SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] For the Quarterly Period Ended: October 31, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15 (D)
of The Securities Exchange Act of 1934
For the Transition Period From _________ To ________
Commission File Number: 333-5753
Exigent International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 59-3379927
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1225 Evans Road
Melbourne, Florida 32904-2314
(Address of principal executive offices) (Zip code)
407-952-7550
(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 ____
The number of shares outstanding of the registrant's common stock, $.01 par
value, on November 30, 1998 was 4,111,003.
<PAGE>
EXIGENT INTERNATIONAL, INC.
QUARTER ENDED OCTOBER 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. Page
Consolidated Balance Sheets as of
October 31, 1998 and January 31, 1998 3
Consolidated Statements of Income for
the Nine Months Ended October 31, 1998 and 1997 5
Consolidated Statements of Income for
the Three Months Ended October 31, 1998 and 1997 6
Consolidated Statements of Cash Flows for
the Nine Months Ended October 31, 1998 and 1997 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12
PART II - OTHER INFORMATION
Item 5. Other Information. 21
Item 6. Exhibits and Reports on Form 8-K. 21
Signatures 22
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
October 31, 1998 January 31,
(unaudited) 1998
------------------- --------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 69,996 $ 3,640,508
Accounts receivable, pledged 3,982,236 2,747,383
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 5,042,373 3,823,768
Inventories 166 5,288
Prepaid expenses 36,609 64,288
Deferred income taxes 663,000 663,000
Prepaid income taxes 7,066 -
------------------- --------------------
TOTAL CURRENT ASSETS 9,801,446 10,944,235
------------------- --------------------
PROPERTY AND EQUIPMENT
Cost 6,059,496 5,304,630
Accumulated depreciation (3,922,481) (3,135,923)
------------------- --------------------
NET PROPERTY AND EQUIPMENT 2,137,015 2,168,707
------------------- --------------------
OTHER ASSETS
Software development costs, net of accumulated
amortization 4,258,879 1,508,887
Organizational costs 10,638 10,638
Deposits 71,983 43,466
Cash surrender value of life insurance 17,028 17,028
------------------ --------------------
TOTAL OTHER ASSETS 4,358,528 1,580,019
------------------ --------------------
TOTAL ASSETS $ 16,296,989 $ 14,692,961
================== ====================
</TABLE>
See accompanying Notes
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 31, 1998 January 31,
(unaudited) 1998
--------------------- --------------------
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 2,200,000 $ -
Accounts payable 304,376 392,799
Accrued expenses 3,484,101 3,401,311
Billings in excess of costs and estimated earnings
on uncompleted contracts 380,773 1,252,700
Income taxes payable 32,159 242,524
Current portion, long-term debt 466,667 511,111
--------------------- --------------------
TOTAL CURRENT LIABILITIES 6,868,076 5,800,445
--------------------- --------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 241,030 466,667
Deferred income taxes 645,000 645,000
Other liabilities 44 -
-------------------- --------------------
TOTAL LONG-TERM LIABILITIES 886,074 1,111,667
-------------------- --------------------
TOTAL LIABILITIES 7,754,150 6,912,112
-------------------- --------------------
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value,
5,000,000 shares authorized, 610,230 and
688,792 issued and outstanding at
October 31, 1998 and January 31, 1998,
respectively, at $2.50 per share
liquidation/dissolution preference 6,102 6,888
Common Shares, $.01 par value, 40,000,000
shares authorized, 4,106,955 and 3,872,655
issued and outstanding at October 31,1998
and January 31, 1998, respectively 41,070 38,726
Paid in capital 1,946,393 1,585,007
Retained earnings 6,549,274 6,150,228
--------------------- --------------------
TOTAL STOCKHOLDERS' EQUITY 8,542,839 7,780,849
--------------------- --------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 16,296,989 $ 14,692,961
===================== ====================
</TABLE>
See accompanying Notes
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the nine months ending October 31,
1998 1997
(unaudited) (unaudited)
--------------------- --------------------
<S> <C> <C>
REVENUES FROM SERVICES $ 25,858,155 $ 25,912,356
COST OF SALES 19,209,905 19,850,950
--------------------- --------------------
GROSS PROFIT 6,648,250 6,061,406
GENERAL AND ADMINISTRATIVE EXPENSES 5,735,978 4,513,068
RESEARCH AND DEVELOPMENT COSTS 162,937 -
--------------------- --------------------
OPERATING INCOME 749,335 1,548,338
--------------------- --------------------
OTHER INCOME (EXPENSE)
Interest income 36,205 26,065
Interest expense (133,047) (67,117)
Gain on disposal of fixed assets (1,213) -
Other, net 13,625 -
--------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) (84,430) (41,052)
--------------------- --------------------
INCOME BEFORE INCOME TAXES 664,905 1,507,286
INCOME TAX EXPENSE 265,859 588,065
--------------------- --------------------
NET INCOME $ 399,046 $ 919,221
===================== ====================
EARNINGS PER SHARE - BASIC $ 0.09 $ 0.20
===================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 4,653,209 4,709,468
===================== ====================
EARNINGS PER SHARE - DILUTED $ 0.08 $ 0.19
===================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 5,209,151 4,801,019
===================== ====================
</TABLE>
See accompanying Notes
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months ended October 31,
1998 1997
(unaudited) (unaudited)
--------------------- --------------------
<S> <C> <C>
REVENUES FROM SERVICES $ 9,361,584 $ 9,140,753
COST OF SALES 6,468,321 6,879,072
--------------------- --------------------
GROSS PROFIT 2,893,263 2,261,681
GENERAL AND ADMINISTRATIVE EXPENSES 2,614,730 1,821,861
RESEARCH AND DEVELOPMENT COSTS 106,301 -
--------------------- --------------------
OPERATING INCOME 172,232 439,820
--------------------- --------------------
OTHER INCOME (EXPENSE)
Interest income 13,109 23,719
Interest expense (68,367) (20,872)
Loss (gain) on disposal of fixed assets (1,213) 1,732
Other, net 6,659 -
--------------------- --------------------
TOTAL OTHER INCOME (EXPENSE) (49,812) 4,579
