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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996.
OR
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-10560.
CTI GROUP (HOLDINGS) INC.
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(Exact name of Small Business Issuer in its charter)
DELAWARE 51-0308583
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(State or other jurisdiction of (IRS Employer
incorporation of organization) Identification Number)
901 S. Trooper Road, P.O. Box 80360, Valley Forge, PA l9484
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (610) 666-1700
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, Par Value $.01 Per None
Share
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 .
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this Form, and no disclosure will 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-KSB
or any amendment of this Form 10-KSB.
The Issuer's revenues for its most recent fiscal year were $4,134,830.
The aggregate market value of voting stock held by non-affiliates of the Issuer
as of June 7, 1996 was $2,270,659.
The number of shares of common stock outstanding as of June 7, 1996 was
5,431,756.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. BUSINESS DEVELOPMENT
The Company was incorporated in Pennsylvania in 1968 and reincorporated in
the State of Delaware as of April 1, 1988 pursuant to a merger of the Company
into a wholly-owned subsidiary formed as a Delaware corporation. In November
1995 the Company changed its name to CTI Group (Holdings) Inc.
In fiscal year 1996 the Company completed a corporate restructuring whereby
it organized into a holding company structure. In January 1995 the Company
established a Delaware corporation, CTI Data Solutions (USA) Inc. In May 1995
the Company established a UK based company, CTI Data Solutions (International)
Ltd. In December 1995 the Company established a Delaware corporation, CTI
Delaware Holdings, Inc. These newly formed organizations are wholly-owned
subsidiaries of the Company.
CTI Data Solutions (USA) Inc. owns all the tangible assets and liabilities
of the Company's U.S. operations and performs all the necessary functions to
conduct the Company's U.S. business. CTI Delaware Holdings, Inc. owns all the
intangible assets of the Company. CTI Delaware Holdings, Inc. has a research
and development royalty agreement between itself and CTI Data Solutions (USA)
Inc. This agreement provides CTI Delaware Holdings, Inc. with appropriate
resources to develop the Company's proprietary software products while allowing
CTI Data Solutions (USA), Inc. to market and use the software to conduct its
business. CTI Data Solutions (International) Ltd. is currently operating as a
marketing organization to promote the Company's telecommunications billing
services into the UK and European marketplace.
The Company's executive offices and U.S. operations are located at 901 S.
Trooper Road, P.O. Box 80360, Valley Forge, PA 19484 and its telephone number is
(610) 666-1700.
B. BUSINESS OF ISSUER
The Company designs, develops, markets and supports software and services
for managing telecommunications systems. The Company's business is conducted in
two market sectors: billing solutions for providers of telecommunications
services and network management solutions for corporate users of
telecommunications services. All business relates to the collection, formatting
and processing of electronic event records. The Company's business is performed
in one of three ways; (1) service bureau operations; (2) software licensing to
clients; or (3) a combination of service bureau operations and software
licensing.
CLIENTS: The Company's billing products are marketed to providers of
telecommunications services. Generally, clients are switched and switchless
resellers of long distance telephone services, who purchase services wholesale
from IXCs (interexchange carriers) for resale to subscribers, and property
management companies who manage telecommunications systems within office and
apartment buildings. In the U.S., since passage of the Telecommunications Act
of 1996, local service providers, cable television operators, cellular companies
and paging companies are candidates for the Company's billing products. Other
prospective clients are utility companies, universities and on-line services
providers.
2
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Telemanagement products are marketed to organizations with internal
telecommunications systems supporting a substantial aggregate of telephone, fax
and modem equipment. Presently, the majority of the Company's clients are
domestic Fortune 500 companies, "middle market" companies, hospitals,
universities and government agencies (local, county, state or federal).
REVENUE GENERATION: The Company generates revenue through service bureau
contracts, software licensing agreements, the sale or lease of certain
electronic hardware devices, and maintenance agreements of licensed software and
leased hardware. Maintenance agreements are either on a time and material basis
or under full service agreements which are generally for periods of 12 months.
The Company also generates revenue from invoice printing and mailing services
which it subcontracts to third-party vendors.
Service bureau contracts provide monthly recurring revenue. The Company
has approximately 87 contracts (11 for billing services and 76 for
telemanagement services) with original terms of up to 36 months. Many of these
contracts are for multiple sites which equates to the Company processing data
for approximately 322 separate locations. Generally, contracts of 12 to 36
months carry automatic 12 month renewals until canceled.
Software licensing agreements are paid by 50% deposit upon receipt of order
and 50% balance upon installation which is normally completed within 60 days.
Occasionally, larger software orders may require up to six months to complete
custom software development and installation. Approximately 300 software
licenses are in effect for telemanagement systems. Another 11 service providers
license proprietary database software for use with the Company's billing
services.
The Company purchases data collection devices specifically designed for use
with telecommunications switches, and other hardware such as modems, as is
necessary to perform its business. The Company rents or resells such equipment
to end-users.
For the years ended March 31, 1996 and 1995, the Company had service bureau
sales to one customer aggregating $1,256,250 (30% of sales) and $221,930 (7% of
sales) respectively. This customer is currently under contract to use the
Company's service bureau operations on a month-to-month basis. We have been
notified by this company that they are in discussions with a third party and are
negotiating a transaction which would result in a restructuring of their
business and operations. This transaction, if completed, could have an effect
on the revenues received from this customer by the Company. If the Company were
to no longer receive these sales there would be a material adverse effect on the
financial statements of the Company.
SALES CHANNELS: All sales are Company direct.
TELECOMMUNICATIONS DATA PROCESSING: The Company processes event records
generated by telecommunications switching vehicles that, to date, include
telephone PBX (private branch exchange) and CENTREX (central office exchange)
equipment. (The Company anticipates processing records from computer-telephone
LAN servers and cable television headend controllers as well.)
The event records processed by the Company detail billable activity: e.g.,
call origin and destination numbers, date and time stamping, call duration, etc.
The records are processed against pricing algorithms and other tables to derive
data necessary to support a provider's need to invoice customers or a volume-
user's need, to track telecommunications activity.
Outputs from the Company's software and services are various summary and
detail reports and invoices which are generally provided as hard copy printouts.
Outputs are also available for viewing on computer monitors and transportable
via modem and magnetic media (tapes, disks, CD-ROM's).
3
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DATA COLLECTION: Event records are collected and stored in real-time by
solid-state devices specifically designed for use with telecommunications
switches, or by computer memory. Data is obtained for processing by polling
hardware storage devices, or by utilizing magnetic media prepared by the client
or the client's service provider, or by E-mail.
BILLING PRODUCTS: GENERAL. Billing products invoice subscribers of
telecommunications services for the service provider (the client). To this end,
the Company provides software and services for subscriber database management
and call center support, event record processing, the rendering of invoices and
charge detail reports, and mailing services. The Company also provides payment
processing interfaces with financial institutions and posts data relevant to
subscriber payments, but does not physically handle remittances made by
subscribers to its clients.
Software is licensed to the service provider to maintain a subscriber
database and to fulfill the provider's need to maintain customer profiles; to
define services, service packaging and pricing plans; to operate a customer
support call center; and to control all parameters for the invoice processing
performed by the Company's service bureau.
Invoices are generated at the Company's service bureau by processing
extracts from the provider's subscriber database against subscribers' event
records. Invoice data are returned to the provider to update the subscriber
database.
BILLING PRODUCTS: RESYS. For the year ended March 31, 1996, all billing
clients remained under contract for the Company's RESYS System. RESYS employs
mainframe processing to generate invoices and requires users to license a
proprietary PC-based subscriber database software. The system conforms to the
telephone industry standard "legacy system" and serves only providers of
telephony services.
BILLING PRODUCTS: NEPTUNE. The Company has developed state-of-the-art
software (Neptune) for the billing market sector. Neptune is designed with an
"open architecture" for LAN- and PC-based operation. Neptune is scheduled for
release July 1, 1996 for the telephony billing application. During the fiscal
year ending March 31, 1997, the Company plans to further develop Neptune to meet
the requirements of consolidated billing for telephone and convergent service
providers.
Neptune is being marketed primarily as a service bureau product; however,
the Company plans to consider proposals for software licensing and restricted
source code licensing that the Company assesses to be non-competitive to its
billing business.
Neptune requires service bureau clients to license database management
"front-end" software which interfaces the Company's invoice processing to
commercially available database software packages. The front end software
performs all functions previously described under "Billing Products: General"
and differs from RESYS which requires a proprietary database. This feature, one
of many that should broaden Neptune's market appeal, allows the Company to
attract service providers who are already committed to products like Microsoft's
SQL Server, Oracle and Sybase.
Should the Company license Neptune as a complete billing software package,
the product would include, in addition to the database management software, a
pricing module and an invoice generation module.
4
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TELEMANAGEMENT PRODUCTS: GENERAL. Telemanagement products are used by
companies, institutions and government agencies primarily to control costs
associated with operating a private telecommunications network. They perform
functions of call recording, call accounting, cost allocation, client bill-back,
analysis of trunk traffic and calling patterns, toll-fraud detection, directory
services and network facilities management. (See previous paragraphs on
"Telecommunications Data Processing" and "Data Collection.")
TELEMANAGEMENT PRODUCTS: TMS SERVICE BUREAU. The Company's TMS (Telephone
Management System) Service Bureau processes clients' telecommunications data
into management reports on a monthly basis. The Company's service bureau
account managers oversee processing schedules, collection of data to be
processed, quality control and shipments of deliverables. Account managers work
with clients as necessary to help interpret reports, answer questions about
telecommunications systems and providers, and make recommendations when
improvements to clients' systems are sought. Clients achieve the intended
purposes of routine telemanagement tasks with minimal responsibilities.
TELEMANAGEMENT PRODUCTS: ITMS/III TELEMANAGEMENT SYSTEM. For clients who
prefer and have the personnel resources to operate and maintain a telemanagement
system in-house, the Company offers its latest version of ITMS (Interactive
Telecommunications Management System) software, ITMS/III. This licensed
software operates on PCs and LANs and interfaces to mainframe computers for
high-speed printing of management reports or to export call accounting expense
summaries to a company's general ledger software.
ITMS/III clients have advantages of near real-time call record processing,
ad hoc system queries and on-demand management reporting in addition to routine
end-of-month telemanagement reports. However, users assume all responsibilities
for collecting, storing, processing and interpreting data. Clients are
supported by the Company with routine updates of time-sensitive tariff files and
V&H coordinate files which correlate area and exchange codes to state and city
locations.
TELEMANAGEMENT PRODUCTS: INTERACTIVE SERVICE BUREAU. The Company has
deployed on a limited basis hybrid systems which combine the most desirable
benefits of service bureau outsourcing and in-house telemanagement. Clients'
routine telemanagement processing and monthly reporting are performed by the
Company's service bureau while an on-site terminal facilitates ad hoc system
queries and reporting.
TELEMANAGEMENT PRODUCTS: TOLL-FRAUD MONITORING SERVICE. The Company
provides a service for 24-hour alarm monitoring of toll-fraud detection
equipment. Toll-fraud is the theft of phone services - a criminal practice
usually perpetrated by computer hackers who illegally access a PBX to place
long-distance and international calls. Detection monitoring ensures minimal
losses and cost containment in event a company's telecom system security
measures are breached. Toll-fraud equipment is purchased by the Company and
resold or rented to clients as an option with all telemanagement software and
services.
