Exhibit 10.1

 
LITIGATION SETTLEMENT, SECURITIES PURCHASE, RELINQUISHMENT AND EXCHANGE
AGREEMENT

This Litigation Settlement, Securities Purchase, Relinquishment and Exchange
Agreement (this “Agreement”) is made and entered into as of June 11, 2007, among
Markland Technologies, Inc., a Florida corporation (“Markland” or the
“Company”), the investors signatory hereto (each such investor is a “Investor”
and all such investors are, collectively, the “Investors”) and the holders
signatory hereto (each such holder is a “Holder,” and all such holders are,
collectively, the “Holders”).

WHEREAS, each Investor is the owner of good and marketable title to (i) the
number of shares of the Series E Convertible Preferred Stock, $0.0001 par value
per share, of Markland (the “Series E Preferred Stock”) set forth opposite such
Investor’s name on Schedule A hereto (collectively, the “Series E Preferred
Shares”) and each Holder currently holds (ii) the number of shares of the Series
F Convertible Preferred Stock, $0.0001 par value per share, of Markland (the
“Series F Preferred Stock”) set forth opposite such Holder’s name on Schedule B
hereto (collectively, the “Series F Preferred Shares”), in each case free and
clear of all liens, pledges and encumbrances; and

WHEREAS, the Holders have agreed to relinquish the Company’s outstanding Series
F Preferred Stock; and

WHEREAS, pursuant to the terms an equity grant dated October 20, 2006 (the
“Equity Grant”) the Holders are entitled to an immediate grant of 500,000 shares
of Common Stock of Technest as a consequence of the transactions contemplated by
the Purchase Agreement which may be deemed to include a “change of control” of
the Company and have agreed to relinquish such right in exchange for the
immediate issuance to each of them of 375,000 shares of Technest Common Stock;
and
 
WHEREAS, the parties are currently involved in certain litigation captioned
Aberdeen Avenue, LLC et al. v. Markland Technologies, Inc. and filed on behalf
of the Investors in New York state court (the “Lawsuit”) and have agreed that
the Lawsuit shall be dismissed with prejudice and without costs; and
 
WHEREAS, among other things, as consideration for the settlement of such
litigation and the release of certain existing contractual rights by the
Investors, Markland is willing to offer each Investor and each Investor is
willing to accept shares of Markland’s newly issued Series G Preferred Stock,
$0.0001 par value per share (the “Series G Preferred Stock”), in exchange for
each Investor’s shares of Series E Preferred Stock, subject to the terms and
conditions set forth herein (the “Share Exchange”); and
 
WHEREAS, Markland also desires to raise up to $1,500,000 through the sale of
three million one hundred fifty-five thousand nine hundred forty-nine
(3,155,949) shares of common stock of Technest Holdings, Inc. (“Technest”),
$0.001 par value per share, that it holds (the “Technest Shares”), and the
Investors desire to purchase such Technest Shares, subject to the terms and
conditions set forth herein; and
 

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WHEREAS, in order to induce the parties to agree to the purchase of the Technest
Shares, the Series F Preferred Shares relinquishment, and the Share Exchange in
accordance with the terms hereof, the parties hereto hereby agree that this
Agreement also furthers the interests of all parties by granting certain rights
and placing certain restrictions on the parties hereto.

NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:

SECTION 1.    Sale of Technest Shares; Relinquishment of Series F Preferred
Shares; and Exchange of Series G Preferred Shares for Series E Preferred Shares.

1.1    Sale of Technest Shares. Subject to the terms and conditions of this
Agreement, Markland agrees to sell the Technest Shares, free and clear of all
liens and restrictions, to the Investors at a price per share of approximately
$0.4753 for an aggregate purchase price of $1,500,000 (the “Purchase Price”).
Each Investor, acting severally and not jointly, agrees to purchase from
Markland the Technest Shares, at the aggregate purchase price, set forth
opposite such Investor’s name on Schedule C hereto. The sale and purchase of the
shares of Technest Shares shall take place at the Closing as described in
Section 1.4.

