EXHIBIT C
SUBSCRIPTION AGREEMENT
COMMON STOCK AND WARRANT
DIGITAL FUSION, INC.
This Subscription Agreement is made and entered into by and between
DIGITAL FUSION, INC., a Delaware corporation (the "Company"), and Madison Run
LLC (the "Investor") with respect to the purchase by the Investor of common
stock, par value $.001 per share (the "Common Stock") of the Company and a
warrant to purchase such Common Stock (the "Warrant") pursuant hereto.
In consideration of the Company's agreement to accept the Investor's
subscription of shares of the Common Stock and the Warrant upon the terms and
conditions set forth in this Subscription Agreement, the Company and the
Investor agree and represent as follows:
A. SUBSCRIPTION
1. The Investor is subscribing for 608,108 shares of Common Stock (the
"Shares") at a purchase price of $0.74 per share and the Warrant, which grants
the Investor the right to purchase 304,054 shares of Common Stock at a price of
$0.89 per share and 212,839 shares of Common Stock at a price of $0.94 per share
(together, the "Underlying Shares") for a total consideration of $450,000 (the
"Purchase Price"). Simultaneously with the execution of this Subscription
Agreement, the Investor shall pay and deliver to the Company the Purchase Price
in the form of a check or wire transfer payable to "Digital Fusion, Inc." Upon
acceptance of this subscription, the Company will issue to the Purchaser the
Shares and the Warrant.
B. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
1. The Shares and the Underlying Shares are duly authorized for
issuance and, upon payment of the Purchase Price (or the Warrant exercise price
with respect to the Underlying Shares) as contemplated by this Subscription
Agreement (or the Warrant with respect to the Underlying Shares), will be
validly issued and fully paid and non-assessable. The Underlying Shares have
been duly reserved for issuance by the Company. The rights, preferences,
privileges and restrictions granted to or imposed upon the Common Stock and the
holders thereof are as set forth in the certificate of incorporation of the
Company, as amended to the date of this Subscription Agreement, a true and
complete copy of which has been delivered to the Investor.
2. The Company is duly organized, validly existing and in good standing
under the laws of the State of Delaware, and has all required power and
authority to own and operate its properties and assets and to carry on its
business as now conducted and as proposed to be conducted. The Company is in
good standing wherever necessary to carry on its present business and
operations, except in jurisdictions in which the failure to be in good standing
has not had and reasonably could not be expected to have a material adverse
effect.
3. The Company has all requisite corporate power and authority to enter
into and perform its obligations under this Subscription Agreement and Warrant.
The execution, delivery and performance by the Company of this Subscription
Agreement and Warrant have been duly authorized by all necessary action. This
Subscription Agreement and Warrant have been duly and validly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against it in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights,
and (b) general principles of equity that restrict the availability of equitable
or legal remedies.
4. The authorized capital stock of the Company consists of 16,000,000
shares of Common Stock of which 7,267,671 shares are currently issued and
outstanding and 1,000,000 shares of preferred stock, par value $.01 per share,
(the Preferred Stock") of which no shares are currently issued and outstanding.
All of the issued and outstanding shares of the Common Stock are duly
authorized, validly issued, fully paid and non-assessable. Except for Digital
Fusion Solutions, Inc., a Florida corporation, (the "Subsidiary") the Company
has no subsidiaries. The Company owns all of the issued and outstanding capital
stock of the Subsidiary. None of the issued and outstanding capital stock of the
Company or the Subsidiary was issued in violation of any preemptive or
preferential rights or similar claims. Except with respect to the transaction
between the Company and Laurus Master Fund, Ltd., as disclosed in the Company's
Form 10-KSB for the fiscal year ended December 31, 2003 (the "Laurus
Transaction") and except for currently outstanding warrants to purchase 601,680
shares of Common Stock at an average purchase price of $4.74 expiring on or
before April 29, 2010, there are no outstanding or authorized subscriptions,
options, calls, contracts, commitments, understandings, restrictions,
arrangements, rights or warrants, including any right of conversion or exchange
under any outstanding security, instrument or other agreement and also including
any rights plan or other anti-takeover agreement, obligating the Company or the
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of the Company or the Subsidiary or
obligating the Company or the Subsidiary to grant, extend or enter into any such
agreement or commitment, and no voting trusts, proxies or other agreements or
understandings to which the Company or the Subsidiary is a party or is bound
with respect to the voting of any shares of capital stock of the Company or the
Subsidiary and, to the knowledge of the Company, there are no such trusts,
proxies, agreements or understandings by, between or among any of the Company's
stockholders with respect to any shares of the Common Stock. The Company is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its Common Stock or any security convertible
into or exchangeable for any of its Common Stock.
5. The Company and its Board of Directors has taken all necessary steps
to render any "business combination," "moratorium," "control share" or other
state anti-takeover statute or regulation applicable to the Company inapplicable
to the Investor, the Shares, the holder of the Warrant, the Underlying Shares
and the transactions contemplated by this Subscription Agreement and the
Warrant.
