Exhibit 10.28
PROMISSORY NOTE
FACE AMOUNT $900,000
PRICE $750,000
INTEREST RATE 0% per month
NOTE NUMBER May-2006-101
ISSUANCE DATE May 25, 2006
MATURITY DATE December 21, 2007
FOR VALUE RECEIVED, Walker Financial, Inc., a Delaware corporation, and all of
its subsidiaries (the "Company") (OTC BB: WLKF) hereby promises to pay to the
order of DUTCHESS PRIVATE EQUITIES FUND, L.P. (the "Holder") by the Maturity
Date, or earlier, the Face Amount of Nine Hundred Thousand Dollars ($900,000)
U.S., (this "Note") in such amounts, at such times and on such terms and
conditions as are specified herein (sometimes hereinafter the Company and the
Holder are referred to collectively as "the Parties").
Any capitalized term not defined in this Note are defined in the Investment
Agreement for the Equity Line of Credit between Dutchess Private Equities Fund,
II, LP (the "Investor") and the Company (the "Equity Line"), which definitions
the Company and the Holder incorporate herein by reference.
ARTICLE 1 Method of Payment
Section 1.1 Payments made to the Holder by the Company in satisfaction of this
Note (referred to as a "Payment," or "Payments") shall be drawn from each Put
under the Equity Line of Credit provided by the Investor to the Company. The
Company shall make payments to the Holder in the amount of the greater of a)
fifty percent (50%) of each Put (as defined in the Investment Agreement between
the Company and the Investor dated February 20, 2006) given to the Investor from
the Company; or, b) seventy-five thousand dollars ($75,000) (the "Payment
Amount") until the Face Amount is paid in full, minus any fees due. The First
Payment will be due on July 1, 2006 and each subsequent Payment will be made at
the Closing of each Put ("Payment Date" or "Payment Dates") until this Note is
paid in full, with a minimum amount of seventy-five thousand dollars ($75,000)
per month. Notwithstanding any provision to the contrary in this Note, the
Company may pay in full to the Holder the Face Amount, or any balance remaining
thereon, in readily available funds at any time and from time to time without
penalty.
Section 1.2 Payments pursuant to this Note shall be drawn directly from the
Closing of each Put and shall be wired directly to the Holder on the Closing
Date and shall be included in the calculation of the Threshold Amount (as
defined in Section 1.4, below). The Company agrees to fully execute and
diligently carry out Puts to the Investor, on the terms set forth in the
Investment Agreement. The Company agrees that the Put Amount shall be for the
maximum amount allowed under the Investment Agreement. Further, the Company
agrees to issue Puts to the Investor for the maximum frequency allowed under the
Investment Agreement. Failure to comply with the terms of the Investment
Agreement with respect to the Puts will result in an Event of Default as defined
in this Agreement in Article 4.
Section 1.3 In order to assist the Company in meeting its obligations under
this note, the Company hereby authorizes the Investor to transfer funds from
each Put directly to the Holder. A Put shall be deemed closed after the funds
are transferred to the Holder.
Section 1.4 After Closing, the Company must make a Prepayment to the Holder
when the aggregate amount of financing ("Financing") received by the Company is
in excess of seven hundred and fifty thousand dollars ($750,000) ("Threshold
Amount"). The Company agrees to pay one hundred percent (100%) of any proceeds
raised by the Company over the Threshold Amount toward the Prepayment of the
Note and any penalties until the Face Amount is paid in full. The Prepayments
shall be made to the Holder within two (2) business days of the Company's
receipt of the Financing. Failure to do so will result in an Event of Default.
The Threshold Amount shall also pertain to any assets sold, transferred or
disposed of by the Company and any cash balances in the Company's bank or
brokerage accounts at the end of each month.
ARTICLE 2 Collateral
Section 2.1 The Company does hereby agree to issue to the Holder for use as
Collateral forty (40) signed Put Notices consistent with the conditions set
forth in Article 12. In the event, the Holder uses the Collateral in full, the
Company shall immediately deliver to the Holder additional Put Sheets as
requested by the Holder.
Section 2.2 Upon the completion of the Company's obligation to the Holder of the
Face Amount of this Note, the Company will not be under any further obligation
to complete additional Puts. All remaining Put sheets shall be marked "VOID" by
the Holder and returned to the Company at the Company's request.
