-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QSC5lIU62SF74Z6ZvkACOzjo+Pf5slk4DUBDTBNX76dcduuQBTeDrXqMaxvieE3h OoiKnL0b1CmfjVNDaeJQCg== 0001157523-05-004366.txt : 20050505 0001157523-05-004366.hdr.sgml : 20050505 20050505143459 ACCESSION NUMBER: 0001157523-05-004366 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050429 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050505 DATE AS OF CHANGE: 20050505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DIGITAL FUSION INC/NJ/ CENTRAL INDEX KEY: 0001057257 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 133817344 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24073 FILM NUMBER: 05802992 BUSINESS ADDRESS: STREET 1: 4940-A CORPORATE DRIVE CITY: HUNTSVILLE STATE: AL ZIP: 35805 BUSINESS PHONE: 2568372620 MAIL ADDRESS: STREET 1: 4940-A CORPORATE DRIVE CITY: HUNTSVILLE STATE: AL ZIP: 35805 FORMER COMPANY: FORMER CONFORMED NAME: IBS INTERACTIVE INC DATE OF NAME CHANGE: 19980306 8-K 1 a4881953.txt DIGITAL FUSION, INC. 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 8-K ------------- CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 April 29, 2005 Date of report (date of earliest event reported) ------------- DIGITAL FUSION, INC. (Exact Name of Registrant as Specified in its Charter) ------------- Delaware 0-24073 13-3817344 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.) 4940-A Corporate Drive, Huntsville, AL 35805 (Address of Principal Executive Offices) (256) 837-2620 (Registrant's telephone number, including area code) Not Applicable (Former Name or Former address, if Changed Since Last Report) ------------- Check the appropriate box below if the Form 8-K filing in intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14D-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) Section 1 - Registrant's Business and Operations Item 1.01 Entry into a Material Definitive Agreement. As described in Item 2.03 below, the Company executed a $374,303.52 convertible promissory note. Section 2 - Financial Information Item 2.02 Results of Operations and Financial Condition. On May 5, 2005, the Company issued a press release containing information regarding its operations and financial condition for the first quarter period ended March 31, 2005. A copy of the press release is attached hereto as Exhibit 99.1. Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant. On April 29, 2005, the Company and Mr. Roy E. Crippen, III, CEO of the Company, agreed to consolidate the two promissory notes outstanding. The resulting obligation is a convertible promissory note in the principal amount of Three Hundred and Seventy Four Thousand Three Hundred and Three and 52/100 Dollars ($374,303.52). Interest at the prime rate is payable monthly, and the entire principal amount is due on April 29, 2007. Mr. Crippen has the option of converting the principal portion of the note into common stock of the Company at a conversion price equal to the sum of the 10-day average closing price of the common stock immediately prior to the date of the note, multiplied by 115%. Additionally, Mr. Crippen is granted piggy-back registration rights for any shares of common stock that are acquired by conversion. A copy is filed as Exhibit 10.1 and 10.2 to this Current Report. Section 9 - Financial Statements Exhibits Item 9.01 Financial Statements and Exhibits (c) Exhibits Exhibit No. Description ----------- ----------- 10.1* Convertible Promissory Note dated April 29, 2005 for $374,303.52 between Roy E. Crippen, III and the Company. 10.2* Registration Rights Agreement dated April 29, 2005 between Roy E. Crippen, III and the Company. 99.1* Press release dated May 5, 2005, issued by Digital Fusion, Inc. * Filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: May 5, 2005 DIGITAL FUSION, INC. By: /s/ Roy E. Crippen, III --------------------------------------------------------- Roy E. Crippen, III, Chairman and Chief Executive Officer EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1* Convertible Promissory Note dated April 29, 2005 for $374,303.52 between Roy E. Crippen, III and the Company. 10.2* Registration Rights Agreement dated April 29, 2005 between Roy E. Crippen, III and the Company. 99.1* Press release dated May 5, 2005, issued by Digital Fusion, Inc. *Filed herewith. EX-10.1 2 a4881953-ex101.txt EXHIBIT 10.1 EXHIBIT 10.1 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 --------------------------- $374,303.52 April 29, 2005 FOR VALUE RECEIVED, DIGITAL FUSION, INC., a Delaware corporation ("Maker"), hereby promises to pay to ROY E. CRIPPEN III ("Holder") the principal amount of Three Hundred Seventy Four Thousand Three Hundred Three and 52/100 Dollars ($374,303.52), together with interest thereon at a per annum rate equal to the prime rate announced from time to time by the Wall Street Journal. Interest shall be payable monthly. Principal shall be payable two years from the date of this Promissory Note, except to the extent that such Promissory Note has been previously converted into shares of Maker's common stock (the "Shares") as set forth below. 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 be the sum of the ten-day average closing price of the Shares immediately prior to the date of this Promissory Note multiplied by 115%. No conversion hereunder shall be effective unless written notice of the conversion is given by Holder at least 90 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. Default in the payment of the principal of or interest on this Promissory Note when the same becomes due and payable shall constitute an even of default hereunder. 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 the Due Date of this Promissory Note is accelerated as provided above, the Holder may convert the principal portion of the Promissory Note into Shares at any time prior to the payment of such principal amount. If the Maker sells all or substantially all of its assets to a third party, merges, or consolidates with another entity, or engages in any other transaction with a third party requiring approval of the shareholders of the Maker, Maker shall give prompt notice to the Holder, and Holder may immediately convert the principal amount of this Promissory Note into Shares at any time prior to the consummation of such transaction. 