6. The execution, delivery and performance of this Subscription
Agreement and the Warrant do not and will not and the issuance of the Underlying
Shares upon exercise of the Warrant in accordance with its terms will not (with
or without the passage of time or the giving of notice): (a) violate or conflict
with the articles of incorporation or bylaws of the Company; (b) violate or
conflict with any law, regulation, judgment or order applicable to the Company;
(c) violate any rule of any self-regulatory organization applicable to the
Company; (d) violate or conflict with, result in a breach of, constitute a
default or otherwise cause any loss of benefit under any material agreement or
other material obligation to which the Company is a party, or by which it or any
of its assets are otherwise bound; (e) result in the creation of any encumbrance
pursuant to, or give rise to any penalty, acceleration of remedies, right of
termination or otherwise cause any alteration of any rights or obligations of
any party under any material contract to which the Company is a party or by
which its assets are otherwise bound; or (f) require any consent, notice,
authorization, waiver by or filing with any governmental agency, administrative
body or other third party, other than the filing of a Form D with the Securities
and Exchange Commission and any state securities commission.
7. There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the Company, its
financial condition or its prospects, or its ability to perform its obligations
under this Subscription Agreement or the Warrant.
8. The Company's common stock is traded on the Bulletin Board, and the
Company has taken all steps to make the Shares and the Underlying Shares
eligible for trading on the Bulletin Board (assuming that such Shares and
Underlying Shares are subject to resale under the Securities Act of 1933).
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9. The Company's periodic reports filed pursuant to the Securities
Exchange Act of 1934, as amended, (the "Periodic Reports") comply in all
material respects with the provisions of the Securities Exchange Act of 1934, as
amended, and the rules promulgated thereunder and do not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein (in light of the
circumstances under which they were made) not misleading. The Periodic Reports
include all certifications and statements required, if any, by (A) the
Commission's Order dated June 27, 2002 pursuant to Section 21(a)(1) of the
Exchange Act (File No. 4-460), (B) Rule 13a-14 or 15d-14 under the Exchange Act,
and (C) 18 U.S.C. ss. 1350 (Section 906 of the Xxxxxxxx-Xxxxx Act of 2002), and
each of such certifications and statements contain no qualifications or
exceptions to the matters certified therein other than a knowledge
qualification, permitted under such provision, and have not been modified or
withdrawn and neither the Company nor any of its officers has received any
notice from the Commission or any other governmental body questioning or
challenging the accuracy, completeness, form or manner of filing or submission
of such certifications or statements. The Company is in material compliance with
all of the provisions of the Xxxxxxxx-Xxxxx Act of 2002, and the provisions of
the Exchange Act and the Securities Act relating thereto, applicable to the
Company. The financial statements (including related notes, if any) contained in
the Periodic Reports: (i) complied as to form in all material respects with the
published rules and regulations of the Commission applicable thereto; (ii) were
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis throughout the periods covered; and
(iii) fairly presented in all material respects the consolidated financial
position of the Company and its consolidated subsidiary as of the respective
dates thereof and the consolidated results of operations and cash flows of the
Company and its consolidated subsidiaries for the periods covered thereby.
10. Since December 31, 2003, there have been no material adverse
changes to the financial condition or operations of the business of the Company.
Since December 31, 2003, the Company has not (other than in the Laurus
Transaction) (i) declared or paid any dividend or other distribution in respect
of its Common Stock, (ii) incurred any indebtedness except accounts payable
incurred in the ordinary course of its business, (iii) incurred any capital
expenditure in excess of Five Thousand Dollars ($5,000), (iv) sold any assets of
the Company other than in the ordinary course of business, (v) issued any
capital stock of the Company or any options, warrants, or similar rights, to
acquire any such capital stock, (vi) redeemed, purchased or otherwise acquired,
directly or indirectly, any of its capital stock, (vii) engaged in any material
change in the method of conducting the business of the Company, (viii) effected
any material change in compensation, incentive or bonus plans or the terms of
employment of any employee of the Company, (ix) authorized or executed any
amendment to the Certificate of Incorporation or Bylaws of the Company, (x)
invested in or made a loan to any other person, company or enterprise, or (xi)
entered into any commitment or agreement to do any of the above. On April 22,
2004, Laurus converted $35,000 of its promissory note into 100,000 shares of
common stock of the Company.
11. No representation or warranty by the Company contained in this
Subscription Agreement or any information in any schedule, instrument, or
document furnished or to be furnished pursuant hereto, contains any untrue
statement of a material fact or omits or fails to state any material fact
necessary in order to make the statements contained therein, in light of the
circumstances in which made, not misleading.
12. The foregoing representations and warranties are true and accurate
as of the date of this Subscription Agreement, shall be true and accurate as of
the date of the acceptance of this Subscription Agreement by the Investor and
shall survive thereafter. If such representations or warranties shall not be
true and accurate in any respect, the Company will, prior to such acceptance,
give written notice of such fact to the Investor specifying which
representations and warranties are not true and accurate and the reasons
therefore.
