THIRD PARTY STOCK PLEDGE AGREEMENT
EXHIBIT
10.5
THIRD
PARTY
THIS
STOCK PLEDGE AGREEMENT (the “Agreement”) is made this 4th
day of
August, 2006 by and between XXXXXXXX
TECHNOLOGIES, INC.,
a
Florida corporation with a principal place of business at 000 Xxxxx Xxxxxx
Xxxx., Xxxxxxx, Xxxxx Xxxxxx 00000 (“Pledgor”) and SILICON
VALLEY BANK,
a
California-chartered bank, with its principal place of business at
0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a loan production
office located at One Xxxxxx Executive Park, Suite 200, 0000 Xxxxxxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000 (“Bank”).
Recitals
Bank
proposes to make certain loans to Technest Holdings, Inc. (the “Borrower”)
pursuant to: (i) a certain Loan and Security Agreement dated as of August 4,
2006 between Borrower, Lender, and certain other parties party thereto, as
amended from time to time (as amended, the “Term Loan Agreement”), and (ii) a
certain Loan and Security Agreement (Working Capital Line of Credit) dated
as of
August 4, 2006 between Borrower and Lender, and certain other parties party
thereto, as amended from time to time (as amended, the “WCL Loan Agreement”)
(hereinafter the Term Loan Agreement and the WCL Loan Agreement are collectively
referred to as, the “Loan Agreement”). To secure the Obligations, as defined in
the Loan Agreement and as referenced in the Unconditional Guaranty between
Pledgor and Bank dated as of even date herewith (the “Guaranty”), Pledgor has
agreed to pledge to Bank 1,739,130 (number of shares worth $6,000,000, to be
determined on the closing date) shares of capital stock of Borrower in which
Pledgor now owns or hereafter acquires an interest (the “Shares”). Any
capitalized terms used without definition herein shall have the meanings
assigned to them in the Loan Agreement.
NOW,
THEREFORE, Pledgor and Bank agree as follows:
1. Pledge
of Securities.
(a) Pledgor
hereby pledges, assigns and delivers to Bank and grants to Bank a security
interest in the Shares, together with all proceeds and substitutions thereof,
all cash, stock and other moneys and property paid thereon, all rights to
subscribe for securities declared or granted in connection therewith, and all
other cash and noncash proceeds of the foregoing (all hereinafter called the
“Pledged Collateral”), as security for the prompt performance of all of the
Obligations, as defined in the Loan Agreement and as referenced in the Guaranty
(the “Secured Indebtedness”), and Pledgor’s obligations hereunder.
(b) The
term
“Pledged Collateral” shall also include any securities, instruments or
distributions of any kind issuable, issued or received by Pledgor upon
conversion of, in respect of, or in exchange for any other Pledged Collateral,
including, but not limited to, those arising from a stock dividend, stock split,
reclassification, reorganization, merger, consolidation, sale of assets or
other
exchange of securities or any dividends or other distributions of any kind
upon
or with respect to the Pledged Collateral.
(c) The
certificate or certificates for the securities included in the Pledged
Collateral, accompanied by an instrument of assignment duly executed in blank
by
Pledgor, have been, or will be immediately upon the subsequent receipt thereof
by Borrower, delivered by Pledgor to Bank. Pledgor shall cause the books of
Borrower to reflect the pledge of the Shares. Upon the occurrence of an Event
of
Default hereunder, Bank may effect the transfer of any securities included
in
the Pledged Collateral into the name of Bank and cause new certificates
representing such securities to be issued in the name of Bank. Pledgor will
execute and deliver such documents, and take or cause to be taken such actions,
as Bank may reasonably request to perfect or continue the perfection of Bank’s
security interest in the Pledged Collateral.
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2. Representations,
Warranties and Covenants.
Pledgor
represents and warrants to and covenants with Bank that:
(a) The
Pledged Collateral is owned by Pledgor free and clear of any security interests,
liens or encumbrances;
(b) Pledgor
has full power and authority to create a first lien on the Pledged Collateral
in
favor of Bank and no disability or contractual obligation exists which would
prohibit Pledgor from pledging the Pledged Collateral pursuant to this Pledge
Agreement, and Pledgor will not assign, create or permit to exist any other
claim to, lien or encumbrance upon, or security interest in any of the Pledged
Collateral;
(c) There
are
no subscriptions, warrants or other options exercisable with respect to the
Shares;
(d) The
Shares have been duly authorized and validly issued, and are fully paid and
non-assessable; and
(e) The
Pledged Collateral is not the subject of any present or threatened suit, action,
arbitration, administrative or other proceeding, and Pledgor knows of no
reasonable grounds for the institution of any such proceedings.
All
the
above representations and warranties shall survive the making of this
Agreement.
3. Voting
Prior to Demand.
Unless
an Event of Default (as defined below) shall have occurred and be continuing,
Pledgor shall be entitled to exercise any voting rights with respect to the
Pledged Collateral and to give consents, waivers and ratifications in respect
thereof, provided
that no
vote shall be cast or consent, waiver or ratification given or action taken
which would be inconsistent with any of the terms of this Agreement or which
would constitute or create any violation of any of such terms. All such rights
of Pledgor to vote and give consents, waiver and ratifications shall upon notice
to Pledgor cease in case such an Event of Default hereunder shall occur and
be
continuing.
