EXHIBIT 10.6
US DATAWORKS, INC.
SUBORDINATED, CONVERTIBLE NOTE AND WARRANTS AGREEMENT
THIS NOTE AND WARRANTS AGREEMENT (this "AGREEMENT"), dated July10,
2003, is entered into by and among US DATAWORKS, INC., a Nevada corporation (the
"COMPANY"), and Xxxxxxx X. Xxxxx, an individual ("XXXXX")
WHEREAS, from time to time beginning on December 13, 2001, Xxxxx has
lent the Company, through a series of demand promissory notes as scheduled at
EXHIBIT A attached hereto, an aggregate amount of One Million Three Hundred
Fifty Three Thousand Dollars ($1,353,000) (the "ORIGINAL NOTES") paying 7%
interest on the outstanding principal balance. The Original Notes are neither
subordinated to the Company's Senior Indebtedness (as defined herein) nor
convertible into equity of the Company.
WHEREAS, the Company desires, and Xxxxx agrees, to exchange his
Original Notes for a new, consolidated promissory note (the "NEW NOTE"). The New
Note accrues interest at a lesser rate of interest, is subordinated to the
Company's Senior Indebtedness and may, in lieu of repayment, be converted into
equity in the Company.
WHEREAS, as an inducement to Xxxxx to exchange the Original Notes for a
subordinated, convertible promissory note, the Company wishes to xxxxx Xxxxx
warrants (the "WARRANTS") entitling him to purchase of One Million Three Hundred
Three Thousand Dollars ($1,353,000 ) of the common stock of the Company at the
exercise price described herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
as set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, capitalized terms not
otherwise defined in this Agreement shall have the following meanings:
"CHANGE OF CONTROL" shall mean the sale, conveyance or other
disposition of all or substantially all of the Company's property, voting stock
or business or the Company's merger with or into or consolidation with any other
corporation, limited liability company or other entity (other than a wholly
owned subsidiary of the Company), provided that the term "Change of Control"
shall not include (a) a merger of the Company effected exclusively for the
purpose of changing the domicile of the Company, (b) an equity financing in
which the Company is the surviving corporation, (c) a transaction in which the
stockholders of the Company immediately prior to the transaction own fifty
percent (50%) or more of the voting power of the surviving corporation following
the transaction.
"DEMAND DATE" means July____, 2004.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
Page 1
"LIEN" means, with respect to any asset, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind in respect of such
asset.
"MATERIAL ADVERSE EFFECT" means any change, violation, inaccuracy,
circumstance or effect that is materially adverse to the business, properties,
assets (including intangible assets), liabilities, capitalization or financial
condition of the Company and its Subsidiaries, taken as a whole; provided,
however, that the following shall not be taken into account in determining
whether there has been a Material Adverse Effect: (i) any occurrences relating
to the economy of the United States in general and (ii) changes in trading
prices for the Company's securities or for securities in general.
"PERSON" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar successor federal statute and the rules and regulations thereunder, all
as the same shall be in effect from time to time.
"SEC DOCUMENTS" means the Company's periodic reports filed with the
Securities and Exchange Commission (the "SEC").
"SERIES C FINANCING" means the Company conducts a sale of Series C
Preferred Stock with aggregate gross proceeds received, or to be received, by
the Company of at least Seven Million Five Hundred Thousand Dollars
($7,500,000).
"SUBSIDIARY" ( or plural, "SUBSIDIARIES") means a Person, whether
incorporated or unincorporated, of which (i) more than fifty percent (50%) of
the securities or other ownership interests, or (ii) securities or other
interests having by their terms ordinary voting power to elect more than fifty
percent (50%) of the board of directors or others performing similar functions
with respect to such corporation or other organization, is directly owned or
controlled by such Person or by any one or more of its Subsidiaries.
