TARPON INDUSTRIES, INC.
0000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Tel: 000 000-0000
Fax: 000 000 0000
Email: xxxxxxxxx@xxxxxxxxx.xxx
FINANCING AGREEMENT
June 14, 2007
Issuer: Tarpon Industries, Inc. ("Tarpon" or the "Company")
Investors: "Accredited" investors, as defined in Regulation D of the
Securities Act of 1933, including High Capital Funding, LLC
("HCF" or "Lead Investor"). HCF and the other investors are
referred to herein as the "Investors." The names, addresses,
and the amount of Bridge Notes (as defined below) being
purchased by the Investors are set forth on the signature
pages hereto. The Investors have read and agree to the terms
contained in Exhibit A to this Financing Agreement
("Financing Agreement").
Securities Offered: Up to $1,700,000, in up to 170 units of $10,000, in exchange
for promissory notes ("Bridge Notes") and securities
("Bridge Shares") of the Company. Each Investor shall
receive one and one half Bridge Shares for each dollar of
principal amount of Bridge Notes purchased. Fractional units
below the $10,000 minimum may be issued upon mutual
agreement of the Company and the Placement Agent (as defined
below). Fractional units above the $10,000 minimum may also
be issued.
Maturity: (a) The entire principal amount of the Bridge Notes and all
accrued and unpaid interest thereon is due and payable on
the earlier of (i) December 17, 2007 or (ii) the third
business day following the closing of an underwritten public
offering or a private placement of equity securities by the
Company resulting in gross proceeds of $6 million or more (a
"Qualified Offering") (the "Maturity Date"). The Bridge
Notes will be prepayable at any time without premium or
penalty.
(b) Upon the written request of the Company, the Lead
Investor shall have the right to extend the Maturity Date
for up to six one-month periods ("Extension Periods(s)"),
upon such additional terms and conditions as it shall
determine in its sole discretion. The final extended
Maturity Date is referred to herein as the "Final Maturity
Date." The Lead Investor shall provide written notice to
each Investor within five business days of the granting of
an extension of the Maturity Date, which notice shall set
forth the terms of such extension.
Page 1 of 11
Tarpon Financing Agreement
070615-Rev 11A
(c) In the event the maturity date of the Bridge Notes is
extended, the Holders shall be entitled to receive 1/4th of
a share of Tarpon restricted common stock per dollar of
Bridge Notes principal for each month or part thereof of
such Extension Period(s) ("Note Extension Shares").
(d) In the event the principal and interest on the Bridge
Notes is not paid to the Holders (as defined herein) on or
before the third business day following the closing of a
Qualified Offering, the Company shall issue to the Holders
one quarter of a share of its common stock for each month or
part thereof for each dollar of principal ("Late Payment
Shares") until the earlier of (i) payment in full of all
such principal and interest; or (ii) the date upon which the
Conversion Shares (as defined herein) may be sold under Rule
144 without volume restriction and are no longer subject to
an underwriter's lockup. The Late Payment Shares shall be
issued and delivered by the fifth business day of each
month, commencing with the month following the closing of
the Qualified Offering.
Interest: (a) 12% per annum during the initial term of the Bridge
Notes payable at the Maturity Date (as defined below);
(b) 13% per annum payable monthly during any Extension
Periods and at the Final Maturity Date;
(c) 18% per annum default interest rate after the Final
Maturity Date, payable monthly; and
(d) 24% per annum in the event the Bridge Notes are not paid
in full by the initial Maturity Date and Tarpon fails to
obtain shareholder approval, if then required under a
listing agreement with a securities exchange, for the
issuance of the Note Extension Shares, the Late Payment
Shares, the Conversion Shares (as defined herein), and the
Late Registration Shares by the initial Maturity Date, such
24% rate of interest to be paid monthly until the earlier of
(i) payment in full of the Bridge Notes, or (ii) shareholder
approval for the issuance of the Note Extension Shares, the
Late Payment Shares, and the Conversion Shares.
(e) 24% per annum in the event the Bridge Notes are not paid
in full by the third business day following the closing of a
Qualified Offering , such 24% rate of interest to be paid
monthly until the payment in full of the Bridge Notes.
Purchase Price: The aggregate purchase price of each Bridge Note and the
Bridge Shares related to such Note shall be the original
principal amount of the Bridge Note. For federal income tax
purposes, the Company will allocate 86% of the purchase
price to the Bridge Note and 14% of the purchase price to
the Bridge Shares. The portion allocated to the Bridge
Shares will be treated as "original issue discount" and will
be reportable as interest income over the term of the Bridge
Notes.
Page 2 of 11
Tarpon Financing Agreement
070615-Rev 11A
Security: Repayment of the Bridge Notes shall be secured by a lien on
all tangible and intangible assets of the Company, and any
subsidiary or subsidiaries formed prior to the payment in
full of the Bridge Notes, to be evidenced by a Security
Agreement from the Company. In the event the Company
acquires or forms a subsidiary or subsidiaries prior to
payment in full of the Bridge Notes, each such subsidiary
shall execute a Security Agreement satisfactory in form and
substance to the Lead Investor. It is understood and agreed
that the liens formed by the Security Agreement shall be
junior to the first liens of LaSalle Bank Midwest N.A.
(f/k/a Standard Federal Bank N.A). and LaSalle Business
Credit, a division of ABN AMRO Bank, N.V. Canada
Branch,(collectively "LaSalle Bank") and the second lien of
Laurus Master Fund, Ltd. ("Laurus"). By signing this
Financing Agreement each Investor agrees to be bound by the
terms of the subordination agreements with LaSalle Bank and
Laurus in the form of Exhibits D-1 and D-2 attached hereto
("Subordination Agreements"). The Company represents and
warrants that it will cause each such after-acquired or
formed subsidiary to become a party to the Security
Agreement concurrently with such acquisition or formation.
Use of Proceeds The proceeds of this financing shall be used substantially
as follows:
(a) up to $60,000 to the American Stock Exchange for the
payment of past due listing fees;
(b) approximately $160,000 for the payment of health and
directors & officers liability insurance;
(c) the balance for the purchase of steel and other
materials;
(d) no proceeds of this financing shall be used to pay
accrued and unpaid compensation to officers of the Company
or any of its subsidiaries;
The CEO and CFO shall provide a written certification as to
the use of the proceeds of this financing to the Placement
Agent and the Lead Investor on a bi-weekly basis commencing
on the second Friday following the First Closing (as defined
herein).
Document
Preparation
Securities: In lieu of reimbursing HCF for the cost of preparing the
legal documents for this transaction, the Company shall
issue to HCF 63,285 shares of its restricted common stock
("Document Preparation Shares"). The Document Preparation
Shares shall be in all respects identical to the Bridge
Shares with identical attendant rights.