13. The Company shall indemnify and hold harmless the Investor and any
of its respective officers, employees, registered representatives, directors or
control persons who were or are a party to, or are threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of, or arising
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from any actual or alleged misrepresentation or misstatement of facts, or
omission to represent or state facts, made by the Company to the Investor in
connection with this Subscription Agreement, the Warrant and the transactions
set forth herein and therein, against losses, liabilities, and expenses actually
and reasonably incurred by the undersigned prospective purchaser or any of its
respective officers, employees, registered representatives, directors or control
persons (including attorney's fees, judgments, fines and amounts paid in
settlement) in connection with such action, suit or proceeding.
The Company has delivered to the Investor a certificate of an officer
of the Company in form satisfactory to the Investor certifying and attaching the
Certificate of Incorporation of the Company, the Bylaws of the Company and the
minutes of the Board of Directors and any committee of the Board of Directors
organizing the Company and authorizing the execution and delivery of this
Subscription Agreement and the Warrant, and authorizing the issuance of the
Shares and the Underlying Shares.
C. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
1. The offer and sale of the Shares and Warrant is intended to be
exempt from registration under Section 4(2) of the Securities Act of 1933, as
amended, (the "Act") and/or Regulation D promulgated under the Act. In
furtherance thereof, the Investor represents and warrants to the Company as
follows:
(a) The Shares and Warrant are being purchased for the account
of the Investor for investment purposes only and not for the account of any
other person, and not with a view to distribution, assignment or resale to
others or to fractionalization in whole or in part.
(b) No other person has or will have a direct or indirect
beneficial interest in the Shares or Warrant and the Investor will not sell,
hypothecate or otherwise transfer the Shares or Warrant except in accordance
with the registration provisions of the Act and applicable state securities
laws, unless an opinion of counsel acceptable to the Company and its counsel is
provided which states that an exemption from the registration requirements of
the Act and applicable state securities laws is available.
(c) In evaluating the suitability of an investment in the
Company, the Investor has not relied upon any representations or other
information (whether oral or written) from the Company or any of its agents
other than as set forth in the Company's Periodic Reports, in this Subscription
Agreement, in the Warrant and in documents provided pursuant to Section C.1.(d)
of this Subscription Agreement. No oral or written representations have been
made, or oral or written information furnished to, the Investor or its advisors,
if any, in connection with the offering of the Shares which were in any way
inconsistent with the Periodic Reports.
(d) The Company has made available to the Investor all
documents and information that the Investor has requested relating to an
investment in the Company.
(e) The Investor recognizes that an investment in the Company
involves substantial risks and represents that the Investor has taken full
cognizance of and understands all of the risks related to the purchase of the
Shares and Warrant. The Investor can bear the economic risk of losing the entire
investment in the Shares and Warrant.
(f) The Investor has carefully considered and has, to the
extent he, she or it believes such discussion to be necessary, discussed with
his, her or its professional legal, tax and financial advisers the suitability
of an investment in the Company, and the Investor has determined that the Shares
and Warrant are a suitable investment for the Investor.
(g) The statements and information set forth in the Entities
Investor Qualification Questionnaire (the "Questionnaire") and attached to this
Subscription Agreement as Exhibit A, are true, accurate and complete. All
information which the Investor has provided to the Company concerning the
Investor and the Investor's financial position is correct and complete as of
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the date set forth below, and if there should be any change in such information
prior to the Company's acceptance of the Investor's subscription for the Shares
and Warrant, the Investor will immediately provide such information to the
Company and will promptly send confirmation of such information to the Company.
(h) The Investor's overall commitment to investments which are
not readily marketable is not disproportionate to the Investor's net worth, and
the Investor's investment in the Shares and Warrant will not cause such overall
commitment to become excessive.
(i) The Investor has adequate means of providing for its
current needs and personal contingencies and has no need for liquidity in its
investment in the Shares and Warrant.
(j) If this Subscription Agreement is executed and delivered
on behalf of an entity, the person executing and delivering this Subscription
Agreement has been duly authorized and is duly qualified to (i) execute and
deliver this Subscription Agreement and all other instruments executed and
delivered on behalf of the Investor in connection with the purchase of the
Shares and Warrant, and (ii) purchase and hold the Shares and Warrant. The
signature of the person executing and delivering this Subscription Agreement is
binding upon such entity and such entity has not been formed for the specific
purpose of acquiring the Shares and Warrant.
2. The foregoing representations and warranties are true and accurate
as of the date of this Subscription Agreement, shall be true and accurate as of
the date of the acceptance of this Subscription Agreement by the Company and
shall survive thereafter. If such representations or warranties shall not be
true and accurate in any respect, the Investor will, prior to such acceptance,
give written notice of such fact to the Company specifying which representations
and warranties are not true and accurate and the reasons therefor.
3. The Investor shall indemnify and hold harmless the Company and any
of its respective officers, employees, registered representatives, directors or
control persons who were or are a party to, or are threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of, or arising from
any actual or alleged misrepresentation or misstatement of facts, or omission to
represent or state facts, made by the Investor to the Company, concerning the
Investor or its financial position, in connection with the offering and sale of
the Shares and Warrant, against losses, liabilities and expenses actually and
reasonably incurred by the Company or any of its respective officers, employees,
registered representatives, directors or control persons (including attorneys'
fees, judgments, fines and amounts paid in settlement) in connection with such
action, suit or proceeding.
