<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-----------------------------------
or
( ) TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to __________________
Commission file number 0-17893
------------------------------------------------
TELTRONICS, INC.
- --------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2937938
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2150 Whitfield Industrial Way, Sarasota, FL 34243-4046
- --------------------------------------------------------------------------
(Address or principal executive offices)
Issuer's telephone number (941) 753-5000
-------------------------------------------------
Not Applicable
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
year)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
-------- --------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,366,013 shares of
voting common stock.
<PAGE> 2
PART I - FINANCIAL INFORMATION
TELTRONICS, INC.
<TABLE>
BALANCE SHEET
ASSETS
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 330,009 $ 264,379
Accounts receivable, net of
allowance for doubtful
accounts of $144,879 at
September 30, 1996 and
$65,239 at December 31, 1995 5,549,133 3,207,556
Inventories 6,951,214 3,239,658
Prepaid expenses and other
current assets 344,103 167,948
----------- -----------
Total current assets 13,174,459 6,879,541
----------- -----------
PROPERTY AND EQUIPMENT, NET 2,840,923 1,636,067
----------- -----------
OTHER ASSETS:
Prepaid lease guarantee, net 249,687 270,684
Software development costs, net 0 66,822
Other 270,073 60,837
----------- -----------
Total other assets 519,760 398,343
----------- -----------
TOTAL ASSETS $16,535,142 $ 8,913,951
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 3
<TABLE>
BALANCE SHEET
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
September 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of long
term debt $ 4,428,051 $ 2,565,070
Current portion of long
term lease obligations 382,127 152,646
Accounts payable 4,613,986 2,388,231
Accrued liabilities 772,910 730,122
Deferred income 123,378 87,169
Other current liabilities 649,552 68,870
----------- -----------
Total current liabilities 10,970,004 5,992,108
----------- -----------
LONG-TERM LIABILITIES:
Capital lease obligations,
less current portion 280,652 218,865
Long-term debt,
less current portion 987,091 364,808
----------- -----------
Total long-term liabilities 1,267,743 583,673
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred Stock, Series A,
$.001 par value, 5,000,000
shares authorized, 3,500
issued and outstanding 4 0
Common Stock, $.001 par
value, 45,000,000 shares
authorided, 3,366,013
voting shares issued and
outstanding 3,367 2,611
Additional paid-in capital 13,161,243 10,861,593
Accumulated deficit (8,867,219) (8,526,034)
----------- -----------
Total shareholders' equity 4,297,395 2,338,170
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $16,535,142 $ 8,913,951
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 4
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
=========== =========== =========== ===========
<S> <C> <C> <C> <C>
SALES $ 7,063,549 $ 5,461,479 $20,372,810 $16,811,973
COST OF GOODS SOLD 4,729,187 3,190,689 13,686,934 10,687,728
----------- ----------- ----------- -----------
GROSS PROFIT 2,334,362 2,270,790 6,685,876 6,124,245
----------- ----------- ----------- -----------
OPERATING EXPENSES
General and
administrative 667,335 480,423 1,681,862 1,249,591
Research and
development 4,823 352,022 1,014,145 1,150,583
Selling and marketing
expenses 1,381,532 1,035,438 3,945,159 2,853,764
----------- ----------- ----------- -----------
2,393,690 1,867,883 6,641,166 5,253,938
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (59,328) 402,907 44,710 870,307
OTHER INCOME (EXPENSES)
Interest (138,011) (102,633) (397,874) (280,921)
Miscellaneous (8,931) 1,161 11,979 (1,453)
Financing expense 0 0 0 (65,500)
----------- ----------- ----------- -----------
(146,942) (101,472) (385,895) (347,874)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
INCOME TAXES (206,270) 301,435 (341,185) 522,433
PROVISION (BENEFIT) FOR
INCOME TAXES 0 0 0 0
NET INCOME (LOSS) $(206,270) $ 301,435 $ (341,185) $ 522,433
=========== =========== =========== ===========
NET INCOME (LOSS)
PER SHARE $ (0.06) $ 0.12 $ (0.10) $ 0.29
=========== =========== =========== ===========
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 3,366,013 2,550,168 3,366,013 1,811,611
=========== =========== =========== ===========
</TABLE>
See accompanying notes
<PAGE> 5
<TABLE>
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
SERIES A
PREFERRED
COMMON STOCK STOCK
===================== ==============
Shares Amount Shares Amount
========= ======= ====== ======
<S> <C> <C> <C> <C>
BALANCE AT,
December 31, 1995 2,610,168 $ 2,611 0 0
Shares issued pursuant
to exercise of
Purchase Warrants 1,845 2 0 0
Shares issued pursuant
to exercise of 1995
Incentive Stock
Option Plan 4,000 4 0 0
Shares issued for
purchase of assets of
Shared Resource
Exchange, Inc. 750,000 750 0 0
Shares issued pursuant
to Subscription
Agreement 0 0 3,500 4
Net Profit 0 0 0 0
--------- ----- ----- ---
BALANCE AT,
September 30, 1996 3,366,013 $ 3,367 3,500 $ 4
========= ======== ===== ===
<CAPTION>
Retained
Additional Earnings
Paid-In (Accumulated
Capital Deficit) Total
========== ============ =========
<S> <C> <C> <C>
BALANCE AT
December 31, 1995 $10,861,593 $(8,526,034) $2,338,170
Shares issued pursuant
to exercise of
Purchase Warrants 5,533 0 5,535
Shares issued pursuant
to exercise of 1995
Incentive Stock
Option Plan 6,496 0 6,500
Shares issued for
purchase of assets of
Shared Resource
Exchange, Inc. 2,286,750 0 2,287,500
Shares issued pursuant
to Subscription
Agreement 871 0 875
Net Profit 0 (341,185) (341,185)
--------- --------- ---------
BALANCE AT,
September 30, 1996 $13,161,243 $(8,867,219) $4,297,395
=========== =========== ==========
</TABLE>
See accompanying notes
<PAGE> 6
<TABLE>
STATEMENTS OF CASH FLOWS (Unaudited)
9 MONTHS ENDED
September 30,
---------------------------
1996 1995
============ ===========
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (341,185) $ 522,433
Adjustments to reconcile net
income to net cash:
Depreciation and amortization 471,040 412,592
Cost of conversion rights 0 65,500
Changes in assets and liabilities:
Accounts receivable
and other assets (2,127,128) (1,003,734)
Income tax receivable 0 638,080
Inventories (784,174) (72,468)
Accounts payable and
accrued liabilities 1,905,490 149,047
Deferred income 36,209 60,577
Other current liabilities (188,190) 16,236
----------- -----------
Net cash flows from
operating activities (1,027,938) 788,263
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (792,401) (765,630)
Capitalized software
development costs (209,914) 0
----------- -----------
Net cash flows from
investing activities (1,002,315) (765,630)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit 15,956,204 16,460,667
Repayment on line of credit (14,089,977) (15,704,829)
Repayment of notes payable and
other long-term debt (254,957) (671,386)
Advance from related party 0 14,000
Cash received from issuance of stock 12,035 0
Proceeds from notes/leases payable 267,882 441,823
----------- -----------
Net cash flows from
financing activities 1,891,187 540,275
----------- -----------
Net increase (decrease) in cash (139,066) 562,908
Cash received in acquisition of
Shared Resource Exchange, Inc. 204,696 0
Cash and cash equivalents,
beginning of year 264,379 19,824
----------- -----------
Cash and cash equivalents, end of period $ 330,009 $ 582,732
=========== ===========
</TABLE>
See accompanying notes
<PAGE> 7
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
NOTE A - GENERAL
The financial statements as of September 30, 1996 and for the nine month
period then ended are unaudited and, in the opinion of the Company, reflect
all adjustments necessary for a fair presentation of such data and have been
prepared on a basis consistent with the December 31, 1995 Audited Financial
Statements. All such adjustments were of a normal recurring nature. The
unaudited results of operations for the interim periods reported are not
necessarily indicative of results to be expected for the year.
The year-end condensed balance sheet data included in the condensed financial
statements was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The statements therefore should be read in conjunction with the financial
statements and related notes included in the Company's Form 10-KSB for the
year ended December 31, 1995.
NOTE B - ACQUISITION
On September 20, 1996, the Company acquired substantially all of the assets
of Shared Resource Exchange, Inc., a Delaware corporation ("Seller") located
in Dallas, Texas.
The Company delivered an aggregate of 650,000 restricted shares of its voting
common stock for substantially all of the assets of the Seller ("Purchased
Assets") and an aggregate of 100,000 restricted shares of its voting common
stock to discharge an aggregate face amount of $600,000 of debt owed by
Seller to certain of its lenders ("Noteholders"). In addition, the Company
agreed to assume: (i) approximately $374,000 of Seller's accounts payable;
(ii) open purchase orders of approximately $207,000; (iii) funding of
severance obligations of Seller to its employees of approximately $205,000;
(iv) fees owed by Seller to professionals in the aggregate of approximately
$204,000; and (v) certain other obligations.
