RELEASE AGREEMENT
EXHIBIT
10.1
THIS
RELEASE AGREEMENT (this “Agreement”), dated as of August 31, 2007, by and
between Technest Holdings, Inc., a Nevada corporation (“Technest”),
Southridge Partners LP, a Delaware limited partnership
(“Southridge”):
WHEREAS,
Technest and Xxxxxxxx Technologies, Inc. (“Xxxxxxxx”) were parties to
that certain Stockholder Agreement, dated March 13, 2006 (the “Stockholder
Agreement”), and that certain License Agreement dated March 13, 2006 (the
“License Agreement”); and
1. Definitions. “Affiliate”
of any person or entity shall mean any person or entity which, directly or
indirectly, owns or controls, is under common ownership or control with, or
is
owned or controlled by, such person or entity.
2. Termination
of
Technest Equity Restrictions, Right of Co-Sale and License
Agreement. Section 1 Restrictions on Issuance of Equity,
Convertible Debt or Derivative Securities and Section 5 Provisions
Regarding Co-Sale of the Stockholder Agreement in their entirety are hereby
terminated and shall be of no further force or effect. The parties
hereto acknowledge and agree that, subject to the restrictions in Section 7
below, Technest may issue Common Stock, convertible debt, derivative securities,
shares of any class of capital stock, securities convertible into or exercisable
or exchangeable for Common Stock or any class of capital stock, or options,
warrants or rights carrying any right to purchase Common Stock or any class
or
capital stock (“Technest Securities”) without restriction under any
provision of the Stockholder Agreement and (b) Southridge, as assignee of
Xxxxxxxx, shall have no right of co-sale or other right to participate in any
offering made by Technest. Notwithstanding the above, Technest shall
remain obligated to pay Southridge, as assignee of Xxxxxxxx, the remaining
$250,000 receivable due pursuant to Section 7 of the Stockholder Agreement.
The
License Agreement in its entirety is hereby terminated and shall be of no
further force or effect.
3. Voting
Agreement. Southridge hereby agrees that it will vote all shares
of Common Stock owned by it and to cause its Affiliates that own shares of
Common Stock or Technest Preferred Stock to vote all of their
shares, in favor of any transaction providing for the sale of either
(i) the common stock of EOIR or (ii) the majority of the assets of EOIR, that
is
approved and recommended by a majority of the directors of Technest if: (a)
the
gross consideration to be received by Technest in such approved sale shall
not
be less than $34,000,000 (the “Proposed Transaction”) and (b) a
definitive agreement for such transaction is entered into on or before September
10, 2007.
4. Board
Representation. The Board of Directors of Technest hereby agrees
that within five (5) business days of (a) the signing of the Proposed
Transaction or (b) on or prior to September 10, 2007, whichever is earlier,
to
increase the size of the board from five to six and fix the number of directors
of Technest at six and to elect two reasonably qualified individuals
representing Southridge to fill the newly created directorships in accordance
with Technest’s Bylaws. Southridge shall provide the names of the new
directors to Technest as soon as reasonably possible but no later than the
date
of the signing of the Proposed Transaction or September 10, 2007, whichever
is
earlier (the “Notice Date”). The Board of Technest shall notify
Southridge within five (5) business days of the Notice Date whether it has
any
objection to the proposed individuals.
5. Repeal
of Prohibition
of Stockholder Action by Written Consent. Within five business
days of the signing of a definitive agreement for the Proposed Transaction,
the
Board of Directors of Technest shall amend Article II, Section 2.10
“Stockholder Action Without a Meeting Prohibited” to read as
follows:
Notwithstanding
contrary provisions of these Bylaws covering notices and meetings, any action
required or permitted to be taken at an annual or special meeting of
stockholders may be taken by the stockholders without a meeting, without prior
notice, and without a vote if a consent in writing, setting forth the action
so
taken, shall be signed by a majority of the holders of shares of capital stock
issued and outstanding and entitled to vote on the subject matter, except that
if a different proportion of voting power is required for such an action at
a
meeting, then that proportion of written consents is required. The written
consents shall be filed with the minutes of the proceedings.
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hereby agrees that from the date of such board action until (i) the distribution
by Technest to its stockholders of the net proceeds of the Proposed Transaction,
if any, or (ii) November 16, 2007, whichever is earlier, Southridge as
stockholders would only act pursuant to Article II, Section 2.10 to approve
the
Proposed Transaction and take no other corporate action by written
consent.