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. For any such prepayment, Maker must give Holder at least ten (10) days notice of such prepayment and, during such time, Holder may convert all or a portion of such principal balance into Shares. 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: 2 "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." 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 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. The Holder is an "accredited investor" as that term is defined in Securities and Exchange Commission Rule 501(a) of Regulation D. (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. 3 (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. 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 4 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. 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. [THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.] 5 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/ Gary S. Ryan ------------------------------- Title: President and COO ------------------------------- 6 EXHIBIT "A" ----------- 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: ------------------------------- (Name) ------------------------------- ------------------------------- (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. ---------------------------------- (Signature) - --------------------- (Date) SCHEDULE 1 ---------- 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: --------------------------------- Date: -------------------------------------- # 2784627_v1 2 EX-10.2 3 a4881953-ex102.txt EXHIBIT 10.2 EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into this 29th day of April, 2005, by and between DIGITAL FUSION, INC., a Delaware corporation (the "Company") and ROY E. CRIPPEN III ("Crippen"). WHEREAS, the Company has issued to Crippen a Convertible Promissory Note (the "Note") which is convertible into the Company's common stock (the "Common Stock") in certain events (a "Conversion Event"). WHEREAS, as a condition to accepting the Note in exchange for the debt owing Crippen by the Company, Crippen desires that the Company grant certain registration rights with respect to the Common Stock. NOW, THEREFORE, in consideration of the mutual premises and covenants herein contained, the Investors and the Company hereby agree as follows: 1. Definitions. ------------ As used herein: (a) The term "Exchange Act" means the Securities Exchange Act of 1934, as amended. (b) The term "Holder" means Crippen and any heirs, successors, assigns or transferees of Crippen contemplated by Section 18 hereof. (c) The terms "register," "registered," and "registration," unless the context otherwise requires, refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such Registration Statement. (d) The term "Person" shall have the meaning set forth in Section 2(2) of the Securities Act. (e) The term "Prospectus" shall have the meaning set forth in Section 2(10) of the Securities Act. (f) The term "Registrable Securities" means all of the Company's Common Stock which will be converted from the Note. (g) The term "Registration Expenses" shall mean any and all expenses incident to the performance of or compliance by the Company with this Agreement, including without limitation: (i) all SEC or National Association of Securities Dealers, Inc. (the "NASD") registration and filing fees, including, if applicable, the fees and expenses of any "qualified independent underwriter" (and its counsel) that is required to be retained by any Holder of Registrable Securities in accordance with the rules and regulations of the NASD, (ii) all 1 fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of one counsel for any underwriters or Holder in connection with blue sky qualification of any of the Registrable Securities) and compliance with the rules of the NASD, (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus and any amendments or supplements thereto, and in preparing or assisting in preparing, printing and distributing any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, (iv) all rating agency fees, (v) the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company, including the expenses of any "cold comfort" letters required by or incident to such performance and compliance, (vi) the fees and expenses of any exchange agent or custodian, (vii) all fees and expenses incurred in connection with the listing, if any, of any of the Registrable Securities on any securities exchange or exchanges, (viii) the reasonable fees and expenses of any special experts retained by the Company in connection with any Registration Statement, and (v) the reasonable fees and expenses of one special legal counsel for Holder. (h) The term "Registration Statement" shall mean any Registration Statement of the Company that covers any of the Registrable Securities pursuant to the provisions of this Agreement, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein. (i) The term "Securities Act" means the Securities Act of 1933, as amended. (j) The term "SEC" means the Securities and Exchange Commission. 