Document:

Exhibit
10.1

EXECUTION
COPY

 

STOCK PURCHASE AGREEMENT

by and among

PERFORMANCE MANAGEMENT ASSOCIATES, INC.

JAMES A. WRISLEY

PAULETTE WRISLEY

and

SM&A

 

TABLE OF CONTENTS

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  RECITALS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  AGREEMENT

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 1

  	
   

  	
  SALE AND
  TRANSFER OF SHARES; CLOSING

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.1

  	
   

  	
  Shares

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.2

  	
   

  	
  Purchase Price; Payments at Closing

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.3

  	
   

  	
  Closing

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.4

  	
   

  	
  Closing Deliveries

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.5

  	
   

  	
  Determination of Purchase Price; Initial Adjustment

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.6

  	
   

  	
  Closing Balance Sheet; Dispute Resolution; Purchase
  Price Adjustment

  	
   

  	
  4

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.7

  	
   

  	
  Earn-Out Consideration

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.8

  	
   

  	
  Holdback

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES REGARDING THE SHAREHOLDERS

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Authority and Enforceability

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.2

  	
   

  	
  No Violation of Law and Agreements

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.3

  	
   

  	
  No Litigation or Regulatory Action

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.4

  	
   

  	
  Ownership of Shares

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.5

  	
   

  	
  Investment Intention

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.6

  	
   

  	
  Legends

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES REGARDING THE COMPANY

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Organization and Power

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
   

  	
  Authority and Enforceability

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.3

  	
   

  	
  Conflicts

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.4

  	
   

  	
  Capitalization

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.5

  	
   

  	
  Financial Statements

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.6

  	
   

  	
  No Undisclosed Liabilities

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.7

  	
   

  	
  Operations Since Most Recent Balance Sheet Date

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.8

  	
   

  	
  Taxes

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.9

  	
   

  	
  Permits

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.10

  	
   

  	
  Real Property

  	
   

  	
  20

  

 

 i
 

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  3.11

  	
   

  	
  Intellectual Property

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.12

  	
   

  	
  Compliance with Laws

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.13

  	
   

  	
  Contracts

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.14

  	
   

  	
  Status of Contracts; Government Contracts

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.15

  	
   

  	
  Employee Benefits

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.16

  	
   

  	
  Environmental Compliance

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.17

  	
   

  	
  Employee Relations and Agreements

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.18

  	
   

  	
  Litigation

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.19

  	
   

  	
  Insurance

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.20

  	
   

  	
  Customers

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.21

  	
   

  	
  Accounts Receivable

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.22

  	
   

  	
  Properties

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.23

  	
   

  	
  Bank Accounts

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.24

  	
   

  	
  Powers of Attorney; Guarantees

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.25

  	
   

  	
  Related Party Transactions with Affiliates

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.26

  	
   

  	
  No Brokers

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.27

  	
   

  	
  Subsidiaries

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.28

  	
   

  	
  Indebtedness

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.29

  	
   

  	
  Certain Payments

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.30

  	
   

  	
  Books and Records

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.31

  	
   

  	
  Disclosure

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.32

  	
   

  	
  Disclaimer of Other Representations and Warranties

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  REPRESENTATIONS
  AND WARRANTIES OF BUYER

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
   

  	
  Organization of Buyer

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.2

  	
   

  	
  Authority of Buyer

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
   

  	
  No Violation of Law and Agreements

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.4

  	
   

  	
  No Litigation or Regulatory Action

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.5

  	
   

  	
  Investment Intention

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.6

  	
   

  	
  SEC Documents

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.7

  	
   

  	
  No Material Adverse Change

  	
   

  	
  37

  

 

 ii
 

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  4.8

  	
   

  	
  No Brokers

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.9

  	
   

  	
  Buyer Shares

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  [INTENTIONALLY
  OMITTED]

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  AGREEMENTS
  REGARDING EMPLOYEES

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Continuation of Employment

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
   

  	
  No Third Party Beneficiaries

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  ADDITIONAL AGREEMENTS

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Tax Covenants

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
   

  	
  Tax Indemnification

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
   

  	
  Non-Competition

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.4

  	
   

  	
  Confidentiality

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.5

  	
   

  	
  Sale or Transfer of Buyer Shares

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.6

  	
   

  	
  Transaction Expenses

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.7

  	
   

  	
  Conduct of Business During Earn-Out Term

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  [INTENTIONALLY
  OMITTED]

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  [INTENTIONALLY
  OMITTED]

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  INDEMNIFICATION

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Survival of Representations and Warranties

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
   

  	
  Indemnification by the Shareholders

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
   

  	
  Indemnification by Buyer

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.4

  	
   

  	
  Notice of Claims

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.5

  	
   

  	
  Third Person Claims

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.6

  	
   

  	
  Additional Provisions

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.7

  	
   

  	
  Payment of Claims

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.8

  	
   

  	
  Indemnity Payments as Adjustments to Purchase Price

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  [INTENTIONALLY
  OMITTED]

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  GENERAL
  PROVISIONS

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  No Public Announcement

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
   

  	
  Notices

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.3

  	
   

  	
  Successors and Assigns

  	
   

  	
  50

  

 

 iii
 

 

	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  12.4

  	
   

  	
  Entire Agreement

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.5

  	
   

  	
  Interpretation

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.6

  	
   

  	
  Amendments and Waivers

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.7

  	
   

  	
  Expenses

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.8

  	
   

  	
  Partial Invalidity

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.9

  	
   

  	
  Execution

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.10

  	
   

  	
  Governing Law

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.11

  	
   

  	
  References to U.S. Dollars

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.12

  	
   

  	
  Further Assurances

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.13

  	
   

  	
  Release

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.14

  	
   

  	
  No Rescission

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  	
  DEFINITIONS

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
   

  	
  Definitions

  	
   

  	
  53

  

 

 iv

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”) is
entered into as of September 14 2007, by and among (i) SM&A, a
Delaware corporation (“Buyer”), (ii) Performance Management Associates,
Inc., a California corporation (the “Company”), and (iii) James A. Wrisley and
Paulette Wrisley (the “Shareholders”). 
Buyer, the Company, and the Shareholders are sometimes individually
referred to as a “Party,” and collectively as the “Parties.”

RECITALS

A.                                   The
Shareholders own all of the issued and outstanding shares of capital stock of
the Company (the “Shares”).

B.                                     The
Shareholders desire to sell, and Buyer desires to purchase, all of the Shares
for the consideration and on the terms set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing
and the representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the Parties agree as follows (Section 13.1
contains definitions of certain capitalized terms used in this Agreement):

ARTICLE 1

SALE AND TRANSFER
OF SHARES; CLOSING

1.1                                 Shares.  On the terms and subject to the conditions of
this Agreement, at the Closing, the Shareholders will sell, transfer and
deliver the Shares to Buyer, free and clear of any Encumbrances, and Buyer will
purchase the Shares from the Shareholders.

1.2                                 Purchase
Price; Payments at Closing.

(a)                                  As
full consideration for the transfer of the Shares, the Shareholders shall be
entitled to receive, on the terms and conditions set forth in this Agreement,
an aggregate amount equal to the sum of (i) Two Million Five Hundred Thousand
Dollars ($2,500,000), (ii) minus the aggregate amount of Indebtedness of the
Company outstanding on the Closing Date, (iii) plus or minus the Net Working
Capital Adjustment, if any, (iv) plus Five Hundred Thousand Dollars ($500,000)
in common stock of Buyer, and (v) plus the Earn-Out Consideration, and subject
to adjustment in accordance with Sections 1.5 and 1.6 (as so
adjusted, the “Purchase Price”), payable as described below.  The Earn-Out Consideration shall be earned,
calculated and paid in accordance with Section 1.7.  All Purchase Price payments shall be
allocated between the Shareholders in proportion to their Share ownership.

 1
 

(b)                                 At
the Closing, Buyer shall:

(i)                                     pay
and discharge the Indebtedness of the Company outstanding on the Closing Date
by payment(s) to each creditor thereof of the amount set forth on the Closing
Payment Certificate required to discharge in full the portion of the
Indebtedness held by such creditor by wire transfer of immediately available
funds to the bank account specified in the payoff letter provided by such
creditor;

(ii)                                  deliver
to the Shareholders certificates representing 80,671 shares of common stock of
Buyer (the “Buyer Shares”); and

(iii)                               deliver
to the Shareholders, in immediately available funds, an amount in cash equal to
(A) Two Million Five Hundred Thousand Dollars ($2,500,000), (B) minus the
Estimated Working Capital Deficiency, or plus the Estimated Working Capital
Surplus, as applicable, (C) minus the aggregate amount of Indebtedness of the
Company outstanding on the Closing Date, and (D) minus an amount equal to the
Holdback Amount (such cash, the “Closing Cash Payment”).

1.3                                 Closing.  The closing of the transactions contemplated
hereby (the “Closing”) will occur on the date hereof, upon execution of this
Agreement by all parties hereto, at the offices of Bingham McCutchen LLP, 355
South Grand Avenue, Suite 4400, Los Angeles, CA 
90071-3106, or at such other place and time as shall be agreed upon by
Buyer and the Shareholders.  The time and
date on which the Closing is actually held is referred to herein as the “Closing
Date.”  The sale of the Shares
contemplated by this Agreement shall be deemed to take place and to be
effective at 12:01 a.m., Pacific time, on the Closing Date.

1.4                                 Closing
Deliveries.  At the Closing:

(a)                                  the
Shareholders will deliver to Buyer:

(i)                                     certificates
representing the Shares, duly endorsed (or accompanied by duly executed stock
powers), for transfer to Buyer, free and clear of any Encumbrances;

(ii)                                  a
certificate certified by a duly authorized officer of the Company, setting
forth the amount of Indebtedness owing by the Company as of the Closing Date,
and the Persons to whom such amounts are to be paid at the Closing (the “Closing
Payment Certificate”);

(iii)                               resignations
from each director and officer of the Company then in office;

(iv)                              a
copy of the Company’s articles of incorporation certified by the Secretary of
State of the State of California within five (5) days prior to the Closing
Date;

(v)                                 a
good standing certificate of the Company from the Secretary of State of the
State of California dated within five (5) days prior to the Closing Date;

 2
 

(vi)                              a
certificate of the secretary or an assistant secretary of the Company dated the
Closing Date, in form and substance reasonably satisfactory to Buyer, as to
(A) there being no amendments to the articles of incorporation of the
Company since the date of the certificate referred to in Section 1.4(a)(v)
above; (B) the bylaws of the Company; and (C) the resolutions of the
board of directors and Shareholders (which are in full force and effect on the
Closing Date) authorizing the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby;

(vii)                           a
certificate of the Company, dated the Closing Date, executed by a
duly-authorized officer of the Company, certifying the incumbency and
genuineness of the signatures of each officer of the Company executing this
Agreement and such other documents relating to the transactions contemplated by
this Agreement;

(viii)                        a properly
executed statement dated as of the Closing Date, in a form reasonably
acceptable to Buyer, that meets the requirements of Treasury Regulations
Section 1.1445-2(b)(2); and

(ix)                                such
other documents as Buyer may reasonably request for the purpose of evidencing
the satisfaction of any action to be taken on the Closing Date referred to in Article 8
or otherwise facilitating the consummation or performance of any of the
transactions contemplated hereby;

(b)                                 Buyer
will deliver to each creditor to whom any Indebtedness is owing by the Company
on the Closing Date, the payment in full of such Indebtedness in accordance
with Section 1.2(b)(i); and

(c)                                  Buyer
will deliver to the Shareholders:

(i)                                     the
certificates representing the Buyer Shares;

(ii)                                  the
Closing Cash Payment;

(iii)                               a
certificate of Buyer, dated the Closing Date, executed by a duly-authorized
officer of Buyer, certifying the incumbency and genuineness of the signatures
of each officer of Buyer executing this Agreement and such other documents
relating to the transactions contemplated by this Agreement;

(iv)                              a
good standing certificate of Buyer from the Secretary of State of Delaware
within five (5) days prior to the Closing Date;

(v)                                 the
resolutions of the board of directors of Buyer (which are in full force and
effect on the Closing Date) authorizing the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby;
and

(vi)                              such
other documents as the Shareholders may reasonably request for the purpose of
evidencing the satisfaction of any action to be taken on the Closing

 3
 

Date referred to in Article 8
or otherwise facilitating the consummation or performance of any of the
transactions contemplated hereby.

1.5                                 Determination
of Purchase Price; Initial Adjustment.

(a)                                  Prior
to the Closing Date, the Company shall have prepared and delivered to Buyer
(i) an estimated balance sheet as of the close of business on the Closing
Date (the “Estimated Closing Balance Sheet”) and (ii) a good faith
estimate of the Working Capital as of the Closing Date (the “Estimated Closing
Working Capital”).  The Estimated Closing
Balance Sheet will be prepared in accordance with GAAP, using the same
accounting methods, policies, practices and procedures, with consistent
classifications and estimation methodologies, as were used in the preparation
of the Most Recent Financial Statements, to the extent applicable, and will not
include any changes in assets or liabilities as a result of purchase accounting
adjustments arising from or resulting as a consequence of the transactions
contemplated hereby.

(b)                                 On
the Closing Date, if the Estimated Closing Working Capital is less than the
Target Working Capital, the Buyer shall reduce the Closing Cash Payment by the
dollar amount of the shortfall (the “Estimated Working Capital Deficiency”).  On the Closing Date, if the Estimated Closing
Working Capital is greater than the Target Working Capital, the Buyer shall
increase the Closing Cash Payment by the dollar amount of the excess (the “Estimated
Working Capital Surplus”).

1.6                                 Closing
Balance Sheet; Dispute Resolution; Purchase Price Adjustment.

(a)                                  Within
the sixty (60) day period following the Closing Date, Buyer shall prepare
and deliver to the Shareholders a balance sheet of the Company as of the close
of business on the Closing Date (the “Closing Balance Sheet”) and a working
capital statement (the “Closing Working Capital Statement”) setting forth Buyer’s
calculation of the Working Capital as of the close of business on the Closing
Date (the “Closing Working Capital”). 
The Closing Balance Sheet and the Closing Working Capital Statement each
will be prepared in accordance with GAAP, using the same accounting methods,
policies, practices and procedures, with consistent classifications and
estimation methodologies, as were used in the preparation of the Most Recent
Financial Statements, to the extent applicable, and will not include any
changes in assets or liabilities as a result of purchase accounting adjustments
arising from or resulting as a consequence of the transactions contemplated
hereby.  In connection with the review of
the Closing Balance Sheet, Buyer shall provide to the Shareholders reasonable
access to all relevant books and records and personnel of the Company.

(b)                                 If
the Shareholders disagree with the determination of the Closing Working Capital
as shown on the Closing Working Capital Statement, the Shareholders shall
notify the Buyer in writing of such disagreement within thirty (30) calendar
days after delivery of the Closing Working Capital Statement to the
Shareholders, which notice shall describe the nature of any such disagreement
in reasonable detail, identify the specific items involved and the dollar
amount of each such disagreement, and provide reasonable supporting
documentation for each such disagreement. 
After the end of such thirty (30) calendar day period, neither
Buyer nor the Shareholders may introduce additional disagreements with respect
to any item in the Closing Working Capital Statement or increase the dollar
amount of any disagreement, and any item not

 4
 

so identified shall be
deemed to be agreed to by the Shareholders and will be final and binding upon
the Parties except to the extent that corollary adjustments thereto are
necessarily required as a result of resolution of the disputed items that were
so identified.

(c)                                  Buyer
and the Shareholders shall negotiate in good faith to resolve any such
disagreement.  If Buyer and the
Shareholders are unable to resolve all disagreements properly identified by the
Shareholders pursuant to Section 1.6(b) within
fifteen (15) calendar days after delivery to Buyer of written notice of
such disagreements, then such disagreements shall be submitted for final and
binding resolution to a Neutral Accounting Firm to resolve such disagreements
(the “Accounting Arbitrator”).  The
Accounting Arbitrator shall be a Neutral Accounting Firm selected by mutual
agreement of Buyer and the Shareholders; provided, that (i) if,
within twenty (20) calendar days after the Shareholders have delivered their
notice of disagreement to the Buyer pursuant to Section 1.6(b), the
Parties are unable to agree on a Neutral Accounting Firm to act as Accounting
Arbitrator, each Party shall select a Neutral Accounting Firm and such firms
together shall select the Neutral Accounting Firm to act as the Accounting
Arbitrator, and (ii) if any Party does not select a Neutral Accounting
Firm within two (2) calendar days of written demand therefor by the other
Party, the Neutral Accounting Firm selected by the other Party shall act as the
Accounting Arbitrator.  Each of Buyer and
the Shareholders may present a supporting brief to the Accounting Arbitrator
(in which case the presenting Party shall provide a copy thereof to the other
Party) within ten (10) days following the appointment of the Accounting
Arbitrator.  Within ten (10) days of
receipt of a supporting brief, the receiving Party may present a responsive
brief to the Accounting Arbitrator (in which case it shall provide a copy
thereof to the other Party).  Each of
Buyer and the Shareholders may make an oral presentation to the Accounting
Arbitrator (in which case it shall provide prompt prior notice of such
presentation to the other Party) within twenty (20) days of appointment of the
Accounting Arbitrator.  The Accounting
Arbitrator will only consider such briefs and presentations and those items and
amounts set forth in the Closing Working Capital Statement as to which Buyer
and the Shareholders have disagreed within the time periods and on the terms
specified in this Section 1.6 and shall not conduct an independent
review.  The Accounting Arbitrator shall
deliver to Buyer and the Shareholders, as promptly as practicable and in any
event within sixty (60) days after such Accounting Arbitrator’s appointment, a
written report setting forth the resolution of any such disagreement determined
in accordance with the terms of this Agreement. 
The Accounting Arbitrator shall make its determination based solely on
presentations and supporting material provided by the Parties and not pursuant
to any independent review.  The
determination of the Accounting Arbitrator shall be final and binding.  The fees, expenses and costs of the Accounting
Arbitrator shall be borne equally by Buyer on the one hand, and the
Shareholders on the other hand; provided that if the difference between the
Accounting Arbitrator’s determination of the disputed items and the
determination of the disputed items that would have resulted from the use of
the proposed calculations of Buyer, on the one hand, and the Shareholders, on
the other hand (the “Erroneous Party”) is more than twice as great as the
difference between the Accounting Arbitrator’s determination of the disputed
items and the determination of the disputed items that would have resulted from
the use of the other Party’s proposed calculations, the Erroneous Party shall
pay all fees and expenses of the Accounting Arbitrator.

(d)                                 If
the Closing Working Capital as finally determined in accordance with this Section 1.6
is less than the Estimated Closing Working Capital, then, within fifteen (15)

 5
 

days following the final
determination of the Closing Working Capital, the Shareholders shall pay to
Buyer an amount in cash equal to such deficiency.  If the Closing Working Capital as finally
determined in accordance with this Section 1.6 is more than the
Estimated Closing Working Capital, within fifteen (15) days following such
final determination, Buyer shall pay to the Shareholders an amount in cash
equal to such excess.

1.7                                 Earn-Out
Consideration.

(a)                                  The
Shareholders shall be entitled, subject to the terms and conditions hereof, to
receive as additional cash consideration for the transfer of the Shares, additional
cash payments (the “Earn-Out Consideration”) based on: (i) the employment of
James Wrisley (“Wrisley”) by the Company or the Buyer and (ii) the Actual
Revenue Growth of the Company during each of the three consecutive twelve month
periods following the Closing Date (each, an “Earn-Out Period” and the entire
period from the first day of the Earn-Out Period to the end of the final
Earn-Out Period, the “Earn-Out Term”), as described below.

(b)                                 Earn-Out
Consideration may be paid as follows:

(i)                                     Within
sixty (60) calendar days following the last day of the relevant Earn-Out
Period, the Company shall deliver the Minimum Payment to the Shareholders; provided,
however, if either (A) the Company or Buyer terminates Wrisley’s employment
for “Cause” (as defined in Wrisley’s employment agreement with the Company) or
(B) Wrisley terminates his employment with the Company or Buyer without “Good
Reason” (as defined in Wrisley’s employment agreement with the Company or
Buyer) the Shareholders shall receive a pro-rated portion of the payment under
this Section 1.7(b)(i) for the period in which termination occurs (based on
number of days Wrisley was so employed during the Earn-Out Period), but shall
not be entitled to any payments for any subsequent Earn-Out Periods.

(ii)                                  In
addition to the foregoing, the Shareholders shall receive the Earn-Out Payment
(as defined and calculated in accordance with Sections 1.7(c) and (d) below)
for each Earn-Out Period.  In the event
that the Percentage Growth Achieved for the Third Earn-Out Period is less than
one hundred percent (100%), then the Unearned Earn-Out for Third Earn-Out
Period shall be forfeited, and Buyer shall have no further obligation to pay
such amounts to the Shareholders.  Example
calculations of the Earn-Out Payments for the three Earn-Out Periods are set
forth on Schedule 1.7(b)(ii).

(c)                                  For
purposes of calculating the Earn-Out Consideration, and subject to the terms of
Section 1.7(d), the following terms shall have the following meanings:

(i)                                     “Actual
Revenue Growth” means:

(A)                              for
the First Earn-Out Period, Annual Revenue for such Earn-Out Period less
Prior Year Revenue;

(B)                                for
the Second Earn-Out Period, Annual Revenue for such Earn-Out Period, plus
any Excess Revenue for the First Earn-Out Period, less Total First
Period Revenue; and

 6
 

(C)                                for
the Third Earn-Out Period, Annual Revenue for such Earn-Out Period, plus
any Excess Revenue for the Second Earn-Out Period (including any carryover of
Excess Revenue from the First Earn-Out Period as a result of such excess being
included in the Actual Revenue Growth for the Second Earn-Out Period) less
Total Second Period Revenue.

(ii)                                  “Annual
Revenue” means, for any Earn-Out Period, the amount of revenue, excluding
expenses, from the Business generated by the Company, as determined in
accordance with GAAP and the dispute resolution procedure set forth in Section
1.7(d) below.

(iii)                               “Earn-Out
Payment” means, for any Earn-Out Period, the Maximum Payment for such
Earn-Out Period multiplied by the Percentage Growth Achieved for such Earn-Out
Period.

(iv)                              “Excess
Revenue” means, for any Earn-Out Period, the amount by which Actual Revenue
Growth for that Earn-Out Period exceeds Target Revenue Growth for the Earn-Out
Period, if any.

(v)                                 “First
Earn-Out Period” means the time period beginning on the first day of the
month after the month in which the Closing occurs, and ending on the last day
of the twelfth month thereafter.

(vi)                              “Maximum
Payment” with respect to the Earn-Out Payments means:

(A)                              for
the First Earn-Out Period, Two Hundred Seventy Five Thousand dollars
($275,000);

(B)                                for
the Second Earn-Out Period, Two Hundred Seventy Five Thousand dollars
($275,000), plus the amount of any Unearned Earn-Out for the First Earn-Out
Period; and

(C)                                for
the Third Earn-Out Period, Seven Hundred Thousand dollars ($700,000), plus the
amount of any Unearned Earn-Out for the Second Earn-Out Period(including any
carryover of Unearned Earn-Out from the First Earn-Out Period as a result of
such Unearned Earn-Out being included in the Maximum Payment for the Second
Earn-Out Period);

provided that in no event shall the aggregate of all
Earn-Out Payments exceed $1,250,000.

