Document:

subsurface_s8-ex0400.htm

    EXHIBIT
      4.0

    

    SUB
      SURFACE WASTE MANAGEMENT OF DELAWARE, INC.

    

    2007-IV
      EMPLOYEE STOCK INCENTIVE PLAN

    

    As
      Adopted August 27, 2007

    

    

    1.           PURPOSE.

    

    The
      purpose of this Plan is to provide incentives to attract, retain and motivate
      eligible persons whose present and potential contributions are important to
      the
      success of the Company, its Parent and Subsidiaries, by offering them an
      opportunity to participate in the Company’s future performance through awards of
      Options, Restricted Stock and Stock Bonuses.  Capitalized terms not
      defined in the text are defined in Section 2.

    

    2.           DEFINITIONS.

    

    As
      used
      in this Plan, the following terms will have the following meanings:

    

    “AWARD”
      means any award under this Plan, including any Option, Restricted Stock or
      Stock
      Bonus.

    

    “AWARD
      AGREEMENT” means, with respect to each Award, the signed written agreement
      between the Company and the Participant setting forth the terms and conditions
      of the Award.

    

    “BOARD”
      means the Board of Directors of the Company.

    

    “CAUSE”
      means any cause, as defined by applicable law, for the termination of a
      Participant’s employment with the Company or a Parent or Subsidiary of the
      Company.

    

    “CODE”
      means the Internal Revenue Code of 1986, as amended.

    

    “COMPANY”
      means Sub Surface Waste Management of Delaware, Inc., a Delaware corporation,
      or
      any successor corporation.

    

    “DISABILITY”
      means a disability, whether temporary or permanent, partial or total, as
      determined by the Board.

    

    “EXCHANGE
      ACT” means the Securities Exchange Act of 1934, as amended.

    

    “EXERCISE
      PRICE” means the price at which a holder of an Option may purchase the
      Shares issuable upon exercise of the Option.

    

    “FAIR
      MARKET VALUE” means, as of any date, the value of a share of the Company’s
      Common Stock determined as follows:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    

    
      	
               

            	
              (a)

            	
              if
                such Common Stock is publicly traded and is then listed on a national
                securities exchange, its closing price on the date of determination
                on the
                principal national securities exchange on which the Common Stock
                is listed
                or admitted to trading as reported in The Wall Street
                Journal;

            

    

    

    
      	
               

            	
              (b)

            	
              if
                such Common Stock is quoted on the NASDAQ National Market, its closing
                price on the NASDAQ National Market on the date of determination
                as
                reported in The Wall Street
                Journal;

            

    

    

    
      	
               

            	
              (c)

            	
              if
                such Common Stock is publicly traded but is not listed or admitted
                to
                trading on a national securities exchange, the average of the closing
                bid
                and asked prices on the date of determination as reported by Bloomberg,
                L.P.;

            

    

    

    
      	
               

            	
              (d)

            	
              in
                the case of an Award made on the Effective Date, the price per share
                at
                which shares of the Company’s Common Stock are initially offered for sale
                to the public by the Company’s underwriters in the initial public offering
                of the Company’s Common Stock pursuant to a registration statement filed
                with the SEC under the Securities Act;
                or

            

    

    

    
      	
               

            	
              (e)

            	
              if
                none of the foregoing is applicable, by the Board in good
                faith.

            

    

    

    “INSIDER”
      means an officer or director of the Company or any other person whose
      transactions in the Company’s Common Stock are subject to Section 16 of the
      Exchange Act.

    

    “OPTION”
      means an award of an option to purchase Shares pursuant to Section
      6.

    

    “PARENT”
      means any corporation (other than the Company) in an unbroken chain of
      corporations ending with the Company if each of such corporations other than
      the
      Company owns stock possessing 50% or more of the total combined voting power
      of
      all classes of stock in one of the other corporations in such
      chain.

    

    “PARTICIPANT”
      means a person who receives an Award under this Plan.

    

    “PERFORMANCE
      FACTORS” means the factors selected by the Board, in its sole and absolute
      discretion, from among the following measures to determine whether the
      performance goals applicable to Awards have been satisfied:

    

    
      	
               

            	
              (a)

            	
              Net
                revenue and/or net revenue growth;

            

    

    

    
      	
               

            	
              (b)

            	
              Earnings
                before income taxes and amortization and/or earnings before income
                taxes
                and amortization growth;

            

    

    

    
      	
               

            	
              (c)

            	
              Operating
                income and/or operating income
                growth;

            

    

    

    
      	
               

            	
              (d)

            	
              Net
                income and/or net income growth;

            

    

    

    
      	
               

            	
              (e)

            	
              Earnings
                per share and/or earnings per share
                growth;

            

    

    

    
      	
               

            	
              (f)

            	
              Total
                stockholder return and/or total stockholder return
                growth;

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    
      	
               

            	
              (g)

            	
              Return
                on equity;

            

    

    

    
      	
               

            	
              (h)

            	
              Operating
                cash flow return on income;

            

    

    

    
      	
               

            	
              (i)

            	
              Adjusted
                operating cash flow return on
                income;

            

    

    

    
      	
               

            	
              (j)

            	
              Economic
                value added; and

            

    

    

    
      	
               

            	
              (k)

            	
              Individual
                confidential business objectives.

            

    

    

    “PERFORMANCE
      PERIOD” means the period of service determined by the Board, not to exceed
      five years, during which years of service or performance is to be measured
      for
      Restricted Stock Awards or Stock Bonuses.

    

    “PLAN”
      means this Sub Surface Waste Management of Delaware, Inc. 2007-IV Employee
      Stock
      Incentive Plan, as amended from time to time.

    

    “RESTRICTED
      STOCK AWARD” means an award of Shares pursuant to Section 7.

    

    “SEC”
      means the Securities and Exchange Commission.

    

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

    

    “SHARES”
      means shares of the Company’s Common Stock reserved for issuance under this
      Plan, as adjusted pursuant to Sections 3 and 19, and any successor
      security.

    

    “STOCK
      BONUS” means an award of Shares, or cash in lieu of Shares, pursuant to
      Section 8.

    

    “SUBSIDIARY”
      means any corporation (other than the Company) in an unbroken chain of
      corporations beginning with the Company if each of the corporations other than
      the last corporation in the unbroken chain owns stock possessing 50% or more
      of
      the total combined voting power of all classes of stock in one of the other
      corporations in such chain.

    

    “TERMINATION”
      or “TERMINATED” means, for purposes of this Plan with respect to a
      Participant, that the Participant has for any reason ceased to provide services
      as an employee, officer, director, consultant, independent contractor, or
      advisor to the Company or a Parent or Subsidiary of the Company. An employee
      will not be deemed to have ceased to provide services in the case of (i) sick
      leave, (ii) military leave, or (iii) any other leave of absence approved by
      the
      Company, provided that such leave is for a period of not more than 90 days,
      unless reemployment upon the expiration of such leave is guaranteed by contract
      or statute or unless provided otherwise pursuant to a formal policy adopted
      from
      time to time by the Company and issued and promulgated to employees in
      writing.  In the case of any employee on an approved leave of absence,
      the Board may make such provisions respecting suspension of vesting of the
      Award
      while on leave from the employ of the Company or a Subsidiary as it may deem
      appropriate, except that in no event may an Option be exercised after the
      expiration of the term set forth in the Option agreement. The Board will have
      sole discretion to determine whether a Participant has ceased to provide
      services and the effective date on which the Participant ceased to provide
      services (the “TERMINATION DATE”).

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    “UNVESTED
      SHARES” means “Unvested Shares” as defined in the Award
      Agreement.

    

    “VESTED
      SHARES” means “Vested Shares” as defined in the Award
      Agreement.

