EXHIBIT 10.2
SECURITY AND SUBORDINATION AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is dated effective as of
January 3, 2005, between DIGITAL FUSION, INC., a Delaware corporation (the
"Debtor"), MICHAEL W. WICKS (the "Secured Party"), and FIRST COMMERCIAL BANK OF
HUNTSVILLE ("FCB").
ARTICLE 1
BACKGROUND
The Secured Party has agreed to make a loan to the Debtor as evidenced
by a Convertible Promissory Note in the principal amount of $2,700,000, dated
as of January 3, 2005 (the "Note").
The Debtor has agreed to grant the Secured Party a security interest
in property currently owned or later acquired by the Debtor to secure the
prompt payment and performance of all liabilities, obligations, and
indebtedness of the Debtor under the Note.
The parties further acknowledge that the Debtor has entered into a
lending transaction with FCB and has granted a security interest, in part, to
all Accounts of the Debtor, which shall include the Accounts which are proceeds
of the consulting contracts contained herein.
The parties acknowledge that, unless and until an event of default
shall have occurred hereunder, FCB shall have a first priority security
interest on such Accounts regardless of whether they are proceeds of the
consulting contracts of the customers, and the Secured Party hereby
subordinates its security interest granted herein to FCB and Accounts, as more
particularly set out herein.
ARTICLE 2
TERMS
In consideration of the foregoing, the Secured Party and the Debtor
agree as follows:
Section 2.1 Grant of Security Interest. To secure the due and punctual
payment of the obligations under the Note and all extensions or renewals of the
Note, including without limitation all costs and expenses (including reasonable
attorneys' fees) incurred in collecting amounts due, the Debtor does hereby
grant, bargain sell and convey to the Secured Party a security interest in all
consulting contracts ("Consulting Contracts") between Summit Research
Corporation ("Summit") and the customers listed on Exhibit "A" ("Customers"),
whether such contracts are currently in effect or subsequently entered into
between either Summit and such customers or Debtor and such Customers (all such
Consulting Contracts are hereinafter collectively referred to as the
"Collateral"), together with all proceeds (including insurance, contract and
tort claims) and products of all of the foregoing Collateral.
Section 2.2 Subordination of Grant of Security Interest.
(a) As a material inducement to FCB to lend money to Debtor
and to secure the due and punctual payment of the obligations due to FCB,
Secured Party agrees that, except as
provided herein, so long as Debtor's indebtedness to FCB remains outstanding,
Secured Party's interest in Accounts (if any) as this term is defined herein
shall be subordinate to that of FCB's security interest in such Accounts.
Further, except as specifically provided herein, Secured Party agrees that so
long as Debtor's indebtedness to FCB remains outstanding, Secured Party will not
take any legal action for the collection of any part of Debtor's Accounts.
Except as set forth in paragraph (b) of this Section 2.2, the Secured Party
agrees that in the event it receives any payment relating to the Collateral it
will hold the same in trust for and immediately pay over to FCB any such
amounts.
(b) Notwithstanding anything to the contrary contained herein, upon the
occurrence of any event of default hereunder or under the Note, Secured Party
shall notify FCB in writing of such default, and FCB shall have a period of
thirty (30) days from the date of receipt of such notice within which, at its
option, to completely cure such default by Debtor. Upon receipt by FCB of
written notice of the occurrence of an event of default under the Note and in
the event FCB elects not to cure such default as provided herein, FCB agrees
that it will immediately upon expiration of such thirty (30) day period take all
action necessary to release of record its prior security interest in the
Collateral. Secured Party agrees that, in the event FCB elects not to cure any
event of default, any monies it receives resulting from the Collateral and
related to any work performed thereunder prior to the date two (2) business days
after FCB receives written notice that an event of default has occurred (the
"Notification Date") under the Note shall be held for the benefit of FCB and
shall be immediately paid over to FCB. Likewise, FCB agrees that any monies it
receives resulting from the Collateral and related to any work performed
thereunder after the Notification Date shall be held for the benefit of Secured
Party and shall be immediately paid over to Secured Party Secured Party agrees
that in the event an election is made and contracts are reassigned to him, that
he will assist, through commercially reasonable efforts, in the collection of
accounts receivable which have been properly pledged to FCB, including, but not
limited to, providing follow-up service which would be required under said
contracts in order to allow said amounts to be collected and paid to FCB;
however, that nothing contained herein shall operate to make Secured Party a
guarantor of FCB's ability to recover any such payments.
(c) All "Accounts" (as defined by the Alabama version of the Uniform
Commercial Code), includes accounts whether now owned or hereafter acquired by
Debtor and whether now existing or hereafter arising, and all proceeds of the
foregoing, whether cash or non-cash.
Section 2.3 Representations and Warranties. The Debtor represents and
warrants as follows:
(a) The execution, delivery and performance of this Agreement are
within the Debtor's corporate powers, have been duly authorized, are not in
contravention of law or the terms of the Debtor's charter or bylaws, or any
indenture, agreement, or undertaking to which the Debtor is a party or by which
it is bound.