(vii)                           “Minimum
Payment” means (A) for the First Earn-Out Period, two hundred twenty-five
thousand dollars ($225,000), (B) for the Second Earn-Out Period, two hundred
twenty-five thousand dollars ($225,000), and (C for the Third Earn-Out Period,
three hundred thousand dollars ($300,000).

 7
 

(viii)                        “Percentage
Growth Achieved” means, for any Earn-Out Period, the percentage obtained by
dividing (A) the Actual Revenue Growth for such Earn-Out Period by (B) the
Target Revenue Growth for such Earn-Out Period, and then multiplying by one
hundred (100); provided that Percentage Growth Achieved may not exceed one
hundred percent (100%).

(ix)                                “Prior
Year Revenue” means Four Million Six Hundred Thousand dollars ($4,600,000).

(x)                                   “Revenue
Shortfall” means, for any Earn-Out Period, the amount by which Target
Revenue Growth for that Earn-Out Period exceeds Actual Revenue Growth for that
Earn-Out Period, if any.

(xi)                                “Second
Earn-Out Period” means the time period beginning on the first day following
the expiration of the First Earn-Out Period, and ending on the last day of the
twelfth month thereafter.

(xii)                             “Target
Revenue Growth” means:

(A)                              for
the First Earn-Out Period, Six Hundred Thousand dollars ($600,000);

(B)                                for
the Second Earn-Out Period, One Million dollars ($1,000,000), plus the amount
of any Revenue Shortfall for the First Earn-Out Period; and

(C)                                for
the Third Earn-Out Period, One Million Three Hundred Thousand dollars
($1,300,000), plus the amount of any Revenue Shortfall for the Second Earn-Out
Period.

(xiii)                          “Third
Earn-Out Period” means the time period beginning on the first day following
the expiration of the Second Earn-Out Period, and ending on the last day of the
twelfth month thereafter.

(xiv)                         “Total
First Period Revenue” means the amount of Annual Revenue generated during
the First Earn-Out Period.

(xv)                            “Total
Second Period Revenue” means the amount of Annual Revenue generated during
the Second Earn-Out Period.

(xvi)                         “Unearned
Earn-Out” means, for the First or Second Earn-Out Period, the amount by
which the Maximum Payment for such Earn-Out Period exceeded the Earn-Out
Payment for such Earn-Out Period.

(d)                                 Annual
Revenue and the resulting Earn-Out Payment for each Earn-Out Period shall be
determined and paid as follows:

 8
 

(i)                                     Within
thirty (30) days following the end of each Earn-Out Period, Buyer will deliver
to the Shareholders a statement in writing setting forth Buyer’s determination of
the Annual Revenue for such Earn-Out Period, and a calculation of the resulting
Earn-Out Payment to be made by Buyer for such Earn-Out Period (each such
statement, a “Buyer Earn-Out Statement”). 
An example calculation of the Earn-Out Payments for the three Earn-Out
Periods is set forth on Schedule 1.7(b)(ii).

(ii)                                  The
Shareholders shall have a period of up to thirty (30) days following the
Shareholders’ receipt of a Buyer Earn-Out Statement to review Buyer’s
calculation of Annual Revenue and the applicable Earn-Out Payment.  In connection with the review of the Buyer
Earn-Out Statement, Buyer shall provide to the Shareholders reasonable access
to all relevant books and records and personnel of the Company.  If, as a result of such review, the
Shareholders disagree with such Earn-Out Payment, the Shareholders shall
deliver to Buyer a written notice of disagreement (an “Earn-Out Dispute Notice”)
prior to the expiration of such thirty (30) day review period setting forth the
basis for such dispute.  Upon Buyer’s
receipt of an Earn-Out Dispute Notice, Buyer and the Shareholders agree to
negotiate in good faith to resolve the dispute set forth in the Earn-Out
Dispute Notice.  If Buyer and the
Shareholders have not resolved the dispute within thirty (30) days following
Buyer’s receipt of the Earn-Out Dispute Notice (or such longer period of time
as Buyer and the Shareholders may mutually agree), then Buyer and the
Shareholders agree to finally resolve such dispute in accordance with Section
1.7(d)(iii) below.

(iii)                               If
Buyer and the Shareholders cannot reach agreement as described in Section
1.7(d)(ii) above, then the dispute shall be promptly referred to an
Accounting Arbitrator, who shall be selected in accordance with the same
process described in Section 1.6(c), for binding resolution.  The Accounting Arbitrator shall determine the
applicable Earn-Out Payment owed at such time, in accordance with the
provisions of this Agreement, as promptly as may be reasonably practicable and
shall endeavor to complete such process within a period of no more than sixty
(60) days.  The determination of the
Accounting Arbitrator, absent manifest error, shall be final and binding on
Buyer and the Shareholders, effective as of the date the Accounting Arbitrator’s
written opinion is received by Buyer and the Shareholders.  Buyer and the Shareholders shall each pay
their own respective costs and expenses in connection with the foregoing
dispute resolution process, but Buyer and the Shareholders shall share equally
the costs and expenses of the Accounting Arbitrator, provided that if there is
an Erroneous Party as described in Section 1.6(c) with respect to the
disputed items at issue, then the Erroneous Party shall pay all fees and
expenses of the Accounting Arbitrator.

(iv)                              Prior
to the date that is the later of (A) ten (10) days following the final
determination of the Earn-Out Payment in accordance with this Section 1.7(d)
(whether by failure of the Shareholders to deliver an Earn-Out Dispute Notice
within the required time period, by agreement of the parties, or by receipt of
an opinion of the Accounting Arbitrator), and (B) two (2) months following the
end of the relevant Earn-Out Period, Buyer shall pay to the Shareholders an
amount in cash equal to the Earn-Out Payment as finally determined in
accordance with this Section 1.7(d). 
In the event that the Percentage Growth Achieved for the Third Earn-Out
Period is less than one hundred percent (100%), then the Unearned Amount for
the Third Earn-Out Period shall be forfeited, and Buyer shall have no further
obligation to pay such amount to the Shareholders.

 9
 

(e)                                  The
calculation of Earn-Out Payment set forth above assumes that Wrisley remains
employed by the Company during the entire Earn-Out Term.  Otherwise, the following adjustments shall be
made to the calculation of Earn-Out Payment:

(i)                                     In
the event that Wrisley voluntarily terminates his employment with the Company
or Buyer without Good Reason or the Company or Buyer terminates his employment
for Cause during any Earn-Out Period, then (A) the Shareholders shall not be
entitled to any Earn-Out Payment for any subsequent Earn-Out Period, and
(B) the Earn-Out Payment for such Earn-Out Period shall be adjusted as
follows: (1) Unearned Earn-Out for any previous Earn-Out Period shall not be
included in the calculation of the Maximum Payment for such Earn-Out Period;
(2) Annual Revenue Growth for such Earn-Out Period (the “Annualized Revenue”)
shall equal (a) the Annual Revenue for such Earn-Out Period through the month
during which Wrisley’s employment is terminated in the manner described above
in this Section 1.7(e)(i) (such number of months, the “Elapsed Months”),
divided by (b) the number of Elapsed Months, multiplied by (c) twelve (12); (3)
the Percentage Growth Achieved for such Earn-Out Period shall be determined by
replacing Annual Revenue in the definition of Actual Revenue Growth with
Annualized Revenue; and (4) the Maximum Payment for such Earn-Out Period shall
equal the Maximum Payment that would otherwise have been applicable, multiplied
by the number of Elapsed Months, divided by twelve (12).

(ii)                                  In
the event that Wrisley is terminated by the Company or Buyer after the Closing
without Cause or his employment is terminated by death or “Disability” (as
defined in his employment agreement with the Company or Buyer during any
Earn-Out Period, then the Shareholders shall be entitled to receive the Maximum
Payment for such Earn-Out Period and any subsequent Earn-Out Period(s),
provided that no Unearned Earnouts relating to any previous Earn-Out Period(s)
shall be included in the calculation of such Maximum Payment(s).

1.8                                 Holdback.  Buyer shall withhold an amount equal to the
Holdback Amount from the payment of cash at the Closing (the “Holdback”).  In the event the Shareholders are required to
indemnify Buyer for breaches of representations, warranties or covenants set
forth in the definitive agreement, Buyer may deduct any amounts due to it from
the Holdback.  Any portion of the
Holdback remaining after deducting any amounts used or set aside to satisfy
indemnity claims in accordance with the terms hereof, plus interest on such
remaining portion earned under the investment vehicle selected by the
Shareholders at the Closing, will be released at the end of the Holdback
Period.  The Holdback shall not limit the
Shareholders’ indemnification obligations to Buyer.

ARTICLE 2

REPRESENTATIONS
AND WARRANTIES REGARDING THE SHAREHOLDERS

As an inducement to Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby, the
Shareholders, jointly and severally, represent and warrant to Buyer as set
forth below.

2.1                                 Authority
and Enforceability.  The Shareholders
have the legal capacity to execute, deliver and perform his or her obligations
under this Agreement and each of the

 10
 

Transaction Documents to
which the Shareholders are a party.  The
execution and delivery of this Agreement and the other Transaction Documents to
which the Shareholders are parties, and the performance of his or her obligations
hereunder and thereunder, have been approved by the Shareholders and do not
require any further authorization or consent. 
This Agreement has been, and each such Transaction Document will be as
of the Closing, duly executed and delivered by the Shareholders and (assuming
the due authorization, execution and delivery by Buyer and the Company), this
Agreement constitutes, and each of the Transaction Documents to which the
Shareholders are parties when executed and delivered will constitute, the
legal, valid and binding agreement of the Shareholders, enforceable against the
Shareholders in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar Laws of general application
relating to or affecting creditors’ rights and to general equity principles.

2.2                                 No
Violation of Law and Agreements. 
Except as set forth on Schedule 2.2, the execution and delivery
by the Shareholders of this Agreement and each of the Transaction Documents to
which the Shareholders are parties, and the performance by the Shareholders of
his or her obligations hereunder or thereunder, does not and will not:

(a)                                  violate
any Court Order or arbitration award that names a Shareholder, or violate any
provision of applicable Law relating to any Shareholder; or

(b)                                 require
a registration, filing, application, notice, consent, approval, order,
qualification, authorization, designation, declaration or waiver with, to or
from any Governmental Authority or any other Person; or

(c)                                  require
a consent, approval or waiver from, or notice to, any party to any contract,
agreement or commitment to which any Shareholder is a party; or

(d)                                 result
in a breach or creation of an Encumbrance upon the Shares; or

(e)                                  constitute
a default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or result in the acceleration of
obligations, loss of benefit or increase in any liabilities or fees under, or
create in any party the right to payment under or the right to terminate,
cancel or modify, any contract, agreement or commitment to which any
Shareholder is a party.

2.3                                 No
Litigation or Regulatory Action. 
There is no Action pending or, to the Knowledge of the Shareholders,
threatened, against the Shareholders or his or her Affiliates before any
Governmental Authority that seeks to prevent, hinder, delay, enjoin or
otherwise challenge the consummation of any of the transactions contemplated
hereby.  There is no Action pending or,
to the Knowledge of the Shareholders, threatened, that questions the legality
or propriety of the transactions contemplated by this Agreement.  There are no outstanding Court Orders or
arbitration awards against any of the Shareholders, the Shares, or any other of
his or her assets or properties which would prohibit or enjoin the consummation
of the transactions contemplated by this Agreement.

 11
 

2.4                                 Ownership
of Shares.  The Shareholders are the
owners, both beneficially and of record, of the Shares, free and clear of
Encumbrances or any other restrictions on transfer (other than any restrictions
under federal and state securities Laws) of the Shares set forth opposite such
shareholder’s name on Schedule 2.4. 
The Shareholders are not parties to any option, warrant, right,
contract, call, put or other agreement or commitment providing for the
disposition or acquisition of any Shares (other than this Agreement).  The Shareholders are not parties to any
voting trust, proxy or other agreement or understanding with respect to the voting
of any Share.

2.5                                 Investment
Intention.  The Shareholders have
such knowledge and experience in financial and business matters that he or she
is capable of evaluating the merits and risks of acquiring the Buyer
Shares.  The Shareholders confirm that
Buyer has made available to him or her the opportunity to ask questions of the
officers and management of Buyer and to acquire additional information about
the business, assets and financial condition of Buyer.  The Shareholders will acquire his or her interest
in Buyer for investment only, and not with a view toward or for sale in
connection with any distribution thereof or with any present intention of
distributing or selling any interest therein. 
The Shareholders understand that the transactions contemplated hereby
have not been, and will not be registered or qualified under the Securities
Act, nor any state or any other applicable securities Law, by reason of a
specific exemption from the registration or qualification provisions of those
Laws, based in part upon the Shareholders’ representations in this
Agreement.  The Shareholders understand
that no part of the interest in Buyer which the Shareholders acquire may be
resold unless such resale is registered under the Securities Act, and
registered or qualified under applicable state securities Laws or an exemption
from such registration and qualification is available.  The Shareholders represent that he and/or she
is familiar with Securities Act Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Securities
Act.  Each of the Shareholders is an “accredited
investor” as defined in the Securities Act.

2.6                                 Legends.  The Shareholders understand that the
certificates evidencing the Buyer Shares may bear one or more restrictive
legends, including, without limitation, legends substantially as follows:

“These securities have not been registered under the
Securities Act, or any state securities laws. 
They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act and any applicable state securities laws or pursuant to an
exemption under such laws, together with, in certain cases, an opinion of
counsel reasonably satisfactory to the issuer that such registration is not
required.”

“A portion of these securities may not be sold,
offered for sale, pledged or hypothecated during the first six (6) month period
following the first anniversary of the Closing Date.”

 12
 

ARTICLE 3

REPRESENTATIONS
AND WARRANTIES REGARDING THE COMPANY

As an inducement to Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby, the Company
and the Shareholders, jointly and severally, represent and warrant to Buyer as
set forth below.

3.1                                 Organization
and Power.  The Company is a
corporation duly incorporated, validly existing and in good standing under the
Laws of the State of California.  The
Company is licensed or qualified to conduct its business and is in good
standing in every jurisdiction where it is required to be so licensed or
qualified, except where the failure to do so would not result in a Material
Adverse Effect.  Schedule 3.1
sets forth a true and complete list of all jurisdictions in which the Company
is qualified or licensed to do business as a foreign corporation.  The Company has all necessary corporate power
and authority to own or lease the assets it purports to own or lease and to
carry on its business in the manner currently conducted.

3.2                                 Authority
and Enforceability.  The Company has
all requisite corporate power and authority, and has taken all corporate action
necessary, to execute and deliver this Agreement and each Transaction Document
to which the Company is a party and to perform its obligations hereunder and
thereunder.  This Agreement has been, and
each such Transaction Document will be as of the Closing, duly authorized,
executed and delivered by the Company and has been duly approved by the Company’s
board of directors and the Shareholders of the Company, and (assuming the due
authorization, execution and delivery by Buyer and the Shareholders) this
Agreement constitutes, and each Transaction Document when so executed and
delivered will constitute, the legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms subject to bankruptcy, insolvency, reorganization, moratorium and similar
Laws of general application relating to or affecting creditors’ rights and to
general equity principles.

3.3                                 Conflicts.  The execution and delivery by the Company of
this Agreement and each Transaction Document to which it is a party, and the
performance by it of its obligations hereunder or thereunder, does not and will
not:

(a)                                  violate
or conflict with any provision of the articles of incorporation or bylaws of
the Company;

(b)                                 (i) violate
any provision of applicable Law relating to the Company, (ii) violate any
provision of any Court Order or arbitration award to which the Company is
subject, or (iii) except as set forth on Schedule 3.3, require a
registration, filing, application, notice, consent, approval, order,
qualification, authorization, designation, declaration or waiver with, to or
from any Governmental Authority or any other Person; or

(c)                                  except
as set forth on Schedule 3.3, (i) require a consent, approval
or waiver from, or notice to, any party to a Material Contract, or
(ii) conflict with, result in a breach or creation of any Encumbrance,
constitute a default (or an event which would, with the passage of time or the
giving of notice or both, constitute a default) under, or give rise to a right
of payment under or the right to terminate, amend, cancel, modify, abandon or
accelerate any provision of any Material Contract to which the Company is a
party.

 13
 

3.4                                 Capitalization.  The total authorized capital stock of the
Company consists of ten thousand (10,000) shares of Common Stock, no par value(“Common
Stock”), of which ten thousand (10,000) shares are issued and outstanding.  All issued and outstanding shares of the
Common Stock are validly issued, fully paid and nonassessable, were issued in
compliance with all federal and state securities Laws and were not issued in
violation of any preemptive rights, rights of first refusal or similar
rights.  No preemptive rights, rights of
first refusal or similar rights exist with respect to any shares of capital
stock of the Company and no such rights arise by virtue of or in connection
with the transactions contemplated by this Agreement.  There are no outstanding (i) securities
convertible into or exchangeable for any capital stock of the Company;
(ii) options, warrants or other rights to purchase or subscribe to capital
stock of the Company or securities convertible into or exchangeable for capital
stock of the Company; or (iii) contracts, commitments, agreements,
understandings, arrangements, calls or claims of any kind relating to the
issuance of any capital stock of the Company, any such convertible or
exchangeable securities or any such options, warrants or rights.  There are no outstanding stock appreciation,
phantom stock, profit participation or other similar rights with respect to the
Company; there are no proxies, voting rights or other agreements or
understandings with respect to the voting or transfer of the capital stock of
the Company; and the Company is not obligated to redeem or otherwise acquire
any of its outstanding shares of capital stock. 
All of the issued and outstanding shares of Common Stock are held of
record by the Shareholders.

3.5                                 Financial
Statements.  Attached as Schedule 3.5
are true and complete copies of the Company’s (i) unaudited balance sheet
dated June 30, 2007, reviewed by independent accountants (the “Most Recent
Balance Sheet Date”), and the related unaudited income statement for the six
(6) month period ended on the Most Recent Balance Sheet Date (together, the “Most
Recent Financial Statements”); and (ii) reviewed balance sheets dated
December 31, 2006 and December 31, 2005, and the related income statement  for the fiscal year then ended
(collectively, the “Year-End Financial Statements”, and together with the Most
Recent Financial Statements, the “Financial Statements”).  The Financial Statements present fairly the
financial position and results of operations of the Company as at and for the
respective periods then ended, and have been prepared in accordance with GAAP,
consistently applied, and subject in the case of the Most Recent Financial
Statements, to year end adjustments which shall not be material in amount.

3.6                                 No
Undisclosed Liabilities.  The Company
does not have any liabilities, debts or obligations (whether absolute, accrued,
contingent, matured, unmatured or otherwise) except for (a) liabilities
disclosed, reflected or reserved against on the Most Recent Balance Sheet, (b)
liabilities incurred since the Most Recent Balance Sheet Date in the ordinary
course of business, (c) liabilities and obligations incurred in connection with
this Agreement and the transactions contemplated hereby, (d) those liabilities
set forth on Schedule 3.6 and (e) liabilities that would not,
individually result in Losses greater than $10,000 or result in Losses greater
than $200,000 in the aggregate.  To the
extent that there is a representation or warranty in this Agreement that specifically
addresses any particular type of liability, debt or obligation, the terms of
such specific representation or warranty and any limitation regarding such
representation or warranty (including but not limited to any Knowledge
qualification) shall apply to such type of liability, debt or obligation and
the representation contained in this Section 3.6 shall not apply.

 14

3.7                                 Operations
Since Most Recent Balance Sheet Date. 
Except as set forth on Schedule 3.7, since the Most Recent
Balance Sheet Date, the Company has conducted its business in the ordinary
course and there has not been a Material Adverse Effect.  Except as set forth on Schedule 3.7,
since the Most Recent Balance Sheet Date, the Company has not:

(i)                                     mortgaged,
pledged or otherwise encumbered any of its properties or assets or sold,
assigned, leased (as lessor or lessee), licensed, transferred, abandoned or otherwise
disposed of any of its properties or assets, tangible or intangible, with a
book or fair market value of more than Twenty Five Thousand Dollars ($25,000);

(ii)                                  acquired
any assets with a value of more than Twenty Five Thousand Dollars ($25,000), or
made or committed to make (individually or in a series of interdependent
commitments) any capital expenditures in excess of Twenty Five Thousand Dollars
($25,000);

(iii)                               (A)
made, granted or instituted any bonus, wage or salary increase or committed,
orally or in writing, to any such increase to any director, officer, employee
or group of employees (other than bonus, wage and salary increases in the
ordinary course of business consistent with past practice), (B) made, granted
or instituted any increase or committed, orally or in writing, to any such
increase in any existing Benefit Plan, amended any of the Benefit Plans, or
adopted any new additional pension, profit-sharing, deferred compensation,
severance pay, retirement or other employee benefit plan or similar
arrangement, (C) hired new employees or independent contractors other than in
the ordinary course of business consistent with past practice, or (D) entered
into any new employment, severance, consulting or other compensation agreement
with any existing director, officer, independent contractor or employee;

(iv)                              suffered
any damage, destruction, loss or casualty with respect to any property or any
interruption in the use of its property (whether or not covered by insurance),
or experienced any changes in the amount and scope of insurance coverage;

(v)                                 created,
incurred, assumed or guaranteed any Indebtedness;

(vi)                              set
aside, paid or declared any dividends or made any other distributions on its
equity securities of any class (whether in cash or in kind) or purchased,
redeemed or otherwise acquired any of its equity securities of any class;

(vii)                           accelerated,
terminated or made modifications to, or cancelled any Business Agreement;

(viii)                        made any
capital investment in, or acquired any capital stock of or line of business or
division of any Person;

(ix)                                transferred,
assigned or granted any license or sublicense of any rights with respect to any
Intellectual Property Rights of the Company;

(x)                                   made
or authorized any change in its articles of incorporation or bylaws;

 15
 

(xi)                                issued,
sold, or otherwise disposed of any of its capital stock, or granted any
options, warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;

(xii)                             entered
into any transaction with any of its Shareholders, directors, officers or
employees (or any Affiliate of any thereof), other than related to written
employment arrangements existing on the Most Recent Balance Sheet and disclosed
on Schedule 3.17(a);

(xiii)                          made any
loans or advances of money, other than ordinary course travel or expense
advances to employees consistent with past practices;

(xiv)                         changed
its accounting methods or principles or practices, or reversed any accruals,
other than as required by GAAP;

(xv)                            changed
any of its practices or policies with respect to the collection of accounts
receivable or the payment of accounts payable; or

(xvi)                         other
than agreements with Buyer or its Affiliates relating to the transactions
contemplated hereby, agreed or committed, whether orally or in writing, to do
any of the foregoing.

3.8                                 Taxes.

(a)                                  Filing
of Tax Returns and Payment of Taxes. 
The Company has timely filed all material Tax Returns required to be
filed by it, each such Tax Return has been prepared in compliance with all
applicable laws and regulations, and all such Tax Returns are true, accurate
and complete in all material respects. 
All Taxes that have become due and payable by the Company have been
timely paid, and the Company is not and will not be liable for any additional
Taxes in respect of any Taxable period or any portion thereof ending on or
before the Most Recent Balance Sheet Date in an amount that exceeds the
corresponding reserve therefor separately identified in Schedule 3.8(b),
if any, as reflected in the Most Recent Financial Statements, and any Taxes of
the Company arising after such date and at or before the Closing have been or
will be incurred in the ordinary course of the Company’s business.  The Company has delivered to the Buyer true, correct and complete
copies of all Tax Returns filed by or with respect to it with respect to
Taxable periods ended after December 31, 2001 (the “Delivered Tax Returns”),
and has delivered or made available to the
Buyer all relevant documents and information with respect thereto,
including without limitation work papers, records, examination reports, and
statements of deficiencies proposed, assessed against or agreed to by the
Company.

