Exhibit 20.1
SteelCloud, Inc.
0000 Xxxxxx Xxxxx
Xxxxxx, Xxxxxxxx 20166
May 19, 2004
Personal and Confidential
V-ONE Corporation
00000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxx, Xxxxxxxx 00000
Attention: Xx. Xxxxxxxx Xxxxxxx, President and CEO
Re: Acquisition of V-ONE Corporation
--------------------------------
Dear Peg:
This letter confirms our understanding of the mutual present intentions
of SteelCloud, Inc. (the "Purchaser") and V-ONE Corporation (the "Seller") with
respect to the principal terms and conditions under which the Purchaser will
acquire all of the issued and outstanding capital stock of the Seller. Such
transaction is hereinafter referred to as the "Acquisition." The Seller and the
Purchaser may hereafter be referred to individually as a "Party" or collectively
as the "Parties."
The Parties acknowledge that this letter does not contain all matters
upon which an agreement must be reached in order for the Acquisition to be
consummated. Further, among other conditions specified herein or otherwise
agreed to by the Parties, the obligations of the Parties to consummate the
Acquisition are subject to the negotiation and execution of a definitive
agreement relating to the Acquisition (the "Acquisition Agreement") and the
completion of satisfactory due diligence by the Parties. Accordingly, this
letter is intended solely as a basis for further discussion and is not intended
to be and does not constitute a legally binding agreement; provided, however,
that the provisions set forth in paragraphs 7, 11, 13, 14, 15 and 16 below and
this paragraph shall be binding upon the parties hereto, and only with respect
to paragraphs 7, 13, 14, 15 and 16 shall survive the termination hereof.
1. Purchase and Sale. At the closing of the transaction contemplated
hereby (the "Closing"), subject to the satisfaction of all conditions precedent
contained in the Acquisition Agreement, the Purchaser, or a subsidiary of the
Purchaser, will acquire all of the issued and outstanding capital stock of the
Seller. The purchase price shall be paid by the Purchaser in shares of the
Purchaser's common stock, plus warrants to be issued to holders of the Seller's
preferred stock, all as set forth on the attached Exhibit 1. The Seller has had
discussions with the holders of a majority of the outstanding preferred stock
and a majority of the outstanding notes and as a result thereof believes that
there is reasonable assurance that the terms reflected in the attached Exhibit 1
are acceptable to them. The foregoing assumes that each outstanding option and
warrant of Seller to purchase common stock that is "in the money" shall have
been exercised or deemed to have been exercised and warrants "at the money" or
"out of the money" will be carried forward on a pro rata basis. The definitive
Acquisition Agreement shall contain a collar acceptable to both the Purchaser
and Seller.
2. Structure. The Acquisition shall be structured in a manner that
achieves the most favorable tax treatment for the Parties, including, without
limitation, the preservation of the Seller's current net operating loss. The
Seller shall continue to operate its business at its current location in
Germantown, Maryland until the Closing or until such time as agreed to by the
Seller and the Purchaser.
3. Tax-Free Transaction. Notwithstanding the structure described in the
first paragraph of this letter and in paragraph 1, both parties shall seek to
structure this Acquisition as a tax-free transaction and in a manner that will
allow the Purchaser to preserve to the extent feasible the Seller's current net
operating loss.
4. Definitive Agreement. Recognizing that the Parties may not be able
to reach a definitive Acquisition Agreement, the Parties agree to negotiate in
good faith in order to execute and deliver a definitive Acquisition Agreement
acceptable to both Parties within 30 days of the execution of this letter by
both Parties or as soon thereafter as possible (the "Signing Date"). All terms
and conditions concerning the Acquisition shall be stated in the Acquisition
Agreement, including without limitation, representations, warranties, covenants
and indemnities that are usual and customary in a transaction of this nature, as
such may be mutually agreed upon between the Parties.
5. Closing. Subject to the satisfaction of all conditions precedent and
the continued accuracy of the representations contained in the Acquisition
Agreement, the Closing will take place by August 31, 2004 or as soon thereafter
as possible (the "Closing Date"), subject to the approvals of regulatory
authorities, third parties and necessary shareholder approvals.
