SECURITY AGREEMENT
Exhibit
10.5
1.
THE
SECURITY. The undersigned Genex Technologies Incorporated, a Maryland
corporation (the "Pledgor"), hereby assigns and grants to Shelter Island
Opportunity Fund, LLC (the "Purchaser") a security interest in all assets of
Pledgor, now owned or hereafter acquired while this Agreement is in effect,
including the following described property now owned or hereafter acquired
by
the Pledgor ("Collateral"):
(a)
All
accounts, contract rights, chattel paper, instruments, deposit accounts, letter
of credit rights, payment intangibles and general intangibles, including all
amounts due to the Pledgor from a factor; and all returned or repossessed goods
which, on sale or lease, resulted in an account or chattel paper.
(b)
All
inventory, including all materials, work in process and finished
goods.
(c)
All
machinery, furniture, fixtures and other equipment of every type now owned
or
hereafter acquired by the Pledgor.
(d)
All
instruments, notes, chattel paper, documents, certificates of deposit,
securities and investment property of every type. The Collateral shall include
all liens, security agreements, leases and other contracts securing or otherwise
relating to the foregoing.
(e)
All
general intangibles, including, but not limited to, all Intellectual Property
Rights. The Collateral shall include all good will connected with or symbolized
by any of such general intangibles; all contract rights, documents,
applications, licenses, materials and other matters related to such general
intangibles; all tangible property embodying or incorporating any such general
intangibles; and all chattel paper and instruments relating to such general
intangibles.
(f)
All
negotiable and nonnegotiable documents of title covering any
Collateral.
(g)
All
accessions, attachments and other additions to the Collateral, and all tools,
parts and equipment used in connection with the Collateral.
(h)
All
substitutes or replacements for any Collateral, all cash or non-cash proceeds,
product, rents and profits of any Collateral, all income, benefits and property
receivable on account of the Collateral, all rights under warranties,
indemnities and insurance contracts, letters of credit, guaranties or other
supporting obligations covering the Collateral, and any causes of action
relating to the Collateral.
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(i)
All
books and records pertaining to any Collateral, including but not limited to
any
computer-readable memory and any computer hardware or software necessary to
process such memory ("Books and Records").
2.
THE
INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the
Pledgor and Technest Holdings, Inc., a Nevada corporation (the “Company”), to
the Purchaser. "Indebtedness" means all debts, obligations or liabilities now
or
hereafter existing, absolute or contingent of the Pledgor and the Company to
the
Purchaser, whether voluntary or involuntary, whether due or not due, or whether
incurred directly or indirectly or acquired by the Purchaser by assignment
or
otherwise, including, without limitation, the Termination Fee (as such term
is
defined in the Debenture referred to in the Securities Purchase Agreement
referenced in Section 8(e) of this Agreement).
3.
PLEDGOR'S COVENANTS. The Pledgor represents, covenants and warrants that unless
compliance is waived by the Purchaser in writing:
(a)
The
Pledgor will properly preserve the Collateral; defend the Collateral against
any
adverse claims and demands; and keep accurate Books and Records.
(b)
The
Pledgor’s chief executive office is located in the state specified on the
signature page hereof. In addition, the Pledgor is incorporated in or organized
under the laws of the state specified on such signature page. The Pledgor shall
give the Purchaser at least thirty (30) days notice before changing its chief
executive office or state of incorporation or organization. The Pledgor will
notify the Purchaser in writing prior to any change in the location of any
Collateral, including the Books and Records.
(c)
The
Pledgor will notify the Purchaser in writing prior to any change in the
Pledgor's name, identity or business structure.
(d)
Except to the Purchaser and the security interest granted by Pledgor in the
Collateral to (i) Silicon Valley Bank and (ii) the Persons named in the
Subordinated Debt Subordination Agreements, or as Purchaser may hereafter agree,
the Pledgor has not granted and will not grant any security interest in any
of
the Collateral, and will keep the Collateral free of all liens, claims, security
interests and encumbrances of any kind or nature.