(b)                                 Deficiencies.  No deficiency or adjustment in respect of
Taxes in writing has been proposed, asserted or assessed by any Tax authority
against the Company.  There are no
outstanding refund claims with respect to any Tax or Tax Return of the Company.

(c)                                  Liens.  There are no liens for Taxes (other than
current Taxes not yet due and payable) on any of the assets of the Company.

 16
 

(d)                                 Extensions
to Statute of Limitations for Assessment of Taxes.  The Company has not consented to extend the
time in which any Tax may be assessed or collected by any Tax authority.

(e)                                  Extensions
of the Time for Filing Tax Returns. 
The Company has not requested or been granted an extension of the time
for filing any Tax Return that has not yet been filed.

(f)                                    Pending
Proceedings.  There is no action,
suit, Tax authority proceeding, or audit with respect to any Tax now in
progress, pending or, to the Knowledge of the Company, threatened against or
with respect to the Company.

(g)                                 No
Failures to File Tax Returns.  No
claim has ever been made by a Tax authority in a jurisdiction where the Company
does not pay Tax or file Tax Returns that the Company is or may be subject to
Taxes assessed by such jurisdiction.

(h)                                 Elections.  The Company has not made any material
elections with respect to Taxes affecting the Company that were not made in the
Delivered Tax Returns.

(i)                                     Membership
in Affiliated Groups, Liability for Taxes of Other Persons, Etc.  The Company has never been a member of any
affiliated group of corporations (as defined in Section 1504(a) of the Code) or
filed or been included in a combined, consolidated or unitary Tax Return.  The Company is neither a party to nor bound
by any Tax sharing agreement or Tax allocation agreement.  The Company is not presently liable, nor does
the Company have any potential liability, for the Taxes of another Person (i) under
Treasury Regulations Section 1.1502-6 (or comparable provision of state, local
or foreign law), (ii) as transferee or successor, or (iii) by contract or
indemnity or otherwise.

(j)                                     Adjustments
under Section 481, Etc.  The Company
will not be required, as a result of a change in method of accounting, either
by reason of the transactions contemplated by this Agreement or for any period
ending on or before the Claim Date, to include any adjustment under Section
481(c) of the Code (or any similar or corresponding provision or requirement
under any other Tax law) in Taxable income for any period ending after the
Closing Date.  The Company will not be
required to include any item of income in Taxable income for any Taxable period
(or portion thereof) ending after the Closing Date as a result of any (i)
prepaid amount received or otherwise accrued economically on or prior to the
Closing Date, or (ii) “closing agreement” described in Section 7121 of the Code
(or any similar or corresponding provision of any other Tax law).

(k)                                  Withholding
Taxes.  The Company has timely
withheld and timely paid all Taxes which are required to have been withheld and
paid by it in connection with amounts paid or owing to any employee,
independent contractor, creditor or other Person.

(l)                                     Sales
and Use Tax.  The Company has
withheld all sales, use or similar Taxes which it was required to withhold and
paid all such withheld Taxes and any other required sales, use or similar Taxes
to the proper Tax authority.

 17
 

(m)                               Permanent
Establishments and Branches Outside the United States.  The Company does not have a permanent
establishment in any country with which the United States of America has a
relevant Tax treaty, as defined in such relevant Tax treaty, and does not
otherwise operate or conduct business through any branch in any country other
than the United States.

(n)                                 U.S.
Real Property Holding Corporation. 
The Company is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).

(o)                                 Safe
Harbor Lease Property.  None of the
property owned or used by the Company is subject to a Tax benefit transfer
lease executed in accordance with Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended by the Economic Recovery Tax Act of 1981.

(p)                                 Tax-Exempt
Use Property.  None of the property
owned by the Company is “tax-exempt use property” within the meaning of Section
168(h) of the Code.

(q)                                 Security
for Tax-Exempt Obligations.  None of
the assets of the Company directly or indirectly secures any indebtedness, the
interest on which is tax-exempt under Section 103(a) of the Code, and the
Company is not directly or indirectly an obligor or a guarantor with respect to
any such indebtedness.

(r)                                    Section
341(f) Consent.  The Company has not
filed any consent agreement under Section 341(f) of the Code (as in effect
prior to its repeal by the Jobs and Growth Tax Relief Reconciliation Act of
2003) or agreed to have Section 341(f)(2) of the Code (as in effect prior
to such repeal) apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code prior to such repeal) owned by
the Company.

(s)                                  Parachute
Payments, Etc.  The Company has not
made any payments, is not obligated to make any payments, and is not a party to
any agreement that under certain circumstances could obligate it to make any
payments, that will not be deductible under Code Sections 162(m) or 280G.

(t)                                    Rulings.  There are no outstanding rulings of, or
requests for rulings by, any Tax authority addressed to the Company that are,
or if issued would be, binding on the Company.

(u)                                 Divisive
Transactions.  The Company has never
been either a “distributing corporation” or a “controlled corporation” in
connection with a distribution of stock qualifying for tax-free treatment, in
whole or in part, pursuant to Section 355 of the Code.

(v)                                 Section
83(b) Elections.  All Persons who
have purchased shares of the Company’s stock that at the time of such purchase
were and on the Closing Date will be subject to a substantial risk of
forfeiture under Section 83 of the Code have timely filed elections under
Section 83(b) of the Code and any analogous provisions of applicable state and
local Tax laws.

 18
 

(w)                               Nonqualified
Deferred Compensation Plans.  Each
plan, program, arrangement or agreement maintained
or entered into by the Company which constitutes in any part a
nonqualified deferred compensation plan within the meaning of Section 409A of
the Code is identified as such on Schedule 3.8(w).  Since December 31, 2004, each plan, program,
arrangement or agreement there identified has been operated and maintained in
accordance with a good faith,
reasonable interpretation of Section 409A of the Code and its purpose, as
determined under applicable guidance of the Department of Treasury and the Internal Revenue Service, with
respect to amounts deferred (within the meaning of Section 409A of the Code)
after December 31, 2004.

(x)                                   Reportable Transactions, etc.  The
Company has not participated, within the meaning of Treasury Regulations
Section 1.6011-4(c), in (i) any “reportable transaction” within the meaning of
Section 6011 of the Code and the Treasury Regulations thereunder, (ii) any “confidential
corporate tax shelter” within the meaning of Section 6111 of the Code and the
Treasury Regulations thereunder, or (iii) any “potentially abusive tax shelter”
within the meaning of Section 6112 of the Code and the Treasury Regulations
thereunder.

(y)                                 Tax
Return Disclosure.  The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to substantial understatement of federal income tax within the
meaning of Section 6662 of the Code.

(z)                                   Limitations
on Net Operating Losses, Etc.  There
currently are no limitations on the utilization of the net operating loses,
built-in-losses, capital losses, tax credits or other similar items of the
Company under (i) Section 382 of the Code, (ii) Section 383 of the Code, (iii)
Section 384 of the Code, (iv) Section 269 of the Code, (v) the Treasury
Regulations under Section 1502 of the Code, or (vi) of any statutes,
regulations or legal provisions of jurisdictions other than the United States
comparable to any of the foregoing.

(aa)                            Foreign
Tax Exemptions.  The Company has
provided to Buyer all documentation relating to, and is in full compliance with
all terms and conditions of, any Tax exemption, Tax holiday or other Tax
reduction agreement or order of a territorial or non-U.S. government.  The consummation of the transactions
contemplated by this Agreement will not have any adverse effect on the
continued validity and effectiveness of any such Tax exemption, Tax holiday or
other Tax reduction agreement or order.

(bb)                          Foreign
Tax Payments.  The Company has in its
possession official foreign government receipts, if any were provided to the
Company, for any Taxes paid by it to any foreign Tax authorities.

For purposes of this Section 3.8, references to
the Company shall be deemed to include the Company and all of its Subsidiaries.

3.9                                 Permits.  The Company holds all Permits that are
necessary to entitle it to own or lease, operate and use its assets and to
carry on and conduct its business as currently conducted.

 19
 

3.10                           Real
Property.

(a)                                  The
Company does not own any real property.

(b)                                 Schedule 3.10(b)
contains a true and complete list of the following, and true and complete
copies of the following, or access thereto, has been provided to Buyer prior to
the date hereof:

(i)                                     all
leases, subleases, licenses or similar agreements (the “Leases”) of real
property and interests in real property and the buildings, structures and
improvements thereon pursuant to which the Company is the lessee, sublessee or
licensee and which are for the use or occupancy of real property owned by a
third party (each, a “Facility” and collectively, the “Facilities”), in each
case, setting forth the street address or legal description of each Facility
covered thereby;

(ii)                                  all
contracts or options (and all amendments, extensions and modifications thereto)
held by the Company or contractual obligations (and all amendments, extensions
and modifications thereto) on the part of the Company to purchase or acquire
any interest in real property (the “Purchase Option Agreements”); and

(iii)                               all
contracts or options (and all amendments, extensions and modifications thereto)
granted by the Company or contractual obligations (and all amendments,
extensions and modifications thereto) on the part of the Company to sell or
dispose of any interest in real property (the “Sale Option Agreements”, and
together with the Leases and the Purchase Option Agreements, the “Real Property
Agreements”).

(c)                                  The
Real Property Agreements are in full force and effect and have not been amended
except as disclosed on Schedule 3.10(c), and neither the Company, nor to
the knowledge of the Company, any other party thereto is in default or breach
of any such Real Property Agreement.  No
event has occurred which with the passage of time or the giving of notice or
both would cause a breach or default by the Company, or, to the knowledge of
the Company, any other party to such Real Property Agreement, or permit the
termination, modification or acceleration of rent or any other obligation
thereunder.  Except as disclosed on Schedule
3.10(c), the sale of the Shares contemplated by this Agreement does not
require the consent of any other party to any Real Property Agreement.  Neither the Company nor any other party to
any Real Property Agreement has repudiated any provision thereof.  The Company does not intend, nor has it
received written notice that any other party to any Real Property Agreement
intends, to cancel, not renew or terminate such Real Property Agreement or to
exercise or not exercise any option under such Real Property Agreement.  There are no disputes, oral agreements or
forbearance programs in effect as to any such Real Property Agreement and no
such Real Property Agreement has been modified from the copy provided to Buyer.  The Company has a valid leasehold interest in
each of the Facilities pursuant to the Leases, which leasehold interests are
free and clear of any Encumbrances.

(d)                                 The
Facilities, to the extent of Company’s interest therein, have received all
required approvals of Governmental Authorities (including, without limitation,
Permits and a certificate of occupancy or other similar certificate permitting
Company’s lawful occupancy of the Facilities) required in connection with the
operation thereof.  The improvements
constructed on the Facilities are (x) in good operating condition and
repair,

 20
 

subject to ordinary wear
and tear, and safe for their current occupancy and use, (y) sufficient for
the operation of the business of the Company as presently conducted, and
(z) in conformity in all material respects with applicable Law.

(e)                                  The
Company has not received any written notice that it is in violation of any
zoning, use, occupancy, building, wetlands or environmental regulation,
ordinance or other Law relating to the Facilities, including, without limitation,
the Americans With Disabilities Act and Environmental Laws.  There are no pending or threatened
condemnation proceedings, suits or administrative actions with respect to the
Facilities relating to any such parcel or other matters adversely affecting the
current use, occupancy or value thereof.

3.11                           Intellectual
Property.

(a)                                  Schedule
3.11(a) lists all Company Registered Intellectual Property rights and lists
any proceedings or actions before any court, tribunal (including the PTO or
equivalent authority anywhere in the world) related to any of the Company
Registered Intellectual Property Rights or Company Intellectual Property.  Each item of Company Registered Intellectual
Property Rights is currently in compliance with all formal legal requirements (including
payment of filing, examination and maintenance fees and proofs of use) and is
valid, subsisting and enforceable.  The
Company has no Knowledge of any facts or circumstances that would render any
Company Intellectual Property invalid or unenforceable.

(b)                                 The
Company possesses all right, title and interest in and to each item of material
Company Intellectual Property, free and clear of any Encumbrances.  The Company owns exclusively, and has good
title to, all Company Source Code and copyrighted works that are included or
incorporated into or used to provide Company Products or which the Company
otherwise purports to own.

(c)                                  The
Company has not transferred ownership of, or granted any exclusive license of
or right to use, or authorized the retention of any exclusive rights to use or
joint ownership of, any Technology or Intellectual Property Right that is or
was material Company Intellectual Property, to any Person.  The Company has not allowed the Company’s
rights in any Technology or Intellectual Property Right that is or was material
Company Intellectual Property to lapse or enter the public domain.

(d)                                 Except
as would not be material, all Technology and Intellectual Property Rights used
in, necessary to, or which would be infringed by the conduct of business by the
Company as presently conducted or currently contemplated to be conducted, were
written, invented, developed and created solely by either (i) employees of
the Company acting within the scope of their employment, or (ii) by third
parties who have validly and irrevocably assigned all of their rights,
including Intellectual Property Rights in any Technology, to the Company, and
no third party owns or has any rights to any such Technology or Intellectual
Property Rights.  The Company holds, and
at all times during the conduct of its business has held, a sufficient number
of licenses to use any off-the-shelf software used by it in connection with the
conduct of its business in order to permit it to use such software in the
manner currently used without violation of any third party rights.

 21
 

(e)                                  Schedule
3.11(e) sets forth all material Technology and Intellectual Property Rights
used in and/or necessary to the conduct of the business of the Company as it
currently is conducted, and as it is currently planned or contemplated to be
conducted by the Company.  Other than
Intellectual Property Contracts with respect to the Technology or Intellectual
Property Rights of third Persons, the Company Intellectual Property constitutes
all material Technology and Intellectual Property Rights used in and/or
necessary to the conduct of the business of the Company as it currently is
conducted.

(f)                                    The
operation of the business of the Company as it has been conducted and is
currently conducted, has not and does not infringe or misappropriate any
Intellectual Property Right of any Person, and the Company has not received
notice from any Person claiming that such operation or any act, product,
technology or service of the Company infringes or misappropriates any Intellectual
Property Right of any Person (nor does the Company have Knowledge of any basis
therefor).  To the knowledge of the
Company, no Person is infringing or misappropriating any Technology or
Intellectual Property Rights used in the operation of the business of the
Company as it is currently conducted.

(g)                                 No
Company Intellectual Property or Company Product is subject to any proceeding
or outstanding Court Order or settlement agreement or stipulation that
restricts in any manner the use, transfer, provision, sale or licensing thereof
by the Company or may affect the validity, use or enforceability of such
Company Intellectual Property or Company Products.

(h)                                 Schedule
3.11(h) lists all material Intellectual Property Contracts.  The Company is not in breach of, nor has the
Company failed to perform under, any of the Intellectual Property Contracts
and, to the Company’s Knowledge, no other party to any such Intellectual
Property Contracts is in breach thereof or has failed to perform
thereunder.  All material Intellectual
Property Contracts will continue in force to the benefit of Buyer after
consummation of the transaction contemplated herein without the need for
approval by any Person.  The consummation
of the transactions contemplated in this Agreement will neither violate nor
result in the breach, modification, termination or suspension of (or give the
other party thereto the right to cause any of the foregoing) any of the
material Intellectual Property Contracts and, following the Closing Date, Buyer
will be permitted to exercise all of the Company’s rights and receive all of
the Company’s benefits (including payments) under material Intellectual
Property Contracts to the same extent the Company would have been able to had
the transactions contemplated by this Agreement not occurred, and without the
payment of any additional amounts or consideration other than the ongoing fees,
royalties or other payments which the Company would otherwise have been
required to pay to had the transactions contemplated by this Agreement not
occurred.  The Company has not received
any notices from any parties to the material Intellectual Property Contracts of
any intention to terminate or not renew any portion of such material
Intellectual Property Contracts or to discontinue provision, development or
support of any products or services provided thereunder.  No Person who has licensed any Technology or
Intellectual Property Rights to the Company has ownership rights or license
rights to improvements or modifications made by the Company in or to such
Technology or Intellectual Property Rights. 
No Person who has licensed any Technology or Intellectual Property
Rights from the Company has ownership rights or license rights to improvements
or modifications made by such Person in or to such Technology or Intellectual
Property Rights.

 22
 

(i)                                     The
Company has taken all steps that are reasonably required to protect the
confidential information and trade secrets of the Company and Company’s rights
therein and to protect the confidential information and trade secrets provided
by any other Person to the Company. 
Except as set forth on Schedule 3.11(i), all current and former
employees of the Company and independent contractors to the Company involved in
the development of Technology or Intellectual Property Rights have signed the
Company’s standard forms of Invention Assignment/Confidentiality Agreement,
which form is attached hereto as Schedule 3.11(i) and all of which have
been provided to Buyer, pursuant to which all Technology and Intellectual
Property Rights developed by such employees within the scope of their
employment and by such independent contractors within the scope of their
contracting relationship with the Company are assigned to Company.  No current or former employees or independent
contractors have excluded any prior inventions from assignment to the Company
in any such agreements.

(j)                                     Neither
this Agreement nor the transactions contemplated by this Agreement, by
operation of law or otherwise, will result in (i) either Company or the
Buyer granting to any third party any right to or with respect to any
Technology or Intellectual Property Right owned by, or licensed to, either of
them, (ii) either the Company or Buyer being bound by, or subject to, any
non-compete or other restriction on the operation or scope of their respective
businesses, or (iii) either the Company or Buyer being obligated to pay
any royalties or other amounts to any third party in excess of those payable by
Company or Buyer, respectively, prior to the Closing.

(k)                                  Schedule
3.11(k) lists all Open Source Materials used by the Company in any way, and
describes the manner in which such Open Source Materials were used (such
description shall include, without limitation, whether (and, if so, how) the
Open Source Materials were modified and/or distributed by the Company).  The Company has not (i) incorporated
Open Source Materials into, or combined Open Source Materials with, any Company
Product or Company Intellectual Property or used Open Source Materials to
provide any Company Product; (ii) distributed Open Source Materials in
conjunction with or for use with any Company Product or Company Intellectual
Property; or (iii) used Open Source Materials that create, or purport to
create, obligations for the Company with respect to Intellectual Property
Rights or grant, or purport to grant, to any third party, any rights or
immunities under Intellectual Property Rights (including, but not limited to,
using any Open Source Materials that require, as a condition of use, modification
and/or distribution of such Open Source Materials or that other Software
incorporated into, derived from or distributed with such Open Source Materials
be (x) disclosed or distributed in source code form, (y) be licensed
for the purpose of making derivative works, or (z) be redistributable at
no charge or with any restriction on the consideration charged therefor).

(l)                                     All
products sold, licensed, leased or delivered by the Company to customers and
all services provided by or through the Company to customers on or prior to the
Closing conform in all material respects to applicable contractual commitments,
express and implied warranties, service level commitments, product
specifications and product documentation and to any representations made to
customers.  The Company has no liability
(and, to the Knowledge of the Company, there is no legitimate basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against the Company giving rise to any material
liability relating to the foregoing contracts) for replacement,

 23
 

repair or redelivery
thereof or other damages in connection therewith in excess of any reserves
therefor reflected on the Financial Statements.

(m)                               No
(i) government funding; (ii) facilities of a university, college,
other educational institution or research center; or (iii) funding from
any Person (other than funds received in consideration for Company capital
stock) was used in the development of the Technology and Intellectual Property
Rights owned by the Company.

3.12                           Compliance
with Laws.  The Company has been at
all times and is in compliance in all material respects with all applicable
Laws.  The Company has not received any
notice to the effect that it is not, and the Company has not received notice
that any Action has been filed or commenced against the Company alleging that
it is not, in compliance in any respect with any Law.

3.13                           Contracts.  Schedule 3.13 lists all Material
Contracts, whether written or oral, that are legally enforceable by or against
the Company, to which the Company is a party or by which the Company or any of
its assets or properties may be bound, and specifically includes:

(a)                                  Contracts
between the Company and any current or former officer, director, consultant,
independent contractor or employee thereof, any partnership, corporation, joint
venture or any other entity in which any such Person has an interest or any
third party agency supplying the services of any consultants, employees
(including temporary employees or “leased” employees) or independent
contractors to the Company (including any non-competition, confidentiality,
trade secret or similar agreement);

(b)                                 notes,
mortgages, indentures and other agreements and instruments under which the
Company has created, incurred, assumed or guaranteed any Indebtedness or under
which the Company has imposed an Encumbrance on any of its assets, tangible or
intangible;

(c)                                  joint
venture or partnership agreements to which the Company is a party;

(d)                                 personal
property leases to which the Company is a party involving total future payments
in excess of Fifteen Thousand Dollars ($15,000);

(e)                                  Contracts
to which the Company is a party containing covenants of the Company not to
compete in a line of business or with a Person;

(f)                                    Contracts
for the purchase of supplies or services and involving any future expenditures
of more than $5,000 by the Company;

(g)                                 Contracts
for the sale or lease of the Company’s products or the furnishing of the
Company’s services;

(h)                                 warranties
relating to the Company’s products or the furnishing of the Company’s services
not on the Company’s standard forms;

 24
 

(i)                                     sales
agency, sales representative, broker, distributor, employment agency or similar
contracts to which the Company is a party relating to the sale or lease of the
Company’s products or the furnishing of the Company’s services or involving
another Person’s products or services;

(j)                                     Contracts
involving the Company pursuant to which a party other than the Company has a
right to renegotiate or require a reduction in price or refund or rebate of
payments made to the Company or which provide for any rebates, marketing
allowances or cooperative payments, including contracts containing volume
discounts or favorable early payment terms;

(k)                                  Contracts
involving the Company providing for payment by the Company of liquidated
damages or penalties in excess of Twenty-five Thousand Dollars ($25,000) in the
event of breach;

(l)                                     letters
of credit, performance or payment bonds, or guarantees of performance, or
contracts or commitments involving the Company to provide same;

(m)                               license
or franchise agreements involving the Company not listed on Schedule 3.11(d);

(n)                                 Contracts
involving the Company with respect to the acquisition or sale of the business,
assets or shares of any corporation, partnership or other business entity
regardless of whether the transaction has been consummated to which the Company
was a party in the past five (5) years or which contain obligations currently
binding on the Company;

(o)                                 other
contracts involving an estimated total future payment or payments or liability,
individually or, with respect to a group of related written contracts with a
single third party, taken as a whole, in excess of Fifty Thousand Dollars
($50,000) to or by the Company that may not be canceled by the Company upon
thirty (30) or fewer days notice without any liability;

(p)                                 Contracts
or other agreements under which the Company agrees to indemnify any party with
respect to, or to share, Tax liability of any party;

(q)                                 agreements
with any labor union or association representing any employee;

(r)                                    any
contracts with Governmental Authorities and subcontracts (at any tier) under
prime contracts with Governmental Authorities (“Government Contracts”).

