NOTE PURCHASE AGREEMENT
This Note
Purchase Agreement (this “Agreement”) is
entered into as of July 2, 2010 (the “Effective Date”) by
and between STEELCLOUD, INC., a Virginia corporation (the “Company”), and
CLIPPER INVESTORS LLC, an Illinois limited liability company (the “Investor”). The
Company and the Investor are referred to collectively herein as the
“parties.”
RECITALS
A. The
Investor is willing, pursuant to the terms and conditions of this Agreement, to
purchase from the Company that certain Note (as defined herein) which Note shall
be convertible into securities of the Company on the terms and subject to the
conditions set forth herein.
B. The
Company wishes to sell the Note on the terms and conditions and in the form
referenced herein.
C. The
purpose of this Agreement is to set forth the understanding of the parties
relative to the matters above. By this reference these Recitals are
incorporated into the Agreement which follows below.
AGREEMENT
NOW, THEREFORE, in
consideration of these premises, and the terms, conditions, representations and
covenants set forth herein, the parties hereby agree as follows:
1. DEFINITIONS.
1.1 Certain
Defined Terms. As used in this Agreement, the following terms
shall have the following respective meanings:
“Agreement” has the
meaning ascribed to such term in the preamble.
“Affiliate” has the
meaning such term is given in Rule 405 promulgated under the Securities
Act.
“Balance Sheet Date”
has the meaning ascribed to such term in Section 6.5.
“Closing” has the
meaning ascribed to such term in Section 3.1.
“Closing Date” has the
meaning ascribed to such term in Section 3.1.
“Collateral” has the
meaning ascribed to such term in the Security Agreement.
“Common Stock” means
the Company’s $0.001 par value common stock.
“Company” has the
meaning ascribed to such term in the preamble.
“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.
“Conversion Notice”
has the meaning ascribed to such term in Section 5.1.
“Conversion Shares”
means the shares of Common Stock issuable upon the conversion of the
Note.
“Debt” means (i)
Indebtedness for borrowed money, (ii) obligations evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligations to pay the
deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, and (v) obligations
under direct or indirect guaranties in respect of, and obligations (contingent
or otherwise) to purchase or otherwise acquire, or otherwise to assure a
creditor against loss in respect of, Indebtedness or obligations of others of
the kinds referred to in clause (i) through (iv) above.
“Default Rate” has the
meaning ascribed to such term in Section 4.3.
“Effective Date” has
the meaning ascribed to such term in the preamble.
“Event of Default” has
the meaning ascribed to such term in Section 10.
“Financial Statements”
has the meaning ascribed to such term in Section 6.5.
“Indebtedness” means
all Debt and other 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.
“Investor” has the
meaning ascribed to such term in the preamble.
“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.
“Loan Documents” means
collectively this Agreement, the Note, the Security Agreement, and the
Registration Rights Agreement.
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“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 other Loan Documents, or any of the other
documents, instruments or agreements contemplated hereby and
thereby.
“Maturity Date” has
the meaning ascribed to such term in Section 4.2.
“Note” has the meaning
ascribed to such term in Section 2.1.
“Outstanding Balance”
means the unpaid principal balance of the Note.
“Person” means an
individual, corporation, partnership, association, trust, government or
political subdivision or agent or instrumentality thereof, or other entity or
organization.
“Preferred Stock and Warrant
Purchase Agreement” means that certain Preferred Stock and Warrant
Purchase Agreement of even date herewith by and between the Company and the
Investor pursuant to which the Investor shall purchase 450,000 shares of the
Company’s Series A Preferred Stock and warrants to purchase 20,000,000 shares of
Common Stock.
“Purchase Price” has
the meaning ascribed to such term in Section 2.2.
“Registration Rights
Agreement” means the Registration Rights Agreement to be delivered by the
Company to the Investor pursuant to Section 3.2 hereof, substantially in the
form attached hereto as Exhibit
B.
“Xxxxxxxx-Xxxxx Act”
means the Xxxxxxxx-Xxxxx Act of 2002.
“SEC” means the
Securities and Exchange Commission.
“Securities Act” means
the Securities Act of 1933, as amended, or any similar Federal law then in
force.
“Securities Exchange
Act” means the Securities Exchange Act of 1934, as amended, or any
similar Federal law then in force.
“Security Agreement”
means that certain Security Agreement, dated of even date herewith, by and
between the Company and the Investor, substantially in the form attached hereto
as Exhibit
C.
1.2 Other
Defined Terms.
(a) Certain
other words and phrases are defined or described elsewhere in this Agreement
and/or the Schedules and Exhibits hereto.
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(b) Wherever
used in this Agreement (i) the words “include” or “including” shall be construed
as incorporating, also, “but not limited to” or “without limitation”, (ii) the
word “day” means a calendar day unless otherwise specified, (iii) the word
“party” means each and every person or entity who is a party to this Agreement,
(iv) the word “law” (or “laws”) means any statute, ordinance, resolution,
regulation, code, rule, order, decree, judgment, writ, injunction, mandate or
other legally binding requirements of a government entity, (v) the word “notice”
shall mean notice in writing (whether or not specifically stated) and shall
include notices, consents, approvals and any other written communication
contemplated under this Agreement, (vi) the word “or” shall mean either or both
and (vii) the words “Business Day” shall mean any day other than Saturday,
Sunday or a day on which commercial banks located in Chicago, Illinois are
required or authorized by law to close.
(c) Unless
the context otherwise requires, words in the singular number include the plural
and vice versa. All Schedules and Exhibits hereto are hereby
incorporated herein and made a part hereof.
2. PURCHASE OF
NOTES.
2.1 Authorization. The
Company has authorized the issuance and sale to the Investor of a convertible
note in the aggregate principal amount of One Million One Hundred Thousand
Dollars ($1,100,000), in the form attached hereto as Exhibit A (the
“Note”).
2.2 Sale and
Purchase of Note. Upon the terms and conditions contained
herein, the Company agrees to sell to the Investor, and the Investor agrees to
purchase from the Company, at the Closing (as hereinafter defined) and for the
aggregate purchase price of One Million One Hundred Thousand Dollars
($1,100,000) (the “Purchase Price”), the
Note.
3. CLOSING; CLOSING
DELIVERIES.
3.1 Closing. The
sale to and purchase by the Investor of the Note shall take place in a closing
(the “Closing”)
with the Closing to occur at the offices of Ungaretti & Xxxxxx LLP, 00 Xxxx
Xxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000 at 10:00 a.m. local time, on the
date hereof, or at such other time, date or place as the Company and the
Investor shall mutually agree (the “Closing
Date”).
3.2 Deliveries
by the Company at the Closing. The Investor
shall have received on or before the Closing Date, in form and substance
satisfactory to the Investor in its sole discretion:
(a) the
Note issued in the name of the Investor;
(b) the
Security Agreement, duly executed by the Company;
(c) the
Registration Rights Agreement, duly executed by the Company;
(d) a
certificate executed by the President of the Company stating that the conditions
specified in Sections 3.6(a) and 3.6(b) 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;
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(e) certified
copies of (A) the resolutions of the Board of Directors of the Company approving
the Loan Documents and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to such Loan Documents,
and (B) the Certificate of Incorporation and the Bylaws of the Company as in
effect on the Closing Date;
(f) the
legal opinions of Xxxxxxx & Savage LLP, and Fettman, Xxxxxxx & Xxxxxx
PC, counsel to the Company, in form and substance satisfactory to the Investor
and to the Investor’s counsel; and
(g) such
other certificates or documents the Investor or its counsel may reasonably
require.
3.3 Deliveries
by the Investor at Closing. The Company shall
have received on or before the Closing Date, in form and substance satisfactory
to the Company in its sole discretion:
(a) the
Purchase Price, by wire transfer of immediately available funds;
and
(b) such
other certificates or documents as the Investor or its counsel may reasonably
require.
3.4 Conditions
of the Company’s Obligations at Closing. The obligations of
the Company to the Investor under this Agreement are subject to the fulfillment
on or before the purchase or Closing of each of the following conditions by the
Investor:
(a) Representations and
Warranties. The representations and warranties of the Investor
contained in Section 6 shall be true on and as of the purchase or Closing
with the same effect as though such representations and warranties had been made
on and as of the purchase or Closing.
(b) Payment of Purchase
Price. Investor shall have delivered the Purchase
Price.
3.6 Conditions
of the Investor’s Obligations at Closing. 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:
(a) 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.
(b) 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.
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(c) Authorizations and
Approvals. All authorizations and approvals required in
connection with the issuance of the Note and the stock issuable upon conversion
of the Note shall have been obtained.
(d) 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.
(e) Due
Diligence. The Investor shall have completed its due diligence
investigation of the Company and shall be satisfied with results of such
investigation.
(f) 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.
(g) 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.
(h) Closing
Deliveries. All agreements and other documents to be delivered
to the Investor pursuant to Section 3.2 hereof shall be in form and substance
satisfactory to the Investor in its sole and absolute discretion.
(i) Preferred Stock and Warrant
Purchase Agreement. The parties hereto shall have entered into
the Preferred Stock and Warrant Purchase Agreement, and the transactions
contemplated by such Preferred Stock and Warrant Purchase Agreement shall be
consummated concurrently with the transactions contemplated
hereunder.
4. PAYMENT OF
NOTE.
4.1 Interest. The
Outstanding Balance in respect of the Note shall accrue interest, beginning as
of the date of the Note, at a rate of 12% per annum. Interest shall
be payable on July 31, 2010 and on the last day of each month thereafter, and on
the first to occur of the conversion of the outstanding balance of the Note as
contemplated by Section 5.1, the Maturity Date, and the acceleration of the
Note. Interest payable on the Note shall be calculated on the basis
of a year of 360 days consisting of twelve 30-day months. If the date
for any payment of principal is extended (whether by operation of this
Agreement, any provision of law or otherwise), interest shall be payable for
such extended time at the rates provided herein. Whenever any payment
hereunder shall be stated to be due on a day other than a Business Day, such
payment shall be due on the next succeeding Business Day.
4.2 Principal. The Outstanding
Balance shall be due and payable in cash by 1:00 p.m. Chicago time on July 2,
2013 (the “Maturity
Date”).
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4.3 Default
Rate of Interest. If the Company shall fail to pay on the due
date therefor, whether on the Maturity Date, by acceleration or otherwise, any
principal owing under the Notes, then interest shall accrue on such unpaid
principal from the due date to the date on which such principal is paid in full
at a rate per annum equal to eighteen percent (18%) (the “Default
Rate”). Interest calculated at the Default Rate shall be due
and payable upon demand by the Investor.
4.4 Other
Payment Terms. All other terms
and conditions governing the payment of the Note shall be as set forth in the
Note.
5. INVESTOR’S CONVERSION
OPTION.
