Exhibit 10.6
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DEBENTURE REGISTRATION RIGHTS AGREEMENT
DEBENTURE REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
February 20, 2006, by and between Walker Financial Corp., a company organized
under the laws of state of Delaware (the "Company"), and Dutchess Private
Equities Fund, II, LP (the "Holder").
WHEREAS, upon the terms and subject to the conditions of the Subscription
Agreement between the Holder and the Company (the "Subscription Agreement"), the
Company has agreed to issue and sell to the Holder convertible debentures of the
Company (the "Debentures"), which will be convertible into shares of common
stock, $.10 par value per share (the "Common Stock"), of the Company.
WHEREAS, to induce the Holder to execute and deliver the Subscription
Agreement, Warrant Agreement, Security Agreement and the Debenture Agreement
(collectively, the "Transaction Documents"), the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as amended, and
the rules and regulations thereunder, or any similar successor statute
(collectively, the "1933 Act"), and applicable state securities laws, with
respect to the shares of Common Stock issuable pursuant to the Subscription
Agreement, Warrant Agreement and Debenture Agreement.
NOW, THEREFORE, in consideration of the foregoing promises and the mutual
covenants contained hereinafter and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Holder hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following
meanings:
a. "Closing Date" shall mean the date in the preamble of this Agreement.
b. "Debenture" or "Debentures" mean the convertible debenture issued by the
Company to the Holder.
c. "Holder" shall mean Dutchess Private Equities Fund, II, LP.
d. "Effective Date" shall mean the date the United States Securities and
Exchange Commission ("SEC") has declared the Registration Statement effective
and the Company has filed all necessary amendments, including the letter to
request accelerated effectiveness and the Prospectus covering the resale of
Shares.
e. "Face Amount" means two hundred and twenty-one thousand dollars ($221,000)
to be invested by the Holder.
f. "Filing Date" shall mean the date the Registration Statement has been filed
with the SEC (as determined by EDGAR) and no stop order of acceptance has been
issued by the SEC.
g. "Person" means a corporation, a limited liability company, an association,
a partnership, an organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
h. "Potential Material Event" means any of the following: (i) the possession by
the Company of material information not ripe for disclosure in a Registration
Statement, which shall be evidenced by determinations in good faith by the Board
of Directors of the Company that disclosure of such information in the
Registration Statement would be detrimental to the business and affairs of the
Company, or (ii) any event or activity concerning the Company which would, based
on a good faith determination by the Company's Board of Directors, adversely
affect the Company or its shareholders if it were included in a Registration
Statement or other filing.
i. "Principal Market" means either The American Stock Exchange, Inc., The New
York Stock Exchange, Inc., the Nasdaq National Market, The Nasdaq SmallCap
Market or the National Association of Securities Dealer's, Inc. OTC electronic
bulletin board, whichever is the principal market on which the Common Stock is
listed.
j. "Register," "Registered," and "Registration" refer to a registration
effected by preparing and filing with the SEC one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and effectiveness of such Registration Statement(s).
k. "Registrable Securities" means the shares of Common Stock issued or issuable
(i) pursuant to the Subscription Agreement, and (ii) any shares of capital stock
issued or issuable with respect to such shares of Common Stock and Warrants, if
any, as a result of any stock split, stock dividend, recapitalization, exchange
or similar event or otherwise, which have not been (x) included in a
Registration Statement that has been declared effective by the SEC, (y) sold
under circumstances meeting all of the applicable conditions of Rule 144,
promulgated under the Securities Act of 1933 (or any similar provision then in
force) under the 1933 Act or (z) saleable without limitation as to time, manner
and volume pursuant to Rule 144(k) (or any similar provision then in force)
under the 1933 Act.
l. "Registration Statement" means a registration statement of the Company filed
under the 1933 Act.
m. "$" and/or "Dollar" shall mean legal currency of the United States of
America.
All capitalized terms used in this Agreement and not otherwise defined
herein shall have the same meaning ascribed to them in the Subscription
Agreement or Debenture Agreement.
For the purposes of determining dates for penalties or filing deadlines, as
outlined in this Agreement, both parties agree that the date given by the SEC
shall constitute the official date.