--------------------- --------------------
INCOME BEFORE INCOME TAXES 122,420 444,399
INCOME TAX EXPENSE 48,941 172,935
--------------------- --------------------
NET INCOME $ 73,479 $ 271,464
===================== ====================
EARNINGS PER SHARE - BASIC $ 0.02 $ 0.06
===================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 4,715,894 4,709,468
===================== ====================
EARNINGS PER SHARE - DILUTED $ 0.01 $ 0.06
===================== ====================
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 5,349,586 4,801,019
===================== ====================
</TABLE>
See accompanying Notes
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ending October 31,
1998 1997
(unaudited) (unaudited)
--------------------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $399,046 $919,221
--------------------- --------------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,463,114 668,825
Loss on disposal of Fixed Assets 1,984 -
Deferred income taxes - 463,000
Changes in operating assets and liabilities:
Increase in accounts receivable (1,234,853) (443,896)
Decrease (increase) on costs and estimated earnings in
excess of billings on uncompleted contracts (1,218,605) 461,877
Decrease in prepaid expenses 27,679 17,614
Decrease in inventory 5,122 -
Decrease (increase) in prepaid income taxes (7,066) 374,667
Increase in deposits (28,517) (2,865)
Decrease in cash surrender value of life insurance - 3,241
Decrease in accounts payable (88,423) (1,059,462)
Increase in accrued expenses 82,790 527,666
Decrease in billings in excess of costs and estimated (871,927) (274,949)
earnings on uncompleted contracts
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Increase (decrease) in income taxes payable (210,365) 27,300
Increase in other liabilities 44 75
--------------------- --------------------
Total adjustments (2,079,023) 763,093
--------------------- --------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,679,977) 1,682,314
--------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (774,679) (137,061)
Cash paid for capitalized software development (3,408,719) (1,497,871)
--------------------- --------------------
NET CASH USED BY INVESTING ACTIVITIES (4,183,398) (1,634,932)
--------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit 2,200,000 (182,000)
Net borrowings (principal payments) on long-term debt (270,081) 551,225
Proceeds from exercise of stock options and warrants 362,944 19,990
--------------------- --------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,292,863 389,215
--------------------- --------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,570,512) 436,597
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,640,508 428,705
--------------------- --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 69,996 $ 865,302
===================== ====================
</TABLE>
See accompanying Notes
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information in response to the requirements of Article 10 of
Regulation S-X. Accordingly, they do not contain all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The condensed consolidated financial statements for the
three and nine month periods ended October 31, 1998 and October 31, 1997 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the interim
periods. The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations, contained in Exigent International, Inc.'s ("Exigent's"
or the "Company's") Annual Report on Form 10-K for the fiscal year ended January
31, 1998. The results of operations for the three and nine months ended October
31, 1998 are not necessarily indicative of the results that may be expected for
the entire fiscal year.
As of February 1, 1998 the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. However, the adoption of
this Statement had no impact on the Company's net income or shareholders' equity
for the three and nine months ended October 31, 1998 and 1997.
Certain prior period amounts have been restated to correspond to the current
period presentation.
NOTE 2 - LINE OF CREDIT
Software Technology, Inc. ("STI"), Exigent's primary subsidiary, had a
$1,800,000 line of credit available from a bank as of October 31, 1998 and
January 31, 1998. The note bears interest on the unpaid principal balances at a
rate per annum equal to the bank's prime rate plus .25%. As of October 31, 1998
and January 31, 1998 the outstanding draws against the line were $1,800,000 and
$0, respectively. The interest rate at October 31, 1998 and January 31, 1998 was
8.375% and 8.75%, respectively. All accounts receivable, equipment, furniture
and fixtures of STI are pledged as collateral on the line of credit.
On October 30, 1998, Exigent entered into a short-term loan for $400,000 to fund
the Company's working capital requirements. The note bears interest at a rate
per annum equal to the prime rate plus .50%. As of October 31, 1998, there was a
balance remaining to be paid on the note of $400,000. The note and all accrued
interest thereon was paid in full in November 1998.
The weighted average interest rate on short-term borrowings outstanding at
October 31, 1998 and January 31, 1998 was 8.66% and 8.25%, respectively.
NOTE 3 - COMMITMENTS AND CONTINGENCIES
The Company had outstanding purchase commitments of $3,334,710 and $145,309 as
of October 31, 1998 and January 31, 1998, respectively. These represent
outstanding purchase orders for customer projects where neither the item nor
invoice has been received. This increase is due in large part to the start-up of
a major new contract for which there were extensive material requirements.
In November 1998 the Company entered into a lease for an 11,188-sq. ft. space in
Chantilly, VA. This space was needed to satisfy program requirements for a new
customer.
NOTE 4 - CAPITALIZED SOFTWARE DEVELOPMENT
Effective February 1, 1998, the Company determined that the amortization life of
the existing capitalized software should be changed to two years to more
appropriately reflect the life span of the product release, rather than a
three-year schedule. As a result of this change in estimate, the increase in
amortization expense for the three months ended October 31, 1998 was
approximately $100,000. The impact for the nine months ended October 31, 1998
was approximately $225,000. This has impacted the diluted earnings per share by
$0.02 per share.