5.1 Conversion
of Note. The Investor shall have the right at any time
and from time to time to convert all, or any part, of the outstanding balance
due under the Note into shares of Common Stock of the Company at the conversion
rate of $0.10 per share of Common Stock (subject to adjustment in the event of
stock splits or combinations). To exercise such conversion right, the
Investor must give written notice to the Company (“Conversion Notice”)
of such intent at least five (5) days prior to such conversion and specify the
portion of the outstanding principal balance of the Notes to be so converted. No
fractional shares of the Company's Common Stock shall be issued upon conversion
of the Note. In lieu of the Company issuing any fractional shares to the
Investor upon the conversion of the Note, the Company shall pay to the Investor
the amount of outstanding principal that is not so converted in cash. Within
five (5) days after receipt of the Conversion Notice, (a) the Company at its
expense will issue and deliver to the Investor a certificate or certificates for
the number of full shares of Common Stock issuable upon such conversion and pay
any outstanding interest accrued under the Note, (b) the principal balance of
the Note shall be reduced by the amount so converted, and (c) upon conversion of
all of the outstanding principal balance due under the Note, the Investor shall
concurrently surrender the Note, marked paid, at the principal office of the
Company. Upon conversion of all of the outstanding principal balance
due under the Note, and payment of any accrued and outstanding interest thereon,
the Company shall be forever released from all its obligations and liabilities
under the Note. Anything contained in the Note to the contrary notwithstanding,
the Note may not be prepaid without the Company providing the Investor not less
than thirty (30) days prior written notice of such prepayment and the Investor
shall not be required to accept any prepayment of the Note if
following receipt of such written notice the Investor has delivered a Conversion
Notice to the Company.
5.2 Reservation
of Shares. From and after the date hereof, the Company shall
reserve and keep available for issuance (i) such number of its authorized but
unissued shares of its Common Stock as will be sufficient to permit the
conversion in full of the Note into Common Stock, and in each case in accordance
with this Agreement and the terms of the Note. All shares of Common
Stock that are so issuable shall, when issued upon conversion or exercise, be
duly and validly issued and fully paid and non-assessable. If at any
time the number of authorized but unissued shares of Common Stock shall be
insufficient to effect the conversion or exercise of all the outstanding Note,
the Company shall take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such
purpose.
5.3 Registration
Rights. The Investor shall be entitled to the rights and
benefits as a holder of Investor Registrable Securities under the Registration
Rights Agreement.
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6. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY.
The
Company hereby represents and warrants to the Investor as follows:
6.1 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.
6.2 Authorization. The Company has
the full corporate power and authority to enter into the Loan Documents and to
perform all of its obligations hereunder and thereunder. The
execution, delivery and performance of the Loan Documents 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.
6.3 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 Preferred Stock and Warrant Purchase
Agreement.
6.4 Capitalization. As of the
Closing, the Company’s authorized capitalization will consist of (i) 80,000,000
shares of 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 Note hereunder and 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 Note 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. The Conversion Shares, when
issued and delivered upon conversion of the Note, will be duly and validly
issued, fully paid and non-assessable. Except as set forth on
Schedule 6.4 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.
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6.5 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”). Except as set forth on Schedule 6.5, 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.
6.6 Absence
of Changes. Except as set
forth on Schedule 6.6, 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;
(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;
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(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 6.6.
6.7 Compliance
with Other Instruments. Except as set
forth on Schedule 6.7, 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 Note (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.
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6.8 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.
6.9 Litigation. Except as set
forth on Schedule 6.9, 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.
6.10 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.
6.11 SEC
Filings and the Xxxxxxxx-Xxxxx 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.
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(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
Xxxxxxxx-Xxxxx Act, taken any action prohibited by Section 402 of the
Xxxxxxxx-Xxxxx Act.
6.12 Subsidiaries. Except as set
forth on Schedule 6.12, 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.
6.13 Registration
Rights. Except as set
forth on Schedule 6.13 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.
6.14 Outstanding
Indebtedness. Except as set
forth on Schedule 6.14 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 (c) any liability
to any officer, director, shareholder or employee of the Company for money
borrowed by the Company or otherwise.
6.15 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.
6.16 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 Note (and the issuance and delivery of the Conversion Shares)
are exempt from the registration requirements of the Securities
Act.
12
6.17 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 accurately reflect all transactions referred to in such minutes accurately
in all material respects.
7. REPRESENTATIONS AND
WARRANTIES OF THE INVESTOR.
The Investor hereby severally
represents and warrants to, and agrees with, the Company as
follows:
7.1 Investment
Intent. The Investor is
acquiring the Note (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 Note and Conversion
Shares:
“[THE SHARES EVIDENCED BY THIS
CERTIFICATE] [THIS NOTE AND THE SECURITIES ISSUABLE UPON ITS EXERCISE]
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES STATUTES 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.”
7.2 Restricted
Securities. The Investor
understands that the Note (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 Note 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 6 of this
Agreement or the right of the Investor to rely thereon. The Investor
understands that the Note (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 Note (or the Conversion Shares) or an
available exemption from registration under the Securities Act, the Note (and
any Conversion Shares) must be held indefinitely.
13
7.3 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 Note 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.
7.4 No
Conflicts. The execution,
delivery and performance of this Agreement by the Investor and the consummation
by the Investor of the transactions contemplated hereby 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.
7.5 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 Note 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 Note, 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, or any of
the transactions or relationships
contemplated hereby. The Investor understands that its purchase of the
Note
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 purchase of the Note. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 6 of this Agreement or the right of the Investor to
rely thereon.
8. NO
SUBORDINATION.
The Note will not be subordinate to any
other indebtedness of the Company, unless otherwise agreed to, in writing, by
the Investor.
9. NEGATIVE
COVENANTS.
The Company will not do any of the
following without the prior written consent of the Investor:
14
9.1. Issue Any
Equity Security. At any time after the Effective Date, the
Company will not issue any equity securities, except that for purposes of this
covenant, any (a) shares of Common Stock issued or issuable upon conversion of
shares of Preferred Stock or outstanding Note; (b) shares of Common Stock issued
or issuable to any employee, officer or director of, or consultant to, the
Company pursuant to any plan or arrangement approved by the Board of Directors
of the Company; (c) shares of Common Stock or other securities issued or
issuable to any bank, equipment lessor or other similar financial institution
pursuant to any transaction or arrangement approved by the Board of Directors of
the Company; (d) shares of Common Stock or other securities issued or issuable
to any strategic partner pursuant to any transaction or arrangement approved by
the Board of Directors of the Company; (e) shares of Common Stock or other
securities issued or issuable as consideration for the acquisition of any
business entity by the Company by merger, purchase of all or substantially all
of the assets or capital stock of such entity, or other reorganization approved
by the Board of Directors of the Company whereby the Company owns not less than
a majority of the voting power of such entity (or the surviving or successor
entity); (f) shares of Common Stock issued or issuable upon exercise of any
warrants outstanding as of the date hereof.
9.2. Liens. Create
or suffer to exist, or permit any of its subsidiaries to create or suffer to
exist, any Liens, upon or with respect to the Collateral (as such term is
defined in the Security Agreement), whether now owned or hereafter acquired, or
assign, or permit any of its subsidiaries to assign, any right to receive
income, in each case to secure or provide for the payment of any Indebtedness of
any Person or entity, other than Liens securing the Note.
9.3. Debt. Directly
or indirectly create, incur, assume, guarantee, or otherwise become or remain
liable with respect to any Debt, except as follows:
(a) the
Note;
(b) Debt
of the Company (including, without limitation, capital lease obligations except
for capital lease obligations relating to facility leases) in an aggregate
principal amount not to exceed $50,000 at any one time outstanding;
(c) capital
lease obligations relating to facility leases in an aggregate amount not to
exceed $100,000 at any one time outstanding, including any such capital lease
obligations that are otherwise encompassed by (d) below; and
(d) Debt
of the Company outstanding on the date hereof and any refinancings, refundings,
renewals or extensions thereof (without any increase in the principal amount
thereof or any shortening of the maturity of any principal amount
thereof).
9.4. Guaranty. Assume,
guaranty, endorse or otherwise be or become directly or contingently responsible
or liable to assure the creditors of any third party against loss, for the
obligations of any Person including an agreement to purchase any obligation,
stock, assets, goods or services or to supply or advance any funds, assets,
goods or services or an agreement to maintain or cause any such Person to
maintain a minimum working capital or net worth.
9.5. Sales of
Assets. Sell, lease, assign, transfer, abandon, or otherwise
dispose of, directly or indirectly, whether voluntary or involuntary, any of its
now owned or hereafter acquired assets without the written consent of the
Investor, other than sales, leases, or licenses of assets in the ordinary course
of the Company’s business.
15
9.6. Mergers. Merge
or consolidate with, or sell, assign, lease or otherwise dispose of (in one
transaction or in a series of related transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to any Person, or acquire
all or substantially all of the assets of the business of any Person, or enter
into any agreement to do any of the foregoing.
9.7. Officer/Employee
Distributions. Except as occurs
in the ordinary course of business consistent with past practice as previously
disclosed to the Investor, grant or pay any extraordinary distributions,
including bonuses or extraordinary salary increases; or make loans or other
forms of cash payments to employees or officers or directors; or, make any
payments of principal or interest on any shareholder loans existing on its
books; or give any preferential treatment, directly or indirectly, to any
officer, director or employee.
9.8. Dividends. Except
as required by the Preferred Stock, purchase or retire, or otherwise acquire for
value any of its capital stock now or hereafter outstanding, or make any
distribution of assets or loans to its stockholders, whether in cash, assets or
obligations, or allocate or otherwise set aside any sum for the payment of any
dividend or distribution by reduction of capital or otherwise in respect of any
shares of its capital stock.
9.9. Capital
Expenditures. Purchase any assets, vehicles or equipment or
make any other capital expenditures in excess of an aggregate of $50,000 per
annum, except in the ordinary course of business consistent with past
practice.
9.10. Stock. Change
the number of authorized shares, voting rights of shares, or class of shares, or
engage in any “split-ups,” revisions, reclassifications or other like change of
its stock.
9.11. Business. Change
the general character of its business as conducted or as proposed to be
conducted as of the date hereof or engage in any type of business not reasonably
related to its business as normally conducted, or change its corporate
name.
10. EVENTS OF
DEFAULT.
