EXHIBIT 10.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (the "Agreement") dated as of March 30, 1999 is
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among SM&A CORPORATION, a California corporation ("SM&A"), SYSTEMS INTEGRATION
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SOFTWARE, INC., a Delaware corporation ("SIS"), XXXX X. AND XXXXXXXX XXXXXX,
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XXXX X. AND XXXXXXX X. XXXXXXX, XXXXXXX X. AND XXXXXXX X. XXXXX, XXXXXXX X. AND
XXXXXXX X. XXXX, XXXXXX X. AND XXXXXX X. XXXXX, XXXXX XXXXX XXXXX and XXXXX X.
XXXXX (collectively, the "Shareholders"), XXXX X. XXXXXX, as the representative
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of the Shareholders (the "Shareholder Representative"), and FIRST AMERICAN TRUST
COMPANY, as escrow agent (the "Escrow Agent").
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PRELIMINARY STATEMENT
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Pursuant to an Agreement and Plan of Reorganization and Merger dated as of
March 30, 1999 (the "Merger Agreement"), by and among SM&A, SIS, SIS
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Acquisition, Inc., a wholly owned subsidiary of SM&A, and the Shareholders, SM&A
will acquire all of the outstanding shares of capital stock of SIS and will
acquire SIS through the merger of SIS with and into SIS Acquisition, Inc.
Capitalized terms used herein and not otherwise defined herein have the meanings
ascribed to them in the Merger Agreement.
The Shareholders have agreed to indemnify SM&A as provided in Article 10 of
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the Merger Agreement through the deposit of an aggregate amount of cash equal to
$417,123.71 (the "Escrow Funds") pursuant to Section 2.7 of the Merger
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Agreement. A list of the Shareholders and their pro rata interest in the Escrow
Funds is attached hereto as Schedule 3.1.
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The parties hereto agree as follows:
Establishment of Escrow.
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SM&A has delivered to the Escrow Agent and the Escrow Agent acknowledges
receipt of the Escrow Funds by wire transfer of immediately available funds.
The Escrow Funds shall be held in escrow in the name of the Escrow Agent or its
nominee, subject to the terms and conditions set forth herein.
The Escrow Agent shall invest the Escrow Funds held by it pursuant to this
Agreement in a PNC Temporary Fund Dollar account.
Amounts Earned on Escrow Funds; Tax Matters.
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All interest earned on the Escrow Funds shall be distributed pro rata to
the Shareholders on a quarterly basis. The parties agree that to the extent
required by applicable law, including Section 468B(g) of the Internal Revenue
Code of 1986, as amended (the "Code"), the Shareholders will include all
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interest earned on the Escrow Funds in their gross income for federal, state and
local income tax (collectively, "income tax") purposes and pay any income tax
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resulting therefrom.
Claims Against Escrow Funds.
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At any time or times prior to the Expiration Date (as defined in Section 5)
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SM&A may make claims against the Escrow Funds for amounts due for
indemnification under Article 10 of the Merger Agreement. SM&A shall notify the
Shareholder Representative and the Escrow Agent in writing of each such claim
("Notice of Claim"), including a brief description of the amount and nature of
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such claim. If the amount subject to the claim is unliquidated, SM&A shall make
a good faith estimate as to the amount of the claim for purposes of determining
the amount to be withheld from the Escrow Funds by the Escrow Agent if such
claim is not resolved or otherwise adjudicated by the Expiration Date. Such
good faith estimate shall be included in the Notice of Claim. If the
Shareholder Representative shall dispute a claim or SM&A's estimate as to the
amount of the claim, the Shareholder Representative shall give written notice
thereof to SM&A and to the Escrow Agent within 30 days after the date SM&A's
Notice of Claim was received by the Shareholder Representative, in which case
the Escrow Agent shall continue to hold the Escrow Funds in accordance with the
terms of this Agreement; otherwise, such liquidated claim ("Liquidated Claim")
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shall be deemed to have been acknowledged to be payable out of the Escrow Funds
in the full amount thereof as set forth in the Notice of Claim and the Escrow
Agent shall use its best efforts to pay such Liquidated Claim from the Escrow
Funds to SM&A within three business days after expiration of said 30-day period.
Unliquidated claims shall not be paid until liquidated. Disputes as to SM&A's
good faith estimate of a claim shall be resolved as provided in Section 4.1.