3.14                           Status
of Contracts; Government Contracts.

(a)                                  Each
of the Contracts listed on Schedule 3.13 and the other Contracts listed
on any of the other Schedules in Article 3 hereto, other than Schedules
3.11(d), 3.15(a) and 3.19, as to which the relevant representations and
warranties in those sections should apply (collectively, the “Business
Agreements”), is legal, valid, binding and enforceable, in accordance with its
terms against the Company and, to the knowledge of the Company, all third

 25
 

parties thereto (except
to the extent such enforceability is limited by general equitable principles or
by applicable bankruptcy, insolvency, moratorium or similar Laws which affect
creditors generally), and is in full force and effect.  The Company has either delivered to Buyer or
has given Buyer access to copies of the Business Agreements.  The Company is not, and, to the knowledge of
the Company, no other party thereto is, in breach or default under any of the
Business Agreements, nor does there exist any event that, with the passage of
time or the giving of notice or both, would constitute a breach of or default
under any of the Business Agreements. 
The Company has performed all obligations required to be performed by it
to date under each such Business Agreement. 
Except as set forth on Schedule 3.14, no approval or consent of
any Person is needed in order that the Business Agreements continue in full
force and effect following the consummation of the transaction contemplated by
this Agreement and the Transaction Documents, and no Business Agreement
includes any provision the effect of which may be to enlarge or accelerate any
obligation of the Company thereunder or give additional rights to any other
party thereto or will in any other way be affected by, or terminate or lapse by
reason of, the transactions contemplated by this Agreement and the Transaction
Documents.  The Company does not intend,
nor has it received notice, nor is it otherwise aware, that any other party to
any Business Agreement intends, to change, cancel, not renew or terminate such
Business Agreement.

(b)                                 

(i)                                     The
Company has been, and has conducted its business, in compliance with all
applicable laws and regulations relating to its performance of commercial and
government contracts, all terms and conditions of its government contracts and
commercial contracts, all applicable import and export laws, regulations,
licenses and provisos, and all applicable anti-corruption laws and regulations,
since January 1, 2002.  The Company has not received any notice from any
Governmental Entity alleging its violation of any applicable law.  None of
the Company’s assets or businesses is subject to any judicial or administrative
proceeding, order, or to the Company’s Knowledge, investigation of or by a
Governmental Entity.

(ii)                                  Neither
the Company nor its current or, to the Company’s Knowledge, former executives,
officers, representatives, agents or employees (i) has used or is using any
funds for any illegal contributions, gifts, entertainment or other unlawful
expenses; (ii) has used or is using any funds for any direct or indirect
unlawful payments to any foreign or domestic government officials or employees;
(iii) has violated or is violating any provision of the Foreign Corrupt
Practices Act of 1977 of the United States or any other applicable
anti-corruption law; (iv) has established or maintained, or is maintaining, any
unlawful or unrecorded fund of monies or other properties; (v) has made at any
time any false or fictitious entries on their respective accounting books and
records; (vi) has made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment of any nature or paid any fee, commission or other
payment that has not been properly recorded on its accounting books and
records; (vii) has otherwise given or received anything of value to or from a
government official or customer for the purpose of obtaining or retaining
business; or (viii) is employed by a Governmental Entity or customer.

 26
 

(iii)                               Set
forth on Section 3.14(b)(iii) of the Disclosure Schedule is a list of each
active Government Contract held by the Company as of the date of this Agreement
(not separately identifying each task or delivery order issued thereunder). Set
forth on Section 3.14(b)(iii) of the Disclosure Schedule is a list of each
outstanding Bid as of the date hereof which has not been accepted or
rejected.  Set forth on Section
3.14(b)(iii) of the Disclosure Schedule is a list of each outstanding teaming
agreement or existing joint venture agreement. 
The Company has made available to the Buyer correct and complete copies
of all such Government Contracts listed on Section 3.14(b)(iii), all such Bids
submitted by the Company or Shareholder listed on Section 3.14(b)(iii), and all
such teaming agreements and joint ventures listed on Section 3.14(b)(iii) of
the Disclosure Schedule.  All such
Government Contracts and any joint ventures constitute valid and binding
obligations of the Company, and, to the Company’s Knowledge, of the other party
or parties thereto, and are fully enforceable in accordance with their terms,
and all such Bids and teaming agreements were made in the ordinary course of
business.

(iv)                              With
respect to each Government Contract and Bid listed on Section 3.14(b)(iii) of
the Disclosure Schedule: (i) the Company has complied in all material respects
with all terms and conditions of such Government Contract and Bid and any
requirements of law pertaining to such Government Contract and Bid; (ii) each
representation and certification executed by the Company pertaining to such Government
Contract and Bid was true and correct in all material  respects
as of its effective date; (iii) the Company has not submitted any inaccurate or
untruthful cost or pricing data or any claim for payment to any Governmental
Entity in connection with such Government Contract or Bid; (iv) there is no
suspension, stop work order, cure notice or show cause notice in effect for
such Government Contract nor, to the Company’s Knowledge, is any Governmental
Entity threatening to issue one; and (v) no protest of any Government Contract
or Bid is pending.

(v)                                 There
is no pending or, to the Company’s Knowledge, threatened: (i) civil fraud or
criminal investigation that exists or has been threatened, indictment or
information of the Company by any Governmental Entity; (ii) suspension or
debarment proceeding against the Company; or (iii) contracting officer’s
decision or legal proceeding by which a Governmental Entity claims that the
Company has breached or is liable to a Governmental Entity, in each case with
respect to any Government Contract.  The
Company has not conducted or initiated any internal investigation, or made a
voluntary disclosure to the United States Government, with respect to any
alleged misstatement or omission arising under or relating to any Government
Contract or Bid at any time since January 1, 2002 and no such investigation or
voluntary disclosure is anticipated.

(vi)                              Except
as set forth on Section 3.14(b)(vi) of the Disclosure Schedule, there are no
pending or, to the Company’s Knowledge, threatened material claims or disputes
by or between the Company and any prime contractor, subcontractor or vendor
relating to any Government Contract. 
Except as set forth on Schedule 3.14(b)(vi) of the Disclosure Schedule,
the Company has not received any notice of termination for convenience or
default of any Government Contract, in whole or in part, and to the Company’s
Knowledge, no such termination for either convenience or default has been
threatened or is otherwise anticipated.

 27
 

(vii)                           Set
forth on Section 3.14(b)(vii) of the Disclosure Schedule is a list of each
final audit report, or draft audit report if no final audit report has been
issued, received by the Company during the past three (3) years issued by any
Governmental Entity with respect to any Government Contract or of any indirect
cost, other cost or cost accounting practice of the Company relating to any
Government Contract.  The Company has
made available to the Buyer correct and complete copies of each such report.

(viii)                        The
Company has not waived any material rights under a Government Contract.

(ix)                                Except
for those liens or assignments listed on Section 3.14(b)(ix) of the Disclosure
Schedule, made in accordance with 31 U.S.C. § 3727 (as amended), otherwise
known as the Assignment of Claims Act, and 41 U.S.C. § 15 (as amended),
otherwise known as the Assignment of Contracts Act, the Company has not
assigned or agreed to assign to any Person, or otherwise encumbered or agreed
to encumber for the benefit of any Person, any right, title or interest in or
to any of the Government Contracts, or any account receivable relating thereto.

(x)                                   Except
as set forth on Section 3.14(b)(x) of the Disclosure Schedule, since January 1,
2002, the Company has not received written or oral notice that either such company
or any of its directors, officers, employees, agents or consultants was or is
under administrative, civil or criminal investigation, indictment or writ of
information, audit or internal investigation with respect to any alleged or
potential violation of law regarding any Government Contract or Bid.

(xi)                                None
of the officers, directors or employees of the Company has: (i) made any
payments or used any funds to influence federal transactions in violation of
federal laws and regulations and or failed to make any required disclosures;
(ii) used any corporate or other funds or given anything of value for unlawful
commissions, gratuities, contributions, payments, gifts or entertainment, or
made any unlawful expenditures relating to political activity to government
officials or others or established or maintained any unlawful or unrecorded
funds in violation of any applicable foreign, federal or state law; or (iii)
accepted or received any unlawful contributions, payments, expenditures or
gifts.

(xii)                             No
Person or Governmental Entity has notified the Company in writing or orally
that any Governmental Entity intends to seek to lower rates under any
Government Contract or task order or delivery order thereunder.

(xiii)                          The
Company operates and has operated in accordance with all CAS Disclosure
Statements provided to a Governmental Entity since January 1, 2002.

(xiv)                         Except as
set forth on Section 3.14(b)(xiv) of the Disclosure Statement, the Company has
not received a notice of suspension or debarment and, to the Company’s
Knowledge, no officer, director, employee, agent or consultant has received a
notice of suspension or debarment.

 28
 

(xv)                            Except
as set forth on Section 3.14(b)(xv) of the Disclosure Schedule, the Company has
not incurred or currently projects losses or cost overruns in an amount
exceeding $10,000 on any Government Contract.

3.15                           Employee
Benefits.

(a)                                  The
term “Employee Benefit Plan” includes any pension plan (as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended and the
rules and regulations promulgated thereunder (“ERISA”)) (“Pension Plan”),
welfare plan (as defined in Section 3(1) of ERISA) (“Welfare Plan”), or any
deferred compensation, stock option, share appreciation right, phantom equity,
bonus, incentive, vacation pay, tuition reimbursement, severance pay, group or
individual health, dental, life insurance, survivor benefit or other benefit
plan, program or arrangement, whether any of the foregoing is funded, insured
or self-funded, written or oral.  The
term “Benefit Plan” means any Employee Benefit Plan sponsored or maintained by
the Company or any of its ERISA Affiliates or in respect of which the Company
or any ERISA Affiliate has any outstanding liability for the benefit of active
or former employees, directors or consultants (or their beneficiaries) of the
Company or an ERISA Affiliate.  Schedule
3.15(a) contains a true and complete list of all Benefit Plans, true and
correct copies of which, along with all related documentation (including trust
or other service provider agreements, insurance contracts, summary plan
descriptions, the determination or opinion letters referred to in (c) below, if
any, and the most recent annual report, Form 5500, if any) have been previously
made available to Buyer.

(b)                                 Except
as disclosed on Schedule 3.15(b), neither the Company nor any ERISA
Affiliate maintains, sponsors, contributes to, has any obligation to contribute
to, or has any current or potential liability or obligation under or with
respect to any Employee Benefit Plan that is a “defined benefit plan” (as
defined in Section 3(35) of ERISA) or otherwise has any current or potential
liability or obligation under Title IV of ERISA, including with respect to any
Employee Benefit Plan that is a “multiemployer plan” (as defined in Section
3(37) of ERISA).  No Benefit Plan is a
multiple employer welfare arrangement (within the meaning of Section 3(40) of
ERISA).  The term “ERISA Affiliate” means
any entity or trade or business (whether or not incorporated), other than the
Company, that together with the Company is treated as a single employer under
Sections 414(b), (c) or (m) of the Code.

(c)                                  With
respect to each Benefit Plan intended to qualify under Section 401(a) of the
Code, each such Benefit Plan has either received a determination letter from
the Internal Revenue Service (the “IRS”) stating that such plan is so
qualified, or is relying on an opinion letter issued with respect to the
prototype plan document upon which such plan is based.  No facts or circumstances exist that could
adversely affect the qualified status of any such Benefit Plan or could require
action under the compliance resolution programs of the IRS to preserve
qualification.  All such Benefit Plans
have been timely amended for the requirements of the legislation known as “GUST”
and, to the extent required under guidance issued by the IRS, “EGTRRA.”

(d)                                 Each
Benefit Plan (and each related trust, insurance contract, or fund) has been
operated and administered in all respects in compliance with its terms and all
applicable Laws, including ERISA and the Code, as applicable.  All required reports and

 29
 

descriptions with respect
to each Benefit Plan (including Form 5500 annual reports, summary annual
reports, and summary plan descriptions) have been timely filed and/or
distributed in accordance with the applicable requirements of ERISA and the
Code.

(e)                                  All
contributions, distributions and premium payments that are due with respect to
any Benefit Plan have been made timely and all contributions, distributions and
premium payments with respect to any Benefit Plan for any period ending on or
before the Closing Date that are not yet due have been made or properly
accrued.

(f)                                    Neither
the Company nor any other “disqualified person” or “party in interest” (as defined
in Section 4975 of the Code and Section 3(14) of ERISA, respectively) with
respect to any Benefit Plan has engaged in any nonexempt “prohibited
transaction,” as such term is defined in Section 406 of ERISA or Section 4975
of the Code, with respect to any Benefit Plan giving rise to any liability,
directly or indirectly, to the Company. 
The Company has not been notified that any Benefit Plan or any trust
which serves as a funding medium for any such Benefit Plan is currently under
examination by the IRS, the Pension Benefit Guaranty Corporation, the
Department of Labor, or any court, other than applications for determinations
pending with the IRS.  Except as would
not reasonably be expected to result in liability to the Company, neither the
Company nor any other fiduciary (as defined in Section 3(21) of ERISA) of any
Benefit Plan, has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any Benefit Plan.  No Action
with respect to any Benefit Plan (other than routine claims for benefits) is
pending or, to the Knowledge of the Company, threatened.

(g)                                 Neither
the Company nor any ERISA Affiliate maintains, sponsors, contributes to or has
an obligation to contribute to, or has any current or potential liability or
obligation with respect to, any Welfare Plan or similar benefit plan, program
or arrangement that provides for retiree medical or other retiree welfare
benefits for current or future retired or terminated directors, officers,
employees or contractors (or any dependent or beneficiary thereof), other than
in accordance with the continuation coverage requirements of Section 4980 of
the Code and Title I, Subtitle B, Part 6 of ERISA (“COBRA”).  The Company and each ERISA Affiliate has
complied and is in compliance in all respects with the requirements of COBRA.

(h)                                 The
Company has correctly classified those individuals performing services for the
Company as common law employees, leased employees, independent contractors or
agents.

(i)                                     Except
as set forth on Schedule 3.15(i), the execution of this Agreement and
the consummation of the transactions contemplated herein will not, by itself or
in combination with any other event, result in any payment (whether of severance
pay or otherwise) becoming due from or under any Benefit Plan to any current or
former director, officer, consultant or employee of the Company or result in
the vesting, acceleration of payment or increase in the amount of any benefit
payable to or in respect of any such current or former director, officer,
consultant or employee.

 30
 

(j)                                     Other
than as set forth on Schedule 3.15(j), the Company has not
(i) granted to any Person an interest in a nonqualified deferred
compensation plan (as defined in Section 409A(d)(1) of the Code) which
interest has been or, upon the lapse of a substantial risk of forfeiture with
respect to such interest, will be subject to the Tax imposed by
Section 409A(a)(1)(B) or (b)(4)(A) of the Code, or (ii) modified the
terms of any nonqualified deferred compensation plan in a manner that could
cause an interest previously granted under such plan to become subject to the
Tax imposed by Section 409A(a)(1)(B) or (b)(4) of the Code.

(k)                                  No
Benefit Plan is subject to the laws of any jurisdiction outside of the United
States.

3.16                           Environmental
Compliance.  The Company is not in
violation of, and has no liability under, any Environmental Laws.

3.17                           Employee
Relations and Agreements.

(a)                                  Schedule 3.17(a)
contains a complete and accurate list of (i) all employment and consulting
agreements to which the Company is a party as of the date of this Agreement,
other than agreements terminable by either party at-will and without any
severance obligation on the part of the Company, (ii) all other agreements
that entitle any person to compensation or other consideration as a result of
the acquisition by any Person of control of the Company, and (iii) each
employee, manager, consultant, independent contractor and director of the
Company whose annual compensation exceeds Fifty Thousand Dollars ($50,000),
together with the base salary paid to such Person for the fiscal year ended
December 31, 2006, the rate, character and amount of such Person’s current
annual salary for the fiscal year ending December 31, 2007, and the current
position of each such Person.

(b)                                 The
Company is not a party to or bound by any collective bargaining agreement or
other labor contract.  The Company is not
subject to any (i) unfair labor practice complaint pending before the
National Labor Relations Board, (ii) pending or, to the Knowledge of the
Company, threatened, labor strike, slowdown, work stoppage, lockout, or other
organized labor disturbance, (iii) pending grievance proceeding,
(iv) pending representation question, or (v) attempt by any union to
represent employees as a collective bargaining agent.

(c)                                  Schedule
3.17(c) contains a complete and accurate list of all Persons employed by
the Company as of the Closing Date.

3.18                           Litigation.  Except as set forth on Schedule 3.18, there
is no Action in law or in equity before any Governmental Authority or
arbitrator pending against the Company or, to the Knowledge of the Company,
threatened against the Company or any of the Company’s officers, directors or
Affiliates, with respect to or affecting the Company’s operations, business or
assets, or that questions the validity of this Agreement or seeks to prohibit,
enjoin or otherwise challenge the consummation of the transactions contemplated
hereby.  Neither the Company nor its
assets is subject to or bound by any outstanding Court Order, injunction,
judgment, order, decree, ruling or charge against the Company, nor is the
Company, to the Knowledge of the

 31
 

Company, threatened to be
made a party to any such Court Order, injunction, judgment, order, decree,
ruling or charge.

3.19                           Insurance.  All policies or binders of fire, liability,
product liability, workers’ compensation, vehicular and other insurance and
bond and surety arrangements (the “Insurance Policies”) held by or on behalf of
the Company which names the Company as the policy holder or named insured are
listed and described on Schedule 3.19.  All premiums on all such policies have been
paid to date and the Company has complied with all conditions of such policies
applicable to it.  Schedule 3.19
sets forth, with respect to each Insurance Policy, the name of the insurer, the
name of the policyholder, the policy number and the period of coverage.  Correct and complete copies of all Insurance
Policies have been delivered to and/or made available to Buyer.

3.20                           Customers.  Schedule 3.20 sets forth a complete
and accurate list of the ten (10) largest customers of the Company based on net
revenues for the fiscal year ended December 31, 2006 and for the six (6) month
period ended June 30, 2007 (the “Material Customers”), and the percentage of
overall net revenues of the Company attributable to each such Material Customer
during such year or period.  Since
December 31, 2005, except as set forth on Schedule 3.20:  (i) no Material Customer has cancelled or
otherwise terminated or, to the Company’s knowledge, intends to cancel or
otherwise terminate its business relationship with the Company, (ii) there has
not been any material adverse change in the business relationship, and there
has been no dispute, between the Company and any Material Customer, (iii) no
Material Customer has reduced or, to the Company’s knowledge, intends to
reduce, its business with the Company, and (iv) to the Company’s knowledge, no
Material Customer is the subject of any bankruptcy proceeding.

3.21                           Accounts
Receivable.  All of the accounts
receivable owing to the Company, reflected on the balance sheet included in the
Year-End Financial Statements, and all of the accounts receivable owing to the
Company arising subsequent to the date of the Year-End Financial Statements, in
each case constitute valid and enforceable claims arising from bona fide
transactions for goods sold to, or services performed for, Persons who are not
Affiliates of the Company or any Shareholder in the ordinary course of
business.  No account debtor has refused
or threatened to refuse to pay its obligations for any reason, including by
reason of set-off or counterclaim and no account debtor is insolvent or bankrupt.  The accounts receivable set forth on the
Closing Balance Sheet and included in the calculation of Closing Working
Capital will be collectible net of the reserves shown on the Closing Balance
Sheet therefore (which reserves are adequate and calculated consistent with
past practice) in the ordinary course of business consistent with past
practice.

3.22                           Properties.

(a)                                  The
Company has legal, good and marketable title to or the right to use all of the
properties and assets it purports to own or lease used in the business of the
Company, whether real, personal, tangible or intangible, including all those
assets and properties reflected on the balance sheet included in the Year-End
Financial Statements (except as since sold or disposed of in the ordinary
course of business) free and clear of all Encumbrances.

 32
 

(b)                                 All
items of machinery, equipment, and other tangible assets of the Company are in
operational condition, normal wear and tear excepted, have been maintained in a
manner that would not void or limit the coverage of any warranty thereon.

(c)                                  The
Company owns or has the right to use all assets (whether tangible, intangible,
real or personal) necessary for the conduct of its business as currently
conducted.

3.23                           Bank
Accounts.  Schedule 3.23
sets forth the names and locations of all banks, trust companies, savings and
loan associations and other financial institutions at which the Company
maintains accounts of any nature, the account numbers of all such accounts and
the names of all Persons authorized to draw thereon or make withdrawals therefrom.

3.24                           Powers
of Attorney; Guarantees.  The Company
does not have an obligation to act under any outstanding power of attorney and
there are no outstanding powers of attorney executed on behalf of the
Company.  The Company does not have any
obligation or liability, either accrued, accruing or contingent, as guarantor,
surety, co-signor, endorser, co-maker or indemnitor in respect of the
obligation of any Person.

3.25                           Related
Party Transactions with Affiliates.  Schedule 3.25
sets forth a list of all existing business relationships (other than
employment) between the Company, on the one hand, and the Shareholders, any
Affiliate of the Shareholders, any officer or director thereof, any other
Affiliate of the Company, or any officer or director of the Company, on the
other hand, including any direct or indirect ownership interest (other than
ownership of less than one percent (1%) of the publicly traded shares of any
Person) in any customer, supplier or competitor of the Company or in any Person
from whom or to whom the Company leases real or personal property.  Except as set forth on Schedule 3.25,
neither the Shareholders, nor any Affiliate of the Shareholders, any officer or
director thereof, any other Affiliate of the Company or any officer or director
of the Company, is a party to any contract or transaction with the Company or
has an interest in any property used by the Company.  No Shareholder or officer or director of the
Company or, to the Company’s knowledge, any Affiliate of any such Person, is
engaged in competition with the Company with respect to any line of the
products or services of the Company in any market presently served by the
Company.  The Company is not indebted or
otherwise obligated to any such Person, except for amounts due under normal
arrangements applicable to all employees generally as to salary or
reimbursement of ordinary business expenses not unusual in amount or
significance or with respect to salary advances to employees.

3.26                           No
Brokers.  Except for B. Riley &
Co., Inc., the fees and expenses of which shall be paid by the Shareholders,
neither the Company nor the Shareholders nor any Person acting on behalf of the
Company or the Shareholders, has any liability or obligation to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions contemplated by this Agreement.

3.27                           Subsidiaries.  The Company does not own, nor has it ever
owned, directly or indirectly, any outstanding voting securities or shares,
debentures or other securities of or other interests of any nature whatsoever
in, nor does it control, any Subsidiary or other corporation, partnership,
joint venture or other entity.

 33

3.28                           Indebtedness.  Except as disclosed on Schedule 3.28,
the Company has no outstanding Indebtedness and is not an obligor with respect
to any bankers acceptance or letter of credit.

3.29                           Certain
Payments.  Neither the Company, nor
any director, officer, agent, or employee of the company, or any other Person
associated with or acting for or on behalf of the Company, has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company or any Affiliate
of the Company, or (iv) in violation of any Law, or (b) established or
maintained any fund or asset that has not been recorded in the books and
records of the Company.

3.30                           Books
and Records.  The books of account
and other financial records of the Company, all of which have been made
available to Buyer, are complete and correct in all material respects and
represent actual, bona fide transactions and have been maintained in accordance
with past business practices.  The minute
books of the Company, all of which have been made available to Buyer, contain
accurate and complete records of all corporate action taken by, the
Shareholders and the board of directors of the Company.

3.31                           Disclosure.  No representation or warranty of the Company
or the Shareholders in this Agreement and no statement in the schedules
attached hereto omits to state a material fact necessary to make the statements
herein or therein, in light of the circumstances in which they were made, not
misleading.  No notice given pursuant to Section
5.6 will contain any untrue statement or omit to state a material fact
necessary to make the statements therein or in this Agreement, in light of the
circumstances in which they were made, not misleading.

