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 DECEMBER 31, 1997
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
February 6, 1998 was 13,264,996.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements
--------------------
ELCOTEL, INC. AND SUBSIDIARIES
------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(in thousands)
<CAPTION>
December 31, March 31,
1997 1997
------------ ------------
(Unaudited)
ASSETS
- -------
CURRENT ASSETS
- --------------
<S> <C> <C>
Cash and temporary investments $311 $1,009
Accounts receivable, net 14,690 4,678
Notes receivable 2,063 1,318
Inventories 12,170 2,733
Refundable income taxes 90 95
Deferred tax asset 4,084 692
Prepaid expenses and other current as 743 457
-------- --------
TOTAL CURRENT ASSETS 34,151 10,982
Property, plant and equipment, net 4,648 3,184
Notes receivable, noncurrent 580 711
Deferred tax asset - 799
Goodwill 23,201 -
Other assets 9,523 268
-------- --------
$72,103 $15,944
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable and accrued expenses $8,754 $2,886
Current portion of long-term debt 128 199
-------- --------
TOTAL CURRENT LIABILITIES 8,882 3,085
-------- --------
Deferred tax liability 547 -
Acquisition costs payable 325 -
Revolving credit line 11,760 -
Long term debt, less current portion 1,787 232
-------- --------
TOTAL LONG TERM LIABILITIES 14,419 232
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value:
Authorized 30,000,000 shares,
Issued 13,253,178 shares and
8,234,216
shares, respectively 132 82
Additional paid-in capital 45,783 11,160
Retained earnings 3,064 1,562
Less treasury stock (177) (177)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 48,802 12,627
-------- --------
$72,103 $15,944
======== ========
1
<FN>
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 Nine Months Ended
December 31, December 31,
------------------- -----------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET SALES $13,592 $7,206 $27,975 $18,858
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of sales 8,565 4,315 16,578 11,350
Research and development 1,253 692 2,795 1,932
Selling, general and
administrative 2,481 1,398 6,200 4,033
Amortization 133 9 145 22
------- ------- ------- -------
TOTAL COSTS AND EXPENSES 12,432 6,414 25,718 17,337
------- ------- ------- -------
INCOME FROM OPERATIONS 1,160 792 2,257 1,521
INTEREST INCOME (EXPENSE), net (61) 51 62 127
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,099 843 2,319 1,648
INCOME TAX EXPENSE 390 295 817 577
------- ------- ------- -------
NET INCOME $709 $548 $1,502 $1,071
======= ======= ======= =======
BASIC EARNINGS PER SHARE
- ------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $0.08 $0.07 $0.18 $0.13
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,932 8,111 8,433 8,073
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE
- --------------------------------
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $0.08 $0.07 $0.17 $0.13
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,401 8,348 8,693 8,312
======= ======= ======= =======
2
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
ELCOTEL, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOW
------------------------------------
(in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
December 31,
---------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,502 $1,071
Adjustments to reconcile net income
to net cash (used for)/provided by
operating activities:
Depreciation and amortization 492 285
Provision for doubtful accounts 441 (546)
Change in operating assets and liabilities
(net of acq. of Technology Service Group, Inc.)
Accounts receivable (6,563) (36)
Notes receivable (801) 879
Inventories (2,947) (405)
Prepaid expenses and other
current assets (588) 125
Accounts payable and accrued expense (2,306) 1,299
Other, net (1,722) (86)
--------- ---------
Net cash flow (used for)/provided by
operating activities (12,492) 2,586
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,082) (322)
Net cash used for acquisition of
Technology Service Group, Inc. (428) -
--------- ---------
Net cash flow used for investing activities (1,510) (322)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds under revolving credit line and
refinanced debt obligations 11,760 -
Net long term borrowings/(payments) 1,484 (965)
Issuance of common stock 60 165
--------- ---------
Net cash flow (used for)/provided by
financing activities 13,304 (800)
--------- ---------
Net increase (decrease) in cash and
temporary investments (698) 1,464
Cash and temporary investments at
beginning of period 1,009 232
--------- ---------
Cash and temporary investments at
end of period $311 $1,696
========= =========
ADDITIONAL CASH FLOW INFORMATION:
Cash paid (refunded) during the period for:
Interest $200 $107
Income taxes 490 (509)
3
</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 December 31, 1997 and
the consolidated statements of operations for the three and nine month
periods ended December 31, 1997 and 1996, and the consolidated
statements of cash flows for the nine month periods ended December 31,
1997 and 1996 have been prepared by Elcotel, Inc. (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
December 31, 1997, and for all periods presented, have been made.
The condensed consolidated balance sheet at March 31, 1997 has been
derived from the Company's audited consolidated financial statements
as of and for the year ended March 31, 1997.
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-K for the fiscal year ended
March 31, 1997. The results of operations for the nine month period
ended December 31, 1997 are not necessarily indicative of the results
for the full fiscal year.
NOTE B. ACQUISITIONS:
Technology Service Group, Inc.
- ------------------------------
On December 18, 1997, the Company acquired Technology Service Group,
Inc. ("TSG"), a Delaware corporation, via the merger (the "Merger")
of Elcotel Hospitality Services, Inc. ("EHS"), a wholly owned
subsidiary of the Company, into TSG, pursuant to an Agreement and Plan
of Merger dated as of August 13, 1997 (as amended) among the Company,
TSG and EHS ("Merger Agreement"). Immediately following the
consummation of the Merger, TSG became a wholly owned subsidiary of
the Company. Pursuant to the Merger Agreement each issued and
outstanding share of common stock in TSG was converted into the right
to receive 1.05 shares of common stock of the Company and in
accordance with this formula, the Company is obligated to issue an
aggregate of 4,944,292 shares of common stock pursuant to the Merger.
4
<PAGE>
In addition, the Company has agreed to issue 80,769 shares of common
stock in payment of certain acquisition expenses (30,769 of which have
been issued as of December 31, 1997). The value of the shares of
common stock not issued are reflected as Acquisition cost payable"
in the Condensed Consolidated Balance Sheet. In addition, as a result
of the Merger, holders of options and rights to purchase shares of
common stock of TSG pursuant to TSG's option and stock purchase plans
received options and rights to purchase, at a proportionately reduced
per share exercise price, a number of shares of common stock of the
Company equal to 1.05 times the number of shares of common stock of
TSG they were entitled to purchase immediately prior to the Merger
under such options and rights. Similarly, holders of warrants to
purchase shares of common stock of TSG received warrants to purchase,
at a proportionately reduced per share exercise price, a number of
shares of common stock of the Company equal to 1.05 times the number
of shares of common stock of TSG they were entitled to purchase
immediately prior to the Merger under such warrants. The terms of the
Merger Agreement were the result of arm's length negotiations.
A summary of the merger consideration (or purchase price) is set forth
below.
Issuance of 4,944,292 shares of common stock
at a market price of $6.50 per share $32,138
Fair value of outstanding common stock
warrants, options and purchase rights issued 2,595
Estimated costs and expenses of the merger 872
-------
Total merger consideration $35,605
=======
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the aggregate purchase price of $35,605 was
allocated to the assets and liabilities of TSG as of the acquisition
date based upon their estimated fair values. The excess of the
purchase price over the fair value of the net assets acquired of
$23,225 was recorded as goodwill.
The Company has estimated the adjustments to allocate the merger
consideration to the assets and liabilities of TSG based on their
estimated fair values. The allocations are subject to final
determinations based on independent appraisals and other evaluations
of fair value as of the acquisition date. Therefore, the allocations
reflected in the accompanying condensed consolidated balance sheet
at December 31, 1997 may differ from the amounts ultimately
determined. Differences between the amounts included herein and the
final allocations are not expected to have a material effect on the
Company's consolidated financial statements.
5
<PAGE>
A summary of the book value of the assets and liabilities of TSG at
December 18, 1997 as compared to their estimated fair values reflected
in the accompanying condensed consolidated balance sheet at December
31, 1997 is set forth below.
Estimated
Book Fair
Value Value
-------- --------
Cash and temporary investments $239 $239
Accounts receivable 3,703 3,703
Inventories 11,103 6,490
Refundable income taxes 469 469
Deferred tax asset, current 463 3,446
Prepaid expenses and other current assets 12 12
Property, plant and equipment 662 782
Intangible assets 1,022 7,530
Other assets 29 29
Accounts payable and accrued expenses (4,267) (4,992)
Borrowings under lines of credit (3,970) (3,970)
Deferred tax liability, non-current - (1,358)
------- -------
Net assets acquired 9,465 12,380
Excess of purchase price over
net assets acquired 3,122 23,225
------- -------
Total $12,587 $35,605
======= =======
The Company intends to discontinue certain products manufactured and
marketed by TSG. The allocation of merger consideration to the
estimated fair value of inventories has been decreased by $4,810 to
reflect the estimated net realizable value of such inventories.
Identifiable intangible assets are comprised of TSG's trade names at
an estimated fair value of $2,869, assembled workforce at an estimated
fair value of $1,372, product software at an estimated fair value of
$847, patented technology at an estimated fair value of $419 and
customer contracts at an estimated fair value of $2,023.
At December 31, 1997, TSG had net operating loss carryforwards of
$11,098 available to reduce future taxable income, which expire from
1998 to 2010. However, the utilization of these net operating loss
carryforwards is subject to an annual limitation of approximately $200
as a result of a previous change in ownership of TSG. Accordingly,
future tax benefits of net operating loss carryforwards of
approximately $2,909 will not be realized, and a corresponding
valuation allowance has been provided in the purchase price
allocation.
The fair value of accrued liabilities includes the estimated costs to
terminate the employment of certain employees of TSG and to relocate
certain employees and property of TSG. These costs have been
estimated based on the Company's preliminary integration and
consolidation plan. Employee termination costs reflecting the
estimated cost of severance and salary continuation arrangements and
related employee benefits have been estimated at $319. The costs of
relocating employees and property of TSG have been estimated at $405.
6
<PAGE>
The fair value of the intangible assets included in the allocation of
the purchase price are being amortized over their estimated useful
lives as follows:
Goodwill 35 years
Trade names 35 years
Assembled workforce 35 years
Product software 5 years
Patented technology 4 years
Customer contracts 3.45 years
Lucent Technologies
- -------------------
On September 30, 1997, the Company acquired from Lucent Technologies
Inc. ("Lucent") certain assets related to Lucent's payphone
manufacturing and component parts business. The purchase price,
including estimated acquisition expenses of $150, was $6,040, subject
to adjustment based on the difference between the book value of
inventories determined pursuant to the acquisition agreement and
$3,849. Assets acquired from Lucent included inventories, machinery,
equipment, tooling and certain other assets related to the payphone
manufacturing and component parts business conducted by Lucent, as
well as a license of certain patent and other intellectual property
rights related thereto.
On October 2, 1997, the Company borrowed an aggregate of $6,850 under
the terms of bank promissory notes to finance the Lucent acquisition,
including acquisition expenses, debt issuance expenses of $57 and
other general corporate activities, including acquisition of
equipment. These notes consisted of an installment note in the
principal amount of $3,050 payable in eighty four equal monthly
installments of $37, a term note in the principal amount of $2,850 due
March 31, 1998 and a term note in the principal amount of $950 due
March 31, 1998. The notes were collateralized by the assets of the
Company and bore interest at the bank's floating 30 day Libor rate
plus 2.25% (7.9% upon issuance). Proceeds from these aforementioned
notes were used to pay the purchase price payable obligations recorded
at September 30, 1997, acquisition expenses, and the debt issuance
expenses related to the Lucent acquisition, which aggregated $6,094.
On November 25, 1997, the Company repaid all of the aforementioned
notes from the proceeds drawn under a $15,000 revolving credit line
entered into on November 25, 1997 (see Note E).
A summary of the allocation of the purchase price to the assets
acquired as of September 30, 1997, based on the Company's estimates
of their fair values is set forth below.