6. Conditions to Consummation of the Acquisition. The respective
obligations of the Parties with respect to the Acquisition shall be subject to
satisfaction of conditions customary to transactions of this type, including
without limitation: (a) the completion of satisfactory due diligence by each
Party with respect to the other Party; (b) the approval of each Party's Board of
Directors and shareholders; and (c) the receipt of any necessary regulatory
approvals or third-party consents. In addition, the obligations of the Purchaser
with respect to the Acquisition shall be subject to the satisfaction of certain
conditions, which shall include, without limitation: (a) the determination that
Seller has all necessary right to utilize its intellectual property and the
absence of any bona fide third party claim that Seller's intellectual property
infringes on the intellectual property of any other party; and (b) the Seller's
balance sheet to be delivered to Purchaser at Closing reflecting a positive
cash-on-hand.
7. Non-Solicitation of Employees. In the event that (a) the Closing has
not occurred by August 31, 2004 or as soon thereafter as possible, or (b) this
letter is terminated, except as is consistent with each Party's standard
recruitment practice which may include solicitation of employees through
employment agencies, advertisements in newspapers, magazines, trade journals or
the Internet, for a period of two (2) years from the Closing Date or the
termination of this letter, as applicable, neither Party shall, without the
other Party's prior written consent, solicit any employee of the other Party to
leave the other Party's employ in order to accept employment with the soliciting
Party or any other person.
8. Employment Agreements. As a condition to the Purchaser's obligation
to close the Acquisition, each of Xxxxxxxx Xxxxxxx and Xxxxxxxxxxx Xxxxxx shall
enter into mutually acceptable employment agreements with the Purchaser to be
effective as of the Closing. The Seller will seek to procure the agreement of
Xxxxx Xxxxxx to enter into an employment agreement with the Purchaser to be
effective as of the Closing; provided, however, that the execution of such
employment agreement shall not be a condition to Closing.
9. Fairness Opinion. It is the intent of the Parties that each Party
shall obtain a fairness opinion with respect to the fairness of the
consideration for the Acquisition. Each Party's obligation to proceed to Closing
shall be subject to the receipt of such fairness opinion.
10. Access to Seller. The Seller shall give the Purchaser and its
representatives full access to any personnel and all properties, documents,
contracts, books and records of the Seller relating to its business and its
assets. The Seller shall furnish the Purchaser with copies of documents and with
such other information as the Purchaser may reasonably request. The Purchaser
shall also provide similar access to the Seller and its representatives.
11. No Other Offers. Upon the signing of this letter, the Seller shall
not solicit, encourage or accept proposals from or enter into negotiations with
or furnish any nonpublic information to any other person or entity regarding a
business combination or the possible sale of the Seller's business, assets or
capital stock until (a) the earlier of the Signing Date or the termination of
this letter, or (b) the Closing Date if the Acquisition Agreement is executed by
the Parties; however, there is nothing herein that shall prevent the Seller's
Board of Directors from exercising its fiduciary duty with respect to
entertaining unsolicited offers and accepting an offer that it determines is
more favorable to the Seller's shareholders than the Acquisition (a "Superior
Offer"). The Seller shall notify the Purchaser promptly of any unsolicited
proposals by third parties with respect to a business combination with the
Seller or the acquisition of all or any portion of the Seller's business, assets
or capital stock and furnish the Purchaser the material terms thereof.
12. Conduct of Business. In addition to the conditions discussed herein
and any others to be contained in the Acquisition Agreement, consummation of the
Acquisition will be subject to the Seller having conducted business in the
ordinary course during the period between the date hereof and the Closing Date
and there having been no material adverse change in the business, assets,
financial condition or prospects of the Seller. Additionally, the Seller will
manage its cash in the ordinary course of its business and from the date hereof
through the Closing Date, shall not increase in any material manner the salary,
bonus, severance or other compensation or benefits of any member of management
or other employee of the business and shall not make any commitments with
respect to capital expenditures exceeding $50,000.
13. Expenses. The Purchaser shall bear the reasonable expenses of the
transaction, provided, however, that in the event the expenses of the
transaction attributable to the Seller exceed $550,000, then expenses in excess
of such amount will result in an adjustment in the exchange ratio as set forth
in Exhibit 1. Printing, mailing and proxy solicitation expenses allocated
equally between the Parties. The Purchaser recognizes that the Seller has
retained X.X. Xxxxxxxxxx & Co., Inc. to act as its financial advisor for this
transaction. Furthermore, it is the intent of both the Seller and Purchaser to
obtain fairness opinions in connection with the transaction contemplated hereby
as set forth above. In the event that the Acquisition is not consummated, each
of the Parties shall bear all of its expenses incident to this letter, the
Acquisition and the Acquisition Agreement.
