AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PEOPLES TELEPHONE COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 4813 13-2626435
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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2300 N.W. 89TH PLACE
MIAMI, FLORIDA 33172
(305) 593-9667
ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
ROBERT D. RUBIN
PRESIDENT Copies to:
PEOPLES TELEPHONE COMPANY, INC. DALE S. BERGMAN, ESQ.
2300 N.W. 89TH PLACE GREENBERG, TRAURIG, HOFFMAN,
MIAMI, FLORIDA 33172 LIPOFF, ROSEN & QUENTEL, P.A.
(305) 593-9667 1221 BRICKELL AVENUE, 22ND FLOOR
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER MIAMI, FLORIDA 33131
INCLUDING AREA CODE, OF AGENT FOR SERVICE) (305) 579-0652
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS TO BE OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PER NOTE(2) OFFERING PRICE(2) FEE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12-1/4% Senior Notes Due 2002... $100,000,000 100% $100,000,000 $34,483
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<FN>
(1) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457.
</FN>
</TABLE>
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CROSS REFERENCE SHEET
Furnished Pursuant to Item 501(b) of Regulation S-K
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Facing Page of the Registration
Statement; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page; Outside
Back Cover Page
3. Risk Factors and Ratio of Earnings
to Fixed Charges, and Other
Information......................... Summary--Summary Financial
Information; Risk Factors; The
Company
4. Terms of the Transaction.............. Summary; The Exchange Offer;
Description of Notes; Certain
Federal Income Tax Consequences;
Exchange Offer; Registration
Rights
5. Pro Forma Financial Information....... Summary--Summary Financial
Information; Selected Financial
Information
6. Material Contacts with the Company
Being Acquired...................... *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........... *
8. Interests of Named Experts and
Counsel............................. Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... *
10. Information with Respect to S-3
Registrants......................... *
11. Incorporation of Certain Information
by Reference........................ *
12. Information with Respect to S-2 or S-3
Registrants......................... *
13. Incorporation of Certain Information
by Reference........................ *
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants......................... Outside Front Cover Page; Summary;
Risk Factors; The Company; Use of
Proceeds; Capitalization;
Selected Financial Information;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Preferred Stock
Investment; Credit Agreement
15. Information with Respect to S-3
Companies........................... *
16. Information with Respect to S-2 or S-3
Companies........................... *
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies..... *
18. Information if Proxies, Consents or
Authorizations are to be Solicited.. *
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer... Management; Certain Transactions;
Principal Shareholders
- ------------------------
* Not applicable or answer thereto is negative.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION DATED JULY 28, 1995
PROSPECTUS
PTC
PEOPLES TELEPHONE COMPANY, INC.
OFFER TO EXCHANGE
ITS
SERIES B 12 1/4% SENIOR NOTES DUE 2002
FOR ANY AND ALL OUTSTANDING
SERIES A 12 1/4% SENIOR NOTES DUE 2002
------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 4:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER 29, 1995, UNLESS EXTENDED.
------------------------
Peoples Telephone Company, Inc., a New York corporation (the 'Company'),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the 'Letter of
Transmittal' and together with this Prospectus, the 'Exchange Offer'), to
exchange its Series B 12 1/4% Senior Notes due 2002 (the 'Exchange Notes'),
which have been registered under the Securities Act of 1933, as amended (the
'Securities Act'), pursuant to a Registration Statement (as defined herein) of
which this Prospectus is a part, for an equal principal amount of its
outstanding Series A 12 1/4% Senior Notes due 2002 issued on July 19, 1995 (the
'Old Notes'), of which $100,000,000 principal amount is outstanding. The
Exchange Notes and the Old Notes are collectively referred to herein as the
'Notes.' The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 4:00 P.M., New York City time,
on September 29, 1995, unless the Exchange Offer is extended (the 'Expiration
Date'). Tenders of Old Notes may be withdrawn at any time prior to 4:00 P.M.,
New York City time, on the Expiration Date. The Exchange Notes will be issued
and delivered promptly after the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
Exchange. Old Notes may be tendered only in integral multiples of $1,000. The
Exchange Notes will be obligations of the Company evidencing the same debt as
the Old Notes, and will be entitled to the benefits of the same Indenture dated
as of July 15, 1995 (the 'Indenture') between the Company and First Union
National Bank of North Carolina, as Trustee (the 'Trustee'). The form and terms
of the Exchange Notes are substantially the same as the form and terms of the
Old Notes except that the Exchange Notes have been registered under the
Securities Act. See 'The Exchange Offer,' 'Description of the Notes' and
'Exchange Offer; Registration Rights.'
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
Prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that, by so acknowledging and by delivering a Prospectus, a
broker-dealer will not be deemed to admit that it is an 'underwriter' within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See 'The Exchange Offer,' 'Exchange
Offer; Registration Rights' and 'Plan of Distribution.'
There has been no public market for the Old Notes. If a market for the
Exchange Notes should develop, the Exchange Notes could trade at a discount from
their principal amount. The Company does not intend to list the Exchange Notes
on a national securities exchange or to apply for quotation of the Exchange
Notes through the National Association of Securities Dealers Automated Quotation
System. There can be no assurance that an active public market for the Exchange
Notes will develop.
------------------------
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
EXCHANGE NOTES, SEE 'RISK FACTORS' AT PAGE 16.
------------------------
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.
------------------------
THE DATE OF THIS PROSPECTUS IS JULY , 1995
<PAGE>
SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and consolidated financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
References to the Company also include references to its subsidiaries, unless
the context otherwise requires. Except as otherwise indicated, certain technical
and other terms used in this Prospectus have the meanings assigned to them in
the Glossary appearing herein.
THE COMPANY
The Company believes that it is the largest independent operator of public
pay telephones in the United States on the basis of the number of public pay
telephones in service. Since installing its first public pay telephone in 1985,
the Company's core public pay telephone business has grown rapidly to an
installed base, as of March 31, 1995, of 40,040 public pay telephones in 41
states and the District of Columbia. The Company's nationwide presence in the
public pay telephone market makes it an attractive supplier of public pay
telephone services to national and regional accounts, as compared with small
competitors and local exchange carriers ('LECs').
The Company owns, operates, services and maintains a system of public pay
telephones. Its public pay telephone business generates revenues from coin calls
and non-coin calls, such as calling card, credit card, collect and third party
billed calls made from its telephones. Since January 1990, the Company has
acquired over 33,000 public pay telephones from 27 independent public pay
telephone providers. The Company also expands its base of public pay telephones
with its own marketing staff by obtaining contracts for new locations where it
believes there will be significant demand for public pay telephone service, such
as convenience stores, grocery stores, service stations, shopping centers,
hotels, restaurants, airports and truck stops. The Company has been able to
acquire and develop national corporate accounts which, as of March 31, 1995,
included 7-Eleven (2,528 telephones), Emro Marketing Company, a subsidiary of
Marathon Oil (2,058 telephones), Vons Supermarkets (761 telephones) and Safeway
Stores (420 telephones).
On April 21, 1995, the Company entered into an agreement (the 'AT&T
Agreement') with AT&T Corp. ('AT&T'), which established AT&T as the primary
operator services provider for the Company's public pay telephones. The Company
intends to direct substantially all of its long distance operator services
traffic to AT&T, use the AT&T brand name and adopt the AT&T rate structure. In
return, AT&T will pay commissions to the Company at a competitive rate
reflecting the large volume of calls involved. The AT&T Agreement has an initial
two-year term, subject to renewal, and provides that the Company may serve as a
nationwide reseller of AT&T operator services to other independent pay telephone
providers. While constituting a major new business alliance for the Company, the
AT&T Agreement also represents a continuation of prior working agreements
between AT&T and the Company, whereby AT&T and the Company jointly market and
provide public pay telephone services to national and regional accounts.
Examples of such accounts, as of March 31, 1995, included McDonald's Corporation
(1,226 telephones) and the Atlanta Hartsfield International Airport (417
telephones).
The Company believes that currently there are approximately 2.1 million
public pay telephones operated in the United States, of which approximately 1.8
million are owned by LECs and approximately 300,000 by independent public pay
telephone companies. The independent public pay telephone segment of the
industry is highly fragmented among many independent public pay telephone
providers and over the last several years has been undergoing and continues to
undergo a considerable amount of consolidation.
3
<PAGE>
BUSINESS STRATEGY
The Company's business objective is to focus on its core public pay
telephone business and grow operating cash flow by continuing to expand its
installed base of public pay telephones. The Company seeks to achieve this
objective through the following strategies:
Growth Through Selective Acquisitions. The Company believes that growth
through selective acquisitions is desirable because it increases the Company's
geographic presence and concentration and typically generates more predictable
revenues than new public pay telephone installations. In general, the Company
has been able to acquire public pay telephones at prices that it considers
attractive because smaller providers frequently lack the economies of scale that
the Company enjoys. When acquired telephones are integrated into the Company's
national system, the Company is often able to operate such telephones
profitably, or more profitably than the seller, because of its economies of
scale. The Company intends to utilize its size and experience in integrating
public pay telephone acquisitions in an effort to capitalize on the
consolidation trend in the industry.
Growth Through New Installations. The Company is seeking to increase its
internal growth by marketing its public pay telephones to new and existing
accounts within its current markets. The Company believes that its nationwide
presence makes it an attractive supplier of public pay telephone services for
national corporate accounts by offering these accounts a consistent level of
service and reducing the time, administration and costs associated with
utilizing multiple providers. The Company is attempting to balance its national
corporate account marketing efforts by expanding its regional and local sales
efforts, where competition for accounts tends to be less competitive. It has
hired or is in the process of hiring regional sales managers in New York, the
Mid-Atlantic region, Florida, Texas, the Mid-West region and California, where
the Company has significant concentrations of public pay telephones.
Superior Level of Customer Service. The Company attempts to provide the
highest quality service in the industry and establish strong relationships with
its customers. The Company provides quality service through the use of 'smart'
microprocessor-equipped telephones, a sophisticated management information
system and a highly trained service and support staff. The Company's advanced
telephone technology allows for exact records of telephone activity, tracking of
revenues which can be easily verified by its customers and rapid response
(typically within 24 hours) to repair malfunctions and service equipment.
Realize Economies of Scale and Maximize Operating Efficiencies. By growing
its public pay telephone business, the Company intends to benefit from the
realization of further economies of scale in field service, collection and other
selling, general and administrative activities. The Company's existing
infrastructure permits it to add new public pay telephones in its existing
markets without significant incremental operating costs. Furthermore, as a
high-volume consumer of long distance service (approximately 17 million minutes
per month), the Company has been able to negotiate favorable terms from AT&T and
other operator service providers and interexchange carriers. The Company's
'smart' public pay telephones, management information systems and trained
service and support staff have permitted it to achieve savings in the cost of
telephone repair and maintenance.
1994 OPERATIONAL RESTRUCTURING
In recent years, the Company entered into a variety of complementary niche
telecommunications businesses and attempted to vertically integrate its public
pay telephone business. The complementary businesses were the Company's inmate
telephone, prepaid calling card and international telephone center and cellular
telephone rental operations. The Company's efforts to vertically integrate
included providing long distance and operator services through its own dedicated
switching network and its own billing and collection operations. The Company
believed these actions would enhance its long-term growth, diversify and
vertically integrate its business and obtain benefits associated with adding to
the Company's total
4
<PAGE>
volume of long distance telephone calls. While increasing its long distance
minutes remains a key part of the Company's operating strategy, the capital
requirements and management attention required by these operations diverted the
Company from its core public pay telephone business and adversely affected its
operating results. During the second quarter of 1994, management of the Company
undertook a review of the Company's operations, management structure and
strategic objectives with a view toward reducing expenses and improving
operating efficiency. For a discussion of 1994 operating results, see
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
The principal actions taken by the Company as a result of management's
review included:
Renewed Focus on Core Business. In December 1994, the Company decided to
focus on the growth opportunities available in its core public pay telephone
business and to divest itself of its inmate telephone, prepaid calling card and
international telephone center and cellular telephone rental operations. For
financial accounting purposes, the inmate telephone and cellular telephone
rental operations (the 'Discontinued Operations') have been segregated and
reported as discontinued operations. The Company sold its prepaid calling card
business in February 1995 and is currently pursuing alternatives to divest the
Discontinued Operations and the international telephone center operations. This
offering is not conditioned upon the divestiture of any of the Discontinued
Operations or the international telephone center operations.
Reduced Size and Improved Quality of Work Force. In 1994, the Company
reduced its work force from continuing operations by approximately 100
employees. The annual compensation and fringe benefits associated with the
reduction in the continuing operations' work force is estimated by the Company
to be approximately $4.3 million (based on 1994 compensation and fringe benefit
expenses). The estimated compensation and fringe benefit expenses associated
with such work force reduction and included in the Company's 1994 results from
continuing operations is approximately $2.8 million. In addition, the Company
hired a new Chief Financial Officer and upgraded the caliber of its employees
performing certain key functions. As a result of these actions, the Company
reduced operating expenses, upgraded operating systems and strengthened its
accounting controls and internal reporting practices.
Management's decision to divest itself of the prepaid calling card and
international telephone center operations and the Discontinued Operations and
reduce the size of the Company's work force (collectively, the '1994 Operational
Restructuring'), together with its review of the Company's operations, resulted
in charges in 1994 (the '1994 Charges') of approximately $4.0 million to
earnings before interest, income taxes, depreciation and amortization ('EBITDA')
from continuing operations, which management believes are one-time charges,
although there can be no assurance that similar charges would not be taken in
the future. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations-- The 1994 Charges.'
As a result of operating losses in 1994, including losses from the prepaid
calling card and international telephone center operations and the Discontinued
Operations, the Company was not in compliance with certain financial covenants
in the Company's prior credit agreement (the 'Prior Credit Agreement'). The
lenders under the Prior Credit Agreement subsequently waived compliance with
such covenants and modified the covenants to provide the Company with greater
flexibility through 1995. However, as described under '--Recent Developments,'
the Company recently defaulted in making certain payments under $6.0 million in
principal amount of promissory notes issued in connection with a 1993
acquisition due, in part, to disputes regarding the indemnification obligations
of the holder of the notes and to conserve cash in light of the Company's
working capital requirements and amortization obligations under the Prior Credit
Agreement. The Company obtained temporary waivers in respect of defaults under
other indebtedness arising by reason of the payment defaults. For a discussion
of these defaults and waivers and recently settled litigation with the holder of
the promissory notes, see '--Recent Developments,' 'Risk Factors--Defaults under
Indebtedness' and 'Business--Legal Proceedings.' For a discussion of certain
liquidity issues being addressed by the Refinancing, see 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
5
<PAGE>
1995 REFINANCING PLAN
In order to extend its debt maturities and to provide increased operational
and financial flexibility to take advantage of growth opportunities in its core
public pay telephone business, simultaneously with the issuance of the Old Notes
the Company refinanced the Prior Credit Agreement and certain outstanding notes
payable with its new Credit Agreement (as defined below), the Notes and the
Preferred Stock Investment (as defined below) (collectively, the 'Refinancing').
See 'Description of Credit Agreement,' '--Recent Developments' and 'Use of
Proceeds.' As of July 26, 1995, the Company had not borrowed any of the total
$40.0 million of credit available under the Credit Agreement.
RECENT DEVELOPMENTS
PREFERRED STOCK INVESTMENT
On July 3, 1995, the Company entered into an agreement with UBS Capital
Corporation ('UBS Capital'), for the issuance by the Company of shares of
Cumulative Convertible Preferred Stock (the 'Preferred Stock') for gross
proceeds of $15.0 million (collectively, the 'Preferred Stock Investment'). UBS
Capital is a wholly-owned indirect merchant banking subsidiary of Union Bank of
Switzerland. The Preferred Stock Investment was consummated simultaneously with
the issuance of the Old Notes. In connection with the consummation of the
Preferred Stock Investment, UBS Capital assigned its rights under such agreement
to UBS Partners, Inc., also a wholly-owned subsidiary of Union Bank of
Switzerland ('UBS Partners'), and the Preferred Stock was acquired by UBS
Partners.
The Preferred Stock cumulates dividends initially at an annual rate of 7%,
which will be payable in cash or, at the Company's option during the first three
years after issuance, will continue to cumulate. The Preferred Stock is
immediately convertible, at the option of the holders, into 2,857,143 shares of
Common Stock of the Company (or 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 certain antidilution
adjustments. The Preferred Stock is subject to (i) mandatory redemption by the
Company 10 years after issuance or, subject to the prior payment in full of the
Company's indebtedness under the Credit Agreement and the Notes, in the event of
certain bankruptcy or related events relating to the Company, (ii) redemption at
the Company's option, resulting in the exercisability of contingent warrants and
(iii) in the event of a Change of Control (as defined in the Indenture),
redemption, at the option of the holders thereof, in all cases, at its
liquidation preference ($15.0 million in the aggregate) plus accrued and unpaid
dividends.
Pursuant to the terms 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 two directors initially will be Charles J. Delaney, President
of UBS Capital Corporation, and Jeffrey J. Keenan, a Managing Director of UBS
Capital Corporation; however, only one such designee will serve until the
Company's 1995 Annual Meeting of Shareholders. One existing director will resign
to create a vacancy for such director and another existing director is expected
not to be renominated at such Annual Meeting. Such existing director has
objected to not being renominated. See 'Management--Directors and Executive
Officers' and 'Business--Legal Proceedings.'
CERTAIN REGULATORY DEVELOPMENTS
Reduction in Florida Access Fees. The Florida Legislature, during the 1995
General Session, passed a comprehensive rewrite of the State's
telecommunications law, which was enacted into law in June 1995. As its
cornerstone, the legislation provides for open competition in the Florida local
exchange markets, effective January 1, 1996. As one of the largest customers of
local exchange service in the State, the Company expects to benefit in terms of
price and service quality with the advent of local telephone service competition
permitted under this new legislation. In addition, the new law specifically
enables the Company
6
<PAGE>
and other independent public pay telephone providers, effective July 1, 1995, to
obtain flat rate business line interconnection from the LECs in lieu of the
mandatory measured rate structure previously in place. Based upon 1994 average
usage of Florida public pay telephones, the Company estimates that, if
implemented, these changes may result in an approximate average savings of
$25-$30/phone/month to the Company for its Florida operations.
Compensation for Access Code Calls. On May 23, 1995, the United States
Court of Appeals for the District of Columbia issued a decision overturning a
prior Federal Communications Commission ('FCC') ruling that applicable federal
law did not allow the FCC to prescribe compensation to pay telephone providers
on 'subscriber 1-800 calls' or 1-800 calls where the recipient of the call
selected the operator service provider (for example, calls to 1-800-FLOWERS or
1-800-USA-RAIL). The FCC made this earlier finding in the context of its initial
decision to prescribe compensation to public pay telephone providers on 'carrier
access code calls' (including 1-800 carrier access code calls, along with '950'
and '10XXX' access code calls) under the same federal law. The Court held that
there was no legal preclusion to establishment of a system for compensating
public pay telephone providers on subscriber 1-800 calls initiated from
independent public pay telephones. The Court remanded the case to the FCC for
further proceedings 'to consider the need to prescribe compensation for
subscriber 1-800 calls routed to providers of operator services that are other
than the prescribed provider of operator services.' The Company will participate
through the American Public Communications Council industry trade group in an
effort to have the FCC expeditiously adopt a compensation mechanism that
provides reasonable payment to providers of pay telephone equipment used in
making these 1-800 calls. There can be no assurance that a compensation scheme
for subscriber 1-800 calls will be adopted on a timely basis or at all.
CERTAIN LEGAL PROCEEDINGS
On May 9, 1995, a complaint (as amended on May 30, 1995) was filed in the
Supreme Court of the State of New York, New York County, against the Company by
Ascom Communications, Inc. ('ACI') and ACI's sole shareholder, Ascom Holding,
Inc. ('AHI'). The complaint alleged breach of contract by the Company for
failure to make certain principal and interest payments in respect of $6.0
million principal amount of promissory notes which were issued by the Company to
ACI in connection with the November 1993 purchase by the Company of
substantially all of ACI's assets. In addition, the complaint alleged that the
Company breached its agreement with ACI to register certain shares of Common
Stock of the Company under the Securities Act within an agreed upon time frame.
The Company did not make such payments due, in part, to disputes regarding the
indemnification obligations of ACI and to conserve cash in light of the
Company's working capital requirements and amortization requirements under the
Prior Credit Agreement. The complaint also alleged that the Company failed to
assume certain obligations and pay certain amounts under an equipment lease. The
Company settled such litigation in June 1995 for approximately $5.7 million. See
'Business--Legal Proceedings.'
DEFAULTS UNDER INDEBTEDNESS
The Company's payment defaults in respect of the promissory notes held by
ACI, as well as the litigation by ACI and AHI, resulted in defaults under the
Prior Credit Agreement and the Company's $2.5 million in mortgage indebtedness.
On May 31, 1995, the lenders under the Prior Credit Agreement waived the
defaults arising from the ACI litigation and the payment defaults in respect of
the ACI promissory notes, provided that by June 30, 1995 the Company either
consummated the refinancing of the Prior Credit Agreement or settled the ACI
litigation on terms that do not require payment by the Company of an amount in
excess of $6.0 million. The litigation was settled in June 1995 for
approximately $5.7 million. On May 31, 1995, the Company's mortgage lender
temporarily waived the defaults arising out of the payment defaults on the ACI
promissory notes provided that the mortgage indebtedness is repaid prior to
August 31, 1995. The Company used the net proceeds from the Refinancing to repay
all indebtedness under the Prior Credit Agreement, as well as repay certain
notes payable, including the mortgage, pending its planned refinancing. See
'Risk Factors--Defaults under Indebtedness' and 'Use of Proceeds.'
7
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Old Notes.................................... The Old Notes were sold by the Company on July 19, 1995 (the
'Issue Date' or 'Closing Date'), pursuant to a Purchase Agreement,
dated as of July 12, 1995 (the 'Note Purchase Agreement'), by and
between the Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the initial purchaser of the
Old Notes (the 'Initial Purchaser').
Registration Rights.......................... Pursuant to the Note Purchase Agreement, the Company and the
Initial Purchaser entered into a Registration Rights Agreement,
dated as of July 19, 1995 (the 'Registration Rights Agreement'),
which grants the holders of the Old Notes certain exchange and
registration rights. This Exchange Offer is intended to satisfy
such exchange rights which terminate upon consummation of the
Exchange Offer.
The Exchange Offer........................... The Company is offering to exchange $1,000 principal amount of its
Exchange Notes for each $1,000 principal amount of its outstanding
Old Notes that are properly tendered and accepted. As of the date
of this Prospectus, $100,000,000 in aggregate principal amount of
the Old Notes are outstanding. As of July 26, 1995, there were 5
registered holders of Old Notes. See 'The Exchange Offer.'
Based on interpretations by the staff of the Securities and
Exchange Commission (the 'Commission') set forth in certain
no-action letters issued by the Commission to third parties, the
Company believes that Exchange Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for
resale, resold and otherwise transferred by any holder thereof
(other than any such holder which is an 'affiliate' of the Company
within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such holder's
business and that such holder does not intend to participate and
has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes.
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal that accompanies this
Prospectus states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is
an 'underwriter' within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of
Exchange Notes received in exchange for Old Notes where such Old
Notes
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
were acquired by such broker-dealer as a result of market-making
activities or other trading activities.
Any holder of Old Notes who tenders in the Exchange Offer with the
intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes could not rely on the
position of the staff of the Commission enunciated in Exxon
Capital Holdings Corporation (available April 13, 1989) or similar
no-action letters and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. Failure to comply with such requirements in such
instance may result in such holder incurring liability under the
Securities Act for which the holder is not indemnified by the
Company.
Expiration Date.............................. 4:00 p.m., New York City time, on September 29, 1995, unless
extended (the 'Expiration Date'). See 'The Exchange Offer--Terms
of the Exchange Offer; Expiration Date; Extensions; Amendments.'
Accrued Interest on the
Exchange Notes and Old Notes............... The Exchange Notes will bear interest from their respective
issuance dates at the same rate and upon the same terms as the Old
Notes. Holders whose Old Notes are accepted for exchange will
receive accrued and unpaid interest thereon to, but not including,
the issuance date of the Exchange Notes and will be deemed to have
waived the right to receive any payment in respect of interest on
the Old Notes accrued from and after the date of issuance of the
Exchange Notes. Such accrued but unpaid interest on the Old Notes
will be payable with the first interest payment on the Exchange
Notes.
Conditions of the Exchange Offer............. The Exchange Offer is subject to certain customary conditions,
including (i) no commencement of any action, legal or
governmental, with respect to the Exchange Offer or which the
Company reasonably determines would make it inadvisable to proceed
with the Exchange Offer, (ii) no banking moratorium or similar
event or international calamity involving the United States, and
(iii) no change in the business or prospects of the Company that
may have a material adverse effect on the Company. The Company
expects that the foregoing conditions will be satisfied. All such
conditions may be waived by the Company. Holders may have certain
rights and remedies against the Company under the Registration
Rights Agreement should the Company fail to consummate the
Exchange Offer. See 'The Exchange Offer--Conditions of the
Exchange Offer.'
Procedures for Tendering
Old Notes.................................. Each holder of Old Notes desiring to accept the Exchange Offer
must complete and sign the Letter of Transmittal or a facsimile
thereof, in accordance with the instructions contained herein and
therein, and mail or deliver the Letter of
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Transmittal, together with the Old Note and any other required
documents to the Exchange Agent (as defined herein) at the
address set forth herein and in the Letter of Transmittal on or
prior to the Expiration Date. By executing the Letter of
Transmittal, each holder will represent to the Company that, among
other things, the Exchange Notes acquired pursuant to the Exchange
Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person
is the holder, that neither the holder nor any such other person
has any arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and that
neither the holder nor any such other person is an 'affiliate,' as
defined under Rule 405 of the Securities Act.
Untendered Old Notes......................... Following the consummation of the Exchange Offer, holders of Old
Notes eligible to participate but who do not tender their Old
Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected.
Shelf Registration Statement................. In the event that applicable interpretations of the Staff of the
Commission do not permit the Company to effect the Exchange Offer,
or if for any other reason the Exchange Offer is not consummated
within 120 days of the Issue Date, or if a holder of the Notes is
not permitted to participate in the Exchange Offer or does not
receive freely tradeable Exchange Notes pursuant to the Exchange
Offer or, under certain circumstances, if the Initial Purchaser so
requests, the Company will use its best efforts to cause to become
effective a Shelf Registration Statement with respect to the
resale of the Notes and use its best efforts to keep such Shelf
Registration Statement continuously effective until three years
after the Issue Date (or until one year after the Issue Date if
such Shelf Registration Statement is filed solely at the request
of the Initial Purchaser).
Special Procedures for
Beneficial Owners.......................... Any beneficial owner whose Old Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder
promptly and instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner wishes to
tender on such owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering
its Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a
properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Guaranteed Delivery Procedures............... Holders of Old Notes who wish to tender their Old Notes and (i)
whose Old Notes are not immediately available or (ii) who
</TABLE>
10
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<TABLE>
<S> <C>
cannot deliver their Old Notes, the Letter of Transmittal and any
other documents required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures for book-entry
transfers) prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set
forth in 'The Exchange Offer--Guaranteed Delivery Procedures.'
Withdrawal of Tenders........................ Tenders of Old Notes may be withdrawn at any time prior to 4:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange Notes................. Subject to the satisfaction or waiver of all conditions of the
Exchange Offer, the Company will accept for exchange any and all
Old Notes that are properly tendered in the Exchange Offer prior
to 4:00 p.m., New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange Offer will be
delivered in exchange for the applicable Old Notes accepted in the
Exchange Offer promptly following the Expiration Date. See 'The
Exchange Offer--Acceptance of Old Notes for Exchange; Delivery of
Exchange Notes.'
Certain Federal Income Tax Consequences...... For a discussion of certain federal income tax consequences of the
exchange of the Old Notes, see 'Certain Federal Income Tax
Consequences.'
Exchange Agent............................... First Union National Bank of North Carolina is the exchange agent
(the 'Exchange Agent') for the Exchange Offer. The address and
telephone number of the Exchange Agent are set forth in 'The
Exchange Offer--Exchange Agent.'
</TABLE>
SUMMARY OF TERMS OF NOTES
The Exchange Offer constitutes an offer to exchange up to $100,000,000
aggregate principal amount of the Exchange Notes for up to an equal aggregate
principal amount of Old Notes. The Exchange Notes will be obligations of the
Company evidencing the same indebtedness as the Old Notes, and will be entitled
to the benefit of the same Indenture. The form and terms of the Exchange Notes
are substantially the same as the form and terms of the Old Notes except that
the Exchange Notes have been registered under the Securities Act. See
'Description of the Notes.'
<TABLE>
<S> <C>
Notes Offered................................ $100.0 million principal amount of 12 1/4% Senior Notes due 2002.
Maturity Date................................ July 15, 2002.
Interest Payment Dates....................... The Notes will bear interest at the rate of 12 1/4% per annum,
payable semiannually on each January 15 and July 15, commencing
January 15, 1996.
Optional Redemption.......................... The Notes will be redeemable at the Company's option, in whole or
in part, at any time on or after July 15, 2000, at the
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
redemption prices set forth herein, together with accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to
July 15, 1998, the Company may redeem up to 20% of the principal
amount of the Notes originally issued with the net proceeds of one
or more Equity Offerings resulting in gross proceeds to the
Company of not less than $10.0 million at 111 1/4% of the principal
amount thereof, together with accrued and unpaid interest, if any,
to the date of redemption.
Change of Control............................ Upon the occurrence of a Change of Control, each holder of Notes
will have the right to require the Company to purchase all or a
portion of such holder's Notes at 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the
date of purchase. See 'Description of the Notes-- Change of
Control.'
Ranking...................................... The Notes will be senior unsecured obligations of the Company and
will rank senior in right of payment to all indebtedness of the
Company which is by its terms expressly subordinated in right of
payment to the Notes and pari passu in right of payment with all
other existing or future senior indebtedness of the Company. As of
March 31, 1995 and after giving effect to the Refinancing, there
was approximately $5.8 million of indebtedness which would have
ranked pari passu in right of payment with the Notes. In addition,
the Company has the ability to borrow additional indebtedness of
up to approximately $40.0 million under the Credit Agreement. The
Company's indebtedness under the Credit Agreement is secured by
substantially all of the assets of the Company. Any right of the
holders of the Notes to participate in the assets of the Company
will be subject to the prior claims of secured creditors, such as
the lenders under the Credit Agreement, with respect to those
assets securing such claims. As of the date of this Prospectus,
the Company has no indebtedness ranking junior in right of payment
to the Notes.
Restrictive Covenants........................ The indenture governing the Notes (the 'Indenture') contains
certain covenants, including, but not limited to, covenants with
respect to the following matters: (i) limitations on additional
indebtedness; (ii) limitations on restricted payments; (iii)
limitations on the incurrence of liens; (iv) limitations on
transactions with affiliates; (v) the application of the proceeds
of certain asset sales; (vi) restrictions on the issuance of
preferred stock of Restricted Subsidiaries (as defined); (vii)
limitations on the creation of restrictions on the ability of
Restricted Subsidiaries to make certain distributions and payments
to the Company and other Restricted Subsidiaries; and (viii)
limitations on the merger, consolidation or transfer of all or
substantially all of the assets of the Company and the Restricted
Subsidiaries with or to another person. See 'Description of the
Notes--Certain Covenants.'
</TABLE>
12
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<TABLE>
<S> <C>
Exchange Offer; Registration Rights.......... Pursuant to the Registration Rights Agreement, the Company has
agreed to use its best efforts to file within 30 days and cause to
become effective within 90 days of the Issue Date a registration
statement (the 'Exchange Offer Registration Statement') with
respect to an offer to exchange the Notes for senior unsecured
debt securities of the Company with substantially identical terms
to the Notes. The Company has also agreed, under certain
circumstances, to file and cause to
become effective a Shelf Registration, as described above. As
described in the following paragraph, the interest rate on the
Notes will increase under certain circumstances if the Company is
not in compliance with its registration obligations. The filing of
the registration statement of which this Prospectus is a part is
intended to satisfy the requirement to file the Exchange Offer
Registration Statement.
In the event that (i) an Exchange Offer Registration Statement
with respect to the Exchange Offer is not filed with the
Commission on or prior to the 30th day following the Issue Date,
(ii) such Exchange Offer Registration Statement is not declared
effective on or prior to the 90th day following the Issue Date,
(iii) the Exchange Offer is not consummated on or prior to the
120th day following the Issue Date or (iv) a required Shelf
Registration Statement with respect to the Notes is not declared
effective on or prior to the 150th day following the Issue Date,
the interest rate borne by the Notes will be increased by 0.25%
per annum, which rate will be increased by an additional 0.25% per
annum for each 90-day period that any such additional interest
continues to accrue, with an aggregate maximum increase in the
interest rate per annum borne by the Notes of 1.0%. If applicable,
in the event a Shelf Registration Statement ceases to be effective
for a period in excess of 15 days, whether or not consecutive, in
any given year, the interest rate borne by the Notes will be
increased by an additional 0.25% per annum on the 16th day in the
applicable year such Shelf Registration Statement ceases to be
effective, which rate will be increased by an additional 0.25% per
annum for each additional 90 days that such Shelf Registration
Statement is not effective, subject to the same aggregate maximum
increase in interest rate referred to above. Upon the filing of
the Exchange Offer Registration Statement, the effectiveness of
the Exchange Offer Registration Statement or the consummation of
the Exchange Offer, as the case may be, the interest rate borne by
the Notes will be reduced by the full amount of any such increase
to the extent that such increase related to the failure of any
such event to have occurred. Upon the effectiveness of a Shelf
Registration Statement, the interest rate borne by the Notes will
be reduced to the original interest rate of the Notes unless and
until increased as described above. See 'Exchange Offer;
Registration Rights.'
</TABLE>
13
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<TABLE>
<S> <C>
Use of Proceeds.............................. No proceeds will be received by the Company from the Exchange
Offer. The Company's net proceeds from the sale of the Old Notes,
approximately $95.3 million, together with the net proceeds of the
Preferred Stock Investment, were used to repay the outstanding
balance under the Prior Credit Agreement, an existing mortgage and
certain notes payable. It is expected that, subject to the
conditions and borrowing base set forth in the Credit Agreement,
additional amounts will be borrowed under the Credit Agreement for
general corporate purposes, including funding expansion of the
Company's core public pay telephone business. See 'Use of Proceeds.'
Absence of a Public Market
for the Notes................................ Prior to this offering, there has not been any public market for
the Notes, however, the Old Notes are eligible for trading in the
PORTAL Market of the National Association of Securities Dealers,
Inc. The Notes are not listed on a national securities exchange
and are not authorized for trading on Nasdaq. Accordingly, there
can be no assurance as to the development or liquidity of any
market for the Old Notes or the Exchange Notes.
Transfer Restrictions........................ The Old Notes have not been registered under the Securities Act
and may not be offered or sold, except pursuant to an exemption
from, or in a transaction not subject to, the registration
requirements of the Securities Act.
</TABLE>
RISK FACTORS
An investment in the Notes involves a high degree of risk. Prior to making
an investment in the Exchange Notes, prospective purchasers should consider all
of the information contained in this Prospectus. In particular, prospective
purchasers should consider the risks set forth under 'Risk Factors.'
14
<PAGE>
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTER
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ----------
1990 1991 1992 1993 1994 1994
-------- -------- -------- -------- ---------- ----------
(RESTATED) (RESTATED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues................................ $ 42,694 $ 55,876 $ 71,483 $ 79,401 $ 114,121 $ 25,126
Costs and expenses:
Telephone charges........................... 13,491 18,346 22,160 18,398 41,264 8,304
Commissions................................. 7,620 10,416 14,868 17,584 23,565 4,877
Field service and collection................ 5,982 6,386 9,818 11,994 18,608 4,916
Depreciation and amortization............... 5,242 7,867 9,900 12,958 19,185 4,112
Selling, general and administrative......... 7,841 7,233 7,188 7,368 13,043 2,672
Interest expense............................ 1,929 2,506 2,630 2,504 5,312 989
Loss from operations of prepaid calling card
and international telephone centers..... -- -- -- 1,730 1,816 730
Loss on disposal of prepaid calling card
and international telephone centers....... -- -- -- -- 3,690 --
Other....................................... -- -- -- -- -- --
-------- -------- -------- -------- ---------- ----------
Total costs and expenses.................. 42,105 52,754 66,564 72,536 126,483 26,600
Income (loss) from continuing operations
before taxes.............................. 589 3,122 4,919 6,865 (12,362) (1,474)
(Provision for) benefit from income
taxes(1)...................................... (289) (1,240) (1,774) (2,586) 4,722 465
-------- -------- -------- -------- ---------- ----------
Income (loss) from continuing operations...... 300 1,882 3,145 4,279 (7,640) (1,009)
Income (loss) from discontinued operations.... -- -- 109 1,063 (10,753) (1,048)
Extraordinary loss from extinguishment of
debt, net -- -- -- -- -- --
-------- -------- -------- -------- ---------- ----------
Net income (loss)......................... $ 300 $ 1,882 $ 3,254 $ 5,342 $ (18,393) $ (2,057)
-------- -------- -------- -------- ---------- ----------
-------- -------- -------- -------- ---------- ----------
Ratio of earnings to fixed charges............ 1.3x 2.1x 2.5x 2.8x --(2) --(2)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)..................... $ 331 $ (1,030) $ 690 $ 673 $ 16,402 --
Total assets.................................. 38,438 45,036 79,257 173,342 190,591 --
Total long-term debt (including current
maturities)................................... 22,600 25,933 38,021 79,782 115,325 --
Shareholders' equity.......................... 9,262 12,339 27,604 65,333 48,715 --
OTHER DATA:
Number of pay telephones at end of period..... 11,486 16,680 21,652 35,687 40,017 35,764
Capital expenditures.......................... $ 9,002 $ 7,914 $ 11,215 $ 8,676 $ 9,201 $ 4,459
EBITDA(3)..................................... $ 7,760 $ 13,495 $ 17,449 $ 22,327 $ 12,135 $ 3,627
Adjusted EBITDA(4)............................ 7,060(5) 13,495 17,449 21,189(6) 21,033(7) 3,987(8)
Pro forma interest expense(10)................ -- -- -- -- 8,267 --
Ratio of Adjusted EBITDA to pro forma interest
expense(4)(10)............................... -- -- -- -- 2.5x --
<CAPTION>
1995
----------
(RESTATED)
<S> <C>
OPERATING DATA:
Total revenues................................ $ 27,454
Costs and expenses:
Telephone charges........................... 8,491
Commissions................................. 6,297
Field service and collection................ 4,628
Depreciation and amortization............... 4,741
Selling, general and administrative......... 2,368
Interest expense............................ 1,479
Loss from operations of prepaid calling card
and international telephone centers..... --
Loss on disposal of prepaid calling card
and international telephone centers....... --
Other....................................... 27
----------
Total costs and expenses.................. 28,031
Income (loss) from continuing operations
before taxes.............................. (577)
(Provision for) benefit from income
taxes(1)...................................... 216
----------
Income (loss) from continuing operations...... (361)
Income (loss) from discontinued operations.... --
Extraordinary loss from extinguishment of
debt, net (2,894)
----------
Net income (loss)......................... $ (3,255)
----------
----------
Ratio of earnings to fixed charges............ --(2)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (deficit)..................... $ 5,504
Total assets.................................. 184,857
Total long-term debt (including current
maturities)................................... 114,176
Shareholders' equity.......................... 45,396
OTHER DATA:
Number of pay telephones at end of period..... 40,040
Capital expenditures.......................... $ 1,272
EBITDA(3)..................................... $ 5,643
Adjusted EBITDA(4)............................ 4,295(9)
Pro forma interest expense(10)................ 1,960
Ratio of Adjusted EBITDA to pro forma interest
expense(4)(10)............................... 2.2x
<FN>
- -------------
(1) In December 1987, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 96, Accounting for
Income Taxes. The Company adopted this Statement prospectively in 1988. In
February 1992, the FASB issued SFAS 109 which supersedes SFAS 96. The
Company adopted SFAS 109 prospectively in 1991.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income from continuing operations
plus total interest expense and one-third of rental expense) by fixed
charges. Fixed charges include interest costs from continuing operations
and Discontinued Operations, amortization of deferred financing costs and
one-third of rental expense. The Company has assumed that one-third of
rental expense is representative of the interest factor. On an historical
basis, the Company's earnings available for fixed charges in 1994 and in
the first quarters of 1994 and 1995 were insufficient to cover fixed
charges by approximately $12.4 million, $1.5 million and $0.6 million,
respectively. The Company's pro forma earnings available for fixed charges
in 1994 and the first quarter of 1995 would have been insufficient to cover
fixed charges by approximately $15.0 million and $1.2 million,
respectively.
(3) EBITDA consists of net earnings before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent net income, cash flow
or any other measures of performance in accordance with generally accepted
accounting principles, but is included because management believes certain
investors find it to be a useful tool for evaluating creditworthiness.
(4) Adjusted EBITDA is EBITDA adjusted to eliminate one-time income and expense
items and the losses from the operations and disposition of the prepaid
calling card and international telephone center business, but does not
eliminate the compensation and fringe benefit expense included in 1994,
estimated at approximately $2.8 million, associated with the reduction of
the Company's work force by approximately 100 employees during 1994.
(5) Eliminates one-time income adjustments of approximately $0.7 million for
the buyout of certain of the Company's reseller agreements by one of the
Company's operator service providers.
(6) Eliminates one-time income adjustments of approximately $1.7 million
resulting from certain excise, state sales and use tax refund claims and
$1.2 million related to the reduction of validation, royalty and license
fees.
(7) Eliminates the 1994 Charges of approximately $4.0 million recorded for,
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 and eliminates a
one-time income adjustment of approximately $0.6 million for a contract
signing bonus and volume discounts credited to the Company by one of its
service providers. Does not eliminate the compensation and fringe benefit
expense, estimated at approximately $2.8 million, associated with the
reduction of the Company's work force by approximately 100 employees during
1994. There can be no assurance that charges similar to the 1994 Charges
will not be taken in the future. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--The 1994 Charges.'
(8) Eliminates one time-charges of approximately $0.2 million for additional
bad debt reserves and one-time income adjustments of approximately $0.6
million for a contract signing bonus and volume discounts credited to the
Company by certain of its service providers.
(9) Eliminates the reduction of telephone charges of approximately $1.3 million
recorded as a result of a settlement of a dispute regarding past periods
with one of the Company's operator service providers.
(10) Pro forma interest expense is presented after giving pro forma effect to
the Refinancing and the application of the proceeds therefrom as though it
had occurred on January 1, 1994. In accordance with generally accepted
accounting principles, interest expense is after allocation of
approximately $5.0 million and $1.0 million of interest expense to the
prepaid calling card and international telephone center business and the
Discontinued Operations for the year ended December 31, 1994 and the
quarter ended March 31, 1995, respectively. Pro forma interest expense is
net of interest income of $0.2 million and $0.2 million for the year ended
December 31, 1994 and the quarter ended March 31, 1995, respectively.
</FN>
</TABLE>
15
<PAGE>
RISK FACTORS
An investment in the Notes is highly speculative. Prior to making an
investment in the Exchange Notes, prospective purchasers should carefully
consider all of the information contained in this Prospectus and, in particular,
should evaluate the following risk factors.
IMPACT OF LEVERAGE
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 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 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 the Notes, 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; (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, including
the Notes. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
DEFAULTS UNDER INDEBTEDNESS
As a result of the Company's losses in 1994, the Company was not in
compliance with various financial covenants contained in the Prior Credit
Agreement at June 30, 1994 and at December 31, 1994. In September 1994, the
senior lenders waived the Company's non-compliance at June 30, 1994 and the
Prior Credit Agreement was amended to make the covenants less restrictive for
the balance of 1994. In March 1995, the Company amended certain terms contained
in the Prior Credit Agreement. In connection with the amendment, the senior
lenders agreed to waive the Company's non-compliance for the fourth quarter of
1994 and amended the covenants for the remainder of 1995 making them less
restrictive. However, as described under 'Summary--Recent Developments' and
'Business--Legal Proceedings,' the Company recently defaulted in making certain
payments under $6.0 million in principal amount of promissory notes issued in
connection with a 1993 acquisition due, in part, to disputes regarding the
indemnification obligations of the holder of the notes and to conserve cash in
light of the Company's working capital requirements and amortization
requirements under the Prior Credit Agreement. The Company has obtained
temporary waivers in respect of defaults under other indebtedness principally
arising by reason of the payment defaults. The nonpayment of the ACI notes was
the subject of certain litigation, which has recently been settled. See
'Business--Legal Proceedings.'
The Company's payment defaults in respect of the promissory notes held by
ACI, as well as the litigation by ACI and the restatement of the Company's first
quarter 1994 financial statements, has resulted in defaults under the Prior
Credit Agreement and the Company's $2.5 million in mortgage indebtedness. On
May 31, 1995, the lenders under the Prior Credit Agreement waived the defaults
arising from the ACI litigation, such restatement and the payment defaults in
respect of the ACI promissory notes, provided that
16
<PAGE>
by June 30, 1995 the Company either consummated the Refinancing or settled the
ACI litigation on terms that do not require payment by the Company of an amount
in excess of $6.0 million. The ACI litigation was settled in June 1995 for
approximately $5.7 million. On May 31, 1995, the Company's mortgage lender
temporarily waived the defaults arising out of the payment defaults on the ACI
promissory notes provided that the mortgage indebtedness is repaid prior to
August 31, 1995. The Company used the net proceeds from the Refinancing to repay
all indebtedness under the Prior Credit Agreement, and to repay certain notes
payable, including the mortgage pending a planned new financing of the mortgaged
property. See 'Use of Proceeds.' While the Company believes that the Refinancing
will address the liquidity issues currently facing the Company, cure all
defaults in respect of indebtedness and improve its financial condition, there
can be no assurance that the Company will not default under its indebtedness in
the future or have future liquidity problems and that Noteholders will not be
materially adversely affected thereby.
RESTRICTIONS IMPOSED BY LENDERS; IMPACT OF ASSET ENCUMBRANCES
The Credit Agreement contains significant financial and operating
covenants, including, among other things, requirements that the Company maintain
minimum net worth and cash flow levels, and 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 to take certain
other corporate actions. Amounts will only be available under the Credit
Agreement if such financial maintenance and other covenants are satisfied and
the borrowing base calculation (which will be 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. As described above under '--Defaults under Indebtedness,'
the Company has failed to comply with its covenants under the Prior Credit
Agreement and other indebtedness and there can be no assurance that it will do
so in the future. Any such non-compliance may have a material adverse effect on
Noteholders.
Although the Company believes that the terms of the Credit Agreement
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 comply with such covenants or
not be materially restricted by the terms of the Credit Agreement. 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 Credit Agreement could permit the lenders under the Credit
Agreement to accelerate the indebtedness under the Credit Agreement, which would
materially adversely affect holders of the Notes.
The Notes are senior obligations of the Company ranking pari passu in right
of payment with all existing and future senior obligations of the Company,
including indebtedness under the Credit Agreement and any refinancing thereof.
However, the Notes are unsecured obligations while substantially all of the
assets of the Company will be pledged to secure the Company's obligations under
the Credit Agreement. Indebtedness under the Credit Agreement and any other
secured indebtedness of the Company will effectively rank prior to the Notes to
the extent of the collateral securing such indebtedness in the event of a
realization upon the collateral or a dissolution, liquidation, reorganization or
similar proceeding related to the Company. After any such realization or
proceeding, there can be no assurance that there will be sufficient available
proceeds or other assets for holders of the Notes to recover all or any portion
of their claims against the Company under the Notes and the Indenture.
See '--Defaults under Indebtedness,' 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources' and 'Description of the Credit Agreement.'
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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. Despite the 1994
Operational Restructuring, 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 or the
international telephone center operations on favorable terms or on the terms
contemplated by the Company's consolidated financial statements. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations.'
RISKS ASSOCIATED WITH BUSINESS STRATEGIES AND DISCONTINUED OPERATIONS
In recent years, the Company attempted to vertically integrate its public
pay telephone business and entered into a variety of complementary niche
telecommunications businesses, including its inmate telephone, prepaid calling
card and international telephone centers and cellular telephone rental
operations. 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 undertaken 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 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 Preferred Stock Investment, 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 the Preferred
Stock), the Company will be restricted from entering into a number of
transactions outside of 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. See 'Preferred Stock Investment.'
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.
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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 such, 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, then the Company will have to take a
charge against net income for any such difference. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations--Discontinued
Operations' and 'Business--Discontinued Operations.'
REGULATORY FACTORS
Most aspects of the Company's business are subject to regulation by the
FCC, the agency that administers the interstate common carriage of
telecommunications, and by the state public 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 telephone and inmate
telephone services. Neither state nor federal regulation focuses on the
competitive aspects of the business environment in 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. A LEC is
traditionally the exclusive line service provider in a given geographical region
(for example, Southern Bell and Pacific Bell are LECs owned by RBOCs). 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 public pay telephones: Alaska, Connecticut,
Hawaii and Oklahoma. Connecticut, however, has proceedings underway to implement
public pay telephone competition within the 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.
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 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
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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 operator assisted calls is in the public interest. Under a Billed
Party Preference system, the billed party could bypass 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 public pay telephone companies under
Billed Party Preference. The entire Billed Party Preference 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.
For additional information concerning certain regulations affecting the
Company, see 'Recent Developments--Certain Regulatory Developments' and
'Business--Regulation.'
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 appearing 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 appearing elsewhere herein. Management believes that, as a result of
the Company's receipt of the proceeds of the offering of Notes and the use of
such proceeds as described herein to repay outstanding indebtedness, the bases
for the explanatory paragraph relating to the Company's ability to continue as a
going concern should 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 received a comment letter from the Securities and
Exchange Commission (the 'SEC') on a registration statement on Form S-3 relating
to common stock, issued in connection with certain acquisitions, containing
comments on the Company's prior filings under the Securities Exchange Act of
1934, among other things. In the course of formulating its responses to the
comment letter, 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. These
events 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 fiscal 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
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year ended December 31, 1994. While the Company believes that it has
substantially addressed all material SEC comments on the Form S-3 registration
statement, there can be no assurance that further comments will not be received.
In connection with their 1993 and 1994 audits of the Company, 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 with Price Waterhouse as of the date of Price
Waterhouse's audit report contained in this Prospectus 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 litigation matters as described above.
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 LECs operated by the
RBOCs, GTE Corporation ('GTE'), a number of independent providers of public pay
telephone services, major operator service providers and interexchange carriers.
The Company's competition in its inmate telephone business is from LECs,
interexchange carriers and independent providers of public pay telephone
systems. In the cellular telephone rental business, the Company competes with
GTE and other providers that contract cellular telephone rental services through
hotels and auto 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 Property Owners. 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. Traditional regulatory
actions have not addressed issues involving competitive disputes. See
'Business--Public Pay Telephones--Competition.'
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 telephones 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.
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In order to address the impact of dial around calls, as well as pursue new
business opportunities, the Company entered into the AT&T Agreement 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 the AT&T Agreement
will be a financially beneficial means of addressing dial around issues given
the dynamic nature of the domestic telecommunications industry and the evolving
regulatory framework, or, if successful, it can be renewed. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview.' 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.
TECHNOLOGICAL CHANGE AND NEW SERVICES
The telecommunications industry has been characterized by rapid
technological advancements, frequent new service introductions and evolving
industry standards. 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 equipment and the
equipment of its long distance service providers be operational 24 hours per
day, 365 days per year. As is the 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.
RELIANCE ON KEY PERSONNEL
The Company is dependent on the efforts of certain of its officers and
other management personnel, including: Jeffrey Hanft, the Company's Chief
Executive Officer; Robert D. Rubin, the Company's President; Richard F.
Militello, the Company's Chief Operating Officer; Bonnie Biumi, the Company's
Chief Financial Officer; Lawrence T. Ellman, the Company's President, Public Pay
Telephone Division; and Bruce W. Renard, the Company's Vice President of
Regulatory Affairs and General Counsel. 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.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of Old Notes set forth in the legend thereon as a consequence of the
issuance of the Old Notes pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act. In general, the
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the sale of any Old Notes under the
Securities Act.
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COMPANY'S RIGHT TO TERMINATE EXCHANGE OFFER
The Company will not be required to accept Old Notes for exchange, and may
terminate the Exchange Offer, upon the occurrence of a number of events,
including (i) the commencement of any action, legal or governmental, with
respect to the Exchange Offer or which the Company reasonably determines would
make it inadvisable to proceed with the Exchange Offer, (ii) a banking
moratorium or similar event or international calamity involving the United
States, and (iii) a change in the business or prospects of the Company that may
have a material adverse effect on the Company. Holders of Old Notes may have
certain rights and remedies against the Company under the Registration Rights
Agreement should the Company fail to consummate the Exchange Offer, including
the right to receive certain additional interest on the Old Notes. See 'The
Exchange Offer--Conditions of the Exchange Offer.'
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Old Notes are currently owned by a relatively small number of
beneficial owners. Prior to the Exchange Offer, there has not been any public
market for the Notes, however, the Old Notes are eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages ('PORTAL')
Market. The holders of Old Notes who are not eligible to participate in the
Exchange Offer are entitled to certain rights to have the Company file the Shelf
Registration Statement with respect to resales of such Notes. The Old Notes have
not been registered under the Securities Act and are subject to restrictions on
transferability. See '--Consequences of Failure to Exchange.' The Company does
not intend to list the Exchange Notes or Old Notes on any national securities
exchange or to seek the admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. Accordingly, no assurance can
be given that an active public or other market will develop for the Notes or as
to liquidity of or the trading market for the Notes. If a trading market does
not develop or is not maintained, holders of the Notes may experience difficulty
in reselling the Notes or may be unable to sell them at all. If a market for the
Notes develops, any such market may be discontinued at any time. If a public
trading market develops for the Notes, future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on prevailing interest rates, the market for similar
securities and other factors, including the financial condition of the Company,
the Notes may trade at a discount from their principal amount.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreement will terminate with respect to such Notes. In
addition, any holder of Old Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the Exchange Notes may be deemed
to have received restricted securities and, if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See 'Plan of
Distribution.' To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered and tendered but unaccepted
Old Notes could be adversely affected. See 'The Exchange Offer.'
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 19, 1995 to the Initial
Purchaser pursuant to the Note Purchase Agreement. The Initial Purchaser
subsequently placed the Old Notes with 'qualified institutional buyers' in
reliance on Rule 144A under the Securities Act. Pursuant to the Registration
Rights Agreement executed in connection with the Company's sale of the Old Notes
to the Initial Purchaser, the Company agreed (i) to file with the Commission a
registration statement under the Securities Act with respect to the Exchange
Offer within 30 days of the Closing Date, (ii) use its best efforts to cause
such Exchange Offer Registration Statement to become effective under the
Securities Act no later than 90 days after the Closing Date, and (iii) unless
the Exchange Offer would not be permitted by law or a policy of the Commission,
to consummate the Exchange Offer on or prior to 120 days after the Closing Date.
This Prospectus and the Registration Statement to which it relates are intended
to satisfy such Company obligations under the Registration Rights Agreement. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The term 'Holder' for
purposes of the Exchange Offer means any person in whose name Old Notes are
registered on the books of the Company. See 'Exchange Offer; Registration
Rights.'
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such
Exchange Notes (other than any such holder which is an 'affiliate' of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any Holder who tenders in the Exchange
Offer with the intention to participate, or for the purpose of participating, in
a distribution of the Exchange Notes could not rely on the position of the staff
of the Commission enumerated in Exxon Capital Holdings Corporation (available
April 13, 1989) or similar no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling securityholders information
required by Item 507 of Regulation S-K. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. See '--Resales
of the the Exchange Notes.'
By tendering in the Exchange Offer, each Holder will represent to the
Company that, among other things, (i) the Exchange Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the Holder,
(ii) neither the Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes, (iii) neither the Holder nor any such other person is an
'affiliate,' as defined under Rule 405 of the Securities Act, of the Company,
and (iv) the Holder and such other person acknowledge that (a) any person
participating in the Exchange Offer for the purpose of distributing the Exchange
Notes must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such Holder incurring liability
under the Securities Act for which such Holder is not indemnified by the
Company.
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As a result of the filing and the effectiveness of the Exchange Offer
Registration Statement of which this Prospectus is a part, certain prospective
increases in the interest rate on the Old Notes provided for in the Registration
Rights Agreement will not occur. See 'Exchange Offer; Registration Rights.'
Following the consummation of the Exchange Offer, Holders of Old Notes not
tendered will generally not have any further registration rights and the Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected. See 'Consequences of Failure to Exchange.'
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of Exchange Notes for each $1,000 in principal amount of its
outstanding Old Notes. Exchange Notes will be issued only in integral multiples
of $1,000 to each tendering Holder whose Old Notes are accepted in the Exchange
Offer. The Company will accept any Old Notes validly tendered and not withdrawn
prior to 4:00 p.m., New York City time, on the Expiration Date. Old Notes that
are not accepted for exchange will be returned as promptly as practicable after
the Expiration Date. Holders may tender all or a portion of their Old Notes
pursuant to the Exchange Offer.
The form and terms of the Exchange Notes under the Indenture will be
identical in all material respects to the form and terms of the Old Notes,
except that (i) the offering of the Exchange Notes will have been registered
under the Securities Act and hence the Exchange Notes will not bear legends
restricting the transfer thereof, and (ii) holders of Exchange Notes will not be
entitled to certain rights intended for holders of unregistered securities under
the Registration Rights Agreement which will terminate upon the consummation of
the Exchange Offer. The Exchange Notes evidence the same debt as the Old Notes
(which they replace) and will be issued under, and be entitled to the benefits
of, the Indenture governing the Old Notes. The Exchange Notes will bear interest
from their date of issuance at the same rate and upon the same terms as the Old
Notes. See 'Description of the Notes.' Accrued and unpaid interest on the Old
Notes accepted for exchange for the period to but not including the date of
issuance of the Exchange Notes (the 'Exchange Date') will be paid to the holders
of Exchange Notes with the first interest payment on the Exchange Notes. Holders
whose Old Notes are accepted for exchange will be deemed to have waived the
right to receive any payment in respect of interest on the Old Notes accrued on
and after the Exchange Date.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of the Old Notes was outstanding. Approximately $98.0 million principal amount
of the Old Notes are registered in the name of Cede & Co., as nominee for The
Depository Trust Company (the 'Depository'), and the remainder of the Old Notes
are registered in the respective names of the four holders thereof. See
'Description of the Notes--Book Entry; Delivery and Form.' Solely for reasons of
administration (and for no other purpose) the Company has fixed the close of
business on July 31, 1995, as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially. Only a registered holder of Old Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
Old Notes entitled to participate in the Exchange Offer.
Holders of Old Notes do not have appraisal or dissenters' rights under the
New York Business Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Securities Act and the rules and
regulations of the Commission thereunder.
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The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for tendering holders of
Old Notes for the purposes of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Tendering Holders will not be required to pay brokerage commissions or fees
or, subject to the instructions of the Letter of Transmittal, transfer taxes
with respect to the exchange of Old Notes for Exchange Notes pursuant to the
Exchange Offer. The Company will pay all charges and expenses, other than
certain taxes which may be levied in the event of any transfer of ownership, in
connection with the Exchange Offer. See '--Fees and Expenses'.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term 'Expiration Date' shall mean 4:00 p.m. New York City time, on
September 29, 1995, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term 'Expiration Date' shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 10:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under 'Conditions of the Exchange Offer' shall not
have been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, or (iv)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement thereof. If the Exchange Offer is amended
in a manner determined by the Company to constitute a material change, the
Company will promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered holders of Old Notes, and
the Company will extend the Exchange Offer for a period of five to ten business
days following such distribution, depending upon the significance of the
amendment and the manner of disclosure to the registered holders, if the
Exchange Offer would otherwise expire during such five to 10 business day
period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination, or amendment of the Exchange
Offer, the Company shall not have an obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to any news agency customarily used by the Company for public
announcements.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment of the
Exchange Notes. Interest on the Old Notes accepted for exchange will cease to
accrue on the date of issuance of the Exchange Notes.
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<PAGE>
The Exchange Notes bear interest (as do the Old Notes) at a rate equal to
12 1/4% per annum. Interest on the Exchange Notes is payable semiannually on
January 15 and July 15 of each year, commencing on January 15, 1996.
PROCEDURES FOR TENDERING OLD NOTES
The tender by a Holder as set forth below and the acceptance thereof by the
Company will constitute a binding agreement between the tendering Holder and the
Company upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a Holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit such Old Notes, together with a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at the address set forth
below under '--Exchange Agent' on or prior to 4:00 p.m. New York City time, on
the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representations set forth above in the third paragraph under the
heading '--Purpose and Effect of the Exchange Offer.'
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed either the box entitled 'Special Exchange Instructions' or the
box entitled 'Special Delivery Instructions' on the Letter of Transmittal or
(ii) by an Eligible Institution (as defined below). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or is otherwise an
'eligible institution' within the meaning of Rule 17AD-15 under the Exchange Act
(collectively, 'Eligible Institutions').
If Old Notes are registered in the name of a person other than a signer of
the Letter of Transmittal, the Old Notes surrendered for exchange must either
(i) be endorsed by the registered holder, with the signature thereon guaranteed
by an Eligible Institution or (ii) be accompanied by a bond power, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder, with the signature thereon guaranteed by an
Eligible Institution along with the other documents required upon transfer by
the Note Purchase Agreement. The term 'registered holders' as used herein with
respect to the Old Notes means any person in whose name the Old Notes are
registered on the books of the Registrar for the Old Notes.
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Holders may tender less than the
aggregate principal amounts represented by the Old Notes deposited with the
Exchange Agent provided they appropriately indicate this fact in the Letter of
Transmittal accompanying the tendered Old Notes.
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The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the book-entry transfer facility, The Depository Trust Company
(the 'Book-Entry Transfer Facility'), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Old Notes not properly
tendered or to reject any particular Old Notes which acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company of such person's authority to so act must
be submitted.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Old Notes in the Exchange Offer should contact such registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender directly, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and tendering Old Notes, make appropriate arrangements to register
ownership of the Old Notes in such beneficial owner's name. Beneficial owners
should be aware that the transfer of registered ownership may take considerable
time.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes and Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, or (iii) who cannot complete the
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procedures for book-entry transfer on a timely basis must tender their Old Notes
according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a
Notice of Guaranteed Delivery (as defined in the Letter of Transmittal) must be
signed by such Holder;
(ii) prior to the Expiration Date, the Exchange Agent must have received
from the Holder and the Eligible Institution a properly completed and duly
executed Letter of Transmittal and a Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder, the certificate number or numbers of the tendered Old Notes, and the
principal amount of tendered Old Notes, stating that the tender is being made
thereby and guaranteeing that, within five business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Old Notes and any
other required documents will be deposited by the Eligible Institution with the
Exchange Agent; and
(iii) such properly completed and executed documents required by the Letter
of Transmittal and the tendered Old Notes in proper form for transfer must be
received by the Exchange Agent within five business days after the Expiration
Date.
Any Holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent received
the Notice of Guaranteed Delivery and Letter of Transmittal relating to such Old
Notes prior to 4:00 p.m. New York City time, on the Expiration Date. Failure to
complete the guaranteed delivery procedures outlined above will not, of itself,
affect the validity or effect a revocation of any Letter of Transmittal form
properly completed and executed by a Holder who attempted to use the guaranteed
delivery process.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. See '--Conditions of the Exchange Offer.' For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as, and if the Company has given oral or written
notice thereof to the Exchange Agent.
In all cases, issuances of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal, and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such unaccepted or
non-exchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
Holder thereof as promptly as practicable after the expiration or termination of
the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes that have not been accepted for exchange by the
Company may be withdrawn at any time prior to 4:00 p.m. New York City time on
the Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at its address set forth below
(see '--Exchange Agent'). Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
'Depositor'), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii) be
signed by the
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<PAGE>
Holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees) or be accompanied by a bond power in the name of the person
withdrawing the tender, in satisfactory form as determined by the Company
in its sole discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an Eligible Institution along with the other
documents required upon transfer by the Registration Rights Agreement or Note
Purchase Agreement, and (iv) specify the name in which such Old Notes are to be
re-registered, if different from the Depositor, pursuant to such documents to
transfer. All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, whose
determination shall be final and binding on all parties. The Old Notes so
withdrawn, if any, will be deemed not to have been validly tendered for exchange
for purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are withdrawn will be returned to the Holder thereof without
cost to such Holder as soon as practicable after withdrawal. Properly withdrawn
Old Notes may be retendered by following one of the procedures described under
'Procedures for Tending Old Notes' above at any time on or prior to the
Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue the Exchange Notes in
exchange for, any Old Notes and may terminate or amend the Exchange Offer if,
any time before the acceptance of the Old Notes for exchange or the exchange of
the Exchange Notes for the Old Notes, any of the following events shall occur,
which occurrence, in the sole judgment of the Company and regardless of the
circumstances (including any action by the Company) giving rise to any such
events, make it inadvisable to proceed with the Exchange Offer:
(i) there shall be threatened, instituted, or pending any action or
proceeding before, or any injunction, order, or decree shall have been issued
by, any court or governmental agency or other governmental regulatory or
administrative agency or commission (a) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof or (b) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer; or any statute, rule, regulation, order or injunction
shall be sought, proposed, introduced, enacted, promulgated or deemed applicable
to the Exchange Offer or any of the transactions contemplated by the Exchange
Offer by any domestic or foreign government or governmental authority or any
action shall have been taken, proposed or threatened by any domestic or foreign
government or governmental authority that, in the reasonable judgment of the
Company, might directly or indirectly result in any of the consequences referred
to in clauses (a) or (b) above or, in the reasonable judgment of the Company,
might result in the holders of the Exchange Notes having obligations with
respect to resales and transfer of Exchange Notes that are greater than those
described in this Prospectus or would otherwise in the reasonable judgment of
the Company make it inadvisable to proceed with the Exchange Offer; provided,
however, that the Company will use reasonable efforts to modify or amend the
Exchange Offer or to take such other reasonable steps as to make the provisions
of this section inapplicable;
(ii) there shall have occurred (a) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United States or any
limitation by any governmental agency or authority which adversely affects the
extension of credit or (b) a commencement of wars, armed hostilities, or other
similar international calamity directly or indirectly involving the United
States, or, in the case of any of the foregoing existing at the time of the
commencement of the Exchange Offer, a material acceleration or worsening
thereof;
(iii) any change (or any development involving a prospective change) shall
have occurred or be threatened in the business, properties, assets, liabilities,
financial condition, operations, results of operation
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<PAGE>
or prospects of the Company that, in the reasonable judgment of the Company, is
or may be adverse to the Company, or the Company shall have become aware of
facts that, in the sole judgment of the Company, have or may have adverse
significance with respect to the value of the Exchange Notes or the Old Notes;
or
(iv) any governmental approval has not been obtained, which approval the
Company shall, in its sole discretion, deem necessary for the consummation of
the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the conditions
are not satisfied, the Company may (i) refuse to accept any Old Notes and return
all tendered Old Notes to the tendering holders, (ii) extend the Exchange Offer
and retain all Old Notes tendered prior to the Expiration Date, subject,
however, to the rights of Holders to withdraw such Old Notes (see '--Withdrawal
Rights'), or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all validly tendered Old Notes which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to 10 business days
following such distribution, depending upon the significance of the waiver and
the manner of disclosure to the registered holders, if the Exchange Offer would
otherwise expire during such five to 10 business day period.
The Company expects that the foregoing conditions will be satisfied. The
foregoing conditions are for the sole benefit of the Company and may be asserted
by the Company regardless of the circumstances giving rise to any such condition
or may be waived by the Company in whole or in part at any time and from time to
time in its reasonable discretion. The failure by the Company at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. Any determination by the Company concerning
the events described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no Exchange Notes will be issued in exchange for any such Old
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Exchange Offer Registration Statement or the qualification of the
Indenture under the Trust Indenture Act of 1939.
Holders of Old Notes may have certain rights and remedies against the
Company under the Registration Rights Agreement should the Company fail to
consummate the Exchange Offer, notwithstanding any nonfulfillment of the above
conditions. Such conditions are not intended to modify such rights and remedies
in any respect.
TERMINATION OF CERTAIN RIGHTS
Holders of the Old Notes to whom this Exchange Offer is made have special
rights under the Registration Rights Agreement that will terminate upon the
consummation of the Exchange Offer. The Registration Rights Agreement provides
that certain rights under such agreement (including the right to receive
prospective increases in the interest rate on the Old Notes) shall terminate
upon the occurrence of (i) the filing with the Commission of the Exchange Offer
Registration Statement, (ii) the effectiveness under the Securities Act of the
Exchange Offer Registration Statement, and (iii) the consummation of the
Exchange Offer.
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EXCHANGE AGENT
First Union National Bank of North Carolina has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of the Prospectus, the Letter of Transmittal, and other
related documents should be addressed to the Exchange Agent as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail,
Overnight Courier or Hand: By Facsimile:
First Union National Bank of North Carolina (704) 383-7316
230 South Tryon Street, 8th Floor Attention: Corporate Trust Division
Charlotte, North Carolina 28288-1179 Confirmed by Telephone: (704) 374-2080
Attention: Corporate Trust Division (Originals of all documents submitted by
facsimile should be sent promptly by hand,
overnight courier or registered or certified mail.)
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$40,000. Such expenses include fees and expenses of the Exchange Agent and
Trustee, accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes which are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person whom the seller reasonably believes is a qualified institutional buyer
within the meaning of Rule 144A under the Securities Act, purchasing for its own
account or for the account of a qualified institutional buyer to whom notice is
given that the resale, pledge or other transfer is being made in reliance on
Rule 144A, (iii) in an offshore transaction in accordance with Regulation S
under the Securities Act, but only in the case of a transfer that is effected by
the delivery to the transferee of Old Notes registered in its name (or its
nominee's name) on the books maintained by the registrar of the Old Notes, (iv)
pursuant to an exemption from registration in accordance with Rule 144 (if
available) or Rule 145 under the Securities Act,
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(v) in reliance on another exemption from
the registration requirements of the Securities Act, but only in the case of
a transfer that is effected by the delivery to the transferee of Old Notes
registered in its name (or its nominee's name) on the books maintained by
the registrar of the Old Notes, and subject to the receipt by the registrar or
co-registrar of a certification of the transferor and an opinion of counsel
(satisfactory to the Company) to the effect that such transfer is in compliance
with the Securities Act, or (vi) pursuant to an effective registration statement
under the Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States. Following the consummation of
the Exchange Offer, holders of Old Notes will have limited rights under the
Registration Rights Agreement. See '--Termination of Certain Rights; The Shelf
Registration Statement.'
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on an interpretation by
the staff of the Commission set forth in no-action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act) who exchanges Old Notes for Exchange Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 thereof. However, if any Holder acquires Exchange
Notes in the Exchange Offer for the purpose of distributing or participating in
a distribution of the Exchange Notes, such Holder cannot rely on the position of
the staff of the Commission enunciated in Exxon Capital Holdings Corporation
(available April 13, 1989) or similar no-action letters or any similar
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Further, each broker-dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes.
As contemplated by the no-action letters referenced above and the
Registration Rights Agreement, each Holder accepting the Exchange Offer is
required to represent to the Company in the Letter of Transmittal that (i) the
Exchange Notes are to be acquired by the Holder or the person receiving such
Exchange Notes, whether or not such person is the Holder, in the ordinary course
of business, (ii) the Holder or any such other person (other than a
broker-dealer referred to in the next sentence) is not engaging and does not
intend to engage, in the distribution of the Exchange Notes, (iii) the Holder or
any such other person has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes, (iv) neither the Holder
nor any such other person is an 'affiliate' of the Company within the meaning of
Rule 405 under the Securities Act, and (v) the Holder or any such other person
acknowledges that if such Holder or other person participates in the Exchange
Offer for the purpose of distributing the Exchange Notes it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on those no-
action letters. As indicated above, each broker-dealer that receives Exchange
Notes for its own account in
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exchange for Old Notes must also acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. See 'Plan of
Distribution.'
THE SHELF REGISTRATION STATEMENT
In the event that applicable interpretations of the Staff of the Commission
do not permit the Company to effect the Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 120 days of the Issue Date,
or if a holder of the Notes is not permitted to participate in the Exchange
Offer or does not receive freely tradeable Exchange Notes pursuant to the
Exchange Offer or, under certain circumstances, if the Initial Purchaser so
requests, the Company will use its best efforts to cause to become effective a
Shelf Registration Statement with respect to the resale of the Notes and use its
best efforts to keep such Shelf Registration Statement continuously effective
until three years after the Issue Date (or until one year after the Issue Date
if such Shelf Registration Statement is filed solely at the request of the
Initial Purchaser). See 'Exchange Offer; Registration Rights' for additional
information regarding the Shelf Registration Statement.
ADDITIONAL INTEREST
The Registration Rights Agreement provides that in the event that the
Company does not satisfy certain requirements under the Registration Rights
Agreement regarding the Exchange Offer and the Shelf Registration Statement,
certain holders of Notes will be entitled to receive certain increases in the
interest rate on their Notes. See 'Exchange Offer; Registration Rights.'
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<PAGE>
THE COMPANY
The Company believes that it is the largest independent operator of public
pay telephones in the United States on the basis of the number of public pay
telephones in service. Since installing its first public pay telephone in 1985,
the Company's core public pay telephone business has grown rapidly to an
installed base, as of March 31, 1995, of 40,040 public pay telephones in 41
states and the District of Columbia. The Company's nationwide presence in the
public pay telephone market makes it an attractive supplier of public pay
telephone services to national and regional accounts, as compared with small
competitors and LECs.
The Company owns, operates, services and maintains a system of independent
public pay telephones. Its public pay telephone business generates revenues from
coin calls and non-coin calls, such as calling card, credit card, collect and
third party billed calls made from its telephones. Since January 1990, the
Company has acquired over 33,000 public pay telephones from 27 independent
public pay telephone providers. The Company also expands its base of public pay
telephones with its own marketing staff by obtaining contracts for new locations
where it believes there will be significant demand for public pay telephone
service, such as convenience stores, grocery stores, service stations, shopping
centers, hotels, restaurants, airports and truck stops. The Company has been
able to acquire and develop national corporate accounts which, as of March 31,
1995, included 7-Eleven (2,528 telephones), Emro Marketing Company, a subsidiary
of Marathon Oil (2,058 telephones), Vons Supermarkets (761 telephones) and
Safeway Stores (420 telephones).
The Company's principal executive office is located at 2300 N.W. 89th
Place, Miami, Florida 33172, and the telephone number of the Company is (305)
593-9667.
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USE OF PROCEEDS
The Company will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the Exchange Notes pursuant to the
Exchange Offer.
The net proceeds to the Company from the sale of the Old Notes was
approximately $95.3 million. The Company used such net proceeds, together with
the net proceeds from the Preferred Stock Investment ($14.3 million), (i) to
repay all outstanding balances under the Prior Credit Agreement ($95.5 million),
and (ii) to repay certain notes payable issued in connection with various
acquisitions, including a note payable issued in connection with a recently
settled litigation against the Company, and the mortgage note payable on the
Company's headquarters facility pending its planned refinancing ($9.7 million).
The Prior Credit Agreement would have matured on May 31, 1996, and required
monthly principal installments of $1.5 million until maturity and bore interest
at prime plus two percent. It is expected that, subject to the conditions and
borrowing base set forth in the Credit Agreement, additional amounts will be
borrowed under the Credit Agreement for general corporate purposes, including
funding expansion of the Company's core public pay telephone business both
through acquisitions and internally through new installations. The net proceeds
from the Preferred Stock Investment not used in the Refinancing will also be
used for such general corporate purposes. The notes payable that were repaid
from the net proceeds from the sale of the Old Notes would have matured at
various dates from currently payable or payable upon demand to November 1998 and
bore interest at rates ranging from 5% to 12 1/2% per annum. See
'Business--Legal Proceedings.'
In the ordinary course of business, the Company considers acquisitions of
public pay telephone businesses and related assets from time to time and is not
currently engaged in negotiations with respect to any material acquisitions of
public pay telephones and related assets. There can be no assurance that any
such acquisitions will be consummated or, if consummated, that such acquisitions
will be on terms favorable to the Company.
36
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1995 and (ii) as adjusted to give effect to the Refinancing. See 'Use
of Proceeds.' This table should be read in conjunction with the selected
financial information and the consolidated financial statements and notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1995
---------------------------
AS ADJUSTED FOR
ACTUAL THE REFINANCING
-------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Notes payable and current maturities of long-term debt............................. $ 24,902 $ --
Current portion of obligations under capital leases................................ 2,314 2,314
-------- ---------------
Total short-term debt......................................................... 27,216 2,314
-------- ---------------
-------- ---------------
Long-term debt:
Prior Credit Agreement............................................................. 83,500(1) --
Credit Agreement................................................................... -- --
Senior Notes offered hereby........................................................ -- 100,000
Obligations under capital leases................................................... 3,460 3,460
-------- ---------------
Total long-term debt.......................................................... 86,960 103,460
-------- ---------------
Preferred stock, $.01 par value, mandatorily redeemable;
5,000,000 shares authorized; none issued and outstanding actual;
150,000 issued and outstanding as adjusted for the Refinancing..................... -- 14,501(2)
Shareholders' equity:
Common stock, $.01 par value; 25,000,000 shares authorized; 15,850,000 shares
issued and outstanding............................................................. 159 159
Capital in excess of par value..................................................... 58,078 58,577
Accumulated deficit................................................................ (12,841) (12,841)
-------- ---------------
Total shareholders' equity.................................................... 45,396 45,895
-------- ---------------
Total capitalization....................................................... $132,356 $ 163,856
-------- ---------------
-------- ---------------
<FN>
- -------------
(1) The Company made a principal payment of $1.5 million under the Prior Credit
Agreement on each of May 1, 1995, June 1, 1995 and July 3, 1995.
(2) Represents $15.0 million of gross proceeds from the sale of the Preferred
Stock less $0.5 million of value assigned to warrants to purchase shares of
Common Stock sold in connection with the Preferred Stock Investment. In
accordance with Regulation S-X under the Securities Act, the Preferred
Stock, which is mandatorily redeemable ten years after issuance, is not
included in shareholders' equity. See 'Preferred Stock Investment.'