2. Piggyback Registration Rights. ------------------------------ (a) Whenever securities of the Company are to be registered under the Securities Act (other than on a registration statement related to any employee benefit plan, acquisition or corporate reorganization) (a "Piggyback Registration"), the Company will: (i) promptly give to the Holder written notice thereof (in any event within three business days after its receipt of notice of any exercise of demand registration rights by any holder of the Company's securities and at least 40 days prior to the filing of any registration statement), which notice shall include a list of the jurisdictions in which the Company intends to attempt to qualify its Common Stock under the applicable blue sky or other state securities laws; and (ii) use its best efforts to cause to be included in such registration under the Securities Act (and any related qualification under blue sky laws or other compliance) and in any underwriting involved therein, all of the Registrable Securities specified in a written request made within 30 days after receipt of such written notice from the Company by the Holder. (b) If, in connection with a Piggyback Registration that is an underwritten primary registration on behalf of the Company, the managing underwriter shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, then the number of shares of Common Stock that may be included in such Registration Statement shall be apportioned in the following priority: (i) first, the shares of Common Stock the Company proposes to sell under the Registration Statement; (ii) second, shares 2 of Common Stock Madison Run, LLC or Madison Run Holdings, LLC proposes to sell under the Registration Statement pursuant to registration rights possessed by those entities as of the date hereof, (iii) third, shares of Common Stock Michael Wicks ("Wicks") proposes to sell under the Registration Statement pursuant to registration rights possessed by Wicks as of the date hereof, (iv) fourth, the Registrable Securities requested to be included in such Registration Statement by the Holder and Sean Mann; and (v) fifth, other shares of Common Stock requested to be included in such Registration Statement by any other selling stockholder. The Company shall not be required by this Section 2(b) to reduce the number of shares of Common Stock to be offered by the Company in such Registration Statement for any reason. (c) If, in connection with a Piggyback Registration that is an underwritten secondary registration on behalf of holders of the Company's securities (the "Initiating Securityholders"), the managing underwriter shall impose a limitation on the number of shares of Common Stock which may be included in the Registration Statement because, in its judgment, such limitation is necessary to effect an orderly public distribution, then the number of shares of Common Stock that may be included in such Registration Statement shall be apportioned in the following priority: (i) first, shares of Common Stock Madison Run, LLC or Madison Run Holdings, LLC proposes to sell under the Registration Statement pursuant to registration rights possessed by those entities as of the date hereof; (ii) second, shares of Common Stock that Wicks proposes to sell under the Registration Statement pursuant to registration rights possessed by Wicks as of the date hereof; (iii) third, the Registrable Securities owned by the Holder and Sean Mann, and (iii) fourth, other shares of Common Stock requested to be included in such Registration Statement by any other selling stockholder. 3. Effectiveness. -------------- A Registration Statement pursuant to which any Registrable Securities are being offered will not be deemed to have become effective unless it has been declared effective by the SEC; provided, however, that if, after it has been declared effective, the offering of the Registrable Securities pursuant to such Registration Statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court, such Registration Statement will be deemed not to have been effective during the period of such interference, until the offering of Registrable Securities pursuant to such Registration Statement may legally resume. The Company will be deemed not to have used best efforts to cause the Registration Statement to become, or to remain, effective during the requisite period if it voluntarily takes any action that would result in any such Registration Statement not being declared effective or that would result in the Holder not being able to offer and sell the Registrable Securities during that period unless such action is required by applicable laws and regulations or currently prevailing interpretations of the staff of the SEC. The Company shall use best efforts to maintain the effectiveness for up to 120 days (or such shorter period of time as the underwriters need to complete the distribution of the registered offering) of any Registration Statement pursuant to which any of the Registrable Securities are being offered, and from time to time will amend or supplement such Registration Statement and the Prospectus contained therein to the extent necessary to comply with the Securities Act and any applicable state securities laws or regulations. The Company shall also provide the Holder with as many copies of the Prospectus contained in any such Registration Statement as the Holder may reasonably request. 3 4. Expenses of Registration. ------------------------- All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to this Agreement shall be borne by the Company. Except as provided herein, the Holder shall pay all underwriters' fees, discounts or commissions or transfer taxes, if any, relating to the sale or disposition of the Holder's Registrable Securities. 5. Registration Procedures. ------------------------ In the case of each registration, qualification, or compliance effected by the Company pursuant to this Agreement, the Company will keep the Holder advised in writing as to the initiation of each registration, qualification and compliance and as to the completion thereof. At its expense, the Company will: (a) Prepare and file with the SEC a Registration Statement with respect to such Registrable Securities as described in Section 2 and use its best efforts to cause such Registration Statement to become effective and to remain effective in accordance with Section 3 (provided that at least five business days before filing a Registration Statement or Prospectus or any amendments or supplements thereto, the Company will furnish to the counsel selected by the Holder copies of all such documents proposed to be filed, which documents will be subject to the review of