March 1: Howe of Sullivan & Cromwell tells Malmstrom and other Ericsson officials to cease communications with Teltronics. His associate, Towne, writes a letter to the attorneys for Nordic American, enclosing a draft of a letter to be used by Nordic to declare Teltronics in default.
Chanda telephones Carl O. Lennmalm, vice-chairman of Ericsson's board of directors. "Are you trying to force us into default?" Chanda asks. "No, no," a court document quotes Lennmalm as responding. "Absolutely not."
March 2: The two-day grace period for Teltronics's payment of interest expires. The company is now in default.
March 5: Ericsson's default plan goes off like clockwork:
At 7:30 a.m., Ericsson's chief legal officer telephones Beagan to see if Teltronics is going to pay the interest due. He poses the same question to Kleban later that morning. If the interest is not paid, the chief legal officer says, "things would happen pretty much automatically."
Early in the morning, Don Costello, vice-president and treasurer of Ericsson, telephones Radberg at Nordic American. "Has Teltronics been in touch with you or paid anything?" "No," Radberg says.
Early in the afternoon, Nordic's messenger delivers a letter to Teltronics's office in Long Island City. The bank says it is accelerating the small company's loans and that Teltronics has been declared in default. Don Kleban tries frantically to reach Carl Lennmalm and make an appointment for that evening. Beagan will try to appease Ericsson by offering the resignations of certain Teltronics officers.
At 4 p.m., Costello and Towne arrive at Nordic with a check for $4.9 million. In exchange for the check, all Teltronics's notes held by Nordic are endorsed over to Ericsson.
At about the same time, Lennmalm returns Kleban's call. Teltronics, Kleban tells Lennmalm, will do whatever is necessary to resolve the situation. Lennmalm replies that he cannot discuss the matter with Kleban. The matter is in the hands of the attorneys. He adds that Howe at Sullivan & Cromwell is expecting Kleban's phone call.
At 4:15 p.m., Kleban telephones Howe, who calls back at 4:35. Howe tells Kleban that Nordic has called Teltronics's loans and that Ericsson has paid Nordic under its guarantees. A lawsuit, Howe says, has been commenced against Teltronics. Kleban is stunned and says that what is happening is a disaster.
Beginning at the end of the day, Ericsson mails letters to the lessees on Teltronics's collateral list. The letters state that Teltronics is in default and that all future rental payments should be made to Ericsson. "We at Ericsson look forward to servicing your present and future telephone system needs."
March 6: By morning, Beagan has decided to propose the sale of 35% of Teltronics's stock to Ericsson for $6 a share and an offer of the resignation of the company's officers. At 9:30 a.m., Kleban telephones Howe. Howe rejects the offer.
That afternoon, Citibank accelerates Teltronics's $3-million debt. Meanwhile, Ericsson issues a press release announcing that Teltronics is in default. Teltronics issues a press release of its own. "Repeated verbal assurances were given by Ericsson officers that Ericsson would not permit a default to occur," the release states. No matter: Teltronics's stock drops from $9 to $1 a share before trading is halted.
That same day, Manufacturers Hanover receives notice from Ericsson to turn over the funds in Teltronics's lock-box account. Teltronics, Ericsson says, has defaulted on the loans the Swedish manufacturer had guaranteed. The bank then notifies Teltronics that the company can draw no more money from the account
March 7: State National Bank of Connecticut accelerates Teltronics's debt and offsets a checking-account balance of $13,802.81. Sterling National Bank accelerates Teltronics's debt and offsets a checking account balance of $281,591.47.
Halvorsen holds an internal meeting of Ericsson's newly formed division. Soon after, Dawson gets the idea that he should obtain copies of Teltronics's customer files. They contain color-coded diagrams of customers' telephone systems. "Without the diagrams," Dawson explains, "Ericsson would not have been able to service accounts economically." The scheme worked. He paid Teltronics's employees $50 in cash each time they hand delivered a box of files.
March 11: The Old Colony Bank accelerates Teltronics's debt and offsets the checking-account balance of $1,710.85.
By the end of March, Ericsson has announced the formation of its New York division. Under the direction of Halvorsen and Costello, the division will sell equipment and provide service to Teltronics's customers. Jack Dawson, the salesman who headed Teltronics's Long Island territory, has already been recruited by Halvorsen. His job, as it is explained to him, is to convince Teltronics's 2,500 customers to jump ship and sign on with Ericsson.
By the end of the summer, Teltronics has laid off 310 of its 350 employees. It is two months behind on its rent and is unable to provide service to its customers. Few, if any, of its creditors have been paid since early in the year. It has no money for payroll and no money for its attorneys. On September 21, Ericsson's new distributor evicts Teltronics from the building in Long Island City, dumping Teltronics's files into a truck. A week later, the company files a bankruptcy petition, listing non-Ericsson creditor claims of $5 million.
More than four years have passed since Teltronics went belly-up. Since that time, Malmstrom has retired and moved to Florida.
Ericsson has set up a joint venture with a subsidiary of Atlantic Richfield Co. to sell its PABX systems, and is now known as Ericsson Inc.
Beagan, as angry today as he was when Teltronics went bust, has hired a new attorney, Carl Person, the man who successfully wrenched the trademark "Monopoly" from Parker Bros. Undaunted by his Teltronics experience, Beagan is pursuing a new venture: He is starting a company to provide long-distance telephone service via a satellite to the customers of interconnect companies. And his dreams are as expansive as ever.
"We'll have," he says, eyes widening, "a mini-AT&T."