1.2    Relinquishment of Series F Preferred Shares. Subject to the terms and
conditions of this Agreement, each Holder hereby agrees to relinquish and tender
to Markland the Series F Preferred Shares set forth opposite such Holder’s name
on Schedule B to Markland, and Markland hereby agrees to accept such Series F
Preferred Shares from such Holder for no consideration. In addition, and in
recognition that the sale of the Technest Shares to Investors would trigger
immediate vesting of shares of common stock of Technest to the Holders, the
Company shall transfer to each Holder 375,000 shares of restricted common stock
of Technest (750,000 shares in aggregate) (the “Relinquishment Shares”) in full
satisfaction of its obligation under the Equity Grant. The closing of the
relinquishment of the Series F Preferred Shares and the transfer of the
Relinquishment Shares shall take place at the Closing.

1.3    Exchange of Series E Preferred Shares for new Series G Preferred Shares.
Subject to the terms and conditions of this Agreement, Markland agrees to
exchange its newly issued shares of Series G Preferred Stock for all of the
shares of Series E Preferred Stock currently owned by the Investors. Each
Investor, acting severally and not jointly, agrees to exchange the number of
shares of Series E Preferred Shares for the number of shares of Series G
Preferred Stock set forth opposite such Investor’s name on Schedule A hereto.
The exchange shall take place at the Closing.

1.4    The Closing.

(a)    At the Closing to be held on the date hereof (the “Closing”), (i)
Markland shall issue to the Investors the Series G Preferred Shares in exchange
for the Series E Preferred Shares, (ii) Markland shall sell, and the Investors
shall purchase, the number of Technest Shares set forth on Schedule C, and (iii)
the Holders shall relinquish and transfer to Markland their shares of Series F
Preferred Stock, and Markland shall transfer to each Holder the Relinquishment
Shares in full satisfaction of the Equity Grant. The Closing shall take place on
or about June 15, 2007 at the offices of Gersten Savage LLP, 600 Lexington
Avenue, 9th Floor, New York, New York or at such other location as may be agreed
upon among the Investors and Markland.
 
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(b)    In furtherance of the transactions described in Section 1.4(a), at the
Closing, Markland shall issue and deliver to each Investor (i) a certificate for
the Series G Preferred Shares being acquired by such Investor (as set forth on
Schedule A) in exchange for such Investor’s Series E Preferred Shares and (ii)
certificates for the Technest Shares being purchased by such Investor at the
Closing (as set forth on Schedule C), against payment by such Investor to
Markland of the aggregate purchase price therefor in the form of (A) a certified
or bank check payable to the order of Markland, (B) a wire transfer to the bank
account of Gersten Savage LLP, as escrow agent (the “Escrow Agent”), to be held
and disbursed by the Escrow Agent in accordance with the terms of the Escrow
Agreement, or (C) any combination of (A) and (B).

(c)    In furtherance of the transactions described in Section 1.4(a), at the
Closing, Markland will cause to be released pursuant to the terms of that
certain Escrow Agreement, as amended, executed in connection with that certain
Registration Rights Agreement, dated as of March 24, 2006, between Markland and
the investor signatories thereto (the “Previous Registration Rights Agreement”)
443,592 shares of Technest Common Stock, representing payment in full of any
liquidated damages under the Previous Registration Rights Agreement to the
holders of shares of Series E Preferred Stock entitled to such shares as set
forth on Schedule D hereto.

1.5    Defined Terms Used in this Agreement. In addition to the terms defined
above, the Glossary at the end of this Agreement sets forth the definitions of
certain terms used in this Agreement.

SECTION 2.    Representations and Warranties of Markland. Markland hereby
represents and warrants to each Investor as follows:

2.1    Organization.  Markland is a corporation duly organized, validly existing
and in good standing under the laws of the State of Florida and has all
requisite corporate power and authority to carry out the transactions
contemplated hereby.

