Loan and Secy Agreement - Genex


     

    EXHIBIT
      10.2

     

    LOAN
      AND SECURITY AGREEMENT

    (Working
      Capital Line of Credit)

     

    This
      LOAN AND SECURITY AGREEMENT
      (this
“Agreement”) dated as of August 4, 2006, among (i) SILICON
      VALLEY BANK,
      a
      California chartered bank, with its principal place of business at
      3003 Tasman Drive, Santa Clara, California 95054 and
      with
      a loan production office located at One Newton Executive Park, Suite 200, 2221
      Washington Street, Newton, Massachusetts 02462 (FAX 617-969-5965) (“Bank”)
and
      (ii)
TECHNEST
      HOLDINGS, INC.,
      a
      Nevada corporation, with offices at 1
      McKinley Sq., Fifth Floor, Boston, Massachusetts 02109 (“Technest”),
      E-OIR
      TECHNOLOGIES, INC.,
      a
      Virginia corporation, with offices at 10300
      Spotsylvania Ave., Suite 220, Fredericksburg, Virginia 22408 (“EOIR”),
      and GENEX
      TECHNOLOGIES INCORPORATED,
      a
      Maryland corporation, with offices at 10411
      Motor City Drive, Suite 650, Bethesda, Maryland 20817
      (“Genex”) (hereinafter,
      Technest, EOIR and Genex are jointly and severally, individually and
      collectively, referred to as “Borrower”),
      provides the terms on which Bank shall lend to Borrower and Borrower shall
      repay
      Bank. The parties agree as follows:

     

    
                      1    ACCOUNTING
        AND OTHER TERMS

    

     

    Accounting
      terms not defined in this Agreement shall be construed following GAAP.
      Calculations and determinations must be made following GAAP. The term “financial
      statements” includes the notes and schedules. The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
      any Loan Document. Capitalized terms in this Agreement shall have the meanings
      set forth in Article 13. All other terms contained in this Agreement, unless
      otherwise indicated, shall have the meaning provided by the Code, to the extent
      such terms are defined therein.

     

    2    LOAN
      AND TERMS OF PAYMENT

     

    2.1        
      Promise
      to Pay.
      Borrower hereby unconditionally promises to pay Bank the unpaid principal amount
      of all Advances hereunder with all interest, fees and finance charges due
      thereon as and when due in accordance with this Agreement.

     

    2.1.1     
      Financing
      of Accounts.

     

                                  
      (a)    Availability.
      Subject
      to the terms of this Agreement, Borrower may request that Bank finance specific
      Eligible Accounts. Bank may, in its good faith business discretion, finance
      such
      Eligible Accounts by extending credit to Borrower in an amount equal to the
      result of the Advance Rate multiplied by the face amount of the Eligible Account
      (the “Advance”). Bank may, in its sole discretion, change the percentage of the
      Advance Rate for a particular Eligible Account on a case by case basis. When
      Bank makes an Advance, the Eligible Account becomes a “Financed Receivable.”


     

                                  
      (b)    Maximum
      Advances; Aggregate Cap.
      The
      aggregate face amount of all Financed Receivables outstanding at any time may
      not exceed the Facility Amount. In addition, the aggregate amount of Obligations
      under this Agreement, together with the aggregate amount of Obligations as
      defined in the Term Loan Agreement, shall not exceed Ten Million Dollars
      ($10,000,000.00) outstanding at any time. In the event such aggregate amount
      of
      Obligations exceed $10,000,000.00 outstanding at any time, such excess shall
      be
      repaid immediately to Bank in good funds.

     

                                   
      (c)    Borrowing
      Procedure.
      Borrower will deliver an Invoice Transmittal for each Eligible Account it
      offers. Bank may rely on information set forth in or provided with the Invoice
      Transmittal. 

     

                                    (d)    Credit
      Quality; Confirmations.
      Bank
      may, at its option, conduct a credit check of the Account Debtor for each
      Account requested by Borrower for financing hereunder
      in order to approve any such Account Debtor’s credit before agreeing to finance
      such Account. Bank may also verify directly with the respective Account Debtors
      the validity, amount and other matters relating to the Accounts (including
      confirmations of Borrower’s representations in Section 5.3) by means of mail,
      telephone or otherwise, either in the name of Borrower or Bank from time to
      time
      in its sole discretion. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

                                  
      (e)    Accounts
      Notification/Collection.
      Bank
      may notify any Person owing Borrower money of Bank’s security interest in the
      funds and verify and/or collect the amount of the Account.

     

                                  
      (f)    Early
      Termination.
      This
      Agreement may be terminated prior to the Maturity Date as follows: (i) by
      Borrower, effective three Business Days after written notice of termination
      is
      given to Bank; or (ii) by Bank at any time after the occurrence of an Event
      of
      Default, without notice, effective immediately. If this Agreement is terminated
      (A) by Bank in accordance with clause (ii) in the foregoing sentence, or (B)
      by
      Borrower for any reason, Borrower shall pay to Bank a termination fee in an
      amount equal to Seventy Thousand Dollars ($70,000.00) (the “Early Termination
      Fee”). The Early Termination Fee shall be due and payable on the effective date
      of such termination and thereafter shall bear interest at a rate equal to the
      highest rate applicable to any of the Obligations. Notwithstanding the
      foregoing, Bank agrees to waive the Early Termination Fee if Bank agrees to
      refinance and redocument this Agreement under another division of Bank (in
      its
      sole and exclusive discretion) prior to the Maturity Date.

     

                                  
      (g)    Maturity.
      This
      Agreement shall terminate and all Obligations outstanding hereunder shall be
      immediately due and payable on the Maturity Date.

     

                                  
      (h)    Suspension
      of Advances.
      Borrower’s ability to request that Bank finance Eligible Accounts hereunder will
      terminate if, in Bank’s sole discretion, there has been a material adverse
      change in the general affairs, management, results of operation, condition
      (financial or otherwise) or the prospect of repayment of the Obligations, or
      there has been any material adverse deviation by Borrower from the most recent
      business plan of Borrower presented to and accepted by Bank prior to the
      execution of this Agreement.

     

    2.2         Collections,
      Finance Charges, Remittances and Fees.
      The
      Obligations shall be subject to the following fees and Finance Charges. Unpaid
      fees and Finance Charges may, in Bank’s discretion, accrue interest and fees as
      described in Section 9.2 hereof. 

     

    2.2.1     Collections.
      Collections will be credited to the Financed Receivable Balance for such
      Financed Receivable, but if there is an Event of Default, Bank may apply
      Collections to the Obligations in any order it chooses. If Bank receives a
      payment for both a Financed Receivable and a non-Financed Receivable, the funds
      will first be applied to the Financed Receivable and, if there is no Event
      of
      Default then existing, the excess will be remitted to Borrower, subject to
      Section 2.2.7. 

     

    2.2.2     Facility
      Fee.
      A fully
      earned, non-refundable facility fee of Eighty-Seven Thousand Five Hundred
      Dollars ($87,500.00) is due upon execution of this Agreement.

     

    2.2.3     Finance
      Charges.
      In
      computing Finance Charges on the Obligations under this Agreement, all
      Collections received by Bank shall be deemed applied by Bank on account of
      the
      Obligations three (3) Business Days after receipt of the Collections. Borrower
      will pay a finance charge (the “Finance Charge”) on each Financed Receivable
      which is equal to the Applicable Rate divided
      by
      360
multiplied
      by
      the
      number of days each such Financed Receivable is outstanding multiplied
      by
      the
      outstanding Financed Receivable Balance. The Finance Charge is payable when
      the
      Advance made based on such Financed Receivable is payable in accordance with
      Section 2.3 hereof. In
      the
      event that the aggregate amount of Finance Charges earned by Bank in any fiscal
      quarter is less than the Minimum Finance Charge, Borrower shall pay to Bank
      an
      additional Finance Charge equal to (i) the Minimum Finance Charge minus (ii)
      the
      aggregate amount of all Finance Charges earned by Bank in such fiscal quarter.
      Such additional Finance Charge shall be payable on the first day of next fiscal
      quarter.

     

    2.2.4     Collateral
      Handling Fee.
      Borrower will pay to Bank a collateral handling fee equal to 0.10% per month
      of
      the Financed Receivable Balance for each Financed Receivable outstanding based
      upon a 360 day year (the “Collateral Handling Fee”). This fee is charged on a
      daily basis which is equal to the Collateral Handling Fee divided by 30,
      multiplied by the number of days each such Financed Receivable is outstanding,
      multiplied by the outstanding Financed Receivable Balance. The Collateral
      Handling Fee is payable when the Advance made based on such Financed Receivable
      is payable in accordance with Section 2.3 hereof. In computing Collateral
      Handling Fees under this Agreement, all Collections received by Bank shall
      be
      deemed applied by Bank on account of Obligations three (3) Business Days after
      receipt of the Collections. After an Event of Default, the Collateral Handling
      Fee will increase an additional 0.50% effective immediately upon such Event
      of
      Default.

     

    
      
        
        

      

      
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    2.2.5     Accounting.
      After
      each Reconciliation Period, Bank will provide an accounting of the transactions
      for that Reconciliation Period, including the amount of all Financed
      Receivables, all Collections, Adjustments, Finance Charges, Collateral Handling
      Fee and the Facility Fee. If Borrower does not object to the accounting in
      writing within thirty (30) days it shall be considered accurate. All Finance
      Charges and other interest and fees are calculated on the basis of a 360 day
      year and actual days elapsed.

     

    2.2.6     Deductions.
      Bank may
      deduct fees, Finance Charges, Advances which become due pursuant to Section
      2.3,
      and other amounts due pursuant to this Agreement from any Advances made or
      Collections received by Bank.

