PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT BY AND BETWEEN STEELCLOUD, INC. AND CLIPPER INVESTORS LLC JULY 2, 2010
BY
AND
BETWEEN
STEELCLOUD, INC.
AND
JULY 2,
2010
This
Preferred Stock and Warrant Purchase Agreement (this “Agreement”), dated the 2nd
day of July, 2010, by and between STEELCLOUD, INC., a Virginia
corporation (the “Company”) and CLIPPER INVESTORS LLC, an
Illinois limited liability company (the “Investor”).
WITNESSETH:
WHEREAS,
the Company desires to issue and sell to the Investor shares of Series A
Convertible Preferred Stock (the “Preferred Shares”) of the Company and warrants
to purchase shares of the Company’s common stock (which, with the Preferred
Shares, are collectively referred to as the “Securities”); and
WHEREAS,
the Investor desires to purchase the Securities from the Company;
NOW,
THEREFORE, in consideration of the foregoing premises and the mutual agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Definitions; Purchase and
Sale of Preferred Shares.
1.1. Definitions. Certain
terms as used in this Agreement are defined in Section 11 hereof and
reference is hereby made to such Section.
1.2. Sale of Preferred
Shares. Subject to the terms and conditions hereof, the
Company hereby agrees to issue and sell on the Closing Date to the Investor, and
the Investor agrees to purchase from the Company on the Closing Date, an
aggregate of 450,000 Preferred Shares.
1.3. Purchase Price for Preferred
Shares. The purchase price to be paid by the Investor for the
Preferred Shares is $2.00 per share, or $900,000 in the aggregate (the “Purchase
Price”).
1.4. Warrants. Subject
to the terms and conditions hereof, the Company agrees to deliver a Warrant
Agreement to the Investor on the Closing Date, pursuant to which the Investor
shall have the right to purchase 20,000,000 Common Shares at $0.14 per share
(the “Warrants”) for the five (5) years immediately following the Closing
Date.
2. Closing; Closing
Deliveries.
2.1. Closing
Date. The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at 10:00 A.M. local time on the date
that if five (5) business days after the date that all conditions set forth in
Sections 5 and 6 hereof shall have been satisfied or waived, or on such other
date or time as shall be mutually agreed to by the Company and the Investor (the
“Closing Date”). In the event the Closing shall not have occurred on
or before July 16, 2010, either party shall have the right to terminate this
Agreement by delivery of written notice thereof to the other party.
2.2. Closing Deliveries by the
Company. At the Closing, the Company shall deliver to the
Investor the following:
(a)
a stock certificate registered in the name of the Investor
representing 450,000 Preferred Shares;
(b)
the Warrant Agreement, evidencing the Warrants registered in the
name of the Investor and duly executed by the Company;
(c)
the Registration Rights Agreement, duly executed by the Company;
(d)
the Security Agreement, duly executed by the Company;
(e) copies
of the resolutions adopted by the Company’s Board of Directors authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified by the Secretary of the Company as being in full
force and effect on the Closing Date;
(f)
a certificate executed by the
President of the Company stating that the conditions specified in Sections 6.1
and 6.2 have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since the date of the Financial
Statements;
(g) a
certified copy of the Certificate of Designations, as filed with the Secretary
of State of Virginia;
(h) a
certificate, dated as of a recent date, of the Secretary of State of Virginia
attesting as to the good standing of and the payment of taxes by the Company in
such State;
(i)
a copy of the Company’s Bylaws, as amended, certified by the Secretary of the
Company as being in full force and effect on the Closing Date;
(j) the
legal opinions of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, and ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ PC,
counsel to the Company, in form and substance satisfactory to the Investor and
to the Investor’s counsel; and
(k)
such other certificates or documents as the Investor or its
counsel may reasonably request relating to the transactions contemplated
hereby.
2.3 Closing Deliveries by the
Investor. At the Closing, the Investor shall deliver to the
Company the following:
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(a) the
Purchase Price by wire transfer to an account designated by the Company not less
than two (2) business days prior to the Closing; and
(b) such
other certificates or documents as the Company or its counsel may reasonably
request relating to the transactions contemplated hereby.
3. Representations and
Warranties of the Company. The Company hereby represents and
warrants to the Investor as follows:
3.1. Organization; Good
Standing. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Virginia. The Company has all requisite corporate power and authority
and holds all licenses, permits and other required authorizations from
governmental authorities necessary to conduct its business as it is now being
conducted or as proposed to be conducted and to own or lease the properties and
assets it now owns or holds under lease. The Company is duly
qualified or licensed and in good standing as a foreign corporation in each
jurisdiction wherein the character of its properties or the nature of the
activities conducted by it makes such qualification or licensing
necessary.
