8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): June 1, 2007

TECHNEST HOLDINGS, INC.

(Exact Name of Registrant as Specified in Charter)

Nevada	000-27023	88-0357272
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification Number)

10411 Motor City Drive, Suite 650, Bethesda, MD 20817

(Address of principal executive offices) (Zip Code)

10411 Motor City Drive, Suite 650, Bethesda, MD 20817

(Mailing Address)

(301) 767-2810

 (Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below).

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

-

ITEM 1.01Entry into Material Definitive Agreements

On June 1, 2007, Technest Holdings, Inc. (the “Company”) closed on a financing pursuant to a Securities Purchase Agreement dated May 31, 2007 with Shelter Island Opportunity Fund, LLP (“Shelter Island”). Pursuant to the Securities Purchase Agreement, the Company issued to Shelter Island a Secured Original Issue Discount Debenture bearing interest at the rate of 11.25% (or Prime +3%) with an aggregate principal amount of $1,650,000 (the “Debenture”) for a subscription amount of $1,500,000. The Debenture is due on May 31, 2010, unless otherwise accelerated by its terms. The outstanding principal amount and all accrued interest thereon will be payable in 33 equal monthly installments commencing on August 31, 2007. On the maturity date of the Debenture, the Company also agreed to pay, as a termination fee (and not as a penalty), an amount equal to the product of (i) $45,000 and (ii) the number of months that have elapsed between May 31, 2007 and the date such payment is made by the Company to Shelter Island.

The Debenture is secured by (i) the assets of the Company, including its securities in its wholly-owned subsidiaries, (ii) all rights of Markland Technologies, Inc. (“Markland”) in and to the License Agreement dated March 31, 2006 between the Company and Markland, and (iii) the assets of the Company’s wholly-owned subsidiary, Genex Technologies Incorporated (“Genex”). Other than the security interest from Markland, Shelter Island’s security interests are subordinated to the interests of Silicon Valley Bank pursuant to a Subordination Agreement entered into between Shelter Island and Silicon Valley Bank. The Company’s wholly-owned subsidiaries, Genex and E-OIR Technologies, Inc. (“EOIR”), guaranteed the Debenture.

The outstanding EOIR note holders subordinated their security interest and their right to receive payment in the event of default under the terms of the Debenture to Shelter Island. As consideration for this subordination, the Company agreed to pay the outstanding EOIR note holders a total of $82,795 on the closing of the transaction and an additional $82,795 on July 1, 2008. Our Chief Executive Officer and one of our directors, Joseph P. Mackin, received $30,447.87 on the closing and will receive the same amount on July 1, 2008.

The Debenture, the Securities Purchase Agreement, along with the Security Agreements, and the Guaranty of Genex and EOIR are attached hereto as Exhibits 4.1, 10-1 through 10.7 and are incorporated herein by reference. The agreement between the Company and Dr. Mackin is attached hereto as Exhibit 10.8 and is incorporated herein by reference.

ITEM 2.03Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

The information set forth in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

Item 9.01Financial Statements and Exhibits

(d) Exhibits

Exhibit No.	Description
4.1	$1,650,000 Secured Original Issue Discount Debenture dated May 31, 2007.
10.1	Securities Purchase Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC.
10.2	Security Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC.
10.3	Security Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC.
10.4	Security Agreement dated May 31, 2007 between Markland Technologies, Inc. and Shelter Island Opportunity Fund, LLC.
10.5	Security Agreement dated May 31, 2007 between Genex Technologies Incorporated and Shelter Island Opportunity Fund, LLC.
10.6	Guaranty by E-OIR Technologies, Inc. dated May 31, 2007.
10.7	Guaranty by Genex Technologies Incorporated dated May 31, 2007.
10.8	Agreement relating to Certain Promissory Notes among Technest Holdings, Inc., E-OIR Technologies, Inc. and Joseph P. Mackin dated May 31, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TECHNEST HOLDINGS,  INC.
By:	/s/ /s/ Gino M. Pereira
	Chief Financial Officer

Date: June 5, 2007

EXHIBIT INDEX

Exhibit No.	Description
4.1	$1,650,000 Secured Original Issue Discount Debenture dated May 31, 2007. Filed herewith.
10.1	Securities Purchase Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC. Filed herewith.
10.2	Security Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC. Filed herewith.
10.3	Security Agreement dated May 31, 2007 between Technest Holdings, Inc. and Shelter Island Opportunity Fund, LLC. Filed herewith.
10.4	Security Agreement dated May 31, 2007 between Markland Technologies, Inc. and Shelter Island Opportunity Fund, LLC. Filed herewith.
10.5	Security Agreement dated May 31, 2007 between Genex Technologies Incorporated and Shelter Island Opportunity Fund, LLC. Filed herewith.
10.6	Guaranty by E-OIR Technologies, Inc. dated May 31, 2007. Filed herewith.
10.7	Guaranty by Genex Technologies Incorporated dated May 31, 2007. Filed herewith.
10.8	Agreement relating to Certain Promissory Notes between Technest Holdings, Inc. and Joseph P. Mackin dated May 31, 2007. Filed herewith.

EX-4.1

Exhibit 4.1

THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS DEBENTURE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS DEBENTURE.

THIS DEBENTURE IS SUBJECT TO THE TERMS AND CONDITIONS OF THE SUBORDINATION AGREEMENT, DATED THE DATE OF THIS DEBENTURE, BETWEEN THE HOLDER AND SILICON VALLEY BANK.

Original Issue Date: May 31, 2007

$1,650,000.00

$1,650,000 SECURED ORIGINAL ISSUE DISCOUNT DEBENTURE

THIS DEBENTURE is a duly authorized and validly issued Debenture of Technest Holdings, Inc., a Nevada corporation, having its principal place of business at 10411 Motor City Drive, Suite 650, Bethesda, Maryland 20817 (the “Company”), designated as its $1,650,000 Secured Original Issue Discount Debenture (the “Debenture”).

FOR VALUE RECEIVED, the Company promises to pay to Shelter Island Opportunity Fund, LLC or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $1,650,000.00 by the Maturity Date, and to pay interest to the Holder on the aggregate outstanding principal amount of this Debenture in accordance with the provisions hereof. This Debenture is subject to the following additional provisions:

Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Securities Purchase Agreement and (b) the following terms shall have the following meanings:

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) of the Company commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment; (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Change of Control Transaction” means the occurrence after the date hereof of any of (i) an acquisition by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act), excluding Markland, of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 25% of the voting securities of the Company or any Subsidiary, or (ii) the Company or any Subsidiary merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company or any Subsidiary and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, or the Company owns less than 50% of the aggregate voting power of such Subsidiary, or (iii) the Company or any Subsidiary sells or transfers all or substantially all of its assets to another Person, whether in one transaction or in a series of related transactions.

“Event of Default” shall have the meaning set forth in Section 5.

“Maturity Date” means the earlier of (i) May 31, 2010 and (ii) the date this Debenture is permitted or required to be paid in accordance with the terms hereof (whether as a result of a prepayment, acceleration or otherwise).

“Original Issue Date” means the date of the first issuance of this Debenture, regardless of any transfers of this Debenture and regardless of the number of instruments which may be issued to evidence this Debenture.

Permitted Lien” means the individual and collective reference to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Company) have been established in accordance with GAAP; and (b) Liens imposed by law which were incurred in the ordinary course of the Company’s business, such as carriers’, warehousemen’s and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Company’s business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Company or (y) are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such Lien.

“Prime Rate” means, at any date, the “Prime Rate,” as published in The Wall Street Journal (Eastern Edition) on such date or on the Trading Date immediately preceding such date if such date is not a Trading Date.

2

“Securities Purchase Agreement” means the Securities Purchase Agreement between the Company and the original Holder, dated as of the Original Issue Date, as amended, modified or supplemented from time to time in accordance with its terms.

Section 2. Interest and Payments.

a) Interest Rate. Interest shall accrue each day on the aggregate outstanding principal amount of this Debenture at the rate per annum equal to the higher of (i) the sum of 3.00% plus the Prime Rate on such date and (ii) 11.25%.

b) Payments of Principal and Interest. The outstanding principal amount of this Debenture, and all accrued interest thereon, will be payable in 33 equal monthly installments, each in the amount of $50,000, commencing on August 31, 2007and continuing on the same day of each month thereafter until the Maturity Date. All unpaid principal on the Debenture, and accrued interest thereon, will be paid in full on the Maturity Date.

c) Method of Payment. All payments hereunder shall be made in immediately available funds on the date the same is due in such manner as directed by the Holder.

d) Interest Calculations. Interest shall be calculated on the basis of a 360-day year and shall accrue daily commencing on the Original Issue Date until payment in full of the principal sum, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.

e) Prepayment. The Company may prepay all or any portion of the principal amount of this Debenture upon at least two Trading Days’ notice to the Holder by paying the amount of principal desired to be prepaid and, if such prepayment occurs after September 30, 2007, together with a payment equal to 10% of the amount being prepaid. All prepayments of principal hereunder shall be applied to the payment obligation of the Company under Section 2(b) in inverse order of maturity. At the option of the Holder upon notice to the Company, the principal amount of this Debenture and all accrued and unpaid interest hereon, shall become due and payable on the date on which a Change of Control Transaction shall have been consummated.

f) Termination Fee. On the Maturity Date (including, without limitation, as a result of the occurrence of a Change of Control with respect to EOIR), the Company shall pay to the Holder, as a termination fee (and not as a penalty), an amount equal to the product of (i) $45,000 and (ii) the number of months that have elapsed between the Original Issue Date and the date such payment is made by the Company to the Holder (the “Termination Fee”); it being understood and agreed that if any such month shall be less than a full calendar month, the Termination Fee payable for that month shall be pro rated based on the number of days elapsed during that month.

3

Section 3. Registration of Transfers and Exchanges.

a) Different Denominations. This Debenture is exchangeable for an equal aggregate principal amount of Debenture of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b) Investment Representations. This Debenture has been issued subject to certain investment representations of the original Holder set forth in the Securities Purchase Agreement and may be transferred or exchanged only in compliance with the Securities Purchase Agreement and applicable federal and state securities laws and regulations.

c) Reliance on Debenture Register. Prior to due presentment for transfer to the Company of this Debenture, the Company and any agent of the Company may treat the Person in whose name this Debenture is duly registered on the Debenture Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Debenture is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4. Covenants. As long as any portion of this Debenture remains outstanding, the Company agrees as follows:

a) other than the Company’s obligations existing on the Original Issue Date to (i) Silicon Valley Bank and (ii) the Persons named in each of the Subordinated Debt Subordination Agreements, it shall not enter into, createincur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, unless in any such case, the obligations of the Company with respect thereto are not secured, directly or indirectly, by any assets of the Company and are subordinated to the obligations of the Company hereunder on terms satisfactory to the Holder;

b) other than Permitted Liens and Liens granted prior to the Original Issue Date to (i) Silicon Valley Bank and (ii) the Persons named in each of the Subordinated Debt Subordination Agreements, it shall not enter into, create, incur, assume or suffer to exist any Liens of any kind, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom;

c) it shall not amend its charter documents, including without limitation, the certificate of incorporation and bylaws, in any manner that materially and adversely affects any rights of the Holder;

4

d) it shall not engage in any business other than as described in its SEC Reports filed with the Commission prior to the Original Issue Date and all activities related thereto;

e) it shall not enter into any agreement with respect to any of the foregoing;

f) it shall comply in all material respects with all of its obligations under the License Agreement;

g) it shall not amend or terminate, or consent to or suffer to exist any amendment or termination of, the License Agreement;

h) it shall pledge to the Holder (and execute and deliver to the Holder all pledge and security agreements and other documents and instruments as the Holder may request) all of the Company’s right, title and interest in and to all of the outstanding shares of capital stock of EOIRimmediately following the release of the Lien held by Silicon Valley Bank in such shares (as long as EOIR is then still a Subsidiary of the Company); and

i) it shall comply with the provisions of Section 6.7 of the Loan and Security Agreement, dated August 4, 2006, as amended as of the Original Issue Date, among Silicon Valley Bank, the Company and the Subsidiaries of the Company named therein.