2. SUBORDINATED, CONVERTIBLE NOTE AND WARRANTS.
2.1 SUBORDINATED, CONVERTIBLE NOTE. The Company shall enter into a
subordinated, convertible promissory note ("NEW NOTE"), substantially in the
form attached hereto as EXHIBIT B, with Xxxxx for the principal amount of One
Million Three Hundred Fifty Three Thousand Dollars ($1,353,000). Xxxxx shall
surrender his Original Notes to the Company for cancellation and such Original
Notes shall hereinafter be void. The form of the New Note will include:
(a) the New Note shall bear seven percent (7%) interest PER ANNUM;
(b) the New Note will automatically convert upon either of the
following occurring prior to the Demand Date: (i) into Series C Preferred Stock
upon the closing of a Series C Financing, or (ii) into Common Stock upon a
Change of Control;
Page 2
(c) Xxxxx may convert the New Note into Common Stock voluntarily at
any time;
(d) the Company shall make no principal or interest payments to
Xxxxx unless: (i) Xxxxx demands payment of the New Note following the Demand
Date, or (ii) the Company elects (and Xxxxx consents) to prepay the New Note and
pay the prepayment penalty (15% of any outstanding principal balance);
(e) at anytime following July____, 2004 (the "DEMAND DATE"), Xxxxx
may demand all of the outstanding principal balance and any accrued and unpaid
interest be due and payable; and
(f) the conversion price shall be (i) for Series C Preferred Stock,
the price per share paid by third party investors at the initial closing of the
Series C Financing, or (ii) for Common Stock, the lesser of: (y) sixteen cents
($0.16) per share, or (z) the closing bid price on the trading day immediately
prior to the date of the Change of Control or the date of Holder's voluntary
exercise of the Note (as applicable).
2.2 WARRANTS. The Company shall grant warrants ("WARRANTS"),
substantially in the form attached hereto as EXHIBIT C, to Xxxxx entitling the
holder to exercise such Warrants for of On Million Three Hundred Three Thousand
Dollars ($1,353,000) of the Company's Common Stock. The exercise price for the
Warrants shall be the lesser of either: (i) sixteen cents ($0.16) or (ii) the
listed American Stock Exchange closing price for the Common Stock on the trading
day immediately prior to the Closing Date.
2.3 CLOSING. The consummation of this transaction (the "CLOSING") shall
take place at the offices of the Company, 0000 Xxxxxxxxx Xxxx, Xxxxx 000,
Xxxxxxx, XX 00000, on July __, 2003, or at such other time and place as the
Company and Xxxxx mutually agree in writing. The date on which the Closing takes
place is referred to as the "CLOSING DATE." At the Closing, the Company shall
deliver to Xxxxx a duly executed New Note and a duly executed Warrants, with
each to be registered in the name of Xxxxx or in the name of a nominee
designated by Xxxxx.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby represents and warrants to, and agrees with, Xxxxx that, except
as otherwise disclosed in the SEC Documents, the following representations and
warranties in their entirety,:
3.1 ORGANIZATION AND QUALIFICATION. The Company is duly incorporated
and is validly existing as a corporation in good standing under the laws of the
State of Nevada. The Company has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its business as currently
conducted. The Company is qualified as a foreign corporation and is in good
standing in all states where the conduct of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified would not have a Material Adverse Effect on the Company.
3.2 AUTHORIZATION. All corporate action on the part of the Company
necessary for the authorization, execution and delivery of this Agreement, the
performance of all obligations of the Company hereunder and thereunder, and the
authorization, issuance and delivery of the New Note and Warrants has been taken
or will be taken on or prior to the Closing. This Agreement constitutes a legal,
valid and binding agreement of the Company, enforceable against the Company in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the enforcement of creditors' rights generally, (b) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies, and (c) to the extent the indemnification provisions
contained in this Agreement may be limited by applicable federal or state
securities laws.
Page 3
3.3 VALID ISSUANCE. The New Note, the Warrants and the shares of Common
Stock issuable upon conversion of the New Note and exercise of the Warrants
(collectively, the "SECURITIES") have been duly authorized and, when issued,
sold and delivered to Xxxxx after payment therefore in accordance with the terms
hereof, will be validly issued, fully paid and nonassessable, and, assuming the
accuracy of the representations and warranties of Xxxxx set forth at Section 4.6
of this Agreement, will be issued in compliance with all applicable federal and
state securities laws and will be free of all Liens or other encumbrances other
than as set forth in the legends contained in Section 4.8 of this Agreement.
3.4 NO MATERIAL ADVERSE CHANGE. Except as set forth in the Company's
SEC Documents (a) there has been no material adverse change in the business,
properties, results of operations or financial condition of the Company, whether
or not arising in the ordinary course of business, and (b) there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock.
3.5 ACCESS TO INFORMATION. Prior to the Closing, the Company will
provide to Xxxxx and his professional representatives such information as such
persons from time to time may reasonably request with respect to the Company and
prior to the Closing shall permit Xxxxx and his professional representatives
reasonable access, during regular business hours and upon reasonable notice, to
the properties, books and records of the Company as Xxxxx from time to time may
reasonably request.