The shares of voting common stock issued to the Seller and the Noteholders
("Shares") are not registered under the Securities Act of 1933 ("Act") and
are therefore subject to the resale restrictions set forth in Rule 144
promulgated under the Act. The holders of the Shares have been granted
certain registration rights under a Registration Rights Agreement which
allows them to elect to have their Shares registered under the Act if the
Company proposes to register any of its securities under the Act in an
offering for cash.
Seller and the Company entered into an Escrow Agreement under which 120,000
of the Shares issued to the Seller have been placed in escrow to cover
certain reimbursement and/or indemnification rights of the Company.
The Purchased Assets included purchase orders in an aggregate amount of
approximately $6,000,000 placed by various vendors including purchase orders
placed by Motorola, Inc. ("Motorola Orders") with Seller covering both E-911
products and WiLL products in an aggregate amount of approximately
$4,500,000. The Company has assumed and agreed to perform Seller's
obligations under the Motorola Orders.
<PAGE> 8
As part of the acquisition of the assets of the Seller, the Company also
acquired certain inventory for use in completion of the Motorola Orders from
one of Seller's contract manufacturers at a price of approximately $1,443,000
paid in cash and the Company's promissory note in the principal amount of
approximately $500,000 payable over six (6) months without interest, covering
the balance of the purchase price to the manufacturer of the inventory.
NOTE C - SUBSEQUENT EVENTS
On October 18, 1996 the Company increased the Term Loan portion of its
indebtedness to The CIT Group/CREDIT FINANCE, INC. from approximately
$116,000 to $616,000 and delivered its secured promissory note in the
principal amount of $616,000.
In October, 1996 the Company granted options to certain parties to acquire up
to an aggregate of 375,000 restricted shares of the Company's voting common
stock at a price of $3.21 per share. The options, if not exercised, are
scheduled to expire on December 31, 1996.
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL OVERVIEW
The first nine months of 1996 reflected sales of $20,373,000 compared to
$16,812,000 for the first nine months of 1995. The increased sales were the
result of additional sales of $5,850,000 provided by AT Supply, Inc. ("AT
Supply"), an 80% owned subsidiary located in San Antonio, Texas and formed in
October 1995. Gross profit increased to $6,686,000 from $6,124,000 for the
same period last year, primarily as a result of the increased sales. Total
operating expenses increased to $6,641,000 from $5,254,000 for the first nine
months of the prior year. The increased operating expenses were primarily
the result of $769,000 attributable to AT Supply coupled with $434,000 in R&D
and general expenses recorded by the Company's wholly owned subsidiary,
Interactive Solutions, Inc. ("IS"). The first nine months of 1996 reflected
a net loss of $(341,000) compared to a net profit of $522,000 for the first
nine months of 1995. The loss for the first nine months is the direct result
of the added R&D expenditures incurred by IS as continued technological
advancements are made on the Company's small, voice driven, interactive,
multimedia computer.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
For the three months ended September 30, 1996 sales increased to $7,063,549
from $5,461,479. The sales increase was the result of approximately
$2,335,000 in sales contributed by AT Supply. Gross profit increased to
$2,334,362 compared to $2,270,790 as a direct result of increased sales. The
gross profit percentage of sales declined from 41.6% to 33.05% as a result of
AT Supply, whose margins are typically in the 16%-18% range as well as some
changes in other product mixes.
Total operating expenses for the three months ended September 30, 1996 were
$2,393,690 compared to $1,867,883 for the comparable period of 1995. The
increase in operating expenses is primarily the result of approximately
$291,000 in expenses attributable to AT Supply and $177,000 in expenses
associated with IS. As a direct result of the increased expenditures, an
operating loss of $(59,328) was reflected for the three month period ended
September 30, 1996 compared to an operating profit of $402,907 for the
corresponding three month period of 1995.
Other income and expenses for the three month period ended September 30, 1996
reflected expenses of $146,942 compared to expenses of $101,472 for the three
month period ended September 30, 1995.
The three month period ended September 30, 1996 reflected a net loss of
$(206,270) compared to a profit of $301,435 for the same period of 1995
primarily as a direct result of the Company's decision to pursue the
opportunities associated with research and development efforts of IS.
<PAGE> 10
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Total sales for the nine months ended September 30, 1996 increased by 21.2%
to $20,372,810 compared to $16,811,973 for the first nine months of 1995.
The sales increase was the result of approximately $5,850,000 in sales
recorded by AT Supply.
Gross profit for the first nine months increased to $6,685,876 from
$6,124,245 for the same period of 1995. Gross profit reflected at 32.8% of
sales for the first nine months of 1996 as compared to 36.4% for the same
period of 1995. The decline in gross profit percentage is related to the
increased sales of AT Supply whose margins are typically in the 16%-18% range
coupled with some changes in other product mixes.
Total operating expenses for the first nine months were $6,641,166, an
increase of $1,387,228 from the same period of last year. The increase in
operating expenses is directly attributable to At Supply which recorded
$769,265 in operating expenses and IS which recorded $433,935 in expenses
during the first nine months of 1996.
Operating income for the first nine months of 1996 was $44,710 compared to
$870,307 for the first nine months of 1995. The reduced operating income
level for this period is tied to the R&D expenditures of approximately
$434,000 recorded by IS during the first nine months coupled with the decline
in gross margin percentage, due primarily to AT Supply.
Other income and expenses reflected expenses of $385,895 for the first nine
months of 1996 compared to $347,874 for the corresponding period of 1995.
Interest expense increased by $116,953 to $397,874 for the first nine months
of 1996.
The nine month period ended September 30, 1996 reflected a net loss of
$(341,185) compared to a profit of $522,433 for the first nine months of
1995. The net loss position at the end of nine months is directly related to
the decision to invest approximately $434,000 in expenditures during the year
to pursue the opportunities related to the technology of IS.
FINANCIAL CONDITION
Total assets at September 30, 1996 were $16,535,142 compared to $8,913,951 at
December 31, 1995. The Company's current ratio at September 30, 1996 was
1.20:1 compared to 1.14:1 at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash requirements were met with cash provided by borrowings from The CIT
Group/Credit Finance ("CIT"). The CIT facility was modified May 14, 1996 to
provide borrowings up to $4,950,000. Previously the line had provided for
borrowing up to $3,500,000. On October 18, 1996 the Company signed a new
term loan with CIT in the amount of $616,300, secured by fixed assets at an
interest rate of 3% above the prime rate to be repaid monthly until fully
paid on October 28, 1999. The remaining line facility is a revolving loan
secured by inventory and receivables at an interest rate of prime plus 3%.
Effective November 1, 1996, the interest rate was reduced to an interest rate
of 2.5% above the prime rate.
<PAGE> 11
The Company's working capital ratio at September 30, 1996 was 1.20:1. Net
working capital was $2,204,455 at September 30, 1996. Short term
requirements are expected to be met through cash flows from operations
augmented by the credit line facility.
In addition, the Company is exploring the possibility of other equity or debt
financing.
OUTLOOK
The Company anticipates continued positive results from its subsidiary AT
Supply which contributed $5,850,000 in additional sales and $190,000 in
operating income during the first nine months of 1996.
The Company continues to invest in the product development of Mentis by IS.
The Company has successfully produced a number of prototypes, one of which is
undergoing evaluation by a major international company. The Company believes
that Mentis has a niche market in the marketplace of procedural assists,
hands free training. If the Company is successful with its current
prototypes, it believes it should have production versions ready during the
first quarter of 1997.
On September 19, 1996, the Company successfully closed on the purchase of
substantially all of the assets of Shared Resource Exchange, Inc. ("SRX"), a
digital switching company based in Dallas, Texas. The Company currently has
orders in backlog of over $6,000,000 to be delivered over the next six
months. Due to the specialized nature of SRX's business, the Company has
decided to set up a development and support center in Dallas. The Company
has successfully recruited a number of the former SRX employees, which will
allow it to develop products more quickly. The main sales, marketing and
manufacturing have all been moved to Sarasota, Florida.
The Company's traditional business of Remote Monitoring and Contract
Manufacturing continue to grow. Our Long Distance Management products, as
anticipated, have slowed and our Communications Management business is
currently flat.
The Company believes that its investment in AT Supply, Interactive Solutions
and now SRX, together with its profitable mainstream business, should enable
the Company to return to profit during 1997.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None other than as reported in the Quarterly
Report on Form 10-QSB for the six month period ended June 30, 1996.
