SM&A

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UqABit3zPiCQZjQOVIAVq9e4DMQ94b3YRrR5GjoK9Yz11CgHnkTx9gmtLDaQrUtL FjuScnN6d2UOdB0XNusGNg== 0000950137-04-008861.txt : 20041022 0000950137-04-008861.hdr.sgml : 20041022 20041022131602 ACCESSION NUMBER: 0000950137-04-008861 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041022 DATE AS OF CHANGE: 20041022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SM&A CENTRAL INDEX KEY: 0001050031 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 330080929 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23585 FILM NUMBER: 041091375 BUSINESS ADDRESS: STREET 1: 4695 MACARTHUR COURT STREET 2: 8TH FLOOR CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9499751550 MAIL ADDRESS: STREET 1: 4695 MACARTHUR COURT STREET 2: 8TH FLOOR CITY: NEWPORT BEACH STATE: CA ZIP: 92660 FORMER COMPANY: FORMER CONFORMED NAME: EMERGENT INFORMATION TECHNOLOGIES INC DATE OF NAME CHANGE: 20000426 FORMER COMPANY: FORMER CONFORMED NAME: SM&A CORP DATE OF NAME CHANGE: 19980818 FORMER COMPANY: FORMER CONFORMED NAME: STEVEN MYERS & ASSOCIATES INC DATE OF NAME CHANGE: 19980123 10-Q 1 a02447e10vq.htm FORM 10-Q PERIOD END SEPTEMBER 30, 2004 SM&A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Quarter ended September 30, 2004

		OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-23585

(SM&A LOGO)

SM&A

(Exact name of registrant as specified in its charter)


California		33-0080929
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4695 MacArthur Court, 8th Floor, Newport Beach, California 92660
(Address of principal executive offices, including zip code)

(949) 975-1550
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b of the Act). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at October 15, 2004
Common stock, no par value		20,359,294 shares

SM&A

INDEX

PART I. FINANCIAL INFORMATION


		Page
Cautionary Statement Related to Forward Looking Statements		3
How to Obtain SM&A SEC Filings		3
Item 1. Financial Statements:
Consolidated Balance Sheets as of September 30, 2004 (unaudited) and December 31, 2003		4
Consolidated Statements of Income for the three and nine months ended September 30, 2004 and 2003 (unaudited)		5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (unaudited)		6
Notes to Consolidated Financial Statements (unaudited)		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		19
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities		19
Item 3. Defaults Upon Senior Securities		19
Item 4. Submission of Matters to a Vote of Security Holders		19
Item 5. Other Information		19
Item 6. Exhibits and Reports on Form 8-K		21
Signatures		24
EXHIBIT 10.21
EXHIBIT 10.22
EXHIBIT 10.23
EXHIBIT 10.24
EXHIBIT 10.25
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

CAUTIONARY STATEMENT RELATED TO FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes certain forward-looking statements as defined within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, relating to revenue, revenue composition, demand trends, future expense levels, trends in average headcount and gross margins, and the level of expected capital expenditures. Such forward-looking statements are based on the beliefs of, estimates made by, and information currently available to SM&A ( the Company) management and are subject to certain risks, uncertainties and assumptions. Any statements contained herein (including without limitation statements to the effect that the Company or management “estimates,” “expects,” “anticipates,” “plans,” “believes,” “projects,” “continues,” “may,” “will,” “could,” or “would” or statements concerning “potential” or “opportunity” or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements. The actual results of SM&A may vary materially from those expected or anticipated in these forward-looking statements. The realization of such forward-looking statements may be impacted by certain important unanticipated factors including those discussed in “ Risk Factors” under Item 2, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” at pages 10-17. Because of these and other factors that may affect SM&A’s operating results, past performance should not be considered as an indicator of future performance and investors should not use historical results to anticipate results or trends in future periods. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers should carefully review the risk factors described in this and other documents that SM&A files from time to time with the Securities and Exchange Commission (“SEC”), including subsequent Current Reports on Form 8-K, Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

HOW TO OBTAIN SM&A SEC FILINGS

All reports filed by SM&A with the SEC are available free of charge via EDGAR through the SEC website at www.sec.gov. In addition, the public may read and copy materials filed by the Company with the SEC at the SEC’s public reference room located at 450 Fifth St., N.W., Washington, D.C. 20549. SM&A also provides copies of its Forms 8-K, 10-K, 10-Q, Proxy and Annual Report at no charge to investors upon request and makes electronic copies of its most recently filed reports available through its website at www.smawins.com as soon as reasonably practicable after filing such material with the SEC.

SM&A

CONSOLIDATED BALANCE SHEETS

(in thousands)


	September 30			December 31
	2004			2003
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	18,139		$	17,712
Accounts receivable, net		15,975			12,178
Prepaid expenses and other current assets		378			310
Deferred income taxes		752			752

Total current assets		35,244			30,952
Fixed assets, net		823			723
Other assets		188			128

	$	36,255		$	31,803

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	592		$	683
Accrued compensation and related benefits		3,103			3,637
Income taxes payable		898			1,440
Net liabilities of discontinued operations		902			1,359

Total current liabilities		5,495			7,119
Deferred income taxes		45			45
Other liabilities		183			206

Total liabilities		5,723			7,370
Commitments and contingencies		—			—
Shareholders’ equity:
Preferred stock		—			—
Common stock		51,424			52,215
Accumulated deficit		(20,892	)		(27,782	)

Total shareholders’ equity		30,532			24,433

	$	36,255		$	31,803

See accompanying notes to consolidated financial statements

SM&A

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Revenue	$	16,078	$	18,704	$	50,724	$	56,231
Cost of revenue		9,003		10,135		27,817		31,316

Gross margin		7,075		8,569		22,907		24,915
Selling, general and administrative expenses		4,359		3,733		11,937		10,478

Operating income		2,716		4,836		10,970		14,437
Interest income, net		39		32		117		42

Income before income taxes		2,755		4,868		11,087		14,479
Income tax expense		1,088		1,996		4,197		4,938

Net income	$	1,667	$	2,872	$	6,890	$	9,541

Net income per share:
Basic	$	0.08	$	0.14	$	0.34	$	0.48
Diluted	$	0.08	$	0.13	$	0.32	$	0.45
Shares used in calculating net income per share:
Basic		20,512		20,113		20,484		19,907
Diluted		21,492		21,610		21,638		21,309

See accompanying notes to consolidated financial statements.

SM&A

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended
	September 30,
	2004			2003
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	6,890		$	9,541
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		297			208
Gain on disposal of fixed assets		—			(35	)
Deferred income taxes		—			147
Income tax effect from exercise of stock options		73			—
Changes in operating assets and liabilities:
Accounts receivable		(3,797	)		(3,953	)
Prepaid expense and other assets		(128	)		(241	)
Accounts payable		(91	)		674
Accrued compensation and related benefits		(534	)		424
Income taxes payable		(542	)		(1,133	)
Other liabilities		(23	)		(28	)

Net cash provided by operating activities		2,145			5,604

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets		(397	)		(349	)

Net cash used in investing activities		(397	)		(349	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock		(2,485	)		—
Proceeds from issuance of common stock		1,621			1,677

Net cash (used in) provided by financing activities		(864	)		1,677

Net increase in cash from continuing operations		884			6,932
Net cash used in discontinued operations		(457	)		(867	)

Net increase in cash		427			6,065
Cash at beginning of period		17,712			5,956

Cash at end of period	$	18,139		$	12,021

See accompanying notes to consolidated financial statements

SM&A

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Nine Months Ended September 30, 2004 and 2003
(unaudited)

Note 1. Basis of Presentation and Significant Accounting Policies

The consolidated financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the consolidated financial position of SM&A at September 30, 2004, the consolidated results of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003. Comprehensive income is equivalent to net income for the three and nine month periods ended September 30, 2004 and 2003, respectively.

It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year-end. The results of operations for the three and nine months ended September 30, 2004 are not necessarily indicative of the results to be expected for the full fiscal year.

The accompanying unaudited consolidated financial statements do not include footnotes and certain financial presentations normally required under generally accepted accounting principles. Therefore, these financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2003, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 6, 2004.

Significant Accounting Policies

Revenue Recognition. We recognize revenue from services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collection is reasonably assured. The majority of our services are provided under “time and expenses” billing arrangements and revenue is recognized on the basis of hours worked, plus other reimbursable contract costs incurred during the period. Revenue is directly related to the total number of hours billed to clients and the associated hourly billing rates. A limited amount of revenue is also derived from success fees, offered to clients as a pricing option, and recorded as revenue only upon attainment of the specified incentive criteria. Success fees are not billable and revenue is not recorded until the client wins a contract.

Cash and Cash Equivalents. The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Note 2. Net Income Per Share

The following table illustrates the number of shares used in the computation of basic and diluted net income per share (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
Denominator for basic income per share: weighted average shares outstanding during the period		20,512		20,113		20,484		19,907
Incremental shares attributable to dilutive outstanding stock options		980		1,497		1,154		1,402

Denominator for diluted income per share:		21,492		21,610		21,638		21,309

Note 3. Stock-Based Compensation

The Company has elected to follow APB Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for options to purchase common stock of the Company issued pursuant to the Company’s stock-based compensation plans. Under APB Opinion No. 25, no compensation cost is recognized because the exercise price of options granted under the Company’s stock-based compensation plans is at least equal to the market price of the underlying stock on the date of grant. Had compensation costs for these plans been determined at the grant dates for awards under the alternative accounting method provided for in SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an Amendment to FASB Statement No. 123,” net income and earnings per share, on a pro forma basis, would have been (in thousands except for per share information):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Net income — as reported	$	1,667			2,872		$	6,890			9,541
Less: stock compensation expense – net of tax		(181	)		(150	)		(1,390	)		(666	)

Net income — SFAS No. 123 pro forma	$	1,486			2,722		$	5,500			8,875

Basic income per share — as reported	$	0.08			0.14		$	0.34			0.48
Basic income per share — SFAS No. 123 pro forma	$	0.07			0.14		$	0.27			0.46
Diluted income per share — as reported	$	0.08			0.13		$	0.32			0.45
Diluted income per share — SFAS No. 123 pro forma	$	0.07			0.13		$	0.25			0.43

Note 4. Revolving Line of Credit

The Company has a revolving credit agreement which allows for borrowings up to $10.0 million at the prime rate minus one half of one percent (-0.50%) per annum or LIBOR plus two and one quarter percent (2.25%) per annum. The revolving credit agreement is renewable annually on April 30^th of each year. Borrowings under the revolving credit agreement are unsecured. The agreement requires the Company to comply with certain financial covenants pertaining to its tangible net worth, ratio of total liabilities to tangible net worth, and ratio of current assets to current liabilities (as defined in the agreement). The agreement also contains certain negative covenants which, among other things, restricts the Company’s ability to incur additional indebtedness of more than $1.0 million in excess of the $10.0 million limit set forth in the credit agreement and make capital expenditures in excess of $2.0 million without the prior written approval of the lender. At September 30, 2004, we had no outstanding borrowings under the line of credit, the bank had issued a letter of credit for $64,000 and we had $9.9 million in availability.

Note 5. Income Taxes

The Company’s effective income tax rates for the three and nine months ended September 30, 2004 and 2003 were 39.5%, 37.9%, 41.0% and 34.1%, respectively. For the three months ended September 30, 2004, the effective tax rate is lower than the same period of the prior year because of the Company’s lower effective state tax rate in 2004.

For the nine months ended September 30, 2004, the Company’s effective tax rate was higher than the same period of the prior year because in the first quarter ended March 31, 2003, the Internal Revenue Service completed their examination for the calendar years 1998 through 2001. Based on the conclusion of the examination, the Company recorded a decrease in its income tax liability leading to a reduction of income tax expense.

Note 6. Stockholders’ equity

In May 2004, the Company’s Board of Directors authorized a plan to repurchase up to $7.0 million of the Company’s common stock. The Company intends to repurchase shares from time to time, at prevailing prices, in the open market. The timing and amount of the share repurchases will be at the discretion of management and will be based on such factors as the stock price, general economic and market conditions, and other factors. The share repurchase plan may be suspended or discontinued at any time. Shares repurchased under the plan will be restored to the status of authorized but unissued shares. As of September 30, 2004, management has repurchased 332,000 shares at a total cost of $2.5 million.

Note 7. Related Parties

The Company entered into a contract in April 2002 with ProView, a subsidiary of the Precept Group, for which one of the former members of the Company’s Board of Directors serves as the President and Chief Executive Officer. The Company has agreed to outsource its employee benefits administration to ProView. The contract value was determined through a review of prevailing market rates for such services. Under this contract, the Company paid $9,000, $25,000, $6,000 and $18,000 during the three and nine months ended September 30, 2004 and 2003, respectively.

The Company periodically leases aircraft from SummitJets, Inc. (SummitJets), which is owned by the Company’s Chairman and Chief Executive Officer. The lease rate was determined through a review of prevailing market rates for such services. During the three and nine months ended September 30, 2004 and 2003, the Company paid $124,000, $124,000, $0 and $48,000, respectively. The expense is included in selling, general and administrative expenses.

Note 8. Discontinued Operations

In 2002 and 2001, the Company sold and dissolved one of its business segments, respectively. The balance owed at September 30, 2004 of $902,000 represents the remaining office lease commitments, net of subleases and estimated broker fees, over the remaining terms of the leases. During the nine months ended September 30, 2004, the Company paid $457,000 net of sublease receipts, related to the leased property. The Company continues the process of identifying sub-lessees for our remaining leased property.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

SM&A is one of the world’s leading providers of competition management services (formerly known as proposal management services), and a leading provider of high-value performance assurance services (formerly known as program support services). Our more than 300 employees and consultants provide program management, systems engineering, and expert support to major industrial customers in the defense, homeland security, aerospace, information technology, and architect and engineering sectors. Since 1982, we have managed more than 889 proposals worth more than $303 billion for our clients and have achieved an 85% win rate on awarded contracts. We also provide systems engineering, program planning and other high-value technical support services to such high priority national programs as the Joint Strike Fighter program and America’s missile defense efforts.

RESULTS OF OPERATIONS

The following table sets forth certain historical operating results (in thousands):


	For the three months ended September 30,
								Change
	2004		2003		Change $			%
Revenue	$	16,078	$	18,704		(2,626	)		(14.0	)
Cost of revenue		9,003		10,135		(1,132	)		(11.2	)

Gross margin		7,075		8,569		(1,494	)		(17.4	)
Selling, general and administrative expenses		4,359		3,733		626			16.8

Operating income		2,716		4,836		(2,120	)		(43.8	)
Income tax expense		1,088		1,996		(908	)		(45.5	)
Net income	$	1,667	$	2,872		(1,205	)		(42.0	)

Three Months Ended September 30, 2004 Compared to Three Months Ended September 30, 2003

Revenue. Revenue decreased $2.7 million, or 14.0%, to $16.1 million for the three month ended September 30, 2004 compared to $18.7 million for the same period of the prior year. The decrease in our revenue was due to two reasons. First, the level of spending by the Department of Defense on the extended military operations in Iraq and Afghanistan has led to budget pressures that have directly delayed a number of requests for proposals (RFP’s) and programs. Second, our revenue has been impacted by the anticipated slowdown in several major performance assurance programs, namely the Global Missile Defense program with Boeing, some missile programs with Raytheon Company and the Joint Strike Fighter program with Lockheed Martin. Normally, the award of new programs would more than offset this natural attrition, but, as we explained above, there has been a significant delay in the award of new programs and the release of funds for awarded programs during the year.

Our revenue for the three months ended September 30, 2004 exceeded our revised guidance provided at the end of August 2004 by $1.1 million due to two factors. First, we won a higher level of new business in September than expected and second, two competition management projects were extended resulting in a significant increase in intense work to meet deadlines.

Through September 30, 2004, our investment in sales and marketing has resulted in 23 new customers including two during the three months ended September 30, 2004. These new customers represented $1.7 million dollars of revenue during the three months ended September 30, 2004, or 10.6% of total revenue.

The percentage of revenues from competition management services and performance assurance services was 53.4% and 46.6% for the three months ended September 30, 2004, respectively, compared to 50.9% and 49.1% for the same period of the prior year.

Gross Margin. Gross margin decreased $1.5 million, or 17.4%, to $7.1 million for the three month ended September 30, 2004 compared to $8.6 million for the same period of the prior year. The decrease in gross margin dollars is due to the decrease in sales as discussed above. As a percentage of revenue, gross margin decreased to 44.0% for the three months ended September 30, 2004 compared to 45.8% for the same period of the prior year.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

The decrease in gross margin as a percentage of sales is due to the timing of success fees for the period, which were $42,000 and $183,000 for the three months ended September 30, 2004 and 2003, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist principally of salary and benefit costs for executive, sales and administrative personnel, professional services and other general corporate activities. Selling, general and administrative expenses increased $626,000, or 16.8%, to $4.4 million for the three months ended September 30, 2004, as compared to $3.7 million for the same period of the prior year. As a percentage of revenue, selling, general and administrative expenses increased to 27.1% for the three months ended September 30, 2004, as compared to 20.0% for the same period of the prior year. The increase is due to expenses including salary, benefits, and travel relating to the increase in the number of account executives and staff to support and service our new and existing client base.

Operating Income. Operating income decreased $2.1 million, or 43.8% to $2.7 million for the three months ended September 30, 2004, compared to $4.8 million for the same period of the prior year. As a percentage of revenue, operating income decreased to 16.9% for the three months ended September 30, 2004, as compared to 25.9% for the same period of the prior year. Operating income decreased due to the decrease in sales and gross profit and the increase in selling, general and administrative expenses, as discussed above.

Income Tax Expense. Our effective income tax rates for the three months ended September 30, 2004 and 2003 were 39.5% and 41.0%, respectively. The difference in the effective tax rate is due to a reduction to our state effective tax rate.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

RESULTS OF OPERATIONS

The following table sets forth certain historical operating results (in thousands):


	For the nine months ended September 30,
								Change
	2004		2003		Change $			%
Revenue	$	50,724	$	56,231		(5,507	)		(10.0	)
Cost of revenue		27,817		31,316		(3,499	)		(11.2	)

Gross margin		22,907		24,915		(2,008	)		(8.1	)
Selling, general and administrative expenses		11,937		10,478		1,459			13.9

Operating income		10,970		14,437		(3,467	)		(24.0	)
Income tax expense		4,197		4,938		(741	)		(15.0	)
Net income	$	6,890	$	9,541		(2,651	)		(27.8	)

Nine Months Ended September 30, 2004 Compared to Nine Months Ended September 30, 2003

Revenue. Revenue decreased $5.5 million, or 10.0%, to $50.7 million for the nine month ended September 30, 2004 compared to $56.2 million for the same period of the prior year. The decrease in our revenue was due to two reasons. First, the level of spending by the Department of Defense on the extended military operations in Iraq and Afghanistan has led to budget pressures that have directly delayed a number of requests for proposals (RFP’s) and programs. In 2004, we have experienced 37 delays, which is more than we have experienced in the past several years. This is the first time in our 22 year history that the Federal Government has funded a prolonged military action leading to both RFP and program delays. Second, our revenue has been impacted by the anticipated slowdown in several major performance assurance programs, namely the Global Missile Defense program with Boeing, some missile programs with Raytheon Company and the Joint Strike Fighter program with Lockheed Martin. In total, the people working on these specific programs averaged 122 in 2003 and through September 30 of this year that number had dropped to an average of 92. Normally, the award of new programs would more than offset this natural attrition, but, as we explained above, there has been a significant delay in the award of new programs and the release of funds for awarded programs during the year.

Through September 30, 2004, our investment in sales and marketing has resulted in 23 new customers representing $4.8 million or 9.4% of our revenue. The increase in growth from new customers is directly related to our hiring of more account executives, which has enabled us to focus on developing new markets outside of our traditional aerospace and defense concentration. We believe that this growth validates our strategy and conviction that our services are portable across multiple vertical markets.

The percentage of revenues from competition management services and performance assurance services was 57.0% and 43.0% for the nine months ended September 30, 2004, respectively, compared to 50.5% and 49.5% for the same period of the prior year.

Gross Margin. Gross margin decreased $2.0 million, or 8.1%, to $22.9 million for the nine months ended September 30, 2004 compared to $24.9 million for the same period of the prior year. The decrease in gross margin dollars is due to the decrease in sales as discussed above. As a percentage of revenue, gross margin increased to 45.2% for the nine months ended September 30, 2004 compared to 44.3% for the same period of the prior year. The increase in gross margin as a percentage of sales is due to the timing of success fees for the period, which were $793,000 and $296,000 for the nine months ended September 30, 2004 and 2003, respectively.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist principally of salary and benefit costs for executive, sales and administrative personnel, professional services and other general corporate activities. Selling, general and administrative expenses increased $1.5 million, or 13.9%, to $11.9 million for the nine months ended September 30, 2004, as compared to $10.5 million for the same period of the prior year. As a percentage of revenue, selling, general and administrative expenses increased to 23.5% for the nine months ended September 30, 2004, as compared to 18.6% for the same period of the prior year.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

The increase is due to expenses including salary, benefits, and travel relating to the increase in the number of account executives and staff to support and service our new and existing client base.

Operating Income. Operating income decreased $3.5 million, or 24.0% to $11.0 million for the nine months ended September 30, 2004, compared to $14.4 million for the same period of the prior year. As a percentage of revenue, operating income decreased to 21.6% for the nine months ended September 30, 2004, as compared to 25.7% for the same period of the prior year. Operating income decreased due to the decrease in sales and gross profit and the increase in selling, general and administrative expenses, as discussed above.