</FN>
</TABLE>
37
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected financial information and statistical data set forth below
should be read in conjunction with the consolidated financial statements of the
Company and the notes thereto and 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' included elsewhere in this
Prospectus. The selected financial information presented as of and for each of
the years in the five-year period ended December 31, 1994 have been derived from
the consolidated financial statements of the Company, which have been audited by
Price Waterhouse LLP, independent certified public accountants, whose report
contains explanatory paragraphs relating to the Company's ability to continue as
a going concern and relating to the ultimate outcome of certain litigation,
except as they relate to Ram Telephone and Communications, Inc. and affiliates
('Ram') for the year ended December 31, 1990 which was audited by another
independent certified public accounting firm. Amounts for 1990 have been
restated to reflect pooling accounting with Ram. The financial information
presented as of and for the quarters ended March 31, 1994 and 1995 are unaudited
and, in the opinion of management, include all adjustments necessary for a fair
presentation of such information. The interim results are not necessarily
indicative of the results to be expected for the entire year.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ---------------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- ---------- ---------- ----------
(RESTATED) (RESTATED) (RESTATED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues
Coin calls........................ $ 23,387 $ 32,326 $ 44,203 $ 56,604 $ 79,392 $ 17,857 $ 19,061
Non-coin calls.................... 18,496 23,130 26,828 22,245 33,054 6,968 8,271
Service and other................. 811 420 452 552 1,675 301 122
-------- -------- -------- -------- ---------- ---------- ----------
Total revenues.................. 42,694 55,876 71,483 79,401 114,121 25,126 27,454
Costs and expenses:
Telephone charges................. 13,491 18,346 22,160 18,398 41,264 8,304 8,491
Commissions....................... 7,620 10,416 14,868 17,584 23,565 4,877 6,297
Field service and collection...... 5,982 6,386 9,818 11,994 18,608 4,916 4,628
Depreciation and amortization..... 5,242 7,867 9,900 12,958 19,185 4,112 4,741
Selling, general and
administrative.................. 7,841 7,233 7,188 7,368 13,043 2,672 2,368
Interest expense.................. 1,929 2,506 2,630 2,504 5,312 989 1,479
Loss from operations of prepaid
calling card and international
telephone centers............... -- -- -- 1,730 1,816 730 --
Loss on disposal of prepaid
calling card and international
telephone centers............... -- -- -- -- 3,690 -- --
Other............................. -- -- -- -- -- -- 27
-------- -------- -------- -------- ---------- ---------- ----------
Total costs and expenses........ 42,105 52,754 66,564 72,536 126,483 26,600 28,031
Income (loss) from continuing
operations before taxes............ 589 3,122 4,919 6,865 (12,362) (1,474) (577)
(Provision for) benefit from
income taxes(1).................... (289) (1,240) (1,774) (2,586) 4,722 465 216
-------- -------- -------- -------- ---------- ---------- ----------
Income (loss) from continuing
operations......................... 300 1,882 3,145 4,279 (7,640) (1,009) (361)
Income (loss) from discontinued
operations......................... -- -- 109 1,063 (10,753) (1,048) --
Extraordinary loss from
extinguishment of debt, net........ -- -- -- -- -- -- (2,894)
-------- -------- -------- -------- ---------- ---------- ----------
Net income (loss)............... $ 300 $ 1,882 $ 3,254 $ 5,342 $ (18,393) $ (2,057) $ (3,255)
-------- -------- -------- -------- ---------- ---------- ----------
-------- -------- -------- -------- ---------- ---------- ----------
Ratio of earnings to fixed
charges............................ 1.3x 2.1x 2.5x 2.8x --(2) --(2) --(2)
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (deficit)........... $ 331 $ (1,030) $ 690 $ 673 $ 16,402 -- $ 5,504
Total assets........................ 38,438 45,036 79,257 173,342 190,591 -- 184,857
Total long-term debt (including
current maturities)................ 22,600 25,933 38,021 79,782 115,325 -- 114,176
Shareholders' equity................ 9,262 12,339 27,604 65,333 48,715 -- 45,396
OTHER DATA:
Number of pay telephones at
end of period...................... 11,486 16,680 21,652 35,687 40,017 35,764 40,040
Capital expenditures................ $ 9,002 $ 7,914 $ 11,215 $ 8,676 $ 9,201 $ 4,459 $ 1,272
EBITDA(3)........................... $ 7,760 $ 13,495 $ 17,449 $ 22,327 $ 12,135 $ 3,627 $ 5,643
Adjusted EBITDA(4).................. 7,060(5) 13,495 17,449 21,189(6) 21,033(7) 3,987(8) 4,295(9)
Pro forma interest expense(10)...... -- -- -- -- 8,267 -- 1,960
Ratio of Adjusted EBITDA to pro
forma interest expense(4)(10)...... -- -- -- -- 2.5x -- 2.2x
(Footnotes on following page)
38
<PAGE>
<FN>
- -------------
(1) In December 1987, the Financial Accounting Standards Board ('FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 96, Accounting for
Income Taxes. The Company adopted this Statement prospectively in 1988. In
February 1992, the FASB issued SFAS 109 which supersedes SFAS 96. The
Company adopted SFAS 109 prospectively in 1991.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income from continuing operations
plus total interest expense and one-third of rental expense) by fixed
charges. Fixed charges include interest costs from continuing operations
and Discontinued Operations, amortization of deferred financing costs and
one-third of rental expense. The Company has assumed that one-third of
rental expense is representative of the interest factor. On an historical
basis, the Company's earnings available for fixed charges in 1994 and in
the first quarters of 1994 and 1995 were insufficient to cover fixed
charges by approximately $12.4 million, $1.5 million and $0.6 million,
respectively. The Company's pro forma earnings available for fixed charges
in 1994 and the first quarter of 1995 would have been insufficient to cover
fixed charges by approximately $15.0 million and $1.2 million,
respectively. The Company's pro forma earnings available for combined fixed
charges and preferred stock dividends in 1994 and the first quarter of 1995
would have been insufficient to cover fixed charges by approximately $16.1
million and $1.5 million, respectively.
(3) EBITDA consists of net earnings before interest, income taxes, depreciation
and amortization. EBITDA is not intended to represent net income, cash flow
or any other measures of performance in accordance with generally accepted
accounting principles, but is included because management believes certain
investors find it to be a useful tool for evaluating creditworthiness.
(4) Adjusted EBITDA is EBITDA adjusted to eliminate one-time income and expense
items and the losses from the operations and disposition of the prepaid
calling card and international telephone center business, but does not
eliminate the compensation and fringe benefit expense included in 1994,
estimated at approximately $2.8 million, associated with the reduction of
the Company's work force by approximately 100 employees during 1994.
(5) Eliminates one-time income adjustments of approximately $0.7 million for
the buyout of certain of the Company's reseller agreements by one of the
Company's operator service providers.
(6) Eliminates one-time income adjustments of approximately $1.7 million
resulting from certain excise, state sales and use tax refund claims and
$1.2 million related to the reduction of validation, royalty and license
fees.
(7) Eliminates the 1994 Charges of approximately $4.0 million recorded for,
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 and eliminates a
one-time income adjustment of approximately $0.6 million for a contract
signing bonus and volume discounts credited to the Company by one of its
service providers. Does not eliminate the compensation and fringe benefit
expense, estimated at approximately $2.8 million, associated with the
reduction of the Company's work force by approximately 100 employees during
1994. There can be no assurance that charges similar to the 1994 Charges
will not be taken in the future. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations--The 1994 Charges.'
(8) Eliminates one time-charges of approximately $0.2 million for additional
bad debt reserves and one-time income adjustments of approximately $0.6
million for a contract signing bonus and volume discounts credited to the
Company by certain of its service providers.
(9) Eliminates the reduction of telephone charges of approximately $1.3 million
recorded as a result of a settlement of a dispute regarding past periods
with one of the Company's operator service providers.
(10) Pro forma interest expense is presented after giving pro forma effect to
the Refinancing and the application of the proceeds therefrom as though it
had occurred on January 1, 1994. In accordance with generally accepted
accounting principles, interest expense is after allocation of
approximately $5.0 million and $1.0 million of interest expense to the
prepaid calling card and international telephone center business and the
Discontinued Operations for the year ended December 31, 1994 and the
quarter ended March 31, 1995, respectively. Pro forma interest expense is
net of interest income of $0.2 million and $0.2 million for the year ended
December 31, 1994 and the quarter ended March 31, 1995, respectively.
</FN>
</TABLE>
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's results from continuing operations have been affected by (i)
trends within the independent public pay telephone industry segment and the
telecommunications industry generally, (ii) changes in the degree to which the
Company has vertically integrated its public pay telephone business, (iii) the
impact of acquisitions and (iv) the Company's former diversification strategy.
In general, the independent public pay telephone industry segment operates in a
dynamic environment in terms of regulation and competition. This requires
management to adopt flexible approaches to industry and market trends while
attempting to grow and improve the basic operating efficiency of the public pay
telephone business. As a result, financial period-to-period comparisons are
difficult without the following overview.
Industry Trends
The independent public pay telephone industry segment is highly fragmented
and characterized by a large number of small providers, many of whom lack the
economies of scale of the major independent public pay telephone providers, such
as the Company. The industry has been consolidating as the larger providers are
competing to acquire the smaller, often less profitable, companies in the
industry. The Company expects this trend to continue and believes it is
important to have sufficient liquidity and appropriate operating and financial
flexibility to grow cash flow through acquisitions and compete in a
consolidating environment. Continuing consolidation will provide opportunities
to take advantage of the Company's economies of scale in its field service,
collection activities and other selling, general and administrative activities,
but may increase competitive pressures to pay higher commissions to Property
Owners.
Since 1992, the major operator service providers, such as AT&T and 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. Currently, the Company receives a commission from
AT&T on all carrier access calls accessing AT&T, including dial around calls,
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 telephones. 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 the AT&T Agreement which
provides for the Company to receive competitive commission payments for all 0+
and AT&T dial around calls. See 'Business--Public Pay Telephones-- AT&T
Agreement.' As a result of the AT&T Agreement, the Company will have reduced
total revenues from 0+ and AT&T access code calls going forward because the
Company will receive compensation in the form of a commission from AT&T rather
than receiving as revenue the total amount a caller pays for the telephone call.
Similarly, there will be a reduction in the Company's telephone charges going
forward due to the elimination of transmission charges, billing, collection and
validation costs and bad debt expense which the Company incurred when it acted
as its own operator services provider. The Company believes
40
<PAGE>
that the AT&T Agreement represents a better financial alternative than it might
otherwise obtain in light of industry trends and also provides the benefits of a
business alliance with AT&T and a more simplified financial framework for
recording non-coin revenue. Furthermore, the Company believes the AT&T Agreement
will enhance the reputation of the Company's public pay telephone business, as
its telephones will be branded to advertise AT&T long distance service and
rates. Prior to the end of the two-year term of the AT&T Agreement, the Company
will evaluate whether to renew the AT&T Agreement based on market conditions and
opportunities that exist at the time. There can be no assurance that the trend
towards dial around calls will not continue to adversely affect the Company
notwithstanding the AT&T Agreement.
Significant trends with respect to local calls and basic
access/interconnection may affect the financial results of the Company in the
future. The Company expects its local access charges to decline over time as
increased competition among local providers, including such new entrants as MFS
Communications, compete for the large volume of local calls made through the
Company's installed base of public pay telephones. The Company also believes
that rates for local coin calls, which are regulated by state regulatory
authorities, may increase over time in certain of the Company's major markets.
The states of Illinois and Wisconsin have recently increased the maximum local
coin rate from $0.25 to $0.35. In addition to an increase in per call rates,
some regulatory authorities are considering timed local calls designed to place
a time limit on a local coin call that when reached would require additional
coins to be deposited to continue the call. Any such additional increases in
local coin call rates or further implementation of timed local calls would
immediately improve the profitability of local coin calls. There can be no
assurance as to the occurrence of any of the foregoing.
Impact of Vertical Integration
Commencing in the fourth quarter of 1992, the Company began a vertical
integration strategy to become its own operator service provider at a
significant portion of its public pay telephones. Initially, the Company
purchased the services necessary to provide its own operator services from one
provider. The vendor branded the call under the Company's name and remitted to
the Company a commission on each 0+ call. In order to increase the Company's
profitability from a call, the Company began to purchase various services from
other third party providers on more favorable terms. Commencing in the fourth
quarter of 1993, the Company continued its vertical integration strategy by
directly providing many of the services necessary to complete a call on its own
operator services, such as using its own dedicated switching network for
transmitting the call and using its own billing and collection agreements with
certain LECs. The Company believed such capabilities would allow the Company to
increase its profits from 0+ calls. The implementation of this vertical
integration strategy led to an increase in revenues because the Company recorded
the total amount the caller paid for the call rather than the commission payment
received from a third party provider. During the pursuit of this strategy, the
Company's expenses were also significantly higher because the Company built its
own infrastructure or purchased services from third parties to provide
transmission, operator time, billing, collection and validation. By mid-1994,
the Company determined that the vertical integration strategy was not as
profitable as expected. As a result, the Company gradually moved its long
distance and operator service traffic off of its own system and began purchasing
these, as well as billing and collection services, from third parties during the
remainder of 1994 and the first quarter of 1995. Commencing in the second
quarter of 1995, revenues and expenses for such calls will decline and will be
substantially replaced by commission payments from AT&T.
Impact of Acquisitions
The Company completed eight acquisitions which added approximately 4,300
public pay telephones in 1992, three acquisitions which added approximately
13,600 telephones in 1993 and four acquisitions representing approximately 7,100
telephones in 1994. The seasonality of the Company's operating results have been
affected by shifts in the geographic concentrations of its telephones resulting
from many of such acquisitions and expenses related to the integration of
acquisitions into its nationwide public pay telephone
41
<PAGE>
base. In recent years, the Company acquired a large number of telephones in the
Northeast and Mid-Atlantic regions of the United States which the Company
believes has affected the seasonality of its results. Prior to such
acquisitions, the Company's operating results were lower in the second and third
quarters. As a result of such acquisitions, the Company has more recently
experienced lower operating results in the first and fourth quarters due to the
effect of the cold weather in the Northeast and Mid-Atlantic regions on public
pay telephone usage. In addition, several large acquisitions of public pay
telephone assets in late 1993 and 1994 led to anticipated and unanticipated
expenses associated with integrating the acquired public pay telephones into the
Company's nationwide network. Examples of such expenses include costs associated
with merging and upgrading management information systems, costs of transferring
phones over to the Company's operations, additional and duplicative employee
costs during the transition period and the investment required for equipment
upgrades.
Impact of Former Diversification Strategy
In 1993 and 1994, the Company pursued a strategy of entering complementary
niche telecommunications businesses, such as prepaid calling card and
international telephone centers and cellular telephone rental operations, in an
effort to enhance its long-term growth opportunities and diversify its business.
The capital requirements and management attention required by these operations
diverted the Company from its core public pay telephone business and adversely
affected its operating results. These businesses were essentially start-up in
nature, required substantial investments of capital and devotion of management
and employee resources. Efforts to develop these businesses strained Company
resources, in particular in 1994 when the Company was integrating several
significant public pay telephone acquisitions. In December 1994, the Company
decided to divest itself of these businesses. The Company sold its prepaid
calling card business in February 1995 and is currently pursuing alternatives to
divest the Discontinued Operations and the international telephone center
operations. Management believes that results of continuing operations during
1994 were adversely affected by this diversification strategy. There can be no
assurances that the Company will be successful in divesting itself of the
Discontinued Operations and the international telephone center operations.
RESULTS OF OPERATIONS
The following discussion and analysis compares the year ended December 31,
1992 to the year ended December 31, 1993 and the year ended December 31, 1993 to
the year ended December 31, 1994, as well as the quarter ended March 31, 1994 to
the quarter ended March 31, 1995, and should be read in conjunction with the
restated consolidated financial statements and notes thereto appearing elsewhere
in this Prospectus. The financial results discussed below relate to continuing
operations which primarily consist of the public pay telephone business.
The Company primarily derives its revenues from coin and non-coin calls.
Coin revenue is generated exclusively from calls made by depositing coins in the
Company's public pay telephones. Non-coin revenue is derived from calling card
calls, credit card calls, collect calls and third party billed calls.
Operating expenses include telephone charges, commissions, field service
and collection expenses and selling, general and administrative expenses.
Telephone charges consist of local line charges to LECs which include costs of
basic service and transport of local coin calls, long distance transmission
charges and network costs and billing, collection and validation costs.
Commissions represent payments to Property Owners for revenues generated by
public pay telephones located on their properties. Field service and collection
expenses represent the costs of servicing and maintaining the telephones on an
ongoing basis, costs of collecting coin from the telephones, and other related
operational costs. Selling, general and administrative expenses primarily
consist of payroll and related costs, legal and other professional fees,
42
<PAGE>
promotion and advertising expenses, property, gross receipt and certain other
taxes, corporate travel and entertainment, and various other expenses.
Depreciation is based on the cost of the telephones, booths, pedestals, and
other enclosures, related installation costs and line interconnection charges
and is calculated on a straight-line method using a ten-year useful life.
Amortization is primarily based on acquisition costs including location
contracts, goodwill and non-competition provisions and is calculated on a
straight-line method using estimated useful lives ranging from five to 20 years.
The following table, which relates to the consolidated continuing
operations (which consist primarily of the public pay telephone business), sets
forth certain financial results as a percentage of total revenues for the
periods discussed below.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------------
1992 1993 1994 1994 1995
----- ----- ----- ----- -----
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues:
Coin calls.............................................. 61.9% 71.3% 69.5% 71.1% 69.4%
Non-coin calls.......................................... 37.5 28.0 29.0 27.7 30.1
Service and other....................................... 0.6 0.7 1.5 1.2 0.5
----- ----- ---------- ---------- ----------
Total revenues..................................... 100.0 100.0 100.0 100.0 100.0
----- ----- ---------- ---------- ----------
Costs and expenses:
Telephone charges....................................... 31.0 23.2 36.2 33.1 31.0
Commissions............................................. 20.8 22.1 20.6 19.4 22.9
Field service and collection............................ 13.7 15.1 16.3 19.6 16.9
Depreciation and amortization........................... 13.8 16.3 16.8 16.4 17.3
Selling, general and administrative..................... 10.1 9.3 11.4 10.6 8.6
Interest expense........................................ 3.7 3.2 4.7 3.9 5.4
Loss from operations of prepaid calling card and
international telephone centers...................... -- 2.2 1.6 2.9 --
Loss on disposal of prepaid calling card and
international telephone centers...................... -- -- 3.2 -- --
----- ----- ---------- ---------- ----------
Total costs and expenses........................... 93.1 91.4 110.8 105.9 102.1
----- ----- ---------- ---------- ----------
Income (loss) from continuing operations before taxes..... 6.9 8.6 (10.8) (5.9) (2.1)
(Provision for) benefit from income taxes................. (2.5) (3.2) 4.1 1.9 0.8
----- ----- ---------- ---------- ----------
Income (loss) from continuing operations.................. 4.4% 5.4% (6.7)% (4.0)% (1.3)%
----- ----- ---------- ---------- ----------
----- ----- ---------- ---------- ----------
</TABLE>
Preliminary results for the first two months of the second quarter of 1995
indicate a decline in total shareholders' equity of approximately $403,000
attributable to losses from continuing operations before taxes of approximately
$531,000, offset by $128,000 in additional paid-in-capital from option exercises
and a change in the calculation of interest on notes payable from officers and
directors of the Company. The Company expects a decline in total shareholders'
equity for the last month of the second quarter attributable to continuing
losses from continuing operations before taxes. The Company believes the losses
from continuing operations before income taxes for the first two months of the
second quarter of 1994 to be approximately the same as that for 1995. At May 31,
1995, net current assets of the Company would have decreased by approximately
$80.9 million to approximately $(75.3) million as compared with March 31,
1995 reflecting the reclassification of debt which as of May 31, 1995 was due
within 12 months from long-term debt to short-term debt.
43
<PAGE>
QUARTER ENDED MARCH 31, 1995 COMPARED TO QUARTER ENDED MARCH 31, 1994
Revenues
Coin revenue represented approximately 69.4% and 71.1% of total revenues
from continuing operations for the quarters ended March 31, 1995 and 1994,
respectively. Coin revenue increased 6.7% to $19.1 million during the quarter
ended March 31, 1995 compared to the same period in 1994. This revenue growth
was primarily attributable to growth in the Company's installed base of public
pay telephones. The Company's installed public pay telephone base increased to
approximately 40,000 at March 31, 1995 from approximately 35,700 at March 31,
1994. The decline in coin revenues per telephone was primarily attributable to
the addition of telephones between periods having a lower average coin revenue
per telephone than did the Company's installed base during the first quarter of
1994. The Company believes that the number of coin calls made at its public pay
telephones may decrease over time. The Company believes, that among other
things, this decrease will be primarily attributable to more public pay
telephones in closer proximity to the Company's telephones, alternative methods
of calling such as wireless technologies and increased usage of prepaid calling
cards.
Non-coin revenue represented approximately 30.1% and 27.7% of total
revenues from continuing operations for the quarters ended March 31, 1995 and
1994, respectively. For the quarter ended March 31, 1995, revenues from non-coin
calls increased 18.7% to approximately $8.3 million, compared to the quarter
ended March 31, 1994. The increase was primarily attributable to the increase in
the Company's installed base of public pay telephones described above and the
increase in the number of calls completed through the Company's private label
operator service program during the quarter ended March 31, 1995, compared to
the same period in 1994.
The Company records the total amount the end user pays for the call (net of
taxes) as revenue when the call is completed through the Company's private label
operator service. In contrast, the Company records as revenue the amount it
receives from the third-party operator service provider which represents a
negotiated percentage of the total amount the caller pays for the call. The
Company used its private label operator service or a third party operator
service provider based on which service the Company believes netted it the
highest gross margin from the call. Operating Expenses
Total operating expenses were approximately 79.4% and 82.7% of total
revenues from continuing operations for the quarters ended March 31, 1995 and
1994, respectively. Telephone charges decreased as a percentage of total
revenues from continuing operations to 31.0% for the quarter ended March 31,
1995, compared to 33.1% for the same period in 1994. Telephone charges for the
1995 quarter include a reduction of interexchange carrier expenses related to a
settlement with a service provider for certain billing errors and underpayment
of operator service revenue of approximately $1.3 million. This reduction was
offset by an increase in telephone charges as a result of the increase in the
installed public pay telephone base and an increase in the number of calls
completed through the Company's private label operator service program during
the quarter ended March 31, 1995, compared to the same period in 1994. The
Company pays the costs incurred to transmit, bill, collect and validate the call
when the call is completed through its private label operator services. In
contrast, the Company incurs no such cost when a third party operator service
provider completes the call. Telephone charges for the 1994 quarter included
one-time income adjustments of approximately $0.6 million for a contract signing
bonus and volume discounts credited to the Company by certain of its service
providers.
Commissions as a percentage of total revenues from continuing operations
were approximately 22.9% and 19.4% for the quarters ended March 31, 1995 and
1994, respectively. The increase in commissions as a
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<PAGE>
percentage of revenues was primarily attributable to higher commission rates
paid in connection with the recently obtained Atlanta Hartsfield International
Airport account.
Field service and collection expenses as a percentage of total revenues
from continuing operations was 16.9% and 19.6% for the first quarter of 1995 and
1994, respectively. The decrease in these expenses was primarily attributable to
the Company's efforts to reduce operating expenses which were commenced in June
1994 and included the downsizing of the Company's field personnel. Selling,
general and administrative expenses decreased to 8.6% of total revenues from
continuing operations in the 1995 first quarter versus 10.6% for the 1994 first
quarter. The decrease in selling, general and administrative expenses was
primarily attributable to the cost reduction plan and reengineering efforts
commenced by the Company in June 1994.
Depreciation and Amortization
Depreciation and amortization increased to $4.7 million for the quarter
ended March 31, 1995, compared to $4.1 million for the same period in 1994. The
increase in depreciation and amortization is primarily attributable to increases
in the number of installed public pay telephones that resulted from acquisitions
during 1994. Depreciation and amortization as a percentage of total revenues
from continuing operations increased to 17.3% during the first quarter of 1995
compared to 16.4% for the first quarter of 1994. This increase was primarily
attributable to the increase in the number of acquired public pay telephones and
the decrease in coin revenue noted above.
Interest Expense
In the first quarter of 1995, interest expense increased 49.5% to $1.5
million. The increase was primarily attributable to increased bank borrowings
under the Prior Credit Agreement. In addition, the Company experienced higher
interest rates under the Prior Credit Agreement during 1995 which is consistent
with overall increases in market interest rates.
Provision for Income Taxes
The Company's benefit from income taxes decreased approximately $0.2
million for the quarter ended March 31, 1995 from the 1994 period primarily due
to a loss from continuing operations before taxes of approximately $0.6 million
in the first quarter of 1995, compared to a loss from continued operations
before taxes of approximately $1.5 million for the first quarter of 1994.
Net Loss from Continuing Operations
The Company had a net loss from continuing operations of approximately $0.4
million for the quarter ended March 31, 1995 compared to a net loss from
continuing operations of approximately $1.0 million for the same period in 1994.
Extraordinary Item
The Company had an extraordinary loss from the write-off of deferred
financing costs associated with the early extinguishment of debt of
approximately $2.9 million, net of the related income tax benefit of $1.7
million.
Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDA from continuing operations increased by approximately $2.0 million
to $5.6 million for the quarter ended March 31, 1995, compared to the same
period in 1994. This increase was primarily
45
<PAGE>
attributable to the growth in the Company's installed base of public pay
telephones and the decrease in telephone charges as a percentage of revenue
as a result of the settlement with a service provider mentioned above, which was
partially offset by the increase in commission expense noted above.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
COMPARED TO YEAR ENDED DECEMBER 31, 1992
Revenues
Coin revenue represented approximately 69.5%, 71.3% and 61.9% of total
revenues from continuing operations for the years ended December 31, 1994, 1993
and 1992, respectively. Coin revenue increased 40.3% to $79.4 million in 1994,
compared to 1993. This revenue growth was primarily attributable to growth in
the Company's installed base of public pay telephones. The Company's installed
public pay telephone base increased to approximately 40,000 in 1994 up from
approximately 35,700 in 1993. The increase in the Company's 1994 revenues was
also attributable to the inclusion of approximately 11,600 public pay telephones
from the asset acquisition of Ascom Communications, Inc. for a full year in 1994
versus approximately two months in 1993. Coin revenue increased 28.1% to $56.6
million in 1993, compared to 1992. This increase was primarily attributable to
the growth in the Company's installed base of public pay telephones which
increased to approximately 35,700 in 1993 from approximately 21,700 in 1992.
Non-coin revenue represented approximately 29.0%, 28.0% and 37.5% of total
revenues from continuing operations in 1994, 1993, and 1992, respectively. In
1994, revenues from non-coin calls increased by 48.6% to $33.1 million, compared
to 1993. The increase was primarily attributable to the increase in the
Company's installed base of public pay telephones described above.
Non-coin revenue decreased by 17.1% to $22.2 million in 1993, compared to
1992. This decrease was primarily attributable to a decrease in the percentage
of total non-coin calls completed through the Company's private label operator
service program. In 1993, the Company sent a substantially larger percentage of
its non-coin calls to third-party operator service providers compared to 1992.
In addition, in 1993, the Company experienced a significant decline in the
number of non-coin calls for which it received compensation compared to 1992.
The Company also experienced a similar decline in 1994 compared to 1993. The
Company primarily attributes the overall decline to the successful advertising
campaigns of the large operator service providers, such as AT&T and MCI, which
encourage public telephone users to dial access codes to 'dial around' the
selected operator service providers at public pay telephones.
Operating Expenses
Total operating expenses were approximately 84.5%, 69.7% and 75.6% of total
revenues from continuing operations for the years ended December 31, 1994, 1993
and 1992, respectively. Telephone charges increased by 124.3% to $41.3 million
in 1994. This increase was primarily attributable to (1) the increase in the
installed public pay telephone base and (2) the increase in the number of calls
completed through the Company's private label operator service program during
1994 compared to 1993. The Company pays the costs incurred to transmit, bill,
collect and validate the call when the call is completed through its private
label operator service program. In contrast, the Company incurs no such cost
when a third party operator service provider completes the call. In 1993, the
Company recorded a refund of telephone charges owed to the Company related to
overcharging of carrier costs and the underpayment of operator service revenues
by certain vendors. Despite its ongoing negotiations with such vendors, as of
December 31, 1994, due to the length of time elapsed since the original claims
and the uncertainty as to the realizability of these refund claims, the Company
fully reserved these amounts by a charge of approximately $1.2 million. In
addition, the Company recorded approximately $0.4 million of other
46
<PAGE>
reserves. Telephone charges in 1993 were reduced by approximately $1.7 million
for certain excise, state sales and use tax refunds. In addition, 1993 telephone
charges included a one-time reduction of validation, royalty and license fees,
among other things, of approximately $1.2 million related to the settlement of a
dispute with a service provider. The decrease in telephone charges of 17.0% in
1993 compared to 1992 was also attributable to an increase in the percentage of
total calls completed by third-party operator service providers.
Commissions as a percentage of total revenues from continuing operations
were approximately 20.6%, 22.1% and 20.8% for the years ended December 31, 1994,
1993 and 1992, respectively. Commissions have remained relatively consistent
despite the increased competition and increased commission rates for new or
renewal contracts. The Company has been able to maintain its commissions as a
percentage of revenue in part because it has balanced its growth in the national
account area where commission percentages are the most competitive with the
individual or smaller accounts where commission percentages are not as
competitive.
Field service and collection expenses as a percentage of total revenues
from continuing operations were approximately 16.3%, 15.1% and 13.7% for the
years ended December 31, 1994, 1993 and 1992, respectively. The amount of these
expenses increased primarily due to (1) additional operations personnel and
vehicle costs and rent expense associated with assimilating acquired public pay
telephones into the Company's existing network and (2) costs associated with
instituting a refurbishing program undertaken to improve the condition of the
Company's telephones. The Company currently expects that field service and
collection expenses as a percentage of revenue should remain relatively constant
over the next twelve months. Selling, general and administrative expenses
increased to 11.4% of total revenues from continuing operations (or $13.0
million) versus 9.3% in 1993 and 10.1% in 1992. As part of the 1994 Operational
Restructuring, the Company reduced its work force by approximately 100 people
during 1994. In 1994, selling, general and administrative expenses included
approximately $1.6 million in one-time charges which include, 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.
Depreciation and Amortization
Depreciation and amortization increased to $19.2 million from $13.0 million
in 1993 and $9.9 million in 1992. The increases in depreciation and amortization
are primarily attributable to increases in the number of installed public pay
telephones that resulted from acquisitions during 1993 and 1994. Depreciation
and amortization as a percentage of total revenues from continuing operations
remained relatively consistent at 16.8% and 16.3% for 1994 and 1993,
respectively. A significant factor in the relative consistent percentage was the
change during the fourth quarter of 1993 in the Company's depreciation policy to
recognize the extended estimated service life of its public pay telephones from
seven to ten years offset by an increase in the number of acquired public pay
telephones. This change in estimate resulted in a decrease in depreciation
expense of approximately $3.8 million during 1994.
Interest Expense
In 1994, interest expense increased 112.1% to $5.3 million. The increase
was primarily attributable to increased bank borrowings under the Prior Credit
Agreement from $67.5 million at December 31, 1993 to $100.2 million at December
31, 1994. The additional borrowings in 1994 under the Company's line of credit
include approximately $16.6 million used for public pay telephone acquisitions
and $16.1 million used for working capital purposes, which included a portion
related to the funding of the prepaid calling card and international telephone
center operations and the Discontinued Operations. In addition, the Company
experienced higher interest rates under the Prior Credit Agreement during 1994
consistent with overall increases in market interest rates. Interest expense
decreased 4.8% in 1993 to $2.5 million, compared to 1992. This decrease is
primarily attributable to lower interest rates in 1993 compared to 1992
47
<PAGE>
and the temporary decrease in the Prior Credit Agreement resulting from the use
of approximately $14.0 million of proceeds from the Company's August 1993 common
stock offering. This was partially offset by the overall increase in the
Company's bank borrowings to $67.5 million at December 31, 1993 from $32.5
million at December 31, 1992.
Provision for Income Taxes
The Company's provision for income taxes increased $7.3 million in 1994
primarily due to a loss from continuing operations before taxes of approximately
$12.4 million, compared to income from continued operations before taxes of
approximately $6.9 million in 1993. The Company's provision for income taxes
increased $0.8 million in 1993 compared to 1992 due to an increase in the
Company's effective tax rate from 36.1% to 37.7% as a result of higher average
state and local tax rates resulting from increased earnings in jurisdictions
with higher taxes.
Income (loss) from Continuing Operations
The Company had a loss from continuing operations of approximately $7.6
million in 1994 compared to income from continuing operations of approximately
$4.3 million in 1993. The loss from continuing operations included approximately
$2.7 million of one-time charges. The 1994 net loss from continuing operations
also included a provision of approximately $2.3 million for the estimated
impairment of asset value and losses for January 1, 1995 through the divestiture
date for the prepaid calling card and international telephone center operations.
In 1993, income from continuing operations included approximately $1.8 million
in one-time income.
Earnings Before Interest, Taxes, Depreciation and Amortization
EBITDA from continuing operations decreased by $10.2 million to $12.1
million in 1994. The decrease was primarily attributable to approximately $4.0
million of one-time charges which includes the $1.6 million of one-time charges
in telephone charges, the $1.6 million of one-time charges in selling, general
and administrative expenses discussed above and $0.8 million of one-time charges
in various other categories. It was also attributable to those matters discussed
under '--Overview' above. In addition, 1993 continuing operations included
approximately $2.9 million of one-time income. EBITDA increased $4.9 million in
1993 to $22.3 million compared to 1992. This increase in EBITDA was primarily
attributable to the Company's growth of its installed public pay telephone base
and the one-time income discussed above.
THE 1994 CHARGES
The 1994 Charges are comprised of (1) approximately $0.6 million related to
a write-off of a receivable due from an operator services provider because of
the provider's overcharging of carrier costs and underpayment of operator
service revenues, (2) approximately $0.5 million related to write-off of a
receivable due from a LEC attributed to the underpayment of compensation under
various compensation plans, (3) approximately $0.3 million related to reserves
for commission payments resulting from differences in contract interpretations,
(4) approximately $0.3 million related to the settlement of an indemnifiable
claim in connection with a public pay telephone acquisition as a result of the
insolvency of a former shareholder of the acquired company, (5) approximately
$0.3 million related to severance costs incurred in connection with employee
lay-offs, (6) approximately $0.3 million of lease termination expenses, (7)
approximately $0.2 million for additional reserves related to the collection of
Dial Around Compensation, (8) approximately $0.2 million for additional
reserves related to the collection of certain excise, state and local sales and
use tax refunds, (9) approximately $0.2
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<PAGE>
million of additional reserves related to the write-off of various receivables,
(10) approximately $0.2 million related to legal and other failed merger
costs incurred in connection with a proposed merger transaction, (11)
approximately $0.2 million as a result of a change in prepaid expense policy,
(12) approximately $0.2 million related to phone damage experienced in New York
during the fourth of July holiday, (13) approximately $0.1 million for estimated
liabilities related primarily to sales tax audits of prior years of which the
Company received notification in 1994, (14) approximately $0.1 million related
to shareholder litigation expenses, (15) approximately $0.2 million related to
the establishment of liabilities for miscellaneous items, and (16) approximately
$0.1 million of charges related to the write-off of costs incurred with prior
year acquisitions. Based upon the facts and circumstances surrounding each of
these items, management believes these charges are one-time charges, however,
there can be no assurance that similar charges will not occur again in the
future.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Company financed its operations and growth primarily from
operating cash flow and borrowings under the Prior Credit Agreement. For the
year ended December 31, 1994, the Company's operating cash flow was $(2.2)
million as compared to $20.1 million in 1993 and $11.2 million in 1992. During
the first quarter of 1995, the Company financed its operations primarily from
operating cash flow. For the quarter ended March 31, 1995, the Company's
operating cash flow was $1.0 million.
The Company's working capital was approximately $5.5 million, with a
current ratio of 1.10 to 1, at March 31, 1995. This is compared to working
capital of $16.4 million and a current ratio of 1.38 to 1 at December 31, 1994.
The decrease in the Company's working capital and current ratio was primarily
attributable to an additional $10.9 million of debt repayments due within 12
months of March 31, 1995, as compared to December 31, 1994.
Capital expenditures decreased to approximately $1.3 million in the quarter
ended March 31, 1995 from approximately $4.5 million in the same period in 1994.
This decrease was a result of the Company's implementation of tighter controls
and the more efficient utilization of its existing inventory and the lack of
expenditures related to the vertical integration of the Company's public pay
telephone business as compared to the 1994 first quarter.
The net proceeds from the sale of the Old Notes in July 1995 were used,
together with the net proceeds of the Preferred Stock Investment, to fully repay
the Prior Credit Agreement, which required monthly principal reductions of $1.5
million through maturity on May 31, 1996. The purpose of the Refinancing is to
extend the maturity of the Company's long-term debt to reflect the long-term
nature of the Company's assets and provide the Company with greater financial
and operating flexibility. The Prior Credit Agreement has been amended
significantly since early 1994 as a result of the Company's financing
requirements and non-compliance with certain financial covenants contained
therein. As of February 1994, the Prior Credit Agreement was amended and
restated principally for the purpose of increasing availability thereunder from
$70.0 million to $125.0 million. The February 1994 amendment provided the
Company with additional borrowing capacity to take advantage of growth
opportunities in its industry. Borrowings under the Prior Credit Agreement bore
interest throughout 1994 at the rate of (i) 1.25% over the greater of prime or
the federal funds rate plus 0.5% or (ii) 2.5% over LIBOR, at the option of the
Company.
As a result of operating losses, including losses from the Discontinued
Operations, the Company was not in compliance with certain of the financial
covenants in the Prior Credit Agreement as of the end of the second quarter of
1994 and was required to obtain waivers from its lenders. As a result of further
operating losses, including further losses from the Discontinued Operations, the
Company was not in compliance with certain of the financial covenants in the
Prior Credit Agreement as of December 31, 1994. As a result of the restatement
of the March 31, 1994 quarterly financials, the Company was not in compliance
with certain restrictive covenants contained in the Prior Credit Agreement,
which non-compliance was waived by the lenders. The Prior Credit Agreement was
amended on March 22, 1995 to (i) reduce the size of the Prior
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<PAGE>
Credit Agreement to $100.0 million, (ii) shorten the maturity of the Prior
Credit Agreement from February 17, 1998 to May 31, 1996 and provide for monthly
principal payments of $1.5 million commencing May 1, 1995 and (iii) amend the
covenants in the Prior Credit Agreement to make them less restrictive through
the end of 1995. During the second quarter of fiscal 1995, due in part to a
dispute regarding ACI's indemnification obligations to the Company and to
conserve cash in light of the Company's working capital requirements and
amortization obligations under the Prior Credit Agreement, the Company had not
made certain payments under notes payable issued in connection with the
acquisition of ACI. In May 1995, ACI and AHI commenced litigation in respect of
these and other matters. In June 1995, the Company entered into a settlement of
such litigation and used a portion of the net proceeds from the sale of the
Notes to repay a note payable owing to ACI issued in connection with the
settlement. See 'Business--Legal Proceedings' and 'Use of Proceeds.' As a result
of the foregoing, the report of the Company's independent accountants on the
Company's consolidated financial statements appearing in this Prospectus, which
was issued as of a date prior to the consummation of the Refinancing, 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 appearing elsewhere herein.
The Prior Credit Agreement was replaced by the Credit Agreement in
connection with the Refinancing. Borrowings under the Credit Agreement bear
interest at the rate of (i) 1.5% over the greater of prime or the federal funds
rate plus 0.5% or (ii) 3.0% over LIBOR, at the option of the Company, and will
be available under a borrowing base formula which takes into account the
Company's eligible accounts receivable and eligible installed pay telephones.
The Credit Agreement is secured by substantially all of the Company's assets and
contains various financial covenants. See 'Description of the Credit Agreement.'
The Company relies on the Credit Agreement to supplement its working
capital requirements. As a result of the Refinancing, the Company has
significant additional interest expense. Based upon current expectations, the
Company believes that cash flow from operations, together with amounts which may
be borrowed under the Credit Agreement, will be adequate for it to meet its
working capital requirements, pursue its business strategy and service its
obligations in respect of the Notes, although there can be no assurance that it
will be able to do so.
ASSETS HELD FOR SALE
Included in 'Assets Held for Sale' are the net assets of the prepaid
calling card and international telephone center operations. In December 1994,
the Company's Board of Directors approved a plan to sell the assets related to
these businesses.
During February 1995, the Company sold its prepaid calling card business to
Global Link for approximately $6.3 million. The Company received $1.0 million in
cash, a $5.3 million promissory note due February 1998, bearing interest at
8.5%, payable quarterly, and shares of common stock of Global Link. As a result
of the February 1995 transaction, and because of a drafting error discovered in
May 1995 that did not reflect the intentions of the parties, the Company's
interest in the outstanding common stock of Global Link was 28.8% instead of the
intended 19.99%. To correct this error, the Company has reduced its share
ownership to the intended 19.99% level. For financial accounting purposes, the
net gain of approximately $3.4 million will be deferred until cash on the
promissory note is received. The 1994 financial statements include losses before
income taxes of approximately $2.1 million for the period from January 1, 1994
through February 15, 1995, the divestiture date. The Global Link investment will
be accounted for under the equity method of accounting subsequent to the
divestiture date. Accordingly, the 1994 results of operations have been
segregated and are reported as a separate component of income from continuing
operations.
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<PAGE>
Global Link was founded in March 1994 and is at an early stage of
development with limited operational history. As a result, Global Link's
business and operations are subject to all the risks associated with the
establishment or formation of a new business enterprise. It is anticipated that
Global Link will require significant capital resources, however, the Company has
no intention or obligations to fund any capital requirements. While the Company
believes it will recover all amounts due from Global Link there can be no
assurance that the Company will realize amounts due or realize significant value
from its equity investment.
The Company is in the process of divesting itself of its international
telephone center and has recorded a provision for the estimated impairment of
asset values of approximately $3.4 million. See Note 15 to the accompanying
consolidated financial statements included elsewhere in this Prospectus.
DISCONTINUED OPERATIONS
During December 1994, in an effort to return its focus to its core public
pay telephone business, the Company's Board of Directors approved the
divestiture of its inmate telephone and cellular telephone rental operations.
Accordingly, operating results and cash flows for those businesses have been
segregated and reported as discontinued operations.
The Company is in the process of divesting these business segments and has
recorded provisions for the estimated impairment of asset values and losses from
January 1, 1994 through the estimated divestiture date for its inmate telephone
and cellular telephone rental operations after income taxes of approximately
$2.0 million and $8.7 million, respectively. The inmate telephone industry has
become increasingly competitive. This increased competition could result in
increased commission rates and loss of market share which could have an adverse
effect on the operating results of the Company's inmate telephone business. See
'Business--Discontinued Operations' and Note 16 to the accompanying consolidated
financial statements included elsewhere in this Prospectus.
The following combining tables set forth the net assets and liabilities and
results of the Discontinued Operations (dollars in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- --------
<S> <C> <C> <C>
Current assets and liabilities, net......................................... $ 151 $ (2,969) $ (2,818)
Fixed assets, net........................................................... 11,379 6,667 18,046
Other long-term assets and liabilities, net................................. 7,441 3,111 10,552
------- -------------- --------
$18,971 $ 6,809 $ 25,780
------- -------------- --------
------- -------------- --------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1994
-------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- --------
<S> <C> <C> <C>
Revenues.................................................................... $42,428 $ 11,581 $ 54,009
------- -------------- --------
Income (loss) from discontinued operations before income taxes.............. 844 (6,253) (5,409)
Loss on disposal............................................................ (4,054) (1,380) (5,434)
------- -------------- --------
Total net loss on discontinued operations before income taxes............... (3,210) (7,633) (10,843)
Benefit from (provision for) income taxes................................... 1,204 (1,113) 91
------- -------------- --------
Net loss from discontinued operations....................................... $(2,006) $ (8,746) $(10,752)
------- -------------- --------
------- -------------- --------
EBITDA...................................................................... $ 5,097 $ (3,001) $ 2,096
------- -------------- --------
------- -------------- --------
</TABLE>
51
<PAGE>
BUSINESS
The Company believes that it is the largest independent operator of public
pay telephones in the United States on the basis of the number of public pay
telephones in service. Since installing its first public pay telephone in 1985,
the Company's core public pay telephone business has grown rapidly to an
installed base, as of March 31, 1995, of 40,040 public pay telephones in 41
states and the District of Columbia. The Company's nationwide presence in the
public pay telephone market makes it an attractive supplier of public pay
telephone services to national and regional accounts, as compared with small
competitors and LECs.
The Company owns, operates, services and maintains a system of independent
public pay telephones. Its public pay telephone business generates revenues from
coin calls and non-coin calls, such as calling card, credit card, collect and
third party billed calls made from its telephones. Since January 1990, the
Company has acquired over 33,000 public pay telephones from 27 independent
public pay telephone providers. The Company also expands its base of public pay
telephones with its own marketing staff by obtaining contracts for new locations
where it believes there will be significant demand for public pay telephone
service, such as convenience stores, grocery stores, service stations, shopping
centers, hotels, restaurants, airports and truck stops. The Company has been
able to acquire and develop national corporate accounts which, as of March 31,
1995, included 7-Eleven (2,528 telephones), Emro Marketing Company, a subsidiary
of Marathon Oil (2,058 telephones), Vons Supermarkets (761 telephones) and
Safeway Stores (420 telephones).
BUSINESS STRATEGY
The Company's business objective is to focus on its core public pay
telephone business and grow operating cash flow by continuing to expand its
installed base of public pay telephones. The Company seeks to achieve this
objective through the following strategies:
Growth Through Selective Acquisitions. The Company believes that growth
through selective acquisitions is desirable because it increases the Company's
geographic presence and concentration and typically generates more predictable
revenues than new public pay telephone installations. In general, the Company
has been able to acquire public pay telephones at prices that it considers
attractive because smaller providers frequently lack the economies of scale that
the Company enjoys. When acquired telephones are integrated into the Company's
national system, the Company is often able to operate such telephones
profitably, or more profitably than the seller, because of its economies of
scale. The Company intends to utilize its size and experience in integrating
public pay telephone acquisitions in an effort to capitalize on the
consolidation trend in the industry.
Growth Through New Installations. The Company is seeking to increase its
internal growth by marketing its public pay telephones to new and existing
accounts within its current markets. The Company believes that its nationwide
presence makes it an attractive supplier of public pay telephone services for
national corporate accounts by offering these accounts a consistent level of
service and reducing the time, administration and costs associated with
utilizing multiple providers. The Company is attempting to balance its national
corporate account marketing efforts by expanding its regional and local sales
efforts, where competition for accounts tends to be less competitive. It has
hired or is in the process of hiring regional sales managers in New York, the
Mid-Atlantic region, Florida, Texas, the Mid-West region and California, where
the Company has significant concentrations of public pay telephones.
Superior Level of Customer Service. The Company attempts to provide the
highest quality service in the industry and establish strong relationships with
its customers. The Company provides quality service through the use of 'smart'
microprocessor-equipped telephones, a sophisticated management information
system and a highly trained service and support staff. The Company's advanced
telephone technology
52
<PAGE>
allows for exact records of telephone activity, tracking of revenues which can
be easily verified by its customers and rapid response (typically within 24
hours) to repair malfunctions and service equipment.
Realize Economies of Scale and Maximize Operating Efficiencies. By growing
its public pay telephone business, the Company intends to benefit from the
realization of further economies of scale in field service, collection and other
selling, general and administrative activities. The Company's existing
infrastructure permits it to add new public pay telephones in its existing
markets without significant incremental operating costs. Furthermore, as a
high-volume consumer of long distance service (approximately 17 million minutes
per month), the Company has been able to negotiate favorable terms from AT&T and
other operator service providers and interexchange carriers. The Company's
'smart' public pay telephones, management information systems and trained
service and support staff have permitted it to achieve savings in the cost of
telephone repair and maintenance.
PUBLIC PAY TELEPHONE INDUSTRY OVERVIEW
According to a report by the North American Telecommunications Association
entitled 1993/1994 Telecommunications Market Review & Forecast, calls made from
public pay telephones are estimated to represent approximately seven billion
dollars in annual revenues to the United States telecommunications industry.
Public pay telephones may be owned or operated by LECs or by independent public
pay telephone operators. The Company believes that currently there are
approximately 2.1 million public pay telephones operated in the United States,
of which approximately 1.8 million are owned by LECs and approximately 300,000
by independent public pay telephone companies.
Today's telecommunications marketplace was principally shaped by the 1984
ruling of the United States District Court for the District of Columbia in the
well-documented Bell System antitrust divestiture case, United States v.
American Telephone & Telegraph Company. The AT&T divestiture created various
business opportunities in the telecommunications industry. In 1985, the FCC and
thereafter 45 state public service commissions followed this initiative by
authorizing the connection of competitive or independently-owned public pay
telephones to the public switched network. Prior to that time, the Bell System
and other monopoly LECs owned all public pay telephones in the United States.
As part of the AT&T divestiture, the United States was divided into
geographic areas known as Local Access and Transport Areas or LATAs. The larger
LECs (the ones owned by the RBOCs and GTE) provide telephone service that both
originates and terminates within the same LATA ('intraLATA traffic') pursuant to
tariffs filed with and approved by state regulatory authorities. These LECs are
generally prohibited from offering or deriving revenues or income from
interexchange services between LATAs. In addition, most state regulatory
authorities require LECs to provide local access line service to independent
public pay telephone companies. See '--Regulation.' Until recently, the Company
could only obtain local exchange services from the LECs, but this has begun to
change as various local and intraLATA competitors have been authorized to
provide local exchange service. The Company is beginning to test such local
service options. These options should result in lower costs and improved service
for the Company in the test markets.
Long distance companies such as AT&T, MCI and Sprint Corporation ('Sprint')
provide service between LATAs ('interLATA traffic') and, in some circumstances,
may also provide long distance service within LATAs. An interLATA long distance
telephone call generally begins with an originating LEC transmitting the call
from the originating telephone to a point of connection with a long distance
carrier. The long distance carrier, through its owned or leased switching and
transmission facilities, transmits the call across its long distance network to
the LEC serving the local area in which the recipient of the call is located.
This terminating LEC then delivers the call to the recipient.
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Prior to 1987, coin calls were the sole source of revenue for independent
public pay telephone operators. Long-distance calling card and collect calls
from these public pay telephones were handled exclusively by AT&T. All revenue,
except the coins deposited in public pay telephones, went to AT&T rather than
the owner of the public pay telephone. Beginning in 1987, a competitive operator
service system developed which allowed operator service providers, including
other long distance companies such as MCI and Sprint, to handle this traffic and
to offer independent public pay telephone companies commissions for directing
operator assisted or calling card calls to them.
PUBLIC PAY TELEPHONES
As of March 31, 1995, the Company's public pay telephone system consisted
of 40,040 public pay telephones located in 41 states and the District of
Columbia. The following chart sets forth certain approximate information with
respect to the locations of the Company's public pay telephones as of March 31,
1995:
<TABLE>
<CAPTION>
PUBLIC PAY PERCENTAGE
STATE TELEPHONES OF TOTAL
- ----- ---------- -----------
<S> <C> <C>
Florida.......................................................... 8,479 21.2%
New York......................................................... 6,723 16.8
California....................................................... 4,515 11.3
Texas............................................................ 2,463 6.2
Maryland......................................................... 2,039 5.1
Virginia......................................................... 1,874 4.7
Georgia.......................................................... 1,767 4.4
Pennsylvania..................................................... 1,486 3.7
Tennessee........................................................ 1,469 3.7
Louisiana........................................................ 1,372 3.4
North Carolina................................................... 1,097 2.7
Ohio............................................................. 926 2.3
South Carolina................................................... 840 2.1
Other states..................................................... 4,990 12.4
------- -----
Total.......................................................... 40,040 100.0%
------- -----
------- -----
</TABLE>
The Company's public pay telephone business primarily generates revenues
from coin and non-coin calls. Non-coin calls include calling card, credit card,
collect and third party billed calls made from its telephones.
Coin Calls
Substantially all of the Company's public pay telephones accept coins as
payment for local or long-distance calls and can also be used to place local or
long distance non-coin calls. The Company's public pay telephones generate coin
revenues primarily from local calls. In all of the territories in which the
Company's public pay telephones are located, the Company charges the same rates
for local coin calls as does the LEC; in most territories that charge is $0.25,
although a limited number of jurisdictions such as Illinois, Iowa and Wisconsin
have increased that charge to $0.35. Whereas local coin calls have traditionally
been provided for an unlimited call duration, some jurisdictions have begun to
allow call timing (i.e., deposit of an additional amount after a specified
period.) The maximum rate LECs and independent public pay telephone companies
may charge for local calls is typically set by state regulatory authorities. The
Company pays local line and usage charges to LECs for each of its installed
public pay telephones. These line charges cover basic service to the telephone
as well as the transport of local coin calls.
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Non-coin Calls
The Company receives revenues for non-coin calls made from its public pay
telephones. Non-coin calls include credit card calls, calling card calls,
collect calls and third-party billed calls. The services needed to complete a
non-coin call include providing an automated or live operator to answer a call,
verifying billing information, validating calling cards and credit cards,
routing and transmitting the call to its destination, monitoring the call's
duration, determining the charge for the call, and billing and collecting the
applicable charge. In most jurisdictions, the Company has the right to select
the operator service provider for its public pay telephones. The Company may
select a third-party operator service provider. The Company intends to
predominantly use the operator services of AT&T pursuant to the AT&T Agreement
and, in some cases, other operator service providers. To a limited extent, the
Company also sub-contracts operator service from other companies on a
private-label basis: customers are connected to the sub- contractors' operators,
who identify themselves as PTC Services. The Company considers a variety of
factors prior to deciding which operator service company to select. These
factors include contractual arrangements between the Company and the operator
service providers, the location of the telephones, the types of calls made from
the location, the profitability of each type of call under each calling
alternative, the requirements of the Property Owners and applicable regulatory
restrictions.
Except in jurisdictions where the Company is prohibited from selecting the
operator service provider, AT&T and other operator service providers pay the
Company a commission for each call completed by the selected operator service
provider. The Company may also install an automated operator system that allows
the telephones to collect and store billing information and forward calls to the
called party. At locations where the automated operator system is in operation,
the caller has the option to complete the call through the automated system, the
Company's selected operator service provider or an operator service provider
accessed by the caller. The FCC has the right to regulate the amount public pay
telephone operators may charge for interstate calls, however, while several
proposals are under consideration, no formal interstate rate caps currently
exist. See '--Regulation.'
The Company also receives additional revenue from long distance carriers
pursuant to FCC regulations as dial around compensation for non-coin calls made
from its public pay telephones. A 'dial around' call is made by using an access
code to reach a long distance carrier other than the one designated by the pay
telephone operator. Pursuant to an FCC ruling, independent public pay telephone
providers are entitled to dial around compensation on an interim basis at a
fixed rate of $6.00 per telephone per month for interstate dial around calls.
Similarly, state regulatory authorities in Florida, Georgia and South Carolina
have implemented intrastate dial around compensation programs for independent
public pay telephones. Other states are also currently considering intrastate
dial around compensation programs for independent public pay telephones.
Recently, AT&T agreed to begin providing its share of dial around compensation
through a $0.25 per call rate payment in lieu of AT&T's portion of the flat
monthly rate payment amounts. This handling was approved by the FCC, effective
January 1, 1995. The same treatment will be applied at the intrastate level once
any necessary state approvals are obtained. More recently, Sprint has requested
that a per call compensation system be applied to its interstate traffic as
well, which request was approved by the FCC, effective July 1, 1995. See
'--Regulation.'
AT&T Agreement
On April 21, 1995, the Company entered into the AT&T Agreement with AT&T
for a two-year term. Subject to the AT&T Agreement, AT&T was designated as the
primary operator services provider for the Company's public pay telephones. The
Company has agreed that AT&T's operator service systems will handle and AT&T's
network will carry all interLATA telephone calls made from the Company's public
pay telephones (subject to legal and contractual limitations) on a '0+ basis'
(such as collect calls, calls billed to a third party telephone number and calls
billed to telephone calling cards and commercial credit cards) that are not
directed to another operator services provider. To the extent permitted by law
and existing contract,
55
<PAGE>
the Company's public pay telephones will identify AT&T as the designated
operator services provider and adopt the AT&T rate structure.
Under the AT&T Agreement, in general and subject to certain exceptions,
AT&T will pay commissions to the Company which, in the first year of the
agreement, will be based upon a percentage of those 0+ and AT&T dial around
revenues originating from the Company's public pay telephones that is handled by
AT&T's operator services and carried on the AT&T network and, in the second year
of the AT&T Agreement, AT&T will continue to pay the Company commissions on 0+
revenue and will pay a specified per call amount for interLATA (800) dial around
calls. In addition, the AT&T Agreement contains certain incentive compensation
arrangements.
Under the AT&T Agreement, the Company may serve as a nationwide reseller of
AT&T operator services to other independent pay telephone providers. While
constituting a major new business alliance for the Company, the AT&T Agreement
also represents a continuation of prior working agreements between AT&T and the
Company, whereby AT&T and the Company jointly market and provide public pay
telephone services to national and regional accounts. Examples of such accounts,
as of March 31, 1995, included McDonald's Corporation (1,226 telephones) and the
Atlanta Hartsfield International Airport (417 telephones).
For a discussion of the background to the Company's decision to enter into
the AT&T Agreement, see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview.'
Operating Expenses
The Company's principal operating expenses consist of (i) telephone
charges, (ii) commissions paid to Property Owners and (iii) field service and
collection costs. The Company pays monthly access charges to LECs for
interconnection to the Public Switched Network for local calls, which are
computed on either a flat monthly rate or a fixed monthly charge plus a per
message or per minute usage rate based on the time and duration of the call. The
Company also pays a fee to LECs and long distance carriers based on usage for
local (short haul) long distance coin calls. The Company also incurs billing,
collection, bad debt and validation costs when acting as an operator service
provider. Commissions, which are paid to Property Owners for the right to place
the Company's public pay telephones on their premises, are typically expressed
as a percentage of revenues and fixed over the term of the contract. Field
service and collection costs are principally comprised of the staff costs of
collecting coins from and maintaining the Company's public pay telephones.
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<PAGE>
Growth in Installed Base
The following chart illustrates the growth of the Company's installed
public pay telephones:
NUMBER OF PUBLIC PAY TELEPHONES
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
Number of
Public Pay
Telephones 11,486 16,680 21,652 35,687 40,017
Acquisitions
The Company's core public pay telephone business has grown primarily
through acquisitions. In general, the Company has been able to acquire public
pay telephones at prices that it considers attractive due to the economies of
scale which the Company enjoys and smaller providers frequently lack. When
public pay telephones typically operated at a loss by smaller providers are
integrated into the Company's national system, the Company is frequently able to
operate the acquired telephones profitably, or more profitably than the seller,
because of economies of scale and the more favorable terms and conditions that
the Company's high use of long distance service permits it to negotiate from
long distance carriers. The Company believes that selective acquisitions are
desirable because acquired public pay telephones typically generate predictable
and immediate revenues in comparison to newly installed telephones.
In reviewing acquisition candidates, the Company considers the following:
Historical Financial Performance. The Company reviews the historical
revenues and cash flows from the public pay telephones to be acquired, including
the mix and volume of coin and non-coin revenue.
Pro Forma Financial Performance. The Company analyzes the prospective
profitability of the public pay telephones to be acquired without including
overhead of the seller and based on other pro forma considerations, such as the
Company's actual field service and collection and other administrative expenses
and the typically more favorable terms and conditions with operator and long
distance service providers the Company is able to obtain.
Location and Economies of Scale. The Company considers the geographic
proximity of the public pay telephones to be acquired to the Company's existing
markets, and the extent to which the acquisition would provide the Company with
economies of scale through, for example, more efficient operation and
maintenance of a greater number of public pay telephones within a geographic
region.
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<PAGE>
Property Agreements and Condition of Equipment. The Company also reviews
the revenue sharing terms, expiration date and transferability of related site
location agreements with Property Owners, and the type and condition of the
proposed equipment to be purchased.
The following table lists the Company's acquisitions of public pay
telephones for consideration in excess of $500,000 since January 1, 1990.
NO. OF
DATE SELLER/ACQUIRED COMPANY TELEPHONES
- ---- ----------------------- ----------
February 1990 First Continental Communications, Inc. 725
June 1990 Advanced Telecom Systems, Inc. 396
August 1990 U.S. Commercial Telephone Corp. 1,808
August 1990 Emro Marketing Company 403
April 1991 Tele-America Communications Corporation 2,525
November 1991 RAM Telephone & Communications, Inc. 1,640
January 1992 Coin-Call Corporation 1,312
February 1992 Emro Marketing Company 449
June 1992 American Payphone, Inc. 1,489
September 1992 Millicom Services Company 238
October 1992 Alpha Pay Phones, Ltd. III 655
March 1993 U.S. Tele-Com, Inc. 2,015
November 1993 Ascom Communications, Inc. 11,600
March 1994 Emro Marketing Company 1,045
June 1994 Atlantic Telco Joint Venture 3,300
July 1994 Telecorp Funding, Inc. 600
October 1994 Telecoin Communications, Ltd. 2,155
Although the number of major independent public pay telephone providers
(operating in excess of 2,000 public pay telephones) that the Company could
potentially acquire has decreased as a result of industry consolidation, the
independent market is still substantially fragmented among many independent
public pay telephone providers, currently estimated by an independent source to
be approximately 600. The Company expects further consolidation in the
independent public pay telephone market. Accordingly, the Company intends to
utilize its size and experience in integrating public pay telephone acquisitions
to capitalize on the consolidation of the public pay telephone industry by
continued expansion of its core public pay telephone business through selective
acquisitions.
New Installations
Placement of Public Pay Telephones. The Company seeks to increase its
internal growth by marketing its public pay telephones to new and existing
accounts within its current markets. The Company expands its base of public pay
telephones with its own marketing staff by obtaining contracts for new locations
where it believes there will be significant demand for public telephone service,
such as convenience stores, grocery stores, service stations, shopping centers,
hotels, restaurants, airports and truck stops. In evaluating locations, the
Company generally conducts a site survey to examine geographical factors,
population density, traffic patterns, historical usage information (to the
extent available) and other factors in determining whether to install a public
pay telephone. The Company has focused its efforts to date on securing telephone
locations from large national corporate accounts which can provide a large
number of quality locations. In addition, the Company is attempting to balance
its national corporate account marketing efforts by expanding its regional and
local sales efforts where competition for accounts tends to be less competitive.
The Company installs its public pay telephone equipment pursuant to
agreements ('Property Agreements') with Property Owners. The Company's typical
Property Agreement has a five-year term and
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<PAGE>
provides the Company with the option to renew for an additional five years and
typically provides for a revenue sharing arrangement between the Company and the
Property Owner based on the revenue generated from the telephone. The percentage
of revenue paid to a Property Owner is generally fixed for the period of the
contract. The Company estimates that the average cost of installing a new public
pay telephone including site selection, hardware and labor is approximately
$2,300.
The Company is obligated to repair, maintain and service the public pay
telephone equipment installed pursuant to the Property Agreements. Through daily
computerized polling of its public pay telephones, the Company generally is able
to determine possible malfunctions before they are reported and usually repairs
such malfunctions within 24 hours. Generally, the failure of the Company to
remedy a default within 30 days' after notice gives the Property Owner the right
to terminate the Property Agreement. The Company can generally terminate a
Property Agreement on 30 days' prior notice to the Property Owner if the public
pay telephone does not generate sufficient total revenue for two consecutive
months.
Marketing. Although the Company's growth in its core public pay telephone
business has been primarily attributable to acquisitions, the Company is also
seeking to achieve balanced internal growth by increasing the number of public
pay telephones with both large national corporate accounts and smaller regional
and local accounts. The Company believes that its nationwide presence makes it
an attractive supplier of public pay telephone services for national corporate
accounts by offering these accounts a consistent level of service and reducing
the time, administration and costs of utilizing multiple providers. The primary
focus of the Company's marketing efforts has been and continues to be the
acquisition and development of national corporate accounts, which included, as
of March 31, 1995, 7-Eleven (2,528 telephones), Emro Marketing Company, a
subsidiary of Marathon Oil (2,058 telephones), Vons Supermarkets (761
telephones) and Safeway Stores (420 telephones). In addition, through their
alliance, the Company and AT&T will jointly pursue national and regional
accounts which, as of March 31, 1995, included McDonald's Corporation (1,226
telephones) and the Atlanta Hartsfield International Airport (417 telephones).
As the country's largest independent public pay telephone provider, the Company
believes it is in a strong position to service national accounts, in contrast to
smaller competitors or LECs, which currently operate only in their specific
geographic regions. In contrast to the limited resources of the smaller
independent public pay telephone providers, the Company's 'smart' pay
telephones, sophisticated management information systems, and highly trained
national service and support staff allow the Company to maintain a high level of
service and react quickly to repair damaged equipment. The Company's size and
competitive cost structure allow it to offer attractive commissions to Property
Owners, frequently greater than the commissions offered by small independent
operators.
The Company is also expanding its marketing efforts with respect to smaller
regional and local accounts. In this regard, the Company has hired and is in the
process of hiring regional sales managers in New York, the Mid-Atlantic region,
Florida, Texas, the Mid-West region and California, where the Company has
significant concentrations of public pay telephones. Such regional managers will
focus on obtaining and servicing larger accounts within their regions as well as
recruiting independent sales agents who will market to and service smaller
regional and local accounts. The Company's sales efforts are being coordinated
by Lawrence T. Ellman, who joined the Company in June 1994 as President of its
public pay telephone division. See 'Management--Directors and Executive
Officers.'
Competition
The Company believes the principal competitive factors in the public pay
telephone business are (i) commission payments to Property Owners; (ii) the
ability to serve accounts with locations in several LATAs or states; and (iii)
the quality of service provided to Property Owners and the users of the
telephones.
In the public pay telephone business, the Company principally competes with
the LECs, a number of independent providers of public pay telephone services,
major operator service providers and interexchange
59
<PAGE>
carriers. Some of these independent companies have increased in size by
incorporating an acquisition strategy similar to that of the Company, and at
times, many of these companies compete for the most favorable public pay
telephone contracts and sites. Although the Company is the largest independent
provider of public pay telephones, most LECs and interexchange carriers with
which the Company competes and some independent public pay telephone companies
have substantially greater financial, marketing and other resources than the
Company. In addition, many LECs, faced with competition from independent public
pay telephone companies, have increased their compensation arrangements with
Property Owners by offering more favorable commission schedules. Moreover, it is
possible that in the future the LECs may begin providing services outside of
their traditional franchise territories, which could adversely affect the
Company's results of operations.
Telephone Systems Management and Service
The Company has internally developed a computer software system which
interfaces with microprocessors in the Company's public pay telephones. The
Company's computer system polls all of its public pay telephones each night to
determine the amount in each telephone and to diagnose possible operational
problems at the telephones. Polling enables the Company to reduce the number of
visits required at each public pay telephone to maintain their operation and to
collect coins.
Based on the results of each night's polling, the Company determines which
telephones require collection or service. Each of the Company's collectors can
remove on average from 35 to 40 coin boxes each day, depending upon the number
of telephones within the collector's specified collection route. Upon removing
the sealed coin box from the telephone, the collector is unaware of the number
of coins in the coin box, while management, through its software system, has an
exact count of the coins. Once the route is completed, the collector returns to
one of the Company's coin rooms located at its executive office or its regional
offices, where the coin boxes are automatically counted and the amount in each
coin box is recorded and compared to the amounts determined by polling the
telephones on the previous night. The Company reconciles variances at each
telephone on a daily basis, which variances have historically not been material.
The Company maintains a staff of approximately 360 field service telephone
technicians located throughout the states in which the Company's telephones are
installed. The Company has imposed a high standard of service and maintenance in
order to ensure that the telephones are operating properly and generating
maximum revenue. Through its computer system, the Company generally is able to
determine possible malfunctions before they are reported and usually repairs
such malfunctions within 24 hours. The Company's most typical malfunctions or
problems are caused by vandalism and theft. During 1994, on average, no more
than three percent of the Company's public pay telephones were out of service,
or were not operating properly, at any one time. Telephone repair costs are
expensed by the Company rather than capitalized. The Company is continuously
monitoring and testing the latest technology in the industry to prevent
tampering, vandalism and theft.
Telephone Equipment Suppliers
The Company purchases its public pay telephones from independent
manufacturers. As of March 31, 1995, approximately 32,700, or 81.7%, of the
public pay telephones that the Company operates were manufactured by
Intellicall, Inc. ('Intellicall'). The Company also operates telephones
manufactured by Protel, Inc. ('Protel') and Elcotel, Inc. ('Elcotel'). The
Company believes that it can purchase public telephones from Protel, Elcotel or
other public pay telephone manufacturers on terms similar to those in effect
with Intellicall. The Company has a non-exclusive arrangement with Intellicall
pursuant to which the software and engineering schematics to repair the
Intellicall telephones are held in escrow to protect the Company against the
bankruptcy of, the cessation of business operations by, or the failure to
provide system support maintenance by, Intellicall. Therefore, the Company
believes that the loss of Intellicall as a
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<PAGE>
manufacturer of the Company's public pay telephones would not have a material
adverse effect on its business.
The Company's public pay telephones use microprocessors that provide voice
synthesized calling instructions and the capability to detect and count coins
deposited during each call. These 'smart' telephones also provide information to
the caller at certain intervals regarding the time remaining on each call and
the need for an additional deposit. Substantially all LEC public pay telephones
do not have such capabilities.
International
In January 1995, the Company executed an agreement with MasTec, Inc.
whereby the Company contributed its Latin American assets to a newly formed
corporation in exchange for a 10% equity interest in the corporation which will
be managed and funded by MasTec, Inc., the majority shareholder. The Company has
the right to provide pay telephone consulting services on an exclusive basis to
the new venture. The Company has no obligation to contribute funds to the
venture.
ASSETS HELD FOR SALE
Included in 'Assets Held for Sale' are the net assets of the prepaid
calling card and international telephone center operations. In December 1994,
the Company's Board of Directors approved a plan to sell the assets related to
these businesses.
Prepaid Calling Card Business
During February 1995, the Company sold its prepaid calling card business to
Global Link for approximately $6.3 million. The Company received $1.0 million in
cash, a $5.3 million promissory note due February 1998, bearing interest at
8.5%, payable quarterly, and shares of common stock of Global Link. As a result
of the February 1995 transaction, and because of a drafting error discovered in
May 1995 that did not reflect the intentions of the parties, the Company's
interest in the outstanding common stock of Global Link was 28.8% instead of the
intended 19.99%. To correct this error, the Company has reduced its share
ownership to the intended 19.99% level. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Assets Held for
Sale,' 'Certain Transactions' and Note 17 to the accompanying consolidated
financial statements included elsewhere in this Prospectus.
The Company's prepaid calling card, which was introduced in late 1992,
permits a customer to access the Company's long distance network to make both
domestic and international calls. The advantage to a customer in using a debit
type of calling card such as those offered by the Company is that the customer
is not charged the per-call service fee (typically $.80) applicable to other
calling cards and long distance coin calls, in addition to the toll charge. In
1993 and 1994, prepaid calling cards accounted for approximately $1.3 million
and $5.1 million of the Company's revenues, respectively. No revenue was
generated by the prepaid calling card business in 1992.
The card has the physical characteristics of a traditional credit card.
Printed on the back of each card, along with calling instructions, is a ten
digit account number. The user of a card prepays an initial amount of between $5
and $500. The user accesses the system through a toll-free (800) number. Upon
reaching the system, the caller receives instructions for use of the system. The
system checks the caller's account to determine if a sufficient amount exists in
the account to allow the caller to place a call. If a sufficient amount exists,
the system asks the caller to dial the destination number. Toll charges are
debited against the account as the customer uses the Company's long distance
telephone services. An account can be 're- loaded'--i.e., the customer can
increase the prepaid balance of the account at any time by charging the desired
amount to a credit card, or by paying in cash at a location where the Company's
cards are sold.
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The calling card is marketed primarily through airlines, phone stores,
check-cashing businesses, other retail establishments and foreign travel
agencies. The calling card is particularly attractive to lower-income
individuals who may lack access to long distance telephone service and to
foreign tourists and foreign business people traveling in the United States.
International Telephone Centers
The Company selectively sought international opportunities with
knowledgeable partners. Prior to the 1994 Operational Restructuring, the Company
had and continues to have an indirect 23.8% interest in Artel, an international
telecommunications joint venture in Russia which was established to provide
international telephone access and intercity service to selected cities in
Russia through public telephone calling centers in Moscow. As the Company does
not believe that this asset is strategic, it will seek to divest itself of its
interest in Artel, although it currently has no agreement to do so. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations--Assets Held for Sale' and Note 15 to the accompanying consolidated
financial statements included elsewhere in this Prospectus.
DISCONTINUED OPERATIONS
In recent years, the Company entered into a variety of complementary niche
telecommunications businesses, such as its inmate telephone, prepaid calling
card and international telephone center and cellular telephone rental
operations, in an effort to enhance its long-term growth opportunities and
diversify its business. The capital requirements and management attention
required by these operations diverted the Company from its core public pay
telephone business and adversely affected its operating results. During the
second quarter of 1994, management of the Company undertook a review of the
Company's operations, management structure and strategic objectives with a view
toward reducing expenses and improving operating efficiency. In December 1994,
the Company decided to focus exclusively on the growth opportunities available
in its core public pay telephone business and to divest itself of such
operations. For financial accounting purposes, the inmate telephone and cellular
telephone rental operations have been segregated and reported as discontinued
operations. The Company sold its prepaid calling card business in February 1995
and is currently pursuing alternatives to divest the remaining operations. This
offering is not conditioned upon the divesture of the remaining operations and
there can be no assurance as to the Company's ability to dispose of such
operations still held by the Company on favorable terms or on the terms
contemplated by the Company's consolidated financial statements. See 'Risk
Factors--Risks Associated with Business Strategies and Discontinued Operations'
and '--Assets Held for Sale.'
Inmate Telephones
General. In 1990, the Company began offering telephone services in
correctional facilities to inmates. As of March 31, 1995, the Company operated
approximately 3,199 telephone lines in 230 correctional facilities in 24 states.
In 1992, 1993 and 1994, the Company's inmate telephone business had
approximately $1.9 million, $35.2 million and $42.4 million of revenues,
respectively.
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The following chart sets forth certain information with respect to the
locations of the Company's inmate telephone lines as of March 31, 1995:
NO. OF
STATE LINES
- ----- ------
Texas........................................................... 1,111
Colorado........................................................ 312
Ohio............................................................ 270
Georgia......................................................... 257
Nevada.......................................................... 133
Missouri........................................................ 129
Idaho........................................................... 111
Other states.................................................... 876
-----
Total......................................................... 3,199
-----
-----
The inmate telephone market primarily consists of collect calls made from
various types of short-term and long-term incarceration facilities.
Historically, revenues for the average inmate telephone have been higher than
for a public pay telephone due to higher usage rates and the fact that inmates
may only make collect calls, which have the highest revenue per call after
person-to-person calls. Maintenance and related labor costs for inmate
telephones are generally lower than for public pay telephones due to the use of
automated operator services and the lack of coin collecting and coin mechanism
repairs. However, the inmate telephone market has been increasingly competitive
and margins have been declining due to increases in commissions payable to
correctional facilities.
The Company recently received a proposal from a non-affiliated third party
to purchase approximately one-third of the Company's inmate telephones. The
purchase price would be based on a multiple of average monthly revenue from the
inmate telephones and would be payable in a combination of cash and notes. The
sale would be contingent upon a number of conditions, including negotiation and
execution of a definitive agreement and obtaining all necessary consents and
approvals. The Company is currently evaluating the proposal. There can be no
assurance that the Company will find the proposal acceptable or that a
definitive agreement will be negotiated and executed or that the sale will be
consummated on the proposed or any other terms.
Contracts. The Company originally entered the inmate telephone market
through the acquisition of five separate companies which had entered into
agreements with local and county governments to provide pay telephone service to
prisons and other correctional facilities. New contracts are typically awarded
pursuant to a competitive bidding process. The Company markets its inmate
telephone services through staff who are responsible for both new contracts and
renewals of existing contracts. To date, the Company's primary focus has been on
retaining and renewing existing contracts.
As of March 31, 1995, approximately 17% of the Company's inmate telephone
contracts expire or are up for renewal during 1995. Another approximately 35%
expire during 1996 and approximately 48% of the Company's current inmate
telephone contracts expire or are up for renewal in 1997 or thereafter. There
can be no assurance as to whether the Company will be successful in renewing
existing inmate telephone contracts or that the Company's inmate telephone
business will not be adversely affected by the Company's announcement of its
decision to divest its inmate telephone business. In addition, the sale of the
inmate telephone business will require that correctional facilities consent to
the assignment of certain inmate telephone contracts which may affect the
ability of the Company to divest itself of such business on a timely basis.
Operations. Within correctional facilities, the Company currently utilizes
automated operator calling systems from a number of providers. All of these
systems limit inmates to collect calls. In facilities with
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more than 50 inmates, the Company generally installs its proprietary prison pay
telephone system. This calling system is a configuration of proprietary software
based on an integrated microcomputer platform and basic telecommunications
hardware consisting of dialers and storage modules.
All of these automated operator systems function in essentially the same
manner. The inmate removes the handset from the telephone and dials the
destination number. The system first confirms that the destination number has
not been blocked. Blocking is designed to prevent completion of calls for which
payment will not be collectible and generally occurs if the call is being made
to a person who has not previously paid for a call on the Company's system or
does not desire to receive calls from a facility or inmate. The system also
blocks numbers that do not allow collect call billing or a number previously
screened through the Line Information Data Base, a computerized record developed
by LECs containing all valid telephone and calling card numbers in their
territories for purposes of performing billing and validation. If the number has
not been blocked, the system automatically requests the inmate's name, records
the inmate's response and waits for the called party to answer. When the call is
answered, the system informs the called party that there is a collect call,
plays back the name of the inmate in the inmate's voice, and instructs the
called party to accept the call by saying yes or rejecting the call by hanging
up. Only calls that are positively accepted will be connected for completion.
The system is programmed to record the details of each call (i.e., the
number dialed, the bill to number and the length of call). The call detail is
polled (extracted) from each system on a daily basis into the system's
centralized billing center. The Company then rates the calls according to the
Company's state and federal tariffs and according to any contractually agreed
upon rates and then bills the calls in the manner described in '--Billing and
Collection.' The Company's proprietary prison pay telephone system provides
extensive anti-fraud, call monitoring and surveillance capabilities for the
correctional facilities where its inmate systems are installed. These include
reports of frequently called numbers, calls of longer than normal duration and
calls by more than one inmate to the same number. Upon request, the Company will
provide the facility with the specific call detail.
Service. The systems in each facility are provided and installed at no cost
to the government agency. The Company shares a percentage of the revenues it
receives with the government agency. The Company generally provides all
service-related activities. Service issues are reported to the Company's
Technical Support Center through a 24-hour, toll-free (800) number. Service is
typically restored on a major outage within 24 hours. Most problems are
corrected remotely and generally an on-site visit is not required.
Billing and Collection. The Company uses Zero Plus Dialing, Inc. ('ZPDI'),
a third party billing and collection clearinghouse, to process and collect
non-coin telephone revenues handled by the Company's contracted operator service
providers other than AT&T. The Company forwards the call records to ZPDI, which
sends the records to the appropriate LEC for billing and collection. The LEC
includes the rated calls on its customers' monthly telephone bills. The LEC
forwards the proceeds from the billed and collected call records to ZPDI, less
the billing and collection fee charged by the LEC and a reserve for
uncollectibles. ZPDI remits the proceeds to the Company, less the ZPDI
processing fee. The entire billing and collection cycle generally takes between
60 and 120 days after the call record is submitted to ZPDI.
Competition. In the inmate telephone business, the Company competes with
approximately 20 independent providers of inmate pay telephone systems, the LECs
and interexchange carriers. The Company believes that the principal competitive
factors in the inmate telephone market are rates of commissions paid to the
correctional facilities, system features and functionality, service and the
ability to customize inmate call processing systems to the specifications and
needs of the correctional facility. The Company competes for business on local,
county, state and federal levels. The cost of market entry and the complexity of
the bid process increases proportionally with respect to the size of the
correctional facility. While the local and county markets are somewhat
fragmented with many service providers, state correctional facilities are
generally bid on a single statewide contract basis. Depending on the type of
facility and the State, the Company must direct its marketing efforts to
municipal purchasing officers,
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enforcement or jail administrators, or to the independent contractors that
operate the facility. The Company currently provides no inmate services to
federal facilities.
Cellular Telephone Rentals
General. The Company's cellular telephone rental operations are conducted
by the Company's 90%-owned subsidiary, PTC Cellular, Inc. ('PTCC'). As of March
31, 1995, PTCC had 13,293 cellular telephones installed in rental cars and 644
hand-held portable cellular telephones. In 1992, 1993 and 1994, cellular
telephone operations had approximately $1.5 million, $6.3 million and $11.6
million of revenues, respectively. PTCC markets its cellular telephone services
principally through car rental agencies. PTCC has in-car distribution agreements
with Avis, Hayes Leasing (Avis Dallas), Avis Grand (Avis Los Angeles) and Budget
Rent-a-Car Corporation ('Budget'). PTCC is in the final stages of signing an
in-car distribution agreement with Alamo Rent-a-Car, Inc. PTCC provides portable
cellular phone rentals at select Avis and Budget locations.
Operations. PTCC's hand-held portable cellular telephones are
manufactured by Murata Technology and PTCC's in-car cellular phones have been
manufactured by Ericsson Mobile Communications, Inc. ('Ericsson'), incorporating
credit card and billing technology supplied by Cellular Technical Services
Company, Inc. ('CTS'). PTCC has experienced certain operational problems with
these cellular telephones. Many of the transceivers supplied by Ericsson have
malfunctioned and PTCC has been unable to detect inoperable equipment in a
timely fashion, thus negatively affecting PTCC's revenues and customer
relations. PTCC is in the process of developing new in-car cellular technology,
including a credit card swipe interface, and transceivers and handsets that will
be supplied by Motorola's OEM Data Products Group, eliminating PTCC's dependency
on the system previously supplied by CTS and Ericsson. The new Motorola
telephones will have internal diagnostics and be programmed to contact PTCC if
they detect a problem. PTCC anticipates that these new cellular telephones will
be introduced in the summer of 1995. PTCC has recently signed a termination
agreement with CTS which serves as a formal acceptance of PTCC's plans to deploy
its new technology and also provides for an orderly wind down of the services
CTS provides to PTCC through February 1996.