     

    2.2.7     Lockbox;
      Account Collection Services.
      Borrower shall direct each Account Debtor (and each depository institution
      where
      proceeds of Accounts are on deposit) to remit payments with respect to the
      Accounts to a lockbox account established with Bank or to wire transfer payments
      to a cash collateral account that Bank controls (collectively, the “Lockbox”).
      It will be considered an immediate Event of Default if the Lockbox is not set-up
      and operational within thirty (30) days of the Closing Date, provided that
      such
      failure is due to no fault of Bank. If such Lockbox is not established, then,
      until such Lockbox is established, the proceeds of the Accounts shall be paid
      by
      the Account Debtors to an address consented to by Bank. Upon receipt by Borrower
      of such proceeds, Borrower shall immediately transfer and deliver same to Bank,
      along with a detailed cash receipts journal. Provided no Event of Default exists
      or an event that with notice or lapse of time will be an Event of Default,
      within three (3) days of receipt of such amounts by Bank, Bank will turn over
      to
      Borrower the proceeds of the Accounts other than Collections with respect to
      Financed Receivables and the amount of Collections in excess of the amounts
      for
      which Bank has made an Advance to Borrower, less any amounts due to Bank, such
      as the Finance Charge, the Facility Fee, payments due to Bank, other fees and
      expenses, or otherwise; provided, however, Bank may hold such excess amount
      with
      respect to Financed Receivables as a reserve until the end of the applicable
      Reconciliation Period if Bank, in its discretion, determines that other Financed
      Receivable(s) may no longer qualify as an Eligible Account at any time prior
      to
      the end of the subject Reconciliation Period. This Section does not impose
      any
      affirmative duty on Bank to perform any act other than as specifically set
      forth
      herein. All Accounts and the proceeds thereof are Collateral and if an Event
      of
      Default occurs, Bank may apply the proceeds of such Accounts to the
      Obligations.

     

    2.2.8     Good
      Faith Deposit.
      Borrower has paid to Bank a Good Faith Deposit of Fifty Thousand Dollars
      ($50,000.00) (the “Good Faith Deposit”) to initiate Bank’s due diligence review
      process. Any portion of the Good Faith Deposit not utilized to pay Bank Expenses
      will be applied to the Facility Fee.

     

    2.3        Repayment
      of Obligations; Adjustments.

     

    2.3.1    Repayment.
      Borrower will repay each Advance on the earliest of: (a) the date on which
      payment is received of the Financed Receivable with respect to which the Advance
      was made, (b) the date on which the Financed Receivable is no longer an Eligible
      Account, (c) the date on which any Adjustment is asserted to the Financed
      Receivable (but only to the extent of the Adjustment if the Financed Receivable
      remains otherwise an Eligible Account), (d) the date on which there is a breach
      of any warranty or representation set forth in Section 5.3, or (e) the Maturity
      Date (including any early termination). Each payment will also include all
      accrued Finance Charges and Collateral Handling Fees with respect to such
      Advance and all other amounts then due and payable hereunder.

     

    2.3.2    Repayment
      on Event of Default.
      Following the occurrence of an Event of Default and while it is continuing,
      Borrower will, if Bank demands (or, upon the occurrence of an Event of Default
      under Section 8.5, immediately without notice or demand from Bank) repay all
      of
      the Advances. The demand may, at Bank’s option, include the Advance for each
      Financed Receivable then outstanding and all accrued Finance Charges, the Early
      Termination Fee, Collateral Handling Fee, attorneys’ and professional fees,
      court costs and expenses, and any other Obligations.

     

    
      
        
        

      

      
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    2.3.3     Debit
      of Accounts.
      Bank
      may debit any of Borrower’s deposit accounts for payments or any amounts
      Borrower owes Bank hereunder. Bank shall promptly notify Borrower when it debits
      Borrower’s accounts. These debits shall not constitute a set-off.

     

    2.3.4     Adjustments.
      If at
      any time during the term of this Agreement any Account Debtor asserts an
      Adjustment or if Borrower issues a credit memorandum or if any of the
      representations, warranties or covenants set forth in Section 5.3 are no longer
      true in all material respects, Borrower will promptly advise Bank. 

     

    2.4        Power
      of Attorney.
      Borrower
      irrevocably appoints Bank and its successors and assigns as attorney-in-fact
      and
      authorizes Bank, to: (i) following the occurrence and during the continuance
      of
      an Event of Default, sell, assign, transfer, pledge, compromise, or discharge
      all or any part of the Financed Receivables; (ii) following the occurrence
      and
      during the continuance of an Event of Default, demand, collect, sue, and give
      releases to any Account Debtor for monies due and compromise, prosecute, or
      defend any action, claim, case or proceeding about the Financed Receivables,
      including filing a claim or voting a claim in any bankruptcy case in Bank’s or
      Borrower’s name, as Bank chooses; (iii) following the occurrence and during the
      continuance of an Event of Default, prepare, file and sign Borrower’s name on
      any notice, claim, assignment, demand, draft, or notice of or satisfaction
      of
      lien or mechanics’ lien or similar document; (iv) regardless of whether there
      has been an Event of Default, notify all Account Debtors to pay Bank directly
      (except where the particular Financed Receivable meets the requirements set
      forth in subsection (d) of the definition of “Eligible Accounts”); (v)
      regardless of whether there has been an Event of Default, receive and open
      mail
      addressed to Borrower; (vi) regardless of whether there has been an Event of
      Default, endorse Borrower’s name on checks or other instruments (to the extent
      necessary to pay amounts owed pursuant to this Agreement); and (vii) regardless
      of whether there has been an Event of Default, execute on Borrower’s behalf any
      instruments, documents, financing statements to perfect Bank’s interests in the
      Financed Receivables and Collateral and do all acts and things necessary or
      expedient, as determined solely and exclusively by Bank, to protect or preserve,
      Bank’s rights and remedies under this Agreement, as directed by
      Bank.

     

    3    CONDITIONS
      OF LOANS

     

    3.1         Conditions
      Precedent to Initial Advance.
      Bank’s
      agreement to make the initial Advance is subject to the condition precedent
      that
      Bank shall have received, in form and substance satisfactory to Bank, such
      documents, and completion of such other matters, as Bank may reasonably deem
      necessary or appropriate, including, without limitation, subject to the
      condition precedent that Bank shall have received, in form and substance
      satisfactory to Bank, the following from each Borrower:

     

                                  (a)    a
      certificate of the Secretary of Borrower with respect to articles, bylaws,
      incumbency and resolutions authorizing the execution and delivery of this
      Agreement, the Loan Documents, and all transactions related thereto, including
      the Warrant;

     

                                 
      (b)    an
      Intellectual Property Security Agreement;

     

                                 
      (c)    subordination
      agreements/intercreditor agreements by certain Persons;

     

                                 
      (d)    Perfection
      Certificates by Borrower and Guarantor;

     

                                 
      (e)    a
      legal
      opinion of Borrower’s and Guarantor’s counsel
      (authority/enforceability);

     

                                  
      (f)    guaranty
      by the Guarantor;

     

                                  
      (g)    Stock
      Pledge Agreement by the Guarantor;

     

                                   (h)    Warrant
      to Purchase Stock;

     

                                   
      (i)    Securities
      Account Control Agreements;

     

    (j)    Certificates
      of insurance evidencing compliance with Section 6.4 hereof;

     

    
      
        
        

      

      
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                                   (k)    payment
        of the fees and Bank Expenses then due and payable;

    

     

                                 
      (l)    Certificate
      of Foreign Qualification (if applicable); 

     

                                
      (m)           Certificate
      of Good Standing/Legal Existence; 

     

                                
      (n)    the
      Initial Audit;

     

                                
      (o)    payoff
      letter from existing lienholders;

     

                                
      (p)    duly
      executed original signatures to the Control Agreements;

     

                                 (q)    evidence
      of the release of all claims held by and the termination of any litigation
      brought by Joseph Moulton against each Borrower, in form and substance
      satisfactory to Bank; and

     

                                 
      (r)    such
      other documents, and completion of such other matters, as Bank may reasonably
      deem necessary or appropriate.

     

    3.2       
      Conditions
      Precedent to all Advances.
      Bank’s
      agreement to make each Advance, including the initial Advance, is subject to
      the
      following:

     

                                  (a)    receipt
      of the Invoice Transmittal; 

     

                                 
      (b)    Bank
      shall have (at its option) conducted the confirmations and verifications as
      described in Section 2.1.1(d); and

     

                                  (c)    each
      of
      the representations and warranties in Article 5 shall be true on the date of
      the
      Invoice Transmittal and on the effective date of each Advance and no Event
      of
      Default shall have occurred and be continuing, or result from the Advance.
      Each
      Advance is Borrower’s representation and warranty on that date that the
      representations and warranties in Article 5 remain true.

     

    4    CREATION
      OF SECURITY INTEREST

     

    4.1        
      Grant
      of Security Interest.
      Borrower hereby grants Bank, to secure the payment and performance in full
      of
      all of the Obligations and the performance of each of Borrower’s duties under
      the Loan Documents, a continuing security interest in, and pledges and assigns
      to Bank, the Collateral, wherever located, whether now owned or hereafter
      acquired or arising, and all proceeds and products thereof. Borrower warrants
      and represents that the security interest granted herein shall be a first
      priority security interest in the Collateral. 

     

    Except
      as
      noted in the Disclosure Schedule hereto, Borrower is not a party to, nor is
      bound by, any material license (other than over the counter software that is
      commercially available to the public) or other material agreement with respect
      to which Borrower is the licensee that prohibits or otherwise restricts Borrower
      from granting a security interest in Borrower’s interest in such license or
      agreement or any other property. Borrower shall provide written notice to Bank
      within ten (10) days of entering or becoming bound by, any such license or
      agreement which is reasonably likely to have a material impact on Borrower’s
      business or financial condition. Borrower shall take such steps as Bank requests
      to obtain the consent of, authorization by, or waiver by, any person whose
      consent or waiver is necessary for all such licenses or contract rights to
      be
      deemed “Collateral” and for Bank to have a security interest in it that might
      otherwise be restricted or prohibited by law or by the terms of any such license
      or agreement (such consent or authorization may include a licensor’s agreement
      to a contingent assignment of the license to Bank if the Bank determines that
      is
      necessary in its good faith judgment), whether now existing or entered into
      in
      the future.

