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 JUNE 30, 1999
Commission File No. 0-15205
ELCOTEL, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2518405
(State or other jurisdiction of (IRS 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 __
As of August 10, 1999, there were 13,499,693 shares of the Registrant's Common
Stock outstanding.
<PAGE>
ELCOTEL, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTERLY PERIOD ENDED JUNE 30, 1999
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1999
(unaudited) and March 31, 1999 3
Unaudited Consolidated Statements of Operations for the
Three Months Ended June 30, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1999 and 1998 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 17
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ELCOTEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 20 $ 16
Accounts and notes receivable, less allowance for credit
losses of $1,929 and $1,970 11,904 12,209
Inventories 13,166 13,978
Income taxes receivable 2,029 1,997
Deferred tax asset - current portion 2,143 2,215
Prepaid expenses and other current assets 1,156 912
-------- --------
Total current assets 30,418 31,327
Property, plant and equipment, net 5,041 5,064
Notes receivable, less allowance for credit losses
of $400 and $312 816 898
Identified intangible assets, net of accumulated amortization
of $1,828 and $1,541 7,447 7,734
Capitalized software, net of accumulated amortization
of $306 and $240 2,370 1,573
Goodwill, net of accumulated amortization
of $1,050 and $878 23,046 23,218
Deferred tax asset 1,168 948
Other assets 447 533
-------- --------
$ 70,753 $ 71,295
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 733 $ 1,428
Accounts payable 3,837 4,186
Accrued expenses and other current liabilities 4,096 4,197
Notes and debt obligations payable within one year 823 823
-------- --------
Total current liabilities 9,489 10,634
Notes and debt obligations payable after one year 11,308 10,355
-------- --------
20,797 20,989
-------- --------
Commitments and contingencies -- --
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized,
13,551,693 and 13,551,693 shares issued and outstanding . 136 136
Additional paid-in capital 46,667 46,667
Retained earnings 3,330 3,680
Less - cost of 52,000 shares of common stock in treasury .. (177) (177)
-------- --------
Total stockholders' equity 49,956 50,306
-------- --------
$ 70,753 $ 71,295
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
ELCOTEL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
June 30,
----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Revenues and net sales:
Product sales $ 9,835 $ 12,770
Services 2,923 2,866
-------- --------
12,758 15,636
-------- --------
Cost of revenues and sales:
Cost of products sold 6,473 7,638
Cost of services 2,299 2,590
-------- --------
8,772 10,228
-------- --------
Gross profit 3,986 5,408
-------- --------
Other costs and expenses:
Selling, general and administrative
expenses 2,544 2,851
Engineering, research and
development expenses 1,333 1,575
Amortization 537 507
Interest expense, net 125 80
-------- --------
4,539 5,013
-------- --------
Income (loss) before income tax
(expense) benefit (553) 395
Income tax (expense) benefit 203 (158)
-------- --------
Net income (loss) $ (350) $ 237
======== ========
Income (loss) per common and common equivalent share:
Basic $ (0.03) $ 0.02
======== ========
Diluted $ (0.03) $ 0.02
======== ========
Weighted average number of common and
common equivalent shares outstanding:
Basic 13,500 13,404
======== ========
Diluted 13,500 13,763
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
ELCOTEL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
June 30,
---------------------------
1999 1998
------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (350) $ 237
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 863 765
Provision for credit losses 71 45
Provisions for obsolescence and warranty
expense 320 180
Stock option compensation 15 --
Deferred tax benefit (148) (27)
Changes in operating assets and liabilities:
Accounts and notes receivable 316 (1,048)
Inventories 650 (4,022)
Income taxes receivable (32) 98
Prepaid expenses and other current assets (244) 68
Other assets 73 (47)
Accounts payable (349) 382
Accrued expenses and other current liabilities (274) 257
------- -------
Net cash provided by (used for) operating activities 911 (3,112)
------- -------
Cash flows from investing activities
Capital expenditures (302) (387)
Capitalized software (863) (6)
------- -------
Net cash used for investing activities (1,165) (393)
------- -------
Cash flows from financing activities
Net proceeds under revolving credit
lines 1,149 1,740
Increase (decrease) in bank overdraft (695) 62
Principle payments on notes payable (196) (24)
Proceeds from exercise of common stock
options and warrants
-- 155
------- -------
Net cash provided by financing
activities 258 1,933
------- -------
Increase (decrease) in cash 4 (1,572)
Cash, beginning of period 16 1,655
------- -------
Cash, end of period $ 20 $ 83
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
ELCOTEL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. GENERAL
The unaudited consolidated balance sheet at June 30, 1999 and the unaudited
consolidated statements of operations and of cash flows for the three months
ended June 30, 1999 and 1998 have been prepared by Elcotel, Inc. and
subsidiaries (the "Company"), without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows of
the Company at June 30, 1999, and for all periods presented, have been made.
The consolidated balance sheet at March 31, 1999 has been derived from the
Company's audited consolidated financial statements as of and for the year ended
March 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
financial statements be read in conjunction with 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, 1999. The results of operations for the
three months ended June 30, 1999 are not necessarily indicative of the results
for the full fiscal year.
2. INVENTORIES
Inventories at June 30, 1999 and March 31, 1999 are summarized as follows:
June 30, March 31,
1999 1999
-------- -----------
Finished products $ 1,503 $ 1,875
Work-in-process 1,597 924
Purchased components 10,697 11,630
-------- --------
13,797 14,429
Reserve for obsolescence (631) (451)
======== ========
$ 13,166 $ 13,978
======== ========
3. NOTES AND DEBT OBLIGATIONS PAYABLE
On June 29, 1999, the Company and its bank entered into a Business Loan
Agreement (the "Agreement") that provides the Company with a $2 million
revolving credit line to finance export related inventory and accounts
receivable. The export credit line matures on June 29, 2000. Interest on amounts
borrowed under the export credit line is payable monthly at the bank's floating
30 day Libor rate plus 1.5%. Indebtedness outstanding under the Agreement is
secured by substantially all of the Company's assets, including export related
inventories and accounts receivable. The Agreement contains covenants and
conditions similar to those contained in the Restated Loan and Security
Agreement, as amended, between the Company and its bank dated November 25, 1997.
As of June 30, 1999, the Company had not used the $2 million export credit line.
6
<PAGE>
4. STOCKHOLDERS' EQUITY
Changes in stockholders' equity for the three months ended June 30, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained Treasury
Stock Capital Earnings Stock Total
-------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1999 $ 136 $ 46,667 $ 3,680 $ (177) $ 50,306
Net loss for the period (350) (350)
======== ======== ======== ======== ========
Balance at June 30, 1999 $ 136 $ 46,667 $ 3,330 $ (177) $ 49,956
======== ======== ======== ======== ========
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS 130") during the year ended March 31,
1999. 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. The Company has no items of
comprehensive income for the periods ended June 30, 1999 and 1998; therefore,
statements of comprehensive income for such periods are not presented in the
accompanying consolidated financial statements.
5. SUPPLEMENTAL CASH FLOW INFORMATION
A summary of the Company's supplemental cash flow information for the three
months ended June 30, 1999 and 1998 is as follows:
1999 1998
----- ----
Cash paid during the period for:
Interest $ 240 $ 157
Income taxes -- 85
6. EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS
128 requires disclosure of basic earnings (loss) per share and diluted earnings
(loss) per share. Basic earnings (loss) per share is computed by dividing net
income by the weighted average number of shares of common stock outstanding
during the period. Diluted earnings (loss) 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 weighted average number of shares of common stock outstanding used to
compute basic earnings (loss) per share for the three months ended June 30, 1999
and 1998 was 13,499,693 shares and 13,404,253 shares, respectively. There were
no potential dilutive common shares outstanding during the three months ended
June 30, 1999 for purposes of computing diluted earnings (loss) per share. The
weighted average number of potential dilutive common shares outstanding used in
the computation of diluted earnings (loss) per share for the three months ended
June 30, 1998 was 359,232 shares.
7
<PAGE>
7. DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION
The Company's reportable segments are based upon the market segments that the
Company addresses. The products provided by each of the reportable segments are
similar in nature. There are no transactions between the reportable segments,
and external customers account for all sales revenue. The information that is
provided to the chief operating decision maker to measure the profit or loss of
reportable segments includes sales, cost of sales based on standards and gross
profit based on standards. Operating expenses, including depreciation,
amortization and interest are not included in the information provided to the
chief operating decision maker to measure performance of reportable segments.
The sales revenue and profit of each reportable segment for the quarters ended
June 30, 1999 and 1998 is set forth below:
1999 1998
---------------------- ----------------------
Sales Profit Sales Profit
-------- ------- -------- -------
Private $ 3,892 $ 1,852 $ 6,038 $ 2,952
Telephone company 7,447 2,351 8,305 2,331
International 1,419 493 1,293 556
-------- ------- -------- -------
$ 12,758 $ 4,696 $ 15,636 $ 5,839
======== ======= ======== =======
The Company does not allocate assets or other corporate expenses to reportable
segments. A reconciliation of segment profit information to the Company's
financial statements is as follows:
1999 1998
------- -------
Total profit of reportable segments $ 4,696 $ 5,839
Unallocated cost of sales (710) (431)
Unallocated corporate expenses (4,539) (5,013)
------- -------
Income (loss) before income taxes $ (553) $ 395
======= =======
8
<PAGE>
Information with respect to sales of products and services during the three
months ended June 30, 1999 and 1998 is set forth below:
1999 1998
------- -------
Private segment:
Payphone terminals $ 1,543 $ 2,664
Printed circuit board control modules and kits 1,858 2,930
Components and assemblies 106 191
Rates software 80 126
Operator services 173 13
Other services 132 114
------- -------
3,892 6,038
------- -------
Telephone company segment:
Payphone terminals 759 1,873
Printed circuit board control modules and kits 2,707 1,373
Components and assemblies 1,353 2,320
Software 10 --
Repair, refurbishment and upgrade services 2,618 2,739
------- -------
7,447 8,305
------- -------
International segment:
Payphone terminals 1,236 813
Printed circuit board control modules and kits 57 58
Components and assemblies 124 422
Software 2 --
------- -------
1,419 1,293
------- -------
$12,758 $15,636
======= =======
The Company sells its payphone products in the United States and in certain
foreign countries. The Company's international business consists of export
sales, and the Company does not presently have any foreign operations. Sales by
geographic region for the three months ended June 30, 1999 and 1998 were as
follows:
1999 1998
------- -------
United States $11,338 $14,344
Canada 608 657
Latin America 771 632
Europe, Middle East and Africa 11 3
Asia Pacific 30 --
Other Areas -- --
------- -------
$12,758 $15,636
======= =======
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All dollar amounts, except per share data, in this Management's Discussion and
Analysis of Financial Condition and Results of Operations are stated in
thousands.
Forward Looking Statements
The statements contained in this report which are not historical facts contain
forward looking information regarding the Company's financial position, business
strategy, plans, projections and future performance based on the beliefs,
expectations, estimates, intentions or anticipations of management as well as
assumptions made by and information currently available to the Company's
management. Such statements reflect the current view of the Company with respect
to future events and are subject to risks, uncertainties and assumptions related
to various factors that could cause the Company's actual results to differ
materially from those expected by the Company, including competitive factors,
customer relations, the integration of operations resulting from acquisitions,
the risk of obsolescence of the Company's products, relationships with
suppliers, the risk of adverse regulatory action affecting the Company's
business or the business of the Company's customers, changes in the
international business climate, product introduction and market acceptance,
general economic conditions, seasonality, changes in industry practices, the
outcome of litigation to which the Company is a party, and other uncertainties
detailed in this report and in the Company's other filings with the Securities
and Exchange Commission.
Results of Operations
The Company reported a net loss of $350, or $.03 per diluted share, for the
three months ended June 30, 1999 on net sales of $12,758 as compared to net
income of $237, or $.02 per diluted share, on net sales of $15,636 for the three
months ended June 30, 1998. Operating results for the three months ended June
30, 1999 as compared to the three months ended June 30, 1998 reflect a decline
in sales of 18.4%, a decline in gross profit of 26.3% and a decline in costs and
expenses of 9.5%.
The following table shows certain line items in the Company's consolidated
statements of operations for the three months ended June 30, 1999 (first quarter
of fiscal 2000) and 1998 (first quarter of fiscal 1999) that are discussed below
together with amounts expressed as a percentage of sales and with the change
expressed as a percentage increase or (decrease).
<TABLE>
<CAPTION>
Fiscal Percent Fiscal Percent Percentage
2000 of Sales 1999 of Sales Change
-------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 12,758 100% $ 15,636 100% (18%)
Cost of goods sold 8,772 69 10,228 65 (14)
Gross profit 3,986 31 5,408 35 (26)
Selling, general and administrative
expenses 2,544 20 2,851 18 (11)
Engineering, research and
development expenses 1,333 10 1,575 10 (15)
Interest expense 125 1 80 1 56
Income tax expense (benefit) (203) (2) 158 1 (228)
</TABLE>
Net sales decreased by $2,878, or 18%, for the first quarter of fiscal 2000 as
compared to the first quarter of fiscal 1999 primarily due to an overall
decrease in volume, a shift in sales to printed circuit board control modules
versus payphone terminals and a slight decline in overall average selling
prices. Sales to domestic independent payphone service providers during the
first quarter of fiscal 2000 represented 31% of the Company's sales and
decreased by $2,146, or 36%, to $3,892, from $6,038 for the first quarter of
10
<PAGE>
fiscal 1999 primarily due to a decrease in volume and average selling prices.
Sales to domestic telephone companies during the first quarter of fiscal 2000
represented 58% of the Company's sales and decreased by $858, or 10%, to $7,447,
from $8,305 for the first quarter of fiscal 1999 primarily due to a shift in
volume to printed circuit board control modules versus payphone terminals,
offset by an increase in average selling prices. Export sales during the first
quarter of fiscal 2000 represented 11% of the Company's sales and increased by
$126, or 10%, to $1,419, from $1,293 during the first quarter of fiscal 1999
primarily due to a increase in payphone terminal sales, partially offset by a
decrease in sales of parts and components. During the first quarter of fiscal
2000, sales of payphone terminals and printed circuit board control modules and
related retrofit kits accounted for $8,160, or 64% of sales, as compared to
$9,711 or 62% of sales, during the first quarter of fiscal 1999. Sales of
payphone components and assemblies approximated $1,583, or 12% of sales, during
the first quarter of fiscal 2000 as compared to $2,933, or 19% of sales, during
the first quarter of fiscal 1999. Repair, refurbishment and upgrade sales
approximated $2,618, or 21% of sales, during the first quarter of fiscal 2000 as
compared to $2,739, or 18% of sales, during the first quarter of fiscal 1999.
Software sales approximated $92 during the first quarter of fiscal 2000 as
compared to $126 during the first quarter of fiscal 1999. Sales related to other
services approximated $305 during the first quarter of fiscal 2000 as compared
to $127 during the first quarter of fiscal 1999. The demand for the Company's
products and services during the first quarter of fiscal 2000 as compared to the
first quarter of fiscal 1999 was constrained by the recent merger activity among
both domestic independent payphone service providers and telephone companies,
and on-going disputes related to the amount and payor of dial-around
compensation required by the 1996 Telecommunications Act. Also, the telephone
companies and domestic independent payphone service are eliminating marginal
payphone locations as part of their efforts to improve profitability, which
reduced their product requirements with respect to new installations. The
Company believes, but cannot assure, that the demand of domestic telephone
companies for its products has begun to improve. However, the independent
payphone service providers have just begun to react to the market conditions,
and the Company does not believe that the demand from this segment will begin to
improve until later this fiscal year. In addition, the Company believes, but
cannot assure, that the final resolution of dial-around compensation (depending
upon the nature of such final resolution) will increase the revenues and cash
flows of payphone service providers, which may stimulate demand for the
Company's products.
Cost of sales and gross profit margins as a percentage of net sales approximated
69% and 31%, respectively, for the first quarter of fiscal 2000 as compared to
65% and 35%, respectively, for the first quarter of fiscal 1999. The decline in
the gross profit percentage between such periods is principally attributable to
the increase in the percentage of sales to telephone companies at margins lower
than those achieved from other market segments and an increase in export sales
of the Company's Eclipse(TM) payphone terminal at initial higher start-up
manufacturing costs. The Company has commenced efforts to reduce the cost of
such products, and believes, but cannot assure, that its gross profit margins
will improve slightly throughout the year. The Company began to experience an
improvement in gross profit margins from the telephone company segment during
the first quarter of fiscal 2000 as a result of cost reductions related to
printed circuit board control modules.
Selling, general and administrative expenses decreased by $307, or approximately
11%, during the first quarter of fiscal 2000 as compared to the first quarter of
fiscal 1999, and represented 20% of sales versus 18% of sales in the first
quarter of fiscal 1999. The decrease in selling, general and administrative
expenses is primarily attributable to a reduction in personnel and other
operating expenses as a result of the reorganization of selling and marketing
activities at the end of fiscal 1999, and a decline in variable selling
expenses, which is related to the decline in sales.
Engineering, research and development expenses decreased by $242, or
approximately 15%, during the first quarter of fiscal 2000 as compared to the
first quarter of fiscal 1999, and represented 10% of sales for both periods. The
decrease in engineering, research and development expenses for the first quarter
of fiscal 2000 as compared to fiscal 1999 is primarily attributable to a shift
of resources towards the development of software for new products and the
development of the Company's next generation
11
<PAGE>
management software system. Software development costs capitalized during the
first quarter of fiscal 2000 approximated $863. During the first quarter of
fiscal 1999, no product software development costs were capitalized.
The increase in net interest expense during the first quarter of fiscal 2000 as
compared to the same quarter last year is primarily attributable to an increase
in average outstanding indebtedness.
The Company's effective tax rate declined to 37% in the first quarter of fiscal
2000 from 40% for the same quarter last year primarily due to an increase in
estimated research and development credits.
Impact of Inflation
The Company's primary costs, inventory and labor, increase with inflation.
However, the Company does not believe that inflation and changing prices have
had a material impact on its business.
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 loan agreement between the Company and its bank. The Company believes that its
anticipated cash flow from operations and financing available under the loan
agreement will be sufficient to fund its working capital requirements, capital
expenditures and long term debt obligations for through June 30, 2000.
Financing Activities. The credit lines available to the Company pursuant to the
Restated Loan and Security Agreement, as amended (the "Loan Agreement"), between
the Company and its bank include a $10 million revolving credit line to finance
the Company's domestic working capital requirements (the "working capital line")
and a $1.5 million revolving credit line to finance the Company's capital
expenditures (the "capital line"). In addition, on June 29, 1999, the Company
and its bank entered into a Business Loan Agreement (the "Export Loan
Agreement") that provides the Company with a $2 million revolving credit line to
finance export related inventory and accounts receivable (the "export line").
Indebtedness outstanding under the Loan Agreement and the Export Loan Agreement
(collectively the "Agreements") is collateralized by substantially all of the
assets of the Company. The Agreements contain covenants that prohibit or
restrict the Company from engaging in certain transactions without the consent
of the bank, including mergers or consolidations and disposition of assets,
among others. Additionally, the Agreements require the Company to comply with
specific financial covenants, including covenants with respect to cash flow,
working capital and net worth. Noncompliance with any of these covenants or the
occurrence of an event of default, if not waived, could accelerate the maturity
of the indebtedness outstanding under the Agreements.
The Company borrows funds under its revolving credit lines to finance capital
expenditures, increases in accounts and notes receivable and inventories and
decreases in bank overdrafts (as drafts clear), accounts payable and accrued
liability obligations to the extent that such requirements exceed cash provided
by operations, if any. The Company also uses the financing available under its
revolving credit lines to fund operations and payments on long-term debt when
necessary. The Company measures its liquidity based upon the amount of funds the
Company is able to borrow under its revolving credit lines, which varies based
upon operating performance and the value of collateral.
Indebtedness outstanding under the working capital and export lines cannot
exceed the value of eligible collateral, as defined in the Agreements,
consisting of accounts receivable and inventories. The working capital line
matures on November 25, 2002. The export line matures on June 29, 2000. The
capital line matures on July 31, 2000. Interest on amounts borrowed under the
revolving credit lines is payable monthly at the bank's floating 30 day Libor
rate plus 1.5% (6.668% at June 30, 1999). At June 30, 1999
12
<PAGE>
and March 31, 1999, outstanding debt under the working capital line amounts to
$6,245 and $5,185, respectively, and at June 30, 1999, the Company was able to
borrow up to a maximum of $10,000 under the working capital line based on the
value of eligible collateral. The Company has borrowed and has outstanding debt
under the capital line of $89 at June 30, 1999. At June 30, 1999, the Company
has not used the export line and was able to borrow up to a maximum of $2
million under the export line based on the value of eligible collateral.
During the quarters ended June 30, 1999 and 1998, net proceeds under the
Company's working capital line and capital line aggregated $1,149 and $1,740,
respectively.
Principal payments under the Company's mortgage, installment and other notes
payable during the quarters ended June 30, 1999 and 1998 amounted to $196 and
$24, respectively. Outstanding indebtedness under outstanding mortgage,
installment and other notes payable aggregates $5,797 and $5,993 at June 30,
1999 and March 31, 1999, respectively.