ARTICLE 3 Unpaid Amounts
Section 3.1 In the event that on the Maturity Date the Company has any
remaining amounts unpaid on this Note (the "Residual Amount"), the Holder can
exercise its right to increase the Face Amount by ten percent (10%) as an
initial penalty AND an additional two and one-half percent (2.5%) per month
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paid, pro rata for partial periods, compounded daily, as liquidated damages
("Liquidated Damages"). If a Residual Amount remains, the Company is in Default
and the Holder may elect remedies as set forth in Article 4, below. The
Parties acknowledge that Liquidated Damages are not interest and should not
constitute a penalty.
ARTICLE 4 Defaults and Remedies
Section 4.1 Events of Default. An "Event of Default" occurs if any one of
the following occur:
(a) The Company does not make a Payment within two (2) business days of (i)
the Closing of a Put; or (ii) a Payment Date; or, (iii) a Residual Amount on
the Note exists on the Maturity Date; or
(b) The Company, pursuant to or within the meaning of any Bankruptcy Law (as
hereinafter defined): (i) commences a voluntary case; (ii) consents to the
entry of an order for relief against it in an involuntary case; (iii) consents
to the appointment of a Custodian (as hereinafter defined) of the Company or for
its property; (iv) makes an assignment for the benefit of its creditors; or (v)
a court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that: (A) is for relief against the Company in an involuntary case; (B)
appoints a Custodian of the Company or for its property; or (C) orders the
liquidation of the Company, and the order or decree remains unstayed and in
effect for sixty (60) calendar days; or
(c) The Company's $0.10 par value common stock (the "Common Stock") is
suspended or is no longer listed on any recognized exchange, including an
electronic over-the-counter bulletin board, for in excess of four (4)
consecutive trading days; or
(d) Either the registration statement for the underlying shares in the
Investment Agreement is not effective for any reason and is not cured within
five (5) days; or,
(e) Any of the Company's representations or warranties contained in this
Agreement were false when made; or,
(f) The Company materially breaches this Agreement, and such breach, if and
only if such breach is subject to cure, continues for a period of five (5)
business days.
(g) The Company fails to effect the information statement of Form 14C to lower
the par value of the Common Stock to .0001 by July 1, 2006.
As used in this Section 4.1, the term "Bankruptcy Law" means Title 11 of the
United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
Section 4.2 Remedies. In the Event of Default, the Holder may elect to
garnish Revenue from the Company in an amount that will repay the Holder on the
schedules outlined in this Agreement and fully enforce the Security Agreement
dated February 20, 2006, between the Holder and the Company.
For EACH AND EVERY Event of Default, as outlined in this Agreement, the
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Holder can exercise its right to increase the Face Amount of the Note by ten
percent (10%) as an initial penalty. In addition, the Holder may elect to
increase the Face Amount of the Note by two and one-half percent (2.5%) per
month as Liquidated Damages, compounded daily. The Parties acknowledge that
Liquidated Damages are not interest under the terms of this Agreement, and shall
not constitute a penalty.
In the event of a Default hereunder, the Holder, at its sole election,
shall have the right, but not the obligation, to either:
a) Switch the Residual Amount to a three-year ("Convertible Maturity
Date"), eighteen percent (18%) interest bearing convertible debenture at the
terms described hereinafter (the "Convertible Debenture"). In the event of
Default, the Convertible Debenture shall be considered closed ("Convertible
Closing Date"), as of the date of the Event of Default. If the Holder chooses
to convert the Residual Amount to a Convertible Debenture, the Company shall
have twenty (20) business days after notice of default from the Holder (the
"Notice of Convertible Debenture") to file a registration statement covering an
amount of shares equal to three hundred percent (300%) of the Residual Amount.