2.2    Authorization.  The execution, delivery and performance by Markland of
each of the Transaction Documents have been duly authorized by all requisite
corporate action.

2.3    Enforceability.  Each of the Transaction Documents, when executed and
delivered by Markland, shall constitute a legal, valid and binding obligation of
Markland, enforceable against Markland in accordance with its respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors’ and contracting
parties’ rights generally and except as enforceability may be subject to general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law), except that Markland may not be able to
effect a conversion of Series G Preferred Stock into shares of its Common Stock
until it has sufficient authorized Common Stock to do so.
 
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2.4    No Conflicts.  The execution, delivery and performance by Markland of
this Agreement and the other Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby, do not and will not breach or
constitute a default under any applicable law or regulation or of any agreement,
judgment, order, decree or other instrument binding on Markland.

2.5    Valid Issuance of the Series G Preferred Shares The shares of Series G
Preferred Stock, when issued, sold and delivered in accordance with the terms of
this Agreement for the consideration described herein, will be duly and validly
issued, fully paid and nonassessable and will be free of restrictions on
transfer, other than restrictions on transfer under applicable state and federal
securities laws.

2.6    No Governmental Consent or Approval Required.  Assuming the accuracy of
the representations made by the Investors in this Agreement, no authorization,
consent, approval or other order of, declaration to, or filing with, any
governmental agency or body is required for or in connection with the valid and
lawful authorization, execution and delivery by Markland of this Agreement or
the other Transaction Documents for or in connection with the valid and lawful
authorization, issuance, sale and delivery of the (a) shares of Series G
Preferred Stock and (b) Technest Shares being issued hereunder, except for (x)
the filing of the Series G Articles and (y) federal or state securities law
filings which have been made or will be made in a timely manner.

2.7    Offering.  Assuming the accuracy of the Investors’ representations set
forth in this Agreement, and subject to the filings described in Section 2.6(x)
and Section 2.6(y), as applicable, the offer, sale and issuance of the shares of
Series G Preferred Stock and the Technest Shares contemplated by this Agreement
are exempt from the registration requirements of the Securities Act, and will be
in compliance with all applicable state securities laws.

2.8    Technest Common Stock Markland owns 10,535,271 shares of Technest Common
Stock, representing approximately 63% of the issued and outstanding shares of
common stock of Technest. Of this amount, 1,739,130 shares of Technest Common
Stock were pledged by the Company in connection with a loan made by Silicon
Valley Bank to Technest (the “Bank Loan”). Subject to the terms of the Bank
Loan, such common stock is duly and validly issued, fully paid and nonassessable
and is free of any restrictions on transfer, other than restrictions on transfer
under applicable state and federal securities laws.

2.9    No Integrated Offering. Neither the Company nor any of its affiliates nor
any person acting on its or their behalf has, directly or indirectly, at any
time since December 8, 2006 made any offer or sales of any security or solicited
any offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Rule 506 of Regulation D
in connection with the offer and sale of the Technest Shares and the Series G
Preferred Stock as contemplated hereby.

SECTION 3.    Representations and Warranties of the Investors and Holders.  Each
Investor (and Holder where identified) hereby represents and warrants to
Markland as follows:

3.1    Organization. Each Investor is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, has all
requisite power and authority and has taken all necessary action required for
the due authorization, execution, delivery and performance of this Agreement and
the other Transaction Documents, as well as the consummation of the transactions
contemplated hereby, and has not been organized, reorganized or recapitalized
specifically for the purposes of investing in Markland or Technest.
 
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3.2    Enforceability.  Each of the Transaction Documents, when executed and
delivered by such Investor or Holder, shall constitute a legal, valid and
binding obligation of such Investor or Holder, enforceable against such Investor
or Holder in accordance with its respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors’ and contracting parties’ rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

3.3    No Conflicts.  The execution, delivery and performance by such Investor
of this Agreement and the other Transaction Documents, and the consummation of
the transactions contemplated hereby and thereby, do not and will not breach or
constitute a default under any applicable law or regulation or of any agreement,
judgment, order, decree or other instrument binding on such Investor or Holder.