PTCC targets business travellers for both in-car and portable cellular
rentals. The hand-held units are rented at the time the vehicle is rented and
charges are applied to a credit card presented at the time a phone is returned.
Users of in-car cellular telephones do not separately rent the cellular
telephones at the time the vehicle is rented. Rather, each such telephone is
equipped with a credit-card 'swipe' device that permits the customer to activate
the telephone with a major credit card when needed. PTCC has elected to reduce
its emphasis on the portable cellular telephone industry and focus more
attention on its in-car cellular telephone market because of the following
factors: (i) the requirement to pay significant commissions to rental car
companies with respect to each portable cellular telephone available for rent to
the customers of the rental car companies; (ii) the high degree of competition
in the portable cellular telephone industry; and (iii) the lack of barriers to
the entry of competitors into this market. In addition, in-car cellular
telephones cater to the discretionary use of consumers who generally would not
rent a portable cellular telephone but will use a phone if it is readily
available. The in-car cellular rental telephones operate in a hands free mode
and also provide added safety to all rental car customers that rent a car with a
phone. Finally, many business travellers belong to preferred rental programs
that usually include easy and fast delivery of cars to these customers. In many
cases, these select customers who never enter a rental facility and would not
have an easy way to rent a portable phone, are usually among the highest users
of in-car phones.
Competition. PTCC's principal competitors are Quick-Call Corporation,
Shared Technologies Cellular, Inc., SIMS Communications, Inc., a number of local
providers of short term cellular services and cellular carriers. In addition,
other telecommunication companies such as carriers, including AT&T/McCaw
Cellular Communication, Inc. or any of the RBOCs, could enter the in-car
cellular telephone market and directly compete with PTCC. These carriers are
currently indirectly competing with PTCC by obtaining subscribers for their
cellular service and encouraging those subscribers to use their own cellular
phones in
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lieu of in-car cellular telephones. Other potential competitors include
manufacturers of cellular telephones and their components, including CELLNET
Corporation and Cell-Tel Data Services, Inc.
REGULATION
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 utility 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 AT&T
divestiture consent decree are also involved in establishing certain rules
governing aspects of these services.
State Regulation
State regulatory commissions are primarily responsible for regulating the
rates, terms and conditions for intrastate public pay telephone and inmate
telephone services. The degree to which states regulate the types of services
offered by the Company varies significantly, from some states which do not
require any certification or authorization to operate within the state, to other
states which prohibit non-LEC public pay telephone services. In most states
which permit such services, approval to operate in that state involves the
submission of a certification application and an agreement by the Company to
comply with the rules, regulations and reporting requirements of that state. The
Company has obtained the requisite regulatory approvals to provide the public
pay telephone and, where applicable, inmate telephone services, in all states in
which it currently provides such services. The Company does not anticipate any
significant difficulties in obtaining approval to operate in any additional
states on an intrastate basis, except in the four states in which it is illegal
to provide certain intrastate services using non-LEC public pay telephones:
Alaska, Connecticut, Hawaii and Oklahoma. Connecticut, however, has proceedings
underway to implement public pay telephone competition within that state.
The Company is also affected by state regulation of operator services. Many
state regulatory bodies have imposed regulations upon the provision of
intrastate operator services which are similar or identical to the regulations
adopted by the FCC pursuant to the Telephone Operator Consumer Services
Improvement Act of 1990 which was enacted on October 17, 1990 ('TOCSIA'). Most
states which permit intrastate operator services competition regulate its
provision. Such regulations may include notice and identification requirements,
maximum price limitations, reporting requirements and prohibitions on handling
certain local and long distance calls. Several states have not authorized
intraLATA operator competition because of the exclusive franchise granted to
LECs in such states. The Company has obtained, where necessary, the proper
intrastate operator service authorizations, including, where applicable,
certificates of public convenience and necessity and approval or acceptance of
its tariffs, in those states in which it provides intrastate operator services.
As of December 31, 1994, the Company was unable to derive revenue from
intraLATA and local non-coin calls for telephones located in Arkansas, Maine and
Massachusetts. In 1993, the Company entered into agreements with two RBOCs for
their LECs to pay the Company a commission on local and/or intraLATA calls.
These agreements remain in place, with similar agreements currently under
negotiation with other LECs.
On January 14, 1993, the Florida Public Service Commission, as the first
state regulatory body to address the issue, ruled that a $3.00 per telephone/per
month intrastate dial around compensation should be paid to the Company and
other competitive public pay telephone providers. Only two other states, Georgia
and South Carolina, have implemented any intrastate dial around compensation
program. However, the Company expects to receive intrastate dial around
compensation in 1995 for AT&T calls under a recent
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agreement between AT&T and the public pay telephone industry as described in
'--Federal Regulation' below.
The Company is a certified operator service provider and interexchange
carrier or has the right to provide operator and interexchange services under
its PTC Services brand in the following states: California, Colorado, Florida,
Georgia, Illinois, Kansas, Louisiana, Maryland, Michigan, Missouri, Nebraska,
New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, Texas, Utah,
Virginia and Washington.
State regulation has generally not addressed the provision of cellular
rental services such as those provided by the Company. In limited cases, state
regulation may reach underlying cellular facilities-based carriers and, in even
more narrow instances, traditional resellers of cellular service. The Company is
certified as a cellular reseller in California and New York as per the specific
requirements of those states.
Federal Regulation
The FCC does not regulate the provision of public pay telephone and inmate
telephone services by competitive public pay telephone companies to the same
degree as do the states. However, the FCC has retained jurisdiction and agreed
to address instances where LECs or state public service commissions have
unreasonably interfered with a public pay telephone or inmate telephone owner's
right to interconnect to the interstate Public Switched Network. The FCC also
acts as a repository for customer complaints involving rates or improper
practices of public pay telephone providers. The competitive public pay
telephone and inmate telephone industries are involved with several proceedings
at the federal level which the Company believes may present significant
opportunities for advancing the interests of the competitive public pay
telephone and inmate telephone industries.
Despite the fact that the Company has selected an operator service company
and, in some cases, an automated operator system installed in each of the
Company's telephones, under TOCSIA, each user of the Company's public pay
telephones has the right to access any long distance operator service company or
interexchange carrier to make a non-coin interLATA call from the Company's
telephones. Previously, the Company received no commission or revenue if the
user for the Company's public pay telephone accessed an operator service
provider or interexchange carrier other than the operator service provider
selected by the Company at that telephone. However, pursuant to TOCSIA, the FCC
ruled that operator service providers and interexchange carriers must compensate
public pay telephone providers for interstate dial around calls placed through
such provider's telephones. The FCC ruled on May 8, 1992 that the Company, and
all other competitive public pay telephone providers, would receive, on an
interim basis, $6.00 per telephone/per month as compensation for interstate dial
around calls. This flat rate system was made effective in June 1992 and the
Company received its first payment under this system in the third quarter of
1992. Recently, AT&T has agreed to begin providing its share of dial around
compensation through a $0.25 per call flat rate payment in lieu of AT&T's
portion of the flat rate payment amounts. This handling was approved by the FCC,
effective January 1, 1995. The same treatment will be applied at the intrastate
level, once any necessary state approvals are obtained. More recently, Sprint
has requested that a per call compensation system be applied to its interstate
traffic as well, which request was approved by the FCC, effective July 1, 1995.
TOCSIA imposes certain rules and requirements on the Company. TOCSIA, and
the rules and regulations promulgated thereunder by the FCC, are designed to
improve consumer awareness through the standardization of certain procedures in
the provision of interstate operator services. The Company complies with
provisions of TOCSIA, both as a call aggregator (sending calls to operator
service companies) and an operator service provider (through the Company's
automated operator system and as a reseller). The requirements include call
branding (announcing the name of the operator service provider at the beginning
and end of each call), posting notices to users at telephone locations
identifying the designated operator service provider, quoting rates at the
user's request and filing informational tariffs.
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In January 1991, as required by TOCSIA, the Company filed with the FCC an
informational tariff consisting of a description of its services and the rates
it may charge. Subsequently, the FCC has advised Congress that the FCC would not
exercise its option under TOCSIA to seek to invoke more stringent rate
regulation for operator service providers. The Company has amended its tariff
from time to time as it adds additional services or adjusts rates. The Company
has also filed all periodic reports required by the FCC which include rate
compilations, complaints, lawsuits, investigations and inquiries, as well as
certain enumerated cost data. TOCSIA has also required the FCC to take such
action as is necessary to ensure that public pay telephone companies are not
exposed to undue risk of fraud. In response, the FCC has required the LECs to
file tariffs for the provision of international call blocking services, the
majority of which are now in effect. Under current FCC regulations, the
Company's services to inmates at correctional facilities are not subject to
TOCSIA, however, on February 8, 1995, the FCC issued a Notice of Proposed Rule
Making, raising the issues of (1) whether and to what extent TOCSIA should apply
to aggregators, including inmate providers and (2) whether carrier branding
should be required on the remote (receiving) end of a collect call. Adverse
rulings on these issues could negatively affect the inmate telephone business.
In addition, recent rulings by two federal courts raise questions under the
FCC's streamlined regulations applicable to the Company's business, which may
result in more stringent regulatory reporting requirements imposed. The Company
does not believe however that this will adversely affect its operations.
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 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
operator assisted calls is in the public interest. Under a Billed Party
Preference system, the billed party could bypass 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 Property
Owners. The FCC has requested and received public comment on the question of
compensation to public pay telephone companies under Billed Party Preference.
The entire Billed Party Preference 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. In addition, the
American Public Communications Council (of which the Company is a member), along
with other telecommunications companies and associations, has filed a rate
ceiling alternative to Billed Party Preference with the FCC. The proposal is
pending and the outcome is uncertain.
The FCC does not regulate cellular resale service or its providers,
however, the FCC has considered whether to apply TOCSIA to cellular resale
service. A recent federal court decision overturning the FCC's forbearance
policy towards non-dominant telecommunications companies has caused the filing
of tariffs by certain facilities-based cellular carriers, however, the Company
has been advised that no traditional or rental resale cellular carrier has made,
or is expected to make, such a tariff filing.
Local Regulation
In addition to state and federal regulation of the Company's business,
local municipal and county authorities have begun to adopt ordinances addressing
the placement and operation of pay telephone equipment on or over the public
rights-of-way in their respective jurisdictions. These ordinances vary widely in
their specifics, but typically adopt a permitting process that includes issues
of placement, aesthetics, fees and other qualifications for the deployment of
public pay telephones on the public rights-of-way. The future potential adoption
of such local ordinances on a wide-scale basis poses an additional regulatory
burden that could adversely affect the Company's operations.
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EMPLOYEES
As of March 31, 1995, the Company had 633 employees, 236 of whom were
executive, administrative, accounting, sales or clerical personnel and 397 of
whom were installers, maintenance and repair personnel and coin collectors. Of
the 633 employees, 527 were employed in continuing operations. The Company has
no collective bargaining agreements with its employees and believes that its
employee relations are good.
FACILITIES
In 1993, the Company relocated its headquarters facility to an existing
68,000 square-foot building located at 2300 N.W. 89th Place, Miami, Florida,
which was purchased for $3.5 million. The facility was subject to a mortgage in
the amount of $2.5 million bearing interest at the rate of 7.38% per annum,
which mortgage was paid in full with a portion of the proceeds from the
Company's sale of the Notes. See 'Use of Proceeds.' The Company terminated its
lease for its former headquarters facility in 1994 for a payment of
approximately $75,000.
The Company maintains 28 service facilities, which are linked to the
Company's headquarters by computer modem. The Company considers its current
facilities adequate for its stated business purposes.
LEGAL PROCEEDINGS
On May 25, 1994, a complaint was filed in the United States District Court,
Southern District of Florida, naming the Company, Jeffrey Hanft, Chairman and
Chief Executive Officer, and Richard Militello, Chief Operating Officer, as
defendants. The case is identified as Albert Hirschensohn v. Peoples Telephone
Company, Inc., Jeffrey Hanft and Richard F. Militello, United States District
Court for the Southern District of Florida, Case No. 94-0976 CIV-UNGARO-BENAGES.
The complaint alleges the violation of certain federal securities laws through
the issuance of 'false and misleading' statements regarding the subsequently
terminated proposed merger with IDB Communications Group, Inc. and the Company's
first quarter results. The complaint seeks certification as a class action
including all persons who purchased shares of the Company's common stock between
April 21 and May 10, 1994 as well as unspecified compensatory damages. On May
26, 1995, plaintiff filed under seal a motion for leave to file an amended and
supplemental complaint, which motion was granted by the court on June 20, 1995.
Based upon management's assessment of the facts and the Company's public
disclosures at the time in question, as well as consultation with counsel, the
Company believes the complaint is without merit and intends to vigorously
contest and defend against the action. Because of the preliminary nature of the
litigation, the Company is unable to predict the outcome of such litigation at
this time.
On July 1, 1993, the Company filed a law suit against BellSouth
Telecommunications, Inc., a unit of BellSouth Corp. that does business as
Southern Bell Telephone and Telegraph ('BellSouth'), alleging, among other
things, violations of the federal and State of Florida antitrust laws based upon
alleged monopolization and misrepresentations in connection with BellSouth's
operation of its public pay telephone business in Florida. The case is
identified as Peoples Telephone Company, Inc. vs. BellSouth Telecommunications,
Inc., United States District Court for the Southern District of Florida, Case
No. 93-1260-CIV-KING. The suit seeks unspecified damages and other relief. The
case is still in the discovery phase, but BellSouth has attempted to stay
discovery pending the court's ruling on its defenses of state action and
immunity. In response, the court has limited discovery to the threshold defense
issues raised by BellSouth. BellSouth has also filed motions for summary
judgment which have been briefed by the parties and were argued on April 6,
1995. The parties are awaiting a decision by the court. Because of the
preliminary nature of the litigation, the Company is unable to predict the
outcome of such litigation.
On May 9, 1995, a complaint (as amended on May 30, 1995) was filed in the
Supreme Court of the State of New York, New York County, against the Company by
ACI and ACI's sole shareholder, AHI. The complaint alleged breach of contract by
the Company for failure to repay principal and interest on a $2.0 million one
year promissory note (the 'One Year Note') and interest on a $4.0 million five
year promissory note (the 'Five Year Note') which were issued by the Company to
ACI in connection with the
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November 1993 purchase by the Company of substantially all of ACI's assets. In
addition, the complaint alleged that the Company breached its agreement with ACI
to register certain shares of Common Stock issued to ACI in connection with the
acquisition under the Securities Act within an agreed upon time frame. The
complaint also alleged that the Company failed to assume certain obligations and
pay certain amounts under an equipment lease. The complaint sought damages of
approximately $2.1 million in principal and interest allegedly due under the One
Year Note, approximately $4.4 million in principal and interest allegedly due
under the Five Year Note, approximately $333,000 in connection with the
equipment lease and an unspecified amount of damages for failure to promptly
register the Common Stock under the Securities Act. On June 29, 1995, the
Company settled such litigation for approximately $5.7 million, of which
$500,000 was paid upon execution of the settlement agreement, and the remainder
was paid in full in connection with the consummation of the Refinancing.
Pursuant to the terms of the Preferred Stock Investment, UBS Partners is
entitled to designate two of the six members of the Board of Directors of the
Company. To effect the foregoing at the closing of the Preferred Stock
Investment, the Company had sought the resignation of two of its existing
directors to create the vacancies necessary to effect UBS Partners' designation
rights. Ronald Gelber agreed to resign from the Board while Richard Whitman,
another director, refused to resign. Consequently, only one of UBS Partners'
designees currently serves on the Board. The Nominating Committee of the Board
of Directors of the Company has not renominated Mr. Whitman for election as a
director at the Company's 1995 Annual Meeting of Shareholders to be held in
August 1995. Mr. Whitman, through his counsel, has objected in writing to not
being renominated and to having been asked to resign. Mr. Whitman has alleged
that the request that he resign in consideration of the grant of stock options
was taken without the approval, knowledge or consent of the Board of Directors
of the Company and that such actions were inappropriate and may violate
applicable laws. Mr. Whitman has, through his counsel, indicated that he
reserves all rights and legal remedies to which he is entitled as a member of
the Board and a significant shareholder of the Company.
In May 1995, the Company received a letter from Kayne Anderson Investment
Management, Inc. ('Kayne Anderson'), a general partner of certain investment
partnerships holding shares of Common Stock of the Company and the largest
shareholder of the Company, advising that it had become aware of the terms of
the Company's offering of the Notes and alleging that the inclusion in the
definition of 'Change of Control' of a change in the composition of the Board of
Directors over a two-year period would constitute a breach of the fiduciary
duties of the Company's directors. While the Company strongly believes that
inclusion of such provision in the 'Change of Control' definition is not a
breach of the directors' fiduciary duties, the Indenture and the Notes do not
now include such provision in the definition of 'Change of Control.' In 1994,
Kayne Anderson and the Company had preliminary discussions with respect to a
potential equity investment in the Company by partnerships managed by Kayne
Anderson on terms which the Company did not find attractive at the time.
On July 6, 1995, the Company was served with a complaint alleging a number
of contractual breaches and tort claims against Buckeye Communications, Inc.
('Buckeye') and certain of its associated companies, including a joint venture
in which Buckeye and the Company each have a 50% interest (the 'Buckeye
Venture'). Buckeye is not an affiliate of the Company. The plaintiffs are
parties to a development and marketing agreement with Buckeye pursuant to which
certain images were licensed to Buckeye for numerous marketing purposes. Buckeye
and the Company subsequently entered into the Buckeye Venture, pursuant to which
the licensed images were made available to the Buckeye Venture for use in
producing pre-paid calling cards that were to be distributed by the Company. The
plaintiffs are claiming $30.0 million in damages and seeking other equitable
relief. The Company has no knowledge of the merit of the allegations against the
other parties, has had no direct contact with the plaintiffs and believes that
the allegations against it are without merit.
The Company is also subject to various ordinary and routine legal
proceedings arising out of the conduct of its business. The Company does not
believe that the ultimate disposition of these proceedings will have a material
adverse effect on its financial position.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company as of the date of this
Prospectus. Richard Whitman, one of the Company's outside directors, was not
nominated for election as a director at the Company's 1995 Annual Meeting of
Shareholders, which will be held in August 1995. Jeffrey J. Keenan, who together
with Charles J. Delaney are the designees of UBS Partners, is expected to be
nominated in lieu of Mr. Whitman. Mr. Whitman has advised the Company in
writing, by his counsel, that he objects to being asked to resign from the Board
and has requested that he be renominated at the Company's upcoming 1995 Annual
Meeting of Shareholders. See 'Business--Legal Proceedings.'
NAME AGE POSITION
- ---- --- --------
Jeffrey Hanft 48 Chairman and Chief Executive Officer
Robert D. Rubin 36 President and Director
Richard F. Militello 45 Chief Operating Officer
Bonnie S. Biumi 33 Chief Financial Officer
Lawrence T. Ellman 43 President, Pay Telephone Division
F. J. Pollak 32 President, PTCC
Bruce W. Renard 41 Vice President--Regulatory Affairs/
General Counsel
Karen V. Garcia 38 Vice President--Customer Support
Jody Frank(1)(2) 43 Director
Robert E. Lund(1) 51 Director
Richard Whitman(2) 44 Director
Charles J. Delaney 35 Director
Jeffrey J. Keenan(3) 38 UBS Capital Designee to serve as Director
- ------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Expected to be nominated for election to the Board of Directors in
connection with the Preferred Stock Investment. See 'Preferred Stock
Investment.'
The principal occupation of each director and executive officer for at
least the last five years is set forth below:
JEFFREY HANFT has been the Chairman of the Board of Directors of the
Company and its predecessor since December 1983 and the Chief Executive Officer
of the Company since December 1988. He was also the President of the Company
from December 1983 until June 1990 and from September 1993 until June 1994. Mr.
Hanft was the chairman of the Florida Pay Telephone Association from 1987 to
December 1990 and the chairman of the American Public Communications Council
('APCC') from April 1988 to January 1992. Mr. Hanft is currently the chairman of
the Legal Committee of the APCC and chairman emeritus of the APCC.
ROBERT D. RUBIN joined the Company in August 1989 as Executive Vice
President and became President in June 1994 and a director in February 1995.
Mr. Rubin is also chairman of the Company's merger and acquisition committee.
Mr. Rubin was an attorney from August 1984 to August 1989 specializing in
mergers and acquisitions, securities laws and general corporate law.
71
<PAGE>
RICHARD F. MILITELLO has been employed by the Company since October 1986.
He served as Chief Financial Officer of the Company from October 1986 to October
1993, as Vice President--Finance from June 1988 to August 1993, and as Chief
Operating Officer since October 1993.
BONNIE S. BIUMI joined the Company in July 1994 as Chief Financial Officer.
Prior to joining the Company, Ms. Biumi was a Senior Manager with Price
Waterhouse LLP in Miami, Florida. Ms. Biumi is a certified public accountant.
LAWRENCE T. ELLMAN joined the Company in June 1994 as President of its Pay
Telephone Division. From 1990 until joining the Company, Mr. Ellman was
President of Atlantic Telco Joint Venture, an independent public pay telephone
operator acquired by the Company in June 1994. For approximately eight years
prior thereto, he was Executive Vice President and Chief Financial Officer of
American Potomac Distributing Company, a beverage distributor.
F. J. POLLAK has been employed by the Company since November 1993 as
President of PTCC. From September 1992 through October 1993, Mr. Pollak was
Marketing Director for Weisman Enterprises ('Weisman'), the holding company for
Intera Communications, Best Vendors and Mobile Merchandising, Inc. From January
1984 through September 1993, he was Executive Vice President of Nationwide
Vending Services, Inc., whose assets were sold to Weisman.
BRUCE W. RENARD joined the Company as Vice President--Regulatory
Affairs/General Counsel in January 1992. From September 1, 1991 to December 31,
1991, Mr. Renard was a sole practitioner specializing in legal and regulatory
consulting services to the telecommunications and utility industries. From
August 1984 to September 1991, Mr. Renard was a partner with the Florida law
firm of Messer, Vickers, et al., managing the utility and telecommunication law
sections of the firm. Prior to that time Mr. Renard served as Associate General
Counsel for the Florida Public Service Commission.
KAREN V. GARCIA joined the Company in October 1990 as National Sales
Manager. Ms. Garcia's previous employment included 13 years with the Bell
System, two of which were at New York Telephone Company and the remaining
eleven with Southern Bell Telephone Company. Ms. Garcia has been Vice
President of Sales and Customer Support since November 1993.
JODY FRANK has served as a Director of the Company and its predecessor
since September 1986. Since February 1990, he has been a vice president of
Shearson Lehman and, after Smith Barney acquired the assets of Shearson Lehman
in 1994, Smith Barney Shearson.
ROBERT E. LUND was elected as a Director of the Company in May 1994. From
September 1990 to December 1991, Mr. Lund was Chairman and Chief Executive
officer of International Telecharge, Inc., a telecommunications company. From
February 1993 until October 1994 (when Newtrend, L.P. was sold), Mr. Lund served
as Chief Operating Officer of Newtrend, L.P., a provider of software and
professional services. Since December 1994, Mr. Lund has served as President and
Chief Executive Officer of S2 Software, Inc., a Dallas, Texas software company.
RICHARD WHITMAN has been a Director of the Company since December 1991. In
October 1987, Mr. Whitman co-founded RAM Telephone & Communications, Inc., where
he served as the chief executive officer, president and a director until its
merger with the Company in December 1991. From December 1988 to December 1991,
Mr. Whitman was chief executive officer, president and a director of United
Tele-Services, Inc. ('UTS'), a long distance provider and reseller which he
co-founded. In December 1991, UTS was merged into Ram. From 1989 to December
1991, Mr. Whitman served as Vice Chairman of the APCC and from 1990 through 1991
he has served as Chairman of the California Pay Phone Association. Since 1981,
Mr. Whitman has served as a director of Holex Office Systems, Inc., a
diversified manufacturer
72
<PAGE>
of office products. Since May 1, 1995, Mr. Whitman has been Chairman of the
Board of Directors of Correctional Communications Corporation, Inc., a provider
of inmate telephone services.
CHARLES J. DELANEY was appointed as a Director of the Company in July 1995,
has been President of UBS Capital Corporation since January 1993 and Managing
Director in charge of the Leveraged Finance Group of the Corporate Banking
Division of Union Bank of Switzerland since May 1989. Prior to May 1989, Mr.
Delaney was Vice President of Marine Midland Bank, N.A. Mr. Delaney is also a
director of Specialty Foods Corporation, SDW Holding Corporation and RU
Corporation.
JEFFREY J. KEENAN has been a Vice President of UBS Partners since January
1995 and a director of UBS Partners since March 1995. Mr. Keenan joined UBS
Capital Corporation in June 1994 as a Managing Director. Prior to joining UBS
Capital Corporation, Mr. Keenan was Managing General Partner of the WSW Fund, a
$250 million equity investment fund. From 1988 until 1991, he was a General
Partner at Acadia Partners, L.P., a $1.8 billion investment fund and prior
thereto, a Managing Director of AEA Investors, Inc., a $500 million equity
investment fund. Mr. Keenan is also a director of Choctaw Maid Farms, Inc. and
United Building Materials Corporation.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the fiscal years ended December 31,
1994, 1993 and 1992, the compensation paid by the Company to its Chief Executive
Officer and each of the four most highly compensated executive officers for the
fiscal year ended December 31, 1994.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---- ------ ----- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Jeffrey Hanft, 1994 $ 417,000 $ 0 300,000 $ 2,000
CEO, Chairman 1993 361,000 0 68,000 2,000
of the Board 1992 282,000 120,000 75,000 2,000
Robert D. Rubin, 1994 263,000 0 240,000 2,000
President 1993 233,000 0 54,000 2,000
1992 179,000 80,000 60,000 1,000
Richard F. Militello, 1994 208,000 0 180,000 1,000
Chief Operating 1993 176,000 0 42,000 1,000
Officer 1992 135,000 57,000 83,000 1,000
Bruce W. Renard, 1994 150,000 0 20,000 2,000
V.P. Regulatory Affairs, 1993 164,000 25,000 15,000 2,000
General Counsel 1992 150,000 43,000 0 0
Lawrence T. Ellman 1994(2) 105,000 10,000 45,000 0
President, Pay Telephone
Division
<FN>
(1) The amounts disclosed in this column include the Company's contributions on
behalf of the named executive officer to the Company's 401(k) retirement
plan in amounts equal to 25% of the executive officer's yearly participation
in the plan.
(2) Mr. Ellman joined the Company in June 1994.
</FN>
</TABLE>
73
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to stock
options granted during the year ended December 31, 1994 to the executive
officers named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE OF
ASSUMED ANNUAL RATE OF
NUMBER OF % OF TOTAL STOCK PRICE APPRECIATION
SECURITIES OPTIONS GRANTED EXERCISE OR FOR
UNDERLYING TO EMPLOYEES IN BASE PRICE EXPIRATION OPTION TERM(2)
OPTIONS(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
---------- ---------------- ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Hanft 250,000 22.67% $ 8.50(3) 2/16/99 $ 588,000 $ 1,301,000
50,000(4) 4.53% $ 5.13 10/13/99 $ 71,000 $ 157,000
Robert D. Rubin 200,000 18.13% $ 8.50(3) 2/16/99 $ 470,000 $ 1,041,000
40,000(4) 3.63% $ 5.13 10/13/99 $ 57,000 $ 126,000
Richard F. Militello 150,000 13.60% $ 8.50(3) 2/16/99 $ 353,000 $ 780,000
30,000(4) 2.72% $ 5.13 10/13/99 $ 43,000 $ 94,000
Bruce W. Renard 20,000 1.81% $ 5.13 10/13/99 $ 28,000 $ 63,000
Lawrence T. Ellman 45,000 4.08% $ 5.69 7/11/99 $ 71,000 $ 157,000
<FN>
- -----------------
(1) Options were granted for a term of five years, subject to earlier
termination in certain events related to termination of employment. Options
become exercisable in three equal annual installments.
(2) These amounts represent assumed rates of appreciation which may not
necessarily be achieved. The actual gains, if any, are dependent on the
market value of the Company's common stock at a future date as well as the
option holder's continued employment throughout the vesting period.
Appreciation reported is net of exercise price.
(3) In the event of a change in control of the Company, such exercise price will
be adjusted to $5.38.
(4) Vesting of options is contingent upon the Company meeting certain
performance levels during 1995.
</FN>
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1994 by the executive officers
named in the Summary Compensation Table and the fiscal year end value of
unexercised options:
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
SHARES ----------------------- ----------------------------
ACQUIRED ON VALUE
NAME EXERCISES(S) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jeffrey Hanft.......................... 0 $ 0 261,667/180,833 $ 0/0
Robert D. Rubin........................ 0 0 229,333/124,667 0/0
Richard F. Militello................... 0 0 173,000/94,000 0/0
Bruce W. Renard........................ 0 0 99,167/18,333 4,200/0
Lawrence T. Ellman..................... 0 0 15,000/30,000 0/0
</TABLE>
Employment Agreements
The Company is a party to an employment agreement with Jeffrey Hanft
commencing January 1, 1994 and ending on December 31, 1998. The agreement
provides for automatic one year extensions thereafter unless either party gives
notice that it is not to be extended. The employment agreement provides for
payment of a base salary currently fixed at the annual rate of $500,000 from
January 1, 1995 to December 31, 1995. Commencing January 1, 1996 and every
January 1st thereafter during the term of the agreement, the base salary will
increase by an amount equal to the previous year's base salary multiplied by
74
<PAGE>
10%. The base salary may also be increased annually by merit increases or at any
time at the discretion of the Board of Directors. Under certain circumstances
(e.g., if the Company's income is not at certain levels), no increase may be
granted. Mr. Hanft may also receive an incentive bonus for each of the Company's
fiscal years during the term of his agreement. The incentive bonus shall be
equal to 3% of the Company's pre-tax consolidated net income but shall not
exceed 60% of Mr. Hanft's base salary for such fiscal year. Mr. Hanft is also
entitled under the agreement to other employee benefits. Further, if the Company
terminates Mr. Hanft's employment agreement without cause or Mr. Hanft
terminates the agreement for certain defined reasons, the Company will pay Mr.
Hanft (a) his base salary through the termination date and (b) as severance pay
a lump sum amount equal to 200% of the sum of (i) the annual base salary at the
highest rate in effect during the 12 months immediately preceding termination
and (ii) the average of the three annual bonus payments paid with respect to the
preceding three years under the agreement. Upon termination due to a change in
control within one year after the change in control, Mr. Hanft shall receive (a)
his base salary through the termination date, (b) all other benefits provided in
the agreement and (c) severance pay equal to 299.99% of the average taxable
compensation of Mr. Hanft for the five taxable years prior to such termination.
Upon termination of his employment for disability, Mr. Hanft is entitled to 100%
of his base salary then in effect for one year and 50% of his base salary for
two additional years.
The Company is a party to an employment agreement with Robert D. Rubin, the
Company's President. The employment agreement is for a four year term commencing
January 1, 1994 and ending December 31, 1997. Mr. Rubin's base salary for 1994
and 1995 under such agreement is $315,000. The agreement provides for automatic
one year extensions thereafter unless either party gives notice that it is not
to be extended. Mr. Rubin's employment agreement is otherwise similar to Mr.
Hanft's, except that Mr. Rubin's incentive bonus is 1.85% of the Company's
pre-tax consolidated net income.
The Company is a party to an employment agreement with Richard P.
Militello, the Company's Chief Operating Officer. The employment agreement is
for a three year term commencing January 1, 1994 and ending December 31, 1996.
Mr. Militello's base salary for 1994 and 1995 under such agreement is $250,000.
The agreement provides for automatic one year extensions thereafter unless
either party gives notice that it is not to be extended. Mr. Militello's
employment agreement is otherwise similar to those of Messrs. Hanft and Rubin,
except that Mr. Militello's incentive bonus is 1.5% of the Company's pre-tax
consolidated net income.
As a result of losses incurred by the Company in the first quarter of 1994,
effective June 1, 1994 Messrs. Hanft, Rubin and Militello voluntarily reduced
their salaries by 50%. On October 1, 1994, their salaries were reinstated to
their contract amounts.
The Company is a party to an employment agreement with Bruce W. Renard, the
Company's Vice President--Regulatory Affairs/General Counsel. The employment
agreement is for a three year term commencing on January 1, 1995 and ending on
December 31, 1997. The agreement provides for payment of a base salary initially
fixed at the annual rate of $172,500 with an annual increase of 10%, provided
the Company has met certain income targets. The agreement provides for automatic
one year extensions thereafter unless either party gives notice that it is not
to be extended. Mr. Renard's employment agreement also provides for an incentive
bonus in the sole discretion of the Board of Directors and that upon termination
due to a change in control, Mr. Renard shall receive severance pay equal to 100%
of his highest annual base salary.
The Company is a party to an employment agreement with Lawrence T. Ellman,
the President of the Company's Pay Telephone Division. The employment agreement
is for a three year term commencing June 22, 1994 and ending June 22, 1997. The
agreement provides for a base salary at the annual rate of $150,000, increasing
10% each year with the approval of the Board of Directors, and a minimum annual
bonus of $25,000. Mr. Ellman's employment agreement is otherwise similar to
those of Messrs. Hanft,
75
<PAGE>
Rubin and Militello, except that the Company shall have no obligation to pay
benefits upon a termination for cause, disability or death, and no additional
benefits accrue to Mr. Ellman upon a change in control.
Each employment agreement above restricts the employee from competing with
the Company for one year in the areas in which the Company then operates
following termination of the agreement. Generally, except as set forth above,
the Company may terminate an employment agreement without further payment if the
employee materially breaches his or her obligations and duties under the
agreement or is convicted of a felony under certain circumstances or violates
the non-competition provision contained in the employment agreement or upon
death of the employee.
Directors' Compensation and Consulting Arrangements
Jody Frank has agreed to provide consulting services to the Company in the
areas of financial analysis and acquisitions. Mr. Frank received a fee of
$50,000 in 1994. In 1995, Mr. Frank will receive a monthly fee of $2,000 for
such consulting services. Mr. Frank also received a grant of options on 15,000
shares of Common Stock of the Company in 1994.
Bernard M. Frank, who was a director of the Company and a Compensation
Committee member in 1994, received a fee of $25,000 and a grant of options on
15,000 shares of Common Stock of the Company in 1994. Mr. Frank resigned from
the Board of Directors and the Compensation Committee in February 1995. Mr.
Frank is the father of Jody Frank.
Richard Whitman received $47,500 in 1994 for providing consulting
services to the Company. Mr. Whitman received a grant of options on 15,000
shares of Common Stock of the Company in 1994.
Ronald Gelber received fees of $50,000 in 1994 from the Company for
serving on its Board of Directors. In 1995, Mr. Gelber received a monthly fee
of $2,000 for serving as the Chairman of the Audit Committee. In 1994, Mr.
Gelber also received a grant of options on 15,000 shares of Common Stock of
the Company. Mr. Gelber resigned from the Board of Directors in July 1995.
Robert Lund received $32,500 from the Company in 1994 for consulting
services and for serving on its Board of Directors. Mr. Lund also received a
grant of options on 15,000 shares of Common Stock of the Company in 1994.
For 1995, all directors will receive as compensation for serving on the
Board of Directors, $500 per person for each meeting attended telephonically and
$1,000 per person for each meeting attended in person. Upon election, pursuant
to the terms of the Company's 1993 Non-Employee Director Stock Option Plan, each
non-employee director of the Company receives an option to purchase 15,000
shares of Common Stock of the Company. The exercise price of any option granted
to directors is the fair market value of the Common Stock of the Company on the
date the option is granted.
Compensation Committee Interlocks and Insider Participation
See '--Directors' Compensation and Consulting Arrangements' with regard to
Messrs. Bernard Frank and Ronald Gelber and 'Certain Transactions' with regard
to Mr. Frank. Mr. Bernard Frank resigned from the Board of Directors and the
Compensation Committee in February 1995. Mr. Ronald Gelber resigned from the
Board of Directors and the Audit Committee in July 1995.
76
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1994, the Company has engaged in the following
transactions with directors and/or executive officers of the Company,
shareholders listed in the security ownership table in 'Principal
Shareholders,' or with businesses with which they are associated:
1. The Company prepaid a deposit on a real property lease for its Russian
joint venture, Artel, to Robin Enterprises, Inc. ('Robin') in the amount of
$675,000. Such lease was canceled in June 1994 and the prepaid deposit returned
to the Company. Robin is a corporation which owns an approximately 32,000 square
foot building in Moscow. Jeffrey Hanft, Jody Frank, Bernard M. Frank, Robert D.
Rubin, Richard F. Militello and Richard Whitman are shareholders of Robin.
2. On March 31, 1994, the Company sold certain of its telephone calling
center assets to Global Link for a total of $2.5 million. In connection with the
transaction, Global Link delivered to the Company 10.0% of the issued and
outstanding common stock of Global Link and granted the Company the right to
designate two members on Global Link's Board of Directors. In February 1995,
after obtaining a fairness opinion indicating the proposed sale of the assets
for the agreed upon consideration was fair to the Company from a financial point
of view and after the transaction was approved by the disinterested members of
the Company's Board of Directors, the Company sold substantially all of the
assets of its prepaid calling card business to Global Link for approximately
$6.3 million. Upon the sale, the Company maintained the right to designate one
member on Global Link's Board of Directors. The Company received $1.0 million in
cash, a $5.3 million promissory note due February 1998, bearing interest at
8.5%, payable quarterly and shares of common stock of Global Link. As a result
of the February 1995 transaction, and because of a drafting error discovered in
May 1995 that did not reflect the intentions of the parties, the Company's
interest in the outstanding common stock of Global Link was 28.8% instead of the
intended 19.99%. To correct this error, the Company reduced its share ownership
to the intended 19.99% level. Jeffrey Hanft and Jody Frank are directors, and
Mr. Frank is a shareholder of Global Link as is Mr. Bernard M. Frank, a former
director of the Company.
3. On November 24, 1994, the Company entered into a Settlement Agreement
with Richard Whitman, a Director of the Company, to resolve claims arising under
an indemnity provision in connection with the November 1, 1991 merger of Ram
Telephone and Communications ('Ram') into the Company. Pursuant to the
Settlement Agreement, Mr. Whitman executed a promissory note in favor of the
Company, agreeing to pay $237,000, plus simple interest of eight percent (8%)
per annum, due and payable in full on December 31, 1997. Mr. Whitman also
executed a Security Agreement, providing a pledge of up to 150,000 shares of the
Company's common stock to collateralize payment of the promissory note. Mr.
Whitman was a shareholder of Ram.
4. Information concerning indebtedness of directors and/or executive
officers to the Company since January 1, 1994 is as follows: (a) largest
aggregate indebtedness outstanding: Jeffrey Hanft ($2,385,000); Robert D. Rubin
($735,000); Richard F. Militello ($907,000); Jody Frank ($309,000); and Ronald
Gelber ($47,000); (b) currently outstanding indebtedness: Jeffrey Hanft
($1,712,000); Robert D. Rubin ($574,000); Richard F. Militello ($734,000); Jody
Frank ($309,000); and Ronald Gelber ($47,000).
Since January 1, 1994, the Company has loaned (the 'Company Loans') certain
funds to Jeffrey Hanft, Robert D. Rubin, Richard F. Militello, Jody Frank and
Ronald Gelber (the 'Borrowers') for the reasons described below. Each of the
Company Loans is evidenced by a promissory note. Each such Company Loan is due
in full on March 28, 1996, and bears interest at the prime rate of interest set
by the Company's senior lender. Included in the currently outstanding loans for
these transactions are the following: Mr. Hanft $968,000; Mr. Rubin $435,000;
Mr. Militello $501,000; Mr. Frank $239,000; and Mr. Gelber $47,000.
77
<PAGE>
Each of the Company Loans was made following approval by the members of the
Board of Directors who were not parties to the transaction as a means to provide
the Borrowers with a vehicle to refinance certain commercial bank indebtedness
they had incurred to exercise Company stock options and pay related income
taxes. The Borrowers exercised the stock options in December 1993 to purchase
the Company's common stock for purposes of increasing the Company's
shareholders' equity without accessing external capital markets. The Borrowers
personally borrowed the funds to exercise the options from a commercial bank and
pledged the Company's common stock issued upon exercise as collateral for the
bank loans ('Bank Loans'). This equity increase in turn was a significant factor
in permitting the Company to increase its credit facility from $60.0 million to
$125.0 million in February 1994.
Commencing in May 1994, as the market price of the stock declined, the bank
on several occasions required the Borrowers to pay down the Bank Loans or
provide additional collateral. The Borrowers approached the disinterested
members of the Company's Board of Directors to seek the Company's assistance in
refinancing a portion of their Bank Loans. The Company then advanced the Company
Loans upon the repayment terms noted above.
Mr. Hanft, Mr. Militello and Mr. Frank also borrowed $535,000, $128,000 and
$70,000, respectively, from the Company in connection with the payment of
personal income taxes related to the phantom gain incurred upon the December
1993 exercise of the stock options mentioned above. The loans are due in 1995
and bear interest at a rate equal to the average annual borrowing rate of the
Company's senior debt (for the fiscal year ending on or immediately preceding
the date interest on the outstanding principal is payable).
In an unrelated transaction, in lieu of receiving payment of their earned
1993 bonus, Mr. Hanft, Mr. Rubin and Mr. Militello agreed to accept loans from
the Company which bear interest at a rate equal to the average annual borrowing
rate of the Company's senior debt (for the fiscal year ending on or immediately
preceding the date interest on the outstanding principal balance is payable)
which loans are payable within five years of the date of the loan. Included in
the currently outstanding loans for this transaction are the following: Mr.
Hanft $210,000; Mr. Rubin $140,000; and Mr. Militello $105,000.
5. On July 19, 1995, UBS Partners purchased 150,000 shares of the Preferred
Stock for gross proceeds of $15.0 million. See 'Preferred Stock Investment.'
Charles J. Delaney, a director of the Company, is the President of UBS Capital,
an affiliate of UBS Partners. Jeffrey J. Keenan, who is expected to be elected a
director of the Company by UBS Partners at or about the time of the Company's
1995 Annual Meeting of Shareholders to be held in August 1995, is a Managing
Director of UBS Capital and a director and vice president of UBS Partners. In
connection with the Preferred Stock Investment, the Company has agreed to
reimburse UBS Partners for its out of pocket expenses up to a maximum amount of
$350,000.
6. In connection with the resignations of former directors Bernard M. Frank
and Ronald Gelber, in February 1995 and July 1995 respectively, the Company
issued to each former director options to acquire 32,500 shares of Common Stock.
The exercise prices of the options, based on the market price of the Company's
Common Stock on the date of the grants, are $5.06 with regard to Mr. Frank's
options and $4.16 with regard to Mr. Gelber's options.
7. In February 1994, the Company amended a credit facility agreement with
Creditanstalt-Bankverein and certain other lenders in order to provide the
Company with a revolving line of credit of $125 million, and issued to
Creditanstalt American Corporation (a subsidiary of Creditanstalt-Bankverein)
250,000 Series D warrants to acquire Common Stock or Series B Preferred Stock of
the Company, with an exercise price of $9.00 per share. At the same time,
Creditanstalt American Corporation, as the assignee of Creditanstalt-Bankverein,
exercised 150,000 Series A warrants to acquire 150,000 shares of Common Stock at
an exercise price of $3.17 per share. In March 1995, the Company amended its
credit facility agreement with Creditanstalt-Bankverein and certain other
lenders by reducing the credit facility to $100 million. In May 1995, the
Company agreed to decrease to $5.25 the exercise price of a portion of the
Series D warrants in
78
<PAGE>
return for the cancellation of a demand registration right held by Creditanstalt
American Corporation. In July 1995, the Company repaid the approximately $95.5
million of indebtedness under the credit facility, amended the credit facility
to reduce the line of credit to $40 million, and paid Creditanstalt-Bankverein a
loan origination fee of $200,000. Between January 1, 1994 and June 30, 1995, the
Company paid approximately $5.3 million in interest and fees to
Creditanstalt-Bankverein as agent and as a lender in connection with the
Company's credit facilities. See 'Description of the Credit Agreement.'
In May 1995, in order to facilitate a $2.5 million loan to PTC Cellular,
Inc., a wholly-owned subsidiary of the Company, the Company entered into an
exchange agreement under which it granted to Creditanstalt Corporate Finance,
Inc. (an affiliate of Creditanstalt American Corporation) the right to exchange
indebtedness under the loan for shares of Common Stock of the Company, with an
exchange ratio based on the then current market price of the Common Stock.
Concurrently with the exchange agreement, PTC Cellular, Inc. issued warrants to
acquire 263,916 shares of Class A or Class B Common Stock of PTC Cellular, Inc.
to Creditanstalt Corporate Finance, Inc, at an exercise price of $.01 per share.
The warrants expire on May 3, 2005.
79
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock of the Company as of April 30, 1995 (or
July 19, 1995 with respect to Charles J. Delaney and UBS Partners) by (i) each
person known by the Company to beneficially own more than five percent of the
outstanding Common Stock of the Company, (ii) each director of the Company,
(iii) each of the executive officers named in the summary compensation table,
and (iv) all directors and executive officers of the Company as a group. Except
as otherwise indicated, the persons named in the table have the sole voting and
investment power with respect to the shares as beneficially owned by them.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) OF CLASS
- ----------------------------------------------------------------- --------
<S> <C> <C>
Jeffrey Hanft 781,529(2)(3) 4.79%
Robert D. Rubin 344,833(3) 2.12
Richard F. Militello 306,275(3)(4) 1.89
Richard Whitman 264,219(5) 1.64
Jody Frank 214,262(5)(6) 1.33
Bruce W. Renard 115,833(3) *
Lawrence T. Ellman 15,000(3) *
Robert E. Lund 31,350(5) *
Charles J. Delaney 0(7) -
UBS Partners, Inc. 2,857,143(8)/dagger/ 15.1
299 Park Avenue
New York, New York 10171
Kayne Anderson Investment 1,023,200 6.37
Management, Inc.
1800 Avenue of the Stars
Los Angeles, California 90067
Creditanstalt American Corp. 850,000(9) 5.07
245 Park Avenue
New York, New York 10167
All directors and executive officers 2,185,801(2)(3) 12.75
as a group (12 persons)(4)(5)(6)(7)
</TABLE>
- ------------------------
* Less than one percent.
/dagger/ Information provided by Schedule 13D and/or 13Gs filed by such persons.
The Company has not independently verified such information.
(1) Includes shares of Common Stock of the Company issuable upon the
exercise of stock options, which are exercisable within 60 days of the
date hereof.
(2) Includes 11,980 shares of Common Stock of the Company issued to Rikki
Hanft, the minor daughter of Jeffrey Hanft.
(3) Includes currently exercisable options to purchase 794,833 shares of
Common Stock of the Company granted under the Company's stock option
plans to the following executive officers: 261,667 to Jeffrey Hanft
(at an average exercise price of $8.30 per share); 229,333 to Robert D.
Rubin (at an average exercise price of $8.14 per share); 173,000 to
Richard F. Militello (at an average exercise price of $8.15 per share);
115,833 to Bruce W. Renard (at an average exercise price of $6.18 per
share); and 15,000 to Lawrence T. Ellman (at an average exercise price
of $5.69 per share).
(4) Includes 5,625 shares owned by Richard F. Militello as custodian for
Laura Militello, Sara Militello and Michael Militello, his minor
children.
(5) Includes currently exercisable options to purchase Common Stock of the
Company granted to the following directors: 60,000 to Richard Whitman
(at an average exercise price of $10.03 per share); 105,000 to Jody
Frank (at an average exercise price of $8.70 per share); and 30,000 to
Robert E. Lund (at an average exercise price of $8.00 per share).
(6) Includes 40,050 shares of Common Stock of the Company in a voting trust
of which Jody Frank is the beneficial owner. Also includes 3,812 shares
for which Jody Frank is custodian and as to which Aaron Frank, Rebekah
Frank and Lucy Frank, Mr. Frank's minor children, are the beneficial
owners of 1,812 shares, 1,000 shares and 1,000 shares, respectively.
(7) Excludes all shares of Common Stock beneficially owned by UBS Partners,
as to which Mr. Delaney disclaims beneficial ownership. See footnote 8.
(8) Represents 2,857,143 shares subject to issuance upon conversion of the
Preferred Stock held by UBS Partners. See 'Preferred Stock Investment.'
(9) Represents a currently exercisable warrant received in connection with
the Prior Credit Agreement and 150,000 shares of Common Stock of the
Company obtained upon the exercise of a warrant in connection with the
Prior Credit Agreement. The warrant expires on March 12, 2000 and is
exercisable into 700,000 shares of the Company's Series B Preferred
Stock at an average price of $7.17 per share. Each share of Series B
Preferred Stock is convertible into one share of Common Stock of the
Company.
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PREFERRED STOCK INVESTMENT
On July 3, 1995, the Company entered into an agreement with UBS Capital for
the issuance by the Company of the Preferred Stock for gross proceeds of $15.0
million, which agreement was assigned by UBS Capital to UBS Partners prior to
the consummation of the Preferred Stock Investment. UBS Capital is a
wholly-owned indirect merchant banking subsidiary of Union Bank of Switzerland,
and UBS Partners is also a wholly-owned subsidiary of Union Bank of Switzerland.
The Preferred Stock Investment was consummated simultaneously with the issuance
of the Old Notes and the Preferred Stock was acquired by UBS Partners.
The Preferred Stock cumulates dividends at an annual rate of 7%, subject to
increase up to 11% under certain circumstances, including accelerations of
indebtedness of the Company and material breaches of representations, warranties
and covenants, which will be payable in cash or, at the Company's option during
the first three years after issuance, will continue to cumulate. The Preferred
Stock is immediately convertible, at the option of the holders, into 2,857,143
shares of outstanding Common Stock of the Company (or approximately 15.1% of the
outstanding Common Stock as of July 19, 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 then conversion price of the Preferred Stock. The Preferred
Stock is subject to (i) mandatory redemption by the Company 10 years after
issuance or, subject to the prior payment in full of the Company's indebtedness
under the Credit Agreement and the Notes, in the event of certain bankruptcy or
related events relating to the Company, (ii) redemption at the Company's option,
resulting in the exercisability of contingent warrants and (iii) in the event of
a Change of Control (as defined in the Indenture), redemption, at the option of
the holders thereof, in all cases at its liquidation preference ($15.0 million
in the aggregate) plus accrued and unpaid dividends.
Pursuant to the terms 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 two directors initially will be Charles J. Delaney, President
of UBS Capital Corporation, and Jeffrey J. Keenan, a Managing Director of UBS
Capital Corporation and a Vice President and director of UBS Partners. See
'Management--Directors and Executive Officers.' The Preferred Stock is also
entitled to vote on all other matters submitted 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.
In connection with the Preferred Stock Investment, the Company has agreed
to certain affirmative and negative covenants with respect to the conduct of its
business, among other matters. 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 with UBS
Partners and Appian Capital Partners, L.L.C. ('Appian') to observe certain
negative covenants, including that the Company will not:
(a) (i) amend its Certificate of Incorporation or bylaws in a way which
would adversely affect the rights of holders of the Preferred Stock or
underlying Common Stock or subordinate the rights of the holders of the
Preferred Stock to the rights of other holders of capital stock of the
Company; (ii) except in an underwritten public offering, and except for
issuances in connection with pro rata distributions to holders of the
Common Stock, issuances of Common Stock pursuant to options, warrants and
other rights outstanding on the date of the purchase agreement relating to
the Preferred Stock or employee stock options, or issuances of Common Stock
in certain permitted acquisitions, sell capital stock of the Company unless
holders of the Preferred Stock, the underlying Common Stock or the Warrants
issued to Appian are given the right to purchase such capital stock to
maintain such holders' percentage interest in the Company's Common Stock;
or (iii) effect a Fundamental Change (as defined) including (A) the sale or
transfer of more than 40% of the consolidated assets of the Company and its
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subsidiaries and (B) mergers and consolidations other than those in which
the Preferred Stock is unaffected and the holders of the majority of the
voting power to elect the Board of Directors continue to own such majority
voting power unless such Fundamental Change provides that upon the
consummation thereof, the Company shall have purchased all shares of the
Preferred Stock tendered to the Company for purchase at a price per share
equal to its liquidation preference ($15.0 million in the aggregate) plus
accrued and unpaid dividends thereon pursuant to an offer to purchase given
to the holders of the Preferred Stock not less than 15 days prior to the
date such Fundamental Change is to be consummated; or
(b) Without the approval of 75% of the members of the Board of Directors:
(i) engage in transactions with stockholders, directors, officers,
employees or defined affiliates which transactions would require disclosure
under Rule 404 of Regulation S-K under the Securities Act;
(ii) issue (A) debt securities which are convertible into the Company's
Common Stock or with equity features such as warrants unless such equity
features meet certain tests or (B) capital stock or other equity securities
senior to or on a parity with the Preferred Stock or having a voting power
greater than one vote per share of Common Stock;
(iii) merge or consolidate or, except for certain permitted acquisitions
or dispositions, allow a subsidiary to merge or consolidate;
(iv) sell, lease or otherwise dispose of assets of the Company or its
subsidiaries involving aggregate consideration greater than $5.0 million;
(v) liquidate, dissolve or effect a recapitalization or reorganization;
(vi) acquire an interest in or assets of any other company involving
aggregate consideration greater than $5.0 million;
(vii) own, manage or operate any business other than the domestic pay
telephone business; or
(viii) hire, elect or replace 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 the Discontinued Operations,
sell the Notes and enter into and borrow under the Credit Agreement. 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).
In connection with the Preferred Stock Investment, UBS Capital was issued a
contingent warrant, exercisable only if the Company redeems the Preferred Stock
pursuant to its optional redemption rights. Such warrant will be exercisable
initially for the same number of shares and at the same price as the Preferred
Stock being redeemed is convertible, all determined as of the redemption date of
such Preferred Stock. Such contingent warrant has anti-dilution provisions
comparable to the Preferred Stock. UBS Capital also has the right to have its
Preferred Stock and underlying Common Stock repurchased by the Company (at the
original purchase price thereof plus accrued and unpaid dividends thereon) if
the Company violates certain regulations regarding an investee of a Small
Business Investment Company.
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UBS Capital has also agreed, subject to certain limitations and
restrictions, that for up to 10 years from the date of the closing of the
purchase of the Preferred Stock, it will not, without the consent of the
Company's Board of Directors, acquire beneficial ownership (determined in
accordance with Rule 13d-3 under the Exchange Act) of more than 25% of the
Company's voting securities, offer or solicit any other person to acquire the
Company or conduct a proxy solicitation with respect to the Company.
Appian assisted the parties and provided financial consulting services in
connection with the Preferred Stock Investment. In connection with the Preferred
Stock Investment, Appian purchased from the Company, for $1.00, warrants to
purchase up to 275,000 shares of Common Stock of the Company at an exercise
price of $5.25 per share (the 'Warrants'). Appian also received a fee of
$400,000.
The Company has also agreed to register for resale under the Securities Act
the Common Stock issuable upon conversion of the Preferred Stock or upon
exercise of the Warrants.
DESCRIPTION OF THE CREDIT AGREEMENT
Simultaneous with the issuance and sale of the Old Notes, the Company
entered into an amendment and restatement of the Prior Credit Agreement (as
amended and restated, the 'Credit Agreement') with Creditanstalt-Bankverein (the
'Bank'), providing for a revolving credit facility for the benefit of the
Company in the aggregate amount of $40.0 million. The Credit Agreement has a
term of four years. The Bank has informed the Company that it intends to
syndicate a portion of the loan provided under the Credit Agreement. The
following is a description of the terms of the Credit Agreement. The following
summary of certain provisions of the Credit Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Credit Agreement. References to the Company in the
following summary refer to Peoples Telephone Company, Inc. only.
Borrowing Base. The Company may use borrowings under the Credit Agreement
for internal growth and to fund future acquisitions, although the Bank will have
the right to approve any acquisition for consideration in excess of $3.0
million. Borrowings under the Credit Agreement will not be permitted to exceed
the sum of (i) 75.0% of the Company's eligible accounts receivable plus (ii) an
amount equal to $1,200 multiplied by the number of eligible installed pay
telephones, in the aggregate up to the total limit of $40.0 million.
Interest. Interest on the principal balance outstanding under the Credit
Agreement accrues at the option of the Company at the rate of (i) 1.5% above the
greater of (a) the Bank's prime lending rate at its principal office in New
York, New York and (b) the federal funds rate plus 0.5% or (ii) 3.0% above the
rate quoted by the Bank as the average London interbank offered rate for one,
two, three and six-month Eurodollar deposits. In the event of a default under
the Credit Agreement, at the Bank's option, the interest rate on the borrowings
under the Credit Agreement would increase to 2.0% per annum above the then
applicable rate.
Security. As security for the indebtedness under the Credit Agreement, the
Company has granted to the Bank a first priority security interest in
substantially all existing and future assets of the Company, whether tangible or
intangible, including, without limitation, accounts receivable, inventory and
equipment.
Certain Covenants. In addition to customary covenants, the Credit
Agreement contains various restrictive financial and other covenants including,
without limitation, (i) prohibitions on the incurrence of additional
indebtedness, (ii) restrictions on the creation of additional liens, (iii)
certain limitations on dividends and distributions by the Company, (iv)
restrictions on mergers and sales of assets, investments and transactions with
affiliates and (v) certain financial maintenance tests. Such financial
maintenance tests, include, among others, (i) a minimum EBITDA test of $5.0
million for the quarter ending June 30, 1995,
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$10.0 million for the two quarter period ending September 30, 1995 and $15.0
million for the three quarter period ending December 31, 1995, and, thereafter,
a minimum annual EBITDA test (tested quarterly for the prior four quarters)
beginning at $19.0 million for the quarter ended March 31, 1996 and increasing
over time to $26.0 million after December 31, 1997, (ii) a minimum ratio of
annual EBITDA to interest expense (tested quarterly) beginning at 1.5 to 1 and
increasing over time to 2.5 to 1 after December 31, 1997, (iii) a minimum net
worth test beginning at $47.0 million and increasing over time to $67.0 million
after December 31, 1998, (iv) a maximum ratio of debt to net worth of 3.25 to 1
for the first two years and decreasing to 3.0 to 1 for the remaining two years,
and (v) maximum ratio of bank debt to EBITDA of 2.0 to 1 (tested quarterly using
EBITDA from the prior four quarters). For purposes of the foregoing covenants,
EBITDA shall include EBITDA from the Discontinued Operations and net worth shall
include the Preferred Stock.
Events of Default. The events of default under the Credit Agreement are
customary for facilities of such nature and include payment and non-payment
defaults and certain events of bankruptcy or insolvency of the Company.
Fees. In connection with the execution of the Credit Agreement, the
Company paid a loan origination fee of $200,000. The Credit Agreement also
provides for a monthly fee based on the unused portion of the Credit Agreement
and an annual agency fee.
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DESCRIPTION OF THE NOTES
The Old Notes were and the Exchange Notes will be issued under an indenture
dated as of July 15, 1995 (the 'Indenture') between the Company and First Union
National Bank of North Carolina, as trustee (the 'Trustee'), a copy of which is
filed as an exhibit to the Exchange Offer Registration Statement. Upon the
issuance of the Exchange Notes, if any, or the effectiveness of a Shelf
Registration Statement (as defined below), the Indenture will be subject to and
governed by the Trust Indenture Act of 1939, as amended (the 'Trust Indenture
Act'). The following summary of the material provisions of the Indenture does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Trust Indenture Act and to all of the provisions of the
Indenture, including the definitions of certain terms contained therein and
including those terms made part of the Indenture by reference to the Trust
Indenture Act. The definitions of certain capitalized terms used in the
following summary are set forth below under '--Certain Definitions.' Unless the
context otherwise requires, references to the Notes shall include the Exchange
Notes. References to the Company in the following summary refer to Peoples
Telephone Company, Inc. only.
GENERAL
The Notes are unsecured senior obligations of the Company limited to $100.0
million aggregate principal amount. The Notes are issued only in fully
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. Principal of, premium, if any, and interest on the Notes will
be payable, and the Notes will be transferable, at the corporate trust office or
agency of the Trustee in the City of New York maintained for such purposes in
New York, New York. In addition, interest may be paid at the option of the
Company by check mailed to the person entitled thereto as shown on the security
register. No service charge will be made for any transfer, exchange or
redemption of Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on July 15, 2002. Interest on the Notes accrues at
the rate of 12 1/4% per annum and will be payable semi-annually on each January
15 and July 15, commencing January 15, 1996, to the holders of record of Notes
at the close of business on the January 1 and July 1 immediately preceding such
interest payment date. Interest on the Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from the
original date of issuance (the 'Issue Date'). Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
As discussed under 'Exchange Offer; Registration Rights,' pursuant to the
Registration Rights Agreement, the Company has agreed, at its expense, for the
benefit of the holders of the Notes, either (i) to effect a registered Exchange
Offer under the Securities Act to exchange the Old Notes for Exchange Notes,
which will have terms identical in all material respects to the Old Notes
(except that the Exchange Notes will not contain terms with respect to transfer
restrictions) or (ii) in the event that any changes in law or applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer, or if for any other reason the Exchange Offer is not
consummated within 120 days of the Issue Date, or upon the request of the
Initial Purchaser (under certain circumstances), to register the Notes for
resale under the Securities Act through a shelf registration statement (a 'Shelf
Registration Statement'). In the event that either (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 30th
calendar day following the Issue Date, (b) the Exchange Offer Registration
Statement has not been declared effective on or prior to the 90th calendar day
following the Issue Date, (c) the Exchange Offer is not consummated on or prior
to the 120th calendar day following the Issue Date or (d) a Shelf Registration
Statement is not declared effective on or prior to the 150th day following the
Issue Date, the interest rate borne by the Notes shall be increased by 0.25% per
annum following such 30-day period in the case of (a) above, such 90-day period
in the case of (b) above, such 120-day period in the case of (c) above
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or such 150-day period in the case of (d) above, which rate will be increased by
an additional 0.25% per annum for each 90-day period that any such additional
interest continues to accrue; provided that in no event shall the interest rate
borne by the Notes be increased by more than 1%. Upon (w) the filing of the
Exchange Offer Registration Statement in the case of clause (a) above, (x) the
effectiveness of the Exchange Offer Registration Statement in the case of clause
(b) above, (y) the consummation of the Exchange Offer in the case of clause (c)
above or (z) the effectiveness of a Shelf Registration Statement in the case of
clause (d) above, the interest rate borne by the Notes from the date of such
filing, effectiveness or consummation, as the case may be, will be reduced to
the interest rate which would otherwise apply. See 'Exchange Offer; Registration
Rights.'
Old Notes that remain outstanding after the consummation of the Exchange
Offer and Exchange Notes issued in connection with the Exchange Offer will be
treated as a single class of securities under the Indenture.
REDEMPTION
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 15, 2000, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest to the redemption date, if redeemed
during the 12-month period beginning July 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2000................................................. 103.50%
2001................................................. 101.75%
2002................................................. 100.00%
</TABLE>
In addition, prior to July 15, 1998, in the event of one or more Equity
Offerings consummated after the Issue Date (other than the sale of the UBS
Partners Preferred Stock) for aggregate gross proceeds to the Company equal to
or exceeding $10.0 million, the Company may redeem in the aggregate up to a
maximum of 20% of the principal amount of Notes originally issued with the net
proceeds thereof at a redemption price equal to 111 1/4% of the principal amount
thereof plus accrued and unpaid interest to the redemption date.
Mandatory Redemption. There are no mandatory sinking fund payments for the
Notes. However, as described below, the Company may be obligated, under certain
circumstances, (a) to make an offer to purchase all outstanding Notes at a
redemption price of 101% of the principal amount thereof, plus accrued interest
to the date of purchase, upon a Change of Control and (b) to make an offer to
purchase Notes with a portion of the net cash proceeds of certain sales or other
dispositions of assets at a redemption price of 100% of principal amount, plus
accrued and unpaid interest to the date of purchase. See 'Change of Control' and
'Certain Covenants--Disposition of Proceeds of Asset Sales,' respectively.
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided that
no Notes of a principal amount of $1,000 or less shall be redeemed in part;
provided, further, that any redemption pursuant to the provisions relating to a
sale of the Company's Common Stock pursuant to one or more Equity Offerings
shall be made on a pro rata basis or on as nearly a pro rata basis as
practicable (subject to any procedures of The Depository Trust Company). Notice
of redemption shall be mailed by first-class mail at least 30 but not more than
60 days before the redemption
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date to each holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after the redemption date, if the Company does not
default in the payment of the redemption price, interest will cease to accrue on
Notes or portions thereof called for redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (a 'Change of Control Offer'), and shall, subject
to the provisions described below, purchase, on a business day (the 'Change of
Control Purchase Date') not more than 60 nor less than 30 days following the
occurrence of the Change of Control, all of the then outstanding Notes at a
purchase price (the 'Change of Control Purchase Price') equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the Change
of Control Purchase Date. The Company shall be required to purchase all Notes
properly tendered into the Change of Control Offer and not withdrawn. The Change
of Control Offer is required to remain open for at least 20 business days and
until the close of business on the Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the Change of Control, mail to each holder of
Notes notice of the Change of Control Offer, which notice shall govern the terms
of the Change of Control Offer and shall state, among other things, the
procedures that holders of Notes must follow to accept the Change of Control
Offer.
The occurrence of the events constituting a Change of Control under the
Indenture may result in an event of default under the Credit Agreement and in
respect of other Indebtedness of the Company and the Restricted Subsidiaries
and, consequently, the lenders thereof will have the right to require repayment
of such Indebtedness in full. If a Change of Control Offer is made, there can be
no assurance that the Company will have available funds sufficient to pay the
Change of Control Purchase Price for all of the Notes that might be delivered by
holders of Notes seeking to accept the Change of Control Offer. The Company
shall not be required to make a Change of Control Offer upon a Change of Control
if a third party makes the Change of Control Offer in the manner, at the times
and otherwise in compliance with the requirements applicable to a Change of
Control Offer made by the Company and purchases all Notes validly tendered and
not withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above.
RANKING
The indebtedness of the Company evidenced by the Notes ranks senior in
right of payment to all indebtedness of the Company expressly subordinated in
right of payment to the Notes and pari passu in right of payment with all other
existing and future indebtedness of the Company. As of the date of this
Prospectus, the Company has no outstanding indebtedness ranking junior in right
of payment to the Notes. Although the Notes and the obligations under the Credit
Agreement constitute senior obligations of the Company, the lenders under the
Credit Agreement (and any other indebtedness secured by assets of the Company)
will have a claim ranking prior to that of the holders of the Notes with respect
to the distribution of assets and the proceeds thereof securing the Company's
obligations thereunder. See 'Risk Factors-- Defaults under Indebtedness,' 'Risk
Factors--Restrictions Imposed by Lenders; Impact of Asset Encumbrances' and
'Description of the Credit Agreement.'
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CERTAIN COVENANTS
The Indenture contains the following covenants, among others;
Limitation on Indebtedness. The Indenture provides that the Company will
not, and will not permit any of the Restricted Subsidiaries to, create, incur,
issue, assume, guarantee or in any manner become directly or indirectly liable,
contingently or otherwise (in each case, to 'incur'), for the payment of any
Indebtedness (including any Acquired Indebtedness); provided that (i) the
Company (and not the Restricted Subsidiaries) will be permitted to incur
Indebtedness (including Acquired Indebtedness) and (ii) a Restricted Subsidiary
will be permitted to incur Acquired Indebtedness if, at the time of any such
incurrence and after giving pro forma effect thereto (including the application
of the net proceeds therefrom), the Consolidated Fixed Charge Coverage Ratio of
the Company is at least equal to 2.25:1.00 if such Indebtedness is incurred on
or prior to December 31, 1996 or 2.50:1.00 if such Indebtedness is incurred on
or after January 1, 1997.
Notwithstanding the foregoing, the Company and the Restricted Subsidiaries,
as applicable, may incur each and all of the following (each of which shall be
given independent effect):
(a) Indebtedness of the Company evidenced by the Notes and other
Indebtedness of the Company and the Restricted Subsidiaries outstanding on
the Issue Date;
(b) Indebtedness of the Company under the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed the sum of
(1) 75% of the net amount of accounts receivable (as determined under GAAP)
of the Company and the Restricted Subsidiaries plus (2) an amount equal to
$1,200 multiplied by the number of Eligible Pay Telephones (as defined in
the Credit Agreement as in effect on the Issue Date), in each case as
determined in good faith by the Company at the time of each incurrence of
Indebtedness under the Credit Agreement; provided in no event shall the
aggregate principal amount of Indebtedness under the Credit Agreement
permitted pursuant to this clause (b) exceed $60.0 million at any time
outstanding;
(c) Indebtedness of the Company and/or any Restricted Subsidiary used to
finance the cost of acquiring public pay telephones (including in any Asset
Acquisition) in an aggregate principal amount incurred after the Issue Date
not to exceed $10.0 million; provided that, (x) at the time of and after
giving effect to any such incurrence under this clause (c), the aggregate
principal amount of Indebtedness incurred under this clause (c) after the
Issue Date shall not exceed the aggregate net cash proceeds (other than net
proceeds from the UBS Partners Preferred Stock) received by the Company
after the Issue Date from the issuance of Capital Stock (other than
Redeemable Capital Stock) of the Company and (y) the principal amount of
Indebtedness being incurred at any time under this clause (c) shall not
exceed the amount of Restricted Payments Availability at the date of
incurrence;
(d) Indebtedness of the Company and/or any Restricted Subsidiary
incurred in respect of performance bonds, bankers' acceptances, letters of
credit of the Company and any Restricted Subsidiary and surety bonds
provided by the Company or any Restricted Subsidiary in the ordinary course
of business not to exceed $5.0 million in the aggregate;
(e) (i) Interest Rate Protection Obligations of the Company and/or any
Restricted Subsidiary covering Indebtedness of the Company or any
Restricted Subsidiary; provided that (x) any Indebtedness to which any such
Interest Rate Protection Obligations relate bears interest at fluctuating
interest rates and is otherwise permitted to be incurred under this
covenant and (y) the notional principal amount of any such Interest Rate
Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate and
(ii) Indebtedness under Currency Agreements of the Company or any
Restricted Subsidiary; provided
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that such Currency Agreements do not increase the Indebtedness of the
Company and the Restricted Subsidiaries in the aggregate other than as a
result of fluctuations in foreign currency exchange rates;
(f) (i) Indebtedness of a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, in each case which is not subordinated in
right of payment to any Indebtedness of such Restricted Subsidiary, and
(ii) Indebtedness of the Company to a Restricted Subsidiary (but only for
so long as such Restricted Subsidiary continues to be a Restricted
Subsidiary) which is unsecured and subordinated in right of payment from
and after such time as the Notes shall become due and payable (whether at a
Stated Maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under the Indenture and the Notes;
(g) Indebtedness of the Company to the extent the proceeds are used to
refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of the Restricted Subsidiaries; provided
that (i) the principal amount of Indebtedness incurred pursuant to this
clause (g) (or, if such Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration of the maturity thereof, the original issue price of such
Indebtedness) shall not exceed the sum of the principal amount of
Indebtedness so refinanced, plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of such
Indebtedness or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing by means of a tender
offer or privately negotiated purchase, plus the amount of reasonable and
customary expenses incurred in connection therewith, and (ii) such
Indebtedness being incurred does not have a lower Average Life to Stated
Maturity than the Indebtedness being refinanced and, in the case of any
such refinancing of the Notes, does not have an earlier Stated Maturity for
any principal payment than the Notes; and
(h) additional Indebtedness of the Company and/or any of the Restricted
Subsidiaries not to exceed $10.0 million in aggregate principal amount at
any one time outstanding.
Limitation on Issuances and Sale of Preferred Stock by Restricted
Subsidiaries. The Indenture provides that the Company (i) will not permit any
of the Restricted Subsidiaries to issue any Preferred Stock (other than to the
Company or a Restricted Subsidiary) and (ii) will not permit any person (other
than the Company or a Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary.
Limitation on Restricted Payments. The Indenture provides that the Company
will not, and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, do any of the following:
(i) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any payment to
the direct or indirect holders (in their capacities as such) of Capital
Stock of the Company (other than dividends or distributions payable solely
in Capital Stock of the Company (other than Redeemable Capital Stock) or in
options, warrants or other rights to purchase Capital Stock of the Company
(other than Redeemable Capital Stock) ),
(ii) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company (other than any such Capital Stock owned
by a Restricted Subsidiary),
(iii) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness, or
(iv) make any Investment (other than any Permitted Investment) in any
person (other than in a Restricted Subsidiary or a person that becomes a
Restricted Subsidiary as a result of such Investment or a person that
merges into the Company or a Restricted Subsidiary)
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(such payments or Investments described in the preceding clauses (i), (ii),
(iii) and (iv) are collectively referred to as 'Restricted Payments'), unless,
at the time of and after giving effect to the proposed Restricted Payment (the
amount of any such Restricted Payment, if other than cash, shall be the Fair
Market Value of the asset(s) proposed to be transferred by the Company or such
Restricted Subsidiary, as the case may be, pursuant to such Restricted Payment),
(A) no Default shall have occurred and be continuing, (B) the Company would be
able to incur $1.00 of additional Indebtedness under the applicable provisions
of the proviso to the first paragraph of the 'Limitation on Indebtedness'
covenant and (C) the aggregate amount of all Restricted Payments declared or
made from and after the Issue Date (including any Designation Amount) would not
exceed (1) 50% of the aggregate Consolidated Net Income of the Company accrued
on a cumulative basis during the period beginning on April 1, 1995 and ending on
the last day of the fiscal quarter of the Company immediately preceding the date
of such proposed Restricted Payment (or, if such aggregate cumulative
Consolidated Net Income of the Company for such period shall be a deficit, minus
100% of such deficit) plus (2) the aggregate net cash proceeds received by the
Company from the issuance or sale of Capital Stock (excluding (x) any net cash
proceeds from the issuance of the UBS Partners Preferred Stock or any Capital
Stock issued upon conversion thereof and (y) any net cash proceeds from the
issuance of Redeemable Capital Stock, but including Capital Stock issued upon
the conversion of convertible Indebtedness, in exchange for outstanding
Indebtedness or from the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Capital Stock) ) of the Company to any
person (other than to a Restricted Subsidiary) after the Issue Date plus (3) in
the case of the disposition for cash or repayment in cash of any Investment
constituting a Restricted Payment made after the Issue Date (other than pursuant
to clause (v) of the next paragraph), an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such Investment
minus (4) the aggregate principal amount of Indebtedness incurred after the
Issue Date pursuant to clause (c) of the second paragraph of the covenant
'Limitation on Indebtedness.' For purposes of the preceding clause (C)(2), upon
the issuance of Capital Stock from either the conversion of convertible
Indebtedness or in exchange for outstanding Indebtedness or upon the exercise of
options, warrants or rights, the amount counted as net cash proceeds received
will be the cash amount received by the Company at the original issuance of the
Indebtedness that is so converted or exchanged or from the issuance of options,
warrants or rights, as the case may be, plus the incremental amount received by
the Company, if any, upon the conversion, exchange or exercise thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default shall have occurred and be continuing, the redemption,
repurchase or other acquisition or retirement of any shares of any class of
Capital Stock of the Company or any Restricted Subsidiary in exchange for, or
out of the net cash proceeds of, a substantially concurrent issue and sale of
other shares of Capital Stock (other than Redeemable Capital Stock) of the
Company to any person (other than to a Restricted Subsidiary); provided that
such net cash proceeds so used are excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default shall have occurred and be continuing,
any redemption, repurchase or other acquisition or retirement of Subordinated
Indebtedness in exchange for, or out of the net cash proceeds of, a
substantially concurrent issue and sale of (1) Capital Stock (other than
Redeemable Capital Stock) of the Company; provided that any such net cash
proceeds so used are excluded from clause (C)(2) of the preceding paragraph, or
(2) Subordinated Indebtedness of the Company so long as such Subordinated
Indebtedness has no Stated Maturity earlier than the 91st day after the Stated
Maturity for the final scheduled principal payment of the Notes; (iv) so long as
no Default shall have occurred and be continuing, the making of Investments
constituting Restricted Payments made as a result of the receipt of non-cash
consideration from any Asset Sale made pursuant to and in compliance with the
covenant 'Disposition of Proceeds of Asset Sales'; (v) Investments constituting
Restricted Payments not to exceed $5.0 million in the aggregate at any one time
outstanding; (vi) subsequent to the third anniversary of the issuance of the UBS
Partners Preferred Stock, so long as no Default shall have occurred and be
continuing and the Consolidated Fixed Charge Coverage Ratio of the Company is at
least equal to 3.0:1.0, the payment of scheduled cash dividend payments on the
UBS Partners Preferred Stock in accordance with the terms of
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the UBS Partners Preferred Stock as in effect on the Issue Date; and (vii) the
redemption of the UBS Partners Preferred Stock upon a Change of Control if (1) a
Change of Control Offer has been made under the Indenture and all holders of
Notes validly tendering their Notes shall have had such Notes purchased by the
Company and (2) no payment default under the Indenture arising after the Change
of Control Offer shall have occurred or be continuing. In computing the amount
of Restricted Payments previously made for purposes of clause (C) of the
preceding paragraph, Restricted Payments under clauses (i), (iv), (v), (vi) and
(vii) of this paragraph shall be included without duplication and Restricted
Payments under clauses (ii) and (iii) of this paragraph shall be excluded.
Limitation on Liens. The Indenture provides that the Company will not, and
will not permit any of the Restricted Subsidiaries to, create, incur, assume or
suffer to exist any Liens of any kind against or upon any of its property or
assets, or any proceeds therefrom, except for (a) Liens existing as of the Issue
Date; (b) Liens on property or assets of the Company securing the obligations
under the Credit Agreement; (c) Liens in favor of the Company or any Restricted
Subsidiary of the Company; (d) Liens on property or assets securing Subordinated
Indebtedness; provided that the Notes are secured by a Lien on such property or
assets that is senior in priority to such Liens; (e) Liens on property or assets
securing Indebtedness of the Company ranking pari passu in right of payment with
the Notes (other than pursuant to the preceding clause (b) ); provided that the
Notes are secured by a Lien on such property or assets that is equal and ratable
with such Liens; and (f) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Indenture provides that the
Company will not, and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, make any Asset Sale unless (a) the Company or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets or shares
subject to such Asset Sale and (b) at least 75% of such consideration consists
of any combination of (i) cash or Cash Equivalents or (ii) Indebtedness of the
Company or such Restricted Subsidiary assumed by the purchaser of the assets or
shares subject to such Asset Sale and the Company or such Restricted Subsidiary
is unconditionally released from such Indebtedness. The Company may (a) use no
more than the Other Senior Debt Pro Rata Share of such Net Cash Proceeds to
repay, and thereby permanently reduce the commitments or amounts available to be
reborrowed under, Other Senior Debt and/or (b) apply such Net Cash Proceeds to
acquire or construct property or assets in lines (whether based on product,
services or geography) of business related to the businesses of the Company and
the Restricted Subsidiaries as conducted on the Issue Date (after giving effect
to the sale of (i) the Capital Stock or assets of PTC Cellular, Inc. and (ii)
the Company's inmate telephone business) within 270 days after the consummation
of such Asset Sale. To the extent all or part of the Net Cash Proceeds of any
Asset Sale are not so applied, the Company or any Restricted Subsidiary shall,
within 270 days of such Asset Sale, make an offer to purchase (an 'Asset Sale
Offer') from all holders of Notes up to a maximum principal amount (expressed as
a multiple of $1,000) of Notes equal to such Net Cash Proceeds, at a purchase
price equal to 100% of the principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided that the Company may
defer the Asset Sale Offer until there are an aggregate unutilized Net Cash
Proceeds from such Asset Sales equal to or in excess of $10.0 million, at which
time the entire unutilized amount of such Net Cash Proceeds, and not just the
amount in excess of $10.0 million, shall be applied as required pursuant to this
paragraph. The Asset Sale Offer shall remain open for a period of 20 business
days or such longer period as may be required by law. To the extent an Asset
Sale Offer is oversubscribed, Notes shall be purchased among holders on a
proportionate basis (based on the relative aggregate principal amounts validly
tendered for purchase by holders thereof). To the extent the Asset Sale Offer is
not fully subscribed to by the holders of the Notes, the Company may retain and
utilize any unutilized portion of the Net Cash Proceeds for any purpose
consistent with the other terms of the Indenture.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
will not be required to comply with clause (b) of the first sentence of the
immediately preceding paragraph with respect to Asset Sales by the Company or
any Restricted Subsidiary of (i) the Capital Stock or assets of PTC Cellular,
Inc.,
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(ii) the Company's 23.75% interest in Artel Business & Telecommunications, Inc.
