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, 1998
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)
No Change
(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 8, 1999 was 13,539,880.
<PAGE>
ELCOTEL, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1998
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998
(unaudited) and March 31, 1998 3
Unaudited Consolidated Statements of Operations for the
Three Months and Nine Months Ended December 31, 1998
and 1997 4
Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
2
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ELCOTEL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts )
<CAPTION>
December 31, March 31,
1998 1998
------------ ------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 64 $ 1,655
Accounts and notes receivable, less allowance
for doubtful accounts of $1,842 and $1,923 12,841 11,407
Inventories 15,635 9,088
Refundable income taxes 735 809
Deferred tax asset 3,732 4,141
Prepaid expenses and other current assets 1,322 1,024
---------- ----------
Total current assets 34,329 28,124
Property, plant and equipment, net 5,079 4,779
Notes receivable, less allowance for doubtful
accounts of $387 and $487 515 346
Goodwill, net of accumulated amortization
of $687 and $190 23,409 23,906
Identified intangible assets, less
accumulated amortization of $1,485 and $498 9,210 10,203
Other assets 387 80
---------- ----------
$ 72,979 $ 67,438
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,548 $ 3,210
Accrued liabilities 3,783 4,609
Current portion of mortgage note payable 73 68
---------- ----------
Total current liabilities 11,404 7,887
Borrowings under revolving credit agreement 7,792 7,645
Long-term portion of mortgage note payable 1,770 1,831
Deferred tax liability 151 415
---------- ----------
21,117 17,778
---------- ----------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value,
30,000,000 shares authorized,
13,539,130 and 13,416,850 shares issued
and outstanding 135 134
Additional paid-in capital 46,654 46,384
Retained earnings 5,200 3,319
Less - cost of 52,000 shares of common stock
in treasury (177) (177)
---------- ----------
Total stockholders' equity 51,812 49,660
---------- ----------
$ 72,929 $ 67,438
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
3
<PAGE>
<TABLE>
ELCOTEL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 16,829 $ 13,592 $ 51,303 $ 27,975
-------- -------- -------- --------
Costs and expenses:
Cost of goods sold 11,320 8,565 33,905 16,578
Selling, general and
administrative expenses 2,255 2,481 8,020 6,200
Engineering, research and
development expenses 1,312 1,253 4,424 2,795
Amortization 528 133 1,531 145
Interest expense (income) 207 61 432 (62)
-------- -------- -------- --------
15,622 12,493 48,312 25,656
-------- -------- -------- --------
Income before income tax
expense 1,237 1,099 2,991 2,319
Income tax expense (458) (390) (1,110) (817)
-------- -------- -------- --------
Net income $ 779 $ 709 $ 1,881 $ 1,502
======== ======== ======== ========
Earnings per common and common
equivalent share:
Basic $ 0.06 $ 0.08 $ 0.14 $ 0.18
======== ======== ======== ========
Diluted $ 0.06 $ 0.08 $ 0.14 $ 0.17
======== ======== ======== ========
Weighted average number of common
and common equivalent shares
outstanding:
Basic 13,474 8,932 13,445 8,433
======== ======== ======== ========
Diluted 13,797 9,401 13,794 8,693
======== ======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
4
<PAGE>
<TABLE>
ELCOTEL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended
December 31,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,881 $ 1,502
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 2,359 567
Provision for doubtful accounts receivable 48 108
Deferred tax expense (benefit) 145 42
Changes in operating assets and liabilities, net
of acquisition of Technolgy Service Group, Inc.:
(Increase) in accounts and
notes receivable (1,651) (7,031)
(Increase) in inventories (6,547) (2,947)
Decrease in refundable income taxes 74 474
(Increase) in prepaid expenses and other
current assets (298) (274)
(Increase) in other indentifiable
intangibles (41) (1,820)
(Increase) decrease in other assets (307) 3
Increase (decrease) in accounts payable 4,338 (454)
Increase (decrease) in accrued liabilities (826) 1,330
--------- ---------
Net cash used for operating activities (825) (8,500)
--------- ---------
Cash flows from investing activities
Capital expenditures (1,128) (1,104)
Net cash used for acquisition of
Technology Service Group, Inc. (428)
--------- ---------
Net cash used for investing activities (1,128) (1,532)
--------- ---------
Cash flows from financing activities
Net proceeds (payments) under revolving credit
agreement and refinanced debt agreements 147 7,790
Mortgage note net proceeds (payments) (56) 1,484
Proceeds from exercise of common stock
options 271 60
--------- ---------
Net cash provided by financing
activities 362 9,334
--------- ---------
Decrease in cash and cash equivalents (1,591) (698)
Cash and cash equivalents, beginning of period 1,655 1,009
--------- ---------
Cash and cash equivalents, end of period $ 64 $ 311
========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
5
<PAGE>
ELCOTEL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
1. GENERAL
The accompanying consolidated balance sheet at March 31, 1998 has been derived
from the audited consolidated financial statements of Elcotel, Inc. (the
"Company") included in the Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1998. The accompanying unaudited consolidated balance
sheet at December 31, 1998, unaudited consolidated statements of operations
for the three months and nine months ended December 31, 1998 and 1997 and the
unaudited consolidated statements of cash flows for the nine months ended
December 31, 1998 and 1997 have been derived from the Company's books and
records without audit and prepared in accordance with instructions to
Form 10-Q. Accordingly, the financial information does not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, consisting only of normal recurring accruals and adjustments,
necessary for a fair presentation of the financial position of the Company at
December 31, 1998 and its operations and its cash flows for the three months
and nine months ended December 31, 1998 and 1997 have been made. For further
information, refer to the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1998. Certain reclassifications have been made to prior year
balances in order to conform with current year presentation.
The results of operations for the three months and nine months ended
December 31, 1998 are not necessarily indicative of the results for the
full fiscal year ending March 31, 1999.
2. ACQUISITIONS
On December 18, 1997, the Company acquired Technology Service Group, Inc.
("TSG") pursuant to a merger for a total purchase price of $35,605. 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 "Lucent Assets") for a total purchase price of
$5,821. These acquisitions have been accounted for as purchases and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair values at the date of acquisition. The operating results are
reflected in the Company's consolidated statement of operations from the
respective acquisition dates.
Summarized below are the Company's consolidated results of operations on an
unaudited pro forma basis for the three months and nine months ended
December 31, 1997 assuming these transactions had occurred on April 1, 1997.
Three Months Nine Months
Ended Ended
December 31, December 31,
1997 1997
------------ ------------
Net sales $ 20,595 $ 47,699
============ ============
Net loss $ (301) $ (14)
============ ============
Basic loss per share $ (.02) $ -
============ ============
Diluted loss per share $ (.02) $ -
============ ============
6
<PAGE>
The above amounts are based on certain assumptions and estimates which the
Company believes are reasonable, and do not reflect any benefit from economies
that might be achieved from combined operations. The pro forma results do not
necessarily represent the consolidated results of operations that would have
occurred if the transactions had, in fact, taken place on April 1, 1997, nor
are they indicative of the consolidated results of operations for any future
period.
The pro forma results of operations for the three months ended December 31,
1997 include the unaudited operating results of TSG from September 27, 1997 to
the acquisition date after giving effect to certain pro forma adjustments,
including amortization of goodwill and identified intangible assets acquired,
depreciation and related income tax effects.
The pro forma results of operations for the nine months ended December 31,
1997 include the operating results of TSG from March 29, 1997 to the
acquisition date after giving effect to certain pro forma adjustments,
including amortization of goodwill and identified intangible assets acquired,
depreciation and related income tax effects, and give effect to certain pro
forma adjustments related to the acquisition of the Lucent Assets, including
amortization of identified intangible assets acquired, depreciation, interest
expense on the acquisition debt and related income tax effects.
3. INVENTORIES
Inventories at December 31, 1998 and March 31, 1998 are comprised of the
following:
December 31, March 31,
1998 1998
------------ ------------
Finished products $ 989 $ 1,383
Work-in-process 2,189 1,545
Purchased components 12,457 6,160
------------ ------------
$ 15,635 $ 9,088
============ ============
4. STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the nine months ended December 31, 1998
are summarized as follows:
Additional
Common Paid-In Retained Treasury
Stock Capital Earnings Stock Total
----- ------- -------- -------- -------
Balance at March 31, 1998 $134 $46,384 $3,319 ($177) $49,660
Issuance of 122,280 shares upon
exercise of common stock
options at prices between
$.95 and $5.25 per share 1 270 271
Net income for the period 1,881 1,881
---- ------- ------ ----- -------
Balance at September 30, 1998 $135 $46,654 $5,200 ($177) $51,812
==== ======= ====== ===== =======
7
<PAGE>
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 Company has no items of comprehensive income for the periods ended
December 31, 1998 and 1997; therefore, statements of comprehensive income for
such periods are not presented in the accompanying consolidated financial
statements.
5. EARNINGS PER SHARE
Earnings per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128")
adopted by the Company during the three months ended December 31, 1997. SFAS
128 requires disclosure of basic earnings per share and diluted earnings per
share. Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding during the
period. Diluted earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding and potential
dilutive common shares outstanding during the period.
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,
-------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
Basic earnings per share computation:
Net income applicable to common
shares $ 779 $ 709 $1,881 $1,502
------ ------ ------ ------
Weighted average number of
common shares outstanding 13,474 8,932 13,445 8,433
------ ------ ------ ------
Basic earnings per common share $ 0.06 $ 0.08 $ 0.14 $ 0.18
====== ====== ====== ======
Diluted earnings per share computation:
Net income applicable to common
shares $ 779 $ 709 $1,881 $1,502
------ ------ ------ ------
Weighted average number of
common shares outstanding 13,474 8,932 13,445 8,433
Weighted average of common
stock equivalents outstanding 999 999 918 664
Common shares acquired with proceeds
from assumed exercise of common
stock equivalents (676) (530) (569) (404)
------ ------ ------ ------
Weighted average of common and
common equivalent shares
outstanding 13,797 9,401 13,794 8,693
------ ------ ------ ------
Diluted earnings per common share $ 0.06 $0.08 $0.14 $0.17
====== ====== ====== ======
8
<PAGE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the nine months ended December 31, 1998
and 1997 consists of the following:
Nine Months Ended
------------------------------
December 31, December 31,
1998 1997
------------ ------------
Interest paid $ 666 $ 200
Income taxes paid 867 490
Acquisition of Technology Service Group, Inc.:
Accounts and notes receivable - 3,703
Inventories - 6,490
Refundable income taxes - 469
Deferred tax asset, current - 3,446
Prepaid expenses and other current
assets - 12
Property, plant and equipment - 782
Goodwill - 23,225
Identified intangible assets - 7,530
Other assets - 29
Accounts payable - (3,448)
Acquisition costs payable - (325)
Accrued expenses - (1,544)
Borrowing under lines of credit - (3,970)
Deferred tax liability, non current - (1,358)
Common stock - (50)
Additional paid-in capital - (34,991)
7. COMMITMENTS AND CONTINGENCIES
Pursuant to the terms of a license agreement dated October 29, 1992 relating
to certain software covered by a patent application, TSG agreed to pay license
fees aggregating $200,000 in four annual installments of $50,000 each,
commencing on the date of issuance of a patent with respect to the software
licensed pursuant to the agreement. The license agreement also requires the
payment of royalties with respect to sales of products incorporating the
licensed software, which increase commencing on the date of issuance of the
patent. TSG has not sold any products incorporating the licensed software and
has not paid any royalties under the license agreement. In addition, upon
issuance of the patent, the license agreement requires the payment of minimum
royalties ranging between $125,000 and $500,000 annually in order to maintain
exclusivity of the license. During the three months ended December 31, 1998,
the licensor notified TSG that a patent with respect to the licensed software
had been issued. The Company has notified the licensor that the Company
believes the patent is invalid and thus is not obligated to pay license fees
or royalties under the terms of the license agreement. Accordingly, the
Company has not recorded any liability with respect to the license agreement
in the accompanying unaudited consolidated financial statements. Should the
licensor seek to require TSG to pay any amounts under the license agreement,
the Company intends to defend its position vigorously. The Company believes
the ultimate outcome of this matter will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All dollar amounts, except per share data, in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are stated in
thousands.
Forward Looking Statements
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 acquired in fiscal 1998, competition, the risk of obsolescence of
the Company's products, changes in the international business climate,
general economic conditions, seasonality, changes in industry practices, the
outcome of litigation, and uncertainties detailed in the Company's filings
with the Securities and Exchange Commission.
Results of Operations
On December 18, 1997, the Company acquired Technology Service Group, Inc.
("TSG") pursuant to a merger for a total purchase price of $35,605, and 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 "Lucent Assets") for a total purchase price of
$5,821 (the "fiscal 1998 acquisitions"). The accompanying unaudited
consolidated statements of operations for the three months and nine months
ended December 31, 1998 reflect the operating results of TSG and the operating
results from the Lucent Assets. The accompanying unaudited consolidated
statements of operations for the three months and nine months ended December
31, 1997 reflect the operating results of TSG and the operating results from
the Lucent Assets from the respective dates of acquisition.
For the three months ended December 31, 1998, net income increased by 10%, to
$779 ($.06 per diluted share) from $709 ($.08 per diluted share) for the
corresponding period of fiscal 1998. For the nine months ended December 31,
1998, net income increased by 25%, to $1881 ($.14 per diluted share) from
$1,502 ($.17 per diluted share) for the corresponding period of fiscal 1998.
These results for the three months and nine months ended December 31, 1998
reflect increases in sales of 24% and 83%, respectively, versus increases in
cost of goods sold of 32% and 105%, respectively, and lower operating expenses
in relation to sales, as compared to the corresponding periods of fiscal 1998.
In addition, these results were influenced by the effects of the fiscal 1998
acquisitions.
Earnings before interest, taxes, depreciation and amortization increased by
51% to $2,279 for the three months ended December 31, 1998 from $1,508 for the
three months ended December 31, 1997, and by 105% to $5,782 for the nine
months ended December 31, 1998 from $2,824 for the nine months ended
December 31, 1997.
10
<PAGE>
Three Months Ended December 31, 1998 Compared to the
Three Months Ended December 31, 1997
The following table shows certain line items in the Company's unaudited
consolidated statements of operations for the three months ended December 31,
1998 and 1997 that are discussed below together with amounts expressed as a
percentage of sales and with the change in the line item from period to period
expressed as a percentage increase or (decrease).
Three Three
Months Months
Ended Percent Ended Percent Percentage
December 31, of December 31, of Increase
1998 Sales 1997 Sales (Decrease)
------------ ------- ------------ ------- ----------
Net sales $ 16,859 100% $ 13,592 100% 24%
Cost of goods sold 11,320 67 8,565 63 32
Selling, general and
administrative expenses 2,255 13 2,481 18 (9)
Engineering, research
and development
expenses 1,312 8 1,253 9 5
Amortization 528 3 133 1 297
Interest expense 207 1 61 1 239
Income tax expense 458 3 390 3 17
Net sales for the three months ended December 31, 1998 increased by $3,267, or
24%, over the comparable period of fiscal 1998. Sales to independent private
payphone operators ("IPPs") increased by $2,116, or approximately 48%, from
$4,386 for the three months ended December 31, 1997 ("third quarter of fiscal
1998") to $6,502 for the three months ended December 31, 1998 ("third quarter
of fiscal 1999") primarily due to an increase in volume. The Company believes
the increase in sales volume in the IPP market is related to the increased
dial around compensation to payphone operators resulting from the
Telecommunications Act of 1996. Sales to telephone companies increased by
$1,855, or approximately 31%, from $6,026 for the third quarter of fiscal 1998
to $7,881 for the third quarter of fiscal 1999 as a result of the acquisition
of TSG on December 18, 1997. International sales decreased by $331, or
approximately 13%, from $2,633, for the third quarter of fiscal 1998 to $2,302
for the third quarter of fiscal 1999 primarily due to a reduction in volume.
Revenues from other miscellaneous sources decreased by $373, or approximately
68%, from $547 for the third quarter of fiscal 1998 to $174 for the third
quarter of fiscal 1999. Sales to IPPs, telephone companies and international
customers accounted for approximately 38%, 47% and 14%, respectively, of net
sales for the third quarter of 1999 as compared to approximately 32%, 44% and
20%, respectively, for the third quarter of fiscal 1998. Revenues from other
revenue sources accounted for approximately 1% of net sales for the third
quarter of 1999 as compared to approximately 4% for the third quarter of
fiscal 1998.
Cost of sales as a percentage of net sales increased to 67% for the third
quarter of fiscal 1999 from 63% for the third quarter of fiscal 1998 as a
result of several factors, including promotions and increased price discounts,
the introduction of the Company's new product, the "Eclipse payphone," at
initial margins lower than the Company's other payphone products,
manufacturing variances and increased sales to telephone companies at margins
lower than those traditionally experienced in the IPP market. The Company is
in the process of implementing programs to reduce the cost of its Eclipse
payphone and other products.
11
<PAGE>
Selling, general and administrative expenses for the third quarter of fiscal
1999 decreased by $226, or approximately 9% and represented 13% of sales
versus 18% of sales for the same period of fiscal 1998. The decrease is
principally attributable to a decrease in the Company's allowance for doubtful
accounts as a result of the collection of certain international accounts, a
decrease in accrued incentive based compensation and a restructuring of
certain selling and marketing activities, partially offset by an increase in
sales commissions attributable to the increased sales and a full quarter of
expenses in fiscal 1999 related to the TSG acquisition as compared to a
partial quarter in fiscal 1998.
Engineering, research and development expenses for the third quarter of fiscal
1999 increased by $59, or approximately 5%, and represented 8% of sales as
compared to 9% of sales for the third quarter of fiscal 1998. The increase is
primarily due to the acquisition of TSG, partially offset by cost reductions
from the integration of TSG's research and development activities with those
of the Company. In addition, the Company capitalized $157 of software
development costs during the third quarter of fiscal 1999.
Amortization expense for the third quarter of fiscal 1999 increased by $395 to
3% of sales versus 1% of sales for the same period of fiscal 1998. The
increase is attributable to amortization of goodwill and identifiable
intangible assets recorded in connection with the acquisition of TSG for an
entire quarter as compared to a partial quarter in fiscal 1998.