3.6 PRIVATE OFFERING3.7 . Neither the Company nor any authorized Person
acting on its behalf has, in connection with the offer, sale, exchange or
issuance of the Securities, engaged in (i) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (ii) any action involving a public offering within
the meaning of Section 4(2) of the Securities Act, or (iii) any action that
would require the registration under the Securities Act of the offering, sale,
exchange or issuance of the Securities pursuant to this Agreement or that would
violate applicable state securities or "blue sky" laws. The Company has not made
and will not prior to the Closing Date make, directly or indirectly, any offer
or sale of the Securities, or of securities of the same or similar class as the
Securities if, as a result, the offer and sale contemplated hereby would fail to
be entitled to exemption from the registration requirements of the Securities
Act. As used herein, the terms "offer" and "sale" have the meanings specified in
Section 2(3) of the Securities Act.
4. XXXXX HEREBY REPRESENTS AND WARRANTS TO THE COMPANY THAT:
4.1 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Securities to be purchased
by Xxxxx will be acquired for investment for Xxxxx'x own account, and not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and Xxxxx has no present intention of selling, granting any
participation in, or otherwise distributing the same. Xxxxx is not a party to
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or otherwise dispose of any of the Securities purchased by him.
Page 4
4.2 RELIANCE UPON XXXXX'X REPRESENTATIONS. Xxxxx understands that the
issuance and sale of the Securities will not be registered under the Securities
Act on the ground that such issuance and sale will be exempt from registration
under the Securities Act pursuant to Rule 506 of Regulation D and/or Section
4(2) thereof, and that the Company's reliance on such exemption is based on each
Xxxxx'x representations set forth herein. Xxxxx realizes that the basis for the
exemption may not be present if, notwithstanding such representations, any Xxxxx
has in mind merely acquiring the securities for a fixed or determinable period
in the future, or for a market rise, or for sale if the market does not rise.
Such Xxxxx has no such present intention.
4.3 RECEIPT OF INFORMATION. Xxxxx has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the issuance and sale of the Securities and the business,
properties, prospects and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 3 of this Agreement or the right of Xxxxx to rely
thereon. No person other that the Company has been authorized to give any
information or to give any representation not contained in this Agreement in
connection with the Offering and, if given or made, such information or
representation must not be relied upon as having been authorized by the Company.
4.4 INVESTMENT EXPERIENCE. Xxxxx is experienced in evaluating and
investing in securities of companies and acknowledges that it is able to fend
for itself, can bear the economic risk of its investment, and has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the investment in the Securities.
4.5 ACCREDITED INVESTOR. Xxxxx is an "accredited investor" as such term
is defined in Rule 501 of Regulation D promulgated under the Securities Act.
4.6 RESTRICTED SECURITIES. Xxxxx understands that the Securities may
not be sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, Xxxxx is aware that the Securities may not be
sold pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met. Among the conditions for use of Rule 144 is the
availability of current information to the public about the Company.
5. RESTRICTED TRANSFERABILITY.
5.1 LEGENDS. Each certificate or other document evidencing the
Securities shall be endorsed with the legends set forth below, and Xxxxx
covenants that, except to the extent such restrictions are waived by the
Company, Xxxxx shall not transfer the shares represented by any such certificate
without complying with the restrictions on transfer described in the legends
endorsed on such certificate:
Page 5
(a) The following legend under the Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF CERTAIN STATES,
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER
THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL
OF US DATAWORKS, INC., THAT AN EXEMPTION FROM REGISTRATION UNDER THE
ACT AND APPLICABLE STATE LAW IS AVAILABLE."
(b) Such other legends as may be required under state securities
laws.
5.2 INDEMNIFICATION.
(a) The Company agrees to indemnify and hold Xxxxx harmless from
and against any losses, claims, damages or liabilities to which Xxxxx may become
subject (under the Securities Act or otherwise) insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of, or are based upon (i) a material breach of any term of this Agreement, the
New Note and the Warrants, or (ii) the material breach of any representation,
warranty or covenant of this Agreement, the New Note and the Warrants. The
Company will reimburse Xxxxx for any reasonable legal or other expenses
reasonably incurred in investigating, defending or preparing to defend any such
action, proceeding or claim; PROVIDED, HOWEVER, that the Company shall not be
liable in any such case to the extent that such loss, claim, damage or liability
arises out of, or is based upon the breach by Xxxxx to comply with his
representations, warranties, covenants and agreements contained in this
Agreement.
(b) Xxxxx agrees to indemnify and hold the Company harmless from
and against any losses, claims, damages or liabilities to which the Company may
become subject (under the Securities Act or otherwise) insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of, or are based upon a material breach of any representation,
warranty or covenant of this Agreement, the New Note and the Warrants. Xxxxx
will reimburse the Company for any reasonable legal or other expenses reasonably
incurred in investigating, defending or preparing to defend any such action,
proceeding or claim; PROVIDED, HOWEVER, that Xxxxx shall not be liable in any
such case to the extent that such loss, claim, damage or liability arises out
of, or is based upon the breach by the Company to comply with its
representations, warranties, covenants and agreements contained in this
Agreement.