('Artel') and (iii) the Company's inmate telephone business; provided that, in
the case of the inmate telephone business, such noncompliance will only be
permitted to the extent the Company delivers to the Trustee a written opinion
from an Independent Financial Advisor to the effect of clause (a) of the first
sentence of the immediately preceding paragraph. In addition to the foregoing,
the Company and any Restricted Subsidiary will not be required to comply with
the second sentence of the immediately preceding paragraph with respect to Net
Cash Proceeds from Asset Sales by the Company or any Restricted Subsidiary of
(i) the Capital Stock or assets of PTC Cellular, Inc., (ii) the Company's inmate
telephone business and (iii) the Company's 23.75% interest in Artel; provided
that the Net Cash Proceeds from any Asset Sale of Discontinued Operations shall
be required to be applied as follows: (A) the Company or any Restricted
Subsidiary may retain up to $5.0 million of such Net Cash Proceeds; (B) the
Company or any Restricted Subsidiary may apply up to 50% of any such Net Cash
Proceeds in excess of $5.0 million in the manner provided by clause (b) of the
second sentence of the preceding paragraph; and (C) up to 50% of any such Net
Cash Proceeds in excess of $5.0 million, together with any such excess Net Cash
Proceeds not applied as contemplated by the preceding clause (B) within the time
frame required by clause (b) of the second sentence of the preceding paragraph
(collectively, 'Discontinued Operations Excess Proceeds'), shall be used by the
Company to make an offer to purchase Notes at a purchase price equal to 100% of
the principal amount thereof plus accrued and unpaid interest to the date of
purchase; provided, further, that the Company may defer any such offer to
purchase contemplated by the preceding clause (C) until the aggregate
Discontinued Operations Excess Proceeds is in excess of $5.0 million, at which
time the entire Discontinued Operations Excess Proceeds, and not just the amount
in excess of such $5.0 million, shall be utilized to make an offer to purchase.
Such offer to purchase shall be made within 45 days after such threshold is
exceeded and shall comply with the same requirements for an Asset Sale Offer set
forth above and in the Indenture.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Transactions with Interested Persons. The Indenture provides
that the Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, transfer, disposition, purchase, exchange or lease of assets, property
or services) with, or for the benefit of, any Affiliate of the Company (other
than a Wholly-Owned Restricted Subsidiary), any officer or director of the
Company or any Restricted Subsidiary or any beneficial owner (determined in
accordance with the Indenture) of five percent or more of the Company's Common
Stock at any time outstanding (each of the foregoing persons being referred to
as an 'Interested Person') except (i) on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those which
could have been obtained in a comparable transaction at such time from a person
who is not an Interested Person and (ii) with respect to a transaction or series
of transactions involving aggregate payments or value equal to or greater than
$100,000, the Company shall have delivered an officers' certificate to the
Trustee certifying that such transaction or transactions comply with the
preceding clause (i) and that such transaction or transactions have been
approved by a majority of the Board of Directors of the Company including a
majority of the Independent Directors of the Board of Directors of the Company.
In addition to the foregoing, with respect to a transaction or series of
transactions with an Interested Person involving aggregate payments or value
equal to or greater than $1.5 million, the Company must deliver to the Trustee a
written opinion from an Independent Financial Advisor stating that such
transaction or series of transactions are fair from a financial point of view.
This covenant will not restrict the Company from (a) redeeming or paying
dividends in respect of its Capital Stock permitted under the covenant '--
Limitation on Restricted Payments,' (b) paying reasonable and customary regular
fees and other compensation, including interests in Common Stock of the Company,
to directors of the Company who are not employees of the Company, (c) paying any
amounts pursuant to agreements existing, and as in effect, on the Issue Date and
disclosed in this Prospectus, (d) paying loans or advances to officers of the
Company
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and the Restricted Subsidiaries for bona fide business purposes of the Company
not in excess of $500,000 in the aggregate at any one time outstanding and (e)
engaging in banking or other transactions with Creditanstalt-Bankverein and its
Affiliates and any other lender under the Credit Agreement relating to services
customarily provided by Creditanstalt-Bankverein or its Affiliates and any other
lender under the Credit Agreement in the ordinary course of its respective
commercial lending business.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on or in respect of its
Capital Stock or any other interest or participation in, or measured by, its
profits, (b) pay any Indebtedness owed to the Company or any other Restricted
Subsidiary, (c) make loans or advances to the Company or any other Restricted
Subsidiary, (d) transfer any of its properties or assets to the Company or any
other Restricted Subsidiary (other than any customary restriction on transfers
of property subject to a Lien permitted under the Indenture which would not
materially adversely affect the Company's ability to satisfy its obligations
under the Notes and the Indenture) or (e) guarantee any Indebtedness of the
Company or any other Restricted Subsidiary, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any licensing agreement entered
into by the Company or any of the Restricted Subsidiaries in the ordinary course
of business or any lease governing a leasehold interest of the Company or any
Restricted Subsidiary, (iii) the Credit Agreement as in effect on the Issue Date
and (iv) any agreement or other instrument of a person acquired by the Company
or any Restricted Subsidiary in existence at the time of such acquisition (but
not created in contemplation thereof), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person, or the property or assets of the person, so acquired.
Reporting Requirements. The Indenture requires that the Company file with
the Commission the annual reports, quarterly reports and other documents
required to be filed with the Commission pursuant to Sections 13 and 15 of the
Exchange Act, whether or not the Company has a class of securities registered
under the Exchange Act, on the basis required by such Sections. The Company is
required to file with the Trustee within 15 days after it files them with the
Commission copies of such reports and documents.
Designation of Unrestricted Subsidiaries. The Indenture provides that the
Company may designate any Subsidiary of the Company as an 'Unrestricted
Subsidiary' under the Indenture (a 'Designation') if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) at the time of and after giving effect to such Designation, the
Company could incur $1.00 of additional Indebtedness under the applicable
provisions of the proviso to the first paragraph of the 'Limitation on
Indebtedness' covenant described above; and
(c) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the 'Designation Amount') equal to the Fair
Market Value of such Subsidiary on such date.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
'Limitation on Restricted Payments' for all purposes of the Indenture in the
Designation Amount. The Indenture further provides that (i) neither the Company
nor any Restricted Subsidiary shall at any time (x) provide credit support for,
subject any of its property or assets to the satisfaction of, or guarantee, any
Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
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indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case of
clause (x) or (y), to the extent otherwise permitted under the terms of the
Indenture, including, without limitation, pursuant to the 'Limitation on
Restricted Payments' and the 'Limitation on Indebtedness' covenants, and (ii) no
Unrestricted Subsidiary shall at any time guarantee or otherwise provide credit
support for any obligation of the Company or any Restricted Subsidiary.
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a 'Revocation') if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
PTC Cellular, Inc. shall, for so long as it constitutes a Discontinued
Operation, be an Unrestricted Subsidiary and shall at all such times be subject
to the provisions of the Indenture applicable to Unrestricted Subsidiaries.
MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, transfer, lease or otherwise
dispose of all or substantially all of its properties and assets as an entirety
to, any person or persons, and the Company will not permit any of the Restricted
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, transfer, lease or other disposition of all or substantially
all of the properties and assets of the Company or the Company and the
Restricted Subsidiaries, taken as a whole, to any other person or persons,
unless at the time and after giving effect thereto (i) either (A) if the
transaction or transactions is a merger or consolidation, the Company shall be
the surviving person of such merger or consolidation, or (B) the person (if
other than the Company) formed by such consolidation or into which the Company
or such Restricted Subsidiary is merged or to which the properties and assets of
the Company or such Restricted Subsidiary, as the case may be, substantially as
an entirety, are transferred (any such surviving person or transferee person
being the 'Surviving Entity') shall be a corporation organized and existing
under the laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume by a supplemental indenture
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and in each
case, the Indenture shall remain in full force and effect; (ii) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default shall have
occurred and be continuing; and (iii) immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Company or the Surviving Entity, as the case may be, could incur $1.00 of
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additional Indebtedness under the applicable provisions of the proviso to the
first paragraph of the 'Limitation on Indebtedness' covenant described above.
In connection with any consolidation, merger, transfer, lease or other
disposition contemplated hereby, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an officers' certificate and an opinion of counsel, each stating that
such consolidation, merger, transfer, lease or other disposition and the
supplemental indenture in respect thereof comply with the requirements under the
Indenture.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made, shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor corporation had been named as the Company therein.
EVENTS OF DEFAULT
The following will be 'Events of Default' under the Indenture:
(i) default in the payment of the principal of or premium, if any, when
due and payable, on any of the Notes (whether at its Stated Maturity, upon
optional redemption or required purchase); or
(ii) default in the payment of an installment of interest on any of the
Notes, when due and payable, for 30 days or more; or
(iii) the Company shall fail to perform or observe any of the terms,
covenants or agreements described under '--Merger, Sales of Assets, Etc.'
or '--Certain Covenants--Limitation on Indebtedness,' '--Limitation on
Restricted Payments,' '--Disposition of Proceeds of Asset Sales' or
'--Change of Control'; or
(iv) the Company shall fail to perform or observe any term, covenant or
agreement contained in the Notes or the Indenture (other than a default
specified in (i), (ii) or (iii) above) for a period of 30 days after
written notice of such failure requiring the Company to remedy the same
shall have been given (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of 25% in aggregate principal amount
of the Notes then outstanding; or
(v) either (a) default or defaults in the payment of any principal,
premium or interest under one or more agreements, instruments, mortgages,
bonds, debentures or other evidences of Indebtedness (a 'Debt Instrument')
under which the Company or one or more Restricted Subsidiaries or the
Company and one or more Restricted Subsidiaries then have outstanding
Indebtedness in excess of $5.0 million, individually or in the aggregate,
or (b) any other default or defaults under one or more Debt Instruments
under which the Company or one or more Restricted Subsidiaries or the
Company and one or more Restricted Subsidiaries then have outstanding
Indebtedness in excess of $5.0 million, individually or in the aggregate,
and in the case of this clause (b) either (x) such Indebtedness is already
due and payable in full or (y) such default or defaults have resulted in
the acceleration of the maturity of such Indebtedness; or
(vi) one or more judgments, orders or decrees of any court or regulatory
or administrative agency of competent jurisdiction for the payment of money
in excess of $5.0 million either individually or in the aggregate, shall be
entered against the Company or any Restricted Subsidiary or any of their
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respective properties and shall not be discharged or fully bonded and there
shall have been a period of 60 days after the date on which any period for
appeal has expired and during which a stay of enforcement of such judgment,
order or decree shall not be in effect; or
(vii) any holder (or person acting on its behalf) of at least $5.0
million in aggregate principal amount of Indebtedness of the Company or any
of the Restricted Subsidiaries shall, subsequent to the occurrence of a
default with respect to such Indebtedness and in accordance with the terms
of the document or agreement governing such Indebtedness, commence judicial
proceedings to foreclose upon assets of the Company or one or more of the
Restricted Subsidiaries having an aggregate Fair Market Value in excess of
$5.0 million or shall have exercised any right under applicable law or
applicable security documents to take ownership of any such assets in lieu
of foreclosure; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Significant Subsidiary of the Company shall
have occurred.
If an Event of Default (other than as specified in clause (viii) with
respect to the Company) shall occur and be continuing, the Trustee, by notice to
the Company, or the holders of at least 25% in aggregate principal amount of the
Notes then outstanding, by notice to the Trustee and the Company, may declare
the principal of, premium, if any, and accrued interest on all of the
outstanding Notes due and payable immediately, upon which declaration, all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (viii) (with respect to the Company)
above occurs and is continuing, then the principal of, premium, if any, and
accrued interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal at the rate borne
by the Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and (c) all Events of Default, other than
the non-payment of principal of, premium, if any, and interest on the Notes that
has become due solely by such declaration of acceleration, have been cured or
waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or any remedy thereunder, unless the holders of at
least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not apply,
however, to a suit instituted by a holder of a Note for
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the enforcement of the payment of the principal of, premium, if any, or interest
on such Note on or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
under the Indenture is not under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders
unless such holders shall have offered to the Trustee reasonable security or
indemnity. Subject to certain provisions concerning the rights of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding Notes
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee under the Indenture.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee shall mail to each holder of the Notes notice of the Default within 30
days after obtaining knowledge thereof. Except in the case of a Default in
payment of principal of, premium, if any, or interest on any Notes, the Trustee
may withhold the notice to the holders of such Notes if a committee of its trust
officers in good faith determines that withholding the notice is in the interest
of the holders of the Notes.
The Company will be required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within ten days of any event which is, or after
notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes ('defeasance'). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of the Notes,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate its obligations with respect to
certain covenants that are set forth in the Indenture, some of which are
described under '--Certain Covenants' above, and any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ('covenant defeasance').
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity; (ii) the Company
shall have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default shall have
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occurred and be continuing on the date of such deposit or with respect to clause
(viii) under the first paragraph under '--Events of Default,' at any time during
the period ending on the 91st day after the date of deposit; (iv) such
defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest with respect to any securities of the Company; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any agreement or instrument to which the Company
is a party or by which it is bound; (vi) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that (A) the trust funds will not be
subject to any rights of holders of Indebtedness and (B) after the 9lst day
following the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and (vii) the Company shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either defeasance or covenant
defeasance, as the case may be, have been complied with and that no violations
under agreements governing any other outstanding Indebtedness would result.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its
Board of Directors, and the Trustee may, without the consent of the holders of
any outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act, or making any change that does not
adversely affect the rights of any holder; provided that the Company has
delivered to the Trustee an opinion of counsel acceptable to the Trustee stating
that such change does not adversely affect the legal rights of any holder. Other
amendments and modifications of the Indenture or the Notes may be made by the
Company, and the Trustee with the consent of the holders of not less than a
majority of the aggregate principal amount of the outstanding Notes; provided
that no such modification or amendment may, without the consent of the holder of
each outstanding Note affected thereby, (i) reduce the principal amount of,
extend the fixed maturity of or alter the redemption provisions of, the Notes,
(ii) change the currency in which any Notes or any premium or the interest
thereon is payable, (iii) reduce the percentage in principal amount of
outstanding Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture or the Notes, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
the Notes, (v) waive a default in payment with respect to the Notes, (vi) amend,
change or modify the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate
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the offer with respect to any Asset Sale or modify any of the provisions or
definitions with respect thereto, (vii) adversely affect the ranking of the
Notes in a manner adverse to holders of the Notes or (viii) reduce or change the
rate or time for payment of interest on the Notes.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and, upon issuance of the Exchange Notes or effectiveness of
a Shelf Registration Statement, provisions of the Trust Indenture Act,
incorporated by reference therein contain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions with the Company or any Affiliate of the Company; provided
that if it acquires any conflicting interest (as defined in the Indenture or in
the Trust Indenture Act) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York, without regard to principles of conflicts of law.
CERTAIN DEFINITIONS
'Acquired Indebtedness' means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Restricted Subsidiary which, in either case, was not
created or entered into in anticipation or contemplation of an Asset Acquisition
or such person becoming a Restricted Subsidiary.
'Affiliate' means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.
'Asset Acquisition' means (a) an Investment by the Company or any
Restricted Subsidiary in any other person pursuant to which such person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, (b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any person which constitute all or substantially all
of the assets of such person or any division or line (whether based on product
or geography) of business of such person or (c) the acquisition by the Company
or any Restricted Subsidiary of any public pay telephones, inmate telephones,
cellular telephones and/or telephone operating facility from any person other
than the manufacturer (or an Affiliate thereof or special purpose finance entity
related thereto) of such telephones in a transaction involving consideration
having a Fair Market Value equal to or greater than $500,000.
'Asset Sale' means any sale, issuance, conveyance, transfer, lease or other
disposition to any person other than the Company or a Wholly-Owned Restricted
Subsidiary, in one or a series of related transactions, of (a) any Capital Stock
of any Restricted Subsidiary; (b) all or substantially all of the properties and
assets of any division or line (whether based on product or geography) of
business of the Company or any Restricted Subsidiary; (c) any other properties
or assets of the Company or any Restricted Subsidiary other
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than in the ordinary course of business; or (d) any public pay telephones,
inmate telephones, cellular telephones and/or telephone operating facility by
the Company or any Restricted Subsidiary involving consideration having a Fair
Market Value equal to or greater than $500,000. For the purposes of this
definition, the term 'Asset Sale' shall not include (i) any sale, issuance,
conveyance, transfer, lease or other disposition of properties or assets that is
governed by the provisions described under '--Merger, Sale of Assets, Etc.,'
(ii) sales of obsolete equipment and (iii) any sale, issuance, conveyance,
transfer, lease or other disposition of properties or assets, whether in one
transaction or a series of related transactions, involving assets with a Fair
Market Value not in excess of $50,000.
'Average Life to Stated Maturity' means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from such date to the date or dates
of each successive scheduled principal payment (including, without limitation,
any sinking fund requirements) of such Indebtedness multiplied by (ii) the
amount of each such principal payment by (b) the sum of all such principal
payments.
'Capital Stock' means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
'Capitalized Lease Obligation' means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
'Cash Equivalents' means, at any time, (i) any evidence of Indebtedness
with a maturity of 365 days (or, for purposes of the 'Disposition of Proceeds of
Asset Sales' covenant, 270 days) or less issued or directly and fully guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of America
is pledged in support thereof); (ii) certificates of deposit or acceptances with
a maturity of 365 days (or for purposes of the 'Disposition of Proceeds of Asset
Sales' covenant, 270 days) or less of any financial institution that is a member
of the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $250.0 million; (iii) commercial paper with a maturity
of 365 days (or for purposes of the 'Disposition of Proceeds of Asset Sales'
covenant, 270 days) or less issued by a corporation that is not an Affiliate of
the Company organized under the laws of any State of the United States or of the
District of Columbia and rated at least A-1 by Standard & Poor's Corporation or
at least P-1 by Moody's Investor's Service, Inc. or at least an equivalent
rating category of another nationally recognized securities rating agency; (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the government of the
United States of America or issued by any agency thereof and backed by the full
faith and credit of the United States of America, in each case maturing within
one year from the date of acquisition; and (v) money market accounts with a
financial institution of the type described in clause (ii) above which invest
substantially in instruments of the types described in clauses (i) through (iv)
above.
'Change of Control' is defined to mean the occurrence of any of the
following events: (a) any 'person' or 'group' (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is
or becomes the 'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a person shall be deemed to have 'beneficial
ownership' of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total Voting Stock of the
Company; or (b) the Company consolidates with, or merges with or into, another
person or sells, assigns, conveys, transfers,
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leases or otherwise disposes of all or substantially all of its assets to any
person, or any person consolidates with, or merges with or into, the Company, in
any such event pursuant to a transaction in which the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of the Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under the Indenture and (ii) immediately after
such transaction no 'person' or 'group' (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act), other than a Permitted Holder, is the
'beneficial owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have 'beneficial ownership' of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Stock of the surviving or
transferee corporation.
'Common Stock' means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
'Consolidated Cash Flow Available for Fixed Charges' means, with respect to
the Company and the Restricted Subsidiaries for any period, (i) the sum of,
without duplication, the amounts for such period, taken as a single accounting
period, of (a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c)
Consolidated Interest Expense to the extent reducing Consolidated Net Income,
(d) Consolidated Income Tax Expense to the extent reducing Consolidated Net
Income and (e) to the extent incurred in such period and not otherwise included
in clause (b) above, the 1994 Charges to the extent reducing Consolidated Net
Income less (ii) non-cash items increasing Consolidated Net Income.
'Consolidated Fixed Charge Coverage Ratio' means, with respect to the
Company, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of the Company and the Restricted Subsidiaries for the four
full fiscal quarters for which financial information in respect thereof is
available immediately preceding the date of the transaction (the 'Transaction
Date') giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio (such four full fiscal quarter period being referred to herein as
the 'Four Quarter Period') to the aggregate amount of Consolidated Fixed Charges
of the Company for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, 'Consolidated Cash
Flow Available for Fixed Charges' and 'Consolidated Fixed Charges' shall be
calculated after giving effect on a pro forma basis for the period of such
calculation to, without duplication, (a) the incurrence of any Indebtedness of
the Company or any Restricted Subsidiary during the period commencing on the
first day of the Four Quarter Period to and including the Transaction Date (the
'Reference Period'), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation, as if such
incurrence occurred on the first day of the Reference Period, (b) an adjustment
to eliminate or include, as the case may be, the Consolidated Cash Flow
Available for Fixed Charges and the Consolidated Fixed Charges of such person
directly attributable to assets which are the subject of any Asset Sales or
Asset Acquisitions occurring during the Reference Period, as if such Asset Sale
(after giving effect to any Designation of Unrestricted Subsidiaries) or Asset
Acquisition occurred on the first day of the Reference Period and (c) the
retirement of Indebtedness which cannot be reborrowed during the Reference
Period as if retired on the first day of the Reference Period. Furthermore, in
calculating 'Consolidated Fixed Charges' for purposes of determining the
denominator (but not the numerator) of this 'Consolidated Fixed Charge Coverage
Ratio,' (i) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date,
(ii) if interest on any Indebtedness actually incurred on the Transaction Date
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rates, then the
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interest rate in effect on the Transaction Date will be deemed to have been in
effect during the Reference Period; and (iii) notwithstanding clause (i) and
(ii) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements to the extent
then applicable.
'Consolidated Fixed Charges' means, with respect to the Company for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the aggregate amount of dividends and
other distributions paid or accrued during such period in respect of Redeemable
Capital Stock (other than the shares of UBS Partners Preferred Stock) of the
Company and the Restricted Subsidiaries on a consolidated basis.
'Consolidated Income Tax Expense' means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes of
the Company and the Restricted Subsidiaries for such period as determined on a
consolidated basis in accordance with GAAP.
'Consolidated Interest Expense' means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net cost under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing and (e) all accrued interest and, (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP. Notwithstanding
anything herein to the contrary, Consolidated Interest Expense shall include
amounts which would constitute Consolidated Interest Expense but for the
treatment of the Discontinued Operations under GAAP.
'Consolidated Net Income' means, with respect to the Company and the
Restricted Subsidiaries for any period, the consolidated net income (or loss)
from continued operations of the Company and the Restricted Subsidiaries for
such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such net income (or loss), by excluding, without
duplication, (i) all extraordinary gains and losses (net of fees and expenses
relating to the transaction giving rise thereto), (ii) the portion of net income
(or loss) of the Company and the Restricted Subsidiaries allocable to minority
interests in unconsolidated persons except to the extent that cash dividends or
distributions have actually been received by the Company or a Restricted
Subsidiary, (iii) net income (or loss) of any person combined with such person
or one of its Restricted Subsidiaries on a 'pooling of interests' basis
attributable to any period prior to the date of combination, (iv) any gain
realized upon the termination of any employee pension benefit plan, on an
after-tax basis, (v) gains in respect of any Asset Sales by the Company or a
Restricted Subsidiary (net of fees and expenses relating to the transaction
giving rise thereto), on an after-tax basis, (vi) the net income of any
Unrestricted Subsidiary, except to the extent that cash dividends or
distributions have been actually received by the Company or one of the
Restricted Subsidiaries, (vii) the cumulative non-cash effect of any change in
any accounting principle and (viii) the net income of any Restricted Subsidiary
to the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
'Consolidated Non-cash Charges' means, with respect to the Company for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and the Restricted Subsidiaries
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reducing Consolidated Net Income of such person and its Restricted Subsidiaries
for such period, determined on a consolidated basis in accordance with GAAP.
'Credit Agreement' means the Fourth Amended and Restated Loan and Security
Agreement dated as of July 19, 1995, by and among the Company, as borrower,
Creditanstalt-Bankverein, as lender, and any other lenders which become parties
from time to time thereto, together with the related documents thereto
(including, without limitation, any security documents), in each case as such
agreements may be amended (including any amendment and restatement thereof),
supplemented or otherwise modified from time to time, including any agreement
extending the maturity of, refinancing or otherwise restructuring all or any
portion of the Indebtedness under such agreement or any successor agreement in
compliance with the Indenture.
'Currency Agreement' means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of the Restricted Subsidiaries against fluctuations in currency
values.
'Default' means any event that is, or after notice or passage of time or
both would be, an Event of Default.
'Designation' has the meaning set forth under '--Certain
Covenants--Designation of Unrestricted Subsidiaries.'
'Designation Amount' has the meaning set forth under '--Certain
Covenants--Designation of Unrestricted Subsidiaries.'
'Discontinued Operations' means those business segments of the Company
segregated and accounted for as discontinued operations for financial accounting
purposes as of the Issue Date for so long as such operations constitute
discontinued operations.
'Equity Offering' means an offering, whether public or private, of Capital
Stock (other than Redeemable Capital Stock or Capital Stock requiring the
payment of dividends in cash or Redeemable Capital Stock at any time on or prior
to any Stated Maturity of the Notes) of the Company issued and sold directly by
the Company.
'Event of Default' has the meaning set forth under '--Events of Default'
herein.
'Fair Market Value' means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that, except with respect to
any Asset Sale which involves an asset or assets the value of which could
reasonably be expected to exceed $500,000, the Fair Market Value of any such
asset or assets shall be determined by the Board of Directors of the Company,
acting in good faith and shall be evidenced by resolutions of the Board of
Directors of the Company delivered to the Trustee.
'GAAP' means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable as of the date
of determination and are consistently applied.
'guarantee' means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner,
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of any part or all of such obligation and (ii) an agreement, direct or indirect,
contingent or otherwise, the practical effect of which is to assure in any way
the payment or performance (or payment of damages in the event of
non-performance) of all or any part of such obligation, including, without
limiting the foregoing, the payment of amounts drawn down by letters of credit.
A guarantee shall include, without limitation, any agreement to maintain or
preserve any other person's financial condition or to cause any other person to
achieve certain levels of operating results.
'Indebtedness' means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such person in
connection with any letters of credit, banker's acceptance or other similar
credit transaction, (b) all obligations of such person evidenced by bonds,
notes, debentures or other similar instruments, (c) all Indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such person, (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such person, (g) all Redeemable Capital Stock valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued dividends, (h) all obligations under or in respect of foreign exchange
contracts, currency swap agreements or other similar agreements and Interest
Rate Protection Obligations of such person and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, the
'maximum fixed repurchase price' of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock. When any person becomes a Restricted Subsidiary, there
shall be deemed to have been an incurrence by such Restricted Subsidiary of all
Indebtedness for which it is liable at the time it becomes a Restricted
Subsidiary. If the Company or any of the Restricted Subsidiaries, directly or
indirectly, guarantees Indebtedness of a third person, there shall be deemed to
be an incurrence of such guaranteed Indebtedness as if the Company or such
Restricted Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness.
'Independent Director' means, with respect to any transaction or series of
transactions, a member of the Board of Directors of the Company who is not
employed by the Company (other than as a consultant) and who does not have, or
was not appointed to the Board of Directors of a shareholder which has, any
material direct or indirect financial interest in or with respect to such
transaction or series of transactions.
'Independent Financial Advisor' means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
'Interest Rate Protection Obligations' means the obligations of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from
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time to time periodic payments calculated by applying either a floating or a
fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or a floating rate
of interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
'Interested Person' has the meaning set forth under '--Certain
Covenants--Limitation on Transactions with Interested Persons.'
'Investment' means, with respect to any person, any direct or indirect loan
or other extension of credit (including by way of a guarantee) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition by such person of any Capital Stock, bonds, notes,
debentures or other securities or evidences of Indebtedness issued by, any other
person. 'Investments' shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices. In addition to the
foregoing, any foreign exchange contract, currency swap agreement or other
similar agreement shall constitute an Investment hereunder.
'Issue Date' means the original date of issuance of the Notes.
'Lien' means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
'Net Cash Proceeds' means, with respect to any Asset Sale, the sum of (a)
the proceeds thereof in the form of cash or Cash Equivalents (including payments
in respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) ) and (b) the
aggregate principal amount (or, in the case of Indebtedness issued with original
issue discount, accreted value) of any Indebtedness of the Company assumed by
the purchaser of the assets or shares subject to such Asset Sale and as to which
the Company has been unconditionally released, net of (i) brokerage commissions
and other fees and expenses (including, without limitation, fees and expenses of
legal counsel and investment bankers) related to such Asset Sale, (ii)
provisions for all taxes payable as a result of such Asset Sale, (iii) amounts
required to be paid to any person (other than the Company or any Restricted
Subsidiary) owning a beneficial interest in the assets subject to the Asset Sale
(which, in the case of a Lien permitted under the Indenture, is being pledged or
used to permanently reduce Indebtedness secured by such Lien) and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP consistently
applied against any liabilities associated with such Asset Sale and retained by
the Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an officers' certificate delivered to the Trustee; provided that
any amounts remaining after such adjustments, revaluations or liquidations of
such reserves shall also constitute Net Cash Proceeds.
'1994 Charges' means the one-time charges taken by the Company in the
fiscal year ended December 31, 1994 and reflected in the financial statements
included in this Prospectus.
'Other Senior Debt' means Indebtedness of the Company ranking pari passu in
right of payment with the Notes, the terms of which require that Net Cash
Proceeds be used to permanently reduce (and thereby also reduce commitments
relating to) such Indebtedness.
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'Other Senior Debt Pro Rata Share' means a fraction, (i) the numerator of
which is the aggregate principal amount of Other Senior Debt outstanding on the
date Net Cash Proceeds are received and (ii) the denominator of which is the sum
of (x) the aggregate principal amount of Notes outstanding on such date and (y)
the aggregate principal amount of any Other Senior Debt outstanding on such
date.
'Permitted Holders' mean any of the following individually or collectively:
(i) UBS Capital Corporation or its affiliates; (ii) Jeffrey Hanft, the Chairman
of the Board and Chief Executive Officer of the Company; (iii) Robert D. Rubin,
the President of the Company; and (iv) their respective controlled Affiliates.
'Permitted Investments' means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (iii) Interest Rate Protection Obligations and Currency
Agreements permitted under clause (e) of the second paragraph of the 'Limitation
on Indebtedness' covenant set forth above; (iv) any issuance of Capital Stock
(other than Redeemable Capital Stock) of the Company in exchange for Capital
Stock, property or assets of another person; and (v) Investments representing
Capital Stock or obligations issued to the Company or any of the Restricted
Subsidiaries in settlement of claims against any other person by reason of a
composition or readjustment of debt or a reorganization of any debtor of the
Company or such Restricted Subsidiary.
'Permitted Liens' means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(e) easements, reservations, licenses, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect of real
property not interfering in any material respect with the ordinary conduct
of the business of the Company or any of the Restricted Subsidiaries;
(f) any interest or title of a lessor or sublessor under any Capitalized
Lease Obligation or operating lease;
(g) purchase money Liens incurred in the ordinary course of business;
provided that (i) the related purchase money Indebtedness shall not be
secured by any property or assets of the Company or
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any Restricted Subsidiary other than the property and assets so acquired
and (ii) the Lien securing such Indebtedness shall be created within 90
days of such acquisition;
(h) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(i) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(j) Liens securing Interest Rate Protection Obligations and Currency
Agreements, which Interest Rate Protection Obligations and Currency
Agreements relate to Indebtedness that is secured by Liens otherwise
permitted under the Indenture;
(k) Liens securing Indebtedness of the Company or any Restricted
Subsidiary incurred to purchase public pay telephones, which Indebtedness
is permitted to be incurred pursuant to the 'Limitation on Indebtedness'
covenant, is owed to a vendor or to a bank or other financial institution
and has financed the purchase of such public pay telephones; provided that
(i) the amount of such Indebtedness does not exceed, at the time of
incurrence, the lesser of the book value or the Fair Market Value of the
public pay telephones so acquired and (ii) the Indebtedness shall not be
secured by any property or assets of the Company or any Restricted
Subsidiary other than the public pay telephones so acquired;
(l) Liens securing Indebtedness under Capitalized Lease Obligations
incurred by the Company or a Restricted Subsidiary after the Issue Date in
the ordinary course of business to the extent relating to property and
assets subject to the applicable lease and which are securing solely the
lease rental of such property, plus reasonable fees and expenses incurred
in connection therewith; and
(m) Liens securing Acquired Indebtedness created prior to (and not
created in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or a Restricted Subsidiary; provided that such
Lien does not extend to any property or assets of the Company or any
Restricted Subsidiary other than the property and assets acquired in the
transaction resulting in such Acquired Indebtedness being incurred by the
Company or any Restricted Subsidiary; provided, further, that such Acquired
Indebtedness is permitted to be incurred by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the 'Limitation on
Indebtedness' covenant.
'person' means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
'Preferred Stock' means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and including, without limitation, all classes and series of
preferred or preference stock of such person.
'Redeemable Capital Stock' means any class or series of Capital Stock that,
either by its terms, by the terms of any security into which it is convertible
or exchangeable or by contract or otherwise, is or upon the happening of an
event or passage of time would be, required to be redeemed on or prior to any
Stated Maturity of the Notes or is redeemable at the option of the holder
thereof at any time on or prior to any Stated Maturity of the Notes, or is
convertible into or exchangeable for debt securities at any time on or prior to
any Stated Maturity of the Notes.
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'Restricted Payments Availability' means, at any date, the amount available
as of such date for Restricted Payments as determined by reference to clauses
(C)(1), (2), (3) and (4) of the first paragraph of the 'Limitation on Restricted
Payments' covenant at such date, less the amount of all Restricted Payments
previously declared or made from and after the Issue Date to such date.
'Restricted Subsidiary' means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant 'Designation of Unrestricted Subsidiaries.' Any
such designation may be revoked by a Board Resolution delivered to the Trustee,
subject to the provisions of such covenant.
'Revocation' has the meaning set forth under '--Certain
Covenants--Designation of Unrestricted Subsidiaries.'
'Significant Subsidiary' means, at any particular time, any Restricted
Subsidiary that, together with the Restricted Subsidiaries of such Restricted
Subsidiary, (a) accounted for more than 10% of the consolidated revenues of the
Company and the Restricted Subsidiaries for the most recently completed fiscal
year of the Company or (b) was the owner of more than 10% of the consolidated
assets of the Company and the Restricted Subsidiaries as at the end of such
fiscal year, all as shown on the consolidated financial statements of the
Company and the Restricted Subsidiaries for such fiscal year.
'Stated Maturity' means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which any principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means any
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
'Subordinated Indebtedness' means Indebtedness of the Company which is
expressly subordinated in right of payment to the Notes.
'Subsidiary' means, with respect to any person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a joint venture, in which such
person, one or more Subsidiaries thereof or such person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other person performing
similar functions). For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary.
'UBS Partners Preferred Stock' means the Company's Series C Cumulative
Convertible Preferred Stock, par value $.01 per share, issued pursuant to the
Securities Purchase Agreement dated as of July 3, 1995 among the Company, UBS
Capital Corporation (and assigned to UBS Partners) and Appian Capital Partners,
L.L.C.
'Unrestricted Subsidiary' means (i) PTC Cellular, Inc. and (ii) any other
Subsidiary of the Company designated as such pursuant to and in compliance with
the covenant 'Designation of Unrestricted Subsidiaries.' Any such designation
pursuant to clause (i) or (ii) may be revoked by a Board Resolution of the
Company delivered to the Trustee, subject to the provisions of such covenant;
provided that PTC Cellular, Inc. shall be an Unrestricted Subsidiary for so long
as it constitutes a Discontinued Operation.
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'Voting Stock' means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
'Wholly-Owned Restricted Subsidiary' means any Restricted Subsidiary of
which 100% of the outstanding Capital Stock is owned by the Company or another
Wholly-Owned Restricted Subsidiary. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Restricted
Subsidiary.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the Notes will be issued in fully registered
form, without coupons. Except as described below, the Notes will be deposited
with, or on behalf of, The Depository Trust Company, New York, New York ('DTC'),
and registered in the name of Cede & Co. as DTC's nominee in the form of a
global Note certificate (the 'Global Certificate') or will remain in the custody
of the Trustee pursuant to the FAST Balance Certificate Agreement between DTC
and the Trustee.
Notes originally purchased by or transferred to (i) institutional
'accredited investors' (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) who are not 'qualified institutional buyers' (as defined in Rule
144A under the Securities Act) ('QIBs'), (ii) except as described below, persons
outside the United States pursuant to sales in accordance with Regulation S
under the Securities Act or (iii) any other persons who are not QIBs
(collectively, 'Non-Global Purchasers') will be issued in registered form
without coupons (the 'Certificated Notes'). Upon the transfer to a QIB of
Certificated Notes initially issued to a Non-Global Purchaser, such Certificated
Notes will be exchanged for an interest in the Global Certificate or in the
Notes in the custody of the Trustee representing the principal amount at
maturity of Notes being transferred.
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EXCHANGE OFFER; REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement the Company will, at its
expense, for the benefit of the holders of the Notes, (i) use its best efforts
to file within 30 days after the Issue Date, a registration statement (the
'Exchange Offer Registration Statement') with the Commission with respect to a
registered offer to exchange the Old Notes for the Exchange Notes, which will
have terms identical in all material respects to the Old Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions) and
(ii) use its best efforts to cause the Exchange Offer Registration Statement to
be declared effective under the Securities Act within 90 days after the Issue
Date. The registration statement to which this Prospectus relates is the
Exchange Offer Registration Statement and was filed within the required period.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the Exchange Notes in exchange for surrender of the Old
Notes. The Company will keep the Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date notice of the Exchange
Offer is mailed to the holders of the Old Notes. For each Old Note surrendered
to the Company pursuant to the Exchange Offer, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. Under existing interpretations of the staff of the
Commission, the Exchange Notes would in general be freely transferable after the
Exchange Offer without further registration under the Securities Act; provided
that broker-dealers ('Participating Broker-Dealers') receiving Exchange Notes in
the Exchange Offer will have a prospectus delivery requirement with respect to
resales of such Exchange Notes. The Commission has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes (other than a resale of an unsold allotment
from the original sale of the Old Notes) with the prospectus contained in the
Exchange Offer Registration Statement. Under the Registration Rights Agreement,
the Company is required to allow Participating Broker-Dealers and other persons,
if any, with similar prospectus delivery requirements to use the prospectus
contained in the Exchange Offer Registration Statement in connection with the
resale of such Exchange Notes. For a period of at least 180 days after the
consummation of the Exchange Offer the Company will make available a prospectus
meeting the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any such Exchange Notes.
Each holder of Old Notes (other than certain specified holders) who wishes
to exchange such Old Notes for Exchange Notes in the Exchange Offer will be
required to make certain representations, including representations that any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business and that at the time of the commencement of the Exchange Offer it
has no arrangement with any person to participate in the distribution (within
the meaning of the Securities Act) of the Exchange Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer
and will indemnify the Initial Purchaser against certain liabilities, including
liabilities under the Securities Act.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 120 days of the Issue Date,
or if a holder of the Notes is not permitted to participate in the Exchange
Offer or does not receive freely tradeable Exchange Notes pursuant to the
Exchange Offer or, under certain circumstances, if the Initial Purchaser or the
holders of a majority in aggregate principal amount of Notes so request, the
Company will, at its cost (a) as promptly as practicable and, in any event,
within 30 days thereafter, file a shelf registration statement (the 'Shelf
Registration Statement') covering resales of the Notes, (b) use its best efforts
to cause the Shelf Registration Statement to be declared effective under the
Securities Act and (c) use its best efforts to keep effective the Shelf
Registration Statement for a period of three years after the Issue Date (or for
a period of one year after the Issue Date if such Shelf Registration Statement
is filed solely at the request of the Initial Purchaser). The Company will, in
the event a Shelf Registration Statement is declared effective, provide to each
holder of the Notes copies of the prospectus which is a part of the Shelf
Registration Statement, notify each such holder when the Shelf Registration
Statement has become effective and take certain other actions as are required to
permit unrestricted resales
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of the Notes. A holder of Notes that sells such Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification obligations).
If on or prior to 30 days following the Issue Date, an Exchange Offer
Registration Statement has not been filed with the Commission, additional
interest will accrue on the Notes from and including the 31st day following the
Issue Date until, but excluding, the date such registration statement is filed.
In addition, if on or prior to 90 days following the Issue Date, such Exchange
Offer Registration Statement is not declared effective, additional interest will
accrue on the Notes from and including the 91st day following the Issue Date
until, but excluding, the date such registration statement is declared
effective. Further, if on or prior to 120 days following the Issue Date the
Exchange Offer is not consummated, additional interest will accrue on the Notes
from and including the 121st day following the Issue Date until, but excluding,
the consummation of the Exchange Offer. If the law or applicable interpretations
of the Commission thereof prohibit a holder from participating in the Exchange
Offer or if such holder does not receive freely tradeable Exchange Notes
pursuant to the Exchange Offer or if for any reason the Exchange Offer is not
consummated within 120 days of the Issue Date, and if by 150 days after the
Issue Date a Shelf Registration Statement is not declared effective, additional
interest will accrue on the Notes not exchanged as a result of such law or
interpretation from and including the 151st day after the Issue Date, until the
effective date of the Shelf Registration Statement. In each case, additional
interest will be payable in cash semiannually in arrears, with the first
semiannual payment due on the first interest payment date in respect of the
Notes following the date from which additional interest begins to accrue, and
will accrue, under each circumstance set forth above at a rate per annum equal
to an additional one quarter of one percent (0.25%) of the principal amount of
the Notes upon the occurrence of each such circumstance, which rate will
increase by one quarter of one percent (0.25%) for each 90-day period that such
additional interest continues to accrue under any such circumstance, with an
aggregate maximum increase in the interest rate per annum equal to one percent
(1.00%).
If applicable, in the event that the Shelf Registration Statement ceases to
be effective prior to the third anniversary of the Issue Date (or the first
anniversary of the Issue Date if a Shelf Registration Statement was filed solely
at the request of the Initial Purchaser) for a period in excess of 15 days,
whether or not consecutive, in any given year, then, the interest rate borne by
the Notes shall increase by an additional one quarter of one percent (0.25%) per
annum on the 16th day in the applicable year such Shelf Registration Statement
ceases to be effective. Such interest rate will increase by an additional one
quarter of one percent (0.25%) per annum for each additional 90 days that such
Shelf Registration Statement is not effective, subject to the same aggregate
maximum increase in the interest rate per annum of one percent (1.00%) referred
to above. Upon the filing of the Exchange Offer Registration Statement, the
effectiveness of the Exchange Offer Registration Statement, or the consummation
of the Exchange Offer, as the case may be, the interest rate borne by the Notes
will be reduced by the full amount of any such increase to the extent that such
increase related to the failure of any such event to have occurred. Upon the
effectiveness of a Shelf Registration Statement, the interest rate borne by the
Notes shall be reduced to the original interest rate of the Notes unless and
until increased as described above.
Interest on each Exchange Note will accrue from July 19, 1995 or from the
most recent interest payment date to which interest was paid on the Note
surrendered in exchange therefor or on the Exchange Note, as the case may be.
The Exchange Notes will bear interest at 12 1/4% per annum, except that, if any
interest accrues on the Exchange Notes in respect of any period prior to their
issuance, such interest will accrue at the rate or rates borne by the Notes from
time to time during such period.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the
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Registration Rights Agreement, a copy of the form of which will be made
available to prospective purchasers of the Notes upon request to the Company.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. See 'The Exchange Offer' and 'Exchange
Offer; Registration Rights.'
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
'underwriter' within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an 'underwriter' within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay certain expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the Holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters regarding the Notes offered hereby will be passed
upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The financial statements of the Company as of December 31, 1994 and 1993
and for each of the three years in the period ended December 31, 1994 included
in this Prospectus have been audited by Price Waterhouse LLP, independent
certified public accountants, as stated in their report appearing herein (which
contains an explanatory paragraph relating to the Company's ability to continue
as a going concern and relating to the ultimate outcome of certain litigation,
as described in Note 18 to the financial statements).
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
'Commission') a Registration Statement on Form S-4 (together with all
amendments, exhibits, schedules and supplements thereto, the 'Registration
Statement') under the Securities Act with respect to the Exchange Notes offered
hereby. This Prospectus, which forms a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Exchange Notes offered hereby, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of certain documents
filed as exhibits to the Registration Statement are not necessarily complete,
and, in each instance, reference is made to the copy of the document so filed.
Each such statement is qualified in its entirety by such reference. The Company
is subject to the informational requirements of the Exchange Act, and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Registration Statement and such other
materials can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; and at the Commission's regional offices at Suite 1400, Northwestern
Atrium Center, 500 West Madison Street, Chicago, Illinois 60661-2511, and at the
13th Floor, 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained from the Commission at prescribed rates through
its Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549.
While any Notes remain outstanding, the Company will make available, upon
request, to any holder and any prospective purchaser of Notes the information
required pursuant to Rule 144A(d) (4) under the Securities Act during any period
in which the Company is not subject to Section 13 or 15(d) of the Exchange Act.
Any such request should be directed to the Chief Financial Officer, Peoples
Telephone Company, Inc., 2300 N.W. 89th Place, Miami, Florida 33172, (305)
593-9667.
The Indenture provides that the Company will furnish copies of the periodic
reports required to be filed with the Commission under the Exchange Act to the
holders of the Notes. If the Company is not subject to the periodic reporting
and informational requirements of the Exchange Act, it will, to the extent such
filings are accepted by the Commission, and whether or not the Company has a
class of securities registered under the Exchange Act, file with the Commission,
and provide the Trustee and the holders of the Notes within 15 days after such
filings with, annual reports containing the information required to be contained
in Form 10-K promulgated under the Exchange Act, quarterly reports containing
the information required to be contained in Form 10-Q promulgated under the
Exchange Act, and from time to time such other information as is required to be
contained in Form 8-K promulgated under the Exchange Act. If filing such reports
with the Commission is not accepted by the Commission or prohibited by the
Exchange Act, the Company will also provide copies of such reports, at its cost,
to prospective purchasers of the Notes promptly upon written request.
113
<PAGE>
GLOSSARY
Billed Party Preference is a plan that would automatically route long
distance non-coin calls at the pay telephone to the 'billed party's' preferred
carrier, thereby bypassing the opportunity for the pre-subscribed carrier of the
public pay telephone provider to handle and receive revenues from the call.
Dial Around Compensation is compensation paid to competitive public pay
telephone providers for the use of public pay telephones to access operator
service providers or interexchange carriers other than the primary operator
service providers selected by the owner of the public pay telephone. The FCC
ruled on May 8, 1992 that competitive public pay telephone providers would
receive $6.00 per telephone/per month as compensation for interstate dial around
calls. This flat rate system was made effective in June 1992. The per
telephone/per month system will remain in effect until replaced by a per call
compensation system, now under development. Recently AT&T has agreed to begin
providing its share of dial around compensation through a $.25 per call flat
rate payment in lieu of AT&T's portion of the flat monthly rate payment amounts.
This handling was approved by the FCC, effective January 1, 1995. The same
treatment will be applied for AT&T at the intrastate level, once any necessary
state approvals are obtained. Sprint has recently received FCC approval to begin
paying its dial around compensation on a flat rate basis of $0.25 per call in
lieu of its share of the $6.00 flat rate, effective July 1, 1995.
FCC is the Federal Communications Commission, which regulates the
interstate common carriage of telecommunications.
Interexchange carrier is a telecommunications provider of transmission
services between exchanges, typically referred to as long-distance or toll
telephone service.
InterLATA calls are calls between local access and transport areas
('LATAs').
IntraLATA calls are calls originated and terminated in the same LATA.
LEC is a local exchange carrier, which is a company providing local
telephone services.
Non-coin calls are calling card, credit card, collect and third party
billed calls, not paid for with coinage at the pay telephone.
Operator service provider is a company providing automatic and/or live
operator service related to long distance calls.
Property Owners are the owners of (i) the locations, such as convenience
stores, service stations, grocery stores, hospitals, hotels, shopping centers,
truck stops and airports, at which public pay telephones are installed; (ii)
correctional facilities at which telephones are located; and (iii) car rental
companies at which cellular telephones are rented.
Public Switched Network is the traditional telephone network, including
local, intraLATA and interLATA facilities used to carry, switch and connect
telephone calls between the calling and called parties.
RBOCs are the seven Regional Bell Operating Companies, which were formed as
a result of the AT&T divestiture.
114
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1994:
Report of Independent Certified Public Accountants.......................................................... F-2
Consolidated Balance Sheets as of December 31, 1993 and 1994 (Restated)..................................... F-3
Consolidated Statements of Operations
for the years ended December 31, 1992, 1993 and 1994 (Restated)........................................... F-4
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1992, 1993 and 1994 (Restated)........................................... F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1992, 1993 and 1994 (Restated)........................................... F-6
Notes to Consolidated Financial Statements (Restated)....................................................... F-8
CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 1995 (UNAUDITED):
Consolidated Balance Sheets
as of December 31, 1994 and March 31, 1995 (Restated)..................................................... F-26
Consolidated Statements of Operations
for the First Quarters ended March 31, 1994 and 1995 (Restated)........................................... F-27
Consolidated Statements of Cash Flows
for the First Quarters ended March 31, 1994 and 1995 (Restated)........................................... F-28
Notes to Consolidated Financial Statements (Restated)....................................................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Peoples Telephone Company, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Peoples Telephone Company, Inc. and its subsidiaries at December 31,
1994 and 1993, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As more fully described in Note 18 to
the accompanying financial statements, the Company's failure to make an April
1995 payment due on a promissory note and the restatement of the Company's first
quarter 1994 financial statements on Form 10-Q has caused a default under the
Company's $100 million revolving line of credit and under the Company's mortgage
note agreement. The Company obtained from the lenders a waiver of default
related to its first quarter 1994 restatement and subject to certain conditions
being met by the Company by June 30, 1995, obtained a waiver of default arising
from its failure to make the April 1995 payment on a promissory note. With
respect to its mortgage note agreement, the Company obtained a waiver subject to
the condition that on or before the earlier of one day after the closing of the
Senior Note offering or August 31, 1995, the mortgage note and all other
obligations owed the mortgage lender be paid in full. In the event the
conditions are not satisfied by their prescribed dates, the waivers would be
withdrawn, an event of default under the revolving line of credit and the
mortgage note agreement would exist and the lenders would have the right to call
the loans. Also, should the Company satisfy the aforementioned conditions by the
prescribed dates, the Company's remaining balance of its revolving line of
credit is due in full on May 31, 1996. The Company is in the process of offering
under an exemption from the registration requirements of the Securities Act of
1933, $85 million of Senior Notes due 2002; the proceeds of which, if such
offering is successful, together with a proposed $40 million credit agreement,
will be used to repay the outstanding balance of the existing line of credit,
promissory notes and the mortgage note. As a result, a substantial doubt arises
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 14 and in Note 18 to the accompanying financial
statements, a complaint has been filed against the Company and certain officers.
Such complaint, filed May 25, 1994 and amended May 26, 1995, alleges violation
of certain federal securities laws through the issuance of false and misleading
statements regarding a failed merger. The complaint seeks class action
certification as well as compensatory damages. In addition, the aforementioned
promissory note holder has asserted certain other claims against the Company. At
the present time, the litigation matters are in the preliminary stages and
management, on the advice of legal counsel, is presently unable to predict the
ultimate outcome of the litigation. Accordingly, no provision for any liability
that may result upon adjudication has been made in the accompanying financial
statements.
PRICE WATERHOUSE LLP
Miami, Florida
March 28, 1995, except as to the second paragraph of Note 17 and
as to Note 18, which are as of May 31, 1995.
F-2
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED BALANCE SHEET (RESTATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1993 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........................................................... $ 4,529 $ 7,663
Accounts receivable, net of allowance for doubtful accounts
of $2,115 and $6,035............................................................. 19,082 17,682
Inventory........................................................................... 1,955 2,981
Prepaid expenses and other current assets........................................... 3,878 3,276
Net assets of prepaid calling card and international telephone centers held for
sale........................................................................... -- 2,595
Net assets of discontinued operations............................................... -- 25,780
-------- --------
Total current assets............................................................. 29,444 59,977
Property and equipment, net........................................................... 89,703 76,379
Location contracts, net............................................................... 27,611 31,877
Goodwill, net......................................................................... 12,308 6,221
Intangible assets, net................................................................ 6,144 2,802
Other assets, net..................................................................... 8,132 11,882
Deferred income taxes................................................................. -- 1,453
-------- --------
Total assets..................................................................... $173,342 $190,591
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current maturities of long-term debt.............................. $ 2,876 $ 14,286
Current portion of obligations under capital leases................................. 1,644 2,738
Accounts payable and accrued expenses............................................... 22,831 21,942
Accrued interest payable............................................................ 533 1,061
Deferred revenue.................................................................... -- 857
Income and other taxes payable...................................................... 887 2,691
-------- --------
Total current liabilities........................................................ 28,771 43,575
Notes payable and long-term debt...................................................... 73,995 94,390
Obligations under capital leases...................................................... 1,267 3,911
Deferred income taxes................................................................. 3,701 --
-------- --------
Total liabilities................................................................ 107,734 141,876
-------- --------
Minority interest..................................................................... 275 --
Commitments and contingencies (Note 14)............................................... -- --
Shareholders' equity.................................................................. -- --
Preferred stock; $.01 par value; 4,300 shares authorized;
none issued and outstanding...................................................... -- --
Convertible preferred stock; Series A, $.01 par value;
100 shares authorized; none issued and outstanding............................... -- --
Convertible preferred stock; Series B, $.01 par value;
600 shares authorized; none issued and outstanding............................... -- --
Common stock; $.01 par value; 25,000 shares authorized;
15,516 and 15,789 shares issued and outstanding.................................. 155 158
Capital in excess of par value...................................................... 56,371 58,143
Retained earnings (accumulated deficit)............................................. 8,807 (9,586)
-------- --------
Total shareholders' equity....................................................... 65,333 48,715
-------- --------
Total liabilities and shareholders' equity....................................... $173,342 $190,591
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------- ------- --------
<S> <C> <C> <C>
Revenues
Coin calls................................................................... $44,203 $56,604 $ 79,392
Non-coin calls............................................................... 26,828 22,245 33,054
Service and other............................................................ 452 552 1,675
------- ------- --------
Total revenues............................................................ 71,483 79,401 114,121
------- ------- --------
Costs and expenses
Telephone charges............................................................ 22,160 18,398 41,264
Commissions.................................................................. 14,868 17,584 23,565
Field service and collection................................................. 9,818 11,994 18,608
Depreciation and amortization................................................ 9,900 12,958 19,185
Selling, general and administrative.......................................... 7,188 7,368 13,043
Interest..................................................................... 2,630 2,504 5,312
Loss from operations of prepaid calling card and international telephone
centers................................................................. -- 1,730 1,816
Loss on disposal of prepaid calling card and international
telephone centers......................................................... -- -- 3,690
------- ------- --------
Total costs and expenses.................................................. 66,564 72,536 126,483
------- ------- --------
Income (loss) from continuing operations before taxes.......................... 4,919 6,865 (12,362)
(Provision for) benefit from income taxes...................................... (1,774) (2,586) 4,722
------- ------- --------
Income (loss) from continuing operations....................................... 3,145 4,279 (7,640)
------- ------- --------
Discontinued operations
Income (loss) from operations, net of tax (provision) benefit of $(57),
$(445), and $1,976...................................................... 109 1,063 (3,433)
Loss on disposition, net of tax provision of $1,885.......................... -- -- (7,320)
------- ------- --------
Income (loss) from discontinued operations................................... 109 1,063 (10,753)
------- ------- --------
Net income (loss)......................................................... $ 3,254 $ 5,342 $(18,393)
------- ------- --------
------- ------- --------
Primary earnings per share
Income (loss) from continuing operations..................................... $ .27 $ .30 $ (.49)
Income (loss) from discontinued operations................................... .01 .07 (.68)
------- ------- --------
Net income (loss)......................................................... $ .28 $ .37 $ (1.17)
------- ------- --------
------- ------- --------
Fully diluted earnings per share
Income (loss) from continuing operations..................................... $ .27 $ .30 $ (.49)
Income (loss) from discontinued operations................................... .01 .07 (.68)
------- ------- --------
Net income (loss)......................................................... $ .28 $ .37 $ (1.17)
------- ------- --------
------- ------- --------
Weighted average common and common equivalent
shares outstanding........................................................... 11,633 14,479 15,713
------- ------- --------
------- ------- --------
Weighted average common shares outstanding
assuming full dilution....................................................... 11,686 14,517 15,713
------- ------- --------
------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (RESTATED)
FOR THE PERIOD FROM JANUARY 1, 1992 THROUGH DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
RETAINED
CAPITAL EARNINGS
PREFERRED COMMON IN EXCESS (ACCUMULATED
STOCK STOCK OF PAR VALUE DEFICIT) TOTAL
--------- ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1992................................. $ 1 $ 77 $ 11,961 $ 301 $ 12,340
Exercise of 782 warrants at $3.17-$4.67 per share.......... -- 8 3,191 -- 3,199
Exercise of 1,025 options at $1.33-$3.59 per share......... -- 10 2,323 -- 2,333
Issuance of 1,064 shares of common stock
for acquisitions......................................... -- 11 6,591 -- 6,602
Conversion of 20 shares of Series A preferred stock (1) 5 (4) -- --
Issuance costs in connection with acquisitions............. -- -- (34) -- (34)
Preferred stock dividends.................................. -- -- -- (90) (90)
Net income for the year.................................... -- -- -- 3,254 3,254
--------- ------- ------------ ------------ --------
Balance at December 31, 1992............................... $ -- $ 111 $ 24,028 $ 3,465 $ 27,604
--------- ------- ------------ ------------ --------
--------- ------- ------------ ------------ --------
Exercise of 540 warrants at $3.17-$4.67 per share.......... -- 5 1,721 -- 1,726
Exercise of 1,754 options at $2.00-$8.00 per share......... -- 18 6,245 -- 6,263
Issuance of 621 shares of common stock
for acquisitions......................................... -- 6 7,084 -- 7,090
Issuance of 1,500 shares of common stock in
public offering.......................................... -- 15 13,985 -- 14,000
Issuance costs associated with public offering of common
stock.................................................... -- -- (1,160) -- (1,160)
Tax adjustment related to exercising options............... -- -- 4,468 -- 4,468
Net income for the year.................................... -- -- -- 5,342 5,342
--------- ------- ------------ ------------ --------
Balance at December 31, 1993............................... $ -- $ 155 $ 56,371 $ 8,807 $ 65,333
--------- ------- ------------ ------------ --------
--------- ------- ------------ ------------ --------
Exercise of 150 warrants at $3.17 per share................ -- 2 473 -- 475
Exercise of 177 options at $2.67-$7.83 per share........... -- 2 829 -- 831
Cancellation of 54 shares relating to
prior acquisitions....................................... -- (1) (499) -- (500)
Tax adjustment related to exercising options............... -- -- 255 -- 255
Adjustment for issuance of warrants to a bank.............. -- -- 2,520 -- 2,520
Officer and director notes receivable...................... -- -- (1,806) -- (1,806)
Net loss for the year...................................... -- -- -- (18,393) (18,393)
--------- ------- ------------ ------------ --------
Balance at December 31, 1994............................... $ -- $ 158 $ 58,143 $ (9,586) $ 48,715
--------- ------- ------------ ------------ --------
--------- ------- ------------ ------------ --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................................................... $ 3,254 $ 5,342 $(18,393)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities
Depreciation and amortization........................................... 9,900 12,958 19,185
Deferred income taxes................................................... 1,625 3,192 (3,094)
Loss on disposition of assets........................................... -- -- 7,320
Gain on sale of assets.................................................. -- -- (2,426)
Changes in assets and liabilities, excluding the
effect of acquisitions
(Increase) decrease in accounts receivable............................ (3,206) (10,515) 1,400
Increase in inventory................................................. (735) (213) (110)
Increase in prepaid expenses and other current assets................. (62) (3,240) (97)
Increase in other assets.............................................. (852) (3,502) (4,015)
Increase (decrease) in accounts payable and accrued expenses.......... 2,033 12,691 (2,780)
Decrease in other payables............................................ (1,005) (288) --
Decrease in estimated refund due operator
service provider................................................... (653) -- --
Increase in accrued interest payable.................................. 91 333 528
Increase in deferred revenue.......................................... -- -- 824
Increase in income taxes payable...................................... 381 67 1,995
Increase (decrease) in other long term liabilities.................... 195 (194) --
Increase (decrease) in minority interest.............................. -- 275 (275)
Net effect of discontinued operations and assets held for sale........ 219 3,151 (2,234)
-------- -------- --------
Net cash provided by (used in) operating activities................ 11,185 20,057 (2,172)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment additions........................................... (9,677) (24,119) (9,590)
Proceeds from property and equipment sales................................. -- -- 3,050
Payments for acquisitions and certain contracts............................ (15,854) (46,653) (16,271)
Contributions to joint ventures............................................ -- (2,701) (211)
-------- -------- --------
Net cash used in investing activities.............................. (25,531) (73,473) (23,022)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under long-term debt............................................ 10,500 49,360 31,252
Principal payments on long-term debt....................................... -- (11,761) (116)
Principal payments under capital lease obligations......................... (1,306) (2,761) (2,308)
Debt issuance costs........................................................ -- (643) --
Dividends paid on preferred stock.......................................... (90) -- --
Exercise of stock options.................................................. 2,333 6,263 831
Exercise of warrants....................................................... 3,199 1,727 475
Officer and director notes receivable...................................... -- -- (1,806)
Proceeds from stock offering............................................... -- 14,000 --
Issuance costs associated with public offering of common stock............. -- (1,160) --
-------- -------- --------
Net cash provided by financing activities.......................... 14,636 55,025 28,328
-------- -------- --------
Net increase in cash and cash equivalents.................................... 290 1,609 3,134
Cash and cash equivalents at beginning of year............................... 2,630 2,920 4,529
-------- -------- --------
Cash and cash equivalents at end of year..................................... $ 2,920 $ 4,529 $ 7,663
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)--(CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................................ $ 2,731 $ 2,711 $ 4,784
-------- -------- --------
-------- -------- --------
Income taxes............................................................ $ 70 $ 490 $ 201
-------- -------- --------
-------- -------- --------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1992, the Company purchased all of the stock of three corporations
for a combination of cash and the Company's common stock. During 1993 and 1994,
the Company purchased certain net assets of several corporations for a
combination of cash, the Company's common stock and the issuance of notes
payable. A summary of these acquisitions is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Fair value of net assets acquired........................................ $ 17,984 $ 60,631 $ 22,882
Fair value of common stock issued and issuable........................ (6,601) (7,090) (1,096)
Principal amount of note payables issued and other liabilities -- (7,868) (6,687)
-------- -------- --------
Net amount paid....................................................... $ 11,383 $ 45,673 $ 15,099
-------- -------- --------
-------- -------- --------
</TABLE>
During 1992, 13,210 shares of Series A convertible preferred stock were
converted to common stock.
During the three years ended December 31, 1992, 1993 and 1994, the Company
acquired fixed assets of $1,834,000, $1,211,000 and $2,456,000, respectively, by
incurring capital lease obligations for the same amounts.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
NOTE 1--GENERAL
Description of business
Peoples Telephone Company, Inc. (the 'Company') owns, operates and
maintains public pay telephone systems, connected to the network of regulated
telephone companies, throughout the United States, at various third party
property owner locations. In connection with the pay telephone systems, the
Company also derives revenue from routing calls to operator service companies
through its own automated operator system installed in its telephones and
through its own dedicated network facilities.
Discontinued operations
In December 1994, in an effort to return the Company's focus to its core
public pay telephone business, the Company's Board of Directors approved the
divestiture of its inmate telephone and cellular telephone operations (see Note
16).
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated. The Global Link equity interest
will be accounted for under the equity method of accounting subsequent to the
divestiture date. Accordingly, the 1994 results of operations have been
segregated and are reported as a separate component of income from continuing
operations (see Note 15). The planned divestiture of the Company's inmate
telephone and cellular telephone operations has been accounted for as
discontinued operations. Accordingly, operating results and cash flows for these
businesses have been segregated and reported as discontinued operations in the
accompanying consolidated statements of operations and cash flows (see Note 16).
Acquisitions and joint ventures
During 1992, the Company acquired all of the outstanding shares and certain
assets of various corporations with operations similar to the Company for a
total of $12.9 million in cash and the Company's common stock.
During 1993, the Company acquired certain net assets of several
corporations with operations similar to the Company for a total of $60.6 million
in cash, common stock and notes payable. The most significant acquisition during
1993 was the purchase of substantially all assets of Ascom Communications, Inc.
('ACI') in November 1993 for $40 million which consisted of $28 million funded
by the Company's credit facilities, two promissory notes totalling $6 million
and $6 million of the Company's stock (see Note 6 for the terms of the notes).
The ACI acquisition added 11,600 public pay telephones and included dedicated
switched network facilities installed in five states.
During March 1994, the Company acquired certain assets of Emro Marketing
Company for a purchase price of $1.7 million in cash. The assets acquired
included approximately 1,045 pay telephones.
During June 1994, the Company acquired certain assets of the Atlantic Telco
Joint Venture for approximately $11.5 million in cash. The Atlantic Telco Joint
Venture owned and operated approximately
F-8
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 1--GENERAL--(CONTINUED)
3,300 pay telephones and related location contracts. These phones are located
primarily in Maryland and Virginia.
During July 1994, the Company acquired certain assets of Telecorp Funding,
Inc. for approximately $1.9 million in cash and the Company's common stock. The
assets acquired included approximately 600 public pay phones and related
location contracts located primarily in New York City.
During October 1994, the Company acquired Telecoin Communications, Ltd. for
approximately $7.3 million in cash, assumption of liabilities and issuance of
the Company's common stock. The assets acquired included approximately 2,155 pay
telephones and their related location contracts. These phones are located
primarily in Ohio and Pennsylvania.
All 1992, 1993 and 1994 acquisitions were accounted for as purchases.
The following unaudited consolidated pro forma combined condensed
statements of operations for the years ended December 31, 1993 and 1994 has been
prepared to reflect 1994 acquisitions by the Company, as if they were
consummated as of January 1, 1993, after giving effect to certain pro forma
adjustments as described below (in thousands, except per share data).
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1993 1994
------- --------
<S> <C> <C>
Total revenue.............................................................. $98,560 $125,853
------- --------
------- --------
Net income (loss) from continuing operations............................... $ 4,785 $ (7,906)
------- --------
------- --------
Earnings (loss) per common and common equivalent share
Primary.................................................................. $ .33 $ (.50)
------- --------
------- --------
Fully diluted............................................................ $ .33 $ (.50)
------- --------
------- --------
</TABLE>
Pro forma adjustments reflect depreciation of fixed assets and amortization
of intangible assets acquired, accrual of interest expense on the cash paid for
the purchase and accrual for income taxes.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recognition of revenue
Revenues are recognized when earned. Coin call and non-coin call (alternate
operator service and store and forward) revenues are recognized at the time the
call is made. Revenue from service contracts is recognized on a straight-line
basis over the term of the contract.
Cash and cash equivalents
The Company defines cash and cash equivalents as those highly liquid
investments purchased with an original maturity of three months or less.
F-9
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Property and equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets
commencing when the equipment is installed or placed in service. Installed
telephones and related equipment includes installation and other costs which are
capitalized and amortized over the estimated useful life of the equipment. The
costs associated with maintenance, repairs and refurbishment of telephone
equipment are charged to expense as incurred.
Effective October 1, 1993, the Company revised its depreciation policy to
recognize an extended estimated service life on its pay telephones from 7 to 10
years. The change in pay telephone depreciation reduced depreciation expense and
increased net income by approximately $470,000 and $3,766,000, or $.03 and $.24
per common share, for the years ended December 31, 1993 and 1994, respectively.
The capitalized cost of equipment and vehicles under capital leases is
amortized over the lesser of the lease term or the asset's estimated useful
life, and included with depreciation expense in the statement of income.
Inventories
Inventories, which consist primarily of replacement parts, are carried at
the lower of cost or market, with cost being determined on the first-in,
first-out basis.
Intangible assets
Location contracts and intangible assets primarily result from business
combinations and include acquisition costs allocated to location owner
contracts, agreements not to compete, and other identifiable intangible assets.
These assets are being amortized on a straight-line basis over the estimated
life, assuming, in some instances, renewal of the underlying contracts (3 to 10
years). Accumulated amortization at December 31, 1992, 1993 and 1994 was
approximately $2,831,000, $5,505,000 and $8,486,000, respectively.
Goodwill primarily arising from acquisitions is being amortized on a
straight-line basis over periods to be benefitted, or 20 years, whichever is
less. Accumulated amortization at December 31, 1992, 1993 and 1994 was
approximately $260,000, $551,000 and $820,000, respectively.
The carrying value of intangible assets is periodically reviewed by the
Company and impairments, if any, are recognized when the expected future
undiscounted cash flows derived from such intangible assets are less than their
carrying value.
Investments
Investments in which the Company has an ownership interest of at least 20
percent but not more than 50 percent are accounted for under the equity method.
Investments of less than 20 percent are generally recorded at cost.
F-10
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Income taxes
Effective January 1, 1991, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income
Taxes. Deferred income taxes are recognized for temporary differences between
the tax and financial reporting bases of the Company's assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
Earnings per share
Primary per share amounts are computed based upon the weighted average
number of common and common equivalent shares outstanding, assuming proceeds
from the assumed exercise of options were used to purchase common shares
outstanding at the average market price during the period, unless such exercise
is antidilutive. Fully diluted earnings per share assumes that the proceeds were
used to purchase common shares outstanding at the higher of market value per
share at the end of each period or the average market value during the period,
unless such exercise is antidilutive (see Note 11).
Reclassification
Certain amounts for the prior years have been reclassified to conform with
the current year presentation.
NOTE 3--ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1993 and 1994 consist primarily of
amounts due from a billing and collection clearinghouse for non-coin calls
placed through the Company's public pay telephones, and to a lesser extent,
commissions from various operator service companies who have been selected to
handle non-coin calls not placed through the Company's automated operator
system. Pursuant to the Company's agreement with the billing and collection
clearinghouse, the collections from LECs are deposited into a trust account and
then distributed directly to the Company. The balance due from one billing and
collection clearinghouse was approximately $623,000 and $4,027,000 at December
31, 1993 and 1994, respectively.
Included in the December 31, 1993 and 1994 accounts receivable balance is
approximately $1,712,000 and $980,000, respectively, of net receivables relating
to the Company's refund claims for overpayment of excise taxes from the Internal
Revenue Service and certain state sales and use taxes from various local
exchange carriers. These refund claims have been reflected as a reduction of
telephone charges in the accompanying consolidated statements of income and were
recorded throughout 1993 as the refund claims were finalized.
The December 31, 1994 allowance for doubtful accounts includes
approximately $1.6 million representing additional receivables reserves related
to vendor disputes.
F-11
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
-------------------- USEFUL LIVES
1993 1994 (IN YEARS)
-------- -------- ------------
<S> <C> <C> <C>
Installed telephones and related equipment, including $659 and
$3,518 under capital leases.................................... $100,916 $ 93,769 10
Telephones and related equipment pending installation............ 7,337 7,388
Land............................................................. 950 950
Building and improvements........................................ 3,667 4,252 25
Furniture, fixtures and office equipment......................... 5,523 5,699 5-7
Vehicles under capital leases.................................... 3,512 4,902 4
Other............................................................ 1,286 1,178 5
-------- --------
123,191 118,138
Less accumulated depreciation and amortization, including $723
and $1,204 for capital leases.................................. (33,488) (41,759)
-------- --------
$ 89,703 $ 76,379
-------- --------
-------- --------
</TABLE>
The majority of the Company's installed telephones are security for
long-term bank debt (see Note 6).
The Company has entered into various noncancellable leases which are
classified as capital leases. Future minimum lease payments under the
capitalized lease obligations, including imputed interest, are as follows (in
thousands):
<TABLE>
<CAPTION>
INSTALLED
FOR THE YEAR ENDING TELEPHONES AND
DECEMBER 31, EQUIPMENT VEHICLES TOTAL
- ----------------------------------------------------------------- -------------- -------- -------
<S> <C> <C> <C>
1995............................................................. $ 1,381 $ 1,645 $ 3,026
1996............................................................. 1,021 1,227 2,248
1997............................................................. 841 652 1,493
1998............................................................. 734 86 820
1999............................................................. 36 -- 36
-------------- -------- -------
4,013 3,610 7,623
Less amount representing imputed interest........................ (495) (479) (974)
-------------- -------- -------
Present value of obligations under capital leases................ 3,518 3,131 6,649
Less current portion............................................. (1,380) (1,358) (2,738)
-------------- -------- -------
$ 2,138 $ 1,773 $ 3,911
-------------- -------- -------
-------------- -------- -------
</TABLE>
F-12
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 5--ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------- -------
<S> <C> <C>
Telecommunication charges........................................................ $ 6,185 $ 8,569
Commissions...................................................................... 3,343 3,272
Telephone equipment purchased.................................................... 4,792 254
Due on acquisitions.............................................................. 1,831 3,077
Other............................................................................ 6,680 6,770
------- -------
$22,831 $21,942
------- -------
------- -------
</TABLE>
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1993 1994
------- --------
<S> <C> <C>
$125 million revolving line of credit ($70 million as of December 31, 1993) with
interest rates ranging from the Bank's prime rate plus 1 1/4% to LIBOR plus
2 1/2%. At December 31, 1994, the Bank's prime rate was 8.5% and the LIBOR
rate ranged from 6.125% to 7%. See maturity dates below....................... $67,500 $100,240
Five-year promissory note to Ascom Communications, Inc. with interest rate at 7%
and entire principal due at maturity November 1998............................ 4,000 4,000
Mortgage note payable with interest rate at 7.38% and amortization over 15
years, due in March 1998...................................................... 2,599 2,513
One year promissory note to Ascom Communications, Inc. with interest rate at 5%
and principal due in installments in April 1995 and in June 1995.............. 2,000 1,232
Various notes payable acquired through the acquisition of Telecoin
Communications, Ltd. with interest rates ranging from prime plus 1.25% to
prime plus 1.5% and maturity dates ranging from due on demand to June 1996.... -- 669
Other........................................................................... 772 22
------- --------
76,871 108,676
Less current maturities......................................................... (2,876) (14,286)
------- --------
$73,995 $ 94,390
------- --------
------- --------
</TABLE>
Effective February 17, 1994, the Company amended and restated its loan
agreement with the Bank (the 'Third Amended Loan Agreement'). Under the terms of
the Third Amended Loan Agreement, the $30 million revolving line of credit was
increased to $125 million and the previous $30 million and $10 million
F-13
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 6--NOTES PAYABLE AND LONG-TERM DEBT--(CONTINUED)
term loans were eliminated. All outstanding principal balances are due in full
on February 17, 1998 and interest is payable monthly for loans based on the
prime rate and quarterly for loans based on the LIBOR rate. A commitment fee of
3/8 of 1% is charged on the aggregate average daily amount not outstanding
under this agreement. The Third Amended Loan Agreement is secured by
substantially all of the Company's assets (see Notes 4 and 7).
The Third Amended Loan Agreement contains certain restrictive covenants
which, among other things, require the Company to maintain certain net worth and
cash flow levels and places certain restrictions on the payments of dividends.
At December 31, 1994, the Company was not in compliance with certain covenants
contained in its loan agreement. On March 22, 1995, the Company amended certain
terms contained in the Third Amended Loan Agreement (the 'Amendment'). In
connection with the Amendment, the Bank agreed to waive the Company's
non-compliance with certain covenants for the three month period ended December
31, 1994. Under the terms of the Amendment, the $125 million revolving line of
credit was reduced to $100 million, with monthly principal reductions of $1.5
million commencing on May 1, 1995 and all outstanding principal balances due in
full on May 31, 1996. The new facility bears interest at the Bank's prime rate
plus 2% beginning April 1, 1995 and reduces certain restrictive covenants for
1995 which, among other things, require the Company to maintain certain net
worth and cash flow levels and places certain restrictions on the payment of
dividends (see Note 18).
In March 1993, the Company purchased land and an office building which
became the principal offices of the Company. The purchase was financed with a
bank in the principal amount of $2.7 million. Principal and interest payments
are based on a 15 year amortization schedule, are payable monthly with a balloon
payment due March 1998 and bear interest at a rate of 7.38%.
Future maturities under the terms of the notes, based on amounts
outstanding as of December 31, 1994, are as follows (in thousands):
1995........................................................ $ 14,286
1996........................................................ 88,125
1997........................................................ 135
1998........................................................ 6,130
--------
$108,676
--------
--------
NOTE 7--SHAREHOLDERS' EQUITY
In 1990, 1992, 1993 and 1994 under the terms of the Company's loan
agreement, as amended, the Company granted its lender warrants to purchase
900,000, 150,000, 300,000 and 250,000 shares of common or preferred stock,
respectively. The exercise price of these shares is $3.17, $8.00, $9.33 and
$9.00 per share, respectively. The Company's lender exercised its right to
purchase 300,000, 450,000 and 150,000 shares of common stock at $3.17 per share
during 1992, 1993 and 1994, respectively. All warrants expire in the year 2000.
On August 31, 1993, the Company effected a 3 for 2 stock split effective
September 27, 1993. The consolidated financial statements and related financial
information have been retroactively adjusted to reflect the 3 for 2 split.
F-14
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 7--SHAREHOLDERS' EQUITY--(CONTINUED)
In August 1993, the Company completed the sale of 1,500,000 shares of its
common stock in a registered private placement. After the deduction of the
underwriting discount and other expenses of the private placement, the net
proceeds to the Company were $12.8 million.
The Company's preferred stock may be issued from time to time at the
discretion of the Board of Directors without shareholder approval. The Board of
Directors is authorized to issue these shares in different series and, with
respect to each series, to determine the dividend rate, provisions regarding
redemption, conversion, liquidation preference and other rights and privileges.
In August 1988, the Company sold 90,000 shares of its previously authorized
common stock. The sale consisted of 45,000 units at a price of $7.00 per unit.
Each unit consisted of two shares of common stock together with one warrant to
purchase a share of common stock at $4.33 and a share of common stock at $4.66.
The warrants were exercised during 1993.
NOTE 8--STOCK OPTION PLANS
The Company maintains three non-qualified stock option plans covering
primarily employees and directors. Options under the three plans are issuable at
the discretion of committees appointed by the Board of Directors. Certain
options under the plans vest at rates of 10% and 33% per year from the date of
issuance and may expire 30 days after the termination or resignation of the
employee or director.
Under the terms of the plans, the exercise price for options granted is
required to be at least the fair market value of the Company's common stock on
the date of grant.
The following summarizes pertinent information covering stock options
issued pursuant to the Company's stock option plans (in thousands, except per
share data):
<TABLE>
<CAPTION>
NUMBER OF SHARES
-------------------------------------------
1992 1993 1994
----------- ------------ ------------
<S> <C> <C> <C>
Outstanding, beginning of year........................ 3,136 2,797 1,803
Granted............................................... 697 776 1,198
Exercised............................................. (1,025) (1,754) (177)
Cancelled............................................. (11) (16) (30)
----------- ------------ ------------
Outstanding, end of year.............................. 2,797 1,803 2,794
----------- ------------ ------------
----------- ------------ ------------
Exercisable, end of the year.......................... 2,418 1,425 1,975
----------- ------------ ------------
----------- ------------ ------------
Option price per share of outstanding shares.......... $1.33-$6.00 $1.33-$11.38 $1.33-$11.38
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
F-15
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 9--EMPLOYEE SAVINGS PLAN
During November 1990, the Company established a savings plan under the
provisions of section 401(k) of the Internal Revenue Code (the 'Plan'), which
covers substantially all employees. The Company's contributions to the Plan are
discretionary. Employees participating in the Plan vest in amounts contributed
by the Company over a period of 7 years. The Company matches 25% of employee
contributions to a maximum of 6% of employee earnings each plan year. The
Company's contributions totalled approximately $50,000, $54,000 and $103,000 for
the years ended December 31, 1992, 1993 and 1994, respectively.