4. Events
of Default.
Each of
the following shall constitute an event of default (“Event of Default”)
hereunder:
(a) The
occurrence of, and the continuance of, an Event of Default under the Loan
Agreement; or
(b) The
breach of any provision of this Agreement by Pledgor or the failure by Pledgor
to observe or perform any of the provisions of this Agreement.
5. Bank’s
Remedies Upon Default.
(a) Upon
the
occurrence and during the continuance of an Event of Default, Bank shall have
the right to exercise all such rights as a secured party under the Uniform
Commercial Code of the Commonwealth of Massachusetts as it, in its sole
judgment, shall deem necessary or appropriate, including the right to sell
all
or any part of the Pledged Collateral at one or more public or private sales
upon ten (10) days’ written notice to Pledgor, and any such sale or sales may be
made for cash, upon credit, or for future delivery, and in connection therewith,
Bank may grant options, provided that any such terms or options shall, in the
best judgment of Bank, be extended only in order to obtain the best possible
price.
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(b) Pledgor
recognizes that Bank may be unable to effect a public sale of all or a part
of
the Pledged Collateral by reason of certain prohibitions contained in the
Securities Act of 1933, as amended (“Act”), so that Bank may be compelled to
resort to one or more private sales to a restricted group of purchasers who
will
be obliged to agree, among other things, to acquire the Pledged Collateral
for
their own account, for investment and without a view to the distribution or
resale thereof. Pledgor understands that private sales so made may be at prices
and on other terms less favorable to the seller than if the Pledged Collateral
were sold at public sales, and agrees that Bank has no obligation to delay
the
sale of any of the Pledged Collateral for the period of time necessary (even
if
Bank would agree), to register such securities for sale under the Act. Pledgor
agrees that private sales made under the foregoing circumstances shall be deemed
to have been made in a commercially reasonable manner.
(c) After
the
sale of any of the Pledged Collateral, Bank may deduct all reasonable legal
and
other expenses and attorney’s fees for preserving, collecting, selling and
delivering the Pledged Collateral and for enforcing its rights with respect
to
the Secured Indebtedness, and shall apply the residue of the proceeds to the
Secured Indebtedness in such manner as Bank in its reasonable discretion shall
determine, and shall pay the balance, if any to Pledgor.
6. Amendment
of Loan Documents.
Pledgor
authorizes Bank, without notice, consent or demand and without affecting its
liability hereunder, from time to time to (a) renew, extend, or otherwise change
the terms of the Loan Documents, as defined in the Loan Agreement, or any part
thereof; (b) take and hold security for the payment of the Loan Documents,
and
exchange, enforce, waive and release any such security; and (c) apply such
security and direct the order or manner of sale thereof as Bank in its sole
discretion may determine.
7. Pledgor
Waivers.
Pledgor
waives any right to require Bank to (a) proceed against Borrower, any
guarantor or any other person; (b) proceed against or exhaust any security
held from Borrower; (c) marshal any assets of Borrower; or (d) pursue
any other remedy in Bank’s power whatsoever. Bank may, at its election, exercise
or decline or fail to exercise any right or remedy it may have against Borrower
or any security held by Bank, including without limitation the right to
foreclose upon any such security by judicial or nonjudicial sale, without
affecting or impairing in any way the liability of Pledgor hereunder. Pledgor
waives any defense arising by reason of any disability or other defense of
Borrower or by reason of the cessation from any cause whatsoever of the
liability of Borrower. Pledgor waives any setoff, defense or counterclaim that
Borrower may have against Bank. Pledgor waives any right of subrogation or
reimbursement, contribution or other rights against Borrower, and Pledgor waives
any right to enforce any remedy that Bank now has or may hereafter have against
Borrower. Pledgor waives any defense arising out of the absence, impairment
or
loss of any right of reimbursement or subrogation or any other rights against
Borrower until payment in full of the Obligations and termination of the Loan
Agreement and the Guaranty. Pledgor waives all rights to participate in any
security now or hereafter held by Bank. Pledgor waives all presentments, demands
for performance, notices of nonperformance, protests, notices of protest,
notices of dishonor, notices of acceptance of this Pledge Agreement, notices
of
any default, notices of payment and nonpayment, or any nonpayment at maturity,
notices of release, compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time held by Bank
on which Pledgor may in any way be liable, and notices of the existence,
creation, or incurring of new or additional indebtedness. Pledgor assumes the
responsibility for being and keeping itself informed of the financial condition
of Borrower and of all other circumstances bearing upon the risk of nonpayment
of any indebtedness or nonperformance of any obligation of Borrower, warrants
to
Bank that it will keep so informed, and agrees that absent a request for
particular information by Pledgor, Bank shall have no duty to advise Pledgor
of
information known to Bank regarding such condition or any such circumstances.
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8. Borrower
Insolvency.
