CYCU 8-K
Cycurion, Inc. (CYCU)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Item 1.01 Entry into a Material Definitive Agreement.
Asset Purchase Agreement
On August 3, 2026 (the “Closing Date”), Cycurion, Inc., a Delaware corporation (the “Company” or “Buyer”), consummated the acquisition of substantially all of the assets relating to the video-solutions division of Kustom Entertainment, Inc., a Nevada corporation (“Kustom” or “Seller”), pursuant to that certain Asset Purchase Agreement dated June 24, 2026 (the “Asset Purchase Agreement”), as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (the “Amendment Agreement” and together with the Asset Purchase Agreement, the “Purchase Agreement”).
The acquired business includes the development, sale, licensing, support and servicing of video hardware, camera products, platforms, software and software solutions (the “Business”). Pursuant to the Purchase Agreement, Seller sold, assigned, transferred, conveyed and delivered to the Company substantially all assets used primarily in or held for use in the Business, and the Company assumed certain specified liabilities relating thereto.
The aggregate consideration payable by the Company under the Purchase Agreement consists of: (i) $1,250,000 in cash, (ii) a secured promissory note in the original principal amount of $4,250,000, (iii) contingent earnout consideration of up to $1,000,000, and (iv) shares of the Company’s Series H Preferred Stock having an aggregate stated value of $600,000. The Series H Preferred Stock replaced the 2,000,000 warrants originally contemplated by the Purchase Agreement pursuant to the Amendment Agreement.
The Series H Preferred Stock accrues dividends at a rate of 12.0% per annum on its stated value, payable quarterly. The Series H Preferred Stock is convertible into shares of the Company’s common stock at a conversion rate equal to the stated value thereof, together with accrued and unpaid dividends, divided by $1.45 per share, subject to the terms of the applicable Certificate of Designation.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Asset Purchase Agreement, which was previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 30, 2026, and the Amendment No. 1 and Forbearance / Extension Agreement, which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K with the SEC on July 31, 2026, and is incorporated herein by reference.
Ancillary Agreements
In connection with the Closing, the Company and Seller entered into the following ancillary agreements contemplated by the Purchase Agreement:
Assignment and Assumption Agreement
The Company and Seller entered into an Assignment and Assumption Agreement pursuant to which Seller assigned to the Company, and the Company assumed, certain contracts, rights, obligations, and liabilities associated with the acquired Business.
Intellectual Property Assignment Agreement
The Company and Seller entered into an Intellectual Property Assignment Agreement pursuant to which Seller assigned to the Company certain intellectual property assets used in the Business, including associated rights, registrations, applications, goodwill, and rights to pursue infringement claims.
Bill of Sale
The Company and Seller entered into a Bill of Sale pursuant to which Seller conveyed to the Company legal title to certain tangible and intangible assets included in the acquired Business.
Non-Competition and Non-Solicitation Agreement
The Company and Seller entered into a Non-Competition and Non-Solicitation Agreement containing customary restrictions relating to competition with the Business and solicitation of customers, employees, and business relationships.
Secured Promissory Note
The Company issued to Seller a Secured Promissory Note in the original principal amount of $4,250,000 in partial consideration for the acquisition. The note is secured in accordance with the terms of the Security Agreement described below.
Security Agreement
The Company entered into a Security Agreement in favor of Seller pursuant to which Seller was granted a security interest in certain assets of the Company as security for the obligations under the Secured Promissory Note.
Registration Rights Agreement
The Company entered into a Registration Rights Agreement with Seller pursuant to which the Company agreed to register for resale the shares of common stock issuable upon conversion of the Series H Preferred Stock, subject to the terms thereof. The Company agreed to file and maintain an effective registration statement covering such shares in accordance with the requirements set forth in the agreement.
Earnout and Clawback Agreement
The Company and Seller entered into an Earnout and Clawback Agreement establishing Seller’s right to receive contingent earnout payments of up to $1,000,000 based upon the future performance of the Business and providing for certain clawback provisions and adjustment mechanisms.
Leak-Out Agreement
The Company and Seller entered into a Leak-Out Agreement governing the disposition of shares of common stock issued upon conversion of the Series H Preferred Stock or payment of dividends thereon. The agreement generally limits sales by Seller and its affiliates during the applicable leak-out period based on a percentage of daily trading volume.
Conditions Precedent Agreement
The Company and Seller entered into a Conditions Precedent Agreement setting forth certain conditions that were required to be satisfied or waived in connection with the consummation of the acquisition. All such conditions were satisfied or waived prior to Closing.
Side Letter Agreement
In connection with the Closing, the Company and Seller entered into a Side Letter Agreement pursuant to which the parties acknowledged that certain agreements and deliverables require additional coordination with employees, contractors and third parties and therefore may be finalized and delivered following Closing. These deferred deliverables include certain Key Employment Agreements, Essential Employee Agreements, Contractor Agreements, the Shared Services Agreement, and certain pro forma financial information. The parties agreed that the absence of such deferred deliverables as of the Closing Date would not constitute a condition precedent to Closing, a breach of the Purchase Agreement, or a basis for terminating the Purchase Agreement. The parties further agreed to use commercially reasonable efforts to finalize and execute such deferred deliverables by the deadline specified in the Side Letter Agreement.
The foregoing descriptions of the Assignment and Assumption Agreement, Intellectual Property Assignment Agreement, Bill of Sale, Non-Competition and Non-Solicitation Agreement, Secured Promissory Note, Security Agreement, Registration Rights Agreement, Earnout and Clawback Agreement, Leak-Out Agreement, Conditions Precedent Agreement and Side Letter Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of such agreements, copies of which are filed as Exhibits 10.1 through 10.12 to this Current Report on Form 8-K and are incorporated herein by reference.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On August 3, 2026, the Company completed the acquisition of substantially all of the assets comprising the Business of Seller pursuant to the Purchase Agreement described in Item 1.01 above, which description is incorporated herein by reference.
The Company expects to integrate the acquired Business into its existing operations and believes the acquisition will enhance the Company’s cybersecurity, technology solutions and video-surveillance capabilities.
Item 3.02. Unregistered Sales of Equity Securities.
On August 3, 2026, pursuant to the Purchase Agreement, the Company issued shares of its Series H Preferred Stock having an aggregate stated value of $600,000 to Seller as partial consideration for the acquisition. The Series H Preferred Stock was issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder.
The Series H Preferred Stock accrues dividends at a rate of 12.0% per annum and is convertible into shares of the Company’s common stock at a conversion price of $1.45 per share, subject to adjustment and the terms of the applicable Certificate of Designation.
Item 8.01. Other Events.
On August 4, 2026, the Company issued a press release announcing the completion of its acquisition of substantially all of the assets comprising the video solutions business of Kustom. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(b) Pro Forma Financial Information.
In connection with the acquisition of substantially all of the assets comprising the video solutions business of Kustom Entertainment, Inc., the parties prepared unaudited pro forma financial information reflecting the effects of the acquisition. The pro forma financial information includes operating assets and liabilities as of June 30, 2026, a pro forma income statement for the fiscal year ending December 31, 2026, combining historical results and forecasted operations, and a pro forma operating cash flow statement. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations, financial position, or cash flows that would have been achieved had the acquisition been completed on the dates assumed, nor is it necessarily indicative of future results. The unaudited pro forma financial information is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
(d) Exhibits:
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CYCURION, INC. | ||
| Date: August 4, 2026 | By: | /s/ L. Kevin Kelly |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
Exhibit 10.1
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this “Agreement”), dated as of August 3, 2026, is entered into by and between Kustom Entertainment, Inc., a Nevada corporation with its principal office located at 6366 College Boulevard, Overland Park, Kansas (“Kustom”), and Cycurion, Inc., a Delaware corporation with its principal office located at 1640 Boro Place, Suite 420C, McLean, Virginia (“Cycurion” and, together with Kustom, the “Parties”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement.
RECITALS
WHEREAS, on or around June 24, 2026, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (collectively, the “Asset Purchase Agreement”), the Parties entered into the Asset Purchase Agreement, attached hereto as Schedule A, pursuant to which Cycurion agreed to purchase certain assets of Kustom identified therein and further described on Schedule B attached hereto (collectively, the “Assigned Assets”);
WHEREAS, as consideration for the purchase of the Assigned Assets, the Parties have agreed that Cycurion shall provide consideration pursuant to the Asset Purchase Agreement, including $1,250,000 of cash at Closing, a Secured Promissory Note in the original principal amount of $4,250,000.00, potential contingent Earnout consideration, and certain warrants to purchase shares of common stock of Cycurion, all subject to the terms and conditions of the Asset Purchase Agreement; and
WHEREAS, the Parties desire to effect the assignment, transfer, conveyance, and assumption of certain assets and liabilities in accordance with the terms of this Agreement and the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:
1. Assignment of Physical Assets. Subject to the terms and conditions of the Asset Purchase Agreement, Kustom hereby assigns, transfers, conveys, and delivers to Cycurion all of Kustom’s right, title, and interest in and to the physical assets identified on Schedule B.
2. Assignment of Intellectual Property Assets. Subject to the terms and conditions of the Asset Purchase Agreement, Kustom hereby assigns, transfers, conveys, and delivers to Cycurion all of Kustom’s right, title, and interest in and to the intellectual property assets identified on Schedule B, including any related trademarks, copyrights, patents, trade secrets, goodwill, and associated rights expressly included therein.
3. Assignment of Contracts and Other Assets. Subject to the terms and conditions of the Asset Purchase Agreement, Kustom hereby assigns, transfers, conveys, and delivers to Cycurion all of Kustom’s right, title, and interest in and to the leases, contracts, accounts, customer relationships, vendor arrangements, and other assets identified on Schedule B, to the extent assignable.
4. Assumption of Assumed Liabilities. Effective as of the Closing, Cycurion shall assume only those liabilities and obligations expressly identified as “Assumed Liabilities” in the Asset Purchase Agreement. Except for the Assumed Liabilities expressly assumed pursuant to the Asset Purchase Agreement, Cycurion shall not assume, and expressly disclaims, any liabilities or obligations of Kustom or relating to the Assigned Assets, whether known or unknown, fixed or contingent, accrued or unaccrued, or arising before, on, or after the Closing Date.
5. Limited Assignment; No Additional Rights. Upon consummation of the transactions contemplated hereby, Cycurion shall acquire only those rights, titles, interests, and assets expressly conveyed pursuant to this Agreement and the Asset Purchase Agreement. Nothing herein shall be construed as assigning or transferring any assets, rights, or properties constituting Excluded Assets under the Asset Purchase Agreement.
6. Further Assurances. Following the Closing, Kustom shall execute and deliver such further instruments of assignment, transfer, conveyance, and assumption, and take such additional actions, as Cycurion may reasonably request to evidence, perfect, maintain, or enforce Cycurion’s rights in and to the Assigned Assets and Assumed Liabilities.
7. No Expansion of Representations or Warranties. This Agreement is subject in all respects to the terms, limitations, disclaimers, and provisions of the Asset Purchase Agreement. Except as expressly set forth in the Asset Purchase Agreement, Kustom makes no representation or warranty, express or implied, with respect to the Assigned Assets or Assumed Liabilities.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this Agreement as of August , 2026.
| KUSTOM ENTERTAINMENT, INC | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | President, Chief Executive Officer & Chairman | |
| CYCURION, INC | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer and Chairman | |
[Signature Page to Assignment and Assumption Agreement]
Schedule A
[Asset Purchase Agreement]
Schedule B
[Assigned Assets]
Exhibit 10.2
INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT
This Intellectual Property Assignment Agreement (this “Agreement”), dated as of August 3, 2026, is entered into by and between Kustom Entertainment, Inc., a Nevada corporation with its principal office located at 6366 College Boulevard, Overland Park, Kansas (“Kustom”), and Cycurion, Inc., a Delaware corporation with its principal office located at 1640 Boro Place, Suite 420C, McLean, Virginia (“Cycurion”) (collectively, the “Parties”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement.
RECITALS
WHEREAS, on or around June 24, 2026, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026, the Parties entered into that certain Asset Purchase Agreement, attached hereto as Schedule A (the “Asset Purchase Agreement”), pursuant to which Cycurion agreed to purchase certain assets of Kustom identified therein and further described on Schedule B attached hereto (collectively, the “Assigned Assets”);
WHEREAS, as partial consideration for the purchase of the Assigned Assets, the Parties have agreed that Cycurion shall provide consideration pursuant to the Asset Purchase Agreement, including $1,250,000 in cash at Closing, a Secured Promissory Note in the original principal amount of $4,250,000.00, potential contingent Earnout consideration, and shares of Cycurion’s Series H Preferred Stock having an aggregate stated value of $600,000, together with all rights associated therewith, including accrued dividends and conversion rights, all subject to the terms and conditions of the Asset Purchase Agreement and the related transaction documents; and
WHEREAS, the Parties desire to effect the assignment, transfer, conveyance, and delivery of certain intellectual property and related assets in accordance with the terms of this Agreement and the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
1. Assignment of Intellectual Property Assets. Subject to the terms and conditions of the Asset Purchase Agreement, Kustom hereby assigns, transfers, conveys, and delivers to Cycurion all of Kustom’s right, title, and interest in and to the intellectual property assets identified on Schedule C, including, to the extent set forth therein, all associated goodwill, rights to sue for past, present, and future infringement, and all registrations, applications, renewals, and proceeds related thereto.
2. Assumption of Rights. Upon the Closing and the effectiveness of the assignments contemplated hereby, Cycurion shall acquire only those rights, titles, and interests in and to the Assigned Assets expressly conveyed pursuant to this Agreement and the Asset Purchase Agreement. Except as expressly set forth in the Asset Purchase Agreement, Cycurion shall not assume or be deemed to assume any liabilities or obligations of Kustom or relating to the Assigned Assets.
3. Further Assurances. Following the Closing, Kustom shall execute and deliver such additional documents and instruments, and take such further actions, as Cycurion may reasonably request to evidence, perfect, record, or enforce Cycurion’s ownership rights in the Assigned Assets.
4. No Additional Representations. Except as expressly set forth in the Asset Purchase Agreement or herein, Kustom makes no representation or warranty, express or implied, with respect to the Assigned Assets, and all such Assigned Assets are transferred subject to the terms, limitations, and disclaimers contained in the Asset Purchase Agreement.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of August 3, 2026.
| KUSTOM ENTERTAINMENT, INC | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | President, Chief Executive Officer & Chairman | |
| CYCURION, INC | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer and Chairman | |
[Signature Page to Intellectual Property Assignment Agreement]
Schedule A
[Asset Purchase Agreement]
Schedule B
[Assigned Assets]
Schedule C
[Assignment of Certain Intellectual Patents, Copyright and Trademark Assets]
Exhibit 10.3
BILL OF SALE
This BILL OF SALE (this “Bill of Sale”) is executed and delivered as of August 3, 2026, by Kustom Entertainment, Inc., a Nevada corporation (“Seller”), in favor of Cycurion, Inc., a Delaware corporation (“Buyer”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in that certain Asset Purchase Agreement, dated June 24, 2026, by and between Buyer and Seller, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026, and as may be further amended, supplemented, restated, or otherwise modified from time to time (collectively, the “Purchase Agreement”).
WITNESSETH:
WHEREAS, Seller has agreed to sell, transfer and assign to Buyer the Acquired Assets pursuant to the Purchase Agreement;
NOW, THEREFORE, for and in consideration of the premises and the considerations provided in the Purchase Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller does hereby sell, transfer, assign, convey and deliver to Buyer, and its successors and assigns, all of Seller’s right, title and interest as of the Closing in and to the Acquired Assets:
TO HAVE AND TO HOLD all the Acquired Assets unto Buyer for its own use forever, free and clear of all Liens.
1. Seller hereby constitutes and appoints Buyer as Seller’s true and lawful attorney-in-fact, with full power of substitution, in Seller’s name and stead, solely to demand, collect, and receive the Acquired Assets and to give receipts and releases with respect thereto, and to institute and prosecute, in Seller’s name or otherwise, such proceedings as Buyer reasonably deems necessary to effectuate the transfer to, or the collection or reduction to possession of, the Acquired Assets, in each case at Buyer’s sole expense and for Buyer’s benefit. The foregoing power of attorney is coupled with an interest and shall be irrevocable solely to the extent necessary to enforce Buyer’s rights in the Acquired Assets.
2. Nothing in this Bill of Sale, express or implied, is intended to or shall be construed to modify, expand or limit in any way the terms of the Purchase Agreement. To the extent there is a conflict between the terms and provisions of this Bill of Sale and the Purchase Agreement, the terms and provisions of the Purchase Agreement shall govern.
3. This Bill of Sale shall be binding upon and inure to the benefit of Seller and Buyer and their respective successors and assigns.
4. Buyer does not assume, and shall not be deemed to assume, any liabilities of Seller except as expressly set forth in the Purchase Agreement. Without limiting the foregoing, Buyer shall not assume any liabilities relating to the Excluded Assets.
5. This Bill of Sale is executed and delivered pursuant to the Purchase Agreement.
6. This Bill of Sale may be amended, supplemented or otherwise modified only by a written instrument executed by Seller and Buyer.
7. This Bill of Sale shall be governed by the laws of the State of New York (regardless of the laws that might otherwise govern under applicable New York conflict of laws principles) as to all matters, including matters of validity, construction, effect, performance and remedies.
8. This Bill of Sale may be executed in any number of counterparts, and by any party on separate counterparts, each of which as so executed and delivered shall be deemed an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Bill of Sale as to any party hereto to produce or account for more than one such counterpart executed and delivered by such party. This Bill of Sale, to the extent signed and delivered by means of electronic transmission (including email of .pdf files or any electronic signature complying with the U.S. federal ESIGN Act of 2000, e.g., www.docusign.com), shall be treated in all manner and for all purposes as an original agreement and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person.
9. This Bill of Sale is intended solely to evidence the transfer of the Acquired Assets and shall not operate as an assignment of any contract, claim, or right that is not assignable without consent unless such consent has been obtained.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has duly executed this Bill of Sale as of the date first written above.
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chairman, President and Chief Executive Officer | |
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kel.ly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer and Chairman | |
[Signature Page to Bill of Sale]
Exhibit 10.4
NON-COMPETITION AND NON-SOLICITATION AGREEMENT
This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”), dated as of this 3rd day of August, 2026 (the “Effective Date”), by and between Cycurion, Inc., a Delaware corporation (the “Buyer”), and Kustom Entertainment, Inc., a Nevada corporation (the “Restricted Party” or “Seller”). Each of Buyer and Restricted Party is sometimes referred to herein as a “Party”, and collectively, as the “Parties”. Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Purchase Agreement (as defined below).
WITNESSETH:
WHEREAS, pursuant to that certain Asset Purchase Agreement, dated June 24, 2026, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (collectively, the “Purchase Agreement”), by and between Buyer and Seller, Buyer is acquiring from Seller certain assets of Seller (the “Asset Purchase”);and
WHEREAS, in connection with the Asset Purchase and to induce Buyer to enter into the Purchase Agreement and consummate the transactions contemplated thereby, Restricted Party has agreed to a restriction on its right to engage in activities competitive with any business that involves owning and operating mobile video surveillance technologies, including body-worn cameras, in-car video systems and digital evidence management solutions for law enforcement, public safety and commercial sectors (the “Business”).
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties hereto hereby agree as follows:
1. Non-Competition Covenants.
Commencing on the Effective Date and continuing through the third (3rd) anniversary thereof (the “Restricted Period”), Restricted Party shall not, and shall cause its Affiliates not to, directly or indirectly, for its own account or jointly with another, or for or on behalf of any other Person, as principal, agent, consultant, employee, lender, investor, or otherwise, own, manage, operate, control, participate in, provide services to, or otherwise engage in any business or activity that competes with the Business as conducted as of the Closing or as contemplated to be conducted by Buyer following the Closing. Without limiting the foregoing, Restricted Party shall not, during the Restricted Period, directly or indirectly use, disclose, or exploit any confidential information, trade secrets, customer relationships, goodwill, or other proprietary information included in the Acquired Assets in connection with any competing business. Restricted Party and its Affiliates may not (a) own, directly or indirectly any of the outstanding equity securities of any entity engaged in a business that competes with the Business, and (b) engage in any business activities expressly identified as Excluded Assets or otherwise retained by Seller under the Purchase Agreement, or use any confidential or proprietary information included in the Acquired Assets. The Parties acknowledge and agree that the scope of the restrictions set forth herein is intended to protect the goodwill, value, and competitive position of the Business acquired by Buyer pursuant to the Purchase Agreement.
2. Reasonableness of Restrictions.
Restricted Party acknowledges and agrees that the covenants contained in Section 1 with respect to non-competition are reasonable in scope, geographic application and duration, in view of the economic bargain between Buyer and Seller, and that the provisions of Section 1 are both necessary and reasonable for the protection of Buyer, including, without limitation, with respect to the protection of its trade secrets, goodwill and proprietary and confidential information.
3. Non-Disparagement.
During the Restricted Period, Restricted Party shall not, and shall cause its Affiliates not to, make any statement that is disparaging or defamatory to Buyer or its business. Notwithstanding the foregoing, the Restricted Party shall be permitted to (a) testify truthfully in any judicial or legal action, (b) exercise protected rights to the extent such rights cannot be waived by agreement, (c) enforce rights under Purchase Agreement or this Agreement, and (d) comply with any applicable subpoena, Law or Order of a governmental authority.
4. Non-Solicitation Covenant.
Restricted Party agrees that during the Restricted Period, it shall not, and shall cause its Affiliates not to, directly or indirectly, for its own account or jointly with another, or for or on behalf of any other Person, as principal, agent or otherwise:
a. solicit, induce or cause (or in any manner attempt to do the same) any Person employed or engaged by the Business to leave such employment or engagement, whether or not such employment or engagement is pursuant to a written contract or otherwise, or hire or engage any such Person (other than through general employment opportunity solicitations); or
b. solicit, induce or encourage, or attempt to solicit, induce or encourage, any Person who is a client, customer or vendor of the Business during the Restricted Period or who was a client, customer or vendor during the eighteen (18) month period immediately prior to the expiration of the Restricted Period, in each case, to cease, diminish or not commence doing business with the Business.
5. Effect of Breaches.
It is intended that the obligation of Restricted Party to perform the terms of this Agreement is unconditional, and does not depend on the performance or non-performance of any terms, duties or obligations not specifically recited in this Agreement.
6. Severability.
Whenever possible, each provision of this Agreement will 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, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. The Parties agree to use their best efforts to reformulate any such unenforceable provision to a provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable provision. The Parties further agree that a court of competent jurisdiction making a determination of the invalidity or unenforceability of any term or provision of this Agreement will have the power to reduce the scope, duration or area of any such term or provision, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement will be enforceable as so modified.
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7. Transferability.
The rights and obligations of Buyer hereunder may be transferred to its successors and assigns, including but not limited to the purchaser of a substantial portion of Buyer’s assets or the Business. Restricted Party may not transfer or assign its rights or obligations under this Agreement.
8. Counterparts.
This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. Delivery of an executed signature page by facsimile transmission or electronic transmission shall be effective as delivery of a manually executed counterpart.
