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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the fiscal year ended December 31, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
and 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 of Incorporation) (I.R.S. Employer
Identification Number)
1225 Evans Road, Melbourne, Florida 32904-2314
(Address of principal executive offices) (Zip code)
(Registrant's telephone number including area code) 321-952-7550
Securities registered pursuant to Section 12(b) of the Act:
Title of securities Exchanges on which registered
Common Shares, $0.01 par value per share Nasdaq SmallCap Market
The Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, $0.01 par value per share
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___
As of March 1, 2000, the aggregate market value of the Common Stock of
the Registrant (based upon the average bid and ask prices of the Common Stock as
reported by the market makers) held by non-affiliates of the Registrant was
approximately $32,608,342.
The number of shares outstanding of the registrant's Common Stock on
March 1, 2000 was 5,715,411.
Documents Incorporated by Reference
Portions of the Proxy Statement for the 2000 Annual Meeting of
Stockholders to be held June 23, 2000 (to be filed with the Securities and
Exchange Commission on or before May 1, 2000) are incorporated by reference into
Part III hereof.
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<TABLE>
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TABLE OF CONTENTS
PART I Page No.
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<S> <C> <C>
Item 1. Business 3
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22
Item 6. Selected Financial Data 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures 51
PART III
Item 10. Directors and Executive Officers of the Registrant 51
Item 11. Executive Compensation 51
Item 12. Security Ownership of Certain Beneficial Owners and Management 51
Item 13. Certain Relationships and Related Transactions 51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 52
SIGNATURES 56
</TABLE>
<PAGE>
PART I
Item 1. Business
The Business section, Management's Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this Form 10-K contain
certain statements that are not historical facts, but which are "forward-looking
statements," and can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," or "anticipates," the
negatives thereof or other variations thereon or comparable terminology, and
include statements as to the intent, belief or current expectations of Exigent
International, Inc., a Delaware corporation, and its subsidiaries, and its
directors, officers and management, with respect to its future operations,
performance or position. These forward-looking statements are predictions. No
assurances can be given that the future results indicated, whether express or
implied, will be achieved. All references to "Exigent" or "we" or "our" or "us"
refer to Exigent International, Inc. or its subsidiaries.
The Company
Exigent is a holding company, incorporated on March 25, 1996 to
capitalize on emerging high-technology opportunities. Exigent was formed by
Software Technology, Inc., a Florida corporation ("STI"), to acquire and hold
all of its issued and outstanding stock. On January 30, 1997, Exigent acquired
all of the issued and outstanding STI stock in exchange for 3,486,600 Exigent
Common Shares, par value $0.01 per share (the "Common Shares") and 697,320
Exigent Class A Preferred Shares, par value $0.01 per share (the "Preferred
Shares") (the "Exchange"). In the Exchange, Exigent also issued 1,070,270 Common
Share Purchase Warrants (the "Warrants") expiring on January 30, 2000. Each
Warrant was convertible into one Common Share at $3.00 per Warrant. Prior to the
expiration date, the holders of Warrants converted 798,560 Warrants into a like
number of Common Shares thereby raising $2,395,680 in additional capital.
As shown in the following chart, Exigent presently operates through
three wholly owned subsidiaries. These are STI, a Florida corporation, FotoTag,
Inc., a Delaware corporation ("FotoTag"), and Exigent Solutions Group, Inc., a
Nevada corporation ("ESG"):
Exigent International, Inc.
|-----------------------------|-------------------------------|
| | |
Software Technology, Inc. Exigent Solutions Group, Inc. FotoTag, Inc.
Exigent, through STI, has designed and deployed satellite command and
control and telecommunications systems for more than twenty years. We have
provided ground control solutions for dozens of commercial and government
projects, ranging from single spacecraft to the largest satellite
constellations. As worldwide demand for satellite-based applications has
increased, we have responded by developing a suite of commercial-off-the-shelf
("COTS") products based on our experience in building such systems. Our
engineers also provide system integration support for customers throughout the
United States.
Recent Developments
In June 1999, we suspended system engineering work on the Teledesic
satellite program in response to the decreased activity in the commercial space
industry during the fiscal year ended December 31, 1999. We had been
participating in a Strategic Alliance Agreement with Motorola since February
1998 under which we supplied system design and command and control architecture
services for Motorola's future satellite constellations which included their
activities in support of the Teledesic program. The subsequent financial and
financing difficulties experienced by other satellite constellation operators
and developers resulted in Exigent taking a series of actions to reposition
itself:
o To enhance our focus on developing and supporting our leading products and
technical services in the three distinct marketplaces in which we operate,
Exigent was reorganized into three business units: space and defense
services (STI); information technology ("IT")(ESG); and airport operations
(FotoTag);
o To strengthen our management team, we hired Larry Whitfield (formally of
Lockheed, Tektronix and Harris Corporation) as President of STI and we
expanded STI's sales and marketing team to position us to grow revenues at
a faster pace;
<PAGE>
o As a result of our strategy to place more emphasis on international
markets, we recently received our first overseas contracts in Australia and
Korea;
o As a result of our software-defined radio (SDR) Domain Manager Tool Kit
being selected by a Raytheon-lead consortium as the backbone for
development of a new generation of digital radio for the U.S. military in
the 21st century, we set up a special business unit to pursue opportunities
in this technology; and
o Finally, in order to expand our reach into the commercial sector and
develop new vertical market opportunities for our products and services, we
acquired GEC North America Corporation ("GEC"), a systems integrator of
Oracle(R) -based solutions. This marked an important step in the
implementation of our IT initiative, resulting in the combination of our IT
business units with GEC to form ESG. GEC complements our existing
government IT business, our enterprise engineering and our
command-and-control software IT.
Software Technology Inc.
Since its formation in 1978, STI has provided custom and COTS software,
systems engineering, and software engineering services to a wide range of
industrial and government entities, including:
o agencies and departments of the U.S. government that use satellites for
research, communication, or in defense programs;
o commercial telecommunication companies, particularly those focused on
low-earth-orbit ("LEO") satellite systems providing wireless telephone
services and paging;
o commercial and government customers that require Management Information
Systems ("MIS") and data base development services;
o commercial launch facilities and contractors that provide commercial launch
services;
o aerospace and defense contractors that develop computerized weaponry and
defense systems employing satellite technology, especially embedded
software systems;
o Value Added Resellers ("VARs") and strategic partners that develop custom
or specialized computer applications; and
o engineering firms that require software design and development services.
In addition to providing general-purpose and customized engineering
solutions, we have developed the OS/COMET(TM) family of products. This suite of
COTS command and control software products is our flagship software offering.
This related group of software products was originally developed to support
satellite ground stations and to integrate and test spacecraft systems. Over the
years, however, OS/COMET has evolved into a multi-dimensional general purpose,
integrated tool set. These COTS programs provide a real-time command, control,
and data acquisition environment for government and commercial solutions.
OS/COMET products can be further adapted for use in many complex ground or space
control situations. OS/COMET executes on POSIX-compliant UNIXTM workstations and
makes extensive use of the "X Window System" and the "OSF/Motif" graphical user
environment standards. OS/COMET currently includes the following family of
products:
OS/COMET is currently used in two of the world's largest satellite
constellations, Iridium(R) and Global Positioning System ("GPS"). Iridium is a
global wireless communication system built by a consortium of investors lead by
Motorola. Iridium offers customers local voice calling and paging anywhere on
the planet through a constellation of 66 LEO satellites (plus six on-orbit
spares). We were also selected by Motorola to become its preferred supplier of
command and control software for its Celestri project and other future
communication systems projects (including Teledesic, a constellation of
broadband satellites conceived to be the "Internet in the Sky") because of our
long standing relationship with them.
Our OS/COMET products were also selected to upgrade the ground station
software for the U.S. Air Force's NAVSTAR GPS project. NAVSTAR GPS is a
24-satellite GPS constellation which provides worldwide all-weather positioning,
and navigation data. NAVSTAR GPS's 24 satellites provide worldwide navigation
data for military and civilian aircraft, spacecraft and land and marine
applications.
We also produce OS/COMET Solo, which is specifically designed for the
user who requires just one satellite, one test fixture, or some similar
single-use application. It offers a straightforward migration path to OS/COMET,
ensuring simple and easy future expansion of the system.
OS/ICC ("Integrated Control Center") is a versatile, extensible, and
scaleable suite of services and equipment that combines industry-leading
hardware and software products into an integrated solution. OS/ICC may be used
<PAGE>
"out of the box" in its standard form, or may be customized for special customer
use applications. OS/ICC is intended to provide seamless software and hardware
reuse and automation across a satellite's entire mission life-cycle, from early
mission planning and modeling, through vehicle testing and on-orbit spacecraft
management. OS/ICC is designed to handle projects ranging from single satellites
to large constellations.
Calypso and Calypso Pro products are telemetry data decommutation and
distribution tools; the "Pro" suffix indicates an extensible version of the
basic product. These products are cost-effective, easy-to-use and are designed
for single-node applications and test beds that do not require the complex
functionality of the more advanced products such as OS/COMET or OS/COMET Solo.
The Pluto Satellite Tool Kit ("Pluto") deploys complex model
architecture and numerous core components for the creation of "virtual
satellites." The satellite models generated by Pluto can be crafted so that they
are identical to actual spacecraft. Pluto's object-oriented architecture breaks
a satellite into a set of user-defined sub-systems using standard
object-oriented programming techniques.
Exigent Solutions Group
In 1999, we formed ESG as an information technology service and
products company. In December 1999, ESG began offering Enterprise Resource
Planning ("ERP") implementation services following its acquisition of GEC. GEC,
a Charlotte, NC-based consulting and systems integration firm, is recognized as
an implementor of ERP solutions using Oracle Applications. ESG currently
provides the following services: integrated management consulting; design and
development of Internet commerce solutions; implementation and integration of
packaged software solutions; design and development of custom software
solutions; and implementation of ERP systems and production support. (See Risk
Factors - Risk specific to ESG and Industry Related Risks Specific to ESG).
ESG also carries the products developed by MiddleWare Solutions, Inc.
("Mware"). Mware develops inexpensive, high-performance message-oriented
products and distributes them directly to the end-user over the Internet or on
compact disks ("CD's") through the mail. MWare's first product was ActiveMTM for
Windows. ActiveM is a publishing subscribing tool that provides an
application-transparent messaging facility for ActiveX environments such as
Microsoft(R) Visual C++ and Inprise's C++ Builder 3. ActiveM makes sophisticated
cost-effective networking available to millions of application developers who
currently work in the Windows world. ActiveM's target customer base includes
computer programmers who develop software for the high-volume commercial
marketplace (business applications, games, etc.), as well as those programmers
producing various scales of in-house applications. ActiveM supports virtually
all network types and topologies, whether local-area networks (LAN), wide-area
network (WAN), or the WorldWide Web. ActiveM is included in the ESG product
offering.
FotoTag
FotoTag was formed in 1997 to provide improved efficiency and security
in the public transportation environment. FotoTag develops and markets a
passenger/baggage reconciliation system, "FotoTag(R)", for use by airlines,
airports, and other commercial transportation systems such as cruise lines and
railroads. FotoTag products and services may be sold to foreign and domestic
airlines, as well as foreign and domestic agencies that control airports and
airport security. The FotoTag system is primarily used as an airport
passenger/baggage reconciliation system.
In the future, we expect that FotoTag will provide enhanced departure
control facilities to improve passenger servicing and reduce airline and airport
management costs. The current system utilizes IATA-standard barcode, "smart
card" technology, radio-frequency identification (RFID) technology, and
compressed digital photography. The FotoTag system captures passenger images and
reconciles this visual information with a traveler's itinerary, baggage, and
travel related documents.
SOFTWARE DEVELOPMENT
During the last three years, we have invested substantial resources to
develop and enhance the software products which we believe are commercially
marketable. Generally, most of our software development relates to tracking,
command and control systems, "horizontal products", which our STI subsidiary is
developing for the ground and space segments of the aerospace/defense industry.
<PAGE>
Currently our "horizontal" product suite is applied only in one "vertical"
market. We believe that other "vertical" market applications, such as utilities
and inventory intensive applications, as well as providers in the
telecommunications industry, can utilize these products. (See Risk Factors - Our
Products may not be accepted by the market).
We capitalized $2,144,253, $3,905,349, and $1,149,685 of product
development in our fiscal years ended December 31, 1999, December 31, 1998 and
January 31, 1998, respectively. These amounts include investments allocated to
each of: the OS/COMET family of products, ActiveM, and FotoTag.
We expensed $271,576, $180,671, and $47,854, on internally sponsored
research and development during our fiscal years ended December 31, 1999,
December 31, 1998, and January 31, 1998, respectively. These expenditures were
made so that we could evaluate new products and services as well as update and
expand our current technologies.
In addition to the funds we invested in software development, we
invested more than $1,500,000 during the past two years to develop advanced
systems engineering for future constellations in accordance with a Strategic
Alliance Agreement with Motorola. (See Risk Factors - Length of Sales Cycle).
MARKETING AND SALES
We rely upon our senior corporate management, sales and marketing
personnel, project managers and senior technical staff to carry out our
marketing program. Our marketing program includes the development and execution
of marketing plans, proposal presentations and the performance of marketing
related tasks. These individuals are responsible for collecting information
concerning requirements of current and potential customers in the course of
contract performance and formal and informal briefings, from published
literature and through participation in professional and industry organizations.
Our senior management then evaluates this information, identifies potential
business opportunities and coordinates proposal efforts. The primary source of
business in our existing markets is referred to us by existing customers.
Additionally, we advertise extensively in various industry publications and
participate in numerous trade shows.
We distribute our products and services and license our products
indirectly, through VARs, and directly to end-users. (See Risk Factors -
Proprietary Rights).
REVENUE SOURCES
Our revenues are currently dependent on four significant customers, the
Naval Research Laboratory (the "NRL"), Allied Signal Technical Services
("Allied"), Lockheed Martin Corporation ("Lockheed") and a proprietary
government organization. Three of which, individually, accounted for more than
10%, and in the aggregate, accounted for more than 73% of our consolidated
revenues for the fiscal year ended December 31, 1999. The loss of any of these
customers would have a materially adverse affect on our business, results of
operations and financial condition. (See Risk Factors - Significant Revenue
Derived from Government Contracts).
During 1998, we entered into a contract with a fourth proprietary
government customer, for a period which may extend through October 2003. The
initial estimated value of this contract was $7,500,000. We are currently in the
second full year of the contract and our relationship with this client continues
to be good. Under the contract we primarily provide applications system
engineering related to the client's MIS. (See Risk Factors - Performance of
Government Contracts may require Security Clearance).
STI has several contracts with the NRL. Our largest contract with the
NRL relates to space systems applications and operations, and was renewed in May
1998 for five years. In addition to space applications and operation services,
STI provides the NRL with IT development and maintenance services. STI's
principal IT assignment has been replacing NRL's Job Cost Accounting system. STI
has developed a state-of-the-art Oracle-based information system running on a
cluster of UNIX database servers, employing multiple NT and LINUX Web servers
with user interfaces implemented on Web-centric technologies. Our principal
contract with the NRL provides for us to perform services during the next five
years, with a total estimated cost of $57,167,518 and a fixed fee of $4,370,901.
As of December 31, 1999, STI received cost payments and fees in the aggregate of
$27,049,161 under the contract. Fees on this contract are billed at
approximately 7.5% of costs.
STI also receives revenues from Allied under various purchase orders.
For the fiscal year ended December 31, 1999, Allied paid us approximately
$3,952,065, while approximately $1,686,553 remains in backlog under existing
purchase orders. The contract with Lockheed relates to a GPS project with the
U.S. Air Force for which Lockheed serves as one of the subcontractors and Boeing
serves as the prime contractor. The contract commenced August 1995 and
terminates September 30, 2000, unless modified by Lockheed. STI received
$2,848,465 under this contract for the fiscal year ended December 31, 1999 with
a funded backlog at that time of approximately $404,986. (See Risk Factors -
Risks Specific to STI).
<PAGE>
ESG currently has two revenue sources, an IT "task order" that was
appended to the STI contract with the NRL and GEC's IT business. The performance
of IT services for the NRL resulted in approximately $5,000,000 in revenue for
the fiscal year ended December 31, 1999. The GEC portion, for the fiscal year
ended December 31, 1999, was nominal due to the mid-December closing of that
acquisition. GEC revenues for the entire year ended December 31, 1999 were
approximately $5,400,000.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 12 to the Financial Statements for
additional information on our dependence on certain customers.
CONTRACTS
A substantial portion of our revenues are derived from contracts and
subcontracts with the United States Department of Defense (the "DOD") and other
federal government agencies. Many of our contracts are competitively bid and
awarded on the basis of technical merit, personnel qualifications, experience
and price. Recently, the Federal Acquisition Streamlining Act of 1994 encouraged
the use of "commercial" type pricing on dual use products. Our future revenues
and income could be materially affected by changes in procurement policies, a
reduction in government expenditures for our products and services, and other
risks generally associated with federal government contracts. (See the following
Risk Factors - "Contracts Subject to Termination" and "Funding Subject to
Government Regulation").
Our contracts with the federal government range from one to five years.
Such contracts may be conditioned upon continued availability of congressional
appropriations. Any variance between anticipated budget and actual congressional
appropriations may result in a delay, reduction or termination of such
contracts. Until differences between budget requests and appropriations are
resolved, contractors often experience revenue uncertainties with respect to
available contract funding during the first quarter of the government's fiscal
year beginning October 1.
Our federal government contracts may be structured as:
cost-reimbursement contracts, time and materials contracts and fixed price
contracts. Cost-reimbursement contracts provide for reimbursement of costs (to
the extent allowable, allocable and reasonable under Federal Acquisition
Regulations) and the payment of a fee. The fee may either be fixed by the
contract (cost plus fixed fee) or variable, based upon cost control, quality,
delivery and the customer's subjective evaluation of the work (cost-plus-award
fee). Under time and materials contracts, we receive a fixed amount by labor
category for services performed and are reimbursed (generally without fee) for
the cost of materials purchased to perform the contract. Under a fixed price
contract, we agree to perform certain work for a fixed price and, accordingly,
realize the benefit or detriment to the extent that the actual cost of
performing the work differs from the contract price. Revenues generated from
contracts with the federal government or its prime contractors for the fiscal
year ended December 31, 1999, were approximately 73.7% from cost-reimbursement
contracts, approximately 20.2% from time and materials contracts and
approximately 6.1% from fixed price contracts of total revenues. (See Risk
Factors - Contracts Subject to U.S. Government Regulation).
Our allowable federal government contract costs and fees are subject to
audit by the Defense Contract Audit Agency. Audits may result in
non-reimbursement of some contract costs and fees. While the government reserves
the right to conduct further audits, we have not experienced any material cost
recovery disallowances for audits conducted through fiscal 1997.
Our federal government contracts may be terminated, in whole or in
part, at the convenience of the government. If a termination for convenience
occurs, the government is generally obligated to pay our costs under the
contract plus a pro rata fee based upon the work completed. When we participate
as a subcontractor, we risk termination of the contract if the prime contractor
does not perform its contract duties. Similarly, when we act as a prime
contractor, or employ subcontractors, we risk termination of the contract if a
subcontractor does not perform its subcontracting duties. (See Risk Factors -
Contracts Subject to Termination without Cause).
Some of our contracts with the federal government contain options that
are exercisable at its discretion. An option may extend the period of
performance for one or more years for additional consideration on terms and
conditions similar to those contained in the original contract. An option may
also increase our duties and assign us new tasks. In our experience, options are
commonly exercised by the government.
Our federal government contracts require that we maintain adequate
security measures. We have implemented security procedures that we believe are
adequate to satisfy the requirements of our federal government contracts.
<PAGE>
All of our commercial contracts are either time and material or fixed
price agreements. These agreements generally call for a specified set of
requirements to be delivered at a negotiated price. Under time and materials
contracts, we receive a fixed amount by labor category for services performed
and we are reimbursed (generally without fee) for the cost of materials
purchased to perform the contract. Under a fixed price contract, we agree to
perform certain work for a fixed price and, accordingly, realize the benefit or
detriment to the extent that the actual cost of performing the work differs from
the contract price. These contract types are typically broken down into
milestones with payments made at each milestone. These milestones are generally
referred to as earned value milestones and are commonly used to benchmark
progress, help a customer track status, and provide trigger points for payments.
(See Risk Factors - Industry Related Risks of STI).
Over the past five years, STI has entered several contracts with
Motorola. Some of the contracts were fixed price contracts and some were time
and material contracts. Most of the revenues generated by Motorola contracts
during the past five years were received under an agreement executed in February
1994, pursuant to which, STI agreed to provide Motorola with satellite and
ground control software for the system control segment of the Iridium
Communications System. As of December 31, 1999, STI received approximately
$45,447,645 from Motorola under this and other contracts. The development on
Iridium was completed during the eleven months ended December 31, 1998. STI
continued to be covered under a maintenance agreement and through a time and
material contract for the year ended December 31, 1999 with Motorola. We are
unable to accurately predict the continuance of coverage under a maintenance
agreement with Motorola because of the uncertain situation surrounding the
Iridium reorganization. In addition to STI's business with Motorola, we entered
into a strategic alliance agreement with Motorola in the pursuit of developing
space program technology, particularly the Teledesic project. Over a period of
eighteen months we invested more than $1,500,000 in connection with this
agreement. After thoroughly reviewing the circumstances related to our
investment as well as discussing the matter with Motorola, we determined the
investment was impaired. As a result, we chose to write down $1,000,000 in the
fourth quarter of the fiscal year ended December 31, 1999, to account for such
impairment.
FotoTag generated limited revenues in the fiscal year ended December
31, 1999, based on the development plans and schedule to incorporate customer
features and functionality. The revenues generated were through a contract
testing the FotoTag product with the Federal Aviation Administration (the "FAA")
and an international airline. We completed testing with the FAA and are
currently discussing an ongoing relationship with them. Because we view this as
a limited opportunity we have adjusted the carrying value by approximately
$380,000 during the fourth quarter ended December 31, 1999.
Backlog
As of December 31, 1999, and December 31, 1998, we estimate that our
firm backlog orders were $19,011,492 and $14,040,033, respectively.
Approximately $13,188,846 of our backlog in the fiscal year ended December 31,
1999 relates to the unfunded portion of awarded government contracts. Over the
next two to three years we expect that $27,370,117 in unawarded task orders will
be funded and awarded in connection with our direct contract with the NRL. (See
Risk Factors - Estimated Backlog under Government Contracts).
Regulatory Environment
Pluto and OS/COMET are subject to export control regulations pursuant
to the International Trafficking and Arms Regulation administered by the U.S.
Department of State. Regulatory changes could materially adversely affect our
operations by restricting sales and marketing efforts. Changes in, or our
failure to distribute products in compliance with, applicable export regulations
could have a material adverse effect on our business, financial condition and
results of operations. The delays inherent in this governmental approval process
have in the past caused, and may in the future cause the cancellation,
postponement or rescheduling of the installation of ground station systems for
our customers. This may have a material adverse effect on the sale of our
products to such customers. (See Risk Factors - Planned International Operations
May Not Succeed).
We believe that our business operations are in material compliance with
applicable governmental regulations. We are not aware of any pending legislation
that if enacted could have a material adverse effect on our business, financial
condition and results of operations.
Employees
As of December 31, 1999, we had 307 employees. None of our employees
are represented by a union and we consider our relationship with employees to be
good.
<PAGE>
RISK FACTORS
Risks Specific to STI
A significant portion of our revenue is derived from contracts or subcontracts
funded by the U.S. government.
The following table lists the approximate revenues, as a percentage of
our total revenues, derived from contracts funded by the U.S. government and by
one particular agency of the U.S. government, the NRL for fiscal years 1998(A),
the year ended January 31, 1998, 1998(B), the eleven months ended December 31,
1998, and 1999.
<TABLE>
<CAPTION>
Year ended Eleven months ended Year ended
12/31/99 12/31/98 1/31/1998
--------------------- ------------------------- -------------------
Government:
<S> <C> <C> <C>
Revenue $ 31,498,070 $ 24,698,289 $ 23,113,510
Cost of Sales (22,755,716) (18,512,619) (17,842,830)
--------------------- ------------------------- -------------------
Gross Profit $ 8,742,354 $ 6,185,670 $ 5,270,680
===================== ========================= ===================
Gross profit as % of sales 27.8% 25.0% 22.8%
Year ended Eleven months ended Year ended
12/31/99 12/31/98 1/31/1998
--------------------- ------------------------- -------------------
Commercial:
Revenue 4,653,208 6,440,794 12,635,209
Cost of Sales (5,432,387) (4,887,718) (8,578,956)
--------------------- ------------------------- -------------------
Gross Profit $ (779,179) $ 1,553,076 $ 4,056,253
===================== ========================= ===================
Gross profit as % of sales -16.7% 24.1% 32.1%
</TABLE>
We expect that U.S. government contracts are likely to continue to
account for a significant portion of our revenues in the near future.
Accordingly, our financial performance may be adversely affected by changing
U.S. government procurement practices and policies as well as declines in
defense agency spending. The factors that could have a material adverse effect
on our ability to win new contracts with the U.S. government, or retain existing
contracts, include the following: budgetary constraints; changes in government
funding levels, programs, policies or requirements; technological developments;
the adoption of new laws or regulations; and general economic conditions.
In addition, some of our contracts individually contribute a
significant percentage of our revenues. Two of our largest contracts generated
approximately 66.5% of our revenues for fiscal year 1998(B) and 62.6% of our
revenues for the fiscal year 1999. This includes one contract that generated
approximately 47.3% of our revenues for fiscal year 1998(B) and 49.1% of our
revenues for fiscal year 1999. A relatively small number of large U.S.
government contracts are likely to continue to account for a significant
percentage of our revenues in the future. Termination of any of these contracts
or our inability to renew or replace these contracts when they expire, could
have a material adverse effect on our business, financial condition, or results
of operations.
Our contracts and subcontracts that are funded by the U.S. government are
subject to termination without cause by the government.
All of our contracts and subcontracts that are funded by the U.S.
government are subject to termination for "convenience," meaning termination
without cause. Should a contract be terminated without cause, we would be
reimbursed for allowable costs incurred through the date of termination and
would be paid a proportionate amount of the stipulated profits or fees
attributable to work actually performed. Termination of any of our large
government contracts could have a material adverse effect on our business,
financial condition, or results of operations.
<PAGE>
Our contracts and subcontracts that are funded by the U.S. government are
subject to government regulations.
Government contracts require compliance with various contract
provisions and procurement regulations. The adoption of new or modified
procurement regulations could have a material adverse effect on our business,
financial condition, and results of operations or increase the costs of
competing for or performing government contracts. Any violation of these
regulations could result in the termination of the contracts, imposition of
fines and/or exclusion from government contracting and government-approved
subcontracting for some specific time period. Most government contracts are
subject to modification or termination in the event of changes in funding, and
our contract costs and revenues are subject to adjustment as a result of audits
by the Defense Contract Audit Agency and other government auditors. We reflect
any adjustments required by such audits in our financial statements. Although we
have not yet been required to make any material audit adjustments, there is no
assurance that such adjustments will not be required in the future. The award of
government contracts also is subject to protest by competitors, which can result
in the re-opening of the bidding process, unanticipated legal costs, or the
award of a contract to a competitor.
Our contracts and subcontracts that are funded by the U.S. government are
subject to a competitive bidding process.
Government contracts generally are awarded to us through a formal
competitive process in which we may have many competitors. Upon expiration,
government contracts may be subject, once again, to the competitive process. We
cannot assure you that we will be successful in winning contract awards or
renewals in the future. Our failure to renew or replace these contracts when
they expire could have a material adverse effect on our business, financial
condition, or results of operations.
Our contracts and subcontracts with federal government agencies are
subject to competition and are awarded on the basis of technical merit,
personnel qualifications, experience, and price. Our business, financial
condition and results of operations could be materially affected by changes in
procurement policies, a reduction in funds available for the services that we
provide, and other risks generally associated with federal government contracts.
New government contract awards are also subject to protest by competitors at the
time of award. This can result in the re-opening of the competition or
evaluation process or the award of a contract to a competitor. We consider bid
protests to be a customary element in the process of procuring government
contracts.
Our contracts and subcontracts that are funded by the U.S. government are
subject to the budget and funding process of the U.S. government.
Many of the U.S. government programs in which we participate as a
contractor or subcontractor extend for several years, but are funded only on an
annual basis. Accordingly, our contracts and subcontracts are subject to
termination, reduction, or modification in the event of changes in the
government's requirements or budgetary constraints. Additionally, when we
participate in a project as a subcontractor, we are subject to the risk that a
prime contractor may fail or be unable to perform the prime contract.
In addition to the right to terminate, government contracts are
conditioned upon the continuing availability of Congressional funding. Congress
usually allocates funds on a fiscal-year basis even though contract performance
may take several years. Consequently, at the outset of a major program, the
contract is usually incrementally funded, and additional funds are normally
committed to the contract by the procuring agency as funds are made available by
Congress for future fiscal years. In addition, contractors often experience
revenue uncertainties during the first quarter of the U.S. government's fiscal
year, which begins October 1, until differences between budget requests and
appropriations are resolved. To date, Congress has funded all years of the
multi-year major program contracts for which we have served as prime contractor
or subcontractor, although there is no assurance that this will be the case in
the future.
The estimated backlog under our government contracts is not necessarily
indicative of revenues that will actually be realized under the contracts.
Many of our government contracts are multi-year contracts and contracts
with option years, and portions of these contracts are carried forward from one
year to the next as part of our contract backlog. Backlog means the total value
of all contracts less the revenues earned on those same contracts. The estimated
backlog under a government contract is not necessarily indicative of revenues
that will actually be realized under that contract. Congress normally
appropriates funds for a given program on a fiscal-year basis, even though
actual contract performance may take many years. As a result, contracts
<PAGE>
ordinarily are only partially funded at the time of award, and additional monies
are normally committed to the contract by the contracting agency as Congress
makes appropriations in subsequent fiscal years. There can be no assurance that
Congress will appropriate funds or that procuring agencies will commit funds to
our government contracts for their anticipated terms. In addition, most of our
government contracts have an initial term of one year plus a number of option
years. We cannot assure that the government will extend a contract through its
option years. Certain of our large contracts provide that we will not receive
payment until the services under those contracts are requested and performed.
There is no assurance that cancellations or adjustments in the terms of these
contracts might not occur. In addition, our services under these contracts may
not be requested at the anticipated levels in the future.
Performance of some of our government contracts may require security clearance.
Some of our contracts with government agencies require that some of our
employees and procedures meet security clearance requirements. If problems, such
as delays or denials, develop in connection with meeting security clearance
requirements, the government could materially limit our ability to perform these
contracts.
Our commercial contracts are subject to competition and strict performance
requirements.
Although a significant portion of our revenues are generated from the
sale of our services and products in commercial markets, there is no assurance
that we will continue to compete successfully in these markets. Many of our
commercial contracts are for a fixed price. We are therefore subject to
substantial risks relating to unexpected cost increases and other factors
outside of our control. We may fail to anticipate technical problems, estimate
costs accurately, or control costs during performance of a fixed price contract.
Any of these failures may reduce our profit or cause a loss under our commercial
contracts. In addition, our revenues on fixed price contracts are recognized on
a percentage-of-completion basis. This means that the company calculates a ratio
of costs incurred to costs expected to be incurred for each fixed price job and
then multiplies that same ratio by the fixed price contract value to determine
total revenue for each fixed price job. As a result, contract price and cost
estimates on fixed price contracts are reviewed periodically as the work
progresses, and adjustments are reflected in income in the period when the
estimates are revised. To the extent that these adjustments result in a loss,
reduction, or elimination of previously reported profits, we would recognize a
charge against current earnings, which could be material and have a material
adverse effect on our business, financial condition, or results of operations.
In connection with certain commercial contracts, we may be required to
obtain bonds, letters of credit, and similar guarantees. There is no assurance
that we will be successful in obtaining these types of guarantees or that the
guarantees available will be affordable in the future.
We typically must agree to meet strict performance obligations and
project milestones, which we may not be able to satisfy. Our failure to meet
these performance obligations and milestones may permit the other party to
terminate the contract and, under certain circumstances, recover liquidated
damages or other penalties from us.
Intense competition in the satellite ground system industry could harm our
financial performance.
We experience significant competition. We believe that we are one of a
few companies in the United States, which derive the majority of their revenue
from the development of satellite ground systems. In addition to these
companies, approximately twelve large aerospace/defense contractors have
developed satellite control systems either in-house as primary contractors or
through subcontractors. As a result, some of our competitors are also current or
potential customers. Our competitors, which in many cases are customers as well,
include the following:
o Lockheed Martin Corporation;
o Integral Systems;
o Hughes Space Company;
o Loral Space & Communications Ltd.;
o Orbital Sciences Corporation;
o AlliedSignal;
o Computer Sciences Corporation;
o Alcatel Espace;
o Matra Marconi Space; and
o Aerospatiale.
<PAGE>
Many of our competitors are significantly larger and have greater
financial resources. Some of these competitors are divisions or subsidiaries of
large, diversified companies that have access to the financial resources of
their parent companies. We may not be able to compete effectively with these
companies or maintain them as customers while competing with them on other
projects. In addition, several smaller companies have specialized capabilities
in similar areas. Our products also face competition from certain off-the-shelf
products developed by the government for satellite command and control. We
cannot accurately predict how our competitive position may be affected by
changing economic or competitive conditions, customer requirements, or
technological developments. We principally obtain contracts and subcontracts
through competitive procurements offered by the U.S. government or commercial
enterprises. We cannot assure you that we will be able to compete successfully.
Our major products may not be accepted by the market.
Our earnings growth depends upon market acceptance of our commercial
off-the-shelf satellite telemetry, command and control software products,
including our base product, OS/COMET and related products. Because the space
industry has historically used customized software solutions, we cannot assure
you that our potential customers will be interested in licensing these products.
Whether potential customers will license our software depends on several
factors, including:
o how well our products perform;
o how well our products can be integrated into our customers' existing
technologies; and
o whether our customers can achieve cost savings and become more
efficient by using our software.
The failure of potential customers to license our products would have a material
adverse effect on our business, financial condition and results of operations.
The length of our sales cycle increases our costs and hinders our ability to
procure contracts.
We believe that the period of time between initial customer contact
and the sale of software to the customer is typically between 12 to 18 months,
and may sometimes take as long as 24 months. The reason for this is that a
potential customer will conduct extensive and lengthy tests before deciding
whether to purchase or license our product. While the customer is making its
decision, our sales and marketing expenses may be significant. In addition,
during this time period, there is a risk that space missions or projects will be
cut back or terminated, that customer budgets will be reduced, or that a
customer will decide that it no longer wants to purchase or license our product.
If this occurs unexpectedly, particularly if the potential contract is
significant, our business, financial condition and results of operations could
be adversely effected.
We may not be able to protect our proprietary rights. We may infringe on the
proprietary rights of other persons.
Our success and ability to compete are dependent, in large part, upon
our proprietary rights. To protect those rights, we rely primarily on a
combination of copyrights, trade secret laws, trademarks, patents, employee
confidentiality, non-competition and invention assignment agreements,
third-party non-disclosure agreements and other methods. The steps taken by us
may not be adequate and third parties may infringe or misappropriate our
copyrights, patents and other proprietary rights. In addition, effective
trademark, patent, copyright and trade secret protection may not be available in
every country in which our products will be sold or licensed. We may be forced
to bring lawsuits to enforce our rights, which could result in substantial costs
and take time and attention away from our business.
We also may be accused of infringing or misappropriating the
intellectual property rights of other persons. In our licenses and software
development and distribution agreements with our resellers, we generally agree
to indemnify those third parties for any expenses and liabilities that they
incur from claims of infringement or misappropriation. The amount of our
indemnity obligation may be greater than the revenues we receive under the
contract. If we are sued for possible infringement or misappropriation of the
rights of other persons, even if the claims are not valid, the lawsuit could
result in substantial costs, take time and attention away from our business,
cause us to delay shipments of products or require us to enter into costly
royalty or licensing agreements. If a royalty or licensing agreement is
required, and we cannot enter into a satisfactory agreement, our business,
financial condition and results of operations could be adversely affected.
<PAGE>
We also license certain technologies and software products from third
party developers. The agreements with these developers are generally
non-exclusive and may be terminated at any time by either party upon written
notice. If the developers terminate these agreements, develop other products
that compete with our products or provide their products and expertise to our
competitors, our business, financial condition or results of operations could be
adversely affected. Further, we may be accused of infringing or misappropriating
the intellectual property rights of other persons by using these licensed
products. If we are sued for possible infringement or misappropriation of the
rights of other persons, even if the claims are invalid, the lawsuit could
result in substantial costs, take time and attention away from our business,
cause us to delay shipments of products or require us to enter into a new costly
royalty or licensing agreements. If a new royalty or licensing agreement is
required, and we cannot enter into a satisfactory agreement, our business,
financial condition and results of operations could be adversely affected.
Any one of these consequences could have a material adverse effect on
our business, financial condition or results of operations.
Under some government contracts, we have developed software that i) we
are commercializing, or ii) in the future we may decide to commercialize. In
order to commercialize that software, we might need to invest additional
research and development funds to re-market the software as a commercial
product. If the product was developed using any government funding, government
regulations and contract provisions may prevent us from selling the resulting
product to any government agencies. If the primary market for a potential
product is government agencies, we may not be able to recover invested funds
through sale of the product. In addition, the government may acquire certain
rights to those software programs developed by us under government contracts or
subcontracts. Information relating to the programs or products may be disclosed
to third parties, including our competitors.
We depend upon attracting and retaining a highly skilled professional staff.
Our success depends in part upon our ability to attract, retain, train,
and motivate highly skilled employees, particularly in the area of information
technology. We face significant competition for employees with the computer and
technology skills required to perform our services and create our products. In
addition, we must often comply with provisions in government contracts, which
require our employees to have specified levels of education, work experience,
and security clearances. We cannot guarantee that we will be successful in
attracting a sufficient number of highly skilled and qualified employees in the
future. The loss of our key technical personnel, or our inability in the future
to attract key employees or to relocate them as required by customers, could
have a material adverse effect on our business, financial condition, or results
of operations.
We may not be able to accurately predict the success of our wireless
communications systems.
A number of our commercial product markets in the wireless
communications area, including our SDR products, have only recently begun to
develop. Because these markets are relatively new, it is difficult to predict
the rate at which these markets will grow, if at all. If the market for our
products in the commercial wireless communications area fails to grow, or it
grows more slowly than anticipated, our business, financial condition and
results of operations could be materially adversely affected. Conversely, to the
extent that growth in these markets results in capacity limitations in the
wireless communications area, our business, financial condition and results of
operations could also be materially adversely affected.
Industry Related Risks Specific to STI
Our success is dependent on the continued growth of the space industry.
Since our customers are primarily concentrated in the space industry,
our success will depend on the continued growth in the space industry software
market. The space industry has grown rapidly in the past few years as a result
of technological advancements. These advancements have lead to lower launch and
satellite production costs and the decreased safety risks related to satellites.
Further, the increased demand for advanced wireless and "broad band"
communication services has caused growth in the space industry. If the space
industry ceases to grow, the demand for our products will decrease. This may
have a material adverse effect on our business, financial condition and results
of operations. Further, we cannot accurately predict the space industry's
potential size or future growth rate. We are also unable to accurately predict
the future needs for satellite command software and related services.
<PAGE>
We may be exposed to product liability or related claims with respect to our
products.
Our products are mission-critical parts of sophisticated and extremely
expensive satellite systems. Should a satellite mission fail, or should the
system's service become unavailable, due to a failure or malfunction in the
ground system, we could be sued for product liability or related claims. Any
products liability or related claim could have a material adverse effect on our
business, financial condition, or results of operations. We have found obtaining
insurance to cover products liability claims to be impractical.
Our products may become obsolete due to rapid technological change in the
satellite industry.
Any of our products could become obsolete at any time due to the rapid
technological changes in the satellite industry. We may not be able to update
our products quickly enough to remain competitive. The rapid pace of
technological change in our industry exposes us to risk of loss due to the
development of superior technologies by our competitors. We are also dependent
upon technologies developed by third parties for integrating our ground systems
with a variety of satellite systems. As land-based telecommunications services
expand, demand for certain types of satellite-based services may be reduced. New
technology used by our competitors could render satellite-based services less
competitive by satisfying consumer demand in alternative ways, such as fiber
optic and wire-based versus wireless, or through the use of telecommunications
standards that are incompatible with existing satellite systems. In addition,
our success depends upon our ability to introduce innovative products and
services to the market on a cost-effective and timely basis.
Our planned international operations may be expensive and may not succeed.
We have limited experience in marketing, selling and supporting our
services in foreign countries. Development of such skills may be more difficult
or take longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less advanced than the United States' Internet infrastructure.
To date, we have not generated significant revenues from engagements with
international clients. We recently opened offices in London and Singapore and we
intend to expand our operations internationally in future periods by opening
other international offices and hiring international management, strategic,
technical, design, sales, marketing and support personnel.
We may be unable to successfully market, sell, deliver and support our
services internationally. If we are unable to expand our international
operations successfully and in a timely manner, our business, financial
condition and operating results could be seriously harmed. We will need to
devote significant management and financial resources to our international
expansion. In particular, we will have to attract and retain experienced
management, strategic, technical, design, sales, marketing, and support
personnel for our international offices. Competition for such personnel is
intense, and we may be unable to attract and retain qualified staff.
Moreover, international operations are subject to a variety of
additional risks that could seriously harm our financial condition and operating
results. These risks include the following:
o problems in collecting accounts receivable;
o the impact of recessions in economies outside the United States;
o longer payment cycles;
o fluctuations in currency exchange rates;
o political instability;
o unfamiliar governmental structures and laws;
o restrictions on the import and export of certain sensitive technologies,
including ground control systems for satellite communications (see below);
and
o seasonal reductions in business activity in certain parts of the world, such
as during the summer months in Europe.
Various agencies and departments of the U.S. government regulate our
ability to pursue business opportunities outside the United States. Exports of
space-related products, services, and technical information require licenses
granted by the U.S. government. We do not currently have blanket authorization
to export our products and services internationally. We cannot assure you that
we will be able to obtain blanket export authorization in the future. In
addition, we cannot assure you that we will be able to obtain necessary licenses
or approvals on a per- transaction basis, and our inability to do so, or our
failure to comply with the terms of the authorization when granted, could have a
material adverse effect on our business, financial condition, or results of
operations.
<PAGE>
Risks Specific to ESG
We may not be able to adjust our fixed operating costs if our revenues decline.
A high percentage of our operating expenses, particularly personnel and
rent, are fixed in advance of any particular quarter. As a result, unanticipated
variations in the number or progress of our projects may cause significant
variations in operating results in any particular quarter and could result in
quarterly losses.
An unanticipated termination of a major project, a client's decision
not to proceed with a project we anticipated, or the completion during a quarter
of several major client projects could require us to maintain underutilized
employees which could have a material adverse effect on our business, financial
condition and results of operations. Our revenues and earnings may also
fluctuate from quarter to quarter based on such factors as:
o the contractual terms and timing of completion of projects;
o delays incurred in connection with projects;
o the adequacy of provisions for losses;
o the accuracy of our estimates of resources required to complete ongoing
projects; and
o general economic conditions.
Our reputation and business may be damaged if we are unable to satisfy client
expectations as a result of the increased size and complexity of the software
solutions that we implement.
The average dollar size of our solutions has grown significantly, while
the timeframe for delivering solutions has generally decreased. As our client
engagements become larger, more complex, and more time sensitive the development
process becomes more difficult to manage. As a result, the likelihood and
consequences of mistakes increase. Any inability by us to complete client
solutions in a timely manner, any defects contained in the solutions we deliver
and any other failure by us to achieve client expectations, would have a
material adverse effect on our reputation with the affected client and generally
within our industry. This could have a material adverse effect on our business,
and our results of operations and our financial condition may suffer.
Our operating results may suffer as a result of our dependence on a limited
number of client projects.
We currently derive and expect to continue in the future to derive a
significant portion of our annual and quarterly revenues from a limited number
of clients for whom we perform large projects. Consequently, the loss of any
principal client could have a material adverse effect on our business, financial
condition and results of operations.
Competition from bigger, more established competitors who have greater financial
resources could result in price reductions, reduced profitability and loss of
market share.
Competition in the eBusiness services market is intense. If we fail to
compete successfully against our current or future competitors, our business,
financial condition and operating results may be seriously harmed. We compete
against companies selling electronic commerce software and services, as well as
against corporate in-house development efforts seeking to engage in electronic
commerce. We expect competition to persist and intensify in the future. We also
cannot be certain that we will be able to compete successfully with existing or
new competitors.
Because relatively low barriers exist for companies seeking to enter
our market, we expect many new companies to enter without much difficulty. We
expect that competition will continue to intensify and increase in the future.
Some large IT consulting firms have recently announced that they intend to focus
more resources on eBusiness engagements. We are unable to guarantee that we will
be retained by our existing or our future clients for later stages of work.
The vast majority of our current competitors have longer operating
histories, a larger client base, larger professional staffs, greater brand
recognition and greater financial, technical, marketing and other resources than
we do. This may place us at a disadvantage in responding to our competitors'
pricing strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives. In addition, many of our competitors have
well-established relationships with our current and potential clients and have
extensive knowledge of our industry. As a result, our competitors may be able to
<PAGE>
respond more quickly to new or emerging technologies as well as changes in
customer requirements. Our competitors may also be able to devote more resources
to the development, promotion and sale of their services than we can. Those
competitors who offer more standardized or less customized services than we do
may have a substantial cost advantage, which could force us to lower our prices
thereby adversely affecting our operating margins.
Some of our current and potential competitors also have established or
may in the future establish cooperative relationships among themselves or with
third parties to increase their ability to address customer needs. Accordingly,
it is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. In addition, some of our
competitors may develop services that are superior to, or have greater market
acceptance than ours.
Our revenues may decline as a result of our client agreements which prevent us
from providing services to their competitors.
We sometimes agree not to perform services for competitors of our
clients for limited periods of time, which have been as long as two years. These
non-compete agreements reduce the number of our prospective clients as well as
the number of potential sources of revenue. In addition, these agreements
increase the significance of our client selection process because many of our
clients compete in markets where only a limited number of entities gain
meaningful market share. If we agree not to perform services for a particular
client's competitors and our client fails to capture a significant portion of
its market, we are unlikely to receive future revenues in that particular
market.
Our efforts to develop brand awareness of our services may not be successful.
An important element of our business strategy is to develop and
maintain widespread awareness of the ESG brand name. To promote our brand name,
we plan to increase our advertising and marketing expenditures, which may cause
our operating margins to decline. Moreover, our brand may be closely associated
with the business success or failure of some of our high-profile clients, many
of whom are pursuing unproven business models in competitive markets. As a
result, if one of our high-profile clients experiences great difficulties or
fails, our brand may be damaged. Our operating margins and our growth rate may
decline if we fail to successfully promote and maintain our brand name as well
as if we incur significant expenses related to our brand.
If businesses do not increase their use of the Internet as a means for
conducting commerce, our revenues will be adversely affected.
Our future success depends on the increased acceptance and use of the
Internet as a means for conducting commerce. In the future, we intend to focus
our services on the development and implementation of Internet strategies and
solutions. If Internet commerce does not continue to grow, or grows more slowly
than we expect, our revenue growth may slow or decline. As a result, our
business, financial condition and results of operations may be materially
adversely affected. Consumers and businesses may also reject the Internet as a
viable medium for commerce for a number of reasons, including:
o inadequate network infrastructure;
o delays in the development of Internet enabling technologies and performance
improvements;
o delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity;
o delays in the development of security and authentication technology
necessary to effect secure transmission of confidential information;
o changes in, or insufficient availability of, telecommunications services
to support the Internet; and
o failure of companies to meet their customers' expectations in delivering
goods and services over the Internet.
We may not be able to effectively manage any continued growth.
Our revenues have increased significantly over the past three fiscal
years. Continued growth could place a significant strain on our limited
personnel, management, financial controls, and other resources. Any future
expansion will require us to attract, retain, train, motivate, and manage new
employees successfully. We would also need to integrate new management and
employees into our overall operations, and continue to improve our operational,
financial, and management systems and controls and facilities. Our failure to
manage any expansion effectively could have a material adverse effect on our
business, financial condition, or results of operations.
<PAGE>
Industry related risks specific to ESG
Our business is dependent upon our ability to keep pace with the latest
technological changes.
Our market and the technologies used by our clients are characterized
by rapid technological change. Failure to respond successfully to these
technological developments, or to respond in a timely or cost-effective way, may
result in serious harm to our business and operating results. We currently
derive, and expect to derive in the future, a substantial portion of our
revenues from creating eBusiness systems that are based upon today's leading
technologies and that are capable of adapting to future technologies. As a
result, our success will depend, in part, on our ability to offer services that
keep pace with continuing changes in technology, evolving industry standards and
changing client preferences. In addition, we must hire, train and retain
technologically adept professionals so that we can continue to fulfill the
sophisticated needs of our clients.
