Security Agreement


    Exhibit
      10.2

    


    SECURITY
      AGREEMENT

    


    


    1.
      THE
      SECURITY. The undersigned Technest Holdings, Inc., a Nevada corporation (the
      "Pledgor"), hereby assigns and grants to Shelter Island Opportunity Fund, LLC
      (the "Purchaser") a security interest in all assets of Pledgor, now owned or
      hereafter acquired while this Agreement is in effect, including the following
      described property now owned or hereafter acquired by the Pledgor
      ("Collateral"):

    


    (a)
      All
      accounts, contract rights, chattel paper, instruments, deposit accounts, letter
      of credit rights, payment intangibles and general intangibles, including all
      amounts due to the Pledgor from a factor; and all returned or repossessed goods
      which, on sale or lease, resulted in an account or chattel paper.

    


    (b)
      All
      inventory, including all materials, work in process and finished
      goods.

    


    (c)
      All
      machinery, furniture, fixtures and other equipment of every type now owned
      or
      hereafter acquired by the Pledgor.

    


    (d)
      All
      instruments, notes, chattel paper, documents, certificates of deposit,
      securities and investment property of every type. The Collateral shall include
      all liens, security agreements, leases and other contracts securing or otherwise
      relating to the foregoing.

    


    (e)
      All
      rights of Pledgor under the License Agreement, dated March 13, 2006 (the
“License Agreement”), between Pledgor and Markland Technologies, Inc., a Florida
      corporation (“Markland”), as such agreement may be amended, supplemented or
      modified from time to time in accordance with its terms, and all related
      documents and agreements delivered by the parties in connection
      therewith.

    


    (f)
      All
      general intangibles, including, but not limited to, all Intellectual Property
      Rights. The Collateral shall include all good will connected with or symbolized
      by any of such general intangibles; all contract rights, documents,
      applications, licenses, materials and other matters related to such general
      intangibles; all tangible property embodying or incorporating any such general
      intangibles; and all chattel paper and instruments relating to such general
      intangibles.

    


    (g)
      All
      negotiable and nonnegotiable documents of title covering any
      Collateral.

     

    
      
        
        

      

      
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    (h)
      All
      accessions, attachments and other additions to the Collateral, and all tools,
      parts and equipment used in connection with the Collateral.

    


    (i)
      All
      substitutes or replacements for any Collateral, all cash or non-cash proceeds,
      product, rents and profits of any Collateral, all income, benefits and property
      receivable on account of the Collateral, all rights under warranties,
      indemnities and insurance contracts, letters of credit, guaranties or other
      supporting obligations covering the Collateral, and any causes of action
      relating to the Collateral.

    


    (j)
      All
      books and records pertaining to any Collateral, including but not limited to
      any
      computer-readable memory and any computer hardware or software necessary to
      process such memory ("Books and Records").

    


    2.
      THE
      INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the
      Pledgor to the Purchaser. "Indebtedness" means all debts, obligations or
      liabilities now or hereafter existing, absolute or contingent of the Pledgor
      to
      the Purchaser, whether voluntary or involuntary, whether due or not due, or
      whether incurred directly or indirectly or acquired by the Purchaser by
      assignment or otherwise, including, without limitation, the Termination Fee
      (as
      such term is defined in the Debenture referred to in the Securities Purchase
      Agreement referenced in Section 8(e) of this Agreement). 

    


    3.
      PLEDGOR'S COVENANTS. The Pledgor represents, covenants and warrants that unless
      compliance is waived by the Purchaser in writing:

    


    (a)
      The
      Pledgor will properly preserve the Collateral; defend the Collateral against
      any
      adverse claims and demands; and keep accurate Books and Records.

    


    (b)
      The
      Pledgor’s chief executive office is located in the state specified on the
      signature page hereof. In addition, the Pledgor is incorporated in or organized
      under the laws of the state specified on such signature page. The Pledgor shall
      give the Purchaser at least thirty (30) days notice before changing its chief
      executive office or state of incorporation or organization. The Pledgor will
      notify the Purchaser in writing prior to any change in the location of any
      Collateral, including the Books and Records.

    


    (c)
      The
      Pledgor will notify the Purchaser in writing prior to any change in the
      Pledgor's name, identity or business structure.

    


    (d)
      Except to the Purchaser and the security interest granted by Pledgor in the
      Collateral to (i) Silicon Valley Bank and (ii) the Persons named in the
      Subordinated Debt Subordination Agreements, or as Purchaser may hereafter agree,
      the Pledgor has not granted and will not grant any security interest in any
      of
      the Collateral, and will keep the Collateral free of all liens, claims, security
      interests and encumbrances of any kind or nature.