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The value of Escrow Funds paid to satisfy a claim under this Agreement shall be
allocated pro rata among the Shareholders based on their proportionate interests
in the aggregate Escrow Funds, as indicated in Schedule 3.1 hereto. With
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respect to each Shareholder, the amount paid to satisfy a claim under this
Agreement shall be deducted from the Escrow Funds allocable to such
Shareholder. If the amount of the claim exceeds the aggregate value of the
Escrow Funds subject thereto, the Escrow Agent shall have no liability or
responsibility for any deficiency. The parties hereto acknowledge and agree that
payment of all or any portion of the Escrow Funds may not occur until the Basket
Amount of $35,000, on a threshold basis, is exceeded.
The Escrow Agent shall effect the payment of the Liquidated Claim to SM&A
by wire transfer in immediately available funds to an account designed by SM&A
in writing to the Escrow Agent in the Notice of Claim.
If the Shareholder Representative shall give notice to SM&A and the Escrow
Agent pursuant to Section 3.1 disputing an SM&A claim, no distribution of the
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Escrow Funds shall be made by the Escrow Agent to SM&A or to the Shareholders of
the Set Aside Amount (as defined in Section 4.1) with respect to such claim
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until either: (i) such disputed claim has been resolved as evidenced by a
written notice executed by SM&A and the Shareholder Representative instructing
the Escrow Agent as to the distribution of such Set Aside Amount or a portion
thereof; or (ii) such dispute shall have been adjudicated in accordance with the
arbitration procedures described in Section 4.2.
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Disputed Claims.
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If the Shareholder Representative shall dispute an indemnification claim of
SM&A as provided in Section 3, the Escrow Agent shall set aside a portion of the
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Escrow Funds equal to the amount of the claim as set forth in the Notice of
Claim (the "Set Aside Amount"), which amount may subsequently be modified by
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arbitration. If the Shareholder Representative shall dispute the Set Aside
Amount as provided in Section 3, the Escrow Funds constituting the Set Aside
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Amount shall be withheld pursuant to the immediately preceding sentence until
otherwise determined by arbitration. The Set Aside Amount shall be allocated
pro rata among the Shareholders based upon their percentage interests in the
aggregate Escrow Funds, as indicated in Schedule 3.1 hereto. With respect to
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each Shareholder, the amount constituting the Set Aside Amount shall be
deducted, to the extent necessary, from the Escrow Funds allocable to such
Shareholder. In the event SM&A notifies the Escrow Agent in writing that it has
made out-of-pocket expenditures or anticipates that it will incur legal expenses
in connection with any such disputed claim with respect to which it is entitled
to be indemnified under the Merger Agreement, a portion of the Escrow Funds
equal to such reasonable incurred or anticipated expenditures shall also be set
aside and added to and become a part of the Set Aside Amount; provided, that in
the event that it shall be agreed (as evidenced by a written notice executed by
SM&A and the Shareholder Representative as described in Section 3.3) or
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determined through an arbitration proceeding described in Section 4.2 that SM&A
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is not entitled to indemnification with respect to such claim or such expenses,
SM&A shall not be entitled to the portion of the Escrow Funds set aside for such
expenses.
If, within 60 days after the Shareholder Representative sends a notice of a
dispute, the Escrow Agent has not received written notice executed by SM&A and
the Shareholder Representative to the effect that the disputed indemnification
claim has been resolved, the indemnification claim shall be referred to an
arbitrator chosen by agreement of the Shareholder Representative and SM&A. If
no agreement is reached regarding selection of the arbitrator within 30 days
after written request from either party to the other, SM&A or the Shareholder
Representative may submit the matter in dispute to the Judicial Arbitration and
Mediation Service, to be settled by arbitration in Orange County, California in
accordance with the commercial arbitration rules of such association. SM&A and
the Shareholder Representative agree to act in good faith to select mutually an
arbitrator. The fees and expenses of any arbitration shall be borne equally by
the Shareholders as a group and SM&A, unless and until the arbitrator determines
otherwise. Any fees or expenses attributable to the Shareholders as a group
shall be payable only out of the Escrow Funds. In no event shall the Escrow
Agent be responsible for any fees or expenses of any party to any arbitration
proceedings. The determination of the arbitrator as to the amount, if any, of
the indemnification claim that is properly allowable shall be conclusive and
binding upon the parties hereto and judgment may be entered thereon in any court
having jurisdiction thereof, including, without limitation, any Superior Court
in the State of California. The Escrow Agent shall make payments of such claim,
as and to the extent allowed, to SM&A within three business days following its
receipt of a copy of the arbitration award determination.
Termination and Distribution of Escrow Funds.
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This Agreement shall terminate one (1) year after the Effective Time (as
defined in Section 1.2 of the Merger Agreement) (the "Expiration Date");
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provided that this Agreement shall continue in effect until the resolution of
all outstanding indemnification claims as to which the Escrow Agent has received
notice pursuant to Section 3 hereof on or prior to the Expiration Date.