The increase in net interest expense of $146 is attributable to an increase in
average outstanding indebtedness as a result of the fiscal 1998 acquisitions,
an increase in working capital of $2,688, and capital additions of $1,128.
The effective tax rate increased from 35% for the third quarter of fiscal 1998
to 37% for the third quarter of fiscal 1999 due primarily to non deductible
amortization of goodwill in connection with the TSG acquisition offset by
expected research and development tax credits.
12
<PAGE>
Nine Months Ended December 31, 1998 Compared to the
Nine Months Ended December 31, 1997
The following table shows certain line items in the Company's unaudited
consolidated statements of operations for the nine months ended December 31,
1998 and 1997 that are discussed below together with amounts expressed as a
percentage of sales and with the change in the line item from period to period
expressed as a percentage increase or (decrease).
Nine Nine
Months Months
Ended Percent Ended Percent Percentage
December 31, of December 31, of Increase
1998 Sales 1997 Sales (Decrease)
------------ ------- ------------ ------- ----------
Net sales $ 51,303 100% $ 27,975 100% 83%
Cost of goods sold 33,905 66 16,578 59 105
Selling, general and
administrative expenses 8,020 16 6,200 22 29
Engineering, research
and development
expenses 4,424 9 2,795 10 58
Amortization 1,531 3 145 1 955
Interest expense 432 1 (62) -- 797
Income tax expense 1,110 2 817 3 36
Net sales for the nine months ended December 31, 1998 increased by $23,328, or
83%, over the comparable period of fiscal 1998. Sales to independent private
payphone operators ("IPPs") increased by $4,179, or approximately 29%, from
$14,409 for the nine months ended December 31, 1997 ("first nine months of
fiscal 1998") to $18,588 for the nine months ended December 31, 1998 ("first
nine months of fiscal 1999") primarily due to an increase in volume. Sales to
telephone companies increased by $19,390, or approximately 273%, from $7,101
for the first nine months of fiscal 1998 to $26,491 for the first nine months
of fiscal 1999 primarily due to the fiscal 1998 acquisitions. International
sales increased by $243, or approximately 5%, from $5,219 for the first nine
months of fiscal 1998 to $5,462 for the first nine months of fiscal 1999
primarily due to an increase in volume. Revenues from other miscellaneous
sources decreased by $484, or approximately 39%, from $1,246 for the first
nine months of fiscal 1998 to $762 for the first nine months of fiscal 1999.
Sales to IPPs, telephone companies and international customers accounted for
approximately 36%, 52% and 11%, respectively, of net sales for the first nine
months of fiscal 1999 as compared to approximately 52%, 25% and 19%,
respectively, for the first nine months of fiscal 1998.
Cost of sales as a percentage of net sales increased to 66% for the first nine
months of 1999 from 59% for the first nine months of 1998 primarily as a
result of the increased sales to telephone companies at margins lower than
traditionally experienced in the IPP market. The Company is in the process of
implementing programs to reduce the cost of its products.
Selling, general and administrative expenses for the first nine months of
fiscal 1999 increased by $1,820, or approximately 29%, and represented 16% of
sales versus 22% for the same period of fiscal 1998. The increase is
principally attributable to the fiscal 1998 acquisitions and an increase in
sales commissions attributable to the increased sales.
13
<PAGE>
Engineering, research and development expenses for the first nine months of
fiscal 1999 increased by $1,629, or approximately 58%, and represented 9% of
sales as compared to 10% of sales for the first nine months of fiscal 1998.
The increase is primarily due to the expansion of resources to support
development and engineering activities related to technology and products
acquired from Lucent and the acquisition of TSG, offset by cost reductions
from the integration of TSG's research and development activities with those
of the Company.
Amortization expense for the first nine months of fiscal 1999 increased by
$1,386 to 3% of sales versus 1% of sales for the same period last year. The
increase is attributable to amortization of goodwill and identifiable
intangible assets recorded in connection with the fiscal 1998 acquisitions for
the entire period as compared to partial periods in fiscal 1998.
The increase in net interest expense of $494 is principally attributable to an
increase in average outstanding indebtedness as a result of the fiscal 1998
acquisitions and related increase in working capital requirements.
The effective tax rate increased from 35% for the first nine months of fiscal
1998 to 37% for the first nine months of fiscal 1999 due primarily to non
deductible amortization of goodwill in connection with the TSG acquisition
offset by expected research and development tax credits.
Liquidity and Capital Resources
The Company finances its operations, working capital requirements and capital
expenditures from internally generated cash flows and financing available
under a revolving line of credit between the Company and its bank. The
Company believes that its anticipated cash flow from operations and borrowings
against its bank line of credit will be sufficient to fund its working capital
requirements, its capital expenditures and its long term debt obligations
through December 31, 1999.
Financing Activities. On November 25, 1997, the Company entered into a
restated loan agreement (the "Loan Agreement") with its bank. Under the terms
of the Loan Agreement, the Company is able to borrow 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 collateralized by substantially all of the assets of the Company
and its subsidiaries. Interest on amounts borrowed under the line of credit
is payable monthly at the bank's floating 30 day Libor rate plus 1.5% (6.875%
at December 31, 1998). On November 25, 1997, financing available under the
Loan Agreement was used to refinance and retire the Company's then outstanding
debt under a $2,000 working capital line of credit, a $3,350 installment 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. Net
proceeds under the revolving credit agreement and the refinanced debt
agreements during the nine months ended December 31, 1998 and 1997 amounted to
$147 and $7,790, respectively. Indebtedness outstanding under the Loan
Agreement was $7,792 and $7,645 at December 31, 1998 and March 31, 1998
respectively. At December 31, 1998, the Company was able to borrow up to
$12,541 based on the value of eligible collateral.
On November 26, 1997, the Company borrowed $1,920 pursuant to the terms of a
mortgage note and retired its then outstanding mortgage note with an
outstanding principal balance of $315 and a maturity date of May 23, 1999.
The November 26, 1997 mortgage note bears interest at a rate of 8.5% per annum
and is payable in fifty-nine equal monthly installments of $19 and a final
installment of $1,533 due on November 26, 2002. Net proceeds received
pursuant to the mortgage note during the nine months ended December 31, 1997
amounted to $1,484 as compared to net payments of $56 during the nine months
ended December 31, 1998.
14
<PAGE>
During the nine months ended December 31, 1998 and 1997, the Company generated
net proceeds of $271 and $60, respectively, from exercise of common stock
options.
Operating Activities. Cash used for operating activities amounted to $825 for
the first nine months of fiscal 1999 compared to $8,500 used for operating
activities for the first nine months of fiscal 1998. Cash flow from
operations before changes in operating assets and liabilities increased from
$2,219 in the first nine months of fiscal 1998 to $4,433 in the first nine
months of fiscal 1999. This increase primarily resulted from the growth in
income before depreciation and amortization and other non-cash charges. The
Company's investment in working capital and other operating assets and
liabilities has significantly reduced cash flows provided by operations,
particularly as a result of the fiscal 1998 acquisitions, growth in accounts
and notes receivable and inventories and changes in accounts payable and
accrued liabilities. During the first nine months of fiscal 1998, cash used
for operating activities included $3,399 of cash to acquire inventories and
$1,541 of cash to acquire intangible assets in connection with the acquisition
of the Lucent Assets. The increase in accounts and notes receivable during
the first nine months of fiscal 1999 and 1998 and inventories during the first
nine months of fiscal 1999 is related to increases, or anticipated increases,
in sales, principally as a result of the fiscal 1998 acquisitions.
Extension of credit to customers and inventory purchases represent the
principal working capital requirements of the Company. The loan agreement
between the Company and its bank limits outstanding revolving credit
indebtedness collateralized by eligible inventory to $5,000 and limits
aggregate indebtedness collateralized by accounts receivable and inventories
to $15,000. The Company's current assets increased by $6,205, or
approximately 22%, from $28,124 at March 31, 1998 to $34,329 at December 31,
1998, predominantly from an increase in accounts and notes receivable of
$1,434 and an increase of $6,547 in inventory. Current liabilities increased
by $3,517, or approximately 45%, from $7,887 at March 31, 1998 to $11,404 at
December 31, 1998 predominantly from an increase in accounts payable. The
Company experiences varying accounts receivable collection periods from its
three primary customer markets. The Company believes that uncollectible
accounts receivable will not have a significant effect on future liquidity, as
a significant portion of its accounts receivable are due from customers with
substantial financial resources. The level of inventory maintained by the
Company is dependent on a number of factors, including delivery requirements of
its customers, availability and lead time of components and the ability of the
Company to estimate and plan the volume of its business. The Company markets a
wide range of services and products and the requirements of its customers may
vary significantly from period to period. Accordingly, inventory levels may
vary significantly.
Investing Activities. Net cash used for investing activities during the nine
months ended December 31, 1998 and 1997 amounted to $1,128 and $1,532,
respectively, including $428 of net cash used for the acquisition of TSG and
$500 of cash used for capital expenditures in connection with the acquisition
of the Lucent Assets with respect to the nine months ended December 31, 1997.
The Company's capital expenditures consist primarily of manufacturing
equipment, computer equipment and building improvements required to support
operations. The Company has not entered into any significant commitments for
the purchase of capital assets.
Year 2000 Discussion
The Company is currently assessing the impact of Year 2000 issues on the
Company. The Year 2000 issue is the result of computer programs designed to
use two digit date codes rather than four to define the applicable year. The
risk is that programs with time-sensitive software may recognize a year using
"00" as the year 1900 rather than the year 2000, resulting in system
miscalculations or system failures.
15
<PAGE>
The Company has identified several general areas in which Year 2000 concerns
may be material if not resolved before January 1, 2000. These areas include
1) products and services of the Company, 2) management information systems and
other systems within the Company, and 3) third parties that provide materials
and services (including utilities) to the Company.
The Company has established a "Validation Test Plan" to assess Year 2000
compliance of all products and services currently supported by the Company.
This test plan is designed to identify such products and services, features of
such products and services to be assessed, and the approach and resources to
be used. The test plan is also designed to assess the Year 2000 compliance of
those items in order of relative importance to the Company. To date,
approximately 51% of such products and services have passed Year 2000
compliance testing, less than 11% have been determined not to be compliant and
the balance have not yet been tested. The Company believes that its
assessment of the Year 2000 compliance of all products and services currently
supported will be completed by the end of the third quarter of calendar 1999.
For those products and services determined not to be Year 2000 compliant, the
Company attempts to remedy such noncompliance. Depending upon the level of
such products and services determined not to be compliant, the Company
believes that such products and services can be brought into compliance by
December 31, 1999. The process of remediating all of the tested products and
services to make them Year 2000 compliant will involve additional development
costs (which cannot be quantified at this point but which may be material) and
will delay current development projects that otherwise would be undertaken.
The risks associated with the failure of the Company's products and services
to be Year 2000 compliant include: 1) loss of data from or an adverse impact
on the reliability of data generated by the Company's products and services;
2) loss of functionality; 3) failure to communicate with other non-Company
user applications of its customers that may not be Year 2000 compliant; and 4)
potential litigation by customers with respect to products and services no
longer supported.
The Company purchased new software in June 1997 and based on representations
received from the vendor, the Company believes that its management information
system is Year 2000 compliant. Based on the Company's internal testing, the
Company believes that substantially all of the Company's related operating
systems are also Year 2000 compliant with the exception of certain items which
the Company does not believe are material. The Company is in the preliminary
stages of assessing the Year 2000 compliance of its other internal systems
such as shipping, payroll and EDI systems. The Company believes it will
complete 90% of such assessment by the end of the first calendar quarter of
1999, and the balance by the end of the second calendar quarter of 1999. The
risks associated with failure of such systems to be Year 2000 compliant are
primarily the increase in administrative related functions and increased costs
associated with such functions. If deficiencies within these systems are
deemed to be critical, the Company would consider upgrading existing systems
or acquiring new systems. The costs related to such upgrade or acquisition
could be material. The Company believes that all critical internal systems
will be assessed and remediated by the third calendar quarter of 1999 at a
cost that has not yet been determined but which could be material.
The Company has relationships with various third parties in the ordinary
course of business. The Company is presently assessing the readiness of third
parties, especially critical suppliers and others who have material
relationships with the Company, by sending questionnaires with respect to the
Year 2000 plans of those third parties. The Company will identify the risks
associated with third parties based on responses to those questionnaires and
will then formulate appropriate contingency plans. The Company expects to
complete its assessment of the readiness of third parties by the end of the
second quarter of calendar year 1999. The effect, if any, on the Company's
results of operations from failure of these third parties to be Year 2000
compliant is not reasonably estimable but which could be material.
16
<PAGE>
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems that would be reasonably likely to result from the
failure of the Company and certain third parties to complete efforts necessary
to achieve Year 2000 compliance on a timely basis. The Company's Year 2000
efforts to date have been undertaken largely with its existing engineering and
information technology personnel. The Company does not separately track the
costs incurred for such efforts and such costs are principally the related
compensation costs for those personnel.
New Accounting Pronouncements
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.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, Employers' Disclosures about Pensions
and Other Post-retirement Benefits ("SFAS 132"). SFAS 132 revises employers'
disclosures about pension and other post-retirement benefit plans. SFAS 132
is effective for fiscal years beginning after December 15, 1997. The standard
addresses disclosure issues and, therefore, will not affect the Company's
financial position or results of operations.
Also, in June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that gains
or losses be recognized in earnings for a fair value hedge in the period of
change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged. Management does not believe that the
adoption of SFAS 133 will have a significant impact on the Company's
consolidated financial statements. This statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. In accordance
with SFAS 133, the Company will begin implementing the requirements under SFAS
133 beginning in fiscal year 2000.
17
<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 quarter
ended September 30, 1996.
On September 28, 1998, the Company's Motion for Summary Judgment was granted
by the Court and the Court dismissed the Company from the class action. On
December 11, 1998, the plaintiffs appealed the Court's decision to grant the
Company's Motion for Summary Judgment.
Item 4. Submission of Matters to a Vote of Security Holders
On October 20, 1998, the Company held its Annual Meeting of Shareholders (the
"Meeting"). The matters voted upon at the Meeting were the election of
directors and ratification of the appointment of Deloitte & Touche LLP as the
Company's independent accountants for the fiscal year ending March 31, 1999.
At the Meeting, the Shareholders were asked to elect eight 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:
Votes
Name Votes For Withheld
---- --------- --------
Tracey L. Gray 11,686,732 29,426
Joseph M. Jacobs 11,686,732 29,426
C. Shelton James 11,686,732 29,426
Dwight Jasmann 11,686,732 29,426
Charles H. Moore 11,686,732 29,426
Thomas E. Patton 11,686,732 29,426
Mark L. Plaumann 11,686,732 29,426
David R.A. Steadman 11,686,732 29,426
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, 1999, and the outcome of the voting was: 11,684,497 For; 13,656
Against; and 18,005 Abstentions.
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are filed herewith as part of this report:
Exhibit
No. Description of Exhibit
------- ----------------------
10.1 Amended and Restated Employment Agreement between
Elcotel, Inc. and Tracey L. Gray dated October 20, 1998.
10.2 Amended and Restated Employment Agreement between
Elcotel, Inc. and C. Shelton James dated October 20, 1998.
10.3 Employment Agreement between Elcotel, Inc. and
David F. Hemmings dated December 10, 1998.
10.4 Employment Agreement between Elcotel, Inc. and
William H. Thompson dated December 10, 1998.
10.5 Employment Agreement between Elcotel, Inc. and
Kenneth W. Noack dated December 10, 1998.
10.6 Employment Agreement between Elcotel, Inc. and
Henry W. Swanson dated December 10, 1998.
10.7 Employment Agreement between Elcotel, Inc. and
Darold R. Bartusek dated December 10, 1998.
10.8 Employment Agreement between Elcotel, Inc. and
Hugh H. Durden dated December 10, 1998.
10.9 Employment Agreement between Elcotel, Inc. and
Eduardo Gandarilla dated December 10, 1998.
10.10 1991 Stock Option Plan (as amended).
10.11 Directors' Stock Option Plan (as amended).
27 Financial Data Schedule (Edgar Filing only).
(b) Reports on Form 8-K:
None
19
<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 13, 1999 By: /s/ William H. Thompson
----------------------------
William H. Thompson
Senior Vice President,
Administration and Finance
(Principal Financial and
Accounting Officer)
20
<PAGE>
INDEX TO EXHIBITS
Exhibit Method of
No. Description of Exhibit Filing
- ------- ---------------------- ---------
10.1 Amended and Restated Employment Agreement
between Elcotel, Inc. and Tracey L. Gray
dated October 20, 1998. Included in this report.
10.2 Amended and Restated Employment Agreement
between Elcotel, Inc. and C. Shelton James
dated October 20, 1998. Included in this report.
10.3 Employment Agreement between Elcotel, Inc.
and David F. Hemmings dated
December 10, 1998. Included in this report.
10.4 Employment Agreement between Elcotel, Inc.
and William H. Thompson dated
December 10, 1998. Included in this report.
10.5 Employment Agreement between Elcotel, Inc.
and Kenneth W. Noack dated
December 10, 1998. Included in this report.
10.6 Employment Agreement between Elcotel, Inc.
and Henry W. Swanson dated
December 10, 1998. Included in this report.
10.7 Employment Agreement between Elcotel, Inc.
and Darold R. Bartusek dated
December 10, 1998. Included in this report.
10.8 Employment Agreement between Elcotel, Inc.
and Hugh H. Durden dated
December 10, 1998. Included in this report.
10.9 Employment Agreement between Elcotel, Inc.
and Eduardo Gandarilla dated
December 10, 1998. Included in this report.
10.10 1991 Stock Option Plan (as amended). Included in this report.
10.11 Directors' Stock Option Plan (as amended). Included in this report.
27 Financial Data Schedule (Edgar Filing only). Included in this report.
21
<PAGE>
EXHIBIT 10.1
ELCOTEL, INC.
Amended and Restated
Employment Agreement of Tracey L. Gray
Agreement (this "Agreement") dated as of the 20th day of
October, 1998 by and between Elcotel, Inc. (the "Company") and Tracey
L. Gray ("Mr. Gray" or "Employee") upon the following terms and
conditions:
1. Term:
(a) Commencement Date: This Agreement shall commence
on October 20, 1998 and supersedes and replaces in its entirety the
Employment Agreement dated October 1, 1997 between the Company and Mr.