The professional computer services industry is highly competitive and is
characterized by low barriers to entry. If we cannot effectively compete, our
revenues may decline.
The professional computer services market is intensely competitive. We
expect competition to intensify as this market evolves. Many of our competitors
have longer operating histories, more clients, longer relationships with their
clients, greater brand or name recognition and significantly greater financial,
technical, marketing and public relations resources than we do. As a result, our
competitors may be in a stronger position to respond quickly to new or emerging
technologies and changes in client requirements. They may also develop and
promote their products and services more effectively than we do.
There are relatively low barriers to entry into the professional
computer services market. As a result, we anticipate many new competitors to
pose a threat to our existing operations. In addition, we do not own any
patented technology that may prevent our competitors from providing services
similar to ours. As a result, new and unknown market entrants pose a threat to
our business. Current or future competitors may also develop or offer services
that are comparable or superior to ours at a lower price. This could
significantly decrease our revenues and the value of your investment.
The demand for our services may diminish if government regulation interferes
with the acceptance of the Internet and electronic commerce.
Any new laws and regulations applicable to the Internet and electronic
commerce which may be adopted by federal, state or foreign governments could
hinder the growth of the Internet and decrease its acceptance as a viable
commercial medium. If this occurs, companies may decide in the future not to
pursue Internet initiatives, thereby decreasing demand for our services. A
decrease in the demand for our services would have a material adverse effect on
our business, financial condition and results of operations.
We face significant competition in relatively new and changing markets.
The markets for the services we provide are highly competitive. We
believe that we principally compete with "Big 5" consulting firms, Internet
professional services firms, systems integration firms, technology vendors and
internal information systems groups. Many of the companies that provide services
in our markets have significantly greater financial, technical and marketing
resources than we do and generate greater revenues and have better name
recognition. In addition, because of the relatively low barriers to entry into
our markets we expect to face competition from new entrants. We believe that the
principal competitive factors in our markets include:
o ability to integrate strategy, experience modeling, creative design and
technology services;
o quality of service, speed of delivery and price;
o industry knowledge;
o sophisticated project and program management capability; and
o Internet technology expertise and talent.
We believe that our ability to compete also depends in part on a number of
competitive factors outside our control, including:
o the ability of our competitors to hire, retain and motivate professional
staff;
o the development by others of services or software that is competitive with
our solutions; and
o the extent of our competitors' responsiveness to client needs.
<PAGE>
There can be no assurance that we will be able to compete successfully in our
markets.
We may not have the right to resell or reuse solutions that we developed for
specific clients.
A portion of our business involves the development of technology
solutions or specific client engagements. Ownership of these solutions is the
subject of negotiation and is frequently assigned to the client. Under certain
circumstances, however, we may be permitted to retain a license for certain
uses. Some clients have prohibited us from marketing the applications developed
for them for specified periods of time or to specified third parties and there
can be no assurance that clients will not demand similar or other restrictions.
Issues relating to the ownership of and rights to use solutions can be
complicated and there can be no assurance that disputes will not arise that
affect our ability to resell or reuse these solutions. Any limitation on our
ability to resell or reuse a solution could require us to incur additional
expenses to develop new solutions for future projects.
Our Risks and the Market for our Publicly Traded Securities
We depend on the services of our key personnel.
Our success depends to a significant degree on the following key
members of management:
o B.R. "Bernie" Smedley, Chairman and Chief Executive Officer; and
o Larry W. Whitfield, President, Software Technology, Inc.
The loss of either one of these members of our management team could
have a material adverse effect on our business, financial condition, or results
of operations. We have an employment, non-competition, and confidentiality
agreement with Mr. Smedley. We also maintain a key man life insurance policy for
Mr. Smedley.
Shares held by our current shareholders may adversely effect our Common Share
price.
As of March 1, 2000, we had 5,715,411 Common Shares outstanding. As of
March 1, 2000, the following Common Shares are freely tradable without
restriction or limitation under the Securities Act of 1933 (the "Act"), except
for the Common Shares purchased by "affiliates," as that term is defined in Rule
144 as promulgated under the Act:
o the 2,346,272 Common Shares granted but not yet issued under our stock
option plans;
o the 5,861 Common Shares issued under the employee stock purchase plan; and
Our remaining Common Shares may be sold in the public market, subject
in some cases to the restrictions set forth in Rule 144 as promulgated under the
Act. We have reserved 4,410,000 Common Shares for issuance under our stock
option plans. We have issued options to purchase a total of 2,763,822 Common
Shares under our stock option plans, of which 2,346,272 have yet to be
exercised. Sales of substantial amounts of our Common Shares in the public
markets, pursuant to Rule 144 or otherwise, or the availability of our Common
Shares for sale could adversely affect the prevailing market prices for our
Common Shares and impair our ability to raise additional capital through the
sale of equity securities in the future. In the past, our Common Shares have
traded at low volumes. Future sale of our Common Shares into the public market
could have an adverse effect on the prevailing market price of our Common
Shares.
The market price of our Common Shares may be volatile.
The market price for securities of technology companies has
historically faced significant volatility. Like technology stocks in general,
the trading price of our Common Shares is volatile. In addition, the stock
market in recent years has experienced significant price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of particular companies. The following factors may influence our quarterly
common share trading price:
o actual or anticipated operating results;
o growth rates;
o changes in estimates by analysts;
o market conditions in the industry;
o announcements by competitors;
o regulatory actions; and
o general economic conditions.
<PAGE>
Adverse changes in any of these items would likely result in a material adverse
effect on the market price of our Common Shares.
Our quarterly operating results may vary significantly from quarter to quarter.
Our quarterly revenues and earnings may fluctuate as a result of the
following factors:
o the number, size, and scope of our projects;
o equipment purchases and other expenditures required for our business;
o bid and proposal efforts undertaken;
o delays in the award of projects;
o employee productivity;
o adequacy of provisions for losses;
o accuracy of estimates of resources required to complete ongoing projects;
and
o general economic conditions.
Demand for our products and services in each of the markets we serve
can vary significantly from quarter to quarter due to revisions in customer
budgets or schedules as well as other factors beyond our control. As a result,
our results of operations may fall below the expectations of securities analysts
and investors in a particular period. Consequently, the trading price of our
Common Shares may be materially adversely affected.
Future acquisitions may cause our management to encounter numerous problems.
Our management tasks may be complicated by future acquisitions. An
acquisition may require us to integrate widely dispersed operations with
distinct corporate cultures. Such integration efforts may not succeed or may
distract our management from satisfactorily servicing our existing clients. Our
failure to manage future acquisitions successfully could harm our operating
results. Acquisition costs could also cause our quarterly operating results to
vary significantly. Further, our shareholders would become diluted if we finance
future acquisitions by incurring debt or issuing additional equity securities.
Our anti-takeover provisions may hinder a potential change of control.
Our Second Amended and Restated Certificate of Incorporation and
Amended and Restated ByLaws contain certain provisions that reduce the
probability of any change of control or acquisition:
o our board of directors can issue blank check preferred stock with such
rights, obligations and preferences as they may determine without any
further vote or action by the shareholders;
o beginning with the election of directors at our 1999 Annual Meeting of
Shareholders, our board was classified into three classes, each
class of directors serving for a period of three years, thus requiring
at least two years for any change of control of our board; and
o directors may only be removed by holders of at least 60% of our Common
Shares, with cause.
Further, in October 1998, our board of directors adopted a "poison
pill" shareholder rights plan which may tend to discourage a third party from
making an unsolicited proposal to acquire us which our board of directors does
not approve, even if such acquisition proposal would be beneficial to our
shareholders. As a result, shareholders who wish to participate in such a
transaction may not have an opportunity. Under our shareholder rights plan,
preferred share purchase rights, which are attached to our Common Shares, may be
triggered upon an acquisition, or actions that result in the acquisition, of 15%
or more of our Common Shares by any person or group. If triggered, these share
purchase rights entitle our shareholders, other than the acquiror, to purchase,
for the exercise price, our Common Shares having a market value of two times the
exercise price. In addition, if a company acquires us in a business combination
transaction, or if we sell more than 50% of our consolidated assets or earning
power, these share purchase rights will entitle our shareholders, other than the
acquiror, to purchase for the exercise price, the acquiror's Common Shares
having a market value of two times the exercise price. Thus, our shareholder
rights plan, if triggered, will cause substantial dilution to a person or group
attempting to acquire us on terms not approved by our board of directors.
<PAGE>
In addition, Section 203 of the Delaware General Corporation Law and
our stock option plans may also discourage, delay or prevent a change in
control.
We may require additional capital resources to develop additional technologies,
and these resources may not be available.
We may need to raise additional funds, and we cannot be certain that we
will be able to obtain additional funds on favorable terms or at all. If we need
additional capital and cannot raise it on acceptable terms, we may not be able
to:
o open new offices in the United States or abroad;
o create additional market-specific business units;
o enhance our infrastructure and leveragable assets;
o hire, train and retain employees;
o respond to competitive pressures or unanticipated requirements; or
o pursue acquisition opportunities.
Failure to obtain additional capital resources may adversely impact our
long-term financial condition.
Our Common Shares are illiquid.
Our Common Shares are thinly traded on the NASDAQ SmallCap Market. They
should only be purchased by investors that can afford to lose their entire
investment. Our Common Share trading price is highly volatile and may trade
significantly below the book value per Common Share. Until an orderly market
develops, if at all, the trading price of our Common Shares may fluctuate
significantly. Prices for our Common Shares will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market, investor perception of our business and our industry,
and general economic and market conditions.
We may encounter Year 2000 risks.
Historically, installed computer systems and software products were
coded to accept only two-digit entries in the date code field. To distinguish
21st century dates from 20th century dates, these date code fields must be able
to accept four-digit entries. We have evaluated our information technology
infrastructure for Year 2000 compliance and made certain modifications. To this
date, we have not experienced any material systems disruptions as a result of
Year 2000 issues and we do not anticipate such material disruption. We cannot
assure you, however, that unanticipated or undiscovered Year 2000 compliance
problems would not have a material adverse effect on our business, financial
condition, or results of operations. In addition, we have limited information
concerning the compliance status of our customers and suppliers. In the event
that any of our significant customers or third-party suppliers are not Year 2000
compliant, our financial condition or results of operations could be materially
adversely affected.
Forward-looking statements contained in this Report may prove inaccurate.
This annual report on Form 10-K includes and incorporates
forward-looking statements that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts
included or incorporated in this prospectus, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. Our forward
looking statements oftentimes relate to matters regarding our management,
retention of employees, technology, governmental factors, economic conditions,
integration of acquisitions, Y2K issues and our competition. When used herein,
the words "will", "believe", "anticipate", "intend", "estimate", "expect",
"project" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. We cannot guarantee future results, levels of activity,
performance or achievements and investors should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or strategic investments. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including the risks described in "Risk Factors" and elsewhere. We do
not assume any obligation to update any of the forward-looking statements we
make.
<PAGE>
Item 2. Properties
Our corporate headquarters are located in Melbourne, Florida. This
area is commonly referred to as the "Space Coast" because of its proximity to
NASA's Kennedy Space Center. Exigent, through STI, entered into a 10 year lease
expiring on February 28, 2007 to occupy a 30,000 square foot building in
Melbourne, FL. This building houses our corporate headquarters, our product
development facility and FotoTag. STI also leases an adjacent 29,000 square foot
building under a ten-year lease expiring December 1, 2005. This facility houses
many of our technical employees.
We also have three offices in the greater Washington, D.C. area. These
offices are predominantly staffed with technical employees. Exigent, through
STI, renewed our existing lease of 15,296 square feet, located in Alexandria,
Virginia, for five years expiring on August 31, 2003. In December 1998, Exigent,
through STI, occupied an additional leased building of approximately 11,188
square feet, located in Chantilly, Virginia, under a five-year lease expiring on
November 30, 2003. We have entered into a lease for an expanded facility in
Chantilly, Virginia to meet the growth requirements for our anticipated business
in this area.
We also lease office space in LaPlata, Maryland; Colorado Springs,
Colorado; Aurora, Colorado; Boulder, Colorado; Charlotte, North Carolina; and
Mesa, Arizona.
We believe that our occupancy needs will be met through our next fiscal
year. Due to the nature of our business, there are no special facility
requirements to consider, other than security requirements placed on certain of
our facilities, given that software development can be conducted in standard
office space and we incur minimal manufacturing requirements because it is
mostly outsourced.
Item 3. Legal Proceedings
We may, from time to time, be involved in litigation incidental to the
conduct of our business. We are not currently a party to any material legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, we
did not submit any matters to a vote of security holders, through the
solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Until February 26, 1999 our Common Shares and Warrants were reported
on the NASDAQ Electronic Bulletin Board ("Bulletin Board") under the symbols
XGNT and XGNTW. On March 1, 1999, our Common Shares and Warrants began trading
on the Nasdaq Small Cap Market. Our Common Shares and Warrants are also traded
on the Chicago Stock Exchange under the symbols XNT and XNTW, respectively. The
Warrants traded as specified on both Exchanges until expiring on January 30,
2000. There is no established trading market for the Company's Class A Preferred
Shares. (See Risk Factors - Risks Specific to the Company and the Market for its
Publicly Traded Securities).
The following table represents the high and low bid prices for our
Common Shares and Warrants for each quarter of our fiscal year ended December
31, 1999, and each of the second, third and fourth quarters of the fiscal year
ended December 31, 1998, as reported in the Nasdaq daily report:
Common Stock
Common Shares Purchase Warrants
Fiscal Year Ended 12/31/99 High Low High Low
4th Quarter $4.75 $3.13 $1.500 $0.4375
3rd Quarter $6.25 $3.25 $3.000 $0.875
2nd Quarter $6.50 $3.63 $3.875 $1.0625
1st Quarter $7.00 $2.47 $3.000 $0.625
Fiscal Year Ended 12/31/98
4th Quarter $4.13 $2.44 $1.125 $0.625
3rd Quarter $4.38 $2.75 $1.875 $0.53125
2nd Quarter $6.00 $3.81 $3.375 $1.375
1st Quarter $4.00 $2.94 $1.5625 $0.6875
As of March 1, 2000, we have approximately 1,110 holders of our Common
Shares (based upon the number of record holders). This number excludes
shareholders whose Common Shares are held in nominee or street name by brokers.
Our Warrants expired on January 30, 2000. Prior to expiration, 798,560 were
exercised at a price of $3.00 per share, and we raised a total of $2,395,680 in
capital. As of March 1, 2000 we have no Warrant holders.
Our Board of Directors determined during our fiscal years ended
December 31, 1998, and 1999 that dividends would not be paid in the foreseeable
future. The Board determined that our resources should be devoted to funding
acquisitions, product development and operations.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Eleven months
Year ended ended Years Ended January 31
(Amounts in thousands except per share amounts) 12/31/99 12/31/98 1998 1997 1996
------------- --------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 36,151 $ 31,139 $ 35,749 $ 29,936 $ 25,292
Cost of Sales (28,188) (23,401) (26,422) (24,689) (19,408)
------------- --------------- -------------- ------------- --------------
Gross Profit 7,963 7,738 9,327 5,247 5,884
General and Administrative Expenses (8,617) (6,823) (7,050) (5,344) (3,841)
Research and Development Costs (272) (181) (48) (240) (155)
------------- --------------- -------------- ------------- --------------
Operating Income (loss) (926) 734 2,229 (337) 1,888
Total Other Income (Expense) (13) (136) (53) 1 (1)
------------- --------------- -------------- ------------- --------------
Income (loss) before Taxes (939) 598 2,176 (336) 1,887
Income Tax Expense 460 (180) (831) (150) (755)
------------- --------------- -------------- ------------- --------------
Net Income (loss) $ (479) $ 418 $ 1,345 $ (486) $ 1,132
============= =============== ============== ============= ==============
Income (loss) per Weighted Average Common
Shares Outstanding - Diluted $ (0.11) $ 0.08 $ 0.29 $ (0.13) $ 0.29
Cash Dividends $ - $ - $ - $ (310) (178)
Cash Dividends Paid per Share Outstanding $ - $ - $ - $ 0.08 $ 0.05
Total Assets $ 18,016 $ 15,664 $ 14,693 $ 10,949 $ 8,328
Total Long-Term Liabilities
(Excluding Deferred Income Taxes) $ 1,019 $ 428 $ 467 $ 317 $ 10
Total Stockholders' Equity $ 8,785 $ 8,629 $ 7,781 $ 6,258 $ 4,893
Stockholders' Equity per Weighted Average
Common Share, Outstanding - Diluted $ 1.96 $ 1.67 $ 1.67 $ 1.72 $ 1.27
Dividends Declared per Weighted Average
Common Share, Outstanding - Diluted $ - $ - $ - $ 0.08 $ 0.05
</TABLE>
See Note 1 to the Consolidated Financial Statements for the results for the
twelve months ended December 31, 1998.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
We had a challenging year with respect to revenue and earnings growth.
At the beginning of the year, we expected record-breaking commercial satellite
business from STI due to our support of the Teledesic program. Our expectations
changed, however, when Teledesic experienced numerous delays. As a result, we
ceased working on the Motorola Strategic Agreement. We decided that we could not
recover our complete investment in Teledesic and that it was no longer
financially prudent to continue to carry that asset on our books. Consequently,
we wrote off approximately $1,000,000 and decided to close our facility
supporting the project in Mesa, Arizona. Further, Iridium, our flagship
constellation and revenue-producing project, filed for reorganization under the
U.S. Bankruptcy Laws during the third quarter. As a result of these facts, our
commercial satellite business declined significantly. Based on the decreasing
STI government space services business, and our projections of revenues
therefrom, we decided to replace our decreasing commercial and government
satellite service revenue with IT and Enterprise Engineering (EE) business
thereby utilizing our core tracking and control engineering resources.
We were able to continue to grow our overall revenues in 1999 year over
year, continue to invest in new product development, maintain positive cash
flows and initiate an acquisition program for a commercial IT business. Our
first acquisition was successfully completed in December 1999 when we acquired
GEC, an Oracle services provider.
We developed a tracking and control COTS product family (OS/COMET) that
was designed to manage a single Geostationery Earth Orbit ("GEO") satellite or
several hundred satellites in a constellation. No company has ever before
demonstrated that capability.
Our management believes that these financial changes position us for
greater revenues and earnings growth in the future.
We have changed the last day of our fiscal year from January 31 to
December 31. Hence, our fiscal year 1998B was an eleven-month period ending on
December 31, 1998.
Liquidity
As of December 31, 1999 and December 31, 1998, our ratio of current
assets to current liabilities was 1.2 and 1.7, respectively. This decrease is
due to our December 9, 1999 acquisition of GEC. Current liabilities were
increased by approximately $1,700,000 in connection with this acquisition.
Our cash portfolio (cash and cash equivalents) increased $144,398 for
the fiscal year ended December 31, 1999. This increase was due to cash used in
investing activities of $4,176,873 offset by cash provided by operating
activities of $2,388,710 and cash provided by financing activities of
$1,932,561. By comparison, our cash portfolio decreased $3,210,538 for the
eleven months ended December 31, 1998. This decrease was due to cash used in
investing activities of $4,900,806 and by operating activities of $204,878,
offset by cash provided by financing activities of $1,895,146. The cash used in
investing activities was due to a $2,144,253 investment in software development,
a $35,020 investment in our facilities and capital equipment and net cash paid
for GEC of $1,912,484. The acquisition of GEC was booked using the purchase
method of accounting resulting in goodwill of $2,861,416, which will be
amortized over ten years. The cash used in investing activities in the eleven
months ended December 31, 1998 was attributable to an investment in software
development of $3,905,349 and an investment in Company facilities and capital
equipment of $1,002,041.
In our fiscal years ended December 31, 1999, December 31, 1998 and
January 31, 1998, we invested $35,020, $1,002,041, and $1,306,693 in capital
assets, respectively. The expenditure in the eleven months ended December 31,
1998 was due largely to the completion of remodeling and furnishing our
facilities as well as the installation of a wide area network serving all of our
principal facilities. The expenditure in the fiscal year ended January 31, 1998
was due primarily to an investment made in computing resources to support the
demonstration of our products and capabilities in an integrated control center.
The expenditures in prior fiscal years were made to support programs and for the
modernization of office equipment. In the fiscal year ended January 31, 1998, we
decided to lease new computer equipment and furnishings for our facilities. We
continued to lease new items through the fiscal year ended December 31, 1999.
Capital for equipment purchases is expected to remain stable for the next two
fiscal years because of our recent computer acquisition and modernization
efforts. We will continue our policy of leasing resources for office computing
needs and furnishings.
<PAGE>
During our fiscal years ended December 31, 1999, December 31, 1998 and
January 31, 1998, we spent $2,144,253, $3,905,349 and $1,149,685, respectively,
in capitalized software development costs to develop new products considered
essential in maintaining a strong market position in the satellite command and
control industry as well as to test the market for enhanced airport security.
Cash provided by financing activities for the fiscal years ended
December 31, 1999, December 31, 1998, and January 31, 1998 was $1,932,561,
$1,895,146, and $413,759, respectively. This was comprised of $575,641 borrowed
against a line of credit to finance operations, $203,504 borrowed through two
capital lease lines with Oliver-Allen Corporation, and $1,000,000 borrowed
through Huntington Bank to finance the acquisition of GEC, offset by $325,939 in
principal payments on long-term debt. In addition, $479,355 was raised through
the exercise of stock options and Warrants.
For the fiscal years ended December 31, 1999 and 1998 and January 31,
1998, our Board of Directors determined not to pay any shareholder dividends,
but instead to use cash for acquisitions, product development and operations.
In our fiscal years ended December 31, 1999, December 31, 1998 and
January 31, 1998 principal payments on long-term debt amounted to $325,939,
$345,506 and $382,108, respectively. On August 12, 1999, we obtained an
additional $2,000,000 to our existing line of credit with Huntington National
Bank. As of December 31, 1999 and December 31, 1998, we had a line of credit
with Huntington National Bank of $5,000,000 and $3,000,000, respectively. As of
December 31, 1999 and 1998, draws against the line of credit were $2,386,734 and
$1,811,093, respectively. All accounts receivable, equipment, furniture, and
fixtures of STI are pledged as collateral against amounts borrowed under the
line of credit.
Our management believes that capital in addition to that available
through operations and the available line of credit will be necessary to fund
our plans for expansion and growth during our next fiscal year and beyond. We
may seek debt or equity financing. However, there can be no assurance that such
financing will be available on acceptable terms, if at all, or that adequate
amounts of financing will be obtained.
Forward-looking statements contained in this Report may prove inaccurate.
This annual report on Form 10-K includes and incorporates
forward-looking statements that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts
included or incorporated in this prospectus, regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. Our
forward-looking statements oftentimes relate to matters regarding our
management, technology, governmental factors, economic conditions, retention of
employees, integration of acquisitions, Y2K issues and our competition. When
used herein, the words "will", "believe", "anticipate", "intend", "estimate",
"expect", "project" and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
these identifying words. We cannot guarantee future results, levels of activity,
performance or achievements and investors should not place undue reliance on our
forward-looking statements. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or strategic investments. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including the risks described in "Risk Factors" and elsewhere. We do
not assume any obligation to update any of the forward-looking statements we
make.
Provision for Income Taxes
The effective rate for our fiscal year ended December 31, 1999 was a
credit of 50.9%, while the effective rate for the eleven months ended December
31, 1998 and the year ended January 31, 1998 was 30.1% and 38.2%, respectively.
See Note 14 to Financial Statements describing the differences between the U.S.
statutory and effective income tax rates.
<PAGE>
Analysis of Operations
Overview
Our current contract base provides sufficient backlog to maintain our
operations through June, 2000. As of December 31, 1999, our funded backlog for
commercial and government contracts respectively was $2,607,352 and $3,215,294.
We invested in excess of $9,000,000 during the last two years in our software
product OS/COMET. We believe this investment facilitated many of our contract
awards. We are committed to maintain OS/COMET during fiscal year 2000 and
beyond.
The commercial constellation business has been stationary through the
year ended December 31, 1999, as commercial projects worked to finance both the
development and the deployment of their satellites.
In the fourth quarter ended December 31, 1999, Exigent, through its
acquisition of GEC, began expanding its range of business activities into the IT
business and formed ESG for this purpose. This expansion is expected to provide
new customer opportunities in both the government as well as the commercial
sectors.
We expect demand for software engineers to provide new customer
opportunities, but this demand places a premium on efforts to retain our current
workforce. (See Risk Factors - Highly Competitive Market for Computer Services).
As with all companies in our industry, this places additional pressure on our
overall payroll costs. We believe that our benefits package is competitive
within our industry and this should help to recruit workers and retain our
current workforce. As our indirect costs funding benefits increase, pressure is
placed on our indirect rates. We believe that maintaining superior benefits is
critical while the demand for software engineers remains high. We are constantly
struggling with the need to minimize costs while maintaining superior employee
benefits.
Comparison of Years Ended December 31, 1999, December 31, 1998 and January 31,
1998
As of the fiscal year ended December 31, 1999, our sales were
$36,151,278, up 16.1% from sales of $31,139,083 for the eleven-month fiscal year
ended December 31, 1998. Sales were up 6.0% after adjusting for the fact that
the period ended December 31, 1998 consisted of only eleven months. Our sales
for the eleven-month fiscal year ended December 31, 1998, decreased 12.9% from
sales of $35,748,719 for our fiscal year ended January 31, 1998. The breakdown
between government and commercial sales for these periods is as follows:
Year ended Eleven months Year ended
12/31/99 ended 12/31/98 1/31/98
--------------- --------------- --------------
Government $ 31,498,070 87% $ 24,698,289 79% $ 23,113,510 65%
Commercial 4,653,208 13% 6,440,794 21% 12,635,209 35%
--------------- ----- --------------- ---- -------------- ----
$ 36,151,278 100% $ 31,139,083 100% $ 35,748,719 100%
=============== ===== =============== ==== ============== ====
These sales reflect a 87% to 13% government to commercial split in our
fiscal year ended December 31, 1999, compared to a 79% to 21% split in our
fiscal year ended December 31, 1998 and a 65% to 35% split in our fiscal year
ended January 31, 1998. Government contract revenue increased in our fiscal year
ended December 31, 1999 due to our obtaining additional from the NRL and other
government entities, while we completed a major commercial sector contract. Our
sales in its fiscal year ended December 31, 1998 increased from our sales in the
fiscal year ended January 31, 1998 due largely to obtaining a contract with a
new government agency as well as sales of OS/Comet.
Gross profit as a percentage of sales decreased to 22.0% ($7,963,175)
for the fiscal year ended December 31, 1999 from 24.9% ($7,738,362) for the
fiscal year ended December 31, 1998. This decrease was due primarily to a
write-down of work performed with respect to the Strategic Alliance Agreement
with Motorola. Upon complete review of the circumstances, this was determined to
be an impaired asset and we wrote down approximately $1,000,000. In addition, a
complete review of the FotoTag asset resulted in an adjustment in the carrying
value of the asset of approximately $380,000. Gross profit as a percentage of
sales for our fiscal year ended January 31, 1998 was 26.1% of sales
($9,326,933). As a result of the aforementioned writeoffs, we were not in
compliance with certain financial covenants under our credit agreement at
December 31, 1999. Huntington Bank has waived this event of default.
<PAGE>
The following chart shows the gross profit breakdown between government
and commercial contracts during the periods indicated:
<TABLE>
<CAPTION>
Year ended Eleven months ended Year ended
12/31/99 12/31/98 1/31/1998
------------------------- ------------------------- -------------------
Government:
<S> <C> <C> <C>
Revenue $ 31,498,070 $ 24,698,289 $ 23,113,510
Cost of Sales (22,755,716) (18,512,619) (17,842,830)
------------------------- ------------------------- -------------------
Gross Profit $ 8,742,354 $ 6,185,670 $ 5,270,680
========================= ========================= ===================
Gross profit as % of sales 27.8% 25.0% 22.8%
Year ended Eleven months ended Year ended
12/31/99 12/31/98 1/31/1998
------------------------- ------------------------- -------------------
Commercial:
Revenue 4,653,208 6,440,794 12,635,209
Cost of Sales (5,432,387) (4,887,718) (8,578,956)
------------------------- ------------------------- -------------------
Gross Profit $ (779,179) $ 1,553,076 $ 4,056,253
========================= ========================= ===================
Gross profit as % of sales -16.7% 24.1% 32.1%
</TABLE>
General and administrative expenses ("G&A") for the fiscal year ended
December 31, 1999 were $8,617,157, 26.3% or $1,793,959 higher than expenses of
$6,823,198 for the eleven months ended December 31, 1998. After taking the
shortened fiscal year into account, our expenses were 4.4% or $360,799 higher
than for the eleven months ended December 31, 1998. This increase resulted
primarily from staffing a Chief Technical Officer ($450,000), staffing other
positions which had not previously been staffed such as a Chief Financial
Office, expenses associated with financial advisory services, and expenses
associated with the acquisition of GEC ($550,000), in addition to the increased
marketing effort associated with the new products introduced during the fiscal
year ended December 31, 1999 ($180,000). General and administrative expenses for
the eleven months ended December 31, 1998 were $6,823,198, 3.2% or $226,872
lower than our expenses of $7,050,070 for the fiscal year ended January 31,
1998. Again, taking into consideration the eleven-month year, versus a full
twelve-month year, G&A expenses were 17.1% or $1,206,288 higher than those for
the fiscal year ended January 31, 1998. This increase resulted primarily from
$250,000 in costs associated with a potential acquisition, an increase in rent
expense of $200,000, and the complete staffing of corporate officers of
approximately $500,000.
We incurred a net loss of $478,665 (1.3% of sales) in the fiscal year
ended December 31, 1999, which was down significantly from a net income of
$418,160 in the eleven months ended December 31, 1998. We attribute this loss to
a one-time charge for two impaired assets equal to approximately $1,400,000. In
addition, there was a significant reduction in commercial revenue as development
on a major commercial effort was completed in the eleven months ended December
31, 1998. We continued maintenance on the Iridium contract, but at a greatly
reduced rate from our previous rate. We also attribute our loss to a reduction
in commercial constellation projects as a result of financing and marketing
issues. The net income in the eleven months ended December 31, 1998 decreased
significantly from the fiscal year ended January 31, 1998 of $1,345,429. This
decrease was due primarily to the reduction in commercial constellation
projects.
Outlook
This section captioned "Outlook" and other parts of this Annual Report
on Form 10-K include certain forward-looking statements within the meaning of
the federal securities laws. Actual results and the occurrence or timing of
certain events could differ materially from those projected in any of such
forward-looking statements due to a number of factors, including those set forth
below and elsewhere in this Form 10-K. See "Other Forward-Looking Statements."
Diversification and Long Term Growth. We expect to diversify our
business through sales of COTS products in both commercial and government
markets and expand our information technology offerings in both the commercial
as well as the government markets. Our first step in this strategy was the
acquisition of GEC. Additionally, we currently plan to seek opportunities for
long term growth through additional acquisitions, sales of products for
commercial applications, and leveraging our existing technologies and products.
<PAGE>
Product Development. We are developing new products and product
offerings, including the next generation of OS/COMET, the Active Tracking Engine
("ATE") and the OS/ICC. We plan to investigate other new product development
opportunities as part of its effort to expand its product offerings and market.
Year 2000 Issues
Some existing computer programs will be unable to recognize dates
properly in the Year 2000 ("Y2K") and beyond. During 1997, we conducted an
informal study of our products, systems and operations, including products under
development, to improve our business functionality, to identify those of our
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, we recognized that the OS/COMET
product required certain modifications to become Y2K compliant. Those
modifications have been made to the software and are available in the current
release, Version 3.5. Communications with these certain third parties whose
computer systems' functionality could adversely impact our operation were
completed during the third quarter of 1999. These communications will facilitate
coordination of any necessary Y2K conversions and will, additionally, permit us
to determine the extent to which we may be vulnerable to the failure of third
parties to address their own Y2K issues. We completed our review of all
desktop-computing resources during the third quarter of 1999. Due to the fact
that we believe we have secured sufficient resources to address the Y2K issue,
as it relates to our own computer systems and certain third parties whose
computer systems' functionality could adversely impact us, we do not believe
that contingency planning is warranted at this time. We believe that Y2K will
not have a material and adverse impact on our desktop-computing resources.
The costs of our 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 our overall results of operations
or cash flows.
The assessment of our Y2K compliance costs constitutes our best
estimate. 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 our planned schedule. We cannot therefore guarantee that these
estimates will prove accurate, and actual results could differ significantly
from those estimated if these assumptions prove inaccurate.
Based upon progress to date, however, we believe that it is unlikely
that the foregoing factors will cause actual results to differ significantly
from those estimated. As to our systems linked to third parties, we cannot
guarantee that such systems are Y2K-compliant and will be compliant within a
timely manner. Additionally, there can be no guarantee that our important third
party vendors will successfully and timely test, reprogram and/or replace, and
test, all of their computer hardware, software and process control systems.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
Item 8. Financial Statements and Supplementary Data
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Exigent International, Inc.
We have audited the accompanying consolidated balance sheets of Exigent
International, Inc. as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended December 31, 1999 and the eleven months ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Exigent
International, Inc. at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for the year ended December 31, 1999 and
the eleven months ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Orlando, Florida
February 11, 2000
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Exigent International, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Exigent International, Inc. for the year
ended January 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit on accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated statements of operations, stockholders'
equity and cash flows are free of material misstatement. An audit includes
examining, on a test bases, evidence supporting the amounts and disclosures in
the consolidated statements of operations, stockholders' equity and cash flows.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the consolidated statements of operations, stockholders' equity and cash flows.
We believe that our audit of the consolidated statements of operations,
stockholders' equity and cash flows provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations, stockholders' equity
and cash flows referred to above present fairly, in all material respects, the
consolidated results of Exigent International, Inc.'s voperations vand its cash
flows for the year ended January 31, 1998 in conformity with generally accepted
accounting principles.
Hoyman, Dobson & Company, P.A.
Melbourne, Florida
April 4, 1998
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------------- --------------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 574,368 $ 429,970
Accounts receivable, pledged 2,616,727 1,873,772
Costs and estimated earnings in excess of
billings on uncompleted contracts, pledged 4,790,742 5,072,788
Prepaid expenses 42,492 10,677
Income taxes receivable 803,188 843,938
Deferred income taxes 336,000 595,000
------------------- --------------------
TOTAL CURRENT ASSETS 9,163,517 8,826,145
------------------- --------------------
PROPERTY AND EQUIPMENT
Cost 6,240,397 6,265,709
Accumulated depreciation (4,699,750) (3,982,347)
------------------- --------------------
PROPERTY AND EQUIPMENT, NET 1,540,647 2,283,362
------------------- --------------------
OTHER ASSETS
Software development costs, net 4,275,113 4,463,729
Capitalized patent costs, net 85,116 -
Goodwill, net 2,848,220 -
Deposits 86,165 74,179
Cash surrender value of life insurance 17,028 17,028
------------------- --------------------
TOTAL OTHER ASSETS 7,311,642 4,554,936
------------------- --------------------
TOTAL ASSETS $ 18,015,806 $ 15,664,443
=================== ====================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31,
1999 1998
------------------ -------------------
CURRENT LIABILITIES
<S> <C> <C>
Line of credit $ 2,386,734 $ 1,811,093
Accounts payable 715,976 227,750
Accrued expenses 2,187,690 2,734,200
Billings in excess of costs and estimated earnings
on uncompleted contracts 891,557 270,418
Income taxes payable 17,827 5,098
Current portion, long-term debt 1,256,817 204,456
Current portion, subordinated debt 250,000 -
------------------ -------------------
TOTAL CURRENT LIABILITIES 7,706,601 5,253,015
------------------ -------------------
LONG-TERM LIABILITIES
Long-term debt, less current portion 268,897 427,816
Subordinated debt, less current portion 750,000 -
Deferred income taxes 505,000 1,355,000
Other liabilities - 44
------------------ -------------------
TOTAL LONG-TERM LIABILITIES 1,523,897 1,782,860
------------------ -------------------
TOTAL LIABILITIES 9,230,498 7,035,875
------------------ -------------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Class A Preferred Shares, $.01 par value, 5,000,000 shares authorized,
68,841 and 609,882 issued and outstanding at December 31, 1999 and 1998,
respectively, at $2.50 per share liquidation/dissolution
preference 688 6,099
Common Shares, $.01 par value, 40,000,000 shares
authorized, 4,845,149 and 4,130,103 issued and
outstanding at December 31, 1999 and 1998,
respectively 48,452 41,301
Class B common stock, $.01 par value; 600,000 shares
authorized, no shares issued or outstanding - -
Paid in capital 2,646,445 2,012,780
Retained earnings 6,089,723 6,568,388
------------------ -------------------
TOTAL STOCKHOLDERS' EQUITY 8,785,308 8,628,568
------------------ -------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 18,015,806 $ 15,664,443
================== ===================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year For the eleven For the year
ended months ended ended
December 31, December 31, January 31,
1999 1998 1998
------------------ ------------------- -----------------
<S> <C> <C> <C>
REVENUES $ 36,151,278 $ 31,139,083 $ 35,748,719
COST OF SALES 28,188,103 23,400,721 26,421,786
------------------ ------------------- -----------------
GROSS PROFIT 7,963,175 7,738,362 9,326,933
GENERAL AND ADMINISTRATIVE EXPENSES 8,617,157 6,823,198 7,050,070
RESEARCH AND DEVELOPMENT COSTS 271,576 180,671 47,854
------------------ ------------------- -----------------
OPERATING INCOME (LOSS) (925,558) 734,493 2,229,009
------------------ ------------------- -----------------
OTHER INCOME (EXPENSE)
Interest income 35,201 42,786 36,887
Interest expense (52,004) (172,035) (91,276)
Gain (loss) on disposal of fixed assets (6,613) 3,292 (4,655)
Other, net 10,309 (10,376) 6,229
------------------ ------------------- -----------------
TOTAL OTHER INCOME (EXPENSE) (13,107) (136,333) (52,815)
------------------ ------------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES (938,665) 598,160 2,176,194
INCOME TAX EXPENSE (BENEFIT) (460,000) 180,000 830,765
------------------ ------------------- -----------------
NET INCOME (LOSS) $ (478,665) $ 418,160 $ 1,345,429
================== =================== =================
EARNINGS (LOSS) PER SHARE - BASIC $ (0.11) $ 0.10 $ 0.36
================== =================== =================
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC 4,484,177 4,034,039 3,787,639
================== =================== =================
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.11) $ 0.08 $ 0.29
================== =================== =================
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED 4,484,177 5,157,531 4,647,290
================== =================== =================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A
Common Stock Preferred Paid In Retained
Shares Amount Shares Amount Capital Earnings Total
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE FEBRUARY 1, 1997 3,786,600 $ 37,866 697,320 $ 6,973 $ 1,407,915 $ 4,804,799 $ 6,257,553
Exercise of convertible
securities 77,652 776 - - 177,092 - 177,868
Shares retired (125) (1) - - - - (1)
Class A preferred converted
to common 8,528 85 (8,528) (85) - - -
Net income - - - - - 1,345,429 1,345,429
-------------------------------------------------------------------------------
BALANCE JANUARY 31, 1998
3,872,655 38,726 688,792 6,888 1,585,007 6,150,228 7,780,849
Exercise of convertible
securities 178,788 1,788 - - 427,771 - 429,559
Class A preferred converted
to common 78,910 789 (78,910) (789) - - -
Cancelled shares (250) (2) - - 2 - -
Net income - - - - - 418,160 418,160
------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 4,130,103 41,301 609,882 6,099 2,012,780 6,568,388 8,628,568
Exercise of convertible
securities 174,005 1,740 - - 477,615 - 479,355
Class A preferred converted
to common 541,041 5,411 (541,041 (5,411) - - -
Accretion of unearned stock
compensation - - - - 25,050 - 25,050
Compensatory stock option
tax benefit 131,000 131,000
Net loss - - - - - (478,665) (478,665)
-------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 4,845,149 $ 48,452 68,841 $ 688 $2,646,445 $6,089,723 8,785,308
===============================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
EXIGENT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended For the eleven months For the year ended
December 31, ended December 31, January 31,
1999 1998 1998
------------------ ------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ (478,665) $ 418,160 $ 1,345,429
------------------ ------------------- -----------------
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 3,150,293 1,845,239 1,271,878
Accretion of unearned stock compensation 25,050 - -
(Gain) loss on disposal of fixed assets 6,613 (3,292) 4,655
Deferred income taxes (500,750) 778,000 69,000
Changes in operating assets and liabilities:
Accounts receivable (389,588) 873,611 162,363
Costs and estimated earnings in excess of
billings on uncompleted contracts 411,282 (1,249,020) 13,060
Prepaid expenses (19,485) 53,611 (3,860)
Inventory - 5,288 (5,288)
Income taxes receivable 40,750 (843,938) 796,143
Deposits (5,296) (30,713) (2,855)
Cash surrender value of life insurance - - 3,241
Accounts payable 163,506 (165,049) (707,324)
Accrued expenses (624,217) (667,111) 1,222,111
Billings in excess of costs and estimated earnings
on uncompleted contracts 621,139 (982,282) 834,274
Income taxes payable (11,878) (237,426) 242,524
Other liabilities (44) 44 (5,541)
------------------ ------------------- -----------------
Total adjustments 2,867,375 (623,038) 3,894,381
------------------ ------------------- -----------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 2,388,710 (204,878) 5,239,810
------------------ ------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for acquisition of capital assets (35,020) (1,002,041) (1,306,693)
Cash proceeds from the sale of capital assets - 6,584 14,612
Cash paid for capitalized software development (2,144,253) (3,905,349) (1,149,685)
Cash paid for acquisition, net of cash (1,912,484) - -
Cash paid for capitalized patent costs (85,116) - -
------------------ ------------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (4,176,873) (4,900,806) (2,441,766)
------------------ ------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit 575,641 1,811,093 (182,000)
Proceeds from issuance of bridge loan 1,000,000 - -
Proceeds from issuance of long-term debt 203,504 511,111 800,000
Principal payments on long-term debt (325,939) (856,617) (382,108)
Proceeds from exercise of stock options and warrants 479,355 429,559 177,867
------------------ ------------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,932,561 1,895,146 413,759
------------------ ------------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 144,398 (3,210,538) 3,211,803
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 429,970 3,640,508 428,705
------------------ ------------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 574,368 $ 429,970 $ 3,640,508
================== =================== =================
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - Exigent International, Inc. (Exigent or the Company) was formed on
March 25, 1996 as a holding company. On January 30, 1997, it acquired all of the
outstanding stock of Software Technology, Inc. (STI) in exchange for stock of
Exigent, the "Exchange". STI, therefore, became a wholly owned subsidiary of
Exigent. STI, formed in 1978 in Florida, provides systems and software
engineering services and commercial off the shelf products for real-time
command, control, and data acquisition systems for government and industry
throughout the U.S. STI also produces OS/COMET - a commercially available
command and control development and support system. In March 1997, FotoTag, Inc.
(FotoTag) was formed as a wholly owned subsidiary of Exigent. FotoTag Inc., a
Delaware corporation, was created as a subsidiary of Exigent in 1997 to provide
the structure for concentration on tracking and control system solutions for
international high technology applications. The subsidiary's first product, also
called FotoTag(R), is used for tracking airport and airline passengers and their
checked bags.
In 1999, Exigent Solutions Group ("ESG") was formed as a wholly owned subsidiary
to provide integrated management consulting, design and development of Internet
commerce solutions, implementation and integration of packaged software
solutions, design and development of custom software solutions, implementation
of ERP systems and production support. ESG began offering Enterprise Resource
Planning (ERP) implementation services in December 1999 following its
acquisition of all of the outstanding shares of GEC North America Corporation
("GEC"), a Charlotte, NC-based consulting and systems integration firm
recognized as a leader in implementing ERP solutions using Oracle Applications.
ESG's services now include integrated management consulting, design and
development of Internet commerce solutions, implementation and integration of
packaged software solutions, design and development of custom software
solutions, implementation of ERP systems and production support. ESG also
includes the products developed by MiddleWare Solutions, Inc., a corporation
formed in 1998 which develops inexpensive, high-performance message-oriented
middleware products, and distributes them directly to the end-user over the
Internet or on CD through the mail.
CONSOLIDATION POLICY - The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in consolidation.
FISCAL YEAR - The financial statements for 1999 and 1998 include the twelve
months of operations ended December 31, 1999, (fiscal "1999"), and January 31,
1998, (fiscal "1998"), respectively. During 1998 the Company changed its fiscal
year end from January 31 to December 31. Accordingly, the financial statements
for the period ended December 31, 1998 (fiscal "1998B") include only eleven
months of operations. Consolidated unaudited results of operations for the
twelve months ended December 31, 1998 are as follows:
Total Revenue $ 34,121,431
Cost of sales 24,592,648
G&A expenses 8,256,358
R&D expenses 211,758
---------------------
Operating Income 1,060,667
Interest income 47,828
Interest expense (179,808)
Other expense (7,536)
---------------------
Net income before taxes 921,151
Income tax expense 271,365
---------------------
Net income $ 649,786
=====================
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE AND COST RECOGNITION - The Company recognizes revenues on time and
material and cost plus fixed fee contracts as time is expended and costs are
incurred. The fee on cost plus fixed fee and award fee contracts is recognized
ratably over total costs as they are incurred. Revenues and costs from fixed
price contracts are recognized on the percentage-of-completion method, measured
by the percentage of total costs incurred to date to total estimated costs for
each contract. This method is used, as management considers total expended costs
to be the best available measure of progress on these contracts.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, supplies, repairs,
and depreciation costs.
Certain general and administrative expenses (including bid and proposal
expenses) allowable in accordance with U.S. Government procurement practices are
included in contract costs where they are identifiable with contract revenue.
Adjustments to cost estimates are made periodically, and losses expected to be
incurred on contracts in progress are charged to operations in the period such
losses are determined. The aggregate of costs incurred and income recognized on
uncompleted contracts in excess of related billings is shown as a current asset,
and the aggregate of billings on uncompleted contracts in excess of related
costs incurred and income recognized is shown as a current liability.
The Company sells a number of software products. Generally, revenue is
recognized upon shipment of the software. After the sale, if significant
obligations remain or significant uncertainties exist about customer acceptance
of the software, revenue is deferred until the obligations are satisfied or the
uncertainties are resolved. When collectibility of the receivable is in doubt,
revenue is recognized under the installment method or cost recovery method.
Revenue from software services is recognized as the services are provided.
Revenue from software maintenance contracts is recognized on a straight-line
basis over the life of the contract.
CASH EQUIVALENTS - For purposes of the statement of cash flows, cash equivalents
include time deposits, certificates of deposit, and all highly liquid debt
instruments with original maturities of three months or less.
PROPERTY AND EQUIPMENT - The cost of property, plant and equipment is
depreciated over the estimated useful lives of the related assets. Depreciation
is computed on the straight-line method; accelerated cost recovery system and
the modified accelerated cost recovery system as appropriate.
GOODWILL - Goodwill represents the excess of the purchase price over the fair
value of the identifiable net assets acquired and is amortized on a
straight-line basis over the expected period of benefit of ten years.
Accumulated amortization was $13,196 at December 31, 1999. Periodically the
Company evaluates the goodwill for impairment and estimates the future
undiscounted cash flows of the acquired business to ensure that the carrying
value has not been impaired,
ADVERTISING COSTS - The costs of advertising are expensed as incurred. For 1999,
1998B, and 1998, advertising costs included in general and administrative
expenses were $188,795, $196,036, and $223,142, respectively.
PATENTS - Legal costs incurred related to obtaining patents on proprietary
products and technology are capitalized and amortized over the estimated lives
of the patents. Accumulated amortization was $0 at December 31, 1999.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SOFTWARE DEVELOPMENT COSTS - In accordance with SFAS No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed," the
Company capitalizes the direct costs and allocated indirect expenses associated
with the development of software products. Initial costs are charged to
operations as research prior to the development of a detailed program design or
a working model. Costs incurred subsequent to the product's release, and
research and development performed as contractual requirements are charged to
operations.
AMORTIZATION - The costs of capitalized software development are amortized over
their estimated useful lives of two years. Amortization is computed on the
straight-line method. The Company periodically reviews the capitalized software
development cost to ensure that future anticipated gross revenues related to the
products exceeds the unamortized cost.
EARNINGS (LOSS) PER SHARE - Earnings (loss) per share is computed and presented
in accordance with SFAS No. 128, "Earnings per Share".