2. REGISTRATION.
a. Mandatory Registration. Within ten (10) days of the Company filing the
2005 year end audited financials with the SEC on Form 10K-SB, but in no event
after March 31, 2006, (the earlier of each being the "Filing Deadline") the
Company shall prepare and file with the SEC a Registration Statement or
Registration Statements (as is necessary) on Form SB-2 (or, if such form is
unavailable for such a registration, on such other form as is available for such
a registration), covering the resale of all of the Registrable Securities, which
Registration Statement(s) shall state that, in accordance with Rule 415
promulgated under the 1933 Act, such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon stock splits, stock dividends or similar transactions. The Company shall
initially register for resale an amount of shares of Common Stock which would be
issuable on the date preceding the filing of the Registration Statement based on
the Fixed Conversion Price (as defined in the Debenture Agreement) of the
Debenture on February 20, 2006 and the amount reasonably calculated that
represents the number of shares issuable pursuant to the terms of the Offering,
including those Shares underlying the Warrant Agreement. The total amount of
Shares shall be both 1) the amount specified in the Warrant Agreement and 2) the
Face Amount of the Debenture, 221,000, divided by the Fixed Conversion Price.
For example, if the Fixed Conversion Price is ten cents ($.10) per share, the
amount of Shares to be registered will be two million two hundred and ten
thousand shares (2,210,000) shares. (221,000/.10). In the event the Company
cannot register sufficient shares of Common Stock, due to the remaining number
of authorized shares of Common Stock being insufficient, the Company will use
its best efforts to register the maximum number of shares it can based on the
remaining balance of authorized shares and will use its best efforts to increase
the number of its authorized shares as soon as reasonably practicable.
b. The Company shall use its best efforts to have the Registration Statement
filed by the Filing Deadline. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not filed by the Filing Deadline, then the Company shall pay the
Holder the sum of two percent (2%) per month of the Face Amount of the
Debentures outstanding as liquidated damages, and not as a penalty. In
addition, for each twenty-one (21) day calendar period the Company fails to file
the Registration Statement, the Conversion Price of the Debentures will decrease
by ten percent (10%) of the original Fixed Conversion Price. For example, in
the event that upon the twenty-first (21st) day following Closing, the
Registration Statement has not been filed with the SEC, the Conversion Price
shall decrease by ten cents (.10) per share. (.10 x 10%=.01).
Notwithstanding the foregoing, the amounts payable by the Company pursuant
to this Section shall not be payable to the extent any delay in the filing of
the Registration Statement occurs because of an act of, or a failure to act or
to act timely by the Holder or is otherwise attributable to the Holder.
The liquidated damages set forth in this Section shall continue until the
obligation is fulfilled and shall be paid within three (3) business days after
each thirty (30) day period, or portion thereof, until the Registration
Statement is filed. Failure of the Company to make payment within said three
(3) business days shall be considered a breach of this Agreement, and the Holder
may elect to pursue remedies as outlined in this Section.
The Company acknowledges that its failure to have the Registration
Statement filed by the Filing Deadline will cause the Holder to suffer
irreparable harm, and, that damages will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Agreement a provision for liquidated damages. The parties acknowledge and agree
that the liquidated damages provision set forth in this section represents the
parties' good faith effort to quantify such damages and, as such, agree that the
form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement, the Subscription Agreement and
the Debenture.
c. The Company shall use its best efforts and take all available steps to
have the Registration Statement declared effective by the SEC within sixty (60)
calendar days after the Filing Date (the "Effective Date Deadline"). If the
Registration Statement covering the Registrable Securities required to be filed
by the Company pursuant to Section 2(a) hereof has not become effective by the
Effective Date Deadline, then the Company shall pay the Holder the sum of two
percent (2%) of the Face Amount as liquidated damages, and not as a penalty, for
each thirty (30) calendar day period, pro rata, compounded daily, following
Effective Date Deadline.
If the Registration Statement covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof has become effective,
and, thereafter, the Holder's right to sell is suspended, for any reason, then
the Company shall pay the Holder the sum of two percent (2%) of the Face Amount
plus interest and penalties due to the Holder for the Registrable Securities
pursuant to the Subscription Agreement for each ten (10) calendar day period,
pro rata, compounded daily, following the suspension, until such suspension
ceases.