    

    3.           SHARES
      SUBJECT TO THE PLAN.

    

    3.1           Number
      of Shares Available.  Subject to Sections 3.2 and 19, the total
      aggregate number of Shares reserved and available for grant and issuance
      pursuant to this Plan will be 30,000,000 plus Shares that are subject to: (a)
      issuance upon exercise of an Option but cease to be subject to such Option
      for
      any reason other than exercise of such Option; (b) an Award granted hereunder
      but forfeited or repurchased by the Company at the original issue price; and
      (c)
      an Award that otherwise terminates without Shares being issued.  At
      all times the Company shall reserve and keep available a sufficient number
      of
      Shares as shall be required to satisfy the requirements of all outstanding
      Options granted under this Plan and all other outstanding but unvested Awards
      granted under this Plan.

    

    3.2           Adjustment
      of Shares.  In the event that the number of outstanding shares is
      changed by a stock dividend, recapitalization, stock split, reverse stock split,
      subdivision, combination, reclassification or similar change in the capital
      structure of the Company without consideration, then (a) the number of Shares
      reserved for issuance under this Plan, (b) the Exercise Prices of and number
      of
      Shares subject to outstanding Options, and (c) the number of Shares subject
      to
      other outstanding Awards will be proportionately adjusted, subject to any
      required action by the Board or the stockholders of the Company and compliance
      with applicable securities laws; provided, however, that fractions of a Share
      will not be issued but will either be replaced by a cash payment equal to the
      Fair Market Value of such fraction of a Share or will be rounded up to the
      nearest whole Share, as determined by the Board.

    

    4.           ELIGIBILITY.

    

     ISOs
      (as defined in Section 6 below) may be granted only to employees (including
      officers and directors who are also employees) of the Company or of a Parent
      or
      Subsidiary of the Company.  All other Awards may be granted to
      employees, officers, directors, consultants, independent contractors and
      advisors of the Company or any Parent or Subsidiary of the Company; provided
      such consultants, contractors and advisors render bona fide services not in
      connection with the offer and sale of securities in a capital-raising
      transaction.

    

    5.           ADMINISTRATION.

    

    5.1           Board
      Authority.  This Plan will be administered by the
      Board.  Subject to the general purposes, terms and conditions of this
      Plan, the Board will have full power to implement and carry out this Plan.
      Without limitation, the Board will have the authority to:

    

    
      	
            	
              (a)

            	
              construe
                and interpret this Plan, any Award Agreement and any other agreement
                or
                document executed pursuant to this
                Plan;

            

    

    

    
      	
               

            	
              (b)

            	
              prescribe,
                amend and rescind rules and regulations relating to this Plan or
                any
                Award;

            

    

    

    
      	
               

            	
              (c)

            	
              select
                persons to receive Awards;

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    
      	
               

            	
              (d)

            	
              determine
                the form and terms of Awards;

            

    

    

    
      	
               

            	
              (e)

            	
              determine
                the number of Shares or other consideration subject to
                Awards;

            

    

    

    
      	
               

            	
              (f)

            	
              determine
                whether Awards will be granted singly, in combination with, in tandem
                with, in replacement of, or as alternatives to, other Awards under
                this
                Plan or any other incentive or compensation plan of the Company or
                any
                Parent or Subsidiary of the
                Company;

            

    

    

    
      	
               

            	
              (g)

            	
              grant
                waivers of Plan or Award
                conditions;

            

    

    

    
      	
               

            	
              (h)

            	
              determine
                the vesting, ability to exercise and payment of
                Awards;

            

    

    

    
      	
               

            	
              (i)

            	
              correct
                any defect, supply any omission or reconcile any inconsistency in
                this
                Plan, any Award or any Award
                Agreement;

            

    

    

    
      	
               

            	
              (j)

            	
              determine
                whether an Award has been earned;
                and

            

    

    

    
      	
               

            	
              (k)

            	
              make
                all other determinations necessary or advisable for the administration
                of
                this Plan.

            

    

    

    5.2           Board
      Discretion.  Any determination made by the Board with respect to
      any Award will be made at the time of grant of the Award or, unless in
      contravention of any express term of this Plan or Award, at any later time,
      and
      such determination will be final and binding on the Company and on all persons
      having an interest in any Award under this Plan.  The Board may
      delegate to one or more officers of the Company the authority to grant an Award
      under this Plan to Participants who are not Insiders of the
      Company.

    

    6.           OPTIONS.

    

     The
      Board may grant
      Options to eligible persons and will determine whether such Options will be
      Incentive Stock Options within the meaning of the Code (“ISO”) or Nonqualified
      Stock Options (“NQSOS”), the number of Shares subject to the Option, the
      Exercise Price of the Option, the period during which the Option may be
      exercised, and all other terms and conditions of the Option, subject to the
      following:

    

    6.1           Form
      of Option Grant.  Each Option granted under this Plan will be
      evidenced by an Award Agreement that will expressly identify the Option as
      an
      ISO or an NQSO (hereinafter referred to as the “STOCK OPTION AGREEMENT”), and
      will be in such form and contain such provisions (which need not be the same
      for
      each Participant) as the Board may from time to time approve, and which will
      comply with and be subject to the terms and conditions of this
      Plan.

    

    6.2           Date
      of Grant.  The date of grant of an Option will be the date on
      which the Board makes the determination to grant such Option, unless otherwise
      specified by the Board.  The Stock Option Agreement and a copy of this
      Plan will be delivered to the Participant within a reasonable time after the
      granting of the Option.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    6.3           Exercise
      Period. Options may be exercisable within the times or upon the events
      determined by the Board as set forth in the Stock Option Agreement governing
      such Option; provided, however, that no Option will be exercisable after the
      expiration of ten (10) years from the date the Option is granted; and provided
      further that no ISO granted to a person who directly or by attribution owns
      more
      than ten percent (10%) of the total combined voting power of all classes of
      stock of the Company or of any Parent or Subsidiary of the Company (“TEN PERCENT
      STOCKHOLDER”) will be exercisable after the expiration of five (5) years from
      the date the ISO is granted.  The Board also may provide for Options
      to become exercisable at one time or from time to time, periodically or
      otherwise, in such number of Shares or percentage of Shares as the Board
      determines.

    

    6.4           Exercise
      Price.  The Exercise Price of an Option will be determined by the
      Board when the Option is granted and may be not less than 85% of the Fair Market
      Value of the Shares on the date of grant; provided that:  (a) the
      Exercise Price of an ISO will be not less than 100% of the Fair Market Value
      of
      the Shares on the date of grant; and (b) the Exercise Price of any ISO granted
      to a Ten Percent Stockholder will not be less than 110% of the Fair Market
      Value
      of the Shares on the date of grant.  Payment for the Shares purchased
      may be made in accordance with Section 9 of this Plan.

    

    6.5           Method
      of Exercise.  Options may be exercised only by delivery to the
      Company of a written stock option exercise agreement  (the “EXERCISE
      AGREEMENT”) in a form approved by the Board, (which need not be the same for
      each Participant), stating the number of Shares being purchased, the
      restrictions imposed on the Shares purchased under such Exercise Agreement,
      if
      any, and such representations and agreements regarding Participant’s investment
      intent and access to information and other matters, if any, as may be required
      or desirable by the Company to comply with applicable securities laws, together
      with payment in full of the Exercise Price for the number of Shares being
      purchased.

    

    6.6           Termination.  Notwithstanding
      the exercise periods set forth in the Stock Option Agreement, exercise of an
      Option will always be subject to the following:

    

    (a)          If
      the Participant’s service is Terminated for any reason except death or
      Disability, then the Participant may exercise such Participant’s Options only to
      the extent that such Options would have been exercisable upon the Termination
      Date no later than three (3) months after the Termination Date (or such shorter
      or longer time period not exceeding five (5) years as may be determined by
      the
      Board, with any exercise beyond three (3) months after the Termination Date
      deemed to be an NQSO), but in any event, no later than the expiration date
      of
      the Options.

