FIRST AMENDED AND RESTATED SECURITY AGREEMENT

 

 

                           FIRST AMENDED AND RESTATED

                               SECURITY AGREEMENT

 

      THIS FIRST AMENDED AND RESTATED SECURITY AGREEMENT (the "Agreement")

entered into this 24th day of May, 2005, by and between Techsphere Systems

International, LLC, a Georgia limited liability company (the "Debtor") and Cyber

Defense Systems, Inc., a Florida corporation (the "Secured Party"), amends and

restates the Security Agreement between the parties dated May 20, 2005.

 

      In consideration of the mutual covenants contained herein, the parties

agree as follows:

 

      1. Grant of Security Interest. The Debtor hereby grants the Secured Party

a security interest in the following-described property (collectively the

"Collateral"):

 

            (a) Accounts Receivable and Other Intangibles. All of the Debtor's

accounts, contract rights, instruments, documents, chattel paper, general

intangibles (including, but not limited to, software, payment intangibles,

chooses in action, tax refunds, and insurance proceeds); any other obligations

or indebtedness owed to the Debtor from whatever source arising; all rights of

the Debtor to receive any payments in money or in kind; all guaranties of the

foregoing and security therefor; all the right, title, and interest of the

Debtor in and with respect to the goods, services, or other property that gave

rise to or that secure any of the foregoing and insurance policies and proceeds

relating thereto; all rights of the Debtor as an unpaid seller of goods and

services, including, but not limited to, the rights of stoppage in transit,

replevin, reclamation, and resale; and all of the foregoing, whether or not now

owned or hereafter created or acquired.

 

            (b) Inventory. All goods, merchandise, and other personal property

now owned or hereafter acquired by the Debtor that are held for sale or lease,

or are furnished to or to be furnished under any contract of services or are raw

materials, work-in- process, supplies, or materials used or consumed in the

Debtor's business, and all products thereof, and all substitutions,

replacements, additions, or accessions therefor or thereto.

 

            (c) Machinery, Equipment, Furniture, and Fixtures. All machinery and

equipment and furniture and fixtures now owned, or hereafter acquired, by the

Debtor and used or acquired for use in the business of the Debtor, together with

all accessions thereto and all substitutions and replacements thereof and parts

therefor.

 

            (d) Proceeds. All cash and noncash proceeds of the foregoing,

including, but not limited to, insurance proceeds, cash, checks, monies on

deposit in any bank or banks, and accounts receivable; provided that this

provision shall not be construed as a waiver of any restriction contained in

this Security Agreement against alienating or encumbering the Collateral.

 

            (e) Documents and Similar Items. All ledger sheets, files, records,

documents, and instruments (including, but not limited to computer programs,

tapes, disks, diskettes, and related electronic processing software) evidencing

an interest in or relating to the above.

 

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      2. Obligations Secured. The obligations secured by this Security Agreement

are:

 

            (a) Promissory Notes. Payment of the principal and interest due upon

the Promissory Note dated May 20, 2005 in the principal amount of $1,000,000.00

(plus such additional amount as may be provided pursuant to Section 1 of that

certain Agreement between Debtor and Secured Party of even date), and the

Promissory Note dated May 24, 2005 in the principal amount of $250,000, in which

the Debtor is the maker and the Secured Party is the payee (collectively, the

"Promissory Note").

 

            (b) Other Covenants and Conditions. Performance or observance by the

Debtor of the other covenants and conditions of the Promissory Note and of the

covenants and conditions of this Security Agreement.

 

            (c) Other Obligations. Any other indebtedness, liability, or

obligation of the Debtor to the Secured Party, however arising, whether now

existing or herafter arising, due or not due, absolute or contingent, liquidated

or unliquidated, including indebtedness, liabilities, and obligations on which

the Debtor is jointly liable with other parties, provided the indebtedness,

liability or obligation arises out of or relates to the Secured Party's

negotiations with 21st Century Airships, Inc., or the McClure/Hadden/Fontaine

creditors, as described in the Agreement between Debtor and Secured Party of

even date.

