Document:

Exhibit
10.1

THIRD AMENDMENT TO

CREDIT AGREEMENT

This THIRD AMENDMENT TO
CREDIT AGREEMENT (this “Amendment”), effective as of March __,
2007, is entered into by and among Asbury
Automotive Group, Inc. (the “Company”),
each of the subsidiaries of the Company listed on the signature pages hereof
(the “Floor Plan Borrowers”), each of the Lenders listed on the
signature pages hereof (the “Lenders”), JPMorgan Chase Bank, N.A., as Administrative Agent for the
Lenders (the “Agent”), JPMorgan Chase
Bank, N.A., as Floor Plan Agent for the Lenders (the “Floor Plan
Agent”) and Bank of America, N.A.,
as Syndication Agent.

PRELIMINARY
STATEMENT

WHEREAS,
the Company, the Floor Plan Borrowers, the Lenders, the Agent, the Floor Plan
Agent and the Syndication Agent entered into that certain Revolving Credit
Agreement dated March 23, 2005 (as amended, the “Credit Agreement”),
under the terms of which such Lenders agreed to make available to the Company
(a) a revolving credit commitment not to exceed at any time $150,000,000.00 and
(b) a floor plan loan commitment not to exceed $650,000,000.00; and

WHEREAS,
pursuant to the First Amendment to Credit Agreement and Waiver, effective March
1, 2006, all the parties thereto agreed to reduce the revolving credit
commitment to $125,000,000 and the floor plan commitment to $425,000,000; and

WHEREAS,
pursuant to the Second Amendment to Credit Agreement certain other
provisions  of the Credit Agreement were
amended; and

WHEREAS,
the Company and the Floor Plan Borrowers have requested the Lenders, the Agent
and the Floor Plan Agent to amend certain provisions of the Credit Agreement;
and

WHEREAS,
the Lenders, the Agent and the Floor Plan Agent have agreed to do so to the
extent reflected in this Amendment.

NOW,
THEREFORE, in consideration of the premises and for other
good and valuable consideration and the mutual benefits, covenants and
agreements herein expressed, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:

1.   Defined Terms.   All
capitalized terms used in this Amendment and not otherwise defined herein shall
have the meanings ascribed to such terms in the Credit Agreement.

2.   Amendments to
Section 1.1.   (a)  Section
1.1 of the Credit Agreement is hereby amended by restating the definition
of “Restricted Payment” contained therein, to read as follows:

 

“Restricted Payment” means, as to
any Person, any dividend or other distribution of assets, properties, cash,
rights, obligations or securities made by such Person or any Subsidiary of such
Person on account of shares of such Person’s capital stock, or any partnership
interest or similar ownership interest in such Person, or any purchase,
retirement, redemption or other acquisition made by such Person or any Subsidiary
of such Person of any of such Person’s capital stock, partnership interest or
similar ownership interest or warrants, rights or options evidencing a right to
acquire such shares or interests. 
Notwithstanding the foregoing, (i) any cash payment constituting the
return of principal or cash in lieu of fractional shares in respect of
convertible Indebtedness shall not constitute a Restricted Payment and (ii)
only the net cash payment by the Company in respect of any contracts or other
agreements entered into to hedge the conversion price of convertible
Indebtedness shall constitute a Restricted Payment.

(b)   Section 1.1   of
the Credit Agreement is hereby amended by restating the definition of “Subordinated
Indebtedness” contained therein to provide that Subordinated Indebtedness
cannot have a final, stated maturity earlier than the Maturity Date by
inserting the words “final, stated” in the definition, to read as follows:

“Subordinated Indebtedness” means
unsecured subordinated Indebtedness of the Company (which may be guaranteed by
the Subsidiaries of  the Company on an
unsecured basis) provided, such
Indebtedness (a) is subordinated to payment of the Obligations on terms
that are, in the aggregate, no less favorable to the holders of the senior
indebtedness in any material respect than the subordination provisions
contained in the Indenture, (b) does not have a final, stated maturity
earlier than the Maturity Date, and (c) has terms that are no more
restrictive than the terms of the Loan Documents, and further provided, after
giving effect to the issuance of such Indebtedness, no Event of Default shall
have occurred and be continuing or would occur as a result thereof.

3.   Ratification.   The
Company and each of the Floor Plan Borrowers hereby ratify all of its
Obligations under the Credit Agreement and each of the Loan Documents to which
it is a party, and agrees and acknowledges that the Credit Agreement and each
of the Loan Documents to which it is a party are and shall continue to be in
full force and effect as amended and modified by this Amendment.  Nothing in this Amendment extinguishes,
novates or releases any right, claim, lien, security interest or entitlement of
any of the Lenders, the Agent or the Floor Plan Agent created by or contained
in any of such documents nor is the Company nor any Floor Plan Borrower
released from any covenant, warranty or obligation created by or contained
herein or therein.

