UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996.
Commission File No. 0-15205
ELCOTEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2518405
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6428 Parkland Drive, Sarasota, Florida 34243
--------------------------------------------
(Address of principal executive offices)
(Zip Code)
(941) 758-0389
------------------------
(Registrant's telephone number, including area code)
Not Applicable
------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the issuer's Common Stock outstanding as of
November 1, 1996 was 8,108,144.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
---------------------
ELCOTEL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<CAPTION>
September 30, March 31,
1996 1996
----------- -----------
(Unaudited) (See Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and temporary investments $9 $232
Accounts receivable, net 3,040 2,943
Notes receivable, net 2,615 2,238
Inventories 2,731 2,800
Refundable income taxes 226 507
Deferred tax asset 1,332 1,332
Prepaid exp. and other current assets 393 175
------- -------
TOTAL CURRENT ASSETS 10,346 10,227
Property, plant and equipment, net 3,128 3,103
Notes receivable, noncurrent 879 646
Deferred tax asset 782 782
Other assets 181 171
------- -------
$15,316 $14,929
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $2,102 $2,164
Line of credit 1,180 965
Current portion of long-term debt 477 810
------- -------
TOTAL CURRENT LIABILITIES 3,759 3,939
------- -------
LONG TERM DEBT, less current portion 332 432
------- -------
SHAREHOLDERS' EQUITY:
Common Stock 82 81
Additional paid-in capital 10,863 10,720
Retained earnings/(deficit) 457 (66)
Less treasury stock (177) (177)
------- -------
11,225 10,558
------- -------
$15,316 $14,929
======= =======
<FN>
Note: The balance sheet at March 31, 1996, has been derived
from the audited financial statements.
1
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------ -------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $6,101 $5,484 $11,652 $11,304
------ ------ ------- -------
COSTS AND EXPENSES:
Cost of sales 3,781 3,260 7,035 6,582
Research and development 695 543 1,240 1,064
Selling, general and
administrative 1,168 1,597 2,648 3,144
------ ------ ------- -------
TOTAL COSTS AND EXPENSES 5,644 5,400 10,923 10,790
------ ------ ------- -------
PROFIT FROM OPERATIONS 457 84 729 514
INTEREST INCOME, net 46 43 76 188
------ ------ ------- -------
PROFIT BEFORE INCOME TAXES 503 127 805 702
INCOME TAX PROVISION 177 44 282 246
------ ------ ------- -------
NET PROFIT $326 $83 $523 $456
====== ====== ======= =======
NET PROFIT PER COMMON AND COMMON
EQUIVALENT SHARE $0.04 $0.01 $0.06 $0.06
====== ====== ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 8,310 8,226 8,294 8,219
====== ====== ======= =======
<FN>
2
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
<CAPTION>
Six Months Ended
September 30,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit $523 $456
Adjustments to reconcile net profit
to net cash provided from operations:
Depreciation and amortization 185 167
Provision for doubtful accounts (333) 75
Change in operating assets and liabilities:
Accounts receivable 282 (1,807)
Notes receivable (657) 597
Inventories 69 (746)
Prepaid expenses and other
current assets (218) 116
Accounts payable and accrued expenses 220 58
Other, net (10) (15)
------ ------
Net cash flow (used in)/provided from
operations 61 (1,099)
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (210) (142)
------ ------
Net cash flow used in investing
activities (210) (142)
------ ------
<FN>
3
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
(Unaudited)
(continued)
<CAPTION>
Six Months Ended
September 30,
1996 1995
------ ------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments)/proceeds related to
short-term borrowings 215 (20)
Payments on long-term debt (433) 826
Issuance of common stock 144 185
------ ------
Net cash flow used in
financing activities (74) 991
------ ------
Net decrease in cash and
temporary investments (223) (250)
Cash and temporary investments at
beginning of year 232 366
------ ------
Cash and temporary investments at
end of quarter $9 $116
====== ======
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid During the period for:
Interest $37 $59
Income taxes - 212
<FN>
4
See Notes to Condensed Consolidated Financial Statements
</TABLE>
<PAGE)
ELCOTEL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except for share amounts)
(Unaudited)
NOTE A. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
The condensed consolidated balance sheet as of September 30, 1996,
and the consolidated statements of operations for the three and six
month periods ended September 30, 1996 and 1995, and the consolidated
statements of cash flows for the six month periods ended September
30, 1996 and 1995, have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at September
30, 1996, and for all periods presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Form 10-KSB for the fiscal
year ended March 31, 1996. The results of operations for the six
month period ended September 30, 1996, are not necessarily indicative
of the results for the full fiscal year.
NOTE B. INVENTORIES:
Inventories by stage of completion are as follows:
September 30, March 31,
1996 1996
-------------- -------------
Finished products $ 493 $ 470
Work-in-process 374 240
Purchased components 1,864 2,089
------ ------
$2,731 $2,800
====== ======
NOTE C. SHAREHOLDERS' EQUITY:
During the six-month period ended September 30, 1996, shareholders'
equity increased as a result of a net profit of $523, and employee
and director exercises of stock options at prices between $.75 per
share and $3.50 per share for a total of $144.