(e)
The
Pledgor will promptly notify the Purchaser in writing of any event which
materially and adversely affects the value of the Collateral, the ability of
the
Pledgor or the Purchaser to dispose of the Collateral, or the rights and
remedies of the Purchaser in relation thereto, including, but not limited to,
the levy of any legal process against any Collateral and the adoption of any
marketing order, arrangement or procedure affecting the Collateral, whether
governmental or otherwise.
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(f)
The
Pledgor shall pay all costs reasonably necessary to preserve, defend, enforce
and collect the Collateral, including but not limited to taxes, assessments,
insurance premiums, repairs, rent, storage costs and expenses of sales, and
any
costs to perfect the Purchaser’s security interest (collectively, the
“Collateral Costs”). Without waiving the Pledgor's default for failure to make
any such payment, the Purchaser at its option, upon notice to Pledgor, may
pay
any such Collateral Costs, and discharge encumbrances on the Collateral, and
such Collateral Costs payments shall be a part of the Indebtedness and bear
interest at the rate set out in the Indebtedness. The Pledgor agrees to
reimburse the Purchaser on demand for any Collateral Costs so
incurred.
(g)
Until
the Purchaser exercises its rights to make collection, the Pledgor will
diligently collect all Collateral.
(h)
If
any Collateral is or becomes the subject of any registration certificate,
certificate of deposit or negotiable document of title, including any warehouse
receipt or xxxx of lading, the Pledgor shall immediately deliver such document
to the Purchaser, together with any necessary endorsements.
(i)
The
Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose
of
any Collateral except with the prior written consent of the Purchaser; provided,
however, that the Pledgor may sell inventory in the ordinary course of
business.
(j)
The
Pledgor will maintain and keep in force insurance covering the Collateral
against fire and extended coverages, to the extent that any Collateral is of
a
type which can be so insured. Such insurance shall require losses to be paid
on
a replacement cost basis, be issued by insurance companies reasonably acceptable
to the Purchaser and include a loss payable endorsement in favor of the
Purchaser in a form acceptable to the Purchaser. Upon the request of the
Purchaser, the Pledgor will deliver to the Purchaser a copy of each insurance
policy, or, if permitted by the Purchaser, a certificate of insurance listing
all insurance in force.
(k)
The
Pledgor will not attach any Collateral to any real property or fixture in a
manner which might cause such Collateral to become a part thereof unless the
Pledgor first obtains the written consent of any owner, holder of any lien
on
the real property or fixture, or other person having an interest in such
property to the removal by the Purchaser of the Collateral from such real
property or fixture. Such written consent shall be in form and substance
acceptable to the Purchaser and shall provide that the Purchaser has no
liability to such owner, holder of any lien, or any other person.
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(l)
Exhibit A to this Agreement is a complete list of all Intellectual Property
Rights of Pledgor throughout the world.
To the
extent required by the Purchaser in its discretion, the
Pledgor
will promptly notify the Purchaser of any acquisition (by adoption and use,
purchase, license or otherwise) of any Intellectual Property Rights, throughout
the world, which are granted or filed or acquired after the date hereof or
which
are not listed on the Exhibit.
The
Pledgor
authorizes the Purchaser, without notice to the Pledgor, to modify this
Agreement by amending the Exhibit to include any such Collateral.
(m)
The
Pledgor will, at its expense, diligently prosecute all patent, trademark or
service xxxx or copyright applications pending on or after the date hereof,
will
maintain in effect all Intellectual Property Rights, except for such rights
that
are being sold, donated or abandoned by the Pledgor pursuant to the terms of
its
intellectual property management program and consistent with the terms of the
License Agreement.
The
Pledgor
also will promptly make application on any patentable inventions, registerable
but unregistered trademarks and service marks, and copyrightable but
uncopyrighted works which are necessary for Pledgor’s business.