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4.   Representations
and Warranties.   The Company and each of the Floor Plan Borrowers
hereby represents and warrants to the Administrative Agent and the Lenders that
(a) this Amendment has been duly executed and delivered on behalf of the
Company and each of the Floor Plan Borrowers, (b) this Amendment
constitutes a valid and legally binding agreement enforceable against the
Company and each of the Floor Plan Borrowers in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law, (c) the representations and
warranties contained in the Credit Agreement and the Loan Documents are true
and correct on and as of the date hereof in all material respects as though
made as of the date hereof, except as heretofore otherwise disclosed in writing
to the Agent, (d) no Default or Event of Default exists under the Credit
Agreement or under any Loan Document and (e) the execution, delivery and
performance of this Amendment has been duly authorized by the Company and each
of the Floor Plan Borrowers.

5.   Conditions to
Effectiveness.   This Amendment shall be effective upon the execution
and delivery hereof by all parties to the Agent and receipt by the Agent of the
following in form satisfactory to the Agent:

(a)   this
Amendment;

(b)   a
certificate of an officer and of the secretary or an assistant secretary of
each of the Company, and each Floor Plan Borrower certifying, inter alia, (i) copies of each of the
articles or certificate of incorporation or organization, as amended and in
effect, of such Person, the bylaws or Operating Agreement or regulations, as
amended and in effect, of such Person (or a statement that such documents have
not changed) and the resolutions adopted by the Board of Directors or Managers
of such Person (A) authorizing the execution, delivery and performance by
such Person of the Loan Documents to which it is or will be a party, and
(B) approving the form of this Amendment and (ii) the incumbency and
specimen signatures of the officers of such Person executing any documents on
its behalf;

(c)   the
payment to the Agent of all fees and expenses (including the fees and
disbursements of Andrews Kurth LLP) and all fees payable to the Lenders in
connection with this Amendment;

(d)   the
payment to the Agent for the benefit of all Lenders consenting by the requested
deadline an amount equal to 0.02% of each such Lender’s respective Commitment
amount; and

(e)  
such other consents, approvals, opinions or documents as the Agent or the
Lenders may reasonably request.

6.   Release and
Indemnity.   (a) The Company does hereby release and forever discharge
the Agent, Floor Plan Agent and each of the Lenders and each affiliate thereof
and each of their respective employees, officers, directors, trustees, agents,
attorneys, successors, assigns or other representatives from any and all
claims, demands, damages, actions, cross-actions, causes of action, costs and
expenses (including legal expenses), of any kind or nature 

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whatsoever, whether based on law or equity, which any
of said parties has held or may now or in the future own or hold, whether known
or unknown, for or because of any matter or thing done, omitted or suffered to
be done on or before the actual date upon which this Amendment is signed by any
of such parties (a) arising directly or indirectly out of the Loan Documents,
or any other documents, instruments or any other transactions relating thereto
and/or (b) relating directly or indirectly to all transactions by and between
the Company, the Floor Plan Borrowers, or their representatives and the Agent,
the Floor Plan Agent and each Lender or any of their respective directors,
officers, agents, employees, attorneys or other representatives.  Such release, waiver, acquittal and discharge
shall and does include, without limitation, any claims of usury, fraud, duress,
misrepresentation, lender liability, control, exercise of remedies and all
similar items and claims, which may, or could be, asserted by the Company or
any Floor Plan Borrower.

(b)   The
Company and each Floor Plan Borrower hereby ratifies the indemnification
provisions contained in the Loan Documents, including, without limitation, Section
13.4 of the Credit Agreement, and agrees that this Amendment and losses,
claims, damages and expenses related thereto shall be covered by such
indemnities.

7.   Counterparts.   This
Amendment may be signed in any number of counterparts, which may be delivered
in original or facsimile form each of which shall be construed as an original,
but all of which together shall constitute one and the same instrument.

8.   Governing Law.   This Amendment, all Notes, the other Loan Documents
and all other documents executed in connection herewith shall be deemed to be
contracts and agreements under the laws of the State of New York and of the
United States of America and for all purposes shall be construed in accordance
with, and governed by, the laws of New York and of the United States.

9.   Final
Agreement of the Parties.   Any
previous agreement among the parties with respect to the subject matter hereof
is superseded by the Credit Agreement, as amended by this Amendment.  Nothing in this Amendment, express or implied
is intended to confer upon any party other than the parties hereto any rights,
remedies, obligations or liabilities under or by reason of this Amendment.

[Signatures on Separate Pages]

 4Exhibit 10.1

SM&A

EMPLOYMENT AGREEMENT

This Employment Agreement
(this “Agreement”) is entered into as of March 6, 2007, by and between
SM&A, a Delaware corporation (the “Company”), and Cynthia A. Davis-Sailar (“Employee”),
with reference to the following:

A.                                   The Company desires to employ Employee on
the terms and conditions set forth herein;

B.                                     Employee desires to perform services for
the Company as an employee of the Company on the terms and conditions set forth
herein.

NOW, THEREFORE, in
consideration for the promises and obligations set forth below, the Company and
Employee agree as follows:

1.                                       Employment
and Term.

1.1.                              The Company agrees to employ, and
Employee agrees to be employed by the Company, on the terms and conditions
described below (the “Employment”).

