Document:

EXHIBIT
      10.3

     

    SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT
      (the
“Agreement”), is
      entered into and made effective as of June 1, 2007, by and between HOMELAND
      SECURITY CAPITAL CORPORATION, a
      Delaware corporation with its principal place of business located at 4100 North
      Fairfax Drive, Suite 1150, Arlington, Virginia 22203 (the “Company”),
      in
      favor of the BUYER(S)
      (the
“Secured
      Party”)
      listed
      on Schedule I attached to the Securities Purchase Agreement (the “Securities
      Purchase Agreement”)
      dated
      the date hereof between the Company and the Secured Party.

     

    WHEREAS,
      the
      Company shall issue and sell to the Secured Party, as provided in the Securities
      Purchase Agreement, and the Secured Party shall purchase, up to Two Million
      Seven Hundred Fifty Thousand Dollars ($2,750,000) of secured convertible
      debentures (the “Convertible
      Debentures”),
      which
      shall be convertible into shares of the Company’s common stock, par value
      $0.001, in the respective amounts set forth opposite each Buyer(s) name on
      Schedule I attached to the Securities Purchase Agreement;

     

    WHEREAS,
      to
      induce
      the Secured Party to enter into the transaction contemplated by the Securities
      Purchase Agreement, the Convertible Debentures, the Investor Registration Rights
      Agreement of even date herewith between the Company and the Secured Party (the
      “Investor
      Registration Rights Agreement”),
      and
      the Irrevocable Transfer Agent Instructions among the Company, the Secured
      Party, the Company’s transfer agent, and David Gonzalez, Esq. (the “Transfer
      Agent Instructions”)
      (collectively referred to as the “Transaction
      Documents”),
      the
      Company hereby grants to the Secured Party a security interest in and to the
      pledged property of the Company identified on Exhibit
      A
      hereto
      (collectively referred to as the “Pledged
      Property”)
      to
      secure all of the Obligations (as defined below).

     

    NOW,
      THEREFORE, in
      consideration of the promises and the mutual covenants herein contained, and
      for
      other good and valuable consideration, the adequacy and receipt of which are
      hereby acknowledged, the parties hereto hereby agree as follows:

     

    ARTICLE
      1.

     

    DEFINITIONS
      AND INTERPRETATIONS

     

    Section
      1.1. Recitals.
      The
      above recitals are true and correct and are incorporated herein, in their
      entirety, by this reference.

     

    Section
      1.2. Interpretations.
      Nothing
      herein expressed or implied is intended or shall be construed to confer upon
      any
      person other than the Secured Party any right, remedy or claim under or by
      reason hereof.

     

    Section
      1.3. Obligations
      Secured.
      The
      security interest created hereby in the Pledged Property constitutes continuing
      collateral security for all of the obligations of the Company now existing
      or
      hereinafter incurred to the Buyers, whether oral or written and whether arising
      before, on or after the date hereof including, without limitation following
      obligations (collectively, the “Obligations”):

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (a) for
      so
      long as the Convertible Debentures are outstanding, the payment by the Company,
      as and when due and payable (by scheduled maturity, acceleration, demand or
      otherwise), of all amounts from time to time owing by it in respect of the
      Securities Purchase Agreement, the Convertible Debentures and the other
      Transaction Documents; and

     

    (b) for
      so
      long as the Convertible Debentures are outstanding, the due performance and
      observance by the Company of all of its other obligations from time to time
      existing in respect of any of the Transaction Documents, including without
      limitation, the Company’s obligations with respect to any conversion or
      redemption rights of the Secured Party under the Convertible
      Debentures.

     

    ARTICLE
      2.

     

    PLEDGED
      PROPERTY; EVENT OF DEFAULT

     

    Section
      2.1. Pledged
      Property.

     

    (a) As
      collateral security for all of the Obligations, the Company hereby pledges
      to
      the Secured Party, and creates in the Secured Party for its benefit, a
      continuing security interest in and to all of the Pledged Property whether
      now
      owned or hereafter acquired.

     

    (b) Simultaneously
      with the execution and delivery of this Agreement, the Company shall make,
      execute, acknowledge, file, record and deliver to the Secured Party any
      documents reasonably requested by the Secured Party to perfect its security
      interest in the Pledged Property. Simultaneously with the execution and delivery
      of this Agreement, the Company shall make, execute, acknowledge and deliver
      to
      the Secured Party such documents and instruments, including, without limitation,
      financing statements, certificates, affidavits and forms as may, in the Secured
      Party’s reasonable judgment, be necessary to effectuate, complete or perfect, or
      to continue and preserve, the security interest of the Secured Party in the
      Pledged Property, and the Secured Party shall hold such documents and
      instruments as secured party, subject to the terms and conditions contained
      herein.

     

    Section
      2.2. Event
      of Default.
      An
“Event
      of Default”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      and as defined in the Convertible Debentures. 

     

    Section
      2.3. Release
      of Pledged Property.
      The
      Secured Party agrees that, upon effectiveness of a registration statement with
      the Securities and Exchange Commission registering for distribution in a spin
      off transaction (a “Spin
      Off”)
      of the
      common stock underlying any of the securities listed on Exhibit
      B
      hereto
      (the “Spin
      Off Shares”),
      it
      will deliver the Spin Off Shares to the Company and will terminate any security
      interest the Secured Party may have in such Spin Off Shares pursuant to this
      Agreement or any other agreement between the parties; provided, however, that
      the Company must receive the prior written consent of the Secured Party to
      declare any dividend with respect to (and distribute out) any Spin Off Shares
      that would be in excess of twenty-five percent (25%) of the aggregate number
      of
      shares of common stock the Company owns of any such entity being spun off.
      

     

    
      
        
        

      

      
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    ARTICLE
      3.

     

    ATTORNEY-IN-FACT;
      PERFORMANCE

     

    Section
      3.1. Secured
      Party Appointed Attorney-In-Fact.
      Upon
      the occurrence and during the continuance of an Event of Default: (a) the
      Company hereby appoints the Secured Party as its attorney-in-fact, with full
      authority in the place and stead of the Company and in the name of the Company
      or otherwise, from time to time in the Secured Party’s discretion to take any
      action and to execute any instrument which the Secured Party may reasonably
      deem
      necessary to accomplish the purposes of this Agreement, including, without
      limitation, to receive and collect all instruments made payable to the Company
      representing any payments in respect of the Pledged Property or any part thereof
      and to give full discharge for the same; (b) the Secured Party may demand,
      collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize
      on the Pledged Property as and when the Secured Party may determine, and (c)
      to
      facilitate collection, the Secured Party may notify account debtors and obligors
      on any Pledged Property to make payments directly to the Secured
      Party.

     

    Section
      3.2. Secured
      Party May Perform.
      If the
      Company fails to perform any agreement contained herein, the Secured Party,
      at
      its option, may itself perform, or cause performance of, such agreement, and
      the
      expenses of the Secured Party incurred in connection therewith shall be included
      in the Obligations secured hereby and payable by the Company under
      Section 8.3.

     

    ARTICLE
      4.