Gray.
(b) Expiration Date: September 30, 2001 unless sooner
terminated as provided in this Agreement.
(c) Renewal: Except as hereinafter provided, on the
Termination Date and on each anniversary of the Termination Date, this
Agreement may be extended for an additional year if the Company and Mr.
Gray mutually agree in writing to an extension at least one hundred
eighty (180) days in advance of the Termination Date or an anniversary
thereof.
2. Employment: Mr. Gray shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Mr. Gray's position
with the Company on the date of this Agreement shall be President and
Chief Executive Officer.
3. Salary: During the term of this Agreement, the salary
paid to Mr. Gray shall not be less than two hundred thousand dollars
($200,000) per year, and shall be subject to annual review for merit or
other increases in the sole discretion of the board of directors of the
Company.
4. Benefits: Mr. Gray shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Mr. Gray shall be paid an annual incentive
bonus (the "Incentive Bonus") as provided in Exhibit A.
6. Stock Options: Mr. Gray shall be eligible for
additional stock option grants to purchase shares of the Company's common
stock pursuant to the Company's stock option plans. Mr. Gray shall
retain all options previously granted and unexercised. In the event of a
termination of Mr. Gray's employment pursuant to Section 9(b) of this
<PAGE>
Agreement, (i) all of Mr. Gray's employee stock options shall immediately
vest in their entirety and (ii) all of Mr. Gray's employee stock options
shall continue in effect for 30 days after the effective date of such
termination except that (x) for all options granted after the date of
this Agreement and for all other existing options that can be amended
without increasing the exercise price in order to maintain incentive
stock option status for federal income tax purposes, shall continue in
effect until the termination of such option in accordance with its terms
absent any termination of employment and (y) for all options to which (x)
does not apply, shall, if not exercised within such 30 day period, be
automatically extended until the termination of such option in accordance
with its terms absent any termination of employment.
7. Business Expenses: Mr. Gray shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Mr. Gray shall be indemnified by the
Company with respect to claims made against him as a director, officer
and/or employee of the Company and as a director, officer and/or employee
of any subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Mr. Gray's employment may
be terminated by the Company only as provided below:
(a) For Cause: For Cause (as defined below) by
written notice to Mr. Gray and payment to him of salary accrued, but not
paid through the date of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period, Mr.
Gray has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Mr. Gray and by compliance with the
following:
(i) In the event that at the date
the notice of a termination without Cause is given there is at least
twelve (12) months remaining in the current term of this Agreement, such
notice of termination shall be sent to Mr. Gray no more than seven (7)
days prior to the effective date of termination, and the Company
(i) on the effective date shall pay to Mr. Gray his salary in a
lump sum for the balance of the current term of this Agreement;
<PAGE>
(ii) shall continue at its expense to provide the Benefits for the
balance of the term of this Agreement; and (iii) shall pay to Mr.
Gray an amount in a lump sum equal to the product of (X) the amount
of the Incentive Bonus (or for the fiscal year prior to the
Commencement Date of this Agreement, Mr. Gray's actual bonus for
such fiscal year) paid to or accrued for Mr. Gray with respect to
the Company's fiscal year ending prior to the effective date of
such termination and (Y) the number of days elapsed in the current
Term Year through the effective date of termination divided by 365.
"Term Year" of this Agreement shall mean a 365 day year commencing
on April 1 of each calendar year.
(ii) In the event that at the date
the notice of a termination without Cause is given there is less than
twelve (12) months remaining in the term, such notice of termination shall be
sent to Mr. Gray six (6) months prior to the effective date of
termination, and during such 6-month period, Mr. Gray shall
continue in his then current position with the Company for all or
any part of such six month period as the Company may request, but
he shall nevertheless be entitled to take reasonable time during
such six month period to look for other employment. At the end of
such 6-month period, Mr. Gray's employment shall terminate, and the
Company shall provide to Mr. Gray the Severance Benefits.
(iii) If without Mr. Gray's written consent,
(1) there is a material reduction in Mr. Gray's responsibilities or a
reduction in his salary or (2) Mr. Gray is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Mr. Gray's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause;
provided, however that if some but not all of Mr. Gray's
responsibilities are materially reduced in connection with the
training of a successor to Mr. Gray as President and Chief
Executive Officer of the Company, Mr. Gray may not treat such
reduction as a termination of employment by the Company without
Cause so long as Mr. Gray retains the title of President and Chief
Executive Officer (except that after October 1, 2000 such a
successor may be named President or President and Chief Executive
Officer without such reduction and title change being treated as a
termination of employment by the Company without Cause so long as
Mr. Gray is assigned significant duties within the Company, which
may include providing oversight of or advice to such successor).
Mr. Gray agrees to assist the Board of Directors to the extent and
in the manner requested by the Board in identifying such a
successor.
(c) Death or Permanent Disability: Upon the death or
permanent disability of Mr. Gray, but only after providing him with the
Severance Benefits.
<PAGE>
(d) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by Mr.
Gray of dishonesty or fraud or that constitute serious moral turpitude;
or (ii) misconduct of a material nature or a material breach in
connection with the performance by him of his responsibilities hereunder
that Mr. Gray knew or should have known would be materially detrimental
to the Company or its business.
(e) Definition of "Severance Benefits": The
"Severance Benefits" shall mean the following: (i) the continuation by
the Company for a period of six (6) months of the payment of Mr. Gray's
salary in effect at the date of the termination of his employment; (ii)
the continuation by the Company at its expense for a period of six (6)
months of the Benefits; and (iii) the payment in a lump sum by the
Company of an amount equal to the Incentive Bonus (or for the fiscal year
prior to the Commencement Date of this Agreement, Mr. Gray's actual bonus
for such fiscal year) paid to or accrued for Mr. Gray with respect to the
Company's fiscal year ending prior to the effective date of such
termination.
10. Termination By Mr. Gray:
(a) Mr. Gray may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Mr. Gray may also terminate his employment under
this Agreement by giving the Company one hundred twenty (120) days notice
of termination effective on December 31, 1998 or on any date thereafter.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
<PAGE>
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
<PAGE>
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated for cause, one
year; (ii) if this Agreement is terminated without cause, the time period
following termination of employment during which the Employee is entitled
to receive salary (if his salary is paid in a lump sum, then the time
period to which his lump sum relates), but not to exceed one year; and
(iii) if this Agreement expires without being renewed, or terminates for
any other reason, there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Mr. Gray), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: Chairman of the Board
Facsimile: 941-751-4716
<PAGE>
If to Mr. Gray, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Mr. Gray
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.: This Agreement together with
Exhibit A contains the entire understanding of the parties except as
otherwise expressly contemplated herein; shall not be amended except by
written agreement of the parties signed by each of them; shall be binding
upon and inure to the benefit of the parties and their successors,
personal representatives and assigns; and shall supersede all prior
employment agreements between the parties, including the Employment
Agreement dated October 1, 1997.
No representation, affirmation of fact, course of prior
dealings, promise or condition in connection herewith not incorporated
herein shall be binding on the parties.
No waiver of any term or condition contained herein shall be
binding upon the parties unless made in writing and signed by the party
to be bound thereby.
In Witness Whereof, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Tracey L. Gray /s/ C. Shelton James
- ---------------------- By:--------------------------
Tracey L. Gray C. Shelton James, Chairman
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
Tracey L. Gray Employment Agreement
An annual incentive bonus will be paid equal to 50% of base salary if the
Company achieves its after tax profit plan for the year. If the Company
is profitable and earns less than its after tax profit plan, then such
bonus shall equal 50% of base salary times a fraction the numerator of
which is the actual after tax profit of the Company for the year and the
denominator of which is the amount of the after tax profit in such plan.
If the Company achieves profits in excess of its after tax profit plan,
then, at the discretion of the Board, an additional bonus in excess of
50% of base salary may be paid to Employee.
EXHIBIT 10.2
ELCOTEL, INC.
Amended and Restated
Employment Agreement of C. Shelton James
Agreement (this "Agreement") dated as of the 20th day of
October, 1998 by and between Elcotel, Inc. (the "Company") and C.
Shelton James ("Mr. James" or "Employee") upon the following terms and
conditions:
1. Term:
(a) Commencement Date: This Agreement shall commence
on October 20, 1998 and supersedes and replaces in its entirety the
Employment Agreement dated October 1, 1997 between the Company and Mr.
James.
(b) Termination Date: December 31, 1999 unless
sooner terminated as provided in this Agreement.
(c) Renewal: Except as hereinafter provided, on the
Termination Date and on each anniversary of the Termination Date, this
Agreement shall automatically continue for an additional year unless the
Company shall have given Mr. James written notice of non-renewal at least
one hundred eighty (180) days in advance of the Termination Date or an
anniversary thereof.
(d) Non-Renewal: If such notice of non-renewal is
given, Mr. James shall continue as Chairman of the Board of the Company
for all or any part of such 180-day period as the Company may request,
but he shall nevertheless be entitled to take reasonable time during such
180 day period to look for other employment. At the end of such 180 day
period, Mr. James's employment shall terminate, and the Company shall
provide to Mr. James the Severance Benefits (as hereinafter defined).
2. Title & Responsibilities: Mr. James shall be elected
Chairman of the Board of Directors and an employee of the Company, and he
shall devote such time as he deems necessary to carry out the
responsibilities of this position.
3. Salary: During the term of this Agreement, the salary
paid to Mr. James shall not be less than ninety-four thousand ($94,000)
per year, and shall be subject to annual review for merit or other
increases at the sole discretion of the board of directors of the
Company.
4. Benefits: Mr. James shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
<PAGE>
5. Bonuses: Mr. James shall be paid an annual incentive
bonus (the "Incentive Bonus") as provided in Exhibit A.
6. Stock Option:
(a) Mr. James shall be eligible for grants of stock
options to purchase shares of the Company's common stock pursuant to the
Company's stock option plan(s). Mr. James shall retain all options
previously granted and unexercised.
(b) All of Mr. James' employee stock options shall
immediately vest in their entirety in the event of a Change of Control
(as defined below). In addition, in the event of termination of Mr.
James' employment after or as part of a Change of Control, all of Mr.
James' employee stock options shall continue in effect for 30 days after
the effective date of such termination, except that (i) for all options
granted after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price in
order to maintain incentive stock option status for federal income tax
purposes, shall continue in effect until the termination of such option
in accordance with its terms absent any termination of employment and
(ii) for all options to which (i) does not apply, shall, if not exercised
within such 30 day period, be automatically extended until the
termination of such option in accordance with its terms absent any
termination of employment.
(c) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby a
substantial portion of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Mr. James shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
<PAGE>
8. Indemnification: Mr. James shall be indemnified by the
Company with respect to claims made against him as a director, officer
and/or employee of the Company and as a director, officer and/or employee
of any subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Mr. James' employment may
be terminated by the Company only as provided below:
(a) For Cause: For Cause by written notice to Mr.
James and payment to him of salary accrued, but not paid through the date
of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not
involve dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period, Mr.
James has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Mr. James and by compliance with the
following:
(i) In the event that at the date the notice
of a termination Without Cause is given there is at least twelve (12)
months remaining in the term, such notice of termination shall be
sent to Mr. James no more than seven (7) days prior to the
effective date of termination, and the Company (i) on the effective
date shall pay to Mr. James his salary in a lump sum for the
balance of the term of this Agreement; (ii) shall continue at its
expense to provide the Benefits for the balance of the term of this
Agreement; and (iii) shall pay to Mr. James an amount in a lump sum
equal to the product of (x) the amount of the Incentive Bonus (or
for the fiscal year prior to the Commencement Date of this
Agreement, Mr. James' actual bonus for such fiscal year) paid to or
accrued for Mr. James with respect to the Company's fiscal year
ending prior to the effective date of such termination and (y) the
number of days elapsed in the current Term Year through the
effective date of such termination divided by 365. "Term Year"
shall mean a 365 day year commencing on April 1 of each calendar
year.
(ii) In the event that at the date the
notice of a termination Without Cause is given there is less than twelve (12)
months remaining in the term, such notice of termination shall be
sent to Mr. James six (6) months prior to the effective date of
termination, and during such 6-month period, Mr. James shall
continue as Chairman of the Board of the Company for all or any
part of such six month period as the Company may request, but he
<PAGE>
shall nevertheless be entitled to take reasonable time during such
six month period to look for other employment. At the end of such
6-month period, Mr. James employment shall terminate, and the
Company shall provide to Mr. James the Severance Benefits.
(iii) A reduction in Mr. James' title,
responsibilities or salary may, at Mr. James' option, be treated by
him as a notice of termination of his employment by the Company
without Cause given as of the date of such reduction.
(c) Death or Permanent Disability: Upon the death or
permanent disability of Mr. James, but only after providing him with the
Severance Benefits.
(d) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by Mr.
James of dishonesty or fraud or that constitute serious moral turpitude;
or (ii) misconduct of a material nature or a material breach in
connection with the performance by him of his responsibilities hereunder
that Mr. James knew or should have known would be materially detrimental
to the Company or its business.
(e) Definition of "Severance Benefits": The
"Severance Benefits" shall mean the following: (i) the continuation by
the Company for a period of six (6) months of the payment of Mr. James'
salary in effect at the date of the termination of his employment; (ii)
the continuation by the Company at its expense for a period of six (6)
months of the Benefits; and (iii) the payment in a lump sum by the
Company of an amount equal to the Incentive Bonus (or for the fiscal year
prior to the Commencement Date of this Agreement, Mr. James' actual bonus
for such fiscal year) paid to or accrued for Mr. James with respect to
the Company's fiscal year ending prior to the effective date of such
termination.
10. Termination By Mr. James:
(a) Mr. James may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company if such breach is not cured within
such twenty day period.
(b) Mr. James may also terminate his employment under
this Agreement by giving the Company one hundred twenty (120) days notice
of termination effective on December 31, 1998 or on any date thereafter.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
<PAGE>
Employee hereby assigns to Company any rights which he may acquire or
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that for a period commencing on
the date hereof and ending six months after the date of termination of
his employment with Company he will not directly or indirectly entice or
hire away or in any other manner persuade an employee, consultant, dealer
or customer of Company to discontinue that person's or firm's
relationship with or to Company as an employee, consultant, dealer or
customer, as the case may be.
<PAGE>
(c) Employee agrees that he will not, during the term
of his employment and for a period of six months thereafter, engage in
any employment or business activity in which it might reasonably be
expected that confidential Proprietary Information or trade secrets of
Company obtained by the Employee during the course of his employment with
Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company,
and for a period of six months following termination of Employee's
employment with Company, for whatever reason, Employee shall not
undertake any employment or financial involvement with or assistance of
any person, firm, association, partnership, corporation or enterprise
which is engaged in the manufacture, design, marketing or sale of pay
phones.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, to a courier service providing
next day delivery and proof of receipt, or by facsimile transmission
(except to Mr. James), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Mr. James, to his most recent residence address on the
books of the Company, or to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Mr.
James under this Agreement shall be deemed earned on a daily basis and
shall be prorated based on a 365-day year.
16. Entire Agreement, etc.: This Agreement together with
Exhibit A contains the entire understanding of the parties except as
otherwise expressly contemplated herein; shall not be amended except by
written agreement of the parties signed by each of them; shall be binding
upon and inure to the benefit of the parties and their successors,
personal representatives and assigns; and shall supersede all prior
employment agreements between the parties, including the Employment
Agreement dated October 1, 1997.
17. No representation, affirmation of fact, course of prior
dealings, promise or condition in connection herewith not incorporated
herein shall be binding on the parties.
18. No waiver of any term or condition contained herein
shall be binding upon the parties unless made in writing and signed by
the party to be bound thereby.
In Witness Whereof, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ C. Shelton James /s/ Tracey L. Gray
- ---------------------- By:--------------------------
C. Shelton James Tracey L. Gray, President and
Chief Executive Officer
<PAGE>
EXHIBIT A
INCENTIVE BONUS PLAN
C. Shelton James Employment Agreement
An annual incentive bonus will be paid equal to 50% of base salary if the
Company achieves its after tax profit plan for the year. If the Company
is profitable and earns less than its after tax profit plan, then such
bonus shall equal 50% of base salary times a fraction the numerator of
which is the actual after tax profit of the Company for the year and the
denominator of which is the amount of the after tax profit in such plan.
If the Company achieves profits in excess of its after tax profit plan,
then, at the discretion of the Board, an additional bonus in excess of
50% of base salary may be paid to Employee.
EXHIBIT 10.3
ELCOTEL, INC.
Employment Agreement of David F. Hemmings
Agreement (this "Agreement") dated as of the 10th day
of December, 1998 by and between Elcotel, Inc. (the "Company")
and David F. Hemmings ("Employee") upon the following terms and
conditions:
1. Term: This Agreement shall commence on December
10th, 1998 and shall continue until either party terminates this
Agreement by giving the other party at least 60 days prior
written notice or until sooner terminated as provided in this
Agreement.
2. Employment. Employee shall be employed by the
Company and he shall devote his full business time to carrying
out the responsibilities of his position with the Company.
Employee's position with the Company on the date of this
Agreement shall be Senior Vice President, Business Development &
Technology System Development.
3. Salary: During the term of this Agreement, the
salary paid to Employee shall not be less than One Hundred Fifty
Thousand Dollars ($150,000.00) per year, and shall be subject to
annual review for merit or other increases in the sole discretion
of the board of directors of the Company.
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior
executives and on the same terms and conditions as such
executives (the "Benefits").
5. Bonuses: Employee shall be entitled to receive
such annual bonus, if any, as the board of directors of the
Company or the Compensation Committee of the board determines or
has approved prior to the date hereof through the Company's
Incentive Compensation Plan (the "Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional
stock option grants to purchase shares of the Company's common
stock pursuant to the Company's stock option plans. Employee
shall retain all options previously granted and unexercised.