NOTE 5 - EARNINGS PER SHARE
In 1997, the FASB issued SFAS No. 128, Earnings per Share. This statement
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share are very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts have been presented and, where appropriate, restated to conform to
Statement 128 requirements. The following tables set forth the computation of
basic and diluted earnings per share for the nine and three months ended October
31, 1998 and 1997:
<TABLE>
<CAPTION>
For the nine months ended October 31,
---------------------------------------------
------------------ ---------------------
1998 1997
(unaudited) (unaudited)
------------------ ---------------------
Numerator:
Net income (numerator for
<S> <C> <C>
basic and diluted earnings per share) $ 399,046 $ 919,221
================== =====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Denominator:
<PAGE>
Denominator for basic earnings per share-
<S> <C> <C>
weighted average shares 4,653,209 4,709,468
Effect of dilutive options and warrants 555,942 91,551
----------------- -------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,209,151 4,801,019
------------------ --------------------
Basic earnings per share $ 0.09 $ 0.20
================== ====================
Diluted earnings per share $ 0.08 $ 0.19
================== ====================
For the three months ended October 31,
---------------------------------------------
------------------ ---------------------
1998 1997
(unaudited) (unaudited)
------------------ ---------------------
Numerator:
Net income (numerator for basic and diluted
earnings per share) $ 73,479 $ 271,464
================== =====================
Denominator:
Denominator for basic earnings per share-
weighted average shares 4,715,894 4,709,468
Effect of dilutive options and warrants 633,692 91,551
------------------ --------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 5,349,586 4,801,019
------------------ --------------------
Basic earnings per share $ 0.02 $ 0.06
================== ====================
Diluted earnings per share $ 0.01 $ 0.06
================== ====================
</TABLE>
<PAGE>
NOTE 6 - STOCKHOLDERS' EQUITY
The consolidated changes in stockholders' equity for the nine months ended
October 31, 1998 are as follows:
<TABLE>
<CAPTION>
Additional
Common Stock* Class A Preferred Paid in Retained
Shares Amount Shares Amount Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE February 1, 1998 3,872,655 $38,726 688,792 $6,888 $1,585,007 $6,150,228 $7,780,849
Exercise of convertible 155,988 1,560 - - 361,384 - 362,944
securities
Class A preferred converted 78,562 786 (78,562) (786) - - -
to common
Canceled shares (250) (2) - - 2 - -
Net Income - - - - - 399,046 399,046
----------------------------------------------------------------------------------------
BALANCE October 31, 1998 4,106,955 $41,070 610,230 $6,102 $1,946,393 $6,549,274 $8,542,839
========================================================================================
</TABLE>
*Please note: Class A Preferred Stock converts 1:1 to Common Stock and has no
preferential treatment except for a liquidation preference.
NOTE 7 - FISCAL YEAR CHANGE
The Company will change its fiscal year to correspond with a calendar year end,
effective December 31, 1998. The current fiscal year will therefore end on
December 31, 1998. The fiscal quarters will remain unchanged with the exception
of the fourth quarter, which will be a two-month quarter ending on December 31,
1998.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following is management's discussion and analysis of (i) the consolidated
financial condition as of October 31, 1998 as compared with the fiscal year
ended January 31, 1998; and (ii) the consolidated results of operations for the
three and nine months ended October 31, 1998 and 1997, of Exigent and its
subsidiaries STI and FotoTag. It should be read together with Exigent's Form
10-K for the fiscal year ended January 31, 1998. Throughout the nine months
ended October 31, 1998 the Company has invested significant time and resources
into the restructuring and reform of its corporate structure and staff. These
reforms included restructuring of the corporate charter, bylaws and
implementation of a Shareholder Rights Plan as well as additions to, and
replacement of, several of the key corporate executive management. The reforms
are intended to position Exigent to expand and to attract additional investors
in the equity market. In addition Exigent has invested significantly in the
development of a Corporate-wide wide area network (WAN) to enhance Company
communications. The Company continued to invest approximately 10% of revenues in
product development. These investments are reflected in the three and nine-month
results as well as discussed further in this document.
Liquidity As of October 31, 1998, Exigent's ratio of current assets to current
liabilities decreased to 1.4 from 1.9 at January 31, 1998. This decrease was due
largely to the use of cash over the nine months as well as the draw on the
Company's line of credit. The uses of this cash are explained in detail below.
Exigent's cash portfolio (cash and cash equivalents) decreased $3,570,512 during
the nine months ended October 31, 1998. The decrease was due to cash used in
operating activities of $1,679,977, cash used in investing activities of
$4,183,398 and cash provided by financing activities of $2,292,863. Exigent's
cash portfolio increased $436,597 for the nine months ended October 31, 1997.
The increase was due to cash provided by operating activities of $1,682,314,
cash used in investing activities of $1,634,932 and cash provided by financing
activities of $389,215. The decrease in cash from operating activities from
January 31, 1998 to October 31, 1998 was primarily the result of the increase in
Accounts Receivable due to the change in payment procedure on Government
projects, the project investment carried awaiting new provisional government
indirect rates, and the continued investment in the ongoing support of the
Company's products including OS/COMET(R) and FotoTag(R). In addition, the
Company invested approximately $800,000 in the ongoing support of the strategic
agreement with Motorola Inc. SATCOM projects. This investment is intended to
help position Exigent for future Commercial Satellite Market programs.
In the nine months ended October 31, 1998, Exigent acquired $774,679 of capital
assets compared to $137,061 in the nine months ended October 31, 1997. This
increase was due primarily to the expansion and improvement of the Company's
facilities across the corporation including Melbourne, FL, Alexandria, VA and a
new site in Chantilly, VA. This new 11,188-sq. ft. facility in Chantilly was
required to satisfy program requirements. A portion of the expansion in
Melbourne was funded through a capital lease for furnishings and other office
amenities. This capital lease will extend through September of 2003. However,
capital needs are expected to continue, but at a reduced rate, as Exigent
remains current with computing technologies. This expansion will be funded in
part through operating leases set up with external leasing companies. The leases
will extend for a period of three years from each draw against the funding
limits totaling $1,000,000. Through the nine-month period ended October 31,
1998, Exigent had drawn down approximately $450,000 against these lease lines of
credit.
During the last three fiscal years the Company has made substantial investments
in the development of software products. The investments made for the nine
months ended October 31, 1998 were again substantial as Exigent remains
committed to the development of new state-of-the-art products as well as support
of its existing product base. In the nine months ended October 31, 1998 and
October 31, 1997, Exigent spent $3,408,719 and $1,497,871, respectively, in
capitalized software development costs primarily related to several products.