Notwithstanding the foregoing, the amounts payable by the Company pursuant
to this Section shall not be payable to the extent any delay in the
effectiveness of the Registration Statement or any suspension of the
effectiveness occurs because of an act of, or a failure to act or to act timely
by the Holder or is otherwise attributable to the Holder.
The damages set forth in this Section shall continue until the obligation
is fulfilled and shall be paid within three (3) business days after each ten
(10) day period, or portion thereof, until the Registration Statement is
declared effective or such suspension is released. Failure of the Company to
make payment within said three (3) business days shall be considered a default.
The Company acknowledges that its failure to have the Registration
Statement becomeeffective by the Effective Date Deadline or to permit the
suspension of the effectiveness of the Registration Statement, will cause the
Holder to suffer irreparable harm and, that damages will be difficult to
ascertain. Accordingly, the parties agree that it is appropriate to include in
this Agreement a provision for liquidated damages. The parties acknowledge and
agree that the liquidated damages provision set forth in this section represents
the parties' good faith effort to quantify such damages and, as such, agree that
the form and amount of such liquidated damages are reasonable and will not
constitute a penalty. The payment of liquidated damages shall not relieve the
Company from its obligations to register the Common Stock and deliver the Common
Stock pursuant to the terms of this Agreement, the Subscription Agreement and
the Debenture.
d. The Company agrees not to include any other securities, except those
securities for prior financings or obligations (as disclosed in the Company's
filings with the SEC), by which the Company is obligated to include, in this
Agreement in this Registration Statement without Holder's prior written consent
which shall not be unreasonably withheld, unless for the Holder. Furthermore,
the Company agrees that it will not file any other Registration Statement,
including those on Form S-8, for other securities, except for a bona fide
employee stock option plan, until the earlier of 1) three hundred and sixty
(360) calendar days after the Effective Date unless it has written approval from
the Holder or 2) the Debenture is paid in full. Failure to obtain written
approval from the Holder will cause the Holder to suffer damages that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate
to include a provision for liquidated damages and the Company agrees to pay, the
Holder the sum of two percent (2%) of the Face Amount as liquidated damages and
not as a penalty for each thirty (30) calendar day period, pro rata, compounded
daily, until the unauthorized Registration Statement is withdrawn.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to prepare and file a Registration
Statement with the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, with respect thereto, the
Company shall have the following obligations:
a. The Company shall use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective by the
Effective Date Deadline and shall keep such Registration Statement effective
pursuant to Rule 415 until the Filing Date on which (A) the Holder shall have
sold all the Registrable Securities or the shares included therein otherwise
cease to be Registrable Securities, and (B) the Holder has no right to convert
the securities it owns into Common Stock under the Subscription Agreement,
Debenture Agreement or Warrant Agreement, respectively (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall, as of the date thereof, not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading. The Company
shall respond to any and all SEC comments or correspondence, whether written or
oral, direct or indirect, formal or informal ("Comments"), within seven (7)
business days of receipt by the Company of such Comments. If the Company fails
to respond within seven (7) business days of receipt of SEC Comments, the
Company shall pay to the Holder an amount equal to two percent (2%) per month,
on a pro rata basis, compounded daily, of the Face Amount as liquidated damages
and not as a penalty; provided that the seven (7) business day period provided
herein shall be extended as may be required by delays caused by Holder's counsel
pursuant to paragraph 3(g) below, and, provided further, that such seven (7)
business day period shall be extended two (2) business days for responses to SEC
staff accounting comments. The Company shall cause the Registration Statement
relating to the Registrable Securities to become effective no later than two (2)
business days after notice from the SEC that the Registration Statement has been
cleared of all comments. Failure to do so will result in the Face Amount of the
Debentures to be increased, as liquidated damages, by five percent (5%) per
calendar day for each day that the Company does not request acceleration for
effectiveness from the SEC.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the 1933 Act, as may be necessary to keep such Registration Statement
effective during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by such Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the Holder as set
forth in such Registration Statement. In the event the number of shares of
Common Stock available under a Registration Statement filed pursuant to this
Agreement is at any time insufficient to cover all of the Registrable
Securities, the Company shall amend such Registration Statement, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within forty-five (45) calendar days after the
necessity therefor arises (based on the then Purchase Price of the Common Stock
and other relevant factors on which the Company reasonably elects to rely),
assuming the Company has sufficient authorized shares at that time, and if it
does not, within forty-five (45) calendar days after such shares are authorized.