     

    If
      the
      Agreement is terminated, Bank’s lien and security interest in the Collateral
      shall continue until Borrower fully satisfies its Obligations. If Borrower
      shall
      at any time, acquire a commercial tort claim, Borrower shall promptly notify
      Bank in a writing signed by Borrower of the brief details thereof and grant
      to
      Bank in such writing a security interest therein and in the proceeds thereof,
      all upon the terms of this Agreement, with such writing to be in form and
      substance satisfactory to Bank. 

     

    
      
        
        

      

      
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    4.2        
      Authorization
      to File Financing Statements.
      Borrower
      hereby authorizes Bank to file financing statements, without notice to Borrower,
      with all appropriate jurisdictions in order to perfect or protect Bank’s
      interest or rights hereunder, which financing statements may indicate the
      Collateral as “all assets of the Debtor” or words of similar effect, or as being
      of an equal or lesser scope, or with greater detail, all in Bank’s discretion
      and may also include a notice that any disposition of the Collateral, by either
      Borrower or any other Person, shall be deemed to violate the rights of Bank
      under the Code.

     

    5    REPRESENTATIONS
      AND WARRANTIES

     

    Borrower
      represents and warrants as follows: 

     

    5.1        
      Due
      Organization and Authorization.
      Borrower and each of its Subsidiaries is duly existing and in good standing
      in
      its state of formation and qualified and licensed to do business in, and in
      good
      standing in, any state in which the conduct of its business or its ownership
      of
      property requires that it be qualified except where the failure to do so could
      not reasonably be expected to cause a Material Adverse Change. Each Borrower
      represents and warrants to Bank that: (a) Borrower’s exact legal name is that
      indicated on the Perfection Certificate and on the signature page hereof; and
      (b) Borrower is an organization of the type, and is organized in the
      jurisdiction, set forth in the Perfection Certificate; and (c) the Perfection
      Certificate accurately sets forth Borrower’s organizational identification
      number or accurately states that Borrower has none; and (d) the Perfection
      Certificate accurately sets forth Borrower’s place of business, or, if more than
      one, its chief executive office as well as Borrower’s mailing address if
      different; and (e) all other information set forth on the Perfection Certificate
      pertaining to Borrower is accurate and complete. If Borrower does not now have
      an organizational identification number, but later obtains one, Borrower shall
      forthwith notify Bank of such organizational identification number.

     

    The
      execution, delivery and performance of the Loan Documents have been duly
      authorized, and do not conflict with Borrower’s organizational documents, nor
      constitute an event of default under any material agreement by which Borrower
      is
      bound. Borrower is not in default under any agreement to which or by which
      it is
      bound in which the default could reasonably be expected to cause a Material
      Adverse Change.

     

    5.2        
      Collateral.
      Borrower has good title to the Collateral, free of Liens except Permitted Liens.
      All inventory is in all material respects of good and marketable quality, free
      from material defects. Borrower has no deposit account, other than the deposit
      accounts with Bank and deposit accounts described in the Perfection Certificate
      delivered to Bank in connection herewith. The Collateral is not in the
      possession of any third party bailee (such as a warehouse). Except as hereafter
      disclosed to Bank in writing by Borrower, none of the components of the
      Collateral shall be maintained at locations other than as provided in the
      Perfection Certificate. In the event that Borrower, after the date hereof,
      intends to store or otherwise deliver any portion of the Collateral to a bailee,
      then Borrower will first receive the written consent of Bank and such bailee
      must acknowledge in writing that the bailee is holding such Collateral for
      the
      benefit of Bank. 

     

    5.3        
      Financed
      Receivables.
      Borrower represents and warrants for each Financed Receivable:

     

    (a)    Each
      Financed Receivable is an Eligible Account;

     

    (b)    Borrower
      is the owner with legal right to sell, transfer, assign and encumber such
      Financed Receivable;

     

    (c)    The
      correct amount is on the Invoice Transmittal and is not disputed;

     

    (d)    Payment
      is not contingent on any obligation or contract and Borrower has fulfilled
      all
      its obligations as of the Invoice Transmittal date;

     

    
      
        
        

      

      
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    (e)    Each
      Financed Receivable is based on an actual sale and delivery of goods and/or
      services rendered, is due to Borrower, is not past due or in default, has not
      been previously sold, assigned, transferred, or pledged and is free of any
      liens, security interests and encumbrances other than Permitted
      Liens;

     

    (f)    There
      are
      no defenses, offsets, counterclaims or agreements for which the Account Debtor
      may claim any deduction or discount;

     

    (g)    Borrower
      reasonably believes no Account Debtor is insolvent or subject to any Insolvency
      Proceedings; 

     

    (h)    Borrower
      has not filed or had filed against it Insolvency Proceedings and does not
      anticipate any filing;

     

    (i)    Bank
      has
      the right to endorse and/ or require Borrower to endorse all payments received
      on Financed Receivables and all proceeds of Collateral; and

     

    (j)    Each
      Financed Receivable and all related documents are accurate and correct in all
      material respects and are not misleading.

     

    5.4         Litigation.
      Except
      as set forth on the Disclosure Schedule attached hereto, there are no actions
      or
      proceedings pending or, to the knowledge of Borrower’s Responsible Officers or
      legal counsel, threatened by or against Borrower or any of its Subsidiaries
      in
      which an adverse decision could reasonably be expected to cause a Material
      Adverse Change.

     

    5.5        
      No
      Material Deviation in Financial Statements.
      All
      consolidated financial statements for Borrower and any Subsidiary delivered
      to
      Bank fairly present in all material respects Borrower’s consolidated financial
      condition and Borrower’s consolidated results of operations in accordance with
      GAAP. There has not been any material deterioration in Borrower’s consolidated
      financial condition since the date of the most recent financial statements
      submitted to Bank.

     

    5.6        
      Solvency.
      Borrower is able to pay its debts (including trade debts) as they
      mature.

     

    5.7        
      Regulatory
      Compliance.
      Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
      as one of its important activities in extending credit for margin stock (under
      Regulations X, T and U of the Federal Reserve Board of Governors). Borrower
      has
      complied in all material respects with the Federal Fair Labor Standards Act.
      Borrower has not violated any laws, ordinances or rules, the violation of which
      could reasonably be expected to cause a Material Adverse Change. None of
      Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
      any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
      disposing, producing, storing, treating, or transporting any hazardous substance
      other than legally. Borrower and each Subsidiary has timely filed all required
      tax returns and paid, or made adequate provision to pay, all material taxes,
      except those being contested in good faith with adequate reserves under GAAP.
      Borrower and each Subsidiary has obtained all consents, approvals and
      authorizations of, made all declarations or filings with, and given all notices
      to, all government authorities that are necessary to continue its business
      as
      currently conducted except where the failure to obtain or make such consents,
      declarations, notices or filings would not reasonably be expected to cause
      a
      Material Adverse Change.

     

    5.8        
      Investment.
      Borrower does not own any stock, partnership interest or other equity securities
      except for Permitted Investments and except for Technest’s ownership of EOIR and
      Genex.

     

    5.9        
      Inactive
      Subsidiary.
      Argus
      Sensors, Inc. a Delaware corporation, and a Subsidiary of Technest, does not
      and
      will not conduct any business or own any assets and will remain an inactive
      entity.

     

    5.10      
      Litigation
      with Joseph Moulton.
      The
      litigation matter with Joseph Moulton described on the Disclosure Schedule
      has
      been settled in full (with respect to each Borrower), contingent only upon
      certain payments being made as described on the Disclosure Schedule. Aside
      from
      the making of the payments described on the Disclosure Schedule, all other
      conditions precedent to the Settlement Agreement have been satisfied in full.
      

     

    
      
        
        

      

      
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    5.11      
      Full
      Disclosure.
      No
      written representation, warranty or other statement of Borrower in any
      certificate or written statement given to Bank, as of the date such
      representations, warranties, or other statements were made, taken together
      with
      all such written certificates and written statements given to Bank, contains
      any
      untrue statement of a material fact or omits to state a material fact necessary
      to make the statements contained in the certificates or statements not
      misleading (it being recognized by Bank that the projections and forecasts
      provided by Borrower in good faith and based upon reasonable assumptions are
      not
      viewed as facts and that actual results during the period or periods covered
      by
      such projections and forecasts may differ from the projected or forecasted
      results).

     

    6    AFFIRMATIVE
      COVENANTS

     

    Borrower
      shall do all of the following:

     

    6.1        
      Government
      Compliance.
      Borrower shall maintain its and all Subsidiaries’ legal existence and good
      standing in their respective jurisdictions of formation and maintain
      qualification in each jurisdiction in which the failure to so qualify would
      reasonably be expected to have a material adverse effect on Borrower’s business
      or operations. Borrower shall comply, and have each Subsidiary comply, with
      all
      laws, ordinances and regulations to which it is subject, noncompliance with
      which could have a material adverse effect on Borrower’s business or operations
      or would reasonably be expected to cause a Material Adverse Change.

     

    6.2        
      Financial
      Statements, Reports, Certificates.

     

                                  
      (a)    Borrower
      shall deliver to Bank: (i) as soon as available, but no later than thirty (30)
      days after the last day of each month, a company prepared consolidated balance
      sheet and income statement covering Borrower’s consolidated operations during
      the period certified by a Responsible Officer and in a form acceptable to Bank;
      (ii) as soon as available, but no later than one hundred twenty (120) days
      after
      the last day of Borrower’s fiscal year, audited consolidated financial
      statements prepared under GAAP, consistently applied, together with an
      unqualified opinion on the financial statements from an independent certified
      public accounting firm reasonably acceptable to Bank; (iii) for Borrower’s
      publicly held stock, copies of all statements, reports and notices made
      available to Borrower’s security holders or to any holders of Subordinated Debt
      and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and
      Exchange Commission; (iv) a prompt report of any legal actions pending or
      threatened against Borrower or any Subsidiary that is likely to result in
      damages or costs to Borrower or any Subsidiary of One Hundred Thousand Dollars
      ($100,000.00) or more; (v) prompt notice of any material change in the
      composition of the Intellectual Property, or the registration of any copyright,
      including any subsequent ownership right of Borrower in or to any copyright,
      patent or trademark not shown in the IP Agreement or knowledge of an event
      that
      materially adversely affects the value of the Intellectual Property; and (vi)
      budgets, sales projections, operating plans, cash collections reports, or other
      financial information reasonably requested by Bank.

