declared, and immediately shall
become, due and payable.
(b) Upon the occurrence of an Event of Default, Lender may exercise from
time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Lender's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Lender may, without notice, demand or legal process
of any kind, take possession of any or all of the Collateral (in addition to
Collateral of which it already has possession), wherever it may be found, and
for that purpose may pursue the same wherever it may be found, and may enter
onto any of Borrower's premises where any of the Collateral may be, and search
for, take possession of, remove, keep and store any of the Collateral until the
same shall be sold or otherwise disposed of, and Lender shall have the right to
store the same at any of Borrower's premises without cost to Lender. At Lender's
request, Borrower shall, at Borrower's expense, assemble the Collateral and make
it available to Lender at one or more places to be designated by Lender and
reasonably convenient to Lender and Borrower. Borrower recognizes that if
Borrower fails to perform, observe or discharge any of its Liabilities under
this Agreement or the Other Agreements, no remedy at law will provide adequate
relief to Lender, and agrees that Lender shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages. Any notification of intended disposition of any of the
Collateral required by law will be deemed to be a reasonable authenticated
notification of disposition if given at least ten (10) days prior to such
disposition and such notice shall (i) describe Lender and Borrower, (ii)
describe the Collateral that is the subject of the intended disposition, (iii)
state the method of the intended disposition, (iv) state that Borrower is
entitled to an accounting of the Liabilities and state the charge, if any, for
an accounting and (v) state the
31
time and place of any public disposition or the time after which any private
sale is to be made. Lender may disclaim any warranties that might arise in
connection with the sale, lease or other disposition of the Collateral and has
no obligation to provide any warranties at such time. Any Proceeds of any
disposition by Lender of any of the Collateral may be applied by Lender to the
payment of expenses in connection with the Collateral, including, without
limitation, legal expenses and reasonable attorneys' fees, and any balance of
such Proceeds may be applied by Lender toward the payment of such of the
Liabilities, and in such order of application, as Lender may from time to time
elect.
17. CONDITIONS PRECEDENT.
The obligation of Lender to fund the Term Loan and to fund the initial
Revolving Loan is subject to the satisfaction or waiver on or before the date
hereof of the following conditions precedent:
(a) Lender shall have received each of the agreements, opinions, reports,
approvals, consents, certificates and other documents set forth on the closing
document list attached hereto as Schedule 17(a) (the "CLOSING DOCUMENT LIST") in
each case in form and substance satisfactory to Lender;
(b) Since June 30, 2004, no event shall have occurred which has had or
could reasonably be expected to have a Material Adverse Effect on any Obligor,
as determined by Lender in its sole discretion.
(c) Lender shall have received payment in full of all fees and expenses
payable to it by Borrower or any other Person in connection herewith, on or
before disbursement of the initial Loans hereunder;
(d) Lender shall have determined that immediately after giving effect to
(A) the making of the initial Loans, including without limitation the Term Loan
and the Revolving Loan, if any, requested to be made on the date hereof, (B) the
payment of all fees due upon such date and (C) the payment or reimbursement by
Borrower of Lender for all closing costs and expenses incurred in connection
with the transactions contemplated hereby, Borrower has Excess Availability of
not less than Two Million Dollars ($2,000,000); and
(e) The Obligors shall have executed and delivered to Lender all such
other documents, instruments and agreements which Lender determines are
reasonably necessary to consummate the transactions contemplated hereby.
18. INDEMNIFICATION.
Borrower agrees to defend (with counsel satisfactory to Lender), protect,
indemnify and hold harmless Lender, each affiliate or subsidiary of Lender, and
each of their respective shareholders, members, officers, directors, managers,
employees, attorneys and agents (each an "INDEMNIFIED PARTY") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature (including, without limitation, the disbursements and the reasonable fees
of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial
32
proceeding, whether or not the Indemnified Party shall be designated a party
thereto), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or consequential and whether based
on any federal, state or local laws or regulations, including, without
limitation, securities laws and regulations, Environmental Laws and commercial
laws and regulations, under common law or in equity, or based on contract or
otherwise) in any manner relating to or arising out of this Agreement or any
Other Agreement, or any act, event or transaction related or attendant thereto,
the making or issuance and the management of the Loans or any Letters of Credit
or the use or intended use of the proceeds of the Loans or any Letters of
Credit; provided, however, that Borrower shall not have any obligation hereunder
to any Indemnified Party with respect to matters caused by or resulting from the
willful misconduct or gross negligence of such Indemnified Party. To the extent
that the undertaking to indemnify set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, Borrower
shall satisfy such undertaking to the maximum extent permitted by applicable
law. Any liability, obligation, loss, damage, penalty, cost or expense covered
by this indemnity shall be paid to each Indemnified Party on demand, and,
failing prompt payment, shall, together with interest thereon at the highest
rate then applicable to Loans hereunder from the date incurred by each
Indemnified Party until paid by Borrower, be added to the Liabilities of
Borrower and be secured by the Collateral. The provisions of this Section 18
shall survive the satisfaction and payment of the other Liabilities and the
termination of this Agreement.