6. Distribution
of
Net Proceeds from Proposed Transaction; Record Date. Technest
hereby agrees that in the event Technest receives sufficient proceeds from
the
Proposed Transaction to allow for a distribution to its stockholders
after payment of currently existing obligations to its lenders, terminated
employees and any transaction costs, subject to Nevada corporate law, Technest
shall distribute a minimum of 90% of such net proceeds of the Proposed
Transaction to its stockholders. Technest agrees that the use of proceeds
associated with the initial closing of the Proposed Transaction shall
be distributed in accordance with the schedule previously provided by Technest
to Southridge. In the event that there exists any surplus of
proceeds from the initial closing not otherwise allocated under the schedule,
such proceeds shall be used for general working capital.
7. Restrictions
on Equity
Issuances. From the date of this Agreement until (i) the distribution by
Technest to its stockholders of the net proceeds of the Proposed Transaction
or
(ii) March 31, 2008, whichever is earlier, Technest agrees that it will not
sell
or issue any shares of Common Stock (or securities convertible or exercisable
into shares of Common Stock) at less than a 20% discount to the then current
Market Price (as defined below); provided however, that Technest shall be
permitted to (i) issue shares of Common Stock (or securities convertible or
exercisable into shares of Common Stock) already awarded as of the date of
this
Agreement pursuant to its 2006 Stock Award Plan and (ii) issue up to 250,000
shares of Common Stock issuable under the 2006 Stock Award Plan. For
purposes of this section, the then current “Market Price” shall be defined as
the average closing sale price of the Common Stock for the ten (10) trading
days
ending three (3) business days prior to the issuance date of such securities
as
reported by Nasdaq or the Bloomberg Information Systems, Inc. or any successor
to its function of reporting stock prices.
8. Restrictions
on Related Party Transactions. From the date that a definitive
agreement for the Proposed Transaction is executed until (i) the distribution
by
Technest to its stockholders of the net proceeds of the Proposed Transaction
or
(ii) March 31, 2008, whichever is earlier, Technest agrees that it will not
enter into any transaction with its officers, directors, stockholders or any
of
their Affiliates, except for transactions that are in the ordinary course of
Technest’s business, upon fair and reasonable terms that are no less favorable
to Technest than would be obtained in an arm’s length transaction with a
non-Affiliated person or entity.
9. Right
of First Offer. (a) If Technest desires to sell any equity
securities for capital raising purposes (the “Proposed Financing”) within
twelve months of the date of this Agreement (other than pursuant to
its 2006 Stock Award Plan or in connection with lease financing, settlement
of
litigation, strategic transactions, mergers or acquisitions), Technest shall
first deliver written notice of its desire to do so (the “Notice”) to
Southridge, in the manner prescribed in Section 14 of this
Agreement. The Notice shall describe in reasonable detail the
proposed material terms of such Proposed Financing, the amount of proceeds
intended to be raised thereunder and shall include a term sheet or similar
document relating thereto as an attachment, if such document is
available.
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(b)
Southridge shall have the first option to purchase all or part of the equity
securities offered in the Proposed Financing for the consideration per share
and
on the terms and conditions specified in the Notice. Southridge must
exercise such option, no later than five (5) business days after such Notice
is
deemed (the “Offer Period”) under Section 14 hereof to have been
delivered to it, by written notice to the Chief Financial Officer of
Technest. If Technest receives no notice from Southridge as of the
close of business on such fifth business day, then Southridge shall be deemed
to
have notified Technest that it does not exercise its option.
(c)
In
the event that Southridge duly exercises its option to purchase all or part
of
the equity securities offered in the Proposed Financing, the closing of such
purchase shall take place at the offices of Technest no later than the date
thirty (30) days after the expiration of such 5-day period.
(d) If
Southridge does not exercise its option to purchase all or part of equity
securities of the Proposed Financing within the Offer Period, then the option
of
Southridge to purchase the equity securities of the Proposed Financing, whether
exercised or not, shall terminate, with respect to the particular Proposed
Financing. In such case, the transaction contemplated by the Notice
on materially the same terms shall be consummated by Technest no later than
90
days after the expiration of the Offer Period. If the Proposed
Financing is not consummated within 90 days after the expiration of the Offer
Period, Technest shall provide Southridge a second Notice of a Proposed
Financing and again offer the Proposed Financing within the periods set forth
above.