Page 6
6. MISCELLANEOUS.
6.1 REASONABLE EFFORTS; OTHER ACTIONS. Subject to the terms and
conditions herein provided and applicable law, the Company and Xxxxx shall use
all commercially reasonable efforts promptly to take, or cause to be taken, all
other actions and do, or cause to be done, all other things necessary, proper or
appropriate under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement.
6.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. The phrase "made available" in this Agreement shall mean that
the information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof", and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to July____, 2003. The headings and
subheadings contained in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation of this Agreement. Any
reference in this Agreement to a statutory provision or rule or regulation
promulgated thereunder shall be deemed to include any similar successor
statutory provision or rule or regulation promulgated thereunder.
6.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Neither the Company nor Xxxxx shall assign this Agreement or
any rights hereunder or delegate any duties hereunder without the prior written
consent of the other except as otherwise provided herein.
6.4 NOTICES. Unless otherwise provided, any notice, request, demand or
other communication required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery to the
party to be notified, or when sent by Facsimile (with receipt confirmed and
promptly confirmed by personal delivery, U.S. first class mail, or courier), or
overnight courier service, or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed as follows (or at
such other address as a party may designate by notice to the other):
If to the Company:
US Dataworks, Inc.
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxxxxx, President
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Page 7
with a copy to:
Pillsbury Winthrop LLP
0000 Xxxxxxx Xxxxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to Xxxxx:
See the address provided by Xxxxx on its counter-part signature page.
6.5 SURVIVAL. All representations and warranties contained or provided
for herein shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the party benefiting from any such
representation or warranty, and shall survive the Closing to the extent of
applicable statutes of limitations.
6.6 AMENDMENTS AND WAIVERS. This Agreement may be amended or modified
only by a written instrument signed by the Company and Xxxxx hereunder. The
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the party against whom such waiver is sought to be enforced.
No waiver by either party of any default with respect to any provision,
condition or requirement hereof shall be deemed to be a continuing waiver in the
future thereof or a waiver of any other provision, condition or requirement
hereof; nor shall any delay or omission of either party to exercise any right
hereunder in any manner impair the exercise of any such right accruing to it
thereafter.
6.7 SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable, invalid or void by a court of competent jurisdiction, such
provision shall be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provision were so excluded and shall
be enforceable in accordance with its terms.
6.8 ENTIRE AGREEMENT. This Agreement and the documents referred to
herein contain the entire understanding of the parties with respect to the
matters covered herein and supersedes all prior agreements and understandings,
written or oral, between the parties relating to the subject matter hereof.
6.9 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Nevada (irrespective of its choice of law
principles); provided, however, that neither this Agreement nor any provision
hereof shall be construed for or against any party on the basis that such party
drafted this Agreement or any provision hereof.
Page 8
6.10 COUNTERPARTS. This Agreement may be executed by facsimile copies
and in two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
6.11 SHAREHOLDER APPROVAL. Neither the New Note may be converted,
whether automatically or voluntarily by the Holder, nor the Warrants exercised,
and therefore no Series C Preferred Stock or Common Stock may be issued in
contemplation of the New Note's conversion and no Common Stock may be issued in
contemplation of the Warrants' exercise, without first obtaining the approval of
the Company's voting shareholders to such New Note's conversion and the
Warrants' exercise in accordance with the rules of the American Stock Exchange
or any other market rules with which the Company shall be required to comply at
the time of such issuance or exercise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY
US DATAWORKS, INC.
By /S/ XXXXX XXXXXXXX
-------------------------------------
Name XXXXX XXXXXXXX
Title PRESIDENT AND CEO
XXXXX
Xxxxxxx X. Xxxxx
/S/ XXXXXXX X. XXXXX
----------------------------------------
Address:________________________________
________________________________________
________________________________________
Telephone:______________________________
Facsimile:______________________________
email:__________________________________
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EXHIBIT A
---------
US DATAWORKS, INC.
XXXXXXX X. XXXXX--7% PROMISSORY NOTES
FOR THE PERIOD ENDED MARCH 31, 2003
Date Amount
----------------- --------------
12/13/2001 $50,000
1/9/2002 50,000
3/7/2002 150,000
3/21/2002 50,000
5/2/2002 75,000
5/22/2002 100,000
7/26/2002 150,000
8/9/2002 65,000
12/12/2002 70,000
12/16/2002 250,000
12/31/2002 120,000
--------------
$ 1,130,000.00
==============
Page 10
EXHIBIT B
---------
FORM OF NEW NOTE
EXHIBIT C
---------
FORM OF WARRANT