TELEMANAGEMENT PRODUCTS: PROTEUS. During the second quarter of fiscal
year 1997, the Company plans to develop successor products and services to its
TMS Service Bureau, ITMS/III / telemanagement System and Interactive Service
Bureau under the single product platform name of Proteus. The Proteus platform
for telemanagement software and services follows the Windows-based open
architecture approach adopted for the previously described Neptune billing
platform.
5
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EMPLOYEES: The Company employs 36 people on a full-time basis, of whom
three persons are executive officers, and the balance are engaged in
development, installation and servicing of software, processing, customer
service, sales and marketing, and general administrative services.
PATENTS: The Company has not applied for patent protection with respect to
any of its software programs or other technology which it deems proprietary.
Management believes that available patent protection would not afford the
Company significant protection against competitors developing non-infringing
software or other technology. The Company seeks to protect the confidentiality
of its proprietary software and other technology through non-disclosure
agreements with its employees and continued upgrading and modification of its
proprietary products to meet competition.
TRADEMARKS: The Company has filed four trademark applications for its
stylized CTI1 logo and the product names, Neptune, Proteus and Nereus. For the
year ended March 31, 1996, all applications are pending allowance of use by the
Patent and Trademark Office.
ENVIRONMENT: The Company does not anticipate that compliance with Federal,
state, or local environmental regulations will have any material effect on its
capital expenditures, operating results, or competitive position or that it will
be required to make any material capital expenditures for environmental
protection in the current fiscal year.
COMPETITION: BILLING SECTOR. Recent telecommunications legislation has
spawned a new era of competition among telephone and cable companies. Aside
from highly-publicized mergers and partnerships among IXCs RBOCs, MSO [major
system (cable) operators] and regional cellular companies, expansive growth is
expected from niche marketers bundling unique packages of wireline and wireless
services. As a result, the market for third-party subscriber billing and
billing software for telephone, cable and convergent services is substantial.
The Company is among the first to offer a flexible Windows-based platform
capable of consolidated billing for multiple services. There are several larger
competitors with telephone billing experience who are positioning for convergent
services billing as well. There are fewer competitors with cable television
billing experience to enter the convergence billing market. Other competitors
with equal or less capitalization than the Company compete exclusively with
telephony or cable billing products.
COMPETITION: TELEMANAGEMENT SECTOR. The telephone call management industry
is highly competitive and characterized by rapid technological changes and
developments which may reduce or eliminate the utility of the Company's
products. In light of greater capital resources, more extensive research and
development staffs, and better established product lines, telephone operating
companies and communications and data management companies may be in a position
to exert extensive competitive pressure on the Company.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company entered into an operating lease for its new office facilities
for its corporate headquarters in September 1992. The Company leases 12,000
square feet of this 15,000 square foot facility. The term of the agreement is
for ten years commencing on January 1, 1993 and ending on December 31, 2002.
Annual rent of $72,000, payable in equal monthly installments, commenced on July
1, 1993. Annual rent increases become effective on the anniversary of the
initial rent payment as provided for in the lease.
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The Company has an exclusive and irrevocable right and option to lease the
remaining 3,000 square feet of its current facility. The Company may exercise
its option to lease the remaining space by providing a six month's prior written
notice at any time after July 1, 1996 and before September 1, 1996. The rent
payable for this additional space will be the then available net effective
market rent. However, the additional rent shall not be less than the rent the
Company is paying at that time.
Additionally, the lease provides purchase options for this facility under
various conditions. If the landlord wishes to sell the premises he must first
offer it to the Company. The Company must then comply with the provisions of
the lease relevant to this option. The Company also has an option to purchase
the premises. If the landlord does not notify the Company of its option between
January 1, 1998 and December 31, 1999, the Company must notify the landlord
whether or not it intends to purchase the premises between January 1, 2000 and
April 1, 2000. This notice initiates the purchasing process which encompasses
various deposits to ensure the Company's performance as well as the process of
determining the purchase price, which in any circumstance will not be less than
$1,000,000.
The Company's UK based subsidiary leases office space in a shared tenant
environment. The lease is on a month to month basis at a base rate of L1,260
per month.
A subsidiary of the Company leases office facilities of approximately 3,344
square feet located in the Empire State Building in New York, New York. The
office facility in New York is under a ten-year operating lease expiring in 1996
at an annual rental of $123,600 plus cost of living increases. The Company
entered into a sublease Agreement, effective as of November 1, 1990, for the
full term of the Lease Agreement, whereby the sublessee is responsible for all
minimum rent, additional rent and all other charges or impositions which are
required to be paid under the master lease in excess of $2,340 per month. The
Company has notified the landlord of its intent not to renew the lease upon its
October 31, 1996 expiration date.
ITEM 3. LEGAL PROCEEDINGS
In September 1990 the Company, through the loss adjusting service of its
former general liability insurance carrier, was advised of five Summons and
Complaints filed in the Superior Court of New Jersey, Bergen County on behalf of
the Estates of five deceased plaintiffs alleging that the failure of
communications equipment allegedly maintained by a subsidiary of the Company to
the Hackensack Fire Department, impaired rescue operations while fighting a fire
in Hackensack, New Jersey. Currently, plaintiffs' allegations have not
supported that the Company's subsidiary, who is the named insured under the
above insurance policy, was involved in the maintenance of the communication
equipment in question. The court appointed a mediator to attempt to encourage
settlement discussions. At present no settlement has been reached and the case
is proceeding with the discovery phase of the litigation. After consulting with
the Company's counsel and as a result of the liability insurance coverage, it is
the opinion of management that the final outcome of the above matter will not
have a material effect, if any, on the financial statements of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
7
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A. The shares of the Company's Common Stock are traded in the
Over-The-Counter Bulletin Board (Symbol "CTIG"). Prior to January 4, 1996 the
Company's common stock had been trading in the Over-The-Counter Bulletin Board
under the symbol "CMMG". The table below sets forth for the indicated periods
the bid price ranges for the common stock as furnished by the National Daily
Quotation Bureau, or NASDAQ. These prices represent prices between dealers, do
not include retail markup, markdown or commissions and do not necessarily
represent actual transactions.
Quarterly Common Stock Price Ranges
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(for the fiscal year ended March)
1996 1995
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High Low High Low
---- --- ---- ---
1st Quarter $.13 $.08 $.10 $.06
2nd Quarter $.08 $.06 $.06 $.01
3rd Quarter $.53 $.06 $.16 $.02
4th Quarter $.50 $.22 $.12 $.01
B. At June 7, 1996, the bid and asked prices for such shares were $.63 and
$.88 respectively.
C. At June 7, 1996 the number of shareholders of record of Common Stock
approximated 450.
D. No dividends were paid in the fiscal years ended March 31, 1996 and
1995.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Revenues from operations increased $901,230 (28%) for the fiscal year ended
March 31, 1996 as compared to the respective prior year period. The Company's
service bureau revenues increased $970,640 (37%) from the previous year while
its licensed software revenues decreased $69,410 (11%) from the previous year.
The Company's recurring service bureau revenues increased by approximately
$436,000 for the fiscal year ended March 31, 1996. Other service bureau revenues
increased approximately $535,000 for the fiscal year ended March 31, 1996. The
increase in these revenues was primarily the result of an increase in equipment
sales. All of the increase in service bureau revenues was the result of the
increase in revenues generated from the billing service market. The new Neptune
product offering targeted towards the billing services market has met with good
response from the marketplace and should enable the Company to further penetrate
this market. Until the Company is able to re-engineer its telemanagement
licensed software product, management does not expect much change in its
telemanagement licensed software revenues. The Company is currently in the
process of creating a product specification for its new telemanagement software
products. The Company anticipates funding the development of its telemanagement
licensed software products by funds provided by operations.
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Revenues from operations decreased $161,310 (5%) for the fiscal year ended
March 31, 1995 as compared to the respective prior year period. The Company's
service bureau revenues increased $65,620 (1%) from the previous year while its
licensed software revenues decreased $226,930 (27%) from the previous year. The
overall increase in the service bureau revenue was primarily generated by an
increase in equipment sales to customers utilizing the Company's billing
services.
Cost of sales were 44% of sales in 1996 and 41% of sales in 1995. Cost of
sales increased $484,540 (36%) in 1996 and $236,270 (21%) in 1995. The year to
year increases were primarily caused by additional equipment costs associated
with a higher level of equipment sales. Also contributing to the year to year
increase was a rise in production costs.
Selling, general, and administrative (SG&A) expenses were 45% of sales in
1996. This percentage reduction was primarily due to the 28% increase in
revenues from 1996 to 1995. In fact SG&A expenses increased $153,830 (9%) in
1996 when compared to 1995. SG&A expenses also increased $21,040 (1%) in 1995
when compared to 1994. The Company has been marketing its legacy billing
software in the domestic marketplace. When compared to the prior year period
the result has been an increase in domestic marketing costs of approximately
$106,000, inclusive of an increase in commission expense associated with the
growth in domestic sales. Additionally the Company has invested approximately
$250,000 during the current fiscal year in its international subsidiary
operations based in the U.K. which represents an increase of approximately
$196,000 when compared to the same period in the prior year. These increases
were offset by a reduction in legal fees of approximately $128,000 combined
with other various reductions.
Depreciation and amortization expense decreased $241,270 in 1996 as
compared to 1995. The reduction was the result of the excess of cost over net
tangible assets of acquired business being written off in 1995 and the Company's
ITMS III telemanagement software being in its final year of amortization.
Bad debt decreased $56,950 in 1996 as compared to an increase of $55,960 in
1995 when compared to respective prior years. The Company's recent focus on
collections has kept the bad debt expense in check with the exception of the
$40,000 in additional reserves provided in the fiscal year ended March 31, 1995.
These 1995 additional reserves were the result of one of the Company's customers
filing for protection under Chapter 11 Bankruptcy regulations.
Interest income increased $6,160 in 1996 and decreased $12,060 in 1995.
The 1996 increase was the result of cash reserves earning a moderate rate of
interest. The 1995 reduction was the result of the Company's interest bearing
receivables being paid down in the normal course of business.
Other expense for the fiscal year ended March 31, 1995 consists of legal
and professional fees associated with the unsuccessful merger attempt of the
Company with UK based Britannic Group (Holdings) Ltd.
Other income for the fiscal year ended March 31, 1996 is the result of the
Company having satisfied a state tax assessment for which it had accrued more
than was actually paid. Other income for the fiscal year ended March 31, 1995
consists of a $28,530 gain recognized from the sale of the Company's investment
in AAC Corporation.
9
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LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1996 was $177,970 as compared to $236,120 at
March 31, 1995. The working capital ratio decreased to 1.19 to 1 at March 31,
1996 from 1.22 to 1 at March 31, 1995. The 1996 decrease in working capital was
the result of the Company investing $446,350 of its resources into developing a
new product ("Neptune") for the billing services marketplace. The Company
utilized some of its cash reserves it had at March 31, 1995 along with cash
which was generated from operations to develop Neptune. In June 1996 the
Company entered into a new loan agreement with its bank. The loan amount is for
$200,000 with a maturity of July 31, 1996. The bank will make a determination
to extend the maturity for one year upon receipt and evaluation of the Company's
Audited Financial Statements. As a result of this new banking relationship and
the Company's operations providing funds, management believes its working
capital is adequate to fund its operations for the foreseeable future.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors F - 1
Consolidated Balance Sheets at March 31, 1996 and 1995 F - 2
Consolidated Statements of Operations for each of the F - 4
years ended March 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for each
of the years ended March 31, 1996 and 1995 F - 5
Consolidated Statements of Cash Flows for each of the F - 6
years ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements F - 7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
10
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REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CTI Group (Holdings), Inc.