D. INVESTOR INFORMATION
The Investor and each of its members is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D promulgated under the Act
("Accredited Investor"). In furnishing the information set forth in the
Questionnaire, the Investor acknowledges that the Company will be relying
thereon in determining, among other things, whether there are reasonable grounds
to believe that the Investor and its members qualify as an Accredited Investor
under the Act.
E. INVESTOR UNDERSTANDINGS
1. The Investor understands, acknowledges and agrees with the Company
as follows:
(a) The Investor through each of its members has such
knowledge and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Company and of making an
informed investment decision.
(b) The Investor through each of its members has by reason of
its business or financial experience, the capacity to protect its own interest
in connection with this transaction.
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(c) Except as set forth herein, the Company is under no
obligation to register the Shares, the Warrant or the Underlying Shares on
behalf of the Investor or to assist the Investor in complying with any exemption
from registration. The certificate representing the Shares and the Underlying
Shares shall be marked with the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAW OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS
2. The foregoing understandings, acknowledgments and agreements in this
Subscription Agreement are true and accurate as of the date of this Subscription
Agreement, shall be true and accurate as of the date of the acceptance of this
Subscription Agreement by the Company and shall survive thereafter.
F. REGISTRATION RIGHTS
1. Company Registration
A. Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans on Form S-8 (or any
successor form) or (ii) a registration relating solely to a Commission Rule 145
transaction on Form S-4 (or any successor form), the Company will:
(1) promptly give to the Investor written notice
thereof, and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Shares specified in a written request or requests,
made within 15 days after delivery of such written notice from the Company
described in Section F.1.A.(1), by the Investor. For purposes of this Section F,
the term "Shares" shall also refer to the "Underlying Shares."
B. Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Investor as a part of the written notice described
above. In such event, the right of the Investor to registration pursuant to this
Section F.1 shall be conditioned upon the Investor's participation in such
underwriting and the inclusion of the Shares in the underwriting to the extent
provided herein. The Investor shall (together with the Company) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company.
(1) If the managing underwriter determines in good
faith that marketing factors (including pricing) require a limitation of the
number of shares to be underwritten, the underwriter may exclude some or all of
the Shares from such registration and underwriting. The Company shall so advise
Investor, and the number of shares of Common Stock to be included in such
registration shall be allocated as follows: first, for the account of the
Company, all shares of Common Stock proposed to be sold by the Company; second,
for the account of the Investor, the number of the Shares requested to be
included in the registration up to the amount of the limitation imposed by the
managing underwriter; and third, for the account of any other investor that has
been granted registration rights with respect to shares of Common Stock on the
terms and conditions of any agreement pertaining to such registration rights.
(2) If the Investor disapproves of the terms of any
such underwriting, the Investor may elect to withdraw therefrom by written
notice to the Company and the managing
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underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
(3) The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section F.1 prior to the
effectiveness of such registration, whether or not the Investor has elected to
include any or all of the Shares in such registration.
C. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section F.1 shall be borne by the Company. All Selling Expenses
relating to the Shares shall be borne by the Investor.
2. Demand Registration
A. Request for Registration.
(1) In addition to the rights set forth in above, if,
on one occasion, the Investor requests that the Company file a registration
statement for a public offering of the Shares having an aggregate offering price
of at least $2,000,000 (based on the then current market price), the Company
shall use its best efforts to cause such shares to be registered for the
offering as soon as practicable.
(2) The Company shall file a registration statement
covering the Shares so requested to be registered within 90 days after receipt
of the request of the Investor; PROVIDED, HOWEVER, that if the Company shall
furnish to the Investor a certificate signed by the Chairman or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to the Company and its
stockholders for such registration statement to be filed on or before the date
filing would be required, and it is therefore essential to defer the filing of
such registration statement, the Company shall have the right to defer such
filing for a period of not more than 90 days, but in no event for a period
longer than 180 days after receipt of the request of the Investor; PROVIDED,
FURTHER, that the Company shall not be permitted to exercise such deferral right
more than once in any 360-day period.
B. Underwriting.
(1) The distribution of the Shares covered by the
registration statement shall be effected by means of the method of distribution
selected by the Investor.
(2) If the distribution of the Shares pursuant to
this Section F.2 is effected by means of an underwriting, the Company and the
Investor shall enter into an underwriting agreement in customary form with a
managing underwriter selected for such underwriting by the Investor.
C. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Section F.2 shall be borne by the Investor. All Selling
Expenses relating to the Shares shall be borne by the Investor.