     

    REPRESENTATIONS
      AND WARRANTIES

     

    Section
      4.1. Authorization;
      Enforceability.
      Each of
      the parties hereto represents and warrants that it has taken all action
      necessary to authorize the execution, delivery and performance of this Agreement
      and the transactions contemplated hereby; and upon execution and delivery,
      this
      Agreement shall constitute a valid and binding obligation of the respective
      party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
      and similar laws affecting creditors’ rights or by the principles governing the
      availability of equitable remedies.

     

    Section
      4.2. Ownership
      of Pledged Property.
      The
      Company represents and warrants that it is the legal and beneficial owner of
      the
      Pledged Property free and clear of any lien, security interest, option or other
      charge or encumbrance (each, a “Lien”) except for the security interest created
      by this Agreement and other Permitted Liens. For purposes of this Agreement,
      “Permitted Liens” means: (1) the security interest created by this Agreement,
      (2) existing Liens disclosed by the Company to the Secured Party; (3) inchoate
      Liens for taxes, assessments or governmental charges or levies not yet due,
      as
      to which the grace period, if any, related thereto has not yet expired, or
      being
      contested in good faith and by appropriate proceedings for which adequate
      reserves have been established in accordance with GAAP; (4) Liens of carriers,
      materialmen, warehousemen, mechanics and landlords and other similar Liens
      which
      secure amounts which are not yet overdue by more than 60 days or which are
      being
      contested in good faith by appropriate proceedings; (5) licenses, sublicenses,
      leases or subleases granted to other Persons not materially interfering with
      the
      conduct of the business of the Company; (6) Liens securing capitalized lease
      obligations and purchase money indebtedness incurred solely for the purpose
      of
      financing an acquisition or lease; (7) easements, rights-of-way, restrictions,
      encroachments, municipal zoning ordinances and other similar charges or
      encumbrances, and minor title deficiencies, in each case not securing debt
      and
      not materially interfering with the conduct of the business of the Company
      and
      not materially detracting from the value of the property subject thereto; (8)
      Liens arising out of the existence of judgments or awards which judgments or
      awards do not constitute an Event of Default; (9) Liens incurred in the ordinary
      course of business in connection with workers compensation claims, unemployment
      insurance, pension liabilities and social security benefits and Liens securing
      the performance of bids, tenders, leases and contracts in the ordinary course
      of
      business, statutory obligations, surety bonds, performance bonds and other
      obligations of a like nature (other than appeal bonds) incurred in the ordinary
      course of business (exclusive of obligations in respect of the payment for
      borrowed money); (10) Liens in favor of a banking institution arising by
      operation of law encumbering deposits (including the right of set-off) and
      contractual set-off rights held by such banking institution and which are within
      the general parameters customary in the banking industry and only burdening
      deposit accounts or other funds maintained with a creditor depository
      institution; (11) usual and customary set-off rights in leases and other
      contracts; and (12) escrows in connection with acquisitions and
      dispositions.

     

    
      
        
        

      

      
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    Section
      4.3. Name
      Change.
      The
      Company and each Subsidiary have only effectuated changes their respective
      corporate names as designated in Schedule 4.3 herein.

     

    ARTICLE
      5.

     

    DEFAULT;
      REMEDIES; SUBSTITUTE COLLATERAL

     

    Section
      5.1 Method
      of Realizing Upon the Pledged Property: Other Remedies.
      If any
      Event of Default shall have occurred and be continuing:

     

    (a) The
      Secured Party may exercise in respect of the Pledged Property, in addition
      to
      any other rights and remedies provided for herein or otherwise available to
      it,
      all of the rights and remedies of a secured party upon default under the Uniform
      Commercial Code (whether or not the Uniform Commercial Code applies to the
      affected Pledged Property), and also may (i) take absolute control of the
      Pledged Property, including, without limitation, transfer into the Secured
      Party's name or into the name of its nominee or nominees (to the extent the
      Secured Party has not theretofore done so) and thereafter receive, for the
      benefit of the Secured Party, all payments made thereon, give all consents,
      waivers and ratifications in respect thereof and otherwise act with respect
      thereto as though it were the outright owner thereof, (ii) require the
      Company to assemble all or part of the Pledged Property as directed by the
      Secured Party and make it available to the Secured Party at a place or places
      to
      be designated by the Secured Party that is reasonably convenient to both
      parties, and the Secured Party may enter into and occupy any premises owned
      or
      leased by the Company where the Pledged Property or any part thereof is located
      or assembled for a reasonable period in order to effectuate the Secured Party's
      rights and remedies hereunder or under law, without obligation to the Company
      in
      respect of such occupation, and (iii) without notice except as specified
      below and without any obligation to prepare or process the Pledged Property
      for
      sale, (A) sell the Pledged Property or any part thereof in one or more
      parcels at public or private sale, at any of the Secured Party's offices or
      elsewhere, for cash, on credit or for future delivery, and at such price or
      prices and upon such other terms as the Secured Party may deem commercially
      reasonable and/or (B) lease, license or dispose of the Pledged Property or
      any part thereof upon such terms as the Secured Party may deem commercially
      reasonable. The Company agrees that, to the extent notice of sale or any other
      disposition of the Pledged Property shall be required by law, at least ten
      (10)
      days' notice to the Company of the time and place of any public sale or the
      time
      after which any private sale or other disposition of the Pledged Property is
      to
      be made shall constitute reasonable notification. The Secured Party shall not
      be
      obligated to make any sale or other disposition of any Pledged Property
      regardless of notice of sale having been given. The Secured Party may adjourn
      any public or private sale from time to time by announcement at the time and
      place fixed therefor, and such sale may, without further notice, be made at
      the
      time and place to which it was so adjourned. The Company hereby waives any
      claims against the Secured Party arising by reason of the fact that the price
      at
      which the Pledged Property may have been sold at a private sale was less than
      the price which might have been obtained at a public sale or was less than
      the
      aggregate amount of the Obligations, even if the Secured Party accepts the
      first
      offer received and does not offer such Pledged Property to more than one
      offeree, and waives all rights that the Company may have to require that all
      or
      any part of such Pledged Property be marshaled upon any sale (public or private)
      thereof. The Company hereby acknowledges that (i) any such sale of the
      Pledged Property by the Secured Party may be made without warranty,
      (ii) the Secured Party may specifically disclaim any warranties of title,
      possession, quiet enjoyment or the like, and (iii) such actions set forth
      in clauses (i) and (ii) above shall not adversely affect the commercial
      reasonableness of any such sale of Pledged Property. 

     

    
      
        
        

      

      
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    (b) Any
      cash
      held by the Secured Party as Pledged Property and all cash proceeds received
      by
      the Secured Party in respect of any sale of or collection from, or other
      realization upon, all or any part of the Pledged Property shall be applied
      (after payment of any amounts payable to the Secured Party pursuant to Section
      8.3 hereof) by the Secured Party against, all or any part of the Obligations
      in
      such order as the Secured Party shall elect, consistent with the provisions
      of
      the Securities Purchase Agreement. Any surplus of such cash or cash proceeds
      held by the Secured Party and remaining after the indefeasible payment in full
      in cash of all of the Obligations shall be paid over to whomsoever shall be
      lawfully entitled to receive the same or as a court of competent jurisdiction
      shall direct.