If any of the following (each, an
“Event of
Default”) shall occur:
10.1. if any
representation or warranty made to the Investor by the Company in this
Agreement, the Note, or the Security Agreement proves to have been incorrect in
any material respect as of the date hereof and as of the date on which it is
made, or any statement, certificate or data heretofore or hereafter furnished to
the Investor by the Company in connection with this Agreement proves to have
been incorrect in any material respect as of the date when the facts therein set
forth were stated or certified;
10.2. if the
Company fails to perform or comply with any covenant or agreement in this
Agreement, the Note or the Security Agreement;
10.3. if the
Company fails to pay principal of or interest on the Note, or any other
Indebtedness owing by the Company to the Investor now existing or hereafter
incurred by the Maturity Date;
16
10.4. if the Investor shall cease to have a valid and
perfected security interest in the Collateral for any reason whatsoever (other than
any act or omission by the Investor which results in such
cessation);
10.5. if
an event of default shall have occurred under any document executed in
connection with any other Indebtedness of the Company or with respect to any
other Indebtedness of the Company which has not been cured, which default
accelerates such Indebtedness;
10.6. except
as otherwise provided herein or in the Security Agreement, if the Collateral or
any part or interest thereof or therein be disposed of, sold, transferred or
encumbered in any way without the consent of the Investor, whether by operation
of law or otherwise;
10.7. if the
Investor is not permitted, at all reasonable times and upon reasonable prior
notice, to enter upon the business or other premises at which the Collateral is
located, to inspect the same;
10.8. a
judgment for the payment of money in excess of $50,000 shall be rendered against
the Company and any such judgment shall remain unsatisfied and in effect for any
period of sixty (60) consecutive days without a stay of execution;
10.9. the
Company shall (i) apply for or consent to the appointment of a receiver, trustee
or liquidator of the Company or of all or a substantial part of the assets of
the Company, (ii) be unable, or admit in writing, the inability to pay debts as
they mature, (iii) make a general assignment for the benefit of creditors; (iv)
be adjudicated a bankrupt or insolvent, or (v) file a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any insolvency law or an answer admitting
the material allegations of a petition filed against the Company in any
bankruptcy, reorganization or insolvency law or an answer admitting the material
allegations of a petition filed against the Company in any bankruptcy
proceeding, reorganization or insolvency proceeding, or corporate action shall
be taken by the Company for the purpose of effecting any of the
foregoing;
10.10. any
proceeding is commenced against the Company (unless dismissed within forty-five
(45) calendar days) under any provision of the United States Bankruptcy Code or
under any other state or federal bankruptcy or insolvency law, or seeking
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extensions generally with creditors, reorganization, arrangement
or other similar relief; or
10.11 an
order, judgment or decree shall be entered, without the application, approval or
consent of the Company, by any court of competent jurisdiction, approving a
petition seeking reorganization of the Company or appointing a receiver, trustee
or liquidator of the Company or of all or a substantial part of the assets of
the Company, and such order, judgment or decree shall continue unstayed and in
effect for any period of one hundred eighty (180) consecutive days;
THEN, if
the Company has not cured the Event of Default within fifteen (15) days after
notice thereof from the Investor as provided in the Security Agreement, the
Investor may by written notice to the Company declare the principal of and
interest accrued on the Note, and all other liabilities of the Company to the
Investor to be forthwith due and payable, whereupon the same shall become
forthwith due and payable; provided that the Note shall become due and payable,
without any further action, upon the occurrence of any of the events set forth
in Section 10.1.
17
11. MISCELLANEOUS
PROVISIONS.
11.1. Governing
Law. This Agreement and all acts and transactions pursuant hereto and the
rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Illinois without giving
effect to principles of conflicts of laws.
11.2. Survival. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by any party hereto and the closing of the transactions
contemplated hereby.
11.3. Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. The Company may not assign any of its rights or delegate any
of its duties under this Agreement without obtaining the prior written consent
of the Investor. The Investor may assign all or any part of its
rights and obligations hereunder.
11.4. Entire
Agreement. The Loan Documents and the Exhibits and Schedules
thereto constitute the entire understanding and agreement between the parties
with regard to the subjects hereof and thereof and supersede all prior and
contemporaneous agreements, whether written or oral.
11.5. 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 facsimile 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:
If
to the Company:
|
00000
Xxxxxxxx Xxxxx, Xxxxx 000
|
Xxxxxxx,
Xxxxxxxx 00000
|
|
Attn:
Xxxxx X. Xxxxxx
|
|
Fax:
(000) 000-0000
|
|
With
a copy to:
|
Xxxxxx
X. Xxxxxxx, Esq.
|
Fettmann,
Xxxxxxx & Xxxxxx, PC
|
|
00000
Xxxxxxxx Xxxxx
|
|
Xxxxx
000
|
|
Xxxxxxx,
XX 00000
|
|
Fax:
(000) 000-0000
|
|
If
to the Investor:
|
0000
Xxxxxx Xxxx
|
Xxxxxxxx,
XX 00000
|
|
Fax: (000)
000-0000
|
18
With
a copy to:
|
Ungaretti
& Xxxxxx LLP
|
00
Xxxx Xxxxxxx, Xxxxx 0000
|
|
Xxxxxxx,
Xxxxxxxx 00000
|
|
Attn: Xxxxxxx
X. Xxxxx
|
|
Fax: (000)
000-0000
|
provided,
however, that any notice of change of address shall be effective only upon
receipt.
11.6. Amendments. Any
term of this Agreement may be amended only with the written consent of the
Company and the Investor.
11.7. Delays or
Omissions; Waivers. No delay or omission to exercise any
right, power or remedy accruing to the Company or to the Investor, upon any
breach or default of any party hereto under this Agreement, shall impair any
such right, power or remedy of the Company, or the Investor nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of any similar breach of default thereafter occurring; nor shall any
waiver of any other breach or default theretofore or thereafter
occurring. No waiver of any of the provisions contained in this
Agreement shall be valid unless made in writing and executed by the Company (if
it is the waiving party) or by the Investor (if the Investor is the waiving
party).
11.8. Expenses;
Indemnification. The Company agrees to pay all reasonable
expenses (including reasonable legal expenses and attorneys’ fees) of every kind
incidental to the collection of the Note or enforcement of this Agreement, the
Note and the Security Agreement. The Company shall indemnify the
Investor against all reasonable claims for any fees, charges and commissions
arising in connection with the transactions contemplated by this Agreement, the
Note and the Security Agreement, excluding any gross negligence or willful
misconduct by the Investor or its representatives or agents acting in the course
and scope of this Agreement.
11.9. Titles
and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
11.10. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one
instrument.
11.11. Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, the parties agree to renegotiate such provision in good
faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(c) the balance of the Agreement shall be enforceable in accordance with
its terms.
11.12. Expenses. The
Company shall pay its own costs and expenses in connection with this Agreement
and the closing of the transactions contemplated hereby. In addition,
in connection with the negotiation of the Loan Documents, the Company shall pay
the reasonable legal fees and expenses of Ungaretti & Xxxxxx LLP, counsel to
the Investor, in an amount not to exceed $40,000.
19
11.13. Construction. This
Agreement is the result of negotiations among, and has been reviewed by, the
Company, the Investor and their respective counsel. Accordingly, this
Agreement shall be deemed to be the product of all parties hereto, and no
ambiguity shall be construed in favor of or against the Company or the
Investor.
[SIGNATURE
PAGE FOLLOWS]
20
IN WITNESS WHEREOF, the
parties have executed this Note Purchase Agreement to be effective as of the
date first above written.
COMPANY:
|
|
STEELCLOUD,
INC.,
|
|
a
Virginia corporation
|
|
By:
|
/s/ Xxxxx X. Xxxxxx
|
Name:
|
Xxxxx X. Xxxxxx
|
Its:
|
President & CEO
|
INVESTOR:
|
|
CLIPPER
INVESTORS LLC,
|
|
an
Illinois limited liability company
|
|
By:
|
/s/ Xxxxxxx X. Xxxxxx
|
Name:
|
Xxxxxxx X. Xxxxxx
|
Its:
|
Manager
|
Signature
Page to Note Purchase Agreement
EXHIBIT
A
FORM OF CONVERTIBLE
PROMISSORY NOTE
THIS NOTE
AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES STATUTES 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.
STEELCLOUD,
INC.
PROMISSORY
NOTE
$1,100,000
|
July
2, 2010
|
STEELCLOUD,
INC., a Virginia corporation (the “Company”), for value
received, hereby promises to pay to the order of CLIPPER INVESTORS LLC, an
Illinois limited liability company (the “Holder”), or its
registered assigns, the principal amount of One Million One Hundred Thousand
Dollars ($1,100,000) on July 2, 2013, with interest computed and payable as set
forth in the Note Purchase Agreement (defined below); provided that in no
event shall the amount payable as interest on this Note exceed the highest
lawful rate permissible under any law applicable hereto. Payments of
principal, premium, if any, and interest hereon shall be made in lawful money of
the United States of America by the method and at the address for such purpose
specified in the Note Purchase Agreement, and such payments shall be overdue for
purposes hereof if not made on the scheduled date of payment therefor, without
giving effect to any applicable grace period.
This Note
is issued pursuant to that certain Note Purchase Agreement dated July 2, 2010
(the “Note Purchase
Agreement”) between the Company and the Holder, and the Holder or its
registered assigns are entitled to the benefits of the Note Purchase Agreement
and the other documents referred to in the Note Purchase Agreement, including
without limitation, the Security Agreement and the Registration Rights
Agreement, and may enforce the agreements contained therein and exercise the
remedies provided for thereby or otherwise available in respect thereof, all in
accordance with the terms thereof. Capitalized terms used herein
without definition have the meanings ascribed to them in the Note Purchase
Agreement.
1. General.
1.1. Assignment. This
Note and all rights hereunder are transferable, in whole or in part, at the
office or agency of the Company by the Holder or its agent or attorney upon
surrender of this Note together with the Assignment Form attached hereto as
Exhibit A,
properly endorsed.
1.2. Certain
Waivers. The parties hereto hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance or enforcement of this Note.
1.3. Governing
Law. This Note shall be construed in accordance with and
governed by the domestic substantive laws of the State of Illinois without
giving effect to any choice of law or conflicts of law provision or rule that
would cause the application of domestic substantive laws of any other
jurisdiction.
1.4. Notices. All
notices, requests, consents and other communications hereunder shall be in
writing and shall be delivered in accordance with the Note Purchase
Agreement.
1.5. Replacement. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note and, in the case of any such loss, theft or
destruction of this Note, upon receipt of an indemnity reasonably satisfactory
to the Company or, in the case of any such mutilation, upon the surrender and
cancellation of this Note, the Company, at its expense, shall execute and
deliver, in lieu thereof, a new Note of like tenor and dated the date of such
lost, stolen, destroyed or mutilated Note, and following such execution and
delivery this Note shall not be deemed to be an outstanding Note.
1.6. Amendment. Any term of this
Note may be amended only with the written consent of the Company and the
Holder.
[signature
page follows]
23
IN
WITNESS WHEREOF, the Company has executed this Note as of the date first above
written.
STEELCLOUD,
INC.
|
|
By:
|
|
Name:
|
|
Title:
|
Signature
Page to Note
EXHIBIT
A TO NOTE
ASSIGNMENT
FORM
(To
assign the foregoing Note, execute
this form
and supply the required information.)
FOR VALUE
RECEIVED, the foregoing Note and all rights evidenced thereby are hereby
assigned to
_______________________________________________
whose address is
_______________________________________________________________
_______________________________________________________________
Dated: ______________,
_______
Holder’s
Name:
|
|||
Signature
of Holder
|
|||
or
Authorized Signatory:
|
|||
Title
(if applicable):
|
|||
Holder’s
Address:
|
Signature
Guaranteed: ___________________________________________
NOTE: The
signature to this Assignment Form must correspond with the name as it appears on
the face of the Note, without alteration or enlargement or any change
whatsoever, and must be guaranteed by a bank or trust
company. Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of authority to assign
the foregoing Note.
EXHIBIT
B
FORM OF REGISTRATION RIGHTS
AGREEMENT
REGISTRATION RIGHTS
AGREEMENT
This
Registration Rights Agreement (this “Agreement”) is
entered into as of July 2, 2010, by and among STEELCLOUD, INC., a Virginia
corporation (the “Company”), CLIPPER
INVESTORS LLC, an Illinois limited liability company (“Clipper”), and
CALEDONIA CAPITAL CORPORATION, a Delaware corporation (“Caledonia” and,
together with Clipper, the “Investors”).