Section 5. Events of Default.

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i. any default in the payment of (A) the principal amount of this Debenture or (B) interest or other amounts owing to the Holder on this Debenture within two Trading Days as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise);

ii. the Company shall fail to observe or perform any other covenant or agreement contained in this Debenture or any other Transaction Document to which it is a party which failure is not cured, if possible to cure, within the earlier to occur of (A) two Trading Days after notice of such failure sent by the Holder and (B) three Trading Days after the Company has become or should have become aware of such failure;

iii.a material default or any event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);

5

iv.any representation or warranty made in this Debenture, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v. the Company or any Significant Subsidiary shall be subject to a Bankruptcy Event;

vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $100,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or

vii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any Subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

b) Remedies Upon Event of Default. If any Event of Default hereunder occurs, the outstanding principal amount of this Debenture plus accrued but unpaid interest and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable. Commencing after the occurrence of any Event of Default hereunder and during its continuance, the interest rate on this Debenture shall accrue at an interest rate equal to 18.00% per annum. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law and the Transaction Documents. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Debenture until such time, if any, as the Holder receives full payment pursuant to this Section 5(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 6. Miscellaneous.

a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder shall be delivered as set forth in the Securities Purchase Agreement.

6

b) Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct, unconditional and secured debt obligation of the Company.

c) Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost, stolen or destroyed Debenture, a new Debenture for the principal amount of this Debenture so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Debenture, and of the ownership hereof, reasonably satisfactory to the Company.

d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof.

e) Waiver. Any waiver by the Holder of a breach of any provision of this Debenture shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Debenture. The failure of the Holder to insist upon strict adherence to any term of this Debenture on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Debenture. Any waiver by the Holder must be in writing.

f) Severability. If any provision of this Debenture is invalid, illegal or unenforceable, the balance of this Debenture shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.

g) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h) Headings. The headings contained herein are for convenience only, do not constitute a part of this Debenture and shall not be deemed to limit or affect any of the provisions hereof.

(Signature Page Follows)

7

IN WITNESS WHEREOF, the Company has caused this Debenture to be duly executed by a duly authorized officer as of the date first above indicated.

TECHNEST HOLDINGS, INC.
By:	/s/ Gino M. Pereira
	Name: Gino M. Pereira
	Title: Chief Financial Officer

8

EX-10.1

Exhibit 10.1

SECURITIES PURCHASE AGREEMENT

This Securities Purchase Agreement (this “Agreement”) is dated as of May 31, 2007 between Technest Holdings, Inc., a Nevada corporation (the “Company”), and Shelter Island Opportunity Fund, LLC, or any Affiliate thereof designated by it (the “Purchaser”).

WHEREAS, subject to the terms and conditions set forth in this Agreement and pursuant to Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 promulgated thereunder, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, securities of the Company as more fully described in this Agreement.

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agree as follows:

ARTICLE I.

DEFINITIONS

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement: (a) capitalized terms that are not otherwise defined herein have the meanings given to such terms in the Debenture (as defined herein), and (b) the following terms have the meanings indicated in this Section 1.1:

“Action” shall have the meaning ascribed to such term in Section 3.1(j).

“Advisor” shall mean Ascendiant Securities, LLC.

“Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.

“Business Day” means any day except Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Change of Control Transaction” shall have the meaning ascribed to such term in the Debenture.

“Closing” means the closing of the purchase and sale of the Debenture pursuant to Section 2.1.

“Closing Date” means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all conditions precedent to (i) the Purchaser’s obligation to pay the Subscription Amount and (ii) the Company’s obligations to deliver the Debenture have been satisfied or waived.

“Commission” means the Securities and Exchange Commission.

“Common Stock” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed into.

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

“Company Counsel” means Foley Hoag LLP.

“Debenture” means the $1,650,000 Secured Original Issue Discount Debenture issued by the Company to the Purchaser, in the form of Exhibit A hereto.

“Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

“EOIR” means E-OIR Technologies, Inc., a Virginia corporation doing business as EOIR Technologies, Inc.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to the Company’s 2006 Stock Award Plan or any other stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of any securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of any such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

2

“FWS” means Feldman Weinstein & Smith LLP, counsel to the Purchaser, with offices located at 420 Lexington Avenue, Suite 2620, New York, New York 10170-0002.

“GAAP” shall have the meaning ascribed to such term in Section 3.1(h).

“Genex” shall mean Genex Technologies Incorporated, a Maryland corporation.

“Guarantors” shall mean each Subsidiary of the Company.

“Guaranties” shall mean the several Guaranties, each dated the date hereof, executed by each Guarantor to the Purchaser, in the form of Exhibit B attached hereto.

“Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

“License Agreement” shall mean License Agreement, dated March 13, 2006, between the Company and Markland.

“Liens” means a lien, charge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Management Company” shall mean Midway Management Partners, LLC, a Delaware limited liability company.

“Markland” shall mean Markland Technologies, Inc., a Florida corporation.

“Material Adverse Effect” shall have the meaning assigned to such term in Section 3.1(b).

“Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

“Maximum Rate” shall have the meaning ascribed to such term in Section 5.17.

“Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

3

“Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

“SEC Reports” shall have the meaning ascribed to such term in Section 3.1(h).

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated hereunder.

“Security Agreements” mean each of the Security Agreements, dated the date hereof, from (i) the Company to the Purchaser, in the form of Exhibit C-1 and Exhibit C-2 attached hereto, (ii) Markland to the Purchaser, in the form of Exhibit C-3 attached hereto and (iii) Genex to the Purchaser, in the form of Exhibit C-4 attached hereto.

“Subordination Agreement” means the Subordination Agreement, dated the date hereof, among the Company, the Purchaser and Silicon Valley Bank, in the form of Exhibit D-1 attached hereto.

“Subordinated Debt Subordination Agreements” mean each of the Subordination Agreements, dated the date hereof, among the Company, the Purchaser and each of the Persons to whom promissory notes were issued (and remain outstanding) pursuant to the Stock Purchase Agreement, dated June 29, 2004, by and among Markland, EOIR and such Persons, in the form of Exhibit D-2 attached hereto.

“Subscription Amount” means $1,500,000, which is the amount to be paid for the Debenture purchased hereunder.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a).

“Trading Day” means a day on which the Trading Markets are open for business.

“Trading Market” means the following markets or exchanges: the Nasdaq Capital Market, the American Stock Exchange, the New York Stock Exchange. the Nasdaq National Market or the Over-the-Counter Bulletin Board.

“Transaction Documents” means this Agreement, the Debenture, the Security Agreements, the Subordination Agreement, the Subordinated Debt Subordination Agreement, each Guaranty and any other documents or agreements executed in connection with the transactions contemplated hereunder.

“Transaction End Date” means June 5, 2007.

4

ARTICLE II.

PURCHASE AND SALE

2.1 Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, the Debenture. The Purchaser shall deliver to the Company via wire transfer or a certified check in immediately available funds equal to the Subscription Amount and the Company shall deliver to (A) the Purchaser, the Debenture and the other items set forth in Section 2.2 issuable at the Closing to the Purchaser, (B) the Management Company, the item set forth in Section 2.2 issuable at the Closing to the Management Company and (C) the Advisor, the item set forth in Section 2.2 issuable at the Closing to the Advisor. Upon satisfaction of the conditions and completion of the deliveries set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of FWS, or such other location as the parties shall mutually agree.

2.2 Deliveries.

(a) On the Closing Date, the Company shall deliver or cause to be delivered to the Purchaser (or as otherwise specified) the following:

(i) this Agreement, duly executed by the Company;

(ii)a legal opinion of Company Counsel, in the form of Exhibit E attached hereto;

(iii)the Debenture, duly executed by the Company;

(iv)resolutions duly adopted by the Board of Directors of the Company authorizing the transactions contemplated by the Transaction Documents;

(v)the Security Agreements, duly executed by the Persons named therein;

(vi)          a Guaranty, duly executed by each Guarantor;

(vii)         a true and complete copy of the License Agreement;

(viii)        by wire transfer to the account as specified in writing by the Advisor, the amount of $56,250,representing payment to the Advisor of an advisory fee;

(ix)an engagement letter with the Advisor, duly executed by the Company and delivered to the Advisor;

(x) a collateral monitoring fee agreement, duly executed by the Company and delivered to the Management Company;

(xi)the Subordination Agreement, duly executed by the Company and Silicon Valley Bank; and

5

(xii)the Subordinated Debt Subordination Agreements, duly executed by the Company and the subordinated debt holder referred to therein or by Joseph P. Mackin as the representative of such subordinated debt holder, together with a letter from each such subordinated debt holder not executing a Subordinated Debt Subordination Agreement on its own behalf authorizing Joseph P. Mackin to act as their representative for such purpose.

(b) On the Closing Date, the Purchaser shall deliver or cause to be delivered to the Company the following:

(i) this Agreement, duly executed by the Purchaser;

(ii)the Subscription Amount by wire transfer to the account as specified in writing by the Company; and

(iii)the Subordination Agreement, duly executed by the Purchaser.

2.3 Closing Conditions.

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

(i)the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchaser contained herein;

(ii)all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the Closing Date shall have been performed; and

(iii)the delivery by the Purchaser of the items set forth in Section 2.2(b) of this Agreement.

(b) The obligations of the Purchaser hereunder in connection with the Closing are subject to the following conditions being met:

(i) the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained in each Transaction Document;

(ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall have been performed;

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement;

6

(iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

(v) if the Common Stock is traded on a Trading Market at the date hereof, from the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended, and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in the case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Debenture at the Closing.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the disclosure schedules delivered to the Purchaser concurrently herewith (the “Disclosure Schedules”) (it being understood and agreed that disclosure made by the Company under any one section of the Disclosure Schedules shall also be applicable to any other section of the Disclosure Schedule for which the appropriateness of such disclosure is reasonably apparent), which Disclosure Schedules shall be deemed a part hereof and to qualify any representation or warranty otherwise made herein to the extent of such disclosure, the Company hereby make the representations and warranties set forth below to the Purchaser.

(a) Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a). Except as set forth in Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of the Subsidiaries free and clear of any Liens, and all the issued and outstanding shares of capital stock of the Subsidiaries are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b) Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. None of the Company or any Subsidiary is in violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in the jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or financial condition of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or (iii), a “Material Adverse Effect”), and no Proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

7

(c) Authorization; Enforcement. Each of the Company and the Subsidiaries has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents to which it is a party and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents by the Company and the Subsidiaries party to the Transaction Documents and the consummation by them of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and the Subsidiaries and no further action is required by the Company and the Subsidiaries, or their respective boards of directors or the Company’s stockholders, in connection therewith other than in connection with the Required Approvals. Each Transaction Document to which the Company and the Subsidiaries is a party has been (or upon delivery will have been) duly executed by them and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of theirs enforceable against them in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. The License Agreement constitutes the valid and binding obligation of the Company and, to the knowledge of the Company, constitutes the valid and binding obligation of Markland, enforceable against each in accordance with the terms thereof except (x) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (z) insofar as indemnification and contribution provisions may be limited by applicable law.