Such registration statement shall be declared effective under the Securities Act
of 1933, as amended (the "Securities Act"), by the Securities and Exchange
Commission (the "Commission") within seventy-five (75) business days of the
Convertible Closing Date. In the event the Company does not file such
registration statement within twenty (20) business days of the Holder's
request, or such registration statement is not declared by the Commission to be
effective under the Securities Act within the time period described above the
Residual Amount shall increase by five thousand dollars ($5,000) per day. In
the event the Company is given the option for accelerated effectiveness of the
registration statement, the Company will cause such registration statement to be
declared effective as soon as reasonably practicable and will not take any
action to delay the registration to become effective. In the event that the
Company is given the option for accelerated effectiveness of the registration
statement, but chooses not to cause such registration statement to be declared
effective on such accelerated basis, the Residual Amount shall increase by five
thousand dollars ($5,000) per day commencing on the earliest date as of which
such registration statement would have been declared to be effective if subject
to accelerated effectiveness; or
b) The Holder may increase the Payment Amount described under Article
1 to fulfill the repayment of the Residual Amount. The Company shall provide
full cooperation to the Holder in directing funds owed to the Holder on any Put
made by the Company to the Investor. The Company agrees to diligently carry
out the terms outlined in the Investment Agreement for delivery of any such
shares. In the event the Company is not diligently fulfilling its obligation to
direct funds owed to the Holder from Puts to the Investor, as reasonably
determined by the Holder, the Holder may, after giving the Company two (2)
business days advance notice to cure the same, elect to increase the Face Amount
of the Note by 2.5% each day, compounded daily, in additional to and on top of
additional remedies available to the Holder under this Note.
Section 4.3 Conversion Privilege
(a) The Holder shall have the right to convert the Convertible Debenture
into shares of Common Stock at any time following the Convertible Closing Date
and before the close of business on the Convertible Maturity Date. The number
of shares of Common Stock issuable upon the conversion of the Convertible
Debenture shall be determined pursuant to Section 4.4, but the number of shares
issuable shall be rounded up to the nearest whole share.
(b) The Holder may convert the Convertible Debenture in whole or in part, at
any time and from time to time.
(c) In the event all or any portion of the Convertible Debenture remains
outstanding on the Convertible Maturity Date (the "Debenture Residual Amount"),
the unconverted portion of such Convertible Debenture will automatically be
converted into shares of Common Stock on such date in the manner set forth in
Section 4.4.
Section 4.4 Conversion Procedure.
(a) The Holder may elect to convert the Residual Amount in whole or in part any
time and from time to time following the Convertible Closing Date. Such
conversion shall be effectuated by providing the Company, or its attorney, with
that portion of the Convertible Debenture to be converted together with a
facsimile or original of the signed notice of conversion (the "Notice of
Conversion"). The date on which the Notice of Conversion is effective
("Conversion Date") shall be deemed to be the date on which the Holder has
delivered to the Company a facsimile or original of the signed Notice of
Conversion, as long as the original Convertible Debenture(s) to be converted are
received by the Company within five (5) business days thereafter. When the
Convertible Debenture has been provided to the Company, the Holder can elect to
either reissue the Convertible Debenture, or continually convert the existing
Debenture. Any Notice of Conversion faxed by the Holder to the Company on a
particular day shall be deemed to have been received no later than the previous
business day (receipt being via a confirmation of the time such facsimile to the
Company is received).
(b) Common Stock to be Issued. Upon the conversion of any Convertible Debentures
by the Holder, the Company shall instruct its transfer agent to issue stock
certificates without restrictive legends or stop transfer instructions, if, at
that time, the aforementioned registration statement described in Section 4.2
has been declared effective (or with proper restrictive legends if the
registration statement has not as yet been declared effective), in specified
denominations representing the number of shares of Common Stock issuable upon
such conversion. In the event that the Debenture is deemed saleable under Rule
144 of the Securities Exchange Act of 1933, the Company shall, upon a Notice of
Conversion, instruct the transfer agent to issue free trading certificates
without restrictive legends, subject to other applicable securities laws. The
Company is responsible to for all costs associated with the issuance of the
shares, including but not limited to the opinion letter, FedEx of the
certificates and any other costs that arise. The Company shall act as registrar
of the Shares of Common Stock to be issued and shall maintain an appropriate
ledger containing the necessary information with respect to each Convertible
Debenture. The Company warrants that no instructions have been given or will be
given to the transfer agent which limit, or otherwise prevent resale and that
the Common Stock shall otherwise be freely resold, except as may be set forth
herein or subject to applicable law.