5
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
-----------------------------------------------
Results of Operations
- ---------------------
(Dollars in thousands)
Quarter ended September 30, 1996, compared to the quarter ended
September 30, 1995:
Net sales for the quarter ended September 30, 1996 ("second quarter
1997"), increased from $5,484 for the quarter ended September 30,
1995 ("second quarter 1996") to $6,101, an increase of $617, or
approximately 11%, principally as a result of an increase in sales of
complete payphones of approximately 22% offset by a decrease in sales
of electronic assemblies of approximately 18%. Unit sales of
complete payphones increased by approximately 31% and unit sales of
electronic assemblies decreased by approximately 5%. Average selling
prices of payphones in the quarter were approximately 7% lower than
in the same quarter last year due to discounts given to customers for
competitive reasons, while average selling prices of electronic
assemblies were approximately 14% lower than last year due to trade
in credits given to customers who upgraded older electronic
assemblies, that they previously purchased from either the Company or
other manufacturers, for the Company's current models.
Cost of sales as a percentage of net sales increased from 59% for the
second quarter 1996 to 62% for the second quarter 1997, principally
as a result of higher sales of complete payphones than electronic
assemblies as compared with last year. The Company realizes higher
prices but lower margins on sales of complete payphones than on
electronic assembly products because the cabinets included with the
Company's complete payphones are a significant portion of the total
cost of the telephone but are priced only nominally above cost.
Research and development costs increased by $152, or approximately
28%, from $543 in the second quarter 1996 to $695 in the second
quarter 1997 due to the hiring of additional development staff
partially offset by a reduction in the use of outside contractors.
Selling, general and administrative expenses decreased by $429, or
approximately 27%, from $1,597 in the second quarter 1996 to $1,168
in the second quarter 1997 principally as a result of a reduction in
the Company's provision for doubtful accounts due to cash collection
or product return of previously reserved amounts as well as improved
aging of current accounts, partially offset by an increase in legal
fees and international travel expense, as compared with the second
quarter 1996. Interest income decreased by $21, or approximately
20%, from $105 in the second quarter 1996 to $84 in the second
quarter 1997 due to a decrease in the Company's note receivable
portfolio. Interest expense decreased by $24, or approximately 39%,
from $62 in the second quarter 1996 to $38 in the second quarter 1997
due to decreased borrowings under the Company's line of credit
facility with its bank.
6
<PAGE>
Six months ended September 30, 1996, compared to the six months ended
September 30, 1995:
Net sales for the six months ended September 30, 1996 ("six-months 1997"),
increased from $11,304 for the six months ended September 30, 1995
("six-months 1996") to $11,652, an increase of $348, or
approximately 3%, principally as a result of an increase in sales of
complete payphones of approximately 8% offset by a decrease in sales
of electronic assemblies of approximately 2%. Unit sales of complete
payphones increased by approximately 17% while unit sales of
electronic assemblies were at the same level as during the six-months
1996. Average selling prices of payphones during the six-months 1997
were approximately 8% lower than during the six-months 1996 due to
discounts given to customers for competitive reasons, while average
selling prices of electronic assemblies were approximately 3% lower
than last year due to trade in credits given to customers who
upgraded older electronic assemblies, that they previously purchased
from either the Company or other manufacturers, for the Company's
current models.
Cost of sales as a percentage of net sales increased from 58% for the
six-months 1996 to 60% for the six-months 1997, principally as a
result of higher sales of complete payphones than electronic
assemblies as compared with last year. The Company realizes higher
prices but lower margins on sales of complete payphones than on
electronic assembly products because the cabinets included with the
Company's complete payphones are a significant portion of the total
cost of the telephone but are priced only nominally above cost.
Research and development costs increased by $176, or approximately
17%, from $1,064 in the six-months 1996 to $1,240 in the six-months
1997 due to the hiring of additional development staff partially
offset by a reduction in the use of outside contractors. Selling,
general and administrative expenses decreased by $496, or
approximately 16%, from $3,144 in the six-months 1996 to $2,648 in
the six-months 1997 principally as a result of a reduction in the
Company's provision for doubtful accounts due to cash collection or
product return of previously reserved amounts as well as improved
aging of current accounts during the six-months 1997 and reduced
sales commission expense, partially offset by an increase in legal
fees as compared with the six-months 1996. Interest income decreased
by $134, or approximately 46%, from $290 in the six-months 1996 to
$156 in six-months 1997 due to a decrease in the Company's note
receivable portfolio. Interest expense decreased by $22, or
approximately 22%, from $102 in the six-months 1996 to $80 in the
six-months 1997 due to decreased borrowings under the Company's line
of credit facility with its bank.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
(Dollars in thousands)
The Company's current assets increased by $119, or approximately 1%,
from $10,227 at March 31, 1996 to $10,346 at September 30, 1996,
predominantly from an increase in accounts receivable of $97, an
increase of $377 in notes receivable and an increase of $218 in
prepaid expenses, partially offset by a reduction in cash of $223, a
decrease in inventory of $69 and a decrease in refundable income
taxes of $281. Current liabilities decreased by $180, or
approximately 5%, from $3,939 at March 31, 1996 to $3,759 at
September 30, 1996 predominantly from a reduction in the current
portion of long term debt and a decrease in accounts payable and
accrued expenses partially offset by an increase in the amount owed
under the Company's line of credit with its lender.