(d) No Conflicts. Except as set forth on Schedule 3.1(d), the execution, delivery and performance of the Transaction Documents by the Company and the Subsidiaries party to the Transaction Documents and the consummation by them of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of theirs is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of theirs is bound or affected; except in the case of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(e) Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery, assumption and performance by them of the Transaction Documents to which any of them is a party, other than (i) such filings as are required to be made under applicable federal and state securities laws, (ii) filings required to perfect the security interest granted under the Security Agreements and (iii) consents and waivers required from Silicon Valley Bank (which are contained in the Subordination Agreement)(collectively, the “Required Approvals”).

8

(f) Issuance of the Debenture. The Debenture is duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

(g) Capitalization. Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of shares of Common Stock owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g), the Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to employees pursuant to the Company’s employee stock plans and pursuant to the conversion or exercise of Common Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. All of the outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities.

(h) SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being collectively referred to herein as the “SEC Reports”) on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reportscomply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

9

(i) Material Changes. Since the date of the latest audited financial statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report,(i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any material liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or Affiliate, except pursuant to existing Company stock plans. Except for the issuance of the Debenture contemplated by this Agreement, no event, liability or development has occurred or exists with respect to the Company or any Subsidiary or their respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is madeorthat could reasonably be expected to result in a Material Adverse Effect.

(j) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting Markland, the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of the License Agreement or any of the Transaction Documents or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company under the Exchange Act or the Securities Act.

(k) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect.

(l) Compliance. Except as set forth on Schedule 3.1(l), neither the Company nor any Subsidiary (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, the License Agreement, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any court, arbitrator or governmental body, or (iii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws that affect the environment, except in the case as could not have or reasonably be expected to result in a Material Adverse Effect. To the knowledge of Company, Markland has not breached any material provision of the License Agreement. The Company and the Subsidiaries are in compliance in all material respects with all applicable foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants.

10

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in all personal property owned by them that is material to their businesses, in each case free and clear of all Liens, except for Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Liens for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any facilities held under lease by the Company and the Subsidiaries are held by them under valid and enforceable leases with which the Company and the Subsidiaries are in compliance. Neither the Company nor any Subsidiary owns any real property.

(o) Patents and Trademarks. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights necessary or material for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). Except as set forth on Schedule 3.1(o), neither the Company nor any Subsidiary has received a notice (written or otherwise) that the Intellectual Property Rights used by them (including, without limitation, the patents, patent registrations and patent applications identified on Schedule B to the License Agreement) violates or infringes upon the rights of any Person. None of the Intellectual Property Rights (including, without limitation, the patents, patent registrations and patent applications identified on Schedule B to the License Agreement) has expired or been held invalid by a court or other tribunal of competent jurisdiction, and to the Company’s knowledge, there is no existing infringement by another Person of any of the Intellectual Property Rights. The patents listed on Schedule B to the License Agreement have been duly registered with the United States Patent Office on the dates set forth in Schedule 3.1(o), and the corresponding office of each applicable foreign jurisdiction.

(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

11

(q) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company, is a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in the case in excess of $60,000 other than (i) for payment of (x) salary or consulting fees for services rendered or (y) severance pursuant to severance agreements, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company.

(r) Sarbanes-Oxley; Internal Accounting Controls. The Company is in material compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. TheCompany and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existingassets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. The Company’scertifying officers have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed SEC Report (such date, the “Evaluation Date”). The Company presented in its most recently filed SEC Report the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

(s) Certain Fees. No brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents, other than to the Advisor as contemplated hereby and to Rodman & Renshaw LLC. The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

(t) Private Placement. Assuming the accuracy of the Purchaser representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Debenture by the Company to the Purchaser as contemplated hereby.

12

(u) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of the Subscription Amount, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its businesses in a manner so that it will not become subject to the Investment Company Act of 1940, as amended.

(v) Listing and Maintenance Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration. The Company has not, in the 12 mon0ths preceding the date hereof, received notice from any Trading Market on which the Common Stock is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be, in compliance with all such listing and maintenance requirements to which it is now subject.

(w) Disclosure. All written disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company, its business and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading (it being recognized by the Purchaser that while the Company hereby represents that any projections and forecasts provided by the Company to it were prepared in good faith and based upon reasonable assumptions, such projections and forecasts are not factual and that actual results during any period covered thereby may differ from the projected and actual results). The Company acknowledges and agrees that the Purchaser has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

(x) Solvency. Based on the financial condition of the Company as of the Closing Date, the Company is solvent and has the necessary capital to pay its liabilities and obligations as they become due.

(y) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and the Subsidiaries have filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

(z) No General Solicitation. Neither the Company nor any person acting on its behalf has offered or sold the Debenture by any form of general solicitation or general advertising. The Company has offered the Debenture for sale only to the Purchaser and certain other “accredited investors” within the meaning of Rule 501 under the Securities Act.

13

(aa) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on its behalf, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which it aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

(bb) Seniority. Except for the indebtedness of the Company to Silicon Valley Bank referred to in the Subordination Agreement, no indebtedness or other claim against the Company is senior to the Debenture in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise.

(cc) Accountants. The Company’s accounting firm is set forth on Schedule 3.1(cc) of the Disclosure Schedule. To the knowledge and belief of the Company, such accounting firm (i) is a registered public accounting firm as required by the Exchange Act and (ii) shall express its opinion with respect to the financial statements to be included in the Company’s Annual Report on Form 10-KSB for the year ending June 30, 2007.

(dd) No Disagreements with Accountants and Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company, and the Company is current with respect to any fees owed to its accountants and lawyers which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

3.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

(a) Organization; Authority. The Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate or similar action on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

14

(b) Own Account. The Purchaser understands that the Debenture is a “restricted security” and has not been registered under the Securities Act or any applicable state securities law and is acquiring the Debenture as principal for its own account and not with a view to or for distributing or reselling the Debenture or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing the Debenture in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of the Debenture (this representation and warranty not limiting the Purchaser’s right to sell the Debenture in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. The Purchaser is acquiring the Debenture hereunder in the ordinary course of its business.

(c) Purchaser Status. At the time the Purchaser was offered the Debenture, it was, and at the date hereof it is, either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. The Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act.

(d) Experience of Such Purchaser. The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Debenture, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Debenture and, at the present time, is able to afford a complete loss of such investment.

(e) General Solicitation. The Purchaser is not purchasing the Debenture as a result of any advertisement, article, notice or other communication regarding the Debenture published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

(f) Short Sales and Confidentiality Prior To The Date Hereof. Other than consummating the transactions contemplated hereunder, the Purchaser has not directly or indirectly, nor has any Person acting on behalf of or pursuant to any understanding with the Purchaser, executed any purchases or sales, including short sales, of the securities of the Company during the period commencing from the time that the Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder until the date hereof (“Discussion Time”). The Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

15

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1 Transfer Restrictions.

(a) The Debenture may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Debenture other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of the Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of the Debenture under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of the Purchaser under this Agreement and the other Transaction Documents.

(b) The Purchaser agrees to the imprinting, so long as is required by this Section 4.1, of a legend on the Debenture in the following form:

THIS DEBENTURE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS DEBENTURE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY THIS DEBENTURE.

The Company acknowledges and agrees that the Purchaser may from time to time pledge pursuant to a bona fide margin agreement with a registered broker-dealer or grant a security interest in some or all of the Debenture to a financial institution that is an “accredited investor” as defined in Rule 501(a) under the Securities Act and who agrees to be bound by the provisions of this Agreement and, if required under the terms of such arrangement, the Purchaser may transfer pledged or secured Debenture to the pledgees or secured parties. Such a pledge or transfer would not be subject to approval of the Company and no legal opinion of legal counsel of the pledgee, secured party or pledgor shall be required in connection therewith. Further, no notice shall be required of such pledge. At the Purchaser’s expense, the Company will execute and deliver such reasonable documentation as a pledgee or secured party of the Debenture may reasonably request in connection with a pledge or transfer of the Debenture.

16

4.2 Furnishing of Information. As long as the Purchaser owns the Debenture, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. As long as the Purchaser owns the Debenture, if the Company is not required to file reports pursuant to the Exchange Act, it will prepare and furnish to the Purchaser and make publicly available in accordance with Rule 144(c) such information as is required for the Purchaser to sell the Debenture under Rule 144. The Company further covenants that it will take such further action as any holder of the Debenture may reasonably request, to the extent required from time to time to enable such Person to sell the Debenture without registration under the Securities Act within the requirements of the exemption provided by Rule 144.

4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Debenture in a manner that would require the registration under the Securities Act of the sale of the Debenture to the Purchaser.

4.4 Publicity. The Company and the Purchaser shall consult with the other prior to issuing press releases with respect to the transactions contemplated hereby, and neither the Company nor the Purchaser shall issue any such press release or otherwise make any such public statement without the prior consent of the Company, with respect to any press release of the Purchaser, or without the prior consent of the Purchaser, with respect to any press release of the Company, which consent shall not unreasonably be withheld or delayed, except if such disclosure is required by law, in which case the disclosing party shall promptly provide the other party with prior notice of such public statement or communication.

4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving the Debenture.

4.6 Post Closing Deliveries. Not later than the tenth day after the Closing Date, the Company shall deliver to the Purchaser an opinion of counsel to Markland with respect to the Security Agreements of Markland.

4.7 Use of Proceeds. The Company shall use the net proceeds from the sale of the Debenture hereunder for working capital.

4.8 Reimbursement. If the Purchaser becomes involved in any capacity in any Proceeding by or against any Person who is a stockholder of the Company (except as a result of sales, pledges, margin sales and similar transactions by the Purchaser to or with any other stockholder), solely as a result of the Purchaser’s acquisition of the Debenture under this Agreement, the Company agree to reimburse the Purchaser for its reasonable legal and other expenses (including the cost of any investigation preparation and travel in connection therewith) incurred in connection therewith, as such expenses are incurred. The reimbursement obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any Affiliates of the Purchaser who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchaser and any such Affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchaser and any such Affiliate and any such Person. The Company also agrees that neither the Purchaser nor any such Affiliates, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any Person asserting claims on behalf of or in right of the Company solely as a result of acquiring the Debenture under this Agreement.

17

4.9 Indemnification of Purchaser. Subject to the provisions of this Section 4.9, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), the Person who controls the Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (the, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser, or any of its Affiliates, by any stockholder of the Company, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of the Purchaser’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings the Purchaser may have with any such stockholder or any violations by the Purchaser of state or federal securities laws or any conduct by the Purchaser which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party, except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or (iii) in such action there is, in the reasonable opinion of such separate counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (i) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (ii) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

4.10           Participation in Future Financings.

(a) In connection with the issuance by the Company or any of its Subsidiaries of any promissory note, debenture or other debt security (a “Subsequent Financing”) at any time that any amount is owing to the Purchaser under the Debenture or any other Transaction Document, the Purchaser shall have the right to participate in up to an amount of the Subsequent Financing equal to 100% of the Subsequent Financing (the “Participation Maximum”) on the same terms, conditions and price provided for in the Subsequent Financing.