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3. Registration Procedures
A. In the case of each registration effected by the Company
pursuant to this Subscription Agreement, the Company will keep the Investor
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company agrees to use its best efforts to effect or
cause such registration to permit the sale of the Shares covered thereby by the
Investor in accordance with the intended method or methods of distribution
thereof described in such registration statement and to keep such registration
statement in effect and comply with such laws so as to permit the continuance of
offers, sales and dealings therein for so long as may be necessary to enable the
Investor, agent or underwriter to complete its distribution of the Shares
pursuant to such registration statement. In connection with any registration of
any of the Shares, the Company shall, as soon as reasonably possible:
(1) use its best efforts to cause the registration
statement filed for purposes of such registration to become effective as soon as
reasonably possible thereafter;
(2) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
included therein as may be necessary to effect and maintain the effectiveness of
such registration statement as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the form of
such registration statement, and furnish to the Investor copies of any such
supplement or amendment prior to this being used and/or filed with the
Commission; and comply with the provisions of the Securities Act with respect to
the disposition of all the Shares to be included in such registration statement;
(3) provide (A) the Investor, (B) the underwriters
(which term, for purposes of this Agreement, shall include a person deemed to be
an underwriter within the meaning of Section 2(11) of the Securities Act), if
any, thereof, (C) the sales or placement agent, if any, therefor, (D) one
counsel for such underwriters or agent, and (E) one counsel for the Investor,
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment or supplement thereto;
(4) for a reasonable period prior to the filing of
such registration statement, and throughout the period of effectiveness of the
registration statement, make available for inspection by the parties referred to
above such financial and other information and books and records of the Company,
and cause the officers, directors, employees, counsel and independent certified
public accountants of the Company to respond to such inquiries, as shall be
reasonably necessary, in the judgment of the respective counsel referred to
above, to conduct a reasonable investigation within the meaning of the
Securities Act; PROVIDED, HOWEVER, that each such party shall be required to
maintain in confidence and not disclose to any other person or entity any
information or records reasonably designated by the Company in writing as being
confidential, until such time as (a) such information becomes a matter of public
record (whether by virtue of its inclusion in such registration statement or
otherwise), or (b) such party shall be required so to disclose such information
pursuant to the subpoena or order of any court or other governmental agency or
body having jurisdiction over the matter, or (c) such information is required to
be set forth in such registration statement or the prospectus included therein
or in an amendment to such registration statement or an amendment or supplement
to such prospectus in order that such registration statement, prospectus,
amendment or supplement, as the case may be, does not include an untrue
statement of a material fact or omit to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading.
(5) promptly advise the Investor, the sales or
placement agent, if any, therefor and the managing underwriter of the securities
being sold and confirm such advice in writing, (A) when such registration
statement or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has become
effective, (B) of any comments by the Commission and by the blue sky or
securities commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such
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registration statement or the prospectus or for additional information, (C) of
the issuance by the Commission of any stop order suspending the effectiveness of
such registration statement or the initiation of any proceedings for that
purpose, (D) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose, or (E) if
it shall be the case, at any time when a prospectus is required to be delivered
under the Securities Act, that such registration statement, prospectus, or any
document incorporated by reference, in any of the foregoing contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(6) use its best efforts to obtain the withdrawal of
any order suspending the effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(7) if requested by any managing underwriter or
underwriter, any placement or sales agent or the Investor, promptly incorporate
in a prospectus, prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of the
Commission and as such managing underwriter or underwriters, such agent or the
Investor may reasonably specify should be included therein relating to the terms
of the sale of the Shares included thereunder, including, without limitation,
information with respect to the number of the Shares being sold by the Investor
or agent or to such underwriters, the name and description of Investor, the
offering price of the Shares and any discount, commission or other compensation
payable in respect thereof, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the offering of the Shares
to be sold in such offering; and make all required filings of such prospectus;
prospectus supplement or post-effective amendment promptly after notification of
the matters to be incorporated in such prospectus, prospectus supplement or
post-effective amendment;
(8) furnish to the Investor, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the counsel
referred to referred to above an executed copy of such registration statement,
each such amendment and supplement thereto (in each case excluding all exhibits
and documents incorporated by reference) and such number of copies of the
registration statement (excluding exhibits thereto and documents incorporated by
reference therein unless specifically so requested by such holder, agent or
underwriter, as the case may be) of the prospectus included in such registration
statement (including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, as the Investor, agent,
if any, and underwriter, if any, may reasonably request in order to facilitate
the disposition of the Shares sold by such agent or underwritten by such
underwriter and to permit the Investor and such agent and underwriter to satisfy
the prospectus delivery requirements of the Securities Act; and the Company
hereby consents to the use of such prospectus and any amendment or supplement
thereto by the Investor and by any such agent and underwriter, in each case in
the form most recently provided to such party by the Company, in connection with
the offering and sale of the Shares covered by the prospectus (including such
preliminary and summary prospectus) or any supplement or amendment thereto;
(9) use its best efforts to (A) register or qualify
the Shares to be included in such registration statement under such other
securities laws or blue sky laws of such jurisdictions to be designated by the
Investor and each placement or sales agent, if any, therefor and underwriter, if
any, thereof, as the Investor and each underwriter, if any, of the securities
being sold shall reasonably request, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions for so
long as may be necessary to enable the Investor, agent or underwriter to
