Exhibit 10.4
THIS PROMISSORY NOTE AND THE SHARES OF COMMON STOCK TO BE DELIVERED UPON
CONVERSION OF THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAW. NO SALE,
ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS PROMISSORY NOTE OR ANY SUCH
SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL, SATISFACTORY TO MAKER, IS
OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE OR TRANSFER IS IN COMPLIANCE
WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS.
CONVERTIBLE PROMISSORY NOTE
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$2,700,000 January 3, 2005
FOR VALUE RECEIVED, DIGITAL FUSION, INC., a Delaware corporation
("Maker"), hereby promises to pay to MICHAEL W. WICKS ("Holder") the principal
amount of Two Million Seven Hundred Thousand Dollars ($2,700,000), together with
interest thereon at a per annum rate equal to five percent (5%).
No interest shall accrue on this Promissory Note until six months from
the date hereof. Additionally, no interest shall accrue on this Promissory Note
during any calendar month in which the Maker's common stock is publicly traded
and the average closing price of the Maker's common stock is greater than $2.80
per share. With the foregoing exceptions, interest shall be paid monthly in
arrears due and payable on 10th day following the end of each month.
Principal and any unpaid accrued interest shall be payable as follows
unless on or prior to a due date the Holder elects to convert the Promissory
Note into shares of Maker's common stock (the "Shares") as set forth below. Any
remaining principal and any unpaid accrued interest shall be payable in full on
January 3, 2008 (the "Due Date"). Additionally, on or before the dates set forth
below, Maker shall pay to Holder so much of the principal and interest balance
so that the outstanding balance of principal and interest of this Promissory
Note shall not exceed the amounts set forth opposite such date below:
Date Outstanding Balance
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December 31, 2005 $2,100,000.00
December 31, 2006 $1,500,000.00
The principal portion of this Promissory Note may be converted (in
minimum blocks of $200,000 of principal) at any time by Holder into a number of
Shares determined by dividing the converted principal amount of this Promissory
Note by the Conversion Price in effect on the date such conversion is to be
effectuated. The term "Conversion Price" shall mean the price per share used to
determine the number of Shares deliverable upon conversion of this Promissory
Note, which price shall initially be $2.25 per share, subject to adjustment as
provided below. As to the required reduction in balance of this Promissory Note
on December 31, 2005 and December 31, 2006, no conversion hereunder shall be
effective in reducing the outstanding balance for purposes of determining the
amount due on such dates unless written notice of the conversion is given by
Holder at least 90 days prior to such date. No conversion hereunder shall be
effective unless written notice of the conversion is given by Holder at least
180 days prior to the Due Date, effective not later than the Due Date.
The Conversion Price and number of Shares issuable upon conversion in
accordance with this Promissory Note shall also be proportionally adjusted if
the Maker shall (i) declare a dividend or make a distribution on the common
stock in shares of its common stock, or (ii) combine, subdivide or reclassify
the outstanding shares of common stock into a different number of shares so that
Holder shall be entitled to receive the number of Shares it would have been
entitled to receive had this Promissory Note been converted immediately prior to
such event.
This Promissory Note is issued pursuant to a Stock Purchase Agreement
of even date herewith between the Maker and the Holder (the "Stock Purchase
Agreement") and is subject to all of the provisions thereof, including, but not
limited to, the Maker's right of offset.
This Promissory Note is secured by a Security and Subordination
Agreement of even date herewith, between the Maker, Summit Research Corporation,
the Holder and First Commercial Bank of Huntsville.
The happening of any one or more of the following events shall
constitute an event of default hereunder:
(a) Default in the payment of the principal of or
interest on this Promissory Note when the same becomes due and payable;
(b) The occurrence of any event of default under any
loan by Maker with First Commercial Bank of Huntsville, whether now in existence
or hereinafter arising, and the failure to cure same within any applicable cure
period, which event of default causes an acceleration of the obligations or debt
owed to First Commercial Bank of Huntsville;
(c) The occurrence of any event of default of Maker
in the Security Agreement, and the failure to cure same within any applicable
cure period;
(d) The occurrence of any event of default of Maker
in the Stock Purchase Agreement, and the failure to cure same with any
applicable cure period; or
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(e) The termination of the employment of Holder with
Maker other than pursuant to Sections 3(a), 3(b) and 3(c) of that certain
Employment Agreement dated the date hereof by and between Holder and Maker.