Inventories $3,999
Equipment and tooling 500
Intangible Assets 1,541
------
Total purchase price $6,040
======
The accompanying consolidated statements of operations for the three
months and nine months ended December 31, 1997 reflect the effects of
the Lucent acquisition from the acquisition date.
7
<PAGE>
Pro Forma Results of Operations
-------------------------------
The accompanying consolidated statements of operations for the three
months and nine months ended December 31, 1997 includes the operating
results of TSG and the effects of purchase of the assets from Lucent
from the acquisition dates. Assuming these transactions had occurred
on April 1, 1997, and April 1, 1996, respectively, the Company's pro
forma results of operations for the nine months ended December 31,
1997 and 1996 would have been as follows:
December 31, December 31,
1997 1996
---- ----
Net Sales $ 47,669 $ 46,650
======== ========
Net income (loss) ($ 14) $ 1,397
======== ========
Net income (loss) per share-Basic $0.00 $0.11
======== ========
Net income (loss) per share
-Fully Diluted $0.00 $0.10
======== ========
The pro forma results of operations for the nine months ended December
31, 1997 include the operating results of TSG from April 1, 1997 to
December 18, 1997 and pro forma adjustments consisting of an increase
in amortization of goodwill and other intangible assets of $804 due
to the increase in the basis of intangible assets and their estimated
useful lives, a decrease in depreciation of $228 due to an increase
in the basis of property and equipment and their estimated useful
lives, a decrease in deferred tax expense of $1 resulting from the
allocation to deferred tax assets and liabilities and a decrease in
income tax expense of $182 to reflect the pro forma effect on income
tax expense resulting from the acquisition. The pro forma adjustments
related to the acquisition of Lucent's assets for the nine months
ended December 31, 1997 include an increase in amortization of
intangible assets of $130, an increase in depreciation of $50, an
increase in interest expense of $245 and a decrease in income tax
expense of $149.
The pro forma results of operations for the nine months ended December
31, 1996 include the operating results of TSG from April 1, 1996 to
December 31, 1996 and pro forma adjustments consisting of an increase
in amortization of goodwill and other intangible assets of $907 due
to the increase in the basis of intangible assets and their estimated
useful lives, a decrease in depreciation of $449 due to an increase
in the basis of property and equipment and their estimated useful
lives, a decrease in deferred tax expense of $11 resulting from the
allocation to deferred tax assets and liabilities and a decrease in
income tax expense of $189 to reflect the pro forma effect on income
tax expense resulting from the acquisition. The pro forma adjustments
related to the acquisition of Lucent's assets for the nine months
ended December 31, 1996 include an increase in amortization of
intangible assets of $195, an increase in depreciation of $75, an
increase in interest expense of $368 and a decrease in income tax
expense of $223.
8
<PAGE>
NOTE C. INVENTORIES:
Inventories at December 31, 1997 and March 31, 1997 are
summarized as follows:
December 31, March 31,
1997 1997
---- ----
Finished products $ 1,805 $590
Work-in-process 3,343 257
Purchased components 7,022 1,986
------- -------
$12,170 $2,733
======= =======
NOTE D. STOCKHOLDERS' EQUITY:
Changes in stockholders' equity during the nine-month period ended
December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $82 $11,160 $1,562 ($177) $12,627
Issuance of 4,975,061 shares -
acquisition of Technology Service
Group, Inc. and payment of
related acquisition expenses 50 34,883 34,933
Stock registration costs (320) (320)
Issuance of 43,900 shares upon
exercise of common stock
options at prices between
$1.81 and $6.1875 per share 60 60
Net income for the period 1,502 1,502
---- ------- ------ ------ -------
Balance at December 31, 1997 $132 $45,783 $3,064 $(177) $48,802
==== ======= ====== ====== =======
</TABLE>
9
<PAGE>
NOTE E. REFINANCING OF DEBT
On November 25, 1997, the Company entered into a restated loan
agreement (the "Loan Agreement") with its bank and refinanced its then
outstanding debt under a $2,000 working capital line of credit, a
$3,050 term note due on October 2, 2004 and term notes of $3,800 that
were due on March 31, 1998. In addition, on December 18, 1997, the
Company retired TSG's outstanding bank indebtedness of $3,970 from
proceeds drawn under the loan agreement. Under the terms of the Loan
Agreement, the Company is able to borrow up to a maximum of $15,000
based on the value of eligible collateral under a revolving line of
credit that matures on November 25, 2002. Indebtedness outstanding
under the Loan Agreement is secured by substantially all the assets
of the Company. Interest on amounts borrowed under the line of credit
is payable monthly at the bank's floating 30 day Libor rate plus 1.5%
(See Note B).
In addition, on November 26, 1997, the Company refinanced its mortgage
note, which had a principal balance of $315 and a maturity date of May
23, 1999, with a new mortgage note in the amount of $1,920, at the
same fixed interest rate of 8.5%, which matures in five years, but
whose monthly payments are based on a 15 year term.
NOTE F. ADOPTION OF FAS 128
The Company adopted the provisions of Statement of Financial Standards
No. 128 "Earnings Per Share" (SFAS 128), during the fourth calendar
quarter of 1997 (third fiscal quarter of 1998), as required. The new
standard specifies the computation, presentation, and disclosure
requirements for earnings per share. The following table represents
the computation of basic and diluted earnings per common share as
required by SFAS 128.
Three Months Ended Nine Months Ended
December 31, December 31,
----------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
(in thousands, except per share data)
BASIC EARNINGS PER SHARE COMPUTATION
Net Income Applicable to
common shares $709 $548 $1,502 $1,071
----- ----- ------ ------
Weighted average common shares
outstanding 8,932 8,111 8,433 8,073
----- ----- ------ ------
Basic Earnings per Common Share $0.08 $0.07 $0.18 $0.13
===== ===== ====== ======
10
<PAGE>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------- -----------------
1997 1996 1997 1996
------ ------ ------ ------
(in thousands, except per share data)
DILUTED EARNINGS PER SHARE COMPUTATION
Net Income Applicable to
common shares $709 $548 $1,502 $1,071
----- ----- ------ ------
Weighted average common shares
outstanding 8,932 8,111 8,433 8,073
Common stock equivalents 469 237 260 239
Total weighted average shares 9,401 8,348 8,693 8,312
----- ----- ------ ------
Basic Earnings per Common Share $0.08 $0.07 $0.17 $0.13
===== ===== ====== ======
11
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
----------------------------------------------
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- ---------------------------------------------------------------------
This report contains certain 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, the integration of operations resulting from the
acquisitions of TSG and Lucent, competition, the risk of obsolescence
of its products, changes in the international business climate,
general economic conditions, seasonality, changes in industry
practices, the outcome of the Bethlahmy class action lawsuit, and
uncertainties detailed in the Company's filings with the Securities
and Exchange Commission.
ACQUISITIONS
Technology Service Group, Inc.
- ------------------------------
On December 18, 1997, the Company acquired Technology Service Group,
Inc. ("TSG"), a Delaware corporation, via the merger (the "Merger")
of Elcotel Hospitality Services, Inc. ("EHS"), a wholly owned
subsidiary of the Company, into TSG, pursuant to an Agreement and Plan
of Merger dated as of August 13, 1997 (as amended) among the Company,
TSG and EHS ("Merger Agreement"). Immediately following the
consummation of the Merger, TSG became a wholly owned subsidiary of
the Company. Pursuant to the Merger Agreement each issued and
outstanding share of common stock in TSG was converted into the right
to receive 1.05 shares of common stock of the Company and in
accordance with this formula, the Company is obligated to issue an
aggregate of 4,944,292 shares of common stock pursuant to the Merger.
In addition, the Company has agreed to issue 80,769 shares of common
stock in payment of certain acquisition expenses (30,769 of which have
been issued as of December 31, 1997). The value of the shares of
common stock not issued are reflected as Acquisition cost payable"
in the Condensed Consolidated Balance Sheet. In addition, as a result
of the Merger, holders of options and rights to purchase shares of
common stock of TSG pursuant to TSG's option and stock purchase plans
received options and rights to purchase, at a proportionately reduced
per share exercise price, a number of shares of common stock of the
Company equal to 1.05 times the number of shares of common stock of
TSG they were entitled to purchase immediately prior to the Merger
under such options and rights. Similarly, holders of warrants to
purchase shares of common stock of TSG received warrants to purchase,
at a proportionately reduced per share exercise price, a number of
shares of common stock of the Company equal to 1.05 times the number
of shares of common stock of TSG they were entitled to purchase
immediately prior to the Merger under such warrants.
12
<PAGE>
A summary of the merger consideration (or purchase price) is set forth
below.
Issuance of 4,944,292 shares of common stock
at a market price of $6.50 per share $32,138
Fair value of outstanding common stock
warrants, options and purchase rights issued 2,595
Estimated costs and expenses of the merger 872
-------
Total merger consideration $35,605
=======
The acquisition has been accounted for using the purchase method of
accounting. Accordingly, the aggregate purchase price of $35,605 was
allocated to the assets and liabilities of TSG as of the acquisition
date based upon their estimated fair values. The excess of the
purchase price over the fair value of the net assets acquired of
$23,225 was recorded as goodwill.
The Company has estimated the adjustments to allocate the merger
consideration to the assets and liabilities of TSG based on their
estimated fair values. The allocations are subject to final
determinations based on independent appraisals and other evaluations
of fair value as of the acquisition date. Therefore, the allocations
reflected in the accompanying condensed consolidated balance sheet
at December 31, 1997 may differ from the amounts ultimately
determined. Differences between the amounts included herein and the
final allocations are not expected to have a material effect on the
Company's consolidated financial statements.
13
<PAGE>
A summary of the book value of the assets and liabilities of TSG at
December 18, 1997 as compared to their estimated fair values reflected
in the accompanying condensed consolidated balance sheet at December
31, 1997 is set forth below.
Estimated
Book Fair
Value Value
-------- --------
Cash and temporary investments $239 $239
Accounts receivable 3,703 3,703
Inventories 11,103 6,490
Refundable income taxes 469 469
Deferred tax asset, current 463 3,446
Prepaid expenses and other current assets 12 12
Property, plant and equipment 662 782
Intangible assets 1,022 7,530
Other assets 29 29
Accounts payable and accrued expenses (4,267) (4,992)
Borrowings under lines of credit (3,970) (3,970)
Deferred tax liability, non-current - (1,358)
------- -------
Net assets acquired 9,465 12,380
Excess of purchase price over
net assets acquired 3,122 23,225
------- -------
Total $12,587 $35,605
======= =======
The Company intends to discontinue certain products manufactured and
marketed by TSG. The allocation of merger consideration to the
estimated fair value of inventories has been decreased by $4,810 to
reflect the estimated net realizable value of such inventories.
Identifiable intangible assets are comprised of TSG's trade names at
an estimated fair value of $2,869, assembled workforce at an estimated
fair value of $1,372, product software at an estimated fair value of
$847, patented technology at an estimated fair value of $419 and
customer contracts at an estimated fair value of $2,023.
At December 31, 1997, TSG had net operating loss carryforwards of
$11,098 available to reduce future taxable income, which expire from
1998 to 2010. However, the utilization of these net operating loss
carryforwards is subject to an annual limitation of approximately $200
as a result of a previous change in ownership of TSG. Accordingly,
future tax benefits of net operating loss carryforwards of
approximately $2,909 will not be realized, and a corresponding
valuation allowance has been provided in the purchase price
allocation.
The fair value of accrued liabilities includes the estimated costs to
terminate the employment of certain employees of TSG and to relocate
certain employees and property of TSG. These costs have been
estimated based on the Company's preliminary integration and
consolidation plan. Employee termination costs reflecting the
estimated cost of severance and salary continuation arrangements and
related employee benefits have been estimated at $319. The costs of
relocating employees and property of TSG have been estimated at $405.