If
Borrower becomes insolvent or is adjudicated bankrupt or files a petition for
reorganization, arrangement, composition or similar relief under any present
or
future provision of the United States Bankruptcy Code, or if such a petition
is
filed against Borrower, and in any such proceeding some or all of any
indebtedness or obligations under the Loan Documents are terminated or rejected
or any obligation of Borrower is modified or abrogated, or if Borrower’s
obligations are otherwise avoided for insolvency, bankruptcy or any similar
reason, Pledgor agrees that Pledgor’s liability hereunder shall not thereby be
affected or modified and such liability shall continue in full force and effect
as if no such action or proceeding had occurred. This Agreement shall continue
to be effective or be reinstated, as the case may be, if any payment must be
returned by Bank upon the insolvency, bankrupt-cy or reorganization of Borrower,
Pledgor, any other person, or otherwise, as though such payment had not been
made.
9. Indemnification.
Pledgor
agrees to defend, indemnify and hold harmless Bank and its officers, employees,
and agents against: (a) all obligations, demands, claims, and liabilities
claimed or asserted by any other party in connection with the transactions
contemplated by this Agreement, and (b) all losses or expenses in any way
suffered, incurred, or paid by Bank as a result of or in any way arising out
of,
following, or consequential to transactions between Bank and Pledgor, under
this
Agreement (including without limitation attorneys’ fees and expenses), except
for obligations, demands, claims, liabilities, losses and Bank expenses caused
by Bank’s gross negligence or willful misconduct.
10. Notices.
Unless
otherwise provided in this Agreement, all notices or demands by any party
relating to this Agreement or any other agreement entered into in connection
herewith shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by certified mail, postage prepaid, return
receipt requested, or by prepaid telefacsimile to Pledgor or to Bank, as the
case may be, at its addresses set forth below. Such notice shall be deemed
effective three (3) days after deposit if sent by first class mail, upon actual
receipt if personally delivered or sent by certified mail, or upon confirmed
transmission if sent via telefacsimile.
If
to
Pledgor:
Xxxxxxxx
Technologies, Inc.
000
Xxxxx
Xxxxxx Xxxx.
Xxxxxxx,
Xxxxx Xxxxxx 00000
Attn:
Xx.
Xxxxxx Xxxxxx
Facsimile
No.: (000) 000-0000
Email:
xxxxxxx@xxx.xxx
with
copies to:
Xxxxxxxxx
Xxxxxxx, LLP
Xxx
Xxxxxxxxxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xxxxxxxx Xxxx, Esquire
Facsimile
No.: (000) 000-0000
Email:
xxxxx@xxxxx.xxx
If
to
Bank:
Silicon
Valley Bank
One
Newton Executive Park, Suite 200
0000
Xxxxxxxxxx Xxxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn: Xx. Xxxxxxx Xxxxxxx
Facsimile
No.: (000) 000-0000
Email:
xxxxxxxx@xxx.xxx
with
copies to:
Xxxxxx
& Xxxxxxxxxx LLP
Xxxxx
Xxxxxx Xxxxx
Xxxxxx,
Xxxxxxxxxxxxx 00000
Attn:
Xxxxx X. Xxxxxxx, Esquire
Facsimile
No.: (000) 000-0000
Email:
xxxxxxxx@xxxxxxxxx.xxx
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The
parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE
OF LAW AND VENUE; JURY TRIAL WAIVER
The
laws
of the Commonwealth of Massachusetts shall apply to this Agreement. PLEDGOR
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY,
THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR
PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF
OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, PLEDGOR ACCEPTS JURISDICTION
OF
THE COURTS AND VENUE IN SANTA XXXXX COUNTY, CALIFORNIA.
PLEDGOR
AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
(a) This
Agreement may not be amended or modified except by a written instrument signed
by Bank and Pledgor.
(b) This
Agreement and the agreements and instruments executed in connection therewith
constitute the entire agreement between Bank and Pledgor with respect to the
subject matter hereof and supersede all prior agreements, understandings, offers
and negotiations, oral or written.
(c) This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original, but all of which shall together constitute one and the
same
document.
12. Termination. This
Agreement shall terminate on the earlier to occur of (i) the date which is
two
(2) years from the Effective Date of the Loan Agreement (the “Release Date”)
provided no Event of Default has occurred and is continuing thereunder or (ii)
if an Event of Default has occurred and is continuing on the Release Date,
immediately upon the cure of such Event of Default. Upon the termination of
this
Agreement, Bank shall return any certificates for the securities included in
the
Pledged Collateral to Pledgor, to the extent Bank has possession of same, and
shall terminate any control agreements relating to this Agreement.
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EXECUTED
as a
sealed instrument this 4th
day of
August, 2006 under the laws of the Commonwealth of Massachusetts.
PLEDGOR:
XXXXXXXX
TECHNOLOGIES, INC.
By:
/s/
Xxxx
Xxxxxxx
Name:
Xxxx
Xxxxxxx
Title:
Chief
Financial
Officer
BANK:
SILICON
VALLEY BANK
By:
/s/
Xxxxxxx
Xxxxxxx
Name:
Xxxxxxx
Xxxxxxx
Title:
Senior
Vice
President
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