3.32                           Disclaimer
of Other Representations and Warranties. 
Except as expressly set forth in Section 2 and this Section 3,
the Shareholders and the Company make no representation or warranty, express or
implied, at law or in equity, in respect of the Company or any assets,
liabilities or operations, including with respect to merchantability or fitness
for any particular purpose, and any such other representations or warranties
are hereby expressly disclaimed.  None of
the Shareholders or Company or any of its directors, officers, employees,
affiliates, controlling persons, agents, advisors or representatives, makes, or
shall be deemed to have made, any representation or warranty, express or
implied (including with respect to merchantability or fitness for any
particular purpose), as to the accuracy or completeness of any estimates,
projections, forecasts, budgets or other forward-looking information provided
or otherwise made available to Buyer or any of its directors, officers,
employees, affiliates, controlling persons, agents, advisors or representatives
(including, without limitation, in any management presentations, information or
offering memorandum, supplemental information or other materials or information
with respect to any of the above). With respect to any such estimate,
projection, budget or forecast delivered by or on behalf of Company or any
Shareholder to Buyer, Buyer acknowledges that (i) there are uncertainties
inherent in attempting to make such estimates, projections, budgets and
forecasts, (ii) Buyer is aware that actual results may differ materially
and (iii) Buyer shall have no claim against Company or any Shareholder
with respect 

 34
 

to any such estimate,
projection, budget or forecast; provided, that such estimate, projection,
budget or forecast was prepared and furnished in good faith.

ARTICLE 4

REPRESENTATIONS
AND WARRANTIES OF BUYER

As an inducement to the Company and the Shareholders
to enter into this Agreement and to consummate the transactions contemplated
hereby, Buyer hereby represents and warrants to the Company and the
Shareholders as follows:

4.1                                 Organization
of Buyer.  Buyer is a corporation duly
incorporated, validly existing and in good standing under the Laws of the State
of Delaware.  The Buyer is licensed or
qualified to conduct its business and is in good standing in every jurisdiction
where it is required to be so licensed or qualified, except where the failure
to do so would not result in a material adverse effect.  Buyer has all necessary corporate power and
corporate authority to own or lease its assets and to carry on its business as
currently conducted.

4.2                                 Authority
of Buyer.  Buyer has all requisite
corporate power and authority  and has
taken all corporate action necessary, to execute and deliver this Agreement and
each Transaction Document to which Buyer is a party and to perform its
obligations hereunder and thereunder. 
This Agreement has been, and each such Transaction Document will be as
of the Closing, duly authorized, executed and approved by all necessary
corporate action and (assuming the valid authorization, execution and delivery
of this Agreement by the Company and the Shareholders) this Agreement
constitutes, and each Transaction Document when so executed and delivered will
constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar Laws of general application
relating to or affecting creditors’ rights and to general equity principles.

4.3                                 No
Violation of Law and Agreements.  The
execution and delivery by Buyer of this Agreement and each Transaction Document
to which Buyer is a party, and the performance by Buyer of its obligations
hereunder or thereunder, does not and will not:

(a)                                  violate
or conflict with any provision of the certificate of incorporation or bylaws of
Buyer;

(b)                                 (i)
violate any provision of applicable Law relating to Buyer, (ii) violate any
provision of any Court Order or arbitration award to which Buyer is subject, or
(iii) require a registration, filing, application, notice, consent, approval,
order, qualification, authorization, designation, declaration or waiver with,
to or from any Governmental Authority or any other Person; or

(c)                                  (i)
require a consent, approval or waiver from, or notice to, any party to any
contract, agreement or commitment to which Buyer is a party, or (ii) conflict
with, result in a breach or creation of any Encumbrance, constitute a default
(or an event which would with the passage of time or the giving of notice or
both, constitute a default) under, or give rise to a right of payment under or
the right to terminate, amend, cancel, modify, abandon or accelerate any
provision of any contract, agreement or commitment to which Buyer is a party.

 35
 

4.4                                 No
Litigation or Regulatory Action. 
There is no Action pending or, to the knowledge of Buyer, threatened,
against Buyer which would reasonably be expected to (i)  prevent, hinder or delay the consummation of
any of the transactions contemplated hereby or (ii) have a material adverse
effect on Buyer’s operations, business or assets.  There is no Action pending or, to the
knowledge of Buyer, threatened, that questions the legality or propriety of the
transactions contemplated by this Agreement.

4.5                                 Investment
Intention.  Buyer has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of acquiring the Shares.  Buyer confirms that the Company has made available
to Buyer the opportunity to ask questions of the officers and management of the
Company and to acquire additional information about the business, assets and
financial condition of the Company. 
Buyer will acquire its interest in the Company for investment only, and
not with a view toward or for sale in connection with any distribution thereof
or with any present intention of distributing or selling any interest
therein.  Buyer understands that the
transactions contemplated hereby have not been, and will not be registered or
qualified under the Securities Act of 1933, as amended, nor any state or any
other applicable securities Law, by reason of a specific exemption from the
registration or qualification provisions of those Laws, based in part upon Buyer’s
representations in this Agreement.  Buyer
understands that no part of the interest in the Company which Buyer acquires
may be resold unless such resale is registered under the Securities Act of
1933, as amended, and registered or qualified under applicable state securities
Laws or an exemption from such registration and qualification is available.

4.6                                 SEC
Documents.  Buyer has timely filed
with the SEC all forms, reports, schedules, statements and other documents
(including exhibits and other information incorporated therein) required to be
filed by it since December 31, 2006 under the Securities Act, or the Exchange
Act (such documents, as supplemented and amended since the time of filing,
collectively, the “Buyer SEC Documents”). 
No subsidiary of Buyer is required to file any form, report,
registration statement, prospectus or other document with the SEC.  To the knowledge of Buyer, the Buyer SEC
Documents, including any financial statements or schedules included in the
Buyer SEC Documents, at the time filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and the dates of
mailing, respectively and, in the case of any Buyer SEC Document amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such amending or superseding filing): (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
(b) complied in all material respects with the applicable requirements of
the Exchange Act and the Securities Act, as the case may be.  The financial statements of Buyer (including
the related notes) included in the Buyer SEC Documents at the time filed (and,
in the case of registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively, and, in the case of any
Buyer SEC Document amended or superseded by a filing prior to the date of this
Agreement, then on the date of such amending or superseding filing) complied in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q or Form 10-QSB of the
SEC), and fairly present (subject, in the case 

 36
 

of unaudited statements,
to normal, recurring audit adjustments not material in amount and giving effect
to amendments of Buyer SEC Documents) in all material respects the consolidated
financial position of Buyer and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.

4.7                                 No
Material Adverse Change.  Since
December 31, 2006, there has been no change, circumstance or effect that is materially
adverse to the business, assets, financial condition, projected financial
performance, results of operations or prospects of Buyer.

4.8                                 No
Brokers.  Except for Venture
Management, Inc., the fees and expenses of which shall be paid by Buyer,
neither Buyer nor any Person acting on Buyer’s behalf has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary
for or on account of the transactions contemplated by this Agreement.

4.9                                 Buyer
Shares.  The Buyer Shares have been
duly authorized by all necessary corporate action by Buyer and, at the Closing,
the Buyer Shares will be validly issued, fully paid and nonassessable and will
not be issued in violation of any preemptive rights, rights of first refusal or
similar rights.

ARTICLE 5

[INTENTIONALLY OMITTED]

ARTICLE 6

AGREEMENTS
REGARDING EMPLOYEES

6.1                                 Continuation
of Employment.

(a)                                  Buyer shall cause the Company to continue to employ
after the Closing Date all employees of the Company employed on the Closing
Date (all such employees, the “Business Employees”) at the same location where
each such employee was employed immediately prior to the Closing Date on at
least the same wage rates or cash salary levels, and on such other terms and
conditions that are not less favorable than those provided to similarly
situated employees of Buyer.  The
foregoing sentence shall not restrict the Company’s ability to terminate any
employee with or without cause.  Buyer
and its Affiliates shall, for the benefit of the Business Employees, provide
credit for all years of service provided prior to the Closing Date for all
purposes under all compensation and benefit plans, programs and policies
maintained by Buyer and/or its Affiliates for the benefit of such employees
after the Closing Date to the extent such credit was given under corresponding
Benefit Plans as in existence immediately prior to the Closing Date, other than
benefit accrual under any Pension Plan. 
With respect to Benefit Plans provided by the Company that Buyer will
not continue, Buyer and Shareholders shall develop, prior to Closing, an
alternative approach to compensation of Company employees in light of such
plans not being continued.

(b)                                 At
the request of Buyer, prior to but contingent upon the Closing, the Company
shall take all such action as Buyer may reasonably request for the purpose of 

 37
 

terminating the Company’s
Profit Sharing 401(k) Plan and such other Benefit Plans as Buyer shall have
identified.

(c)                                  On
or before September 28, 2007, SM&A shall cause PMA to pay (i) the PMA
employees bonuses for the fiscal year prior to the Closing, calculated
consistent with PMA’s past practice, (ii) accrued payroll for the period from
August 1, 2007 through and including the Closing Date and (iii) accrued
vacation through and including the Closing Date, all amounts paid hereunder
shall be reflected as liabilities on the Closing Balance Sheet.

6.2                                 No Third Party Beneficiaries.  Nothing
herein is intended to, and shall not be construed to, constitute an amendment
of any Employee Benefit Plan or create any third party beneficiary rights of
any kind or nature, including, without limitation, the right of any Business
Employee or other individual to seek to enforce any right to compensation,
benefits, or any other right or privilege of employment with Company or Buyer.

ARTICLE 7

ADDITIONAL
AGREEMENTS

7.1                                 Tax
Covenants.  The Buyer and the
Shareholders shall cooperate fully, as and to the extent reasonably requested
by the other party, in connection with the filing of Tax Returns and any audit,
litigation or other proceeding with respect to Taxes, including any Tax
Claim.  Such cooperation shall include
the retention and (upon the other party’s request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder or to testify at any proceeding. 
The Shareholders and the Buyer agree, and the Buyer agrees to cause the
Company to retain all books and records with respect to Tax matters relating to
the Company for any Taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by the
Buyer or the Shareholders, any extensions thereof) for the respective Taxable
periods, and to abide by all record retention agreements entered into with any
Tax authority.  The Buyer and the
Shareholders further agree, upon request, to use their commercially reasonable
efforts to obtain any certificate or other document from any Tax authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed on the Company (including, but not limited to, with
respect to the transactions contemplated by this Agreement).

7.2                                 Tax Indemnification.

(a)                                  From
and after the Closing, the Shareholders shall jointly and severally indemnify,
save and hold harmless the Buyer Indemnitees from and against: (i) all
liability for Taxes of the Company for all Pre-Closing Tax Periods; (ii) all
Taxes of the Company resulting from all Taxes arising from the change of
accounting method for federal and state income tax purposes as a result of the
acquisition of the stock of the Company by the Buyer pursuant to this
Agreement; (iii) all Transfer Taxes; and (iv) without duplication of Section
10.2, any and all Losses arising out of, resulting from or incident to any
breach by the Shareholders or the Company of any representation or covenant
contained in Sections 3.8, 7.1 or this 7.2.

 38
 

(b)                                 In
the case of any Straddle Period:

(i)                                     real,
personal and intangible property Taxes and any other Taxes levied on a per diem
basis (“Per Diem Taxes”) of the Company for a Pre-Closing Tax Period shall be
equal to the amount of such Per Diem Taxes for the entire Straddle Period
multiplied by a fraction, the numerator of which is the number of days during
the Straddle Period that are in the Pre-Closing Tax Period (including the
Closing Date) and the denominator of which is the total number of days in the
Straddle Period; and

(ii)                                  the
Taxes of the Company (other than Per Diem Taxes) for any Pre-Closing Tax Period
shall be computed as if such Tax Period ended as of the close of business on
the Closing Date.

(c)                                  The
Shareholders’ indemnity obligations in respect of Taxes for a Pre-Closing Tax
Period, as determined pursuant to Section 7.2(a), shall initially
be effected by the Shareholders’ payment to Buyer of the excess of (i) any such
Taxes for a Pre-Closing Tax Period (as indicated by written notice from Buyer
to the Shareholders) over (ii) (A) the amount of such Taxes with respect to the
Company paid by the Shareholders at any time or reserved for on the Closing
Working Capital Statement and taken into account in determining the Closing
Working Capital, plus (B) the amount of such Taxes paid by the Company and its
Subsidiaries on or prior to the Closing Date. 
The Shareholders shall pay such excess to Buyer within ten (10) days
after written demand therefor is made by Buyer (but not earlier than five (5)
days before the date on which the Taxes for the relevant Tax Period are
required to be paid to the relevant Tax authority).  In the case of a Tax that is contested in
accordance with the provisions of Section 7.2(d), payment of the
Tax to the appropriate Tax authority shall not be considered to be due earlier
than the date a final determination to such effect is made by the appropriate
Tax authority or court unless payment of the Tax is required as a condition to
such contest.

(d)                                 If
a claim shall be made by any Tax authority, which, if successful, might result
in an indemnity payment to a Buyer Indemnitee pursuant to this Section 7.2,
the Buyer Indemnitee shall promptly and in any event no more than twenty (20)
days following the Buyer Indemnitee’s receipt of such claim, give written
notice to the Shareholders of such claim; provided, however, the
failure of the Buyer Indemnitee to give such notices shall only relieve the
Shareholders from his or her indemnification obligations hereunder to the
extent he or she is actually prejudiced by such failure.  With respect to any Tax Claim relating to a
Tax Period ending on or prior to the Closing Date, the Shareholders shall, upon
his or her written confirmation of his or her obligation to indemnify the Buyer
Indemnitees in full with respect to such Tax Claim, control all proceedings and
may make all decisions taken in connection with such Tax Claim (including
selection of counsel) at his or her own expense; provided, however,
that if the resolution of any portion of a Tax Claim would increase the Taxes
of the Company and its Subsidiaries, which are not indemnified by the
Shareholders under this Agreement, the Shareholders shall give written notice
to the Buyer, and the Buyer shall be entitled to control the proceedings taken
in connection with such portion of such Tax Claim.  The Buyer shall control at its own expense
all proceedings taken in connection with any Tax Claim relating to Taxes of the
Company for a Straddle Period and in connection with any Tax Claim relating to
Taxes of the Company for a Tax Period beginning after the Closing Date.  A party shall promptly notify the other party
if it decides not to control the defense or settlement of any Tax Claim for a
Tax 

 39
 

Period ending on or prior
to the Closing Date which it is entitled to control pursuant to this Agreement,
and the other party shall thereupon be permitted to defend and settle such
proceeding without prejudice.  No Tax
Claim for which the Shareholders are obligated to indemnify the Buyer
Indemnitees and in which the Buyer is entitled to control all proceedings may
be settled without the written consent of the Shareholders, such consent not to
be unreasonably withheld or delayed.  The
Buyer, the Shareholders, the Company and each of their respective Affiliates
shall reasonably cooperate with each other in contesting any Tax Claim in
accordance with Section 7.1(b). 
The parties shall satisfy their indemnity obligations pursuant to this Section 7.2(d)
within 10 days after a final determination (within the meaning of Section
1313(a) of the Code or analogous provisions of state, local or foreign Tax law)
of the relevant Tax is made.

(e)                                  The
Buyer covenants that, except as may required by law or by any applicable
Governmental Authority, it will not and will not cause or permit the Company or
any Affiliate of the Buyer to amend any Tax Return of the Company on or after
the Closing Date for the period prior to the Closing Date if such amendment
would increase the liability of the Shareholders pursuant to Section 7.2.

7.3                                 Non-Competition.

(a)                                  As
used in this Section 7.3, the term “Business” means the business
of providing earned value management consulting services, and shall include,
without limitation, those services set forth on Schedule 7.3(a) hereto.

(b)                                 Each
Shareholder agrees and acknowledges that it is necessary that such Shareholder
undertake not to utilize his or her special knowledge of the Business and his
or her relationship with customers, suppliers and employees to compete with the
Business.  Each Shareholder further
agrees and acknowledges that:  (i) upon
the Closing, Buyer will be actively engaged in the Business throughout the
United States, Great Britain and Italy (the “Territory”); (ii) the agreements
and covenants contained in this Section 7.3 are essential to protect
Buyer, including protecting the goodwill of the Business; (iii) Buyer would be
irreparably damaged if either Shareholders were to breach the provisions
contained in this Section 7.3; (iv) the consideration received by the
Shareholders in connection with the transactions contemplated by this Agreement
is sufficient and each Shareholder has the means to support such Person and
such Person’s dependents other than by engaging in the Business, and the provisions
of this Section 7.3 will not impair such ability; (v) each Shareholders’
ownership of the Shares has provided the Shareholders with trade secrets of,
and confidential information concerning, the Company; and (vi) the agreements
and covenants contained in this Section 7.3 are a material inducement
for Buyer to enter into this Agreement and Buyer would not have entered into
this Agreement and would not have agreed to consummate the transactions
contemplated hereby but for the agreements and covenants contained in this Section
7.3.  Accordingly, each Shareholder
covenants and agrees to comply with such Shareholder’s obligations hereunder.

(c)                                  As
an inducement for Buyer to enter into this Agreement, each Shareholder hereby
agrees that, for a period commencing on the date of the Closing and ending on
the greater of (i)  three (3) years
following the date of the Closing, or (ii) three (3) years following
termination of employment of such Shareholder with the Company or the Buyer, so

 40
 

long as Buyer, or any Person
deriving title to the goodwill or ownership interest from Buyer, carries on a
like business therein (“Restricted Period”), such Shareholder will not:

(i)                                     directly
or indirectly, as an agent, employee, consultant, distributor, representative,
stockholder, manager, partner or in any other capacity, own (other than through
the passive ownership of less than one percent (1%) of the publicly traded
shares of any Person), operate, manage, control, engage in, invest in (other
than through the passive ownership of less than one percent (1%) of the
publicly traded shares of any Person) or participate in any manner in, act as a
consultant or advisor to, render services for (alone or in association with any
Person), any Person that directly or indirectly engages in or owns, operates,
manages or controls any venture or enterprise that engages anywhere in the
Territory in the Business;

(ii)                                  directly
or indirectly, such Shareholder’s own account, or as an officer, director,
stockholder, employee, consultant, partner, proprietor, broker or otherwise,
whether in a paid or unpaid position, solicit or attempt to solicit for
employment any employee of Buyer who was an employee of the Company on the date
of the Closing or who was an employee of the Company at any time during the six
(6) month period immediately preceding the Closing;  provided,
however, such employees responding to a bona fide general solicitation for
employees by use of advertisements on-line or in the media will not be deemed a
breach of this restriction; or

(iii)                               directly
or indirectly, for such Shareholder’s own account, or as an officer, director,
stockholder, employee, consultant, partner, proprietor, broker or otherwise,
whether in a paid or unpaid position, (a) solicit or attempt to solicit
business from any Clients or Customers (as defined below), provided, however,
nothing contained herein shall prohibit the solicitation of business or
services which are not in any way engaged in the Business; (b) suggest, refer
or recommend that any Clients or Customers terminate, cancel or withdraw any
proposed or pending job, bid or order; (c) suggest, refer or recommend that any
Clients or Customers patronize any other business in direct or indirect
competition with the Business; or (d) interfere in any other way with the
prospective relationship between the Buyer and any Clients or Customers.  For purposes hereof, the term “Clients or
Customers” shall be defined as those individuals, entities or businesses to
which the Company had provided services within the two (2) year period
immediately preceding the date of the Closing or to which the Company had
submitted a bid or proposal within said two (2) year period.

(d)                                 Each
Shareholder acknowledges and agrees that the covenants set forth in this Section
7.3 are reasonable and necessary for the protection of the Business, that
the remedies at law for damages on account of any breach of the provisions of
this Section 7.3 may be inadequate and that such damages may not be
readily ascertainable or susceptible to being measured in monetary terms.  Each Shareholder accordingly agrees that in
the event of any actual or threatened breach by such Shareholder or any of each
Shareholder’s Affiliates or any of their respective successors and assigns of
any of the provisions contained in this Section 7.3, Buyer shall be
entitled to seek such injunctive and other equitable relief, without the
necessity of showing actual monetary damages and without posting any bond or
other security, as may be deemed necessary or appropriate by a court of
competent jurisdiction.  Nothing
contained herein 

 41
 

shall be construed as
prohibiting Buyer from pursuing any other remedies available to it for such
breach or threatened breach, including the recovery of any damages which it is
able to prove.

(e)                                  Each
of the Shareholders and Buyer agree that, if any term or provision of Section 7.3
is determined by a court of competent jurisdiction to be invalid or
unenforceable as written because such provision covers too extensive a
Territory, too broad a range of activities, too long a period of time or
otherwise, then such provision shall automatically be modified to cover the
maximum Territory, range of activities, and period of time as permissible by
applicable Law under the circumstances, and, in addition, a court is hereby
expressly authorized to so modify this Agreement and to enforce it as so
modified.  No invalidity or
enforceability of any section of this Agreement or any portion thereof shall
affect the validity or enforceability of any other section or the remainder of
such section, or any revision or modification to such section as contemplated
by this Section 7.3.

(f)                                    If
any Shareholder violates any provision of this Section 7.3 and Buyer
brings legal action for injunctive relief, Buyer shall not, as a result of the
breach by such Shareholder or the time involved in obtaining the relief, be
deprived of the benefit of the full time period specified in this Section
7.3.  Accordingly, Section 7.3
shall be deemed to have the duration specified above, computed from the date
the relief is granted, but not to include any period of time during which a
Shareholder is in violation of this Section 7.3.

7.4                                 Confidentiality.

(a)                                  If
the transactions contemplated hereby are consummated, each Shareholder agrees
not to disclose or use at any time (and to cause each of such Shareholder’s
Affiliates not to use or disclose at any time) any confidential or proprietary
information of the Company, except (i) in connection with the performance of
such Shareholder’s obligations under this Agreement, or (ii) to the extent
permitted by paragraph (b) below. 
Subject to the foregoing exceptions, each Shareholder further agrees to
take all commercially reasonable steps (and to cause each of such Shareholder’s
Affiliates to take all commercially reasonable steps) to safeguard such
information and to protect it against disclosure, misuse, espionage, loss and
theft.  The information intended to be
protected hereby shall include, but not be limited to, financial information,
product cost or margin information, customer information, information
concerning possible acquisition targets, product development information,
strategic plans, lease terms, and anything else having an economic or pecuniary
benefit to the Company; provided, however, that information that
has been published or is publicly known at the time of disclosure or use shall
not be subject to the provisions of this Section 7.4.  In the event any Shareholder or any
Shareholder’s Affiliate is required by applicable Law to disclose any confidential
or proprietary information of the Company, other than pursuant to the
exceptions set forth in clauses (i) and (ii) above, such Shareholder or
Affiliate, as the case may be, shall promptly notify Buyer in writing, which
notification shall include the nature of the legal requirement and the extent
of the required disclosure, and shall cooperate with Buyer to preserve the
confidentiality of such information consistent with applicable Law.

(b)                                 If
there shall be a dispute between the Parties arising out of or relating to this
Agreement, each Party shall keep confidential the existence, the nature of and
any information concerning such dispute. 
In addition, if any action or other proceeding is held with 

 42
 

respect to such dispute,
the Parties shall use their reasonable efforts to cause such action or other
proceeding to be conducted in confidence and the results thereof to be
maintained in confidence (subject to the rules of the forum of the
dispute).  Nothing in this Section
7.4(b) shall prohibit a Party from (i) initiating any action or other
proceeding relating to a dispute or from disclosing information concerning a
dispute in any action or other proceeding relating to such dispute, or (ii)
disclosing information concerning a dispute to its current or potential
advisors, direct or indirect equity holders, investors or lenders, provided
that such Party informs the recipient of the confidential nature of the
information (it being agreed that the disclosing Party will be responsible to
the other Parties for any non-permitted disclosure by such recipient).