complete its distribution of the Shares pursuant to such registration statement
and (C) take any and all such actions as may be reasonably necessary or
advisable to enable the Investor, agent, if any, and underwriter to consummate
the disposition in such jurisdictions of the Shares; PROVIDED, HOWEVER, that the
Company shall not be required for any such purpose to (1) qualify generally to
do business as a foreign company or a broker-dealer in any jurisdiction wherein
it would not otherwise be required to
9
qualify but for the requirements of this Section F.2 or subject itself to
taxation in any such jurisdiction;
(10) cooperate with the Investor and the managing
underwriters to facilitate the timely preparation and delivery of certificates
representing the Shares to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods, on
steel engraved borders and which shall not bear any restrictive legends; and
enable the Shares to be in such denominations and registered in such names as
the managing underwriters may request at least two business days prior to any
sale of the Shares;
(11) provide a CUSIP number for all the Shares, not
later than the effective date of the registration statement;
(12) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, and take such other actions in connection
therewith as the Investor reasonably requests in order to expedite or facilitate
the disposition of the Shares; and
(13) whether or not an agreement of the type referred
to in the preceding subsection is entered into and whether or not any portion of
the offering contemplated by such registration statement is an underwritten
offering or is made though a placement or sales agent or any other entity, (A)
make such representations and warranties to the Investor and the placement or
sales agent, if any, therefor and the underwriters, if any, thereof in form,
substance and scope as are customarily made in connection with any offering of
equity securities pursuant to any appropriate agreement and/or to a registration
statement filed on the form applicable to such registration statement; (B)
obtain an opinion of counsel to the Company in customary form and covering such
matters, of the type customarily covered by such an opinion, as the managing
underwriters, if any, and as the Investor may reasonably request, addressed to
the Investor and the placement or sales agent, if any, therefor and the
underwriters, if any, thereof and dated the effective date of such registration
statement (and if such registration statement contemplates an underwritten
offering of a part or of all of the Shares, dated the date of the closing under
the underwriting agreement relating thereto); (C) obtain a "cold" comfort letter
or letters from the independent certified public accountants of the Company
addressed to the Investor and the placement or sales agent, if any, therefor and
the underwriters, if any, thereof, dated (I) the effective date of such
registration statement and (II) the effective date of any prospectus supplement
to the prospectus included in such registration statement or post-effective
amendment to such registration statement which includes unaudited or audited
financial statements as of a date or for a period subsequent to that of the
latest such statements included in such prospectus (and, if such registration
statement contemplates an underwritten offering pursuant to any prospectus
supplement to the prospectus included in such registration statement or
post-effective amendment to such registration statement which includes unaudited
or audited financial statements as of a date or for a period subsequent to that
of the latest such statements included in such prospectus, dated the date of the
closing under the underwriting agreement relating thereto), such letter or
letters to be in customary form and covering such matters of the type
customarily covered by letters of such type; (D) deliver such documents and
certificates, including officers' certificates, as may be customary and
reasonably requested by the Investor and the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof to evidence the accuracy
of the representations and warranties made pursuant to clause (A) above and the
compliance with or satisfaction of any agreements or conditions contained in the
underwriting agreement or other agreement entered into by the Company; and (E)
undertake such obligations relating to expense reimbursement, indemnification
and contribution as are provided in this Subscription Agreement.
B. In the event that the Company would be required, pursuant
to Section F.3.A.(5) above, to notify the Investor, the sales or placement
agent, if any, and the managing underwriters, if any, of the securities being
sold, the Company shall prepare and furnish to the Investor, to each such agent,
if any, and to each underwriter, if any, a reasonable number of copies of a
prospectus supplement or amendment so that, as thereafter delivered to the
purchasers of the Shares, such prospectus shall not contain an untrue statement
of a material fact or omit to state a
10
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
5. Indemnification
A. The Company will indemnify the Investor, each of its
officers and directors and members, and the Investor's legal counsel and
independent accountants, if any, and each person controlling any such persons
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Subscription Agreement, and each underwriter, if any, and each person who
controls any underwriter within the meaning of Section 15 of the Securities Act,
against all expenses, claims, losses, damages and liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened ("Damages"), arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any registration statement, prospectus, offering circular or other document, or
any amendment or supplement thereof, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein, a material fact required to be stated therein or necessary to
make the statements therein, not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act or any state
securities laws applicable to the Company and relating to action or inaction by
the Company in connection with any such registration, qualification or
compliance, and will reimburse the Investor, each of its officers and directors
and members and the Investor's legal counsel and independent accountants, and
each person controlling any such persons, each such underwriter and each person
who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending any
such claim, loss, damage, liability or action; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by the
Investor (or its members, legal counsel, independent accountants, control
persons or other representatives) or underwriter and expressly intended for use
in such registration statement, prospectus, offering circular or other document,
or any amendment or supplement thereof, and the Investor, or the holder of the
Warrant, as the case may be, will, if Shares are included in the securities as
to which such registration, qualification, or compliance is being effected,
indemnify the Company, its officers, directors, legal counsel, independent
accountants, if any, and each person controlling any such persons within the
meaning of Section 15 of the Securities Act for Damages arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular, other document or amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by the Investor or holder of the Warrant, as the case may be, and
expressly intended for use in such registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereof; PROVIDED,
HOWEVER, that the obligations of the Investor and the holder of the Warrant
hereunder shall be limited to an amount equal to the proceeds to the Investor or
the holder of the Warrant sold as contemplated herein.