NOTE 10--INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1992, 1993 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Currently payable:
Federal............................................... $ 543 $ (230) $ --
State................................................. 97 86 63
Deferred................................................ 1,134 2,730 (4,785)
------ ------ -------
$1,774 $2,586 $(4,722)
------ ------ -------
------ ------ -------
</TABLE>
A tax benefit of $4.75 million and $680,000 attributable to the exercise of
employee stock options was credited to shareholders' equity during 1993 and
1994, respectively.
A reconciliation between the tax rates and tax at statutory rates for the
years ended December 31, 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------
1992 1993 1994
---- ---- -----
<S> <C> <C> <C>
Statutory tax rate......................................... 34.0% 35.0% (34.0)%
Non-deductible expenses.................................... -- 1.3 (2.7)
State taxes and other, net................................. 2.1 1.4 (1.5)
---- ---- -----
36.1% 37.7% (38.2)%
---- ---- -----
---- ---- -----
</TABLE>
F-16
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 10--INCOME TAXES--(CONTINUED)
The significant temporary differences included in the deferred tax asset
(liability) as of December 31, 1993 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
------- -------
<S> <C> <C>
Net operating loss carryforward.................................................. $ 5,801 $11,166
Alternative Minimum Tax Credit carryforward...................................... 218 218
Other............................................................................ 872 972
------- -------
Total deferred tax asset......................................................... 6,891 12,356
------- -------
Difference between book and tax bases of fixed assets............................ 9,145 9,738
Other............................................................................ 1,447 1,165
------- -------
Total deferred tax liability..................................................... 10,592 10,903
------- -------
Net deferred tax asset (liability)............................................... $(3,701) $ 1,453
------- -------
------- -------
</TABLE>
At December 31, 1994, the Company has tax net operating loss carryforwards
of approximately $35 million, which expire in various amounts in the years 2002
to 2009. Approximately $3.2 million of these net operating loss carryforwards
relate to business acquisitions for which annual utilization will be limited to
approximately $330,000, with further limitation if future ownership changes
occur. In addition, these loss carryforwards can only be utilized against future
taxable income, if any, generated by acquired companies as if these companies
continued to file separate income tax returns.
NOTE 11--EARNINGS PER SHARE
For the year ended December 31, 1992, the number of shares of common stock
issuable upon exercise of outstanding options and warrants in the aggregate
exceeded 20% of the number of common shares outstanding. For the years ended
December 31, 1993 and 1994, the treasury stock method was used to determine the
dilutive effect of the options and warrants on earnings per share data.
Accordingly, the modified treasury stock method was used to determine the
dilutive effect of the options and warrants on earnings per share data, for
those years.
F-17
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 11--EARNINGS PER SHARE--(CONTINUED)
Net income (loss) from continuing operations per share and the weighted
average number of shares outstanding used in the computations are summarized as
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1992 DECEMBER 31, 1993 DECEMBER 31, 1994
--------------------- -------------------- --------------------
FULLY FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED PRIMARY DILUTED
EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS
PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE PER SHARE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) from
continuing operations.......................... $ 3,145 $ 3,145 $ 4,279 $ 4,279 $ (7,640) $ (7,640)
Add:
Reduction of interest expense(1)............... 94 -- -- -- -- --
Deduct:
Cumulative preferred stock
dividend requirement........................ (90) -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Income (loss) for per share
computations................................ $ 3,149 $ 3,145 $ 4,279 $ 4,279 $ (7,640) $ (7,640)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Number of shares:
Weighted average common shares outstanding..... 9,671 9,671 12,700 12,700 15,713 15,713
Add:
Net additional shares issuable(2).............. 1,962 1,981 1,779 1,817 -- --
Conversion of preferred stock(3)............... -- 34 -- -- -- --
--------- --------- --------- --------- --------- ---------
Weighted average shares used in the
per share computations......................... 11,633 11,686 14,479 14,517 15,713 15,713
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
$ .27 $ .27 $ .30 $ .29 $ (.49) $ (.49)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
<FN>
- ------------------------
(1) Reduction of interest expense assumes, in 1992, proceeds from the exercise
of stock options and warrants, after the assumed repurchase of 20% of the
weighted average common shares outstanding, were used to repay debt at the
beginning of the period.
(2) Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, net of 20% limitation, if
applicable, on the assumed repurchase of stock.
(3) Assumes conversion of preferred stock into the underlying shares of common
stock at the beginning of the period.
</FN>
</TABLE>
NOTE 12--FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's debt was estimated based upon the market
rates available to the Company for debt with the same remaining maturities. The
carrying amounts of the Company's debt closely approximates its fair value.
F-18
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 13--LEASES
The Company leases office and warehouse space under various noncancellable
operating lease agreements expiring through 1998. Rental expense under such
leases aggregated approximately $507,000, $417,000 and $585,000 for the years
ended December 31, 1992, 1993 and 1994, respectively.
Future minimum payments under the above rental agreements as of December
31, 1994 are as follows (in thousands):
FOR THE YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------
1995.......................................................... $ 685
1996.......................................................... 565
1997.......................................................... 135
1998.......................................................... 131
1999.......................................................... 39
------
$1,555
------
------
NOTE 14--COMMITMENTS AND CONTINGENCIES
On May 25, 1994, a complaint was filed in the United States District Court,
Southern District of Florida, naming the Company, Jeffrey Hanft, Chairman and
Chief Executive Officer, and Richard Militello, Chief Operating Officer, as
defendants. The complaint alleges the violation of certain federal securities
laws through the issuance of 'false and misleading' statements regarding the
subsequently terminated proposed merger with IDB Communications Group, Inc. and
the Company's first quarter results. The complaint seeks certification as a
class action including all persons who purchased shares of the Company's common
stock between April 12 and May 10, 1994 as well as unspecified compensatory
damages. Based upon management's assessment of the facts and the Company's
public disclosures at the time in question, as well as consultation with
counsel, the Company believes the complaint is without merit and intends to
vigorously contest and defend against the action. At the present time, the
litigation is in preliminary stages and management and legal counsel are
presently unable to predict the outcome. Accordingly, the financial statements
do not include any adjustments that might result from this uncertainty (see Note
18).
On July 1, 1993, the Company filed suit against Bell South
Telecommunications, Inc., a unit of Bell South Corp. that does business as
Southern Bell Telephone & Telegraph ('Bell South'), alleging, among other
things, violation of the federal and State of Florida antitrust laws based upon
alleged monopolization and misrepresentation in connection with Southern Bell's
operation of its pay telephone business in Florida. The suit seeks unspecified
damages and other relief. Counsel is unable to predict the outcome of the
litigation.
During 1993, the Company negotiated a settlement of various issues that
were in dispute with a major vendor. This agreement was finalized in 1994. As a
result, the Company terminated certain of its capital leases and was released
from certain obligations owed through October 31, 1993. This settlement has been
reflected as a reduction of telephone charges in 1993 and approximated
$1,156,000.
F-19
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 14--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
The Company has employment contracts with certain officers which expire
through December 31, 1998. The contracts provide for increases in annual base
salary, contingent upon the profitability of the Company, as well as bonus and
stock option provisions.
Other than the aforementioned litigation, the Company is a party to certain
legal actions arising in the normal course of business. In the opinion of
management, the ultimate outcome of such litigation will not have a material
effect on the financial position of the Company.
NOTE 15--ASSETS HELD FOR SALE
In December 1994, in an effort to return its focus to its core public pay
telephone business, the Company's Board of Directors approved the sale of the
Company's prepaid calling card and international telephone center operations.
During February 1995, the Company sold its prepaid calling card business to
Global Link Teleco Corporation ('Global Link') for approximately $6.3 million.
The Company received $1.0 million in cash, a $5.3 million promissory note due
February 1998, bearing interest at 8.5%, payable quarterly, and shares of common
stock of Global Link (see Notes 17 and 18). For financial accounting purposes,
the net gain of approximately $3.4 million will be deferred until cash on the
notes is received. Accordingly, a provision for losses from January 1, 1995
through February 15, 1995, the divestiture date, of approximately $290,000 has
been included in loss on disposal.
The Company has also recorded a provision of approximately $3.4 million for
the estimated impairment of asset value for its international telephone center.
The following tables set forth the net assets held for sale and the results
of operations for the Company's prepaid calling card business and international
telephone center (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1994
------------
<S> <C>
Current Assets, net...................................................................... $ 1,286
Fixed Assets, net........................................................................ 717
Other long-term assets, net.............................................................. 592
------------
$ 2,595
------------
------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1992 1993 1994
----- ------- -------
<S> <C> <C> <C>
Revenues........................................................... $-- $ 1,281 $ 5,149
----- ------- -------
Loss from operations............................................... -- (1,731) (1,816)
Loss on disposal................................................... -- -- (3,690)
----- ------- -------
Total loss from operations before income taxes..................... -- (1,731) (5,506)
Benefit from income taxes.......................................... -- 652 2,064
----- ------- -------
Net loss from operations........................................... $-- $(1,079) $(3,442)
----- ------- -------
----- ------- -------
</TABLE>
F-20
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 16--DISCONTINUED OPERATIONS
In December 1994, as part of the effort to return its focus to its core
public pay telephone business, the Company's Board of Directors also adopted a
formal plan to divest itself of its inmate telephone and cellular telephone
operations.
The Company is in the process of divesting these business segments and has
recorded a provision of approximately $4.0 million for the estimated impairment
of asset value for its inmate telephone business. In addition, the Company
recorded approximately $0.1 million and $1.4 million for the estimated losses
through the anticipated divestiture date for its inmate telephone and cellular
telephone operations, respectively. The Company has also recorded a valuation
allowance of approximately $3.3 million against deferred tax assets that may not
be realized upon the disposition of the cellular telephone operations. The
valuation allowance represents a 100% reserve against the deferred tax assets
and is partially offset by income tax benefits generated during 1994 and through
the anticipated divestiture date.
During July 1994, the Company completed the sale of certain inmate
telephone lines and related equipment for approximately $2.0 million and other
consideration. The telephone lines and related equipment sold were located
primarily in the mid-western United States. The Company has recorded a gain on
the sale of these assets of approximately $441,000.
The following combining tables set forth the net assets and liabilities and
results of operations of the discontinued business segments (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Current assets and liabilities, net......................... $ 151 $ (2,969) $(2,818)
Fixed assets, net........................................... 11,379 6,667 18,046
Other long-term assets and liabilities, net................. 7,441 3,111 10,552
------- -------------- -------
$18,971 $ 6,809 $25,780
------- -------------- -------
------- -------------- -------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED:
DECEMBER 31, 1992
---------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------ -------------- -------
<S> <C> <C> <C>
Revenues...................................................... $1,917 $ 1,499 $ 3,416
------ -------------- -------
Income (loss) from discontinued operations
before income taxes......................................... 471 (305) 166
Loss on disposal.............................................. -- -- --
------ -------------- -------
Total net income (loss) on discontinued operations
before income taxes......................................... 471 (305) 166
Benefit from (provision for) income taxes..................... (170) 113 (57)
------ -------------- -------
Net income (loss) from discontinued operations................ $ 301 $ (192) $ 109
------ -------------- -------
------ -------------- -------
</TABLE>
F-21
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 16--DISCONTINUED OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Revenues.................................................... $35,217 $ 6,283 $41,500
------- -------------- -------
Income (loss) from discontinued operations
before income taxes....................................... 4,136 (2,954) 1,182
Loss on disposal............................................ -- -- --
------- -------------- -------
Total net income (loss) on discontinued operations
before income taxes....................................... 4,136 (2,954) 1,182
Benefit from (provisions) for income taxes.................. (1,558) 1,113 (445)
Minority interest, net...................................... -- 327 327
------- -------------- -------
Net income (loss) from discontinued operations.............. $ 2,578 $ (1,514) $ 1,064
------- -------------- -------
------- -------------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- --------
<S> <C> <C> <C>
Revenues.................................................... $42,428 $ 11,581 $ 54,009
------- -------------- --------
Income (loss) from discontinued operations
before income taxes....................................... 844 (6,253) (5,409)
Loss on disposal............................................ (4,054) (1,380) (5,434)
------- -------------- --------
Total net loss on discontinued operations
before income taxes....................................... (3,210) (7,633) (10,843)
Benefit from (provisions for) income taxes.................. 1,204 (1,113) 91
------- -------------- --------
Net loss from discontinued operations....................... $(2,006) $ (8,746) $(10,752)
------- -------------- --------
------- -------------- --------
</TABLE>
NOTE 17--RELATED PARTY TRANSACTIONS
In March 1994, the Company sold certain assets used in the operation of the
Company's two telephone centers located in New York City to Global Link. The
total purchase price for the transaction was $2.5 million and 10% of the issued
and outstanding capital stock of Global Link. The Company recorded a net gain on
the sale of approximately $2.0 million. At the time of the transaction Messrs.
Bernard M. Frank and Jody Frank, both directors of the Company, were directors
and shareholders of Global Link.
During February, 1995, the Company sold its prepaid calling card business
to Global Link for approximately $6.3 million. The Company received $1.0 million
in cash, a $5.3 million promissory note due February 1998, bearing interest at
8.5%, payable quarterly, and shares of common stock of Global Link. As a result
of the February 1995 transaction, and because of a drafting error discovered in
May 1995 that did not reflect the intentions of the parties, the Company's
interest in the outstanding common stock of Global Link was 28.8% instead of the
intended 19.99%. To correct this error, the Company has agreed with Global Link
to reduce its share ownership to the intended 19.99% level. Since the March 1994
transaction with Global Link, Mr. Bernard M. Frank resigned as a director of the
Company. Additionally, Mr. Jeffrey Hanft, a shareholder, director and officer of
the Company, was appointed as a director of Global Link (see Note 18).
F-22
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 17--RELATED PARTY TRANSACTIONS--(CONTINUED)
In 1994, the Company made loans in the amount of approximately $1.8 million
to certain officers and directors to refinance the officers and directors debt
previously incurred in connection with the exercise of stock options. The
outstanding balances of such loans have been reflected as a reduction from
capital in excess of par value in the consolidated statement of stockholders'
equity. The officers and directors executed promissory notes which bear interest
at prime rate and are due on March 28, 1996 and are secured by approximately
607,000 shares of Peoples Telephone Company, Inc. common stock.
NOTE 18--SUBSEQUENT EVENTS
During April 1995, the Company settled a dispute with one of its vendors
which resulted in a reduction of the amounts owed. Accounts payable and
telephone charges have been reduced by approximately $1.3 million as a credit
against amounts owed in the March 31, 1995 quarterly financial statements.
In early 1995, the Company commenced an offering under an exemption from
the registration requirements of the Securities Act of 1933 of approximately $85
million in Senior Notes due 2002. In connection with the completion of the
Senior Note offering, which is expected to close during June 1995, the Company
will enter into a $40 million revolving credit facility. Proceeds from the sale
of the Senior Notes together with borrowings under the new credit facility will
be used to refinance the existing $100 million credit facility (see Note 6). The
Senior Notes offered will not be registered under the Securities Act of 1933 and
may not be offered or resold in the United States absent registration or an
applicable exemption from the registration requirements. There can be no
assurance that the contemplated refinancing will be completed, or if completed,
that it will be on terms favorable to the Company.
In May of 1995, the Company reevaluated its accounting for its remaining
interest in Global Link and concluded that equity accounting would be
appropriate. The Company's interest in the outstanding common stock of Global
Link, after the disposition of the prepaid calling card business, was 28.8%
instead of the intended 19.99%. As a result, the Company has agreed with Global
Link to reduce its share ownership to the intended 19.99% level. This, together
with the significant related party associations and transactions between Global
Link and the Company, as described in Note 17, lead the Company to its
conclusion that the equity method of accounting for its Global Link investment
was appropriate. Accordingly, the segment amount which includes the prepaid
calling card business sold to Global Link and previously included in
discontinued operations has been reclassified to continuing operations from the
Company's financial statements previously issued for the 1994 year. In addition,
the Company also restated its financial statements for the quarter ended March
31, 1995 to reflect the revision in the 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 perio
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 million gain on the March 31, 1994 sale
of the Company's two telecommunication centers in New York to Phone Zone Teleco
Corporation (now known as Global Link) in the second quarter of 1994 (when
initial payment for the centers was received) rather than the first quarter
(when Phone Zone took control of the centers on the basis of an agreement in
principle). These changes had no impact on net income or cash flow
F-23
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 18--SUBSEQUENT EVENTS--(CONTINUED)
for the year ended December 31, 1994. As a result of the restatement of the
March 31, 1994 quarterly financial statements, the Company was not in compliance
with certain restrictive covenants contained in the existing credit agreement,
which was waived by the Bank.
On May 9, 1995, a complaint was filed against the Company by Ascom
Communications, Inc. ('ACI'), which complaint was amended on May 30, 1995. The
amended complaint purports to assert five causes of action against the Company
arising out of the Asset Purchase Agreement entered into among the plaintiffs
and the Company on October 13, 1993. The first cause of action asserts a claim
for breach of contract for failure to pay principal and interest due under a one
year promissory note (the 'One Year Note'), and seeks payment of principal and
interest of $2.2 million with respect to the note. The second cause of action
asserts a claim for breach of contract for failure to pay principal and interest
due under a five year promissory note (the 'Five Year Note'), and seeks payment
of principal and interest in the amount of $4.4 million with respect to the
note. The Company previously entered into a settlement agreement on March 10,
1995, thereby reducing the amount recorded under the One Year Note to $1.2
million. The amounts due under the settlement agreement and the Five Year Note
were fully accrued at December 31, 1994. The third cause of action asserts a
claim for breach of contract for failure by the Company to register common stock
issued to ACI, and seeks damages in an unspecified amount. The fourth cause of
action asserts a claim for breach of contract for the Company's failure to
assume an equipment lease with AT&T, and seeks damages in the amount of at least
$0.3 million. The fifth cause of action asserts a claim for declaratory relief
in connection with the Company's purported failure to register common stock, and
seeks a declaratory judgment that the Company must effect registration at the
earliest possible time. Based upon the preliminary stages of this case, the
Company is unable to predict the outcome of this matter and, accordingly, the
accompanying financial statements do not reflect any adjustment that might
result from this uncertainty.
The failure by the Company to make the April 1995 payment due on the $2.0
million promissory note has caused a cross default under the Company's $100
million revolving line of credit. The Company has obtained a waiver from its
bank subject to the Company's ability, by June 30, 1995, to (1) permanently
reduce the $100 million revolving line of credit (see Note 6) to not more than
$40 million or (2) settle the ACI litigation under specified terms. There can be
no assurance that the reduction in the revolving line of credit or settlement
will be completed, or if completed that it will be on terms favorable to the
Company. In the event these conditions are not satisfied, the waivers would be
withdrawn, an event of default under the loan agreement would exist and the
lenders would have a right to call the loan.
Additionally, the event of default under the Company's $100 million
revolving line of credit caused a cross default on the Company's mortgage note
payable. The Company received a waiver from the lender dated May 31, 1995
subject to the condition that on or before the earlier of (i) one day after the
closing of the proposed Senior Notes offering or (2) August 31, 1995, the
Company shall have paid in full the $2.5 million outstanding balance of the
mortgage note payable and all other obligations owed the mortgage lender.
As a result of the foregoing, a substantial doubt arises about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
In connection with the Complaint (as described in Note 14), the plaintiff
filed under seal a motion for leave to file an amended and supplemental
complaint on May 26, 1995. The Company continues to believe,
F-24
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
NOTE 18--SUBSEQUENT EVENTS--(CONTINUED)
on the advice of legal counsel, the Complaint is without merit and intends to
vigorously contest and defend against the action. Because of the preliminary
nature of the litigation, the Company is unable to predict the outcome of such
litigation. Accordingly, the financial statements do not include any adjustments
that might result from this uncertainty.
F-25
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED BALANCE SHEET (RESTATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents......................................................... $ 7,663 $ 6,721
Accounts receivable, net of allowance for doubtful accounts
of $6,035 and $5,236........................................................... 17,682 16,550
Inventory......................................................................... 2,981 3,324
Prepaid expenses and other current assets......................................... 3,276 4,030
Net assets of prepaid calling card and international telephone
center business................................................................ 2,595 --
Net assets of discontinued operations............................................. 25,780 27,380
------------ -----------
Total current assets........................................................... 59,977 58,005
Property and equipment, net......................................................... 76,379 74,514
Location contracts, net............................................................. 31,877 31,075
Goodwill, net....................................................................... 6,221 6,020
Intangible assets, net.............................................................. 2,802 2,636
Other assets, net................................................................... 11,882 6,128
Deferred income taxes............................................................... 1,453 3,406
Investment in unconsolidated affiliate.............................................. -- 3,073
------------ -----------
Total assets................................................................... $ 190,591 $ 184,857
------------ -----------
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable and current maturities of long-term debt............................ $ 14,286 $ 24,902
Current portion of obligations under capital leases............................... 2,738 2,314
Accounts payable and accrued expenses............................................. 22,799 22,039
Accrued interest payable.......................................................... 1,061 755
Income and other taxes payable.................................................... 2,691 2,491
------------ -----------
Total current liabilities...................................................... 43,575 52,501
Notes payable and long-term debt.................................................... 94,390 83,500
Obligations under capital leases.................................................... 3,911 3,460
------------ -----------
Total liabilities.............................................................. 141,876 139,461
------------ -----------
Commitments and contingencies....................................................... -- --
Shareholders' equity
Preferred stock; $.01 par value; 4,300 shares authorized;
none issued and outstanding.................................................... -- --
Convertible preferred stock; Series A, $.01 par value;
100 shares authorized; none issued and outstanding............................. -- --
Convertible preferred stock; Series B, $.01 par value;
600 shares authorized; none issued and outstanding............................. -- --
Common stock; $.01 par value; 25,000 shares authorized;
15,789 and 15,850 shares issued and outstanding................................ 158 159
Capital in excess of par value.................................................... 58,143 58,078
Accumulated deficit............................................................... (9,586) (12,841)
------------ -----------
Total shareholders' equity..................................................... 48,715 45,396
------------ -----------
Total liabilities and shareholders' equity..................................... $ 190,591 $ 184,857
------------ -----------
------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-26
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1995
------- -------
<S> <C> <C>
Revenues
Coin calls............................................................................... $17,857 $19,061
Non-coin calls........................................................................... 6,968 8,271
Service and other........................................................................ 301 122
------- -------
Total revenues........................................................................ 25,126 27,454
------- -------
Costs and expenses
Telephone charges........................................................................ 8,304 8,491
Commissions.............................................................................. 4,877 6,297
Field service and collection............................................................. 4,916 4,628
Depreciation and amortization............................................................ 4,112 4,741
Selling, general and administrative...................................................... 2,672 2,368
Interest, net............................................................................ 989 1,479
Income from operations of prepaid calling card and international
telephone centers..................................................................... 730 --
Loss on disposal of prepaid calling card and international
telephone centers..................................................................... -- --
Other.................................................................................... -- 27
------- -------
Total costs and expenses.............................................................. 26,600 28,031
------- -------
Loss from continuing operations before taxes............................................... (1,474) (577)
Benefit from income taxes.................................................................. 465 216
------- -------
Loss from continuing operations............................................................ (1,009) (361)
------- -------
Discontinued operations
Income from operations, net of tax provision of $629..................................... (1,048) --
(Loss) income on disposition............................................................. -- --
------- -------
Income from discontinued operations...................................................... (1,048) --
Extraordinary loss from extinguishment of debt, net........................................ -- (2,894)
------- -------
Net income (loss)..................................................................... $(2,057) $(3,255)
------- -------
------- -------
Earnings (loss) per common share
Loss from continuing operations.......................................................... $ (.06) $ (.02)
Income from discontinued operations...................................................... (.07) --
Extraordinary loss from extinguishment of debt, net...................................... -- (.18)
------- -------
Net income (loss)..................................................................... $ (.13) $ (.20)
------- -------
------- -------
Weighted average common and common equivalent shares outstanding........................... 15,611 15,829
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
------------------
1994 1995
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................................................. $(2,057) $(3,255)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization.......................................................... 4,112 4,741
Deferred income taxes.................................................................. (465) (1,953)
Extraordinary loss from extinguishment of debt......................................... -- 2,894
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........................................... (3,209) 1,132
Increase in inventory................................................................ (2,254) (343)
Decrease (increase) in prepaid expenses and other current assets..................... 217 (754)
(Increase) decrease in other assets.................................................. (995) 2,860
Increase in investment in unconsolidated affiliate................................... -- (3,073)
Decrease in accounts payable and accrued expenses.................................... (4,550) (760)
Increase (decrease) in accrued interest.............................................. 103 (306)
Increase (decrease) in taxes payable................................................. 673 (200)
Net effect of discontinued operations and assets held for sale....................... 689 (5)
------- -------
Net cash (used in) provided by operating activities............................... (7,736) 978
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Payments of acquisitions and certain contracts............................................ (2,779) (435)
Property and equipment additions.......................................................... (3,640) (1,272)
Proceeds from sale of assets.............................................................. -- 1,000
Investment in joint ventures.............................................................. (1,085) --
------- -------
Net cash used in investing activities............................................. (7,504) (707)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Net (payment) borrowings under note payable to bank....................................... 11,890 (274)
Debt issuance costs....................................................................... (1,318) --
Principal payments under capital lease obligations, net................................... 321 (875)
Officer loans............................................................................. -- (190)
Exercise of stock options and warrants.................................................... 1,029 126
------- -------
Net cash provided by (used in) financing activities............................... 11,922 (1,213)
------- -------
Net decrease in cash and cash equivalents................................................... (3,318) (942)
Cash and cash equivalents at beginning of period............................................ 4,529 7,663
------- -------
Cash and cash equivalents at end of period.................................................. $ 1,211 $ 6,721
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
MARCH 31, 1995 AND MARCH 31, 1994
(UNAUDITED)
NOTE 1--UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial data is unaudited; however,
in the opinion of management, the interim data includes all adjustments,
necessary for a fair statement of the results for the interim periods. The
quarter ended March 31, 1994 included adjustments of approximately $2.1 million
for, among other things, amounts incurred for settling disputes and claims and
bad debt reserves.
The results of operations for the three months ended March 31, 1995 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1995.
The interim unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ending December 31, 1994 as set forth elsewhere in this Prospectus.
NOTE 2--EARNINGS PER SHARE
The treasury stock method was used to determine the dilutive effect of the
options and warrants on earnings per share data. For 1995 and 1994, common stock
equivalents were excluded since the effect would be anti-dilutive. Therefore,
fully diluted earnings per share is not presented.
NOTE 3--LONG-TERM DEBT
On March 22, 1995, the Company amended certain terms contained in its Third
Amended Loan Agreement (the 'Amendment'). Under the Amendment, the $125.0
million revolving line of credit was reduced to $100.0 million, with monthly
principal reductions of $1.5 million commencing on May 1, 1995 and all
outstanding principal balances due in full on May 31, 1996. The new facility
bears interest at the Bank's prime rate plus 2% beginning April 1, 1995 and
reduces certain restrictive covenants for 1995 which, among other things require
the Company to maintain certain net worth and cash flow levels and places
certain restrictions on the payment of dividends (see Note 6).
As a result of the Amendment, the Company has recorded an extraordinary
loss of $4.6 million for the write-off of deferred financing costs, net of the
income tax benefit of approximately $1.7 million.
The Company has commenced an offering under an exemption from the
registration requirements of the Securities Act of 1933 of approximately $85
million in Senior Notes (the 'Notes') due 2002. In connection with the
completion of the Note offering, which is expected to close by early June 1995,
the Company will enter into a new $40.0 million revolving credit facility.
Proceeds from the sale of the Notes together with borrowings under the new
credit facility will be used to refinance the existing $100.0 million credit
facility, which will provide the Company with approximately $23.0 million
undrawn and available under the new credit facility. The Notes offered will not
be registered under the Securities Act and may not be offered or resold in the
United States absent registration or an applicable exemption from the
registration requirements. There can be no assurance that the contemplated
refinancing will be completed, or if completed, that it will be on terms
favorable to the Company (see Note 6).
F-29
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
MARCH 31, 1995 AND MARCH 31, 1994
(UNAUDITED)
NOTE 4--INVESTMENTS IN UNCONSOLIDATED AFFILIATE
During February 1995, the Company sold its prepaid calling card business to
Global Link Teleco Corporation ('Global Link') for approximately $6.3 million.
The Company received $1.0 million in cash, a $5.3 million promissory note due
February 1998, bearing interest at 8.5%, payable quarterly, and shares of common
stock of Global Link. For financial accounting purposes, the net gain of
approximately $3.4 million will be deferred until cash is received. As a result
of the February 1995 transaction, and because of a drafting error discovered in
May 1995 that did not reflect the intentions of the parties, the Company's
interest in the outstanding common stock of Global Link was 28.8% instead of the
intended 19.99%. To correct this error, the Company has agreed with Global Link
to reduce its share ownership to the intended 19.99% level.
The Company's investment in Global Link is accounted for using the equity
method. The Company's share of the results of operations of Global Link from the
divestiture date through March 31, 1995 are included in 'Other' in the Statement
of Operations. The 1994 results of operations of the prepaid calling card
business have been segregated and reported as a separate component of income
from continuing operations.
The Company's investment in Global Link represents $6.5 million of
outstanding notes receivable net of the $3.4 million deferred gain on the
February 1995 transaction and $27,000 representing the Company's share of Global
Link's first quarter 1995 operating results.
NOTE 5--DISCONTINUED OPERATIONS
In 1994, in connection with the planned divestiture of the inmate telephone
and cellular telephone operations, the Company recorded a provision for the
estimated impairment of asset value and losses through the anticipated
divestiture date, net of income taxes, of $2.5 million and $4.8 million,
respectively. The cellular telephone operations provision is net of an estimated
gain on disposition of approximately $1.1 million and includes a valuation
allowance of approximately $3.4 million against deferred tax assets that may not
be realized upon the disposition of the cellular telephone operations. This
provision included approximately $0.1 million and ($1.0) million for the
estimated operating income (losses) of the inmate telephone and cellular
telephone operations, respectively, for the quarter ended March 31, 1995.
The following combining tables set forth the results of operations of the
inmate telephone and cellular telephone operations for the quarters ended March
31, (in thousands):
<TABLE>
<CAPTION>
1995
---------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------ -------------- -------
<S> <C> <C> <C>
Revenues...................................................... $8,106 $ 2,504 $10,610
------ -------------- -------
Income (loss) from operations before income taxes............. 79 (1,162) (1,083)
(Provision for) benefit from income taxes..................... (30) -- (30)
------ -------------- -------
Net income (loss)............................................. $ 49 $ (1,162) $(1,113)
------ -------------- -------
------ -------------- -------
</TABLE>
F-30
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)--(CONTINUED)
MARCH 31, 1995 AND MARCH 31, 1994
(UNAUDITED)
NOTE 5--DISCONTINUED OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
1994
----------------------------------------
PTC
INMATE CELLULAR, INC. TOTAL
------- -------------- -------
<S> <C> <C> <C>
Revenues.................................................... $10,380 $ 2,830 $13,210
------- -------------- -------
Income (loss) from operations before income taxes........... 200 (1,877) (1,677)
(Provision for) benefit from income taxes................... (75) 704 629
------- -------------- -------
Net income (loss)........................................... $ 125 $ (1,173) $(1,048)
------- -------------- -------
------- -------------- -------
</TABLE>
NOTE 6--SUBSEQUENT EVENTS
During April 1995, the Company settled a dispute with one of its vendors
which resulted in a reduction of the amounts owed. Accounts payable and
telephone charges have been reduced by approximately $1.3 million as a credit
against amounts owed in the accompanying financial statements to reflect this
settlement.
On May 9, 1995, a complaint was filed against the Company by Ascom
Communications, Inc. ('ACI'), which complaint was amended on May 30, 1995. The
amended complaint purports to assert five causes of action against the Company
arising out of the Asset Purchase Agreement entered into among the plaintiffs
and the Company on October 13, 1993. The first cause of action asserts a claim
for breach of contract for failure to pay principal and interest due under a one
year promissory note, and seeks payment of principal and interest of $2.2
million with respect to the note. The second cause of action asserts a claim for
breach of contract for failure to pay principal and interest due under a five
year promissory note, and seeks payment of principal and interest in the amount
of $4.4 million with respect to the note. The third cause of action asserts a
claim for breach of contract for failure by the Company to register common stock
issued to ACI, and seeks damages in an unspecified amount. The fourth cause of
action asserts a claim for breach of contract for the Company's failure to
assume an equipment lease with AT&T, and seeks damages in the amount of at least
$0.3 million. The fifth cause of action asserts a claim for declaratory relief
in connection with the Company's purported failure to register common stock, and
seeks a declaratory judgment that the Company must effect registration at the
earliest possible time. In June 1995, the Company settled this litigation for
approximately $5.7 million.
The failure by the Company to make the April 1995 payment due on the $2.0
million promissory note caused a cross default under the Company's $100 million
revolving line of credit. The Company obtained a waiver from its bank subject to
the Company's ability, by June 30, 1995, to (1) permanently reduce the $100
million revolving line of credit to not more than $40 million (see Note 3) or
(2) settle the ACI litigation for an amount not exceeding more than $6.0
million.
Additionally, the event of default under the Company's $100 million
revolving line of credit caused a cross default on the Company's mortgage note
payable. The Company received a waiver from the lender dated May 31, 1995
subject to the condition that on or before the earlier of (i) one day after the
closing of the proposed Note offering or (2) August 31, 1995, the Company shall
have paid in full the $2.5 million outstanding balance of the mortgage note
payable and all other obligations to the mortgage lender.
F-31
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE NOTES BY ANYONE IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
PAGE
-----
Summary........................................... 3
Risk Factors...................................... 16
The Exchange Offer................................ 24
The Company....................................... 35
Use of Proceeds................................... 36
Capitalization.................................... 37
Selected Financial Information.................... 38
Management's Discussion and Analysis of
Financial Condition and Results
of Operations................................... 40
Business.......................................... 52
Management........................................ 71
Certain Transactions.............................. 77
Principal Shareholders............................ 80
Preferred Stock Investment........................ 81
Description of the Credit Agreement............... 83
Description of the Notes.......................... 85
Exchange Offer; Registration Rights............... 110
Plan of Distribution.............................. 112
Legal Matters..................................... 112
Independent Certified Public Accountants.......... 112
Available Information............................. 113
Glossary.......................................... 114
Index to Consolidated Financial Statements........ F-1
PTC
PEOPLES TELEPHONE
COMPANY, INC.
OFFER TO EXCHANGE
ITS
SERIES B 12 1/4% SENIOR NOTES DUE 2002
FOR ANY AND ALL OUTSTANDING
SERIES A 12 1/4% SENIOR NOTES DUE 2002
------------------
PROSPECTUS
------------------
JULY , 1995
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Paragraph Tenth of the Company's Certificate of Incorporation provides
that the Company will indemnify and reimburse the officers and directors of the
Company to the fullest extent provided by law. Paragraph Tenth of the Company's
Certificate of Incorporation also provides that the provisions regarding
indemnification and advancement of expenses as provided by law shall not be
exclusive of any other right which any officer or director of the Company may
have or acquire thereafter under any provision of the Company's Certificate of
Incorporation or By-laws or by any agreement, vote of shareholders or
disinterested directors of the Company or otherwise, provided, that no
indemnification may be made to or on behalf of any officer or director if a
judgement or other final adjudication adverse to such officer or director
establishes that his acts were committed in bad faith or were the result of
active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he personally gained in fact a financial profit or other
advantage to which he was not legally entitled.
The Company's Certificate of Incorporation also provides that a director
will not be liable to the Company or its shareholders for damages for any breach
of duty in such director's capacity as a director unless (i) a judgment or other
final adjudication adverse to the director establishes that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law or that he personally gained in fact a financial profit or
other advantage to which he was not legally entitled or that his acts violated
section 719 of the Business Corporation Law of New York or (ii) the liability of
any director for any act or omission occurred prior to the adoption of such
indemnification provision by the Company.
Pursuant to the Registration Rights Agreements filed as Exhibits 4.8 and
10.9 to this Registration Statement, certain holders of the Registrant's 12 1/4%
Senior Notes due 2002 and the Registrant's Preferred Stock have agreed to
indemnify the directors, officers and controlling persons of the Registrant
against certain civil liabilities that may be incurred in connection with
certain registrations relating to such securities, including certain liabilities
under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation adopted on November 30, 1987 (incorporated herein by
reference from the Company's Registration Statement on Form 10, No. 0-16479, filed with the Securities
and Exchange Commission on January 20, 1988 (the 'Form 10') )
3.2 Amendments to Certificate of Incorporation adopted on March 8, 1990 and March 15, 1990, respectively
(incorporated herein by reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1989)
3.3 Amendment to Certificate of Incorporation adopted on June 29, 1990 (incorporated herein by reference
from the Company's 1990 Form 10-K)
3.4 Certificate of Amendment to Certificate of Incorporation filed on July 18, 1995 authorizing the
Preferred Stock (incorporated herein by reference from the Company's Form 8-K filed on July 21, 1995)
3.5 Restated Bylaws adopted on November 30, 1987 (incorporated herein by reference from the Form 10)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
4.1 Form of Five-Year Warrant Agreement issued to holders of Series A Preferred Stock (incorporated herein
by reference from the Form 10)
4.2 Form of Second Amended and Restated Warrant Agreement dated as of February 17, 1994 between the Company
and Creditanstalt American Corporation (incorporated herein by reference from the Company's 1993 Form
10-K)
4.3 Form of Stock Purchase Warrant issued on July 19, 1995 to Appian Capital Partners, L.L.C. (incorporated
herein by reference from the Company's Form 8-K filed on July 21, 1995)
4.4 Form of Contingent Stock Purchase Warrant issued on July 19, 1995 to UBS Partners, Inc. (incorporated
herein by reference from the Company's Form 8-K filed on July 21, 1995)
*4.5 Purchase Agreement, dated as of July 12, 1995, between Peoples Telephone Company, Inc. and Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
4.6 Indenture, dated as of July 15, 1995, between the Company and First Union National Bank of North
Carolina (incorporated herein by reference from the Company's Form 8-K filed on July 21, 1995)
*4.7 Specimen forms of 12 1/4% Senior Notes due 2002 (Old Notes and Exchange Notes)
4.8 Registration Rights Agreement, dated as of July 19, 1995, between Peoples Telephone Company, Inc. and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated herein by
reference from the Company's Form 8-K filed on July 21, 1995)
*5.1 Opinion of Greenberg, Taurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
10.1 Third Amended and Restated Loan and Security Agreement dated as of February 17, 1994 between
Creditanstalt-Bankverein, Internationale Nederladen (U.S.) Capital Corporation, NationsBank of Florida,
N.A., SunBank/Miami, N.A., The Daiwa Bank, Limited, The Long-Term Credit Bank of Japan Ltd., New York
Branch and the Company (incorporated herein by reference from the Company's 1993 Form 10-K)
10.2 Consent, Waiver and First Amendment dated June 10, 1994 to the Third Amended and Restated Loan and
Security Agreement dated as of February 17, 1994 between Creditanstalt-Bankverein, Internationale
Nederladen (U.S.) Capital Corporation, NationsBank of Florida, N.A., SunBank/Miami, N.A., The Daiwa
Bank, Limited, The Long-Term Credit Bank of Japan Ltd., New York Branch and the Company (incorporated
herein by reference from the Company's 1994 Form 10-K)
10.3 Consent, Waiver and Second Amendment dated September 28, 1994 to the Third Amended and Restated Loan and
Security Agreement dated as of February 17, 1994 between Creditanstalt-Bankverein, Internationale
Nederladen (U.S.) Capital Corporation, NationsBank of Florida, N.A., SunBank/Miami, N.A., Daiwa Bank,
Limited, The Long-Term Credit Bank of Japan Ltd., New York Branch and the Company (incorporated herein
by reference from the Company's 1994 Form 10-K)
10.4 Waiver and Third Amendment dated March 22, 1995 to the Third Amended and Restated Loan and Security
Agreement dated as of February 17, 1994 between Creditanstalt-Bankverein, Internationale Nederladen
(U.S.) Capital Corporation, NationsBank of Florida, N.A., SunBank/Miami, N.A., The Daiwa Bank, Limited,
The Long-Term Credit Bank of Japan Ltd., New York Branch and the Company (incorporated herein by
reference from the Company's 1994 Form 10-K)
10.5 Exchange Agreement between the Company and Creditanstalt Corporate Finance, Inc. dated May 3, 1995
(incorporated herein by reference from the Company's Form 8-K filed on July 21, 1995)
10.6 Fourth Amended and Restated Loan and Security Agreement dated as of July 19, 1995 by and between the
Company and Creditanstalt-Bankverein (incorporated herein by reference from the Company's Form 8-K filed
on July 21, 1995)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.7 Letter Agreement dated July 3, 1995 between the Company and Creditanstalt American Corporation, with
respect to the amendment of the Second Amended and Restated Warrant Agreement dated February 17, 1994
(incorporated herein by reference from the Company's Form 8-K filed on July 21, 1995)
*10.8 Securities Purchase Agreement dated July 3, 1995 among the Company, UBS Capital Corporation and Appian
Capital Partners, L.L.C., and amendment thereto by letter agreement dated July 18, 1995
10.9 Registration Rights Agreement dated July 19, 1995 between the Company and UBS Partners, Inc.
(incorporated herein by reference from the Company's Form 8-K filed on July 21, 1995)
10.10 Asset Purchase Agreement dated March 1, 1993, and related financial statements, among the Company,
Silverado Communications Corp., Telink Telephone Systems, Inc. and other shareholders and Agreement and
Plan of Merger, dated March 1, 1993, between the Company and Silverado Communications Corp.
(incorporated herein by reference from the Company's Form 8-K filed April 8, 1993)
10.11 Asset Purchase Agreement dated July 20, 1993, and related financial statements, among the Company,
Southwest Pay Telephone Systems, Inc. and Randall D. Veselka and Stock Purchase Agreement, dated July
20, 1993, between the Company, Southwest Pay Telephone Systems, Inc. and Randall D. Veselka
(incorporated herein by reference from the Company's Form 8-K filed July 22, 1993)
10.12 Asset Purchase Agreement dated March 1, 1993, and related financial statements, among the Company, PTC
Cellular, Inc., Portable Cellular Communications, Inc. and Nationwide Cellular Service, Inc.
(incorporated herein by reference from the Company's Form 8-K filed July 27, 1993)
10.13 Asset Purchase Agreement dated October 13, 1993 between the Company, Ascom Communications, Inc.
('Ascom') and Ascom Holding, Inc., audited financial statements of Ascom for the period from January 1,
1992 through October 31, 1993 and audited financial statements of Ascom for the period from January 1,
1992 through October 31, 1993 as re-filed (incorporated herein by reference from the Company's Form 8-Ks
filed on November 8, 1993, January 21, 1994 and January 31, 1994, respectively)
10.14 Purchase Agreement dated June 23, 1994 among the Company and Atlantic Teleco, Inc., Bender Telephone
Inc., Stanley S. Bender and Howard M. Bender and Jerome D. Scheer and Purchase Agreement dated June 23,
1994 among the Company and BTE Associates, L.P., Bender Telephone, Inc. and B&B Associates, audited
financial statements of Atlantic Teleco Joint Venture from January 1, 1992 through December 31, 1993 and
combined pro forma financial statements (incorporated herein by reference from the Company's Form 8-K's
filed on August 11, 1994 and September 7, 1994, respectively)
10.15 Asset Purchase Agreement dated February 14, 1995 between the Company and Global Link Teleco Corporation
and pro forma financial information for the periods from January 1, 1993 through December 31, 1993 and
the nine months ending September 30, 1994 (incorporated herein by reference from the Company's Form 8-K
filed March 2, 1995)
*10.16 Agreement and Plan of Merger dated October 21, 1994 among the Company, Peoples Acquisition Corporation,
Telecoin Communications, Ltd., Gilbert A. Mendelson, David T. Magrish, Louis Swartz, Howard Spiegel and
Harvey Ostrow
10.17 AT&T Commission Agreement dated April 20, 1995, by and between AT&T Communications, Inc. and the Company
(incorporated herein by reference from the Company's Registration Statement on Form S-3 (File No.
33-58607) )
10.18 Employment Agreement dated January 1, 1994, and related Stock Option Agreement dated February 16, 1994,
between the Company and Jeffrey Hanft (incorporated herein by reference from the Company's 1993 Form
10-K)(1)
10.19 Employment Agreement dated January 1, 1994, and related Stock Option Agreement dated February 16, 1994,
between the Company and Robert D. Rubin (incorporated herein by reference from the Company's 1993 Form
10-K)(1)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
10.20 Employment Agreement dated January 1, 1994, and related Stock Option Agreement dated February 16, 1994,
between the Company and Richard F. Militello (incorporated herein by reference from the Company's 1993
Form 10-K)(1)
10.21 Employment Agreement dated July 11, 1994, between the Company and Bonnie S. Biumi and related Stock
Option Agreement dated July 11, 1994, between the Company and Bonnie S. Biumi (incorporated herein by
reference from the Company's 1994 Form 10-K)(1)
10.22 Employment Agreement dated January 1, 1995, between the Company and Bruce W. Renard (incorporated herein
by reference from the Company's 1994 Form 10-K)(1)
*10.23 Employment Agreement dated June 22, 1994, between the Company and Lawrence T. Ellman(1)
10.24 1994 Stock Incentive Plan of the Company (incorporated herein by reference to pages A-1 through A-7 of
the Company's 1994 Proxy Statement)(1)
10.25 1993 Non-Employee Directors Stock Option Plan (incorporated herein by reference from the Company's 1993
Proxy Statement)(1)
*10.26 1987 Nonqualified Stock Option Plan(1)
*10.27 1987 Nonqualified Stock Option Plan for Non-Employee Directors(1)
*11.1 Computation of Earnings Per Share
*12.1 Computation of Ratios of Earnings to Fixed Charges
*21.1 List of Subsidiaries
*23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (included in its opinion filed as
Exhibit 5.1)
*23.2 Consent of Price Waterhouse LLP
*24.1 Reference is made to the Signatures section of this Registration Statement for the Powers of Attorney
contained therein
*25.1 Form T-1 Statement of Eligibility and Qualification of Trustee for Senior Notes under the Trust
Indenture Act of 1939
*99.1 Form of Letter of Transmittal for Exchange Offer and Notice of Guaranteed Delivery
*99.2 Consent of Director Designee
</TABLE>
- ------------------------
* Filed herewith.
(1) Compensatory plan or arrangement.
(b) FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
Report of Independent Certified Public Accountants on Schedule VIII
(see the Report of Price Waterhouse LLP at page F-2 of the Prospectus included in this
Registration Statement and the Consent of Price Waterhouse LLP filed as Exhibit 23.2 hereto) -
Schedule VIII -- Valuation and Qualifying Accounts and Reserves.................................. S-1
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission
II-4
<PAGE>
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miami, State of Florida,
on July 26, 1995.
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ JEFFREY HANFT
-------------
Jeffrey Hanft, Chairman and
Chief Executive Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints each of Jeffrey Hanft and Robert D. Rubin,
respectively, his true and lawful attorney-in-fact, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this registration statement, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their respective substitutes may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JEFFREY HANFT Chairman, Chief Executive July 26, 1995
Jeffrey Hanft Officer and Director
(principal executive officer)
/s/ ROBERT D. RUBIN President and Director July 26, 1995
Robert D. Rubin
/s/ BONNIE S. BIUMI Chief Financial Officer July 26, 1995
Bonnie S. Biumi (principal financial and
accounting officer)
/s/ JODY FRANK Director July 26, 1995
Jody Frank
/s/ CHARLES J. DELANEY Director July 26, 1995
Charles J. Delaney
/s/ ROBERT E. LUND Director July 26, 1995
Robert E. Lund
/s/ RICHARD WHITMAN Director July 26, 1995
Richard Whitman
</TABLE>
II-6
<PAGE>
SCHEDULE VIII
PEOPLES TELEPHONE COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO COSTS AT END
CLASSIFICATION OF PERIOD AND EXPENSES OTHER(1) DEDUCTIONS(2) OF PERIOD
- ----------------------------------------------------- ---------- ------------ -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED 12/31/94:
Allowance for doubtful accounts...................... $ 2,115 11,621 (43) 7,658 $ 6,035
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Accumulated amortization:
Location contracts.............................. $ 3,656 3,760 (267) 741 $ 6,408
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Intangible assets............................... $ 1,849 872 (627) 16 $ 2,078
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Goodwill........................................ $ 551 399 (130) -- $ 820
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
YEAR ENDED 12/31/93:
Allowance for doubtful accounts...................... $ 73 5,591 -- 3,549 $ 2,115
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Accumulated amortization:
Location contracts.............................. $ 2,210 1,932 -- 486 $ 3,656
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Intangible assets............................... $ 621 1,228 -- -- $ 1,849
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Goodwill........................................ $ 260 291 -- -- $ 551
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
YEAR ENDED 12/31/92:
Allowance for doubtful accounts...................... $ 48 57 -- 32 $ 73
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Accumulated amortization:
Location contracts.............................. $ 1,119 1,091 -- -- $ 2,210
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Intangible assets............................... $ 376 245 -- -- $ 621
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
Goodwill........................................ $ -- 260 -- -- $ 260
---------- ------------ -------- ------------- ---------
---------- ------------ -------- ------------- ---------
<FN>
- ------------------------
(1) Adjustments represent the allowance for doubtful accounts and accumulated
amortization related to the prepaid calling card and international telephone
centers which were reclassified to 'Net assets of prepaid calling card and
international telephone centers held for sale' and the inmate and cellular
telephone assets which were reclassified to 'Net assets of discontinued
operations.'
(2) Deductions represent bad debt write-offs.
</FN>
</TABLE>
S-1
_______________________________________________________________
_______________________________________________________________
PEOPLES TELEPHONE COMPANY, INC.
$100,000,000
12 1/4% Senior Notes due 2002
PURCHASE AGREEMENT
Dated: July 12, 1995
_______________________________________________________________
_______________________________________________________________
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
$100,000,000
12 1/4% Senior Notes due 2002
PURCHASE AGREEMENT
July 12, 1995
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Ladies and Gentlemen:
Peoples Telephone Company, Inc., a New York
corporation (the "Company"), proposes to issue and sell to you
(the "Initial Purchaser") $100,000,000 aggregate principal
amount of its 12 1/4% Senior Notes due 2002 (the "Securities").
The Securities are to be issued pursuant to an indenture to be
dated as of July 15, 1995 (the "Indenture") between the
Company, as issuer, and First Union National Bank of North
Carolina, as trustee (the "Trustee"). This Agreement, the
Indenture, the Securities, the Exchange Securities (as defined
below), the Private Exchange Securities (as defined below) and
the Registration Rights Agreement (as defined below) are
referred to collectively as the "Operative Documents."
Capitalized terms used herein without definition have the
respective meanings specified in the Offering Memorandum (as
defined below).
The Securities will be offered and sold to the
Initial Purchaser without registration under the Securities Act of
<PAGE>
1933, as amended (the "Act"), in reliance upon an exemption
from the registration requirements of the Act. In connection
with the sale of the Securities, the Company has prepared a
preliminary offering memorandum dated May 9, 1995 and a
preliminary offering memorandum dated July 3, 1995
(collectively, the "Preliminary Offering Memorandum") and a
final offering memorandum dated the date hereof (such offering
memorandum, in the form first furnished to the Initial
Purchaser for use in connection with the offering of the
Securities, or if such form is not so used, in the form
subsequently furnished for such use, the "Offering Memorandum,"
each setting forth certain information concerning the Company
and the Securities. The Company hereby confirms that it has
authorized the use of the Preliminary Offering Memorandum and
the Offering Memorandum in connection with the offer and resale
of the Securities by the Initial Purchaser. Unless stated to
the contrary, all references herein to the Offering Memorandum
are to the Offering Memorandum at the date hereof (the
"Execution Time") and are not meant to include any amendment or
supplement thereto subsequent to the Execution Time. If the
Company prepares a supplement dated the date hereof to the
preliminary offering memorandum dated July 3, 1995 containing
only pricing related information, then the term "Offering
Memorandum" for purposes of this Agreement shall refer
collectively to the preliminary offering memorandum dated
July 3, 1995 and such supplement.
The Company understands that the Initial Purchaser
proposes to make an offering of the Securities only on the
terms and in the manner set forth in the Offering Memorandum
and Section 4 hereof, as soon as the Initial Purchaser deems
advisable after this Agreement has been executed and delivered,
(i) to persons in the United States whom the Initial Purchaser
reasonably believes to be qualified institutional buyers
("Qualified Institutional Buyers") as defined in Rule 144A
under the Act, as such rule may be amended from time to time
("Rule 144A"), in transactions under Rule 144A, (ii) to a
limited number of other institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) and (7) under
Regulation D of the Act ("Accredited Investors")) in private
sales exempt from registration under the Act and/or (iii) to
non-U.S. persons outside the United States to whom the Initial
Purchaser reasonably believes offers and sales of the
Securities may be made in reliance upon Regulation S under the
Act ("Regulation S"), in transactions meeting the requirements
of Regulation S.
The Initial Purchaser and other holders of Securities
(including subsequent transferees) will be entitled to the
benefits of the registration rights agreement, to be dated as of
2
<PAGE>
the Closing Time (as defined below) (the "Registration
Rights Agreement") between the Company and the Initial
Purchaser, in the form attached hereto as Exhibit A. Pursuant
to the Registration Rights Agreement, the Company will agree to
file with the Securities and Exchange Commission (the
"Commission") under the circumstances set forth therein either
(i) a registration statement under the Act registering the
Exchange Securities (as defined in the Registration Rights
Agreement) to be offered in exchange for the Securities and to
use its best efforts to cause such registration statement to be
declared effective or (ii) under certain circumstances set
forth therein, to file with the Commission a shelf registration
statement pursuant to Rule 415 under the Act relating to the
resale of the Securities by holders thereof or, if applicable,
relating to the resale of Private Exchange Securities (as
defined in the Registration Rights Agreement) by the Initial
Purchaser pursuant to an exchange of the Securities for Private
Exchange Securities, and to use its best efforts to cause such
shelf registration statement to be declared effective.
SECTION 1. Representations and Warranties. (a) The
Company represents and warrants to the Initial Purchaser as of
the date hereof and as of the Closing Time (as defined in
Section 3 hereof) that:
(i) As of their respective dates, none of the
Offering Memorandum or any amendment or supplement
thereto, and at all times subsequent thereto up to and as
of the Closing Time, the Offering Memorandum, as amended
or supplemented to such time, contained or will contain an
untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that
this representation and warranty does not apply to
statements or omissions made in reliance upon and in
conformity with information furnished in writing by the
Initial Purchaser to the Company expressly for use in the
Offering Memorandum or any amendment or supplement
thereto.
(ii) When the Securities are issued and delivered
pursuant to this Agreement, such Securities will not be of
the same class (within the meaning of Rule 144A) as
securities of the Company which are listed on a national
securities exchange registered under Section 6 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or quoted in a U.S. automated inter-dealer
quotation system. The Company has been advised that the
3
<PAGE>
Securities have been designated PORTAL eligible securities
in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc. (the
"NASD").
(iii) Neither the Company, nor any of its affiliates
(as defined in Rule 501(b) under the Act) has, directly or
through any agent, sold, offered for sale, solicited
offers to buy or otherwise negotiated in respect of, any
security (as defined in the Act) which is or will be
integrated with the sale of the Securities in a manner
that would require the registration of the Securities
under the Act.
(iv) None of the Company or any affiliate (as such
term is defined in Rule 501(b) under the Act) of the
Company or any person (other than the Initial Purchaser,
as to which the Company makes no representation) acting on
the Company's behalf has engaged, in connection with the
offering of the Securities, (A) in any form of general
solicitation or general advertising within the meaning of
Rule 502(c) under the Act, (B) in any directed selling
efforts within the meaning of Rule 902 under the Act in
the United States in connection with the Securities being
offered and sold pursuant to Regulation S under the Act,
(C) in any manner involving a public offering within the
meaning of Section 4(2) of the Act or (D) in any action
which would require the registration of the offering and
sale of the Securities pursuant to this Agreement or which
would violate applicable state "blue sky" laws.
(v) Assuming that the representations and warranties
of the Initial Purchaser contained in Section 4 are true,
correct and complete and assuming compliance by the
Initial Purchaser with its covenants in Section 4, and
assuming that the representations and warranties contained
in the purchaser questionnaires (substantially in the form
of Exhibit A to the Offering Memorandum) completed by
Accredited Investors or non-U.S. persons purchasing
Securities are true and correct as of the Closing Time,
and assuming compliance by such Accredited Investors or
non-U.S. persons, as the case may be, with the agreements
in such questionnaire, it is not necessary in connection
with the offer, sale and delivery of the Securities to the
Initial Purchaser in the manner contemplated by, or in
connection with the initial resale of such Securities by
the Initial Purchaser in accordance with, this Agreement
to register the Securities under the Act or to qualify any
indenture
4
<PAGE>
in respect of the Securities under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
(vi) The only subsidiaries of the Company as of the
date hereof are those listed on Schedule 1 hereto (the
"Subsidiaries"). The Company and the Subsidiaries have
been duly incorporated and are validly existing in good
standing as corporations under the laws of their
respective jurisdictions of incorporation, with all
requisite power and authority under such laws, and all
necessary authorizations, approvals, orders, licenses,
certificates and permits of and from regulatory or
governmental officials, bodies and tribunals, (a) to own,
lease and operate their respective properties and to
conduct their respective businesses as now conducted and
as described in the Offering Memorandum and (b) with
respect to the Company, to enter into, deliver, incur and
perform its obligations under the Operative Documents; and
are duly qualified to do business as foreign corporations
in good standing in all other jurisdictions where the
ownership or leasing of their respective properties or the
conduct of their respective businesses requires such
qualification, except where the failure to be so qualified
could not reasonably be expected to have a material
adverse effect on the business, financial condition,
assets, results of operations or prospects of the Company
and the Subsidiaries taken as a whole (a "Material Adverse
Effect"; it being understood that, without limiting the
foregoing, it shall in any event constitute a "Material
Adverse Effect" under this Agreement if any event or
condition could reasonably be expected to result in a
decrease in the Company's consolidated revenues, earnings
before interest, taxes, depreciation and amortization or
net income of 7.5% or more).
(vii) The Securities, the Exchange Securities and the
Private Exchange Securities, if any, have been duly
authorized by the Company and the Company has all
requisite corporate power and authority to execute, issue
and deliver the Securities, the Exchange Securities and
the Private Exchange Securities, if any, and to incur and
perform its obligations provided for therein. The
Securities, when executed, authenticated and issued in
accordance with the terms of the Indenture (assuming the
due authorization, execution and delivery of the Indenture
by the Trustee) and when delivered against payment of the
purchase price as provided in this Agreement, and the
Exchange Securities and the Private Exchange Securities,
if any, when executed, authenticated, issued and delivered
5
<PAGE>
by the Company in exchange for the Securities, will
constitute the valid and binding obligations of the
Company, entitled to the benefits of the Indenture,
enforceable against the Company in accordance with the
terms thereof, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and
subject to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or
at law).
(viii) This Agreement has been and as of the Closing
Time, the Registration Rights Agreement and the Indenture
will have been duly authorized, executed and delivered by
the Company and upon such execution by the Company (assuming
the due authorization, execution and delivery by the
other parties thereto) this Agreement, the Registration
Rights Agreement and the Indenture will constitute the
valid and binding obligations of the Company enforceable
against the Company in accordance with the terms hereof or
thereof, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law). No consent,
authorization, approval, license or order of, or filing,
registration or qualification with, any court or
governmental body or agency, domestic or foreign, is
required for the performance by the Company of its
obligations under the Operative Documents, or for the
consummation of the transactions contemplated hereby or
thereby except such as may be required (A) in connection
with the registration under the Act of the Securities, the
Exchange Securities or the Private Exchange Securities, if
any, pursuant to the Registration Rights Agreement
(including any filing with the NASD), (B) the
qualification of the Indenture under the Trust Indenture
Act or (C) by state securities or "blue sky" laws in
connection with the offer and sale of the Securities, the
Exchange Securities or the Private Exchange Securities, if
any, pursuant to the Registration Rights Agreement.
(ix) The issuance, sale and delivery of the Securities,
the Exchange Securities and the Private Exchange
Securities, if any, the execution, delivery and performance
by the Company of this Agreement, the Registration
Rights Agreement and the Indenture, the consummation by
the Company of the transactions contemplated hereby,
6
<PAGE>
thereby and in the Offering Memorandum and the compliance
by the Company with the terms of the foregoing do not,
and, at the Closing Time, will not, conflict with or
constitute or result in a breach or violation by the
Company or any of the Subsidiaries of (A) any of the terms
or provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would
constitute a default) by the Company or any of the
Subsidiaries or give rise to any right to accelerate the
maturity or require the prepayment of any indebtedness
under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of
the Company or any of the Subsidiaries under, any
contract, indenture, mortgage, deed of trust, loan
agreement, note, lease, license, franchise agreement,
authorization, permit, certificate or other agreement or
document to which the Company or any of the Subsidiaries
is a party or by which any of them may be bound, or to
which any of them or any of their respective assets or
businesses is subject, which individually or in the
aggregate would (1) have or result in a Material Adverse
Effect, (2) materially impair the Company's ability to
perform the obligations contemplated in the Operative
Documents and the Offering Memorandum or (3) materially
affect the consummation of the transactions contemplated
in the Operative Documents and the Offering Memorandum;
and the Company has no knowledge of any conflict, breach
or violation of such terms or provisions or of any such
default, in any such case, which has occurred or will so
result, (B) the articles or by-laws (each, an
"Organizational Document") of the Company and the
Subsidiaries or (C) any law, statute, rule or regulation,
or any judgment, decree or order, in any such case, of any
domestic or foreign court or governmental or regulatory
agency or other body having jurisdiction over the Company
or the Subsidiaries or any of their respective properties
or assets, which individually or in the aggregate would
(1) have or result in a Material Adverse Effect,
(2) materially impair the Company's ability to perform the
obligations contemplated in the Operative Documents and
the Offering Memorandum or (3) materially affect the
consummation of the transactions contemplated in the
Operative Documents and the Offering Memorandum.
(x) The Securities, the Exchange Securities, the
Credit Agreement (as defined herein), the Registration
Rights Agreement and the Indenture each conform in all
material respects to the descriptions thereof in the
Offering Memorandum.
7
<PAGE>
(xi) The audited and unaudited consolidated financial
statements of the Company included in the Offering
Memorandum, together with the related notes thereto,
present fairly the financial position, results of
operations and cash flows of the Company and the
Subsidiaries, at the dates and for the periods to which
they relate, and have been prepared in accordance with
generally accepted accounting principles ("GAAP"). Price
Waterhouse LLP, which has examined the audited
consolidated financial statements of the Company as set
forth in its report included in the Offering Memorandum,
is an independent public accounting firm with respect to
the Company within the meaning of the requirements of the
Act and the rules and regulations thereunder.
(xii) Since the respective dates as of which
information is given in the Offering Memorandum, except as
otherwise specifically stated therein, there has been no
(A) material adverse change in, the financial condition,
properties, assets, results of operations or prospects of
the Company and the Subsidiaries taken as a whole, whether
or not arising in the ordinary course of business (a
"Material Adverse Change"), (B) transaction entered into
by the Company or the Subsidiaries, other than in the
ordinary course of business, that is material to the
Company and the Subsidiaries, taken as a whole or
(C) dividend or distribution of any kind declared, paid or
made by the Company on its capital stock.
(xiii) The Company has the authorized, issued and
outstanding capitalization set forth in the Offering
Memorandum under the caption "Capitalization"; all of the
outstanding capital stock of the Company has been duly
authorized and validly issued, is fully paid and
nonassessable and was not issued in violation of any
preemptive or similar rights (whether provided
contractually or pursuant to any Organizational Document).
The Company does not own, directly or indirectly, any
shares or any other equity or long-term debt securities or
have any equity interest in any firm, partnership, joint
venture or other entity other than the Subsidiaries and
those joint ventures indicated on Schedule 1 hereto,
except as described in the Offering Memorandum. No holder
of any securities of the Company is entitled to have such
securities (other than the Securities, the Exchange
Securities and the Private Exchange Securities, if any)
registered under any registration statement contemplated
by the Registration Rights Agreement. All of the
outstanding capital stock of each of the
8
<PAGE>
Subsidiaries has been duly authorized and validly issued, is
fully paid and nonassessable and was not issued in violation
of any preemptive or similar rights (whether provided
contractually or pursuant to any Organizational Document)
and the outstanding shares of the capital stock owned by
the Company of the Subsidiaries are owned beneficially and
of record by the Company free and clear of all liens,
encumbrances, equities and claims or restrictions on
transferability or voting except for liens in favor of the
lenders under the Company's existing revolving credit
facility and, as of the Closing Time, liens in favor of
the lenders under the Credit Agreement (as defined in
Section 7(h)).
(xiv) Neither the Company nor the Subsidiaries is
(A) in violation of its respective Organizational
Documents, (B) in default (or, with notice or lapse of
time or both, would be in default) in the performance or
observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage,
deed of trust, loan agreement, note, lease, license,
franchise agreement, authorization, permit, certificate or
other agreement or instrument to which it is a party or by
which it may be bound, or to which any of its respective
assets or properties is subject, or (C) in violation of
any law, statute, judgment, decree, order, rule or
regulation of any domestic or foreign court with
jurisdiction over the Company or the Subsidiaries or any
of their respective assets or properties, or other
governmental or regulatory authority, agency or other body
other than such defaults or violations which, individually
or in the aggregate, could not reasonably be expected to
have or result in, in the case of clause (B) or (C), a
Material Adverse Effect; and any real property and
buildings held under lease by the Company or the
Subsidiaries which are material (individually or in the
aggregate) to the Company and the Subsidiaries, are held
by the Company or the applicable Subsidiary, as the case
may be, under valid, subsisting and enforceable leases
with such exceptions that would not, individually or in
the aggregate, have or result in a Material Adverse
Effect.
(xv) The Company and the Subsidiaries own or possess,
or can acquire on reasonable terms, adequate licenses,
trademarks, service marks, trade names, copyrights and
know-how (including trade secrets and other proprietary or
confidential information, systems or procedures)
(collectively, "intellectual property") necessary to
conduct the
9
<PAGE>
business now or proposed to be operated by each of them
as described in the Offering Memorandum, except where the
failure to own, possess or have the ability to acquire any
such intellectual property could not, individually or in the
aggregate, be reasonably expected to have a Material Adverse
Effect; and neither the Company nor any of the Subsidiaries
has received any notice of infringement of or conflict with
(and neither knows of any such infringement of or conflict with)
asserted rights of others with respect to any of such
intellectual property which, if any such assertions of
infringement or conflict were sustained, individually or
in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(xvi) The Company and the Subsidiaries have obtained
all consents, approvals, orders, certificates, licenses,
permits, franchises and other authorizations of and from,
and has made all declarations and filings with, all
governmental and regulatory authorities, all self-
regulatory organizations and all courts and other
tribunals necessary to own, lease, license and use their
respective properties and assets and to conduct their
respective businesses in the manner described in the
Offering Memorandum, except to the extent that the failure
to so obtain or file, individually or in the aggregate,
could not reasonably be expected to have a Material
Adverse Effect.
(xvii) There is no legal action, suit, proceeding
inquiry or investigation before or by any court or
governmental body or agency, domestic or foreign, now
pending or, to the best knowledge of the Company,
threatened against the Company or any of the Subsidiaries
or affecting the Company or the Subsidiaries or any of
their respective properties which would, individually or
in the aggregate, have a Material Adverse Effect or which
could have any effect on the power or ability of the
Company to perform its obligations under the Operative
Documents or to consummate the transactions contemplated
hereby or thereby other than proceedings accurately
summarized in the Offering Memorandum. Except as set
forth in the Offering Memorandum, neither the Company nor
any of the Subsidiaries has received any notice or claim
of any default (or event, condition or omission which with
notice or lapse of time or both would result in a default)
under any of its respective material contracts or has
knowledge of any breach of any of such contracts by the
other party or parties thereto, except such defaults or
breaches as
10
<PAGE>
could not reasonably be expected to result in a Material
Adverse Effect.
(xviii) Each of the Company and the Subsidiaries has
filed all necessary federal, state and foreign income and
franchise tax returns, except where the failure to so file
such returns would not result in a Material Adverse
Effect, and has paid all taxes shown as due thereon; and
there is no tax deficiency that has been asserted against
the Company or any of the Subsidiaries that would result
in a Material Adverse Effect.
(xix) Each of the Company and the Subsidiaries has
good and marketable title to all real and personal
property described in the Offering Memorandum as being
owned by it and good and marketable title to a leasehold
estate in the real and personal property described in the
Offering Memorandum as being leased by it, free and clear
of all liens, charges, encumbrances or restrictions,
except, in each case, as described in the Offering
Memorandum or to the extent the failure to have such title
or the existence of such liens, charges, encumbrances or
restrictions does not result in a Material Adverse Effect.
All material leases, contracts and agreements to which the
Company or any of the Subsidiaries is a party or by which
either is bound are, with respect to the Company or any of
the Subsidiaries, as the case may be, valid, enforceable
and are in full force and effect with only such exceptions
as would not have a Material Adverse Effect.
(xx) Neither the Company nor any of the Subsidiaries
is an "investment company" or a company "controlled by" an
"investment company" as such terms are defined in the
Investment Company Act of 1940, as amended, and the rules
and regulations thereunder.
(xxi) No labor problem, dispute or disturbance with
the employees of the Company or any of the Subsidiaries
exists or, to the best knowledge of the Company, is
threatened which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(xxii) The representations and warranties of the
Company contained in the Securities Purchase Agreement
dated as of July 3, 1995 (the "Preferred Stock Purchase
Agreement") among the Company, UBS Capital Corporation and
Appian Capital Partners, L.L.C. are true and correct in
all material respects.
11
<PAGE>
(b) Any certificate signed by any officer of the
Company and delivered to the Initial Purchaser or to counsel
for the Initial Purchaser pursuant to the terms of this
Agreement shall be deemed a representation and warranty by the
Company to the Initial Purchaser as to the matters covered
thereby.
SECTION 2. Purchase and Sale of the Securities. The
Company agrees to sell to the Initial Purchaser and, subject to
the terms and conditions and in reliance upon the representations
and warranties of the Company herein set forth, the Initial
Purchaser agrees to purchase from the Company, at a purchase
price of 96 1/4% of the principal amount thereof, $100,000,000
principal amount of Securities.
SECTION 3. Delivery and Payment. Delivery of and
payment for the Securities shall be made at 10:00 A.M., New
York City time, on July 19, 1995, or such later date and time
not more than two (2) business days thereafter as the Initial
Purchaser and the Company shall agree (such date and time of
delivery and payment for the Securities being herein called the
"Closing Time"). Delivery of the Securities shall be made to
the Initial Purchaser against payment by the Initial Purchaser
of the purchase price thereof by wire transfer or certified or
official bank check or checks payable in federal (immediately
available) funds to the order of the Company or as the Company
may direct; provided that the Company shall reimburse the
Initial Purchaser for all costs and expenses associated with
obtaining such federal funds. Delivery of the Securities in
definitive form shall be made at such location as the Initial
Purchaser shall reasonably designate at least one business day
in advance of the Closing Time and payment for the Securities
shall be made at the offices of Cahill Gordon & Reindel, 80
Pine Street, New York, New York. Certificates for the
Securities shall be registered in such names and in such
denominations as the Initial Purchaser may request not less
than two full business days in advance of the Closing Time.
The Company agrees to have the Securities available
for inspection, checking and packaging by the Initial Purchaser
in New York, New York, not later than 10:00 A.M. on the
business day prior to the Closing Time.
SECTION 4. Resale of the Securities. (a) The
Initial Purchaser has advised the Company that it proposes to
offer the Securities for resale upon the terms and conditions
set forth in this Agreement and in the Offering Memorandum.
The Initial Purchaser hereby represents and warrants to, and
12
<PAGE>
agrees with, the Company that the Initial Purchaser (i) is a
Qualified Institutional Buyer, (ii) has not and will not
solicit offers for, or offer or sell, the Securities by means
of any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of
Section 4(2) of the Act and has not and will not engage in any
directed selling efforts within the meaning of Rule 902 under
the Act in the United States in connection with the Securities
being offered and sold pursuant to Regulation S under the Act,
(iii) is not purchasing with a view to or for offer or sale in
connection with any distribution that would be in violation of
federal or state law and (iv) will solicit offers for such
Securities pursuant to Rule 144A, Regulation S or resales not
involving a public offering, as applicable, only from, and will
offer, sell or deliver the Securities, as part of their initial
offering, only to (A) persons in the United States whom the
Initial Purchaser reasonably believes to be Qualified
Institutional Buyers or, if any such person is buying for one
or more institutional accounts for which such person is acting
as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a Qualified
Institutional Buyer, to whom notice has been given that such
sale or delivery is being made in reliance on Rule 144A, and,
in each case, in transactions under Rule 144A, (B) a limited
number of other institutional investors whom the Initial
Purchaser reasonably believes to be Accredited Investors that
are purchasing for their own accounts or for the account of an
Accredited Investor for investment purposes and not with a view
to, or for offer or sale in connection with, any distribution
of the Securities in violation of the Act and (C) non-U.S.
persons outside the United States to whom the Initial Purchaser
reasonably believes offers and sales of the Securities may be
made in reliance upon Regulation S under the Act in
transactions meeting the requirements of Regulation S; provided
that with respect to clauses (B) and (C), each such transfer of
Securities is effected by the delivery to such purchaser of
Securities in definitive form and registered in its name (or
its nominee's name) on the books maintained by the Trustee; and
provided, further, that with respect to clause (B), such
institutional investors shall be required to complete and
deliver a purchaser questionnaire (substantially in the form of
Exhibit A to the Offering Memorandum) to the Initial Purchaser
prior to the confirmation of any order.
(b) In connection with sales outside the United
States, the Initial Purchaser represents and warrants to and
agrees with the Company that it will not offer, sell or deliver
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<PAGE>
Securities to, or for the account or benefit of, U.S. persons
(within the meaning of Regulation S under the Act) (i) as part
of the Initial Purchaser's distribution at any time or
(ii) otherwise until forty (40) days after the later of the
commencement of the offering and the Closing Time, and it will
send to each dealer to whom it sells such Securities during
such period, a confirmation or other notice setting forth the
restrictions on offers and sales of the Securities within the
United States or to, or for the account or benefit of, U.S.
persons.
SECTION 5. Covenants of the Company. The Company
covenants with the Initial Purchaser as follows:
(a) The Company will furnish to the Initial
Purchaser and counsel for the Initial Purchaser, without
charge, such number of copies of the Preliminary Offering
Memorandum and the Offering Memorandum and any amendments
or supplements thereto as the Initial Purchaser and its
counsel may reasonably request.
(b) The Company will not at any time make any
amendment or supplement to the Preliminary Offering
Memorandum or the Offering Memorandum without the prior
written consent of the Initial Purchaser.
(c) If at any time prior to completion of the
distribution of the Securities by the Initial Purchaser to
purchasers who are not its affiliates (as determined by
the Initial Purchaser) any event shall occur or condition
shall exist as a result of which it is necessary, in the
opinion of the Initial Purchaser or counsel for the
Initial Purchaser, to amend or supplement the Offering
Memorandum in order that the Offering Memorandum, as then
amended or supplemented, will not include an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances existing at the time it is
delivered to a purchaser, not misleading or if in the
opinion of the Initial Purchaser or counsel to the Initial
Purchaser, such amendment or supplement is necessary to
comply with applicable law, the Company will, subject to
paragraph (b) of this Section 5, promptly prepare, at its
own expense, such amendment or supplement as may be
necessary to correct such untrue statement or omission or
to effect such compliance (in form and substance agreed
upon by counsel to the Initial Purchaser), so that as so
amended or supplemented, the statements in the Offering
14
<PAGE>
Memorandum will not include an untrue statement of a
material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of
the circumstances existing at the time it is delivered to
a purchaser, not misleading or so that such Offering
Memorandum as so amended or supplemented will comply with
applicable law, as the case may be, and furnish to the
Initial Purchaser such number of copies of such amendment
or supplement as the Initial Purchaser may reasonably
request. The Company agrees to notify the Initial
Purchaser in writing to suspend use of the Offering
Memorandum as promptly as practicable after the occurrence
of an event specified in this paragraph (c), and the
Initial Purchaser hereby agrees upon receipt of such
notice from the Company to suspend use of the Offering
Memorandum until the Company has amended or supplemented
the Offering Memorandum to correct such misstatement or
omission or to effect such compliance.
(d) Notwithstanding any provision of paragraph
(b) or (c) to the contrary, however, the Company's
obligations under paragraphs (b) and (c) and the Initial
Purchaser's obligations under paragraph (c) shall
terminate on the earliest to occur of (i) expiration of
the Exchange Offer (as defined in the Registration Rights
Agreement) pursuant to the Registration Rights Agreement,
(ii) the effective date of a shelf registration statement
with respect to the Securities filed pursuant to the
Registration Rights Agreement, (iii) the date upon which
the Initial Purchaser and its affiliates cease to hold
Securities acquired as part of their initial distribution
and (iv) the date upon which the Initial Purchaser and its
affiliates cease to hold Private Exchange Securities, if
any.
(e) Neither the Company nor any of its
affiliates (as defined in Rule 501(b) under the Act) will
solicit any offer to buy or offer or sell the Securities,
the Exchange Securities or the Private Exchange
Securities, if any, by means of any form of general
solicitation or general advertising (as such terms are
used in Regulation D under the Act), or by means of any
directed selling efforts (as defined in Rule 902 under the
Act) in the United States in connection with the
Securities being offered and sold pursuant to Regulation S
or in any manner involving a public offering within the
meaning of Section 4(2) of the Act prior to the
effectiveness of a registration statement with respect to
the Securities, the
15
<PAGE>
Exchange Securities or the Private Exchange Securities,
as applicable.
(f) Neither the Company nor any of its
affiliates (as defined in Rule 501(b) under the Act) will
offer, sell or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the
Act) which could be integrated with the sale of the
Securities in a manner that would require the registration
of the Securities under the Act.
(g) The Company will, so long as the Securities
are outstanding, furnish to the Trustee on a timely basis,
pursuant to the Indenture, whether or not the Company has
a class of securities registered under the Exchange Act
(i) audited year-end consolidated financial statements
(including a balance sheet, income statement, statement of
shareholders' equity and statement of changes of cash
flow) prepared in accordance with GAAP and substantially
in the form required under Regulation S-X under the
Exchange Act and the information described in Item 303 of
Regulation S-K under the Act with respect to such period
and (ii) unaudited quarterly consolidated financial
statements (including a balance sheet, income statement,
statement of shareholders' equity and statement of changes
of cash flow) prepared in accordance with GAAP and
substantially in the form required by Regulation S-X under
the Exchange Act and the information described in Item 303
of Regulation S-K under the Act with respect to such
period and will furnish to the Initial Purchaser copies of
all such reports and information, together with such other
documents, reports and information as shall be furnished
by the Company to the holders of the Securities or to the
Trustee. In the event the Company is not subject to
Section 13 or 15(d) of the Exchange Act, the Company will
furnish to holders of Securities and prospective purchasers
of Securities designated by such holders, upon
request of such holders or such prospective purchasers,
the information required to be delivered pursuant to
Rule 144A(d)(4) under the Act to permit compliance with
Rule 144A in connection with resales of the Securities.
(h) The Company will use its best efforts in
cooperation with the Initial Purchaser to (i) permit the
Securities to be eligible for clearance and settlement
through The Depository Trust Company and (ii) permit the
Securities to be designated PORTAL securities in
accordance with the rules and regulations of the NASD.
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<PAGE>
(i) Prior to the Closing Time, the Company,
will furnish to the Initial Purchaser, as soon as they
have been prepared by the Company, a copy of any unaudited
interim financial statements of the Company for any period
subsequent to the period covered by the most recent
financial statements of the Company appearing in the
Offering Memorandum.
(j) Each Security and Private Exchange
Security, if any, will bear the following legend until
such legend shall no longer be necessary or advisable
because the Securities are no longer subject to the
restrictions on transfer described herein:
THE SECURITIES EVIDENCED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE OR OTHER SECURITIES LAWS. NEITHER
THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER THIS SECURITY, PRIOR TO THE
DATE WHICH IS THREE YEARS AFTER THE LATER OF
THE ORIGINAL ISSUE DATE HEREOF AND THE LAST
DATE ON WHICH PEOPLES TELEPHONE COMPANY, INC.