(b) All of Employee's stock options shall
immediately vest in their entirety in the event of a Change of
Control (as defined below). In addition, in the event of a
termination by the Company of Employee's employment (including by
60 days prior written notice pursuant to Section 1) other than
for Cause (in accordance with Section 9(a) of this Agreement) or
upon the death or disability of Employee (in accordance with
Section 9(d) of this Agreement), all of Employee's employee stock
<PAGE>
options shall continue in effect for 30 days after the effective
date of such termination except that (x) for all options granted
after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price
in order to maintain incentive stock option status for federal
income tax purposes, shall continue in effect until the
termination of such option in accordance with its terms absent
any termination of employment but not to exceed one year from the
date of termination of employment and (y) for all options to
which (x) does not apply, shall, if not exercised within such 30
day period, be automatically extended until the termination of
such option in accordance with its terms absent any termination
of employment but not to exceed one year from the date of
termination of employment.
(c) The occurrence of any one or more of the
following events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are
transferred, exchanged or sold to a non-affiliated third
party other than in the ordinary course of business;
(ii) If a merger or consolidation involving
the Company occurs and the stockholders of the Company
immediately before such merger or consolidation do not own
immediately after such merger or consolidation at least
fifty percent (50%) of the outstanding common stock of the
surviving entity or the entity into which the common stock
of the Company is converted; or
(iii) If any person (including, without
limitation, any individual, partnership or corporation),
other than Fundamental Management Corporation and its
affiliates or other than Wexford Management LLC and its
affiliates, becomes the owner, directly or indirectly, of
securities of the Company or its successor (or a parent
company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its
successor's (or a parent's, as the case may be) securities
then outstanding.
7. Business Expenses: Employee shall be reimbursed
(in accordance with Company policy from time to time in effect)
for all reasonable business expenses incurred by him in the
performance of his duties.
8. Indemnification: Employee shall be indemnified
by the Company with respect to claims made against him as an
officer and/or employee of the Company and as an officer and/or
employee of any subsidiary of the Company to the fullest extent
permitted by the Company's certificate of incorporation, by-laws
and the General Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's
employment may be terminated by the Company only as provided
below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary accrued,
but not paid through the date of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such
termination shall be effective upon the giving of such
notice.
(ii) If the nature of such Cause does not
involve dishonesty, fraud or serious moral turpitude, such
termination shall be effective upon the expiration of thirty
(30) days after the giving of such notice unless within such
thirty-day period, Employee has cured the basis of such
Cause, or if a cure is not possible within a thirty-day
period, if he has diligently and in good faith commenced to
effect such cure.
(b) Without Cause: Without Cause by prior
written notice of termination given to Employee and by compliance
with the following:
(i) The Company shall pay to Employee his
salary accrued, but not paid through the date of termination
and shall pay to Employee his salary and provide, at the
Company's expense, the Benefits (excluding participation in
the Company's 401(k) plan and any other benefits to which
COBRA does not apply) for a period of (x) six months from
the date of termination of employment and thereafter (y)
until such date that the Employee locates employment
comparable to his employment with the Company at the date of
termination of employment but not beyond the date that is
twelve months from the date of termination of employment.
If the Employee's employment is terminated without Cause
during a fiscal year effective on a date that is on or after
6 months after the beginning of such fiscal year, then the
Company shall pay to Employee in a lump sum within 30 days
after the termination of employment the Pro Rata portion of
the Employee's bonus from the Company with respect to the
fiscal year prior to the termination of employment; provided
however with respect to a termination of employment without
Cause that is effective during the fiscal year ending March
31, 1999, the Company shall pay to Employee on or before
June 30, 1999 the Pro Rata portion of the Employee's bonus
from the Company with respect to the fiscal year ending
March 31, 1999, such bonus (but not the Pro Rata portion
thereof) shall be calculated as if he had been employed
through the end of such fiscal year. Pro Rata shall mean
the number of days from the beginning of the Company's
fiscal year during which the termination of employment
occurred up to and including the date of termination of
employment divided by 365 days.
<PAGE>
(ii) If without Employee's written
consent, (x) there is a material reduction in Employee's
responsibilities or a reduction in his salary or (y)
Employee is required to perform his duties (other than for
normal travel, consistent with performance of his services
hereunder) from a geographic location other than the area
consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's
option by notice given to the Company within ninety (90)
days after the date of such reduction or requirement, be
treated by him as a notice of termination of his employment
by the Company without Cause.
(c) Termination on 60 Days Notice: If the
Company terminates this Agreement by 60 days prior written notice
pursuant to Section 1 and if Employee's employment is thereafter
terminated by the Company without Cause, such termination shall
be treated as a termination without Cause pursuant to Section
9(b) and Employee's stock options shall be subject to the
provisions of Section 6(b). The obligations of the Company
contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section 1.
(d) Death or Permanent Disability: Upon the
death or permanent disability of Employee, but only after
providing him with salary accrued through the effective date of
death or disability.
(e) Definition of "Cause": "Cause" for
purposes of termination by the Company shall be defined as (i)
any act or acts by Employee of dishonesty or fraud or that
constitute serious moral turpitude; or (ii) misconduct of a
material nature or a material breach in connection with the
performance by him of his responsibilities hereunder that
Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under
this Agreement by reason of a breach hereof by the Company on
twenty (20) days prior written notice to the Company, if such
breach is not cured within such twenty day period.
(b) Employee may also terminate his employment
under this Agreement by giving the Company at least sixty (60)
days prior written notice of termination.
11. Proprietary Information. Unless otherwise
expressly agreed by Company in writing, any inventions, ideas,
reports, discoveries, developments, designs, improvements,
inventions, formulas, processes, techniques, "know-how," data,
and other creative ideas concerning the manufacture, design,
marketing or sale of pay phones (all of the foregoing to be
hereafter referred to as "Proprietary Information"), whether or
not patentable or registrable under copyright or similar
statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder
with Company relating or useful to the manufacture, design,
marketing or sale of pay phones by the Company, shall be the sole
property of Company. Employee hereby assigns to Company any
<PAGE>
rights which he may acquire or develop in such Proprietary
Information. Employee shall cooperate with Company in patenting
or copyrighting any such Proprietary Information, shall execute
any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and
enforcing its rights therein. Employee's obligations under this
Section 11 to assist Company in obtaining and enforcing patents,
copyrights, and other rights and protections relating to such
Proprietary Information in any and all countries shall continue
beyond the termination of his employment. Company agrees to
compensate Employee at a reasonable rate for time actually spent
by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is
unable, after reasonable effort, to secure Employee's signature
on any document or documents needed to apply for or prosecute any
patent, copyright, or right or protection relating to such
Proprietary Information, whether because of the Employee's
physical or mental incapacity or for any other reason whatsoever,
Employee hereby irrevocably designates and appoints Company and
its duly authorized officers and agents as Employee's agent and
attorney-in-fact, to act for and on his behalf to execute and
file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance
of patents, copyrights, or similar protections thereon with the
same legal force and effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any
time or place during his employment or for three years after
termination of such employment directly or indirectly disclose to
any person or firm other than Company or make, use or sell any
records, ideas, files, drawings, documents, improvements,
equipment, customer lists, sales and marketing techniques and
devices, formulas, specifications, research, investigations,
developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the
public domain (ideas in the process of being disclosed to
customers shall not be considered in the public domain),
belonging to Company, whether or not patentable or copyrightable,
other than for the sole and exclusive benefit of Company, without
the prior written consent of Company. Employee agrees that both
during the course of his employment with Company and for three
years thereafter he will keep confidential from persons not
associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon
termination of his employment for any reason whatsoever, Employee
agrees to return to Company any property belonging to it,
including but not limited to any and all records, notes,
drawings, specifications, programs, data and other materials, and
copies thereof, pertaining to Company's business and generated or
received by Employee in the course of his employment duties with
Company.
(b) Employee agrees that during the course of
his employment with the Company and the Restricted Period (as
defined in Section 13) he will not directly or indirectly entice
or hire away or in any other manner persuade an employee,
consultant, dealer or customer of Company to discontinue that
person's or firm's relationship with or to Company as an
employee, consultant, dealer or customer, as the case may be.
<PAGE>
(c) Employee agrees that he will not, during
the course of his employment with the Company and the Restricted
Period (as defined in Section 13), engage in any employment or
business activity in which it might reasonably be expected that
confidential Proprietary Information or trade secrets of Company
obtained by the Employee during the course of his employment with
Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c)
of this Section 12 will cause irreparable damage to Company, the
amount of which will be impossible to estimate or determine.
Therefore, Employee further agrees that Company shall be
entitled, as a matter of course, to an injunction restraining any
violation or further violation of any such covenant or covenants
by Employee, his employees, partners, agents or associates, such
right to an injunction to be cumulative and in addition to any
other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection
with obtaining such an injunction. Employee further agrees that
his violation of any of the terms of paragraphs (a), (b), or (c)
of this Section 12 during the course of his employment with
Company shall be a cause for his termination without notice of
any rights of the Employee under this Agreement. Such covenants
shall be severable, and if the same be held invalid by reason of
length of time, area covered, or activity covered, or any or all
of them, shall be reduced to the extent necessary to cure such
invalidity.
13. Covenant Not To Compete Unreasonably With
Company. Employee further covenants and agrees that:
(a) During the course of his employment with
Company and the Restricted Period, Employee shall not undertake
any employment or financial involvement with or assistance of any
person, firm, association, partnership, corporation or enterprise
which is engaged in the manufacture, design, marketing or sale of
pay phones. "Restricted Period" shall mean (i) if this Agreement
is terminated For Cause, one year; (ii) if this Agreement is
terminated by the Company without Cause or by either party by 60
days prior written notice pursuant to Section 1, the time period
following termination of employment during which the Employee is
entitled to receive salary and Benefits, but not to exceed one
year; and (iii) if this Agreement terminates for any other
reason, there shall be no Restricted Period.
(b) Employee recognizes and agrees that his
violation of any terms contained in paragraph (a) of this Section
13 will cause irreparable damage to Company the amount of which
will be impossible to estimate or determine. Therefore, Employee
further agrees that Company shall be entitled, as a matter of
course, to an injunction restraining any violation or further
violation of any such covenant or covenants by Employee, his
employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other
remedies, at law or otherwise, which Company might have.
Employee further agrees that his violation of any of the terms of
paragraph (a) of this Section 13 during the course of his
employment with Company shall be a cause for his termination
without notice of any rights of Employee under this Agreement.
Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity
covered, or any or all of them, shall be reduced to the extent
necessary to cure such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a
courier service providing next day delivery and proof of receipt,
or by facsimile transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address
on the books of the Company, or, to such other address of a party
as to which that party shall notify the other parties in the
manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to
Employee under this Agreement shall be deemed earned on a daily
basis and shall be prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire
understanding of the parties except as otherwise expressly
contemplated herein; shall not be amended except by written
agreement of the parties signed by each of them; shall be binding
upon and inure to the benefit of the parties and their
successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact,
course of prior dealings, promise or condition in connection
herewith not incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition
contained herein shall be binding upon the parties unless made in
writing and signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ David F. Hemmings /s/ Tracey L. Gray
- ---------------------- By:--------------------------
David F. Hemmings Tracey L. Gray, President
EXHIBIT 10.4
ELCOTEL, INC.
Employment Agreement of William H. Thompson
Agreement (this "Agreement") dated as of the 10th day of
December, 1998 by and between Elcotel, Inc. (the "Company") and
William H. Thompson ("Employee") upon the following terms and conditions:
1. Term: This Agreement shall commence on December 10th,
1998 and shall continue until either party terminates this Agreement by
giving the other party at least 60 days prior written notice or until
sooner terminated as provided in this Agreement.
2. Employment. Employee shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Employee's position
with the Company on the date of this Agreement shall be Senior Vice
President, Administration & Finance.
3. Salary: During the term of this Agreement, the salary
paid to Employee shall not be less than One Hundred Twenty Five Thousand
Dollars ($125,000.00) per year, and shall be subject to annual review for
merit or other increases in the sole discretion of the board of directors
of the Company.
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Employee shall be entitled to receive such
annual bonus, if any, as the board of directors of the Company or the
Compensation Committee of the board determines or has approved prior to
the date hereof through the Company's Incentive Compensation Plan (the
"Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional stock
option grants to purchase shares of the Company's common stock pursuant
to the Company's stock option plans. Employee shall retain all options
previously granted and unexercised.
(b) All of Employee's stock options shall immediately
vest in their entirety in the event of a Change of Control (as defined
below). In addition, in the event of a termination by the Company of
Employee's employment (including by 60 days prior written notice pursuant
to Section 1) other than for Cause (in accordance with Section 9(a) of
this Agreement) or upon the death or disability of Employee (in
accordance with Section 9(d) of this Agreement), all of Employee's
<PAGE>
employee stock options shall continue in effect for 30 days, and in the
case of Employee's stock options outstanding under the Technology Service
Group, Inc. 1994 Omnibus Stock Plan, 60 days, after the effective date of
such termination except that (x) for all options granted after the date
of this Agreement and for all other existing options that can be amended
without increasing the exercise price in order to maintain incentive
stock option status for federal income tax purposes, shall continue in
effect until the termination of such option in accordance with its terms
absent any termination of employment but not to exceed one year from the
date of termination of employment and (y) for all options to which (x)
does not apply, shall, if not exercised within such 30 day or 60 day
period, be automatically extended until the termination of such option in
accordance with its terms absent any termination of employment but not to
exceed one year from the date of termination of employment.
(c) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent (50%) of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner, directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Employee shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Employee shall be indemnified by the
Company with respect to claims made against him as an officer and/or
employee of the Company and as an officer and/or employee of any
subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's employment may
be terminated by the Company only as provided below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary accrued, but not
paid through the date of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period,
Employee has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Employee and by compliance with the
following:
(i) The Company shall pay to Employee his salary
accrued, but not paid through the date of termination and shall pay
to Employee his salary and provide, at the Company's expense, the
Benefits (excluding participation in the Company's 401(k) plan and
any other benefits to which COBRA does not apply) for a period of
(x) six months from the date of termination of employment and
thereafter (y) until such date that the Employee locates employment
comparable to his employment with the Company at the date of
termination of employment but not beyond the date that is twelve
months from the date of termination of employment. If the
Employee's employment is terminated without Cause during a fiscal
year effective on a date that is on or after 6 months after the
beginning of such fiscal year, then the Company shall pay to
Employee in a lump sum within 30 days after the termination of
employment the Pro Rata portion of the Employee's bonus from the
Company with respect to the fiscal year prior to the termination of
employment; provided however with respect to a termination of
employment without Cause that is effective during the fiscal year
ending March 31, 1999, the Company shall pay to Employee on or
before June 30, 1999 the Pro Rata portion of the Employee's bonus
from the Company with respect to the fiscal year ending March 31,
1999, such bonus (but not the Pro Rata portion thereof) shall be
calculated as if he had been employed through the end of such
fiscal year. Pro Rata shall mean the number of days from the
beginning of the Company's fiscal year during which the termination
of employment occurred up to and including the date of termination
of employment divided by 365 days.
<PAGE>
(ii) If without Employee's written consent, (x)
there is a material reduction in Employee's responsibilities or a
reduction in his salary or (y) Employee is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause.
(c) Termination on 60 Days Notice: If the Company
terminates this Agreement by 60 days prior written notice pursuant to
Section 1 and if Employee's employment is thereafter terminated by the
Company without Cause, such termination shall be treated as a termination
without Cause pursuant to Section 9(b) and Employee's stock options shall
be subject to the provisions of Section 6(b). The obligations of the
Company contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section 1.
(d) Death or Permanent Disability: Upon the
death or permanent disability of Employee, but only after providing him
with salary accrued through the effective date of death or disability.
(e) Definition of "Cause": "Cause" for
purposes of termination by the Company shall be defined as (i) any act or
acts by Employee of dishonesty or fraud or that constitute serious moral
turpitude; or (ii) misconduct of a material nature or a material breach
in connection with the performance by him of his responsibilities
hereunder that Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Employee may also terminate his employment
under this Agreement by giving the Company at least sixty (60) days prior
written notice of termination.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
<PAGE>
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
<PAGE>
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated For Cause, one
year; (ii) if this Agreement is terminated by the Company without Cause
or by either party by 60 days prior written notice pursuant to Section 1,
the time period following termination of employment during which the
Employee is entitled to receive salary and Benefits, but not to exceed
one year; and (iii) if this Agreement terminates for any other reason,
there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Employee
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding
of the parties except as otherwise expressly contemplated herein; shall
not be amended except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of the parties
and their successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact, course of
prior dealings, promise or condition in connection herewith not
incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ William H. Thompson /s/ Tracey L. Gray
- ----------------------- By:--------------------------
William H. Thompson Tracey L. Gray, President
EXHIBIT 10.5
ELCOTEL, INC.
Employment Agreement of Kenneth W. Noack
Agreement (this "Agreement") dated as of the 10th day of
December, 1998 by and between Elcotel, Inc. (the "Company") and Kenneth
W. Noack ("Employee") upon the following terms and conditions:
1. Term: This Agreement shall commence on December 10th,
1998 and shall continue until either party terminates this Agreement by
giving the other party at least 60 days prior written notice or until
sooner terminated as provided in this Agreement.
2. Employment. Employee shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Employee's position
with the Company on the date of this Agreement shall be Vice President,
Operations.
3. Salary: During the term of this Agreement, the salary
paid to Employee shall not be less than One Hundred Five Thousand Dollars
($105,000.00) per year, and shall be subject to annual review for merit
or other increases in the sole discretion of the board of directors of
the Company.
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Employee shall be entitled to receive such
annual bonus, if any, as the board of directors of the Company or the
Compensation Committee of the board determines or has approved prior to
the date hereof through the Company's Incentive Compensation Plan (the
"Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional stock
option grants to purchase shares of the Company's common stock pursuant
to the Company's stock option plans. Employee shall retain all options
previously granted and unexercised.
(b) All of Employee's stock options shall immediately
vest in their entirety in the event of a Change of Control (as defined
below). In addition, in the event of a termination by the Company of
Employee's employment (including by 60 days prior written notice pursuant
to Section 1) other than for Cause (in accordance with Section 9(a) of
this Agreement) or upon the death or disability of Employee (in
accordance with Section 9(d) of this Agreement), all of Employee's
<PAGE>
employee stock options shall continue in effect for 30 days after the
effective date of such termination except that (x) for all options
granted after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price in
order to maintain incentive stock option status for federal income tax
purposes, shall continue in effect until the termination of such option
in accordance with its terms absent any termination of employment but not
to exceed one year from the date of termination of employment and (y) for
all options to which (x) does not apply, shall, if not exercised within
such 30 day period, be automatically extended until the termination of
such option in accordance with its terms absent any termination of
employment but not to exceed one year from the date of termination of
employment.