The increase in the first nine months of fiscal year 1998 resulted from costs
incurred in completing the development of FotoTag, which was completed June
1998, developing product additions for the OS/COMET product family including
Pluto(TM), Calypso(TM), and the Integrated Control Center (ICC)(TM), as well as
development of its newest products, Active Tracking Engine (ATE)(TM) and
Interplay(TM). The Company has organized a new subsidiary expressly for the
development and distribution of shrink-wrapped middleware software products.
This entity (M-Ware Solutions Inc.) will be responsible for the ATE and
Interplay as well as other future shrink-wrapped products distributed over the
Internet. For the nine months ended October 31, 1998, Exigent borrowed
$2,200,000 under the line of credit and a short-term loan to fund its
operations. The Company reduced long-term debt by $350,316 offset by an
obligation on a new capital lease of $129,918 of which $5,240 was paid during
the quarter. There was also a reduction in short-term debt of $44,444.
Results of Operations for the nine months ended October 31, 1998 and 1997 Sales
for the nine months ended October 31, 1998 were $25,858,155, compared with
$25,912,356 for the nine months ended October 31, 1997, a slight decrease,
although the mix of government and commercial has changed dramatically. The
breakdown between government and commercial sales for each of the nine-month
periods is as follows:
<TABLE>
<CAPTION>
October 31,1998 October 31, 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Government $ 20,201,503 78% $ 15,942,207 62%
Commercial 5,656,652 22% 9,970,149 38%
--------
==== ================ === ================= ============
$ 25,858,155 100% $ 25,912,356 100%
==== ================ ======== === ================= ============
</TABLE>
Gross profit was up significantly at $6,648,250 (25.7% of sales) compared to
$6,061,406 (23.4% of sales) for the nine months ended October 31, 1998 and
October 31, 1997, respectively. This increase in gross profit was the result of
a significant decrease in direct costs. Net income decreased significantly at
$399,046 (1.5% of sales) for the nine months ended October 31, 1998 versus
$919,221 (3.6% of sales) for the nine months ended October 31, 1997. This
decrease was due to the increase in general and administrative expenses
(explained below) and a decrease in revenue from commercial customers. This
decrease in revenue was the result of the winding down of development work on a
major fixed price contract and cost growth in support of the same contract.
These factors decreased the nine-month operating income by approximately
$800,000. The change in amortization schedule for the internally developed
software products also decreased the nine-month profit. After completing a
review of the current releases and the schedule for new releases, management
determined that a twenty-four month amortization would be more appropriate than
a thirty-six month schedule. This change in amortization schedule impacted net
income before taxes by approximately $225,000 for the nine months ended October
31, 1998.
General and administrative expenses for the nine months ended October 31, 1998
were $5,735.978, 27.1% or $1,225,910 greater than expenses of $4,513,068 for the
nine months ended October 31, 1997. This increase resulted primarily from
$500,000 in administrative labor costs, of which approximately $250,000 was
associated with the resources required to manage a public company, including the
addition of key executives, with the remainder being the move of personnel in
the operating units from cost of goods sold expenses to administrative
positions. Additional increases in general and administrative expenses include
$367,000 in professional fees for marketing support and outside legal counsel
largely associated with the Corporate reforms put in place during the second and
third quarters. There was a $278,000 increase in additional marketing expenses
incurred to pursue new project opportunities in both the commercial as well as
government businesses. In addition, there was approximately $200,000 of cost
incurred in support of the due diligence of potential acquisitions. Management
believes existing cash, funds generated by operations, and the available line of
credit may fall short of Exigent's current operating requirements through the
fiscal year ending December 31, 1998. Additional funds will be required to
fulfill the development schedule for new Exigent products and to finance any
acquisitions. The Company is currently in discussions with several lending
institutions to obtain an alternative source of financing to support working
capital requirements and the Company's strategic plan. The Company is seeking an
alternative source of financing to replace the Company's existing line of credit
with SunTrust Bank. There can be no assurance that a definitive credit agreement
relating to this new line of credit or other alternative funding will be entered
into on acceptable terms.
Results of Operations for the three months ended October 31, 1998 and 1997 Sales
for the three months ended October 31, 1998 were $9,361,584, an increase of 2.4%
from $9,140,753 for the three months ended October 31, 1997, due to an increase
in the volume of government contracts, offset by a decrease in commercial
revenue. The breakdown between government and commercial sales for each of the
three-month periods is as follows:
<TABLE>
<CAPTION>
October 31, 1998 October 31, 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Government $ 7,785,481 83% $ 5,738,706 63%
Commercial 1,576,103 17% 3,402,047 37%
--------
==== ================ === ================= ==========
$ 9,361,584 100% $ 9,140,753 100%
==== ================ ======== === ================= ==========
</TABLE>
Gross profit increased significantly at $2,893,263 (30.9% of sales) compared to
$2,261,681 (24.7% of sales) for the three months ended October 31, 1998 and
October 31, 1997, respectively, due to the major reduction in the use of outside
services for labor on projects. Net income decreased significantly to $73,479
(0.8% of sales) for the three months ended October 31, 1998 versus $271,464
(3.0% of sales) for the three months ended October 31, 1997. This decrease was
due to a decrease in revenue and associated earnings from commercial customers,
cost growth in support of the major commercial fixed price development project
completion and a delay in product sales. In addition, after completing a review
of the current releases and the schedule for new releases, management determined
that a twenty-four month amortization would be more appropriate than the
thirty-six month schedule. This change in amortization schedule impacted net
income before taxes by approximately $100,000 for the three months ended October
31, 1998.
Analysis of Operations In 1995, STI obtained its first significant commercial
contracts from Motorola Inc. to provide satellite ground station software for a
constellation of satellites that will provide a direct link with portable
handsets for worldwide telephone service. The Motorola multi-year contract
allowed STI to leverage its technology into the commercial arena. In 1996, STI
was awarded a contract to provide similar software for the Global Positioning
Satellite (GPS) System. With these two contracts, STI is involved in two premier
satellite endeavors and numerous proprietary ones.
The third quarter 1998 results, as well as the nine-month 1998 results, reflect
a lull in the Company's commercial satellite business; however, Exigent
continued to invest during these periods in the advanced features for its
OS/COMET basic product as well as the next generation NT version of OS/COMET.