     

    (b)    Within
      thirty (30) days after the last day of each month, Borrower shall deliver to
      Bank with the monthly financial statements a Compliance Certificate signed
      by a
      Responsible Officer in the form of Exhibit
      B.

     

    (c)    Borrower
      will allow Bank to audit Borrower’s Collateral, including, but not limited to,
      Borrower’s Accounts and accounts receivable, at Borrower’s expense, upon
      reasonable notice to Borrower; provided, however, prior to the occurrence of
      an
      Event of Default and while it is continuing, Borrower shall be obligated to
      pay
      for not more than one (1) audit per year. After the occurrence of an Event
      of
      Default, Bank may audit Borrower’s Collateral, including, but not limited to,
      Borrower’s Accounts and accounts receivable at Borrower’s expense and at Bank’s
      sole and exclusive discretion and without notification and authorization from
      Borrower. Notwithstanding the foregoing, no Advances may be requested prior
      to
      the Initial Audit.

     

    (d)    Upon
      Bank’s request, provide a written report respecting any Financed Receivable, if
      payment of any Financed Receivable does not occur by its due date and include
      the reasons for the delay.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

     

    (e)    Provide
      Bank with, as soon as available, but no later than thirty (30) days following
      each Reconciliation Period, an aged listing of accounts receivable and accounts
      payable by invoice date, in form acceptable to Bank.

     

    (f)    Provide
      Bank with, as soon as available, but no later than thirty (30) days following
      each Reconciliation Period, a Deferred Revenue report, in form acceptable to
      Bank.

     

    (g)    Provide
      Bank with, as soon as available, but no later than thirty (30) days following
      each Reconciliation Period, a funded backlog schedule, in form acceptable to
      Bank.

     

    6.3        
      Taxes.
      Borrower shall make, and cause each Subsidiary to make, timely payment of all
      material federal, state, and local taxes or assessments (other than taxes and
      assessments which Borrower is contesting in good faith, with adequate reserves
      maintained in accordance with GAAP) and will deliver to Bank, on demand,
      appropriate certificates attesting to such payments.

     

    6.4        
      Insurance.
      Borrower shall keep its business and the Collateral insured for risks and in
      amounts, and as Bank may reasonably request. Insurance policies shall be in
      a
      form, with companies, and in amounts that are satisfactory to Bank. All property
      policies shall have a lender’s loss payable endorsement showing Bank as an
      additional loss payee and all liability policies shall show Bank as an
      additional insured and all policies shall provide that the insurer must give
      Bank at least twenty (20) days notice before canceling its policy. At Bank’s
      request, Borrower shall deliver certified copies of policies and evidence of
      all
      premium payments. Proceeds payable under any policy shall, at Bank’s option, be
      payable to Bank on account of the Obligations. If Borrower fails to obtain
      insurance as required under this Section or to pay any amount or furnish any
      required proof of payment to third persons and Bank, Bank may make all or part
      of such payment or obtain such insurance policies required in this Section
      and
      take any action under the policies Bank deems prudent.

     

    6.5        
      Accounts.

     

    (a)    In
      order
      to permit Bank to monitor Borrower’s financial performance and condition,
      Borrower, and all Borrower’s Subsidiaries, shall maintain Borrower’s, and such
      Subsidiaries’, primary operating accounts and securities accounts with Bank and
      a majority of Borrower’s and such Subsidiaries’ cash or securities in excess of
      that amount used for Borrower’s or such Subsidiaries’ operations shall be
      maintained at Bank or SVB Securities. 

     

    (b)    Borrower
      shall identify to Bank, in writing, any bank or securities account opened by
      Borrower with any institution other than Bank. In addition, for each such
      account that Borrower or Guarantor at any time opens or maintains, Borrower
      shall, at Bank’s request and option, pursuant to an agreement in form and
      substance acceptable to Bank, cause the depository bank or securities
      intermediary to agree that such account is the collateral of Bank, and enter
      into a “control agreement” pursuant to the terms hereunder. The provisions of
      the previous sentence shall not apply to deposit accounts exclusively used
      for
      payroll, payroll taxes and other employee wage and benefit payments to or for
      the benefit of Borrower’s employees.

     

    6.6        
      Landlord’s
      Waivers.
      Borrower shall deliver to Bank, on or before the date that is fourteen (14)
      calendar days from the Closing Date, a fully-executed landlord’s waiver, in form
      and substance acceptable to Bank in its reasonable discretion, with respect
      to
      Borrower’s location at 10300 Spotsylvania Avenue, Suite 220, Fredericksburg,
      Virginia 22408. Borrower shall use its best efforts to deliver to Bank, on
      or
      before the date that is fourteen (14) calendar days from the Closing Date,
      a
      fully-executed landlord’s waiver, in form and substance acceptable to Bank in
      its reasonable discretion, with respect to the following locations: (a) Jackson
      Square Office Park, 4701 Carr Drive, Fredericksburg, Virginia 22408, and (b)
      Jackson Square Office Park, 4324 Carr Drive, Fredericksburg, Virginia
      22408.

     

    6.7        
      Further
      Assurances.
      Borrower shall execute any further instruments and take further action as Bank
      reasonably requests to perfect or continue Bank’s security interest in the
      Collateral or to effect the purposes of this Agreement.

     

    
      
        
        

      

      
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    7    NEGATIVE
      COVENANTS

     

    Borrower
      shall not do any of the following without Bank’s prior written consent, which
      consent shall not be unreasonably withheld:

     

    7.1        
      Dispositions.
      Convey,
      sell, lease, transfer, assign or otherwise dispose of (collectively a
“Transfer”), or permit any of its Subsidiaries to Transfer, all or any part of
      its business or property, including the Intellectual Property, except for
      Transfers (i) of inventory in the ordinary course of business; (ii) of
      non-exclusive licenses and similar arrangements for the use of the property
      of
      Borrower or its Subsidiaries in the ordinary course of business; or (iii) of
      worn-out or obsolete equipment. Borrower shall not enter into an agreement
      with
      any Person other than Bank which restricts the subsequent granting of a security
      interest in the Intellectual Property.

     

    7.2        
      Changes
      in Business, Ownership, Management or Business
      Locations.
      Except
      as permitted by Section 7.4, (a) engage in or permit any of its Subsidiaries
      to
      engage in any business other than the businesses currently engaged in by
      Borrower and such Subsidiary, as applicable, or reasonably related thereto;
      (b)
      liquidate or dissolve; or (c) (i) have the departure of any Key Person or
      (ii) enter
      into any transaction or series of related transactions in which the stockholders
      of Borrower immediately prior to the first such transaction own less than 50%
      of
      the voting stock of Borrower immediately after giving effect to such transaction
      or related series of such transactions
      (other
      than by the sale of Borrower’s equity securities in a public offering or to
      venture capital investors so long as Borrower identifies to Bank the venture
      capital investors prior to the closing of the transaction). Borrower shall
      not,
      without at least thirty (30) days prior written notice to Bank: (i) relocate
      its
      chief executive office, or add any new offices or business locations, including
      warehouses (unless such new offices or business locations contain less than
      Five
      Thousand Dollars ($5,000.00) in Borrower’s assets or property), or (ii) change
      its jurisdiction of organization, or (iii) change its organizational structure
      or type, or (iv) change its legal name, or (v) change any organizational number
      (if any) assigned by its jurisdiction of organization.

     

    7.3        
      Mergers
      or Acquisitions.
      Merge
      or consolidate, or permit any of its Subsidiaries to merge or consolidate,
      with
      any other Person, or acquire, or permit any of its Subsidiaries to acquire,
      all
      or substantially all of the capital stock or property of another Person. A
      Subsidiary may merge or consolidate into another Subsidiary or into
      Borrower.

     

    7.4        
      Indebtedness.
      Create,
      incur, assume, or be liable for any Indebtedness, or permit any Subsidiary
      to do
      so, other than Permitted Indebtedness.

     

    7.5        
      Encumbrance.
      Create,
      incur, or allow any Lien on any of its property, including the Intellectual
      Property, or assign or convey any right to receive income, including the sale
      of
      any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
      Liens, or permit any Collateral not to be subject to the first priority security
      interest granted herein. The Collateral may also be subject to Permitted
      Liens.

     

    7.6        
      Distributions;
      Investments.
      (i)
      Directly or indirectly acquire or own any Person, or make any Investment in
      any
      Person, other than Permitted Investments, or permit any of its Subsidiaries
      to
      do so; or (ii) pay any dividends or make any distribution or payment or redeem,
      retire or purchase any capital stock. Borrower
      may repurchase the stock of former employees or consultants pursuant to stock
      repurchase agreements so long as an Event of Default does not exist at the
      time
      of such repurchase and would not exist after giving effect to such repurchase,
      provided such repurchase does not exceed in the aggregate of $100,000 per fiscal
      year. 

     

    7.7        
      Transactions
      with Affiliates.
      Directly or indirectly enter into or permit to exist any material transaction
      with any Affiliate of Borrower, except for transactions that are in the ordinary
      course of Borrower’s business, upon fair and reasonable terms that are no less
      favorable to Borrower than would be obtained in an arm’s length transaction with
      a non-affiliated Person. Notwithstanding the foregoing, the Borrower may not
      make any direct or indirect payment, transfer or other distribution to Markland,
      except for (a) loan payments to Markland made in accordance with the Disclosure
      Schedule, (b) payments to Markland pursuant to the Stockholder Agreement in
      effect on the Effective Date and as set forth on the Disclosure Schedule, and
      (c) payments for services rendered by Markland in the ordinary course of
      business, provided, that, in the case of (a) through (b) above, Borrower
      provides prior written notice to Bank within thirty (30) days of any such
      payment, which notice contains the amount of such payment, the purpose of such
      payment, and a specific reference to this Section 7.7, and provided further,
      that, in the case of (a) through (c) above, no Event of Default exists or would
      result at any time after giving effect to such transaction, either immediately
      or solely as a result of the passage of time.

     

    
      
        
        

      

      
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    7.8        
      Subordinated
      Debt.
      Make or
      permit any payment on any Subordinated Debt, except under the terms of the
      Subordinated Debt, or amend any provision in any document relating to the
      Subordinated Debt, without Bank’s prior written consent.

