Exhibit 10.1
 
ASSET PURCHASE AGREEMENT
 
This ASSET PURCHASE AGREEMENT (the “Agreement”), is made this 10th day of July,
2009, by and between SteelCloud, Inc., a Virginia corporation (“Seller”), and
NCS Technologies, Inc., a Virginia corporation (“Buyer”).
 
1.           Purchase of Assets.  Upon the terms and subject to the conditions
of this Agreement, Buyer agrees to purchase, and Seller agrees to sell, all of
Seller’s right, title and interest in and to those certain assets of Seller
relating to Seller’s integration business (the “Integration Business”) listed on
Exhibit 1 attached hereto (the “Purchased Assets”), free and clear of all
Encumbrances (as herein defined). The purchase price for the Purchased Assets
shall be $475,000 (the “Purchase Price”), subject to adjustment pursuant to
Section 3 hereof and/or offset pursuant to Section 12.4 hereof.
 
2.           Payment of Purchase Price and Reporting.
 
 
2.1.
Buyer shall pay Seller $150,000 at Closing, which amount shall be inclusive of
Buyer’s $50,000 good faith advance deposit (the “Escrow Deposit”) escrowed
pursuant to that certain Escrow Agreement dated as of July 2, 2009 by and among
Seller, Buyer and Fettmann, Tolchin & Majors PC, as escrow agent (the “Escrow
Agreement”).  This payment is allocated $75,000 to the Purchased Assets
consisting of finished goods, work in progress, and components (the “Goods and
WIP Assets”), and $75,000 to the Purchased Assets consisting of service
inventory (the “Service Inventory Assets”), all as further specified on Exhibit
1 attached hereto.  Subject to offset pursuant to Section 12.4 hereof, the
remaining $325,000 of the Purchase Price (the “Earnout Amount”), allocated to
good will, shall be payable solely from, and solely to the extent of, revenue
actually received by Buyer after the Closing Date until the third (3rd)
anniversary of the Closing Date from the existing Integration Business clients
and prospects with respect to which Seller has had verifiable contact regarding
the Integration Business within the six-month period immediately preceding the
Closing Date, in each case as listed on Exhibit 2 attached hereto (collectively,
“Clients”), at a rate equal to 15% of the Net Sales Price actually received by
Buyer from such Clients.  For purposes of this Agreement, “Net Sales Price”
means the aggregate amount, net of any returns or credits against sales, that
one or more Clients shall have paid to Buyer relating to the Goods and WIP
Assets or the Service Inventory Assets, in connection with a sale transaction
accepted by Buyer and closed, less any (i) sales taxes, excise taxes,
value-added taxes and any other taxes (other than income taxes payable by Buyer
to U.S. federal or state authorities) payable in connection with or as a result
of such sale transaction and (ii) any freight costs, insurance costs or duties
payable in connection with or as a result of such sale transaction.

 

 
2.2.
Any post-Closing payments owed to Seller hereunder, including but not limited to
payments in respect of sales of Consigned Filter Inventory pursuant to Section 5
hereof, are due and payable to Seller on or before the tenth (10th) business day
of the month following the month Buyer actually receives the applicable payment
from Clients.

 
 
 

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2.3.
Buyer shall keep full and complete records of sales to Clients.  Buyer shall
provide to Seller a report each month on or before the tenth (10th) business day
of the month listing the Clients from which Buyer actually received revenue, and
the amounts and nature of such sales, during the prior month, including but not
limited to information regarding any sales of Consigned Filter Inventory
pursuant to Section 5 hereof.  Seller shall have the right at any reasonable
time to audit or review such records of Buyer at Seller’s own cost.  However, if
the audit or review shows aggregate undisputed underpayments to Seller in excess
of 5% in any calendar quarter, Buyer shall reimburse Seller the reasonable cost
of such audit or review.

 
3.           Post-Closing Purchase Price Adjustments.  Within thirty (30) days
after Closing, Seller and Buyer shall undertake and complete a joint audit of
the Goods and WIP Assets, for purposes of identifying any missing or materially
deficient items of the Purchased Assets.  In the event that any items of the
Purchased Assets are missing or are materially deficient, the Purchase Price
will be adjusted and decreased on a dollar-for-dollar basis using the values set
forth on Schedule 3 attached hereto, and the deficit amount shall be payable by
check or wire transfer of immediately available funds by Seller to Buyer within
five (5) days of the audit.  The Service Inventory Assets are not subject to
this clause.  
 