The
Company and Clipper are parties to (a) a Preferred Stock and Warrant Purchase
Agreement (the “Preferred Stock and Warrant
Purchase Agreement”) and (b) a Note Purchase Agreement (the “Note Purchase
Agreement” and, together with the Preferred Stock and Warrant Purchase
Agreement, the “Purchase
Agreements”), each dated as of July 2, 2010. The Company and
Caledonia are parties to (i) an Exchange Agreement dated as of July 2, 2010
pursuant to which Caledonia was issued shares of the Company’s Preferred Stock
in exchange for certain shares of the Company’s Common Stock (the “Exchange Agreement”),
and (ii) a Consolidated, Amended and Restated Promissory Note dated July 2,
2010, made by the Company to the order of Caledonia in the original principal
amount of $570,000 (the “Caledonia
Note”). In order to induce Clipper to enter into the Purchase
Agreements and Caledonia to enter into the Exchange Agreement, the Company has
agreed to provide the registration rights set forth in this
Agreement. The execution and delivery of this Agreement is a
condition to the closing of the transactions contemplated by the Purchase
Agreements, the Exchange Agreement and the Caledonia Note. Unless
otherwise provided in this Agreement, capitalized terms used herein shall have
the meanings set forth in Section 8
hereof.
The
parties hereto agree as follows:
1. Demand
Registrations.
(a) Requests for
Registration. Each of Clipper and Caledonia may request
registration under the Securities Act of all or any portion of their Investor
Registrable Securities on Form S-1 or any similar long-form registration (“Long-Form
Registrations”) or, if then available, on Form S-2 or S-3 (including
pursuant to Rule 415 under the Securities Act) or any similar short-form
registration (“Short-Form
Registrations”). All registrations requested pursuant to this
Section 1(a)
are referred to herein as “Demand
Registrations.” Demand Registrations shall be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. Each request for a Demand Registration shall specify the
approximate number of Investor Registrable Securities requested to be registered
and the anticipated per share price range for such offering. Within
five (5) business days after receipt of any such request, the Company shall give
written notice of such requested registration to all other holders of Investor
Registrable Securities and, subject to Section 1(d) below,
shall include in such registration all Investor Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within thirty (30) days after the receipt of the Company’s notice.
(b) Investor Long-Form
Registrations. Each of Clipper and Caledonia shall be entitled
to request not more than one (1) Long-Form Registration pursuant to Section 1(a) for
which the Company shall pay all Registration Expenses (as defined in Section 5), whether
or not such registration is consummated. All Long-Form Registrations
shall be underwritten registrations. The selling stockholders and the
Company shall bear the expenses of the underwriter and placement agent, if any,
pro rata in proportion
to the respective number of shares each is selling in such
offering.
(c) Investor Short-Form
Registrations. In addition to the Long-Form Registrations
provided pursuant to Section 1(b), each of
Clipper and Caledonia shall be entitled to request an unlimited number of
Short-Form Registrations pursuant to Section 1(a) for
which the Company shall pay all Registration Expenses, whether or not such
registration is consummated. The selling stockholders and the Company
shall bear the expenses of the underwriter and placement agent, if any, pro rata in proportion to the
respective number of shares each is selling in such offering. The
Company shall use its best efforts to make Short-Form Registrations on Form S-3
available for the sale of Investor Registrable Securities and to maintain such
S-3 eligibility thereafter. If the Company, pursuant to the request
of the holder(s) of a majority of Investor Registrable Securities, is qualified
to and has filed with the Securities Exchange Commission a registration
statement under the Securities Act on Form S-3 pursuant to Rule 415 under the
Securities Act (the “Required
Registration”), then the Company shall use its best efforts to cause the
Required Registration to be declared effective under the Securities Act as soon
as practicable after filing, and, once effective, the Company shall cause such
Required Registration to remain effective for a period ending on the earlier of
(i) the date on which all Investor Registrable Securities included in such
registration have been sold pursuant to the Required Registration, or (ii) the
date as of which the holder(s) of the Investor Registrable Securities included
in such registration (assuming such holder(s) are affiliates of the Company) are
able to sell all of the Investor Registrable Securities included in such
registration within a ninety (90) day period in compliance with Rule 144 under
the Securities Act.
(d) Priority on Demand
Registrations. The Company shall not include in any Demand
Registration any securities that are not Investor Registrable Securities without
the prior written consent of the holder(s) of a majority of the Investor
Registrable Securities to be included in such registration. If a
Demand Registration is an underwritten offering and the managing underwriters
advise the Company in writing that, in their opinion, the number of Investor
Registrable Securities and, if permitted hereunder, other securities requested
to be included in such offering exceeds the number of Investor Registrable
Securities and other securities, if any, that can be sold in an orderly manner
in such offering within a price range acceptable to the holder(s) of a majority
of the Investor Registrable Securities to be included in such registration, then
the Company shall include in such registration, prior to the inclusion of any
securities that are not Investor Registrable Securities, the maximum number of
Investor Registrable Securities requested to be included that, in the opinion of
such underwriters, can be sold in an orderly manner within the price range of
such offering, allocated pro
rata among the respective holders thereof on the basis of the amount of
Investor Registrable Securities owned by each such holder.
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(e) Restrictions on Demand
Registrations. The Company shall not be obligated to effect
any Demand Registration within 180 days after the effective date of a previous
Demand Registration. The Company may postpone for up to 180 days the
filing or the effectiveness of a registration statement for a Demand
Registration if such registration would, in the good faith judgment of the
Company’s board of directors, substantially interfere with any material
transaction being considered at the time of receipt of the request for such
Demand Registration, including any proposal or plan by the Company to acquire
financing, engage in any acquisition of assets (other than in the ordinary
course of business), or engage in any merger, consolidation, tender offer,
reorganization, or similar transaction; provided that, in such event, the
holder(s) of Investor Registrable Securities initially requesting such Demand
Registration shall be entitled to withdraw such request and the Company shall
pay all Registration Expenses in connection with such
registration. The Company may delay a Demand Registration hereunder
only once in any twelve (12) month period.
(f) Selection of
Underwriters. The Company in its reasonable discretion shall
have the right to select the investment banker(s) and manager(s) to administer
any underwritten offering hereunder.
(g) Other Registration
Rights. Except as provided in this Agreement, the Purchase
Agreements, the Exchange Agreement, and the documents contemplated thereby, the
Company shall not grant to any Persons the right to request the Company to
register any equity securities of the Company, or any securities, options or
rights convertible or exchangeable into or exercisable for such securities,
without the prior written consent of the holder(s) of a majority of
the Investor Registrable Securities.
2.
Piggyback
Registrations.
(a) Right to
Piggyback. Whenever the Company proposes to register any of
its securities (including any proposed registration of the Company’s securities
by any third party) under the Securities Act (other than (i) pursuant to a
Demand Registration, which is addressed by Section 1, or (ii) in
connection with registrations on Form X-0, X-0 or any successor or similar forms
for transactions as to which no cash proceeds are attributable to the Company)
and the registration form to be used may be used for the registration of
Investor Registrable Securities (a “Piggyback
Registration”), the Company shall give prompt written notice (and in any
event within three (3) business days after its receipt of notice of any exercise
of demand registration rights other than under this Agreement) to all holders of
Investor Registrable Securities of its intention to effect such a registration
and shall include in such registration all Investor Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within thirty (30) days after the receipt of the Company’s notice.
(b) Piggyback
Expenses. The Registration Expenses of the holders of Investor
Registrable Securities shall be paid by the Company in all Piggyback
Registrations, whether or not such registration is consummated.
(c) Priority on Primary
Registrations. If a Piggyback Registration is an underwritten
primary registration on behalf of the Company, and the managing underwriters
advise the Company in writing that, in their opinion, the number of securities
requested to be included in such registration exceeds the number which can be
sold in an orderly manner in such offering within a price range acceptable to
the Company, then the Company shall include in such registration the maximum
number of securities that, in the opinion of such underwriters, can be sold in
an orderly manner within the price range of such offering, giving priority (i)
first, to the securities the Company proposes to sell, (ii) second, to the
Investor Registrable Securities requested to be included in such registration
(if any), allocated pro
rata among the respective holders thereof on the basis of the amount of
Investor Registrable Securities owned by each such holder, and (iii) third, to
the other securities requested to be included in such registration (if
any).
4
(d) Priority on Secondary
Registrations. If a Piggyback Registration is an underwritten
secondary registration on behalf of holders of the Company’s securities other
than holders of Investor Registrable Securities (it being understood that
secondary registrations on behalf of holders of Investor Registrable Securities
are addressed in Section 1 above
rather than this Section 2(d)), and
the managing underwriters advise the Company in writing that, in their opinion,
the number of securities requested to be included in such registration exceeds
the number which can be sold in an orderly manner in such offering within a
price range acceptable to the holder(s) of a majority of the Investor
Registrable Securities to be included in such registration, then the Company
shall include in such registration, (i) first, the securities requested to be
included therein by the holders requesting such registration and the Investor
Registrable Securities requested to be included in such registration, in each
case that, in the opinion of such underwriters, can be sold in an orderly manner
within the price range of such offering (if any), pro rata among the holders of
such securities and the holders of such Investor Registrable Securities on the
basis of the number of shares of Common Stock owned by each such holder, and
(ii) second, the other securities requested to be included in such registration
that, in the opinion of such underwriters, can be sold in an orderly manner
within the price range of such offering (if any).
(e) Other
Registrations. If the Company has previously filed a
registration statement with respect to Investor Registrable Securities pursuant
to Section 1 or
pursuant to this Section 2, and if
such previous registration has not been withdrawn or abandoned, then, unless
such previous registration is a Required Registration, the Company shall not
file or cause to be effected any other registration of any of its equity
securities or securities convertible or exchangeable into or exercisable for its
equity securities under the Securities Act (except on Form S-8 or any successor
form), whether on its own behalf or at the request of any holder or holders of
such securities, until a period of at least 180 days has elapsed from the
effective date of such previous registration.
3.
Lockup
Agreements
(a) Each
holder of Investor Registrable Securities shall not effect any public sale or
distribution (including sales pursuant to Rule 144 under the Securities Act) of
equity securities of the Company, or any securities, options or rights
convertible into or exchangeable or exercisable for such securities, during the
seven (7) days prior to and the 180-day period beginning on the effective date
of any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree.
5
(b) The
Company (i) shall not effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven (7) days prior to and during the 180-day
period beginning on the effective date of any underwritten Demand Registration
or any underwritten Piggyback Registration in which Investor Registrable
Securities are included (except as part of such underwritten registration or
pursuant to registrations on Form S-8 or any successor form), unless the
underwriters managing the registered public offering otherwise agree, and (ii)
shall cause each holder of its equity securities, or any securities convertible
into or exchangeable or exercisable for equity securities, purchased from the
Company at any time after the date of this Agreement (other than in a registered
public offering) to agree not to effect any public sale or distribution
(including sales pursuant to Rule 144 under the Securities Act) of any such
securities during such period (except as part of such underwritten registration,
if otherwise permitted), unless the underwriters managing the registered public
offering otherwise agree.
4.