Valley Forge, Pennsylvania
We have audited the accompanying consolidated balance sheets of CTI
GROUP (HOLDINGS), INC. AND SUBSIDIARIES (FORMERLY COMMUNICATIONS GROUP, INC.
AND SUBSIDIARIES) as of March 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders equity, and cash flows for the years
then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of CTI GROUP (HOLDINGS), INC. AND SUBSIDIARIES (FORMERLY COMMUNICATIONS
GROUP, INC. AND SUBSIDIARIES) at March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-based Compensation" for 1996.
/s/ Zelenkopski, Axelrod & Co., LTD.
ZELENKOPSKI, AXELROD & CO., LTD.
Jenkintown, Pennsylvania
June 21, 1996
F-1
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
--------------------------
1996 1995
ASSETS --------------------------
Current assets:
Cash and cash equivalents $ 288,870 $ 570,310
Receivables:
Trade, less allowance for doubtful
accounts of $60,000 and $70,000 at
March 31, 1996 and 1995 802,410 681,030
Inventories 19,450 28,560
Prepaid expenses 26,590 40,640
--------------------------
Total current assets 1,137,320 1,320,540
Furniture, fixtures, equipment and leasehold
improvements at cost, less accumulated
depreciation and amortization of $371,410
and $348,620 at March 31, 1996 and 1995 246,300 191,530
Computer software, net of accumulated
amortization of $1,149,790 and $972,370 at
March 31, 1996 and 1995 694,260 394,810
Other assets 29,380 45,340
--------------------------
$ 2,107,260 $ 1,952,220
--------------------------
--------------------------
The accompanying notes are an integral part of the financial statements
F-2
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CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
March 31,
--------------------------
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY -------------------------
Current liabilities:
Current portion of long-term debt $ 28,710 $ 16,080
Accounts payable 450,820 245,560
Accrued commissions and other compensation 52,600 34,910
Other accrued expenses 217,830 507,380
Deferred revenue 209,390 280,490
--------------------------
Total current liabilities 959,350 1,084,420
--------------------------
Long-term debt, less current portion 34,720 17,360
--------------------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01; 10,000,000
shares authorized; 5,522,006 shares issued
at March 31, 1996 and 5,272,006 shares
issued at March 31, 1995 55,220 52,720
Capital in excess of par value 7,214,730 7,173,480
Accumulated deficit (5,745,510) (5,969,360)
--------------------------
1,524,440 1,256,840
Equity adjustment from foreign currency
translation (4,850) ---
Less - Treasury stock, 140,250 shares at
March 31, 1996 and 1995, at cost (406,400) (406,400)
--------------------------
Total stockholders' equity 1,113,190 850,440
--------------------------
$ 2,107,260 $ 1,952,220
--------------------------
--------------------------
The accompanying notes are an integral part of the financial statements
F-3
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31,
--------------------------
1996 1995
----------- -----------
Net sales $ 4,134,830 $ 3,233,600
----------- -----------
Costs and expenses:
Cost of sales (exclusive of depreciation and
amortization) 1,824,040 1,339,500
Selling, general and administrative expenses 1,879,290 1,725,460
Bad debt expense 8,460 65,410
Depreciation and amortization 250,600 491,870
Interest income, net of interest expense of
$3,300 and $2,230, in 1996, and 1995,
respectively (12,840) (7,750)
Other expense --- 124,740
Other Income (42,230) (28,530)
----------- -----------
3,907,320 3,710,700
----------- -----------
Income (loss) from operations before income
taxes 227,510 (477,100)
Income tax provision 3,660 ---
----------- -----------
Net income (loss) $ 223,850 $ (477,100)
=========== ===========
Net income (loss) per common share $ 0.04 $ (0.09)
=========== ===========
Weighted average common shares outstanding 5,340,089 5,125,923
=========== ===========
The accompanying notes are an integral part of the financial statements
F-4
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity
adjustment
Common Stock Capital in from foreign
------------------ excess of Accumulated Treasury currency
Shares Amount par value deficit stock translation Total
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 5,262,006 $52,620 $7,172,880 $(5,492,260) $(406,400) $ ---- $1,326,840
Employee stock award 10,000 100 600 700
Net loss year ended March 31, 1995 (477,100) (477,100)
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 5,272,006 52,720 7,173,480 (5,969,360) (406,400) ---- 850,440
Issuance of stock in connection with
the purchase of software 100,000 1,000 12,250 13,250
Directors stock awards 150,000 1,500 13,500 15,000
Issuance of stock options 15,500 15,500
Equity adjustment from foreign
currency translation (4,850) (4,850)
Net income year ended March 31, 1996 223,850 223,850
- --------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 5,522,006 $55,220 $7,214,730 $(5,745,510) $(406,400) $(4,850) $1,113,190
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash Provided By:
Operating activities:
Net Income (Loss) $ 223,850 $ (477,100)
------------ ------------
Adjustments to reconcile net income (loss) to cash
provided by operations:
Depreciation and amortization 250,600 491,870
Provision for doubtful accounts (10,000) 30,000
Employee stock award ---- 700
Issuance of stock options 15,500 ----
Gain on sale of investment in AAC Corporation ---- (28,530)
Changes in Operating Working Capital:
Increase in receivable, trade (111,380) (132,950)
Decrease (increase) in inventories 9,110 (400)
Decrease (increase) in prepaid expenses 14,050 (20,490)
Increase in accounts payable 205,260 37,950
(Decrease) increase in accrued commissions and other
compensation 17,690 (29,040)
(Decrease) increase in other accrued expenses (261,300) 128,730
(Decrease) increase in deferred revenue (71,100) 25,450
------------ ------------
Total adjustments 58,430 503,290
------------ ------------
Total operating activities 282,280 26,190
------------ ------------
Investing Activities:
Cash received from sale of investment in AAC Corporation ---- 412,740
Decrease in other assets 15,960 780
Additions to equipment and leasehold improvements (127,950) (55,460)
Additions to computer software (476,870) (157,250)
------------ ------------
Total investing activities (588,860) 200,810
------------ ------------
Financing Activities:
Repayment of debt (20,010) (2,190)
Proceeds from borrowings 50,000 ----
------------ ------------
Total financing activities 29,990 (2,190)
------------ ------------
Effect of exchange rate changes on cash (4,850) ----
(Decrease) increase in cash and cash equivalents (281,440) 224,810
Cash and cash equivalents, at beginning of year 570,310 345,500
------------ ------------
Cash and cash equivalents, at end of year $ 288,870 $ 570,310
============ ============
Supplemental disclosures:
Cash paid during the year for:
Interest $ 2,380 $ 2,230
Taxes 52,870 15,320
Non-cash transactions:
Directors stock awards $ 15,000 $ ----
Purchase of computer software via stock issuance 13,250 ----
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
CTI GROUP (HOLDINGS) INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Business: In fiscal year 1996 the Company completed a corporate restructuring
whereby it organized into a holding company structure. In January 1995 the
Company established a Delaware corporation, CTI Data Solutions (USA) Inc. In
May 1995 the Company established a UK based company, CTI Data Solutions
(International) Ltd. In December 1995 the Company established a Delaware
corporation, CTI Delaware Holdings, Inc. These newly formed organizations are
wholly-owned subsidiaries of the Company.
CTI Data Solutions (USA) Inc. owns all the tangible assets and liabilities
of the Company's U.S. operations and performs all the necessary functions to
conduct the Company's U.S. business. CTI Delaware Holdings, Inc. owns all the
intangible assets of the Company. CTI Delaware Holdings, Inc. has a research
and development / royalty agreement between itself and CTI Data Solutions
(USA) Inc. This agreement provides CTI Delaware Holdings, Inc. with
appropriate resources to develop the Company's proprietary software products
while allowing CTI Data Solutions (USA) Inc. to market and use the software to
conduct its business. CTI Data Solutions (International) Ltd. is currently
operating as a marketing organization to promote the Company's
telecommunications billing services into the UK and European marketplace.
The Company is engaged in the sale of telephone management software and
services designed to assist customers in the management and control of their
business telephone costs. The Company provides telephone call accounting
services on a contractual service bureau basis, as well as the licensing of
software whereby customers may perform these functions on site using personal
and mini computers. The Company also services the billing and
telecommunication needs of shared tenant service providers and telephone long
distance resellers, who provide centralized sale and service of
telecommunication products and networks to customers. This service is
available on both a service bureau basis and on the Company's licensed
software for in-house applications. The Company grants credit to its service
bureau and licensed software end users, the majority of which are located
throughout the continental United States.
The following is a summary of significant accounting policies utilized by
the Company.
CONSOLIDATION POLICY: The consolidated financial statements include the
accounts of CTI Group (Holdings) Inc. and its domestic and foreign
subsidiaries, all of which are wholly-owned (collectively referred to as the
"Company"). As of March 31, 1996, the Company's subsidiaries were: CTI Data
Solutions (USA) Inc., CTI Data Solutions (International) Limited, CTI Delaware
Holdings, Inc., Telephone Budgeting Systems, Inc. and Plymouth Communications
Inc. All material intercompany accounts and transactions have been
eliminated in consolidation.
CURRENCY TRANSLATION: The financial statements of CTI Data Solutions
(International) Limited, a UK based wholly-owned subsidiary, have been
included in the consolidated financial statements and have been translated to
U.S. dollars in accordance with the Statement of Financial Accounting Standard
("SFAS) No. 52, Foreign Currency Translation. Assets and liabilities are
translated at current rates in effect at the balance sheet date and
stockholders' equity is translated at historical exchange rates. Revenue and
expenses are translated at the average exchange rate for the applicable
period. Any resulting translation adjustments are made directly to a separate
component of stockholders' equity.
F-7
<PAGE>
REVENUE RECOGNITION / DEFERRED REVENUE: The Company follows Statement of
Position 91-1 (SOP 91-1), "Software Revenue Recognition" which requires, in
part, the deferral of revenue on software licenses with significant vendor
obligations and the amortization of post-contract customer support over the
life of the contract.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments, with a maturity of three months or less when purchased, to be
cash equivalents. The Company currently maintains its U.S. cash accounts at
two separate institutions. The Company also maintains a cash account for its
UK based subsidiary in the UK. The cash balances on deposit at the individual
U.S. banks are insured by the FDIC up to $100,000 per institution. As of March
31, 1996, $163,550 was uninsured.
USE OF ESTIMATES: The preparation of the financial statements in conformity
with the accounting and reporting practices prescribed by generally accepted
accounting principles, requires management to make estimates and assumptions
that affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
INVENTORIES: Inventories consisting of equipment purchased for resale, are
stated at the lower of cost or market with cost determined on the first-in,
first-out (FIFO) method.
FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS: Furniture,
fixtures, equipment and leasehold improvements, including capitalized leases,
are stated at cost. Depreciation and amortization are calculated on a
straight-line basis over the estimated useful lives of the equipment ranging
from 3 to 5 years and over the lesser of the term of the related lease or the
estimated useful lives of the leased assets.
COMPUTER SOFTWARE: Expenditures for producing product masters incurred
subsequent to establishing technological feasibility are capitalized and are
amortized on a product-by-product basis. The amortization is computed using
the straight-line method over the remaining estimated economic life of the
product. The Company capitalized $446,350 and $145,190 in the fiscal years
ended March 31, 1996 and 1995, respectively, in additional costs related to
its billing software. The amortization expense for developed software was
$170,780 in 1996 and $280,690 in 1995.
INCOME TAXES: The Company accounts for income taxes under Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes.
Under the liability method deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of assets
and liabilities and their financial reporting amounts at each year-end based
on enacted tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
EARNINGS (LOSS) PER COMMON SHARE: Earnings (loss) per common share are
computed on the basis of the weighted average number of common shares
outstanding during each period. Per share computations do not assume the
exercise of common stock options outstanding in 1996 and 1995 because such
exercise would be antidilutive.
RECLASSIFICATION: Certain reclassifications have been made to the
comparative March 31, 1995 amounts to conform to the current year's
presentations.
F-8
<PAGE>
NOTE 2 - FURNITURE, FIXTURES, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
The Company's fixed assets consist of the following:
March 31,
-----------------------
1996 1995
-----------------------
Equipment owned $473,210 $253,370
Operating lease equipment 21,400 71,790
Equipment on capital leases --- 91,890
Furniture and fixtures 13,230 13,230
Leasehold improvements 109,870 109,870
-----------------------
617,710 540,150
Less - Accumulated depreciation &
amortization
Equipment owned 298,910 155,460
Operating lease equipment 19,370 68,160
Equipment on capital leases --- 84,960
Furniture, fixtures and leaseholds 53,130 40,040
-----------------------
$246,300 $191,530
-----------------------
-----------------------
Amortization expense included in depreciation and amortization for
equipment originally classified as being under capital leases was $6,930
and $17,630 for the years ended March 31, 1996 and 1995. All of the
equipment which was originally classified as being under a capital lease
has been purchased and was reclassified as owned equipment during the
fiscal year ended March 31, 1996.
NOTE 3 - OTHER ACCRUED EXPENSES
The Company's other accrued expenses consist of the following:
March 31,
-----------------------
1996 1995
-----------------------
Accrued legal fees $30,000 $198,660
Accrued accounting and audit fees 38,680 54,250
Accrued Rent 87,880 82,350
Accrued state income taxes and
other assessed state taxes 37,660 113,000
Other accrued expenses 23,610 59,120
-----------------------
$217,830 $507,380
-----------------------
-----------------------
F-9
<PAGE>
NOTE 4 - DEBT
The following table summarizes long-term debt:
March 31,
-----------------------
1996 1995
-----------------------
Term loan, requiring monthly payments
of $600 per month commencing in
October 1995, including interest at 8.75%,
maturing in September 1999 and secured
by equipment. $21,440 ---
Term loan, requiring monthly payments
of $640 per month commencing in
January 1996, including interest at 8.25%,
maturing in December 1999 and secured
by equipment. 24,630 ---
Non-interest bearing Promissory Note,
discounted at 8.0%, due May 1996 17,360 33,440
--------------------
63,430 33,440
Less - Current portion 28,710 16,080
--------------------
$34,720 $17,360
--------------------
--------------------
The following table represents debt repayment for fiscal years ended
March 31:
1997 $28,710
1998 12,360
1999 13,450
2000 8,910
---------
$63,430
---------
---------
On June 1, 1996 the Company entered into a line of credit agreement with PNC
Bank, National Association. This agreement provides the Company access to a
$200,000 credit facility to be used, as needed, for working capital needs of
the Company. The term of this agreement runs through July 31, 1996 and bears
interest at PNC Bank's Prime Rate plus .5%. The bank will make a determination
on extending the maturity for one year upon receipt and evaluation of the
Company's Audited Financial Statements.
NOTE 5- PROFIT PARTICIPATION
In conjunction with an employment contract effective April 1, 1995, the
Company has agreed to pay an aggregate of 5% of pre-tax profit as incentive
compensation to the President/CEO during each fiscal year ending March 31,
1996, 1997 and 1998. The Company has accrued $12,820 for fiscal year ended
March 31, 1996. The President/CEO was employed during the fiscal year ended
March 31, 1995 under a prior employment agreement which contained the same
incentive compensation clause as his current agreement. No accrual was
required for the fiscal year ended March 31, 1995.
F-10
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS
The Company leases its office facilities, certain equipment and its
main-frame operating software under noncancelable long-term operating leases
which expire at various dates. The Company has sublet its office facilities
located in the Empire State Building as of November 1990. The Company was
unable to sublet these facilities for the full amount of its annual rental
commitment of $144,000 and remains responsible for a net lease of $16,380
through October 1996. The Company has notified the landlord of its intent not
to renew the lease upon its October 31, 1996 expiration date. Minimum
aggregate annual rentals under noncancelable long-term operating leases are as
follows:
Year ending March 31,
1997 143,780
1998 120,720
1999 116,210
2000 124,520
2001 120,000
thereafter 180,000
-------------
Total minimum lease payments $805,230
-------------
-------------
Rent expense for operations under all operating leases was $182,230 and
$185,030 for the years ended March 31, 1996 and 1995, respectively.
The Company entered into an operating lease for its new office facilities
for its corporate headquarters in September 1992. The term of the agreement is
for ten years commencing on January 1, 1993 and ending on December 31, 2002.
Annual rent of $72,000, payable in equal monthly installments, commenced on
July 1, 1993. Annual rent increases become effective on the anniversary of the
initial rent payment as provided for in the lease. The Company is amortizing
the lease expense on the straight-line method of accounting over the lease
term, including the rent free period.
The Company has an exclusive and irrevocable right and option to lease the
remaining 3,000 square feet of its current facility. The Company may exercise
its option to lease the remaining space by providing a six month's prior
written notice at any time after July 1, 1996 and before September 1, 1996.
The rent payable for this additional space will be the then prevailing net
effective market rent. However, the additional rent shall not be less than the
rent the Company is paying at that time.
Additionally, the lease provides purchase options for this facility under
various conditions. If the landlord wishes to sell the premises he must first
offer it to the Company. The Company must then comply with the provisions of
the lease relevant to this option. The Company also has an option to purchase
the premises upon notification by the landlord between January 1, 1998 and
December 31, 1999. If the landlord does not notify the Company during this
period of time the Company must notify the landlord of its intent to purchase
the premises. This notification must occur between January 1, 2000 and April
1, 2000. The notification initiates the purchasing process which encompasses
various deposits and determination of the purchase price, which in any
circumstance will not be less than $1,000,000.
F-11
<PAGE>
B. CONTINGENCIES:
In September 1990 the Company, through the loss adjusting service of its
former general liability insurance carrier, was advised of five summons and
complaints filed in the Superior Court of New Jersey, Bergen County on behalf
of the Estates of five deceased plaintiffs alleging that the failure of
communications equipment, allegedly maintained by a subsidiary of the Company
to the Hackensack Fire Department, impaired rescue operations while fighting a
fire in Hackensack, New Jersey. Currently, plaintiffs' allegations have not
supported that the Company's subsidiary, who is the named insured under the
above insurance policy, was involved in the maintenance of the communications
equipment in question. The court appointed a mediator to attempt to encourage
settlement discussions. At present, no settlement has been reached and the
case is preceeding with the discovery phase of the litigation. After
consulting with the Company's counsel and due to the liability insurance
coverage, it is the opinion of management that the final outcome of the above
matter will not have a material effect, if any, on the financial statements of
the Company.
The Company is involved in other litigation in the normal course of
business. It is the opinion of management that the final outcome of this other
litigation will not have a material effect, if any, on the financial
statements of the Company.
The Company currently has obligations under three separate employment
agreements. The agreements are with Anthony P. Johns, the Company's President
and Chief Executive Officer, Mark H. Daugherty, the Company's Chief Financial
Officer, and Alvin P. Gentzler, the Company's Vice President of Product
Development. The employment agreements were all effective by April 1, 1995 and
all terminate as of March 31, 1998. The aggregate minimum annual salary
commitment under these agreements is $305,000 per annum.
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1996 1995
-----------------------
From Operations:
Federal $143,770 ---
State 38,200 ---
-----------------------
181,970 ---
Utilization of operating loss
carryforward 178,310 ---
-----------------------
Income tax provision $3,660 ---
-----------------------
-----------------------
A reconciliation of income tax expense at the statutory rate to income tax
expense at the Company's effective rate is as follows:
1996 1995
-----------------------
Computed tax (benefit) at the
expected statutory rate $104,750 ($143,130)
Other 6,500 ---
Loss from foreign subsidiary 91,030 ---
Nondeductible amortization 38,680
Increase (decrease) in valuation
allowance (198,620) 104,450
-----------------------
$3,660 $0
-----------------------
-----------------------
F-12
<PAGE>
As of March 31, 1996, temporary differences giving rise to a net deferred
tax asset consists primarily of the excess of book over tax accounting
depreciation, stock options, allowance for doubtful accounts and the excess of
book over tax accounting for computer software.
The Company has net operating loss carryforwards of approximately $1,181,000
available to reduce future Federal taxable income expiring in varying amounts
from 2005 through 2010. No tax benefit has been recorded in the 1996
statements because of the uncertainty of the Company to utilize the benefits
before carryfowards expire. Accordingly, the tax benefit of $575,410 for the
temporary differences and the loss carryforward has been offset by a valuation
allowance of the same amount.
As of March 31, 1996 the Company has general business credit carryforwards
available to reduce federal income taxes of approximately $32,300 expiring in
fiscal year 2001.
NOTE 8 - CAPITAL STOCK TRANSACTIONS
A. ISSUANCE OF COMMON STOCK:
On October 28, 1994 the Company granted 10,000 shares of the Company's
common stock to an employee as a signing bonus. The average bid and ask price
on that date was $.07 and $.23, respectively.
B. OPTIONS:
At the Company's 1995 Annual Meeting of Stockholders held on November 16,
1995, the Company's stockholders voted on and approved the Company's Stock
Option and Restricted Stock Plan (the "Plan"). The Plan provides for the
issuance of 600,000 shares of common stock. Individuals eligible for
participation in the Plan include key employees (including employees who also
serve as Directors), non-employee directors, independent contractors and
consultants who perform services for the Company The exercise price of the
stock options are determined by the higher of the fair market value or the
book value of the common stock at the time the option is granted.
Effective for 1996, the Company adopted Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based Compensation. Accordingly, the
Company has adopted this method of accounting for stock-based compensation by
establishing a fair value-based method of accounting for stock options.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants issued in January 1995, November 1995 and
March 1996 respectively; no dividend yield for all years, expected volatility
of 67%, 97%, and 105%, risk-free interest rates of 6% for all options and
expected lives of 3 years for all options.
The Company has issued 250,000 stock options to its employees during the
year ended March 31, 1996. The option price ranges from $.20 to $.375.
Accordingly the Company recorded compensation expense of $11,000. The options
are exercisable upon date of grant and are for the term of 10 years from the
date of grant.