The Company anticipates that the NT version will have its first customer
delivery in the fourth quarter of 1998. In addition, the Company continues to
invest in its strategic alliance with Motorola for the Celestri/Teledesic
effort, with an anticipated start in early 1999. The Company has also invested
significantly in the identification of and the due diligence associated with
potential acquisitions.
STI has recently been heavily involved in developing proposals for new
commercial satellite constellations. The Company believes that its investments
in OS/COMET, Pluto, Calypso, the Integrated Control Center (ICC), Active
Tracking Engine (ATE), and Interplay will position the Company well as it enters
1999.
STI's government business continues at a record setting pace with orders coming
in from both existing and new customers. The sale of OS/COMET licenses and
maintenance for use on government programs continues on track with 1997 with
volume running approximately the same as that record year.
The backlog as of October 31, 1998 for commercial and government contracts was
$62,360,574, of which $57,806,976 is unfunded. In April 1998, STI executed a
contract with the Naval Research Laboratory to provide services over the next
five years for a value of $61,538,419. Subsequent to the close of the quarter a
similar, but unrelated contract worth approximately $7,500,000 was signed to
cover a five-year period providing additional services to the Naval Research
Laboratory. With the addition of these contracts, the current base provides
sufficient backlog to maintain STI's operations through December 31, 2001.
STI has invested in excess of $4,500,000 over the last three years in its
premier software product OS/COMET. This investment facilitated the significant
contract awards that management believes would have been otherwise unattainable.
Commitment to maintain support for the product and research of new product
opportunities will continue.
Exigent completed development of its commercial software product, FotoTag, and
has invested approximately $1,100,000 during the last three fiscal years.
Management continues the promotion of this product, which was completed in June
1998. FotoTag is currently being marketed worldwide to address the growing need
for airport security and baggage and passenger reconciliation products.
OUTLOOK
Exigent completed expansion of its corporate headquarters in February 1998 with
the completion of a new building at its Melbourne, Florida location. This new
facility houses the corporate staff as well as the Product Development team and
the FotoTag staff. These increased facility costs should not have a material
impact on the Company's indirect expense rates as the growth is needed to
support the current business as well as growth planned into 1999. The commercial
satellite business is projected to continue with strong sales worldwide and is
expected to show moderate increases through the end of the decade, providing
additional opportunities for Exigent.
General and administrative expenses are expected to decline going forward as the
current level of expenditures included the nonrecurring cost associated with the
implementation of corporate reforms as well as the due diligence expenses
associated with a potential acquisition. This potential acquisition presented
excess expenses over a normal level due to the due diligence of complex issues.
These combined expenses totaled in excess of $500,000. In addition the
transition to the new independent audit firm resulted in some overlap and
duplicative efforts during the first two quarters of the current fiscal year.
Demand for software engineers continues to provide new opportunities for
Exigent, but will place a premium on the efforts to retain the current work
force. This risk will put additional pressure on overall payroll costs. This is
an industry wide challenge. Management believes that benefits offered by Exigent
remain above the level of its competition and should help to stabilize its
workforce. Overhead costs for benefits should remain at the same percentage of
wages for the fiscal year ending December 31, 1998 as compared to the fiscal
year ended January 31, 1998. Management believes it is important that Exigent
not reduce benefits. To do so and hold costs stable has been a management
challenge and will continue to be so in the near future. Maintaining Exigent's
comprehensive benefit plan will also facilitate its ability to sustain an
effective recruiting campaign.
The Company's current long-term business plan is to seek opportunities for
growth and diversification of its product and service offerings through
acquisitions and internal growth. To implement its long-term growth strategy,
the Company will seek to raise capital through private or public debt and equity
financing. The Company's application to the Nasdaq Stock Market for listing on
the Nasdaq SmallCap Market has been initially denied because of the Company's
failure to meet the requirements of Sections 4310(c)(6) and 4330(a)(3) of the
Marketplace Rules of the Nasdaq Stock Market due to an insufficient number of
shareholders who made an independent economic decision to invest in the Company.
The Company has filed an appeal and management believes the Company satisfies
the listing criteria for inclusion on the Nasdaq SmallCap Market but there can
be no assurance that the appeal will be successful.
RISKS AND UNCERTAINTIES
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Such forward-looking statements involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Company or events, or timing
of events, relating to the Company to differ materially from any future results,
performance or achievements of the Company or events, or timing of events,
relating to the Company expressed or implied by such forward-looking statements.
The more prominent known risks and uncertainties inherent in the Company's
business are set forth below. However, not all possible risks and uncertainties
to which the Company is subject are discussed herein, nor can it be assumed that
there are not other risks and uncertainties which may be more significant to the
Company.
Such other factors include, among others, those described in "Outlook" and the
following:
o continued dependence on a small number of significant customers for
substantially all of the Company's revenue and the potential loss of one or
more of the Company's principal customers;
o continued dependence on government agencies for a significant portion of
the Company's revenue;
o the shortage of qualified and competent software engineers and the risk
that the Company will be unable to retain its key employees and managers,
especially in the event the Company loses one or more contracts or
principal customers;
o dependence on the satellite command and control industry and the potential
failure to diversify the Company's product and service offerings and to
expand its markets for commercial applications;
o possible difficulties in raising private or public capital for financing
working capital needs and potential acquisitions on terms favorable or
acceptable to the Company;
o the possible inability of the Company to find or secure acquisitions on
terms favorable or acceptable to the Company in pursuit of its plan for
growth and diversification;
o continued availability of a commercial line of credit;
o the expense of new product development, the potential failure by the
Company to complete new products on a timely basis, and the failure of such
products to achieve substantial market acceptance;
o the potential loss of customers or opportunities because of the
Company's relationship as a competitor to some of its principal
customers;
o the potential loss of other broadband satellite customer opportunities
because of the Company's strategic alliance relationship with Motorola
SatCom on the IRIDIUM and Teledesic project;
o the potential negative impact of salary increases on bid rates due to the
amount of the Company's revenue related to services.