3.4    Investment Intent. Each Investor or Holder, as the case may be, is
acquiring (i) the Relinquishment Shares, (ii) the Technest Shares, (iii) the
shares of Series G Preferred Stock to be issued hereunder, and (iv) the shares
of Technest Common Stock issuable upon conversion of the shares of Series G
Preferred Stock being issued to such Investor hereunder (“Technest Conversion
Shares”) (for purposes of this Section 3, the securities listed in (i) - (iv) of
this subsection 3.4 being the “Securities”) for investment and not for, with a
view to or in connection with the distribution thereof. The above sentence,
however, shall not limit Investor's (or Holder’s) right to sell the Securities
pursuant to applicable state and federal securities laws.

3.5    Restricted Securities.  Each Investor and Holder understands that the
Securities have not been registered under the Securities Act, or any state
securities law, by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act and such laws, and that such
Securities must be held indefinitely unless they are subsequently registered
under the Securities Act and such laws or a subsequent disposition thereof is
exempt from registration.  The certificates for the Securities to be issued
hereunder shall bear a legend in substantially the form set forth below as well
as any other legends required by applicable law, and such Investor and Holder
covenants that he or it shall not transfer the Securities represented by any
such certificate without complying with the restrictions on transfer described
in the legends endorsed on such certificate:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (“SECURITIES ACT”), OR REGISTERED OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES MAY NOT
BE TRANSFERRED UNLESS (A) COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES
LAWS OR (B) EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS ARE
AVAILABLE. AS A CONDITION TO PERMITTING ANY TRANSFER OF THESE SECURITIES, THE
COMPANY MAY REQUIRE THAT IT BE FURNISHED WITH AN OPINION OF COUNSEL ACCEPTABLE
TO THE COMPANY TO THE EFFECT THAT NO REGISTRATION OR QUALIFICATION IS LEGALLY
REQUIRED FOR SUCH TRANSFER.
 
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3.6    Rule 144.  Each Investor and Holder understands that the exemption from
registration afforded by Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis for sales only in
limited amounts.

3.7    Experience and Knowledge.  Each Investor and Holder: (a) has sufficient
knowledge and experience in business and financial matters and with respect to
investment in restricted securities so as to enable it to analyze and evaluate
the merits and risks of the investment contemplated hereby; (b) is able to bear
the economic risk of such investment; and (c) is an “accredited investor” as
defined in Rule 501(a) of Regulation D under the Securities Act.  Each Investor
and Holder is aware of Markland’s business affairs and condition and Technest’s
business affairs and condition and has acquired sufficient information about
Markland and Technest to reach an informed and knowledgeable decision to acquire
the Securities. Each Investor acknowledges that it has read and understands the
relative rights and preferences and other terms of the Series G Preferred Stock
as set forth in the Series G Articles.

3.8    Address.  The postal address for each Investor and Holder on such
signature page attached hereto is true, accurate and complete as of the date
hereof.

3.9    No Brokers.  All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the intervention
of any person acting on behalf of such Investor or Holder in such manner as to
give rise to any right, interest or valid claim for any brokerage or finder’s
commission, fee or similar compensation.

3.10   Title.  Each Holder is the owner of good and marketable title to the
Series F Preferred Shares set forth opposite such Holder’s name on Schedule B
hereto, free and clear of all liens, pledges and encumbrances.  Each Investor is
the owner of good and marketable title to the Series E Preferred Shares set
forth opposite such Investor’s name on Schedule A hereto, free and clear of all
liens, pledges and encumbrances.

SECTION 4.    Conditions to Closing.

