Merc to seek NTG payback
Bank targets Tobin's assets to get $3.5M
Strategic Management Partners
A nationally recognized turnaround management firm
specializing in interim executive leadership, corporate renewal,
and post acquisition support for the private equity community.
SMP Home Page
SMP Library Index - Articles of Interest - Watch List
NTG Press Coverage Summary
Mercantile-Safe Deposit and Trust Co. is going after assets of Michele A. Tobin, the former CEO of Network Technologies Group Inc., in an attempt to recoup more than $3.5 million in loans the bank made to the now-defunct telecommunications firm.
Tobin's name, and the names of other officers and their wives, appear on personal guarantees for more than $4 million in loans from Mercantile to NTG in 2000, according to court documents filed by the bank in Baltimore County Circuit Court.
Mercantile spokeswoman Janice M. Davis said the bank would not comment about the case.
The lawsuits shed greater light on the collapse of NTG, which laid off all 125 employees and shut its doors July 12 after an Annapolis turnaround consultant hired by the firm said he uncovered millions of dollars in alleged accounting irregularities that may have hidden its true financial condition from the bank and other investors.
Mercantile is the lead secured creditor for NTG. The company also received $7 million in financing from other firms, including the Abell Venture Fund and Spring Capital Partners L.P., both of Baltimore.
NTG's remaining assets are being liquidated to repay the bank as much as possible, said John M. Collard, the turnaround consultant who was named NTG's interim chief executive after Tobin resigned in late June for personal reasons.
An auction is being held Aug. 27 at the company's former headquarters in Fells Point to sell the company's trucks, trailers, drills and other construction equipment which it used to install fiber-optic cable for telecommunications clients such as Comcast Corp.
The company is also trying to collect as much as it can from its outstanding accounts receivable. But in the end, the remaining assets will not be enough to repay the bank in full, Collard said.
According to copies of loan documents Mercantile submitted in court, in May 2000 Tobin, Chief Operating Officer Victor A. Giordani Jr., and executive Daniel P. Welsh — and Giordani's and Welsh's wives — all personally guaranteed equipment and working capital loans from Mercantile that NTG wanted increased from $2.7 million to $4 million.
Mercantile sued Tobin for $713,000. The bank previously sued the Giordanis for more than $1.38 million, but the bank dropped that suit this week, according to the court clerk's office.
Giordani and Welsh said the bank did that because they never signed the loan guarantee, and do not owe the bank any money.
"My signature and [my wife's] were not mine or [my wife's]," Giordani said.
"They weren't our signatures," said Welsh, who said he left the company 16 months ago. "We provided evidence to Mercantile and their attorneys that they were not our signatures. I'm not involved in any of this stuff."
Banks typically use personal guarantees to ensure that in the event that a business defaults on a loan they will get paid by liquidating the personal assets of the owners of the business. And that means the bank can sell the house, cars or other personal assets of those who sign the guarantee to try to get their money back.
According to the Maryland Department of Assessments and Taxation, Tobin owns a house in the Baltimore County neighborhood of Stoneleigh. The property is assessed at $231,000.
Tobin also owns a house near the posh resort area of Vail, Colo. That house is valued at $309,000, according to property records from the assessor's office for Eagle County, where Vail is located. Repeated attempts to reach Tobin in Baltimore and Colorado have been unsuccessful.
Giordani, who originally founded NTG back in the 1990s, says he had no involvement in or knowledge of the alleged accounting irregularities even though he was chief operating officer.
Giordani said he was involved in the day-to-day operations of the company but had no involvement in the company's accounting practices.
"I paid no attention to it," Giordani said. "Maybe I should have."
Gregory A. Cross, an attorney from Venable, Baetjer and Howard LLP who is representing Mercantile in the suits against Tobin, declined to comment on the case.
Besides the personal guarantees, the loan documents show that the Mercantile loans were dependent on NTG satisfying a number of financial conditions. NTG was required to maintain a "current ratio" of 1.5 after Sept. 30, 2001 (meaning that its current assets had to outnumber its current liabilities by a ratio of 1.5 to 1). The company also had to generate at least $200,000 in annual net income starting in 2001.
Collard has claimed after reviewing NTG's finances that the company was technically insolvent at the end of 2001 — meaning that its liabilities were greater than its assets.
He also has said that the company overstated 2001 revenues by $2 million and understated accounts payable by $2 million, resulting in as much as $4 million in losses instead of breaking even. Both conditions would have been a violation of the terms of the Mercantile loan.
Larry Rulison can be reached at firstname.lastname@example.org.
We welcome constructive inquires. More information is available if required.
There is more to Strategic Management Partner's
Return to Home Page
John M. Collard, Chairman
Strategic Management Partners, Inc.
522 Horn Point Drive
Annapolis, Maryland [MD] 21403
Voice 410-263-9100 Facsimile 410-263-6094 E-Mail Strategist@aol.com.
We serve as experts for comment or quote, please contact us at 410-263-9100
We welcome constructive inquires, please send via E-Mail to:   Strategist.
Copyright © 2002 Strategic Management Partners, Inc.