     

    (c) In
      the
      event that the proceeds of any such sale, collection or realization are
      insufficient to pay all amounts to which the Secured Party is legally entitled,
      the Company shall be liable for the deficiency, together with interest thereon
      at the rate specified in the Convertible Debentures for interest on overdue
      principal thereof or such other rate as shall be fixed by applicable law,
      together with the costs of collection and the reasonable fees, costs, expenses
      and other client charges of any attorneys employed by the Secured Party to
      collect such deficiency.

     

    (d) The
      Company hereby acknowledges that if the Secured Party complies with any
      applicable state, provincial or federal law requirements in connection with
      a
      disposition of the Pledged Property, such compliance will not adversely affect
      the commercial reasonableness of any sale or other disposition of the Pledged
      Property.

     

    
      
        
        

      

      
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    (f) The
      Secured Party shall not be required to marshal any present or future collateral
      security (including, but not limited to, this Agreement and the Pledged
      Property) for, or other assurances of payment of, the Obligations or any of
      them
      or to resort to such collateral security or other assurances of payment in
      any
      particular order, and all of the Secured Party's rights hereunder and in respect
      of such collateral security and other assurances of payment shall be cumulative
      and in addition to all other rights, however existing or arising. To the extent
      that the Company lawfully may, the Company hereby agrees that it will not invoke
      any law relating to the marshaling of collateral which might cause delay in
      or
      impede the enforcement of the Secured Party's rights under this Agreement or
      under any other instrument creating or evidencing any of the Obligations or
      under which any of the Obligations is outstanding or by which any of the
      Obligations is secured or payment thereof is otherwise assured, and, to the
      extent that it lawfully may, the Company hereby irrevocably waives the benefits
      of all such laws.

     

    Section
      5.2 Duties
      Regarding Pledged Property.
      The
      Secured Party shall have no duty as to the collection or protection of the
      Pledged Property or any income thereon or as to the preservation of any rights
      pertaining thereto, beyond the safe custody and reasonable care of any of the
      Pledged Property actually in the Secured Party’s possession.

     

    ARTICLE
      6.

     

    AFFIRMATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof and until the
      Obligations have been fully paid and satisfied or the Convertible Debentures
      have been fully converted, unless the Secured Party shall consent otherwise
      in
      writing (as provided in Section 8.4 hereof):

     

    Section
      6.1. Existence,
      Properties, Etc.

     

    (a) The
      Company shall do, or cause to be done, all things, or proceed with due diligence
      with any actions or courses of action, that may be reasonably necessary
      (i) to maintain Company’s due organization, valid existence and good
      standing under the laws of its state of incorporation, and (ii) to preserve
      and keep in full force and effect all qualifications, licenses and registrations
      in those jurisdictions in which the failure to do so could have a Material
      Adverse Effect (as defined below); and (b) the Company shall not do, or
      cause to be done, any act impairing the Company’s corporate power or authority
      (i) to carry on the Company’s business as now conducted, and (ii) to
      execute or deliver this Agreement or any other document delivered in connection
      herewith, including, without limitation, any UCC-1 Financing Statements required
      by the Secured Party (which other loan instruments collectively shall be
      referred to as the “Loan
      Instruments”) to
      which it is or will be a party, or perform any of its obligations hereunder
      or
      thereunder. For purpose of this Agreement, the term “Material
      Adverse Effect”
shall
      mean any material and adverse affect as determined by Secured Party in its
      reasonable discretion, whether individually or in the aggregate, upon
      (a) the Company’s assets, business, operations, properties or condition,
      financial or otherwise; (b) the Company’s ability to make payment as and
      when due of all or any part of the Obligations; or (c) the Pledged
      Property.

     

    Section
      6.2. Financial
      Statements and Reports.
      The
      Company shall furnish to the Secured Party within a reasonable time such
      financial data as the Secured Party may reasonably request.

     

    
      
        
        

      

      
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    Section
      6.3. Accounts
      and Reports.
      The
      Company shall maintain a standard system of accounting in accordance with
      generally accepted accounting principles consistently applied (“GAAP”) and
      provide, at its sole expense, to the Secured Party the following:

     

    (a) as
      soon
      as available, a copy of any notice or other communication alleging any
      nonpayment or other material breach or default, or any foreclosure or other
      action respecting any material portion of its assets and properties, received
      respecting any of the indebtedness of the Company in excess of $500,000 (other
      than the Obligations), or any demand or other request for payment under any
      guaranty, assumption, purchase agreement or similar agreement or arrangement
      respecting the indebtedness or obligations of others in excess of $500,000;
      and

     

    (b) within
      fifteen (15) days after the making of each submission or filing, a copy of
      any report, financial statement, notice or other document, whether periodic
      or
      otherwise, submitted to the shareholders of the Company, or submitted to or
      filed by the Company with any governmental authority involving or affecting
      (i)
      the Company that would reasonably be expected to have a Material Adverse Effect;
      (ii) the Obligations; (iii) any part of the Pledged Property; or
      (iv) any of the transactions contemplated in this Agreement or the Loan
      Instruments (except, in each case, to the extent any such submission, filing,
      report, financial statement, notice or other document is posted on EDGAR
      Online).

     

    Section
      6.4. Maintenance
      of Books and Records; Inspection.
      The
      Company shall maintain its books, accounts and records in accordance with GAAP,
      and permit the Secured Party, its officers and employees and any professionals
      designated by the Secured Party in writing, at any time during normal business
      hours and upon reasonable notice to visit and inspect any of its properties
      (including but not limited to the collateral security described in the
      Transaction Documents and/or the Loan Instruments), corporate books and
      financial records, and to discuss its accounts, affairs and finances with any
      employee, officer or director thereof (it being agreed that, unless an Event
      of
      Default shall have occurred and be continuing, there shall be no more than
      two
      (2) such visits and inspections in any Fiscal Year).

     

    Section
      6.5. Maintenance
      and Insurance.

     

    (a) The
      Company shall maintain or cause to be maintained, at its own expense, all of
      its
      material assets and properties in good working order and condition, ordinary
      wear and tear excepted, making all necessary repairs thereto and renewals and
      replacements thereof.

     

    (b) The
      Company shall maintain or cause to be maintained, at its own expense, insurance
      in form, substance and amounts (including deductibles), which the Company deems
      reasonably necessary to the Company’s business, (i) adequate to insure all
      assets and properties of the Company of a character usually insured by persons
      engaged in the same or similar business against loss or damage resulting from
      fire or other risks included in an extended coverage policy; (ii) against
      public liability and other tort claims that may be incurred by the Company;
      (iii) as may be required by the Transaction Documents and/or applicable law
      and (iv) as may be reasonably requested by Secured Party, all with financially
      sound and reputable insurers.