14
<PAGE>
The fair value of the intangible assets included in the allocation of
the purchase price are being amortized over their estimated useful
lives as follows:
Goodwill 35 years
Tradenames 35 years
Assembled workforce 35 years
Product software 5 years
Patented technology 4 years
Customer contracts 3.45 years
Lucent Technologies
- -------------------
On September 30, 1997, the Company acquired from Lucent Technologies
Inc. ("Lucent") certain assets related to Lucent's payphone
manufacturing and component parts business. The purchase price,
including estimated acquisition expenses of $150, was $6,040, subject
to adjustment based on the difference between the book value of
inventories determined pursuant to the acquisition agreement and
$3,849. Assets acquired from Lucent included inventories, machinery,
equipment, tooling and certain other assets related to the payphone
manufacturing and component parts business conducted by Lucent, as
well as a license of certain patent and other intellectual property
rights related thereto.
On October 2, 1997, the Company borrowed an aggregate of $6,850 under
the terms of bank promissory notes to finance the Lucent acquisition,
including acquisition expenses, debt issuance expenses of $57 and
other general corporate activities, including acquisition of
equipment. These notes consisted of an installment note in the
principal amount of $3,050 payable in eighty four equal monthly
installments of $37, a term note in the principal amount of $2,850 due
March 31, 1998 and a term note in the principal amount of $950 due
March 31, 1998. The notes were collateralized by the assets of the
Company and bore interest at the bank's floating 30 day Libor rate
plus 2.25% (7.9% upon issuance). Proceeds from these aforementioned
notes were used to pay the purchase price payable obligations recorded
at September 30, 1997, acquisition expenses, and the debt issuance
expenses related to the Lucent acquisition, which aggregated $6,094.
On November 25, 1997, the Company repaid all of the aforementioned
notes from the proceeds drawn under a $15,000 revolving credit line
entered into on November 25, 1997.
A summary of the allocation of the purchase price to the assets
acquired as of September 30, 1997, based on the Company's estimates
of their fair values is set forth below.
Inventories $3,999
Equipment and tooling 500
Intangible Assets 1,541
------
Total purchase price $6,040
======
The accompanying consolidated statements of operations for the three
months and nine months ended December 31, 1997 reflect the effects of
the Lucent acquisition from the acquisition date.
15
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
(Dollars in thousands)
Quarter ended December 31, 1997, compared to the quarter ended December
31, 1996:
Net sales for the quarter ended December 31, 1997 ("third quarter
1998"), increased from $7,206 for the quarter ended December 31, 1996
("third quarter 1997") to $13,592, an increase of $6,386, or
approximately 89%, principally as a result of an increase in sales of
products to customers in the Independent Private Payphone ("IPP")
market of $450, or approximately 11%, from $3,936 for the third quarter
1997 to $4,386 for the third quarter 1998, an increase in sales of
products to customers in the Regulated Telephone ("Telco") market of
$5,992 from $34 for the third quarter 1997 to $6,026 for the third
quarter 1998 due to the TSG and Lucent acquisitions described above,
a decrease in sales of products to customers in the International
market of $366, or approximately 12%, from $2,999 for the third quarter
1997 to $2,633 for the third quarter 1998 due to timing and delays in
delivery of orders, and an increase of sales of parts and miscellaneous
other sources of revenue of $310, or approximately 130%, from $237 for
the third quarter 1997 to $547 for the third quarter 1998. Sales to
international customers accounted for approximately 19% of net sales
for the third quarter 1998 as compared to approximately 42% for the
third quarter 1997. Third quarter 1998 sales include sales of $580 by
the Company to TSG prior to the acquisition date.
Cost of sales as a percentage of net sales increased to 63% for the
third quarter 1998 from 60% for the third quarter 1997 principally as
a result of the increase in sales of lower margin products to the Telco
market. As a result of the acquisitions described above, the Company
believes that its sales to the Telco markets will increase compared to
historical sales to such markets. Because sales of products to the
Telco markets have lower margins than many of the other markets to
which the Company sells, the Company also believes its cost of sales
as a percentage of net sales will be higher compared to that percentage
for the Company on a historical basis.
Research and development costs increased by $561, or approximately 81%,
from $692 in the third quarter 1997 to $1,253 in the third quarter 1998
due to the expansion of resources to support development and
engineering activities related to technology and products acquired from
Lucent and TSG. Selling, general and administrative expenses increased
by $1,083, or approximately 77%, from $1,398 in the third quarter 1997
to $2,481 in the third quarter 1998 principally as a result of an
increase in the Company's allowance for doubtful accounts, expenses of
defending the Bethlahmy class action lawsuit, an expansion of marketing
resources to support domestic and international initiatives, and an
increase in expenses resulting from the acquisition of TSG.
Amortization expense increased by $124 from $9 for the third quarter
1997 to $133 for the third quarter 1998 due to the amortization of
intangibles resulting from the Lucent and TSG acquisitions. Interest
income increased by $23, or approximately 29%, from $78 in the third
quarter 1997 to $101 in the third quarter 1998 due to an increase in
the Company's note portfolio. Interest expense increased by $135, or
approximately 500%, from $27 in the third quarter 1997 to $162 in the
third quarter 1998 due to the increase in outstanding debt related to
the Lucent and TSG acquisitions.
16
<PAGE>
Nine months ended December 31, 1997, compared to the nine months ended
December 31, 1996:
Net sales for the nine months ended December 31, 1997 ("nine-months
1998"), increased from $18,858 for the nine months ended December 31,
1996 ("nine-months 1997") to $27,975, an increase of $9,117, or
approximately 48%, principally as a result of an increase in sales of
products to customers in the IPP market of $2,033, or approximately
16%, from $12,376 for the nine-months 1997 to $14,409 for the nine-months
1998, an increase in sales of products to customers in the Telco
market of $6,877 from $224 for the nine-months 1997 to $7,101 for the
nine-months 1998 due to the TSG and Lucent acquisitions, a decrease in
sales of products to customers in the International market of $405, or
approximately 7%, from $5,624 for the nine-months 1997 to $5,219 for
the nine-months 1998 due to timing and delays in delivery of orders,
and an increase of sales of parts and miscellaneous other sources of
revenue of $612, or approximately 97%, from $634 for the nine-months
1997 to $1,246 for the nine-months 1998. Sales to international
customers accounted for approximately 19% of net sales for the
nine-months 1998 as compared to approximately 30% for the nine-months 1997.
Cost of sales as a percentage of net sales decreased to 59% for the
nine-months 1998 from 60% for the nine-months 1997.
Research and development costs increased by $863, or approximately 45%,
from $1,932 in the nine-months 1997 to $2,795 in the nine-months 1998
due to the expansion of development and engineering activities related
to technology acquired from Lucent and TSG. Selling, general and
administrative expenses increased by $2,167, or approximately 54%, from
$4,033 in the nine-months 1996 to $6,200 in the nine-months 1998
principally as a result of an increase in the Company's allowance for
doubtful accounts, expenses of defending the Bethlahmy class action
lawsuit, an expansion of sales and marketing resources to support
domestic and international initiatives, increased costs of customer
conferences and an increase in expenses resulting from the TSG
acquisition. In addition the Company recorded a non-recurring
reduction to its provision for doubtful accounts in the second quarter
1997 due to cash collection or product return of previously reserved
amounts. Amortization expense increased by $123 from $22 for the
nine-months 1997 to $145 for the nine-months 1998 due to the amortization
of intangibles resulting from the Lucent and TSG acquisitions. Interest
income increased by $30, or approximately 13%, from $235 in the
nine-months 1997 to $265 in nine-months 1998 due to an increase in the
Company's note receivable portfolio. Interest expense increased by
$95, or approximately 88%, from $108 in the nine-months 1997 to $203
in the nine-months 1998 due to the increase in outstanding debt related
to the TSG and Lucent acquisitions.
17
<PAGE>
Liquidity and Capital Resources
- -------------------------------
(Dollars in thousands)
The Company's current assets increased by $23,169, or approximately
211%, from $10,982 at March 31, 1997 to $34,151 at December 31, 1997,
predominantly from an increase in accounts receivable of $10,012
(approximately $5,271 of which represents accounts receivable of TSG
and the remainder resulting from the higher level of sales by the
Company, including of products purchased from Lucent) and an increase
of $745 in notes receivable (related to the higher level of sales to
the IPP market by the Company), an increase of $9,437 in inventory
(approximately $4,000 of which is related to the Lucent acquisition and
$4,460 of which is related to the TSG acquisition), and an increase in
the deferred tax asset of $3,392 which is related to the TSG
acquisition. Current liabilities increased by $5,797, or approximately
188%, from $3,085 at March 31, 1997 to $8,882 at December 31, 1997
predominantly from liabilities of approximately $3,285 acquired from
TSG and the remainder an increase in accounts payable and accrued
expenses resulting from the Company's increased sales activity.
From August 31, 1995 until November 25, 1997, the Company 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 was at the bank's floating 30 day Libor
rate plus 2.75%. The Company borrowed against and repaid 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 1998 ranging from $0 to $1,500.
On October 2, 1997, the Company borrowed an aggregate of $6,850 under
bank promissory notes in connection with financing the Lucent
acquisition described above. $3,050 of that bank debt was payable in
84 equal monthly installments ending October 2, 2004 and an aggregate
principal amount of $3,800 is represented by two term notes that were
due on March 31, 1998. See "Acquisitions" for a more complete
description of these bank promissory notes.
On November 25, 1997, the Company refinanced the $2,000 working capital
line of credit, the $3,050 term note due on October 2, 2004 and the
$3,800 term notes that were due on March 31, 1998, with a new $15,000
revolving line of credit which matures on November 25, 2002. Interest
on amounts borrowed on the line of credit is at the bank's floating 30
day Libor rate plus 1.5%. In addition, on November 26, 1997, the
Company refinanced its mortgage note, which had a principal balance of
$315 and a maturity date of May 23, 1999, with a new mortgage note in
the amount of $1,920, at the same fixed interest rate of 8.5%, which
matures in five years, but whose monthly payments are based on a 15
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
December 31, 1998.
18
<PAGE>
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, Disclosure of
Information about Capital Structure ("SFAS 129"). SFAS 129 requires
a Company to explain the privileges and rights of its various
outstanding securities, the number of shares issued upon conversion,
exercise or satisfaction of required conditions during the most recent
annual fiscal period, liquidation preferences of preferred stock and
other matters with respect to preferred stock. Although the statement
is effective for periods ending after December 15, 1997, the Company's
financial statement disclosures are in compliance with SFAS 129.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined
as the change in equity of a business during a period from transactions
and events and circumstances from non-owner sources, and includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners. SFAS 130 is
effective for fiscal years beginning after December 15, 1997. The
adoption of SFAS 130 is not expected to have a material effect on the
Company's results of operations or financial position.
Also, in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS
131 requires public entities to report certain information about
operating segments, their products and services, the geographic areas
in which they operate, and their major customers, in complete financial
statements and in condensed interim financial statements issued to
stockholders. SFAS 131 is effective for fiscal years beginning after
December 15, 1997. The adoption of SFAS 131 is not expected to have
a material effect on the Company's results of operations or financial
position.
19
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
-----------------
Nogah Bethlahmy, et al. plaintiffs v. Randy S. Kuhlmann, et al. defendants.
- ---------------------------------------------------------------------------
San Diego Superior Court Case No. 691635.
As previously reported, this putative class action was filed
in the Superior Court of the State of California for the County of San
Diego alleging that Amtel Communications, Inc. ("Amtel"), a former
customer of the Company that filed for bankruptcy, 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 and Item I, Legal
Proceedings of Part II of the Company's Form 10-Q for the quarters
ended September 30, 1996, June 30, 1997 and September 30, 1997.