3.2. Authorization. The
Company has the full corporate power and authority to enter into this Agreement
and the Ancillary Agreements and to perform all of its obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement
and the Ancillary Agreements by the Company have been or will be, on or before
the Closing Date, duly authorized by all necessary corporate
action. This Agreement constitutes a legal, valid and binding
obligation of the Company enforceable in accordance with its
terms. The Company, in light of its business or proposed business,
does not require any consent, approval, authorization or order of, or
declaration, filing or registration with, any court or governmental or
regulatory agency or board in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby.
3.3. Charter
Documents. The Company has heretofore delivered to counsel for
the Investor true, correct and complete copies of the Company’s Certificate of
Incorporation and Bylaws, each as in full force and effect on the date
hereof. There will be no changes made to such Certificate of
Incorporation or Bylaws between the date hereof and the Closing Date, except as
contemplated by the Certificate of Designations or such amendments to the Bylaws
as may be required by the Investor to reflect the agreement between the Investor
and the Company regarding the size and constitution of the board of
directors.
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3.4. Capitalization. As
of the Closing, the Company’s authorized capitalization will consist of (i)
80,000,000 shares of Common Stock, par value $0.001 (the “Common Stock”), of
which 20,075,001 are issued and outstanding, (ii) 750,000 shares of Series A
Convertible Preferred Stock, par value $0.001 per share, of which none are
issued and outstanding, and (iii)1,250,000 shares of blank check preferred
stock. All outstanding shares of Common Stock of the Company are
validly issued, fully paid and non-assessable. The issuance of the
Preferred Shares and Warrants hereunder and the shares of Common Stock issuable
upon conversion of the Preferred Shares and the shares of Common Stock issuable
upon the exercise of the Warrants (the “Conversion Shares”) pursuant to the
provisions of this Agreement have been duly and validly
authorized. No further approval or authorization of the shareholders
or the directors of the Company or of any governmental authority or agency will
be required for the issuance and sale of the Preferred Shares or Conversion
Shares as contemplated by this Agreement. No shareholder of the
Company or any other person is entitled to any preemptive rights with respect to
the purchase or sale of any securities by the Company. When issued
and sold to the Investor, the Preferred Shares will be duly and validly issued,
fully paid and non-assessable, will be free and clear of any liens, pledges or
encumbrances and will have the designations, preferences and relative,
participating, optional and other special rights as set forth in the Certificate
of Designations. The Conversion Shares, when issued and delivered
upon conversion of the Preferred Shares and/or upon exercise of the Warrants,
will be duly and validly issued, fully paid and
non-assessable. Except as set forth on Schedule 3.4 attached hereto,
there are no outstanding options, warrants or other rights, commitments or
arrangements, written or oral, to which the Company is a party or by which it is
bound, to purchase or otherwise acquire any authorized but unissued shares of
capital stock of the Company or any security directly or indirectly convertible
into or exchangeable or exercisable for any capital stock of the
Company. No stock plan, stock purchase, stock option or other
agreement or understanding between the Company and any holder of any securities
or rights exercisable or convertible for securities provides for acceleration or
other changes in the vesting provisions or other terms of such agreement or
understanding as the result of the occurrence of any event.
3.5. Financial
Statements. The Company has furnished to the Investor its
unaudited balance sheet as of April 30, 2010 (the “Balance Sheet Date”), its
unaudited statement of operations for the six month period ended April 30, 2010,
and its unaudited statement of cash flows for the six month period ended April
30, 2010 (collectively the “Financial Statements”). The Financial
Statements have been prepared in conformity with generally accepted accounting
principles consistently applied, are true and correct in all material respects
and fairly present the financial position and results of operations of the
Company as at, or for the period ended on, such date. Since the date
of such Financial Statements, the Company has conducted its business in a
consistent manner without any change in accounting or credit principles,
policies or procedures. At the date of such Financial Statements,
there were no debts, liabilities or obligations of the Company of any kind and
description, whether absolute or contingent, monetary or non-monetary, direct or
indirect, known or unknown or matured or unmatured, or of any other nature,
other than those disclosed in such Financial Statements.