     

    
      
        
        

      

      
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    Section
      6.6. Contracts
      and Other CollateralThe
      Company shall perform all of its obligations under or with respect to each
      instrument, receivable, contract and other intangible included in the Pledged
      Property to which the Company is now or hereafter will be party on a timely
      basis and in the manner therein required, including, without limitation, this
      Agreement, except to the extent the failure to so perform such obligations
      would
      not reasonably be expected to have a Material Adverse Effect.

     

    Section
      6.7. Defense
      of Collateral, Etc.
      The
      Company shall defend and enforce its right, title and interest in and to any
      part of: (a) the Pledged Property; and (b) if not included within the
      Pledged Property, those assets and properties whose loss would reasonably be
      expected to have a Material Adverse Effect, each against all manner of claims
      and demands on a timely basis to the full extent permitted by applicable law
      (other than any such claims and demands by holders of Permitted
      Liens).

     

    Section
      6.8. Taxes
      and Assessments.
      The
      Company shall (a) file all material tax returns and appropriate schedules
      thereto that are required to be filed under applicable law, prior to the date
      of
      delinquency (taking into account any extensions of the original due date),
      (b) pay and discharge all material taxes, assessments and governmental
      charges or levies imposed upon the Company, upon its income and profits or
      upon
      any properties belonging to it, prior to the date on which penalties attach
      thereto, and (c) pay all material taxes, assessments and governmental
      charges or levies that, if unpaid, might become a lien or charge upon any of
      its
      properties; provided,
      however,
      that
      the Company in good faith may contest any such tax, assessment, governmental
      charge or levy described in the foregoing clauses (b) and (c) so long as
      appropriate reserves are maintained with respect thereto if and to the extent
      required by GAAP. 

     

    Section
      6.9. Compliance
      with Law and Other Agreements.
      The
      Company shall maintain its business operations and property owned or used in
      connection therewith in compliance with (a) all applicable federal, state
      and local laws, regulations and ordinances governing such business operations
      and the use and ownership of such property, and (b) all agreements,
      licenses, franchises, indentures and mortgages to which the Company is a party
      or by which the Company or any of its properties is bound, except where the
      failure to so comply would not reasonably be expected to have a Material Adverse
      Effect.

     

    Section
      6.10. Notice
      of Default.
      The
      Company shall give written notice to the Secured Party of the occurrence of
      any
      Event of Default.

     

    Section
      6.11. Notice
      of Litigation.
      The
      Company shall give notice, in writing, to the Secured Party of (a) any
      actions, suits or proceedings wherein the amount at issue is in excess of
      $250,000, instituted by any persons against the Company, or affecting any of
      the
      assets of the Company, and (b) any dispute, not resolved within fifteen
      (15) days of the commencement thereof, between the Company on the one hand
      and
      any governmental or regulatory body on the other hand, which might reasonably
      be
      expected to have a Material Adverse Effect on the business operations or
      financial condition of the Company.

     

    Section
      6.13. Future
      Subsidiaries.
      If the
      Company shall hereafter create or acquire any subsidiary, simultaneously with
      the creation or acquisition of such subsidiary, the Company shall cause such
      subsidiary to grant to the Secured Party a security interest of the same tenor
      as created under this Agreement. 

     

    
      
        
        

      

      
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    ARTICLE
      7.

     

    NEGATIVE
      COVENANTS

     

    The
      Company covenants and agrees that, from the date hereof until the Obligations
      have been fully paid and satisfied, the Company shall not, unless the Secured
      Party shall consent otherwise in writing:

     

    Section
      7.1. Liens
      and Encumbrances.
      Directly or indirectly make, create, incur, assume or permit to exist any Lien
      in, to or against any part of the Pledged Property other than Permitted
      Liens.

     

    Section
      7.2. Restriction
      on Redemption and Cash Dividends.
      Directly or indirectly, redeem, repurchase or declare or pay any cash dividend
      or
      distribution on its capital stock without the prior express written consent
      of
      the Secured Party.

     

    Section
      7.3. Incurrence
      of Indebtedness.
      Directly or indirectly, incur or guarantee, assume or suffer to exist any
      indebtedness, other than the indebtedness evidenced by the Convertible
      Debentures and other Permitted Indebtedness. “Permitted
      Indebtedness”
means:
      (i) indebtedness evidenced by Convertible Debentures; (ii) indebtedness
      described on the Disclosure Schedule to the Securities Purchase Agreement;
      (iii)
      indebtedness incurred solely for the purpose of financing the acquisition or
      lease of any equipment by the Company, including capital lease obligations
      with
      no recourse other than to such equipment; (iv) indebtedness (A) the repayment
      of
      which has been subordinated to the payment of the Convertible Debentures on
      terms and conditions acceptable to the Secured Party, including with regard
      to
      interest payments and repayment of principal, (B) which does not mature or
      otherwise require or permit redemption or repayment prior to or on the
      91st
      day
      after the maturity date of any Convertible Debentures then outstanding; and
      (C)
      which is not secured by any assets of the Company; (v) indebtedness solely
      between the Company and/or one of its domestic subsidiaries, on the one hand,
      and the Company and/or one of its domestic subsidiaries, on the other which
      indebtedness is not secured by any assets of the Company or any of its
      subsidiaries, provided that (x) in each case a majority of the equity of any
      such domestic subsidiary is directly or indirectly owned by the Company, such
      domestic subsidiary is controlled by the Company and such domestic subsidiary
      has executed a security agreement in the form of this Agreement and (y) any
      such
      loan shall be evidenced by an intercompany note that is pledged by the Company
      or its subsidiary, as applicable, as collateral pursuant to this Agreement;
      (vi)
      reimbursement obligations in respect of letters of credit issued for the account
      of the Company or any of its subsidiaries for the purpose of securing
      performance obligations of the Company or its subsidiaries incurred in the
      ordinary course of business so long as the aggregate face amount of all such
      letters of credit does not exceed $500,000 at any one time; and (vii) renewals,
      extensions and refinancing of any indebtedness described in clauses (i) or
      (iii)
      of this subsection.

     

    Section
      7.4. Places
      of Business.
      Change
      the location of its chief place of business, chief executive office or any
      place
      of business disclosed to the Secured Party, unless such change in location
      is to
      a different location within the United States and the Company provides notice
      to
      the Secured Party of new location within 10 days’ of such change in
      location.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    Section
      7.5. Company
      Name.
      The
      Company shall not change its name with out providing the Secured Party thirty
      (30) calendar days prior written notice.

     

    Section
      7.6. Bank
      Accounts.
      The
      Company shall not open, create, assume, establish or maintain any bank account
      without having it designated as a “Deposit Account” and complying with the term
      hereunder.

     

    ARTICLE
      8.

     

    MISCELLANEOUS

     

    Section
      8.1. Notices.
      All
      notices or other communications required or permitted to be given pursuant
      to
      this Agreement shall be in writing and shall be considered as duly given on:
      (a) the date of delivery, if delivered in person or by nationally
      recognized overnight delivery service or (b) five (5) days after
      mailing if mailed from within the continental United States by certified mail,
      return receipt requested to the party entitled to receive the same:

     

    
      	
              If
                to the Secured Party:

            	
              Cornell
                Capital Partners, LP

            
	 	
              101
                Hudson Street-Suite 3700 

            
	 	
              Jersey
                City, New Jersey 07302 

            
	 	
              Attention: Mark
                Angelo

            
	 	
              Portfolio
                Manager

            
	 	
              Telephone: (201)
                986-8300

            
	 	
              Facsimile: (201)
                985-8266

            
	 	 
	
              With
                a copy to:

            	
              David
                Gonzalez, Esq.