     

    
      
        
        

      

      
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    (e)
      The
      Pledgor will promptly notify the Purchaser in writing of any event which
      materially and adversely affects the value of the Collateral, the ability of
      the
      Pledgor or the Purchaser to dispose of the Collateral, or the rights and
      remedies of the Purchaser in relation thereto, including, but not limited to,
      the levy of any legal process against any Collateral and the adoption of any
      marketing order, arrangement or procedure affecting the Collateral, whether
      governmental or otherwise.

    


    (f)
      The
      Pledgor shall pay all costs reasonably necessary to preserve, defend, enforce
      and collect the Collateral, including but not limited to taxes, assessments,
      insurance premiums, repairs, rent, storage costs and expenses of sales, and
      any
      costs to perfect the Purchaser’s security interest (collectively, the
“Collateral Costs”). Without waiving the Pledgor's default for failure to make
      any such payment, the Purchaser at its option, upon notice to Pledgor, may
      pay
      any such Collateral Costs, and discharge encumbrances on the Collateral, and
      such Collateral Costs payments shall be a part of the Indebtedness and bear
      interest at the rate set out in the Indebtedness. The Pledgor agrees to
      reimburse the Purchaser on demand for any Collateral Costs so
      incurred.

    


    (g)
      Until
      the Purchaser exercises its rights to make collection, the Pledgor will
      diligently collect all Collateral.

    


    (h)
      If
      any Collateral is or becomes the subject of any registration certificate,
      certificate of deposit or negotiable document of title, including any warehouse
      receipt or bill of lading, the Pledgor shall immediately deliver such document
      to the Purchaser, together with any necessary endorsements.

    


    (i)
      The
      Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose
      of
      any Collateral except with the prior written consent of the Purchaser; provided,
      however, that the Pledgor may sell inventory in the ordinary course of
      business.

    


    (j)
      The
      Pledgor will maintain and keep in force insurance covering the Collateral
      against fire and extended coverages, to the extent that any Collateral is of
      a
      type which can be so insured. Such insurance shall require losses to be paid
      on
      a replacement cost basis, be issued by insurance companies reasonably acceptable
      to the Purchaser and include a loss payable endorsement in favor of the
      Purchaser in a form acceptable to the Purchaser. Upon the request of the
      Purchaser, the Pledgor will deliver to the Purchaser a copy of each insurance
      policy, or, if permitted by the Purchaser, a certificate of insurance listing
      all insurance in force.

    


    (k)
      The
      Pledgor will not attach any Collateral to any real property or fixture in a
      manner which might cause such Collateral to become a part thereof unless the
      Pledgor first obtains the written consent of any owner, holder of any lien
      on
      the real property or fixture, or other person having an interest in such
      property to the removal by the Purchaser of the Collateral from such real
      property or fixture. Such written consent shall be in form and substance
      acceptable to the Purchaser and shall provide that the Purchaser has no
      liability to such owner, holder of any lien, or any other person.

     

    
      
        
        

      

      
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    (l)
      Exhibit A to this Agreement is a complete list of all Intellectual Property
      Rights of Pledgor throughout the world.
      To the
      extent required by the Purchaser in its discretion, the
      Pledgor
      will promptly notify the Purchaser of any acquisition (by adoption and use,
      purchase, license or otherwise) of any Intellectual Property Rights, throughout
      the world, which are granted or filed or acquired after the date hereof or
      which
      are not listed on the Exhibit.
      The
      Pledgor
      authorizes the Purchaser, without notice to the Pledgor, to modify this
      Agreement by amending the Exhibit to include any such Collateral.

    


    (m)
      The
      Pledgor will, at its expense, diligently prosecute all patent, trademark or
      service mark or copyright applications pending on or after the date hereof,
      will
      maintain in effect all Intellectual Property Rights, except for such rights
      that
      are being sold, donated or abandoned by the Pledgor pursuant to the terms of
      its
      intellectual property management program and consistent with the terms of the
      License Agreement.
      The
      Pledgor
      also will promptly make application on any patentable inventions, registerable
      but unregistered trademarks and service marks, and copyrightable but
      uncopyrighted works which are necessary for Pledgor’s business.
      The
      Pledgor
      will at its expense protect and defend all rights in the Collateral against
      any
      material claims and demands of all persons other than the Purchaser and will,
      at
      its expense, enforce all rights in the Collateral against any and all infringers
      of the Collateral where such infringement would materially impair the value
      or
      use of the Collateral to the Pledgor or the Purchaser.
      The
      foregoing obligations of Pledgor with respect to prosecuting and defending
      Intellectual Property Rights that are subject to the License Agreement shall
      apply to Pledgor only if Markland has failed or refused to perform such
      obligations in accordance with the terms of the License Agreement.
      The
      Pledgor
      will not license or transfer any of the Collateral, except for such licenses
      as
      are customary in the ordinary course of the Pledgor's business, the license
      provided by the License Agreement or except with the Purchaser's prior written
      consent.