Registration
Procedures. Whenever the holders of Investor Registrable
Securities have requested that any Investor Registrable Securities be registered
pursuant to this Agreement (subject to Section 1(e)), the
Company shall use its best efforts to effect the registration and the sale of
such Investor Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) prepare
and, within sixty (60) days after the receipt of a request for registration,
file with the Securities and Exchange Commission a registration statement with
respect to such Investor Registrable Securities and use its best efforts to
cause such registration statement to become effective as soon as practicable
thereafter (provided that, before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall furnish to the counsel selected by the holder(s) of a
majority of the Investor Registrable Securities covered by such registration
statement copies of all such documents proposed to be filed, which documents
shall be subject to the review and comment of such counsel);
(b) notify
in writing each holder of Investor Registrable Securities of the effectiveness
of each registration statement filed hereunder and prepare and file with the
Securities and Exchange Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for a period of not less
than 180 days (or, if such registration statement relates to an underwritten
offering, such longer period as in the opinion of counsel for the underwriters a
prospectus is required by law to be delivered in connection with sales of
Investor Registrable Securities by an underwriter or dealer) and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish
to each seller of Investor Registrable Securities such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus),
and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Investor Registrable Securities owned by such
seller;
6
(d) use
its best efforts to register or qualify such Investor Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any seller
reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller of Investor Registrable
Securities to consummate the disposition in such jurisdictions of the Investor
Registrable Securities owned by such seller of Investor Registrable Securities
(provided that the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section
4(d), (ii) subject itself to taxation in any such jurisdiction, or (iii)
consent to general service of process in any such jurisdiction);
(e) promptly
notify in writing each seller of such Investor Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement (i) contains an untrue
statement of a material fact or omits any fact necessary to make the statements
therein not misleading in light of the circumstances under which they were made
or (ii) is otherwise not legally available to support sales of Investor
Registrable Securities, and the Company shall promptly prepare and furnish to
each such seller a reasonable number of copies of a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Investor Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any fact necessary to make the
statements therein not misleading;
(f) cause
all such Investor Registrable Securities to be listed on a national securities
exchange or trading system and each securities exchange and trading system (if
any) on which similar securities issued by the Company are then
listed;
(g) provide
a transfer agent and registrar for all such Investor Registrable Securities not
later than the effective date of such registration statement;
(h) enter
into such customary agreements (including underwriting agreements in customary
form) and take all such other actions as the holder(s) of a majority of the
Investor Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
Investor Registrable Securities (including effecting a stock split or a
combination or shares);
(i)
make available for inspection by
any underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant, or other agent retained by any such
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company’s officers, directors,
employees, and independent accountants to supply all information reasonably
requested by any such underwriter, attorney, accountant, or agent in connection
with such registration statement and assist and, at the request of any
participating underwriter, use its best efforts to cause such officers or
directors to participate in presentations to prospective
purchasers;
(j) otherwise
use its best efforts to comply with all applicable rules and regulations of the
Securities and Exchange Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve (12) months beginning with the first day of the Company’s first
full calendar quarter after the effective date of the registration statement,
which earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
7
(k) in
the event of the issuance of any stop order suspending the effectiveness of a
registration statement, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any equity securities
included in such registration statement for sale in any jurisdiction, the
Company shall use its best efforts promptly to obtain the withdrawal of such
order;
(l) use
its best efforts to cause such Investor Registrable Securities covered by such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Investor Registrable
Securities;
(m) obtain
one or more cold comfort letters, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
dated the date of the closing under the underwriting agreement), from the
Company’s independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters as the holder(s)
of a majority of the Investor Registrable Securities being sold in such
registered offering reasonably request; and
(n) provide
a legal opinion of the Company’s outside counsel, dated the effective date of
such registration statement (or, if such registration includes an underwritten
public offering, dated the date of the closing under the underwriting
agreement), with respect to the registration statement, each amendment and
supplement thereto, the prospectus included therein (including the preliminary
prospectus) and such other documents relating thereto in customary form and
covering such matters of the type customarily covered by legal opinions of such
nature.
5.
Registration
Expenses.
(a) Subject
to Section 5(b)
below, all expenses incident to the Company’s performance of or compliance with
this Agreement, including all registration and filing fees, fees and expenses of
compliance with securities or blue sky laws, printing expenses, travel expenses,
filing expenses, messenger and delivery expenses, fees and disbursements of
custodians, and fees and disbursements of counsel for the Company, and fees and
disbursements of all independent certified public accountants, underwriters
including, if necessary, a “qualified independent underwriter” within the
meaning of the rules of the National Association of Securities Dealers, Inc. (in
each case, excluding discounts and commissions), and other Persons retained by
the Company or by holders of Investor Registrable Securities or their affiliates
on behalf of the Company (all such expenses being herein called “Registration
Expenses”), shall be borne as provided in this Agreement, except that the
Company shall, in any event, pay its internal expenses (including all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit or quarterly review, the expense of any
liability insurance, and the expenses and fees for listing the securities to be
registered in accordance with Section
4(f). The Company shall have no obligation to pay any
underwriting discounts attributable to the Investor Restristrable Securities
being sold by the holder thereof, which underwriting discounts shall be borne by
such holders.
8
(b) In
connection with each Demand Registration and each Piggyback Registration, the
Company shall reimburse the holders of Investor Registrable Securities included
in such registration for the reasonable fees and disbursements of one (1)
counsel chosen by the holder(s) of a majority of the Investor Registrable
Securities included in such registration.
(c) To
the extent Registration Expenses are not required to be paid by the Company,
each holder of securities included in any registration hereunder shall pay those
Registration Expenses allocable to the registration of such holder’s securities
so included, and any Registration Expenses not so allocable shall be borne by
all sellers of securities included in such registration in proportion to the
aggregate selling price of the securities to be so registered.
6.
Indemnification.
(a) The
Company agrees to indemnify and hold harmless, to the fullest extent permitted
by law, each holder of Investor Registrable Securities, its officers, directors,
agents, and employees, and each Person who controls such holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities,
and expenses (or actions or proceedings, whether commenced or threatened, in
respect thereof), whether joint and several or several, together with reasonable
costs and expenses (including reasonable attorney’s fees) to which any such
indemnified party may become subject under the Securities Act or otherwise
(collectively, “Losses”) caused by,
resulting from, arising out of, based upon, or relating to (i) any untrue or
alleged untrue statement of material fact contained in (A) any registration
statement, prospectus or preliminary prospectus, or any amendment thereof or
supplement thereto or (B) any application or other document or communication (in
this Section 6,
collectively called an “application”)
executed by or on behalf of the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in order to
qualify any securities covered by such registration under the blue sky or
securities laws thereof or (ii) any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company will reimburse such holder and each such
director, officer, and controlling Person for any legal or any other expenses
incurred by them in connection with investigating or defending any such Losses;
provided that the Company shall not be liable to any holder in any such case to
the extent that any such Losses result from, arise out of, are based upon, or
relate to an untrue statement or alleged untrue statement, or omission or
alleged omission, made in such registration statement, any such prospectus, or
preliminary prospectus or any amendment or supplement thereto, or in any
application, in each case, in reliance upon, and in conformity with, written
information prepared and furnished in writing to the Company by such holder
expressly for use therein or by such holder’s failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such holder with a sufficient number of copies
of the same. In connection with an underwritten offering, the Company
shall indemnify such underwriters, their officers and directors, and each Person
who controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Investor Registrable Securities.
9
(b) In
connection with any registration statement in which a holder of Investor
Registrable Securities is participating, each such holder will furnish to the
Company in writing such information and affidavits as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall indemnify and hold
harmless the Company and its officers, directors, agents, and employees, and
each other Person who controls the Company (within the meaning of the Securities
Act) against any Losses to the extent caused by, resulting from, arising out of,
based upon, or relating to (i) any untrue or alleged untrue statement of
material fact contained in the registration statement, prospectus or preliminary
prospectus, or any amendment thereof or supplement thereto or in any
application, or (ii) any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
made in such registration statement, any such prospectus or preliminary
prospectus or any amendment or supplement thereto, or in any application, in
each case, in reliance upon and in conformity with written information prepared
and furnished to the Company by such holder expressly for use therein, and such
holder will reimburse the Company and each such other indemnified party for any
legal or any other expenses incurred by them in connection with investigating or
defending any such Losses; provided that the obligation to indemnify will be
individual, not joint and several, for each holder and shall be limited to the
net amount of proceeds received by such holder from the sale of Investor
Registrable Securities pursuant to such registration statement.
(c) Any
Person entitled to indemnification hereunder will (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification (provided that the failure to give prompt notice shall not
impair any Person’s right to indemnification hereunder to the extent such
failure has not materially and actually prejudiced the indemnifying party) and
(ii) unless in such indemnified party’s reasonable judgment a conflict of
interest between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the defense of
such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, then (x) the indemnifying party
will not be subject to any liability for any settlement made by the indemnified
party without the indemnifying party’s consent (but such consent will not be
unreasonably withheld) and (y) the indemnifying party will not enter into any
settlement agreement with respect to such claim unless there is no finding or
admission of liability by the indemnified party in such settlement
agreement. An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
(d) The
indemnification provided for under this Agreement shall be in addition to any
other rights to indemnification or contribution which any indemnified party may
have pursuant to law or contract, and will remain in full force and effect
regardless of any investigation made or omitted by or on behalf of the
indemnified party or any officer, director, or controlling Person of such
indemnified party and shall survive the transfer of securities.
10
(e) If
the indemnification provided for in this Section 6 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other hand in
connection with the statements or omissions which resulted in such loss, claim,
damage, liability or action as well as any other relevant equitable
considerations; provided that the maximum amount of liability in respect of such
contribution shall be limited, in the case of each seller of Investor
Registrable Securities, to an amount equal to the net proceeds actually received
by such seller from the sale of Investor Registrable Securities effected
pursuant to such registration. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
7.
Participation in
Underwritten Registrations. No Person may participate in any
underwritten registration hereunder unless such Person (i) agrees to sell such
Person’s securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements, and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, and other documents reasonably
required under the terms of such underwriting arrangements; provided that no
holder of Investor Registrable Securities included in any underwritten
registration shall be required to make any representations or warranties to the
Company or the underwriters (other than representations and warranties regarding
such holder and such holder’s intended method of distribution) or to undertake
any indemnification obligations to the Company or the underwriters with respect
thereto, except as otherwise provided in Section 6
hereof.
8.
Definitions.
(a) “Common Stock” means
the Company’s $0.001 par value common stock.
(b) “Investor Registrable
Securities” means, (i) the shares of Common Stock issuable upon
conversion of the Preferred Shares, the shares of Common Stock issuable upon the
exercise of the Warrants (all as defined in the Preferred Stock and Warrant
Purchase Agreement), and the shares of Common Stock issuable upon conversion of
the Note (as defined in the Note Purchase Agreement), (ii) the shares of Common
Stock issuable upon conversion of the Preferred Shares issued to Caledonia
pursuant to the Exchange Agreement and the shares of Common Stock issuable upon
conversion of the Caledonia Note, and (iii) shares of Common Stock issued or
issuable with respect to the securities referred to in clauses (i) or (ii) above
by way of dividend, distribution, split or combination of securities, or any
recapitalization, merger, consolidation or other reorganization. As
to any particular Investor Registrable Securities, such securities shall cease
to be Investor Registrable Securities when they (A) have been distributed to the
public pursuant to an offering registered under the Securities Act or sold to
the public through a broker, dealer, or market maker in compliance with Rule 144
under the Securities Act (or any similar rule then in force), (B) have been
effectively registered under a registration statement including, without
limitation, a registration statement on Form S-8 (or any successor form), or (C)
have been repurchased by the Company. For purposes of this Agreement,
a Person shall be deemed to be a holder of Investor Registrable Securities
whenever such Person has the right to acquire such Investor Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected.