Page 3 of 11
Tarpon Financing Agreement
070615-Rev 11A
Placement Agent: (a) Xxxxxx Xxxxxx & Co, LLC (the "Placement Agent") has been
retained as placement agent on a best efforts basis. The
Placement Agent fee shall be 10% of the gross proceeds
payable at the First Closing and each Additional Closing
(both terms as defined herein) and warrants equal to 10% of
the gross proceeds to the Company exercisable at the closing
bid price on the date of the First Closing per warrant for a
period of 5 years from the First Closing (as defined
herein). The Company will also reimburse the Placement Agent
for up to $25,000 of its out-of-pocket expenses incurred in
connection with this offering, including attorneys' fees,
and will indemnify the Placement Agent, its officers,
directors, agents, employees and controlling persons,
against certain liabilities.
(b) The Company has executed a letter of intent with the
Placement Agent to act as the lead underwriter for a $6
million public offering of common stock ("Public Offering").
Expenses: Except as set forth in "Document Preparation Shares" and
"Placement Agent" above, the parties shall be responsible
for their own expenses in connection with this transaction.
Conversion Right: In the event there is no Public Offering of the Company's
common stock by December 17, 2007, the Holders shall have
the right to convert the principal and/or unpaid interest of
the Bridge Notes into shares of common stock ("Conversion
Shares") until payment in full of all amounts due under the
Bridge Notes as follows:
(a) If the shares are trading on a U.S. securities exchange
(including the NASD OTC Bulletin Board), the conversion
price shall be 80% of the average of the closing bid price
of the Company's common stock as reported by such securities
exchange or in the over-the-counter market for the five
trading days ending on the last trading day immediately
preceding the giving of written notice of conversion by any
Investor.
(b) If the shares are being quoted on the pink sheets or are
not trading on a U.S. securities exchange (including the
NASD OTC Bulletin Board), each Holder shall have the right
to convert such Holder's Note at a price of the lower of
$0.35 or the average closing bid price on the pink sheets
for the five trading days ending on the last trading day
immediately preceding the giving of written notice of
conversion by any Investor.
Shareholder
Approval: To the extent that the rules of the American Stock Exchange
may require the approval of the Tarpon shareholders to
enable the issuance of any of the Bridge Shares, the Note
Extension Shares, the Conversion Shares, the Late Payment
Shares, or the Late Registration Shares, Tarpon agrees to
use its reasonable best efforts to obtain such approval not
later than December 1, 2007.
Page 4 of 11
Tarpon Financing Agreement
070615-Rev 11A
Transfer and
Assignment: Investors shall have the right, subject to applicable
securities laws, to transfer and/or assign the Bridge Notes,
the Bridge Shares, the Conversion Shares, the Late Payment
Shares, the Late Registration Shares, and the Document
Preparation Share. Any Investor and any permitted transferee
or assignee of any of the foregoing securities is a "Holder"
or collectively "Holders."
Escrow: All subscriptions shall be payable to the Company and shall
be held in a non-interest-bearing escrow account at U.S.
Bank, NA (the "Escrow Agent") which shall be under the sole
control of the Placement Agent.
Closing Date(s): (a) The First Closing shall be on the second business day
following the receipt by the Escrow Agent of at least
$500,000 from Investors subscribing for the Bridge Notes,
together with written instructions signed by the Placement
Agent and the Company directed to the escrow account
administrator stating that all Closing Conditions set forth
in this Financing Agreement have been satisfied or waived.
(b) Additional closings (the "Additional Closings") shall be
held on the second business day following the receipt by the
escrow account administrator of written instructions signed
by the Placement Agent and the Company stating that all
Closing Conditions set forth in this Financing Agreement
have been satisfied or waived.
(c) At the First Closing (and each Additional Closing, as
provided for below) the Escrow Agent shall transfer the
Closing Proceeds, to the Company, and the Placement Agent
(and/or its counsel) shall deliver the Bridge Notes to the
Investors. Additional Closings may be held as agreed among
the Company and the Placement Agent, provided that no
Additional Closings shall be held after July 15, 2007
without the written consent of the Placement Agent. The
First Closing and any Additional Closings may be referred to
as the "Closing" or "Closings."
(d) The Escrow Agent shall promptly return to the Investors
all escrowed funds, without interest thereon, remaining on
deposit after July 15, 2007 (which date may be extended in
writing by the Placement Agent for up to one-month).
Closing Conditions: The First Closing and each Additional Closing is subject to
the receipt by the Placement Agent (and/or its counsel) of
the following:
(a) Executed Bridge Notes for the Closing Proceeds.
(b) A written undertaking by the CEO and the CFO of the
Company, together with a certified copy of a corresponding
resolution of the Board of Directors, that if the listing of
the Bridge Shares and/or the Document Preparation Shares has
not been approved in writing by the American Stock Exchange
("AMEX") on or before the 30th day following the final
Closing, within 5 business days of the receipt of a written
request from the Lead Investor, the Company will voluntarily
delist from the AMEX and arrange simultaneously therewith
for the quotation of its shares on the NASD OTC Bulletin
Board.
Page 5 of 11
Tarpon Financing Agreement
070615-Rev 11A
(c) An executed Security Agreement from the Company and each
of its subsidiaries;
(d) Executed Subordination Agreements;
(e) Evidence of filing of a UCC-1 to perfect the security
interest created under the Security Agreement;
(f) Legal opinion in form and substance satisfactory to the
Lead Investor, in its sole discretion, as provided for in
"Jurisdiction/Choice of Law" below.
(g) In addition, at the First Closing, the Company shall
deliver a letter signed by each of its officers, directors,
and 5% or greater shareholders, committing to vote in favor
at any shareholder's meeting of issuing the maximum number
of Bridge Shares, Note Extension Shares, Late Payment
Shares, Conversion Shares, and Late Registration Shares,
which shareholders meeting shall take place not later than
December 1, 2007.
Delivery of Shares: The Company shall issue and deliver the certificates for the
Bridge Shares and the Document Preparation Shares within two
business days following the listing of such shares on the
AMEX or the delisting of the Company's shares from the AMEX.
The issuance and delivery of the certificates for the Bridge
Shares in excess of the initial 1,700,000 Bridge Shares may
require shareholder approval before such shares can be
listed on the AMEX. As stated above in "Shareholder
Approval," the Company has agreed to use its reasonable best
efforts to obtain such shareholder approval not later than
December 1, 2007.
Registration
Rights: (a) Promptly upon consummation of a Public Offering (but in
no event later than 30 days after the closing of such public
offering), the Company shall (i) file a registration
statement (the "Registration Statement") relating to the
resale of the Bridge Shares, the Document Preparation
Shares, the Note Extension Shares (if any), the Late Payment
Shares (if any), and the Conversion Shares (if any) (the
"Registrable Securities"), (ii) use its commercial best
efforts to cause the Registration Statement to become
effective within 30 days after filing, if the Registration
Statement is not reviewed by the staff of the Securities and
Exchange Commission ("Staff") or within 120 days after
filing, if the Registration Statement is reviewed by the
Staff and (iii) use its commercial best efforts to cause the
Registration Statement (or an equivalent successor
registration statement covering the resale of such
securities) to remain effective with a current prospectus
available until all Registrable Securities may be sold under
Rule 144(k). If any sale under Rule 144 requires a legal
opinion, the cost thereof will be borne by the Company.