(b) At least ten Trading Days prior to the closing of any Subsequent Financing, the Company shall deliver to the Purchaser a written notice of its intention to effect such Subsequent Financing (“Pre-Notice”), which Pre-Notice shall ask the Purchaser if it wants to review the details of such financing (such additional notice, a “Subsequent Financing Notice”). Upon the request of the Purchaser, and only upon a request by the Purchaser, for a Subsequent Financing Notice, the Company shall promptly, but no later than one Trading Day after such request, deliver a Subsequent Financing Notice to the Purchaser. The Subsequent Financing Notice shall describe in reasonable detail the proposed terms of such Subsequent Financing, the amount of proceeds intended to be raised thereunder and the Person or Persons through or with whom such Subsequent Financing is proposed to be affected and shall include a term sheet or similar document relating thereto as an attachment, if such document is available.

18

(c) If the Purchaser desires to participate in such Subsequent Financing, it must provide written notice to the Company by not later than 5:30 p.m. (New York City time) on the fifth Trading Day after it has received the Pre-Notice that the Purchaser is willing to participate in the Subsequent Financing, the amount of the Purchaser’s participation, and that the Purchaser has such funds ready, willing, and available for investment on the terms set forth in the Subsequent Financing Notice. If the Company receives no notice from the Purchaser as of such fifth Trading Day, the Purchaser shall be deemed to have notified the Company that it does not elect to participate.

(d) If by 5:30 p.m. (New York City time) on the fifth Trading Day after the Purchaser has received the Pre-Notice, notification by the Purchaser of its willingness to participate in the Subsequent Financing (or to cause its designees to participate) is, in the aggregate, less than the total amount of the Subsequent Financing, then the Company may effect the remaining portion of such Subsequent Financing on the terms and with the Persons set forth in the Subsequent Financing Notice.

(e) The Company must provide the Purchaser with a second Subsequent Financing Notice, and the Purchaser will again have the right of participation set forth above in this Section 4.10, if the Subsequent Financing subject to the initial Subsequent Financing Notice is not consummated for any reason on the terms set forth in such Subsequent Financing Notice within 60 Trading Days after the date of the initial Subsequent Financing Notice.

(f) Notwithstanding the foregoing, this Section 4.10 shall not apply in respect of (i) an Exempt Issuance or (ii) an underwritten public offering of securities of the Company.

4.11 Form D; Blue Sky Filings. The Company agrees to timely file a Form D with respect to the Debenture as required under Regulation D and to provide a copy thereof, promptly upon request of the Purchaser. The Company shall take such action as it shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Debenture for, sale to the Purchaser at the Closing under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser.

4.12 Certain Notices. Within two Trading Days after the Company enters into any binding agreement that could reasonably be expected to result in a Change of Control Transaction, the Company shall notify the Purchaser thereof and shall furnish the Purchaser with a copy of any writing evidencing such agreement. The Company shall further notify the Purchaser promptly of all events relating to any such Change of Control Transaction, including, without limitation, the consummation thereof. The failure of the Company to provide any such notice or any defect therein shall not have any effect on the Company’s obligation to pre-pay the Debenture when required by the holder thereof in accordance with the terms thereof.

ARTICLE V.

MISCELLANEOUS

5.1 Termination. This Agreement may be terminated by the Purchaser if the Closing has not been consummated on or before the Transaction End Date; provided, however, that no such termination will affect the right of any party to sue for any breach by the other party (or parties).

5.2 Fees and Expenses. At the Closing, the Company shall pay FWS the legal fees and expenses incurred by the Purchaser in connection with the Transaction Documents in an amount not to exceed $35,000. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement and the other Transaction Documents. The Company shall pay all transfer agent fees, stamp taxes and other taxes and duties required to be paid in connection with the delivery of the Debenture to the Purchaser.

19

5.3 Entire Agreement. This Agreement and the other Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the 2^nd Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser. The Purchaser may assign any or all of its rights under this Agreement to any Person to whom the Purchaser assigns or transfers any of its Debenture, provided such transferee agrees in writing to be bound, with respect to the transferred Debenture, by the provisions of the Transaction Documents that apply to the “Purchaser” and Purchaser shall notify the Company of any such assignment.

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Sections 4.8 and 4.9.

20

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City 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 (including with respect to the enforcement of any of the Transaction Documents), 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 improper or is an inconvenient venue for such proceeding. 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 via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The parties hereby waive all rights to a trial by jury. If any party shall commence an action or proceeding to enforce any provisions of the Transaction Documents, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

5.10Survival. The representations, warranties, covenants and other agreements contained herein shall survive the Closing and the delivery and/or exercise of the Debenture, as applicable for the applicable statue of limitations.

5.11Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by the party and delivered to the other parties, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.PDF” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.PDF” signature page were an original thereof.

5.12Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

21

5.13Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

5.14Replacement of Debenture. If any certificate or instrument evidencing the Debenture is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Debenture.

5.15Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

5.16Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

5.17Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by the Purchaser in order to enforce any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Purchaser with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Purchaser to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Purchaser’s election.

22

5.18Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of theirs and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

5.19Construction. The parties agree that each of them and/or their respective counsel has reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments hereto.

(Signature Pages Follow)

23

IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

TECHNEST HOLDINGS, INC.	Address for Notice:
By:            /s/ Gino M. Pereira                                                 Name: Gino M. Pereira Title: Chief Financial Officer	10411 Motor City Drive, Suite 650 Bethesda, Maryland 20817

With a copy to (which shall not constitute notice):

Foley Hoag LLP

1000 Winter Street, Suite 4000

Waltham, Massachusetts 02451

Telecopy: 617 753 1405

Attention: David Broadwin, Esq.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

24

IN WITNESS WHEREOF, the undersigned have caused this Debenture Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

SHELTER ISLAND OPPORTUNITY FUND, LLC By: Shelter Island GP, LLC, its Manager	Address for Notice:
By:          /s/ Randall P. Stern                                                                     Name: Randall P. Stern       Title: President	One East 52nd Street, New York, NY 10022
With a copy to (which shall not constitute notice): Feldman Weinstein & Smith LLP 420 Lexington Avenue New York, New York 10170-0002 Telecopy: 212 997 4242 Attention: Saul H. Finkelstein, Esq.

25

EX-10.2

Exhibit 10.2

SECURITY AGREEMENT

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

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

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

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

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

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

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

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

1

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

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

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

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

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

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

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

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

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

2

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

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

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

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

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

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

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

3

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

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

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

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

4

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

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

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

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

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

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

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

6

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

7. ENVIRONMENTAL MATTERS.

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

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

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

7

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

8. MISCELLANEOUS.

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

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

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

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

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

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

8

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

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

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

9

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

SHELTER ISLAND

OPPORTUNITY FUND, LLC

By: Shelter Island GP, LLC, its Manager

By: /s/ Randall P. Stern

Title: President

Address for Notices:

One East 52^nd Street

New York, New York 10022

Attention: Randall P. Stern

TECHNEST HOLDINGS, INC.

By: /s/ Gino M. Pereira

Title: Chief Financial Officer

Pledgor's Location:

10411 Motor City Drive,

Suite 650

Bethesda, Maryland 20817

Pledgor’s state of

incorporation: Nevada

10

EXHIBIT A

Intellectual Property

11

EX-10.3

Exhibit 10.3

Security Agreement

I.Security Interest. For good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Technest Holdings, Inc., a Nevada corporation (“Pledgor”), hereby assigns and grants to Shelter Island Opportunity Fund, LLC (“Secured Party”) a security interest in the Collateral (as hereinafter defined) to secure the payment and the performance of the Obligations (as hereinafter defined).

II.Collateral. The pledge and security interest described above are granted in respect of the following collateral (the “Collateral”):

A.Description of Collateral. All of Pledgor’s right, title, and interest, now owned or hereafter acquired, in and to all of the authorized and issued shares of Common Stock, no par value per share (the “Shares”), of Genex Technologies Incorporated, a Maryland corporation (the “Company”), all certificates, options and rights of any nature whatsoever which may be issued or granted in respect of the Shares while this Agreement is in effect, and all dividends, distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledgor’s interest in the Shares.

B.Proceeds. All additions, substitutes, replacements for and proceeds of the property described in Section II.A (including all income and benefits resulting from any of the above, including, without limitation, dividends or distributions payable or distributable in cash, property, or stock; interest, premium and principal payments; redemption proceeds, and subscription rights; and shares or other proceeds of conversions or splits of any securities in such property). Any securities received by Pledgor which shall constitute such additions, substitutes and replacements for, or proceeds of, the property described in Section II.A., shall, if delivered to Pledgor, be held in trust by Pledgor for the Secured Party and shall be delivered immediately to the Secured Party.

III.Obligations. The following obligations (collectively, the “Obligations”) are secured by this Agreement: all debts, obligations or liabilities now or hereafter existing, absolute or contingent of the Company or the Pledgor to the Secured Party, whether voluntary or involuntary, whether due or not due, or whether incurred directly or indirectly or acquired by the Secured Party by assignment or otherwise. , including, without limitation, the Termination Fee (as such term is defined in the Debenture referred to in the Securities Purchase Agreement referenced in Section VIII.H. of this Agreement).

IV.Pledgor’s Warranties. Pledgor hereby represents and warrants to the Secured Party as follows:

A.Authority and Compliance. The Pledgor has full power and authority to execute and deliver this Agreement and to incur and perform the obligations provided for herein. No consent or approval of any governmental authority or other third party is or will be required as a condition to the enforceability of this Agreement, and the Collateral is and will be in compliance in all material respects with all laws and regulatory requirements to which it is subject.

1

B.Binding Agreement. This Agreement is duly authorized, executed and delivered by the Pledgor and is enforceable against the Pledgor in accordance with its terms.

C.Ownership. Pledgor is the sole record and beneficial owner of the Collateral and (i) the Collateral is and will be free and clear of any setoff, claim, restriction, pledge, lien, security interest, encumbrance or other charge of any type, except for the security interest created hereunder and the security interest of Silicon Valley Bank, (ii) the Shares were acquired in a transaction that complied with the requirements of the Securities Act of 1933, as amended, and all applicable state securities or “blue sky” laws, (iii) the Shares constitute all of the issued and outstanding shares of capital stock of the Company and (iv) the Pledgor is an “affiliate” of Company for purposes of Rule 144. The Shares have been duly authorized and validly issued and are fully paid and non-assessable.

D.No Conflict. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, nor the fulfillment of, nor the compliance with, the terms, conditions or provisions hereof nor the pledge of any Collateral, will conflict with, result in a breach of, or constitute a default under (i) any relevant statute, law, ordinance, rule or regulation applicable to Pledgor or the Collateral or (ii) any indenture, agreement or other instrument, or any judgment, order or decree, to which Pledgor is a party or by which any of its assets including, without limitation, the Collateral, may be bound. There is no litigation, claim or judicial, administrative or governmental proceeding of which Pledgor has been notified or, to the knowledge of Pledgor, threatened with respect to the Collateral, nor is there any basis for any such litigation, claim or proceeding.

E.Security Interest. The pledge of the Collateral pursuant to this Agreement creates a valid and perfected security interest in the Collateral, securing the payment of the Obligations, subject only to the prior Lien of Silicon Valley Bank in the Shares.

F.Financing Statements. No financing statement or similar instrument covering the Collateral is or will be on file in any public office, and no security interest, other than the one herein created, has attached or been perfected in the Collateral or any part thereof.