(b) On demand, the Debtor will execute and deliver to the Secured Party
such financing statements and other papers, and do all acts, as in the
reasonable judgment of the
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Secured Party may be necessary or appropriate to establish and maintain a valid
and prior security interest in the Collateral.
(c) The Debtor will pay when due all taxes and assessments and will
discharge any liens on or affecting the Collateral or its use. If the Debtor
fails so to do, the Secured Party may at its option pay or discharge the same,
unless the Debtor is contesting such taxes, assessments, or liens, and the
Debtor will reimburse the Secured Party on demand for any such payment, and if
payment is delayed then with interest, which shall begin to accrue beginning
five business days after the date of demand at the highest rate allowable by
law.
(d) No Adverse Liens. Except for any security interest specifically set
forth on an addendum attached hereto, and except for the security interest
granted hereby, the Debtor is or (with respect to Collateral not presently owned
by Debtor will be) the lawful owner of all Collateral free from any adverse
lien, security interest, or encumbrance, and shall have full right to pledge,
sell, assign, or transfer the same to Secured Party. Debtor will defend the
Collateral against all claims and demands of all persons at any time claiming
the same or any interest therein.
(e) Financing Statements. No financing statement covering any
Collateral or any proceeds thereof is on file in any public office, except for
financing statements specifically set forth on an addendum attached hereto, if
any, and except for the financing statements executed by Debtor and Secured
Party. At the Secured Party's request, the Debtor will join with Secured Party
in executing one or more financing statements pursuant to the Code in form
satisfactory to the Secured Party, and will pay the cost of filing the same in
all public offices wherever filing is deemed by the Secured Party to be
necessary or desirable. The Debtor authorizes the Secured Party to prepare and
to file financing statements covering the Collateral signed only by the Secured
Party and to sign the Debtor's signature to such financing statements in
jurisdictions where Debtor's signature is required. The Debtor promises to pay
the Secured Party the fees incurred in filing the financing statements,
including but not limited to mortgage recording taxes payable in connection with
filings on fixtures, which fees shall become part of the Liabilities secured by
this Agreement.
(f) Inspection of Collateral and Records. The Secured Party may examine
and inspect the Collateral and records and documents related to the Collateral
at any time, wherever located.
(g) Assignment or Sale. Debtor, its agents, servants, or employees will
not sell, assign, or offer to sell or assign or otherwise transfer the
Collateral, either in whole or in part, or any interest therein without the
written consent of the Secured Party.
Section 2.4 Default. The Debtor will be in default on the occurrence
of any of the following events or conditions (hereafter called an "Event of
Default"):
(a) Any default by the Debtor under the Note;
(b) The failure of Debtor to perform any of the agreements of the
Debtor contained in this Agreement within thirty (30) days of the date of
receipt by Debtor of written notice of such failure;
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(c) The filing of any petition under the Bankruptcy Code, or any
similar federal or state statute, by or against the Debtor, which action shall
not have been discharged within 60 days after filed;
(d) The filing of an application for the appointment of a receiver for,
the making of a general assignment for the benefit of creditors by, or the
insolvency of the Debtor, which filing is not discharged within 60 days after
the date filed; or
(e) The taking of possession of any substantial part of the property of
the Debtor at the instance of any governmental authority.
Section 2.5 Remedies on Default. On occurrence of an Event of Default,
the Secured Party may, at any time after the Event of Default, declare all or
any of the obligations under the Note immediately due and payable. The Secured
Party will have, in addition to all its other rights and remedies, the rights
and remedies of a secured party under the Uniform Commercial Code. In exercising
its remedies, the Secured Party shall comply with all applicable requirements of
the Uniform Commercial Code, including the exercise of commercial reasonableness
in connection with any disposition of the Collateral. The remedies of the
Secured Party under this Agreement are cumulative, and the exercise of any one
or more of them shall not constitute a general election of remedies.
Notwithstanding the foregoing, in the event the gross revenue generated by the
Collateral for the twelve (12) month period prior to the date of any Event of
Default is less than $8,000,000, then the Secured Party's sole remedy for a
default under the Note, including the collection of any principal and interest
due thereunder, but excluding any fees, costs or expenses incurred in collecting
such amounts, shall be the foreclosure upon the Collateral. In the event the
gross revenue generated by the Collateral over such period exceeds $8,000,000,
then, in addition to any other remedies available to him, Secured Party shall
also have a claim directly against the Debtor for payment of any and all amounts
due under the Note or hereunder.
Section 2.6 Waiver. No act, delay, omission, or course of dealing
between the Secured Party and the Debtor shall be a waiver of any of the Secured
Party's rights or remedies under this Agreement, and no waiver, change,
modification, or discharge in whole or in part of this Agreement or of any
obligation will be effective unless in a writing signed by the Secured Party. A
waiver by the Secured Party of any rights or remedies under the terms of this
Agreement or with respect to any obligation on any occasion will not be a bar to
the exercise of any right or remedy on any subsequent occasion. All rights and
remedies of the Secured Party hereunder are cumulative and may be exercised
singly or concurrently, and the exercise of any one or more of them will not be
a waiver of any other.