ITEM 2. CHANGES IN SECURITIES
No change in any class of registered securities except that the
number of shares of the Company's voting common stock, $.001 par
value, authorized to be issued was decreased from 50,000,000 to
40,000,000 shares under the Company's Restated Certificate of
Incorporation filed in August, 1996. In September, 1996, the
Company issued 3,500 shares of its Series A Preferred Stock each
of which share has no liquidation preference but entitles the holder
to 400 votes which will have a dilutive effect on the voting power
associated with the voting common stock of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders on August 6, 1996, the
shareholders of the Company:
(1) Elected Norman R. Dobiesz, Ewen R. Cameron and Carl S.
Levine directors to serve until the next annual meeting of
the shareholders (2,145,772 votes in favor, 2,432 votes
withheld/abstentions, 41,683 non-votes);
(2) Ratified the appointment of Millward & Co. as the Company's
independent auditors for the 1996 fiscal year (2,146,730
votes in favor, 1,076 votes opposed, 292 abstentions); and
(3) Approved an amendment to and restatement of the Company's
Restated Certificate of Incorporation (1,698,652 votes in
favor, 15,652 votes opposed and 3,188 abstentions).
The subject matter set forth in the AUTHORIZATION OF AMENDMENT AND
RESTATEMENT OF THE RESTATED CERTIFICATE OF INCORPORATION (pages 9 -
13) section of the Company's 1996 Proxy Statement filed pursuant to
Regulation 14A, on June 24, 1996, is hereby incorporated herein by
reference.
ITEM 5. OTHER INFORMATION - None
<PAGE> 13
ITEM 6A. EXHIBITS
10.6 Stock Option Agreement dated as of October 15, 1996
among Teltronics, Inc. and certain parties...............(a)
10.7 Term Note dated September 20, 1996 in the principal
amount of $490,423 delivered to Solectron Texas, L.P.....(a)
10.8 Secured Promissory Note dated October 18, 1996 in the
principal amount of $616,300 delivered to The CIT Group/
Credit Finance, Inc......................................(a)
10.9 Agreement of Sale dated September 19, 1996 by and
among Shared Resource Exchange, inc., SRX of
Florida, Inc. and Teltronics, Inc........................(b)
10.10 Escrow Agreement made and entered into September 19,
1996 by and among Shared Resource Exchange, Inc.
SRX of Florida, Inc., Teltronics, Inc. and Sevin Rosen
Bayless Management Company...............................(b)
10.11 Registration Rights Agreement among Shared Resource
Exchange, Inc., Teltronics, Inc. and certain parties
dated as of September 19, 1996...........................(b)
10.12 Restated Certificate of Incorporation of Teltronics,
Inc. filed with the Delaware Secretary of State on
August 12, 1996..........................................(b)
10.13 Certificate of Designations of Preference of Series A
Preferred Stock of Teltronics, Inc. filed with the
Delaware Secretary of State on August 19, 1996...........(b)
27 Financial Data Schedule..................................(a)
ITEM 6B. REPORT ON FORM 8-K
Report filed on October 4, 1996 to report the acquisition of
substantially all of the assets of Shared Resource Exchange, Inc.
by SRX of Florida, Inc. Financial Statements will be filed.
_________________
(a) Filed as an Exhibit to this Quarterly Report on Form 10-QSB for
the nine month period ended September 30, 1996.
(b) Filed as an Exhibit to form 8-K filed October 4, 1996.
<PAGE> 14
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TELTRONICS, INC.
November 19, 1996 Ewen Cameron
President and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB FOR QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 330,009
<SECURITIES> 0
<RECEIVABLES> 5,549,133
<ALLOWANCES> 0
<INVENTORY> 6,951,214
<CURRENT-ASSETS> 13,174,459
<PP&E> 2,840,923
<DEPRECIATION> 0
<TOTAL-ASSETS> 16,535,142
<CURRENT-LIABILITIES> 10,970,004
<BONDS> 0
0
4
<COMMON> 3,367
<OTHER-SE> 4,294,024
<TOTAL-LIABILITY-AND-EQUITY> 16,535,142
<SALES> 20,372,810
<TOTAL-REVENUES> 20,372,810
<CGS> 13,686,934
<TOTAL-COSTS> 6,641,166
<OTHER-EXPENSES> (11,979)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397,874
<INCOME-PRETAX> (341,185)
<INCOME-TAX> 0
<INCOME-CONTINUING> (341,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (341,185)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
<PAGE>
EXHIBIT 10.6
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of October 15, 1996, among
TELTRONICS, INC., a Delaware corporation with an office located at 2150
Whitfield Industrial Way, Sarasota, Florida 34243 (the "Company"), the
persons and entities set forth on SCHEDULE A hereto whose signatures appear
below (individually, an "Optionee" and collectively, the "Optionees") and
Sevin Rosen Bayless Management Company ("Agent"), as agent for Optionees.
W I T N E S S E T H :
WHEREAS, the Company desires to grant the Optionees an option (the
"Option") to purchase shares of the Company's Common Stock, par value $.001
per share ("Common Stock"), on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual covenants and
premises set forth herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. GRANT OF OPTION.
(a) The Company hereby grants to the Optionees an option to
purchase, in the aggregate, up to 375,000 shares of Common Stock (the
"Shares") at a purchase price of $3.21 per Share ("Exercise Price").
(b) Each Optionee shall be entitled to exercise this Option and
purchase for his, her or its own account, on or before December 15, 1996, a
percentage of the Shares in an amount (the "Allocable Share") set forth on
SCHEDULE A hereto.
2. EXERCISE OF OPTION. Subject to Section 4 hereof, this Option
shall be exercisable during the term set forth in Section 5 hereof as
follows:
(a) METHOD OF EXERCISE. This Option shall be exercisable from
time to time by written notice of an Optionee to Agent which shall state the
number of Shares in respect of which this Option is being exercised by such
Optionee, and which shall contain or be accompanied by an investment
representation as set forth in EXHIBIT 1 hereto. Such written notice shall
be signed by such Optionee exercising this Option and shall be delivered in
person or by certified mail to Agent. The written notice shall be
accompanied by payment of the Exercise Price for the number of Shares as to
which this Option is being exercised by such Optionee.
(b) NUMBER OF SHARES EXERCCISABLE. Each exercise of an Option by
an Optionee hereunder shall reduce, pro tanto, the total number of Shares
that may thereafter be purchased by such Optionee under such Option and shall
reduce the Allocable Share of such Optionee by such number of Shares as to
which this Option has been exercised by such Optionee.
(c) AGENT'S DELIVERY. On or before December 20, 1996 Agent shall
deliver in person or by certified mail to the Secretary of the Company any
and all of the notices, investment representations and payments received from
Optionees on or prior to December 15, 1996 with respect to the exercise of
the Option as to such Optionees' Allocable Share.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by
check, subject to collection.
4. FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the Exercise by an Optionee of the Option.
5. TERM OF OPTION AND AGREEMENT.
(a) This Option may only be exercised by Agent on behalf of each
Optionee with respect to his, her or its Allocable Share on or before
December 20, 1996, and may be exercised by Agent only one time during such
term only in accordance with the terms of this Option and only with respect
to the exercise of this Option for which notices, payments and investment
representations have been received by Agent from such Optionees on or prior
to December 15, 1996.
(b) If, on December 15, 1996, this Option has not been fully
exercised, then the Agent shall, by December 20, 1996, send written notice to
all Optionees that have fully exercised this Option with respect to their
respective Allocable Share ("Participating Optionees"), indicating the number
of Shares as to which this Option has not been exercised ("Remaining Shares")
and indicating the Second Allocable Share (as defined in Section 5(c) hereof)
applicable to each Participating Optionee.
(c) Each Participating Optionee shall have the right, exercisable
on or before December 31, 1996, to purchase a percentage of the Remaining
Shares in an amount equal to the ratio of (i) the percentage of such
Participating Optionee as set forth on SCHEDULE A hereto, to (ii) the total
sum of the percentages of all of the Participating Optionees ("Second
Allocable Share").
(d) Each Participating Optionee may exercise this Option with
respect to all, but not less than all, of his, her or its Second Allocable
Share and any such exercise shall be made by delivery to Agent of a notice of
exercise, together with the payment therefor and investment representations
required hereunder, on or before December 31, 1996. On or before January 5,
1997, Agent shall deliver in person or by certified mail to the Secretary of
the Company, any and all of the notices, investment representations, and
payments received from Participating Optionees on or prior to December 31,
1996 with respect to the exercise of this Option as to such Optionees' Second
Allocable Share.
(e) The Shares issuable pursuant to the exercise of options
hereunder (the "Option Shares") shall, subject to collection, be delivered to
Agent on or before January 15, 1997, and Agent shall promptly deliver such
shares to the Participating Optionees.
6. REGISTRATION RIGHTS. The Company and the Participating
Optionees shall enter into a Registration Rights Agreement in the form set
forth in EXHIBIT 2 hereto.