Upon the occurrence of an event of default, or at any time thereafter
during the continuance of any such event, the Holder may, with or without notice
to the Maker, declare this Promissory Note to be forthwith due and payable,
whereupon this Promissory Note and the indebtedness evidenced hereby shall
forthwith be due and payable, both as to principal and interest, without
presentment, demand, protest, or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in any other instrument
executed in connection with or securing this Note to the contrary
notwithstanding.
If this Promissory Note or any installment of principal or interest
hereon becomes due and payable on Saturday, Sunday or other day on which
commercial banks are authorized or permitted to close under the laws of the
State of Alabama, the maturity of this Promissory Note or such installment shall
be extended to the next succeeding business day.
Maker shall, on or before the Due Date, pay the outstanding principal
balance under this Promissory Note, together with accrued interest, by wire
transfer or other cash equivalent acceptable to Maker.
If Holder has not received the full amount of any of the payments by
the end of the date it is due, Maker agrees to pay a late charge to the Holder
in the amount of three percent (3%) of the overdue payment.
The Holder of this Promissory Note, by acceptance hereof, agrees that
this Promissory Note and the Shares to be issued upon conversion hereof are
being acquired for investment and that such Holder will not offer, sell or
otherwise dispose of this Promissory Note, or any Shares to be issued upon
conversion hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Securities Act"). Upon
conversion of this Promissory Note, the Holder hereof shall confirm in writing,
by executing the form attached as Schedule 1 to Exhibit A hereto, that the
Shares so purchased are being acquired for investment and not with a view toward
distribution or resale. This Promissory Note and all Shares issued upon
conversion of this Promissory Note (unless registered under the Securities Act)
shall be stamped or imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED
WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, OR (ii) AN OPINION OF COUNSEL FOR THE HOLDER,
REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION
IS NOT REQUIRED."
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In addition, in connection with the issuance of this Promissory Note, the Holder
specifically represents to the Maker by acceptance of this Promissory Note as
follows:
(1) The Holder is aware of the Maker's business affairs and financial
condition, and has acquired information about the Maker sufficient to reach an
informed and knowledgeable decision to acquire this Promissory Note. The Holder
has executed a confidentiality agreement and will hold all information governed
by that agreement in accordance with the terms of such agreement. The Holder is
acquiring this Promissory Note for his own account for investment purposes only
and not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act.
(2) The Holder understands that this Promissory Note and the Promissory
Note Shares have not been registered under the Securities Act in reliance upon a
specific exemption therefrom, which exemption depends upon, among other things,
the bona fide nature of the Holder's investment intent as expressed herein. In
this connection, the Holder understands that, in the view of the Securities and
Exchange Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if the Holder's representation was predicated solely upon a present
intention to hold the Promissory Note and the Shares for the minimum capital
gains period specified under applicable tax laws, for a deferred sale, for or
until an increase or decrease in the market price of the Promissory Note and the
Shares, or for a period of one year or any other fixed period in the future.
(3) The Holder further understands that this Promissory Note and the
Shares must be held indefinitely unless subsequently registered under the
Securities Act and any applicable state securities laws, or unless exemptions
from registration are otherwise available.
(4) The Holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Maker, the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; the sale being made through a broker in
an unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(5) The Holder further understands that at the time it wishes to sell
this Promissory Note and the Shares there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the Maker
may not be satisfying the current public information requirements of Rule 144
and 144A, and that, in such event, the Holder may be precluded from selling this
Promissory Note and the Promissory Note Shares under Rule 144 and 144A even if
the one (1)-year minimum holding period had been satisfied.
(6) The Holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
144A is not exclusive, the staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk.