11
(c) “Person” means an
individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, an investment fund, any other business entity and a governmental
entity or any department, agency or political subdivision thereof.
(d) “Securities Act” means
the Securities Act of 1933, as amended, or any successor federal law then in
force, together with all rules and regulations promulgated
thereunder.
(e) “Securities Exchange
Act” means the Securities Exchange Act of 1934, as amended, or any
successor federal law then in force, together with all rules and regulations
promulgated thereunder.
9.
Miscellaneous.
(a) No Inconsistent Agreements;
Entire Agreement. The Company will not enter into any
agreement with respect to its securities that is inconsistent with or violates
the rights granted to the holders of Investor Registrable Securities in this
Agreement. This Agreement, those documents expressly referred to
herein and other documents of even date herewith embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, that may have related to the subject matter hereof in any
way.
(b) Adjustments Affecting
Investor Registrable Securities. The Company shall not take
any action, or permit any change to occur, with respect to its securities that
would adversely affect the ability of the holders of Investor Registrable
Securities to include such Investor Registrable Securities in a registration
undertaken pursuant to this Agreement or that would adversely affect the
marketability of such Investor Registrable Securities in any such registration
(including effecting a share or unit split or a combination of shares or
units).
(c) Remedies. Any
Person having rights under any provision of this Agreement shall be entitled to
enforce such rights specifically (without posting a bond or other security), to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that, in addition
to any other rights and remedies existing in its favor, any party shall be
entitled to specific performance and/or other injunctive relief from any court
of law or equity of competent jurisdiction (without posting any bond or other
security) in order to enforce or prevent violation of the provisions of this
Agreement.
(d) Amendments and
Waivers. Except as otherwise provided herein, no modification,
amendment, or waiver of any provision of this Agreement shall be effective
against the Company or the holders of Investor Registrable Securities unless
such modification, amendment, or waiver is approved in writing by the Company,
Clipper and Caledonia. No failure by any party to insist upon the
strict performance of any covenant, duty, agreement, or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or any other covenant, duty,
agreement, or condition.
12
(e) Successors and
Assigns. All covenants and agreements in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not. In addition, whether or not any express assignment has been
made, the provisions of this Agreement which are for the benefit of holders of
Investor Registrable Securities are also for the benefit of, and enforceable by,
any subsequent holder of Investor Registrable Securities. The Company
may not assign any of its rights or obligations under this Agreement without the
prior written consent of the Investors. Each Investor may assign all
or any part of its rights and obligations hereunder.
(f) Severability. Whenever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or any other jurisdiction,
but this Agreement will be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained
herein.
(g) Counterparts. This
Agreement may be executed simultaneously in two or more counterparts (including
by means of facsimile), each of which shall be deemed an original, and all of
which taken together shall constitute one and the same Agreement.
(h) Descriptive Headings;
Interpretation. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a substantive part of this
Agreement.
(i) Governing
Law. 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.
(j)
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 facsimile or by same day
or overnight recognized commercial courier service, or three (3) 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:
SteelCloud,
Inc.
00000
Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxxx 00000
Attn:
Xxxxx X. Xxxxxx
13
with a copy
to:
Fettmann,
Xxxxxxx & Majors, PC
00000
Xxxxxxxx Xxxxx
Xxxxx
000
Xxxxxxx,
XX 00000
Fax:
000-000-0000
Attn:
Xxxxxx X. Xxxxxxx, Esq.
To
Clipper:
Clipper
Investors LLC
0000
Xxxxxx Xxxx
Xxxxxxxx,
Xxxxxxxx 00000
Attn:
Xxxxxxx X. Xxxxxx
with a copy
to:
Ungaretti
& Xxxxxx LLP
00 Xxxx
Xxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attn: Xxxxxxx
X. Xxxxx
To
Caledonia:
Caledonia
Capital Corporation
00000 Xxxx Xxxxx Xxxxx, Xxxxx
000
Xxxxxxxx,
XX 00000,
Attn: Xxxxxx Xxxxxxx
with a copy
to:
Grossberg,Yochelson,
Fox & Xxxxx, LLP
0000 X
Xxxxxx, XX, Xxxxx 000
Xxxxxxxxxx,
XX 00000
Attn:
Xxxxxx X. Xxxxxxxx
provided,
however, that any notice of change of address shall be effective only upon
receipt
(k) No Strict
Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
[signature
page follows]
14
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as
of the date first above written.
STEELCLOUD,
INC.
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By:
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Name:
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Its:
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CLIPPER
INVESTORS LLC
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By:
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Name:
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Its:
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CALEDONIA
CAPITAL CORPORATION
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By:
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Name:
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Its:
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EXHIBIT
C
FORM OF SECURITY
AGREEMENT
SECURITY
AGREEMENT
THIS SECURITY AGREEMENT (this “Agreement”) is made
as of July 2, 2010 by STEELCLOUD, INC., a Virginia corporation (the “Grantor”), for the
benefit of CLIPPER INVESTORS LLC, an Illinois limited liability company (“Clipper”) and
CALEDONIA CAPITAL CORPORATION, a Delaware corporation (“Caledonia” and,
collectively with Clipper, the “Lender”).
RECITALS:
WHEREAS,
Grantor is indebted to Clipper in the principal amount of $1,100,000 as
evidenced by that certain Promissory Note dated of even date herewith (the
“Clipper
Note”);
WHEREAS,
Grantor is indebted to Caledonia in the principal amount of $570,000 as
evidenced by that certain Promissory Note dated of even date herewith (the
“Caledonia
Note” and, together with the Clipper Note, the “Notes”);
WHEREAS, Lender holds shares of the
Company’s Series A Convertible Preferred Stock (the “Preferred Shares”);
and
WHEREAS,
as security for all of the Obligations (hereinafter defined), Lender is
requiring that Grantor enter into this Agreement and grant the security
interests contemplated hereby.
NOW, THEREFORE, for good and valuable
consideration the receipt and adequacy of which are hereby acknowledged by each
of the parties hereto, it is agreed as follows:
1.
Definitions. As
used herein, the following terms shall have the meanings set forth in this
Section:
“Accounts” shall have
the meaning provided in the UCC.
“Chattel Paper” shall
have the meaning provided in the UCC and shall include, without limitation, all
Electronic Chattel Paper and Tangible Chattel Paper.
“Collateral” shall
mean all property in which a security interest is granted
hereunder.
“Commercial Tort
Claim” shall have the meaning provided in the UCC.
“Controlled Property”
shall mean property of every kind and description in which Grantor has or may
acquire any interest, now or hereafter at any time in the possession or control
of Lender for any reason and all dividends and distributions on or other rights
in connection with such property.
“Data Processing Records and
Systems” shall mean all of Grantor’s now existing or hereafter acquired
electronic data processing and computer records, software (including, without
limitation, all “Software” as defined in the UCC), systems, manuals, procedures,
disks, tapes and all other storage media and memory.
“Deposit Accounts”
shall have the meaning provided in the UCC and shall include, without
limitation, any demand, time, savings, passbook or similar account maintained
with a bank.
“Document” shall have
the meaning provided in the UCC.
“Electronic Chattel
Paper” shall have the meaning provided in the UCC.
“Equipment” shall have
the meaning provided in the UCC.
“Event of Default”
shall have the meaning specified in Section 6 hereof.
“Fixtures” shall have
the meaning provided in the UCC.
“General Intangibles”
shall have the meaning provided in the UCC and shall include, without
limitation, all Payment Intangibles.
“Goods” shall have the
meaning provided in the UCC and shall include embedded “Software” to the extent
included in “Goods” as defined in the UCC.
“Grantor” shall have
the meaning provided in the preamble hereto.
“Instruments” shall
have the meaning provided in the UCC.
“Insurance Proceeds”
shall mean all proceeds of any and all insurance policies payable to Grantor
with respect to any Collateral, or on behalf of any Collateral, whether or not
such policies are issued to or owned by Grantor.
“Inventory” shall have
the meaning provided in the UCC.
“Investment Property”
shall have the meaning provided in the UCC.
“Lender” shall have
the meaning set forth in the preamble hereto.
“Letter-of-Credit Rights
“ shall have the meaning provided in the UCC.
“Obligations” shall
mean all loans, advances, debts, liabilities, obligations, covenants and duties
owing by Grantor to Lender of any kind or nature, present or future, arising
under the Notes or the Preferred Shares. The term includes, but is
not limited to, all principal, interest, fees, charges, expenses, reasonable
attorneys’ fees, and any other sum chargeable to Grantor under the
Notes.
“Payment Intangibles”
shall have the meaning provided in the UCC.
“Proceeds” shall have
the meaning provided in the UCC.
“Products” shall mean
any goods now or hereafter manufactured, processed or assembled with any of the
Collateral.
“Supporting
Obligations” shall have the meaning provided in the UCC.
“Tangible Chattel
Paper” shall have the meaning provided in the UCC.
“Tangible Collateral”
shall mean all items of Collateral consisting of tangible personal
property.
“UCC” shall mean the
Uniform Commercial Code as enacted in the State of Virginia, as amended from
time to time, provided that: (a) to the extent that the UCC is used to define
any term herein, and such term is defined differently in different Articles of
the UCC, the definition of such term contained in Article 9 of the UCC shall
govern; and (b) if, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to, Lender’s
security interest in any Collateral is governed by the Uniform Commercial Code
as enacted and in effect in a jurisdiction other than the State of Virginia, the
term “UCC” shall mean the Uniform Commercial Code as enacted and in effect in
such other jurisdiction solely for purposes of the provisions thereof relating
to such attachment, perfection or priority of, or remedies with respect to,
Lender’s security interest and for purposes of definitions related to such
provisions.
Other terms defined herein shall have
the meanings ascribed to them herein.
2. Security
Interest. As security for the payment of all Obligations,
Grantor hereby grants to Lender a security interest in all of Grantor’s right,
title and interest in and to the following, whether now owned or existing or
hereafter acquired or arising:
Accounts;
Chattel Paper;
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Commercial
Tort Claims;
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Controlled Property;
Data Processing Records and
Systems;
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Deposit
Accounts;
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Documents;
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Equipment
and Fixtures;
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General Intangibles;
Instruments;
Inventory;
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Investment
Property;
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4
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Letter-of-Credit
Rights;
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Proceeds
(whether cash or non-cash Proceeds, including Insurance Proceeds and
non-cash Proceeds of all types);
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Products of all the foregoing;
and
Supporting Obligations.