The Company shall use it best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof.
Prior to conversion of all the Shares (as defined in the Debenture
Agreement between the Company and the Holder of this date) if at any time the
conversion of all the Shares outstanding would result in an insufficient number
of authorized shares of Common Stock being available to cover all the
conversions, or in the event that Holder deems that the Shares authorized will
become insufficient, the Company will move to call and hold a shareholder's
meeting within forty-five (45) calendar days for the sole purpose of authorizing
additional shares of Common Stock to facilitate the conversions. In such an
event the Company shall recommend to all shareholders and management of the
Company to vote their shares in favor of increasing the authorized number of
shares of Common Stock in sufficient number to fully cover the Holder's
conversion rights. The Company represents and warrants that under no
circumstances will it deny or prevent Holder's right to convert the Shares as
permitted under the terms of the Subscription Agreement or the Debenture
Registration Rights Agreement. The Holder retains the right to request
additional shares upon the determination the company may not be able to
facilitate conversions in the future.
c The Company shall furnish to the Holder whose Registrable Securities are
included in any Registration Statement and its legal counsel without charge and
upon request (i) promptly after the same is prepared and filed with the SEC at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its representatives, (ii) upon the effectiveness of
any Registration Statement, a copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as the Holder may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as the
Holder may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities. The Company filing the documents
described in this paragraph through the Electronic Data Gathering Analysis and
Retrieval System ("EDGAR") shall constitute delivery.
d. The Company shall use reasonable efforts to (i) register and qualify the
Registrable Securities covered by a Registration Statement under the applicable
securities or "blue sky" laws of such states of the United States as reasonably
specified by the Holder, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify the Holder who holds
Registrable Securities of the receipt by the Company of any notification with
respect to the suspension of the registration or qualification of any of the
Registrable Securities for sale under the securities or "blue sky" laws of any
jurisdiction in the United States or its receipt of actual notice of the
initiation or threatening of any proceeding for such purpose.
e. The Company shall immediately notify the Holder in writing of the happening
of any event as a result of which the prospectus included in a Registration
Statement, as then in effect, would then contain an untrue statement of a
material fact or omission to state a material fact, which would otherwise be
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and, as a
result, is required to be supplemented or as a result of which the Registration
Statement is required to be amended ("Registration Default") and use all
diligent efforts to promptly prepare any necessary supplement to such prospectus
or amendment to such Registration Statement and take any other necessary steps
to cure the Registration Default, (which, if such Registration Statement is on
Form S-3, may consist of a document to be filed by the Company with the SEC
pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below)
and to be incorporated by reference in the prospectus) to correct such untrue
statement or omission, and deliver one (1) copy of such supplement or amendment
to Holder (or such other number of copies as Holder may reasonably request;
delivery via EDGAR shall constitute delivery). Failure to cure the Registration
Default within five (5) business days shall result in the Company paying
liquidated damages of two percent (2%) of the then outstanding principal amount
of the Debentures then held by the Holder for each thirty (30) calendar day
period or portion thereof, beginning on the date of suspension. The Company
shall also promptly notify Holder in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to Holder by facsimile on
the same day of such effectiveness and by overnight mail), (ii) of any request
by the SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate, (iv) in the event the Registration Statement is no longer
effective or, (v) the Registration Statement is stale for a period of more than
five (5) Trading Days as a result of the Company's failure to timely file its
financials with the SEC.
The Company acknowledges that its failure to cure the Registration Default
within three (3) business days will cause the Holder irreparable harm, and that
damages will be difficult to ascertain. Accordingly, the parties agree that it
is appropriate to include in this Agreement a provision for liquidated damages.