(c) Conversion Rate. The Holder is entitled to convert the Debenture Residual
Amount, plus accrued interest and penalties, anytime following the Convertible
Closing Date, at the lesser of either (i) seventy-five percent (75%) of the
lowest closing bid price during the fifteen (15) trading days immediately
preceding the Notice of Conversion, or (ii) 100% of the lowest bid price for the
twenty (20) trading days immediately preceding the Convertible Closing Date
("Fixed Conversion Price"). No fractional shares or scrip representing fractions
of shares will be issued on conversion, but the number of shares issuable shall
be rounded up to the nearest whole share.
(d) Nothing contained in the Convertible Debenture shall be deemed to
establish or require the Company to pay interest to the Holder at a rate in
excess of the maximum rate permitted by applicable law. In the event that the
rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Holder to the
Company. In the event this Section 4.4(d) applies, the Parties agree that the
terms of this Note shall remain in full force and effect except as is necessary
to make the interest rate comply with applicable law.
(e) The Holder shall be treated as a shareholder of record on the date the
Company is required to issue the Common Stock to the Holder. If prior to the
issuance of stock certificates, the Holder designates another person as the
entity in the name of which the stock certificates requesting the Convertible
Debenture are to be issued, the Holder shall provide to the Company evidence
that either no tax shall be due and payable as a result of such transfer or that
the applicable tax has been paid by the Holder or such person. If the Holder
converts any part of the Convertible Debentures, or will be, the Company shall
issue to the Holder a new Convertible Debenture equal to the unconverted amount,
immediately upon request by the Holder.
(f) Within three (3) business days after receipt of the documentation referred
to in this Section, the Company shall deliver a certificate, for the number of
shares of Common Stock issuable upon the conversion. In the event the Company
does not make delivery of the Common Stock as instructed by Holder within five
(5) business days after the Conversion Date, the Company shall pay to the Holder
an additional one percent (1%) per day in cash of the full dollar value of the
Debenture Residual Amount then remaining after conversion, compounded daily.
(g) The Company shall at all times reserve (or make alternative written
arrangements for reservation or contribution of shares) and have available all
Common Stock necessary to meet conversion of the Convertible Debentures by the
Holder of the entire amount of Convertible Debentures then outstanding. If, at
any time, the Holder submits a Notice of Conversion and the Company does not
have sufficient authorized but unissued shares of Common Stock (or alternative
shares of Common Stock as may be contributed by stockholders of the Company)
available to effect, in full, a conversion of the Convertible Debentures (a
"Conversion Default," the date of such default being referred to herein as the
"Conversion Default Date"), the Company shall issue to the Holder all of the
shares of Common Stock which are available. Any Convertible Debentures, or any
portion thereof, which cannot be converted due to the Company's lack of
sufficient authorized common stock (the "Unconverted Debentures"), may be deemed
null and void upon written notice sent by the Holder to the Company. The Company
shall provide notice of such Conversion Default ("Notice of Conversion Default")
to the Holder, by facsimile, within two (2) business days of such default.
(h) The Company agrees to pay the Holder payments for a Conversion Default
("Conversion Default Payments") in the amount of (N/365) multiplied by .24
multiplied by the initial issuance price of the outstanding or tendered but not
converted Convertible Debentures held by the Holder where N = the number of days
from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Convertible Debentures. The Company shall
send notice ("Authorization Notice") to the Holder that additional shares of
Common Stock have been authorized, the Authorization Date, and the amount of
Holder's accrued Conversion Default Payments. The accrued Conversion Default
shall be paid in cash or shall be convertible into Common Stock at the
conversion rate set forth in the first sentence of this paragraph, upon written
notice sent by the Holder to the Company, which Conversion Default shall be
payable as follows: (i) in the event the Holder elects to take such payment in
cash, cash payment shall be made to the Holder within five (5) business days,
or (ii) in the event Holder elects to take such payment in stock, the Holder may
convert at the conversion rate set forth in the first sentence of this
paragraph until the expiration of the conversion period.
(i) The Company acknowledges that its failure to maintain a sufficient number of
authorized but unissued shares of Common Stock to effect in full a conversion of
the Convertible Debentures in full will cause the Holder to suffer irreparable
harm, and that the actual damages to the Holder 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 under the
circumstances, do not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to deliver the Common Stock
pursuant to the terms of this Convertible Debenture.