Page 6 of 11
Tarpon Financing Agreement
070615-Rev 11A
(b) If the Company fails to satisfy the requirements of (a)
above, it shall pay, as liquidated damages related to any
such failure, a 2% late registration fee (i.e., 2% of the
principal amount of the related Bridge Note(s)) per month or
part thereof that such failure continues ("Late Registration
Fee"). The Late Registration Fee shall be payable in cash or
common stock, which shall be registered for resale in the
Registration Statement ("Late Registration Shares");
provided however, that no Late Registration Fee shall be
payable for any period during which all of the Registrable
Securities may be sold under Rule 144 (without volume
limitation). If less than all of the Registrable Securities
can be sold under Rule 144 as a result of the Rule 144
volume limitation, the 2% Late Registration Fee shall apply
only to the shares whose resale is so limited and not to the
shares that may be sold. The Late Registration Shares shall
be valued at 80% of the average of the closing price of the
common stock for the five trading days preceding the date
the Late Registration Shares accrue to the Holders.
Lock-up: In the event the Company proposes to complete an
underwritten public offering subsequent to the First
Closing, each Investor will execute a lock-up agreement for
a period of not more than six months from the public
offering closing and containing such other terms, conditions
and provisions as may be required by the managing
underwriter of such offering; provided, however, in no event
shall the Investors be subject to a lock-up agreement that
is more restrictive than that agreed to by the Company's
officers, directors, and holders of 5% or more of the
Company's common stock.
SEC Reporting: The Company will use its commercial best efforts to maintain
the registration of its common stock under Section 12(b) or
12(g) of the Securities Exchange Act of 1934 ("Exchange
Act"), and will file all reports required by the Exchange
Act in a timely manner until the later of (i) payment in
full of the Bridge Notes, or (ii) the date upon which all of
the Bridge Shares, Document Preparation Shares, the Note
Extension Shares, the Late Payment Shares, the Conversion
Shares, and the Late Registration Shares may be sold under
Rule 144(k).
Events of Default: To include breach of any of the representations and
warranties and covenants contained in any of the Further
Documents (as defined below).
Jurisdiction/
Choice of Law: All transaction documents shall be governed by and construed
under the laws of the states of Delaware or Michigan (as
indicated below) as applied to agreements entered into and
to be performed entirely within such states, without giving
effect to principles of conflicts of law. The parties
irrevocably consent to the jurisdiction and venue of the
Page 7 of 11
Tarpon Financing Agreement
070615-Rev 11A
state and federal courts located in Wilmington, Delaware in
connection with any action relating to this transaction. At
or prior to the First Closing and any Additional Closing the
Investors shall receive a legal opinion from Company counsel
in form and substance satisfactory to the Lead Investor as
to (a) the due formation and existence of the Company (under
Michigan law), (b) the validity and enforceability of this
Financing Agreement (under Delaware law), the Security
Agreement (under Delaware law) (c) the valid authorization
to issue the Bridge Shares, the Document Preparation Shares,
the Note Extension Shares, the Late Payment Shares,
Conversion Shares, and the Late Registration Shares (subject
to shareholder approval - under Michigan law), (d) the
issuance and validity of the Bridge Notes, (under Michigan
law), and (e) the computation of the holding period of the
Bridge Shares, the Note Extension Shares, the Document
Preparation Shares, the Late Payment Shares, the Conversion
Shares, and the Late Registration Shares under Rule 144
("Legal Opinion"). The Legal Opinion shall be updated and
reissued at each Additional Closing.
Binding Agreement: All parties executing this Financing Agreement including
Exhibit A, shall be legally bound by the above terms and
shall execute such further documents ("Further Documents"),
including without limitation the form of Bridge Note
(Exhibit B), the form of Security Agreement (Exhibit C) and
the forms of the Subordination Agreements (Exhibit D), all
substantially in the forms attached hereto. If there are any
inconsistencies between this Financing Agreement (exclusive
of Exhibits B through D) and any such Further Documents
executed in connection with this transaction, the terms of
this Financing Agreement shall govern. This Financing
Agreement may be signed in two or more counterparts, all of
which taken together shall constitute an original. Facsimile
signatures shall be deemed to be original signatures.
Page 8 of 11
Tarpon Financing Agreement
070615-Rev 11A
Company
TARPON INDUSTRIES, INC.
By:/s/Xxxxx X. Xxxxxxxx Date: June 18, 2007
_____________________________________
(signature)
Xxxxx X. Xxxxxxxx, CEO
Placement Agent
XXXXXX XXXXXX & CO., LLC
By: /s/Xxxxxxx X. Xxxxx Date: June 18, 2007
_____________________________________
(signature)
Xxxxxxx X. Xxxxx, Member
_____________________________________
(name and title)
00 Xxxxx Xxxxxx
Xxx Xxxx, XX
Tel: 212 [number]
Fax: 212 [number]
Email: xxxxxx@xxxxxxx.xxx
Attn: Xxxxxxx Xxxxx
Page 9 of 11
Tarpon Financing Agreement
070615-Rev 11A
Signature Page(s) Continued
Investor Name Date Amount of Investment
Lead Investor
High Capital Funding, LLC June 18, 2007 $500,000
By:/s. Xxxx X. Xxxxxx
---------------------------
(signature)
Xxxx X. Xxxxxx, CFO
__________________________________
(name and title)
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx, CFO
Tel: 000 000-0000
Fax: 000 000-0000
Email: xxxxxxxxxx@xxxxxxxxxx.xxx
Tax ID#/SS#: 00-0000000
with copy to:
Xxxxx X. Xxxxxxxx, EVP & GC
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Tel: 000 000-0000
Fax: 000 000-0000
Email: xxxxxxxxx@xxxxxxxxx.xxx
Page 10 of 11
Tarpon Financing Agreement
070615-Rev 11A
Signature Page(s) Continued
Investor Name Date Amount of Investment
[Name] __________ $___________
_____________________________
[Street Address]
[City, State, ZIP]
Tel:
Fax:
Email:
Page 11 of 11
Tarpon Financing Agreement
070615-Rev 11A
EXHIBIT A
REPRESENTATIONS OF INVESTOR
The Investor represents and warrants to the Company as follows:
(1) Accredited Investor Status. The Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission Rule 501 of Regulation
D.
(2) Purchase Entirely for Own Account. The Bridge Notes and Bridge Shares,
each as defined in the Financing Agreement (collectively, the "Bridge Units"),
to be received by the Investor will be acquired for investment for the
Investor's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same. The Investor further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the Bridge
Units.