(c)                                  The
provisions of Section 7.4(a) shall survive and be binding upon each
Shareholder for a period of three (3) years after the termination of such
Shareholder’s employment or consulting engagement, whichever is later, if such
Shareholder is an employee or consultant at the Closing.  In all other cases, the provisions of Section
7.4(a) shall survive and be binding upon each Shareholder for a period of
three years after the Closing.

7.5                                 Sale
or Transfer of Buyer Shares.  The
Shareholders acknowledge and agree that the Buyer Shares are restricted from
resale, subject to meeting the one-year holding period and other requirements
of Rule 144 under the Securities Act.  In
addition, each Shareholder agrees that he or she will not sell, transfer or
otherwise dispose of more than half of the Buyer Shares during the first six
(6) month period following the one year anniversary of the Closing Date, and
that prior to any sale of Buyer Shares, such Shareholder shall have notified
Buyer of the proposed disposition, and if reasonably requested by Buyer, such
Shareholder shall have furnished Buyer with an opinion of counsel, reasonably
satisfactory to Buyer, that such disposition will not require registration of
such shares under the Securities Act.

7.6                                 Transaction
Expenses.  At least two (2) business
days prior to the Closing Date, the Shareholders shall provide to Buyer an
itemized and complete list of all of the Company and the Shareholder’s
Transaction Expenses.  The Shareholders
or the Company shall pay the Transaction Expenses prior to the Closing, and the
Closing Working Capital shall be calculated as though all of such payments have
been made.

7.7                                 Conduct
of Business During Earn-Out Term. 
Buyer acknowledges and agrees that the ability of the Company to meet
Target Revenue Growth objectives and the ability of the parties to calculate
fairly and measure the performance of the Company relative to revenue
objectives will depend to a significant degree upon maintaining the Business as
a whole and as a discrete operating unit. 
Buyer and the Shareholders shall (i) act in good faith at all times
during the Earn-Out Term, (ii) not fail to take any action that would be
required by reasonable, skillful, prudent and diligent business persons engaged
in the independent operation of a business similar to the Business, and (iii)
not take any action that would be unfairly prejudicial or discriminatory to the
Business, the Company or the interests of the Shareholders in receiving the Earn-Out
Consideration.  Buyer shall provide the
Company’s management team reasonable authority to participate in the management
and operation of the Business throughout the Earn-Out Term, including
reasonable authority to direct business strategy, pricing, sales and marketing
during the Earn-Out Term in a manner consistent with the current plans of the
Company.  In the event that Buyer makes
any change to the operations of the Company after the Closing Date that has a
material adverse effect on the Company’s ability to achieve Target Revenue
Growth during the 

 43
 

Earn-Out Term, then the
Target Revenue Growth shall be adjusted as agreed upon by the Parties; provided
that the parties agree that the operation of the Company as a division and not
a subsidiary of the Buyer after the Closing Date shall not in itself be
considered a material adverse effect on the Company’s ability to achieve Target
Revenue Growth.

ARTICLE 8

[INTENTIONALLY OMITTED]

ARTICLE 9

[INTENTIONALLY OMITTED]

ARTICLE 10

INDEMNIFICATION

10.1                           Survival
of Representations and Warranties. 
The representations and warranties of the Company, the Shareholders and
Buyer contained in this Agreement will survive the Closing until the date that
is twenty-four (24) months following the Closing Date (the “Expiration
Date”), except that any representation or warranty that would otherwise
terminate will continue to survive if a Claim Notice shall have been timely
given in good faith based on facts reasonably expected to establish a valid
claim under Article 10 on or prior to the Expiration Date, until the
related claim for indemnification has been satisfied or otherwise resolved as
provided in Article 10; provided, however, that (a) the
representations and warranties set forth in Section 2.1 (Authority and
Enforceability of the Shareholders), Section 2.4 (Ownership of Shares)
and Section 3.4 (Capitalization) shall survive indefinitely, (b) the
representations and warranties set forth in Section 3.8 (Taxes), Section
3.14(a) regarding Government Contracts and Section 3.14(b)
(Government Contracts), Section 3.l5 (Employee Benefits), Section
3.16 (Environmental Compliance), Section 3.26 (No Brokers) shall
survive until the date that is thirty (30) days following the expiration of the
applicable statutory period of limitations applicable to the underlying claim,
including any extension thereof, and (c) any breach of any representation or
warranty that constitutes fraud shall survive indefinitely.

10.2                           Indemnification
by the Shareholders.  After the
Closing Date and subject to the limitations set forth herein, the
Shareholders shall, jointly and severally, indemnify and hold harmless Buyer,
its directors, officers, employees, Affiliates (including the Company after the
Closing) and their successors and assigns (the “Buyer Indemnitees”), payable in
accordance with Section 10.7 hereof, from and against any and all Losses
suffered, sustained, incurred or paid by any Buyer Indemnitee in connection
with, relating to, as a result of or arising from (a) any breach of any
warranty or representation of the Company or the Shareholders as of the date
hereof and as of the Closing Date, (b) any breach by any Shareholder or the
Company of, or failure by any Shareholder or the Company to perform, any of his
or her or its covenants or obligations contained in this Agreement, or (c)  the matters set forth on Schedule 10.2; provided, however,
that

 44
 

(i)                                     The
Shareholders shall be required to indemnify and hold harmless under clause (a)
of this Section 10.2 with respect to Losses only if the aggregate amount
of such Losses exceeds an aggregate amount equal to Fifty Thousand Dollars
($50,000) (the “Basket Amount”), and then only in respect of such excess and
the aggregate amount required to be paid by the Shareholders under clause (a)
of this Section 10.2 shall not exceed an amount equal to the lesser of
(A) Five Million Dollars ($5,000,000), or (B) the cash actually paid by Buyer
to the Shareholders (the “Indemnification Cap”), except with respect to
breaches of Sections 2.1, 2.4, 3.4, 3.8, 3.26 or 3.28, or for any
breach involving fraud, for which no Basket Amount or Indemnification Cap shall
apply, Sections 3.1, 3.2 and 3.21 (Accounts Receivable), with respect to
which no Basket Amount shall apply and, provided further, damages paid in the
manner set forth in 10.7(B) shall not be treated as applicable to the limit set
forth in Clause (B) hereof; and

(ii)                                  The
determination of the amount of Losses (but not whether a breach of any
representation or warranty by the Company or the Shareholders has occurred) for
the purposes of this Article 10 shall be made without regard to any
qualification as to “materiality”, “Material Adverse Effect” or words of
similar effect contained in such representations or warranties.

10.3                           Indemnification
by Buyer.  After the Closing Date and
subject to the limitations set forth herein, Buyer agrees to indemnify and hold
harmless the Shareholders, their respective successors (the “Shareholders
Indemnitees”) from and against any and all Losses suffered, sustained, incurred
or paid by the Shareholders Indemnitee in connection with, relating to, as a
result of or arising from:  (a) any
breach of any warranty or representation of Buyer contained in this Agreement,
and (b) any breach by Buyer of or failure by Buyer to perform any of its
covenants or obligations contained in this Agreement; provided, however,
that:

(i)                                     Buyer
shall be required to indemnify and hold harmless under clause (a) of this Section 10.3
with respect to Losses, provided that the aggregate amount required to be paid by
Buyer under Section 10.3(a) shall not exceed the Indemnification
Cap; and

(ii)                                  The
determination of the amount of Losses (but not whether a breach of any
representation or warranty by Buyer has occurred) for the purposes of this Article
10 shall be made without regard to any qualification as to “materiality”, “Material
Adverse Effect” or words of similar effect contained in such representations or
warranties.

10.4                           Notice
of Claims.

(a)                                  Any
Shareholder Indemnitee or Buyer Indemnitee seeking indemnification hereunder
(the “Indemnified Party”) shall give promptly to the Party obligated to provide
indemnification to such Indemnified Party (the “Indemnitor”) (it being
understood, however, that where the Shareholders would otherwise be Indemnified
Parties or Indemnitors, all references to such term as used in the procedural
provisions of this Section 10.4(a) and in Section 10.4(b) shall
instead refer to the Shareholders) a written notice (a “Claim Notice”)
describing in reasonable detail the facts giving rise to the claim for
indemnification hereunder and shall include in such Claim Notice (if then
known) the amount or the method of computation of the amount of such claim, and
a reference to the provision of this Agreement or any other 

 45
 

agreement, document or instrument
executed hereunder or in connection herewith upon which such claim is based;
provided, however, that the failure of any Indemnified Party to give the Claim
Notice promptly as required by this Section 10.4(a) shall not
affect such Indemnified Party’s rights under this Article 10 except
to the extent such failure is actually prejudicial to the rights and
obligations of the Indemnitor.

(b)                                 After
the giving of any Claim Notice pursuant hereto, the amount of indemnification
to which an Indemnified Party shall be entitled under this Article 10
shall be determined:  (i) by the
written agreement between the Indemnified Party and the Indemnitor;
(ii) by a final judgment or decree of any court of competent jurisdiction;
or (iii) by any other means to which the Indemnified Party and the
Indemnitor shall agree.  The judgment or
decree of a court shall be deemed final when the time for appeal, if any, shall
have expired and no appeal shall have been taken or when all appeals taken
shall have been finally determined.  All
amounts due to the Indemnified Party as so finally determined shall be paid by
wire transfer within five (5) Business Days after such final determination.

10.5                           Third
Person Claims.

(a)                                  In
order for a Person to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of or involving a claim or demand
made by any third Person against the Indemnified Party, such Indemnified Party
must notify the Indemnitor in writing, and in reasonable detail, of the third
Person claim promptly after receipt by such Indemnified Party of written notice
of the third Person claim; provided, however, that the failure of any
Indemnified Party to give the Claim Notice promptly as required by this Section 10.5(a)
shall not affect such Indemnified Party’s rights under this Article 10
except to the extent such failure is actually prejudicial to the rights and
obligations of the Indemnitor. 
Thereafter, the Indemnified Party shall deliver to the Indemnitor copies
of all notices and documents (including court papers) received by the
Indemnified Party relating to the third Person claim (or in each case such
earlier time as may be necessary to enable the Indemnitor to respond to the
court proceedings on a timely basis).

(b)                                 In
the event of any claim or initiation of any legal proceeding against the
Indemnified Party by a third Person, the Indemnified Party shall permit the
Indemnitor to assume the defense of such claim or legal proceeding, at its
option and at its own expense, if the Indemnitor notifies the Indemnified Party
of its election to assume such defense within thirty (30) calendar days after
it receives notice of such claim and the Indemnitor acknowledges without
qualification (other than by reference to the limitations in this Article 10)
its indemnification obligations provided in this Article 10 with respect
to such third Person claim or legal proceeding in writing to the Indemnified
Party to control, defend against, negotiate and otherwise deal with any
proceeding, claim, or demand which relates to any loss, liability or damage
indemnified against hereunder; provided, however, that the Indemnified Party
may participate in any such proceeding with counsel of its choice and at its
expense unless the named parties in such third Person claim include both the
Indemnitor and the Indemnified Party and the Indemnified Party has been advised
by legal counsel that there may be one or more legal defenses available to it
which are different from or additional to those available to the Indemnitor (provided
that in such situation, the Indemnified Party shall not be entitled to employ
more than one law firm).  The Party
controlling the defense of such third Person claim (the “Controlling 

 46
 

Party”) shall keep the
non-Controlling Party advised of the status of such third Person claim and the
defense thereof and shall consider in good faith the recommendations made by
the non-Controlling Party with respect thereto. 
To the extent the Indemnitor elects not to defend such proceeding, claim
or demand, and the Indemnified Party defends against or otherwise deals with
any such proceeding, claim or demand, the Indemnified Party may retain counsel,
at the expense of the Indemnitor, and control the defense of such
proceeding.  If the Indemnitor elects to
assume control of the defense of a third Person claim, any fees and expenses of
legal counsel employed by the Indemnified Party with respect to such third
Person claim shall be considered Losses for which the Indemnified Party may be
entitled to indemnification under this Article 10 only if the
Indemnified Party has been advised by legal counsel that a conflict of interest
may exist between the Indemnified Party and the Indemnitor (provided
that in such situation, the Indemnified Party shall not be entitled to employ
more than one law firm).  Neither the
Indemnitor nor the Indemnified Party may settle or compromise any such third
Person claim or legal proceeding, which settlement or compromise obligates the
other Party to pay money, to perform obligations or to admit liability without
the written consent of the other Party, such consent not to be unreasonably
withheld or delayed; provided that the consent of the Indemnified Party
shall not be required if the Indemnitor agrees in writing to pay any amounts
payable pursuant to such settlement or compromise and such settlement or
compromise includes a complete written release of the Indemnified Party from
further liability and does not impose any injunctive relief or other
operational restrictions on the Indemnified Party.

(c)                                  The
parties agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such legal proceeding, claim or
demand.  Such cooperation shall include
the retention and the provision of records and information which is reasonably
relevant to such third Person claim, and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder.

(d)                                 After
any final Court Order shall have been rendered and the time therefrom in which
to appeal has expired, or a settlement shall have been consummated, or the
Indemnified Party and the Indemnitor shall arrive at a mutually binding
agreement with respect to each separate matter alleged to be indemnifiable by
the Indemnitor hereunder, the Indemnified Party shall forward to the Indemnitor
notice of any sums due and owing by it with respect to such matter and the
Indemnitor shall pay all of the sums so owing to the Indemnified Party by wire
transfer within five (5) Business Days after the date of such notice.

(e)                                  Sections
10.2 through 10.5 shall not apply to any Tax Claims, which shall instead be
subject to the provisions of Section 7.2.

10.6                           Additional
Provisions

(a)                                  For
purposes of determining the amount of any Losses of a Buyer Indemnitee, such
amount shall be reduced by the amount of any insurance benefits and proceeds
actually received by Buyer or the Company in respect of the Losses (net of any
deductible amounts and costs of collection) (collectively, “Insurance Benefits”).  Without affecting any Indemnified Party’s
rights to indemnification hereunder, Buyer agrees to use commercially
reasonable efforts to make claims to obtain Insurance Benefits if there is a
reasonable basis to 

 47
 

conclude coverage is available,
provided that such actions do not prejudice Buyer’s or the Company’s
insurability or materially increase the cost to Buyer or the Company, as the
case may be, of maintaining insurance coverage substantially similar to that
maintained by Buyer or the Company immediately prior to such Insurance Benefits
becoming payable to Buyer or the Company. 
No payment required to be made by the Indemnitor pursuant to this
Article 10 shall be delayed until Buyer seeks such recovery or actually
collects insurance benefits.  In the
event that Buyer recovers Insurance Benefits at any time in respect of Losses
for which the Indemnitor has previously indemnified Buyer pursuant to this
Article 10, then Buyer agrees to remit such Insurance Benefits to the
Indemnitor promptly upon its receipt thereof. 
Neither Buyer nor the Company shall be obligated to commence any
litigation in connection with seeking Insurance Benefits.

(b)                                 In
calculating any Losses there shall be deducted any indemnification,
contribution or other similar payment actually recovered by the Indemnified
Party or any Affiliate thereof from any third Person with respect thereto.  Any such amounts or benefits received by an
Indemnified Party or any Affiliate thereof with respect to any indemnity claim
after it has received an indemnity payment hereunder shall be promptly paid
over to the Indemnitor; provided that the Indemnified Party shall not be
obligated to pay over any such amount or benefit in excess of the amount paid
by the Indemnitor to the Indemnified Party with respect to such claim.

(c)                                  Except
for remedies that cannot be waived as a matter of Law, claims of fraud or
willful misconduct and injunctive and provisional relief, if the Closing
occurs, Section 7.2 and this Article 10 shall be the sole
and exclusive remedy for breach of, or inaccuracy in, any representation or
warranty contained herein or any breach of this Agreement.

(d)                                 Prior
to the Closing, Buyer agrees to use its reasonable best efforts to notify
Shareholders and the Company if it becomes aware of any breach by Shareholders
or the Company of their representations and warranties set forth herein;
provided, however, that the representations and warranties of the Shareholders
and the Company shall not be affected or deemed waived by reason of any
investigation made by or on behalf of Buyer (including but not limited to by
any of its advisors, consultant or representatives) or by reason of the fact
that Buyer or any of such advisors, consultants or representatives knew or
should have known that any such representation or warranty is or might be
inaccurate.

10.7                           Payment
of Claims.  Buyer Indemnitees shall
seek payment for any amounts due with respect to all claims for indemnification
under Section 10.2 as follows: 
(A) first, out of the Holdback in accordance with Section 1.8
hereof, (B) second, to the extent that amounts owing by the Shareholders exceed
the amount in the Holdback remaining available therefore at such time, the
Buyer Indemnitees shall be entitled to seek return of the Buyer Shares, which
for the purposes of this Section 10.7 shall be valued at fair market value at
the time such payment becomes due, (C) any remaining amounts shall be deducted
by Buyer from any future Earnout Payments to which the Shareholders may be
entitled, and (D) thereafter, Buyer Indemnitees shall have a claim against the
Shareholders for payment in cash.  For
the avoidance of doubt, the provisions of this Section 10.7 shall not
apply to the Shareholders’ payment obligations under Section 7.2.

 48
 

10.8                           Indemnity
Payments as Adjustments to Purchase Price. 
The parties agree that to the greatest extent possible the payment of
any indemnity under this Agreement shall be treated as an adjustment to the
Purchase Price.

ARTICLE 11

[INTENTIONALLY
OMITTED]

ARTICLE 12

GENERAL PROVISIONS

12.1                           No
Public Announcement.  From the date
of this Agreement, no Party shall, without the written approval of the other
Parties (which approval shall not be unreasonably withheld or delayed), make
any press release or other public announcement concerning the execution of this
Agreement or the transactions contemplated by this Agreement (other than a
mutually agreeable joint press release to be issued on or after the Closing
Date), except as and to the extent that any such Party shall be so obligated by
applicable Law, in which case such Party shall allow the other Parties
reasonable time to comment on such release or announcement and the Parties
shall use their reasonable efforts to cause a mutually agreeable release or
announcement to be issued; provided, however, that the foregoing
shall not preclude communications or disclosures necessary to implement the
provisions of this Agreement or to comply with any Law, accounting or SEC
disclosure obligations or the rules of any stock exchange or national market
system.

12.2                           Notices.  All notices or other communications required
or permitted hereunder shall be in writing and shall be deemed given or
delivered (a) when delivered personally, against written receipt, (b) when
received by facsimile transmission, and (c) when delivered by a nationally
recognized overnight courier service, prepaid, and shall be addressed as
follows:

 49

If
to the Shareholders, to:

James A. Wrisley

Paulette Wrisley

9070 Lakes Blvd.

West Palm Beach, Florida 33412

Facsimile: (561) 694-1648

Attention: James A. Wrisley

with
a copy to:

Greenberg Traurig, LLP

650 Town Center Drive, Suite 1700

Costa Mesa, California 92626

Facsimile: (714) 708-6501

Attention: Bryan S. Gadol,
Esq.

If to Buyer or to the
Company after the Closing, to:

SM&A

4695 MacArthur Court, 8th Floor

Newport Beach, CA 
92660

Facsimile: 
(949) 975-1624

Attention:  Chief Financial Officer

with a copy to:

Bingham McCutchen LLP

355 South Grand Avenue, Suite 4400

Los Angeles, CA 
90071

Facsimile: 
(213) 680-6499

Attention:  Cynthia M. Dunnett

or to such other address as
such Party may indicate by a written notice delivered to the other Parties.

12.3                           Successors
and Assigns.  This Agreement shall
not be assignable by the Shareholders without the prior written consent of the
Buyer, or by Buyer without the prior written consent of the Shareholders.  The Shareholders hereby consents to (a) Buyer’s
(and, after the Closing, the Company’s) collateral assignment of its rights
under this Agreement to the lenders who are financing the transactions
contemplated by this Agreement (and all extensions, renewals, replacements,
refinancings, and refundings thereof), and (b) Buyer’s (and, after the Closing,
the Company’s) assignment of its rights under this Agreement to any of its
Affiliates and to any purchaser of a material portion of its assets, so long as
Buyer and/or the Company, as the case may be, remains liable for such Affiliate’s
or purchaser’s obligations hereunder. 
This Agreement shall be binding upon and inure to the benefit of the
Parties and their respective 

 50
 

successors and permitted
assigns.  Nothing in this Agreement,
express or implied, is intended or shall be construed to confer upon any Person
other than the Parties any right, remedy or claim under or by reason of this
Agreement.

12.4                           Entire
Agreement.  This Agreement, the
Schedules and the Exhibits referred to herein, and the documents delivered
pursuant hereto, contain the entire understanding of the Parties with regard to
the subject matter contained herein or therein, and supersede all other prior
agreements, understandings, term sheets, or letters of intent between or among
any of the Parties.

12.5                           Interpretation.

(a)                                  Titles
and headings to articles, sections and subsections herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

(b)                                 The
Schedules referred to herein shall be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim
herein.  Disclosure of any fact or item
in any Schedule hereto referenced by a particular Section in this Agreement
shall be deemed to have been disclosed with respect to all other
representations, warranties or covenants contained in this Agreement to which
such matter is relevant to the extent it is reasonably apparent on the face of
such disclosure that it is relevant to such other representations, warranties
or covenants, notwithstanding the presence or absence of an appropriate
Schedule with respect to such representations, warranties or covenants or an
appropriate cross-reference thereto. 
Neither the specification of any dollar amount in any representation or
warranty contained in this Agreement nor the inclusion of any specific item in
any Schedule hereto is intended to vary the definition of “Material Adverse
Effect” or to imply that such amount, or higher or lower amounts, or the item
so included or other items, are or are not material, and no Party shall use the
fact of the setting forth of any such amount or the inclusion of any such item
in any dispute or controversy between the parties as to whether any obligation,
item or matter not described herein or included in any Schedule is or is not
material for purposes of this Agreement. 
Unless this Agreement specifically provides otherwise, neither the
specification of any item or matter in any representation or warranty contained
in this Agreement nor the inclusion of any specific item in any Schedule hereto
is intended to imply that such item or matter, or other items or matters, are
or are not in the ordinary course of business, and no Party shall use the fact
of the setting forth or the inclusion of any such item or matter in any dispute
or controversy between the Parties as to whether any obligation, item or matter
not described herein or included in any Schedule is or is not in the ordinary
course of business for purposes of this Agreement.

(c)                                  For
the purposes of this Agreement, (i) words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other gender as the context requires, (ii) the terms “hereof”, “herein”
and “herewith” and words of similar import shall be construed to refer to this
Agreement in its entirety and to all of the Schedules and not to any particular
provision, unless otherwise stated, and (iii) the term “including” shall mean “including
without limitation.”

 51
 

(d)                                 This
Agreement shall be construed without regard to any presumption or rule
requiring construction or interpretation against the Party drafting or causing
any instrument to be drafted.

12.6                           Amendments
and Waivers.  Any term or provision
of this Agreement may be amended or waived, or the time for its performance may
be extended, by the Party or Parties entitled to the benefit thereof.  The failure of any Party to enforce at any
time any provision of this Agreement shall not be construed to be a waiver of
such provision, nor in any way to affect the validity of this Agreement or any
part hereof or the right of any Party thereafter to enforce each and every such
provision.  No waiver of any breach of
this Agreement shall be held to constitute a waiver of any other or subsequent
breach.