Operating Activities. Cash flows from operating activities for the three months
ended June 30, 1999 and 1998 are summarized as follows:
1999 1998
------- -------
Net income (loss) $ (350) $ 237
Non-cash charges and credits, net 1,121 963
------- -------
771 1,200
Changes in operating assets and liabilities:
Accounts and notes receivable 316 (1,048)
Inventories 650 (4,022)
Accounts payable, accrued expenses and
other current liabilities (623) 639
Other (203) 119
------- -------
$ 911 $(3,112)
======= ========
The Company's operating cash flow is primarily dependent upon operating results,
sales levels and related credit terms extended to customers and inventory
purchases, and the changes in operating assets and liabilities related thereto.
During the three months ended June 30, 1999, weaker operating performance
resulted in a decline in cash flows from operations, net of non-cash charges and
credits, of $429, to $771 from $1,200 for the three months ended June 30, 1998.
However, during the three months ended June 30, 1999, the Company generated $140
of cash from changes in operating assets and liabilities as compared to the
three months ended June 30, 1998 when the Company used $4,312 of cash to fund
changes in operating assets and liabilities.
The Company's operating assets and liabilities are comprised principally of
accounts and notes receivable, inventories, accounts payable, accrued expenses
and other current liabilities. During the three months ended June 30, 1999, the
Company generated $316 and $650 of cash through reductions in accounts and notes
receivable and inventories, respectively, and used $623 of cash to fund
decreases in accounts payable, accrued expenses and other current liabilities.
In comparison, during the three months ended June 30, 1998, the Company used
$1,048 and $4,022 of cash to fund increases in accounts and notes receivable and
inventories, respectively, and generated $639 of cash from increases in accounts
payable, accrued expenses and other current liabilities.
The Company's current ratio improved to 3.2 to 1 at June 30, 1999 as compared to
2.9 to 1 at March 31, 1999. During the three months ended June 30, 1999, the
Company's current assets decreased by $909 (3%), current liabilities decreased
by $1,145 (11%) and working capital increased by $236, to $20,929 at June 30,
1999 from $20,693 at March 31, 1999. Extension of credit to customers and
inventory purchases
13
<PAGE>
represent the principal working capital requirements of the Company, and
material increases in accounts and notes receivable and/or inventories could
have a significant effect of the Company's liquidity. Accounts and notes
receivable and inventories represented in the aggregate 82% and 84% of current
assets at June 30, 1999 and March 31, 1999, respectively. The Company
experiences varying accounts receivable collection periods from its three
customer segments, and believes that credit losses will not have a significant
effect on future liquidity as a significant portion of its accounts and notes
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 customers, availability and lead
time of components and the ability of the Company to estimate and plan the
volume of its business.
Investing Activities. Net cash used for investing activities during the three
months ended June 30, 1999 and 1998 amounted to $1,165 and $393, respectively.
The Company's investing activities include capital expenditures consisting
primarily of manufacturing tooling and equipment, computer equipment and
building improvements required to support operations and capitalized software,
including new product software development costs. Cash used for capital
expenditures during the three months ended June 30, 1999 and 1998 aggregated
$302 and $387, respectively. During the three months ended June 30, 1999 and
1998, cash used to acquire software and capitalized software development costs
aggregated $863 and $6, respectively. The Company has not entered into any
significant commitments for the purchase of capital assets other than
manufacturing tooling in an amount of approximately $500.
Year 2000 Discussion
The Company is continuing its efforts to assess the impact of Year 2000 on its
business and address Year 2000 issues. Year 2000 issues result from computer
programs designed to use two-digit date codes rather than four digits to define
the applicable year. As a result, there is a risk 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.
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 established a "Validation Test Plan" to assess Year 2000 compliance
of all products and services currently sold or supported by the Company. This
test plan was designed to identify the products and services currently supported
by the Company, features of such products and services that required assessment,
and the approach and resources required. The Validation Test Plan was also
designed to assess Year 2000 compliance of those items in order of relative
importance to the Company. The Company believes that it has completed its Year
2000 compliance testing with respect to the products and systems it currently
sells and supports. In addition, the Company has completed substantially all
Year 2000 software modifications to such products, and the Company believes that
such products are Year 2000 compliant or Year 2000 compliant with issues. The
Company continues to modify certain product software or develop Year 2000
compliant software for certain products, and believes, but cannot assure, that
the products the Company presently sells and supports will be Year 2000
compliant or Year 2000 compliant with issues by December 31, 1999. The Company
believes that products defined as Year 2000 compliant with issues will operate
properly in year 2000 if programmed and configured in accordance with the
Company's published guidelines. Based on the present status of the Company's
compliance testing and remediation activities to date, the Company does not
believe that it will incur material additional engineering expenses to bring the
remaining products and systems it presently sells and supports into Year 2000
compliance. However, there can be no assurance that the Company's tests pursuant
to its Validation Test Plan have detected or will detect all instances of Year
2000 noncompliance, that the cost of future remediation activities will not be
material or that all software upgrades for all of the Company's products and
systems will be available by December 31, 1999.
14
<PAGE>
Based on the Company's compliance testing and identification of software
modifications required to achieve Year 2000 compliance of its products, the only
products historically sold by the Company that will not be Year 2000 compliant
or compliant with issues are products the manufacture of which has been
discontinued and that are no longer supported by the Company. These discontinued
products are not Year 2000 compliant and the Company does not intend to bring
these products into compliance, and has so notified its customers. The Company
does not believe that it has an obligation to bring these discontinued products
into compliance or an obligation to replace these products under its warranties
since those products were last sold more than five years ago. Accordingly, the
Company has not recorded any liability related to these products in its
financial statements.
The Company has provided information to its customers and others about its Year
2000 compliance program. The Company's web site describes each product
historically supplied by the Company and its status as "compliant", "not
compliant", "compliant with issues" with an attached description of the issues,
or "compliance anticipated" with a projected release date.
The Company has concluded that its internally managed call rating software
should be rewritten to upgrade its features and to integrate the software into
the Company's new open architecture management software system presently under
development, in addition to the modifications required to bring the software
into Year 2000 compliance. The upgrade of the Company's call rating software is
being undertaken by outside consultants in conjunction with the Company's
personnel at an estimated cost of approximately $150, and is expected to be
completed by no later than December 31, 1999. If the Company does not complete
the upgrade by December 31, 1999, the Company would not be able to provide Year
2000 compliant call rating files to its customers. However, such files are
available from third parties.
The risks associated with the failure of the Company's products 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; (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 business 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
continues to assess Year 2000 compliance of its other internal systems such as
engineering, shipping, payroll and EDI systems and is upgrading these systems as
required if deficiencies within these systems are deemed to be critical. The
costs related to such system upgrades or acquisition of new Year 2000 compliant
software to date have not been material, but the costs to complete such upgrades
or acquisitions could be material. 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. The
Company believes that all critical internal systems will be assessed and
remediated by the end of the calendar year.
The Company has completed an inventory and tested most of its internal computer
equipment, including personal computers, related servers and software for Year
2000 compliance. Based on the Company's testing, the Company plans to spend
approximately $100 to replace and upgrade such equipment and software to achieve
Year 2000 compliance. The Company believes that the necessary replacements and
upgrades can be completed by the end of the calendar year.
The Company has relationships with various third parties in the ordinary course
of business. The Company continues to assess the readiness of third parties,
especially critical suppliers and others that have material relationships with
the Company, by sending questionnaires, evaluating responses and identifying the
risks with respect to Year 2000 plans of those third parties. The Company will
continue to identify the
15
<PAGE>
risks associated with third parties based on responses to those questionnaires
and will then formulate appropriate contingency plans on a case by case basis to
mitigate such risks. The Company expects to complete its assessment of the
readiness of third parties by the end of the third 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
could be material.
The Company has begun, but not yet completed, an 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.
The Company presently has no contingency plans for Year 2000 compliance problems
that might arise, but will develop such contingency plans as the Company
identifies situations in which Year 2000 compliance could be a problem. However,
there can be no assurance that any contingency plan will be timely or effective
to avoid a material disruption of the Company's operations.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Instruments and Hedging Activities, which establishes standards for accounting
of derivative instruments including certain derivative instruments embedded in
other contracts, and hedging activities. SFAS 133 is effective for fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires
entities to recognize derivative instruments as assets and liabilities and
measure them at fair value, and to match the timing of gain or loss recognition
on hedging instruments with the recognition of changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk or the
earnings effect of the hedged forecasted transaction. Management does not
believe that the adoption of SFAS 133 will have a significant impact on the
Company's consolidated financial statements.
During the three months ended June 30, 1999, the Company adopted Statement of
Position 98-1, "Accounting for Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1") issued by the American Institute of Certified
Public Accountants (the "AICPA"). SOP 98-1 provides guidance on accounting for
the costs of computer software developed or obtained for internal use and new
cost recognition principles and identifies the characteristics of internal use
software. The adoption of SOP 98-1 did not have a material impact on the
Company's results of operations, financial position or cash flows.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The are no material changes with regards to quantitative and qualitative
disclosures about market risks from that set forth in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1999.
16
<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 1995 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 1,
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 and the appeal is proceeding. The Company disputes
liability and intends to defend this matter vigorously, although the Company
cannot predict the ultimate outcome of this litigation.
17
<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 Employment Agreement between Elcotel, Inc. and
C. Shelton James effective as of July 20, 1999.
10.2 Retirement Agreement between Elcotel, Inc. and
Tracey L. Gray effective as of June 11, 1999.
10.3 Business Loan Agreement between Elcotel, Inc.
and NationsBank, N.A. dated June 29, 1999.
10.4 Commercial Security Agreement between Elcotel,
Inc. and NationsBank, N.A. dated June 29, 1999.
10.5 Promissory Note between Elcotel, Inc. and
NationsBank, N.A. dated June 29, 1999.
10.6 Export-Import Bank of the United States Working
Capital Guarantee Program Borrower Agreement
between Elcotel, Inc. and NationsBank, N.A.
dated June 29, 1999.
27 Financial Data Schedule (Edgar Filing only)
(b) Reports on Form 8-K:
During the quarter ended June 30, 1999, the Company filed a Form 8-K
Current Report dated May 26, 1999 that reported (i) the termination of
negotiations concerning a possible business combination and the
intention of the Company's President and Chief Executive to retire; and
(ii) the adoption of a Stockholder Rights Plan.
18
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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: August 12, 1999 By: /s/ William H. Thompson
---------------------------
William H. Thompson
Senior Vice President, Administration
and Finance (Principal Financial
Officer)
By: /s/ Scott M. Klein
----------------------
Scott M. Klein
Controller (Principal Accounting
Officer)
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<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.1 Employment Agreement between Elcotel, Inc. and C. Shelton James
effective as of July 20, 1999.
10.2 Retirement Agreement between Elcotel, Inc. and Tracey L. Gray
effective as of June 11, 1999.
10.3 Business Loan Agreement between Elcotel, Inc. and NationsBank,
N.A. dated June 29, 1999.
10.4 Commercial Security Agreement between Elcotel, Inc. and
NationsBank, N.A. dated June 29, 1999.
10.5 Promissory Note between Elcotel, Inc. and NationsBank, N.A.
dated June 29, 1999.
10.6 Export-Import Bank of the United States Working Capital
Guarantee Program Borrower Agreement between Elcotel, Inc. and
NationsBank, N.A. dated June 29, 1999.
27 Financial Data Schedule (Edgar Filing only)
EXHIBIT 10.1
ELCOTEL, INC.
Employment Agreement of C. Shelton James
This Employment Agreement (this "Agreement") is effective as of the 10th
day of June, 1999 by and between Elcotel, Inc. (the "Company") and C. Shelton
James ("Employee") upon the following terms and conditions:
1. Term:
(a) Commencement Date: This Agreement shall commence on June 10, 1999
and supersedes and replaces in its entirety the Amended and Restated
Employment Agreement dated October 20, 1998 between the Company and
Employee.
(b) Termination Date: Unless sooner terminated as provided in this
Agreement, this Agreement shall terminate on December 10, 1999 (the
"Initial Termination Date"). The Company shall have the option to extend
the termination date to a date that is not earlier than 30 days and not
later than 60 days after the Initial Termination Date (the "Extended
Termination Date"). The Company shall exercise such option by giving the
Employee at least 45 days written notice prior to the Initial Termination
Date specifying the number of days (between 30 days and 60 days) that the
termination date is extended.
2. Employment. Employee shall be employed by the Company as the acting
President, the acting Chief Executive Officer and Chairman of the Board of
Directors of the Company. Employee shall devote substantially all of his time
during normal business hours to the business of the Company; provided that the
Employee may continue to serve as a director of CSPI, DRS Technologies, SK
Technologies, Inc., Concurrent Computer Corporation, Cyberguard Corporation and
TechniSource Inc. and as the President and a Director of Fundamental Management
Corporation. Employee shall provide services pursuant to this Agreement
principally from the Company's executive offices in Sarasota, Florida, subject
to travel required in connection with his performance of such services. Employee
shall serve as the acting President and acting Chief Executive Officer of the
Company while the Company searches for an individual to serve in those positions
on a permanent (rather than interim) basis. If the Company appoints a permanent
President or Chief Executive Officer during the term of this Agreement, Employee
shall assist in the transition of management responsibilities to such permanent
President or Chief Executive Officer.
3. Salary: During the term of this Agreement, the salary paid to
<PAGE>
Employee shall be Two Hundred Fifty Thousand Dollars ($250,000.00) on an annual
basis.
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"). Employee shall also be entitled
to a $2,000 per month non-accountable expense allowance ("Expense Allowance").
5. Bonuses: Employee shall be entitled to receive such bonus, if any, as
the board of directors of the Company or the Compensation Committee of the board
determines (the "Bonus").
6. Stock Options:
(a) Employee shall be granted additional stock options to purchase an
aggregate of 76,750 shares of the Company's common stock pursuant to the
Company's 1991 Stock Option Plan (the "Options"). The Options shall have
such exercise prices and such expiration dates as set forth on Exhibit A
attached hereto and made a part hereof. The Options shall become initially
exercisable as follows: 12,791 shares on each of July 10, 1999, August 10,
1999, September 10, 1999, October 10, 1999 and November 10, 1999 and 12,795
shares on December 10, 1999. The Options shall be incentive stock options
to the maximum extent permitted by law and otherwise nonqualified options.
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 termination pursuant to Section 1(b)) 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 vested employee stock options shall continue
in effect for 30 days after the effective date of such termination at which
time they shall terminate, except that (i) for all options granted on or
after the date of this Agreement (including the Options) 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.
In the event of a termination by the Company of Employee's employment for
Cause (in accordance with Section 9(a) of this Agreement), all of
2
<PAGE>
Employee's outstanding employee stock options shall immediately lapse and
terminate.
(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 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: Employee's employment may be terminated by
the Company only as provided below:
(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 -
3
<PAGE>
(i) If the nature of such Cause involves dishonesty, fraud,
serious moral turpitude or a material violation of any applicable
laws, such termination shall be effective upon the giving of such
notice.
(ii) If the nature of such Cause does not involve dishonesty,
fraud, serious moral turpitude or a material violation of any
applicable laws, such termination shall be effective upon the
expiration of fifteen (15) days after the giving of such notice,
unless within such fifteen-day period Employee has cured the basis of
such Cause.
(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 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) and the Expense Allowance through the end of the term of this
Agreement (i.e., the Initial Termination Date or Extended Termination
Date depending on when the notice of termination is given) and pay the
Employee Severance Pay (as defined below) beginning on the one month
anniversary of the last payment of salary to Employee pursuant to this
Agreement at the end of the term of this Agreement.
(ii) If without Employee's written consent, 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, such requirement may, at Employee's option by
notice given to the Company within ninety (90) days after the date of
such requirement, be treated by him as a notice of termination of his
employment by the Company without Cause. A reduction in Employee's
responsibilities or a change in title as a result of the Company
appointing another individual to serve as President or Chief Executive
Officer shall not be deemed a breach of this Agreement or a
termination of his employment by the Company without Cause.
(c) Non-renewal: If this Agreement terminates pursuant to Section 1(b)
because the Company does not extend the Initial Termination Date of this
Agreement or the parties do not agree to extend the Employee's employment
beyond the Extended Termination Date, then the Company shall pay the
Employee severance pay ("Severance Pay") equal to three months of salary,
payable in three equal monthly installments beginning on the one month
anniversary of the termination of employment.
4
<PAGE>
(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 a material violation of any
applicable laws relating to insider trading or other securities law matters; or
(ii) misconduct of a material nature that Employee knew or should have known
would be materially detrimental to the Company or its business or a material
breach by Employee of this Agreement.
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 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
5
<PAGE>
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.
(c) Employee agrees that he will not, during the course of
6
<PAGE>
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 or in any other business in which the Company is engaged or has
current plans to engage as of the date of termination of employment. "Restricted
Period" shall mean one year following the later of (i) termination of this
Agreement and (ii) the last date on which Employee is entitled to salary or
severance payments pursuant to this Agreement.
(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
7
<PAGE>
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
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
Employee), as follows:
If to the Company at: Elcotel, Inc.
6428 Parkland Drive
Sarasota, FL 34243
Attn: Chief Financial Officer
Facsimile: 941-751-4716
If to Employee, to his most recent residence address shown on
the books of the Company.
Either party may change the address as to which notices to that party shall be
given by giving notice 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.
8
<PAGE>
16. Entire Agreement, etc.:
(a) This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof; 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, heirs,
personal representatives and assigns; shall supersede and replace all prior
employment agreements between the parties, including the Amended and
Restated Employment Agreement dated October 20, 1998; and may be executed
in one or more counterparts each of which shall be deemed an original
hereof, but all of which shall constitute but one and the same agreement;
and shall not be assigned by a party without the written consent of the
other party and any attempted assignment without such consent shall be null
and void.
(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) The failure by either party to insist upon strict compliance with
any term, covenant or condition, or to exercise any right, contained herein
shall not be deemed a waiver of such term, covenant, condition or right;
and no waiver or relinquishment of any term, covenant, condition or right
at any one or more times shall be deemed a waiver or relinquishment thereof
at any other time or times. 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.
(d) The captions of the sections herein are for convenience only and
shall not be used to construe or interpret this Agreement.
(e) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida (without regard to the
principles of conflicts of law) applicable to a contract executed and to be
performed in such state.
(f) The parties agree to submit any controversy, claim or dispute of
whatever nature arising between them, including without limitation, those
arising out of or relating to this Agreement or the construction,
interpretation, performance, breach, termination, enforceability or
validity of this Agreement or the arbitration provisions contained in this
Agreement, for determination solely by binding arbitration, in Tampa,
Florida by one arbitrator in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The arbitrator shall base
his or her award or decision on applicable law and judicial precedent,
shall include in such award or decision the findings of
9
<PAGE>
fact and conclusions of law upon which the award or decision is based and shall
not grant any relief or remedy that a court could not grant under applicable
law. The parties agree to be conclusively bound by the award or decision of such
arbitrator. Judgment on the award or decision rendered by the arbitrator may be
entered in any court having jurisdiction thereof.
(g) The arbitrator's award or decision shall also include a determination
as to the allocation between the parties of the payment of the costs and
expenses of the arbitration (including, without limitation, fees and
disbursements of counsel) on the basis that the prevailing party's costs and
expenses shall be paid by the non-prevailing party.
(h) Employee and the Company each hereby waive any and all rights to
request or receive punitive damages in connection with any action or proceeding
related to the subject matter of this Agreement.
(i) Employee and the Company each hereby waive all right to trial by jury
in any action or proceeding to enforce or defend any rights under this
Agreement.
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 By: /s/ William H. Thompson
- --------------------------- ---------------------------------
C. Shelton James William H. Thompson
Senior Vice President
10
<PAGE>
Exhibit A
Options
Number of Shares
Purchasable Exercise Price Expiration Date
----------- -------------- ---------------
6,250 $6.1875 2/20/2001
20,500 6.0000 5/22/2002
50,000 4.5625 7/13/2003
11
EXHIBIT 10.2
RETIREMENT AGREEMENT
THIS RETIREMENT AGREEMENT is effective as of June 11, 1999 between
ELCOTEL, INC., a Delaware corporation (the "Company"), and TRACEY L. GRAY
("Gray").
Background. Gray is the President and Chief Executive Officer of the
Company. Gray and the Company are parties to an Amended and Restated Employment
Agreement dated as of October 20, 1998 (the "Employment Agreement"). Gray
desires to retire and the parties desire to set forth the terms and conditions
of Gray's retirement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Retirement of Gray. Effective on Friday, June 11, 1999 (the "Retirement
Date"): (i) Gray shall retire as the President and Chief Executive Officer and
as an employee of the Company and shall retire as an officer and employee of all
subsidiaries of the Company, and (ii) the Employment Agreement shall terminate
and be of no further force or effect, other than the provisions of Sections 11,
12 and 13 of the Employment Agreement which shall continue in effect in
accordance with the terms of the Employment Agreement. Gray has elected to
retire and is doing so freely and voluntarily. Gray shall be reimbursed (in
accordance with Company policy) for all reasonable business expenses incurred by
him on behalf of the Company prior to the Retirement Date. The parties agree
that Gray's termination of employment pursuant to this Agreement shall not be
deemed a termination by the Company or a termination by Gray under the
Employment Agreement.