The Company cannot assure that it will be able to anticipate or respond timely
to changes which could adversely affect its operating results in one or more
fiscal quarters. Results of operations in any past period should not be
considered indicative of results to be expected in future periods. Fluctuations
in operating results may result in fluctuations in the price of the Company's
common stock.
Year 2000 Issues
Some existing computer programs will be unable to recognize dates properly in
the Year 2000 ("Y2K") and beyond. During 1997, Exigent conducted an informal
study of its products, systems and operations, including systems under
development, to improve business functionality, to identify those of its
computer hardware, software and process control systems that do not properly
recognize dates after December 31, 1999, and those that are linked to third
parties' systems. Based on this informal study, Exigent recognized that the
OS/COMET product required certain modifications to be Y2K compliant. Those
modifications have been made to the software and are available in the current
release, Version 3.5. Exigent has also initiated communications with certain
third parties whose computer systems' functionality could adversely impact the
Company. These communications, which the Company expects to complete by July
1999, will facilitate coordination of any necessary Y2K conversions and will,
additionally, permit Exigent to determine the extent to which the Company may be
vulnerable to the failure of third parties to address their own Y2K issues.
The costs of Exigent's Y2K compliance efforts are being funded with cash flows
from operations. Some of these costs relate solely to the modification of
existing systems, while others are for new systems that will improve business
functionality. In total, these costs are not expected to be substantially
different from the normal, recurring costs that are incurred for systems
development and implementation, in part due to the reallocation of internal
resources and the deferral of other projects. As a result, these costs are not
expected to have a material adverse effect on Exigent's overall results of
operations or cash flows.
The assessment of the costs of Exigent's Y2K compliance effort, and the
timetable for the Company's planned completion of its own Y2K modifications, are
management's best estimates. These estimates were based upon numerous
assumptions regarding future events, including assumptions as to the continued
availability of certain resources, and, in particular, personnel with expertise
in this area, and as to the ability of such personnel to locate and either
re-program or replace, and test, all affected computer hardware, software and
process control systems in accordance with the Company's planned schedule. There
can be no guarantee that these estimates will prove accurate, and actual results
could differ from those estimated if these assumptions prove inaccurate.
Based upon progress to date, however, Exigent believes that it is unlikely that
the foregoing factors will cause actual results to differ significantly from
those estimated. As to the systems of the third parties that are linked to
Exigent's, there can be no guarantee that those of such systems that are not now
Y2K-compliant will be timely converted to compliance. Additionally, there can be
no guarantee that third parties of business importance to Exigent will
successfully and timely reprogram or replace, and test, all of their own
computer hardware, software and process control systems.
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
1. On August 11, 1998, Exigent entered into a consulting arrangement with
Daniel J. Stark, a former employee of STI, who resigned his position on July 17,
1998. Mr. Stark is currently serving as a Director of Exigent and was one of the
original founders of STI in 1978. Under the terms of the agreement, Exigent
agrees to pay consulting fees to Mr. Stark for one year on regularly scheduled
Company pay periods commencing with the pay period beginning August 31, 1998 and
ending with the pay period on August 31, 1999. For more information, please see
Confidential Release and Waiver Agreement, attached hereto as Exhibit 10.18.
2. Exigent Warrants currently trading on the Chicago Stock Exchange as
XNTWS and on the NASD OTC BB as XGNTW will expire on January 30, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Exhibit
10 Confidential Release and Waiver Agreement
between Daniel J. Stark and Exigent
International, Inc. executed on
August 11, 1998
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Exigent International, Inc.
December 15, 1998 By: /s/ B.R. "Bernie" Smedley
Date -----------------------------
B.R. "Bernie" Smedley,
Chief Executive Officer
December 15, 1998 By: /s/ Jeffery B. Weinress
Date ------------------------------
Jeffery B. Weinress,
Chief Financial Officer
<PAGE>
Exhibit 10
CONFIDENTIAL RELEASE AND WAIVER AGREEMENT
This Confidential Limited Release and Waiver Agreement ("Agreement") is
knowingly, willingly, and voluntarily entered into by Daniel J. Stark
("Employee") and Exigent International, Inc., a Delaware corporation, and all
its subsidiaries, related companies, officers, directors, agents, assigns,
employees, representatives, successors, stockholders, attorneys, insurers, and
any other persons or entities acting on behalf of Exigent International, Inc.
(collectively, the "Company"). The Agreement is made in light of the following
circumstances:
WHEREAS, Employee agrees to resign his position at the Company effective as of
July 17th, 1998 (the "Effective Date"). This Agreement shall not have any effect
on any prior confidentiality agreement executed with the Company.
WHEREAS, this Agreement shall not in any way be construed as an admission by the
Company or its officers, directors, employees, or agents that it is liable in
any fashion to Employee. Furthermore, Employee acknowledges that, but for the
execution of the release, he would not be entitled to receive the consideration
recited herein.
WHEREAS, in order to avoid the costs, burdens and uncertainties of litigation,
Employee and the Company now wish to resolve, compromise and finally settle on
an amicable basis, any and all claims Employee has or may have against the
Company;
Employee and the Company agree as follows:
COMPANY'S PROMISES TO EMPLOYEE
1. In exchange for Employee's promises contained in the Agreement, the
Company will, as of the Effective Date and upon the signing of this
Agreement, (i) pay Employee fifty two (52) weeks of severance pay
based upon Employee's hourly rate of forty four (44) dollars per hour
in the amount of ninety one thousand five hundred twenty (91,520)
dollars (less taxes required to be withheld) per the Company's
severance pay policy with payments being made on regularly scheduled
"pay days" commencing August 31, 1998, (ii) pay Employee's salary
through July 31, 1998, and (iii) pay Employee for accrued, unused
vacation (i.e., three thousand two hundred eighty one (3,281) dollars)
and personal leave (i.e., seven thousand five hundred sixty eight
(7,568) dollars) with a lump sum payment to be made for such vacation
and personal leave on the August 31, 1998 pay day.