(j) If, by the third (3rd) business day after the Conversion Date, any portion
of the shares of the Convertible Debentures have not been delivered to the
Holder and the Holder purchases, in an open market transaction or otherwise,
shares of Common Stock (the "Covering Shares") necessary to make delivery of
shares which would had been delivered if the full amount of the shares to be
converted had been delivered to the Holder, then the Company shall pay to the
Holder, in addition to any other amounts due to Holder pursuant to this
Convertible Debenture, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined below). The "Buy In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares minus (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the Sold
Shares. The Company shall pay the Buy-In Adjustment Amount to the Holder in
immediately available funds within five (5) business days of written demand by
the Holder. By way of illustration and not in limitation of the foregoing, if
the Holder purchases shares of Common Stock having a total purchase price
(including brokerage commissions) of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for net proceeds of $10,000, the Buy-In
Adjustment Amount which the Company will be required to pay to the Holder will
be $1,000.
ARTICLE 5 Additional Financing and Registration Statements
Section 5.1 The Company will not enter into any additional financing
agreements whether for debt or equity, without prior expressed written consent
from the Holder, which shall not be unreasonably withheld. Violation of this
Section 5.1 will result in an Event of Default and the Holder may elect to take
the action or actions outlined in Article 4.
Section 5.2 The Company agrees that it shall not file any registration
statement which includes any of its Common Stock, including those on Form S-8,
unless for a bona fide employee benefit plan, until such time as the Note is
paid off in full ("Lock-Up Period") or without the prior written consent of the
Holder.
Section 5.3 If, at any time, while this Note is outstanding, the Company
issues or agrees to issue to any entity or person ("Third Party") for any reason
whatsoever, any common stock or securities convertible into or exercisable for
shares of common stock (or modify any such terms in effect prior to the
execution of this Note) (a "Third Party Financing"), at terms deemed by the
Holder to be more favorable to the Third Party, then the Company grants to the
Holder the right, at the Holder's election, to modify the terms of this Note to
match or conform to the more favorable term or terms of the Third Party
Financing. The rights of the Holder in this Section 5.3 are in addition to all
other rights the Holder has pursuant to this Note and the Security Agreement
between the Holder and the Company.
Section 5.4 During the period of time that this Note is in force, the
Company's officers, insiders, affiliates or other related parties shall refrain
from selling any Stock.
ARTICLE 6 Notice.
Section 6.1 Any notices, consents, waivers or other communications required
or permitted to be given under the terms of this Note must be in writing and
will be deemed to have been delivered (i) upon delivery, 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, so long as it is properly addressed. 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:
Dutchess Capital Management, LLC
Douglas Leighton
50 Commonwealth Ave, Suite 2
Boston, MA 02116
(617) 301-4700
(617) 249-0947
Section 6.2 The Parties are required to provide each other with five (5)
business days prior notice to the other party of any change in address, phone
number or facsimile number.
ARTICLE 7 Time
Where this Note authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a holiday on
which the United States Stock Markets ("US Markets") are closed ("Holiday"),
such payment shall be made or condition or obligation performed on the next
business day following such Saturday, Sunday or Holiday. A "business day" shall
mean a day on which the US Markets are open for a full day or half day of
trading.
ARTICLE 8 No Assignment.
This Note and the obligations hereunder shall not be assigned, except as
otherwise provided herein.
ARTICLE 9 Rules of Construction.
In this Note, unless the context otherwise requires, words in the singular
number include the plural, and in the plural include the singular, and words of
the masculine gender include the feminine and the neuter, and when the tense so
indicates, words of the neuter gender may refer to any gender. The numbers and
titles of sections contained in the Note are inserted for convenience of
reference only, and they neither form a part of this Note nor are they to be
used in the construction or interpretation hereof. Wherever, in this Note, a
determination of the Company is required or allowed, such determination shall be
made by a majority of the Board of Directors of the Company and, if it is made
in good faith, it shall be conclusive and binding upon the Company.
ARTICLE 10 Governing Law
The validity, terms, performance and enforcement of this Note shall be
governed and construed by the provisions hereof and in accordance with the laws
of the Commonwealth of Massachusetts applicable to agreements that are
negotiated, executed, delivered and performed solely in the Commonwealth of
Massachusetts.