3.6. Absence of
Changes. Except as set forth on Schedule 3.6, since the
Balance Sheet Date, there has not been:
(a) any
change in the business, assets, liabilities, financial condition or results of
operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business that have not had a Materially
Adverse Effect;
(b) any
change in the contingent obligations of the Company, by way of contract,
guaranty, endorsement, indemnity, warranty or otherwise, except changes in the
ordinary course of business that have not had a Material Adverse
Effect;
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(c) any
damage, destruction or loss of the Company’s properties or assets, whether or
not covered by insurance;
(d) any
waiver by the Company of a material right or of a material debt owed to
it;
(e)
any satisfaction or discharge of any Lien or payment of any obligation by
the Company, except in the ordinary course of business and not having a Material
Adverse Effect;
(f)
any material change or amendment to a material agreement or material
arrangement by which the Company or any of its assets or properties is bound or
subject;
(g) any
material change in any compensation arrangement or agreement with any employee,
officer or director of the Company;
(h) any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets, other than the license of software and
products in the ordinary course of business;
(i)
any resignation or termination of employment of any officer or key
employee of the Company, and the Company does not know of the impending
resignation or termination of employment of any such officer or key
employee;
(j) receipt
of notice of a loss of, or material order cancellation by, any major customer of
the Company;
(k) any
Lien created by the Company, with respect to any of its material properties or
assets, except Liens for taxes not yet due or payable;
(l)
any loans or guarantees made by the Company to or for the benefit of its
respective employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of business;
(m) any
declaration, setting aside, payment or other distribution in respect of any of
the capital stock of the Company, or any direct or indirect redemption, purchase
or other acquisition of any of such stock by the Company;
(n) to
the knowledge of the Company, any other event or condition of any character that
could reasonably be expected to result in a Material Adverse
Effect;
(o) any
issuance or alteration of the rights, preferences, privileges or terms of any
capital stock of the Company; or
(p) any
agreement or commitment by the Company to do any of the things described in this
Section 3.6.
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3.7. Compliance with Other
Instruments. Except as set forth on Schedule 3.7, the Company
is not in default in the performance of any obligation, agreement, instrument or
undertaking to which it is a party or by which it is bound and there is no such
obligation, agreement, instrument or undertaking which adversely affects or in
the future may adversely affect its business, properties, prospects, operations
or condition (financial or otherwise). The Company is not in
violation of its Certificate of Incorporation or Bylaws. Neither the
sale of the Preferred Shares and the Warrants (or the issuance and delivery of
the Conversion Shares), the execution and delivery of this Agreement, nor the
fulfillment of the terms set forth in this Agreement and the consummation of the
transactions contemplated by this Agreement, will: (i) conflict
with or constitute a breach of, or constitute a default under or an event which,
with or without notice or lapse of time or each, would be a breach of or default
under or violation of the Certificate of Incorporation or Bylaws of the Company
or would be a breach of or default under or violation of any agreement,
document, indenture, mortgage or other instrument or undertaking by which the
Company is bound or to which any of its properties are subject, or would be a
violation of any law, administrative regulation, judgment, order or decree
applicable to the Company; (ii) result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company;
(iii) result in the loss of any license, certificate, legal privilege or
legal right enjoyed or possessed by the Company; (iv) give any party to any
agreement to which the Company is a party a right of termination; or
(v) require the consent of any other person or entity under any agreement,
indenture, mortgage, document or other instrument or undertaking by which the
Company is bound or to which any of its properties are subject.
3.8. Taxes. To
the Company’s knowledge, the Company has filed all necessary or appropriate
federal, state, local and foreign tax returns and reports and all taxes, fees,
assessments and governmental charges of any nature shown by such returns to be
due and payable have been paid, except for those amounts being contested in good
faith and for which appropriate amounts have been reserved in accordance with
generally accepted accounting principles. There is no tax deficiency
which has been, or to the knowledge of the Company might be, asserted against
the Company which would adversely affect the business or operations, or proposed
business or operations, of the Company. The Company has not been, and
is not now being, audited by any federal, state, local or foreign tax
authorities. To the Company’s knowledge, the Company has made all
required deposits for taxes applicable to the current tax year. All
tax returns and reports of the Company were prepared in accordance with the
relevant rules and regulations of each taxing authority having jurisdiction over
the Company.
3.9. Litigation. Except
as set forth on Schedule 3.9, there is not now pending, and to the best
knowledge of the Company there is not threatened nor is there any basis for, any
litigation, action, suit or proceeding: (a) to which the Company
is or will be a party in or before or by any court or governmental or regulatory
agency or body; or (b) to which any of the officers or employees of the
Company is or will be a party in or before or by any court or governmental or
regulatory agency or body, concerning termination by such person of his
employment with any of such person’s former employers. In
addition to the foregoing, there is no judgment, decree, injunction, rule or
order of any court, governmental department, commission, agency, instrumentality
or arbitrator outstanding against the Company having, or which, insofar as can
be foreseen in the future, may have, any adverse effect on the business or
proposed business or operations, properties, assets or condition, financial or
otherwise, of the Company.
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3.10. Compliance with
Law. The Company is in compliance in all material respects
with all applicable statutes and regulations of the United States and of all
states, municipalities and agencies in respect of the conduct of its
business. No failure by the Company to comply with such statutes and
regulations will have a material adverse effect on the Company.
3.11. SEC Filings and the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.
(a) Company SEC
Documents.
(i) As
of its filing date, each Company SEC Document complied, and each such Company
SEC Document filed subsequent to the date hereof will comply, as to form in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be.