4.1    Conditions to the Investors’ Obligations at Closing. The obligations of
each Investor to purchase the Technest Shares and to exchange its shares of
Series E Preferred Stock for the new shares of Series G Preferred Stock at the
Closing are subject to the fulfillment, on or before such Closing, of each of
the following conditions, unless otherwise waived in writing:

(a)    Representations and Warranties. The representations and warranties of
Markland contained in Section 2 shall be true and correct in all materials
respects as of such Closing.
 
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(b)    Performance. Markland shall have performed and complied with all
covenants, agreements, obligations and conditions contained in this Agreement
that are required to be performed or complied with by it on or before such
Closing.

(c)    Qualifications. All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Technest Shares and the shares of Series G Preferred Stock pursuant to this
Agreement shall be obtained and effective as of such Closing.

(d)    Registration Rights Agreement. Markland shall have executed and delivered
the Registration Rights Agreement.

(e)    Escrow Agreement. Markland shall have executed and delivered the Escrow
Agreement.

(f)    Series G Articles. Markland shall have filed the Series G Articles with
the Department of State of the State of Florida on or prior to the Closing,
which shall continue to be in full force and effect as of the current Closing.
 
(g)    Security Agreement. Markland shall have executed and delivered the
Security Agreement.

(h)    Resignation of Robert Tarini. Robert Tarini shall have tendered his
irrevocable resignation effective the 5th business day after the Closing, and
the Board of Markland shall have accepted his resignation, from his positions as
Chief Executive Officer and Chairman of the Board of Directors of Markland.

(i)     Release from Lease in Rhode Island. Markland shall have assigned that
certain real estate lease of office and warehouse space located at 222 Metro
Center Boulevard, Warwick, Rhode Island (the “Lease”) to Mr. Tarini. Mr. Tarini
shall have entered into a indemnification agreement with Markland whereby Mr.
Tarini shall indemnify Markland from any and all future obligations associated
with the Lease.

4.2    Conditions to Markland’s Obligations at Closing. The obligations of
Markland to transfer the Relinquishment Shares, to sell the Technest Shares, and
to exchange the Company’s new shares of Series G Preferred Stock for the
Investors’ shares of Series E Preferred Stock to the Investors at the Closing
are subject to the fulfillment, on or before such Closing, of each of the
following conditions, unless otherwise waived in writing:

(a)    Representations and Warranties. The representations and warranties of the
Investors and the Holders contained in Section 3 shall be true and correct in
all material respects as of the Closing Date.

(b)    Performance. The Investors and the Holders shall have performed and
complied with all covenants, agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by such
Investors and Holders on or before the Closing.
 
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(c)    Qualifications. All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the
Technest Shares and the shares of Series G Preferred Stock pursuant to this
Agreement shall be obtained and effective as of the Closing.

(d)    Registration Rights Agreement. Each Investor and Holder shall have
executed and delivered the Registration Rights Agreement.

(e)    Escrow Agreement. Each Investor and Stephen Hicks, as representative of
the Investors, shall have executed and delivered the Escrow Agreement.

(f)    Series F Preferred Shares. In connection with the Closing, the Holders
shall have delivered the Series F Preferred Shares, duly assigned to Markland,
to Markland.

(g)    Security Agreement. Each Investor shall have executed and delivered the
Security Agreement.

SECTION 5.   Escrow Shares. On or before the date of the Closing, Markland shall
deposit an aggregate four million one hundred fifty-five thousand nine hundred
forty-nine (4,155,949) shares of Technest Common Stock, which includes the
Technest Shares, the Relinquishment Shares and an additional 250,000 shares of
Technest Common Stock to be used to pay certain creditors of Markland (the
“Escrow Shares”), with the Escrow Agent, to be held and distributed by the
Escrow Agent in accordance with the terms of the Escrow Agreement.