12.7                           Expenses.  Each Party will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agreements and conditions contained herein
on its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel, accountants, advisors and consultants; provided,
that the Shareholders shall be liable for all Transaction Expenses incurred by
the Company and the Shareholders in connection with the transactions
contemplated by this Agreement, and such Transaction Expenses shall be paid by
the Company or the Shareholders on or before the Closing Date, and the Closing
Working Capital shall be determined assuming payment of all such amounts.

12.8                           Partial
Invalidity.  Wherever possible, each
provision hereof shall be interpreted in such a manner as to be effective and
valid under applicable Law.  In case any
one or more of the provisions contained herein shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such provision or
provisions shall be ineffective to the extent, but only to the extent, of such
invalidity, illegality or unenforceability, without invalidating the remainder of
such invalid, illegal or unenforceable provision or provisions or any other
provisions hereof, unless such a construction would be unreasonable.

12.9                           Execution.  This Agreement may be executed and delivered
in counterpart signature pages executed and delivered via facsimile
transmission or via email with scan or email attachment, and any such
counterpart executed and delivered via facsimile transmission or via email with
scan or email attachment will be deemed an original for all intents and
purposes.

12.10                     Governing
Law.  This Agreement and any disputes
hereunder shall be governed by and construed in accordance with the internal
laws of the State of Delaware without giving effect to any choice or conflict
of law provision or rule (whether of the State of Delaware or any other
jurisdiction) that would cause the application of laws of any jurisdiction
other than those of the State of Delaware.

12.11                     References
to U.S. Dollars.  All references in
this Agreement to amounts of money expressed in dollars are references to
United States dollars, unless otherwise indicated.

12.12                     Further
Assurances.  Each Party shall execute
such documents and other papers and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and the
transactions contemplated hereby.

 52
 

12.13                     Release.  Effective as of the Closing Date, each
Shareholder hereby releases and discharges the Company, whether such
Shareholder’s capacity as a Shareholder, director or officer, employee or
otherwise from any and all claims, demands and causes of action, whether known
or unknown, liquidated or contingent, relating to, arising out of or in any way
connected with the dealings of the Company and such Shareholder, whether such
Shareholder’s capacity as a Shareholders, director or officer, employee or
otherwise from the beginning of time through the Closing, it being understood,
however, that such release shall not operate to release the Company or Buyer
from indemnity obligations, if any, under Article 10.  Each Shareholder acknowledges that the Laws
of many states provide substantially the following: “A GENERAL RELEASE DOES NOT
EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR
HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER
MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”  Each Shareholder acknowledges that such
provisions are designed to protect a party from waiving claims which it does
not know exist or may exist. 
Nonetheless, each Shareholder agrees that, effective as of the Closing,
such Shareholder shall be deemed to waive any such provision  Each Shareholder further agrees that the
Shareholder shall not (i) institute a lawsuit or other legal proceeding
based upon, arising out of, or relating to any of the released claims,
(ii) participate, assist, or cooperate in any such proceeding, or
(iii) encourage, assist and/or solicit any third party to institute any
such proceeding.

12.14                     No
Rescission.  Except in the event of
fraud, no Party shall be entitled to rescind the transactions contemplated
hereby by virtue of any failure of any Party’s representations and warranties
herein to have been true or any failure by any Party to perform its obligations
hereunder.

ARTICLE 13

DEFINITIONS

13.1                           Definitions.  In this Agreement, the following terms have
the meanings specified in this Section 13.1.

“Action” means any action, claim, charge,
complaint, lawsuit, legal proceeding, litigation, investigation, inquiry,
subpoena or arbitration.

“Affiliate” means, with respect to any
Person, (i) any other Person, which directly or indirectly controls, is
controlled by or is under common control with such Person or (ii) any immediate
family member of such Person.

“Business” has the meaning set forth in Section
7.3(a).

“Business Day” means a day other than
Saturday, Sunday or any day on which banks located in the State of Delaware are
authorized or obligated to close.

“CERCLA” means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended.

“Code” means the Internal Revenue Code of
1986, as amended.

 53
 

“Company Intellectual Property” means any
Technology and Intellectual Property Rights (including Company Registered
Intellectual Property Rights) that are owned by, or exclusively licensed to,
the Company.

“Company
Products” means all products, software or service offerings that
have been sold, distributed, made commercially available, provided or otherwise
disposed of by or for the Company or which the Company intends to sell, distribute,
make commercially available, provide or otherwise dispose of in the future,
including any products or service offerings under development.

“Company
Registered Intellectual Property Rights” means all Registered
Intellectual Property Rights owned by, filed in the name of, or applied for, by
the Company.

“Company
Source Code” means, collectively, any Software source code, any
material portion or aspect of Software source code, or any material proprietary
information or algorithm contained in or relating to any Software source code,
owned by Company or embodied or incorporated in, or used to provide, any
Company Product.

“Contract” means any written or oral
contract, agreement, license, lease, guaranty, indenture, sales or purchase
order or other legally binding commitment in the nature of a contract to which
the Company is a party.

“Copyrights”
means all copyrights, copyrights registrations and applications therefor, all
moral rights, mask works, mask work registrations and applications therefor,
and all other rights corresponding thereto throughout the world.

“Court Order” means any judgment, order,
writ, decision, injunction, award or decree of any foreign, federal, state,
local or other court or tribunal and any ruling or award in any binding arbitration
proceeding.

“Encumbrance” means any lien, encumbrance,
claim, charge, security interest, mortgage, deed of trust, pledge, easement,
conditional sale or other title retention agreement, defect in title or other
restriction of a similar kind.

“Environmental Laws” means all federal,
state, local or foreign Laws, statutes, ordinances, regulations, rules,
judgments, orders, notice requirements, court decisions, agency guidelines or
principles of Law, restrictions and licenses pertaining to environmental matters,
including, without limitation, those arising under the Resource Conservation
and Recovery Act, CERCLA, the Superfund Amendments and Reauthorization Act of
1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic
Substances Control Act, or any other Law, order, judgment or decree relating to
health, safety or the environment.

“Exchange Act” means the Securities Exchange
Act of 1934, as amended.

“GAAP” means United States generally accepted
accounting principles, consistently applied.

 54
 

“Government Contract” means any Government
Prime Contract or Government Subcontract, together with any modifications,
amendments or waivers thereto, as to which either (a) any performance is
outstanding; (b) the Government has not made final payment; (c) any routine
cost audits have not been completed; or (d) there is any outstanding audit,
investigation, or dispute.  A task order
or delivery order is not itself defined herein as a Government Contract but is
considered to be included as a part of the Government Contract under which it
was issued.

“Government Entity” means any government or
any agency, bureau, board, commission, court, department, official, political
subdivision, tribunal or other instrumentality of any government, whether
federal, state or local, domestic or foreign, as well as any corporations owned
or chartered by any such governmental agency, bureau, board, commission, court,
department, official, political subdivision, tribunal or other instrumentality.

“Government Prime Contract” means any prime
contract, basic ordering agreement, letter contract, or purchase order between
the Company and any state or the Federal government.

“Government Subcontract” means any
subcontract, basic ordering agreement, letter subcontract, or purchase order
between the Company and any higher-tier contractor with respect to a Government
Prime Contract.

“Governmental Authority” means any foreign,
domestic, federal, territorial, state or local governmental authority,
quasi-governmental authority, court, commission, board, bureau, agency or
instrumentality, or any regulatory, administrative or other department, agency,
or any political or other subdivision, department or branch of any of the
foregoing.

“Holdback Amount” means Five Hundred Thousand
Dollars ($500,000).

“Holdback Period” means the period from the
Closing Date until the one (1) year anniversary of the Closing Date.

“Indebtedness” means, as applied to any
Person, (a) all indebtedness of such Person for borrowed money, whether current
or funded, or secured or unsecured, (b) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments or debt
securities, (c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property) and all obligations for the deferred purchase price
of assets or properties, (d) all indebtedness of such Person secured by a
purchase money mortgage or other Encumbrance to secure all or part of the
purchase price of the property subject to such Encumbrance, (e) all obligations
under leases which shall have been or must be, in accordance with GAAP,
recorded as capital leases in respect of which such Person is liable as lessee,
(f) any liability of such Person in respect of banker’s acceptances or letters
of credit, (g) all interest, fees, prepayment premiums and other expenses owed
with respect to the indebtedness referred to above, and (h) all indebtedness
referred to above which is directly or indirectly guaranteed by such Person or
which such Person has agreed (contingently or 

 55
 

otherwise) to purchase or
otherwise acquire or in respect of which it has otherwise assured a creditor
against loss.

“Intellectual Property Contract” means any
written Contract to which Company is a party with respect to any Technology or
Intellectual Property Rights, other than “shrink-wrap” or similar widely
available commercial end-user binary code licenses.

“Intellectual Property Rights” means any or
all of the following and all rights in, arising out of, or associated
therewith: (A) all Patents; (B) all trade secrets and other rights in
know-how and confidential or proprietary information; (C) all
Copyrights; (D) all industrial designs and any registrations and
applications therefor throughout the world; (E) all rights in World Wide
Web addresses and domain names and applications and registrations therefor, all
Trademarks; and (F) any similar, corresponding or equivalent rights to any
of the foregoing anywhere in the world.

“Key Employee Agreements” means the
Employment and Non-Competition Agreements to be entered into among Buyer, the
Company and the Key Employees in connection with the Closing.

“Key Employees” means James Wrisley, Harry
Sparrow and Kim Smith.

“Knowledge” of the Company or Shareholders
means the actual knowledge of the Shareholders and the Key Employees, and the
Knowledge such individuals would reasonably be expected to have after
completion of a reasonable investigation regarding the applicable subject
matters.

“Law” means any law, statute, rule,
regulation, ordinance, order, decree, consent decree or similar instrument or
determination or award of a court or any other Governmental Authority.

“Losses” means any and all losses, claims,
damages, liabilities, expenses, penalties, fines, reasonable amounts paid in
reasonable settlement, obligations and fees 
(including court costs and reasonable attorneys’ and accountants’ fees),
assessments and Taxes, including, as the context may require, any of the
foregoing which arise out of or in connection with any Actions or Court Orders
of any Governmental Authority.

“Material Adverse Effect” means any change,
circumstance or effect that is materially adverse to the business, assets,
financial condition or results of operations of the Company.

“NASDAQ” means the NASDAQ National Market.

“Neutral Accounting Firm” means an independent
accounting firm of nationally recognized standing that is not at the time it is
to be engaged hereunder rendering services to any Party, or any Affiliate of
any Party, and has not done so within the two (2) year period prior thereto.

 56
 

“Net Working Capital Adjustment” means the
adjustments to be made to the Purchase Price in respect of the Company’s
Working Capital pursuant to Sections 1.5 and 1.6.

“Open
Source Materials” means any software or other material that is
distributed as “free software”, “open source software” or under a similar
licensing or distribution model (including but not limited to the GNU General
Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla Public
License (MPL), BSD licenses, the Artistic License, the Netscape Public License,
the Sun Community Source License (SCSL) the Sun Industry Standards License
(SISL) and the Apache License).

“Patents”
means all United States and foreign patents and utility models and applications
therefor and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof, and equivalent
or similar rights anywhere in the world in inventions and discoveries
including, without limitation, invention disclosures.

“Permits” means all licenses, permits,
franchises, approvals, authorizations, consents or orders of, or filings with,
any Governmental Authority or any other Person, necessary for the conduct of,
or relating to the operation of, the Company.

“Person” means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.

“Post-Closing Tax Period” means any Tax
Period beginning after the Closing Date and that portion of any Straddle Period
beginning after the Closing Date.

“Pre-Closing Tax Period” means any Tax Period
ending on or before the Closing Date and that portion of any Straddle Period
ending at the close of business on the Closing Date.

“PTO”
means the United States Patent and Trademark Office.

“Registered Intellectual Property Rights”
means all United States, international and foreign: (A) Patents;
(B) registered Trademarks, applications to register Trademarks, including
intent-to-use applications, or other registrations or applications related to
Trademarks; (C) Copyright registrations and applications; and (D) any
other Intellectual Property Right that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any state, government or other public legal authority at any time.

“Schedules” means the schedules attached to
this Agreement.

“SEC” means
the Securities and Exchange Commission.

“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

“Software”
means any and all computer software and code, including applets, applications,
operating systems, libraries, assemblers, compilers, design tools, source code,

 57
 

object code, data
(including image and sound data) and user interfaces, in any form or format,
however fixed.  Software shall include
source code listings and documentation.

“Straddle Period” means any Tax Period that
includes but does not end on the Closing Date.

“Subsidiary” means, with respect to any
Person, any corporation, limited liability company, partnership, association or
other business entity of which (i) if a corporation, a majority of the total
voting power of shares of stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof or (ii) if a limited liability company, partnership, association or
other business entity (other than a corporation), a majority of partnership or
other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more Subsidiaries of that
Person or a combination thereof and for this purpose, a Person or Persons owns
a majority ownership interest in such a business entity (other than a
corporation) if such Person or Persons shall be allocated a majority of such
business entity’s gains or losses or shall be or control any managing director
or general partner of such business entity (other than a corporation).  The term “Subsidiary” shall include
all Subsidiaries of such Subsidiary.

“Target Working Capital” means Four Hundred
Fifty Thousand Dollars ($450,000).

“Tax” or “Taxes” (and with correlative meaning, “Taxable” and “Taxing”)
means any United States federal, state or local, or non-United States, income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural resources,
severance, stamp, withholding, occupation, premium, windfall profit,
environmental, customs, duties, real property, personal property, capital
stock, net worth, intangibles, social security, unemployment, disability,
payroll, license, employee or other tax or similar levy, of any kind
whatsoever, including any interest, penalties or additions to tax in respect of
the foregoing, or on such interest, penalty or addition to tax.

“Tax Claim” means any claim arising from a
breach of a representation or covenant set forth in Sections 3.8 or 7.1 or any
claim arising in connection with the Shareholders’ obligations under Section
7.2.

“Tax Period” means any period prescribed by
any Tax authority for which a Tax Return is required to be filed and/or for
which a Tax is required to be paid.

“Tax  Return” means any return, declaration, report,
claim for refund, information return or other document (including any related or
supporting estimates, elections, schedules, statements or information) filed or
required to be filed in connection with the determination, assessment or
collection of any Tax or the administration of any laws, regulations or
administrative requirements relating to any Tax.

“Technology” means any or all of the
following: (A) works of authorship including, without limitation, computer
programs, algorithms, routines, source code and 

 58
 

executable code, whether
embodied in Software or otherwise, documentation, designs, files, records and
data; (B) inventions (whether or not patentable), improvements, and
technology; (C) proprietary and confidential information, including
technical data and customer and supplier lists, trade secrets, show how, know-how
and techniques; (D) databases, data compilations and collections and
technical data; (E) processes, devices, prototypes, schematics, bread
boards, net lists, mask works, test methodologies and hardware development
tools; and (F) all instantiations of the foregoing in any form and embodied in
any media.

“Trademarks” means all trade names, logos,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor and all goodwill associated therewith
throughout the world.

“Transaction Documents” means, when used in
reference to a particular Person, any agreement, document or instrument to be
executed by such Person in connection with the transactions contemplated
hereby.

“Transaction Expenses” means the amount
required to pay all expenses of the Company (prior to the Closing) and the
Shareholders incurred or to be incurred in connection with the preparation,
execution and consummation of this Agreement and the Closing, including fees
and disbursements of attorneys, accountants and other advisors and service
providers payable by the Company (prior to the Closing) or the Shareholders
pursuant to Section 12.7.

“Transfer Taxes” means all sales (including
bulk sales), use, transfer, recording, value added, ad valorem, privilege,
documentary, gross receipts, registration, conveyance, excise, license, stamp
or similar Taxes and fees arising out of, in connection with or attributable to
the transactions effectuated pursuant to this Agreement.

“Working Capital” means (a) the sum of the
Company’s current assets including all cash and cash equivalents, accounts
receivable (including unbilled accounts receivables, but less an allowance for
doubtful accounts), prepaid expenses and other current assets, less the sum of
(ii) the Company’s current liabilities including accounts payable, advanced
billings, taxes payable, accrued expenses, cash overdrafts, payroll liabilities
payable, customer deposits, benefit plans and tax accruals.

[SIGNATURE PAGE
FOLLOWS]

 59

IN WITNESS WHEREOF, the Parties have executed or
caused this Stock Purchase Agreement to be executed and delivered as of the day
and year first above written.

 

	
  

  	
   

  	
  “BUYER”:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SM&A,

  
	
   

  	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
    /s/ Steve D. Handy

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Steve D. Handy

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Senior Vice President and

  
	
   

  	
   

  	
   

  	
  Chief Financial Officer

  
						

 

 

	
  

  	
  “COMPANY”:

  
	
   

  	
   

  
	
   

  	
  PERFORMANCE
  MANAGEMENT 

  
	
   

  	
  ASSOCIATES,
  INC., a California corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  James A. Wrisley

  	
   

  
	
   

  	
   

  	
  Name: James A.
  Wrisley

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  

 

	
  

  	
  “SHAREHOLDERS”:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
    /s/
  James A. Wrisley

  	
   

  
	
   

  	
  JAMES A. WRISLEY

  
	
   

  	
   

  
	
   

  	
    /s/
  Paulette Wrisley

  	
   

  
	
   

  	
  PAULETTE WRISLEYExhibit
10.2

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) is
dated as of September 14, 2007, by and between SM&A, through its
Performance Management Associates division (the “Company”), and James A.
Wrisley (the “Employee”).

WHEREAS,
pursuant to the transactions contemplated by that certain Stock Purchase
Agreement dated as of September 14, 2007 (referred to herein as the “SPA”) by
and among SM&A, a Delaware corporation, Performance Management Associates,
Inc. (“PMA”), James A. Wrisley and Paulette Wrisley, SM&A has acquired all
of the outstanding shares of stock of Performance Management Associates, Inc.;

WHEREAS,
the Company wishes to employ the Employee and the Employee wishes to work for
the Company on the terms and conditions set forth herein; and

WHEREAS,
it is agreed by the parties hereto that this Agreement shall only be effective
upon the condition that the transactions contemplated by the SPA close and
become final in accordance with the SPA and applicable law, and this Agreement
shall be null and void if the transactions do not close.

NOW,
THEREFORE, it is hereby agreed as follows:

§1.                                EMPLOYMENT.  The Company hereby employs the Employee, and
the Employee hereby accepts employment, upon the terms and subject to the
conditions hereinafter set forth.

§2.                                DUTIES. 
The Employee shall be employed as President of the PMA division of
SM&A and shall have such responsibilities and duties consistent with such
position, and as are assigned to him from time to time by SM&A’s Executive
Vice President of Operations.  The
Employee agrees to devote his full time and best efforts to the performance of
the Employee’s duties to the Company.  The foregoing shall not be construed to prohibit the
Employee from engaging in activities relating to serving on civic and
charitable boards or committees, and managing the Employee’s personal
investments, provided that such activities do not interfere or conflict with the performance by the Employee of the duties,
responsibilities, and authorities hereunder.

§3.                                TERM. 
The Employee’s term of employment hereunder shall commence on September
14, 2007 (the “Commencement  Date”) and
shall continue until the third year anniversary of the Commencement Date (“Term”),
unless earlier terminated pursuant to §6 hereof.

§4.                                COMPENSATION AND BENEFITS.  In consideration for the Employee’s services
hereunder, the Company shall compensate the Employee as follows:

(a)                                  Base Salary.  The Company shall pay the Employee an annual
base salary of Two Hundred Thousand Dollars and No Cents ($200,000.00) (the “Base
Salary”), less applicable withholdings under state and federal law and in
accordance with the Company’s 

normal payroll
practices.  The Base Salary shall be
reviewed and approved annually by SM&A’s Executive Vice President of Operations
with potential for annual increases based upon the Employee’s performance and
in the sole discretion of the Company; provided, however,
in no event will the Employee’s annual Base Salary be less than Two Hundred
Thousand Dollars and No Cents ($200,000.00).

(b)                                 Incentive Compensation.  In addition to the Base Salary, the Employee
shall be eligible to receive Two Hundred Thousand Dollars and No Cents
($200,000.00) in target incentive compensation based on the following
allocation:  (i) 50% of the annual
incentive compensation will be based upon the achievement of a certain rate of
PMA profitability, as set forth in the attached Schedule A, and (ii) 50% of the
annual incentive compensation will be based upon the subjective evaluation
elements set forth on Schedule B. 
Notwithstanding the 50/50 allocation set forth above, the Employee may
be entitled to receive incentive compensation in excess of the target incentive
compensation based upon mutually agreed upon goals and business objectives,
including without limitation, the amounts set forth on Schedule A if the
operating margin is greater than 26.5%.

(c)                                  Stock Options.  The Employee may be awarded incentive stock
options to acquire shares of SM&A’s common stock pursuant to SM&A’s
2007 Equity Incentive Plan, the actual amount of which, if any, and allocation
shall be determined and subject to the sole discretion of SM&A’s
Compensation Committee.  The vesting of
the options awarded, if any, will conform to the standard vesting schedule for
other SM&A ISOP participants.  Any
options not vested at the time of termination of the Employee’s employment,
whether initiated by the Employee or the Company, shall be forfeited.

(d)                                 Benefits.  The Employee shall be eligible to participate
in the same insurance benefit programs offered to other similarly situated
employees, and in effect from time to time. The amount, eligibility, and extent
of the benefits shall be governed by the applicable benefit plan or
program.  The Employee shall be provided
the same paid holiday benefits provided to other similarly situated employees.

(e)                                  Paid Time Off.  The Employee shall not accrue Paid Time Off (“PTO”).  The Employee shall be provided with the same
paid time off provided to other similarly situated senior employees.  The Company does not have a formal policy
with respect to PTO for similarly situated senior employees; however, the
Company acknowledges and agrees that the Employee shall be entitled to paid
time off, subject to his compliance with the duties set forth in this Agreement.

§5.                                EXPENSES.  The Company shall reimburse the Employee for
all reasonable business expenses of types authorized by the Company and
reasonably and necessarily incurred by the Employee in the performance of the
Employee’s duties, responsibilities, and authorities hereunder.  The Employee shall comply with such budget
limitations and approval and reporting requirements with respect to expenses as
the Company may establish from time to time.

 2
 

§6.                                TERMINATION.  The Employee’s employment hereunder shall commence
on the Commencement Date and continue until the earlier of (i) the expiration
of the Term or (ii) the occurrence of any of the following:

(a)                                  Death or Disability.  The Employee’s employment shall terminate
upon the death of the Employee during the Term or, at the option of the Company
and subject to applicable law, in the event of the Employee’s disability, upon
thirty (30) days’ written notice.  The
Employee shall be deemed disabled if an independent medical doctor (selected by
the Company’s health insurer) certifies that the Employee has for ninety (90)
consecutive days or one hundred twenty (120) non-consecutive days in any twelve
(12) month period, been disabled in a manner which has rendered the Employee
unable to perform the essential functions of the Employee’s job duties with or
without reasonable accommodation.  The
Employee will cooperate in submitting to a medical examination for the purpose
of certifying disability under this §6(a) if requested by SM&A’s Board of
Directors (“Board”).  If the Employee’s
employment terminates pursuant to this §6(a), the Company shall pay the
Employee (or his estate, as applicable) as severance, the Employee’s base
salary at the time of termination for a period of six (6) months following
termination, less applicable deductions, in the form of salary continuation
payments and in accordance with the Company’s normal payroll procedures; provided that, the Employee (or his estate, as applicable)
will only be entitled to receive the foregoing severance if the Employee (or
his estate, as applicable) executes and does not revoke a general waiver and
release of all claims in favor of the Company and its affiliates in a form
reasonably satisfactory to the Company, and the Employee complies with the
Employee’s continuing obligations under §7 of this Agreement.  Except for the foregoing severance and
payments required under applicable law, the Company shall have no further
obligation to the Employee or liability under this Agreement by way of
compensation or otherwise.

