EXHIBIT 10.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") dated as of September 20, 1999 is
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among SM&A CORPORATION (EAST), a California corporation ("SM&A"), KAPOS
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ASSOCIATES INC., a Virginia corporation ("KAI"), XXXXX XXXXX and XXXX XXXXX
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(collectively, the "Shareholders"), XXXXX XXXXX, as the representative of the
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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 a Stock Purchase Agreement dated as of September 20, 1999 (the
"Purchase Agreement"), by and among SM&A, KAI, the Shareholders and the
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Additional Founders named therein, SM&A will acquire all of the outstanding
shares of capital stock of KAI. Capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to them in the Purchase Agreement.
The Shareholders have agreed to indemnify SM&A as provided in Article 10 of
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the Purchase Agreement through the deposit of an aggregate amount of cash equal
to $300,000.00 (the "Escrow Funds") pursuant to Section 2.3 of the Purchase
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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:
1. 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 money market account.
2. 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.
3. Claims Against Escrow Funds.
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3.1 At any time or times prior to the Expiration Date (as defined in
Section 5), SM&A may make claims against the Escrow Funds for amounts due for
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indemnification under Article 10 of the Purchase Agreement. SM&A shall notify
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the Shareholder Representative and the Escrow Agent in writing of each such
claim ("Notice of Claim"), including a brief description of the amount and
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nature of 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. The
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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 respect
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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.
3.2 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.
3.3 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
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the 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
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such claim 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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4. Disputed Claims.
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4.1 If the Shareholder Representative shall dispute an indemnification
claim of SM&A as provided in Section 3, the Escrow Agent shall set aside a
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portion of the 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
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modified by arbitration. If the Shareholder Representative shall dispute the Set
Aside
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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 Purchase 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.
4.2 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
arbitrated pursuant to Article 14 of the Purchase Agreement, which is
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incorporated herein by this reference. In no event shall the Escrow Agent be
responsible for any fees or expenses of any party to any arbitration
proceedings. 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.
5. Termination and Distribution of Escrow Funds.
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5.1 This Agreement shall terminate one (1) year after the Closing Date (as
defined in Section 3.1 of the Purchase 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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5.2 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. Immediately following the Expiration Date, the Escrow
Agent shall distribute to the Shareholders based on their relative percentage
interest in the Escrow Funds as indicated in Schedule 3.1 hereto the remaining
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Escrow Funds less (i) an amount of Escrow Funds equal 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 effect) and any amounts to
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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
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such Escrow Funds, as indicated in Schedule 3.1 hereto. Upon the resolution
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of all outstanding indemnification 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 Agreement shall terminate. The Escrow Agent shall
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effect such distributions of Escrow Funds in accordance with the written
instructions of the Shareholder Representative.
6. The Escrow Agent.
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6.1 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
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this Agreement 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 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 Purchase
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.
6.2 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, if any, 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
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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
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when due. The other parties hereto reserve the right to remove the Escrow Agent
by joint written notice at any time; provided that such notice is given to the
Escrow Agent at least thirty (30) days prior to the effectiveness of such
removal.
6.3 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.
6.4 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.
7. Shareholder Representative.
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7.1 The Shareholders hereby designate Xxxxx Xxxxx as their authorized
representative and attorney-in-fact to undertake 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 Shareholder 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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7.2 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 Shareholder
Representative's authority includes but is not limited to:
(a) receiving all notices or other documents given or to be given
pursuant to this Agreement or in connection with the transactions
contemplated hereby;
(b) engaging special counsel, accountants, investment banks or other
advisors;
(c) 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
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(d) paying all expenses of the Shareholders incurred in connection
with this Agreement and the transactions contemplated hereby.
7.3 In the event of the death, resignation, discharge or incapacity of the
Shareholder Representative, Xxxx Xxxxx shall be treated as the successor
Shareholder Representative.
7.4 The Shareholder Representative shall keep the Shareholders reasonably
informed of his decisions of a material nature.
7.5 The Shareholder Representative shall diligently discharge his duties
and responsibilities under this Agreement. The Shareholder Representative shall
not be liable to 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.
7.6 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.
7.7 The Shareholder Representative shall not be entitled to any
compensation for services hereunder.
7.8 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.
8. 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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9. 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 instrument.
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10. Benefit and Assignment. This Agreement shall be binding upon and shall
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inure to the benefit of the parties hereto and their respective successors and
permitted assigns. No person or entity other than the parties hereto or their
respective successors and permitted assigns is or shall be entitled to bring any
action to enforce any provision of this Agreement against any of the parties
hereto or their respective successors or permitted assigns, and the covenants
and agreements set forth in this Agreement shall be solely for the benefit of,
and shall be enforceable only by, the parties hereto or their respective
successors or permitted assigns. No party to this Agreement may assign this
Agreement or any rights hereunder without the prior written consent of the other
parties hereto.
11. Entire Agreement; Amendment. This Agreement, together with the Purchase
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Agreement and the exhibits and schedules hereto and thereto, contain all the
terms agreed upon by the parties with respect to the escrow arrangement that is
the subject matter hereof and supersede all prior oral or written agreements,
commitments or understandings with respect to such matters. This Agreement may
be amended only by a written instrument signed by each of the parties hereto.
12. Additional Actions and Documents. Each of the parties hereto agrees to take
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or cause to be taken such further actions, to execute, deliver and file or cause
to be executed, delivered and filed such further documents and instruments, and
to use best efforts to obtain such consents, as may be necessary or as may be
reasonably requested in order to fully effectuate the purposes, terms and
conditions of this Agreement.
13. Headings. The headings of the sections and subsections of this Agreement
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are for purposes of reference only and do not evidence the intentions of the
parties.
14. Severability. In the event that a court or arbitrator of competent
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jurisdiction holds that a particular provision or requirement of this Agreement
is in violation of any applicable law, each such provision or requirement shall
be enforced only to the extent it is not in violation of such law or is not
otherwise unenforceable, and all other provisions and requirements of this
Agreement shall remain in full force and effect.
15. 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 nationally-
recognized overnight delivery service, 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 (East)
0000 XxxXxxxxx Xxxxxxxxx, Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
Telephone: 000-000-0000
Fax: 000-000-0000
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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 KAI: Kapos Associates Inc.
c/o SM&A Corporation (East)
0000 XxxXxxxxx Xxxxxxxxx, Xxxxxx Xxxxx
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: President
Telephone: 000-000-0000
Fax: 000-000-0000
To the Shareholders: c/o Xxxxx Xxxxx
000 Xxxxxx Xxx Xxxx
XxXxxx, Xxxxxxxx 00000
Telephone: 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.
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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 (EAST),
a California corporation
By:__________________________________
Xxxxxxx X. Xxxxxxx, President
KAI: KAPOS ASSOCIATES INC.,
a Virginia corporation
By:__________________________________
Its:_____________________________
ESCROW AGENT: FIRST AMERICAN TRUST COMPANY
By:__________________________________
Its:_____________________________
By:__________________________________
Its:_____________________________
SHAREHOLDER REPRESENTATIVE:
_________________________________________
Xxxxx Xxxxx
SHAREHOLDERS:
_____________________________ _________________________________________
Xxxxx Xxxxx Xxxx Xxxxx
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