The parties acknowledge and agree that the liquidated damages provision set
forth in this section represents the parties' good faith effort to quantify such
damages and, as such, agree that the form and amount of such liquidated damages
are reasonable and will not constitute a penalty.
It is the intention of the parties that interest payable under any of the terms
of this Agreement shall not exceed the maximum amount permitted under any
applicable law. If a law, which applies to this Agreement which sets the maximum
interest amount, is finally interpreted so that the interest in connection with
this Agreement exceeds the permitted limits, then: (1) any such interest shall
be reduced by the amount necessary to reduce the interest to the permitted
limit; and (2) any sums already collected (if any) from the Company which exceed
the permitted limits will be refunded to the Company. The Holder may choose to
make this refund by reducing the amount that the Company owes under this
Agreement or by making a direct payment to the Company. If a refund reduces the
amount that the Company owes the Holder, the reduction will be treated as a
partial payment. In the event that any provision of this Agreement is held by a
court of competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Agreement will not in any way
be affected or impaired thereby.
f. The Company shall use its best efforts to prevent the issuance of any
stop order or other suspension of effectiveness of a Registration Statement, or
the suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction and, if such an order or suspension is issued, to
obtain the withdrawal of such order or suspension at the earliest possible
moment and to notify the Holder of the issuance of such order and the
resolution thereof. The Company will immediately notify the Holder of a
proceeding, or threat of proceeding, the result of which could effect the
effectiveness of the registration statement.
g. The Company shall permit the Holder and its counsel, of the Holder's
choosing, to review and comment upon all Registration Statements, amendments and
supplements, at least seven (7) days prior to filing. The Company shall not
file any Registration Statement with which Holder or its counsel reasonably
objects.
h. At the request of the Holder, the Company shall cause to be furnished to
the Holder, on the date of the effectiveness of a Registration Statement, an
opinion, dated as of such date, of counsel representing the Company for purposes
of such Registration Statement, in the form of Exhibit D attached to the
Subscription Agreement.
i. The Company shall make available for inspection by (i) the Holder and
(ii) one firm of attorneys and one firm of accountants or other agents retained
by the Holder (collectively, the "Inspectors") all pertinent financial and other
records, and pertinent corporate documents and properties of the Company
(collectively, the "Records"), as shall be reasonably deemed necessary by each
Inspector, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request; provided, however,
that each Inspector shall hold in strict confidence and shall not make any
disclosure (except to the Holder) or use of any Record or other information
which the Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, unless (a) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. The Holder agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
j. The Company shall hold in confidence and not make any disclosure of
information concerning the Holder unless (i) disclosure of such information is
necessary to comply with federal or state securities laws, (ii) the disclosure
of such information is necessary to avoid or correct a misstatement or omission
in any Registration Statement, (iii) the release of such information is ordered
pursuant to a subpoena or other final, non-appealable order from a court or
governmental body of competent jurisdiction, or (iv) such information has been
made generally available to the public other than by disclosure in violation of
this Agreement or any other agreement. The Company agrees that it shall, upon
learning that disclosure of such information concerning a Holder is sought in or
by a court or governmental body of competent jurisdiction or through other
means, give prompt written notice to the Holder and allow the Holder, at the
Holder's expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.
k. The Company shall use its best efforts to secure designation and
quotation of all the Registrable Securities covered by any Registration
Statement on the Principal Market. If, despite the Company's best efforts, the
Company is unsuccessful in satisfying this obligation, it shall use its best
efforts to cause all the Registrable Securities covered by any Registration
Statement to be listed on each other national securities exchange and automated
quotation system, if any, on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or system. If,
despite the Company's best efforts, the Company is unsuccessful in satisfying
its obligation in this Section, it will use its best efforts to secure the
inclusion for quotation with Pink Sheets, LLC. The Company shall pay all fees
and expenses in connection with satisfying its obligation under this Section
3(k).
l. The Company shall cooperate with the Holder to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legend)
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the Holder may reasonably request and registered in such
names of the Persons who shall acquire such Registrable Securities from the
Holder, as the Holder may request.
m. The Company shall provide a transfer agent for all the Registrable
Securities not later than the Closing Date of the first Registration Statement
filed pursuant hereto.
