PROSPECTUS
1,585,076 SHARES
PEOPLES TELEPHONE COMPANY, INC.
COMMON STOCK
All of the 1,585,076 shares of common stock, par value $.01 per share (the
"Common Stock") of Peoples Telephone Company, Inc. (the "Company") offered
hereby are being sold by certain shareholders of the Company (collectively, the
"Selling Shareholders"). The Company will receive none of the proceeds from the
sale of shares offered hereby. See "Selling Shareholders." The Common Stock is
included in the National Market System of the National Association of Securities
Dealers, Inc., under the symbol PTEL.
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SEE "RISK FACTORS" (PAGE 4) FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
It is anticipated that the Selling Shareholders may sell the shares of Common
Stock offered hereby from time to time in open market transactions or privately
negotiated sales that may be based primarily on market prices. On August 3,
1995, the last reported sale price of the Common Stock in the NASDAQ National
Market System was $4.25 per share. The Selling Shareholders may engage the
services of brokers or other agents to arrange for the sale of the shares
offered hereby. The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Plan of Distribution." Although
the Company will receive none of the proceeds from the sale of shares offered
hereby, the Company is contractually obligated to bear the expenses of this
Offering, estimated at $50,000.
THE DATE OF THIS PROSPECTUS IS AUGUST 7, 1995.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and are also available for inspection and
copying at the regional offices of the Commission located at 500 West Madison
Street, Chicago, Illinois 60661 and at 7 World Trade Center, New York, New York
10048. Copies of such information can also be obtained in person from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates.
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act, filed by the Company with the Commission.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement, which may be examined without charge at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies thereof may be obtained from the
Commission upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following Company documents filed with the Commission are incorporated
by reference in this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994, as amended by the Form 10-K/A No. 1, Form 10-K/A
No. 2 and Form 10-K/A No. 3 relating thereto.
(2) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, as amended by the Form 10-Q/A No. 1 and Form 10-Q/A No. 2
relating thereto.
(3) The Company's Current Report on Form 8-K dated February 15, 1995, as
amended by the Form 8-K/A No. 1 and Form 8-K/A No. 2 relating thereto.
(4) The Company's Form 10-Q/A No. 1 and Form 10-Q/A No. 2 relating to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994.
(5) The Company's Form 10-Q/A No. 1 and Form 10-Q/A No. 2 relating to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994.
(6) The Company's Current Report on Form 8-K dated May 10, 1995.
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(7) The Company's Current Report on Form 8-K dated June 19, 1995.
(8) The Company's Current Report on Form 8-K dated July 3, 1995.
(9) The Company's Current Report on Form 8-K dated July 19, 1995.
(10) The Company's Form 8-K/A No. 2 relating to the Company's Current Report
on Form 8-K dated June 23, 1994.
(11) Proxy Statement dated July 25, 1995 for the Annual Meeting of
Shareholders to be held on August 25, 1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common Stock
covered by this Prospectus shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing such documents. Any
statement contained herein, in a Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein, in a Prospectus Supplement or in any subsequently
filed document which is incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The description of the Common Stock contained in the Company's Registration
Statement on Form 10 dated January 20, 1988 (Commission File No. 0-16479), as
filed with the Commission under the Exchange Act, including any amendments or
reports filed after the date of this Prospectus for the purpose of updating such
description, is hereby incorporated by reference into this Prospectus and shall
be deemed a part hereof.
The Company will provide without charge to each person to whom a copy of this
Prospectus has been delivered, on the written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated in this Prospectus by reference, other than exhibits to such
documents unless such exhibits are specifically incorporated by reference in
such documents. Written or oral requests should be directed to Bonnie S. Biumi
at the principal executive office of the Company at 2300 N.W. 89th Place, Miami,
Florida 33172; telephone number (305) 593-9667.
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RISK FACTORS
Each prospective purchaser of the shares of Common Stock offered hereby should
carefully examine all information contained in this Prospectus and should give
particular consideration to the following factors before deciding to purchase
such shares.
LEVERAGED POSITION OF THE COMPANY; PLEDGED ASSETS; ABILITY TO SATISFY DEBT
SERVICE; RESTRICTIONS IMPOSED BY LENDERS
During July, 1995, the Company completed a refinancing of its bank and other
acquisition related debt (approximately $103.7 million in the aggregate) by
repaying such debt with the proceeds of the sale of $100.0 million aggregate
principal amount of the Company's 12-1/4% Senior Notes due 2002 (the "Senior
Notes") and the sale of 150,000 shares of the Company's Series C Cumulative
Convertible Preferred Stock (the "Preferred Stock") for $15.0 million.