1.2.                              This Agreement shall be effective as of April
2, 2007(the “Effective Date”) and shall terminate on April 1, 2010 unless
sooner terminated pursuant to the terms set forth below.

2.                                       Duties.

2.1.                              Employee agrees that during the
Employment, Employee shall devote her full-time efforts to her duties as an
employee of the Company, now or in the future assigned to Employee by the
Company.  From and after the Effective
Date of this Agreement, Employee shall serve as Chief Executive Officer of the
Company.

3.                                       Compensation.

3.1.                              As consideration for the performance of
Employee’s duties hereunder and for adherence to the covenants in this
Agreement, Employee shall be entitled to the compensation set forth on Exhibit
A attached hereto and incorporated herein by this reference (the “Compensation”).

3.2.                              Employee understands and acknowledges
that, except as otherwise set forth in this Agreement, the Compensation will
constitute the full and exclusive consideration to be received by Employee for
all services performed by Employee in connection with the Company’s employment
of Employee, and for the performance of all Employee’s promises and obligations
under this Agreement.

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3.3.                              Aside from the Compensation, the Company
may adopt, or continue in force, benefit plans for the benefit of its employees
or certain of its employees which may include, but not be limited to, group
life insurance, medical insurance, etc. The Company may terminate any or all
such plans at any time and may choose not to adopt any additional or
replacement plans. Employee’s rights under any benefit plans now in force or
later adopted by the Company shall be governed solely by the terms of such
plans; provided, however, that in no event shall Employee’s rights under any
such benefit plans be less than those of any other executive officer of the
Company.

4.                                       Duty to Devote Full Time and Avoid
Conflict of Interest.  Employee agrees that during the Employment
she shall devote her full-time efforts to her duties as an employee of the
Company. Employee further agrees that during the Employment she shall not,
directly or indirectly, engage or participate in any activities which are in
conflict with the best interests of the Company.  Notwithstanding the foregoing, nothing herein
shall preclude Employee from:  (i)
serving, with the prior written consent of the Company, which consent shall not
be unreasonably withheld, as a member of the board of directors or advisory
boards (or their equivalents in the case of a non-corporate entity) of
non-competing businesses and charitable organizations; (ii) engaging in
charitable activities and community affairs; and (iii) managing her personal
investments and affairs; provided, however, that the activities
set out in clauses (i), (ii) and (iii) shall be limited by Employee so as not
to materially interfere, individually or in the aggregate, with the performance
of her duties and responsibilities hereunder.

5.                                       Compliance with Rules and Regulations. 
Employee agrees to comply with the Company’s rules, regulations and practices
as they may from time to time be adopted or modified, so long as they are
uniformly applied to all employees.

6.                                       Non-competition,
Non-recruitment and Non-solicitation by Employee.

6.1.                              Employee agrees that, during the
Employment, Employee will not engage in any activity competitive with or
adverse to the Company’s business or welfare, whether alone, as a partner, or
as an officer, director, employee or shareholder of any other corporation and
shall not otherwise undertake planning for or the organization of any business
activity competitive with the Company’s business or combine or conspire with
other employees or representatives of the Company for the purpose of organizing
any such competitive business activity. This prohibition shall not include ownership
of less than five percent (5%) of the outstanding stock by Employee in a
publicly traded corporation.

6.2.                              During the Employment and for a period of
two (2) years following the termination of the Employment, Employee shall not,
directly or indirectly, induce, solicit or influence or attempt to induce,
solicit or influence any person who is engaged or employed by the Company
(whether part-time or full-time and whether as an officer, employee,
consultant, agent or advisor), to terminate his/her employment or other
engagement with the Company.  Employee
further agrees that, during the term of this Agreement and for two (2) years
after termination of the Employment, Employee will not in any manner seek to
recruit for employment any individual who is employed or engaged by the
Company, as an officer, employee, consultant, agent or advisor for any person
or entity other than the Company.

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6.3                                 Employee agrees that during the
Employment and for two (2) years after termination of the Employment, Employee
shall not, directly or indirectly, personally, or on behalf of or in
conjunction with any person or entity, use or rely in any manner confidential
and/or proprietary material or information constituting trade secrets
(including Secrets as defined in Section 7.1 below) to divert or take away any
client or customer of the Company.