Since August 31, 1995 the Company has had a $2,000 working capital
line of credit secured by the Company's accounts receivable, notes
receivable and inventories. Interest on amounts borrowed on the line
of credit is at the bank's floating 30 day libor rate plus 2.75%.
The Company borrows against and repays the line of credit throughout
the year depending upon its working capital needs and cash generated
from operations, with the outstanding amount under the line of credit
during fiscal 1997 ranging from $410 to $1,185. The line of credit
was renewed effective August 28, 1996 and the Company believes its
lender will renew the line of credit when it matures on August 31,
1997.
In addition, on August 31, 1995, the Company borrowed $1,000 from the
same lender for an eighteen month term with interest at the bank's
floating 30 day libor rate plus 2.75%. The Company also refinanced
its mortgage note with its lender on the same date without changing
the maturity date of May 23, 1999, but lowering its interest rate to
a fixed rate of 8.50% from the floating rate of 9.25% as of the
closing date, for the remainder of the original five year term.
The Company believes that its anticipated cash flow from operations
will be sufficient to fund its working capital needs, its capital
expenditures and its short and long term note obligations through
September 30, 1997.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this Quarterly Report on Form 10-Q which
are not historical facts contain forward looking information with
respect to plans, projections or future performance of the Company,
the occurrence of which involve certain risks and uncertainties that
could cause the Company's actual results to differ materially from
those expected by the Company, including the risk of adverse
regulatory action affecting the Company's business or the business of
the Company's customers, competition, the risk of obsolescence of its
products, the ultimate outcome of the class action lawsuit, and
uncertainties detailed in the Company's filings with the Securities
and Exchange Commission.
8
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
------------------
As previously reported, on August 3, 1995, one of the
Company's customers, Amtel Communications, Inc. and four related
entities ("Amtel"), filed voluntary petitions for relief under
Chapter 11 of the Bankruptcy Code, which were administratively
consolidated under the case name of In re ACI-HDT Supply Company,
United States Bankruptcy Court for the Southern District of
California, Administratively Consolidated Case No. 95-08253-A11.
In late 1994 and early 1995, the Company had sold Amtel on
credit approximately 3,500 pay phones and related equipment. To
secure Amtel's obligations to pay the Company for the pay phones and
related equipment pursuant to five promissory notes, Amtel granted
the Company a security interest in pay phones sold to Amtel and
collateral assignments of agreements between Amtel and the owners of
certain sites where those pay phones had been or were to be
installed. The Company filed a proof of claim in the bankruptcy
proceeding as a secured creditor in the amount of approximately
$3,520,900 plus additional interest and attorneys' fees and a proof
of claim as an unsecured creditor in the amount of approximately
$54,650.
On August 29, 1996, the Bankruptcy Court approved the sale
of Amtel's pay phone assets and business to PhoneTel Technologies,
Inc. in accordance with the terms described in Item 1, Legal
Proceedings of Part II of the Company's Form 10-Q for the quarter
ended June 30, 1996.
Pursuant to an order entered October 10, 1996, the
Bankruptcy Court approved the settlement agreement between the
Company and Amtel regarding the treatment of the Company's claims
against Amtel. Pursuant to that settlement agreement, the Company
was allowed a fully secured claim in all of its collateral and
received in satisfaction of its claim payment of $1.7 million and
the transfer to the Company of certain pay phones (approximately
1,350) and related equipment in the Company's possession and being
warehoused by the Company pursuant to a prior Bankruptcy Court order.
The Company and Amtel also exchanged mutual releases of all other
claims subject to certain exceptions. On October 30, 1996, the
Company received a check for $1.7 million from Amtel and Amtel
released its interest in the warehoused pay phones and equipment.
In re ACI-HDT Supply Company, debtor and related cases.
Nogah Bethlahmy, et al plaintiffs v. Randy S. Kuhlmann, et al.
defendants. Adversary Proceeding No. 95-90809 in the United States
Bankruptcy Court, Southern District of California.
As previously reported, this putative class action was
filed in the Superior Court of the State of California for the County
of San Diego ("State Court") alleging that Amtel conspired with its
own officers and professionals, and with various telephone suppliers
(including the Company) to defraud investors in Amtel by operating a
Ponzi scheme. See Item 3, Legal Proceedings of Part I of the
Company's Form 10-KSB for the fiscal year ended March 31, 1996 for a
more complete description of this class action litigation.
9
<PAGE>
In October, 1996 the Bankruptcy Court dismissed the first
three causes of action in the second amended complaint, which were
premised upon alleged violations of the California Unfair Business
Practices Act, denied the motion to dismiss the fourth and fifth
causes of action against the Company for alleged fraud and conspiracy
and granted in part the motion to dismiss the seventh and eighth
causes of action against the Company relating to purchases and sales
of unregistered securities but denied the motion to the extent that
it was limited solely to claims of alleged willful participation with
a party to induce the purchase of unregistered securities.