n. If requested by the Holder, the Company shall (i) as soon as reasonably
practical, incorporate in a prospectus supplement or post-effective amendment
such information as Holder reasonably determines should be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the offering of the Registrable
Securities to be sold in such offering; (ii) make all required filings of such
prospectus supplement or post-effective amendment as soon as notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) supplement or make amendments to any Registration Statement
if reasonably requested by Holder.
o. The Company shall use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be registered
with or approved by such other governmental agencies or authorities as may be
necessary to consummate the disposition of such Registrable Securities.
p. The Company shall make available to the Holder as soon as reasonably
practical, but not later than ninety (90) calendar days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of any Registration Statement. Filing via EDGAR
shall constitute delivery.
q. The Company shall otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC in connection with any registration
hereunder.
r. Within three (3) business day after the Registration Statement which
includes Registrable Securities is declared effective by the SEC, the Company
shall deliver, and shall cause legal counsel for the Company to deliver, to the
transfer agent for such Registrable Securities, with copies to the Holder,
confirmation that such Registration Statement has been declared effective by the
SEC in the form attached hereto as Exhibit A. Failure to do so will result in
the Face Amount on the Debentures to be increased by two percent (2%) per day,
as liquidated damages, and not as a penalty.
s. After the SEC declares the Registration Statement cleared of all comments
and the Company's acceptance of the effectiveness of the Registration Statement,
the Company shall file a prospectus covering the resale of the Shares
("Prospectus") within two (2) trading days. In the event the Company does not
file the Prospectus within two (2) trading days of the Effective Date, then the
Company shall pay the Holder the sum of five percent (5%) of the Face Amount due
to the Holder for each two (2) trading day period, pro rata, compounded daily,
following the two (2) trading day period until the Prospectus is filed.
t. The Company shall take all other reasonable actions necessary to expedite
and facilitate disposition by the Holder of the Registrable Securities pursuant
to a Registration Statement.
4. OBLIGATIONS OF THE HOLDER.
a. At least five (5) calendar days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify the Holder in writing
of the information the Company requires from the Holder. The Holder covenants
and agrees that, in connection with any resale of Registrable Securities by it
pursuant to a Registration Statement, it shall comply with the "Plan of
Distribution" section of the current prospectus relating to such Registration
Statement.
b. The Holder, by the Holder's acceptance of the Registrable Securities,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of any Registration Statement
hereunder and in responding to SEC comments in connection therewith.
c. The Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e), the Holder will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until Holder's receipt of the copies of the supplemented
or amended prospectus contemplated by Section 3(f) or the first sentence of
3(e).
5. EXPENSES OF REGISTRATION.
All expenses, other than underwriting discounts and commissions, incurred
in connection with registrations, filings or qualifications pursuant to Sections
2 and 3, including, without limitation, all registration, listing and
qualifications fees, printing and accounting fees, and reasonable fees and
disbursements of counsel for the Company shall be paid by, and are the sole
obligation of, the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will, and hereby
agrees to, indemnify, hold harmless and defend the Holder who holds such
Registrable Securities, the directors, officers, partners, employees, agents,
representatives of, and each Person, if any, who controls Holder within the
meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act") (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities, judgments, fines, penalties, charges, costs, attorneys'
fees, amounts paid in settlement or expenses, joint or several (collectively,
"Claims"), incurred in investigating, preparing or defending any action, claim,
suit, inquiry, proceeding, investigation or appeal taken from the foregoing by
or before any court or governmental, administrative or other regulatory agency,
body or the SEC, whether pending or threatened, whether or not an indemnified
party is or may be a party thereto ("Indemnified Damages"), to which any of them
may become subject insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon: (i)
any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which the statements therein were
made, not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6(c) with respect to the number of legal
counsel, the Company shall reimburse the Holder and each such controlling
person, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation committed by any Indemnified Person or which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus were timely made available by the Company
pursuant to Section 3(c); (ii) shall not be available to the extent such Claim
is based on (a) a failure of the Holder to deliver or to cause to be delivered
the prospectus made available by the Company or (b) the Indemnified Person's use
of an incorrect prospectus despite being promptly advised in advance by the
Company in writing not to use such incorrect prospectus; and (iii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the resale of the Registrable Securities by the Holder
pursuant to the Registration Statement.