    


    4.
      ADDITIONAL OPTIONAL REQUIREMENTS.
      The
      Pledgor
      agrees that the Purchaser may at its option at any time, upon reasonable prior
      notice to Pledgor, whether or not the Pledgor is in default:

    


    (a)
      Require the Pledgor to deliver to the Purchaser (i) copies of or extracts from
      the Books and Records, and (ii) information on any contracts or other matters
      materially affecting the Collateral.

     

    
      
        
        

      

      
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    (b)
      Examine, during normal business hours, the Collateral, including the Books
      and
      Records, and make copies of or extracts from the Books and Records, and for
      such
      purposes enter at any reasonable time upon the property where any Collateral
      or
      any Books and Records are located.

    


    (c)
      To
      the extent necessary to perfect Purchaser’s security interest therein, require
      the Pledgor to deliver to the Purchaser any instruments, chattel paper or
      letters of credit which are part of the Collateral, and to assign to the
      Purchaser the proceeds of any such letters of credit.

    


    (d)
      To
      the extent necessary to perfect Purchaser’s security interest therein, notify
      any buyers of the Collateral, or any other Persons, of the Purchaser's interest
      in the Collateral.

    


    (e)
      Perform any of Pledgor’s obligations under the License Agreement that Pledgor
      has failed (or threatened to fail) to perform, at the sole cost and expense
      of
      Pledgor. The foregoing shall not impose any obligation on Purchaser to perform
      any such obligation.

    


    5.
      DEFAULTS. Any one or more of the following shall be a default
      hereunder:

    


    (a)
      Any
      Event of Default occurs under the Debenture.

    


    (b)
      The
      Purchaser fails to have a valid lien on or security interest in the Collateral
      (subject only to the prior lien of Silicon Valley Bank in the
      Collateral).

    


    6.
      PURCHASER'S REMEDIES AFTER DEFAULT. In the event of any default, the Purchaser
      may do any one or more of the following:

    


    (a)
      Declare any Indebtedness immediately due and payable, without notice or
      demand.

    


    (b)
      Enforce
      the security interest given hereunder pursuant to the Uniform Commercial Code
      and any other applicable law.

    


    (c)
      Require the Pledgor to obtain the Purchaser's prior written consent to any
      sale,
      lease, agreement to sell or lease, or other disposition of any Collateral
      consisting of inventory.

    


    (d)
      Require the Pledgor to segregate all collections and proceeds of the Collateral
      so that they are capable of identification and deliver daily such collections
      and proceeds to the Purchaser in kind.

     

    
      
        
        

      

      
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    (e)
      Require the Pledgor, to the extent not previously required, to direct all
      account debtors to forward all payments and proceeds of the Collateral to a
      post
      office box or account under the Purchaser's exclusive control.

    


    (f)
      Require the Pledgor to assemble the Collateral, including the Books and Records,
      and make them available to the Purchaser at a place designated by the
      Purchaser.

    


    (g)
      Enter
      upon the property where any Collateral, including any Books and Records, are
      located and take possession of such Collateral and such Books and Records,
      and
      use such property (including any buildings and facilities) and any of the
      Pledgor's equipment, if the Purchaser deems such use necessary or advisable
      in
      order to take possession of, hold, preserve, process, assemble, prepare for
      sale
      or lease, market for sale or lease, sell or lease, or otherwise dispose of,
      any
      Collateral.

    


    (h)
      Demand and collect any payments on and proceeds of the Collateral. In connection
      therewith, the Pledgor irrevocably authorizes the Purchaser to endorse or sign
      the Pledgor's name on all checks, drafts, collections, receipts and other
      documents, and to take possession of and open the mail addressed to the Pledgor
      and remove therefrom any payments and proceeds of the Collateral.

    


    (i)
      Grant
      extensions and compromise or settle claims with respect to the Collateral for
      less than face value, all without prior notice to the Pledgor.