(c) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent (50%) of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner, directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Employee shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Employee shall be indemnified by the
Company with respect to claims made against him as an officer and/or
employee of the Company and as an officer and/or employee of any
subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's employment may
be terminated by the Company only as provided below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary accrued, but not
paid through the date of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period,
Employee has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Employee and by compliance with the
following:
(i) The Company shall pay to Employee his salary
accrued, but not paid through the date of termination and shall pay
to Employee his salary and provide, at the Company's expense, the
Benefits (excluding participation in the Company's 401(k) plan and
any other benefits to which COBRA does not apply) for a period of
(x) six months from the date of termination of employment and
thereafter (y) until such date that the Employee locates employment
comparable to his employment with the Company at the date of
termination of employment but not beyond the date that is twelve
months from the date of termination of employment. If the
Employee's employment is terminated without Cause during a fiscal
year effective on a date that is on or after 6 months after the
beginning of such fiscal year, then the Company shall pay to
Employee in a lump sum within 30 days after the termination of
employment the Pro Rata portion of the Employee's bonus from the
Company with respect to the fiscal year prior to the termination of
employment; provided however with respect to a termination of
employment without Cause that is effective during the fiscal year
ending March 31, 1999, the Company shall pay to Employee on or
before June 30, 1999 the Pro Rata portion of the Employee's bonus
from the Company with respect to the fiscal year ending March 31,
1999, such bonus (but not the Pro Rata portion thereof) shall be
calculated as if he had been employed through the end of such
fiscal year. Pro Rata shall mean the number of days from the
beginning of the Company's fiscal year during which the termination
of employment occurred up to and including the date of termination
of employment divided by 365 days.
<PAGE>
(ii) If without Employee's written consent, (x)
there is a material reduction in Employee's responsibilities or a
reduction in his salary or (y) Employee is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause.
(c) Termination on 60 Days Notice: If the Company
terminates this Agreement by 60 days prior written notice pursuant to
Section 1 and if Employee's employment is thereafter terminated by the
Company without Cause, such termination shall be treated as a termination
without Cause pursuant to Section 9(b) and Employee's stock options shall
be subject to the provisions of Section 6(b). The obligations of the
Company contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section
(d) Death or Permanent Disability: Upon the death or
permanent disability of Employee, but only after providing him with
salary accrued through the effective date of death or disability.
(e) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by
Employee of dishonesty or fraud or that constitute serious moral
turpitude; or (ii) misconduct of a material nature or a material breach
in connection with the performance by him of his responsibilities
hereunder that Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Employee may also terminate his employment under
this Agreement by giving the Company at least sixty (60) days prior
written notice of termination.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
<PAGE>
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
<PAGE>
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated For Cause, one
year; (ii) if this Agreement is terminated by the Company without Cause
or by either party by 60 days prior written notice pursuant to Section 1,
the time period following termination of employment during which the
Employee is entitled to receive salary and Benefits, but not to exceed
one year; and (iii) if this Agreement terminates for any other reason,
there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Employee
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding
of the parties except as otherwise expressly contemplated herein; shall
not be amended except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of the parties
and their successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact, course of
prior dealings, promise or condition in connection herewith not
incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Kenneth W. Noack /s/ Tracey L. Gray
- ---------------------- By:--------------------------
Kenneth W. Noack Tracey L. Gray, President
EXHIBIT 10.6
ELCOTEL, INC.
Employment Agreement of Henry W. Swanson
Agreement (this "Agreement") dated as of the 10th day of
December, 1998 by and between Elcotel, Inc. (the "Company") and Henry
W. Swanson ("Employee") upon the following terms and conditions:
1. Term: This Agreement shall commence on December 10th,
1998 and shall continue until either party terminates this Agreement by
giving the other party at least 60 days prior written notice or until
sooner terminated as provided in this Agreement.
2. Employment. Employee shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Employee's position
with the Company on the date of this Agreement shall be Vice President,
Systems Development.
3. Salary: During the term of this Agreement, the salary
paid to Employee shall not be less than One Hundred Seventeen Thousand
Dollars ($117,000.00) per year, and shall be subject to annual review for
merit or other increases in the sole discretion of the board of directors
of the Company.
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Employee shall be entitled to receive such
annual bonus, if any, as the board of directors of the Company or the
Compensation Committee of the board determines or has approved prior to
the date hereof through the Company's Incentive Compensation Plan (the
"Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional stock
option grants to purchase shares of the Company's common stock pursuant
to the Company's stock option plans. Employee shall retain all options
previously granted and unexercised.
(b) All of Employee's stock options shall immediately
vest in their entirety in the event of a Change of Control (as defined
below). In addition, in the event of a termination by the Company of
Employee's employment (including by 60 days prior written notice pursuant
to Section 1) other than for Cause (in accordance with Section 9(a) of
this Agreement) or upon the death or disability of Employee (in
accordance with Section 9(d) of this Agreement), all of Employee's
<PAGE>
employee stock options shall continue in effect for 30 days after the
effective date of such termination except that (x) for all options
granted after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price in
order to maintain incentive stock option status for federal income tax
purposes, shall continue in effect until the termination of such option
in accordance with its terms absent any termination of employment but not
to exceed one year from the date of termination of employment and (y) for
all options to which (x) does not apply, shall, if not exercised within
such 30 day period, be automatically extended until the termination of
such option in accordance with its terms absent any termination of
employment but not to exceed one year from the date of termination of
employment.
(d) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent (50%) of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner, directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Employee shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Employee shall be indemnified by the
Company with respect to claims made against him as an officer and/or
employee of the Company and as an officer and/or employee of any
subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's employment may
be terminated by the Company only as provided below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary accrued, but not
paid through the date of termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period,
Employee has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Employee and by compliance with the
following:
(i) The Company shall pay to Employee his salary
accrued, but not paid through the date of termination and shall pay
to Employee his salary and provide, at the Company's expense, the
Benefits (excluding participation in the Company's 401(k) plan and
any other benefits to which COBRA does not apply) for a period of
(x) six months from the date of termination of employment and
thereafter (y) until such date that the Employee locates employment
comparable to his employment with the Company at the date of
termination of employment but not beyond the date that is twelve
months from the date of termination of employment. If the
Employee's employment is terminated without Cause during a fiscal
year effective on a date that is on or after 6 months after the
beginning of such fiscal year, then the Company shall pay to
Employee in a lump sum within 30 days after the termination of
employment the Pro Rata portion of the Employee's bonus from the
Company with respect to the fiscal year prior to the termination of
employment; provided however with respect to a termination of
employment without Cause that is effective during the fiscal year
ending March 31, 1999, the Company shall pay to Employee on or
before June 30, 1999 the Pro Rata portion of the Employee's bonus
from the Company with respect to the fiscal year ending March 31,
1999, such bonus (but not the Pro Rata portion thereof) shall be
calculated as if he had been employed through the end of such
fiscal year. Pro Rata shall mean the number of days from the
beginning of the Company's fiscal year during which the termination
of employment occurred up to and including the date of termination
of employment divided by 365 days.
<PAGE>
(ii) If without Employee's written consent, (x)
there is a material reduction in Employee's responsibilities or a
reduction in his salary or (y) Employee is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause.
(c) Termination on 60 Days Notice: If the Company
terminates this Agreement by 60 days prior written notice pursuant to
Section 1 and if Employee's employment is thereafter terminated by the
Company without Cause, such termination shall be treated as a termination
without Cause pursuant to Section 9(b) and Employee's stock options shall
be subject to the provisions of Section 6(b). The obligations of the
Company contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section
(d) Death or Permanent Disability: Upon the death or
permanent disability of Employee, but only after providing him with
salary accrued through the effective date of death or disability.
(e) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by
Employee of dishonesty or fraud or that constitute serious moral
turpitude; or (ii) misconduct of a material nature or a material breach
in connection with the performance by him of his responsibilities
hereunder that Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Employee may also terminate his employment under
this Agreement by giving the Company at least sixty (60) days prior
written notice of termination.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
<PAGE>
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
<PAGE>
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated For Cause, one
year; (ii) if this Agreement is terminated by the Company without Cause
or by either party by 60 days prior written notice pursuant to Section 1,
the time period following termination of employment during which the
Employee is entitled to receive salary and Benefits, but not to exceed
one year; and (iii) if this Agreement terminates for any other reason,
there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Employee
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding
of the parties except as otherwise expressly contemplated herein; shall
not be amended except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of the parties
and their successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact, course of
prior dealings, promise or condition in connection herewith not
incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Henry W. Swanson /s/ Tracey L. Gray
- ---------------------- By:--------------------------
Henry W. Swanson Tracey L. Gray, President
EXHIBIT 10.7
ELCOTEL, INC.
Employment Agreement of Darold R. Bartusek
Agreement (this "Agreement") dated as of the 10th day of
December, 1998 by and between Elcotel, Inc. (the "Company") and Darold
R. Bartusek ("Employee") upon the following terms and conditions:
1. Term: This Agreement shall commence on December 10th,
1998 and shall continue until either party terminates this Agreement by
giving the other party at least 60 days prior written notice or until
sooner terminated as provided in this Agreement.
2. Employment. Employee shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Employee's position
with the Company on the date of this Agreement shall be Vice
President/General Manager, Telco Sales.
3. Salary: During the term of this Agreement, the salary
paid to Employee shall not be less than One Hundred Fifteen Thousand
Dollars ($115,000.00) per year plus commissions, and shall be subject to
annual review for merit or other increases in the sole discretion of the
board of directors of the Company. The Employee shall also be entitled
to such sales bonuses and commissions on the basis determined by the
Company ("Sales Commissions").
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Employee shall be entitled to receive such
annual bonus, if any, as the board of directors of the Company or the
Compensation Committee of the board determines or has approved prior to
the date hereof through the Company's Incentive Compensation Plan (the
"Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional stock
option grants to purchase shares of the Company's common stock pursuant
to the Company's stock option plans. Employee shall retain all options
previously granted and unexercised.
(b) All of Employee's stock options shall immediately
vest in their entirety in the event of a Change of Control (as defined
below). In addition, in the event of a termination by the Company of
Employee's employment (including by 60 days prior written notice pursuant
to Section 1) other than for Cause (in accordance with Section 9(a) of
this Agreement) or upon the death or disability of Employee (in
<PAGE>
accordance with Section 9(d) of this Agreement), all of Employee's
employee stock options shall continue in effect for 30 days, and in the
case of Employee's stock options outstanding under the Technology Service
Group, Inc. 1994 Omnibus Stock Plan, 60 days, after the effective date of
such termination except that (x) for all options granted after the date
of this Agreement and for all other existing options that can be amended
without increasing the exercise price in order to maintain incentive
stock option status for federal income tax purposes, shall continue in
effect until the termination of such option in accordance with its terms
absent any termination of employment but not to exceed one year from the
date of termination of employment and (y) for all options to which (x)
does not apply, shall, if not exercised within such 30 day or 60 day
period, be automatically extended until the termination of such option in
accordance with its terms absent any termination of employment but not to
exceed one year from the date of termination of employment.
(c) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent (50%) of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner, directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Employee shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Employee shall be indemnified by the
Company with respect to claims made against him as an officer and/or
employee of the Company and as an officer and/or employee of any
subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's employment may
be terminated by the Company only as provided below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary and Sales
Commissions accrued, but not paid through the date of termination;
provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period,
Employee has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Employee and by compliance with the
following:
(i) The Company shall pay to Employee his salary
and Sales Commissions accrued, but not paid through the date of
termination and shall pay to Employee his salary and provide, at
the Company's expense, the Benefits (excluding participation in the
Company's 401(k) plan and any other benefits to which COBRA does
not apply) for a period of (x) six months from the date of
termination of employment and thereafter (y) until such date that
the Employee locates employment comparable to his employment with
the Company at the date of termination of employment but not beyond
the date that is twelve months from the date of termination of
employment. If the Employee's employment is terminated without
Cause du ing a fiscal year effective on a date that is on or after
6 months after the beginning of such fiscal year, then the Company
shall pay to Employee in a lump sum within 30 days after the
termination of employment the Pro Rata portion of the Employee's
bonus from the Company with respect to the fiscal year prior to the
termination of employment; provided however with respect to a
termination of employment without Cause that is effective during
the fiscal year ending March 31, 1999, the Company shall pay to
Employee on or before June 30, 1999 the Pro Rata portion of the
Employee's bonus from the Company with respect to the fiscal year
ending March 31, 1999, such bonus (but not the Pro Rata portion
thereof) shall be calculated as if he had been employed through the
end of such fiscal year. Pro Rata shall mean the number of days
from the beginning of the Company's fiscal year during which the
termination of employment occurred up to and including the date of
termination of employment divided by 365 days.
<PAGE>
(ii) If without Employee's written consent, (x)
there is a material reduction in Employee's responsibilities or a
reduction in his salary or (y) Employee is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause.
(c) Termination on 60 Days Notice: If the Company
terminates this Agreement by 60 days prior written notice pursuant to
Section 1 and if Employee's employment is thereafter terminated by the
Company without Cause, such termination shall be treated as a termination
without Cause pursuant to Section 9(b) and Employee's stock options shall
be subject to the provisions of Section 6(b). The obligations of the
Company contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section 1.
(d) Death or Permanent Disability: Upon the death or
permanent disability of Employee, but only after providing him with
salary and Sales Commissions accrued through the effective date of death
or disability.
(e) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by
Employee of dishonesty or fraud or that constitute serious moral
turpitude; or (ii) misconduct of a material nature or a material breach
in connection with the performance by him of his responsibilities
hereunder that Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Employee may also terminate his employment under
this Agreement by giving the Company at least sixty (60) days prior
written notice of termination.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
<PAGE>
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
<PAGE>
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated For Cause, one
year; (ii) if this Agreement is terminated by the Company without Cause
or by either party by 60 days prior written notice pursuant to Section 1,
the time period following termination of employment during which the
Employee is entitled to receive salary and Benefits, but not to exceed
one year; and (iii) if this Agreement terminates for any other reason,
there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Employee
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding
of the parties except as otherwise expressly contemplated herein; shall
not be amended except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of the parties
and their successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact, course of
prior dealings, promise or condition in connection herewith not
incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Darold R. Bartusek /s/ Tracey L. Gray
- ---------------------- By:--------------------------
Darold R. Bartusek Tracey L. Gray, President
EXHIBIT 10.8
ELCOTEL, INC.
Employment Agreement of Hugh H. Durden
Agreement (this "Agreement") dated as of the 10th day of
December, 1998 by and between Elcotel, Inc. (the "Company") and Hugh H.
Durden ("Employee") upon the following terms and conditions:
1. Term: This Agreement shall commence on December 10th,
1998 and shall continue until either party terminates this Agreement by
giving the other party at least 60 days prior written notice or until
sooner terminated as provided in this Agreement.
2. Employment. Employee shall be employed by the Company
and he shall devote his full business time to carrying out the
responsibilities of his position with the Company. Employee's position
with the Company on the date of this Agreement shall be Vice
President/General Manager, IPP Sales.
3. Salary: During the term of this Agreement, the salary
paid to Employee shall not be less than One Hundred Sixteen Thousand
Dollars ($116,000.00) per year plus commissions, and shall be subject to
annual review for merit or other increases in the sole discretion of the
board of directors of the Company. The Employee shall also be entitled
to such sales bonuses and commissions on the basis determined by the
Company ("Sales Commissions").
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior executives
and on the same terms and conditions as such executives (the
"Benefits").
5. Bonuses: Employee shall be entitled to receive such
annual bonus, if any, as the board of directors of the Company or the
Compensation Committee of the board determines or has approved prior to
the date hereof through the Company's Incentive Compensation Plan (the
"Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional stock
option grants to purchase shares of the Company's common stock pursuant
to the Company's stock option plans. Employee shall retain all options
previously granted and unexercised.
(b) All of Employee's stock options shall immediately
vest in their entirety in the event of a Change of Control (as defined
below). In addition, in the event of a termination by the Company of
Employee's employment (including by 60 days prior written notice pursuant
to Section 1) other than for Cause (in accordance with Section 9(a) of
this Agreement) or upon the death or disability of Employee (in
accordance with Section 9(d) of this Agreement), all of Employee's
<PAGE>
employee stock options shall continue in effect for 30 days after the
effective date of such termination except that (x) for all options
granted after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price in
order to maintain incentive stock option status for federal income tax
purposes, shall continue in effect until the termination of such option
in accordance with its terms absent any termination of employment but not
to exceed one year from the date of termination of employment and (y) for
all options to which (x) does not apply, shall, if not exercised within
such 30 day period, be automatically extended until the termination of
such option in accordance with its terms absent any termination of
employment but not to exceed one year from the date of termination of
employment.
(c) The occurrence of any one or more of the following
events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business;
(ii) If a merger or consolidation involving the
Company occurs and the stockholders of the Company immediately
before such merger or consolidation do not own immediately after
such merger or consolidation at least fifty percent (50%) of the
outstanding common stock of the surviving entity or the entity into
which the common stock of the Company is converted; or
(iii) If any person (including, without limitation,
any individual, partnership or corporation), other than Fundamental
Management Corporation and its affiliates or other than Wexford
Management LLC and its affiliates, becomes the owner, directly or
indirectly, of securities of the Company or its successor (or a
parent company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
7. Business Expenses: Employee shall be reimbursed (in
accordance with Company policy from time to time in effect) for all
reasonable business expenses incurred by him in the performance of his
duties.
8. Indemnification: Employee shall be indemnified by the
Company with respect to claims made against him as an officer and/or
employee of the Company and as an officer and/or employee of any
subsidiary of the Company to the fullest extent permitted by the
Company's certificate of incorporation, by-laws and the General
Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's employment may
be terminated by the Company only as provided below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary and Sales
Commissions accrued, but not paid through the date of termination;
provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the giving of such notice.
(ii) If the nature of such Cause does not involve
dishonesty, fraud or serious moral turpitude, such termination
shall be effective upon the expiration of thirty (30) days after
the giving of such notice unless within such thirty-day period,
Employee has cured the basis of such Cause, or if a cure is not
possible within a thirty-day period, if he has diligently and in
good faith commenced to effect such cure.