4.           Assumption of Liabilities.
 
 
4.1.
At Closing, Buyer shall assume and agrees to pay, discharge or perform as
necessary only the following liabilities and obligations (the “Assumed
Liabilities”):

 
 
a.
Fulfillment obligations under customer purchase orders with Clients that were
not fulfilled as of the Closing Date, as set forth on Schedule 4.1 attached
hereto; and

 
 
b.
Responsibilities to Clients under the terms of existing warranties (the
“Existing Warranties”) and existing contracts (the “Existing Contracts”).

 
 
4.2.
Except for the Assumed Liabilities, Buyer is not assuming, nor shall it in any
way be liable or responsible for, any liabilities, obligations or debts of
Seller, whether accrued, absolute, contingent or otherwise and whether arising
out of or relating to the Purchased Assets or otherwise, arising before or after
the Closing Date, including, without limitation, any liability of Seller or its
affiliates not specifically identified in Section 4.1, whether known or unknown
and whether relating to the ownership or use of the Purchased Assets, Seller’s
conduct of the Integration Business or otherwise, any product liability relating
to or in respect of the Purchased Assets, and any liability of Seller arising
out of or relating to the execution, delivery or performance by Seller of this
Agreement or any other document or instrument in connection with the
transactions contemplated hereby (collectively, the “Excluded
Liabilities”).  Seller shall pay all liabilities of Seller and take any and all
actions necessary to prevent any person or governmental authority from having
recourse against any of the Purchased Assets purchased by Buyer or against Buyer
solely with respect to any such liabilities of Seller, including, without
limitation, the Excluded Liabilities.

 
 
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5.           Consignment of Filter Inventory.
 
 
5.1.
Seller hereby consigns to Buyer, and Buyer hereby accepts consignment from
Seller of, the Consigned Filter Inventory.  The term of such consignment
arrangment shall begin on the Closing Date and shall continue for a period of
two (2) years from the Closing Date (the “Consignment Period”).  For purposes of
this Agreement, the term “Consigned Filter Inventory” shall mean the filter
inventory of Seller set forth on Exhibit 3 attached hereto, in the quantities
set forth thereon.

 
 
5.2.
During the Consignment Period, Buyer generally may effect the sale of the
Consigned Filter Inventory through one or more sales or series of sales to one
or more Clients; provided, however, that the pricing terms of any such sale or
sales are within the sole and absolute discretion of Buyer.  Buyer will pay to
Seller for each item of the Consigned Filter Inventory sold to a Client the
price stated on Exhibit 3 attached hereto corresponding to the applicable item
of the Consigned Filter Inventory (irrespective of the pricing terms of such
sale, as between Buyer and a Client), in accordance with Section 0 hereof.

 
 
5.3.
For purposes of this Agreement, Buyer will at all times be acting as a consignee
of Seller and not as a principal with regard to the Consigned Filter
Inventory.  Ownership in and title to the Consigned Filter Inventory including
ownership in and to all intellectual proprietary rights relating to the
Consigned Filter Inventory shall at all times, before, during and after the
termination of this Agreement and until items of the Consigned Filter Inventory
are sold to a Client, remain vested in Seller.  At all times, the Consigned
Filter Inventory shall be kept separately identified and segregated from the
Purchased Assets and any property of Buyer.

 
 
5.4.
Buyer shall return all unsold Consigned Filter Inventory to Seller within thirty
(30) days after the end of the Consignment Period.

 
6.           Covenants of Seller.  Seller hereby covenants and agrees with Buyer
that:
 
 
6.1.
Seller shall use its best efforts to maintain its current relationships with
suppliers, customers, Clients and others having business relations with Seller
in connection with the Purchased Assets or the Integration Business and shall
assist Buyer in effecting an orderly transition of these relationships to Buyer
from and after Closing.

 
 
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6.2.
Seller shall use its best efforts to preserve the Purchased Assets and conduct
the Integration Business and all transactions with respect to the Purchased
Assets in the usual and ordinary course of business consistent with Seller’s
past practice.

 
 
6.3.
Seller shall not, directly or indirectly, sell, transfer, pledge, lease,
license, offer to sell, abandon or make any other disposition of any of the
Purchased Assets or grant or suffer to exist, or agree to grant or suffer to
exist, any Encumbrances on any of the Purchased Assets.

 
 
6.4.
Seller shall be responsible for, and shall indemnify Buyer from and against, any
and all accounts payable relating to the Purchased Assets arising on or prior to
the Closing Date; provided, however, that none of the foregoing of this Section
6.4 shall be deemed to limit or waive Seller’s obligations to deliver to Buyer
the Purchased Assets free and clear of all Encumbrances.