(3) Disclosure of Information. The Investor represents that it has received
the disclosure it believes relevant and necessary to its investment decision and
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of this transaction and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) and/or conduct its own
independent investigation necessary to verify the accuracy of any information
furnished to the Investor or to which the Investor had access. I have received
no representation or warranty from the Company or any of its officers,
directors, employees or agents in respect of my investment in the Company and I
have received no information (written or otherwise) from them relating to the
Company or its business other than as set forth in the Offering Documents. I am
not participating in the offer as a result of or subsequent to: (i) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio or
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(4) Investment Experience. The Investor (i) is experienced in evaluating
and investing in private placement transactions in securities of companies
similar to the Company and has such knowledge and experience in financial or
business matters that it is capable of evaluating the merits and risks of the
investment in the Units and (ii) acknowledges that it can bear the economic risk
of its investment, including the loss of the entire investment. I have been
urged to seek independent advice from my professional advisors relating to the
suitability of an investment in the Company in view of my overall financial
needs and with respect to the legal and tax implications of such investment.
(5) Restricted Securities. The Investor understands that the Bridge Units
are being sold pursuant to exemptions from registration under Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act") and Rule 506 of
Regulation D promulgated thereunder. The Investor also understands that the
Bridge Units and, with certain limited exceptions, any securities issuable on
exercise or conversion thereof may not be resold by the Investor without
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering the Bridge Units or an
available exemption from registration under the Securities Act, the Bridge Units
may be restricted from resale in a transaction to which United States securities
laws apply for an indefinite period of time.
A-1
(6) Illiquid Investment. The Investor understands that no market for the
Bridge Units exists and no such market may ever exist.
(7) Residence. The Investor resides, or its office primarily responsible
for the purchase of the Bridge Units is located, at the address listed on the
signature page.
(8) Brokers or Finders. All negotiations on the part of the Investor
relative to the transactions contemplated hereby have been carried on by the
Investor without the intervention of any person or as the result of any act of
the Investor in such manner as to give rise to any valid claim for a brokerage
commission, finder's fee, or other like payment. The foregoing notwithstanding,
the Investor acknowledges that Xxxxxx Xxxxxx & Co., LLC has been retained by the
Company to serve as placement agent in this offering, as in such capacity, will
be paid a commission equal to 10% of the gross proceeds payable at the First
Closing and each Additional Closing (as such terms are defined in the Financing
Agreement) and warrants equal to 10% of the gross proceeds to the Company,
exercisable at the closing bid price on the date of the First Closing per
warrant, for a period of 5 years from the First Closing. The Company will also
reimburse the Placement Agent for up to $25,000 of its out-of-pocket expenses
(including attorneys' fees) incurred in connection with the offering.
(9) Reliance. The Investor understands that this agreement is made with the
Investor in reliance upon the Investor's representations to the Company, as set
forth above.
A-2
EXHIBIT B
FORM OF SECURED PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE SOLD,
PLEDGED, OFFERED FOR SALE, ASSIGNED OR TRANSFERRED UNLESS (A) A REGISTRATION
STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT, AND ANY
APPLICABLE STATE SECURITIES LAW REQUIREMENTS HAVE BEEN MET OR (B) EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT AND THE REGISTRATION
OR QUALIFICATION REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS ARE AVAILABLE.
THE INDEBTEDNESS EVIDENCED BY THE NOTE AND THE RIGHTS OF THE HOLDER OF THE NOTE
IS SUBORDINATED TO INTERESTS AND RIGHTS OF LASALLE BANK MIDWEST N.A. ("LASALLE")
AND LASALLE BUSINESS CREDIT, A DIVISION OF ABN AMRO BANK N.V., CANADA BRANCH
("ABN AMRO") PURSUANT TO THE TERMS OF A SUBORDINATION AGREEMENT DATED JUNE 14,
2007 AMONG LASALLE, ABN AMRO, HIGH CAPITAL FUNDING, LLC AND THE OTHER INVESTORS
PARTY THERETO.
TARPON INDUSTRIES, INC.
SECURED PROMISSORY NOTE
June____, 2007
FOR VALUE RECEIVED, TARPON INDUSTRIES, INC., a Michigan corporation,
("Borrower") promises to pay to the order of
_________________________________________ ("Lender") the principal amount of
___________________________ Dollars ($______________), together with interest on
the unpaid principal amount as set forth herein.
This secured promissory note (the "Bridge Note") is issued pursuant to that
certain Financing Agreement, dated as of June 14, 2007, executed by Borrower,
Xxxxxx Xxxxxx & Co. LLC., a Delaware limited liability company, as Placement
Agent, and High Capital Funding, LLC, a Delaware limited liability company, as
Lead Investor (the "Financing Agreement"), with Lender's signature either
affixed thereon or incorporated by reference as evidenced by Lender's signature
on the accompanying Subscription Agreement. This Bridge Note is subject to the
terms and conditions of the Financing Agreement. To the extent that any of the
terms specifically set forth in the Financing Agreement is inconsistent with the
provisions of this Bridge Note specifically relating to such matters, the
Financing Agreement shall govern with respect to such inconsistencies. To the
extent relevant to this Bridge Note, the terms of the Financing Agreement are
incorporated herein by reference as though fully set forth herein. This Bridge
Note is one of a series of Bridge Notes, aggregating up to One Million Seven
Hundred Thousand Dollars ($1,700,000.00) in principal amount of Bridge Notes
being offered and sold pursuant to the Financing Agreement. Capitalized terms
used herein and not otherwise defined have the meanings ascribed to them in the
Financing Agreement.
B-1
1. Maturity.
(a) The entire principal amount of this Bridge Notes and all accrued and
unpaid interest thereon is due and payable on the earlier of (i) December
17, 2007 or (ii) the third business day following the closing of an
underwritten public offering or a private placement of equity securities by
the Company resulting in gross proceeds of $6 million or more (a "Qualified
Offering") (the "Maturity Date").
(b) The Placement Agent, upon the written request of the Company, shall
have the right to extend the Maturity Date for up to six one-month periods
("Extension Periods(s)"), upon such additional terms and conditions as it
shall determine in its sole discretion. The final extended Maturity Date is
referred to herein as the "Final Maturity Date." The Placement Agent shall
provide written notice to Lender within five business days of the granting
of an extension of the Maturity Date, which notice shall set forth the
terms of such extension.
(c) In the event the maturity date of the Bridge Notes is extended, the
Lender shall be entitled to receive 1/6th of a share of Tarpon restricted
common stock per dollar of principal for each month or part thereof of such
extension period ("Extension Shares").
(d) In the event the principal and interest on the Bridge Notes is not paid
to the Holders on or before the third business day following the closing of
a Qualified Offering, the Company shall issue to the Holders one quarter of
a share of its common stock for each month or part thereof for each dollar
of principal ("Late Payment Shares") until the earlier of (i) payment in
full of all such principal and interest; or (ii) the date upon which the
Conversion Shares may be sold under Rule 144 without volume restriction and
are no longer subject to an underwriter's lockup. The Late Payment Shares
shall be issued and delivered by the fifth business day of each month,
commencing with the month following the closing of the Qualified Offering.