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SM&A shall provide the Escrow Agent with reasonable advance notice of the
expected Expiration Date and shall confirm the occurrence of such as soon as
practicable thereafter. On the Expiration Date or as soon thereafter as is
practicable, the Escrow Agent shall distribute to the Shareholders based on
their relative percentage interest in the Escrow Funds as indicated in Schedule
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3.1 hereto the remaining Escrow Funds less (i) an amount of Escrow Funds equal
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to any then existing Set Aside Amounts, and (ii) an amount of Escrow Funds equal
to the amount specified in any Notice of Claim delivered to the Escrow Agent
prior to the Expiration Date with respect to which no Set Aside Amount has yet
been established and the Escrow Agent has not otherwise been instructed by SM&A
and the Shareholder Representative. At such time thereafter as any remaining
indemnification claim hereunder has been resolved and the Escrow Agent has
received a written notice executed by SM&A and the Shareholder Representative to
that effect (or a copy of an arbitration award pursuant to Section 4.2 to that
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effect) and any amounts to be distributed to SM&A in connection therewith have
been so distributed, the Escrow Agent shall distribute any portion of the
remaining Escrow Funds withheld in respect of such claim to the Shareholders
based on their relative percentage interest in such Escrow Funds, as indicated
in Schedule 3.1 hereto. Upon the resolution of all outstanding indemnification
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claims hereunder, the Escrow Agent shall distribute the remaining amount, if
any, of the Escrow Funds to the Shareholders based on their relative percentage
interest in the Escrow Funds as indicated in Schedule 3.1 hereto and this
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Agreement shall terminate. The Escrow Agent shall effect such distributions of
Escrow Funds in accordance with the written instructions of the Shareholder
Representative.
The Escrow Agent.
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Notwithstanding anything herein to the contrary, the Escrow Agent shall
promptly dispose of all or any part of the Escrow Funds as directed by a writing
jointly signed by SM&A and the Shareholder Representative. The reasonable fees
and expenses of the Escrow Agent (as set forth on the fee schedule attached
hereto as Schedule 6.1) in connection with its performance of this Agreement
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shall be borne by SM&A. The Escrow Agent shall not be liable for any act or
omission to act under this Agreement, including any and all claims made against
the Escrow Agent as a result of its holding the Escrow Funds in its own name,
except for its own negligence or willful misconduct and SM&A and the
Shareholders (and with respect to each Shareholder, only to the extent of their
proportionate share of the Escrow Funds) shall jointly and severally indemnify,
defend and hold harmless Escrow Agent and its affiliates, agents, employees,
contractors, successors and assigns from and against any and all claims,
damages, demands, liens, claims of lien, losses, actions or liability of any
kind or nature whatsoever, which Escrow Agent may sustain, incur or be subjected
to or which may be imposed on Escrow Agent including, without limitation,
reasonable attorneys' fees and litigation costs, to the extent they arise out of
or are connected with this Escrow Agreement, unless arising from the negligence
or willful misconduct of Escrow Agent. The provisions of this indemnification
shall survive the termination of this Escrow Agreement. The Escrow Agent may
decline to act and shall not be liable for failure to act if in doubt as to its
duties under this Agreement. The Escrow Agent may act upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give any notice or instruction hereunder, reasonably believed by it to be
authorized, has been duly authorized to do so. The Escrow Agent's duties shall
be determined only with reference to this Agreement and applicable laws, and the
Escrow Agent is not charged with knowledge of or any duties or responsibilities
in connection with any other document or agreement, including, but not limited
to, the Merger Agreement. In the event of a dispute arising out of or in
connection with this Escrow Agreement involving the Escrow Agent, all legal
representation required to defend the Escrow Agent shall be provided at the
joint and several expense of SM&A and the Shareholders (payable out of the
Escrow Funds to the extent of their proportionate share of the Escrow Funds).
The Escrow Agent shall have the right at any time to resign hereunder by
giving written notice of its resignation to the parties hereto, at the addresses
set forth herein or at such other address as the parties shall provide, at least
30 days prior to the date specified for such resignation to take effect. In
addition, the Escrow Agent shall have the right to resign hereunder immediately
by written notice to the parties hereto if the fees of Escrow Agent are not paid
when due. In such event SM&A and the Shareholder Representative shall by
agreement appoint a successor escrow agent within said 30 days; if SM&A and the
Shareholder Representative do not agree upon the selection of a successor escrow
agent within such period, the Escrow Agent may appoint a successor escrow agent.