 
 
6.5.
Buyer shall have the first right, but not any obligation, to offer employment
from and after the Closing Date to some or all of Seller’s employees involved
with the Integration Business, at such salaries or wages, duties and
responsibilities as shall be mutually acceptable to Buyer and such employees;
provided, however, that Buyer is not committing to the hiring of any employees,
and under no circumstances shall Buyer assume or bear any responsibility for any
severance obligations in respect of any terminated Seller employees subsequently
hired by Buyer, if any; provided, further, that Seller shall retain all
obligations and liabilities, if any, for, and shall defend, indemnify and hold
harmless Buyer, in accordance with Section 12.3 hereof, in connection with (i)
any claim (including, without limitation, any claim for unpaid wages, accrued
vacation time and employee benefits matters) relating to any employment by
Seller, (ii) any lawsuit, administrative charge, arbitration, formal proceeding
or written demand or notice pertaining to an employee and arising out of
employment with Seller and (iii) any worker’s compensation or other claims
arising from any injury or act occurring during employment with Seller.  Without
limiting any of the foregoing, Seller shall use its best efforts to cause the
assignment to Buyer of any and all employee non-competition agreements
pertaining to any of Seller’s employees subsequently hired by Buyer.

 
 
6.6.
Until and for the first thirty (30) days following the Closing Date, Seller
shall cooperate in good faith with Buyer and use commercially reasonably efforts
to make available to Buyer its records, staff and such other materials as
related to the Integration Business and the Purchased Assets.

 
7.           Covenants of Buyer.  Buyer hereby covenants and agrees with Seller
that:
 
 
7.1.
Buyer, at its sole cost, will remove the Purchased Assets and Consigned Filter
Inventory from Seller’s premises within thirty (30) days of Closing.

 
 
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7.2.
Buyer shall use its best efforts to cooperate in good faith with Seller to
effect an orderly transition to Buyer of Seller’s current relationships with
suppliers, customers, Clients and others having business relations with Seller
in connection with the Purchased Assets or the Integration Business and shall
assist Seller in transitioning these relationships to Buyer from and after
Closing.

 
 
7.3.
Buyer shall cooperate in good faith with Seller and use commercially reasonably
efforts to assist Seller in collecting outstanding receivables owed to Seller by
Clients for transactions effected prior to Closing; provided, however, that in
no event shall Buyer be required to incur any cost or any material obligations
or suffer the loss of any right or benefit in connection therewith.  Seller
acknowledges and agrees that attached hereto as Schedule 7.3 is a list of
Seller’s receivables from Clients.  All payments received by Buyer from a Client
in respect of a receivable listed on Schedule 7.3 on or after Closing will be
credited to such receivable and remitted to Seller.  Without limiting the
foregoing, Buyer shall not knowingly take any action that materially adversely
interferes with Seller’s ability to collect said receivables.

 
8.           Representations and Warranties of Seller.  Seller represents and
warrants to Buyer as follows:
 
 
8.1.
Organization of Seller.  Seller is a corporation duly formed, validly existing
and in good standing under the laws of the Commonwealth of Virginia.

 
 
8.2.
Authorization; Enforceability.  Seller has all requisite power and authority to
execute and deliver this Agreement and each other instrument required hereby to
be executed and delivered by it, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby.  The execution and delivery by Seller of this Agreement and each other
instrument required hereby and thereby to be executed and delivered by it, the
performance by Seller of its obligations hereunder and thereunder and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of Seller
and its stockholders, board of directors and officers, and no other proceedings
on the part of Seller or its stockholders, board of directors or officers are
required to authorize this Agreement or any of the other instruments required
hereby or thereby or for Seller to consummate the transactions contemplated
hereby or thereby.  This Agreement has been, and upon execution and delivery
thereof by Seller each other instrument described herein and therein and to be
executed and delivered by Seller, will be, duly and validly executed and
delivered by Seller and, assuming the due and valid authorization, execution and
delivery by the other parties thereto, constitutes, or in the case of each such
other other instrument, will constitute, a valid and binding obligation of
Seller, enforceable against Seller in accordance with their respective terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally and by principles of
equity regardless of whether such enforceability is considered in a proceeding
in law or at equity.

