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EXHIBIT
10.1
RELEASE
AGREEMENT
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 ”):
W
I T N E S S E T H T H A T:
WHEREAS,
Technest and Markland Technologies, Inc. (“
Markland ”) 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
WHEREAS, Markland assigned
all of its rights in the Stockholder Agreement, including
with respect to the $250,000 receivable, and the License
Agreement (collectively, the “ Assets ”)
to Southridge pursuant to that certain Assignment and
Assumption Agreement dated as of August 30, 2007 between
Markland, as assignor, and Southridge, as assignee;
and
WHEREAS, as owner of 100%
of the rights previously enjoyed by Markland, Southridge is
willing to (a) to terminate the obligations set forth in
Section 1 of the Stockholder Agreement that restrict the
ability of Technest to issue equity securities, convertible
debt or derivative securities (the “ Technest Equity
Restrictions ”), (b) to terminate the obligations
set forth in Section 5 of the Stockholder Agreement relating
to the right of co-sale (the “ Right of Co-Sale
”) and (c) terminate the License Agreement in its
entirety upon the satisfaction of the terms and conditions
set forth herein; and
WHEREAS, as consideration
for such release and relinquishment by Southridge, Technest
is willing to (i) release Southridge from its obligations,
and relinquish any and all contractual rights and claims
Technest may possess, arising from or in any way related to
the Assets; and (ii) offer to Southridge, and Southridge is
willing to accept from Technest, 3,000,000 shares of
Technest’s common stock, $0.001 par value per share
(“ Common Stock ”); and
WHEREAS,
the parties hereto wish to enter into certain agreements
regarding the voting of shares of Common Stock of Technest
owned by the parties to this Agreement and the ability of the
stockholders to act by written consent; and
WHEREAS, the parties
desire that Southridge have representation on the Board of
Directors of Technest in the manner described
herein.
NOW, THEREFORE, in
consideration of the agreements set forth herein and
intending to be legally bound by this Agreement, the parties
to this Agreement agree as follows:
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 Markland, 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
Markland, 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:
Section 2.10 ACTION WITHOUT
MEETING
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.
Southridge
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.
(b)
Southridge shall have the first option
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