Document:

technest_8k-ex1001.htm

    Exhibit 10.1

     

    

    SETTLEMENT
AGREEMENT AND MUTUAL RELEASE

     

    This Settlement Agreement,
dated and effective as of October 26, 2009, hereinafter the “Agreement,” is
entered into by and between TECHNEST HOLDINGS, INC. (“Technest”), a Nevada
corporation with its principal place of business at 10411 Motor City Drive,
Suite 650, Bethesda, Maryland, EOIR HOLDINGS LLC (“Holdings”), a Delaware
limited liability company with its principal place of business at 600 Galleria
Parkway, Suite 400, Atlanta, Georgia, and EOIR TECHNOLOGIES, INC. (“EOIR”), a
Virginia corporation with its principal place of business at 10300 Spotsylvania
Ave., Suite 220, Fredericksburg, Virginia, collectively referred to herein as
the “Parties.”

     

    RECITALS

     

    A.           WHEREAS,
on September 10, 2007, the Parties entered into a Stock Purchase Agreement
(“SPA”) to effectuate the sale of EOIR by Technest to Holdings.

     

    B.           WHEREAS,
a dispute arose between Technest and Holdings regarding the duties and
obligations of Holdings under the SPA.

     

    C.           WHEREAS,
on September 24, 2008, Technest filed a demand for arbitration against Holdings
with the American Arbitration Association (“AAA”), Case No. 16 180 Y 00615 08
(the “Arbitration”), alleging, among other things, that Holdings breached the
SPA by failing to pay Technest the Contingent Purchase Price as required under
the SPA; and on August 21, 2009, after full discovery and a seven day hearing, a
panel of three AAA arbitrators issued an unanimous Final Award (“Award”) finding
Holdings had breached the SPA and awarding Technest $23,778,402.83 plus interest
(the Award is attached hereto as Exhibit A).

     

    D.           WHEREAS,
on or about February 17, 2009, Holdings filed a complaint against Technest in
the U.S. District Court for the District of Delaware, Case No.
1:09-cv-00095-SLR, alleging that Technest breached the SPA when it failed to pay
a Net Working Capital Adjustment to the Closing Date Purchase Price under the
SPA; and, on April 21, 2009, the Court ordered a stay of the proceedings pending
completion of arbitration regarding the Contingent Purchase Price issue; and, on
September 30, 2009, Holdings filed another complaint against Technest in the
U.S. District Court for the District of Delaware, Case No. 1:09-cv-730-SLR
alleging that Technest breached the SPA by violating various representations,
warranties, and covenants that governed the conditions of the sale of
EOIR.

     

    E.           WHEREAS,
on August 24, 2009, Technest filed a motion to confirm the arbitration award and
for entry of judgment in the U.S. District Court for the Eastern District of
Virginia, Case No. 1:09-mc-00037-AJT-TCB; and, on September 11, 2009, the U.S.
District Court for the Eastern District of Virginia transferred the matter to
the U.S. District Court for the District of Columbia.

     

    F.           WHEREAS,
on September 8, 2009, Holdings filed a petition to vacate the arbitration award
in the U.S. District Court for the District of Columbia, Case
No.1:09-cv-01707-RWR, alleging that the arbitration panel had exceeded its
authority and committed manifest disregard of the law; and, on September 20,
2009, Holdings filed a superseding petition to vacate the arbitration award in
the same court alleging violations similar to its original petition; and, on
September 21 and October 5, 2009, Technest filed oppositions to both Holdings’
original and superseding petitions to vacate the arbitration award (the actions
referred to in Recitals E and F collectively “the District of Columbia
Action”).

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    G.           WHEREAS,
the Parties now desire to settle any and all known or unknown claims arising
from or relating to the SPA, including the matters listed above, on the terms
and conditions set forth below.