V.Pledgor’s Covenants. Until full payment and performance of all of the Obligations, unless the Secured Party otherwise consents in writing:

A.Rights to Collateral. Pledgor shall defend the Collateral against all claims and demands of all persons at any time claiming any interest therein adverse to the Secured Party. Pledgor shall keep the Collateral free from all claims, restrictions, encumbrances, security interests, pledges, liens, demands or charges of any type, except the security interest hereby created and the security interest of Silicon Valley Bank. Pledgor shall not lease, lend, assign, or otherwise further hypothecate, pledge or encumber the Collateral or any interest therein. Without Secured Party’s prior written consent, Pledgor shall not consent to the amendment to any document, instrument or agreement governing the terms of the Collateral or the rights of Pledgor with respect thereto.

2

B. Sale of Collateral. Without the prior written consent of the Secured Party, Pledgor shall not sell or otherwise dispose of the Collateral or any part thereof. Pledgor shall not permit any Lien to exist on any shares of capital stock of the Company, other than to the Secured Party and Silicon Valley Bank.

C.Secured Party’s Costs. Pledgor shall pay all costs reasonably necessary to obtain, create, preserve, perfect, defend and enforce the security interest created by this Agreement, collect the Obligations, and preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, reasonable attorney’s fees, legal expenses and expenses of sales. Whether the Collateral is or is not in the Secured Party’s possession, and without any obligation to do so and without waiving Pledgor’s default for failure to make any such payment, the Secured Party at its option may pay any such costs and expenses and discharge encumbrances on the Collateral, and such payments shall be a part of the Obligations and bear interest at the rate set out in the documents evidencing the Obligations. Pledgor agrees to reimburse the Secured Party on demand for any costs so incurred.

D.Information and Inspection. Pledgor shall (i) promptly furnish to the Secured Party any information with respect to the Collateral requested by the Secured Party; (ii) allow the Secured Party or its representatives to inspect and copy, or furnish to the Secured Party or its representatives with copies of, all records relating to the Collateral and the Obligations; and (iii) promptly furnish the Secured Party or its representatives with any other information reasonably requested by the Secured Party with respect to the Collateral.

E.Additional Documents. Pledgor shall sign and deliver, at the sole cost of Pledgor, any instruments furnished by the Secured Party, including, without limitation, financing statements and continuation statements, which are necessary or desirable in the judgment of the Secured Party to obtain, create, maintain and perfect the security interest hereunder and to enable the Secured Party to comply with any federal or state law in order to obtain, create or perfect the Secured Party’s interest in the Collateral or to obtain proceeds of the Collateral.

F.Notice of Changes. Pledgor shall notify the Secured Party immediately of (i) any material change in the Collateral, (ii) a change in Pledgor’s address specified above and (iii) a change in any matter warranted or represented by Pledgor in this Agreement.

G.Possession of Collateral. Pledgor shall deliver all investment securities and other instruments and documents which are a part of the Collateral and in Pledgor’s possession to the Secured Party immediately, or if hereafter acquired, immediately following acquisition, in a form suitable for transfer by delivery or accompanied by duly executed instruments of transfer or assignment in blank with signatures appropriately guaranteed in form and substance suitable to the Secured Party.

3

H.Power of Attorney. Pledgor appoints the Secured Party and any officer thereof as Pledgor’s attorney-in-fact with full power in Pledgor’s name and on Pledgor’s behalf to do every act which Pledgor is obligated to do or may be required to do hereunder; provided, however, nothing in this paragraph shall be construed to obligate the Secured Party to take any action hereunder nor shall the Secured Party be liable to Pledgor for any action or the failure to take any action hereunder. This appointment shall be deemed a power coupled with an interest and shall not be terminable as long as the Obligations are outstanding. Without limiting the generality of the foregoing, the Secured Party shall have the right and power to receive, endorse and collect all checks and other orders for the payment of money made payable to Pledgor representing any dividend, interest payment or other distribution payable in respect of the Collateral or any part thereof.

I.Other Parties and Other Collateral. No renewal or extensions of or any other indulgence with respect to the Obligations or any part thereof, no modification of any Transaction Documents, no release of any security, no release of any person (including any maker, indorser, guarantor or surety) liable on the Obligations, no delay in enforcement of payment, and no delay or omission or lack of diligence or care in exercising any right or power with respect to the Obligations or any security therefor or guaranty thereof or under this Agreement shall in any manner impair or affect the rights of the Secured Party under any law, hereunder, or under any other Transaction Document. The Secured Party shall not be required to file suit or assert a claim for personal judgment against any person for any part of the Obligations or seek to realize upon any other security for the Obligations, before foreclosing or otherwise realizing upon the Collateral.

J.Waivers by Pledgor. Pledgor hereby waives (i) notice of the creation, advance, increase, existence, extension or renewal of, and of any indulgence with respect to, the Obligations; (ii) presentment, demand, notice of dishonor, and protest; and (iii) notice of the amount of the Obligations outstanding at any time. Pledgor waives any right to require that any action be brought against any other person or to require that resort be had to any other security. Pledgor further waives any right of subrogation or to enforce any right of action against any other obligor on any Obligation or other pledgor to the Secured Party of collateral for the Obligations until the Obligations are paid in full.

VI.Rights and Powers of the Secured Party.

A.General. Before or after an Event of Default (as such term is defined in the Debenture), the Secured Party, without liability to Pledgor, may: (a) take control of proceeds of the Collateral, including stock or other securities received as distributions; (b) release any Collateral in its possession to Pledgor, temporarily or otherwise; and (c) exercise all other rights which an owner of such Collateral may exercise, except that before an Event of Default shall occur, the Secured Party shall not have the right to receive cash dividends, interest, premium and other cash payments with respect to the Shares or to vote or dispose of the Shares. At any time, the Secured Party may transfer any of the Collateral or evidence thereof into its own name or that of its nominee and if Secured Party is still in possession of the Collateral after the Obligations have been paid in full, Secured Party shall cause any Collateral that has been transferred to Secured Party’s name or that of its nominee to be re-transferred into such names as Pledgor shall reasonably request. The Secured Party shall not be liable for failure to collect any account or instruments, or for any act or omission on the part of the Secured Party, its officers, agents or employees, except for its or their own willful misconduct or gross negligence. The foregoing rights and powers of the Secured Party will be in addition to, and not a limitation upon, any rights and powers of the Secured Party given by law, elsewhere in this Agreement, or otherwise.

4

B.Dividends and Voting Rights. So long as no Event of Default has occurred, Pledgor may (a) retain all cash dividends and cash distributions paid with respect to the Shares and (b) subject to the provisions of Section V.A., exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Shares. The Secured Party will cooperate with any reasonable requests of Pledgor to effectuate the foregoing.

C.Convertible or Exercisable Collateral. The Secured Party may present for conversion or exercise any Collateral which is convertible or exercisable into any other instrument or investment security or a combination thereof with cash, but the Secured Party shall not have any duty to present for conversion or exercise any Collateral unless it shall have received from Pledgor detailed written instructions to that effect at a time reasonably far in advance of the final conversion date to make such conversion possible. Pledgor shall not present for conversion or exercise any Collateral that is so convertible or exercisable.

VII.Default.

A.Event of Default; Rights and Remedies. If any Event of Default shall occur, then, in each and every such case, the Secured Party may, without (a) presentment, demand, or protest, (b) notice of default, dishonor, demand, non-payment, or protest, (c) notice of intent to accelerate all or any part of the Obligations, (d) notice of acceleration of all or any part of the Obligations, or (e) notice of any other kind, all of which Pledgor hereby expressly waives (except for any notice required under this Agreement which may not be waived under any applicable law), at any time thereafter exercise and/or enforce any of the following rights and remedies, at the Secured Party’s option:

(i)Direct Delivery of Dividends and Other Distributions. Direct that all dividends, interest, premium and other payments with respect to the Collateral of whatever kind or nature thereafter paid with respect to the Collateral be paid directly to the Secured Party, and Pledgor shall execute and deliver to the Secured Party any and all documents necessary to effectuate the foregoing.

(ii)Liquidation of Collateral. Sell, or instruct any agent to sell, all or any part of the Collateral, and direct such agent to deliver all proceeds thereof to the Secured Party, and apply all proceeds to the payment of any or all of the Obligations in such order and manner as the Secured Party shall, in its discretion, choose.

(iii)Acceleration. Declare the Obligations immediately due and payable.

5

(iv)Uniform Commercial Code. Exercise all of the rights, powers and remedies of a secured creditor under the Uniform Commercial Code then in effect in the State of New York.

Pledgor specifically understands and agrees that any sale or redemption by the Secured Party of all or part of the Collateral pursuant to the terms of this Agreement may be effected by the Secured Party at times and in manners which could result in the proceeds of such sale or redemption being significantly and materially less than might have been received if such sale or redemption had occurred at different times or in different manners, and Pledgor hereby releases the Secured Party and its officers and representatives from and against any and all obligations and liabilities arising out of or related to the timing or manner of any such sale or redemption. The Pledgor agrees that the Collateral may be sold as provided for in this Agreement and expressly waives any rights of notice of sale, advertisement procedures, or related provisions granted under applicable law, including the New York Lien Law.

VIII.General.

A.Parties Bound. The Secured Party’s rights hereunder shall inure to the benefit of the Secured Party and its successors and assigns, and in the event of any assignment or transfer by the Secured Party of any of the Obligations or the Collateral, the Secured Party thereafter shall be fully discharged from any responsibility with respect to the Collateral so assigned or transferred, but the Secured Party shall retain all rights and powers hereby given with respect to any of the Obligations or Collateral not so assigned or transferred. All representations, warranties and agreements of Pledgor shall be binding upon the successors and permitted assigns of Pledgor.

B.Waiver. No delay of the Secured Party in exercising any power or right shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude other or further exercise thereof or the exercise of any other power or right. No waiver by the Secured Party of any right hereunder or of any default by Pledgor shall be binding upon the Secured Party unless in writing, and no failure by the Secured Party to exercise any power or right hereunder or waiver of any default by Pledgor shall operate as a waiver of any other or further exercise of such right or power or of any further default. Each right, power and remedy of the Secured Party as provided for herein or in any of the Transaction Documents, or which shall now or hereafter exist at law or in equity or by statute or otherwise, shall be cumulative and concurrent and shall be in addition to every other such right, power or remedy. The exercise or beginning of the exercise by the Secured Party of any one or more of such rights, powers or remedies shall not preclude the simultaneous or later exercise by the Secured Party of any or all other such rights, powers or remedies.

C.Notice. Notice shall be deemed reasonable if mailed postage prepaid at least five (5) days before the related action to the address of the parties set forth below, or to such other address as any party may designate by written notice to the other party. Each notice, request and demand shall be deemed given or made, if sent by mail, upon the earlier of the date of receipt or five (5) days after deposit in the mail, first class postage prepaid, or if sent by any other means, upon delivery.

6

D.Modifications. No provision hereof shall be modified or limited except by a written agreement expressly referring hereto and to the provisions so modified or limited, which shall be signed by Pledgor and the Secured Party. The provisions of this Agreement shall not be modified or limited by course of conduct or usage of trade.

E.Partial Invalidity. The unenforceability or invalidity of any provision of this Agreement shall not affect the enforceability or validity of any other provision herein, and the invalidity or unenforceability of any provision of any Transaction Document to any person or circumstance shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

F.Applicable Law and Venue. This Agreement has been executed and delivered in the State of New York and shall be governed by the laws of that State. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement.