COMPREHENSIVE INCOME - There is no difference between net income (loss) and
comprehensive income (loss) for any of the periods presented.
NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities is effective for financial statements for
fiscal years beginning after June 15, 2000. SFAS 133 requires the recognition of
all derivatives in the consolidated balance sheet as either assets or
liabilities measured as fair value. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amount
reported in the balance sheets for cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these instruments. The fair
value of indebtedness approximates its carrying value as interest rates on the
debt are market rates.
CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consists primarily of temporary
cash investments. The Company places its temporary cash investments with a
financial institution. The amount of credit exposure in excess of federally
insured limits at December 31, 1999 and 1998 was $596,000 and $766,000,
respectively.
Most of the Company's revenues are derived primarily from products and services
related to satellite command and control. Should the demand for such services
take a substantial downturn and the number of satellites deployed is materially
reduced, the Company's business opportunities would be limited significantly.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
The Company recognizes revenue on certain contracts using the
percentage-of-completion method, which is based upon total estimated costs for
each contract. The estimate is subject to change as the work progresses on each
contract.
STOCK BASED COMPENSATION - The Company follows APB 25 "Accounting for Stock
Issued to Employees", and related interpretations in accounting for its stock
based compensation rather than the alternative fair value accounting provided
under SFAS No. 123, "Accounting for Stock-Based Compensation".
IMPAIRMENT OF LONG-LIVED ASSETS - In the event that facts and circumstances
indicate that the cost of assets may be impaired, an evaluation of recovery
would be performed. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write down to market value or
discounted cash flow value is required.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACCOUNTS RECEIVABLE
The following is a summary of accounts receivable:
December 31, December 31,
1999 1998
---------------- ----------------
Contract receivables $ 2,426,667 $ 1,784,205
Retainage receivable 183,870 80,404
Other receivables 6,190 9,163
---------------- ----------------
Total accounts receivable $ 2,616,727 $ 1,873,772
================ ================
The retainage receivable balance represents contracts, which provide for
retainage provisions against billable amounts and are due upon completion of the
contracts and acceptance by the customer.
The Company expects to collect all receivables within the next fiscal year.
NOTE 3 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
December 31, December 31, Estimated
1999 1998 Life
------------------- ------------------- -----------------
<S> <C> <C> <C>
Furniture and equipment $ 784,788 $ 879,960 3-8 years
Vehicles 15,703 15,703 5 years
Computer equipment 4,633,380 4,823,732 3-5 years
Leasehold improvements 462,350 416,395 10 years
Capital leases 344,176 129,919 5 years
-- ---------------- -- ----------------
Total cost 6,240,397 6,265,709
Less accumulated depreciation (4,699,750) (3,982,347)
------------------- -------------------
Net property and equipment $ 1,540,647 $ 2,283,362
=================== ===================
</TABLE>
Depreciation expense charged to general and administrative expense for 1999,
1998B, and 1998 was $633,535, $636,395, and $394,116, respectively. Depreciation
expense charged to applied overhead for 1999, 1998B, and 1998 was $180,626,
$196,558, and $359,528, respectively. Depreciation expense charged directly to
cost of sales in 1999, 1998B, and 1998 was $228, $51,141, and $213,077,
respectively.
NOTE 4 - LINE OF CREDIT
On August 12, 1999, STI completed a $2,000,000 increase in its line of credit
with a bank supplementing the existing $3,000,000 line. As of December 31, 1999
and 1998, the outstanding draws against the lines were $2,386,734 and
$1,811,093, respectively. The outstanding balances accrue interest at LIBOR plus
2.5%. The interest rate at December 31, 1999 and December 31, 1998 was 8.97% and
7.56%, respectively. The line of credit requires that the Company maintain
various financial covenants including leverage, working capital, current ratio
and debt coverage requirements. Advances under the line of credit are based on a
borrowing base computation. All accounts receivable, equipment, furniture and
fixtures of STI are pledged as collateral on the line of credit.
The Company was not in compliance with the working capital and current ratio
covenants at December 31, 1999. The Bank has waived these events of default at
December 31, 1999 and the Company expects that it is reasonably possible it will
be in compliance with these covenants at measurement dates during 2000.
The weighted average interest rate on short-term borrowings during 1999, 1998B,
and 1998 were 8.19%, 7.56% and 8.25%, respectively.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Accrued payroll and payroll taxes $ 678,532 $ 526,920
Accrued fringe benefits 888,788 1,626,370
Accrued pension and profit sharing 477,083 270,910
Accrued ESOP payment 95,416 101,735
Accrued 401K payable 47,871 98,481
Accrued severance pay - 103,428
Other accrued expenses - 6,356
-------------- ---------------
Total accrued expenses $ 2,187,690 $ 2,734,200
================== ==================
</TABLE>
NOTE 6 - LONG TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt outstanding consists of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Note payable to bank in monthly installments of $17,038 through June
2001 including interest at either the bank's prime rate or LIBOR plus
2.5%. The note is collateralized by all accounts receivable,
equipment, furniture and fixtures of STI. $ 306,856 $ 511,111
Note payable to bank in interest only through July 2000 at either
the bank's prime rate or LIBOR plus 2.5%. The note is collateralized by
all accounts receivable, equipment and furniture of Exigent and its 1,000,000 -
subsidiaries.
Subordinated note payable to holder in quarterly installments of
$62,500 plus accrued interest through December 2003 at the interest -
rate of 8.0% per annum. Payments under this note are subordinated to 1,000,000
all senior indebtedness of the Company.
Capital lease for furniture and equipment payable to lessor in monthly
installments of $2,681 through August 2003. 100,607 121,161
Capital lease for furniture and equipment payable to lessor in monthly
installments of $2,680 through June 2004. 105,244 -
Capital leases for furniture and equipment payable to lessor in
monthly installments through August 2002. 13,007 -
----------------- -----------------
TOTAL LONG-TERM DEBT 2,525,714 632,272
Less: current portion of long-term debt (1,506,817) (204,456)
----------------- -----------------
TOTAL LONG-TERM DEBT, less current portion $ 1,018,897 $ 427,816
================= =================
</TABLE>
Future maturities of long-term debt as of December 31, 1999 are as follows:
Amount
-----------------
2000 $ 1,506,817
2001 401,641
2002 303,952
2003 295,648
2004 17,656
=================
$ 2,525,714
=================
Interest paid for 1999, 1998B, and 1998 was $228,071, $172,035, and $91,276,
respectively.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - CLASS A PREFERRED STOCK
Each share of Class A preferred stock is convertible to a share of common stock
at the option of the holder. Each share of Class A preferred stock participates
equally with each share of common stock upon declaration of dividends and voting
rights. Upon liquidation or dissolution, the Class A preferred stockholders are
entitled to receive $2.50 per share prior to any distribution to holders of
Common Shares. The Class A preferred shares are not subject to call or
redemption. The dividends of the Class A preferred stock are noncumulative.
NOTE 8 - STOCK WARRANTS
Each Common Stock Purchase Warrant ("Warrants") entitles the holder to purchase
one share of Exigent's Common Stock at an exercise price of $3.00 per share.
Total Warrants outstanding at December 31, 1999 and December 31, 1998 were
996,336, and 1,036,080, respectively. Warrants exercised in 1999, 1998B, and
1998 were 39,744, 28,674, and 3,852, respectively.
The Warrants expired on January 30, 2000. In January 2000, 726,290 Warrants
were exercised.
NOTE 9 - EMPLOYEE RETIREMENT PLANS
The Company has a defined contribution pension plan that covers the majority of
employees who have met certain age and length of service requirements.
Contributions to the plan were 10% of eligible compensation for fiscal 1999,
1998B and 1998. For fiscal 1999, 1998B, and 1998, the amount of pension expense
was $1,970,364, $1,763,632, and $1,381,023, respectively.
The Company also sponsors a profit-sharing plan which allows substantially all
full-time employees to defer compensation under Section 401(k) of the Internal
Revenue Code and the employer to electively contribute to the plan. Employer
contributions to the plan are made at the discretion of the Board of Directors.
No contributions were made in fiscal 1999, 1998B and 1998.
NOTE 10 - EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan (ESOP) for the majority of
employees. Contributions to this plan are at the discretion of the Board of
Directors. Full-time employees who have attained the age of twenty-one (21) are
eligible to participate in the plan. Contributions to the plan are allocated
annually to eligible employees proportionate to their compensation, not
including overtime and bonuses. Employee stock ownership plan contributions
charged to operations and applied to overhead amounted to $0 and $ 405,343,
respectively, for 1999, $0 and $692,241, respectively, for 1998B, and $0 and
$552,409, respectively, for 1998. The ESOP had 1,836,525, and 1,891,694 shares
of the total issued and outstanding stock, respectively, at December 31, 1999
and December 31, 1998.
Dividends paid on the ESOP shares, as well as other shares are considered to be
reductions in retained earnings. The shares owned by the ESOP are considered to
be outstanding shares and therefore included in the earnings per share
calculation.
The plan acquired 258,416, 93,833, and 62,000 shares during 1999, 1998B, and
1998, respectively, from shareholders. Shares distributed from the plan as a
result of termination of employment were 160,901, 306,548, and 51,174, during
1999, 1998B, and 1998, respectively. The shares' fair market value was
determined based on the trading value of Common Shares of the Company at
December 31, 1999 and 1998.
<PAGE>
EXIGENT INTERNATION, INC.
NOTEST TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - OPERATING LEASE OBLIGATIONS
Office space and equipment is leased under operating leases expiring in various
years through 2007.
The Company's corporate headquarters are located in Melbourne, Florida. The
Company is currently leasing a 29,000 square foot building pursuant to a
ten-year lease, which will expire on December 1, 2005, and a 30,000 square foot
building pursuant to a ten-year lease, which will expire on February 28, 2007.
It has the right to renew the aforementioned leases for two additional five year
terms and has an option to purchase the property which may be exercised during
certain periods prior to the expiration of the fifth year and of the tenth year
of the lease. The purchase price is the fair market value of the property
determined by appraisal, but in no event less than the outstanding balance on
the mortgage.
In addition to the corporate headquarters, the Company leases 15,296 square feet
of space in Alexandria, Virginia which lease will expire August 31, 2003
(subject to the right to renew for up to three additional one year terms), and
approximately 11,188 square feet in Chantilly, virginia which lease will expire
November 30, 2003. The Company leases addtional office space in Aurora,
Colorado; Colorado Springs, Colorado; Boulder, Colorado; LaPlata, Maryland; and
Mesa, Arizona.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1999 for each of the
next five years and in the aggregate are:
Year ending December 31:
2000 $ 1,865,608
2001 1,878,028
2002 1,596,140
2003 1,468,699
2004 1,208,998
Subsequent to 2004 1,238,668
--------------
Total minimum future rental payments $ 9,256,141
==============
Rent expense for 1999, 1998B, and 1998 was $1,513,273, $1,211,795 and $830,609,
respectively. Rent expense was offset by sublease rental income of $15,064 for
1998.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - ECONOMIC DEPENDENCY
The Company sold a substantial portion of its products and services to three
major customers 1999, 1998B, and 1998 in the Satellite Command and Control
Industry. Transactions with these major customers; a government customer, a
government contractor and a group of U.S. Government agencies, consisted of the
following:
<TABLE>
<CAPTION>
1999 Customer 1 Customer 2 Customer 3
- ---- ------------------- -------------------- ------------------
<S> <C> <C> <C>
Revenues $ 17,758,846 $ 4,866,138 $ 3,952,065
Accounts receivable - at year end 850,815 32,157 195,731
Costs and estimated earnings in excess of billings
on uncompleted contracts - at year end 2,170,541 546,781 532,697
Billings in excess of costs and estimated earnings
on uncompleted contracts - at year end (6,331) - (66,772)
1998B Customer 1 Customer 2 Customer 3
- ----- ------------------- -------------------- ------------------
Revenues $ 14,735,309 $ 5,985,651 $ 3,744,421
Accounts receivable - at year end 584,252 416,524 37,837
Costs and estimated earnings in excess of billings
on uncompleted contracts - at year end 2,117,731 297,137 444,411
Billings in excess of costs and estimated earnings
on uncompleted contracts - at year end - (40,738) (172,235)
1998 Customer 1 Customer 2 Customer 3
- ---- ------------------- -------------------- ------------------
Revenues $ 11,700,279 $ 11,435,270 $ 5,157,842
Accounts receivable - at year end 913,281 737,996 642,109
Costs and estimated earnings in excess of billings
on uncompleted contracts - at year end 1,904,120 623,662 415,899
Billings in excess of costs and estimated earnings
on uncompleted contracts - at year end - (363,766) (30,061)
</TABLE>
With respect to the segment disclosure requirement of SFAS 131, Disclosures
about Segments of an Enterprise and Related Information, the Company operates in
one reportable business segment, the manufacture and sale of software products
and services .
NOTE 13 - SOFTWARE DEVELOPMENT COSTS
Some software development costs are charged to operations when incurred and are
included in operating expenses. The amounts charged for 1999, 1998B and 1998
were $271,576, $180,671, and $47,854, respectively.
During 1999, 1998B, and 1998, $2,144,253, $3,905,349 and $1,149,685,
respectively, of software development costs for computer software to be sold or
otherwise marketed were capitalized. The amortization of costs related to
computer software product development held for sale was $2,332,869, $950,507,
and $304,397 for 1999, 1998B, and 1998, respectively. Capitalized software
development costs includes $163,465, $0, and $0 of capitalized interest for
1999, 1998B and 1998, respectively.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes."
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998B 1998
---------------- --------------------- --------------------
Current expense (benefit)
<S> <C> <C> <C>
Federal $ -0- $ (444,000) $ 593,000
State -0- (154,000) 150,000
Deferred tax expense (benefit)
Federal (415,000) 575,000 63,765
State (45,000) 203,000 24,000
================ ===================== ====================
Total provision for income taxes $ (460,000) $ 180,000 $ 830,765
================ ===================== ====================
</TABLE>
The following is a reconciliation of the provisions for income taxes to the
expected amounts using the statutory rate:
<TABLE>
<CAPTION>
1999 1998B 1998
----------------- ------------------ ------------------
<S> <C> <C> <C>
Expected statutory amount 34.0% 34.0% 34.0%
State income taxes 3.3 5.4 4.6
Nondeductible meals and entertainment (1.8) 4.2 0.6
Tax penalties (0.5) 2.1 -
Nondeductible officers life insurance (0.1) 0.2 0.1
Research and experimental credit 14.7 (15.8) (0.8)
Nondeductible amortization of goodwill (0.5)
Other (0.1) - (0.3)
================= ================== ==================
Actual tax provision 49.0 30.1% 38.2%
================= ================== ==================
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
December 31, December 31,
1999 1998
---------------- ----------------
Deferred tax assets
Accrued vacation and sick pay $ 301,000 $ 554,000
NOL carryforwards 813,000 337,000
Tax credit carryforwards 496,000 346,000
Other 58,000 9,000
Accrued severance pay - 32,000
----------------- ----------------
$ 1,668,000 $ 1,278,000
================= ================
Deferred tax liabilities
Depreciation (163,000) (304,000)
Amortization (1,651,000) (1,734,000)
Other (23,000) -
----------------- ----------------
$ (1,837,000) $ (2,038,000)
================== ================
At December 31, 1999, the Company had net operating loss carryforwards of
$2,160,000 expiring in 2019. The tax credit carryforwards expire in 2019.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - INCOME TAXES (CONTINUED)
In 1999, the Company's deferred tax asset related to the net operating loss
carry forward and its paid in capital were both increased by $131,000 as a
result of transactions involving stock options.
During 1999, 1998B, and 1998 the Company made income tax payments of $29,360,
$463,450 and $6,230, respectively.
NOTE 15 - STOCK OPTIONS
On June 11, 1997, the Company reserved 600,000 shares of Exigent's common stock
for its nonqualified stock option plan (Plan 1NQ). The terms of these options
provide that the options are exercisable on the date of grant and expire three
years after the date the options were granted. Plan 1NQ is administered by the
Company's CEO. Plan 1NQ gives broad powers to the CEO to administer and
interpret the Plan, including the authority to select the individuals to be
granted options and the particular form and conditions of each option granted.
All options are granted at an exercise price of not less than 100% of the fair
market value on the date of grant. Awards may be granted pursuant to Plan 1NQ
through June 11, 2007. Plan 1NQ may be terminated earlier by the Board of
Directors at its sole discretion.
On March 10, 1997, the Company reserved 200,000 shares of Exigent's common stock
for its qualified incentive stock option plan (Plan 2Q). The terms of these
options provide that the options are exercisable on the date of grant and expire
three years after the date of grant. Plan 2Q is administered by the Company's
CEO. Plan 2Q gives broad powers to the CEO to administer and interpret the Plan,
including the authority to select the individuals to be granted options and the
particular form and conditions of each option granted. All options are granted
at an exercise price of not less than 100% of the fair market value at the date
of grant. Awards may be granted pursuant to Plan 2Q through March 9, 2007. Plan
2Q may be terminated earlier by the Board of Directors at its sole discretion.
On July 30, 1997, the Company reserved 240,000 shares for a second qualified
stock incentive plan (Plan 3Q) under terms similar to the first qualified plan.
The terms of these options provide that the options are exercisable one year
from the date of grant and expire three years after the date of grant. Plan 3Q
is administered by the Company's CEO. Plan 3Q gives broad powers to the CEO to
administer and interpret the Plan, including the Authority to select the
individuals to be granted options and to prescribe the particular form and
conditions of each option granted. However, a Committee of the Board of
Directors shall approve each grant of an option pursuant to Plan 3Q in advance
of issuance. In addition, the Plan stipulates that the aggregate number of
shares of stock for which options may be granted shall be allocated 50% to new
hire employees and the remaining 50% to such employees as the CEO shall select
at his discretion. All options are granted at an exercise price not less than
100% percent of the fair market value at date of grant. Awards may be granted
pursuant to Plan 3Q through July 29, 2007. Plan 3Q may be terminated earlier by
the Board of Directors at its sole discretion.
On September 30, 1997, the Company reserved 120,000 shares of common stock for
its non-qualified non-employee director stock option plan (Plan 5NQ). Each
optionee who is granted options will receive the option to purchase 40,000
shares of common stock. The terms of these options provide that the options are
exercisable on a quarterly basis following grant at the rate of 2,500 shares per
quarter for the 16 quarters following grant date, provided the optionee
continues to serve on the Board of Directors. Optionees will be eligible to
receive a grant of options upon their initial election to the Board. All options
will expire ten years after the date of grant. Plan 5NQ is administered by the
Company's Board of Directors or a committee thereof. All options are granted at
an exercise price equal to the fair market value of the Company's common stock
on the date of the grant. Awards may be granted pursuant to Plan 5NQ through
September 30, 2007. Plan 5NQ may be terminated earlier by the Board of Directors
at its sole discretion.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - STOCK OPTIONS (CONTINUED)
On April 4, 1998, the Company reserved 250,000 shares of common stock for a
qualified non-officer stock option plan (Plan 4Q). The terms of these options
provide that the options are exercisable on the date of grant and expire three
years after the options were granted. Plan 4Q is administered by the Company's
CEO. Plan 4Q gives broad powers to the CEO to administer and interpret the plan,
including the authority to select the individuals to be granted options and the
particular form and conditions of each option granted. Options granted are to be
tied to the corporate financial performance goals of the officer's plan. All
options are granted at an exercise price of not less than 100% of the fair
market value on the date of grant of such option. Awards may be granted within
10 years from the date the plan is adopted. Plan 4Q may be terminated earlier by
the Board of Directors at its sole discretion.
On May 8, 1998, the Company reserved 500,000 shares of Exigent's common stock
for its nonqualified stock option plan (Plan 6NQ). The terms of these options
provide that the options are exercisable on the date of grant and expire three
years after the date the options were granted. Plan 6NQ is administered by the
Company's CEO, except with respect to options granted to the CEO, in which case
the Board of Directors of the Company shall administer the grants in accordance
with the applicable approved Compensation Committee award program. Plan 6NQ
gives broad powers to the CEO to administer and interpret the plan, including
the authority to select the individuals to be granted options and the particular
form and conditions of each option granted. All options are granted at an
exercise price equal to the fair market value on the day of grant. Awards may be
granted pursuant to Plan 6NQ through May 7, 2008. Plan 6NQ may be amended,
modified or terminated earlier by the Board of Directors at its sole discretion.
On December 17, 1998, the Company reserved 2,500,000 shares of Exigent's common
stock for an Omnibus Stock Option and Incentive Plan (the "Plan"). The Plan is
administered by the Compensation Committee of the Board of Directors and subject
to the recommendations of the CEO. The Plan gives broad powers to the
Compensation Committee to administer and interpret the Plan, including the
authority to select the individuals to be granted options and to prescribe the
particular form and conditions of each grant. The Plan sets forth automatic
stock option grants to Independent Directors of the Board of Directors, whom are
no longer participating in Non-Qualified Stock Option Plan 5NQ, a grant of
10,000 shares of stock on January 1 of each year, each such grant shall become
exercisable at the rate of 2,500 shares per quarter, vesting on the last day of
the quarter. Options will vest if an Independent Director is still serving on
the Board of Directors at quarterly vesting date. The Committee may at any time
discontinue granting awards under the Plan (except to Independent Directors).
The Board of Directors may at any time, prospectively or retroactively, amend
the Plan, including the provisions with respect to grants to Independent
Directors, or for any purpose that may at the time be permitted by law, or may
at any time terminate the Plan as to further grants of awards by law, or may at
any time terminate the Plan as to further grants of awards.
All plans were approved by the shareholders at the June 30, 1999 and 1998
Shareholders' Meetings.
Each plan noted above allows the plan administrator the discretion, to grant
stock appreciation rights with each option granted. As of December 31, 1999, no
stock appreciation rights had been granted.
At December 31, 1999, there were 0, 5,950, 10,000, 18,550, 0, 0, and 1,615,978
additional shares available for grant under Plan 1NQ, Plan 2Q, Plan 3Q, Plan 4Q,
Plan 5NQ, Plan 6NQ and the Omnibus Stock Option Plan, respectively. Using the
Black Scholes option-pricing model, the per share weighted-average fair value of
stock options granted during 1999, 1998B, and 1998, where exercise price equals
the market price of the stock on the grant date was $2.27, $1.57 and $0.86,
respectively. No stock options were granted prior to fiscal 1998.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - STOCK OPTIONS (CONTINUED)
The following weighted average assumptions were used:
<TABLE>
<CAPTION>
1999 1998B 1998
--------------------------------------------------
Exercise price equal to market price on grant date
<S> <C> <C> <C>
Expected risk-free interest rate 5.61% 6.22% 6.21%
Expected life in years 6.72 4.72 3.05
Expected volatility 50% 50% 50%
Expected dividend yield 0.00% 0.00% 0.00%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its option plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements for stock options granted. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net income (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998B 1998
--------------------------------------------------
Net income (loss):
<S> <C> <C> <C>
As reported $ (478,665) $ 418,160 $ 1,345,429
Pro forma $ (1,580,805) $ (552,077) $ 951,559
Earnings (loss) per share- diluted:
As reported $ (0.11) $ 0.08 $ 0.29
Pro forma $ (0.35) $ (0.11) $ 0.21
</TABLE>
The effect of applying SFAS No. 123 in the calculation of proforma net income is
not likely to be representative of the effects on reported net income for future
years.
Stock option activity, during the periods indicated, is as follows:
<TABLE>
<CAPTION>
1999 1998B 1998
-----------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Options Exercise Price Options Exercise Price Options Exercise Price
-----------------------------------------------------------------------------------------------
Outstanding - beginning of
<S> <C> <C> <C> <C> <C> <C>
year 2,079,454 $ 3.04 726,350 $ 2.45 - $ -
Granted 746,005 3.97 1,522,854 3.30 836,400 2.32
Exercised (128,400) 2.65 (149,050) 2.28 (73,800) 2.45
Forfeited (288,787) 3.11 ( 20,700) 3.35 (36,250) 2.53
--------------- ---------------- -----------------
Outstanding - end of year 2,408,272 $ 3.34 2,079,454 $ 3.04 726,350 $ 2.45
===============================================================================================
Exercisable at end of year 1,761,252 1,380,594 689,750
Weighted-average fair value
of options granted during
the year $ 3.34 $ 1.57 $ 0.86
</TABLE>
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.25 to $4.38 and 2.55
years to 9.78 years, respectively, with the weighted average at $3.34 and 4.66
years.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basis and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
1999 1998B 1998
------------------ ------------------ ------------------
Numerator:
Net income (loss) (numerator for basic
<S> <C> <C> <C>
and diluted earnings per share) $ (478,665) $ 418,160 $ 1,345,429
================== ================== ==================
Denominator:
Denominator for basic earnings per share-
weighted average common shares 4,484,177 4,034,039 3,787,639
Effect of dilutive securities:
Convertible preferred stock - 632,041 695,899
Stock options and warrants - 491,451 163,752
------------------ ------------------ ------------------
Denominator for diluted earnings per share-
adjusted weighted average shares 4,484,177 5,157,531 4,647,290
------------------ ------------------ ------------------
Basic earnings (loss) per share $ (0.11) $ 0.10 $ 0.36
================== ================== ==================
Diluted earnings (loss) per share $ (0.11) $ 0.08 $ 0.29
================== ================== ==================
</TABLE>
In computing diluted Earnings (Loss) per Shares ("EPS") for 1999, 1,005,484 of
common share equivalents were excluded from the computation because their
effects would have been antidilutive.
NOTE 17 - COMMITMENTS AND CONTINGENCIES
The Company has outstanding purchase commitments of $2,258,150 as of December
31, 1999. These represent outstanding purchase orders for which neither the item
nor invoice has been received.
NOTE 18 - RELATED PARTY TRANSACTIONS
During 1999, 1998B, and 1998 Exigent paid $53,152, $38,603, and $45,485,
respectively in fees to directors of Exigent for consulting
services.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19 - ACQUISITION
On December 9, 1999, Exigent completed the acquisition of GEC by exchanging cash
and subordinated promissory notes for all of the voting and non-voting shares of
GEC common stock. The acquisition of the assets and liabilities was accounted
for using the purchase method of accounting whereby the consideration paid of
$3,525,694 was allocated based on the fair values of the assets and liabilities
acquired with the excess consideration over the fair value of tangible assets
recorded as intangible assets (goodwill). The purchase price, the allocation of
the purchase price and the amortization period of the goodwill are detailed
below:
<TABLE>
<CAPTION>
Consideration Allocation of purchase price:
<S> <C> <C> <C>
Cash paid $ 2,013,879 Cash and cash equivalents $ 120,549
Promissory note 1,000,000 Deferred tax asset 9,000
Other current liabilities 418,304 Accounts receivable 353,367
Deferred tax liability 49,750 Other current assets 148,256
Net accrued taxes 24,607 Property, plant and equipment 33,106
-------------
Acquisition costs 19,154 Total tangible assets acquired 664,278
------------- Goodwill 2,861,416
-------------
Total purchase price $ 3,525,694 Total assets acquired $ 3,525,694
============= =============
</TABLE>
Intangible Asset Assigned Value Amortization Period
- ---------------- --------------------- ---------------------------
Goodwill 2,861,416 10 years
The operating results of GEC have been included in the consolidated results of
operations from the date of the acquisition. On a pro forma basis as if the GEC
acquisition had taken place at the beginning of 1999, consolidated net revenue,
net income (loss), and earnings (loss) per share would have been $41,280,289,
($331,135), and ($0.07), respectively, for the year ended December 31, 1999. On
a pro forma basis as if the acquisition had taken place at the beginning of
1998, consolidated net revenue, net income, and earnings per share would have
been $35,940,476, $651,232, and $0.13 per share, respectively, for the period
ended December 31, 1998. Such pro forma amounts are not necessarily indicative
of what the actual results would have been if the acquisition had been effective
at the beginning of the 1998 and 1999 fiscal years and are not audited.
<PAGE>
EXIGENT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 - Quarterly Financial Information (unaudited)
<TABLE>
<CAPTION>
Quarter ended
----------------------------------------------------------------------------
Year ended December 31, 1999 31-Mar-99 30-Jun-99 30-Sep-99 31-Dec-99
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Revenue $ 9,090,881 $ 9,199,081 $ 9,121,721 $ 8,739,595
Income (loss) before income taxes 256,718 76,543 249,753 (1,521,679)
Net income 154,031 45,926 149,851 (828,473)
Basic earnings per share 0.04 0.01 0.03 (0.17)
Diluted earnings per share * 0.03 0.01 0.03 (0.17)
Market price per share
High 7.00 6.50 6.25 4.75
Low 2.47 3.63 3.25 3.13
</TABLE>
<TABLE>
<CAPTION>
Quarter ended Two months
---------------------------------------------------------- Ended
Eleven months ended December 31, 1998 30-Apr-98 31-Jul-98 31-Oct-98 31-Dec-98
------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Revenue $ 7,685,375 $ 8,811,196 $ 9,361,584 $ 5,280,928
Income before income taxes 161,751 380,734 122,420 (66,745)
Net income 97,618 227,949 73,479 19,114
Basic earnings per share 0.02 0.05 0.02 0.00
Diluted earnings per share * 0.02 0.04 0.01 0.00
Market price per share
High 4.00 6.00 4.38 4.13
Low 2.94 3.81 2.75 2.44
</TABLE>
* Due to rounding Diluted earnings per share does not tie to the sum of the
quarters
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
On March 18, 1998, our Board of Directors approved changing our
certifying accountant to Ernst & Young LLP. The change became effective for the
fiscal year ended December 31, 1998. The certifying accountant for the previous
years and the fiscal year ended January 31, 1998, Hoyman, Dobson & Company,
P.A., continues to provide us with various accounting services. The directors
determined a change was warranted because the new certifying accountant has
greater national resources to serve our growing needs.
The principal accountant's report on the financial statements for the
previous two years has not contained an adverse opinion or disclaimer of opinion
nor were such reports qualified or modified as to uncertainty, audit scope or
accounting principles. We have not had any disagreements with our principle
accountants on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure during its two most recent
fiscal years or since then. During our two most recent fiscal years or since
then, we have not been advised by our principal accountant: (i) that the
internal controls necessary for us to develop reliable financial information do
not exist; (ii) that information has come to the accountant's attention that has
led the accountant to no longer be able to rely on management's representations
or that have made the accountant unwilling to be associated with the financial
statements prepared by management; (iii) of the need to expand significantly the
scope of its audit, or that information has come to the accountant's attention
that if further investigated may materially impact the fairness or reliability
of either a previously issued audit report or the underlying financial
statements, or the financial statements covering a period subsequent to the date
of the most recent financial statements covered by an audit report or cause the
accountant to be unwilling to rely on management's representations or be
associated with the Company's financial statements; or (iv) that information has
come to the accountant's attention that the accountant has concluded materially
impacts the fairness or reliability of either a previously issued audit report
or the underlying financial statements, or the financial statements issued or to
be issued covering the fiscal periods subsequent to the date of the most recent
financial statements covered by an audit report.
By letter dated March 27, 1998, Hoyman, Dobson & Company, P.A.
confirmed its agreement with the foregoing, as disclosed in Item 4 of our
Current Report on Form 8-K filed with the Securities and Exchange Commission
(the "Commission") on March 30, 1998.
This letter is attached as Exhibit 16 to the March 30, 1998, Current Report Form
8-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
"Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in our Definitive Proxy Statement for the 1999 Annual
Meeting of Shareholders to be filed with the Commission on or before May 1, 2000
(the "2000 Definitive Proxy Statement") are hereby incorporated by reference.
Item 11. Executive Compensation
"Compensation of Executive Officers" and "Compensation Committee
Interlocks and Insider Participation" in the 2000 Definitive Proxy Statement are
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
"Principal Stockholders" in the 2000 Definitive Proxy Statement is
hereby incorporated by reference.
Item 13. Certain Relationships and Related Transactions
"Certain Relationships and Related Transactions" in the 2000 Definitive
Proxy Statement is hereby incorporated by reference.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements (See Item 8 of this Report)
Reports of Independent Auditors - February 11, 2000 and April 4, 1998
Consolidated Balance Sheets - December 31, 1999 and December 31,
1998
Consolidated Statements of Operations - For December 31, 1999
and for the Eleven Months Ended December 31, 1998, and the Year ended
January 31, 1998
Consolidated Statements of Stockholders' Equity - For December 31,
1999 and for the Eleven Months Ended December 31, 1998, and Year
Ended January 31, 1998
Consolidated Statements of Cash Flows - For December 31, 1999 and
for the Eleven Months Ended December 31, 1998, and Year Ended
January 31, 1998
Notes to Financial Statements For December 31, 1999 and for the
Eleven Months Ended December 31, 1998, and Year Ended January 31,
1998
(2) Financial statement schedules. All schedules have been omitted
because they are inapplicable or not material.
(3) Exhibits Index
Exhibit
Number Exhibit
2.1 Stock Purchase Agreement and Plan of Reorganization (including
all Schedules except 1.1) (1)
2.2 Amendment to Stock Purchase Agreement and Plan of Reorganization (2)
3.1 Second Amended and Restated Certificate of Incorporation of
Exigent International, Inc. (3)
3.2 Amended and Restated Bylaws of Exigent International, Inc. (4)
4 Form of Rights Agreement between Exigent International, Inc. and
Reliance Trust Company (Rights Agent) dated as of October 27, 1998
(5)
4.1 Amendment to Rights Agreement, dated March 2, 2000, by and
between Exigent International, Inc. and Registrar and Transfer
Company.
10.1 Contract between Motorola, Inc. Government and Systems
Technology Group, Satellite Communications Division and Software
Technology, Inc. (6)
10.2 Contract between Naval Research Laboratory And Software Technology,
Inc.dated April 30, 1998 (7)
10.3 Subcontract/Purchase Order between Lockheed-Martin Federal Systems
Company and Software Technology, Inc. (8)
10.4 Purchase Orders from Allied Signal Technical Services Corporation (9)
10.5 Lease Agreement, dated May 14, 1993, between Henderson Evans, L.C.
and Software Technology, Inc. (10)
10.6 Lease Agreement, dated March 31, 1997, between Henderson Comet,
L.C. and Software Technology, Inc. (11)
10.7 Agreement of Lease, dated August 15, 1994, between Alexandria South
Associates, L.P. and Software Technology, Inc. (12)
<PAGE>
10.8 Addendum Number One to Agreement of Lease, dated September 1, 1998,
between Hunting Creek, LLC and Software Technology, Inc. (13)
10.9 Incentive Stock Option Plan 1Q (nonqualified) (14)
10.10 Independent Director Stock Option Plan (5NQ) (15)
10.11 Employment Agreement dated June 11, 1997 between Exigent
International, Inc. and William K. Presley (16)
10.12 Employment Agreement dated June 11, 1997 between Exigent
International, Inc. and Bernard R. Smedley (17)
10.13 Employment Agreement dated June 11, 1997 between Exigent
International, Inc. and Don F. Riordan, Jr. (18)
10.14 Loan Agreement, dated December 31, 1998, between Software Technology,
Inc. and the Huntington National Bank (19)
10.15 Unlimited Continuing and Unconditional Guaranty, dated December
31, 1998, between Exigent International, Inc. and the Huntington
National Bank (20)
10.16 Amendment to Employment Agreement, dated May 13, 1998, between
Bernard R. Smedley and Exigent International, Inc. (21)
10.17 Amendment to Employment Agreement, dated September 14, 1998, between
Bernard R. Smedley and Exigent International, Inc. (22)
10.18 Amendment to Employment Agreement, dated October 27, 1998, between
Bernard R. Smedley and Exigent International, Inc. (23)
10.19 Employment Agreement, dated December 17, 1998, between Jeffrey B.
Weinress and Exigent International, Inc. (24)
10.20 Form of Employment Agreement for selected employees of Exigent
International, Inc. (25)
10.21 Amendment to Employment Agreement, dated May 13, 1998, between Don
F. Riordan, Jr. and Exigent International, Inc. (26)
10.22 Amendment to Employment Agreement, dated September 14, 1998,
between Don F. Riordan, Jr. and Exigent International, Inc. (27)
10.23 Amendment to Employment Agreement, dated October 27, 1998, between
Don R. Riordan, Jr. and Exigent International, Inc. (28)
10.24 Amendment to Employment Agreement, dated May 13, 1998, between
William K. Presley and Exigent International, Inc. (29)
10.25 Amendment to Employment Agreement, dated September 14, 1998, between
William K. Presley and Exigent International, Inc. (30)
10.26 Amendment to Employment Agreement, dated October 27, 1998, between
William K. Presley and Exigent International, Inc. (31)
10.27 Incentive Stock Option Plan 3Q (32)
10.28 Incentive Stock Option Plan 4Q (33)
<PAGE>
10.29 Stock Option Plan 6NQ (34)
10.30 The Software Technology, Inc. Restated Employee Stock Ownership Plan
(35)
10.31 Deed of Lease Agreement, dated January 3, 2000, between Enterprise
Center Limited Partnership Number Two and Software Technology, Inc.
10.32 Amended and Re-Stated Loan Agreement, dated March 1, 2000, by and
between Exigent International, Inc., eXGNT, FotoTag, GEC Acquisition
Corporation, GEC North America Corporation, Middleware Solutions,
Inc., Software Technology, Inc. and The Huntington National Bank.
10.33 Amended and Re-Stated Loan Agreement, dated March 1, 2000, by and
between Exigent International, Inc., eXGNT, FotoTag, GEC Acquisition
Corporation, GEC North America Corporation, Middleware Solutions,
Inc., Software Technology, Inc. and The Huntington National Bank.
10.34 Omnibus Stock Option and Incentive Plan (36)
10.35 Employee Stock Purchase Plan (37)
10.36 Agreement for Purchase and Sale of Stock dated as of November 19,
1999 among GEC Acquisition Corporation, Exigent International, Inc.,
GEC North America Corporation, Roger A. Gilmartin, Deborah M. Bowen
and Mark W. Bridges. (38)
10.39 Incentive Stock Option Plan 2Q (39)
16 Letter re Change in Certifying Accountant (40)
21 Subsidiaries
23.1 Consent of Independent Certified Public Accountants, Ernst & Young
LLP, dated March 20, 2000
23.2 Consent of Independent Certified Public Accountants, Hoyman, Dobson &
Company, P.A., dated March 21, 2000
27 Financial Data Schedule
(1) Exhibit 2 to the Registration Statement on Form S-1 of Exigent
International, Inc., declared effective on January 30, 1997.*
(2) Exhibit 2(ii) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 of Exigent International,
Inc., declared effective on January 30, 1997*
(3) Exhibit 3.1 to Form 10-Q filed on September 14, 1998.*
(4) Exhibit 3.2 to Form 10-Q filed on September 14, 1998.*
(5) Exhibit 4.1 to Form 8-K and to Form 8-A filed November 3, 1998.*
(6) Exhibit 10(iii) to Pre-Effective Amendment No. 2 and
Pre-Effective Amendment No. 3 to the Registration Statement on
Form S-1 of Exigent International, Inc., declared effective on
January 30, 1997.*
(7) Exhibit 10.17 to Form 10-Q filed June 12, 1998.*
(8) Exhibit 10.6 to Pre-Effective Amendment No. 2 to the Registration
Statement on Form S-1 of Exigent International, Inc., declared
effective on January 30, 1997.*
(9) Exhibit 10(vi) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1 of Exigent International,
Inc., declared effective on January 30, 1997.*
(10) Exhibit 10.8 to Form 10-K filed on April 30, 1998.*
(11) Exhibit 10.9 to Form 10-K filed on April 30, 1998.*
(12) Exhibit 10.10 to Form 10-K filed on April 30, 1998.*
(13) Exhibit 10.10 to Form 10-K filed on March 31, 1999.*
(14) Exhibit 4 to Form 8-K filed on October 27, 1997 and to Form S-8
filed on October 27, 1997.*
<PAGE>
(15) Exhibit 4 to Form 8-K filed on March 30, 1998 and to Form S-8
filed on April 1, 1998.*
(16) Exhibit 10.14 to Form 10-K filed on April 30, 1998.*
(17) Exhibit 10.15 to Form 10-K filed on April 30, 1998.*
(18) Exhibit 10.16 to Form 10-K filed on April 30, 1998.*
(19) Exhibit 10.18 to Form 10-K filed on March 31, 1999.*
(20) Exhibit 10.19 to Form 10-K filed on March 31, 1999.*
(21) Exhibit 10.21 to Form 10-K filed on March 31, 1999.*
(22) Exhibit 10.22 to Form 10-K filed on March 31, 1999.*
(23) Exhibit 10.23 to Form 10-K filed on March 31, 1999.*
(24) Exhibit 10.24 to Form 10-K filed on March 31, 1999.*
(25) Exhibit 10.25 to Form 10-K filed on March 31, 1999.*
(26) Exhibit 10.26 to Form 10-K filed on March 31, 1999.*
(27) Exhibit 10.27 to Form 10-K filed on March 31, 1999.*
(28) Exhibit 10.28 to Form 10-K filed on March 31, 1999.*
(29) Exhibit 10.29 to Form 10-K filed on March 31, 1999.*
(30) Exhibit 10.30 to Form 10-K filed on March 31, 1999.*
(31) Exhibit 10.31 to Form 10-K filed on March 31, 1999.*
(32) Exhibit 4 to Form 8-K and to Form S-8 filed on January 2, 1998.*
(33) Exhibit 4 to Form 8-K and to Form S-8 filed on April 21, 1998.*
(34) Exhibit 4 to Form 8-K and to Form S-8 filed on May 21, 1998.*
(35) Exhibit 10.35 to Form 10-K filed on March 31, 1999.*
(36) Exhibit 99.1 to Proxy Statement filed April 30, 1999.*
(37) Exhibit 99.2 to Proxy Statement filed April 30, 1999.*
(38) Exhibit 2.1 to Form 8-K/A filed on December 30, 1999.*
(39) Exhibit 4 to Form 8-K filed on June 24, 1997.*
(40) Exhibit 16 to Form 8-K filed March 30, 1998.*
* Incorporated by reference
(b) Reports on Form 8-K:
A Current Report on Form 8-K was filed on November 15, 1999 announcing
that Larry W. Whitfield was named President of STI subsidiary.
A Current Report on Form 8-K was filed on November 22, 1999 reporting
that we entered into an agreement to acquire all of the issued and
outstanding shares of GEC, a systems integrator of Oracle-based
solutions, at a purchase price of $3.27M.
A Current Report on Form 8-K was filed on December 14, 1999 reporting
that we consummated the GEC acquisition.
A Current Report on Form 8-K was filed on December 28, 1999 reporting
the appointment of Gordon J. Comerford to the Board of Directors and
other executive promotions.
A Current Report on Form 8-K/A was filed on December 30, 1999 amending
the Current Report on Form 8-K filed on December 14, 1999, which
reported that we consummated the GEC acquisition. The amended Current
Report on Form 8-K included the required financial statements and pro
forma financial statements relative to the acquisition were filed with
this report.
A Current Report on Form 8-K was filed on February 28, 2000 reporting
that we had written down the carrying value of certain assets
determined to be impaired.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 21, 2000 By: /s/ B.R. Smedley
- -------------- --------------------------------------------------------
Date Bernard R. Smedley, Chief Executive Officer
March 21, 2000 By: /s/ Jeffery B. Weinress
- -------------- ---------------------------------------------------------
Date Jeffery B. Weinress, Executive Vice President, Chief
Financial Officer
March 21, 2000 By: /s/ Sally Ball
- -------------- ---------------------------------------------------------
Date Sally Ball, Vice President, Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 21, 2000 By: /s/ B.R. Smedley
- -------------- --------------------------------------------------------
Date Bernard R. Smedley, Director
March 21, 2000 By: /s/ Arthur H. Collier
- -------------- --------------------------------------------------------
Date Arthur H. Collier, Director
March 21, 2000 By: /s/ Scott B. Helm
- -------------- --------------------------------------------------------
Date Scott B. Helm, Director
March 21, 2000 By: /s/ Robert M. Janowiak
- -------------- --------------------------------------------------------
Date Robert M. Janowiak, Director
March 21, 2000 By: /s/ William R. Usher
- -------------- --------------------------------------------------------
Date William R. Usher, Director
March 21, 2000 By: /s/ Don F. Riordan, Jr.
- -------------- --------------------------------------------------------
Date Don F. Riordan, Jr., Director
March 21, 2000 By: /s/ Daniel J. Stark
- -------------- --------------------------------------------------------
Date Daniel J. Stark, Director
March 21, 2000 By: /s/ Gordon J. Comerford
- -------------- --------------------------------------------------------
Date Gordon J. Comerford, Director
Exhibit 4.1
AMENDMENT TO RIGHTS AGREEMENT
The Rights Agreement dated October 27, 1998 between Exigent International Inc.
and Reliance Trust Company is hereby amended as follows:
1. Registrar and Transfer Company, a New Jersey corporation ("R&T"), is
hereby appointed as the successor Rights Agent with the same powers,
rights, duties and responsibilities as if it had been originally named
as Rights Agent.
2. Section 21 is hereby amended by deleting the fifth sentence and in its
place substituting a new fifth sentence to read as follows:
Any successor Rights Agent, whether appointed by
the Company or by such a court, shall be a corporation
organized and doing business under the laws of the United
States or of any state of the United States, in good
standing, having a office in the United States, and is
registered as a Transfer Agent in accordance with the
applicable provisions of the Securities Exchange Act of
1934, as amended, and is qualified to act as a Transfer
Agent under the rules of the New York Stock Exchange."
In witness whereof, the parties listed below have caused this Amendment
to be duly executed on this date.
Date: 3/2/00
Exigent International Inc.
By: /s/ B.R. Smedley
Registrar and Transfer Company
By: /s/ William P. Tatler
Vice President
DEED of LEASE
between
ENTERPRISE CENTER LIMITED
PARTNERSHIP NUMBER TWO,
Landlord
and
SOFTWARE TECHNOLOGY, INC.,
Tenant
For Premises Located At
Enterprise Center, Lafayette Business Park, Chantilly, Virginia
<PAGE>
DEED OF LEASE
THIS DEED OF LEASE (this "Lease") is made this 3rd day of
January, 2000, by ENTERPRISE CENTER LIMITED PARTNERSHIP NUMBER TWO, a Virginia
limited partnership ("Landlord"), and SOFTWARE TECHNOLOGY, INC., a Florida
corporation ("Tenant").
Landlord and Tenant, intending legally to be bound, hereby
covenant and agree as set forth below.
ARTICLE 1
BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set forth
below.
1.1 Premises. The Premises is deemed to be 27,670 square feet of rentable area
as outlined on Exhibit A attached hereto. Said space measurement shall be in
accordance with the 1989 "WDCAR" Standard Method of Measurement which will be
confirmed by Landlord's architect and subject to a Building "core factor" not to
exceed nine percent (9%). The Premises consist of the entire second floor of the
Building and are known as Suite 200.
1.2 Building. The building in which the Premises are located. The Building has
three (3) floors, contains 79,420 square feet of rentable area, and includes all
alterations, additions, improvements, restorations or replacements now or
hereafter made thereto. The address of the Building is 4100 Lafayette Center
Drive, Enterprise Center in Lafayette Business Park, Chantilly, Virginia 22021.
1.3 Term. If the Commencement Date is the first day of a month, the Term shall
be 120 full months. If the Term is not the first day of a calendar month, the
Term shall be 120 full months plus the time period from the Commencement Date to
the last day of the month in which the Commencement Date falls.
1.4 Commencement Date. May 1, 2000, subject to adjustment as set forth in
Article 4.
1.5 Expiration Date. April 30, 2010, subject to adjustment as set forth in
Article 4.
1.6 Advance Rent. $43,810.83. Said Advance Rent shall be deposited with
Landlord thirty (30) days prior to Commencement Date.
<PAGE>
1.7 Base Rent.: The Base Rent shall be as follows:
Lease Year Annual Base Rent Monthly Base Rent
----------------------- ------------------------ --------------------------
1 $525,730.00 $43,810.83
2 $538,873.25 $44,906.10
3 $552,345.08 $46,028.76
4 $566,153.71 $47,179.48
5 $580,307.55 $48,358.96
6 $594,815.24 $49,567.94
7 $609,685.62 $50,807.13
8 $624,927.76 $52,077.31
9 $640,550.95 $53,379.25
10 $656,564.73 $54,713.73
1.8 Security Deposit. $43,810.83.
1.9 Complex. That complex of buildings owned by Landlord known as "Enterprise
Center" containing one hundred eighty-nine thousand, one hundred twenty
(189,120) rentable square feet (of which the Building is a part), as outlined on
Exhibit E attached hereto, and including any easements, rights and appurtenances
thereto (including private streets, storm detention facilities and any other
service facilities).
1.10 Lafayette Business Park. That Complex of buildings in Chantilly, Virginia
known by the same name, of which the Complex, Building and premises are a part,
and including any easements, rights and appurtenances thereto.