(ii) As
of its filing date, each Company SEC Document filed pursuant to the Exchange Act
did not, and each such Company SEC Document filed subsequent to the date hereof
will not, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
(iii) Each
Company SEC Document that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act, as of the
date such statement or amendment became effective, did not contain (or, in the
case of any registration statement, as amended or supplemented, if applicable,
filed by the Company prior to the Closing Date, as of the date such registration
statement or amendment becomes effective, will 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 not misleading.
(b) Prohibited
Actions. The Company has not, since the enactment of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, taken any action prohibited by Section 402 of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.
3.12. Subsidiaries. Except
as set forth on Schedule 3.12, the Company does not have any investment or other
ownership interest in any other corporation, joint venture, general partnership,
limited partnership or other business entity.
3.13. Registration
Rights. Except as set forth on Schedule 3.13 and except as to
the rights granted in the Registration Rights Agreement, there are no rights
outstanding which permit or allow the holder thereof to cause the Company to
file a registration statement or which permit or allow the holder thereof to
include securities of the Company in a registration statement filed by the
Company.
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3.14. Outstanding
Indebtedness. Except as set forth on Schedule 3.14 attached
hereto and for trade payables incurred in the ordinary cause of business, the
Company does not have (a) any liability or obligation of any nature,
whether accrued, absolute, contingent or otherwise, and whether direct,
indirect, due or to become due; (b) any power of attorney outstanding, nor
any other agreement of agency, whether as principal or agent, nor has it any
obligation or liability, either actual, accrued, accruing or contingent, as
guarantor, surety, cosigner, endorser, comaker, indemnitor or otherwise in
respect of the obligation of any person; or (iii) any liability to any
officer, director, shareholder or employee of the Company for money borrowed by
the Company or otherwise.
3.15. Conflicting
Agreements. No officer or other employee of the Company is a
party to or bound by any agreement, contract or commitment, or subject to any
restrictions (including confidentiality or non-compete restrictions) in
connection with any previous or current employment of any such person, which
adversely affects, or in the future may reasonably be expected to adversely
affect, the business, or the proposed business, of the Company.
3.16. Compliance with the
Securities Act. All securities of the Company heretofore sold
and issued by it were sold and issued in material compliance with all applicable
Federal and state securities laws. Based upon the representations of
the Investor set forth herein, and assuming the truth of such representations,
the offer, sale and issuance of the Preferred Shares and the Warrants (and the
issuance and delivery of the Conversion Shares) are exempt from the registration
requirements of the Securities Act.
3.17. Minute
Books. The minute books of the Company made available to the
Investor contain a complete summary of all meetings of directors and
stockholders since the time of incorporation, to the extent such minute books
are held by or are reasonably available to the Company, and reflect all
transactions referred to in such minutes accurately in all material
respects.
3.18. Disclosure. Neither
this Agreement nor any of the schedules, exhibits, written statements,
documents, certificates or other items prepared or supplied by the Company with
respect to the transactions contemplated hereby contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading. There exists
no fact or circumstance which, to the knowledge of the Company, adversely
affects or will adversely affect the business, properties or assets, or
condition, financial or otherwise, of the Company, both at the present and as
proposed.
4. Representations, Warranties
and Covenants of the Investor. The Investor hereby severally
represents and warrants to, and agrees with, the Company as
follows:
4.1. Investment
Intent. The Investor is acquiring the Preferred Shares and the
Warrants (and any Conversion Shares) for its own account and not with a present
view to, or for sale in connection with, any distribution thereof in violation
of the Securities Act. The Investor consents to the placement of the
following legend on each Warrant and certificate representing the Preferred
Shares and Conversion Shares:
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“[THE SHARES EVIDENCED BY THIS
CERTIFICATE] [THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE]
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES STATUES OR REGULATIONS, AND MAY NOT BE TRANSFERRED OR SOLD
UNLESS (i) A REGISTRATION STATEMENT UNDER SUCH ACT IS THEN IN EFFECT WITH
RESPECT THERETO, (ii) A WRITTEN OPINION FROM COUNSEL FOR THE ISSUER OR OTHER
COUNSEL FOR THE HOLDER REASONABLY ACCEPTABLE TO THE ISSUER HAS BEEN OBTAINED TO
THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED OR (iii) A ‘NO ACTION’ LETTER
OR ITS THEN EQUIVALENT HAS BEEN ISSUED BY THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER OR SALE.”