The Bankruptcy Court's hearing on the plaintiffs' motion
for class certification and authorization of contingent fee
arrangement has been postponed until November 21, 1996. In view of
this motion practice, the Company has not yet answered the complaint
but discovery in the litigation is continuing.
The settlement proposal described in Item 1, Legal Proceedings of
Part II of the Company's Form 10-Q for the quarter ended June 30, 1996 was
not accepted by the necessary 80 percent of the lessor/investors. As as
result the Company retained the $300,000 of the $1.7 million settlement
payment in the Amtel bankruptcy case.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibits are listed in the Index to Exhibits on page E-1.
(b) Reports on Form 8-K:
None
10
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Elcotel, Inc.
----------------------
(Registrant)
Date: November 13, 1996 By: /s/ Ronald M. Tobin
----------------------
Ronald M. Tobin
Vice President
(Principal Financial Officer
and Chief Accounting Officer)
11
<PAGE>
INDEX TO EXHIBITS
Exhibit Incorporated by Page
Number Description Reference to No.
- ------- ----------- --------------- ----
10.1 Second Amendment to Loan Agreement
and Third Amendment to
Collateral Assignment and
Security Agreement between Elcotel, Inc.
and NationsBank, N.A. (South)
effective August 28, 1996. Included in this report.
10.2 Renewal Promissory Note between
Elcotel, Inc. and NationsBank, N.A.
(South) effective August 28, 1996. Included in this report.
E-1
EXHIBIT 10.1
SECOND AMENDMENT TO LOAN AGREEMENT
AND THIRD AMENDMENT
TO COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT, AND THIRD AMENDMENT
TO COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT (the "Amendment")
is made effective the 28th day of August, 1996, by and between
ELCOTEL, INC., a Delaware corporation ("Borrower"), and
NATIONSBANK, N.A. (SOUTH), a National Banking Association, as
successor in interest to NATIONSBANK OF FLORIDA, N.A. ("Lender").
RECITALS:
WHEREAS, Borrower being indebted to Lender, executed and
delivered to Lender a certain promissory note dated January 20,
1994, in the original principal amount of $1,000,000.00, which
note is secured by accounts receivable, notes receivable and
inventory, as evidenced by, among other loan documents, a
Collateral Assignment dated January 20, 1994, and a Security
Agreement dated January 20, 1994; and
WHEREAS, in connection with an additional $1,000,000.00 line
of credit loan Borrower executed a $1,000,000.00 promissory note
and a $2,000,000.00 Consolidation Promissory Note, both dated
August 31, 1994, as renewed by Renewal Promissory Note dated
August 31, 1995, and executed a Loan Agreement and an Amendment
to Collateral Assignment and Security Agreement both dated August
31, 1994 as amended by a First Amendment to Loan Agreement and
Second Amendment to Collateral Assignment and Security Agreement
dated August 31, 1995; and
WHEREAS, Borrower has requested Lender to renew the line of
credit loan in the amount of $2,000,000.00; and
WHEREAS, Borrower and Lender desire to amend the terms of
the Loan Agreement, Collateral Assignment and the Security
Agreement, as previously amended, to reflect the renewal of the
Line of Credit Loan.
NOW THEREFORE, in consideration of the premises and of the
agreements herein contained and the agreement by Lender to make
the Loan, the parties hereto agree as follows:
1. The above recitals are true and correct and are
incorporated herein by this reference.
2. The Note as defined in the Collateral Assignment shall
be deemed to include the Renewal Promissory Note in the amount of
$2,000,000.00 of even date herewith. Lender represents to the
best of its knowledge there is not currently a reserve
requirement imposed by the Federal Reserve System for
establishing Lender's Floating Libor Rate, as defined in such
notes, or any other additional costs as defined in Article 2(b)
in each of the above referenced notes.
<PAGE>1
3. The obligations secured by the Loan Agreement,
Collateral Assignment and Security Agreement shall include all
debts, obligations, liabilities and agreements of Borrower to
Lender, now or hereafter existing, including but not limited to
the indebtedness evidenced by the $2,000,000.00 Renewal
Promissory Note of even date, and all renewals, extensions or
modifications thereof.
4. Paragraph 3 of the Addendum to Security Agreement and
paragraph 2.D. of the Loan Agreement are hereby modified to
delete all references to Eligible Note Portfolio from the formula
for determining the borrowing base. Borrower shall no longer be
entitled to request funds based upon Eligible Note Portfolio.
5. The definition of Debt Service Coverage Ratio in
Paragraph 1.F., is hereby replaced in its entirety with the
following:
"Debt Service Coverage Ratio. Debt Service
Coverage Ratio means Borrower's Net Income ("NI")
+ Depreciation ("D") + Amortization ("AMORT") less
Dividends ("DIV"), all divided by Current
Maturities of Long Term Debt ("CMLTD") and Current
Maturities of Capital Leases ("CMCL") (i.e.
(NI + D + AMORT - DIV
---------------------
CMLTD + CMCL)".