7. MISCELLANEOUS.
(a) This Agreement shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of New York,
without regard to principles of conflicts of law.
(b) This Agreement represents the entire agreement between the
parties, and supersedes all negotiations, agreements, representations,
warranties and commitments, whether in writing or oral, prior to the date
hereof. This Agreement may not be modified, amended, or any provision hereof
waived in whole or in part except by a written agreement signed by the
parties.
(c) All notices and other communications required by or otherwise
with respect to this Agreement shall be in writing and shall be deemed to
have been duly given and delivered to either party (i) when delivered
personally (by courier service or otherwise), (ii) on the business day after
the date sent by a nationally recognized overnight courier service, or (iii)
three days after being mailed by first-class registered or certified mail,
return receipt requested, in the case of the Company, to the address set
forth in the preamble hereto and in the case of an Optionee, to such address
as set forth below Optionee's signature hereto (or at such other addresses as
the parties may notify each other of in accordance with the provisions of
this Section 7(c)).
IN WITNESS WHEREOF, the undersigned have executed this Stock Option
Agreement as of the date first written above.
TELTRONICS, INC.
By: Ewen R. Cameron
Title: President & CEO
SEVIN ROSEN BAYLESS MANAGEMENT COMPANY, as
Agent
By: Jon W. Bayless
Title: President
<PAGE>
SEVIN ROSEN FUND II, L.P.
By: Jon W. Bayless
Title: General Partner
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
SEVIN ROSEN FUND III, L.P.
By: Jon W. Bayless
Title: General Partner
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
KLEINER PERKINS CAUFIELD & BYERS III
By: L. John Doerr
Title: General Partner of The General Patner KPCB Associates L.P.
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
KLEINER PERKINS CAUFIELD & BYERS IV
By: L. John Doerr
Title: General Partner of The General Partner of KPCB IV Associates L.P.
Address: 2750 Sand Hill Road
Menlo Park, CA 94025
GIBRALTAR TRUST
By:
Title:
Address:
JON W. BAYLESS, IRA
By: Jon W. Bayless
Title:
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
SAM K. SMITH
By:
Title:
Address:
MICAS TRVST LTD.
By: Jon W. Bayless
Title: General Partner
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
FREDERIC A. RUBINSTEIN
By: Frederick A. Rubinstein
Title:
Address: 101 Park Avenue
New York, NY 10178
RICHARD LONG
By:
Title:
Address:
399 VENTURE PARTNERS, INC.
By: Stuart L. Agranoff
Title: Vice President
Address: 399P/14th FL-ZN 4/559-1054
J.F. SHEA CO. INC., as Nominee
By: Edmund H. Shea, Jr.
Title: Vice President
Address: 655 Brea Canyon Road
Walnut, CA 91789
NBR-SRX,LTD.
By:
Title:
Address:
CHARLES H. PHIPPS
By:
Title:
Address:
EDWIN A. ALLBRITTON, S/D IRA
By: Edwin A. Allbritton
Title: Trustee
Address: 13344 Noel Road, Suite 1375
Dallas, TX 75240
JON W. BAYLESS
By: Jon W. Bayless
Title:
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
W. SUE BAYLESS
By: Jon W. Bayless
Title: Attorney-In-Fact
Address: 13455 Noel Road, Suite 1670
Dallas, TX 75240
HUDSON TRUST
By: Peter M. Rup
Title: Attorney-In-Fact
Address:
INTERWEST PARTNERS V
By: Philip T. Gianos
Title: General Partner
Address: 3000 Sand Hill Road, Building 3, Suite 255
Menlo Park, CA 94025
INTERWEST INVESTORS V
By: Philip T. Gianos
Title: Power of Attorney
Address: 3000 Sand Hill Road, Building 3, Suite 255
Menlo Park, CA 94025
<PAGE>
SCHEDULE A
OPTIONEE PERCENTAGE
Sevin Rosen Fund II, L.P. 0.736510%
Sevin Rosen Fund III, L.P. 11.439089%
Kleiner Perkins Caufield & Byers III 4.997301%
Kleiner Perkins Caufield & Byers IV 17.018514%
Gibraltar Trust 18.177087%
Jon W. Bayless, IRA 0.257286%
Sam K. Smith 0.017556%
Micas Trvst Ltd. 0.074633%
Frederic A. Rubinstein 0.120158%
Richard Long 0.000777%
399 Venture Partners, Inc. 0.606931%
J.F. Shea Co., Inc., as Nominee 2.752912%
NBR-SRX, Ltd. 5.971017%
Charles H. Phipps 0.060941%
Edwin A. Allbritton, S/D IRA 0.132561%
Jon W. Bayless 4.325926%
W. Sue Bayless 4.267221%
Hudson Trust 2.427084%
InterWest Partners V 26.450144%
InterWest Investors V 0.166353%
<PAGE>
EXHIBIT 1
[Date]
Teltronics, Inc.
2150 Whitfield Industrial Way
Sarasota, Florida 34243
Re: INVESTMENT REPRESENTATIONS
Ladies and Gentlemen:
I hereby exercise my Option to purchase ________________ shares of the
voting common stock of Teltronics, Inc. (the "Company"), par value $.001 per
share, pursuant to the Stock Option Agreement between, INTER ALIA, the
Company and the undersigned, dated October 15, 1996 (the "Stock Option
Agreement")
In connection with the exercise of the Option to purchase such shares,
the undersigned represents and warrants that:
(i) INVESTMENT REPRESENTATIONS. The undersigned is acquiring the
shares being issued to the undersigned hereunder for its own account, for
investment purposes and not with a view to, or for sale in connection with,
any distribution of such shares or any part thereof.
(ii) INVESTMENT EXPERIENCE; Access to Information. The undersigned
(a) is an "accredited investor" as that term is defined in Rule 501(a)
promulgated under the Securities Act, (b) is an investor experienced in the
evaluation of businesses similar to the Company, (c) is able to fend for
itself in the transactions contemplated by the Stock Option Agreement,
(d) has such knowledge and experience in financial, business and investment
matters as to be capable of evaluating the merits and risks of this
investment, (e) has the ability to bear the economic risks of this
investment, (f) was not organized or reorganized for the specific purpose of
acquiring the shares purchased by it, and (g) has been afforded prior to the
date hereof the opportunity to ask questions of, and to receive answers from,
the Company and to obtain any additional information, to the extent the
Company has such information or could have acquired it without unreasonable
effort or expense, all as necessary for it to make an informed investment
decision with respect to the purchase of the shares.
(iii) ABSENCE OF REGISTRATION. The undersigned understands that:
(a) The shares to be sold and issued hereunder are unregistered
and may be required to be held indefinitely unless they are subsequently
registered under the Securities Act, or an exemption from such registration
is available.
(b) The Company is under no obligation to file a registration
statement with the Securities and Exchange Commission with respect to the
shares.
(c) Rule 144 promulgated under the Securities Act of 1933
("Rule 144"), which provides for certain limited sales of unregistered
securities, is not presently available with respect to the shares, and the
Company is under no obligation to make Rule 144 available.
(iv) RESTRICTIONS ON TRANSFER. It will not offer, sell, pledge,
hypothecate, or otherwise dispose of the shares unless such offer, sale,
pledge, hypothecation or other disposition (a) is registered under the
Securities Act of 1933 and any applicable state law, or (b) does not violate
the Securities Act of 1933 or any applicable state law, and (c) the
certificate(s) representing the shares shall bear a legend stating in
substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
DOES NOT VIOLATE THE PROVISIONS THEREOF.
Upon request of a holder of the shares, the Company shall remove the
legend set forth above from the certificates evidencing such shares, or issue
to such holder new certificates therefor free of such legend, if with such
request the Company shall have received an opinion of counsel selected by the
holder and reasonably satisfactory to the Company, in form and substance
reasonably satisfactory to the Company, to the effect that such shares are
not required by the Securities Act of 1933 to continue to bear the legend.
(v) TRANSFER INSTRUCTIONS. The undersigned agrees that the Company
may provide for appropriate transfer instructions to implement the provisions
hereof.
(vi) ECONOMIC RISK. The undersigned understands that it must bear the
economic risk of the investment represented by the purchase of the shares for
an indefinite period.
_____________________________________
(Optionee)
By __________________________________
Name:
Title:
<PAGE>
Exhibit 2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of ________, 1996, among
Teltronics, Inc., a Delaware corporation (the "Company") and those parties
listed on Schedule 1 attached hereto (the "Optionees").