Section 2.7 Power of Attorney. The Debtor appoints the Secured Party as
its attorney, with power to execute such documents on the Debtor's behalf and to
supply any omitted information and correct patent errors in any documents
executed by the Debtor or on the Debtor's behalf; to file financing statements
against the Debtor covering the Collateral; to sign the Debtor's name on public
records or on any assignment or transfer document necessary in order to transfer
ownership of or title to the Collateral to Secured Party; and to do all other
things the Secured Party deems necessary, appropriate or convenient, in his sole
discretion, to carry out this Agreement. The Debtor ratifies and approves all
acts of the attorney and neither the Secured
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Party nor the attorney will be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or law. This power
being coupled with an interest, is irrevocable so long as any amount under the
Note remains unpaid. Notwithstanding the foregoing, the Secured Party will not
exercise any rights contemplated by this paragraph unless an Event of Default
has occurred and the Debtor otherwise fails (following the request of the
Secured Party) to execute any such documents, supply any such information,
correct any such errors, sign the Debtor's name on any such financing statements
or do such other things as the Secured Party may deem necessary to carry out
this Agreement.
Section 2.8 Assignment of Note. If at any time or times by sale,
assignment, negotiation, pledge, or otherwise, Secured Party transfers any or
all of the Note, such transfer shall, unless otherwise specified in writing,
carry with it Secured Party's rights and remedies under this Agreement with
respect to such Note transferred, and the transferee shall become vested with
such rights and remedies whether or not they are specifically referred to in the
transfer; provided, however, Secured Parties assignment of any of the Note to
Steven L. Thornton shall not include any of Secured Party's rights and remedies
under this Agreement. If and to the extent Secured Party retains any of the
Note, Secured Party shall continue to have the rights and remedies herein set
forth with respect thereto.
Section 2.9 Notice. All notices, requests, demands, claims and other
communications under this Agreement shall be in writing, and sent (a) by
registered or certified mail, return receipt requested, postage prepaid, or (b)
by nationally recognized overnight courier, to the intended recipient as set
forth below:
If to the Secured Party: Copy to:
Michael W. Wicks 106 Balch & Bingham LLP 655 Gallatin
Sharpsburg Drive Madison, Street Huntsville, Alabama 35801
Alabama 35758 Attn: George A. Smith, II
If to the Debtor: Copy to:
Digital Fusion, Inc. Holland & Knight LLP
4940-A Corporate Drive P.O. Box 1288
Huntsville, Alabama 35805 Tampa, Florida 33601-1288
Phone: (973)227-7783 Phone:(813)227-8500
Attn: __________________ Attn: Richard B. Hadlow, Esq.
If to FCB: Copy to:
First Commercial Bank of Huntsville Stuart M. Maples, Esq. Johnston, Moore,
P.O. Box 040002 Huntsville, Maples & Thompson 400 Meridian St., Suite
Alabama 35804 Attn: Andy Kattos 301 Huntsville, Alabama 35801
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Section 2.10 Termination. This Agreement and the security interest of
the Secured Party under it shall terminate when the Note is paid in full.
Section 2.11 Binding Effect; Assignment. This Agreement shall be
binding on, and shall inure to the benefit of the parties and their heirs,
successors, assigns, and legal or personal representatives but shall not be
assigned by either party without the prior written consent of the other party.
Section 2.12 Modification. This Agreement cannot be modified or amended
except by a written agreement signed by or on behalf of each of the parties to
this Agreement.
Section 2.13 Counterparts. This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument. C ^ .^^
Section 2.14 Headings. The titles and headings preceding the text of
the paragraphs and other parts of this Agreement have been inserted solely for
convenience of reference and do not constitute a part of this Agreement or
affect its meaning, interpretation, or effect.
Section 2.15 Choice of Law. This Agreement shall be governed by, and
construed in accordance with, the laws of Alabama, without respect to principles
of conflicts of laws.
[Signature page to follow.]
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[Signature page of Security and Subordination Agreement]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DIGITAL FUSION. INC.
By:. /s/ Roy E. Crippen, III
-------------------------------
Name: Roy E. Crippen, III
-----------------------------
Title: Chief Executive Officer
----------------------------
/s/ Michael W. Wicks
---------------------------------
Michael W. Wicks
FIRST COMMERCIAL BANK OF
HUNTSVILLE
By: /s/ Andy Kattos
-------------------------------
Name: Andy Kattos
-----------------------------
Title: Sr. Vice President
----------------------------
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EXHIBIT "A"
CUSTOMERS
1. U.S. Army Research Development and Engineering Command, Research
Development and Engineering Center, Redstone Arsenal, AL 35898 ~ Specific
Directorates: Systems Simulation, Advanced Sensors Guidance Electronics,
Propulsion and Structures, Aviation Engineering Directorate, Engineering
Directorate, Software Engineering Directorate, Advanced Systems Directorate,
Advanced Technology Initiative
2. PEO Tactical Missiles
3. Boeings SVS
4. Intergraph Corporation
5. General Services Administration
6. CAS, Inc.
7. Computer Sciences Corporation (CSC)
8. Aviation & Missile Solutions (AMS)
8