7.                                       Trade
Secrets of the Company/Works and Property.

7.1                                 Employee acknowledges and understands
that during the Employment, Employee will have access to and will utilize and
review information which constitutes valuable, important and confidential trade
secrets, as that term is interpreted under the Uniform Trade Secrets Act
(California Civil Code Section 3426 et seq.) and/or confidential and
proprietary material and information of or relating to the business of the
Company necessary for the successful conduct of the Company’s business. This
information includes, but is not limited to: (a) listings of and data regarding
the clients (past and current) of the Company (collectively, the “Clients”);
(b) information regarding potential customers and clients; (c) data relating to
the identity of the Clients of the Company; (d) information regarding bidding,
billing and pricing practices; (e) information regarding the nature and type of
services rendered to the Clients; (f) other methodologies, computer programs,
databases, processes, compilations of information, results of proposals, job
notes, reports and records, and (g) information regarding the nature and type
of software products sold to or under development with any Client (all of which
information is sometimes referred to in this Agreement as the “Secrets”). The
foregoing  notwithstanding, the Secrets
shall not include information or data which is (i) in the public domain, (ii)
generally known in the information technology staffing services industry, (iii)
already known to Employee as of the date she began her employment with the
Company, or (iv) rightfully disclosed to Employee outside of the scope of her
employment with the Company by a third party not under a duty of
confidentiality to the Company. Employee understands further that the Secrets
have been and will be accumulated, by Employee and other personnel at the
Company at considerable expense to the Company (including but not limited to compensation
paid to the Company personnel dealing with the Secrets and the Clients), and
that the Company has and will continue to expend its resources in order to
maintain actively and vigorously the confidentiality of the Secrets, as such
information is extremely valuable to the Company, and well worth the expense of
enforcement and preservation of such confidentiality. Accordingly, Employee
agrees as follows:

(a)                                  All
of the Secrets shall be safeguarded and treated as confidential by Employee.

(b)                               Any
and all data, notes, letters, computer programs, email records, reports,
telephone records and all other written documentation relating to the business
of the Company (including but not limited to the Secrets) that may be
collected, compiled, written, reviewed or conceived by Employee, whether set
forth in tangible media or intangible, from or by reason of services performed
by Employee for the Company shall become the sole and absolute property of the
Company, and Employee shall not assert or establish a claim for any statutory
or common law right or any other possessory or proprietary right with respect
to any of the above.

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(c)                                  Employee
shall hold the Secrets in strictest confidence and shall not (i) disclose any
Secrets to any person, corporation, firm, or other entity, either during the
Employment or afterward, or (ii) use any Secrets in Employee’s subsequent
business or employment, without the prior express written authorization of the
Company; provided, however, that Employee may disclose Secrets to the extent
required to do so by a subpoena lawfully issued in a judicial proceeding or
arbitration.

(d)                                 Employee
shall not otherwise commit any act which shall compromise the confidentiality
of any Secrets, including but not limited to making a copy of such property
(whether electronic, paper or otherwise) without the prior express written
authorization of the Company.

7.2                                 During the Employment, Employee shall
disclose in writing, fully, and on a timely basis, to the Company, any and all “Works
and Property” (as such term is herein defined) realized in connection with the
performance of her duties under this Agreement. 
Employee acknowledges and agrees that, during the Employment any and all
Works and Property shall constitute the sole and exclusive property of the
Company and Employee shall not have any rights thereto and/or any interest
therein.  During the Employment, Employee
shall assign, transfer and convey to the Company, without further
consideration, any and all Works and Property in accordance with this
Agreement.  For purposes of this
Agreement, the term “Works and Property” shall mean any and all works and
property including, but not limited to, all intellectual properties, ideas,
inventions, concepts, products, improvements, innovations, discoveries,
developments, methods, formulas, techniques, software, know-how and writings
which are made, conceived, reduced to practice, developed, written, contributed
to or prepared by Employee whether or not patentable or copyrightable and
whether made solely by Employee or jointly with others.  All Works and Properties shall
unconditionally be, become, and remain the sole and exclusive property of the
Company or any of its affiliates, successors, or assignees, as the case may
be.  Employee will promptly execute, acknowledge
and deliver all applications, oaths, declarations and further documents and
will provide such additional assistance as the Company or its counsel may deem
necessary or desirable to evidence the Company’s title to such Works and
Property.  This section does not apply to
Works and Property that qualifies as a non-assignable invention under Section
2870 of the California Labor Code. 
Employee acknowledges having received from the Company a copy of said
code Section.

8.                                       Confidential Information of Clients. 
All ideas, concepts, information and written material disclosed to
Employee by the Company, or acquired from any of the Clients, and all
financial, accounting, statistical, personnel, and business data and plans of
the Clients, are and shall remain the sole and exclusive property and
proprietary information of the Company, or said Client, and are disclosed in
confidence by the Company or permitted to be acquired from the Clients in
reliance on Employee’s agreement to maintain them in confidence and not to use
or disclose them to any other person except in furtherance of the Company’s
business.

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9.                                       Return of Information. 
At the time of the termination of the Employment or upon request,
Employee agrees to deliver promptly to the Company all notes, books, electronic
data (regardless of storage media), correspondence and other written or
graphical records (including all copies thereof) in Employee’s possession or
under Employee’s control relating to any business, work, the Clients or any
other aspect of the Company, whether or not they contain any Secrets, including
but not limited to each original and all copies of all or any part thereof.

10.                                 Cooperation. 
Employee agrees to cooperate in good faith with the Company in
connection with any defense, prosecution, or investigation by the Company
regarding any actual or potential litigation, administrative proceeding, or
other such procedures, in which the Company may be involved as a party or
non-party from time to time, including following the termination of employment.