2. Consulting Period. Commencing on June 14, 1999 and continuing until
July 14, 1999, unless extended to a date not later than August 13, 1999 pursuant
to notice from the Acting President and Chief Executive Officer of the Company
(the "Consulting Period"), Gray shall act as a consultant to the Company and its
subsidiaries to assist the Company in transferring management responsibilities
following Gray's retirement, and to perform such other duties as the Acting
President and Chief Executive Officer of the Company may reasonably request.
During the Consulting Period, the Company shall pay Gray compensation of
$3,846.15 per week (pro rated for periods of less than one week) during the
Consulting Period. Mr. Gray shall also be entitled during the Consulting Period
to the same medical and dental insurance and other fringe benefits to which he
was entitled pursuant to the Employment Agreement immediately prior to the
Retirement Date, to the extent he qualifies for such benefits under the
applicable plan, including without limitation, an automobile allowance, and on
the same terms and conditions. Notwithstanding the foregoing, Gray shall not be
entitled during the Consulting Period to reimbursement for temporary living
expenses, any grant of employee stock options, or any bonuses. During the
Consulting Period, 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.
<PAGE>
3. Post Consulting Compensation. For a period of two years after the end
of the Consulting Period (the "Post Consulting Period"), the Company shall pay
Gray compensation at an annual rate of $75,000, payable in equal installments
(52 installments of $2,884.62 each) every two weeks. In addition, the Company
shall pay, during the Post Consulting Period, the cost of medical insurance
under COBRA covering Gray or, at Gray's option or if such coverage is
unavailable beyond 18 months following termination of Gray's employment because
the Company's insurance carrier refuses to provide such coverage, pay Gray the
amount which the Company would have paid to provide medical insurance under
COBRA covering Gray during such period.
4. Stock Options. Gray shall retain all stock options issued to him under
the Company's 1991 Stock Option Plan (the "Plan") that are vested as of the
Retirement Date (the "Options"). The Options shall remain exercisable until the
expiration date of the Option absent such termination of employment for the
total number of shares purchasable under the Option as of the Retirement Date in
accordance with Paragraph 10B of the Plan. Gray and the Company agree that
Paragraph 10A of the Plan does not apply to the Options.
5. Indemnification. 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.
6. Covenants Not To Disclose Confidential Information.
(a) Gray agrees that he will not at any time or place during the
Consulting Period and for three years after the end of the Consulting Period
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. Gray agrees that
during the Consulting Period and for three years thereafter he will keep
confidential from persons not associated with the Company any and all
proprietary information, special techniques, and trade secrets of the Company.
Upon termination of the Consulting Period, Gray agrees to return to the 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 the Company's business and generated or received by Gray
in the course of his consulting duties with the Company.
(b) Gray agrees that, during the Consulting Period and for two years
thereafter, 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
2
<PAGE>
relationship with or to the Company as an employee, consultant, dealer or
customer, as the case may be.
(c) Gray agrees that he will not, during the Consulting Period and for two
years thereafter, engage in any employment or business activity in which it
might reasonably be expected that confidential proprietary information or trade
secrets of the Company obtained by Gray during the Consulting Period would be
utilized.
7. Covenant Not To Compete Unreasonably With Company. Gray further
covenants and agrees that:
(a) During the Consulting Period and for two years thereafter, Gray 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 or in any
other business in which the Company is engaged or has current plans to engage as
of the Retirement Date; provided that, notwithstanding the foregoing, Gray shall
be permitted to engage in the business of owning and operating pay phone
terminals through NuTel Systems.
(b) Gray recognizes and agrees that his violation of the terms of any
provision contained in Section 6 or 7 will cause irreparable damage to the
Company the amount of which will be impossible to estimate or determine.
Therefore, Gray 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 Gray, 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. The Company
hereby waives any right to require a bond in connection with obtaining such an
injunction. Gray further agrees that his violation of the terms of any provision
contained in Section 6 or 7 shall permit the Company to cease making further
payments required under Section 2 or 3 of this Agreement. Such provisions 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.
8. Payments. All payments to Gray under this Agreement are in lieu of, and
replace in their entirety, any severance rights or payments to which Mr. Gray
would otherwise be entitled under any agreement (including the Employment
Agreement) or Company policy or under any state or federal law, rule or
regulation in effect at the date hereof.
9. Director. Gray and the Company agree that Gray will continue to serve
on the Board of Directors of the Company until the next annual meeting of
stockholders. During the Consulting Period, Gray shall not be entitled to any
fees as a director that the Company pays to its non-employee directors. After
the Consulting Period and while Gray remains a director, Gray shall be entitled
to any fees that a non-employee director receives as a member of the Board of
Directors (any annual retainer fees shall be prorated for such period). While a
member of the Board of Directors, Gray shall be reimbursed for reasonable
expenses in attending Board and Board Committee meetings. In connection with the
next annual meeting of stockholders, Gray
3
<PAGE>
agrees not to seek nomination as a director and, if nominated and elected,agrees
not to serve as a director.
10. Mutual Releases.
(a) In consideration for the payments promised in Sections 2 and 3 of this
Agreement and the other agreements of the Company contained herein, Gray hereby
releases and forever discharges the Company and each and all of its past and
present subsidiaries, parent and related corporations, companies and divisions,
and their past and present directors, trustees, officers, managers, supervisors,
employees, attorneys, and agents, and their predecessors, successors and assigns
(all such entities and persons hereafter being referred to collectively in this
Agreement as "Releasees"), from any and all claims, debts, agreements,
complaints or causes of action (hereinafter, collectively, "Claims"), whether
known or unknown that he ever had, now has, or may have against any or all of
the Releasees, for, upon, or by reason of any cause, matter, thing or event
whatsoever occurring at any time up to and including the date of this Agreement.
This means that Gray is waiving and giving up any right he may have to sue the
Company or any other Releasee on or for any Claims within the scope of this
Section 10(a). The Claims within the scope of this section and covered by this
release and waiver include, but are not limited to, (i) any Claim based on
contract or in tort or common law; (ii) any Claim based on or arising under any
employment laws, such as the federal Age Discrimination in Employment Act, Title
VII of the Civil Rights Act of 1964 or the Americans with Disabilities Act;
(iii) any Claim based on or arising out of Gray's employment by the Company
and/or his retirement therefrom; and (iv) any Claims for compensatory,
liquidated or punitive damages, damages for emotional distress, back pay, front
pay, attorneys' fees, expenses, and unpaid benefits. Gray understands that, by
signing this Agreement, he waives all Claims he ever had or now has against the
Company and against all other Releasees that arose or may have arisen before the
date of this Agreement (including any right to a remedy or recovery in an action
that may be brought on his behalf by any government agency or other person based
on any Claims released herein), but does not release or waive any claims that
may arise after the date of this Agreement, including any claim for breach of
this Agreement. Gray further promises not to commence a lawsuit against the
Company or against any other Releasee based on or asserting any Claims described
in this Section.
(b) The Company hereby releases and forever discharges Gray, his heirs and
legal representatives from any and all Claims, whether known or unknown, that it
ever had, now has, or may have against Gray, his heirs or legal representatives,
for, upon or by reason of any cause, matter, thing or event whatsoever occurring
at any time up to and including the date of this Agreement, but the Company does
not release or waive any claims that may arise after the date of this Agreement,
including any claim for breach of this Agreement.
11. Severability. All provisions of this Agreement are severable, and if
any of them is determined to be invalid or unenforceable for any reason, the
remaining provisions and portions of this Agreement shall be unaffected thereby
and shall remain in full force to the fullest extent permitted by law.
4
<PAGE>
12. Miscellaneous.
(a) This Agreement contains the entire understanding of the parties on the
subject matter hereof; 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, heirs, personal representatives and
permitted assigns; may be executed in one or more counterparts each of which
shall be deemed an original hereof, but all of which shall constitute but one
and the same agreement; and shall not be assigned by a party without the written
consent of the other party.
(b) The failure by either party to insist upon strict compliance with any
term, covenant or condition, or to exercise any right, contained herein shall
not be deemed a waiver of such term, covenant, condition or right; and no waiver
or relinquishment of any term, covenant, condition or right at any one or more
times shall be deemed a waiver or relinquishment thereof at any other time or
times.
(c) The captions of the sections herein are for convenience only and shall
not be used to construe or interpret this Agreement.
(d) 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 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
If to Gray, to his most recent residence
address on the books of the Company.
Either party may change the address as to which notices to that party shall be
given by giving notice in the manner provided in this section.
(e) This Agreement shall terminate upon the death of Gray.
(f) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Florida (without regard to the
principles of conflicts of law) applicable to a contract executed and to be
performed in such state.
5
<PAGE>
(g) The parties agree to submit any controversy, claim or dispute of
whatever nature arising between them, including without limitation, those
arising out of or relating to this Agreement or the construction,
interpretation, performance, breach, termination, enforceability or validity of
this Agreement or the arbitration provisions contained in this Agreement, for
determination solely by binding arbitration, in Tampa, Florida by one arbitrator
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator shall base his or her award or decision on
applicable law and judicial precedent, shall include in such award or decision
the findings of fact and conclusions of law upon which the award or decision is
based and shall not grant any relief or remedy that a court could not grant
under applicable law. The parties agree to be conclusively bound by the award or
decision of such arbitrator. Judgment on the award or decision rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
(h) The arbitrator's award or decision shall also include a determination
as to the allocation between the parties of the payment of the costs and
expenses of the arbitration (including, without limitation, fees and
disbursements of counsel) on the basis that the prevailing party's costs and
expenses shall be paid by the non-prevailing party.
(i) Gray and the Company each hereby waive any and all rights to request
or receive punitive damages in connection with any action or proceeding related
to the subject matter of this Agreement.
(j) Gray and the Company each hereby waive all right to trial by jury in
any action or proceeding to enforce or defend any rights under this Agreement.
13. Voluntary Nature. Gray acknowledges that he has been advised of his
right to consult with an attorney before signing this Agreement and he has been
given a period of at least twenty-one (21) days to consider this Agreement
before signing it. Gray also represents that he has read this Agreement and
understands it, that he is signing this Agreement voluntarily and of his own
free will, without any duress or coercion, and that he has had a reasonable time
to consider this Agreement before signing it. In deciding whether to enter into
this Agreement, Gray is not relying on any promises, statements or
representations other than those that are expressly set forth herein.
14. Effectiveness. This Agreement will not become effective or enforceable
until seven (7) days after Gray executes it. Gray may revoke this Agreement at
any time within that seven (7) day period, by sending a written notice to C.
Shelton James at Elcotel, Inc., 6428 Parkland Drive, Sarasota, Florida 34243
[Fax: (941) 751-4716.] Such written notice may be sent by mail, fax or hand
delivery. If a written revocation is received within that seven (7) day period,
this Agreement shall be null and void for all purposes. If a written revocation
is not received within that seven (7) day period, this Agreement will go into
effect on the first day immediately following the expiration of said seven (7)
day period ("Effective Date").
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates indicated below.
THIS AGREEMENT CONTAINS A RELEASE OF CLAIMS.
READ CAREFULLY BEFORE SIGNING.
ELCOTEL, INC.
By: /s/ C. Shelton James 7/22/99
-------------------------------------------
C. Shelton James Date
Chairman of the Board
/s/ Tracey L. Gray 7/22/99
----------------------------------------------
Tracey L. Gray Date
7
EXHIBIT 10.3
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ------------------ ------------- ------------ -------------- ----------- ------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$2,000,000.00 06-29-1999 06-29-2000 A100
- ------------------ ------------- ------------ -------------- ----------- ------------ ---------------- ------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: Elcotel, Inc. Lender: NationsBank, N.A.
6428 Parkland Drive P.O. Box 40329
Sarasota, FL 34243 Jacksonville, FL 32203-0329
================================================================================
THIS BUSINESS LOAN AGREEMENT, between Elcotel, Inc. ("Borrower") and
NationsBank, N.A. ("Lender") is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans or other financial
accommodations, including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the "Loan"
and collectively as the "Loans." Borrow understands and agrees that: (a) in
granting, renewing, or extending any Loan, Lender is relying upon Borrower's
representations, warranties, and agreements, as set forth in this Agreement; (b)
the granting, renewing, or extending of any Loan by Lender at all times shall be
subject to Lender's sole judgment and discretion; and (c) all such Loans shall
be and shall remain subject to the following terms and conditions of this
Agreement.
TERM. This Agreement shall be effective as of June 29, 1999, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Business Loan Agreement, as
this Business Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Business Loan Agreement from time to time.
Borrower. The word "Borrower" means Elcotel, Inc..
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The world "Collateral" means and includes without
limitation all property and assets granted as collateral security for a
Loan, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted
in the form of a security interest, mortgage, deed of trust,
assignment, pledge, chattel mortgage, chattel trust, factor's lien,
equipment trust, conditional sale, trust receipt, lien, charge, lien or
title retention contract, lease or consignment intended as a security
device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time and the regulations and
published interpretations thereof.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
GAAP. The world "GAAP" means generally accepted accounting principles
consistently applied.
Grantor. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the indebtedness, including without limitation all
Borrowers granting such a Security Interest.
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
Indebtedness. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well
as all claims by Lender against Borrower, or any one or more of them;
whether now existing, contemporaneously with or hereafter incurred or
created and any renewals, modifications, extensions, substitutions or
consolidations thereof, voluntary or involuntary incurred, secured or
unsecured, absolute or contingent, or unliquidated; determined or
undetermined, whether Borrower may be liable individually or jointly
with others, or primarily or secondarily, or as guarantor, surety, or
otherwise; whether recovery upon the indebtedness may be or hereafter
may become barred by any statute of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means NationsBank, N.A., its successors and
assigns.
Loan. The world "Loan" or "Loans" means and includes any and all loans,
advances, interest, costs, fees, documentary stamp tax and/or
intangible taxes, debts, overdraft indebtedness, leases, drafts,
letters of credit, credit cards, and business services from lender to
Borrower, whether now existing, contemporaneously with, or hereafter
incurred or created and any renewals, modification, extensions,
substitutions or consolidations thereof, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to
this Agreement from time to time.
Note. The word "Note" means Borrower's promissory note or notes, if
any, evidencing Borrower's Loan obligations in favor of Lender, as well
as any renewal, extension, modification, consolidation, substitute,
replacement or refinancing note or notes therefor.
Permitted Liens. The words "Permitted Liens" mean: (a) liens and
security interests securing indebtedness owed by Borrower to Lender;
(b) liens for taxes, assessments, or similar charges either not yet due
or being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet
delinquent; (d) purchase money liens or purchase money security
interests upon or in any property acquired or held by Borrower in the
ordinary course of business to secure indebtedness outstanding on the
date of this
Agreement or permitted to be incurred under the paragraph of this
Agreement titled "Indebtedness and Liens"; (e) liens and security
interests which, as of the date of this Agreement, have been disclosed
to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of
Borrower's assets.
<PAGE>
06-29-1999 BUSINESS LOAN AGREEMENT Page 2
Loan No. (Continued)
================================================================================
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
Security Agreement. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract,
or otherwise, evidencing, governing, representing, or creating a
Security Interest.
Security Interest. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
SARA. The word "SARA" means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form satisfactory
to Lender the following documents for the Loan: (a) the Note, (b)
Security Agreements granting to Lender security interests in the
Collateral, (c) Financing Statements perfecting lender's Security
Interests; (d) evidence of insurance as required below; and (e) any
other documents required under this Agreement or by Lender or its
counsel, including without limitation any guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender property certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and
the Related Documents, and such other authorizations and other
documents and instruments as Lender or its counsel, in their sole
discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all
fees, charges, and other expenses which are then due and payable as
specified in this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document
or certificate delivered to Lender under this Agreement are true and
correct.
No Event of Default. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this
Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing, and in good standing under the laws of the State of
Delaware and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and
authority to own its properties and to transact the businesses in which
it is presently engaged or presently proposes to engage. Borrower also
is duly qualified as a foreign corporation and is in good standing in
all states in which the failure to so qualify would have a material
adverse effect on its businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental
body; and do not conflict with, result in a violation of, or constitute
a default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
Financial Information. Each financial statement of Borrower and each
information, exhibit or report supplied to lender by Borrower, its
agents or accountants truly and completely disclosed Borrower's
financial condition as of the date of the statement in accordance with
GAAP, and there has been no material adverse change in Borrower's
financial or business condition or operations subsequent to the date of
the most recent financial statement supplied to Lender and none are
imminent or threatened. Borrower has no material contingent obligations
except as disclosed in such financial statements. Borrower acknowledges
and agrees that Lender is relying on all such financial information in
entering into, continuing, renewing or extending any Loan.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered
will constitute, legal, valid and binding obligations of Borrower
enforceable against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender
and as accepted by Lender, and except for property tax liens for taxes
not presently due and payable, Borrower owns and has good title to all
of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower has not used, or filed a financing
statement under, any other name for at least the last five (5) years.
Additionally, Borrower and Borrower's real and personal properties
comply fully with all laws, ordinances, statutes, codes and
requirements of the Americans with Disabilities Act of 1990.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.
C. Section 1801, et seq., the Resource Conservation and Recovery Act,
49 U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to an acknowledged by lender in writing, Borrower
represents and warrants that: (a) During the period of Borrower's
ownership, lease or use of any real or personal properties and the
Collateral, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous
waste or substance by any person on, under, or about any of the
properties. (b) Borrower has no knowledge of, or reason to believe that
there has been (i) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any hazardous
waste or substance by any prior owners or occupants of any of the
properties or the Collateral, or (ii) any actual or threatened
litigation or claims of any kind by any person relating to such
matters. (c) Neither Borrower nor any tenant, contractor, agent or
other authorized user of any of the properties or the Collateral shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, or about any of the properties
or the Collateral; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Borrower authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be at Borrower's expense and for Lender's purposes
only and shall not be construed to create any responsibility or
liability on the part of Lender to Borrower or to any
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06-29-1999 USINESS LOAN AGREEMENT Page 3
Loan No. (Continued)
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other person. The representations and warranties contained herein are
based on Borrower's due diligence in investigating the Collateral and
the properties for hazardous wastes and substances. Borrower hereby (a)
releases and waives any future claims against Lender for indemnity or
contribution in the event Borrower becomes liable for cleanup or other
costs under any such laws, and (b) agrees to fully and promptly pay,
perform, discharge and defend, indemnify and hold harmless Lender
against any and all claims, orders, demands, causes of action,
proceedings, judgments, losses, liabilities, damages, penalties, and
expenses which Lender may directly or indirectly sustain or suffer
resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership
or interest in the properties or the Collateral, whether, or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or
expiration of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event
has occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other
events, if any, that have been disclosed to and acknowledged by Lender
in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in
good faith in the ordinary course of business and for which adequate
reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and
rights in and to such Collateral.
Binding Effect. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note
are binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance
with their respective terms.
Permits. Borrower possesses and will continue to possess all permits,
licenses, copyrights, trademarks, trade names, patents and rights
thereto to conduct its business and its business does not conflict or
violate any valid rights of others with respect to the foregoing.
Commercial Purposes. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes and will not purchase or
carry margin stock (within the meaning of Regulations G,T and U of the
Board of Governors of the Federal Reserve System).
Employee Benefit Plans. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred
with respect to any such plan, (ii) Borrower has not withdrawn from any
such plan or initiated steps to do so, (iii) no steps have been taken
to terminate any such plan, and (iv) there are no unfunded liabilities
other than those previously disclosed to Lender in writing.
Location of Borrower's Offices and Records. The chief place of business
of Borrower and the office or offices where Borrower keeps its records
concerning the Collateral is located at 6428 Parkland Drive, Sarasota,
FL 34243.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
Survival of Representations and Warranties. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations
and warranties shall be continuing in nature and shall remain in full
force and effect until such time as Borrower's Indebtedness shall be
paid in full, or until this Agreement shall be terminated in the manner
provided above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
Deposit Accounts. Maintain its primary banking accounts with Lender.
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
litigation and claims and all threatened litigation and claims
affecting Borrower or any Guarantor which could materially affect the
financial condition of Borrower or the financial condition of any
Guarantor.
Updates. Promptly inform Lender in writing of details of all
litigation, legal or administrative proceedings, investigation or other
action of similar nature, pending or threatened against Borrower, at
any time during the term of this Agreement, which in part or in whole
may or will render any of the above representations and warranties no
longer true, accurate and correct in each and every respect. Borrower
will bring such details to Lender's attention, in writing, within
thirty (30) days from the date Borrower acquires knowledge of same.
Financial Records. Maintain its books and records in accordance with
GAAP and permit Lender to examine and audit Borrower's books and
records at all reasonable times.