In July 1997 plaintiffs' motion for class certification was
tentatively denied, without prejudice, but the court permitted the
plaintiffs to obtain additional evidence which the court could use to
reconsider the court's previous denial of plaintiffs' motion to certify
the class. On December 9, 1997, the court granted the plaintiffs'
motion to certify the class. The Company disputes liability and
intends to defend this matter vigorously, although the Company cannot
predict the ultimate outcome of this litigation.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On December 5, 1997, the Company held its Annual Meeting of
Shareholders (the "Meeting"). The matters voted upon at the Meeting
were the election of directors, a proposal to approve the issuance of
shares of common stock of the Company in connection with the proposed
merger of Elcotel Hospitality Services, Inc., a wholly owned subsidiary
of the Company, into Technology Service Group, Inc., a proposal to
approve an amendment to the Certificate of Incorporation of the Company
to increase the number of shares of common stock authorized for
issuance to 30,000,000, a proposal to amend the 1991 Stock Option Plan,
a proposal to amend the Directors Stock Option Plan and ratification
of the appointment of Deloitte & Touche LLP as the Company's
independent accountants for the fiscal year ending March 31, 1998.
At the Meeting, the Shareholders were asked to elect seven
directors with each director to serve until the next annual meeting of
shareholders or until the election and qualification of a respective
successor. All of the nominees for director recommended by the Board
of Directors were elected and the results of the voting were as
follows:
20
<PAGE>
Votes
Name Votes For Withheld
---------------- --------- --------
Tracey L. Gray 7,812,825 191,550
C. Shelton James 7,812,675 191,700
Dwight Jasmann 7,812,875 191,500
Charles H. Moore 7,802,275 202,100
Thomas E. Patton 7,812,675 191,700
T. Raymond Suplee 7,812,675 191,700
Thomas R. Wiltse 7,802,275 202,100
In connection with the Company's acquisition of TSG, on
December 18, 1997 Thomas R. Wiltse and T. Raymond Suplee resigned as
directors of the Company, and David Steadman, Mark Plaumann and Kenneth
Rubin (who resigned on February 6, 1998 and was replaced by Joseph M.
Jacobs) were elected directors of the Company.
At the Meeting, the shareholders were asked to act upon a
proposal to approve the issuance of common stock in connection with the
proposed merger of Elcotel Hospitality Services, Inc., a wholly owned
subsidiary of the Company, into Technology Service Group, Inc. The
outcome of the voting was: 4,279,233 For; 460,648 Against; 13,280
Abstentions; and 3,251,214 broker non-votes.
At the Meeting, the shareholders were asked to act upon a
proposal to amend the Certificate of Incorporation of the Company to
increase the number of common stock authorized for issuance to
30,000,000. The outcome of the voting was: 7,553,368 For, 56,121
Against; and 394,886 Abstensions.
At the Meeting, the shareholders were asked to act upon a
proposal to amend the 1991 Stock Option Plan to increase the number of
shares reserved for issuance under the plan by 500,000. The outcome
of the voting was: 4,275,024 For; 315,941 Against; 162,196 Abstentions;
and 3,251,214 broker non-votes.
At the Meeting, the shareholders were asked to act upon a
proposal to, among other things, amend the Directors Stock Option Plan
to increase the number of shares reserved for issuance under the plan
by 50,000. The outcome of the voting was: 5,281,753 For; 366,744
Against; 174,433 Abstentions; and 2,181,445 broker non-votes.
At the Meeting, the shareholders ratified the appointment of
Deloitte & Touche LLP as the Company's independent public accountants
for the fiscal year ending March 31, 1998, and the outcome of the
voting was: 7,852,040 For; 9,250 Against; and 143,085 Abstentions.
21
<PAGE>
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:
A Current Report on Form 8-K dated September 30, 1997
was filed in connection with the Registrant's
acquisition of certain assets related to the Lucent
Technologies, Inc. payphone manufacturing and component
parts business.
A Current Report on Form 8-K dated December 18, 1997
was filed in connection with the Registrant's
acquisition of Technology Service Group, Inc. ("TSG")
via the merger of Elcotel Hospitality Services, Inc.,
a direct wholly owned subsidiary of the Registrant
("EHS"), into TSG, pursuant to the Agreement and Plan
of Merger dated as of August 13, 1997 (as amended)
among the Registrant, TSG and EHS.
22
<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: February 17, 1998 By: /s/ Ronald M. Tobin
------------------------
Ronald M. Tobin
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit Method of
Number Description Filing
- ------- ----------- -----------------------
10.1 Restated Loan Agreement between
Elcotel, Inc. and NationsBank, N.A.
dated November 25, 1997. Included in this report.
10.2 Consolidated Promissory Note between
Elcotel, Inc. and NationsBank, N.A.
dated November 25, 1997. Included in this report.
10.3 Mortgage Modification and Future
Advance Agreement between
Elcotel, Inc. and NationsBank, N.A.
dated November 26, 1997. Included in this report.
10.4 Consolidated Promissory Note between
Elcotel, Inc. and NationsBank, N.A.
dated November 26, 1997. Included in this report.
E-1
<PAGE>
EXHIBIT 10.1
- -------------
NATIONSBANK, N.A.
RESTATED LOAN AGREEMENT
-----------------------
This Restated Loan Agreement (the "Agreement") dated as of
November 25, 1997, by and between NationsBank, N.A. f/k/a
NationsBank, N.A. (South) as successor in interest to NationsBank
of Florida, N.A., a national banking association ("Bank" or
"Lender") and the Borrower described below. This Agreement shall
replace and supersede that certain loan agreement dated August
31, 1994, as amended, between Bank and Borrower.
In consideration of the Loan or Loans described below and
the mutual covenants and agreements contained herein, and
intending to be legally bound hereby, Bank and Borrower agree as
follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any
other terms defined herein, the following terms shall have the
meaning set forth with respect thereto:
A. Borrower: Elcotel, Inc. ("Elcotel"), Elcotel
Direct, Inc., ("Elcotel Direct") and Elcotel Hospitality
Services, Inc., ("Elcotel Hospitality"), all Delaware
corporations, and all subsidiaries, each jointly and severally.
B. Borrower's Address:
6428 Parkland Drive
Sarasota, FL 34243
C. Collateral. As collateral for the Loan and any
other indebtedness of the Borrower, Borrower has granted a first
priority lien on all assets of Borrower, now owned or hereinafter
acquired and wherever located, including but not limited to all
accounts receivable, notes receivable and inventory of Borrower.
D. Current Assets. Current Assets means the aggregate
amount of all of its assets which would, in accordance with GAAP,
properly be defined as current assets, but excluding the
following items, if any: N/A
E. Current Liabilities. Current Liabilities means the
aggregate amount of all current liabilities as determined in
accordance with GAAP, but in any event shall include all
liabilities except those having a maturity date which is more
than one year from the date as of which such computation is being
made.
<PAGE>
F. 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).
G. Domestic Accounts Receivable. Domestic Accounts
Receivable shall mean trade accounts receivable of Borrower
arising from and after the date hereof from the sale of goods in
the ordinary course of business to any entity formed under the
laws of the United States of America, and its territories, or its
50 states.
H. Eligible Accounts Receivable. Eligible Accounts
Receivable means: (1) All Domestic Accounts Receivable of the
Borrower, which, as of the date of any such determination: (i)
are not owed by or in respect of a director, officer, employee,
agent, subsidiary or affiliate of the Borrower; (ii) have not
been owing for more than 90 days from the invoice date relating
thereto; (iii) are not accounts with respect to which the
Borrower is or might become liable to the account debtor for
goods sold or services rendered to the Borrower; and (iv) are not
owed by the United States or any agency, department or
instrumentality thereof; (2) All Foreign Open Accounts Receivable
of the Borrower which as of the date of any such determination
have not been owing for more than ninety (90) days from the
invoice date relating thereto, provided however that the total of
all such Foreign Open Accounts Receivable to be included in the
Borrowing Base shall not exceed 10% of the total of all Eligible
Accounts Receivable including Foreign Open Accounts Receivable;
(3) All other Foreign Accounts Receivable, except for Foreign
Open Accounts Receivable, of Borrower which are (i) secured by
letters of credit which are satisfactory to Bank in its sole
discretion (ii) covered by export credit insurance or an Exim
Bank guaranty satisfactory to Bank in its sole discretion, (iii)
are factored through Bank or an affiliate of Bank or (iv) for
goods shipped through international site documentation and
collection satisfactory to Bank in its sole discretion.
I. Eligible Inventory. That portion of inventory on
hand exclusive of any work in progress and excluding equipment.
J. Foreign Accounts Receivable. Foreign Accounts
Receivable shall mean trade accounts receivable of Borrower
arising from and after the date hereof from the sale of goods in
the ordinary course of business to any entity not formed under
the laws of the United States of America, and its territories, or
any of its 50 states.
2
<PAGE>
K. Foreign Open Accounts Receivable. Foreign Open
Accounts Receivable shall mean those Foreign Accounts Receivable
of Borrower which are not: (i) secured by letters of credit
satisfactory to Bank, (ii) covered by export credit insurance or
an Exim Bank guaranty satisfactory to Bank, (iii) factored
through the Bank or an affiliate of the Bank, or (iv) for goods
shipped through international site documentation and collections
satisfactory to Bank.
L. Interest Coverage Ratio. Interest Coverage Ratio
means Borrower's earnings before interest and taxes divided by
Borrower's interest expense, as determined in accordance with
GAAP.
M. Loan(s). Loan(s) means collectively any and all
loans heretofore or hereafter made by Bank to the Borrower.
N. Loan Documents. Loan Documents means this Loan
Agreement and any and all promissory notes executed by Borrower
in favor of Bank and all other documents, instruments,
guarantees, certificates and agreements executed and/or delivered
by Borrower, any guarantor or third party in connection with any
Loan, including but not limited to the previous loan documents
executed and delivered in connection with the loans consolidated
by the Line of Credit Note and Mortgage Note.
O. Tangible Net Worth. Tangible Net Worth means the
amount by which total assets exceed total liabilities in
accordance with GAAP, less the following items, if any: (a) ANY
NOTES FROM SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES IN
FAVOR OF BORROWER AND (b) ANY GENERAL INTANGIBLE ASSETS, AS
DETERMINED IN ACCORDANCE WITH GAAP.
P. TSG. TSG shall mean Technology Service Group, Inc.
Q. TSG Merger Agreement. TSG Merger Agreement shall
mean that certain Agreement and Plan of Merger dated as of August
13, 1997 by and among Elcotel, Elcotel Hospitality and TSG.
R. Accounting Terms. All accounting, terms not
specifically defined or specified herein shall have the meanings
generally attributed to such terms under generally accepted
accounting principles ("GAAP"), as in effect from time to time,
consistently applied, with respect to the financial statements
referenced in Section 3.H. and 4.B. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to refinance existing
loans to Borrower in the principal amounts of $2,000,000.00 (with
a current balance of $1,035,000.00), $2,850,000.00, $950,000.00
and $1,408,864.28 of a previous $3,050,000.00 loan, and to make a
3
<PAGE>
new line of credit loan in the amount of $7,791,135.72 for a
total consolidated line of credit loan in the amount of
$15,000,000.00 and to renew a $315,173.80 mortgage loans and to
make a $1,604,826.20 future advance loan to Elcotel to be
consolidated with the $315,173.80 renewal loan for a
$1,920,000.00 consolidated mortgage loan. The obligation to repay
the loans is evidenced by a $2,000,000.00 note dated August 31,
1996 (as extended by Note Modification Agreement dated August 20,
1997), a $2,850,000.00 note dated October 2, 1997, a $950,000.00
note dated October 2, 1997, a $3,050,000.00 note dated October 2,
1997, a $1,408,864.28 and a $7,791,135.72 note both dated
November 25, 1997, all as consolidated by a $15,000,000.00
Consolidation Promissory Note, dated November 25, 1997 (all such
notes together with any other promissory notes heretofore or
hereafter executed by Borrower in favor of Bank and any and all
renewals, extensions or rearrangements thereof being hereafter
collectively referred to as the "Line of Credit Note") and by a
$315,173.80 renewal note, a $1,604,826.20 future advance note and
a $1,920,000.00 Consolidated Promissory Note all dated on or
about even date herewith (such notes together with any and all
renewals, extensions or rearrangements thereof are hereinafter
collectively called the "Mortgage Note") having a maturity date,
repayment terms and interest rate as set forth in the Line of
Credit Note and Mortgage Note.