The Company has issued 90,000 stock options to its non-employee directors
during the year ended March 31, 1996. The option price ranges from $.18 to
$.20. Accordingly the Company recorded $1,200 for these options. The
non-employee directors who serve on the stock option committee can exercise
their options one-half on the first anniversary of each such directors
election to the Board, and one -quarter on each of the second and third
anniversaries of each such Director's election to the board, provided such
non-employee director is then serving as a Director. The non-employee director
who does not serve on the stock option committee can exercise his options upon
date of grant. All options are for a term of 10 years from date of grant.
The Company issued 15,000 stock options to an independent consultant during
the year ended March 31, 1996. The independent consultant performs software
development for the Company. The stock options were issued in lieu of a price
increase during the next six months. The option was issued at $.375, was
exercisable on the date of grant and is for a term of 10 years. Accordingly
the Company recorded $3,300 in the fiscal year ended March 31, 1996.
F-13
<PAGE>
Activity in the stock option plan for the year ended March 31, 1996
consisted of the following:
Outstanding at beginning of period ---
Granted 355,000
Exercised ---
Terminated ---
-----------
Outstanding at end of period 355,000
-----------
-----------
Exercisable at end of period 325,000
-----------
-----------
Range of exercise prices $.18 - $.375
C. STOCK GRANTS:
During the fiscal year ended March 31, 1995 two directors were granted
75,000 shares each of the Company's common stock as compensation for serving
on the Mergers and Acquisition Committee of the Board of Directors. The
Company accrued an aggregate $15,000 in the fiscal year ended March 31, 1995
for these grants. The stock was issued in the fiscal year ended March 31, 1996.
NOTE 9 - MAJOR CUSTOMER
The Company had sales to one customer aggregating $1,256,250 (30% of sales)
and an account receivable from this customer of $355,800 for the fiscal year
ended March 31, 1996 and sales aggregating $221,930 (7% of sales) and an
account receivable of $89,670 for the fiscal year ended March 31, 1995. The
majority of the March 31, 1996 outstanding account receivable has been
collected subsequent to the fiscal year ended March 31, 1996. For the year
ended March 31, 1995, the Company had sales to another customer aggregating
$483,320 (15% of sales) and an account receivable of $150,510 at March 31,
1995.
NOTE 10 - RELATED PARTY TRANSACTIONS
An individual related to the Chief Executive Officer of the Company was
employed under a consultancy agreement to market the Company's products and
services into the UK and European markets. This individual received $33,330 in
the fiscal year ended March 31, 1995 as compensation under this consultancy
agreement. In the first part of fiscal year ended March 31, 1996 this
individual received $10,000 under this consultancy agreement. In July 1995
this individual was employed by the company's UK subsidiary, CTI Data
Solutions (International), Ltd. and received $45,830 in compensation during
the fiscal year ended March 31, 1996.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments:
CASH, TRADE RECEIVABLE, AND TRADE PAYABLES:
The carrying amounts approximate fair value because of the short maturity of
those instruments.
LONG-TERM DEBT:
The carrying amounts approximate fair value because the borrowing rates
currently available to the Company are for loans with similar terms and
average maturity, given the risk, ownership and underlying collateral.
NOTE 12 - PROFIT-SHARING PLAN
The Company has established a qualified 401(k) profit sharing plan effective
July 15, 1995. Eligible employees may defer a portion of their salaries. At
the discretion of the Board of Directors, the Company can contribute to the
profit-sharing plan, and may make a matching contribution of an additional
amount of eligible employees' deferrals. There were no contributions to the
plan during the year ended March 31, 1996.
F-14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT
The following Directors were elected by the Shareholders at the 1995 Annual
Meeting of Shareholders held on November 16, 1995 and the following officers
were appointed by the Board of Directors. All Directors will hold office until
the next Annual Meeting of Shareholders of the Company and until their
successors shall be elected and qualify. All officers of the Company serve at
the discretion of the Board. In addition to Messrs. Johns and Daugherty, Ms.
Davis is an officer of the Company.
Name and Age Occupation during past five (5) years
------------ -------------------------------------
Anthony P. Johns (47) President and Chief Executive Officer and
Director of the Company since March, 1990.
Chief Operating Officer of the Company from
December, 1989 to March, 1990. Founding
member, Company Chairman and Managing
Director of Britannic Group Holdings Ltd.,
Britannic Telecom Company Ltd., and Britannic
Telecare Ltd. from August, 1985 to November,
1989. Chairman of the Board of Directors of
Britannic Group Holdings Ltd., Britannic
Telecom Company Ltd. and Britannic Telecare
Ltd. from December, 1989 to May 1995.
John D. Mazzuto (47) Chairman of the Board of Directors September,
1995 to present. Director and former
Chairman of the Board of Directors from
October 1990 until November 1993, continuing
as Director thereafter. Mr. Mazzuto also
serves on the Board of Directors of Chester
Holdings, CPT Holdings, Texfi Industries,
Inc. and Weldotron, all public companies
engaged in a variety of businesses. Since
February, 1991 he has been Chairman and Chief
Executive Officer of Greystone Partners,
Inc., a private investment bank specializing
in assisting companies complete successful
turnarounds and providing them capital as
appropriate. Prior to February, 1991, Mr.
Mazzuto was Chief Executive Officer of the
North American operations of Asian Oceanic
Holdings, Ltd., a Hong Kong based
international merchant bank.
Francis O. Hunnewell (57) Director, Chairman of the Board of
Directors, November 1993 until August 1995.
From 1975 until July 1993, Mr. Hunnewell was
Co-Founder and Director of Binladen
Telecommunications Ltd. From 1984 to 1992 he
was a General Partner of Bliss & Co.,
Investment Bankers in New York. From 1986
until June 1992, he was Group Managing
Director and subsequently Vice Chairman of
Asian Oceanic Group. He was a Director of
Lend Lease Trucks from 1990 to 1992. 1992
to 1995, Mr.
11
<PAGE>
Hunnewell was Chairman of Panavision (Canada)
Ltd. located in Montreal, Toronto and
Vancouver, Canada. Currently Mr. Hunnewell
is Managing Director at Aldrich Eastman
Waltch International, real estate pension
fund managers with offices in Boston, Los
Angeles, Mexico City and Moscow. He is also
President of Hunnewell & Co., investment
bankers since 1938, and Vice Chairman of
Asian Capital Partners Ltd., an Asian based
merchant bank headquartered in Hong Kong with
offices around the region.
Mark H. Daugherty (38) Appointed to the Board of Directors in
September 1992. Controller of the Company
from August 1985 until May 1991. He was
Acting Chief Financial Officer from April,
1990 to October 1990. Mr. Daugherty was
named Chief Financial Officer of the Company
in May 1991.
Rupert D. Armitage (48) Founding member, Chairman and Managing
Director of three software related companies
in the United Kingdom: Ambit Research Ltd.
formed in 1987; Information from Data Ltd.
formed in 1993; and Personal and Corporate
Training Systems Ltd. formed in 1995.
Mary Ann Davis (57) Corporate Secretary since May 1989. Prior to
that, Ms. Davis was an Administrative
Assistant from May 1982 to a Judge of the
Common Pleas Court of Montgomery County,
Pennsylvania.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than ten percent of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms filed.
Based solely on review of the copies of such forms furnished to the
Company, or written representation that no Forms 5 were required, the Company
believes that during the last fiscal year, all Section 16(a) filing requirements
applicable to its officers, directors and greater than ten-percent beneficial
owners were complied with except for the following:
1) Rupert D. Armitage filed a Form 5 curing a late Form 4 filing.
2) John D. Mazzuto filed a Form 5 curing a late Form 4 filing.
3) Francis O. Hunnewell filed a Form 5 curing a late Form 4 filing.
ITEM 10. EXECUTIVE COMPENSATION
A. MANAGEMENT REMUNERATION
The following table sets forth the compensation paid or accrued for the
five highest paid officers of the Company and its subsidiaries. The Company had
only one officer for the year ended March 31, 1996 who received in excess of
$100,000.
12
<PAGE>
Name and Principal Other Annual
Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Anthony P. Johns, President 1996 $175,000 $12,820 $22,210 (1)
& Chief Executive Officer 1995 $150,000 - $19,810 (1)
1994 $150,000 $ 5,660 $18,349 (1)
(1) Includes $11,100 annual automobile allowance, approximately $3,600 for
the non-exclusive use by Mr. Johns of an apartment for which the Company
made lease payments of approximately $10,800 and $3,900 of living expense
payments in lieu of the lease payments which terminated in December 1995.
On February 1, 1995, the Company entered into an employment agreement with
Anthony P. Johns. Pursuant to this agreement, Mr. Johns is employed as
President and Chief Executive Officer of the Company for a three-year term at an
annual base salary of $175,000. Should the Company regain its listing on
NASDAQ, Mr. Johns' salary will be increased to $200,000 for the remaining term
of the Employment Agreement. In addition to such annual base salary, Mr. Johns
is entitled to receive as additional compensation in the form of an annual
bonus, an amount equal to five percent (5%) of the Company's pretax profit. The
Company has also agreed to (i) provide Mr. Johns with a monthly automobile
allowance, (ii) provide Mr. Johns with the non-exclusive use of and access to a
Company leased apartment and (iii) pay the premiums on life insurance and health
insurance policies for the benefit of Mr. Johns. Mr. Johns will also be
reimbursed by the Company for all expenses reasonably incurred by him in the
performance of his duties.
The members of the Board of Directors, who are not employees of the
Company, are paid fees of $1,000 per quarter and $500 per Board of Director
meeting attended, plus reasonable travel expenses. Effective as of the Board of
Directors meeting held on May 31, 1995, the Chairman of the Board will receive
an additional $2,000 per annum as compensation for his duties as Chairman. Mr.
Armitage receives an additional $1,000 per board meeting attended due to the two
additional days needed for travel to and from the UK pursuant to an agreement
upon his election to the Board in November 1995. During the fiscal year ended
March 31, 1996, Messrs. Hunnewell, Mazzuto and Armitage earned fees for their
services on the Board of Directors in the amount of $7,500, $8,667 and $4,667
respectively, plus expenses. During the fiscal year ended March 31, 1996 each
of Messrs. Hunnewell, Mazzuto and Armitage received 30,000 stock options
pursuant to the Company's stock option and restricted stock plan. This plan was
voted on and approved by the stockholders at the 1995 Annual Meeting of
Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of shares of Common Stock held by officers, directors, or
affiliates, individually or as a group, and each person or entity known to the
Company to own beneficially more than 5% of the Company's Common Stock at June
7, 1996:
13
<PAGE>
Percent
Shares of Common Stock of Voting
Name and Business Address Beneficially Owned (l) Securities
- ------------------------- ---------------------- ----------
Anthony P. Johns 1,718,302 (2)(3) 31.6%
CTI Data Solutions (USA), Inc.
901 S. Trooper Road
Valley Forge, PA 19482
Rupert D. Armitage 270,000 (4) 5.0%
Ambit Research
100 New Kings Road
London SW64LX
John D. Mazzuto 166,667 (4) 3.1%
Mentmore Holdings
1430 Broadway, 13th Floor
New York, NY 10018
Francis O. Hunnewell 151,667 (4) 2.8%
Hunnewell & Co.