SECTION 6.   Mutual Release. Effective upon the Closing, Markland, Robert
Tarini, individually and in his capacity as a shareholder, officer and director
of Markland, and Gino Pereira, individually and in his capacity as a
shareholder, officer and director of Markland and the Investors, do each hereby
remise, release and forever discharge the other parties, and their
representatives, officers, directors, employees, agents, attorneys,
subsidiaries, affiliates, parents, predecessors, successors and assigns from any
and all debts, demands, actions, causes of action, suits, sums of money,
contracts, controversies, agreements, promises, executions, liabilities, and any
and all other claims of any kind, nature and description whatsoever, both in law
and equity (whether known or unknown, tangible or inchoate, asserted or
unasserted), which the releasing party or its successors or assigns now have or
ever had from the beginning of the world to the date of the Closing, which shall
include, without limitation, the parties’ respective obligations (including
without limitation any future obligations) under the “Transaction Agreements”
(as such term is defined in that certain Redemption and Securities Purchase
Agreement dated March 24, 2006 among Markland and the investor signatories
thereto). Notwithstanding the foregoing, the covenants, duties and obligations
of all parties under this Agreement and the other Transaction Documents shall
survive this mutual release and shall be fully enforceable in accordance with
their respective terms. The parties agree not to commence or maintain any
lawsuit against any other party with respect to any matter released hereby and
agree that such commitment may be enforced by an action for injunctive relief
with respect thereto. In connection therewith, the parties to the Lawsuit agree
that they and/or their representatives will execute and cause to be filed with
the court a stipulation of dismissal of the Lawsuit with prejudice and without
costs.
 
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SECTION 7.    Covenants. Following the Closing, but in any event not later than
June 20, 2007, the Board of Directors of Markland shall appoint one (1)
individual to serve as a director on Markland’s Board, subject to the approval
and consent of the Investors.

SECTION 8.    [Reserved.]

SECTION 9.    Other Undertakings and Consideration. The parties acknowledge that
in addition to the investment-related undertakings herein, the Investors are
relinquishing certain existing rights, including but not limited to contractual
rights for payment by Markland to Investors in connection with Technest’s
issuance of additional shares of its common stock for cash consideration less
than $5.85 per share. The parties further stipulate that the value of the rights
being relinquished is difficult to quantify but the Parties reasonably believe
that the value of such rights or undertakings exceeds $5,000,000.

The parties agree that in consideration of the foregoing, Markland shall hold in
reserve for the exclusive benefit of the Investors holding Series G Preferred
Stock 1,739,130 shares of common stock of Technest pledged by the Company in
connection with the Bank Loan (the “Pledged Shares”). The parties stipulate that
the Pledged Shares represent consideration for the release of Investor’s
contractual rights pursuant to that certain Redemption and Securities Purchase
Agreement among the parties, dated March 24, 2006, as amended. In order to
assure that the Investor is provided with adequate consideration and to assure
that the Investor receives such Pledged Shares if and when they are released by
Silicon Valley Bank, the Company agrees to grant the Investor a security
interest in such Pledged Shares, second only to the security interest previously
granted to Silicon Valley Bank, and to direct Silicon Valley Bank to deliver the
Pledged Shares to the Escrow Agent immediately upon the release by Silicon
Valley Bank of its security interest in such Pledged Shares. The parties
undertake that they will enter into a security agreement contemporaneous with
this documentation.

SECTION 10.    Miscellaneous.

10.1    Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by Markland and a Majority
Interest. Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of one or some Investors and that does not directly or indirectly affect
the rights of other Investors may be given by Investors to which such waiver or
consent relates; provided, however, that the provisions of this sentence may not
be amended, modified, or supplemented except in accordance with the provisions
of the immediately preceding sentence.