such counsel); (b) Prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and current for a period of not less than 120 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof as set forth in such Registration Statement; (c) (i) Furnish to the Holder, and to each underwriter, if any, without charge, such number of copies of such Registration Statement, each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus), and such other documents as the Holder or underwriters may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holder; and (ii) consent to the use of the Prospectus or any amendment or supplement thereto by the Holder of Registrable Securities included in the Registration Statement in connection with the offering and sale of the Registrable Securities covered by the Prospectus or any amendment or supplement thereto; (d) Use its best efforts to register or qualify such Registrable Securities under all applicable securities or blue sky laws of such jurisdictions of the United States by the time the applicable Registration Statement is declared effective by the SEC as the Holder and any underwriters reasonably request in writing and do any other related acts which may be reasonably necessary or advisable to enable the Holder and underwriters to consummate the disposition in such jurisdictions of the Registrable Securities; provided, however, that the Company shall not be required to (i) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Section 5(d), (ii) file any general consent to service of process in any jurisdiction where it would not otherwise be subject to such service of process, or (iii) subject itself to taxation in any such jurisdiction if it is not then so subject; 4 (e) Notify the Holder, its counsel, and the managing underwriters, if any, promptly, and promptly confirm such notice in writing, (i) at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which, or the fact that, the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the reasonable request of a majority of the Holders, the Company will prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (ii) when a Registration Statement has become effective and when any post-effective amendments and supplements thereto become effective, (iii) of any request by the SEC or any state securities authority for amendments and supplements to a Registration Statement or Prospectus or for additional information after the Registration Statement has become effective, (iv) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the qualification of the Registrable Securities or the initiation of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company contained in any underwriting or purchase agreement, securities sales agreement or other similar agreement, if any, cease to be true and correct in all material respects, and (vi) the Company's reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; (f) If applicable, use its best efforts to cause all such Registrable Securities to be listed or quoted on each securities exchange or interdealer quotation system on which similar securities issued by the Company are then listed or quoted; (g) Provide a transfer agent for all such Registrable Securities not later than the effective date of such Registration Statement; (h) Enter into such customary agreements (including underwriting agreements on customary terms) and take all such other actions as the underwriter, if any, reasonably requests in order to expedite or facilitate the disposition of such Registrable Securities; (i) Obtain for delivery to the Company and the managing underwriters, if any, with copies to the Holders of the Registrable Securities being registered, (i) an opinion of legal counsel representing the Company in customary form and covering such matters of the type customarily covered by legal opinions of company counsel in public offerings as the Holders shall reasonably request, dated on the date or dates provided for in the underwriting agreement and (ii) a comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by comfort letters as the Holders shall reasonably request, dated the effective date of the Registration Statement and brought down to the closing; (j) If necessary, obtain a CUSIP number for the Registrable Securities not later than the effective date of the Registration Statement; (k) Make available for inspection by the Holder, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or any other agent retained by the Holder or any such 5 underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by the Holder, any such underwriter, attorney, accountant or agent in connection with such Registration Statement; (l) Cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and registered in such names as the Holder or the underwriters may reasonably request at least two business days prior to the closing of any sale of Registrable Securities pursuant to such Registration Statement; (m) Upon the occurrence of any circumstance contemplated by Section 5(e)(iii), 5(e)(iv), or 5(e)(v) hereof, use best efforts to prepare a supplement or post-effective amendment to such Registration Statement or the related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and to notify the Holder to suspend use of the Prospectus as promptly as practicable after the occurrence of such an event, and the Holder hereby agrees to suspend use of the Prospectus until the Company has amended or supplemented the Prospectus to correct such misstatement or omission; (n) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the NASD; and (o) Use best efforts to take all other steps necessary to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. 