(b) Without Cause: Without Cause by prior written
notice of termination given to Employee and by compliance with the
following:
(i) The Company shall pay to Employee his salary
and Sales Commissions accrued, but not paid through the date of
termination and shall pay to Employee his salary and provide, at
the Company's expense, the Benefits (excluding participation in the
Company's 401(k) plan and any other benefits to which COBRA does
not apply for a period of (x) six months from the date of
termination of employment and thereafter (y) until such date that
the Employee locates employment comparable to his employment with
the Company at the date of termination of employment but not beyond
the date that is twelve months from the date of termination of
employment. If the Employee's employment is terminated without
Cause during a fiscal year effective on a date that is on or after
6 months after the beginning of such fiscal year, then the Company
shall pay to Employee in a lump sum within 30 days after the
termination of employment the Pro Rata portion of the Employee's
bonus from the Company with respect to the fiscal year prior to the
termination of employment; provided however with respect to a
termination of employment without Cause that is effective during
the fiscal year ending March 31, 1999, the Company shall pay to
Employee on or before June 30, 1999 the Pro Rata portion of the
Employee's bonus from the Company with respect to the fiscal year
ending March 31, 1999, such bonus (but not the Pro Rata portion
thereof) shall be calculated as if he had been employed through the
end of such fiscal year. Pro Rata shall mean the number of days
from the beginning of the Company's fiscal year during which the
termination of employment occurred up to and including the date of
termination of employment divided by 365 days.
<PAGE<
(ii) If without Employee's written consent, (x)
there is a material reduction in Employee's responsibilities or a
reduction in his salary or (y) Employee is required to perform his
duties (other than for normal travel, consistent with performance
of his services hereunder) from a geographic location other than
the area consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date
of such reduction or requirement, be treated by him as a notice of
termination of his employment by the Company without Cause.
(c) Termination on 60 Days Notice: If the Company
terminates this Agreement by 60 days prior written notice pursuant to
Section 1 and if Employee's employment is thereafter terminated by the
Company without Cause, such termination shall be treated as a termination
without Cause pursuant to Section 9(b) and Employee's stock options shall
be subject to the provisions of Section 6(b). The obligations of the
Company contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section
1.
(d) Death or Permanent Disability: Upon the death or
permanent disability of Employee, but only after providing him with
salary and Sales Commissions accrued through the effective date of death
or disability.
(e) Definition of "Cause": "Cause" for purposes of
termination by the Company shall be defined as (i) any act or acts by
Employee of dishonesty or fraud or that constitute serious moral
turpitude; or (ii) misconduct of a material nature or a material breach
in connection with the performance by him of his responsibilities
hereunder that Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under this
Agreement by reason of a breach hereof by the Company on twenty (20) days
prior written notice to the Company, if such breach is not cured within
such twenty day period.
(b) Employee may also terminate his employment under
this Agreement by giving the Company at least sixty (60) days prior
written notice of termination.
11. Proprietary Information. Unless otherwise expressly
agreed by Company in writing, any inventions, ideas, reports,
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, "know-how," data, and other creative ideas
concerning the manufacture, design, marketing or sale of pay phones (all
of the foregoing to be hereafter referred to as "Proprietary
Information"), whether or not patentable or registrable under copyright
or similar statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder with
Company relating or useful to the manufacture, design, marketing or sale
of pay phones by the Company, shall be the sole property of Company.
Employee hereby assigns to Company any rights which he may acquire or
<PAGE>
develop in such Proprietary Information. Employee shall cooperate with
Company in patenting or copyrighting any such Proprietary Information,
shall execute any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and enforcing its
rights therein. Employee's obligations under this Section 11 to assist
Company in obtaining and enforcing patents, copyrights, and other rights
and protections relating to such Proprietary Information in any and all
countries shall continue beyond the termination of his employment.
Company agrees to compensate Employee at a reasonable rate for time
actually spent by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is unable,
after reasonable effort, to secure Employee's signature on any document
or documents needed to apply for or prosecute any patent, copyright, or
right or protection relating to such Proprietary Information, whether
because of the Employee's physical or mental incapacity or for any other
reason whatsoever, Employee hereby irrevocably designates and appoints
Company and its duly authorized officers and agents as Employee's agent
and attorney-in-fact, to act for and on his behalf to execute and file
any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of patents,
copyrights, or similar protections thereon with the same legal force and
effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any time or
place during his employment or for three years after termination of such
employment directly or indirectly disclose to any person or firm other
than Company or make, use or sell any records, ideas, files, drawings,
documents, improvements, equipment, customer lists, sales and marketing
techniques and devices, formulas, specifications, research,
investigations, developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the public
domain (ideas in the process of being disclosed to customers shall not be
considered in the public domain), belonging to Company, whether or not
patentable or copyrightable, other than for the sole and exclusive
benefit of Company, without the prior written consent of Company.
Employee agrees that both during the course of his employment with
Company and for three years thereafter he will keep confidential from
persons not associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon termination of
his employment for any reason whatsoever, Employee agrees to return to
Company any property belonging to it, including but not limited to any
and all records, notes, drawings, specifications, programs, data and
other materials, and copies thereof, pertaining to Company's business and
generated or received by Employee in the course of his employment duties
with Company.
(b) Employee agrees that during the course of his
employment with the Company and the Restricted Period (as defined in
Section 13) he will not directly or indirectly entice or hire away or in
any other manner persuade an employee, consultant, dealer or customer of
Company to discontinue that person's or firm's relationship with or to
Company as an employee, consultant, dealer or customer, as the case may
be.
<PAGE>
(c) Employee agrees that he will not, during the
course of his employment with the Company and the Restricted Period (as
defined in Section 13), engage in any employment or business activity in
which it might reasonably be expected that confidential Proprietary
Information or trade secrets of Company obtained by the Employee during
the course of his employment with Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c) of this
Section 12 will cause irreparable damage to Company, the amount of which
will be impossible to estimate or determine. Therefore, Employee further
agrees that Company shall be entitled, as a matter of course, to an
injunction restraining any violation or further violation of any such
covenant or covenants by Employee, his employees, partners, agents or
associates, such right to an injunction to be cumulative and in addition
to any other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection with
obtaining such an injunction. Employee further agrees that his violation
of any of the terms of paragraphs (a), (b), or (c) of this Section 12
during the course of his employment with Company shall be a cause for his
termination without notice of any rights of the Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with Company
and the Restricted Period, Employee shall not undertake any employment or
financial involvement with or assistance of any person, firm,
association, partnership, corporation or enterprise which is engaged in
the manufacture, design, marketing or sale of pay phones. "Restricted
Period" shall mean (i) if this Agreement is terminated For Cause, one
year; (ii) if this Agreement is terminated by the Company without Cause
or by either party by 60 days prior written notice pursuant to Section 1,
the time period following termination of employment during which the
Employee is entitled to receive salary and Benefits, but not to exceed
one year; and (iii) if this Agreement terminates for any other reason,
there shall be no Restricted Period.
(b) Employee recognizes and agrees that his violation
of any terms contained in paragraph (a) of this Section 13 will cause
irreparable damage to Company the amount of which will be impossible to
estimate or determine. Therefore, Employee further agrees that Company
shall be entitled, as a matter of course, to an injunction restraining
any violation or further violation of any such covenant or covenants by
Employee, his employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other remedies, at law
or otherwise, which Company might have. Employee further agrees that his
violation of any of the terms of paragraph (a) of this Section 13 during
the course of his employment with Company shall be a cause for his
termination without notice of any rights of Employee under this
Agreement. Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity covered,
or any or all of them, shall be reduced to the extent necessary to cure
such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a courier
service providing next day delivery and proof of receipt, or by facsimile
transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address on the
books of the Company, or, to such other address of a party as to which
that party shall notify the other parties in the manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to Employee
under this Agreement shall be deemed earned on a daily basis and shall be
prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding
of the parties except as otherwise expressly contemplated herein; shall
not be amended except by written agreement of the parties signed by each
of them; shall be binding upon and inure to the benefit of the parties
and their successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties.
(b) No representation, affirmation of fact, course of
prior dealings, promise or condition in connection herewith not
incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition contained
herein shall be binding upon the parties unless made in writing and
signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Hugh H. Durden /s/ Tracey L. Gray
- ---------------------- By:--------------------------
Hugh H. Durden Tracey L. Gray, President
EXHIBIT 10.9
ELCOTEL, INC.
Employment Agreement of Eduardo Gandarilla
Agreement (this "Agreement") dated as of the 10th day
of December, 1998 by and between Elcotel, Inc. (the "Company")
and Eduardo Gandarilla ("Employee") upon the following terms and
conditions:
1. Term: This Agreement shall commence on December
10th, 1998 and shall continue until either party terminates this
Agreement by giving the other party at least 60 days prior
written notice or until sooner terminated as provided in this
Agreement.
2. Employment. Employee shall be employed by the
Company and he shall devote his full business time to carrying
out the responsibilities of his position with the Company.
Employee's position with the Company on the date of this
Agreement shall be Executive Vice President, Sales and Marketing.
3. Salary: During the term of this Agreement, the
salary paid to Employee shall not be less than One Hundred Fifty
Five Thousand Dollars ($155,000.00) per year plus commissions,
and shall be subject to annual review for merit or other
increases in the sole discretion of the board of directors of the
Company. The Employee shall also be entitled to such sales
bonuses and commissions on the basis determined by the Company
("Sales Commissions").
4. Benefits: Employee shall be entitled to the same
benefits as are made available to the Company's other senior
executives and on the same terms and conditions as such
executives (the "Benefits").
5. Bonuses: Employee shall be entitled to receive
such annual bonus, if any, as the board of directors of the
Company or the Compensation Committee of the board determines or
has approved prior to the date hereof through the Company's
Incentive Compensation Plan (the "Bonus").
6. Stock Options:
(a) Employee shall be eligible for additional
stock option grants to purchase shares of the Company's common
stock pursuant to the Company's stock option plans. Employee
shall retain all options previously granted and unexercised.
(b) All of Employee's stock options shall
immediately vest in their entirety in the event of a Change of
Control (as defined below). In addition, in the event of a
termination by the Company of Employee's employment (including by
60 days prior written notice pursuant to Section 1) other than
for Cause (in accordance with Section 9(a) of this Agreement) or
upon the death or disability of Employee (in accordance with
Section 9(d) of this Agreement), all of Employee's employee stock
<PAGE>
options shall continue in effect for 30 days after the effective
date of such termination except that (x) for all options granted
after the date of this Agreement and for all other existing
options that can be amended without increasing the exercise price
in order to maintain incentive stock option status for federal
income tax purposes, shall continue in effect until the
termination of such option in accordance with its terms absent
any termination of employment but not to exceed one year from the
date of termination of employment and (y) for all options to
which (x) does not apply, shall, if not exercised within such 30
day period, be automatically extended until the termination of
such option in accordance with its terms absent any termination
of employment but not to exceed one year from the date of
termination of employment.
(c) The occurrence of any one or more of the
following events shall be deemed to be a "Change of Control":
(i) If any transaction occurs whereby
substantially all of the assets of the Company are
transferred, exchanged or sold to a non-affiliated third
party other than in the ordinary course of business;
(ii) If a merger or consolidation involving
the Company occurs and the stockholders of the Company
immediately before such merger or consolidation do not own
immediately after such merger or consolidation at least
fifty percent (50%) of the outstanding common stock of the
surviving entity or the entity into which the common stock
of the Company is converted; or
(iii) If any person (including, without
limitation, any individual, partnership or corporation),
other than Fundamental Management Corporation and its
affiliates or other than Wexford Management LLC and its
affiliates, becomes the owner, directly or indirectly, of
securities of the Company or its successor (or a parent
company thereof) representing thirty-five (35%) or more of
the combined voting power of the Company's or its
successor's (or a parent's, as the case may be) securities
then outstanding.
7. Business Expenses: Employee shall be reimbursed
(in accordance with Company policy from time to time in effect)
for all reasonable business expenses incurred by him in the
performance of his duties.
8. Indemnification: Employee shall be indemnified
by the Company with respect to claims made against him as an
officer and/or employee of the Company and as an officer and/or
employee of any subsidiary of the Company to the fullest extent
permitted by the Company's certificate of incorporation, by-laws
and the General Corporation Law of the State of Delaware.
9. Termination By the Company: Employee's
employment may be terminated by the Company only as provided
below:
<PAGE>
(a) For Cause: For Cause (as defined below) by
written notice to Employee and payment to him of salary accrued
and Sales Commissions, but not paid through the date of
termination; provided however -
(i) If the nature of such Cause involves
dishonesty, fraud or serious moral turpitude, such
termination shall be effective upon the giving of such
notice.
(ii) If the nature of such Cause does not
involve dishonesty, fraud or serious moral turpitude, such
termination shall be effective upon the expiration of thirty
(30) days after the giving of such notice unless within such
thirty-day period, Employee has cured the basis of such
Cause, or if a cure is not possible within a thirty-day
period, if he has diligently and in good faith commenced to
effect such cure.
(b) Without Cause: Without Cause by prior
written notice of termination given to Employee and by compliance
with the following:
(i) The Company shall pay to Employee his
salary and Sales Commissions accrued, but not paid through
the date of termination and shall pay to Employee his salary
and provide, at the Company's expense, the Benefits
(excluding participation in the Company's 401(k) plan and
any other benefits to which COBRA does not apply) for a
period of (x) six months from the date of termination of
employment and thereafter (y) until such date that the
Employee locates employment comparable to his employment
with the Company at the date of termination of employment
but not beyond the date that is twelve months from the date
of termination of employment. If the Employee's employment
is terminated without Cause during a fiscal year effective
on a date that is on or after 6 months after the beginning
of such fiscal year, then the Company shall pay to Employee
in a lump sum within 30 days after the termination of
employment the Pro Rata portion of the Employee's bonus from
the Company with respect to the fiscal year prior to the
termination of employment; provided however with respect to
a termination of employment without Cause that is effective
during the fiscal year ending March 31, 1999, the Company
shall pay to Employee on or before June 30, 1999 the Pro
Rata portion of the Employee's bonus from the Company with
respect to the fiscal year ending March 31, 1999, such bonus
(but not the Pro Rata portion thereof) shall be calculated
as if he had been employed through the end of such fiscal
year. Pro Rata shall mean the number of days from the
beginning of the Company's fiscal year during which the
termination of employment occurred up to and including the
date of termination of employment divided by 365 days.
<PAGE>
(ii) If without Employee's written
consent, (x) there is a material reduction in Employee's
responsibilities or a reduction in his salary or (y)
Employee is required to perform his duties (other than for
normal travel, consistent with performance of his services
hereunder) from a geographic location other than the area
consisting of Sarasota, Florida, and its surrounding
counties, the reduction or requirement may, at Employee's
option by notice given to the Company within ninety (90)
days after the date of such reduction or requirement, be
treated by him as a notice of termination of his employment
by the Company without Cause.
(c) Termination on 60 Days Notice: If the
Company terminates this Agreement by 60 days prior written notice
pursuant to Section 1 and if Employee's employment is thereafter
terminated by the Company without Cause, such termination shall
be treated as a termination without Cause pursuant to Section
9(b) and Employee's stock options shall be subject to the
provisions of Section 6(b). The obligations of the Company
contained in this Section 9(c) shall survive the termination of
this Agreement by the Company pursuant to Section 1.
(d) Death or Permanent Disability: Upon the
death or permanent disability of Employee, but only after
providing him with salary and Sales Commissions accrued through
the effective date of death or disability.
(e) Definition of "Cause": "Cause" for
purposes of termination by the Company shall be defined as (i)
any act or acts by Employee of dishonesty or fraud or that
constitute serious moral turpitude; or (ii) misconduct of a
material nature or a material breach in connection with the
performance by him of his responsibilities hereunder that
Employee knew or should have known would be materially
detrimental to the Company or its business.
10. Termination By Employee:
(a) Employee may terminate his employment under
this Agreement by reason of a breach hereof by the Company on
twenty (20) days prior written notice to the Company, if such
breach is not cured within such twenty day period.
(b) Employee may also terminate his employment
under this Agreement by giving the Company at least sixty (60)
days prior written notice of termination.
11. Proprietary Information. Unless otherwise
expressly agreed by Company in writing, any inventions, ideas,
reports, discoveries, developments, designs, improvements,
inventions, formulas, processes, techniques, "know-how," data,
and other creative ideas concerning the manufacture, design,
marketing or sale of pay phones (all of the foregoing to be
hereafter referred to as "Proprietary Information"), whether or
not patentable or registrable under copyright or similar
statutes, hereinafter generated by Employee either alone or
jointly with others in the course of his employment hereunder
with Company relating or useful to the manufacture, design,
marketing or sale of pay phones by the Company, shall be the sole
property of Company. Employee hereby assigns to Company any
<PAGE>
rights which he may acquire or develop in such Proprietary
Information. Employee shall cooperate with Company in patenting
or copyrighting any such Proprietary Information, shall execute
any documents tendered by Company to evidence its ownership
thereof, and shall cooperate with Company in defending and
enforcing its rights therein. Employee's obligations under this
Section 11 to assist Company in obtaining and enforcing patents,
copyrights, and other rights and protections relating to such
Proprietary Information in any and all countries shall continue
beyond the termination of his employment. Company agrees to
compensate Employee at a reasonable rate for time actually spent
by Employee at Company's request on such assistance after
termination of Employee's employment with Company. If Company is
unable, after reasonable effort, to secure Employee's signature
on any document or documents needed to apply for or prosecute any
patent, copyright, or right or protection relating to such
Proprietary Information, whether because of the Employee's
physical or mental incapacity or for any other reason whatsoever,
Employee hereby irrevocably designates and appoints Company and
its duly authorized officers and agents as Employee's agent and
attorney-in-fact, to act for and on his behalf to execute and
file any such application or applications and to do all other
lawfully permitted acts to further the prosecution and issuance
of patents, copyrights, or similar protections thereon with the
same legal force and effect as if executed by Employee.