The
Pledgor
will at its expense protect and defend all rights in the Collateral against
any
material claims and demands of all persons other than the Purchaser and will,
at
its expense, enforce all rights in the Collateral against any and all infringers
of the Collateral where such infringement would materially impair the value
or
use of the Collateral to the Pledgor or the Purchaser.
The
foregoing obligations of Pledgor with respect to prosecuting and defending
Intellectual Property Rights that are subject to the License Agreement shall
apply to Pledgor only if Xxxxxxxx has failed or refused to perform such
obligations in accordance with the terms of the License Agreement.
The
Pledgor
will not license or transfer any of the Collateral, except for such licenses
as
are customary in the ordinary course of the Pledgor's business, the license
provided by the License Agreement or except with the Purchaser's prior written
consent.
4.
ADDITIONAL OPTIONAL REQUIREMENTS.
The
Pledgor
agrees that the Purchaser may at its option at any time, upon reasonable prior
notice to Pledgor, whether or not the Pledgor is in default:
(a)
Require the Pledgor to deliver to the Purchaser (i) copies of or extracts from
the Books and Records, and (ii) information on any contracts or other matters
materially affecting the Collateral.
(b)
Examine, during normal business hours, the Collateral, including the Books
and
Records, and make copies of or extracts from the Books and Records, and for
such
purposes enter at any reasonable time upon the property where any Collateral
or
any Books and Records are located.
(c)
To
the extent necessary to perfect Purchaser’s security interest therein, require
the Pledgor to deliver to the Purchaser any instruments, chattel paper or
letters of credit which are part of the Collateral, and to assign to the
Purchaser the proceeds of any such letters of credit.
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(d)
To
the extent necessary to perfect Purchaser’s security interest therein, notify
any buyers of the Collateral, or any other Persons, of the Purchaser's interest
in the Collateral.
5.
DEFAULTS. Any one or more of the following shall be a default
hereunder:
(a)
Any
Event of Default occurs under the Debenture.
(b)
The
Purchaser fails to have a valid lien on or security interest in the Collateral
(subject only to the prior lien of Silicon Valley Bank in the
Collateral).
6.
PURCHASER'S REMEDIES AFTER DEFAULT. In the event of any default, the Purchaser
may do any one or more of the following:
(a)
Declare any Indebtedness immediately due and payable, without notice or
demand.
(b)
Enforce
the security interest given hereunder pursuant to the Uniform Commercial Code
and any other applicable law.
(c)
Require the Pledgor to obtain the Purchaser's prior written consent to any
sale,
lease, agreement to sell or lease, or other disposition of any Collateral
consisting of inventory.
(d)
Require the Pledgor to segregate all collections and proceeds of the Collateral
so that they are capable of identification and deliver daily such collections
and proceeds to the Purchaser in kind.
(e)
Require the Pledgor, to the extent not previously required, to direct all
account debtors to forward all payments and proceeds of the Collateral to a
post
office box or account under the Purchaser's exclusive control.
(f)
Require the Pledgor to assemble the Collateral, including the Books and Records,
and make them available to the Purchaser at a place designated by the
Purchaser.
(g)
Enter
upon the property where any Collateral, including any Books and Records, are
located and take possession of such Collateral and such Books and Records,
and
use such property (including any buildings and facilities) and any of the
Pledgor's equipment, if the Purchaser deems such use necessary or advisable
in
order to take possession of, hold, preserve, process, assemble, prepare for
sale
or lease, market for sale or lease, sell or lease, or otherwise dispose of,
any
Collateral.
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(h)
Demand and collect any payments on and proceeds of the Collateral. In connection
therewith, the Pledgor irrevocably authorizes the Purchaser to endorse or sign
the Pledgor's name on all checks, drafts, collections, receipts and other
documents, and to take possession of and open the mail addressed to the Pledgor
and remove therefrom any payments and proceeds of the Collateral.
(i)
Grant
extensions and compromise or settle claims with respect to the Collateral for
less than face value, all without prior notice to the Pledgor.