B. Revolving Credit Feature. Subject to the terms and
provisions of this Agreement, the Line of Credit Note provides
for a revolving line of credit (the "Line") under which Borrower
may from time to time, borrow, repay and re borrow funds, not to
exceed the Borrowing Base formula set forth in paragraph 2.D.
below at any one time outstanding. Requests for advances must be
accompanied by certification of an authorized officer of Borrower
that Borrower is not in default of the Loan Documents. Each
advance under the Line shall be in increments of $1.00 to
facilitate AutoPay or AutoBorrow through the Bank's treasury
management system.
C. Intentionally Deleted.
D. Borrowing Base. Borrowings under the Line of
Credit Note will be based upon a Borrowing Base formula and at no
time will the outstanding principal balance of the Loan exceed
the lesser of: (a) $15,000,000.00 or (b) the sum of 80%f Eligible
Accounts Receivable plus 40% of Eligible Inventory (which
inventory portion of the Loan will be capped at $5,000,000.00)
minus the aggregate face amount of all outstanding Letters of
Credit as hereinafter defined; provided however, from and after
the date hereof through March 31, 1998 the 40% of Eligible
Inventory limitation and the $5,000,000.00 cap on Eligible
Inventory shall not apply. Further provided, commencing April 1,
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1998 such 40% limitation and $5,000,000.00 cap shall be
reinstated and commencing April 1, 1999 the 40% limitation on
Eligible Inventory shall be changed to 30% and the $5,000,000 cap
will remain in place. Borrower, at its expense shall deliver or
cause to be delivered to Bank within 30 days of written request
by Bank throughout the term of the Loan, an Eligible Inventory
Report, in form satisfactory to Bank from Borrower or at Bank's
option, some other inspector chosen by Bank listing all of
Borrower's Eligible Inventory on hand. On the day of a draw
request, the Borrower shall submit to Bank a certification, in
form satisfactory to Bank, that Borrower is not in default under
the Loan Agreement, the Line of Credit Note, or other Loan
Documents. Borrower on a consolidated basis, will provide
Borrowing Base Certificates monthly, or at any such time as
required by Bank, which Borrowing Base Certificate shall
calculate the availability under the full commitment of the Line,
in form attached hereto as Exhibit "A", or such other form as
Bank determines to be acceptable in its sole discretion. Included
in the calculation shall be any Letters of Credit which are being
secured by the Loan. The monthly Borrowing Base Certificate shall
be provided within 20 days of month end. If at any time the
outstanding balance of the Note exceeds the Borrowing Base, the
Borrower shall have 30 days to cure such default.
E. Letter of Credit Subfeature. As a subfeature under
the Line, Bank may from time to time issue letters of credit for
the account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided, however, that the
form and substance of each Letter of Credit shall be subject to
approval by Bank in its sole discretion; and provided further
that the aggregate undrawn amount of all outstanding Letters of
Credit shall not at any time exceed the undrawn balance of the
Line of Credit Note. Unless otherwise agreed by the Bank, each
Letter of Credit shall be issued for a term not to exceed one
year, as designated by Borrower, provided, however, if Line of
Credit Note is in default or if any Letter of Credit which shall
have an expiration date subsequent to November 25, 2002 and the
term of the Line of Credit Note is not renewed for a period
beyond such expiration date, upon such default or the maturity
date of the Line of Credit Note, as applicable, Borrower hereby
agrees that Borrower shall either: (i) deposit with Lender and
pledge as security for all outstanding Letter(s) of Credit, cash
in the amount of all outstanding Letter(s) of Credit or other
collateral satisfactory to Bank in its sole discretion, or (ii)
Borrower shall immediately make application to another financing
institution to issue such letters of credit in replacement of the
Letters of Credit and shall agree to such financial institution's
conditions to the issuance of the replacement letters of credit
without reservation. The failure to provide the Bank with (i)
replacement letters of credit for the benefit of beneficiary, as
defined in the Letters of Credit, and the beneficiary's
authorization to cancel the Letters of Credit or (ii) the cash or
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<PAGE>
additional collateral, within fifteen (15) days of Bank's written
request shall constitute an event of default under this Restated
Loan Agreement. In connection with the deposit of cash or
additional collateral, Borrower agrees to execute and deliver
such pledges, security agreements, financing statements or other
loan documents reasonably required by Lender. The undrawn amount
of all Letters of Credit plus any and all amounts paid by Bank in
connection with drawings under any Letter of Credit for which the
Bank has not been reimbursed shall be reserved under the Line and
shall not be available for advances thereunder. Each draft paid
by Bank under a Letter of Credit shall be deemed an advance under
the Line and shall be repaid in accordance with the terms of the
Line; provided however, that if the Line is not available for any
reason whatsoever, at the time any draft is paid by Bank, or if
advances are not available under the Line in such amount due to
any limitation of borrowing set forth herein, then the full
amount of such drafts shall be immediately due and payable,
together with interest thereon, from the date such amount is paid
by Bank to the date such amount is fully repaid by Borrower, at
that rate of interest applicable to advances under the Line. In
such event, Borrower agrees that Bank, at Bank's sole discretion
may debit Borrower's deposit account with Bank for the amount of
such draft.
F. Fees. Borrower will pay to Bank, prior to and as
a condition of Bank issuing the Letter of Credit, and on each
yearly anniversary date of such Letters of Credit with an expiry
date in excess of one year, a fee equal to the greater of: (i)
$300.00, or (ii) one and one half percent (1.5%) of the face
value of each Letter of Credit issued up to $1,000,000.00, and
one percent (1.0%) of the face value of each Letter of Credit
with a face value in excess of $1,000,000.00.
G. Usage Fee. Borrower will pay hereafter on April
10, 1998 and on the 10th day of each calendar quarter thereafter
for the period from and including January 1, 1998 to and
including the maturity date of the Line, a usage fee at a rate
per annum of .25% of the difference between $15,000,000 and the
average daily outstanding principal balance under the Line of
Credit Note. For purposes of this calculation, the portion of
the Line restricted due to issuance of Letters of Credit shall be
deemed outstanding under the Line. The Borrower may at any time
upon written notice to the Bank permanently reduce the amount of
the Line at which time the obligation of the Borrower to pay a
usage fee shall thereupon correspondingly be reduced.
H. Accounts; Increase of Line of Credit Note Interest
Rate. Borrower, to induce Bank to make the Loan, agrees to
maintain its principal operating accounts with Bank. Borrower
acknowledges that the interest rate and terms of the Line of
Credit Note are based upon this covenant and the terms of this
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Agreement, and should Borrower breach this covenant or the terms
of this Agreement, which breach is not cured within five (5)
days, at the option of Bank, the interest rate due under the Line
of Credit Note shall automatically and immediately be adjusted to
two percent (2%) in excess of the non-default interest rate
charged under the Line of Credit Note. The curative period set
forth herein shall not be in addition to any other curative
period set forth in the Loan Documents.
I. Use of Loan Proceeds. Borrower covenants and
agrees with Lender that the future advance loan proceeds shall be
used solely to refinance a portion of that certain $3,050,000.00
note dated October 2, 1997, and that the Line of Credit Note
proceeds shall be used solely to: (i) refinance the remainder of
Borrower's existing debt with Bank, (ii) for loan closing costs,
(iii) to finance the merger of Elcotel Hospitality into TSG
pursuant to the TSG Merger Agreement and (iv) to provide working
capital. In connection therewith, Borrower covenants and agrees
with Lender that no portion of the Line shall be used to finance
the merger of Elcotel Hospitality into TSG unless and until the
following conditions have been met:
(a) the shareholders of TSG and Elcotel Hospitality, at
duly held meetings or by unanimous written consent, approve
the merger of TSG and Elcotel Hospitality pursuant to the
TSG Merger Agreement.
(b) Bank shall have been provided with payoff estoppel
letters from all creditors of TSG holding a security
interest in any of the TSG assets to be indirectly acquired
by Elcotel by acquiring 100% of the Stock of TSG through the
TSG Merger Agreement, and the funds available through the
Line, are sufficient to satisfy all of such debt. In the
event there is a deficiency between the funds available
under the Line and the amount necessary to satisfy all of
such debt, prior to advancing funds Borrower shall provide
to Bank sufficient funds to fully pay such deficiency.
(c) Borrower shall not be in default under this
Restated Loan Agreement or other Loan Documents.
(d) Simultaneously with the consummation of the merger
of Elcotel Hospitality into TSG, TSG shall execute and
deliver to Bank such UCC-1 financing statements and
confirmations and assumption of all of Elcotel
Hospitality's obligations under the Loan Documents as
Bank shall require.
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(e) Borrower shall have provided, or Bank obtained,
evidence that upon TSG executing and delivering the
confirmation, assumption and UCC-1 financing statements and
upon payment to the creditors of TSG holding a security
interest in the assets to be indirectly acquired by Elcotel
by acquiring 100% of the stock of TSG, that Bank's security
interest in all of such assets shall be a first priority
security interest.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby
represents and warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly
organized, validly existing and in good standing under the laws
of Delaware and has the power and authority to own its property
and to carry on its business in each jurisdiction in which
Borrower does business with the exception that Elcotel
Hospitality is not yet qualified to do business in the State of
Florida.
B. Authority and Compliance. Borrower has full power
and authority to execute and deliver the Loan Documents and to
incur and perform the obligations provided for therein, all of
which have been duly authorized by all proper and necessary
action of the appropriate governing body of Borrower. No consent
or approval of any public authority or other third party is
required as a condition to the validity of any Loan Document, and
Borrower is in compliance with all laws and regulatory
requirements to which it is subject.
C. Binding Agreement. This Agreement and the other
Loan Documents executed by Borrower constitute valid and legally
binding obligations of Borrower, enforceable in accordance with
their terms.
D. Litigation. There is no proceeding involving
Borrower pending or, to the knowledge of Borrower, threatened
before any court or governmental authority, agency or arbitration
authority, except as disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter,
bylaw, stock provision, partnership agreement or other document
pertaining to the organization, power or authority of Borrower
and no provision of any existing agreement, mortgage, indenture
or contract binding on Borrower or affecting its property, which
would conflict with or in any way prevent the execution, delivery
or carrying out of the terms of this Agreement and the other Loan
Documents.
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F. Ownership of Assets. Borrower has good title to
its assets, and its assets are free and clear of liens, except
those granted to Bank and as disclosed to Bank in writing prior
to the date of this Agreement.
G. Taxes. All taxes and assessments due and payable
by Borrower have been paid or are being contested in good faith
by appropriate proceedings and the Borrower has filed all tax
returns which it is required to file.
H. Financial Statements. The financial statements of
Borrower heretofore delivered to Bank have been prepared in
accordance with GAAP applied on a consistent basis throughout the
period involved and fairly present Borrower's financial condition
as of the date or dates thereof, and there has been no material
adverse change in Borrower's financial condition or operations
since June 30, 1997. To the best of Borrower's knowledge, all
factual information furnished by Borrower to Bank in connection
with this Agreement and the other Loan Documents is and will be
accurate and complete on the date as of which such information is
delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information
not misleading.