Financial Statements. Furnish Lender with, as soon as available, but in
no event later than one hundred twenty (120) days after the end of each
fiscal year, Borrower's balance sheet and income statement, statement
of cash flow and notes to statements for the year ended, audited by a
certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than forty five (45) days after the
end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct
to the best knowledge and belief by Borrower's chief financial officer
or other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with GAAP and certified by Borrower as being true and
correct. Provide to Lender annually for each individual Borrower and
Guarantor, if any, signed and dated personal financial statements on
Lender's forms and, immediately after filing, the personal income tax
return filed for the past calendar year. Simultaneously with the
financial information required herein of Borrower, the same information
of all corporate or partnership guarantors, if any, prepare in
accordance with GAAP. Promptly after the furnishing thereof, provide
Lender with copies of any statement or report furnished to any other
party pursuant to the terms of any indenture, loan, credit, or similar
agreement and not otherwise required to be furnished to Lender pursuant
to any other section of this Agreement. Promptly after the sending or
filing thereof, provide Lender with copies of all proxy statements,
financial statements and reports which Borrower sends to its
stockholders, and
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06-29-1999 BUSINESS LOAN AGREEMENT Page 4
Loan No. (Continued)
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copies of all regular, periodic, special reports, an all registration
statements which Borrower files with the Securities and Exchange
Commission or any governmental authority which may be substituted
therefore, or with any national securities exchange.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and
other reports with respect to Borrower's financial condition and
business operations as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Leverage Ratio. Maintain a ratio of Total Liabilities to
Tangible Net Worth of less than:
Period Ratio
------ -----
For each fiscal year end 1.25 to 1.00
Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities in excess of:
Period Ratio
------ -----
For each fiscal year end 1.50 to 1.00
Fixed Charge Ratio. Maintain a ratio of Adjusted Net Income to
Fixed Charges of not less than:
Period Ratio
------ -----
On a rolling four quarter basis 1.30 to 1.00
For purposes of this Agreement and to the extent the following terms
are utilized in this Agreement, the term "Tangible Net Worth" shall
mean Borrower's total assets excluding all intangible assets determined
in accordance with GAAP (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements at book value) of
Borrower less total Debt. The term "Debt" shall be determined in
accordance with GAAP. The term "Subordinated Debt" shall mean
indebtedness and liabilities of Borrower which have been subordinated
by written agreement to indebtedness owed by Borrower to Lender in form
and substance acceptable to Lender. The term "Working Capital" shall
mean Borrower's current assets at lower of cost or current market value
less amounts due from any officer, director, shareholder or any entity
related by common control or ownership, excluding prepaid expenses,
less Borrower's current liabilities. The term "Liquid Assets" shall
mean Borrower's cash on hand, marketable securities, bank deposits and
Borrower's receivables. The term "Adjusted Net Income" means net income
after taxes plus depreciation, amortization, lease expense, and
interest expense. The term "Fixed Charges" mean interest expense plus
lease expense, current maturities of long-term debt and current
maturities of capital leases. The term "Cash Flow" shall mean net
income after taxes, and exclusive of extraordinary gains and income,
plus depreciation and amortization. The term "Senior Debt" shall mean
Debt less Subordinated Debt. The term "Capital Funds" shall mean
Tangible Net Worth plus Subordinated Debt. Except as provided above,
all computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with GAAP and
certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, business
interruption, theft, public liability insurance, and such other
insurance in such amounts and covering such risks as are usually
covered by businesses engaged in the same or a similar business and
similarly situated with respect to Borrower's properties and
operations, in form, coverages and with insurance companies reasonably
acceptable to Lender. Borrower, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in
form satisfactory to Lender, including stipulations that coverages will
not be cancelled or diminished without at least thirty (30) days' prior
written notice to Lender. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports
on each existing insurance policy showing such information as Lender
may reasonably request, including without limitation the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the properties insured; (e) the then current property
values on the basis of which insurance has been obtained, and the
manner of determining those values; and (f) the expiration date of the
policy. In addition, upon request of Lender (however not more often
than annually), Borrower will have an independent appraiser
satisfactory to Lender determine, as applicable, the actual cash value
or replacement cost of any Collateral. The cost of such appraisal shall
be paid by Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, on Lender's forms,
and in the amounts and by the guarantors named below:
Guarantors Amounts
---------- -------
Elcotel Direct, Inc. Unlimited
Technology Service Group, Inc. Unlimited
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every
kind and nature, imposed upon Borrower or its properties, income, or
profits, prior to the date on which penalties would attach, and all
lawful claims that, if unpaid, might become a lien or charge upon any
of Borrower's properties, income, or profits. Provided however,
Borrower will not be required to pay and discharge any such assessment,
tax, charge, levy, lien or claim so long as (a) the legality of the
same shall be contested in good faith by appropriate proceedings, and
(b) Borrower shall have established on its books adequate reserves with
respect to such contested assessment, tax, charge, levy, lien, or claim
in accordance with generally accepted accounting practices. Borrower,
upon demand of Lender, will furnish to Lender evidence of payment of
the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at
any time a written statement of any assessments, taxes, charges,
levies, liens and claims against Borrower's properties, income, or
profits.
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06-29-1999 BUSINESS LOAN AGREEMENT Page 5
Loan No. (Continued)
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Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in
a timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under
this Agreement or under any of the Related Documents.
Operations. Substantially maintain its present executive and management
personnel; conduct its business affairs in a reasonable and prudent
manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and
with all minimum funding standards and other requirements of ERISA and
other laws applicable to Borrower's employee benefit plans, and
continue to engage in an efficient and economical manner in a business
of the same general type as now conducted by it, provided, however,
that nothing contained in this Agreement shall prevent Borrower from
discontinuing any part of Borrower's business, if in Borrower's
opinion, this discontinuance is in the best interests of Borrower and
not disadvantageous to Lender.
Maintenance. Maintain, keep and preserve Borrower's buildings and
properties and every part thereof in good repair, working order, and
condition and from time to time make all needful and proper repairs,
renewals, replacements, additions, betterments and improvements
thereto, so that at all times the efficiency thereof shall be fully
preserved and maintained, ordinary wear and tear excepted.
Inspection. Permit employees or agents of Lender at any reasonable time
to inspect any and all collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts and
records and to make copies and memoranda of Borrower's books, accounts
and records. If borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and
computer software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender, shall
notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it
may request, all at Borrower's expense, and discuss the affairs,
finances and accounts of Borrower with Lender.
Compliance Certificate. Unless waived in writing by Lender, provide
Lender upon Lender's request a compliance certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of
the certificate, no default or Event of Default has occurred, or has
occurred and is continuing under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and in compliance with the conditions of a
permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within
thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with
any environmental activity whether or not there is damage to the
environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure
the Loans and to perfect all Security interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business, and indebtedness to Lender contemplated by
this Agreement, create, incur or assume indebtedness for borrowed
money, except purchase money security incurred in the normal course of
business up to $500,000.00. (b) sell, transfer, mortgage, assign,
pledge, lease, grant a security interest in or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's
accounts, except to Lender and except for Borrower's accounts as
allowed as a permitted lien.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, wind up, liquidate, merge, reorganize,
transfer, acquire or consolidate with any other entity, change
ownership, dissolve, transfer or sell or acquire Collateral or assets
out of the ordinary course of business, or (c) pay, declare, set aside,
or allocate any dividends in cash or other property, on Borrower's
stock (however, if Borrower is a Subchapter S corporation, Borrower may
make distributions to each shareholder which is necessary to pay for
any personal income tax liability incurred by that shareholder as a
direct result of profits generated by the Subchapter S corporation) or
purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest in or advance
money or assets, (b) purchase, create or acquire any interest in any
other enterprise or entity, or (c) assume, endorse, be liable for or
incur any agreement or obligation as surety or guarantor.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower whether under this Agreement or under any other agreement, Lender shall
have no obligation to make Loan Advances or to disburse Loan proceeds if: (a)
Borrower or any Guarantor is in default under the terms of this Agreement or any
of the Related Documents or any other agreement that Borrower or any Guarantor
has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a
petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c)
there occurs a material adverse change in Borrower's financial condition, in the
financial condition of any Guarantor, or in the value of any Collateral securing
any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify
or revoke such Guarantor's guaranty of the Loan or any other loan with Lender or
(e) Lender in good faith reasonably deems itself insecure even through no Event
or Default shall have occurred.
SEMI-ANNUL AUDITS. Semi-annual audits of Borrower's collateral will be preformed
by Lender or its agent, and Borrower will be responsible for all costs incurred.
The results of said audit must be satisfactory to Lender in its sole discretion.
EXIMBANK GUARANTEE PROGRAM. The loan is made in connection with the Working
Capital Guarantee Program of the Export-Import Bank of the United States
("Eximbank"). A condition precedent to the making of the loan is guarantee by
Eximbank of 90% of the principal of, and accrued interest on, the loan. The loan
shall be subject to the terms and conditions of the Master Guarantee Agreement
between Eximbank and Lender dated October 1, 1994, as such Master Guarantee
Agreement shall be modified, renewed, or amended from time to time (the "Master
Guarantee").
EXIMBANK BORROWER AGREEMENT. Borrower shall comply with the terms of that
certain Borrower Agreement of even date herewith, whereby Borrower has made
certain representations, warranties and agreements in connection with the loan.
In the event of any conflict on a particular subject matter between the Borrower
Agreement and this Agreement, the Agreement with the most restrictive and
stringent requirement on Borrower with regard to such subject matter shall
control.
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06-29-1999 BUSINESS LOAN AGREEMENT Page 6
Loan No. (Continued)
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ADDITIONAL EVENTS OF DEFAULT. In addition to the Event of Default set forth
above in the paragraph entitled "Events of Default," it shall be an Event of
Default under this Agreement if the Master Guarantee shall be terminated or
ineffective for any reason with respect to the Loan.
COMPLIANCE WITH OTHER REQUIREMENTS. Borrower agrees to comply with (a) any
obligations Borrower may have under Eximbank rules, regulations and procedures,
and (b) the procedures of Lender's Export Programs Department, as may be in
effect from time to time.
LIMITATION OF AGREEMENT TO NOTE: Notwithstanding anything in this Agreement to
the contrary, the Notes, Loans and Indebtedness covered by this Agreement shall
be limited to the Note and Loan of even date (and any renewals, modifications,
extensions, substitutions, refinancings or consolidations thereof) and the
indebtedness evidenced thereby.
POTENTIAL LAIBILITY. Borrower covenants and agrees with Lender that, while this
Agreement is in effect, Borrower will notify Lender of any existing or potential
liabilities exceeding $500,000.00.
RIGHT OF SETOFF. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge, withdraw or setoff all sums owing on this Agreement
against any and all the accounts set forth below in the Accounts section without
prior demand or notice to Borrower.
ACCOUNTS. Borrower grants to Lender a contractual possessory security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
of Borrower's right, title and interest in and to, Borrower's deposits, accounts
(whether checking, savings, or some other account), or securities now or
hereafter in the possession of or on deposit with Lender or subsidiary including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
EVENTS OF DEFAULT. If any of the following events shall occur each shall
constitute an Event of Default under this Agreement:
Default on Indebtedness. An event of default as defined in any Loan or
Note or demand for full payment of any Loan or Note.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant, or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower. If any Affirmative Covenant herein is
breached, and if Borrower or Grantor, as the case may be, has not been
given a notice of a similar breach within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower or Grantor, as the case may be, after receiving written notice
from Lender demanding cure of such failure: (a) cures the failure
within thirty (30) days; or (b) if the cure requires more than thirty
(30) days, immediately initiates steps which Lender deems in Lender's
sole discretion to be sufficient to cure the failure and thereafter
continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase or sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of Borrower's
property or Borrower's or any Grantor's ability to repay the Loans or
perform their respective obligations under this Agreement or any of the
Related Documents.
False Statements. Any warranty, representation, or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under
this Agreement or the Related Documents is false or misleading in any
material respect, either now or at the time made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, insolvency, appointment of a receiver for any part of
Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under
any bankruptcy or insolvency laws by or against Borrower.
Creditor Proceedings. Commencement of foreclosure proceedings, whether
by judicial proceeding, self-help, repossession or any other method, by
any creditor of Borrower, any creditor of any grantor of collateral for
the Loan. This includes a garnishment, attachment, or levy on or of any
of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of
the claim which is the basis of the creditor proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor
proceeding and furnishes reserves or a surety bond for the creditor
proceeding satisfactory to Lender.
Forfeiture. The filing of formal charges under any federal or state law
against any Borrower which forfeiture is the penalty. However, this
Event of Default shall not apply if there is a good faith dispute by
Borrower as to the validity or reasonableness of the claim which is the
basis of the proceeding, and if Borrower gives Lender written notice of
the proceeding and furnishes reserves or a surety bond for the
proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
Insecurity. Lender, in good faith reasonably deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform any
obligation of Borrower or of any Grantor shall not affect Lender's right o
declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement and supersedes all prior
understandings and correspondence, oral or written, with respect to the
subject matter hereof. No alteration of or
<PAGE>
06-29-1999 BUSINESS LOAN AGREEMENT Page 7
Loan No. (Continued)
================================================================================
amendment to this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by the
alteration or amendment.
Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
this provisions of this Agreement.
Continuing Agreement. This Agreement is a continuing agreement and
shall continue in effect notwithstanding that from time to time, no
indebtedness may exist.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchasers, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any
rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation
interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of
any such participation interests will be considered as the absolute
owners of such interests in the Loans and will have all the rights
granted under the participation agreement or agreements governing the
sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may
enforce its interests irrespective of any personal claims or defenses
that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
out-of-pocket expenses, including reasonable attorneys' fees, incurred
in connection with the preparation, execution, enforcement and
collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's reasonable attorneys' fees and Lender's legal expenses,
whether or not there is a lawsuit, including reasonable attorneys' fees
for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law.
Notices. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited
in the United States registered or certified mail, first class, postage
prepaid, return receipt requested, addressed to the party to whom the
notice is to be given at the address shown above; notification by
facsimile is specifically not allowed. Any party may change its address
for notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower agrees to keep
Lender informed at all times of Borrower's current address(es).
Severabillity. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successors and Assigns. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall
inure to the benefit of Lender, its successors and assigns. Borrower
shall not, however, have the right to assign its rights under this
Agreement or any interest therein, without the prior written consent of
Lender.
Survival. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be
considered to have been relied upon by Lender and will survive the
making of the Loan and delivery to Lender of the Related Documents,
regardless of any investigation made by Lender or on Lender's behalf.
Time. Time is of the essence in the performance of this Agreement.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender is exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Borrower, or between Lender and any Grantor, shall
constitute a waiver of any of Lender's rights or of any obligations of
Borrower or of any Grantor as to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in
all cases such consent may be granted or withheld in the sole
discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE
29, 1999.
BORROWER:
Elcotel, Inc.
By: /s/ William H. Thompson
-----------------------------------------------
William H. Thompson, Senior Vice President
LENDER:
NationsBank, N.A.
By: /s/ Nathan Coon
------------------------------------------------
Authorized Officer
================================================================================
LASER PRO, Regu. U.S. Pat. & T.M. Off., Ver. 3.24 (C) 1999 CFI ProServices, Inc.
All rights reserved. [FL-C40 P3.24a ELCOTEL.LN C25.OVL]
EXHIBIT 10.4
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ------------------- ---------------- -------------- ----------- ---------- -------------- ----------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$2,000,000.00 06-29-1999 06-29-2000 A100
- ------------------- ---------------- -------------- ----------- ---------- -------------- ----------------- -------------- ---------
</TABLE>
- --------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: Elcotel, Inc. Lender: NationsBank, N.A.
6428 Parkland Drive P.O. Box 40329
Sarasota, FL 34243 Jacksonville, FL 32203-0329
================================================================================
THIS COMMERCIAL SECURITY AGREEMENT is entered into between Elcotel, Inc.
(referred to below as "Grantor"); and NationsBank, N.A. (referred to below as
"Lender"). For valuable consideration, Grantor grants to Lender a security
interest in the Collateral to secure the indebtedness and agrees that Lender
shall have the rights stated in this Agreement with respect to the Collateral,
in addition to all other rights which Lender may have by law.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
Agreement. The word "Agreement" means this Commercial Security
Agreement, as this Commercial Security Agreement may be amended or
modified from time to time, together with all exhibits and schedules
attached to this Commercial Security Agreement from time to time.
Collateral. The word "Collateral" means the following described
property of Grantor, whether now owned or hereafter acquired, whether
now existing or hereafter arising, and wherever located:
All accounts and general intangibles, together with the
following specifically described property: All export related
accounts, inventory and general intangibles.
In addition, the word "Collateral" includes all the following, whether
now owned or hereafter acquired, whether now existing or hereafter
arising, and where located:
(a) All accessions, accessories, increases, and additions to
and all replacements of and substitutions for any property
described above.
(b) All products and produce of any of the property described
in this Collateral section.
(c) All accounts, contract rights, general intangibles,
instruments, rents, monies, revenues, issues, profits,
payments and all other rights, arising out of a sale, lease,
trade, exchange or other disposition of any of the property
described in this Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, condemnation or other disposition of any of
the property described in this Collateral section.
(e) All proceeds, refunds or rebates from the cancellation of
any insurance policies or any of the property described in
this Collateral section or from any warranty, service,
disability or credit insurance product or policy for Grantor,
for the benefit of Grantor or for any of the property
described in this Collateral section.
(f) All records and data relating to any of the property
described in this Collateral section, whether in the form of a
writing, photograph, microfilm, microfiche, or electronic
media, together with all of Grantor's right, title, and
interest in and to all computer software required to utilize,
create, maintain, and process any such records or data on
electronic media.
Accounts. The word "accounts" means all accounts, instruments,
documents, chattel paper, reimbursements and obligations in any form
owing to Grantor arising out of the sale or lease of goods or the
rendition of services by Grantor whether or not earned by performance;
all credit insurance, guaranties, letters of credit, advices of credit,
and other security for any of the foregoing; all merchandise returned
to or reclaimed by Grantor; and Grantor's books relating to any of the
foregoing. For purposes of this Agreement, Grantor's grant of accounts
to Lender as Collateral includes an assignment of all accounts to
Lender.
General Intangibles. The words "general intangibles" mean all general
intangibles, choices in action, causes of action, and all other
personal property of every kind and nature (other than goods and
accounts) including, without limitation, patents trademarks, trade
names, service marks, copyrights, and applications for any of the
above; and goodwill, trade secrets, licenses, franchises, rights under
agreements, deposit accounts, tax refunds, tax refund claims, moneys
due from pension funds, governmental reimbursements and Grantor's books
relating to any of the foregoing.
Event of Default. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."
Grantor. The word "Grantor" means Elcotel, Inc., its successors and
assigns
Guarantor. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
Indebtedness. The word "Indebtedness" means the indebtedness evidenced
by the Note, including all principal and interest, together with all
other indebtedness and costs and expenses for which Grantor is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" includes all other obligations,
debts and liabilities, plus interest thereon, of Grantor, or any one or
more of them to Lender, as well as all claims by Lender against
Grantor, or any one or more of them, whether existing now or later;
whether they are voluntary or involuntary, due or not due, direct or
indirect, absolute or contingent, liquidated or unliquidated; whether
Grantor may be liable individually or jointly with others; whether
Grantor may be obligated as guarantor, surety, accommodation party or
otherwise, whether recovery upon such indebtedness may be or hereafter
may become barred by any statue of limitations; and whether such
indebtedness may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means NationsBank, N.A., its successors and
assigns.
<PAGE>
06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 2
Loan No. (Continued)
================================================================================
Note. The word "Note" means the note or credit agreement dated June 29,
1999, in the principal amount of $2,000,000.00 from Elcotel, Inc. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
Related Documents. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
Borrower. The word "Borrower" means Elcotel, Inc.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
Except as disclosed in writing delivered to Lender, (a) no entity has
merged into Grantor or been consolidated, with Grantor, and Grantor's
business structure and entity has not changed; (b) no entity has sold
substantially all of its assets to Grantor or sold assets to Grantor
outside the ordinary course of such seller's business at anytime in the
past; and (c) Grantor has not changed its name or identity or used any
new trade name or merged or consolidated with any other entity.
All assessments and taxes, whether real, personal, or otherwise, due or
payable by, or imposed, levied, or assessed against Grantor or any of
its property have been paid in full before delinquency or before the
expiration of any extension period; and Grantor has made due and timely
payment or deposit of all federal, state, and local taxes, assessments,
or contributions required of it by law, except only for items that
Grantor is currently contesting diligently and in good faith and that
have been fully disclosed in writing to Lender.
Perfection of Security Interest. Grantor agrees to execute such
financing statements and to take whatever other actions are requested
by Lender to perfect and continue Lender's security interest in the
Collateral. Upon request of Lender, Grantor will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Grantor will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Grantor hereby makes,
constitutes and appoints Lender as its irrevocable true and lawful
attorney-in-fact for the purpose of executing any documents necessary
to perfect or to continue the security interest granted in this
Agreement. Any person dealing with Grantor shall be entitled to rely
conclusively on any written or oral statement of Lender that this power
of attorney is in effect. Lender may at any time, and without further
authorization from Grantor, file a carbon, photographic or other
reproduction of any financing statement or of this Agreement for use as
a financing statement. Grantor will reimburse Lender for all expenses
for the perfection and the continuation of the perfection of Lender's
security interest in the Collateral. Grantor promptly will notify
Lender of any change in Grantor's name including any change to the
assumed business names of Grantor. This is a continuing Security
Agreement and will continue in effect even though all or any part of
the indebtedness is paid in full and even though for a period of time
Grantor may not be indebted to Lender.