     

    NOW, THEREFORE, in
consideration of the Recitals set forth above and the mutual promises,
covenants, representations, obligations, and releases described below, and for
good and valuable consideration, the adequacy and sufficiency of which are
hereby acknowledged by each of the Parties, and intending to be legally bound,
the Parties hereby agree as follows:

     

    AGREEMENT

     

    1.           Settlement
Payment.  In full settlement of all claims with respect to the
SPA, the Arbitration, and the other matters described above, and in accordance
with the terms and conditions within this Agreement:

     

    (a)      
     No later than sixty (60) days after the execution
of this Agreement, Holdings shall pay to Technest the sum of $18,000,000
(eighteen million dollars) by wire transfer to the following bank
account:

     

    Bank
Name/Address:

    

    CitiBank’s ABA
No.:

    

    
      Account Name
(Beneficiary):

    

    

    Account
Number:

    

    (b)          
Contingent upon, and no later than sixty (60) days after the first to occur of
the following, Holdings shall pay to Technest the sum of $5,000,000 (five
million dollars) by wire transfer to the same bank account listed in
subparagraph 1(a) above:

    

    (i)           The
award to EOIR of a contract by the United States Government or any department or
agency thereof under the Warrior Enabling Broad Sensor Services (WEBSS)
Indefinite Delivery Indefinite Quantity (ID/IQ) contract, Solicitation Number:
W15P7T-10-R-P601 (the “WEBS contract”), or any other contract generally
recognized to be a successor contract to the STES contract (as defined below;
such successor contract or the WEBS contract being referred to herein as the
“STES follow-on contract”).  For avoidance of doubt, Holdings’
obligation to pay to Technest under this subparagraph 1(b) shall not be affected
by any of the following:  (w) the amount of the contract ceiling on
the STES follow-on contract or whether there is a program or aggregate contract
ceiling for multiple awardees or a dedicated ceiling for EOIR for the STES
follow-on contract, (x) the number of awardees under the STES follow-on
contract, (y) whether or not EOIR is awarded any task orders under the STES
follow-on contract, and (z) the amount of, or scope of work under, any task
orders awarded to EOIR under the STES follow-on contract; or

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (ii)           The
award to EOIR of one or more task orders under U.S. Army contract no.
WI5P7T-08-D-P417 (the “STES contract”) which results in EOIR having received
awards of task orders under the STES contract totaling no less than $495,000,000
(four hundred ninety five million dollars).

     

    2.           Guarantee.  EOIR
shall absolutely, unconditionally and irrevocably guarantee full and prompt
performance of all of the obligations of Holdings under this Agreement. Until
such time as Holdings has either met its obligation to pay to Technest the sum
of $5,000,000 under subparagraph 1(b) of this Settlement Agreement or such
obligation is terminated because neither of the conditions set forth in
subparagraph 1(b) has been met, EOIR shall not (a) declare or pay any dividends
or make a distribution to its shareholders, (b) make any loans to, or guaranty
any loans for, any officers, directors or affiliates of EOIR other than any
loans or guaranties the purpose of which is to enable Holdings or EOIR to make
the payments required by paragraph 1, (c) make any payments to officers,
directors, affiliates or other creditors of EOIR other than in the ordinary
course of EOIR’s business and in a manner consistent with past practice and
other than payments to creditors that have advanced loans to EOIR for the
purpose of enabling Holdings or EOIR to make the payments required by paragraph
1.  In no event shall EOIR, nor shall its officers or directors direct
EOIR to, sell, dispose, transfer or waste EOIR assets such that EOIR would be
rendered unable to timely fulfill its obligations under this paragraph 2 to
guaranty full and prompt performance of all of the obligations of Holdings under
this Agreement including, without limitation, Holdings’ obligations under
subparagraph 1(b).  The term “affiliate” shall have the meaning given
to such term in paragraph 5 of this Settlement Agreement.

     

    3.           Disposition
of All Pending Litigation.  On or before October 29,
2009:

     

    (a) Technest and Holdings
shall execute a Stipulation and Order in the form set forth in Exhibit B hereto
and addressing all pending matters in the District of Columbia Action in the
manner set forth therein (“Escrow Order”).  The Escrow Order shall be
held in escrow by Howrey, LLP.  Upon satisfaction of Holdings’
obligations in subparagraph 1(a) of this Settlement Agreement, Howrey, LLP shall
destroy the Escrow Order and certify in writing to counsel for Holdings in the
District of Columbia Action that it has done so.  In the event
Holdings defaults under its obligations under subparagraph 1(a) of this
Settlement Agreement, Technest shall have the right to immediately file the
Escrow Order with the U.S. District Court for the District of Columbia and shall
have full rights to enforce the Award and any judgment thereon.  In
the event Technest files the Escrow Order, the obligations of Holdings under
paragraph 1, shall automatically terminate.  The parties will submit a
joint request to stay the proceedings in the District of Columbia Action for
sixty (60) days from the date of this Agreement in the form set forth in Exhibit
X hereto. In the event that, notwithstanding such request, the U.S. District
Court for the District of Columbia refuses to grant such a stay or otherwise
confirms the Award and/or enters a judgment on the Award, the obligations of the
Parties under this Settlement Agreement including, without limitation,
Technest’s obligations under paragraph 4 of this Settlement Agreement, shall
remain in effect.