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With respect to any offer, sale or other disposition of this Promissory
Note, or any Shares acquired pursuant to the conversion of this Promissory Note
prior to registration of such Promissory Note or Shares, the Holder hereof and
each subsequent Holder of this Promissory Note agrees to give written notice to
the Maker prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, if reasonably requested by the Maker,
to the effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Securities Act as then in effect or any
federal or state law then in effect) of this Promissory Note or such Shares and
indicating whether or not under the Securities Act certificates for this
Promissory Note or such Shares to be sold or otherwise disposed of require any
restrictive legend as to applicable restrictions on transferability in order to
ensure compliance with applicable law. Promptly upon receiving such written
notice and reasonably satisfactory opinion, if so requested, the Maker, as
promptly as practicable, shall notify such Holder that such Holder may sell or
otherwise dispose of this Promissory Note or such Shares, all in accordance with
the terms of the notice delivered to the Maker. If a determination has been made
pursuant to this paragraph that the opinion of counsel for the Holder is not
reasonably satisfactory to the Maker, the Maker shall so notify the Holder
promptly after such determination has been made and neither this Promissory Note
nor any Shares shall be sold or otherwise disposed of until such disagreement
has been resolved. The foregoing notwithstanding, this Promissory Note or such
Shares may as to such federal laws, be offered, sold or otherwise disposed of in
accordance with Rule 144 and 144A under the Securities Act, provided that the
Maker shall have been furnished with such information as the Maker may
reasonably request to provide a reasonable assurance that the provisions of Rule
144 and 144A have been satisfied. Each certificate representing this Promissory
Note or the Shares thus transferred (except a transfer pursuant to Rule 144)
shall bear a legend as to the applicable restrictions on transferability in
order to ensure compliance with such laws, unless in the aforesaid opinion of
counsel for the Holder, such legend is not required in order to ensure
compliance with such laws. The Maker may issue stop transfer instructions to its
transfer agent or, if acting as its own transfer agent, the Maker may stop
transfer on its corporate books, in connection with such restrictions.
Any provision of this Note that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
This Promissory Note is not transferable or assignable by Maker without
the consent of the Holder. This Promissory Note is not transferable or
assignable by Holder without the consent of Maker. If this Promissory Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited to,
all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
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Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Holder and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar to, or as a
waiver or release of any subsequent right, remedy or recourse as to a subsequent
event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time to time, and in the event any such payment
is paid by the Maker or received by the Holder, then such excess sum shall be
credited as a payment of principal, unless the Maker shall notify the Holder, in
writing, that the Maker elects to have such excess sum returned to Maker
forthwith.
The Maker hereby waives all and every exemption secured to them by the
laws and constitution of the State of Alabama, and of any other state. The Maker
hereby waives demand, presentment, protest, notice of nonpayment or dishonor,
and any other notice required by law and agrees that its obligation hereunder
shall not be affected by any renewal or extension of the time of payment hereof,
or by any indulgences.
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This Promissory Note shall be governed by and construed in accordance
with the laws of the State of Alabama applicable to debts and obligations
incurred and to be paid solely in such jurisdiction. This Promissory Note may
not be modified or amended and no provision hereof may be waived except by a
written instrument executed by the parties to be bound thereby.
DIGITAL FUSION, INC.
By: /s/ Roy E. Crippen, III
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Roy E. Crippen III, as its President
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EXHIBIT "A"
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NOTICE OF CONVERSION
To: DIGITAL FUSION, INC.
1. The undersigned hereby elects to purchase ____ shares of Common
Stock of DIGITAL FUSION, INC. pursuant to the terms of the attached Promissory
Note.
2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name or names as are specified
below:
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(Name)
-------------------------------
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(Address)
3. The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Schedule 1.
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(Signature)
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(Date)
SCHEDULE 1
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INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company DIGITAL FUSION, INC.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Maker as
follows:
(a) The Purchaser is aware of the Maker's business affairs and
financial condition, and has acquired sufficient information about the Maker to
reach an informed and knowledgeable decision to acquire the Securities. The
Purchaser is purchasing the Securities for its own account for investment
purposes only and not with a view to, or for the resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
(b) The Purchaser understands that the Securities have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Securities and
Exchange Commission ("SEC"), the statutory basis for such exemption may be
unavailable if the Purchaser's representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under applicable tax laws, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. In addition, the
Purchaser understands that the certificate evidencing the Securities will be
imprinted with the legend referred to in the Promissory Note under which the
Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and 144A,
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Maker, the resale occurring not less than one year after the party has purchased
and paid for the securities to be sold; the sale being made through a broker in
an unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month period
not exceeding the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to
sell the Securities there may be no public market upon which to make such a
sale, and that, even if such a public market then exists, the Maker may not be
satisfying the current public information requirements of Rule 144 and 144A, and
that, in such event, the Purchaser may be precluded from selling the Securities
under Rule 144 and 144A even if the one-year minimum holding period had been
satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk.
Purchaser:
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Date:
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