(THE "COMPANY") OR ANY AFFILIATE OF THE
COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE
RESTRICTION TERMINATION DATE"), ONLY (A) TO
THE COMPANY, (B) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS
THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A, TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT THAT PURCHASES FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE
IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES TO NON-U.S. PERSONS THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
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REGULATION S UNDER THE SECURITIES ACT,
(E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR"
WITHIN THE MEANING OF SUBPARAGRAPH (a)(1),
(2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE
SECURITIES FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED
INVESTOR," FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW TO, OR FOR OFFER OR SALE IN
CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION
OF THE SECURITIES ACT OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY OFFER, SALE OR
TRANSFER PURSUANT TO CLAUSE (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN EACH OF
THE FOREGOING CASES, TO REQUIRE THAT A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING
ON THE OTHER SIDE OF THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO
THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON
THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
(k) The Company will arrange for the registration
and qualification of the Securities for offering and
sale under the applicable securities or "blue sky" laws of
such states and other jurisdictions as the Initial
Purchaser may designate in connection with the resale of
the Securities as contemplated by this Agreement and the
Offering Memorandum and will continue such qualifications
in effect for as long as may be necessary to complete the
distribution of the Securities; provided that in no event
shall the Company be obligated to (i) qualify as a foreign
corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to
so qualify but for this Section 5(k), (ii) file any
general consent to service of process in any jurisdiction
where it is not at the Closing Time then so subject or
(iii) subject itself to taxation in any such jurisdiction
if it is not so subject. The Company will file such
statements and reports as may be required by the laws of
each jurisdiction in which the Securities have been
qualified as above provided. The Company shall promptly
advise the Initial Purchaser of the receipt by the Company
of any notification with respect to the suspension of the
qualification
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or exemption from qualification of the Securities for offering
or sale in any jurisdiction or the institution, threatening or
contemplation of any proceeding for such purpose.
(l) From the date hereof to the Closing Time,
the Company will not issue any press release or other
public communication directly or indirectly or hold any
press conference with respect to the Company or any of the
Subsidiaries or the business, financial condition, assets,
results of operations or prospects of the Company or any
of the Subsidiaries, without the prior consent of the
Initial Purchaser (which consent shall not be unreasonably
withheld), unless in the judgment of the Company and its
counsel, and after notification to the Initial Purchaser,
such press release, communication or conference is
required by law.
(m) The Company will use the proceeds received
from the sale of the Securities in the manner specified in
the Offering Memorandum under the heading "Use of
Proceeds."
(n) The Company shall not, for a period of 180
days from the date of the Offering Memorandum, without the
prior written consent of the Initial Purchaser, directly
or indirectly, offer, sell, grant any option to purchase
or otherwise dispose of any debt securities of the Company
or any of the Subsidiaries (other than the Exchange
Securities and the Private Exchange Securities, if any).
SECTION 6. Payment of Expenses. (a) Whether or not
any sale of the Securities is consummated, the Company will pay
and bear all costs and expenses incident to the performance of
its obligations under this Agreement, including (i) the preparation
and printing of the Preliminary Offering Memorandum,
the Offering Memorandum and any amendments or supplements
thereto and the cost of furnishing copies thereof to the
Initial Purchaser, (ii) the preparation, issuance, printing and
distribution of the Securities, the Exchange Securities, the
Private Exchange Securities, if any, and any survey of state
securities or "blue sky" laws or legal investment memoranda,
(iii) the delivery to the Initial Purchaser of the Securities,
the Exchange Securities or the Private Exchange Securities,
(iv) the fees and disbursements of the Company's counsel and
accountants, (v) the qualification of the Securities under the
applicable state securities or "blue sky" laws in accordance
with the provisions of Section 5(k) hereof and any filing for
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<PAGE>
review of the offering with the NASD, if required, including
filing fees and reasonable fees and disbursements of counsel to
the Initial Purchaser in connection therewith and in connection
with the preparation of any survey of state securities or "blue
sky" laws or legal investment memoranda, (vi) any fees charged
by rating agencies for rating the Securities, the Exchange
Securities and the Private Exchange Securities, if any,
(vii) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee, (viii) all
expenses (including travel expenses) of the Company and the
Initial Purchaser in connection with any meetings with
prospective investors in the Securities and (ix) all expenses
and listing fees in connection with the application for
designation of the Securities as PORTAL securities.
(b) If the sale of the Securities provided for
herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 7
hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure,
refusal or inability on the part of the Company to perform all
obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than by reason of a
default by the Initial Purchaser in payment for the Securities
at the Closing Time, the Company shall reimburse the Initial
Purchaser promptly upon demand for all reasonable out-of-pocket
expenses (including reasonable fees and disbursements of its
counsel) that shall have been incurred by it in connection with
the proposed purchase and sale of the Securities.
SECTION 7. Conditions of the Initial Purchaser's
Obligations. The obligations of the Initial Purchaser to
purchase and pay for the Securities are subject to the
continued accuracy, as of the Closing Time, of the
representations and warranties of the Company herein contained,
to the accuracy of the statements of the Company and officers
of the Company made in any certificate pursuant to the
provisions hereof, to the performance by the Company of its
obligations hereunder, and to the following further conditions:
(a) At the Closing Time, the Initial Purchaser shall
have received the opinion of Greenberg, Traurig, Hoffman,
Lipoff, Rosen, and Quentel, P.A., counsel for the Company,
dated as of the Closing Time, in form and substance
reasonably satisfactory to the Initial Purchaser and
counsel for the Initial Purchaser, to the effect that:
20
<PAGE>
(1) the Company is duly incorporated and is
validly existing under the laws of the State of
New York, with full corporate power and authority to
own, lease and operate its assets and properties and
conduct its business as described in the Offering
Memorandum;
(2) the authorized, issued and outstanding
capital stock of the Company is as set forth in the
Offering Memorandum under the caption
"Capitalization";
(3) the Company has the requisite corporate
power and authority to execute, deliver and perform
its obligations under this Agreement, the
Registration Rights Agreement, the Securities, the
Exchange Securities, the Private Exchange Securities
and the Indenture; and each of this Agreement, the
Registration Rights Agreement, the Securities, the
Exchange Securities, the Private Exchange Securities
and the Indenture has been duly authorized by the
Company; the Company has the requisite corporate
power and authority to issue and deliver the
Securities, the Exchange Securities and the Private
Exchange Securities; and the Securities, the Exchange
Securities and the Private Exchange Securities have
been duly authorized by the Company for issuance;
(4) no consent, approval, authorization,
license, qualification or order of or filing or
registration with, any court or governmental or
regulatory agency or body of the United States or the
States of Florida and New York is required for the
execution and delivery by the Company of this
Agreement, the Registration Rights Agreement or the
Indenture or for the issue and sale of the
Securities, the Exchange Securities or the Private
Exchange Securities, if any, or the consummation by
the Company of any of the transactions contemplated
herein or therein, except such as may be required (A)
in connection with the registration under the Act of
the Securities, the Exchange Securities or the
Private Exchange Securities, if any, pursuant to the
Registration Rights Agreement, (B) the qualification
of the Indenture under the Trust Indenture Act in
connection with the registration of the Securities,
the Exchange Securities or the Private Exchange
Securities, if any, pursuant to the Registration
Rights
21
<PAGE>
Agreement and (C) such as may be required under the
"blue sky" laws of any jurisdiction in connection with
the purchase and distribution of the Securities by the
Initial Purchaser (as to which such counsel need express
no opinion);
(5) the issuance, sale and delivery of the
Securities, Exchange Securities and the Private
Exchange Securities, if any, the execution, delivery
and performance by the Company of this Agreement, the
Registration Rights Agreement and the Indenture, the
consummation by the Company of the transactions
contemplated hereby, thereby and in the Offering
Memorandum and the compliance by the Company with the
terms of the foregoing do not, and, at the Closing
Time, will not, conflict with or constitute or result
in a breach or violation by the Company or any of the
Subsidiaries of (A) any of the terms or provisions
of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a
default) by the Company or any of the Subsidiaries or
give rise to any right to accelerate the maturity or
require the prepayment of any indebtedness under, or
result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of
the Company or any of the Subsidiaries under, any of
the agreements and documents which are identified on
a schedule to such opinion (which schedule shall be
in the form attached hereto as Schedule 2), (B) the
Organizational Documents of the Company and any of
the Subsidiaries or (C) any law, rule or regulation
of the United States or the States of Florida and New
York or any order, decree or judgment known to such
counsel to be applicable to the Company or any of the
Subsidiaries, in any such case, of any court or
governmental or regulatory agency or body or
arbitrator;
(6) the statements in the Offering Memorandum
under the headings "Summary - The Offering,"
"Description of the Credit Agreement," "Description
of the Notes" and "Exchange Offer; Registration
Rights," insofar as such statements purport to
summarize certain provisions of the Credit Agreement,
the Securities, the Exchange Securities, the
Registration Rights Agreement and the Indenture
provide a fair summary of such provisions of such
agreements and instruments;
22
<PAGE>
(7) each of the Indenture and the Registration
Rights Agreement (assuming due authorization and
execution of each by each party thereto) constitutes
a valid and binding agreement of the Company,
enforceable against the Company in accordance with
its terms, except (a) as the enforceability thereof
may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally,
(b) as the enforceability thereof may be subject to
the application of general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law) and (c) with respect
to the Registration Rights Agreement, that such
counsel expresses no opinion regarding the
enforceability of the indemnification provisions
contained in Section 4 thereof;
(8) each of the Securities, when executed and
authenticated in accordance with the provisions of
the Indenture and delivered and paid for in
accordance with the terms of this Agreement and with
respect to the Exchange Securities and the Private
Exchange Securities, if any, when executed,
authenticated and delivered in exchange for the
Securities in accordance with the Registration Rights
Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations
of the Company, enforceable in accordance with its
terms except as (a) the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement
of creditors' rights generally and (b) the
enforceability thereof may be subject to the
application of general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law);
(9) to the knowledge of such counsel, other
than as described in the Offering Memorandum, no
legal, regulatory or governmental proceedings
(including proceedings by or before any court or
governmental or regulatory agency or body of the
United States or the States of Florida and New York)
are pending to which the Company is a party or to
which the assets of the Company are subject which,
individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect or which,
individually or in the aggregate, would have a
material adverse effect on the power or ability of the
23
<PAGE>
Company to perform its obligations under the
Operative Documents or to consummate the transactions
contemplated thereby or by the Offering Memorandum
and no such material proceedings have been threatened
against the Company or with respect to any of its
assets or properties;
(10) the Company is not required to register as
an investment company as such term is defined in the
Investment Company Act of 1940, as amended;
(11) assuming that the representations and
warranties of the Initial Purchaser contained in
Section 4 of this Agreement are true, correct and
complete, and assuming compliance by the Initial
Purchaser with its covenants in Section 4 hereof, and
assuming that the representations and warranties
contained in the purchaser questionnaires
(substantially in the form of Exhibit A to the
Offering Memorandum) completed by Accredited
Investors and non-U.S. persons purchasing Securities
from the Initial Purchaser are true and correct as of
the Closing Time, and assuming compliance by such
Accredited Investors and non-U.S. persons with the
agreements in such questionnaires, it is not
necessary in connection with the offer, sale and
delivery of the Securities to the Initial Purchaser
under, or in connection with the initial resale of
such Securities by the Initial Purchaser in
accordance with, this Agreement to register the
Securities under the Act or to qualify any indenture
in respect of the Securities under the Trust
Indenture Act; and
(12) when the Securities are issued and
delivered pursuant to this Agreement, such Securities
will not be of the same class (within the meaning of
Rule 144A) as securities of the Company which are
listed on a national securities exchange registered
under Section 6 of the Exchange Act or quoted in a
U.S. automated inter-dealer quotation system.
In addition such counsel shall state that such
counsel has participated in conferences with
representatives of the Initial Purchaser, officers and
other representatives of the Company and representatives
of the independent certified accountants of the Company,
at which conferences the contents of the Offering
Memorandum and related matters were discussed, and
although such counsel
24
<PAGE>
has not verified and does not pass upon or assume any
responsibility for the accuracy, completeness or fairness
of the statements contained in the Offering Memorandum
(except and only to the extent set forth in clause (6) above),
on the basis of the foregoing (relying as to materiality to a
large extent upon representations and opinions of officers
and other representatives of the Company), no facts have come
to the attention of such counsel which lead such counsel to
believe that the Offering Memorandum at the date thereof
or as of the Closing Time, contained or contains an untrue
statement of a material fact or omitted or omits to state
a material fact necessary to make the statements therein,
in the light of the circumstances under which they were
made, not misleading; provided that such counsel need not
express any comment with respect to the financial
statements including the notes thereto and supporting
schedules, or any other financial and statistical data set
forth or referred to in the Offering Memorandum.
References to the Offering Memorandum in this
subsection (a) include any supplements thereto at or prior
to the Closing Time.
In rendering such opinions, such counsel (A) need not
express any opinion with regard to the application of laws
of any jurisdiction other than the Federal law of the
United States and the laws of the States of Florida and
New York and (B) may rely, as to matters of fact, to the
extent they deem proper on representations or certificates
of responsible officers of the Company and certificates of
public officials.
(b) At the Closing Time, the Initial Purchaser shall
have received the opinion of Bruce W. Renard, Esq., Vice
President - Regulatory Affairs/General Counsel of the
Company, dated as of the Closing Time, in form and
substance reasonably satisfactory to the Initial Purchaser
and counsel for the Initial Purchaser, to the effect that:
(1) each of the Subsidiaries is duly
incorporated and is validly existing under the laws
of its respective state of incorporation, with full
corporate power and authority to own, lease and
operate its assets and properties and conduct its
business as described in the Offering Memorandum;
25
<PAGE>
(2) each of the Company and the Subsidiaries is
duly qualified to do business as a foreign
corporation in good standing under the laws of all
other jurisdictions where the ownership or leasing of
its respective properties and assets or the conduct
of its respective business requires such
qualification, except where the failure to be so
qualified could not reasonably be expected to have a
Material Adverse Effect;
(3) all of the outstanding capital stock of the
Company has been duly authorized and validly issued,
is fully paid and nonassessable and was not issued in
violation of any preemptive or similar rights
(whether provided contractually (to such counsel's
knowledge) or pursuant to Organizational Documents);
no holder of any securities of the Company is
entitled to have such securities (other than the
Securities, the Exchange Securities and the Private
Exchange Securities, if any) registered under any
registration statement contemplated by the
Registration Rights Agreement;
(4) all of the outstanding capital stock of
each of the Subsidiaries has been duly authorized and
validly issued, is fully paid and nonassessable and
was not issued in violation of any preemptive or
similar rights (whether provided contractually or
pursuant to any Organizational Document) and the
outstanding shares of the capital stock owned by the
Company of the Subsidiaries are owned beneficially
and of record by the Company free and clear of all
liens, encumbrances, equities and claims of
restrictions on transferability or voting except for
liens in favor of the lenders under the Credit
Agreement (as defined in Section 7(h));
(5) to the knowledge of such counsel, other
than as described in the Offering Memorandum, no
legal, regulatory or governmental proceedings are
pending to which the Company or any of the
Subsidiaries is a party or to which the assets of the
Company or any of the Subsidiaries are subject which,
individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect or which,
individually or in the aggregate, would have a
material adverse effect on the power or ability of
the Company to perform its obligations under the
26
<PAGE>
Operative Documents or to consummate the transactions
contemplated thereby or by the Offering Memorandum
and no such material proceedings have been threatened
against the Company or any of the Subsidiaries or
with respect to any of its respective assets or
properties;
(6) to the knowledge of such counsel, neither
the Company nor any of the Subsidiaries is (A) in
violation of its respective Organizational Documents,
(B) in default (or, with notice or lapse of time or
both, would be in default) in the performance or
observance of any obligation, agreement, covenant or
condition contained in any contract, indenture,
mortgage, deed of trust, loan agreement, note, lease,
license, franchise agreement, authorization, permit,
certificate or other agreement or instrument to which
it is a party or by which it may be bound, or to
which any of its respective assets or properties is
subject, or (C) in violation of any law, statute,
judgment, decree, order, rule or regulation of any
domestic or foreign court with jurisdiction over the
Company or any of the Subsidiaries or any of their
respective assets or properties, or other
governmental or regulatory authority, agency or other
body other than such defaults or violations which,
individually or in the aggregate, could not
reasonably be expected to have or result in, in the
case of clause (B) or (C), a Material Adverse Effect;
and any real property and buildings held under lease
by the Company or any of the Subsidiaries which are
material (individually or in the aggregate) to the
Company and the Subsidiaries, are held by the Company
or the applicable Subsidiary, as the case may be,
under valid, subsisting and enforceable leases with
such exceptions that would not, individually or in
the aggregate, have or result in a Material Adverse
Effect;
(7) to the knowledge of such counsel, the
Company and each of the Subsidiaries own or possess
or can acquire on reasonable terms the intellectual
property necessary to conduct the business now or
proposed to be operated by each of them as described
in the Offering Memorandum, except where the failure
to own, possess or have the ability to acquire any
such intellectual property could not, individually or
in the aggregate, be reasonably expected to have a
27
<PAGE>
Material Adverse Effect; and to the knowledge of such
counsel, neither the Company nor any of the
Subsidiaries has received any notice of infringement
of or conflict with (and such counsel does not know
of any such infringement of or conflict with)
asserted rights of others with respect to any of such
intellectual property which, if any such assertions
of infringement or conflict were sustained,
individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect;
(8) to the knowledge of such counsel, the
Company and each of the Subsidiaries have obtained
all consents, approvals, orders, certificates,
licenses, permits, franchises and other
authorizations of and from, and has made all
declarations and filings with, all governmental and
regulatory authorities, all self-regulatory
organizations and all courts and other tribunals
necessary to own, lease, license and use their
respective properties and assets and to conduct their
respective businesses in the manner described in the
Offering Memorandum, except to the extent that the
failure to so obtain or file, individually or in the
aggregate, could not reasonably be expected to have a
Material Adverse Effect; and
(9) the statements set forth in the Offering
Memorandum under the headings "Risk Factors -
Regulatory Factors," "Business - Regulation," and
"Business - Legal Proceedings," insofar as such
statements constitute a summary of statutes, rules,
regulations, legal matters, documents or proceedings
referred to therein, provide a fair summary of such
statutes, rules, regulations, legal matters,
documents and proceedings and the information with
respect thereto.
In addition such counsel shall state that such
counsel has participated in conferences with
representatives of the Initial Purchaser, officers
and other representatives of the Company and
representatives of the independent certified
accountants of the Company, at which conferences the
contents of the Offering Memorandum and related
matters were discussed, and although such counsel has
not verified and does not pass upon or assume any
responsibility for the accuracy, completeness or
fairness of the statements contained in the Offering
Memorandum, on
28
<PAGE>
the basis of the foregoing (relying as to materiality
to a large extent upon representations and opinions of
officers and other representatives of the Company), no
facts have come to the attention of such counsel which
lead such counsel to believe that the Offering Memorandum
at the date thereof or as of the Closing Time, contained
or contains an untrue statement of a material fact or
omitted or omits to state a material fact necessary to make
the statements therein, in the light of the circumstances
under which they were made, not misleading; provided
that such counsel need not express any comment with
respect to the financial statements, including the
notes thereto, or any other financial or statistical
data set forth or referred to in the Offering
Memorandum.
(c) The Initial Purchaser shall have received the
favorable opinion, dated as of the Closing Time, of Cahill
Gordon & Reindel, counsel for the Initial Purchaser, with
respect to certain matters set forth in clauses (3), (6)
(other than with respect to the Credit Agreement), (7),
(8) and (11) of subsection (a) of this Section 7.
In rendering such opinions, such counsel (A) need not
express any opinion with regard to the application of laws
of any jurisdiction other than the Federal law of the
United States and the laws of the State of New York and
(B) may rely, as to matters of fact, to the extent they
deem proper on representations or certificates of
responsible officers of the Company and certificates of
public officials.
In giving its opinion required by this subsection (c)
of this Section 7, such counsel shall additionally state
that such counsel has participated in conferences with
officers and other representatives of the Company and
representatives of the independent accountants for the
Company and representatives of the Initial Purchaser at
which conferences the contents of the Offering Memorandum
and related matters were discussed, and although such
counsel has not verified and does not pass upon and does
not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in
the Offering Memorandum, on the basis of the foregoing
(relying as to materiality to a large extent upon the
representations and opinions of officers and other
representatives of the Company), no facts have come to the
attention of such counsel
29
<PAGE>
which lead such counsel to believe that the Offering Memorandum,
at the date thereof, contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances
under which they were made, not misleading (it being
understood that such counsel need express no comment with
respect to the financial statements, including the notes
thereto, or any other financial or statistical data set
forth or referred to in the Offering Memorandum).
(d) The following conditions contained in clauses
(i), (ii) and (iii) of this subsection (d) shall have been
satisfied at and as of the Closing Time and the Company
shall have furnished to the Initial Purchaser a
certificate, signed by the Chairman of the Board or the
President and the principal financial or accounting
officer of the Company, dated as of the Closing Time, to
the effect that the signers of such certificate have
carefully examined the Offering Memorandum, any amendment
or supplement to the Offering Memorandum, and this
Agreement and that:
(i) the representations and warranties of the
Company in this Agreement are true and correct in all
material respects on and as of the Closing Time with
the same effect as if made at the Closing Time and
the Company has complied with all the agreements and
satisfied all the conditions under this Agreement on
its part to be performed or satisfied at or prior to
the Closing Time;
(ii) since the date of the most recent financial
statements included in the Offering Memorandum
(exclusive of any amendment or supplement thereto),
there has been no Material Adverse Change, whether or
not arising in the ordinary course of business. As
used in this subparagraph, the term "Offering
Memorandum" means the Offering Memorandum in the form
first used to confirm sales of the Securities; and
(iii) the agreements and instruments listed on
Schedule 2 hereto represent all agreements and
instruments which are material to the Company and the
Subsidiaries.
(e) At the time that this Agreement is signed and at
the Closing Time, Price Waterhouse LLP shall have furnished
to the Initial Purchaser a letter or letters, dated
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<PAGE>
respectively as of the date of this Agreement and as
of the Closing Time, in form and substance satisfactory to
the Initial Purchaser, confirming that they are
independent certified public accountants within the
meaning of the Act and the applicable published rules and
regulations thereunder and stating in effect that:
(i) in their opinion the audited financial
statements included in the Offering Memorandum comply
as to form in all material respects with the
applicable accounting requirements of the Act and the
rules and regulations promulgated thereunder;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the
Company; carrying out certain specified procedures
(but not an examination in accordance with generally
accepted auditing standards) which would not
necessarily reveal matters of significance with
respect to the comments set forth in such letter; a
reading of the minutes of the meetings of the
shareholders, the board of directors and committees
thereof of the Company; and inquiries of certain
officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to March 31, 1995,
and such other inquiries and procedures as may be
specified in such letter, nothing came to their
attention which caused them to believe that:
(A) the unaudited financial statements
included in the Offering Memorandum do not comply as
to form in all material respects with applicable
accounting requirements of the Act and with the
published rules and regulations of the Commission;
and said unaudited financial statements are not in
conformity with generally accepted accounting
principles applied on a basis substantially
consistent with that of the audited financial
statements included in the Offering Memorandum; or
(B) with respect to the period subsequent
to March 31, 1995, that at a specified date not more
than five business days prior to the date of the
letter, there were any changes in the capital stock
or there were any increases in the long-term or total
debt or any decreases in the net current assets,
working capital or shareholders' equity of the
31
<PAGE>
Company, as compared with the amounts shown on the
March 31, 1995 unaudited balance sheet included in
the Offering Memorandum, or for the period from
March 31, 1995 to such specified date there were any
decreases, as compared with the corresponding period
in the preceding year, in revenues or net income of
the Company, except in all instances for increases or
decreases that the Offering Memorandum discloses have
occurred or may occur; and
(iii) they have performed certain other specified
procedures, not constituting an audit, with respect
to certain amounts, percentages and financial
information that are derived from the general
accounting records of the Company and are included in
the Offering Memorandum, and have compared such
amounts, percentages and financial information with
such records of the Company and with information
derived from such records and have found them to be
in agreement, excluding any questions of legal
interpretation. References to the Offering
Memorandum in this subsection (e) include any
supplement thereto at the date of the applicable
letter.
(f) Subsequent to the date hereof or, if earlier,
the dates as of which information is given in the Offering
Memorandum (exclusive of any amendment or supplement
thereto), there shall not have been any change, or any
development involving a prospective change, in or
affecting the business or properties of the Company the
effect of which is, in the sole judgment of the Initial
Purchaser, so material and adverse as to make it
impractical or inadvisable to proceed with the purchase
and the delivery of the Securities as contemplated by the
Offering Memorandum (exclusive of any amendment or
supplement thereto).
(g) At the Closing Time, counsel for the Initial
Purchaser shall have been furnished with such information,
certificates and documents as they may reasonably require
for the purpose of enabling them to pass upon the issuance
and sale of the Securities as contemplated herein and
related proceedings, or in order to evidence the accuracy
of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained;
and all opinions and certificates mentioned above or
elsewhere in this Agreement shall be reasonably
satisfactory in form
32
<PAGE>
and substance to the Initial Purchaser and counsel for the
Initial Purchaser.
(h) An amended and restated credit agreement (the
"Credit Agreement") shall have been executed and delivered
by the Company, as borrower, and Creditanstalt-Bankverein,
as lender, in the form provided to the Initial Purchaser
and its counsel prior to the date hereof, providing for a
$40 million revolving credit facility and all conditions
thereunder to funding shall have been satisfied (other
than the condition that the issuance and sale of the
Securities be consummated) and the Company shall have
borrowed funds thereunder sufficient to repay its existing
revolving credit facility. The Company shall have
informed the Initial Purchaser and its counsel of any
waiver or modification of any condition or term of the
Credit Agreement from the form previously provided to the
Initial Purchaser and its counsel.
(i) The Company and the Trustee shall have entered
into the Indenture.
(j) The Company and the Initial Purchaser shall have
entered into the Registration Rights Agreement.
(k) The Preferred Stock Purchase Agreement (as
defined in Section 1(a)(xxii)) shall have been executed
and delivered by the parties thereto, all conditions to
the consummation of the transactions contemplated thereby
shall have been satisfied (other than the condition that
the issuance and sale of the Securities be consummated),
and the Company shall have received gross proceeds of $15
million from the issuance of its preferred stock
thereunder. The Company shall have informed the Initial
Purchaser and its counsel of any waiver or modification of
any condition or term of the Preferred Stock Purchase
Agreement from the form previously provided to the Initial
Purchaser and its counsel.
(l) The Initial Purchaser and its counsel shall be
satisfied in all material respects with the satisfaction
and release documents to be delivered in connection with
the payment of the Company's mortgage note payable owing
to NationsBank of Florida, N.A.
If any condition specified in this Section 7 shall
not have been fulfilled in all material respects when and as
required to be fulfilled, this Agreement may be terminated by
33
<PAGE>
the Initial Purchaser by notice to the Company, and such
termination shall be without liability of any party to any
other party except as provided in Section 6. Notwithstanding
any such termination, the provisions of Sections 8 and 9 shall
remain in effect. Notice of such cancellation shall be given
to the Company in writing or by telephone, facsimile
transmission or telegraph confirmed in writing. The Company
shall furnish to the Initial Purchaser such conformed copies of
such opinions, certificates, letters and documents in such
quantities as the Initial Purchaser and counsel for the Initial
Purchaser shall reasonably request.
SECTION 8. Indemnification. (a) The Company agrees
to indemnify and hold harmless the Initial Purchaser, its
affiliates, and each person, if any, who controls the Initial
Purchaser or its affiliates within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act, and their respective
directors, officers, employees and agents, as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, joint or several, as
incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any
Preliminary Offering Memorandum or the Offering Memorandum
or any amendment or supplement thereto, or the omission or
alleged omission therefrom of a material fact necessary to
make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, joint or several, as
incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or
proceeding by any court or governmental agency or body,
commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement
is effected with the written consent of the Company; and
(iii) against any and all expenses whatsoever, as
incurred (including the reasonable fees and disbursements
of counsel chosen by the Initial Purchaser), reasonably
incurred in investigating, preparing or defending against
any litigation, or any investigation or proceeding by any
court or governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue
34
<PAGE>
statement or omission, to the extent that any such expense
is not paid under clauses (i) or (ii) above;
provided that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising
out of an untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity
with information furnished to the Company by such Initial
Purchaser in writing expressly for use in the Preliminary
Offering Memorandum or the Offering Memorandum (or any
amendment or supplement thereto).
(b) The Initial Purchaser agrees to indemnify and
hold harmless the Company, its directors, officers, employees
and agents, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act from and against any and all loss, liability,
claim, damage and expense whatsoever described in the indemnity
contained in subsection (a) of this Section 8, as incurred, but
only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Offering Memorandum
(or any amendment or supplement thereto), or any Preliminary
Offering Memorandum (or any amendment or supplement thereto) in
reliance upon and in conformity with written information
furnished to the Company by such Initial Purchaser expressly
for use in the Offering Memorandum (or any amendment or
supplement thereto) or such Preliminary Offering Memorandum (or
any amendment or supplement thereto).
(c) Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party
of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all
papers properly served on such indemnified party, but failure
to so notify an indemnifying party shall not relieve such
indemnifying party from any liability which it may have
otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the
defense of any such action. If an indemnifying party so elects
within a reasonable time after receipt of such notice, such
indemnifying party may assume the defense of such action with
counsel chosen thereby and approved by the indemnified party or
parties defendant in such action; provided that if any such
indemnified party reasonably determines that there may be legal
defenses available to such indemnified party which are
different from or in addition to those available to such
indemnifying party or that representation of such indemnifying
party and any indemnified party by the same counsel would
present a conflict of interest,
35
<PAGE>
then such indemnifying party shall not be entitled to assume such
defense. If an indemnifying party is not entitled to assume the
defense of such action as a result of the proviso to the preceding
sentence, counsel for such indemnifying party shall be entitled
to conduct the defense of such indemnifying party and counsel
for each indemnified party or parties shall be entitled to
conduct the defense of such indemnified party or parties. If
an indemnifying party assumes the defense of an action in
accordance with and as permitted by the provisions of this
paragraph, such indemnifying party shall not be liable for any
fees and expenses of counsel for the indemnified parties
incurred thereafter in connection with such action. In no
event shall the indemnifying parties be liable for fees and
expenses of more than one counsel (in addition to any local
counsel) separate from its own counsel for all indemnified
parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances.
SECTION 9. Contribution. In order to provide for
just and equitable contribution in circumstances in which the
indemnity agreement provided for in Section 8 is for any reason
held to be unavailable to the indemnified parties although
applicable in accordance with its terms, the Company and the
Initial Purchaser shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement incurred by the
Company and the Initial Purchaser, as incurred, in such
proportions that the Initial Purchaser is responsible for that
portion represented by the percentage that the commission to
the Initial Purchaser appearing on the cover page of the
Offering Memorandum bears to the price to investors appearing
thereon and the Company is responsible for the balance;
provided that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this
Section, each director, officer, employee and agent of the
Initial Purchaser and its affiliates, and each person, if any,
who controls the Initial Purchaser and its affiliates within
the meaning of Section 15 of the Act, shall have the same
rights to contribution as such Initial Purchaser, and each
director, officer, employee and agent of the Company, and each
person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, shall
have the same rights to contribution as the Company.
36
<PAGE>
SECTION 10. Representations, Warranties and
Agreements to Survive Delivery. All representations,
warranties, indemnities, agreements and other statements of the
Company and its officers and of the Initial Purchaser contained
in or made pursuant to this Agreement shall remain operative
and in full force and effect, regardless of any investigation
made by or on behalf of any Initial Purchaser or any
controlling person, or by or on behalf of the Company, and
shall survive delivery of and payment for the Securities
hereunder.
SECTION 11. Termination of Agreement. (a) The
Initial Purchaser may terminate this Agreement, by notice to
the Company, at any time on or prior to the Closing Time (i) if
there has been, since the date of this Agreement or since the
respective dates as of which information is given in the
Offering Memorandum and on or prior to the Closing Time, any
Material Adverse Change whether or not arising in the ordinary
course of business, or (ii) if, since the date of this
Agreement and on or prior to the Closing Time, (A) there has
occurred any outbreak of hostilities or escalation of existing
hostilities or other national or international calamity or
crisis, the effect of which on the financial securities markets
of the United States is such as to make it, in the judgment of
the Initial Purchaser, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (B)
trading generally on the New York Stock Exchange, the American
Stock Exchange or the over-the-counter market has been
suspended, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices for securities generally
have been required, by any such exchange or by order of the
Commission, the NASD or any other governmental authority or (C)
a general banking moratorium has been declared by either
Federal or New York authorities. As used in this Section
11(a), the term "Offering Memorandum" means the Offering
Memorandum in the form first used to confirm sales of the
Securities.
(b) If this Agreement is terminated pursuant to this
Section 11, such termination shall be without liability of any
party to any other party except as provided in Section 6.
Notwithstanding any such termination, the provisions of
Sections 8 and 9 shall remain in effect.
(c) This Agreement may also terminate pursuant to
the provisions of Section 7, with the effect stated in such
Section.
SECTION 12. Notices. All notices and other
communications hereunder shall be in writing and shall be deemed to
37
<PAGE>
have been duly given if mailed or transmitted by any
standard form of telecommunication. Notices to the Initial
Purchaser shall be directed to the Initial Purchaser c/o
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Merrill Lynch World Headquarters, North Tower,
World Financial Center, New York, New York 10281-1305,
attention of Stanley O'Neal, Managing Director; and notices to
the Company shall be directed to Peoples Telephone Company,
Inc., 2300 N.W. 89th Place, Miami, Florida 33172, attention:
Jeffrey Hanft, Chief Executive Officer.
SECTION 13. Information Supplied by the Initial
Purchaser. The statements set forth in the last paragraph on
the front cover page and under the heading "Plan of
Distribution" in the Preliminary Offering Memorandum or the
Offering Memorandum (to the extent such statements relate to
the Initial Purchaser) constitute the only information
furnished by the Initial Purchaser to the Company for the
purposes of Sections 1 and 8 hereof.
SECTION 14. Parties. This Agreement shall inure to
the benefit of and be binding upon the Initial Purchaser and
the Company and their respective successors and legal
representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person,
firm or corporation, other than the Initial Purchaser, its
affiliates and the Company and their respective successors and
legal representatives and the controlling persons and officers,
directors, employees and agents referred to in Sections 8 and 9
and their heirs and legal representatives, any legal or
equitable right, remedy or claim under, by virtue of or in
respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the
Initial Purchaser, its affiliates and the Company and their
respective successors and legal representatives, and said
controlling persons and officers, directors, employees and
agents and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser
of Securities from any Initial Purchaser shall be deemed to be
a successor by reason merely of such purchase.
SECTION 15. Governing Law and Time. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS. Specified times of
day refer to New York City time.
38
<PAGE>
SECTION 16. Counterparts. This Agreement may be
executed in one or more counterparts and, when a counterpart
has been executed by each party, all such counterparts taken
together shall constitute one and the same agreement.
39
<PAGE>
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement between
the Initial Purchaser and the Company in accordance with its
terms.
Very truly yours,
PEOPLES TELEPHONE COMPANY, INC.
By:_____________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________
Name:
Title:
<PAGE>
Schedule 1
Subsidiaries
Campus Telephone Services, Inc. (DBA Telink, Inc.)
PTC Cellular, Inc.
Silverado Communications, Inc.
Southwest Inmate Pay Telephone Systems, Inc.
PTC Global Link, Inc.
Global Access, Ltd.
Telink, Inc.
Telink Telephone System, Inc.
Peoples Acquisition Corporation
Peoples Telephone Company, Inc.
(a New Hampshire corporation)
PTC Security Systems, Inc.
<PAGE>
Schedule 1
Joint Ventures and Partnerships
Formation/
Name Percentage Applicable Law Other Holders/%
Partnership 50% FL Frank Magliato - 25%
Marketing The Windsor Group
Agreement (Miami), Inc. - 25%
Joint 50% NY NTT America, Inc.
Marketing - 50%
Agreement
Joint Venture 50% NY Buckeye Communic-
Agreement ations, Inc. - 50%
Partnership 50% FL Public Access
Marketing Telephone
Agreement Company, Inc. - 50%
Partnership 49.9% NY Playboy Enterprises,
Agreement - 50.1%
Joint Venture 50% FL Telecard Marketing
Agreement Group, Inc. - 20%
Superstar Marketing
Group, Inc. - 30%
<PAGE>
Schedule 2
List of Material Agreements and Documents
Second Amended and Restated Warrant Agreement dated as of
February 17, 1994 between the Company and Creditanstalt
American Corporation
Exchange Agreement between the Company and Creditanstalt
Corporate Finance, Inc. dated May 3, 1995
Third Amended and Restated Loan and Security Agreement dated as
of February 17, 1994 between the Company and
Creditanstalt-Bankverein, Internationale Nederladen (U.S.)
Capital Corporation, NationsBank of Florida, N.A.,
SunBank/Miami, N.A., The Daiwa Bank, Limited, and The Long-Term
Credit Bank of Japan, Ltd., New York Branch
Consent, Waiver and First Amendment dated June 10, 1994 to the
Third Amended and Restated Loan and Security Agreement dated as
of February 17, 1994 between the Company and
Creditanstalt-Bankverein, Internationale Nederladen (U.S.)
Capital Corporation, NationsBank of Florida, N.A.,
SunBank/Miami, N.A., The Daiwa Bank, Limited, and The Long-Term
Credit Bank of Japan, Ltd., New York Branch
Consent, Waiver and Second Amendment dated September 28, 1994
to the Third Amended and Restated Loan and Security Agreement
dated as of February 17, 1994 between the Company and
Creditanstalt-Bankverein, Internationale Nederladen (U.S.)
Capital Corporation, NationsBank of Florida, N.A.,
SunBank/Miami, N.A., The Daiwa Bank, Limited, and The Long-Term
Credit Bank of Japan, Ltd., New York Branch
Waiver and Third Amendment dated March 22, 1995 to the Third
Amended and Restated Loan and Security Agreement dated as of
February 17, 1994 between the Company and
Creditanstalt-Bankverein, Internationale Nederladen (U.S.)
Capital Corporation, NationsBank of Florida, N.A.,
SunBank/Miami, N.A., The Daiwa Bank, Limited, and The Long-Term
Credit Bank of Japan, Ltd., New York Branch
<PAGE>
Fourth Amended and Restated Loan and Security Agreement dated
as of July 19, 1995 by and between the Company and
Creditanstalt-Bankverein
Securities Purchase Agreement dated July 3, 1995 among the
Company, UBS Capital Corporation and Appian Capital Partners,
L.L.C.
Registration Rights Agreement dated July 3, 1995 between the
Company and UBS Capital Corporation
Letter Agreement dated July 3, 1995 between the Company and
Appian Capital Partners, L.L.C.
Asset Purchase Agreement dated March 1, 1993, and related
financial statements, among the Company, Silverado
Communications Corp., Telink Telephone Systems, Inc. and other
shareholders and Agreement and Plan of Merger, dated March 1,
1993, between the Company and Silverado Communications Corp.
Asset Purchase Agreement dated July 20, 1993 among the Company,
Southwest Pay Telephone Systems, Inc. and Randall D. Veselka
and Stock Purchase Agreement dated July 20, 1993 between the
Company, Southwest Pay Telephone Systems, Inc. and Randall D.
Veselka
Asset Purchase Agreement dated March 1, 1993 among the Company,
PTC Cellular, Inc., Portable Cellular Communications, Inc. and
Nationwide Cellular Service, Inc.
Asset Purchase Agreement dated October 13, 1993 between the
Company and Ascom Communications, Inc. and Ascom Holding, Inc.
Purchase Agreement dated June 23, 1994 among the Company and
Atlantic Teleco, Inc., Bender Telephone Inc., Stanley S. Bender
and Howard M. Bender and Jerome D. Scheer and Purchase
Agreement dated June 23, 1994 among the Company and BTE
Associates L.P., Bender Telephone, Inc. and B&B Associates
Agreement and Plan of Merger dated October 21, 1994 among the
Company, Peoples Acquisition Corporation, Telecoin
Communications, Ltd., Gilbert A. Mendelson, David T. Magrish,
Louis Swartz, Howard Spiegel and Harvey Ostrow
Asset Purchase Agreement dated February 14, 1995 between the
Company and Global Link Teleco Corporation
<PAGE>
AT&T Commission Agreement dated April 20, 1995 by and between
AT&T Communications, Inc. and the Company
Employment Agreement dated January 1, 1994, and related Stock
Option Agreement dated February 16, 1994, between the Company
and Jeffrey Hanft
Employment Agreement dated January 1, 1994, and related Stock
Option Agreement dated February 16, 1994, between the Company
and Robert D. Rubin
Employment Agreement dated January 1, 1994, and related Stock
Option Agreement dated February 16, 1994, between the Company
and Richard F. Militello
Employment Agreement dated July 11, 1994, and related Stock
Option Agreement dated July 11, 1994, between the Company and
Bonnie S. Biumi
Employment Agreement dated January 1, 1995 between the Company
and Bruce W. Renard
Employment Agreement dated June 22, 1994 between the Company
and Lawrence T. Ellman
1994 Stock Incentive Plan
1993 Non-Employee Directors Stock Option Plan
1987 Nonqualified Stock Option Plan
1987 Nonqualified Stock Option Plan for Non-Employee Directors
OLD NOTE
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE DEPOSITORY OR
A NOMINEE OF THE DEPOSITORY OR A SUCCESSOR
DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE,
AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT AND SUCH CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE
THE REGISTERED OWNER HEREOF, CEDE, & CO., HAS AN
INTEREST HEREIN.
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE
HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER
SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON WHICH PEOPLES TELEPHONE
COMPANY, INC. (THE "COMPANY") OR ANY AFFILIATE OF
THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE
<PAGE>
RESTRICTION TERMINATION DATE"), ONLY (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE
SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITIES FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR
SALE IN CONNECTION WITH, ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY
OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (D), (E)
OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND IN EACH OF THE
FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THE OTHER SIDE OF THIS SECURITY
IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE
REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
2
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
___________
12-1/4% SENIOR NOTES DUE 2002
CUSIP No. 1
No. 2 3
PEOPLES TELEPHONE COMPANY, INC., a New York
corporation (herein called the "Company", which term includes
any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to 4
or registered assigns, the principal sum of 5 United States
Dollars on July 15, 2002, at the office or agency of the
Company referred to below, and to pay interest thereon on
January 15 and July 15, in each year, commencing on January 15,
1996 (each an "Interest Payment Date"), accruing from the Issue
Date or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, at the rate of
12-1/4% per annum, until the principal hereof is paid or duly
provided for. Interest shall be computed on the basis of a
360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in
the Indenture referred to on the reverse hereof, be paid to the
person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the
January 1 or July 1 (each a "Regular Record Date"), whether or
not a Business Day, as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the
Securities, to the extent lawful, shall forthwith cease to be
payable to the Holder on such Regular Record Date, and may be
paid to the person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice of which shall be
given to Holders of Securities not less than 10 days prior to
such Special Record Date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all
as more fully provided in such Indenture. In addition, the
Company may be obligated to pay additional interest pursuant to
certain provisions of the Registration Rights Agreement.
3
<PAGE>
If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or
its nominee in immediately available funds in accordance with
customary procedures established from time to time by the
Depository. If this Security is a Global Security and a
Restricted Security, only Qualified Institutional Buyers (as
defined in Rule 144A under the Securities Act) may hold a
beneficial interest herein. If this Security is not a Global
Security, payment of the principal of, premium, if any, and
interest on this Security will be made at the office or agency
of the Company maintained for that purpose in the Borough of
Manhattan in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may
be made at the option of the Company by check mailed to the
address of the person entitled thereto as such address shall
appear on the Security Register.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof.
4
<PAGE>
Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to on the reverse
hereof by manual signature this Security shall not be entitled
to any benefit under the Indenture, or be valid or obligatory
for any purpose.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
Dated: July 19, 1995 PEOPLES TELEPHONE COMPANY, INC.
By:____________________________
Name:
Attest: Title:
__________________________
Authorized Signature
By:____________________________
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:____________________________
Authorized Officer
5
<PAGE>
Indenture. This Security is one of a duly authorized
issue of Securities of the Company designated as its 12-1/4%
Senior Notes due 2002 (herein called the "Series A
Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to
$100,000,000, which may be issued under an indenture (herein
called the "Indenture") dated as of July 15, 1995, between the
Company and First Union National Bank of North Carolina, as
trustee (herein called the "Trustee," which term includes any
successor Trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of
rights, duties, obligations and immunities thereunder of the
Company, the Trustee, and the Holders of the Securities, and of
the terms upon which the Securities are, and are to be,
authenticated and delivered.
All capitalized terms used in this Series A Security
which are defined in the Indenture and not otherwise defined
herein shall have the meanings assigned to them in the
Indenture.
No reference herein to the Indenture and no
provisions of this Series A Security or of the Indenture shall
alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of, premium,
if any, and interest on this Security at the times, place, and
rate, and in the coin or currency, herein prescribed.
Registration Rights. Pursuant to the Registration
Rights Agreement, the Company will be obligated to consummate
an exchange offer pursuant to which the Holder of this Security
shall have the right to exchange this Security for 12-1/4% Senior
Notes due 2002, Series B, of the Company (herein called the
"Series B Securities") which have been registered (or, with
respect to certain Series B Securities thereof, which will be
entitled to such registration, as set forth in the Registration
Rights Agreement) under the Securities Act, in like principal
amount and having identical terms as the Series A Securities
hereof, respectively. The Holders of Series A Securities shall
be entitled to receive certain additional interest payments in
the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance
with the terms of the Registration Rights Agreement. The
Series A Securities and the Series B Securities are together
referred to herein as the "Securities."
6
<PAGE>
Redemption.
Optional Redemption. The Securities are subject to
redemption, at the option of the Company, as a whole or in part
in principal amounts of $1,000 or any integral multiple of
$1,000, at any time on or after July 15, 2000, upon not less
than 30 nor more than 60 days' prior notice at the Redemption
Prices (expressed as percentages of the principal amount) set
forth below, plus accrued and unpaid interest to the redemption
date, if redeemed during the 12-month period beginning July 15
of the years indicated below:
Redemption
Year Price
2000 103.500%
2001 101.750%
2002 100.000%
In addition, prior to July 15, 1998, in the event of
one or more Equity Offerings consummated after the Issue Date
(other than the sale of the UBS Capital Preferred Stock) for
aggregate gross proceeds to the Company equal to or exceeding
$10,000,000, the Company may redeem in the aggregate up to a
maximum of 20% of the principal amount of the Securities
originally issued with the net proceeds thereof at a redemption
price equal to 111-1/4% of the principal amount thereof, plus
accrued and unpaid interest to the Redemption Date.
Sinking Fund. The Company will not be required to
make any mandatory sinking fund payments in respect of the
Securities.
Interest Payments. In the case of any redemption of
Series A Securities, interest installments whose Stated
Maturity is on or prior to the Redemption Date will be payable
to the Holders of such Securities, or one or more Predecessor
Securities, of record at the close of business on the relevant
Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is
made in accordance with the Indenture shall cease to bear
interest from and after the Redemption Date.
Partial Redemption. In the event of redemption of
this Series A Security in part only, a new Series A Security or
Securities for the unredeemed portion hereof shall be issued in
the name of the Holder hereof upon the cancellation hereof.
7
<PAGE>
Offers to Purchase. Sections 10.14 and 10.15 of the
Indenture provide that following any Asset Sale and upon the
occurrence of a Change of Control, and subject to further
limitations contained therein, the Company shall make an offer
to purchase certain amounts of the Securities in accordance
with the procedures set forth in the Indenture.
Defaults and Remedies. If an Event of Default shall
occur and be continuing, the principal of all of the
outstanding Securities, plus all accrued and unpaid interest,
if any, to and including the date the Securities are paid, may
be declared due and payable in the manner and with the effect
provided in the Indenture.
Defeasance. The Indenture contains provisions (which
provisions apply to this Series A Security) for defeasance at
any time of (a) the entire indebtedness of the Company on this
Series A Security and (b) certain restrictive covenants and
related Defaults and Events of Default, in each case upon
compliance by the Company with certain conditions set forth
therein.
Amendments and Waivers. The Company and the Trustee
(if a party thereto) may, without the consent of the Holders of
any Outstanding Securities, amend, waive or supplement the
Indenture or the Securities for certain specified purposes,
including, among other things, curing ambiguities, defects or
inconsistencies, maintaining the qualification of the Indenture
under the Trust Indenture Act of 1939, as amended, and making
any change that does not adversely affect the rights of any
Holder. Other amendments and modifications of the Indenture or
the Securities may be made by the Company and the Trustee with
the consent of the Holders of not less than a majority of the
aggregate principal amount of the Outstanding Securities,
subject to certain exceptions requiring the consent of the
Holders of the particular Securities to be affected. Any such
consent or waiver by or on behalf of the Holder of this
Series A Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Series A Security
and of any Series A Security issued upon the registration of
transfer hereof or in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon
this Series A Security.
Denominations, Transfer and Exchange. The Series A
Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations
8
<PAGE>
therein set forth, the Series A Securities are exchangeable for
a like aggregate principal amount of Series A Securities of a
different authorized denomination, as requested by the Holder
surrendering the same.
If this Series A Security is in certificated form,
then as provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Series A
Security is registrable on the Security Register of the
Company, upon surrender of this Series A Security for
registration of transfer at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan in The
City of New York or at such other office or agency of the
Company as may be maintained for such purpose, duly endorsed
by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Series A Securities,
of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee
or transferees.
If this Series A Security is a Restricted Security in
certificated form, then as provided in the Indenture and
subject to certain limitations therein set forth, the Holder,
provided it is a Qualified Institutional Buyer, may exchange
this Series A Security for a book-entry security by instructing
the Trustee to arrange for such Series A Security to be
represented by a beneficial interest in a Global Security in
accordance with the customary procedures of the Depository.
If this Series A Security is a Global Security, it is
exchangeable for Series A Securities in certificated form if
(i) the Depository notifies the Company that it is unwilling or
unable to continue as depository and a successor Depository is
not appointed by the Company within 60 days or (ii) there shall
have occurred and be continuing an Event of Default and the
Security Registrar has received a request from the Depository
to issue certificated Securities. In addition, in accordance
with the provisions of the Indenture and subject to certain
limitations therein set forth, a beneficial owner of a
beneficial interest in a Global Security may request a Series A
Security in certificated form, in exchange in whole or in part,
as the case may be, for such beneficial owner's interest in the
Global Security. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to
physical delivery in certificated form of Series A Securities
in authorized denominations equal in principal amount to such
9
<PAGE>
beneficial interest and to have such Series A Securities
registered in its name.
No service charge shall be made for any registration
of transfer or exchange or redemption of Series A Securities,
but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in
connection therewith.
Certain Information Obligations. At any time when
the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, upon the request of a Holder
of a Series A Security, the Company will promptly furnish or
cause to be furnished such information as is specified pursuant
to Rule 144A(d)(4) under the Securities Act (or any successor
provision thereto) to such Holder or to a prospective purchaser
of such Series A Security designated by such Holder, as the
case may be, in order to permit compliance by such Holder with
Rule 144A under the Securities Act.
Persons Deemed Owners. Prior to and at the time of
due presentment of this Series A Security for registration of
transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the person in whose name this Series A
Security is registered as the owner hereof for all purposes,
whether or not this Series A Security shall be overdue, and
neither the Company, the Trustee nor any agent shall be
affected by notice to the contrary.
GOVERNING LAW. THE INDENTURE AND THIS SECURITY SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAWS PRINCIPLES THEREOF). THE TRUSTEE, THE COMPANY, ANY OTHER
OBLIGOR IN RESPECT OF THE SECURITIES AND THE HOLDERS AGREE TO
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE
INDENTURE OR THIS SECURITY.
10
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Security to
_______________________________________________________________
(Insert assignee's social security or tax ID number) __________
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________
(Print or type assignee's name, address and zip code) and
irrevocably appoint
_______________________________________________________________
agent to transfer this Security on the books of the Company.
The agent may substitute another to act for such agent.
In connection with any transfer of this Security
occurring prior to the date which is the earlier of (i) the
date of the declaration by the Commission of the effectiveness
of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), covering resales of this
Security (which effectiveness shall not have been suspended or
terminated at the date of the transfer) and (ii) the later of
July 19, 1998, or the date three years after the Company or an
Affiliate of the Company was the owner of this Security (or any
Predecessor Security), the undersigned confirms that it has not
utilized any general solicitation or general advertising in
connection with the transfer and that:
11
<PAGE>
[Check One]
[ ] (a) this Security is being transferred in compliance
with the exemption from registration under the
Securities Act provided by Rule 144A thereunder.
or
[ ] (b) this Security is being transferred other than in
accordance with (a) above and documents, including a
transferee certificate substantially in the form
attached hereto, are being furnished which comply
with the conditions of transfer set forth in this
Security and the Indenture.
If none of the foregoing boxes is checked and, in the case of
(b) above, if the appropriate document is not attached or
otherwise furnished to the Trustee, the Trustee or Registrar
shall not be obligated to register this Security in the name of
any person other than the Holder hereof unless and until the
conditions to any such transfer of registration set forth
herein and in Section 3.14 of the Indenture shall have been
satisfied.
Date:______________ Your signature: _________________________________
(Sign exactly as your name
appears on the other side of
this Security)
By:_________________________
NOTICE: To be executed
by an executive officer
NOTICE: Signature(s) must be guaranteed by an institution
which is a participant in the Securities Transfer Agent
Medallion Program ("STAMP") or similar program.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is
purchasing this Security for its own account or an account with
12
<PAGE>
respect to which it exercises sole investment discretion and
that it and any such account is a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: __________________ ____________________________
NOTICE: To be executed by
an executive officer
13
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the
Company pursuant to Section 10.14 or 10.15 of the Indenture,
check the Box: [ ]
If you wish to have a portion of this Security
purchased by the Company pursuant to Section 10.14 or 10.15 of
the Indenture, state the amount:
$______________
Date: _____________ Your Signature: ________________________________
(Sign exactly as your name
appears on the other side
of this Security)
By:______________________
NOTICE: To be signed
by an executive officer
NOTICE: Signature(s) must be guaranteed by an institution
which is a participant in the Securities Transfer Agent
Medallion Program ("STAMP") or similar program.
14
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE TO BE DELIVERED
IN CONNECTION WITH TRANSFERS TO
NON-QIB INSTITUTIONAL ACCREDITED INVESTORS
PEOPLES TELEPHONE COMPANY, INC.
c/o First Union National Bank of
North Carolina
230 South Tryon Street, 8th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Administration
Dear Ladies and Gentlemen:
In connection with our proposed purchase of $
aggregate principal amount of the 12-1/4% Senior Notes due 2002
(the "Notes") of Peoples Telephone Company, Inc., a New York
corporation (the "Company"), we confirm that:
We understand that the Notes have not been registered
under the Securities Act of 1933, as amended (the
"Securities Act"). We agree on our own behalf and on
behalf of any investor account for which we are purchasing
the Notes to offer, sell or otherwise transfer such Notes
prior to the date which is three years after the later of
the date of original issue and the last date on which the
Company or any affiliate of the Company was the owner of
such Notes, or any predecessor thereto (the "Resale
Restriction Termination Date") only (a) to the Company,
(b) pursuant to a registration statement which has been
declared effective under the Securities Act, (c) for so
long as the Notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person we reasonably
believe is a "qualified institutional buyer" under Rule
144A (a "QIB") that purchases for its own account or for
the account of a QIB to whom notice is given that the
transfer is being made in reliance on Rule 144A, (d) pur-
suant to offers and sales to "non-U.S. persons" that occur
outside the United States within the meaning of Regulation
S under the Securities Act, (e) to an institutional
"accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities
Act that is acquiring Notes for its own account or for the
account of such an institutional "accredited investor" for
investment purposes and not with a view to, or for offer
or sale in connection with, any distribution thereof in
violation of the Securities Act or (f) pursuant to any
other available
<PAGE>
exemption from the registration requirements of the Securities
Act, subject in each of the foregoing cases to any requirement
of law that the disposition of our property and the property of
such investor account or accounts be at all times within our or
their control and to compliance with any applicable state
securities laws. The foregoing restrictions on resale
will not apply subsequent to the Resale Restriction
Termination Date. If any resale or other transfer of the
Notes is proposed to be made pursuant to clause (e) above
prior to the Resale Restriction Termination Date, the
transferor shall deliver a letter from the transferee
substantially in the form of this letter to the Trustee,
which shall provide, among other things, that the
transferee is an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) and
(7) of Rule 501 under the Securities Act and that it is
acquiring such Notes for investment purposes and not for
distribution in violation of the Securities Act. We
acknowledge on our own behalf and on behalf of any
investor account for which we are purchasing Notes that
the Company and the Trustee reserve the right prior to any
offer, sale or other transfer prior to the Resale
Restriction Termination Date of the Notes pursuant to
clauses (d), (e) and (f) above to require the delivery of
an opinion of counsel, certifications and/or other
information satisfactory to the Company and the Trustee.
We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act) purchasing for our own account
or for the account of such an institutional "accredited
investor," and we are acquiring the Notes for investment
purposes and not with a view to, or for offer or sale in
connection with, any distribution in violation of the
Securities Act and we have such knowledge and experience
in financial and business matters as to be capable of
evaluating the merits and risks of our investment in the
Notes, and we and any accounts for which we are acting are
each able to bear the economic risk of our or its
investment.
We are acquiring the Notes purchased by us for our
own account or for one or more accounts as to each of
which we exercise sole investment discretion.
A-2
<PAGE>
You are entitled to rely upon this letter and you are
irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or
legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
____________________________
(NAME OF PURCHASER)
By:_________________________
Date:_______________________
Upon transfer, the Notes should be registered in the name of
the new beneficial owner as follows:
Name:____________________________________________
Address:_________________________________________
Taxpayer ID Number:______________________________
A-3
<PAGE>
EXCHANGE NOTE
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE
MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE DEPOSITORY OR
A NOMINEE OF THE DEPOSITORY OR A SUCCESSOR
DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR
SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE,
AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR
ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT AND SUCH CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR
SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL, SINCE
THE REGISTERED OWNER HEREOF, CEDE, & CO., HAS AN
INTEREST HEREIN.
<PAGE>
PEOPLES TELEPHONE COMPANY INC.
________________
12-1/4% SENIOR NOTES DUE 2002,
SERIES B
CUSIP No.________
No. _____________ $_____________
PEOPLES TELEPHONE COMPANY INC., a New York
corporation (herein called the "Company", which term includes
any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to
______________________ or registered assigns, the principal sum
of ___________________ Dollars on July 15, 2002, at the office
or agency of the Company referred to below, and to pay interest
thereon on January 15 and July 15 (each an "Interest Payment
Date"), in each year, commencing on January 15, 1996, accruing
from the Issue Date or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, at
the rate of 12-1/4% per annum, until the principal hereof is paid
or duly provided for. Interest shall be computed on the basis
of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in
the Indenture referred to on the reverse hereof, be paid to the
person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the
January 1 or July 1 (each a "Regular Record Date"), whether or
not a Business Day, as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually
paid, or duly provided for, and interest on such defaulted
interest at the then applicable interest rate borne by the
Securities, to the extent lawful, shall forthwith cease to be
payable to the Holder on such Regular Record Date, and may be
paid to the person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business
on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice of which shall be
given to Holders of Securities not less than 10 days prior to
such Special Record Date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed,
2
<PAGE>
and upon such notice as may be required by such exchange, all
as more fully provided in such Indenture.
If this Security is a Global Security, all payments
in respect of this Security will be made to the Depository or
its nominee in immediately available funds in accordance with
customary procedures established from time to time by the
Depository. If this Security is not a Global Security, payment
of the principal of, premium, if any, and interest on this
Security will be made at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan in The
City of New York, or at such other office or agency of the
Company as may be maintained for such purpose, in such coin or
currency of the United States of America as at the time of
payment is legal tender for payment of public and private
debts; provided, however, that payment of interest may be made
at the option of the Company by check mailed to the address of
the person entitled thereto as such address shall appear on the
Security Register.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof.
Unless the certificate of authentication hereon has
been duly executed by the Trustee referred to on the reverse
hereof by manual signature this Security shall not be entitled
to any benefit under the Indenture, or be valid or obligatory
for any purpose.
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
Dated: PEOPLES TELEPHONE COMPANY INC.
By:
---------------------------
Attest: Name:
Title:
_____________________________ By:
Authorized Signature ---------------------------
Name:
Title:
3
<PAGE>
1. Indenture. This Security is one of a duly
authorized issue of Securities of the Company designated as its
12-1/4% Senior Notes due 2002, Series B (herein called the
"Series B Securities"), limited (except as otherwise provided
in the Indenture referred to below) in aggregate principal
amount to $100,000,000, which may be issued under an indenture
(herein called the "Indenture") dated as of July 15, 1995,
between the Company and First Union National Bank of North
Carolina, as trustee (herein called the "Trustee," which term
includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is
hereby made for a statement of the respective rights,
limitation of rights, duties, obligations and immunities
thereunder of the Company, the Trustee and the Holders of the
Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
All capitalized terms used in this Series B Security
which are defined in the Indenture and not otherwise defined
herein shall have the meanings assigned to them in the
Indenture.
No reference herein to the Indenture and no provision
of this Series B Security or of the Indenture shall alter or
impair the obligation of the Company or, which is absolute and
unconditional, to pay the principal of, premium, if any, and
interest on this Security at the times, place, and rate, and in
the coin or currency, herein prescribed.
The Series B Securities were issued pursuant to an
exchange offer pursuant to which 12-1/4% Senior Notes due 2002 of
the Company (herein called the "Series A Securities"), in like
principal amount and having substantially identical terms as
the Series B Securities, were exchanged for the Series B
Securities. The Series A Securities and the Series B
Securities are together referred to herein as the "Securities."
2. Redemption.
(a) Optional Redemption. The Securities are subject
to redemption, at the option of the Company, as a whole or in
part in principal amounts of $1,000 or any integral multiple of
$1,000, at any time on or after July 15, 2000, upon not less
than 30 nor more than 60 days' prior notice, at the Redemption
4
<PAGE>
Prices (expressed as percentages of the principal amount) set
forth below, plus accrued and unpaid interest to the redemption
date, if redeemed during the 12-month period beginning July 15
of the years indicated below:
Redemption
Year Price
2000 103.500%
2001 101.750%
2002 100.000%
In addition, prior to July 15, 1998, in the event of
one or more Equity Offerings consummated after the Issue Date
(other than the sale of the UBS Capital Preferred Stock) for
aggregate gross proceeds to the Company equal to or exceeding
$10,000,000, the Company may redeem in the aggregate up to a
maximum of 20% of the principal amount of the Securities
originally issued with the net proceeds thereof at a redemption
price equal to 111-1/4% of the principal amount thereof, plus
accrued and unpaid interest to the Redemption Date.
(b) Sinking Fund. The Company will not be required
to make any mandatory sinking fund payments in respect of the
Securities.
(c) Interest Payments. In the case of any
redemption of Series B Securities, interest installments whose
Stated Maturity is on or prior to the Redemption Date will be
payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the close of business on
the relevant Record Date referred to on the face hereof.
Securities (or portions thereof) for whose redemption and
payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption
Date.
(d) Partial Redemption. In the event of redemption
of this Series B Security in part only, a new Series B Security
or Securities for the unredeemed portion hereof shall be issued
in the name of the Holder hereof upon the cancellation hereof.
3. Offers to Purchase. Sections 10.14 and 10.15 of
the Indenture provide that following any Asset Sale and upon
the occurrence of a Change of Control, and subject to further
limitations contained therein, the Company shall make an offer
to purchase certain amounts of the Securities in accordance
with the procedures set forth in the Indenture.
5
<PAGE>
4. Defaults and Remedies. If an Event of Default
shall occur and be continuing, the principal of all of the
outstanding Securities, plus all accrued and unpaid interest,
if any, to and including the date the Securities are paid, may
be declared due and payable in the manner and with the effect
provided in the Indenture.
5. Defeasance. The Indenture contains provisions
(which provisions apply to this Series B Security) for
defeasance at any time of (a) the entire indebtedness of the
Company on this Series B Security and (b) certain restrictive
covenants and related Defaults and Events of Default, in each
case upon compliance by the Company with certain conditions set
forth therein.
6. Amendments and Waivers. The Company and the
Trustee (if a party thereto) may, without the consent of the
Holders of any Outstanding Securities, amend, waive or
supplement the Indenture or the Securities for certain
specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the
qualification of the Indenture under the Trust Indenture Act of
1939, as amended, and making any change that does not adversely
affect the rights of any Holder. Other amendments and
modifications of the Indenture or the Securities may be made by
the Company and the Trustee with the consent of the Holders of
not less than a majority of the aggregate principal amount of
the Outstanding Securities, subject to certain exceptions
requiring the consent of the Holders of the particular
Securities to be affected. Any such consent or waiver by or
on behalf of the Holder of this Series B Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Series B Security issued
upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or
waiver is made upon this Series B Security.
7. Denominations, Transfer and Exchange. The
Series B Securities are issuable only in registered form
without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Series B Securities
are exchangeable for a like aggregate principal amount of
Series B Securities of a different authorized denomination, as
requested by the Holder surrendering the same.
6
<PAGE>
If this Series B Security is in certificated form,
then as provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Series B
Security is registrable on the Security Register of the
Company, upon surrender of this Series B Security for
registration of transfer at the office or agency of the Company
maintained for such purpose in the Borough of Manhattan in The
City of New York or at such other office or agency of the
Company as may be maintained for such purpose, duly endorsed
by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized
in writing, and thereupon one or more new Series B Securities,
of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee
or transferees.
If this Series B Security is a Global Security, it is
exchangeable for Series B Securities in certificated form if
(i) the Depository notifies the Company that it is unwilling or
unable to continue as depository and a successor Depository is
not appointed by the Company within 60 days or (ii) there shall
have occurred and be continuing an Event of Default and the
Security Registrar has received a request from the Depository
to issue certificated Securities. In addition, in accordance
with the provisions of the Indenture and subject to certain
limitations therein set forth, a beneficial owner of a
beneficial interest in a Global Security may request a Series B
Security in certificated form, in exchange in whole or in part,
as the case may be, for such beneficial owner's interest in the
Global Security. In any such instance, an owner of a
beneficial interest in a Global Security will be entitled to
physical delivery in certificated form of Series B Securities
in authorized denominations equal in principal amount to such
beneficial interest and to have such Series B Securities
registered in its name.
No service charge shall be made for any registration
of transfer or exchange or redemption of Series B Securities,
but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in
connection therewith.
8. Persons Deemed Owners. Prior to and at the time
of due presentment of this Series B Security for registration
of transfer, the Company, the Trustee and any agent of the
Company or the Trustee may treat the person in whose name this
Series B Security is registered as the owner hereof for all
7
<PAGE>
purposes, whether or not this Series B Security shall be
overdue, and neither the Company, the Trustee nor any agent
shall be affected by notice to the contrary.
9. GOVERNING LAW. THE INDENTURE AND THIS SECURITY
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF). THE TRUSTEE, THE
COMPANY, ANY OTHER OBLIGOR IN RESPECT OF THE SECURITIES AND THE
HOLDERS AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF
ANY UNITED STATES FEDERAL OR STATE COURT LOCATED IN THE CITY OF
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THE INDENTURE OR SECURITY.
8
<PAGE>
ASSIGNMENT FORM
If you the holder want to assign this Security, fill in the
form below and have your signature guaranteed:
I or we assign and transfer this Security to
- --------------------------------------------------------------------
(Insert assignee's social security or tax ID number) ---------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and
irrevocably appoint
- --------------------------------------------------------------------
agent to transfer this Security on the books of the Company.
The agent may substitute another to act for such agent.
Date: Your signature:
--------------- ---------------------------------
(Sign exactly as your name
appears on the other side of
this Security)
By:
-------------------------
NOTICE: To be signed
by an executive officer
NOTICE: Signature(s) must be guaranteed by an institution
which is a participant in the Securities Transfer Agent
Medallion Program ("STAMP") or similar program.
9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the
Company pursuant to Section 10.14 or 10.15 of the Indenture,
check the Box: [ ]
If you wish to have a portion of this Security
purchased by the Company pursuant to Section 10.14 or 10.15 of
the Indenture, state the amount:
$______________
Date: __________________ Your Signature: ______________________
(Sign exactly as your
name appears on the
other side of this
Security)
By:
------------------
NOTICE: To be signed
by an executive
officer.
NOTICE: Signature(s) must be guaranteed by an institution
which is a participant in the Securities Transfer Agent
Medallion Program ("STAMP") or similar program.
Section 2.04. Form of Trustee's Certificate of
Authentication.
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the
within-mentioned Indenture.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, as Trustee
By:
----------------------------
Authorized Officer
10
GREENBERG
ATTORNEYS AT LAW
TRAURIG
1221 BRICKELL AVENUE, MIAMI, FLORIDA 33131
305-579-0500 FAX 305-579-0717
July 28, 1995
Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida 33172
Re: Registered Exchange Offer for 12 1-4% Senior Notes due 2002
Ladies and Gentlemen:
Reference is made to that certain Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), filed by Peoples Telephone Company, Inc., a New York corporation (the
"Company"), on the date hereof with the Securities and Exchange Commission. The
Registration Statement relates to the Company's offer to exchange its Series B
12 1-4% Senior Notes due 2002 (the "Exchange Notes") for any and all of the
Company's outstanding Series A 12 1-4% Senior Notes due 2002 (the "Old Notes").
We have acted as special counsel to the Company in connection with the
preparation and filing of the Registration Statement.
For purposes of this opinion letter, we have examined and relied upon
copies of (i) the Company's Certificate of Incorporation and Bylaws; (ii)
resolutions of the Company's Board of Directors authorizing the exchange of the
Old Notes for the Exchange Notes and related matters; (iii) the Registration
Statement and exhibits thereto; and (iv) such other documents and instruments as
we have deemed necessary for the expression of opinions herein contained. In
making the foregoing examinations, we have assumed the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies. As to various questions of fact material to
this opinion, we have relied, to the extent we deem reasonably appropriate, upon
representations or certificates of officers or directors of the Company and upon
documents, records and instruments furnished to us by the Company, without
independently checking or verifying the accuracy of such documents, records and
instruments.
Based upon the foregoing examination, we are of the opinion that the
Exchange Notes have been duly and validly authorized and, when issued and
delivered in accordance with the terms of the "Exchange Offer" (as defined in
the Registration Statement), will be validly issued, fully paid and binding
obligations of the Company, subject to no further assessments.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
GREENBERG, TRAURIG, HOFFMAN,
LIPOFF, ROSEN & QUENTEL, P.A.
Executed Copy
SECURITIES PURCHASE AGREEMENT
AMONG
PEOPLES TELEPHONE COMPANY, INC.,
UBS CAPITAL CORPORATION
AND
APPIAN CAPITAL PARTNERS, L.L.C.
JULY 3, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
ISSUANCE AND SALE OF THE SECURITIES.................................-1-
1.1 Securities Purchase........................................-1-
1.2 Closing Transactions.......................................-2-
ARTICLE II
CONDITIONS TO CLOSING...............................................-2-
2.1 Conditions to each Purchaser's Obligations.................-2-
2.2 Conditions to the Company's Obligations....................-6-
ARTICLE III
COVENANTS...........................................................-7-
3.1 Affirmative Covenants of the Company.......................-7-
3.2 Negative Covenants of the Company.........................-10-
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................-14-
4.1 Organization and Corporate Power..........................-14-
4.2 Authorization of Transactions.............................-15-
4.3 Capitalization............................................-15-
4.4 Absence of Conflicts......................................-16-
4.5 Financial Statements......................................-16-
4.6 Absence of Undisclosed Liabilities........................-17-
4.7 Absence of Material Adverse Change........................-17-
4.8 Absence of Certain Developments...........................-18-
4.9 Title to Properties.......................................-20-
4.10 Environmental and Safety Matters..........................-20-
4.11 Tax Matters...............................................-21-
4.12 Litigation; Proceedings...................................-22-
4.13 Brokerage.................................................-23-
4.14 Governmental Licenses and Permits.........................-23-
4.15 Employees.................................................-24-
4.16 Employee Benefit Plans....................................-25-
4.17 Insurance.................................................-27-
4.18 Affiliate Transactions....................................-27-
4.19 Compliance with Laws......................................-27-
4.20 Governmental Consent, etc.................................-27-
4.21 Customers.................................................-27-
4.22 Disclosure................................................-28-
4.23 Contracts.................................................-29-
4.24 INVESTMENT COMPANY........................................-29-
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<PAGE>
4.26 SMALL BUSINESS MATTERS....................................-30-
4.27 Closing Date..............................................-30-
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...................-30-
5.1 Organization and Power....................................-30-
5.2 Authorization.............................................-31-
5.3 No Violation..............................................-31-
5.4 Brokerage.................................................-31-
5.5 Closing Date..............................................-31-
ARTICLE VI
TERMINATION........................................................-31-
6.1 Termination...............................................-31-
6.2 Effect of Termination.....................................-32-
ARTICLE VII
DEFINITIONS........................................................-32-
ARTICLE VIII
ADDITIONAL AGREEMENTS..............................................-37-
8.1 Survival..................................................-37-
8.2 Indemnification...........................................-38-
8.3 Indemnification Procedure.................................-39-
8.4 Press Releases and Announcements..........................-40-
8.5 Further Transfers.........................................-41-
8.6 Specific Performance......................................-41-
8.7 Investigation.............................................-41-
8.8 Expenses..................................................-42-
8.9 Exclusivity...............................................-42-
8.10 Transfer of Securities....................................-43-
8.11 Purchasers' Representations...............................-44-
8.12 STANDSTILL................................................-44-
8.13 CONTINGENT WARRANTS.......................................-47-
8.14 REGULATORY COMPLIANCE COOPERATION.........................-48-
ARTICLE IX
MISCELLANEOUS......................................................-49-
9.1 Amendment and Waiver......................................-49-
9.2 Notices...................................................-49-
9.3 Binding Agreement; Assignment.............................-50-
9.4 Severability..............................................-51-
9.5 No Strict Construction....................................-51-
-ii-
<PAGE>
9.6 Headings; Interpretation..................................-51-
9.7 Entire Agreement..........................................-51-
9.8 Counterparts..............................................-51-
9.9 Governing Law.............................................-51-
9.10 Parties in Interest.......................................-52-
-iii-
<PAGE>
EXHIBITS
Exhibit A - Form of Certificate of Amendment for
Preferred Stock
Exhibit B - Form of Warrant
Exhibit C - Terms of Registration Rights Agreement
Exhibit D - Form of Opinion of Company's Counsel
Exhibit E - Financial Disclosure
Exhibit F - Form of Contingent Warrant
-iv-
<PAGE>
LIST OF SCHEDULES
Schedule 4.1 - Subsidiaries/Investments Schedule
Schedule 4.3 - Capitalization Schedule
Schedule 4.4 - Conflicts Schedule
Schedule 4.5 - Financial Statement Schedule
Schedule 4.8 - Developments Schedule
Schedule 4.10 - Environmental Schedule
Schedule 4.11 - Tax Schedule
Schedule 4.12 - Litigation Schedule
Schedule 4.13 - Brokerage Schedule
Schedule 4.14 - Government License/Permit Schedule
Schedule 4.15 - Employees Schedule
Schedule 4.16 - Employee Benefit Plans Schedule
Schedule 4.21 - Customers Schedule
Schedule 4.22 - Disclosure Schedule
Schedule 4.23 - Contracts Schedule
-v-
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT") is made as of July 3, 1995
by and among Peoples Telephone Company, Inc., a New York corporation (the
"COMPANY"), UBS Capital Corporation, a New York corporation ("UBS"), and Appian
Capital Partners, L.L.C., a Delaware limited liability company ("ACP" and
together with UBS, the "PURCHASERS"). Except as otherwise indicated herein,
capitalized terms used herein are defined in Article VII hereof.
Subject to the terms and conditions set forth herein, UBS desires to
purchase from the Company, and the Company desires to issue to UBS, shares of
Series C Cumulative Convertible Preferred Stock, par value $0.01 per share (the
"PREFERRED STOCK"), convertible at any time after the Closing Date (as defined
below) into shares of the Company's common stock, par value $0.01 per share (the
"COMMON STOCK"), under circumstances as described herein. In addition, ACP
desires to purchase from the Company, and the Company desires to issue to ACP,
one or more warrants (the "WARRANTS") to purchase at any time after the Closing
Date shares of Common Stock under the circumstances as described herein. The
Preferred Stock, Underlying Common Stock (as defined herein) and the Warrants
are sometimes referred to herein as the "SECURITIES."
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
ARTICLE I
ISSUANCE AND SALE OF THE SECURITIES
1.1 SECURITIES PURCHASE. On the terms and subject to the conditions of this
Agreement, at the Closing:
(a) The Company shall authorize the issuance and sale to UBS of 150,000
shares of Preferred Stock having the rights and preferences set forth in Exhibit
A attached hereto and which will initially be convertible into an aggregate of
2,857,142.9 shares of Common Stock. The total purchase price of the Preferred
Stock will be $15,000,000. Each share of Preferred Stock will initially be
convertible into Common Stock at $5.25 per share.
-1-
<PAGE>
(b) The Company shall authorize the issuance and sale to ACP of the
Warrants, having the rights and preferences set forth in Exhibit B attached
hereto, initially exercisable to purchase up to an aggregate of 275,000 shares
of Common Stock. The aggregate purchase price of the Warrants will be $100,000.
(c) The Company shall authorize the issuance and sale to UBS of the
Contingent Warrants (the "Contingent Warrants"), as described in Section 8.13
hereof.
1.2 CLOSING TRANSACTIONS.
(a) CLOSING. The closing of the transactions contemplated by this Agreement
(the "CLOSING") will take place at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, New York at 10:00 a.m., on the date of closing of the
Senior Note Financing (as defined below) (so long as all conditions to the
obligations of the parties to consummate the transactions contemplated hereby
have been satisfied or waived), or at such other time and location as is
mutually agreed upon by the Company and the Purchasers but in any event not
after August 15, 1995. The date and time of the Closing are herein referred to
as the "CLOSING DATE."
(b) TRANSFERS. Subject to the conditions set forth in this Agreement, at
the Closing Date the Company shall issue and deliver (i) to UBS, stock
certificates for 150,000 shares of Preferred Stock duly registered in the name
of UBS or one or more of its nominee(s) against payment by UBS of $15,000,000 as
the purchase price therefor, (ii) to ACP, the Warrants duly registered in the
name of ACP or one or more of its nominee(s), against payment by ACP of $100,000
and (iii) to UBS, the Contingent Warrants duly registered in the name of UBS or
one or more of its nominee(s), against payment by UBS of $1.00 (each of the
foregoing are collectively referred to herein as the "CLOSING TRANSACTIONS").