Simultaneously with the sale of the Senior Notes and the Preferred Stock, the
Company also entered into a Fourth Amended and Restated Loan and Security
Agreement, dated as of July 19, 1995 (the "New Credit Agreement"), with
Creditanstalt-Bankverein ("Creditanstalt"), which replaced the Company's prior
credit agreements with Creditanstalt and certain other lenders (collectively,
the "Prior Credit Agreement").
During 1994, the Company's total interest expense amounted to $7.9 million.
The majority of such expense was attributable to interest payable in connection
with borrowings made under the Company's Prior Credit Agreement. A significant
portion of the Company's cash flow will be expended in connection with the
payment of interest expense under the Senior Notes and dividends on the
Preferred Stock.
On a pro forma basis, after giving effect to the Refinancing, the Company
would have had, as of March 31, 1995, total long-term debt of approximately
$103.5 million and the ability to borrow, under the borrowing base formula of
the New Credit Agreement, approximately an additional $40.0 million. In
addition, on a pro forma basis, after giving effect to the Refinancing, the
Company's earnings would have been insufficient to cover fixed charges by
approximately $15.0 million and $1.2 million for the year ended December 31,
1994 and the quarter ended March 31, 1995, respectively. Although the indenture
pursuant to which the Senior Notes were issued (the "Indenture"), will limit the
incurrence of additional indebtedness in the future, the Company may be
permitted to incur substantial additional indebtedness, which may bear interest
at variable rates and contain significant restrictions on the Company's
activities. Such indebtedness may be incurred in the ordinary course of
business or otherwise, including in connection with acquisitions.
The degree to which the Company is leveraged could have important consequences
to the holders of shares of Common Stock, including, among other things, the
following: (i) the impairment of the Company's ability to obtain financing in
the future for working capital, capital expenditures, acquisitions, general
corporate or other purposes; (ii) the dedication of a substantial portion of the
Company's cash flow from operations for the payment of principal and interest on
its indebtedness and dividends on the Preferred Stock; (iii) the vulnerability
of the Company to economic downturns and competitive pressures due to its high
degree of leverage; and (iv) difficulties in satisfying its obligations in
respect of indebtedness.
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Substantially all of the Company's assets are pledged as collateral to secure
the Company's borrowings under the New Credit Agreement, which pledge limits the
Company's ability to secure additional financing in the future.
During 1994 and 1995, the Company was not in compliance from time to time with
various financial covenants contained in the Prior Credit Agreement and
defaulted in the payment of certain acquisition related indebtedness. Such non-
compliances and defaults required the Company to seek waivers and negotiate
amendments to its Prior Credit Agreement. Such debt has been repaid in full
with the proceeds of the Refinancing and the New Credit Agreement has been
entered into. While the Company believes that the Refinancing has addressed the
liquidity issues which faced the Company, there can be no assurance that the
Company will not default under its indebtedness in the future or have future
liquidity problems and that holders of shares of Common Stock will not be
materially adversely affected thereby.
The Company's New Credit Agreement contains significant financial and
operating covenants, including, among other things, requirements that the
Company maintain minimum net worth and cash flow levels, maintain certain
financial ratios, prohibitions on the ability of the Company to incur certain
additional indebtedness and restrictions on its ability to make capital
expenditures, to incur or suffer to exist certain liens, to pay dividends or
take certain other corporate actions. Amounts will only be available under the
New Credit Agreement if such financial maintenance and other covenants are
satisfied and the borrowing base calculation (which is based upon the amount of
eligible accounts receivable and eligible installed public pay telephones) are
satisfied. There can be no assurance that the Company will be able to comply
with such covenants or that such covenants will not adversely affect the
Company's ability to conduct its operations, finance its capital needs or
successfully pursue its business strategies. The Company has in the past failed
to comply with its covenants under its Prior Credit Agreement and other
indebtedness and there can be no assurance that it will not do so in the future.
Any such non-compliance may have a material adverse effect on holders of Common
Stock.
The Indenture governing the Senior Notes contains certain covenants,
including, but not limited to, covenants with respect to the following matters:
limitations on additional indebtedness, limitations on restricted payments,
including the payment of dividends on the Common Stock, limitations on the
incurrence of liens, limitations on transactions with affiliates, the
application of the proceeds of certain asset sales, restrictions on the
issuance of preferred stock of certain subsidiaries, limitations on the
creation of restrictions on the ability of certain subsidiaries to make certain
distributions and payments to the Company and other subsidiaries, and
limitations on the merger, consolidation or transfer of all or substantially all
of the assets of the Company and certain subsidiaries with or to another person.