10.2    Notices. All notices, requests, consents and other communications
hereunder shall be in writing, shall be mailed by first-class registered or
certified airmail, confirmed facsimile or nationally recognized overnight
express courier postage prepaid, and shall be deemed given when so mailed and
shall be delivered as addressed as follows:
 
if to Markland, to:
 
Markland Technologies, Inc.
222 Metro Center Boulevard
Warwick, RI 02886
Fax: 401-921-5160
Attn: President
 
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with a copy to:
 
Greenberg Traurig, LLP
20th Floor
One International Place
Boston, MA 02110
Fax: 617-279-8438
Attn: Jonathan Bell, Esq
 
if to an Investor, at such Investor’s address set forth on such Investor’s
signature page hereto,
 
with a copy to:
 
Gersten Savage LLP
600 Lexington Avenue, 9th Floor
New York, New York
Fax: 212-980-5192
Attn: David Danovitch, Esq.

The designation of any such address may be changed at any time by any party upon
written notice given pursuant to the requirements of this Section.

10.3    Successors and Assigns. This Agreement shall inure to the benefit of and
be binding upon the successors and permitted assigns of each of the parties.
Each Investor may assign its rights hereunder only to transferees of the shares
of the Technest Shares, Series G Preferred Stock or Technest Conversion Shares
in accordance with applicable state and federal securities laws.

10.4    Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

10.5    Governing Law. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF. EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS
SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN, FOR THE ADJUDICATION OF
ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH ANY TRANSACTION
CONTEMPLATED HEREBY OR DISCUSSED HEREIN, AND HEREBY IRREVOCABLY WAIVES, AND
AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR
 
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PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
ANY SUCH COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO
SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND
AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS
AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
 
10.6    Cumulative Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.

10.7    Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.

10.8    Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

10.9    Independent Nature of Investors’ Obligations and Rights. The obligations
of each Investor hereunder are several and not joint with the obligations of any
other Investor hereunder, and no Investor shall be responsible in any way for
the performance of the obligations of any other Investor hereunder. Nothing
contained herein or in any other agreement or document delivered at any closing,
and no action taken by any Investor pursuant hereto or thereto, shall be deemed
to constitute the Investors as a partnership, an association, a joint venture or
any other kind of entity, or create a presumption that the Investors are in any
way acting in concert with respect to such obligations or the transactions
contemplated by this Agreement. Each Investor shall be entitled to protect and
enforce its rights, including without limitation the rights arising out of this
Agreement, and it shall not be necessary for any other Investor to be joined as
an additional party in any proceeding for such purpose.

10.10   Attorneys’ Fees. At the Closing, Markland shall reimburse the Investors
for their reasonable out of pocket costs and their other legal costs, including
their reasonable counsel’s fees, incurred in connection with the preparation of
the Transaction Documents and the investigation of and the consummation of the
transactions contemplated hereby, in a sum not to exceed $30,000.
 
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10.11    Glossary of Defined Terms Used in this Agreement. In addition to the
terms defined above, the following terms used in this Agreement shall be
construed to have the meanings set forth or referenced below:

An “Affiliate” of any Person means a Person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by or is under
common control with the first mentioned Person. A Person shall be deemed to
control another Person if such first Person possesses, directly or indirectly,
the power to direct, or cause the direction of, the management and policies of
the second Person, whether through the ownership of voting securities, by
contract or otherwise.

“Escrow Agreement” means the agreement between Markland, the Investors, Stephen
Hicks, as representative of the Investors, and Gersten Savage LLP, as escrow
agent, dated as of the date of the Closing, in substantially the form of Exhibit
A attached to this Agreement.

“Majority Interest” means the Investors and their Affiliates holding not less
than a majority of the Technest Conversion Shares (determined on an as-converted
basis).

“Person” means an individual, a corporation, an association, a joint venture, a
partnership, a limited liability company, an estate, a trust, an unincorporated
organization and any other entity or organization, governmental or otherwise.

“Registration Rights Agreement” means the agreement between Markland and the
Investors, dated as of the date of the Closing, in substantially the form of
Exhibit B attached to this Agreement.

“Securities Act” means the Securities Act of 1933, as amended.

“Security Agreement” means the agreement between Markland and the Investors,
dated as of the date of the Closing, in substantially the form of Exhibit C
attached to this Agreement.