    

    (b)          If
      the Participant’s service is Terminated because of Participant’s death or
      Disability (or the Participant dies within three (3) months after a Termination
      other than for Cause or because of Participant’s Disability), then Participant’s
      Options may be exercised only to the extent that such Options would have been
      exercisable by Participant on the Termination Date and must be exercised by
      Participant (or Participant’s legal representative or authorized assignee) no
      later than twelve (12) months after the Termination Date (or such shorter or
      longer time period not exceeding five (5) years as may be determined by the
      Board, with any such exercise beyond (i) three (3) months after the Termination
      Date when the Termination is for any reason other than the Participant’s death
      or Disability, or (ii) twelve (12) months after the Termination Date when the
      Termination is for Participant’s death or Disability, deemed to be an NQSO), but
      in any event no later than the expiration date of the Options.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    (c)           Notwithstanding
      the provisions in paragraph 6.6(a) above, if a Participant’s service is
      Terminated for Cause, neither the Participant, the Participant’s estate nor such
      other person who may then hold the Option shall be entitled to exercise any
      Option with respect to any Shares whatsoever, after Termination, whether or
      not
      after Termination the Participant may receive payment from the Company or
      Subsidiary for vacation pay, for services rendered prior to Termination, for
      services rendered for the day on which Termination occurs, for salary in lieu
      of
      notice, or for any other benefits.  For the purpose of this paragraph,
      Termination shall be deemed to occur on the date when the Company dispatches
      notice or advice to the Participant that his service is Terminated.

    

    6.7           Limitations
      on Exercise.  The Board may specify a reasonable minimum number of
      Shares that may be purchased on any exercise of an Option, provided that such
      minimum number will not prevent Participant from exercising the Option for
      the
      full number of Shares for which it is then exercisable.

    

    6.8           Limitations
      on ISO.  The aggregate Fair Market Value (determined as of the
      date of grant) of Shares with respect to which ISO are exercisable for the
      first
      time by a Participant during any calendar year (under this Plan or under any
      other incentive stock option plan of the Company, Parent or Subsidiary of the
      Company) will not exceed $100,000.  If the Fair Market Value of Shares
      on the date of grant with respect to which ISO are exercisable for the first
      time by a Participant during any calendar year exceeds $100,000, then the
      Options for the first $100,000 worth of Shares to become exercisable in such
      calendar year will be ISO and the Options for the amount in excess of $100,000
      that become exercisable in that calendar year will be NQSOs.  In the
      event that the Code or the regulations promulgated thereunder are amended after
      the Effective Date of this Plan to provide for a different limit on the Fair
      Market Value of Shares permitted to be subject to ISO, such different limit
      will
      be automatically incorporated herein and will apply to any Options granted
      after
      the effective date of such amendment.

    

    6.9           Modification,
      Extension or Renewal.  The Board may modify, extend or renew
      outstanding Options and authorize the grant of new Options in substitution
      therefor, provided that any such action may not, without the written consent
      of
      a Participant, impair any of such Participant’s rights under any Option
      previously granted.  Any outstanding ISO that is modified, extended,
      renewed or otherwise altered will be treated in accordance with Section 424(h)
      of the Code.  The Board may reduce the Exercise Price of outstanding
      Options without the consent of Participants affected by a written notice to
      them; provided, however, that the Exercise Price may not be reduced below the
      minimum Exercise Price that would be permitted under Section 6.4 of this Plan
      for Options granted on the date the action is taken to reduce the Exercise
      Price.

    

    6.10           No
      Disqualification.  Notwithstanding any other provision in this
      Plan, no term of this Plan relating to ISO will be interpreted, amended or
      altered, nor will any discretion or authority granted under this Plan be
      exercised, so as to disqualify this Plan under Section 422 of the Code or,
      without the consent of the Participant affected, to disqualify any ISO under
      Section 422 of the Code.

    

    7.           RESTRICTED
      STOCK.

    

    A
      Restricted Stock Award is an offer by the Company to sell to an eligible person
      Shares that are subject to restrictions.  The Board will determine to
      whom an offer will be made, the number of Shares the person may purchase, the
      price to be paid (the “PURCHASE PRICE”), the restrictions to which the Shares
      will be subject, and all other terms and conditions of the Restricted Stock
      Award, subject to the following:

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    7.1           Form
      of Restricted Stock Award.  All purchases under a Restricted Stock
      Award made pursuant to this Plan will be evidenced by an Award Agreement (the
      “RESTRICTED STOCK PURCHASE AGREEMENT”) that will be in such form (which need not
      be the same for each Participant) as the Board will from time to time approve,
      and will comply with and be subject to the terms and conditions of this
      Plan.  The offer of Restricted Stock will be accepted by the
      Participant’s execution and delivery of the Restricted Stock Purchase Agreement
      and full payment for the Shares to the Company within thirty (30) days from
      the
      date the Restricted Stock Purchase Agreement is delivered to the person. If
      such
      person does not execute and deliver the Restricted Stock Purchase Agreement
      along with full payment for the Shares to the Company within thirty (30) days,
      then the offer will terminate, unless otherwise extended by the
      Board.

    

    7.2           Purchase
      Price.  The Purchase Price of Shares sold pursuant to a Restricted
      Stock Award will be determined by the Board on the date the Restricted Stock
      Award is granted, except in the case of a sale to a Ten Percent Stockholder,
      in
      which case the Purchase Price will be 100% of the Fair Market
      Value.  Payment of the Purchase Price must be made in accordance with
      Section 9 of this Plan.

    

    7.3           Terms
      of Restricted Stock Awards.  Restricted Stock Awards shall be
      subject to such restrictions as the Board may impose.  These
      restrictions may be based upon completion of a specified number of years of
      service with the Company or upon completion of the performance goals as set
      out
      in advance in the Participant’s individual Restricted Stock Purchase Agreement.
      Restricted Stock Awards may vary from Participant to Participant and between
      groups of Participants.  Prior to the grant of a Restricted Stock
      Award, the Board shall:  (a) determine the nature, length and starting
      date of any Performance Period for the Restricted Stock Award; (b) select from
      among the Performance Factors to be used to measure performance goals, if any;
      and (c) determine the number of Shares that may be awarded to the
      Participant.  Prior to the payment of any Restricted Stock Award, the
      Board shall determine the extent to which such Restricted Stock Award has been
      earned.  Performance Periods may overlap and Participants may
      participate simultaneously with respect to Restricted Stock Awards that are
      subject to different Performance Periods and have different performance goals
      and other criteria.

    

    7.4           Termination
      During Performance Period.  If a Participant is Terminated during
      a Performance Period for any reason, then such Participant will be entitled
      to
      payment (whether in Shares, cash or otherwise) with respect to the Restricted
      Stock Award only to the extent earned as of the date of Termination in
      accordance with the Restricted Stock Purchase Agreement, unless the Board
      determines otherwise.

    

    8.           STOCK
      BONUSES.

    

    8.1           Awards
      of Stock Bonuses. A Stock Bonus is an award of Shares (which may consist of
      Restricted Stock) for extraordinary services rendered to the Company or any
      Parent or Subsidiary of the Company.  A Stock Bonus will be awarded
      pursuant to an Award Agreement (the “STOCK BONUS AGREEMENT”) that will be in
      such form (which need not be the same for each Participant) as the Board will
      from time to time approve, and will comply with and be subject to the terms
      and
      conditions of this Plan.  A Stock Bonus may be awarded upon
      satisfaction of such performance goals as are set out in advance in the
      Participant’s individual Award Agreement (the “PERFORMANCE STOCK BONUS
      AGREEMENT”) that will be in such form (which need not be the same for each
      Participant) as the Board will from time to time approve, and will comply with
      and be subject to the terms and conditions of this Plan.  Stock
      Bonuses may vary from Participant to Participant and between groups of
      Participants, and may be based upon the achievement of the Company, Parent
      or
      Subsidiary and/or individual performance factors or upon such other criteria
      as
      the Board may determine.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    8.2           Terms
      of Stock Bonuses.  The Board will determine the number of Shares
      to be awarded to the Participant.  If the Stock Bonus is being earned
      upon the satisfaction of performance goals pursuant to a Performance Stock
      Bonus
      Agreement, then the Board will: (a) determine the nature, length and starting
      date of any Performance Period for each Stock Bonus; (b) select from among
      the
      Performance Factors to be used to measure the performance, if any; and (c)
      determine the number of Shares that may be awarded to the
      Participant.  Prior to the payment of any Stock Bonus, the Board shall
      determine the extent to which such Stock Bonuses have been
      earned.  Performance Periods may overlap and Participants may
      participate simultaneously with respect to Stock Bonuses that are subject to
      different Performance Periods and different performance goals and other
      criteria.  The number of Shares may be fixed or may vary in accordance
      with such performance goals and criteria as may be determined by the
      Board.  The Board may adjust the performance goals applicable to the
      Stock Bonuses to take into account changes in law and accounting or tax rules
      and to make such adjustments as the Board deems necessary or appropriate to
      reflect the impact of extraordinary or unusual items, events or circumstances
      to
      avoid windfalls or hardships.