Holders of Senior Notes will also have the right to require the Company to
repurchase Senior Notes in the event of certain changes in control. The Senior
Notes are senior unsecured obligations of the Company and rank pari passu with
other Senior indebtedness of the Company.
Although the Company believes that the terms of the New Credit Agreement and
the Indenture provide it with adequate liquidity and flexibility to comply with
the financial and other covenants contained therein and to pursue its business
strategies, there can be no assurance that the Company will
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comply with such covenants or not be materially restricted by the terms of the
New Credit Agreement and the Indenture. In addition, changes in economic or
business conditions or other factors beyond the Company's control may adversely
affect the Company's ability to comply with such covenants or pursue its
business strategies. A failure to satisfy any financial or other covenant in
the New Credit Agreement or the Indenture could permit the lenders under the New
Credit Agreement or holders of Senior Notes to accelerate such indebtedness,
which would materially adversely affect holders of Common Stock. Substantially
all of the assets of the Company are pledged to secure the Company's obligations
under the New Credit Agreement.
RECENT LOSSES
The Company incurred a loss from continuing operations in 1994 and the first
quarter of 1995 of approximately $7.6 million and $0.4 million, respectively,
including losses from the Company's prepaid calling card business and
international telephone center operations of approximately $5.5 million in 1994.
In addition, the Company had a loss from discontinued operations in 1994 of
approximately $10.8 million. Losses from continuing operations were primarily
the result of increased operating expenses attributable to the Company's
vertical integration strategy, the integration of an acquisition of a
significant number of public pay telephones in the latter half of 1993 and
approximately $2.7 million of 1994 charges to net income after taxes taken
during 1994, which management believes are one-time charges. These charges
included, among other things, amounts reserved for settling disputes with
service providers, severance charges, lease termination charges and costs
incurred in connection with an abandoned merger transaction. There can be no
assurance as to the future profitability of the Company's continuing or
discontinued operations or as to the Company's ability to dispose of the
discontinued operations on favorable terms or on the terms contemplated by the
Company's consolidated financial statements.
RISKS ASSOCIATED WITH BUSINESS STRATEGIES AND DISCONTINUED OPERATIONS
In recent years, the Company attempted to vertically integrate its public pay
telephone business and has entered into a variety of complementary niche
telecommunications businesses, including its inmate telephone and cellular
telephone rental operations (collectively, the "Discontinued Operations") and
prepaid calling card and international telephone centers. The capital
requirements and management attention required by these businesses diverted the
Company from its core public pay telephone business. Accordingly, in December
1994, the Company decided to focus on its core public pay telephone business and
divest itself of the prepaid calling card and international telephone center
operations and the Discontinued Operations. The Company's business strategies
for growing its public pay telephone business include growth through
acquisitions and new installations. In general, the Company has been able to
integrate acquired public pay telephones without significant costs or management
issues; however, in 1994, it experienced difficulties in integrating one of its
large acquisitions, which were exacerbated by management's focus on the prepaid
calling card and international telephone center operations and the Discontinued
Operations. While the Company has refocused on its core public pay telephone
business and effected a work force reduction during 1994 (collectively the "1994
Operational Restructuring"), and made efforts to improve the quality of its
management infrastructure and systems, there can be no assurance that the 1994
Operational Restructuring will be a successful strategy or that
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the Company will be able to expand its core public pay telephone business either
through acquisitions or through internal growth, successfully integrate acquired
public pay telephones, hire qualified new employees to meet the requirements of
its business or obtain the capital necessary to permit it to pursue its business
strategies.
In connection with the sale of the Preferred Stock, the Company has agreed to
certain affirmative and negative covenants with respect to the conduct of its
business, among other matters. In particular, absent approval of 75% of the
members of the Board of Directors of the Company (which would effectively
require the approval of a director elected by the holders of such Preferred
Stock), the Company will be restricted from entering into a number of
transactions outside the ordinary course of business (including acquisitions and
dispositions of assets other than the sale of the Discontinued Operations or the
international telephone center operations, involving aggregate consideration of
more than $5.0 million). The foregoing restriction may prevent the Company from
entering into certain acquisitions in furtherance of its business strategy.
In order to focus on the Company's core public pay telephone business, it will
be necessary to complete the divestiture of the Discontinued Operations and the
international telephone center operations. The Company's cellular telephone
rental operations are not currently profitable and its inmate telephone business
is subject to increasing competitive pressures and the risks attendant to having
a significant number of its contracts subject to renewal in the next 24 months.