     

    7.9        
      Compliance.
      Become
      an “investment company” or a company controlled by an “investment company”,
      under the Investment Company Act of 1940 or undertake as one of its important
      activities extending credit to purchase or carry margin stock, or use the
      proceeds of any Advance for that purpose; fail to meet the minimum funding
      requirements of ERISA, or permit a Reportable Event or Prohibited Transaction,
      as defined in ERISA, to occur; fail to comply with the Federal Fair Labor
      Standards Act or violate any other law or regulation, if the violation could
      reasonably be expected to have a material adverse effect on Borrower’s business
      or operations or would reasonably be expected to cause a Material Adverse
      Change, or permit any of its Subsidiaries to do so.

     

    8    EVENTS
      OF DEFAULT

     

    Any
      one
      of the following is an Event of Default:

     

    8.1        
      Payment
      Default.
      Borrower fails to pay any of the Obligations when due;

     

    8.2        
      Covenant
      Default.
      Borrower fails or neglects to perform any obligation in Article 6 or violates
      any covenant in Article 7 or fails or neglects to perform, keep, or observe
      any
      other material term, provision, condition, covenant or agreement contained
      in
      this Agreement, any Loan Documents and as to any default under such other term,
      provision, condition, covenant or agreement that can be cured, has failed to
      cure the default within ten (10) days after the occurrence thereof; provided,
      however, grace and cure periods provided under this section shall not apply
      to
      financial covenants or any other covenants that are required to be satisfied,
      completed or tested by a date certain;

     

    8.3        
      Material
      Adverse Change.
      A
      Material Adverse Change occurs;

     

    8.4        
      Attachment.
      (i) Any
      material portion of Borrower’s assets or any of the Financed Receivables are
      attached, seized, levied on, or comes into possession of a trustee or receiver
      and the attachment, seizure or levy is not removed in ten (10) days; (ii) the
      service of process upon Bank or Borrower seeking to attach, by trustee or
      similar process, any funds of Borrower on deposit with Bank, or any entity
      under
      the control of Bank (including a subsidiary); (iii) Borrower is enjoined,
      restrained, or prevented by court order from conducting any part of its
      business; (iv) a judgment or other claim in excess of One Hundred Thousand
      Dollars ($100,000.00) becomes a Lien on a portion of Borrower’s assets; or (v) a
      notice of lien, levy, or assessment is filed against any of Borrower’s assets by
      any government agency and not paid within ten (10) days after Borrower receives
      notice;

     

    8.5        
      Insolvency.
      (i)
      Borrower is unable to pay its debts (including trade debts) as they become
      due
      or otherwise becomes insolvent; (ii) Borrower begins an Insolvency Proceeding;
      or (iii) an Insolvency Proceeding is begun against Borrower and not dismissed
      or
      stayed within thirty (30) days (but no Advances shall be made before any
      Insolvency Proceeding is dismissed);

     

    8.6        
      Other
      Agreements.
      If
      there is a default in any agreement to which Borrower is a party with a third
      party or parties resulting in a right by such third party or parties, whether
      or
      not exercised, to accelerate the maturity of any Indebtedness in an amount
      in
      excess of One Hundred Thousand Dollars ($100,000.00) or that could result in
      a
      Material Adverse Change;

     

    8.7        
      Judgments.
      If a
      judgment or judgments for the payment of money in an amount, individually or
      in
      the aggregate, of at least One Hundred Thousand Dollars ($100,000.00) (not
      covered by independent third-party insurance) shall be rendered against Borrower
      and shall remain unsatisfied and unstayed for a period of ten (10) days
      (provided that no Advances will be made prior to the satisfaction or stay of
      such judgment);

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

    8.8        
      Misrepresentations.
      If
      Borrower or any Person acting for Borrower makes any material misrepresentation
      or material misstatement now or later in any warranty or representation in
      this
      Agreement or in any writing delivered to Bank or to induce Bank to enter this
      Agreement or any Loan Document;

     

    8.9        
      Subordinated
      Debt.
      A
      default or breach occurs under any agreement between Borrower and any creditor
      of Borrower that signed a subordination agreement with Bank, or any creditor
      that has signed a subordination agreement with Bank breaches any terms of the
      subordination agreement.

     

    8.10     
      Guaranty.
      (a) Any
      guaranty of any Obligations terminates or ceases for any reason to be in full
      force and effect except pursuant to its terms as agreed to by Bank in writing;
      (b) any Guarantor does not perform any obligation or covenant under any guaranty
      of the Obligations; (c) any circumstance described in Sections 8.4, 8.5, 8.7,
      or
      8.8. occurs with respect to any Guarantor, (d) the liquidation, winding up,
      or termination of existence of any Guarantor; or (e) (i) a material
      impairment in the perfection or priority of Bank’s Lien in the collateral
      provided by Guarantor or in the value of such collateral or (ii) a material
      adverse change in the prospect of repayment of the Obligations occurs with
      respect to any Guarantor.

     

    8.11     
      Term
      Loan Agreement.
      An
      Event of Default (as such term is defined in the Term Loan Agreement)
      occurs
      under the Term Loan Agreement
      (unless
      such Event of Default occurs solely as a result of Borrower’s failure to comply
      with Section 6.7 of the Term Loan Agreement).

     

    9    BANK’S
      RIGHTS AND REMEDIES

     

    9.1        
      Rights
      and Remedies.
      When an
      Event of Default occurs and continues Bank may, without notice or demand, do
      any
      or all of the following:

     

    (a)    Declare
      all Obligations immediately due and payable (but if an Event of Default
      described in Section 8.5 occurs all Obligations are immediately due and payable
      without any action by Bank);

     

    (b)    Stop
      advancing money or extending credit for Borrower’s benefit under this Agreement
      or under any other agreement between Borrower and Bank;

     

    (c)    Settle
      or
      adjust disputes and claims directly with Account Debtors for amounts, on terms
      and in any order that Bank considers advisable and notify any Person owing
      Borrower money of Bank’s security interest in such funds and verify the amount
      of such account. Borrower shall collect all payments in trust for Bank and,
      if
      requested by Bank, immediately deliver the payments to Bank in the form received
      from the Account Debtor, with proper endorsements for deposit; 

     

    (d)    Make
      any
      payments and do any acts it considers necessary or reasonable to protect its
      security interest in the Collateral. Borrower shall assemble the Collateral
      if
      Bank requests and make it available as Bank designates. Bank may enter premises
      where the Collateral is located, take and maintain possession of any part of
      the
      Collateral, and pay, purchase, contest, or compromise any Lien which appears
      to
      be prior or superior to its security interest and pay all expenses incurred.
      Borrower grants Bank a license to enter and occupy any of its premises, without
      charge, to exercise any of Bank’s rights or remedies;

     

    (e)    Apply
      to
      the Obligations any (i) balances and deposits of Borrower it holds, or (ii)
      any
      amount held by Bank owing to or for the credit or the account of
      Borrower;

     

    (f)    Ship,
      reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise
      for sale, and sell the Collateral. Bank is hereby granted a non-exclusive,
      royalty-free license or other right to use, without charge, Borrower’s labels,
      patents, copyrights, mask works, rights of use of any name, trade secrets,
      trade
      names, trademarks, service marks, and advertising matter, or any similar
      property as it pertains to the Collateral, in completing production of,
      advertising for sale, and selling any Collateral and, in connection with Bank’s
      exercise of its rights under this Section, Borrower’s rights under all licenses
      and all franchise agreements inure to Bank’s benefit; 

     

    
      
        
        

      

      
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    (g)    Place
      a
“hold” on any account maintained with Bank and/or deliver a notice of exclusive
      control, any entitlement order, or other directions or instructions pursuant
      to
      any control agreement or similar agreements providing control of any Collateral;
      and

     

    (h)    Exercise
      all rights and remedies and dispose of the Collateral according to the
      Code.

     

    9.2        
      Bank
      Expenses; Unpaid Fees.
      Any
      amounts paid by Bank as provided herein shall constitute Bank Expenses and
      are
      immediately due and payable, and shall bear interest at the Default Rate and
      be
      secured by the Collateral. No payments by Bank shall be deemed an agreement
      to
      make similar payments in the future or Bank’s waiver of any Event of Default. In
      addition, any amounts advanced hereunder which are not based on Financed
      Receivables (including, without limitation, unpaid fees and Finance Charges
      as
      described in Section 2.2) shall accrue interest at the Default Rate and be
      secured by the Collateral.

     

    9.3        
      Bank’s
      Liability for Collateral.
      So long
      as Bank complies with reasonable banking practices regarding the safekeeping
      of
      Collateral and Section 9-207 of the Code, Bank shall not be liable or
      responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
      to the Collateral; (c) any diminution in the value of the Collateral; or (d)
      any
      act or default of any carrier, warehouseman, bailee, or other Person. Borrower
      bears all risk of loss, damage or destruction of the Collateral.

     

    9.4        
      Remedies
      Cumulative.
      Bank’s
      rights and remedies under this Agreement, the Loan Documents, and all other
      agreements are cumulative. Bank has all rights and remedies provided under
      the
      Code, by law, or in equity. Bank’s exercise of one right or remedy is not an
      election, and Bank’s waiver of any Event of Default is not a continuing waiver.
      Bank’s delay is not a waiver, election, or acquiescence. No waiver hereunder
      shall be effective unless signed by Bank and then is only effective for the
      specific instance and purpose for which it was given.

     

    9.5        
      Demand
      Waiver.
      Borrower waives demand, notice of default or dishonor, notice of payment and
      nonpayment, notice of any default, nonpayment at maturity, release, compromise,
      settlement, extension, or renewal of accounts, documents, instruments, chattel
      paper, and guarantees held by Bank on which Borrower is liable.

     

    9.6        
      Default
      Rate.
      After
      the occurrence of an Event of Default, all Obligations shall accrue interest
      at
      the Applicable Rate plus five percent (5.0%) per annum (the “Default
      Rate”). 