Income Tax Expense. Our effective income tax rates for nine months ended September 30, 2004 and 2003 were 37.9% and 34.1%, respectively. In the second quarter ended June 30, 2004, the Company completed and filed its federal and state income tax returns for the calendar year ended December 31, 2003. Based on the income tax returns as filed, the Company reduced its state effective tax rate in the second quarter resulting in a reduction of income tax expense of $182,000. The Company also reduced its current year state tax provision rate by $125,000.

In the first quarter ended March 31, 2003, the Internal Revenue Service completed their examination for the calendar years 1998 through 2001. Based on the conclusion of the examination, we recorded a decrease in our tax contingency reserve leading to a reduction of income tax expense of $0.05 per diluted share in the first quarter of 2003.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

Capital Resources and Liquidity

Our working capital increased to $29.7 million at September 30, 2004 from $23.8 million at December 31, 2003. In addition, our cash and cash equivalents increased to $18.1 million at September 30, 2004, from $17.7 million at December 31, 2003. Cash flow from operating activities provided $2.1 million during the nine months ended September 30, 2004, compared to $5.6 million for the same period during the prior year. This decrease is due to the decrease in sales and net income and the change in accounts receivable.

The change in accounts receivable was due to our increase in days sales outstanding (DSO). The DSO increased to approximately 90 days which was caused by the timing on receipt of payments on a couple of our large contracts. The Company has reviewed the accounts receivable balance in detail and has concluded that our past due balances do not reflect a credit risk issue. The Company expects to receive the payments and return our DSO’s to 60 days by the end of this fiscal year.

In May 2004, the Company’s Board of Directors authorized a plan to repurchase up to $7.0 million of the Company’s common stock. The Company intends to repurchase shares from time to time, at prevailing prices, in the open market. The timing and amount of the share repurchases will be at the discretion of management and will be based on such factors as the stock price, general economic and market conditions, and other factors. The share repurchase plan may be suspended or discontinued at any time. Shares repurchased under the plan will be restored to the status of authorized but unissued shares. As of September 30, 2004, we have repurchased 332,000 shares at a total cost of $2.5 million.

We believe we have sufficient working capital available under the line of credit and cash generated by continuing operations will be sufficient to fund operations for at least the next twelve months.

The following table illustrates the remaining contractual obligations outstanding as of September 30, 2004:

Contractual Obligations Payments Due By Period as of September 30, 2004
(In thousands)


Contractual			1 Year		1-3		3-5		After 5
Obligations	Total		or Less		Years		Years		Years
Operating leases	$	7,577	$	863	$	1,923	$	1,959	$	2,832
Operating leases related to discontinued operations, net of subleases		915		373		348		194		—

Total	$	8,492	$	1,236	$	2,271	$	2,153	$	2,832

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

Capital Resources and Liquidity – (cont’d)

In September 2004, the Company amended its operating lease for its facilities located in Newport Beach, CA. The amendment extends the original operating lease from July 2007 to July 2012 and increased the square footage from 19,500 to 30,550. The lease expense related to the amendment is included in the table above. The additional office space is going to be used to expand our training, production, and information technology departments.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

RISK FACTORS

In addition to the other information in this Quarterly Report on Form 10-Q, the following factors should be considered carefully in evaluating our business and prospects.

Our business depends substantially on the defense industry.

Our competition management and performance assurance services business depends substantially on U.S. Government expenditures for defense products. Any decline in the future defense, information technology or homeland security procurement expenditures could affect the opportunities available to our clients and, indirectly, our business. A number of factors could contribute to such a decline in opportunities, including:

• Loss of political support for current or increased levels of spending;

• Changes of presidential administration, particularly changes from one political party to another, that typically result in a mass reordering of priorities that reduce new proposal activity for up to a year;

• Threat scenarios evolving away from global conflicts to regional conflicts;

• Spending for ongoing operations, such as the war on terrorism, the occupation of Iraq, downward pressure on spending for procurement of new systems and research and development spending; and

• Cancellation of programs or emphasis on government shifting programs.

In the event expenditures for products of the type manufactured by our clients are reduced and not offset by other new programs or products, there will be a reduction in the volume of contracts or subcontracts to be bid upon by our clients and, as a result, a reduction in the volume of proposals we managed. Unless offset, such reductions could materially and adversely affect our business, operating results and financial condition.

We rely on a relatively limited number of clients.

We derive a significant portion of revenue from a relatively limited number of clients. In 2003, our seven largest customers accounted for 91.8% of our revenue. Clients typically retain our services as needed on an engagement basis rather than pursuant to long-term contracts, and a client may terminate the engagement at any time without significant penalty. Moreover, there can be no assurance that existing clients will continue to engage us for additional assignments or do so at the same revenue levels. The loss of any significant client could materially and adversely affect our business, financial condition and results of operations. In addition, the level of services required by an individual client may diminish over the life of the relationship, and there can be no assurance we will be successful in establishing relationships with new clients as this occurs.

The markets in which we operate are highly competitive.

The market for competition management services in the procurement of government and commercial contracts for aerospace and defense work is a niche market with a number of competitors. We are the largest provider of such services and principally compete with the in-house resources of our clients. In addition, numerous smaller competition management companies compete in this highly specialized industry. With sufficient resources in the form of money and excellent talent with current security clearances, our competitors could erode our current market share, and such a reduction could materially and adversely affect our business, operating results and financial condition.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – (cont’d)

We rely heavily upon our key senior management personnel and our ability to recruit and maintain skilled professionals.

Our success is highly dependent upon the efforts, abilities, and business generation capabilities and project execution of our three principal executive officers, our account executives, and senior staff such as our Vice President of Recruiting and Vice President of Operations. In particular, Steven S. Myers, Chief Executive Officer and Chairman of the Board, Cathy L. Wood, Executive Vice President, Chief Financial Officer and Corporate Secretary, and Bennett C. Beaudry, President and Chief Operating Officer have a significant role in our success. The loss of the services of these key individuals, for any reason, could materially and adversely affect our business, operating results and financial condition.

Our business involves the delivery of professional services and is highly labor-intensive. Our success depends largely on our general ability to attract, develop, motivate and retain highly skilled professionals. The loss of some or a significant number of our professionals and/or the inability to attract, hire, develop, train and retain additional skilled personnel could have a serious negative effect on us, including our ability to obtain and successfully complete important engagements and maintain or increase our revenue.

Quarterly results may fluctuate.

We may experience fluctuations in future quarterly operating results due to a number of factors, including the size, timing and duration of client engagements.

Our stock price is subject to significant volatility.

Our common stock was first publicly traded on January 29, 1998, after our initial public offering at $12.00 per share. Between January 29, 1998 and September 30, 2004, the closing sale price has ranged from a high of $31.13 per share to a low of $0.75 per share. The market price of our common stock could continue to fluctuate substantially due to a variety of factors, including:

• Quarterly fluctuations in results of operations;

• Adverse circumstances affecting the introduction or market acceptance of new services we offer;

• Announcements of new services by competitors;

• Loss of key employees;

• Changes in the regulatory environment or market conditions affecting the defense and aerospace industry;

• Changes in earnings estimates and ratings by analysts;

• Lack of market liquidity resulting from a relatively small amount of public stock float;

• Changes in generally accepted accounting principles;

• Sales of common stock by existing holders; and

• The announcement of proposed acquisitions and dispositions.

Principal shareholder has significant control.

At September 30, 2004, Steven S. Myers, Chief Executive Officer and Chairman of the Board, beneficially owned or controlled approximately 24.0% of our outstanding common stock and will have the ability to control or significantly influence the election of directors and the results of other matters submitted to a vote of shareholders. This ownership concentration may have the effect of delaying or preventing a change in control and may adversely affect the ability of other holders of our common stock to pass shareholder resolutions and control our actions. Our board of directors is currently comprised entirely of individuals nominated with the approval of Mr. Myers.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company currently has no instruments that are sensitive to market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the requisite time periods.

While the Company’s disclosure controls and procedures provide reasonable assurance that the appropriate information will be available on a timely basis, this assurance is subject to limitations inherent in any control system, no matter how well designed and administered.

Changes in Internal Controls

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) identified in connection with the evaluation of our internal control performed during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in routine litigation incidental to the conduct of our business. There are currently no material pending litigation proceedings to which we are a party or to which any of our property is subject.

Item 2. Changes in Securities and Use of Proceeds and Issuer Purchase of Equity Securities

Issuer Purchases of Equity Securities


					Total Number of		Approximate $ Value
					Shares Purchased as		of Shares That May
	Total Number of		Average Price Paid		Part of a Publicly		Yet Be Purchased
Period	Shares Purchased		per Share		Announced Plan		Under the Plan
Beginning balance		34,200	$	8.01		34,200	$	6,726,000
July 1, 2004 to July 30, 2004		19,400		8.05		53,600		6,570,000
August 1, 2004 to August 31, 2004		109,600		8.01		163,200		5,692,000
September 1, 2004 to September 30, 2004		168,800		6.97		332,000		4,515,000

Total		332,000	$	7.48		332,000

In May 2004, the Company’s Board of Directors authorized a plan to repurchase up to $7.0 million of the Company’s common stock. The Company intends to repurchase shares from time to time, at prevailing prices, in the open market. The timing and amount of the share repurchases will be at the discretion of management and will be based on such factors as the stock price, general economic and market conditions, and other factors. The share repurchase plan may be suspended or discontinued at any time. Shares repurchased under the plan will be restored to the status of authorized but unissued shares. As of September 30, 2004, we have repurchased 332,000 shares at a total cost of $2.5 million.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

Item 5. Other Information

Item 5. Other Information – (cont’d)

the Company paid $9,000, $25,000, $6,000 and $18,000 during the three and nine months ended September 30, 2004 and 2003, respectively.

Item 6. Exhibits and Reports on Form 8-K

INDEX TO EXHIBITS

Exhibits (numbered in accordance with item 601 of Regulation S-K).


2.1		Stock Purchase and Sale Agreement, by and among the Registrant, Steven Myers Holding Inc. and L-3 Communications Corporation.⁽¹⁾

2.2		Amendment No.1 to Stock Purchase and Sale Agreement, by and among the Registrant, Steven Myers Holding Inc. and L-3 Communications Corporation.⁽²⁾

3.1		Amended and Restated Articles of Incorporation.⁽³⁾

3.2		Amended and Restated Bylaws of the Registrant.⁽⁴⁾

10.1		Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement.⁽⁵⁾

10.2		Amended and Restated Employee Stock Purchase Plan.⁽⁶⁾

10.3		Office Facility Lease.⁽⁷⁾

10.4		Employment Agreement of Steven S. Myers. ⁽⁸⁾

10.5		Amendment No. 1 to Employment Agreement of Steven S. Myers.⁽⁹⁾

10.6		Amendment No. 2 to Employment Agreement of Steven S. Myers.⁽¹⁰⁾

10.7		Amendment No. 3 to Employment Agreement of Steven S. Myers.⁽¹¹⁾

10.8		Amendment No. 4 to Employment Agreement of Steven S. Myers.⁽¹²⁾

10.9		Employment Agreement of Cathy L. Wood.⁽¹³⁾

10.10		Amendment No. 1 to Employment Agreement of Cathy L. Wood.⁽¹⁴⁾

10.11		Amendment No. 2 to Employment Agreement of Cathy L. Wood.⁽¹⁵⁾

10.12		Amendment No. 3 to Employment Agreement of Cathy L. Wood.⁽¹⁶⁾

10.13		Employment Agreement of Bennett C. Beaudry.⁽¹⁷⁾

10.14		Amendment No. 1 to Employment Agreement of Bennett C. Beaudry.⁽¹⁸⁾

10.15		Amendment No. 2 to Employment Agreement of Bennett C. Beaudry.⁽¹⁹⁾

10.16		Accounts Receivable Loan Agreement dated January 10, 2002, by and between the Registrant and City National Bank, a national banking association.⁽²⁰⁾

10.17		Commercial Guaranty dated January 10, 2002, executed by Steven Myers & Associates, Inc. in favor of City National Bank, a national banking association.⁽²¹⁾

Item 6. Exhibits and Reports on Form 8-K – (cont’d)


10.18		Revolving Loan Agreement dated October 14, 2003, by and between the registrant and City National Bank, a national association. ⁽²²⁾

10.19		Revolving Note dated April 10, 2003, executed by SM&A, in favor of City National Bank. ⁽²³⁾

10.20		Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in favor of City National Bank. ⁽²⁴⁾

10.21		Amendment No. 5 to Employment Agreement of Steven S. Myers ⁽²⁵⁾

10.22		Amendment No. 4 to Employment Agreement of Cathy L. Wood ⁽²⁶⁾

10.23		Consultant Agreement of Bowes Enterprises ⁽²⁷⁾

10.24		Consultant Agreement of Joseph B. Reagan ⁽²⁸⁾

10.25		Amendment No. 1 to Office Facility Lease ⁽²⁹⁾

21.1		Subsidiaries of the Registrant. ⁽³⁰⁾

31.1		Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ⁽³¹⁾

31.2		Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ⁽³²⁾

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ⁽³³⁾

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ⁽³⁴⁾

Footnote #


(1)		Filed on November 27, 2001 as Exhibit 10.1 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(2)		Filed on December 14, 2001 as Exhibit 10.1 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(3)		Filed on March 15, 2002 as Exhibit 3.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(4)		Filed on May 3, 2002 as Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(5)		Filed on April 17, 2001 as Exhibit 10.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(6)		Filed on April 29, 2002 as Exhibit C to the registrant’s Annual Proxy Statement on Form 14A and incorporated herein by reference.

(7)		Filed on November 21, 1997 as Exhibit 10.3 to the registrant’s Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and incorporated herein by reference.

(8)		Filed on April 17, 2001 as Exhibit 10.17 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(9)		Filed on March 15, 2002 as Exhibit 10.7 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(10)		Filed on May 3, 2002 as Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(11)		Filed on March 11, 2003 as Exhibit 10.7 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(12)		Filed on February 6, 2004 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(13)		Filed on March 15, 2002 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(14)		Filed on November 4, 2002 as Exhibit 10.10 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(15)		Filed on March 11, 2003 as Exhibit 10.10 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(16)		Filed on February 6, 2004 as Exhibit 10.12 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

Item 6. Exhibits and Reports on Form 8-K – (cont’d)

Footnote # - (cont’d)


(17)		Filed on November 4, 2002 as Exhibit 10.11 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(18)		Filed on March 11, 2003 as Exhibit 10.12 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(19)		Filed on February 6, 2004 as Exhibit 10.15 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(20)		Filed on January 25, 2002 as Exhibit 99.2 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(21)		Filed on January 25, 2002 as Exhibit 99.3 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(22)		Filed on February 6, 2004 as Exhibit 10.18 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(23)		Filed on July 31, 2003 as Exhibit 10.16 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(24)		Filed on July 21, 2004 as Exhibit 10.20 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(25)		Filed herewith.

(26)		Filed herewith.

(27)		Filed herewith.

(28)		Filed herewith.

(29)		Filed herewith.

(30)		Filed on March 11, 2003 as Exhibit 21.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(31)		Filed herewith.

(32)		Filed herewith.

(33)		Filed herewith.

(34)		Filed herewith.

(a) Reports on Form 8-K:

Form 8-K dated and filed on July 20, 2004, to report the issuance of a press release announcing financial results for the fiscal quarter ended June 30, 2004.

Form 8-K dated and filed on July 30, 2004, to report the issuance of a press release announcing the appointment of a new director to the Company’s Board of Directors.

Form 8-K dated August 30, 2004 and filed on August 31, 2004, to report the issuance of a press release updating guidance.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SM&A
	By:	/s/ CATHY L. WOOD

Dated: October 22, 2004		Cathy L. Wood
		Executive Vice President, Chief Financial Officer and Secretary

	By:	/s/ STEVEN S. MYERS

Dated: October 22, 2004		Steven S. Myers
		Chairman and Chief Executive Officer

EXHIBIT INDEX


Exhibit No.		Description
2.1		Stock Purchase and Sale Agreement, by and among the Registrant, Steven Myers Holding Inc. and L-3 Communications Corporation.⁽¹⁾

2.2		Amendment No.1 to Stock Purchase and Sale Agreement, by and among the Registrant, Steven Myers Holding Inc. and L-3 Communications Corporation.⁽²⁾

3.1		Amended and Restated Articles of Incorporation.⁽³⁾

3.2		Amended and Restated Bylaws of the Registrant.⁽⁴⁾

10.1		Amended and Restated 1997 Stock Option Plan and related form of Stock Option Agreement.⁽⁵⁾

10.2		Amended and Restated Employee Stock Purchase Plan.⁽⁶⁾

10.3		Office Facility Lease.⁽⁷⁾

10.4		Employment Agreement of Steven S. Myers. ⁽⁸⁾

10.5		Amendment No. 1 to Employment Agreement of Steven S. Myers.⁽⁹⁾

10.6		Amendment No. 2 to Employment Agreement of Steven S. Myers.⁽¹⁰⁾

10.7		Amendment No. 3 to Employment Agreement of Steven S. Myers.⁽¹¹⁾

10.8		Amendment No. 4 to Employment Agreement of Steven S. Myers.⁽¹²⁾

10.9		Employment Agreement of Cathy L. Wood.⁽¹³⁾

10.10		Amendment No. 1 to Employment Agreement of Cathy L. Wood.⁽¹⁴⁾

10.11		Amendment No. 2 to Employment Agreement of Cathy L. Wood.⁽¹⁵⁾

10.12		Amendment No. 3 to Employment Agreement of Cathy L. Wood.⁽¹⁶⁾

10.13		Employment Agreement of Bennett C. Beaudry.⁽¹⁷⁾

10.14		Amendment No. 1 to Employment Agreement of Bennett C. Beaudry.⁽¹⁸⁾

10.15		Amendment No. 2 to Employment Agreement of Bennett C. Beaudry.⁽¹⁹⁾

10.16		Accounts Receivable Loan Agreement dated January 10, 2002, by and between the Registrant and City National Bank, a national banking association.⁽²⁰⁾

10.17		Commercial Guaranty dated January 10, 2002, executed by Steven Myers & Associates, Inc. in favor of City National Bank, a national banking association.⁽²¹⁾

EXHIBIT INDEX (cont’d)


Exhibit No.		Description
10.18		Revolving Loan Agreement dated October 14, 2003, by and between the registrant and City National Bank, a national association. ⁽²²⁾

10.19		Revolving Note dated April 10, 2003, executed by SM&A, in favor of City National Bank. ⁽²³⁾

10.20		Renewal of Revolving Note dated April 27, 2004, executed by SM&A, in favor of City National Bank. ⁽²⁴⁾

10.21		Amendment No. 5 to Employment Agreement of Steven S. Myers ⁽²⁵⁾

10.22		Amendment No. 4 to Employment Agreement of Cathy L. Wood ⁽²⁶⁾

10.23		Consultant Agreement of Bowes Enterprises ⁽²⁷⁾

10.24		Consultant Agreement of Joseph B. Reagan ⁽²⁸⁾

10.25		Amendment No. 1 to Office Facility Lease ⁽²⁹⁾

21.1		Subsidiaries of the Registrant. ⁽³⁰⁾

31.1		Certificate of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ⁽³¹⁾

31.2		Certificate of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. ⁽³²⁾

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ⁽³³⁾

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ⁽³⁴⁾

Footnote #


(1)		Filed on November 27, 2001 as Exhibit 10.1 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(2)		Filed on December 14, 2001 as Exhibit 10.1 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(3)		Filed on March 15, 2002 as Exhibit 3.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(4)		Filed on May 3, 2002 as Exhibit 3.2 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(5)		Filed on April 17, 2001 as Exhibit 10.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(6)		Filed on April 29, 2002 as Exhibit C to the registrant’s Annual Proxy Statement on Form 14A and incorporated herein by reference.

(7)		Filed on November 21, 1997 as Exhibit 10.3 to the registrant’s Registration Statement 333-4075 on Form S-1 (Registration No. 333-4075) and incorporated herein by reference.

(8)		Filed on April 17, 2001 as Exhibit 10.17 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(9)		Filed on March 15, 2002 as Exhibit 10.7 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(10)		Filed on May 3, 2002 as Exhibit 10.8 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(11)		Filed on March 11, 2003 as Exhibit 10.7 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(12)		Filed on February 6, 2004 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(13)		Filed on March 15, 2002 as Exhibit 10.8 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(14)		Filed on November 4, 2002 as Exhibit 10.10 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(15)		Filed on March 11, 2003 as Exhibit 10.10 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(16)		Filed on February 6, 2004 as Exhibit 10.12 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

Footnote # - (cont’d)


(17)		Filed on November 4, 2002 as Exhibit 10.11 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(18)		Filed on March 11, 2003 as Exhibit 10.12 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(19)		Filed on February 6, 2004 as Exhibit 10.15 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(20)		Filed on January 25, 2002 as Exhibit 99.2 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(21)		Filed on January 25, 2002 as Exhibit 99.3 to the registrant’s Current Report on Form 8-K and incorporated herein by reference.

(22)		Filed on February 6, 2004 as Exhibit 10.18 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(23)		Filed on July 31, 2003 as Exhibit 10.16 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(24)		Filed on July 21, 2004 as Exhibit 10.20 to the registrant’s Quarterly Report on Form 10-Q and incorporated herein by reference.

(25)		Filed herewith.

(26)		Filed herewith.

(27)		Filed herewith.

(28)		Filed herewith.

(29)		Filed herewith.

(30)		Filed on March 11, 2003 as Exhibit 21.1 to the registrant’s Annual Report on Form 10-K and incorporated herein by reference.

(31)		Filed herewith.

(32)		Filed herewith.

(33)		Filed herewith.