I. Place of Business. Borrower's chief executive
office is located at:
6428 Parkland Drive
Sarasota, FL 34243
J. Environmental Matters. The conduct of Borrower's
business operations do not and will not violate any federal laws,
rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency and any applicable local or
state law, rule, regulation or rule of common law and any
judicial interpretation thereof relating primarily to the
environment or Hazardous Materials and Borrower will not use or
permit any other party to use any Hazardous Materials at any of
Borrower's places of business or at any other property owned by
Borrower except such materials as are incidental to Borrower's
normal course of business, maintenance and repairs and which are
handled in compliance with all applicable environmental laws.
Borrower agrees to permit Bank, its agents, contractors and
employees to enter and inspect any of Borrower's places of
business or any other property of Borrower at any reasonable
times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including
taking physical samples) to insure that Borrower is complying
with this covenant and Borrower shall reimburse Bank on demand
for the costs of any such environmental investigation and audit.
Borrower shall provide Bank, its agents, contractors, employees
9
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and representatives with access to and copies of any and all data
and documents relating to or dealing with any Hazardous Materials
used, generated, manufactured, stored or disposed of by
Borrower's business operations within five (5) days of the
request therefore.
K. Continuation of Representation and Warranties. All
representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of
the date of any future advance under any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and
performance of all obligations of Borrower under the Loan
Documents, Borrower will, unless Bank consents otherwise in
writing (and without limiting any requirement of any other Loan
Document):
A. Financial Condition. Maintain Borrower's financial
condition on a consolidated basis as follows, determined in
accordance with GAAP applied on a consistent basis throughout the
period involved except to the extent modified by the following
definitions:
i. Maintain a consolidated ratio of Current Assets to
Current Liabilities of not less than:
a. 1.5 to 1.0 for each calendar quarter, measured on
a rolling four quarter basis from company prepared
statements.
b. 1.5 to 1.0 for fiscal year end measured from the
consolidated audited financial statements of
Borrower.
ii. Maintain a consolidated Debt Service Coverage Ratio of
not less than 1.3 to 1.0, measured on a rolling four (4)
quarter basis from the consolidated annual and quarterly
financial statements of Borrower.
iii. Maintain a consolidated ratio of Total Liabilities (as
determined in accordance with GAAP) to Tangible Net Worth of
not more than 1.25 to 1.0 measured on a rolling four quarter
basis for each calendar quarter and fiscal year end.
iv. Maintain a consolidated Interest Coverage Ratio of
greater than 3.0 to 1.0 measured on a rolling four quarter
basis from the consolidated annual and quarterly financial
statements of Borrower.
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B. Financial Statements and Other Information.
Maintain a system of accounting satisfactory to Bank and in
accordance with GAAP applied on a consistent basis throughout the
period involved, permit Bank's officers or authorized
representatives to visit and inspect Borrower's books of account
and other records at such reasonable times and as often as Bank
may desire, and pay the reasonable fees and disbursements of any
accountants or other agents of Bank selected by Bank for the
foregoing purposes. Unless written notice of another location is
given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial
statements called for below shall be prepared in form and content
acceptable to Bank and by independent certified public
accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank unqualified and audited financial
statements of Borrower on a consolidated and consolidating basis
for each fiscal year of Borrower, within 120 days after the close
of each such fiscal year.
ii. Furnish to Bank company prepared financial statements
(including a balance sheet and profit and loss statement and
including results for the immediately preceding twelve month
period) of Borrower on a consolidated and consolidating basis for
each quarter of each fiscal year of Borrower, within 45 days
after the close of each such period.
iii. Furnish to Bank a compliance certificate for (and
executed by an authorized representative of) Borrower,
concurrently with and dated as of the date of delivery of each of
the financial statements as required in paragraphs i and ii
above, containing (a) a certification that the financial
statements of even date are true and correct and that the
Borrower is not in default under the terms of this Agreement, and
(b) computations and conclusions, in such detail as Bank may
request, with respect to compliance with all representations,
warranties, and covenants contained in this Agreement, and the
other Loan Documents, and including computations of all
quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and
financial condition of Borrower, from time to time, as Bank may
reasonably request including but not limited to all filings with
the Securities and Exchange Commission as and when filed.
C. Insurance. Maintain product liability insurance
for all its products, in amounts and form satisfactory to Bank
from an insurer acceptable to Bank in its sole discretion.
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Maintain insurance with responsible insurance companies on such
of its properties, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the
same vicinity, specifically to include fire and extended coverage
insurance covering all assets, business interruption insurance,
workers compensation insurance and liability insurance, all to be
with such companies and in such amounts as are satisfactory to
Bank and with respect to insurance on the Collateral, to contain
a mortgagee clause naming Bank as a loss payee or an additional
insured (as applicable) as its interest may appear and providing
for at least 30 days prior notice to Bank of any cancellation
thereof. Satisfactory evidence of such insurance will be supplied
to Bank 30 days prior to each policy renewal. Bank acknowledges
that Liberty Mutual Insurance Company and the current coverages
disclosed to Bank are acceptable to Bank.
D. Existence and Compliance. Maintain its existence,
good standing and qualification to do business, where required
and comply with all applicable laws, regulations and governmental
requirements including, without limitation, the Occupational
Safety and Health Act, Pension Guaranty Board requirements,
Employee Retirement Income Security Act, Americans with
Disabilities Act, Environmental Protection Agency regulations,
and any other environmental laws applicable to it or to any of
its property, business operations and transactions. Elcotel
covenants and agrees immediately after the merger of Elcotel
Hospitality into TSG to cause TSG to file with the applicable
governmental agency to qualify to do business in the State of
Florida and to provide to Bank evidence within 30 days from the
date hereof that it has so qualified to do business in the State
of Florida.
E. Adverse Conditions or Events. Promptly advise Bank
in writing of (i) any condition, event or act which comes to its
attention that would or might materially adversely affect
Borrower's financial condition or operations, the Collateral, or
Bank's rights under the Loan Documents, (ii) any litigation filed
by or against Borrower exceeding $50,000, (iii) any event that
has occurred that would constitute an event of default under any
Loan Documents and (iv) any uninsured or partially uninsured loss
through fire, theft, liability or property damage in excess of an
aggregate of $25,000.00.
F. Taxes and Other Obligations. Pay all of its
taxes, assessments and other obligations, including, but not
limited to taxes, costs or other expenses arising out of this
transaction, as the same become due and payable, except to the
extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
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G. Maintenance. Maintain all of its tangible property
in good condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks,
privileges, permits, franchises, certificates and the like
necessary for the operation of its business.
H. Notification of Environmental Claims. Borrower
shall immediately advise Bank in writing of (i) any and all
enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant
to any applicable federal, state, or local laws, ordinances or
regulations relating to any Hazardous Materials affecting
Borrower's business operations; and (ii) all claims made or
threatened by any third party against Borrower relating to
damages, contribution, cost recovery, compensation, loss or
injury resulting from any Hazardous Materials. Borrower shall
immediately notify Bank of any remedial action taken by Borrower
with respect to Borrowers business operations.
I. Facilities Leases. Except as waived in writing by
Bank from time to time, cause the landlord's lien rights, if any,
arising from all facilities leased to Borrower to be fully
subordinate to the Loan Documents.
J. Borrower covenants and agrees that within 60 days
from the date hereof, Borrower will provide to Lender, a company
prepared balance sheet for Borrower setting forth the new loan
indebtedness to Bank and the equity structure of Borrower
(including the assets acquired pursuant to the TSG Merger
Agreement).
5. NEGATIVE COVENANTS. Until full payment and performance
of all obligations of Borrower under the Loan Documents, Borrower
will not, without the prior written consent of Bank (and without
limiting any requirement of any other Loan Documents):
A. Capital Expenditures. Make non-financed capital
expenditures during each fiscal year (including capitalized
leases) exceeding in the aggregate $500,000.00
B. Transfer of Assets or Control. Sell, lease, assign
or otherwise dispose of or transfer any assets, except in the
normal course of its business, or enter into any merger,
consolidation, partnership, joint venture, sale/leaseback
agreement, or transfer control or ownership of the Borrower or
create or acquire any subsidiary, not a party to the agreements
executed in connection with the Loan. Provided however, Bank
hereby consents to the merger between TSG and Elcotel Hospitality
pursuant to the TSG Merger Agreement.
C. Liens. Grant, suffer or permit any contractual or
noncontractual lien on, or security interest in, its assets,
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except in favor of Bank, and except for any purchase money
security interest in chattels; or fail to promptly pay when due
all lawful claims, whether for labor, materials or otherwise.
D. Extensions of Credit. Make any loan or advance to
any officers or stockholders of Borrower, or any individual,
partnership, corporation or other entity.
E. Borrowings. Create, incur, assume or become liable
in any manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety or
guarantor for the debt for another, or otherwise) other than to
Bank, except for normal trade debts and credit leases incurred in
the ordinary course of Borrower's business, and except for
existing indebtedness disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement.
F. Dividends and Distributions. Make any distribution
(other than dividends payable in capital stock of Borrower) on
any shares of any class of its capital stock, or apply any of
property or assets to the purchase, redemption or other
retirement of any shares of any class of capital stock of
Borrower, or in any way amend its capital structure, or pay any
dividends if in default.
G. Character of Business. Change the general
character of business as conducted at the date hereof, or engage
in any type of business not reasonably related to its business as
presently conducted.
H. Acquire or purchase any stocks,
partnership interest or other equity interest in any other
entity; provided however Borrower shall be entitled to acquire,
purchase or invest in obligations of the U.S. Government and its
agencies and shall be entitled to acquire, purchase or invest in
a capital stock of any subsidiary of Borrower.
6. DEFAULT. Borrower shall be in default under this
Agreement and under each of the other Loan Documents if any of
the following events occurs before the loan is fully repaid:
A. Default in Payment. Any default in the payment of
principal and/or interest due and owing under the Loans.
B. Failure of Performance. Any failure to timely and
properly observe, keep or perform any term, covenant, agreement
or condition in any Loan Document or in any other loan agreement,
promissory note, security agreement, deed of trust, mortgage,
assignment or other contract securing or evidencing payment of
any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation.
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C. Violation of Representations or Warranties
Provision. Any warranty, representation, or statement made or
furnished to the Bank by Borrower in connection with the Loans
and this Agreement (including any warranty, representation, or
statement in the Borrower's financial statement(s)) or to induce
the Bank to renew the Loans is untrue or misleading in any
material respect.
D. Bankruptcy. Any voluntary or involuntary bankruptcy,
reorganization, insolvency, arrangement, receivership, or similar
proceeding is commenced by or against Borrower under any federal
or state law, or Borrower makes any assignment for the benefit of
creditors.
E. Cross-Default. Any default hereunder shall
constitute a default under any other mortgage, note, obligation
or agreement of Borrower held by Bank. The agreements contained
in this paragraph to create cross defaults under all mortgages,
notes, obligations and agreements between Borrower and Bank,
whether currently existing or hereafter created, in the event of
a default under one or more of such mortgages, notes, obligations
or agreements is a material and specific inducement and
consideration for the making by Bank of the Loan evidenced by the
Line of Credit Note and Mortgage Note.
7. REMEDIES UPON DEFAULT. If an event of default shall
occur Bank shall have all rights, powers and remedies available
under each of the Loan Documents as well as all rights and
remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any
party is required or may desire to give to any other party under
any provision of this Agreement must be in writing delivered to
the other party at the following address:
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Borrower:
Elcotel Direct, Inc.
Elcotel Hospitality Services, Inc.
Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: Ronald M. Tobin
Bank:
NationsBank, N.A.
1605 Main Street
Sarasota, FL 34236
Attn: Nathan Coon, Vice President
or to such other address as any party may designate by written
notice to the other party. Each such notice, request and demand
shall be deemed given or made as follows:
A. If sent by hand delivery, upon delivery;
B. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first
class postage prepaid.