4.2. Restricted
Securities. The Investor understands that the Preferred Shares
and the Warrants (and any Conversion Shares) will not be registered at the
Closing under the Securities Act for the reason that the sale provided for in
this Agreement is exempt pursuant to Section 4 of the Securities Act
and that the reliance of the Company on such exemption is predicated in part on
the Investor’s representations set forth herein. The Investor further
represents that it has had access during the course of the transaction and prior
to its purchase of the Preferred Shares and the Warrants to such information
relating to the Company as it has desired and that it has had the opportunity to
ask questions of and receive answers from the Company concerning the terms and
conditions of the offering and to obtain additional information (to the extent
the Company possessed such information or could acquire it without unreasonable
effort or expense) necessary to verify the accuracy of any information furnished
to it or to which it had access. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 3
of this Agreement or the right of the Investor to rely thereon. The
Investor understands that the Preferred Shares and the Warrants (and any
Conversion Shares) may not be sold, transferred or otherwise disposed of without
registration under the Securities Act or an exemption therefrom and that in the
absence of an effective registration statement covering the Preferred Shares or
the Warrants (or the Conversion Shares) or an available exemption from
registration under the Securities Act, the Preferred Shares and the Warrants
(and any Conversion Shares) must be held indefinitely.
4.3. Accredited
Investor. The Investor is an “accredited investor” as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act. The
Investor has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of the purchase of the
Preferred Stock and the Conversion Shares into which it may be
converted. The Investor is not registered as a broker or dealer under
Section 15(a) of the Securities Exchange Act, affiliated with any broker or
dealer registered under Section 15(a) of the Securities Exchange Act, or a
member of the Financial Industry Regulatory Authority.
4.4. No General
Solicitation. Neither the Investor nor any of its officers,
directors, employees, agents, stockholders or partners has either directly or
indirectly, including through a broker or finder, engaged in any general
solicitation or published any advertisement in connection with the offer and
sale of the Shares.
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4.5. No
Conflicts. The execution, delivery and performance of this
Agreement and the Ancillary Documents by the Investor and the consummation by
the Investor of the transactions contemplated hereby and thereby will not (i)
result in a violation of the certificate of incorporation, by-laws or other
documents of organization of the Investor, (ii) conflict with, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give others any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Investor is bound, or (iii) result in a violation of any law, rule,
regulation or decree applicable to the Investor.
4.6. Disclosure of
Information. The Investor and its advisors, if any, have had
an opportunity to discuss the Company’s business, management, financial affairs
and the terms and conditions of the offering of the Preferred Stock with the
Company’s management and have had an opportunity to review the Company’s
facilities and financials and to ask questions of
the Company. In
determining whether to enter into this Agreement and purchase the Preferred
Shares, the Investor has relied solely on (i) the written information supplied
by Company employees in response to the written due diligence information
request provided by the Investor to the Company, and (ii) the PowerPoint
presentations delivered by the Company’s management to the Investor, titled
“Investor Presentation April 9, 2010”, “Clipper Development Corp. May 28, 2010”,
and “SteelCloud Confidential SWOT Feb. 2010”, and the Investor has
not received nor relied upon any oral representation or warranty relating to the
Company, this Agreement, the Ancillary Documents, the Preferred Shares, or any
of the transactions or relationships contemplated thereby. The Investor understands that its purchase of the
Preferred Shares involves a high degree of risk. The Investor has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Preferred Shares. The foregoing, however, does not limit or modify the
representations and warranties of the Company in Section 3 of this Agreement or
the right of the Investor to rely thereon.
5. Conditions to Obligations of
the Company. The obligations of the Company under this
Agreement are subject to the satisfaction of the following conditions on or
prior to the Closing Date, any of which may be waived in whole or in part by the
Company:
5.1. Representations and
Warranties. All of the representations and warranties of the
Investor contained in this Agreement shall be true and correct in all material
respects on the Closing Date with the same force and effect as if made on the
Closing Date.
5.2. Consideration. The
purchase price set forth in Section 1.4 hereof to be paid to the Company on
the Closing Date shall have been paid by the Investor.
5.3. Closing
Deliveries. All agreements and other documents to be delivered
to the Investor by the Company pursuant to Section 2.2 hereof shall be in form
and substance satisfactory to the Company in its sole and absolute
discretion.
6. Conditions to Obligations of
the Investor. The obligations of the Investor under this
Agreement are subject to the satisfaction of the following conditions on or
prior to the Closing Date, any of which may be waived in whole or in part by the
Investor:
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6.1. Representations and
Warranties. All of the representations and warranties of the
Company contained in this Agreement shall be true and correct in all material
respects on the Closing Date with the same effect as if made on the Closing
Date.
6.2. Performance of
Covenants. All of the covenants and agreements of the Company
contained in this Agreement and required to be performed on or before the
Closing Date shall have been performed in all material respects to the
satisfaction of the Investor.
6.3. Legal
Action. There shall not have been instituted or threatened any
legal proceeding seeking to prohibit or threaten the consummation of the
transactions contemplated by this Agreement. None of the parties
hereto shall be prohibited by any order, writ, injunction or decree of any
governmental body of competent jurisdiction from consummating the transactions
contemplated by this Agreement.
