Summary of TECHNEST HOLDINGS INC

ITEM 1.01 Entry into a Material Definitive Agreement

On August 31, 2007, Technest Holdings, Inc. (the "Company" or "Technest") entered into a Release Agreement with Southridge Partners, LP, a Delaware limited partnership ("Southridge"), a current stockholder of the Company, pursuant to which the parties agreed, among other things, to the following:

Termination of Certain Sections of Stockholder Agreement and of License Agreement. Technest and Markland Technologies, Inc. ("Markland") were parties to a Stockholder Agreement, dated March 13, 2006 (the "Stockholder Agreement"), and a License Agreement dated March 13, 2006 (the "License Agreement"). Pursuant to an Assignment and Assumption Agreement dated as of August 30, 2007 between Markland and Southridge, Markland assigned all of its rights in the Stockholder Agreement and the License Agreement to Southridge. As part of the Release Agreement, Southridge and Technest agreed to (a) terminate the obligations set forth in Section 1 of the Stockholder Agreement that restrict the ability of Technest to issue equity securities, convertible debt or derivative securities,
(b) terminate the obligations set forth in Section 5 of the Stockholder Agreement relating to a right of co-sale and (c) terminate the License Agreement in its entirety. All rights, title and interest in the intellectual property that were subject to the License Agreement revert back to Technest and its subsidiaries.

Voting Agreement. Southridge agreed that it will vote all shares of Technest Common Stock owned by it and to cause its Affiliates that own shares of Technest Common Stock or Technest Preferred Stock to vote all of their shares, in favor of certain transactions entered into by September 10, 2007 that are approved and recommended by a majority of the directors of Technest under certain conditions.

Board Representation. The Board of Directors of Technest agreed to increase the size of the board from five to six and fix the number of directors of Technest at six and to elect two reasonably qualified individuals representing Southridge to fill the newly created directorships in accordance with Technest's Bylaws.

Other Terms. Until March 31, 2008 or upon the satisfaction of certain conditions, whichever is earlier, Technest agreed that it would refrain from (a) issuing any shares of its Common Stock or securities convertible into its Common Stock, other than (i) shares to be issued in certain permissible offerings; (ii) certain shares already awarded under Technest's 2006 Stock Award Plan, and (iii) 250,000 shares to be issued under the 2006 Stock Award Plan; or (b) entering into any transaction with its officers, directors, stockholders or any of their Affiliates, except for transactions that are in the ordinary course of Technest's business, upon fair and reasonable terms that are no less favorable to Technest than would be obtained in an arm's length transaction with a non-Affiliated person or entity.

The above description summarizes the material terms of the Release Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated by reference herein. For further information on the Release Agreement, please refer to Exhibit 10.1.

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