ARTICLE II
CONDITIONS TO CLOSING
2.1 CONDITIONS TO EACH PURCHASER'S OBLIGATIONS. The obligation of each of
the Purchasers to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions on or before the Closing
Date:
(a) the representations and warranties set forth in Article IV hereof and
in any writing delivered pursuant hereto will
-2-
<PAGE>
be true and correct at and as of the Closing Date as though then made and
as though references to the Closing Date were substituted for references to the
date of this Agreement throughout such representations and warranties;
(b) the Company will have performed and complied with each of the covenants
and agreements required to be performed by it under this Agreement and the
agreements and documents attached hereto as Exhibits prior to the Closing
(except for any breaches which, individually or collectively with any and all
other breaches by the Company of this Agreement, would not, and could not
reasonably be expected to, have a Material Adverse Effect or be materially
adverse to the interests of the Purchasers);
(c) since March 31, 1995, except as set forth on Schedule 4.8 and except
for the Refinancing (as defined herein), there will have been no change,
circumstance or event which, individually or collectively with each other such
change, circumstance or event, has had or which could be expected to have a
Material Adverse Effect;
(d) all consents and waivers by third parties that are required for the
consummation of the transactions contemplated hereby including, without
limitation, any consents required pursuant to any leases or subleases and any
consents or waevers that are required in order that the transactions
contemplated hereby do not constitute a breach of or a default under or a
termination or modification of any agreement or instrument set forth on Schedule
4.4 or any other material agreement to which the Company or any of its
Subsidiaries is a party or to which any material property of the Company or any
of its Subsidiaries is subject, will have been obtained on terms reasonably
satisfactory to the Purchasers;
(e) all governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby
(including, without limitation, any FCC filings, authorizations and approvals),
if any, will have been duly made and obtained and all waiting periods will have
expired on terms reasonably satisfactory to the Purchasers other than those
filings, authorizations or approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect;
(f) the Company shall have duly adopted, executed and filed with the
Secretary of State of New York a Certificate of Amendment of Rights and
Preferences establishing the terms and the rights and preferences of the
Preferred Stock in the form set forth in Exhibit A hereto (the "CERTIFICATE OF
AMENDMENT"), and the
-3-
<PAGE>
Company shall not have adopted or filed any other document designating
terms, rights or preferences of its preferred stock. The Certificate of
Amendment shall be in full force and effect as of the Closing under the laws of
New York and shall not have been amended or modified;
(g) the Company and the Purchasers shall have entered into a registration
rights agreement with respect to the Preferred Stock, the Warrants and the
Underlying Common Stock (the "REGISTRATION RIGHTS AGREEMENT") including
provisions to the effect of those set forth on Exhibit C attached hereto, as
well as other provisions reasonably required by the Purchasers, and the
Registration Rights Agreement shall be in form reasonably satisfactory to the
Purchasers and in full force and effect as of the Closing;
(h) the Company's board of directors (the "BOARD OF DIRECTORS") shall have
taken all such action as is necessary and sufficient to ensure that, effective
as of the Closing, the Board of Directors shall be comprised of six members,
including the Chief Executive Officer of the Company, the President of the
Company, two directors designated by UBS, and two individuals who are currently
serving as directors of the Company;
(i) the senior note financing (the "SENIOR NOTE FINANCING") placed by
Merrill Lynch & Co. shall have been consummated on the terms set forth in the
form of Indenture previously delivered to UBS and its counsel, as amended to
reflect the terms set forth in the Preliminary Offering Memorandum dated as of
July 3, 1995 relating to the Senior Note Financing (the "Preliminary
Memorandum") and such other amendments thereto reasonably acceptable to the
Purchasers and the Company shall have received not less than $75,000,000 of
gross proceeds therefrom;
(j) the Company shall be simultaneously consummating the sale of Securities
contemplated hereby to the other Purchaser;
(k) the Purchasers will have received (addressed to each Purchaser) an
opinion, dated the Closing Date, of New York counsel to the Company, which
counsel is experienced in transactions of the type contemplated hereby and is
reasonably satisfactory to the Purchasers, in the form attached hereto as
Exhibit D and otherwise in form and substance reasonably satisfactory to the
Purchasers and their counsel;
(l) the Second Amended and Restated Warrant Agreement dated as of February
17, 1994 between the Company and Creditanstalt American Corporation shall have
been amended, in a manner reasonably satisfactory to the Purchasers, to clarify
that there
-4-
<PAGE>
shall be no increase in the amount of Stock issuable, or decrease in the
price payable to the Company, upon exercise of the warrants issued thereunder
upon (i) consummation of the transactions contemplated hereby or upon issuance
of any Stock upon conversion of the Convertible Preferred Stock or upon exercise
of the Warrants, or (ii) issuance of any Common Stock upon exercise or
conversion of, or in exchange for, any option, right, warrant or convertible
security (other than options, warrants, rights or convertible securities issued
to officers or employees of the Company or any of its Subsidiaries) if no such
increase in such amount of stock or decrease in price payable to the Company was
required pursuant to the terms thereof upon issuance of any such option, right,
warrant or convertible security;
(m) The Company shall have delivered to each Purchaser all of the
following:
(i) an Officer's Certificate of the Company, dated the
Closing Date, stating that the conditions specified in Sections
2.1(a)-(j) above, inclusive, have been satisfied;
(ii) certified copies of the resolutions of the Board
of Directors approving the transactions contemplated by this
Agreement;
(iii) certified copies of the certificate of incorporation
(the "CERTIFICATE OF INCORPORATION") and bylaws (the "BYLAWS") of the
Company as in effect as of the Closing Date;
(iv) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of
the transactions contemplated herein; and
(v) such other documents or instruments as the
Purchasers may reasonably request to effect the transactions
contemplated hereby;
(n) the Company shall have delivered to UBS the following:
(i) duly completed and executed SBA (as defined in
Section 8.14) Forms 480, 652 and 1031 (Part A);
(ii) a business plan reasonably satisfactory to UBS
relating to its SBA regulatory requirements, showing the Company's
financial projections;
-5-
<PAGE>
(iii) a written statement from the Company regarding
its intended use of proceeds from the financing under this
Agreement; and
(iv) a list, after giving effect to the transactions
contemplated by this Agreement, of (x) the name of each of the
Company's directors, (y) the name and title of each of the Company's
officers and (z) the name of each of the Company's stockholders (as set
forth in the Section of the Preliminary Memorandum and any amendment
thereto, including the final memorandum, entitled "Principal
Shareholders") setting forth the number and class of shares held; and
(o) all proceedings to be taken by the Company in connection with the
consummation of the Closing Transactions and the other transactions contemplated
hereby and all certificates, opinions, instruments and other documents,
including customary representations, warranties, covenants, conditions and
remedies for breach, required to be delivered by the Company to effect the
transactions contemplated hereby will be reasonably satisfactory in form and
substance to the Purchasers.
Any condition to the obligations of the Purchasers specified in this
Section 2.1 may be waived by the Purchasers in their sole discretion.
2.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligation of the Company
to consummate the transactions contemplated by this Agreement is subject to the
satisfaction of the following conditions on or before the Closing Date:
(a) the representations and warranties set forth in Article V hereof and in
any writing delivered pursuant hereto will be true and correct at and as of the
Closing Date as though then made and as though the Closing Date were substituted
for the date of this Agreement throughout such representations and warranties;
(b)the Purchasers will have performed and complied in all material respects
with all of the covenants and agreements required to be performed by them under
this Agreement prior to the Closing;
(c) all consents and waivers by third parties that are required for the
consummation of the transactions contemplated hereby including, without
limitation, any consents required pursuant to any leases or subleases or that
are required in order that the transactions contemplated hereby do not
constitute a breach of or a default under or a termination or modification of
any material agreement to which the Company or any of its
-6-
<PAGE>
Subsidiaries is a party or to which any material property of the Company or
any of its Subsidiaries is subject, will have been obtained on terms reasonably
satisfactory to the Company; and
(d) all governmental filings, authorizations and approvals that are
required for the consummation of the transactions contemplated hereby
(including, without limitation, any FCC filings, authorizations and approvals),
if any, will have been duly made and obtained and all waiting periods will have
expired on terms reasonably satisfactory to the Company other than those
filings, authorizations or approvals the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect.
The conditions specified in this Section 2.2 may be waived by the Company,
in its sole discretion.
ARTICLE III
COVENANTS
3.1 AFFIRMATIVE COVENANTS OF THE COMPANY. From the date hereof through the
Closing and thereafter (unless otherwise indicated) so long as the number of
shares of Underlying Common Stock in existence equals or exceeds 25% of the
number in existence immediately after the Closing (as adjusted for stock splits,
stock dividends, combinations of shares and similar recapitalizations), the
Company covenants and agrees that it will and will cause each of its
Subsidiaries to:
(a) prior to the Closing, conduct the business and operations of the
Company and its Subsidiaries only in accordance with applicable laws in the
ordinary course of business and in accordance with the Company's past custom and
practice;
(b) prior to the Closing, cooperate with the Purchasers and use its best
efforts to make all registrations, filings and applications, to give all notices
and to obtain all governmental (including, without limitation, FCC), third party
or other consents, transfers, approvals, orders, qualifications and waivers
necessary or desirable for the consummation of the transactions contemplated
hereby and to cause the other conditions to the Purchasers' or the Company's
obligation to close to be satisfied (including, without limitation, the
execution and delivery of all agreements contemplated hereunder to be so
executed and delivered);
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(c) prior to the Closing, promptly inform the Purchasers (i) if any of the
representations and warranties contained in Article IV was not true and correct
when made or would not be true and correct if restated on any day following the
date hereof through the Closing Date and describing each variance therefrom,
(ii) of each breach of any covenant hereunder by the Company and (iii) of any
other development, circumstance or event which, individually or in the aggregate
with other developments, circumstances or events, has, or could reasonably be
expected to have a Material Adverse Effect. No disclosure pursuant to this
Section 3.1(c) shall be deemed to amend or supplement this Agreement or any
Schedule hereto or to prevent or cure any breach of warranty, breach of covenant
or misrepresentation;
(d) cause all properties owned by the Company or any of its Subsidiaries or
used or held for use in the conduct of its business or the business of any of
its Subsidiaries to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Board of Directors may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the Board of Directors, desirable in the conduct of its
business or the business of any of its Subsidiaries and is not disadvantageous
in any material respect to the holders of Preferred Stock or other Underlying
Common Stock;
(e) preserve and keep in full force and effect the corporate existence,
rights (charter and statutory), licenses and franchises of the Company and each
of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required
to preserve any such right, license or franchise if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the holders of
Preferred Stock and other Underlying Stock; and PROVIDED, FURTHER, that the
foregoing shall not prohibit a sale, transfer or conveyance of a Subsidiary of
the Company or any of its assets which is not otherwise prohibited by the terms
of this Agreement and is in accordance with the Company's Certificate of
Incorporation, as amended by the Certificate of Amendment;
(f) maintain the books, accounts and records of the Company and its
Subsidiaries in accordance with past custom and
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practice as used in the preparation of the Financial Statements (as defined
in Section 4.5) except to the extent permitted or required by GAAP;
(g) keep all of its and its Subsidiaries' properties which are of an
insurable nature insured with insurers, believed by the Company in good faith to
be financially sound and responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties (which may include self-insurance, if
reasonable and in comparable form to that maintained by companies similarly
situated);
(h) comply with all material legal requirements and material contractual
obligations applicable to the operations and business of the Company and its
Subsidiaries and pay all applicable Taxes as they become due and payable;
(i) permit representatives of the Purchasers and their agents (including
their counsel, accountants and consultants) to have reasonable access during
business hours to the Company's books, records, facilities, key personnel,
officers, directors, customers, independent accountants and legal counsel;
(j) assert and enforce all, and shall not (except with Super Majority Board
Vote) amend or waive any of the Company's rights under, all agreements between
the Company and any of its directors, executive officers and other Affiliates,
and shall pursue all remedies available to it with diligence and in good faith
in connection with the enforcement of any such rights;
(k) at all times file all reports (including annual reports, quarterly
reports and the information, documentation and other reports) required to be
filed by the Company under the Exchange Act and Sections 13 and 15 of the rules
and regulations adopted by the SEC thereunder, and the Company shall use its
best efforts to file each of such reports on a timely basis, and take such
further action as any holder or holders of Securities may reasonably request,
all to the extent required to enable such holders to sell Securities pursuant to
Rule 144 adopted by the SEC under the Securities Act (as such rule may be
amended from time to time) or any similar rule or regulation hereafter adopted
by the SEC and to enable the Company to register securities with the SEC on Form
S-3 or any similar short-form registration statement;
(l) permit UBS, so long as holders of shares of the Preferred Stock have
the right, voting as a separate class, to elect one or more directors to the
Board of Directors, to designate one observer to attend each meeting of the
Board of Directors and
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each committee thereof, including each telephonic meeting thereof; and
(m) if the Company ceases to be a reporting Company under the Exchange Act
or to comply with its reporting obligations thereunder, make available, upon
request, to any holder of the Securities, so long as the Securities remain
outstanding, the information set forth on Exhibit E attached hereto.
3.2 NEGATIVE COVENANTS OF THE COMPANY. From the date hereof through the
Closing and thereafter (unless otherwise indicated) so long as the number of
shares of Underlying Common Stock in existence equals or exceeds 25% of the
number in existence immediately after the Closing (as adjusted for stock splits,
stock dividends, combinations of shares and similar recapitalizations), the
Company agrees that it will not, and will cause each of its Subsidiaries not to:
(a) prior to the Closing, (i) take any action that would require disclosure
pursuant to Section 3.1(c) of this Agreement, (ii) operate the business of the
Company and its Subsidiaries other than in the ordinary course of business, or
(iii) take any action which, or omit to take any action the omission of which,
could reasonably be expected to have a Material Adverse Effect;
(b) prior to the Closing, enter into any material contract, lease,
agreement or transaction or any renewal, modification or extension thereof out
of the ordinary course of the business of the Company and its Subsidiaries or
restricting in any material way the conduct of the business of the Company and
its Subsidiaries;
(c) amend the Certificate of Incorporation or Bylaws if such amendment
would adversely affect any rights of the holders of Preferred Stock or other
Underlying Common Stock or subordinate any rights of holders of Preferred Stock
to the rights of any other holders of Stock of the Company;
(d) except for a sale of Common Stock pursuant to an underwritten public
offering registered pursuant to the Securities Act, issue or sell or otherwise
transfer for consideration (an "ISSUANCE") Stock of the Company unless, at least
20 days and not more than 60 days prior to such Issuance, the Company notifies
each holder of Securities in writing of the Issuance (including the price, the
purchaser(s) thereof and the other terms thereof) and grants to each holder of
Securities the right (the "RIGHT") to subscribe for and purchase such additional
shares or other securities so issued at the same price and on the same terms as
issued in the Issuance such that, after giving effect to the
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Issuance and exercise of the Right, the Securities owned by such holder
shall represent the same percentage of the outstanding Common Stock (including,
for purposes of this calculation, all Common Stock and assuming the issuance of
Common Stock upon conversion, exchange or exercise of any security so
convertible, exchangeable or exercisable issued in the Issuance or subject to
the Right) as was owned by such holder prior to the Issuance, or such lesser
amount designated by such holder. The Right may be exercised by such holder or
its nominee at any time by written notice to the Company received by the Company
within 15 days after receipt of notice by such holder from the Company of the
Issuance. The closing of the purchase and sale pursuant to the exercise of the
Right shall occur at least 5 days after the Company receives notice of the
exercise of the Right and concurrently with the closing of the Issuance.
Notwithstanding the foregoing, the Right shall not apply to (i) issuances of
Common Stock (or securities convertible into or exchangeable for, or options to
purchase, Common Stock), pro rata to all holders of Common Stock, as a dividend
on, subdivision of, or other distribution in respect of, the Common Stock, (ii)
issuances of Common Stock upon exercise or conversion of options, warrants and
other rights to acquire Common Stock outstanding on the date hereof as reflected
in Schedule 4.3, in each case issued in accordance with the terms thereof as in
effect on the date hereof or as such terms may thereafter be adjusted as
described in Schedule 4.3, (iii) issuances of Common Stock upon exercise of
stock options granted to employees pursuant to employee stock option and stock
ownership plans approved by the Board of Directors and (iv) issuances of Common
Stock pursuant to the terms approved by the Board of Directors in connection
with the acquisition of interests in another company or business as contemplated
by paragraph (g) or (j);
(e) without a Super Majority Board Vote, enter into any transaction or
series of transactions with any stockholder, director, officer, employee or
Affiliate which would require disclosure pursuant to Rule 404 of Regulation S-K
under the Securities Act.
(f) without a Super Majority Board Vote, except as expressly contemplated
by this Agreement, authorize, issue or enter into any agreement providing for
the issuance (contingent or otherwise) of, (a) any notes or debt securities
containing equity features or issued with capital stock (including, without
limitation, any notes or debt securities convertible into or exchangeable for
capital stock or other equity securities, issued in connection with the issuance
of capital stock or other equity securities or containing profit participation
features) other than Permitted Equity Kickers, (b) any capital stock or other
equity securities (or any securities convertible into or exchangeable for
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any capital stock or other equity securities) which are senior to or on a
parity with the Preferred Stock with respect to the payment of dividends,
redemptions or distributions upon liquidation or otherwise or issue any Stock
which votes generally in the election of the Company's directors, except stock
which at no time receives more than one vote per share of Common Stock which is
then issuable upon conversion thereof or (c) stock appreciation rights or
phantom stock rights other than pursuant to employee benefit plans approved by
the Board of Directors.
(g) without a Super Majority Board Vote, merge or consolidate with any
Person or, except as permitted by subparagraph (h), (i) or (j) below, permit any
Subsidiary to merge or consolidate with any Person (other than a Wholly-Owned
Subsidiary);
(h) without a Super Majority Board Vote, sell, lease or otherwise dispose
of, or permit any Subsidiary to sell, lease or otherwise dispose of, assets of
the Company and its Subsidiaries, in one transaction or series of related
transactions involving aggregate value (computed on the basis of book value,
determined in accordance with GAAP consistently applied, or fair market value,
determined by the Board of Directors in its reasonable good faith judgment) or
consideration in excess of $5,000,000 in any transaction or series of related
transactions (other than sales of inventory in the ordinary course of business);
(i) without a Super Majority Board Vote, liquidate, dissolve or effect a
recapitalization or reorganization of the Company in any form of transaction
(including, without limitation, any reorganization into a limited liability
company, a partnership or any other non-corporate entity which is treated as a
partnership for federal income tax purposes);
(j) without a Super Majority Board Vote, acquire, or permit any Subsidiary
to acquire, any interest in any company or business (whether by a purchase of
assets, purchase of stock, merger or otherwise), or enter into any joint
venture, involving an aggregate consideration (including, without limitation,
the assumption of liabilities whether direct or indirect and valuing any Common
Stock issued as consideration at the Market Price thereof determined on the date
of issuance thereof) exceeding $5,000,000 in any one transaction or series of
related transactions or exceeding $5,000,000 in any twelve-month period;
(k) without a Super Majority Board Vote, enter into, or permit any
Subsidiary to enter into, the ownership, active management or operation of any
business other than the domestic pay telephone business;
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(l) without a Super Majority Board Vote, hire or elect any substitute or
replacement for the Chief Executive Officer, President, Chief Financial Officer
or Chief Operating Officer of the Company or change (whether by amendment,
waiver or extension of any existing arrangement or, upon termination of any
existing arrangement, through any future arrangement) the terms of employment of
any of such Persons, including the terms of any executive employment agreement,
any compensation, incentive stock or option or loan arrangement; or
(m) effect, permit or suffer to occur or take any steps to cause a
Fundamental Change unless, upon the consummation thereof, the Company shall be
required to purchase, and shall have purchased all shares of the Preferred Stock
tendered to the Company for purchase at a price per share equal to the
Liquidation Value (as defined in the Certificate of Amendment) plus accrued and
unpaid dividends thereon pursuant to an offer to purchase given to the holders
of the Convertible Preferred Stock not less than 15 days prior to the date such
Fundamental Change is to be consummated. For purposes hereof "FUNDAMENTAL
CHANGE" means (i) any sale or transfer of more than 40% of the assets of the
Company and its Subsidiaries on a consolidated basis (measured either by book
value in accordance with GAAP consistently applied or by fair market value
determined in the reasonable good faith judgment of the Board of Directors) in
any transaction or series of transactions (other than sales in the ordinary
course of business and the sale of the Company's inmate telephone and cellular
telephone businesses) and (ii) any merger or consolidation to which the Company
is a party, except for a merger in which the Company is the surviving Company,
the terms of the Preferred Stock are not changed and the Preferred Stock is not
exchanged for cash, securities or other property, and after giving effect to
such merger, the holders of the Company's outstanding capital stock possessing a
majority of the voting power (under ordinary circumstances) to elect a majority
of the Board of Directors immediately prior to the merger shall continue to own
the Company's outstanding capital stock possessing the voting power (under
ordinary circumstances) to elect a majority of the Board of Directors.
Notwithstanding the foregoing provisions of this Section 3.2, the Company
may (i) negotiate and consummate the sale of its inmate telephone and cellular
telephone rental operations, (ii) consummate the Senior Note Financing and repay
amounts outstanding under the Company's existing bank credit agreement, and
(iii) enter into and borrow under a new bank credit agreement (the transactions
described in clauses (ii) and (iii) foregoing, the "REFINANCING").
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For purposes hereof, a "SUPER MAJORITY BOARD VOTE" means approval at a
meeting of the Board of Directors by a vote of at least 75% of each of the
directors then serving on the Board of Directors excluding for purposes of
subparagraph (e) a director interested in the subject matter of such approval.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchasers to enter into this Agreement,
the Company hereby represents and warrants to each of the Purchasers that:
4.1 ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and is qualified to do business in every jurisdiction in which the
ownership of its property or conduct of its business requires such qualification
except where the failure to be qualified, individually or in the aggregate,
would not have a Material Adverse Effect. The Company has full corporate power
and authority and has all licenses, permits and authorizations necessary to own
and operate its properties and to carry on its business as now conducted and
presently proposed to be conducted, except where the failure to have such
licenses, permits and authorizations would not, individually or collectively,
have a Material Adverse Effect. The copies of the Certificate of Incorporation
and Bylaws furnished to the Purchasers pursuant to Section 2.1(l) reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete. Except as described on Schedule 4.1, the minute books
containing the records of meetings of the stockholders and board of directors,
the stock certificate books and the stock record books of the Company are
correct and complete. The Company is not in default under or in violation of any
provision of its certificate of incorporation or bylaws. Schedule 4.1 attached
hereto correctly sets forth the name of each Subsidiary and each other entity in
which the Company or any of its Subsidiaries has an equity investment, the
jurisdiction of its incorporation or formation and each of the Persons owning
any of the outstanding equity of such Subsidiary and the number of shares or
units of such equity of each Subsidiary owned by each such Person. Except as set
forth on Schedule 4.1, the Company owns no stock or equity interest in any other
entity. Each Subsidiary is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, has full
corporate power and authority necessary to own its properties and to carry on
its
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businesses as now being conducted and as presently proposed to be conducted
and is qualified to do business in every jurisdiction in which its ownership of
property or the conduct of business requires such qualification except where the
failure to be so qualified, individually or collectively, would not have a
Material Adverse Effect.
4.2 AUTHORIZATION OF TRANSACTIONS. The Company has full corporate power and
authority to execute and deliver this Agreement, the agreements and documents
attached hereto as Exhibits and the other agreements and documents contemplated
hereby. The Board of Directors has duly approved this Agreement and has duly
authorized the execution and delivery of this Agreement, the agreements and
documents attached hereto as Exhibits and the other agreements and documents
contemplated hereby and the consummation of the transactions contemplated hereby
and thereby. No other corporate proceedings on the part of the Company are
necessary to approve and authorize the execution and delivery of this Agreement,
the agreements and documents attached hereto as Exhibits and the other
agreements and documents contemplated hereby and the consummation of the
transactions contemplated hereby and thereby. This Agreement, the agreements and
documents attached hereto as Exhibits and the other agreements and documents
contemplated hereby have been duly executed and delivered by the Company and
constitute valid and binding agreements of the Company, enforceable against the
Company in accordance with their terms, except (i) as limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect of relating to or affecting the rights and remedies of
creditors, and (ii) as limited by the effect of general principles of equity,
whether enforcement is considered in a proceeding in equity or at law.
4.3 CAPITALIZATION. (a) The authorized, issued and outstanding capital
stock of the Company is as set forth on Schedule 4.3. All of the issued and
outstanding shares of capital stock of the Company have been duly authorized,
are validly issued, fully paid and nonassessable, are not subject to, nor were
they issued in violation of, any preemptive rights. Except as set forth on
Schedule 4.3, there are no outstanding or authorized securities with profit
participating features or profit interests, or options, warrants, rights or
other agreements or commitments to which the Company is a party or which are
binding upon the Company providing for the issuance, disposition or acquisition
of any of its capital stock or any such securities or interests (collectively
"Options")(other than this Agreement). Except as set forth on Schedule 4.3,
there are no outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company. Except as set forth on Schedule 4.3,
there are no voting
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trusts, proxies or any other agreements or understandings with respect to
the voting of the capital stock of the Company. Except as set forth on Schedule
4.3, the Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
Options.
(b) The authorized, issued and outstanding capital stock of each Subsidiary
is as set forth on Schedule 4.1. All of the issued and outstanding shares of
capital stock of each Subsidiary are validly issued, fully paid and
nonassessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Except as set forth on Schedule 4.3, there are no Options to
which any Subsidiary is a party or which are binding upon any Subsidiary
providing for the issuance, disposition or acquisition of any of its capital
stock. Except as set forth on Schedule 4.3, there are no outstanding or
authorized stock appreciation, phantom stock or similar rights with respect to
any of the Subsidiaries. Except as set forth on Schedule 4.3, there are no
voting trusts, proxies or any other agreements or understandings with respect to
the voting of the capital stock of any of the Subsidiaries. Except as set forth
on Schedule 4.3, no Subsidiary is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its Stock.
4.4 ABSENCE OF CONFLICTS. Except as set forth on Schedule 4.4, the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby do not and will not (a) conflict with or
result in a breach of any of the provisions of, (b) constitute a default under,
(c) result in a violation of, (d) give any third party the right to terminate or
to accelerate any obligation under, (e) result in the creation of any lien,
security interest, charge or encumbrance upon the Common Stock or (f) require
any authorization, consent, approval, exemption or other action by or notice to
any court or other governmental body, under the provisions of the certificate of
incorporation or bylaws of the Company or any of the Subsidiaries or any
material indenture, mortgage, lease, license, loan agreement or other agreement
or instrument to which the Company or any of the Subsidiaries is bound or
affected, or any law, statute, rule or regulation or any judgment, order or
decree to which the Company or any of the Subsidiaries is subject except for
those with which the failure to comply, individually or collectively, would not
have a Material Adverse Effect.
4.5 FINANCIAL STATEMENTS. The Company has furnished the Purchaser with
copies of its (a) restated unaudited consolidated balance sheet as of March 31,
1995 (the "LATEST BALANCE SHEET") and the related consolidated statements of
income
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and cash flow for the 3-month period ended March 31, 1995 and (b) audited
balance sheets and statements of income and cash flow for the fiscal years ended
December 31, 1993 and 1994. Each of the foregoing financial statements
(including in all cases the notes thereto, if any) (the "FINANCIAL STATEMENTS")
is accurate and complete in all material respects, is consistent with the
Company's books and records (which, in turn, are accurate and complete in all
material respects), presents fairly the Company's consolidated financial
condition, consolidated results of operations and consolidated cash flows as of
the dates and for the periods referred to therein, and has been prepared in
accordance with GAAP consistently applied, subject in the case of unaudited
financial statements to changes, which are immaterial in the aggregate,
resulting from normal year-end adjustments and to the absence of footnote
disclosure.
(b) Except as set forth on Schedule 4.5, the restated audited consolidated
financial statements and related schedules and notes included in the SEC
Documents comply in all material respects with requirements of the Exchange Act
and the Securities Act and the rules and regulations of the SEC thereunder.
Except as set forth on Schedule 4.5, the Financial Statements which are not
audited comply in all material respects with the requirements of the Exchange
Act and the Securities Act and the rules and regulations of the SEC thereunder
(assuming for such purposes that such requirements are applicable thereto).
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on Schedule 4.6
and except for obligations or liabilities with respect to expenses arising from,
and indebtedness incurred in, the Refinancing, neither the Company nor any of
the Subsidiaries have any obligations or liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise, whether or not known, whether due or to
become due and regardless of when asserted) except (a) obligations under
contracts and commitments, (b) liabilities reflected on the Latest Balance Sheet
and (c) liabilities which have arisen after the date of the Latest Balance Sheet
in the ordinary course of business (which liabilities in the aggregate could not
reasonably be expected to have a Material Adverse Effect).
4.7 ABSENCE OF MATERIAL ADVERSE CHANGE. Except as set forth on Schedule 4.8
and except for the Refinancing, since March 31, 1995, or except for obligations
or liabilities with respect to indebtedness incurred in the Refinancing, there
has been no change or event resulting in or which could reasonably be expected
to have a Material Adverse Effect, whether individually or collectively with any
other change or event since such date (it
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being understood that no representation or warranty is made with respect to
conditions affecting the Company's industry in general).
4.8 ABSENCE OF CERTAIN DEVELOPMENTS. Since March 31, 1995, except as set
forth on Schedule 4.8 or as specifically contemplated by this Agreement neither
the Company nor any of the Subsidiaries has:
(a) issued, sold or transferred any notes, bonds or other debt securities
(except, in the case of the Company, the issuance of the notes and bank
borrowings pursuant to the Refinancing) or any equity securities, securities
convertible, exchangeable or exercisable into equity securities, or warrants,
options or other rights to acquire equity securities, of the Company or any of
the Subsidiaries;
(b) borrowed any amount or incurred or become subject to any liabilities,
except liabilities incurred in the ordinary course of business (except, in the
case of the Company, the issuance of the notes and bank borrowings and the
incurrence of expenses pursuant to the Refinancing);
(c) other than the repayment of bank borrowings pursuant to the
Refinancing, discharged or satisfied any lien or encumbrance or paid any
obligation or liability, other than liabilities paid in the ordinary course of
business, or prepaid any amount of indebtedness for borrowed money;
(d) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any portion of its properties or assets other than in the ordinary
course of business or other than liens pursuant to the bank credit agreement
entered into pursuant to the Refinancing;
(e) sold, leased, assigned or transferred any portion of its tangible
assets or cancelled any debts or claims owing to or held by it in any such case
without fair consideration;
(f) sold, assigned or transferred any Proprietary Rights or disclosed any
proprietary confidential information to any Person, other than (i) to
representatives of the Company acting on behalf of the Company and subject to
obligations to hold such information confidential, and (ii) to certain
prospective lenders, investors and financial advisors in connection with the
Refinancing, in each case subject to obligations to hold such information
confidential, or granted any license or sublicense of any rights under or with
respect to any Proprietary Rights;
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(g) suffered any extraordinary losses or waived any single right of value
which has a value in excess of $500,000 or any rights of value which have an
aggregate value of $1,000,000 whether or not in the ordinary course of business
or consistent with past custom and practice;
(h) suffered any theft, taking by power of eminent domain, damage,
destruction or casualty loss in excess of $500,000 to its tangible assets,
whether or not covered by insurance or suffered any substantial destruction of
the Company's books and records;
(i) other than in the ordinary course of business or as required to effect
the Refinancing, entered into, amended or terminated any material lease,
license, contract, agreement or commitment, or taken any other action or entered
into any other transaction, or changed any material business practice or manner
of dealing with any customer, supplier, subcontractor, insider, sales
representative, or other person or entity with whom the Company or any of the
Subsidiaries engage in any business activity, or entered into any other
transaction;
(j) entered into any employment contract or collective bargaining
agreement, written or oral, or changed in any other material respect employment
terms for, or made or granted any bonus or any wage, salary or compensation
increase to any director or executive officer or, except in the ordinary course
of business, to any other employee, agent or sales representative, group of
employees or consultant or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee benefit plan
or arrangement or adopted any new employee benefit plan or arrangement;
(k) incurred intercompany charges or conducted its cash management customs
and practices (including the collection of receivables, inventory control and
payment of payables) other than in the usual and ordinary course of business in
accordance with past custom and practice;
(l) made any capital expenditures or commitments therefor that aggregate in
excess of $1,000,000;
(m) made any loans or advances to, or guarantees for the benefit of, any
Person;
(n) delayed or postponed (beyond its normal custom and practice) the
payment of accounts payable and other liabilities;
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(o) made any charitable contributions or pledges in excess of $250,000; or
(p) except for the authorization of the Certificate of Amendment, changed
or authorized any change in its certificate of incorporation or bylaws.
4.9 TITLE TO PROPERTIES. The buildings, machinery, equipment, vehicles and
other tangible assets of the Company and the Subsidiaries are in good operating
condition and repair and are usable in the ordinary course of business. The
Company and the Subsidiaries own or lease under valid leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of
their business or used in the conduct of their business.
4.10 ENVIRONMENTAL AND SAFETY MATTERS. Except as set forth on Schedule 4.10
attached hereto (the "ENVIRONMENTAL SCHEDULE"):
(a) the Company has complied and is in compliance with all Environmental
and Safety Requirements, except where the failure so to comply would not,
individually or in the aggregate, result in a Material Adverse Effect;
(b) the Company has obtained and complied with, and is in compliance with,
all permits, licenses and other authorizations that may be required pursuant
to Environmental and Safety Requirements for the occupation of its facilities
and the operation of its business and such permits, licenses and other
authorizations may be relied upon for continued lawful operation of the business
of the Company on and after the Closing Date without transfer, reissuance, or
other governmental approval or action, except where the failure so to comply
with would not, individually or in the aggregate, result in a Material Adverse
Effect;
(c) the Company has not received any claim, complaint, citation, report or
other written or oral notice regarding any material liabilities or potential
material liabilities (whether accrued, absolute, contingent, unliquidated or
otherwise), including any investigatory, remedial or corrective obligations,
arising under Environmental and Safety Requirements;
(d) no underground storage tanks or surface impoundments exist on any
property owned by the Company; and
(e) the Company has not, either expressly or by operation of law, assumed
or undertaken any liability or corrective or remedial obligation of any other
person relating to
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Environmental and Safety Requirements, except liabilities of businesses
assumed in connection with the acquisition thereof.
4.11 TAX MATTERS. Except as set forth on Schedule 4.11 attached hereto:
(a) Each of the Company and its Subsidiaries has filed all Tax Returns that
it was required to file on or before the date hereof other than those returns
which if not filed would not, individually or in the aggregate, have a Material
Adverse Effect. All such Tax Returns were correct and complete in all material
respects. As of the time of filing, all Taxes owed by any of the Company and its
Subsidiaries (whether or not shown on any Tax Return), with respect to the
taxable periods ending on or before the Closing Date, have been paid, except
where the failure to withhold, pay or deposit (individually or collectively)
would not have a Material Adverse Effect and except with respect to taxes which
are being contested in good faith and by appropriate proceedings and with
respect to which adequate reserves have been established on the Company's books.
None of the Company and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim in writing has
been received by the Company from an authority in a jurisdiction where any of
the Company and its Subsidiaries does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no security interests on any
of the assets of the Company or any of the Subsidiaries that arose, other than
for current taxes not yet due and payable in connection with any failure (or
alleged failure) to pay any Tax.
(b) Each of the Company and its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(c) Except as set forth on Schedule 4.11, neither the Company nor any
director or executive officer of the Company expects any taxing authority to
assess any material additional Taxes for any period for which Tax Returns have
been filed. There is no dispute or claim concerning any Tax liability of any of
the Company and its Subsidiaries either (i) claimed or raised by any authority
in writing or (ii) as to which any of the directors and officers (and employees
responsible for Tax matters) of the Company and its Subsidiaries has knowledge
based upon personal contact with any agent of such authority which dispute or
claim if resolved adversely to the Company would result in a Material Adverse
Effect. Schedule 4.11 lists all federal, state, local and foreign income Tax
Returns filed with respect to any of the Company or the Subsidiaries for taxable
periods ended on or after December 31,
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1991, indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of an Audit. The Company has
made available to the Purchasers correct and complete copies of all federal
income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of the Company or the Subsidiaries since December
31, 1991.
(d) Except as set forth on Schedule 4.11, neither the Company nor any of
the Subsidiaries has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or deficiency.
(e) Neither the Company nor any of the Subsidiaries has filed a consent
under Section 341(f) of the Code concerning collapsible corporations. None of
the Company or any of the Subsidiaries has made any payments, is obligated to
make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be deductible
under Section 280G of the Code. None of the Company or any of the Subsidiaries
has been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. None of the Company or any of the Subsidiaries is
a party to any Tax allocation or sharing agreement. Except as set forth on
Schedule 4.11, neither the Company nor any of the Subsidiaries has been a member
of an Affiliated Group filing a consolidated federal income Tax Return (other
than a group the common parent of which was the Company) or has any Liability
for the Taxes of any Person (other than any of the Company and its Subsidiaries)
under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract or otherwise.
(f) Except as set forth on Schedule 4.11, the unpaid Taxes of the Company
and the Subsidiaries did not, as of December 31, 1994, exceed in any material
amount the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set forth
on the face of the Latest Balance Sheet (rather than in any notes thereto) and
do not exceed that reserve in any material amount as adjusted for the passage of
time through the Closing Date in accordance with the past custom and practice of
the Company and its Subsidiaries in filing their Tax Returns.
4.12 LITIGATION; PROCEEDINGS. Except as set forth in Schedule 4.12 attached
hereto (the "LITIGATION SCHEDULE"), to the Company's knowledge there are no
actions, suits, proceedings, orders or investigations pending or threatened
against the Company
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or the Subsidiaries at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign which, individually or
collectively, if determined adversely to the Company and its Subsidiaries would
have a Material Adverse Effect, and there is no basis for any of the foregoing.
4.13 BROKERAGE. Except for arrangement between the Company and ACP and
except as set forth in Schedule 4.13 attached hereto, there are no claims for
brokerage commissions, finders' fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of the Company or the Subsidiaries.
4.14 GOVERNMENTAL LICENSES AND PERMITS.
(a) Except as set forth on Schedule 4.14, the Company and its Subsidiaries
hold all permits, licenses, certificates of occupancy, franchises, certificates,
approvals and other authorizations of foreign, federal, state and local
governments or other similar rights including all necessary permits,
authorizations and licenses issued to the Company by the FCC and all state
commissions regulating the communications industry ("REGULATORY AGENCIES")
(collectively, the "LICENSES") and necessary in and for the conduct of their
respective businesses, and such Licenses are in full force and effect except
where the failure to hold such License or for such License to be valid and in
full force and effect, would not have a Material Adverse Effect and to the
Company's knowledge would not adversely effect any contracts or arrangements of
the Company involving 250 or more telephones or the operation thereof. The
Company has paid all taxes with respect to and filed all statements, reports and
information required by the Regulatory Agencies and duly performed in all
respects all of its obligations under, and is in full compliance with, the
Licenses, the FCC's Rules, the Communications Act of 1934 (the "COMMUNICATIONS
ACT"), all State statutes and regulations, the Telephone Operator Consumer
Services Improvement Act of 1990 and any other statutes or regulations governing
the communications services operated by the Company (collectively referred to as
the "COMMUNICATIONS STATUTES AND REGULATIONS")except for the failure of which
would not have a Material Adverse Effect and to the Company's knowledge would
not adversely effect any contracts or arrangements of the Company involving 250
or more telephones or the operation thereof. Except as set forth in Schedule
4.14, there is not now pending or to the Company's knowledge threatened any
litigation, proceeding or investigation which reasonably might result in a
termination of any of the Licenses except for litigation, proceedings or
investigations which would not individually or in
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the aggregate have a Material Adverse Effect and to the Company's knowledge
would not adversely effect any contracts or arrangements of the Company
involving 250 or more telephones or the operation thereof.
(b) Except as set forth in Schedule 4.14, no event has occurred (including
any notice issued by the Regulatory Agencies) and no agreement has been entered
into by the Company, which now, or after notice or lapse of time or both, might
reasonably be expected to cause or permit cancellation, revocation or
termination of the Licenses, or would result in any actions, which individually
or in the aggregate could reasonably be expected to have a Material Adverse
Effect, and there is no pending or to the Company's knowledge threatened action
or matters that would suggest that any of the Licenses could reasonably be
expected not to be renewed in the ordinary course.
(c) There is not pending any application, petition, objection or other
pleading filed with the Regulatory Agencies, or any entity with jurisdiction to
review administrative orders of the Regulatory Agencies, which questions the
validity of or contests any of the Licenses except for those that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(d) The consummation of the transactions contemplated by this Agreement
will not cause any forfeiture or impairment of the Licenses except for those
that could not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
4.15 EMPLOYEES. Except as set forth on Schedule 4.15, to the best knowledge
of the Company, neither Jeffrey Hanft nor Robert Rubin has any plan to terminate
employment with the Company or any of the Subsidiaries. Except as set forth on
Schedule 4.15, to the best knowledge of the Company, neither the Company, nor
any of the Subsidiaries is subject to any noncompete, nondisclosure,
confidentiality, employment, consulting or similar agreements, except (a)
confidentiality agreements entered into by the Company with respect to
information obtained in connection with evaluating possible acquisitions or
dispositions of businesses, (b) agreements binding on the Company or any of the
Subsidiaries, the breach of which would not, individually or in the aggregate,
have a Material Adverse Effect and (c) agreements binding on Jeffrey Hanft or
Robert Rubin solely on account of agreements described in clause (a) foregoing.
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4.16 EMPLOYEE Benefit Plans. (a) Schedule 4.16 attached hereto (the
"EMPLOYEE BENEFIT PLANS SCHEDULE") contains an accurate and complete list of all
Plans, as defined below, contributed to, maintained or sponsored by the Company
and/or any of its Subsidiaries, to which the Company or any of its Subsidiaries
is obligated to contribute or with respect to which the Company or any of its
Subsidiaries has any liability or potential liability, whether direct or
indirect, including all Plans contributed to, maintained or sponsored by each
member of the controlled group of companies (within the meaning of Section 414
of the Code) of which the Company or any of its Subsidiaries is a member, to the
extent the Company or any of its Subsidiaries has any potential liability with
respect to such Plans. For purposes of this Agreement, the term "Plans" shall
mean: (i) employee benefit plans as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), whether or not
funded and whether or not terminated, (ii) employment agreements, and (iii)
personnel policies or fringe benefit plans, policies, programs and arrangements,
whether or not subject to ERISA, whether or not funded, and whether or not
terminated, including without limitation, stock bonus, deferred compensation,
pension, severance, bonus, vacation, travel, incentive, and health, disability
and welfare plans.
(b) Except as disclosed on Schedule 4.16, neither the Company nor any of
its Subsidiaries contributes to, has any obligation to contribute to or
otherwise has any liability or potential liability with respect to (i) any
Multiemployer Plan (as such term is defined in Section 3(37) of ERISA), (ii) any
Plan of the type described in Sections 4063 and 4064 of ERISA or in Section
413(c) of the Code (and regulations promulgated thereunder), (iii) any Plan that
is subject to the minimum funding requirements of Section 412 of the Code or
Section 302 of ERISA, or (iv) any plan which provides health, life insurance,
accident or other "welfare-type" benefits to current or future retirees or
current or future former employees, their spouses or dependents, other than in
accordance with Section 4980B of the Code or applicable state continuation
coverage law.
(c) Except as disclosed on Schedule 4.16, none of the Plans obligates the
Company or any of its Subsidiaries to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change in control," as such term is used
in Section 280G of the Code (and regulations promulgated thereunder).
(d) Each Plan and all related trusts, insurance contracts, and funds have
been maintained, funded and administered
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in compliance in all material respects with all applicable laws and
regulations, including but not limited to ERISA and the Code. No Plan has any
material unfunded liabilities. None of the Company, any Subsidiary, any trustee
or administrator of any Plan, or any other person has engaged in any transaction
with respect to any Plan which could reasonably be expected to subject the
Company, any Subsidiary, or any trustee or administrator of any Plan, or any
party dealing with any Plan, or Purchasers to any material tax or penalty
imposed by ERISA or the Code. Except as disclosed on Schedule 4.16, no actions,
suits, claims, complaints, charges, proceedings, hearings, investigations, or
demands with respect to the Plans (other than routine claims for benefits) are
pending or threatened, and neither the Company nor of any of its Subsidiaries
has knowledge of any facts which could give rise to or reasonably be expected to
give rise to any actions, suits, claims, complaints, charges, proceedings,
hearings, investigations, or demands. None of the assets of the Company nor any
of its Subsidiaries is the subject of any lien arising under Section 302(f) of
ERISA or Section 412(n) of the Code, neither the Company nor any of its
Subsidiaries has been required to post any security pursuant to Section 307 of
ERISA or Section 401(a)(29) of the Code, and neither the Company nor any of its
Subsidiaries has knowledge of any facts which could reasonably be expected to
give rise to such lien or such posting of security.
(e) Each Plan that is intended to be qualified under Section 401(a) of the
Code, and each trust (if any) forming a part thereof, has received a favorable
determination letter from the Internal Revenue Service as to the qualification
under the Code of such Plan and the tax exempt status of such related trust, and
nothing has occurred since the date of such determination letter that could
adversely affect the qualification of such Plan or the tax exempt status of such
related trust.
(f) No underfunded "defined benefit plan" (as such term is defined in
Section 3(35) of ERISA) has been, during the five years preceding the Closing,
transferred out of the controlled group of companies (within the meaning of
Section 414 of the Code) of which the Company or any of its Subsidiaries is a
member or was a member during such five-year period.
(g) With respect to each Plan, the Company has made available Purchasers
with true, complete and correct copies, to the extent applicable, of (i) all
documents pursuant to which such Plan is maintained, funded and administered,
(ii) the two most recent annual reports (Form 5500 series) filed with the
Internal Revenue Service (with attachments), (iii) the two most recent actuarial
reports, (iv) the two most recent financial statements, and (v) all
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governmental rulings, determinations, and opinions (and pending requests
for governmental rulings, determinations, and opinions).
4.17 INSURANCE. The insurance coverage of the Company and the Subsidiaries
is adequate and is customary for corporations of similar size engaged in similar
lines of business.
4.18 AFFILIATE TRANSACTIONS. Except as disclosed in any SEC Document, the
Company and its Subsidiaries have not entered into any transaction or series of
transactions with any stockholder, director, officer, employee or Affiliate of
the Company which would require disclosure pursuant to Rule 404 of Regulation
S-K under the Securities Act.
4.19 COMPLIANCE WITH LAWS. The Company, the Subsidiaries and their
officers, directors, agents and employees have complied with all applicable laws
and regulations of foreign, federal, state and local governments and all
agencies thereof (including, without limitation, the Communications Act, the
Securities Act and the Exchange Act) which affect the business, business
practices (including, but not limited to, any of the Company's and the
Subsidiaries' marketing, sales and distribution of its products and services),
the business operations or any leased properties of any of the Company and the
Subsidiaries and to which the Company and the Subsidiaries may be subject, and
no claims have been filed against any of the Company and its Subsidiaries
alleging a violation of any such laws or regulations except for those the
failure to comply with would not, individually or in the aggregate, have a
Material Adverse Effect.
4.20 GOVERNMENTAL CONSENT, ETC. No permit, consent, approval or
authorization of, or declaration to or filing with, any governmental or
regulatory authority or any other party or person (including, without
limitation, the FCC) is required to be obtained by the Company in connection
with its execution, delivery and performance of this Agreement or the
consummation of any other transaction contemplated hereby except for those which
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
4.21 CUSTOMERS. Except as described on Schedule 4.21 hereto (the "MATERIAL
CUSTOMER DISPUTE SCHEDULE"), neither the Company nor any of its Subsidiaries has
any reason to believe that any Person who, collectively with its Affiliates, is
party to any contract or arrangement with the Company or any of its Subsidiaries
relating to the operation of an aggregate of 250 or more telephones (a "MATERIAL
CUSTOMER") has any dispute with the Company or any of its Subsidiaries with
respect to any term or condition of such arrangement or has indicated that it
shall terminate or seek to amend or revise such arrangement in any material
respect.
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4.22 DISCLOSURE. (a) Neither this Agreement, the offering memorandum with
respect to the Senior Note Offering (in the form previously delivered to the
Purchasers (except to the extent such form does not contemplate this Agreement
and the transactions contemplated hereby)) nor any of the schedules,
attachments, exhibits, written statements or certificates supplied to the
Purchasers by or on behalf of the Company with respect to the transactions
contemplated hereby contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
There is no fact which has not been disclosed to the Purchasers in writing and
of which any of the Company's executive officers and directors is aware or any
of the executive officers and directors of any of its Subsidiaries is aware, and
which has had or would reasonably be anticipated to have a Material Adverse
Effect (it being understood that no representation or warranty is made with
respect to conditions affecting the Company's industry in general). The Offering
Memorandum prepared pursuant to the Senior Note Financing does not contain an
untrue statement of material fact or omit to state any fact necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading.
(b) Except as set forth on Schedule 4.22, as of its filing date, each SEC
Document filed, and each SEC Document that will be filed by the Company prior to
the Closing Date, as amended or supplemented prior to the Closing Date, if
applicable, pursuant to the Securities Act and/or the Exchange Act (i) complied
in all material respects with the applicable requirements of the Securities Act
and/or Exchange Act and (ii) did not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading. Each final registration statement filed with the SEC by
the Company pursuant to the Securities Act, as of the date such statement or
amendment became effective (i) complied in all material respects with the
applicable requirements of the Securities Act and (ii) did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
(in the case of any prospectus, in light of the circumstances under which they
were made). The Sections in the Preliminary Memorandum ,as the same may be
amended or supplemented, and in any final offering memorandum, entitled "Risk
Factors," "The Company," "Capitalization," "Selected Financial Information,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," "Certain Transactions," "Principal
Shareholders," "Description of the Credit Agreement," "Description of the Notes"
and "Consolidated Financial
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Statements", if included in a prospectus as part of a registration
statement with respect to the exchange offer of notes contemplated thereby and
filed on a Form S-4 with the SEC on the date thereof, (i) were prepared in
material accordance with Regulations S-K and S-X of the Rules of the SEC, (ii)
include all material disclosure that would be required therein (other than as to
matters related to an exchange offer or the securities to be offered in exchange
for the notes issued pursuant to the Senior Note Financing) by Items 100, 200,
300 and 400 of Regulation S-K and Articles 1, 2, 3, 4, 6, 10, 11 and 12 of
Regulation S-X, in each case to the extent such regulations would be applicable
to such a registration statement if such an exchange offer were contemplated at
such time, and (iii) do not or will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.
4.23 CONTRACTS. Except as set forth on Schedule 4.23, all of the contracts
of the Company or any of its Subsidiaries that were required to be described in
the SEC Documents or to be filed as exhibits thereto are described in the SEC
Documents or filed as exhibits thereto and are in full force and effect, other
than those which have expired or terminated prior to January 1, 1995 in
accordance with their terms and those which have been terminated or modified in
connection with the Refinancing. Neither the Company nor any of its Subsidiaries
nor, to the knowledge of the Company, any other party is in breach of or in
default under any such contract except for such breaches and defaults as in the
aggregate have not had, and would not reasonably be expected to, have a Material
Adverse Effect.
4.24 INVESTMENT COMPANY. The Company is not an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
4.25 EXEMPTION FROM REGISTRATION; RESTRICTIONS ON OFFER AND SALE OF SAME OR
SIMILAR SECURITIES. Assuming the representations and warranties of the
Purchasers set forth in Article V hereof are true and correct in all material
respects, the offer and sale of the Securities made pursuant to this Agreement
will be exempt from the registration requirements of the Securities Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Securities, engaged in (A) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (B) any action involving a public offering within the
meaning of Section 4(2) of the Securities Act, or (C) any action that would
require the registration under the Securities Act
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of the offering and sale of the Securities pursuant to this Agreement or
that would violate applicable state securities or "blue sky" laws. The Company
has not made and will not prior to the Closing make, directly or indirectly, any
offer or sale of the Securities or of securities of the same or a similar class
as the Securities if as a result the offer and sale of the Securities
contemplated hereby could fail to be entitled to exemption from the registration
requirements of the Securities Act. As used herein, the terms "offer" and "sale"
have the meanings specified in Section 2(c) of the Securities Act.
4.26 SMALL BUSINESS MATTERS. The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations, Section
121.401), is a "small business concern" within the meaning of the Small Business
Investment Act of 1958 and the regulations thereunder, including Title 13, Code
of Federal Regulations, Section 121.802. The information regarding the Company
and its affiliates set forth in the SBA Form 480, Form 652 and Part A of Form
1031 delivered at the Closing is accurate and complete. Neither the Company nor
any Subsidiary presently engages in any activities, nor shall the Company or any
Subsidiary use directly or indirectly the proceeds from the sale of the
Preferred Stock hereunder for any purpose for which a SBIC is prohibited from
providing funds by the Small Business Investment Act of 1958 and the regulations
thereunder (including Title 13, Code of Federal Regulations, Section 107.804 and
Section 107.901).
4.27 CLOSING DATE. All of the representations and warranties contained in
this Article and made by or on behalf of the Company elsewhere in this Agreement
and all information delivered in any schedule, attachment or exhibit hereto or
in any writing delivered to the Purchasers by or on behalf of the Company are
true and correct in all respects on the date of this Agreement and will be true
and correct in all respects on the Closing Date, unless waived by each of the
Purchasers.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
As a material inducement to the Company to enter into this Agreement, each
Purchaser hereby represents and warrants, severally and not jointly, to the
Company that:
5.1 ORGANIZATION AND POWER. Such Purchaser is a corporation, limited
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of
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the state of its jurisdiction of incorporation or formation, with full
corporate or partnership (as applicable) power and authority to enter into this
Agreement and perform its obligations hereunder.
5.2 AUTHORIZATION. The execution, delivery and performance of this
Agreement by such Purchaser and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all requisite
corporate or partnership (as applicable) action on the part of such Purchaser,
and no other corporate or partnership (as applicable) proceedings on its part
are necessary to authorize the execution, delivery or performance of this
Agreement. This Agreement constitutes a valid and binding obligation of such
Purchaser, enforceable against such Purchaser in accordance with its terms.
5.3 NO VIOLATION. Such Purchaser is not subject to or obligated under its
certificate of incorporation, its bylaws, certificate of partnership,
certificate of formation, any applicable law, or rule or regulation of any
governmental authority, or any agreement or instrument, or any license,
franchise or permit, or subject to any order, writ, injunction or decree, which
would be breached or violated by its execution, delivery or performance of this
Agreement.
5.4 BROKERAGE. Except for an agreement between the Company and ACP, there
are no claims for brokerage commissions, finders' fees or similar compensation
in connection with the transactions contemplated by this Agreement based on any
arrangement or agreement made by such Purchaser.
5.5 CLOSING DATE. The representations and warranties contained in this
Article and made by such Purchaser elsewhere in this Agreement are true and
correct in all respects on the date of this Agreement and will be true and
correct in all respects on the Closing Date, unless waived by the Company.
ARTICLE VI
TERMINATION
6.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent each of the Purchasers and the Company;
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(b) by either the Purchasers or the Company if there has been a material
misrepresentation or breach on the part of the other party or parties in the
representations and warranties set forth in this Agreement if such breach is not
cured within 10 days after the Company first becomes aware of such breach, or if
events have occurred which have made it impossible to satisfy a condition
precedent to the terminating party's or parties' obligations to consummate the
transactions contemplated hereby, unless such terminating party's or parties'
willful breach of this Agreement has caused the condition to be unsatisfied; or
(c) by either of the Purchasers or by the Company if the Closing has not
occurred on or prior to August 15, 1995; and PROVIDED that neither the
Purchasers nor the Company may terminate this Agreement pursuant to this Section
6.1(c) if such person's willful breach of this Agreement has prevented the
consummation of the transactions contemplated hereby at or prior to such time.
6.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by
either the Purchasers or the Company as provided above, this Agreement will
forthwith become void and there will be no liability on the part of any party
hereto to any other party hereto or its shareholders or directors or officers in
respect thereof, except for the obligations of the parties pursuant to Sections
8.7 and 8.8 and except that nothing herein will relieve any party from liability
resulting from any breach of this Agreement prior to such termination,
including, without limitation, any breach of Section 8.9.
ARTICLE VII
DEFINITIONS
"AFFILIATE" means with respect to any Person, any other Person (i) directly
or indirectly controlling or controlled by or under direct or indirect control
with such specified Person, (ii) related by blood or marriage to any such
specified Person or any Affiliate of such specified Person, (iii) controlled by
any Person described in clause (ii) foregoing or (iv) in the case of any limited
liability company, each member.
"AFFILIATED GROUP" shall mean an affiliated group as defined in Section
1504 of the Code (or any analogous combined, consolidated or unitary group
defined under state, local or foreign Tax law) of which any of the Company or
the Subsidiaries is or has been a member.
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"ANNUAL REPORTS" means the Company's Annual Reports on Form 10-K for the
years ended December 31, 1993 and 1994 as filed with the SEC.
"AUDIT" means any audit, assessment of Taxes, or other examination by any
taxing authority, proceedings, or appeal of such proceedings relating to Taxes.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"ENVIRONMENTAL AND SAFETY REQUIREMENTS" means all federal, state, local and
foreign statutes, regulations, ordinances and similar provisions having the
force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transport, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, or cleanup of any hazardous or otherwise regulated materials,
substances or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
"ENVIRONMENTAL LIEN" means a lien, either recorded or unrecorded, in favor
of any governmental entity, relating to any liability of the Company arising
under Environmental and Safety Requirements.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commission.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"MARKET PRICE" of any security means the average of the closing prices of
such security's sales on all securities exchanges on which such security may at
the time be listed or as reported on the NASDAQ National Market, or, if there
has been no sales on any such exchange or reported on the NASDAQ National Market
on any day, the average of the highest bid and lowest asked prices on all such
exchanges or reported at the end of such day, or, if on any day such security is
not so listed or included in the NASDAQ National Market, the average of the
representative bid and asked prices
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quoted in the NASDAQ Stock Market as of 4:00 P.M., New York time, or, if on
any day such security is not quoted in the NASDAQ Stock Market, the average of
the highest bid and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization, in each such case averaged
over a period of 21 days consisting of the day as of which "Market Price" is
being determined and the 20 consecutive business days prior to such day. If at
any time such security is not listed on any securities exchange or quoted in the
NASDAQ National Market, the NASDAQ Stock Market or the over-the-counter market,
the "Market Price" shall be the fair value thereof determined jointly by the
Company and the holders of a majority of the Preferred Stock. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the holders of a majority of the
Preferred Stock. The determination of such appraiser shall be final and binding
upon the parties, and the Company shall pay the fees and expenses of such
appraiser.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse change in the
assets, earnings, financial condition, operating results, customer, supplier,
employee or sales representative relations or business prospects of the Company
and the Subsidiaries taken as a whole, (ii) material casualty loss, destruction
or damage to the assets or properties of the Company and the Subsidiaries taken
as a whole, whether or not covered by insurance or (iii) any action or
proceeding before any court or government body wherein an unfavorable judgment,
decree, injunction or order would prevent the carrying out of this Agreement or
any of the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded, or
might adversely affect the right of the Purchasers to purchase, own or control
the Securities.
"PERMITTED EQUITY KICKERS" means issuance by the Company of notes or debt
securities which do not contain any equity features and are not issued in
connection with the issuance of any Stock of the Company, except for warrants to
purchase Common Stock (i) with an exercise price per share not less than the
Market Price of the Common Stock , and (ii) the aggregate exercise price of
which does not exceed 10% of the gross cash proceeds received by the Company
from such debt issuance, in each case determined as of the date of issuance
thereof.
"OFFICER'S CERTIFICATE" of any Person means a certificate signed by the
chief executive officer, vice president, secretary or Chief Financial Officer of
such Person stating that (i) the officer
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signing such certificate has made or has caused to be made such
investigations as are necessary in order to permit such person to verify the
accuracy of the information set forth in such cer- tificate, and (ii) to the
best of such officer's knowledge, such certificate does not misstate any
material fact and does not omit to state any fact necessary to make the
certificate not misleading.
"PERSON" means an individual, a partnership (including a limited
partnership), a corporation, a limited liability company, an association, a
joint stock company, a trust, a joint venture, an unincorporated organization
and a governmental entity or any department, agency or political subdivision
thereof.
"PROPRIETARY RIGHTS" means all patents, patent applications, patent
disclosures and inventions (whether or not patentable and whether or not reduced
to practice); all trademarks, service marks, trade dress, trade names and
corporate names; all registered and unregistered statutory and common law
copyrights; all registrations, applications and renewals for any of the
foregoing; all trade secrets, confidential information, ideas, formulae,
compositions, know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
improvements, proposals, technical and computer data, documentation and
software, financial business and marketing plans, customer and supplier lists
and related information and all other proprietary rights.
"REGULATORY VIOLATION" means, with respect to any SBIC Holder providing
financing under this Agreement, (i) a diversion of the proceeds of the financing
under this Agreement from the reported use thereof on SBA Form 1031 delivered at
Closing, if such diversion was effected without obtaining the prior written
consent of the SBIC Holders (which may be withheld in their sole discretion) or
(ii) a change in the principal business activity of the Company and its
Subsidiaries to an ineligible business activity (within the meaning of the SBIC
Regulations) if such change occurs within one year after the date of the initial
financing under this Agreement.
"SBIC" means a Small Business Investment Company licensed by an SBA under
the Small Business Investment Act of 1958, as amended.
"SBIC REGULATIONS" means the Small Business Investment Act of 1958 and the
regulations issued thereunder as set forth in 13 CFR 107 and 121, as amended.
"SEC" means the United States Securities and Exchange Commission and any
successor to the functions thereof.
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"SEC DOCUMENTS" means all documents (including any annual reports) filed by
the Company with the SEC (including all exhibits and schedules thereto and
documents incorporated by reference therein) since December 31, 1991 but shall
not include any portion of any document which is not deemed to be filed under
applicable SEC rules and regulations.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"STOCK" of any Person means any shares, equity or profits interests,
participations or other equivalents (however designated) of capital stock,
whether voting or nonvoting, including any securities with profit participation
features, and any rights, warrants, options or other securities convertible into
or exercisable or exchangeable for any such shares, equity or profits interests,
participations or other equivalents, or such other securities, directly or
indirectly (or any equivalent ownership interests, in the case of a Person which
is not a corporation).
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(i) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, part- nership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
"TAX" or "TAXES" shall mean any federal, state, local or foreign income,
estimated, gross receipts, license, payroll, employment, excise, severance,
stamp, occupation, premium, windfall profits, environmental (including without
limitation taxes under Section 59A of the Code), customs duties, capital stock,
franchise, employees' income withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
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use, transfer, registration, value added, alternative or add-on minimum or
other tax, of any kind whatsoever, including any interest, penalties or
additions to tax or additional amounts in respect of the foregoing.
"TAX RETURNS" shall mean returns, declarations, reports, claims for refund
and information returns or statements relating to Taxes, including any schedules
or attachments thereto.
"TRANSACTION DOCUMENTS" means this Agreement, the Warrants, the
Registration Agreement, each of the other agreements contemplated hereby, and
the Company's Certificate of Incorporation (as amended by the Certificate of
Amendment).
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or issuable
upon conversion of the Preferred Stock or exercise of the Warrants, and (ii) any
Common Stock issued or issuable with respect to the securities referred to above
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization. Any
Person who holds Preferred Stock or Warrants shall be deemed to be the holder of
the Underlying Common Stock obtainable upon exercise of such Preferred Stock or
Warrants. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registration statement covering them or (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force).
"WHOLLY OWNED SUBSIDIARY" means a Subsidiary of such Person all of the
outstanding capital stock or other ownership interests of which shall at the
time be owned by such Person or one or more Wholly Owned Subsidiaries of such
Person.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.1 SURVIVAL. Notwithstanding any examination made for or on behalf of the
Purchasers, the knowledge of any of its officers, directors, stockholders,
employees or agents, or the acceptance of any certificate or opinion, all
representations, warranties, covenants and agreements set forth in this
Agreement or in any writing delivered in connection with this Agreement shall
survive the Closing and, subject to the provisions of the following
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sentence, shall be fully effective and enforceable, subject to the
limitations set forth in Section 8.3(b) below. Notwithstanding the foregoing,
the representations and warranties set forth in Sections 4.1, 4.2, 4.3 and 4.4
shall survive indefinitely and the representations and warranties set forth in
Sections 4.10, 4.11 and 4.16 shall survive until the termination of their
respective statute of limitations applicable thereto.
8.2 INDEMNIF(a) The Company agrees to indemnify and hold harmless each of
the Purchasers, including each of its affiliates, and the respective partners,
directors, officers, agents and employees thereof (each Purchaser and each such
other Person, an "INDEMNIFIED PARTY") from and against any losses, claims,
damages, judgments, assessments, costs and other liabilities (collectively
"LIABILITIES"), and will reimburse each Indemnified Party for all fees and
expenses (including the reasonable fees and expenses of counsel) (collectively,
"EXPENSES") as they are incurred in investigating, preparing or defending any
claim, action, proceeding or investigation, whether or not in connection with
pending or threatened litigation or arbitration and whether or not any
Indemnified Party is a party thereto (collectively, "ACTIONS"), arising out of
(i) any breach of any of the representations or warranties made by the Company
in this Agreement or any of the agreements or certificates, documents or other
writings contemplated hereby or delivered in connection herewith, (ii) any
breach or violation of or failure to fully perform any covenant, agreement or
obligation of the Company in this Agreement or any of the agreements
contemplated hereby, or (iii) any Action by any third party arising out of or in
connection with the transactions contemplated by this Agreement or any
Indemnified Party's actions or inactions in connection with any such
transactions; provided that the Company will not be responsible for any
Liabilities or Expenses of an Indemnified Party pursuant to clause (iii)
immediately foregoing to the extent that such Liabilities and Expenses are
determined by a judgment of a court of competent jurisdiction which is no longer
subject to appeal or further review to have resulted solely from such
Indemnified Party's gross negligence or willful misconduct in connection with
the transactions referred to above. If multiple claims are brought against an
Indemnified Party (including in an arbitration), with respect to at least one of
which indemnification is permitted under applicable law and provided for under
this Agreement, the Company agrees that any award shall be conclusively deemed
to be based on claims as to which indemnification is permitted and provided for,
except to the extent the award expressly states that the award, or any portion
thereof, is based solely on a claim as to which indemnification is not
available. In the event the Company becomes liable to an Indemnified Party
pursuant to this Section 8.2, the amount of such liability shall be
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reduced by the amount of dividends paid in cash to the holders of Preferred
Stock to the extent such dividends are paid pursuant to Section L2(a) of the
Certificate of Amendment.
(b) Each Purchaser agrees to indemnify and hold harmless the Company from
and against any Liabilities, and will reimburse the Company and its Affiliates
for all Expenses as they are incurred in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation, to the extent that
such Liabilities and Expenses arise out of the breach by such Purchaser of any
representation or warranty made by such Purchaser; provided that no Purchaser
will be responsible for any Liabilities or Expenses of the Company that are
determined by a judgment of a court of competent jurisdiction which is no longer
subject to appeal or further review to have resulted solely from the Company's
or any Affiliate's gross negligence or willful misconduct in connection with the
transactions referred to above. The obligations of the Purchasers pursuant to
this Section 8.2(b) are several and not joint.
8.3 INDEMNIFICATION PROCEDURE.
(a) If an Indemnified Party seeks indemnification pursuant to Section 8.2,
such party shall give prompt written notice to the Company of the facts and
circumstances giving rise to the claim. Any Indemnified Party asserting a right
of indemnification provided for under this Agreement in respect of, arising out
of or involving a claim or demand made by any person, firm, governmental
authority or corporation against the Indemnified Party (a "THIRD PARTY CLAIM")
shall notify the Indemnifying Party (the "INDEMNIFYING PARTY") in writing of the
Third Party Claim. As part of such notice, the Indemnified Party shall furnish
the Indemnifying Party with copies of any pleadings, correspondence or other
documents relating thereto that are in the Indemnified Party's possession. The
Indemnified Party's failure to notify the Indemnifying Party of any such claim
shall not release the Indemnifying Party, in whole or in part, from its
obligations under Section 8.2 except to the extent that the Indemnified Party's
ability to defend against such claim is actually materially prejudiced thereby.
The Indemnifying Party shall have the right to elect to assume and control the
defense of any such Third party Claims so long as (i) the counsel employed by
the Indemnifying Party is reasonably satisfactory to the Indemnified Party, (ii)
before undertaking such defense the Indemnifying Party acknowledges in writing
that the Indemnifying Party will be solely responsible for all Liabilities and
Expenses arising from such Third Party Claim, and (iii) the Indemnified Party is
reasonably satisfied that the Indemnifying Party will have financial resources,
or valid insurance, available to satisfy such Liabilities. If the
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Indemnifying Party elects to assume and control the defense of the Third
Party Claim, the Indemnified Party shall have the right to employ counsel
separate from counsel employed by such Indemnifying Party in any such action and
to participate in the defense thereof. The fees and expenses of such counsel
employed by the Indemnified Party shall be at the expense of the Indemnified
Party unless the employment thereof has been specifically authorized by such
Indemnifying Party in writing, the Indemnifying Party has failed to promptly
assume the defense and employ counsel or the Indemnifying Party or its counsel
has failed to provide an adequate defense to such claim in a timely manner or
the Indemnifying Party is a party to such claim and the Indemnified Party has
been advised by counsel that there are additional or separate defenses, or there
is otherwise a conflict of interest, between the Indemnified Party and the
Indemnifying Party. In any such case the fees and expenses of the Indemnified
Party's counsel shall be paid by the Indemnifying Party, provided that the
Indemnifying Party shall not in such event be responsible hereunder for the fees
and expenses of more than one firm or separate counsel in connection with any
such action in the same jurisdiction, in addition to any local counsel. The
Indemnifying Party shall not be liable for any settlement of any claims effected
without its written consent (which shall not be unreasonably withheld). In
addition, the Indemnifying Party will not, without prior written consent of the
Purchasers, settle, compromise or consent to the entry of any judgment or
otherwise seek to terminate any pending or threatened claims in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Party is a party thereto) unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Party from all liabilities arising out of such claim.
(b) No claim for indemnification pursuant to Section 8.2 or 8.3 with
respect to a breach of any of the representations or warranties included in this
Agreement may be made subsequent to the lapse of the 90-day period commencing
upon delivery to the Purchasers of the final audit report of the Company's
independent certified public accountant accompanying the financial statements
for the year ended December 31, 1995. The indemnification provisions of this
Article VIII are in addition to, and not in derogation of, any statutory or
common law remedy any party may have for misrepresentation, breach of warranty
or breach of covenant.
8.4 PRESS RELEASES AND ANNOUNCEMENTS. Except to the extent otherwise agreed
by the Purchasers, prior to the Closing Date, the Company will not disclose the
transactions contemplated hereby, including by making any press release related
to this Agreement or the transactions contemplated herein, or other
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announcement to the employees, customers or suppliers of the Company and
the Subsidiaries, without the prior written approval of the Purchasers (which
shall not be unreasonably withheld), and the Company will not disclose the name
of any Purchaser participating therein without the prior written consent of such
Purchaser, except where the Company has been advised by its counsel that such
disclosure is required by law, in which event the Company shall take all
reasonable steps to consult with each of the Purchasers prior to making such
disclosure and to agree with each of the Purchasers regarding the form and
content of such disclosure.
8.5 FURTHER TRANSFERS. The Company (at its own expense) will execute and
deliver such further instruments of conveyance and transfer and take such
additional action as any Purchaser may reasonably request to effect, consummate,
confirm or evidence the transfer to such Purchaser of the Securities and any
other transactions contemplated hereby. The Company will execute such documents
as may be necessary to assist each of the Purchasers in preserving or perfecting
its rights in the Securities and will also do such acts as are necessary to
perform its representations, warranties and agreements herein, including by,
after the Closing, making all registrations, filings and applications, giving
all notices and obtaining all governmental (including, without limitation, FCC),
third party or other consents, transfers, approvals, orders, qualifications and
waivers desirable for the consummation of the transactions contemplated hereby
which, for any reason, had not been made, given or obtained prior to the
Closing.
8.6 SPECIFIC PERFORMANCE. The Company acknowledges that the business of the
Company and the Subsidiaries and the Securities are unique and recognize and
affirm that in the event of a breach of this Agreement by the Company, money
damages may be inadequate and the Purchaser may have no adequate remedy at law.
Accordingly, the Company agrees that the Purchasers shall have the right, in
addition to any other rights and remedies existing in its favor at law or in
equity, to enforce its rights and the Company's obligations hereunder not only
by an action or actions for damages but also by an action or actions for
specific performance, injunctive and/or other equitable relief (without posting
of bond or other security).
8.7 INVESTIGATION. Prior to the Closing Date, the Purchasers and their
representatives may make or cause to be made such investigation of the business
and properties of the Company and the Subsidiaries as each deems necessary or
advisable and the Company shall (and cause each of its Subsidiaries to) furnish
and disclose promptly to the Purchasers all information concerning its business,
properties and personnel as the Purchasers or their
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representatives reasonably request. The Company agrees to permit each of
the Purchasers and its authorized representatives to have access during business
hours to the Company's and each of its Subsidiaries' books, records, facilities,
key personnel, officers, directors, customers, independent accountants and legal
counsel of the Company and its Subsidiaries.
8.8 EXPENSES. The Company shall pay and hold UBS and all holders of
Underlying Common Stock harmless against liability for the payment of, and
reimburse each such Person for, (i) all reasonable out-of pocket expenses
incurred in connection with the transactions contemplated by this Agreement,
including those relating to the due diligence review of the Company and
including all reasonable fees and expenses of their special counsel, all of
which shall be payable at the Closing or, if the Closing does not occur, payable
upon demand, (ii) the reasonable fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effective) under or in
respect of the Transaction Documents (except that each holder shall pay its own
fees and expenses for any amendment or waiver initially requested by such
holder), and (iii) stamp and other taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of any Securities, including upon conversion or
exercise but excluding transfer taxes that may be payable upon transfer of the
Securities by any holder thereof to any third party; provided, however, that the
Company's aggregate liability under clause (i) of this Section 8.8 shall not
exceed $300,000.
8.9 EXCLUSIVITY. Until the consummation of the transactions contemplated
hereby or termination of this Agreement in accordance with Section 6.1, neither
the Company, nor any of its representatives, officers, employees, directors, or
agents, will directly or indirectly (a) submit, solicit, initiate or encourage
any proposal or offer from any person or enter into any agreement or accept any
offer relating to any issuance or sale of any of its capital stock or of any
rights or securities convertible into or exercisable or exchangeable for any of
its capital stock except for the issuance of capital stock upon exercise or
conversion of warrants, options and other rights to acquire Common Stock
outstanding as reflected on Schedule 4.3 hereto, in each case in accordance with
the terms of such warrants, options and other rights as previously disclosed to
the Purchasers, or (b) furnish any information with respect to, assist or
participate in or facilitate in any other manner any effort or attempt by any
person to do or seek to do any of the foregoing. The Company represents and
warrants that it is not engaged in any discussions with third-parties regarding
the foregoing and shall notify each of the
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Purchasers immediately if any person makes any proposal, offer, inquiry or
contact with respect to any of the foregoing.
8.10 TRANSFER OF SECURITIES.
(a) GENERAL PROVISIONS. The Securities are transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) Rule 144 or Rule
144A of the Securities Act (or any similar rule or rules then in force) if such
rule is available or (iii) subject to the conditions specified in Section 8.11
below, any other legally available means of transfer.
(b) OPINION DELIVERY. In connection with the transfer of any Securities
(other than a transfer described in subsection 8.10(a)(i) or (ii) above and
other than a transfer to a partner or other Affiliate of a Purchaser), the
holder thereof shall deliver written notice to the Company describing in
reasonable detail the transfer or proposed transfer, together with an opinion,
in form and substance reasonably satisfactory to the Company and its counsel, of
Kirkland & Ellis or other counsel which is knowledgeable in securities law
matters to the effect that such transfer of Securities may be effected without
registration of such Securities under the Securities Act. In addition, if the
holder of the Securities delivers to the Company an opinion of Kirkland & Ellis
or such other counsel that, in form and substance reasonably satisfactory to the
Company and its counsel, no subsequent transfer of such Securities shall require
registration under the Securities Act, the Company shall promptly upon such
contemplated transfer deliver new certificates for such Securities which do not
bear the Securities Act legend set forth in Section 8.11. If the Company is not
required to deliver new certificates for such Securities not bearing such
legend, the holder thereof shall not transfer the same until the prospective
transferee has confirmed to the Company in writing its agreement to be bound by
the conditions contained in this Section and Section 8.11.
(c) RULE 144A. Upon the request of the Purchaser, the Company shall
promptly supply to the Purchaser or its prospective transferees all information
regarding the Company required to be delivered in connection with a transfer
pursuant to Rule 144A of the Securities Act.
(d) REMOVAL OF LEGEND. If any Securities are eligible for sale pursuant to
Rule 144(k), the Company shall, upon the request of the holder of such
Securities, remove the legend set forth in Section 8.11 from the certificates
for such Securities.
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8.11 PURCHASERS' REPRESENTATIONS. Each Purchaser represents that it is an
"Accredited Investor" within the meaning of the Securities Act. Each Purchaser
understands that the Securities constitute "RESTRICTED SECURITIES" within the
meaning of Rule 144 under the Securities Act. Each Purchaser hereby represents
that it is acquiring the restricted securities purchased hereunder or acquired
pursuant hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities Laws; PROVIDED that nothing contained
herein shall prevent such Purchaser and subsequent holders of restricted
securities from transferring such securities in compliance with the provisions
of Section 8.10. Each Purchaser understands that the restricted securities are
being offered and sold in reliance on exemptions from the registration
requirements of federal and state securities laws and that the Company is
relying upon the truth and accuracy of such Purchaser's representations,
warranties, agreements, acknowledgments and understandings set forth herein to
determine its suitability to acquire the restricted securities. Each instrument
or certificate for restricted securities shall be imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
ON JULY __, 1995, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES
PURCHASE AGREEMENT, DATED AS OF JULY 19, 1995, BETWEEN THE ISSUER (THE
"COMPANY") AND CERTAIN INVESTORS, AND THE COMPANY RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN
FULFILLED WITH RESPECT TO SUCH TRANSFER. A COPY OF SUCH CONDITIONS
SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST AND WITHOUT CHARGE."
8.12 STANDSTILL.
(a) UBS agrees that, without the prior consent of the Board of Directors
specifically expressed in a resolution adopted by a majority of the members of
the Board of Directors (excluding members elected by UBS and its Affiliates),
during the Standstill Period (as defined below) it will not, nor will it permit
any of its Affiliates to, directly or indirectly:
(i) acquire, offer to acquire, or agree to acquire, any Voting
Securities (as defined below) or securities
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convertible into Voting Securities; PROVIDED, HOWEVER, that nothing contained
herein shall prohibit UBS or any of its Affiliates from acquiring any Voting
Securities (A) as result of a stock split, stock dividend or similar
recapitalization by the Company, (B) upon conversion or exercise of or exchange
for any other Voting Securities, or (C) so long as UBS and its Affiliates
beneficially own (within the meaning of Rule 13d-3 of the Exchange Act), in the
aggregate, no more than 25% of the Voting Securities outstanding immediately
following such acquisition of Voting Securities; PROVIDED FURTHER, that the
foregoing prohibition will not apply to the acquisition by any Affiliate of UBS
of any Voting Securities, directly or indirectly, and for purposes of clause (C)
above UBS and its Affiliates will not be deemed to hold Voting Securities if and
to the extent such Voting Securities are acquired or held (x) for the benefit of
one or more third parties in one or more customer or fiduciary accounts (or in
the case of an employee benefit plan or pension fund which is subject to the
provisions of ERISA, have been allocated to plan participants), or (y) in the
ordinary course of business and not as a means of circumventing the foregoing,
by or in a capacity as (1) a broker or dealer registered under Section 15 of the
Exchange Act, (2) a bank, as defined in Section 3(a)(6) of the Exchange Act, (3)
an investment company registered under Section 8 of the Investment Company Act
of 1940 (4) an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, or (5) an employee benefit plan or a pension fund which is
subject to the provisions of ERISA, or an endowment fund;
(ii) make or solicit any other person to make an offer or proposal to
the Board of Directors or the shareholders to acquire the Company or
substantially all of the assets or the Common Stock of the Company or any
of its Subsidiaries; or
(iii) initiate or conduct, directly or indirectly, any "solicitation"
of "proxies" (as such terms are used in the rules of the SEC) to vote, or
seek to advise or influence any person or entity with respect to the voting
of, any Voting Securities.