No Violation. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do
not prohibit any term or condition of this Agreement.
Enforceability of Collateral. To the extent the Collateral consists of
accounts, contract rights, chattel paper, or general intangibles, the
Collateral is enforceable in accordance with its terms, is genuine, and
complies with applicable laws concerning form, content and manner of
preparation and execution, and all persons appearing to be obligated on
the Collateral have authority and capacity to contract and are in fact
obligated as they appear to be on the Collateral. At the time any
account becomes subject to a security interest in favor of Lender, the
account shall be a good and valid account representing an undisputed,
bona fide indebtedness incurred by the account debtor, for merchandise
held subject to delivery instructions or theretofore shipped or
delivered pursuant to a contract of sale, or for services theretofore
performed by Grantor with or for the account debtor; there shall be no
setoffs or counterclaims against any such account; no agreement under
which any deductions or discounts may be claimed shall have been made
with the account debtor except those disclosed to Lender in writing.
Aging Reports. Unless otherwise waived or modified in writing by
Lender, Grantor shall from time to time hereafter but not less often
than quarterly execute and deliver to Lender no later than the 15th day
of each quarter end during the term of this Agreement a detailed aging
of accounts by total, a summary aging of accounts by account debtor,
and a reconciliation statement.
Grantor will keep or will cause to be kept, accurate and complete
records of the accounts and will deliver such records and other
financial information to Lender as are requested, and that Lender or
its designee shall have the right at any time upon request to call
Grantor's place(s) of business at intervals solely determined by
Lender, and without hindrance or delay, inspect, audit, make test
verifications, send verification of and account to any account debtor
and otherwise check and make copies of books, records, journals,
orders, receipts, correspondence and other data related to the accounts
or the processing or collection thereof.
If any account shall be evidenced by a promissory note, trade
acceptance or any other instrument for the payment of money, Grantor
upon Lender's request, will promptly deliver same to Lender, properly
endorsed to Lender's order. Regardless of the form of such endorsement,
Grantor hereby waives presentment, demand, notice of dishonor, protest
and notice of protest and all other notices to which Grantor might be
entitled.
Removal of Collateral. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown
above, or at such other locations as are acceptable to Lender. Except
in the ordinary course of its business, including the sale of
inventory, Grantor shall not remove the Collateral from its existing
locations without the prior written consent of Lender. To the extent
that the Collateral consists of vehicles, or other titled property,
Grantor shall not take or permit any action which would require
application for certificates of title for the vehicles outside the
State of Florida, without the prior written consent of Lender.
Transactions Involving Collateral. Except for inventory sold or
accounts collected in the ordinary course of Grantor's business,
Grantor shall not sell, offer to sell, consign or otherwise transfer or
dispose of the Collateral. Grantor shall not pledge, mortgage, encumber
or otherwise permit the Collateral to be subject to any lien, security
interest, encumbrance, or charge, other than the security interest
provided for in this Agreement, without the prior written consent of
Lender. This includes security interests even if junior in right to the
security interests granted under this Agreement. Unless waived by
Lender, all proceeds from any disposition of the Collateral (for
whatever reason) shall be held in trust for Lender and shall not be
commingled with any other funds; provided however, this requirement
shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
Title: Grantor represents and warrants to Lender that it holds goods
and marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public
office other than those which reflect the security interest created by
this Agreement or to which Lender has specifically consented. Grantor
shall defend Lender's rights in the Collateral against the claims and
demands of all other persons. Upon Lender's request, if Grantor now or
hereafter has any vehicle or equipment for which a certificate of title
has been or will be issued, Grantor shall immediately deliver to
Lender, property endorsed, each certificate of title for such vehicle
or equipment for the lien of Lender to be recorded.
Maintenance and Inspection of Collateral. Grantor shall maintain all
tangible Collateral in good operating condition and make all necessary
repairs to preserve the Collateral's value. Grantor will not commit or
permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, test, and
audit the Collateral wherever located.
<PAGE>
06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 3
Loan No. (Continued)
================================================================================
Notice. At least thirty (30) days prior to the occurrence of any of the
following events, Grantor will deliver to Lender written notice of such
impending events: (i) any addition, deletion or a change in Grantor's
place(s) of business and/or the location(s) of the Collateral; or (ii)
any addition, deletion or change in Grantor's name, any doing business
as name, trade name, fictitious name, identity or legal structure.
Taxes, Assessments and Lines. Grantor will pay when due all taxes,
assessments and liens upon it and the Collateral, its use or operation,
upon this Agreement, upon any promissory note or notes evidencing the
indebtedness, or upon any of the other Related Documents. Grantor may
withhold any such payment or may elect to contest any lien if Grantor
is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Lender's Interest in the Collateral is
not jeopardized in Lender's sole opinion. If the Collateral is
subjected to a lien which is not discharged within fifteen (15) days,
Grantor shall deposit with Lender cash, a sufficient corporate surety
bond or other security satisfactory to Lender in an amount adequate to
provide for the discharge of the Lien plus any interest, costs,
reasonable attorneys' fees or other charges that could accrue as a
result of foreclosure or sale. Grantor will, in the event of
appropriation or taking of all or any part of the Collateral, give
Lender prompt written notice thereof. Lender shall be entitled to
receive directly, and Grantor shall promptly pay over to Lender, any
awards or other amounts payable with respect to such condemnation,
requisition or other taking and in its sole discretion may apply the
proceeds as it deems best without regard if any Event of Default has or
has not occurred.
Accounting System. Grantor at all times hereafter shall maintain a
consistent system of accounting, with ledger and account cards and/or
computer tapes, disks, printouts, and records that contain information
pertaining to the Collateral that may from time to time be requested by
Lender. Grantor shall not modify or change its method of accounting or
enter into any agreement hereafter with any third-party accounting firm
and/or service bureau for the preparation and and/or storage of
Debtor's accounting records without said accounting firm's and/or
service bureau's agreeing to provide to Lender information regarding
the Collateral and Grantor's financial condition.
Compliance With Governmental Requirements. Grantor shall comply
promptly with all laws, ordinances, rules and regulations of all
governmental authorities, now or hereafter in effect, applicable to the
ownership, production, disposition, or use of the Collateral. Grantor
may contest in good faith any such law, ordinance or regulation and
withhold compliance during any proceeding, including appropriate
appeals, so long as Lender's interest in the Collateral, in Lender's
opinion, is not jeopardized.
Collateral Value. If Lender deems the value of the Collateral to be
threatened by any out of the ordinary loss, dissipation, destruction,
damage or other cause, or if the Collateral is decreasing in value,
thereupon, or at anytime thereafter, Grantor upon demand by lender
agrees to forthwith deposit with Lender, additional collateral to the
satisfaction of Lender.
Hazardous Substances. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No.
99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 49
U.S.C. Section 6901, et seq., or other applicable state or Federal
laws, rules, or regulations adopted pursuant to any of the foregoing.
Except as disclosed to and acknowledged by Lender in writing, Grantor
represents and warrants that: (a) During the period of Grantor's
ownership of Grantor's properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance by any person on, under, or
about any of the properties, (b) Grantor has no knowledge of, or reason
to believe that there has been (i) any use, generation, manufacture,
storage, treatment, disposal, release, or threatened release of any
hazardous waste or substance by any prior owners or occupants of any of
the properties, or (ii) any actual or threatened litigation or claims
of any kind by any person relating to such matters. (c) Neither Grantor
nor any tenant, contractor, agent or other authorized user of any of
the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, or about any
of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation those laws,
regulations and ordinances described above. Grantor authorizes Lender
and its agents to enter upon the properties to make such inspections
and tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or tests
made by Lender shall be for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of
Lender to Grantor or to any other person. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral and the properties for hazardous waste.
Grantor hereby (a) releases and waives any future claims against Lender
for indemnity or contribution in the event Grantor becomes liable for
cleanup or other costs under any such laws, and (b) agrees to fully and
promptly pay, perform, discharge and defend, indemnify and hold
harmless Lender against any and all claims, orders, demands, causes of
action, proceedings, judgments, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain
or suffer resulting from a breach of this section of this Agreement or
as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Grantor's
ownership or interest in the properties, whether or not the same was or
should have been known to Grantor. The provisions of this section of
this Agreement, including the obligation to indemnify, shall survive
the payment of the indebtedness and the satisfaction of this Agreement
and shall not be affected by Lender's acquisition of any interest in
any of the properties, whether by foreclosure or otherwise.
Environmental Compliance and Reports. Grantor shall comply in all
respects with all environmental protection federal, state and local
laws, statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Grantor, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to the conditions of a permit issued by the
appropriate federal, state or local governmental authorities; shall
furnish to Lender promptly and in any event within thirty (30) days
after receipt thereof a copy of any notice, summons, lien, citation,
directive, letter, or other communication from any governmental agency
or instrumentality concerning any intentional or unintentional action
or omission on Grantor's part in connection with any environmental
activity whether or not there is damage to the environment and/or other
natural resources.
Maintenance of Casualty Insurance. Grantor shall procure and maintain
all risks insurance, including without limitation fire, theft and
liability coverage of the kinds and in amounts customarily insured
against by businesses in the same or similar business, together with
such other insurance as Lender may require with respect to the
Collateral, in form, coverages and basis reasonably acceptable to
Lender and issued by a company or companies reasonably acceptable to
Lender. Grantor, upon request of Lender, will deliver to Lender from
time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not
be cancelled or diminished without at least thirty (30) days' prior
written notice to Lender and not including any disclaimer of the
insurer's liability for failure to give such a notice. In connection
with all policies covering assets in which Lender holds or is offered a
security interest, Grantor will provide Lender with such lender loss
payable or other endorsements as Lender may require. If Grantor at any
time fails to obtain or maintain any insurance as required under this
Agreement, Lender may (but shall not be obligated to) obtain such
insurance as lender deems appropriate, including if it so chooses
"single interest insurance," which will cover only Lender's interest in
the Collateral.
GRANTOR ACKNOWLEDGES THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE,
THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S
EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE
MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFACATION
AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
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06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 4
Loan No. (Continued)
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Application of Insurance Proceeds. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss
if Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed
Collateral, Lender shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of
repair or restoration. If Lender does not consent to repair or
replacement of the Collateral, Lender shall retain a sufficient amount
of the proceeds to pay all of the indebtedness, and shall pay the
balance to Grantor. Any proceeds which have not been disbursed within
six (6) months after their receipt and which Grantor has not committed
to the repair or restoration of the Collateral shall be used to prepay
the indebtedness.
Insurance Reports. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following:
(a) the name of the insurer; (b) the risks insured; (c) the amount of
the policy; (d) the property insured; (e) the then current value on the
basis of which insurance has been obtained and the manner of
determining that value; and (f) the expiration date of the policy. In
addition, Grantor shall upon request by Lender (however not more often
than annually) have an independent appraiser satisfactory to Lender
determine, as applicable, the cash value or replacement cost of the
Collateral.
GRANTOR'S RIGHT TO POSSESSION. Until default, Grantor may have possession of the
tangible personal property and beneficial use of all the Collateral and may use
it in any lawful manner not inconsistent with this Agreement or the Related
Documents, provided that Grantor's right to possession and beneficial use shall
not apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral. If
Lender at any time has possession of any Collateral, whether before or after an
Event of Default, Lender shall be deemed to have exercised reasonable care in
the custody and preservation of the Collateral if Lender takes such action for
that purpose as Grantor shall request or as Lender, in Lender's sole discretion,
shall deem appropriate under the circumstances, but failure to honor any request
by Grantor shall not of itself be deemed to be a failure to exercise reasonable
care. Lender shall not be required to take any steps necessary to preserve any
rights in the Collateral against prior parties, nor to protect, preserve or
maintain any security interest given to secure the Collateral.
Lender's Duty of Care. Lender shall have no duty of care with respect to the
Collateral except that Lender shall exercise reasonable care with respect to the
Collateral in Lender's custody. Lender shall be deemed to have exercised
reasonable care if such property is accorded treatment substantially equal to
that which Lender accords its own property or if Lender takes such action with
respect to the Collateral as Grantor shall request or agree to in writing,
provided that no failure to comply with any such request nor any omission to do
any such act requested by Grantor shall be deemed a failure to exercise
reasonable care. Lender's failure to take steps to preserve rights against any
parties or property shall not be deemed to be failure to exercise reasonable
care with respect to the Collateral in Lender's custody.
Waivers. Grantor waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments, chattel paper, and
guaranties at any time held by Lender on which Grantor may in any way be liable.
ASSIGNMENT AND PLEDGE OF ADDITIONAL RIGHTS. Grantor, in order to further secure
the prompt and punctual payment and satisfaction of the indebtedness in favor of
Lender in principal, interest, costs, expenses, attorneys' fees and other fees
and charges, hereby assigns, pledges and grants to Lender a security interest in
the following additional rights (the "Rights"):
Options and Agreements to Sell. Any and all of Grantor's present and
future options or agreements to sell the Collateral, or any part or
parts thereof, including without limitation Grantor's rights to
exercise and/or enforce such options or agreements.
Sale Proceeds. Any and all of Grantor's present and future rights,
title and interest in and to any and all cash, cash equivalent,
property and other proceeds derived or to be derived from the sale,
transfer, assignment and/or other distribution of the collateral,
whether in cash, farm products, or otherwise, and whether from or
through any federal or state government agency or program or otherwise,
including without limitation all entitlements, rights to payment, and
payments, in whatever form received, including but not limited to,
payments under any governmental agricultural diversion programs,
governmental agricultural assistance programs, the Farm Services Agency
Wheat Feed Grain Program, and any other such program of the
United States Department of Agriculture, warehouse receipts, chemicals
and fertilizers, documents, letters of entitlement, and deficiency,
conservation reserve, and diversion and storage payments, together
with, Grantor's rights to receive such proceeds and Grantor's rights to
enforce collection and payment thereof.
Insurance Proceeds. Any and all of Grantor's present and future rights,
title and interest in and to any unearned insurance premiums and
proceeds of insurance affecting all or any part of the collateral,
including the right to receive such unearned insurance premiums and
insurance proceeds directly from the insurer and, where applicable, to
enforce any rights that Grantor may have to collect such amounts.
Condemnation Proceeds. Any and all Grantor's present and future rights,
title and interest in and to the proceeds of any aware or claim for
direct or consequential damages relating to any condemnation,
expropriation, or any part of the collateral, by any governmental
authority, including the right to receive such condemnation proceeds
directly from such a governmental authority and, where applicable, to
enforce any rights that Grantor may have to collect such condemnation
proceeds.
Damages. Any and all of Grantor's rights, title and interest and other
claims or demands that Grantor now has or may hereafter acquire against
anyone with respect to any damage to all or any part of the collateral.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such right shall be in addition to all other rights and
remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. AN EVENT OF DEFAULT AS DEFINED IN THE Note or
demand for payment in full of the Note.
Other Defaults. Failure of Grantor to comply with or to perform any
other term, obligation, covenant or condition contained in this
Agreement or in any of the Related Documents or in any other agreement
between Lender and Grantor.
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06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 5
Loan No. (Continued)
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False Statements. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement is
false or misleading in any material respect, either now or at the time
made or furnished.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of
any collateral documents to create a valid and perfected security
interest or lien) at any time and for any reason.
Insolvency. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a
receiver for any part of Grantor's property, any assignment for the
benefit of creditors, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Grantor.
Creditor Proceedings. Commencement of foreclosure, whether by judicial
proceeding, self-help, repossession or any other method, by any
creditor of Grantor or by any governmental agency against the
Collateral or any other collateral securing the indebtedness. This
includes a garnishment of any of Grantor's deposit accounts with
Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Grantor as to the validity or reasonableness of
the claim which is the basis of the creditor proceeding and if Grantor
gives Lender written notice of the creditor proceeding and deposits
with Lender monies or a surety bond for the creditor proceeding, in an
amount determined by Lender, in its sole discretion, as being an
adequate reserve or bond for the dispute.
Forfeiture. The filing of formal charges under any federal or state law
against Grantor or the Collateral which forfeiture is a potential
penalty. However, this Event of Default shall not apply if there is a
good faith dispute by Grantor as to the validity or reasonableness of
the claim which is the basis of the proceeding and if Grantor gives
Lender written notice of the proceeding and deposits with Lender monies
or a surety bond for the proceeding, in an amount determined by Lender,
in its sole discretion, as being an adequate reserve or bond for the
dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or such Guarantor
dies or becomes incompetent. Lender, at its option, may, but shall not
be required to, permit the Guarantor's estate to assume unconditionally
the obligations arising under the guaranty in a manner satisfactory to
Lender, and, in doing so, cure the Event of Default.
Insecurity. Lender, in good faith, reasonably believes that a material
adverse change occurred in the business, operations, financial
condition, Collateral, property or prospects of Grantor.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Florida Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:
Accelerate Indebtedness. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to
pay, immediately due and payable, without presentment, demand, protest,
or notice, all of which are expressly waived by Grantor.
Processing of Collateral. Grantor hereby agrees that Lender or its
designate may do whatever Lender in its sole discretion deems to be
commercially reasonable to prepare any Collateral for disposition and
to dispose of any Collateral, including without limitation operating
any of Lender's manufacturing or other processes relating to the
Collateral. Lender may transfer Collateral into its name or that of a
nominee and receive the dividends, royalties or income thereof. Lender
shall have no duty as to the collection or protection of the Collateral
or any income therefrom, nor as to the preservation of rights against
prior parties, nor as to the preservation of any right pertaining
thereto.
Lender may dispose of the Collateral in its then-existing condition or,
at its election, may take such measures as it deems necessary or
advisable to refurbish, repair, improve, process, finish, operate,
demonstrate, and prepare for sale the collateral and may store, ship,
reclaim, recover, protect advertise for sale or lease, and insure the
Collateral. If any Collateral consists of documents, Lender may proceed
either as to the documents or as to the goods represented thereby.
Lender may pay, purchase, contest, or compromise any encumbrance,
charge, or lien that, in the opinion of Lender, appears to be prior or
superior to its lien and pay all expenses incurred in connection
therewith.
Assemble Collateral. Lender may require Grantor to deliver to Lender
all or any portion of the Collateral and any and all certificates of
title and other documents relating to the Collateral. Lender may
require Grantor to assemble the Collateral and make it available to
Lender at a place to be designated by Lender. Lender also shall have
full power to enter upon the property of Grantor to take possession of
and remove the Collateral and Lender may remain on such premises and
use the premises for the purpose of collecting, preparing, and
disposing of the Collateral, without any liability for rent or
occupancy charges. If the Collateral contains other goods not covered
by this Agreement at the time of repossession, Grantor agrees Lender
may take such other goods, provided that Lender makes reasonable
efforts to return them to Grantor after repossession.
Sell the Collateral. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in
its own name or that of Grantor. Lender may sell the Collateral at
public auction or private sale. Unless the Collateral threatens to
decline speedily in value or is of a type customarily sold on a
recognized market, Lender will give Grantor reasonable notice of the
time after which any private sale or any other intended disposition of
the Collateral is to be made. The requirements of reasonable notice
shall be met if such notice is given at least ten (10) days before the
time of the sale or disposition. Lender may adjourn any public or
private sale from time to time to a reasonably specified time and place
by announcement at the time and place of sale previously fixed, without
further notice by publication or otherwise of the time and place of
such adjourned sale, and such sale may, without further notice, be made
at the time and place to which it was so adjourned. All expenses
relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for
sale and selling the Collateral, shall become a part of the
indebtedness secured by this Agreement and shall be payable on demand,
with interest at the Note rate from date of expenditure until repaid.
Appoint Receiver. To the extent permitted by applicable law, Lender
shall have the following rights and remedies regarding the appointment
of a receiver: (a) Lender may have a receiver appointed as a matter of
right, (b) the receiver may be an employee of Lender and may serve
without bond, and (c) all fees of the receiver and his or her attorney
shall become the right upon any public sale(s), and, to the extend
permitted by law, upon any such private sale(s), to purchase the whole
or any part of the indebtedness secured by this Agreement and shall be
payable on demand, with interest at the Note rate from date of
expenditure until repaid. Collateral so sold shall be free of any right
or equity of redemption of Grantor.
Disposition of Collateral. Without demand of performance or other
demand, advertisement or notice of any kind (except the notice(s)
specified herein regarding the time and place of public sale or
disposition or time after which a private sale or disposition is to
occur) to Grantor (which all and each of demands, advertisements and/or
notices are hereby expressly waived), Lender may forthwith collect,
receive, appropriate and realize upon the Collateral, in full or in any
part thereof, may abandon, not claim or not take possession of any
Collateral, and/or may forthwith sell, lease, assign, give an option or
options to purchase or sell or otherwise dispose of and deliver the
Collateral (or contract to do so), or any part thereof, in one or more
parcels at public or private sales(s) at Lender's offices or elsewhere
at such price(s) as lender may determine, for cash or on credit or for
future delivery without assumption of any credit risk.
