Confidential Term Sheet for Convertible Bridge Note between Iron Star Development, Inc. and Highgate House Funds, Ltd.

Summary

Iron Star Development, Inc. and Highgate House Funds, Ltd. have agreed to a bridge financing arrangement where Highgate will invest $800,000 in a convertible promissory note. The note matures in 18 months, pays 10% annual interest, and is convertible into Iron Star’s common stock at $1.00 per share. The investor also receives warrants and security interests in Iron Star’s assets. Iron Star must register the underlying shares with the SEC and meet certain conditions, including entering a separate equity agreement. If Iron Star defaults, the investor may claim escrowed shares as repayment.

EX-10.2 3 v027968_ex10-2.txt CONFIDENTIAL TERM SHEET BRIDGE NOTE Issuer: Iron Star Development, Inc. Investor: Highgate House Funds, Ltd. Securities: Eight Hundred Thousand ($800,000) (the "Gross Proceeds") of securities in the form of a promissory note convertible (the "Note"), into shares of the Issuer's common stock ("Common Stock"). Term: Eighteen (18) months from the date of closing ("Maturity'). Upon Maturity, the Issuer shall repay one hundred eight percent (108%) of the Gross Proceeds ("Repayment Premium") Interest: Ten percent (10%) per annum ("Interest"). Warrants: Issuer shall issue to the Investor warrants to purchase shares of Common Stock for a period of three (3) years with an exercise price equal to $.001 per share equal to twenty percent (20%) of the Gross Proceeds (the "Warrants"). The shares underlying the Warrants shall be included on the registration statement to be filed by the Issuer as described below. Security: The Issuer will grant to the Investor a perfected security interest in the assets of the Issuer as evidenced by a UCC-1 filing or a second lien on the assets where the UCC-1 is not available. The Issuer will also issue shares of Common Stock equal to five (5) times the Gross Proceeds to be held in escrow in the event of default ("Escrow Shares"). Closing Date: The closing date will be the date on which definitive documents are signed by and between the Issuer and Investor ("Closing Date"). It is estimated that the Closing Date shall take place within a reasonable amount of time from the execution of this term sheet, notwithstanding any and all due diligence and documentation issues that can arise. Disbursement: The Gross Proceeds shall be disbursed, subject to the deduction of any and all fees upon Closing. Redemption: The Issuer shall have the right, in its sole discretion, to redeem the Note at any time prior to Maturity, upon three (3) business days prior written notice, any or all-outstanding Note remaining in its sole discretion. The redemption price shall be one hundred twenty (120%) of the face amount redeemed plus accrued interest, subject to the maximum amount of interest allowed to be charged by law ("Redemption Price"). Payments: The Issuer will begin making monthly payments of principal and Interest one hundred eighty (180) days from the Closing Date. The amount of each monthly payment shall be equal to the principal balance of the Note and the Repayment Premium divided by the number of months remaining to Maturity, plus accrued Interest (collectively "Payments"). Event of Default: In the event the Issuer does not make timely Payments on the Note, then the Note will be deemed in default ("Event of Default"). Upon such event, the Investor may at its sole option take the Escrow Shares as satisfaction of the Note, subject to certain conversion limitations. Conversion: The Investor may at its sole option convert any or all of the face amount still outstanding of the Note plus Interest, compounded monthly, from the Closing Date to the date of conversion ("Conversion Amount"). The number of shares of Common Stock of the Issuer to be received upon conversion, and delivered from the Escrow Shares, will be determined by dividing the Conversion Amount by the Conversion Price, as defined below. Conversion Price: The Note is convertible into Common Stock at $1.00 (the "Fixed Price"). In the Event of Default, the Investor, at its sole option, may take the Escrow Shares in satisfaction of the Note. Registration: Promptly, but no later than forty-five (45) calendar days from the Closing Date, the Issuer shall file a registration statement (on Form SB-2, or similar form) with the United States Securities & Exchange Commission ("SEC") covering the shares of Common Stock underlying the Warrants, the Escrow Shares and the shares to be issued in accordance with the Standby Equity Distribution Agreement, as defined below (the "Registration Statement"). The Issuer shall use its best efforts to ensure that such Registration Statement is declared effective within one hundred twenty (120) calendar days of filing with the SEC. In the event the Registration Statement is not declared effective within one hundred twenty (120) calendar days, then the Issuer shall pay to the Investor a cash amount within three (3) business days from the end of the month equal to two percent (2%) per month of the outstanding principal amount of the Note as liquidated damages and not as a penalty. The Issuer shall keep the Registration Statement "Evergreen" for the life of the Note or until Rule 144(k) of the Securities Act of 1933, as amended, is available to the Investor, whichever is later. The Issuer shall retain, and pay at its sole expense, a law firm to file the Registration Statement from a list of approved law firms provided by the Investor. Upon an Event of Default, the Investor will have the right to demand registration of the Common Stock to be issued upon conversion of the Note including the Escrow Shares. Conditions: The Issuer shall have previously entered into an agreement with Cornell Capital Partners, LP, for a $10,000,000 Standby Equity Distribution Agreement ("SEDA"), execute all documents thereto on or before the Closing Date and agree to a written use of proceeds for the Gross Proceeds. Share Issuance: At all times, the Issuer shall keep available Common Stock duly authorized for issuance against the Note including the Escrow Shares. If at any time, the Issuer does not have available an amount of authorized and non-issued Common Stock necessary to satisfy issuance of the Escrow Shares, the Issuer shall call and hold a special meeting within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares of Common Stock authorized. Management of the Issuer shall recommend to shareholders to vote in favor of increasing the number of Common Stock authorized. Management shall also vote all of its shares in favor of increasing the number of Common Stock authorized. No Shorting: Neither the Investor nor its affiliates has an open short position in the Common Stock of the Issuer, and the Investor agrees that it will not, and that it will cause its affiliates not to, engage in any short sales of, or hedging transactions with respect to the Common Stock. Banker's Fees: The Investor shall receive cash compensation equal to ten percent (10%) of the Gross Proceeds of the Note to be paid directly from escrow from Disbursement as described above for the SEDA commitment. Legal Fee: The Issuer agrees to pay a legal fee of $10,000 in connection with this transaction. The Issuer shall bear all of its own legal and professional fees and expenses, including but not limited to those associated with the filing of its Registration Statement as contemplated herein. Expenses: The Issuer agrees to pay to a non-refundable due diligence fee of $10,000 upon execution of the Term Sheet. Confidentiality: The existence of this Term Sheet and all of its individual terms and conditions are of a confidential nature and shall not be disclosed to anyone, except the Issuer, the Issuer's management, board of directors, legal counsel and accounting auditors without the express written consent of the Investor. If the terms and conditions contained herein in this four (4) page Term Sheet as of the date first written above are satisfactory, then please sign as indicated below. We appreciate this opportunity to work with you on this investment. IRON STAR DEVELOPMENT, INC. By: /s/ Wallace Boyack -------------------------------------- Name: Wallace Boyack Its: President HIGHGATE HOUSE FUNDS, LTD. By: /s/ Adam Gottbetter -------------------------------------- Name: Adam S. Gottbetter Title: Portfolio Manager