            
	 	
              101
                Hudson Street, Suite 3700

            
	 	
              Jersey
                City, NJ 07302

            
	 	
              Telephone: (201)
                985-8300

            
	 	
              Facsimile: (201)
                985-8266

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	
              And
                if to the Company:

            	
              Homeland
                Security Capital Corporation

            
	 	
              4100
                North Fairfax Drive, Suite 1150

            
	 	
              Arlington,
                Virginia 22203

            
	 	
              Attention: C.
                Thomas McMillen

            
	 	
              Telephone: (703)
                528-7073

            
	 	
              Facsimile: (703)
                528 0956

            
	 	 
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis, LLP

            
	 	
              201
                South Biscayne Boulevard, Suite 2000

            
	 	
              Miami,
                Florida 33131

            
	 	
              Attention: Clayton
                E. Parker, Esq.

            
	 	
              Telephone: (305)
                539-3306

            
	 	
              Facsimile: (305)
                358-7095

            

    

    

    Any
      party
      may change its address by giving notice to the other party stating its new
      address. Commencing on the tenth (10th) day
      after the giving of such notice, such newly designated address shall be such
      party’s address for the purpose of all notices or other communications required
      or permitted to be given pursuant to this Agreement.

     

    Section
      8.2. Severability.
      If any
      provision of this Agreement shall be held invalid or unenforceable, such
      invalidity or unenforceability shall attach only to such provision and shall
      not
      in any manner affect or render invalid or unenforceable any other severable
      provision of this Agreement, and this Agreement shall be carried out as if
      any
      such invalid or unenforceable provision were not contained herein.

     

    Section
      8.3. Expenses.
      In the
      event of an Event of Default, the Company will pay to the Secured Party the
      amount of any and all reasonable out-of-pocket expenses, including the
      reasonable fees and expenses of its counsel, which the Secured Party may incur
      in connection with: (i) the custody or preservation of, or the sale,
      collection from, or other realization upon, any of the Pledged Property;
      (ii) the exercise or enforcement of any of the rights of the Secured Party
      hereunder or (iii) the failure by the Company to perform or observe any of
      the provisions hereof.

     

    Section
      8.4. Waivers,
      Amendments, Etc.
      The
      Secured Party’s delay or failure at any time or times hereafter to require
      strict performance by Company of any undertakings, agreements or covenants
      shall
      not waive, affect, or diminish any right of the Secured Party under this
      Agreement to demand strict compliance and performance herewith. Any waiver
      by
      the Secured Party of any Event of Default shall not waive or affect any other
      Event of Default, whether such Event of Default is prior or subsequent thereto
      and whether of the same or a different type. None of the undertakings,
      agreements and covenants of the Company contained in this Agreement, and no
      Event of Default, shall be deemed to have been waived by the Secured Party,
      nor
      may this Agreement be amended, changed or modified, unless such waiver,
      amendment, change or modification is evidenced by an instrument in writing
      specifying such waiver, amendment, change or modification and signed by the
      Secured Party in the case of any such waiver, and signed by the Secured Party
      and the Company in the case of any such amendment, change or
      modification.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    Section
      8.5. Continuing
      Security Interest; Partial Release.

     

    (a)
      This
      Agreement shall create a continuing security interest in the Pledged Property
      and shall: (i) remain in full force and effect until payment or conversion
      in full of the Convertible Debentures; (ii) be binding upon the Company and
      its successors and assigns; and (iii) inure to the benefit of the Secured
      Party and its successors and assigns. Upon the payment or satisfaction in full
      or conversion in full of the Convertible Debentures, this Agreement and the
      security interest created hereby shall terminate, and, in connection therewith,
      the Company shall be entitled to the return, at its expense, of such of the
      Pledged Property as shall not have been sold in accordance with Section 5.2
      hereof or otherwise applied pursuant to the terms hereof and the Secured Party
      shall deliver to the Company such documents as the Company shall reasonably
      request to evidence such termination.

     

    (b) Effective
      upon the closing of a disposition of any Pledged Property, provided the Secured
      Party consents in writing prior to such disposition or such disposition is
      made
      in the ordinary course of business, the security interest granted hereunder
      in
      the Pledged Property so disposed of shall terminate and the Secured Party shall
      deliver such documents as the Company shall reasonably request to evidence
      such
      termination; provided, however, the security interest granted hereunder in
      all
      remaining Pledged Property shall remain in full force and effect.

     

    Section
      8.6. Independent
      Representation.
      Each
      party hereto acknowledges and agrees that it has received or has had the
      opportunity to receive independent legal counsel of its own choice and that
      it
      has been sufficiently apprised of its rights and responsibilities with regard
      to
      the substance of this Agreement.

     

    Section
      8.7. Applicable
      Law: Jurisdiction.
      This
      Agreement shall be governed by and interpreted in accordance with the laws
      of
      the State of Delaware without regard to the principles of conflict of laws.
      The
      parties further agree that any action between them shall be heard in Hudson
      County, New Jersey, and expressly consent to the jurisdiction and venue of
      the
      Superior Court of New Jersey, sitting in Hudson County and the United States
      District Court for the District of New Jersey sitting in Newark, New Jersey
      for
      the adjudication of any civil action asserted pursuant to this
      Paragraph.

     

    Section
      8.8. Waiver
      of Jury Trial.
      AS A
      FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND TO
      MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
      ANY
      RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
      AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

     

    Section
      8.9. Entire
      Agreement.
      This
      Agreement constitutes the entire agreement among the parties and supersedes
      any
      prior agreement or understanding among them with respect to the subject matter
      hereof.

    

    [REMAINDER
      OF PAGE INTENTIONALLY LEFT BLANK]

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	 	
              COMPANY:

            
	 	 	
              HOMELAND
                SECURITY CAPITAL CORPORATION

            
	 	 	 
	 	By:	
              /s/
                C. Thomas McMillen   

            
	 	 	
              Name: C.
                Thomas McMillen

            
	 	 	
              Title: Chief
                Executive Officer

            
	 	 	 

    

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the
      parties hereto have executed this Security Agreement as of the date first above
      written.

    

    
      	 	 	 
	 	 	
              SECURED
                PARTY:

            
	 	 	
              CORNELL
                CAPITAL PARTNERS, L.P.