 
 
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8.3.
Title to Purchased Assets.  Seller has good and marketable title to all of the
Purchased Assets, free and clear of all Encumbrances.  The Goods and WIP Assets
are in good condition and repair.  Seller has complete and unrestricted power
and the unqualified right to transfer, convey and assign the Purchased Assets,
and the conveyance instrument executed and delivered at Closing will be, when
executed and delivered by the parties thereto, valid and binding obligations of
Seller, enforceable in accordance with their respective terms, sufficient for
purposes of recordation and filing where permitted by law, and sufficient to
transfer, convey and assign to Buyer all right, title and interest of Seller in
and to the Purchased Assets.  Seller owns or licenses all the intellectual
property associated with the Purchased Assets or that Seller otherwise uses in
the Integration Business.  To the knowledge of Seller, the use of the
intellectual property associated with the Purchased Assets or used in, or
necessary to, the conduct of the Integration Business as presently conducted
does not infringe, misappropriate or otherwise violate the rights of any third
parties.  For purposes of this Agreement, the term “Encumbrances” shall mean any
defect or imperfection in title, encumbrance, lien, pledge, security interest,
charge, limitation, commitment or claim against or with respect to any Purchased
Assets or other encumbrance of any kind or nature whatsoever (whether absolute
or contingent).

 
 
8.4.
No Conflicts; Consents and Approvals.  The execution and delivery of this
Agreement by Seller do not, and the consummation of the transactions
contemplated hereby by Seller will not (i) violate or conflict with the
constituent or organizational documents of Seller, or (ii) constitute a breach
or default (or an event that with notice or lapse of time or both would become a
breach or default) of any statute, regulation, judgment, order or decree or any
mortgage, agreement, deed of trust, indenture or any other instrument to which
Seller or any item of the Purchased Assets is bound, and neither the execution
and delivery of this Agreement by Seller nor the consummation of the
transactions contemplated hereby by Seller will require any consent, approval or
authorization of, or filing with or notification to, any third party or any
governmental or regulatory authority.

 
 
8.5.
Litigation, Disputes.  There is no (i) proceeding pending or, to the knowledge
of Seller, threatened against or involving Seller, which (A) questions or
challenges the validity of this Agreement or any action taken or to be taken by
Seller pursuant to this Agreement or in connection with any of the transactions
contemplated hereby or (B) could reasonably be expected to affect the
Integration Business or any of the Purchased Assets, or (ii) outstanding order,
injunction, decree, award or judgment of any governmental authority against
Seller in relation to the Integration Business or the Purchased Assets which
could reasonably be expected to affect the Integration Business or any of the
Purchased Assets or otherwise result in any liability to Buyer on or after the
Closing Date.

 
 
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8.6.
No Fraudulent Conveyance.  Seller has used commercially reasonable efforts to
market the Purchased Assets prior to the date hereof, and Seller believes in
good faith that the Purchase Price, together with the assumption by Buyer of the
Assumed Liabilities, represent reasonably equivalent value in exchange for the
Purchased Assets.  Based on the foregoing, the consummation of the transactions
contemplated by this Agreement will not constitute a fraudulent transfer or
conveyance under federal bankruptcy and applicable state fraudulent transfer and
fraudulent conveyance laws.

 
 
8.7.
Payment of Integration Manufacturer Representatives.  Seller has paid all
Integration Manufacturer Representatives in full.

 
 
8.8.
Client Commitments.  All Goods and WIP Assets in inventory have been committed
to purchase by Clients.  Seller shall indemnify Buyer, in accordance with
Section 12.3 hereof, for product that is not sold through to such Clients unless
the sell-through problem was caused directly by Buyer’s willful misconduct or
gross negligence.

 
 
8.9.
Existing Warranties.  The terms and conditions of all Existing Warranties are
substantially the same as set forth in the form of Existing Warranty attached
hereto as Schedule 8.9.

 
8.10.
Existing Contracts.  Schedule 8.10 attached hereto reflects a true and complete
listing and enclosure of all Existing Contracts.

 
9.           Representations and Warranties of Buyer.  Buyer represents and
warrants to Seller as follows:
 
 
9.1.
Organization of Buyer.  Buyer is a corporation duly formed, validly existing and
in good standing under the laws of the Commonwealth of Virginia.