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    (b) Technest and Holdings
shall file with the U.S. District Court for the District of Delaware a
Stipulation and Order of Dismissal with Prejudice in the form set forth in
Exhibit C hereto in both pending actions in the Delaware actions referenced in
Recital D above.

     

    4.           Execution
of Award / Judgment.  Technest shall take no steps to confirm,
execute or enforce the Award or any judgment unless and until Holdings defaults
on its obligations under this Settlement Agreement.  Upon satisfaction
of Holdings’ obligations under subparagraph 1(a) of this Settlement Agreement,
Technest and Holdings will file a Joint Stipulation and Dismissal Order in the
District of Columbia Action, dismissing the actions with prejudice and with each
party to bear its own costs.  The filing of the Joint Stipulation and
Dismissal Order shall not excuse the obligations of Holdings under subparagraph
1(b) of this Settlement Agreement.

     

    5.           General
Mutual Release.  In
consideration for the full, complete, and timely performance of all the terms
and conditions of this Agreement, the Parties (including all predecessors,
successors, affiliates and related entities and any of their respective
divisions, assigns, principals, agents, partners, officers, directors, trustees,
members, employees, representatives, agents, expert consultants, attorneys,
heirs, legal representatives, beneficiaries, executors and administrators)
hereby fully and forever release, exonerate, discharge, and covenant not to sue
each other (including all predecessors, successors, affiliates and related
entities and any of their respective divisions, assigns, principals, agents,
partners, officers, directors, trustees, members, employees, representatives,
agents, expert consultants, attorneys, heirs, legal representatives,
beneficiaries, executors and administrators) from and for any and all claims and
liabilities of any kind or description, in law, equity, or otherwise, whether
known or unknown, suspected or unsuspected, concealed or hidden, patent or
latent, arising out of, in connection with, or in any way relating to the SPA,
the Arbitration, or any of the litigation referenced in Recitals D, E, and
F.  For purposes of this General Mutual Release, (a) the term “related
entities” shall be construed to include, with respect to Technest, Southridge
Partners LP  and its affiliates, and, with respect to Holdings and
EOIR, The White Oak Group, Inc. and the White Oak Guggenheim Aerospace and
Defense Fund, LP, and their affiliates and (b) the term “affiliate” shall mean,
with respect to any person, any other person that controls, is controlled by, or
is under common control with such person.   Holdings agrees that
any and all claims asserted against the funds held pursuant to the Escrow
Agreement dated December 31, 2007 between Holdings, Technest and  JP
Morgan Chase Bank, National Association (the “Escrow Agent”) are released and
the Parties hereby authorize and direct the Escrow Agent to pay such funds to
Technest in accordance with the Escrow Agreement.

     

    6.           Entire
Agreement.  This
Agreement and the Exhibits hereto constitute the entire agreement and
understanding between the Parties with respect to the subject matters
herein.  Except as otherwise set forth in this Agreement, this
Agreement supersedes and replaces all prior agreements, negotiations,
discussions, and understandings, whether oral or written, between the Parties
with respect to such matters.  This Agreement may not be amended,
modified, altered, or changed except by the signed written agreement of the
Parties expressly stating that it is an amendment to this
Agreement.  The Parties acknowledge and agree that they will make no
claim, and waive any right they now or may hereafter have, based upon any
alleged oral amendment, oral alteration, oral modification, or oral change to
this Agreement.