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06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 6
Loan No. (Continued)
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Collect Revenues, Apply Accounts. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from
the Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the indebtedness or apply it to payment of the
indebtedness in such order of preference as Lender may determine.
Insofar as the Collateral consists of accounts, general intangibles,
insurance policies, instruments, chattel paper, chosen in action, or
similar property, Lender may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Collateral
for cash, credit or otherwise as Lender may determine, whether or not
indebtedness or Collateral is then due. For these purposes, Lender may,
on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor; change any address to which mail and
payments are to be sent; endorse and/or sign the name of Grantor on
notes, checks, drafts, money orders, documents of title, instruments
and items pertaining to payment, shipment, or storage of any
Collateral; grant credit extensions of time or payment or performance
or any other indulgences to anyone with respect to any account; accept
the return of the goods represented by any account; or do anything else
which Grantor would be legally permitted to do. To facilitate
collection, Lender may notify account debtors and obligators on any
Collateral to make payments directly to Lender.
Lender shall apply the net proceeds of any such collection, recovery,
receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind incurred in connection
therewith or incidental to the care or safekeeping of any or all of the
Collateral or in any way relating to the rights of Lender hereunder,
including attorneys' fees and legal expenses, to the payment in whole
or in part of the indebtedness, in such order as lender may elect, and
only after applying such net proceeds and after the payment by Lender
of any other amount required by any provision of law, need Lender
account for the surplus, if any to Grantor.
Obtain Deficiency. Grantor shall remain liable for any deficiency if
the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lender is entitled even if the
transaction described in this subsection is a sale of accounts or
chattel paper. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency
remaining on the indebtedness due to Lender after application of all
amounts received from the exercise of the rights provided in this
Agreement.
Waiver. To the extent permitted by applicable law, Grantor waives all
claims, damages and demands against Lender arising out of the
repossession, retention, sale or disposition of the Collateral.
License. Lender is hereby granted a license or other right to use,
without charge, Grantor's patents, copyrights, trade secrets, technical
processes, rights of use of any name, trade names, trademarks, labels,
and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral, and Grantor's rights under all
licenses (excluding Lucent Technologies license) and all franchise
agreements shall inure to lender's benefit.
Other Rights and Remedies. Lender shall have all the rights and
remedies of a secured creditor under the provisions of the Uniform
Commercial Code, as may be amended from time to time. In addition,
Lender shall have and may exercise any or all other rights and remedies
it may have available at law, in equity, or otherwise.
Cumulative Remedies. All of lender's rights and remedies, whether
evidenced by this Agreement or the Relate Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any right or remedy
concurrently or in any sequence shall not exclude pursuit of any other
right or remedy concurrently or in any sequence, and an election to
make expenditures or to take action to perform an obligation of Grantor
under this Agreement, after Grantor's failure to perform, shall not
affect Lender's right to declare a default and to exercise its
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement and supersedes all prior
understandings and correspondence, oral or written, with respect to the
subject matter hereof. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.
Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including reasonable attorneys' fees and
Lender's legal expenses, incurred in connection with the preparation,
execution, protection, enforcement and collection of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and
expenses include Lender's reasonable attorneys' fees and legal expenses
whether or not there is a lawsuit, including reasonable attorneys' fees
and legal expenses for bankruptcy proceedings (and including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Grantor also shall pay
all court costs and such additional fees as may be directed by the
court.
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or define
the provisions of this Agreement.
Extensions and Compromises. With respect to any Collateral or the
indebtedness, Grantor assents to all extensions or postponements to the
time of payment thereof or any other indulgence in connection
therewith, to each substitution, exchange or release of Collateral, to
the release of any party primarily or secondarily liable, to the
acceptance of partial payment thereon or to the settlement or
compromise thereof, all in such manner and such time or times as Lender
may deem advisable. No forbearance in exercising any right or remedy on
any one or more occasions shall operate as a waiver thereof on any
future occasion; and no single or partial exercise of any right or
remedy shall preclude any other exercise thereof or the exercise of any
other right or remedy.
Notices. All notices required to be given under this Agreement shall be
given in writing and shall be effective when actually delivered or when
deposited with a nationally recognized overnight courier or deposited
in the United States registered or certified mail, first class, postage
prepaid, return receipt requested, addressed to the party to whom the
notice is to be given at the address shown above; notification by
facsimile is specifically not allowed. Any party may change its address
for notices under this Agreement by giving formal written notice to the
other parties, specifying that the purpose of the notice is to change
the party's address. To the extent permitted by applicable law, if
there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor agrees to keep
Lender informed at all times of Grantor's current address(es).
Power of Attorney. Grantor hereby appoints Lender as its true and
lawful attorney-in-fact, irrevocably, with full power of substitution
to do the following: (a) to demand, collect, receive, receipt for, sue
and recover all sums of money or other property which may now or
hereafter become due, owing or payable from the Collateral; (b) to
execute, sign and endorse any and all claims, instruments, receipts,
checks, drafts or warrants issued in payment for the Collateral; (c) to
settle or compromise any and all claims arising under the Collateral,
and, in the place and stead of Grantor, to execute and deliver its
release and settlement for the claim; and (d) to file any claim or
claims or to take any action or institute or take part in any
proceedings, either in its own name or in the name of Grantor, or
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06-29-1999 COMMERCIAL SECURITY AGREEMENT Page 7
Loan No. (Continued)
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otherwise, which in the discretion of Lender may seem to be necessary
or advisable, This power is given as security for the indebtedness, and
the authority hereby conferred is and shall be irrevocable and shall
remain in full force and effect until the indebtedness is paid in full
to Lender.
Severabillity. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible,
any such offending provision shall be deemed to be modified to be
within the limits of enforceability or validity; however, if the
offending provision cannot be so modified, it shall be stricken and all
other provisions of this Agreement in all other respects shall remain
valid and enforceable.
Successor Interests. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and
inure to the benefit of the parties, their successors an assigns.
Time. Time is of the essence of all requirements of Grantor herein.
Waiver. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's right otherwise to demand strict
compliance with that provision or any other provision of this
Agreement. No prior waiver by Lender, nor any course of dealing between
Lender and Grantor, shall constitute a waiver of any of Lender's rights
or of any of Grantor's obligations as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in
the sole discretion of Lender.
ACCOUNTS. The word "accounts" means all accounts, instruments, documents,
chattel paper, reimbursements an obligations in any form owing to Grantor
arising out of the sale or lease of goods or the rendition of services by
Grantor, whether or not earned by performance; all credit insurance, guaranties,
letters of credit, advices of credit, and other security for any of the
foregoing; all merchandise returned to or reclaimed by Grantor; and Grantor's
books relating to any of the foregoing. For purposes of this Agreement,
Grantor's grant of accounts to Lender as Collateral includes an assignment of
all accounts to Lender.
GENERAL INTANGIBLES. The words "general intangibles" mean all general
intangibles, choices in action, causes of action, and all other personal
property of every kind and nature (other than goods and accounts) including,
without limitation, patents, trademarks trade names, service marks, copyrights,
and applications for any of the above; and goodwill, trade secrets, licenses,
(excluding Lucent Technologies license) franchises, rights under agreements,
deposit accounts, tax refunds, tax refund claims, monies due from pension funds,
governmental reimbursements and Grantor's books relating to any of the
foregoing.
INVENTORY. To the extent the collateral consists of inventory, unless otherwise
waived or modified in writing by lender, Grantor shall from time to time but not
less than the 15th day of each month during the term of this Agreement provide
an inventory report, acceptable to Lender specifying Grantor's cost and the
resale cost of Grantor's raw materials, work in process, and finished goods and
such other information as Lender may reasonably request.
ADDITIONAL COLLATERAL PROVISION. Notwithstanding the foregoing grant by each
Borrower of a security interest in all of the Collateral, it is understood and
agreed by all parties that the Borrower shall, grant to the Bank simultaneously
with the execution of this Agreement and as and when issued or acquired an
Assignment of proceeds of letters of credit and foreign credit insurance
policies issued for the benefit of the Borrower to secure payments for accounts
receivable and inventory of which is guaranteed by EximBank.
Said assignment shall provide that all of said payments shall be made directly
to the Bank.
JURISDICTION. In connection with any litigation regarding any matter arising out
of this document or any subsequent agreement between the parties to this
document, each submits to the exclusive jurisdiction of the state and federal
courts located in the State of Florida.
JURY WAIVER; DAMAGES. THE PARTIES TO THIS DOCUMENT ACKNOWLEDGE AND AGREE THAT
(1) ANY SUIT, ACTION OR PROCEEDING WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY ANY PARTY OR ANY SUCCESSOR OR ASSIGN OF ANY SUCH PARTY, ON OR WITH
RESPECT TO THIS DOCUMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE
PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT
BY A JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (11) EACH WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUITE, ACTION OR PROCEEDING,
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (111) THIS SECTION IS A SPECIFIC
AND MATERIAL ASPECT OF THS DOCUMENT AND LENDER WOULD NOT EXTEND CREDIT IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS DOCUMENT.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 29,
1999.
GRANTOR:
Elcotel, Inc.
By: /s/ William H. Thompson
------------------------------------------------
William H. Thompson, Senior Vice President
================================================================================
LASER PRO, Reg. U.S. Pat. T.M. Off., Ver. 3.24(C)1999 CFI ProServices, Inc.
All rights reserved. [FL-E40 P3.24a ELCOTEL.LNC25.OVL]
EXHIBIT 10.5
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ---------------- ------------- -------------- -------------- -------------- --------------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
$2,000,000.00 06-29-1999 06-29-2000 A100
- ---------------- ------------- -------------- -------------- -------------- --------------- -------------- ------------- -----------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: Elcotel, Inc. Lender: NationsBank, N.A.
6428 Parkland Drive P.O. Box 40329
Sarasota, FL 34243 Jacksonville, FL 32203-0329
================================================================================
Principal Amount: $2,000,000.00 Date of Note: June 29, 1999
PROMISE TO PAY. Elcotel, Inc., jointly and severally if more than one
("Borrower"), promises to pay to NationsBank, N.A. ("Lender"), or order, in
lawfully obtained money of the United States of America, the principal amount of
Two Million & 00/100 Dollars ($2,000,000.00) or so much as may be outstanding,
together with Interest on the unpaid balance of principal advanced from the
date(s) of disbursement until paid in full as set forth herein. The principal
amount of this Note may be advanced, paid and readvanced in full or part during
the term of this Note provided no event of default or demand for payment exists
hereunder.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on June 29, 2000. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning July 29, 1999,
and all subsequent Interest payments are due on the same day of each month after
that. The annual interest rate for this Note is computed on a 365/360 basis;
that is, by applying the ratio of the annual interest rate over a year of 360
days, multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Payments shall be allocated between principal, interest, costs, fees,
if any, at the discretion of Lender. Any payment to be debited from Borrower's
designated account will be debited on the scheduled due date; however, if the
scheduled due date is on a weekend or holiday, the payment will be debited on
the next non-weekend/holiday day.
VARIABLE INTEREST RATE. The Interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the Libor Rate
(as defined herein) (the "Index"). The Index is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable during the term
of this loan, Lender may designate a substitute index after notice to Borrower.
Borrower understands that Lender may make loans based on other rates as well.
The interest rate change will not occur more often than each 1 month period. The
interest rate shall change on the first Business Banking Day of each Interest
Period. For purposes hereof, the following terms shall have the following
meanings: (a) "Business Banking Day" shall mean each day other than a Saturday,
a Sunday or any holiday on which commercial banks in Jacksonville, Florida are
closed for business; (b) "Interest Period" shall mean (I) initially, the period
commencing the Date of Note and ending the day immediately preceding the first
Interest Rate Change Date or (ii) subsequently, the period commencing any
Interest Rate Change Date and ending on the day immediately preceding the next
subsequent Interest Rate Change Date; (c) "Interest Rate Change Date" shall mean
the first Business Banking Day of each 1 month period; (d) "Libor Rate" shall
mean the offered rate for deposits in United States dollars in the London
Interbank market for a 1 month period which appears on the Libor Rate Reference
Page as of 11:00 a.m. (London time) on the day that is two London Banking Days
preceding the first Business Banking Day of each Interest Period. If at least
two such rates appear on the applicable Libor Rate Reference Page, the rate will
be the arithmetic mean of such offered rates; (e) "Libor Rate Reference Page"
shall mean either (i) the Reuters Screen LIBO Page, (ii) the Dow Jones Telerate
Page 3750, or (iii) such other nationally recognized source, as from time to
time may be used by Lender in its sole discretion as a reference for determining
an applicable Libor Rate; (f) "London Banking Day" shall mean each day other
than a Saturday, a Sunday or any holiday on which commercial banks in London,
England are closed for business. The interest rate to be applied to the unpaid
balance of this Note will be a per annum rate of 1.500 percentage points over
the index. Lender will tell Borrower the current Index rate upon Borrower's
request. NOTICE: Under no circumstances will the effective rate of interest on
this Note be more than the maximum rate allowed by applicable law. Upon demand
for payment of this Note, the interest rate on this Note to be applied to the
unpaid balance of principal, unpaid accrued interest, costs and fees, to be
applicable until paid in full, will be highest interest rate permitted by
applicable law.
PREPAYMENT. Borrower may pay all or a portion of the amount owed earlier than it
is due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the unpaid portion of the regularly scheduled payment or $100.00,
whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due; (b) Borrower breaks any written
promise Borrower has made to Lender, or Borrower fails to perform promptly at
the time and strictly in the manner provided in this Note or in any written
agreement related to this Note, or in any other written agreement or loan
Borrower has with Lender, contingent or absolute, due or to become due, now or
hereafter existing; (c) A breach of any term or condition of any security
agreement, pledge agreement, mortgage loan agreement or any other agreement
related to or securing this Note regardless if said document is executed by
Borrower, any guarantor or a third-party not liable for this Note, upon which a
cure period, if any, contained in said agreement has expired; (d) suspension,
liquidation, sale or transfer of Borrower's business or assets; (e) Any
representation, warranty, statement or report made or furnished to Lender by
Borrower or on Borrower's behalf is false, or misleading in any material
respect; (f) Borrower becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy of insolvency laws; (g) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender; (h) Failure of Borrower
to furnish Lender within thirty (30) days after written request by Lender,
current financial statements, including income tax returns, in form satisfactory
to Lender or to permit inspection of any of Borrower's books or records; (i) The
issuance of any tax levy or lien against Borrower or Borrower's failure to pay,
withhold, collect or remit any tax when assessed or due; (j) The filing of
formal charges under any federal or state law against Borrower or Borrower's
assets which forfeiture is a potential penalty; (k) Any of the events described
in this default section occurs with respect to any guarantor of this Note; (l)
lender in good faith reasonably deems itself insecure.
<PAGE>
06-29-1999 PROMISSORY NOTE Page 2
Loan No. (continued)
================================================================================
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest, costs and fees immediately
due, without notice, and then Borrower will pay that amount. Upon default, or if
this Note is not paid at final maturity, Lender, at its option, may add any
unpaid accrued interest, costs and fees to principal and such sum will bear
interest therefrom until paid, at the rate provided in this Note but in no event
at an effective total interest rate on this Note greater than the rate permitted
by applicable law. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender the amount of these
costs and expenses, which includes, subject to any limits under applicable law,
Lender's reasonable attorneys' fees and Lender's legal expenses whether or not
there is a lawsuit, including reasonable attorneys' fees and legal expenses for
bankruptcy proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection services.
If not provided by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note shall be governed by and
construed in accordance with the laws of the State of Florida.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge, withdraw or setoff all sums owing on this Note
against any and all the accounts set forth below in the Accounts section without
prior demand or notice to Borrower.
ACCOUNTS. Borrower grants to Lender a contractual possessory security interest
in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
of Borrower's right, title and Interest In and to, Borrower's deposits, accounts
(whether checking, savings, or some other account), or securities now or
hereafter In the possession of or on deposit with Lender or subsidiary including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note, as well as directions for payment from Borrower's accounts may be
requested orally or in writing by Borrower or by an Authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either (a) advanced In accordance with
the instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lenders Internal
records, including daily computer printouts. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, Including any agreement made In connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender; or (e) Lender in good faith reasonably deems
itself insecure under this Note or any other agreement between Lender and
Borrower.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Note, as of the date of each disbursement of loan proceeds,
and as of the date of any renewal, extension or modification of this Note: (a)
Borrower (i) has begun analyzing the operations of Borrower and its subsidiaries
and affiliates that could be adversely affected by failure to become Year 2000
compliant: (that is, computer applications, imbedded microchips and other
systems will be able to perform date sensitive functions prior to and after
December 31, 1999), (ii) has developed a plan for becoming Year 2000 compliant
in a timely manner the implementation of which is on schedule in all material
respects; and (iii) reasonably believes that it will become Year 2000 compliant
for its operations and those of its subsidiaries and affiliates on a timely
basis except to the extent that a failure to do so could not reasonably be
expected to have a material adverse effect upon the financial condition of
Borrower; (b) Borrower reasonably believes any suppliers and vendors that are
material to the operations of Borrower or its subsidiaries and affiliates will
be Year 2000 compliant for their own computer applications except to the extent
that a failure to do so could not reasonably be expected to have a material
adverse effect upon the financial condition of Borrower; and (c) Borrower will
promptly notify Lender in the event Borrower determines that any computer
application which is material to the operations of Borrower, its subsidiaries or
any of its material vendors or suppliers will not be fully Year 2000 compliant
on a timely basis, except to the extent that such failure could not reasonably
be expected to have a material adverse effect upon the financial condition of
Borrower.
LOAN AGREEMENT. This Note is issued pursuant to the terms and provisions of a
certain Business Loan Agreement of even date between Borrower and Lender.
MANDATORY PRINCIPAL PAYMENT. In addition to the principal payment schedule set
forth above in the paragraph entitled "Payment," each advance hereunder shall be
due and payable on the earlier on (a) immediately upon Borrower's receipt of
payment from an account debtor against the corresponding account receivable, or
(b) 180 days after the making of such advance. .
BORROWING BASE AGREEMENT. All advances under this Note shall be subject to the
provisions of the Borrowing Base Agreement of even date between Borrower and
Lender.
GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will
not affect the rest of the Note. Borrower does not agree or intend to pay, and
Lender does not agree or intend to contract for, charge, collect, take, reserve
or receive (collectively referred to herein as "charge or collect"), any amount
in the nature of interest or in the nature of a fee for this loan, which would
in any way or event (including demand, prepayment, or acceleration) cause Lender
to charge or collect more for this loan than the maximum Lender would be
permitted to charge or collect by federal law or the law of the State of Florida
(as applicable). Any such excess interest or unauthorized fee shall, instead of
anything stated to the contrary, be applied first to reduce the principal
balance of this loan, and when the principal has been paid in full, be refunded
to Borrower. Lender may delay or forgo enforcing any of its rights or remedies
under this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Note. Upon any change in the terms of this Note,
and unless otherwise expressly stated in writing, no party who signs this Note,
whether as maker, guarantor, accommodation maker or endorser, shall be released
from liability. All rights, powers, privileges and immunities herein granted to
Lender shall extend to its successors and assigns
<PAGE>
06-29-1999 PROMISSORY NOTE Page 3
Loan No (Continued)
================================================================================
and any other legal holder of this Note. All rights, powers, privileges and
immunities of Borrower hereunder may not in any way be assigned, transferred or
sold. Lender at any time is authorized to correct patent errors herein. All such
parties agree that Lender may renew, modify, substitute, consolidate or extend
(repeatedly and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to, acknowledgment or agreement by
anyone. All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made. This Note constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Note and supersedes all prior
understandings and correspondence, oral or written, with respect to the subject
matter hereof. No alteration of or amendment to this Note shall be effective
unless given in writing and signed by Lender. Borrower acknowledges that this
Note evidences a loan made primarily for business, commercial or agricultural
purposes and not primarily for personal, family or household purposes. When this
Note becomes due, by default, demand or maturity, Lender may, at its option,
demand, sue for, collect, or make any compromise or settlement it deems
desirable with reference to any collateral pledged or granted for this Note.
Lender shall not be bound to take any steps necessary to preserve any rights in
any such collateral against prior parties. Lender shall have no duty with
respect to collection or protection of any such collateral or of any income of
any such on the collateral as to the preservation of any rights pertaining to
any such collateral beyond safe custody. Borrower authorizes Lender to exchange
Lender's deposit, credit and borrowing information about Borrower with third
parties. Borrower agrees to indemnify and hold Lender harmless against liability
for the payment for documentary stamp and Intangible taxes (including Interest
and penalties) (if applicable), which may be determined to be payable with
respect to this transaction. If this Note is renewed, modified, extended,
substituted or consolidated, although Lender is under no duty to do so, Lender
may, without Borrower's or any guarantor's consent: (a) advance the maximum
amount of principal then available the day prior to said occurrence, (b) deposit
said amount in Borrower's account with Lender the day prior to said occurrence,
(c) withdraw said amount from Borrower's account with Lender the day after said
occurrence, and (d) apply said amount to the principal amount then outstanding.