14. Confidentiality. Each of the Parties agrees that it will not use,
or permit the use of, any of the information relating to the Seller or the
Purchaser respectively furnished to the other in connection with this letter,
the Acquisition Agreement or the Acquisition (the "Confidential Information"),
except for publicly available or freely usable material as otherwise obtained
from another source, in a manner or for a purpose not detrimental to the Seller
or the Purchaser or otherwise than in connection with this letter, the
Acquisition Agreement and the Acquisition. The Parties shall not, and the
Parties shall cause their respective directors, officers, employees, agents and
representatives not to, disclose, divulge, provide or make accessible any of the
Confidential Information to any person or entity, other than their responsible
directors, officers, employees, agents, representatives, advisors or attorneys
or otherwise as required by law or regulation. The provisions of this paragraph
14 and the following paragraph 15 are in addition to, and shall not supersede,
the Confidentiality Agreement, dated as of March 4, 2004 between the Purchaser
and the Seller.
15. Disclosure. The Parties shall issue a joint press release
announcing the execution of this letter and the transactions contemplated
hereby. Prior to the issuance of such joint press release, without the prior
written consent of the other Party hereto, neither Party hereto will, and each
Party hereto will cause its directors, officers, employees, agents, other
representatives and affiliates not to, disclose to any person the fact that
discussions or negotiations are taking place concerning the transactions
contemplated hereby, the status thereof, or the existence of this letter and the
terms thereof, unless in the opinion of such Party disclosure is required to be
made under the Securities Act of 1933, as amended, or the Securities Exchange
Act of 1934, as amended, and such disclosure is made after prior consultation
with the other Party. Neither Party will issue any public announcement
concerning the transactions contemplated by this letter or the Acquisition
Agreement without the approval of the other Party, except as may be required by
law.
16. Termination. This letter may be terminated at any time:
(a) by the mutual written consent of the Parties;
(b) by either Party if the Acquisition Agreement has not been entered
into by the Parties by the Signing Date;
(c) by the Purchaser if the Seller has accepted a Superior Offer; or
(d) by either Party if the other Party has failed to proceed in good
faith under this letter.
In the event of a termination by the Purchaser pursuant to subparagraph
(c) above, then the Seller shall pay the Purchaser's direct costs incurred in
connection with the Acquisition, including but not limited to legal, accounting
and investment banking fees, in an amount not to exceed $150,000.
17. Governing Law. This letter and the definitive agreements shall be
governed by and construed in accordance with the law of the Commonwealth of
Virginia, without regard to the principles or policies thereof with respect to
conflicts of laws.
18. Counterparts. This letter may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our mutual understanding, please
so indicate by signing two copies of this letter in the spaces provided below
and returning one copy to us no later than 5:00 p.m. on May 19, 2004.
Very truly yours,
SteelCloud Inc.
By: /s/ Xxxxxx X. Xxxxx
-------------------------
Xxxxxx X. Xxxxx, Chairman
and CEO
Accepted and agreed:
By: /s/ Xxxxxxxx X. Xxxxxxx
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Xxxxxxxx X. Xxxxxxx, President and CEO
Exhibit 1
Aggregate Consideration for V-ONE Corporation Preferred Stockholders
Series C 600,000 shares of SteelCloud Common Stock Warrants to purchase
200,000 shares of SteelCloud Common Stock at 110% of fair
market value at closing
Series D 1,923,320 shares of SteelCloud Common Stock Warrants to
purchase 708,825 shares of SteelCloud Common Stock at 110% of
fair market value at closing
Aggregate Consideration for Holders of 7% and 8% Notes of V-ONE Corporation
7% and 8% Notes 500,000 shares of SteelCloud Common Stock
Aggregate Consideration for V-ONE Corporation Common Stockholders
For each of the 16,338,869 shares of V-ONE Corporation Common Stock that will be
outstanding after the exercise of "in the money" options and warrants,
SteelCloud will issue its Common Stock within a range of 1 share of SteelCloud
Common Stock for each 8.3 to 8.5 shares of V-ONE Corporation Common Stock,
depending upon V-ONE Corporation's transaction expenses to be borne by
SteelCloud.
