Walker Financial Corporation
10% Convertible Promissory Note
Dated: February 10, 2005 Principal Amount: $----------
Garden City, New York
For Value Received, the undersigned, Walker Financial Corporation
(together with its successors and assigns, "Walker"), a Delaware corporation,
hereby promises to pay to __________, an individual residing in
__________________ ("Lender"), the principal sum of _______________ ($ ),
together with interest as set forth below.
1. Interest Rate. Until an event of Default shall have occurred, the principal
amount evidenced by this Note shall bear interest at the rate of 10% per annum,
computed on the basis of a 360-day year for the actual number of days elapsed
(the "Applicable Interest Rate"). Upon the occurrence of an event of Default,
the outstanding principal amount and any accrued but unpaid interest thereon
shall bear interest until paid at the Applicable Interest Rate plus an
additional 2% per annum (the "Default Interest Rate").
2. Payment Date; Payment Method; Prepayment.
(a) Payment Dates. Payment of all accrued and unpaid interest due under
this Note shall be payable at the maturity of the loan which will be January 21,
2006 (hereinafter the "Maturity Date"). Upon payment in full of the principal
evidenced by this Note (and any accrued but unpaid interest thereon), Lender
shall mark this Note "CANCELLED" and return this Note as so marked to Walker
within five days after such payment in full is confirmed.
(b) Payment Method. Payment of the principal evidenced by this Note (and
any accrued but unpaid interest thereon) shall be made by check or wire transfer
of immediately available funds to an account designated by Lender.
(c) Voluntary Prepayment. Walker may pay, without penalty or premium, the
principal amount evidenced by this Note (and any accrued but unpaid interest
thereon), in whole or part, at any time up to the Maturity Date upon no less
than five day's prior notice to Lender. Any partial prepayment shall first be
applied against any accrued and unpaid interest due under this Note and then to
the principal amount evidenced by this Note. In the event of a voluntary
prepayment being less than the full amount outstanding under this Note
(including any accrued but unpaid interest), upon surrender of this Note in
connection with said partial prepayment, Walker shall deliver to Lender a new
note substantially in the form of this Note and evidencing as principal any
amount not so prepaid.
3. Default; Acceleration.
(a) Any of the following shall constitute an event of Default under this
Note:
(i) the failure by Walker to pay any amounts required to be paid
under this Note on or before the date on which such payment was due;
(ii) the breach or noncompliance by Walker of any of its
representations, warranties or covenants contained in the Loan Agreement;
(iii) Walker shall
(A) apply for or consent to the appointment of a receiver or
trustee of Walker's assets;
(B) make a general assignment for the benefit of creditors;
(C) file a petition or other request no matter how denominated
("Petition") seeking relief under Title 11 of the United States Code
or under any other federal or state bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or
statute ("Bankruptcy Statute"); or
(D) file an answer admitting the material allegations of a
Petition filed against it in any proceeding under any Bankruptcy
Statute;
(iv) there shall have entered against Walker an order for relief
under any Bankruptcy Statute; or
(v) a Petition seeking an order for relief under any Bankruptcy
Statute is filed by any one other than Walker and without Walker's consent
or agreement which is not dismissed or stayed within 60 days after the
date of such filing, or such Petition is not dismissed upon the expiration
of any stay thereof.
(b) Upon the occurrence of an event of Default, the unpaid principal
amount evidenced by this Note (and any accrued but unpaid interest thereon)
shall be immediately due and payable.
(c) Until the occurrence of an event of Default, the principal amount
evidenced by this Note shall bear interest at the Applicable Interest Rate and
upon an event of Default, any unpaid principal amount and any accrued but unpaid
interest thereon under this Note shall bear interest until paid at the Default
Interest Rate.
4. Conversion Right.
(a) Conversion Option. Lender shall have the option (the "Conversion
Option"), exercisable at any time and from time to time on or prior to the
earlier of (i) the Maturity Date and the last date of the Prepayment Notice
Period to convert all or any portion of the principal amount evidenced by this
Note, and all (but not a portion of) accrued and unpaid interest on such
principal to be converted, into such whole number of fully-paid and
non-assessable shares (each, a "Conversion Share") of Common Stock as is equal
to the quotient obtained by dividing (i) the amount of principal (and accrued
and unpaid interest thereon) being so converted by (ii) the Conversion Price (as
hereinafter defined shall be $0.71) (i.e., 35,211 Conversion Shares for each
$25,000 of principal, and accrued and unpaid interest thereon, so converted)..
(b) Method of Exercise. Lender shall exercise the Conversion Option by
delivering to Walker, during regular business hours, this Note with the
Conversion Notice attached as Appendix A to this Note duly completed and
executed. Conversion shall be deemed to have been effected immediately prior to
the close of business on the date (the "Conversion Date") upon which such
delivery is properly made. As promptly as practicable following the Conversion
Date, Walker shall issue and deliver to Lender (or to such other party as
designated by Lender), at the place designated by Lender, a stock certificate to
which Lender is entitled and a check or cash in respect of any fractional
interest in a share of Common Stock as provided in paragraph 5(b). Lender (or
the party in whose name the stock certificate(s) evidencing the Conversion
Shares are to be issued) shall be deemed to have become the holder of record of
the Conversion Shares immediately prior to the close of business on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event Lender shall be deemed to have become the
holder of record of the Conversion Shares immediately prior to the close of
business on the next succeeding date on which the transfer books are open, but
the Conversion Price shall be that in effect on the Conversion Date. Upon
conversion of only a portion of the principal and accrued and unpaid interest
evidenced by this Note, Walker shall issue and deliver to Lender, at the sole
expense of Walker, a new note, substantially in the form of this Note,
evidencing the remaining principal outstanding and due Lender which new Note
shall be dated as of the last date upon which accrued interest under this Note
shall have been paid.