(34)		Filed herewith.

(a) Reports on Form 8-K:

Form 8-K dated and filed on July 20, 2004, to report the issuance of a press release announcing financial results for the fiscal quarter ended June 30, 2004.

Form 8-K dated and filed on July 30, 2004, to report the issuance of a press release announcing the appointment of a new director to the Company’s Board of Directors.

Form 8-K dated August 30, 2004 and filed on August 31, 2004, to report the issuance of a press release updating guidance.

EX-10.21 2 a02447exv10w21.txt EXHIBIT 10.21 Exhibit 10.21 SM&A AMENDMENT NO. 5 TO EMPLOYMENT AGREEMENT OF STEVEN S. MYERS This Amendment No. 5 to Employment Agreement (this "Amendment") is entered into as of August 9, 2004 by and between SM&A, a California corporation formerly known as Emergent Information Technologies, Inc. ("SM&A"), and Steven S. Myers ("Employee"), with reference to the following: A. SM&A and Employee are parties to that certain Employment Agreement effective February 1, 2000, as amended by Amendment No. 1 to Employment Agreement dated as of December 29, 2000, Amendment No. 2 to Employment Agreement dated as of January 11, 2002, and Amendment No. 3 to Employment Agreement dated as of January 30, 2003 (as amended, the "Employment Agreement") pursuant to which Employee has agreed to perform services for SM&A on the terms and conditions set forth therein. B. Employee and SM&A desire to amend the Employment Agreement to reflect a change in the term of the Employment Agreement and to reflect the correct date of Amendment No. 4 to Employment Agreement. NOW, THEREFORE, in consideration of the promises and obligations contained herein and in the Employment Agreement, SM&A and Employee agree to amend the Employment Agreement as follows: 1. Date of Amendment No. 3 to Employment Agreement. The preamble of Amendment No. 4 to Employment Agreement shall be amended to replace the date "January 20, 2003" with the date "January 20, 2004" which new date reflects the correct date of such amendment. 2. General. Headings used in this Amendment are for convenience only and are not intended to affect the meaning or interpretation of this Amendment. Except as set forth in this Amendment, the Employment Agreement shall remain in full force and effect. The Employment Agreement (as superseded in part by this Amendment), each prior amendment, and this Amendment constitute the entire agreement among the parties with respect to the subject matter hereof and supersede any and all other agreements, either oral or in writing, among the parties with respect to the subject matter hereof. Each party represents and warrants to the other that the Employment Agreement and this Amendment constitute the legal, valid and binding obligation of such party, enforceable in accordance with their terms. Any other amendment or modification may only be in a writing executed by all of the parties hereto. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of Aug. 9, 2004. SM&A By: /s/ Cathy L. Wood ----------------- Cathy L. Wood Executive Vice President and Chief Financial Officer /s/ Steven S. Myers ------------------- Steven S. Myers 2 EX-10.22 3 a02447exv10w22.txt EXHIBIT 10.22 Exhibit 10.22 SM&A AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT OF CATHY L. WOOD This Amendment No. 4 to Employment Agreement (this "Amendment") is entered into as of July 12, 2004 by and between SM&A, a California corporation formerly known as Emergent Information Technologies, Inc. ("SM&A"), and Cathy L. Wood ("Employee"), with reference to the following: A. SM&A and Employee are parties to that certain Employment Agreement effective November 1, 2001, as amended by Amendment No. 1 to Employment Agreement dated as of October 4, 2002, Amendment No. 2 to Employment Agreement dated as of January 30, 2003, and Amendment No. 3 to Employment Agreement dated as of January 20, 2003 (as amended, the "Employment Agreement") pursuant to which Employee has agreed to perform services for SM&A on the terms and conditions set forth therein. B. Employee and SM&A desire to amend the Employment Agreement to reflect a change in the term of the Employment Agreement and to reflect the correct date of Amendment No. 3 to Employment Agreement. NOW, THEREFORE, in consideration of the promises and obligations contained herein and in the Employment Agreement, SM&A and Employee agree to amend the Employment Agreement as follows: 1. Term. Section 1.2 of the Employment Agreement shall be amended and restated to read in its entirety as follows: 1.2. This Agreement shall be effective as of November 1, 2001 (the "Effective Date") and shall terminate on December 31, 2006 unless sooner terminated pursuant to the terms set forth below. 2. Date of Amendment No. 3 to Employment Agreement. The preamble of Amendment No. 3 to Employment Agreement shall be amended to replace the date "January 20, 2003" with the date "January 20, 2004" which new date reflects the correct date of such amendment. 3. General. Headings used in this Amendment are for convenience only and are not intended to affect the meaning or interpretation of this Amendment. Except as set forth in this Amendment, the Employment Agreement shall remain in full force and effect. The Employment Agreement (as superseded in part by this Amendment), each prior amendment, and this Amendment constitute the entire agreement among the parties with respect to the subject matter hereof and supersede any and all other agreements, either oral or in writing, among the parties with respect to the subject matter hereof. Each party represents and warrants to the other that the Employment Agreement and this Amendment constitute the legal, valid and binding obligation of such party, enforceable in accordance with their terms. Any other amendment or modification may only be in a writing executed by all of the parties hereto. IN WITNESS WHEREOF, the undersigned have executed this Amendment as of July 12, 2004. SM&A By: /s/ Steven S. Myers ------------------- Steven S. Myers Chairman and Chief Executive Officer /s/ Cathy L. Wood ----------------- Cathy L. Wood 2 EX-10.23 4 a02447exv10w23.txt EXHIBIT 10.23 Exhibit 10.23 CONSULTING AGREEMENT This CONSULTING AGREEMENT (the "Agreement"), dated as of May 17, 2004 is made and entered into by and between SM&A, a California corporation (the "Company"), and Bowes Enterprises (the "Consultant"). RECITALS: The Company and the Consultant desire to enter into this Agreement to establish the terms and conditions of the Consultant's engagement by the Company during the effectiveness hereof. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, and of the mutual covenants, conditions, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto agree as follows: 1. Consulting Services. The Company hereby engages the Consultant to perform its consulting services, and the Consultant accepts such engagement from the Company, on the terms and conditions set forth herein: 1.1 Scope of Consulting Services. During the Term (as defined in Section 2), the Consultant shall devote such time as may be necessary to discharge its duties hereunder, and shall to the best of its ability perform such duties in a manner which will faithfully and diligently further the business and interests of the Company. 1.2 Method of Performance. The Consultant shall perform its duties in a manner, which implements and furthers the Company's general business philosophy and procedures. The Consultant agrees to perform this Agreement in an efficient and workmanlike manner. The Consultant shall at all times maintain the Company's established standards of quality and control. Category 5 Page 1 (Rev. 2/03) 1.3 Services and Location. The Consultant's services pursuant to this Agreement shall be performed primarily at the premises of one or more clients of the Company, or at such other facilities as the Company and the Consultant may agree upon from time to time. The Consultant acknowledges and agrees that job responsibilities may require extensive travel, and the Consultant agrees to cause the Consultant's employees to travel as reasonably necessary to discharge the Consultant's duties under this Agreement. 1.4 Fees. The Consultant shall be entitled to a consulting fee of $201.00 AN HOUR while consulting on an Assignment (as defined in Section 2 (b)). Payment to the Consultant of the Consulting Fee shall be contingent upon (a) the Consultant's submission to the Company of such invoices or statements as may from time to time be required by the Company, which sets forth a description of the work performed pursuant to the Agreement and the amount charged therefore, and (b) the approval and acceptance by the Company and any applicable audit agency of the respective invoices and/or statements. 1.5 Expenses. The Company will pay, or reimburse the Consultant, for all expenses reasonably incurred during the Term by the Consultant in the performance of its duties for the Company or, as requested, for any of its clients or affiliates; provided, however, that the Consultant may only incur expenses in accordance with the Company's expense reimbursement policies (set forth on Exhibit A attached hereto and incorporated herein by this reference), as may be amended from time to time, and no expenses will be reimbursed unless such expenses are substantiated by documentary evidence in form and substance reasonably acceptable to the Company. 2. Term of Agreement and Assignments. (a) Term. The Company hereby engages the Consultant for the term of twelve (12) months as follows: Commencing on: May 17, 2004 Continuing until: May 17, 2005 or such other date as shall mutually be agreed upon in writing (the "Term"). Upon the expiration of the Term, the relationship between the Company and the Consultant shall cease and the Company shall have no obligation to engage the Consultant for any further or future Term or at all. (b) Assignments. During the Term hereof, the Company may assign the Consultant to perform its consulting services for one or more clients of the Company (the "Assignment"). Such Assignment shall be based upon the Company's agreements with Category 5 Page 2 (Rev. 2/03) its clients and the needs of the Company's clients. Nothing contained herein shall be construed as providing an entitlement to the Consultant to be placed in an Assignment, and the Company retains the absolute and unconditional right to determine when, if ever, to place the Consultant in an Assignment. An Assignment may be modified, amended, or terminated at any time by the Company based upon the termination of a particular client project, a change in the security classification level of a particular client project, a change in the Consultant's clearance, a change in funding of a particular client project, changes in client staffing needs, the availability of other consultants, the status and needs of other clients' projects, the Consultant's performance or other matters of similar nature. The Company is not required to provide notice in advance of any such modification, amendment or termination. 3. Termination of Consulting Services. 3.1 Optional Termination on Occurrence of Stated Events. The Company may terminate its relationship with the Consultant under this Agreement upon the occurrence of any of the following events: (i) any material breach of the Consultant's obligations under this Agreement, as amended from time to time by the Company and the Consultant; (ii) the Consultant's or any of the Consultant's employees' or agents' willful misconduct in the performance of duties under this Agreement; (iii) the Consultant's or any of the Consultant's employees' or agents' material breach of any fiduciary duty to the Company; (iv) the Consultant's or any of the Consultant's employees' or agents' gross neglect in the performance of duties under this Agreement; (v) the Consultant's or any of the Consultant's employees' or agents' commission of any criminal act against the Company or its clients, vendors, employees, agents or customers; (vi) the Consultant's or any of the Consultant's employees' or agents' conviction of a crime which involves the Consultant's or its employees' or agents', as the case may be, moral turpitude (including, without limitation, theft, embezzlement and fraud); (vii) the Consultant's or any of the Consultant's employees' or agents' conviction of any felony; (viii) the Consultant's or any of the Consultant's employees' or agents' entry of a plea of nolo contendere for a felony or a crime involving the Consultant's or the employees' or agents' moral turpitude; (ix) the Consultant's bankruptcy or insolvency; (x) the sale of more than fifty percent (50%) of the Consultant's assets or a change in control of more that fifty percent (50%) of the Consultant's stock; or (xi) the merger, reorganization, termination, dissolution or liquidation of the Consultant. Termination pursuant to this paragraph may be made without advance notice. 3.2 Termination Upon Notice. In addition to termination for the reasons set forth in paragraphs 2(b) and 3.1 above, either the Consultant or the Company may terminate the Consultant's engagement effective thirty (30) days following written notice. Category 5 Page 3 (Rev. 2/03) Upon such termination, the Consultant shall only be entitled to payment of any Consulting Fee earned through the date of termination. 4. Representations and Warranties. 4.1 Representations and Warranties of the Consultant. The Consultant hereby represents and warrants that, as of the date hereof and throughout the Term: (a) The Consultant is not and will not in any way whatsoever be restricted or prohibited, contractually or otherwise, from entering into this Agreement and performing the services and obligations herein contained. (b) The Consultant's execution of this Agreement, and performance of the services and obligations herein contained, does not and will not constitute: (i) a default or an event that, with or without notice or lapse of time or both, would be a default, breach or violation of any agreement, contract, instrument or arrangement to which the Consultant is a party or by which is bound (ii) a violation of any law, judgment, rule, regulation, order or decree applicable to the Consultant. (c) The Consultant has full legal right, power, authority and capacity to enter into, execute, deliver and perform this Agreement and all attendant instruments and documents contemplated hereby. The Consultant's execution, delivery and performance of this Agreement constitutes a legal, valid and binding obligation of the Consultant enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and except as rights to specific performance may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding at law or in equity). 4.2 Representations and Warranties of the Company. The Company has full legal right, power, capacity, and authority, to enter into, execute, deliver and perform this Agreement and all attendant instruments and documents contemplated hereby. The Company hereby represents and warrants that this Agreement has been duly authorized and validly executed and delivered and constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and except as rights to specific performance may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding at law or in equity). Category 5 Page 4 (Rev. 2/03) 5. Covenants of the Consultant. 5.1 Records and Accounts. The Consultant shall keep all financial records and accounts regarding the consulting services as may from time to time be directed by the Company, the Company's clients, the Defense Contract Audit Agency, and all other task funding sources, specifically including, without limitation, all records relating to hours worked on client projects, travel and expense records relating to client projects, and all tax records concerning the consulting services. These records shall be made available for audit purpose to the Company, the Company's clients or to the Controller General of the United States, or to any authorized representative thereof, and shall be retained for seven (7) years after the expiration of this Agreement unless permission to destroy such records is granted in writing by both the Company and by the Company's client. 5.2 Independent Contractor. The Consultant shall act in the capacity of an independent contractor with respect to the Company. The Consultant shall not represent itself as being authorized to bind the Company. The Consultant shall hold itself out to the public as an independent contractor. As an independent contractor, the Consultant shall accept any reasonable directions issued by the Company, through the Chairman of the Board or other executive officer, pertaining to the goals to be attained and the results to be achieved by it. The Consultant shall at all times be in possession of whatever tools and equipment may be necessary or required to perform the contractual services. As an independent contractor, the Consultant shall not have the status of an employee of the Company. The Consultant shall not be eligible to participate in any employee benefit, group insurance, or executive compensation plans or programs maintained by the Company. The Company shall not provide Social Security, unemployment compensation, disability insurance, or any other statutory benefits to the Consultant. 5.3 Insurance. The Consultant hereby covenants and agrees that it shall at all times during employment carry in effect automobile liability insurance in the minimum amount of One Hundred Thousand Dollars ($100,000) combined single limit, or split limits of 100/300/50 evidenced by an endorsement from a licensed insurance company which the Consultant agrees to furnish to the Company from time to time as such endorsements become effective. The Consultant further covenants and agrees to supply to the Company a photocopy of employee's driver's license, as well as the year, make, model and vehicle identification number of each vehicle used in the business. Category 5 Page 5 (Rev. 2/03) 6. Assignment of Inventions. 6.1 Inventions. Consultant acknowledges and agrees that the Company is the sole owner of all inventions, including, but not limited to, patents, original works of authorship, developments, concepts, designs, discoveries, ideas, trademarks, trade names, service marks, service names, copyrights, and trade secrets that Consultant may develop, conceive, reduce to practice, create, invent or improve upon during the course of his/her employment (collectively referred to as "Inventions"), to the fullest extent permitted by law, which are either: (i) developed by Consultant using Company time, materials, facilities, machines or property (including, but not limited to, Company confidential and proprietary information), or(ii) are within the scope of the duties and responsibilities assigned to Consultant from time to time or result from any work performed by Consultant for the Company or which relate, at the time of conception or reduction to practice to the Company's business or actual or demonstrably anticipated research or development of the Company even if Consultant solely uses his/her own time and does not use any Company time, materials, facilities, machines or property (including, but not limited to, Company confidential and proprietary information. 6.2 Notice of Assignment. Consultant agrees that Consultant will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all Consultant's right, title, and interest in and to any and all Inventions, whether or not patentable or registrable under copyright or similar laws, which Consultant may solely or jointly conceive, develop or reduce to practice, or cause to be conceived, developed or reduced to practice, during the period of time Consultant is in the employ of the Company, except as provided in Section 2.5 below. Consultant further acknowledges that all original works of authorship which are made by Consultant (solely or jointly with others) within the scope of and during the period of Consultant's employment with the Company are protectible by copyright as "works made for hire," as that term is defined in the United States Copyright Act. Consultant further understands and agrees that the decision whether or not to commercialize or market any Invention developed by Consultant solely or jointly with others is within the Company's sole discretion and for the Company's sole benefit and that no royalty will be due to Consultant as a result of the Company's efforts to commercialize or market any such Invention. 6.3 Patents and Copyright Registrations. Consultant agrees to assist the Company, or its designee, at the Company's expense, in securing the Company's rights in and to the Inventions and any copyrights, patents, moral work rights or other intellectual property rights relating thereto in any and all countries. Such assistance shall include the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the Category 5 Page 6 (Rev. 2/03) sole and exclusive rights, title and interest in and to such Inventions, and copyrights, patents, moral work rights or other intellectual property rights relating thereto. Consultant further agrees that Consultant's obligations to execute or cause to be executed, when it is in Consultant's power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of Consultant's mental or physical incapacity or for any other reason to secure Consultant's signature to apply for or pursue any application in the United States or foreign patents or copyright registrations covering the Inventions or original works of authorship assigned to the Company above, the Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Consultant's agent and attorney-in-fact, to act for and in Consultant's behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letter patent or copyright registrations thereon with the same legal force and effect as if executed by Consultant. 6.4 Inventions Assigned to the United States. Consultant agrees to assign to the United States government all of Consultant's right, title, and interest in and to any and all Inventions whenever such full title is required to be vested in the United States or any of its agencies. 6.5 California Labor Code. Pursuant to Section 2870 et seq. of the California Labor Code, nothing in this Acknowledgment shall operate to transfer, convey or assign to the Company or its clients any right to any Invention which the Consultant develops entirely on his own time without using the Company's or any client's equipment, supplies, facilities or trade secret information, except for those Inventions which: (a) relates at the time of conception or reduction to practice of the Invention to the Company's or any of its clients' businesses, or actual or demonstrably anticipated research or development of the Company or any of its clients; or (b) results from any work performed by the Consultant for the Company or any of its clients. 6.6 Enforcement. It is understood and agreed by the Consultant that the foregoing Sections 2.1 through 2.4 are of the utmost importance to the continued success and effectiveness of the Company and its clients, and that any breach of the terms of such Sections is a material breach of the Consultant's employment relationship with the company and may result in the termination of the Consultant's employment, the imposition of restraining orders against the Consultant and liability for damages sustained by the Company or its clients as a result of said breach, as well as liability for all costs related thereto. Category 5 Page 7 (Rev. 2/03) 7. Consultant Not To Disclose Company's Confidential Information. 7.1 Confidential Information. Consultant agrees at all times during the term of Consultant's employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, to disclose to any person, firm, or corporation, without written authorization from the Company any confidential information. The Consultant understands that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, business plans, marketing plans and strategies, pricing strategies, services, customer lists and customers (including, but not limited to, customers of the Company on whom Consultant called or with whom Consultant became acquainted during the term of Consultant's employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to Consultant by the Company either directly or indirectly in writing, orally or by drawings or observation. 7.2 Non-Compete/Non-Interference. In conjunction with the provisions set forth above in section 7.1, the Consultant agrees that while performing consulting work for the Company, Consultant shall not use any confidential or proprietary information obtained through Consultant's relationship with the Company, directly or indirectly, to engage in any activity with the Company or otherwise to be in interference with the contractual or prospective contractual relations of the Company and any third party. Consultant shall not interfere with or otherwise attempt to negotiate with any entity for the same or similar services when the Company is in negotiations with, has been in negotiations with, or has entered into a contract with that third party for the same or similar services. 8. Drawings, Designs, Specifications. All materials, including, but not limited to sound recordings, pictorial representations, sketches, designs, drawings, or other graphical representations and works of any similar nature in any form (for example, hard copy, computer, electrical, etc.) as well as similar technical or scientific data generated in the performance of any of the Consultant's work, duties or responsibilities or copies of the foregoing relating to Consultant's work, duties or responsibilities shall be open and subject to inspection by the Company at all reasonable time, and shall remain the sole and exclusive property of the Company, or the Company's clients, as the case may be. Category 5 Page 8 (Rev. 2/03) 9. Security. If the Consultant or any person under his or her control has access to classified information while working for the Company, the following provisions shall apply: (a) The Consultant agrees to comply with the requirements of the Department of Defense (DOD 5220.22-M) "Industrial Security Manual for Safeguarding Classified Information" and any amendments thereto, including any instructions received from the Company or any of the Company's clients. (b) While the Consultant is at the facility of any of the Company's clients, with access to classified information, the Consultant shall follow the specific procedures for handling classified information as directed by such client's security officer. The Consultant will immediately report to both the Company and the client's security officer any security violations of which the Consultant becomes aware. If such client asks the Consultant to commit a willful violation, the Consultant is to report it to the Company immediately. (c) It is understood that disclosure of information relating to the Company's work to any person not entitled to receive it, or failure to safeguard all information classified "CONFIDENTIAL," including "CONFIDENTIAL--Modified Handling Authorized" or higher, that may come to the Consultant in connection with any of the Consultant's duties as set forth in this Agreement may subject the Consultant to criminal liability under the laws of the United States. (See the Atomic Energy Act of 1954, Public Law 703; 83rd Congress. See also Title 18, U.S. Code, Section 793, 794, 795, 797 and 798; Executive Order 10104 of February 1, 1950; and Executive Order 10501 dated November 5, 1953.) 