PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT BY AND BETWEEN STEELCLOUD, INC. AND CLIPPER INVESTORS LLC JULY 2, 2010
BY
AND
BETWEEN
STEELCLOUD, INC.
AND
JULY 2,
2010
This
Preferred Stock and Warrant Purchase Agreement (this “Agreement”), dated the 2nd
day of July, 2010, by and between STEELCLOUD, INC., a Virginia
corporation (the “Company”) and CLIPPER INVESTORS LLC, an
Illinois limited liability company (the “Investor”).
(a)
a stock certificate registered in the name of the Investor
representing 450,000 Preferred Shares;
(b)
the Warrant Agreement, evidencing the Warrants registered in the
name of the Investor and duly executed by the Company;
(c)
the Registration Rights Agreement, duly executed by the Company;
(d)
the Security Agreement, duly executed by the Company;
(e) copies
of the resolutions adopted by the Company’s Board of Directors authorizing the
execution, delivery and performance of this Agreement and the transactions
contemplated hereby, certified by the Secretary of the Company as being in full
force and effect on the Closing Date;
(f)
a certificate executed by the
President of the Company stating that the conditions specified in Sections 6.1
and 6.2 have been fulfilled and stating that there shall have been no material
adverse change in the business, affairs, prospects, operations, properties,
assets or condition of the Company since the date of the Financial
Statements;
(g) a
certified copy of the Certificate of Designations, as filed with the Secretary
of State of Virginia;
(h) a
certificate, dated as of a recent date, of the Secretary of State of Virginia
attesting as to the good standing of and the payment of taxes by the Company in
such State;
(i)
a copy of the Company’s Bylaws, as amended, certified by the Secretary of the
Company as being in full force and effect on the Closing Date;
(j) the
legal opinions of Xxxxxxx & Xxxxxx, and Xxxxxxx, Xxxxxxx & Xxxxxx PC,
counsel to the Company, in form and substance satisfactory to the Investor and
to the Investor’s counsel; and
(k)
such other certificates or documents as the Investor or its
counsel may reasonably request relating to the transactions contemplated
hereby.
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(a) the
Purchase Price by wire transfer to an account designated by the Company not less
than two (2) business days prior to the Closing; and
(b) such
other certificates or documents as the Company or its counsel may reasonably
request relating to the transactions contemplated hereby.
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(a) any
change in the business, assets, liabilities, financial condition or results of
operations of the Company from that reflected in the Financial Statements,
except changes in the ordinary course of business that have not had a Materially
Adverse Effect;
(b) any
change in the contingent obligations of the Company, by way of contract,
guaranty, endorsement, indemnity, warranty or otherwise, except changes in the
ordinary course of business that have not had a Material Adverse
Effect;
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(c) any
damage, destruction or loss of the Company’s properties or assets, whether or
not covered by insurance;
(d) any
waiver by the Company of a material right or of a material debt owed to
it;
(e)
any satisfaction or discharge of any Lien or payment of any obligation by
the Company, except in the ordinary course of business and not having a Material
Adverse Effect;
(f)
any material change or amendment to a material agreement or material
arrangement by which the Company or any of its assets or properties is bound or
subject;
(g) any
material change in any compensation arrangement or agreement with any employee,
officer or director of the Company;
(h) any
sale, assignment or transfer of any patents, trademarks, copyrights, trade
secrets or other intangible assets, other than the license of software and
products in the ordinary course of business;
(i)
any resignation or termination of employment of any officer or key
employee of the Company, and the Company does not know of the impending
resignation or termination of employment of any such officer or key
employee;
(j) receipt
of notice of a loss of, or material order cancellation by, any major customer of
the Company;
(k) any
Lien created by the Company, with respect to any of its material properties or
assets, except Liens for taxes not yet due or payable;
(l)
any loans or guarantees made by the Company to or for the benefit of its
respective employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of business;
(m) any
declaration, setting aside, payment or other distribution in respect of any of
the capital stock of the Company, or any direct or indirect redemption, purchase
or other acquisition of any of such stock by the Company;
(n) to
the knowledge of the Company, any other event or condition of any character that
could reasonably be expected to result in a Material Adverse
Effect;
(o) any
issuance or alteration of the rights, preferences, privileges or terms of any
capital stock of the Company; or
(p) any
agreement or commitment by the Company to do any of the things described in this
Section 3.6.