9. Choice of Law.
All questions concerning the construction, validity, interpretation and enforcement of this Agreement and the exhibits hereto will be governed by the internal law, and not the law of conflicts, of the State of New York.
10. Remedies.
Each of the Parties to this Agreement will be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys’ fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The Parties hereto agree and acknowledge that (a) a breach by Restricted Party of any term or provision of this Agreement will materially and irreparably harm Buyer, (b) money damages will accordingly not be an adequate remedy for any breach of the provisions of this Agreement by Restricted Party, and (c) Buyer, in its sole discretion and in addition to any other remedies it may have at law or in equity may apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
[Signature Page Follows]
| - 3 - |
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.
| BUYER: | ||
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer and Chairman | |
| RESTRICTED PARTY: | ||
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | President, Chief Executive Officer and Chairman | |
[Signature Page to Non-Competition and Non-Solicitation Agreement]
Exhibit 10.5
SECURED PROMISSORY NOTE
| Principal: $4,250,000.00 | Dated: August 3, 2026 |
FOR VALUE RECEIVED, Cycurion Inc., a Delaware corporation (“Borrower”), hereby promises to pay to the order of Kustom Entertainment, Inc., a Nevada corporation (“Lender”), the principal sum of Four Million Two Hundred Fifty Thousand Dollars ($4,250,000.00) (the “Principal”), together with interest on the outstanding Principal at a fixed rate of seven percent (7.00%) per annum (the “Interest Rate”), in accordance with the terms of this Secured Promissory Note (this “Note”).
1. Definitions.
For purposes of this Note, the following terms shall have the meanings set forth below:
“Asset Purchase Agreement” means that certain Asset Purchase Agreement, dated as of June 24, 2026, as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026, by and between Borrower and Lender.
“Acquired Assets” shall have the meaning assigned to it in the Asset Purchase Agreement.
“Business Day” means any day other than a Saturday, Sunday, or other day on which commercial banks in the State of New York are authorized or required by law to close.
“Collateral” has the meaning set forth in Section 4(a) and shall be limited to the assets of the Acquired Assets conveyed pursuant to the Asset Purchase Agreement.
“Event of Default” has the meaning set forth in Section 5(a).
“Interest Rate” means seven percent (7.00%) per annum.
“Lender” means Kustom Entertainment, Inc., a Nevada corporation, and its permitted successors and assigns.
“Note” means this Secured Promissory Note, as amended, restated, supplemented, or otherwise modified from time to time.
“Obligations” means all present and future obligations of the Borrower under this Note, including without limitation all amounts of Principal, interest, and any other sums payable hereunder.
“Permitted Liens” means (i) liens for taxes not yet due, (ii) statutory liens arising in the ordinary course of business, and (iii) liens consented to in writing by Lender.
“Principal” means the original principal amount of $4,250,000.00, as reduced from time to time pursuant to payments made hereunder.
“Default Period” means the period commencing on the occurrence of an Event of Default and continuing until such Event of Default has been cured or waived in writing by Lender.
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2. Payments.
(a) Amortization. The Borrower shall repay the Principal and accrued interest in thirty (30) consecutive monthly installments of $154,835.60 each beginning February 15, 2027.
(b) Interest Only Payments. The Borrower will make interest-only payments for the first six (6) months beginning August 15, 2026, whereby the unpaid portion of the principal will accrue to the outstanding balance of the note.
(c) Commencement. Payments shall begin on August 15, 2026, and continue on the same day of each succeeding month until paid in full.
(d) Application of Payments. Each payment shall be applied first to accrued but unpaid interest, and thereafter to Principal.
(e) Business Day Adjustment. If any payment date falls on a day other than a Business Day, such payment shall be due on the next succeeding Business Day.
(f) No Setoff. All payments shall be made without setoff, deduction, or counterclaim.
(g) Interest Calculation. Interest shall be calculated on the basis of a 360-day year consisting of twelve 30-day months and shall accrue for the actual number of days elapsed.
(h) Method of Payment. All payments shall be made in lawful money of the United States by wire transfer of immediately available funds or such other method as Lender may reasonably designate in writing.
3. Prepayment.
(a) Voluntary Prepayment. The Borrower may prepay this Note, in whole or in part, at any time without premium or penalty.
(b) Prepayment Discount. Notwithstanding the foregoing, if the Borrower elects to prepay this Note in full, the following principal reductions shall apply:
(i) 0–6 Months: Principal shall be reduced by $1,250,000, as applied to the outstanding Principal balance at the time of prepayment, net of all prior principal payments made.
(ii) 6–12 Months: Principal shall be reduced by $500,000, as applied to the outstanding Principal balance at the time of prepayment, net of all prior principal payments made.
(iii) After 12 Months: No reduction applies.
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(c) Clarification. Any reduction shall apply only to the then-outstanding Principal balance and shall not result in any payment by Lender to Borrower.
4. Security and Collateral.
(a) Grant of Security Interest. As security for the full and punctual payment and performance of all obligations under this Note (the “Obligations”), Borrower hereby grants to Lender a security interest in all right, title, and interest of Borrower in and to the assets comprising the Acquired Assets conveyed pursuant to that certain Asset Purchase Agreement dated June 24, 2026 (collectively, the “Collateral”).
(b) No Expansion of Collateral. The Collateral shall be limited solely to the assets expressly conveyed under the Asset Purchase Agreement and shall not include any other assets of Borrower.
(c) Perfection. Lender may file UCC-1 financing statements solely with respect to the Collateral. Borrower shall reasonably cooperate in such filings.
(d) Priority. Lender’s security interest shall be first priority solely with respect to the Collateral, subject only to Permitted Liens.
5. Events of Default and Acceleration.
(a) Event of Default. Each of the following shall constitute an “Event of Default”:
(i) failure to pay any installment within fifteen (15) days after its due date;
(ii) material breach of this Note that remains uncured for thirty (30) days after written notice;
(iii) insolvency, bankruptcy filing, or assignment for benefit of creditors; or
(iv) sale or disposition of all or substantially all of the Collateral outside the ordinary course without Lender consent.
(b) Default Interest. During the Default Period, interest shall accrue at a rate equal to the lesser of (i) twelve percent (12%) per annum or (ii) the maximum rate permitted by law.
(c) Acceleration. Upon an Event of Default that remains uncured, Lender may declare all outstanding Principal and accrued interest immediately due and payable.
(d) Exclusive Remedies. Lender’s remedies shall be limited to enforcement against the Collateral and payment obligations under this Note.
(e) Collection Costs. Borrower shall pay reasonable and documented out-of-pocket collection costs, including reasonable attorneys’ fees, actually incurred by Lender.
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6. Notices.
All notices, requests, demands, and other communications required or permitted under this Note shall be in writing and shall be deemed to have been duly given: (a) when delivered by hand; (b) one (1) business day after being sent by a nationally recognized overnight courier; or (c) three (3) business days after being mailed by certified or registered mail and email, return receipt requested, to the following addresses:
| If to Borrower: | Cycurion, Inc. |
| 1640 Boro Place, Suite 420C | |
| McLean, VA 22102 | |
| E-mail: [***] | |
| Attention: L. Kevin Kelly, Chief Executive Officer | |
| with a copy to: | Seward & Kissel LLP |
| One Battery Park Plaza | |
| New York, NY 10004 | |
| E-mail: [***] | |
| Attention: Keith J. Billotti, Esq. |
| If to Lender: | Kustom Entertainment, Inc. |
| 6366 College Blvd | |
| Overland Park, KS 66211 | |
| Email: [***] | |
| Attention: Stanton E. Ross, Chairman, President and Chief Executive Officer | |
| with a copy to: | Sullivan & Worcester LLP |
| 1251 Avenue of the Americas | |
| New York, NY 10020 | |
| (212) 660-3060 | |
| Email: [***] | |
| Attention: David E. Danovitch, Esq.; Joseph E. Segilia, Esq. |
Either party may change its address for notices by providing written notice to the other party in accordance with this Section.
7. Governing Law.
This Note shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to conflict of laws principles.
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8. Limitation of Liability.
Notwithstanding anything herein to the contrary, Lender agrees that its recourse shall be limited solely to the Collateral and the Borrower, and no officer, director, or affiliate shall have any personal liability.
9. Waiver of Consequential Damages.
In no event shall Borrower be liable for any indirect, incidental, special or consequential damages.
10. Amendment.
This Note may be amended only by a written agreement signed by both Borrower and Lender.
11. Assignment.
Lender may not assign this Note without the prior written consent of Borrower, not to be unreasonably withheld.
12. Confidentiality.
Lender agrees to keep the terms of this Note and related transactions confidential, except as required by law.
13. Entire Agreement.
This Note, together with the Asset Purchase Agreement, constitutes the entire agreement between the parties.
14. Counterparts; Electronic Signatures.
This Note may be executed in counterparts and by electronic signature, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Borrower and Lender hereto have caused this Note to be duly executed on the day and year first above written.
BORROWER:
CYCURION, INC.
| By: | /s/ L. Kevin Kelly | |
| L. Kevin Kelly | ||
| Chairman and Chief Executive Officer |
ACKNOWLEDGED AND AGREED:
LENDER:
KUSTOM ENTERTAINMENT, INC.
| By: | /s/ Stanton E. Ross | |
| Stanton E. Ross | ||
| Chairman, President and Chief Executive Officer |
[Signature Page to Secured Promissory Note]
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Exhibit 10.6
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of August 3, 2026 (this “Agreement”), is between Cycurion, Inc., a Delaware corporation (the “Company”), and Kustom Entertainment, Inc., a Nevada corporation, as the holder of certain of the Company’s obligations currently in its favor (“Kustom Entertainment”), and memorializes and ratifies the Company’s agreement to grant a security interest solely in the collateral described herein to Kustom Entertainment and its endorsees, transferees, and assigns regarding the such obligations (collectively, the “Secured Party”).
W I T N E S S E T H:
WHEREAS, the Company issued to the Secured Party a Secured Promissory Note, dated August 3, 2026, in the original principal amount of up to $4,250,000.00 subject to the terms and conditions set forth therein (the “Note”);
WHEREAS, originally when the Note was sold and issued and in order to induce the Secured Party to extend the loan(s) evidenced by the Note, the Company agreed to execute and deliver to the Secured Party an agreement containing all of the terms and conditions of this Agreement, which therein would grant to the Secured Party a security interest in certain property of the Company to secure the prompt payment, performance and discharge in full of all of the Company’s obligations under the Note.
NOW, THEREFORE, in consideration of the agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms shall have the meanings set forth in this Section 1. Terms used but not otherwise defined in this Agreement that are defined in Article 9 of the UCC (such as “account”, “chattel paper”, “commercial tort claim”, “deposit account”, “document”, “equipment”, “fixtures”, “general intangibles”, “goods”, “instruments”, “inventory”, “investment property”, “letter-of-credit rights”, “proceeds” and “supporting obligations”) shall have the respective meanings given such terms in Article 9 of the UCC.
(a) “Collateral” means the “Acquired Assets” (as defined in the Asset Purchase Agreement), together with all products and proceeds thereof, in each case whether now existing or hereafter arising. The Collateral shall be limited solely to the Acquired Assets and shall not include (i) any other assets, properties, or rights of the Company not acquired pursuant to the Asset Purchase Agreement, (ii) any equity interests of the Company or any of its affiliates, or (iii) any assets of the Company unrelated to the Acquired Assets. Notwithstanding anything to the contrary, the Collateral shall not include any assets, claims or rights set forth on Schedule I (Excluded Litigation and Retained Claims).
Notwithstanding the foregoing, nothing herein shall be deemed to constitute an assignment of any asset which, in the event of an assignment, becomes void by operation of applicable law or the assignment of which is otherwise prohibited by applicable law (in each case to the extent that such applicable law is not overridden by Sections 9-406, 9-407 and/or 9-408 of the UCC or other similar applicable law); provided, however, that to the extent permitted by applicable law, this Agreement shall create a valid security interest in such asset and, to the extent permitted by applicable law, this Agreement shall create a valid security interest in the proceeds of such asset.
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(b) “Intellectual Property” means the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, (i) all copyrights arising under the laws of the United States, any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof, and all applications in connection therewith, including, without limitation, all registrations, recordings and applications in the United States Copyright Office, (ii) all letters patent of the United States, any other country or any political subdivision thereof, all reissues and extensions thereof, and all applications for letters patent of the United States or any other country and all divisions, continuations and continuations-in-part thereof, (iii) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade dress, service marks, logos, domain names and other source or business identifiers, and all goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, or otherwise, and all common law rights related thereto, (iv) all trade secrets arising under the laws of the United States, any other country or any political subdivision thereof, (v) all rights to obtain any reissues, renewals or extensions of the foregoing, (vi) all licenses for any of the foregoing, and (vii) all causes of action for infringement of the foregoing.
(c) “Liens” means a lien, charge, pledge, security interest, encumbrance, and right of first refusal, preemptive right, or other restriction.
(d) “Majority in Interest” means, at any time of determination, the majority in interest (based on then-outstanding principal amounts of the Note at the time of such determination) of the Secured Party.
(e) “Necessary Endorsement” means undated stock powers endorsed in blank or other proper instruments of assignment duly executed and such other instruments or documents as the Agent (as that term is defined below) may reasonably request.
(f) “Obligations” means all of the liabilities and obligations (primary, secondary, direct, contingent, sole, joint or several) due or to become due, or that are now or may be hereafter contracted or acquired, or owing to, of the Company to the Secured Party, including, without limitation, all obligations under this Agreement, the Note, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith, in each case, whether now or hereafter existing, voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from the Secured Party as a preference, fraudulent transfer or otherwise as such obligations may be amended, supplemented, converted, extended or modified from time to time. Without limiting the generality of the foregoing, the term “Obligations” shall include, without limitation: (i) principal of, and interest on the Note and the loan(s) extended pursuant thereto; (ii) any and all other fees, indemnities, costs, obligations and liabilities of the Company from time to time under or in connection with this Agreement, the Note, and any other instruments, agreements or other documents executed and/or delivered in connection herewith or therewith; and (iii) all amounts (including but not limited to post-petition interest) in respect of the foregoing that would be payable but for the fact that the obligations to pay such amounts are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Company.
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(g) “Organizational Documents” means with respect to the Company, the documents by which the Company was organized (such as a certificate of incorporation, certificate of limited partnership or articles of organization, and including, without limitation, any certificates of designation for preferred stock or other forms of preferred equity) and which relate to the internal governance of the Company (such as bylaws, a partnership agreement or an operating, limited liability or members agreement).
(h) “Permitted Liens” means the following:
(i) Liens imposed by law for taxes that are not yet due or are being contested in good faith, which in each case, have been appropriately reserved for;
(ii) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than thirty (30) days or are being contested in good faith;
(iii) pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;
(iv) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(v) Liens under this Agreement; and
(vi) Any other Liens in favor of the Secured Party.
(i) “Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
(j) “Pledged Interests” means the ownership and other equity interests in partnerships and limited liability companies (if any) included in the Collateral.
(l) “UCC” means the Uniform Commercial Code of the State of Delaware and or any other applicable law of any state or states that have jurisdiction with respect to all, or any portion of, the Collateral or this Agreement, from time to time. It is the intent of the parties that defined terms in the UCC should be construed in their broadest sense so that the term “Collateral” will be construed in its broadest sense. Accordingly if there are, from time to time, changes to defined terms in the UCC that broaden the definitions, they are incorporated herein and if existing definitions in the UCC are broader than the amended definitions, the existing ones shall be controlling.
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2. Grant of Security Interest in Collateral. As an inducement for the Secured Party to extend the loan(s) as evidenced by the Note and to secure the complete and timely payment, performance and discharge in full, as the case may be, of all of the Obligations, the Company hereby unconditionally and irrevocably pledges, grants and hypothecates to the Secured Party a perfected, first priority security interest (subject only to Permitted Liens and any liens permitted under the Note or Asset Purchase Agreement) in and to, a lien upon and a right of set-off against all of their respective right, title and interest of whatsoever kind and nature in and to, the Collateral (a “Security Interest” and, collectively, the “Security Interests”).
3. Delivery of Certain Collateral. The Company shall deliver to the Secured Party or its agent such instruments or other items constituting Collateral only to the extent required under applicable law to perfect the Secured Party’s security interest therein. For the avoidance of doubt, (a) the Company shall not be required to deliver possession of equipment, inventory, books and records, or other operational assets in the ordinary course of business, and (b) except upon the occurrence and during the continuance of an Event of Default, the Company shall retain possession and control of the Collateral and shall be entitled to use, operate, and dispose of such Collateral in accordance with the terms of this Agreement, the Note, and the Asset Purchase Agreement. Any delivery of Collateral pursuant to this Section shall be made together with such endorsements or instruments of assignment as are reasonably necessary to effectuate such delivery and perfection, in form and substance reasonably acceptable to the Company and the Secured Party.
4. Representations, Warranties, Covenants, and Agreements of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Secured Party concurrently herewith (the “Disclosure Schedules”), which Disclosure Schedules shall be deemed a part hereof, the Company represents and warrants to, and covenants and agrees with, the Secured Party as follows:
(a) The Company has the requisite corporate, partnership, limited liability company or other power and authority to enter into this Agreement and otherwise to carry out its obligations hereunder. The execution, delivery, and performance by the Company of this Agreement and the filings contemplated therein have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company. This Agreement has been duly executed by the Company. This Agreement constitutes the legal, valid, and binding obligation of the Company, enforceable against the Company in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, and similar laws of general application relating to or affecting the rights and remedies of creditors and by general principles of equity.
(b) The Company has no place of business or offices where their respective books of account and records are kept (other than temporarily at the offices of its attorneys or accountants) or places where Collateral is stored or located, except as set forth on Schedule A attached hereto. Except as specifically set forth on Schedule A, the Company is the record owner of the real property where such Collateral is located, and there exist no mortgages or other liens on any such real property except for Liens as set forth on Schedule A. Except as disclosed on Schedule A, none of such Collateral is in the possession of any consignee, bailee, warehouseman, agent, or processor.
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(c) Except as set forth on Schedule B attached hereto, the Company is the sole owner of the Collateral (except for non-exclusive licenses granted by the Company in the ordinary course of business), free and clear of any liens, security interests, encumbrances, rights, or claims, and are fully authorized to grant the Security Interests. Except as set forth on Schedule C attached hereto, there is not on file in any governmental or regulatory authority, agency or recording office an effective financing statement, security agreement, license or transfer or any notice of any of the foregoing (other than those that will be filed in favor of the Secured Party pursuant to this Agreement) covering or affecting any of the Collateral. Except as set forth on Schedule C attached hereto and except pursuant to this Agreement, Permitted Liens, and liens permitted under the Note or Asset Purchase Agreement, as long as this Agreement shall be in effect, the Company shall not execute and shall not knowingly permit to be on file in any such office or agency any other financing statement or other document or instrument (except to the extent filed or recorded in favor of the Secured Party pursuant to the terms of this Agreement). For the avoidance of doubt, the Collateral does not include any assets or claims retained by Seller and listed on Schedule I.
(d) No written claim has been received that any Collateral or the Company’s use of any Collateral violates the rights of any third party. There has been no adverse decision to the Company’s claim of ownership rights in or exclusive rights to use the Collateral in any jurisdiction or to the Company’s right to keep and maintain such Collateral in full force and effect, and there is no proceeding involving said rights pending or, to the best knowledge of the Company, threatened before any court, judicial body, administrative or regulatory agency, arbitrator, or other governmental authority.
(e) The Company shall at all times maintain its books of account and records relating to the Collateral at its principal place of business and its Collateral at the locations set forth on Schedule A attached hereto and may not relocate such books of account and records or tangible Collateral unless it delivers to the Secured Party at least thirty (30) days prior to such relocation (i) written notice of such relocation and the new location thereof (which must be within the United States) and (ii) evidence that appropriate financing statements under the UCC and other necessary documents have been filed and recorded and other steps have been taken to perfect the Security Interests to create in favor of the Secured Party a valid, perfected and continuing perfected first priority lien in the Collateral.
(f) This Agreement creates in favor of the Secured Party a valid security interest in the Collateral, securing the payment and performance of the Obligations. Upon the filing of UCC financing statements as contemplated herein, such security interest shall be perfected to the extent required under applicable law. Except for the filing of UCC financing statements, no additional actions shall be required to create, perfect, or maintain the Security Interests, except to the extent reasonably requested by the Secured Party and consistent with market practice for similarly situated transactions. Without limiting the foregoing, the Company shall not be required to (i) enter into deposit account control agreements, (ii) deliver control agreements with respect to investment property, or (iii) record security interests with respect to Intellectual Property, in each case unless otherwise agreed in writing.
(g) The Company hereby authorizes the Agent to file one or more financing statements under the UCC, with respect to the Security Interests, with the proper filing and recording agencies in any jurisdiction deemed proper by it.
(h) The execution, delivery and performance of this Agreement by the Company does not (i) violate any of the provisions of any Organizational Documents of the Company or any judgment, decree, order or award of any court, governmental body or arbitrator or any applicable law, rule or regulation applicable to the Company or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing the Company’s debt or otherwise) or other understanding to which the Company is a party or by which any property or asset of the Company is bound or affected. If any, all required consents (including, without limitation, from stockholders or creditors of the Company) necessary for the Company to enter into and perform its obligations hereunder have been obtained.
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(i) [Reserved].
(j) [Reserved].
(k) The Company shall at all times maintain the liens and Security Interests provided for hereunder as valid and perfected, first priority liens and security interests in the Collateral in favor of the Secured Party until this Agreement and the Security Interest hereunder shall be terminated pursuant to Section 14 hereof. The Company hereby agrees to defend the same against the claims of any and all persons and entities. The Company shall safeguard and protect all Collateral for the account of the Secured Party. At the request of the Agent, the Company will sign and deliver to the Agent on behalf of the Secured Party at any time or from time to time one or more financing statements pursuant to the UCC in form reasonably satisfactory to the Agent and will pay the cost of filing the same in all public offices wherever filing is, or is deemed by the Agent to be, necessary or desirable to effect the rights and obligations provided for herein. Without limiting the generality of the foregoing, the Company shall pay all fees, taxes, and other amounts necessary to maintain the Collateral and the Security Interests hereunder, and the Company shall obtain and furnish to the Agent from time to time, upon demand, such releases and/or subordinations of claims and liens which may be required to maintain the priority of the Security Interests hereunder.
(l) The Company will not transfer, pledge, hypothecate, encumber, license, sell or otherwise dispose of any of the Collateral (except for non-exclusive licenses granted by the Company in its ordinary course of business, sales of inventory by the Company in its ordinary course of business and the replacement of worn-out or obsolete equipment by the Company in its ordinary course of business) without the prior written consent of a Majority in Interest, except for dispositions in the ordinary course of business or as permitted under the Note or Asset Purchase Agreement.
(m) The Company shall keep and preserve its equipment, inventory and other tangible Collateral in good condition, repair and order and shall not operate or locate any such Collateral (or cause to be operated or located) in any area excluded from insurance coverage.