W I T N E S S E T H:
WHEREAS, pursuant to a Stock Option Agreement, dated October 15, 1996
(the "Stock Option Agreement"), among the Company, the persons and entities
set forth on Schedule A thereto and Sevin Rosen Bayless Management Company,
the Company may issue shares of the Company's Common Stock, par value $.001
per share ("Common Stock"), which shares are not registered under the
Securities Act of 1933, as amended (the "Securities Act") and are subject to
the resale restrictions set forth in Rule 144 promulgated under the
Securities Act ("Rule 144"), to the Optionees.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein, the parties agree as follows:
1. REGISTRATION. The following provisions govern the registration of
the Common Stock:
1.1 DEFINITIONS. As used herein, the following terms have the
following meanings:
HOLDER: A holder of Registrable Stock (or transferee, subject to
compliance with Section 1.10 hereof), PROVIDED that anyone who acquires
any Registrable Stock in a distribution pursuant to a registration
statement filed by the Company under the Securities Act shall not
thereby be deemed to be a "Holder".
"REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration
effected by filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Securities and
Exchange Commission (the "Commission") of effectiveness of such
registration statement.
REGISTRABLE STOCK: All shares of Common Stock issued and held by the
Optionees which were issued pursuant to the terms of the Stock Option
Agreement or by a person to whom registration rights have been
transferred in compliance with the provisions of Section 1.9 hereof; and
all shares of Common Stock issued by the Company in respect of such
shares.
1.2 INCIDENTAL REGISTRATION. If the Company at any time proposes to
register any of its securities under the Securities Act in an offering for
cash (other than a registration effected solely to implement an employee
benefit plan or an exchange of securities for the assets or securities of or
the merger or consolidation with another person, firm, corporation or other
entity), it will each such time give written notice to all Holders of its
intention so to do. Upon the written request of a Holder or Holders given
within 20 days after receipt of any such notice (stating the number of shares
of Registrable Stock to be disposed of by such Holder or Holders and the
intended method of disposition), the Company shall use its best efforts to
cause all such shares of Registrable Stock intended to be disposed of, the
Holders of which shall have requested registration thereof, to be registered
under the Securities Act so as to permit the disposition (in accordance with
the methods in said request) by such Holder or Holders of the shares so
registered, subject, however, to the limitations set forth in Section 1.3.
1.3 LIMITATIONS ON INCIDENTAL REGISTRATION. If the registration of
which the Company gives notice pursuant to Section 1.2 is for an underwritten
offering, only securities that are to be included in the underwriting may be
included in the registration. Notwithstanding any provision of Section 1.2,
if the underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the underwriter may eliminate or
reduce the number of shares of Registrable Stock to be included in the
registration and underwriting. The Company shall so advise all Holders
(except those Holders who have not indicated to the Company their decision to
distribute any of their Registrable Stock through such underwriting), and the
number of shares of Registrable Stock that may be included in the
registration and underwriting shall be allocated among such Holders in
proportion, as nearly as practicable, to the respective amounts of
Registrable Stock owned by such Holders at the time of filing the
registration statement. No Registrable Stock excluded from the underwriting
by reason of the underwriter's marketing limitation shall be included in such
registration. In addition, selling Holders shall execute a mutually
acceptable lock-up agreement with the underwriter(s) in any underwritten
registration. If any Holder disapproves of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and
the underwriter. The Registrable Stock and/or other securities so withdrawn
from such underwriting shall also be withdrawn from such registration.
1.4 REGISTRATION PROCEDURES. Whenever the Company shall file a
registration statement registering shares of Common Stock, as contemplated by
Section 1.2 hereof, the Company shall:
(a) furnish to each prospective seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, in order to facilitate the public sale or
other disposition of the shares owned by such seller;
(b) use its best efforts to register or qualify the shares covered
by such registration statement under such other securities or blue sky or
other applicable laws of the states of California, New York and Texas, to
enable each prospective seller to consummate the public sale or other
disposition in such states of the shares owned by such seller; provided,
however, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not at the time so qualified or to
take any action which would subject it to service of process in suits other
than those arising out of the offer or sale of the stock covered by such
registration statement in any jurisdiction where it is not at the time so
subject;
(c) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(d) notify each Holder of Registrable Stock covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing; and
(e) apply for listing and use its best efforts to list the
Registrable Stock being registered on any national securities exchange on
which a class of equity securities of the Company are listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange, apply for qualification and use its best efforts to
qualify the Registrable Stock being registered for inclusion on the Small Cap
(trademark) automated quotation system of the National Association of
Securities Dealers, Inc. ("NASDAQ") or on a national securities exchange.
The registration rights granted under Section 1.2 shall terminate as to
any Holder if such person (a) holds one percent (1%) or less of the
outstanding shares of Common Stock and (b) would be permitted to sell all of
the Registrable Stock held by it pursuant to Rule 144(k).
1.5 DESIGNATION OF UNDERWRITER. In the case of any registration
initiated by the Company, the Company, in its sole discretion, shall have the
right to designate the managing underwriter in any underwritten offering.
1.6 COOPERATION BY PROSPECTIVE SELLERS. (a) Each prospective seller of
Registrable Stock will furnish to the Company such information as the Company
or its transfer agent may reasonably require from such seller in connection
with the registration statement (and the prospectus included therein) or the
listing of the Registrable Stock on NASDAQ.
(b) Failure of a prospective seller of Registrable Stock to
furnish the information and agreements described in this Section 1.6 or
Section 1.4(c) shall not affect the obligations of the Company under this
Section 1 to remaining sellers who furnish such information and agreements
unless, in the reasonable opinion of counsel to the Company or the
underwriters, such failure impairs or may impair the viability of the
offering or the legality of the registration statement or the underlying
offering.
(c) The Holders of Registrable Stock included in the registration
statement will not (until further notice from the Company) effect sales
thereof after receipt of telegraphic or written notice from the Company to
suspend sales to permit the Company to correct or update a registration
statement or prospectus; but the obligations of the Company with respect to
maintaining any registration statement current and effective shall be
extended by a period of days equal to the period such suspension is in effect
unless (i) such extension would result in the inability of the Company to use
the financial statements in the registration statement initially filed and
(ii) such correction or update did not result from the wrongful acts or
failures to act of the Company.
1.7 EXPENSES OF REGISTRATION. All expenses incurred in effecting any
registration pursuant to Section 1.2 including, without limitation, all
registration and filing fees, printing expenses, expenses of compliance with
blue sky laws, fees and disbursements of counsel for the Company, and
expenses of any audits incidental to or required by any such registration,
shall be borne by the Company, except that all expenses, fees and
disbursements of any counsel or other professional retained by the Holders,
and all underwriting discounts and commissions shall be borne by the Holders
of the securities registered pursuant to such registration, pro rata
according to the quantity of their securities so registered.
1.8 INDEMNIFICATION. (a) To the extent permitted by law, the Company
shall indemnify each Holder joining in a registration, each agent, officer
and director of such Holder, each person controlling such Holder and each
underwriter and selling broker of the securities so registered (collectively,
"Indemnitees") against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document incident to any registration,
qualification or compliance (or in any related registration statement,
notification or the like) or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or state securities laws or any rule or regulation
promulgated under the Securities Act, the Exchange Act or a state securities
law, in each case applicable to the Company, and will reimburse each such
Indemnitee for any legal and any other fees and expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action, PROVIDED, HOWEVER, that the Company will not be liable
to any Indemnitee in any such case to the extent that any such claim, loss,
damage or liability is caused by any untrue statement or omission so made in
conformity with information furnished to the Company by such Indemnitee for
use therein and except that the foregoing indemnity is subject to the
condition that, insofar as it relates to any such untrue statement (or
alleged untrue statement) or omission (or alleged omission) made in the
preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the Commission at the time the registration statement becomes
effective or in the amended prospectus filed with the Commission pursuant to
Rule 424(b) (the "Final Prospectus"), such indemnity shall not inure to the
benefit of any underwriter, or any Indemnitee if there is no underwriter, if
a copy of the Final Prospectus was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act; PROVIDED, FURTHER, that this
indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; PROVIDED, FURTHER, that the indemnity agreement
contained in this subsection 1.8(a) shall not apply to amounts paid in
settlement of any such claim, loss, damage, liability or action if such
settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld.