19. NOTICE.
All written notices and other written communications with respect to this
Agreement shall be sent by ordinary, certified or overnight mail, by delivery
service, by telecopy or delivered in person, and in the case of Lender shall be
sent to it at ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, facsimile number:
(▇▇▇) ▇▇▇-▇▇▇▇, and in the case of Borrower shall be sent to it at its principal
place of business set forth on Exhibit A hereto or as otherwise directed by
Borrower in writing. All notices shall be deemed received upon actual receipt
thereof or refusal of delivery.
20. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.
This Agreement and the Other Agreements are submitted by Borrower to
Lender for Lender's acceptance or rejection at Lender's principal place of
business as an offer by Borrower to borrow monies from Lender now and from time
to time hereafter, and shall not be binding upon Lender or become effective
until accepted by Lender, in writing, at said place of business. If so accepted
by Lender, this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE
GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF MICHIGAN AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF MICHIGAN, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL
33
IS LOCATED. If any provision of this Agreement shall be held to be prohibited by
or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or remaining provisions of this Agreement.
To induce the parties to accept this Agreement, Lender and Borrower
irrevocably agree that ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE
COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
OAKLAND, STATE OF MICHIGAN. BORROWER AND LENDER HEREBY CONSENT AND SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND
STATE. BORROWER AND LENDER HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS
AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON SUCH LENDER OR
BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO
LENDER OR BORROWER, AT THE ADDRESS SET FORTH FOR NOTICE IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
BORROWER AND LENDER HEREBY WAIVE ANY RIGHT THEY MAY HAVE TO TRANSFER OR CHANGE
THE VENUE OF ANY LITIGATION BROUGHT AGAINST BORROWER OR LENDER IN ACCORDANCE
WITH THIS SECTION.
21. MODIFICATION AND BENEFIT OF AGREEMENT.
This Agreement and the Other Agreements may not be modified, altered or
amended except by an agreement in writing signed by Borrower or such other
Person who is a party to such Other Agreement and Lender. Borrower may not sell,
assign or transfer this Agreement, or the Other Agreements or any portion
thereof, including, without limitation, Borrower's rights, titles, interest,
remedies, powers or duties hereunder and thereunder. Borrower hereby consents to
Lender's sale, assignment, transfer or other disposition, at any time and from
time to time hereafter, of this Agreement, or the Other Agreements, or of any
portion thereof, or participations therein, including, without limitation,
Lender's rights, titles, interest, remedies, powers and/or duties and agrees
that it shall execute and deliver such documents as Lender may request in
connection with any such sale, assignment, transfer or other disposition.
22. HEADINGS OF SUBDIVISIONS.
The headings of subdivisions in this Agreement are for convenience of
reference only, and shall not govern the interpretation of any of the provisions
of this Agreement.
23. POWER OF ATTORNEY.
Borrower acknowledges and agrees that its appointment of Lender as its
attorney and agent-in-fact for the purposes specified in this Agreement is an
appointment coupled with an interest and shall be irrevocable until all of the
Liabilities are satisfied and paid in full and this Agreement is terminated.
34
24. CONFIDENTIALITY.
Lender hereby agrees to use commercially reasonable efforts to assure that
any and all information relating to Borrower which is (i) furnished by Borrower
to Lender (or to any affiliate of Lender); and (ii) non-public, confidential or
proprietary in nature, shall be kept confidential by Lender or such affiliate in
accordance with applicable law; provided, however, that such information and
other credit information relating to Borrower may be distributed by Lender or
such affiliate to Lender's or such affiliate's directors, managers, officers,
employees, attorneys, affiliates, assignees, participants, auditors, agents and
regulators, and upon the order of a court or other governmental agency having
jurisdiction over Lender or such affiliate, to any other party. In addition,
such information and other credit information may be distributed by Lender to
potential participants or assignees of any portion of the Liabilities, provided,
that each such potential participant or assignee agrees to follow the
confidentiality requirements set forth herein. Borrower and Lender further agree
that this provision shall survive the termination of this Agreement.