6. Paragraph 4.A.ii. is amended to provide Borrower shall
maintain a Debt Service Coverage Ratio of not less than 1.3:1.0
for the fiscal quarter end June 30, 1996, a Debt Service Coverage
Ratio of not less than 1.5:1.0 for the fiscal quarter end
September 30, 1996, a Debt Service Coverage Ratio of not less
than 2.0:1.0 for fiscal quarter end December 31, 1996, and
thereafter Borrower shall maintain a Debt Service Coverage Ratio
of not less than 2.0:1.0 measured on a rolling four (4) quarter
basis from the annual and quarterly financial statements,
commencing March 31, 1997. Prior to March 31, 1997, the Debt
Service Coverage Ratio shall be measured based upon only the
fiscal quarter end and not on a rolling four (4) quarter basis.
7. All references to Loan Agreement in the Security
Agreement and Collateral Assignment shall mean the Loan Agreement
dated August 31, 1994, as amended by Amendment to Loan Agreement
dated August 3, 1995, and by Second Amendment to Loan Agreement
dated of even date herewith by and between Borrower and Lender.
<PAGE>2
8. Except as modified herein, all other terms and
conditions of the Loan Agreement, Collateral Assignment and the
Security Agreement, all as previously amended, shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Amendment, and shall be conclusively deemed to have executed
such on the day and year first written above.
NATIONSBANK, N.A., (SOUTH) ELCOTEL, INC., a Delaware
a National Banking Association corporation
as successor in interest to
NATIONSBANK OF FLORIDA, N.A.
By:/s/ Michael C. Carr By:/s/ Ronald M. Tobin
--------------------------- ----------------------------
Michael C. Carr Ronald M. Tobin
Vice President Vice President and Chief
Financial Officer
Address: 1605 Main Street Address: 6428 Parkland Drive
Sarasota, FL 34236 Sarasota, FL 34243
(CORPORATE SEAL) (CORPORATE SEAL)
<PAGE>3
EXHIBIT 10.2
THIS NOTE RENEWS THAT RENEWAL PROMISSORY NOTE DATED AUGUST 31,
1995, IN THE ORIGINAL PRINCIPAL SUM OF $2,000,000.00, AND DOES
NOT INCREASE THE AMOUNT DUE NOR CHANGE THE ORIGINAL OBLIGOR,
THEREFORE NO DOCUMENTARY STAMPS ARE REQUIRED.
RENEWAL
PROMISSORY NOTE
Prior Maturity Date: August 31, 1996
Date of Execution: September 25, 1996
Amount: $2,000,000.00
Effective Date: August 28, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") unconditionally
(and jointly and severally, if more than one) promise(s) to pay
to the order of NATIONSBANK, N.A. (SOUTH), as successor in
interest to NATIONSBANK OF FLORIDA, N.A. ("Bank"), Sarasota
(Banking Center) without setoff, at its offices at 1605 Main
Street, Suite 101, Sarasota, Florida, 34236 or at such other
place as may be designated by Bank, the principal amount of TWO
MILLION AND NO/100 DOLLARS ($2,000,000.00), or so much thereof as
may be advanced from time to time in immediately available funds,
together with interest computed daily on the outstanding
principal balance hereunder, at an annual interest rate, and in
accordance with the payment schedule, indicated below.
Rate
The Rate shall be the Bank's FLOATING LIBOR RATE as follows:
1. As used herein "FLOATING LIBOR RATE INDEX"
shall mean the fluctuating interest rate per annum published
in the Wall Street Journal at which deposits in U.S. dollars
are offered in the London interbank market on the date for
which the Bank's FLOATING LIBOR RATE is being calculated in
an amount equal to the outstanding amount of the loan and
with a term equal to thirty (30) days.
2. The Bank's FLOATING LIBOR RATE shall be
determined in accordance with the following:
(a) "Bank's FLOATING LIBOR RATE" shall be
equal to (A) the quotient (rounded up to
the nearest 1/16 of 1%) of (1) the
Floating Libor Rate Index, divided by
(2) an amount equal to one (1) minus the
appropriate reserve requirement imposed
on Bank by the Federal Reserve System,
if any, plus (B) the 2.75%. With each
change in the FLOATING LIBOR RATE INDEX
the Bank's FLOATING LIBOR RATE shall
change effective on the date the
FLOATING LIBOR RATE INDEX changes.
<PAGE>1
(b) The Borrower shall pay to Bank, from
time to time and on demand, any sum(s)
required to compensate the Bank for any
additional cost (such as, but not
limited to, a reserve requirement)
incurred by the Bank at any time which
(i) is attributable to the Bank's
obtaining a deposit or deposits to cover
the outstanding principal balance for
which the Borrower has elected to pay or
Bank's FLOATING LIBOR RATE, (ii)
decreases the effective spread or yield
represented by the 2.75% Floating Libor
Rate component, that would be earned by
the Bank but for such cost, and (iii) is
caused or occasioned by any presently
existing or subsequently introduced law,
rule, regulations or other requirement
(or by any change therein, changed
effect or interpretation thereof or
change in the Bank's cost of complying
therewith) imposed, interpreted,
administered or enforced by any federal,
state or other governmental or monetary
authority, which is imposed on or
applied to the Bank or any assets held
by, deposits or accounts in or with, or
credits extended by the Bank. The Bank
shall notify the Borrower from time to
time of any such additional cost and
such notice shall be binding and
conclusive evidence of the Borrower's
obligation to pay the stated sum upon
receipt of the notice.