(j)
Use
or transfer any of the Pledgor's rights and interests in any Intellectual
Property Rights now owned or hereafter acquired by the Pledgor, if the Purchaser
deems such use or transfer necessary or advisable in order to take possession
of, hold, preserve, process, assemble, prepare for sale or lease, market for
sale or lease, sell or lease, or otherwise dispose of, any
Collateral.
The
Pledgor
agrees that any such use or transfer shall be without any additional
consideration to the Pledgor.
(k)
Have
a receiver appointed by any court of competent jurisdiction to take possession
of the Collateral.
The
Pledgor
hereby consents to the appointment of such a receiver and agrees not to oppose
any such appointment.
(l)
Take
such measures as the Purchaser may deem necessary or advisable to take
possession of, hold, preserve, process, assemble, insure, prepare for sale
or
lease, market for sale or lease, sell or lease, or otherwise dispose of, any
Collateral, and the Pledgor hereby irrevocably constitutes and appoints the
Purchaser as the Pledgor's attorney-in-fact to perform all acts and execute
all
documents in connection therewith.
(m)
Exercise any other remedies available to the Purchaser at law or in
equity.
7.
ENVIRONMENTAL MATTERS.
(a)
The
Pledgor
represents and warrants: (i) it is not in violation of any material health,
safety, or environmental law or regulation regarding hazardous substances and
(ii) it is not the subject of any claim, proceeding, notice, or other
communication regarding hazardous substances. "Hazardous substances" means
any
substance, material or waste that is or becomes designated or regulated as
"toxic," "hazardous," "pollutant," or "contaminant" or a similar designation
or
regulation under any current or future federal, state or local law (whether
under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum
or
natural gas.
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(b)
The
Pledgor
shall deliver to the Purchaser, promptly upon receipt, copies of all notices,
orders, or other communications regarding (i) any enforcement action by any
governmental authority relating to health, safety, the environment, or any
hazardous substances with regard to the Pledgor's property, activities, or
operations, or (ii) any claim against the Pledgor regarding hazardous
substances.
(c)
The
Purchaser and its agents and representatives will have the right at any
reasonable time, after giving reasonable notice to the Pledgor, to enter and
visit any locations where the Collateral is located for the purposes of
observing the Collateral, taking and removing environmental samples, and
conducting tests.
The
Pledgor shall reimburse the Purchaser on demand for the costs of any such
environmental investigation and testing. The
Purchaser will make reasonable efforts during any site visit, observation or
testing conducted pursuant to this paragraph to avoid interfering with the
Pledgor’s use of the Collateral.
The
Purchaser is under no duty to observe the Collateral or to conduct tests, and
any such acts by the Purchaser will be solely for the purposes of protecting
the
Purchaser's security and preserving the Purchaser's rights under this Agreement.
No site visit, observation or testing or any report or findings made as a result
thereof (“Environmental Report”) will (i) result in a waiver of any default of
the Pledgor; (ii) impose any liability on the Purchaser; or (iii) be a
representation or warranty of any kind regarding the Collateral (including
its
condition or value or compliance with any laws) or the Environmental Report
(including its accuracy or completeness). In the event the Purchaser has a
duty
or obligation under applicable laws, regulations or other requirements to
disclose an Environmental Report to the Pledgor or any other party, the Pledgor
authorizes the Purchaser to make such a disclosure.
The
Purchaser may also disclose an Environmental Report to any regulatory authority,
and to any other parties as necessary or appropriate in the Purchaser’s
judgment. The
Pledgor
further understands and agrees that any Environmental Report or other
information regarding a site visit, observation or testing that is disclosed
to
the Pledgor by the Purchaser or its agents and representatives is to be
evaluated (including any reporting or other disclosure obligations of the
Pledgor) by the Pledgor without advice or assistance from the
Purchaser.