 
 
9.2.
Authorization; Enforceability.  Buyer has all requisite power and authority to
execute and deliver this Agreement and each other instrument required hereby to
be executed and delivered by it, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and
thereby.  The execution and delivery by Buyer of this Agreement and each other
instrument required hereby and thereby to be executed and delivered by it, the
performance by Buyer of its obligations hereunder and thereunder and the
consummation by Buyer of the transactions contemplated hereby and thereby have
been duly and validly authorized by all necessary action on the part of Buyer,
and no other proceedings on the part of Buyer are required to authorize this
Agreement or any of the other instruments required hereby or thereby or for
Buyer to consummate the transactions contemplated hereby or thereby.  This
Agreement has been, and upon execution and delivery thereof by Buyer each other
instrument described herein and therein and to be executed and delivered by
Buyer, will be, duly and validly executed and delivered by Buyer and, assuming
the due and valid authorization, execution and delivery by the other parties
thereto, constitutes, or in the case of each such other instrument, will
constitute, a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with their respective terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and by principles of equity regardless of whether
such enforceability is considered in a proceeding in law or at equity.

 
 
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10.           Closing.
 
10.1.
General.  The consummation of the purchase and sale of the Purchased Assets and
transactions contemplated hereunder (“Closing”) shall be held on the first
business day upon which the conditions set forth in Section 10.4 hereof have
been satisfied or waived in writing (other than the conditions which are by
their nature to be satisfied at Closing), unless another time or date, or both,
are agreed to in writing by the parties (the “Closing Date”), by facsimile or
portable document format (.pdf) transmission (and overnight mailing) of the
signature pages to this Agreement and all ancillary agreements.  Buyer, on the
one hand, and Seller, on the other hand, shall as soon as practicable thereafter
deliver to the other party or such party’s counsel two original sets of
signature pages to the documents and agreements executed at Closing.  Closing
shall be effective for tax and accounting purposes as of 12:01 a.m. New York
City time on the Closing Date.

 
10.2.
Deliveries of Seller.  At Closing, Seller shall deliver to Buyer the Purchased
Assets, free and clear of all Encumbrances, and the following documents:

 
 
a.
the Bill of Sale attached hereto as Exhibit 4 (the “Bill of Sale”), duly
executed by Seller;

 
 
b.
the certificate required to be delivered pursuant to Section 10.4.a(iii) hereof;
and

 
 
c.
such other documents as may be reasonably requested by Buyer in connection with
the consummation of the transactions contemplated by this Agreement.

 
10.3.
Deliveries of Buyer.  At Closing, Buyer shall pay to Seller such part of the
Purchase Price due at Closing and shall deliver to Seller the following
documents:

 
 
a.
an executed counterpart of the Bill of Sale;

 
 
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b.
the certificate required to be delivered pursuant to Section 10.4.b(iii) hereof;
and

 
 
c.
such other documents as may be reasonably requested by Seller in connection with
the consummation of the transactions contemplated by this Agreement.

 
10.4.
Conditions Precedent to Closing.

 
 
a.
Conditions to Buyer’s Obligations.  The obligations of Buyer to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions, any of which may be waived in writing by Buyer:

 
 
(i)
Representations and Warranties of Seller.  The representations and warranties of
Seller set forth in Section 8 hereof shall be true and correct in all material
respects (except for any representation or warranty that by its terms is
qualified by materiality, in which case it shall be true and correct in all
respects) as of the date of this Agreement and as of the Closing Date as if made
on and as of such dates.

 
 
(ii)
Performance of Obligations of Seller.  Seller shall have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by Seller
on or prior to the Closing Date.

 
 
(iii)
Closing Certificate.  Seller shall have delivered to Buyer a certificate, dated
as of the Closing Date and signed on behalf of Seller by an appropriate senior
officer, confirming the satisfaction by Seller of the conditions set forth in
Sections 10.4.a(i) and 10.4.a(ii) (without qualification as to knowledge or
materiality or otherwise).

 
 
(iv)
Closing Deliveries.  Seller shall have delivered to Buyer all documents required
to be delivered pursuant to Section 10.2.

 
 
(v)
No Injunctions; No Litigation.  No suit, action or other proceeding shall be
pending before any court or governmental or regulatory authority which seeks to
restrain or prohibit or to obtain damages or other relief in connection with
this Agreement or the consummation of the transactions contemplated by this
Agreement.

 
 
(vi)
Consents and Approvals.    All consents, waivers, authorizations and approvals
legally required from all governmental or regulatory authorities to consummate
the transactions contemplated by this Agreement, without the imposition of
material conditions or requirements on Buyer, shall have been obtained and shall
remain in full force and effect as of the Closing Date.

 
 
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b.
Conditions to Seller’s Obligations.  The obligations of Seller to consummate the
transactions contemplated by this Agreement is subject to the satisfaction of
the following conditions, any of which may be waived in writing by Seller:

 
 
(i)
Representations and Warranties of Buyer.  The representations and warranties of
Buyer set forth in Section 9 hereof shall be true and correct in all material
respects (except for any representation or warranty that by its terms is
qualified by materiality, in which case it shall be true and correct in all
respects) as of the date of this Agreement and as of the Closing Date as if made
on and as of such dates.