There can be no assurance as to whether the Company will be successful in
renewing existing inmate telephone contracts or that the inmate telephone
business will not be adversely affected by the Company's announcement of its
decision to divest the inmate telephone business. As a result, there can be no
assurance as to the Company's future profitability or as to the Company's
ability to dispose of the Discontinued Operations or the international telephone
center operations on favorable terms or on the terms contemplated by the
Company's consolidated financial statements. If the Company disposes of any of
the Discontinued Operations for consideration that is less than the book value
of such operation, the Company will have to take a charge against net income for
any such difference.
The process of identifying attractive public pay telephone acquisition
opportunities and expanding through internal growth may be subject to unforeseen
difficulties. Moreover, there can be no assurance that the Company will
continue to be able to identify and acquire businesses on a basis which permits
it to satisfy its projected rates of return and other criteria for acquisitions.
Nor can there be any assurance that the Company will be able to locate favorable
new sites for internal growth, hire qualified new employees to meet the
requirements of its expanding business, obtain the capital necessary to permit
it to pursue its business strategies or continue to access developing
technologies at satisfactory costs to provide those service enhancements
demanded by consumers and customers in its existing and future businesses.
Consequently, there can be no assurance that the Company's business strategy
will prove to be successful, that the Company will be able to sell certain of
its operations or that expansion of the Company's business will not have a
material adverse impact on the Company.
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GOING CONCERN OPINION; RESTATEMENT OF FINANCIAL STATEMENTS; AUDIT COMMITTEE
REPORT
The report of the Company's independent accountants on the Company's
consolidated financial statements incorporated by reference in this Prospectus
contains an explanatory paragraph relating to the Company's ability to continue
as a going concern, as described in Note 18 to the Company's consolidated
financial statements incorporated by reference herein. Management believes
that, as a result of the Refinancing and the use of proceeds to repay
outstanding indebtedness, the bases for the explanatory paragraph relating to
the Company's ability to continue as a going concern no longer exist. However,
no assurance has been or can be given by the Company or by its independent
accountants that such explanatory paragraph will be removed from the independent
accountant's report.
In May 1995, the Company discovered that its interest in Global Link Teleco
Corporation ("Global Link") was 28.8% instead of the intended 19.99%. To
correct this error, the Company reduced its share ownership to the 19.99% level.
This caused the Company and its independent accountants to reevaluate the
accounting for its interest in Global Link (formerly known as Phone Zone Teleco
Corporation). Such review resulted in a determination that the equity method of
accounting for its Global Link investment was appropriate. Consequently, the
Company has restated its consolidated financial statements for fiscal 1994 and
the first quarter of 1995 to reflect the revision in accounting treatment for
the Global Link investment.
The Company has also restated its financial statements for the quarters ended
March 31 and June 30, 1994, as set forth in Form 10-Q's for such periods, to
reflect the timing of approximately $2.7 million in adjustments. These
adjustments, which include additional reserves for changes in estimates of
uncollectible receivables and vendor claims and the write-off of certain
acquisition costs, were originally recorded during the quarter ended June 30,
1994 and have now been reflected in the quarter ended March 31, 1994 to more
accurately reflect the timing of such adjustments. The restated quarterly
financial statements also reflect the $2.0 million gain on the March 31, 1994
sale of the Company's two telecommunications centers in New York to Phone Zone
Teleco Corporation in the second quarter of 1994 (when initial payment for the
centers was received) rather than the first quarter (when Phone Zone Teleco
Corporation took control of the centers on the basis of an agreement in
principle). These changes had no impact on net income or cash flow for the year
ended December 31, 1994.
In connection with their 1993 and 1994 audits of the Company, Price Waterhouse
LLP ("Price Waterhouse") issued letters to the Company's Audit Committee
indicating a number of reportable conditions in the Company's system of internal
accounting procedures, one of which constituted a material weakness relating to
the proper cut-off of quarterly financial information. Management believes that
it adequately addressed this material weakness prior to the end of fiscal 1994.
There were no disagreements as of the date of Price Waterhouse's audit report
incorporated by reference in this Prospectus with Price Waterhouse on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure which, if not resolved to Price Waterhouse's
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with their report. The report contains
explanatory paragraphs relating to the Company's ability to continue as a going
concern and for certain litigation matters as described therein.