Notwithstanding the foregoing, Borrower hereby consents to Lender publishing a
tombstone or similar advertising material relating to the financing transaction
contemplated by this Agreement.
25. COUNTERPARTS.
This Agreement, any of the Other Agreements, and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all of which
counterparts together shall constitute but one agreement.
26. ELECTRONIC SUBMISSIONS.
Upon not less than thirty (30) days' prior written notice (the "APPROVED
ELECTRONIC FORM NOTICE"), Lender may permit or require that any of the
documents, certificates, forms, deliveries or other communications, authorized,
required or contemplated by this Agreement or the Other Agreements, be submitted
to Lender in "APPROVED ELECTRONIC FORM" (as hereafter defined), subject to any
reasonable terms, conditions and requirements in the applicable Approved
Electronic Forms Notice. For purposes hereof "ELECTRONIC FORM" means e-mail,
e-mail attachments, data submitted on web-based forms or any other communication
method that delivers machine readable data or information to Lender, and
"APPROVED ELECTRONIC FORM" means an Electronic Form that has been approved in
writing by Lender (which approval has not been revoked or modified by Lender)
and sent to Borrower in an Approved Electronic Form Notice. Except as otherwise
specifically provided in the applicable Approved Electronic Form Notice, any
submissions made in an applicable Approved Electronic Form shall have the same
force and effect that the same submissions would have had if they had been
submitted in any other applicable form authorized, required or contemplated by
this Agreement or the Other Agreements.
27. WAIVER OF JURY TRIAL; OTHER WAIVERS.
(a) BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR
35
INDIRECTLY TO THIS AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE
COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR LENDER OR WHICH, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWER AND LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
(b) Borrower hereby waives demand, presentment, protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) Borrower hereby waives the benefit of any law that would otherwise
restrict or limit Lender or any affiliate of Lender in the exercise of its
right, which is hereby acknowledged and agreed to, to set-off against the
Liabilities, without notice at any time hereafter, any indebtedness, matured or
unmatured, owing by Lender or such affiliate of Lender to Borrower, including,
without limitation any deposit account at Lender or such affiliate.
(d) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND
PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL.
(e) Lender's failure, at any time or times hereafter, to require strict
performance by Borrower of any provision of this Agreement or any of the Other
Agreements shall not waive, affect or diminish any right of Lender thereafter to
demand strict compliance and performance therewith. Any suspension or waiver by
Lender of an Event of Default under this Agreement or any default under any of
the Other Agreements shall not suspend, waive or affect any other Event of
Default under this Agreement or any other default under any of the Other
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different kind or character. No delay on the part of Lender in the
exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Lender
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Lender and directed to Borrower specifying such suspension or waiver.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
▇▇▇▇▇▇ WELDING CO. STANDARD FEDERAL BANK N.A.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
----------------------------------- -------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Vice President
Chief Executive Officer
36
REVOLVING NOTE
Executed as of the 11th day of August, No._____________
2004, at Troy, Michigan.
$7,000,000.00
FOR VALUE RECEIVED, the Undersigned promises to pay to the order of
STANDARD FEDERAL BANK N.A. (hereinafter, together with any holder hereof, called
"LENDER"), the principal sum of Seven Million and No/100 Dollars ($7,000,000.00)
plus the aggregate unpaid principal amount of all advances made by Lender to the
Undersigned pursuant to and in accordance with Subsection 2(a) of the Loan
Agreement (as hereinafter defined) in excess of such amount, or, if less, the
aggregate unpaid principal amount of all advances made by Lender to the
Undersigned pursuant to and in accordance with Subsection 2(a) of the Loan
Agreement. The Undersigned further promises to pay interest on the outstanding
principal amount hereof on the dates and at the rates provided in the Loan
Agreement from the date hereof until payment in full hereof.
This Note is referred to in, and is delivered pursuant to, that certain
Loan and Security Agreement, as it may be amended from time to time, together
with all exhibits thereto, dated August 11, 2004, between Lender and the
Undersigned (the "LOAN AGREEMENT"), to which reference is hereby made for, among
other things, the conditions under which this Note may be accelerated. All terms
which are capitalized and used herein (which are not otherwise defined herein)
shall have the meaning ascribed to such term in the Loan Agreement. This Note is
secured by the Collateral described in the Loan Agreement.
THE UNDERSIGNED'S LIABILITIES TO LENDER UNDER THIS NOTE SHALL BE PAYABLE
AT THE TIMES AND IN THE MANNER PROVIDED IN THE LOAN AGREEMENT.