    

    8.3           Form
      of Payment.  The earned portion of a Stock Bonus may be paid to
      the Participant by the Company either currently or on a deferred basis, with
      such interest or dividend equivalent, if any, as the Board may
      determine.  Payment may be made in the form of cash or whole Shares or
      a combination thereof, either in a lump sum payment or in installments, all
      as
      the Board will determine.

    

    9.           PAYMENT
      FOR SHARE PURCHASES.

    

    9.1           Payment.  Payment
      for Shares purchased pursuant to this Plan may be made in cash (by check) or,
      where expressly approved for the Participant by the Board and where permitted
      by
      law:

    

                          (a)           by
      cancellation of indebtedness of the Company to the Participant;

    

    
      	
            	
              (b)

            	
              by
                surrender of shares that either: (1) have been owned by Participant
                for
                more than one year and have been paid for within the meaning
                of  Rule 144 of the Securities Act of 1933 (and, if such shares
                were purchased from the Company by use of a promissory note, such
                note has
                been fully paid with respect to such shares); or (2) were obtained
                by
                Participant in the public market;

            

    

    

    
      	
            	
              (c)

            	
              by
                waiver of compensation due or accrued to the Participant for services
                rendered;

            

    

    

    
      	
               

            	
              (d)

            	
              with
                respect only to purchases upon exercise of an Option, and provided
                that a
                public market for the Company’s stock
                exists:

            

    

    

    
      	
               

            	 	
              (1)

            	
              through
                a “same day sale” commitment from the Participant and a broker-dealer that
                is a member of the National Association of Securities Dealers (an
“NASD
                DEALER”) whereby the Participant irrevocably elects to exercise the Option
                and to sell a portion of the Shares so purchased to pay for the Exercise
                Price, and whereby the NASD Dealer irrevocably commits upon receipt
                of
                such Shares to forward the Exercise Price directly to the Company;
                or

            

    

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
 

    
      	
               

            	 	
              (2)

            	
              through
                a “margin” commitment from the Participant and a NASD Dealer whereby the
                Participant irrevocably elects to exercise the Option and to pledge
                the
                Shares so purchased to the NASD Dealer in a margin account as security
                for
                a loan from the NASD Dealer in the amount of the Exercise Price,
                and
                whereby the NASD Dealer irrevocably commits upon receipt of such
                Shares to
                forward the Exercise Price directly to the Company;
                or

            

    

    

    
      	
            	
              (e)

            	
              by
                any combination of the foregoing.

            

    

    

    10.           WITHHOLDING
      TAXES.

    

    10.1           Withholding
      Generally.  Whenever Shares are to be issued in satisfaction of
      Awards granted under this Plan, the Company may require the Participant to
      remit
      to the Company an amount sufficient to satisfy federal, state and local
      withholding tax requirements prior to the delivery of any certificate or
      certificates for such Shares.  Whenever, under this Plan, payments in
      satisfaction of Awards are to be made in cash, such payment will be net of
      an
      amount sufficient to satisfy federal, state, and local withholding tax
      requirements.

    

    10.2           Stock
      Withholding.  When, under applicable tax laws, a participant
      incurs tax liability in connection with the exercise or vesting of any Award
      that is subject to tax withholding and the Participant is obligated to pay
      the
      Company the amount required to be withheld, the Board may allow the Participant
      to satisfy the minimum withholding tax obligation by electing to have the
      Company withhold from the Shares to be issued that number of Shares having
      a
      Fair Market Value equal to the minimum amount required to be withheld,
      determined on the date that the amount of tax to be withheld is to be
      determined.  All elections by a Participant to have Shares withheld
      for this purpose will be made in accordance with the requirements established
      by
      the Board and be in writing in a form acceptable to the Board.

    

    11.           PRIVILEGES
      OF STOCK OWNERSHIP.

    

    11.1           Voting
      and Dividends.  No Participant will have any of the rights of a
      stockholder with respect to any Shares until the Shares are issued to the
      Participant.  After Shares are issued to the Participant, the
      Participant will be a stockholder and will have all the rights of a stockholder
      with respect to such Shares, including the right to vote and receive all
      dividends or other distributions made or paid with respect to such Shares;
      provided, that if such Shares are Restricted Stock, then any new, additional
      or
      different securities the Participant may become entitled to receive with respect
      to such Shares by virtue of a stock dividend, stock split or any other change
      in
      the corporate or capital structure of the Company will be subject to the same
      restrictions as the Restricted Stock; provided, further, that the Participant
      will have no right to retain such stock dividends or stock distributions with
      respect to Shares that are repurchased at the Participant’s Purchase Price or
      Exercise Price pursuant to Section 12.

    

    11.2           Financial
      Statements.  Pursuant to regulation
      260.140.46 of the Rules of the California Corporations Commissioner, the Company
      will provide financial statements to each Participant prior to such
      Participant’s purchase of Shares under this Plan, and to each Participant
      annually during the period such Participant has Awards outstanding; provided,
      however, the Company will not be required to provide such financial statements
      to Participants whose services in connection with the Company assure them access
      to equivalent information.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
 

    12.           TRANSFERABILITY.

    

    Awards
      granted under this Plan, and any interest therein, will not be transferable
      or
      assignable by Participant, and may not be made subject to execution, attachment
      or similar process, other than by will or by the laws of descent and
      distribution.  During the lifetime of the Participant an Award will be
      exercisable only by the Participant.  During the lifetime of the
      Participant, any elections with respect to an Award may be made only by the
      Participant unless otherwise determined by the Board and set forth in the Award
      Agreement with respect to Awards that are not ISOs.

    

    13.           RESTRICTIONS
      ON SHARES.

    

    At
      the
      discretion of the Board, the Company may reserve to itself and/or its
      assignee(s) in the Award Agreement a right to repurchase a portion of or all
      Unvested Shares held by a Participant following such Participant’s Termination
      at any time within ninety (90) days after the later of (a) Participant’s
      Termination Date, or (b) the date Participant purchases Shares under this
      Plan.  Such repurchase by the Company shall be for cash and/or
      cancellation of purchase money indebtedness, and the price per share shall
      be
      the Participant’s Exercise Price or the Purchase Price, as
      applicable.

    

    14.           CERTIFICATES.

    

    All
      certificates for Shares or other securities delivered under this Plan will
      be
      subject to such stock transfer orders, legends and other restrictions as the
      Board may deem necessary or advisable, including restrictions under any
      applicable federal, state or foreign securities law, or any rules, regulations
      and other requirements of the SEC or any stock exchange or automated quotation
      system upon which the Shares may be listed or quoted.