10. Classification. In the performance of any of the Consultant's duties as set forth in this Agreement, the Company and the Consultant shall assign an appropriate classification to all documents, material and equipment originated or generated by the Company and the Consultant, in accordance with classification guidance when furnished to the Company and the Consultant by any of the Company's clients, the Department of Defense, or other agencies as appropriate. Category 5 Page 9 (Rev. 2/03) 11. Conflicts of Interest and Ethical Conduct. 11.1 No Conflicts of Interest. The Consultant shall not engage in any personal or professional activities which would constitute, or reasonably could be perceived as constituting, a conflict of interest between his/her personal activities and his/her work for the company or on behalf of the company's clients. 11.2 Disclosure of Conflicts of Interest. The Consultant shall immediately report to the Company any personal or professional conflict of interest involving any of the Company's clients, and any other activities the Consultant or its employees or agents may be engaged in. The Consultant and its employees and agents shall at no time compromise the proprietary rights of any of the Company's clients. The Consultant will immediately inform the Company if the Consultant becomes aware of such a compromise. The Consultant represents that neither it nor any of its employees or agents is an official employee of the U.S. Government or an active member of the armed forces. 11.3 U.S. Government Information. The Consultant, in its performance under this Agreement, shall not solicit or receive any information, classified or unclassified, directly or indirectly, from the U.S. Government except in strict accordance with all laws and regulations pertaining to the protection, possession, acquisition, and use of: (i) U.S. Government information or documents, or (ii) proprietary, competitive information of any competitor. 11.4 Political Payments. The Consultant shall not, in its performance under this Agreement, make any payments for political purposes. 11.5 Compliance with Law. The Consultant, in its performance under this Agreement, shall comply with all applicable federal, state and local laws and regulations. 11.6 Nondeductible Payments. The Consultant shall not, in its performance under this Agreement, make any payments to third parties if such payments would not be deductible by the Company under Sections 162 and 274 of the Internal Revenue Code of 1986, as amended, and implementing IRS regulations. 12. Conditions Imposed by the Company's Clients. Restrictions or conditions may from time to time be imposed upon the Company by the Company's clients. In performing its duties and obligations under this Agreement, the Consultant agrees that such terms and conditions form an integral part of this Agreement, and the Consultant agrees to accept and comply with such additional terms and conditions and to take whatever action is necessary to ensure that the Consultant's employees and agents comply with such terms and conditions. Category 5 Page 10 (Rev. 2/03) 13. Indemnity. The Consultant agrees to indemnify, defend and hold harmless the Company and its officers, directors, stockholders and employees, with respect to any and all losses, liabilities, claims, obligations, damages or deficiencies, together with all costs and expenses (including, without limitation, any interest, penalties, legal fees and expenses and accountants' fees and expenses) (collectively "Losses") incurred in connection with and in defending against any such Losses based on, arising out of, resulting from, or otherwise relating to: (i) any inaccuracy, misrepresentation or breach of any representation, warranty or covenant or agreement, or nonfulfillment or failure to perform any covenant or agreement, made by the Consultant in this Agreement or in any exhibit, certificate or other document delivered by the Consultant in connection herewith; (ii) any claims by the Consultant's employees or agents of any kind or nature whatsoever, including, without limitation, claims for unemployment compensation or workers' compensation benefits; (iii) the failure of the Consultant to maintain adequate levels of insurance to protect against business risks in light of the nature and scope of the Consultant's business; or (iv) the claims of any party for the acts or omissions of the Consultant, its employees, and its agents in the performance of services required under this Agreement. 14. Miscellaneous. 14.1 Notices. Any notice, demand, report, statement, request or other communication required or permitted to be given hereunder ("Notice") by a party to the other party shall be in writing and shall be either: (i) hand-delivered (including delivery by courier); (ii) mailed by first-class registered or certified mail (airmail of international), return receipt requested, postage prepaid; or (iii) transmitted by telecopy or telegram (confirmed by a letter sent by either first-class mail (air mail, if international) or courier service, addressed as follows: (a) If to the Company: SM&A 4695 MacArthur Court 8th Floor Newport Beach, CA 92660 (b) If to the Consultant: ______________________________ ______________________________ ______________________________ ______________________________ Category 5 Page 11 (Rev. 2/03) Each party may designate by notice in writing a new address or telecopy number to which any Notice may thereafter be so given, served or sent. Any Notice sent by (a) registered or certified (air) mail shall be deemed to have been given at the time of the receipt thereof by the other party or three (3) calendar days after the time of mailing, whichever is earlier; (b) facsimile or telegram, confirmed by a letter sent by first-class (air) mail or courier service not later than three (3) business days thereafter, shall be deemed to have been given the next business day after the time of sending the facsimile or telegram; and (c) hand-delivery (including delivery by courier) shall be deemed to have been given at time of receipt of same. 14.2 Entire Agreement. This Agreement, together with the Exhibits hereto and the documents referenced herein sets forth the entire understanding between the parties regarding the subject matter set forth herein, and supersedes any and all other agreements, whether oral or written, between the parties hereto with respect to the engagement of the Consultant by the Company. Any modification or amendment of this Agreement will be effective only if contained in an instrument in writing (a) signed by all of the parties hereto, and (b) stating a specific purpose of amending or modifying this Agreement. Any prior contract or agreement between the Company and the Consultant is hereby canceled and shall be of no further force or effect. 14.3 Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California, without giving effect to the conflict of laws principles thereof. 14.4 Waiver of Breach. Neither the waiver by any of the parties hereto of a breach or a default under any of the provisions of this Agreement, nor the failure of any of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provision, right or privilege hereunder, unless in writing executed by the party making such waiver. 14.5 Severability; Reformation. If any term, clause, word, condition, provision or agreement in the Agreement or the application thereof or any portion thereof to any person or circumstance, shall be held invalid, void or unenforceable, the remainder of the term, clause, word, condition, provision or agreement and the application thereof shall remain in full force and effect, and the invalid, void or unenforceable term, clause, word, condition, provision or agreement shall be reformed to the extent possible in order to give its intended effect and/or meaning. Category 5 Page 12 (Rev. 2/03) 14.6 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation or meaning of this Agreement. 14.7 Survival. To the extent consistent with the intent of this Agreement, all representations and warranties contained in this Agreement shall survive the termination hereof. 14.8 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the Company and to any person or firm who may succeed to substantially all the assets of the Company. This Agreement shall not be assignable by the Consultant, but shall be binding upon and, to the extent provided for in this Agreement, inure to the benefit of the Consultant's heirs, executors, administrators and legal representatives. 14.9 Attorneys' Fees. Should any legal action, arbitration or other proceeding be commenced between the parties hereto concerning this Agreement or the rights and obligations relating thereto, the party prevailing in such legal action, arbitration or other proceeding shall, in addition to such other relief as may be awarded, be entitled to recover costs and attorneys' fees that are reasonable under the circumstances. A party shall not be entitled to recover attorneys' fees relating only to claims or defenses on which that party did not prevail. 14.10 Method of Dispute Resolution. Except where provisional relief is requested the parties agree that any controversy or dispute arising from or in connection with this Agreement, its interpretation, performance or termination, shall, upon demand of a party, be submitted to and resolved by binding arbitration. The arbitration shall be conducted pursuant to Part 3, Title 9 of the California Code of Civil Procedure (Sections 1280-1288.8). Discovery, including depositions for the purpose of discovery, shall be broadly permitted, and the provisions of Code of Civil Procedure Section 1283.05 shall apply. Any demand to arbitrate shall be made within one year of the accrual of the claim on which arbitration is sought. The arbitration shall occur in Orange County, California, before a single retired or former judge of the Superior Court of the State of California or the Court of Appeal of the State of California. The parties shall agree upon an arbitrator within twenty-one (21) days after the demand is made, and if the parties fail to so agree, then any of them may apply to the court for an order appointing an arbitrator meeting the requirements of this section. The decision of the arbitrator shall be in writing, shall set forth the facts and reasons supporting it, and shall be final and binding on the parties. The arbitrator shall not have the power to commit errors of law or legal reasoning, or grant relief which would not be legally available if the dispute were litigated. The arbitrator's award shall be subject to confirmation, correction or vacation in accordance with the provisions of Code of Civil Procedure Sections 1284, 1285, 1286.2, 1286.6 and 1287.4. Any application, petition or other proceeding (i) to enforce the award or the provisions of this Agreement, or (ii) to the extent that the arbitrator does not have the Category 5 Page 13 (Rev. 2/03) power or authority to resolve or grant the relief sought, and/or (iii) for provisional or equitable relief pending appointment of the arbitrator, shall be commenced in the appropriate state or federal courts having jurisdiction in Orange County, California, and the parties hereby consent to jurisdiction and venue in such courts. 14.11 Injunctive Relief. Each party recognizes and agrees that a breach of any of the provisions contained in Sections 4 through 12 hereof, inclusive, may subject the nonbreaching party to severe and irreparable harm to an extent that damages may not fully compensate that party for such breach. The parties hereby agree that in the event of its breach of any of the provisions contained in Sections 4 through 12 hereof, inclusive, the nonbreaching party shall, in addition to such other remedies as may be available to it at law or in equity, be entitled to enforce its rights hereunder by actions for injunctive relief and specific performance to the fullest extent permitted by law. IN WITNESS WHEREOF, each party hereto has executed or caused this Incorporated Consultant's Agreement to be executed on its behalf by its duly authorized representative effective as of the date set forth above. "COMPANY" SM&A a California corporation By: /s/ Maureen Murphy ------------------ Name: Maureen Murphy Title: HR Director "CONSULTANT" By: /s/ William C. Bowes -------------------- Name: William C. Bowes SS#/FEIN#: 20-0325948 Category 5 Page 14 (Rev. 2/03) EX-10.24 5 a02447exv10w24.txt EXHIBIT 10.24 Exhibit 10.24 CONSULTING AGREEMENT This CONSULTING AGREEMENT (the "Agreement"), dated as of August 9, 2004 is made and entered into by and between SM&A, a California corporation (the "Company"), and Joseph B. Reagan (the "Consultant"). RECITALS: The Company and the Consultant desire to enter into this Agreement to establish the terms and conditions of the Consultant's engagement by the Company during the effectiveness hereof. AGREEMENT NOW, THEREFORE, in consideration of the foregoing premises, and of the mutual covenants, conditions, representations and warranties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby mutually acknowledged, the parties hereto agree as follows: 1. Consulting Services. The Company hereby engages the Consultant to perform its consulting services, and the Consultant accepts such engagement from the Company, on the terms and conditions set forth herein: 1.1 Scope of Consulting Services. During the Term (as defined in Section 2), the Consultant shall devote such time as may be necessary to discharge its duties hereunder, and shall to the best of its ability perform such duties in a manner which will faithfully and diligently further the business and interests of the Company. 1.2 Method of Performance. The Consultant shall perform its duties in a manner, which implements and furthers the Company's general business philosophy and procedures. The Consultant agrees to perform this Agreement in an efficient and workmanlike manner. The Consultant shall at all times maintain the Company's established standards of quality and control. Category 5 Page 1 (Rev. 2/03) 1.3 Services and Location. The Consultant's services pursuant to this Agreement shall be performed primarily at the premises of one or more clients of the Company, or at such other facilities as the Company and the Consultant may agree upon from time to time. The Consultant acknowledges and agrees that job responsibilities may require extensive travel, and the Consultant agrees to cause the Consultant's employees to travel as reasonably necessary to discharge the Consultant's duties under this Agreement. 1.4 Fees. The Consultant shall be entitled to a consulting fee of $201.00 AN HOUR while consulting on an Assignment (as defined in Section 2 (b) ). Payment to the Consultant of the Consulting Fee shall be contingent upon (a) the Consultant's submission to the Company of such invoices or statements as may from time to time be required by the Company, which sets forth a description of the work performed pursuant to the Agreement and the amount charged therefore, and (b) the approval and acceptance by the Company and any applicable audit agency of the respective invoices and/or statements. 1.5 Expenses. The Company will pay, or reimburse the Consultant, for all expenses reasonably incurred during the Term by the Consultant in the performance of its duties for the Company or, as requested, for any of its clients or affiliates; provided, however, that the Consultant may only incur expenses in accordance with the Company's expense reimbursement policies (set forth on Exhibit A attached hereto and incorporated herein by this reference), as may be amended from time to time, and no expenses will be reimbursed unless such expenses are substantiated by documentary evidence in form and substance reasonably acceptable to the Company. 2. Term of Agreement and Assignments. (a) Term. The Company hereby engages the Consultant for the term of twelve (12) months as follows: Commencing on: August 9, 2004 Continuing until: August 9, 2005 or such other date as shall mutually be agreed upon in writing (the "Term"). Upon the expiration of the Term, the relationship between the Company and the Consultant shall cease and the Company shall have no obligation to engage the Consultant for any further or future Term or at all. (b) Assignments. During the Term hereof, the Company may assign the Consultant to perform its consulting services for one or more clients of the Company (the "Assignment"). Such Assignment shall be based upon the Company's agreements with Category 5 Page 2 (Rev. 2/03) its clients and the needs of the Company's clients. Nothing contained herein shall be construed as providing an entitlement to the Consultant to be placed in an Assignment, and the Company retains the absolute and unconditional right to determine when, if ever, to place the Consultant in an Assignment. An Assignment may be modified, amended, or terminated at any time by the Company based upon the termination of a particular client project, a change in the security classification level of a particular client project, a change in the Consultant's clearance, a change in funding of a particular client project, changes in client staffing needs, the availability of other consultants, the status and needs of other clients' projects, the Consultant's performance or other matters of similar nature. The Company is not required to provide notice in advance of any such modification, amendment or termination. 3. Termination of Consulting Services. 3.1 Optional Termination on Occurrence of Stated Events. The Company may terminate its relationship with the Consultant under this Agreement upon the occurrence of any of the following events: (i) any material breach of the Consultant's obligations under this Agreement, as amended from time to time by the Company and the Consultant; (ii) the Consultant's or any of the Consultant's employees' or agents' willful misconduct in the performance of duties under this Agreement; (iii) the Consultant's or any of the Consultant's employees' or agents' material breach of any fiduciary duty to the Company; (iv) the Consultant's or any of the Consultant's employees' or agents' gross neglect in the performance of duties under this Agreement; (v) the Consultant's or any of the Consultant's employees' or agents' commission of any criminal act against the Company or its clients, vendors, employees, agents or customers; (vi) the Consultant's or any of the Consultant's employees' or agents' conviction of a crime which involves the Consultant's or its employees' or agents', as the case may be, moral turpitude (including, without limitation, theft, embezzlement and fraud); (vii) the Consultant's or any of the Consultant's employees' or agents' conviction of any felony; (viii) the Consultant's or any of the Consultant's employees' or agents' entry of a plea of nolo contendere for a felony or a crime involving the Consultant's or the employees' or agents' moral turpitude; (ix) the Consultant's bankruptcy or insolvency; (x) the sale of more than fifty percent (50%) of the Consultant's assets or a change in control of more that fifty percent (50%) of the Consultant's stock; or (xi) the merger, reorganization, termination, dissolution or liquidation of the Consultant. Termination pursuant to this paragraph may be made without advance notice. 3.2 Termination Upon Notice. In addition to termination for the reasons set forth in paragraphs 2(b) and 3.1 above, either the Consultant or the Company may terminate the Consultant's engagement effective thirty (30) days following written notice. Category 5 Page 3 (Rev. 2/03) Upon such termination, the Consultant shall only be entitled to payment of any Consulting Fee earned through the date of termination. 4. Representations and Warranties. 4.1 Representations and Warranties of the Consultant. The Consultant hereby represents and warrants that, as of the date hereof and throughout the Term: (a) The Consultant is not and will not in any way whatsoever be restricted or prohibited, contractually or otherwise, from entering into this Agreement and performing the services and obligations herein contained. (b) The Consultant's execution of this Agreement, and performance of the services and obligations herein contained, does not and will not constitute: (i) a default or an event that, with or without notice or lapse of time or both, would be a default, breach or violation of any agreement, contract, instrument or arrangement to which the Consultant is a party or by which is bound (ii) a violation of any law, judgment, rule, regulation, order or decree applicable to the Consultant. (c) The Consultant has full legal right, power, authority and capacity to enter into, execute, deliver and perform this Agreement and all attendant instruments and documents contemplated hereby. The Consultant's execution, delivery and performance of this Agreement constitutes a legal, valid and binding obligation of the Consultant enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and except as rights to specific performance may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding at law or in equity). 4.2 Representations and Warranties of the Company. The Company has full legal right, power, capacity, and authority, to enter into, execute, deliver and perform this Agreement and all attendant instruments and documents contemplated hereby. The Company hereby represents and warrants that this Agreement has been duly authorized and validly executed and delivered and constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, or other similar laws affecting creditors' rights generally and except as rights to specific performance may be limited by the application of equitable principles (whether such equitable principles are applied in a proceeding at law or in equity). Category 5 Page 4 (Rev. 2/03) 5. Covenants of the Consultant. 5.1 Records and Accounts. The Consultant shall keep all financial records and accounts regarding the consulting services as may from time to time be directed by the Company, the Company's clients, the Defense Contract Audit Agency, and all other task funding sources, specifically including, without limitation, all records relating to hours worked on client projects, travel and expense records relating to client projects, and all tax records concerning the consulting services. These records shall be made available for audit purpose to the Company, the Company's clients or to the Controller General of the United States, or to any authorized representative thereof, and shall be retained for seven (7) years after the expiration of this Agreement unless permission to destroy such records is granted in writing by both the Company and by the Company's client. 5.2 Independent Contractor. The Consultant shall act in the capacity of an independent contractor with respect to the Company. The Consultant shall not represent itself as being authorized to bind the Company. The Consultant shall hold itself out to the public as an independent contractor. As an independent contractor, the Consultant shall accept any reasonable directions issued by the Company, through the Chairman of the Board or other executive officer, pertaining to the goals to be attained and the results to be achieved by it. The Consultant shall at all times be in possession of whatever tools and equipment may be necessary or required to perform the contractual services. As an independent contractor, the Consultant shall not have the status of an employee of the Company. The Consultant shall not be eligible to participate in any employee benefit, group insurance, or executive compensation plans or programs maintained by the Company. The Company shall not provide Social Security, unemployment compensation, disability insurance, or any other statutory benefits to the Consultant. 5.3 Insurance. The Consultant hereby covenants and agrees that it shall at all times during employment carry in effect automobile liability insurance in the minimum amount of One Hundred Thousand Dollars ($100,000) combined single limit, or split limits of 100/300/50 evidenced by an endorsement from a licensed insurance company which the Consultant agrees to furnish to the Company from time to time as such endorsements become effective. The Consultant further covenants and agrees to supply to the Company a photocopy of employee's driver's license, as well as the year, make, model and vehicle identification number of each vehicle used in the business. Category 5 Page 5 (Rev. 2/03) 6. Assignment of Inventions. 6.1 Inventions. Consultant acknowledges and agrees that the Company is the sole owner of all inventions, including, but not limited to, patents, original works of authorship, developments, concepts, designs, discoveries, ideas, trademarks, trade names, service marks, service names, copyrights, and trade secrets that Consultant may develop, conceive, reduce to practice, create, invent or improve upon during the course of his/her employment (collectively referred to as "Inventions"), to the fullest extent permitted by law, which are either: (i) developed by Consultant using Company time, materials, facilities, machines or property (including, but not limited to, Company confidential and proprietary information), or(ii) are within the scope of the duties and responsibilities assigned to Consultant from time to time or result from any work performed by Consultant for the Company or which relate, at the time of conception or reduction to practice to the Company's business or actual or demonstrably anticipated research or development of the Company even if Consultant solely uses his/her own time and does not use any Company time, materials, facilities, machines or property (including, but not limited to, Company confidential and proprietary information. 