            
	 	 	 
	 	 	
              By: Yorkville
                Advisors, LLC

            
	 	 	
              Its: Investment
                Manager

            
	 	 	 
	 	By:	
              /s/
                Mark Angelo   

            
	 	 	
              Name: Mark
                Angelo

            
	 	 	
              Title: Portfolio
                Manager

            
	 	 	 

    

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

     

    DEFINITION
      OF PLEDGED PROPERTY

     

    For
      the
      purpose of securing prompt and complete payment and performance by the Company
      of all of the Obligations, the Company unconditionally and irrevocably hereby
      grants to the Secured Party a continuing security interest in and to, and lien
      upon, the following Pledged Property of the Company:

     

    (a) all
      goods
      of the Company, including, without limitation, machinery, equipment, furniture,
      furnishings, fixtures, signs, lights, tools, parts, supplies and motor vehicles
      of every kind and description, now or hereafter owned by the Company or in
      which
      the Company may have or may hereafter acquire any interest, and all
      replacements, additions, accessions, substitutions and proceeds thereof, arising
      from the sale or disposition thereof, and where applicable, the proceeds of
      insurance and of any tort claims involving any of the foregoing;

     

    (b) all
      inventory of the Company, including, but not limited to, all goods, wares,
      merchandise, parts, supplies, finished products, other tangible personal
      property, including such inventory as is temporarily out of Company’s custody or
      possession and including any returns upon any accounts or other proceeds,
      including insurance proceeds, resulting from the sale or disposition of any
      of
      the foregoing;

     

    (c) all
      contract rights and general intangibles of the Company, including, without
      limitation, goodwill, trademarks, trade styles, trade names, leasehold
      interests, partnership or joint venture interests, patents and patent
      applications, copyrights, deposit accounts whether now owned or hereafter
      created;

     

    (d) all
      documents, warehouse receipts, instruments and chattel paper of the Company
      whether now owned or hereafter created;

     

    (e) all
      accounts and other receivables, instruments or other forms of obligations and
      rights to payment of the Company (herein collectively referred to as
“Accounts”),
      together with the proceeds thereof, all goods represented by such Accounts
      and
      all such goods that may be returned by the Company’s customers, and all proceeds
      of any insurance thereon, and all guarantees, securities and liens which the
      Company may hold for the payment of any such Accounts including, without
      limitation, all rights of stoppage in transit, replevin and reclamation and
      as
      an unpaid vendor and/or lienor;

     

    (f) to
      the
      extent assignable, all of the Company’s rights under all present and future
      authorizations, permits, licenses and franchises issued or granted in connection
      with the operations of any of its facilities;

     

    (g) all
      equity interests, securities or other instruments in other companies, including,
      without limitation, any subsidiaries, investments or other entities (whether
      or
      not controlled); whether now existing or later acquired or created
      and

     

    (h) all
      products, proceeds (including, without limitation, insurance proceeds and
      proceeds received upon the sale of the capital stock of the Company’s
      subsidiaries) and distributions (other than regularly scheduled dividends and
      including any distributions resulting from the sale of the subsidiary’s assets)
      from the above-described Pledged Property.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    SPIN
      OFF SHARESEXHIBIT
      10.4

     

    PLEDGE
      AND ESCROW AGREEMENT

     

    THIS
      PLEDGE AND ESCROW AGREEMENT
      (the
“Agreement”)
      is
      made and entered into as of June 1, 2007 (the “Effective
      Date”)
      by and
      among HOMELAND
      SECURITY CAPITAL CORPORATION, and
      existing under the laws of the State of Delaware (the “Pledgor”),
      CORNELL
      CAPITAL PARTNERS, L.P.,
      (the
“Pledgee”),
      and
DAVID
      GONZALEZ,
      ESQ.,
      as
      escrow agent (“Escrow
      Agent”).
      

     

    RECITALS:

     

    WHEREAS,
      in
      order
      to secure the full and prompt payment when due (whether at the stated maturity,
      by acceleration or otherwise) of all of the Company’s obligations (the
“Obligations”)
      to the
      Pledgee or any successor to the Pledgee under this
      Agreement, the Securities Purchase Agreement of even date herewith between
      the
      Pledgor and the Pledgee (the “Securities
      Purchase Agreement”),
      the
      Convertible Debentures (the “Convertible
      Debentures”)
      issued
      or to be issued by the Company to the Pledgee, a total of Two Million Seven
      Hundred Fifty Thousand Dollars ($2,750,000) of principal, plus any interest,
      costs, fees, and other amounts owed to the Pledgee thereunder, the Security
      Agreement of even date herewith between the Pledgor and the Pledgee (the
“Security
      Agreement”),
      and
      all other contracts entered into between the parties hereto (collectively,
      the
“Transaction
      Documents”),
      the
      Pledgor has agreed to irrevocably pledge to the Pledgee all of the shares of
      capital stock or equity interests owned by Pledgor (the “Pledged
      Shares”)
      of
      Security Holding Corp., a Delaware corporation, Nexus Technologies Group, Inc.,
      a Delaware corporation, Polimatrix, Inc., a Delaware corporation and Fortress
      America Acquisition Corporation II, a Delaware corporation (“Fortress”)
      (subject to the conditions set forth herein).

     

    NOW,
      THEREFORE,
      in
      consideration of the mutual covenants, agreements, warranties, and
      representations herein contained, and for other good and valuable consideration,
      the receipt and sufficiency of which is hereby acknowledged, the parties hereto
      agree as follows:

     

    TERMS
      AND CONDITIONS

     

    1.  Pledge
      and Transfer of Pledged Shares.
      

     

    1.1.  The
      Pledgor hereby grants to Pledgee a security interest in all Pledged Shares
      as
      security for Pledgor’s obligations under the Convertible Debentures; provided,
      however, that until the shares of capital stock of Fortress owned by the Company
      are distributed to the Company pursuant to a Founder Share Distribution (as
      such
      term is defined in the Operating Agreement of Fortress America Acquisition
      Holdings, LLC) a security interest will not be granted in the capital stock
      of
      Fortress and such shares will not be delivered to the Pledgee pursuant to the
      following sentence. Simultaneously with the execution of the Transaction
      Documents, the Pledgor shall deliver to the Escrow Agent stock certificates
      representing the Pledged Shares, together with duly executed stock powers or
      other appropriate transfer documents executed in blank by the Pledgor (the
      “Transfer
      Documents”),
      and
      such stock certificates and Transfer Documents shall be held by the Escrow
      Agent
      until the full payment of all amounts due to the Pledgee under the Convertible
      Debentures and through repayment in accordance with the terms of the Convertible
      Debentures, or the termination or expiration of this Agreement.

     

    
      
         

      

      
        
        

        
          

        

      

      
         

      

    

     

    2.  Rights
      Relating to Pledged Shares.
      Upon
      the occurrence of an Event of Default (as defined herein), the Pledgee shall
      be
      entitled to vote the Pledged Shares, to receive dividends and other
      distributions thereon, and to enjoy all other rights and privileges incident
      to
      the ownership of the Pledged Shares.