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(i) As
of its filing date, each Company SEC Document complied, and each such Company
SEC Document filed subsequent to the date hereof will comply, as to form in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act, as the case may be.
(ii) As
of its filing date, each Company SEC Document filed pursuant to the Exchange Act
did not, and each such Company SEC Document filed subsequent to the date hereof
will not, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading.
(iii) Each
Company SEC Document that is a registration statement, as amended or
supplemented, if applicable, filed pursuant to the Securities Act, as of the
date such statement or amendment became effective, did not contain (or, in the
case of any registration statement, as amended or supplemented, if applicable,
filed by the Company prior to the Closing Date, as of the date such registration
statement or amendment becomes effective, will not contain) any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
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“[THE SHARES EVIDENCED BY THIS
CERTIFICATE] [THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE]
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES STATUES OR REGULATIONS, AND MAY NOT BE TRANSFERRED OR SOLD
UNLESS (i) A REGISTRATION STATEMENT UNDER SUCH ACT IS THEN IN EFFECT WITH
RESPECT THERETO, (ii) A WRITTEN OPINION FROM COUNSEL FOR THE ISSUER OR OTHER
COUNSEL FOR THE HOLDER REASONABLY ACCEPTABLE TO THE ISSUER HAS BEEN OBTAINED TO
THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED OR (iii) A ‘NO ACTION’ LETTER
OR ITS THEN EQUIVALENT HAS BEEN ISSUED BY THE STAFF OF THE SECURITIES AND
EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER OR SALE.”
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For
purposes of this Agreement, the following terms have the respective meanings set
forth below:
11.1. “Affiliate”
has the meaning such term is given in Rule 405 promulgated under the
Securities Act.
11.2. “Ancillary
Agreements” means the Warrant Agreement, the Registration Rights Agreement, the
Security Agreement, and all other agreements to be delivered by the Company to
the Investor pursuant to the terms of this Agreement.
11.3. “Certificate
of Designations” means a certificate of designations setting forth the
designations, preferences, and relative, participating, optional, and other
special rights of the Preferred Shares.
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11.4. “Company
SEC Documents” means the Company’s (i) annual reports on Form 10-K for its
fiscal years ended October 31, 2009, 2008 and 2007; (ii) quarterly
report on Form 10-Q for its fiscal quarter ended April 30, 2010;
(iii) proxy or information statements relating to meetings of the
shareholders of the Company held (or actions taken without a meeting by such
stockholders) since October 31, 2009, and (iv) all of its other
reports, statements, schedules and registration statements filed with the SEC
since October 31, 2009.
11.5. “Indebtedness”
means all obligations, contingent or otherwise, which in accordance with
generally accepted accounting principles should be classified on the obligor’s
balance sheet as liabilities, but in any event including liabilities secured by
any mortgage, pledge, lien or other security interest existing on property owned
or acquired by the obligor, whether or not the liability secured thereby shall
have been assumed, all guarantees of such Indebtedness and other contingent
obligations in respect of the Indebtedness of others.
11.6. “Lien”
means, with respect to any property or asset (whether tangible or intangible),
any mortgage, lien, pledge, charge, security interest, encumbrance, or other
adverse claim of any kind in respect of such property or asset.