1.11 Base Year. Calendar year 2000.
1.12 Tenant's Proportionate Share of Operating Expenses. 34.84% of the Operating
Expenses allocable to the Building ("Tenant's Proportionate Share of Building
Operating Expenses"), and 14.63% of the Operating Expenses allocable to the
Complex ("Tenant's Proportionate Share of Complex Operating Expenses")
(collectively, "Tenant Proportionate Share of Operating Expenses).
1.13 Tenant's Proportionate Share of Real Estate Taxes. 14.63% ("Tenant's
Proportionate Share of Real Estate Taxes").
1.14 Parking Space Allocation. 3.6 parking spaces in the Parking Facilities per
each 1,000 rentable square feet of the Premises, including any additional space
leased by Tenant after the date hereof. Fifteen (15) of the parking spaces shall
be reserved (the "Reserved Spaces"), and the remainder shall be unreserved. The
location of the Reserved Spaces is shown on Exhibit F attached hereto.
1.15 Permitted Use. Tenant shall have the right to use the Premises for any
lawful purpose permitted by applicable zoning ordinances, and without limiting
the generality of the foregoing, for offices and the repair and maintenance of
<PAGE>
electronics products and the sale of replacement parts and accessories and
activities associated with any of the foregoing; provided that Tenant expressly
acknowledges that on-site sales (retail or otherwise) from the Premises are
expressly prohibited. Tenant shall, during the Term, conform the use Tenant
makes of the Premises to all applicable laws, statutes, orders, ordinances,
rules and regulations of all federal, state or political subdivisions having
jurisdiction over the Premises, now in force or that may be enacted hereafter,
provided that the provisions of this Paragraph shall not require Tenant to
rebuild, repair or alter the Premises and/or the Tenant Improvements to make the
Premises and/or Tenant Improvements comply with any such laws, statutes, orders,
ordinances, rules or regulations, and provided further that if Tenant is unable
to use the Premises for the purposes specified herein, Tenant shall have the
right to terminate this Lease effective ninety (90) days following Landlord's
receipt of Tenant's written notice of termination, which notice shall specify
that it is delivered pursuant to this Section 1.15.
1.16 Tenant's Trade Name. STI.
1.17 Broker(s).
(a) Landlord's: Spaulding & Slye (Robert B. Shue and Harry Klaff).
(b) Tenant's: The Fred Ezra Company
1.18 Landlord's Address for Payment of Rent.
Enterprise Center L.P. #2
c/o ELV Associates, Inc. 3340 Peachtree Road, NE, Suite 2675
Atlanta, GA 30326
Attn: Ms. Theresa F. McLaughlin
1.19 Landlord's Address for Notice Purposes.
c/o ELV Associates, Inc.
1076 Thomas Jefferson Street, N.W.
Washington, DC 20007
Attn: Ms. Theresa F. McLaughlin
Telephone: (202) 625-6100
1.20 Tenant's Address.
Before occupancy:
Software Technology, Inc.
14175 Sullyfield Circle, Suite G
Chantilly, Virginia 20151
Attention: Jim Campbell, Doug Shorter
<PAGE>
After Occupancy:
Software Technology, Inc.
4100 Lafayette Center, Suite 200
Chantilly, Virginia 22021
Attention: Jim Campbell, Doug Shorter
With a copy to:
Stuart P. Dawley
Executive Vice President
Exigent International, Inc.
1225 Evans Road
Melbourne, Florida 32904-2314
ARTICLE 2
DEFINITIONS
The following terms, when used herein, shall have the meanings set forth
below.
2.1 Additional Rent. As defined in Article 5.3.
2.2 Agents. Officers, partners, directors, employees, agents, licensees,
customers, invitees and affiliates.
2.3 Alterations. Alterations, decorations, additions or improvements of any
kind or nature to the Premises or the Building, whether structural or non-
structural, interior, exterior or otherwise, including Cabling.
2.4 Association. The Lafayette Business Center Association, which is governed
by a Declaration of Covenants, Conditions and Restrictions dated November 16,
1984 as recorded among the land records of Fairfax County, Virginia in Deed Book
6057 at page 396, as amended from time to time (as amended, the "Covenants").
2.5 Cabling. All cabling and wiring installed by Tenant in the Building at any
time in connection with any telephone, computer, telecommunications or other
system.
2.6 Common Area. All areas, improvements, facilities and equipment from time to
time designated by Landlord for the common use or benefit of Tenant, other
tenants of the Complex and their Agents, including roadways, entrances and
exits, landscaped areas, open areas, exterior lighting, service drives, loading
areas, pedestrian walkways, sidewalks, stairs, ramps, maintenance and utility,
rooms and closets, exterior utility lines, common window areas, common trash
areas and Parking Facilities.
2.7 Event of Default. As defined in Article 22.
<PAGE>
2.8 Guarantor. None.
2.9 Hazardous Materials. As defined in Article 26.
2.10 Herein, hereafter, hereunder and hereof. Under this Lease, including all
Exhibits and any Riders.
2.11 Interest Rate. Eighteen percent (18%) per annum, but in no event greater
than the maximum rate permitted by law.
2.12 Holidays. As defined in the Rules and Regulations attached as Exhibit D.
2.13 Land. The piece or parcel of land upon which the Complex is located and all
rights, easements and appurtenances thereunto belonging or pertaining.
2.14 Lease Year. The first Lease Year shall commence on the Commencement Date
and terminate on the last day of the twelfth (12th) full calendar month after
the Commencement Date. Each subsequent Lease Year shall commence on the date
immediately following the last day of the preceding Lease Year and shall
continue for a period of twelve (12) full calendar months, except that the last
Lease Year of the Term shall terminate on the date this Lease expires or is
otherwise terminated.
2.15 Legal Requirements. All laws, statutes, ordinances, orders, rules,
ordinances, regulations and requirements (including any and all energy
conservation requirements applicable to the Complex and customary industry
indoor air quality standards and practices) of all federal, state and municipal
governments, and the appropriate agencies, officers, departments, boards and
commissions thereof whether now or hereafter in force which relate or are
applicable to the Land, Premises, the Building or the Complex or any part
thereof.
2.16 Mortgage.Any mortgage, deed of trust, security interest or title retention
interest affecting the Building, the Land or the Complex.
2.17 Mortgagee.The holder of any note or obligation secured by a mortgage, deed
of trust, security interest or title retention interest affecting the Complex,
the Building or the Land, including lessors under ground leases, sale-leasebacks
and lease-leasebacks.
2.18 Operating Expenses. As defined in Article 7.
2.19 Parking Facilities. All parking areas now or hereafter made available by
Landlord for use by tenants, including open-air parking within the Complex,
whether reserved, exclusive, non-exclusive or otherwise. As of the date hereof,
the Parking Facilities consist of open air surface parking areas.
2.20 Real Estate Taxes. As defined in Article 8.
2.21 Rent. Base Rent and Additional Rent.
<PAGE>
2.22 Substantial Completion. As defined in the Work Agreement attached hereto
and made a part hereof as Exhibit B.
2.23 Substantial Part. More than fifty, percent (50%) of the rentable square
feet of the Premises, the Building or the Complex. as the case may be.
2.24 Tenant's Property.Any and all personal property, furniture, business trade
fixtures, inventory and equipment located in the Premises and owned by Tenant
together with all leasehold and tenant improvements and Alterations installed in
or performed by Tenant or its Agents or on behalf of Tenant or by Landlord on
behalf of Tenant pursuant to the Work Agreement (as hereinafter defined) or the
terms of this Lease but expressly excluding those items of standard base
building work insured by Landlord and provided at Landlord's sole cost and
expense, if any, as more fully described in the Work Agreement.
2.25 Work Agreement. Attached hereto as Exhibit B.
ARTICLE 3
THE PREMISES
3.1 Lease of Premises. In consideration of the agreements contained herein,
Landlord hereby leases the Premises to Tenant, and Tenant hereby leases the
Premises from Landlord, for the Term and upon the terms and conditions
hereinafter provided. The Premises are leased subject to, and Tenant agrees not
to violate, all present and future covenants, conditions and restrictions of
record which affect the Land. The Premises shall not include an easement for
light, air or view.
3.2 Landlord's Reservations. In addition to the other rights of Landlord under
this Lease, Landlord reserves the right (i) to change the street address and/or
name of the Building or the Complex, (ii) to install, erect, use, maintain and
repair mains, pipes, conduits and other such facilities to serve the Complex and
the Building in and through the Premises, (iii) to grant to anyone the exclusive
right to conduct any particular business or undertaking in the Complex, (iv) to
establish a condominium regime for the Complex, the Land and/or the Common Area
and to include the Premises therein, (v) to control the use of the roof and
exterior walls of the Building and the Complex for any purpose, and (vi) perform
such other acts and make such other changes with respect to the Common Area, the
Complex and the Building as Landlord may, in the exercise of sound business
judgment, deem to be appropriate. Landlord may exercise any or all of the
foregoing rights without being deemed to be guilty of an eviction, actual or
constructive, or a disturbance or interruption of the business of Tenant or
Tenant's use or occupancy of the Premises; provided the exercise of said rights
does not materially and unreasonably adversely affect Tenant's normal course of
business and/or require Tenant to reconfigure, alter or enhance the Premises or
security installations within the Premises.
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ARTICLE 4
TERM
4.1 Lease Term. The Term shall commence on the Commencement Date and expire at
midnight on the Expiration Date. If Substantial Completion of the Premises has
not occurred on the date set forth in Article 1 as the Commencement Date, then
the Commencement Date shall be the date of Substantial Completion; provided,
that if Tenant uses or accepts the Premises before Substantial Completion or the
date set forth in Article 1 as the Commencement Date, then the Commencement Date
shall be the date upon which Tenant uses or accepts the Premises (i.e., the date
on which Tenant begins to move furniture, furnishings, inventory, equipment or
trade fixtures into the Premises). In such event, the Expiration Date shall be
adjusted accordingly so that the period of the Term is not changed. If requested
by Landlord, Tenant shall within fifteen (15) days of such request sign a
declaration acknowledging the Commencement Date and the Expiration Date in the
form attached hereto and made a part hereof as Exhibit C. If Landlord, for any
reason other than Tenant Delay (as defined in the Work Agreement), cannot
deliver the Premises in condition for occupancy by Tenant to conduct its
business therein on the Commencement Date specified in Article 1 of this Lease,
rent shall abate for the period between said Commencement Date and the time when
Landlord can deliver such possession. In the event the Premises are not in
condition for occupancy ninety (90) days after the Commencement Date specified
in Article 1 hereof for any reason other than Force Majeure events or Tenant
Delay, the Tenant shall have the sole right to cancel or terminate this Lease,
without any further obligation on its part, upon giving written notice of its
intention to do so (which notice shall specify that it is given pursuant to
Section 4.1 of this Lease), provided Tenant's option to cancel and terminate
this Lease must be exercised by written notice to Landlord, served no later than
thirty (30) days after such right to cancel and terminate arises. If Tenant
shall give such notice, then this Lease and the Term and estate hereby granted
shall terminate on the date of the giving of such notice with the same effect as
if such date were the date herein before specified for the expiration of the
Term of this Lease and neither party shall have any further obligation to
perform hereunder.
ARTICLE 5
RENT
5.1 Base Rent. Tenant shall pay to Landlord the Base Rent as specified in
Article 1.7
5.2 Payment of Base Rent. Base Rent for each Lease Year shall be payable in
equal monthly installments, in advance, without demand, notice, deduction,
offset or counterclaim except as and to the extent expressly provided herein, on
or before the first day of each and every calendar month during the Term;
provided, however, that the installment of the Base Rent payable for the first
full calendar month of the Term (and, if the Commencement Date occurs on a date
other than on the first day of a calendar month, Base Rent prorated from such
date until the first day of the following month) shall be due and payable on the
full execution and delivery of this Lease. Tenant shall pay the Base Rent and
all Additional Rent, by good check or in lawful currency of the United States of
<PAGE>
America, to Landlord at Landlord's Address, or to such other address or in such
other manner as Landlord from time to time specifies by written notice to
Tenant. Any payment made by Tenant to Landlord on account of Base Rent may be
credited by Landlord to the payment of any Base Rent then past due before being
credited to Base Rent currently due.
5.3 Additional Rent. All sums payable by Tenant under this Lease, other than
Base Rent, shall be deemed "Additional Rent," and, unless otherwise set forth
herein, shall be payable in the same manner as set forth above for Base Rent.
5.4 Late Payment. If during any period of twelve consecutive months during the
Term Tenant shall fail on more than two occasions to pay any Rent within ten
(10) days after such Rent becomes due and payable, then on the third and each
subsequent occasion (a) Tenant shall pay to Landlord a late charge of five
percent (5%) of the amount of such overdue Rent, and (b) any such late Rent
payment shall bear interest from the date such Rent became due and payable to
the date of payment thereof by Tenant at the Interest Rate. Such late charge and
interest shall be due and payable within five (5) business days after written
demand from Landlord is received by Tenant.
5.5 Advance Rent.Simultaneously with the execution of this Lease, Tenant shall
deposit with Landlord the Advance Rent in cash, as payment, in advance, of Base
Rent due under this Lease. The Advance Rent shall serve Landlord as security for
Tenant's performance of its obligations under this Lease until such time as the
first monthly installment of Base Rent becomes due. When the first monthly
installment of Base Rent becomes due, Landlord shall apply the Advance Rent
against such installment, and thereafter against each additional monthly
installment of Base Rent due under this Lease, until such time as the Advance
Rent is exhausted.
ARTICLE 6
SECURITY DEPOSIT
6.1 General. Simultaneously with the execution of this Lease, Tenant shall
deposit with Landlord the Security Deposit in cash, which shall be
held by Landlord, with interest for the account of Tenant, as security, for the
performance of Tenant's obligations and covenants under this Lease. All interest
accrued on the Security Deposit shall be added to and be considered a part of
the Security Deposit, for disposition as set forth herein. For purposes of
reporting interest income, Tenant's Federal tax identification number is
59-1826343. The Security Deposit is not an advance rental deposit or a measure
of Landlord's damages in case of an Event of Default. If an Event of Default
shall occur beyond any applicable notice and cure period or if Tenant fails to
surrender the Premises in the condition required by this Lease, Landlord may,
and without prejudice to any other remedy which Landlord may have on account
thereof, to apply all or any portion of the Security Deposit to cure such
default or to remedy the condition of the Premises. If Landlord so applies the
Security Deposit or any portion thereof before the Expiration Date or earlier
termination of this Lease, Tenant shall deposit with Landlord, upon demand, the
amount necessary to restore the Security Deposit to its original amount. If
Landlord shall sell or transfer its interest in the Building or the Complex, or
in the event of a foreclosure, Landlord shall transfer the Security Deposit to
<PAGE>
such purchaser or transferee, in which event Tenant shall look solely to the new
landlord for the return of the Security Deposit, Landlord thereupon shall be
released from all liability to Tenant for the return of the Security Deposit,
and the new owner shall be liable for Tenant's Security Deposit. Although the
Security Deposit shall be deemed the property of Landlord, any remaining balance
of the Security. Deposit shall be returned to Tenant at such time after the
Expiration Date or earlier termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled. Landlord shall conduct a "Post
Move-Out Inspection" of the Premises within fifteen (15) days after the
Expiration Date or earlier termination of this Lease.
ARTICLE 7
OPERATING EXPENSES
7.1 Tenant's Proportionate Share of Operating Expenses.Commencing on the first
day of the second Lease Year and continuing throughout the remainder of the
Term, Tenant shall pay to Landlord, as Additional Rent, Tenant's Proportionate
Share of the amount by which the Operating Expenses during each calendar year
exceed the Operating Expenses during the Base Year. If the first day of the
second Lease Year or the Expiration Date are other than the first day of a
calendar year, then Tenant's Proportionate Share of Operating Expenses shall be
adjusted to reflect the actual period of occupancy during such calendar year.
7.2 Operating Expenses Defined.
(a) As used herein, the term "Operating Expenses" shall mean all expenses,
disbursements and costs of every kind and nature which Landlord incurs because
of or in connection with the ownership, maintenance, management, repair, altera-
tion, replacement and operation of the Building and Complex (which expressly
includes the Land, the Parking Facilities and the Common Area) including the
following:
(1) Wages and salaries of all employees, including an on-site
management agent and staff, whether employed by Landlord or the Building's man-
agement company and all costs related to or associated with such employee or
the carrying out of their duties, including uniforms and their cleaning,
taxes, auto allowances and insurance and benefits (including contributions to
pension and/or profit sharing plans and vacation or other paid absences);
(2) All supplies and materials, including janitorial and lighting
supplies;
(3) All utilities, including electricity, telephone (including
all costs and expenses of telephone service for the sprinkler alarm system, if
any), water, sewer, power, gas, heating, lighting and air conditioning for
the Building, except to the extent such utilities are charged directly to or
paid directly by, a tenant of the Building;
(4) All insurance (including any deductibles) purchased by
Landlord or the Building's management company relating to the Building and
any equipment or other property contained therein or located thereon including
casualty, liability, rental loss, sprinkler and water damage insurance;
<PAGE>
(5) All repairs to the Building and all mechanical components
and equipment therein (excluding repairs paid for by the proceeds of insurance
or by Tenant or other third parties other than as a part of the Operating
Expenses), including interior, exterior, structural or non-structural, and
regardless of whether foreseen or unforeseen;
(6) All maintenance of the Building and all mechanical components
and equipment therein including painting, ice and snow' removal. landscaping,
groundskeeping and the patching, painting and resurfacing of driveways and
parking lots;
(7) A management fee payable to Landlord and/or the company or
companies managing the Building, not to exceed four percent (4%) of aggregate
annual base rents;
(8) All maintenance, operation and service agreements for the
Building, and any equipment related thereto,including service and/or maintenance
agreements for the sprinkler system in the Building, if any (excluding those
paid for by Tenant or any third parties other than as a part of Operating
Expenses);
(9) Accounting, consulting and legal fees (whether attributable
to Landlord's in-house attorneys or paralegals);
(10) Any additional services not provided to the Building at the
Commencement Date but thereafter provided by Landlord as Landlord shall deem
necessary or desirable;
(11) All condominium dues and related charges and all assessments,
whether general, special or otherwise, levied against Landlord, the Building or
Complex pursuant to any condominium regime or any declaration or other instru-
ment affecting the Building or any part or component thereof;
(12) All computer rentals for energy management or security moni-
toring systems, if any;
(13) Any capital improvements made to the Building after the
Commencement Date (other than those made for the addition of rentable square
footage to the Building or for the sole benefit or a Building tenant pursuant to
its lease), the cost of which shall be amortized over the useful life of
such expenditure according to generally acceptable accounting principles
("GAAP"), together with interest on the unamortized balance of such cost at the
Interest Rate or such higher rate as may have been paid by Landlord on funds
borrowed for the purposes of constructing said capital improvements but only
to the extent that such capital improvement is (i) intended by Landlord to
result in the reduction of Operating Expenses but only to the extent that the
<PAGE>
same results in an actual reduction of Tenant's costs, (ii) necessary or advis-
able to comply with Legal Requirements. or (iii) necessary or advisable to
comply with insurance requirements or recommendations of Landlord's insurer
or Mortgagee;
(14) The cost of any transportation program fees, mass transporta-
tion fees or similar fees charged or assessed by any governmental or
quasi-governmental entity or pursuant to any Legal Requirements; and
(15) Any payments made by the Landlord under any easement or
license agreement, declaration, restrictive covenant or instrument pertaining to
the payment of sharing of costs among property owners.
(b) If during any calendar year (including the Base Year), the average
occupancy rate for the Building is less than ninety-five percent (95%) or Land-
lord is not supplying services to 95% of the rentable area of the Building at
any time during any such calendar year, Operating Expenses for such calendar
year shall be deemed to include all additional costs and expenses of ownership,
maintenance, management and operation of the Building which Landlord determines
that it would have paid or incurred during any such calendar year if such
average occupancy rate for the Building had been 95% and had Landlord been
supplying services to 95% of the rentable square feet of the Building throughout
such calendar year. In the event that after the Base Year Landlord provides
services, the cost of which would be included in Operating Expenses, that were
not provided during the Base Year, then the cost of such services shall be added
to the Base Year "gross-up" as if such services existed and were provided on the
Commencement Date. If any amounts comprising Operating Expenses are incurred not
just with respect to the office area of the Building, but also with respect to
the retail area of the Building, if any, then Landlord shall endeavor in good
faith and use its reasonable efforts to allocate such amounts between the
office and retail areas of the Building. Such allocation shall be made on a fair
and equitable basis, based on the usage of or benefits received from the
service, utility or item in question. It is not the intent of this provision,
commonly referred to as a "gross up" clause, to permit Landlord to charge
Tenant for any Operating Expenses attributable to unoccupied space, or to seek
reimbursement from Tenant for costs the Landlord never incurred. Rather, the
intent of this provision is to allow Landlord to recover only those increases
in Operating Expenses properly attributable to the occupied space in the
Building, and is thus designed to calculate the actual cost of providing
variable Operating Expense services (i.e., Operating Expenses that are affected
by variations in occupancy levels, such as char service) to the rentable area
of the Building receiving such service.
7.3 Exclusions from Operating Expenses.
(a) Operating Expenses shall not include the following:
(1) Legal fees, space planners' fees, real estate brokers' leasing
commissions, advertising expenses and all other costs incurred in
connection with the original or future leasing of space in the Building;
(2) Costs and expenses of alterations or improvements of the
Premises or the leasehold premises of other individual tenants in the Building;
<PAGE>
(3) Costs of correcting defects in, or inadequacy of, the
design or construction of the Building or the materials used in the construction
of the Building or the equipment or appurtenances thereto to the extent
covered by warranties and recovered by Landlord;
(4) Depreciation, interest and principal payments on mortgages
and other financing costs, if any including attorneys' fees, title insurance
premiums, recording costs, or any other costs attributable to such activity,
other than amortization of and the interest factor attributable to permitted
capital improvements;
(5) Costs and expenses associated with the operation of the
business of the person or entity which constitutes Landlord as the same are
distinguished from the costs of operation of the Building, including accounting
and legal matters, costs of defending any lawsuits with any Mortgagee
(except to the extent the actions of Tenant or any other tenant may be in issue)
costs of selling or financing any of Landlord's interest in the Building and
outside fees paid in connection with disputes with other tenants;
(6) Costs and expenses directly resulting from the gross
negligence or willful misconduct of Landlord or its Agents to the extent
provable by Tenant;
(7) Real Estate Taxes;
(8) Landlord's income taxes;
(9) Landlord's costs of any service sold or provided to any tenant
or occupant of the Building for which Landlord is reimbursed as an additional
charge or rental over and above the base rent and escalations payable under the
lease or occupancy agreement with that tenant or other occupant (including
after-hours HVAC costs or over-standard electrical consumption costs incurred by
other tenants or occupants or excess insurance costs arising from a tenant's
specific use or equipment) and costs of services provided to some tenants, but
not to Tenant;
(10) The initial cost of construction of the Building;
(11) Expenses for repairs or replacements to the extent such
expenses are covered by and reimbursed to Landlord by virtue of warranties from
contractors or suppliers;
(12) The cost of any item of service or repair to the extent
covered by and reimbursed to Landlord under any warranty, guaranty or insurance
policy maintained or held by Landlord;
(13) Any Operating Expenses which are payable by any tenant
directly to the provider of the service or for which Landlord is entitled to be
and is reimbursed directly by a tenant, or by insurance proceeds;
<PAGE>
(14) Legal or accounting fees, costs and disbursements for
negotiating leases or enforcing the lease obligations of other tenants in the
Complex;
(15) Damage and repairs attributable to condemnation, fire or
other casualty to the extent covered by insurance actually maintained or
required under the provisions of this Lease to be maintained by Landlord and
collected by Landlord;
(16) Interest, penalties or other costs arising out of Landlord's
failure to make timely payments of its obligations, unless such failure is
caused by Tenant's conduct;
(17) Repairs required to correct violations of Legal Requirements
existing as of the Commencement Date;
(18) Compensation of officers or executives of Landlord above the
level of property manager;
(19) Costs to acquire sculpture, paintings or other objects of
act;
(20) Costs arising from the presence of Hazardous Materials (as
defined in Article 26) in, about or below the Building or Complex; and
(21) Reserves for repairs, maintenance and replacements.
Landlord shall not collect more than one hundred
percent (100%) of the Operating Expenses actually incurred
by Landlord and shall not recover any items of cost more than once.
(b) All Operating Expenses shall be reduced by the amount of insurance or
other reimbursement, recoupment, payment, discount or allowance received by
Landlord. Landlord shall, at all times during the entire term and its options,
operate, manage, maintain and repair the Building in a lawful, efficient and
businesslike manner in accordance with sound property management practices
consistent with comparable first class office buildings in the northern Virginia
metropolitan area. Tenant shall only be liable for Operating Expenses which are
attributable to term of this Lease or such time as Tenant occupies the Premises,
whichever is greater.
7.4 Estimated Payments. Landlord shall submit to Tenant, before the beginning of
each calendar year, a statement of Landlord's estimate of the Operating Expenses
payable by Tenant during such calendar year. In addition to the Base Rent,
Tenant shall pay to Landlord on or before the first day of each month during
such calendar year an amount equal to one-twelfth (1/12) of the estimated
Operating Expenses payable by Tenant for such calendar year as set forth in
Landlord's statement. If Landlord fails to give Tenant notice of its estimated
payments due under this Article for any calendar year, then Tenant shall
continue making monthly estimated payments in accordance with the estimate for
the previous calendar year until a new estimate is provided by Landlord. If
Landlord determines that, because of unexpected increases in Operating Expenses
or other reasons, Landlord's estimate of the Operating Expenses was too low,
<PAGE>
then Landlord shall have the right to give a new statement of the estimated
Operating Expenses due from Tenant for such calendar year or the balance thereof
and to bill Tenant for any deficiency which may have accrued during such
calendar year, and Tenant shall thereafter pay monthly estimated payments based
on such new statement.
7.5 Actual Operating Expenses. Within one hundred twenty (120) days after the
end of each calendar year, Landlord shall submit a reasonably detailed statement
to Tenant showing the actual Operating Expenses for such calendar year and
Tenant's Proportionate Share of the amount by which such Operating Expenses
exceed the Operating Expenses during the Base Year; provided that failure by
Landlord to deliver such statement within the time specified above shall not
relieve Tenant of any of its obligations hereunder. If for any calendar year,
Tenant's estimated monthly payments exceed Tenant's Proportionate Share of the
amount by which the actual Operating Expenses for such calendar year exceed the
Operating Expenses during the Base Year, then Landlord shall give Tenant a
credit in the amount of the overpayment toward Tenant's next monthly payments of
estimated Operating Expenses. If for any calendar year Tenant's estimated
monthly payments are less than Tenant's Proportionate Share of the amount by
which the actual Operating Expenses for such calendar year exceed the Operating
Expenses during the Base Year, then Tenant shall pay the total amount of such
deficiency to Landlord within thirty (30) days after receipt of the statement
from Landlord. Landlord's and Tenant's obligations with respect to any
overpayment or underpayment of Operating Expenses shall survive the expiration
or earlier termination of this Lease.
7.6 Tenant's Right to Audit. In the event of any good faith dispute concerning
the charges or computation of the amounts payable to Landlord pursuant to
Articles 7.4 and 7.5 herein, Tenant shall pay into escrow, in an escrow account
and with an escrow agent both reasonably acceptable to Landlord, the portion of
the amount in dispute pending the resolution of the dispute, and such payment
shall be without prejudice to Tenant's right to continue to challenge the
disputed charges or computation. All fees, charges and expenses of the escrow
agent shall be paid by Tenant at it's sole cost and expense. In no event shall
Tenant be permitted to make payments of Base Rent, as specified in Article 1.7,
into such escrow account. In the event Tenant shall dispute the amount set forth
in Landlord's statement as described in Article 7.5 herein and Tenant pays the
full amount set forth in Landlord's reconciliation statement with any disputed
amount paid into such escrow account then, Tenant shall have the right, not
later than ninety (90) days following receipt of such statement, to cause
Landlord's books and records with respect to the preceding calendar year to be
audited and/or inspected by Tenant itself or with the assistance of accountants
or other consultants, and who shall not be compensated on a contingency basis.
Such audit shall occur upon not less than twenty (20) days prior written notice
to Landlord, at Landlord's place of business or the actual location of
Landlord's books and records if different from Landlord's place of business,
during Landlord's normal business hours. Subject to Landlord's right to dispute
the results of Tenant's audit as hereinafter described, the amounts payable
under this Article by Landlord to Tenant or by Tenant to Landlord, as the case
may be, shall be appropriately adjusted on the basis of such audit. If such
audit discloses a liability for further refund by Landlord to Tenant in excess
of five percent (5%) of the payments previously made by Tenant for such calendar
year, then, subject to Landlord's right to dispute the results of Tenant's audit
as hereinafter described, (a) the actual out-of-pocket cost of such audit
incurred by Tenant shall be borne by Landlord and paid within thirty (30) days
<PAGE>
of demand from Tenant and (b) Tenant and/or its representatives shall have the
right to audit/inspect Landlords books and records for the year immediately
preceding the prior audit year for any potential excess payments by Tenant;
otherwise, the cost of such audit shall be borne by Tenant. Notwithstanding the
foregoing, in no event shall Landlord's cost for such audit (not including any
excess payment by Tenant) exceed Three Thousand Dollars ($3,000). If Tenant's
audit discloses a liability for further refund by Landlord to Tenant of one
percent (1%) or less or a liability for further payment by Tenant, then in that
event the actual out-of-pocket cost to respond to Tenant's audit incurred by
Landlord (including reasonable consultants' and attorneys' fees), not to exceed
Three Thousand Dollars ($3,000), shall be borne by Tenant and paid within thirty
(30) days of demand from Landlord. In the event that the Landlord disputes the
results of the Tenant's audit, Landlord shall notify Tenant within thirty (30)
days of delivery of the results of the Tenant's audit together with reasonably
detailed documentation related thereto. If Landlord disputes the Tenant's audit,
Landlord shall within said 30-day period, designate an independent Certified
Public Accounting firm from one of the "Big-Six" (i.e., Arthur Anderson & Co. or
similar company) and said firm shall review the Tenant's audit and, if
necessary, shall re-audit the Landlord's books and records and issue a final
report within ninety (90) days of the expiration of said 30-day period. Tenant
shall fully cooperate and instruct its auditor to fully cooperate with the
review conducted by the Big-Six firm. The findings of the Big-Six firm shall be
conclusive and binding on the parties hereto as it relates to the statement at
issue. In the event that the Big-Six firm's report confirms the Tenant's audit
then the Landlord shall pay the cost of the Big-Six audit which shall be in
addition to any obligation Landlord may have to pay Tenant's expenses as
aforesaid. In the event that the report discloses a liability by Landlord to
Tenant of less than the amount indicated in Landlord's statement, then in that
event the Tenant shall pay the cost of the Big-Six audit which shall be in
addition to any obligation Tenant may have to pay Landlord's expenses as
aforesaid. If Tenant shall not request an audit in accordance with the
provisions of this Article within ninety (90) days of receipt of Landlord's
reconciliation statement of actual Operating Expenses, such statement shall be
conclusive and binding upon Landlord and Tenant.
ARTICLE 8
TAXES
8.1 Tenant's Proportionate Share of Real Estate Taxes. Commencing on the first
day of the second Lease Year and continuing throughout the remainder of the
Term, Tenant shall pay to Landlord, as Additional Rent, Tenant's Proportionate
Share of the amount by which Real Estate Taxes during each calendar year exceed
Real Estate Taxes during the Base Year. If the first day of the second Lease
Year or the Expiration Date are other than the first day of a calendar year,
then Tenant's Proportionate Share of Real Estate Taxes shall be adjusted to
reflect the actual period of occupancy during such calendar year.
8.2 Definition of Real Estate Taxes. As used herein, the term "Real Estate
Taxes" shall mean all taxes and assessments, general or special, ordinary or
extraordinary, foreseen or unforeseen, assessed, levied or imposed by any
governmental authority upon the Complex and upon the fixtures, machinery,
equipment or systems in, upon or used in connection with any of the foregoing,
and the rental, revenue or receipts derived therefrom, under the current or any
future taxation or assessment system or modification of, supplement to, or
substitute for such system. Real Estate Taxes also shall include-special
<PAGE>
assessments which are in the nature of or in substitution for real estate taxes,
including road improvement assessments, special use area assessments, school
district assessment, vault space rentals and any business, professional and
occupational license tax payable by Landlord in connection with the Building. If
at any time the method of taxation prevailing on the date hereof shall be
altered so that in lieu of, as a substitute for or in addition to the whole or
any part of the taxes now levied or assessed, there shall be levied or assessed
any of the following, then the same shall be included within the term "Real
Estate Taxes" hereunder: a tax, assessment, levy fee or other charge (i) on or
measured by the rents received from the Building or the Complex, (ii) measured
by or based in whole or in part upon the Building or the Complex and imposed
upon Landlord, or (iii) measured by the rent payable by Tenant under this Lease.
Except to the extent provided in the preceding sentence, Real Estate Taxes shall
not include any franchise, corporation, income or profit tax calculated upon the
Landlord's net income. In no event shall any inheritance, estate, succession,
transfer, gift tax, or capital levy be included in Real Estate Taxes. Further,
for the purposes of this Article, Real Estate Taxes shall include the reasonable
expenses (including attorneys' fees) incurred by Landlord in challenging or
obtaining or attempting to obtain a reduction of such Real Estate Taxes,
regardless of the outcome of such challenge. Notwithstanding the foregoing,
Landlord shall have no obligation to challenge Real Estate Taxes unless
requested by tenants in the Building representing fifty percent (50%) or more of
the rentable space in the Building. If as a result of any such challenge, a tax
refund is made to Landlord, then the amount of such refund less the expenses of
the challenge shall be deducted from Real Estate Taxes due in the Lease Year
such refund applies, and if any portion of such refund applied to a tax year in
which Tenant has paid Real Estate Taxes, Landlord shall refund to Tenant an
amount equal to Tenant's pro-rata share of such reduction of Real Estate Taxes
as has actually been paid by Tenant to Landlord in the tax year to which the
reduction applies. Landlord's obligation to refund to Tenant its pro-rata share
of such reduction shall survive the expiration or termination of this Lease. The
Real Estate Taxes Statement shall reasonably detail the Real Estate Taxes for
such calendar year. Landlord further covenants and agrees to pay all Real Estate
Taxes no later than the date on which such taxes are due and payable.
8.3 Estimated and Actual Payments. Landlord shall charge Tenant for its
Proportionate Share of Real Estate Taxes and Tenant shall pay such charges in
accordance with the procedures established under Articles 7.4 and 7.5 for
payment of Operating Expenses.
ARTICLE 9
PARKING
9.1 Parking Spaces.. During the Term, and at no additional fee, Tenant shall
have the exclusive right to use the Reserved Spaces and the non-exclusive right
to use the unreserved portion of the Parking Facilities to the extent of
Tenant's unreserved Parking Space Allotment.
9.2 Reserved Spaces. Landlord, at its cost, shall keep the Reserved Spaces
marked with the words "Reserved, Software Technology" to designate the Reserved
Spaces. Landlord shall have no obligation to police the use of the Reserved
Spaces by persons other than Tenant and its Agents.
<PAGE>
9.3 Rules and Regulations for Parking. Tenant shall abide by any reasonable
rules or regulations for the use of the Parking Facilities which may be adopted
by the Landlord for the general safety, care, cleanliness and order of the
Parking Facilities, the Building and the users thereof. Upon notice to Tenant,
such rules and regulations may be changed from time to time as Landlord
reasonably deems necessary. Landlord may assign and reassign, from time to time,
particular parking spaces (except for the Reserved Spaces) for use by persons
selected by Landlord.
9.4 Changes to Parking Facilities. Landlord shall have the right, from time to
time, with Tenant's consent not to be unreasonably withheld, conditioned or
delayed, to change, alter, add to, temporarily close or otherwise affect the
Parking Facilities; provided, that Landlord endeavor in good faith and use its
reasonable efforts to minimize any material interference with Tenant's
beneficial use of the Premises. Tenant shall not use more parking spaces than
the Parking Space Allotment.
ARTICLE 10
USE
10.1 General. Tenant shall occupy the Premises solely for the Permitted Use. The
Premises shall not be used for any other purpose without the prior written
consent of Landlord which consent shall not be unreasonably withheld,
conditioned or delayed. Tenant shall comply, at Tenant's expense, with (i) all
Legal Requirements, and (ii) any reasonable requests of Mortgagee or any
insurance company providing coverage with respect to the Premises. Tenant shall
not use or occupy the Premises in any manner that is unlawful or dangerous or
that shall constitute an unreasonable annoyance or a violation of the Covenants.
10.2 Tenant's Personal Property. Tenant shall pay before delinquency any
business, rent or other tax or fee that is now or hereafter assessed or imposed
upon Tenant's use or occupancy of the Premises, the conduct of Tenant's business
in the Premises or Tenant's Property. If any such tax or fee is enacted or
altered so that such tax or fee is imposed upon Landlord or so that Landlord is
responsible for collection or payment thereof, then Tenant shall pay the amount
of such tax or fee as Additional Rent.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Consent. Tenant shall not assign, transfer, mortgage or otherwise encumber
this Lease or sublet or rent (or permit a third party, to occupy or use) the
Premises, or any part thereof, nor shall any assignment or transfer of this
Lease or the right of occupancy hereunder be effected by operation of law or
otherwise, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed (any such valid assignment, sublease or
any of the other foregoing shall sometimes be hereinafter referred to as a
"transfer"). For purposes of the foregoing prohibitions, a transfer at any one
time or from time to time of twenty percent (20%) or more of an interest in
Tenant (whether stock, partnership interest or other form of ownership or
control) by any person(s) or entity (ties) having an interest in ownership or
control of Tenant on the date hereof shall be deemed to be an assignment of this
<PAGE>
Lease. Any assignment, encumbrance, or sublease without Landlord's written
consent shall be voidable by Landlord and, at Landlord's election, constitute an
Event of Default hereunder. Notwithstanding the foregoing, in any event, Tenant
shall be strictly prohibited from assigning or subletting its interest in or
rights under this Lease in any way during the final Lease Year of the Term. This
Article 11.1 is subject to Article 11.6.
11.2 Landlord's Options. If at any time or from time to time during the Term,
Tenant desires to effect a transfer, Tenant shall deliver to Landlord written
notice ("Transfer Notice") setting forth the terms and provisions of the
proposed transfer and the identity of the proposed assignee, sublessee or other
transferee (sometimes referred to hereinafter as a "Transferee"). Tenant shall
also deliver to Landlord with the Transfer Notice, a current financial statement
for the Transferee and such other information as Landlord may reasonably
request. Landlord shall have the option, exercisable by written notice delivered
to Tenant within ten (10) days after Landlord's receipt of the Transfer Notice,
such financial statements and other information, either to:
(a) approve or disapprove such transfer; or
(b) terminate this Lease with respect to the entire Premises (or, in the
case of a proposed sublease, only that portion of the Premises which the Tenant
has requested to Sublease), which termination shall be effective thirty (30)
days after Tenant's receipt of Landlord's notice; provided, however, that this
clause (b) shall not apply unless the proposed transfer (either by itself or
when taken together with all prior transfers hereunder) would result in the
transfer of 50% or more of the Premises. Should Landlord attempt to exercise
such right to terminate this Lease provided for under this clause then Tenant
shall have the right, exercisable within five (5) business days of receipt of
landlords intent to terminate this Lease, to withdraw the transfer request, in
which event Landlord's exercise of its termination right under this clause shall
be null and void.
In the event that Landlord refuses to consent to a sublease, assignment or
transfer, then Landlord shall simultaneously provide Tenant with a reasonably
detailed written explanation for such refusal. Landlord will provide to
subtenants and assignees all rights and services provided for in this Lease.
11.3 Assignment or Sublet Premium. If Landlord approves an assignment or
subletting of all or any portion of the Premises, Tenant shall pay to Landlord
as Additional Rent, as and when received by Tenant, an amount equal to fifty
percent (50%) of the difference between (i) all sums paid by or on behalf of
such assignee or subtenant under the assignment or sublease, and (ii) the
Monthly Base Rent and Additional Rent paid by Tenant under this Lease and
attributable to the portion of the Premises assigned or sublet; provided that
Tenant shall be entitled to deduct from such premium prior to such payment to
Landlord all reasonable costs and expenses actually incurred by Tenant in
procuring such assignee or subtenant, such as but not limited to brokerage fees,
advertising, legal expenses incurred in connection with such assignment or
sublease, other economic concessions granted to such assignee or subtenant, and
expenses of such improvements constructed in such assigned or subleased space
and actually paid for by Tenant (such costs and expenses are referred to herein
as "Tenant Transfer Costs").
<PAGE>
11.4 Release. No transfer shall release Tenant of Tenant's obligations under
this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. In the case
of a transfer consisting of an assignment and not a sublease, if Landlord
consents to the proposed assignment, Landlord may require that any Transferee
remit directly to Landlord on a monthly basis all monies due Tenant by said
Transferee; provided that, in the event that (a) all sums paid by or on behalf
of such assignee under the assignment shall exceed (b) the Monthly Base Rent and
Additional Rent paid by Tenant under this Lease and attributable to the portion
of the Premises assigned (such excess, if any, of (a) over (b) is referred to
herein as the "Excess Amount"), then to the extent that such Excess Amounts are
received by Landlord, (i) Landlord shall pay to Tenant all of such Excess
Amounts until and to the extent the such aggregate amount of all such payments
so made by Landlord to Tenant shall be equal to all of Tenant Transfer Costs
incurred in connection with such assignment, and (ii) thereafter, Landlord shall
pay to Tenant fifty percent (50%) of all such Excess Amounts. The acceptance of
rent by Landlord from any other person shall not be deemed to be a waiver by
Landlord of any provision hereof. Consent by Landlord to one transfer shall not
be deemed consent to any subsequent transfer. If an Event of Default occurs by
any Transferee of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such Transferee or successor. In such
event (but only in the case of a Transferee constituting an assignee of, but not
a sublessee under, this Lease, Landlord shall not exercise any right or remedy
which it holds under any provision of this Lease or applicable law unless and
until: (1) the Landlord has given written notice to the Tenant; and (2) the
Tenant has failed (i) if such Event of Default consists of a failure to pay
money, within five (5) business days after written notice is received, to pay
such sums due to Landlord, or (ii) if such Event of Default consists of
something other than a failure to pay money, within thirty (30) days thereafter
actively, diligently and in good faith to begin to cure such Event of Default
and to continue thereafter to do so until it is fully cured. Landlord may
consent to subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions shall not relieve Tenant of liability, under this Lease.
11.5 Administrative and Attorneys' Fees. If Tenant effects a transfer as
provided for under Section 11.6 herein or Landlord consents to any transfer,
then Tenant shall, upon demand, pay Landlord a non- refundable administrative
fee of Five Hundred Dollars ($500.00), plus any consultants', engineers' and
reasonable attorneys' fees, not to exceed Five Hundred Dollars ($500.00),
incurred by Landlord in connection with such transfer or request for consent
(whether attributable to Landlord's in-house attorneys or paralegals or
otherwise). Acceptance of the $500.00 administrative fee and reimbursement of
Landlord's attorneys' and paralegal fees shall in no event obligate Landlord to
consent to any proposed transfer.
11.6 Assignment or sublease with an Affiliate. Tenant, without Landlord's
consent, may enter into a transfer with an "Affiliate" (as defined below);
provided that (i) Tenant remains liable under this Lease, and (ii) the parties
execute an assignment of lease on a form approved by Landlord. In this Lease,
the term "Affiliate" means an entity at least 50% of which is under common
ownership or control with Tenant.
<PAGE>
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 Landlord's Obligation. Landlord shall not be responsible to make any
repairs, renovations or maintenance to any part of the Premises except as
expressly provided herein. Except for repairs that Tenant is required to make
pursuant to Article 12.2, Landlord shall (a) keep and maintain in good repair
and working order the Building and roof area (excluding Tenant's Property), (b)
make all repairs and replacement to all exterior structural portions of the
Building, including, but not limited to, the exterior Building walls (including
doors), roof and foundations, adjoining sidewalks, driveways, service areas and
curbs (irrespective of any duty on the part of any governmental agency to make
or order such repairs and replacements), and all repairs and replacements
necessary to put and maintain the exterior of the Building and parking area
(including, but not limited to, filling holes and resealing as necessary, but
subject to normal wear and tear), including all improvements now or hereafter
thereon, and all appurtenances thereto (including sewer and sewer connections,
water and gas pipes and connections, electrical wires and connections) in a safe
and tenantable condition and in good order and repair, except for those repairs
made necessary by the negligent acts or default of the Tenant or its employees,
and (c) provide for lawn, landscaping and shrubbery care and snow removal. The
cost of all of the foregoing shall be included in the Operating Expenses and
paid by Tenant on a pro rata basis as and to the extent provided in Article 7
herein. Tenant shall immediately give Landlord written notice of any defect or
need for repairs of which the Tenant becomes aware. After such notice, Landlord
shall have a reasonable opportunity to repair or cure such defect. Landlord's
liability with respect to any defects, repairs or maintenance for which Landlord
is responsible under any of the provisions of this Lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect. Landlord's
liability with respect to any defects, repairs or maintenance for which Landlord
is responsible under any of the provisions of this Lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect.
12.2 Tenant's Obligation. Tenant shall, at its own expense, maintain all parts
of the Premises and Tenant's Property (except those for which Landlord is either
expressly responsible or elects to undertake pursuant to Article 12.1 or 12.3 of
this Lease) in good condition, promptly making all necessary, repairs and
replacements, including interior, windows, glass and plate glass, doors,
interior walls and finish work, floors and floor covering, lighting and
electrical systems, and HVAC and mechanical systems (including fixtures and
equipment). Tenant, at its expense, shall install and maintain any additional
fire extinguishers and other fire protection devices as may be required from
time to time by any Legal Requirement or agency having jurisdiction over, or by
the underwriters issuing insurance for, the Building. During the Term of this
Lease and any extension thereof, Tenant shall provide, at its expense, proper,
periodic and normal maintenance and inspection for such heating and air
conditioning equipment as exists upon the Premises at the Commencement Date. If
such equipment requires repairs or replacement of parts, or both, of a major or
<PAGE>
substantial nature (i.e., in excess of proper, periodic and normal maintenance
and inspection), such repairs or replacements, or both, shall be made by
Landlord at its expense (such expense to be included in Operating Expenses and
paid for by Tenant on a pro rata basis as provided in Article 7 hereof), unless
Tenant's misuse or abuse of same necessitates the repair or replacement, or
both. Examples of "parts of a major or substantial nature" are compressors,
boilers and fan units. If any heating and air conditioning equipment is
installed as part of the Tenant Improvements, Landlord shall (to the extent
transferable) transfer to Tenant all warranties received from the manufacturers,
dealers and/or installers of such heating and air conditioning and other
mechanical equipment, and agrees to assist Tenant, to a reasonable degree, in
enforcing any such warranty, except enforcement shall be at Tenant's sole
expense.
12.3 Landlord's Right to Pay, Maintain or Repair. If, within ten (10) days
following receipt of written notice to Tenant, Tenant fails to pay any amount
Tenant has agreed to pay hereunder or fails to commence to repair or replace any
item which is Tenant's obligation to perform, and diligently pursue timely
completion of such repair and replacement, Landlord may. at its option, cause
all such payments, required maintenance, repairs or replacements to be made.
Tenant shall pay Landlord all costs incurred in connection therewith (including
reasonable attorneys' fees and costs of collection, if any) within thirty (30)
days of the receipt by the Tenant of an invoice from Landlord. Interest shall
accrue thereon at the Interest Rate if not paid within said 30-day period from
the due date until paid.
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS
13.1 Initial Construction. Landlord and Tenant agree that the construction of
the Landlord Work and other initial construction with respect to the Premises
shall be performed in accordance with Exhibit B (Work Agreement) attached
hereto.