The Undersigned hereby authorizes the Lender to charge any account of the
Undersigned for all sums due hereunder. If payment hereunder becomes due and
payable on a Saturday, Sunday or legal holiday under the laws of the United
States or the State of Michigan, the due date thereof shall be extended to the
next succeeding business day, and interest shall be payable thereon at the rate
specified during such extension. Credit shall be given for payments made in the
manner and at the times provided in the Loan Agreement. It is the intent of the
parties that the rate of interest and other charges to the Undersigned under
this Note shall be lawful; therefore, if for any reason the interest or other
charges payable hereunder are found by a court of competent jurisdiction, in a
final determination, to exceed the limit which Lender may lawfully charge the
Undersigned, then the obligation to pay interest or other charges shall
automatically be reduced to such limit and, if any amount in excess of such
limit shall have been paid, then such amount shall be refunded to the
Undersigned.
The principal and all accrued interest hereunder may be prepaid by the
Undersigned, in part or in full, at any time; provided, however, that the
Undersigned shall pay a prepayment fee as provided in the Loan Agreement.
The Undersigned waives the benefit of any law that would otherwise
restrict or limit Lender in the exercise of its right, which is hereby
acknowledged, to set-off against the Liabilities, without notice and at any time
hereafter, any indebtedness matured or unmatured owing from Lender to the
Undersigned. The Undersigned waives every defense, counterclaim or setoff which
the Undersigned may now have or hereafter may have to any action by Lender in
enforcing this Note and/or any of the other Liabilities, or in enforcing
Lender's rights in the Collateral and ratifies and confirms whatever Lender may
do pursuant to the terms hereof and of the Loan Agreement and with respect to
the Collateral and agrees that Lender shall not be liable for any error in
judgment or mistakes of fact or law.
The Undersigned, any other party liable with respect to the Liabilities
and any and all endorsers and accommodation parties, and each one of them, if
more than one, waive any and all presentment, demand, notice of dishonor,
protest, and all other notices and demands in connection with the enforcement of
Lender's rights hereunder.
The loan evidenced hereby has been made and this Note has been delivered
at Troy, Michigan. THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF MICHIGAN AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION,
THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon
the Undersigned and the Undersigned's heirs, legal representatives, successors
and assigns. If this Note contains any blanks when executed by the Undersigned,
the Lender is hereby authorized, without notice to the Undersigned to complete
any such blanks according to the terms upon which the loan or loans were
granted. Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or be invalid under such law, such
provision shall be severable, and be ineffective to the extent of such
prohibition or invalidity, without invalidating the remaining provisions of this
Note.
To induce the Lender to make the loan evidenced by this Note, the
Undersigned (i) irrevocably agrees that, subject to Lender's sole and absolute
election, all actions arising directly or indirectly as a result or in
consequence of this Note or any other agreement with the Lender, or the
Collateral, shall be instituted and litigated only in courts having situs in the
County of Oakland, Michigan; (ii) hereby consents to the exclusive jurisdiction
and venue of any State or Federal Court located and having its situs in said
county; and (iii) waives any objection based on forum non-conveniens. IN
ADDITION, LENDER AND THE UNDERSIGNED (OR ANY ONE OF THEM, IF MORE THAN ONE)
HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY
OR INDIRECTLY TO THIS NOTE, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED
TORTIOUS CONDUCT BY THE UNDERSIGNED OR LENDER OR WHICH IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN THE UNDERSIGNED
AND LENDER. In addition, the Undersigned agrees that all service of process
shall be made as provided in the Loan Agreement.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction and in particular the word "Undersigned" shall be so construed.
2
IN WITNESS WHEREOF, each of the Undersigned, if more than one, has
executed this Note on the date above set forth.
▇▇▇▇▇▇ WELDING CO.
a Michigan corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Address:
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
3
TERM NOTE
Executed as of the 11th day of August, No.______________
2004 at Troy, Michigan
Amount $1,394,000
FOR VALUE RECEIVED, the Undersigned promises to pay to the order of
STANDARD FEDERAL BANK N.A. (hereinafter, together with any holder hereof, called
"LENDER"), the principal sum of One Million Three Hundred Ninety-Four Thousand
Dollars ($1,394,000). The Undersigned further promises to pay interest on the
outstanding principal amount hereof on the dates and at the rates provided in
the Loan Agreement from the date hereof until payment in full hereof.
This Note is referred to as the Term Note in, and is delivered pursuant
to, that certain Loan and Security Agreement, as it may be amended from time to
time, together with all exhibits thereto, dated of even date herewith, between
Lender and the Undersigned (the "LOAN AGREEMENT"), to which reference is hereby
made for, among other things, the conditions under which this Note may be
accelerated. All terms which are capitalized and used herein (which are not
otherwise defined herein) shall have the meaning ascribed to such term in the
Loan Agreement. This Note is secured by the Collateral described in the Loan
Agreement.