9. COSTS. EXPENSES AND ATTORNEYS FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all costs
and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Bank's in house
counsel), incurred by Bank in connection with (a) a default
hereunder by Borrower, and (b) Bank's continued administration
after such default.
10. MISCELLANEOUS. Borrower and Bank further covenant and
agree as follows, without limiting any requirement of any other
Loan Document:
A. Cumulative Rights and No Waiver. Each and every
right granted to Bank under any Loan Document, or allowed it by
law or equity shall be cumulative of each other and may be
exercised in addition to any and all other rights of Bank, and no
delay in exercising any right shall operate as a waiver thereof,
nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of
any other right. Borrower expressly waives any presentment,
demand, protest or other notice of any kind, including but not
limited to notice of intent to accelerate and notice of
acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice
or demand in similar or other circumstances.
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B. Applicable Law. This Restated Loan Agreement and
the rights and obligations of the parties hereunder shall be
governed by and interpreted in accordance with the laws of
Florida and applicable United States federal law.
C. Amendment. No modification, consent, amendment or
waiver of any provision of this Restated Loan Agreement, nor
consent to any departure by Borrower therefrom, shall be
effective unless the same shall be in writing and signed by an
officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This
Restated Loan Agreement is binding upon Borrower, its successors
and assigns, and inures to the benefit of Bank, its successors
and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be
effective without Bank's prior written consent, nor shall it
relieve Borrower of any obligations hereunder. There is no third
party beneficiary of this Restated Loan Agreement.
D. Documents. All documents, certificates and other
items required under this Restated Loan Agreement to be executed
and/or delivered to Bank shall be in form and content
satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or
invalidity of any provision of this Restated Loan Agreement shall
not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of
any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply
to other persons or circumstances.
F. Indemnification. Borrower shall indemnify, defend
and hold Bank and its successors and assigns harmless from and
against any and all claims, demands, suits, losses, damages,
assessments, fines, penalties, costs or other expenses (including
reasonable attorneys' fees and court costs) arising from or in
any way related to any of the transactions contemplated hereby,
including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or
death, or property damage, due to a release or alleged release of
Hazardous Materials, arising from Borrower's business operations,
any other property owned by Borrower or in the surface or ground
water arising from Borrower's business operations, or gaseous
emissions arising from Borrower's business operations or any
other condition existing or arising from Borrower's business
operations resulting from the use or existence of Hazardous
Materials, whether such claim proves to be true or false.
Borrower further agrees that its indemnity obligations shall
include, but are not limited to, liability for damages resulting
from the personal injury or death of an employee of the Borrower,
17
<PAGE>
regardless of whether the Borrower has paid the employee under
the workmen s compensation laws of any state or other similar
federal or state legislation for the protection of employees. The
term "property damage" as used in this paragraph includes, but is
not limited to, damage to any real or personal property of the
Borrower, the Bank, and of any third parties. The Borrower's
obligations under this paragraph shall survive the repayment of
the Loan and any deed in lieu of foreclosure or foreclosure of
any Deed to Secure Debt, Deed of Trust, Security Agreement or
Mortgage securing the Loan.
G. Survivability. All covenants, agreements,
representations and warranties made herein or in the other Loan
Documents shall survive the making of the Loan and shall continue
in full force and effect so long as the Loan is outstanding.
18
<PAGE>
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY RELATED AGREEMENTS 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 OF 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 THIS AGREEMENT MAY BRING AN ACTION,
INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT
APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
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 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 UP TO AN
ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL
BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE BANK OF
THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 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 FORECLOSE 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, FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. NEITHER THIS
EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES
SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING
THE CLAIMANT IF ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed under seal by their duly authorized
representatives as of the date first above written.
BANK:
NATIONSBANK, N.A.
By:/s/ Nathan Coon
----------------------------
Nathan Coon, Vice President
(CORPORATE SEAL)
BORROWER:
ELCOTEL, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
-------------------------------
Ronald M. Tobin, Vice President and
Chief Financial Officer
(CORPORATE SEAL)
ELCOTEL DIRECT, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
-------------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
ELCOTEL HOSPITALITY SERVICES,
INC., a Delaware corporation
By:/s/ Ronald M. Tobin
-------------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
20
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Nathan Coon, Vice-President of
NATIONSBANK, N.A., a National Banking Association, on behalf of
Bank. He is personally known to me and produced a Florida
Drivers License as identification and did not take an oath.
/s/ Carolyn Landrum
------------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President
and Chief Financial Officer of ELCOTEL, INC., a Delaware
corporation, on behalf of said corporation. He is personally
known to me and produced a Florida Drivers License as
identification and did not take an oath.
/s/ Carolyn Landrum
------------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President of
ELCOTEL DIRECT, INC., a Delaware corporation, on behalf of said
corporation. He is personally known to me and produced a Florida
Drivers License as identification and did not take an oath.
/s/ Carolyn Landrum
------------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
21
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President of
ELCOTEL HOSPITALITY SERVICES, INC., a Delaware corporation, on
behalf of said corporation. He is personally known to me and
produced a Florida Drivers License as identification and did not
take an oath.
/s/ Carolyn Landrum
------------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
22
<PAGE>
EXHIBIT 10.2
- ------------
THIS NOTE CONSOLIDATES THAT NOTE DATED AUGUST 31, 1996 (AS EXTENDED
BY NOTE MODIFICATION AGREEMENT DATED AUGUST 20, 1997) IN THE
PRINCIPAL SUM OF $2,000,000.00, THAT NOTE DATED OCTOBER 2, 1997, IN
THE PRINCIPAL SUM OF $950,000.00, THAT NOTE DATED OCTOBER 2, 1997,
IN THE PRINCIPAL SUM OF $2,850,000.00, AND THAT NOTE DATED NOVEMBER
25, 1997 IN THE PRINCIPAL SUM OF $1,408,864.28, AND THAT NOTE DATED
NOVEMBER 25, 1997 IN THE PRINCIPAL SUM OF $7,791,135.72.
CONSOLIDATION
PROMISSORY NOTE
---------------
Date of Execution: November 25, 1997
Amount: $15,000,000.00
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., a National Banking Association
("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
FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00), 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) 1.5%. 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>
(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 1.5% 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.
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.
<PAGE>
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.
1. Commencing December 25, 1997, and on the same day of each
month thereafter through November 25, 2002, payments of
all accrued and unpaid interest shall be made until
maturity as set forth below.
2. The entire principal balance, together with all accrued
and unpaid interest shall be due and payable in full on
November 25, 2002.
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.
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,
<PAGE>
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 and
Chief Financial Officer
(CORPORATE SEAL)
ELCOTEL DIRECT, INC., a
Delaware corporation
By:/s/ Ronald M. Tobin
-----------------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
ELCOTEL HOSPITALITY SERVICES, INC.,
a Delaware corporation
By:/s/ Ronald M. Tobin
-----------------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President
and Chief Financial Officer of ELCOTEL, INC., a Delaware
corporation, on behalf of said corporation. He is personally
known to me and produced a Florida Drivers License as
identification and did not take an oath.
/s/ Carolyn Landrum
--------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President
of ELCOTEL DIRECT, INC., a Delaware corporation, on behalf of
said corporation. He is personally known to me and produced
a Florida Drivers License as identification and did not take
an oath.
/s/ Carolyn Landrum
--------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
The foregoing instrument was acknowledged before me this
25th day of November, 1997, by Ronald M. Tobin, Vice-President
of ELCOTEL HOSPITALITY SERVICES, INC., a Delaware corporation,
on behalf of said corporation. He is personally known to me
and produced a Florida Drivers License as identification and
did not take an oath.
/s/ Carolyn Landrum
--------------------------
*Carolyn Landrum
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Georgia
My commission expires June 4, 2000
Notary Public, DeKalb County, GA
<PAGE>
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; provided however this shall not apply to
income taxes, Federal, State or otherwise, of the Bank.
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.
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
<PAGE>
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 which has a material effect on Borrower's
business.
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
<PAGE>
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.
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
<PAGE>
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.
(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.
<PAGE>
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.
BORROWER:
ELCOTEL, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
--------------------------
Ronald M. Tobin, Vice President and
Chief Financial Officer
(CORPORATE SEAL)
ELCOTEL DIRECT, INC., a Delaware
corporation
By:/s/ Ronald M. Tobin
--------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
ELCOTEL HOSPITALITY SERVICES,
INC., a Delaware corporation
By:/s/ Ronald M. Tobin
--------------------------
Ronald M. Tobin, Vice President
(CORPORATE SEAL)
<PAGE>
EXHIBIT 10.3
- -------------
Prepared By & Return To:
Timothy S. Shaw, Esq. (bh)
KIRK PINKERTON
720 S. Orange Avenue
Sarasota, Florida 34236
MORTGAGE MODIFICATION AND FUTURE ADVANCE AGREEMENT
--------------------------------------------------
THIS AGREEMENT, executed this 26th day of November, 1997, by
and between NATIONSBANK, N.A., a National Banking Association, as
successor in interest to NATIONSBANK, N.A. (SOUTH) and
NATIONSBANK OF FLORIDA, N.A., herein called "MORTGAGEE", and
ELCOTEL, INC., a Delaware corporation, herein called "MORTGAGOR".
W I T N E S S E T H:
WHEREAS, Mortgagor being indebted to Carl G. Santangelo, as
Trustee of THE ELCOTEL MORTGAGE TRUST, under Declaration of Trust
dated September 27, 1993 (herein called "ASSIGNOR") executed and
delivered to the Mortgagee a certain note dated September 28,
1993, as evidence of said debt, and also executed and delivered a
Mortgage as security therefor of like date, said Mortgage being
recorded in Official Records Book 1416, Page 5745, Public Records
of Manatee County, Florida (the "Mortgage") which Mortgage
secures that certain promissory note dated September 28, 1993, in
the original principal amount of ONE MILLION AND NO/100 DOLLARS
($1,000,000.00) (the "Note"), and encumbers the property (the
"Property") more particularly described as follows:
Lots 9 and 10, Phase II, PARKLAND CENTER,
according to the plat thereof recorded in
Plat Book 22, Pages 77 through 79, Public
Records of Manatee County, Florida.
and
WHEREAS, Assignor has assigned the Note and Mortgage to
Mortgagee by Assignment of Mortgage dated May 20, 1994, recorded
in Official Records Book 1435, Page 4451, of the Public Records
of Manatee County, Florida; and
<PAGE>
WHEREAS, the Mortgage was modified by Mortgage Modification
Agreement dated May 23, 1994, and recorded in Official Records
Book 1435, Page 4456, and by Mortgage Modification Agreement
dated August 31, 1995, and recorded in Official Records Book
1468, Page 2483, of the Public Records of Manatee County,
Florida; and
WHEREAS, Mortgagor has requested Mortgagee to modify the
terms of the Note and Mortgage and Mortgagee has agreed to modify
the Note and Mortgage in accordance herewith.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00)
paid by each party to the other, and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, and the mutual covenants hereinafter set forth, the
parties jointly and severally hereby agree as follows:
1. The Mortgage evidences and secures an unpaid principal
indebtedness of THREE HUNDRED FIFTEEN THOUSAND ONE HUNDRED
SEVENTY THREE AND 80/100 DOLLARS ($315,173.80) on the date of
execution of this Agreement. Mortgagor acknowledges and
certifies that Mortgagor has no claim, demand or setoff
whatsoever against Mortgagee and that Mortgagor is justly
indebted to Mortgagee for the sums set forth above.
2. The maturity date of the Mortgage and the indebtedness
secured thereby is extended to November 26, 2002, as evidenced by
that certain Renewal Note dated of even date herewith in the
amount of THREE HUNDRED FIFTEEN THOUSAND ONE HUNDRED SEVENTY
THREE AND 80/100 DOLLARS ($315,173.80) (the "Renewal Note"),
which Renewal Note is secured by the Mortgage. The required
documentary stamps on the obligation evidenced by the Renewal
Note have been affixed to the Mortgage securing the original
indebtedness renewed hereby, recorded in Official Records Book
1416, Page 5745, Public Records of Manatee County, Florida.