(n) The Company shall maintain with financially sound and reputable insurers, insurance with respect to the Collateral, including Collateral hereafter acquired, against loss or damage of the kinds and in the amounts customarily insured against by entities of established reputation having similar properties similarly situated and in such amounts as are customarily carried under similar circumstances by other such entities and otherwise as is prudent for entities engaged in similar businesses but in any event sufficient to cover the full replacement cost thereof. The Company shall cause each insurance policy issued in connection herewith to provide, and the insurer issuing such policy to certify to the Agent, that (a) the Agent will be named as lender loss payee and additional insured under each such insurance policy; (b) if such insurance be proposed to be cancelled or materially changed for any reason whatsoever, such insurer will promptly notify the Agent and such cancellation or change shall not be effective as to the Agent for at least thirty (30) days after receipt by the Agent of such notice, unless the effect of such change is to extend or increase coverage under the policy; and (c) the Agent will have the right (but no obligation) at its election to remedy any default in the payment of premiums within thirty (30) days of notice from the insurer of such default. If no Event of Default (as defined in the Note) exists and if the proceeds arising out of any claim or series of related claims do not exceed $100,000, loss payments in each instance will be applied by the applicable The Company to the repair and/or replacement of property with respect to which the loss was incurred to the extent reasonably feasible, and any loss payments or the balance thereof remaining, to the extent not so applied, shall be payable to the applicable The Company; provided, however, that payments received by the Company after an Event of Default occurs and is continuing or in excess of $100,000 for any occurrence or series of related occurrences shall be paid to the Agent on behalf of the Secured Party and, if received by the Company, shall be held in trust for the Secured Party and immediately paid over to the Agent unless otherwise directed in writing by the Agent. Copies of such policies or the related certificates, in each case, naming the Agent as lender loss payee and additional insured shall be delivered to the Agent at least annually and at the time any new policy of insurance is issued.
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(o) The Company shall, within ten (10) days of obtaining knowledge thereof, advise the Secured Party promptly, in sufficient detail, of any material adverse change in the Collateral, and of the occurrence of any event which would have a material adverse effect on the value of the Collateral or on the Secured Party’ security interest, through the Agent, therein.
(p) The Company shall promptly execute and deliver to the Agent such further deeds, mortgages, assignments, security agreements, financing statements or other instruments, documents, certificates and assurances and take such further action as the Agent may from time to time request and may in its sole discretion deem necessary to perfect, protect or enforce the Secured Party’ security interest in the Collateral including, without limitation, if applicable, the execution and delivery of a separate security agreement with respect to the Company’s Intellectual Property (“Intellectual Property Security Agreement”) in which the Secured Party have been granted a security interest hereunder, substantially in a form reasonably acceptable to the Agent, which Intellectual Property Security Agreement, other than as stated therein, shall be subject to all of the terms and conditions hereof.
(q) Upon reasonable prior notice (so long as no Event of Default has occurred or continuing, which in either such event, no prior notice is required), the Company shall permit the Agent and its representatives and agents to inspect the Collateral no more than once per year (unless an Event of Default exists) during normal business hours and to make copies of records pertaining to the Collateral as may be reasonably requested by the Agent from time to time.
(r) The Company shall take all steps reasonably necessary to diligently pursue and seek to preserve, enforce, and collect any rights, claims, causes of action and accounts receivable in respect of the Collateral.
(s) The Company shall promptly notify the Secured Party in sufficient detail upon becoming aware of any attachment, garnishment, execution, or other legal process levied against any Collateral and of any other information received by the Company that may materially affect the value of the Collateral, the Security Interest or the rights and remedies of the Secured Party hereunder.
(t) All information heretofore, herein or hereafter supplied to the Secured Party by or on behalf of the Company with respect to the Collateral is accurate and complete in all material respects as of the date furnished.
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(u) The Company shall at all times preserve and keep in full force and effect their respective valid existence and good standing and any rights and franchises material to its business.
(v) The Company will not change its name, type of organization, jurisdiction of organization, organizational identification number (if it has one), legal or corporate structure, or identity, or add any new fictitious name unless it provides at least thirty (30) days prior written notice to the Secured Party of such change and, at the time of such written notification, the Company provides any financing statements or fixture filings necessary to perfect and continue the perfection of the Security Interests granted and evidenced by this Agreement.
(w) Except in the ordinary course of business, the Company may not consign any of its inventory or sell any of its inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale without the consent of the Agent which shall not be unreasonably withheld.
(x) [Reserved].
(y) The Company was organized and remains organized solely under the laws of the state set forth next to the Company’s name in Schedule D attached hereto, which Schedule D sets forth the Company’s organizational identification number or, if the Company does not have one, states that one does not exist.
(z) (i) The actual name of the Company is the name set forth in Schedule D attached hereto; (ii) the Company has no other trade names except as set forth on Schedule E attached hereto; (iii) the Company has not used any name other than that stated in the preamble hereto or as set forth on Schedule E for the preceding five (5) years; and (iv) no entity has merged into the Company or been acquired by the Company within the past five years except as set forth on Schedule E.
(aa) [Reserved].
(bb) The Company, in its capacity as issuer, hereby agrees to comply with any and all orders and instructions of Agent regarding the Pledged Interests consistent with the terms of this Agreement without the further consent of the Company as contemplated by Section 8-106 (or any successor section) of the UCC. Further, the Company agrees that it shall not enter into a similar agreement (or one that would confer “control” within the meaning of Article 8 of the UCC) with any other person or entity.
(cc) [Reserved].
(dd) [Reserved].
(ee) [Reserved].
(ff) To the extent that any Collateral is in the possession of any third party, the applicable The Company shall join with the Agent in notifying such third party of the Secured Party’ security interest in such Collateral and shall use its best efforts to obtain an acknowledgement and agreement from such third party with respect to the Collateral, in form and substance reasonably satisfactory to the Agent.
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(gg) [Reserved].
(hh) The Company shall immediately provide written notice to the Secured Party of any and all accounts which arise out of contracts with any governmental authority and, to the extent necessary to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof, shall execute and deliver to the Agent an assignment of claims for such accounts and cooperate with the Agent in taking any other steps required, in its judgment, under the Federal Assignment of Claims Act or any similar federal, state or local statute or rule to perfect or continue the perfected status of the Security Interests in such accounts and proceeds thereof.
(ii) [Reserved].
(jj) Without limiting the generality of the other obligations of the Company hereunder, the Company shall promptly (i) cause to be registered at the United States Copyright Office all of its material copyrights, (ii) cause the security interest contemplated hereby with respect to all Intellectual Property registered at the United States Copyright Office or United States Patent and Trademark Office to be duly recorded at the applicable office, and (iii) give the Agent notice whenever it acquires (whether absolutely or by license) or creates any additional material Intellectual Property.
(kk) The Company will from time to time, at the joint and several expense of the Company, promptly execute and deliver all such further instruments and documents, and take all such further action as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Secured Party to exercise and enforce their rights and remedies hereunder and with respect to any Collateral or to otherwise carry out the purposes of this Agreement.
(ll) Schedule F attached hereto lists all of the patents, patent applications, trademarks, trademark applications, registered copyrights, and domain names owned, directly or indirectly, by the Company as of the date hereof. Schedule F lists all material licenses in favor of the Company for the use of any patents, trademarks, copyrights, and domain names as of the date hereof. All material patents and trademarks of the Company have been duly recorded at the United States Patent and Trademark Office and all material copyrights of the Company have been duly recorded at the United States Copyright Office.
(mm) Except as set forth on Schedule G attached hereto, none of the Company or other persons or entities obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or any similar federal, state, or local statute or rule in respect of such Collateral.
5. Effect of Pledge on Certain Rights. If any of the Collateral subject to this Agreement consists of nonvoting equity or ownership interests (regardless of class, designation, preference or rights) that may be converted into voting equity or ownership interests upon the occurrence of certain events (including, without limitation, upon the transfer of all or any of the other stock or assets of the issuer), it is agreed by The Company that the pledge of such equity or ownership interests pursuant to this Agreement or the enforcement of any of Agent’s rights hereunder shall not be deemed to be the type of event which would trigger such conversion rights notwithstanding any provisions in the Organizational Documents or agreements to which the Company is subject or to which the Company is party.
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6. Defaults. The following events shall be “Events of Default”:
(a) The occurrence of an Event of Default (as defined in the Note) under the Note;
(b) Any representation or warranty of the Company in this Agreement shall prove to have been incorrect in any material respect when made;
(c) The failure by the Company to observe or perform any of its obligations hereunder for thirty (30) days after delivery to the Company of notice of such failure by or on behalf of a Secured Party unless such default is capable of cure but cannot be cured within such time frame and the Company is using best efforts to cure same in a timely fashion; or
(d) If any provision of this Agreement shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by the Company, or a proceeding shall be commenced by the Company, or by any governmental authority having jurisdiction over the Company, seeking to establish the invalidity or unenforceability thereof, or the Company shall deny that the Company has any liability or obligation purported to be created under this Agreement.
7. Duty to Hold in Trust.
(a) Upon the occurrence of any Event of Default and at any time thereafter, the Company shall, upon receipt of any revenue, income, dividend, interest or other sums subject to the Security Interests, whether payable pursuant to the Note or otherwise, or of any check, draft, note, trade acceptance or other instrument evidencing an obligation to pay any such sum, hold the same in trust for the Secured Party and shall forthwith endorse and transfer any such sums or instruments, or both, to the Secured Party, pro-rata in proportion to their respective then-currently outstanding principal amount of the Note for application to the satisfaction of the Obligations (and if the Note is not outstanding, pro-rata in proportion to the initial purchases of the Note).
8. Rights and Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and at any time thereafter, the Secured Party, acting through the Agent, shall have the right to exercise all of the remedies conferred hereunder and under the Note, and the Secured Party shall have all the rights and remedies of a secured party under the UCC. Without limitation, the Agent, for the benefit of the Secured Party, shall have the following rights and powers:
(i) The Agent shall have the right to take possession of the Collateral and, for that purpose, enter, with the aid and assistance of any person, any premises where the Collateral, or any part thereof, is or may be placed and remove the same, and the Company shall assemble the Collateral and make it available to the Agent at places which the Agent shall reasonably select, whether at the Company’s premises or elsewhere, and make available to the Agent, without rent, all of the Company’s respective premises and facilities for the purpose of the Agent taking possession of, removing or putting the Collateral in saleable or disposable form.
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(ii) Upon notice to the Company by Agent, all rights of the Company to exercise the voting and other consensual rights which it would otherwise be entitled to exercise and all rights of the Company to receive the dividends and interest which it would otherwise be authorized to receive and retain, shall cease. Upon such notice, Agent shall have the right to receive, for the benefit of the Secured Party, any interest, cash dividends or other payments on the Collateral and, at the option of Agent, to exercise in such Agent’s discretion all voting rights pertaining thereto. Without limiting the generality of the foregoing, Agent shall have the right (but not the obligation) to exercise all rights with respect to the Collateral as it were the sole and absolute owner thereof, including, without limitation, to vote and/or to exchange, at its sole discretion, any or all of the Collateral in connection with a merger, reorganization, consolidation, recapitalization or other readjustment concerning or involving the Collateral or the Company or any of its direct or indirect subsidiaries.
(iii) The Agent shall have the right to operate the business of the Company using the Collateral and shall have the right to assign, sell, lease or otherwise dispose of and deliver all or any part of the Collateral, at public or private sale or otherwise, either with or without special conditions or stipulations, for cash or on credit or for future delivery, in such parcel or parcels and at such time or times and at such place or places, and upon such terms and conditions as the Agent may deem commercially reasonable, all without (except as shall be required by applicable statute and cannot be waived) advertisement or demand upon or notice to the Company or right of redemption of the Company, which are hereby expressly waived. Upon each such sale, lease, assignment or other transfer of Collateral, the Agent, for the benefit of the Secured Party, may, unless prohibited by applicable law which cannot be waived, purchase all or any part of the Collateral being sold, free from and discharged of all trusts, claims, right of redemption and equities of the Company, which are hereby waived and released.
(iv) The Agent shall have the right (but not the obligation) to notify any account the Company and any obligors under instruments or accounts to make payments directly to the Agent, on behalf of the Secured Party, and to enforce the Company’ rights against such account the Company and obligors.
(v) The Agent, for the benefit of the Secured Party, may (but is not obligated to) direct any financial intermediary or any other person or entity holding any investment property to transfer the same to the Agent, on behalf of the Secured Party, or its designee.
(vi) The Agent may (but is not obligated to) transfer any or all Intellectual Property registered in the name of the Company at the United States Patent and Trademark Office and/or Copyright Office into the name of the Secured Party or any designee or any purchaser of any Collateral.
(b) The Agent shall comply with any applicable law in connection with a disposition of Collateral and such compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. The Agent may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If the Agent sells any of the Collateral on credit, the Company will only be credited with payments actually made by the purchaser. In addition, the Company waives (except as shall be required by applicable statute and cannot be waived) any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent’s rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.
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(c) For the purpose of enabling the Agent to further exercise rights and remedies under this Section 8 or elsewhere provided by agreement or applicable law, the Company hereby grants to the Agent, for the benefit of the Agent and the Secured Party, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to the Company) to use, license or sublicense following an Event of Default, any Intellectual Property now owned or hereafter acquired by the Company, and wherever the same may be located, and including in such license access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.
9. Applications of Proceeds. The proceeds of any such sale, lease or other disposition of the Collateral hereunder or from payments made on account of any insurance policy insuring any portion of the Collateral shall be applied in the following order:
first, to the expenses of retaking, holding, storing, processing and preparing for sale, selling, and the like (including, without limitation, any taxes, fees and other costs incurred in connection therewith) of the Collateral,
second, to the reasonable attorneys’ fees and expenses incurred by the Agent in enforcing the Secured Party’ rights hereunder and in connection with collecting, storing and disposing of the Collateral, and then to satisfaction of the Obligations pro rata among the Secured Party (based on then-outstanding principal amounts of the Note at the time of any such determination), and
third, to the payment of any other amounts required by applicable law, after which the Secured Party shall pay to the applicable the Company any surplus proceeds.
The Secured Party’s recourse shall be limited solely to the Collateral and the Obligations, and the Secured Party shall have no right to seek or recover any deficiency judgment or other recourse against the Company, except to the extent expressly permitted under the Note. The Company shall not be liable for any deficiency remaining after application of proceeds from the Collateral. No interest in excess of the Interest Rate provided in the Note shall accrue on any alleged deficiency, and any provision to the contrary is hereby deleted.
To the extent permitted by applicable law, the Company waives all claims, damages, and demands against the Secured Party arising out of the repossession, removal, retention, or sale of the Collateral, unless due solely to the gross negligence or willful misconduct of the Secured Party as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction.
10. [Reserved].
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11. Costs and Expenses. The Company agrees to pay all reasonable out-of-pocket fees, costs and expenses, subject to a cap to be agreed upon, absent an Event of Default, incurred in connection with any filing required hereunder, including without limitation, any financing statements pursuant to the UCC, continuation statements, partial releases and/or termination statements related thereto or any expenses of any searches reasonably required by the Agent. The Company shall also pay all other claims and charges which in the reasonable opinion of the Agent is reasonably likely to prejudice, imperil or otherwise affect the Collateral or the Security Interests therein. The Company will also, upon demand, pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Party, may incur in connection with the creation, perfection, protection, satisfaction, foreclosure, collection or enforcement of the Security Interest and the preparation, administration, continuance, amendment or enforcement of this Agreement and pay to the Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which the Agent, for the benefit of the Secured Party, and the Secured Party may incur in connection with (i) the enforcement of this Agreement, (ii) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, or (iii) the exercise or enforcement of any of the rights of the Secured Party under the Note. Until so paid, any fees payable hereunder shall be added to the principal amount of the Note and shall bear interest at the Default Rate.
12. Responsibility for Collateral. The Company assumes all liabilities and responsibility in connection with all Collateral, and the Obligations shall in no way be affected or diminished by reason of the loss, destruction, damage, or theft of any of the Collateral or its unavailability for any reason. Without limiting the generality of the foregoing and except as required by applicable law, (a) neither the Agent nor any Secured Party (i) has any duty (either before or after an Event of Default) to collect any amounts in respect of the Collateral or to preserve any rights relating to the Collateral, or (ii) has any obligation to clean-up or otherwise prepare the Collateral for sale, and (b) the Company shall remain obligated and liable under each contract or agreement included in the Collateral to be observed or performed by the Company thereunder. Neither the Agent nor any Secured Party shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any Secured Party of any payment relating to any of the Collateral, nor shall the Agent or any Secured Party be obligated in any manner to perform any of the obligations of the Company under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any Secured Party may be entitled at any time or times.
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13. Security Interests Absolute. All rights of the Secured Party and all obligations of the Company hereunder, shall be absolute and unconditional, irrespective of: (a) any lack of validity or enforceability of this Agreement, the Note or any agreement entered into in connection with the foregoing, or any portion hereof or thereof, against any other The Company; (b) any change in the time, manner or place of payment or performance of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note or any other agreement entered into in connection with the foregoing; (c) any exchange, release or no perfection of any of the Collateral, or any release or amendment or waiver of or consent to departure from any other collateral for, or any guarantee, or any other security, for all or any of the Obligations; (d) any action by the Secured Party to obtain, adjust, settle and cancel in its sole discretion any insurance claims or matters made or arising in connection with the Collateral; or (e) any other circumstance which might otherwise constitute any legal or equitable defense available to the Company, or a discharge of all or any part of the Security Interests granted hereby. Until the Obligations shall have been paid and performed in full, the rights of the Secured Party shall continue even if the Obligations are barred for any reason, including, without limitation, the running of the statute of limitations. The Company expressly waives presentment, protest, notice of protest, demand, notice of nonpayment and demand for performance. In the event that at any time any transfer of any Collateral or any payment received by the Secured Party hereunder shall be deemed by final order of a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under the bankruptcy or insolvency laws of the United States, or shall be deemed to be otherwise due to any party other than the Secured Party, then, in any such event, the Company’s obligations hereunder shall survive cancellation of this Agreement, and shall not be discharged or satisfied by any prior payment thereof and/or cancellation of this Agreement, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof. The Company waives all right to require the Secured Party to proceed against any other person or entity or to apply any Collateral which the Secured Party may hold at any time, or to marshal assets, or to pursue any other remedy. The Company waives any defense arising by reason of the application of the statute of limitations to any obligation secured hereby.
14. Term of Agreement. This Agreement and the Security Interests shall terminate on the date on which all payments under the Note have been indefeasibly paid in full and all other Obligations have been paid or discharged; provided, however, that all indemnities of the Company contained in this Agreement (including, without limitation, Annex B hereto) shall survive and remain operative and in full force and effect regardless of the termination of this Agreement.
15. Power of Attorney; Further Assurances.
(a) The Company authorizes the Agent, and does hereby make, constitute and appoint the Agent and its officers, agents, successors or assigns with full power of substitution, as the Company’s true and lawful attorney-in-fact, with power, in the name of the Agent or the Company, to, after the occurrence and during the continuance of an Event of Default, (i) endorse any notes, checks, drafts, money orders or other instruments of payment (including payments payable under or in respect of any policy of insurance) in respect of the Collateral that may come into possession of the Agent; (ii) to sign and endorse any financing statement pursuant to the UCC or any invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts against the Company, assignments, verifications and notices in connection with accounts, and other documents relating to the Collateral; (iii) to pay or discharge taxes, liens, security interests or other encumbrances at any time levied or placed on or threatened against the Collateral; (iv) to demand, collect, receipt for, compromise, settle and sue for monies due in respect of the Collateral; (v) to transfer any Intellectual Property or provide licenses respecting any Intellectual Property; and (vi) generally, at the option of the Agent, and at the expense of the Company, at any time, or from time to time, to execute and deliver any and all documents and instruments and to do all acts and things which the Agent deems necessary to protect, preserve and realize upon the Collateral and the Security Interests granted therein in order to effect the intent of this Agreement and the Note all as fully and effectually as the Company might or could do; and the Company hereby ratifies all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding. The designation set forth herein shall be deemed to amend and supersede any inconsistent provision in the Organizational Documents or other documents or agreements to which the Company is subject or to which the Company is a party. Without limiting the generality of the foregoing, after the occurrence and during the continuance of an Event of Default, each Secured Party is specifically authorized to execute and file any applications for or instruments of transfer and assignment of any patents, trademarks, copyrights or other Intellectual Property with the United States Patent and Trademark Office and the United States Copyright Office.
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(b) On a continuing basis, the Company will make, execute, acknowledge, deliver, file and record, as the case may be, with the proper filing and recording agencies in any jurisdiction, including, without limitation, the jurisdictions indicated on Schedule C attached hereto, all such instruments, and take all such action as may reasonably be deemed necessary or advisable, or as reasonably requested by the Agent, to perfect the Security Interests granted hereunder and otherwise to carry out the intent and purposes of this Agreement, or for assuring and confirming to the Agent the grant or perfection of a perfected security interest in all the Collateral under the UCC.
(c) The Company hereby irrevocably appoints the Agent as the Company’s attorney-in-fact, with full authority in the place and instead of the Company and in the name of the Company, from time to time in the Agent’s discretion, to take any action and to execute any instrument which the Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including the filing, in its sole discretion, of one or more financing or continuation statements and amendments thereto, relative to any of the Collateral without the signature of the Company where permitted by law, which financing statements may (but need not) describe the Collateral as “all assets” or “all personal property” or words of like import, and ratifies all such actions taken by the Agent. This power of attorney is coupled with an interest and shall be irrevocable for the term of this Agreement and thereafter as long as any of the Obligations shall be outstanding.
16. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be deemed given (a) on the date established by the sender as having been delivered personally, (b) on the date delivered by a private overnight courier as established by the sender by evidence obtained from the courier, (c) on the date sent by facsimile or other electronic transmission, with confirmation of transmission, if sent during normal business hours of the recipient, if not, then on the next business day, or (d) on the fifth (5th) day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications, to be valid, must be addressed as follows:
| If to the Company: | Cycurion, Inc. |
| 1640 Boro Place, Suite 420C McLean, VA 22102 E-mail: [***] Attention: L. Kevin Kelly, Chief Executive Officer | |
| with a copy to: | Seward & Kissel LLP |
| One Battery Park Plaza New York, NY 10004 E-mail: [***] Attention: Keith J. Billotti, Esq. | |
| If to the Secured Parties: | Kustom Entertainment, Inc. |
6366 College Blvd Overland Park, KS 66211 Email: [***] Attention: Stanton E. Ross, Chairman, President and Chief Executive Officer |
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| with a copy to: | Sullivan & Worcester LLP 1251 Avenue of the Americas New York, NY 10020 (212) 660-3060 Email: [***] Attention: David E. Danovitch, Esq.; Joseph E. Segilia, Esq. |
or to such other address or to the attention of such person or persons as the recipient party has specified by prior written notice to the sending party (or in the case of counsel, to such other readily ascertainable business address as such counsel may hereafter maintain). If more than one method for sending notice as set forth above is used, the earliest notice date established as set forth above shall control.
17. Other Security. To the extent that the Obligations are now or hereafter secured by property other than the Collateral or by the guarantee, endorsement or property of any other person, firm, corporation, or other entity, then the Agent shall have the right, in its sole discretion, to pursue, relinquish, subordinate, modify or take any other action with respect thereto, without in any way modifying or affecting any of the Secured Party’ rights and remedies hereunder.