G.Financing Statement. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral shall be sufficient as a financing statement.

H.Definitions. Capitalized terms used herein without definition have the meaning ascribed to those terms in the Securities Purchase Agreement, dated the date hereof, between the Secured Party and the Pledgor, and in the Transaction Documents delivered pursuant thereto.

7

IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed by their duly authorized representatives as of May 31, 2007.

SECURED PARTY:	PLEDGOR:
SHELTER ISLAND OPPORTUNITY	TECHNEST HOLDINGS, INC.
FUND, LLC
By: Shelter Island GP, LLC, its Manager
By: /s/ Randall P. Stern	By: /s/ Gino M. Pereira
Name: Randall P. Stern	Name: Gino M. Pereira
Title: President	Title: Chief Financial Officer
Address for Notices:	Address for Notices:
One East 52nd Street	10411 Motor City Drive, Suite 650,
	Bethesda, Maryland 20817
New York, New York 10022
Attention: Randall P. Stern

8

EX-10.4

Exhibit 10.4

SECURITY AGREEMENT

1. THE SECURITY. The undersigned Markland Technologies, Inc., a Florida corporation (the "Pledgor"), hereby assigns and grants to Shelter Island Opportunity Fund, LLC (the "Purchaser") a security interest in all rights, now owned or hereafter acquired, of Pledgor in and to the License Agreement, dated March 13, 2006 (the “License Agreement”), between Pledgor and Technest Holdings, Inc., a Nevada corporation (“Technest”), as such agreement may be amended, supplemented or modified from time to time in accordance with its terms, and all related documents and agreements delivered by the parties in connection therewith, together with all property now owned or hereafter acquired by the Pledgor that relate to or arise from Pledgor’s rights and license under the License Agreement, including, without limitation, the following property (collectively, "Collateral"):

(a) All products with respect to which Pledgor is required to pay a royalty to Technest pursuant to the License Agreement as in effect on the date hereof (any such product being a “Royalty-Bearing Product”).

(b) All accounts, contract rights, chattel paper, instruments, deposit accounts, letter of credit rights, payment intangibles and general intangibles arising from or related to the License Agreement, the Royalty-Bearing Products or the sale or license of any thereof, including all amounts due to the Pledgor from a factor; and all returned or repossessed goods which, on sale or lease, resulted in an account or chattel paper with respect to any Royalty-Bearing Product .

(c) All inventory of Royalty-Bearing Products, including all materials, work in process and finished goods.

(d) All machinery, furniture, fixtures and other equipment of every type now owned or hereafter acquired by the Pledgor that are required for the manufacture or assembly of Royalty-Bearing Products.

(e) All instruments, notes, chattel paper, documents, certificates of deposit, securities and investment property of every type that relate to the License Agreement or the Royalty-Bearing Products or arise from the sale or license of any thereof. The Collateral shall include all liens, security agreements, leases and other contracts securing or otherwise relating to the foregoing.

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

1

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

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

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

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

2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of Technest to the Purchaser. "Indebtedness" means all debts, obligations or liabilities now or hereafter existing, absolute or contingent of Technest to the Purchaser, whether voluntary or involuntary, whether due or not due, or whether incurred directly or indirectly or acquired by the Purchaser by assignment or otherwise.

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

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

(b) The Pledgor’s chief executive office is located in the state specified on the signature page hereof. In addition, the Pledgor is incorporated in or organized under the laws of the state specified on such signature page. The Pledgor shall give the Purchaser at least three (3) days notice before changing its chief executive office or state of incorporation or organization. The Pledgor will notify the Purchaser in writing prior to any change in the location of any Collateral, including the Books and Records.

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

2

(d) Except to the Purchaser or as Purchaser may hereafter agree, the Pledgor has not granted and will not grant any security interest in any of the Collateral, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature.

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

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

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

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

(i) The Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose of any Collateral except with the prior written consent of the Purchaser; provided, however, that the Pledgor may sell inventory of Royalty-Bearing Products in the ordinary course of business and will use its best efforts to develop, market and sell Royalty-Bearing Products.

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

3

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

(l) The Pledgor will at its expense protect and defend all rights in the Collateral against any material claims and demands of all persons other than the Purchaser and will, at its expense, enforce all rights in the Collateral against any and all infringers of the Collateral where such infringement would materially impair the value or use of the Collateral to the Pledgor or the Purchaser. The Pledgor will not license or transfer any of the Collateral, except for such licenses as are customary in the ordinary course of the Pledgor's business, or except with the Purchaser's prior written consent.

(m) Pledgor is duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. Pledgor is not in violation or default of any of the provisions of its certificate or articles of incorporation, bylaws or other organizational or charter documents.

(n)Pledgor has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Pledgor and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary action on the part of the Pledgor and no further action is required by the Pledgor, or its board of directors, in connection therewith. This Agreement constitutes the valid and binding obligation of Pledgor enforceable against it in accordance with its terms except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law. The License Agreement constitutes the valid and binding obligation of the Pledgor and, to the knowledge of the Pledgor, constitutes the valid and binding obligation of Technest, enforceable against each in accordance with the terms thereof except (x) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (y) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (z) insofar as indemnification and contribution provisions may be limited by applicable law.

4

(o) The execution, delivery and performance of this Agreement by Pledgor and the consummation by it of the transactions contemplated hereby do not and will not: (i) conflict with or violate any provision of Pledgor’s certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of Pledgor, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Pledgor debt or otherwise) or other understanding to which the Pledgor is a party or by which any property or asset of Pledgor is bound or affected, or (iii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Pledgor is subject, or by which any property or asset of Pledgor is bound or affected. The representations and warranties made by the Pledgor in the License Agreement, and to the knowledge of Pledgor, the representations and warranties made by Technest in the License Agreement, are true and correct in all material respects.

(p) There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of Pledgor, threatened against or affecting Pledgor or Technest or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) which adversely affects or challenges the legality, validity or enforceability of the License Agreement or this Agreement.

(q) Pledgor is not in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by Pledgor under), nor has Pledgor received notice of a claim that it is in default under or that it is in violation of, the License Agreement. To the knowledge of Pledgor, Technest has not breached any material provision of the License Agreement.

(r) Pledgor shall not amend, terminate, or consent to or suffer to exist any amendment or termination of, the License Agreement. Pledgor will comply with all its material obligations under the License Agreement.

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

5

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

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

(c) Require the Pledgor to deliver to the Purchaser any instruments, chattel paper or letters of credit which are part of the Collateral, and to assign to the Purchaser the proceeds of any such letters of credit.

(d) Notify any account debtors, any buyers of the Collateral, or any other persons of the Purchaser's interest in the Collateral.

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

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

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

(b) The Purchaser fails to have an enforceable first priority lien on or security interest in the Collateral.

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

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

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

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

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

6

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

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

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

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

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

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

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

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

7

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

7. ENVIRONMENTAL MATTERS.

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

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

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

8

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

8. MISCELLANEOUS.

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

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

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

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

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

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

9

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

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

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

10

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

SHELTER ISLAND OPPORTUNITY FUND, LLC

By: Shelter Island GP, LLC, its Manager

By: /s/ Randall P. Stern

Title: President

Address for Notices:

One East 52^nd Street

New York, New York 10022

Attention: Randall P. Stern

MARKLAND TECHNOLOGIES, INC.

By: /s/Gino M. Pereira

Title: Chief Financial Officer

Pledgor's Location:

222 Metro Center Blvd.

Warwick, RI 02886

Pledgor’s state of

incorporation: Florida

11

EX-10.5

Exhibit 10.5

SECURITY AGREEMENT

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

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

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

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

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

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

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

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

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

1

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

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

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

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

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

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

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

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

2

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

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

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

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

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

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

3

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

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

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

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

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

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

4

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

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

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

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

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

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

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

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

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

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

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

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

5

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

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

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

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

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

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

7. ENVIRONMENTAL MATTERS.

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

6

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

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

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

7

8. MISCELLANEOUS.

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

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

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

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

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

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

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

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

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

8

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

SHELTER ISLAND OPPORTUNITY FUND, LLC

By: Shelter Island GP, LLC, its Manager

By: /s/ Randall P. Stern

Title: President

Address for Notices:

One East 52^nd Street

New York, New York 10022

Attention: Randall P. Stern

GENEX TECHNOLOGIES INCORPORATED

By:/s/Gino M. Pereira

Title: Chief Financial Officer

Pledgor's Location:

10411 Motor City Drive,

Suite 650

Bethesda, Maryland 20817

Pledgor’s state of

incorporation: Maryland

9

EXHIBIT A

Intellectual Property

10

EX-10.6

Exhibit 10.6

BORROWER: Technest Holdings, Inc.

GUARANTOR: E-OIR Technologies, Inc.

GUARANTY

To:Shelter Island Opportunity Fund, LLC

1. The Guaranty. For valuable consideration, the undersigned ("Guarantor") hereby unconditionally guarantees and promises to pay on demand to Shelter Island Opportunity Fund, LLC, its successors and assigns (collectively, "Purchaser"), or order, in lawful money of the United States, any and all Indebtedness of Technest Holdings, Inc., a Nevada corporation ("Borrower"), to Purchaser when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter. The liability of Guarantor under this Guaranty includes, without limitation, liability for all interest, fees, indemnities (including, without limitation, hazardous waste indemnities), and other costs and expenses relating to or arising out of the Indebtedness. The liability of Guarantor is continuing and relates to any Indebtedness, including that arising under successive transactions which shall either continue the Indebtedness or from time to time renew it after it has been satisfied.

2. Definitions.

(a) "Borrower" shall mean the entity listed above.

(b) "Guarantor" shall mean the entity signing this Guaranty.

(c) "Indebtedness" shall mean any and all debts, liabilities, and obligations of Borrower to Purchaser, now or hereafter existing, including, without limitation, those arising under the Securities Purchase Agreement, dated the date hereof (the “Securities Purchase Agreement”), between the Borrower and Purchaser, and the $1,650,000 Secured Original Issue Discount Debenture issued by Borrower to Purchaser thereunder (the “Debenture”), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, held or to be held by Purchaser for its own account or as agent for another or others, whether Borrower may be liable individually or jointly with others, whether recovery upon such debts, liabilities, and obligations may be or hereafter become barred by any statute of limitations, and whether such debts, liabilities, and obligations may be or hereafter become otherwise unenforceable, and includes without limitation, any and all obligations of Borrower to Purchaser for reasonable attorneys' fees and all other costs and expenses incurred by Purchaser in the collection or enforcement of any debts, liabilities, and obligations of Borrower to Purchaser.

-1-

3. Obligations Independent. The obligations hereunder are independent of the obligations of Borrower or any other guarantor, and a separate action or actions may be brought and prosecuted against Guarantor whether an action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor be joined in any such action or actions.

4. Rights of Purchaser. Guarantor authorizes Purchaser, without notice or demand and without affecting its liability hereunder, from time to time in any manner authorized or permitted by the Transaction Documents (as such term is defined in the Securities Purchase Agreement) to:

(a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of any Transaction Document (as such term is defined in the Securities Purchase Agreement);

(b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) apply such security and direct the order or manner of sale thereof as Purchaser in its discretion may determine; and

(d) release or substitute any guarantor or any one or more of any endorsers or other guarantor of any of the Indebtedness.