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COMPETITION
The Company's businesses are, and can be expected to remain, highly
competitive. The markets in which the Company operates are fragmented, but
include certain large, well-capitalized providers of telecommunications services
with substantially greater resources than the Company. The Company's principal
competition in its public pay telephone business comes from local exchange
carriers ("LECs") operated by the regional Bell operating companies (the
companies that were formed as a result of the divestiture of American Telephone
& Telegraph Company ("AT&T")), GTE Corporation ("GTE"), a number of independent
providers of public pay telephones services, major operator service providers
and interexchange carriers. A LEC is the exclusive line service provider in a
given geographical region. For example, Southern Bell and Pacific Bell are LECs
owned by regional Bell operating companies. The Company's competition in its
inmate telephone business is from LECs, interexchange carriers and independent
providers of pay telephone systems. In the cellular rental business, the Company
competes with GTE and other providers that contract cellular rental services
through hotels and automobile rental agencies. The Company also competes with
many other non-LEC telecommunication companies which offer products and services
similar to those of the Company. Increased competition from these sources is
causing the Company to pay higher commissions on revenues generated by the
public pay telephones to those persons who own or lease the location on which
the public pay telephones are located. Such higher commissions could have a
material adverse effect on the Company by increasing its expenses without a
corresponding increase in revenue and by preventing the Company from obtaining
or maintaining desirable locations for its public pay telephones.
The Company's public pay telephone business is also materially affected by
competition in other segments of the telecommunications industry and related
regulatory issues. For example, since 1992, AT&T and MCI Communications, Inc.
("MCI") have aggressively promoted the use of access codes to encourage callers
to "dial around" the selected operator service provider at public pay
telephones. Dial around calls are attractive to the caller because the caller
pays the long distance rates of the operator service provider selected by the
caller as opposed to the often inflated per minute rates and surcharges imposed
by many operator service providers selected at public pay telephones. Prior to
January 1, 1995, the Company only received a fixed amount per telephone as
compensation for all interstate and, in some cases, intrastate dial around calls
placed at its public pay telephones regardless of how many dial around calls
were actually placed at such telephones. Effective January 1, 1995, the Company
will receive from AT&T a fixed amount per telephone call for each interstate and
interLATA intrastate AT&T dial around call placed at its public pay telephones
while it continues to receive the fixed amount per telephone from other
carriers. The amount for which the Company is compensated for dial around calls
is substantially below the amount it is compensated for 0+ calls made at its
public pay telephone through its selected operator service providers. The
Company has seen a steady decline in the number of 0+ calls completed at its
public pay telephones which has adversely affected the Company's non-coin
revenues.
In order to address the impact of dial around calls, as well as pursue new
business opportunities, the Company entered into an agreement with AT&T which
provides for the Company to receive competitive commission payments for all 0+
and AT&T dial around calls. There can be no assurance that such agreement will
be a financially beneficial means of addressing dial around issues given the
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dynamic nature of the domestic telecommunications industry and the evolving
regulatory framework, or, if successful, it can be renewed. In addition, there
can be no assurance that there are not or will not be other competitive trends
in other segments of the telecommunications industry that may materially
adversely affect the Company.
REGULATORY FACTORS
Most aspects of the Company's business are subject to regulation by the
Federal Communications Commission, the agency that administers the interstate
common carriage of telecommunications (the "FCC"), and by the state utility
commissions, or both. Changes in existing laws and regulations, as well as new
laws and regulations, applicable to the activities of the Company or other
telecommunications businesses, may materially adversely impact the operations,
revenues and expenses of the Company (including the extent of competition, the
charges of providers of interexchange and operator services and the
implementation of new technologies).
State regulatory commissions are primarily responsible for regulating the
rates, terms and conditions for intrastate public pay telephones and inmate
telephone services. Neither state nor federal regulation focuses on the
competitive aspects of the business environment on which the Company operates.
The Company is also subject to state regulation of operator services and, to a
limited extent, cellular resale services. Such regulations may include notice
and identification requirements, maximum price limitations, interconnection
rates, reporting requirements and prohibitions on handling certain local and
long-distance calls. Public pay telephones in the United States are owned and
operated by LECs or by independent operators such as the Company. However,
alternative competitive providers of local and intrastate services are beginning
to emerge. There are four states in which it is illegal to provide certain
intrastate services using non-LEC pay telephones: Alaska, Connecticut, Hawaii
and Oklahoma. Connecticut, however, has proceedings underway to implement
public pay telephone competition within that state.
The Company's operations are significantly influenced by the regulation of
public pay telephone, inmate telephone, long-distance reseller services and
other telecommunication services. Authority for regulation of these services is
concurrently vested in the FCC, and the various state public service
commissions. Regulatory jurisdiction is determined by the interstate or
intrastate character of the subject service and the degree of regulatory
oversight exercised varies among jurisdictions. While most matters affecting the
Company's operations fall within the administrative purview of these regulatory
agencies, state and federal legislatures and the federal district court
administering the divestiture consent decree for AT&T are also involved in
establishing certain rules and requirements governing aspects of these services.