EMPLOYEE'S PROMISES TO COMPANY
2. In consideration of the promises made by the Company in ss.1 above,
Employee, for himself, successors and assigns, knowingly, willingly,
and voluntarily releases and waives all rights, claims, damages
(including back pay, front pay, liquidated damages, compensatory
damages, or punitive damages attorneys' fees and litigation costs),
demands, obligations to date, known or unknown (hereinafter "rights
and claims") against the Company and all persons acting by, through,
under or in concert with the Company, and regarding any aspect of his
employment with the Company, the subsequent ending of that employment,
and any other events occurring prior to, and including, the Effective
Date of the Agreement. These rights and claims include, but are not
limited to, rights or claims under the Age Discrimination in
Employment Act of 1967, as amended, the Older Workers Benefit
Protection Act ("OWBPA"), Title VII of the Civil Rights Act of 1964,
as amended, The Civil Rights Act of 1991, the Fair Labor Standards Act
of 1938, the Employee Retirement Income Security Act of 1974, as
amended, the Rehabilitation Act of 1973, as amended, The Americans
With Disabilities Act, The National Labor Relations Act, as amended,
The Florida Human Rights Act, as amended, The Florida Handicap
Discrimination Act, The Florida Workers' Compensation Act, and any or
all rights or claims for employment discrimination, wrongful or
retaliatory discharge, tortious discharge, breach of implied or
express employment contract, promissory estoppel, invasion of privacy,
negligence, defamation, fraud, outrageous conduct, intentional or
negligent infliction of emotional distress, unpaid wage claims and any
or all rights or claims under any other federal, state, or local
statutes, or under common law. The Agreement is not an admission by
the Company that it has violated any common law, or any federal, state
or local statute, or acted wrongfully toward Employee in any way.
3. The release also includes but it is not limited to the release by
Employee of any claim for attorney's fees or costs against the Company
in connection with the review of this Agreement and employee
specifically agrees that he will be responsible for his own attorneys'
fees and any such costs incurred by him and that Employee
unconditionally releases and discharges Company from any additional
claims for such attorney's fees or costs.
4. Employee specifically acknowledges that he is not entitled to any
other form of compensation, benefit, severance or payment other than
that listed in this Agreement and that this Agreement is the full,
final, and complete settlement of any claims between Employee and the
Company. Notwithstanding the foregoing, this provision shall not
modify, alter or amend any vested rights which Employee may have under
existing qualified retirement plans.
5. Employee covenants and agrees that he will not induce or incite claims
of discrimination, wrongful discharge, criminal misconduct or any
other claims against the Company.
6. Employee further covenants and agrees that he will not provide
consulting advice or counsel to or otherwise cooperate with or assist
any employee or former employee of the Company in any action, suit,
charge, or proceeding of any kind against Company.
7. Employee further covenants and agrees that in connection with any
action at law, proceeding in equity, or any administrative proceeding,
commenced by any employee or former employee against the Company,
Employee will not voluntarily participate as a party or witness or
voluntarily attempt to offer into evidence anything against the
Company unless compelled to do so by force of law.
8. Employee agrees never to institute, directly or indirectly, any action
or proceeding of any kind against the Company based on, arising out of
matters that occurred during his employment with the Company or the
ending of that employment. If Employee does file or institute, either
directly or indirectly, any action lawsuit, or proceeding of any kind
against the company on account of any matters over which he has waived
his rights in this Agreement, Employee agrees to indemnify and hold
the Company harmless from any damages or costs incurred by the Company
as a result of his actions, including any costs, expenses, and
reasonable attorneys' fees incurred by the Company.
9. Should Employee commence or prosecute any action or proceeding
contrary to the provisions of this Agreement, Employee agrees to
indemnify the Company for all reasonable court costs and reasonable
attorneys' fees incurred in the defense of such action or in
establishing or maintaining the application or validity of the
Agreement or any of its provisions.
10. Employee represents and promises that no person other than himself is
entitled to assert any claims of any kind against the Company on his
behalf, and he agrees to indemnify and hold harmless the Company
against any such claims that may be asserted by any other person.
11. Employee represents and warrants that no other person other than the
signatories hereto had or has any present interest in the matters
referred to or covered by the Agreement; that he has the sole right
and exclusive authority to execute the Agreement; and he has not sold,
assigned, transferred, conveyed, or otherwise disposed of any claim or
demand relating to any matter covered by the Agreement.
12. Employee waives any claims for reimbursement for any expense not
submitted in writing prior to the date he executes the Agreement.
Employee understands that he is not authorized to incur any expense or
obligations on behalf of the Company effective July 17, 1998 and he
affirms that he has not caused the Company to incur any such expense
or obligation.
13. On or before July 17, 1998, employee agrees to return to Company any
and all property of company currently in his possession or control,
including identification badges, keys, papers, computers, security
badges, computer files, and other equipment. Employee represents and
promises that he has not damaged or otherwise sabotaged such property.
Additionally, Employee agrees to remove all personal property from the
Company's premises by 5:00 p.m. EST on July 20th, 1998. Should
Employee need additional access to the Company, those arrangements
shall be made through the Company's Human Resources Department.
14. Employee agrees that for a period of twelve (12) months from the
Effective Date that he will not solicit (i) for employment any persons
with the Company if such persons are employed by the Company at the
time the solicitation or offer of employment is first made, or (ii)
any customers of the Company for any reason.
15. Employee also agrees that for a period of twelve (12) months from the
Effective Date that he shall not engage in or become interested,
directly or indirectly as a director, officer, employee, 10% or more
stockholder, partner in, or consultant to any business, which competes
with the Company in supplying command and control software
applications. Employee also agrees not to act as an advisor either as
an employee, partner or consultant, to any firm, person or corporation
relative to their purchase, lease, or development of satellite command
and control software, with out the Company's express written consent.
16. Employee agrees for a period of twelve (12) months from the Effective
Date not to do or say anything that reasonably may be expected to have
the effect of disparaging the Company or diminishing or impairing the
goodwill and reputation of the Company and the products or services it
provides. Likewise, the Company agrees not to do or say anything that
reasonably may be expected to have the effect of disparaging Employee
or diminishing or impairing Employee's reputation.