    

    15.           ESCROW;
      PLEDGE OF SHARES.

    

    To
      enforce any restrictions on a Participant’s Shares, the Board may require the
      Participant to deposit all certificates representing Shares, together with
      stock
      powers or other instruments of transfer approved by the Board appropriately
      endorsed in blank, with the Company or an agent designated by the Company to
      hold in escrow until such restrictions have lapsed or terminated, and the Board
      may cause a legend or legends referencing such restrictions to be placed on
      the
      certificates.  Any Participant who is permitted to execute a
      promissory note as partial or full consideration for the purchase of Shares
      under this Plan will be required to pledge and deposit with the Company all
      or
      part of the Shares so purchased as collateral to secure the payment of
      Participant’s obligation to the Company under the promissory note; provided,
      however, that the Board may require or accept other or additional forms of
      collateral to secure the payment of such obligation and, in any event, the
      Company will have full recourse against the Participant under the promissory
      note notwithstanding any pledge of the Participant’s Shares or other
      collateral.  In connection with any pledge of the Shares, Participant
      will be required to execute and deliver a written pledge agreement in such
      form
      as the Board will from time to time approve.  The Shares purchased
      with the promissory note may be released from the pledge on a pro rata basis
      as
      the promissory note is paid.

    

    16.           EXCHANGE
      AND BUYOUT OF AWARDS.

    

    The
      Board
      may, at any time or from time to time, authorize the Company, with the consent
      of the respective Participants, to issue new Awards in exchange for the
      surrender and cancellation of any or all outstanding Awards.  The
      Board may at any time buy from a Participant an Award previously granted with
      payment in cash, Shares (including Restricted Stock) or other consideration,
      based on such terms and conditions as the Board and the Participant may
      agree.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    17.           SECURITIES
      LAW AND OTHER REGULATORY COMPLIANCE.

    

    An
      Award
      will not be effective unless such Award is in compliance with all applicable
      federal and state securities laws, rules and regulations of any governmental
      body, and the requirements of any stock exchange or automated quotation system
      upon which the Shares may then be listed or quoted, as they are in effect on
      the
      date of grant of the Award and also on the date of exercise or other issuance.
      Notwithstanding any other provision in this Plan, the Company will have no
      obligation to issue or deliver certificates for Shares under this Plan prior
      to:
      (a) obtaining any approvals from governmental agencies that the Company
      determines are necessary or advisable; and/or (b) completion of any registration
      or other qualification of such Shares under any state or federal law or ruling
      of any governmental body that the Company determines to be necessary or
      advisable. The Company will be under no obligation to register the Shares with
      the SEC or to effect compliance with the registration, qualification or listing
      requirements of any state securities laws, stock exchange or automated quotation
      system, and the Company will have no liability for any inability or failure
      to
      do so.

    

    18.           NO
      OBLIGATION TO EMPLOY.

    

     Nothing
      in this Plan or any Award granted under this Plan will confer or be deemed
      to
      confer on any Participant any right to continue in the employ of, or to continue
      any other relationship with, the Company or any Parent or Subsidiary of the
      Company or limit in any way the right of the Company or any Parent or Subsidiary
      of the Company to terminate Participant’s employment or other relationship at
      any time, with or without cause.

    

    19.           CORPORATE
      TRANSACTIONS.

    

    19.1           Assumption
      or Replacement of Awards by Successor.  In the event of (a) a
      dissolution or liquidation of the Company, (b) a merger or consolidation in
      which the Company is not the surviving corporation (other than a merger or
      consolidation with a wholly-owned subsidiary, a reincorporation of the Company
      in a different jurisdiction, or other transaction in which there is no
      substantial change in the stockholders of the Company or their relative stock
      holdings and the Awards granted under this Plan are assumed, converted or
      replaced by the successor corporation, which assumption will be binding on
      all
      Participants), (c) a merger in which the Company is the surviving corporation
      but after which the stockholders of the Company immediately prior to such merger
      (other than any stockholder that merges, or which owns or controls another
      corporation that merges, with the Company in such merger) cease to own their
      shares or other equity interest in the Company, (d) the sale of substantially
      all of the assets of the Company, or (e) the acquisition, sale, or transfer
      of
      more than 50% of the outstanding shares of the Company by tender offer or
      similar transaction, any or all outstanding Awards may be assumed, converted
      or
      replaced by the successor corporation (if any), which assumption, conversion
      or
      replacement will be binding on all Participants.  In the alternative,
      the successor corporation may substitute equivalent Awards or provide
      substantially similar consideration to Participants as was provided to
      stockholders (after taking into account the existing provisions of the Awards).
      The successor corporation may also issue, in place of outstanding Shares of
      the
      Company held by the Participant, substantially similar shares or other property
      subject to repurchase restrictions no less favorable to the
      Participant.  In the event such successor corporation (if any) refuses
      to assume or substitute Awards, as provided above, pursuant to a transaction
      described in this Subsection 19.1, such Awards will expire on such transaction
      at such time and on such conditions as the Board will
      determine.  Notwithstanding anything in this Plan to the contrary, the
      Board may provide that the vesting of any or all Awards granted pursuant to
      this
      Plan will accelerate upon a transaction described in this Section
      19.  If the Board exercises such discretion with respect to Options,
      such Options will become exercisable in full prior to the consummation of such
      event at such time and on such conditions as the Board determines, and if such
      Options are not exercised prior to the consummation of the corporate
      transaction, they shall terminate at such time as determined by the
      Board.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    19.2           Other
      Treatment of Awards.  Subject to any greater rights granted to
      Participants under the foregoing provisions of this Section 19, in the event
      of
      the occurrence of any transaction described in Section 19.1, any outstanding
      Awards will be treated as provided in the applicable agreement or plan of
      merger, consolidation, dissolution, liquidation, or sale of assets.

    

    19.3           Assumption
      of Awards by the Company.  The Company, from time to time, also
      may substitute or assume outstanding awards granted by another company, whether
      in connection with an acquisition of such other company or otherwise, by either:
      (a) granting an Award under this Plan in substitution of such other company’s
      award; or (b) assuming such award as if it had been granted under this Plan
      if
      the terms of such assumed award could be applied to an Award granted under
      this
      Plan.  Such substitution or assumption will be permissible if the
      holder of the substituted or assumed award would have been eligible to be
      granted an Award under this Plan if the other company had applied the rules
      of
      this Plan to such grant.  In the event the Company assumes an award
      granted by another company, the terms and conditions of such award will remain
      unchanged (except that the exercise price and the number and nature of Shares
      issuable  upon exercise of any such option will be adjusted
      appropriately pursuant to Section 424(a) of the Code).  In the event
      the Company elects to grant a new Option rather than assuming an existing
      option, such new Option may be granted with a similarly adjusted Exercise
      Price.

    

    20.           ADOPTION
      AND STOCKHOLDER APPROVAL.

    

    This
      Plan
      will become effective on the date on which it is adopted by the Board (the
      “Effective Date”).  Upon the Effective Date, the Board may grant
      Awards pursuant to this Plan.  The Company intends to seek stockholder
      approval of the Plan within twelve (12) months after the date this Plan is
      adopted by the Board; provided, however, if the Company fails to obtain
      stockholder approval of the Plan during such 12-month period, pursuant to
      Section 422 of the Code, any Option granted as an ISO at any time under the
      Plan
      will not qualify as an ISO within the meaning of the Code and will be deemed
      to
      be an NQSO.

    

    21.           TERM
      OF PLAN/GOVERNING LAW.

    

    Unless
      earlier terminated as provided  herein, this Plan will terminate ten
      (10) years from the date this Plan is adopted by the Board or, if earlier,
      the
      date of stockholder approval.  This Plan and all agreements there
      under shall be governed by and construed in accordance with the laws of the
      State of California.

    

    22.           AMENDMENT
      OR TERMINATION OF PLAN.

    

    The
      Board
      may at any time terminate or amend this Plan in any respect, including without
      limitation amendment of any form of Award Agreement or instrument to be executed
      pursuant to this Plan; provided, however, that the Board will not, without
      the
      approval of the stockholders of the Company, amend this Plan in any manner
      that
      requires such stockholder approval.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    

    23.           NONEXCLUSIVITY
      OF THE PLAN.

    

    Neither
      the adoption of this Plan by the Board, the submission of this Plan to the
      stockholders of the Company for approval, nor any provision of this Plan will
      be
      construed as creating any limitations on the power of the Board to adopt such
      additional compensation arrangements as it may deem desirable, including,
      without limitation, the granting of stock options and bonuses otherwise than
      under this Plan, and such arrangements may be either generally applicable or
      applicable only in specific cases.