11.                                 Remedies; Injunctive Relief. 
In the event of a breach or threatened breach by Employee of any of the
provisions of this Agreement, Employee agrees that the Company, in addition to
and not in limitation of any other rights, remedies, or damages available to
the Company at law or in equity, shall be entitled to a preliminary and a
permanent injunction in order to prevent or restrain any such breach by
Employee or by Employee’s partners, agents, representatives, servants,
employers, employees, and/or any and all persons directly or indirectly acting
for or with Employee, without necessity of posting bond or other security.

12.                                 Termination
of Employment.

12.1                           The Employment may be terminated by the
Company with “Cause” (as defined below) at any time upon written notice. Except
as otherwise agreed in writing or as otherwise provided by this Agreement as
due and payable (or as required by law), upon termination of the Employment by
the Company with Cause, the Company shall have no further obligation to
Employee under this Agreement by way of compensation or otherwise, but Employee’s
obligations under Sections 6 through 10, inclusive, shall continue after said
termination of Employment.

12.2                           Absent a Change of Control (as defined
below), the Employment may be terminated at any time (i) by the Company without
Cause (as defined below) by giving Employee thirty (30) days’ advance written
notice of such termination or (ii) by Employee for Good Reason (as defined
below) by giving the Company thirty (30) days’ advance written notice of such
termination.  In the event that the
Company terminates the Employment without Cause or Employee terminates the
Employment for Good Reason, the Company shall (i) pay to Employee, in accordance
with the Company’s customary payroll practices, the base salary component of
the Compensation, and (ii) provide the

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same health and
life insurance benefits, in each case until the earliest to occur of (A) the
last day of the term of this Agreement specified in Section 1.2 above, (B) the
expiration of twelve (12) calendar months after the effective date of such
termination of the Employment, (C) the date upon which Employee becomes
employed on a full-time basis (including but not limited to self-employment,
but only if Employee holds herself out to the public as being a self-employed
consultant or other businessperson), or (D) the date upon which Employee
violates any of Sections 6 through 10, inclusive.  In addition, the Company shall pay Employee
the pro-rated portion of any incentive compensation (as described in Exhibit A
attached hereto) to which Employee was entitled for the fiscal year or quarter,
as applicable, in which the Employment was terminated.  If the Company’s medical and/or life
insurance plans do not allow Employee’s continued participation in such plan or
plans during the period described above, then the Company shall pay to
Employee, in monthly installments, from the date on which Employee’s
participation in such medical and/or life insurance, as applicable, is prohibited
for the remainder of the time period described in the second sentence of this
Section 12.2, the monthly premium or premiums which had been payable by the
Company with respect to Employee for such discontinued medical and/or life
insurance, as applicable.

12.3                           If, within twelve (12) months following a
Change of Control (as defined below), the Employment is terminated (i) by the
Company (or any successor company) without Cause, or (ii) by the Employee for
Good Reason, the Company shall (i) pay to Employee in a lump sum an amount
equal to the base salary component of the Compensation for the period from the
date of such termination of Employment through the earlier to occur of (A) the
last day of the term of this Agreement specified in Section 1.2 above or (B)
twelve (12) calendar months after the effective date of such termination of
Employment, and (ii) provide the same health and life insurance benefits until
the earlier to occur of (A) the last day of the term of this Agreement
specified in Section 1.2 above or (B) the expiration of eighteen (18) calendar
months after the Change of Control or twelve (12) calendar months after the
effective date of such termination of the Employment, whichever is later. If
the Company’s (or its successor’s) medical and/or life insurance plans do not
allow Employee’s continued participation in such plan or plans during the
period described above, then the Company shall pay to Employee, in monthly
installments, from the date on which Employee’s participation in such medical and/or
life insurance, as applicable, is prohibited for the remainder of the time
period described in the first sentence of this Section 12.3, the monthly
premium or premiums which had been payable by the Company with respect to
Employee for such discontinued medical and/or life insurance, as applicable.

12.4                           Employee may terminate the Employment
without Good Reason at any time by giving the Company thirty (30) days’ advance
written notice of such termination. Upon Employee’s termination of the
Employment without Good Reason, the Company shall have no further obligation to
Employee under this Agreement by way of compensation or otherwise (except for
the obligations to (i) pay the base salary component of the Compensation to
which Employee may be entitled at the time of such termination and (ii) provide
the benefits required to be made available under applicable law), but Employee’s
obligations under Sections 6 through 10, inclusive, shall continue after said
termination of the Employment.

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12.5                           The Employment will terminate immediately
upon Employee’s death. In such event, the Company shall (i) pay to Employee’s
estate, in accordance with the Company’s customary payroll practices, the base
salary and any dependents’ health benefits, if applicable, components of the
Compensation until the earlier to occur of (A) the last day of the term of this
Agreement specified in Section 1.2 above or (B) the expiration of twelve (12)
calendar months after the effective date of such termination.  Except for the payments expressly provided in
this Section 12.5, the Company shall have no further obligation to Employee’s
estate under this Agreement by way of compensation or otherwise.