(b) To the extent permitted by law, each Holder joining in a
registration and each underwriter and selling broker of the securities so
registered shall indemnify the Company and its officers and directors and
each person, if any, who controls any thereof within the meaning of
Section 15 of the Securities Act, and their respective successors against all
claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any prospectus, offering circular or other
document incident to any registration, qualification or compliance (or in any
related registration statement, notification or the like) or any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading and shall
reimburse the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other fees and expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, PROVIDED, HOWEVER, that this paragraph (b) shall
apply only if (and only to the extent that) such statement or omission was
made in reliance upon and in conformity with information (including, without
limitation, written negative responses to inquiries) furnished to the Company
by such Holder, underwriter or selling broker for use in such prospectus,
offering circular or other document (or related registration statement,
notification or the like) or any amendment or supplement thereto; and except
that the foregoing indemnity is subject to the condition that, insofar as it
relates to any such untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission
at the time the registration statement becomes effective or in the Final
Prospectus, such indemnity shall not inure to the benefit of (i) the Company
and (ii) any underwriter, or Holder if there is no underwriter, if a copy of
the Final Prospectus was not furnished to the person or entity asserting the
loss, liability, claim or damage at or prior to the time such furnishing is
required by the Securities Act; PROVIDED, FURTHER, that this indemnity shall
not be deemed to relieve any underwriter of any of its due diligence
obligations; PROVIDED, FURTHER, that the indemnity contained in this
subsection 1.8(b) shall not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected
without the consent of the Holder or underwriter, as the case may be, which
consent shall not be unreasonably withheld; and PROVIDED, FURTHER, that the
obligations of such Holders shall be limited to an amount equal to the net
proceeds received by such Holder from the sale of such stock in such offering
as contemplated herein, unless such claim, loss, damage, liability or action
resulted from such Holder's fraudulent misconduct.
(c) Each party entitled to indemnification hereunder (the
"indemnified party") shall give notice to the party required to provide
indemnification (the "indemnifying party") promptly after such indemnified
party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the indemnifying party (at its expense) to assume the
defense of any claim or any litigation resulting therefrom, PROVIDED that
counsel for the indemnifying party, who shall conduct the defense of such
claim or litigation, shall be reasonably satisfactory to the indemnified
party, and the indemnified party may participate in such defense at such
party's expense, and PROVIDED FURTHER that the omission by any indemnified
party to give notice as provided herein shall not relieve the indemnifying
party of its obligations under this Section 1.8 except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying Party is damaged solely as a result of the failure to give
notice. No indemnifying party, in the defense of any such claim or
litigation, shall consent, except with the consent of each indemnified party,
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect to such
claim or litigation.
(d) The reimbursement required by this Section 1.8 shall be made
by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(e) The obligation of the Company and each Holder under this
Section 1.8 shall survive the completion of any offering of Registrable Stock
in a registration statement under this Section 1, or otherwise, in which
Holders were offered an opportunity to sell all of their shares, for a period
of one (1) year.
1.9 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OPTIONEES. Each
Optionee severally represents and warrants that:
(a) AUTHORIZATION. It has full power and authority to enter into and
to perform this Registration Rights Agreement in accordance with its terms.
This Registration Rights Agreement has been duly executed and delivered by it
and constitutes its valid and legally binding obligation.
(b) INVESTMENT REPRESENTATIONS. If it shall acquire Common Stock upon
exercise of an option, it shall acquire the shares of Common Stock for its
own account, for investment purposes and not with a view to, or for sale in
connection with, any distribution of such shares or any part thereof.
(c) INVESTMENT EXPERIENCE; ACCESS TO INFORMATION. It (a) is an
"accredited investor" as that term is defined in Rule 501(a) promulgated
under the Securities Act, (b) is an investor experienced in the evaluation of
businesses similar to the Company, (c) is able to fend for itself in the
transactions contemplated by this Registration Rights Agreement, (d) has such
knowledge and experience in financial, business and investment matters as to
be capable of evaluating the merits and risks of this investment, (e) has the
ability to bear the economic risks of this investment, (f) was not organized
or reorganized for the specific purpose of acquiring the shares of Common
Stock held by it, and (g) has been afforded the opportunity to ask questions
of, and to receive answers from the Company and to obtain any additional
information, to the extent the Company has such information or could have
acquired it without unreasonable effort or expense, all as necessary for it
to make an informed investment decision with respect to the acquisition of
the shares of Common Stock.
(d) ABSENCE OF REGISTRATION. It understands that:
(i) The shares of Common Stock are unregistered and may be
required to be held indefinitely unless they are subsequently registered
under the Securities Act, or an exemption from such registration is
available.
(ii) The Company is under no obligation to file a registration
statement with the Securities and Exchange Commission with respect to the
shares of Common Stock.
(iii) Rule 144, which provides for certain limited sales of
unregistered securities, is not presently available with respect to the
shares of Common Stock, and the Company is under no obligation to make
Rule 144 available.
(e) RESTRICTIONS ON TRANSFER. It will not offer, sell, pledge,
hypothecate, or otherwise dispose of the shares of Common Stock unless such
offer, sale, pledge, hypothecation or other disposition (i) is registered
under the Securities Act and any applicable State law, or (ii) does not
violate the Securities Act or any applicable state law, and (iii) the
certificate(s) representing the shares shall bear a legend stating in
substance:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE LAWS OR, IN THE
OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
DOES NOT VIOLATE THE PROVISIONS THEREOF.
Upon request of a holder of the shares of Common Stock, the Company
shall remove the legend set forth above from the certificates evidencing such
shares, or issue to such holder new certificates therefor free of such
legend, (i) if with such request the Company shall have received an opinion
of counsel selected by the holder and reasonably satisfactory to the Company,
in form and substance reasonably satisfactory to the Company, to the effect
that such shares are not required by the Securities Act to continue to bear
the legend, or (ii) if such shares may be sold pursuant to the provisions of
paragraph (k) of Rule 144 (or any similar sale) as then in effect.
(f) TRANSFER INSTRUCTIONS. It agrees that the Company may provide for
appropriate transfer instructions to implement the provisions of Section 1.9
(e) hereof.
(g) ECONOMIC RISK. It understands that it must bear the economic risk
of the investment represented by the acquisition of the shares of Common
Stock for an indefinite period.
1.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights granted
to the Optionees under this Section 1 may not be transferred.
2. NOTICES. All notices, requests, consents and other communications
herein (except as stated in the last sentence of this Section 2) shall be in
writing and shall be deemed to be delivered (i) on the date delivered, if
personally delivered or transmitted via facsimile with return confirmation of
such transmission; (ii) on the business day after the date sent, if sent by
recognized overnight courier service and (iii) on the fifth day after the
date sent, if mailed by first-class certified mail, postage prepaid and
return receipt requested, as follows:
(a) If to the Company:
2150 Whitfield Industrial Way
Sarasota, Florida 34243
Attention:
Facsimile:
(b) If to the Optionees:
To those addresses set forth on Schedule 1 hereto.
3. MISCELLANEOUS.
(a) Neither this Registration Rights Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, by course of
conduct, or in writing, except that any provision of this Registration Rights
Agreement may be amended and the observance of any such provision may be
waived (either generally or in a particular instance and either retroactively
or prospectively) with (but only with) the written consent of the Optionees
and the Company.
(b) This Registration Rights Agreement, together with the schedule
attached hereto and the other documents referred to herein, contains the
entire agreement between the parties with respect to the transactions
contemplated hereby, and supersedes all negotiations, agreements,
representations, warranties, commitments, whether in writing or oral, prior
to the date hereof.
(c) Except as otherwise expressly provided in this Registration
Rights Agreement, all of the terms of this Registration Rights Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted transferees of the parties hereto.
(d) This Registration Rights Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and all such counterparts together shall constitute one
instrument.
(e) This Registration Rights Agreement shall be governed by the
internal laws of the state of Delaware, without regard to principles of
conflicts of law. In the event any provision of this Registration Rights
Agreement or the application of any such provision to any party shall be held
by a court of competent jurisdiction to be contrary to law, the remaining
provisions of this agreement shall remain in full force and effect.
(f) If either of the Company or any one or more of the Optionees
shall default in any of its obligations under this Registration Rights
Agreement, the Company or the Optionees, as the case may be, may proceed to
protect and enforce their respective rights by suit in equity or action at
law, whether for specific performance of any term contained herein or for an
injunction against the breach of any term of this Registration Rights
Agreement, or to enforce any other legal or equitable right of the Optionees
or to take any one or more of such actions. In any such action or suit, the
prevailing party in such dispute shall be entitled to recover from the losing
party all fees, costs and expenses of enforcing any right of such prevailing
party under or with respect to this Registration Rights Agreement, including
without limitation such reasonable fees and expenses of attorneys, which
shall include without limitation all fees, costs and expenses of appeals.
(g) No remedy referred to herein is intended to be exclusive, but
each shall be cumulative and in addition to any other remedy referred to
above or otherwise available to the Company or the Optionees, as the case may
be, at law or in equity. No express or implied waiver by the Company or the
Optionees of any default shall be a waiver of any future or subsequent
default. The failure or delay of the Company or the Optionees in exercising
any rights granted them hereunder shall not constitute a waiver of any such
right and any single or partial exercise of any particular right by the
Company or the Optionees shall not exhaust the same or constitute a waiver of
any other right provided herein.
(h) The descriptive headings of the Sections hereof and the
Schedule hereto are inserted for convenience only and do not constitute a
part of this Registration Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement by their duly authorized officers as of the date first above
written.
TELTRONICS, INC.
By:
Name:
Title:
<PAGE>
SEVIN ROSEN FUND II, L.P.