Changes in existing laws and regulations, as well as new laws and regulations,
applicable to the activities of the Company or other telecommunications
businesses, may materially adversely impact the operations, revenues and
expenses of the Company (including the extent of competition, the charges of
providers of interexchange and operator services and the implementation of new
technologies).
On April 9, 1992, the FCC proposed a new access plan for operator assisted
interstate calls dialed on 0+ basis. Currently, 0+ calls are sent directly by
the LEC to the operator service provider selected by the host location. Under
the proposed access plan, known as "Billed Party Preference," 0+ calls
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would be sent instead to the operator service provider chosen by the party
paying for the call. Billed Party Preference allows a telephone user to bill a
call to the user's pre-established carrier at the user's home or office, thereby
bypassing the opportunity for the pre-subscribed carrier of the public pay
telephone provider to handle and receive revenues from the call. The FCC has
tentatively concluded that a nationwide Billed Party Preference system for
interstate assisted calls is in the public interest. Under a Billed Party
Preference system, the billed party could by-pass the Company entirely, allowing
0+ calls to be made on the Company's telephones without the payment of any
compensation to the Company. If the Company does not receive revenue for 0+
calls, the Company will be unable to pay commissions for such calls to owners of
locations at which public pay telephones are installed, correctional facilities
at which inmate telephones are located, and potentially, car rental companies at
which cellular telephones are rented. The FCC has requested and received public
comment on the question of compensation to pay telephone companies under Billed
Party Preference. The proposal remains under consideration at present and the
outcome is uncertain. If implemented, Billed Party Preference could have a
significant adverse impact on the Company.
TECHNOLOGICAL CHANGE AND NEW SERVICES
The telecommunications industry has been characterized by rapid technological
advancements, frequent new service introductions and evolving industry
standards. In the future, the Company's business could be impacted by the
introduction of new technology, such as improved wireless communications,
cellular telephone service and other personal communications systems. The
Company believes that its future success will depend on its ability to
anticipate and respond to changes and new technology. There can be no assurance
that the Company will not be materially adversely affected by the introduction
and acceptance of new technology.
SERVICE INTERRUPTIONS; EQUIPMENT FAILURES
The Company's long-distance operations require that its switching equipment
and the equipment of its long-distance service providers be operational 24 hours
per day, 365 days per year. As is case with other telecommunications companies,
the Company's long-distance operations may experience temporary service
interruptions or equipment failures, which may result from causes beyond the
Company's control. Any such event could have a material adverse effect on the
Company.
VOTING POWER OF THE PREFERRED STOCK; RESTRICTIONS IMPOSED BY PREFERRED STOCK
The Preferred Stock is immediately convertible, at the option of the holders,
into approximately 2,857,143 shares of Common Stock (or approximately 15.1% of
the outstanding Common Stock as of June 30, 1995 determined in accordance with
Rule 13d-3 under the Exchange Act), at a conversion price of $5.25 per share,
subject to reduction pursuant to antidilution adjustments in connection with,
among other things, certain issuances of shares of, or rights to acquire, Common
Stock at less than the conversion price of the Preferred Stock.
The holders of the Preferred Stock are entitled to elect two members of the
six member Board of Directors of the Company. The Preferred Stock is also
entitled to vote on all other matters submitted
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to the stockholders for a vote together with the holders of the Common Stock
voting as a single class with each share of Preferred Stock entitled to one vote
for each share of Common Stock issuable upon conversion. Accordingly, the
holders of the Preferred Stock may have a significant effect on the outcome of
any matter on which the holders of the Common Stock are entitled to vote.
For so long as 25% of the shares of Preferred Stock or the Common Stock into
which such Preferred Stock is convertible remain outstanding and have not been
sold publicly, the Company has agreed to observe certain negative covenants,
including but not limited to covenants with respect to the following matters:
(a) amendment of the Company Certificate of Incorporation or bylaws,
issuances of Common Stock, effectuation of a fundamental change, including the
sale or transfer of more than 40% of the consolidated assets of the Company and
its subsidiaries and certain mergers and consolidations and (b) without the
approval of 75% of the members of the Board of Directors (which would require
the vote of at least one member of the Board of Directors elected by the
Preferred Stock), engaging in certain transactions with stockholders, directors,
officers, employees or defined affiliates, issuing debt securities with equity
features or capital stock or other equity securities senior to or on a parity
with the Preferred Stock, merging or consolidating or, except for certain
permitted acquisitions or dispositions, allowing a subsidiary to merge or
consolidate, selling, leasing or otherwise disposing of assets of the Company or
its subsidiaries involving consideration greater than $5.0 million, liquidating,
dissolving or effecting a recapitalization or reorganization, acquiring an
interest in or assets of any other company involving aggregate consideration
greater than $5.0 million, owning, managing or operating any business other than
the domestic pay telephone business, or hiring, electing or replacing the
Company's Chief Executive Officer, President, Chief Financial Officer or Chief
Operating Officer or change the terms of employment or compensation thereof.