12.6                           The Company may terminate the Employment
at any time if Employee becomes Disabled (as defined below) by giving Employee
thirty (30) days’ advance written notice of such termination. In the event that
the Company terminates the Employment because Employee has become Disabled, the
Company shall (i) pay to Employee, in accordance with the Company’s customary
payroll practices, the base salary component of the Compensation and (ii)
provide the same health and life insurance benefits, in each case until the
earliest to occur of (A) the last day of the term of this Agreement specified
in Section 1.2 above, (B) the expiration of twelve (12) calendar months after
the effective date of such termination of the Employment, (C) the date upon
which Employee becomes employed on a full-time basis (including but not limited
to self-employment, but only if Employee holds herself out to the public as
being a self-employed consultant or other businesswoman), or (D) the date upon
which Employee violates any of Sections 6 through 10, inclusive.  If the Company’s medical and/or life
insurance plans do not allow Employee’s continued participation in such plan or
plans during the period described above, then the Company shall pay to
Employee, in monthly installments, from the date on which Employee’s
participation in such medical and/or life insurance, as applicable, is prohibited
for the remainder of the time period described in the second sentence of this
Section 12.6, the monthly premium or premiums which had been payable by the
Company with respect to Employee for such discontinued medical and/or life
insurance, as applicable.

12.7                           As used in this Agreement, the following
terms shall have the meanings indicated:

(a)                                  “Cause”
shall mean an action or actions by Employee during the Employment (including
but not limited to inactions) including:

(i)                                     refusal
or failure to carry out any reasonable direction from the Company or its Board
of Directors;

(ii)                                  a
material breach of the terms of this Agreement;

(iii)                               demonstrated
gross negligence or misconduct in the execution of his/her assigned duties;

(iv)                              habitual
non-performance or incompetent performance of his/her duties under this
Agreement;

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(v)                                 conviction
of a felony or other serious crime involving moral turpitude;

(vi)                              engaging
in fraud, embezzlement or other illegal conduct;

(vii)                           a
violation of any part of Sections 4 through 10, inclusive;

(viii)                        imparting
Secrets as defined in Section 7 of this Agreement to a third party, other than
in the course of carrying out Employee’s duties;

(ix)                                failure
or refusal to materially perform his/her duties and responsibilities; or

(x)                                   material
violation of any written policy or procedure of the Company, including ethics
guidelines adopted from time to time by the Board of Directors.

(b)                                 “Disabled”
shall mean Employee’s inability to perform the essential functions of his/her
job under this Agreement either with or without reasonable accommodations, due
to sickness, physical or mental impairment or injury for a period of six (6)
consecutive months or for nine (9) months in any consecutive twelve (12) month
period. In the event Employee disputes the Company’s determination that he/she
is Disabled, Employee shall give written notice of such dispute to the Company
during the thirty (30) day notice period prior to the proposed effective date
of such termination, and Employee and the Company shall thereupon each select,
within thirty (30) days of such notice from Employee, a physician to evaluate
whether Employee is Disabled.  Such
physicians shall complete their evaluation and report to the Board of Directors
within thirty (30) days. If such physicians do not agree as to whether Employee
is Disabled, they shall promptly select a third physician to further evaluate
Employee, whose conclusion on such matter shall be rendered within ten (10)
days of his/her selection and shall be final and binding on Employee and the
Company.

(c)                                  “Good
Reason” shall mean any of the following:

(i)                                     the
assignment to Employee of duties inconsistent with Employee’s current position,
duties, or responsibilities which is sufficient to constitute a material
diminution of status with the Company;

(ii)                                  a
reduction by the Company in the base salary component of the Compensation in
effect on the date hereof or as the same may be increased from time to time
during the term of this Agreement; and

(iii)                               any
failure by the Company to obtain the assumption of this Agreement by any
successor or assign of the Company, if such successor or assigns asserts the
position that it is not bound by the provisions hereof.

 8
 

(d)                                 “Change
of Control” shall mean any of the following:

(i)                                     any
merger or consolidation in which the shares of the Company outstanding
immediately prior to such merger or consolidation (or the securities into which
they are converted by virtue of such merger or consolidation) do not represent
at least fifty percent (50%) of the voting power of the surviving corporation
or its parent;

(ii)                                  any
sale, lease or other transfer of all or substantially all of the assets of the
Company; or

(iii)                               any
transaction in which the Company ceases to be a publicly traded company.

12.8                           The rights and remedies provided in this
Section 12 shall constitute the exclusive rights and remedies available to
Employee relating to or arising from the termination of the Employment,
including claims for breach of contract.

12.9                           No policies or procedures of the Company
or benefits provided by the Company, whether oral or written, express or
implied, formal or informal, are intended, nor shall they be construed to limit
the right or ability of the Company or Employee to terminate the Employment as
set forth above. Except as otherwise agreed in writing or as otherwise provided
by this Agreement, upon termination of the Employment, neither the Company nor
Employee shall have any further obligation to each other by way of compensation
or otherwise.

12.10                     The Company will undertake commercially reasonable
efforts to require any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, to absolutely and unconditionally to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform this Agreement if no such
succession or assignment had taken place. In any such event, the term “the
Company” as used in this Agreement shall mean any such successor or assign
which executes and delivers the assignment agreement provided for in the
immediately preceding sentence or which otherwise becomes bound by the terms
and provisions of this Agreement by operation of law.