18. Appointment of Agent. The Secured Party hereby appoints itself to act as their agent (the “Agent”) for purposes of exercising any and all rights and remedies of the Secured Party hereunder. Such appointment shall continue until revoked in writing by a Majority-in-Interest, at which time a Majority in Interest shall appoint a new Agent, provided that the Agent may not be removed as Agent unless it consents thereto. For so long as there is only a single Secured Party, such Secured Party shall act as Agent. The Agent shall have the rights, responsibilities and immunities set forth in Annex B hereto.
19. Miscellaneous.
(a) No course of dealing between the Company and the Secured Party, nor any failure to exercise, nor any delay in exercising, on the part of the Secured Party, any right, power, or privilege hereunder or under the Note shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.
(b) All of the rights and remedies of the Secured Party with respect to the Collateral, whether established hereby or by the Note or by any other agreements, instruments, or documents or by law shall be cumulative and may be exercised singly or concurrently.
(c) This Agreement, together with the exhibits and schedules hereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into this Agreement and the exhibits and schedules hereto. No provision of this Agreement may be waived, modified, supplemented, or amended except in a written instrument signed, in the case of an amendment, by the Company and the Secured Party or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought.
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(d) If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants, and restrictions without including any of such that may be hereafter declared invalid, illegal, void, or unenforceable.
(e) No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition, or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.
(f) This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company and the Guarantors may not assign this Agreement or any rights or obligations hereunder without the prior written consent of each Secured Party (other than by merger). Any Secured Party may assign any or all of its rights under this Agreement to any Person to whom such Secured Party assigns or transfers any Obligations, provided such transferee agrees in writing to be bound, with respect to the transferred Obligations, by the provisions of this Agreement that apply to the “Secured Party.”
(g) Each party shall take such further action and execute and deliver such further documents as may be necessary or appropriate in order to carry out the provisions and purposes of this Agreement.
(h) Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, all questions concerning the construction, validity, enforcement, and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, the Company agrees that all proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and the Note (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the state of New York. Except to the extent mandatorily governed by the jurisdiction or situs where the Collateral is located, the Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the state of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such proceeding is improper. Each party hereto hereby irrevocably waives personal service of process and consents to process being served in any such proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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(i) This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
(j) The Company shall solely be liable for the obligations of the Company to the Secured Party hereunder.
(k) The Company shall indemnify, reimburse and hold harmless the Agent and the Secured Party and their respective partners, members, shareholders, officers, directors, employees and agents (and any other persons with other titles that have similar functions) (collectively, “Indemnitees”) from and against any and all losses, claims, liabilities, damages, penalties, suits, costs and expenses, of any kind or nature, (including fees relating to the cost of investigating and defending any of the foregoing) imposed on, incurred by or asserted against such Indemnitee in any way related to or arising from or alleged to arise from this Agreement or the Collateral, except any such losses, claims, liabilities, damages, penalties, suits, costs and expenses which result from the gross negligence or willful misconduct of the Indemnitee as determined by a final, nonappealable decision of a court of competent jurisdiction. This indemnification provision is in addition to, and not in limitation of, any other indemnification provision in the Note, or any other agreement, instrument or other document executed or delivered in connection herewith or therewith.
(l) Nothing in this Agreement shall be construed to subject Agent or any Secured Party to liability as a partner in the Company or any if its direct or indirect subsidiaries that is a partnership or as a member in the Company or any of its direct or indirect subsidiaries that is a limited liability company, nor shall Agent or any Secured Party be deemed to have assumed any obligations under any partnership agreement or limited liability company agreement, as applicable, of any the Company or any of its direct or indirect subsidiaries or otherwise, unless and until any such Secured Party exercises its right to be substituted for the Company as a partner or member, as applicable, pursuant hereto.
(m) To the extent that the grant of the security interest in the Collateral and the enforcement of the terms hereof require the consent, approval or action of any partner or member, as applicable, of the Company or any direct or indirect subsidiary of the Company or compliance with any provisions of any of the Organizational Documents, the Company hereby represent that all such consents and approvals have been obtained.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written.
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| L. Kevin Kelly | ||
| Chairman and Chief Executive Officer | ||
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Stanton E. Ross | ||
| Chairman, President and Chief Executive Officer | ||
[Signature Page to Security Agreement]
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DISCLOSURE SCHEDULES
Security Agreement
The following are the Disclosure Schedules (the “Disclosure Schedules”) referred to in that certain Security Agreement, dated as of August 3, 2026 (the “Agreement”), by and between Cycurion, Inc., a Delaware corporation (the “Company”), and Kustom Entertainment, Inc., a Nevada corporation (“Kustom Entertainment”), as the holder a Secured Promissory Note dated August 3, 2026, in the original principal amount of $4,250,000.00 (the “Note”), by virtue of the Company and the Secured Parties having entered into on August 3, 2026, and Kustom Entertainment’s endorsees, transferees, and assigns (collectively, the “Secured Party”).
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Schedules Update - Video Solutions Asset Sale
Schedule A
Subsidiaries of the Company:
No subsidiary of Kustom Entertainment is being transferred to Cycurion in connection with the transaction, and accordingly no Kustom Entertainment subsidiary is a debtor under this Agreement.
Kustom Entertainment (Video Solutions Collateral as of Closing):
| Location Description | Address | Notes | ||
| Principal Office; Books and Records; Video Solutions Operations and Inventory Storage | 6366 College Blvd, Overland Park, KS 66211 | Leased premises (approx. 5,119 sq ft) under Lease dated October 16, 2024 between THF College Boulevard, LLC (Landlord) and Kustom Entertainment, Inc. (Tenant); three-year term commencing November 1, 2024 and expiring October 31, 2027. Office, fixed assets, books and records of the Video Solutions Business; portion of Video Solutions inventory currently maintained at this location. | ||
| Off-Site Warehouse Storage of Video Solutions Inventory | 8201 East 23rd Street, Dock 19, Space 19G, Kansas City, MO 64129 | Approximately 14,000 sq ft. Leased from Interstate Underground Warehouse and Industrial Park, Inc. (Missouri corporation). Currently month-to-month following expiration of the initial term. Subject to a statutory warehouseman’s lien under Missouri law in favor of the landlord (see Schedule B). |
Other than as set forth above (the statutory warehouseman’s lien at the Interstate Underground location), no Video Solutions Collateral is held by any consignee, bailee, agent, or processor as of the date hereof. Kustom Entertainment, Inc. does not own real property.
| 21 |
Schedule B
Ownership Interest to Collateral
To the knowledge of Kustom Entertainment, the Video Solutions Business assets being transferred to Cycurion at closing will be transferred free and clear of any liens, security interests, encumbrances, or third-party rights, other than (i) Permitted Liens (including the item disclosed below); and (ii) non-exclusive end-user software licenses granted to customers in the ordinary course of the Video Solutions Business.
Disclosed Permitted Liens / Statutory Liens:
Statutory warehouseman’s lien under Missouri law in favor of Interstate Underground Warehouse and Industrial Park, Inc., 8201 East 23rd Street, Kansas City, MO 64129, with respect to Video Solutions inventory stored at the leased premises (Lease Section 32). Lien arises in the ordinary course as security for storage charges; not anticipated to be material; rent current.
| 22 |
Schedule C
Filing Jurisdictions – Delaware
| 23 |
Schedule D
Legal Names and Organizational Identification Numbers
| 24 |
Schedule E
Mergers and Acquisitions
To be outlined in the Acquisition Agreement between Cycurion, Inc. and Kustom Entertainment, Inc.
Kustom Entertainment, Inc. — Trade Names and Prior Names:
Kustom Entertainment, Inc. (NASDAQ: KUST) was formerly known as Digital Ally, Inc. (NASDAQ: DGLY). The corporate name was changed from Digital Ally, Inc. to Kustom Entertainment, Inc. effective January 8, 2026 pursuant to a Certificate of Amendment to the Company’s Articles of Incorporation filed with the Secretary of State of the State of Nevada. The Nasdaq trading symbol changed from “DGLY” to “KUST” on the same date.
Trade names used in connection with the Company’s business segments include: “Digital Ally Video Solutions” (the segment being transferred), “TicketSmarter,” “Kustom 440,” and “Country Stampede.”
Structure of the Transaction:
The transaction with Cycurion is structured as an asset sale. Kustom Entertainment, Inc. is selling the operating assets and liabilities of the Video Solutions Business directly to Cycurion (or its designee) pursuant to the definitive Asset Purchase Agreement. No subsidiary of Kustom Entertainment is being transferred, conveyed, merged, or otherwise included in the transaction. The asset transfer includes inventory, accounts and subscription receivables, prepaid expenses, property, plant and equipment, intellectual property (patents, trademarks, domain names, and licenses), customer contracts, and the deferred revenue and other operating liabilities associated with the Video Solutions Business, as more particularly described in the Asset Purchase Agreement.
| 25 |
Schedule F – Transferred Intellectual Property
1. Patents
The patents listed below are the Patents included in the Transferred Intellectual Property and pledged under the Security Agreement (Schedule F). They are recorded in the books of the Video Solutions Business at an aggregate capitalized cost of $224,851.08 and an aggregate net book value of $22,998.83 as of March 31, 2026 (general ledger account 1480-000-01). The capitalized-cost records (25 grouped entries) do not correspond one-to-one with the individual patents below, and many patents are fully amortized; the list below - not the cost records - is the authoritative description of the patents being transferred. All are United States patents owned of record by Digital Ally, Inc. (now Kustom Entertainment, Inc.). Bibliographic detail and status to be confirmed by Kustom Entertainment’s IP counsel (Erise IP, P.A.) prior to execution and USPTO recordation.
A. Utility Patents
| # | Patent No. | Title | Priority | Issued | Status | |||||
| 1 | 12,328,528 | Video recording manager device and system for redundant mobile video recording | 11/23/2023 | 6/10/2025 | Active | |||||
| 2 | 12,300,082 | Remote video triggering and tagging | 8/8/2018 | 5/13/2025 | Active | |||||
| 3 | 12,160,688 | System for automatically triggering a recording | 3/9/2017 | 12/3/2024 | Active | |||||
| 4 | 12,154,345 | Systems and methods of legibly capturing vehicle markings | 9/19/2016 | 11/26/2024 | Active | |||||
| 5 | 12,151,623 | Portable video and imaging system | 9/28/2012 | 11/26/2024 | Active | |||||
| 6 | 12,136,436 | Computer program, method, and system for managing multiple data recording devices | 8/14/2013 | 11/5/2024 | Active | |||||
| 7 | 12,062,287 | Tracking and analysis of drivers within a fleet of vehicles | 6/22/2015 | 8/13/2024 | Active | |||||
| 8 | 11,950,017 | Redundant Mobile Video Recording | 11/23/2023 | 4/2/2024 | Active | |||||
| 9 | 11,817,130 | Forensic video recording with presence detection | 8/14/2013 | 11/14/2023 | Active | |||||
| 10 | 11,792,370 | System for automatically triggering a recording | 3/9/2017 | 10/17/2023 | Active | |||||
| 11 | 11,769,383 | Remote video triggering and tagging | 8/8/2018 | 9/26/2023 | Active | |||||
| 12 | 11,711,487 | Comprehensive video collection and storage | 2/5/2016 | 7/25/2023 | Active | |||||
| 13 | 11,667,251 | Portable video and imaging system | 9/28/2012 | 6/6/2023 | Active | |||||
| 14 | 11,651,594 | Systems and methods of legibly capturing vehicle markings | 9/19/2016 | 5/16/2023 | Active | |||||
| 15 | 11,532,334 | Forensic video recording with presence detection | 8/14/2013 | 12/20/2022 | Active | |||||
| 16 | 11,310,399 | Portable video and imaging system | 9/28/2012 | 4/19/2022 | Active | |||||
| 17 | 11,290,693 | System for automatically triggering a recording | 3/9/2017 | 3/29/2022 | Active | |||||
| 18 | 11,244,570 | Tracking and analysis of drivers within a fleet of vehicles | 6/22/2015 | 2/8/2022 | Active |
| 26 |
| # | Patent No. | Title | Priority | Issued | Status | |||||
| 19 | 11,024,137 | Remote video triggering and tagging | 8/8/2018 | 6/1/2021 | Active | |||||
| 20 | 11,007,942 | Vehicle-mounted video system with distributed processing | 9/16/2005 | 5/18/2021 | Active | |||||
| 21 | 10,964,351 | Forensic video recording with presence detection | 8/14/2013 | 3/30/2021 | Active | |||||
| 22 | 10,917,614 | Multi-functional remote monitoring system | 10/30/2008 | 2/9/2021 | Active | |||||
| 23 | 10,911,725 | Systems for automatically triggering a recording | 3/9/2017 | 2/2/2021 | Active | |||||
| 24 | 10,904,474 | Comprehensive video collection and storage | 2/5/2016 | 1/26/2021 | Active | |||||
| 25 | 10,885,937 | Computer program, method, and system for managing multiple data recording devices | 8/14/2013 | 1/5/2021 | Active | |||||
| 26 | 10,860,866 | Systems and methods of legibly capturing vehicle markings | 9/19/2016 | 12/8/2020 | Active | |||||
| 27 | 10,757,378 | DUAL LENS CAMERA UNIT | 8/14/2013 | 8/25/2020 | Active | |||||
| 28 | 10,730,439 | Vehicle-mounted video system with distributed processing | 9/16/2005 | 8/4/2020 | Active | |||||
| 29 | 10,696,241 | Mobile video and imaging system | 9/28/2012 | 6/30/2020 | Active | |||||
| 30 | 10,521,675 | SYSTEMS AND METHODS OF LEGIBLY CAPTURING VEHICLE MARKINGS | 9/19/2016 | 12/31/2019 | Active | |||||
| 31 | 10,272,848 | Mobile video and imaging system | 9/28/2012 | 4/30/2019 | Active | |||||
| 32 | 10,271,015 | Multi-functional remote monitoring system | 10/30/2008 | 4/23/2019 | Active | |||||
| 33 | 10,257,396 | Portable video and imaging system | 9/28/2012 | 4/9/2019 | Active | |||||
| 34 | 10,075,681 | DUAL LENS CAMERA UNIT | 8/14/2013 | 9/11/2018 | Active | |||||
| 35 | 10,074,394 | Computer program, method, and system for managing multiple data recording devices | 8/14/2013 | 9/11/2018 | Active | |||||
| 36 | 10,013,883 | Tracking and analysis of drivers within a fleet of vehicles | 6/22/2015 | 7/3/2018 | Active | |||||
| 37 | 9,712,730 | Portable video and imaging system | 9/28/2012 | 7/18/2017 | Active | |||||
| 38 | 9,325,950 | Vehicle-mounted video system with distributed processing | 9/16/2005 | 4/26/2016 | Active | |||||
| 39 | 9,253,452 | Computer program, method, and system for managing multiple data recording devices | 8/14/2013 | 2/2/2016 | Active | |||||
| 40 | 9,237,262 | Portable video and imaging system | 9/28/2012 | 1/12/2016 | Active | |||||
| 41 | 9,159,371 | Forensic video recording with presence detection | 8/14/2013 | 10/13/2015 | Active | |||||
| 42 | 9,019,431 | Portable video and imaging system | 9/28/2012 | 4/28/2015 | Active | |||||
| 43 | 8,976,339 | Traffic scanning LIDAR | 4/14/2010 | 3/10/2015 | Active | |||||
| 44 | 8,781,292 | Computer program, method, and system for managing multiple data recording devices | 8/14/2013 | 7/15/2014 | Active | |||||
| 45 | 8,629,977 | Traffic scanning LIDAR | 4/14/2010 | 1/14/2014 | Active |
| 27 |
| # | Patent No. | Title | Priority | Issued | Status | |||||
| 46 | 8,520,069 | Vehicle-mounted video system with distributed processing | 9/16/2005 | 8/27/2013 | Active | |||||
| 47 | 8,503,972 | Multi-functional remote monitoring system | 10/30/2008 | 8/6/2013 | Active | |||||
| 48 | 7,371,021 | Vibration resistant camera for mounting to archery bow | 8/5/2004 | 5/13/2008 | Expired |
B. Design Patents
| # | Patent No. | Title | Priority | Issued | Status | |||||
| 49 | D715,347 | Data recording device | 9/25/2013 | 10/14/2014 | Active | |||||
| 50 | D715,846 | Data recording device | 9/25/2013 | 10/21/2014 | Active | |||||
| 51 | D746,888 | Data recording device | 10/24/2014 | 1/5/2016 | Active | |||||
| 52 | D746,892 | Data recording device | 10/24/2014 | 1/5/2016 | Active |
2. Trademarks
The following U.S. trademark registrations are owned by Digital Ally, Inc. (now Kustom Entertainment, Inc.) and used in connection with the Video Solutions Business:
| Mark | Reg. No. | Reg. Date | Renewal | Class | Status / Next Action | |||||
| CAPTURE TRUTH | 7337643 | 26-Mar-2024 | 26-Mar-2034 | 42 | Declaration of Use - 6 Year, 26-Mar-2030 | |||||
| CAPTURE TRUTH and Design | 5177126 | 04-Apr-2017 | 04-Apr-2027 | 42 | Next Renewal, 04-Apr-2027 | |||||
| DIGITAL ALLY | 3766107 | 30-Mar-2010 | 30-Mar-2030 | 09 | Next Renewal, 30-Mar-2030 | |||||
| DIGITAL ALLY | 3325411 | 30-Oct-2007 | 30-Oct-2027 | 09 | Next Renewal, 30-Oct-2027 | |||||
| DIGITAL ALLY and Design | 5161921 | 14-Mar-2017 | 14-Mar-2027 | 09, 42 | Next Renewal, 14-Mar-2027 | |||||
| DIGITAL-ALLY (stylized) | 5285280 | 12-Sep-2017 | 12-Sep-2027 | 09, 42 | Next Renewal, 12-Sep-2027 | |||||
| ECA | 5087035 | 22-Nov-2016 | 22-Nov-2036 | 09 | Next Renewal, 22-Nov-2036 | |||||
| EVIDENCE CAPTURE ASSURANCE | 5087034 | 22-Nov-2016 | 22-Nov-2036 | 09 | Next Renewal, 22-Nov-2036 | |||||
| EVO-HD | 6629546 | 25-Jan-2022 | 25-Jan-2032 | 09, 42 | Declaration of Use - 6 Year, 25-Jan-2028 | |||||
| FIRSTVU | 7558146 | 05-Nov-2024 | 05-Nov-2034 | 09 | Declaration of Use - 6 Year, 05-Nov-2030 | |||||
| LOGO (Shield Design) | 5285282 | 12-Sep-2017 | 12-Sep-2027 | 09, 42 | Next Renewal, 12-Sep-2027 | |||||
| VOICEVAULT | 3986346 | 28-Jun-2011 | 28-Jun-2031 | 09 | Next Renewal, 28-Jun-2031 | |||||
| VuLink | 4668370 | 06-Jan-2015 | 06-Jan-2035 | 09 | Next Renewal, 06-Jan-2035 | |||||
| VUSCHOOLS | 5287624 | 12-Sep-2017 | 12-Sep-2027 | 09 | First Renewal, 12-Sep-2027 |
All marks are registered with the United States Patent and Trademark Office (USPTO) in the name of Digital Ally, Inc. Trademark assignment recordation will be filed with the USPTO in connection with the closing.
3. Domain Names
digitalallyinc.com
digitalally.com
4. Copyrights
None separately registered. Software code and product documentation owned by the Video Solutions Business are protected as unregistered copyrights and trade secrets.
| 28 |
Schedule G
The Company
NONE
| 29 |
Schedule H
Pledged Securities
All of the equity held by the Company in its Video Solutions Business subsidiary, as set forth below, which equity constitutes 100% of the equity of each such subsidiary:
NONE
| 30 |
Schedule I - Excluded Litigation and Retained Claims
| 31 |
ANNEX B
to
SECURITY AGREEMENT
THE AGENT
1. Appointment. The Secured Party (all capitalized terms used herein and not otherwise defined shall have the respective meanings provided in the Security Agreement to which this Annex B is attached (the “Agreement”)), by their acceptance of the benefits of the Agreement, hereby designate Tom Heckman (the “Agent”) as the Agent to act as specified herein and in the Agreement. The Secured Party shall be deemed irrevocably to authorize the Agent to take such action on its behalf under the provisions of the Agreement and the Notes and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agent may perform any of its duties hereunder by or through its agents or employees.
2. Nature of Duties. The Agent shall have no duties or responsibilities except those expressly set forth in the Agreement. Neither the Agent nor any of its partners, members, shareholders, officers, directors, employees or agents shall be liable for any action taken or omitted by it as such under the Agreement or hereunder or in connection herewith or therewith, be responsible for the consequence of any oversight or error of judgment or answerable for any loss, unless caused solely by its or their gross negligence or willful misconduct as determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction. The duties of the Agent shall be mechanical and administrative in nature; the Agent shall not have by reason of the Agreement or any other Transaction Document a fiduciary relationship in respect of the Company or any Secured Party; and nothing in the Agreement or any other Transaction Document, expressed or implied, is intended to or shall be so construed as to impose upon the Agent any obligations in respect of the Agreement or any other Transaction Document except as expressly set forth herein and therein.
3. Lack of Reliance on the Agent. Independently and without reliance upon the Agent, each Secured Party, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Company and its subsidiaries in connection with such Secured Party’s investment in the Company, the creation and continuance of the Obligations, the transactions contemplated by the Transaction Documents, and the taking or not taking of any action in connection therewith, and (ii) its own appraisal of the creditworthiness of the Company and its subsidiaries, and of the value of the Collateral from time to time, and the Agent shall have no duty or responsibility, either initially or on a continuing basis, to provide any Secured Party with any credit, market or other information with respect thereto, whether coming into its possession before any Obligations are incurred or at any time or times thereafter. The Agent shall not be responsible to the Company or any Secured Party for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith, or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of the Agreement or any other Transaction Document, or for the financial condition of the Company or the value of any of the Collateral, or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of the Agreement or any other Transaction Document, or the financial condition of the Company, or the value of any of the Collateral, or the existence or possible existence of any default or Event of Default under the Agreement, the Notes or any of the other Transaction Documents.
4. Certain Rights of the Agent. The Agent shall have the right to take any action with respect to the Collateral, on behalf of all of the Secured Party. To the extent practical, the Agent shall request instructions from the Secured Party with respect to any material act or action (including failure to act) in connection with the Agreement or any other Transaction Document, and shall be entitled to act or refrain from acting in accordance with the instructions of a Majority in Interest; if such instructions are not provided despite the Agent’s request therefor, the Agent shall be entitled to refrain from such act or taking such action, and if such action is taken, shall be entitled to appropriate indemnification from the Secured Party in respect of actions to be taken by the Agent; and the Agent shall not incur liability to any person or entity by reason of so refraining. Without limiting the foregoing, (a) no Secured Party shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting hereunder in accordance with the terms of the Agreement or any other Transaction Document, and the Company shall have no right to question or challenge the authority of, or the instructions given to, the Agent pursuant to the foregoing and (b) the Agent shall not be required to take any action which the Agent believes (i) could reasonably be expected to expose it to personal liability or (ii) is contrary to this Agreement, the Transaction Documents or applicable law.
5. Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, statement, certificate, telex, teletype or facsimile, cablegram, radiogram, order or other document or telephone message signed, sent or made by the proper person or entity, and, with respect to all legal matters pertaining to the Agreement and the other Transaction Documents and its duties thereunder, upon advice of counsel selected by it and upon all other matters pertaining to this Agreement and the other Transaction Documents and its duties thereunder, upon advice of other experts selected by it. Anything to the contrary notwithstanding, the Agent shall have no obligation whatsoever to any Secured Party to assure that the Collateral exists or is owned by the Company or is cared for, protected, or insured or that the liens granted pursuant to the Agreement have been properly or sufficiently or lawfully created, perfected, or enforced or are entitled to any particular priority.
6. Indemnification. To the extent that the Agent is not reimbursed and indemnified by the Company, the Secured Party will jointly and severally reimburse and indemnify the Agent, in proportion to their initially purchased respective principal amounts of Notes, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent in performing its duties hereunder or under the Agreement or any other Transaction Document, or in any way relating to or arising out of the Agreement or any other Transaction Document except for those determined by a final judgment (not subject to further appeal) of a court of competent jurisdiction to have resulted solely from the Agent’s own gross negligence or willful misconduct. Prior to taking any action hereunder as Agent, the Agent may require each Secured Party to deposit with it sufficient sums as it determines in good faith is necessary to protect the Agent for costs and expenses associated with taking such action.
7. Resignation by the Agent.
(a) The Agent may resign from the performance of all its functions and duties under the Agreement and the other Transaction Documents at any time by giving thirty (30) days’ prior written notice (as provided in the Agreement) to the Company and the Secured Party. Such resignation shall take effect upon the appointment of a successor Agent pursuant to clauses (b) and (c) below.
(b) Upon any such notice of resignation, the Secured Party, acting by a Majority in Interest, shall appoint a successor Agent hereunder.
(c) If a successor Agent shall not have been so appointed within said 30-day period, the Agent shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Secured Party appoint a successor Agent as provided above. If a successor Agent has not been appointed within such 30-day period, the Agent may petition any court of competent jurisdiction or may interplead the Company and the Secured Party in a proceeding for the appointment of a successor Agent, and all fees, including, but not limited to, extraordinary fees associated with the filing of interpleader and expenses associated therewith, shall be payable by the Company on demand.
8. Rights with respect to Collateral. Each Secured Party agrees with all other Secured Party and the Agent (i) that it shall not, and shall not attempt to, exercise any rights with respect to its security interest in the Collateral, whether pursuant to any other agreement or otherwise (other than pursuant to this Agreement), or take or institute any action against the Agent or any of the other Secured Party in respect of the Collateral or its rights hereunder (other than any such action arising from the breach of this Agreement) and (ii) that such Secured Party has no other rights with respect to the Collateral other than as set forth in this Agreement and the other Transaction Documents. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges, and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations under the Agreement. After any retiring Agent’s resignation or removal hereunder as Agent, the provisions of the Agreement including this Annex B shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent.
Exhibit 10.7
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of August 3, 2026 (the “Execution Date”), is entered into by and between Cycurion, Inc., a Delaware corporation (the “Company”), and Kustom Entertainment, Inc. (together with its permitted assigns, “KUST”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in that certain Asset Purchase Agreement, dated as of June 24, 2026, by and between the parties hereto, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026, and as may be further amended, restated, supplemented, or otherwise modified from time to time (collectively, the “Asset Purchase Agreement”).
WHEREAS:
The Company and KUST have mutually agreed, upon the terms and subject to the conditions of an Asset Purchase Agreement and, to induce KUST to enter into the Asset Purchase Agreement and Amendment No. 1 and Forbearance / Extension Agreement to Asset Purchase Agreement, pursuant to which the Company agreed to issue to KUST shares of the Company’s Series H Preferred Stock having an aggregate stated value of $600,000 (the “Series H Preferred Stock”), the Company has agreed to provide certain registration rights under the Securities Act of 1933 (the “Securities Act”), and applicable state securities laws.
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and KUST hereby agree as follows:
| 1. | DEFINITIONS. |
As used in this Agreement, the following terms shall have the following meanings:
a. “Person” means any individual or entity, including, but not limited to, any corporation, limited liability company, association, partnership, organization, business, individual, governmental or political subdivision thereof, or governmental agency.
b. “Register,” “Registered,” and “Registration” refer to a registration effected by preparing and filing with the United States Securities and Exchange Commission (the “SEC”) of one or more registration statements of the Company in compliance with the Securities Act and/or pursuant to Rule 415 under the Securities Act or any successor rule providing for the offering of securities on a delayed and continuous basis (“Rule 415”), and the such registration statement(s) taking effect under the Securities Act .
c. “Registrable Securities” means all of (i) the shares of Common Stock issued or issuable upon conversion of the Series H Preferred Stock issued pursuant to the Asset Purchase Agreement and Amendment No. 1 and Forbearance / Extension Agreement thereto, (ii) all shares of Common Stock issued or issuable as payment of dividends on the Series H Preferred Stock, (iii) any additional shares of Common Stock issued or issuable pursuant to the Asset Purchase Agreement, and (iv) any and all shares of capital stock issued or issuable with respect to the foregoing securities as a result of any stock split, combination, stock dividend, recapitalization, exchange, reclassification or similar event.
d. “Registration Statement” means one or more registration statements of the Company on covering the resale of the Registrable Securities including the Initial Registration Statement and any New Registration Statement or Other Registration Statement (each as defined herein).
| 2. | REGISTRATION. |
a. Mandatory Registration. The Company shall, by the date that is sixty (60) calendar days following the Execution Date, file with the SEC an initial Registration Statement on Form S-1 or Form S-3 (to the extent the Company is eligible to use such form) covering the maximum number of Registrable Securities as shall be permitted to be included thereon in accordance with applicable SEC rules, regulations, and interpretations so as to permit the resale of such Registrable Securities by KUST, including, but not limited to, under Rule 415 at then-prevailing market prices (and not fixed prices) (the “Initial Registration Statement”). The Initial Registration Statement shall register only Registrable Securities. The Company shall use its reasonable best efforts to have the Initial Registration Statement and any amendment thereto declared effective by the SEC at the earliest possible date, but in no event later than ninety (90) calendar days following the Execution Date.
b. Rule 424 Prospectus. In addition to the Initial Registration Statement, the Company shall, as required by applicable securities regulations, from time to time file with the SEC, pursuant to Rule 424 promulgated under the Securities Act, such prospectuses and prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under each Registration Statement. KUST and its counsel shall have a reasonable opportunity to review and comment upon such prospectuses prior to its filing with the SEC, and the Company shall give due consideration to all such comments. KUST shall use its reasonable best efforts to comment upon any prospectus within two (2) business days from the date KUST receives the final pre-filing version of such prospectus.
c. Sufficient Number of Shares Registered. In the event the number of shares available under the Initial Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Initial Registration Statement or file a new Registration Statement (a “New Registration Statement”) so as to cover all of such Registrable Securities (subject to the limitations set forth in Section 2.e.) as soon as practicable, but in any event not later than ten (10) business days after the necessity therefor arises, subject to any limits that may be imposed by the SEC pursuant to Rule 415. The Company shall use its reasonable best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable following the filing thereof. In the event that any of the Registrable Securities are not included in the Initial Registration Statement, or have not been included in any New Registration Statement, and the Company files any other registration statement under the Securities Act (other than on Form S-4, Form S-8, or with respect to other employee related plans or rights offerings), then the Company shall use its reasonable best efforts to also include in such other registration statement such Registrable Securities that have not been previously Registered (such other registration statement that Registers Registrable Securities, an “Other Registration Statement”).
| 2 |
d. Effectiveness. KUST and its counsel shall have a reasonable opportunity to review and comment upon any Registration Statement and any amendment or supplement to such Registration Statement and any related prospectus prior to its filing with the SEC, and the Company shall give due consideration to all reasonable comments. KUST shall furnish all information reasonably requested by the Company for inclusion therein. The Company shall use its reasonable best efforts to keep all Registration Statements effective, including, but not limited to, pursuant to Rule 415 and available for the resale by KUST of all of the Registrable Securities covered thereby at all times until the earlier of:
(i) the date as of which KUST may sell all of the Registrable Securities without any restrictions (including without volume or manner-of-sale restrictions) under Rule 144 or any other similar rule or regulation of the SEC (“Rule 144”); and
(ii) the date on which KUST shall have sold all the Registrable Securities covered thereby and no Registrable Securities remain issuable under the Asset Purchase Agreement (the “Registration Period”).
In the event that any Registration Statement filed hereunder is no longer effective and Rule 144 is available for sales of the Registrable Securities, the Company shall provide an opinion upon request of KUST that KUST may sell any such Registrable Securities held by KUST pursuant to Rule 144 with all costs related to such opinion to be borne by the Company. Each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.
e. Offering. If the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant to a Registration Statement filed pursuant to this Agreement as constituting an offering of securities that does not permit such Registration Statement to become or remain effective and be used for resales by KUST under Rule 415 at then-prevailing market prices (and not fixed prices), or, if after the filing of the Initial Registration Statement with the SEC pursuant to Section 2.a., the Company is otherwise required by the Staff or the SEC to reduce the number of Registrable Securities included in such initial Registration Statement, then the Company shall reduce the number of Registrable Securities to be included in such Initial Registration Statement (with the prior consent, which shall not be unreasonably withheld, delayed, or denied of KUST and its legal counsel as to the specific Registrable Securities to be removed therefrom) until such time as the Staff and the SEC shall so permit such Registration Statement to become effective and be used as aforesaid. In the event of any reduction in Registrable Securities pursuant to this paragraph, the Company shall file one or more New Registration Statements in accordance with Section 2.c. until such time as all Registrable Securities have been included in Registration Statements that have been declared effective and the prospectuses contained therein are available for use by KUST. Notwithstanding any provision herein or in the Asset Purchase Agreement to the contrary, the Company’s obligations to register Registrable Securities (and any related conditions to KUST’s obligations) shall be qualified as necessary to comport with any requirement of the SEC or the Staff as addressed in this Section 2.e.. Notwithstanding the foregoing, the Company shall not be responsible for any delays in effectiveness caused by the SEC or the Staff.
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f. Liquidated Damages. If: (i) the Initial Registration Statement is not filed in accordance with Section 2(a) above (if the Company files the Initial Registration Statement without affording KUST the opportunity to review (and, with respect to disclosure on KUST, to comment) on the same as required by Section 3(b) herein, the Company shall be deemed to have not satisfied this clause (i)), or (ii) the Company fails to file with the SEC a request for acceleration of a Registration Statement in accordance with Rule 461 promulgated by the SEC pursuant to the Securities Act, within five (5) Trading Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be “reviewed” or will not be subject to further review, or (iii) a Registration Statement registering for resale all of the Registrable Securities is not declared effective by the SEC in accordance with Section 2.a. above, or (iv) after the effective date of a Registration Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Registrable Securities included in such Registration Statement, or KUST is otherwise not permitted to utilize the prospectus therein to resell such Registrable Securities, for more than thirty (30) consecutive calendar days or more than an aggregate of forty five (45) calendar days (which need not be consecutive calendar days) during any 12-month period (any such failure or breach being referred to as an “Event”, and for purposes of clauses (i) and (iii), the date on which such Event occurs, and for purpose of clause (ii) the date on which such five (5) Trading Day period is exceeded, and for purpose of clause (iv) the date on which such thirty (30) or forty five (45) calendar day period, as applicable, is exceeded being referred to as “Event Date”), then, in addition to any other rights KUST may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured or, if earlier, the Company shall pay to KUST an amount in cash, as partial liquidated damages and not as a penalty, equal to the product of 0.0025 multiplied by the Maximum Commitment Amount; provided, however, that the Company shall not be required to make any payments with respect to Registrable Securities which may be freely tradable pursuant to Rule 144 or any other exemption from registration under the Securities Act. The parties agree that the maximum aggregate liquidated damages payable to KUST under this Agreement shall be 12% of the Maximum Commitment Amount. If the Company fails to pay any partial liquidated damages pursuant to this Section in full within seven days after the date payable, the Company will pay interest thereon at a rate of 12% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to KUST, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. The partial liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the cure of an Event. Notwithstanding the foregoing, no liquidated damages shall accrue for any delay caused by the action or inaction of KUST or its representatives. “Maximum Commitment Amount” means the aggregate value of the Registrable Securities issued or issuable to KUST pursuant to the Asset Purchase Agreement and the Series H Preferred Stock, as determined based on the fair market value thereof as of the Execution Date.
| 3. | RELATED OBLIGATIONS. |
With respect to a Registration Statement and whenever any Registrable Securities are to be Registered pursuant to Section 2, including on any Other Registration Statement, the Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC such amendments (including post-effective amendments on Form S-1 or Form S-3) and supplements to any Registration Statement and any Other Registration Statement and the prospectus used in connection with such Registration Statement and Other Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement or applicable Other Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such registration statement.
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b. The Company shall permit KUST to review and comment upon each Registration Statement or any Other Registration Statement and all amendments and supplements thereto at least two (2) business days prior to their filing with the SEC, and not file any document in a form that includes disclosure relating specifically to KUST to which KUST reasonably objects; provided, however, that any delay in KUST or its counsel review of the Registration Statement beyond the two (2) business day period shall extend the deadlines set forth in Section 2.a. of this Agreement by such delay period. KUST shall use its reasonable best efforts to comment upon the Registration Statement or any Other Registration Statement and any amendments or supplements thereto within two (2) business days from the date KUST receives the final version thereof. The Company shall furnish to KUST, without charge, and within one (1) business day, any comments and/or any other correspondence from the SEC or the Staff to the Company or its representatives relating to the Registration Statement or any Other Registration Statement. The Company shall respond to the SEC or the Staff, as applicable, regarding the resolution of any such comments and/or correspondence as promptly as practicable and in any event within two weeks upon receipt thereof.
c. Upon request of KUST, the Company shall furnish to KUST, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any Registration Statement, a copy of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as KUST may reasonably request), and (iii) such other documents, including copies of any preliminary or final prospectus, as KUST may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by KUST. For the avoidance of doubt, any filing available to KUST via the SEC’s live EDGAR system shall be deemed “furnished to KUST” hereunder.
d. The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered by a Registration Statement under such other securities of New York, Delaware, and such other jurisdictions in the United States as KUST reasonably requests and is reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions, (ii) prepare and file in those jurisdictions, such amendments (including post- effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3.d). (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify KUST who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
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e. As promptly as practicable after becoming aware of such event or facts, the Company shall notify KUST in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver a copy of such supplement or amendment to KUST (or such other number of copies as KUST may reasonably request). The Company shall also promptly notify KUST in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment thereto has become effective (notification of such effectiveness shall be delivered to KUST by e-mail or facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to any Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.
f. The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify KUST of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose. In addition, if the Company shall receive any comment letter from the SEC relating to any Registration Statement under which Registrable Securities are Registered, the Company shall notify KUST of the issuance of such order and use its reasonable best efforts to address such comments in a manner satisfactory to the SEC.
g. The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) secure designation and quotation of all the Registrable Securities on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section.
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h. The Company shall cooperate with KUST to facilitate the timely preparation and delivery of shares representing the Registrable Securities in book-entry form through The Depository Trust Company’s Deposit/Withdrawal at Custodian system (“DWAC”), subject to the Company’s transfer agent procedures, applicable law, and the terms of the Asset Purchase Agreement.
i. The Company shall at all times maintain the services of its Transfer Agent and registrar with respect to its Common Stock.
j. If reasonably requested by KUST, the Company shall (i) incorporate in a prospectus supplement or post-effective amendment such information relating solely to KUST as KUST reasonably requests to be included therein with respect to the sale and distribution of the Registrable Securities, including the number of Registrable Securities being sold and the purchase price and other terms of the offering, provided that such information is accurate and complete in all material respects and complies with applicable law; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as reasonably practicable following receipt of such information; and (iii) supplement or amend any Registration Statement as may be reasonably necessary to reflect such information.
k. The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
l. Within one (1) business day after any Registration Statement which includes Registrable Securities is declared effective by the SEC or otherwise takes effect, or any prospectus supplement or post-effective amendment including Registrable Securities is filed with the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the Transfer Agent for such Registrable Securities (with copies to KUST) confirmation of the effectiveness of such Registration Statement in the form attached hereto as Exhibit A. Thereafter, if requested by KUST at any time, the Company shall require its counsel to deliver to KUST a written confirmation whether or not (i) the effectiveness of such Registration Statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order), (ii) any comment letter has been issued by the SEC, and (iii) whether or not the Registration Statement is current and available to KUST for sale of all of the Registrable Securities.
m. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by KUST of Registrable Securities pursuant to any Registration Statement.
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| 4. | OBLIGATIONS OF KUST. |
a. The Company shall notify KUST in writing of the information the Company reasonably requires from KUST in connection with any Registration Statement hereunder. KUST shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. Notwithstanding the foregoing, the Registration Statement shall contain the “Selling Stockholder” and “Plan of Distribution” sections, each in substantially the form provided to the Company by KUST.
b. KUST agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder.
c. KUST agrees that, upon receipt of any notice from the Company of the happening of any event or existence of facts of the kind described in Section 3(f) or the first sentence of Section 3(e), KUST will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement covering such Registrable Securities until the withdrawal of any stop order contemplated by Section 3.f. or KUST’s receipt of copies of a supplemented or amended prospectus as contemplated by Section 3.e. Notwithstanding the foregoing, the Company shall use commercially reasonable efforts, subject to applicable securities laws and the procedures of its transfer agent, to cause its transfer agent to issue shares of Common Stock in book-entry form through DWAC in respect of any sale of Registrable Securities pursuant to a binding contract of sale entered into prior to KUST’s receipt of such notice and for which settlement has not yet occurred.
| 5. | EXPENSES OF REGISTRATION. |
All reasonable Registration expenses, other than sales or brokerage commissions, incurred in connection with registrations, filings, or qualifications pursuant to Sections 2 and 3, including, without limitation, all Company registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company (but not counsel for KUST) shall be paid by the Company.
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| 6. | INDEMNIFICATION. |
a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend KUST, each Person, if any, who controls or is under common control with KUST, the members, the directors, officers, partners, employees, agents, representatives of KUST, and each Person, if any, who is an “affiliate” of KUST within the meaning of the Securities Act or the Exchange Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement, or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing, or defending any action, claim, suit, inquiry, proceeding, investigation, or appeal taken from the foregoing by or before any court or governmental, administrative, or other regulatory agency, body, or the SEC, whether pending or threatened, whether or not an Indemnified Person is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement, any Other Registration Statement or any post-effective amendment thereto, or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or any Other Registration Statement, (the matters in the foregoing clauses (i) through (iii) being, collectively, “Violations”). The Company shall reimburse each Indemnified Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.a.: (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information about KUST furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of a Registration Statement, any Other Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3.c. or Section 3.e.; (ii) with respect to any superseded prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised prospectus was timely made available by the Company pursuant to Section 3.c. or Section 3.e., and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of KUST to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3.c. or Section 3.e.; and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld, delayed, denied, or conditioned. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by KUST pursuant to Section 9. The Company’s aggregate liability under this Section 6 shall not exceed the net proceeds that the Company receives from the issuance of the Registrable Securities.
b. KUST agrees (severally and not jointly) to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Exchange Act), and each of their respective Affiliates, employees, directors, officers, trustees, agents, and Representatives (collectively, the “Company Indemnified Parties”), from and against any Losses resulting from (i) any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which KUST’s Registrable Securities were registered under the Securities Act (including any final, preliminary or summary prospectus contained therein or any amendment or supplement thereto or any documents incorporated by reference therein, including any information deemed part of any prospectus pursuant to Rule 159 under the Securities Act), or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission is based upon information furnished in writing by KUST to the Company specifically for inclusion in such Registration Statement (including, without limitation, any written information provided for inclusion in the “Selling Stockholder” or “Plan of Distribution” sections) and was known by KUST to be untrue or misleading at the time it was furnished.
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c. Promptly after receipt by an Indemnified Person under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person shall, if a Claim in respect thereof is to be made against the Company under this Section 6, deliver to the Company a written notice of the commencement thereof, and the Company shall have the right to participate in, and, to the extent the Company so desires, to assume control of the defense thereof with counsel mutually satisfactory to the Company and to the Indemnified Person; provided, however, that an Indemnified Person shall have the right to retain its own counsel with the fees and expenses to be paid by the Company, if, in the reasonable opinion of counsel retained by the Company, the representation by such counsel of the Indemnified Person and the Company would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. The Indemnified Person shall cooperate fully with the Company in connection with any negotiation or defense of any such action or Claim by the Company and shall furnish to the Company all information reasonably available to the Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. The Company shall not be liable for any settlement of any action, Claim or proceeding effectuated without its written consent; provided, however, that the Company shall not unreasonably withhold, delay or condition its consent. The Company shall not, without the consent of the Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of a release from all liability in respect to such Claim or litigation. Following indemnification as provided for hereunder, the Company shall be subrogated to all rights of the Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the Company within a reasonable time of the commencement of any such action shall not relieve the Company of any liability to the Indemnified Person under this Section 6, except to the extent that the Company is prejudiced in its ability to defend such action.
d. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
e. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
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| 7. | CONTRIBUTION. |
To the extent any indemnification by the Company is prohibited or limited by law, the Company agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation, and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
| 8. | REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS. |
Notwithstanding any other provision contained herein to the contrary, during such times that the Registration Statement is not available for resales of Registrable Securities held by KUST, with a view to making available to KUST the benefits of Rule 144, the Company agrees, at the Company’s sole expense, to:
a. make and keep current public information available, as such term is understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act;
c. furnish to KUST so long as KUST owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit KUST to sell such securities pursuant to Rule 144 without registration; and
d. take such additional action as is reasonably requested by KUST to enable KUST to sell the Registrable Securities pursuant to Rule 144, including, without limitation, delivering all such legal opinions, consents, certificates, resolutions, and instructions to the Company’s Transfer Agent as may be requested from time to time by KUST at the Company’s expense and otherwise fully cooperate with KUST and KUST’s broker to effect such sale of securities pursuant to Rule 144.
The Company agrees that damages may be an inadequate remedy for any breach of the terms and provisions of this Section 8 and that KUST shall, whether or not it is pursuing any remedies at law, be entitled to equitable relief in the form of a preliminary or permanent injunctions, without having to post any bond or other security, upon any breach or threatened breach of any such terms or provisions.
| 9. | ASSIGNMENT OF REGISTRATION RIGHTS. |
The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of KUST, which shall not be unreasonably withheld, conditioned, or delayed; provided, however, that the Company may assign this Agreement without such consent to any successor entity in connection with a merger, consolidation, or sale of all or substantially all of its assets.