Upon the effective date of such resignation, the Escrow Funds together with all
other property then held by the Escrow Agent hereunder, shall be deposited with
such successor escrow agent or as otherwise shall be designated in writing by
SM&A and the Shareholder Representative. In addition, the Escrow Agent shall
have the right to resign hereunder immediately by written notice to the parties
hereto if the fees and expenses of Escrow Agent (as set forth on the fee
schedule attached hereto as Schedule 6.1) are not paid when due.
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In the event that the Escrow Agent should at any time be confronted with
inconsistent or conflicting claims or demands by the parties hereto, the Escrow
Agent shall have the right to interplead said parties in any court of competent
jurisdiction and request that such court determine the respective rights of such
parties with respect to this Agreement and, upon doing so, the Escrow Agent
shall be released from any obligations or liability to either party as a
consequence of any such claims or demands. The reasonable fees and costs
incurred by the Escrow Agent in interpleading said parties shall be borne
equally by SM&A and the Shareholders as a group.
The Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder, either directly or by or through
its agents or attorneys. The Escrow Agent shall not be responsible for and
shall not be under a duty to examine, inquire into or pass upon the
validity, binding effect, execution or sufficiency of this Agreement or of any
amendment or supplement hereto.
Shareholder Representative.
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Pursuant to a Shareholder Representative Agreement and Power-of-Attorney
dated of even date herewith, the Shareholders have designated Xxxx X. Xxxxxx, as
their authorized representative and attorney-in-fact to undertaken and perform
in their name and on their behalf the duties and responsibilities of the
Shareholder Representative set forth in this Agreement. The Shareholder
Representative accepts and agrees to discharge diligently the duties and
responsibilities of the SIS Representative set forth in this Agreement. SM&A
and the Escrow Agent shall be entitled to rely upon the authorization and
designation of the Shareholder Representative under this Section 7.
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The Shareholder Representative is authorized to take any action he deems
appropriate or necessary to carry out the provisions of, and to determine the
rights of the Shareholders under, this Agreement, including without limitation,
taking any action required or permitted under this Agreement to protect or
enforce the Shareholders' rights to the Escrow Funds. The SIS Representative's
authority includes but is not limited to:
15.12.1 receiving all notices or other documents given or to be given
pursuant to this Agreement or in connection with the transactions
contemplated hereby;
15.12.2 engaging special counsel, accountants, investment banks or
other advisors;
15.12.3 prosecuting and settling any dispute in connection with this
Agreement, including without limitation the resolution of any disputes
related to disbursements of the Escrow Funds; and
15.12.4 paying all expenses incurred in connection with this
Agreement and the transactions contemplated hereby out of the Escrow Funds
pursuant to Sections 7.5 and 7.8 below.
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In the event of the death, resignation, discharge or incapacity of the
Shareholder Representative, Shareholders holding a majority in interest with
respect to the Escrow Funds shall appoint a successor Shareholder
Representative. Such successor Shareholder Representative shall be appointed by
an instrument in writing signed by the requisite Shareholders, and such
appointment shall become effective as to any such successor Shareholder
Representative when such instrument shall have been delivered to such person,
and that person has consented to such appointment.
The Shareholder Representative shall keep the Shareholders reasonably
informed of his decisions of a material nature.
The reasonable expenses (including the reasonable fees and disbursements of
counsel, accountants and advisors in connection with the arbitration of a
disputed claim or otherwise) incurred by the Shareholder Representative in
connection with his duties hereunder shall be paid for out of the Escrow Funds
by the Escrow Agent as provided in Section 7.8 below and in an amount not to
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exceed $25,000. The Shareholder Representative shall keep adequate and
reasonable books and records of his expenses. Such payment shall not affect the
rights of either SM&A or the Shareholders under the Merger Agreement or Section
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11 of this Agreement.
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The Shareholder Representative shall diligently discharge his duties and
responsibilities under this Agreement. The Shareholder Representative shall not
be liable to the parties hereto or any Shareholder for any action taken or
omitted by the Shareholder Representative in good faith, or for any mistake of
fact or law, unless caused by his own gross negligence or willful misconduct.
In no event shall the Shareholder Representative be responsible or liable for
special, indirect or consequential loss or damages of any kind, regardless of
the form of the action.
The Shareholder Representative shall be entitled to treat as genuine any
letter or other document furnished to him by SM&A or the Escrow Agent and
reasonably believed by him to be genuine and have been signed and presented by
the proper party or parties.
The Shareholder Representative shall not be entitled to any compensation
for services hereunder. To the extent the Shareholder Representative shall
incur out-of-pocket costs (including the reasonable fees and disbursements of
counsel, accountants and advisors in connection with the arbitration of a
disputed claim or otherwise) in the performance of his duties hereunder, the
Shareholder Representative shall be authorized to direct the Escrow Agent to
reimburse the Shareholder Representative for such reasonable expenses out of the
Escrow Funds in an amount not to exceed $25,000.