ARTICLE 11 Disputes Subject to Arbitration
The parties to this Note will submit all disputes arising under it 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. Nothing in this
section shall limit the Holder's right to obtain an injunction for a breach of
this Agreement from a court of law.
ARTICLE 12 Conditions to Closing
The Company shall have delivered the proper Collateral to the Holder before
Closing of this Note.
ARTICLE 13 Structuring and Administration Expense
The Company agrees to pay for related expenses associated with the proposed
transaction of $60,000. This amount shall cover, but is not limited to, the
following: due diligence expenses, UCC-1 filing fees, document creation
expenses, closing costs, and transaction administration expenses. All such
structuring and administration expenses shall be deducted from the first
closing.
ARTICLE 14 Indemnification
In consideration of the Holder's execution and delivery of this Agreement
and the acquisition and funding by the Holder of this Note and in addition to
all of the Company's other obligations under the documents contemplated hereby,
the Company shall defend, protect, indemnify and hold harmless the Holder and
all of its shareholders, officers, directors, employees, counsel, and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnities") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including,
without limitation, reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), incurred by any Indemnitee as a result of, or
arising out of, or relating to (i) any misrepresentation or breach of any
representation or warranty made by the Company in the Note, or any other
certificate, instrument or document contemplated hereby or thereby (ii) any
breach of any covenant, agreement or obligation of the Company contained in the
Note or any other certificate, instrument or document contemplated hereby or
thereby, except insofar as any such misrepresentation, breach or any untrue
statement, alleged untrue statement, omission or alleged omission is made in
reliance upon and in conformity with written information furnished to the
Company by, or on behalf of, the Holder or is based on illegal trading of the
Common Stock by the Holder. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities that is permissible under applicable law. The indemnity provisions
contained herein shall be in addition to any cause of action or similar rights
the Holder may have, and any liabilities the Holder may be subject to.
ARTICLE 15 Incentive Shares
The Company shall issue one million (1,000,000) shares of unregistered,
restricted Common Stock to the Holder as an incentive for the investment
("Incentive Shares"). The Incentive Shares shall be issued and delivered
immediately to the Holder and shall carry piggyback registration rights. In
the event the Incentive Shares are not registered in the next registration
statement, the Company shall pay to the Holder, as a penalty, one million
(1,000,000) additional shares of common stock for each time a registration
statement is filed and the Shares are not included. The Holder at its sole
discretion may waive such penalty. The Company's failure to issue the Incentive
Shares constitutes an Event of Default and the Holder may elect to enforce the
remedies outlined in Article 4. The Company's obligation to provide the Holder
with the Incentive Shares, as set forth herein, shall survive the operation of
the Agreement and any default on this obligation shall provide the Holder with
all rights, remedies and default provisions set forth in this Note, or otherwise
available by law. At any time after Closing, the Holder, at it's sole option,
will be entitled to request an additional one million two hundred and
twenty-five thousand (1,225,000) shares ("Additional Incentive Shares") from the
Company, provided, however, that the issuance of the Additional Incentive Shares
does not result in the Holder owning more than 4.99% of the Company's total
Common Shares outstanding.
ARTICLE 16 Use of Proceeds
The Company shall use the funds for general corporate purposes as generally
outlined on the budget attached hereto as Exhibit A and incorporated herein by
reference. Any material deviations from the budget as outlined will result in
an Event of Default and the Holder may elect to seek the remedies outlined in
this Agreement.
ARTICLE 17 Waiver
The Holder's delay or failure at any time or times hereafter to require
strict performance by Company of any obligations, undertakings, agreements or
covenants shall not waive, affect, or diminish any right of the Holder under
this Note 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 Note, and no Event of Default,
shall be deemed to have been waived by the Holder, nor may this Note be amended,
changed or modified, unless such waiver, amendment, change or modification is
evidenced by a separate instrument in writing specifying such waiver, amendment,
change or modification and signed by the Holder.
ARTICLE 18 Senior Obligation
The Company shall cause this Note to be senior in right of payment to all
other current or future debt of the Company. The Company warrants that it has
taken all necessary steps to subordinate its other obligations to the rights of
the Holder in this Note.
