Earn Out Stock Escrow Agreement

Exhibit 10.12


EARN OUT STOCK ESCROW AGREEMENT


THIS EARN OUT STOCK ESCROW AGREEMENT (this "Agreement") is made on November 6, 1996, among ZMAX CORPORATION, a Nevada corporation ("ZMAX"); Michael C. Higgins and Michael S. Cannon (collectively, the "Stockholders" and individually, a "Stockholder"); and Powell, Goldstein, Frazer & Murphy ("Escrow Agent").


BACKGROUND:


ZMAX and the Stockholders have agreed that ZMAX is acquiring all outstanding capital stock, par value $1.00 (the "CSI Stock") of Century Services, Inc., a Maryland corporation ("CSI") by the Corporation, pursuant to the terms and conditions of the Stock Purchase Agreement dated the same date as this Agreement, among ZMAX and the Stockholders (the "Acquisition Agreement"). The transactions contemplated by the Acquisition Agreement are referred to as the "Transaction."


In accordance with the Acquisition Agreement, ZMAX will issue 3,200,000 shares of ZMAX common stock, par value $0.001 (the "ZMAX Stock") to the Stockholders in exchange for their shares of CSI Stock.


2,800,000 of the 3,200,000 shares of ZMAX Stock (the "Earn Out Stock") are subject to earn out on the terms and conditions set forth in the Acquisition Agreement.


The parties have agreed to place the Earn Out Stock into escrow to be released on the terms and conditions set forth in the Acquisition Agreement and below.


In consideration of the mutual representations, warranties, covenants and agreements contained in this Agreement, the parties agree as follows:


STATEMENT OF TERMS:


1. Definitions. All capitalized terms used in this Agreement and not
----------- otherwise defined herein shall have the meanings assigned to such terms in the Acquisition Agreement.


2. Appointment of Escrow Agent. ZMAX and the Stockholders appoint
--------------------------- Powell, Goldstein, Frazer & Murphy as Escrow Agent, and Escrow Agent agrees to such appointment, all pursuant to the terms of this Agreement.


3. Delivery of Stock Certificates to Escrow Agent. ZMAX will deliver
---------------------------------------------- to Escrow Agent two stock certificates evidencing the issuance of 1,400,000 share of ZMAX Stock to each Stockholder. Escrow Agent will hold such stock certificates in its vault and will release them only pursuant to the terms and conditions of this Agreement.


4. Procedures for Release of Stock.
-------------------------------


4.1 Receipt of Cash Flow Statement; Notice to Transfer Agent. During
-------------------------------------------------------- the term of this Agreement, upon receipt by Escrow Agent of either (i) a Cash Flow Statement (as defined in the Acquisition Agreement) signed as approved by ZMAX and each Stockholder pursuant to Section 1.5 or 1.6 of the Acquisition Agreement or (ii) instructions jointly signed by ZMAX and the Stockholders or a court or arbitration order as to the Cash Flow of CSI for a particular period, Escrow Agent will deliver the ZMAX stock certificates held by it to ZMAX's transfer agent ("Transfer Agent") and instruct Transfer Agent to replace each stock certificate with (i) one new stock certificate evidencing the number of shares of ZMAX Stock to be released to the Stockholder as described in the Cash Flow Statement or other instructions and (ii) a second new stock certificate evidencing the number of shares remaining, if any, after deducting the shares being released as described in the Cash Flow Statement or other instructions, which remaining shares will continue to be designated as Earn Out Stock and remain subject to this Agreement. Escrow Agent will further instruct the Transfer Agent to deliver the first new certificate to the Stockholder and the second new certificate to Escrow Agent and to legend all stock certificates in accordance with the Stockholders Agreement between ZMAX and the Stockholders; provided, however, that until August 6, 1997, the first new certificate will be delivered to ZMAX in accordance with the Stock Pledge and Security Agreement between each Stockholder and ZMAX dated as of the date of this Agreement.


4.2 Notice of Termination of Earn Out. Upon receipt by Escrow Agent
--------------------------------- of a certificate from an executive officer of ZMAX or CSI certifying that a Stockholder has been terminated by CSI for cause (as defined in the Stockholder's employment agreement with CSI) or has violated his non- competition, non-solicitation or proprietary information restrictions contained in his employment agreement with CSI, Escrow Agent will promptly fax a copy of the officer's certificate to the affected Stockholder. Unless, within 10 business days of Escrow Agent's sending such fax, Escrow Agent receives notice from the St ...