SM&A shall be entitled to treat as genuine any letter or other document
furnished to it by the Shareholder Representative or the Escrow Agent and
reasonably believed by it to be genuine and have been signed and presented by
the proper party or parties.
Governing Law.
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This Agreement is governed by the laws of the State of California without
regard to its conflict of laws provisions, and shall inure to the benefit of and
be binding upon the successors, assigns, heirs and personal representatives of
the parties hereto. Service of process in any proceeding arising under this
Agreement (including service of process for the institution of such proceeding)
may be made by certified mail, return receipt requested, directed to the
respective party in accordance with Section 10 below.
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Counterparts.
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This Agreement may be executed in one or more counterparts, all of which
documents shall be considered one and the same document.
Notices.
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Any notice or other communication required or permitted hereunder shall be
in writing and shall be deemed given when so delivered in person, by overnight
courier, by facsimile transmission (with receipt confirmed by telephone or by
automatic transmission report) or two business days after being sent by
registered or certified mail (postage prepaid, return receipt requested), as
follows:
To SM&A: SM&A CORPORATION.
0000 XxxXxxxxx Xxxxxxxxx, Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Chief Operating Officer
Telephone: 000-000-0000
Fax: 000-000-0000
With a copy to: Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, 00xx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Telephone: 000-000-0000
Fax: 000-000-0000
To SIS: SYSTEMS INTEGRATION SOFTWARE, INC.
000 X. Xxxxx Xxxxxx, Xxxxx "X"
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
To the Shareholders: c/o Xxxx X. Xxxxxx
SYSTEMS INTEGRATION SOFTWARE, INC.
000 X. Xxxxx Xxxxxx, Xxxxx "X"
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Telephone: (000) 000-0000
Fax: (000) 000-0000
To Escrow Agent: First American Trust Company
0000 Xxx Xxxxxxx Xxxxx Xxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxxxx X. Xxxxxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
Addresses may be changed by written notice given pursuant to this section. Any
notice given hereunder may be given on behalf of any party by his counsel or
other authorized representative.
Attorney's Fees.
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In the event of any litigation among the parties hereto (including, without
limitation, any arbitration proceeding described in Section 4.2 above), the
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prevailing party in such litigation or proceeding shall be entitled to recover
all costs incurred in connection therewith, including, without limitation,
reasonable attorneys fees, provided that the costs of any arbitration proceeding
shall be allocated in the manner set forth in Section 4.2.
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IN WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement
as of the date first stated above.
SM&A: SM&A CORPORATION,
a California corporation
By:
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Xxxxxxx X. Xxxxxxx, Chief Operating Officer
and President
SIS: SYSTEMS INTEGRATION SOFTWARE, INC.,
a Delaware corporation
By:
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Xxxx X. Xxxxxx, President
ESCROW AGENT: FIRST AMERICAN TRUST COMPANY
By:
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Its:
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By:
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Its:
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SHAREHOLDER REPRESENTATIVE:
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Xxxx X. Xxxxxx
[SIGNATURES OF SHAREHOLDERS CONTAINED ON FOLLOWING PAGE]
SHAREHOLDERS:
___________________________________ ________________________________
Xxxx X. Xxxxxx Xxxxxx X. Xxxxx
___________________________________ ________________________________
Xxxxxxxx Xxxxxx Xxxxxx X. Xxxxx
___________________________________ ________________________________
Xxxx X. Xxxxxxx Xxxxx Xxxxx Xxxxx
___________________________________ ________________________________
Xxxxxxx X. Xxxxxxx Xxxxx X. Xxxxx
__________________________________
Xxxxxxx X. Xxxxx
__________________________________
Xxxxxxx X. Xxxxx
__________________________________
Xxxxxxx X. Xxxx
__________________________________
Xxxxxxx X. Xxxx
SCHEDULE 3.1
ESCROW INTERESTS
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Percentage
Name of Shareholder Interest In Escrow Funds
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XXXX X. AND XXXXXXXX XXXXXX 22.66 %
XXXX X. AND XXXXXXX X. XXXXXXX 13.84
XXXXXXX X. AND XXXXXXX X. XXXXX 17.64
XXXXXXX X. AND XXXXXXX X. XXXX 17.25
XXXXXX X. AND XXXXXX X. XXXXX 17.17
XXXXX XXXXX XXXXX 5.72
XXXXX X. XXXXX 5.72
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100.00 %