3. Representations and
Covenants of Grantor. Grantor represents, warrants and
covenants that:
3.1 Authorization. The
execution and performance of this Agreement have been duly authorized by all
necessary action and do not and will not: (a) require any consent or approval of
the stockholders of Grantor as has not been previously obtained, or the consent
of any governmental entity; or (b) violate any provision of any indenture,
contract, agreement or instrument to which it is a party or by which it is
bound.
3.2 Title to
Collateral. Grantor has good and marketable title to all of
the Collateral and none of the Collateral is subject to any security interest
except for the security interest created pursuant to this
Agreement.
3.3 Disposition or Encumbrance
of Collateral. Grantor will not encumber, sell or otherwise
transfer or dispose of the Collateral without the prior written consent of
Clipper except as provided in this Section. Until an Event of Default
has occurred and is continuing, Grantor may sell Collateral consisting of: (a)
Inventory in the ordinary course of business provided that Grantor receives as
consideration for such sale an amount not less than the fair market value of the
Inventory at the time of such sale; and (b) Equipment and Fixtures which in the
judgment of Grantor have become obsolete or unusable in the ordinary course of
business.
3.4 Validity of
Accounts. Grantor warrants that all Collateral consisting of
Accounts, Chattel Paper and Instruments included in Grantor’s schedules,
financial statements or books and records are bona fide existing obligations
created by the sale and actual delivery of Inventory or the rendition of
services to customers in the ordinary course of business, which Grantor then
owns free and clear of any security interest other than the security interest
created by this Agreement, and which are then unconditionally owing to Grantor
without defenses, offset or counterclaim except those arising in the ordinary
course of business that are immaterial in the aggregate and that the unpaid
principal amount of any such Chattel Paper or Instrument and any security
therefor is and will be as represented to Lender on the date of the delivery
thereof to Lender.
3.5 Maintenance of Tangible
Collateral. Grantor will maintain the tangible Collateral in
good condition and repair. At the time of attachment and perfection
of the security interest granted pursuant hereto and thereafter, all tangible
Collateral will be located and will be maintained only at the locations set
forth on Exhibit A attached hereto. Except as otherwise permitted by
Section 3.3, Grantor will not remove such Collateral from such locations unless,
prior to any such removal, Grantor has given written notice to Lender of the
location or locations to which Grantor desires to remove the Collateral, and
Clipper has given its written consent to such removal. Lender’s
security interest attaches to all of the Collateral wherever located and
Grantor’s failure to inform Lender of the location of any item or items of
Collateral shall not impair Lender’s security interest thereon.
5
3.6 Notation on Chattel
Paper. For purposes of the security interest granted pursuant
to this Agreement, Lender has been granted a direct security interest in all
Chattel Paper constituting part of the Collateral and such Chattel Paper is not
claimed merely as Proceeds of Inventory. Upon Lender’s request,
Grantor will deliver to Lender the original of all Chattel
Paper. Grantor will not execute any copies of such Chattel Paper
constituting part of the Collateral other than those which are clearly marked as
a copy. Lender may stamp any such Chattel Paper with a legend
reflecting Lender’s security interest therein.
3.7 Instruments as Proceeds;
Deposit Accounts. Notwithstanding any other provision in this
Agreement concerning Instruments, Grantor covenants that Instruments
constituting cash Proceeds (for example, money and checks) shall be deposited in
Deposit Accounts. Grantor has granted to Lender a direct security
interest in all Deposit Accounts constituting part of the Collateral and such
Deposit Accounts are not claimed merely as Proceeds of other
Collateral.
3.8 Protection of
Collateral. All expenses of protecting, storing, warehousing,
insuring, handling and shipping of the Collateral, all costs of keeping the
Collateral free of any liens, encumbrances and security interests prohibited by
this Agreement and of removing the same if they should arise, and any and all
excise, property, sales and use taxes imposed by any state, federal or local
authority on any of the Collateral or in respect of the sale thereof, shall be
borne and paid by Grantor and if Grantor fails to promptly pay any thereof when
due, Lender may, at its option, but shall not be required to pay the same
whereupon the same shall constitute Obligations and shall bear interest at the
Interest Rate specified in the Note and shall be secured by the security
interest granted hereunder.
3.9 Insurance. Grantor
will procure and maintain, or cause to be procured and maintained, insurance
issued by responsible insurance companies insuring the Tangible Collateral
against damage and loss by theft, fire, collision (in the case of motor
vehicles), and such other risks as are usually carried by owners of similar
properties or as may be requested by Lender in an amount equal to the
replacement value thereof, and, in any event, in an amount sufficient to avoid
the application of any co-insurance provisions and payable, in the case of any
loss in excess of $25,000.00, to Grantor and Lender jointly. All such
insurance shall contain an agreement by the insurer to provide Lender with 30
days’ prior notice of cancellation and an agreement that the interest of Lender
shall not be impaired or invalidated by any act or neglect of
Grantor. Grantor will maintain, with financially sound and reputable
insurers, insurance with respect to its properties and business against such
casualties and contingencies of such types (which may include, without
limitation, public and product liability, larceny, embezzlement, business
interruption or other criminal misappropriation insurance) and in such amounts
as may from time to time be required by Lender. Grantor will deliver
evidence of such insurance and the policies of insurance or copies thereof to
Lender upon request. Unless Grantor provides Lender with evidence of
the insurance coverage required by this Section, Lender may purchase, at
Grantor’s expense, insurance to protect Lender’s interest in the
Collateral. This insurance may, but need not, protect Grantor’s
interests. The coverage that Lender purchases may not pay any claim
that Grantor makes or any claim that is made against Grantor in connection with
the Collateral. Grantor may later cancel any insurance purchased by
Lender, but only after providing Lender with evidence that Grantor has obtained
insurance as required by this section. If Lender purchases insurance
for the Tangible Collateral, Grantor will be responsible for the costs of the
insurance, including interest and any charges Lender may impose in connection
with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the
insurance may be added to the Obligations. The costs of the insurance
may be more than the cost of insurance Grantor may be able to obtain
itself.
6
3.10 Compliance with
Law. Grantor will not use the Collateral, or knowingly permit
the Collateral to be used, for any unlawful purpose or in violation of any
federal, state or municipal law.
3.11 Books and Records;
Access.
(a) Grantor
will permit Lender and its representatives to examine Grantor’s books and
records (including Data Processing Records and Systems) with respect to the
Collateral and make extracts therefrom and copies thereof at any time and from
time to time, upon reasonable notice (unless an Event of Default then exists, in
which event no such notice shall be required) and Grantor will furnish such
information and reports to Lender and its representatives regarding the
Collateral as Lender and its representatives may from time to time
request. Grantor will also permit Lender and its representatives to
inspect the Collateral at any time and from time to time as Lender and its
representatives may reasonably request.
(b) Lender
shall have authority, at any time, to place, or require Grantor to place, upon
Grantor’s books and records relating to Accounts, Chattel Paper and other rights
to payment covered by the security interest granted hereby a notation or legend
stating that such Accounts, Chattel Paper and other rights to payment are
subject to Lender’s security interest.
3.12 Notice of
Default. Immediately upon any officer of Grantor becoming
aware of the existence of any Event of Default, Grantor will give notice to
Lender that such Event of Default exists, stating the nature thereof, the period
of existence thereof, and what action Grantor proposes to take with respect
thereto.
3.13 Additional
Documentation. Grantor will execute, from time to time, and
authorizes Lender to execute from time to time as Grantor’s attorney-in-fact
and/or file, such financing statements, assignments, and other documents
covering the Collateral, including Proceeds, as Lender may request in order to
create, evidence, perfect, maintain or continue its security interest in the
Collateral (including additional Collateral acquired by Grantor after the date
hereof), and Grantor will pay the cost of filing the same in all
public offices in which Lender may reasonably deem filing to be appropriate and
will notify Lender promptly upon acquiring any additional Collateral that may
require an additional filing. Upon request, Grantor will deliver to
Lender all Grantor’s Documents, Chattel Paper and Instruments constituting part
of the Collateral.
7
3.14 State of
Organization. Grantor’s State of organization is the State set
forth in the preamble hereto and such State has been its State of organization
since the date of Grantor’s organization. Grantor will not change its State of
organization from such State without 30 days’ prior written notice to
Lender, Lender’s written consent to such change, and Grantor’s
delivery to Lender acknowledgment copies of financing statements filed where
appropriate to continue the perfection of Lender’s security interest as a first
priority security interest therein.
3.15 Name of
Grantor. Grantor’s exact legal name and type of legal entity
is as set forth in the preamble hereto. Grantor will not change its
legal name without 30 days’ prior written notice to Lender, Lender’s written
consent to such change, and Grantor’s delivery to Lender acknowledgment copies
of financing statements filed where appropriate to continue the perfection of
Lender’s security interest as a first priority security interest in the
Collateral. Grantor has not used any other name within the past five
years. Neither Grantor nor, to Grantor’s knowledge, any predecessor
in title to any of the Collateral has executed any financing statements or
security agreements presently effective as to the Collateral.
3.16 Disputes;
etc. Grantor shall advise Lender promptly of all disputes and
claims in excess of $50,000.00 for any one obligor on the Collateral in any
fiscal year or in excess of $100,000.00 in the aggregate for all obligors in any
fiscal year and settle or adjust them at no expense to Lender. After
the occurrence and during the continuance of an Event of Default, Lender may at
all times settle or adjust such disputes and claims directly with the customers
for amounts and upon terms which Lender reasonably determines to be commercially
reasonable. No discount, credit, allowance, adjustment or return
shall be granted by Grantor to any customer without Lender’s written consent
other than discounts, credits, allowances, adjustments and returns made or
granted by Grantor in the ordinary course of business prior to the occurrence
and during the continuance of an Event of Default.
3.17 Power of
Attorney. Grantor appoints Lender, or any other person whom
Lender may from time to time designate, as Grantor’s attorney with power to,
upon the occurrence and during the continuation of an Event of
Default: (a) endorse Grantor’s name on any checks, notes,
acceptances, drafts or other forms of payment or security evidencing or relating
to any Collateral that may come into Lender’s possession; (b) sign Grantor’s
name on any invoice or xxxx of lading relating to any Collateral, on drafts
against customers, on schedules and confirmatory assignments of Accounts,
Chattel Paper, Documents or other Collateral, on notices of assignment, public
records, on verifications of accounts and on notices to customers; (c) notify
the postal authorities to change the address for delivery of Grantor’s mail to
an address designated by Lender (and Lender shall use reasonable efforts to
provide Grantor with copies of such mail, provided that the failure to provide
such copies shall not constitute a breach of this Agreement); (d) receive and
open all mail addressed to Grantor; (e) send requests for verification of
Accounts, Chattel Paper, Instruments or other Collateral to customers; and (f)
do all things necessary to carry out this Agreement. Grantor ratifies
and approves all acts of the attorney taken within the scope of the authority
granted. Neither Lender nor the attorney will be liable for any acts
of commission or omission, nor for any error in judgment or mistake of fact or
law, unless such acts, errors, or mistakes constitute gross negligence or
willful misconduct on the part of Lender or the attorney. This power,
being coupled with an interest, is irrevocable so long as any Obligation remains
unpaid. Grantor waives presentment and protest of all instruments and
notice thereof, notice of default and dishonor and all other notices to which
Grantor may otherwise be entitled.