     

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    7.           Choice
of Law and Forum.  This Agreement shall be governed, construed,
and interpreted in accordance with the laws of the State of Delaware without
regard to or application of choice of law rules or principles.  All
disputes arising out of or under this Agreement shall be adjudicated in the
United States District Court for the Eastern District of Virginia, Alexandria
Division (the “E. D. Va.”).  In the event that the requisite subject
matter jurisdiction cannot be established in the E. D. Va., all disputes arising
out of or under this Agreement shall be resolved by final and binding
arbitration in accordance with the Commercial Arbitration Rules of the American
Association of Arbitration.  Such arbitration shall be adjudicated by
a Panel of three (3) arbitrators and the proceedings in any such arbitration
shall be conducted in the District of Columbia.  Each side in the
arbitration shall select one arbitrator, and the two arbitrators so selected
shall select the third.

     

    8.           Knowing
and Voluntary.  The
Parties acknowledge and represent that they have carefully read and fully
understand all of the terms and conditions set forth in this
Agreement.  The Parties further acknowledge and represent that they
enter into this Agreement freely, knowingly, and without coercion and based on
their own independent judgment.

     

    9.           Representation
by Counsel.  The
Parties acknowledge and represent that, prior to execution of this Agreement,
they have consulted with their respective counsel concerning the advisability of
entering into, and the meaning and effect of the terms and conditions set forth
in, this Agreement.

     

    10.           Prevailing
Party Attorneys’ Fees.  In
any action or proceeding to enforce this Agreement, the prevailing party shall
be entitled to recover all attorneys’ fees and costs incurred, including those
incurred on appeal or review.  The Parties acknowledge and agree that
time is of the essence for the performance of the payment obligations set forth
in Paragraph 1 of this Settlement Agreement.

     

    11.           Counterparts.  This
Agreement may be executed in counterparts which shall constitute one agreement
when executed by all of the undersigned Parties.  Signatures can be
exchanged and delivered by electronic means, including by facsimile or by email
as an attached electronic file, and such exchange and delivery shall have the
same legal effect as if original signatures were exchanged and
delivered.

     

    IN WITNESS WHEREOF, the
Parties to this Agreement represent and warrant that they have the sole right
and exclusive authority to execute this Agreement and that they have not sold,
assigned, transferred, conveyed, or otherwise disposed of any interest, right,
claim or demand, or portion thereof, relating to any matter in this
Agreement.

     

    
      	 
      	
              TECHNEST HOLDINGS,
      INC.

               

               

              By:               /s/
      Gino M.
      Pereira                          
      

               

              Its:               Chief
      Executive Officer

               

              Date:             October
      26, 2009

            

    

    

    
      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    

    

    
      	 
      	
              EOIR HOLDINGS
      LLC

               

              By:               EOIR
      Holdings Management LLC, Manager

               

              By:               /s/
      Mark G. Mykityshyn

               

              Its:               Managing
      Member

               

              Date:            October
      26, 2009

               

            
	 
      	
              EOIR TECHNOLOGIES,
      INC.

               

              By:               /s/
      Mark G. Mykityshyn

               

              Its:               Co-Chairman
      and Secretary

               

              Date:            October
      26, 2009q310_1.htm

Summary of Amended Relocation Benefits for

Robert J. Driessnack, Chief Financial Officer

 

Relocation benefits previously disclosed. Our Chief Financial Officer, Robert J. Driessnack, joined the Company on January 19, 2009. The compensation arrangements
for Mr. Driessnack include eligibility to receive full relocation benefits in accordance with our standard program, under which we will reimburse

	
Ÿ  
	
Certain costs associated with transporting and storing normal household goods,

	
Ÿ  
	
Broker’s commissions and closing costs on the sale of his current residence, and

	
Ÿ  
	
Loan fees and closing costs for the purchase of a new residence.

We also will reimburse Mr. Driessnack for additional federal income tax liability incurred if certain moving expenses and other relocation benefits are included in his earned income, subject to limitations based on actual salary and other deductions.

 

Under our Company relocation program, Mr. Driessnack must reimburse us for a pro rata portion of relocation costs incurred by the Company if he terminates his employment within one year from his start date.

Extended relocation benefits. Our relocation program covers temporary housing costs and other housing benefits for up to six months. Due to the recent dramatic slow-down
in the housing market, employees relocating to accept jobs with the Company have had difficulty selling their prior home. During 2009, we have extended relocation benefits on a case-by-case basis for some non-executive employees.

 

In July 2009, the Compensation Committee of our Board of Directors approved the extension of relocation benefits for Mr. Driessnack. The extension is for an additional twelve months, for a total period of up to eighteen months of relocation benefits, subject to all the terms and conditions of the relocation program.

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