    


    (j)
      Use
      or transfer any of the Pledgor's rights and interests in any Intellectual
      Property Rights now owned or hereafter acquired by the Pledgor, if the Purchaser
      deems such use or transfer necessary or advisable in order to take possession
      of, hold, preserve, process, assemble, prepare for sale or lease, market for
      sale or lease, sell or lease, or otherwise dispose of, any
      Collateral.
      The
      Pledgor
      agrees that any such use or transfer shall be without any additional
      consideration to the Pledgor. 

    


    (k)
      Have
      a receiver appointed by any court of competent jurisdiction to take possession
      of the Collateral.
      The
      Pledgor
      hereby consents to the appointment of such a receiver and agrees not to oppose
      any such appointment.

    


    (l)
      Take
      such measures as the Purchaser may deem necessary or advisable to take
      possession of, hold, preserve, process, assemble, insure, prepare for sale
      or
      lease, market for sale or lease, sell or lease, or otherwise dispose of, any
      Collateral, and the Pledgor hereby irrevocably constitutes and appoints the
      Purchaser as the Pledgor's attorney-in-fact to perform all acts and execute
      all
      documents in connection therewith.

     

    
      
        
        

      

      
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    (m)
      Exercise any other remedies available to the Purchaser at law or in
      equity.

    


    7.
      ENVIRONMENTAL MATTERS.

    


    (a)
      The
      Pledgor
      represents and warrants: (i) it is not in violation of any material health,
      safety, or environmental law or regulation regarding hazardous substances and
      (ii) it is not the subject of any claim, proceeding, notice, or other
      communication regarding hazardous substances. "Hazardous substances" means
      any
      substance, material or waste that is or becomes designated or regulated as
      "toxic," "hazardous," "pollutant," or "contaminant" or a similar designation
      or
      regulation under any current or future federal, state or local law (whether
      under common law, statute, regulation or otherwise) or judicial or
      administrative interpretation of such, including without limitation petroleum
      or
      natural gas.

    


    (b)
      The
      Pledgor
      shall deliver to the Purchaser, promptly upon receipt, copies of all notices,
      orders, or other communications regarding (i) any enforcement action by any
      governmental authority relating to health, safety, the environment, or any
      hazardous substances with regard to the Pledgor's property, activities, or
      operations, or (ii) any claim against the Pledgor regarding hazardous
      substances.

    


    (c)
      The
      Purchaser and its agents and representatives will have the right at any
      reasonable time, after giving reasonable notice to the Pledgor, to enter and
      visit any locations where the Collateral is located for the purposes of
      observing the Collateral, taking and removing environmental samples, and
      conducting tests.
      The
      Pledgor shall reimburse the Purchaser on demand for the costs of any such
      environmental investigation and testing. The
      Purchaser will make reasonable efforts during any site visit, observation or
      testing conducted pursuant to this paragraph to avoid interfering with the
      Pledgor’s use of the Collateral.
      The
      Purchaser is under no duty to observe the Collateral or to conduct tests, and
      any such acts by the Purchaser will be solely for the purposes of protecting
      the
      Purchaser's security and preserving the Purchaser's rights under this Agreement.
      No site visit, observation or testing or any report or findings made as a result
      thereof (“Environmental Report”) will (i) result in a waiver of any default of
      the Pledgor; (ii) impose any liability on the Purchaser; or (iii) be a
      representation or warranty of any kind regarding the Collateral (including
      its
      condition or value or compliance with any laws) or the Environmental Report
      (including its accuracy or completeness). In the event the Purchaser has a
      duty
      or obligation under applicable laws, regulations or other requirements to
      disclose an Environmental Report to the Pledgor or any other party, the Pledgor
      authorizes the Purchaser to make such a disclosure.
      The
      Purchaser may also disclose an Environmental Report to any regulatory authority,
      and to any other parties as necessary or appropriate in the Purchaser’s
      judgment. The
      Pledgor
      further understands and agrees that any Environmental Report or other
      information regarding a site visit, observation or testing that is disclosed
      to
      the Pledgor by the Purchaser or its agents and representatives is to be
      evaluated (including any reporting or other disclosure obligations of the
      Pledgor) by the Pledgor without advice or assistance from the
      Purchaser.

     

    
      
        
        

      

      
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    (d)
      The
      Pledgor
      will indemnify and hold harmless the Purchaser from any loss or liability the
      Purchaser incurs in connection with or as a result of this Agreement, which
      directly or indirectly arises out of the use, generation, manufacture,
      production, storage, release, threatened release, discharge, disposal or
      presence of a hazardous substance. This indemnity will apply whether the
      hazardous substance is on, under or about the Pledgor's property or operations
      or property leased to the Pledgor. The indemnity includes but is not limited
      to
      attorneys' fees (including the reasonable estimate of the allocated cost of
      in-house counsel and staff). The indemnity extends to the Purchaser, its
      affiliates and all of their directors, officers, employees, agents, successors,
      attorneys and assigns.