(b)                                 For Cause.  The Company may terminate the Employee’s
employment for “Cause” immediately upon written notice by the Company to the
Employee.  For purposes of this
Agreement, “Cause” shall mean:

(i)                                     the
Employee has committed any act of fraud, embezzlement, misappropriation or
theft in the course of the Employee’s employment with the Company;

(ii)                                  the
Employee has been convicted by a court of competent jurisdiction of, or pleaded
guilty or nolo contendere to, any felony or any crime involving moral
turpitude; or

(iii)                               the
Employee has (A) performed the Employee’s duties in a grossly negligent manner
or has willfully disregarded the Employee’s job duties and responsibilities
under this Agreement (unless due to death or Disability), as determined by the
Company or the Board, which, if susceptible to cure, is not cured to the
Company’s reasonable satisfaction within ten (10) days of written notice by the
Company to the Employee; (B) failed to follow the reasonable instructions of
the Company with respect to material aspects of the Employee’s assigned
responsibilities, which, if susceptible to cure, is not cured to the Company’s
reasonable satisfaction within ten (10) days of written notice by the Company
to the Employee; or (C) breached any material provision of this Agreement,
including the covenants 

 3
 

under §7, which,
if susceptible to cure, is not cured to the Company’s reasonable satisfaction
within ten (10) days of written notice by the Company to the Employee.

If the Employee’s
employment terminates pursuant to this §6(b), the Employee shall not be
entitled to receive any severance, bonus or other payments, except as required
under applicable law, and the Company shall have no further obligation to the
Employee or liability under this Agreement by way of compensation or
otherwise.  Should the Employee’s
employment terminate pursuant to this §6(b), the Employee shall continue to be
fully bound by §7 of this Agreement.

(c)                                  Termination Without Cause or Termination by the
Employee for Good Reason.

Notwithstanding any
other provision herein, the Company may terminate the Employee’s employment at
any time without cause.  Additionally,
the Employee may terminate his employment for “Good Reason” if the Employee
provides written notice to the Company of the Good Reason within thirty (30)
days of the event constituting the Good Reason and provides the Company with a
period of ten (10) days to cure the event constituting Good Reason within such
period.  For purposes of this Agreement, “Good
Reason” shall mean either of the following events if the event is effected by
the Company without the consent of Employee: 
(i) a change in the Employee’s position with the Company which
materially reduces the Employee’s level of responsibility, or (ii) a relocation
of the Employee’s principal place of employment by more than fifty (50) miles.

If the Employee’s employment terminates pursuant to
this §6(c), the Company shall pay the Employee as severance, the Employee’s
base salary at the time of termination for a period of six (6) months following
termination, less applicable deductions, in the form of salary continuation
payments and in accordance with the Company’s normal payroll procedures and its
affiliates; provided that, the Employee will only be
entitled to receive the foregoing severance if the Employee executes and does
not revoke a general waiver and release of all claims in favor of the Company
and its affiliates in a form reasonably satisfactory to the Company, and the
Employee complies with the Employee’s continuing obligations under §7 of this
Agreement.  Except for the foregoing
severance and payments required under applicable law, the Company shall have no
further obligation to the Employee or liability under this Agreement by way of
compensation or otherwise.

(d)                                 Resignation or Expiration of Term. The
Employee’s employment shall terminate upon the expiration of the Term pursuant
to §3 or if the Employee resigns without Good Reason.  If the Employee’s employment terminates
pursuant to this §6(d), the Employee shall not be entitled to receive any
severance, bonus or other payments, except as required under applicable law,
and the Company shall have no further obligation to the Employee or liability
under this Agreement by way of compensation or otherwise.  Should the Employee’s employment terminate
pursuant to this §6(d), the Employee shall continue to be fully bound by §7 of
this Agreement.

 4
 

§7.                                CONFIDENTIAL INFORMATION, NON-COMPETE, NON
DISPARAGEMENT, INVENTIONS ASSIGNMENT.

(a)                                  Confidentiality.  The Employee recognizes and acknowledges that
the Employee has acquired, while working for PMA and the Company, and will
acquire confidential, proprietary and trade secret information concerning PMA
and the Company, and their divisions, subsidiaries, affiliates, and acquired
businesses, including, without limitation, the identities, contact information,
purchasing patterns, contracts and terms of contracts of customers, merchants,
vendors, suppliers and agents; pricing policies; methods of operation;
proprietary computer programs; sales, profit, cost and other financial
information; market information; business strategies; employee personnel
information; technical processes; information processing standards and
practices; customer service and service quality standards; trade secrets; and confidential
information concerning or relating to the Company’s customers, merchants,
vendors and suppliers (hereinafter called “Confidential Information”).  The Employee shall not, during or after the
Term, use or disclose any Confidential Information to any person, firm,
corporation, association, or any other entity for any reason or purpose
whatsoever, directly or indirectly, except as required to perform the Employee’s
job duties, or as required by law.  In
the event of termination, whether voluntary or involuntary, and whether
initiated by the Company or the Employee, or upon request of the Company at any
time, the Employee shall deliver to the Company all documents and data
pertaining to the Confidential Information and shall not take or remove from the
Company any documents or data of any kind or any reproductions (in whole or in
part) or extracts of any items relating to any Confidential Information.  The Employee will not, at any time during or
after the Employee’s employment, use, copy, publish, summarize, or remove from
the Company’s premises any Confidential Information, except during the Employee’s
employment to the extent necessary to carry out the Employee’s duties and
responsibilities under this Agreement.

(b)                                 Prohibited Activities.  The
Employee acknowledges that the Company and PMA
have spent significant time, effort and resources protecting the Confidential
Information, including specifically, trade secrets, customer goodwill and
substantial relationships with prospective and existing customers, and
extraordinary and specialized training (“Valuable
Business Interests”).  In order to
protect the Valuable Business Interests, and for other consideration received
by the Employee under the SPA to which the Employee is a party, the Employee
hereby agrees that during the Term and for a period of three (3) years
following the termination of Employee’s employment, whether initiated by
Employee or the Company (the “Specified Period”), the Employee will not,
without the prior written consent of the Company, directly or indirectly, on
behalf of himself or any other person or entity, engage anywhere in the United
States, Great Britain or Italy (the “Territory”) as an agent, executive,
consultant, representative, stockholder, manager, partner or in any other capacity,
own, operate, manage, control, engage in, invest in (other than through the
passive ownership of less than 1% of the publicly traded shares of any Person)
or participate in any manner in, render advice to or services for (alone or in
association with any Person), or otherwise assist any Person that engages in or
owns, invests in, operates, manages or controls, any venture or enterprise that
directly or indirectly engages, anywhere in the Territory, in the services of
providing earned value management consulting services, including, without
limitation, those services set forth on Schedule 7.3(a) of the SPA.  To the extent
that any provision in this §7(b) is inconsistent with any provision set forth
in §7.3 of the SPA, §7.3 of the SPA shall control.

 5
 

(c)                                  Non-Solicitation. In order
to protect the Valuable Business Interests, and for other consideration
received by the Employee under the SPA to which the Employee is a party, the
Employee hereby agrees that during the Term and the Specified Period, the Employee
will not, without the prior written consent of the Company, (i) directly or
indirectly, as an agent, executive, consultant, representative, stockholder,
manager, partner, or in any other capacity, recruit or solicit any person who
is employed or engaged by the Company to terminate his or her relationship with
the Company, provided, however, such employees responding to a bona fide
general solicitation for employees by use of advertisements in the media will
not be deemed a breach of this restriction, or
(ii) directly or indirectly, call on, induce or solicit, on behalf of the
Employee or any third party, any current or prospective customer, merchant,
vendor or supplier of the Company for the purpose of diverting, taking away or
reducing the amount of current or prospective business of the Company or
otherwise interfere with the relationship between the Company, on the one hand,
and its current or prospective customers, merchants, vendors or suppliers, on
the other hand; provided, however, that nothing contained herein shall prohibit
the solicitation of business or services which are not in any way engaged in
the services of providing earned value management consulting services,
including, without limitation, those services set forth on Schedule 7.3(a) of
the SPA.  To the extent that any provision in this §7(c) is inconsistent with any
provision set forth in §7.3 of the SPA, §7.3 of the SPA shall control.

(d)                                 Reasonableness of Covenants.  The Employee acknowledges that the duration and
geographical areas set forth in §7(b) and §7(c) are reasonable in scope.  If, at any time, the provisions of §7(b) and
§7(c) shall be finally adjudicated to be invalid or unenforceable by a court of
competent jurisdiction, the parties hereby agree that the court making this determination
will have the power to reduce the scope, duration, or area of the term or
provision to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or unenforceable term or provision; and that this Agreement will be enforceable
as so modified.  As used in this section “Person”
means a corporation, an association, a partnership, an organization, a
business, a limited liability company, an individual, a government or political
subdivision thereof or a governmental agency. 
The Employee agrees that the restrictive covenants contained in §7(b)
and §7(c) shall be enforceable whether the Employee’s employment is terminated
by the Employee or the Company and without regard to reason.

(e)                                  Third-Party
Information.  The Employee acknowledges that the Company
has received and in the future will receive from third parties their
confidential information, subject to a duty to maintain the confidentiality of such information and to use it
only for certain limited purposes.  The
Employee will treat such information in a manner consistent with the Company’s
agreement with such third parties, and without limiting the foregoing, the
Employee will not, directly or indirectly, use, make available, sell, disclose
or otherwise communicate to any third party any such confidential information,
other than as necessary to perform the Employee’s assigned duties for the benefit
of the Company.

(f)                                    Non-Disparagement.  In consideration of the compensation and
benefits to be paid to the Employee by the Company, the Employee agrees not to,
either during or after the Term, make any statement or otherwise take any
action that would or might 

 6
 

reasonably be
interpreted as disparaging to the Company, or its divisions, principal
stockholders, directors or officers.

(g)                                 Inventions Assignment.

(i)                                     Inventions
Assignment.  The
Employee agrees to assign to the Company, without further consideration, all
right, title, and interest that the Employee may presently have or acquire
(throughout the United States and in all foreign countries), free and clear of
all liens and encumbrances, in and to each Invention (as defined herein), which
Inventions shall be the sole property of the Company, whether or not
patentable.  “Invention” as used herein
shall mean all ideas, processes, trademarks, service marks, inventions,
technology, computer programs, original works of authorship, designs, formulas,
discoveries, patents, copyrights, and all improvements, rights, and claims
related to the foregoing that are conceived, developed, or reduced to practice
by the Employee alone or with others during the course of the Employee’s
employment with the Company or which were conceived, developed, or reduced to
practice by the Employee alone or with others during the course of the Employee’s
employment with PMA.  The Employee
acknowledges that all original works of authorship which are made by the
Employee (solely or jointly with others) within the scope of the Employee’s
employment  with the Company and which
were made by the Employee (solely or jointly with others) within the scope of
the Employee’s employment with PMA, and which are protectable by copyright are “works
made for hire,” as defined in the United States Copyright Act (17 USCA, § 101)
and included in the definition of Inventions. 
The Employee further agrees to assist the Company (at its expense) in
obtaining patent letters or other applicable registrations, and agrees to
execute all documents and do all other things necessary or proper to obtain
patent letters or other applicable registrations and to vest the Company with
full title to them.  Should the Company
be unable to secure the Employee’s signature on any document necessary to apply
for, prosecute, obtain, or enforce any patent, copyright, or other right or
protection relating to any Invention, the Employee irrevocably designates and
appoints the Company and each of its duly authorized officers and agents as the
Employee’s agent and attorney-in-fact, to act for and on the Employee’s behalf,
to execute and file any such document and to do all other lawfully permitted
acts to further the prosecution, issuance, and enforcement of patents,
copyrights, or other rights of protections with the same force and effect as if
executed and delivered by the Employee.

(ii)                                  Disclosure.  The Employee agrees to maintain adequate and
current written records on the development of all Inventions and to disclose
promptly to the Company all Inventions and relevant records relating to any
Invention, which records will remain the sole property of the Company.  The Employee further agrees that all
information and records pertaining to any idea, process, trademark, service
mark, invention, technology, computer program, original work of authorship,
design formula, discovery, patent, or copyright that the Employee does not
believe to be an Invention, but is conceived, developed, or reduced to practice
by the Employee (alone or with others) during employment with the Company or
was conceived, developed, or reduced to practice by the Employee (alone or with
others) during employment with PMA, shall be promptly disclosed to the Company
(such disclosure to be received in confidence).

(iii)                               Exclusions/Exceptions.  Except as disclosed in writing and attached
hereto, there are no Inventions belonging to the Employee that shall be
excluded from 

 7
 

the operation of
this Agreement.  Moreover, the Employee
knows of no existing contract to which the Employee is a party that would
conflict with this Agreement.  The
Employee understands and acknowledges that the
provisions of this Agreement requiring the assignment of Inventions do not
apply to any invention developed entirely on the Employee’s
own time without using the Company’s equipment, supplies, facilities, or trade
secret information, except for those inventions that either (A) relate at the
time of conception or reduction to practice of the invention to the Company’s
business, or actual or demonstrably anticipated research or development of the
Company, or (B) result from any work performed by the Employee for the Company.

§8.                                MISCELLANEOUS.

(a)                                  Representations and Warranties.  The Employee represents and warrants that (i)
the Employee’s employment with the Company does not and will not breach any
agreements with or duties to any third party, (ii) the Employee has no
obligations or commitments inconsistent with the terms of this Agreement or
with undertaking an employment relationship with the Company, and (iii) the
Employee will not enter into any agreement or engage in any outside activity
which would conflict with this Agreement or which would otherwise interfere
with the Employee’s duties hereunder. 
The Employee agrees to promptly inform the Company if the Employee
becomes aware of any fact that would cause these representations and warranties
to be false.

(b)                                 Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or if mailed by certified mail, return receipt requested,
postage prepaid or sent by facsimile, to the relevant address set forth below,
or to such other address as the recipient of such notice or communication shall
have specified to the other party hereto in accordance with this §8(b):

If to the Company:

SM&A

4695 MacArthur
Court, 8th Floor

Newport Beach,
California  92660

Facsimile
No.:  (949) 975-1624 

Attention:  Mr. Steve Handy

With a copy to:

Bingham McCutchen
LLP

355 S. Grand
Avenue, Suite 4400

Los Angeles,
California  90071

Facsimile
No.:  (213) 830-8691

Attention:  Jacqueline Cookerly Aguilera, Esq.

 8
 

If to the Employee:

James A. Wrisley

9070 Lakes Blvd.

West Palm Beach,
Florida  33412-1560

Facsimile
No.:  (561) 694-1648

Attention:  James A. Wrisley

With a copy to:

Greenberg Traurig
LLP

650 Town Center
Drive, 17th Floor

Costa Mesa,
California  92626

Facsimile
No.:  (714) 708-6500

Attention:  Bryan S. Gadol, Esq.

Any such notice shall be
effective (i) if delivered personally, when received, (ii) if sent by overnight
courier, when receipted for, (iii) if mailed, five (5) days after being mailed
as described above, and (iv) if sent by facsimile, upon generation of a
transmission report by the machine from which the facsimile was sent which indicates
the date that the facsimile was sent if sent during normal business hours on
any business day, otherwise on the next business day following the generation
of such report.

(c)                                  Rights Cumulative.  The rights and remedies provided herein are
cumulative, and the exercise of any right or remedy, whether pursuant hereto,
to any other agreement, or to law, shall not preclude or waive the right to
exercise any or all other rights and remedies.

(d)                                 Survival of Obligations.  Termination of this Agreement or the Employee’s
employment shall not affect the Employee’s continuing obligations as set forth
in this Agreement, including under §7 of this Agreement.

(e)                                  Arbitration.  In consideration of the Company employing
the Employee, and the salary and benefits provided under this Agreement, the
Employee and the Company each agree that all claims arising out of or relating
to the Employee’s employment, including its termination, shall be resolved by
arbitration.  This Agreement expressly
does not prohibit either party from seeking provisional injunctive relief,
including to prevent irreparable harm. The dispute will be arbitrated in
accordance with the rules of the American Arbitration Association and
applicable law.  If any party prevails on
a statutory claim which affords the prevailing party attorneys’ fees, the
arbitrator may award reasonable fees and costs to the prevailing party, under
the standards for an award of fees provided by law.  The parties agree to file any demand for
arbitration within the time limit established by the applicable statute of
limitations for the asserted claims or within one year of the conduct that
forms the basis of the claim if no statutory limitation is applicable.  Failure to demand arbitration within the
prescribed time period shall result in waiver of said claims.

 9
 

This pre-dispute
resolution agreement will cover all matters directly or indirectly related to
the Employee’s recruitment, employment or termination of employment by the
Company, including, but not limited to, claims involving laws against any form
of discrimination whether brought under federal or state law, and/or claims
involving other employees; but excluding workers’ compensation, unemployment
insurance claims or any claim which is not subject to arbitration by law.  THE PARTIES UNDERSTAND AND AGREE THAT THEY
ARE WAIVING THEIR RIGHTS TO BRING SUCH CLAIMS TO COURT, INCLUDING THE RIGHT TO
A JURY TRIAL.

(f)                                    Equitable Remedies.  Notwithstanding §8(e), the Employee
acknowledges and agrees that upon any breach by the Employee of his obligations
under §7 of this Agreement, the Company may have no adequate remedy at law, and
accordingly will be entitled to seek specific performance and other appropriate
injunctive and equitable relief.  The
Employee further agrees that no bond or other security shall be required in
obtaining such equitable relief.  Each of
the parties recognizes that nothing in this Agreement is intended to limit any
remedy of the Company or the Employee under state and federal laws.

(g)                                 Severability.  To the extent any provision of this Agreement
or application of it to any person, place, or circumstance shall be determined
to be invalid, unlawful or otherwise unenforceable, in whole or in part, the
remainder of this Agreement and such provisions as applied to other persons,
places, and circumstances shall remain in full force and effect, and this
Agreement shall be reformed to the extent necessary to carry out its provisions
to the greatest extent possible.  The
parties agree that this Agreement shall be given the construction which renders
its provisions valid and enforceable to the maximum extent (not exceeding its
express terms) possible under applicable law.

(h)                                 Waivers.  No delay or omission by either party hereto
in exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise or any such right,
power or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.

(i)                                     Withholding.  All compensation payable by the Company to
the Employee hereunder shall be reduced prior to the delivery of such payment
to the Employee by an amount sufficient to satisfy any applicable federal,
state, local or other tax withholding requirements.

(j)                                     Counterparts.  This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

(k)                                  Assignment. 
The Employee may not assign this Agreement, and any attempt to do so
will be deemed null and void.  The
Company may assign any of its rights or obligations under this Agreement to any
person, business or entity that succeeds to the business of the Company.

(l)                                     Entire Agreement; No Oral Modification.  This Agreement (which contains references to
the SPA) contains the entire understanding of the parties relating to 

 10
 

the employment of
the Employee, and supersedes all prior agreements, negotiations and
understandings relating thereto, and shall not be amended or modified except by
a written instrument hereafter signed by the Employee and SM&A’s Executive
Vice President of Operations.

(m)                               Governing Law.  This Agreement and the performance hereof
shall be construed and governed in accordance with the laws of the State of
Florida.

(n)                                 Employee Acknowledgment.  The Employee has had the opportunity to
consult legal counsel in regard to, and has read and understood, this
Agreement.  The Employee is fully aware
of its legal effect and has entered into it freely and voluntarily and based on
the Employee’s own judgment and not on any representations or promises other
than those contained herein.

[Remainder
of Page Intentionally Left Blank]

 11

IN
WITNESS WHEREOF, and intending to be legally bound hereby,
the parties hereto have caused this Employment Agreement to be duly executed as
of the date and year first above written.

 

	
  

  	
   

  	
  SM&A, a Delaware corporation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
     /s/
  Steve Handy

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  Steve Handy

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Senior Vice President and

  
	
   

  	
   

  	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
    /s/ James A. Wrisley

  	
   

  
	
   

  	
   

  	
   

  	
  James A. Wrisley

  
								

 

SCHEDULE A

Incentive Compensation

The target operating margin, excluding
amortization of intangible goodwill, is 26.5%. 
The schedule below displays the amount of annual incentive compensation
that is earned based on the annual actual operating margin.

	
  Operating Margin

  	
   

  	
  Percentage of Incentive

  Compensation Earned

  	
   

  
	
  20.0

  	
  %

  	
  67.5

  	
  %

  
	
  20.5

  	
  %

  	
  70.0

  	
  %

  
	
  21.0

  	
  %

  	
  72.5

  	
  %

  
	
  21.5

  	
  %

  	
  75.0

  	
  %

  
	
  22.0

  	
  %

  	
  77.5

  	
  %

  
	
  22.5

  	
  %

  	
  80.0

  	
  %

  
	
  23.0

  	
  %

  	
  82.5

  	
  %

  
	
  23.5

  	
  %

  	
  85.0

  	
  %

  
	
  24.0

  	
  %

  	
  87.5

  	
  %

  
	
  24.5

  	
  %

  	
  90.0

  	
  %

  
	
  25.0

  	
  %

  	
  92.5

  	
  %

  
	
  25.5

  	
  %

  	
  95.0

  	
  %

  
	
  26.0

  	
  %

  	
  97.5

  	
  %

  
	
  26.5

  	
  %

  	
  100.0

  	
  %

  
	
  27.0

  	
  %

  	
  102.5

  	
  %

  
	
  27.5

  	
  %

  	
  105.0

  	
  %

  
	
  28.0

  	
  %

  	
  107.5

  	
  %

  
	
  28.5

  	
  %

  	
  110.0

  	
  %

  
	
  29.0

  	
  %

  	
  112.5

  	
  %

  
	
  29.5

  	
  %

  	
  115.0

  	
  %

  
	
  30.0

  	
  %

  	
  117.5

  	
  %

  

 

SCHEDULE B

Subjective Evaluation Elements

·                  Program Services “augmentation”
(e.g., new clients, sale of EVMS to SM&A clients, etc.)

·                  Coordinate
with SM&A/PPI for conducting meetings/sales presentations with existing and
prospective SM&A clients

·                  Brand Development and Thought
Leadership

·                  Update presentation/seminar materials
to link PMA with SM&A

·                  Incorporate SM&A in marketing
literature and exhibition booth design

·                  Web site identification of
PMA/SM&A linkage

·                  Collectively make a minimum of two
presentations at PMI national conferences or write a minimum of two papers for
publication in PM/EVMS related journals or make one presentation and write one
paper.

·                  Actively
participate in the NDIA’s Program Management Committee demonstrating thought
leadership in EVMS

·                  Training, Mentoring and Staff
Development

·                  Develop and present to appropriate
SM&A/PPI/PMA staff training in EVMS and Critical Path scheduling

·                  Develop and present to appropriate
SM&A/PPI/PMA staff training in EVMS design and implementation

·                  Develop templates for EVMS design,
PMA Division proposals, and collaborative sharing of same using the SM&A
Knowledge Management System

·                  Development
of career progression plans for PMA Division staff

·                  Establishment of an EVMS Practice
(best practices, succession plan, knowledge management, etc.)

·                  Establish
and implement roadmap for replacement of H. Smith and H. Sparrow

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}]]