(c) The Bank's reference to and use of the
FLOATING LIBOR RATE INDEX to define and
determine the Bank's FLOATING LIBOR
RATE, shall not obligate the Bank to
obtain funds from any particular source
in order to charge interest at the
Bank's FLOATING LIBOR RATE.
Notwithstanding any other provision contained in this Note,
Bank does not intend to charge and Borrower shall not be
required to pay any amount of interest or other fees or
charges that is in excess of the maximum permitted by
applicable law. Any payment in excess of such maximum shall
be refunded to Borrower or credited against principal, at
the option of Bank.
<PAGE>2
Accrual Method
Interest at the Rate set forth above, unless otherwise
indicated, will be calculated on the basis of the 365/360
method, which computes a daily amount of interest for a
hypothetical year of 360 days, then multiplies such amount
by the actual number of days elapsed in an interest
calculation period.
Rate Change Date
Any Rate based on a fluctuating index or base rate will
change, unless otherwise provided, each time and as of the
date that the index or base rate changes.
Payment Schedule
All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or
under any other documents executed in connection with this
Note ("Loan Documents"), then to interest due and payable,
with the balance being applied to principal, or in such
other order as Bank shall determine at its option.
Single Principal Payment/Interest Only/Zero Balance:
Principal shall be paid in full in a single payment on
August 31, 1997. Interest thereon shall be paid:
monthly, commencing on September 30, 1996, and
continuing on the last day of each successive month
thereafter, with a final payment of all unpaid interest
at the stated maturity of this Note.
Except for the portion of the line of credit reserved
for Letters of Credit pursuant to the Loan Agreement
between Bank and Borrower dated August 31, 1994, as
thereafter amended, the principal balance of this Note
shall be paid to zero for 30 consecutive days during
the term of this Note.
Revolving Feature
Borrower may borrow, repay and reborrow hereunder at
any time, up to a maximum aggregate amount outstanding
at any one time equal to the principal amount of this
Note; provided, however, that Borrower is not in
default under any provision of this Note, any Loan
Document, or any other obligation of Borrower to Bank,
and provided that the borrowings hereunder do not
exceed any borrowing base or other limitations on
borrowings by Borrower. Bank shall have no liability
for its refusal to advance funds based upon its
determination that any conditions of such further
advances have not been met. Bank records of the
amounts borrowed from time to time shall be conclusive
proof thereof.
<PAGE>3
Automatic Payment
Borrower has elected to authorize Bank to effect
payment of sums due under this Note by means of
debiting Borrower's account number
____________________________________. This
authorization shall not affect the obligation of
Borrower to pay such sums when due, without notice, if
there are insufficient funds in such account to make
such payment in full on the due date thereof, or if
Bank fails to debit the account.
Borrower represents to Bank that the proceeds of this loan
are to be used primarily for business, commercial or
agricultural purposes. Borrower acknowledges having read
and understood, and agrees to be bound by all terms and
conditions of this Note, including the Additional Terms and
Conditions set forth in the Addendum attached hereto and
made a part hereof, and hereby executes this Note under
seal.
BORROWER:
ELCOTEL, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
--------------------------
Ronald M. Tobin
Vice President
(CORPORATE SEAL)
Documentary stamps securing
the original indebtedness
have been affixed to the
Mortgage at the time of
recordation of the Mortgage,
which has been recorded in
O.R. Book 1425, page 6787,
Public Records of Manatee
County, Florida, and that
certain $1,000,000 Note dated
August 31, 1994.
<PAGE>4
ADDENDUM
OF
ADDITIONAL TERMS AND CONDITIONS
1. Waivers, Consents and Covenants. Borrower, any
indorser, or guarantor hereof or any other party hereto
(collectively "Obligors") and each of them jointly and
severally: (a) waive presentment, demand, notice of
demand, notice of intent to accelerate, and notice of
acceleration of maturity, protest, notice of protest,
notice of non-payment, notice of dishonor, and any
other notice required to be given under the law to any
of Obligors, in connection with the delivery,
acceptance, performance, default or enforcement of this
Note, of any indorsement or guaranty of this Note or of
any Loan Documents; (b) consent to any and all delays,
extensions, renewals or other modifications of this
Note or the Loan Documents, or waivers of any term
hereof or of the Loan Documents, or releases or
discharge by Bank of any of Obligors or release,
substitution, or exchange of any security for the
payment hereof, or the failure to act on the part of
Bank or any indulgence shown by Bank, from time to time
and in one or more instances (without notice to or
further assent from any of Obligors) and agree that no
such action, failure to act or failure to exercise any
right or remedy on the part of Bank shall in any way
affect or impair the obligations of any Obligors or be
construed as a waiver by Bank of, or otherwise affect,
any of Bank's rights under this Note, under any
indorsement or guaranty of this Note or under any of
the Loan Documents; and (c) agree to pay, on demand,
all costs and expenses of collection of this Note or of
any indorsement or guaranty hereof and/or the
enforcement of Bank's rights with respect to, or the
administration, supervision, preservation, protection
of, or realization upon, any property securing payment
hereof, including without limitation, reasonable
attorneys' fees, including fees related to any trial,
arbitration, bankruptcy, appeal or other proceeding.