2
(c) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued upon conversion of indebtedness evidenced by this Note. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion, Walker shall pay a cash adjustment in respect of such fractional
share in an amount equal to the product resulting from multiplying (i) the
Conversion Price as in effect on the relevant Conversion Date by (ii) such
fractional share. A fractional share shall not be entitled to interest or
dividends, and Lender shall not be entitled to any rights as stockholders of
Walker with respect of such fractional interest.
(d) Adjustment to Conversion Price. The Conversion Price shall be subject
to adjustment from time to time as provided in this Paragraph 4(d).
(i) If Walker shall at any time, (A) pay a dividend on outstanding
Common Stock in shares of Common Stock or effect a distribution to holders
of outstanding Common Stock payable in shares of Common Stock, (B)
subdivide outstanding Common Stock, (C) combine outstanding Common Stock
into a smaller number of shares of Common Stock or (D) issue any
securities of Walker in a reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in
which Walker is the continuing or surviving corporation), the Conversion
Price in effect immediately prior to such an event shall be adjusted so
that Lender, upon surrendered of this Note for conversion, in whole or
part, shall be entitled to receive the number and kind of shares of Common
Stock and other securities which Lender would have owned or have been
entitled to receive after the happening of such event had the Note been
converted immediately prior to the happening of such event. An adjustment
made pursuant to this subparagraph (i) shall become effective (x)
immediately after the record date, in the case of a dividend, or (y)
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(e) Liability for Taxes on Conversion Shares. Walker shall pay all
documentary, stamp and other transactional taxes attributable to the issuance of
Conversion Shares or other securities issuable upon conversion of any portion of
the principal and accrued interest evidenced by this Note if issued in the name
of Lender. In all other cases, such taxes shall be paid by Lender.
(f) Reservation of Conversion Shares.. Walker shall reserve, free from
preemptive rights, out of its authorized but unissued shares of Common Stock a
sufficient number of shares of Common Stock for issuance as Conversion Shares.
(g) Status of Conversion Shares.. All Conversion Shares which may be
issued in connection with the conversion provisions set forth in this Section 5
will, upon delivery by Walker, be duly and validly issued, fully paid and
non-assessable, with no personal liability attaching to the ownership of such
Conversion Shares, and free from all taxes, liens or charges with respect
thereto and not subject to any preemptive rights.
5. Enforcement.. All disputes regarding the enforcement or construction of this
Note shall be resolved in accordance with the Security Agreement and may not be
resolved independently of the enforcement or construction of the Security
Agreement which has been made a part hereof.
6. Assignment.. This Note is not assignable by Walker, and any purported
assignment of this Note shall be null and void and of no effect.
3
7. Governing Law.. This Note and all rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements made and be performed wholly within such State, without
regard to such State's conflicts of laws principles.
8. Notices. All requests, demands, notices and other communications required or
otherwise given under this Agreement shall be sufficiently given if (a)
delivered by hand, against written receipt therefor, (b) forwarded by overnight
courier requiring acknowledgment of receipt or (c) mailed by postage prepaid,
registered or certified mail, return receipt requested, addressed, in the case
of clauses (b) or (c) of this Section 8 as follows:
If to Walker, to: Mitchell Segal, President
Walker Financial Corporation
990 Stewart Avenue - Suite 60A
Garden City, New York 11530
If to Lender, to: The address of Lender as set forth in the
Subscription Agreement
or, in the case of any of the parties hereto, at such other address as such
party shall have furnished in writing, in accordance with this Section 10, to
the other parties hereto. Each such request, demand, notice or other
communication shall be deemed given (a) on the date of delivery by hand, (b) on
the first business day following the date of delivery to an overnight courier or
(c) three business days following mailing by registered or certified mail.
IN WITNESS WHEREOF, this Note has been duly executed and delivered
as of the date first above written.
Walker Financial Corporation
By: /S
-------------------------------
Mitchell Segal, President
ATTEST:
By: /S
-------------------------------
Peter Walker, Secretary
4
Appendix A
CONVERSION NOTICE
To Walker Financial Corporation:
The undersigned registered owner of this Note hereby irrevocably exercises
the option to convert the principal evidenced by this Note, or portion hereof
below designated, and all accrued and unpaid interest on such principal for
shares of Common Stock of Walker Financial Corporation or securities or other
property or cash in accordance with the terms of this Note, and directs that the
shares, other securities, other property or cash deliverable upon the
conversion, together with any check in payment for fractional shares and a new
note evidencing any remaining principal amount, be issued and delivered to the
registered holder of this Note unless a different name has been indicated below.
If the shares or other securities are to be registered in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto.
_______________________________________
Principal Amount of this Note to be Converted: $
Fill in for registration of shares or other securities if to be delivered, and
of a new note if to be issued, otherwise than to the registered holder.
Name:
Social Security or Other Taxpayer Identification Number:
Address:
5