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KUST may not assign its rights or obligations under this Agreement without the prior written consent of the Company; provided, however, that KUST may assign this Agreement, without consent, to any of its Affiliates, so long as such Affiliate agrees in writing to be bound by the terms of this Agreement
| 10. | AMENDMENT OF REGISTRATION RIGHTS. |
No provision of this Agreement may be (i) amended other than by a written instrument signed by both parties hereto or (ii) waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
| 11. | REPRESENTATIONS AND WARRANTIES. |
a. Due Authorization. The Company has the requisite power and authority to enter into this Agreement and to perform and consummate the transactions contemplated hereby and the execution and delivery by the Company of this Agreement and the performance and consummation of the transactions contemplated hereby (i) are within the power and authority of the Company and (ii) have been duly authorized by all necessary action of the Company. This Agreement has been duly and validly executed and delivered by the Company. Assuming the due authorization, execution, and delivery by KUST of this Agreement, this Agreement constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, or other similar laws relating to enforcement of creditors’ rights generally, and general equitable principles relating to the availability of remedies and the public policy underlying such laws, and except as rights to indemnity or contribution, including but not limited to, indemnification provisions set forth in Section 6 of this Agreement, may be limited by federal or state securities law or the public policy underlying such laws. The Company’s Board of Directors, at a duly called meeting or by a written consent, has unanimously adopted and approved this Agreement and the transactions contemplated hereby, and no other corporate actions on the part of the Company are necessary in connection with the authorization, execution and delivery of this Agreement by the Company and the performance by the Company of the transactions contemplated hereby.
b. No Conflicts. The execution, delivery and performance of this Agreement by the Company and the performance by the Company, or the consummation, of the transactions contemplated by this Agreement and the compliance by the Company with the terms of this Agreement do not and will not conflict with or do not result and will not result in any breach or violation of any of the terms or provisions of, or do not constitute or will not constitute a default under, do not cause or will not cause (or do not permit or will not permit) the maturation or acceleration of any liability or obligation or the termination of any right under, or do not result in the creation or imposition of any lien, charge or encumbrance upon, any property or assets of the Company pursuant to the terms of (i) the charter or bylaws or other applicable organizational documents of the Company; (ii) any indenture, mortgage, deed of trust, voting trust agreement, stockholders’ agreement, note agreement or other material agreement or instrument to which the Company is a party or by which it is bound or to which its respective property is subject; or (iii) any law, statute, judgment, decree, order, rule or regulation applicable to the Company of any government, arbitrator, court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over the Company or its activities or properties.
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c. Consents and Approvals. No consent, approval, authorization, order, registration, notice, filing, license, recording, or qualification of or with any court, government, or governmental agency or body, domestic or foreign, having jurisdiction (other than under the Securities Act) over the Company or any of its Subsidiaries or any of their properties, is required for the execution and delivery by the Company of this Agreement, the performance by the Company of its obligations hereunder and the consummation of the transactions contemplated hereby.
d. Acknowledgment Regarding KUST’s Acquisition of Common Stock. The Company acknowledges and agrees that KUST is acting solely in the capacity of an arm’s-length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that KUST is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby, and that any advice given by KUST or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to KUST’s acquisition of Common Stock. The Company further represents that its decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.
| 12. | MISCELLANEOUS. |
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices, or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice, or election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by e-mail (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) business day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
If to the Company:
Cycurion, Inc.
1640 Boro Place, Suite 420C
McLean, VA, 22102
and/or email address and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) business days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s email account containing the time, date, recipient email address, as applicable, and an image of the first page of such transmission, or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by email or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii), or (iii) above, respectively.
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c. All questions concerning the construction, validity, enforcement, and interpretation of this Agreement shall be governed by the laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any other state.
d. Any disputes, claims, or controversies hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein shall be referred to and resolved solely and exclusively by binding arbitration to be conducted before the JAMS, or its successor pursuant the expedited procedures set forth in the JAMS Comprehensive Arbitration Rules and Procedures (the “Rules”), including Rules 16.1 and 16.2 of those Rules. The arbitration shall be held in New York, New York, before a tribunal consisting of three (3) arbitrators each of whom will be selected in accordance with the “strike and rank” methodology set forth in Rule 15. Either party to this Agreement may, without waiving any remedy under this Agreement, seek from any federal or state court sitting in the Borough of Manhattan in the City of New York, State of New York, any interim or provisional relief that is necessary to protect the rights or property of that party, pending the establishment of the arbitral tribunal. The costs and expenses of such arbitration shall be allocated by the arbitrators based on the relative merits of the parties’ positions. The arbitrators’ decision must set forth a reasoned basis for any award of damages or finding of liability. The arbitrators’ decision and award will be made and delivered as soon as reasonably possible and in any case within sixty (60) days’ following the conclusion of the arbitration hearing and shall be final and binding on the parties and may be entered by any court having jurisdiction thereof.
e. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
f. TO THE MAXIMUM PERMITTED BY LAW, EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
| 14 |
g. This Agreement and the Asset Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Asset Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
h. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.
i. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
j. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or by e-mail in a “.pdf” format data file of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
k. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments, and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
m. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
| 15 |
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the Execution Date.
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton J. Ross | |
| Name: | Stanton J. Ross | |
| Title: | Chief Executive Officer | |
| 16 |
EXHIBIT A
TO REGISTRATION RIGHTS AGREEMENT
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRATION STATEMENT
[_____] [_____], 2026
Equiniti Trust Company, LLC
55 Challenger Road, Floor 2
Ridgefield Park, New Jersey 07660
Re: EFFECTIVENESS OF REGISTRATION STATEMENT
Ladies and Gentlemen:
We are counsel to Cycurion, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Asset Purchase Agreement, dated June 24, 2026, as amended by Amendment No. 1 and Forbearance / Extension Agreement (collectively, the “Asset Purchase Agreement”), entered into by and between the Company and Kustom Entertainment, Inc. (“KUST”), pursuant to which the Company agreed to issue to KUST shares of the Company’s Series H Preferred Stock having an aggregate stated value of $600,000 (the “Series H Preferred Stock”). The Series H Preferred Stock is convertible into shares of the Company’s Common Stock, $0.0001 par value per share (the “Common Stock”), and accrues dividends that may be paid in shares of Common Stock in accordance with its terms. The shares of Common Stock issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon are referred to herein as the “Registered Shares.”
(1) __________Registered Shares issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon, consisting of up to _____ shares of the Company’s Common Stock, in accordance with the Asset Purchase Agreement and the Certificate of Designation of the Series H Preferred Stock.
Pursuant to the Asset Purchase Agreement, the Company also has entered into a Registration Rights Agreement, of even date with the Asset Purchase Agreement with KUST (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registered Shares issuable upon conversion of and payment of dividends on the Series H Preferred Stock. In connection with the Company’s obligations under the Asset Purchase Agreement and the Registration Rights Agreement, on [______] [ ], 2026, the Company filed a Registration Statement (File No. 333-[________]) (the “Registration Statement”) with the SEC relating to the resale of the Registered Shares and the Commitment Shares.
In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the Registration Statement has taken effect under the Securities Act of 1933, as amended (the “Securities Act”) at [ ] [A.M./P.M.] on [ ], 2026, and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC, and the Registered Shares issuable upon conversion of and payment of dividends on the Series H Preferred Stock are available for resale under the Securities Act pursuant to the Registration Statement and may be issued without any restrictive legend, subject to applicable securities laws and the terms of the Registration Statement.
Very truly yours,
| By: | ||
| cc: | Kustom Entertainment, Inc. |
Exhibit 10.8
EARNOUT AND CLAWBACK AGREEMENT
This earnout and clawback agreement (this “Agreement”) sets forth the earnout and clawback provisions agreed to by Cycurion, Inc., a Delaware corporation (“Buyer”), and Kustom Entertainment, Inc., a Nevada corporation (“Seller”), in connection with that certain Asset Purchase Agreement, dated as of June 24, 2026, as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (collectively, the “Purchase Agreement”), between Buyer and Seller, pursuant to which Buyer will acquire Seller’s Video Solutions business division (the “Video Solutions Business”). For purposes of this Agreement, the “Video Solutions Business” means the business of development, manufacturing, sale, licensing, support, and servicing of video hardware, camera products, platforms, software, and software solutions. Any capitalized terms used but not otherwise defined in this Agreement shall have the meanings ascribed to such terms in the Purchase Agreement.
SECTION 1. EARNOUT AND CLAWBACK FRAMEWORK
1.1 Structure and Intent. The parties acknowledge and agree that the earnout and clawback provisions set forth herein are intended to align the economic interests of Buyer and Seller with respect to the post-Closing financial performance of the Video Solutions Business, with key deal terms attached as Exhibit A.
1.2 Symmetrical Framework; Caps. The earnout and clawback structure shall be symmetrical such that:
(i) the maximum Earnout payable by Buyer to Seller shall not exceed $500,000 for each fiscal year during the Earnout Period and $1,000,000 in the aggregate; and
(ii) the maximum Clawback recoverable by Buyer from Seller shall not exceed $500,000 for each fiscal year during the Earnout Period and $1,000,000 in the aggregate.
1.3 Performance Baseline. The targets used to determine both Earnout (as defined in Section 2.1 below) and Clawback (as defined in Section 3.1 below) shall be based on the financial projections for the Video Solutions Business set forth in the 24-month pro forma financial statements prepared by Seller (the “Pro Forma Target”).
1.4 Performance Metric. The sole performance metric for purposes of determining both Earnout and Clawback shall be total revenue of the Video Solutions Business, determined in accordance with Section 4.1 of this Agreement (“Revenue”).
1.5 Earnout Principle. Seller shall be entitled to Earnout payments to the extent that actual Revenue of the Video Solutions Business for a given fiscal year exceeds the applicable Pro Forma target, subject to the terms and conditions set forth herein.
1.6 Clawback Principle. Buyer shall be entitled to Clawback recovery to the extent that actual Revenue for a given fiscal year falls below the applicable Pro Forma Target by more than the Grace Threshold, subject to the terms and conditions set forth herein.
1.7 Grace Threshold. No Clawback shall be triggered unless Revenue for the applicable period is more than twenty percent (20%) below the applicable Pro Forma Target (the “Grace Threshold”), reflecting the parties’ agreement that ordinary course variability in financial projections shall not give rise to any Clawback obligation.
1.8 Construction. This Section 1.8 shall be construed to give effect to the parties’ intent that:
(i) Seller participates in upside performance through Earnout payments; and
(ii) Buyer is protected against material underperformance through Clawback rights, subject only to the Grace Threshold and the express limitations set forth herein.
1.9 Exhibits. All Exhibits attached hereto are hereby incorporated into and made a part of this Agreement for all purposes; provided, however, that in the event of any inconsistency between this Agreement and any Exhibit, the terms of this Agreement shall control.
SECTION 2. EARNOUT PROVISIONS
2.1 Earnout Right. Subject to the terms and conditions of this Agreement, Seller shall be entitled to receive additional contingent consideration (the “Earnout”) based on the post-Closing Revenue performance of the Video Solutions Business during the Earnout Period.
2.2 Earnout Period. The “Earnout Period” shall consist of the fiscal years ending December 31, 2026 and December 31, 2027. The Earnout shall be calculated independently for each fiscal year.
2.3 Revenue Targets. The applicable Revenue targets for purposes of calculating the Earnout (each, a “Target”) shall be:
(a) fiscal year 2026: $5,500,000 and
(b) fiscal year 2027: $5,800,000.
2.4 Earnout Calculation. For each fiscal year during the Earnout Period, the Earnout shall be calculated as follows:
Earnout = Floor (Revenue Outperformance Percentage ÷ 10%) × $100,000
For purposes of this Section:
“Revenue Outperformance Percentage” means the percentage by which Revenue exceeds the applicable Target.
2.5 Earnout Schedule. The Earnout payable for each fiscal year shall be determined as follows:
(i) If Revenue is less than or equal to the applicable Target, no Earnout shall be payable.
(ii) If Revenue exceeds the applicable Target, Earnout shall be payable in increments of $100,000 for each full 20% by which Revenue exceeds the Target, as follows:
• >20% above Target → $100,000
• >30% above Target → $200,000
• >40% above Target → $300,000
• >50% above Target → $400,000
• >60% above Target → $500,000
All Earnout calculations shall be based solely on completed 10% increments, and any partial increment shall be disregarded. A summary illustration of the Earnout calculation mechanics is set forth in Exhibit B attached hereto.
2.6 Earnout Caps.
(a) Annual Cap. The Earnout payable with respect to any fiscal year shall not exceed $500,000.
(b) Aggregate Cap. The total Earnout payable over the Earnout Period shall not exceed $1,000,000.
2.7 Earnout Statement and Payment.
(a) Earnout Statement. Within ninety (90) days following the end of each fiscal year, Buyer shall prepare and deliver to Seller a written statement (the “Earnout Statement”) setting forth Buyer’s determination of Revenue and the resulting Earnout, if any.
(b) Payment Timing. Subject to final determination of the Earnout Statement in accordance with Section 5, Buyer shall pay any Earnout due in immediately available funds within forty-five (45) days following such final determination.
The examples set forth in Exhibit C are for illustrative purposes only and are not intended to modify or interpret the terms of this Agreement.
2.8 Binding Obligation; Survival. The Earnout shall constitute additional purchase price payable under this Agreement.
2.9 Determination of Revenue. Revenue shall be determined by Buyer in good faith in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), consistently applied, and consistent with the accounting principles used in preparing the Pro Forma Target, and shall exclude any purchase accounting adjustments. Buyer’s determination shall be final and binding absent manifest error or a timely dispute under Section 5.
2.10 Buyer Operating Discretion.
(a) General Control. Buyer shall have sole and absolute discretion with respect to the operation of the Video Solutions Business following the Closing, including all decisions relating to integration, personnel, pricing, cost structure, capital allocation, and strategic direction.
(b) No Obligation to Maximize Earnout. Buyer shall have no obligation to operate the Video Solutions Business in a manner designed to achieve or maximize the Earnout.
2.11 Limitation on Adjustments. No adjustment to the Earnout shall be made except to the extent that Seller demonstrates that Buyer took actions in bad faith and primarily for the purpose of avoiding or reducing the Earnout.
2.12 No Implied Duties. Except as expressly set forth in this Section 2, Buyer shall have no duty to take or refrain from taking any action with respect to the operation of the Video Solutions Business for the purpose of affecting the Earnout.
SECTION 3. CLAWBACK PROVISIONS
3.1 Clawback Right. Subject to the terms and conditions of this Agreement, Buyer shall be entitled to a reduction of the Purchase Price (the “Clawback”) based on the post-Closing Revenue performance of the Video Solutions Business during the Earnout Period.
3.2 Clawback Period. The Clawback shall be determined independently for each fiscal year during the Earnout Period (i.e., fiscal years ending December 31, 2026 and December 31, 2027).
3.3 Grace Threshold. No Clawback shall be triggered unless Revenue for the applicable fiscal year is more than the Grace Threshold.
For the avoidance of doubt, if Revenue is equal to or greater than eighty percent (80%) of the applicable Target, no Clawback shall apply.
3.4 Clawback Calculation. For each fiscal year:
Clawback = Floor ((Revenue Shortfall Percentage − 20%) ÷ 10%) × $100,000
For purposes of this Section:
“Revenue Shortfall Percentage” means the percentage by which Revenue is below the applicable Target.
3.5 Clawback Schedule. The Clawback payable for each fiscal year shall be determined as follows:
• 0%–20% below Target → $0 (Grace Threshold)
• >30% below Target → $100,000
• >40% below Target → $200,000
• >50% below Target → $300,000
• >60% below Target → $400,000
• >70% below Target → $500,000
All Clawback calculations shall be based solely on completed 10% increments beyond the Grace Threshold, and any partial increment shall be disregarded.
3.6 Clawback Caps.
(a) Annual Cap. The Clawback for any fiscal year shall not exceed $500,000.
(b) Aggregate Cap. The total Clawback over the Earnout Period shall not exceed $1,000,000.
(c) Prepayment Adjustment. If Buyer prepays the Secured Promissory Note, dated August 3, 2026, issued in connection with the transaction within twelve (12) months following the Closing and receives any corresponding discount or economic benefit, then (i) the annual Clawback cap shall be reduced to $250,000, and (ii) the aggregate Clawback cap shall be reduced to $500,000.
3.7 Payment Mechanics.
(a) Netting. Any Clawback for a fiscal year shall first be applied as a reduction to any Earnout payable for such fiscal year.
(b) Excess Payment. To the extent the Clawback exceeds any Earnout otherwise payable, Seller shall pay such excess amount to Buyer in immediately available funds within forty-five (45) days following final determination of the applicable Earnout Statement.
3.8 Binding Obligation; Survival. Clawback obligations shall survive the Closing and shall constitute binding contractual obligations of Seller under this Agreement.
3.9 Determination and Finality. The determination of Revenue, Revenue Shortfall Percentage, and any resulting Clawback shall be made in accordance with Sections 2 and 5 and the Earnout Statement procedures set forth therein.
3.10 Limitation on Clawback Adjustments. No Clawback shall be reduced or eliminated except to the extent that Seller demonstrates that such Revenue shortfall was directly caused by actions taken by Buyer in bad faith and primarily for the purpose of triggering or increasing the Clawback.
3.11 Buyer Operational Discretion. For the avoidance of doubt:
(a) Buyer shall have no obligation to operate the Video Solutions Business in a manner designed to avoid a Clawback; and
(b) Changes in business operations, integration, strategy, pricing, personnel, capital allocation, or other business decisions made by Buyer in good faith shall not give rise to any reduction or elimination of a Clawback.
4.1 Definition of Revenue. For purposes of this Agreement, “Revenue” means the revenue of the Video Solutions Business as determined by Buyer in good faith, in accordance with U.S. GAAP, consistently applied, and using accounting methodologies consistent with those used in preparing the Pro Forma. Revenue shall be calculated without giving effect to any purchase accounting adjustments arising from the transactions contemplated by this Agreement. Buyer’s determination of Revenue shall be final and binding absent manifest error or a timely dispute pursuant to Section 5.3.
4.2 Limited Adjustments.
(a) Permitted Adjustments. The Targets and/or Revenue calculation shall be adjusted only to the extent necessary to reflect:
(i) any change in U.S. GAAP or applicable law that is required to be adopted after the Closing and that materially impacts the calculation of Revenue; or
(ii) any accounting reclassification required by a governmental authority that directly affects Revenue recognition.
(b) Excluded Adjustments. No adjustment shall be made for:
(i) general economic or market conditions;
(ii) changes in industry conditions;
(iii) Buyer’s business decisions, including integration, restructuring, pricing, or strategic changes; or
(iv) any failure of the business to meet projections.
(c) Standard for Adjustment. Any adjustment permitted under this Section 4.2 must be:
(i) directly attributable to the applicable event;
(ii) quantified based on objective accounting principles; and
(iii) applied consistently.
(d) No Open-Ended Negotiation. The parties shall not be required to renegotiate Targets or Revenue metrics except as expressly provided in this Section 4.2.
SECTION 5. DISPUTE RESOLUTION
5.1 Review Period. Seller shall have thirty (30) days following receipt of the Earnout Statement (the “Review Period”) to review such statement. If Seller disputes any portion of the Earnout Statement, Seller shall deliver to Buyer a written notice (the “Objection Notice”) prior to the expiration of the Review Period, specifying in reasonable detail the nature and basis of each disputed item. Any items not specifically identified in the Objection Notice shall be deemed accepted by Seller. During the Review Period, Buyer shall provide Seller and its representatives reasonable access, during normal business hours and upon reasonable prior notice, to the books, records, and work papers of the Video Solutions Business reasonably necessary to evaluate the Earnout Statement; provided, however, that such access shall (i) not unreasonably disrupt Buyer’s operations and (ii) be subject to customary confidentiality obligations.
If Seller does not deliver an Objection Notice within the Review Period, the Earnout Statement shall become final, conclusive, and binding on the parties.
5.2 Dispute Resolution.
(a) Negotiation Period. If Seller timely delivers an Objection Notice, the parties shall attempt in good faith to resolve the disputed items for a period of thirty (30) days following Buyer’s receipt of such Objection Notice.
(b) Independent Accountant. If the parties are unable to resolve all disputed items within such period, the remaining unresolved matters shall be submitted to an independent nationally recognized accounting firm mutually agreed upon by the parties (the “Independent Accountant”).
(c) Scope of Review. The Independent Accountant shall act as an expert and not as an arbitrator and shall resolve only those specific disputed items set forth in the Objection Notice that remain unresolved. The Independent Accountant shall not consider any new issues or adjustments not raised in the Objection Notice and shall not make any determination inconsistent with this Agreement.
(d) Determination. The Independent Accountant shall make its determination in accordance with the terms of this Agreement within forty-five (45) days of engagement, and such determination shall be final, conclusive, and binding on the parties.
(e) Allocation of Fees. The fees and expenses of the Independent Accountant shall be borne by the non-prevailing party, or, if neither party substantially prevails, shall be allocated between the parties in proportion to the relative success of their respective positions, as determined by the Independent Accountant.
(f) Effect of Determination. Following the final resolution of any disputed items, the applicable Earnout and/or Clawback amount shall be promptly paid in accordance with this Agreement, with any required payments to be made within forty-five (45) days thereafter.
SECTION 6. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of laws principles.
SECTION 7. ENTIRE AGREEMENT.
This Agreement, together with the Purchase Agreement and the Exhibits hereto, constitutes the entire agreement between the parties and supersedes all prior understandings with respect to the subject matter hereof.
SECTION 8. WAIVER.
No waiver of any provision of this Agreement shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced.
SECTION 9. ASSIGNMENT.
Seller may not assign this Agreement without Buyer’s prior written consent. Buyer may assign this Agreement in connection with any assignment of the Purchase Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chairman, President and Chief Executive Officer | |
[Signature Page to Earnout and Clawback Agreement]
EXHIBIT A
Key Deal Terms
| Term | Detail |
| Buyer | Cycurion, Inc. |
| Seller | Kustom Entertainment, Inc. |
| Transaction Type | Asset Purchase Agreement |
| Base Purchase Price | As agreed at closing per the Asset Purchase Agreement |
| Maximum Earnout | $1,000,000 cumulative ($500,000 per year over the two-year Earnout Period) |
| Maximum Clawback | $1,000,000 cumulative ($500,000 per year over the two-year Clawback Period) |
| Earnout Period | Two (2) fiscal years: January 1, 2026 – December 31, 2027 |
| Primary Metric | Total revenue |
| Year 1 Revenue Target (2026) | $5,500,000 (per Video Solutions Pro Forma) |
| Year 2 Revenue Target (2027) | $5,800,000 (per Video Solutions Pro Forma) |
| Measurement Deadline | Within 90 days of each fiscal year-end |
| Dispute Resolution | Independent CPA/arbitrator if parties cannot agree within 30 days |
EXHIBIT B
Combined Earnout and Clawback Schedule (Illustrative)
This Exhibit B provides a summary representation of the Earnout and Clawback mechanics for convenience only. All determinations shall be made in accordance with Sections 2 and 3 of the Agreement.
| REVENUE Above Target | Earnout Payment per fiscal year | REVENUE Below Target | Clawback Amount per fiscal year |
| > 20% above | $100,000 | Grace zone (0–20%) | $0 |
| > 30% above | $200,000 | > 30% below | ($100,000) |
| > 40% above | $300,000 | > 40% below | ($200,000) |
| > 50% above | $400,000 | > 50% below | ($300,000) |
| > 60% above | $500,000 | > 60% below | ($400,000) |
| > 70% below | ($500,000) |
EXHIBIT C
Worked Examples (Illustrative)
This Exhibit C sets forth illustrative examples of the Earnout and Clawback calculations. These examples are provided for explanatory purposes only and shall not modify or supersede the terms of the Agreement.
| Scenario | Actual Result | Variance | Payment / Clawback |
| Scenario A | Actual REVENUE = $6,600,000 | +20% above target | Earnout: $200,000 |
| Scenario B | Actual REVENUE = $5,500,000 | Exactly at target | No earnout, no clawback: $0 |
| Scenario C | Actual REVENUE = $3,850,000 | -20% below target (within grace zone) | No clawback: $0 |
| Scenario D | Actual REVENUE = $3,300,000 | -40% below target (first clawback tier) | Clawback: ($200,000) |
| Scenario E | Actual REVENUE = $2,750,000 | -50% below target | Clawback: ($300,000) |
| Scenario F | Actual REVENUE = $0 | -100%+ below target | Maximum Clawback: ($500,000) |
Exhibit 10.9
LEAK-OUT AGREEMENT
THIS LEAK-OUT AGREEMENT (the “Agreement”) is made and entered into as of, and effective as of, August 3, 2026, between Cycurion, Inc., a Delaware corporation trading under the ticker symbol “CYCU” (the “Company”), and the holders (the “Holders” and each a “Holder”) of the Company’s Series H Preferred Stock and the shares of Common Stock issuable upon conversion thereof and payment of dividends thereon (collectively, the “Restricted Shares”).