ARTICLE 19 Transactions With Affiliates
While there is an outstanding balance on the Note (the "Lock-Up
Period"), the Company shall not, and shall cause each of its Subsidiaries not
to, enter into, amend, modify or supplement, or permit any Subsidiary to enter
into, amend, modify or supplement, any agreement, transaction, commitment or
arrangement with any of its or any Subsidiary's officers, directors, persons who
were officers or directors at any time during the previous two years,
shareholders who beneficially own five percent (5%) or more of the Common Stock,
or affiliates or with any individual related by blood, marriage or adoption to
any such individual or with any entity in which any such entity or individual
owns a five percent (5%) or more beneficial interest (each a "RELATED PARTY")
during the Lock Up Period; except for (i) customary employment arrangements and
benefit programs on reasonable terms (including changes currently under
discussion with the Company's Board of Directors concerning the compensation, to
be payable in stock, of the Chairman of the Board), (ii) any agreement,
transaction, commitment or arrangement on an arms-length basis on terms no less
favorable than terms which would have been obtainable from a person other than
such Related Party, or (iii) any agreement, transaction, commitment or
arrangement which is approved by a majority of the disinterested directors of
the Company. For purposes hereof, any director who is also an officer of the
Company or any Subsidiary of the Company shall not be a disinterested director
with respect to any such agreement, transaction, commitment or arrangement.
"AFFILIATE" for purposes hereof means, with respect to any person or entity,
another person or entity that, directly or indirectly, (i) has a five percent
(5%) or more equity interest in that person or entity, (ii) has five percent
(5%) or more common ownership with that person or entity, (iii) controls that
person or entity, or (iv) shares common control with that person or entity.
"CONTROL" or "CONTROLS" for purposes hereof means that a person or entity has
the power, direct or indirect, to conduct or govern the policies of another
person or entity.
ARTICLE 20 Equity Line Obligations
At the request of the Holder, at any time after the Company's current effective
registration statement for the Equity Line of Credit with Dutchess Private
Equities, II, LP, has ten million (10,000,000) shares or less remaining for
issuance, the Company shall immediately execute a new Investment Agreement for
an Equity Line of Credit under the same terms and conditions as the previous
Equity Line. The Company shall within twenty (20) days prepare and file a
registration statement for the registration of shares as set forth in the new
Investment Agreement. The Holder shall also retain the right to determine the
date of the filing of such registration statement. Failure to do any action
outlined in this Article will result in an Event of Default.
ARTICLE 21 Security
The Holder shall have full right to exercise the Security Agreement between
the Company and the Holder dated February 20, 2006.
ARTICLE 22 Miscellaneous
Section 22.1 This Note may be executed in two or more counterparts, all of which
taken together shall constitute one instrument. Execution and delivery of this
Note by exchange of facsimile copies bearing the facsimile signature of a party
shall constitute a valid and binding execution and delivery of this Note by such
party. Such facsimile copies shall constitute enforceable original documents.
Section 22.2 The Company warrants that the execution, delivery and performance
of this Note by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby will not (i) result in a violation
of the Articles of Incorporation, any Certificate of Designations, Preferences
and Rights of any outstanding series of preferred stock of the Company or the
By-laws or (ii) conflict with, or constitute a material default (or an event
which with notice or lapse of time or both would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, contract, indenture mortgage,
indebtedness or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree, including United States federal and state securities laws and
regulations and the rules and regulations of the principal securities exchange
or trading market on which the Common Stock is traded or listed (the "Principal
Market"), applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected. Neither the Company nor its Subsidiaries is in violation of any term
of, or in default under, the Articles of Incorporation, any Certificate of
Designations, Preferences and Rights of any outstanding series of preferred
stock of the Company or the By-laws or their organizational charter or by-laws,
respectively, or any contract, agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, except for possible conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
that would not individually or in the aggregate have a Material Adverse Effect
as defined below. The business of the Company and its Subsidiaries is not being
conducted, and shall not be conducted, in violation of any law, statute,
ordinance, rule, order or regulation of any governmental authority or agency,
regulatory or self-regulatory agency, or court, except for possible violations
the sanctions for which either individually or in the aggregate would not have a
Material Adverse Effect. The Company is not required to obtain any consent,
authorization, permit or order of, or make any filing or registration (except
the filing of a registration statement) with, any court, governmental authority
or agency, regulatory or self-regulatory agency or other third party in order
for it to execute, deliver or perform any of its obligations under, or
contemplated by, this Note in accordance with the terms hereof or thereof. All
consents, authorizations, permits, orders, filings and registrations which the
Company is required to obtain pursuant to the preceding sentence have been
obtained or effected on or prior to the date hereof and are in full force and
effect as of the date hereof. The Company and its Subsidiaries are unaware of
any facts or circumstances which might give rise to any of the foregoing. The
Company is not, and will not be, in violation of the listing requirements of the
Principal Market as in effect on the date hereof and on each of the Closing
Dates and is not aware of any facts which would lead to delisting of the Common
Stock by the Principal Market.