6.2 Notice of Assignment. Consultant agrees that Consultant will promptly make full written disclosure to the Company, will hold in trust for the sole right and benefit of the Company, and hereby assigns to the Company, or its designee, all Consultant's right, title, and interest in and to any and all Inventions, whether or not patentable or registrable under copyright or similar laws, which Consultant may solely or jointly conceive, develop or reduce to practice, or cause to be conceived, developed or reduced to practice, during the period of time Consultant is in the employ of the Company, except as provided in Section 2.5 below. Consultant further acknowledges that all original works of authorship which are made by Consultant (solely or jointly with others) within the scope of and during the period of Consultant's employment with the Company are protectible by copyright as "works made for hire," as that term is defined in the United States Copyright Act. Consultant further understands and agrees that the decision whether or not to commercialize or market any Invention developed by Consultant solely or jointly with others is within the Company's sole discretion and for the Company's sole benefit and that no royalty will be due to Consultant as a result of the Company's efforts to commercialize or market any such Invention. 6.3 Patents and Copyright Registrations. Consultant agrees to assist the Company, or its designee, at the Company's expense, in securing the Company's rights in and to the Inventions and any copyrights, patents, moral work rights or other intellectual property rights relating thereto in any and all countries. Such assistance shall include the disclosure to the Company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the Company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the Category 5 Page 6 (Rev. 2/03) sole and exclusive rights, title and interest in and to such Inventions, and copyrights, patents, moral work rights or other intellectual property rights relating thereto. Consultant further agrees that Consultant's obligations to execute or cause to be executed, when it is in Consultant's power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the Company is unable because of Consultant's mental or physical incapacity or for any other reason to secure Consultant's signature to apply for or pursue any application in the United States or foreign patents or copyright registrations covering the Inventions or original works of authorship assigned to the Company above, the Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as Consultant's agent and attorney-in-fact, to act for and in Consultant's behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letter patent or copyright registrations thereon with the same legal force and effect as if executed by Consultant. 6.4 Inventions Assigned to the United States. Consultant agrees to assign to the United States government all of Consultant's right, title, and interest in and to any and all Inventions whenever such full title is required to be vested in the United States or any of its agencies. 6.5 California Labor Code. Pursuant to Section 2870 et seq. of the California Labor Code, nothing in this Acknowledgment shall operate to transfer, convey or assign to the Company or its clients any right to any Invention which the Consultant develops entirely on his own time without using the Company's or any client's equipment, supplies, facilities or trade secret information, except for those Inventions which: (a) relates at the time of conception or reduction to practice of the Invention to the Company's or any of its clients' businesses, or actual or demonstrably anticipated research or development of the Company or any of its clients; or (b) results from any work performed by the Consultant for the Company or any of its clients. 6.6 Enforcement. It is understood and agreed by the Consultant that the foregoing Sections 2.1 through 2.4 are of the utmost importance to the continued success and effectiveness of the Company and its clients, and that any breach of the terms of such Sections is a material breach of the Consultant's employment relationship with the company and may result in the termination of the Consultant's employment, the imposition of restraining orders against the Consultant and liability for damages sustained by the Company or its clients as a result of said breach, as well as liability for all costs related thereto. Category 5 Page 7 (Rev. 2/03) 7. Consultant Not To Disclose Company's Confidential Information. 7.1 Confidential Information. Consultant agrees at all times during the term of Consultant's employment and thereafter, to hold in strictest confidence, and not to use, except for the benefit of the Company, to disclose to any person, firm, or corporation, without written authorization from the Company any confidential information. The Consultant understands that "Confidential Information" means any Company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, business plans, marketing plans and strategies, pricing strategies, services, customer lists and customers (including, but not limited to, customers of the Company on whom Consultant called or with whom Consultant became acquainted during the term of Consultant's employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to Consultant by the Company either directly or indirectly in writing, orally or by drawings or observation. 7.2 Non-Compete/Non-Interference. In conjunction with the provisions set forth above in section 7.1, the Consultant agrees that while performing consulting work for the Company, Consultant shall not use any confidential or proprietary information obtained through Consultant's relationship with the Company, directly or indirectly, to engage in any activity with the Company or otherwise to be in interference with the contractual or prospective contractual relations of the Company and any third party. Consultant shall not interfere with or otherwise attempt to negotiate with any entity for the same or similar services when the Company is in negotiations with, has been in negotiations with, or has entered into a contract with that third party for the same or similar services. 8. Drawings, Designs, Specifications. All materials, including, but not limited to sound recordings, pictorial representations, sketches, designs, drawings, or other graphical representations and works of any similar nature in any form (for example, hard copy, computer, electrical, etc.) as well as similar technical or scientific data generated in the performance of any of the Consultant's work, duties or responsibilities or copies of the foregoing relating to Consultant's work, duties or responsibilities shall be open and subject to inspection by the Company at all reasonable time, and shall remain the sole and exclusive property of the Company, or the Company's clients, as the case may be. Category 5 Page 8 (Rev. 2/03) 9. Security. If the Consultant or any person under his or her control has access to classified information while working for the Company, the following provisions shall apply: (a) The Consultant agrees to comply with the requirements of the Department of Defense (DOD 5220.22-M) "Industrial Security Manual for Safeguarding Classified Information" and any amendments thereto, including any instructions received from the Company or any of the Company's clients. (b) While the Consultant is at the facility of any of the Company's clients, with access to classified information, the Consultant shall follow the specific procedures for handling classified information as directed by such client's security officer. The Consultant will immediately report to both the Company and the client's security officer any security violations of which the Consultant becomes aware. If such client asks the Consultant to commit a willful violation, the Consultant is to report it to the Company immediately. (c) It is understood that disclosure of information relating to the Company's work to any person not entitled to receive it, or failure to safeguard all information classified "CONFIDENTIAL," including "CONFIDENTIAL--Modified Handling Authorized" or higher, that may come to the Consultant in connection with any of the Consultant's duties as set forth in this Agreement may subject the Consultant to criminal liability under the laws of the United States. (See the Atomic Energy Act of 1954, Public Law 703; 83rd Congress. See also Title 18, U.S. Code, Section 793, 794, 795, 797 and 798; Executive Order 10104 of February 1, 1950; and Executive Order 10501 dated November 5, 1953.) 10. Classification. In the performance of any of the Consultant's duties as set forth in this Agreement, the Company and the Consultant shall assign an appropriate classification to all documents, material and equipment originated or generated by the Company and the Consultant, in accordance with classification guidance when furnished to the Company and the Consultant by any of the Company's clients, the Department of Defense, or other agencies as appropriate. Category 5 Page 9 (Rev. 2/03) 11. Conflicts of Interest and Ethical Conduct. 11.1 No Conflicts of Interest. The Consultant shall not engage in any personal or professional activities which would constitute, or reasonably could be perceived as constituting, a conflict of interest between his/her personal activities and his/her work for the company or on behalf of the company's clients. 11.2 Disclosure of Conflicts of Interest. The Consultant shall immediately report to the Company any personal or professional conflict of interest involving any of the Company's clients, and any other activities the Consultant or its employees or agents may be engaged in. The Consultant and its employees and agents shall at no time compromise the proprietary rights of any of the Company's clients. The Consultant will immediately inform the Company if the Consultant becomes aware of such a compromise. The Consultant represents that neither it nor any of its employees or agents is an official employee of the U.S. Government or an active member of the armed forces. 11.3 U.S. Government Information. The Consultant, in its performance under this Agreement, shall not solicit or receive any information, classified or unclassified, directly or indirectly, from the U.S. Government except in strict accordance with all laws and regulations pertaining to the protection, possession, acquisition, and use of: (i) U.S. Government information or documents, or (ii) proprietary, competitive information of any competitor. 11.4 Political Payments. The Consultant shall not, in its performance under this Agreement, make any payments for political purposes. 11.5 Compliance with Law. The Consultant, in its performance under this Agreement, shall comply with all applicable federal, state and local laws and regulations. 11.6 Nondeductible Payments. The Consultant shall not, in its performance under this Agreement, make any payments to third parties if such payments would not be deductible by the Company under Sections 162 and 274 of the Internal Revenue Code of 1986, as amended, and implementing IRS regulations. 12. Conditions Imposed by the Company's Clients. Restrictions or conditions may from time to time be imposed upon the Company by the Company's clients. In performing its duties and obligations under this Agreement, the Consultant agrees that such terms and conditions form an integral part of this Agreement, and the Consultant agrees to accept and comply with such additional terms and conditions and to take whatever action is necessary to ensure that the Consultant's employees and agents comply with such terms and conditions. Category 5 Page 10 (Rev. 2/03) 13. Indemnity. The Consultant agrees to indemnify, defend and hold harmless the Company and its officers, directors, stockholders and employees, with respect to any and all losses, liabilities, claims, obligations, damages or deficiencies, together with all costs and expenses (including, without limitation, any interest, penalties, legal fees and expenses and accountants' fees and expenses) (collectively "Losses") incurred in connection with and in defending against any such Losses based on, arising out of, resulting from, or otherwise relating to: (i) any inaccuracy, misrepresentation or breach of any representation, warranty or covenant or agreement, or nonfulfillment or failure to perform any covenant or agreement, made by the Consultant in this Agreement or in any exhibit, certificate or other document delivered by the Consultant in connection herewith; (ii) any claims by the Consultant's employees or agents of any kind or nature whatsoever, including, without limitation, claims for unemployment compensation or workers' compensation benefits; (iii) the failure of the Consultant to maintain adequate levels of insurance to protect against business risks in light of the nature and scope of the Consultant's business; or (iv) the claims of any party for the acts or omissions of the Consultant, its employees, and its agents in the performance of services required under this Agreement. 14. Miscellaneous. 14.1 Notices. Any notice, demand, report, statement, request or other communication required or permitted to be given hereunder ("Notice") by a party to the other party shall be in writing and shall be either: (i) hand-delivered (including delivery by courier); (ii) mailed by first-class registered or certified mail (airmail of international), return receipt requested, postage prepaid; or (iii) transmitted by telecopy or telegram (confirmed by a letter sent by either first-class mail (air mail, if international) or courier service, addressed as follows: (a) If to the Company: SM&A 4695 MacArthur Court 8th Floor Newport Beach, CA 92660 (b) If to the Consultant: ______________________________ ______________________________ ______________________________ ______________________________ Category 5 Page 11 (Rev. 2/03) Each party may designate by notice in writing a new address or telecopy number to which any Notice may thereafter be so given, served or sent. Any Notice sent by (a) registered or certified (air) mail shall be deemed to have been given at the time of the receipt thereof by the other party or three (3) calendar days after the time of mailing, whichever is earlier; (b) facsimile or telegram, confirmed by a letter sent by first-class (air) mail or courier service not later than three (3) business days thereafter, shall be deemed to have been given the next business day after the time of sending the facsimile or telegram; and (c) hand-delivery (including delivery by courier) shall be deemed to have been given at time of receipt of same. 14.2 Entire Agreement. This Agreement, together with the Exhibits hereto and the documents referenced herein sets forth the entire understanding between the parties regarding the subject matter set forth herein, and supersedes any and all other agreements, whether oral or written, between the parties hereto with respect to the engagement of the Consultant by the Company. Any modification or amendment of this Agreement will be effective only if contained in an instrument in writing (a) signed by all of the parties hereto, and (b) stating a specific purpose of amending or modifying this Agreement. Any prior contract or agreement between the Company and the Consultant is hereby canceled and shall be of no further force or effect. 14.3 Governing Law. This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of California, without giving effect to the conflict of laws principles thereof. 14.4 Waiver of Breach. Neither the waiver by any of the parties hereto of a breach or a default under any of the provisions of this Agreement, nor the failure of any of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provision, right or privilege hereunder, unless in writing executed by the party making such waiver. 14.5 Severability; Reformation. If any term, clause, word, condition, provision or agreement in the Agreement or the application thereof or any portion thereof to any person or circumstance, shall be held invalid, void or unenforceable, the remainder of the term, clause, word, condition, provision or agreement and the application thereof shall remain in full force and effect, and the invalid, void or unenforceable term, clause, word, condition, provision or agreement shall be reformed to the extent possible in order to give its intended effect and/or meaning. Category 5 Page 12 (Rev. 2/03) 14.6 Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation or meaning of this Agreement. 14.7 Survival. To the extent consistent with the intent of this Agreement, all representations and warranties contained in this Agreement shall survive the termination hereof. 14.8 Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the Company and to any person or firm who may succeed to substantially all the assets of the Company. This Agreement shall not be assignable by the Consultant, but shall be binding upon and, to the extent provided for in this Agreement, inure to the benefit of the Consultant's heirs, executors, administrators and legal representatives. 14.9 Attorneys' Fees. Should any legal action, arbitration or other proceeding be commenced between the parties hereto concerning this Agreement or the rights and obligations relating thereto, the party prevailing in such legal action, arbitration or other proceeding shall, in addition to such other relief as may be awarded, be entitled to recover costs and attorneys' fees that are reasonable under the circumstances. A party shall not be entitled to recover attorneys' fees relating only to claims or defenses on which that party did not prevail. 14.10 Method of Dispute Resolution. Except where provisional relief is requested the parties agree that any controversy or dispute arising from or in connection with this Agreement, its interpretation, performance or termination, shall, upon demand of a party, be submitted to and resolved by binding arbitration. The arbitration shall be conducted pursuant to Part 3, Title 9 of the California Code of Civil Procedure (Sections 1280-1288.8). Discovery, including depositions for the purpose of discovery, shall be broadly permitted, and the provisions of Code of Civil Procedure Section 1283.05 shall apply. Any demand to arbitrate shall be made within one year of the accrual of the claim on which arbitration is sought. The arbitration shall occur in Orange County, California, before a single retired or former judge of the Superior Court of the State of California or the Court of Appeal of the State of California. The parties shall agree upon an arbitrator within twenty-one (21) days after the demand is made, and if the parties fail to so agree, then any of them may apply to the court for an order appointing an arbitrator meeting the requirements of this section. The decision of the arbitrator shall be in writing, shall set forth the facts and reasons supporting it, and shall be final and binding on the parties. The arbitrator shall not have the power to commit errors of law or legal reasoning, or grant relief which would not be legally available if the dispute were litigated. The arbitrator's award shall be subject to confirmation, correction or vacation in accordance with the provisions of Code of Civil Procedure Sections 1284, 1285, 1286.2, 1286.6 and 1287.4. Any application, petition or other proceeding (i) to enforce the award or the provisions of this Agreement, or (ii) to the extent that the arbitrator does not have the Category 5 Page 13 (Rev. 2/03) power or authority to resolve or grant the relief sought, and/or (iii) for provisional or equitable relief pending appointment of the arbitrator, shall be commenced in the appropriate state or federal courts having jurisdiction in Orange County, California, and the parties hereby consent to jurisdiction and venue in such courts. 14.11 Injunctive Relief. Each party recognizes and agrees that a breach of any of the provisions contained in Sections 4 through 12 hereof, inclusive, may subject the nonbreaching party to severe and irreparable harm to an extent that damages may not fully compensate that party for such breach. The parties hereby agree that in the event of its breach of any of the provisions contained in Sections 4 through 12 hereof, inclusive, the nonbreaching party shall, in addition to such other remedies as may be available to it at law or in equity, be entitled to enforce its rights hereunder by actions for injunctive relief and specific performance to the fullest extent permitted by law. IN WITNESS WHEREOF, each party hereto has executed or caused this Incorporated Consultant's Agreement to be executed on its behalf by its duly authorized representative effective as of the date set forth above. "COMPANY" SM&A a California corporation By: /s/ Maureen Murphy ------------------ Name: Maureen Murphy Title: HR Director "CONSULTANT" By: /s/ Joseph B. Reagan -------------------- Name: Joseph B. Reagan SS#/FEIN#: ###-##-#### Category 5 Page 14 (Rev. 2/03) EX-10.25 6 a02447exv10w25.txt EXHIBIT 10.25 Exhibit 10.25 FIRST AMENDMENT TO LEASE I. PARTIES AND DATE. This Amendment to Lease dated September 14, 2004, is by and between THE IRVINE COMPANY, a Delaware corporation ("LANDLORD"), and SM&A, formerly known as Steven Myers & Associates, Inc., a California corporation ("TENANT"). II. RECITALS. On December 18, 1996, Landlord and Tenant entered into an office space lease ("LEASE") for space in a building located at 4695 MacArthur Court, Suite 800, Newport Beach, California ("PREMISES"), for a Term currently scheduled to expire on June 30, 2007. Landlord and Tenant each desire to modify the Lease to add space on the ninth (9th) floor of the Building ("SUITE 900"), extend the Lease Term, adjust the Basic Rent, and make such other modifications as are set forth in "III. MODIFICATIONS" next below. III. MODIFICATIONS. A. Basic Lease Provisions. The Basic Lease Provisions are hereby amended as follows: 1. Effective as of the Commencement Date for Suite 900 (as hereinafter defined), Item 2 of the Basic Lease Provisions shall be amended by adding "Suite 900." 2. Item 4 of the Basic Lease Provisions is hereby amended by adding the following: "Estimated Commencement Date for Suite 900: December 1, 2004." 3. Item 5 of the Basic Lease Provisions is hereby deleted in its entirety and the following is substituted in lieu thereof: "5. Lease Term: The Term of this Lease shall expire at midnight on June 30, 2012 as to the Premises and Suite 900." 4. (a) Effective as of the Commencement Date for Suite 900, and continuing through June 30, 2007, Item 6 of the Basic Lease Provisions shall be amended by adding the following, which amounts shall be in addition to the Basic Rent for the Premises set forth in the Lease: "Basic Rent for Suite 900: Twenty-Three Thousand Five Hundred Three Dollars ($23,503.00) per month, based on $2.20 per rentable square foot. Rental Adjustments: Commencing October 1, 2005, the Basic Rent for Suite 900 shall be Twenty-Four Thousand Five Hundred Seventy-One Dollars ($24,571.00) per month, based on $2.30 per rentable square foot. Commencing October 1, 2006, the Basic Rent for Suite 900 shall be Twenty-Five Thousand Six Hundred Thirty-Nine Dollars ($25,639.00) per month, based on $2.40 per rentable square foot." (b) Effective as of July 1, 2007, Item 6 of the Basic Lease Provisions shall be deleted in its entirety and the following shall be substituted in lieu thereof: "Basic Rent: Seventy-Six Thousand Three Hundred Seventy-Five Dollars ($76,375.00) per month, based on $2.50 per rentable square foot. Rental Adjustments: Commencing July 1, 2008, the Basic Rent shall be Seventy-Nine Thousand Four Hundred Thirty Dollars ($79,430.00) per month, based on $2.60 per rentable square foot. 1 Commencing July 1, 2009, the Basic Rent shall be Eighty-Two Thousand Four Hundred Eighty-Five Dollars ($82,485.00) per month, based on $2.70 per rentable square foot. Commencing July 1, 2010, the Basic Rent shall be Eighty-Five Thousand Five Hundred Forty Dollars ($85,540.00) per month, based on $2.80 per rentable square foot. Commencing July 1, 2011, the Basic Rent shall be Eighty-Eight Thousand Five Hundred Ninety-Five Dollars ($88,595.00) per month, based on $2.90 per rentable square foot." 5. (a) Effective as of the Commencement Date for Suite 900, Item 7 of the Basic Lease Provisions shall be amended by adding the following: "Property Tax Base for Suite 900: The Property Taxes per rentable square foot actually incurred by Landlord in connection with Suite 900 for its fiscal year ending June 30, 2005. Building Cost Base for Suite 900: The Building Costs per rentable square foot actually incurred by Landlord in connection with Suite 900 for its fiscal year ending June 30, 2005." (b) Effective as of July 1, 2007, the Expense Base Year for Suite 800 shown in Item 7 of the Basic Lease Provisions shall be deleted in its entirety and the following substituted in lieu thereof: "7. Property Tax Base for Suite 800: The Property Taxes per rentable square foot actually incurred by Landlord in connection with Suite 800 for its fiscal year ending June 30, 2007. Building Cost Base for Suite 800: The Building Costs per rentable square foot actually incurred by Landlord in connection with Suite 800 for its fiscal year ending June 30, 2007. Expense Recovery Period: Every twelve (12) month period during the Term (or portion thereof during the first and last Lease years) ending June 30." 6. (a) Effective as of the Commencement Date for Suite 900, Item 8 of the Basic Lease Provisions shall be amended by adding "and Suite 900 comprising approximately 10,683 rentable square feet." (b) Effective as of July 1, 2007, Item 8 of the Basic Lease Provisions shall be deleted in its entirety and the following substituted in lieu thereof: "8. Floor Area of Premises: approximately 30,550 rentable square feet comprising approximately 19,867 rentable square feet in Suite 800 and approximately 10,683 rentable square feet in Suite 900." 7. (a) Effective as of the Commencement Date for Suite 900 and continuing through July 1, 2007, Item 12 of the Basic Lease Provisions shall be amended by adding the following: "Parking for Suite 900: Thirty-seven (37) unreserved vehicle parking spaces." (b) Effective as of July 1, 2007, Item 12 of the Basic Lease Provisions shall be deleted in its entirety and the following substituted in lieu thereof: "12. Parking: Ten (10) reserved and ninety-five (95) unreserved vehicle parking spaces." B. Free and Abated Rent. (1) In consideration of Tenant's execution and delivery of this Amendment, Landlord agrees that Tenant shall not be obligated to pay the Basic Rent and Operating Expenses due under the Lease with respect to Suite 900 only for the two months immediately following the Commencement Date for Suite 900. (2) Notwithstanding anything in this Amendment to the contrary, Tenant will not be occupying all of Suite 900 as of the Commencement Date for Suite 900, and will refrain from the use and occupancy of those portions of Suite 900 consisting of approximately 3,683 2 rentable square feet shown by cross-hatching on Exhibit A-1 attached hereto as the Vacant Area and the Vacant Corridor Area (collectively, the "Vacant Areas") until the Full Rent Date (as hereinafter defined). For purposes of this Lease, the "Full Rent Date" shall mean the date which is the earlier of (a) the date which is six (6) months following the Commencement Date for Suite 900 and (b) the date on which Tenant commences use and occupancy of any portion of the Vacant Areas. Landlord and Tenant agree that the Basic Rent for Suite 900 shall be abated in the amount of Eight Thousand One Hundred Three Dollars ($8,103.00) per month (representing $2.20 per rentable square foot for the 3,683 square feet comprising the Vacant Areas) only for the period (the "Abatement Period") commencing on the Commencement Date for Suite 900 and ending on the Full Rent Date. During the Abatement Period, neither Landlord nor Tenant shall have the right to use or occupy for any purpose whatsoever, the Vacant Areas, except as expressly set forth in this Section III.B.