13.2 Alterations. Except with regard to decorative or non-structural Alterations
which do not exceed One Dollar ($1.00) per rentable square foot in the
aggregate, Tenant shall not make or permit any Alterations without the prior
written consent of Landlord which consent shall not be unreasonably withheld or
delayed. Landlord may impose any reasonable conditions to its consent, including
(i) delivery to Landlord of written and unconditional waivers of mechanic's and
materialmen's liens as to the Premises, the Building, the Complex and the Land
for all work, labor and services to be performed and materials to be furnished,
signed by all contractors, subcontractors, materialmen and laborers
participating in the Alterations, (ii) prior approval of the plans and
specifications and Tenant's contractor(s) with respect to the Alterations, (iii)
supervision by Landlord's representative at Landlord's expense of the
Alterations and (iv) delivery to Landlord of payment and performance bonds
naming Landlord and Mortgagee as obligees. The Alterations shall conform to the
requirements of Landlord's and Tenant's insurers and of any Legal Requirements
applicable to the Premises, shall be performed in accordance with the terms and
provisions of this Lease in a good and workmanlike manner befitting a first
class office/industrial building and shall not adversely affect the value,
utility or character of the Premises. If the Alterations are not performed as
herein required, Landlord shall have the right, at Landlord's option, to halt
any further Alterations, or to require Tenant to perform the Alterations as
herein required or to require Tenant to return the Premises to its condition
before such Alterations. Notwithstanding the foregoing, if any mechanic's or
materialmen's lien is filed against the Premises, the Building or the Land for
work claimed to have been done for, or materials claimed to have been furnished
<PAGE>
to or for the benefit of, Tenant, such lien shall be discharged of record by
Tenant within ten (10) business days by the payment thereof or the filing of any
bond required by law. If Tenant shall fail to discharge any such lien, Landlord
may (but shall not be obligated to) discharge the same, the cost of which shall
be paid by Tenant within three (3) business days of receipt of demand by
Landlord. Such discharge by Landlord shall not be deemed to waive or release the
default of Tenant in not discharging the same. Neither Landlord's consent to the
Alterations nor anything contained in this Lease shall be deemed to be the
agreement or consent of Landlord to subject Landlord's interest in the Premises,
the Building, the Complex or the Land to any mechanic's or materialmen's liens
which may be filed in respect of the Alterations.
13.3 Removal of Alterations. Except to the extent Tenant requests and Landlord
designates otherwise at the time Landlord approves such Alterations, all or any
part of the Alterations made after the Commencement Date of this Lease
(including wall-to-wall carpet), whether made with or without the consent of
Landlord, shall, at the election of Landlord, either be removed by Tenant at its
expense before the expiration of the Term or shall remain upon the Premises and
be surrendered therewith at the Expiration Date or earlier termination of this
Lease as the property of Landlord without disturbance, molestation or injury.
Notwithstanding the previous sentence, Tenant shall in all cases, remove all
Cabling installed at any time during the Lease Term and any applicable extension
or renewal term. If Landlord requires the removal of all or part of the
Alterations, Tenant, at its expense, shall repair any damage to the Premises or
the Building caused by such removal. If Tenant fails to remove the Alterations
upon Landlord's request, then Landlord may (but shall not be obligated to)
remove the same and the cost of such removal and repair of any damage caused by
the same, together with any and all damages which Landlord may suffer and
sustain by reason of the failure of Tenant to remove the same, shall be charged
to Tenant and paid upon demand.
13.4 Landlord Alterations. Subject to Article 12.1, 13.1 and Exhibit B, Landlord
shall have no obligation to make any Alterations in or to the Premises. Except
as expressly provided in the preceding sentence, Tenant shall accept the
Premises in its "AS-IS" condition.
ARTICLE 14
SIGNS
14.1 General. Landlord, at its cost, shall provide Tenant with Tenant's share
(which shall be the same percentage as Tenant's Proportionate Share of Building
Operating Expenses) of the available listings on the Building lobby directory.
Except as provided in the previous sentence and in Article 14.2, no sign,
advertisement or notice shall be inscribed, painted, affixed, placed or
otherwise displayed by Tenant or such subtenant on any part of the Land or the
outside or the inside (including windows) of the Complex, the Building or the
Premises without the Landlord's prior written approval, which approval shall not
be unreasonably withheld, conditioned or delayed. If any prohibited sign,
advertisement or notice is nevertheless exhibited by Tenant, Landlord shall have
the right to remove the same, and Tenant shall pay any and all expenses incurred
by Landlord in such removal, together with interest thereon at the Interest
<PAGE>
Rate. as Additional Rent. Landlord shall have the right to prohibit any sign,
advertisement, notice or statement to the public by Tenant in Landlord's
reasonable discretion.
14.2 Exterior Sign. Subject to all Legal Requirements, Tenant, at its cost, may
install a sign with its name and logo ("Tenant's Exterior Sign") on the top
signage band of the Building facing Lafayette Center Drive. The design, size and
location of Tenant's Exterior Sign shall be approved by Landlord. Tenant shall
maintain Tenant's Exterior Sign in good condition at all times, shall remove it
at the end of the Term, and shall repair any damage caused by this removal.
Tenant shall comply with all Legal Requirements pertaining to Tenant's Exterior
Sign.
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY
15.1 Moving Tenant's Property. Any and all damage or injury to the Premises
caused by installation, removal or moving of the Tenant's Property into or out
of the Premises, or due to the same being on the Premises, shall be promptly
repaired by Tenant.
15.2 Installing and Operating Tenant's Equipment. Except as provided in the Work
Agreement, without first obtaining the written consent of Landlord which consent
Landlord shall not unreasonably withhold or delay, Tenant shall not install or
operate in the Premises (i) any electrically operated equipment or other
machinery, other than normal and customary equipment reasonably necessary for
Tenant's Permitted Use of the Premises and that does not require wiring, cooling
or other service in excess of existing Building systems, (ii) any equipment of
any kind or nature whatsoever which will require any changes, replacements or
additions to, or changes in the use of, any water, heating, plumbing, air
conditioning or electrical system of the Premises or the Building, or (iii) any
equipment which causes the floor load to exceed the load limits set by Landlord
for the Building. Machines and equipment which cause noise or vibration that may
be transmitted to the structure of the Building or to any space therein so as to
be objectionable to Landlord shall be installed and maintained by Tenant, at its
expense, on vibration eliminators or other devices sufficient to eliminate such
noise and vibration.
ARTICLE 16
RIGHT OF ENTRY
16.1 General. Tenant shall permit Landlord or its Agents, with reasonable prior
notice, during normal business hours and accompanied by a representative of
Tenant (except in the case of an emergency), to enter the Premises (i) to
examine, inspect and protect the Premises, (ii) to make such alterations and
repairs or perform such maintenance which in the sole judgment of Landlord may
be deemed necessary or desirable, or (iii) to exhibit the same to present or
future Mortgagee; provided that all such non-emergency access by Landlord or its
agents shall be subject to all governmental laws, rules, regulations, and
requirements regarding secret, confidential, or other sensitive items, work or
material; provided, further, in the event the nature of Tenant's work in or
about the Premises precludes any access by Landlord to a particular area of the
Premises at any given inspection time, Landlord and Tenant agree to cooperate in
mutual good faith to arrange an alternative inspection arrangement or time. In
exercising its rights pursuant to this Section or during any other access to the
Premises, Landlord shall use reasonable efforts to minimize disruption or
<PAGE>
inconvenience to Tenant in connection with Landlord's entry to the Premises.
Notwithstanding anything herein to the contrary, if Tenant shall fail to provide
Landlord with means for, or otherwise take any action that would prevent
Landlord from, obtaining emergency access to the Premises (including, without
limitation, placing additional locks or bolts of any kind upon any doors or
windows, changing existing locks or the mechanism thereof, or failure to key all
locks to a master key and to deliver a copy of said master key to Landlord),
Landlord may obtain such emergency access by forcible entry, without liability
to Tenant, and Tenant shall pay to Landlord, upon demand, all costs to repair
all any and all damage (whether to the Building, the Premises or otherwise)
resulting from such entry; provided that Landlord shall make no such forcible
entry unless it believes in good faith that an emergency condition exists within
the Premises.
16.2 Access. The Landlord grants to Tenant the non-exclusive right to ingress
and egress to the premises over the existing streets and highways adjoining the
Premises. The Landlord will not interrupt or disturb any entrances except for
those associated with repairs and replacements in the ordinary course. Landlord
will use reasonable efforts to prevent any such interruption, disturbance or
deprivation by any third party, provided that Landlord shall have no liability
to Tenant, nor shall Tenant have any right to abatement or rent or other remedy,
by reason of such third party acts. Additionally, The Landlord shall grant
Tenant access to the telephone rooms and electric rooms of the Building
twenty-four (24) hours a day, seven (7) days a week.
ARTICLE 17
INSURANCE
17.1 Insurance Rating. Tenant shall not conduct or permit any activity, or place
any equipment or material, in or about the Premises, the Building, the Complex
or the Common Area which will increase the rate of fire or other insurance on
the Building or the Complex; and if any increase in the rate of insurance is
stated by any insurance company or by the applicable insurance rating bureau to
be due to any activity, equipment or material of Tenant in or about the
Premises, the Building, the Complex or the Common Area, such statement shall be
conclusive evidence that the increase in such rate is due to the same and, as a
result thereof, Tenant shall pay such increase to Landlord upon demand but only
for so long as the acts or omissions of Tenant is the basis for such increase.
17.2 Liability Insurance. Tenant shall, at its sole cost and expense, procure
and maintain throughout the Term a commercial general liability policy insuring
against claims, demands or actions for bodily injury, death, personal injury,
and loss or damage to property arising out of or in connection with: (i) the
Premises; (ii) the condition of the Premises; (iii) Tenant's operations in,
maintenance and use of the Premises, Building and Common Area, and (iv) Tenant's
liability assumed under this Lease. Such insurance shall have such combined
single limit as reasonably required by Landlord from time to time, but in no
event less than One Million Dollars ($1,000,000.00) per occurrence, on an
occurrence basis, and shall be primary over any insurance carried by Landlord.
Endorsements shall be obtained for cross-liability and contractual liability.
<PAGE>
17.3 Insurance for Tenant's Property. Tenant shall, at its sole cost and
expense, procure and maintain throughout the Term a property insurance policy
(written on an "All Risk" basis) insuring all of Tenant's Property, for not less
than the full replacement cost of said property. All proceeds of such insurance
shall be used to repair or replace Tenant's Property. If this Lease is
terminated as the result of a casualty in accordance with Article 21 herein, the
proceeds of said insurance attributable to the repair and/or replacement of any
leasehold improvements, tenant improvements or Alterations performed by or on
behalf of Tenant or by Landlord pursuant to the terms of the Work Agreement or
this Lease shall be the property, of the Landlord and paid to Landlord upon
demand together with interest thereon at the Interest Rate until paid.
17.4 Additional Insurance.
(a) Tenant shall, at its sole cost and expense, procure and maintain
business interruption insurance in an amount not less than the Base Rent due
hereunder for the first Lease Year, which amount shall be revised from time to
time upon the reasonable request of the Landlord or its Mortgagee.
(b) Tenant shall, at all times during the term hereof, maintain in effect
workers' compensation insurance as required by applicable Legal Requirements.
17.5 Requirements of Insurance Coverage. All such insurance required to be
carried by Tenant herein shall be with an insurance company licensed to do
business in the Commonwealth of Virginia and rated not lower than A-XII in the
A.M. Best Rating Guide. Such insurance (i) shall contain an endorsement that
such policy shall remain in full force and effect notwithstanding that the
insured has released its right of action against any party before the occurrence
of a loss; (ii) shall name Landlord as an additional insured party and loss
payee; and (iii) shall provide that the policy shall not be canceled, failed to
be renewed or materially amended without at least thirty (30) days' prior
written notice to Landlord and, at Landlord's reasonable request, any Mortgagee.
On or before the Commencement Date and, thereafter, not less than thirty (30)
days before the expiration date of the insurance policy, an original of the
policy (including any renewal or replacement policy) or a certified copy
thereof., together with evidence satisfactory to Landlord of the payment of all
premiums for such policy, shall be delivered to Landlord. Any insurance required
by the terms of this Lease to be carried by Tenant may be under a blanket policy
(or policies) covering other leases of Tenant and/or its related or affiliated
corporations. If such insurance is maintained under a blanket policy, Tenant
shall procure and deliver to Landlord a statement from the insurer or general
agent of the insurer setting forth the coverage maintained and the amounts
thereof allocated to the risks intended to be insured hereunder.
17.6 Waiver of Subrogation. Each party, hereby releases the other party, hereto
from liability, for any loss or damage to any building, structure or tangible
personal property,, or any resulting loss of income, or losses under worker's
compensation laws and benefits, notwithstanding that such loss, damage or
liability may arise out of the negligent or intentionally tortious act or
omission of the other party or its Agents, if such loss or damage is covered by
<PAGE>
insurance benefiting the party, suffering such loss or damage or was required to
be covered by insurance pursuant to this Lease. Each party, hereto shall use
reasonable efforts to have a waiver of subrogation clause (providing that such
waiver of right of recovery, against the other party shall not impair the
effectiveness of such policy or the insured's ability, to recover thereunder)
included in its said policies, and shall promptly notify the other in writing if
such clause cannot be included in any such policy; if such waiver of subrogation
clause shall not be available, then the foregoing waiver of right of recovery
shall be void.
17.7 Security . Tenant shall enter into a contract to maintain the security,
system for the Premises. Such engagement shall in no way increase Landlord's
liability, for occurrences and/or consequences which such a system is designed
to detect or avert and Tenant shall look solely to its insurer as set out above
for claims for damages or injury to any person or property.
17.8 Landlord's Insurance. Beginning on the date of this Lease and at all times
thereafter during the term of this Lease, Landlord shall maintain:
(a) standard all-risk fire (boiler and machinery coverage) and casualty
insurance, covering the Building in amounts at least equal to the replacement
cost of the Building at the time in question, but in no event less than such
coverage as is required to avoid coinsurance provisions;
(b) commercial liability insurance with minimum limits of $5,000,000 for
injury to or death of one or more persons in any one occurrence and for damage
to or destruction of property in any one occurrence;
(c) employer's liability insurance for bodily injury;
(d) excess liability insurance;
(e) worker's compensation insurance in statutory limits; and
(f) such other insurance coverage as is customarily carried in respect of
Comparable Buildings.
The limits shall be increased by Landlord from time to time during the term of
this Lease to at least such minimum limits as shall then be customary in respect
of Comparable Buildings. All policies of insurance required hereby shall
provide, to the extent available, that they will not be cancelled upon less than
thirty (30) days' prior notice to Tenant. Landlord shall furnish Tenant a
certificate or certificate of insurance certifying that the insurance coverage
required hereby is in force. Any insurance required by the terms of this Lease
to be carried by Landlord may be under a blanket policy (or policies) covering
other properties of Landlord and/or its related or affiliated corporations. If
such insurance is maintained under a blanket policy, Landlord shall procure and
deliver to Tenant a statement from the insurer or general agent of the insurer
setting forth the coverage maintained and the amounts thereof allocated to the
risks intended to be insured hereunder.
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ARTICLE 18
LANDLORD SERVICES AND UTILITIES
18.1 Ordinary Services to the Premises. As long as no Event of Default beyond
any applicable notice and cure period has occurred and is continuing and subject
to Legal Requirements and Force Majeure events, Landlord shall furnish to the
Premises throughout the Term (i) electricity appropriate for the Permitted Use
(but not less than six (6) watts of electrical energy per square foot of
rentable area, connected load, to the Premises), (ii) heating and air
conditioning appropriate for the Permitted Use during the following hours
(collectively, the "Building Hours"): 8:00 a.m. to 6:00 p.m., Monday through
Friday, and 8:00 a.m. to 1:00 p.m. on Saturday, exclusive of Holidays, (iii)
janitorial service (including regular trash removal from the Premises), in
accordance with the cleaning specifications attached hereto as Exhibit G, (iv)
hot and cold water from points of supply, (v) adequate supplies for restrooms
located in the Common Area, (vi) elevator service, provided that, as long as at
least one (1) elevator is in service at all times, Landlord shall have the right
to remove such elevators from service as may be required for moving, freight or
for maintaining the elevators or the Building or for security reasons, (vii)
replacement of building standard light bulbs, (viii) a reasonable security
system for the Building (which, as of the date hereof, requires use of access
cards to enter the Building during non-Building Hours), and (ix) maintenance and
repair of HVAC systems. As long as no Event of Default beyond any applicable
notice and cure period has occurred and is continuing and subject to Legal
Requirements and Force Majeure events, Tenant shall have access to the Premises
seven (7) days per week, twenty-four (24) hours per day, every day of the year.
The cost of all services provided by Landlord hereunder shall be included within
Operating Expenses, unless charged directly (and not as part of Operating
Expenses) to Tenant or another tenant of the Building. The foregoing services
shall be furnished by Landlord and reimbursed by Tenant as part of Operating
Expenses; provided, however, that Landlord shall be under no responsibility or
liability for failure, defect or interruption in such services caused by Force
Majeure, breakage, accident, strikes, repairs or for any other cause or causes
beyond the control of Landlord, nor in any event for any indirect or
consequential damages; and failure or omission on the part of Landlord to
furnish such service shall not be construed as an eviction of Tenant, nor work
an abatement of Rent, nor render Landlord liable in damages, nor release Tenant
from prompt fulfillment of any of the covenants under this Lease. Landlord may
comply with voluntary controls or guidelines promulgated pursuant to any Legal
Requirements relating to the use or conservation of energy, water, gas, light,
or electricity or the reduction of automobile or other emissions without
creating any liability of Landlord to Tenant under this Lease. Landlord shall
not be responsible if the normal operation of the Building air-conditioning
system shall fail to provide conditioned air within comfortable temperatures
levels (A) in any portions of the Premises which have a connected electrical
load for all purposes (including lighting and power) or which have a human
occupancy in excess of the average electrical load and human occupancy factors
for which the Building air-conditioning system is designed, (B) because of
Alterations made by or on behalf of Tenant, (C) in any portions of the Premises
exposed to direct sunlight in which Tenant fails to keep the window treatments
closed, or (D) because of the failure by Tenant or its Agents to use the HVAC
system in the manner in which it was designed to be used. Tenant agrees to
observe and comply with all reasonable rules from time to time prescribed by
Landlord for the proper functioning and protection of the HVAC systems in the
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Building. Except in the case of an emergency, Landlord will give Tenant at least
two (2) days prior notice if Landlord intends to interrupt any services required
to be furnished by Landlord.
18.2 After-Hours Services to the Premises. If Tenant requires or requests that
the services to be furnished by Landlord (except building standard electricity
and elevator service) be provided during periods in addition to the Building
Hours, then Tenant shall obtain Landlord's consent thereto and, if such consent
is granted, shall pay as Additional Rent Landlord's additional expenses
resulting therefrom. Landlord may, from time to time during the Term, set a per
hour charge for after-hours service (which hourly charge on the date of this
Lease is $35 per hour) which shall include the cost of utility, service, labor
costs, administrative costs and a cost for depreciation of the equipment used to
provide such after-hours service.
18.3 Excess Utility Charges. If Tenant's consumption of electricity exceeds six
(6) watts of electrical energy per square foot of rentable area, connected load,
or if Tenant's electrical consumption consistently occurs beyond Building Hours,
Landlord, in its reasonable discretion, acting in good faith, may (i) install a
separate electric meter or submeter for the Premises at Tenant's cost, or (ii)
bill Tenant for any usage of electric power (a) consistently occurring outside
of Building Hours, or (b) that exceeds six (6) watts of electrical energy per
square foot of rentable area, connected load, at the same cost paid by Landlord
for power usage. In addition, Landlord shall, upon Tenant's written request and
at Tenant's expense, install a separate submeter for the Premises to meter
Tenant's after-hours electrical consumption (including HVAC, heating and lights)
outside of Building Hours. If Landlord installs a meter for the Premises, Tenant
shall then pay the cost of electricity it consumes directly to the electric
company, and Landlord shall make an appropriate good faith adjustment to
Tenant's Proportionate Share of Operating Expenses to reflect such separate
metering. If Landlord elects to install and installs a submeter for the
Premises, Tenant shall be billed periodically by Landlord based upon such
consumption, and Landlord shall make an appropriate good faith adjustment to
Tenant's Proportionate Share of Operating Expenses to reflect such submetering.
If Landlord installs a submeter for the Premises at Tenant's request to meter
Tenant's electrical consumption outside of Building Hours, Tenant shall be
billed periodically by Landlord based upon such consumption. Tenant shall pay
each invoice that it receives from Landlord under this subarticle within 10 days
after receipt.
18.4 Year 2000 Compliance. Landlord warrants to Tenant that the Building's
customary systems and services are designed to be operational during and after
the calendar year 2000, and that the Building's customary systems and services
will operate during those time periods without any interruption of critical
services relating to year 2000 incompatibility. Notwithstanding anything to the
contrary in this Lease, if (i) Landlord breaches the foregoing warranty, and
(ii) as a result of this breach, services to the Premises are interrupted and
Tenant is unable to use the Premises in whole or in part for more than five (5)
continuous days, then, starting with the sixth (6thh) day and continuing until
Tenant is again able to use the Premises, Monthly Base Rent and Additional Rent
shall be proportionately abated to the extent that the Premises are unusable.
Any additional remedies against Landlord for Landlord's breach of the warranty
provided in this Article 18.4 shall be limited to those provided under Article
22.6 hereof.
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ARTICLE 19
LIABILITY OF LANDLORD
19.1 No Liability. Except where due to Landlord's negligence or willful
misconduct provable by Tenant, Landlord shall not be liable to Tenant or its
Agents for, and Tenant, for itself and its Agents, does hereby release Landlord
and its Agents from liability, for, any damage, compensation or claim arising
from (i) the necessity of repairing any portion of the Premises, (ii) any
interruption in the use of the Premises or the Common Area for any reason
including any interruption or suspension of utility service, (iii) fire or other
casualty or personal or property injury, damage or loss resulting from the use
or operation (by Landlord, Tenant, or any other person whomsoever) of the
Premises, (iv) the termination of this Lease, (v) robbery, assault or theft, or
(vi) any leakage in the Premises from water, rain, snow or other cause
whatsoever. No such occurrence shall give rise to diminution or abatement of
Rent or constructive eviction. Notwithstanding the foregoing, any goods,
automobiles, property or personal effects stored or placed by Tenant or its
Agents in or about the Premises, shall be at the sole risk of Tenant; Tenant
hereby expressly waives its right to recover against Landlord and its Agents
therefor. Tenant hereby waives any claim it might have against Landlord or its
Agents for any consequential damages or business losses sustained by Tenant
arising out of the loss or damage to any person or property of Tenant, or any
interruption in the use of the Premises, for any reason. Tenant acknowledges its
obligation to insure against such losses and damages.
19.2 Indemnity. Tenant shall indemnify, defend, protect and hold Landlord and
its Agents harmless from and against any and all damage, claim, liability, cost
or expense (including attorneys' or other professionals' fees) of every kind and
nature (including those arising from any injury or damage to any person,
property or business) incurred by or claimed against Landlord or its Agents,
directly or indirectly, as a result of, arising from or in connection with (i)
Tenant's or its Agents' use and occupancy of the Premises; (ii) Tenant's breach
of this Lease; or (iii) any act, omission or negligence of Tenant or its Agents;
provided that Tenant shall not be required to indemnify Landlord for any damage,
injury, loss or expense arising as a result of act(s), omission(s) or negligence
of Landlord or its Agents. Tenant's obligation to indemnify and hold Landlord
harmless shall be limited to the sum that exceeds the amount of insurance
proceeds, if any, received by the Landlord.
19.3 Limitation on Recourse. Notwithstanding anything contained in this Lease to
the contrary, the obligations of Landlord under this Lease (including any actual
or alleged breach or default by Landlord) do not constitute personal obligations
of the individual partners, directors, officers, shareholders, trustees,
advisors or agents of Landlord or Landlord's partners, and Tenant shall not seek
recourse against the individual partners, directors, officers or shareholders,
trustees, advisors or agents of Landlord or Landlord's partners, or any of their
personal assets for satisfaction of any liability with respect to this Lease. In
addition, in consideration of the benefits accruing hereunder to Tenant and
notwithstanding anything contained in this Lease to the contrary, Tenant hereby
covenants and agrees for itself and all of its successors and assigns that the
liability of Landlord for its obligations under this Lease (including any
liability as a result of any actual or alleged failure, breach or default
hereunder by Landlord), shall be limited solely to, and Tenant's and its
successors' and assigns' sole and exclusive remedy shall be against Landlord's
interest in the Building, the Complex and Land and/or such respective
<PAGE>
partnership interests or assets and proceeds therefrom, and no other assets of
Landlord. In the event that the original Landlord hereunder, or any successor
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease occurring thereafter shall terminate as of the day of such sale, and
thereupon all such liabilities and obligations shall be binding on the new
owner.
ARTICLE 20
RULES AND REGULATIONS
20.1 General. Tenant and its Agents shall at all times abide by and observe the
Rules and Regulations and any amendments thereto that may be reasonably
promulgated from time to time by Landlord for the operation and maintenance of
the Building, the Complex and the Common Area and the Rules and Regulations
shall be deemed to be covenants of the Lease to be performed and/or observed by
Tenant. Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce the Rules and Regulations, or the
terms or provisions contained in any other lease, against any other tenant of
the Building or the Complex; provided, however, that Landlord shall enforce the
Rules and Regulations in a nondiscriminatory manner. Landlord shall not be
liable to Tenant for any violation by any party of the Rules and Regulations or
the terms of any other Building lease. Landlord shall (a) not unreasonably
withhold, condition or delay its consent from Tenant for any approval required
under the Rules and Regulations; and (b) exercise its judgement in good faith in
any instance providing for the exercise of its judgement in the Rules and
Regulations. Landlord shall use commercially reasonable efforts to secure
compliance by all tenants and other occupants with the Rules and Regulations,
provided that (i) Landlord shall have no liability to Tenant by reason of
non-compliance by other tenant or other occupant and (ii) Landlord may permit
reasonable waivers with respect to other parties so long as such waivers do not
materially and unreasonably adversely affect Tenant's use or occupancy of the
Premises. If there is any inconsistency between this Lease and the Rules and
Regulations, this Lease shall govern. Landlord reserves the right to amend and
modify the Rules and Regulations as it deems necessary, provided such changes do
not materially and unreasonably adversely affect Tenant's normal course of
business or increase Tenant's costs. The current Rules and Regulations are
attached hereto as Exhibit D and made a part hereof.
ARTICLE 21
DAMAGE AND CONDEMNATION
21.1 Minor Destruction of Premises. In the event of damage to the Premises by
fire or any other cause which renders fifty percent (50%) or less of the entire
area of the Premises untenantable, then provided that such damage was not the
consequence of the fault or negligence of Tenant or its Agents, the Base Rent
and Tenant's Proportionate share shall be reduced, for the period beginning on
the date of such damage and ending on the date that such damage shall have been
repaired, by the ratio that the rentable square footage of the Premises that is
rendered so untenantable and is unoccupied by Tenant bears to the entire
rentable square footage of the Premises before such damage.
<PAGE>
21.2 Substantial Destruction of Premises. In the event of damage to or
destruction of the Premises by fire or any other cause which renders the more
than fifty percent (50%) of the entire area of the Premises untenantable, the
Rent shall wholly abate and be apportioned from the date the damage occurs until
the damage shall have been repaired.
21.3 Time For Repairs. In the event of any damage or destruction described in
Section 21.2 hereof, unless this Lease is terminated as hereinafter provided in
Section 21.5 or Section 21.6 hereof, as soon as practicable (taking into account
the time necessary to effect a satisfactory settlement with any insurance
company involved and any delays beyond the direct control of Landlord) after
receipt of Tenant's notice to renew this Lease delivered under and in accordance
with Section 28.1 hereof (if such notice is given), Landlord shall commence to
repair and restore the Premises to the condition in which they were immediately
prior to such damage, and Landlord shall substantially complete such repair and
restoration with such due diligence and dispatch. If the damage is not repaired
and restored within a reasonable time or in any event within two hundred (200)
days after the date the damage occurs (such two hundred (200) day period to be
extended by the period of any delay outside the direct control of Landlord plus
a reasonable period for a satisfactory settlement with any insurance company
involved), Tenant, within thirty (30) days from the expiration of such two
hundred (200) day period (as the same may be extended), may terminate this Lease
by written notice to Landlord. Substantial completion of such repairs (exclusive
of punchlist items) shall be evidenced by a certificate of Landlord's architect,
which certificate shall include a list of punchlist items to be completed before
final completion. All rent abatement and apportionment shall cease on the date
such certificate is delivered. Punchlist items specified in such architect's
certificate be completed as soon as practicable. The Tenant shall have seven (7)
days after receipt of the architect's certificate to inspect the premises and
notify the Landlord in writing as to any additional punchlist items not listed
in architect's certificate and Landlord shall have thirty (30) days in which to
have such items which constitute defects completed.
21.4 General Provisions Regarding Repairs. Notwithstanding anything in this
Lease to the contrary, (a) in making any repairs contemplated by this Article
21, (i) Landlord's obligation to repair such damage shall not exceed the
proceeds of insurance available to Landlord (reduced by any proceeds retained
pursuant to the rights of Mortgagee), and (ii) Landlord shall not be required to
rebuild, replace or repair of the Tenant's Property, and (b) Tenant shall be
required to repair or replace the Tenant's Property.
21.5 Right Of Termination.
(a) In the event the Premises are damaged to the extent described in
Section 21.2 hereof at any time during the eighth (8th) Lease Year or at any
time thereafter during the initial Term of this Lease by fire or any other
cause, then subject to paragraph (b) below, this Lease may be terminated at the
election of either Landlord or Tenant by giving notice in writing of such
election to the other party within thirty (30) days after the date the damage
occurs. Upon such termination, any unearned Rent or other payments paid in
advance beyond the date of damage shall immediately be refunded to Tenant.
<PAGE>
(b) If Landlord elects to terminate this Lease under paragraph (a) of this
Section, Tenant may by written notice to Landlord exercise its option to renew
under Article 28 hereof within twenty (20) days after receipt of Landlord's
notice of termination, and in such event, Landlord's notice of termination shall
be void, and Landlord shall repair the Premises as herein provided.
Notwithstanding the foregoing, Landlord shall have no obligation to commence
such repair unless and until such time as the parties have executed an amendment
to this Lease establishing the rent and other terms for the Renewal Period (as
defined below) as contemplated by Article 28. In the event that Tenant so
exercises such renewal option but such an amendment is not so executed within
the time required by Article 28, then Landlord's termination of this Lease shall
be reinstated and, notwithstanding anything herein to the contrary, there shall
be no rental abatement by reason of such damage.
(c) In the event the Term of this Lease shall be extended for the Renewal
Period pursuant to Article 28 hereof and the Premises are damaged to the extent
described in Section 21.2 hereof at any time during the thirteenth (13th ) Lease
Year or at any time thereafter during the Renewal Period, this Lease may be
terminated at the election of either Landlord or Tenant by giving notice in
writing of such election to the other party within thirty (30) days after the
date the damage occurs. Upon such termination, any unearned Rent or other
payments paid in advance beyond the date of damage shall immediately be refunded
to Tenant.
21.6 Total Destruction. Notwithstanding anything herein to the contrary, in the
event that the Building is totally destroyed or damaged by fire or other
casualty, then Landlord may terminate this Lease by written notice to Tenant
delivered within thirty (30) days after the date of such damage or destruction.
21.7 Condemnation. If the whole or a Substantial Part of the Premises or the
Building shall be taken or condemned by any governmental or quasi-governmental
authority for any public or quasi-public use or purpose (including sale trader
threat of such a taking), then the Term shall cease and terminate as of the date
when title vests in such governmental or quasi-governmental authority, and Rent
shall be prorated to the date when title vests in such governmental or
quasi-governmental authority. If (a) less than a Substantial Part of the
Premises is taken or condemned by any governmental or quasi-governmental
authority for any public or quasi-public use or purpose (including sale under
threat of such a taking), or (b) such condemnation is not extensive enough to
render the Premises unusable for the purposes for which the premises were
leased, and this Lease shall not be terminated under the provisions of the
immediately proceeding sentence, then (i) Landlord shall promptly restore the
Premises to a condition comparable to its condition immediately prior to such
condemnation, less the portion thereof taken in such condemnation, (ii) Base
Rent and Tenant's Proportionate Share shall be reduced by the ratio that the
portion so taken bears to the rentable square footage of the Premises before
such taking, effective as of the date when title vests in such governmental or
quasi-governmental authority, and (iii) this Lease shall otherwise continue in
full force and effect. Tenant shall have no claim against Landlord (or
otherwise) as a result of such taking, and Tenant hereby agrees to make no claim
against the condemning authority, for any portion of the amount that may be
awarded as compensation or damages as a result of such taking; provided,
however, that Tenant may, to the extent allowed by law, claim an award for
moving expenses and for the taking of any of Tenant's Property (other than its
leasehold interest in the Premises) which does not, under the terms of this
<PAGE>
Lease. become the property of Landlord at the termination hereof, as long as
such claim is separate and distinct from any claim of Landlord and does not
diminish Landlord's award. Tenant hereby assigns to Landlord any right and
interest it may have in any award for its leasehold interest in the Premises.
ARTICLE 22
DEFAULT
22.1 Events of Default. Each of the following shall constitute an Event of
Default: (i) Tenant fails to pay Rent within five (5) days after written notice
from Landlord is received by Tenant; (ii) Tenant fails to observe or perform any
other term, condition or covenant herein binding upon or obligating Tenant
within thirty (30) days after notice from Landlord is received by Tenant;
provided, however, that if such failure is not able to be cured within said
30-day period, Tenant shall have a reasonable period of time not to exceed an
additional ninety (90) days in which to satisfy or cure said breach conditioned
upon Tenant promptly commencing to cure such breach and diligently pursuing the
cure to completion, (iii) Tenant abandons the Premises (other than the Sublet
Space); (iv) Tenant or any Guarantor makes or consents to a general assignment
for the benefit of creditors or a common law composition of creditors, or a
receiver of the Premises or all or substantially all of Tenant's or Guarantor's
assets is appointed; or (v) a transfer in violation of Article 11 herein.
22.2 Landlord's Remedies. Upon the occurrence of an Event of Default, Landlord,
at its option, without further notice or demand to Tenant, may in addition to
all other rights and remedies provided in this Lease, at law or in equity:
(i) Terminate this Lease and Tenant's right of possession of the
Premises, and recover all damages to which Landlord is entitled under law,
specifically including all of Landlord's reasonable expenses of reletting
(including market rental concessions to new tenants, repairs, Alterations, legal
fees and brokerage commissions). If Landlord elects to terminate this Lease,
every obligation of the parties shall cease as of the date of such termination,
except that Tenant shall remain liable for payment of Rent and performance of
all other terms and conditions of this Lease to the date of termination.
(ii) Terminate Tenant's right of possession of the Premises
without terminating this Lease, in which event Landlord shall use commercially
reasonable efforts to relet the Premises, or any part thereof, for the account
of Tenant, for such rent and term and upon such other conditions as are
acceptable to Landlord. For purposes of such reletting, Landlord is authorized
to redecorate, repair, alter and improve the Premises to the extent commercially
reasonable. Until Landlord relets the Premises, Tenant shall remain obligated to
pay Rent to Landlord as provided in this Lease. If and when the Premises are
relet and if a sufficient sum is not realized from such reletting after payment
of all Landlord's reasonable expenses of reletting (including rental concessions
to new tenants, repairs. Alterations. legal fees and brokerage commissions) to
satisfy the payment of Rent due under this Lease for any month. Tenant shall pay
Landlord any such deficiency upon demand. Tenant agrees that Landlord may file
suit to recover any sums due Landlord under this Article from time to time and
<PAGE>
that such suit or recovery of any amount due Landlord shall not be any defense
to any subsequent action brought for any amount not previously reduced to
judgment in favor of Landlord.
(iii) Terminate this Lease and Tenant's right of possession of the
Premises, and recover from Tenant the net present value (using a discount rate
of 6% per annum) of the excess, if any, of all Rent due from the date of
termination until the Expiration Date over the reasonable rental value of the
Premises for that period;
(iv) Re-enter and repossess the Premises and remove all persons
and effects therefrom, by summary, proceeding, ejectment or other legal action.
Landlord shall have no liability by reason of any such re-entry, repossession or
removal.
(v) Recover from Tenant, to the extent permitted under the laws of
the Commonwealth of Virginia, the value and/or cost of all unamortized
concessions to Tenant under this Lease.
22.3 Rights Upon Possession. If Landlord takes possession pursuant to this
Article, upon terminating this Lease, Landlord may, at its option, enter into
the Premises. remove Tenant's Alterations, signs, personal property, equipment
and other evidences of tenancy, and store them at Tenant's risk and expense or
dispose of them as Landlord may see fit, and take and hold possession of the
Premises; provided, however, that if Landlord elects to take possession only
without terminating this Lease, such entry, and possession shall not terminate
this Lease or release Tenant or any Guarantor, in whole or in part, from the
obligation to pay the Rent reserved hereunder for the full Term or from any
other obligation under this Lease or any guaranty thereof.
22.4 No Waiver. If Landlord shall institute proceedings against Tenant and a
compromise or settlement thereof shall be made, the same shall not constitute a
waiver of any other covenant, condition or agreement herein contained, nor of
any of Landlord's rights hereunder. No waiver by Landlord of any breach shall
operate as a waiver of such covenant, condition or agreement, or operate as a
waiver of such covenant, condition or agreement itself, or of any subsequent
breach thereof. No payment of Rent by Tenant or acceptance of Rent by Landlord
shall operate as a waiver of any breach or default by Tenant under this Lease.
No payment by Tenant or receipt by Landlord of a lesser amount than the monthly
installment of Rent herein stipulated shall be deemed to be other than a payment
on account of the earliest unpaid Rent, nor shall any endorsement or statement
on any check or communication accompanying a check for the payment of Rent be
deemed an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such Rent or to
pursue any other remedy provided in this Lease. No re-entry by Landlord, and no
acceptance by Landlord of keys from Tenant, shall be considered an acceptance of
a surrender of the Lease.
<PAGE>
22.5 Right of Landlord to Cure Tenant's Default. If an Event of Default shall
occur beyond any applicable notice and cure period, then Landlord may (but shall
not obligated to) make such payment or do such act to cure the Event of Default,
and charge the amount of the expense thereof, together with interest thereon at
the Interest Rate, to Tenant. Such payment shall be due and payable upon demand:
however, the making of such payment or the taking of such action by Landlord
shall not be deemed to cure the Event of Default or to stop Landlord from the
pursuit of any remedy to which Landlord would otherwise be entitled. Any such
payment made by Landlord on Tenant's behalf shall bear interest until paid at
the Interest Rate.
22.6 Landlord's Failure to Furnish Services. Notwithstanding anything in this
Lease to the contrary, if (a) for any reason (other than Force Majeure events or
compliance with applicable Legal Requirements) there is a failure to furnish the
facilities, utilities or services specified in this Lease or a condition (other
than Force Majeure events or compliance with applicable Legal Requirements)
exists which interferes substantially with or prevents Tenant's normal use of
the Premises or any material part thereof, and (b) Landlord does not promptly
commence action to restore same or if so commenced, does not continue such
action with reasonable diligence until same are restored, then, in any such
event, (i) within (5) business days after Landlord's receipt of written notice
from Tenant, Tenant shall have the option to furnish such facilities, utilities,
or services for its own account as may reasonably, under the circumstances, be
obtained by Tenant, and Tenant may deduct the cost thereof from the rent due
hereunder, (iii) if such interruption of service shall continue for five (5)
consecutive business days, the Base Monthly Rental and Additional Rental shall
abate, based upon the portion or portions of the Premises affected by such
interruption of service and the degree of adverse affect of the interruption
upon the normal conduct of Tenant's business at the Premises, until such
interruption is remedied, and (iii) if any such interruption of service shall
continue for more than thirty (30) consecutive days, Tenant may, by written
notice to Landlord given at any time prior to the resumption of service to a
reasonable level, terminate this Lease, and, upon the giving of such notice,
this Lease shall terminate and expire on the date set forth in such notice,
which date shall be not more less than sixty (60) nor more than ninety (90) days
after the date of such notice.
ARTICLE 23
MORTGAGES
23.1 Subordination. This Lease and Tenant's interest hereunder shall have
priority over, and be senior to, the lien of any Mortgage made by Landlord after
the date of this Lease. However, if at any time or from time to time during the
Term, a mortgagee or prospective mortgagee ("Mortgagee") requests that this
Lease be subject and subordinate to its mortgage or deed or trust or similar
lien ("Mortgage"), and if Landlord consents to such subordination, this Lease
and Tenant's interest hereunder shall be subject and subordinate to the lien of
such Mortgage and to all renewals, modifications, replacements, consolidations
and extensions thereof and to any and all advances made thereunder and the
interest thereon. Tenant agrees that, within ten (10) business days after
receipt of a written request therefor from Landlord, it will, from time to time,
execute and deliver any reasonable instrument or other document required by any
such Mortgagee to subordinate this Lease and its interest in the Premises to the
lien of such Mortgage. If, at any time or from time to time during the Term, a
Mortgagee of a Mortgage made prior to the date of this Lease shall request that
this Lease have priority over the lien of such Mortgage, and if Landlord
consents thereto, this Lease shall have priority over the lien of such Mortgage
and all renewals, modifications, replacements, consolidations and extensions
thereof and all advances made thereunder and the interest thereon, and Tenant
<PAGE>
shall, within ten (10) business days after receipt of a request therefor from
Landlord, execute, acknowledge and deliver any and all reasonable documents and
instruments confirming the priority of this Lease. In any event, however, if
this Lease shall have priority over the lien of a first Mortgage, this Lease
shall not become subject or subordinate to the lien of any subordinate Mortgage,
and Tenant shall not execute any subordination documents or instruments for any
subordinate Mortgagee, without the written consent of the first Mortgagee.
This Lease and Tenant's interest hereunder shall be subject and
subordinate to each and every, ground or underlying lease hereafter made of the
Building, the Complex or the Land, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Tenant agrees that, within
ten (10) business days after receipt of request therefor from Landlord, it will,
from time to time, execute, acknowledge and deliver any instrument or other
document required by any such lessor to subordinate this Lease and its interest
in the Premises to such ground or underlying lease.
23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee by certified
mail. return receipt requested, a copy of any notice of default served upon
Landlord, provided that before such notice Tenant has been notified in writing
of the address of such Mortgagee. Tenant further agrees that if Landlord shall
have failed to cure such default within the time provided for in this Lease,
then the Mortgagee shall have an additional ten (10) business days within which
to cure such default; provided, however, that if such default cannot be
reasonably cured within that time. then such Mortgagee shall have such
additional time as may be necessary to cure such default so long as Mortgagee
has commenced and is diligently pursuing the remedies necessary, to cure such
default (including the commencement of foreclosure proceedings, if necessary),
in which event Tenant shall not exercise any remedies for default while such
remedies are being so diligently pursued. In the event of the sale of the Land.
the Complex or the Building, by foreclosure or deed in lieu thereof, the
Mortgagee or purchaser at such sale shall be responsible for the return of the
Security Deposit only to the extent that such Mortgagee or purchaser actually
received the Security Deposit.
23.3 Modification Due to Financing. If, in connection with obtaining
construction or permanent financing for the Premises, the Building, the Complex
or the Land, any lender (or Mortgagee) shall request reasonable modifications of
this Lease as a condition to such financing, Tenant shall promptly execute a
modification of this Lease, provided such modifications do not materially
increase the financial obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created or Tenant's reasonable use and
enjoyment of the Premises. Tenant and any Guarantor shall each, prior to
execution and annually' throughout the Term upon request, provide such financial
information and documentation about itself to Landlord or Mortgagee as may be
requested.
23.4 Attornment. In the event of (i) a transfer of Landlord's interest in the
Premises, (ii) the termination of any ground or underlying lease of the Complex,
the Building or the Land, or (iii) the purchase of the Complex, the Building or
Landlord's interest therein in a foreclosure sale or by deed in lieu of
<PAGE>
foreclosure under any Mortgage or pursuant to a power of sale contained in any
Mortgage, then in any of such events Tenant shall, at the request of Landlord or
Landlord's successor in interest, attorn to and recognize the transferee or
purchaser of Landlord's interest or the lessor under the terminated ground or
underlying lease, as the case may be, as Landlord under this Lease for the
balance then remaining of the Term, and thereafter this Lease shall continue as
a direct lease between such lessor, transferee or purchaser, as "Landlord," and
Tenant, as "Tenant," except that such lessor, transferee or purchaser shall not
be liable for any act or omission of Landlord prior to such lease termination or
prior to its succession to title, nor be subject to any offset, defense or
counterclaim accruing prior to such lease termination or prior to such
succession to title, nor be bound by any payment of Base Rent or Additional Rent
prior to such lease termination or prior to such succession to title for more
than one month in advance. Tenant shall, upon request by Landlord or the
transferee or purchaser of Landlord's interest or the lessor under the
termination ground or underlying lease, as the case may be, execute and deliver
an instrument or instruments confirming the foregoing provisions of this
Article. Tenant hereby waives the provisions of any present or future law or
regulation which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease, or the obligations of Tenant hereunder,
upon or as a result of the termination of any such ground or underlying lease or
the completion of any such foreclosure and sale.
23.5 Non-Disturbance Agreement. Notwithstanding anything to the contrary in this
Article, Landlord shall (i) obtain a subordination, attornment and
non-disturbance agreement (an "SNDA") for the benefit of Tenant from Landlord's
existing mortgagee, which shall be executed at the time this Lease is executed
and shall be substantially in the form attached hereto as Exhibit H, and (ii)
use reasonable efforts to obtain a SNDA for the benefit of Tenant from any
future mortgagees of Landlord (each SNDA from any future mortgagee shall be on
such mortgagee's standard form).
ARTICLE 24
SURRENDER; HOLDING OVER
24.1 Surrender of the Premises. Tenant shall peaceably surrender the Premises to
Landlord on the Expiration Date or earlier termination of this Lease, in
broom-clean condition and in as good condition as when Tenant took possession,
including the repair of any damage to the Premises caused by the removal of any
of Tenant's personal' property. or trade fixtures from the Premises, except for
reasonable wear and tear and except for loss by fire or other casualty' not
caused by Tenant or its Agents. Any of Tenant's personal property left on or in
the Premises. the Building, the Complex or the Common Area after the Expiration
Date or earlier termination of this Lease shall be deemed to be abandoned, and,
at Landlord's option, title shall pass to Landlord under this Lease.
24.2 Holding Over. In the event that Tenant shall not immediately surrender the
Premises to Landlord on the Expiration Date or earlier termination of this
Lease, Tenant shall be deemed to be a month to month tenant upon all of the
terms and provisions of this Lease, except the monthly Base Rent shall be one
hundred fifty percent (150%) of the monthly Base Rent in effect during the last
<PAGE>
month of the Term. Notwithstanding the foregoing, if Tenant shall hold over
after the Expiration Date or earlier termination of this Lease, and Landlord
shall desire to regain possession of the Premises, then Landlord may upon
reasonable prior written notice forthwith re-enter and take possession of the
Premises. Tenant shall indemnify Landlord against all liabilities and damages
sustained by Landlord by reason of such retention of possession.
ARTICLE 25
QUIET ENJOYMENT
25.1 General. Landlord covenants that if Tenant shall pay Rent and perform all
of the terms and conditions of this Lease to be performed by Tenant, Tenant
shall during the Term peaceably and quietly occupy and enjoy possession of the
Premises without molestation or hindrance by Landlord or any successor party'
claiming through or under Landlord, subject to the provisions of this Lease and
any Mortgage to which this Lease is subordinate and easements, conditions and
restrictions of record affecting the Land.
ARTICLE 26
COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 Definition. As used in this Article, the term "Hazardous Material" means
any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "infectious wastes," "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including oil, petroleum-based products, paints, solvents, lead,
cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCBs and similar compounds, and including any
different products and materials which are subsequently found to have adverse
effects on the environment or the health and safety, of persons.
26.2 Landlord's Representations. Landlord represents to Tenant that (a) to the
best of Landlord's actual knowledge, except for cleaning materials and other
substances suitably stored and kept on or about the Building or the Premises in
the ordinary course of Landlord's business and in full compliance with all
applicable Environmental Laws, there are no Hazardous Materials on or about the
Building or the Premises and, except as aforesaid, Land has not been previously
used for the storage, manufacture or disposal of Hazardous Materials, (b) no
complaint, order, citation or notice with regard to air emissions and Hazardous
Materials, if any, or any other environmental, health or safety matters
affecting the Land, or any portion thereof, from any person, government or
entity, has been issued to the Landlord, and (c) the Landlord has complied with
all federal, state and local environmental laws and regulations affecting the
Land.