3. Mortgagor hereby acknowledges execution and delivery to
Mortgagee of a ONE MILLION SIX HUNDRED FOUR THOUSAND EIGHT
HUNDRED TWENTY SIX AND 20/100 DOLLAR ($1,604,826.20) Note (the
"Future Advance Note") the maturity date of which is November 26,
2002, which is an obligation in addition to the indebtedness set
forth in paragraph 1, and is a future advance pursuant to and
secured by the Mortgage.
2
<PAGE>
4. The Renewal Note and the Future Advance Note are
consolidated by the terms of that certain Consolidation Note
dated November 26, 1997, in the amount of ONE MILLION NINE
HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS ($1,920,000.00) (the
"Consolidation Note") executed by Mortgagor and delivered to
Mortgagee, the maturity date of which is November 26, 2002, which
Consolidation and Renewal Note is secured by the Mortgage.
5. Mortgagor agrees that a default by Mortgagor on any
note, mortgage or other evidence of indebtedness held by
Mortgagee, shall at the option of Mortgagee also constitute a
default on any other note, mortgage or other evidence of
indebtedness held by Mortgagee.
6. It is the intent of the parties that this instrument
shall not constitute a novation and shall in no way adversely
affect the lien priority of the Mortgage or any other loan
documents delivered by Mortgagor to Mortgagee (collectively, the
"Loan Documents"). In the event that this Agreement, or any part
hereof, shall be construed by a court of competent jurisdiction
as operating to affect the lien priority of the Loan Documents
over the claims which would otherwise be subordinate thereto,
then to the extent that third persons acquiring an interest in
such property between the time of execution of the Loan Documents
and the execution hereof, are prejudiced thereby, this Agreement
or such portion hereof as shall be so construed, shall be void
and of no force and effect and this Agreement shall constitute,
as to that portion, a subordinate lien on the collateral,
incorporating by reference the terms of the Loan Documents, and
which Loan Documents then shall be enforced pursuant to the terms
therein contained, independent of this Agreement; provided,
however, that notwithstanding the foregoing, the parties hereto,
as between themselves, shall be bound by all terms and conditions
hereof until all indebtedness owing from the Mortgagor to the
Mortgagee shall have been paid in full.
7. In consideration of the Mortgagee renewing the
indebtedness set forth above, making the future advance, and
consolidating the indebtedness evidenced by the Consolidation
Note, Mortgagor hereby waives any and all claims, causes of
action and/or defenses against Mortgagee arising prior to the
execution of this Agreement and agrees to hold Mortgagee, its
employees, officers and agents harmless from all matters, claims
and liabilities existing or arising prior to the date hereof.
Mortgagor acknowledges, represents and warrants to Mortgagee that
Mortgagor has no offset or defenses to this Agreement, the
indebtedness evidenced by the Consolidation Note or the Loan
Documents.
8. State of Florida documentary stamps in the amount
required by law for the Renewal Note were affixed to the Mortgage
and were cancelled pursuant to law. Documentary stamps for the
Future Advance Note have been paid upon the recording of this
Mortgage Modification and Future Advance Agreement. The Renewal
Note qualifies for an exemption from payment of documentary
stamps under regulations adopted pursuant to Chapter 201, Florida
Statutes, and therefore, no additional documentary stamps are now
due or payable; however, in the event that the Department of
Revenue, its agents or employees, notifies either Mortgagor or
Mortgagee that the transaction which is the subject of this
3
<PAGE>
Mortgage Modification and Future Advance Agreement is subject to
payment of documentary stamp tax, intangible tax, or any other
such tax, then, in such event, Mortgagor agrees to immediately
remit to the Department of Revenue or to the Mortgagee the full
amount of such tax deemed to be due and payable as requested by
the Department of Revenue. Mortgagor may contest any liability
for such tax payment; however, any such contest shall be taken
solely at the election, cost, and expense of Mortgagor. The
liability of Mortgagor under this provision shall survive the
satisfaction of the obligations referenced hereunder. Any
failure of Mortgagor to comply with the terms and provisions of
this section shall constitute a default under the Renewal Note,
Mortgage, and all other loan documents executed in connection
therewith.
9. All references in the Mortgage to the "Note" shall be
deemed to include the Renewal Note, Future Advance Note, and the
Consolidation Note. All terms, covenants, and conditions of said
Mortgage remain unchanged except as specified above. This
Agreement shall not waive any right or remedy afforded Mortgagee
under said Mortgage. This Agreement shall be binding on the
parties, their heirs, personal representatives, successors and
assigns.
10. Restated Loan Agreement. In connection with this
Agreement, Mortgagor and Mortgagee have entered into that certain
Restated Loan Agreement dated November 26, 1997 (the "Restated
Loan Agreement"). Mortgagor agrees that a default by Mortgagor
under the Restated Loan Agreement shall be a default hereunder.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT
OF OR RELATING TO THE MORTGAGE OR THIS MODIFICATION AGREEMENT OR
ANY RELATED AGREEMENTS 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 OF 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 THIS MODIFICATION AGREEMENT
MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING,
TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
MODIFICATION AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION
OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED
IN BRADENTON, FLORIDA, AND ADMINISTERED BY ENDISPUTE, INC., D/B/A
J.A.M.S/ENDISPUTE WHO WILL APPOINT AN ARBITRATOR; IF
4
<PAGE>
J.A.M.S./ENDISPUTE IS UNABLE OR LEGALLY PRECLUDED FROM
ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN 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 UP TO AN
ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THE MORTGAGE OR
THIS MODIFICATION AGREEMENT SHALL BE DEEMED TO (I) LIMIT THE
APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS MODIFICATION
AGREEMENT; OR (II) BE A WAIVER BY THE MORTGAGEE OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE MORTGAGEE
HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE 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 MORTGAGEE MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION PROCEEDING BROUGHT PURSUANT TO THE MORTGAGE OR THIS
MODIFICATION AGREEMENT. NEITHER THIS EXERCISE OF SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR
FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE
A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OF CLAIM
OCCASIONING RESORT TO SUCH REMEDIES.
IN WITNESS WHEREOF, the parties hereto have set their hands
and seals effective as of the day and year first above written.
Signed, sealed and delivered NATIONSBANK, N.A., a National
in the presence of: Banking Association, as
successor in interest to
NATIONSBANK, N.A. (SOUTH) and
NATIONSBANK OF FLORIDA, N.A.
/s/ Rebecca S. Harshman By:/s/ Nathan Coon
- ----------------------- ---------------------------
*Rebecca S. Harshman Nathan Coon, Vice President
*(Print Name of Witness)
Address: 1605 Main Street
Sarasota, FL 34236
/s/ Timothy S. Shaw
- -----------------------
*Timothy S. Shaw (CORPORATE SEAL)
*(Print Name of Witness)
5
<PAGE>
MORTGAGEE
ELCOTEL, INC., a Delaware
corporation
/s/ James L. Essenson By:/s/ Ronald M. Tobin
- ---------------------- ------------------------
*James L. Essenson Ronald M. Tobin, as
*(Print Name of Witness) Vice-President and Chief
Financial Officer
Address: 6428 Parkland Drive
Sarasota, FL 34243
/s/ Rebecca S. Harshman
- -----------------------
*Rebecca S. Harshman (CORPORATE SEAL)
*(Print Name of Witness)
MORTGAGOR
6
<PAGE>
STATE OF FLORIDA
COUNTY OF SARASOTA
The foregoing instrument was acknowledged before me this
26th day of November, 1997, by NATHAN COON, as Vice President of
NATIONSBANK, N.A., a National Banking Association, as successor
in interest to NATIONSBANK, N.A. (SOUTH) and NATIONSBANK OF
FLORIDA, N.A., on behalf of said corporation. He is personally known to
----------------
me and produced as identification and did not take an oath.
/s/ Rebecca S. Harshman
-----------------------
*Rebecca S. Harshman
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Florida
My commission expires May 27,1999
Commission Number CC564756
STATE OF FLORIDA
COUNTY OF SARASOTA
The foregoing instrument was acknowledged before me this
26th day of November, 1997, by Ronald M. Tobin, as Vice-President and
Chief Financial Officer of ELCOTEL, INC., a Delaware corporation, on behalf
of said corporation. He is personally known to me and produced as
----------------
identification and did not take an oath.
/s/ Rebecca S. Harshman
-----------------------
*Rebecca S. Harshman
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Florida
My commission expires May 27,1999
Commission Number CC564756
7
<PAGE>
EXHIBIT 10.4
- --------------
THIS NOTE CONSOLIDATES THAT RENEWAL PROMISSORY NOTE DATED NOVEMBER
26, 1997, IN THE PRINCIPAL SUM OF $315,173.80, AND THAT FUTURE
ADVANCE NOTE DATED NOVEMBER 26, 1997, IN THE PRINCIPAL SUM OF
$1,604,826.20, AND DOES NOT INCREASE THE AMOUNT DUE, NOR CHANGE THE
ORIGINAL OBLIGOR, THEREFORE NO DOCUMENTARY STAMPS ARE REQUIRED.
CONSOLIDATED
PROMISSORY NOTE
----------------
Date of Execution: November 26, 1997
Amount: $1,920,000.00
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., a National Banking Association
("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
ONE MILLION NINE HUNDRED TWENTY THOUSAND AND NO/100 DOLLARS
($1,920,000.00), 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 interest Rate due hereon shall be fixed at 8.5% per
annum.
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.
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.
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.
<PAGE>
Principal and interest shall be paid in fifty-nine (59) equal
monthly installments of $18,907.00 each, commencing on
December 26, 1997, and continuing on the same day of each
successive month thereafter, with a final payment of all
unpaid principal and interest thereon on November 26, 2002.
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
and Chief Financial Officer
(CORPORATE SEAL)
STATE OF FLORIDA
COUNTY OF SARASOTA
The foregoing instrument was acknowledged before me this
26th day of November, 1997, by Ronald M. Tobin, as Vice-President and
Chief Financial Officer of ELCOTEL, INC., a Delaware corporation, on behalf
of said corporation. He is personally known to me and produced
----------------
_________________ as identification and did not take an oath.
<PAGE>
/s/ Rebecca S. Harshman
-----------------------
*Rebecca S. Harshman
(NOTARIAL SEAL) *(Print Name of Notary Public)
Notary Public - State of Florida
My commission expires May 27, 1999
Commission Number CC564756
<PAGE>
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; provided however this shall not apply to
income taxes, Federal, State or otherwise, of the Bank.
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.
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
<PAGE>
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
2
<PAGE>
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 which has a material effect on Borrower's
business.
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.
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
3
<PAGE>
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.
(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
4
<PAGE>
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.
BORROWER:
ELCOTEL, INC., a Delaware
corporation
By: /s/ Ronald M. Tobin
------------------------------
Ronald M. Tobin, Vice-President
and Chief Financial Officer
(CORPORATE SEAL)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 311
<SECURITIES> 0
<RECEIVABLES> 16,753
<ALLOWANCES> 0
<INVENTORY> 12,170
<CURRENT-ASSETS> 34,151
<PP&E> 4,648
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,103
<CURRENT-LIABILITIES> 8,882
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 48,670
<TOTAL-LIABILITY-AND-EQUITY> 72,103
<SALES> 27,975
<TOTAL-REVENUES> 27,975
<CGS> 16,578
<TOTAL-COSTS> 16,578
<OTHER-EXPENSES> 9,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203
<INCOME-PRETAX> 2,319
<INCOME-TAX> 817
<INCOME-CONTINUING> 1,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,502
<EPS-PRIMARY> .18
<EPS-DILUTED> .17
</TABLE>