5. Guaranty to be Absolute. Guarantor agrees that Guarantor shall not be released hereunder by or because of the Purchaser taking, or failure to take, any action that might in any manner or to any extent vary the risks of Guarantor under this Guaranty in any manner or to any extent permitted by the Transaction Documents or that, but for this paragraph, might discharge or otherwise reduce, limit, or modify Guarantor's obligations under this Guaranty. Guarantor waives and surrenders any defense to any liability under this Guaranty based upon any such action, including but not limited to any action of Purchaser described in the immediately preceding paragraph of this Guaranty.

6. Guarantor's Waivers of Certain Rights and Certain Defenses. Guarantor waives:

(a) any right to require Purchaser to proceed against Borrower or any other guarantor of the Indebtedness, proceed against or exhaust any security for the Indebtedness, or pursue any other remedy in Purchaser's power whatsoever;

-2-

(b) any defense arising by reason of any disability or other defense of Borrower, or the cessation from any cause whatsoever of the liability of Borrower;

(c) any defense based on any claim that Guarantor’s obligations exceed or are more burdensome than those of Borrower; and

(d) the benefit of any statute of limitations affecting Guarantor's liability hereunder.

No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty.

7. Waiver of Subrogation. Until the Indebtedness has been paid in full, Guarantor waives to the extent permitted by applicable law any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory, or otherwise) including, without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, arising from the existence or performance of this Guaranty, and Guarantor waives to the extent permitted by applicable lawany right to enforce any remedy that Purchaser now has or may hereafter have against Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by Purchaser.

8. Waiver of Notices. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of intent to accelerate, notices of acceleration, notices of any suit or any other action against Borrower or any other person, any other notices to any party liable on any Transaction Document (including Guarantor), notices of acceptance of this Guaranty, notices of the existence, creation, or incurring of new or additional Indebtedness to which this Guaranty applies or any other indebtedness of Borrower to Purchaser, and notices of any fact that might increase Guarantor’s risk.

9. Subordination. Any obligations of Borrower to Guarantor, now or hereafter existing, including but not limited to any obligations to Guarantor as subrogee of Purchaser or resulting from Guarantor’s performance under this Guaranty, are hereby subordinated to the Indebtedness (other than reasonable obligations of the Borrower to Guarantor for the payment of (i) services actually rendered or goods actually delivered by Guarantor and (ii) expenses paid by Guarantor on behalf of Borrower in the ordinary course of business related to Borrower’s reporting obligations as a public company). In addition to Guarantor's waiver of any right of subrogation as set forth in this Guaranty with respect to any obligations of Borrower to Guarantor as subrogee of Purchaser, Guarantor agrees that, if Purchaser so requests, Guarantor shall not demand, take, or receive from Borrower, by setoff or in any other manner, payment of any other obligations of Borrower to Guarantor (other than reasonable obligations of the Company to Guarantor for the payment of (i) services actually rendered or goods actually delivered by Guarantor and (ii) expenses paid by Guarantor on behalf of Borrower in the ordinary course of business related to Borrower’s reporting obligations as a public company) until the Indebtedness has been paid in full. If any payments are received by Guarantor in violation of such waiver or agreement, such payments shall be received by Guarantor as trustee for Purchaser and shall be paid over to Purchaser on account of the Indebtedness, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any security interest, lien, or other encumbrance that Guarantor may now or hereafter have on any property of Borrower is hereby subordinated to any security interest, lien, or other encumbrance that Purchaser may have on any such property.

-3-

10. Stay of Acceleration. In the event that acceleration of the time for payment of any of the Indebtedness is stayed upon the insolvency, bankruptcy, or reorganization of Borrower or otherwise, all such Indebtedness guaranteed by Guarantor shall nonetheless be payable by Guarantor immediately if requested by Purchaser if such payment by Guarantor is not stayed as a result of such insolvency, bankruptcy or reorganization.

11. Information Relating to Borrower. Guarantor acknowledges and agrees that it shall have the sole responsibility for, and have adequate means of, obtaining from Borrower such information concerning Borrower's financial condition or business operations as Guarantor may require, and that Purchaser has no duty, and Guarantor is not relying on Purchaser, at any time to disclose to Guarantor any information relating to the business operations or financial condition of Borrower.

12. Remedies. If Guarantor fails to fulfill its duty to pay all Indebtedness guaranteed hereunder, Purchaser shall have all of the remedies of a creditor and, to the extent applicable, of a secured party, under all applicable law. Without limiting the foregoing, Purchaser may, at its option and without notice or demand:

(a) declare any Indebtedness due and payable at once;

(b) take possession of any collateral pledged by Borrower, wherever located, and sell, resell, assign, transfer, and deliver all or any part of the collateral at any public or private sale or otherwise dispose of any or all of the collateral in its then condition, for cash or on credit or for future delivery, and in connection therewith Purchaser may impose reasonable conditions upon any such sale. Further, Purchaser, unless prohibited by law the provisions of which cannot be waived, may purchase all or any part of the collateral to be sold, free from and discharged of all trusts, claims, rights of redemption and equities of Borrower or Guarantor whatsoever. Guarantor acknowledges and agrees that the sale of any collateral through any nationally recognized broker-dealer, investment bank, or any other method common in the securities industry shall be deemed a commercially reasonable sale under the Uniform Commercial Code or any other equivalent statute or federal law, and expressly waive notice thereof except as provided herein; and

(c) set off against any or all liabilities of Guarantor all money owed by Purchaser or any of its agents or affiliates in any capacity to Guarantor, whether or not due, and also set off against all other liabilities of Guarantor to Purchaser all money owed by Purchaser in any capacity to Guarantor. If exercised by Purchaser, Purchaser shall be deemed to have exercised such right of setoff and to have made a charge against any such money immediately upon the occurrence of such default although made or entered on the books subsequent thereto.

-4-

13. Notices. All notices required under this Guaranty shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Guaranty, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as Purchaser and Guarantor may specify from time to time in writing. Notices sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day, and (c) telecopy shall be deemed delivered when transmitted.

14. Successors and Assigns. This Guaranty (a) binds Guarantor and Guarantor's successors, and assigns, provided that Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of Purchaser, and (b) inures to the benefit of Purchaser and Purchaser's successors, and assigns. Purchaser may, without notice to Guarantor and without affecting Guarantor' s obligations hereunder, sell, assign, grant participations in, or otherwise transfer to any other person, firm, or corporation the Indebtedness and this Guaranty, in whole or in part. Guarantor agrees that Purchaser may disclose to any assignee or purchaser, or any prospective assignee or purchaser, of all or part of the Indebtedness any and all information in Purchaser's possession concerning Guarantor, this Guaranty, and any security for this Guaranty.

15. Amendments, Waivers, and Severability. No provision of this Guaranty may be amended or waived except in writing. No failure by Purchaser to exercise, and no delay in exercising, any of its rights, remedies, or powers shall operate as a waiver thereof, and no single or partial exercise of any such right, remedy, or power shall preclude any other or further exercise thereof or the exercise of any other right, remedy, or power. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision of this Guaranty.

16. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys' fees, and all other costs and expenses that may be incurred by Purchaser (a) in the enforcement of this Guaranty or (b) in the preservation, protection, or enforcement of any rights of Purchaser in any case commenced by or against Guarantor or Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute.

17. Governing Law and Jurisdiction. This Guaranty shall be governed by and construed and enforced in accordance with federal law and the law of the State of New York.Jurisdiction and venue for any action or proceeding to enforce this Guaranty shall be the forum appropriate for such action or proceeding against Borrower, to which jurisdiction Guarantor irrevocably submit and to which venue Guarantor waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith. Service of process by Purchaser in connection with such action or proceeding shall be binding on Guarantor if sent to Guarantor by registered or certified mail at its address specified below.

-5-

18. FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

Executed this May 31, 2007

Guarantor:

E-OIR TECHNOLOGIES, INC.

By: /s/ Gino M. Pereira

Name: Gino M. Pereira

Title: Chief Financial Officer

Address for notices to Purchaser:	Address for notices to Guarantor:
One East 52nd Street, New York, NY 10022	10411 Motor City Drive, Suite 650,
	Bethesda, Maryland 20817

-6-

EX-10.7

Exhibit 10.7

BORROWER: Technest Holdings, Inc.

GUARANTOR: Genex Technologies Incorporated

GUARANTY

To:Shelter Island Opportunity Fund, LLC

1. The Guaranty. For valuable consideration, the undersigned ("Guarantor") hereby unconditionally guarantees and promises to pay on demand to Shelter Island Opportunity Fund, LLC, its successors and assigns (collectively, "Purchaser"), or order, in lawful money of the United States, any and all Indebtedness of Technest Holdings, Inc., a Nevada corporation ("Borrower"), to Purchaser when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter. The liability of Guarantor under this Guaranty includes, without limitation, liability for all interest, fees, indemnities (including, without limitation, hazardous waste indemnities), and other costs and expenses relating to or arising out of the Indebtedness. The liability of Guarantor is continuing and relates to any Indebtedness, including that arising under successive transactions which shall either continue the Indebtedness or from time to time renew it after it has been satisfied.

2. Definitions.

(a) "Borrower" shall mean the entity listed above.

(b) "Guarantor" shall mean the entity signing this Guaranty.

(c) "Indebtedness" shall mean any and all debts, liabilities, and obligations of Borrower to Purchaser, now or hereafter existing, including, without limitation, those arising under the Securities Purchase Agreement, dated the date hereof (the “Securities Purchase Agreement”), between the Borrower and Purchaser, and the $1,650,000 Secured Original Issue Discount Debenture issued by Borrower to Purchaser thereunder (the “Debenture”), whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, held or to be held by Purchaser for its own account or as agent for another or others, whether Borrower may be liable individually or jointly with others, whether recovery upon such debts, liabilities, and obligations may be or hereafter become barred by any statute of limitations, and whether such debts, liabilities, and obligations may be or hereafter become otherwise unenforceable, and includes without limitation, any and all obligations of Borrower to Purchaser for reasonable attorneys' fees and all other costs and expenses incurred by Purchaser in the collection or enforcement of any debts, liabilities, and obligations of Borrower to Purchaser.

-1-

3. Obligations Independent. The obligations hereunder are independent of the obligations of Borrower or any other guarantor, and a separate action or actions may be brought and prosecuted against Guarantor whether an action is brought against Borrower or any other guarantor or whether Borrower or any other guarantor be joined in any such action or actions.

4. Rights of Purchaser. Guarantor authorizes Purchaser, without notice or demand and without affecting its liability hereunder, from time to time in any manner authorized or permitted by the Transaction Documents (as such term is defined in the Securities Purchase Agreement) to:

(a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of any Transaction Document (as such term is defined in the Securities Purchase Agreement);

(b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security;

(c) apply such security and direct the order or manner of sale thereof as Purchaser in its discretion may determine; and

(d) release or substitute any guarantor or any one or more of any endorsers or other guarantor of any of the Indebtedness.

5. Guaranty to be Absolute. Guarantor agrees that Guarantor shall not be released hereunder by or because of the Purchaser taking, or failure to take, any action that might in any manner or to any extent vary the risks of Guarantor under this Guaranty in any manner or to any extent permitted by the Transaction Documents or that, but for this paragraph, might discharge or otherwise reduce, limit, or modify Guarantor's obligations under this Guaranty. Guarantor waives and surrenders any defense to any liability under this Guaranty based upon any such action, including but not limited to any action of Purchaser described in the immediately preceding paragraph of this Guaranty.