6.4. Due
Diligence. The Investor shall have completed its due diligence
investigation of the Company and shall be satisfied with results of such
investigation.
6.5. Adverse
Change. There shall have been no material adverse change in
the business, property or condition, financial or otherwise, of the Company from
that disclosed in the Company’s April 30, 2010 quarterly
financials.
6.6. Disclosure
Schedules. All disclosure schedules delivered to the Investor
shall be in form and substance satisfactory to the Investor in its sole and
absolute discretion.
6.7. Closing
Deliveries. All agreements and other documents to be delivered
to the Investor pursuant to Section 2.2 hereof shall be in form and substance
satisfactory to the Investor in its sole and absolute discretion.
6.8. Note Purchase
Agreement. The parties hereto shall have entered into a Note
Purchase Agreement pursuant to which the Investor shall purchase $1,100,000 of
notes issued by the Company, upon such terms and conditions as shall be
acceptable to the Investor in its sole and absolute discretion, and the
transactions contemplated by such Note Purchase Agreement shall be consummated
concurrently with the transactions contemplated hereunder.
7. Expenses. The
Company agrees to pay, and hold the Investor harmless against liability for the
payment of, (a) the Investor's fees and expenses, including the reasonable fees
and expenses of counsel, accounting advisors and other advisors to the Investor,
arising in connection with the negotiation, execution and consummation of this
Agreement and the transactions contemplated hereby, up to a maximum of
$40,000.00, which fees and expenses will be paid promptly after submission of
bills, (b) fees and expenses (including, without limitation, reasonable
attorneys’ fees) incurred with respect to any amendments or waivers requested by
the Company (whether or not the same become effective) under or in respect of
this Agreement and the transactions contemplated hereby, (c) stamp and
other transfer taxes which may be payable in respect of the execution and
delivery of this Agreement or the issuance of the Preferred Shares or Conversion
Shares and (d) fees and expenses (including, without limitation, reasonable
attorneys’ fees) incurred in respect of the enforcement by the Investor of the
rights granted to the Investor under this Agreement and the transactions
contemplated hereby.
11
8.
Conduct Prior to
the Closing Date. The Investor, its counsel, accountants,
employees or other representatives may, prior to the Closing Date, make such
investigations of the properties and operations of the Company and such audit of
the financial condition of the Company for such purposes as they deem necessary
or advisable in connection with the transactions contemplated hereby; such
investigation shall not, however, affect the representations and warranties of
the Company hereunder. The Company agrees to permit the Investor and
its counsel, accountants, employees or other representatives to have, after the
date hereof, full access during normal business hours, upon reasonable notice,
to the premises and to all books and records of the Company and the Investor
shall have the right to make copies thereof and excerpts therefrom, and the
Company will furnish the Investor with such financial and operating data and
other information with respect to the business and properties of the Company as
the Investor may, from time to time, reasonably request. The Company
agrees to permit the Investor and its counsel, accountants, employees or other
representatives to communicate with and visit suppliers, customers and others
having business relations with the Company. The Company acknowledges
that the rights set forth in this Section 8 are essential to the Investor as a
means of evaluating the assets and business of the Company and agrees that in no
event will it make any claim of any kind as a result of the exercise by the
Investor of such rights and hereby waive any and all rights it may have to make
such claims.
9.
No
Brokers. Each of the Company, on the one hand, and the
Investor, on the other hand, represents and warrants to the other that there was
no broker or finder connected with this Agreement or the transactions
contemplated hereby.
10. Survival of
Representations. All representations, warranties, covenants
and agreements contained in this Agreement or in any document, exhibit, schedule
or certificate delivered in connection herewith shall survive the execution and
delivery of this Agreement and the Closing Date and any investigation at any
time made by the Investor or on its behalf.
11. Definitions.
For
purposes of this Agreement, the following terms have the respective meanings set
forth below:
11.1. “Affiliate”
has the meaning such term is given in Rule 405 promulgated under the
Securities Act.
11.2. “Ancillary
Agreements” means the Warrant Agreement, the Registration Rights Agreement, the
Security Agreement, and all other agreements to be delivered by the Company to
the Investor pursuant to the terms of this Agreement.
11.3. “Certificate
of Designations” means a certificate of designations setting forth the
designations, preferences, and relative, participating, optional, and other
special rights of the Preferred Shares.
12
11.4. “Company
SEC Documents” means the Company’s (i) annual reports on Form 10-K for its
fiscal years ended October 31, 2009, 2008 and 2007; (ii) quarterly
report on Form 10-Q for its fiscal quarter ended April 30, 2010;
(iii) proxy or information statements relating to meetings of the
shareholders of the Company held (or actions taken without a meeting by such
stockholders) since October 31, 2009, and (iv) all of its other
reports, statements, schedules and registration statements filed with the SEC
since October 31, 2009.