 
 
(ii)
Performance of Obligations of Buyer.  Buyer shall have performed and complied in
all material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Buyer on or prior
to the Closing Date.

 
 
(iii)
Closing Certificate.  Buyer shall have delivered to Seller a certificate, dated
as of the Closing Date and signed on behalf of Buyer by an appropriate senior
officer, confirming the satisfaction by Buyer of the conditions set forth in
Sections 10.4.b(i) and 10.4.b(ii) (without qualification as to knowledge or
materiality or otherwise).

 
 
(iv)
Closing Deliveries.  Buyer shall have delivered to Seller all documents required
to be delivered pursuant to Section 10.3.

 
11.           Delivery and Condition of the Purchased Assets.
 
11.1.
Effective immediately upon Closing, Seller shall be deemed to have fully and
completely transferred to Buyer all of Seller’s right, title and interest in and
to the Purchased Assets.

 
11.2.
EXCEPT AS EXPRESSLY STATED IN THIS AGREEMENT, SELLER DOES NOT MAKE ANY EXPRESS
OR IMPLIED REPRESENTATIONS, STATEMENTS, WARRANTIES, OR CONDITIONS OF ANY KIND OR
NATURE WHATSOEVER CONCERNING THE PURCHASED ASSETS, AND ANY AND ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE
DISCLAIMED.

 
 
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12.           Survival; Indemnification.
 
12.1.
Survival of Representations and Warranties.  The representations and warranties
of the parties in this Agreement shall survive Closing and the consummation of
the transactions contemplated hereby, and shall expire upon the three (3) month
anniversary of the Closing Date.  No claim may be made based upon an alleged
breach of any of such representations or warranties, whether for indemnification
in respect thereof or otherwise, unless written notice of such claim, in
reasonable detail, is given by a party to the other party on or before the three
(3) month anniversary of the Closing Date.  Notwithstanding the foregoing, the
representations and warranties set forth in Sections 8.2 and 8.3 shall survive
until expiration of the applicable statutes of limitation.  The right of any
party to indemnification, reimbursement or other remedy based upon breaches of
representations and warranties in this Agreement shall not be affected by any
investigation conducted with respect to, or any knowledge of any party or person
acquired at any time, whether before or after the execution and delivery of this
Agreement or the Closing Date, with respect to, the accuracy or inaccuracy of or
compliance with any such representation or warranty.

 
12.2.
Indemnification by Buyer.  Buyer shall indemnify, defend and hold Seller
harmless from and against any and all losses, liabilities, damages, costs and
obligations (or actions or claims in respect thereof) (including reasonable
counsel fees), which Seller may suffer or incur arising out of or based upon:

 
 
a.
any breach of any of the representations or warranties made by Buyer in this
Agreement or in any certificate or document signed or delivered by Buyer in
connection with this Agreement;

 
 
b.
any breach of any covenant or obligation of Buyer contained in this Agreement;
or

 
 
c.
the Assumed Liabilities.

 
12.3.
Indemnification by Seller.  Seller shall indemnify, defend and hold Buyer
harmless from and against any and all losses, liabilities, damages, costs and
obligations (or actions or claims in respect thereof) (including reasonable
counsel fees), which Buyer may suffer or incur arising out of or based upon:

 
 
a.
any breach of any of the representations or warranties made by Seller in this
Agreement or in any certificate or document signed or delivered by Seller in
connection with this Agreement;

 
 
b.
any breach of any covenant or obligation of Seller contained in this Agreement;

 
 
c.
any matters described in Sections 6.4, 6.5 or 8.8 hereof; or

 
 
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d.
the Excluded Liabilities.

 
12.4.
Right of Set-Off.  Buyer shall first satisfy any amounts determined by an
arbitration award or agreed by the parties to be owed to it by Seller pursuant
to this Section 12 by way of set-off, and shall offset on a dollar-for-dollar
basis, against any and all payments of the Earnout Amount otherwise due and
payable to Seller pursuant to Section 2.1 hereof prior to seeking recovery
against Seller for any remaining and unsatisfied amounts determined by an
arbitration award or agreed by the parties to be owed by Seller pursuant to this
Section 12.