6. Indemnification and Contribution. --------------------------------- (a) In connection with any Registration Statement, the Company shall indemnify and hold harmless each Holder and each underwriter who participates in an offering of the Registrable Securities, each Person, if any, who controls any of such parties within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and each of their respective directors, officers, employees and agents, as follows: (i) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, arising out of or based upon any of the following statements, omissions or violations (a "Violation"): (A) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) covering Registrable Securities, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (B) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (including any preliminary or final Prospectus or any amendment or 6 supplement thereto) or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (C) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; (ii) from and against any and all loss, liability, claim, damage and expense whatsoever, joint or several, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such Violation, if such settlement is effected with the prior written consent of the Company, which consent shall not be unreasonably withheld; and (iii) from and against any and all expenses whatsoever, as incurred (including reasonable fees and disbursements of counsel chosen by Holder or any underwriter (except to the extent otherwise expressly provided in Section 6(c) hereof)), incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any court or governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such Violation, to the extent that any such expense is not paid under subparagraph (i) or (ii) of this Section 6(a); provided, however, that (i) this indemnity does not apply to any loss, liability, claim, damage or expense to the extent arising out of a Violation that occurs in reliance upon and in conformity with written information furnished in writing to the Company by the Holder, or any underwriter with respect to the Holder, as the case may be, expressly for use in a Registration Statement (or any amendment thereto) or any Prospectus (including any preliminary or final Prospectus or any amendment or supplement thereto) and (ii) the Company shall not be liable to the Holder, any underwriter or controlling Person, with respect to any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary Prospectus to the extent that any such loss, liability, claim, damage or expense of the Holder, any underwriter or controlling Person results from the fact that the Holder or any underwriter, sold Registrable Securities to a Person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the final Prospectus as then amended or supplemented if the Company had previously furnished copies thereof to the Holder or any underwriter or controlling Person and the loss, liability, claim, damage or expense of the Holder or underwriter, or controlling Person results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the final Prospectus. Any amounts advanced by the Company to an indemnified party pursuant to this Section 6 as a result of such losses shall be returned to the Company if it shall be finally determined by such a court in a judgment not subject to appeal or final review that such indemnified party was not entitled to indemnification by the Company. (b) A selling Holder agrees to indemnify and hold harmless the Company, any underwriter and each of their respective directors, officers (including each officer of the Company who signed the Registration Statement), employees and agents, or any other selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any and all loss, liability, claim, damage and expense whatsoever described in the indemnity contained in Section 6(a) hereof, as incurred, but only with respect to a 7 Violation that occurs in reliance upon and in conformity with written information furnished to the Company by such selling Holder with respect to such Holder expressly for use in such Registration Statement, or any such Prospectus; provided, however, that the obligations of any such Holder hereunder shall be limited to the proceeds received by such Holder from the sale of Registrable Securities contemplated herein. (c) Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, enclosing a copy of all papers properly served on such indemnified party, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have under this Section 6, except to the extent that it is materially prejudiced by such failure. An indemnifying party may participate at its own expense in the defense of such action, or, if it so elects within a reasonable time after receipt of such notice, assume the defense of any suit brought to enforce any such claim; but if it so elects to assume the defense, such defense shall be conducted by counsel chosen by it and approved by the indemnified party or parties, which approval shall not be unreasonably withheld. In the event that an indemnifying party elects to assume the defense of any such suit and retain such counsel, the indemnified party or parties shall bear the fees and expenses of any additional counsel thereafter retained by such indemnified party or parties; provided, however, that the indemnified party or parties shall have the right to employ counsel (in addition to local counsel) to represent the indemnified party or parties who may be subject to liability arising out of any action in respect of which indemnity may be sought against the indemnifying party if, in the reasonable judgment of counsel for the indemnified party or parties, there may be legal defenses available to such indemnified party or parties which are different from or in addition to those available to the indemnifying party, in which event the fees and expenses of appropriate separate counsel shall be borne by the indemnifying party. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to local counsel), separate from its own counsel, for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release in form and substance satisfactory to the indemnified parties of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) In order to provide for just and equitable contribution in circumstances under which any of the indemnity provisions set forth in this Section 6 is for any reason held to be unavailable to the indemnified parties although applicable in accordance with its terms, the Company and the Holder shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holder, as incurred; provided, that no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person that was not guilty of such fraudulent misrepresentation. As between the Company and the Holder, such parties shall contribute to such aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by such indemnity 8 agreement in such proportion as shall be appropriate to reflect the relative fault of the Company, on the one hand, and the Holder, on the other hand, with respect to the statements or omissions which resulted in such loss, liability, claim, damage or expense, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by or on behalf of the Holder, on the other, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Holder agree that it would not be just and equitable if contribution pursuant to this Section 6 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the relevant equitable considerations. For purposes of this Section 6, each affiliate of the Holder, and each director, officer, employee, agent and Person, if any, who controls a Holder or such affiliate within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Holder, and each director of the Company, each officer of the Company who signed the Registration Statement, and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. In no event shall the Holder be liable for an amount in excess of the proceeds it receives from the offering. (e) The obligations of the Company and the Holders under this Section 6 shall survive the completion of an offering of Registrable Securities pursuant to a Registration Statement. Notwithstanding the foregoing, to the extent that the indemnification and contribution provisions contained in the underwriting agreement executed in connection with such Registration Statement conflict with the foregoing provisions, the provisions in such underwriting agreement shall control. 7. Information by Holder. ---------------------- The Holder of Registrable Securities included in any registration shall furnish to the Company such written information regarding Holder and the distribution proposed by Holder as the Company may reasonably request in writing and as shall be required in connection with any registration, qualification, or compliance referred to in this paragraph. 8. Suspension Rights. ------------------ The Company shall have the right, which right may be exercised by the Company only twice during any 12-month period, to extend, suspend or delay the effectiveness of any Registration Statement for a period of up to 90 days if, upon advice of counsel to the Company, effectiveness of such Registration Statement would interfere with any then currently active acquisition, financing or similar transaction of the Company by requiring the premature disclosure of any material non-public corporate development . 9. Postponement Rights. -------------------- The Company shall have the right to postpone the filing of any Registration Statement for up to three periods of 30 days if, upon advice of counsel to the 9 Company, the filing of such Registration Statement would interfere with any then currently active acquisition, financing or similar transaction of the Company by requiring the premature disclosure of any material non-public information or because the Company's Board of Directors determines in good faith that it would be seriously detrimental to the Company and its stockholders for such Registration Statement to be filed. 10. No Note Registration Rights. ---------------------------- Nothing in this Agreement shall be construed to impose on the Company any obligations or duties as to the registration of the Note nor grant any holder of the Note any registration rights enforceable against the Company with respect to the Note prior to such Note being converted to Common Stock. 11. Lock-Up Arrangements. --------------------- Upon the consummation of an underwritten public offering yielding gross proceeds to the Company of at least $5,000,000 (a "Public Offering") the Holder agrees that upon the reasonable request of the managing underwriter selected for the Public Offering the Holder will allow for restrictions on sales of its shares pursuant to the Registration Statement for the period selected by the managing underwriter (not to exceed 180 days in any event), including without limitation, at a minimum, not to sell, make any short sale of, pledge, grant any option for the purchase of or otherwise dispose of or reduce its risk of ownership with respect to any Registrable Securities (other than those included in the registration) or other securities of the Company without the prior written consent of the Company or the managing underwriter, as the case may be. Additionally, Holder agrees to execute and deliver a lock-up letter (setting forth the above restrictions in greater detail) if requested by the managing underwriter or the Company in connection with any offering of Registrable Securities; provided that all members of management and all other major stockholders are required to execute and deliver a substantially similar letter. 12. Termination of Obligations. --------------------------- The right of Holder to request inclusion in any registration pursuant to Section 2 hereof shall terminate on the date that all shares of Registrable Securities held or entitled to be held on conversion by such Holder may immediately be sold without restriction (including volume limitations) under Rule 144 promulgated under the Securities Act during any 90-day period. 