B. Each party entitled to indemnification under this Section
F.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). The Indemnified Party may participate in such defense at such party's
expense; PROVIDED, HOWEVER, that the Indemnifying Party shall bear the expense
of such defense of the Indemnified Party if representation of both parties by
the same
11
counsel would be inappropriate due to actual or potential conflicts of interest.
The failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party its obligations under this Agreement, unless such
failure is prejudicial to the ability of the Indemnifying Party to defend the
action. The Indemnifying Party shall not, in the defense of any such claim or
litigation, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
6. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of securities of the Company to the public without registration, the
Company agrees to:
A. Make and keep public information available as those terms
are understood and defined in Rule 144 under the Securities Act; and
B. Use its best efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act ; and
C. So long as the Investor owns any of the Shares, furnish to
the Investor forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 and of the
Securities Act and the Exchange Act , a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as the Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Investor to sell any such securities
without registration.
7. Transfer of Registration Rights. The rights to cause the Company to
register the Shares granted the Investor under this Subscription Agreement may
be assigned in connection with any transfer or assignment of the Shares or the
Warrant. All transferees and assignees of the rights to cause the Company to
register the Shares under this Agreement, as a condition to the transfer of such
rights, shall agree in writing to be bound by the agreements set forth herein.
8. Limitations on Registration Rights Granted to other Securities. The
parties hereto agree that from and after the date of this Agreement, the Company
shall not without the prior written consent of the Investor enter into any
agreement with any holder or prospective holder of any securities of the Company
providing for the grant to such holder of registration rights superior to, or
PARI PASSU with, those granted herein.
9. Definitions
A. "EXCHANGE ACT" shall mean the Securities Exchange
Act of 1934, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
B "INVESTOR" shall mean the Investor and any
transferee who holds the Shares.
C. The terms "REGISTER," "REGISTERED" and
"REGISTRATION" refer to a registration effected by preparing and filing with the
Commission a registration statement in compliance with the Securities Act, and
the declaration or ordering by the Commission of the effectiveness of such
registration statement.
D. "REGISTRATION EXPENSES" shall mean expenses
incurred by the Company that are directly and solely related to compliance with
Sections F.1. and F.2. hereof, including, registration, qualification and filing
fees, printing expenses, and disbursements of legal counsel for the Company,
fees and disbursements of legal counsel for the Investor, blue sky fees and
expenses, and the expense of any special audits incident to or required by any
such registration (but
12
excluding the compensation of employees of the Company, which shall be paid in
any event by the Company).
E. "SECURITIES ACT" shall mean the Securities Act of
1933, as amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
F. "SELLING EXPENSES" shall mean all underwriting
fees, discounts, selling commissions and stock transfer taxes applicable to the
Shares.
G. MISCELLANEOUS
1. Neither this Subscription Agreement nor any provisions of this
Subscription Agreement shall be waived, modified, changed, discharged,
terminated, revoked or cancelled except by an instrument in writing signed by
the party against whom any change, discharge or termination is sought.
2. The failure of the Company or the Investor to exercise any right or
remedy under this Subscription Agreement or any other agreement between the
Company and the Investor, or otherwise, or delay by the Company or the Investor
in exercising such right or remedy, will not operate as a waiver of any such
right or remedy. No waiver by the Company or the Investor will be effective
unless and until it is in writing and signed by the Company or the Investor as
the case may be.
3. Notices required or permitted to be given under this Subscription
Agreement shall be in writing and shall be deemed to be sufficiently given when
personally delivered or sent by Federal Express or other nationally recognized
overnight delivery service, postage pre-paid, and addressed to the Investor at
the address set forth in the Questionnaire and to the Company at 0000-X
Xxxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxx 00000.
4. This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of Delaware
(without giving effect to principles of conflicts of laws). This Subscription
Agreement shall be binding upon and inure to the benefit of the Investor and its
successors and assigns and shall be binding upon and inure to the benefit of the
Company and its successors and assigns.
5. In the event that any provision of this Subscription Agreement is
held to be invalid, illegal, or unenforceable, in whole or in part, such
invalidity shall not affect any otherwise valid provision, and all other valid
provisions shall remain in full force and effect.
6. This Subscription Agreement supersedes all previous agreements,
negotiations, or communications between the parties to this Subscription
Agreement with respect to the subject matter of this Subscription Agreement, and
contains the complete and exclusive expression of the understanding between the
parties. This Subscription Agreement cannot be amended, modified, or
supplemented in any respect except by a subsequent written agreement entered
into by both parties.
7. Time is of the essence of this Subscription Agreement.
8. All representations and warranties of the Company and the Investor
contained herein shall survive the date of this Subscription Agreement, the
transfer of the Shares and the termination or expiration of the rights hereunder
and shall terminate on the applicable statute of limitations. All agreements of
the Company and the Investor contained herein shall survive indefinitely until,
by their respective terms, they are no longer operative.
IN WITNESS WHEREOF, the Investor has executed this Subscription
Agreement to be effective as of the 11th day of May, 2004.
MADISON RUN, LLC
13
By: /s/ G. Xxxxxxx Xxxx
------------------------------------
Xxxxxxx Xxxx, Managing Member
ACCEPTED: DIGITAL FUSION, INC.
