SECURED TERM NOTE B
FOR VALUE RECEIVED, each of TARPON INDUSTRIES, INC., a Michigan corporation
(the "Parent"), and the other companies listed on Exhibit A attached hereto
(such other companies together with the Parent, each a "Company" and
collectively, the "Companies"), hereby jointly and severally, promises to pay to
LAURUS MASTER FUND, LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT,
Xxxxxx House, South Church Street, Xxxxxx Town, Grand Cayman, Cayman Islands,
Fax: 000-000-0000 (the "Holder") or its registered assigns or successors in
interest, the sum of ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS 00/100
($1,700,000.00), together with any accrued and unpaid interest hereon, on
December 1, 2007 (the "Maturity Date") if not sooner indefeasibly paid in full;
provided, that, if during the next scheduled shareholders' meeting of the
Parent, but not later than December 1, 2007, the shareholders of the Parent
shall have approved the issuance by the Company of up to the maximum number of
shares of Common Stock (subject to appropriate adjustment for stock splits,
stock dividends, or other similar recapitalizations affecting the Common Stock)
issuable to the Holder upon exercise of the Warrants (as defined in the Purchase
Agreement referred to below), upon conversion of the Secured Convertible Term
Note, dated as of December 13, 2005 issued by the Parent to Holder and upon
exercise of the Common Stock Purchase Warrant, dated as of December 13, 2005
issued by the Parent to Holder, the Maturity Date shall be August 9, 2008.
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in that certain Security Agreement dated as of the date
hereof among the Companies and the Holder (as amended, modified and/or
supplemented from time to time, the "Security Agreement").
The following terms shall apply to this Secured Term Note B (this "Note"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
1.1 Contract Rate. Subject to Sections 3.2 and 4.10, interest payable on
the outstanding principal amount of this Note (the "Principal Amount") shall
accrue at a rate per annum equal to the "prime rate" published in The Wall
Street Journal from time to time (the "Prime Rate"), plus three percent (3.0%)
(the "Contract Rate"). The Contract Rate shall be increased or decreased as the
case may be for each increase or decrease in the Prime Rate in an amount equal
to such increase or decrease in the Prime Rate; each change to be effective as
of the day of the change in the Prime Rate. The Contract Rate shall not at any
time be less than nine percent (10.0%). Interest shall be (i) calculated on the
basis of a 360 day year, and (ii) payable monthly, in arrears, commencing on
September 1, 2007, on the first business day of each consecutive calendar month
thereafter through and including the Maturity Date, and on the Maturity Date,
whether by acceleration or otherwise.
1.2 Contract Rate Payments. The Contract Rate shall be calculated on the
last business day of each calendar month hereafter (other than for increases or
decreases in the Prime Rate which shall be calculated and become effective in
accordance with the terms of Section 1.1) until the Maturity Date and shall be
subject to adjustment as set forth herein.
1.3 Principal Payments. Any outstanding Principal Amount together with any
accrued and unpaid interest and any and all other unpaid amounts which are then
owing by the Companies to the Holder under this Note, the Security Agreement
and/or any other Ancillary Agreement shall be due and payable on the Maturity
Date.
ARTICLE II
OPTIONAL PREPAYMENT
2.1 Optional Prepayment. The Companies may prepay this Note at any time, in
whole or in part, without penalty or premium.
ARTICLE III
EVENTS OF DEFAULT
3.1 Events of Default. The occurrence of an Event of Default under the
Security Agreement shall constitute an event of default ("Event of Default")
hereunder.
3.2 Default Interest. Following the occurrence and during the continuance
of an Event of Default, the Companies shall, jointly and severally, pay
additional interest on the outstanding principal balance of this Note in an
amount equal to two percent (2%) per month, and all outstanding Obligations,
including unpaid interest, shall continue to accrue interest at such additional
interest rate from the date of such Event of Default until the date such Event
of Default is cured or waived.
3.3 Default Payment. Following the occurrence and during the continuance of
an Event of Default, the Holder, at its option, may elect, in addition to all
rights and remedies of the Holder under the Security Agreement and the other
Ancillary Agreements and all obligations and liabilities of each Company under
the Security Agreement and the other Ancillary Agreements, to require the
Companies, jointly and severally, to make a Default Payment ("Default Payment").
The Default Payment shall be 130% of the outstanding principal amount of the
Note, plus accrued but unpaid interest, all other fees then remaining unpaid,
and all other amounts payable hereunder, under the Security Agreement or any
other Ancillary Agreement. The Default Payment shall be applied first to any
fees due and payable to the Holder pursuant to the Note, the Security Agreement
and/or the Ancillary Agreements, then to accrued and unpaid interest due on the
Notes and then to the outstanding principal balance of the Note. [Subject to the
last sentence of Section 17 of the Security Agreement,] the Default Payment
shall be due and payable immediately on the date that the Holder has demanded
payment of the Default Payment pursuant to this Section 3.3.