     

    10         
      NOTICES.
      

     

    Notices
      or demands by either party about this Agreement must be in writing and
      personally delivered or sent by an overnight delivery service, by certified
      mail
      postage prepaid return receipt requested, or by fax to the addresses listed
      at
      the beginning of this Agreement. A party may change notice address by written
      notice to the other party.

     

    11         
      CHOICE
      OF LAW, VENUE AND JURY TRIAL WAIVER

     

    Massachusetts
      law governs the Loan Documents without regard to principles of conflicts of
      law.
      Borrower and Bank each submit to the exclusive jurisdiction of the State and
      Federal courts in Massachusetts; provided, however, that if for any reason
      Bank
      cannot avail itself of such courts in the Commonwealth of Massachusetts,
      Borrower accepts jurisdiction of the courts and venue in Santa Clara County,
      California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING
      ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF
      ANY
      OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE
      ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS
      PROPERTY.

     

    BORROWER
      AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
      ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
      CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL
      OTHER
      CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO
      THIS
      AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

    12         
      GENERAL
      PROVISIONS

     

    12.1      
      Successors
      and Assigns.
      This
      Agreement binds and is for the benefit of the successors and permitted assigns
      of each party. Borrower may not assign this Agreement or any rights or
      Obligations under it without Bank’s prior written consent which may be granted
      or withheld in Bank’s discretion. Bank has the right, without the consent of or
      notice to Borrower, to sell, transfer, assign, negotiate, or grant participation
      in all or any part of, or any interest in, Bank’s obligations, rights and
      benefits under this Agreement, the Loan Documents or any related
      agreement.

     

    12.2      
      Indemnification.
      Borrower hereby indemnifies, defends and holds Bank and its directors, officers,
      employees and agents harmless against: (a) all obligations, demands, claims,
      and
      liabilities asserted by any other party or Person in connection with the
      transactions contemplated by the Loan Documents; and (b) all losses or Bank
      Expenses incurred, or paid by Bank from, following, or consequential to
      transactions between Bank and Borrower (including reasonable attorneys’ fees and
      expenses), except for losses caused by Bank’s gross negligence or willful
      misconduct.

     

    12.3      
      Right
      of Set-Off.
      Borrower hereby grants to Bank, a lien, security interest and right of set-off
      as security for all Obligations to Bank, whether now existing or hereafter
      arising upon and against all deposits, credits, collateral and property, now
      or
      hereafter in the possession, custody, safekeeping or control of Bank or any
      entity under the control of Bank (including a Bank subsidiary) or in transit
      to
      any of them. At any time after the occurrence and during the continuance of
      an
      Event of Default, without demand or notice, Bank may set off the same or any
      part thereof and apply the same to any liability or obligation of Borrower
      even
      though unmatured and regardless of the adequacy of any other collateral securing
      the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS
      OR
      REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS,
      PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS
      OR OTHER PROPERTY OF BORROWER, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY
      WAIVED.

     

    12.4      
      Time
      of Essence.
      Time is
      of the essence for the performance of all Obligations in this
      Agreement.

     

    12.5      
      Severability
      of Provision.
      Each
      provision of this Agreement is severable from every other provision in
      determining the enforceability of any provision.

     

    12.6      
      Amendments
      in Writing; Integration.
      All
      amendments to this Agreement must be in writing signed by both Bank and
      Borrower. This Agreement and the Loan Documents represent the entire agreement
      about this subject matter, and supersede prior negotiations or agreements.
      All
      prior agreements, understandings, representations, warranties, and negotiations
      between the parties about the subject matter of this Agreement and the Loan
      Documents merge into this Agreement and the Loan Documents.

     

    12.7      
      Counterparts.
      This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, are an
      original, and all taken together, constitute one Agreement.

     

    12.8      
      Borrower
      Liability.
      Any
      Borrower may, acting singly, request Advances hereunder. Each Borrower hereby
      appoints the other as agent for the other for all purposes hereunder, including
      with respect to requesting Advances hereunder. Each Borrower hereunder shall
      be
      obligated to repay all Advances made hereunder, regardless of which Borrower
      actually receives said Advance, as if each Borrower hereunder directly received
      all
      Advances. Each Borrower waives any suretyship defenses available to it under
      the
      Code or any other applicable law. Each Borrower waives any right to require
      Bank
      to: (i) proceed against any Borrower or any other person; (ii) proceed against
      or exhaust any security; or (iii) pursue any other remedy. Bank may exercise
      or
      not exercise any right or remedy it has against any Borrower or any security
      it
      holds (including the right to foreclose by judicial or non-judicial sale)
      without affecting any Borrower’s liability. Notwithstanding any other provision
      of this Agreement or other related document, each Borrower irrevocably waives
      all rights that it may have at law or in equity (including, without limitation,
      any law subrogating Borrower to the rights of Bank under this Agreement) to
      seek
      contribution, indemnification or any other form of reimbursement from any other
      Borrower, or any other Person now or hereafter primarily or secondarily liable
      for any of the Obligations, for any payment made by Borrower with respect to
      the
      Obligations in connection with this Agreement or otherwise and all rights that
      it might have to benefit from, or to participate in, any security for the
      Obligations as a result of any payment made by Borrower with respect to the
      Obligations in connection with this Agreement or otherwise. Any agreement
      providing for indemnification, reimbursement or any other arrangement prohibited
      under this Section shall be null and void. If any payment is made to a Borrower
      in contravention of this Section, such Borrower shall hold such payment in
      trust
      for Bank and such payment shall be promptly delivered to Bank for application
      to
      the Obligations, whether matured or unmatured.

     

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

     

    12.9      
      Survival.
      All
      covenants, representations and warranties made in this Agreement continue in
      full force until this Agreement has terminated pursuant to its terms, and all
      Obligations have been satisfied. The obligation of Borrower in Section 12.2
      to
      indemnify Bank shall survive until the statute of limitations with respect
      to
      such claim or cause of action shall have run.

     

    12.10    
      Confidentiality.
      In
      handling any confidential information, Bank shall exercise the same degree
      of
      care that it exercises for its own proprietary information, but disclosure
      of
      information may be made: (i) to Bank’s subsidiaries or affiliates in connection
      with their business with Borrower; (ii) to prospective transferees or purchasers
      of any interest in the Advances (provided, however, Bank shall use commercially
      reasonable efforts in obtaining such prospective transferee’s or purchaser’s
      agreement to the terms of this provision); (iii) as required by law, regulation,
      subpoena, or other order, (iv) as required in connection with Bank’s examination
      or audit; and (v) as Bank considers appropriate in exercising remedies under
      this Agreement. Confidential information does not include information that
      either: (a) is in the public domain or in Bank’s possession when disclosed to
      Bank, or becomes part of the public domain after disclosure to Bank; or (b)
      is
      disclosed to Bank by a third party, if Bank does not know that the third party
      is prohibited from disclosing the information.

     

    13         
      DEFINITIONS

     

    13.1      
      Definitions.
      In this
      Agreement:

     

    “Accounts”
      are all
      existing and later arising accounts, contract rights, and other obligations
      owed
      Borrower in connection with its sale or lease of goods (including licensing
      software and other technology) or provision of services, all
      credit insurance, guaranties, other security and all merchandise returned or
      reclaimed by Borrower and Borrower’s Books relating to any of the foregoing, as
      such definition may be amended from time to time according to the
      Code.

     

    “Account
      Debtor”
      is as
      defined in the Code and shall include, without limitation, any person liable
      on
      any Financed Receivable, such as, a guarantor of the Financed Receivable and
      any
      issuer of a letter of credit or banker’s acceptance.

     

    “Adjustments”
      are all
      discounts, allowances, returns, disputes, counterclaims, offsets, defenses,
      rights of recoupment, rights of return, warranty claims, or short payments,
      asserted by or on behalf of any Account Debtor for any Financed
      Receivable.

     

    “Advance”
      is
      defined in Section 2.1.1.

     

    “Advance
      Rate”
eighty
      percent (80.0%), net of any offsets related to each specific Account Debtor,
      including, without limitation, Deferred Revenue, or such other percentage as
      Bank establishes under Section 2.1.1.

     

    “Affiliate”
is
      a
      Person that owns or controls directly or indirectly the Person, any Person
      that
      controls or is controlled by or is under common control with the Person, and
      each of that Person’s senior executive officers, directors, partners and, for
      any Person that is a limited liability company, that Person’s managers and
      members.

     

    “Applicable
      Rate”
      is a per
      annum rate equal to the Prime Rate plus one-half of one percent
      (0.50%).

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

    

     

    “Bank
      Expenses”
are
      all
      audit fees and expenses and reasonable costs or expenses (including reasonable
      attorneys’ fees and expenses) for preparing, negotiating, administering,
      defending and enforcing the Loan Documents (including appeals or Insolvency
      Proceedings).

     

    “Borrower’s
      Books”
are
      all
      Borrower’s books and records including ledgers, records regarding Borrower’s
      assets or liabilities, the Collateral, business operations or financial
      condition and all computer programs or storage or any equipment containing
      the
      information.

     

    “Business
      Day”
is
      any
      day that is not a Saturday, Sunday or a day on which Bank is
      closed.

     

    “Closing
      Date”
is
      the
      date of this Agreement.

     

    “Code”
is
      the
      Uniform Commercial Code as adopted in Massachusetts, as amended and as may
      be
      amended and in effect from time to time.

     

    “Collateral”
is
      any
      and all properties, rights and assets of Borrower granted by Borrower to Bank
      or
      arising under the Code, now, or in the future, in which Borrower obtains an
      interest, or the power to transfer rights, in the property described on
Exhibit A.

     

    “Collateral
      Handling Fee” is
      defined in Section 2.2.4.

     

    “Collections”
      are
      all
      funds received by Bank from or on behalf of an Account Debtor for Financed
      Receivables.

     

    “Commodity
      Account”
      is
      any
“commodity account” as defined in the Code with such additions to such term as
      may hereafter be made.

     

    “Compliance
      Certificate”
is
      attached as Exhibit
      B.
      