26.3 General Prohibition; Tenant Indemnity. Tenant shall not cause or permit any
Hazardous Material to be generated, produced, brought upon, used, stored,
treated. discharged, released, spilled or disposed of on, in, under or about the
Premises, the Building, the Complex or the Land by Tenant or its Agents,
affiliates, sublessees or assignees. Tenant shall indemnify, defend and hold
Landlord harmless from and against any and all actions (including remedial or
enforcement actions of any kind, administrative or judicial proceedings, and
<PAGE>
orders or judgments arising out of or resulting therefrom), costs, claims,
damages (including punitive damages), expenses (including attorneys',
consultants' and experts' fees, court costs and amounts paid in settlement of
any claims or actions), fines, forfeitures or other civil, administrative or
criminal penalties. injunctive or other relief (whether or not based upon
personal or bodily injury, property damage, or contamination of, or adverse
effects upon, the environment, water tables or natural resources), liabilities
or losses arising from a breach of this prohibition by Tenant, its Agents,
affiliates, sublessees or assignees. Landlord recognizes and acknowledges that
Tenant or its Agents may use and store within the Building normal and customary,
quantities of office and cleaning supplies which Tenant covenants to dispose of
in accordance with all applicable Legal Requirements.
26.4 Notice. In the event that Hazardous Materials are discovered upon, in, or
under the Premises, the Building, the Complex or the Land. and any governmental
agency or entity having .jurisdiction over the Premises. the Building, the
Complex or the Land requires the removal of such Hazardous Materials, Tenant
shall be responsible for removing those Hazardous Materials arising out of or
related to the use or occupancy of the Premises, by Tenant or its Agents,
affiliates, sublessees or assignees but not those of its predecessors.
Notwithstanding the foregoing, Tenant shall not take any remedial action in or
about the Premises, the Building, the Complex or the Land without first
notifying Landlord of Tenant's intention to do so and affording Landlord the
opportunity to protect Landlord's interest with respect thereto. Tenant
immediately shall notify Landlord in writing of: (i) any spill, release,
discharge or disposal of any Hazardous' Material in, on or under the Premises,
the Building, the Complex, the Land or any portion thereof, (ii) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, contemplated, or threatened (if Tenant has notice thereof) pursuant
to any Hazardous Materials Laws; (iii) any claim made or threatened by any
person against Tenant, the Premises, the Building, the Complex or the Land
relating to damage, contribution, cost recovery, compensation, loss or injury,
resulting from or claimed to result from any Hazardous Materials; and (iv) any
reports made to any governmental agency or entity arising out of or in
connection with any Hazardous Materials in, on, under or about or removed from
the Premises, the Building, the Complex or the Land, including any complaints,
notices, warnings, reports or asserted violations in connection therewith.
Tenant also shall supply to Landlord as promptly as possible, and in any event
within five (5) business days after Tenant first receives or sends the same,
copies of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises, the Building, the Complex, the
Land or Tenant' s use or occupancy thereof.
26.5 Landlord Indemnity. Landlord shall indemnify, defend and hold Tenant
harmless from and against any and all actions (including remedial or enforcement
actions of any kind, administrative or judicial proceedings, and orders or
judgments arising out of or resulting therefrom), costs, claims, damages
(including punitive damages), expenses (including attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties. injunctive or other relief (whether or not based upon personal or
bodily injury, property damage, or contamination of, or adverse effects upon,
the environment, water tables or natural resources), liabilities or losses
arising the generation, production, delivery to, use, storage, treatment.
discharge, release, spill or disposed of any Hazardous Material on, in, under or
about the Premises, the Building, the Complex or the Land by Landlord or its
<PAGE>
Agents or affiliates. Tenant recognizes and acknowledges that Landlord or its
Agents may use and store within the Building and the Complex normal and
customary, quantities of office and cleaning supplies which Landlord covenants
to dispose of in accordance with all applicable Legal Requirements.
26.6 Survival. The respective rights and obligations of Landlord and Tenant
under this Article 26 shall survive the expiration or earlier termination of
this Lease.
ARTICLE 27
MISCELLANEOUS
27.1 No Representations by Landlord. Tenant acknowledges that neither Landlord
or its Agents nor any broker has made any representation or promise with respect
to the Premises, the Building, the Complex, the Land or the Common Area, except
as herein expressly set forth, and no rights, privileges, easements or licenses
are acquired by Tenant except as herein expressly set forth. Tenant, by taking
possession of the Premises shall accept the Premises and the Building "AS IS,"
and such taking of possession shall be conclusive evidence that the Premises and
the Building are in good and satisfactory condition at the time of such taking
of possession.
27.2 No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between Landlord and Tenant other
than that of landlord and tenant.
27.3 Brokers. Landlord recognizes Brokers as the sole brokers procuring this
Lease and shall pay Brokers a commission therefor pursuant to a separate
agreement between Brokers and-Landlord. Landlord and Tenant each represents and
warrants to the other that it has not employed any broker, agent or finder other
than Brokers relating to this Lease. Landlord shall indemnify and hold Tenant
harmless, and Tenant shall indemnify and hold Landlord harmless, from and
against any claim for brokerage or other commission arising from or out of any
breach of the indemnitor's representation and warranty. Furthermore, Landlord
recognizes The Fred Ezra Company ("Ezra") as Tenant's agent and acknowledges and
agrees that: (i) notwithstanding its payment of a brokerage commission to Ezra
pursuant to such separate written agreement, Ezra has represented the Tenant and
not the Landlord in the procurement, negotiation, execution and delivery of this
Lease; and (ii) Ezra owes no fiduciary duty to the Landlord in connection with
same.
27.4 Estoppel Certificate. Tenant shall, without charge, at any time and from
time to time, within ten (10) business days after request therefor by Landlord,
Mortgagee, any purchaser of the Land, the Complex or the Building or any other
interested person, execute, acknowledge and deliver to such requesting party a
written estoppel certificate certifying, as of the date of such estoppel
certificate, the following: (i) that this Lease is unmodified and in full force
and effect (or if modified, that the Lease is in full force and effect as
modified and setting forth such modifications); (ii) that the Term has commenced
(and setting forth the commencement date and expiration date); (iii) that Tenant
is presently occupying the Premises; (iv) the amounts of rent currently due and
payable by Tenant; (v) that any alterations required by the Lease to have been
made by Landlord have been made to the satisfaction of Tenant; (vi) that there
<PAGE>
are no existing set-offs, charges, liens, claims or defenses against the
enforcement of any right hereunder; (vii) that no rent (except the first
installment thereof') has been paid more than thirty (30) days in advance of its
due date; (viii) that Tenant has no knowledge of any then uncured default by
Landlord of its obligations under this Lease (or, if Tenant has such knowledge,
specifying the same in detail); (ix) that Tenant is not in default; (x) that the
address to which notices to Tenant should be sent is as set forth in the Lease
(or, if not, specifying the correct address); and (xi) any other certifications
requested by Landlord. Any such estoppel certificate delivered pursuant to this
Article may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of any portion of the Land, as well as their assignees.
27.5 Financial Statements. Within fifteen (15) days after request by Landlord,
but not more often than once in any Lease Year, Tenant shall deliver to Landlord
financial statements of Tenant for its most recently ended fiscal year and
interim financial statements for its most recently ended quarter to the extent
available such financial statements shall be audited but if not available shall
be certified as true, correct and complete by Tenant's chief financial officer.
27.6 Waiver of Jury Trial. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either party against the other
with respect to any matter whatsoever arising out of or in an), way connected
with this Lease, the relationship of Landlord and Tenant hereunder or Tenant's
use or occupancy of the Premises. In the event Landlord commences any
proceedings for nonpayment of Rent, Tenant shall not interpose any counterclaims
other than compulsory counterclaims. This shall not, however, be construed as a
waiver of Tenant's right to assert such claims in any separate action brought by
Tenant.
27.7 Notices. All notices or other communications hereunder shall be in writing
and shall be deemed duly given if delivered in person or upon the earlier of
receipt, if mailed by certified or registered mail, or three (3) business days
after certified or registered mailing, return receipt requested, postage
prepaid, addressed and sent, if to Landlord to Landlord's Address specified in
Article 1.14 or if to Tenant to Tenant's Address specified in Article 1.15.
Landlord and Tenant may from time to time by written notice to the other
designate another address for receipt of future notices.
27.8 Invalidity of Particular Provisions. If any provisions of this Lease or the
application thereof to any person or circumstances shall to any extent be
invalid or unenforceable, the remainder of this Lease, or the application of
such provision to persons or circumstances other than those to which it is
invalid or unenforceable, shall not be affected thereby, and each provision of
this Lease shall be valid and be enforced to the full extent permitted by law.
27.9 Gender and Number. All terms and words used in this Lease. regardless of
the number or gender in which they are used, shall be deemed to include any
other number or gender as the context may require.
27.10 Benefit and Burden. Subject to the provisions of Article 11 and except as
otherwise expressly provided, the provisions of this Lease shall be binding
upon, and shall inure to the benefit of, the parties hereto and each of their
respective representatives, heirs, successors and assigns.
<PAGE>
27.11 Entire Agreement. This Lease (which shall be deemed to include the
Exhibits and Rider attached hereto, as well as the Agreement) contains and
embodies the entire agreement of the parties hereto, and no representations,
inducements or agreements, oral or otherwise, between the parties not contained
in this Lease shall be of any force or effect. This Lease (other than the Rules
and Regulations, which may be changed from time to time as provided herein) may
not be modified, changed or terminated in whole or in part in any manner other
than by an agreement in writing duly signed by Landlord and Tenant.
27.12 Attorney's Fees. If, as a result of any default of Landlord or Tenant in
its performance of any of the provisions of this Lease, the other party uses the
services of an attorney in order to secure compliance with such provisions or
recover damages therefor, or to terminate this Lease or evict Tenant, the
non-prevailing party shall reimburse the prevailing party upon demand for any
and all reasonable attorneys' fees and reasonable expenses so incurred by the
prevailing party.
27.13 Governing Law. This Lease is governed by the laws of the Commonwealth of
Virginia.
27.14 Force Majeure. Except for Tenant's obligations to pay Rent hereunder.
neither Landlord nor Tenant shall be required to perform any of its obligations
under this Lease, nor shall such party be liable for loss or damage for failure
to do so, nor shall the other party thereby be released from any of its
obligations under this Lease, where such failure by the non-performing party
arises from or through acts of God, strikes, lockouts, labor difficulties,
explosions, sabotage, accidents, riots, civil commotions, acts of war, results
of any warfare or warlike conditions in this or any foreign country, fire or
casualty, Legal Requirements, energy shortage or other causes beyond the
reasonable control of the non-performing party, unless such loss or damage
results from the willful misconduct or gross negligence of the non-performing
party.
27.15 Headings. Captions and headings are for convenience of reference only.
27.16 Exhibits and Riders. All Exhibits and Riders attached to this Lease are
hereby incorporated in this Lease as though set forth at length herein.
27.17 Transportation Management. Tenant shall fully comply with all present or
future programs implemented by the Association or Landlord or required by any
County, State or Federal Legal requirements (including the Covenants), to manage
parking, transportation, air pollution or emissions, or traffic in and around
the Building or the metropolitan area in which the Building is located.
27.18 Interpretation. "Include," "includes," and "including" mean considered as
part of a larger group, and not limited to the items recited. "Shall" means is
obligated to. "May" means "is permitted to." The necessary grammatical changes
required to make the provisions hereof apply either to corporations,
partnerships, or individuals, men or women, as the case may be, shall in all
cases be assumed as though in each case fully expressed.
<PAGE>
27.19 Representations and Warranties of Landlord. Landlord hereby represents,
warrants and covenants to and with Tenant that as of the date hereof, on the
Commencement Date and during the Term hereof, including any extensions and
renewals hereof:
(a) Landlord is now, and at all times hereafter either Landlord, its
successors or assigns will be, the true and lawful owner of the Building and the
Land, free and clear of all liens, claims and encumbrances except for an
existing first mortgage in favor of Crown Life Insurance Company and except for
future first mortgages securing any financing or refinancing of the Building,
the Land or the Complex;
(b) Landlord has the full right, power and authority to enter into this
Lease and to perform each and all of the terms, provisions, covenants,
agreements, matters and things herein provided to be performed by Landlord and
to execute and deliver all documents provided herein to be executed and
delivered by Landlord; and this Lease does not, nor will the performance by
Landlord of its obligations hereunder, contravene any provision of any existing
law, covenant, indenture or agreement binding upon Landlord or upon the Land
and/or the Building;
(c) The signatories to this Lease are authorized to sign this Lease on
behalf of Landlord;
(d) There is no litigation pending or, to the best of Landlord's
knowledge, threatened which may adversely affect the Building, the Land, the
Premises or Tenant's interest in the Premises. Without limiting the generality
of the foregoing, there are no suits, judgments or notices from any governmental
agency relating to any violation of the health, pollution control, building,
fire or zoning laws or regulations of any governmental body or agency or of any
other issues relating to the use and maintenance of the Building, the Land and
the Premises;
(e) The Building and Land are zoned to permit use of the Premises as
described in Section 1.15 herein.
27.20 Representations and Warranties of Tenant. Tenant hereby represents,
warrants and covenants to and with Landlord that as of the date hereof, on the
Commencement Date and during the Term hereof, including any extensions and
renewals hereof:
(a) Tenant is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to transact business in the Commonwealth of Virginia and in every
other jurisdiction wherein the failure to so qualify could have or cause a
material adverse effect on (i) the condition (financial or otherwise),
operations, business, properties or prospects of the Tenant, (ii) the rights and
remedies of the Landlord under this Lease, or the ability of the Tenant to
perform its obligations under this Lease, or (iii) the legality, validity or
enforceability of this Lease (a "Material Adverse Effect); and Tenant has all
corporate powers and all governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted. a
<PAGE>
(b) The execution, delivery and performance by the Tenant of this Lease
(i) are within Tenant's corporate powers, (ii) have been duly authorized by all
necessary corporate action, (iii) require no action by or in respect of, or
filing with, any governmental authority, (iv) do not contravene, or constitute a
default under, any Legal Requirements applicable to Tenant or of any judgment,
injunction, order, decree or other instrument binding upon Tenant, or any
agreement, instrument or contract to which Tenant is a party or by or to which
Tenant or any properties of Tenant may be affected, bound or subject, and (v) do
not result in the creation or imposition of any lien or encumbrance on any asset
of Tenant;
(c) This Lease constitutes a valid and binding agreement of Tenant
enforceable in accordance with its terms, provided that the enforceability
hereof is subject in each case to general principles of equity and to
bankruptcy, insolvency and similar laws affecting the enforcement of creditors'
rights generally.
(d) The signatories to this Lease are authorized to sign this Lease on
behalf of Tenant; and
(e) There is no action, suit or proceeding pending, or to the knowledge of
Tenant threatened, against or affecting Tenant or any of its affiliates before
any court, arbitrator or governmental authority that could have or cause a
Material Adverse Effect or that in any manner draws into question the validity
or enforceability of, or could impair the ability of Tenant to perform its
obligations under, this Lease.
27.21 Consent. Wherever in this Lease the consent of one party is required to an
act of the other party, such consent shall not be unreasonably withheld,
conditioned, or denied.
ARTICLE 28
OPTION TO RENEW
28.1 Exercise of Option. Tenant shall have the right (the "Renewal Option") to
extend the Term for one (1) period of five (5) Lease Years (a "Renewal Period")
provided (i) Tenant gives written notice to Landlord of its election to exercise
its Renewal Option at least 270 days prior to the Expiration Date, (ii) Tenant
specifies in such notice all amendments to the provisions of this Lease for the
Renewal Period ("Proposed Amendments"), other than the amount of Base Rental
which shall be determined pursuant to Sections 28.2 through 28.4 below,
inclusive), and (iii) no Event of Default exists beyond any applicable notice
and cure period at the time Tenant exercises its Renewal Option. Tenant shall
not make any Proposed Amendments except those that would conform this Lease to
market based conditions then prevailing for buildings of comparable type and
quality in the northern Virginia metropolitan area. Within ten (10) business
days after Landlord's receipt of Tenant's renewal notice, Landlord shall notify
Tenant of those Proposed Amendments, if any, acceptable to Landlord and of those
Proposed Amendments that Landlord has rejected. If Landlord shall so reject any
Proposed Amendments, Tenant shall have the right, by written notice delivered to
Landlord within five (5) business days after Tenant's receipt of Landlord's
<PAGE>
notice contemplated by the next preceding sentence, to withdraw its exercise of
the Renewal Legend. If Landlord and Tenant shall mutually agree on which, if
any, Proposed Amendments shall be included in this Lease for the Renewal Period
(such Proposed Amendments mutually agreed on are referred to herein as "Approved
Amendments"), then the parties shall promptly commence to negotiate, and within
30 days thereafter reach agreement on, the final form of, an Amendment to this
Lease providing for such Approved Amendments.
28.2 Current Market Rent. Except for Approved Amendments, if any, all terms and
conditions of this Lease shall remain in full force and effect during the
Renewal Period, except that (i) annual Base Rent for the first Lease Year of the
Renewal Period and annual escalations thereof for each subsequent Lease Year
shall be adjusted so that annual Base Rent for each such Lease Year equals
ninety-five percent (95%) of the "Current Market Rent" (as defined below), (ii)
the Base Year shall be 2010, and (iii) there shall be no further Renewal Option.
The "Current Market Rent" for purposes of this Lease shall mean the prevailing
market rent as of the date such market rent is to go into effect for renewal
leases of other comparable office space of the same quality, size, location,
level of finish, and lease term in the Building and in other comparable office
buildings located in the northern Virginia metropolitan area, for a tenant of
credit-worthiness comparable to that of Tenant, taking into account all relevant
factors, including the building's age and condition, any significant renovation
of the Building or the leased space, all components of rent, including base
rent, the number, type and base year for various rent escalations, base year and
pass-throughs for operating expenses and real estate taxes, and any
"Concessions" (as defined below). The determination of Current Market Rent shall
include establishing new Lease terms consistent with market terms at such time
relating to base rent, base year, rent escalations, and pass throughs of real
estate taxes and operating expenses, to modify or replace as appropriate the
then existing terms contained in this Lease relating to such items. The term
"Concessions" means any free or reduced rent periods, construction allowances or
other concessions.
28.3 Initial Negotiation Period.Within ten (10) days after receipt of Tenant's
notice of its election to exercise the Renewal Option, Landlord shall provide
Tenant with Landlord's good faith determination of the Current Market Rent.
Tenant may accept or reject such determination by Landlord and shall notify
Landlord in writing of it's acceptance or refection within fifteen (15) days
after Tenant's receipt of Landlord's determination of the Current Market Rent.
If Tenant so accepts Landlord's determination of the Current Market Rent, then
Tenant shall be bound to lease the Premises from Landlord during the Renewal
Period at the Current Market Rental so determined and, within fifteen (15)
business days after Landlord's receipt of Tenant written acceptance, the parties
shall execute a Lease amendment reflecting such renewal, the new economic terms
and the Approved Amendments, but failure to execute such amendment shall not
affect the commencement of the Renewal Period or Tenant's obligation to pay rent
during the Renewal Period at the rate established pursuant to this Article.
28.4 Determination of Rent by Brokers (i) If Tenant fails to agree with
Landlord's determination of the Current Market Rent within the fifteen (15) day
period set forth in Section 28.3, the Current Market Rent shall be determined by
<PAGE>
a panel of three (3) licensed real estate brokers, one of whom shall be named by
Landlord, one by Tenant, and the third selected by the two so appointed. Each
member of the board of brokers shall be licensed in Virginia as an independent
real estate broker, specializing in the field of commercial office leasing in
the northern Virginia metropolitan area, having no less than ten (10) years'
experience in such field, and recognized as ethical and reputable within the
field. Landlord and Tenant shall each make its appointment within five (5) days
after the expiration of the fifteen (15) day period, and shall notify the other
of its choice within such time. If either party fails to select a broker within
such time, the broker selected by the other party shall establish the Current
Market Rent. The two (2) brokers selected by Landlord and Tenant shall determine
the Current Market Rent valuation within ten (10) days after their selection.
Should the two (2) brokers agree on a valuation then that valuation shall be the
Current Market Rent. In the event the two brokers cannot agree on a valuation
within such ten (10) day period, then they shall promptly select a third broker.
If the brokers selected by the parties fail to select a third broker five (5)
days after such ten (10) day valuation period, the parties may select such third
broker or either party may request such appointment by the U.S. District Court
for the Eastern District of Virginia. Within fifteen (15) days after the third
broker is selected, the third broker shall determine the Current Market Rent in
accordance with the provisions above, and shall submit to the parties in writing
his or her determination of the Current Market Rent. The Current Market Rent
shall be (i) the third broker's valuation, if such valuation falls between the
valuations of the first two brokers; or (ii) if the third brokers valuation is
higher than the highest valuation of the first two valuations then the Current
Market Rent shall be the higher valuation of the first two brokers; or if the
third brokers valuation is lower than the lowest valuation of the first two
valuations then the Current Market Rent shall be the lower valuation of the
first two brokers, and within ten (10) days after such determination of the
Current Market Rent, Tenant shall notify Landlord in writing whether Tenant
accepts such determination. If so accepted by Tenant, the parties shall be bound
by such decision. If Tenant does not accept this determination with the 10-day
period, Tenant's exercise of the Renewal Option shall be revoked automatically
and the Term shall expire on the Expiration Date. In either case, Landlord and
Tenant shall each pay the fee of the broker selected by it, and shall equally
share the payment of the fee of the third broker.
(ii) If Tenant accepts the determination of Current Market Rent
pursuant to this Section 28.4, then Tenant shall be bound to lease the Premises
from Landlord during the Renewal Period at the Current Market Rental so
determined and, within fifteen (15) business days after Landlord's receipt of
Tenant written acceptance, the parties shall execute a Lease amendment
reflecting such renewal, the new economic terms and the Approved Amendments, but
failure to execute such amendment shall not affect the commencement of the
Renewal Period or Tenant's obligation to pay rent during the Renewal Period at
the rate established pursuant to this Article.
28.5 Paint and Carpet. As soon as practicable after commencement of the Renewal
Period, Landlord, at its cost, will repaint the Premises with two (2) coats of
paint and will retile and recarpet the Premises. The paint, tile and carpet to
be used by Landlord will be of comparable quality to those used in connection
with the construction of the Premises pursuant to the Work Agreement.
<PAGE>
28.6 Time is of the Essence. Time is of the essence with respect to the time
periods in this Article.
ARTICLE 29
OPTION TO TERMINATE LEASE
29.1 Option to Terminate Lease. At any time during the seventh (7th) Lease Year
or thereafter, Tenant shall have the option to terminate this Lease with respect
to the entire Premises in accordance with the provisions of this Article 4.3.
(the "Termination Option"). Tenant shall have the right to exercise the
Termination Option upon delivery to Landlord of (i) a written termination notice
from Tenant to Landlord (the "Termination Notice") given on or after the first
day of the seventh (7th) Lease Year, which notice shall specify the effective
date of termination (the "Termination Date"), which date shall be at least two
hundred seventy (270) days following the date the Termination Notice is so
delivered to Landlord, and (ii) on the Termination Date so specified, cash in an
amount, determined as of the Termination Date (the "Termination Fee"), equal to
all unamortized Landlord costs relating to this Lease (including brokerage fees
and commissions, tenant improvement allowances, and legal expenses), calculated
on a straight-line basis over the initial Term. If Tenant leases any other space
in the Building (including Expansion Space or First Offer Space) while the
Termination Option remains in effect, then the Termination Fee shall be
calculated on the basis such unamortized Landlord costs not only related not
only to the original Premises hereunder but for all such other space as well. If
exercised by Tenant in accordance with this Article, the Termination Option
shall terminate this Lease effective as of the close of business on the
Termination Date specified in Tenant's Termination Notice.
29.2 Payment of all Rent Through Termination Date. If Tenant exercises its
Termination Option, Tenant shall pay, in addition to the Termination Fee, all
Rent as and when it becomes due under this Lease up to and including the
Termination Date.
29.3 Inapplicable during Renewal Period. The Termination Option shall lapse and
shall be of no further force and effect during any Renewal Period.
29.4 Tenant may not be in Default. If the Termination Option has been timely
exercised but on the Termination Date there is an uncured Event of Default by
Tenant for which the applicable notice and cure period, if any, has not then
expired, then if such Event of Default shall be cured within such applicable
notice and cure period, the Termination Date shall occur on the day immediately
following the date that Tenant effects such cure. Should such Event of Default
continue beyond such notice and cure period, then at Landlord's election
Tenant's right to terminate this Lease under this Article shall lapse and be of
no further force and effect.
29.5 Time is of the Essence. Time shall be of the essence with respect to all
of the time periods set forth in this Article.
<PAGE>
ARTICLE 30
OPTION TO EXPAND
30.1 Option to Lease Expansion Space. Subject to the terms of this Article,
Tenant shall have one (1) option to lease additional space in the Building that
is vacant and available for lease during the period starting on the date hereof
and ending on the last day of the first Lease Year (the "Expansion Period").
(Space leased pursuant to this Article is referred to hereafter as the
"Expansion Space.")
30.2 Exercise of Expansion Option; Determination of Expansion Space. If Tenant
desires to exercise its expansion option, Tenant shall so notify Landlord within
the Expansion Period. Tenant's notice shall identify the approximate size and
location of the space that Tenant desires to lease. Upon receipt of Tenant's
notice, Landlord shall work with Tenant in good faith to agree upon the exact
size and location of the Expansion Space, taking into account the space that is
available at that time and Landlord's reasonable marketing requirements for the
remaining vacant space. If the parties are unable to agree upon the size and
location of the Expansion Space within ten (10) days after Landlord's receipt of
Tenant's notice, Tenant's expansion option shall expire.
30.3 Terms for Expansion Space. The Expansion Space shall be leased on the same
terms and conditions as the Premises as though it had been leased along with the
Premises as of the Commencement Date, except that (i) the lease term for the
Expansion Space shall commence on the date that the space is delivered to Tenant
(the "Expansion Space Commencement Date"), (ii) if the Expansion Space
Commencement Date falls within the first Lease Year, Base Rent for the Expansion
Space shall be calculated at the rate of $19.00 per rentable square foot, with
two and one-half percent (2.5%) annual increases occurring on commencement of
the second and each subsequent Lease Year during the Term, (iii) if the
Expansion Space Commencement Date falls within the second Lease Year, Base Rent
for the Expansion Space shall be calculated at the rate of $19.45 per rentable
square foot, with two and one-half percent (2.5%) annual increases occurring on
commencement of the third and each subsequent Lease Year during the Term, (iv)
effective as of the later of the first day of the second Lease Year or the
Expansion Space Commencement Date, Tenant's Proportionate Share of Operating
Expenses and Tenant's Proportionate Share of Real Estate Taxes shall be
increased to include the Expansion Space, (v) Landlord, at its cost, shall build
out the Expansion Space to the same level of finish and pursuant to the same
procedure as is provided in the Work Agreement, except that the date of
substantial completion of the Expansion Space shall be on or before the
Expansion Space Commencement Date, and (vi) Landlord may increase the Security
Deposit as it deems appropriate, in its reasonable judgment.
30.4 No Extension of Term. If Tenant leases the Expansion Space hereunder, the
Term of this Lease shall remain unchanged from that specified in Section 1.3
hereof.
30.5 Execution of Lease Amendment. The parties shall execute an Amendment to
Lease reflecting the lease of the Expansion Space within ten (10) business days
after Tenant receives the Amendment from Landlord, but failure to execute such
Amendment shall not affect the commencement of the term for the Expansion Space
or Tenant's obligation to pay rent for the Expansion Space in accordance with
this Article.
<PAGE>
30.6 Subordinate to Lease with Crosswalk. Tenant's rights under this Article
shall be subordinate to all rights to lease space on the first floor of the
Building that are granted to Crosswalk.com, Inc. ("Crosswalk") pursuant to the
Deed of Lease dated August, 1999 between Landlord and Crosswalk.
30.7 Tenant may not be in Default. This Article shall apply only as long as this
Lease is in full force and effect and there is no Event of Default hereunder
that remains uncured beyond any applicable notice or cure period.
30.8 Time is of the Essence. Time shall be of the essence with respect to all
of the time periods set forth in this Article.
ARTICLE 31
RIGHT OF FIRST OFFER
31.1 Grant of Right of First Offer. Subject to the terms of this Article, Tenant
shall have a right of first offer (the "First Offer Right") to negotiate for the
lease of any space in the Building that becomes available for lease after the
expiration of the first Lease Year (each of such spaces being referred to as the
"First Offer Space").
31.2 Exercise of Right of First Offer. If all or any part of the First Offer
Space becomes available for lease at a time when the First Offer Right is in
effect ("Available First Offer Space"), Landlord shall offer the Available First
Offer Space to Tenant before offering it to any other party. Landlord shall
offer the Available First Offer Space to Tenant by submitting to Tenant a letter
of intent with respect thereto, identifying the date on which Landlord expects
the Available First Offer Space to be available for occupancy by Tenant (the
"First Offer Space Commencement Date"), and containing such terms and conditions
as are determined by Landlord, in Landlord's reasonable discretion, acting in
good faith, to be the market rate for available space in the Building and in
other comparable office buildings in the northern Virginia metropolitan area.
Tenant shall have the right within thirty (30) days after Tenant receives such
proposed letter of intent to negotiate the terms and conditions of a binding
letter of intent for such Available First Offer Space (both Landlord and Tenant
acting in good faith) providing for a commencement date not later that the First
Offer Space Commencement Date specified in Landlord's proposed letter of intent;
provided that if Landlord and Tenant fail to execute such a binding letter of
intent within such thirty (30) day period, then such Available First Offer Space
shall constitute "Rejected First Offer Space" within the meaning of Section 31.4
hereof. The term for the First Offer Space shall end on the same date as the
Term for the Premises; provided, however, that if the First Offer Space
Commencement Date will occur within the last three Lease Years of the Term,
Landlord may condition the lease of the Available First Offer Space to Tenant
upon the extension of the Expiration Date for the entire Premises to be three
(3) years from the First Offer Space Commencement Date, with Rent for such
additional period being agreed to by Landlord and Tenant in the negotiation of
the binding letter of intent.
31.3 Execution of Lease AmendmentThe parties shall execute an Amendment to Lease
reflecting the lease of the Available First Offer Space within ten (10) days
after Landlord and Tenant executes the binding letter of intent, but failure to
<PAGE>
execute such Amendment shall not affect the commencement of the term for the
Available First Offer Space or Tenant's obligation to pay rent for the Available
First Offer Space in accordance with the letter of intent.
31.4 Rejected First Offer Space. Any Available First Offer Space that Tenant
fails to lease in accordance with this Article shall thereafter become "Rejected
First Offer Space." Landlord shall be free to lease all or any part of any
Rejected First Offer Space to any other party without first offering all or any
part of the Rejected First Offer Space to Tenant. However, if any "Special
Rejected First Offer Space" is so leased by Landlord to any other party and
later becomes available for lease during the Term, then notwithstanding the
foregoing, such Special Rejected First Offer Space shall become and considered
as Available First Offer Space at the time such Special Rejected First Offer
Space so becomes available for lease. As used herein, "Special Rejected First
Offer Space" means Available First Offer Space that becomes Rejected First Offer
Space during the first eighteen (18) full calendar months of the Term.
31.5 Subordinate to Existing Rights of Other Tenants. Notwithstanding anything
to the contrary in this Article, no First Offer Space shall be considered
available for lease if (i) the tenant then occupying the space desires to renew
its lease, whether pursuant to a renewal option or otherwise, or (ii) the space
is subject to any other right of first offer, first refusal or similar right of
another tenant (including Crosswalk) existing as of the Commencement Date.
Accordingly, any such First Offer Space not considered available for lease
pursuant to the preceding sentence may be leased by Landlord to the existing
tenant or party holding such other right without first offering it to Tenant.
31.6 Tenant may not be in Default. This Article shall apply only as long as this
Lease is in full force and effect and there is no uncured monetary Event of
Default hereunder.
31.7 Time is of the Essence. Time shall be of the essence with respect to all
of the time periods set forth in this Article.
ARTICLE 32
SATELLITE DISH
32.1 Right to Have Satellite Dish. Tenant shall have the right to install and
maintain on the roof of the Building one (1) satellite dish antenna or microwave
antenna, together with the cables extending from such antenna to the Premises,
subject to the conditions set forth in this Article. (Said satellite dish or
microwave dish antenna and all related cables, boosters and other equipment are
referred to hereafter collectively as the "Antenna").
32.2 Approval of Specifications. The location, size, weight, height and all
other features and specifications of the Antenna and the manner of initial
installation of it shall be mutually agreed upon by Landlord and Tenant. Tenant
shall install appropriate screening of the Antenna as reasonably required by
Landlord.
<PAGE>
32.3 Compliance with Legal Requirements. The Antenna, and the installation
thereof, shall comply with all Legal Requirements. If, at any time during the
Term, the Antenna does not comply with all Legal Requirements, Tenant shall
immediately remove it or, with Landlord's approval, immediately modify the
Antenna to bring it into compliance with all Legal Requirements. Tenant's
failure to obtain any permit required in order to initially install the Antenna,
or a subsequent inability to maintain the Antenna for any reason, shall have no
effect on this Lease other than to nullify the right to install and use the
Antenna.
32.4 Maintenance. Landlord shall have the right to regulate and control access
to the roof by Tenant, its employees, agents and contractors. At all times,
Tenant shall maintain the Antenna in clean, good and safe condition and in a
manner that avoids interference with or disruption to Landlord and other tenants
of the Building.
32.5 Indemnification. Tenant's placement of the Antenna on the roof as aforesaid
shall be at Tenant's sole risk and Landlord shall have no liability for damage
thereto or loss thereof under any circumstances. Tenant shall indemnify and hold
Landlord harmless for any liability, damages, costs or expenses (including
reasonable attorneys' fees) incurred as a result of permitting the placement and
operation of the Antenna on the roof and allowing access thereto.
[Remainder of this page intentionally left blank]
<PAGE>
32.6 Removal. At the expiration or earlier termination of the term of this
Lease, Tenant shall remove the Antenna from the Building and surrender the area
of the roof occupied by the Antenna in good condition, ordinary wear and tear
and unavoidable damage by the elements excepted.
32.7 Electric Charges. Tenant shall be responsible for paying all electric
charges incurred in connection the operation of the Antenna.
32.8 Use of Roof by Other Parties. Landlord may grant other parties the right to
use the roof for any lawful purposes (including the installation of other
satellite dishes and antennas) as long as this use does not unreasonably
interfere with Tenant's right to use the roof for its Antenna in accordance with
this Article.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under
seal as of the date above written.
LANDLORD:
ENTERPRISE CENTER LIMITED PARTNERSHIP NUMBER TWO,
a Virginia limited partnership
ATTEST:
By: ELV/ENTERPRISE II, INC., a Delaware
/s/ Theresa F. McLaughlin corporation, its general partner
By: /s/ Scott W. Jenkins (Seal)
Name: Theresa F. McLaughlin Scott W. Jenkins, Vice President
Title: Asset Manager
TENANT:
SOFTWARE TECHNOLOGY, INC., a Florida corporation
ATTEST:
By: /s/ Larry Whitfield
/s/ Sally Ball
(Seal)
Name: Sally Ball Name: Larry Whitfield
Title: VP Finance Title: President
<PAGE>
EXHIBIT A
PLAN SHOWING PREMISES
[to be inserted]
<PAGE>
RALEIGH #320895 v 5 B-4
EXHIBIT B
WORK AGREEMENT
1. Definitions. The following terms, when used herein, shall have the
meanings set forth below.
1.1 Architect. The person or firm selected by Tenant to prepare the Space Plan
and the Construction Documents. Tenant's selection of the Architect shall be
subject to Landlord's approval, which shall not be unreasonably withheld.
1.2 Change Order. Any change requested by Tenant to the approved Construction
Documents.
1.3 Construction Documents. The construction working drawings, mechanical,
electrical and other technical specifications, and the finishing details for the
Tenant Improvements, including wall finishes and colors and technical and
mechanical equipment installations, if any. The Construction Documents shall be
subject to Landlord's approval, which shall not be unreasonably withheld, except
that Landlord, in its absolute discretion, may withhold its approval of any
improvements to the extent that they affect the Building's structure or systems
or would be visible from the exterior of the Building or from any common area in
the Building
1.4 Contractor. The person or firm selected by Landlord to construct to the
Tenant Improvements.
1.5 Excess Cost. The amount, if any, by which the total cost of completing the
Tenant Improvements (including design fees, construction costs, and the cost of
obtaining building and occupancy permits) exceeds the Tenant Allowance. The
calculation of Excess Cost shall not include the ADA-related items for which
Landlord is responsible under Paragraph 4.B hereof.
1.6 Punchlist. A list of construction items to be completed after the
Commencement Date that are minor in character and do not materially interfere
with Tenant's use of the Premises.
1.7 Space Plan. The plan showing the outline of the Tenant Improvements,
including the location of offices, conference rooms and other areas. The Space
Plan shall be subject to Landlord's approval, which shall not be unreasonably
withheld.
1.8 Substantial Completion. Completion of the Tenant Improvements substantially
in accordance with the Construction Documents, except for the Punchlist.
<PAGE>
1.9 Tenant Allowance. $553,400.00. The Tenant Allowance may be used to pay for
any of the following: all costs incurred in completing the Tenant Improvements
(including design fees, construction costs, and the cost of obtaining building
and occupancy permits). Any unused portion of the Tenant Allowance shall be
credited against Rent that is first due under the Lease or, at Tenant's option,
paid to Tenant on the Commencement Date; provided that, notwithstanding the
foregoing, no such credit or payment shall be made unless and until Landlord
shall have received complete and final invoices labor and materials relating to
the installation and construction of the entire Tenant Improvements and lien
waivers from all contractors and, if determined by Landlord to be necessary or
desirable, subcontractors, reasonably satisfactory in form and substance to
Landlord.
1.10 Tenant Delay. Any delay in completing the Tenant Improvements caused by any
of the following: (i) Tenant's failure to meet any of the deadlines specified in
this Work Agreement, (ii) a Change Order, (iii) Tenant's failure to pay the
Excess Cost when due, (iv) interference with the construction process by any
person employed or retained by Tenant, (v) Tenant's insistence on specific
materials, finishes or installations that are not available as needed to meet
the Contractor's schedule, or (vi) any other Tenant-caused delay. 1.11 Tenant
Improvements. The improvements to the Premises being made pursuant to this Work
Agreement in order to prepare the Premises for Tenant's occupancy. The term
"Tenant Improvements" shall not include Cabling or the installation of any of
Tenant's furniture or equipment.
2. Design and Construction Schedule.
2.1 The parties shall adhere to the following design and construction
schedule.
Action Deadline
------ --------
Tenant furnishes all December 22, 1999
information to Architect
needed for Space Plan.
Tenant submits proposed February 3, 2000 or 3 wks after
Space Plan to Landlord architect is under contract, which-
for approval. ever is later.
Tenant furnishes all February 4, 2000 or 3 wks after
information to Architect architect is under contract, which-
needed for Construction ever is later.
Documents (e.g., design finishes).
<PAGE>
Finishes Selected February 11, 2000 or 3 wks and one
day after architect is under con-
tract, whichever is later.
Tenant submits proposed March 3, 2000 or 8 wks after archi-
Construction Documents to Landlord tect is under contract, whichever
for approval. is later.
Construction Substantially Completed. May 1, 2000
2.2 Upon notice to Landlord and Contractor given within three (3) days
after Contractor is selected, Tenant may require Contractor to obtain at least
three (3) bids from some or all of the trades required to construct the Tenant
Improvements. In selecting subcontractors from whom to request bids, Contractor
shall take into account any subcontractors suggested in writing by Tenant within
this 3-day period. Landlord, in consultation with Tenant, shall select the
subcontractors.
3. Construction; Change Orders.
3.1 Contractor shall construct the Tenant Improvements in a good and
workmanlike manner substantially in accordance with the Construction Documents.
Landlord shall supervise this construction. Subject to subsection B below,
Landlord shall not be paid an administrative or construction management fee for
its supervision of the Tenant Improvements, but shall be compensated for any
actual costs that Landlord incurs in connection with reviewing plans or
supervising the construction process. Landlord shall endeavor in good faith to
cause the Tenant Improvements to be Substantially Completed on or before the
date set forth in Section 2, subject to adherence by Tenant to the deadlines set
forth in Section 2 above, but neither the validity of this Lease nor the
obligations of Tenant under this Lease shall be affected by a failure to
Substantially Complete the Premises by such date, and Tenant shall have no claim
against Landlord because of Landlord's failure to Substantially Complete the
Premises on such date or by any other date.
3.2 Landlord's approval of any Change Orders shall be required, but shall
not be unreasonably withheld except that Landlord, in its absolute discretion,
may withhold its approval of any Change Orders to the extent that they affect
the Building's structure or systems or would be visible from the exterior of the
Building or from any common area in the Building. If Landlord approves a Change
Order, Landlord shall be paid an administrative fee equal to five percent (5%)
of cost of the Change Order. This administrative fee may be paid from the Tenant
Allowance. If the Tenant Allowance is insufficient to pay the fee, Tenant shall
pay it within ten (10) days after the Change Order is approved.
3.3 Upon Substantial Completion of the Tenant Improvements, Landlord will
deliver possession of the Premises to Tenant. Before delivering the Premises to
Tenant, Landlord will obtain a certificate of occupancy, if one is required by
Law for Tenant to occupy the Premises. Tenant will cooperate with Landlord as
necessary to obtain any such certificate of occupancy. Landlord will give Tenant
at least thirty (30) days' notice of the date upon which Landlord will deliver
possession of the Premises to Tenant.
<PAGE>
4. Affect of Tenant Delay on Commencement Date. If Landlord is delayed in
delivering possession of the Premises to Tenant in accordance with this Work
Agreement because of a Tenant Delay, then, notwithstanding Section 3 of the
Lease, the Commencement Date shall be the date (as reasonably determined by
Landlord) that Landlord would have delivered the Premises to Tenant but for
the Tenant Delay.
5. Payment for the Tenant Improvements.
5.1 Landlord shall provide Tenant with the Tenant Allowance, which shall
be used to pay for the cost of completing the Tenant Improvements, including
design fees, construction costs, and the cost of obtaining building and
occupancy permits. If there is an Excess Cost, Landlord shall so notify Tenant,
and Tenant shall pay the Excess Cost to Landlord within ten (10) days after
Landlord's notice is received. Landlord shall make all payments to the
Contractors and/or Subcontractors within ten (10) days of receipt of invoices
and, if reasonably required by Landlord, executed lien waivers in form and
substance reasonably satisfactory to Landlord.
5.2 In addition to the Tenant Allowance, Landlord shall pay for the cost
of any improvements to the base building (e.g., the bathrooms) required by the
Americans with Disabilities Act or any regulations promulgated thereunder (the
"ADA"). All other ADA-related improvements to the Premises shall be paid for by
Tenant, subject to the Tenant Allowance.
6. Punchlist. Before the Premises are delivered to Tenant, Landlord, Tenant
and Contractor shall make a final inspection of the Premises to ensure that
the Tenant Improvements have been made substantially in accordance with the Con-
struction Documents, at which time the Punchlist shall be prepared. Contractor
shall complete the items on the Punchlist as soon as practicable after the
Commencement Date.Within thirty (30) days after the Commencement Date the Tenant
shall have the right to submit to Landlord a revised Punchlist setting forth
any deviation from the Plans and Specifications and any work that does not
function properly. The Landlord shall cure all defects within thirty (30) days
of receipt of the revised Punchlist.
7. Early Entry by Tenant; Coordination of Work.
7.1 During the 30-day period before the Commencement Date, Landlord shall
grant Tenant access to the Premises solely for the purpose of installing
telephone and computer cable and wiring, fixtures, furniture and related items
within the Premises. During the 10-day period before the Commencement Date, the
Premises shall be substantially free of Landlord's contractors. Landlord may
exercise its reasonable discretion as to the timing of Tenant's early entry as
such timing relates to the completion of the Tenant Improvements. During any
periods of such early entry, Tenant shall abide by all terms and conditions of
this Lease (including all insurance requirements), but Tenant shall not be
required to pay Rent before the Commencement Date.
8.1 Landlord will provide Tenant's consultants with reasonable access to
the Premises to inspect the progress of construction and to install any Cabling
that needs to be installed before walls are closed.
<PAGE>
EXHIBIT C
DECLARATION BY LANDLORD AND TENANT
THIS DECLARATION is hereby attached to and made a part of the Lease
dated January 3, 2000 (the "Lease"), between ENTERPRISE CENTER LIMITED
PARTNERSHIP NUMBER TWO, a Virginia limited partnership ("Landlord") and SOFTWARE
TECHNOLOGY, INC., a Florida corporation ("Tenant"). All terms used in this
Declaration have the same meaning as they have in the Lease.
1. Landlord and Tenant do hereby declare that possession of the Premises
was accepted by Tenant on
2. As of the date hereof the Lease is in full force and effect, and
Landlord has fulfilled all of its obligations under the Lease required to be
fulfilled by Landlord on or prior to said date;
3. The Commencement Date is hereby established to be _______________; and
4. The Expiration Date is hereby established to be ________________,
unless the Lease is sooner terminated pursuant to any provisions thereof.
ATTEST/WITNESS: LANDLORD:
ENTERPRISE CENTER LIMITED PARTNERSHIP NUMBER TWO, a
Virginia limited partnership
By: ELV/ENTERPRISE II, INC., a Delaware corporation,
its general partner
By:
Name: Scott W. Jenkins, Vice President
ATTEST/WITNESS: TENANT:
SOFTWARE TECHNOLOGY, INC., a Florida corporation
By: [SEAL]
Name: Name:
Title:
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety
and well-being of all the tenants of the Building and the Complex and become
effective upon occupancy. Strict adherence to these rules and regulations is
necessary, to guarantee that each and every tenant will enjoy a safe and
unannoyed occupancy. Any repeated or continuing violation of these rules and
regulations by Tenant after notice from Landlord, shall be sufficient cause for
termination of this Lease at the option of Landlord.
Landlord may, upon request by any tenant, waive the compliance
by such tenant of any of the foregoing rules and regulations provided that (i)
no waiver shall be effective unless signed by Landlord or Landlord's authorized
agent (.ii) any such waiver shall not relieve such tenant from the obligation to
comply with such rule or regulation in the future unless expressly consented to
by Landlord, and (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of enjoyment with the foregoing rules and regulations
unless such other tenant has received a similar waiver in writing from Landlord.
1. The sidewalks, entrances, passages, courts, vestibules, or stairways,
or other parts of the Complex and the Building not occupied by any tenant shall
not be obstructed or encumbered by any tenant or used for any purpose other than
ingress and egress to and from any tenant's Premises. Landlord shall have the
right to control and operate the public portions of the Complex, the Building,
and the facilities furnished for the common use of the tenants, in such manner
as Landlord deems best for the benefit of the tenants generally. No tenant shall
permit the visit to its Premises of persons in such numbers or under such
conditions as to interfere with the use and enjoyment by other tenants of the
entrances, corridors, elevators, and other public portions or facilities of the
Complex or the Building.
2. No signs, awnings or other projections shall be attached to the outside
walls of any building without the prior written consent of Landlord. No drapes,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the Premises, without the prior consent of Landlord.
Such signs, awnings, projections, curtains, blinds, screens or other fixtures
must be of a quality, type, design and color, and attached in the manner
approved by Landlord.
3. No show cases or other articles shall be put in front of or affixed to
any part of the exterior of the Complex or the Building, nor placed in any
interior Common Area without the prior written consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the tenant
who, or whose servants, employees, agents, visitors, or licensees, shall have
caused the same.
<PAGE>
5. There shall be no marking, painting, drilling into or in anyway
defacing any part of the Premises, the Building, or the Complex. No boring,
cutting or stringing or wires shall be permitted. No tenant shall construct,
maintain, use or operate within its Premises or elsewhere within or on the
outside of the Building or the Complex, any electrical device, wiring or
apparatus in connection with a loud speaker system or other sound system
excepting any security or security related system.
6. No animals, birds or pets of any kind shall be brought into or kept in
or about the Premises unless required under the "ADA", and no cooking shall be
done or permitted by any tenant on its Premises except for a tenant's employee's
own use. No tenant shall cause or permit any unusual or objectionable odors to
be produced or permeate from its Premises.
7. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this or any neighboring
building or Premises or with any person having business with such occupants. No
tenant shall throw anything out of the doors or windows or down the corridors or
stairs.
8. No inflammable, combustible, or explosive fluid, chemical or
radioactive substance shall be brought or kept upon the Premises.
9. Each tenant shall, upon termination of its tenancy, restore to Landlord
all keys and/or lock combinations of stores, offices, storage, and toilet rooms
either furnished to, or otherwise procured by, such tenant, and in the event of
the loss of any keys so furnished such tenant shall pay to Landlord the cost of
replacement thereof.
10. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord or its Agent may determine from time to time. Landlord reserves
the right to exclude from the Premises all freight which violates any of these
Rules and Regulations or the Lease of which these Rules and Regulations are a
part.
11. Any person employed by any tenant to do janitorial work within its
Premises must obtain Landlord's reasonable consent and such person shall comply
with all reasonable instructions issued by the superintendent of the Building or
the Complex. No tenant shall engage or pay any employees on its Premises, except
those actually working for such tenant on its Premises.