By:
Name:
Title:
Address:
SEVIN ROSEN FUND III, L.P.
By:
Name:
Title:
Address:
KLEINER PERKINS CAUFIELD & BYERS III
By:
Name:
Title:
Address:
KLEINER PERKINS CAUFIELD & BYERS IV
By:
Name:
Title:
Address:
GIBRALTAR TRUST
By:
Name:
Title:
Address:
JON W. BAYLESS, IRA
By:
Name:
Title:
Address:
SAM K. SMITH
By:
Name:
Title:
Address:
MICAS TRVST LTD.
By:
Name:
Title:
Address:
FREDERIC A. RUBINSTEIN
By:
Name:
Title:
Address:
RICHARD LONG
By:
Name:
Title:
Address:
399 VENTURE PARTNERS, INC.
By:
Name:
Title:
Address:
J.F. SHEA CO. INC., as Nominee
By:
Name:
Title:
Address:
NBR-SRX, LTD.
By:
Name:
Title:
Address:
CHARLES H. PHIPPS
By:
Name:
Title:
Address:
EDWIN A. ALLBRITTON, S/D IRA
By:
Name:
Title:
Address:
JON W. BAYLESS
By:
Name:
Title:
Address:
W. SUE BAYLESS
By:
Name:
Title:
Address:
HUDSON TRUST
By:
Name:
Title:
Address:
INTERWEST PARTNERS V
By:
Name:
Title:
Address:
INTERWEST INVESTORS V
By:
Name:
Title:
Address:
<PAGE>
SCHEDULE 1
OPTIONEES
[with addresses]
[to be supplied]
<PAGE>
EXHIBIT 10.7
TERM NOTE
Effective
$490,423 DALLAS, TEXAS September 20, 1996
For value received, Teltronics, Inc., a Florida corporation, whose
address is 2150 Whitfield Industrial Way, Sarasota, Florida 34234 and SRX of
Florida, Inc., a Florida corporation whose address is 2150 Whitfield
Industrial Way, Sarasota, Florida 34234 (collectively referred to herein as
"Borrowers" and individually referred to herein as "Borrower"), jointly and
severally, promise to pay to the order of Solecton Texas, L.P., a Delaware
limited partnership (herein called "Lender"), at its offices at 12455
Research Boulevard, Austin, Texas 78759, in lawful money of the United States
of America, the sum of FOUR HUNDRED NINETY THOUSAND FOUR HUNDRED TWENTY-THREE
AND 00/100 DOLLARS ($490,423.00), payable as provided herein, with no
interest accruing thereon through the date of maturity.
1. PAYMENT TERMS. The principal amount of this Note shall be due and
payable in three (3) equal monthly installments of $163,474.33. The first
installment shall be due on or before January 23, 1997, and shall be made by
check (addressed to Solectron Texas, 12455 Research Boulevard, Austin, Texas
78759, Attention Credit Manager) or wire transfer. Each of the two (2)
remaining installments shall be due and payable on the 23rd day of February
and March, 1997, respectively.
2. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this Note and the SRX Documents (as
herein defined):
(a) Failure by Borrower or any other Obligated Party (as herein
defined) to pay any principal of this Note (or any renewal, substitution,
extension, modification or rearrangement thereof or therefor) when due or
declared due; or,
(b) A default in the observance or performance of any of the
covenants, conditions, terms, or agreements of this Note or the SRX
Documents; or,
(c) Borrower is not paying any of their indebtedness as the same
becomes due (other than indebtedness being actively contested in good faith)
or any default is declared by C.I.T. Group/Credit Finance, Inc. (or successor
lender) in respect of any loans to Teltronics, Inc.; or
(d) Filing by Borrower of a voluntary petition or any answer
seeking reorganization, arrangement or readjustment of its debts or for any
other relief under any applicable bankruptcy act or law, or under any other
insolvency act or law, now or hereafter existing, or any action by Borrower
consenting to, approving of, or acquiescing in, any such petition or
proceeding; the application by Borrower for, or the appointment by consent or
acquiescence of, a receiver or trustee for Borrower or for all or a
substantial part of its properties; the making by Borrower of an assignment
for the benefit of creditors; or the inability of Borrower or the admission
by Borrower, in writing, of its inability, to pay its debts as they mature
(the term "acquiescence" as used in this paragraph (f) shall mean the failure
to file a petition or motion in opposition to such petition or proceeding or
to vacate or discharge any order, judgment or decree providing for such
appointment within five (5) days after the appointment of a receiver or
trustee); or,
(e) Filing of an involuntary petition against Borrower in
bankruptcy seeking reorganization, arrangement or readjustment of its debts or
for any other relief under any applicable bankruptcy act or law, or under any
other insolvency act or law, now or hereafter existing, and such petition
remains undismissed or unanswered for a period of thirty (30) days from such
filing, or the involuntary appointment of a receiver or trustee for Borrower
or for all or a substantial part of its property, and such appointment remains
unvacated for a period of thirty (30) days or unopposed for a period of
thirty (30) days after such appointment; or the issuance of a warrant of
attachment, execution or similar process against any substantial part of the
property of Borrower and such warrant remains unbonded or undismissed for a
period of thirty (30) days after notice to Borrower of its issuance; or,
(f) Final judgment for the payment of money is rendered against
Borrower and the same shall remain undischarged for a period during which
execution shall not be effectively stayed; or,
(g) The occurrence of an event occurs which has a material adverse
effect on the financial condition or operation of Borrower, or the Lender in
good faith deems itself insecure.
3. REMEDIES. Upon the occurrence of any Event of Default and at any
time thereafter, thereupon at the option of Lender (i) all obligations, if
any, of the Lender hereunder, shall immediately cease and terminate unless
and until the Lender shall reinstate same in writing; (ii) the entire
principal of the Note then remaining unpaid shall be immediately DEMANDED
and forthwith due without notice of any kind; (iii) the Lender may commence
collection and/or other proceedings under the terms and conditions of the SRX
Documents or under applicable laws; and (iv) Lender may exercise its rights
of set-off against any deposits held by Lender. The remedies of Lender
hereunder are cumulative, and the exercise of any one or more of the remedies
provided for herein shall not be construed as a waiver of any of the other
remedies of the Lender. The Lender may exercise its rights against one
Borrower without enforcing its rights against any other Obligated Party.
4. DEFAULT RATE INTEREST. All past due principal shall bear interest
at the Highest Lawful Rate (as herein defined) from its due date until paid.
5. COLLECTION COSTS. If this Note is not paid at maturity whether by
acceleration or otherwise and is placed in the hands of an attorney for
collection, or suit is filed hereon, or proceedings are had in probate,
bankruptcy, receivership, reorganization, arrangement or other legal
proceedings for collection hereof, Borrower and each other Obligated Party
agree to pay Lender its collection costs, including a reasonable amount for
attorney's fees, but in no event to exceed the maximum amount permitted by
law or otherwise allowed by a court of competent jurisdiction in an
unappealable judgment. Borrower and each other Obligated Party are and shall
be directly and primarily, jointly and severally, liable for the payment of
all such collection costs called for hereunder, and Borrower and each other
Obligated Party hereby expressly waive bringing of suit and diligence in
taking any action to collect any sums owing hereon and in the handling of any
collateral or security.
6. USURY SAVINGS. It is the intention of Borrowers and Lender to
conform strictly to applicable usury laws. Accordingly, if the transactions
contemplated hereby would be usurious under applicable law, then, in that
event, notwithstanding anything to the contrary herein or in any agreement
entered into in connection with or as security for this Note, it is agreed as
follows: (i) the aggregate of all consideration which constitutes interest
under applicable law that is taken, reserved, contracted for, charged or
received under this Note or under any of the other Loan Documents or
otherwise in connection with this Note shall under no circumstances exceed
the maximum amount of nonusurious interest allowed by applicable law, and any
excess shall be credited on this Note by the holder hereof (or, to the extent
that this Note shall have been or would thereby be paid in full, then it
shall be applied to any other indebtedness of Borrower to Lender, or to the
extent all other indebtedness has been or would thereby be paid in full,
refunded to Borrower); and (ii) in the event that maturity of this Note is
accelerated by reason of an election by the holder hereof resulting from any
default hereunder or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never
include more than the maximum amount of nonusurious interest allowed by
applicable law, and excess interest, if any, provided for in this Note or
otherwise shall be canceled automatically as of the date of such acceleration
or prepayment and, if theretofore prepaid, shall be credited on this Note
(or, to the extent that this Note shall have been or would thereby be paid in
full, then it shall be applied to any other indebtedness of Borrower to
Lender, or to the extent all other indebtedness has been or would thereby be
paid in full, refunded to Borrower).