 
13.           Termination.
 
13.1.
Events of Termination.  This Agreement may be terminated and the transactions
contemplated hereby may be abandoned only as follows:

 
 
a.
at any time prior to Closing by mutual written agreement of the parties;

 
 
b.
by Buyer, if there shall be a material breach by Seller of any representation or
warranty, or any covenant or agreement contained in this Agreement which would
result in a failure of any condition set forth in Section 10.4 hereof and which
breach cannot be cured or has not been cured within ten (10) days after the
giving of written notice to Seller of such breach;

 
 
c.
by Seller, if there shall be a material breach by Buyer of any representation or
warranty, or any covenant or agreement contained in this Agreement which would
result in a failure of any condition set forth in Section 10.4 hereof and which
breach cannot be cured or has not been cured within ten (10) days after the
giving of written notice to Buyer of such breach; or

 
 
d.
by Buyer or Seller, if the Closing Date shall not have occurred on or before
July 24, 2009; provided, however, that the right to terminate this Agreement
under this Section 13.1.d shall not be available to any party whose willful
breach of any obligation under this Agreement has been, directly or indirectly,
the cause of, or has resulted in, the failure of  Closing to occur.

 
13.2.
Rights upon Termination.  If this Agreement is terminated pursuant to Section
13.1, all further obligations of the parties under or pursuant to this Agreement
shall terminate without further liability of either party to the other;
provided, that nothing contained in this Section 13.2 shall relieve any party
from liability for any willful breach of this Agreement; provided, further, that
upon any termination of this Agreement pursuant to Section 13.1, Buyer and
Seller shall cause the Escrow Deposit to be released promptly to Buyer in
accordance with the provisions of the Escrow Agreement.

 
 
Page 12

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14.           Miscellaneous.
 
14.1.
Notices.  Any notice required or permitted by this Agreement shall be in writing
and effectively delivered for all purposes if delivered personally, by overnight
delivery service, or by United States mail, certified mail, postage prepaid,
return receipt requested, or via email with a receipt, and:

 
If directed to Seller:
SteelCloud, Inc.
ADDRESS: 13962 Park Center Road
Herndon, VA 20171
ATTN: Brian Hajost
bhajost@steelcloud.com
 
If directed to Buyer:
 
NCS Technologies, Inc.
ADDRESS: 9490 Innovation Drive
Manassas, VA 20110
ATTN: Mark Christopher
mchristopher@ncst.com

 
All notices shall be deemed delivered upon receipt.
 
14.2.
Brokers, Professional Fees and Expenses.  Buyer and Seller each warrants to the
other that it has not engaged, consented to, or authorized any broker,
investment banker, or other third party to act on its behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement and no such third party is entitled to any fee or
compensation in connection with this Agreement or the transactions contemplated
hereby by reason of any action of it.  Except as otherwise provided in this
Agreement, Seller and Buyer shall bear their own expenses, including
professional and legal fees, incurred in connection with the negotiation and
execution of this Agreement and each other agreement, document and instrument
contemplated by this Agreement and the consummation of the transactions
contemplated hereby and thereby.  Seller shall bear all transfer, sales, use,
excise, recording and similar taxes, if any, arising in connection with the
transactions contemplated hereunder, and Seller shall compensate Bengur Bryan &
Co. for any services provided to Seller relating to this transaction.

 
14.3.
Amendment and Modification.  This Agreement may be amended, modified or
supplemented only by written agreement of Buyer and Seller.

 
14.4.
Severability.  Any provision of this Agreement that shall be prohibited or
unenforceable shall be deemed ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof.

 
 
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14.5.
Entire Agreement.  This Agreement sets forth all of the promises, covenants,
agreements, conditions and undertakings between the parties hereto with respect
to the subject matter hereof, and supersedes all prior and contemporaneous
agreements and undertakings, inducements or conditions, express or implied, oral
or written.

 
14.6.
Relationship of Parties.  Nothing in this Agreement shall constitute or be
deemed to constitute a partnership or joint venture between the parties hereto
or constitute Buyer as an agent or representative of Seller for any purpose
other than as, and solely to the extent, expressly set forth in Section 5
hereof.

 
14.7.
Governing Law and Dispute Resolution.  This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia.  Any
dispute arising from or relating to this Agreement, which dispute cannot be
resolved by good faith negotiation of the parties, shall be resolved by
arbitration by one arbitrator selected by the parties.  If the parties cannot
agree on an arbitrator within fifteen (15) days of demand by either party for
arbitration, the parties agree to arbitrate under the rules of the American
Arbitration Association, before a single arbitrator.  The award of the
arbitrator is binding and the arbitrator may apportion costs and attorneys’ fees
as it deems appropriate.  An award of the arbitrator may be entered as a
judgment of the court having jurisdiction over the matter.