12.11                     Employee shall make a reasonable good faith effort to
find new employment during any period during which payments are paid to
Employee following Employee’s termination of employment with the Company.

12.12                     Subject to Employee’s consent, if any payment
otherwise due hereunder would be, when otherwise due, subject to additional
taxes and interest under Section 409A of the Internal Revenue Code of 1986, as
amended, then such payment shall be deferred to the extent required to avoid
such additional taxes and interest.

 9
 

13.                                 Miscellaneous
Provisions.

13.1                           In the event that any of the provisions
of this Agreement shall be held to be invalid or unenforceable, then all other
provisions shall nevertheless continue to be valid and enforceable as though
the invalid or unenforceable parts had not been included in this Agreement. In
the event that any provision relating to the time period of any restriction
imposed by this Agreement shall be declared by a court of competent
jurisdiction to exceed the maximum time period which such court deems
reasonable and enforceable, then the time period of restriction deemed
reasonable and enforceable by the court shall become and shall thereafter be
the maximum time period.

13.2                           This Agreement shall be binding upon the
heirs, executors, administrators, and successors-in-interest of the parties
hereto.

13.3                           This Agreement shall be construed and
enforced according to the laws of the State of California, excluding its choice
of law rules.

13.4                           This Agreement supersedes all previous
correspondence, promises, representations, and agreements, if any, either
written or oral, between the Company and Employee. No provision of this
Agreement may be modified except by a writing signed by both the Company and
Employee.

13.5                           All notices, demands, requests, consents,
approvals or other communications (collectively “Notices”) required or
permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served or deposited in the
United States mail, registered or certified, return receipt requested, postage
prepaid, addressed as set forth below, or such other address as such party
shall have specified most recently by written notice. Notices shall be deemed
given on the date of service if personally served. Notices mailed as provided
herein shall be deemed given on the third business day following the date so
mailed:

	
  To the Company:

  	
  SM&A

  	
   

  
	
   

  	
  4695 MacArthur Court, Suite 800

  	
   

  
	
   

  	
  Newport Beach, CA 92660

  	
   

  
	
   

  	
  Attention: Chairman, Compensation Committee

  	
   

  
	
   

  	
  Board of Directors

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
  Bingham McCutchen LLP

  	
   

  
	
   

  	
  Plaza Tower, 18th Floor

  	
   

  
	
   

  	
  600 Anton Boulevard

  	
   

  
	
   

  	
  Costa Mesa, CA 92626

  	
   

  
	
   

  	
  Attention: James W. Loss and Thomas A. Waldman

  	
   

  
	
   

  	
   

  	
   

  
	
  To Employee:

  	
  Cynthia A. Davis-Sailar

  	
   

  
	
   

  	
  1604 Sylvia Drive

  	
   

  
	
   

  	
  Endwell, NY 13760

  	
   

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Attention:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

 10
 

13.6                           Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys’ fees, incurred by the prevailing
party in connection with such action or proceeding.

14.                                 Survival.  
Notwithstanding any other provision of this Agreement, the obligations
of Employee pursuant to Sections 6, 7, 8, 9 and 10 of this Agreement shall survive
the termination of this Agreement.

15.                                 Acknowledgment by Employee. 
Employee has carefully read and considered the provisions of this
Agreement and agrees that all of the above-stated restrictions, obligations and
promises are fair and reasonable and reasonably required for the protection of
the interests of the Company. Employee further acknowledges that the goodwill
and value of the Company is enhanced by these provisions and that said
enhancement is desired by Employee. Finally, Employee indicates his/her
acceptance of this Agreement by signing and returning the enclosed copy of this
Agreement where indicated below.

16.                                 Counsel.  The parties
hereto have requested that counsel to the Company, Bingham McCutchen LLP,
prepare this Agreement and acknowledge that in so doing that such counsel is
acting on behalf of the Company. Employee acknowledges that Bingham McCutchen
LLP has previously served as and continues to serve as counsel to the Company
in other matters.

[remainder of page intentionally left blank]

 11
 

IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.

	
  

  	
  SM&A

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Cathy L. McCarthy

  	
   

  
	
   

  	
  Name:

  	
  Cathy L. McCarthy

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph B. Reagan

  	
   

  
	
   

  	
  Name:

  	
  Joseph B. Reagan

  
	
   

  	
  Title:

  	
  Chairman, Compensation Committee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EMPLOYEE

  
	
   

  	
   

  
	
   

  	
  /s/ Cynthia A.
  Davis-Sailar

  	
   

  
	
   

  	
  Cynthia A. Davis-Sailar

  
						

 

 12

EXHIBIT A

COMPENSATION OF CYNTHIA A. DAVIS-SAILAR

The following summarizes
the compensation to which Cynthia A. Sailar (“Employee”) shall be entitled
under the terms of that certain Employment Agreement dated March 6, 2007 by and
between SM&A (the “Company”) and Employee.