Notwithstanding the foregoing, the Company may sell certain discontinued
operations and borrow under the New Credit Agreement.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. The Company's credit
facility restricts the payment of cash dividends to its shareholders. No
dividends may be paid which would otherwise cause the Company to breach its
obligations under the credit facility or while the Company is in default of its
obligation under the credit facility. Furthermore, so long as any shares of the
Preferred Stock remain outstanding, without the prior consent of the holders of
a majority of the then outstanding shares of Preferred Stock, the Company is
prohibited from paying or declaring any dividend or making any distribution on
any other capital stock of the Company (other than dividends payable solely in
the securities in respect of which such dividends are paid).
RELIANCE ON KEY PERSONNEL
The Company is heavily dependent on the efforts of certain of its officers and
other management personnel, including: Jeffrey Hanft, the Company's Chairman of
the Board and Chief Executive Officer; Robert D. Rubin, the Company's President;
Richard F. Militello, the Company's Chief Operating
12
<PAGE>
Officer; Bonnie S. Biumi, the Company's Chief Financial Officer; Bruce W.
Renard, the Company's Vice President of Regulatory Affairs and its General
Counsel; and Lawrence T. Ellman, President of the Company's Payphone Division.
The loss of the services of one or more of these individuals could have a
material adverse effect on the Company. In addition, the failure of the Company
to attract and retain additional management to support its business strategy
could also have a material adverse effect on the Company. The Company does not
maintain key man insurance on the named individuals.
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SELLING SHAREHOLDERS
All of the shares of Common Stock of the Company offered hereby are being sold
by the Selling Shareholders named below. The Company will receive none of the
proceeds from the sale of shares offered hereby. Some of the shares of Common
Stock are subject to indemnification obligations owed by such Selling
Shareholders to the Company and may be transferred by such Selling Shareholders
to the Company. To the best of the Company's knowledge, the following table
sets forth certain information with respect to the Selling Shareholders as of
March 31, 1995:
<TABLE>
<CAPTION>
No. of
Shares Beneficially Owned Shares Shares Beneficially Owned
Before this Offering to be Sold After this Offering
------------------------- ---------- -------------------------
Name of Selling Shareholder Number Percentage(1) Number Percentage(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
George E. Livingston(2) 70,577 * 70,577 0 *
John W. Madden, Jr.(2) 17,151 * 17,151 0 *
Willis M. McFarlane(2) 17,151 * 17,151 0 *
John Metcalfe(2) 1,336 * 1,336 0 *
Roger Smith(2) 1,336 * 1,336 0 *
Greg L. Livingston(2) 91 * 91 0 *
Ascom Communications, Inc.(3) 500,000 3.1% 500,000 0 *
Jacquith & Company(4) 150,000 * 150,000 0 *
Telecorp Funding, Inc. 126,324 * 126,324 0 *
Gilbert A. Mendelson(5) 62,068 * 62,068 0 *
David T. Magrish(5) 62,068 * 62,068 0 *
Harvey Ostrow(5) 8,863 * 8,863 0 *
Luis Schwartz(5) 17,727 * 17,727 0 *
Howard Siegel(5) 9,843 * 9,843 0 *
Creditanstalt Corporate Finance,
Inc.(6) 540,541 3.3% 540,541 0 *
TOTAL 1,585,076 1,585,076 0
<FN>
_____________________
(1) Represents the percentage of the Company's issued and outstanding Common
Stock owned by such person, based on 16,051,875 shares issued and
outstanding as of April 30, 1995. Does not include shares of Common Stock
issuable upon the exercise of outstanding warrants, options or other rights
to acquire the Company's Common Stock, unless such warrants, options or
other rights have been issued to such persons or entities listed in the
above table and are currently exercisable. No percentage of beneficial
ownership is indicated for persons or entities with less than one percent
beneficial ownership.
(2) Represents shares issued to such individual in connection with the
Company's acquisitions of the assets of Silverado Communications Corp.