2. Indemnification. Obligors agree to promptly pay,
indemnify and hold Bank harmless from all state and
federal taxes of any kind and other liabilities with
respect to or resulting from advances made pursuant to
this Note. If this Note has a revolving feature and is
secured by a mortgage, Obligors expressly consent to
the deduction of any applicable taxes from each taxable
advance extended by Bank.
<PAGE>1
3. Prepayments. Prepayment may be made in whole or in part
at any time. All prepayments of principal shall be
applied in the inverse order of maturity, or in such
other order as Bank shall determine in its sole
discretion.
4. Events of Default. The following are events of default
hereunder: (a) the failure to make any payment due
under this Note within ten (10) days after the due date
or the failure to pay or perform any obligation,
liability or indebtedness of any Obligor to Bank, or to
any affiliate of Bank, whether under this Note or any
other agreement, note or instrument now or hereafter
existing, as and when due (whether upon demand, at
maturity or by acceleration); (b) the failure to pay or
perform any other obligation, liability or indebtedness
of any of Obligors whether to Bank or some other party,
the security for which constitutes an encumbrance on
the security for this Note; (c) death of any Obligor
(if an individual), or a proceeding being filed or
commenced against any Obligor for dissolution or
liquidation, or any Obligor voluntarily or
involuntarily terminating or dissolving or being
terminated or dissolved; (d) insolvency of, business
failure of, the appointment of a custodian, trustee,
liquidator or receiver for or for any other property
of, or an assignment for the benefit of creditors by,
or the filing of a petition under bankruptcy,
insolvency or debtor's relief law or for any adjustment
of indebtedness, composition or extension by or against
any Obligor; (e) any lien or additional security
interest being placed upon any of the property which is
security for this Note; (f) acquisition at any time or
from time to time of title to the whole of or any part
of the property which is security for this Note by any
person, partnership, corporation or other entity; (g)
Bank determining that any representation or warranty
made by any Obligor in any Loan Documents or otherwise
to Bank is, or was, untrue or materially misleading;
(h) failure of any Obligor to timely deliver such
financial statements, including tax returns, and other
statements of condition or other information as Bank
shall request from time to time;(i) any default under
any Loan Documents; (j) entry of a judgment against any
Obligor which Bank deems to be of a material nature, in
Bank's sole discretion; (k) the seizure or forfeiture
of, or the issuance of any writ of possession,
garnishment or attachment, or any turnover order for
any property of any Obligor; (l) the determination by
Bank that a material adverse change has occurred in the
financial condition of any Obligor; or, (m) the failure
to comply with any law or regulation regulating the
operation of Borrower's business.
<PAGE>2
5. Remedies Upon Default. Whenever there is a default
under this Note, (a) the entire balance outstanding and
all other obligations of Obligor to Bank (however
acquired or evidenced) shall, at the option of Bank,
become immediately due and payable, and/or (b) to the
extent permitted by law, the Rate of interest on the
unpaid principal shall, at the option of Bank, be
increased at Bank's discretion up to the maximum rate
allowed by law, or if none, twenty-five percent (25%)
per annum (the "Default Rate"); and/or (c) to the
extent permitted by law, a delinquency charge may be
imposed in an amount not to exceed five percent (5%) of
any payment in default for more than fifteen (15) days.
The provisions herein for a Default Rate or a
delinquency charge shall not be deemed to extend the
time for any payment hereunder or to constitute a
"grace period" giving the Obligors a right to cure any
default. At Bank's option, any accrued and unpaid
interest, fees or charges may, for purposes of
computing and accruing interest on a daily basis after
the due date of the Note or any installment thereof, be
deemed to be a part of the principal balance, and
interest shall accrue on a daily compounded basis after
such date at the rate provided in this Note until the
entire outstanding balance of principal and interest is
paid in full. Bank is hereby authorized at any time to
setoff and charge against any deposit accounts of any
Obligor, as well as any other property of such party at
or under the control of Bank, without notice or demand,
any and all obligations due hereunder.
6. Non-waiver. The failure at any time of Bank to
exercise any of its options or any other rights
hereunder shall not constitute a waiver thereof, nor
shall it be a bar to the exercise of any of its options
or rights at a later date. All rights and remedies of
Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The
acceptance by Bank of any partial payment shall not
constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights
hereunder, and no modification or amendment of this
Note, shall be deemed to be made by Bank unless the
same shall be in writing, duly signed on behalf of
Bank; and each such wavier, if any, shall apply only
with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the
obligations of Obligor to Bank in any other respect at
any other time.
<PAGE>3
7. Applicable Law. This Note shall be construed under the
internal laws and judicial decisions of the State of
Florida, and the laws of the United States as the same
may be applicable.
8. Partial Invalidity. The unenforceability or invalidity
of any provision of this Note shall not affect the
enforceability or the validity of any other provision
herein and the invalidity or unenforceability of any
provision of this Note or of the Loan Documents to any
person or circumstance shall not affect the
enforceability or validity of such provision as it may
apply to other persons or circumstances.