11.5. “Indebtedness”
means all obligations, contingent or otherwise, which in accordance with
generally accepted accounting principles should be classified on the obligor’s
balance sheet as liabilities, but in any event including liabilities secured by
any mortgage, pledge, lien or other security interest existing on property owned
or acquired by the obligor, whether or not the liability secured thereby shall
have been assumed, all guarantees of such Indebtedness and other contingent
obligations in respect of the Indebtedness of others.
11.6. “Lien”
means, with respect to any property or asset (whether tangible or intangible),
any mortgage, lien, pledge, charge, security interest, encumbrance, or other
adverse claim of any kind in respect of such property or asset.
11.7. “Material
Adverse Effect” means any material adverse change in, or material adverse effect
on the business, assets, prospects, results of operations, value, financial or
other condition of the Company, or any event or circumstance that could
reasonably be expected to have any such effect or that could reasonably be
expected to prevent, hinder or delay the consummation of any of the transactions
contemplated by this Agreement, the Ancillary Agreements, or any of the other
documents, instruments or agreements contemplated hereby and
thereby.
11.8. “Registration
Rights Agreement” means the Registration Rights Agreement to be delivered by the
Company to the Investor pursuant to Section 2.2 hereof, which shall be in form
and substance satisfactory to the Investor in its sole and absolute
discretion.
11.9. “▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act” means the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002.
11.10. “SEC”
means the Securities and Exchange Commission.
11.11. “Securities
Act” means the Securities Act of 1933, as amended, or any similar Federal law
then in force.
11.12. “Securities
Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
similar Federal law then in force.
11.13. “Security
Agreement” means the Security Agreement to be delivered by the Company to the
Investor pursuant to Section 2.2 hereof, which shall be in form and substance
satisfactory to the Investor in its sole and absolute discretion.
13
11.14. “Warrant
Agreement” means the agreement evidencing the grant of the Warrants referenced
in Section 1.4 hereof, which shall be in form and substance satisfactory to the
Investor in its sole and absolute discretion.
12. Miscellaneous
Provisions.
12.1. Construction and
Enforcement. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS. The Company agrees that it will not assert against any partner
of the Investor (or against any partner, officer, director, employee or agent of
the Investor or any of its affiliates) any claim it may have under this
Agreement by reason of any failure or alleged failure by the Investor to meet
its obligations hereunder.
12.2. Notices. All
notices hereunder shall be in writing and shall be deemed to have been given at
the time when hand delivered, when received if sent by telecopier or by same day
or overnight recognized commercial courier service, or three days after being
mailed by certified mail, addressed to the address below stated of the party to
which notice is given, or to such changed address as such party may have fixed
by notice:
To the
Company:
▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a
copy to:
Fettmann, ▇▇▇▇▇▇▇ & Majors,
PC
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
To the
Investor:
At the
addresses set forth on Schedule A
with a copy
to:
Ungaretti
& ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇
provided,
however, that any notice of change of address shall be effective only upon
receipt.
14
12.3. Assignment. This
Agreement shall be binding upon and inure to the benefit of the Company, the
Investor and the respective successors and permitted assigns of the
Investor. The Company may not assign any of its rights or obligations
under this Agreement without the prior written consent of the
Investor. The Investor may assign all or any part of its rights and
obligations hereunder. A person to whom all or a part of the
Investor’s rights are assigned shall become a party to this Agreement, entitled
to all the rights and benefits hereunder. The rights and powers of
the Investor hereunder are granted to the Investor as owner of the Preferred
Shares and Conversion Shares. Any subsequent owner of any Preferred
Shares or Conversion Shares, whether becoming such by transfer, assignment,
operation of law or otherwise, shall be deemed to be an Investor hereunder,
shall have the same rights and powers which an Investor owning such securities
has hereunder, and shall be entitled to exercise them in full and no transfer or
assignment shall divest such Investor or any subsequent owner of such rights and
powers until such Investor or subsequent owner no longer owns any Preferred
Shares or Conversion Shares. Whenever reference is made to the
Investor in this Agreement, such reference shall include the Investor’s
Affiliates and any assignees of the Investor’s rights hereunder.
12.4. Entire Agreement; Amendments
and Waivers. This Agreement and all exhibits and schedules
hereto set forth the entire understanding of the parties with respect to the
transactions contemplated hereby. This Agreement may be amended, the
Company may take any action herein prohibited or omit to take action herein
required to be performed by it, and any breach of or compliance with any
covenant, agreement, warranty or representation may be waived, only if the
Company has obtained the written consent or waiver of the holders of at least
70% of the Preferred Shares (or Conversion Shares).
12.5. Counterparts. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, and all of which together shall constitute one and the same
instrument.