12. Covenants Not To Disclose Confidential Information.
(a) Employee agrees that he will not at any
time or place during his employment or for three years after
termination of such employment directly or indirectly disclose to
any person or firm other than Company or make, use or sell any
records, ideas, files, drawings, documents, improvements,
equipment, customer lists, sales and marketing techniques and
devices, formulas, specifications, research, investigations,
developments, inventions, processes and data, and without
limiting the generality of the foregoing, anything not within the
public domain (ideas in the process of being disclosed to
customers shall not be considered in the public domain),
belonging to Company, whether or not patentable or copyrightable,
other than for the sole and exclusive benefit of Company, without
the prior written consent of Company. Employee agrees that both
during the course of his employment with Company and for three
years thereafter he will keep confidential from persons not
associated with Company any and all Proprietary Information,
special techniques, and trade secrets of Company. Upon
termination of his employment for any reason whatsoever, Employee
agrees to return to Company any property belonging to it,
including but not limited to any and all records, notes,
drawings, specifications, programs, data and other materials, and
copies thereof, pertaining to Company's business and generated or
received by Employee in the course of his employment duties with
Company.
(b) Employee agrees that during the course of
his employment with the Company and the Restricted Period (as
defined in Section 13) he will not directly or indirectly entice
or hire away or in any other manner persuade an employee,
consultant, dealer or customer of Company to discontinue that
person's or firm's relationship with or to Company as an
employee, consultant, dealer or customer, as the case may be.
<PAGE>
(c) Employee agrees that he will not, during
the course of his employment with the Company and the Restricted
Period (as defined in Section 13), engage in any employment or
business activity in which it might reasonably be expected that
confidential Proprietary Information or trade secrets of Company
obtained by the Employee during the course of his employment with
Company would be utilized.
(d) The Employee recognizes and agrees that his
violation of any terms contained in paragraphs (a), (b), or (c)
of this Section 12 will cause irreparable damage to Company, the
amount of which will be impossible to estimate or determine.
Therefore, Employee further agrees that Company shall be
entitled, as a matter of course, to an injunction restraining any
violation or further violation of any such covenant or covenants
by Employee, his employees, partners, agents or associates, such
right to an injunction to be cumulative and in addition to any
other remedies, at law or otherwise, which Company might have.
Company hereby waives any right to require a bond in connection
with obtaining such an injunction. Employee further agrees that
his violation of any of the terms of paragraphs (a), (b), or (c)
of this Section 12 during the course of his employment with
Company shall be a cause for his termination without notice of
any rights of the Employee under this Agreement. Such covenants
shall be severable, and if the same be held invalid by reason of
length of time, area covered, or activity covered, or any or all
of them, shall be reduced to the extent necessary to cure such
invalidity.
13. Covenant Not To Compete Unreasonably With Company.
Employee further covenants and agrees that:
(a) During the course of his employment with
Company and the Restricted Period, Employee shall not undertake
any employment or financial involvement with or assistance of any
person, firm, association, partnership, corporation or enterprise
which is engaged in the manufacture, design, marketing or sale of
pay phones. "Restricted Period" shall mean (i) if this Agreement
is terminated For Cause, one year; (ii) if this Agreement is
terminated by the Company without Cause or by either party by 60
days prior written notice pursuant to Section 1, the time period
following termination of employment during which the Employee is
entitled to receive salary and Benefits, but not to exceed one
year; and (iii) if this Agreement terminates for any other
reason, there shall be no Restricted Period.
(b) Employee recognizes and agrees that his
violation of any terms contained in paragraph (a) of this Section
13 will cause irreparable damage to Company the amount of which
will be impossible to estimate or determine. Therefore, Employee
further agrees that Company shall be entitled, as a matter of
course, to an injunction restraining any violation or further
violation of any such covenant or covenants by Employee, his
employees, partners, agents or associates, such right to an
injunction to be cumulative and in addition to any other
remedies, at law or otherwise, which Company might have.
Employee further agrees that his violation of any of the terms of
paragraph (a) of this Section 13 during the course of his
employment with Company shall be a cause for his termination
without notice of any rights of Employee under this Agreement.
Such covenants shall be severable, and if the same be held
invalid by reason of length of time, area covered, or activity
covered, or any or all of them, shall be reduced to the extent
necessary to cure such invalidity.
<PAGE>
14. Notices: Notices that are required or permitted
hereunder shall be given by hand delivery, by delivery to a
courier service providing next day delivery and proof of receipt,
or by facsimile transmission (except to Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: President
Facsimile: 941-751-4716
If to Employee, to his most recent residence address
on the books of the Company, or, to such other address of a party
as to which that party shall notify the other parties in the
manner provided herein.
15. Proration: To the extent that proration is not
otherwise provided for in this Agreement, all amounts payable to
Employee under this Agreement shall be deemed earned on a daily
basis and shall be prorated based on a 365-day year.
16. Entire Agreement, etc.:
(a) This Agreement contains the entire
understanding of the parties except as otherwise expressly
contemplated herein; shall not be amended except by written
agreement of the parties signed by each of them; shall be binding
upon and inure to the benefit of the parties and their
successors, personal representatives and assigns; and shall
supersede and replace all prior employment agreements between the
parties, including without limitation the letter from the Company
to the Employee dated April 8, 1996.
(b) No representation, affirmation of fact,
course of prior dealings, promise or condition in connection
herewith not incorporated herein shall be binding on the parties.
(c) No waiver of any term or condition
contained herein shall be binding upon the parties unless made in
writing and signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first set forth above.
EMPLOYEE:
ELCOTEL, INC.
/s/ Eduardo Gandarilla /s/ Tracey L. Gray
- ---------------------- By:--------------------------
Eduardo Gandarilla Tracey L. Gray, President
EXHIBIT 10.10
ELCOTEL, INC.
1991 STOCK OPTION PLAN
(as amended through October 20, 1998)
1. Definitions
As used in this Plan, the following definitions apply to the
terms indicated below:
A. "Board" means the Board of Directors of the Company.
B. "Change of Control" means the occurrence of any one or
more of the following events: (i) if any transaction occurs whereby a
substantial portion of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business; (ii) if a merger or consolidation involving
the Company occurs and the stockholders of the Company immediately before
such merger or consolidation do not own immediately after such merger or
consolidation at least fifty percent (50%) of the outstanding common
stock of the surviving entity or the entity into which the common stock
of the Company is converted; or (iii) if any person (including without
limitation any individual, partnership or corporation) becomes the owner,
directly or indirectly, of securities of the Company or its successor (or
a parent company thereof) representing thirty-five percent (35%) or more
of the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
C. "Committee" means the Compensation and Stock Option
Committee appointed by the Board from time to time to administer the
Plan. The Committee shall consist of at least two persons, who shall be
directors of the Company and who shall not be or have been granted or
awarded, while serving on the Committee or within one year prior thereto,
stock, stock options, or stock appreciation rights pursuant to any plan
of the Company or any of its affiliates except a plan that provides for
formula grants or awards.
D. "Company" means Elcotel, Inc., a Delaware corporation.
E. "Fair Market Value" of a Share on a given day means, if
the Shares are traded in a public market, the mean between the highest
and lowest quoted selling prices of a Share as reported on the principal
securities exchange on which the Shares are then listed or admitted to
trading, or if not so reported, the mean between the highest and lowest
quoted selling prices of a Share, or the mean between the highest asked
price and the lowest bid price as the case may be, as reported on the
National Association of Securities Dealers Automated Quotation System.
If the Shares shall not be so traded, the Fair Market Value shall be
determined by the Committee taking into account all relevant facts and
circumstances.
F. "Grantee" means a person who is either an Optionee or
an Optionee-Shareholder.
<PAGE>
G. "Incentive Stock Option" means an option, whether
granted under this Plan or otherwise, that qualifies as an incentive
stock option within the meaning of Section 422 of the Internal Revenue
Code.
H. "Option" means a right to purchase Shares under the
terms and conditions of this Plan as evidenced by an option certificate
or agreement for Shares in such form, not inconsistent with this Plan, as
the Committee may adopt for general use or for specific cases from time
to time.
I. "Optionee" means a person other than an Optionee-
Shareholder to whom an option is granted under this Plan.
J. "Optionee-Shareholder" means a person to whom an option
is granted under this Plan and who at the time such option is granted
owns, actually or constructively, stock of the Company or of a Parent or
Subsidiary possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of such Parent or
Subsidiary.
K. "Nonqualified Option" means an Option that is not an
Incentive Stock Option.
L. "Parent" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at the
time of granting an Option, each of the corporations in the unbroken
chain (other than the Company) owns stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one
of the other corporations in the chain.
M. "Plan" means this Elcotel, Inc. 1991 Stock Option Plan,
including any amendments to the Plan.
N. "Share" means a share of the Company's common stock,
par value $.01 per share, either now or hereafter owned by the Company as
treasury stock or authorized but unissued.
O. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company
if, at the time of granting an Option, each of the corporations in the
unbroken chain (other than the last corporation in the chain) owns stock
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in the chain.
P. Options shall be deemed "granted" under this Plan on
the date on which the Committee, by appropriate action, approves the grant of
an Option hereunder or on such subsequent date as the Committee may
designate.
<PAGE>
Q. As used herein, the masculine includes the feminine,
the plural includes the singular, and the singular includes the plural.
2. Purpose
The purposes of the Plan are as follows.
A. To secure for the Company and its shareholders the
benefits arising from share ownership by those officers and key
employees of the Company and its Subsidiaries who will be responsible for
the Company's future growth and continued success. The Plan is intended
to provide an incentive to officers and key employees by providing them
with an opportunity to acquire an equity interest or increase an existing
equity interest in the Company, thereby increasing their personal stake
in its continued success and progress.
B. To enable the Company and its Subsidiaries to obtain
and retain the services of key employees, by providing such key employees
with an opportunity to acquire Shares under the terms and conditions and
in the manner contemplated by this Plan.
3. Plan Adoption and Term
A. This Plan shall become effective upon its adoption by
the Board, and Options may be issued upon such adoption and from time to
time thereafter; provided, however, that the Plan shall be submitted to
the Company's shareholders for their approval at the next annual meeting
of shareholders, or prior thereto at a special meeting of shareholders
expressly called for such purpose; and provided further, that the
approval of the Company's shareholders shall be obtained within 12 months
of the date of adoption of the Plan. If the Plan is not approved by the
affirmative vote of the holders of a majority of all shares present in
person or by proxy, at a duly called shareholders' meeting at which a
quorum representing a majority of all voting stock is present in person
or by proxy and voting on this Plan, then this Plan and all Options then
outstanding under it shall forthwith automatically terminate and be of
no force and effect.
B. Subject to the provisions hereinafter contained
relating to amendment or discontinuance, this Plan shall continue to be in
effect for ten (10) years from the date of adoption of this Plan by the Board.
No Options may be granted hereunder except within such period of ten (10)
years.
4. Administration of Plan
A. This Plan shall be administered by the Committee.
Except as otherwise expressly provided in this Plan, the Committee shall
have authority to interpret the provisions of the Plan, to construe the
terms of any Option, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions
of Options granted hereunder, and to make all other determinations in the
judgment of the Committee necessary or desirable for the administration
of the Plan. Without limiting the foregoing, the Committee shall, to the
<PAGE>
extent and in the manner contemplated herein, exercise the discretion
granted to it to determine to whom Incentive Stock Options and
Non-qualified Options shall be granted, how many Shares shall be subject
to each such Option, whether a Grantee shall be required to surrender for
cancellation an outstanding Option as a condition to the grant of a new
Option, and the prices at which Shares shall be sold to Grantees. The
Committee may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option in the manner and to the
extent it shall deem expedient to carry the Plan into effect and shall be
the sole and final judge of such expediency.
B. No member of the Committee shall be liable for any
action taken or omitted or any determination made by him in good faith
relating to the Plan, and the Company shall indemnify and hold harmless
each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of
any act or omission in connection with the Plan, unless arising out of
such person's own fault or bad faith.
C. Any power granted to the Committee either in this Plan
or by the Board, may at any time be exercised by the Board, and any
determination by the Committee shall be subject to review and approval or
reversal or modification by the Board.
5. Eligibility
Officers and key employees of the Company and its
Subsidiaries shall be eligible for selection by the Committee to be
granted Options. An employee who has been granted an Option may, if he
or she is otherwise eligible, be granted an additional Option or Options
if the Committee shall so determine.
6. Options
A. Subject to adjustment as provided in Paragraph 13
hereof, Options may be granted pursuant to the Plan for the purchase of
not more than 2,100,000 Shares; provided, however, that if prior to the
termination of the Plan, an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased Shares
subject thereto shall again be available for the purposes of the Plan.
B. The aggregate fair market value (determined as of the
time Options are granted) of the stock with respect to which Incentive
Stock Options may be or become exercisable for the first time by a
Grantee during any calendar year (whether granted under this Plan or any
other plan of the Company or any Parent or Subsidiary corporation) shall
not exceed $100,000. To the extent an Incentive Stock Option may be or
become exercisable in violation of this limitation, it shall be deemed to
be a Nonqualified Option.
<PAGE>
7. Option Price
The purchase price per Share deliverable upon the exercise of
an Option shall be determined by the Committee, but shall not be less
than the greater of:
(1) 100% of the Fair Market Value of such Share on
the date the Option is granted (110% of the Fair Market Value of such Share
on the date an Incentive Stock Option is granted to an Optionee-
Shareholder), and
(2) $0.75.
8. Duration of Options
Each Option and all rights thereunder shall expire and the
Option shall no longer be exercisable on a date not later than five (5)
years from the date on which the Option was granted. Options may expire
and cease to be exercisable on such earlier date as the Committee may
determine at the time of grant. Options shall be subject to termination
before their expiration date as provided herein.
9. Conditions Relating to Exercise of Options
A. The Shares subject to any Option may be purchased at
any time during the term of the Option, unless, at the time an Option is
granted, the Committee shall have fixed a specific period or periods in
which exercise must take place. To the extent an Option is not exercised
when it becomes initially exercisable, or is exercised only in part, the
Option or remaining part thereof shall not expire but shall be carried
forward and shall be exercisable until the expiration or termination of
the Option. Partial exercise as to whole Shares is permitted from time
to time, provided that no partial exercise of an Option shall be for a
number of Shares having a purchase price of less than $100.
B. No Option shall be transferable by the Grantee thereof
other than by will or by the laws of descent and distribution, and
Options shall be exercisable during the lifetime of a Grantee only by
such Grantee or, to the extent that such exercise would not prevent an
Option from qualifying as an Incentive Stock Option under the Internal
Revenue Code, by his or her guardian or legal representative.
C. Certificates for Shares purchased upon exercise of
Options shall be issued either in the name of the Grantee or in the name
of the Grantee and another person jointly with the right of survivorship.
Such certificates shall be delivered as soon as practical following the
date the Option is exercised.
D. An Option shall be exercised by the delivery to the
Company at its principal office, to the attention of its Secretary, of
written notice of the number of Shares with respect to which the Option
is being exercised, and of the name or names in which the certificate for
the Shares is to be issued, and by paying the purchase price for the
<PAGE>
Shares. The purchase price shall be paid in cash or by certified check
or bank cashier's check. Alternatively, to the extent permitted by the
Committee and in its sole discretion, the purchase price may be paid by
delivering to the Company:
(1) Shares (in proper form for transfer and
accompanied by all requisite stock transfer tax stamps or cash in lieu
thereof) owned by the Grantee having a Fair Market Value equal to the
purchase price; or
(2) a notarized statement attesting to ownership of
the number of Shares which are intended to be used at Fair Market Value
to pay the purchase price, with the certificate number(s) thereof, and
requesting that only the incremental number of Shares as to which the
Option is being exercised be issued by the Company.
E. Notwithstanding any other provision in this Plan, no
Option may be exercised unless and until (i) this Plan has been approved
by the shareholders of the Company, and (ii) the Shares to be issued upon
the exercise thereof have been registered under the Securities Act of
1933 and applicable state securities laws, or are, in the opinion of
counsel to the Company, exempt from such registration. The Company shall
not be under any obligation to register under applicable Federal or state
securities laws any Shares to be issued upon the exercise of an Option
granted hereunder, or to comply with an appropriate exemption from
registration under such laws in order to permit the exercise of an Option
or the issuance and sale of Shares subject to such Option. If the
Company chooses to comply with such an exemption from registration, the
certificates for Shares issued under the Plan, may, at the direction of
the Committee, bear an appropriate restrictive legend restricting the
transfer or pledge of the Shares represented thereby, and the Committee
may also give appropriate stop-transfer instructions to the transfer
agent of the Company.
F. Any person exercising an Option or transferring or
receiving Shares shall comply with all regulations and requirements of
any governmental authority having jurisdiction over the issuance,
transfer or sale of securities of the Company or over the extension of
credit for the purposes of purchasing or carrying any margin securities,
or the requirements of any stock exchange on which the Shares may be
listed, and as a condition to receiving any Shares, shall execute all
such instruments as the Committee in its sole discretion may deem
necessary or advisable.
G. Each Option shall be subject to the requirement that if
the Committee shall determine that the listing, registration or
qualification of the Shares subject to such Option upon any securities
exchange or under any state or Federal law, or the consent or approval of
any governmental or regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the
issuance or purchase of Shares thereunder, such Option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effective or obtained
free of any conditions not acceptable to the Committee.
<PAGE>
10. Effect of Termination of Employment or Death
A. In the event of termination of a Grantee's employment by
reason of such Grantee's death, disability, or retirement with the
consent of the Board or in accordance with an applicable retirement plan,
any outstanding Option held by such Grantee shall, notwithstanding the
extent to which such Option was exercisable prior to termination of
employment, immediately become exercisable as to the total number of
Shares purchasable thereunder. Any such Option shall remain so
exercisable at any time prior to its expiration date or, if earlier, the
first anniversary of termination of the Grantee's employment.
B. In the event of termination of a Grantee's employment
for any reason other than death, disability, or retirement with the
consent of the Board or in accordance with an applicable retirement plan,
all rights of any kind under any outstanding Option held by such Grantee
shall immediately lapse and terminate; provided, however, that the
Committee may, in its discretion, elect to permit exercise for a period
ending on the earlier of the expiration date of the Option absent any
such termination of employment and a date thirty days after the
termination of employment as to the total number of Shares purchasable
under the Option as of the date of such termination; and provided
further, that the Committee may, in its discretion, elect to permit
exercise until a date determined by the Committee but not later than the
expiration date of the Option absent any such termination of employment
as to the total number of Shares purchasable under the Option as of the
date of such termination, subject to any further conditions that the
Committee may determine.