2. Interest.
(a) 12% per annum (based on a 360 day year) during the initial term of this
Bridge Note payable at the Maturity Date.
(b) 13% per annum (based on a 360 day year) payable monthly during any
Extended Term, and at the Final Maturity Date;
(c) 18% per annum (based on a 360 day year) default interest rate after the
Final Maturity Date, payable monthly; and
(d) 24% per annum (based on a 360 day year) in the event this Bridge Note
is not paid in full by the Maturity Date and Tarpon fails to obtain
shareholder approval for the issuance of the Note Extension Shares and the
Conversion Shares) by the Maturity Date, such 24% rate of interest to be
paid monthly until the earlier of (i) payment in full of this Bridge Note,
or (ii) shareholder approval for the issuance of the Note Extension Shares
and the Conversion Shares.
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(e) 24% per annum in the event the Bridge Notes are not paid in full by the
third business day following the closing of a Qualified Offering, such 24%
rate of interest to be paid monthly until the payment in full of the Bridge
Notes.
3. Prepayment. Borrower may prepay any or all amounts due under this Bridge Note
at any time without penalty. Any partial prepayment shall be applied first to
interest and the remaining balance of such payment, if any, to principal.
4. Method of Payment. Any payment of principal or interest hereunder shall be
made by certified or bank cashier's check unless Holder has provided Borrower
with appropriate wire instructions, in which event, the payment shall be made by
wire transfer of "same day" funds. For the purpose of any interest calculation,
payment shall be deemed made when the check is sent by overnight delivery or
when the wire is sent. Any partial payment shall be applied first to accrued and
unpaid interest and thereafter to a reduction of principal. If this Bridge Note,
or any payment hereunder, falls due on a Saturday, Sunday or a day that is a
public holiday in the State of California, any payment due hereunder shall be
made on the next succeeding business day and such additional time shall be
included in the computation of any interest payable hereunder.
5. Security. Repayment of this Bridge Note shall be secured by a lien on all
tangible and intangible assets of the Borrower and its consolidated subsidiaries
as described in that certain Security Agreement executed contemporaneously
herewith.
6. Conditional Right to Convert. In the event there is no Public Offering of the
Company's common stock by December 17, 2007, the Holder shall have the right to
convert the principal and/or unpaid interest of this Bridge Note into shares of
common stock ("Conversion Shares") until payment in full of all amounts due
under this Bridge Note as follows:
(a) If the shares are trading on a U.S. securities exchange (including the
NASD OTC Bulleting Board), the conversion price shall be 80% of the average
of the closing bid price of the Company's common stock as reported by such
securities exchange or in the over-the-counter market for the five trading
days ending on the last trading day immediately preceding the giving of
written notice of conversion by any Holder.
(b) If the shares are being quoted on the pink sheets or are not trading on
a U.S. securities exchange (including the NASD OTC Bulletin Board), each
Holder shall have the right to convert such Holder's Note at a price of the
lower of $0.35 or the average closing bid price on the pink sheets for the
five trading days ending on the last trading day immediately preceding the
giving of written notice of conversion by any Holder.
provided, however, that no fractional shares will be issued and fractional
shares will be rounded down to the nearest full share. Upon receipt by Borrower
of Holder's notice of each such election, the Bridge Note shall represent the
right to receive the Common Stock into which that portion of the Bridge Note has
been converted, and Borrower's right and obligation to repay that portion of the
Bridge Note shall be extinguished.
B-3
7. Anti Dilution Adjustments. The number and kind of securities or other
property into which this Bridge Note may become convertible shall be subject to
adjustment as follows:
(a) If a split or a reverse split shall have occurred with respect to the
Common Stock, the conversion rate shall be appropriately adjusted to cause
the Holder to receive, upon conversion, a number of shares of Common Stock
representing the same percentage of the equity of the Company to which the
Holder would have been entitled on such conversion if the split had not
occurred.
(b) If a dividend or other distribution shall be made in favor of the
Common Stock, appropriate adjustment shall be made so that, upon conversion
of the Bridge Note, the Holder shall receive, in addition to the Common
Stock otherwise obtainable on such conversion, the cash, securities or
other property that it would have received had the Bridge Note been so
converted immediately prior to the split, dividend or distribution.
(c) If the Common Stock shall, as the result of a merger or otherwise, be
converted into the right to receive other securities or property,
appropriate adjustment shall be made so that, upon conversion of the Bridge
Note, the Holder shall receive, in lieu of Common Stock, the securities
and/or property that it would have received as a result of the merger or
other such transaction had the Bridge Note been so converted immediately
prior to the record date therefor.
8. Default. In the event of an occurrence of any event of default specified
below, the principal of, and all accrued and unpaid interest on, the Bridge Note
shall become immediately due and payable without notice, except as specified
below:
(a) Borrower fails to make any payment hereunder when due, which failure
has not been cured within Ten (10) days following such due date.
(b) Any defined event of default occurs under any contract or instrument
pursuant to which Borrower has incurred any liability for borrowed money in
excess of One Hundred Thousand Dollars ($100,000.00), which event of
default has not been waived within Five (5) business days following such
occurrence, and which event of default is reasonably likely to materially
affect the Company's business, and which results in the acceleration.
(c) Borrower files a petition to take advantage of any insolvency act;
makes an assignment for the benefit of its creditors; commences a
proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its property;
files a petition or answer seeking reorganization or arrangement or similar
relief under the federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state.
(d) A court of competent jurisdiction enters an order, judgment or decree
appointing a custodian, receiver, trustee, liquidator or conservator of
Borrower or of the whole or any substantial part of its properties, or
approves a petition filed against Borrower seeking reorganization or
arrangement or similar relief under the federal bankruptcy laws or any
other applicable law or statute of the Untied States of America or any
state; or if, under the provisions of any other law for the relief or aid
of debtors, a court of competent jurisdiction assumes custody or control of
Borrower or of the whole or any substantial part of its properties; or
there is commenced against Borrower any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of
Thirty (30) days; or if Borrower by any act indicates its consent to or
approval of any such proceeding or petition.
B-4
(e) If (i) any judgment remaining unpaid, unstayed or undismissed for a
period of Sixty (60) days is rendered against Borrower which by itself or
together with all other such judgments rendered against Borrower remaining
unpaid, unstayed or undismissed for a period of Sixty (60) days, is in
excess of One Hundred Thousand Dollars ($100,000.00), or (ii) there is any
attachment or execution against Borrower's properties remaining unstayed or
undismissed for a period of Sixty (60) days which by itself or together
with all other attachments and executions against Borrower's properties
remaining unstayed or undismissed for a period of Sixty (60) days is for an
amount in excess of One Hundred Thousand Dollars ($100,000.00).