10. Mutual
Releases. Effective upon the date of this Agreement, Technest,
and Southridge and its Affiliates do hereby remise, release and forever
discharge and covenant not to xxx each other party and/or its directors,
officers, representatives, employees, agents, attorneys, subsidiaries,
Affiliates, parents, predecessors, successors and assigns (including, without
limitation, any acquiror of E-OIR Technologies, Inc., a Virginia corporation)
with respect to any and all debts, demands, actions, causes of action, suits,
sums of money, contracts, controversies, agreements, promises, executions,
liabilities and any and all other claims of any kind nature and description
whatsoever, both in law and equity (know and unknown), which such party may
have
or ever had from the beginning of the world until the date of this Agreement;
provided that the covenants, duties and obligations arising under this Agreement
shall survive this release and shall be fully enforceable in accordance with
their terms.
11. Issuance
of Common
Stock to Southridge. In consideration of the agreements and
covenants of Southridge in this Agreement, on the date of this Agreement,
Technest shall issue to Southridge 3,000,000 shares of Common
Stock.
12. Representations
of
Technest. Technest represents and warrants to Southridge as
follows:
(a) Organization. Technest
is duly organized and validly existing and is in good standing under the laws
of
the jurisdiction of its incorporation. Technest has full corporate
power and authority to own, operate and occupy its properties and to conduct
its
business as presently.
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(b) Due
Authorization. Technest has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly authorized and validly
executed and delivered by Technest and, assuming due authorization, execution
and delivery by the other parties hereto, constitutes a valid and legally
binding obligation of Technest enforceable against Technest in accordance with
its terms, except to the extent (i) enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
(ii) enforceability may be limited by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
(c) The
Common Stock Issued to Southridge. Upon issuance and delivery of
the 3,000,000 shares of Common Stock to be issued to Southridge in accordance
with this Agreement, such shares of Common Stock will be validly issued, fully
paid and non assessable.
(d) No
Conflicts. The execution, delivery and performance by Technest of this
Agreement, and the consummation of the transactions contemplated hereby, do
not
and will not breach or constitute a default under any applicable law or
regulation or of any agreement, judgment, order, decree or other instrument
binding on Technest.
(e) No
Governmental Consent or Approval Required. Assuming the accuracy of
the representations made by Southridge in this Agreement, no authorization,
consent, approval or other order of, declaration to, or filing with, any
governmental agency or body is required for or in connection with the valid
and
lawful authorization, execution and delivery by Technest of this Agreement
or
for or in connection with the valid and lawful authorization, issuance and
delivery of the 3,000,000 shares of Common Stock.
13. Representations
of Southridge. Southridge represents and warrants to Technest as
follows:
(i) Southridge
(i) is an “accredited investor” as defined in Regulation D under the Securities
Act, (ii) has the knowledge, sophistication and experience necessary to make,
and is qualified to make decisions with respect to, investments in securities
presenting an investment decision like that involved in the purchase of
investments in securities issued by Technest and investments in comparable
companies, (iii) can bear the economic risk of a total loss of its investment
in
the Common Stock and (iv) has requested, received, reviewed and considered
all
information it deemed relevant in making an informed decision to acquire the
Common;
(ii) Southridge
is acquiring the Common Stock for its own account and not with a view towards,
or for resale in connection with, the public sale or distribution
thereof;
(iii) Southridge will
not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Common Stock acquire pursuant to this Agreement, except in
compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder;
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(iv) Southridge
understands that the Common Stock is being offered and sold to it in reliance
on
specific exemptions from the registration requirements of the United States
federal and state securities laws and that Technest is relying upon the truth
and accuracy of, and Southridge’s compliance with, representations, warranties,
agreements, acknowledgements and understandings of the Investor set forth herein
in order to determine the availability of such exemptions and the eligibility
of
Southridge to acquire the Common Stock;
(v)
Southridge understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Common Stock or the fairness or suitability
of an investment in the Common Stock; and
(vi) Southridge
has been furnished with all materials relating to the business, financial
condition, results of operations, properties, management, operations and
prospects of Technest and its subsidiaries which have been requested by
Southridge. Southridge has been afforded the opportunity to ask
questions of Technest and has received answers from an authorized representative
of Technest which are satisfactory to Southridge.
(vii) Southridge
has independently evaluated the merits of its decision to acquire the Common
Stock pursuant to this Agreement.
(b) Legends. Southridge
understands that, until the end of the applicable holding period under Rule
144(k) of the Securities Act of 1933, as amended (or any successor provision)
with respect to the Common Stock, any stock certificate representing the Common
Stock shall bear a legend in substantially the following form:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT
BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN
THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION THEREFROM.
The
legend set forth above shall be removed upon expiration of the applicable
two-year holding period under Rule 144(k) of the Securities Act (or any
successor rule); provided that the Investor is not and has not been within
three
months prior to such date, an “affiliate” of the Company (as such term is
defined in Rule 144 of the Securities Act). The Company may make a
notation on its records and/or provide instruction to its transfer agent
regarding the Company’s stock transfer records, consistent with the provisions
of this Section 13(b).