     

    “Contingent
      Obligation”
is,
      for
      any Person, any direct or indirect liability, contingent or not, of that Person
      for (i) any indebtedness, lease, dividend, letter of credit or other obligation
      of another such as an obligation directly or indirectly guaranteed, endorsed,
      co-made, discounted or sold with recourse by that Person, or for which that
      Person is directly or indirectly liable; (ii) any obligations for undrawn
      letters of credit for the account of that Person; and (iii) all obligations
      from
      any interest rate, currency or commodity swap agreement, interest rate cap
      or
      collar agreement, or other agreement or arrangement designated to protect a
      Person against fluctuation in interest rates, currency exchange rates or
      commodity prices; but “Contingent Obligation” does not include endorsements in
      the ordinary course of business. The amount of a Contingent Obligation is the
      stated or determined amount of the primary obligation for which the Contingent
      Obligation is made or, if not determinable, the maximum reasonably anticipated
      liability for it determined by the Person in good faith; but the amount may
      not
      exceed the maximum of the obligations under any guarantee or other support
      arrangement.

     

    “Control
      Agreement”
is
      any
      control agreement entered into among the depository institution at which
      Borrower maintains a Deposit Account or the securities intermediary or commodity
      intermediary at which Borrower (or Guarantor, with respect to the assets subject
      to the Stock Pledge Agreement) maintains a Securities Account or a Commodity
      Account, Borrower, and Bank pursuant to which Bank obtains control (within
      the
      meaning of the Code) over such Deposit Account, Securities Account, or Commodity
      Account.

     

    “Default
      Rate”
is
      defined in Section 9.6.

     

    “Deferred
      Revenue”
is
      all
      amounts received or invoiced, as appropriate, in advance of performance under
      contracts and not yet recognized as revenue.

     

    “Deposit
      Account”
is
      any
“deposit account” as defined in the Code with such additions to such term as may
      hereafter be made.

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

    “Disclosure
      Schedule”
is
      that
      certain schedule, in form reasonably acceptable to Bank, attached
      hereto as Exhibit
      C.

     

    “Early
      Termination Fee”
is
      defined in Section 2.1.1.

     

    “Eligible
      Accounts”
are
      billed Accounts in the ordinary course of Borrower’s business that meet all
      Borrower’s representations and warranties in Section 5.3, have been, at the
      option of Bank, confirmed in accordance with Section 2.1.1(d), and are due
      and
      owing from Account Debtors deemed creditworthy by Bank in its sole discretion.
      Without limiting the fact that the determination of which Accounts are eligible
      hereunder is a matter of Bank discretion in each instance, Eligible Accounts
      shall not include the following Accounts (which listing may be amended or
      changed in Bank’s discretion with notice to Borrower):

     

    (a)    Accounts
      that the Account Debtor has not paid within ninety (90) days of invoice
      date;

     

    (b)    Accounts
      for an Account Debtor, fifty percent (50%) or more of whose Accounts have not
      been paid within ninety (90) days of invoice date;

     

    (c)    Accounts
      for which the Account Debtor does not have its principal place of business
      in
      the United States, unless agreed to by Bank in writing, in its sole discretion,
      on a case-by-case basis;

     

    (d)    Accounts
      for which the Account Debtor is a federal, state or local government entity
      or
      any department, agency, or instrumentality thereof except for Accounts of the
      United States if the payee has assigned its payment rights to Bank and the
      assignment has been acknowledged under the Assignment of Claims Act of 1940
      (31
      U.S.C. 3727);

     

    (e)    Accounts
      for which Borrower owes the Account Debtor, but only up to the amount owed
      (sometimes called “contra” accounts, accounts payable, customer deposits or
      credit accounts);

     

    (f)    Accounts
      for demonstration or promotional equipment, or in which goods are consigned,
      sales guaranteed, sale or return, sale on approval, bill and hold, or other
      terms if the Account Debtor’s payment may be conditional;

     

    (g)    Accounts
      for which the Account Debtor is Borrower’s Affiliate, officer, employee, or
      agent;

     

    (h)    Accounts
      in which the Account Debtor disputes liability or makes any claim and Bank
      believes there may be a basis for dispute (but only up to the disputed or
      claimed amount), or if the Account Debtor is subject to an Insolvency
      Proceeding, or becomes insolvent, or goes out of business; or

     

    (i)    Accounts
      for which Bank reasonably determines collection to be doubtful or any Accounts
      which are unacceptable to Bank for any reason.

     

    “ERISA”
is
      the
      Employee Retirement Income Security Act of 1974, and its
      regulations.

     

    “Events
      of Default”
      are set
      forth in Article 8.

     

    “Facility
      Amount”
      is Eight
      Million Seven Hundred Fifty Thousand Dollars ($8,750,000.00).

     

    “Facility
      Fee”
      is
      defined in Section 2.2.2.

     

    “Finance
      Charges”
      is
      defined in Section 2.2.3.

     

    “Financed
      Receivables”
      are all
      those Eligible Accounts, including their proceeds, which Bank finances by making
      an Advance, as set forth in Section 2.1.1. A Financed Receivable stops being
      a
      Financed Receivable (but remains Collateral) when the Advance made for the
      Financed Receivable has been fully paid.

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

    “Financed
      Receivable Balance”
is
      the
      total outstanding gross face amount, at any time, of any Financed
      Receivable.

     

    “GAAP”
is
      generally accepted accounting principles.

     

    “Good
      Faith Deposit”
is
      defined in Section 2.2.8.

     

    “Guarantor”
is
      any
      present or future guarantor of the Obligations, including Markland.

     

    “Indebtedness”
is
      (a)
      indebtedness for borrowed money or the deferred price of property or services,
      such as reimbursement and other obligations for surety bonds and letters of
      credit, (b) obligations evidenced by notes, bonds, debentures or similar
      instruments, (c) capital lease obligations and (d) Contingent
      Obligations.

     

    "Initial
      Audit"
      shall
      be the receipt by Bank of the results of a complete audit of Borrower's
      Accounts, with results satisfactory to Bank in its sole and absolute
      discretion.

     

    “Insolvency
      Proceeding”
is
      any
      proceeding by or against any Person under the United States Bankruptcy Code,
      or
      any other bankruptcy or insolvency law, including assignments for the benefit
      of
      creditors, compositions, extensions generally with its creditors, or proceedings
      seeking reorganization, arrangement, or other relief.

     

    “Investment”
is
      any
      beneficial ownership of (including stock, partnership interest or other
      securities) any Person, or any loan, advance or capital contribution to any
      Person.

     

    “Invoice
      Transmittal”
      shows
      Eligible Accounts which Bank may finance and, for each such Account, includes
      the Account Debtor’s, name, address, invoice amount, invoice date and invoice
      number.

     

    “Intellectual
      Property”
is
      the
“Intellectual Property Collateral” as defined in the IP Agreement.

     

    “IP
      Agreement”
is
      a
      certain Intellectual Property Security Agreement executed and delivered by
      Borrower to Bank.

     

    “Key
      Person”
shall
      mean the Chief Financial Officer or the Chief Executive Officer.

     

    “Lien”
is
      a
      mortgage, lien, deed of trust, charge, pledge, security interest or other
      encumbrance.

     

    “Loan
      Documents”
are,
      collectively, this Agreement, the Term Loan Agreement, any note, or notes or
      guaranties executed by Borrower or Guarantor, and any other present or future
      agreement between Borrower and/or for the benefit of Bank in connection with
      this Agreement, all as amended, extended or restated.

     

    “Lockbox”
      is
      defined in Section 2.2.7.

     

    “Markland”
is
      Markland Technologies, Inc., a Florida corporation and the parent company of
      Technest.

     

    “Material
      Adverse Change” is:
      (i) A
      material impairment in the perfection or priority of Bank’s security interest in
      the Collateral or in the value of such Collateral; (ii) a material adverse
      change in the business, operations, or condition (financial or otherwise) of
      Borrower; or (iii) a material impairment of the prospect of repayment of any
      portion of the Obligations.

     

    “Maturity
      Date”
is
      364
      days from the date of this Agreement.

     

    “Minimum
      Finance Charge”
shall
      be the Finance Charges that would result if the Borrower had average aggregate
      Advances for the subject quarter equal to at least $1,400,000.00.

     

    “Obligations”
are
      all
      advances, liabilities, obligations, covenants and duties owing, arising, due
      or
      payable by Borrower to Bank now or later under this Agreement or any other
      document, instrument or agreement, account (including those acquired by
      assignment) primary or secondary, such as all Advances, Finance Charges,
      Facility Fee, Early Termination Fee, Collateral Handling Fee, interest, fees,
      expenses, professional fees and attorneys’ fees, or other amounts now or
      hereafter owing by Borrower to Bank.

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

    “Perfection
      Certificate”
is
      a
      certain Perfection Certificate completed and delivered by Borrower to Bank
      in
      connection with this Agreement.

     

    “Permitted
      Indebtedness”
      is:

     

    (a)    Borrower’s
      indebtedness to Bank under this Agreement or the Loan Documents;

     

    (b)    Indebtedness
      existing on the Effective Date and shown on the Perfection
      Certificate;

     

    (c)    Subordinated
      Debt;

     

    (d)    Indebtedness
      to trade creditors incurred in the ordinary course of business; 

     

    (e)    Indebtedness
      secured by Permitted Liens; and

     

    (f)     extensions,
      refinancings, modifications, amendments and restatements of any items of
      Permitted Indebtedness (a) through (d) above, provided that the principal amount
      thereof is not increased or the terms thereof are not modified to impose more
      burdensome terms upon Borrower or its Subsidiary, as the case may
      be.

     

    “Permitted
      Investments”
are:
      (i) marketable direct obligations issued or unconditionally guaranteed by the
      United States or its agency or any state maturing within 1 year from its
      acquisition, (ii) commercial paper maturing no more than 1 year after its
      creation and having the highest rating from either Standard & Poor’s
      Corporation or Moody’s Investors Service, Inc., (iii) Bank’s certificates of
      deposit issued maturing no more than 1 year after issue, and (iv) any other
      investments administered through Bank.