Section 22.3 The Company and its "Subsidiaries" (which for purposes of this Note
means any entity in which the Company, directly or indirectly, owns capital
stock or holds an equity or similar interest) are corporations duly organized
and validly existing in good standing under the laws of the respective
jurisdictions of their incorporation, and have the requisite corporate power and
authorization to own their properties and to carry on their business as now
being conducted. Both the Company and its Subsidiaries are duly qualified to do
business and are in good standing in every jurisdiction in which their ownership
of property or the nature of the business conducted by them makes such
qualification necessary, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect. As
used in this Note, "Material Adverse Effect" means any material adverse effect
on the business, properties, assets, operations, results of operations,
financial condition or prospects of the Company and its Subsidiaries, if any,
taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith, or on the
authority or ability of the Company to perform its obligations under the Note.
Section 22.4 Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter
into and perform its obligations under this Note, and to issue this Note and
Incentive Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Note by the Company and the consummation by it of
the transactions contemplated hereby and thereby, including without limitation
the reservation for issuance and the issuance of the Incentive Shares pursuant
to this Note, have been duly and validly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors, or its shareholders, (iii) this Note has been duly and
validly executed and delivered by the Company, and (iv) the Note constitutes the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies.
Section 22.5 The execution and delivery of this Note shall not alter the prior
written agreements between the Company and the Holder, consisting of the
Transaction Documents, associated with Debenture Numbers December 2005 101 and
February 2006 101. The execution and delivery of this Note shall not alter the
prior written agreements between the Company and the Holder, consisting of the
prior Notes currently due to the Holder. This Note is the FINAL AGREEMENT
between the Company and the Holder with respect to the terms and conditions set
forth herein, and, the terms of this Note may not be contradicted by evidence of
prior, contemporaneous, or subsequent oral agreements of the Parties. The
execution and delivery of this Note is done in conjunction with the execution of
the Security Agreement, as defined in Article 21.
Section 22.6 There are no disagreements of any kind presently existing, or
reasonably anticipated by the Company to arise, between the Company and the
accountants, auditors and lawyers formerly or presently used by the Company,
including but not limited to disputes or conflicts over payment owed to such
accountants, auditors or lawyers.
Section 22.7 All representations made by or relating to the Company of a
historical nature and all undertakings described herein shall relate and refer
to the Company, its predecessors, and the Subsidiaries.
Section 22.8 The only officer, director, employee and consultant stock
option or stock incentive plan currently in effect or contemplated by the
Company has been submitted to the Holder or is described or within past filings
with the United States Securities and Exchange Commission.
Section 22.9 The Company acknowledges that its failure to timely meet any of its
obligations hereunder, including, but without limitation, its obligations to
make Payments, deliver shares and, as necessary, to register and maintain
sufficient number of Shares, will cause the Holder to suffer irreparable harm
and that the actual damage to the Holder will be difficult to ascertain.
Accordingly, the parties agree that it is appropriate to include in this
Debenture 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 do not constitute
a penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Debenture.
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Any misrepresentations shall be considered a breach of contract and an Event of
Default under this Agreement and the Holder may seek to take actions as
described under Article 4 of this Agreement.
IN WITNESS WHEREOF, the Company has duly executed this Note as of the date first
written above.
WALKER FINANCIAL, INC.
By: /s/Mitchell S Segal
------------------
Name: Mitchell S Segal
Title: Chief Executive Officer
DUTCHESS PRIVATE EQUITIES FUND, L.P.
BY ITS GENERAL PARTNER DUTCHESS
CAPITAL MANAGEMENT, LLC
By: /s/Douglas H. Leighton
------------------------
Name: Douglas H. Leighton
Title: A Managing Member