9. Jurisdiction and Venue. In any litigation in
connection with or to enforce this Note or any
indorsement or guaranty of this Note or any Loan
Documents, Obligors, and each of them, irrevocably
consent to and confer personal jurisdiction on the
courts of the State of Florida or the United States
courts located within the State of Florida, and
expressly waive any objections as to venue in any such
courts, and agree that service of process may be made
on Obligors by mailing a copy of the summons and
complaint by registered or certified mail, return
receipt requested, to their respective addresses.
Nothing contained herein shall, however, prevent Bank
from bringing any action or exercising any rights
within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means
available by applicable law.
10. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE
ARISING OUT OF OR RELATING TO THIS NOTE OR ANY RELATED
NOTES OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE
STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE
ARBITRATION OF COMMERCIAL DISPUTES OR JUDICIAL
ARBITRATION AND MEDIATION SERVICES, INC. (J.A.M.S.) AND
THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF
ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL.
JUDGMENT UPON ANY ARBITRATION AWARD MAY BE ENTERED IN
ANY COURT HAVING JURISDICTION. ANY PARTY TO THE NOTICE
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS NOTE APPLIES IN ANY COURT HAVING
JURISDICTION OVER SUCH ACTION.
<PAGE>4
a. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED
IN THE CITY OF BRADENTON, FLORIDA AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS
UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION
WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED
WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION;
FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF
CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH
HEARING FOR AN ADDITIONAL SIXTY (60) DAYS.
b. RESERVATION OF RIGHTS. NOTHING IN THIS NOTE SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATIONS OR REPOSE
AND ANY WAIVERS CONTAINED IN THIS NOTE; OR (II) BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY
12 U.S.C. PARAGRAPH 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE
LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSURE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A
COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT
NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION
OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSURE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONALLY OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS NOTE.
NEITHER THE EXERCISE OF SELF HELP REMEDIES NOR THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE
OR PROVISIONALLY OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
11. Binding Effect. This Note shall be binding upon and
inure to the benefit of Borrower, Obligors and Bank and
their respective successors, assigns, heirs and
personal representatives; provided, however, that no
obligations of the Borrower or the Obligor hereunder
can be assigned without prior written consent of Bank.
12. NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY
NOTE AND ANY OTHER DOCUMENTS EXECUTED IN CONNECTION
HEREWITH REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS
BETWEEN THE PARTIES.
<PAGE>5
BORROWER:
ELCOTEL, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
------------------------
Ronald M. Tobin
Vice President
(CORPORATE SEAL)
<PAGE>6
RENEWAL RIDER TO REVOLVING LINE OF CREDIT NOTE
THIS RIDER contains additional provisions that are
hereby incorporated and by this reference made a part of
that certain Renewal Note - Revolving Line of Credit dated
September 25, 1996, in the stated amount of TWO MILLION AND
NO/100 DOLLARS ($2,000,000.00) (the "Note") executed by
ELCOTEL, INC., a Delaware corporation (the "Borrower") in
favor of NATIONSBANK, N.A. (SOUTH), a National Banking
Association, as successor in interest to NATIONSBANK OF
FLORIDA, N.A. (the "Lender"). Borrower further covenants
and agrees as follows:
1. In the event of a conflict or inconsistency
between this Rider and the terms contained in the Note or
any other loan document executed in connection therewith,
the terms contained in this Rider shall prevail and control.
2. Borrower acknowledges and agrees that the Note was
given in renewal of, and not in substitution or exchange
for, that certain Renewal Note - Revolving Line of Credit,
dated August 31, 1995, executed by Borrower in favor of the
Lender, evidencing a revolving line of credit in the stated
amount of $2,000,000.00 (the "Renewed Note").
3. Notwithstanding the date of execution of the Note,
all provisions of the Note, including, without limitation,
the rate of interest specified therein, shall be effective
as of August 31, 1996, the maturity date of the Renewed
Note.
4. The Borrower acknowledges and agrees that the
outstanding principal balance of the Renewed Note is
$2,000,000.00 as of the date hereof.
5. Borrower waives and releases Lender from any and
all offsets, defenses and claims with respect to the Renewed
Note, this Note, and Borrower's indebtedness and obligations
thereunder.
Dated this 25th day of September, 1996.
ELCOTEL, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
-----------------------
Ronald M. Tobin
Vice President and
Chief Financial Officer
(CORPORATE SEAL)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 9
<SECURITIES> 0
<RECEIVABLES> 5,655
<ALLOWANCES> 0
<INVENTORY> 2,751
<CURRENT-ASSETS> 10,346
<PP&E> 3,128
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,316
<CURRENT-LIABILITIES> 3,759
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 10,863
<TOTAL-LIABILITY-AND-EQUITY> 15,316
<SALES> 11,652
<TOTAL-REVENUES> 11,652
<CGS> 7,035
<TOTAL-COSTS> 7,035
<OTHER-EXPENSES> 3,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 805
<INCOME-TAX> 282
<INCOME-CONTINUING> 523
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