 
14.8.
Counterparts.  This Agreement may be executed in one or more counterparts all of
which when taken together constitute one and the same instruments. A signed
counterpart is as binding as an original.

 
14.9.
Exhibits.  All Exhibits are attached to and by this reference made a part of
this Agreement.

 
14.10.
Binding Effect.  This Agreement shall be binding upon and inure to the benefit
of the parties hereto, their successors and assigns.  No party may assign this
Agreement or assign or delegate any of its rights, interests or obligations
hereunder without the prior written approval of the other party hereto.

 
 
[Signature page follows]
 
 
Page 14

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IN WITNESS WHEREOF, the parties hereto have executed this Asset Purchase
Agreement as of the date and year first above written.
 

SELLER:
BUYER:
   
STEELCLOUD, INC.
 
By: /s/ Brian Hajost                                            
Name: Brian Hajost
Title: President and CEO
NCS TECHNOLOGIES, INC.
 
By: /s/ An Van Nguyen                                        
Name: An Van Nguyen
Title: President

 
 
Page 15

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EXHIBIT 1
 
PURCHASED ASSETS
 
 
Purchased Assets includes, collectively, certain tangible property relating to
the Integration Business as follows:
 
(A) the Goods and WIP Assets (finished goods, work in progress and components)
as follows:
 
[Insert list.]; and
 
(B) the Service Inventory Assets (service inventory) as follows:
 
[Insert list.]; and
 
the following intangible property: all right, title and interest of Seller, if
any, under leases of personal property and equipment, intellectual property
(including, without limitation, trademarks, trade names, and service marks),
insurance policies, customer lists, goodwill and other intangible property
related to the Integration Business, but excluding all other assets of Seller
and specifically excluding: (i) cash; (ii) any accounting-related books and
records, whether written or electronically recorded; (iii) causes of action not
related to the Purchased Assets; (iv) contingent and unliquidated claims of
Seller of every nature including tax refunds, counterclaims, and rights to set
off claims including those related to the Purchased Assets; (v) tooling and
associated equipment, including that related to the Purchased Assets; (vi)
deposits; (vii) trade accounts receivable; and (viii) any interests in real
property.
 
 
 

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EXHIBIT 2
 
LIST OF CLIENTS
 
 
[Insert list of existing Integration Business clients and prospects with respect
to which Seller has had verifiable contact regarding the Integration Business
within the six-month period immediately preceding the Closing Date.]
 
 
 

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EXHIBIT 3
 
CONSIGNED FILTER INVENTORY

 
Filter Inventory
 
Quantity
 
Per Item Price Payable to Seller

 
 
 

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EXHIBIT 4
 
BILL OF SALE
 
This BILL OF SALE dated July [___], 2009 (the “Bill of Sale”) is executed and
delivered pursuant to that certain Asset Purchase Agreement, dated July [10th],
2009 (the “Purchase Agreement”), by and between SteelCloud, Inc., a Virginia
corporation (“Seller”), and NCS Technologies, Inc., a Virginia corporation
(“Buyer”).  Capitalized terms not otherwise defined in this Bill of Sale have
the meanings ascribed to them in the Purchase Agreement.

Pursuant to the Purchase Agreement, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged (including as set forth
in the Purchase Agreement), effective as of 12:01 a.m. New York City time on the
date hereof, Seller hereby sells, conveys, assigns, transfers and delivers to
Buyer, and Buyer hereby purchases and acquires from Seller, all of Seller’s
right, title and interest in and to the Purchased Assets, free and clear of all
Encumbrances.

To the extent any terms and provisions of this Bill of Sale are in any way
inconsistent with or in conflict with any term, condition or provision of the
Purchase Agreement, the Purchase Agreement shall govern and control.

This Bill of Sale shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia, without regard to the conflicts of laws
principles or rules thereof.

This Bill of Sale may be executed in one or more counterparts, each of which
will be deemed to be an original copy of this Bill of Sale and all of which,
when taken together, will be deemed to constitute one and the same instrument.

[Signature page follows]
 
 
 

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IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale to be
executed and delivered on the date first above written.
 

 
SELLER:
       
STEELCLOUD, INC.
       
By:
   
Name:
Brian Hajost
 
Title:
President and CEO
             
BUYER:
       
NCS TECHNOLOGIES, INC.
       
By:
   
Name:
An Van Nguyen
 
Title:
President

 
 
 

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