9. Cumulative Remedies. The remedies of Lender as provided herein, in the
Security Agreement and in the Security and Pledge Agreement, or any one or more
of them, or in law or in equity, shall be cumulative and concurrent, and may be
pursued singularly, successively or together at Lender's sole discretion, and
may be exercised as often as occasion therefore shall occur.
10. Successors and Assigns. The Bridge Note is transferable and assignable by
Lender or any subsequent permitted assignee subject to the requirement that any
such assignment or transfer be, in the opinion of Borrower's counsel, in
compliance with applicable federal and state securities laws. The assignee shall
be referred to herein as a "Holder." All covenants, agreements and undertakings
in the Bridge Note by or on behalf of any of the parties shall bind and inure to
the benefit of the respective successors and assigns of the parties whether so
expressed or not.
11. Notices. Any and all notices, requests, consents and demands required or
permitted to be given hereunder shall be in writing and shall be deemed given
and received (i) upon personal delivery, (ii) upon the first business day
following the receipt of confirmation of facsimile transmission to the telefax
number or email, the receipt of which is confirmed by return email and/or
telephonically, as indicated below, (iii) upon delivery by overnight courier,
prepaid and delivered on a business day; or (iv) upon the third business day
after deposit in the United States mail, by certified or registered mail,
postage prepaid and addressed as follows:
To Lender: [to the address and facsimile provided in Subscription Agreement
between the Lender and the Borrower executed in connection with
the purchase and sale of this Bridge Note]
To Borrower: Tarpon Industries, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxx
Fax: 000 000-0000
E-mail: xxxxxxxxx@xxxxxxxxx.xxx
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Either party may change by notice the address to which notices to that party are
to be addressed.
12. Waivers/Forebearance/Amendment. Borrower hereby waives presentment for
payment, demand, protest and notice of protest for nonpayment of the Bridge Note
and consents to any extension or postponement of the time of payment or any
other indulgence. Lender shall not be deemed, by any act or omission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Lender and then only to the extent specifically set forth in such
writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event. No delay or omission of Lender to exercise any right, whether before or
after a default hereunder, shall impair any such right or shall be construed to
be a waiver of any right or default, and the acceptance at any time by Lender of
any past-due amount shall not be deemed to be a waiver of the right to require
prompt payment when due of any other amounts then or thereafter due and payable.
Notwithstanding the foregoing, any provision of this Bridge Note may be waived
or amended upon the written consent of the Borrower and the consent of the
Holder of this Bridge Note. The Bridge Note may only be amended or modified by
written agreement signed by Borrower and Holder.
13. Expenses. In any action for breach of this Bridge Note, including
nonpayment, the prevailing party in any such dispute shall be entitled to
recover all reasonable costs and attorney fees incurred in connection with such
action. In addition, Borrower shall be entitled to recover from Lender all
reasonable costs of collection, including without limitation, legal fees and
expenses incurred in any bankruptcy and/or state insolvency proceeding.
14. Choice of Law. The Bridge Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the State
of Delaware. The parties agree that venue for any suit, action, proceeding or
litigation arising out of or in relation to this Bridge Note will be in any
federal or state court in Wilmington, Delaware having subject matter
jurisdiction, and the parties hereby submit to the jurisdiction of that Court.
WITH RESPECT TO ANY CLAIM OR ACTION ARISING UNDER THIS BRIDGE NOTE, EACH
PARTY HEREBY (A) IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE
STATE OF DELAWARE AND THE UNITED STATES DISTRICT COURT LOCATED IN THE CITY OF
WILMINGTON, STATE OF DELAWARE, AND (B) IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY HAVE AT ANY TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS BRIDGE NOTE BROUGHT IN ANY SUCH COURT,
IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM AND FURTHER IRREVOCABLY
WAIVES THE RIGHT TO OBJECT, WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION
OVER SUCH PARTY. NOTHING IN THIS BRIDGE NOTE WILL BE DEEMED TO PRECLUDE THE
LENDER FROM BRINGING AN ACTION OR PROCEEDING IN RESPECT HEREOF IN ANY OTHER
JURISDICTION.
B-6
IN WITNESS WHEREOF, this Bridge Note has been executed and delivered on the
date specified on the first page hereof by the duly authorized representative of
Borrower.
TARPON INDUSTRIES, INC.
By:
-------------------------------
-------------------------------
Its:
-------------------------------
B-7
EXHIBIT C
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, ("Agreement") is made as of this 18th day of June,
2007, by and among TARPON INDUSTRIES, INC., a Michigan corporation (hereinafter
"Borrower") and Lender(s) as listed on Schedule "1" of this Agreement, acting
through HIGH CAPITAL FUNDING, LLC (the "Lead Investor").
WHEREAS, this Agreement is given to secure performance of the obligations
("Obligations") under the Secured Promissory Note(s) ("Secured Notes"), executed
by Borrower, in favor of Lenders as lenders and in the amounts listed on
Schedule "1" attached hereto and incorporated herein by reference, together with
interest thereon as provided for in the Secured Notes. Schedule I shall be
amended and supplemented from time to time to reflect the issuance and delivery
of additional Secured Notes.
NOW, THEREFORE, in consideration of the loans made by the Lenders to
Borrower, and further consideration of the covenants and promises contained in
this Agreement, and for other good and valuable consideration, the parties agree
as follows:
1. Defined Terms. As used in this Agreement, the following terms shall have
the following meanings:
(a) "Collateral" has the meaning set forth in paragraph 3 hereof.
(b) "PTO" means the United States Patent and Trademark Office.
(c) "UCC" means the Uniform Commercial Code as in effect in the State of
Nevada.
(d) Terms Defined in UCC. Where applicable in the context of this Agreement
and except as otherwise defined herein, terms used in this Agreement shall have
the meanings assigned to them in the UCC.
(e) Terms Defined in the Financing Agreement. Terms used herein, defined in
the Financing Agreement (defined below) and not otherwise defined in this
Security Agreement, have the meanings ascribed to them in the Financing
Agreement.
(f) Construction. In this Agreement, the following rules of construction
and interpretation shall be applicable: (i) no reference to "proceeds" in this
Agreement authorizes any sale, transfer, or other disposition of any Collateral
by Borrower; (ii) "includes" and "including" are not limiting; (iii) "or" is not
exclusive; and (iv) "all" includes "any" and "any" includes "all."
2. Supremacy of Financing Agreement. This Security Agreement is being executed
pursuant to that certain Financing Agreement, dated as of June 11, 2007
(the "Financing Agreement"). This Security Agreement is subject to the
terms and conditions of the Financing Agreement. To the extent that any of
C-1
the terms specifically set forth in the Financing Agreement is inconsistent
with the provisions of this Security Agreement specifically relating to
such matters, the Financing Agreement shall govern with respect to such
inconsistencies.