THE UNDERSIGNED'S LIABILITIES TO LENDER UNDER THIS NOTE SHALL BE PAYABLE
AT THE TIMES AND IN THE MANNER PROVIDED IN THE LOAN AGREEMENT.
The Undersigned hereby authorizes the Lender to charge any account of the
Undersigned for all sums due hereunder. If payment hereunder becomes due and
payable on a Saturday, Sunday or legal holiday under the laws of the United
States or the State of Michigan, the due date thereof shall be extended to the
next succeeding business day, and interest shall be payable thereon at the rate
specified during such extension. Credit shall be given for payments made in the
manner and at the times provided in the Loan Agreement. It is the intent of the
parties that the rate of interest and other charges to the Undersigned under
this Note shall be lawful; therefore, if for any reason the interest or other
charges payable hereunder are found by a court of competent jurisdiction, in a
final determination, to exceed the limit which Lender may lawfully charge the
Undersigned, then the obligation to pay interest or other charges shall
automatically be reduced to such limit and, if any amount in excess of such
limit shall have been paid, then such amount shall be refunded to the
Undersigned.
The principal and all accrued interest hereunder may be prepaid by the
Undersigned, in part or in full, at any time; provided, however, that the
Undersigned shall pay a prepayment fee as provided in the Loan Agreement.
The Undersigned waives the benefit of any law that would otherwise
restrict or limit Lender in the exercise of its right, which is hereby
acknowledged, to set-off against the Liabilities, without notice and at any time
hereafter, any indebtedness matured or unmatured owing from Lender to the
Undersigned. The Undersigned waives every defense, counterclaim or
setoff which the Undersigned may now have or hereafter may have to any action by
Lender in enforcing this Note and/or any of the other Liabilities, or in
enforcing Lender's rights in the Collateral and ratifies and confirms whatever
Lender may do pursuant to the terms hereof and of the Loan Agreement and with
respect to the Collateral and agrees that Lender shall not be liable for any
error in judgment or mistakes of fact or law.
The Undersigned, any other party liable with respect to the Liabilities
and any and all endorsers and accommodation parties, and each one of them, if
more than one, waive any and all presentment, demand, notice of dishonor,
protest, and all other notices and demands in connection with the enforcement of
Lender's rights hereunder.
The loan evidenced hereby has been made and this Note has been delivered
at Troy, Michigan. THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL
LAWS OF THE STATE OF MICHIGAN AS TO INTERPRETATION, ENFORCEMENT, VALIDITY,
CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION,
THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon
the Undersigned and the Undersigned's heirs, legal representatives, successors
and assigns. If this Note contains any blanks when executed by the Undersigned,
the Lender is hereby authorized, without notice to the Undersigned to complete
any such blanks according to the terms upon which the loan or loans were
granted. Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited by or be invalid under such law, such
provision shall be severable, and be ineffective to the extent of such
prohibition or invalidity, without invalidating the remaining provisions of this
Note. If more than one party shall execute this Note, the term "UNDERSIGNED" as
used herein shall mean all parties signing this Note, and each one of them, and
all such parties, their respective heirs, executors, administrators, successors
and assigns, shall be jointly and severally obligated hereunder.
To induce the Lender to make the loan evidenced by this Note, the
Undersigned (i) irrevocably agrees that, subject to Lender's sole and absolute
election, all actions arising directly or indirectly as a result or in
consequence of this Note or any other agreement with the Lender, or the
Collateral, shall be instituted and litigated only in courts having situs in the
County of Oakland, Michigan; (ii) hereby consents to the exclusive jurisdiction
and venue of any State or Federal Court located and having its situs in said
county; and (iii) waives any objection based on forum non-conveniens. IN
ADDITION, LENDER AND THE UNDERSIGNED HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR
PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS NOTE, THE LIABILITIES,
THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY THE UNDERSIGNED OR LENDER OR
WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN THE UNDERSIGNED AND LENDER. In addition, the Undersigned
agrees that all service of process shall be made as provided in the Loan
Agreement.
As used herein, all provisions shall include the masculine, feminine,
neuter, singular and plural thereof, wherever the context and facts require such
construction and in particular the word "Undersigned" shall be so construed.
2
IN WITNESS WHEREOF, each of the Undersigned, if more than one, has
executed this Note on the date above set forth.
▇▇▇▇▇▇ WELDING CO.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive
Officer
Address:
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