(c) Authorization;
Enforcement; Validity. Southridge has full right, power, authority and
capacity (corporate, statutory or otherwise) to enter into this Agreement and
to
consummate the transactions contemplated hereby and has taken all necessary
action to authorize the execution, delivery and performance of this
Agreement. This Agreement constitutes a valid and binding obligation
of Southridge enforceable against such party in accordance with its terms,
except to the extent (i) enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors’ and contracting parties’ rights generally and (ii)
enforceability may be limited by general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
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(d) Certain
Transactions. Southridge (i) represents that on and
from the date such party first became aware of material nonpublic information
concerning Technest, including, without limitation, the possibility of entering
into this Agreement, it has not engaged in any transaction involving Technest
Common Stock in violation of the Securities Act and (ii) covenants that agrees
that it will not, directly or indirectly, offer, sell, pledge, transfer or
otherwise dispose of (or solicit any offers to buy, purchase or otherwise
acquire or take a pledge of) any of the Common Stock held by it, except in
compliance with the Securities Act, applicable state securities laws and the
respective rules and regulations promulgated thereunder.
(e) SEC
Reports. Southridge has had an opportunity to review copies of
Technest’s Annual Report on Form 10-K for the year ended June 30, 2006 (and any
amendments thereto), Technest’s Proxy Statement for its 2006 Annual Meeting of
Shareholders, Technest’s Quarterly Reports on Form 10-Q for the quarters ended
September 30, 2006, and December 31, 2006 and March 31, 2007 (and any amendments
thereto) and each of Technest’s Current Reports on Form 8-K filed since January
1, 2006 (and any amendments thereto).
14. Notices.
All
notices and other communications hereunder shall be in writing and shall be
deemed to have been given when delivered in hand or mailed by first-class,
registered or certified mail, postage prepaid, addressed to the address of
the
relevant party set forth below such party’s signature hereto or to such other
person(s) or address(es) as the party shall have furnished to the other parties
in writing.
15. Miscellaneous.
(a) This
Agreement contains the entire agreement between the parties hereto with respect
to the subject matter hereof.
(b) This
Agreement shall not be amended except by a written agreement executed and
delivered by or on behalf of the parties hereto.
(c) This
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing herein expressed or
implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
(d) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original.
(e)
Any waiver of any terms or conditions of this Agreement shall not operate as
a
waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as
a
waiver of such provision or of any other provision hereof; provided, however,
that no such written waiver, unless it, by its own terms, explicitly provides
to
the contrary, shall be construed to effect a continuing waiver of the provision
being waived and no such waiver in any instance shall constitute a waiver in
any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes
to
require full compliance with such provision.
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(f) Each
of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as any other party may reasonably
require in order to effectuate the terms and purposes of this
Agreement.
(g) If
any provision of this Agreement shall be held or deemed to be, or shall in
fact
be, invalid, inoperative or unenforceable as applied to any particular case
in
any jurisdiction or jurisdictions, or in all jurisdictions or in all cases,
because of a conflict between any provision hereof with any constitution or
statute or rule of public policy or for any other reason, such circumstance
shall not have the effect of rendering the provision or provisions in question,
invalid, inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to the extent that such other
provisions are not themselves actually in conflict with such constitution,
statute or rule of public policy, but this Agreement shall be reformed and
construed in any such jurisdiction or case as if such invalid, inoperative
or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case.
(h) Whenever
used herein, the singular number shall include the plural, the plural shall
include the singular, and the use of any gender shall include all
genders.
(i) The
headings contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation of this
Agreement.
(j) This
Agreement shall be governed by and construed and enforced in accordance with
the
law of New York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in The City of New York,
Borough of Manhattan, 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 suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding
is
improper. Each party hereby irrevocably waives personal service of process
and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such 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 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 WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY.
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TECHNEST
HOLDINGS, INC.
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By:
/s/ Xxxx
Xxxxxxx
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Name:
Xxxx Xxxxxxx
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Title: Chief
Financial Officer
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Notice
address:
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00000
Xxxxx Xxxx Xxxxx
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Xxxxx
000
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Xxxxxxxx
XX 00000
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SOUTHRIDGE
PARTNERS LP
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By:
/s/ X.
Xxxxx
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Name:
X. Xxxxx
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Title: Managing
Director
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Notice
address:
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00
Xxxxx Xxxxxx
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Xxxxxxxxxx
XX 00000
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