Said procedures are intended to minimize Borrower's documentary stamp tax and/or
Intangible tax liabilities (if applicable), although Borrower will be fully
responsible for accrued interest on the amount of principal advanced for said
procedure. If this Note represents a renewal, modification, extension,
substitution or consolidation of a Note owed to Lender, then Borrower
acknowledges and agrees that there are no claims, setoffs, avoidances,
counterclaims or defenses or rights to claims, setoffs, avoidances,
counterclaims or defenses to enforcement of this Note.
JURISDICTION. In connection with any litigation regarding any matter arising out
of this document or any subsequent agreement between the parties to this
document, each submits to the exclusive jurisdiction of the state and federal
courts located in the State of Florida.
JURY WAIVER; DAMAGES. THE PARTIES TO THIS DOCUMENT ACKNOWLEDGE AND AGREE THAT
(1) ANY SUIT, ACTION OR PROCEEDING,WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR
INSTITUTED BY ANY PARTY OR ANY SUCCESSOR OR ASSIGN OF ANY SUCH PARTY, ON OR WITH
RESPECT TO THIS DOCUMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE
PARTIES WITH RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY A COURT AND NOT
BY A JURY AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (II) EACH WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING,
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; AND (III) THIS SECTION IS A SPECIFIC
AND MATERIAL ASPECT OF THIS DOCUMENT AND LENDER WOULD NOT EXTEND CREDIT IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS DOCUMENT.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Elcotel, Inc.
By: /s/ William H. Thopmpson
-----------------------------------------------
William H. Thompson, Senior Vice President
"This instrument is made in connection with an international banking transaction
and no Florida Documentary Stamp Tax is due hereon in accordance with Chapter
201.23 )4), F.S.:.
Variable Rate. Line of Credit.LASER PRO, Reg. U.S. Pal.& T.M. Off., Ver. 3.24
(C) 1999 CF1 ProServIces, Inc. All rights reserved. [FL-D20 F3.24a P3.24a
ELCOTEL.LN C25.OVL)
EXHIBIT 10.6
HAHN & HESSEN LLP DRAFT
ANNEX B
EXPORT-IMPORT BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER AGREEMENT
THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by the
entity identified as Borrower on the signature page hereof ("Borrower") in favor
of the Export-Import Bank of the United States ("Ex-Im Bank") and the
institution identified as Lender on the signature page hereof ("Lender").
RECITALS
Borrower has requested that Lender establish a Loan Facility in favor of
Borrower for the purposes of providing Borrower with pre-export working capital
to finance the manufacture, production or purchase and subsequent export sale of
Items.
It is a condition to the establishment of such Loan Facility that Ex-Im
Bank guarantee the payment of ninety percent (90%) of certain credit
accommodations subject to the terms and conditions of a Master Guarantee
Agreement and the Loan Authorization Agreement.
Borrower is executing this agreement for the benefit of Lender and Ex-Im
Bank in consideration for and as a condition to Lender's establishing the Loan
Facility and Ex-Im Bank's agreement to guarantee such Loan Facility pursuant to
the Master Guarantee Agreement.
NOW, THEREFORE, Borrower hereby agrees as follows:
ARTICLE I
DEFINITIONS
10.1 Definition of Terms. As used in this Agreement, including the Recitals to
this Agreement and the Loan Authorization Agreement, the following terms
shall have the following meanings:
"Accounts Receivable" shall mean Borrower's now owned or hereafter
acquired (a) "accounts" (as such term is defined in the UCC), other receivables,
book debts and other forms of obligations, whether arising out of goods sold or
services rendered or from any other transaction; (b) rights in, to and under all
purchase orders or receipts for goods or services; (c) rights to any goods
represented or purported to be represented by any of the foregoing (including
unpaid sellers' rights of rescission, replevin, reclamation and stoppage in
transit and rights to returned, reclaimed or repossessed goods); (d) moneys due
or to become due to such Borrower under all purchase orders and contracts for
the sale of goods or the performance of services or both by Borrower (whether or
not yet earned by performance on the part of Borrower), including the proceeds
of the foregoing; (e) any notes, drafts, letters of credit, insurance proceeds
or other
<PAGE>
2
instruments, documents and writings evidencing or supporting the foregoing; and
(f) all collateral security and guarantees of any kind given by any other Person
with respect to any of the foregoing.
"Advance Rate" shall mean the rate Specified in Section (5) (C) of the
Loan Authorization Agreement for each category of Collateral.
"Business Day" shall mean any day on which the Federal Reserve Bank of New
York is open for business."
"Buyer" shall mean a Person which has entered into one or more Export
Orders with Borrower.
"Collateral" shall mean all property and interest in property in or upon
which Lender has been granted a valid and enforceable Lien as security for the
payment of all the Loan Facility Obligations including the Collateral identified
in Section (6) of the Loan Authorization Agreement and all products and proceeds
(cash and non-cash) thereof.
"Commercial Letters of Credit" shall mean those letters of credit subject
to the UCP payable in Dollars and issued or caused to be issued by Lender on
behalf of Borrower for the benefit of a supplier(s) of Borrower in connection
with Borrower's purchase of goods or services from the supplier in support of
the export of the Items.
"Country Limitation Schedule" shall mean the schedule published from time
to time by Ex-Im Bank and provided to Borrower by Lender which sets forth on a
country by country basis whether and under what conditions Ex-Im Bank will
provide coverage for the financing of export transactions to countries listed
therein.
"Credit Accommodation Amount" shall mean, the sum of (a) the aggregate
outstanding amount of Disbursements and (b) the aggregate outstanding face
amount of Letter of Credit Obligations.
"Credit Accommodations" shall mean collectively, Disbursements and Letter
of Credit Obligations.
"Debarment Regulations" shall mean collectively (a) the Governmentwide
Debarment and Suspension (Nonprocurement) regulations (Common Rule), 53 Fed.
Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and
Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and
(c) the revised Governmentwide Debarment and Suspension (Nonprocurement)
regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).
"Delegated Authority Letter Agreement" shall mean the Delegated Authority
Letter Agreement, if any, between Ex-Im Bank and Lender.
"Disbursement" shall mean collectively, (a) an advance of a working
capital loan from Lender to Borrower under the Loan Facility, and (b) an advance
to fund a drawing under a Letter of Credit issued or caused to be issued or
caused to be issued by Lender for the account of Borrower under the Loan
Facility.
<PAGE>
3
"Dollars" or "$" shall mean the lawful currency of the United States.
"Effective Date" shall mean the date on which (a) the Loan Documents are
executed by Lender and Borrower or the date, if later, on which agreements are
executed by Lender and Borrower adding the Loan Facility to an existing working
capital loan arrangement between Lender and such Borrower and (b) all of the
conditions to the making of the initial Credit Accommodations under the Loan
Documents or any amendments thereto have been satisfied.
"Eligible Export-Related Accounts Receivable" shall mean an
Export-Related Account Receivable which is acceptable to Lender and which is
deemed to be eligible pursuant to the Loan Documents, but in no event shall
Eligible Export-Related Accounts Receivable include any Account Receivable:
(a) that does not arise from the sale of Items in the ordinary course of
Borrower's business;
(b) that is not subject to a first perfected Lien in favor of Lender;
(c) as to which any covenant, representation or warranty contained in
the Loan Documents with respect to such Account Receivable has been
breached;
(d) that is not owned by Borrower or is subject to any right, claim or
interest of another person other than the Lien in favor of Lender;
(e) with respect to which an invoice has not been sent;
(f) that arises from the sale of defense articles or defense services;
(g) that is due and payable from a Buyer located in a country with which
Ex-Im Bank is prohibited from doing business as designated in the
Country Limitation Schedule;
(h) that does not comply with the requirements of the Country Limitation
Schedule;
(i) that is due and payable more than one hundred eighty (180) days from
the date of the invoice;
(j) that is not paid within sixty (60) calendar days from its original
due date, unless it is insured through Ex-Im Bank export credit
insurance for comprehensive commercial and political risk, or
through Ex-Im Bank approved private insurers for comparable
coverage, in which case it is not paid within ninety (90) calendar
days from its due date;
(k) that arises from a sale of goods to or performance of services for
an employee of Borrower, a stockholder of Borrower, a subsidiary of
Borrower, a Person with a controlling interest in Borrower or a
Person which shares common controlling ownership with Borrower;
(l) that is backed by a letter of credit unless the Items covered by the
subject letter of credit have been shipped;
<PAGE>
4
(m) that Lender or Ex-Im Bank, in its reasonable judgment, deems
uncollectible for any reason;
(n) that is due and payable in a currency other than Dollars, except as
may be approved in writing by Ex-Im Bank;
(o) that is due and payable from a military Buyer, except as may be
approved in writing by Ex-Im Bank;
(p) that does not comply with the terms of sale set forth in Section (7)
of the Loan Authorization Agreement;
(q) that is due and payable from a Buyer who (i) applies for, suffers,
or consents to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property or calls a meeting of its
creditors, (ii) admits in writing its inability, or is generally
unable, to pay its debts as they become due or ceases operations of
its present business, (iii) makes a general assignment for the
benefit of creditors, (iv) commences a voluntary case under any
state or federal bankruptcy laws (as now or hereafter in effect),
(v) is adjudicated as bankrupt or insolvent, (vi) files a petition
seeking to take advantage of any other law providing for the relief
of debtors, (vii) acquiesces to, or fails to have dismissed, any
petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) takes any action for the purpose of
effecting any of the foregoing;
(r) that arises from a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;
(s) for which the Items giving rise to such Account Receivable have not
been shipped and delivered to and accepted by the Buyer or the
services giving rise to such Account Receivable have not been
performed by Borrower and accepted by the Buyer or the Account
Receivable otherwise does not represent a final sale;
(t) that is subject to any offset, deduction, defense, dispute, or
counterclaim or the Buyer is also a creditor or supplier of Borrower
or the Account Receivable is contingent in any respect or for any
reason;
(u) for which Borrower has made any agreement with the Buyer for any
deduction therefrom, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which
discounts or allowances are reflected in the calculation of the face
value of each respective invoice related thereto; or
(v) for which any of the Items giving rise to such Account Receivable
have been returned, rejected or repossessed.
"Eligible Export-Related Inventory" shall mean Export-Related Inventory
which is acceptable to Lender and which is deemed to be eligible pursuant to the
Loan Documents, but in no event shall Eligible Export-Related Inventory include
any Inventory:
(a) that is not subject to a first perfected Lien in favor of Lender;
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5
(b) that is located at an address that has not been disclosed to Lender
in writing;
(c) that is placed by Borrower on consignment or held by Borrower on
consignment from another Person;
(d) that is in the possession of a processor or bailee, or located on
premises leased or subleased to Borrower, or on premises subject to
a mortgage in favor of a Person other than Lender, unless such
processor or bailee or mortgagee or the lessor or sublessor of such
premises, as the case may be, has executed and delivered all
documentation which Lender shall require to evidence the
subordination or other limitation or extinguishment of such Person's
rights with respect to such Inventory an Lender's right to gain
access thereto;
(e) that is produced in violation of the Fair Labor Standards Act or
subject to the "hot goods" provisions contained in 29 US.C.ss.215 or
any successor statute or section;
(f) as to which any covenant, representation or warranty with respect to
such Inventory contained in the Loan Documents has been breached;
(g) that is not located in the United States;
(h) that is demonstration Inventory;
(i) that consists of proprietary software (i.e. software designed solely
for Borrower's internal use and not intended for resale);
(j) that is damaged, obsolete, returned, defective, recalled or unfit
for further processing;
(k) that has been previously exported from the United States;
(l) that constitutes defense articles or defense services;
(m) that is to be incorporated into Items destined for shipment to a
country as to which Ex-Im Bank is prohibited from doing business as
designated in the Country Limitation Schedule;
(n) that is to be incorporated into Items destined for shipment to a
Buyer located in a country in which Ex-Im Bank coverage is not
available for commercial reasons as designated in the Country
Limitation Schedule, unless and only to the extent that such Items
are to be sold to such country on terms of a letter of credit
confirmed by a bank acceptable to Ex-Im Bank; or
(o) that is to be incorporated into Items whose sale would result in an
Account Receivable which would not be an Eligible Export-Related
Account Receivable.
"Eligible Person" shall mean a sole proprietorship, partnership, limited
liability partnership, corporation or limited liability company which (a) is
domiciled organized, or formed, as the case may be, in the United States; (b) is
in good standing in the state of its formation or otherwise authorized to
conduct business in the United States; (c) is not currently suspended or
debarred from doing business with the government of the United States or any
instrumentality, division, agency or department thereof; (d) exports or plans to
export Items; (e) operates and has operated as a going concern for at least one
(1) year;
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6
(f) has a positive tangible net worth determined in accordance with GAAP; and
(g) has revenue generating operations relating to its core business activities
for at least one year.
"ERISA" shall mean the Employment Retirement Security Act of 1974 and the
rules and regulations promulgated thereunder.
"Export Order" shall mean a written export order or contract for the
purchase by the Buyer from Borrower of any of the Items.
"Export-Related Accounts Receivable" shall mean, as respects a Borrower,
those Accounts Receivable arising from the sale of Items which are due and
payable to such Borrower in the United States.
"Export-Related Accounts Receivable Value" shall mean, at the date of
determination thereof, the aggregate face amount of the Eligible Export-Related
Accounts Receivable less taxes, discounts, credits, allowances and Retainages,
except to the extent otherwise permitted by Ex-Im Bank in writing.
"Export-Related Borrowing Base" shall mean, at the date of determination
thereof, the sum of (a) the Export-Related Inventory Value multiplied by the
Advance Rate applicable to Export-Related Inventory set forth in section 5(C)(1)
of the Loan Authorization Agreement, (b) the Export-Related Accounts Receivable
Value multiplied by the Advance Rate applicable to Export-Related Accounts
Receivable set forth in Section 5(C)(2) of the Loan Authorization Agreement, (c)
if permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the
Retainage Advance Rate set forth in Section 5(C)(3) of the Loan Authorization
Agreement and (d) the other Collateral Value multiplied by the Advance Rate
applicable to Other Collateral set forth in Section 5(C)(4) of the Loan
Authorization Agreement.
"Export-Related Borrowing Base Certificate" shall mean a certificate in
form provided or approved by Lender and executed by Borrower and delivered to
Lender pursuant to the Loan Documents detailing the Export-Related Borrowing
Base supporting one or more Credit Accommodations which reflects, to the extent
included in the Export-Related Borrowing Base, Export-Related Accounts
Receivable, Eligible Export-Related Accounts Receivable, Export-Related
Inventory and Eligible Export-Related Inventory balances that may have been
reconciled with Borrower's general ledger, Accounts Receivable aging report and
Inventory schedule.
"Export-Related General Intangibles" shall mean, those General Intangibles
necessary or desirable to or for the disposition of Export-Related Inventory.
"Export-Related Inventory" shall mean the Inventory of Borrower located in
the United States purchased, manufactured or otherwise acquired by Borrower for
resale pursuant to Export Orders.
"Export-Related Inventory Value" shall mean at the date of determination
thereof, the lower of cost or market value of Eligible Export-Related Inventory
of Borrower as determined in accordance with GAAP.
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7
"Final Disbursement Date" shall mean the last date on which Lender may
make a Disbursement set forth in Section (10) of the Loan Authorization
Agreement or, if such date is not a Business Day, the next succeeding Business
Day; provided, however, only to the extent that Lender has not received cash
collateral or an indemnity with respect to Letter of Credit Obligations
outstanding on the Final Disbursement Date, the Final Disbursement Date with
respect to an advance to fund a drawing under a Letter of Credit shall be thirty
(30) Business Days after the expiry date of the Letter of Credit related
thereto.
"GAAP" shall mean the generally accepted accounting principles issued by
the American Institute of Certified Public Accountants as in effect from time to
time.
"General Intangibles" shall mean all intellectual property and other
"general intangibles" (as such term is defined in the UCC), necessary or
desirable to or for the disposition of Inventory.
"Guarantor" shall mean each Person, if any, identified in Section (3) of
the Loan Authorization Agreement who shall guarantee (jointly and severally if
more than one) Borrower's obligation to repay all or a portion of the Loan
Facility Obligations.
"Guaranty Agreement" shall mean each agreement of Guaranty executed by
each Guarantor in favor of Lender.
"Inventory" shall mean all "inventory" (as such term is defined in the
UCC), now or hereafter owned or acquired by Borrower, wherever located,
including all inventory, merchandise, goods and other personal property which
are held by or on behalf of Borrower for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Borrower's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including other supplies.
"ISP" shall mean the International Standby Practices-ISP98, International
Chamber of Commerce Publication No. 590 and any amendments and revisions
thereof.
"Issuing Bank" shall mean the bank that issues a Letter of Credit, which
bank is Lender itself or a bank who Lender has caused to issue a Letter of
Credit by way of guarantee.
"Items" shall mean the finished goods or services which are intended for
export, as specified in Section (4)(A) of the Loan Authorization Agreement.
"Letter of Credit" shall mean a Commercial Letter of Credit or a Standby
Letter of Credit.
"Letter of Credit Obligations" shall mean all outstanding obligations
incurred by Lender, whether direct or indirect, contingent or otherwise, due or
not due, in connection with the issuance or guarantee by Lender or the Issuing
Bank of Letters of Credit.
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
<PAGE>
8
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the UCC or comparable law of any jurisdiction) by which
property is encumbered or otherwise charged.
"Loan Agreement" shall mean an agreement between Lender and Borrower
setting forth the terms and conditions of the Loan Facility.
"Loan Authorization Agreement" shall mean the Loan Authorization Agreement
entered into between Lender and Ex-Im Bank or the Loan Authorization Notice
setting forth certain terms and conditions of the Loan Facility, a copy of which
is attached hereto as Annex A.
"Loan Authorization Notice" shall mean the Loan Authorization executed by
Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority
Letter Agreement setting forth the terms and conditions of each Loan Facility.
"Loan Documents" shall mean the Loan Agreement, this Agreement, each
promissory note (if applicable), each Guaranty Agreement and all other
instruments, agreements and documents now or hereafter executed by Borrower or
any Guarantor evidencing, securing, guaranteeing or otherwise relating to the
Loan Facility or any Credit Accommodations made thereunder.
"Loan Facility" shall mean the Revolving Loan Facility, the Transaction
Specific Loan Facility or the Transaction Specific Revolving Loan Facility
established by Lender in favor of Borrower under the Loan Documents.
"Loan Facility Obligations" shall mean all loans, advances, debts,
expenses, fees, liabilities, and obligations for the performance of covenants,
tasks or duties or for payment of monetary amounts (whether or not such
performance is then required or contingent, or amounts are liquidated or
determinable) owing by Borrower to Lender of any kind or nature, present or
future, arising in connection with the Loan Facility.
"Loan Facility Term" shall mean the number of months from the Effective
Date to the Final Disbursement Date as originally set forth in the Loan
Authorization Agreement.
"Master Guarantee Agreement" shall mean the Master Guarantee Agreement
between Ex-Im Bank and Lender, as amended, modified, supplemented and restated
from time to time.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
business, assets, operations, prospects or financial or other condition of
Borrower or any Guarantor, (b) Borrower's ability to pay or perform the Loan
Facility Obligations in accordance with the terms thereof, (c) the Collateral or
Lender's Liens on the Collateral or the priority of such Lien or (d) Lender's
rights and remedies under the Loan Documents.
"Maximum Amount" shall mean the maximum principal balance of Credit
Accommodations that may be outstanding at any time under the Loan Facility
specified in Section (5)(A) of the Loan Authorization Agreement.
"Other Assets" shall mean the Collateral, if any, described in Section 5
(C) of the Loan Authorization Agreement.
<PAGE>
9
"Other Assets Value" shall mean, at the date of determination thereof, the
value of the Other Assets as determined in accordance with GAAP.
"Permitted Liens" shall mean (a) Liens for taxes, assessments or other
governmental charges or levies not delinquent, or, being contested in good faith
and by appropriate proceedings and with respect to which proper reserves have
been taken by Borrower; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of Lender or the value of the assets in which
Lender has such a Lien and a stay of enforcement of any such Lien shall be in
effect; (b) deposits or pledges securing obligations under worker's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) deposits or pledges securing bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of Borrower's business; (d) judgment Liens that
have been stayed or bonded; (e) mechanics', workers', materialmen's or other
like Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due; (f) Liens placed upon fixed assets hereafter
acquired to secure a portion of the purchase price thereof, provided, that, any
such Lien shall not encumber any other property of Borrower; (g) security
interests being terminated concurrently with the execution of the Loan
Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations;
and (i) Liens disclosed in Section 6 (C) of the Loan Authorization Agreement.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether national, federal,
provincial, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof), and shall
include such Person's successors and assigns.
"Principals" shall mean any officer, director, owner, partner, key
employee, or other Person with primary management or supervisory
responsibilities with respect to Borrower or any other Person (whether or not an
employee) who has critical influence on or substantive control over the
transactions covered by this Agreement.
"Retainage" shall mean that portion of the purchase price of an Export
Order that a Buyer is not obligated to pay until the end of a specified period
of time following the satisfactory performance under such Export Order.
"Retainage Accounts Receivable" shall mean those portions of Eligible
Export-Related Accounts Receivable arising out of a Retainage.