b. In connection with any Registration Statement in which the Holder is
participating, the Holder agrees to severally and not jointly indemnify, hold
harmless and defend, to the same extent and in the same manner as is set forth
in Section 6(a), the Company, each of its directors, each of its officers who
signs the Registration Statement, each Person, if any, who controls the Company
within the meaning of the 1933 Act or the 1934 Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any Claim or
Indemnified Damages to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise
out of or are based upon any Violation, in each case to the extent, and only to
the extent, that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by Holder expressly for use in
connection with such Registration Statement; and, subject to Section 6(c),
Holder will reimburse any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6(b) and the agreement
with respect to contribution contained in Section 7 shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of Holder, which consent shall not be unreasonably withheld;
provided, further, however, that the Holder shall be liable under this Section
6(b) for only that amount of a Claim or Indemnified Damages as does not exceed
the net proceeds to Holder as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the resale of the Registrable Securities by
the Holder pursuant to the Registration Statement. Notwithstanding anything to
the contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission of material
fact contained in the preliminary prospectus were corrected on a timely basis in
the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified Party
under this Section 6 of notice of the commencement of any action or proceeding
(including any governmental action or proceeding) involving a Claim, such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such counsel shall be selected by
the Holder, if the Holder is entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying
party shall keep the Indemnified Party or Indemnified Person fully apprised at
all times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of
any action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such Claim. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action.
d. The indemnification required by this Section 6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to
(i) any cause of action or similar right of the Indemnified Party or Indemnified
Person against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that: (i) no
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE EXHANGE ACT.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act or any similar rule or regulation of the
SEC that may at any time permit the Investors to sell securities of the Company
to the public without registration ("Rule 144") the Company agrees to:
(a) make and keep public information available, as those terms are understood
and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents as are required by the applicable provisions of Rule 144;
and
(c) furnish to the Holder so long as the Holder owns Registrable Securities,
promptly upon request, (i) a written statement by the Company that it has
complied with the reporting requirements of Rule 144, the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. NO ASSIGNMENT OF REGISTRATION RIGHTS.
The registration rights and obligations under this Agreement shall not be
assignable.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of both the Company and the
Holder of the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon the Holder and the
Company. No such amendment shall be effective to the extent that it applies to
less than all of the Holders of the Registrable Securities. No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this Agreement.
11. MISCELLANEOUS.
a. Any notices, consents, waivers or other communications required or
permitted to be given under the terms of this Agreement must be in writing and
will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided a confirmation
of transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
If to the Company:
Mitch Segal
Walker Financial Corp
990 Stewart Avenue - Suite 650
Garden City, New York 11530
Telephone: (516) 832-7000
Facsimile: (516) 832-7979
If to the Holder:
At the address listed in the Questionnaire.
Each party shall provide five (5) business days prior notice to the other
party of any change in address, phone number or facsimile number.
a. Failure of any party to exercise any right or remedy under this Agreement
or otherwise, or delay by a party in exercising such right or remedy, shall not
operate as a waiver thereof.
b. All disputes arising under this agreement shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts,
without regard to principles of conflict of laws. The parties to this agreement
will submit all disputes arising under this agreement to arbitration in Boston,
Massachusetts before a single arbitrator of the American Arbitration Association
("AAA"). The arbitrator shall be selected by application of the rules of the
AAA, or by mutual agreement of the parties, except that such arbitrator shall be
an attorney admitted to practice law in the Commonwealth of Massachusetts. No
party to this agreement will challenge the jurisdiction or venue provisions as
provided in this section.
c. This Agreement and the Transaction Documents (as defined in the
Subscription Agreement)constitute the entire set of agreements among the parties
hereto with respect to the subject matter hereof and thereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to in the Transaction Documents.
d. This Agreement and the Transaction Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof, with the exception of the Debenture
Agreement, Debenture Registration Rights Agreement and Warrant Agreement signed
by the Company and the Holder on December 23, 2005.
e. The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof.