C. Whether an authorized leave of absence or absence in
military or government service shall constitute termination of employment
shall be determined by the Committee. Transfer of employment between the
Company and a Subsidiary corporation or between one Subsidiary
corporation and another shall not constitute termination of employment.
11. No Special Employment Rights
Nothing contained in the Plan or in any Option shall confer
upon any Grantee any right with respect to the continuation of his or her
employment by the Company or a Subsidiary or interfere in any way with
the right of the Company or a Subsidiary, subject to the terms of any
separate employment agreement to the contrary, at any time to terminate
such employment or to increase or decrease the compensation of the
Grantee from the rate in existence at the time of the grant of an Option.
12. Rights as a Shareholder
The Grantee of an Option shall have no rights as a
shareholder with respect to any Shares covered by an Option until the
date of issuance of a certificate to him for such Shares. Except as
otherwise expressly provided in the Plan, no adjustment shall be made for
dividends or other rights for which the record date occurs prior to the
date of issuance of such certificate.
<PAGE>
13. Anti-dilution Provision
A. In case the Company shall (i) declare a dividend or
dividends on its Shares payable in shares of its capital stock, (ii)
subdivide its outstanding Shares, (iii) combine its outstanding Shares
into a smaller number of Shares, or (iv) issue any shares of capital
stock by reclassification of its Shares (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), the number of Shares
authorized under the Plan will be adjusted proportionately. Similarly,
in any such event, there will be a proportionate adjustment in the number
of Shares subject to unexercised Options (but without adjustment to the
aggregate option price).
B. The Committee may provide, either before or at or about
the time of the occurrence of a Change of Control, in any outstanding or
newly issued Option that a Grantee's right to exercise any such Option
shall accelerate as a consequence of or in connection with a Change of
Control. In addition, the Committee may provide in any outstanding or
newly issued Option that a Grantee's right to exercise any such Option
shall accelerate in the event of a termination of employment of such
Grantee without cause pursuant to the terms of a written agreement
between the Company and the Grantee which has been approved by the
Committee.
14. Withholding Taxes
Whenever an Option is to be exercised under the Plan, the
Company shall have the right to require the Grantee, as a condition of
exercise of the Option, to remit to the Company an amount sufficient to
satisfy the Company's (or a Subsidiary's) Federal, state and local
withholding tax obligation, if any, that will, in the sole opinion of the
Committee, result from the exercise. In addition, the Company shall have
the right, at the sole discretion of the Committee, to satisfy any such
withholding tax obligation by retention of Shares issuable upon such
exercise having a Fair Market Value on the date of exercise equal to the
amount to be withheld.
15. Amendment of the Plan
The Board may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that, without shareholder
approval, the Board may not (a) increase the number of Shares which may
be issued under the Plan, or (b) modify the requirements as to
eligibility for participation under the Plan. The termination or
modification or amendment of the Plan shall not, without the consent of a
Grantee, affect his rights under an Option previously granted to him or
her. With the consent of the Grantee, the Board may amend outstanding
Options in a manner not inconsistent with the Plan.
<PAGE>
16. Miscellaneous
A. It is expressly understood that this Plan grants powers
to the Committee but does not require their exercise; nor shall any
person, by reason of the adoption of this Plan, be deemed to be entitled
to the grant of any Option; nor shall any rights begin to accrue under
the Plan except as Options may be granted hereunder.
B. All expenses of the Plan, including the cost of
maintaining records, shall be borne by Company.
17. Governing Law
This Plan and all rights hereunder shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
EXHIBIT 10.11
ELCOTEL, INC.
DIRECTORS STOCK OPTION PLAN
(as amended through October 20, 1998)
1. Definitions
As used in this Plan, the following definitions apply to the
terms indicated below:
A. "Board" means the Board of Directors of the Company.
B. "Change of Control" means the occurrence of any one
or more of the following events: (i) if any transaction occurs whereby a
substantial portion of the assets of the Company are transferred,
exchanged or sold to a non-affiliated third party other than in the
ordinary course of business; (ii) if a merger or consolidation involving
the Company occurs and the stockholders of the Company immediately before
such merger or consolidation do not own immediately after such merger or
consolidation at least fifty percent (50%) of the outstanding common
stock of the surviving entity or the entity into which the common stock
of the Company is converted; or (iii) if any person (including without
limitation any individual, partnership or corporation) becomes the owner,
directly or indirectly, of securities of the Company or its successor (or
a parent company thereof) representing thirty-five percent (35%) or more
of the combined voting power of the Company's or its successor's (or a
parent's, as the case may be) securities then outstanding.
C. "Committee" means the Compensation and Stock Option
Committee appointed by the Board from time to time to administer the
Plan. The Committee shall consist of at least two persons, who shall be
directors of the Company.
D. "Company" means Elcotel, Inc., a Delaware corporation.
E. "Director" means a member of the Board who is not an
employee of the Company.
F. "Fair Market Value" of a Share on a given day means, if
the Shares are traded in a public market, the mean between the highest
and lowest quoted selling prices of a Share as reported on the principal
securities exchange on which the Shares are then listed or admitted to
trading, or if not so reported, the mean between the highest and lowest
quoted selling prices of a Share, or the mean between the highest asked
price and the lowest bid price as the case may be, as reported on the
National Association of Securities Dealers Automated Quotation System.
If the Shares shall not be so traded, the Fair Market Value shall be
determined by the Committee taking into account all relevant facts and
circumstances.
G. "Grantee" means a person to whom an Option is granted.
<PAGE>
H. "Option" means a right to purchase Shares under the
terms and conditions of this Plan as evidenced by an option certificate
or agreement for Shares in such form, not inconsistent with this Plan, as
the Committee may adopt for general use or for specific cases from time
to time.
I. "Plan" means this Elcotel, Inc. Directors Stock Option
Plan, including any amendments to the Plan.
J. "Share" means a share of the Company's common stock, par
value $.01 per share, either now or hereafter owned by the Company as
treasury stock or authorized but unissued.
K. As used herein, the masculine includes the feminine, the
plural includes the singular, and the singular includes the plural.
2. Purpose
The purposes of the Plan are as follows.
A. To secure for the Company and its shareholders the
benefits arising from share ownership by Directors. The Plan is intended
to provide an incentive to Directors by providing them with an opportu-
nity to acquire an equity interest or increase an existing equity
interest in the Company, thereby increasing their personal stake in its
continued success and progress.
B. To enable the Company and its Subsidiaries to obtain and
retain the services of Directors, by providing Directors with an
opportunity to acquire Shares under the terms and conditions and in the
manner contemplated by this Plan.
3. Plan Adoption and Term
A. This Plan shall become effective upon its adoption by
the Board, and Options shall be issued from time to time thereafter;
provided, however, that the Plan shall be submitted to the Company's
shareholders for their approval at the next annual meeting of shareholders,
or prior thereto at a special meeting of shareholders expressly
called for such purpose; and provided further, that the approval of the
Company's shareholders shall be obtained within 12 months of the date of
adoption of the Plan. If the Plan is not approved by the affirmative
vote of the holders of a majority of all shares present in person or by
proxy, at a duly called shareholders' meeting at which a quorum
representing a majority of all voting stock is present in person or by
proxy and voting on this Plan, then this Plan and all Options then out-
standing under it shall forthwith automatically terminate and be of no
force and effect.
<PAGE>
B. Subject to the provisions hereinafter contained relating
to amendment or discontinuance, this Plan shall continue to be in effect
for ten (10) years from the date of adoption of this Plan by the Board.
No Options may be granted hereunder except within such period of ten (10)
years.
4. Administration of Plan
A. This Plan shall be administered by the Committee. Except
as otherwise expressly provided in this Plan, the Committee shall have
authority to interpret the provisions of the Plan, to construe the terms
of any Option, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of Options
granted hereunder, and to make all other determinations in the judgment
of the Committee necessary or desirable for the administration of the
Plan. Without limiting the foregoing, the Committee shall, to the extent
and in the manner contemplated herein, exercise the discretion granted to
it to determine how many Shares shall be subject to each discretionary
Option, whether a Grantee shall be required to surrender for cancellation
an outstanding Option as a condition to the grant of a new Option, and
the prices at which Shares shall be sold to Grantees. The Committee may
correct any defect or supply any omission or reconcile any inconsistency
in the Plan or in any Option in the manner and to the extent it shall
deem expedient to carry the Plan into effect and shall be the sole and
final judge of such expediency.
B. No member of the Committee shall be liable for any
action taken or omitted or any determination made by him in good faith
relating to the Plan, and the Company shall indemnify and hold harmless
each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Committee) arising out of
any act or omission in connection with the Plan, unless arising out of
such person's own fault or bad faith.
C. Any power granted to the Committee may at any time be
exercised by the Board, and any determination by the Committee shall be
subject to review and reversal or modification by the Board on its own
motion.
5. Options
A. Subject to adjustment as provided in Paragraph 12
hereof, an Option shall be granted to each Director on the last business
day of each fiscal year of the Company for the purchase of (i) 1,000
Shares for each committee on which such Director is then serving; and
(ii) 1,000 Shares for each committee of which such Director is then the
chairperson. Subject to adjustment as provided in Paragraph 12 hereof, a
new Director shall receive a one-time automatic grant of an option to
purchase 4,000 Shares at the time such Director is either elected by the
shareholders to serve on the Board or appointed by the Board to fill a
<PAGE>
vacancy. In addition to the grants of Options mandated by the foregoing
sentences of this Paragraph 5A and subject to adjustment as provided in
Paragraph 12 hereof, a Director may be granted discretionary Options as
the Committee shall determine.
B. Subject to adjustment as provided in Paragraph 12
hereof, Options may be granted pursuant to the Plan for the purchase of
not more than 225,000 Shares; provided, however, that if prior to the
termination of the Plan, an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased Shares
subject thereto shall again be available for the purposes of the Plan.
6. Option Price
The purchase price per Share deliverable upon the exercise of
an Option shall be determined by the Committee but shall not be less than
the greater of:
(1) 100% of the Fair Market Value of such Share on the date
the Option is granted, and
(2) $2.00.
7. Duration of Options
Each Option and all rights thereunder shall expire and the
Option shall no longer be exercisable on a date five (5) years from the
date on which the Option was granted. Options may expire and cease to be
exercisable on such earlier date as the Committee may determine at the
time of grant. Options shall be subject to termination before their
expiration date as provided herein.
8. Conditions Relating to Exercise of Options
A. The Shares subject to any Option may be purchased at any
time during the term of the Option beginning on the first anniversary
date of the date of the grant of such Option. To the extent an Option is
not exercised when it becomes initially exercisable, or is exercised only
in part, the Option or remaining part thereof shall not expire but shall
be carried forward and shall be exercisable until the expiration or
termination of the Option. Partial exercise as to whole Shares is
permitted from time to time, provided that no partial exercise of an
Option shall be for a number of Shares having a purchase price of less
than $1,000.
B. No Option shall be transferable by the Grantee thereof
other than by will or by the laws of descent and distribution, and
Options shall be exercisable during the lifetime of a Grantee only by
such Grantee or by his or her guardian or legal representative.
<PAGE>
C. Certificates for Shares purchased upon exercise of
Options shall be issued either in the name of the Grantee or in the name
of the Grantee and another person jointly with the right of survivorship.
Such certificates shall be delivered as soon as practical following the
date the Option is exercised.
D. An Option shall be exercised by the delivery to the
Company at its principal office, to the attention of its Secretary, of
written notice of the number of Shares with respect to which the Option
is being exercised, and of the name or names in which the certificate for
the Shares is to be issued, and by paying the purchase price for the
Shares. The purchase price shall be paid in cash or by certified check
or bank cashier's check. Alternatively, to the extent permitted by the
Committee and in its sole discretion, the purchase price may be paid by
delivering to the Company:
(1) Shares (in proper form for transfer and accom-
panied by all requisite stock transfer tax stamps or cash in lieu
thereof) owned by the Grantee having a Fair Market Value equal to the
purchase price; or
(2) a notarized statement attesting to ownership of the
number of Shares which are intended to be used at Fair Market Value to
pay the purchase price, with the certificate number(s) thereof, and
requesting that only the incremental number of Shares as to which the
Option is being exercised be issued by the Company.
E. Notwithstanding any other provision in this Plan, no
Option may be exercised unless and until (i) this Plan has been approved
by the shareholders of the Company, and (ii) the Shares to be issued upon
the exercise thereof have been registered under the Securities Act of
1933 and applicable state securities laws, or are, in the opinion of
counsel to the Company, exempt from such registration. The Company shall
not be under any obligation to register under applicable Federal or state
securities laws any Shares to be issued upon the exercise of an Option
granted hereunder, or to comply with an appropriate exemption from
registration under such laws in order to permit the exercise of an Option
or the issuance and sale of Shares subject to such Option. If the
Company chooses to comply with such an exemption from registration, the
certificates for Shares issued under the Plan, may, at the direction of
the Committee, bear an appropriate restrictive legend restricting the
transfer or pledge of the Shares represented thereby, and the Committee
may also give appropriate stop-transfer instructions to the transfer
agent of the Company.
F. Any person exercising an Option or transferring or
receiving Shares shall comply with all regulations and requirements of
any governmental authority having jurisdiction over the issuance,
transfer or sale of securities of the Company or over the extension of
credit for the purposes of purchasing or carrying any margin securities,
or the requirements of any stock exchange on which the Shares may be
listed, and as a condition to receiving any Shares, shall execute all
such instruments as the Committee in its sole discretion may deem necessary
or advisable.
<PAGE>
G. Each Option shall be subject to the requirement that if
the Committee shall determine that the listing, registration or
qualification of the Shares subject to such Option upon any securities
exchange or under any state or Federal law, or the consent or approval of
any governmental or regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or the
issuance or purchase of Shares thereunder, such Option may not be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effective or obtained
free of any conditions not acceptable to the Committee.
9. Effect of Termination of Directorship or Death
A. In the event of termination of a Grantee's status as a
Director by reason of such Grantee's death or disability, any outstanding
Option held by such Grantee shall, notwithstanding the extent to which
such Option was exercisable prior to such termination, immediately became
exercisable as to the total number of Shares purchasable thereunder. Any
such Option shall remain so exercisable at any time prior to its expiration
date or, if earlier, only until the first anniversary of termination
of the Grantee's status as a Director.
B. In the event of termination of a Grantee's status as
a Director for any reason other than death or disability, any outstanding
Option held by such Grantee shall remain exercisable at any time prior to
the expiration date of such Option absent termination of Director status
or, if earlier, only until the date thirty days after the termination of
Director status; provided, however, that if such termination of Director
status (other than by resignation) occurs within one year after a Change
of Control, any outstanding Option held by such Grantee shall remain
exercisable at any time prior to the expiration date of such Option
absent such termination of Director status.
C. Whether an authorized leave of absence or absence in
military or government service shall constitute termination of status as
a Director shall be determined by the Committee.
10. No Special Rights
Nothing contained in the Plan or in any Option shall confer
upon any Grantee any right with respect to the continuation of his or her
status as a Director or interfere in any way with the right of the
Company at any time to terminate such status or to increase or decrease
the compensation of the Grantee from the rate in existence at the time of
the grant of an Option.
<PAGE>
11. Rights as a Shareholder
The Grantee of an Option shall have no rights as a share-
holder with respect to any Shares covered by an Option until the date of
issuance of a certificate to him for such Shares. Except as otherwise
expressly provided in the Plan, no adjustment shall be made for dividends
or other rights for which the record date occurs prior to the date of
issuance of such certificate.
12. Anti-dilution Provision
A. In case the Company shall (i) declare a dividend or
dividends on its Shares payable in shares of its capital stock, (ii)
subdivide its outstanding Shares, (iii) combine its outstanding Shares
into a smaller number of Shares, or (iv) issue any shares of capital
stock by reclassification of its Shares (including any such reclassification
in connection with a consolidation or merger in which the Company is
the continuing corporation), the number of Shares authorized under the
Plan will be adjusted proportionately. Similarly, in any such event,
there will be a proportionate adjustment in the number of Shares subject
to unexercised Options (but without adjustment to the aggregate option
price).
B. The Committee may provide, either before or at or about
the time of the occurrence of a Change of Control, in any outstanding or
newly issued Option that a Grantee's right to exercise any such Option
shall accelerate as a consequence of or in connection with a Change of
Control.
13. Amendment of the Plan
The Board may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that
(1) without shareholder approval, the Board may not (a)
materially increase the number of securities which may be issued under
the Plan or (b) materially modify the requirements as to eligibility for
participation under the Plan; and
(2) the Plan provisions governing the amounts and purchase
prices of Shares and the requirements as to eligibility for participation
may not be amended more than once every six (6) months, other than to
comport with changes in the Internal Revenue Code or the rules thereunder.
The termination or modification or amendment of the Plan shall not,
without the consent of a Grantee, affect his rights under an Option
previously granted to him or her.
<PAGE>
14. Miscellaneous
A. It is expressly understood that this Plan grants powers
to the Committee but does not require their exercise; nor shall any
rights begin to accrue under the Plan except as Options may be granted
hereunder.
B. All expenses of the Plan, including the cost of
maintaining records, shall be borne by Company.
15. Governing Law
This Plan and all rights hereunder shall be governed by and
interpreted in accordance with the laws of the State of Delaware.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATMENTS AS OF DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 12,841
<ALLOWANCES> (1,842)
<INVENTORY> 15,635
<CURRENT-ASSETS> 34,329
<PP&E> 5,079
<DEPRECIATION> 0
<TOTAL-ASSETS> 72,929
<CURRENT-LIABILITIES> 11,404
<BONDS> 0
0
0
<COMMON> 135
<OTHER-SE> 51,677
<TOTAL-LIABILITY-AND-EQUITY> 72,929
<SALES> 51,303
<TOTAL-REVENUES> 51,303
<CGS> 33,905
<TOTAL-COSTS> 33,905
<OTHER-EXPENSES> 13,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 432
<INCOME-PRETAX> 2,991
<INCOME-TAX> 1,110
<INCOME-CONTINUING> 1,881
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,881
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>