10 Tremont Street, Suite 500
Boston, MA 02108
Mark H. Daugherty 65,350 (3) 1.2%
CTI Data Solutions (USA), Inc.
901 S. Trooper Road
Valley Forge, PA 19482
All executive officers and directors 2,404,211 (5) 44.3%
as a group (6 persons, including
those named above, owning stock)
NOTES:
(1) All shares are beneficially owned and the sole investment and voting power
is held by the person named, except as set forth below. Each share of
common stock has one vote.
(2) Includes 150,000 shares of the Company's common stock owned by Asian
Oceanic Capital Corporation for which Mr. Johns holds voting proxy power.
(3) Excludes options convertible into 50,000 shares of the Company's common
stock.
(4) Excludes options convertible into 30,000 shares of the Company's common
stock.
(5) Excludes options convertible into 220,000 shares of the Company's common
stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not Applicable
14
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) (1) and (2) The financial statements filed as part of this annual
report on Form 10-KSB are included in Part II, Item 7.
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors F - 1
Consolidated Balance Sheets at March 31, 1996 and 1995 F - 2
Consolidated Statements of Operations for each of the F - 4
years ended March 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for each of F - 5
the years ended March 31, 1996 and 1995
Consolidated Statements of Cash Flows for each of the F - 6
years ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements F - 7
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended March 31, 1996.
(c) Exhibits
3.l Incorporated by reference from the Proxy Statement filed with the
Securities and Exchange Commission for Special Meeting of Stockholders held on
February 19, 1988 for the Company's Certificate of Incorporation and the
By-laws.
3.2 Incorporated by reference from the Form 10-Q, for the period ended
December 31, 1990, filed with the Securities and Exchange Commission on February
15, 1991 for the increase in the authorized capital of the Company to 10,000,000
shares, $.01 par value.
4.1 Incorporated by reference from Exhibit #1 to Form 8-K filed with the
Securities and Exchange Commission on July 9, 1990 for the Warrant Agreement
dated March 31, 1990 between American Stock Transfer & Trust Company and the
Company.
4.2 Incorporated by reference from Exhibit #1 to Form 8-K filed with the
Securities and Exchange Commission on July 9, 1990 for the Form of Stock
Purchase Warrant between American Stock Transfer & Trust Company and the
Company.
15
<PAGE>
10.1 Reference is made to Exhibit 4.1 for the Warrant Agreement between
American Stock Transfer & Trust Company and the Company.
10.2 Incorporated by reference from Exhibit #10.16 to the Form 10-K filed
with the Securities and Exchange Commission on July 14, 1991 for the Sublease
Agreement dated July 1, 1990 between Westcon Systems Corporation and the
Company.
10.3 Incorporated by reference from Exhibit #10.17 to the Form 10-K filed
with the Securities and Exchange Commission on July 14, 1991 for the First
Amendment of Sublease Agreement dated April 29, 1991 between Westcon Systems
Corporation and the Company.
10.4 Incorporated by reference from Exhibit #10.5 to the Form 10-KSB filed
with the Securities and Exchange Commission on June 29, 1993 for the lease dated
September 2, 1992 between Daniel S. Berman and Robert J. Berman, co-partners,
and the Company.
10.5 Incorporated by reference from Exhibit #10.5 to the Form 10-KSB filed
with the Securities and Exchange Commission on June 29, 1995 for the Employment
Agreement dated February 1, 1995 between Anthony P. Johns and the Company.
10.6 Incorporated by reference from Exhibit #10.6 to the Form 10-KSB filed
with the Securities and Exchange Commission on June 29, 1995 for the Employment
Agreement dated February 1, 1995 between Mark H. Daugherty and the Company.
10.7 Incorporated by reference from Exhibit #10.7 to the Form 10-KSB filed
with the Securities and Exchange Commission on June 29, 1995 for the Employment
Agreement dated February 1, 1995 between Alvin B. Gentzler and the Company.
10.8 Incorporated by reference from Exhibit #10.9 to the Form 10-KSB filed
with the Securities and Exchange Commission on June 29, 1995 for the Commercial
Security Agreement dated June 1, 1995 between PNC Bank, National Association and
the Company.
10.9 Incorporated by reference from Exhibit #1 to the 1995 Proxy filed
with the Securities and Exchange Commission on October 6, 1995 for the Company's
Stock Option and Restricted Stock Plan.
10.10 Copy of Promissory Note dated September 29, 1995 between PNC Bank, NA
and the Company.
10.11 Copy of Promissory Note dated December 28, 1995 between PNC Bank, NA
and the Company.
10.12 Copy of Commercial Security Agreement dated June 1, 1996 between PNC
Bank, NA and the Company.
10.13 Copy of Promissory Note dated June 1, 1996 between PNC Bank, NA and
the Company.
21.1 List of Subsidiaries of CTI Group (Holdings) Inc. as of March 31,
1996.
16
<PAGE>
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.
CTI GROUP (HOLDINGS) INC.
Anthony P. Johns /s/
---------------------------
Date: June 25, 1996 Anthony P. Johns, President
and Chief Executive Officer
Date: June 25, 1996 Mark H. Daugherty /s/
---------------------------
Mark H. Daugherty,
Chief Financial Officer
17
<PAGE>
SIGNATURES
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:
John D. Mazzuto /s/
----------------------------------
June 25, 1996 John D. Mazzuto,
Chairman of the Board of Directors
Anthony P. Johns /s/
----------------------------------
June 25, 1996 Anthony P. Johns, President &
Chief Executive Officer,
Member of Board of Directors
Francis O. Hunnewell /s/
----------------------------------
June 25, 1996 Francis O. Hunnewell,
Member of Board of Directors
Mark H. Daugherty /s/
----------------------------------
June 25, 1996 Mark H. Daugherty,
Chief Financial Officer,
Member of Board of Directors
Rupert D. Armitage /s/
-----------------------------------
June 25, 1996 Rupert D. Armitage,
Member of Board of Directors
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
[SHADED AREA]
PRINCIPAL $24,000.00
LOAN DATE 09-29-1995
MATURITY 09-29-1999
LOAN NO.
CALL
COLLATERAL
ACCOUNT 03085083782
OFFICER 0074
INITIALS
- -------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
BORROWER: COMMUNICATIONS GROUP INC. (TIN: LENDER: PNC BANK, NATIONAL ASSOCIATION
S1-0308583) 100 SOUTH BROAD STREET
901 S. TROOPER ROAD PHILADELPHIA, PA 19110
VALLEY FORGE, PA 19484
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $24,000.00 INTEREST RATE: 8.750% DATE OF NOTE: SEPTEMBER
29, 1995
PROMISE TO PAY. COMMUNICATIONS GROUP INC. ("Borrower") promises to pay to PNC
BANK, NATIONAL ASSOCIATION ("Lender"), or order, in lawful money of the United
States of America, the principal amount of Twenty Four Thousand & 00/100 Dollars
($24,000.00), together with interest at the rate of 8.750% per annum on the
unpaid principal balance from September 29, 1995, until paid in full.
PAYMENT. Borrower will pay this loan in 48 payments of $595.83 each payment.
Borrower's first payment is due October 29, 1995, and all subsequent payments
are due on the same day of each month after that. Borrower's final payment will
be due on September 29, 1999, and will be for all principal and all accrued
interest not yet paid. Payments include principal and interest. Interest on
this Note is computed on a 365/360 simple interest basis; that is, by applying
the ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
PREPAYMENT PENALTY. Upon prepayment of this Note, Lender is entitled to the
following prepayment penalty: If Borrower prepays all or any portion of the
outstanding principal of the Note prior to the maturity date thereof (whether
a voluntary prepayment or acceleration or otherwise), Borrower shall also pay
to Lender a prepayment penalty equal to the present value of the amount which
is the difference (if a positive number) between (a) the aggregate interest
that would have been payable to the relevant maturity date on such prepaid
amount, and (b) the aggregate interest Lender could expect to earn on such
prepaid amount if such amount were invested for the period from the date of
such prepayment to the relevant maturity date in United States Treasury
obligations maturing on or closest to such maturity date. All prepayments of
this Note shall be accompanied by the payment of accrued interest on the
amount of such prepayment to the date thereof. Except for the foregoing,
Borrower may pay all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the
payment schedule. Rather, they will reduce the principal balance due and may
result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may, after giving such notices as
required by applicable law, declare the entire unpaid principal balance on this
Note and all accrued unpaid interest immediately due, and then Borrower will pay
that amount. Upon default, including failure to pay upon final maturity,
Lender, at its option, may also, if permitted under applicable law, increase the
interest rate on this Note 5.000 percentage points. The interest rate will not
exceed the maximum rate permitted by applicable law. Lender may hire or pay
someone else to help collect this Note if Borrower does not pay. Borrower also
will pay Lender that amount. This includes, subject to any limits under
applicable law, Lender's attorney's fees and Lender's legal expenses whether or
not there is a lawsuit, including attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. If judgment is entered in
connection with this Note, interest will continue to accrue on this Note after
judgment at the existing interest rate provided for in this Note. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE COMMONWEALTH OF
PENNSYLVANIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF PHILADELPHIA COUNTY, THE
COMMONWEALTH OF PENNSYLVANIA. LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY
JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR
BORROWER AGAINST THE OTHER. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however, all IRA, Keogh, and trust
accounts. Borrower authorizes Lender after Event of Default, to the extent
permitted by applicable law, to charge or set off all sums owing on this Note
against any and all such accounts.
FEES AND EXPENSES. All costs and expenses incurred by Lender connected with the
preparation, negotiations, closing, administration, modification and enforcement
of Lender's rights hereunder (including and without limitation to attorney's
fees) shall be reimbursed by Borrower on demand.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made. If any portion of this Note is for any reason determined
to be unenforceable, it will not affect the enforceability of any other
provisions of this Note.
CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS
ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA OR ELSEWHERE, TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT
UNDER THIS NOTE, AND WITH OR WITHOUT COMPLAINT FILED, AS OF ANY TERM, CONFESS
OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS
NOTE AND ALL ACCRUED INTEREST, TOGETHER WITH COSTS OF SUIT, AND AN ATTORNEY'S
COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE AND ACCRUED
INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED DOLLARS
($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY
<PAGE>
09-29-1995 PROMISSORY NOTE PAGE 2
LOAN NO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ISSUE IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED
BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO
CONFESS JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF THAT
AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL PAYMENT
IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE. BORROWER HEREBY WAIVES ANY RIGHT
BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY SUCH
CONFESSION OF JUDGMENT AND STATES THAT BORROWER HAS BEEN REPRESENTED BY LEGAL
COUNSEL.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
COMMUNICATIONS GROUP INC.