13. Compliance with Rule 144. ------------------------- With a view to making available to Holder the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to (i) make available to the public and to the Holder such information as will enable Holder to make sales pursuant to Rule 144 and (ii) file with the SEC in a timely manner all reports and other documents required of the Company under the Exchange Act. 10 14. Changes in Capital Stock. ------------------------- If, and as often as, there is any change in the Common Stock by way of a stock split, stock dividend, combination or reclassification, or through a merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof so that the rights and privileges granted hereby shall continue with respect to the Registrable Shares as so changed. 15. Governing Law. -------------- This Agreement shall be governed by and construed in accordance with the laws of Alabama, without regard to the conflict of laws provisions thereof. 16. Amendment. ---------- Any modification, amendment or waiver of this Agreement or any provision hereof shall be in writing executed by Holder and the Company. 17. Severability. ------------- In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. 18. Successors and Assigns. ----------------------- This Agreement shall inure to the benefit of and be binding upon the respective heirs, successors, assigns and transferees of the parties hereto, including, without limitation and without the need for an express assignment, subsequent holders of any of the Registrable Securities, who each shall be deemed a "Holder" under this Agreement. If any transferee of Holder shall acquire Registrable Securities, in any manner, whether by operation of law, express assignment or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities, such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive all of the benefits hereof. 19. Entire Agreement. ----------------- This Agreement and the other writings referred to herein contain the entire understandings among the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings among the parties with respect to its subject matter. 20. Headings. --------- The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. 11 21. Counterparts. ------------- This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the undersigned Holder and the Company have executed this Agreement on the day and year first above written. COMPANY: DIGITAL FUSION, INC. By: /s/ Gary S. Ryan ------------------------------------------ Name: Gary S. Ryan ---------------------------------------- Title: President and COO --------------------------------------- HOLDER: /s/ Roy E. Crippen, III --------------------------------------------- Roy E. Crippen III # 2786749_v1 12 EX-99.1 4 a4881953-ex991.txt EXHIBIT 99.1 EXHIBIT 99.1 Digital Fusion Releases First Quarter 2005 Results HUNTSVILLE, Ala.--(BUSINESS WIRE)--May 5, 2005--Digital Fusion, Inc. (OTCBB:DIGF), an information technology ("IT") and engineering services provider today announced financial results for the first quarter ended March 31, 2005. First Quarter 2005 Highlights -- Revenue $4.4 million -- Net income $93,000 -- Earnings per share $0.01 -- Earnings before interest, taxes, depreciation and amortization (EBITDA) $280,000 -- Completed Summit Research acquisition Financial Comparisons For the quarter ended March 31, 2005, revenues were approximately $4.4 million versus approximately $1.5 million for the same quarter in the previous year. The increase in revenues during the first quarter 2005 compared to the same period last year was primarily due to the acquisition of Summit Research and growth in engineering services. Net income for the quarter ended March 31, 2005 was approximately $93,000 compared to a net loss of approximately $90,000 for the same quarter in the previous year. Diluted earnings per share for the quarter ended March 31, 2005 were $0.01 compared to a diluted loss per share of $0.01 for the previous year. Business Discussion On January 3, 2005 Digital Fusion completed the acquisition of Summit Research Corporation, a privately held federal services company headquartered in Huntsville, Alabama. Summit's market focus is technical support services for the US Army Aviation and Missile Command, Redstone Arsenal, AL. Summit has technical expertise in various engineering disciplines including modeling & simulation, hardware-in-the-loop testing, mechanical design & prototype fabrication, information technology and information management systems, program analysis, and associated technology transfer into production automation processes. Services revenues increased approximately $2.1 million in the first quarter of 2005 compared to the fourth quarter of 2004 primarily due to the acquisition of Summit Research and growth in engineering services. Revenue from product sales through the company's General Services Administration (GSA) schedule for the quarter ended March 31, 2005 increased $229,000 to $437,000 compared to the fourth quarter of 2004. The company sells help desk management software and application security software to federal Information Technology buyers. Management Comments "We are extremely pleased with our financial performance this quarter and look for continued improvement throughout the year," said Roy Crippen, Chairman and chief executive officer. "The integration between Summit and Digital Fusion went very smoothly and was completed with no loss of employees or customers. I want to thank Mike Wicks and the entire Summit team for their positive contributions in the successful integration of Summit into Digital Fusion" "We have a healthy backlog of business as well as a strong pipeline of potential new business," said Gary Ryan, president. "We saw steady improvement each month of the first quarter and I fully expect this positive trend to continue." About Digital Fusion Digital Fusion is an information technology and engineering services company that helps its customers make the most of technology to meet their business needs. Digital Fusion's IT Services provides solutions to both government and commercial customers, focused in the following areas: Business Process Automation, Application Development and Data Management, Application Security, Web Portals and Digital Dashboards, System Integration and IT Support. Digital Fusion's Engineering Services support a variety of customers with