(2) and except for Tenant's right to install telecommunications and data cabling, equipment and fixtures in the Vacant Areas during the Abatement Period. For purposes of this Section III.B., "use and occupancy of any portion of the Vacant Areas" shall mean any use, occupancy, or any storage or placement of any furniture, equipment, fixtures, files, or other personal property in any portion of the Vacant Areas, provided, however, that as to the Vacant Corridor Area, use and occupancy shall not include use of the same as a corridor for the movement of people or personal property through such Vacant Corridor Area to gain access to other portions of Suite 900. From and after the Full Rent Date, Tenant shall pay to Landlord the Full Amount of Basic Rent for Suite 900 without any further abatement. C. Operating Expenses. Notwithstanding any contrary provision in the Lease, Landlord hereby agrees that Tenant shall not be obligated to pay Landlord for Operating Expenses accruing with respect to Suite 900 during the twelve (12) month period commencing as of the Commencement Date for Suite 900, nor shall Tenant be obligated to pay Landlord for Operating Expenses accruing with respect to Suite 800 during the twelve (12) month period commencing as of July 1, 2007. D. Commencement Date For Suite 900. (1) Subject to the provisions of Section III.D.(2), below, the commencement of the term of the Lease as to Suite 900 (the "COMMENCEMENT DATE FOR SUITE 900"), shall occur upon the earlier of (a) the date Tenant acquires possession of or commences use of the Premises or any portion thereof (excluding the Vacant Areas) for any purpose, or (b) the date the Premises are tendered to Tenant with the tenant improvements (the "SUITE 900 TENANT IMPROVEMENTS") required to be constructed by Landlord pursuant to the Work Letter attached hereto as Exhibit X (the "9TH FLOOR WORK LETTER") substantially completed in accordance with the Working Drawings and Specifications and any Changes (as such terms are defined in the 9th Floor Work Letter) approved by Tenant, provided that the Suite 900 Tenant Improvements shall not be deemed to have been substantially completed until any approvals by relevant governmental authorities which are required for occupancy of the Premises have been obtained (as evidenced by written approval thereof in accordance with the building permits issued for the Suite 900 Tenant Improvements or issuance of a temporary or final certificate of occupancy for the Premises). Landlord shall provide Tenant written notice of the substantial completion of the Suite 900 Tenant Improvements. Prior to Tenant's taking of possession of the Premises, the parties shall memorialize on a form provided by Landlord the actual Commencement Date for Suite 900. Tenant's failure to execute that form shall not affect the validity of Landlord's determination of such date. (2) If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant with the Suite 900 Tenant Improvements substantially completed on or before the Estimated Commencement Date for Suite 900 as set forth in Item 4 of the Basic Lease Provisions, as hereby amended (the "SUITE 900 ESTIMATED COMMENCEMENT DATE"), this Lease shall not be void or voidable nor shall Landlord be liable to Tenant for any resulting loss or damage. However, Tenant shall not be liable for any rent and the Commencement Date for Suite 900 shall not occur until Landlord tenders possession of the Premises in accordance with Section III.D.(1), above, except that if Landlord cannot so tender possession of the Premises on or before the Suite 900 Estimated Commencement Date due to any Tenant Delay (as defined in the 9th Floor Work Letter), then, except as otherwise provided in Section III.D.(3), below, the Commencement Date for Suite 900 shall be deemed to have occurred and Landlord shall be entitled to full performance by Tenant (including the payment of rent) from the date Landlord would have been able to deliver the Premises to Tenant with the Suite 900 Tenant Improvements substantially completed but for such Tenant Delay. (3) Notwithstanding anything to the contrary contained in this Section III.D., if for any reason other than Tenant Delays (as defined in the 9th Floor Work Letter), or other matters beyond Landlord's reasonable control, the actual Commencement Date for Suite 900 has not occurred by the date that is ninety (90) days following the Estimated Commencement Date for Suite 900, then Tenant may, by written notice to Landlord given at any time thereafter but prior to the actual occurrence of the Commencement Date for Suite 900, elect to terminate this Amendment, in which case the Lease shall remain in full force and effect without regard to any of the provisions of this Amendment. Notwithstanding the foregoing, if at any time during the period of the construction of the Suite 900 Tenant Improvements, Landlord reasonably believes that the Commencement Date for Suite 900 will not occur on or before ninety (90) days following the Suite 3 900 Estimated Commencement Date, Landlord may notify Tenant in writing of such fact and of a new outside date on or before which the Commencement Date for Suite 900 will occur, and Tenant must elect within ten (10) days of receipt of such notice to either terminate this Amendment or waive its right to terminate this Amendment provided the Commencement Date for Suite 900 occurs on or prior to the new outside date established by Landlord in such notice to Tenant. Tenant's failure to elect to terminate this Amendment within such ten (10) day period shall be deemed Tenant's waiver of its right to terminate this Amendment as provided in this paragraph as to the previous outside date, but not as to the new outside date established by said notice. E. Right to Extend This Lease. (1) Provided that Tenant is not in default under any provision of this Lease at the time of exercise of the extension right granted herein, and provided further that Tenant is occupying the entire Premises and has not assigned or sublet any of its interest in this Lease (except in connection with an assignment of the Lease to a Tenant Affiliate as described in Section 9.1(e) of the Lease), Tenant may extend the Term of this Lease for one (1) period of sixty (60) months. If Tenant desires to exercise its right to extend the Term of this Lease, Tenant shall deliver to Landlord, no sooner than May 31, 2011, and no later than August 15, 2011, Tenant's written notice of its desire to exercise its right to extend (the "Exercise Notice"). Within fifteen (15) days following Landlord's receipt of the Exercise Notice, Landlord shall determine, and shall provide Tenant written notice (the "Rent Notice") of, the Basic Rent (including periodic adjustments) which Landlord determines to be the prevailing market rental rate (including periodic adjustments) for comparable and similarly improved space within the "Comparable Buildings" (as hereinafter defined) as of the commencement of the extension period, as determined by Landlord based on a reasonable extrapolation of then-current leasing rates (the "MARKET RENT"). In no event shall the monthly Basic Rent payable for the extension period be less than the monthly Basic Rent payable during the month immediately preceding the commencement of such extension period. For purposes of this Section III.E., "Comparable Buildings" shall mean the Project, Jamboree Center in Irvine, California, and Plaza Tower and Center Tower in Costa Mesa, California. (2) Within fifteen (15) days after Tenant's receipt of the Rent Notice, Tenant shall provide Landlord written notice (the "Response Notice") that: (a) Tenant desires to exercise its right to extend the Term of the Lease at the Basic Rent set forth in the Rent Notice, (b) that Tenant desires to exercise its right to extend the Term of the Lease, but disagrees with Landlord's determination of the Market Rent set forth in the Rent Notice, in which case the Response Notice shall state the amount which Tenant believes constitutes the Market Rent for the Premises, or (c) that Tenant does not desire to exercise its right to extend the Term of the Lease. In the event that the Response Notice states that Tenant desires to exercise its right to extend the Term of the Lease in accordance with clause (a) or (b) above, Tenant shall be deemed to have irrevocably committed to extend the Term of the Lease either for the Basic Rent (including periodic adjustments) set forth in the Rent Notice in the case of clause (a), or for the Market Rent to be determined in accordance with this Section III.E. in the case of clause (b). If the Response Notice states that Tenant desires to exercise its right to extend the Term of this Lease in accordance with clause (b), Landlord and Tenant shall attempt to reach agreement upon the Basic Rent (including periodic adjustments) for the extension term within fifteen (15) days following the date of the Response Notice (the "Negotiation Period"). In the event that the parties are not able to reach agreement in writing within the Negotiation Period, then within ten (10) days following the expiration of the Negotiation Period, each party shall designate an appraiser and the Market Rent shall be determined by appraisal in accordance with Section III.E.(3), below. Should either party fail to so designate an appraiser within that time, then the appraiser designated by the other party shall determine the Market Rent. Should each of the parties timely designate an appraiser, then the two appraisers so designated shall appoint a third appraiser who shall, acting alone, determine the Market Rent in accordance with Section III.E.(3), below. Any appraiser designated hereunder shall have an M.A.I. certification or equivalent with not less than five (5) years experience in the leasing of office space in commercial office buildings in Orange County, California. The appraiser responsible for determining the Market Rent pursuant to the foregoing shall be referred to herein as the "ACTING APPRAISER". (3) Within ten (10) days following the expiration of the Negotiation Period, Landlord and Tenant shall each submit to the other, in writing, its determination of the Market Rent (including periodic adjustments) for the extension period (respectively, the "LANDLORD'S DETERMINATION" and the "TENANT'S DETERMINATION"), which shall in no event be more favorable to the party submitting the same than the initial amount specified by each of Landlord and Tenant as their determination of the Basic Rent in the Rent Notice and the Response Notice, respectively. Should either party fail timely to submit its determination, then the determination of the other party shall be conclusive and binding on the parties. Copies of Landlord's Determination and Tenant's Determination shall be provided to the Acting Appraiser as soon as reasonably possible following the appointment of the Acting Appraiser. Within thirty (30) days following the selection of the Acting Appraiser and such appraiser's receipt of the Landlord's Determination and the Tenant's Determination, the Acting Appraiser shall determine whether the Basic Rent specified by Landlord or by Tenant more accurately reflects the Market Rent. Accordingly, either the Landlord's Determination or the Tenant's Determination shall be selected by the Acting Appraiser as the Market Rent for the Extension Period. In no event shall the Acting 4 Appraiser attribute factors for market tenant improvement allowances (other than renovation allowances then being provided to renewal tenants by landlords in the Comparable Buildings) or brokerage commissions to reduce Market Rent. At any time before the decision of the Acting Appraiser is rendered, either party may, by written notice to the other party, accept the rental terms submitted to the other party, in which event such terms shall be the Basic Rent for the extension term. The fees of the appraiser(s) shall be borne equally by the parties. (4) Should Tenant fail timely to deliver either the Exercise Notice or the Response Notice, or should the Response Notice state that Tenant does not desire to exercise its right to extend the Term of this Lease as stated in clause (c) of Section III.E.(2), above, then this extension right shall thereupon lapse and be of no further force or effect. Promptly following either receipt of the Response Notice stating that Tenant exercises its right to extend the Term of the Lease in accordance with clause (a) of Section III.E.(2), above, or the Acting Appraiser's determination of the Market Rent if Tenant exercises its right to extend the Term of the Lease in accordance with clause (b) of Section III.E.(2), above, Landlord shall prepare an amendment to the Lease memorializing the extension of the Term in accordance with the foregoing in form reasonably satisfactory to Tenant, and Tenant shall duly execute and return same to Landlord within fifteen (15) days. Should Tenant fail timely to execute and deliver the amendment, then Landlord may, following notice to Tenant of such failure and Tenant's failure to execute the amendment within ten (10) days following such notice, at Landlord's sole written election, either specifically enforce the Response Notice or extinguish Tenant's right to extend the Term. Should Landlord elect the latter, then this Lease shall terminate upon the scheduled date of expiration and Tenant's rights under this paragraph shall be of no further force or effect. (5) Any attempt to assign or transfer any right or interest created by this paragraph, other than to a Tenant Affiliate (as defined in Section 9.1(c) of the Lease) in connection with the assignment of the Lease to such Tenant Affiliate, shall be void from its inception. Tenant shall have no other right to extend the Term beyond the single sixty (60) month extension created by this paragraph. Unless agreed to in a writing signed by Landlord and Tenant, any extension of the Term, whether created by an amendment to this Lease or otherwise, shall be deemed a part of, and not in addition to, any duly exercised extension period permitted by this Section III.E. Time is specifically made of the essence of this paragraph. The provisions of this Section III.E. supersede the provisions of Section 3.1(b) of the Lease, which Section 3.1(b) is hereby deleted from the Lease in its entirety. F. Right of First Offer. Effective as of the Commencement Date for Suite 900, Section 2.1(b) of the Lease shall be deleted in its entirety and the following shall be substituted in lieu thereof: "(b) Provided Tenant is not then in default hereunder, Landlord hereby grants Tenant the continuing right ("FIRST RIGHT") to lease, during the period commencing April 1, 2005 through June 30, 2012, any space which may become available for lease on the ninth (9th) floor of the Building ("FIRST RIGHT SPACE") in accordance with and subject to the provisions of this Section. It is understood, however, that Tenant's First Right is expressly conditioned upon the prior delivery by Tenant of written notice to Landlord in good faith of Tenant's need for additional space (the "SPACE REQUIREMENT NOTICE"). If, at any time after April 1, 2005 and following delivery of a Space Requirement Notice and while this First Right is in effect, Landlord desires to lease the First Right Space, or any portion thereof, to any third party, Landlord shall give Tenant written notice of the basic economic terms including but not limited to the Basic Rent, term, operating expense base, security deposit, and tenant improvement allowance (collectively, the "ECONOMIC TERMS"), upon which Landlord is willing to lease such particular First Right Space to Tenant or to a third party; provided that the Economic Terms shall exclude brokerage commissions and other Landlord payments that do not directly inure to the tenant's benefit. It is understood that should Landlord intend to lease other space in addition to the First Right Space as part of a single transaction, then Landlord's notice shall so provide and all such space shall collectively be subject to the following provisions. Within five (5) business days after receipt of Landlord's notice, Tenant must give Landlord written notice pursuant to which Tenant shall elect to (i) lease all, but not less than all, of the space specified in Landlord's notice (the "Designated Space") upon such Economic Terms and the same non-Economic Terms as set forth in this Lease; (ii) refuse to lease the Designated Space, specifying that such refusal is not based upon the Economic Terms, but upon Tenant's lack of need for the Designated Space, in which event Landlord may lease the Designated Space upon any terms it deems appropriate; or (iii) refuse to lease the Designated Space, specifying that such refusal is based upon said Economic Terms, in which event Tenant shall also specify revised Economic Terms upon which Tenant shall be willing to lease the Designated Space. In the event that Tenant does not so respond in writing to Landlord's notice within said period, Tenant shall be deemed to 5 have elected clause (ii) above. In the event Tenant gives Landlord notice pursuant to clause (iii) above, Landlord may elect to either (x) lease the Designated Space to Tenant upon such revised Economic Terms and the same other non-Economic Terms as set forth in the Lease, or (y) lease the Designated Space to any third party upon Economic Terms which are not materially more favorable to such party than those Economic Terms proposed by Tenant. Should Landlord so elect to lease the Designated Space to Tenant, then Landlord shall promptly prepare and deliver to Tenant an amendment to this Lease consistent with the foregoing in form reasonably satisfactory to Tenant, and Tenant shall execute and return same to Landlord within fifteen (15) days. Should Tenant fail to timely execute and return the amendment, then Landlord may, following notice to Tenant and Tenant's failure to execute the Amendment within ten (10) days following such notice, at Landlord's sole election, specifically enforce Tenant's commitment to lease the Designated Space, lease such space to a third party, and/or pursue any other available legal remedy. In the event that Landlord leases the First Right Space, or any portion thereof, to a third party in accordance with the provisions of this Section, and during the effective period of this First Right the First Right Space, or any portion thereof, shall again become available for releasing, then prior to Landlord entering into any new lease with a third party for the First Right Space, Landlord shall repeat the procedures specified above in this Section. Notwithstanding the foregoing, it is understood that Tenant's First Right shall be subject to any extension rights which may hereafter be granted by Landlord to any third party tenant now or hereafter occupying the First Right Space or any portion thereof, and in no event shall any such First Right Space be deemed available for leasing unless the then-existing tenant thereof shall vacate that First Right Space. Tenant's rights under this Section shall be personal to the original Tenant named in this Lease and may not be assigned or transferred other than to a Tenant Affiliate in connection with the assignment of the Lease to such Tenant Affiliate. Any other attempted assignment or transfer shall be void and of no force or effect." G. Letter of Credit. Tenant shall deliver to Landlord, concurrently with Tenant's execution and delivery of this Amendment, a letter of credit in the amount of Sixty Four Thousand Three Hundred Sixty Nine Dollars ($64,369.00) which letter of credit shall be in form and with the substance of Exhibit G attached hereto. The letter of credit shall be issued by a financial institution acceptable to Landlord with a branch in Orange County, California, at which draws on the letter of credit will be accepted. The letter of credit shall provide for automatic yearly renewals until August 31, 2007. In the event the letter of credit is not continuously renewed through the period set forth above, or upon any default under the Lease by Tenant, including specifically Tenant's failure to pay rent or to abide by its obligations under Sections 7.1 and 15.3 of the Lease, Landlord shall be entitled to draw upon said letter of credit by the issuance of Landlord's sole written demand to the issuing financial institution. Any such draw shall be without waiver of any rights Landlord may have under the Lease or at law or in equity as a result of any default hereunder by Tenant. So long as Tenant is not in default under this Lease, Landlord shall cooperate with Tenant to exonerate the letter of credit effective as soon as reasonably possible following July 1, 2007, provided Landlord shall have received payment from Tenant of the rent payable for the month of July, 2007, or, if such payment is made by Tenant's check, such check has cleared Landlord's bank following the deposit of the same. H. Floor Plan of Premises. Effective as of the date of this Amendment, Exhibit A-1 attached to this Amendment shall be added to Exhibit A of the Lease. I. Parking. Notwithstanding any contrary provision in Exhibit C to the Lease, effective as of the Commencement Date for Suite 900 through June 30, 2012, Landlord shall make available to Tenant, and Tenant may lease from Landlord, up to thirty-seven (37) unreserved parking spaces in connection with its leasing of Suite 900 (as reflected in the revised parking allotment set forth in Section III.A.7(a) of this Amendment)(the "Suite 900 Allotted Stalls"). Tenant acknowledges that any of the Suite 900 Allotted Stalls that Tenant fails to lease continuously from and after the date which is one year following the Commencement Date for Suite 900, shall thereafter be at Landlord's scheduled parking rates from time to time. Subject to the foregoing and effective as of the Commencement Date for Suite 900, the stall charge for the Suite 900 Allotted Stalls shall be Fifty Dollars ($50.00) per unreserved stall per month through June 30, 2012 only. Commencing July 1, 2007, Landlord shall make available to Tenant, and Tenant may lease from Landlord for the remaining Term of the Lease, up to ten (10) reserved and fifty-eight (58) unreserved vehicle parking spaces in connection with its leasing of Suite 800 (as reflected in the revised parking allotment set forth in Section III.A.7(b) of this Amendment)(the "Suite 800 Allotted Stalls"). Tenant acknowledges that any of the Suite 800 Allotted Stalls that Tenant fails to lease continuously from and after July 1, 2008, shall thereafter be at Landlord's scheduled parking rates from time to time. Subject to the foregoing and effective as of July 1, 2007, the stall charges for the Suite 800 Allotted Stalls shall be One Hundred Twenty Dollars ($120.00) per reserved stall per month and Fifty Dollars ($50.00) per unreserved stall per month 6 through June 30, 2012. Notwithstanding the foregoing, during the period prior to June 30, 2012, Tenant shall not be charged more than the following monthly stall charges for any of the Suite 800 and Suite 900 Allotted Stalls as to which Tenant may be charged Landlord's scheduled parking rates from time to time: (a) a monthly stall charge increased by not more than five per cent (5%) per year on a cumulative and annually compounded basis from a base price as of July 1, 2004 of Seventy-Two Dollars ($72.00) per unreserved stall per month, and (b) a monthly stall charge in excess of One Hundred Fifty Dollars ($150.00) per reserved stall per month. From and after July 1, 2012, the stall charges for all of the foregoing parking shall be at Landlord's scheduled parking rates from time to time. K. Tenant Improvements. Landlord hereby agrees to complete the Tenant Improvements for Suite 900 in accordance with the provisions of Exhibit X, Work Letter, attached hereto and for Suite 800 in accordance with the provisions of Exhibit X-1, Work Letter, attached hereto. L. Assignment and Subletting. Effective as of the Commencement Date for Suite 900, Section 9.1 of the Lease is hereby amended as follows: (1) Clause (4) of Section 9.1(c) of the Lease is hereby deleted in its entirety; and (2) Clause (5) of Section 9.1(c) is hereby modified to read in its entirety as follows: "(5) Any proposed assignee or subtenant is neither an existing tenant of the Building or Project, nor a prospective tenant from whom Landlord has then received, or to whom Landlord has then provided, a written proposal to lease space within the Project, provided, however, that Landlord shall not unreasonably withhold its consent to a transfer to an existing tenant of the Building or Project, or a prospective tenant from whom Landlord has then received a proposal to lease space within the Project, if Landlord is unable to provide to such tenant the square footage of contiguous space within the Project required by such tenant or prospective tenant; and" M. Signage. Effective as of the Commencement Date for Suite 900, the fifth sentence of Section 5.2(b) of the Lease is hereby modified to read in its entirety as follows: "Tenant's signage rights shall belong solely to SM&A, a California corporation, and shall not be transferred or assigned by it except in connection with an assignment of this Lease to a Tenant Affiliate as described in Section 9.1(e), without Landlord's prior written consent, which may be withheld by Landlord in Landlord's sole discretion, provided, however, that if such assignment is to a corporation or other business entity which succeeds to the assets or business of Tenant or Tenant's parent as a result of merger or consolidation, or acquires all or substantially all of Tenant's assets or capital stock, such assignment of the signage rights shall continue to be subject to Landlord's prior written consent, which may be withheld by Landlord in Landlord's sole discretion, based upon Landlord's determination of whether the identification of such assignee would adversely affect the Project or its reputation, or would conflict with the rights or preferences of another tenant of the Project, or a prospective tenant of the Project with which Landlord is then actively negotiating." IV. GENERAL. A. Effect of Amendments. The Lease shall remain in full force and effect except to the extent that it is modified by this Amendment. B. Entire Agreement. This Amendment embodies the entire understanding between Landlord and Tenant with respect to the modifications set forth in "III. MODIFICATIONS" above and can be changed only by a writing signed by Landlord and Tenant. C. Counterparts. If this Amendment is executed in counterparts, each is hereby declared to be an original; all, however, shall constitute but one and the same amendment. In any action or proceeding, any photographic, photostatic, or other copy of this Amendment may be introduced into evidence without foundation. D. Defined Terms. All words commencing with initial capital letters in this Amendment and defined in the Lease shall have the same meaning in this Amendment as in the Lease, unless they are otherwise defined in this Amendment. E. Authority. If Tenant is a corporation, limited liability company or partnership, or is comprised of any of them, each individual executing this Amendment for the corporation, limited liability company or partnership represents that he or she is duly authorized to execute and deliver this Amendment on behalf of such entity and that this Amendment is binding upon such entity in accordance with its terms. 