    

    24.           ACTION
      BY BOARD.

    

    Any
      action permitted or required to be
      taken by the Board or any decision or determination permitted or required to
      be
      made by the Board pursuant to this Plan shall be taken or made in the Board’s
      sole and absolute discretion.technest_8k-ex1001.htm

    EXHIBIT
      10.1

    

    RELEASE
      AGREEMENT

    

    

    THIS
      RELEASE AGREEMENT (this “Agreement”), dated as of August 31, 2007, by and
      between Technest Holdings, Inc., a Nevada corporation (“Technest”),
      Southridge Partners LP, a Delaware limited partnership
      (“Southridge”):

    

    W
      I T N E
      S S E T H  T H A T:

    

    WHEREAS,
      Technest and Markland Technologies, Inc. (“Markland”) were parties to
      that certain Stockholder Agreement, dated March 13, 2006 (the “Stockholder
      Agreement”), and that certain License Agreement dated March 13, 2006 (the
“License Agreement”); and

    

    WHEREAS,
      Markland assigned all of its
      rights in the Stockholder Agreement, including with respect to the $250,000
      receivable, and the License Agreement (collectively, the “Assets”) to
      Southridge pursuant to that certain Assignment and Assumption Agreement dated
      as
      of August 30, 2007 between Markland, as assignor, and Southridge, as assignee;
      and

    

    WHEREAS,
      as owner of 100% of the rights
      previously enjoyed by Markland, Southridge is willing to (a) to terminate the
      obligations set forth in Section 1 of the Stockholder Agreement that restrict
      the ability of Technest to issue equity securities, convertible debt or
      derivative securities (the “Technest Equity Restrictions”), (b) to
      terminate the obligations set forth in Section 5 of the Stockholder Agreement
      relating to the right of co-sale (the “Right of Co-Sale”) and (c)
      terminate the License Agreement in its entirety upon the satisfaction of the
      terms and conditions set forth herein; and

    

    WHEREAS,
      as consideration for such
      release and relinquishment by Southridge, Technest is willing to (i) release
      Southridge from its obligations, and relinquish any and all contractual rights
      and claims Technest may possess, arising from or in any way related to the
      Assets; and (ii) offer to Southridge, and Southridge is willing to accept from
      Technest, 3,000,000 shares of Technest’s common stock, $0.001 par value per
      share (“Common Stock”); and

    

    WHEREAS,
      the parties hereto wish to enter into certain agreements regarding the voting
      of
      shares of Common Stock of Technest owned by the parties to this Agreement and
      the ability of the stockholders to act by written consent; and

    

    WHEREAS,
      the parties desire that
      Southridge have representation on the Board of Directors of Technest in the
      manner described herein.

    

    NOW,
      THEREFORE, in consideration of the
      agreements set forth herein and intending to be legally bound by this Agreement,
      the parties to this Agreement agree as follows:

    

    1.  Definitions.  “Affiliate”
      of any person or entity shall mean any person or entity which, directly or
      indirectly, owns or controls, is under common ownership or control with, or
      is
      owned or controlled by, such person or entity.

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    2.  Termination
      of
      Technest Equity Restrictions, Right of Co-Sale and License
      Agreement.  Section 1 Restrictions on Issuance of Equity,
      Convertible Debt or Derivative Securities and Section 5 Provisions
      Regarding Co-Sale of the Stockholder Agreement in their entirety are hereby
      terminated and shall be of no further force or effect.  The parties
      hereto acknowledge and agree that, subject to the restrictions in Section 7
      below, Technest may issue Common Stock, convertible debt, derivative securities,
      shares of any class of capital stock, securities convertible into or exercisable
      or exchangeable for Common Stock or any class of capital stock, or options,
      warrants or rights carrying any right to purchase Common Stock or any class
      or
      capital stock (“Technest Securities”) without restriction under any
      provision of the Stockholder Agreement and (b) Southridge, as assignee of
      Markland, shall have no right of co-sale or other right to participate in any
      offering made by Technest.  Notwithstanding the above, Technest shall
      remain obligated to pay Southridge, as assignee of Markland, the remaining
      $250,000 receivable due pursuant to Section 7 of the Stockholder Agreement.
      The
      License Agreement in its entirety is hereby terminated and shall be of no
      further force or effect.

     

    3.  Voting
      Agreement.  Southridge hereby agrees that it will vote all shares
      of Common Stock owned by it and to cause its Affiliates that own shares of
      Common Stock or Technest Preferred Stock to vote all of their
      shares,  in favor of any transaction providing for the sale of either
      (i) the common stock of EOIR or (ii) the majority of the assets of EOIR, that
      is
      approved and recommended by a majority of the directors of Technest if: (a)
      the
      gross consideration to be received by Technest in such approved sale shall
      not
      be less than $34,000,000 (the “Proposed Transaction”) and (b) a
      definitive agreement for such transaction is entered into on or before September
      10, 2007.

    

    4.  Board
      Representation.  The Board of Directors of Technest hereby agrees
      that within five (5) business days of (a) the signing of the Proposed
      Transaction or (b) on or prior to September 10, 2007, whichever is earlier,
      to
      increase the size of the board from five to six and fix the number of directors
      of Technest at six and to elect two reasonably qualified individuals
      representing Southridge to fill the newly created directorships in accordance
      with Technest’s Bylaws.  Southridge shall provide the names of the new
      directors to Technest as soon as reasonably possible but no later than the
      date
      of the signing of the Proposed Transaction or September 10, 2007, whichever
      is
      earlier (the “Notice Date”). The Board of Technest shall notify
      Southridge within five (5) business days of the Notice Date whether it has
      any
      objection to the proposed individuals.

    

    5.  Repeal
      of Prohibition
      of Stockholder Action by Written Consent.  Within five business
      days of the signing of a definitive agreement for the Proposed Transaction,
      the
      Board of Directors of Technest shall amend Article II, Section 2.10
“Stockholder Action Without a Meeting Prohibited” to read as
      follows:

    

    Section
      2.10  ACTION WITHOUT MEETING

    

    Notwithstanding
      contrary provisions of these Bylaws covering notices and meetings, any action
      required or permitted to be taken at an annual or special meeting of
      stockholders may be taken by the stockholders without a meeting, without prior
      notice, and without a vote if a consent in writing, setting forth the action
      so
      taken, shall be signed by a majority of the holders of shares of capital stock
      issued and outstanding and entitled to vote on the subject matter, except that
      if a different proportion of voting power is required for such an action at
      a
      meeting, then that proportion of written consents is required. The written
      consents shall be filed with the minutes of the proceedings.

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    Southridge
      hereby agrees that from the date of such board action until (i) the distribution
      by Technest to its stockholders of the net proceeds of the Proposed Transaction,
      if any, or (ii) November 16, 2007, whichever is earlier, Southridge as
      stockholders would only act pursuant to Article II, Section 2.10 to approve
      the
      Proposed Transaction and take no other corporate action by written
      consent.

     

    6.   Distribution
      of
      Net Proceeds from Proposed Transaction; Record Date.  Technest
      hereby agrees that in the event Technest receives sufficient proceeds from
      the
      Proposed Transaction to allow for a distribution to its stockholders
      after payment of currently existing obligations to its lenders, terminated
      employees and any transaction costs, subject to Nevada corporate law, Technest
      shall distribute a minimum of 90% of such net proceeds of the Proposed
      Transaction to its stockholders. Technest agrees that the use of proceeds
      associated with the initial  closing of the Proposed Transaction shall
      be distributed in accordance with the schedule previously provided by Technest
      to Southridge.   In the event that there exists any surplus of
      proceeds from the initial closing not otherwise allocated under the schedule,
      such proceeds shall be used for general working capital.