(d)
The
Pledgor
will indemnify and hold harmless the Purchaser from any loss or liability the
Purchaser incurs in connection with or as a result of this Agreement, which
directly or indirectly arises out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance. This indemnity will apply whether the
hazardous substance is on, under or about the Pledgor's property or operations
or property leased to the Pledgor. The indemnity includes but is not limited
to
attorneys' fees (including the reasonable estimate of the allocated cost of
in-house counsel and staff). The indemnity extends to the Purchaser, its
affiliates and all of their directors, officers, employees, agents, successors,
attorneys and assigns.
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8.
MISCELLANEOUS.
(a)
Any
waiver, express or implied, of any provision hereunder and any delay or failure
by the Purchaser to enforce any provision shall not preclude the Purchaser
from
enforcing any such provision thereafter.
(b)
The
Pledgor
shall, at the request of the Purchaser, execute such other agreements,
documents, instruments, or financing statements in connection with this
Agreement as the Purchaser may reasonably deem necessary.
(c)
This
Agreement shall be governed by and construed according to the laws of the State
of New York, to the jurisdiction of which the parties hereto
submit.
(d)
All
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies otherwise provided by law. Any single or partial exercise
of
any right or remedy shall not preclude the further exercise thereof or the
exercise of any other right or remedy.
(e)
All
terms not defined herein are used as set forth in the Uniform Commercial Code
and capitalized terms used herein without definition have the meanings set
forth
in the Securities Purchase Agreement, dated the date hereof, between the Company
and Purchaser.
(f)
In the
event of any action by the Purchaser to enforce this Agreement or to protect
the
security interest of the Purchaser in the Collateral, or to take possession
of,
hold, preserve, process, assemble, insure, prepare for sale or lease, market
for
sale or lease, sell or lease, or otherwise dispose of, any Collateral, the
Pledgor agrees to pay immediately the costs and expenses thereof, together
with
reasonable attorney's fees and allocated costs for in-house legal services
to
the extent permitted by law.
(g)
In
the event the Purchaser seeks to take possession of any or all of the Collateral
by judicial process, the Pledgor hereby irrevocably waives any bonds and any
surety or security relating thereto that may be required by applicable law
as an
incident to such possession, and waives any demand for possession prior to
the
commencement of any such suit or action.
(h)
The
Purchaser's rights hereunder shall inure to the benefit of its successors and
assigns. In the event of any assignment or transfer by the Purchaser of any
of
the Indebtedness or its security interest in the Collateral, the Purchaser
thereafter shall be fully discharged from any responsibility with respect to
the
Collateral so assigned or transferred, but the Purchaser shall retain all rights
and powers hereby given with respect to any of the Indebtedness or the
Collateral not so assigned or transferred. All representations, warranties
and
agreements of the Pledgor shall be binding upon the successors and assigns
of
the Pledgor.
(i)
The
Pledgor agrees that the Collateral may be sold as provided for in this Agreement
and expressly waives any rights of notice of sale, advertisement procedures,
or
related provisions granted under applicable law, including the New York Lien
Law.
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The
parties executed this Agreement as of May 31, 2007.
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SHELTER
ISLAND OPPORTUNITY FUND, LLC
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By:
Shelter Island GP, LLC, its Manager
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By:
/s/ Xxxxxxx X. Xxxxx
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Title:
President
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Address
for Notices:
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Xxx
Xxxx 00xx
Xxxxxx
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Xxx
Xxxx, Xxx Xxxx 00000
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Attention:
Xxxxxxx X. Xxxxx
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GENEX
TECHNOLOGIES INCORPORATED
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By:/s/Xxxx
X. Xxxxxxx
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Title:
Chief Financial Officer
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Pledgor's
Location:
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00000
Xxxxx Xxxx Xxxxx,
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Xxxxx
000
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Xxxxxxxx,
Xxxxxxxx 00000
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Pledgor’s
state of
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incorporation:
Maryland
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9
EXHIBIT
A
Intellectual
Property
10