8
3.18 Control. Upon
Lender’s request, Grantor will cooperate with Lender in obtaining control with
respect to Collateral consisting of Deposit Accounts, Investment Property,
Letter-of-Credit Rights, and Electronic Chattel Paper.
3.19 Further
Acts. Where Collateral is in the possession of a third party,
Grantor will, upon Lender’s request, join with Lender in notifying such third
party of Lender’s security interest and in obtaining an acknowledgment from such
third party that it is holding such Collateral for the benefit of
Lender.
3.20 Commercial Tort
Claims. Grantor shall promptly notify Lender of any Commercial
Tort Claim acquired by it and, unless otherwise consented to by Lender, Grantor
shall promptly enter into a supplement to this Agreement granting to Lender a
security interest in such Commercial Tort Claim.
4. Collections. Except
as otherwise provided in this Section 4, Grantor shall continue to collect, at
its own expense, all amounts due or to become due to Grantor under the Accounts
constituting part of the Collateral and all other Collateral. In
connection with such collections, Grantor may take (and, at Lender’s direction
given after the occurrence and during the continuation of an Event of Default,
shall take) such action as Grantor or Lender may deem necessary or advisable to
enforce collection of the Accounts and such other Collateral; provided that
Lender shall have the right at any time, without giving written notice to
Grantor of Lender’s intention to do so, to notify the account debtors under any
Accounts or obligors with respect to such other Collateral of the assignment of
such Accounts and such other Collateral to Lender and to direct such account
debtors or obligors to make payment of all amounts due or to become due to
Grantor thereunder directly to Lender and, upon such notification and at the
expense of Grantor, to enforce collection of any such Accounts or other
Collateral, and to adjust, settle or compromise the amount or payment thereof in
the same manner and to the same extent as Grantor might have done, but unless
and until Lender does so or gives Grantor other instructions, Grantor shall make
all collections for Lender.
9
5. Assignment of
Insurance. Grantor hereby assigns to Lender, as additional
security for payment of the Obligations, any and all monies due or to become due
under, and any and all other rights of Grantor with respect to, any and all
policies of insurance covering the Tangible Collateral. So long as no
Event of Default has occurred and is continuing, Grantor may itself adjust and
collect for any losses of up to an aggregate amount of $25,000.00 for all
occurrences during any of Grantor’s fiscal years and Grantor may use the
resulting Insurance Proceeds for the replacement, restoration or repair of the
Tangible Collateral. After the occurrence and during the continuance
of an Event of Default, or after the aggregate amount of losses arising out of
all occurrences during any of Grantor’s fiscal years exceeds $50,000.00, Lender
may (but need not) in its own name or in Grantor’s name execute and deliver
proofs of claim, receive such monies, and settle or litigate any claim against
the issuer of any such policy, and Grantor directs the issuer to pay any such
monies directly to Lender, and Lenders, at its sole discretion and regardless of
whether Lender exercises Lender’s right to collect Insurance Proceeds under this
Section, may apply any Insurance Proceeds to the payment of the Obligations,
whether due or not, in such order and manner as Lender may elect or may permit
Grantor to use such Insurance Proceeds for the replacement, restoration or
repair of the Collateral.
6. Events of
Default. The occurrence of (i) any material breach by Grantor
of its obligations hereunder, and, if such breach is reasonably capable of cure,
the failure of Grantor to cure such breach within twenty (20) days after receipt
of written notice thereof from either Lender, or (ii) any Event of Default as
defined in the Note Purchase Agreement, shall constitute an Event of Default
hereunder (“Event of
Default”).
7. Rights and Remedies on
Default. Upon the occurrence of an Event of Default, and at
any time thereafter until such Event of Default is cured to the satisfaction of
Lender, and in addition to the rights granted to Lender under Sections 4 and 5
hereof, Lender may exercise any one or more of the following rights and
remedies:
7.1 Acceleration of
Obligations. Declare any and all Obligations to be immediately
due and payable, and the same shall thereupon become immediately due and payable
without further notice or demand.
7.2 Deal with
Collateral. In the name of Grantor or otherwise, demand,
collect, receive and give receipt for, compound, compromise, settle and give
acquittance for and prosecute and discontinue any suits or proceedings in
respect of any or all of the Collateral.
7.3 Realize on
Collateral. Take any action which Lender may deem reasonably
necessary or desirable in order to realize on the Collateral, including, without
limitation, the power to perform any contract, to endorse in the name of Grantor
any checks, drafts, notes, or other instruments or documents received in payment
of or on account of the Collateral. Lender may comply with any
applicable state or federal law requirements in connection with a disposition of
the Collateral and compliance will not be considered adversely to affect the
commercial reasonableness of any sale of the Collateral. Lender may sell the
Collateral without giving any warranties as to the Collateral. Lender may
specifically disclaim any warranties of title or the like. This
procedure will not be considered adversely to affect the commercial
reasonableness of any sale of the Collateral.
10
7.4 Access to
Property. Enter upon and into and take possession of all or
such part or parts of the properties of Grantor, including lands, offices, Data
Processing Records and Systems and other property as may be necessary or
appropriate in the reasonable judgment of Lender, to permit or enable Lender to
store, lease, sell or otherwise dispose of or collect all or any part of the
Collateral, and use and operate said properties for such purposes and for such
length of time as Lender may deem necessary or appropriate for said purposes
without the payment of any compensation to Grantor therefor. Grantor
shall provide Lender with all information and assistance requested by Lender to
facilitate the storage, leasing, sale or other disposition or collection of the
Collateral after an Event of Default has occurred and is
continuing.
7.5 Other
Rights. Exercise any and all other rights and remedies
available to it by law or by agreement, including rights and remedies under the
UCC as adopted in the relevant jurisdiction or any other applicable law, or
under the Loan Agreement and, in connection therewith, Lender may require
Grantor to assemble the Collateral and make it available to Lender at a place to
be designated by Lender, and any notice of intended disposition of any of the
Collateral required by law shall be deemed reasonable if such notice is mailed
or delivered to Grantor at its address as shown on Lender’s records at least 10
days before the date of such disposition.
7.6 Application of
Proceeds. All proceeds of Collateral shall be applied in
accordance with the UCC, and such proceeds applied toward the Obligations shall
be applied in such order as Lender may elect.
8. Miscellaneous.
8.1 No Liability on
Collateral. It is understood that Lender does not in any way
assume any of Grantor’s obligations under any of the
Collateral. Grantor hereby agrees to indemnify Lender against all
liability arising in connection with or on account of any of the Collateral,
except for any such liabilities arising on account of Lender’s negligence or
willful misconduct.
8.2 No
Waiver. Lender shall not be deemed to have waived any of its
rights hereunder or under any other agreement, instrument or paper signed by
Grantor unless such waiver be in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate as
a waiver of such right or any other right. A waiver on any one
occasion shall not be construed as a bar to or waiver of any right or remedy on
any future occasion.
8.3 Remedies
Cumulative. All rights and remedies of Lender shall be
cumulative and may be exercised singularly or concurrently, at their option, and
the exercise or enforcement of any one such right or remedy shall not bar or be
a condition to the exercise or enforcement of any other.
8.4 Governing
Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Virginia, except to the extent that the perfection of the security
interest hereunder, or the enforcement of any remedies hereunder, with respect
to any particular Collateral shall be governed by the laws of a jurisdiction
other than the State of Virginia.
11
8.5 Expenses. Grantor
agrees to pay the reasonable attorneys’ fees and legal expenses incurred by
Lender in the exercise of any right or remedy available to it under this
Agreement, whether or not suit is commenced.
8.6 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the successors and assigns of Grantor and Lender.
8.7 Severability. Wherever
possible, each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under such law, such provision shall
be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
8.8 No Obligation to Pursue
Others. Lender has no obligation to attempt to satisfy the
Obligations by collecting them from any other person liable for them and Lender
may release, modify or waive any Collateral provided by any other person to
secure any of the Obligations, all without affecting Lender’s rights against
Grantor. Grantor waives any right it may have to require Lender to
pursue any third person for any of the Obligations.
8.9 Notices. Except
as otherwise provided herein, whenever it is provided herein that any notice,
demand, request, consent, approval, declaration or other communication shall or
may be given to or served upon any of the parties by any other party, or
whenever any of the parties desires to give or serve upon any other a
communication with respect to this Agreement, each such notice, demand, request,
consent, approval, declaration or other communication shall be in writing and
either shall be (i) delivered in person, (ii) sent by nationally-recognized
overnight courier service, or (iii) sent by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
(a) If
to Lender, at:
Clipper
Investors LLC
0000
Xxxxxx Xxxx
Xxxxxxxx,
Xxxxxxxx 00000
Attn: Xxxxxxx
X. Xxxxxx
and
Caledonia
Capital Corporation
00000
Xxxx Xxxxx Xxxxx, Xxxxx 000
Xxxxxxxx,
XX 00000
Attn:
Xxxxxx Xxxxxxx
12
With
copies to:
Ungaretti
& Xxxxxx LLP
00 Xxxx
Xxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attention:
Xxxxxxx X. Xxxxx
and
Grossberg,
Yochelson, Fox & Xxxxx, LLP
0000 X
Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx,
X.X. 00000-0000
Attention:
Xxxxxx X. Xxxxxxxx
|
(b)
|
If
to Grantor, at:
|
00000
Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxxx 00000
Attention:
Xxxxx Xxxxxx
Fax No.:
(000) 000-0000
With a
copy to:
Xxxxxx X.
Xxxxxxx, Esq.
Fettmann, Xxxxxxx & Xxxxxx,
PC
00000 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Fax: 000-000-0000
or at
such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived
in writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been duly given or served (i) on the date on
which personally delivered, (ii) when received if sent by overnight courier
service, or (iii) three (3) business days after the same shall have been
deposited in the United States mail. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication to the persons designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
[signature
page follows]
13
IN WITNESS WHEREOF, the
undersigned has executed this Agreement as of the date and year first above
written.
STEELCLOUD, INC., a
Virginia corporation
|
||
By:
|
||
Its:
|
||
EXHIBIT
A
Location of Tangible
Collateral
00000
Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxxx 00000
NOTE
PURCHASE AGREEMENT
DISCLOSURE
SCHEDULES
Schedule 6.6: Absence of
Changes
As
disclosed in the Company’s SEC Documents, the Company has entered into a
material transaction with Caledonia Capital Corporation.
Schedule 6.7: 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 6.9).
Schedule 6.9:
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 Xxxxx Xxxx LaSalle, a
property management company and agent for CRP Holdings A-1, LLC, referred to as
“CRP,” the landlord of 00000 Xxxx Xxxxxx Xxxx, Xxxxx 000, Xxxxxxx, Xxxxxxxx
00000 (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.
Xxxxxx Xxxxx, 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, 0000, xxx
Xxxxxxxx xx Xxxxxxxx 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 6.12:
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 6.13: Registration
Rights
Caledonia
Capital Corporation, Inc. has registration rights.
Schedule 6.14: Outstanding
Indebtedness
Xx. Xxxxx
Xxxxxx and Mr. Xxxxxx Xxxxxx did not receive a paycheck for the pay period
ending May 15, 2010. This action is reflected in the Company’s
accrued liabilities.