_____________________
Footnotes Continued Next Page
14
<PAGE>
_____________________
(3) Represents shares issued to such Selling Shareholder in connection with the
Company's acquisitions of the assets of such Selling Shareholder.
(4) Represents shares issued to such Selling Shareholder, an affiliate of
Creditanstalt, in connection with the Company's senior revolving credit
facility.
(5) Represents shares issued to such Selling Shareholder in connection with the
Company's acquisition of the assets of Telecoin Communications, Ltd.
pursuant to an Agreement and Plan of Merger by and among the Company, the
Selling Shareholder and other parties, dated October 21, 1994. The number
of shares to be issued to such Selling Shareholders is based upon the
lesser of the average closing price for one share of Common Stock for the
five days preceding October 21, 1994 or the day immediately preceding the
date this Registration Statement becomes effective.
(6) Represents shares which may be issued to such Selling Shareholder, an
affiliate of Creditanstalt, upon conversion by such Selling Shareholder of
the aggregate outstanding principal indebtedness as of December 1, 1995
under the $2.5 million note owed by PTC Cellular, Inc. in favor of such
Selling Shareholder in accordance with an Exchange Agreement between such
Selling Shareholder and the Company.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock, $.01 par value per share, of the Company covered
by this Prospectus are outstanding shares that are being sold by the Selling
Shareholders named herein. See "Selling Shareholders." The Company will not
receive any of the proceeds from the sale of the shares offered hereby.
The Selling Shareholders may sell any shares of Common Stock offered hereby
from time to time in one or more transactions (including block transactions in
which a Selling Shareholder is the seller) in the over-the-counter market or
otherwise. The Selling Shareholders may also sell shares of Common Stock in
special offerings, exchange distributions or secondary distributions in
accordance with the rules of the National Association of Securities Dealers,
Inc., in negotiated transactions, including through the writing of options on
shares of the Common Stock (whether such options are listed on an options
exchange or otherwise), or otherwise. The Selling Shareholders may effect such
transactions by selling shares of Common Stock to or through underwriters,
dealers, brokers or agents. Such underwriters, dealers, brokers or agents may
sell such shares of Common Stock to purchasers in one or more transactions
(including block transactions) in the over the counter market or otherwise. Any
sales may be made at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Without
limiting the foregoing, brokers may act as dealers by purchasing any and all
shares of Common Stock either as agents for others or as principals for their
own accounts and reselling such shares pursuant to this Prospectus. Such
brokers will receive compensation from the Selling Shareholders in the form of
commissions or discounts and may receive compensation from purchasers of the
shares of Common Stock for whom they may act as agent or to whom they may sell
as principal in the form of commissions or discounts. The Selling Shareholders
and any underwriters, dealers, brokers or agents that participate in the sale of
such shares of Common Stock may be deemed to be underwriters, and any profit on
the sale of such shares of Common Stock by the Selling Shareholders and any
discounts, commissions or concessions received by any such underwriter, dealer,
broker or agent may be deemed to be underwriting discounts or commissions under
the Securities Act. The Company has agreed to indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act.
In addition, Telecorp Funding, Inc. may distribute shares of Company Common
Stock held by it to the shareholders thereof.
15
<PAGE>
There can be no assurances that the Selling Shareholders will sell any or all
of the shares of Common Stock offered hereunder.
Sales of shares of Common Stock at less than the market prices thereof may
depress the market price of the Company's Common Stock. Moreover, it is
possible that a significant number of shares of Common Stock could be sold at
the same time, which may also depress the market price of the Company's Common
Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed
upon for the Company by Zack, Sparber, Kosnitzky, Truxton, Spratt & Brooks,
P.A., Miami, Florida.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
Company's Annual Report on Form 10-K for the Company and its subsidiaries for
the fiscal year ended December 31, 1994, as amended by Form 10-K/A No. 1, Form
10-K/A No. 2 and Form 10-K/A No. 3 relating thereto, have been so incorporated
in reliance on the report of Price Waterhouse LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
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No dealer, salesperson or other individual has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus in connection with the offering made by this
Prospectus. If given or made, such information or representation must not be
relied upon as having been authorized by the Company or the Selling
Shareholders. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, the shares of Common Stock offered hereby by
anyone in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation or in which the person making such offer or
solicitation is not qualified to do so. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the facts set forth in this
Prospectus or the affairs of the Company since the date hereof.
TABLE OF CONTENTS
Page
Available Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference. . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Selling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
1,585,076 SHARES
PEOPLES TELEPHONE COMPANY, INC.
COMMON STOCK
------------
PROSPECTUS
------------
AUGUST 7, 1995