11.7. “Material
Adverse Effect” means any material adverse change in, or material adverse effect
on the business, assets, prospects, results of operations, value, financial or
other condition of the Company, or any event or circumstance that could
reasonably be expected to have any such effect or that could reasonably be
expected to prevent, hinder or delay the consummation of any of the transactions
contemplated by this Agreement, the Ancillary Agreements, or any of the other
documents, instruments or agreements contemplated hereby and
thereby.
11.8. “Registration
Rights Agreement” means the Registration Rights Agreement to be delivered by the
Company to the Investor pursuant to Section 2.2 hereof, which shall be in form
and substance satisfactory to the Investor in its sole and absolute
discretion.
11.9. “Xxxxxxxx-Xxxxx
Act” means the Xxxxxxxx-Xxxxx Act of 2002.
11.10. “SEC”
means the Securities and Exchange Commission.
11.11. “Securities
Act” means the Securities Act of 1933, as amended, or any similar Federal law
then in force.
11.12. “Securities
Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
similar Federal law then in force.
11.13. “Security
Agreement” means the Security Agreement to be delivered by the Company to the
Investor pursuant to Section 2.2 hereof, which shall be in form and substance
satisfactory to the Investor in its sole and absolute discretion.
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11.14. “Warrant
Agreement” means the agreement evidencing the grant of the Warrants referenced
in Section 1.4 hereof, which shall be in form and substance satisfactory to the
Investor in its sole and absolute discretion.
12.1. Construction and
Enforcement. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING ANY EFFECT TO PRINCIPLES OF CONFLICTS OF
LAWS. The Company agrees that it will not assert against any partner
of the Investor (or against any partner, officer, director, employee or agent of
the Investor or any of its affiliates) any claim it may have under this
Agreement by reason of any failure or alleged failure by the Investor to meet
its obligations hereunder.
To the
Company:
00000
Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx,
Xxxxxxxx 00000
Attn:
Xxxxx X. Xxxxxx
with a
copy to:
Fettmann, Xxxxxxx & Majors,
PC
00000 Xxxxxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attn:
Xxxxxx X. Xxxxxxx, Esq.
To the
Investor:
At the
addresses set forth on Schedule A
with a copy
to:
Ungaretti
& Xxxxxx LLP
00 Xxxx
Xxxxxxx, Xxxxx 0000
Xxxxxxx,
Xxxxxxxx 00000
Attn: Xxxxxxx
X. Xxxxx
provided,
however, that any notice of change of address shall be effective only upon
receipt.
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[signature
page follows]
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IN WITNESS WHEREOF, the
undersigned have executed this Agreement as of the day and year first above
written.
COMPANY:
STEELCLOUD,
INC.
By:
|
/s/ Xxxxx X. Xxxxxx
|
Xxxxx
X. Xxxxxx, Chief Executive
Officer
|
INVESTOR:
By
|
/s/ Xxxxxxx X. Xxxxxx
|
Xxxxxxx
X. Xxxxxx, Manager
|
Signature
Page to Preferred Stock and Warrant Purchase Agreement
SCHEDULE
A
Name and Address of
Investor
|
Number of Preferred Shares
|
Warrant Shares
|
||
450,000
|
20,000,000
|
|||
0000
Xxxxxx Xxxx
|
||||
Xxxxxxxx,
XX 00000
|
DISCLOSURE
SCHEDULES
Schedule 3.6: Absence of
Changes
As
disclosed in the Company’s SEC Documents, the Company has entered into a
material transaction with Caledonia Capital Corporation.
The
Company defaulted on the 13962 Park Center Lease, as well as with respect to the
Forbearance Agreement (defined in Schedule 3.9).
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 3.12:
Subsidiaries
Subsidiaries
The
Company has inactive subsidiaries, which include: International Data
Products, Puerto Rico Industrial Manufacturing Operations Acquisition
Corporation, and STMS Corporation.
Joint
Venture
Company
has inactive JV with SteelCloud MEA, LLC.
Schedule 3.13: Registration
Rights
Caledonia
Capital Corporation, Inc. has registration rights.
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.