f. This Agreement may be executed in two or more counterparts, all of which
taken together shall constitute one instrument. Execution and delivery of this
Agreement by exchange of facsimile copies bearing the facsimile signature of a
party shall constitute a valid and binding execution and delivery of this
Agreement by such party. Such facsimile copies shall constitute enforceable
original documents.
g. Each party shall do and perform, or cause to be done and performed, all
such further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the other party may
reasonably request in order to carry out the intent and accomplish the purposes
of this Agreement and the consummation of the transactions contemplated hereby.
h. All consents and other determinations to be made by the Holder pursuant
to this Agreement shall be made, unless otherwise specified in this Agreement,
by the Holder holding a majority of the Registrable Securities.
i. The language used in this Agreement will be deemed to be the language
chosen by the parties to express their mutual intent and no rules of strict
construction will be applied against any party.
j. The execution and deliver of this Agreement shall in no way alter the
force and effect of the Debenture Registration Rights Agreement signed between
the Company and the Holder on December 23, 2005. All terms and conditions as
outlined in that Agreement shall continue to enforceable.
12. WAIVER.
The Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waive, affect, or diminish any right of the Holder under this Agreement to
demand strict compliance and performance herewith. Any waiver by the Holder of
any Event of Default shall not waive or affect any other Event of Default,
whether such Event of Default is prior or subsequent thereto and whether of the
same or a different type. None of the undertakings, agreements and covenants of
the Company contained in this Agreement, and no Event of Default, shall be
deemed to have been waived by the Holder, nor may this Agreement be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by an instrument in writing specifying such waiver, amendment, change
or modification and signed by the Holder.
13. PAYMENT OF PENALTIES
Any accrued penalties incurred herein by the Company for failure to act in
a timely manner, as described in this Agreement, shall be charged to the Face
Amount of the Debenture (as defined in the Debenture), unless specifically noted
otherwise. The Holder reserves the rights to take Payment of Penalties in cash
or in Common Stock priced at the Conversion Price (as defined in the Debenture
Agreement).
* * *
IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement
to be duly executed as of the day and year first above written. Duly authorized
to sign on behalf of:
WALKER FINANCIAL CORP
By: /s/Mitchell S. Segal
----------------------
Name: Mitchell S. Segal
Title: Chief Executive Financial Officer
DUTCHESS PRIVATE EQUITIES FUND, II, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/Douglas H. Leighton
------------------------
Name: Douglas H. Leighton
Title: A Managing Member
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
Date: __________
[TRANSFER AGENT]
Re: Walker Financial Corp
------------------------
Ladies and Gentlemen:
We are counsel to Walker Financial Corp, a Delaware corporation (the
-------------------------
"Company"), and have represented the Company in connection with that certain
Subscription Agreement (the "Subscription Agreement") entered into by and among
the Company and _________________________ (the "Holder") pursuant to which the
Company has agreed to issue to the Holder shares of the Company's common stock,
$.10 par value per share (the "Common Stock") on the terms and conditions set
forth in the Subscription Agreement. Pursuant to the Subscription Agreement,
the Company also has entered into a Registration Rights Agreement with the
Holder (the "Registration Rights Agreement") pursuant to which the Company
agreed, among other things, to register the Registrable Securities (as defined
in the Registration Rights Agreement), including the shares of Common Stock
issued or issuable under the Subscription Agreement under the Securities Act of
1933, as amended (the "1933 Act"). In connection with the Company's obligations
under the Registration Rights Agreement, on ____________ ___, 2006, the Company
filed a Registration Statement on Form S- ___ (File No. 333-________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities which names the Holder as a
selling shareholder thereunder.
In connection with the foregoing, we advise you that [a member of the SEC's
=
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective] [the Registration Statement has become
=========================================
effective] under the 1933 Act at [enter the time of effectiveness] on [enter the
======= ------------------------------- ---------
date of effectiveness] and to the best of our knowledge, after telephonic
- -----------------------
inquiry of a member of the SEC's staff, no stop order suspending its
- ------
effectiveness has been issued and no proceedings for that purpose are pending
- ------
before, or threatened by, the SEC and the Registrable Securities are available
- --
for resale under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[Company Counsel]
By: ____________________
cc: [Holder]