    

    7.  Restrictions
      on Equity
      Issuances. From the date of this Agreement until (i) the distribution by
      Technest to its stockholders of the net proceeds of the Proposed Transaction
      or
      (ii) March 31, 2008, whichever is earlier, Technest agrees that it will not
      sell
      or issue any shares of Common Stock (or securities convertible or exercisable
      into shares of Common Stock) at less than a 20% discount to the then current
      Market Price (as defined below); provided however, that Technest shall be
      permitted to (i) issue shares of Common Stock (or securities convertible or
      exercisable into shares of Common Stock) already awarded as of the date of
      this
      Agreement pursuant to its 2006 Stock Award Plan and (ii) issue up to 250,000
      shares of Common Stock issuable under the 2006 Stock Award Plan.  For
      purposes of this section, the then current “Market Price” shall be defined as
      the average closing sale price of the Common Stock for the ten (10) trading
      days
      ending three (3) business days prior to the issuance date of such securities
      as
      reported by Nasdaq or the Bloomberg Information Systems, Inc. or any successor
      to its function of reporting stock prices.

    

    8.  Restrictions
      on Related Party Transactions.  From the date that a definitive
      agreement for the Proposed Transaction is executed until (i) the distribution
      by
      Technest to its stockholders of the net proceeds of the Proposed Transaction
      or
      (ii) March 31, 2008, whichever is earlier, Technest agrees that it will not
      enter into any transaction with its officers, directors, stockholders or any
      of
      their Affiliates, except for transactions that are in the ordinary course of
      Technest’s business, upon fair and reasonable terms that are no less favorable
      to Technest than would be obtained in an arm’s length transaction with a
      non-Affiliated person or entity.

    

    9.  Right
      of First Offer.  (a) If Technest desires to sell any equity
      securities for capital raising purposes (the “Proposed Financing”) within
      twelve  months of the date of this Agreement (other than pursuant to
      its 2006 Stock Award Plan or in connection with lease financing, settlement
      of
      litigation, strategic transactions, mergers or acquisitions), Technest shall
      first deliver written notice of its desire to do so (the “Notice”) to
      Southridge, in the manner prescribed in Section 14 of this
      Agreement.  The Notice shall describe in reasonable detail the
      proposed material terms of such Proposed Financing, the amount of proceeds
      intended to be raised thereunder and shall include a term sheet or similar
      document relating thereto as an attachment, if such document is
      available.

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    (b)
      Southridge shall have the first option to purchase all or part of the equity
      securities offered in the Proposed Financing for the consideration per share
      and
      on the terms and conditions specified in the Notice.  Southridge must
      exercise such option, no later than five (5) business days after such Notice
      is
      deemed (the “Offer Period”) under Section 14 hereof to have been
      delivered to it, by written notice to the Chief Financial Officer of
      Technest.  If Technest receives no notice from Southridge as of the
      close of business on such fifth business day, then Southridge shall be deemed
      to
      have notified Technest that it does not exercise its option.

     

    (c)
      In
      the event that Southridge duly exercises its option to purchase all or part
      of
      the equity securities offered in the Proposed Financing, the closing of such
      purchase shall take place at the offices of Technest no later than the date
      thirty (30) days after the expiration of such 5-day period.

     

    (d)  If
      Southridge does not exercise its option to purchase all or part of equity
      securities of the Proposed Financing within the Offer Period, then the option
      of
      Southridge to purchase the equity securities of the Proposed Financing, whether
      exercised or not, shall terminate, with respect to the particular Proposed
      Financing.  In such case, the transaction contemplated by the Notice
      on materially the same terms shall be consummated by Technest no later than
      90
      days after the expiration of the Offer Period.  If the Proposed
      Financing is not consummated within 90 days after the expiration of the Offer
      Period, Technest shall provide Southridge a second Notice of a Proposed
      Financing and again offer the Proposed Financing within the periods set forth
      above.

     

    10.  Mutual
      Releases.  Effective upon the date of this Agreement, Technest,
      and Southridge and its Affiliates do hereby remise, release and forever
      discharge and covenant not to sue each other party and/or its directors,
      officers, representatives, employees, agents, attorneys, subsidiaries,
      Affiliates, parents, predecessors, successors and assigns (including, without
      limitation, any acquiror of E-OIR Technologies, Inc., a Virginia corporation)
      with respect to 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 (know and unknown), which such party may
      have
      or ever had from the beginning of the world until the date of this Agreement;
      provided that the covenants, duties and obligations arising under this Agreement
      shall survive this release and shall be fully enforceable in accordance with
      their terms.

    

    11.  Issuance
      of Common
      Stock to Southridge.  In consideration of the agreements and
      covenants of Southridge in this Agreement, on the date of this Agreement,
      Technest shall issue to Southridge 3,000,000 shares of Common
      Stock.

    

    12.  Representations
      of
      Technest.  Technest represents and warrants to Southridge as
      follows:

    

    (a)           Organization.  Technest
      is duly organized and validly existing and is in good standing under the laws
      of
      the jurisdiction of its incorporation.  Technest has full corporate
      power and authority to own, operate and occupy its properties and to conduct
      its
      business as presently.

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    (b)           Due
      Authorization.  Technest has all requisite corporate power and
      authority to execute, deliver and perform its obligations under this
      Agreement.  This Agreement has been duly authorized and validly
      executed and delivered by Technest and, assuming due authorization, execution
      and delivery by the other parties hereto, constitutes a valid and legally
      binding obligation of Technest enforceable against Technest in accordance with
      its terms, except to the extent (i) enforceability may be limited by applicable
      bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
      similar laws affecting creditors’ and contracting parties’ rights generally and
      (ii) enforceability may be limited by general principles of equity (regardless
      of whether such enforceability is considered in a proceeding in equity or at
      law).

    

    (c)           The
      Common Stock Issued to Southridge.  Upon issuance and delivery of
      the 3,000,000 shares of Common Stock to be issued to Southridge in accordance
      with this Agreement, such shares of Common Stock will be validly issued, fully
      paid and non assessable.

    

    (d)           No
      Conflicts.  The execution, delivery and performance by Technest of this
      Agreement, and the consummation of the transactions contemplated hereby, 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 Technest.

    

    (e)           No
      Governmental Consent or Approval Required.  Assuming the accuracy of
      the representations made by Southridge 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 Technest of this Agreement
      or
      for or in connection with the valid and lawful authorization, issuance and
      delivery of the 3,000,000 shares of Common Stock.

    

    13.  Representations
      of Southridge.  Southridge represents and warrants to Technest as
      follows:

     

    (a)  Securities
      Law Representations and Warranties.

     

    (i)           Southridge
      (i) is an “accredited investor” as defined in Regulation D under the Securities
      Act, (ii) has the knowledge, sophistication and experience necessary to make,
      and is qualified to make decisions with respect to, investments in securities
      presenting an investment decision like that involved in the purchase of
      investments in securities issued by Technest and investments in comparable
      companies, (iii) can bear the economic risk of a total loss of its investment
      in
      the Common Stock and (iv) has requested, received, reviewed and considered
      all
      information it deemed relevant in making an informed decision to acquire the
      Common;

     

    (ii)           Southridge
      is acquiring the Common Stock for its own account and not with a view towards,
      or for resale in connection with, the public sale or distribution
      thereof;

     

    (iii)           Southridge  will
      not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose
      of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge
      of) any of the Common Stock acquire pursuant to this Agreement, except in
      compliance with the Securities Act, applicable state securities laws and the
      respective rules and regulations promulgated thereunder;

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    (iv)           Southridge
      understands that the Common Stock is being offered and sold to it in reliance
      on
      specific exemptions from the registration requirements of the United States
      federal and state securities laws and that Technest is relying upon the truth
      and accuracy of, and Southridge’s compliance with, representations, warranties,
      agreements, acknowledgements and understandings of the Investor set forth herein
      in order to determine the availability of such exemptions and the eligibility
      of
      Southridge to acquire the Common Stock;

     

    (v)          
       Southridge understands that no United States federal or state agency or
      any other government or governmental agency has passed on or made any
      recommendation or endorsement of the Common Stock or the fairness or suitability
      of an investment in the Common Stock; and

     

    (vi)           Southridge
      has been furnished with all materials relating to the business, financial
      condition, results of operations, properties, management, operations and
      prospects of Technest and its subsidiaries which have been requested by
      Southridge.  Southridge has been afforded the opportunity to ask
      questions of Technest and has received answers from an authorized representative
      of Technest which are satisfactory to Southridge.