     

    3.  Release
      of Pledged Shares from Pledge.
      Upon
      the payment of all amounts due to the Pledgee under the Convertible Debentures
      by repayment in accordance with the terms of the Convertible Debentures, the
      parties hereto shall notify the Escrow Agent to such effect in writing. Upon
      receipt of such written notice for payment of the amounts due to the Pledgee
      under the Convertible Debentures, the Escrow Agent shall return to the Pledgor
      the Transfer Documents and the certificates representing the Pledged Shares,
      (collectively the “Pledged
      Materials”),
      whereupon any and all rights of Pledgee in the Pledged Materials shall be
      terminated. Notwithstanding anything to the contrary contained herein, upon
      full
      payment of all amounts due to the Pledgee under the Convertible Debentures,
      by
      repayment in accordance with the terms of the Note, this Agreement and Pledgee’s
      security interest and rights in and to the Pledged Shares shall
      terminate.

     

    4.  Event
      of Default.
      An
      “Event
      of Default”
shall
      be deemed to have occurred under this Agreement upon an Event of Default under
      the Transaction Documents.

     

    5.  Remedies.
      Upon
      and anytime after the occurrence of an Event of Default, the Pledgee shall
      have
      the right to provide written notice of such Event of Default (the “Default
      Notice”)
      to the
      Escrow Agent, with a copy to the Pledgor. As soon as practicable after receipt
      of the Default Notice, the Escrow Agent shall deliver to Pledgee the Pledged
      Materials held by the Escrow Agent hereunder. Upon receipt of the Pledged
      Materials, the Pledgee shall have the right to (i) sell the Pledged Shares
      and
      to apply the proceeds of such sales, net of any selling commissions, to the
      Obligations owed to the Pledgee by the Pledgor under the Transaction Documents,
      including, without limitation, outstanding principal, interest, legal fees,
      and
      any other amounts owed to the Pledgee, and exercise all other rights and (ii)
      any and all remedies of a secured party with respect to such property as may
      be
      available under the Uniform Commercial Code as in effect in the State of New
      Jersey. To the extent that the net proceeds received by the Pledgee are
      insufficient to satisfy the Obligations in full, the Pledgee shall be entitled
      to a deficiency judgment against the Pledgor for such amount. The Pledgee shall
      have the absolute right to sell or dispose of the Pledged Shares in any manner
      it sees fit and shall have no liability to the Pledgor or any other party for
      selling or disposing of such Pledged Shares even if other methods of sales
      or
      dispositions would or allegedly would result in greater proceeds than the method
      actually used. The Pledgee shall return any Pledged Shares released to it and
      remaining after the Pledgee has applied the net proceeds to all amounts owed
      to
      the Pledgee. 

     

    5.1.  Each
      right, power and remedy of the Pledgee provided for in this Agreement or any
      other Transaction Document shall be cumulative and concurrent and shall be
      in
      addition to every other such right, power or remedy. The
      exercise or beginning of the exercise by the Pledgee of any one or more of
      the
      rights, powers or remedies provided for in this Agreement or any
      other
      Transaction Document or
      now or
      hereafter existing at law or in equity or by statute or otherwise shall not
      preclude the simultaneous or later exercise by the Pledgee of all such other
      rights, powers or remedies, and no failure or delay on the part of the Pledgee
      to exercise any such right, power or remedy shall operate as a waiver thereof.
      No notice to or demand on the Pledgor in any case shall entitle it to any other
      or further notice or demand in similar or other circumstances or constitute
      a
      waiver of any of the rights of the Pledgee to any other further action in any
      circumstances without demand or notice. The Pledgee shall have the full power
      to
      enforce or to assign or contract is rights under this Agreement to a third
      party.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    6.  Concerning
      the Escrow Agent.

     

    6.1.  The
      Escrow Agent undertakes to perform only such duties as are expressly set forth
      herein and no implied duties or obligations shall be read into this Agreement
      against the Escrow Agent.

     

    6.2.  The
      Escrow Agent may act in reliance upon any writing or instrument or signature
      which it, in good faith, believes to be genuine, may assume the validity and
      accuracy of any statement or assertion contained in such a writing or
      instrument, and may assume that any person purporting to give any writing,
      notice, advice or instructions in connection with the provisions hereof has
      been
      duly authorized to do so. The Escrow Agent shall not be liable in any manner
      for
      the sufficiency or correctness as to form, manner, and execution, or validity
      of
      any instrument deposited in this escrow, nor as to the identity, authority,
      or
      right of any person executing the same; and its duties hereunder shall be
      limited to the safekeeping of such certificates, monies, instruments, or other
      document received by it as such escrow holder, and for the disposition of the
      same in accordance with the written instruments accepted by it in the
      escrow.

     

    6.3.  The
      Pledgee and the Pledgor hereby agree, to defend and indemnify the Escrow Agent
      and hold it harmless from any and all claims, liabilities, losses, actions,
      suits, or proceedings at law or in equity, or any other expenses, fees, or
      charges of any character or nature which it may incur or with which it may
      be
      threatened by reason of its acting as Escrow Agent under this Agreement; and
      in
      connection therewith, to indemnify the Escrow Agent against any and all
      expenses, including attorneys’ fees and costs of defending any action, suit, or
      proceeding or resisting any claim (and any costs incurred by the Escrow Agent
      pursuant to Sections 6.4 or 6.5 hereof). The Escrow Agent shall be vested with
      a
      lien on all property deposited hereunder, for indemnification of attorneys’ fees
      and court costs regarding any suit, proceeding or otherwise, or any other
      expenses, fees, or charges of any character or nature, which may be incurred
      by
      the Escrow Agent by reason of disputes arising between the makers of this escrow
      as to the correct interpretation of this Agreement and instructions given to
      the
      Escrow Agent hereunder, or otherwise, with the right of the Escrow Agent,
      regardless of the instructions aforesaid, to hold said property until and unless
      said additional expenses, fees, and charges shall be fully paid. Any fees and
      costs charged by the Escrow Agent for serving hereunder shall be paid by the
      Pledgor.

     

    6.4.  If
      any of
      the parties shall be in disagreement about the interpretation of this Agreement,
      or about the rights and obligations, or the propriety of any action contemplated
      by the Escrow Agent hereunder, the Escrow Agent may, at its sole discretion
      deposit the Pledged Materials with the Clerk of the United States District
      Court
      of New Jersey, sitting in Newark, New Jersey, and, upon notifying all parties
      concerned of such action, all liability on the part of the Escrow Agent shall
      fully cease and terminate. The Escrow Agent shall be indemnified by the Pledgor,
      the Company and Pledgee for all costs, including reasonable attorneys’ fees in
      connection with the aforesaid proceeding, and shall be fully protected in
      suspending all or a part of its activities under this Agreement until a final
      decision or other settlement in the proceeding is received.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    6.5.  The
      Escrow Agent may consult with counsel of its own choice (and the costs of such
      counsel shall be paid by the Pledgor and the Pledgee) and shall have full and
      complete authorization and protection for any action taken or suffered by it
      hereunder in good faith and in accordance with the opinion of such counsel.
      The
      Escrow Agent shall not be liable for any mistakes of fact or error of judgment,
      or for any actions or omissions of any kind, unless caused by its willful
      misconduct or gross negligence.

     

    6.6.  The
      Escrow Agent may resign upon ten (10) days’ written notice to the parties in
      this Agreement. If a successor Escrow Agent is not appointed within this ten
      (10) day period, the Escrow Agent may petition a court of competent jurisdiction
      to name a successor.