7 F. Attorneys' Fees. The provisions of the Lease respecting payment of attorneys' fees shall also apply to this Amendment. V. EXECUTION. Landlord and Tenant executed this Amendment on the date as set forth in "I. PARTIES AND DATE." above. LANDLORD: TENANT: THE IRVINE COMPANY SM&A By /s/ William Halford By /s/ Steven S. Myers William R. Halford Steve S. Myers President, Office Properties Chairman & Chief Executive Officer By /s/ Michael Bennett By /s/ Steve Handy Michael T. Bennett Steve Handy Office Properties Vice President Corporate Controller 8 IRREVOCABLE STANDBY LETTER OF CREDIT Number: _____________________________ Date: _____________________________ Amount: _____________________________ Expiration: _____________________________ BENEFICIARY ACCOUNT PARTY The Irvine Company _________________________ 550 Newport Center Drive _________________________ Newport Beach, CA 92660 _________________________ Attn: Vice President, Operations, Office Properties We hereby issue our Irrevocable Letter of Credit No.___________ in favor of The Irvine Company ("Beneficiary"), its successors and assigns, for the account of ______________ . We undertake to honor your sight draft, upon presentation at our office in ______________ , California, for any sum or sums not to exceed a total of _______________ ($___________) in favor of Beneficiary when accompanied by the original of this Letter of Credit. Partial and multiple drawings are permitted under this Letter of Credit. In the event of a partial draw, the amount of the draft shall be endorsed on the reverse side hereof by the negotiating bank. This Letter of Credit is transferable in its entire undrawn balance to a successor beneficiary upon presentation by Beneficiary of the original of this Letter of Credit, together with a written request for transfer executed by Beneficiary. It is a condition of this Letter of Credit that it shall remain enforceable against us for a period of from this date and further, that it shall be deemed automatically extended for successive one-year periods without amendment thereafter unless thirty (30) days prior to the expiration date set forth above, or within thirty (30) days prior to the end of any yearly Anniversary Date thereafter, you shall receive our notice in writing by certified mail, return receipt requested, that we elect not to renew this Letter of Credit for any subsequent year. The draft must be marked "Drawn under __________________ Letter of Credit No. ________________dated ______________." There are no other conditions of this letter of credit. Except so far as otherwise stated, this credit is subject to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590, and is otherwise governed by the law of the State of California. ________________________ ________________________ By:_____________________ By:_____________________ EXHIBIT G EXHIBIT X WORK LETTER (SUITE 900) DOLLAR ALLOWANCE SECOND GENERATION SPACE The Tenant Improvement work (herein "Tenant Improvements") shall consist of any work required to complete Suite 900 pursuant to plans and specifications approved by both Landlord and Tenant. All of the Tenant Improvement work shall be performed in accordance with the procedures and requirements set forth below by a contractor engaged by Landlord and selected on the basis of a competitive bidding process involving at least one (1) general contractor designated by Landlord and two (2) other general contractors approved by the parties. If the general contractor designated by Landlord submits the lowest qualified bid, such contractor shall be utilized to perform the work. I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES A. Tenant has approved, or shall approve within the time period set forth below, a detailed space plan for Suite 900, prepared by the architect engaged by Landlord for the work described herein ("Landlord's Architect"), which includes interior partitions, ceilings, interior finishes, interior office doors, suite entrance, floor coverings, window coverings, lighting, electrical and telephone outlets, plumbing connections, heavy floor loads and other special requirements ("Preliminary Plan"). Tenant shall approve or disapprove the Preliminary Plan by signing and delivering same to Landlord within five (5) business days of its receipt by Tenant. If Tenant disapproves any matter, Tenant shall specify in detail the reasons for disapproval and Landlord shall attempt to modify the Preliminary Plan to incorporate Tenant's suggested revisions in a mutually satisfactory manner. Notwithstanding the foregoing, however, Tenant shall approve in all respects a Preliminary Plan not later than August 18, 2004 ("Plan Approval Date"). B. On or before the Plan Approval Date, Tenant shall provide in writing to Landlord or Landlord's Architect all specifications and information requested by Landlord for the preparation of final construction documents and costing, including without limitation Tenant's final selection of wall and floor finishes, complete specifications and locations (including load and HVAC requirements) of Tenant's equipment, and details of all "Non-Standard Improvements" (as defined below) to be installed in Suite 900 (collectively, "Programming Information"). Tenant understands that final construction documents for the Tenant Improvements shall be predicated on the Programming Information, and accordingly that such information must be accurate and complete. C. Upon Tenant's approval of the Preliminary Plan and delivery of the complete Programming Information, Landlord's Architect and engineers shall prepare and deliver to the parties working drawings and specifications for the Tenant Improvements consistent with the Preliminary Plans ("Working Drawings and Specifications"). Tenant shall have five (5) business days from the receipt thereof to approve or disapprove the Working Drawings and Specifications and any disapproval or requested modification shall be limited to items not contained in or not consistent with the approved Preliminary Plan. Should Tenant disapprove the Working Drawings and Specifications, such disapproval shall be accompanied by a detailed list of revisions. Any revision requested by Tenant and accepted by Landlord shall be incorporated by Landlord's Architect into a revised set of Working Drawings and Specifications, and Tenant shall approve same in writing within five (5) business days of receipt without further revision. D. In the event that Tenant requests in writing a revision in the Working Drawings and Specifications following the date of approval of the Preliminary Plans ("Change"), then provided such Change is reasonably acceptable to Landlord, Landlord shall advise Tenant by written change order as soon as is practical of any increase, if any, in the Completion Cost such Change would cause. Tenant shall approve or disapprove such change order in writing within three (3) business days following its receipt of the same from Landlord. Tenant's approval of a Change shall be accompanied by Tenant's payment of any resulting increase in the Completion Cost. It is understood that Landlord shall have no obligation to interrupt or modify the Tenant Improvement work pending Tenant's approval of a change order, but that Landlord shall use its reasonable efforts not to further complete work which would be materially altered by a Change for five (5) days following Tenant's request for a Change. E. It is understood that the Preliminary Plan and the Working Drawings and Specifications, together with any Changes thereto, shall be subject to the prior approval of Landlord, which approval shall not be unreasonably withheld. Landlord shall identify any disapproved items within five (5) business days (or three (3) business days in the case of Changes) after receipt of the applicable document. In 1 lieu of disapproving an item, Landlord may approve same on the condition that Tenant pay to Landlord, prior to the start of construction and in addition to all sums otherwise due hereunder, an amount equal to the cost, as reasonably estimated by Landlord, of removing and replacing the item upon the expiration or termination of the Lease. Should Landlord approve work that would necessitate any ancillary Building modification or other expenditure by Landlord, then except to the extent of any remaining balance of the "Landlord's Contribution" as described below, Tenant shall, in addition to its other obligations herein, promptly fund the cost thereof to Landlord. F. Upon approval of the Working Drawings and Specifications, Landlord shall submit them to competitive bid as provided above. Each bidding contractor shall use the electrical, mechanical, plumbing and fire/life safety engineers and subcontractors designated by Landlord. All other subcontractors shall be subject to Landlord's reasonable approval, and Landlord may require that one or more designated subtrades be union contractors. The lowest responsible bidder shall be selected as Landlord's general contractor and the bid amount shall be deemed the "Final Cost Estimate" for purposes hereof. G. Landlord shall permit Tenant and its agents to enter Suite 900 at least five (5) days prior to the Commencement Date for Suite 900 in order that Tenant may perform any work to be performed by Tenant hereunder through its own contractors, subject to Landlord's prior written approval, and in a manner and upon terms and conditions and at times satisfactory to Landlord's representative. The foregoing license to enter Suite 900 prior to the Commencement Date for Suite 900 is, however, conditioned upon Tenant's contractors and their subcontractors and employees working in harmony and not interfering with the work being performed by Landlord. If at any time that entry shall cause disharmony or interfere with the work being performed by Landlord, this license may be withdrawn by Landlord upon twenty-four (24) hours written notice to Tenant. That license is further conditioned upon the compliance by Tenant's contractors with all requirements imposed by Landlord on third party contractors and subcontractors, including without limitation the maintenance by Tenant and its contractors and subcontractors of workers' compensation and public liability and property damage insurance in amounts and with companies and on forms satisfactory to Landlord, with certificates of such insurance being furnished to Landlord prior to proceeding with any such entry. The entry shall be deemed to be under all of the provisions of the Lease except as to the covenants to pay rent with respect to Suite 900. Landlord shall not be liable in any way for any injury, loss or damage which may occur to any such work being performed by Tenant, the same being solely at Tenant's risk. In no event shall the failure of Tenant's contractors to complete any work in Suite 900 extend the Commencement Date for Suite 900. H. Tenant hereby designates Steve Handy, Telephone No. (949) 975-1550, as its representative, agent and attorney-in-fact for the purpose of receiving notices, approving submittals and issuing requests for Changes, and Landlord shall be entitled to rely upon authorizations and directives of such person(s) as it given directly by Tenant. Tenant may amend the designation of its construction representative(s) at any time upon delivery of written notice to Landlord. I. Notwithstanding any provision in the Amendment, and not by way of limitation of any other rights or remedies of Landlord, if Tenant fails to approve the Preliminary Plan by the Plan Approval Date, fails to comply with any of the time periods specified in this Work Letter, fails otherwise to approve or reasonably disapprove any submittal within the time period specified herein for such response (or if no time period is so specified, within five (5) days following Tenant's receipt thereof), requests any Changes, furnishes inaccurate or erroneous specifications or other information, or otherwise delays in any manner the completion of the Tenant Improvements (including without limitation by specifying materials that are not readily available) or the issuance of an occupancy certificate (any of the foregoing being referred to in this Lease as a "TENANT DELAY"), then Tenant shall bear any resulting additional construction cost or other expenses, and the Commencement Date for Suite 900 shall be deemed to have occurred for all purposes, including without limitation Tenant's obligation to pay rent, as of the date Landlord reasonably determines that it would have been able to deliver Suite 900 to Tenant but for the collective Tenant Delays. Should Landlord determine that the Commencement Date should be advanced in accordance with the foregoing, it shall so notify Tenant in writing. II. COST OF TENANT IMPROVEMENTS A. Landlord shall complete, or cause to be completed, the Tenant Improvements, at the construction cost shown in the approved Final Cost Estimate (subject to the provisions of this Work Letter), in accordance with final Working Drawings and Specifications approved by both Landlord and Tenant. Landlord shall pay towards the final construction costs ("Completion Cost") as incurred a maximum of Two Hundred Fifty-Five Thousand Seven Dollars ($255,007.00) ("Landlord Contribution"), based on $28.46 per usable square foot of the portion of Suite 900 not within the Vacant Areas, plus $26.58 per usable square foot of the Vacant Areas, and Tenant shall be fully responsible for the remainder ("Tenant's Contribution"). If the actual 2 cost of completion of the Tenant Improvements is less than the maximum amount provided for the Landlord's Contribution, such savings shall inure to the benefit of Landlord and Tenant shall not be entitled to any credit or payment. The foregoing Landlord Contribution is based upon Landlord's ability to amortize the Landlord Contribution over a term of ninety-one (91) months and eighty-five (85) months (as to the Vacant Areas), respectively. In the event that the Preliminary Plans are not approved by Tenant on or before August 18, 2004, Landlord's Contribution per usable square foot shall be reduced proportionately based on the number of additional months (including a portion of a month) of delay in Tenant's approval of the Preliminary Plans. B. The Completion Cost shall include all direct costs of Landlord in completing the Tenant Improvements, including but not limited to the following: (i) payments made to architects, engineers, contractors, subcontractors and other third party consultants in the performance of the work, (ii) permit fees and other sums paid to governmental agencies, (iii) costs of all materials incorporated into the work or used in connection with the work, and (iv) keying and signage costs. The Completion Cost shall also include an administrative/supervision fee to be paid to Landlord in the amount of five percent (5%) of all such direct costs. C. Prior to start of construction of the Tenant Improvements, Tenant shall pay to Landlord the amount of the Tenant's Contribution set forth in the approved Final Cost Estimate. In addition, if the actual Completion Cost of the Tenant Improvements is greater than the Final Cost Estimate because of modifications or extras not reflected on the approved working drawings, or because of delays, then Tenant shall pay to Landlord, within ten (10) days following submission of an invoice therefor, all such additional costs, including any additional architectural fee. If Tenant defaults in the payment of any sums due under this Work Letter, Landlord shall (in addition to all other remedies) have the same rights as in the case of Tenant's failure to pay rent under the Lease. 3 EXHIBIT X-1 WORK LETTER (SUITE 800) DOLLAR ALLOWANCE SECOND GENERATION SPACE The Tenant Improvement work (herein "Tenant Improvements") shall consist of any work required to complete Suite 800 pursuant to plans and specifications approved by both Landlord and Tenant. All of the Tenant Improvement work shall be performed in accordance with the procedures and requirements set forth below by a contractor engaged by Landlord and selected on the basis of a competitive bidding process involving at least one (1) general contractor designated by Landlord and two (2) other general contractors approved by the parties. If the general contractor designated by Landlord submits the lowest qualified bid, such contractor shall be utilized to perform the work. I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES A. Tenant has approved, or shall approve within the time period set forth below, a detailed space plan for Suite 800, prepared by the architect engaged by Landlord for the work described herein ("Landlord's Architect"), which includes interior partitions, ceilings, interior finishes, interior office doors, suite entrance, floor coverings, window coverings, lighting, electrical and telephone outlets, plumbing connections, heavy floor loads and other special requirements ("Preliminary Plan"). Tenant shall approve or disapprove the Preliminary Plan by signing and delivering same to Landlord within five (5) business days of its receipt by Tenant. If Tenant disapproves any matter, Tenant shall specify in detail the reasons for disapproval and Landlord shall attempt to modify the Preliminary Plan to incorporate Tenant's suggested revisions in a mutually satisfactory manner. Notwithstanding the foregoing, however, Tenant shall approve in all respects a Preliminary Plan not later than March 1, 2005 ("Plan Approval Date"). B. On or before the Plan Approval Date, Tenant shall provide in writing to Landlord or Landlord's Architect all specifications and information requested by Landlord for the preparation of final construction documents and costing, including without limitation Tenant's final selection of wall and floor finishes, complete specifications and locations (including load and HVAC requirements) of Tenant's equipment, and details of all "Non-Standard Improvements" (as defined below) to be installed in Suite 800 (collectively, "Programming Information"). Tenant understands that final construction documents for the Tenant Improvements shall be predicated on the Programming Information, and accordingly that such information must be accurate and complete. C. Upon Tenant's approval of the Preliminary Plan and delivery of the complete Programming Information, Landlord's Architect and engineers shall prepare and deliver to the parties working drawings and specifications for the Tenant Improvements consistent with the Preliminary Plans ("Working Drawings and Specifications"). Tenant shall have five (5) business days from the receipt thereof to approve or disapprove the Working Drawings and Specifications and any disapproval or requested modification shall be limited to items not contained in or not consistent with the approved Preliminary Plan. Should Tenant disapprove the Working Drawings and Specifications, such disapproval shall be accompanied by a detailed list of revisions. Any revision requested by Tenant and accepted by Landlord shall be incorporated by Landlord's Architect into a revised set of Working Drawings and Specifications, and Tenant shall approve same in writing within five (5) business days of receipt without further revision. D. In the event that Tenant requests in writing a revision in the approved Working Drawings and Specifications following the date of the Preliminary Plans ("Change"), then provided such Change is reasonably acceptable to Landlord, Landlord shall advise Tenant by written change order as soon as is practical of any increase, if any, in the Completion Cost such Change would cause. Tenant shall approve or disapprove such change order in writing within three (3) business days following its receipt of the same from Landlord. Tenant's approval of a Change shall be accompanied by Tenant's payment of any resulting increase in the Completion Cost. It is understood that Landlord shall have no obligation to interrupt or modify the Tenant Improvement work pending Tenant's approval of a change order, but that Landlord shall use its reasonable efforts to not further complete work which would be materially altered by a Change for five (5) days following Tenant's request for a Change. E. It is understood that the Preliminary Plan and the Working Drawings and Specifications, together with any Changes thereto, shall be subject to the prior approval of Landlord which approval shall not be unreasonably withheld. Landlord shall identify any disapproved items within five (5) business days (or three (3) 1 business days in the case of Changes) after receipt of the applicable document. In lieu of disapproving an item, Landlord may approve same on the condition that Tenant pay to Landlord, prior to the start of construction and in addition to all sums otherwise due hereunder, an amount equal to the cost, as reasonably estimated by Landlord, of removing and replacing the item upon the expiration or termination of the Lease. Should Landlord approve work that would necessitate any ancillary Building modification or other expenditure by Landlord, then except to the extent of any remaining balance of the "Landlord's Contribution" as described below, Tenant shall, in addition to its other obligations herein, promptly fund the cost thereof to Landlord. F. Upon approval of the Working Drawings and Specifications, Landlord shall submit them to competitive bid as provided above. Each bidding contractor shall use the electrical, mechanical, plumbing and fire/life safety engineers and subcontractors designated by Landlord. All other subcontractors shall be subject to Landlord's reasonable approval, and Landlord may require that one or more designated subtrades be union contractors. The lowest responsible bidder shall be selected as Landlord's general contractor and the bid amount shall be deemed the "Final Cost Estimate" for purposes hereof. G. Tenant hereby designates Steve Handy, Telephone No. (949) 975-1550, as its representative, agent and attorney-in-fact for the purpose of receiving notices, approving submittals and issuing requests for Changes, and Landlord shall be entitled to rely upon authorizations and directives of such person(s) as it given directly by Tenant. Tenant may amend the designation of its construction representative(s) at any time upon delivery of written notice to Landlord. H. It is understood that all of the Tenant Improvements shall be done during Tenant's occupancy of Suite 800. In this regard, Tenant agrees to assume any risk of injury, loss or damage which may result. Tenant further agrees that no rental abatement for Suite 800 shall result while the Tenant Improvements are completed in Suite 800. Landlord shall use commercially reasonable efforts to minimize the disruption caused to Tenant's business operations within the Premises on account of the completion of the Tenant Improvements within Suite 800. II. COST OF TENANT IMPROVEMENTS A. Landlord shall complete, or cause to be completed, the Tenant Improvements, at the construction cost shown in the approved Final Cost Estimate (subject to the provisions of this Work Letter), in accordance with final Working Drawings and Specifications approved by both Landlord and Tenant. Landlord shall pay towards the final construction costs ("Completion Cost") as incurred a maximum of One Hundred Ninety Thousand Eight Hundred Forty-Two Dollars ($190,842.00) ("Landlord Contribution"), based on $10.46 per usable square foot of Suite 800, and Tenant shall be fully responsible for the remainder ("Tenant's Contribution"), provided, however, that Tenant may elect, by written notice to Landlord, to apply not more than Forty Thousand Dollars ($40,000.00) of the Landlord's Contribution to the cost of the Tenant Improvement Work to be performed in Suite 900 pursuant to the foregoing Exhibit X. If the actual cost of completion of the Tenant Improvements is less than the maximum amount provided for the Landlord's Contribution, such savings shall inure to the benefit of Landlord and Tenant shall not be entitled to any credit or payment. Tenant shall notify Landlord in when it desires to have Landlord perform the foregoing work and shall allow Landlord sufficient access to Suite 800 therefor; provided, however, that if the Tenant Improvements are not completed by June 30, 2006, for any reason other than a delay caused by Landlord, then Landlord shall have no further responsibility to perform any such work. B. The Completion Cost shall include all direct costs of Landlord in completing the Tenant Improvements, including but not limited to the following: (i) payments made to architects, engineers, contractors, subcontractors and other third party consultants in the performance of the work, (ii) permit fees and other sums paid to governmental agencies, (iii) costs of all materials incorporated into the work or used in connection with the work, and (iv) keying and signage costs. The Completion Cost shall also include an administrative/supervision fee to be paid to Landlord in the amount of five percent (5%) of all such direct costs. C. Prior to start of construction of the Tenant Improvements, Tenant shall pay to Landlord the amount of the Tenant's Contribution set forth in the approved Final Cost Estimate. In addition, if the actual Completion Cost of the Tenant Improvements is greater than the Final Cost Estimate because of modifications or extras not reflected on the approved working drawings, or because of delays, then Tenant shall pay to Landlord, within ten (10) days following submission of an invoice therefor, all such additional costs, including any additional architectural fee. If Tenant defaults in the payment of any sums due under this Work Letter, Landlord shall (in addition to all other remedies) have the same rights as in the case of Tenant's failure to pay rent under the Lease. 2 EX-31.1 7 a02447exv31w1.htm EXHIBIT 31.1 Exhibit 31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven S. Myers, certify that:

1. I have reviewed this quarterly report on Form 10-Q of SM&A;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Intentionally omitted.]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


Dated: October 22, 2004		/s/ STEVEN S. MYERS
		Steven S. Myers
		Chairman and Chief Executive Officer

EX-31.2 8 a02447exv31w2.htm EXHIBIT 31.2 Exhibit 31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Cathy L. Wood, certify that:


Dated: October 22, 2004		/s/ CATHY L. WOOD
		Cathy L. Wood
		Executive Vice President,
		Chief Financial Officer and Secretary

EX-32.1 9 a02447exv32w1.htm EXHIBIT 32.1 Exhibit 32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbarnes-Oxley Act of 2002, I, Steven S. Myers, as Chief Executive Officer of SM&A (the “Company”) hereby certify that, based on my knowledge:

1) the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2004 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 22, 2004		/s/ STEVEN S. MYERS

		Steven S. Myers
		Chairman and Chief Executive Officer

EX-32.2 10 a02447exv32w2.htm EXHIBIT 32.2 Exhibit 32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbarnes-Oxley Act of 2002, I, Cathy L. Wood, as Chief Financial Officer of SM&A (the “Company”) hereby certify that, based on my knowledge:

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Dated: October 22, 2004		/s/ CATHY L. WOOD
		Cathy L. Wood
		Executive Vice President,
		Chief Financial Officer and Secretary

GRAPHIC 11 a02447a0244700.gif GRAPHIC begin 644 a02447a0244700.gif M1TE&.#EA_`!A`/<```````@("!`0$!@8&"$A(2DI*3$Q,3DY.4)"0DI*2E)2 M4EI:6F-C8VMK:W-SX2$A(R,C)24E)RWN?GY^_O[_?W]_______________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M____________________________________________________________ M_____________________RP`````_`!A```(_@`_"!Q(L*#!@P@3*ES(L*'# MAQ`C2IQ(L:+%BQ@S:MS(L:/'CR!#1NS`H>0&DAPT;-B@H22'#"U)9MC``,)"`0:3GB1P<,&``X8$#TZ(70&C`^@%K M")=%:V[PX$&"!0H<-%"P8#0#V@P6-+C,P(%H!0QJ]SZ=`/D#YP]PCU:@H($# MWL61_T:`O`$#ZKAS_B]HOAO!@08+S+,>SUI!@N`*"*#WO6!!`=$)$.AVWYS! M@>`+$)#<`O\A8&!Q^<'W7GT'*%!``I]%"-$&N=U&&6^G+:#;;K5!\)L#$>!V MFG?#46=:>@Y`D$`"I2F`0&WO.2#!=\9%5]QTE.&F&'6K_598:!?C\,QD,!PWIV&IFO%F?9;:<+!>5EKNCVP&G*Z!;=AG]:11EMM>_:H M0&FBK4:;:->Y9F>@QNE&'`2]C<9IDIVB-U]NU;V7'`*+SED<`D_.&5UW_N3I MIJ%F",SIWF@'%,`!F[PBU(%WJ`V'Y:.C&2>G:O7%N4!A'$J9XF\/A%CD:''F MZ0!W@O8'08."!J><:IH=8..2#C17WXK=Y@:EAN/E]IT"IKGG'75S)G"`::#?*J1FBSH6G@`2]-ES0!K_UZ>8<*?E!@%E!BL@+I[%-<"J8.Y1MF0$WR5GZ*=TYA:OSBJ[ M1^Q[_K(&97$$:YASC-59QV@#E%%Z`+G41G";:?J16MP"!BC@@4<>=*!73[LZ MC-`&+!KGM'62EFJ=4S4I):1UF%JC_.FX76!SFEDSX]2.J+*4(HFI*5+NN:J;:Y15VAUPA7@,@0< MI?1NO?DU8$'9'U30P4`=9"#!!$-%P#L&$DC@5$011"5!\1=,$`%CG`IG'8F6 M;]O`!`EML"%R/18))9S,ZD:FY!8(9,'1Z M)B`Z5!Q(?0>&_A^@@)S6YZT9*DIDD_,0:;!4&J.1*4_0,HT4A40P>'%* M73XS$JK0D[G=-#$!+`,CP2[S+^%4IT=2NI)_.)@1#+AG`U\["';0`P&&==`# M)>G`!%1#(BE"9$9&>M0##A#'#VB`-+A9F7?P.O[ M%&RDHT3!O*9'Q!G.GW:Y&:/1B31'"])UKLBJ0EYD`P:J84(\8!O_(*`"",&` M`3K@OIM!1`$1D$!U'N6U@7#@`#7RHK<4D(&!#'`X^5%E)3G7J"099W*T_G&, MBAJ`S8$\QSADW)0485.;NZU-<)H"*..*E,_8I,A[J[&3M83CF#IYJ#:4BP[; M%C(>!"9G`BT:(D`HLH`/,ZA00&6*]J,`+6H_\0`>6 M!*D4">X!YL2-::XX'(*\\SGJ4N%L5H:WTA!``0SD@($JQB(FE@DV'YH/,8VX MT*VB":LD0@]2>^@I.!D+H_"Z9_F0Z2V",2JMWRG?>Q(PTX20A"$72(`T&U*G M!B!D`@K0@`=R,\`#Y'0A%&B`3AHDF@(09`,:$A<%1F:=")@S1N\93H-RBH'K M+"R0NUQ8IE;6G-D4!`,YDZB@(LJG%%FUK8^+_NAP>C.I4)(H1+WIGXFX`S6Z M'>MGY'Q>$I%VL)3M*3B<*I@!$D#"A4#@L`?Q(%0?VC1[25J MK',KUS`Z7G!^LID$$R8!%GZ.WXU;'<=5Q`'0AN;I"^>])2EW. MT2"'-*2=]:HT^M,"5@DM*U+I-]#IC:`^6A^;3N'[B`6A-0R$,JBJ":D:I*Q?U16'P4;QSV,>Q1N&*N9=T^NB-29U)6TA+0?0XDVM/4-:8H< ML>O%R6?-0NYS!L8U!!SY()!%0)P-8B3O0H2""+&``;[VJ^K8!D+.M6P0_I_S M(1FCBHR;V6==W:3H=\&+(/6YC,=E#K.*R@^;$4"ID0R5J!H59Y,!;HVAU&9; M:'G.0V+M6T15N"C:SK"V@D(9_!"HT0S)>D\"]@^=%^(>`TS\L0ARYD7$6;;4 MY/;A`W%@/V68*`84TGIE7:2'BAWH!*%'X@,9GVO*W4/M5+-OA?H`Q$`<1"R? MT44;9BJYHB,CD,9(-!2S38!]=JTT*HIH#$!5B(B&>-'H)UQ02T\#9H1!7/6/ M:_\FP'O:R1"<(2#8"NF`OS="@>DB66"[83U"$ELV#>BOPP/)0(I4B3.HB<8@ M$L@/T8*OG7]=IW\'\Y\5,\^Z[-)]NPEC*SA#_B;S%P'.1EWSE]]$UL=-8;#$*P(:CM.MH%TH&T6APC@%4V4@)KNB=GBB40 MO@ M!K!_`E$KU[(`8D<1&%``C[13R*$`!I!N"&$;`U$!8"(SA68ZAI(=R(%2%8`< M^M%!VX5U844MDA MB*,;IG(@NW$O\\(;_NC"&K>!'ID%'OA!6PWR*`Z19`-@'E]'$'L$5X)U$16` M`$_X'[GAA@EQ`&X61+2!00Y02+(72BTR>BNR,,CW&/K%(@/$1RZ")4LR'U$W M&@F@)H429^)T0:*$-+?R+L2$540S)E@2+S?5'"LC(N7"9(!#1NUG(CF8,KEQ M=TWT*"&3*>+'./8B;-CU(MQQ`$;X`3]2'Z33$Q6Q+;332;4R&@F1`5.8=B@C MA856']E8+OM3*U18$!QP`4)G.D+%&]H1,P'7'H8D)PP0A()'*/`W'V7B.3I# M(RG$='62,V'V;S48)I+'./?V))F&)EJ2*2A#Z19OC9CA((`8M>$2S(C564Z\](MEB,S(((AB98=K.(=G^<@ MOHDM,J,:YM$_!G)/5W($Q(@=)C%$0U(0MSZ$?NQ&8 MQ/8!1,8=1R-6M0,F\E1HUX&*1`8Y-XDQG28GV&B#^>,H550__"8XDR(X]4$M MR*6"!01JV7$MYG&9_@F!DOWA'SSZ,!=D'6+:(R-"&G(RE`9A`01P6#Z*ER2# M?()I0R=R8_;)4U/2`.S(`5\VJ:/1)],!.--5@XN3*`NP*Q:P)!&SDP51)^TF M5DVT47QC)X_S;]&9*O665M2Y+@M6)^]A&@WB8!JZ12WD9&;4(+=1B5#9)E9# M($)B+^D!F=CE``;0-:*')PB6IPXY$$9R6%(%<`MP?0<0G[7#(A&C;C]V+ZQ7 M`0/"&P4H$+*2:33"DK=C.L]Q&R+T-7*RHA>D($ MJI:CD1H:,KW%(E+:@:/1+P_0?NE!1CY#<`W0(`VBK5>X'*?*BS1Y<1U@_G_^ M6BX(RE!Y!>5Q!YU5L'\&W;(9O8>2P@'\FY&3PP:Z2)FH^WT9(-80'\83G-X3(#<)T0]W'D(3#YHR%RE@`HM4=+XAZ'-3'0 M-3Z%`G("D0'HM"+.U@$^52?4X9(>4'LI^3RJHD%-@S($H@#A,T"V,F80B#O; M`BO-MS:YZ#+,J#2HDWFGZCQ"%8AX?G(8BH8R#YX6T,X5*Y MU8?M!F@4D3LR\QO_L6JN,1SC6@$)D+@0MCTP_I=?^)HB'T,0'7``!XL[XBF7 M/6(0-]M^F1^YIY_6,J-JA$LX4]0_>\ M2F0FEY%K! M.'89Z&1Q'&``[`I)&`LED=8;'HQD:A52JF$0)K0<'Q4^DO(:B\@Z;N0RDM,N MI2@^W6&\1'(D^#%FK@(>Z[&&V0&PBEDZ:K,@<^.]Y;00:+-< M71HR%9(`.[H1'*!%XE$?T!6&1Z:GM%$V#G1D-ADH!@"T4D80BX(>@I$?_1-G ME_N<1/8!'I0IV9@>_KM"$BNQFJK9`7@&`1PE*D*BMP71/*,G M&O)E/^JXC%BE-!$C:V1$8(X#+%$T=+MV&QJHRP,#L"O9'+:Y$#"964>3Q)QR M`![CS!!!JO$(`>Q:LY%),+OA;+)H$&$H7S\;?,F14Y8T:35",!-G&P[&`.WD M0$8G2PA8$V`!$XQQH"B%,\$;40^U)SF&)$9"6U)'B0AP8]3QV2W:48EY?1`B MTA_>(1]BZ!L:XW`AL2V;;52V5Q![-&MY5AW]_FG,J1'9P8=W!&$!]F=6^TBH MCBL@-`N.O/@>`I%T(/4=2_*D`G$!RY4:&T,KBQLGY,(>6C*>G6*M\*'$AN(J M_0$EO4O?F0<(&(CC/(>!AY$!T##L\I]Z0JE,V0G;!,>HMJC5&1O"X8= M*/L:96(I34)'G4.=OCDE[4:5"GU/?HPTO(4``W``1WU:3:-\,E,K_.*;JF,@ ML/>2ST41'"`G=->&XIA5-O+;T?;B3XH!"3"SP51IP43+FX9-G<6'ZT&R>C8O M`.:1.KK#QEMR+`(2Z M`0(B$Y?%CG&Z\+W@LAN5,3GJJ"(2/[)`G,'2N;$!KPI1.A`=:NF1,^J5@$ M3N*^+.*1C]@;:+KI99$"'$<6J[.A1D=#/3.F0OLA/^T16*=U'IK1N15^@368 MXP;)AYSRH[B'P,[F0H1_AH. M8+((<>$G;B1H1R'@")D6*"0+&$.T<1`6^'E#WB>4%M0#8"SH!*(*`$,JQ46A MA-%24F0.J0&U*'73TV\X4)@55B*MD+,'$>\--RTDG=48NYM5\+%1P&X207_\F_H5*/?".\D>QY0ELKB34*%#/L3!XJ,C#T M8A\)(.;V20&!*<"[N[$;/OA)RRGRF^XW>C#R/,K(<1`>LG\VLF(),3Z73-D, MD.&0Q!X^)/6A%)EW>T_?@4U'Z>PG`B)?XB&;_O7,W,$U#&DJB\,N533%)YTG M72.EIF3\6\-;B'>"N.(Q#R#Z"'B/]W&J^6,L,W@B]+'"!X%:&D6D\1^.!P%8 M]"].ME'"!.%`LP(0"#X,_("!`8,%'0@NA)!@@0(&#APL2-``00(&&182K,`@ M@0('#10<4&CAH,2($!Q$?`!!)`0%"#AL[##R`<(&*ALLD+BSP+#R M00,&/T,^8.I`94^=$A/`SQX7;@A`8((#^G2U3"`0(6]%`3N_6`7`8.9A"4@AGEZE[#;CY*F.`&!`LFS*4K00']O187N/\0(4&$D"A[+SZF'J#+`PN&0Z"` MPQC`8*`.(NAJ(?\4>$Z!"#[HX"$&"D#();=<.N]"US9RX(`#"E"@HI.&$M&M MG9QZ2"C?)#(*1)=FT\VEWVXZ[*'XN')/@^&FZDTHYE"*H"SSJ#(O)!NG4F#% M]#;*P*H()HNO@@D7XN""!0JX@"8/.NB``_,PT*#,*C$3<",./.!`@PB2_EI) M)@TTX*""!@!DB;`*\KR@*PXDD``CKSS(0,TY9_)`@PPTV*`"IYY"K8$+.)A3 M(Z_T[.`"D!28JKG?VG+`-P8B2$NBFXJJL2@$B&J.`0ANN@JDB!`X@(`#'.C2 MJPX@.*`!S"(ZX""1?HH1Q..9J( M."FE8JZY!$!<("]YA5*@@0)^W4B#!+J\8#@#_J8<:4H&--#Y`P\@@$!5?966 M(`+`=H:@VH$T4+J"I2>8P%`*L,X:(Q%[G(^P#:*=R*JB)&A:@J65AF!K"B2( M6X()JCJQ5F2+FBJAMR* M5BBT0[IYI8I4RY)#@-<``#5`;1B)2GG(MK7DN0<#22+<8JS"0 M,Q,(G:$H(H%H=5!**CE-7E@2.KQE1S/,$8H#4*B4.JT%*1:)203$"$D)`2XG`&M>$6^N&5)(7)>EIJ'FJ6=ZFD( M\9MD1(0WR=A*-2TQ7(`B"*VRG,H\35*<4%RR.",UAU5&C"-,*E4X^EFF-!NH MXD"T9K/OC`HF=]D)2,ZBDI,\;X8'44M]CO5>%!IOEZ2;D;D_IM* M5LXE@1^2C6F\\4Y++).X&@9N-54I3X#JA)R309(H2!G,)KVIR;#<)"<8$]WB M;+.DGRSM)F&4U4IJ%1++\@44IQ2G.>D,$6HH M2:/XA(X!%M``83I@`9-@A"CGXPTZ9<5%TNU08JH2U9.H4!"@7N99Y2_45IYE!:> M!]0&/++"B,$,$*L$\"HE#76H$_%W/PP>!HJ+RPX*/V(>B"%%7]PSC=*0LB2$ M##4K53)I6_O%`;`9+">+<J5S42+GZ MU:BI24M2)J.3#Q7I`&ZE[>P,XD9Q^HU6-YF(/OVD0*7,\BA+04H^3T7TY,)X"!3&IH`Z6C MGW->UCR@,,:T9EE*_O4^FAG2`<=YOR'=R;3G$0MYE[^UM8OBC(*DH7`FJ;7A M3JHD.T,;,?@L]`21.T/G1NKV27,MV58Q1?*0]L:$0Q9\@`4RE4EO98`"I+-Q M]7(4$@6_I8A`R:I\H'@J_#U@6+V$LYU$!9%B`OE<0AZR6Z\4%(_`""&A4RB8 M.A<"CT74H*&$/F9;DH$$-6NZF6AEB@-Q:M[WYH- M@!'SP@HD"8".1%9$&Y!BMCPA\LE11`I=J]2&)P_9S'DYLY:85N0ALRUTLP?B MW^B,^"ZQN9\`X$*`T"WHS]C.2OH8`)V'0&=*I[;0E*)#N9A@-MU920#E_L9" MN8\80`(8J``%]+2!AA+Z`W&RFD<:&933E*:]/?T(RR07JY,%;GLSI%6HHL,` MMEFE21L.&JS0@MF)Z-?9SL8`!EBW@0P0LG5K^G@'\+T!D[/N3)I:N9E6SJ8. MP+Q,9O*`G,RDH9NSW.8*B7F*]S*I"5C`()2KU5W$:5K-G8U'NYWE1(SJ2M]L M\R&P90I?Q9(JWS#N-`TFUDIQ#&A];USL8Z^=G+RU@0M4(`);^YY]09GP4]T/ M)1..J?V4);]H2E&DO,GHC,L#OCO..2W"L5-KJ:(53))=\5@LI$)JCK0R$<1, M,W'YOF_^<@U<(`,72.!F5L0CI_2O3IP1GC,9_NQ:6TY4KK0"D`+8MEB(1'P! MAII2\)(XF=GGSV`IB0A'\]F0B]U/,K1>?&TSD&HSZLU9P>MKK2PF1Z74D(W@ M.V^R5.(0X"#N(PW`FB]OQAAHC2_JH3>N(D$RF?+Y9F;%A17QI&DG7:IM5$6Z MYFX@6*-5@E"!X]',;OP:OIU0FD2[C^)S*YZ)/N5QDMYXDO\[KFI2I2I;,%IA M-)#"E\TX&Z?X#EUBHY>1KPU$BA=S,B.BKK+H$R@R*"8!']20HM#)"?M9J>A" M$I"0JY^(CU/I,8PHCRT#*:``--D8BVXJP)*"E]4`D=U(L#"*"+IR/I7Q#:]HHI[$N4%E,9+DP9OSLI._.HI+"3^5L:D@=`^?"\2%0"EHF4+HD@H_ MZ1.IR!%HD2.08IXXBK$GH2XG`0\0.2\'9`E4DIZ(<(B9&:\O M^QP7[++%\0CS&2]SLXR8B9?^P96+*(J/F(@"P""?$(F**3=(HPB%^45@_JP: MM/$;4)JP?-(MU2"*5Y2OR4"<B.B.::HO')F5XSHKD`*RJM.-^F** M6A(KQMBKT_@G&I$Q.$L>TGN(5_(>:!Z@7T5B1H4$((%2`D/&(`3B6 M7=%);P*5B5(+`$J*J9LEY`BT8`(I#I$7AZG$'T&(F]&*%7FJ4OL.ZWFX/QN) M,!D+YQB+!N"5BWB.["\R**LUDD+'P3+M$D07@%10Q3;[8@()Y&P*[FEJ)@+B1#+5;&@H@,*BQSN"I``.;`/&4&[:9-[6C@`O8&O9< MF@N@`/2T`/2D`(A"3]<)ND7IFD5!I@O0@`H(%#6K`#6I`(C2`(B*E`5UG0#- M@`$%.0/M.#-C4#7)O-A1T`L5NM91DPS8O$C1``R(G2_QN!%-SDT*NX50411M M41=]41B-41F=41JM41N]41S-48#,41[E+P2Q`!:](@RX`'=Y#`Q(IHV(@``H MD1YM4K&+``.P``D(_H!"ZX`$``!^(0@*`(#.H(L.```D=5(Q'3("H"J2*K0& M`("HT9`#``#5X0``8*LQG=-O@E-.D5/""+O(,Y$!4`""F!D!6(@.,)JY@(`! M@!#\8!T(4;&!`#DZ?52%.8``H*H/J(`!``P+.-2!$(L`(*1T`0`)^(`,<(`! M0`!%Z1#*P(`$"(!U(0@.X(PSY8!\.M.D.0@`T`AB\0`$"`"-Z"0$$(`->`!0 M?8X..(I`A51D)0P-$``!T`BU"X`Q<<.!.(!,"=65^`#7V``!^!0!$`'\!:C M.0`/4%2"L,\(.%8&\(`#&(R&\``,Z-8/$`%2"8.$(#6N=4M-0`U`9-]_DM6 M?Z6+"X#-F:@`9JL-4=74@3``2OT)*P4,S'`\`#"0C>`6#0"`WHD`#R"`#.D` M8/V`I$*:`1"`,\76!;`+P*C79)K2#/E7EJT+`0C5)?F`BOTAXB`("3A6D.V@ MQ,B`V52(!AB`T5@(!]"0/MT/.(W6P3@``UG6">C8#AB`F.F*VV"(B&U9?X4= M@@B`#,&0F@"`N9`W@E!2R0.`(AT(#A"39_-:5]V/#W"`6RT,LOT`I/"`"`"` M=9F`0\4-I+'8?I7;H5T(/;/:9`W8JAD`A1``B*B``"C94DT:#$C3(T4,:V,8 M-=M:#E!8"_!3@L@`S4V+@=A2C5"``7`0`#B`<0S`F0^8``!0``T(@`30``3X M(8"PGHTX:Z`-QH*)RA MCO>XBPS1$VRU*31!`-91@)E8&J2IPP_XW808"`=P%P\@EE;%7?1-7_5=7_9M (7_ -----END PRIVACY-ENHANCED MESSAGE-----

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

•		Loss of political support for current or increased levels of spending;

•		Changes of presidential administration, particularly changes from one political party to another, that typically result in a mass reordering of priorities that reduce new proposal activity for up to a year;

•		Threat scenarios evolving away from global conflicts to regional conflicts;

•		Spending for ongoing operations, such as the war on terrorism, the occupation of Iraq, downward pressure on spending for procurement of new systems and research and development spending; and

•		Cancellation of programs or emphasis on government shifting programs.

•		Quarterly fluctuations in results of operations;

•		Adverse circumstances affecting the introduction or market acceptance of new services we offer;

•		Announcements of new services by competitors;

•		Loss of key employees;

•		Changes in the regulatory environment or market conditions affecting the defense and aerospace industry;

•		Changes in earnings estimates and ratings by analysts;

•		Lack of market liquidity resulting from a relatively small amount of public stock float;

•		Changes in generally accepted accounting principles;

•		Sales of common stock by existing holders; and

•		The announcement of proposed acquisitions and dispositions.

1.		I have reviewed this quarterly report on Form 10-Q of SM&A;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)		[Intentionally omitted.]

c)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.