     

    “Permitted
      Liens”
      are:

     

    (a)    Liens
      existing on the Effective Date and shown on the Perfection Certificate or
      arising under this Agreement or other Loan Documents;

     

    (b)    Liens
      for
      taxes, fees, assessments or other government charges or levies, either not
      delinquent or being contested in good faith and for which Borrower maintains
      adequate reserves on its Books, if they have no priority over any of Bank’s
      security interests;

     

    (c)    Purchase
      money Liens securing no more than One Hundred Thousand Dollars ($100,000.00)
      in
      the aggregate amount outstanding (i) on equipment acquired or held by Borrower
      incurred for financing the acquisition of the equipment, or (ii) existing
      on equipment when acquired, if
      the
      Lien
      is confined to the property and improvements and the proceeds of the
      equipment;

     

    (d)    Leases
      or
      subleases and non-exclusive licenses or sublicenses granted in the ordinary
      course of Borrower’s business, if
      the
      leases, subleases, licenses and sublicenses permit granting Bank a security
      interest;

     

    (e)    Pledges
      of or liens on manufactured products as security for any drafts or bills of
      exchange drawn in connection with the importation of such manufactured products
      in the ordinary course of business;

     

    (f)    Liens
      under Article 2 of the Uniform Commercial Code that are special property
      interests in goods identified as goods to which a contract refers;
      and

     

    (g)          
      Liens
      incurred in the extension, renewal or refinancing of the indebtedness secured
      by
      Liens described in (a) through (f), but
      any
      extension, renewal or replacement Lien must be limited to the property
      encumbered by the existing Lien and the principal amount of the indebtedness
      may
      not increase.

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

    “Person”
is
      any
      individual, sole proprietorship, partnership, limited liability company, joint
      venture, company, trust, unincorporated organization, association, corporation,
      institution, public benefit corporation, firm, joint stock company, estate,
      entity or government agency.

     

    “Prime
      Rate”
is
      Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest
      rate.

     

    “Reconciliation
      Period”
is
      each
      calendar month.

     

    “Responsible Officer”
is
      each
      of the Chief Executive Officer, President, Chief Financial Officer and
      Controller of Borrower.

     

    “Securities
      Account”
      is
      any
“securities account” as defined in the Code with such additions to such term as
      may hereafter be made.

     

    “Settlement
      Agreement”
is
      that
      certain Settlement Agreement and Release among Joseph R. Moulton, Sr, EOIR
      and
      Technest, and dated as of the Effective Date.

     

    “Stock
      Pledge Agreement”
is
      that
      certain Stock Pledge Agreement of even date herewith by and among Bank and
      Guarantor in which Guarantor pledges to Bank certain stock of Technest with
      a
      market value of at least $6,000,000.00 as of the Closing Date.

     

    “Stockholder
      Agreement”
is
      that
      certain Stockholder Agreement by and between Technest and Markland and dated
      as
      of March 13, 2006.

     

    “Subordinated
      Debt”
is
      debt
      incurred by Borrower subordinated to Borrower’s debt to Bank (pursuant to a
      subordination agreement entered into between Bank, Borrower and the subordinated
      creditor), on terms acceptable to Bank.

     

    “Subsidiary”
is
      any
      Person, or any other business entity of which more than 50% of the voting stock
      or other equity interests is owned or controlled, directly or indirectly, by
      the
      Person or one or more Affiliates of the Person.

     

    “Term
      Loan Agreement”
is
      that
      certain Loan and Security Agreement (Term Loan) by and between Borrower and
      Bank
      as of even date herewith, as amended from time to time.

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
      as
      a sealed instrument under the laws of the Commonwealth of Massachusetts as
      of
      the date first above written.

     

    BORROWER:

     

    
      	TECHNEST HOLDINGS, INC.	 
	 	 
	By: /s/
              Gino
              Pereira                                              
               	 
	Name: Gino
              Pereira                                               
               	 
	Title:
              Chief
              Financial
              Officer                                 
              	 
	 	 
	E-OIR TECHNOLOGIES, INC.	 
	 	 
	By:
              /s/
              Joseph P.
              Mackin                                      
              	 
	Name: Joseph
              P.
              Mackin                                     
               	 
	Title: Chief
              Executive
              Officer                                
              	 
	 	 
	GENEX
              TECHNOLOGIES INCORPORATED	 
	 	 
	
              By:
                /s/
                Joseph P.
                Mackin                                       
                

            	 
	Name:
              Joseph
              P.
              Mackin                                        
              	 
	Title: Chief
              Executive
              Officer                                 
              	 
	 	 
	 	 
	 	 
	BANK:	 
	 	 
	SILICON
              VALLEY BANK	 
	 	 
	
              By:
                /s/
                Michael
                Tramack                                         

            	 
	Name: Michael
              Tramack                                        
               	 
	
              Title:
                Senior
                Vice
                President                                   
                 

            	 


    

     

    


    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

       

    

    EXHIBIT
      A

    


    The
      Collateral consists of all of Borrower’s right, title and interest in and to the
      following:

     

    All
      goods, equipment, inventory, contract rights or rights to payment of money,
      leases, license agreements, franchise agreements, general intangibles (including
      payment intangibles), accounts (including health-care receivables), documents,
      instruments (including any promissory notes), chattel paper (whether tangible
      or
      electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
      or not the letter of credit is evidenced by a writing), commercial tort claims,
      securities, and all other investment property, supporting obligations, and
      financial assets, whether now owned or hereafter acquired, wherever located;
      and


     

    Any
      copyright rights, copyright applications, copyright registrations and like
      protections in each work of authorship and derivative work, whether published
      or
      unpublished, now owned or later acquired; any patents, trademarks, service
      marks
      and applications therefor; trade styles, trade names, any trade secret rights,
      including any rights to unpatented inventions, know-how, operating manuals,
      license rights and agreements and confidential information, now owned or
      hereafter acquired; or any claims for damages by way of any past, present and
      future infringement of any of the foregoing; and

     

    All
      Borrower’s books relating to the foregoing and any and all claims, rights and
      interests in any of the above and all substitutions for, additions, attachments,
      accessories, accessions and improvements to and replacements, products, proceeds
      and insurance proceeds of any or all of the foregoing. 

     

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    



    EXHIBIT
      B

     

    

     

    SILICON
      VALLEY BANK

    SPECIALTY
      FINANCE DIVISION

    Compliance
      Certificate

    


    I,
      as
      authorized officer of Technest Holdings, Inc., E-OIR Technologies, Inc. and
      Genex Technologies Incorporated (jointly
      and severally, individually and collectively,“Borrower”)
      certify under the Loan and Security Agreement (the “Agreement”) between Borrower
      and Silicon Valley Bank (“Bank”) as follows (all capitalized terms used herein
      shall have the meaning set forth in the Agreement): 

    


    Borrower
      represents and warrants for each Financed Receivable:

    


    Each
      Financed Receivable is an Eligible Account.

    


    Borrower
      is the owner with legal right to sell, transfer, assign and encumber such
      Financed Receivable;

    


    The
      correct amount is on the Invoice Transmittal and is not disputed;

    


    Payment
      is not contingent on any obligation or contract and Borrower has fulfilled
      all
      its obligations as of the Invoice Transmittal date;

    


    Each
      Financed Receivable is based on an actual sale and delivery of goods and/or
      services rendered, is due to Borrower, is not past due or in default, has not
      been previously sold, assigned, transferred, or pledged and is free of any
      liens, security interests and encumbrances other than Permitted
      Liens;

    


    There
      are
      no defenses, offsets, counterclaims or agreements for which the Account Debtor
      may claim any deduction or discount;

    


    It
      reasonably believes no Account Debtor is insolvent or subject to any Insolvency
      Proceedings; 

    


    It
      has
      not filed or had filed against it Insolvency Proceedings and does not anticipate
      any filing;

    


    Bank
      has
      the right to endorse and/ or require Borrower to endorse all payments received
      on Financed Receivables and all proceeds of Collateral.

    


    Each
      Financed Receivable and all related documents are accurate and correct in all
      material respects and are not misleading.

    


    Additionally,
      Borrower represents and warrants as follows:

    


    Borrower
      and each Subsidiary is duly existing and in good standing in its state of
      formation and qualified and licensed to do business in, and in good standing
      in,
      any state in which the conduct of its business or its ownership of property
      requires that it be qualified except where the failure to do so could not
      reasonably be expected to cause a Material Adverse Change. The execution,
      delivery and performance of the Loan Documents have been duly authorized, and
      do
      not conflict with Borrower’s organizational documents, nor constitute an event
      of default under any material agreement by which Borrower is bound. Borrower
      is
      not in default under any agreement to which or by which it is bound in which
      the
      default could reasonably be expected to cause a Material Adverse
      Change.

    


    Borrower
      has good title to the Collateral, free of Liens except Permitted Liens. All
      inventory is in all material respects of good and marketable quality, free
      from
      material defects. 

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    

     

    Borrower
      is not an “investment company” or a company “controlled” by an “investment
      company” under the Investment Company Act. Borrower is not engaged as one of its
      important activities in extending credit for margin stock (under Regulations
      X,
      T and U of the Federal Reserve Board of Governors). Borrower has complied in
      all
      material respects with the Federal Fair Labor Standards Act. Borrower has not
      violated any laws, ordinances or rules, the violation of which could reasonably
      be expected to cause a Material Adverse Change. None of Borrower’s or any
      Subsidiary’s properties or assets has been used by Borrower or any Subsidiary
      or, to the best of Borrower’s knowledge, by previous Persons, in disposing,
      producing, storing, treating, or transporting any hazardous substance other
      than
      legally. Borrower and each Subsidiary has timely filed all required tax returns
      and paid, or made adequate provision to pay, all material taxes, except those
      being contested in good faith with adequate reserves under GAAP. Borrower and
      each Subsidiary has obtained all consents, approvals and authorizations of,
      made
      all declarations or filings with, and given all notices to, all government
      authorities that are necessary to continue its business as currently conducted
      except where the failure to obtain or make such consents, declarations, notices
      or filings would not reasonably be expected to cause a Material Adverse
      Change.

    


    All
      representations and warranties in the Agreement are true and correct in all
      material respects on this date, and Borrower represents that there is no
      existing Event of Default. 

     

    Sincerely,
      

     

    Signature

     

    Title

     

    Date

    


    
 

    


    -24-