12. No tenant shall purchase spring water, ice, coffee, soft drinks,
towels, or other like service, from any company or persons whose repeated
violations of these Regulations have caused, in Landlord's reasonable opinion, a
hazard or nuisance to the Building, the Complex, and/or its occupants.
13. Landlord reserves the right to exclude from the Building at all times
any person who is known or does not properly identify himself to the management.
Landlord may at its option require all persons admitted to or leaving the
Building and the Complex between the ours of 6 p.m. and 8 a.m., Monday through
<PAGE>
Friday, and at all times on Saturday, Sunday, and legal holidays, to register.
Each tenant shall be responsible for all persons for whom he authorizes entry
into or exit out of the Building and shall be liable to Landlord for all acts of
such persons.
14. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
15. No Tenant shall occupy or permit any portion of its Premises to be
used or occupied for the possession, storage, manufacture, or sale of liquor,
narcotics, tobacco in any form, or as a barber or manicure shop, or as an
employment bureau, unless said Tenant's lease expressly grants permission to do
so. No Tenant shall engage or pay any employees on its Premises, except those
actually working for such Tenant on said Premises, nor advertise for laborers
giving an address at said premises.
16. Landlord's employees shall not perform any work for Tenant or do
anything outside of their regular duties, unless under special instruction from
the management.
17. Canvassing, soliciting, and peddling on the Premises is prohibited and
each Tenant shall cooperate to prevent the same.
18. No water cooler, plumbing or electrical fixtures shall be installed by
any Tenant without the prior written consent of Landlord, which consent shall
not be unreasonably withheld.
19. There shall not be used, either by any Tenant or by jobbers or others
in the delivery or receipt of merchandise, any hand trucks, except those
equipped with rubber tires and side guards.
20. Where carpet is installed over access plates to under-floor ducts,
Tenant will be required, at Tenant's expense, to provide access to said access
plates when necessary.
21. Mats, trash, or other objects shall not be placed in the public
corridors.
22. Tenant shall not overload the floors or exceed the maximum floor
weight limits of the Premises, which weight limit is seventy (70) pounds per
square foot.
23. If Landlord designates a certain portion of parking areas for employee
parking, Tenant covenants that it will require its employees to park in such
area to the extent of spaces available. Landlord shall not be responsible for
enforcing Tenant's parking rights against any third parties.
24. Tenant agrees not to operate any machinery in the Premises which may
cause vibration or damage to the Premises; not to use a loudspeaker which can be
heard outside the Premises, or to extend curb service to customers.
<PAGE>
25. Landlord hereby designates the followings days as holidays
(collectively, the "Holidays"), on the dates observed by the Federal government,
as applicable, on which days services will not be provided and normal Building
operating hours will not be followed: New Year's Day, President's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day, the Friday after
Thanksgiving, Christmas Day, and any other national holiday promulgated by a
Presidential Executive Order or Congressional Act.
<PAGE>
EXHIBIT E
SITE PLAN OF THE COMPLEX
<PAGE>
EXHIBIT F
RESERVED PARKING SPACES
<PAGE>
EXHIBIT G
CLEANING SPECIFICATIONS
<PAGE>
EXHIBIT H
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS SUBORDINATION NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the
"Agreement") is made and entered into this the 3rd day of January, 2000, by and
among SOFTWARE TECHNOLOGY, INC., a Florida corporation ("Tenant"), and CROWN
LIFE INSURANCE COMPANY ("Lender"), and ENTERPRISE CENTER LIMITED PARTNERSHIP
NUMBER TWO, a Virginia limited partnership ("Landlord").
R E C I T A L S:
WHEREAS, Landlord executed a Lease dated as of January 3, 2000, in
favor of Tenant (the "Lease"), covering a certain Demised Premises therein
described located on a parcel of real estate, a legal description of which is
attached hereto and incorporated herein by this reference as Exhibit "A" (said
parcel of real estate and the Demised Premises being sometimes collectively
referred to herein as the "Property"); and
AND WHEREAS Lender is the holder of a Deed of Trust which constitutes a
lien against the property and was recorded December 16, 1988, in the Clerk's
Office of the Circuit Court of Fairfax County, Virginia in Deed Book 7223, Page
1478 (the "Mortgage");
AND WHEREAS, it is a condition of the loan secured by said Mortgage
that the Mortgage shall unconditionally be and remain at all times a lien or
charge upon the Property, prior and superior to the Lease and to the leasehold
estate created thereby;
AND WHEREAS, the parties hereto desire to assure Tenant's possession
and control of the Demised Premises under the Lease upon the terms and
conditions therein contained;
NOW, THEREFORE, for and in consideration of the mutual covenants and
premises herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and agreed to by the parties hereto,
the parties hereto do hereby agree as follows:
A G R E E M E N T:
1. The Lease is and shall be subject and subordinate to the Mortgage,
and to all renewals, modifications, consolidations, replacements and extensions
thereof, and to all future advances made thereunder. Notwithstanding the
foregoing, Tenant agrees that at the option of the Lender, upon notice to the
Tenant at any time and from time to time, the Lease shall be superior to the
Mortgage. Such option of the Lender may be exercised an unlimited number of
times.
2. Tenant covenants and agrees with Lender that the Lease is presently
in good standing and in full force and effect and unmodified and that the Tenant
has accepted possession of the Demised Premises and that any improvements
required by the Lease to be made by the Landlord have been completed to the
satisfaction of the Tenant.
<PAGE>
3. Should Lender become the owner of the Property, or should the
Property be sold by reason of foreclosure, or other proceedings brought to
enforce the Mortgage, or should the Property be transferred by deed in lieu of
foreclosure, or should any portion of the Property be sold under a trustee's or
judicial sale or power of sale, the Lease shall continue in full force and
effect as a direct lease between the then owner of the Property and Tenant,
upon, and subject to, all of the terms, covenants and conditions of the Lease
for the balance of the term thereof remaining, including any extensions therein
provided. Tenant does hereby agree to attorn to Lender or to any such owner as
its landlord, and Lender hereby agrees that it will accept such attornment.
4. Notwithstanding any other provision of this Agreement, Lender shall
not be (a) liable for any default of any landlord under the Lease (including
Landlord), accruing prior to the Lender acquiring title to the Property; (b)
subject to any offsets or defenses which have accrued prior to the Lender
acquiring title to the Property , unless Tenant shall have delivered to Lender
written notice of the default which gave rise to such offset or defense and
permitted Lender the same right to cure such default as permitted Landlord under
the Lease; (c) bound by any Rent that Tenant may have paid under the Lease more
than one month in advance; (d) bound by any amendment or modification of the
Lease hereafter made without Lender's prior written consent; (e) responsible for
the return of any security deposit delivered to Landlord under the Lease and not
subsequently received by Lender.
5. Tenant shall give written notice to the Lender of any default of
Landlord which would entitle Tenant to cancel the Lease or reduce, set-off or
abate the rent payable thereunder, and agrees that notwithstanding any provision
of the Lease, no notice of cancellation thereof shall be effective and no right
of set-off shall be exercised unless the Lender has received the notice
aforesaid and has failed within thirty (30) days of the date thereof to cure
same or, if the default cannot be cured within said thirty (30) days, has failed
to commence and to diligently prosecute the cure of Landlord's default which
gave rise to such right of cancellation or set-off.
6. Should the Lender acquire possession of the Property, it shall be
under no personal liability with respect to any of the provisions of the Lease,
and if the Lender is in breach or default with respect to its obligations, if
any, under the Lease, Tenant shall look solely to the equity of the Lender in,
and the income arising from, the Property for the satisfaction of Tenant's
remedies and in no event shall Tenant attempt to secure or enforce any personal
judgment against the Lender or against any employee or agent of the Lender by
reason of such default by the Lender.
7. If Lender sends written notice to Tenant to direct its Rent payments
under the Lease to Lender instead of Landlord, then Tenant agrees to follow the
instructions set forth in such written instructions and deliver Rent payments to
Lender, whether or not Lender takes possession of the Property; however,
Landlord and Lender agree that Tenant shall be credited under the Lease for any
Rent payments received by Lender pursuant to such written notice.
<PAGE>
8. In the event the Lease contains a right of first refusal with
respect to a sale of the Premises or an option to purchase the Premises
(collectively, an "RFR/Option Proviso") such RFR/Option Proviso shall not apply
to any foreclosure or deed-in-lieu of foreclosure relating to the Premises.
Moreover, from and after any foreclosure or deed-in-lieu of foreclosure, said
RFR/Option Proviso shall automatically terminate and be of no further force and
effect as if the RFR/Option Proviso had never been included in the Lease.
9. All notices which may or are required to be sent under this
Agreement shall be in writing and shall be sent by over-night messenger delivery
or first-class registered mail, postage prepaid, return receipt requested, and
sent to the party at the address appearing below or such other address as any
party shall hereafter inform the other party by written notice given as set
forth above:
TENANT:
Software Technology, Inc.
4100 Lafayette Center, Suite 200
Chantilly, Virginia 22021
Attention: Jim Campbell, Doug Shorter
LENDER:
Crown Life Insurance Company
Mortgage Department
1874 Scarth Street, Suite 1900
Regina, Saskatchewan
S4P 4B3
LANDLORD:
Enterprise Center Limited .Partnership Number Two
c/o ELV Associates, Inc.
3340 Peachtree Road, NE, Suite 2675
Atlanta, GA 30326
Attn: Ms. Theresa F. McLaughlin
All notices delivered by mail as set forth above shall be deemed effective five
(5) days from the date deposited in the Canadian or United States mail, as the
case may be.
10. This Non-Disturbance and Attornment Agreement shall inure to the
benefit of and be binding upon the parties hereto, their successors in interest,
heirs and assigns and any subsequent owner of the Property.
11. Should any action or proceeding be commenced to enforce any of the
provisions of this Non-Disturbance and Attornment Agreement or in connection
with its meaning, the prevailing party in such action shall be awarded, in
addition to any other relief it may obtain, its reasonable costs and expenses,
including reasonable legal fees.
<PAGE>
12. Tenant shall not be enjoined as a party/defendant in any action or
proceeding which may be instituted or taken by reason or under any default by
Landlord in the performance of the terms, covenants, conditions and agreements
set forth in the Mortgage.
IN WITNESS WHEREOF, the parties hereto have caused this Non-Disturbance
and Attornment Agreement to be executed as of the day and year first above
written.
LENDER:
CROWN LIFE INSURANCE COMPANY
By:
Name:
Title:
By:
Name:
Title:
I/We have authority to bind the Corporation.
TENANT:
SOFTWARE TECHNOLOGY, INC.
By:
Name:
Title:
I/We have authority to bind the Corporation.
LANDLORD:
ENTERPRISE CENTER LIMITED .PARTNERSHIP NUMBER TWO
By:
Name:
Title:
I have authority to bind the Corporation.
<PAGE>
Exhibit A
To
Subordination, Non-Disturbance and Attornment Agreement
Legal Description
All that certain land situate in the County of Fairfax, Virginia, and more
particularly described as follows:
Legal Description
Property of
Enterprise Center
Limited Partnership Number Two
16.7493 Acres
Springfield Mag. District
Fairfax Co., Virginia
Beginning at a point on the easterly right-of-way line of Lafayette Center
Drive, a 60 foot wide public roadway, said point being a corner to other
property of Lafayette Business Center Associates, and said point being the
northwest corner of the herein described parcel; Thence departing said
right-of-way line north 58 degrees 27 minutes 29 seconds east for 44.01 feet to
a point; Thence north 40 degrees of 02 minutes 52 seconds east for 151.05 feet
to a point; Thence south 49 degrees 57 minutes 08 seconds east for 83.20 feet to
a point; Thence north 82 degrees 46 minutes 03 seconds east for 198.58 feet to a
point; Thence south 64 degrees, 36 minutes 44 seconds east for 130.61 feet to a
point; Thence south 85 degrees 17 minutes 05 seconds east for 73.25 feet to a
point; Thence north 07 degrees 00 minutes 58 seconds east for 25.82 feet to a
point; Thence south 68 degrees 30 minutes 29 seconds east for 285.78 feet to a
point; Thence south 13 degrees 29 minutes 45 seconds east for 158.27 feet to a
point; Thence south 08 degrees 07 minutes 37 seconds east for 64.34 feet to a
point; Thence south 27 degrees 57 minutes 46 seconds east for 27.52 feet to a
point; Thence south 24 degrees 17 minutes 43 seconds west for 1084.00 feet, to a
point; Thence north 65 degrees 42 minutes 53 seconds west for 142.20 feet to a
point, a corner to parcel 3; Thence with parcel 3 north 57 degrees 47 minutes
21, seconds east for 15.00 feet to a point; Thence north 10 degrees 45 minutes
45 seconds west for 146.39 feet to a point; Thence north 27 degrees 34 minutes
29 seconds west for 115.45 feet to a point; Thence north 43 degrees 52 minutes
36 seconds east for 57.56 feet to a point; Thence south 87 degrees 07 minutes 31
seconds east for 95.49 feet to a point; Thence north 48 degrees 49 minutes 50
seconds west for 502.41 feet to a point on the aforementioned easterly
right-of-way line of Lafayette Center Drive; Thence with said right-of-way line
north 24 degrees 43 minutes 39 seconds east for 14.46 feet to a point; Thence
with a curve to left having a radius of 603.00 feet, a chord and bearing of
north 09 degrees 46 minutes 59 seconds east for 311.01 feet; for an arc distance
of 314.56 feet to a point; Thence with a curve to the right having a radius of
25.00 feet, a chord and bearing of north 37 degrees 16 minutes 25 seconds east
for 33.77 feet, for an arc distance of 37.08 feet to a point on the southerly
right-of-way line of Technology Court, a 60 foot wide public roadway; Thence
with said right-of-way line, north 79 degrees, 48 minutes 44 seconds east for
189.32 feet to point; Thence with a curve to the right having a radius of 25.00
feet, a chord and bearing of south 76 degrees 55 minutes 47 seconds east for
19.79 feet, for an arc distance of 20.34 feet to a point; Thence with a curve to
the left having a radius of 55.00 feet; a chord and bearing of north 10 degrees
11 minutes 16 seconds west for 75.63 feet, for an arc distance of 262.19 feet to
a point on the northerly right-of-way line of said Technology Court; Thence with
said right-of-way line with a curve to the right having a radius of 25.00 feet,
a chord and bearing of south 56 degrees 30 minutes 10 seconds west for 19.74
feet, for an arc distance of 20.30 feet to a point; Thence south 79 degrees 48
minutes 44 seconds west for 189.32 feet to a point; thence with a curve to the
<PAGE>
right having a radius of 25.00 feet, a chord and bearing of north 57 degrees 41
minutes 58 seconds west for 33.74 feet for an arc distance of 37.03 feet to a
point on the aforementioned easterly right-of-way line of Lafayette Center
Drive; Thence with said right-of-way line with a curve to the left having a
radius of 603.00 feet, a chord and bearing of north 23 degrees 22 minutes 34
seconds west for 171.30 feet, for an arc distance of 171.88 feet to the point of
beginning containing 16.7493 acres.
Exhibit 10.32
AMENDED AND RE-STATED LOAN AGREEMENT
THIS AGREEMENT made and entered into this first day of March,
2000, by and between EXIGENT INTERNATIONAL, INC., a Delaware corporation
("Exigent"), eXGNT, INC., a Delaware corporation ("eXGNT"), FOTOTAG, INC., a
Delaware corporation ("Fototag"), GEC ACQUISITION CORPORATION, a Nevada
corporation ("Acquisition"), GEC NORTH AMERICA CORPORATION, a Nevada corporation
("GEC"), MIDDLEWARE SOLUTIONS, INC., a Nevada corporation ("Middleware"),
SOFTWARE TECHNOLOGY, INC., a Florida corporation ("Borrower") and THE HUNTINGTON
NATIONAL BANK, whose address is 685 S. Babcock Street, Melbourne, Florida 32901
(the "Lender"). eXGNT, Fototag, Acquisition, GEC, and Middleware, are sometimes
referred to collectively as the "Other Subsidiaries". Exigent and the Other
Subsidiaries are sometimes referred to collectively as the "Guarantors".
W I T N E S S E T H:
WHEREAS, on December 31, 1998 Borrower completed a loan
transaction with Lender for a revolving line of credit loan in the principal
amount of THREE MILLION DOLLARS ($3,000,000.00) (the "Revolving Loan") and a
term loan in the principal amount of FIVE HUNDRED ELEVEN THOUSAND ONE HUNDRED
ELEVEN and 22/100 DOLLARS ($511,111.22) (the "Term Loan"). (The Revolving Loan
and the Term Loan are collectively referred to as the "Loan").
WHEREAS, Borrower, Guarantors and Lender wish to enter into
this Agreement in order to amend and re-state the terms and conditions of the
Loan.
NOW, THEREFORE, in consideration of the premises set forth
above and the sum of TEN DOLLARS ($10.00) each to the other in hand paid, the
receipt and sufficiency of which is hereby acknowledged, Borrower, Guarantors
and Lender do hereby agree as follows:
ARTICLE I
LOAN DOCUMENTS
Prior to any disbursements, Borrower shall execute and
deliver, or cause to be executed and delivered, to Lender the following
documents (hereinafter collectively and together with this Agreement referred to
as "Loan Documents"), all in a form satisfactory to Lender:
A. Assignment of Loan Documents, Allonge Endorsements to Notes
and UCC-3 Assignments to be executed by SunTrust, N.A. to Lender.
1. For Line of Credit in the amount of $l,800,000.00.
2. For Term Loan with a current principal balance of
$66,666.74.
3. For Term Loan with current principal balance of
$444,444.48.
B. Notes.
1. Interim Promissory Note for Line of Credit of even
date herewith payable to the order of Lender executed by Borrower, in the
principal amount of ONE MILLION TWO HUNDRED THOUSAND AND 00/100 ($1,200,000.00)
DOLLARS.
<PAGE>
21
2. Consolidation Note for Line of Credit of even date
herewith payable to the order of the
Lender executed by Borrower, in the principal amount of THREE MILLION AND 00/100
($3,000,000.00) DOLLARS.
3. Consolidation Note for Term Loans of even date
herewith payable to the order of the
Lender executed by Borrower, in the principal amount of FIVE HUNDRED ELEVEN
THOUSAND ONE HUNDRED ELEVEN AND 22/100 ($511,111.22) DOLLARS.
(Each of these notes are collectively referred to as
"Notes".)
C. Uniform Commercial Code-Financing Statements (Local and
State). Uniform Commercial Code-Financing Statements (local and state) covering
all of Borrower's assets including, but not limited to: accounts, inventory,
deposit accounts, general intangibles, contract rights, leasehold improvements,
machinery, equipment, intellectual property, instruments, documents, chattel
paper, trade names, trademarks and patents.
D. Opinion of Borrower's Counsel. An opinion of counsel for
Borrower and Guarantor (as hereinbelow defined) licensed in the State of Florida
shall be furnished to Lender prior to closing to the effect that: (a) all of the
Loan Documents are valid and enforceable and legally convey to and vest in
Lender all of the rights therein stated and purported to be conveyed; (b)
Borrower and any Guarantor are corporations in good standing and all
requirements of the corporate documents governing Borrower and any Guarantor
have been complied with to authorize and complete the Loan; (c) Borrower and any
Guarantor have the full right and legal authority to carry out the terms of this
Agreement and any documentation to be executed pursuant to this Agreement; and
(d) Such opinion letter shall address such other matters included in Lender's
Request for Opinion Letter.
E. Guaranties. The unqualified and unconditional guaranty of
Exigent, eXGNT, Acquisition, Fototag, Middleware, and GEC.
F. Security Agreement. As security for payment of the
indebtedness evidenced by the Notes, the Borrower shall execute and deliver to
the Lender a Security Agreement of even date herewith (the "Security Agreement")
pursuant to which the Borrower shall grant the Lender a first security interest
in all of the assets of the Borrower described in the Security Agreement.
Borrower agrees that all of the Liabilities of Borrower arising under the Loan
Agreement shall be secured by the Collateral. Borrower further agrees that the
Lender shall have sole discretion as to the manner of application of the sale or
the disposition of the Collateral and shall be entitled to conduct one or more
sales of the Collateral in addition to all other rights and remedies contained
herein. As additional security for payment of the indebtedness evidenced by this
Loan, the Guarantors shall execute an unconditional guarantee in favor of the
Lender described in Paragraph E. above.
G. Other Documents. Such other documents as may be required by
Lender in accordance with the terms of the Loan Commitment dated December 9,
1998 executed by Lender and Borrower in connection with the Loan ("Loan
Commitment").
H. Definitions. Certain definitions of terms utilized in this
Agreement are included in Exhibit 1, Definitions, commencing on page 20 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to make the Loan, the Borrower
and Guarantors make the following representations and warranties:
<PAGE>
A. Borrower is a corporation duly organized, existing and in
good standing under the laws of the State of Florida, and has the corporate
power to own property and to carry out its businesses now being conducted, and
is duly qualified as a foreign corporation to do business in every jurisdiction
in the United States of America in which the nature of its business makes such
qualification necessary and is in good standing in such jurisdictions. Exigent,
eXGNT and Fototag are corporations duly organized, existing and in good standing
under the laws of the State of Delaware. Middleware, Acquisition, and GEC are
corporations duly organized, existing and in good standing under the laws of the
State of Nevada. Borrower, Fototag, eXGNT, Middleware and Acquisition are
wholly-owned subsidiaries of Exigent. GEC is a wholly-owned subsidiary of
Acquisition.
B. Borrower is duly authorized under all applicable provisions
of law to execute and deliver the Notes and to execute, deliver and perform the
Loan Agreement and the Security Agreement, all corporate action on its part
required for the lawful execution, delivery and performance thereof has been
duly taken and the Loan Agreement, the Security Agreement and the Notes, upon
the due execution and delivery thereof, will be the valid and enforceable
instruments and obligations of Borrower in accordance with their terms. Neither
the execution of the Loan Agreement, the Security Agreement nor the creation or
issuance of the Notes, nor the fulfillment of or compliance with their
provisions and terms will conflict with, or result in a breach of the terms,
conditions or provisions of, or constitute a violation of or default under any
applicable law, regulation, order, writ or decree of the charter or bylaws of
the Borrower or any agreement or instrument to which Borrower is now a party or
create any lien, charge or encumbrance upon any of the property or assets of
Borrower pursuant to the terms of any agreement or instrument to which Borrower
is a party or by which it is bound other than the security interest contemplated
hereby.
C. No written approval of any federal, state or local
governmental authority is necessary to carry out the terms of the Loan
Agreement, the Security Agreement or the Note and no consents or approvals are
required in the making or performance of the Loan Agreement, the Security
Agreement or the Notes.
D. Except as previously disclosed to Lender in writing, the
audited consolidated balance sheet of the Borrower and Guarantors, as of
December 31, 1998, is true and correct and the consolidated balance sheet of
Borrower and Guarantors, dated as of September 30, 1999, and related statement
of income for the quarter then ended, a copy of which has been provided to the
Lender, is true and correct, subject to normal, year end adjustments and fairly
presents the financial condition of the Borrower and Guarantors, all in
accordance with Generally Accepted Accounting Principles ("GAAP") consistently
applied and since September 30, 1999, no material adverse change in Borrower's
and Guarantors' financial condition or business operation has occurred.
Provided, however, that Lender acknowledges that Acquisition was not in
existence until after September 30, 1999 and that GEC's financial statements
previously have not been prepared in accordance with GAAP.
E. Except as previously disclosed to Lender in writing, there
are no pending or threatened actions or proceedings before any court, arbitrator
or governmental or administrative body or agency which may materially adversely
affect the properties, business or condition, financial or otherwise, of
Borrower or Guarantors or in any way adversely affect or call into question the
power and the authority of Borrower or Guarantors to enter into or perform the
Loan Agreement, the Notes or the Security Agreement.
<PAGE>
F. No part of the proceeds of advances made pursuant to the
Loan Agreement will be or have been used to purchase or carry, or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any such
margin stocks. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying such margin stocks. If requested by the
Lender, Borrower shall furnish to the Lender, in connection with the loan made
hereunder, a statement in conformance with the requirements of Federal Reserve
Form U-l referred to in said Regulation. In addition, no part of the proceeds of
the loan made hereunder will be used for the purchase of commodity future
contracts (or margins therefor for short sales) for any commodity not required
for the normal raw material inventory of the Borrower.
G. Borrower and Guarantors as a consolidated entity are now
solvent and able to pay their debts as they mature and Borrower and Guarantors
collectively now own property whose fair salable value is greater than the
amount required to pay their Indebtedness.
H. Borrower has not incurred any material or accumulated
funding deficiency within the meaning of the Employee Retirement Income Security
Act of 1974 or any liability to the Pension Benefit Guarantee Corporation
established under such Act (or any successor thereto under such Act) in
connection with any employee benefit plan established or maintained by the
Borrower.
I. Each of the representations and warranties of the Borrower
contained in the Security Agreement are hereby reaffirmed in all respects as of
the date hereof.
J. Neither this Loan Agreement nor any other Agreements
contain any misrepresentation or untrue statement of fact or omits to state any
material fact necessary to make any of such agreements, reports, schedules,
certificates or instruments not misleading.
K. Borrower has good, indefeasible and merchantable title to
the Collateral, free and clear of all liens, claims, security interests and
encumbrances except as included on the balance sheet or otherwise disclosed to
Lender in writing.
L. Borrower have good and marketable title to its properties
and assets, including the properties and assets reflected in the balance sheet
described above, except for such assets as have been disposed of since the date
of said financial statements as no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business, and all
such properties and assets are free and clear of all liens, mortgages, pledges,
encumbrances or charges except as included on the balance sheet or otherwise
disclosed to Lender in writing.
M. Except as disclosed to Lender in writing, neither Borrower
nor Guarantors are parties to nor are they bound by any contract or agreement or
subject to any charter or other corporate restrictions which adversely affect
the business, properties or condition, financial or otherwise, of Borrower or
Guarantors except as disclosed in the financial statements referenced above and
notes thereto.
N. Borrower and Guarantors own, possess or have the right to
use all necessary patents, licenses, trademarks, trademark rights, trade names,
trade name rights and copyrights material to the conduct of its businesses now
conducted, without known conflict with any patent, license, trademark, trade
name or copyright of any other Person.
The effectiveness of this Loan Agreement shall be subject to
the continuing accuracy of all representations and warranties of the Borrower
and Guarantors contained herein. Borrower and Guarantors covenant, warrant and
represent to the Lender that all representations and warranties of Borrower and
Guarantors contained in this Loan Agreement shall be true at the time of
execution of the Loan Agreement and the Other Agreements and shall survive the
execution, delivery and acceptance thereof by the parties thereto and the
closing of the transactions described therein or related thereto.
<PAGE>
ARTICLE III
CONDITIONS OF CLOSING
The effectiveness of the Loan Agreement shall be subject to
the fulfillment of the following conditions precedent to the first advance under
the Loan:
A. Borrower and Guarantors shall have delivered to the Lender
the fully executed Security Agreement, Notes, financing statements and other
letters, instruments and documents as Lender shall require, including, but not
limited to, a Certificate of good standing of the Borrower and Guarantors
certified by the Secretary of State or other appropriate governmental authority
accompanied by a certificate from the appropriate officer of Borrower and
Guarantors certifying that the copy attached to such certificate of the Articles
of Incorporation is complete and that the Articles of Incorporation have not
been amended, annulled, rescinded or revoked since the date they were certified
by the Secretary of State or other appropriate governmental authority, a copy of
the bylaws of the Borrower and Guarantors in effect on the date of the Loan
Agreement accompanied by a certificate from an appropriate officer of Borrower
and Guarantors that the copy is true and complete and that the Bylaws have not
been amended, annulled, rescinded or revoked since the date of the Bylaws or the
last amendment reflected in the copy, if any, and a certificate of the Secretary
certifying the names and true signatures of the Borrower and Guarantors
authorized to sign the Loan Agreement, the Security Agreement, the Notes and any
Other Agreements to be executed and delivered hereunder.
B. The Borrower and Guarantors shall provide the Lender with a
list(s) of all Indebtedness at the time of closing.
C. All instruments and documents incident to the issuance and
delivery of the Notes shall be reasonably satisfactory in form and substance to
the Lender and Lender's counsel and the Lender shall have received the executed
Loan Agreement, the Security Agreement and all other documents which it may
reasonably request in connection therewith and copies of resolutions of Borrower
and Guarantors authorizing the transactions contemplated by the Loan Agreement,
such resolutions and other documents, when appropriate, to be certified by
appropriate corporate or governmental authorities.
D. The Lender shall have received the Guaranty Agreements
executed by the Guarantors.
ARTICLE IV
AFFIRMATIVE COVENANTS
The Borrower and each Guarantor further agrees that, so long
as any Liabilities remain unpaid to Lender, it will comply with the following
requirements:
A. As soon as practicable, in any event within forty-five (45)
days after the end of each calendar quarter of each calendar year, deliver or
cause to be delivered to the Lender a consolidated balance sheet of Borrower and
Guarantors as at the last day of such quarter and related consolidated statement
of income for such quarter and cumulative year to date for Borrower and
Guarantors, setting forth in each case comparative form figures for the
corresponding period in the preceding calendar Year, all in reasonable detail
certified by an authorized officer of Borrower to have been prepared in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis, subject to changes resulting from normal year-end adjustments.
<PAGE>
B. As soon as practicable and in any event within ninety (90)
days after the end of each Fiscal Year, deliver to the Lender (i) a consolidated
balance sheet of Borrower and Guarantors as at the end of such Fiscal Year, and
related consolidated statements of income and retained earnings and changes in
financial position for such Fiscal Year, setting forth in each case comparative
form figures for the corresponding period in the preceding Fiscal Year, all in
reasonable detail and satisfactory in scope to the Lender and certified by and
containing an unqualified opinion of a nationally recognized firm of independent
certified public accountants, and (ii) management letters, if any, delivered to
the Borrower by such independent certified public accountants, in connection
with their examination of such financial statements.
C. Together with each delivery of those items required by
Paragraphs A. and B., above, Borrower shall deliver to the Lender an officer's
certificate setting forth: (i) to the best of his knowledge, Borrower has kept,
observed, performed and fulfilled each and every agreement binding on and
contained in this Loan Agreement and is not at the time in default of the
keeping, observance, performance or fulfillment of any of the terms, provisions
and conditions hereof, and (ii) that no Default or Event of Default, as has been
specified below, has occurred or specifying all such Defaults or Events of
Default which they may have knowledge.
D. With reasonable promptness, deliver such additional
financial or other date as the Lender may reasonably request. The Lender is
hereby authorized to deliver a copy of any financial statements or any other
information relating to the business operations or financial condition of the
Borrower and Guarantors which may be furnished to it or come to its attention
pursuant to this Loan Agreement or otherwise, to any regulatory body or agency
having jurisdiction over the Lender or to any Person which shall, or shall have
the right or obligation, to succeed to all or any part of the Lender's interest
in the Notes or Other Agreements.
E. Promptly pay or cause to be paid all taxes, assessments and
other governmental charges that may lawfully be levied or assessed upon the
income or profits of Borrower; provided, however, Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim so long as the validity
thereof shall be actively contested in good faith by proper proceedings; but
provided further that any such tax, assessment, charge, levy or claim shall be
paid, stayed or bonded forthwith upon the commencement of proceedings to
foreclose any lien securing the same.
F. Do or cause to be done all things necessary to preserve and
to keep in full force and effect its corporate existence and rights.
<PAGE>
G. At its sole cost and expense, keep and maintain the
Collateral insured for its full insurable value against loss or damage, fire,
theft, explosion and all other hazards and risk ordinarily insured against by
other owners or users of such properties in similar businesses, and maintain
adequate workers' compensation insurance, and notify the Lender promptly of any
event or occurrence causing a material loss or decline in the value of the
Collateral and the estimated (or actual, if available) amount of such loss or
decline. All policies of insurance shall be in form and with insurers recognized
as adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to the Lender. Upon request, the Lender shall be
delivered the original (or certified copy) of each policy of insurance and
evidence of payment of all premiums therefor. Such policies of insurance shall
contain an endorsement, in form and substance acceptable to the Lender, showing
loss payable to the Lender. Such endorsement, or an independent instrument
furnished to the Lender, shall provide that the insurance companies will give
the Lender at least thirty (30) days prior written notice before any such policy
or policies of insurance shall be altered or canceled and that no act or default
of Borrower or any other person shall affect the right of the Borrower to loss
or damage. Borrower and Guarantors hereby direct all insurers under such
policies of insurance where loss or damage exceeds $25,000 under any such policy
of insurance to pay all proceeds payable hereunder directly to the Lender. So
long as no Default or Event of Default exists hereunder, at the option of the
Borrower, in the case of insurance proceeds arising from the loss or damage of
building and equipment, the proceeds may be used to replace or restore same.
Should the Borrower elect not to replace or restore the lost property, any
insurance proceeds shall be applied first to any accrued interest due to the
Lender, then to the principal balance of the liabilities in such order as the
Borrower may direct. Borrower irrevocably makes, constitutes and appoints the
Lender (and all officers, employees or agents designated by the Lender) as such
Borrower's true and lawful attorney (and agent-in-fact), effective from and
after the occurrence of a Default or Event of Default, for the purpose of
making, settling and adjusting such claim under the policies of insurance
(providing that the Lender shall consult with Borrower prior to finally making,
settling or adjusting claims under such policies of insurance), endorsing the
name of Borrower on any check, draft or instrument or other item or payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. In the event Borrower, at
any time or times hereafter, shall fail to maintain any of the policies of
insurance required above or to pay any premium in whole or in part related
thereto, then the Lender, without waiving or releasing any obligation or default
by Borrower hereunder, may (but shall be under no obligation to do so) at any
time or times hereafter obtain and take any other action with respect thereto
which the Bank deems advisable. All sums so disbursed by the Lender, including
reasonably attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable, on demand by Borrower and shall be additional
Liabilities hereunder secured by the Collateral. The Lender agrees to give
Borrower notice of payment of each and every premium paid by Borrower to
insurers as required hereunder.
H. Maintain its property in good order and repair and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto.
I. Keep true books of record and account in which full, true
and correct entries will be made of all of its dealings and transactions and set
up on its books such reserves as may be required by Generally Accepted
Accounting Principles.
J. Conform to and duly observe all laws, regulations and other
valid requirements of any regulatory authority with respect to the conduct of
its business.
K. Upon any officer of the Borrower or Guarantors obtaining
knowledge of a Default or Event of Default hereunder or under any other
obligation of Borrower or Guarantors, cause such officer or individual, as the
case may be, to properly deliver to the Lender a certificate certifying the
nature thereof, the period of existence thereof, and whatever action the
Borrower proposes to take with respect thereto.
L. Upon any officer of the Borrower or Guarantors obtaining
knowledge of a material litigation, dispute or proceedings being instituted or
threatened against Borrower or Guarantors, or any attachment, levy, execution or
other process being instituted against any assets of Borrower or Guarantors,
cause such officer or individual, as the case may be, to promptly give the Bank
written notice of such litigation, dispute, proceeding, levy, execution or other
process.
M. Use it best efforts to comply with all of the requirements
of the Employee Retirement Income Security Act of 1974 (ERISA) applicable to it
and furnished to the Lender a statement of the principal financial officer of
Borrower describing in reasonable detail any Reportable Event (as defined in
ERISA).
<PAGE>
N. Continue at all times to maintain its chief executive
offices and principal place of business at Melbourne, Brevard County, Florida,
except that the principal place of business of GEC may be in Charlotte,
Mecklenburg County, North Carolina.
O. Maintain its primary operating banking accounts with the
Lender.
P. With respect to the consolidated financial statements of
Borrower and the Guarantors, maintain the following financial ratios in the
amounts indicated below:
1. Maximum Total Liabilities divided by Tangible Net
Worth of 3.50:l.00 at December 31, 1999, and quarterly thereafter.
2. Maximum Total Liabilities divided by Tangible Net
Worth of 3.10:l.00 at June 30, 2000, and
quarterly thereafter.
3. Maximum Total Liabilities divided by Tangible Net
Worth of 2.75:l.00 at December 31, 2000,
and quarterly thereafter.
4. Minimum Working Capital of $2,000,000.00 at
September 30, 1999 and each quarter thereafter.
5. Minimum Current Ratio of l.30:l.0 at September 30,
1999 and each quarter thereafter.
6. Minimum Debt Service Coverage l.20 times at fiscal
year end December 31, 1999, and annually
thereafter.
ARTICLE V
NEGATIVE COVENANTS
Borrower and the Other Subsidiaries covenant and further agree
that from the date hereof until payment in full the principal and interest under
the Notes, unless the Lender otherwise consents in writing, they will not:
A. Incur, create, assume or permit to exist any Indebtedness
in excess of $100,000.00 other than the Indebtedness to the Lender (except the
$1,000,000.00 subordinated promissory note issued by Acquisition and guaranteed
by Exigent for the benefit of former GEC shareholders on or about December 9,
1999).
B. Incur, create, assume or permit to exist any mortgage,
pledge, security interest, encumbrance, lien or other charge of any kind upon
any of its properties or assets of any character under conditional sales or
other title retention agreements in excess of $100,000,000.00 (except those
mortgages, liens and security interests granted in favor of the Lender and
except the $1,000,000.00 subordinated promissory note issued by Acquisition and
guaranteed by Exigent for the benefit of former GEC shareholders on or about
December 9, 1999).
C. Lend or advance money, credit or property in excess of
$50,000.00 to any employee, officer, director, stockholder, or affiliate except
in the ordinary course of the Borrower's business.
D. Guarantee, assume, endorse or otherwise become or remain
liable in connection with the obligations (including the accounts payable) of
any other Person, in excess of $50,000.00, other than the endorsements of
negotiable instruments in the ordinary course of business for deposit or
collection.
E. Enter into any transaction that materially and adversely
affects the Collateral or Borrower's ability to repay the Liabilities or permit,
other than in the ordinary course of business, or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any account including any terms relating thereto.
<PAGE>
F. Merge or consolidate with any other corporation or sell,
lease, transfer or otherwise dispose of all or a substantial portion of its
assets, outside of the normal course of business, except Borrower or any of the
Other Subsidiaries may merge or consolidate with any other of them.
ARTICLE VI
SPECIFIC PROVISIONS
A. Revolving Loan Amount. The maximum principal amount
outstanding under the Revolving Loan at any time shall not exceed the lesser of
the Borrowing Base (as defined in Exhibit 1 below) or Three Million Dollars
($3,000,000.00). On or before the first business day of each calendar month,
Borrower and the Other Subsidiaries shall furnish to the Lender, in a form
satisfactory to the Lender, a current Borrowing Base Certificate with all
calculations and documentation necessary to determine the current Borrowing Base
and the Borrowing Base set forth therein shall be deemed the Borrowing Base
until receipt and approval by Lender of a new Borrowing Base Certificate.
B. Revolving Loan and Term Loan Interest Rate. Except upon a
Default, the interest rate for the Revolving Loan and Term Loan may be adjusted
from time to time as follows:
1. If Exigent's most recent Form 10Q report furnished
to Lender indicates the following ratios: Total Liabilities to Total Net Worth
less than 1.50:1.0 and Working Capital in excess of $2,500,000.00, then the
interest rate otherwise stated for the Revolving Loan (but not the Term Loan)
shall be reduced by 0.50% for the subsequent calendar quarter.
2. If Exigent's most recent Form 10Q report furnished
to Lender indicates the following
ratios: Total Liabilities to Total Net Worth less than 1.00:1.0 and Working
Capital in excess of $3,500,000.00, then the interest rate otherwise stated for
the Revolving Loan (but not the Term Loan) shall be reduced by 0.75% for the
subsequent calendar quarter.
3. For any calendar quarter, Borrower may elect that
the applicable interest rate under
both the Revolving Loan and Term Loan for such calendar quarter will be the
Prime Rate or the Daily Fluctuating LIBO Rate plus 2.50% (as such terms are
defined in the Notes) by providing written notice of such election to Lender at
least fifteen (l5) days prior to the end of the preceding calendar quarter;
otherwise, the applicable interest rate for the preceding calendar quarter shall
continue to be the applicable interest rate for the subsequent calendar quarter.
C. Borrower shall provide to Lender the following:
(1) Quarterly, 10Q reports of Exigent and
management reports including balance sheet,
income statement and statement of cash
flows, conforming to GAAP and prepared on a
consolidated basis.
(2) Quarterly, contract status report detailing
government and non-government contracts,
contract value, estimated profit, estimated
costs, costs to date, cost to complete,
percent complete, actual earnings, and
amount billed.
(3) Annually, projected financial statements for
the next fiscal year prepared on not less
than a quarterly basis.
(4) All borrowing base reports as normally reported
for other debt.
<PAGE>
ARTICLE VII
DEFAULT
If any one or more of the following events (hereinafter
referred to as "Events of Default") shall occur:
A. Borrower defaults in the payment of the Liabilities
when due and payable or declared due and payable; or
B. Borrower defaults in the payment of principal or interest
on any other Liability, including any guarantee of indebtedness of another
Person, beyond any period of grace provided with respect thereto or in the
performance of any other agreement, term or condition contained in any agreement
under which any such Indebtedness is created, if the effect of such default is
to cause or permit the holder or holders of such Indebtedness (or a trustee on
behalf of such holder or holders) to cause such Indebtedness to become due prior
to its stated maturity; or
C. Borrower or any Guarantor defaults in the performance or
observance of any agreement or covenant contained herein or contained in any of
the Other Agreements; or
D. Any representation or warranty made by Borrower or any
Guarantor herein or in any writing furnished in connection with or pursuant to
this Loan Agreement or any Other Agreements shall be false or misleading in any
material respect on the date as of which made; or
E. The liquidation or dissolution of Borrower, or suspension
of the business of Borrower or filing by Borrower of a voluntary petition or an
answer seeking reorganization, arrangement or readjustment of its debts or for
any other relief under the Bankruptcy Code, as amended or under any other
insolvency act or law, state or federal, now or hereafter existing, or any other
action of Borrower indicating its consent to, approval of, or acquiescence in
any such petition or proceeding the application by Borrower for, or the
appointment by consent or acquiescence of, a receiver, trustee or custodian of
Borrower, for all or substantial part of its property; the making by Borrower of
an assignment for the benefit of creditors; the inability of Borrower or the
admission by Borrower in writing of its ability to pay its debts as they mature;
or
F. The filing of an involuntary petition against Borrower in
bankruptcy seeking reorganization, arrangement, readjustment of its debts or for
any other relief under the Bankruptcy Code, as amended, or under any other
insolvency act or law, state or federal, now or hereafter existing; or the
involuntary appointment of a receiver, a trustee or a custodian of Borrower for
all or a substantial part of its property; the issuance of a warrant of
attachment, execution or a similar process against any substantial part of the
property of Borrower and the continuance of any such foregoing events for sixty
(60) days undismissed or undischarged; or
G. Any order is entered in any proceeding against Borrower
decreeing the dissolution or split up of Borrower and such order remains in
effect more than sixty (60) days; or
H. Any report, certificate, financial statement or other
instrument delivered to the Lender by or in behalf of Borrower is false or
misleading in any material respect at the time given; or
<PAGE>
I. An uninsured final judgment, which with other outstanding
uninsured final judgments against Borrower exceeds an aggregate of $100,000
shall be rendered against Borrower and within thirty (30) days after entry
thereof such judgment shall not have been discharged or executed thereof stayed
pending appeal, or if within thirty (30) days after the expiration of any such
stay such judgment shall not have been discharged, then at any time thereafter,
the Lender may, at its option, declare the Notes and all other Liabilities owing
by the Borrower to the Lender to be forthwith due and payable, whereupon the
Notes and any other such Liabilities shall forthwith become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything contained herein or in the Other Agreements to
the contrary notwithstanding, and in addition the Lender may immediately proceed
to foreclose all or part of its liens on or security interest in the Collateral
and apply the proceeds of such foreclosure against the Liabilities secured
thereby in such manner as it shall elect and exercise its rights under the Other
Agreements and to do all other things provided for by law or by this Agreement
or by the Other Agreements.
ARTICLE VIII
GENERAL PROVISIONS
A. The Borrower further agrees to reimburse the Lender for all
costs and out-of-pocket expenses, including fees of the Lender's special
counsel, incurred in connection with the preparation, execution, delivery,
modification, waiver and amendments of this Loan Agreement, the Notes and the
related documentation, and also all reasonable expenses incurred by the Lender
(including reasonable attorneys' fees) in the collection of any Indebtedness
incurred hereunder in the event of default by Borrower.
B. Borrower agrees to pay any and all documentary, intangible
stamp or excise taxes now or after payable in respect of the Loan, this Loan
Agreement or Other Agreements or any modifications thereof and hold the Lender
harmless with respect thereto. The Borrower further agrees that the Lender may
deduct from any advance the amount of any such documentary or intangible stamp
tax payable with respect to such advance, the decision of the Lender as to the
amount thereof to be conclusive, absent manifest error. Borrower gives the
Lender the authority to debit its accounts maintained with the Lender for any
principal, interest, fees or other Liabilities becoming due hereunder.
C. This Loan Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, condition, representation or warranty, express
or implied, not herein set forth shall bind any party hereto, and none of them
has relied on any such promise, condition, representation or warranty. Each of
the parties hereto acknowledges that, except as in this Loan Agreement otherwise
expressly stated, no representations, warranties or commitments, express or
implied, have been made by any other party to the other. None of the terms or
conditions of this Loan Agreement may be changed, modified, waived or canceled
orally or otherwise, except by writing, signed by all the parties hereto,
specifying such change, modification, waiver or cancellation of such terms or
conditions, or of any preceding or succeeding breach thereof.
D. Notwithstanding any other provision herein, the aggregate
interest rate charged under the Notes, including all charges or fees in
connection therewith deemed in the nature of interest under Florida law, shall
not exceed the maximum rate allowed by law. In the event the stated interest
rate on the Notes together with any other charge or fee deemed in the nature of
interest exceeds the maximum legal rate, then the Lender shall have the right to
make such adjustments as are necessary to reduce the aggregate interest rate to
the maximum legal rate. The Borrower waives any right to prior notice of such
adjustment and further agrees that such adjustment may be made by the Lender
subsequent to notification from Borrower that the aggregate interest charged
exceeds the maximum legal rate.
<PAGE>
E. This Loan Agreement, the Security Agreement and the Notes
issued hereunder shall be governed in all respects by the laws of Florida.
F. Should any one or more of the provisions of this Loan
Agreement be determined to be illegal or unenforceable as to one or more of the
parties, all other provisions nevertheless shall remain effective and binding on
the parties hereto.
G. Borrower and Lender hereby consent and agree that, in any
actions predicated upon this Agreement, venue is properly laid in Brevard
County, Florida, and that the Circuit Court for Brevard County, Florida shall
have full jurisdiction to determine all issues arising out of or in connection
with the execution and enforcement of this Agreement. Borrower waives to the
fullest extent permitted under the laws of the State of Florida, any right,
power or privilege to demand a jury trial with respect to any and all issues
arising out of or in connection with the execution and/or enforcement of this
Agreement.
H. Borrower warrants to Lender that, on and after the date of
this Agreement, so long as any of the indebtedness under the Notes remains
unpaid, Borrower and any material subsidiaries of Borrower (hereinafter referred
to as the "Organization") are Year 2000 Compliant. As used herein, "Year 2000
Compliant" shall mean that all software, embedded microchips and other
processing capabilities utilized by the Organization or the Organization's key
suppliers, vendors and customers the failure of which would have a material
adverse effect on the Organization or the key supplier, vendor or customer, will
correctly process, sequence, and calculate, without interruption, all date and
date related data for all dates to, through and after January 1, 2000, including
leap year calculations, and shall recognize, store and transmit date data in a
format which clearly indicates the correct century. Borrower shall deliver to
Lender, upon Lender's reasonable request, all periodic internally and externally
prepared evaluations and progress reports concerning the Organization's Year
2000 plan and Year 2000 readiness and such other information, documentation and
materials as Lender may reasonably request from time to time in order to confirm
that the Organization is Year 2000 Compliant and the method(s) used by the
Organization to become Year 2000 Compliant.
IN WITNESS WHEREOF, Borrower and Lender have hereunto caused
these presents to be executed on the date first above written.