     

    (vii)           Southridge
      has independently evaluated the merits of its decision to acquire the Common
      Stock pursuant to this Agreement.

     

    (b)  Legends. Southridge
      understands that, until the end of the applicable holding period under Rule
      144(k) of the Securities Act of 1933, as amended (or any successor provision)
      with respect to the Common Stock, any stock certificate representing the Common
      Stock shall bear a legend in substantially the following form:

     

    THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
      NOT
      BE OFFERED FOR SALE, SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN
      THE
      ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
      SECURITIES ACT OF 1933, AS AMENDED, OR AN EXEMPTION THEREFROM.

     

    The
      legend set forth above shall be removed upon expiration of the applicable
      two-year holding period under Rule 144(k) of the Securities Act (or any
      successor rule); provided that the Investor is not and has not been within
      three
      months prior to such date, an “affiliate” of the Company (as such term is
      defined in Rule 144 of the Securities Act).  The Company may make a
      notation on its records and/or provide instruction to its transfer agent
      regarding the Company’s stock transfer records, consistent with the provisions
      of this Section 13(b).

     

    (c)  Authorization;
      Enforcement; Validity. Southridge has full right, power, authority and
      capacity (corporate, statutory or otherwise) to enter into this Agreement and
      to
      consummate the transactions contemplated hereby and has taken all necessary
      action to authorize the execution, delivery and performance of this
      Agreement.  This Agreement constitutes a valid and binding obligation
      of Southridge enforceable against such party in accordance with its terms,
      except to the extent (i) enforceability may be limited by applicable bankruptcy,
      insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
      affecting creditors’ and contracting parties’ rights generally and (ii)
      enforceability may be limited by general principles of equity (regardless of
      whether such enforceability is considered in a proceeding in equity or at
      law).

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    (d)  Certain
      Transactions.  Southridge  (i) represents that on and
      from the date such party first became aware of material nonpublic information
      concerning Technest, including, without limitation, the possibility of entering
      into this Agreement, it has not engaged in any transaction involving Technest
      Common Stock in violation of the Securities Act and (ii) covenants that agrees
      that it will not, directly or indirectly, offer, sell, pledge, transfer or
      otherwise dispose of (or solicit any offers to buy, purchase or otherwise
      acquire or take a pledge of) any of the Common Stock held by it, except in
      compliance with the Securities Act, applicable state securities laws and the
      respective rules and regulations promulgated thereunder.

     

    (e)  SEC
      Reports.  Southridge has had an opportunity to review copies of
      Technest’s Annual Report on Form 10-K for the year ended June 30, 2006 (and any
      amendments thereto), Technest’s Proxy Statement for its 2006 Annual Meeting of
      Shareholders, Technest’s Quarterly Reports on Form 10-Q for the quarters ended
      September 30, 2006, and December 31, 2006 and March 31, 2007 (and any amendments
      thereto) and each of Technest’s Current Reports on Form 8-K filed since January
      1, 2006 (and any amendments thereto).

     

    14.  Notices.
      All
      notices and other communications hereunder shall be in writing and shall be
      deemed to have been given when delivered in hand or mailed by first-class,
      registered or certified mail, postage prepaid, addressed to the address of
      the
      relevant party set forth below such party’s signature hereto or to such other
      person(s) or address(es) as the party shall have furnished to the other parties
      in writing.

    

    15.  Miscellaneous.

    

    (a)  This
      Agreement contains the entire agreement between the parties hereto with respect
      to the subject matter hereof.

    

    (b)  This
      Agreement shall not be amended except by a written agreement executed and
      delivered by or on behalf of the parties hereto.

    

    (c)  This
      Agreement shall bind and inure to the benefit of the parties and their
      respective successors and assigns.  Nothing herein expressed or
      implied is intended or shall be construed to confer upon or give any person,
      firm or corporation, other than the parties hereto and their respective
      successors and assigns, any rights or remedies under or by reason of this
      Agreement.

    

    (d)  This
      Agreement may be executed in any number of counterparts, each of which shall
      be
      deemed an original.

    

    (e) 
      Any waiver of any terms or conditions of this Agreement shall not operate as
      a
      waiver of any other breach of such terms or conditions or any other term or
      condition, nor shall any failure to enforce any provision hereof operate as
      a
      waiver of such provision or of any other provision hereof; provided, however,
      that no such written waiver, unless it, by its own terms, explicitly provides
      to
      the contrary, shall be construed to effect a continuing waiver of the provision
      being waived and no such waiver in any instance shall constitute a waiver in
      any
      other instance or for any other purpose or impair the right of the party against
      whom such waiver is claimed in all other instances or for all other purposes
      to
      require full compliance with such provision.

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    (f)   Each
      of the parties hereto agrees to execute all such further instruments and
      documents and to take all such further action as any other party may reasonably
      require in order to effectuate the terms and purposes of this
      Agreement.

    

    (g)   If
      any provision of this Agreement shall be held or deemed to be, or shall in
      fact
      be, invalid, inoperative or unenforceable as applied to any particular case
      in
      any jurisdiction or jurisdictions, or in all jurisdictions or in all cases,
      because of a conflict between any provision hereof with any constitution or
      statute or rule of public policy or for any other reason, such circumstance
      shall not have the effect of rendering the provision or provisions in question,
      invalid, inoperative or unenforceable in any other jurisdiction or in any other
      case or circumstance or of rendering any other provision or provisions herein
      contained invalid, inoperative or unenforceable to the extent that such other
      provisions are not themselves actually in conflict with such constitution,
      statute or rule of public policy, but this Agreement shall be reformed and
      construed in any such jurisdiction or case as if such invalid, inoperative
      or
      unenforceable provision had never been contained herein and such provision
      reformed so that it would be valid, operative and enforceable to the maximum
      extent permitted in such jurisdiction or in such case.

    

    (h)   Whenever
      used herein, the singular number shall include the plural, the plural shall
      include the singular, and the use of any gender shall include all
      genders.

    

    (i)    The
      headings contained in this Agreement are for reference purposes only and shall
      not in any way affect the meaning or interpretation of this
      Agreement.

    

    (j)    This
      Agreement shall be governed by and construed and enforced in accordance with
      the
      law of New York. Each party hereby irrevocably submits to the exclusive
      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 proceeding, any claim that it is not personally subject to the
      jurisdiction of any such court, that such suit, action or proceeding is brought
      in an inconvenient forum or that the venue of 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 for such 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 HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
      AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
      HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY
      TRANSACTION CONTEMPLATED HEREBY.

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

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

    

    
      	 	
              TECHNEST
                HOLDINGS, INC.

            
	 	 
	 	 
	 	
              By:
                /s/ Gino
                Pereira                                                                  
                

            
	 	
              Name:
                Gino Pereira

            
	 	
              Title:  Chief
                Financial Officer

            
	 	 
	 	
              Notice
                address:

            
	 	 
	 	
              10411
                Motor City Drive

            
	 	
              Suite
                650

            
	 	
              Bethesda
                MD 20817

            
	 	 
	 	 
	 	
              SOUTHRIDGE
                PARTNERS LP

            
	 	 
	 	 
	 	
              By:
                /s/ S.
                Hicks                                                                          

            
	 	
              Name:
                S. Hicks

            
	 	
              Title:  Managing
                Director

            
	 	 
	 	
              Notice
                address:

            
	 	 
	 	
              90
                Grove Street

            
	 	
              Ridgefield
                CT 06877

            

    

     

    -9-

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