BY: /s/ Anthony P. Johns [SEAL] BY: /s/ Mark H. Daugherty [SEAL]
---------------------------- -------------------------------
ANTHONY P. JOHNS, CEO/PRESIDENT MARK H. DAUGHERTY, CHIEF FINANCIAL OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ADDITIONAL PROVISION. If any default is curable and if Borrower has not
been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default
will have occurred) if Borrower, after receiving written notice from Lender
demanding cure of such default: (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
<PAGE>
EXHIBIT 10.11
Principal $200,000.00
Loan Date 06-01-1996
Maturity 07-31-1996
Loan No
Call
Collateral
Account
Officer
Initials
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: CTI DATA SOLUTIONS (USA), INC. (TIN: Lender: PNC BANK, NATIONAL
23-2828799) ASSOCIATION
901 S. TROOPER ROAD 100 SOUTH BROAD STREET
VALLEY FORGE, PA 19484 PHILADELPHIA, PA 19110
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $200,000.00 INITIAL RATE: 8.750% DATE OF NOTE: JUNE 1, 1996
PROMISE TO PAY. CTI DATA SOLUTIONS (USA), INC. ("BORROWER") PROMISES TO PAY TO
PNC BANK, NATIONAL ASSOCIATION ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF TWO HUNDRED THOUSAND & 00/100
DOLLARS ($200,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN IN ACCORDANCE WITH THE FOLLOWING PAYMENT
SCHEDULE:
BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED INTEREST BEGINNING
JUNE 30, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY
OF EACH MONTH AFTER THAT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF
ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON THE
EXPIRATION DATE. BORROWER MAY BORROW, REPAY AND REBORROW HEREUNDER UNTIL
THE EXPIRATION DATE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS NOTE. THE
"EXPIRATION DATE" SHALL MEAN JULY 31, 1996, OR SUCH LATER DATE AS MAY BE
DESIGNATED BY WRITTEN NOTICE FROM LENDER TO BORROWER. BORROWER
ACKNOWLEDGES AND AGREES THAT IN NO EVENT WILL LENDER BE UNDER ANY
OBLIGATION TO EXTEND OR RENEW THE LOAN OR THIS NOTE BEYOND THE INITIAL
EXPIRATION DATE. IN NO EVENT SHALL THE AGGREGATE UNPAID PRINCIPAL AMOUNT
OF ADVANCES UNDER THIS NOTE EXCEED THE FACE AMOUNT OF THIS NOTE.
Interest on this Note is computed on a 365/360 simple interest basis; that is,
by applying the ratio of the annual interest rate over a year or 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will
be applied first to accrued unpaid interest, then to principal, and any
remaining amount to any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an index which is the Lender's prime rate
(the "Index"). The index is a rate per annum as publicly announced by Lender
from time to time as its prime rate. The prime rate is not tied to any external
rate or index and it does not necessarily reflect the lowest rate of interest
actually charged by Lender to any particular class or category of customers.
Lender will tell Borrower the current index rate upon Borrower's request.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each day. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.500 PERCENTAGE POINTS OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 8.750% PER ANNUM. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the amount
owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to
make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition.
LENDER'S RIGHTS. Upon default, Lender may, after giving such notices as
required by applicable law, declare the entire unpaid principal balance on this
Note and all accrued unpaid interest immediately due, and then Borrower will pay
that amount. Upon default, including failure to pay upon final maturity,
Lender, at its option, may also, if permitted under applicable law, increase the
variable interest rate on this Note to 5.500 percentage points over the Index.
The interest rate will not exceed the maximum rate permitted by applicable law.
Lender may hire or pay someone else to help collect this Note if Borrower does
not pay. Borrower also will pay Lender that amount. This includes, subject to
any limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law. If judgment
is entered in connection with this Note, interest will continue to accrue on
this Note after judgment at the interest rate applicable to this Note at the
time judgment is entered. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE COMMONWEALTH OF PENNSYLVANIA. IF THERE IS A LAWSUIT, BORROWER
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF
PHILADELPHIA COUNTY, THE COMMONWEALTH OF PENNSYLVANIA. LENDER AND BORROWER
HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF PENNSYLVANIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender after Event
of Default to the extent permitted by applicable law, to charge or setoff all
sums owing on this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested orally by Borrower or by an authorized
person. Lender may, but need not, require that all oral requests be confirmed
in writing. All communications, instructions, or directions by telephone or
otherwise to Lender are to be directed to Lender's office shown above. The
following party or parties are authorized to request advances under the line
of credit until Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: ANTHONY P. JOHNS, CHIEF
EXECUTIVE OFFICER/PRESIDENT; AND MARK H. DAUGHERTY, CHIEF FINANCIAL OFFICER.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (a) credited to any of
Borrower's accounts with Lender. The unpaid principal
<PAGE>
06-01-1996 PROMISSORY NOTE Page 2
LOAN NO (CONTINUED)
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- --------------------------------------------------------------------------------
balance owing on this Note at any time may be evidenced by endorsements on
this Note or by Lender's internal records, including daily computer
print-outs. Lender will have no obligation to advance funds under this Note
if: (a) Borrower or any guarantor is in default under the terms of this Note
or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower
or any guarantor ceases doing business or is insolvent; (c) any guarantor
seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor's guarantee of this Note or any other loan with Lender; or (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.
FINANCIAL INFORMATION. Guarantor shall deliver or cause to be delivered to
Lender not later than ninety (90) days after the close of each fiscal year,
Guarantors annual financial statement prepared on a compilation basis. In
addition, Lender may require additional financial information from time to time
as reasonably requested.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person
who signs, guarantees or endorses this Note, to the extent allowed by law,
waive presentment, demand for payment, protest and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly stated
in writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made. If any portion of this Note is for
any reason determined to be unenforceable, it will not affect the
enforceability of any other provisions of this Note.
CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS
ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR AT ANY TIME FOR BORROWER AFTER A
DEFAULT UNDER THIS NOTE, AND WITH OR WITHOUT COMPLAINT FILED, AS OF ANY TERM,
CONFESS OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE
OF THIS NOTE, ALL ACCRUED INTEREST, LATE CHARGES, AND ANY AND ALL AMOUNTS
EXPENDED OR ADVANCED BY LENDER RELATING TO ANY COLLATERAL SECURING THIS NOTE
TOGETHER WITH INTEREST ON SUCH AMOUNTS, TOGETHER WITH COSTS OF SUIT, AND AN
ATTORNEY'S COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE
AND ACCRUED INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE
HUNDRED DOLLARS ($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS
MAY ISSUE IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE
VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN
THIS NOTE TO CONFESS JUDGMENT AGAINST BORROWER SHALL NOT. BE EXHAUSTED BY
ANY EXERCISE OF THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT
ALL TIMES UNTIL PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE, BORROWER
HEREBY WAIVES ANY RIGHT BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN
CONNECTION WITH ANY SUCH CONFESSION OF JUDGMENT AND STATES THAT EITHER A
REPRESENTATIVE OF LENDER SPECIFICALLY CALLED THIS CONFESSION OF JUDGMENT
PROVISION TO BORROWER'S ATTENTION OR BORROWER HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
CTI DATA SOLUTIONS (USA), INC.
By: /s/ Anthony P. Johns (SEAL)
----------------------------------
ANTHONY P. JOHNS, CHIEF EXECUTIVE OFFICER/PRESIDENT
By: /s/ Mark H. Daugherty (SEAL)
----------------------------------
MARK H. DAUGHERTY, CHIEF FINANCIAL OFFICER
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- --------------------------------------------------------------------------------
ADDITIONAL PROVISION. If any default is curable and if Borrower has not been
given a notice of a breach of the same provision of this Note within the
preceding twelve (12) months, it may be cured (and no event of default will have
occurred) if Borrower, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days; or (b) if the
cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
<PAGE>
COMMERCIAL SECURITY AGREEMENT
EXHIBIT # 10.12
[SHADED AREA]
PRINCIPAL $200,000.00
LOAN DATE 06-01-1996
MATURITY 07-31-1996
LOAN NO
CALL
COLLATERAL
ACCOUNT
OFFICER
INITIALS
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
BORROWER: CTI DATA SOLUTIONS (USA), INC. LENDER: PNC BANK, NATIONAL
(TIN: 23-2828799) ASSOCIATION
901 S. TROOPER ROAD 100 SOUTH BROAD STREET
VALLEY FORGE, PA 19484 PHILADELPHIA, PA 19110
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- --------------------------------------------------------------------------------
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN CTI DATA SOLUTIONS
(USA), INC. (REFERRED TO BELOW AS "GRANTOR"); AND PNC BANK, NATIONAL ASSOCIATION
(REFERRED TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO
LENDER A SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND
AGREES THAT LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT
TO THE COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or modified
from time to time, together with all exhibits and schedules attached to
this Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT, GENERAL INTANGIBLES
AND FIXTURES
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:
(a) All attachments, accessions, accessories, tools, parts, supplies,
increases, and additions to and all replacements of and substitutions
for any property described above.
(b) All products and produce of any of the property described in this
Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral
section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described in
this Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of
Grantor's right, title, and interest in and to all computer software
required to utilize, create, maintain, and process any such records or
data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
GRANTOR. The word "Grantor" means CTI DATA SOLUTIONS (USA), INC., its
successors and assigns
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the
word "Indebtedness" includes all other obligations, debts and liabilities,
plus interest thereon, of Grantor, or any one or more of them, to Lender,
as well as all claims by Lender against Grantor, or any one or more of
them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Grantor may be liable individually or
jointly with others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.
LENDER. The word "Lender" means PNC BANK, NATIONAL ASSOCIATION, its
successors and assigns.
NOTE. The word "Note" means the note or credit agreement dated June 1,
1996, in the principal amount of $200,000.00 from CTI DATA SOLUTIONS (USA),
INC. to Lender, together with all renewals of, extensions of, modifications
of, refinancing of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender after an Event of Default a
contractual possessory security interest in and hereby assigns, conveys,
delivers, pledges, and transfers all of Grantor's right, title and interest in
and to Grantor's accounts with Lender (whether checking, savings, or some other
account), including all accounts held jointly with someone else and all accounts
Grantor may open in the future, excluding, however, all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Grantor authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all indebtedness against any and all such
accounts, and, at Lender's option, to administratively freeze all such accounts
to allow Lender to protect Lender's charge and setoff rights provided in this
paragraph.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
ORGANIZATION. Grantor is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware,
Grantor has its chief executive office at 901 S. TROOPER ROAD, VALLEY
FORGE, PA 19484. Grantor will notify Lender of any change in the location
of Grantor's chief executive office.
AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Grantor have been duly authorized by all necessary action by Grantor and
do not conflict with, result in a violation of, or constitute a default
under (a) any provision of its articles of incorporation or organization,
or bylaws, or any agreement or other instrument binding upon Grantor or (b)
any law, governmental regulation, court decree, or
<PAGE>
06-01-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO (CONTINUED)
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- --------------------------------------------------------------------------------
order applicable to Grantor.
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.
LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased by
Grantor; (b) all real property being rented or leased by Grantor; (c) all
storage facilities owned, rented, leased, or being used by Grantor, and (d)
all other properties where Collateral is or may be located. Except in the
ordinary course of its business, Grantor shall not remove the Collateral
from its existing locations without the prior written consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the Commonwealth of Pennsylvania, without the prior written consent
of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who quality as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer in
partial or total satisfaction of a debt or any bulk sale. Grantor shall
not pledge, mortgage, encumber or otherwise permit the Collateral to be
subject any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without
the prior written consent of Lender. This includes security interests even
if junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held in trust for Lender and
shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory and
equipment, Grantor shall deliver to Lender, as often as Lender shall
require, such lists, descriptions, and designations of such Collateral as
Lender may require to identify the nature, extent, and location of such
Collateral. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorney's fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.