6. Guarantor's Waivers of Certain Rights and Certain Defenses. Guarantor waives:

(a) any right to require Purchaser to proceed against Borrower or any other guarantor of the Indebtedness, proceed against or exhaust any security for the Indebtedness, or pursue any other remedy in Purchaser's power whatsoever;

-2-

(b) any defense arising by reason of any disability or other defense of Borrower, or the cessation from any cause whatsoever of the liability of Borrower;

(c) any defense based on any claim that Guarantor’s obligations exceed or are more burdensome than those of Borrower; and

(d) the benefit of any statute of limitations affecting Guarantor's liability hereunder.

No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty.

7. Waiver of Subrogation. Until the Indebtedness has been paid in full, Guarantor waives to the extent permitted by applicable law any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory, or otherwise) including, without limitation, any claim or right of subrogation under the Bankruptcy Code (Title 11, United States Code) or any successor statute, arising from the existence or performance of this Guaranty, and Guarantor waives to the extent permitted by applicable lawany right to enforce any remedy that Purchaser now has or may hereafter have against Borrower, and waives any benefit of, and any right to participate in, any security now or hereafter held by Purchaser.

8. Waiver of Notices. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, notices of intent to accelerate, notices of acceleration, notices of any suit or any other action against Borrower or any other person, any other notices to any party liable on any Transaction Document (including Guarantor), notices of acceptance of this Guaranty, notices of the existence, creation, or incurring of new or additional Indebtedness to which this Guaranty applies or any other indebtedness of Borrower to Purchaser, and notices of any fact that might increase Guarantor’s risk.

9. Subordination. Any obligations of Borrower to Guarantor, now or hereafter existing, including but not limited to any obligations to Guarantor as subrogee of Purchaser or resulting from Guarantor’s performance under this Guaranty, are hereby subordinated to the Indebtedness (other than reasonable obligations of the Borrower to Guarantor for the payment of (i) services actually rendered or goods actually delivered by Guarantor and (ii) expenses paid by Guarantor on behalf of Borrower in the ordinary course of business related to Borrower’s reporting obligations as a public company). In addition to Guarantor's waiver of any right of subrogation as set forth in this Guaranty with respect to any obligations of Borrower to Guarantor as subrogee of Purchaser, Guarantor agrees that, if Purchaser so requests, Guarantor shall not demand, take, or receive from Borrower, by setoff or in any other manner, payment of any other obligations of Borrower to Guarantor (other than reasonable obligations of the Company to Guarantor for the payment of (i) services actually rendered or goods actually delivered by Guarantor and (ii) expenses paid by Guarantor on behalf of Borrower in the ordinary course of business related to Borrower’s reporting obligations as a public company) until the Indebtedness has been paid in full. If any payments are received by Guarantor in violation of such waiver or agreement, such payments shall be received by Guarantor as trustee for Purchaser and shall be paid over to Purchaser on account of the Indebtedness, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Any security interest, lien, or other encumbrance that Guarantor may now or hereafter have on any property of Borrower is hereby subordinated to any security interest, lien, or other encumbrance that Purchaser may have on any such property.

-3-

10. Stay of Acceleration. In the event that acceleration of the time for payment of any of the Indebtedness is stayed upon the insolvency, bankruptcy, or reorganization of Borrower or otherwise, all such Indebtedness guaranteed by Guarantor shall nonetheless be payable by Guarantor immediately if requested by Purchaser if such payment by Guarantor is not stayed as a result of such insolvency, bankruptcy or reorganization.

11. Information Relating to Borrower. Guarantor acknowledges and agrees that it shall have the sole responsibility for, and have adequate means of, obtaining from Borrower such information concerning Borrower's financial condition or business operations as Guarantor may require, and that Purchaser has no duty, and Guarantor is not relying on Purchaser, at any time to disclose to Guarantor any information relating to the business operations or financial condition of Borrower.

12. Remedies. If Guarantor fails to fulfill its duty to pay all Indebtedness guaranteed hereunder, Purchaser shall have all of the remedies of a creditor and, to the extent applicable, of a secured party, under all applicable law. Without limiting the foregoing, Purchaser may, at its option and without notice or demand:

(a) declare any Indebtedness due and payable at once;

(b) take possession of any collateral pledged by Borrower, wherever located, and sell, resell, assign, transfer, and deliver all or any part of the collateral at any public or private sale or otherwise dispose of any or all of the collateral in its then condition, for cash or on credit or for future delivery, and in connection therewith Purchaser may impose reasonable conditions upon any such sale. Further, Purchaser, unless prohibited by law the provisions of which cannot be waived, may purchase all or any part of the collateral to be sold, free from and discharged of all trusts, claims, rights of redemption and equities of Borrower or Guarantor whatsoever. Guarantor acknowledges and agrees that the sale of any collateral through any nationally recognized broker-dealer, investment bank, or any other method common in the securities industry shall be deemed a commercially reasonable sale under the Uniform Commercial Code or any other equivalent statute or federal law, and expressly waive notice thereof except as provided herein; and

(c) set off against any or all liabilities of Guarantor all money owed by Purchaser or any of its agents or affiliates in any capacity to Guarantor, whether or not due, and also set off against all other liabilities of Guarantor to Purchaser all money owed by Purchaser in any capacity to Guarantor. If exercised by Purchaser, Purchaser shall be deemed to have exercised such right of setoff and to have made a charge against any such money immediately upon the occurrence of such default although made or entered on the books subsequent thereto.

-4-

13. Notices. All notices required under this Guaranty shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Guaranty, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as Purchaser and Guarantor may specify from time to time in writing. Notices sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day, and (c) telecopy shall be deemed delivered when transmitted.

14. Successors and Assigns. This Guaranty (a) binds Guarantor and Guarantor's successors, and assigns, provided that Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of Purchaser, and (b) inures to the benefit of Purchaser and Purchaser's successors, and assigns. Purchaser may, without notice to Guarantor and without affecting Guarantor' s obligations hereunder, sell, assign, grant participations in, or otherwise transfer to any other person, firm, or corporation the Indebtedness and this Guaranty, in whole or in part. Guarantor agrees that Purchaser may disclose to any assignee or purchaser, or any prospective assignee or purchaser, of all or part of the Indebtedness any and all information in Purchaser's possession concerning Guarantor, this Guaranty, and any security for this Guaranty.

15. Amendments, Waivers, and Severability. No provision of this Guaranty may be amended or waived except in writing. No failure by Purchaser to exercise, and no delay in exercising, any of its rights, remedies, or powers shall operate as a waiver thereof, and no single or partial exercise of any such right, remedy, or power shall preclude any other or further exercise thereof or the exercise of any other right, remedy, or power. The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision of this Guaranty.

16. Costs and Expenses. Guarantor agrees to pay all reasonable attorneys' fees, and all other costs and expenses that may be incurred by Purchaser (a) in the enforcement of this Guaranty or (b) in the preservation, protection, or enforcement of any rights of Purchaser in any case commenced by or against Guarantor or Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute.

17. Governing Law and Jurisdiction. This Guaranty shall be governed by and construed and enforced in accordance with federal law and the law of the State of New York.Jurisdiction and venue for any action or proceeding to enforce this Guaranty shall be the forum appropriate for such action or proceeding against Borrower, to which jurisdiction Guarantor irrevocably submit and to which venue Guarantor waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith. Service of process by Purchaser in connection with such action or proceeding shall be binding on Guarantor if sent to Guarantor by registered or certified mail at its address specified below.

-5-

18. FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

Executed this May 31, 2007

Guarantor:

GENEX TECHNOLOGIES INCORPORATED

By: /s/ Gino M. Pereira  

Name: Gino M. Pereira

Title: Chief Financial Officer

Address for notices to Purchaser:	Address for notices to Guarantor:
One East 52nd Street, New York, NY 10022	10411 Motor City Drive, Suite 650,
	Bethesda, Maryland 20817

-6-

EX-10.8

Exhibit 10.8

AGREEMENT RELATING TO CERTAIN PROMISSORY NOTES

THIS AGREEMENTRELATING TO A CERTAIN PROMISSORY NOTES (the “Agreement”), dated as of May 31, 2007, between Technest Holdings, a Nevada corporation (“Technest”), E-OIR Technologies, Inc., a Virginia corporation (“EOIR” and collectively with Technest, the “Company”), and Joseph P. Mackin (the “Holder”) located in Fredericksburg, Virginia.

WITNESSETH THAT

WHEREAS, the Holder was a selling shareholder in that certain stock purchase agreement dated June 29, 2004 by and among Markland Technologies, a Florida corporation, EOIR and the owners of all of the capital stock of EOIR; and

WHEREAS, as consideration for selling his shares of EOIR to Markland, EOIR issued to the Holder a promissory note with a principal amount of $662,288 (the “Note”); and

WHEREAS, the current outstanding principal on the Note is $608,957.46; and

WHEREAS, repayment of the Note is secured by a security interest on all of the outstanding capital stock and assets of EOIR (the “Security Interest”) as well as a pledge of all of the outstanding capital stock of EOIR (the “Pledge”), which is currently subordinated to Silicon Valley Bank’s security interest; and

WHEREAS, Technest is the successor to Markland’s interest in EOIR; and

WHEREAS, Technest is undertaking a financing with Shelter Island Opportunity Fund, LLC (“Shelter Island”); and

WHEREAS, Shelter Island has conditioned its provision of financing on, among other things, its obtaining a second position security interest in all of the assets of Technest; and

WHEREAS, the Holder wishes, on the terms described in this Agreement and in accordance with the other documentation entered into between the Holder and Seller’s Representative, to subordinate the Security Interest to Shelter Island, subordinate the Holder’s right to receive payment in the event of default under Technest’s obligations to Shelter Island and the consideration to the Holder for such subordination is set forth herein;

THEREFORE, in consideration of the premises, the mutual agreements set forth below and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:

1.Subordination of the Security Interest. The Holder will subordinate his rights under the Security Interest and the Pledge to Shelter Island. In furtherance of this, the Holder agrees to deliver immediately to Technest one executed copy of the Subordination Agreement attached hereto as Exhibit A. For purposes of this Agreement, the Closing Date shall mean the closing date of the financing with Shelter Island.

1

2.Additional Payments. On the Closing Date, and simultaneously with the delivery of Subordination Agreement, as consideration for the subordination of the Security Interest to Shelter Island, the Company shall pay to the Holder, via wire transfer or check, at the option of the Company, the sum of $30,447.87, which represents five percent of the outstanding principal of the Note. On July 1, 2008, the Company shall pay the Holder, via wire transfer or check, at the option of the Company, the sum of $30,447.87 (the “Second Payment”). If the payment of the outstanding principal amount of the Note is accelerated in accordance with the terms of the Note prior to July 1, 2008, the Second Payment shall also become due and payable to the Holder.

3.Lack of Knowledge of Claims. The parties do hereby represent that as of the date of this Agreement, they are unaware of any unasserted claims they may have against any of the other parties hereto.

4.Governing law. This Agreement shall be governed by the laws of the Commonwealth of Virginia, without regard to the principles of conflicts of law thereof.

[The remainder of this page is intentionally left blank.]

2

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

/s/ Joseph P. Mackin   

Joseph P. Mackin

E-OIR TECHNOLOGIES, INC.

By: /s/ Gino M. Pereira   

Name: Gino M. Pereira

Title: Chief Financial Officer

TECHNEST HOLDINGS, INC.

By: /s/ Gino M. Pereira   

Name: Gino M. Pereira

Title: Chief Financial Officer

3