    


    8.
      MISCELLANEOUS.

    


    (a)
      Any
      waiver, express or implied, of any provision hereunder and any delay or failure
      by the Purchaser to enforce any provision shall not preclude the Purchaser
      from
      enforcing any such provision thereafter.

    


    (b)
      The
      Pledgor
      shall, at the request of the Purchaser, execute such other agreements,
      documents, instruments, or financing statements in connection with this
      Agreement as the Purchaser may reasonably deem necessary.

    


    (c)
      This
      Agreement shall be governed by and construed according to the laws of the State
      of New York, to the jurisdiction of which the parties hereto
      submit.

    


    (d)
      All
      rights and remedies herein provided are cumulative and not exclusive of any
      rights or remedies otherwise provided by law. Any single or partial exercise
      of
      any right or remedy shall not preclude the further exercise thereof or the
      exercise of any other right or remedy.

    


    (e)
      All
      terms not defined herein are used as set forth in the Uniform Commercial Code
      and capitalized terms used herein without definition have the meanings set
      forth
      in the Securities Purchase Agreement, dated the date hereof, between Pledgor
      and
      Purchaser.

    


    (f)
      In the
      event of any action by the Purchaser to enforce this Agreement or to protect
      the
      security interest of the Purchaser in the Collateral, or to take possession
      of,
      hold, preserve, process, assemble, insure, prepare for sale or lease, market
      for
      sale or lease, sell or lease, or otherwise dispose of, any Collateral, the
      Pledgor agrees to pay immediately the costs and expenses thereof, together
      with
      reasonable attorney's fees and allocated costs for in-house legal services
      to
      the extent permitted by law.

     

    
      
        
        

      

      
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    (g)
      In
      the event the Purchaser seeks to take possession of any or all of the Collateral
      by judicial process, the Pledgor hereby irrevocably waives any bonds and any
      surety or security relating thereto that may be required by applicable law
      as an
      incident to such possession, and waives any demand for possession prior to
      the
      commencement of any such suit or action.

    


    (h)
      The
      Purchaser's rights hereunder shall inure to the benefit of its successors and
      assigns. In the event of any assignment or transfer by the Purchaser of any
      of
      the Indebtedness or its security interest in the Collateral, the Purchaser
      thereafter shall be fully discharged from any responsibility with respect to
      the
      Collateral so assigned or transferred, but the Purchaser shall retain all rights
      and powers hereby given with respect to any of the Indebtedness or the
      Collateral not so assigned or transferred. All representations, warranties
      and
      agreements of the Pledgor shall be binding upon the successors and assigns
      of
      the Pledgor.

    


    (i)
      The
      Pledgor agrees that the Collateral may be sold as provided for in this Agreement
      and expressly waives any rights of notice of sale, advertisement procedures,
      or
      related provisions granted under applicable law, including the New York Lien
      Law.


    
      
         

        
        

      

      
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    The
      parties executed this Agreement as of May 31, 2007.

    


    

      


      
        	 	 
	 	
                SHELTER
                  ISLAND

              
	 	
                OPPORTUNITY
                  FUND, LLC

              
	 	
                By:
                  Shelter Island GP, LLC, its Manager

              
	 	 
	 	 
	 	
                By:
                  /s/ Randall P. Stern

              
	 	
                Title:
                  President

              
	 	 
	 	
                Address
                  for Notices:

              
	 	
                One
                  East 52nd
                  Street

              
	 	
                New
                  York, New York 10022

              
	 	 
	 	
                Attention:
                  Randall P. Stern

              
	 	 
	 	
                TECHNEST
                  HOLDINGS, INC.

              
	 	 
	 	
                By:
                  /s/ Gino M. Pereira

              
	 	
                Title:
                  Chief Financial Officer

              
	 	 
	 	
                Pledgor's
                  Location:

              
	 	
                10411
                  Motor City Drive,

              
	 	
                Suite
                  650

              
	 	
                Bethesda,
                  Maryland 20817

              
	 	
                Pledgor’s
                  state of

              
	 	
                incorporation:
                  Nevada

              


      

      


    


    
      
         

        
        

      

      
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    EXHIBIT
      A

    Intellectual
      Property

    


     

     

    11