RECITALS
WHEREAS, the Holders hold shares of the Company’s Series H Preferred Stock having an aggregate stated value of $600,000, which Series H Preferred Stock is convertible into shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”), and accrues dividends that may be paid in Common Stock pursuant to its terms;
WHEREAS, the Company and the Holders desire to enter into this Agreement to provide for the orderly conversion and resale of shares of Common Stock issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon following the effectiveness of a registration statement covering such shares;
WHEREAS, the Series H Preferred Stock was issued pursuant to Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 to that certain Asset Purchase Agreement dated June 24, 2026 between the Company and Kustom Entertainment, Inc.; and
NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Representations and Warranties. Each of the parties hereto, by their respective execution and delivery of this Agreement, hereby represents and warrants to the others and to all third-party beneficiaries of this Agreement that: (a) such party has the full right, capacity and authority to enter into, deliver and perform its respective obligations under this Agreement, (b) this Agreement has been duly executed and delivered by such party and is the binding and enforceable obligation of such party, enforceable against such party in accordance with the terms of this Agreement, and (c) the execution, delivery and performance of such party’s obligations under this Agreement will not conflict with or breach the terms of any other agreement, contract, commitment or understanding to which such party is a party or to which the assets or securities of such party are bound.
2. Leak Out.
(a) Except as otherwise expressly provided herein, and subject to any other restrictions prohibiting the conversion, offer, sale or transfer of the shares of Common Stock under applicable United States federal or state securities laws, rules and regulations (collectively, the “Regulations”), the Company and the Holders agree that:
(i) Commencing on the date on which the Registration Statement covering the resale of the shares of Common Stock issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon is declared effective by the SEC (the “Effective Date”), each Holder shall be entitled to convert its Series H Preferred Stock and sell the shares of Common Stock issuable upon conversion thereof and payment of dividends thereon, in each case solely in accordance with the volume and other limitations set forth on Schedule B (the “Leak-Out”). This Agreement applies solely to the shares of Common Stock issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon and not to any other securities of the Company. The Leak-Out shall remain in effect for a period of twelve (12) months following the Effective Date (the “Leak-Out Period”), unless earlier modified, suspended or terminated by the Company in accordance with this Agreement, after which the Holders shall no longer be subject to the Leak-Out restrictions, subject at all times to applicable Regulations.
(ii) The Company shall have the right, in its sole discretion, to suspend, modify, or terminate the Leak-Out restrictions, in whole or in part, at any time upon written notice to the Holders, including for purposes of addressing market conditions, trading volatility, regulatory considerations, financing activities, or avoiding any adverse impact on the trading market for the Company’s common stock. No breach by the Company of this Agreement shall automatically result in a suspension or termination of the Leak-Out restrictions.
(iii) The Company shall use commercially reasonable efforts to facilitate any valid conversion notice received from the Holders and shall cause the issuance of the applicable shares of Common Stock issuable upon conversion of the Series H Preferred Stock and payment of dividends thereon within the time periods set forth in the Certificate of Designation of the Series H Preferred Stock and applicable transaction documents; provided, however, that the Company shall not be required to issue any shares in violation of applicable law, stock exchange rules, or regulatory requirements.
(iv) Holders will not, directly or indirectly, “naked” short the stock or enter into any hedging, derivative, or other transaction that is designed to or could reasonably be expected to offset or reduce the economic risk of holding the Series H Preferred Stock or the shares of Common Stock issuable upon conversion thereof and payment of dividends thereon, including through any public market transaction.
3. Securities Laws Disclosure; Publicity. The Company shall (a) by 9:30 a.m. (New York City time) on the trading day immediately following the date hereof, issue a press release disclosing the material terms of the transactions contemplated hereby, and (b) file a Current Report on Form 8-K to the extent required by applicable law, including the transaction documents as exhibits thereto, with the Commission within the time required by the Securities Exchange Act of 1934, as amended.
4. Conflict. In the event there is a conflict between the terms of any of the Securities with this Agreement, the terms of this Agreement shall control solely with respect to the subject matter hereof; provided, however, that the Certificate of Designation governing the Series H Preferred Stock shall control with respect to the terms of the Series H Preferred Stock and any issuance of shares of Common Stock upon conversion thereof or payment of dividends thereon.
5. Remedies. Each Holder shall have the right, subject to applicable law, to seek specific performance of the Company’s material obligations under this Agreement (without the requirement to post a bond or other security) and to recover damages to the extent resulting from a material breach by the Company of its obligations hereunder. Notwithstanding the foregoing, the Company shall have the sole and exclusive right to enforce the trading, transfer, and other restrictions applicable to the Holders set forth in this Agreement. The Company shall have the right, at any time during the term of this Agreement, to request and obtain from any Holder such statements and/or transaction or trading records as are reasonably necessary to verify such Holder’s compliance with this Agreement, which shall be delivered promptly (and in any event within one (1) trading day) to the Company. In the event that a Holder is determined by the Company, acting in good faith, to have materially breached its obligations under this Agreement, and the Company has provided written notice describing such breach in reasonable detail, such Holder shall be subject to a trading suspension for a period of up to ten (10) trading days (the “Standstill Period”), during which time the Company shall not be required to honor any conversion notices or issue any shares of Common Stock upon conversion of the Series H Preferred Stock or payment of dividends thereon to such Holder, in each case subject to applicable law.
6. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
7. Notices. All notices, instructions or other communications required or permitted to be given pursuant to this Agreement shall be given in writing and delivered by facsimile, certified mail, return receipt requested, postage pre-paid, or overnight courier by a nationally recognized courier service to the respective address as set forth herein below. All notices shall be deemed to be given on the same day if delivered by facsimile, on the following business day if sent by overnight delivery or on the third business day following the date of mailing.
8. Entire Agreement. Except as otherwise provided herein, this Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof, and may not be amended except by a written instrument executed by the parties hereto. This Agreement supersedes any prior agreement (including, without limitation any prior lock-up or leak-out agreements), representation or understanding with respect to such subject matter.
9. Governing Law. This Agreement and the terms and conditions set forth herein, shall be governed by and construed solely and exclusively in accordance with the internal laws of the State of New York without regard to the conflicts of laws principles thereof. The parties hereto hereby expressly and irrevocably agree that any suit or proceeding arising directly and/or indirectly pursuant to or under this Agreement shall be brought solely in a federal or state court located in the City, County and State of New York. By its execution hereof, the parties hereto covenant and irrevocably submit to the in personam jurisdiction of the federal and state courts located in the City, County and State of New York and agree that any process in any such action may be served upon any of them personally, or by certified mail or registered mail upon them or their agent, return receipt requested, with the same full force and effect as if personally served upon them in New York, New York. The parties hereto expressly and irrevocably waive any claim that any such jurisdiction is not a convenient forum for any such suit or proceeding and any defense or lack of in personam jurisdiction with respect thereto. In the event of any such action or proceeding, the party prevailing therein shall be entitled to payment from the other parties hereto of all of its reasonable counsel fees and disbursements.
10. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
11. Severability. In the event any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason and in any respect, such invalidity, illegality, or unenforceability shall in no event affect, prejudice or disturb the validity of the remainder of this Agreement, which shall remain in full force and effect, enforceable in accordance with its terms.
12. Records Request. Each Holder shall have the right to request statements and/or reasonable information regarding the issuance of shares of Common Stock upon conversion of the Series H Preferred Stock and payment of dividends thereon from the Company at any time during the term of this Agreement, which shall be delivered to the applicable Holder promptly within one (1) trading day, subject to applicable confidentiality and legal restrictions.
13. Waiver. Upon mutual consent of the Parties, the Company can waive certain or all terms and conditions of this Leak Out Agreement.
14. Effectiveness. This Agreement shall become effective immediately upon the full execution of this Agreement by the Company and the Holders.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this Agreement as of the day and year first above written.
| HOLDERS: | ||
| By: | /s/ Stanton L. Ross | |
| Name: | Stanton L. Ross | |
| Title: | Chairman, President and Chief Executive Officer | |
| COMPANY: | ||
| CYCURION, InC | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
[Signature Page to Leak-Out Agreement]
Schedule A
Notwithstanding anything to the contrary provided in this Schedule A, the Leak-Out Agreement that this Schedule A is attached to and/or otherwise, all numbers below (as applicable) shall be adjusted for forward and reverse stock splits and similar transactions affecting all holders of Common Stock equally.
| Holder | Address | Number of Shares of Common Stock Subject to Leak-Out (Including Shares Issuable Upon Conversion of Series H Preferred Stock) | ||
| Kustom Entertainment, Inc. | 6366 College Blvd. |
413,793 (1) |
| (1) | Represents the shares of Common Stock issuable upon conversion of the Holder’s Series H Preferred Stock at the Conversion Price of $1.45 per share. In addition, the Leak-Out restrictions shall apply to any shares of Common Stock issuable as payment of accrued dividends on the Series H Preferred Stock, which dividend shares shall be calculated and issued in accordance with the Certificate of Designation of the Series H Preferred Stock at the time of conversion or dividend payment, as applicable. |
Schedule B
Notwithstanding anything to the contrary in this Schedule B, the Leak-Out Agreement to which this Schedule B is attached, or otherwise, all numerical thresholds herein shall be equitably adjusted to account for any stock splits, reverse stock splits, stock dividends, recapitalizations, or similar transactions affecting all holders of Common Stock proportionately.
Subject to the terms and conditions of the Leak-Out Agreement, each Holder may sell shares of Common Stock issued upon conversion of the Series H Preferred Stock and payment of dividends thereon in accordance with the following limitations:
Each Holder (together with its affiliates and any permitted transferees) may not, on any trading day, sell, transfer, or otherwise dispose of a number of shares of Common Stock in excess of ten percent (10.0%) of the total trading volume of the Common Stock as reported on NASDAQ (or such other principal trading market on which the Common Stock is then listed) for the immediately preceding trading day.
For the avoidance of doubt: (a) the foregoing limitation shall apply on an aggregate basis to all sales of Common Stock by such Holder and its affiliates and permitted transferees; (b) the calculation shall be based on actual reported trading volume for the prior trading day; and (c) any unused capacity on a given trading day may not be carried forward or aggregated for use on any subsequent trading day.
All sales shall also be subject to applicable securities laws, regulations, stock exchange requirements, and the Company’s insider trading policies and blackout periods. The Company may, in its sole discretion, and subject to compliance with applicable law, and at any time, waive, suspend, or modify any of the restrictions set forth in this Schedule B, in whole or in part, upon written notice to the applicable Holder(s), including for purposes of facilitating orderly market trading, financing transactions, or other corporate purposes.
Exhibit 10.10
CONDITIONS PRECEDENT AGREEMENT
This Conditions Precedent Agreement (this “Conditions Precedent Agreement”) is entered into as of August 3, 2026 (the “Effective Date”), by and between CYCURION, INC, a Delaware Corporation (the “Buyer”) and KUSTOM ENTERTAINMENT, INC, a Nevada corporation (the “Seller”). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Asset Purchase Agreement (as defined below).
RECITALS:
WHEREAS, Buyer and Seller have entered into that certain Asset Purchase Agreement dated June 24, 2026, as amended by that certain Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (collectively, the “Asset Purchase Agreement”), pursuant to which Buyer has agreed to purchase, and Seller has agreed to sell, certain assets of Seller; and
WHEREAS, the parties desire to establish certain additional conditions precedent that must be satisfied or waived prior to the consummation of the transactions contemplated by the Asset Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows:
1. CONDITIONS PRECEDENT TO CLOSING
Notwithstanding anything to the contrary contained in the Asset Purchase Agreement, the obligations of Buyer and Seller to consummate the transactions contemplated therein shall be subject to the satisfaction or written waiver by the applicable party of each of the following conditions precedent:
1.1 Financial Due Diligence and Pro Forma Reconciliation
Buyer shall have completed its financial, accounting, operational, and business due diligence investigation of Seller and the acquired assets to its reasonable satisfaction.
As part of such due diligence, Buyer and Seller shall reconcile any material differences between:
(a) the pro forma financial statements, projections, forecasts, and assumptions previously provided by Seller; and
(b) Seller’s actual historical financial statements, accounting records, and supporting documentation.
Any material discrepancies identified during such reconciliation shall be resolved to the mutual satisfaction of Buyer and Seller prior to Closing.
1.2 Balance Sheet Adjustments and Agreements
If required as a result of the due diligence process or the reconciliation contemplated in Section 1.1, Buyer and Seller shall negotiate and execute mutually acceptable agreements, schedules, or amendments addressing balance sheet matters, including working capital adjustments, asset valuations, liabilities, reserves, and other financial items necessary to align the transaction with the assumptions and guidelines reflected in the pro forma financial statements.
1.3 Delivery and Verification of Seller Carve-Out Financial Statements
Seller shall have delivered to Buyer the Seller Carve-Out Financial Statements required by Section 2.11 of the Asset Purchase Agreement, together with all supporting schedules, general ledger detail, accounts receivable aging reports, accounts payable reports, and other documentation reasonably requested by Buyer or its auditors. Such financial information shall be reasonably sufficient to permit Buyer and its auditors to complete any audits, reviews, filings with the U.S. Securities and Exchange Commission (the “SEC”), Form 8-K financial disclosures, pro forma financial statements, or other reporting obligations arising from the transaction.
1.4 Board Approval
The Board of Directors, managers, members, or other governing body of Buyer, as applicable, shall have approved the Asset Purchase Agreement and the transactions contemplated thereby.
To the extent required under Seller’s governing documents or applicable law, Seller shall likewise obtain all necessary board, manager, member, shareholder, or other governing body approvals required to consummate the transaction.
1.5 Engagement of Seller’s Accounting Firm
Seller shall cause its current and former accounting personnel, independent registered public accounting firm, outside accountants, and financial advisors to cooperate fully with Buyer and Buyer’s advisors in connection with: (a) due diligence; (b) preparation and audit of the Seller Carve-Out Financial Statements; (c) preparation of SEC-required financial statements and pro forma financial information; (d) responses to SEC comments; (e) preparation of closing financial schedules; and (f) post-closing transition matters contemplated by Sections 1.5, 2.11 and 5.3 of the Asset Purchase Agreement.
1.6 Employment Agreements with Key Personnel
Buyer shall identify those employees and independent contractors deemed by Buyer to be key personnel. Seller shall use commercially reasonable efforts to facilitate the execution of Employment Agreements, Contractor Agreements, consulting agreements, restrictive covenant agreements, and related arrangements substantially consistent with Exhibits D, E, F and G of the Asset Purchase Agreement.
1.7 Leak-Out Agreement
The parties acknowledge that the Leak-Out Agreement attached as Exhibit N to the Asset Purchase Agreement constitutes the agreed form of leak-out restrictions applicable to the Warrant Shares. Any amendment thereto prior to Closing shall require mutual written agreement of the parties.
1.8 Delivery of Closing Deliverables
Seller and Buyer shall have delivered all documents, agreements, certificates, schedules and other closing deliverables required by Section 1.7 of the Asset Purchase Agreement, including without limitation the Employment Agreements, Contractor Agreements, Shared Services Agreement, Assignment and Assumption Agreement, Intellectual Property Assignment Agreement, Bill of Sale, Registration Rights Agreement, Earnout Agreement, Leak-Out Agreement, Security Agreement, and all required officer certificates and board resolutions.
1.9 Accuracy of Representations and Warranties
The representations and warranties of each party contained in the Asset Purchase Agreement shall remain true and correct in all material respects as of the Closing Date, subject to the standards set forth in Section 1.7 of the Asset Purchase Agreement.
1.10 No Material Adverse Effect
Since the execution of the Asset Purchase Agreement, no Material Adverse Effect (as defined in the Asset Purchase Agreement) shall have occurred with respect to the Business and be continuing as of the Closing Date.
1.11 Third Party Consents
All material third-party consents required pursuant to Section 1.9 and Schedule 2.3 of the Asset Purchase Agreement shall have been obtained or waived by Buyer in writing.
1.12 Audit and SEC Readiness
Buyer and its independent registered public accounting firm shall have determined that the financial statements and records provided by Seller are sufficient in form and substance to permit completion of all audits, reviews, and SEC reporting requirements reasonably anticipated in connection with the transaction.
2. FAILURE OF CONDITIONS
If any condition set forth in Section 1 has not been satisfied or waived in writing on or before the End Date specified in Section 6.1 of the Asset Purchase Agreement (as such date may be extended pursuant thereto), either party may terminate this Agreement and the Asset Purchase Agreement in accordance with Section 6.1 of the Asset Purchase Agreement.
3. WAIVER
Any condition contained herein may be waived only by a written instrument signed by the party entitled to the benefit of such condition. Any waiver of a condition shall apply solely to the specific condition waived and shall not constitute a waiver of any other condition.
4. CONFLICTS
In the event of any conflict between this Agreement and the Asset Purchase Agreement, the terms of this Agreement shall govern solely with respect to the conditions precedent described herein.
5. MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflict of law principles, consistent with Section 6.2 of the Asset Purchase Agreement.
This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.
[Signature page to follow]
IN WITNESS WHEREOF, the parties have executed this Conditions Precedent Agreement as of the Effective Date.
| BUYER: | ||
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| L. Kevin Kelly | ||
| Chairman and Chief Executive Officer | ||
| SELLER: | ||
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Stanton E. Ross | ||
| Chairman, President and Chief Executive Officer | ||
Exhibit 10.11
SIDE LETTER AGREEMENT
This Side Letter Agreement (this “Side Letter”) is entered into as of August 3, 2026 (the “Effective Date”), by and between Cycurion, Inc., a Delaware corporation (“Cycurion” or “Buyer”), and Kustom Entertainment, Inc., a Nevada corporation (“Kustom” or “Seller”). Buyer and Seller are sometimes referred to herein individually as a “Party” and collectively as the “Parties.”
Capitalized terms used herein but not otherwise defined shall have the meanings assigned to them in that certain Asset Purchase Agreement, dated June 24, 2026, as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (collectively, the “Asset Purchase Agreement”).
RECITALS
WHEREAS, the Parties entered into the Asset Purchase Agreement pursuant to which Buyer has agreed to acquire certain assets and assume certain liabilities relating to Seller’s Video Solutions Business;
WHEREAS, the Parties desire to consummate the transactions contemplated by the Asset Purchase Agreement and execute certain ancillary agreements necessary to effectuate the Closing;
WHEREAS, the Parties acknowledge that certain employment-related, contractor-related, transition services arrangements and pro forma financials require additional coordination with employees, contractors, and other third parties and therefore may not be fully negotiated, executed or completed as of the Closing Date;
WHEREAS, the Parties desire to confirm that the execution and delivery of such agreements shall occur following Closing and shall not constitute a condition precedent to Closing; and
WHEREAS, the Parties wish to memorialize their agreement concerning the timing, preparation, and execution of such remaining agreements.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. CLOSING DOCUMENTS
The Parties acknowledge and agree that the following agreements and documents are intended to be executed and delivered on or about August 3, 2026, in connection with Closing:
| 1. | Assignment and Assumption Agreement; | |
| 2. | Intellectual Property Assignment Agreement; | |
| 3. | Bill of Sale; | |
| 4. | Non-Competition and Non-Solicitation Agreement; | |
| 5. | Secured Promissory Note; | |
| 6. | Security Agreement; | |
| 7. | Registration Rights Agreement; | |
| 8. | Earnout and Clawback Agreement; | |
| 9. | Leak-Out Agreement; and | |
| 10. | Conditions Precedent Agreement. |
The execution and delivery of the foregoing agreements shall constitute satisfaction of the Parties’ obligations with respect to such transaction documents under the Asset Purchase Agreement.
2. DEFERRED DELIVERABLES
The Parties acknowledge and agree that the following agreements (collectively, the “Deferred Deliverables”) may be finalized, negotiated, executed, and delivered following the Closing:
| 1. | Key Employment Agreements; | |
| 2. | Essential Employee Agreement(s); | |
| 3. | Contractor Agreement(s); | |
| 4. | Shared Services Agreement; and | |
| 5. | Pro Forma Financials. |
The Parties acknowledge that the Deferred Deliverables may require review and approval by individuals who are not parties to the Asset Purchase Agreement and that additional negotiations may be required to finalize such agreements.
3. POST-CLOSING OBLIGATION TO FINALIZE DEFERRED DELIVERABLES
Each Party shall use commercially reasonable efforts and cooperate in good faith following Closing to prepare, negotiate, finalize, execute, and deliver the Deferred Deliverables.
Without limiting the foregoing:
(a) Seller shall use commercially reasonable efforts to facilitate discussions between Buyer and those employees, consultants, contractors, and service providers identified by Buyer as necessary or desirable to support the operation and transition of the Video Solutions Business;
(b) Buyer shall use commercially reasonable efforts to provide drafts of the Deferred Deliverables and promptly communicate any material comments or requested revisions; and
(c) both Parties shall cooperate in good faith to resolve any outstanding issues affecting the completion of the Deferred Deliverables.
4. OUTSIDE DATE
Unless otherwise agreed in writing by the Parties, all Deferred Deliverables shall be executed and delivered no later than August 17, 2026 (the “Deferred Deliverables Deadline”).
The Parties acknowledge and agree that execution of the Deferred Deliverables may occur at different times and need not occur simultaneously.
5. NO CONDITION TO CLOSING
Notwithstanding anything contained in the Asset Purchase Agreement or any transaction document to the contrary:
(a) the execution and delivery of the Deferred Deliverables shall not constitute a condition precedent to Closing;
(b) the absence of any Deferred Agreement on the Closing Date shall not delay, prevent, impair, or otherwise affect the Closing;
(c) the failure of any Deferred Agreement to be executed as of the Closing Date shall not constitute a breach of the Asset Purchase Agreement or any transaction document; and
(d) neither Party shall have a right to terminate the Asset Purchase Agreement solely because one or more Deferred Deliverables remain under negotiation as of the Closing Date.