state-of-the-art solutions that include: Computational Aerodynamics/CFD; Optical Systems Design, Development and Test; Thermo/Structural Dynamics; Modeling and Simulations; Hardware-in-the-Loop Testing; Program Analysis; and Ground/Flight Planning, Execution, and Data Analysis. Based in Huntsville AL, Digital Fusion also has offices in Washington D.C., Orlando, and New Jersey. For additional information about Digital Fusion visit http://www.digitalfusion.com. Forward-Looking Statements. All statements other than statements of historical fact included in this release are forward-looking statements. When used in this release, words such as "project", "anticipate," "believe," "estimate," "expect," "plan", "intend" and similar expressions, as they relate to the Company or its management, as well as assumptions made by and information currently available to the Company's management, identify forward-looking statements. Similarly, statements herein that describe the Company's business strategy, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors including, but not limited to: the effect of business and economic conditions; the impact of competitive products and pricing; capacity and supply constraints or difficulties, the Company's dependence on continued funding of U.S. government programs; contract procurement and termination risks; competitive factors such as pricing pressures and/or competition to hire and retain employees, and material changes in laws or regulations applicable to the Company businesses. Such statements reflect the current views of the Company with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the operations, results of operations, growth strategy and liquidity of the Company. These statements reflect the Company's current beliefs and are based upon information currently available to it. Be advised that developments subsequent to this release are likely to cause these statements to become outdated with the passage of time. DIGITAL FUSION, INC. Condensed Consolidated Balance Sheets (in thousands, except share data) March 31, December 31, 2005 2004 unaudited ------------ ------------ ASSETS Current Assets Cash and cash equivalents $1 $252 Accounts receivable (net of allowance for doubtful accounts) 4,445 1,050 Unbilled revenue and other current assets 313 27 ------------ ------------ Total Current Assets 4,759 1,329 Property and equipment, net 507 417 Prepaid acquisition costs and acquisition deposit 285 Intangible assets, net 7,869 3,347 Other assets 22 13 ------------ ------------ TOTAL ASSETS $13,157 $5,391 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $1,082 $609 Accrued compensation and related expenses 536 97 Deferred revenue 118 21 Current maturities of long-term debt 1,316 647 Other current liabilities 275 266 ------------ ------------ Total Current Liabilities 3,327 1,640 Long-term debt, less current maturities 4,365 81 Pension obligation 302 302 ------------ ------------ Total Liabilities 7,994 2,023 ------------ ------------ Stockholders' Equity Preferred Stock, $.01 par value, authorized 1,000,000 shares, no shares issued and outstanding - - Common Stock, $.01 par value; authorized 16,000,000 shares, 10,800,548 and 9,721,244 shares issued and outstanding at March 31, 2005 and December 31, 2004, respectively 108 97 Additional paid in capital 43,741 42,050 Accumulated deficit (38,686) (38,779) ------------ ------------ Total Stockholders' Equity 5,163 3,368 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,157 $5,391 ============ ============ DIGITAL FUSION, INC. Condensed Consolidated Statements of Operations For the three months ended March 31, 2005 and 2004 (unaudited, in thousands) 2005 2004 ---------- ------------ Revenues Services and fees $ 3,495 $ 1,268 Reimbursed costs 509 13 Product 437 205 ---------- ------------ Total Revenues 4,441 1,486 ---------- ------------ Cost of services and goods sold Services 2,663 930 Reimbursed costs 476 13 Product 422 189 ---------- ------------ Total cost of services and goods sold 3,561 1,132 ---------- ------------ Gross profit (loss) 880 354 Selling, general and administrative 638 410 ---------- ------------ Operating income (loss) 242 (56) ---------- ------------ Other expenses: Interest expense 47 34 Amortization of discount on debt and intrinsic value of convertible debt 102 - ---------- ------------ Total other expenses 149 34 ---------- ------------ Net income (loss) before income taxes 93 (90) Income tax benefit - - ---------- ------------ Net income (loss) $ 93 $ (90) ========== ============ Basic earnings (loss) per share $ 0.01 $ (0.01) ========== ============ Basic weighted average common shares outstanding 10,446 7,168 ========== ============ Dilute earnings (loss) per share $ 0.01 $ (0.01) ========== ============ Diluted weighted average common shares outstanding 12,758 7,168 ========== ============ Earnings before interest, income taxes, depreciation, and amortization (EBITDA) (unaudited in thousands) EBITDA is not a measure of financial performance under United States generally accepted accounting principles ("US GAAP") and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with US GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. Management believes EBITDA provides additional, useful information regarding Digital Fusion's ability to meet our debt service, capital expenditure and working capital requirements. EBITDA is a traditional measure of a business' ability to generate cash flows irrespective of financing costs and is presented as a supplemental financial measurement in the evaluation of our business. For the three months ended March 31, ------------------ 2005 2004 --------- ------- Net income (loss) $ 93 $ (90) Interest expense 47 34 Income tax expense - - Depreciation 38 8 Amortization of discount on debt and intrinsic value of convertible debt 102 - --------- ------- EBITDA $ 280 $ (48) ========= ======= CONTACT: Digital Fusion, Inc., Huntsville Roy E. Crippen, 256-837-2620 rcrippen@digitalfusion.com -----END PRIVACY-ENHANCED MESSAGE-----