“Series G Articles” means the Articles of Amendment to the Articles of
Incorporation of Markland for Designation of Preferences, Rights and Limitations
of Series G Preferred Stock.

“Technest” means Technest Holdings, Inc., a Nevada corporation.

“Transaction Documents” means this Agreement, the Security Agreement, the Escrow
Agreement and the Registration Rights Agreement.

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IN WITNESS WHEREOF, the parties have executed this Litigation Settlement,
Securities Purchase, Relinquishment and Exchange Agreement as of the date first
written above.
 

 
COMPANY:
 
MARKLAND TECHNOLOGIES, INC.
 
By:    /s/ Gino Pereira                                                 
Name: Gino Pereira
Title: Chief Financial Officer

INVESTORS:
 
SOUTHRIDGE PARTNERS LP
 
By:    /s/ Henry Sargent                                            
Name: Henry Sargent
Title: Manager of General Partner
 
Address:    90 Grove Street
Ridgefield, CT 06877

SOUTHSHORE CAPITAL FUND LTD
 
By:     Illegible                                                              
Name: Navigator Management, Ltd.
Title: Director
 
Address: Cayside, 2nd Floor, P.O. Box 30592 SMB,
George Town, Grand Cayman, Cayman Islands,
British West Indies
 
ABERDEEN AVENUE LLC
 
By:     Illegible                                                              
Name: Navigator Management, Ltd.
Title: Director
 
Address: Cayside, 2nd Floor, P.O. Box 30592 SMB,
George Town, Grand Cayman, Cayman Islands,
British West Indies

 
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BRITTANY CAPITAL MANAGEMENT LTD.
 
By:    /s/ Barry W. Herman                                                 
Name: Barry W. Herman
Title: President
 
Address:    Cumberland House
27 Cumberland Street
P.O. Box N-10818
Nassau, New Providence Island
The Bahamas
 

HOLDERS:
 
ROBERT TARINI
 
   /s/ Robert
Tarini                                                               

GINO PEREIRA
 
   /s/ Gino
Pereira                                                                 

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Schedule A

Exchange of new Series G Preferred Shares for Series E Preferred Shares

Investor 
Series E Preferred
Stock Being Exchanged
for Series G Preferred
Stock
 
New Series G Preferred
Stock Being Issued in
Exchange for Series E
Preferred Stock
           
Southridge Partners LP
450.00
 
636.25
           
Southshore Capital Fund Ltd.
79.20
 
111.81
           
Aberdeen Avenue LLC
690.00
 
1,203.18
           
Brittany Capital Management Ltd.
13.00
 
22.67
             
Total:    1,232.20
 
1,973.91
 

 
 
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Schedule B

Relinquishment of Series F Preferred Shares

Holder
Series F Preferred Stock Being Relinquished
   
Robert Tarini
650
       
Gino Pereira
700
         
Total:    1350
 

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Schedule C

Technest Shares to be Purchased for Cash at the Closing

The following table sets forth the number of Technest Shares, and the amounts
paid for such shares, to be purchased for cash by each Investor at the Closing:

Investor
Number of Technest Shares
Purchase Price of Technest Shares
     
Southridge Partners LP
1,199,261
 
$570,000
       
Southshore Capital Fund Ltd.
788,987
 
$375,000
       
Aberdeen Avenue LLC
1,167,701
 
$555,000
         
Total:    3,155,949
 
$1,500,000

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Schedule D

Technest Common Stock Issued to Investors representing Liquidated Damages
associated with the Previous Registration Rights Agreement

Investor
Series E Preferred Stock
Technest Common Stock
     
Southridge Partners LP
450.00
 
162,000
           
Southshore Capital Fund Ltd.
79.20
 
28,512
           
Aberdeen Avenue LLC
690.00
 
248,400
           
Brittany Capital Management Ltd.
13.00
 
4,680
             
Total:    1,232.20
 
Total:    443,592
 

 
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