6. FAILURE TO EXECUTE A DEFERRED AGREEMENT
The Parties acknowledge that certain Deferred Deliverables may involve third parties who are not obligated to enter into any agreement.
Accordingly, if despite the Parties’ commercially reasonable and good-faith efforts any Deferred Agreement has not been executed by the Deferred Deliverables Deadline:
(a) neither Party shall be deemed in breach of this Side Letter solely as a result thereof;
(b) the validity and enforceability of the Asset Purchase Agreement and all executed transaction documents shall remain unaffected; and
(c) the Parties shall continue to cooperate in good faith to determine an appropriate alternative arrangement, if any.
7. RATIFICATION OF TRANSACTION DOCUMENTS
Except as expressly set forth in this Side Letter, the Asset Purchase Agreement and all other transaction documents shall remain unchanged and in full force and effect.
Nothing contained herein shall amend, modify, waive, or impair any rights or obligations of either Party under the Asset Purchase Agreement except with respect to the timing of the Deferred Deliverables expressly set forth herein.
8. GOVERNING LAW
This Side Letter shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of laws principles.
9. COUNTERPARTS; ELECTRONIC SIGNATURES
This Side Letter may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
Signatures transmitted electronically or by PDF shall be deemed original signatures and shall be fully binding upon the Parties.
10. ENTIRE AGREEMENT
This Side Letter constitutes the entire agreement of the Parties regarding the subject matter hereof and supersedes all prior discussions, negotiations, understandings, and agreements relating thereto.
Any amendment or modification of this Side Letter must be in writing and signed by both Parties.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed and delivered this Side Letter Agreement as of August 3, 2026.
| CYCURION, INC. | ||
| By: | /s/ L. Kevin Kelly | |
| Name: | L. Kevin Kelly | |
| Title: | Chief Executive Officer | |
| KUSTOM ENTERTAINMENT, INC. | ||
| By: | /s/ Stanton E. Ross | |
| Name: | Stanton E. Ross | |
| Title: | Chief Executive Officer | |
[Signature Page to Side Letter]
Exhibit 99.1
Cycurion, Inc. Closes Acquisition of Digital Ally Video Solutions Business, Expanding Its Resources While Adding More Than $5 Million in Revenue and Over $1.2 Million in EBITDA — Bringing Annual Revenue Run Rate to Approximately $30 Million
MCLEAN, Va., August 04, 2026 – Cycurion, Inc. (NASDAQ: CYCU) (“Cycurion” or the “Company”), a leading provider of AI-driven cybersecurity, IT security solutions, and managed services, today announced the successful closing of its acquisition of substantially all assets of Kustom Entertainment, Inc.’s (NASDAQ: KUST) (“Kustom”) legacy video solutions segment (the “Business”).
This strategic acquisition brings together Kustom’s established Digital Ally-branded portfolio — including in-car video systems, body-worn cameras, digital evidence management solutions, hardware, software platforms, and related services — with Cycurion’s advanced AI cybersecurity capabilities. The deal is expected to add more than $5 million in annual revenue and over $1.2 million in EBITDA, and provides immediate access to more than 800 new clients, many of which are law enforcement agencies, municipalities, and public safety organizations that align closely with Cycurion’s existing customer base, creating substantial cross-selling opportunities.
The acquired portfolio includes a robust intellectual property portfolio of over 50 patents, strengthening Cycurion’s technology moat in video surveillance, evidence management, and public safety solutions. These patents complement Cycurion’s AI innovations, enabling the development of next-generation integrated platforms that combine real-time video analytics, predictive threat intelligence, and cybersecurity protections.
“We are excited to close this acquisition and take our capabilities to the next level,” said L. Kevin Kelly, Chairman and CEO of Cycurion. “By integrating Kustom’s proven video and evidence management technologies with our AI-powered cybersecurity platform, we will continue, and expand, our comprehensive, predictive solutions that go far beyond traditional tools. Our clients will benefit from AI-enhanced video analytics that detect anomalies in real time, automated evidence workflows, and seamless integration with our predictive cyber intelligence systems — all designed to anticipate and mitigate digital risks before they impact public safety operations. Access to this established base of more than 800 clients accelerates our scale and allows us to offer bundled solutions that enhance data security, officer safety, and operational efficiency.”
Key benefits of the acquisition include:
| ● | Immediate Financial Contribution: Expected addition of more than $5 million in annual revenue and over $1.2 million in EBITDA added at closing. | |
| ● | Expanded AI Product Suite: Enhanced offerings featuring AI-driven video analysis, predictive risk modeling, and integrated cybersecurity for public safety environments. | |
| ● | Intellectual Property Strength: Addition of over 50 patents to bolster innovation in digital evidence management and video technologies. |
| ● | Client Network Growth: Immediate access to more than 800 new public safety customers, driving revenue synergies through cross-selling of Cycurion’s ARx, Cyber Shield, and managed services alongside the acquired video solutions. | |
| ● | Market Leadership: Positions Cycurion as a one-stop provider of AI-powered public safety technology in a large and growing market. | |
| ● | Scale Milestone: With this closing, Cycurion’s pro forma gross revenue run rate now stands at approximately $30 million, reflecting the contribution of the acquired Business with the Company’s existing operations. |
Kelly added, “We now serve more than 800 police departments, municipalities, and public safety agencies that rely on Digital Ally’s video and evidence platforms every single day. Every one of our new clients faces the same escalating cyber threats we defend against for our existing clients. The systems that capture and store their evidence must be protected. By layering Cycurion’s cybersecurity solutions onto this installed base, we can turn each single-product customer into a recipient of full-platform protection — protecting the video, the evidence, and the networks behind them — while opening a substantial new stream of recurring revenue that neither Cycurion nor Kustom Entertainment could have reached alone. Notably, a large portion of Digital Ally’s revenue is recurring revenue — precisely the type of financial model Cycurion is building on.”
With the closing of this transaction, Cycurion’s gross revenue run rate now stands at approximately $30 million. The acquisition at the same time solidifies the footprint from which the Company expects to drive accelerated organic growth: a base of more than 800 public safety customers, a patent-protected product portfolio, and recurring contract relationships that create a durable platform for expansion. Each new customer relationship becomes a channel for additional Cycurion solutions, each integration deepens the Company’s role in its clients’ daily operations, and the combined offering positions Cycurion to win larger engagements across the public safety and government markets it serves — supporting the Company’s broader growth strategy in predictive resilience and public safety technology.
About Cycurion, Inc.
Based in McLean, Virginia, Cycurion (NASDAQ: CYCU) is a forward-thinking provider of AI-enabled IT cybersecurity solutions, committed to delivering secure, reliable, and innovative services to clients worldwide. Specializing in cybersecurity, program management, and business continuity, Cycurion harnesses its AI-enhanced ARx platform and expert team to empower clients and safeguard their operations. Along with its subsidiaries, Axxum Technologies LLC, Cloudburst Security LLC, and Cycurion Innovation, Inc., Cycurion serves government, healthcare, and corporate clients committed to securing the digital future. For more information, visit www.cycurion.com.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that are not statements of historical fact may be deemed forward-looking statements. Such statements include, but are not limited to, the expected revenue, EBITDA and other anticipated financial and operational benefits arising from the acquisition of the Business; statements regarding the Company’s execution of its strategic plan; the anticipated benefits, timing, and integration of pending or completed acquisitions; the performance of and revenue expected from government and commercial contracts; the development and commercialization of the Company’s AI-enabled cybersecurity platforms, including ARx; the Company’s expectations regarding its path to profitability; the Company’s ability to regain or maintain compliance with the continued listing standards of the Nasdaq Stock Market; and the conduct, timing, and outcome of the Company’s investigations and any related legal proceedings. Forward-looking statements may be accompanied by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” and similar expressions.
Forward-looking statements are based on management’s current expectations and assumptions and involve significant risks and uncertainties that could cause actual results to differ materially from those expressed or implied, many of which are outside the Company’s control and difficult to predict. These risks include, but are not limited to: the outcome of the Company’s investigations and any legal proceedings the Company may initiate or become subject to, and the costs, time, and resources associated with such matters; the Company’s ability to identify, finance, complete, and integrate acquisitions; the Company’s ability to win, retain, and perform under government and commercial contracts; the Company’s need for additional capital and the terms on which it may be available; the Company’s ability to satisfy Nasdaq’s continued listing requirements; competitive conditions and technological change in the cybersecurity market; and volatility in the trading price and volume of the Company’s common stock, which may occur for reasons unrelated to the Company’s operating performance. Additional risks and uncertainties are described in the Company’s most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed with the U.S. Securities and Exchange Commission, which are available at www.sec.gov.
The Company anticipates that subsequent events and developments may cause its plans, intentions, and expectations to change. Forward-looking statements speak only as of the date on which they are made, and the Company assumes no obligation, and specifically disclaims any intention or obligation, to update any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Cycurion Investor Relations:
(888) 341-6680
Cycurion Media Relations:
(888) 341-6680
Exhibit 99.2
Video Solutions Segment – Pro Forma Operating Financial Statements
The following exhibits present the operating financial statements for the Video Solutions segment. Exhibit 1 presents the segment’s operating assets and liabilities as of June 30, 2026. Exhibit 2 presents the pro forma income statement for fiscal year 2026, combining first-half actual results with the second-half forecast, with detailed assumptions for each line item. Exhibit 3 presents the pro forma operating cash flow derived from projected balance sheet changes, with supporting assumptions for each projected ending balance and its resulting cash impact.
Exhibit 1 — Operating Assets & Liabilities (as of June 30, 2026)
| June 30, 2026 | ||||
| Operating Assets | ||||
| Inventory, net of obsolescence reserve | $ | 1,498,602 | ||
| Accounts Receivable and Subscription Receivable | $ | 5,211,238 | ||
| Allowance for AR doubtful account | $ | (255,000 | ) | |
| Prepaid Expense | $ | 351,188 | ||
| ROU Asset - Building | $ | 109,711 | ||
| Property, Plant & Equipment, net | $ | 63,834 | ||
| Intangible Assets – Patent, net | $ | 168,024 | ||
| Total Operating Assets | $ | 7,147,597 | ||
| Operating Liabilities | ||||
| Deferred Revenue, ST and LT | $ | 6,623,040 | ||
| ROU Obligation - Building | $ | 109,711 | ||
| Accounts Payable | $ | 193,935 | ||
| Accrued Expenses | $ | 199,877 | ||
| Total Operating Liabilities | $ | 7,126,563 | ||
| NET OPERATING ASSETS | $ | 21,034 | ||
14001 Marshall Drive ● Lenexa, KS 66215 ● digitalally.com ● 800.440.4947
Exhibit 2 — Pro Forma Income Statement
| 2026 (H1 Actual + H2 Forecast) | Assumptions | |||||
| Product Revenue | $ | 1,200,000 | H1 actual $475,518 per the June 2026 close; H2 forecast $724,482. Bottom-up H2 pipeline ($4.74M raw / $1.81M conservatively weighted) covers the H2 forecast ~2.5×. | |||
| Service Revenue | $ | 4,300,000 | H1 actual $1,775,102 + H2 forecast $2,524,898. H2 growth over the H1 run rate is supported by $3,009,194 short-term deferred revenue at 6/30 and the Q4 renewal cycle. Existing deferred base recognized per ASC 606. | |||
| Total Revenue | $ | 5,500,000 | FY2026 of $5.5M reflects H1 actuals plus the H2 forecast, consistent with the Year 1 revenue target under the Agreement. FY2027 $5.8M (+5.5%), the Year 2 target. ~78% recurring. | |||
| COGS – Product | $ | 1,416,047 | H1 operating COGS $610,417 (excludes the one-time inventory charge-off presented below EBITDA). H2: materials $776,230 scaled to the $724K H2 product forecast + storage rent $29,400 = $805,630. FY $1,416,047. | |||
| COGS – Service | $ | 1,277,438 | H1 actual $595,041 (AWS, T-Mobile, Particle/Nova/ADCi, deployment & support labor). H2 forecast $682,397; FY $1,277,438. | |||
| Total COGS | $ | 2,693,485 | ||||
| Gross Profit | $ | 2,806,515 | Margin 51.0%. | |||
| R&D Expense | $ | 571,180 | H1 actual $274,838 + H2 forecast $296,342. Fixed headcount. | |||
| Selling & Promotional | $ | 438,166 | Sales salaries $185,369 + travel $45,000 + trade shows $40,000 + commissions $167,797. | |||
| G&A Expense | $ | 859,037 | Salaries $421,837, contractors $83,200, benefits $84,000, rent $90,000, IT $60,000, insurance $28,000, supplies $12,000, other/unallocated $80,000 (per GL). | |||
| Total SG&A | $ | 1,868,383 | R&D $571,180 + S&P $438,166 + G&A $859,037. | |||
| EBITDA | $ | 938,132 | Margin 17.1%. Presented before the one-time non-cash items shown separately below. | |||
| Inventory Reserve | $ | (567,357 | ) | For conservatism, management recorded a one-time, non-recurring charge-off of excess and obsolete inventory in the June 2026 close. Non-cash: fully reflected in the $2,172,575 obsolescence reserve in Exhibit 1, with no impact on operating cash flow; no further write-downs assumed in H2. | ||
| Provision for credit losses | $ | (169,738 | ) | For conservatism, management recorded a one-time credit loss allowance in the June 2026 close (GL 6130-000-00), growing the reserve from $85,262 at 12/31/25 to $255,000 at 6/30/26 per Exhibit 1. Non-cash: added back in Exhibit 3, with no impact on operating cash flow; no further provision assumed in H2. | ||
| Depreciation | $ | (41,371 | ) | Gross PP&E $542,461, net $63,834 at 6/30/26 → $46,482 by 12/31/26. No CapEx planned. | ||
| Patent Amortization | $ | (58,008 | ) | Net $168,024 at 6/30/26 per Exhibit 1 ($381,635 gross less $213,611 accumulated); amortized at $14,502/quarter to $139,020 by year-end. $80K H2 prosecution costs capitalized to the balance sheet (investing), not amortized until grant; 12/31/26 net $219,020. | ||
| Net Income | $ | 101,658 | EBITDA $938,132 less one-time non-cash items of $737,095, depreciation of $41,371, and patent amortization of $58,008. | |||
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Exhibit 3 — Pro Forma Operating Cash Flow
| Operating Activities | Amount | Assumptions | ||||
| Net Income | $ | 101,658 | Revenue $5,500,000 less COGS $2,693,485 less SG&A $1,868,383 = EBITDA $938,132, less one-time non-cash items $737,095 (inventory charge-off $567,357; credit loss reserve true-up $169,738), depreciation $41,371, and patent amortization $58,008. Both one-time items are added back below; the inventory balance change is measured on a gross (pre-reserve) basis. | |||
| Non-cash adjustments (add-back to net income): | ||||||
| Depreciation | +$41,371 | PP&E net of $87,853 at 12/31/25, $63,834 at 6/30/26 actual (H1 depreciation $24,019), $46,482 projected at 12/31/26. No CapEx planned. | ||||
| Patent amortization | +$58,008 | Patent net of $197,028 at 12/31/25 (derived), $168,024 at 6/30/26 actual per Exhibit 1; amortized at $14,502/quarter to $139,020 before additions. The $80K H2 prosecution costs are capitalized separately in investing (not amortized until grant); 12/31/26 net $219,020. | ||||
| Provision for credit losses | +$169,738 | For conservatism, management recorded a one-time Q2 true-up of $169,738 (GL 6130-000-00, recorded in the June 2026 close), growing the reserve from $85,262 at 12/31/25 to $255,000 at 6/30/26 per Exhibit 1, held flat through year-end (no H2 provision or write-offs assumed); presented as a one-time item in Exhibit 2. Coverage of 4.89% of gross receivables at 6/30. | ||||
| Inventory Reserve | +$567,357 | Non-cash charge-off establishing the excess and obsolete inventory reserve, recorded for conservatism in the June 2026 close (booked 6/30/26, GL 5000-000-00) and presented as a one-time item in Exhibit 2. The offsetting reserve increase is reflected in the gross inventory balance change below. | ||||
| Total non-cash add-backs | $ | 836,474 | ||||
| Changes in operating assets and liabilities: | ||||||
| Inventory increase | $ | (393,065 | ) | Measured on gross inventory (before the obsolescence reserve), consistent with the charge-off add-back above: H1 gross build of $393,065, held at the 6/30 gross level of $3,671,177 through year-end | ||
| AR & subscription increase | $ | (391,656 | ) | 12/31/25 $6,303,284; 6/30/26 actual $5,211,238; 12/31/26 projected $6,694,940 — the H2 rebuild is driven by Q4 subscription billings consistent with the service forecast. | ||
| Prepaid increase | $ | (200,804 | ) | 12/31/25 $150,384; 6/30/26 actual $351,188 per Exhibit 1; held at the 6/30 level through year-end. Reflects annual insurance and maintenance prepayments. | ||
| Deferred revenue increase | +$759,466 | 12/31/25 $7,594,656; 6/30/26 actual $6,623,040; 12/31/26 projected $8,354,122 (+10% over 12/31/25). H1 decline of $972K reflects recognition seasonality; the $1.73M H2 rebuild depends on the Q4 renewal/booking cycle (roughly one-third annual agency deals, two-thirds multi-year bundles) — the plan’s key balance-sheet dependency. | ||||
| AP increase | $ | (116,421 | ) | 12/31/25 $310,356; 6/30/26 actual $193,935; held at the 6/30 level; no H2 inventory build is forecast. | ||
| Accrued expenses increase | +$54,539 | 12/31/25 $145,338; 6/30/26 actual $199,877; held at the 6/30 level through year-end. | ||||
| Net working capital change | $ | (287,941 | ) | Net operating asset uses of $1,102K (inventory $393K, AR $392K, prepaid $201K, AP $116K), partially offset by the deferred revenue and accrual rebuild, for a net working capital absorption of $290K. | ||
| Operating Cash Flow | $ | 650,191 | NI $101,658 + non-cash add-backs $836,474 less working capital absorption $287,941 = $650,191 | |||
| Investing Activities | Amount | Assumptions | ||||
| Patent prosecution costs capitalized | $ | (80,000 | ) | Patent prosecution costs of $80,000 are capitalized as an intangible asset per company policy and classified as an investing outflow. No other capital expenditures planned for the period | ||
| NET CASH | $ | 570,191 | Operating CF $650,191 less investing $80,000. No financing activities. | |||
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Exhibit 4 — Technology Infrastructure (Unrecorded Intangible Asset)
Asset Summary
Platform: Microsoft Dynamics GP 2018 (Version 18.2, Perpetual License)
License Type: Perpetual, owned outright and no ongoing subscription fee.
Microsoft Account Number: 5271773 (Digital Ally)
First Registered: April 23, 2015
Active Modules: 5
Licensed Users: 21 Full Concurrent User CALs + 144 Self-Serve Named User CALs
Active Users: 24 (as of current Microsoft registration)
Annual Maintenance Stack: $24,532/year (documented; NetStandard Quote #1607-1, 7/21/2025) see breakdown below.
Maintenance Prepaid Status: FY2026 renewal prepaid through 9/26/2026.
Original Investment: $2,000,000
Net Book Value: $0 (fully amortized as of December 31, 2025)
Core Business Functions Supported
| ● | Inventory Management: FIFO costing, receiving, and COGS calculation for body-worn camera hardware and related accessories. | |
| ● | Accounts Receivable: AR aging, allowance tracking, and cash application across 100+ active government agency customers. | |
| ● | Accounts Payable: Vendor management and AP aging | |
| ● | Revenue & Commission Deferral: Native deferral profiles (3-, 5-, 7-year) supporting ASC 340-40 | |
| ● | Subscription Billing & Deferred Revenue: Multi-year contract billing and ASC 606 recognition schedules. | |
| ● | Financial Reporting: Full GL, Smart List reporting, and period-end close procedures supporting monthly, quarterly, and annual SEC reporting. | |
| ● | CRM Integration: GP integrates with external CRM platforms (e.g., Salesforce, Dynamics 365 Sales) via standard APIs and third-party connectors for unified customer and contract data. | |
| ● | Barcode & Field Operations -PanatrackerGP: Native GP plug-in for mobile barcode scanning, inventory tracking, and fixed asset management; plug-and-play on the existing GP instance with no custom integration required (panatrack.com). |
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Estimated Replacement Cost
Management’s estimate of the cost to deploy a comparable ERP environment from scratch, based on publicly available industry benchmarks (see Sources below):
| Cost Component | Low | High | Benchmark Basis | |||||||
| Software licensing — perpetual | $ | 150,000 | $ | 300,000 | Equivalent perpetual ERP license (GP or comparable mid-market platform); GP perpetual license acquired by DA in 2015 included 21 concurrent + 144 named user CALs | |||||
| Implementation & configuration | $ | 200,000 | $ | 400,000 | 100–700+ consultant hours at $150–$350/hour (Panorama 2025) | |||||
| Custom development & integrations | $ | 80,000 | $ | 180,000 | CRM and barcode integrations; each gap adds $5,000–$50,000 (DualEntry 2025) | |||||
| Data migration — 10+ years historical | $ | 75,000 | $ | 150,000 | 10+ years of data (since April 2015) across multiple modules; Panorama estimates up to $75,000 for complex migrations | |||||
| Training & change management | $ | 30,000 | $ | 60,000 | Standard allocation per Panorama 2025 ERP Report | |||||
| Business disruption / downtime risk | $ | 50,000 | $ | 100,000 | Lost productivity during cutover; typically excluded from vendor quotes | |||||
| Total Estimated Replacement Cost | $ | 585,000 | $ | 1,190,000 | Conservative; excludes 10+ years of intact historical transaction data and configured integration value | |||||
Benefits to Cycurion
| ● | Perpetual license — no subscription cost: GP is owned outright under a perpetual license; Buyer assumes no ongoing licensing fee, only the annual Enhancement Plan renewal ($259/incident support; annual renewal cost documentable from contract #4098270) | |
| ● | Zero day-one ERP spend: No capital outlay required to stand up financial and operational systems at closing | |
| ● | Immediate operational continuity: Billing, collections, deferred revenue recognition, and financial reporting continue uninterrupted | |
| ● | CRM integration ready: GP’s open API architecture supports connection to external CRM without custom development | |
| ● | Barcode, fixed assets & field operations - Panatrack actively deployed: PanatrackerGP already running with Manufacturing Standard, Fixed Assets, RMA Receiving, and 3 MCLs — no setup or integration required at closing | |
| ● | Prepaid maintenance transfers at closing: FY2026 annual maintenance ($24,532) is prepaid through 9/26/2026; Buyer receives remaining prepaid value as a balance sheet asset on the closing date | |
| ● | Preserved data history: Ten-plus years of customer, contract, and financial records transfer intact (since April 2015) — standalone migration of this volume estimated at $75,000–$150,000 | |
| ● | ASC 805 purchase accounting: Buyer establishes new amortizable tax basis (15-year life, Section 197) at fair value regardless of Seller’s $0 carrying value |
GP is not included in Exhibit 1 operating assets due to its $0 carrying value. Under ASC 805, buyer is required to recognize all identifiable acquired assets at fair value on the acquisition date, independent of our book value.
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