Beagan agreed to seek Ericsson's consent prior to any advertising campaigns concerning Ericsson's new products, and he promised that Teltronics would submit a detailed financial report to Malmstrom at a meeting on January 25.
He arrived at the January 25 meeting, however, without the financial data Malmstrom had requested. So Malmstrom suggested that Price Waterhouse & Co. conduct an audit of Teltronics's books as the first step in the resumption of the equity discussions.
Events were now beginning to follow one another with alarming rapidity. It was as if the first in a line of dominoes had been pushed over:
January 29: Malmstrom speaks by telephone with Carl-Henrik Strom, an Ericsson director in Stockholm, discussing Teltronics's financial condition. Malmstrom says the company is solvent, estimating Teltronics's year-end cash at $800,000 to $1.3 million. But the idea of involuntary bankruptcy comes up. In order to force bankruptcy proceedings, Malmstrom explains, three creditors "must file a petition," and even then Teltronics could obtain a stay from the court. Malmstrom professes respect for Teltronics. "Despite everything," he comments, "Teltronics still managed to sell a lot of electromechanical systems, even in today's competitive situation."
February 8: The relationship between Beagan and Malmstrom remains tense, so Beagan decides to dispatch Daniel Smith and Michael Cheng, two of Teltronics's vice-presidents, to Stockholm to seek a hearing with Ericsson's president, Bjorn Svedberg.
February 12: Halvorsen, Malmstrom's assistant, begins work on a special report for Ericsson's February 22 board meeting. The report covered four subjects: "Teltronics's current status," "Teltronics's budgets dated January 30, 1979," "Chapter 11, Chapter 10, and straight bankruptcy," and "collateral takeover." The last section outlined a scenario under which Ericsson could take over Teltronics' leases by forcing the small company into bankruptcy, recruiting its employees, and soliciting its customers. Ericsson, Halvorsen wrote, "would then attach the assets of Teltronics and make it virtually impossible for the company to conduct business." The date anticipated by Halvorser for the possible occurrence of this scenario is the end of March, the same month Beagan and Malmstrom had agreed to during their equity negotiations.
February 14: Smith and Cheng meet with Svedberg, Ericsson's chairman. Again, the substance of this meeting is under dispute. According to the chronology, the Teltronics executives voiced their concern about Teltronics's finances, and they explained the difficulty their company was having marketing Ericsson's obsolete PABX equipment. They made a fresh proposal to Ericsson's senior executives: Ericsson should either abandon the PABX market completely, purchase Rolm Corp. (one of the company's competitors), or enter into a joint venture with Teltronics to develop a suitable PABX product for the American market. Then Smith asked Svedberg to explain Ericsson's position. "I look forward," a court document quotes the Swede as saying, "to working with Teltronics for as long as I [can] foresee in the future."
A Strom memorandum says that none of that conversation occurred and that the men merely shook hands and exchanged pleasantries.
February 15: In New York, Beagan prompts a tense confrontation. He leads a group of Teltronics executives into a dinner meeting with Strom and Halvorsen at Manhattan's 21 Club. Part way through the testy dinner discussion of Teltronics's finances, Donald M. Kleban, vice-president and general counsel of Teltronics, pulls out the draft of a press release, threatening to take the battle between the two companies public. The actual document is now lost, its contents in dispute, but it marked one of the final breaks in the companies' relationship. As Beagan remembers it, the release charged that Ericsson's new electronics equipment, which was designed to replace the Swedish manufacturer's obsolete mechanical PABX equipment, had failed. Ericsson, meanwhile, claims the release recounted the relationship between the two companies and accused the Swedish manufacturer of deliberately trying to lower the market price of Teletronics's stock.
Kleban reads the document out loud, then hands it to Strom. The Swede sits quietly for a moment. The press release, he says, is seriously misleading, and he denies the charges levied against his company. He adds that he hopes for a healing of the breach between the two corporations.
The press release is never issued.
February 16: Strom meets with Richard Howe of Sullivan & Cromwell. Ericsson, Howe tells Strom, has a number of alternatives. Among them: It can buy a majority interest in Teltronics, or it can let Teltronics go into bankruptcy, which possibly could entail subsequent lawsuits.
After he leaves the lawyer's office, Strom tries to arrange a meeting with Beagan and Robert M. Chanda, a Teletronics vice-president. They refuse to meet.
February 17: This time, Chanda telephones Strom. Teltronics wants to pursue the joint venture discussions with Ericsson as outlined by Smith and Cheng in Stockholm. This is the first Strom has heard of these talks, so he calls Svedberg in Stockholm. Svedberg tells Strom that he has met with the two Teltronics executives but that no serious business was discussed.
February 19: Ericsson, by this time, seems to have abandoned its plans to make an equity investment in Teltronics. Malmstrom writes himself a note saying such an investment is "prevented by the price of the stock and [Teltronics's] attitude and. position." He also notes that Ericsson might simply purchase some $6 million in leases from Teltronics.
February 22: Chanda and Kleban meet with Ericsson's board of directors. They tell the board that without emergency funding, Teltronics will go bust. The board informs the two men thatit can do nothing.
February 27: Teltronics delivers its retrenchment budget to Ericsson. The budget contains no entry for cash on hand at the commencement of the year, because most of it has already been spent.
February 28: Late in the day, L. Stanton Towne of Sullivan & Cromwell calls Lars Radberg, president of Nordic American. Radberg makes this entry in his phone log: "Towne. Concerned abt. Teltronics. End of the line for them. Need formal technical default under loan agreement. Debit of int. not formal default. Formal default tomorrow. Citib. will follow. Ericsson def. under Sec. agreem. . . ."