     

    6.7  Conflict
      Waiver.
      The
      Pledgor hereby acknowledges that the Escrow Agent is general counsel to the
      Pledgee, a partner in the general partner of the Pledgee, and counsel to the
      Pledgee in connection with the transactions contemplated and referred herein.
      The Pledgor agrees that in the event of any dispute arising in connection with
      this Agreement or otherwise in connection with any transaction or agreement
      contemplated and referred herein, the Escrow Agent shall be permitted to
      continue to represent the Pledgee and the Pledgor will not seek to disqualify
      such counsel and waives any objection Pledgor might have with respect to the
      Escrow Agent acting as the Escrow Agent pursuant to this Agreement.

     

    6.8  Notices.
      Unless
      otherwise provided herein, all demands, notices, consents, service of process,
      requests and other communications hereunder shall be in writing and shall be
      delivered in person or by overnight courier service, or mailed by certified
      mail, return receipt requested, addressed:

     

    
      	
              If
                to the Pledgor, to:

            	
              Homeland
                Security Capital Corporation

            
	
               

            	
              4100
                North Fairfax Drive, Suite 1150

            
	
               

            	
              Arlington,
                Virginia 22203

            
	
               

            	
              Attention: C.
                Thomas McMillen

            
	
               

            	
              Telephone: (703)
                528-7073

            
	
               

            	
              Facsimile: (703)
                528 0956

            
	
               

            	
               

            
	
              With
                a copy to:

            	
              Kirkpatrick
                & Lockhart Preston Gates Ellis LLP

            
	
               

            	
              201
                South Biscayne Boulevard - Suite 2000

            
	
               

            	
              Miami,
                FL 33131-2399

            
	
               

            	
              Attention: Clayton
                E. Parker, Esq.

            
	
               

            	
              Telephone: (305)
                539-3300

            
	
               

            	
              Facsimile: (305)
                358-7095

            
	
               

            	
               

            

    

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    
      	
              If
                to the Pledgee:

            	
              Cornell
                Capital Partners, L.P.

            
	
               

            	
              101
                Hudson Street, Suite 3700

            
	
               

            	
              Jersey
                City, NJ 07302

            
	
               

            	
              Attention:
                 Mark
                A. Angelo

            
	
               

            	
              Telephone: (201)
                985-8300

            
	
               

            	
              Facsimile:
                 (201)
                985-8744

            
	
               

            	
               

            

    

    

    
      	
              With
                copy to:

            	
              David
                Gonzalez, Esq.

            
	
               

            	
              101
                Hudson Street, Suite 3700

            
	
               

            	
              Jersey
                City, NJ 07302

            
	
               

            	
              Telephone: (201)
                985-8300

            
	
               

            	
              Facsimile: (201)
                985-1964

            
	
               

            	
               

            

    

    

    Any
      such
      notice shall be effective (a) when delivered, if delivered by hand delivery
      or overnight courier service, or (b) five (5) days after deposit in the
      United States mail, as applicable.

     

    7.  Binding
      Effect.
      All of
      the covenants and obligations contained herein shall be binding upon and shall
      inure to the benefit of the respective parties, their successors and
      assigns.

     

    8.  Governing
      Law; Venue; Service of Process.
      The
      validity, interpretation and performance of this Agreement shall be determined
      in accordance with the laws of the State of Delaware applicable to contracts
      made and to be performed wholly within that state except to the extent that
      Federal law applies. The parties hereto agree that any disputes, claims,
      disagreements, lawsuits, actions or controversies of any type or nature
      whatsoever that, directly or indirectly, arise from or relate to this Agreement,
      including, without limitation, claims relating to the inducement, construction,
      performance or termination of this Agreement, shall be brought in the state
      superior courts located in Hudson County, New Jersey or Federal district courts
      located in Newark, New Jersey, and the parties hereto agree not to challenge
      the
      selection of that venue in any such proceeding for any reason, including,
      without limitation, on the grounds that such venue is an inconvenient forum.
      The
      parties hereto specifically agree that service of process may be made, and
      such
      service of process shall be effective if made, pursuant to Section 8
      hereto.

     

    9.  Enforcement
      Costs.
      If any
      legal action or other proceeding is brought for the enforcement of this
      Agreement, or because of an alleged dispute, breach, default or
      misrepresentation in connection with any provisions of this Agreement, the
      successful or prevailing party or parties shall be entitled to recover
      reasonable attorneys’ fees, court costs and all expenses even if not taxable as
      court costs (including, without limitation, all such fees, costs and expenses
      incident to appeals), incurred in that action or proceeding, in addition to
      any
      other relief to which such party or parties may be entitled.

     

    10.  Remedies
      Cumulative.
      No
      remedy herein conferred upon any party is intended to be exclusive of any other
      remedy, and each and every such remedy shall be cumulative and shall be in
      addition to every other remedy given hereunder or now or hereafter existing
      at
      law, in equity, by statute, or otherwise. No single or partial exercise by
      any
      party of any right, power or remedy hereunder shall preclude any other or
      further exercise thereof. 

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    11.  Counterparts.
      This
      Agreement may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute the same
      instrument.

     

    12.  No
      Penalties.
      No
      provision of this Agreement is to be interpreted as a penalty upon any party
      to
      this Agreement.

     

    13.  JURY
      TRIAL.
      EACH OF
      THE PLEDGEE AND THE PLEDGOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
      WAIVES THE RIGHT WHICH IT MAY HAVE TO A TRIAL BY JURY OF ANY CLAIM, DEMAND,
      ACTION OR CAUSE OF ACTION BASED HEREON, OR ARISING OUT OF, UNDER OR IN ANY
      WAY
      CONNECTED WITH THE DEALINGS BETWEEN PLEDGEE AND PLEDGOR, THIS PLEDGE AND ESCROW
      AGREEMENT OR ANY DOCUMENT EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
      CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS
      OF
      ANY PARTY HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
      ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. 

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have duly executed this Pledge and Escrow Agreement as of the
      date first above written. 

    
      	 	 	 
	 	
              CORNELL
                CAPITAL
                PARTNERS,
                L.P.

               

              By:
                 Yorkville
                Advisors, LLC

              
                Its: Investment
                  Manager

              

            
	 
 	 
 	 
 
	 	By:  	/s/ Mark
              Angelo
	 	
              

              Name: Mark
                Angelo

              Title: Portfolio
                Manager

            
	 	
            

    

    
      	 	 	 
	 	
              HOMELAND
                SECURITY CAPITAL CORPORATION 

            
	 
 	 
 	 
 
	 	By:  	/s/ C.
              Thomas
              McMillen
	 	
              

              Name: C.
                Thomas McMillen

            
	 	
              Title: Chief
                Executive Officer

            

      	 	 	 
	 	
              ESCROW
                AGENT

            
	 
 	 
 	 
 
	 	By:  	/s/ David
              Gonzalez
	 	
              
Name: David
              Gonzalez, Esq. 
	 	
            

    
      
         

      

      
        7

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