By: /s/ Xxx X. Xxxxxxx, III
----------------------------------------
Xxx X. Xxxxxxx III, President
14
A-3
EXHIBIT A
================================================================================
DIGITAL FUSION, INC. (THE "COMPANY")
INVESTOR QUALIFICATION QUESTIONNAIRE
Entities
EACH INVESTOR MUST COMPLETE PART A AND PART B BELOW. The purpose of this section
is to aid in determining whether an investor is an accredited investor pursuant
to Rule 501(a) under Regulation D promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
================================================================================
PART A: General Information
================================================================================
================================================ ===============================
Name of Subscriber State of Organization
Madison Run, LLC Delaware
------------------------------------------------ -------------------------------
Address of Principal Place of Business Nature of Business
0000 X Xxxxxx, X.X. - 00xx Xxxxx
Xxxxxxxxxx X.X. 00000 For investment purposes
--------------------------------------------------------------------------------
Was the Investor created for the specific
purpose of investing in the Company? |X| Yes |_| No
If the Investor is a partnership or a trust, do its individual partners or
beneficiaries have the right to make a decision whether or not to participate in
the proposed investment?
|_| Yes |X| No |_| Not Applicable
If the answer to either of the two preceding questions is "Yes," Item (m) of
Part B of this Questionnaire must be checked, if true. If Item (m) of Part B is
not applicable, the information required by Part A and Part B must be furnished
with respect to each owner of an equity interest in the entity (or each
beneficiary of a trust, if applicable) on separate pages that are validly signed
and dated on behalf of each such owner or beneficiary. Alternatively, each such
owner or beneficiary may complete and execute a separate copy of this
Subscription Agreement.
--------------------------------------------------------------------------------
Has the Investor ever been charged with, convicted of, or pleaded guilty, nolo
contendere or no contest to, any crime or civil offense (excluding only minor
traffic offenses).
|_| Yes |X| No
If yes, please give the details, including relevant dates and locations:
--------------------------------------------------------------------------------
To the Investor's knowledge, has the investor ever been the subject of an
investigation by any law enforcement or other governmental agency (other than
routine background checks).
|_| Yes |X| No
If yes, please give the details, including relevant dates and locations.
================================================================================
A-1
================================================================================
PART B: Accredited Investor Qualification Standards
================================================================================
The financial information and representations in this section are intended to
permit the Company to determine whether the Investor qualifies as an accredited
investor under Regulation D of the Securities and Exchange Commission.
The Investor represents and warrants that it is (check one or more):
|_| (a) A bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as
amended (the "1933 Act");
|_| (b) A savings and loan association or other institution, as defined in
Section 3(a)(5)A) of the 1933 Act;
|_| (c) A broker or dealer registered pursuant to Section 15 of the Securities
Exchange Act of 1934, as amended (the "1934 Act");
|_| (d) An insurance company, as defined in Section 2(13) of the 1933 Act;
|_| (e) An investment company registered under the Investment Company Act of
1940, as amended (the "1940 Act"), or a business development company as
defined in Section 2(a)(48) of the 1940 Act;
|_| (f) A Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958;
|_| (g) A plan established and maintained by a state, its political
subdivisions, or any agency or instrumentality of a state or its
political subdivisions, for the benefit of its employees, that has
total assets in excess of $5,000,000;
|_| (h) An employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and either (i) investment
decisions are made by a plan fiduciary, as defined in Section 3(21) of
ERISA, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, (ii) the employee benefit
plan has total assets in excess of $5,000,000, or (iii) if a
self-directed plan, investment decisions are made solely by persons
that qualify as accredited investors either under this paragraph (1) or
paragraph (2);
|_| (i) A private business development company, as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
|_| (j) An organization described in Section 501(c)(3) of the Internal Revenue
Code of 1986, as amended, with total assets in excess of $5,000,000,
that was not formed for the specific purpose of acquiring the Shares;
|_| (k) A corporation, Massachusetts or similar business trust, or partnership
with total assets in excess of $5,000,000, that was not formed for the
specific purpose of acquiring the interests;
|_| (l) A trust, with total assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the Shares, and whose purchase is
directed by a person who has such knowledge and experience in financial
and business matters that he is capable of evaluating the merits and
risks of purchasing the Shares;
|X| (m) An entity in which all of the equity owners qualify as accredited
investors as defined in Rule 501(a) of Regulation D; or
|_| (n) None of the above.
================================================================================
A-2
15
================================================================================
PART B: Accredited Investor Qualification Standards (con't)
================================================================================
I certify that I have answered the foregoing questions to the best of
my knowledge and that my answers thereto are complete and accurate. I understand
that the Company will be relying on the accuracy and completeness of my
responses to the foregoing questions. I will notify the Company immediately of
any material change in any statement made herein occurring prior to the
effective date (after today) of any acquisition or exchange by me of stock of
the Company.
================================================================================
SUBSCRIBER Date
Madison Run, LLC
By: G. Xxxxxxx Xxxx, manager /s/ G. Xxxxxxx Xxxx 5/11/04
------------------------------- --------------------------------
Print or Type Name Signature
================================================================================
A-3