1.                                       BASE
SALARY.  Employee’s annual base
salary shall be $400,000 per year, paid in accordance with the Company’s
standard payroll policies for its executive officers (the “Base Salary”).
Employee shall be considered for merit increases in salary on an annual basis
by the Compensation Committee of the Board of Directors.

2.                                       INCENTIVE
COMPENSATION.  In addition to the
Base Salary described above, Employee will be eligible to receive incentive
compensation (IC) the amount of which shall be based upon the attainment by the
Company or its subsidiaries of certain financial performance targets
established annually by the Board of Directors.

a. Under the terms of an
Incentive Compensation plan for the SM&A executive team adopted for fiscal
year 2007 by the Compensation Committee of the Board of Directors, the Employee
as Chief Executive Officer will have a target incentive of $250,000 but the
amount earned will be contingent upon actual performance as identified in the
plan. A prorated portion of the bonus will be paid for each quarter that the
incentive compensation targets are met. Employee shall be considered for merit
increases in incentive compensation targets on an annual basis by the
Compensation Committee of the Board of Directors.

b. Under the terms of a
Long Term Incentive Plan (LTIP) adopted by the Compensation Committee of the
Board of Directors members of the executive team will be rewarded for sustained
performance over a three-year period that meets or exceeds an
earnings-per-share (EPS) target. The 2007 LTIP will cover the period 2007, 2008
and 2009.  The target incentive for the Employee
as Chief Executive Officer is 100,000 shares of SM&A stock but the actual
number of shares granted will be in accordance with a performance scale. The stock
will be issued on January 2, 2010. The Compensation Committee intends to issue
LTIP grants on an annual basis with successive three-year performance periods
that include financial targets and award share grants for meeting targets.

c. To compensate for the loss
of existing incentives at her previous employment and as an incentive to join
SM&A, the Employee shall be granted on the effective date of employment the
following:

·            A cash payment of $50,000

·            7000 shares of SM&A stock

 1
 

·            An
option to purchase up to 200,000 shares, issued pursuant to SM&A’s Amended
and Restated 1997 Stock Option Plan. The exercise price of each stock option
shall be equal to the fair market value of the Common Stock on the date of
grant and the options shall each vest (i.e., become exercisable) in sixteen
equal quarterly installments, commencing on the three-month anniversary of the
date of grant.  Such stock options shall
be in the form generally approved for grants to officers of SM&A; provided,
however, that such stock options shall vest in full upon the occurrence during
the term of the employment agreement to which this Exhibit A is attached of a
Change of Control (as defined in such employment agreement). In the event that
the Employees contract is not renewed after April 1, 2010, those stock options
that have not previously vested under this agreement as of that date shall
immediately vest in full.

d. On
each January 2 on which Employee continues to be employed by SM&A, Employee
shall become eligible to participate in any stock incentive plan approved by
the Board of Directors and the shareholders.

3.                                       LEAVE CREDIT. 
During the Employment, and in addition to the Company observed and
posted holidays (normally 10 per year), Employee shall accrue paid leave at a
rate of 25 days per annum; provided, however, that any such leave time, if not
used, will be subject to the Company’s limitations on the maximum accrual of 10
weeks; and, provided further, that Employee shall use her best efforts to
coordinate with the Company the dates upon which Employee shall use her
aforesaid leave time so as to minimize the negative impact upon the Company
occasioned by Employee’s absence.

4.                                       OTHER
BENEFITS:  Employee shall be entitled
to participate in and receive benefits under all profit-sharing plans, pension
plans, group medical plans and other benefit plans of the Company which the
Company at any time maintains for executive employees.

5.                                       BUSINESS EXPENDITURES: 
Employee will be reimbursed on a monthly basis for reasonable expenses
incurred in connection with promoting and conducting the business of the
Company; provided, however, that (i) Employee shall present reasonable
documentation establishing the amount, date, place and essential character of
such expenditures, and (ii) any request for the reimbursement of monthly
expenditures totaling more than $4,000 must be approved by two officers of the
Company, one of whom shall be the Company’s Chief Financial Officer.   The Employee is expected to
maintain communications with customers and other key personnel while on travel
and at home and the Company shall provide to, or reimburse the Employee for the
costs of, reasonable communication and home office equipment to include cell
phone, laptop, internet connectivity, PDA, fax and printer.

6.                                       MEDICAL REIMBURSEMENT. 
The Employee shall be entitled to receive reimbursement for documented
medical expenses of the Employee and her dependents not otherwise covered by
the Company’s medical plan and long term care and disability insurance coverage
for the Employee.

 2
 

7.                                       AUTOMOBILE LEASE.  In lieu of an automobile allowance, SM&A
shall lease, at a cost of no more than $1300 per month, an automobile of
Employee’s choice.  In addition, the
reasonable cost of annual insurance, fuel, maintenance, cleaning and repair shall
be borne by SM&A.

8.                                       RELOCATION
EXPENSES.  In lieu of
a relocation allowance, SM&A will make reasonable monthly lease payments for
the term of this agreement directly to the landlord of a residence chosen by
the Employee to be in close proximity to the Company headquarters.
Determination of reasonable expenses will be by the Board of Directors.

 3

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