"Retainage Advance Rate" shall mean the percentage rate specified in
Section 5(C)(3) of the Loan Authorization Agreement as the Advance Rate for the
Retainage Accounts Receivable of Borrower.
"Retainage Value" shall mean, at the date of determination thereof, the
aggregate face amount of those Retainage Accounts Receivable which are Eligible
Export-Related Accounts Receivable less taxes, discounts, credits and
allowances, except to the extent otherwise permitted by Ex-Im Bank in writing.
<PAGE>
10
"Revolving Loan Facility" shall mean the credit facility or portion
thereof established by Lender in favor of Borrower for the purpose of providing
pre-export working capital in the form of loans and/or Letters of Credit to the
manufacture, production or purchase and subsequent export sale of Items pursuant
to Loan Documents under which Credit Accommodations may be made and repaid on a
continuous basis based solely on the Export-Related Borrowing Base during the
term of such credit facility.
"Special Conditions" shall mean those conditions, if any, set forth in
Section (12) of the Loan Authorization Agreement.
"Specific Export Orders" shall mean those Export Orders specified in
Section 5(D) of the Loan Authorization Agreement.
"Standby Letter of Credit" shall mean those letters of credit subject to
the ISP issued or caused to be issued by Lender for Borrower's account that can
be drawn upon by a Buyer only if Borrower fails to perform all of its
obligations with respect to an Export Order.
"Transaction Specific Loan Facility" shall mean a credit facility or a
portion thereof established by Lender in favor of Borrower for the purpose of
providing pre-export working capital in the form of loans and/or Letters of
Credit to finance the manufacture, production or purchase and subsequent export
sale of Items pursuant to Loan Documents under which Credit Accommodations are
made based solely on the Export-Related Borrowing Base relating to Specific
Export Orders and once such Credit Accommodations are repaid they may not be
reborrowed.
"Transaction Specific Revolving Loan Facility" shall mean a Revolving
Credit Facility established to provide financing of Specific Export Orders.
"UCC" shall mean the Uniform Commercial Code as the same may be in effect
from time to time in the jurisdiction in which Borrower or Collateral is
located.
"UCP" shall mean the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500 and any
amendments and revisions thereof.
"U.S." or "United States" shall mean the United States of America and its
territorial possessions.
"U.S. Content" shall mean with respect to any Item all the labor,
materials and services which are of U.S. origin or manufacture, and which are
incorporated into an Item in the United States.
"Warranty" shall mean Borrower's guarantee to Buyer that the Items will
function as intended during the warranty period set forth in the applicable
Export Order.
"Warranty Letter of Credit" shall mean a Standby Letter of Credit which is
issued or caused to be issued by Lender to support the obligations of Borrower
as respects a Warranty or a Standby Letter of Credit which by its terms becomes
a Warranty Letter of Credit.
<PAGE>
11
1.02 Rules of Construction. For purposes of this Agreement, the following
additional rules of construction shall apply, unless specifically
indicated to the contrary: (a) wherever from the context it appears
appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and
the neuter; (b) the term "or" is not exclusive; (c) the term "including"
(or any form thereof) shall not be limiting or exclusive; (d) all
references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations; (e) the
words "this Agreement", "herein", "hereof", "hereunder" or other words of
similar import refer to this Agreement as a whole including the schedules,
exhibits, and annexes hereto as the same may be amended, modified or
supplemented; (f) all references in this Agreement to sections, schedules,
exhibits, and annexes shall refer to the corresponding sections,
schedules, exhibits, and annexes of or to this Agreement; and (g) all
references to any instruments or agreements, including references to any
of the Loan Documents, shall include any and all modifications, amendments
and supplements thereto and any and all extensions or renewals thereof to
the extent permitted under this Agreement.
1.03 Incorporation of Recitals. The Recitals to this Agreement are incorporated
into and shall constitute a part of this Agreement.
ARTICLE II
OBLIGATIONS OF BORROWER
Until payment in full of all Loan Facility Obligations and termination of
the Loan Documents, Borrower agrees as follows:
2.01 Use of Credit Accommodations. (a) Borrower shall use Credit Accommodations
only for the purpose of enabling Borrower to finance the cost of
manufacturing, producing, purchasing or selling the Items. Borrower may
not use any of the Credit Accommodations for the purpose of: (i) servicing
or repaying any of Borrower's pre-existing or future indebtedness
unrelated to the Loan Facility (unless approved by Ex-Im Bank in writing);
(ii) acquiring fixed assets or capital goods for use in Borrower's
business; (iii) acquiring, equipping or renting commercial space outside
of the United States; (iv) paying the salaries of non U.S. citizens or
non-U.S. permanent residents who are located in offices outside of the
United States; or (v) in connection with a Retainage or Warranty (unless
approved by Ex-Im Bank in writing).
(b) In addition, no Credit Accommodation may be used to finance the
manufacture, purchase or sale of any of the following:
(i) Items to be sold or resold to a Buyer located in a country as
to which Ex-Im Bank is prohibited from doing business as
designated in the Country Limitation Schedule;
(ii) that part of the cost of the Items which is not U.S. Content
unless such part is not greater than fifty percent (50%) of
the cost of the Items and is incorporated into the Items in
the United States;
(iii) defense articles or defense services; or
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12
(iv) without Ex-Im Bank's prior written consent, any Items to be
used in the construction, alteration, operation or maintenance
of nuclear power, enrichment, reprocessing, research or heavy
water production facilities.
2.02 Loan Documents and Loan Authorization Agreement. (a) Each Loan Document
and this Agreement have been duly executed and delivered on behalf of
Borrower, and each such Loan Document and this Agreement are and will
continue to be a legal and valid obligation of Borrower, enforceable
against it in accordance with its terms.
(b) Borrower shall comply with all of the terms and conditions of the Loan
Documents; this Agreement and the Loan Authorization Agreement.
2.03 Export-Related Borrowing Base Certificates and Export Orders. In order to
receive Credit Accommodations under the Loan Facility, Borrower shall have
delivered to Lender an Export-Related Borrowing Base Certificate as
frequently as required by Lender but at least within the past thirty (30)
calendar days and a copy of the Export Order (s) (or, for Revolving Loan
Facilities, if permitted by Lender, a written summary of the Export
Orders) against which Borrower is requesting Credit Accommodations. If
Lender permits summaries of Export Orders, Borrower shall also deliver
promptly to Lender copies of any Export Orders requested by Lender. In
addition, so long as there are any Credit Accommodations outstanding under
the Loan Facility, Borrower shall deliver to Lender at least once each
month no later than the twentieth (20th) day of such month or more
frequently as required by the Loan Documents, an Export-Related Borrowing
Base Certificate.
2.04 Exclusions from the Export-Related Borrowing Base. In determining the
Export-Related Borrowing Base, Borrower shall exclude therefrom Inventory
which is not Eligible Export-Related Inventory and Accounts Receivable
which are not Eligible Export-Related Accounts Receivable. Borrower shall
promptly, but in any event within five (5) Business Days, notify Lender
(a) if any then existing Export-Related Inventory no longer constitutes
Eligible Export-Related Inventory or (b) of any event or circumstance
which to Borrower's knowledge would cause Lender to consider any then
existing Export-Related Accounts Receivable as no longer constituting an
Eligible Export-Related Accounts Receivable.
2.05 Financial Statements. Borrower shall deliver to Lender the financial
statements required to be delivered by Borrower in accordance with Section
(11) of the Loan Authorization Agreement
2.06 Schedules, Reports and Other Statements. Borrower shall submit to Lender
in writing each month (a) an Inventory schedule for the preceding month
and (b) an Accounts Receivable aging report for the preceding month
detailing the terms of the amounts due from each Buyer. Borrower shall
also furnish to Lender promptly upon request such information, reports,
contracts, invoices and other data concerning the Collateral as Lender may
from time to time specify.
2.07 Additional Security or Payment. (a) Borrower shall at all times ensure
that the Export-Related Borrowing Base equals or exceeds the Credit
Accommodation Amount. If informed by Lender or if Borrower otherwise has
actual knowledge that the Export-Related Borrowing Base is at any time
less than the Credit Accommodation Amount, Borrower shall, within five (5)
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13
Business Days, either (i) furnish additional Collateral to Lender, in form
and amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an
amount equal to the difference between the Credit Accommodation Amount and
the Export-Related Borrowing Base.
(b) For purposes of this Agreement, in determining the Export-Related
Borrowing Base there shall be deducted from the Export-Related
Borrowing Base (i) an amount equal to twenty five percent (25%) of
the outstanding face amount of Commercial Letters of Credit and
Standby Letters of Credit and (ii) one hundred percent (100%) of the
face amount of Warranty Letters of Credit less the amount of cash
collateral held by Lender to secure Warranty Letters of Credit.
(c) Unless otherwise approved in writing by Ex-Im Bank, for Revolving
Loan Facilities (other than Transaction Specific Revolving Loan
Facilities), Borrower shall at all times ensure that the outstanding
principal balance of the Credit Accommodations that is supported by
Export-Related Inventory does not exceed sixty percent (60%) of the
sum of the total outstanding principal balance of the Disbursements
and the undrawn face amount of all outstanding Commercial Letters of
Credit. If informed by Lender or if Borrower otherwise has actual
knowledge that the outstanding principal balance of the Credit
Accommodations that is supported by Inventory exceeds sixty percent
(60%) of the sum of the total outstanding principal balance of the
Disbursements and the undrawn face amount of all outstanding
Commercial Letters of Credit, Borrower shall, within five (5)
Business Days, either (i) furnish additional non-Inventory
Collateral to Lender, in form and amount satisfactory to Lender and
Ex-Im Bank, or (ii) pay down the applicable portion of the Credit
Accommodations so that the above described ratio is not exceeded.
2.08 ContinuedSecurity Interest. Borrower shall not change (a) its name or
identity in any manner, (b) the location of its principal place of
business, (c) the location of any of the Collateral or (d) the location of
any of the books or records related to the Collateral, in each instance
without giving thirty (30) days prior written notice thereof to Lender and
taking all actions deemed necessary or appropriate by Lender to
continuously protect and perfect Lender's Liens upon the Collateral.
2.09 Inspection of Collateral. Borrower shall permit the representatives of
Lender and Ex-Im Bank to make at any time during normal business hours
inspections of the Collateral and of Borrower's facilities, activities,
and books and records, and shall cause its officers and employees to give
full cooperation and assistance in connection therewith.
2.10 General Intangibles. Borrower owns, or is licensed to use, all General
Intangibles necessary to conduct its business as currently conducted
except for such General Intangibles the failure of which to own or license
could not reasonably be to expected to have a Material Adverse Effect.
2.11 Notice of Certain Events. Borrower shall promptly, but in any event within
five (5) Business Days, notify Lender in writing of the occurrence of any
of the following:
(a) Borrower or any Guarantor (i) applies for, consents to or suffers
the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property or calls a meeting of its
creditors, (ii) admits in writing its inability, or is generally
unable, to pay its debts as they become due or ceases
<PAGE>
14
operations of its present business, (iii) makes a general assignment
for the benefit of creditors, (iv) commences a voluntary case under
any state or federal bankruptcy laws (as now or hereafter in
effect), (v) is adjudicated as bankrupt or insolvent, (vi) files a
petition seeking to take advantage of any other law providing for
the relief of debtors, (vii) acquiesces to, or fail to have
dismissed within thirty (30) days, any petition filed against it in
any involuntary case under such bankruptcy laws, or (vii) takes any
action for the purpose of effecting any of the foregoing;
(b) any Lien granted or intended by the Loan Documents to be granted to
Lender ceases to be a valid and perfected Lien having the first
priority subject only to Permitted Liens (or a lesser priority if
expressly permitted pursuant to Section (6) of the Loan
Authorization Agreement) in any of the Collateral;
(c) the issuance of any levy, assessment, attachment, seizure or Lien
against any of the Collateral which is not stayed or lifted within
thirty (30) calendar days;
(d) Borrower begins any proceeding for the liquidation of its assets or
dissolution or any such proceeding is commenced against Borrower;
(e) any litigation is filed which could reasonably be expected to have a
Material Adverse Effect;
(f) the occurrence of any default or event of default under the Loan
Documents;
(g) any failure to comply with any terms of the Loan Authorization
Agreement;
(h) any material provision of any Loan Document or this Agreement ceases
to be valid, binding and enforceable in accordance with its terms;
(i) the occurrence of any event which has had or could reasonably be
expected to have a Material Adverse Effect; or
(j) the Credit Accommodation Amount exceeds the applicable
Export-Related Borrowing Base.
2.12 Insurance. Borrower will at all times carry property, liability and other
insurance, with insurers acceptable to Lender, in such form and amounts,
and with such deductibles and other provisions, as Lender shall require,
and Borrower will provide evidence of such insurance to Lender, so that
Lender is satisfied that such insurance is, at all times, in full force
and effect. Each property insurance policy shall name Lender as loss payee
and shall contain a lender's loss payable endorsement in form acceptable
to Lender and each liability insurance policy shall name Lender as an
additional insured. All policies of insurance shall provide that they may
not be cancelled or changed without at least ten (10) days' prior written
notice to Lender and shall otherwise be in form and substance satisfactory
to Lender. Borrower will promptly deliver to Lender copies of all reports
made to insurance companies.
2.13 Taxes. Borrower has timely filed all tax returns and reports required by
applicable law, has timely paid all applicable taxes, assessments,
deposits and contributions owing by Borrower and will timely pay all such
items in the future as they became due and payable. Borrower may, however,
defer payment of any contested taxes; provided, that Borrower (a) in good
faith contests
<PAGE>
15
Borrower's obligation to pay such taxes by appropriate proceedings
promptly and diligently instituted and conducted; (b) notifies Lender in
writing of the commencement of, and any material development in, the
proceedings; (c) posts bonds or takes any other steps required to keep the
contested taxes from becoming a Lien upon any of the Collateral; and (d)
maintains adequate reserves therefor in conformity with GAAP.
2.14 Compliance with Laws. Borrower has complied in all material respects with
all provisions of all applicable laws and regulations, including those
relating to Borrower's ownership of real or personal property, the conduct
and licensing of Borrower's business, the payment and withholding of
taxes, ERISA and other employee matters, safety and environmental matters.
2.15 Negative Covenants. Without the prior written consent of Ex-Im Bank and
Lender, Borrower shall not (a) merge, consolidate or otherwise combine
with any other Person; (b) acquire all or substantially all of the assets
or capital stock of any other Person; (c) sell, lease, transfer, convey,
assign or otherwise dispose of any of its assets, except for the sale of
Inventory in the ordinary course of business and the disposition of
obsolete equipment in the ordinary course of business; (d) create any Lien
on the Collateral except for Permitted Liens; (e) make any material
changes in its organizational structure or identity; or (f) enter into any
agreement to do any of the foregoing.
2.16 Reborrowings and Repayment Terms. (a) If the Loan Facility is a Revolving
Loan Facility, provided that Borrower is not in default under any of the
Loan Documents, Borrower may borrow, repay and reborrow amounts under the
Loan Facility until the close of business on the Final Disbursement Date.
Unless the Revolving Loan Facility is renewed or extended by Lender with
the consent of Ex-Im Bank, Borrower shall pay in full the outstanding Loan
Facility Obligations and all accrued and unpaid interest thereon no later
than the first Business Day after the Final Disbursement Date.
(b) If the Loan Facility is a Transaction Specific Loan Facility, Borrower
shall, within two (2) Business Days of the receipt thereof, pay to Lender
(for application against the outstanding Loan Facility Obligations and
accrued and unpaid interest thereon) all checks, drafts, cash and other
remittances it may receive in payment or on account of the Export-Related
Accounts Receivable or any other Collateral, in precisely the form
received (except for the endorsement of Borrower where necessary). Pending
such deposit, Borrower shall hold such amounts in trust for Lender
separate and apart and shall not commingle any such items of payment with
any of its other funds or property.
2.17 Cross Default. Borrower shall be deemed in default under the Loan Facility
if Borrower fails to pay when due any amount payable to Lender under any
loan or other credit accommodations to Borrower whether or not guaranteed
by Ex-Im Bank.
2.18 Munitions List. If any of the Items are articles, services, or related
technical data that are listed on the United States Munitions List (part
121 of title 22 of the Code of Federal Regulations), Borrower shall send a
written notice promptly, but in any event within five (5) Business Days,
of Borrower learning thereof to Lender describing the Item(s) and the
corresponding invoice amount.
<PAGE>
16
2.18 Suspension and Debarment, etc. On the date of this Agreement neither
Borrower nor its Principals are (a) debarred, suspended, proposed for
debarment with a final determination still pending, declared ineligible or
voluntarily excluded (as such terms are defined under any of the Debarment
Regulations referred to below) from participating in procurement or
nonprocurement transactions with any United States federal government
department or agency pursuant to any of the Debarment Regulations or (b)
indicted, convicted or had a civil judgment rendered against Borrower or
any of its Principals for any of the offenses listed in any of the
Debarment Regulations. Unless authorized by Ex-Im Bank, Borrower will not
knowingly enter into any transactions in connection with the Items with
any person who is debarred, suspended, declared ineligible or voluntarily
excluded from participation in procurement or nonprocurement transactions
with any United States federal government department or agency pursuant to
any of the Debarment Regulations. Borrower will provide immediate written
notice to Lender if at any time it learns that the certification set forth
in this Section 2.19 was erroneous when made or has become erroneous by
reason of changed circumstances.
ARTICLE III
RIGHTS AND REMEDIES
3.01 Indemnification. Upon Ex-Im Bank's payment of a Claim to Lender in
connection with the Loan Facility pursuant to the Master Guarantee
Agreement, Ex-Im Bank may assume all rights and remedies of Lender under
the Loan Documents and may enforce any such rights or remedies against
Borrower, the Collateral and any Guarantors. Borrower shall hold Ex-Im
Bank and Lender harmless from and indemnify them against any and all
liabilities, damages, claims, costs and losses incurred or suffered by
either of them resulting from (a) any materially incorrect certification
or statement knowingly made by Borrower or its agent to Ex-Im Bank or
Lender in connection with the Loan Facility, this Agreement, the Loan
Authorization Agreement or any other Loan Documents or (b) any material
breach by Borrower of the terms and conditions of this Agreement, the Loan
Authorization Agreement or any of the other Loan Documents. Borrower also
acknowledges that any statement, certification or representation made by
Borrower in connection with the Loan Facility is subject to the penalties
provided in Article 18 U.S.C. Section 1001.
3.02 Liens. Borrower agrees that any and all Liens granted by it to Lender are
also hereby granted to Ex-Im Bank to secure Borrower's obligation, however
arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank
pursuant to the Master Guarantee Agreement. Lender is authorized to apply
the proceeds of, and recoveries from, any property subject to such Liens
to the satisfaction of Loan Facility Obligations in accordance with the
terms of any agreement between Lender and Ex-Im Bank.
ARTICLE IV
MISCELLANEOUS
4.01 Governing Law. This Agreement and the Loan Authorization Agreement and the
obligations arising under this Agreement and the Loan Authorization
Agreement shall be governed by, and construed in accordance with, the law
of the state governing the Loan Documents.
<PAGE>
17
4.02 Notification. All notices required by this Agreement shall be given in the
manner and to the parties provided for in the Loan Agreement.
4.03 Partial Invalidity. If at any time of the provisions of this Agreement
becomes illegal, invalid or unenforceable in any respect under the law of
any jurisdiction, neither the legality, the validity nor the
enforceability of the remaining provisions hereof shall in any way be
affected or impaired.
4.04 Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO
RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR
ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMMISSIONS
OF LENDER, EX-IM BANK, OR ANY OTHER PERSON, RELATING TO THIS AGREEMENT,
THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN DOCUMENT.
<PAGE>
18
IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly
executed as of the 29 day of June, 1999.
Elcotel, Inc.
- -------------------------
(Name of Borrower)
By: /s/ William H. Thompson
--------------------------
(Signature)
Name: William H. Thompson
------------------------
(Print or Type)
Title: Senior Vice President, CFO
- ----------------------------------
(Print or Type)
ACKNOWLEDGED:
NationsBank (wholly owned subsidiary of Bank of America)
- ---------------------------------------------------------
(Name of Lender)
By: /s/ Michelle De Sousa
-----------------------
(Signature)
Name: Michelle D. Sousa
---------------------
(Print or Type)
Title: SVP, Trade Officer
--------------------
(Print or Type)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS IN THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 20
<SECURITIES> 0
<RECEIVABLES> 13,833
<ALLOWANCES> 1,929
<INVENTORY> 13,166
<CURRENT-ASSETS> 30,418
<PP&E> 9,648
<DEPRECIATION> 4,607
<TOTAL-ASSETS> 70,753
<CURRENT-LIABILITIES> 9,489
<BONDS> 11,308
0
0
<COMMON> 136
<OTHER-SE> 49,820
<TOTAL-LIABILITY-AND-EQUITY> 70,753
<SALES> 9,835
<TOTAL-REVENUES> 12,758
<CGS> 6,473
<TOTAL-COSTS> 8,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 71
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> (553)
<INCOME-TAX> (203)
<INCOME-CONTINUING> (350)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (350)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