17. From time to time during the term in which severance is paid to
Employee pursuant to Section 1 above, Employee agrees that upon
reasonable advance request and during customary business hours,
Employee will provide consulting services on matters pertaining to the
business of the Company with the CEO of the Company.
OTHER PROMISES
18. If Employee should breach any portion of this Agreement, the Company
shall be entitled immediately to recover all payments made to
Employee. Moreover, in the event that the Company claims that Employee
has failed to comply with the terms of the Agreement, all provisions
of the Agreement shall remain valid and binding upon all parties.
Employee further agrees that any legal action filed by the Company to
enforce the Agreement shall not constitute the basis for a claim of
retaliation under any federal, state or local law. Furthermore,
Employee and the Company agree that the Agreement may be used as
evidence in a subsequent proceeding in which the Company alleges a
breach of the Agreement. Furthermore, Employee and the Company
understand that if the Agreement is breached in any manner, both
parties will have the right to pursue all remedies in law or equity.
Moreover, the prevailing party in any litigation with respect to any
breach of the Agreement shall be entitled to any and all reasonable
attorneys' fees and other costs of litigation, through appeal, from
the other party.
19. This Agreement terminates Employee's right to participate in the
Company Profit Sharing and 401(k) Plan, the Money Purchase Pension
Plan and the ESOP as of the Effective Date, but does not have any
effect on vested rights. Employee will receive information regarding
these plan benefits and certain other health benefits under separate
cover. Notwithstanding the foregoing, this provision shall not modify,
alter or amend any vested rights which Employee may have under the
foregoing qualified retirement plans.
20. Notwithstanding anything to the contrary, Employee shall qualify as a
retiree for purposes of the retiree medical plan currently adopted by
the Company. Prior to such plan coming into force, the Company agrees
to pay any necessary COBRA premiums on behalf of Employee to effect
continuing coverage between the employee and the retiree plan. Nothing
contained herein shall obligate the Company to pay any premium other
than as stated by such plan or create any obligation other than as is
stated in such plan.
21. This Agreement and its various rights and obligations are binding upon
Employee and the Company and their respective attorneys, heirs,
executors, successors, administrators, and assigns. Employee and the
Company expressly acknowledge and agree that there are no other
agreements between them; that the validity, effect and operation of
the Agreement shall be determined by the laws of the State of Florida;
that there is no written or oral understanding or agreement between
the parties that is not recited herein; that both parties have had
ample opportunity to consult with counsel or other advisers of their
choice, with respect to said claims and the Agreement; and that the
Company's attorney and Employee's attorney, are authorized to take all
action necessary to complete the Agreement. The Agreement may be
amended, modified, or changed only by an agreement in writing that is
signed by both parties.
22. Notwithstanding anything to the contrary set forth herein, prior to
the Company canceling or terminating Employee's right to receive
severance as set forth in ss.1 above for a breach of either ss.5 or
ss.18 above, the Company shall be obliged to notify Employee in
writing of i) the alleged breach occurring under those subsections,
ii) that the harm caused to the Company was material and adverse, and
iii) any remedial actions which need to be undertaken by the Employee
to undo or prevent further harm. Employee shall have ten (10) calendar
days to respond to the Company in writing disputing or curing any
claims of the Company, to the reasonable satisfaction of the Company,
prior to the Company taking any final action to cancel or terminate
the severance benefit granted hereunder.
23. Should any term, section, or portion of the Agreement be held
unreasonable or unenforceable by any court, the decision of the court
will apply only to the specific term, section, or portion involved,
and it will not invalidate the remaining sections or portions of the
Agreement.
24. Until Employee signs the Agreement and returns it to the Company,
Employee will not receive the consideration named in ss.1 above. If
Employee chooses not to fully execute the Agreement, he will not
receive any part of the consideration in ss.1 and the Agreement will
be null and void.
25. THIS AGREEMENT HAS BEEN DELIVERED TO YOU IN PERSON ON JULY 20, 1998.
PLEASE REVIEW THIS AGREEMENT CAREFULLY WITH THE PERSON OF YOUR CHOICE,
INCLUDING AN ATTORNEY, BEFORE SIGNING IT. YOU WILL HAVE AT LEAST
TWENTY ONE (21) DAYS, OR UNTIL AUGUST 11, 1998 TO CONSIDER THIS
AGREEMENT. YOU ACKNOWLEDGE THAT IN SIGNING THIS AGREEMENT, HOWEVER,
YOU HAVE RELIED ONLY ON THE PROMISE(S) WRITTEN IN THIS AGREEMENT AND
NOT ON ANY OTHER PROMISE MADE BY THE COMPANY.
26. EMPLOYEE AFFIRMS THAT THE COMPANY HAS ADVISED HIM IN WRITING OF HIS
RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THE AGREEMENT AND HAS
ENCOURAGED HIM TO DO SO. EMPLOYEE ALSO ACKNOWLEDGES AND AGREES THAT HE
HAS READ AND FULLY UNDERSTANDS THE MEANING AND INTENT OF ALL OF THE
PROVISIONS AND TERMS OF THE AGREEMENT, INCLUDING THE FINAL BINDING
EFFECT OF THE WAIVER AND RELEASE OF RIGHTS UNDER THE AGREEMENT.
27. Employee also understands that after he has signed this Agreement, he
will still have seven (7) days to revoke this Agreement. If he wishes
to revoke this Agreement, he must submit a written revocation to the
Company representative no later than seven (7) days after he executes
this Agreement.
28. The Agreement shall be effective only if signed by the Employee before
5:00 p.m. EST on Tuesday, August 11, 1998.
IN WITNESS WHEREOF, the aforesaid parties intending to be legally bound have
executed the Agreement.
For Employee: For the Company:
/s/ Daniel J. Stark /s/ B.R. Smedley
- ------------------------- --------------------------------
Daniel J. Stark B.R. "Bernie" Smedley,
Chairman/CEO
Exigent International, Inc.
Date: 8/11/98 Date: 8/11/98
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