SETTLEMENT AGREEMENT AND MUTUAL RELEASE

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

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

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

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

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

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

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

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

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

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

2.            Guarantee.   EOIR shall absolutely, unconditionally and irrevocably guarantee full and prompt performance of all of the obligations of Holdings under this Agreement. Until such time as Holdings has either met its obligation to pay to Technest the sum of $5,000,000 under subparagraph