EXIGENT INTERNATIONAL, INC.,
a Delaware corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
eXGNT, INC., a
Delaware corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
President and
Assistant Secretary
(CORPORATE SEAL)
<PAGE>
FOTOTAG, INC., a
Delaware corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
GEC ACQUISITION CORPORATION, a
Nevada corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
President
(CORPORATE SEAL)
GEC NORTH AMERICA CORPORATION,
a Nevada corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
President
(CORPORATE SEAL)
MIDDLEWARE SOLUTIONS, INC., a
Nevada corporation
By:/s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
SOFTWARE TECHNOLOGY, INC., a Florida corporation
By:/s/ Jeffery B. Weinress
Jeffrey B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
THE HUNTINGTON NATIONAL BANK
By:/s/ Jeffery B. Weinress
Name: Phillip Hayes
Title: Vice President
<PAGE>
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of EXIGENT
INTERNATIONAL, INC., a Delaware corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as President and Assistant Secretary
of eXGNT, INC., a Delaware corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of FOTOTAG,
INC., a Delaware corporation, on behalf of said corporation. Said person (check
one) |x| is personally known to me, |_| produced a driver's license (issued by a
state of the United States within the last five (5) years) as identification, or
|_| produced other identification, to wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000 by Jeffery B. Weinress, as President of GEC ACQUISITION
CORPORATION, a Nevada corporation, on behalf of said corporation. Said person
(check one) |x| is personally known to me, |_| produced a driver's license
(issued by a state of the United States within the last five (5) years) as
identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March_, 2000 by Jeffery B. Weinress, as President of GEC NORTH AMERICA
CORPORATION, a Nevada corporation, on behalf of said corporation. Said person
(check one) |x| is personally known to me, |_| produced a driver's license
(issued by a state of the United States within the last five (5) years) as
identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of MIDDLEWARE
SOLUTIONS, INC., a Nevada corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000 by Jeffery B. Weinress, as Assistant Secretary of SOFTWARE
TECHNOLOGY, INC., a Florida corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA :
COUNTY OF BREVARD:
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Phillip Hayes, as Vice President of The Huntington
National Bank, a national banking corporation, on behalf of said state banking
corporation. |x| He/She is personally known or |_| has produced
______________________________ as identification.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
EXHIBIT 1
Definitions
"Borrowing Base" will consist of up to 80% of "eligible"
accounts receivable plus up to 50% of "eligible" contract receivables plus the
lesser of $l,500,000.00 or up to 50% of "eligible" Costs in Excess of Billings
of Borrower and the Other Subsidiaries.
"Eligible" is defined as: (l) Accounts receivable: amounts
that are less than 90 days from invoice date; (2) Contracts receivable: amounts
that are fully recoverable according to contract terms within one year.
Contracts shall be submitted to Lender prior to funding request being made.
Eligibility shall be determined by Lender in its sole discretion; (3) Costs in
excess of billings: amounts that are to be billed as of the end of the current
month. Provided, however, assets of GEC shall not be deemed Eligible until that
certain promissory note payable by GEC to Lender in the amount of $1,000,000.00
and dated as of December 9, 1999 is satisfied. No advance will be made on
accounts whose balance that is over 90 days from invoice date is over 25% of the
total account balance.
"Collateral" means all of the accounts, inventory, equipment
and other personal property of the Borrower described in the Security Agreement.
"Current Assets" means cash and all other assets or resources
of the Borrower and the Guarantors that are expected to be realized in cash,
sold in the ordinary course of business, or consumed within one year, all
determined in accordance with Generally Accepted Accounting Principles,
including, but not limited to, inventory supported by outstanding import letters
of credit.
"Current Liabilities" means the amount of all liabilities of
the Borrower and the Guarantors that by their terms are payable within one year
(including all indebtedness payable on demand or maturing not more than one year
from the date of computation and the current portion of Indebtedness having a
maturity date in excess of one year), all determined in accordance with
Generally Accepted Accounting Principles, including, but not limited to,
outstanding letters of credit.
"Tangible Net Worth" means the depreciated book value of all
assets of Borrower and Guarantors less:
(i) intangible assets, such as (without limitation)
goodwill (whether representing the excess of cost over book value of assets
acquired or otherwise), capitalized expenses, patents, trademarks, trade names,
copyrights, franchises, licenses and deferred charges, such as (without
limitation) unamortized costs and costs of research and development.
(ii) Total Liabilities,
(iii) treasury stock, and
(iv) advances to stockholders or affiliates of the
Borrower.
"Total Liabilities" means the aggregate amount of all
liabilities (i.e., claims of creditors of Borrower and Guarantors that are to be
satisfied by the disbursement or utilization of corporate resources), including,
but not limited to, all outstanding import letters of credit and negative
goodwill of Borrower and Guarantors (excluding the $1,000,000.00 subordinated
debt to the former GEC shareholders).
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
<PAGE>
"Default" means any event that, with the giving of notice,
lapse of time, or both, would become an Event of Default.
"Fiscal Year" means the 12-month period ending on December 3l
of each Calendar year and commencing on January lst of each calendar year.
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in Opinions of the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants or
which have other substantial authoritative support and are applicable in the
circumstances as of the date of a report, as such principles are from time to
time supplemented and amended.
"Indebtedness" means with respect to any Person, all
indebtedness of such Person for borrowed money, all indebtedness of such Person
for the acquisition of property other than purchases of products and merchandise
in the ordinary course of business, indebtedness secured by any lien, pledge or
other encumbrance on the property of such Person whether or not such
indebtedness is assumed, all liability of such Person by way of endorsements
(other than for collection or deposit in the ordinary course of business); all
guarantees of Indebtedness of any other Person by such Person (including any
agreement, contingent or otherwise, to purchase any obligation representing such
indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term Indebtedness include capital stock,
surplus and retained earnings, minority interest in the common stock of
Subsidiaries, reserves for deferred income taxes and investment credits, other
deferred credits and reserves, and deferred compensation obligations.
"Liabilities" mean all liabilities, obligations and
indebtedness of any and every kind and nature (including, without limitation,
interest, charges, expenses, attorneys' fees and other sums chargeable to
Borrower by the Lender and future advances made to or for the benefit of
Borrower), whether arising under this Loan Agreement, or arising under the Notes
or arising under any of the Other Agreements or acquired by the Lender and from
any other source, whether heretofore, now or hereafter owing, arising, due or
payable from Borrower to the Lender and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise, including obligations of performance.
"Other Agreements" means the Notes, the Guaranty Agreement,
the Security Agreement, and all agreements, instruments and documents,
including, without limitation, notes, guaranties, mortgages, deeds to secure
debt, deeds of trust, chattel mortgages, pledges, powers of attorney, consents,
assignments, contracts, notices, security agreements, financing statements,
certificates of title, trust account agreements and all other written matters
whether heretofore, now or hereafter executed by or on behalf of Borrower or any
Guarantor and delivered to the Bank, with respect to this Loan Agreement, or
with respect to the transactions contemplated by this Loan Agreement.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government agency
or political subdivision thereof.
All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles.
All of the terms defined in this Loan Agreement shall have
such defined meanings when used in the Other Agreements.
Exhibit 10.33
AMENDED AND RE-STATED LOAN AGREEMENT
THIS AGREEMENT made and entered into this first day of March,
2000, by and between EXIGENT INTERNATIONAL, INC., a Delaware corporation
("Exigent"), eXGNT, INC., a Delaware corporation ("eXGNT"), FOTOTAG, INC., a
Delaware corporation ("Fototag"), GEC ACQUISITION CORPORATION, a Nevada
corporation ("Acquisition"), GEC NORTH AMERICA CORPORATION, a Nevada corporation
("GEC"), MIDDLEWARE SOLUTIONS, INC., a Nevada corporation ("Middleware"),
SOFTWARE TECHNOLOGY, INC., a Florida corporation ("Borrower") and THE HUNTINGTON
NATIONAL BANK, whose address is 685 S. Babcock Street, Melbourne, Florida 32901
(the "Lender"). eXGNT, Fototag, Acquisition, GEC, and Middleware, are sometimes
referred to collectively as the "Other Subsidiaries". Exigent and the Other
Subsidiaries are sometimes referred to collectively as the "Guarantors".
W I T N E S S E T H:
WHEREAS, on August 12, 1999, Borrower completed a loan
transaction with Lender for a revolving line of credit loan in the principal
amount of TWO MILLION DOLLARS ($2,000,000.00) (the "Loan" or "Revolving Loan").
WHEREAS, Borrower, Guarantors and Lender wish to enter into
this Agreement in order to amend and re-state the terms and conditions of the
Loan.
NOW, THEREFORE, in consideration of the premises set forth
above and the sum of TEN DOLLARS ($10.00) each to the other in hand paid, the
receipt and sufficiency of which is hereby acknowledged, Borrower, Guarantors
and Lender do hereby agree as follows:
ARTICLE I
LOAN DOCUMENTS
Prior to any disbursements, Borrower shall execute and
deliver, or cause to be executed and delivered, to Lender the following
documents (hereinafter collectively and together with this Agreement referred to
as "Loan Documents"), all in a form satisfactory to Lender:
A. Note. Promissory Note for Line of Credit of even date
herewith payable to the order of the Lender executed by Borrower, in the
principal amount of TWO MILLION AND 00/100 DOLLARS ($2,000,000.00) (referred to
as "Note").
B. Uniform Commercial Code-Financing Statements (Local and
State). Uniform Commercial Code-Financing Statements (local and state) covering
all of Borrower's assets including, but not limited to: accounts, inventory,
deposit accounts, general intangibles, contract rights, leasehold improvements,
machinery, equipment, intellectual property, instruments, documents, chattel
paper, trade names, trademarks and patents.
C. Guaranties. The unqualified and unconditional guaranty of
Exigent, eXGNT, Acquisition, Fototag, Middleware, and GEC.
<PAGE>
D. Security Agreement. As security for payment of the
indebtedness evidenced by the Note, the Borrower shall execute and deliver to
the Lender a Security Agreement of even date herewith (the "Security Agreement")
pursuant to which the Borrower shall grant the Lender a second security interest
in all of the assets of the Borrower described in the Security Agreement.
Borrower agrees that all of the Liabilities of Borrower arising under the Loan
Agreement shall be secured by the Collateral. Borrower further agrees that the
Lender shall have sole discretion as to the manner of application of the sale or
the disposition of the Collateral and shall be entitled to conduct one or more
sales of the Collateral in addition to all other rights and remedies contained
herein. As additional security for payment of the indebtedness evidenced by this
Loan, the Guarantors shall execute an unconditional guarantee in favor of the
Lender described in Paragraph C. above.
E. Other Documents. Such other documents as may be required by
Lender in accordance with the terms of the Loan Commitment dated August 6, 1999
executed by Lender and Borrower in connection with the Loan ("Loan Commitment").
F. Definitions. Certain definitions of terms utilized in this
Agreement are included in Exhibit 1, Definitions, commencing on page 19 hereof.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to make the Loan, the Borrower
and Guarantors make the following representations and warranties:
A. Borrower is a corporation duly organized, existing and in
good standing under the laws of the State of Florida, and has the corporate
power to own property and to carry out its businesses now being conducted, and
is duly qualified as a foreign corporation to do business in every jurisdiction
in the United States of America in which the nature of its business makes such
qualification necessary and is in good standing in such jurisdictions. Exigent,
eXGNT and Fototag are corporations duly organized, existing and in good standing
under the laws of the State of Delaware. Middleware, Acquisition, and GEC are
corporations duly organized, existing and in good standing under the laws of the
State of Nevada. Borrower, Fototag, eXGNT, Middleware and Acquisition are
wholly-owned subsidiaries of Exigent. GEC is a wholly- owned subsidiary of
Acquisition.
B. Borrower is duly authorized under all applicable provisions
of law to execute and deliver the Note and to execute, deliver and perform the
Loan Agreement and the Security Agreement, all corporate action on its part
required for the lawful execution, delivery and performance thereof has been
duly taken and the Loan Agreement, the Security Agreement and the Note, upon the
due execution and delivery thereof, will be the valid and enforceable
instruments and obligations of Borrower in accordance with their terms. Neither
the execution of the Loan Agreement, the Security Agreement nor the creation or
issuance of the Note, nor the fulfillment of or compliance with their provisions
and terms will conflict with, or result in a breach of the terms, conditions or
provisions of, or constitute a violation of or default under any applicable law,
regulation, order, writ or decree of the charter or bylaws of the Borrower or
any agreement or instrument to which Borrower is now a party or create any lien,
charge or encumbrance upon any of the property or assets of Borrower pursuant to
the terms of any agreement or instrument to which Borrower is a party or by
which it is bound other than the security interest contemplated hereby.
C. No written approval of any federal, state or local
governmental authority is necessary to carry out the terms of the Loan
Agreement, the Security Agreement or the Note and no consents or approvals are
required in the making or performance of the Loan Agreement, the Security
Agreement or the Note.
<PAGE>
D. Except as previously disclosed to Lender in writing, the
audited consolidated balance sheet of the Borrower and Guarantors, as of
December 31, 1998, is true and correct and the consolidated balance sheet of
Borrower and Guarantors, dated as of September 30, 1999, and related statement
of income for the quarter then ended, a copy of which has been provided to the
Lender, is true and correct, subject to normal, year end adjustments and fairly
presents the financial condition of the Borrower and Guarantors, all in
accordance with Generally Accepted Accounting Principles ("GAAP") consistently
applied and since September 30, 1999, no material adverse change in Borrower's
and Guarantors' financial condition or business operation has occurred.
Provided, however, that Lender acknowledges that Acquisition was not in
existence until after September 30, 1999 and that GEC's financial statements
previously have not been prepared in accordance with GAAP.
E. Except as previously disclosed to Lender in writing, there
are no pending or threatened actions or proceedings before any court, arbitrator
or governmental or administrative body or agency which may materially adversely
affect the properties, business or condition, financial or otherwise, of
Borrower or Guarantors or in any way adversely affect or call into question the
power and the authority of Borrower or Guarantors to enter into or perform the
Loan Agreement, the Note or the Security Agreement.
F. No part of the proceeds of advances made pursuant to the
Loan Agreement will be or have been used to purchase or carry, or to reduce or
retire any loan incurred to purchase or carry, any margin stocks (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System)
or to extend credit to others for the purpose of purchasing or carrying any such
margin stocks. Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying such margin stocks. If requested by the
Lender, Borrower shall furnish to the Lender, in connection with the loan made
hereunder, a statement in conformance with the requirements of Federal Reserve
Form U-l referred to in said Regulation. In addition, no part of the proceeds of
the loan made hereunder will be used for the purchase of commodity future
contracts (or margins therefor for short sales) for any commodity not required
for the normal raw material inventory of the Borrower.
G. Borrower and Guarantors as a consolidated entity are now
solvent and able to pay their debts as they mature and Borrower and Guarantors
collectively now own property whose fair salable value is treater than the
amount required to pay their Indebtedness.
H. Borrower has not incurred any material or accumulated
funding deficiency within the meaning of the Employee Retirement Income Security
Act of 1974 or any liability to the Pension Benefit Guarantee Corporation
established under such Act (or any successor thereto under such Act) in
connection with any employee benefit plan established or maintained by the
Borrower.
I. Each of the representations and warranties of the Borrower
contained in the Security Agreement are hereby reaffirmed in all respects as of
the date hereof.
J. Neither this Loan Agreement nor any other Agreements
contains any misrepresentation or untrue statement of fact or omits to state any
material fact necessary to make any of such agreements, reports, schedules,
certificates or instruments not misleading.
K. Borrower has good, indefeasible and merchantable title to
the Collateral, free and clear of all liens, claims, security interests and
encumbrances except as included on the balance sheet or otherwise disclosed to
Lender in writing.
L. Borrower has good and marketable title to its properties
and assets, including the properties and assets reflected in the balance sheet
described above, except for such assets as have been disposed of since the date
of said financial statements as no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business, and all
such properties and assets are free and clear of all liens, mortgages, pledges,
encumbrances or charges except as included on the balance sheet or otherwise
disclosed to Lender in writing.
<PAGE>
M. Except as disclosed to Lender in writing, neither Borrower
nor Guarantors are parties to nor are they bound by any contract or agreement or
subject to any charter or other corporate restrictions which adversely affect
the business, properties or condition, financial or otherwise, of Borrower or
Guarantors except as disclosed in the financial statements referenced above and
notes thereto.
N. Borrower and Guarantors own, possess or have the right to
use all necessary patents, licenses, trademarks, trademark rights, trade names,
trade name rights and copyrights material to the conduct of its businesses now
conducted, without known conflict with any patent, license, trademark, trade
name or copyright of any other Person.
The effectiveness of this Loan Agreement shall be subject to
the continuing accuracy of all representations and warranties of the Borrower
and Guarantors contained herein. Borrower and Guarantors covenant, warrant and
represent to the Lender that all representations and warranties of Borrower and
Guarantors contained in this Loan Agreement shall be true at the time of
execution of the Loan Agreement and the Other Agreements and shall survive the
execution, delivery and acceptance thereof by the parties thereto and the
closing of the transactions described therein or related thereto.
ARTICLE III
CONDITIONS OF CLOSING
The effectiveness of the Loan Agreement shall be subject to
the fulfillment of the following conditions precedent to the first advance under
the Loan:
A. Borrower and Guarantors shall have delivered to the Lender
the fully executed Security Agreement, Note, financing statements and other
letters, instruments and documents as Lender shall require, including, but not
limited to, a Certificate of good standing of the Borrower and Guarantors
certified by the Secretary of State or other appropriate governmental authority
accompanied by a certificate from the appropriate officer of Borrower and
Guarantors certifying that the copy attached to such certificate of the Articles
of Incorporation is complete and that the Articles of Incorporation have not
been amended, annulled, rescinded or revoked since the date they were certified
by the Secretary of State or other appropriate governmental authority, a copy of
the bylaws of the Borrower and Guarantors in effect on the date of the Loan
Agreement accompanied by a certificate from an appropriate officer of Borrower
and Guarantors that the copy is true and complete and that the Bylaws have not
been amended, annulled, rescinded or revoked since the date of the Bylaws or the
last amendment reflected in the copy, if any, and a certificate of the Secretary
certifying the names and true signatures of the Borrower and Guarantors
authorized to sign the Loan Agreement, the Security Agreement, the Note and any
Other Agreements to be executed and delivered hereunder.
B. The Borrower and Guarantors shall provide the Lender with
a list(s) of all Indebtedness at the time of closing.
C. All instruments and documents incident to the issuance and
delivery of the Note shall be reasonably satisfactory in form and substance to
the Lender and Lender's counsel and the Lender shall have received the executed
Loan Agreement, the Security Agreement and all other documents which it may
reasonably request in connection therewith and copies of resolutions of Borrower
and Guarantors authorizing the transactions contemplated by the Loan Agreement,
such resolutions and other documents, when appropriate, to be certified by
appropriate corporate or governmental authorities.
D. The Lender shall have received the Guaranty Agreements
executed by the Guarantors.
<PAGE>
ARTICLE IV
AFFIRMATIVE COVENANTS
The Borrower and each Guarantor further agrees that, so long
as any Liabilities remain unpaid to Lender, it will comply with the following
requirements:
A. As soon as practicable, in any event within forty-five (45)
days after the end of each calendar quarter of each calendar year, deliver or
cause to be delivered to the Lender a consolidated balance sheet of Borrower and
Guarantors as at the last day of such quarter and related consolidated statement
of income for such quarter and cumulative year to date for Borrower and
Guarantors, setting forth in each case comparative form figures for the
corresponding period in the preceding calendar Year, all in reasonable detail
certified by an authorized officer of Borrower to have been prepared in
accordance with Generally Accepted Accounting Principles applied on a consistent
basis, subject to changes resulting from normal year-end adjustments.
B. As soon as practicable and in any event within ninety (90)
days after the end of each Fiscal Year, deliver to the Lender (i) a consolidated
balance sheet of Borrower and Guarantors as at the end of such Fiscal Year, and
related consolidated statements of income and retained earnings and changes in
financial position for such Fiscal Year, setting forth in each case comparative
form figures for the corresponding period in the preceding Fiscal Year, all in
reasonable detail and satisfactory in scope to the Lender and certified by and
containing an unqualified opinion of a nationally recognized firm of independent
certified public accountants, and (ii) management letters, if any, delivered to
the Borrower by such independent certified public accountants, in connection
with their examination of such financial statements.
C. Together with each delivery of those items required by
Paragraphs A. and B., above, Borrower shall deliver to the Lender an officer's
certificate setting forth: (i) to the best of his knowledge, Borrower has kept,
observed, performed and fulfilled each and every agreement binding on and
contained in this Loan Agreement and is not at the time in default of the
keeping, observance, performance or fulfillment of any of the terms, provisions
and conditions hereof, and (ii) that no Default or Event of Default, as has been
specified below, has occurred or specifying all such Defaults or Events of
Default which they may have knowledge.
D. With reasonable promptness, deliver such additional
financial or other date as the Lender may reasonably request. The Lender is
hereby authorized to deliver a copy of any financial statements or any other
information relating to the business operations or financial condition of the
Borrower and Guarantors which may be furnished to it or come to its attention
pursuant to this Loan Agreement or otherwise, to any regulatory body or agency
having jurisdiction over the Lender or to any Person which shall, or shall have
the right or obligation, to succeed to all or any part of the Lender's interest
in the Note or Other Agreements.
E. Promptly pay or cause to be paid all taxes, assessments and
other governmental charges that may lawfully be levied or assessed upon the
income or profits of Borrower; provided, however, Borrower shall not be required
to pay any such tax, assessment, charge, levy or claim so long as the validity
thereof shall be actively contested in good faith by proper proceedings; but
provided further that any such tax, assessment, charge, levy or claim shall be
paid, stayed or bonded forthwith upon the commencement of proceedings to
foreclose any lien securing the same.
F. Do or cause to be done all things necessary to preserve and
to keep in full force and effect its corporate existence and rights.
<PAGE>
G. At its sole cost and expense, keep and maintain the
Collateral insured for its full insurable value against loss or damage, fire,
theft, explosion and all other hazards and risk ordinarily insured against by
other owners or users of such properties in similar businesses, and maintain
adequate workers' compensation insurance, and notify the Lender promptly of any
event or occurrence causing a material loss or decline in the value of the
Collateral and the estimated (or actual, if available) amount of such loss or
decline. All policies of insurance shall be in form and with insurers recognized
as adequate by prudent business persons and all such policies shall be in such
amounts as may be satisfactory to the Lender. Upon request, the Lender shall be
delivered the original (or certified copy) of each policy of insurance and
evidence of payment of all premiums therefor. Such policies of insurance shall
contain an endorsement, in form and substance acceptable to the Lender, showing
loss payable to the Lender. Such endorsement, or an independent instrument
furnished to the Lender, shall provide that the insurance companies will give
the Lender at least thirty (30) days prior written notice before any such policy
or policies of insurance shall be altered or canceled and that no act or default
of Borrower or any other person shall affect the right of the Borrower to loss
or damage. Borrower and Guarantors hereby direct all insurers under such
policies of insurance where loss or damage exceeds $25,000 under any such policy
of insurance to pay all proceeds payable hereunder directly to the Lender. So
long as no Default or Event of Default exists hereunder, at the option of the
Borrower, in the case of insurance proceeds arising from the loss or damage of
building and equipment, the proceeds may be used to replace or restore same.
Should the Borrower elect not to replace or restore the lost property, any
insurance proceeds shall be applied first to any accrued interest due to the
Lender, then to the principal balance of the liabilities in such order as the
Borrower may direct. Borrower irrevocably makes, constitutes and appoints the
Lender (and all officers, employees or agents designated by the Lender) as such
Borrower's true and lawful attorney (and agent-in-fact), effective from and
after the occurrence of a Default or Event of Default, for the purpose of
making, settling and adjusting such claim under the policies of insurance
(providing that the Lender shall consult with Borrower prior to finally making,
settling or adjusting claims under such policies of insurance), endorsing the
name of Borrower on any check, draft or instrument or other item or payment for
the proceeds of such policies of insurance and for making all determinations and
decisions with respect to such policies of insurance. In the event Borrower, at
any time or times hereafter, shall fail to maintain any of the policies of
insurance required above or to pay any premium in whole or in part related
thereto, then the Lender, without waiving or releasing any obligation or default
by Borrower hereunder, may (but shall be under no obligation to do so) at any
time or times hereafter obtain and take any other action with respect thereto
which the Bank deems advisable. All sums so disbursed by the Lender, including
reasonably attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable, on demand by Borrower and shall be additional
Liabilities hereunder secured by the Collateral. The Lender agrees to give
Borrower notice of payment of each and every premium paid by Borrower to
insurers as required hereunder.
H. Maintain its property in good order and repair and from
time to time make all needful and proper repairs, renewals, replacements,
additions and improvements thereto.
I. Keep true books of record and account in which full, true
and correct entries will be made of all of its dealings and transactions and set
up on its books such reserves as may be required by Generally Accepted
Accounting Principles.
J. Conform to and duly observe all laws, regulations and other
valid requirements of any regulatory authority with respect to the conduct of
its business.
<PAGE>
K. Upon any officer of the Borrower or Guarantors obtaining
knowledge of a Default or Event of Default hereunder or under any other
obligation of Borrower or Guarantors, cause such officer or individual, as the
case may be, to properly deliver to the Lender a certificate certifying the
nature thereof, the period of existence thereof, and whatever action the
Borrower proposes to take with respect thereto.
L. Upon any officer of the Borrower or Guarantors obtaining
knowledge of a material litigation, dispute or proceedings being instituted or
threatened against Borrower or Guarantors, or any attachment, levy, execution or
other process being instituted against any assets of Borrower or Guarantors,
cause such officer or individual, as the case may be, to promptly give the Bank
written notice of such litigation, dispute, proceeding, levy, execution or other
process.
M. Use it best efforts to comply with all of the requirements
of the Employee Retirement Income Security Act of 1974 (ERISA) applicable to it
and furnished to the Lender a statement of the principal financial officer of
Borrower describing in reasonable detail any Reportable Event (as defined in
ERISA).
N. Continue at all times to maintain its chief executive
offices and principal place of business at Melbourne, Brevard County, Florida,
except that the principal place of business of GEC may be in Charlotte,
Mecklenburg County, North Carolina.
O. Maintain its primary operating banking accounts with the
Lender.
P. With respect to the consolidated financial statements of
Borrower and the Guarantors, maintain the following financial ratios in the
amounts indicated below:
1. Maximum Total Liabilities divided by Tangible Net
Worth of 3.50:l.00 at December 31, 1999 and quarterly thereafter.
2. Maximum Total Liabilities divided by Tangible Net
Worth of 3.10:l.00 at June 30, 2000, and quarterly
thereafter.
3. Maximum Total Liabilities divided by Tangible Net
Worth of 2.75:l.00 at December 31, 2000 and quarterly
thereafter.
4. Minimum Working Capital of $2,000,000.00 at
September 30, 1999 and each quarter thereafter.
5. Minimum Current Ratio of l.30:l.0 at September 30,
1999 and each quarter thereafter.
6. Minimum Debt Service Coverage l.20 times at fiscal
year end December 31, 1999, and annually thereafter.
ARTICLE V
NEGATIVE COVENANTS
Borrower and the Other Subsidiaries covenant and further agree
that from the date hereof until payment in full the principal and interest under
the Note, unless the Lender otherwise consents in writing, they will not:
A. Incur, create, assume or permit to exist any Indebtedness
in excess of $100,000.00 other than the Indebtedness to the Lender (except the
$1,000,000.00 subordinated promissory note issued by Acquisition and guaranteed
by Exigent for the benefit of former GEC shareholders on or about December 9,
1999).
<PAGE>
B. Incur, create, assume or permit to exist any mortgage,
pledge, security interest, encumbrance, lien or other charge of any kind upon
any of its properties or assets of any character under conditional sales or
other title retention agreements in excess of $100,000.00 (except those
mortgages, liens and security interests granted in favor of the Lender and
except the $1,000,000.00 subordinated promissory note issued by Acquisition and
guaranteed by Exigent for the benefit of former GEC shareholders on or about
December 9, 1999).
C. Lend or advance money, credit or property in excess of
$50,000.00 to any employee, officer, director, stockholder, or affiliate except
in the ordinary course of the Borrower's business.
D. Guarantee, assume, endorse or otherwise become or remain
liable in connection with the obligations (including the accounts payable) of
any other Person, in excess of $50,000.00, other than the endorsements of
negotiable instruments in the ordinary course of business for deposit or
collection.
E. Enter into any transaction that materially and adversely
affects the Collateral or Borrower's ability to repay the Liabilities or permit,
other than in the ordinary course of business, or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any account including any terms relating thereto.
F. Merge or consolidate with any other corporation or sell,
lease, transfer or otherwise dispose of all or a substantial portion of its
assets, outside of the normal course of business, except Borrower or any of the
Other Subsidiaries may merge or consolidate with any other of them.
ARTICLE VI
SPECIFIC PROVISIONS
A. Revolving Loan Amount. The maximum principal amount
outstanding under the Revolving Loan at any time shall not exceed the lesser of
the Borrowing Base (as defined in Exhibit 1 below) or Two Million Dollars
($2,000,000.00). On or before the first business day of each calendar month,
Borrower and the Other Subsidiaries shall furnish to the Lender, in a form
satisfactory to the Lender, a current Borrowing Base Certificate with all
calculations and documentation necessary to determine the current Borrowing Base
and the Borrowing Base set forth therein shall be deemed the Borrowing Base
until receipt and approval by Lender of a new Borrowing Base Certificate.
B. Revolving Loan Rate. Except upon a Default, the interest
rate for the Revolving Loan may be adjusted from time to time as follows:
1. If Exigent's most recent Form 10Q report furnished
to Lender indicates the following ratios: Total Liabilities to Total Net Worth
less than 1.50:1.0 and Working Capital in excess of $2,500,000.00, then the
interest rate otherwise stated for the Revolving Loan shall be reduced by 0.50%
for the subsequent calendar quarter.
2. If Exigent's most recent Form 10Q report furnished
to Lender indicates the following ratios: Total Liabilities to Total Net Worth
less than 1.00:1.0 and Working Capital in excess of $3,500,000.00, then the
interest rate otherwise stated for the Revolving Loan shall be reduced by 0.75%
for the subsequent calendar quarter.
3. For any calendar quarter, Borrower may elect that
the applicable interest rate under the Revolving Loan for such calendar quarter
will be the Prime Rate or the Daily Fluctuating LIBO Rate plus 2.50% (as such
terms are defined in the Note) by providing written notice of such election to
Lender at least fifteen (l5) days prior to the end of the preceding calendar
quarter; otherwise, the applicable interest rate for the preceding calendar
quarter shall continue to be the applicable interest rate for the subsequent
calendar quarter.
<PAGE>
C. Borrower shall provide to Lender the following:
(1) Quarterly, 10Q reports of Exigent and
management reports including balance sheet,
income statement and statement of cash
flows, conforming to GAAP and prepared on a
consolidated basis.
(2) Quarterly, contract status report detailing
government and non-government contracts,
contract value, estimated profit, estimated
costs, costs to date, cost to complete,
percent complete, actual earnings, and
amount billed.
(3) Annually, projected financial statements
for the next fiscal year prepared on not
less than a quarterly basis.
(4) All borrowing base reports as normally
reported for other debt.
ARTICLE VII
DEFAULT
If any one or more of the following events (hereinafter
referred to as "Events of Default") shall occur:
A. Borrower defaults in the payment of the Liabilities when
due and payable or declared due and payable; or
B. Borrower defaults in the payment of principal or interest
on any other Liability, including any guarantee of indebtedness of another
Person, beyond any period of grace provided with respect thereto or in the
performance of any other agreement, term or condition contained in any agreement
under which any such Indebtedness is created, if the effect of such default is
to cause or permit the holder or holders of such Indebtedness (or a trustee on
behalf of such holder or holders) to cause such Indebtedness to become due prior
to its stated maturity; or
C. Borrower or any Guarantor defaults in the performance or
observance of any agreement or covenant contained herein or contained in any of
the Other Agreements; or
D. Any representation or warranty made by Borrower or any
Guarantor herein or in any writing furnished in connection with or pursuant to
this Loan Agreement or any Other Agreements shall be false or misleading in any
material respect on the date as of which made; or
E. The liquidation or dissolution of Borrower, or suspension
of the business of Borrower or filing by Borrower of a voluntary petition or an
answer seeking reorganization, arrangement or readjustment of its debts or for
any other relief under the Bankruptcy Code, as amended or under any other
insolvency act or law, state or federal, now or hereafter existing, or any other
action of Borrower indicating its consent to, approval of, or acquiescence in
any such petition or proceeding the application by Borrower for, or the
appointment by consent or acquiescence of, a receiver, trustee or custodian of
Borrower, for all or substantial part of its property; the making by Borrower of
an assignment for the benefit of creditors; the inability of Borrower or the
admission by Borrower in writing of its ability to pay its debts as they mature;
or
<PAGE>
F. The filing of an involuntary petition against Borrower in
bankruptcy seeking reorganization, arrangement, readjustment of its debts or for
any other relief under the Bankruptcy Code, as amended, or under any other
insolvency act or law, state or federal, now or hereafter existing; or the
involuntary appointment of a receiver, a trustee or a custodian of Borrower for
all or a substantial part of its property; the issuance of a warrant of
attachment, execution or a similar process against any substantial part of the
property of Borrower and the continuance of any such foregoing events for sixty
(60) days undismissed or undischarged; or
G. Any order is entered in any proceeding against Borrower
decreeing the dissolution or split up of Borrower and such order remains in
effect more than sixty (60) days; or
H. Any report, certificate, financial statement or other
instrument delivered to the Lender by or in behalf of Borrower is false or
misleading in any material respect at the time given; or
I. An uninsured final judgment, which with other outstanding
uninsured final judgments against Borrower exceeds an aggregate of $100,000
shall be rendered against Borrower and within thirty (30) days after entry
thereof such judgment shall not have been discharged or executed thereof stayed
pending appeal, or if within thirty (30) days after the expiration of any such
stay such judgment shall not have been discharged, then at any time thereafter,
the Lender may, at its option, declare the Note and all other Liabilities owing
by the Borrower to the Lender to be forthwith due and payable, whereupon the
Note and any other such Liabilities shall forthwith become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything contained herein or in the Other Agreements to
the contrary notwithstanding, and in addition the Lender may immediately proceed
to foreclose all or part of its liens on or security interest in the Collateral
and apply the proceeds of such foreclosure against the Liabilities secured
thereby in such manner as it shall elect and exercise its rights under the Other
Agreements and to do all other things provided for by law or by this Agreement
or by the Other Agreements.
ARTICLE VIII
GENERAL PROVISIONS
A. The Borrower further agrees to reimburse the Lender for all
costs and out-of-pocket expenses, including fees of the Lender's special
counsel, incurred in connection with the preparation, execution, delivery,
modification, waiver and amendments of this Loan Agreement, the Note and the
related documentation, and also all reasonable expenses incurred by the Lender
(including reasonable attorneys' fees) in the collection of any Indebtedness
incurred hereunder in the event of default by Borrower.
B. Borrower agrees to pay any and all documentary, intangible
stamp or excise taxes now or after payable in respect of the Loan, this Loan
Agreement or Other Agreements or any modifications thereof and hold the Lender
harmless with respect thereto. The Borrower further agrees that the Lender may
deduct from any advance the amount of any such documentary or intangible stamp
tax payable with respect to such advance, the decision of the Lender as to the
amount thereof to be conclusive, absent manifest error. Borrower gives the
Lender the authority to debit its accounts maintained with the Lender for any
principal, interest, fees or other Liabilities becoming due hereunder.
<PAGE>
C. This Loan Agreement sets forth the entire understanding and
agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, condition, representation or warranty, express
or implied, not herein set forth shall bind any party hereto, and none of them
has relied on any such promise, condition, representation or warranty. Each of
the parties hereto acknowledges that, except as in this Loan Agreement otherwise
expressly stated, no representations, warranties or commitments, express or
implied, have been made by any other party to the other. None of the terms or
conditions of this Loan Agreement may be changed, modified, waived or canceled
orally or otherwise, except by writing, signed by all the parties hereto,
specifying such change, modification, waiver or cancellation of such terms or
conditions, or of any preceding or succeeding breach thereof.
D. Notwithstanding any other provision herein, the aggregate
interest rate charged under the Note, including all charges or fees in
connection therewith deemed in the nature of interest under Florida law, shall
not exceed the maximum rate allowed by law. In the event the stated interest
rate on the Note together with any other charge or fee deemed in the nature of
interest exceeds the maximum legal rate, then the Lender shall have the right to
make such adjustments as are necessary to reduce the aggregate interest rate to
the maximum legal rate. The Borrower waives any right to prior notice of such
adjustment and further agrees that such adjustment may be made by the Lender
subsequent to notification from Borrower that the aggregate interest charged
exceeds the maximum legal rate.
E. This Loan Agreement, the Security Agreement and the Note
issued hereunder shall be governed in all respects by the laws of Florida.
F. Should any one or more of the provisions of this Loan
Agreement be determined to be illegal or unenforceable as to one or more of the
parties, all other provisions nevertheless shall remain effective and binding on
the parties hereto.
G. Borrower and Lender hereby consent and agree that, in any
actions predicated upon this Agreement, venue is properly laid in Brevard
County, Florida, and that the Circuit Court for Brevard County, Florida shall
have full jurisdiction to determine all issues arising out of or in connection
with the execution and enforcement of this Agreement. Borrower waives to the
fullest extent permitted under the laws of the State of Florida, any right,
power or privilege to demand a jury trial with respect to any and all issues
arising out of or in connection with the execution and/or enforcement of this
Agreement.
H. Borrower warrants to Lender that, on and after the date of
this Agreement, so long as any of the indebtedness under the Notes remains
unpaid, Borrower and any material subsidiaries of Borrower (hereinafter referred
to as the "Organization") are Year 2000 Compliant. As used herein, "Year 2000
Compliant" shall mean that all software, embedded microchips and other
processing capabilities utilized by the Organization or the Organization's key
suppliers, vendors and customers the failure of which would have a material
adverse effect on the Organization or the key supplier, vendor or customer, will
correctly process, sequence, and calculate, without interruption, all date and
date related data for all dates to, through and after January 1, 2000, including
leap year calculations, and shall recognize, store and transmit date data in a
format which clearly indicates the correct century. Borrower shall deliver to
Lender, upon Lender's reasonable request, all periodic internally and externally
prepared evaluations and progress reports concerning the Organization's Year
2000 plan and Year 2000 readiness and such other information, documentation and
materials as Lender may reasonably request from time to time in order to confirm
that the Organization is Year 2000 Compliant and the method(s) used by the
Organization to become Year 2000 Compliant.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have hereunto caused
these presents to be executed on the date first above written.
EXIGENT INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
eXGNT, INC., a
Delaware corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
President and
Assistant Secretary
(CORPORATE SEAL)
FOTOTAG, INC., a
Delaware corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
GEC ACQUISITION CORPORATION, a
Nevada corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
President
(CORPORATE SEAL)
GEC NORTH AMERICA CORPORATION,
a Nevada corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
President
(CORPORATE SEAL)
MIDDLEWARE SOLUTIONS, INC., a
Nevada corporation
By: /s/ Jeffery B. Weinress
Jeffery B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
<PAGE>
SOFTWARE TECHNOLOGY, INC., a Florida corporation
By: /s/ Jeffery B. Weinress
Jeffrey B. Weinress,
Assistant Secretary
(CORPORATE SEAL)
THE HUNTINGTON NATIONAL BANK
By: /s/ Phillip Hayes
Name: Phillip Hayes
Title: Vice President
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of EXIGENT
INTERNATIONAL, INC., a Delaware corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as President and Assistant Secretary
of eXGNT, INC., a Delaware corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of FOTOTAG,
INC., a Delaware corporation, on behalf of said corporation. Said person (check
one) |x| is personally known to me, |_| produced a driver's license (issued by a
state of the United States within the last five (5) years) as identification, or
|_| produced other identification, to wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000 by Jeffery B. Weinress, as President of GEC ACQUISITION
CORPORATION, a Nevada corporation, on behalf of said corporation. Said person
(check one) |x| is personally known to me, |_| produced a driver's license
(issued by a state of the United States within the last five (5) years) as
identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000 by Jeffery B. Weinress, as President of GEC NORTH AMERICA
CORPORATION, a Nevada corporation, on behalf of said corporation. Said person
(check one) |x| is personally known to me, |_| produced a driver's license
(issued by a state of the United States within the last five (5) years) as
identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Jeffery B. Weinress, as Assistant Secretary of MIDDLEWARE
SOLUTIONS, INC., a Nevada corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000 by Jeffery B. Weinress, as Assistant Secretary of SOFTWARE
TECHNOLOGY, INC., a Florida corporation, on behalf of said corporation. Said
person (check one) |x| is personally known to me, |_| produced a driver's
license (issued by a state of the United States within the last five (5) years)
as identification, or |_| produced other identification, to
wit:_______________________.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
STATE OF FLORIDA
COUNTY OF BREVARD
The foregoing instrument was acknowledged before me this 1st
day of March, 2000, by Phillip Hayes, as Vice President of The Huntington
National Bank, a national banking corporation, on behalf of said state banking
corporation. |x| He/She is personally known or |_| has produced
______________________________ as identification.
Print Name:
Notary Public /s/ Patricia A. Frank
Commission No.:
My Commission Expires:
<PAGE>
EXHIBIT 1
Definitions
"Borrowing Base" will consist of up to 80% of "eligible"
accounts receivable plus the lessor of either $750,000.00 or up to 50% of
"eligible" contract receivables plus the lesser of either $l,500,000.00 or up to
50% of "eligible" Costs in Excess of Billings of Borrower and the Other
Subsidiaries minus the existing balance on the $3,000,000.00 line of credit and
the term debt which has a current balance of approximately $323,693.00.
"Eligible" is defined as: (l) Accounts receivable: amounts
that are less than 90 days from invoice date; (2) Contracts receivable: amounts
that are fully recoverable according to contract terms within one year.
Contracts shall be submitted to Lender prior to funding request being made.
Eligibility shall be determined by Lender in its sole discretion; (3) Costs in
excess of billings: amounts that are to be billed as of the end of the current
month. Provided, however, assets of GEC shall not be deemed Eligible until that
certain promissory note payable by GEC to Lender in the amount of $1,000,000.00
and dated as of December 9, 1999 is satisfied. No advance will be made on
accounts whose balance that is over 90 days from invoice date is over 25% of the
total account balance.
"Collateral" means all of the accounts, inventory, equipment
and other personal property of the Borrower described in the Security Agreement.
"Current Assets" means cash and all other assets or resources
of the Borrower and the Guarantors that are expected to be realized in cash,
sold in the ordinary course of business, or consumed within one year, all
determined in accordance with Generally Accepted Accounting Principles,
including, but not limited to, inventory supported by outstanding import letters
of credit.
"Current Liabilities" means the amount of all liabilities of
the Borrower and the Guarantors that by their terms are payable within one year
(including all indebtedness payable on demand or maturing not more than one year
from the date of computation and the current portion of Indebtedness having a
maturity date in excess of one year), all determined in accordance with
Generally Accepted Accounting Principles, including, but not limited to,
outstanding letters of credit.
"Tangible Net Worth" means the depreciated book value of all
assets of Borrower and Guarantors less:
(i) intangible assets, such as (without limitation) goodwill
(whether representing the excess of cost over book value of assets acquired or
otherwise), capitalized expenses, patents, trademarks, trade names, copyrights,
franchises, licenses and deferred charges, such as (without limitation)
unamortized costs and costs of research and development.
(ii) Total Liabilities,
(iii) treasury stock, and
(iv) advances to stockholders or affiliates of the Borrower.
"Total Liabilities" means the aggregate amount of all
liabilities (i.e., claims of creditors of Borrower and Guarantors that are to be
satisfied by the disbursement or utilization of corporate resources), including,
but not limited to, all outstanding import letters of credit and negative
goodwill of Borrower and Guarantors (excluding the $1,000,000.00 subordinated
debt to the former GEC shareholders).
<PAGE>
"Current Ratio" means the ratio of Current Assets to Current
Liabilities.
"Default" means any event that, with the giving of notice,
lapse of time, or both, would become an Event of Default.
"Fiscal Year" means the 12-month period ending on December 3l
of each Calendar year and commencing on January lst of each calendar year.
"Generally Accepted Accounting Principles" means those
principles of accounting set forth in Opinions of the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants or
which have other substantial authoritative support and are applicable in the
circumstances as of the date of a report, as such principles are from time to
time supplemented and amended.
"Indebtedness" means with respect to any Person, all
indebtedness of such Person for borrowed money, all indebtedness of such Person
for the acquisition of property other than purchases of products and merchandise
in the ordinary course of business, indebtedness secured by any lien, pledge or
other encumbrance on the property of such Person whether or not such
indebtedness is assumed, all liability of such Person by way of endorsements
(other than for collection or deposit in the ordinary course of business); all
guarantees of Indebtedness of any other Person by such Person (including any
agreement, contingent or otherwise, to purchase any obligation representing such
indebtedness or property constituting security therefor, or to advance or supply
funds for such purpose or to maintain working capital or other balance sheet or
income statement condition, or any other arrangement in substance effecting any
of the foregoing); all leases and other items which in accordance with Generally
Accepted Accounting Principles are classified as liabilities on a balance sheet;
provided that in no event shall the term Indebtedness include capital stock,
surplus and retained earnings, minority interest in the common stock of
Subsidiaries, reserves for deferred income taxes and investment credits, other
deferred credits and reserves, and deferred compensation obligations.
"Liabilities" mean all liabilities, obligations and
indebtedness of any and every kind and nature (including, without limitation,
interest, charges, expenses, attorneys' fees and other sums chargeable to
Borrower by the Lender and future advances made to or for the benefit of
Borrower), whether arising under this Loan Agreement, or arising under the Note
or arising under any of the Other Agreements or acquired by the Lender and from
any other source, whether heretofore, now or hereafter owing, arising, due or
payable from Borrower to the Lender and howsoever evidenced, created, incurred,
acquired or owing, whether primary, secondary, direct, contingent, fixed or
otherwise, including obligations of performance.
"Other Agreements" means the Note, the Guaranty Agreement, the
Security Agreement, and all agreements, instruments and documents, including,
without limitation, note, guaranties, mortgages, deeds to secure debt, deeds of
trust, chattel mortgages, pledges, powers of attorney, consents, assignments,
contracts, notices, security agreements, financing statements, certificates of
title, trust account agreements and all other written matters whether
heretofore, now or hereafter executed by or on behalf of Borrower or any
Guarantor and delivered to the Bank, with respect to this Loan Agreement, or
with respect to the transactions contemplated by this Loan Agreement.
"Person" means an individual, partnership, corporation, trust,
unincorporated organization, association, joint venture or a government agency
or political subdivision thereof.
All accounting terms not specifically defined herein shall be
construed in accordance with Generally Accepted Accounting Principles.
All of the terms defined in this Loan Agreement shall have
such defined meanings when used in the Other Agreements.
Exhibit 21
The Company has only the following three subsidiaries:
1. Software Technology, Inc.
2. Exigent Solutions Group, Inc.
3. FotoTag, Inc.
Exhibit 23.1
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the following Registration
Statements of our report dated February 11, 2000, with respect to the
consolidated financial statements of Exigent International, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1999.
Registration
Statement
Number Description
- --------------------------------------------------------------------------------
333-38807 Incentive Stock Option Plan 1Q
333-29875 Incentive Stock Option Plan 2Q
333-43657 Incentive Stock Option Plan 3Q
333-50625 Incentive Stock Option Plan 4Q
333-49087 Independent Director Stock Option Plan 5NQ
333-53323 Stock Option Plan 6NQ
333-75469 Omnibus Stock Option and Incentive Plan
333-75447 Employee Stock Purchase Plan
Ernst & Young LLP
Orlando, Florida
March 20, 2000
Exhibit 23.2
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our audit report relating to certain financial
statements of Exigent Internaitonal, Inc. dated April 4, 1998 in the Annual
Report on Form 10-K filed on behalf of Exigent International, Inc.
Dated March 21, 2000 Hoyman, Dobson & Company, P.A.
By: /s/ Charles W. Hoyman, Jr.
Title: President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Financial Statements of Exigent International, Inc. for the Year Ended December
31, 1999 and is qualified in its entirety by reference to such financial state-
ments.
<F1> Includes cost and estimated earnings in excess of billings on
uncompleted contracts.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 574
<SECURITIES> 0
<RECEIVABLES> 7,407
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,164
<PP&E> 6,240
<DEPRECIATION> 4,700
<TOTAL-ASSETS> 18,016
<CURRENT-LIABILITIES> 7,707
<BONDS> 269
0
1
<COMMON> 48
<OTHER-SE> 8,736
<TOTAL-LIABILITY-AND-EQUITY> 18,016
<SALES> 0
<TOTAL-REVENUES> 36,151
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<TOTAL-COSTS> 28,188
<OTHER-EXPENSES> 8,889
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52
<INCOME-PRETAX> (939)
<INCOME-TAX> (460)
<INCOME-CONTINUING> (479)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (479)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
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