 

            (d) Expenses of Secured Party. All expenses incurred or paid by the

Secured Party for purposes of conserving and protecting the Collateral,

including, but not limited to, reasonable attorney's fees and other legal

expenses incurred in connection with retaking, holding, preparing for sale, and

selling the Collateral.

 

            (e) Legal Expenses. Reasonable attorney's fees and other expenses

incurred by the Secured Party in any legal proceeding, in the trial court or on

appeal, brought to enforce or to collect any obligation secured by this Security

Agreement, or to enforce any term or provision of this Security Agreement,

including any legal proceeding brought to foreclose or otherwise realize upon

the Collateral.

 

      3. Debtor's Representations And Warranties. The Debtor represents and

warrants to the Secured Party that:

 

            (a) Organization. The Debtor is a limited liability company duly

organized, validly existing, and in good standing under the laws of the state of

Georgia, with all corporate powers necessary to own its assets and property and

to carry on its business as now owned and conducted. Debtor's organizational

identification number is ____________.

 

 

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            (b) Authority. The Debtor has full corporate power and authority to

execute and deliver this Security Agreement, to perform the Debtor's obligations

under this Security Agreement, and the execution and delivery of this agreement

has been duly authorized and approved by the Debtors board of managers. This

Security Agreement will not result in or constitute a default or an event that,

with notice or lapse of time or both, would be a default, breach, or violation

of the articles of organization or operating agreement or any other charter

document of the Debtor, or any lease, license, promissory note, conditional

sales contract, commitment, indenture, mortgage, deed of trust, or other

agreement, instrument, or arrangement to which the Debtor is a party or by which

the Debtor, or any of the Collateral, is bound.

 

            (c) Ownership of Collateral. Debtor is the sole owner of the

Collateral, free and clear of any and all liens or encumbrances, and will defend

the same against all claims and demands of all persons.

 

            (d) Accounts Receivable. Each of the accounts receivable included in

the Collateral is genuine, valid, and represents an existing claim arising out

of products sold or services rendered by the Debtor to the account debtor.

 

      4. Debtor's Rights and Covenants.

 

             (a) Possession of Collateral. Until there is a default under the

terms of this Security Agreement, the Debtor may retain possession of the

Collateral and may use the Collateral in a manner not inconsistent with this

Security Agreement.

 

            (b) No Disposition of Collateral. Except for its inventory, which

the Debtor may sell, lease, or otherwise transfer in the ordinary course of the

Debtor's business, the Debtor shall not sell, transfer, lease, license, or

otherwise dispose of the Collateral.

 

            (c) Use of Collateral. The Debtor shall keep the Collateral in good

order and repair and shall protect the Collateral from waste, loss, or damage.

The Debtor shall not cause or permit the Collateral to be attached or affixed to

real estate in such manner that it will become a fixture. Debtor shall not use

or permit the use of the Collateral in violation of any applicable law, statute,

ordinance, or regulation. Except for the sale of inventory and the use of

equipment in the ordinary course of the Debtor's business, the Debtor shall not

remove any collateral from the address set forth below for the giving of notices

to the Debtor.

 

            (d) Liens, Encumbrances, and Taxes. The Debtor shall keep the

Collateral free and clear of any and all liens and encumbrances, excepting only

the lien created by this Security Agreement and the liens created upon the

purchase of machinery and equipment. The Debtor shall pay when due all taxes,

fees, or assessments imposed upon or with respect to the Collateral.

 

            (e) Records and Inspection. The Debtor shall at all times maintain

complete and accurate records of the Debtor's business, specifically including

Debtor's accounts receivable and contract rights, in accordance with generally

accepted accounting procedures and practices. The Secured Party, and the Secured

Party's agents or representatives, shall have the right to inspect and audit the

Debtor's books and records at all reasonable times. The Secured Party, and the

Secured Party's agents or representatives