ARTICLE IV
MISCELLANEOUS
4.1 Issuance of New Note. Upon any partial redemption of this Note, a new
Note containing the same date and provisions of this Note shall, at the request
of the Holder, be issued by the Companies to the Holder for the principal
balance of this Note and interest which shall not have been paid as of such
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date. Subject to the provisions of Article III of this Note, the Companies shall
not pay any costs, fees or any other consideration to the Holder for the
production and issuance of a new Note.
4.2 Cumulative Remedies. The remedies under this Note shall be cumulative.
4.3 Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
4.4 Notices. Any notice herein required or permitted to be given shall be
in writing and shall be deemed effectively given: (a) upon personal delivery to
the party notified, (b) when sent by confirmed telex or facsimile if sent during
normal business hours of the recipient, if not, then on the next business day,
(c) five days after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the
respective Company at the address provided for such Company in the Security
Agreement executed in connection herewith, and to the Holder at the address
provided in the Security Agreement for the Holder, with a copy to Laurus Capital
Management, LLC, Attn: Portfolio Services, 000 Xxxxxxx Xxxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000, facsimile number (000) 000-0000, or at such other address
as the respective Company or the Holder may designate by ten days advance
written notice to the other parties hereto.
4.5 Amendment Provision. The term "Note" and all references thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented, and any successor instrument as such successor instrument may be
amended or supplemented.
4.6 Assignability. This Note shall be binding upon any Company and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
requirements of the Security Agreement. No Company may assign any of its
obligations under this Note without the prior written consent of the Holder, any
such purported assignment without such consent being null and void.
4.7 Cost of Collection. In case of any Event of Default under this Note,
the Companies shall, jointly and severally, pay the Holder the Holder's
reasonable costs of collection, including reasonable attorneys' fees.
4.8 Governing Law, Jurisdiction and Waiver of Jury Trial.
(a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
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(b) EACH COMPANY HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL
COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY COMPANY,
ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND, PERTAINING TO THIS NOTE OR
ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED
TO THIS NOTE OR ANY OF THE ANCILLARY AGREEMENTS; PROVIDED, THAT EACH COMPANY
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND FURTHER
PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE THE
HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
THE HOLDER. EACH COMPANY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH COMPANY
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS. EACH COMPANY HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO THE COMPANY AT
THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL
BE DEEMED COMPLETED UPON THE EARLIER OF THE COMPANY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
(c) EACH COMPANY DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING
SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS
OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH COMPANY HERETO WAIVES ALL RIGHTS
TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN THE HOLDER
AND/OR ANY COMPANY ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, ANY OTHER
ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.
4.9 Severability. In the event that any provision of this Note is invalid
or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision of this
Note.
4.10 Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
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interest required to be paid or other charges hereunder exceed the maximum rate
permitted by such law, any payments in excess of such maximum rate shall be
credited against amounts owed by the Companies to the Holder and thus refunded
to the Companies.
4.11 Security Interest and Guarantee. The Holder has been granted a
security interest (i) in certain assets of the Companies and their respective
Subsidiaries as more fully described in the Amended and Restated Master Security
Agreement dated as of December 13, 2005, and amended and restated as of the date
hereof and (ii) in the equity interests of Parent's Subsidiaries pursuant to the
Amended and Restated Stock Pledge Agreement dated as December 13, 2005 and
amended and restated as of the date hereof. The obligations of the Companies
under this Note are guaranteed by certain Subsidiaries of the Parent pursuant to
the Amended and Restated Subsidiary Guaranty dated as December 13, 2005 and
amended and restated of the date hereof.
4.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
5.13 Registered Obligation. This Note is intended to be a registered
obligation within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)
and the Company (or its agent) shall register this Note (and thereafter shall
maintain such registration) as to both principal and any stated interest.
Notwithstanding any document, instrument or agreement relating to this Note to
the contrary, transfer of this Note (or the right to any payments of principal
or stated interest thereunder) may only be effected by (i) surrender of this
Note and either the reissuance by the Company of this Note to the new holder or
the issuance by the Company of a new instrument to the new holder, or (ii)
transfer through a book entry system maintained by the Company (or its agent),
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).
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IN WITNESS WHEREOF, each Company has caused this Secured Term Note B to be
signed in its name effective as of this 9th day of August, 2007.
TARPON INDUSTRIES, INC.
By: /s/
---------------------------------
Name:
Title:
WITNESS:
/s/
--------------------------
XXXXXX XXXXXXX CO.
By: /s/
---------------------------------
Name:
Title:
WITNESS:
/s/
--------------------------
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EXHIBIT A
Other Companies
Xxxxxx Xxxxxxx Co.
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