7. PREPAYMENT. The Borrower reserves the option of prepaying the
principal of this Note, in whole or in part, at any time after the date
hereof without penalty. All amounts of principal so prepaid and received by
the holder of this Note shall be applied to the principal installments of
this Note in their inverse order of maturity.
8. WAIVERS BY BORROWER. The Borrower and each Obligated Party waive
presentment, protest, notice of acceleration, demand, notice of intent to
accelerate, notice of protest and all other notices of any kind all of which
are hereby expressly waived by each Borrower and each Obligated Party, and
Borrower and each other Obligated Party hereby consent to and agree to remain
liable hereon regardless of any renewals, extensions for any period or
rearrangements hereof, or partial payments hereon, or any release or
substitution of any other Obligated Party or of any collateral or security
hereof, in whole or in part, with or without notice, from time to time,
before or after maturity. The Borrower expressly waives: (1) surrender,
release, exchange, substitution, dealing with or taking additional
collateral, (2) abstaining from taking advantage of or realizing upon any
security interest of the collateral, and (3) any impairment of collateral
including, but not limited to, failure to perfect a security interest in the
collateral.
9. GOVERNING LAW. This Note shall be construed under and governed by
the laws of the State of Texas (including applicable federal law).
10. DEFINITIONS.
(a) "HIGHEST LAWFUL RATE" shall mean the maximum rate of
nonusurious interest allowed from time to time by law. Unless changed in
accordance with law, the applicable rate ceiling under Texas law shall be
the indicated (weekly) rate ceiling from time to time in effect as provided
in Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as amended; but in no event
shall Tex. Rev. Civ. Stat. Ann. art. 5069 ch. 15 (which regulates certain
revolving loan accounts and revolving triparty accounts) apply to the loan
evidenced by this Note.
(b) "SRX DOCUMENTS" shall mean that certain Asset Sale Agreement
dated September 19, 1996 executed by Lender, the Borrowers and other parties
and all exhibits thereto.
(c) "OBLIGATED PARTY(IES)" shall mean the Borrowers, jointly and
severally, and any drawer, accepter, endorser, guarantor, surety,
accommodation party or any other person or entity now or hereafter primarily
or secondarily liable upon or for payment of all or any part of the
principal or interest of this Note.
11. FINAL AGREEMENT. THIS Note, AND ALL OTHER SRX DOCUMENTS EXECUTED
IN CONNECTION HEREWITH, REPRESENT THE FINAL AND ENTIRE AGREEMENT BETWEEN THE
PARTIES, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, SUBSEQUENT OR
CONTEMPORANEOUS ORAL AGREEMENTS. THERE ARE NO UNWRITTEN ORAL AGREEMENT
BETWEEN THE PARTIES.
12. OTHER CONTROLLING AGREEMENTS. This Note is made in furtherance of
the terms and conditions of the SRX Documents, and specifically the
obligation of Borrowers to provide for designation of payments from the
Motorola Purchase Orders through Borrowers' primary lender, C.I.T
Group/Credit Finance, Inc., as provided in Section 2.2 of the Asset Sale
Agreement.
13. NON-ASSIGNMENT. This Note and the obligations created hereunder
may not be assigned or transferred to another party or a third party without
the express written consent of Lender.
EXECUTED as of, although not necessarily on, the date first written
above.
BORROWER: TELTRONICS, INC.
By: Ewen R. Cameron
Its: President & CEO
BORROWER: SRX OF FLORIDA, INC.
By: Ewen R. Cameron
Its: President
<PAGE>
EXHIBIT 10.8
SECURED PROMISSORY NOTE
$616,300.00 October 18, 1996
New York, New York
FOR VALUE RECEIVED, the undersigned (hereinafter collectively referred
to as "Borrowers" and individually as a "Borrower"), hereby jointly and
severally promise to pay to the order of THE CIT GROUP/CREDIT FINANCE, INC.,
a Delaware corporation (hereinafter "Lender"), in such coin or currency of
the United States which shall be legal tender in payment of all debts and
dues, public and private, at the time of payment, the principal sum of SIX
HUNDRED SIXTEEN THOUSAND THREE HUNDRED AND NO/DOLLARS, ($616,300), together
with interest from and after the date hereof on the unpaid principal balance
outstanding at a variable rate per annum equal to (i) from the date hereof
through October 31, 1996, 3% above the Prime Rate (as defined in the Loan
Agreement referenced below) and (ii) on and after November 1, 1996, 2.5%
above the Prime Rate.
This Secured Promissory Note (the "Note") is issued pursuant to, that
certain Loan and Security Agreement among Borrowers and Lender dated October
28, 1994, as amended by that certain letter agreement dated December 27,
1994, that certain Second Amendment to Loan and Security Agreement dated
December 29, 1995, those certain letter agreements dated March 11, 1996, May
14, 1996, June 4, 1996 and July 31, 1996 (hereinafter, as amended from time
to time, the "Loan Agreement"), and is entitled to all of the benefits and
security of the Loan Agreement. All of the terms, covenants and conditions
of the Loan Agreement and the other loan documents executed in connection
therewith are hereby made a part of this Note and are deemed incorporated
herein in full. All capitalized terms used herein, unless otherwise
specifically defined in this Note, shall have the meanings ascribed to them
in the Loan Agreement.
The rate of interest in effect hereunder shall increase or decrease by
an amount equal to any increase or decrease in the Prime Rate, effective as
of the opening of business on the date that any such change in the Prime Rate
occurs. Interest shall be computed on the basis of actual days elapsed over
a 360-day year.
The principal amount and accrued interest of this Note shall be due and
payable on the dates and in the manner hereinafter set forth:
(a) Interest shall be due and payable monthly, in arrears, on the
first day of each month, commencing on November 1, 1996, and continuing
until such time as the full principal balance, together with all other
amounts owing hereunder, shall have been paid in full;
(b) Principal shall be due and payable monthly commencing on
November 1, 1996, and continuing on the first day of each month
thereafter to and including the first day of October 1, 1999, in
installments of $10,271.67 each; and
(c) The entire remaining principal amount then outstanding,
together with any and all other amounts due hereunder, shall be due and
payable on October 28, 1999.
If, prior to the date on which this Note is required to be paid in full in
accordance with the foregoing provisions, the Loan Agreement is terminated
pursuant to Section 9.2 of the Loan Agreement, then the entire unpaid
principal balance and accrued interest on this Note shall be immediately due
and payable in full and shall be paid on the effective date of such
termination.
Borrowers may prepay this Note in whole at any time or in part from time
to time upon ten (10) days' prior written notice to Lender provided that each
such prepayment shall be made together with accrued interest on the principal
amount so prepaid at the prepayment date plus a premium at the rate set forth
in Section 9.2 of the Loan Agreement. All partial prepayments, whether
mandatory or voluntary, shall be applied to installments of principal in the
inverse order of their maturities.
Upon or after the occurrence of an Event of Default, Lender shall have
all of the rights and remedies set forth in Section 7 of the Loan Agreement,
including the right to declare the then outstanding principal balance and
accrued interest hereof to be and the same shall thereupon become,
immediately due and payable without notice to or demand upon Borrowers, all
of which each Borrower hereby expressly waives.
This Note evidences an unpaid balance of $116,300 that is owing by
Borrowers to Lender under the Term Loan as of the date hereof and an
additional term loan of $500,000 that is made by Lender to Borrowers as of
the date hereof. Nothing contained herein is intended to be a novation or an
accord and satisfaction.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, each Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice
of dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in
collection, and the benefit of any exemption or insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Note shall be prohibited or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or remaining
provisions of this Note. No delay or failure on the part of Lender in the
exercise of any right or remedy hereunder shall operate as a waiver thereof,
nor as an acquiescence in any default, nor shall any single or partial
exercise by Lender of any right or remedy preclude any other right or remedy.
Lender, at its option, may enforce its rights against any collateral securing
this Note without enforcing its rights against any Borrower, any guarantor of
the indebtedness evidenced hereby or any other property or indebtedness due
or to become due to Borrowers. Each Borrower agrees that, without releasing
or impairing such Borrower's liability hereunder, Lender may at any time
release, surrender, substitute or exchange any collateral securing this Note
and may at any time release any party primarily or secondarily liable for the
indebtedness evidenced by this Note.
This Note shall be governed by, and be construed and enforced in
accordance with, the laws of the State of New York and is intended to take
effect as an instrument under seal.
IN WITNESS WHEREOF, Borrowers have caused this Note to be duly executed
and delivered on the date first above written.
TELTRONICS, INC.
("Borrower")
By: Ewen Cameron
Title: President and CEO
Attest: Paul D. Shrader
Title: VP Finance, Secretary and Treasurer
(CORPORATE SEAL)
AT SUPPLY, INC.
("Borrower")
By: Ewen Cameron
Title: Chairman and CEO
Attest: Paul D. Shrader
Title: VP Finance, Secretary and Treasurer
(CORPORATE SEAL)