3. Security Interest.
(a) Grant of Security Interest. As security for the payment and performance
of the Obligations, Borrower hereby assigns, transfers and conveys to Lenders,
and grants to Lenders a security interest in and to all of Borrower's right,
title and interest in, to and under the following property, in each case whether
now or hereafter existing or arising or in which Borrower now has or hereafter
owns, acquires or develops an interest and wherever located (collectively, the
"Collateral") provided, however, that such security interest shall be junior and
subordinate to the security interests of LaSalle Bank and Laurus:
(i) Accounts;
(ii) Chattel Paper and Electronic Chattel Paper;
(iii) Fixtures;
(iv) Goods;
(v) Inventory;
(vi) Software;
(vii) all patents, trademark, patent applications and trademark
applications, domestic or foreign, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses
(including such patents, trademark, patent applications and trademark
applications as described in Schedule "2"), all rights to xxx for past,
present or future infringement thereof, all rights arising therefrom and
pertaining thereto and all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof. Borrower represents and
warrants to Lenders that a true and correct list of all of the existing
Collateral consisting of U.S. patents, trademark, patent applications and
trademark applications or registrations owned by Borrower, in whole or in
part, is set forth in Schedule "2";
(viii) all General Intangibles and all intangible intellectual or
other similar property of Borrower of any kind or nature, associated with
or arising out of any of the aforementioned properties and assets and not
otherwise described above; and
(ix) all Proceeds of any and all of the foregoing Collateral
(including license royalties, rights to payment, accounts and proceeds of
infringement suits) and, to the extent not otherwise included, all payments
under insurance (whether or not Lenders is the loss payee thereof) or any
indemnity, warranty or guaranty payable by reason of loss or damage to or
otherwise with respect to the foregoing Collateral.
C-2
(b) Continuing Security Interest. Borrower agrees that this Agreement shall
create a continuing security interest in the Collateral which shall remain in
effect until terminated in accordance herewith.
4. Other Security Interests. Borrower warrants that except for the security
interests of LaSalle Bank Midwest N.A. (f/k/a Standard Federal Bank N.A).
and LaSalle Business Credit, a division of ABN AMRO Bank, N.V. Canada
Branch,(collectively "LaSalle Bank") and the second lien of Laurus Master
Fund, Ltd. ("Laurus"), to which the security interests created by this
Agreement are subordinate, no financing statement covering any of the
Collateral or its proceeds is on file in any public office at this date or
will be on file with respect to the Collateral at the time the Collateral
becomes subject to this Agreement (except any purchase money security
interests). No other material security affects the Collateral at this date,
and no arrangement exists whereby the Collateral will in the future become
subject to a security interest senior to the lien of this Security
Agreement.
Borrower authorizes Lenders at their option and their sole discretion to
discharge any taxes, charges, assessments, liens or other security interests or
other encumbrances to which the Collateral may become subject. Lenders may pay
amounts to preserve and maintain the Collateral, if Borrower fails to do so.
Borrower agrees to reimburse Lenders within 10 days after demand for any payment
made or any expense incurred by Lenders pursuant to the foregoing authorization,
together with interest on the amount expended at the rate of 18% per annum from
the date of the payment. Any such amounts shall be secured by and under this
Agreement.
5. Fees and Taxes. Borrower will use reasonably commercial efforts to timely
pay any and all license fees, taxes, assessments and public charges,
general and special, that may at any time be levied or assessed upon or
against Collateral.
6. Maintenance of Collateral. Borrower will, at Borrower's expense, maintain
and keep the tangible Collateral at its present location (or will provide
Lenders with reasonable advance written notice if any such Collateral is to
be moved) in good order and repair, ordinary wear and tear excepted, and
shall not, without the prior written consent of the Lead Investor or a
majority in interest of the Lenders, sell, dispose of or substantially
alter the Collateral, except dispositions or alterations in the ordinary
course of Borrower's business.
Borrower will not use the Collateral in material violation of any
ordinance or state or federal statute or any administrative rules or regulation
of law.
Borrower will use reasonably commercial efforts to avoid the Collateral
from being attached or seized by any legal process. Borrower will defend and
indemnify Lenders from all expense and liability of every kind to any person or
to the property of any person by reason of or in connection with the delivery,
possession or use of the Collateral.
7. Further Acts. On a continuing basis, Borrower shall make, execute,
acknowledge and deliver, and file and record in the proper filing and
recording places, all such instruments and documents, and take all such
action as may be necessary or advisable or may be requested by Lenders to
carry out the intent and purposes of this Agreement, or for assuring,
confirming or protecting the grant or perfection of the security interest
granted or purported to be granted hereby, to ensure Borrower's compliance
C-3
with this Agreement or to enable Lenders to exercise and enforce its rights
and remedies hereunder with respect to the Collateral, including any
documents for filing with the PTO or any applicable state office. Lenders
may record this Agreement, an abstract thereof, or any other document
describing Lenders' interest in the Collateral with the PTO, at the expense
of Borrower. In addition, Borrower authorizes Lenders to file financing
statements describing the Collateral in any UCC filing office deemed
appropriate by Lenders. If the Borrower shall at any time hold or acquire a
commercial tort claim arising with respect to the Collateral, the Borrower
shall immediately notify Lenders in a writing signed by the Borrower of the
brief details thereof and grant to the Lenders in such writing a security
interest therein and in the proceeds thereof, all upon the terms of this
Agreement, with such writing to be in form and substance satisfactory to
the Lenders.
8. Authorization to Supplement. If Borrower shall obtain rights to any new
patentable inventions or become entitled to the benefit of any patent
application or patent for any reissue, division, or continuation, of any
patent or trademark, the provisions of this Agreement shall automatically
apply thereto. Borrower shall give prompt notice in writing to Lenders with
respect to any such new patent or trademark rights. Without limiting
Borrower's obligations hereunder, Borrower authorize Lenders unilaterally
to modify this Agreement by amending Schedule "2" to include any such new
patent or trademark rights. Notwithstanding the foregoing, no failure to so
modify this Agreement or amend Schedule "2" shall in any way affect,
invalidate or detract from Lenders' continuing security interest in all
Collateral, whether or not listed on Schedule "2."
9. Additional Parties and Collateral. In the event that the Company forms or
acquires an interest in any entity that becomes a subsidiary of the Company
prior to payment in full of the Secured Notes, Borrower agrees that it will
cause any such subsidiary to become a signatory to this Agreement and
further agrees that as a result of such action, the tangible and intangible
assets of any such subsidiary shall become Collateral pursuant to this
Agreement to the same extent as if any such subsidiary had executed this
Agreement as an original signatory and its tangible and intangible assets
had been included in Section 3(a) above, provided, however, that with
respect to any acquired entity, the existence and continuance of security
agreements of any such entity in effect at the time of such acquisition
shall not constitute a breach of this agreement. Borrower expressly
acknowledges that a failure to comply with the provisions of this Section 9
shall constitute a default under this Agreement.
10. Default. The breach or failure of any term, agreement or covenant of this
Agreement or the occurrence of an event of default upon any term contained
in the Secured Note(s) shall constitute a default hereunder.