12.6. Severability. If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
12.7. Headings. The
headings in this Agreement are for reference purposes only and shall not
constitute a part hereof.
[signature
page follows]
15
IN WITNESS WHEREOF, the
undersigned have executed this Agreement as of the day and year first above
written.
COMPANY:
STEELCLOUD,
INC.
|
By:
|
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
|
▇▇▇▇▇
▇. ▇▇▇▇▇▇, Chief Executive
Officer
|
INVESTOR:
|
By
|
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
|
|
▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇, Manager
|
Signature
Page to Preferred Stock and Warrant Purchase Agreement
SCHEDULE
A
|
Name and Address of
Investor
|
Number of Preferred Shares
|
Warrant Shares
|
||
|
450,000
|
20,000,000
|
|||
|
▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇
|
||||
|
▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
|
DISCLOSURE
SCHEDULES
Schedule 3.6: Absence of
Changes
As
disclosed in the Company’s SEC Documents, the Company has entered into a
material transaction with Caledonia Capital Corporation.
Schedule 3.7: Compliance
with Other Instruments
The
Company defaulted on the 13962 Park Center Lease, as well as with respect to the
Forbearance Agreement (defined in Schedule 3.9).
Schedule 3.9:
Litigation
On May
22, 2009, the Company entered into a Stipulation/Consent Order with CRP (the
“Stipulation”), pursuant to an Affidavit and Statement of Account
(the“Affidavit”) stating, as declared by a general manager of ▇▇▇▇▇ ▇▇▇▇
LaSalle, a property management company and agent for CRP Holdings A-1, LLC,
referred to as “CRP,” the landlord of ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the “Premises”), that CRP, as landlord, was seeking a
judgment against the Company for: (i) possession of the Premises, and (ii)
monetary damages for nonpayment of rent due under a sublease (the “Sublease”),
dated September 28, 2004, by and between the Company and NEC America, Inc.
(“NEC”), and a subsequent assignment of the Sublease to CRP from NEC, dated
December 15, 2008. In the Stipulation the Company acknowledged that
the balance due for rent and additional rent for the Premises was $168,637.96,
together with attorney’s fees and court expenses of $7,041.00 through May 22,
2009, referred to as the “Judgment Amount.” Pursuant to the
Stipulation, the Company paid $30,000 on May 22, 2009 toward the Judgment
Amount. Further the Company agreed to, and has, vacated the
Premises. CRP agreed to stay enforcement of the Judgment Amount until
the earlier of (a) the Company’s receipt of capital in the amount of at least
$500,000, or (b) May 31, 2010 (the “Forbearance Agreement”). The
matter was returned to the court’s files pending compliance with the terms of
the Stipulation.
Mr.
▇▇▇▇▇▇ ▇▇▇▇▇, a former employee, claimed in a letter sent on May 13, 2009, that
the Company owes him $67,500 under a severance agreement. Discussions
are on-going concerning this matter. No lawsuit has been
filed.
Attorney
Recovery Systems, Inc., an assignee of NEC Corporation, a former sublessor to
the Company, has asserted a claim in a letter dated April 2, 2009, that the
Company owes $52,827.08 under the former sublease. Discussions have
been held, but no resolution reached. No lawsuit has been
filed.
On
October 27, 2009, an attorney representing a company known as AITC forwarded a
letter asserting that the Company is holding $55,440 paid to it from the DC
government, which may be required to be refunded, directly or indirectly, to the
DC government, in whole or in substantial part. On November 13, ▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ made the same assertion. The claim relates to an
investigation by DC authorities into improper contracting activities by a former
DC employee and several others, including AITC employees. The Company
was not implicated in the matter other than that it was the recipient of funds
which AITC is now claiming the Company should pay over to AITC to refund to DC
or should refund directly to DC. The Company responded to AITC’s lawyer
with a copy to the District of Columbia’s representative on November 18, 2009,
denying the claim, and asserting an offset against it which exceeds the
$55,440. The Company has not heard anything additional from AITC or
the DC Government since our last correspondence.
Schedule 3.12:
Subsidiaries
Subsidiaries
The
Company has inactive subsidiaries, which include: International Data
Products, Puerto Rico Industrial Manufacturing Operations Acquisition
Corporation, and STMS Corporation.
Joint
Venture
Company
has inactive JV with SteelCloud MEA, LLC.
Schedule 3.13: Registration
Rights
Caledonia
Capital Corporation, Inc. has registration rights.
Schedule 3.14: Outstanding
Indebtedness
▇▇. ▇▇▇▇▇
▇▇▇▇▇▇ and Mr. ▇▇▇▇▇▇ ▇▇▇▇▇▇ did not receive a paycheck for the pay period
ending May 15, 2010. This action is reflected in the Company’s
accrued liabilities.