COMPLIANCE WITH GOVERNMENT REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
<PAGE>
06-01-1996
COMMERCIAL SECURITY AGREEMENT
PAGE 3
LOAN NO (CONTINUED) EXHIBIT # 10.12B
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- -------------------------------------------------------------------------------
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least thirty (30) days' prior written
notice to Lender and not including any disclaimer of the Insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which
have not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the Insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain Grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest in
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. Upon a default, Lender may exercise its
rights to collect the accounts and to notify account debtors to make payments
directly to Lender for application to the Indebtedness. If Lender at any time
has possession of any Collateral, whether before or after an Event of Default,
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral if Lender takes such action for that purpose as
Grantor shall request or as Lender, in Lender's sole discretion, shall deem
appropriate under the circumstances, but failure to honor any request by Grantor
shall not of itself be deemed to be a failure to exercise reasonable care.
Lender shall not be required to take any steps necessary to preserve any rights
in the Collateral against prior parties, not to protect, preserve or maintain
any security interest given to secure the indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at anytime
levied or placed on the Collateral. Lender also may (but shall not be obligated
to) pay all costs for insuring, maintaining and preserving the Collateral. All
such expenditures incurred or paid by Lender for such purposes will then bear
interest at the rate charged under the Note from the date incurred or paid by
Lender to the date of repayment by Grantor. All such expenses shall become a
part of the indebtedness and, at Lender's option, will (a) be payable on demand,
(b) be added to the balance of the Note and be apportioned among and be payable
with any installment payments to become due during either (i) the term of any
applicable insurance policy or (ii) the remaining term of the Note, or (c) be
treated as a balloon payment which will be due and payable at the Note's
maturity. This Agreement also will secure payment of these amounts. Such right
shall be in addition to all other rights and remedies to which Lender may be
entitled upon the occurrence of an Event of Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement subject to notice in Promissory Note:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other Agreement between Lender and
Grantor.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by Judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
<PAGE>
06-01-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
securing the indebtedness. This includes a garnishment of any of Grantor's
deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Pennsylvania Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire indebtedness,
including any repayment penalty which Grantor would be require to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time of repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in its
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice is
given at least ten (10) days before the time of the sale or disposition.
All expenses relating to the disposition of the Collateral, including
without limitation the expenses of relaxing, holding, insuring, preparing
for sale and selling the Collateral, shall become a part of the
Indebtedness secured by this Agreement and shall be payable on demand, with
interest at the Note rate from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order or preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether or
not indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or storage
of any Collateral. To facilitate collection, Lender may notify account
debtors and obligors on any Collateral to make payments directly to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the Commonwealth of Pennsylvania. If there is a lawsuit,
Grantor agrees upon Lenders request to submit to the jurisdiction of the
courts of PHILADELPHIA County, Commonwealth of Pennsylvania. Lender and
Grantor hereby waive the right to any jury trial in any action, proceeding,
or counterclaim brought by either Lender of Grantor against the other.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorney's fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for all obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimilie, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
To the extent permitted by applicable law, if there is more than one
Grantor, notice to any Grantor will constitute notice to all Grantors.
<PAGE>
06-01-1996
COMMERCIAL SECURITY AGREEMENT Page 5
LOAN NO (CONTINUED) EXHIBIT # 10.12B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. The terms of this Agreement shall be binding upon
Grantor, and upon Grantor's heirs, personal representatives, successors,
and assigns, and shall be enforceable by Lender and its successors and
assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a waiver
of Lender's right otherwise to demand strict compliance with that provision
or any other provision of this Agreement. No prior waiver by Lender, nor
any course of dealing between Lender and Grantor, shall constitute a waiver
of any of Lender's rights or of any of Grantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 1,
1996.
GRANTOR;
CTI DATA SOLUTIONS (USA), INC.
By: /s/ Anthony P. Johns (SEAL)
---------------------------------------------------
ANTHONY P. JOHNS, CHIEF EXECUTIVE OFFICER/PRESIDENT
By: /s/ Mark H. Daugherty (SEAL)
---------------------------------------------------
MARK H. DAUGHERTY, CHIEF FINANCIAL OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
12-28-1995
LOAN NO
EXHIBIT # 10.13
PROMISSORY NOTE
- -------------------------------------------------------------------------------
BORROWER: COMMUNICATIONS GROUP, INC (TIN: LENDER: PNC BANK, NATIONAL ASSOCIATION
51-0308583) 100 SOUTH BROAD STREET
901 S. TROOPER ROAD PHILADELPHIA, PA 19110
VALLEY FORGE, PA 19484
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $26,000.00 INTEREST RATE: 8.250% DATE OF NOTE: DECEMBER
28, 1995
PROMISE TO PAY. COMMUNICATIONS GROUP, INC ("Borrower") promises to pay to PNC
BANK, NATIONAL ASSOCIATION ("Lender"), on order, in lawful money of the United
States of America, the principal amount of Twenty Six Thousand & 00/100 Dollars
($26,000.00), together with interest at the rate of 8.250% per annum on the
unpaid principal balance from December 28, 1995, until paid in full.
PAYMENT. Borrower will pay this loan in 47 regular payments of $639.80 each
and one irregular last payment estimated at $639.96. Borrower's first payment
is due February 1, 1996, and all subsequent payments are due on the same day
of each month after that. Borrower's final payment due January 1, 2000, will
be for all principal and all accrued interest not yet paid. Payments include
principal and interest. Interest on this Note is computed on a 365/360
simple interest basis; that is, by applying the ratio of the annual interest
rate over a year of 360 days, multiplied by the outstanding principal
balance, multiplied by the actual number of days the principal balance is
outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed
or required by applicable law, payments will be applied first to accrued
unpaid interest, then to principal, and any remaining amount to any unpaid
collection costs and late charges.
PREPAYMENT PENALTY. Upon prepayment of this Note, Lender is entitled to the
following prepayment penalty: If Borrower prepays all or any portion of the
outstanding principal of the Note prior to the maturity date thereof (whether
a voluntary prepayment or acceleration or otherwise), Borrower shall also pay
to Lender a prepayment penalty equal to the present value of the amount which
is the difference (of a positive number) between (a) the aggregate interest
that would have been payable to the relevant maturity date on such prepaid
amount, and (b) the aggregate interest Lender could expect to earn on such
prepaid amount if such amount were invested for the period from the date of
such prepayment to the relevant maturity date in United States Treasury
obligations maturing on or closest to such maturity date. All prepayments of
this Note shall be accompanied by the payment of accrued interest on the
amount of such prepayment to the date thereof. Except for the foregoing,
Borrower may pay all or a portion of the amount owed earlier than it is due.
Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments under the
payment schedule. Rather, they will reduce the principal balance due and may
result in Borrower making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to
Lender by Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (d) Borrower
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (f) Any of the events described in
this default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is impaired.
LENDER'S RIGHTS. Upon default, Lender may, after giving such notices as
required by applicable law, declare the entire unpaid principal balance on
this Note and all accrued unpaid interest immediately due, and then Borrower
will pay that amount. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this Note 5.000 percentage points. The interest
rate will not exceed the maximum rate permitted by applicable law. Lender may
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law,
Borrower also will pay any court costs, in addition to all other sums provided
by law. If judgment is entered in connection with this Note, interest will
continue to accrue on this Note after judgment at the existing interest rate
provided for in this Note. THIS NOTE HAS BEEN DELIVERED TO LENDER AND
ACCEPTED BY LENDER IN THE COMMONWEALTH OF PENNSYLVANIA. IF THERE IS A
LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION
OF THE COURTS OF PHILADELPHIA COUNTY, THE COMMONWEALTH OF PENNSYLVANIA.
LENDER AND BORROWER HEREBY WAIVE THE RIGHT TO ANY JURY TRIAL IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE
OTHER. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however, all IRA,
Keogh, and trust accounts. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.
FINANCIAL INFORMATION. Lender may require additional financial information from
time to time as reasonably requested.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length of
time) this loan, or release any party or guarantor or collateral; or impair,
fail to realize upon or perfect Lender's security interest in the collateral;
and take any other action deemed necessary by Lender without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made. If any portion of this Note is for any reason determined
to be unenforceable, it will not affect the enforceability of any other
provisions of this Note.
CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS
ANY ATTORNEY OR THE PROTHONOTARY OR CLERK OF ANY COURT IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, TO APPEAR AT ANY TIME FOR BORROWER AFTER A DEFAULT
UNDER THIS NOTE, AND WITH OR WITHOUT COMPLAINT FILED, AS OF ANY TERM, CONFESS
OR ENTER JUDGMENT AGAINST BORROWER FOR THE ENTIRE PRINCIPAL BALANCE OF THIS
NOTE AND ALL ACCRUED INTEREST, TOGETHER WITH COSTS OF SUIT, AND AN ATTORNEY'S
COMMISSION OF TEN PERCENT (10%) OF THE UNPAID PRINCIPAL BALANCE AND ACCRUED
INTEREST FOR COLLECTION, BUT IN ANY EVENT NOT LESS THAN FIVE HUNDRED DOLLARS
($500) ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE
IMMEDIATELY; AND FOR SO DOING, THIS NOTE OR A COPY OF THIS NOTE VERIFIED BY
AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE AUTHORITY GRANTED IN THIS NOTE TO
CONFESS JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE OF
<PAGE>
12-28-1995 PROMISSORY NOTE EXHIBIT # 10.13 PAGE 2
LOAN NO (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THAT AUTHORITY, BUT SHALL CONTINUE FROM TIME TO TIME AND AT ALL TIMES UNTIL
PAYMENT IN FULL OF ALL AMOUNTS DUE UNDER THIS NOTE. BORROWER HEREBY WAIVES
ANY RIGHT BORROWER MAY HAVE TO NOTICE OR TO A HEARING IN CONNECTION WITH ANY
SUCH CONFESSION OF JUDGMENT AND STATES THAT BORROWER HAS BEEN REPRESENTED BY
LEGAL COUNSEL.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
COMMUNICATIONS GROUP, INC
BY: /s/ Mark H. Daugherty [SEAL]
- ----------------------------------------------
MARK H. DAUGHERTY, CHIEF FINANCIAL OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 21.1
CTI GROUP (HOLDINGS) INC.
List of Subsidiaries
as of March 31, 1996
Name State of Incorporation
---- ----------------------
CTI Delaware Holdings Inc. Delaware
CTI Data Solutions (USA) Inc. Delaware
Telephone Budgeting Systems, Inc. New York
Plymouth Communications Inc. Delaware
Name Country
---- -------
CTI Data Solutions (International) Ltd. United Kingdom
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 288,870
<SECURITIES> 0
<RECEIVABLES> 862,410
<ALLOWANCES> 60,000
<INVENTORY> 19,450
<CURRENT-ASSETS> 1,137,320
<PP&E> 617,710
<DEPRECIATION> 371,410
<TOTAL-ASSETS> 2,107,260
<CURRENT-LIABILITIES> 959,350
<BONDS> 0
0
0
<COMMON> 55,220
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,107,260
<SALES> 4,134,830
<TOTAL-REVENUES> 4,134,830
<CGS> 1,824,040
<TOTAL-COSTS> 3,907,320
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,300
<INCOME-PRETAX> 227,510
<INCOME-TAX> 3,660
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,850
<EPS-PRIMARY> .04
<EPS-DILUTED> 0
</TABLE>