11. Remedies. Upon the occurrence of any default as defined above, Lenders,
acting through the Lead Investor, will have the right at their option to
enforce and to exercise any or all of their rights under this Agreement or
otherwise. In addition to all other rights and remedies, Lenders shall have
the remedies of a secured party under the UCC. In exercising these
remedies, Lenders and Borrower agree as follows:
(a) Lenders, acting through the Lead Investor, may, at their option,
require Borrower to assemble the Collateral and make it available to
Lenders at a place to be designated by Lenders which is reasonably
convenient to both parties. In the event Borrower fails or refuses to
assemble the Collateral, Lenders shall have the right, and Borrower
hereby authorize and empower Lenders, to enter the premises upon which
the Collateral is located in order to remove the same.
C-4
(b) Lenders, acting through the Lead Investor, will give Borrower
reasonable notice of the time and place of any public sale of the
Collateral, or of the time after which any private sale or other
intended disposition of the Collateral is to be made, unless the
Collateral is perishable, threatens to decline speedily in value, or
is of a type customarily sold on a recognized market. The requirement
of reasonable notice shall be met if a written notice is mail to
Borrower postage prepaid, to the address of Borrower last known to
Lenders, at least 10 days prior to the date of the sale or
disposition.
(c) Borrower agrees to surrender possession of the Collateral to Lenders
in the event Lenders elects to foreclose this security interest.
Borrower waives any notice of the exercise of any and all options
reserved to Lenders by this Agreement.
(d) Borrower will, upon Lenders' request, deliver to Lenders all original
invoices, bills, charge or credit card receipts, books and records and
other documents evidencing or describing any of the account receivable
constituting a part of the Collateral. Borrower will also execute and
deliver to Lenders an assignment of the right to receive payments
under all such Accounts. The parties recognize, however, that in the
event of default such Accounts shall be deemed assigned to Lenders,
whether or not the assignments described above are actually delivered.
(e) Lenders, acting through the Lead Investor, shall have the right and
are hereby authorized to collect all amounts due under the Accounts;
xxx or take other actions to collect the same in their own name or as
assignee of or in the name of Borrower compromise or give acquittance
for amounts due; and use such other measures as Lenders, acting
through the Lead Investor, may in its sole discretion deem appropriate
for collection of the Accounts. All such actions shall be taken at the
sole expense of Borrower who agrees to reimburse Lenders for all
reasonable amounts expended (including a reasonable attorney's fee),
together with interest thereon from the date of expenditure at the
rate then applicable under the Secured Notes.
(f) This Agreement constitutes a direction to and full authority to any
Account debtor to pay directly to Lenders any such accounts upon being
advised in writing by Lenders that there has and continues to be a
default hereunder. No proof of default shall be required. Any such
debtor is herby irrevocably and unconditionally authorized to rely
upon and comply with any notice from Lenders. The debtor shall not be
liable to Borrower or any person claiming under Borrower for making
any payment or rendering any performance to Lenders. The debtor shall
have no obligation or right to inquire whether any default has
occurred or is then existing. By its execution of this Agreement,
Borrower irrevocably and unconditionally joins in, authorizes and
consents to the above instructions.
(g) The proceeds of any sale of the Collateral shall be applied to the
following items in the following order: (a) the reasonable expenses of
repossessing the Collateral and preparing for the holding the sale,
including without limitation all reasonable attorney's fees incurred
by Lenders; (b) interest and principal then due (by acceleration or
otherwise) under the Secured Notes and any other debts specifically
secured by the Agreement; (c) interest and principal then due (by
acceleration or otherwise) under any other debts of Borrower to
Lenders (to be applied in whatever order Lenders may in their sole
discretion determine); (d) indebtedness of Borrower to other secured
parties, provided written notice of demand therefore is received by
C-5
Lenders before the sale (to be applied in the order Lenders receives
the requires); and (e) the balance, if any, to Borrower.
12. Set-off. Upon default by Borrower under this Agreement, Lenders (or the
holder or owner of any debt secured by this Agreement) shall immediately
have the right without further notice to Borrower to set off against the
Secured Notes and any other debts secured by this Agreement all debts of
Lenders (or such holder or owner) to Borrower, whether or not then due.
13. Notice. Any and all notices, requests, consents and demands required or
permitted to be given hereunder shall be in writing and shall be deemed
given and received (i) upon personal delivery, (ii) upon the first business
day following the receipt of confirmation of facsimile transmission to the
telefax number or email, the receipt of which is confirmed by return email
and/or telephonically, as indicated below, (iii) upon delivery by overnight
courier, prepaid and delivered on a business day; or (iv) upon the third
business day after deposit in the United States mail, by certified or
registered mail, postage prepaid and addressed as follows:
To the Company: Tarpon Industries, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxxxx XX 00000
Fax: 000 000 0000
E-mail: xxxxxxxxx@xxxxxxxxx.xxx
To the Lender: at the facsimile number, email or address of the
Lender appearing on the books
and records of the Company
14. Miscellaneous. The following provisions are additional terms of this
Agreement:
(a) Lenders have no duty to maintain, repair or protect the Collateral.
(b) No waiver by Lenders of any default shall operate as a waiver of any
other default or of the same default on a future occasion.
(c) All rights and remedies of Lenders are cumulative and may be exercised
successively or concurrently, and shall inure to the benefit of
Lenders' assigns.
(d) All obligations of Borrower shall bind his trustees, custodians,
general partners, successors and assigns.
(e) The captions of the sections of this Agreement are inserted for
convenience only and shall not be used in the interpretation or
construction of any provisions hereof.
(f) If any provisions of this Agreement is held invalid or unenforceable,
the holding shall affect only the provision in question and all other
provisions on this Agreement shall remain in full force and effect.
(g) This Agreement supersedes all prior oral and/or written agreements
concerning the subject matter hereof.
C-6
IN WITNESS WHEREOF, Borrower has executed this Agreement the day and year
first above written.
TARPON INDUSTRIES, INC.
a Michigan corporation
By:/s/Xxxxx X. Xxxxxxxx
----------------------------
Xxxxx X. Xxxxxxxx
Its:Chief Executive Officer
LENDERS
See Schedule "1"
C-7
SCHEDULE "1"
LENDERS
Lead Investor:
High Capital Funding, LLC $500,000
000 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX
Attention: Xxxx X. Xxxxxx, CFO
Tel: 404.257 9150
Fax: 000.000.0000
Email: xxxxxxxxxx@xxxxxxxxxx.xxx
By: /s/ Xxxx X. Xxxxxx
----------------------------------------
Xxxx X. Xxxxxx, CFO
Date: June 18, 2007
Other Lenders:
[Name/Address] $ _____________________
------------------------
------------------------
------------------------
By: _____________________
Name: ___________________
Title: __________________
Date: ______________, 2007
SCHEDULE "2"
PATENTS, TRADEMARKS AND APPLICATIONS