Notwithstanding the foregoing, if any breach of this Section 8.12 caused by an
acquisition of a non-material amount of Voting Securities shall have been cured
by disposition of Voting Securities within 30 days after UBS becomes aware of
such breach, then no breach of this Section 8.12 shall be deemed to have
occurred;
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(b) As used herein, the term "Standstill Period" shall mean the period from
the date that the Closing occurs until the earliest to occur of:
(i) the date that is the tenth anniversary of the Closing Date;
(ii) the date on which UBS and its affiliates cease to beneficially
own (within the meaning of Rule 13d-3 of the Exchange Act), in the
aggregate, at least 5% of the outstanding Voting Securities;
(iii) a Change of Control (as defined in the Certificate of
Amendment);
(iv) the sale of substantially all of the Common Stock of the Company
or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole, through a purchase agreement, merger or other business
combination;
(v) a tender offer is made to all holders of the Common Stock as to
which the Board of Directors has not publicly announced its opposition
within 10 business days (or the then required period under the federal
securities laws) after the commencement of such tender offer or with
respect to which the Board of Directors has announced its approval;
(vi) a Bankruptcy Event; or
(vii) default in the payment of principal or interest when due
(whether at maturity, upon acceleration or otherwise) after the expiration
of any grace periods applicable thereto with respect to indebtedness of the
Company or any of its Subsidiaries for money borrowed having an aggregate
outstanding principal amount in excess of $2,500,000 or more (unless at the
time thereof the Company shall have unrestricted cash, cash equivalents or
commitments under existing debt instruments available to make such
payment).
For purposes of this Section 8.12, "VOTING SECURITIES" means Common Stock,
the Preferred Stock, the Warrants, and any other securities of the Company
entitled to vote in the election of directors of the Company. In determining the
number of outstanding Voting Securities, neither Voting Securities nor
securities convertible into Voting Securities held in the treasury of the
Company shall be deemed to be outstanding, and outstanding shares of Preferred
Stock, Warrants and other Voting Securities which are convertible into or
exercisable or exchangeable for Common Stock will be counted as the number of
shares of Common Stock obtainable
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<PAGE>
upon conversion or exercise thereof or in exchange therefor. Whenever the
phrase "securities convertible into Voting Securities" is used herein, such
phrase shall mean securities convertible into, exchangeable for, or which
represent a right to acquire, Voting Securities; and "BANKRUPTCY EVENT" means
any of the following events: the Company or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy" as now or hereafter in effect, or any successor
thereto (the "BANKRUPTCY CODE"); an involuntary case is commenced against the
Company or any of its Subsidiaries and is not dismissed within 60 days after
commencement of the case; a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or any substantial part of the property
of the Company of any of its Subsidiaries; the Company or any of its
Subsidiaries commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, rehabilitation, dissolution,
insolvency or liquidation or similar law of any jurisdiction, whether now or
hereafter in effect, relating to the Company or such Subsidiary, or there is
commenced against the Company or such Subsidiary, or there is commenced against
the Company or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 days; the Company or any of its Subsidiaries is
adjudicated insolvent or bankrupt; any order of relief or other order approving
any such case or proceeding is entered; the Company or any of its Subsidiaries
suffers any appointment of any custodian or the like for it or any substantial
part of its property to continue undischarged or unstayed for a period of 60
days; the Company or any of its Subsidiaries makes a general assignment for the
benefit of creditors; the Company or any of its Subsidiaries shall fail to pay,
or shall state in writing that it is unable to pay, or shall be unable to pay,
its debts, generally as they become due; the Company or any of its Subsidiaries
shall call a general meeting of its creditors with a view to arranging a
composition or adjustment of its debts; or any corporate action is taken by the
Company or any of its Subsidiaries for the purpose of effecting any of the
foregoing.
8.13 CONTINGENT WARRANTS.
(a) At the Closing, the Company shall issue to UBS Contingent Warrants
substantially in the form of Exhibit F hereto for the consideration set forth in
Section 1.1 hereof. The Contingent Warrants shall provide that upon any Optional
Redemption of shares of Preferred Stock pursuant to the terms of the Certificate
of Incorporation, as amended by the Certificate of Amendment, the holder of the
Contingent Warrants shall have the right to acquire initially the same number of
shares of Common Stock into which such holder's shares of Preferred Stock being
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<PAGE>
redeemed (the REDEEMED SHARES") are convertible as of the Redemption Date
thereof. The initial exercise price for each share of Common Stock under the
Contingent Warrants shall be equal to the Conversion Price of the Redeemed
Shares as of the Redemption Date thereof, and the Contingent Warrants shall be
exercisable at any time after the Redemption Date of the Redeemed Shares and
shall expire (unless previously exercised) on the Scheduled Redemption Date of
the Redeemed Shares corresponding to the shares of Common Stock covered by the
Contingent Warrants; but in no event shall the Contingent Warrants be
exercisable after the sixth anniversary of the redemption of all of the shares
of Preferred Stock.
(b) The terms "Conversion Price," "Optional Redemption," "Redemption
Date" and "Scheduled Redemption Date" have the meanings set forth in the
Certificate of Amendment.
8.14 REGULATORY COMPLIANCE COOPERATION.
(a) Within 75 days after the Closing and at the end of each month
thereafter until all of the proceeds of the financing under this Agreement have
been used by the Company and its Subsidiaries, the Company shall deliver to each
holder of Preferred Stock or Underlying Common Stock which is an SBIC (an "SBIC
HOLDER"), a written statement certified by the Company's president or chief
financial officer describing in reasonable detail the use of the proceeds of the
financing under this Agreement by the Company and its Subsidiaries. In addition
to any other rights granted hereunder, the Company shall grant each SBIC Holder
and the United States Small Business Administration (the "SBA") access to the
Company's records to the extent necessary and solely for the purpose of
verifying the use of such proceeds.
(b) Upon the occurrence of a Regulatory Violation or in the event that any
SBIC Holder determines in its reasonable good faith judgment that a Regulatory
Violation has occurred, in addition to any other rights and remedies to which it
may be entitled as a holder of Preferred Stock or Underlying Stock (whether
under this Agreement, the Certificate of Amendment or otherwise), each SBIC
Holder shall have the right to demand the immediate repurchase of all of the
outstanding shares of Preferred Stock and Underlying Common Stock owned by such
SBIC Holder at a price per share equal to the purchase price paid for such stock
hereunder, plus, if applicable, all accrued or declared and unpaid dividends
thereon, by delivering written notice of such demand to the Company. The Company
shall pay the purchase price for such stock by a cashier's or certified check or
by wire transfer of immediately available funds to each SBIC Holder demanding
repurchase within 30 days after the Company's receipt of the demand notice, and
upon such payment, each such SBIC Holder shall deliver
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<PAGE>
the certificates evidencing the Preferred Stock and Underlying Common Stock
to be repurchased duly endorsed for transfer or accompanied by duly executed
forms of assignment.
(c) Promptly after the end of each calendar year (but in any event prior to
February 28 of each year), the Company shall deliver to the SBIC Holder a
written assessment of the economic impact of the SBIC Holder's investment in the
Company, specifying the full-time equivalent jobs created or retained in
connection with the investment, the impact of the investment on the businesses
of the Company in terms of expanded revenue and taxes and other economic
benefits resulting from the investment (including, but not limited to,
technology development or commercialization, minority business development,
urban or rural business development and expansion of exports).
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENT AND WAIVER. This Agreement may be amended and any provision
of this Agreement may be waived, provided that, subject to the last sentence of
Section 2.1 and the last sentence of Section 2.2, any such amendment or waiver
will be binding upon a party only if such amendment or waiver is set forth in a
writing executed by each of the Company and holders of two-thirds of the
Underlying Common Stock and which would not disproportionately and adversely
affect the holders of a majority of the Warrants without the consent of the
holders of the majority of the Warrants. No course of dealing between or among
any persons having any interest in this Agreement will be deemed effective to
modify, amend or discharge any part of this Agreement or any rights or
obligations of any party under or by reason of this Agreement.
9.2 NOTICES. All notices, demands and other communications given or
delivered under this Agreement will be in writing and will be deemed to have
been given when personally delivered, three days after being mailed by first
class mail, return receipt requested, or delivered by express courier service or
telecopied (subject to receipt of written confirmation). Notices, demands and
communications to the Company and the Purchasers will, unless another address is
specified in writing, be sent to the address indicated below:
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<PAGE>
NOTICES TO THE COMPANY:
Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida 33172
Attention: Robert D. Rubin
Telecopy: (305) 477-9890
WITH A COPY TO:
Steel Hector & Davis
200 S. Biscayne Boulevard
Suite 4000
Miami, Florida 33131-2398
Attention: Richard J. Lampen, Esq.
Telecopy: (305) 577-7001
NOTICES TO THE PURCHASERS:
Appian Capital Partners, L.L.C.
c/o Archon Capital Partners, L.P.
11111 Santa Monica Boulevard
Suite 1100
Los Angeles, California 90025
Attention: Ronald N. Beck
Telecopy: (310) 914-0470
UBS Capital Corporation
299 Park Avenue
New York, New York 10171
Attention: Justin S. Maccarone
Telecopy: (212) 821-6333
WITH A COPY TO:
Kirkland & Ellis
200 East Randolph Drive
Suite 5700
Chicago, Illinois 60601
Attention: John A. Weissenbach, Esq.
Telecopy: (312) 861-2200
9.3 BINDING AGREEMENT; ASSIGNMENT.
(a) This Agreement and all of the provisions hereof will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations
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<PAGE>
hereunder may be assigned by the Company without the prior written consent
of each of the Purchasers.
(b) Each Purchaser may (at any time prior to the Closing), at its sole
discretion, assign, in whole or in part, its rights and obligations pursuant to
this Agreement to one or more of its respective Affiliates.
9.4 SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this Agreement.
9.5 NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
9.6 HEADINGS; INTERPRETATION. The headings used in this Agreement are for
convenience of reference only and do not constitute a part of this Agreement and
will not be deemed to limit, characterize or in any way affect any provision of
this Agreement, and all provisions of this Agreement will be enforced and
construed as if no caption had been used in this Agreement. Whenever the term
"including" is used in this Agreement (whether or not that term is followed by
the phrase "but not limited to" or "without limitation" or words of similar
effect) in connection with a listing of one or more items or matters, that
listing will be interpreted to be illustrative only and will not be interpreted
as a limitation on, or an exclusive listing of, such items or matters.
9.7 ENTIRE AGREEMENT. This Agreement and the documents referred to herein
contain the entire agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties, written
or oral, which may have related to the subject matter hereof in any way.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together will constitute one and the same instrument.
9.9 GOVERNING LAW. THIS AGREEMENT AND THE EXHIBITS AND SCHEDULES HERETO
SHALL BE GOVERNED BY THE INTERNAL LAW OF THE
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<PAGE>
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT
OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
9.10 PARTIES IN INTEREST. Nothing in this Agree- ment, express or implied,
is intended to confer on any person other than the parties and their respective
successors and assigns any rights or remedies under or by virtue of this
Agreement.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ ROBERT D. RUBIN
--------------------------------
Name: Robert D. Rubin
Title: President
UBS CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
APPIAN CAPITAL PARTNERS, L.L.C
By:
---------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PEOPLES TELEPHONE COMPANY, INC.
By:
--------------------------------
Name:
Title:
UBS CAPITAL CORPORATION
By: /s/ JEFFREY J. KEENAN
---------------------------------
Name: Jeffrey J. Keenan
Title: Managing Director
By:
---------------------------------
Name:
Title:
APPIAN CAPITAL PARTNERS, L.L.C
By:
---------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PEOPLES TELEPHONE COMPANY, INC.
By:
--------------------------------
Name:
Title:
UBS CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
By: /s/ JOHN E. DUNCAN
---------------------------------
Name: John E. Duncan
Title: Vice President
APPIAN CAPITAL PARTNERS, L.L.C
By:
---------------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
PEOPLES TELEPHONE COMPANY, INC.
By:
--------------------------------
Name:
Title:
UBS CAPITAL CORPORATION
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
APPIAN CAPITAL PARTNERS, L.L.C
By: /s/ RONALD BECK
---------------------------------
Name: Ronald Beck
Title: Co-Chairman
<PAGE>
July 18, 1995
Appian Capital Partners, L.L.C.
c/o Archon Capital Partners, L.P.
11111 Santa Monica Boulevard
Suite 1100
Los Angeles, California 90025
Attention: Ronald N. Beck
UBS Capital Corporation
299 Park Avenue
New York, New York 10171
Attention: Justin S. Maccarone
UBS Partners, Inc.
299 Park Avenue
New York, New York 10171
Attention: Justin S. Maccarone
Re: Securities Purchase Agreement, dated as of July 3, 1995
(the "Securities Purchase Agreement"), among Peoples Telephone
Company, Inc. ("PTC"), UBS Capital Corporation ("UBS Capital")
and Appian Capital Partners, L.L.C. ("ACP"),as amended.
Gentlemen:
Unless otherwise defined herein, each capitalized term used herein has the
meaning given such term in the Securities Purchase Agreement.
We understand that UBS Capital desires to assign to UBS Partners, Inc.
("UBS Partners") all of its rights under the Securities Purchase Agreement and
that, to induce UBS Capital to assign such rights to UBS Partners, UBS Partners
will assume the obligations of UBS Capital to purchase the Preferred Stock
thereunder. By executing this letter agreement in the spaces provided below, UBS
Capital hereby assigns to UBS Partners all of its rights under the Securities
Purchase Agreement, including without limitation the right to purchase the
Preferred Stock at the Closing on the terms specified therein, and UBS Capital
delegates and UBS Partners hereby agrees to assume all of UBS Capital's
obligations under the Securities Purchase Agreement, subject to the terms and
conditions set forth therein, including to purchase and pay for the Preferred
Stock thereunder at the Closing. PTC hereby acknowledges and consent to such
assignment and assumption and, effective upon such assignment and assumption,
releases UBS Capital of all liability under the Securities Purchase Agreement
and UBS Capital releases PTC of all liabilities under the Securities Purchase
Agreement.
<PAGE>
This letter agreement also sets forth our mutual understanding that the
conditions precedent to the respective obligations of UBS Partners and ACP to
consummate the transactions contemplated by the Securities Purchase Agreement
set forth in (a) Section 2.1(h) thereof shall be deemed to have been satisfied
if, effective as of the Closing, the Board of Directors shall be comprised of
six members, including the Chief Executive Officer of the Company, the President
of the Company, one director designated by UBS Partners and three other persons
who are currently serving as directors of the Company; and (b) Section 2.1(k)
thereof shall be deemed to have been satisfied if the opinion of New York
counsel delivered at the Closing is in substantially the form attached hereto as
Exhibit A. The parties hereto acknowledge that the foregoing shall not
constitute a waiver by UBS Partners or the holders of a majority of the shares
of Preferred Stock of any rights pursuant to PTC's certificate of incorporation,
the Certificate of Amendment or otherwise.
In addition, UBS Partners and ACP hereby waive any breach of PTC's
representations and warranties set forth in Sections 4.1, 4.3 and 4.4 of the
Securities Purchase Agreement as a result of the failure to set forth in
Schedules 4.1,4.3 and 4.4 attached thereto the information set forth in the
addenda to such Schedules attached to this letter, and UBS Partners and ACP
further agree and acknowledge that they shall not have any basis to refuse to
perform their respective obligations to consummate the transactions contemplated
by the Securities Purchase Agreement as a result of such failure, nor shall any
such failure constitute an Event of Noncompliance (as defined in the Certificate
of Amendment) or be a basis for a claim for damages pursuant to Section 8.2 of
the Securities Purchase Agreement or otherwise.
In consideration of your agreements and waivers set forth above, PTC hereby
agrees with UBS Partners and ACP that the Securities Purchase Agreement shall be
hereby amended as follows:
1. Section 3.1 is amended by deleting the word "and" following the
semi-colon at the end of paragraph (l) thereof, by adding ";" in lieu of
the period after the word "hereto" at the end of paragraph (m) thereof, and
by adding two new paragraphs thereafter to read as follows:
"(n) the Company shall take all steps necessary to cause paragraph
EIGHTH of its Amended and Restated Certificate of Incorporation (the
"Charter") to be amended so that such paragraph shall not conflict with the
terms of Section 3.2(d) of this Agreement, Section 4 of the Warrants,
Section 4 of the Contingent Warrants and SECTION I of the Certificate of
Amendment and shall cause such amendment to be voted upon by the holders of
the Company's Stock entitled to vote thereon at the Company's second annual
meeting of shareholders succeeding the Closing (disregarding for such
purposes the clause (A) "to the extent not prohibited by paragraph EIGHTH
of the Company's certificate of incorporation" in (i) Section 3.2(d)
hereof, (ii) SECTION 4 of the Warrants, and (iii) SECTION 4 of the
Contingent Warrants and (B) "to the extent not prohibited by paragraph
EIGHTH of the Corporation's Certificate of Incorporation" in SECTION I of
the Certificate of Amendment. In the event that such amendment shall not be
approved at such annual meeting, then such Section 3.2(d) hereof, Section 4
of the Warrants, Section 4 of the Contingent Warrants and SECTION I shall
be amended in a manner mutually and reasonably satisfactory to the Company
and the Purchasers, in the case of such Section 3.2(d), the Company and
UBS, in the case of such SECTION I and Section 4 of the Contingent
Warrants, and the Company
<PAGE>
and ACP in the case of such Section 4 of the Warrants, so that the intent
and purpose of each thereof shall be preserved and further effectuated to
the fullest extent possible without conflicting with such paragraph EIGHTH
of the Charter. Until such amendment to the Charter is effective, the
Company shall not take the action specified in the clauses preceding the
second comma of SECTION I of the Certificate of Amendment, SECTION 4 of the
Warrants and SECTION 4 of the Contingent Warrants without the prior written
consent of UBS Partners in the case of the Certificate of Amendment and the
Contingent Warrants or ACP in the case of the Warrants; and
(o) the Company shall take all steps necessary to ensure that (i) any
vacancy on the Board of Directors shall be filled by a person designated by
the holders of a majority of the shares of the Preferred Stock at any time
the number of directors elected by such holders is less than the number of
directors which the Preferred Stock has the right to elect pursuant to the
terms thereof and (ii) from and after the Closing until such time as two
directors elected by the holders of a majority of the Preferred Stock have
first been elected to the Board of Directors and are serving thereon (to
the extent that pursuant to the Certificate of Amendment, the Preferred
Stock is entitled to elect two directors), the Company shall not take any
of the actions described in paragraphs (e) through (1) of Section 3.2 of
this Agreement without the prior written consent of UBS Partners.";
2. Section 3.2(c) is amended to include the following prior to the
semi-colon at the end thereof: "(including rights of such holders pursuant
to this Agreement)";
3. Section 3.2(d) is amended by adding thereto", to the extent not
prohibited by paragraph EIGHTH of the Company's certificate of
incorporation," after the word "and" and prior to the word "grants"
appearing in the 7th and 8th lines thereof, respectively;
4. SECTION G of Exhibit A attached to the Securities Purchase
Agreement is hereby amended by deleting from the fourth line thereof
"except in the election of directors and as otherwise provided herein";
5. SECTION I of Exhibit A attached to the Securities Purchase
Agreement is hereby amended by striking the word "If" at the beginning of
the first sentence thereof and adding in its place, "To the extent not
prohibited by paragraph EIGHTH of the Corporation's Certificate of
Incorporation, if";
6. SECTION 4 of Exhibit B attached to the Securities Purchase
Agreement is hereby amended by striking the word "If" at the beginning of
the first sentence thereof and adding in its place, "To the extent not
prohibited by paragraph EIGHTH of the Corporation's Certificate of
Incorporation, if";
7. SECTION 4 of Exhibit F attached to the Securities Purchase
Agreement is hereby amended by striking the word "If" at the beginning of
the first sentence thereof and adding in its place, "To the extent not
prohibited by paragraph EIGHTH of the Corporation's Certificate of
Incorporation, if";
<PAGE>
8. Section 8.8 is amended by substituting "$400,000" for "$300,000" at
the end thereof;
9. Section 1.1(b) is amended by substituting "$1.00" for "$100,000" at
the end thereof and Section 1.2(b) is amended by substituting "$1.00" for
$100,000 in clause (ii) thereof;
The Company and ACP agree that the certain engagement letter dated July 3,
1995 between them shall be amended to reduce the fee payable to ACP pursuant to
clause (i) of the second paragraph thereof to $350,000.
This letter agreement may be executed in two or more counterparts which
together shall constitute a single instrument. Whenever possible, each provision
of this letter agreement will be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this letter agreement is
held to be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this agreement.
* * * * *
<PAGE>
Please acknowledge your agreement with the provisions of this letter by
executing in places provided below.
Very truly yours,
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ ROBERT D. RUBIN
---------------------------
Robert D. Rubin
President
Agreed and accepted as of the date first written above:
UBS PARTNERS, INC. APPIAN CAPITAL PARTNERS, L.L.C.
By: /s/ JEFFREY J. KEENAN /s/ JOHN E. DUNCAN By: /s/ RONALD BECK
--------------------- ------------------ ----------------
By:______________________ Its: Co-Chairman
UBS CAPITAL CORPORATION
By: /s/ JEFFREY J. KEENAN /s/ JOHN E. DUNCAN
---------------------- ------------------
By:______________________
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated October
21, 1994, among PEOPLES TELEPHONE COMPANY, INC., a New York
corporation ("Peoples"), PEOPLES ACQUISITION CORPORATION, a
Pennsylvania corporation ("PAC"), TELECOIN COMMUNICATIONS, LTD., a
Pennsylvania corporation ("Telecoin"), and GILBERT A. MENDELSON,
DAVID T. MAGRISH, LOUIS SWARTZ, HOWARD SIEGEL AND HARVEY OSTROW
(collectively, the "Shareholders")(Mr. Mendelson and Mr. Magrish
may be referred to collectively herein as the "Executive
Officers").
RECITALS
1. The Shareholders are the record and beneficial owners of
all of the issued and outstanding shares of Telecoin's capital
stock.
2. The Shareholders have duly authorized the merger of
Telecoin with PAC on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
In consideration of the mutual representations, warranties and
covenants and subject to the conditions contained in this
Agreement, the parties agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Agreement, on the
date of this Agreement (the "Effective Time"):
(i) Upon the filing of Articles of Merger, Telecoin is
hereby merged with and into PAC (the "Merger") in accordance with
the applicable provisions of the Pennsylvania Business Corporation
Law ("PBCL"). PAC shall be the surviving corporation (the
"Surviving Corporation") and the separate existence of Telecoin
shall cease.
(ii) The Merger shall in all respects have the effect
provided for in Section 1921 of the PBCL. Telecoin and PAC shall
file Articles of Merger, substantially in the form attached to this
Agreement as Exhibit A, with the Pennsylvania Secretary of State.
(iii) The Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation of PAC in effect
at the Effective Time.
1
<PAGE>
(iv) The Bylaws of the Surviving Corporation shall be the
By-Laws of PAC in effect at the Effective Time.
(v) From and after the Effective Time, the members of the
Board of Directors of the Surviving Corporation shall consist of
the members of the Board of Directors of PAC immediately prior to
the Effective Time, each of such persons to serve until his
successor is elected and qualified or until his earlier death,
resignation or removal.
(vi) From and after the Effective Time, the officers of the
Surviving Corporation shall consist of the officers of PAC
immediately prior to the Effective Time, in the same capacity or
capacities and each such officer shall serve until his successor is
elected and qualified or until his earlier death, resignation or
removal.
ARTICLE II
CONSIDERATION
Section 2.1 Consideration. By virtue of the Merger and
without any action on the part of any Shareholder of Telecoin:
(a) Each share of common stock, par value $1.00 per share, of
Telecoin ("Telecoin Common Stock"), that is held by Telecoin as
treasury stock shall be canceled.
(b) Each share of capital stock of PAC that is issued and
outstanding immediately prior to the Merger shall remain
outstanding, and each certificate evidencing ownership of any such
shares shall evidence ownership of the same number of shares of the
Surviving Corporation.
(c) Upon surrender of all the certificates by the
Shareholders of Telecoin representing all the Telecoin Common
Stock, Peoples shall pay to the Shareholders the aggregate
consideration (the "Total Consideration") of seven million and four
thousand dollars ($7,004,000) (the "Base Price") plus X in the
following formula if X is a positive number or minus X in the
following formula if X is a negative number (the "Adjustment"):
X = Y - Z
X = The dollar amount of the increase or decrease in
the Base Price;
Y = The total of all Telecoin's cash on hand, current
accounts receivable, less those accounts receivable
deemed uncollectible by Peoples (in accordance with
Section 7.6 of this Agreement) plus all prepaid
2
<PAGE>
charges or advances as of the Closing, (except line
deposits held by a local exchange company for the
benefit of Telecoin). In the event a current
account receivable is not deemed uncollectible by
Peoples as provided above and that current account
receivable is not collected within 90 days after
the date of this Agreement, (i) the current account
receivable shall be deemed a non-current account
receivable for purposes of the Adjustment, (ii) the
account receivable shall not be utilized in
calculating the Adjustment and (iii) the Surviving
Corporation shall assign the account receivable to
the Telecoin Liquidating Trust ("TLT");
Z = The total of all of Telecoin's liabilities as of
the Closing as ultimately determined or settled as
mutually agreed upon by the parties, including but
not limited to, any liability to Intellicall, Inc.
("Intellicall") arising out of Telecoin's
utilization of the Intellicall I*Star technology
prior to the Closing; provided, however, to the
extent any such liabilities are covered by
insurance, the difference between (i) the actual
liability and (ii) the amount Peoples and/or PAC
receives from the insurance carrier in connection
with that liability, shall be utilized in
calculating the total liabilities as set forth
above.
The Adjustment shall be determined on or before 90 days after
the Closing Date. Peoples and the Shareholders will cooperate in
good faith to prepare the Adjustment. If the parties are unable to
reach a mutual agreement on the Adjustment within 120 days after
the Closing, the disputed items shall be referred within 7 days to
a firm of independent certified public accountants mutually agreed
upon by the parties (which accountants are not currently retained
and have not been retained by any of the parties for a period of
three years immediately prior to the date of this Agreement). The
certified public accountants so selected shall determine that
portion of the Adjustment which is in dispute within 60 days
following selection, and its determination shall be final and
binding on the parties. All costs and fees shall be paid by the
parties equally.
(d) Peoples shall pay an additional amount (the "Additional
Amount") to the Shareholders as set forth in this paragraph.
Telecoin has secured pay telephone placement agreements with the
third party property owners, lessees and lessors listed on Schedule
2.1(d) which grant Telecoin the exclusive right to provide pay
telephone service at those third party locations but Telecoin has
not installed pay telephones at those third party locations
(collectively, the "Third Party Locations"). For each pay telephone
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installed by the Surviving Corporation at a Third Party Location
which is the subject of at least a three-year telephone placement
agreement on terms and conditions reasonably acceptable to Peoples
in its sole discretion, Peoples will pay the Shareholders an
amount, in cash or cash equivalent, within 150 days after
installation, based on the average net revenue (as defined below)
generated by each installed pay telephone during the first full
three months immediately after installation as follows:
Net Revenue Per Telephone per month Additional Amount
$131 or more $1,400
$121 - $130 $1,200
$111 - $120 $1,000
$101 - $110 $ 800
$85 - $100 $ 600
Less than $85 0
Net revenue shall be defined as the sum of (i) the gross coin
collected by or on behalf of the Surviving Corporation, (ii) the
non-coin commission, including surcharges, collected by or on
behalf of the Surviving Corporation, (iii) in the event Peoples
serves as its own operator services provider the gross revenue
generated by operator assisted calls, less all line charges,
billing, collection and validation charges, bad debt and other
costs directly attributable to the carrying of the calls, and (iv)
all dial around compensation collected by the Surviving
Corporation, reduced by the sum of (a) local exchange company and
long distance telephone charges, (b) commissions paid to Property
Owners, (c) any signing bonus paid to the Property Owner amortized
over the initial term of the Placement Agreement and (d) a $40 per
month service and collection charge per installed telephone.
Section 2.2 Payment of the Total Consideration.
(a) Peoples shall deliver to each Shareholder a wire transfer
or check equal to his pro rata allocation of $572,948.35 in the
aggregate, which pro rata allocation shall be determined in
accordance with Schedule 2.2 (the "Initial Cash Payment").
(b) Peoples agrees to deliver to each Shareholder his pro
rata allocation of $742,636.65 in the aggregate (the "Stock
Payment") in shares of Peoples common stock, par value $.01 per
share (the "Peoples Common Stock"), which pro rata allocation shall
be determined in accordance with Schedule 2.2, upon the earlier of:
(i)January 31, 1995, or (ii) the date a registration statement
including the Peoples Common Stock is declared effective by the
United States Securities and Exchange Commission (the "SEC"), but
in no event prior to January 2, 1995. For purposes of this
Section, the aggregate number of shares to be delivered to the
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Shareholders shall be determined by dividing $742,636.65 by the
average closing price of one share of Peoples Common Stock for the
five days immediately preceding the Closing Date, as reported on
the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") (the
"Average Closing Price"). The Peoples Common Stock, upon issuance,
shall be subject to the restrictions of Rule 144 promulgated by the
SEC under the Securities Act of 1933, as amended (the "Act"), until
properly disposed of in accordance with the terms of Rule 144 or
another exemption from the registration requirements of the Act or
until the Common Stock is registered by Peoples pursuant to Section
7.3 of this Agreement. In the event the price of one share of
Peoples' common stock is less than the Average Closing Price on the
day immediately preceding the date the Peoples Common Stock
representing the Stock Payment is registered in accordance with
Section 7.3 (the "Registration Date"), the aggregate number of
shares to be delivered to the Shareholders shall be determined by
dividing $742,636.65 by the average closing price of one share of
Peoples Common Stock for the five days immediately preceding the
Registration Date, as reported on NASDAQ.
(c) Peoples shall deliver to the Executive Officers a 30 day
promissory note in the form of Exhibit D attached hereto in the
amount of $200,000 (the "Principal") which Principal shall bear
simple interest at the rate of 7.75% annually.
(d) Subject to adjustment and Peoples' right of set-off as
provided in this Agreement, 90 days after the Closing Peoples shall
deliver to each Shareholder a check or wire transfer equal to his
pro rata allocation of the difference between (i) the Total
Consideration, and (ii) the sum of (a) the Initial Cash Payment and
(b) the Stock Payment.
(e) Not less than twenty (20) days prior to the 365th day
following the Closing Date, Peoples shall provide the Executive
Officers with a written notice containing (i) a summary of the
liabilities which were used in determining any Adjustment (the
"Adjustment Liabilities") and evidence reasonably satisfactory to
the Executive Officers that Peoples has actually paid such
Adjustment Liabilities, and (ii) a description of the nature and
amount of any other liabilities which it believes, in good faith,
are in existence and were not taken into account in determining the
amount of the Adjustment which should be expressly assumed by the
Shareholders (the "Additional Liabilities"). With respect to the
Additional Liabilities, such notice shall include a reasonably
detailed description of such Additional Liabilities, and any other
information reasonably necessary to adequately advise the Executive
Officers concerning such Additional Liabilities. To the extent
that any such Additional Liabilities are covered by insurance, the
Shareholders shall be responsible for the difference between (i)
the actual liability and (ii) the amount Peoples and/or PAC
receives from the insurance carrier in connection with that
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Additional Liability.
If Peoples and the Executive Officers are unable to reach a
mutual agreement of the appropriateness of the assumption by the
Shareholders of any Additional Liabilities within thirty (30) days
following the first anniversary of the Closing Date, the disputed
items shall be referred within seven (7) days thereafter to a firm
of independent certified public accountants mutually agreed upon by
the parties (which accountants are not currently retained and have
not been retained by any of parties for a period of three years
immediately prior to the date of this Agreement) to determine the
appropriateness of assumption by the Shareholders of any disputed
items. The independent certified public accountants so selected
shall make a determination with respect to such disputed items
within sixty (60) days following its selection and its
determination shall be final and binding. All costs and fees of
such accountants shall be paid by the parties equally.
If Peoples and the Executive Officers (or the firm of
independent certified public accountants) establish that there are
Additional Liabilities in existence which the Shareholders are
obligated to assume and pay, the parties shall cooperate in good
faith to arrange a method to satisfy such Additional Liabilities.
The Executive Officers shall be entitled, at their cost and
expense, to contest and defend by all appropriate legal proceedings
any Additional Liabilities or unpaid Adjustment Liabilities which
are determined to be the obligation of the Shareholders. If
requested by the Executive Officers, Peoples and/or PAC agree to
cooperate with the Executive Officers in reasonably contesting any
Additional Liabilities or Adjustment Liabilities and to take such
action as reasonably may be requested to reduce or eliminate any
loss in respect of such liabilities. In such event, the Executive
Officers shall reimburse Peoples and/or PAC for any reasonable
expenses incurred in so cooperating or acting at the request of the
Executive Officers.
The Executive Officers shall pay or cause the payment of any
Additional Liabilities or Adjustment Liabilities which are
determined to be the obligation of the Shareholders within fifteen
(15) business days after the amount of any such liabilities is
finally determined either mutual agreement of the parties to this
Agreement or pursuant to the final unappealable judgment of a court
of competent jurisdiction.
To the extent that any of the Adjustment Liabilities consist
of contingent or contested liabilities, which contingent or
contested liabilities were declared contingent or contested
liabilities by the Shareholders in writing during the determination
of the Adjustment (the "Contingent/Contested Liabilities") and
which Contingent/Contested Liabilities are determined not to be
owing, Peoples shall pay each Shareholder his pro rata allocation
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of an amount equal to the difference between (i) the
Contingent/Contested Liability, and (ii) the amount which Peoples
was required to pay in connection with the Contingent/Contested
Liability, together with interest at the rate of 7.75% (for those
Adjusted Liabilities declared Contingent only), within 15 business
days after such Contingent/Contested Liability is determined not to
be due and owing by mutual agreement of the Executive Officers and
Peoples or pursuant to a final unappealable judgment of a court of
competent jurisdiction.
ARTICLE III
CLOSING
Section 3.1 Time and Place of the Closing. The closing of
the transactions contemplated by this Agreement (the "Closing")
shall be held at the offices of Peoples, 2300 N.W. 89th Place,
Miami, Florida 33172, on October 21, 1994, or at such other time as
mutually agreed upon by the parties (the "Closing Date").
Section 3.2 Procedure at the Closing. At the Closing, the
parties agree to take the following steps in the order listed below
(provided, however, that upon their completion all of these steps
shall be deemed to have occurred simultaneously):
(a) Telecoin and PAC shall cause the Articles of Merger to be
executed and filed with the office of the Pennsylvania Secretary of
State as provided in Section 1926 of the PBCL;
(b) Each Shareholder shall deliver certificates representing
his shares of Telecoin Common Stock, duly endorsed or accompanied
by duly executed stock powers and with all requisite transfer tax
stamps attached;
(c) Legal Counsel for Telecoin shall deliver a legal opinion
to Peoples in substantially the form of Exhibit C to this
Agreement;
(d) Telecoin shall deliver to Peoples resolutions adopted by
Telecoin's board of directors approving the transactions
contemplated by this Agreement, certified by Telecoin's corporate
secretary;
(e) Telecoin shall deliver to Peoples the unanimous written
consent of Telecoin's shareholders approving the transactions
contemplated by this Agreement, certified by Telecoin's corporate
secretary;
(f) Peoples shall deliver to Telecoin resolutions adopted by
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Peoples' board of directors approving the transactions contemplated
by this Agreement, certified by Peoples' corporate secretary;
(g) PAC shall deliver to Telecoin resolutions adopted by PAC's
board of directors approving the transactions contemplated by this
Agreement, certified by PAC's corporate secretary;
(h) Peoples and Partacol Partners, Ltd. ("Partacol") shall
cause the consulting agreement substantially in the form of Exhibit
D hereto (the "Consulting Agreement") to be duly executed and
delivered;
(i) Peoples shall deliver to each Shareholder his pro rata
allocation of the Initial Cash Payment; and
(j) Peoples shall deliver to each Shareholder his pro rata
allocation of the Stock Payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
TELECOIN AND THE EXECUTIVE OFFICERS
In order to induce Peoples and PAC to enter into this
Agreement and to consummate the transactions contemplated under
this Agreement, Telecoin and the Executive Officers hereby make the
following representations and warranties each of which is relied
upon by Peoples and PAC regardless of any other investigation made
or information obtained by Peoples or PAC:
Section 4.1 Organization, Power and Authority of the Company.
Telecoin is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania
and has the requisite corporate power and authority to own or lease
its properties and to carry on its business as it is now being
conducted. Schedule 4.1 contains a true and complete copy of the
Articles of Incorporation and By-laws of Telecoin, as amended to
the date of this Agreement. A true and complete copy of Telecoin's
minute book has been provided to Peoples.
Section 4.2 Capitalization. The authorized capital stock of
Telecoin consists of 100,000 shares of Telecoin Common Stock.
Except for the Telecoin Common Stock, there are no other authorized
classes of capital stock of Telecoin. There are issued and
outstanding 19,000 shares of Telecoin Common Stock. All issued and
outstanding shares of Telecoin Common Stock are validly issued,
fully paid and non-assessable and are not subject to any restriction
on transfer under the Articles of Incorporation or By-laws of
Telecoin. Two thousand Seven hundred (2,700) shares of Telecoin
Common Stock are held in the treasury of Telecoin. There are no
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outstanding (i) securities convertible into or exchangeable for any
capital stock of Telecoin; (ii) options, warrants or other rights
to purchase or subscribe to capital stock of Telecoin or securities
convertible into or exchangeable for capital stock of Telecoin; or
(iii) commitments, agreements or understandings of any kind
relating to the issuance of any capital stock of Telecoin, and such
convertible or exchangeable securities or any such options,
warrants or rights.
Section 4.3 Due Authorization; Binding Obligation. Telecoin
has the requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and
delivered by Telecoin and is the legal, valid and binding
obligation of Telecoin, enforceable in accordance with its terms.
Except for any corporate action required by the Shareholders, and
any consents contemplated herein, no other action on the part of
any individual or other person or entity is necessary to authorize
this Agreement or for the consummation of the transactions
contemplated by this Agreement. Telecoin, the Executive Officers
and the Shareholders have duly executed this Agreement and
authorized the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement as required under
the PBCL. The Shareholders have duly authorized the execution of
this Agreement and the consummation of the transactions
contemplated by this Agreement as required under the PBCL. Upon
obtaining all consents required by this Agreement, neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated by this Agreement will: (i) conflict
with or violate any provision of Telecoin's Articles of
Incorporation or by-laws, or any law, ordinance or regulation or
any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or
enforceable against Telecoin; (ii) except as set forth on Schedule
4.3(ii), to the best of the Executive Officers' knowledge result in
any breach of or default under any contract with any of Telecoin's
customers or any location owner and/or lessor where Telecoin's
assets are installed (collectively, the "Property Owners") or any
material mortgage, other contract, agreement, indenture, will,
trust or other instrument which is either binding upon or
enforceable against Telecoin or its assets; (iii) to the best of
Telecoin and the Executive Officers' knowledge, violate any legally
protected right of any individual or entity or give to any
individual or entity a right or claim against Peoples or PAC; or
(iv) materially impair any governmental or official license,
approval, permit or authorization of Telecoin to conduct its
business.
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Section 4.4 Financial Statements. Attached to this Agreement
as Schedule 4.4 are (i) the audited financial statements of
Telecoin for the period from January 1, 1992 through December 31,
1993 (collectively, the "Audited Financial Statements"), and (ii)
the unaudited financial statements of Telecoin for the period from
January 1, 1994 through August 31, 1994 (the "Unaudited Financial
Statements"). The Audited Financial Statements were prepared in
accordance with generally accepted accounting principles
consistently applied and are true, complete and correct and fairly
present the financial condition of Telecoin at such dates and
results of its operations for the periods ending on such dates and
do not include or omit to state any fact which renders those
statements misleading. The Unaudited Financial Statements (i) were
prepared in accordance with generally accepted accounting
principles consistently applied, except (a) the Unaudited Financial
Statements are subject to year end adjustments and (b)the unaudited
financial statements do not include footnotes, and (ii) are true,
complete and correct, except year end adjustments, and fairly
present the financial condition of Telecoin at such dates and
results of its operations for the periods ending on such dates and
do not include or omit to state any fact which renders those
statements misleading.
Section 4.5 No Undisclosed Liabilities. Except as set forth
on (i) the Audited Financial Statements, (ii) the Unaudited
Financial Statements, (iii) Schedule 4.5 or (iv) incurred in the
ordinary course of business since August 31, 1994, Telecoin has no
material liabilities or obligations (secured, unsecured, absolute,
accrued, asserted or unasserted) of any nature, whether as
principal, agent, partner, co-venturer, guarantor or in any other
capacity, or unrealized or anticipated losses; provided, however,
all undisclosed liabilities, whether material or otherwise, shall
be utilized in calculating the Adjustment as provided in Section
2.1.
Section 4.6 Licenses; Compliance. To the best of Telecoin's
and the Executive Officers' knowledge, Telecoin possesses all
licenses and other required governmental or official approvals,
permits, consents and authorizations, the failure of which to
possess would have a material adverse effect on the business,
financial condition, operations or results of operations of
Telecoin. Schedule 4.6 contains a complete list of all those
licenses, approvals, permits, consents and authorizations.
Telecoin is in compliance with (i) the terms of all such licenses,
approvals, permits, consents and authorizations, (ii) all laws,
ordinances, statutes and regulations where noncompliance would have
a material adverse effect on Telecoin and its business or assets,
and (iii) all judgments, orders, rulings or other decisions of any
governmental or other regulatory authority, court or arbitrator
having jurisdiction over Telecoin. Neither the execution, delivery
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or performance of this Agreement nor the performance of the
transactions contemplated by this Agreement will affect the
validity of any such licenses, approvals, permits and consents and
the same shall remain in full force and effect upon the
consummation of the transactions contemplated by this Agreement.
No approval, consent or authorization of or filing or registration
with any governmental or other regulatory authority, other than
those described on Schedule 4.6, is required by Telecoin for the
execution, delivery or performance of this Agreement or for the
consummation of the transactions contemplated by this Agreement.
Section 4.7 Relationships with Property Owners. Except as
set forth on Schedule 4.7, no written or oral communication from
any of Telecoin's customers which have entered into Telephone
Placement Agreements granting Telecoin the right to provide pay
telephone service (the "Property Owners") exists or has occurred
prior to the date of this Agreement and has been communicated to
the Executive Officers or any officer, manager or customer
relations personnel of Telecoin, which may indicate that any
Property Owner is reasonably likely to terminate its agreement with
Telecoin for any reason. Except as set forth on Schedule 4.7, none
of the Shareholders has any direct or indirect material interest in
any of the Property Owners.
Section 4.8 Placement Agreements and Expirations. Telecoin
has fully executed and delivered agreements with Property Owners
granting Telecoin the exclusive right to provide pay telephone
service (the "Placement Agreements")covering all of the locations
where Telecoin has pay telephones installed . Except as set forth
in Schedule 4.8(a), Telecoin has performed all of the obligations
required to be performed by it to date under the Placement
Agreements, and is not in default (with notice or lapse of time or
both) under any of the Placement Agreements. Telecoin has obtained
all necessary consents with respect to any Placement Agreement
containing a change in control provision or otherwise requiring
consent prior to the consummation of the transactions contemplated
by this Agreement prior to the date of this Agreement. Except as
otherwise provided in this Agreement, the consummation of the
transactions contemplated by this Agreement will in no way affect
the continuation, validity or effectiveness of any of the Placement
Agreements. Schedule 4.8(b) contains a true, correct and complete
list of the number of Placement Agreements which will expire in
each of the next ten (10) years.
Section 4.9 Termination of Placement Agreements. If any one
or more of the Property Owners which have entered into a Placement
Agreement gives notice to Peoples or PAC indicating its desire to
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terminate its respective Placement Agreement within 90 days after
the date of this Agreement and such Placement Agreement is
terminated (whether or not such termination occurs 90 days after
the Closing Date), then Peoples shall immediately offset the sum of
$2,800 from any amount which Peoples may owe the Shareholders
pursuant to this Agreement for each pay telephone which is removed
as a result of such termination; provided, however, in the event
the termination is a result of Peoples' or PAC's breach of the
terms and/or conditions of any Placement Agreement after the
Closing of the transactions contemplated by this Agreement, Peoples
shall not have the right of set-off as provided above. Peoples
agrees to use its reasonable efforts to enforce the Placement
Agreements after the date of this Agreement.
Section 4.10 Subsidiaries. Telecoin does not own, directly
or indirectly, any capital stock or equity securities of any
corporation or have any direct or indirect equity or ownership
interest in any business other than the business conducted by
Telecoin.
Section 4.11 Litigation Involving Telecoin. Except as set
forth on Schedule 4.11, there are no actions, suits, claims,
arbitration proceedings, or to the best of Telecoin's and the
Executive Officers' knowledge governmental investigations pending
or, to the best of Telecoin's and the Executive Officers'
knowledge, threatened against or affecting Telecoin or the
business, assets, or financial condition of Telecoin that may have
a material adverse effect on Telecoin and, to the best of
Telecoin's and the Executive Officers' knowledge, there are no
facts or circumstances which are reasonably likely to create a
basis for any of the foregoing. Telecoin and the Executive
Officers are not aware of any outstanding orders, decrees or
stipulations issued by any local, state or federal judicial
authority in any proceeding to which Telecoin is or was a party.
Section 4.12 Taxes. Telecoin has filed, caused to be filed
or has obtained extensions to file all federal, state and local tax
returns which are required to be filed by it, and has paid or
caused to be paid, or has made adequate provision on its books in
accordance with GAAP amounts sufficient for the payment of, all
taxes as shown on said returns or on any assessment received by it,
to the extent that the taxes have become due, and has made all
estimated tax payments required to be made by it to avoid the
imposition of penalties, interest and other additions to tax. No
tax liens have been filed against Telecoin or its assets and
Telecoin has not been notified of, and Telecoin does not have
knowledge of, any claim being asserted with respect to any such
taxes. There is no action, suit, proceeding, investigation or
audit now pending or, to the best of Telecoin's and the Executive
Officers' knowledge, threatened against Telecoin in respect to any
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tax or assessment, nor is any claim for additional tax or
assessment being asserted by any tax authority. All taxes which
Telecoin is required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid
over to the proper governmental authorities on a timely basis. All
ad valorem taxes which have been assessed against Telecoin or its
assets which are due and owing have been paid. None of the prior
tax returns of Telecoin has been audited and none of the officers
of Telecoin has been contacted that such an audit may occur. True,
complete and correct copies of the Telecoin's tax returns for the
years 1991, 1992 and 1993 have been furnished to Peoples.
Section 4.13 Bank Accounts. Attached to this Agreement as
Schedule 4.13 is a true and complete list of the names and
addresses of all banks or other financial institutions in which
Telecoin has any accounts, deposits or safe-deposit boxes, and the
names of all persons authorized to draw on such accounts or
deposits or who have access to such safe-deposit boxes. As of the
Closing Date, no person will hold a power of attorney on behalf of
Telecoin. The books of account of Telecoin show all checks, notes
and drafts outstanding, and there are sufficient funds in the
accounts listed on Schedule 4.13 to pay any and all checks, notes
or drafts outstanding on the Closing Date but not yet presented on
said accounts.
Section 4.14 Real Property Owned or Leased. Telecoin does
not own any real property. Telecoin has provided true and complete
copies of all leases of real property (the "Leased Property") to
which Telecoin is a party, including all amendments and
modifications thereto (the "Leases"). Telecoin enjoys peaceful and
undisturbed possession of the Leased Property, and the Leases are
the valid and legally binding obligations of Telecoin, enforceable
against Telecoin in accordance with their respective terms, and are
in full force and effect. Telecoin has not received written notice
of default under any of the Leases, and Telecoin is not in material
default of any Leases, and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute
a material default thereunder.
Section 4.15 Title to Assets. Schedule 4.15(a) sets forth a
list of all equipment, supplies, parts, computer equipment,
furniture and fixtures owned by Telecoin having an individual value
in excess of $100 (the "Assets"). Telecoin has valid leasehold
interests in all Leased Property and good and marketable title to
all of its other property, tangible or intangible, reflected in the
Audited Financial Statements and the Unaudited Financial
Statements, subject to liens for current taxes and assessments not
yet due and payable. Except as set forth on Schedule 4.15(b), all
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of the Assets are free and clear of restrictions on or conditions
to transfer or assignment, and are free and clear of any mortgage,
lien, charge, encumbrance, security interest or other restrictions.
All of the tangible Assets of Telecoin are in good condition, in
good operating order and are fit for the purposes for which such
Assets are used or intended to be used, subject to normal wear and
tear, normal maintenance and obsolescence. All of Telecoin's
Assets have been maintained, repaired and/or replaced in a manner
consistent with industry practice.
Section 4.16 Material Contracts. Schedule 4.16(a) sets forth
a complete and correct list of each of the following types of
contracts or commitments (whether oral or written) to which
Telecoin is a party (collectively the "Contracts"): (i) Contracts
for the employment of any officer or employee and all bonus,
incentive compensation, profit-sharing, retirement, pension, group
insurance, death benefit or other fringe benefit plans, deferred
compensation or post-termination obligations; (ii) Contracts for
the future purchase of materials, inventory, supplies, services or
equipment; (iii) distributor agreements and contracts for the
purchase or sale of inventory or supplies; (iv) agreements or
arrangements for the purchase, sale or lease of any other assets;
(v) pledges, sales contracts, leases, security agreements or other
similar agreements with respect to Telecoin's properties; (vi)
leases of machinery or equipment not terminable without penalty by
Telecoin within 30 days notice; (vii) loan agreements, promissory
notes, guarantees, subordination or similar type agreements; (viii)
consulting agreements; (ix) any contract not otherwise covered by
clauses (i) through (viii) above which involves annual or aggregate
payments in excess of $100 and is not terminable without penalty
within 30 days notice. Telecoin has furnished to Peoples true,
complete and accurate copies of all Contracts. Except as set forth
in Schedule 4.16(b), Telecoin has performed all of the obligations
required to be performed by it to date under the Contracts, and is
not in default (with notice or lapse of time or both) under any of
the Contracts. Telecoin shall obtain all necessary consents with
respect to any Contract containing a change in control provision on
or prior to the Closing Date. The consummation of the transactions
contemplated by this Agreement will in no way affect the
continuation, validity or effectiveness of any of the Contracts.
Section 4.17 Insurance Policies. Schedule 4.17 sets forth a
list of all policies of insurance which Telecoin maintains in full
force and effect, all of which policies are in good standing.
Telecoin maintains such other insurance as may be required by law.
All premiums due on such policies have been paid and the aggregate
amount of all claims under such policies do not exceed policy
limits. There are no pending or, to the best knowledge of
Telecoin, threatened terminations, cancellations or premium
increases with respect to any such policies.
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Section 4.18 ERISA. Set forth on Schedule 4.18 is a list and
brief description of each "employee pension benefit plan," as such
term is defined in Section 3(2) of ERISA maintained by Telecoin or
to which Telecoin contributes (the "Plan"). Telecoin does not
maintain or contribute to a defined benefit pension plan or a
"multiemployer plan" as such term is defined in Section 3(37) of
ERISA. Each Plan has substantially complied with the material
requirements of ERISA and other laws relating to employee pension
benefit plans. Telecoin has delivered to Peoples true and complete
copies of, with respect to each Plan, (i) the current Plan
document, (ii) the names and addresses of all trustees, (iii) the
most recent Annual Report Form 5500 or Form 5500-CR, and (iv) the
most recent Internal Revenue Service determination letter.
Telecoin has made all contributions required to be made to each
Plan under the terms of the Plan or applicable Law. No prohibited
transaction (as defined in Section 4975 of the Code) for which
there is no administrative, statutory or judicial exemption has
occurred with respect to a Plan.
Section 4.19 Labor Matters. Telecoin is not a party to any
collective bargaining agreements with its employees. Except as set
forth on Schedule 4.19, (i) Telecoin is in material compliance with
all federal, state and local laws regarding employment and
employment practices, conditions of employment, wages and hours and
occupational laws, (ii) Telecoin is not engaged in unfair labor
practices, and there are no unfair labor practice complaints
pending or, to the best of Telecoin's and the Executive Officers'
knowledge, threatened against Telecoin before the National Labor
Relations Board or any other governmental or regulatory board or
agency performing similar functions, (iii) there is no labor
strike, slowdown, work stoppage or dispute pending or, to the best
of Telecoin's and the Executive Officers' knowledge, threatened
against or involving Telecoin, and (iv) to the best of Telecoin's
and the Executive Officers' knowledge, none of the employees not
presently subject to collective bargaining agreements are engaged
in organizing or are members of any union or other employee group
that is seeking recognition as a bargaining unit.
Section 4.20 Absence of Changes. Except as set forth in
Schedule 4.20 or as otherwise disclosed in or contemplated by this
Agreement, since June 30, 1994, there has not been (i) any material
adverse change in the financial condition, assets, liabilities,
business or operations of Telecoin; (ii) any damage, destruction or
loss, whether or not covered by insurance, materially and adversely
affecting the properties, financial condition or business of
Telecoin; (iii) any change in the outstanding capital stock of
Telecoin; (iv) declared, paid or set aside for payment any dividend
or other distribution (whether in cash, stock, property or any
combination thereof) in respect of Telecoin Common Stock or any
cancellation, exercise or redemption or other acquisition by
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Telecoin of any shares of the Telecoin Common Stock; (v) any
increase in the rate or terms of compensation payable or to become
payable by Telecoin to any of its officers, directors or key
employees or any increase in the rate or terms of contribution to
any Plans, except as required by law; (vi) incurred or agreed to
incur any liabilities or obligations (whether absolute, accrued,
contingent or otherwise), except as incurred in the ordinary course
of business consistent with past practices; (vii) made any material
capital expenditure or commitment for replacements or additions or
improvements; (viii) any change by Telecoin in accounting methods,
principles or practices; (ix) any disposal, mortgage, pledge or
other disposition of any of its assets other than in the ordinary
course of business; or (x) any other event, condition or
arrangement of any nature whatsoever which might have a material
adverse effect on the condition, business or operations of
Telecoin, excluding any such event, condition or arrangement
affecting the economy or business conditions generally.
Section 4.21 Accuracy of Information. No representation,
statement or information contained in this Agreement and the
various Schedules attached to this Agreement, contains or shall
contain any untrue statement of a material fact or omit or shall
omit any material fact necessary to make the information contained
in this Agreement and the Schedules not misleading.
Section 4.22 Accuracy of Documents. All contracts,
instruments, agreements and other documents delivered by Telecoin
to Peoples for Peoples' review in connection with this Agreement
and the transactions contemplated hereby, including all articles of
incorporation, by-laws, corporate minutes, stock record books and
tax returns are true, correct and complete copies of all such
contracts, instruments, agreements and other documents.
Section 4.23 Proprietary Rights.
(a) Except as set forth on Schedule 4.23(c), there are no
trademarks, trademark applications, trade names, assumed names,
service marks, logos, patents, patent applications, copyrights and
copyright registrations, owned or licensed by Telecoin and used in
or necessary for the conduct of the business and operation of
Telecoin. (The foregoing together with all inventions, trade
secrets, customer lists and confidential processes, and all other
similar rights presently owned or licensed by Telecoin are the
"Proprietary Rights"). Except those proprietary rights currently
licensed by Telecoin and set forth on Schedule 4.23, no other
proprietary rights are used in or are necessary for the conduct of
the business and operation of Telecoin as presently conducted.
(b) To the best of Telecoin's and the Executive Officers'
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knowledge, no Proprietary Rights or know-how used in or necessary
for the conduct of the business and operation of Telecoin conflict
with or infringe any similar rights or services of any other
person. No claims have been asserted by any person with respect to
the ownership, validity, license or use of the Proprietary Rights
or the production, provision of any services by Telecoin and there
is no basis for any such claim. Telecoin has taken all reasonable
measures to enforce, maintain and protect its interests and, to the
extent applicable, those of any third party, in the Proprietary
Rights.
(c) Schedule 4.23(c) accurately identifies all databases and
computer software owned, licensed or otherwise used in connection
with Telecoin's business.
Section 4.24 Investment Representation. The Shareholders
acknowledge that they are acquiring the Peoples Common Stock solely
for investment and not with a view to, or for resale in connection
with, any distribution thereof, except pursuant to an effective
registration statement under the Act, or pursuant to and in
compliance with an exemption from registration afforded by the Act
or the rules and regulations promulgated thereunder. The
Shareholders acknowledge that they have such knowledge and
experience in financial and business matters that they are capable
of evaluating the merits and risks of their investment hereunder.
Each of the Shareholders has received copies of Peoples' Annual
Reports on Form 10-K for the years ended December 31, 1992 and
December 31, 1993, Quarterly Report on Form 10-Q for the 3 months
ended March 31, 1994, proxy statement for the 1994 annual meeting
of shareholders and all other financial information they deem
necessary. The Shareholders have had an opportunity to ask
questions, receive answers concerning this Agreement and Peoples
and to obtain any additional information which they have requested.
Section 4.25 Compliance with Applicable Regulations. All of
Telecoin's Installed Pay Telephones are in material compliance with
all local, state and federal laws, ordinances, statutes,
regulations, orders, licenses, approvals, permits, certificates and
consents which are applicable to and binding on the operation of
the Telecoin's installed pay telephones, including, but not limited
to, the regulations promulgated by any applicable State Public
Service and/or Utilities Commission and the Federal Communications
Commission (the "Applicable Regulations"). In the event any of
Telecoin's installed pay telephones are not in material compliance
with the Applicable Regulations, Peoples shall bring each such
installed pay telephone into full compliance with the Applicable
Regulations and Peoples shall have the unilateral right to reduce
any amount it may owe to the Shareholders by any and all reasonable
costs it incurs to bring each such installed pay telephone into
full compliance with the Applicable Regulations; provided, however,
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the definition of Applicable Regulations shall not include the
Americans with Disabilities Act of 1990.
Section 4.26 Subchapter S Status. Telecoin's election to be
treated as an S corporation under Section 1362 of the Internal
Revenue Code (i) is valid and in full force and effect on the date
of this Agreement, (ii) has at all times since the filing of such
election been valid (iii) since filing the S corporation election
with the Internal Revenue Service, Telecoin's S corporation status
has continued uninterrupted, and (iv) to the best of Telecoin's and
the Executive Officers' knowledge, none of the Shareholders has
taken any action which would invalidate or void, in any manner,
Telecoin's S corporation status.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PEOPLES AND PAC
In order to induce Telecoin, the Executive Officers and the
Shareholders to enter into this Agreement and to consummate the
transactions contemplated under this Agreement, Peoples and PAC
hereby make the following representations and warranties each of
which is relied upon by Telecoin and the Executive Officers
regardless of any other investigation made or information obtained
by Peoples or PAC:
Section 5.1 Organization, Power and Authority. PAC is a
corporation duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania, with full corporate power and
authority to own or lease its properties and carry on its business
as it is now being conducted. Peoples is a corporation duly
organized and validly existing under the laws of the State of New
York, with full corporate power and authority to own or lease its
properties and carry on its business as it is now being conducted.
Section 5.2 Due Authorization; Binding Obligation. The
execution, delivery and performance of this Agreement and all other
agreements contemplated by this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action of Peoples and PAC,
respectively. This Agreement has been duly executed and delivered
by Peoples and PAC and is the valid and binding obligation of
Peoples and PAC enforceable in accordance with its terms. Neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated by this Agreement will: (i)
conflict with or violate any provision of the articles of
incorporation or by-laws of Peoples or PAC, or of any law,
ordinance or regulation or any decree or order of any court or
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administrative or other governmental body which is either
applicable to, binding upon or enforceable against Peoples or PAC;
(ii) result in any breach of or default under an material mortgage,
contract, agreement, indenture, will, trust or other instrument
which is either binding upon or enforceable against Peoples or PAC
or their assets; (iii) violate any legally protected right of any
individual or entity or give to any individual or entity a right or
claim against Peoples or PAC; or (iv) impair or in any way limit
any governmental or official license, approval, permit or
authorization of Peoples or PAC.
Section 5.3 Litigation. Except as set forth on Schedule 5.3,
there are no actions, suits, claims, governmental investigations or
arbitration proceedings pending or threatened against or affecting
Peoples or the business, assets, or financial condition of Peoples
which could have a material adverse affect on Peoples or the
business, assets, or financial condition of Peoples and there are
no facts or circumstances which are reasonably likely to create a
basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any local, state or federal
judicial authority in any proceeding to which Peoples is or was a
party.
Section 5.4 Accuracy of Information. No representation,
statement or information contained in this Agreement and the
various Schedules attached to this Agreement, contains or shall
contain any untrue statement of a material fact or omit or shall
omit any material fact necessary to make the information contained
in this Agreement and the Schedules not misleading.
Section 5.5 Absence of Changes. Except as set forth in
Schedule 5.5, since March 31, 1994, there has not been (i) any
material adverse change in the financial condition, assets,
liabilities, business or operations of Peoples; (ii) any damage,
destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, financial
condition or business of Peoples; (iii) any declared, paid or set
aside for payment of any dividend or other distribution (whether in
cash, stock, property or any combination thereof) in respect of the
Peoples' common stock or any cancellation, exercise or redemption
or other acquisition by Peoples of any shares of the its common
stock; (iv) any change by Peoples in accounting methods, principles
or practices, except as set forth in Peoples Form 10-K for the year
ended December 31, 1993 and the financial statements contained
therein and the notes thereto; or (v) any other event, condition or
arrangement of any nature whatsoever which has had a material
adverse effect on the condition, business or operations of Peoples,
excluding any such event, condition or arrangement affecting the
economy or business conditions generally.
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Section 5.6 Due Diligence. As of the Closing Date, Peoples
has no actual knowledge of any breach of the representations and
warranties made by Telecoin and the Executive Officers in this
Agreement. In the event it is subsequently discovered that Peoples
had actual knowledge of a breach of any representation or warranty
made by Telecoin or the Executive Officers in this Agreement on the
Closing Date, Peoples hereby waives its right to complain of such
breach or to assert any claim with regard thereto.
Section 5.7 Peoples' Common Stock. When issued in accordance
with Section 2.2(b) of this Agreement, the Common Stock to be
issued to the Shareholders shall be validly issued, fully paid and
non-assessable and shall be free and clear of any liens or
encumbrances whatsoever.
ARTICLE VI
COVENANTS OF
TELECOIN, THE EXECUTIVE OFFICERS AND THE SHAREHOLDERS
Section 6.1 No Disclosure. Without the prior written consent
of Peoples, neither Telecoin, the Executive Officers nor the
Shareholders will disclose the existence of any term or condition
of this Agreement to any person or entity except that disclosure
may be made (a) to Telecoin's and the Shareholders' attorneys or
accountants and any lender or other person in a business
relationship with Telecoin to whom disclosure is necessary in order
to satisfy any of the conditions to the consummation of the
transactions contemplated by this Agreement, and (b) to the extent
the party making such disclosure believes in good faith that such
disclosure is required by law (in which case that party will
consult with Peoples prior to making such disclosure).
Section 6.2 Further Assurances. From time to time after the
date of this Agreement, the Executive Officers and the Shareholders
shall execute and deliver such other instruments and shall take
such other actions as Peoples may reasonably request to effectuate
the transactions contemplated by this Agreement.
Section 6.3 Restrictive Covenant
(a) To assure that Peoples will realize the value inherent in
the transactions contemplated by this Agreement, except as
otherwise specifically set forth in this Agreement, each
Shareholder, except Harvey Ostrow, on his own behalf, agrees with
Peoples that neither he, nor any of his affiliates (as such term is
defined in Rule 405 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended) (the
"Affiliate") shall, directly or indirectly, (as an individual,
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partner, shareholder, director, officer, principal, agent,
employee, trustee, creditor, representative or in any relation or
capacity whatsoever), for a period of five years following the date
of this Agreement:
(i) compete with Peoples, PAC or any Affiliate of Peoples
in the business of installing, owning, operating, servicing or
maintaining pay telephones in the states in which Telecoin operates
on the Closing Date, except as specifically provided in the
Consulting Agreement; or
(ii) attempt to solicit or solicit the customers or
facilities serviced by Peoples, PAC or any of their Affiliates,
including, but not limited to, any Property Owner where Telecoin's
pay telephones are installed, to terminate, curtail or restrict
their relationship with Peoples, PAC or any of their Affiliates.
(b) The parties acknowledge that Gilbert A. Mendelson, David
T. Magrish and Howard Siegel are parties to that certain agreement
between Telnet and Intellicall, Inc. ("Intellicall") in connection
with the marketing of pre-paid long distance telephone calling
cards ("Debit Cards"). The parties agree that Mr. Mendelson's, Mr.
Magrish's and Mr. Siegel's marketing of Debit Cards supported by
Intellicall's Debit Card system shall not constitute a violation of
Section 6.3(a).
(c) If Section 6.3(a) of this Agreement, as applied to the
Executive Officers and the Shareholders or their respective
Affiliates or any other person is adjudged by a court to be invalid
or unenforceable, the same will in no way affect any other
provision of that Section or any other part of this Agreement, the
application of that provision in any other circumstances or the
validity or enforceability of this Agreement. If any provision, or
any part of any provision, is held to be unenforceable because of
the duration of the provision or the area covered by the provision,
the parties agree that the court making such determination will
have the power to reduce the duration and/or area of the provision,
and/or to delete specific words or phrases, and in its reduced form
Section 6.3(a) will then be enforceable.
(d) The Shareholders and Peoples each acknowledge that a
breach by the Shareholders or an Affiliate of any of them of the
provisions of Section 6.3(a) will cause Peoples irreparable harm
and monetary damages in an action at law would not provide an
adequate remedy. Accordingly, the Shareholders each agree that, in
addition to any other remedies (legal, equitable or otherwise)
available to Peoples, Peoples may seek and obtain injunctive relief
against the breach or threatened breach of the provisions of
Section 6.3(a) as well as all other rights and remedies available
at law and equity including, without limitation, the right to be
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indemnified by the Shareholder committing such breach for all
claims, damages, actions and suits whatsoever for his breach of
Section 6.3(a) and Peoples' reasonable attorneys' fees, expenses
and costs incurred in enforcing any provisions of Section 6.3(a),
whether or not litigation is instituted, and if instituted, at pre-
trial, trial and appellate levels. Nothing contained in this
Section shall be construed as prohibiting Peoples and its
Affiliates from pursuing all other remedies available to them for
a breach or threatened breach of the provisions of Section 6.3(a),
including the recovery of compensatory and punitive damages from
the Shareholder commiting such breach. Each Shareholder further
acknowledges and agrees that the covenants contained in Section
6.3(a) are necessary for the protection of Telecoin's legitimate
business and professional duties, ethical obligations and
interests, and are reasonable in scope and content.
Section 6.4 Lock-Up Agreements. Simultaneous with the
execution of this Agreement, each of the Executive Officers and the
Shareholders which receive more than 15,000 shares of Peoples
Common Stock shall execute a lock-up agreement substantially in the
form attached to this Agreement as Exhibit B (the "Lock-Up
Agreement") whereby each such Executive Officer and Shareholder
shall agree not to sell more than 15,000 shares of the Peoples
Common Stock acquired pursuant to this Agreement in any calendar
month without the prior written consent of Peoples.
Section 6.5 Consulting Agreement. The Executive Officers
shall execute the Consulting Agreement simultaneous with the
Closing of the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS OF PEOPLES AND PAC
Section 7.1 Further Assurances. From time to time after the
date of this Agreement, Peoples and PAC shall execute and deliver
such other instruments and shall take such other actions as the
Shareholders may reasonably request to effectuate the transactions
contemplated by this Agreement.
Section 7.2 No Disclosure. Without the prior written consent
of the Shareholders, Peoples will not disclose the existence of any
term or condition of this Agreement to any person or entity except
that disclosure may be made to the extent the party making such
disclosure believes in good faith that such disclosure is required
by law (in which case that party will consult with the shareholders
prior to making such disclosure). Telecoin and the Shareholders
hereby acknowledge that Peoples may be required to disclose certain
information concerning the transactions contemplated by this
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Agreement under the securities laws of the United States. Telecoin
and the Shareholders agree that Peoples will not be required to
obtain the prior written consent of the Shareholders to disclose
the existence of any term or condition of this Agreement if Peoples
believes such disclosure is required under the securities laws of
the United States.
Section 7.3 Registration of Common Stock. Peoples agrees to
use its reasonable efforts to cause the registration statement to
be declared effective by the SEC once Peoples commences such
registration. Peoples shall maintain the registration statement in
effect for a period of not less than three years after the date the
registration statement is declared effective by the SEC. Peoples
shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with the
resale of the shares of the Common Stock. The Shareholders shall
furnish all information to Peoples which may reasonably requested
by Peoples in connection with the preparation of any such
registration statement or any action as set forth above.
Additionally, Peoples agrees to cause each of the obligations set
forth on Schedule 7.4 to be paid as they become due and payable.
Section 7.4 Satisfaction of Telecoin's Long-Term Debt.
Peoples agrees to satisfy Telecoin's long term debt with the
Pennsylvania Capital Bank within 270 days after the Closing.
Additionally, Peoples agrees to execute and deliver to Berthel
Fisher, Pennsylvania Capital Bank and ITT Capital Finance (the
"Lenders") such assumption documents and corporate guarantees as
may be reasonably requested by the Lenders. Additionally, Peoples
agrees (i) to cause each of the obligations set forth on Schedule
7.4 (the "Personal Guaranteed Obligations") to be paid as they
become due and payable and (ii) to use its reasonable efforts to
remove the personal guarantees of the Executive Officers to the
Personal Guaranteed Obligations as soon as reasonably practicable.
Section 7.5 Consulting Agreement. Peoples shall execute the
Consulting Agreement simultaneous with the Effective Time.
Section 7.6 Telecoin Receivables. In the event Peoples, in
its sole discretion, deems any accounts receivable of Telecoin to
be uncollectible (the "Uncollectible Receivables"), those
Uncollectible Receivables shall not be utilized in calculating the
Adjustment and Peoples shall convey those Uncollectible Receivables
to TLT. At the Closing, Peoples shall provide TLT with a list of
each of the Uncollectible Receivables and a brief explanation why
Peoples has deemed such receivable uncollectible. After the
Closing, Peoples shall use its reasonable efforts to assist TLT in
collecting all amounts due to Telecoin in connection with the
Uncollectible Receivables. In the event the Surviving Corporation
or any of its Affiliates collects any monies due to Telecoin in
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connection with the Uncollectible Receivables, Peoples shall
deliver those monies to TLT within 7 days after receipt.
Section 7.7 Telecoin Employee Benefit Plans. Telecoin
presently maintains the Telecoin Communications, Ltd. 401(k) Plan
(the "Plan"). Within thirty (30) days following the Closing Date,
PAC shall amend the Plan to the extent necessary to fully vest all
of the Plan participants who are or were active employees of
Telecoin on the Closing Date, and to permit those participants who
terminate employment on or immediately prior to the Closing Date to
receive a lump sum distribution of their account balances under the
Plan on or before March 31, 1995. PAC further agrees to terminate
the Plan as soon as possible following the Closing Date. So long
as the Plan is in effect, the Executive Officers shall remain
Trustees of the Plan, and PAC agrees to indemnify, defend and hold
harmless the Executive Officers from any and all liability arising
directly as a result of serving as Trustees, except for any
liability arising as a result of the Trustee's gross negligence or
willful misconduct.
Section 7.8 Retention of Records. Peoples agrees that it
shall retain all of Telecoin's corporate records for at least three
years after the Closing Date and that Peoples will provide the
Executive Officers with access to those corporate records during
Peoples' normal business hours for any reasonable purpose,
including the copying of those corporate records as necessary.
Section 7.9 Payment of Telecoin Payables. Peoples agrees to
pay, or cause PAC to pay, (i) all delinquent commissions as listed
on Schedule 4.16 (b) on or before October 24, 1994, (ii) all other
commissions listed on Schedule 7.9 and not listed on Schedule
4.16(b) on or before October 31, 1994, (iii) $26,701 to Alpern,
Rosenthal & Company on or before October 31, 1994, (iv) $26,701 to
Alpern, Rosenthal & Company on or before November 30, 1994, and (v)
all other Telecoin payables for which PAC is obligated to pay on or
before December 31, 1994.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Agreement by the Executive Officers to Indemnify.
The Executive Officers, jointly and severally, agree that they will
indemnify and hold Peoples and PAC harmless of all indemnifiable
damages of Peoples and PAC. For this purpose, "indemnifiable
damages" of Peoples and PAC means all expenses, losses, costs,
deficiencies, penalties, interest, liabilities and damages
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(including related counsel fees and expenses) incurred or suffered
by Peoples or PAC (whether suit is instituted or not and, if
instituted, at any trial or appellate level) from: (a) any breach
or violation of any of the representations, warranties, covenants
or agreements made by Telecoin and/or the Executive Officers in
this Agreement or in any document or certificate delivered by
Telecoin and/or the Executive Officers pursuant to the provisions
of this Agreement, including any Schedule to this Agreement; (b)
any action, suit, claim or litigation involving Telecoin, the
Shareholders and/or the Executive Officers existing on the Closing
Date or arising after the Closing Date which is related to events
occurring prior to the Closing Date; provided, however, if an
action, suit, claim or litigation involving Telecoin, the
Shareholders and/or the Executive Officers arises after the Closing
and is related to events which occurred prior to and after the
Closing, the Executive Officers shall not be liable for damages
relating to the period after Peoples obtained actual knowledge of
the facts and circumstance which are the subject of the action,
suit, claim or litigation; (c) any occurrence, act or omission of
any director, officer, employee, consultant, or agent of Telecoin
which occurrence, act or omission occurred prior to the Closing
Date and which adversely affects Peoples' interest in the business
or operations of Telecoin; (d) from the failure of Telecoin to pay
any taxes which may be due and owing to any applicable taxing
authority for Telecoin's business operations prior to the Closing
Date; and (e) any liabilities or obligations of Telecoin, whether
absolute, accrued contingent or otherwise, arising out of
Telecoin's business or operations prior to the Closing Date,
whether existing as of the Closing Date or arising out of facts or
circumstances existing at or prior to the Closing Date and whether
or not these liabilities or obligations were known by Peoples on
the Closing Date. Without limiting the foregoing, with respect to
the measurement of "indemnifiable damages," Peoples and PAC shall
have the right to be put in the same financial position as they
would have been in had the representations and warranties of
Telecoin and/or the Executive Officers been true and correct and
had each of the covenants of Telecoin and the Executive Officers
been performed in full.
Section 8.2 Agreement by Peoples to Indemnify. Peoples
agrees that it will indemnify and hold the Executive Officers
harmless of all indemnifiable damages of the Executive Officers.
For this purpose, "indemnifiable damages" of the Executive Officers
means all expenses, losses, costs, deficiencies, penalties,
interest, liabilities and damages (including related counsel fees
and expenses) incurred or suffered by the Executive Officers
(whether suit is instituted or not and, if instituted, at any trial
or appellate level) from: (a) any breach or violation of any of
the representations, warranties, covenants or agreements made by
Peoples and/or PAC in this Agreement or in any document or
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certificate delivered by Peoples and/or PAC pursuant to the
provisions of this Agreement, including any Schedule to this
Agreement, (b) any litigation involving Telecoin or the business
and operations of Telecoin related to events after the Closing Date
and (c) any liability incurred by Gilbert A. Mendelson or David T.
Magrish directly as a result of Peoples' failure to comply with its
obligations under Section 7.4 of this Agreement. Without limiting
the foregoing, with respect to the measurement of "indemnifiable
damages," the Executive Officers shall have the right to be put in
the same financial position as they would have been in had the
representations and warranties of Peoples and PAC been true and
correct and had each of the covenants of Peoples and PAC been
performed in full.
Section 8.3 Mitigation. Every person seeking indemnification
under this Agreement (the "Indemnified Party") shall correct or
mitigate, to the extent practicable, any Loss suffered by that
person for which indemnification is claimed and the indemnifying
party (the "Indemnifying Party") shall be liable only for the
amount thereof which is net of any insurance proceeds and other
amounts paid by, or offset against any amount owed to, any person
not a party to this Agreement (including any costs or expenses
incurred to so correct or mitigate). If a person which has a right
of indemnification under this Article VIII reasonably can, by
expenditure of money, mitigate or otherwise reduce or eliminate any
Loss for which indemnification would otherwise be claimed, that
person shall take that action and shall be entitled to
reimbursement for those expenditures and all related expenses.
Section 8.4 Procedure for Claims. The following procedures
shall be applicable with respect to indemnification for claims
arising in connection with any provision of this Agreement:
(a) Each Indemnified Party agrees that upon its obtaining
knowledge of facts indicating that there may be a basis for a claim
for indemnity under the provisions of this Agreement, including
receipt by it of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise, (these actions are collectively,
the "Claim"), with respect to any matter as to which it may be
entitled to indemnity under the provisions of the Agreement, it
will give prompt notice thereof in writing to the Indemnifying
Party together with a statement of all information respecting any
of the foregoing as it shall then have. The Indemnifying Party
shall not be obligated to indemnify the Indemnified Party for the
increased amount of any Claim which would otherwise have been
payable to the extent that the increase in the amount of the Claim
resulted from the lack of notice required by this provision.
(b) The Indemnifying Party is entitled at its cost and
expense to contest and defend by all appropriate legal proceedings
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any Claim with respect to which it is called upon to indemnify the
Indemnified Party under the provisions of this Agreement; provided,
however, that notice of the intention so to contest shall be
delivered by the Indemnifying Party to the Indemnified Party within
a reasonable time in light of the circumstances then and there
existing. Any contest may be conducted in the name and on behalf
of the Indemnifying Party or the Indemnified Party as may be
appropriate. The contest shall be conducted by attorneys engaged
by the Indemnifying Party, but the Indemnified Party shall have the
right to participate in those proceedings and to be represented by
attorneys of its own choosing at its cost and expense. If the
Indemnified Party joins in any such contest, the Indemnifying Party
shall have full authority to determine all action to be taken. If
after that opportunity, the Indemnifying Party does not elect to
contest that Claim, the Indemnifying Party shall be bound by the
result obtained by the Indemnified Party. At any time after the
commencement of defense of any Claim, the Indemnifying Party may
request the Indemnified Party to agree in writing to the
abandonment of the contest or to the payment or compromise by the
Indemnifying Party of the asserted Claim, whereupon that action
shall be taken unless the Indemnified Party so determines that the
contest should be continued, and so notifies the Indemnifying Party
in writing within 15 days of the request from the Indemnifying
Party. In the event that the Indemnified Party determines that the
contest should be continued, the Indemnifying Party shall be liable
only to the extent of the lesser of: (i) the amount the other
party to the contested Claim has agreed to accept in payment or
compromise as of the time the Indemnifying Party made its request
therefor to the Indemnified Party; or, (ii) the amount for which
the Indemnifying Party may be liable with respect to that Claim by
reason of the provisions of this Agreement. All of the foregoing
is subject to the rights of any Indemnifying Party's insurance
carrier which is defending any of the above proceedings.
(c) If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its
counsel in reasonably contesting any Claim which the Indemnifying
Party elects to contest or, if appropriate, in making any
counterclaim against the person asserting the Claim, or any
cross-complaint against any person and further agrees to take such
other action as reasonably may be requested by an Indemnifying
Party to reduce or eliminate any Loss for which the Indemnifying
Party would have responsibility, but the Indemnifying Party will
reimburse the Indemnified Party for any reasonable expenses
incurred by it in so cooperating or acting at the request of the
Indemnifying Party.
(d) The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including
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governmental authorities asserting any Claim against the Indemnified
Party or conferences with representatives of or counsel for those
persons.
(e) The Indemnifying Party shall pay to the Indemnified Party
the amount to which the Indemnified Party may become entitled by
reason of the provisions of Article X of this Agreement within 15
business days after any the amount owed is finally determined
either by mutual agreement of the parties to this Agreement or
pursuant to the final unappealable judgment of a court of competent
jurisdiction and the Indemnifying Party agrees to pay all costs in
connection with obtaining any bond required to appeal any judgment.
Section 8.5 Right of Set-Off. In addition to any other rights
or remedies Peoples may have, it shall be entitled to withhold from
any amounts which Peoples may owe to the Shareholders under this
Agreement, the amount of any and all liabilities, losses, damages,
injuries, costs, expenses and reasonable counsel fees which: (i)
are sought by any party in any claims against Peoples which Peoples
is indemnified pursuant to Section 8.1; or (ii) which Peoples has
sustained arising from any breach of any covenant of the
Shareholders contained in this Agreement. Peoples shall have the
right to offset from such withheld amounts, as a post-closing
adjustment, any amount ultimately determined to be due and owing to
Peoples by way of indemnification or otherwise pursuant to this
Section, and Peoples shall not be liable for any amounts so set
off.
Section 8.6 Limitations on Indemnity. Notwithstanding any
provision contained in this Agreement to the Contrary: (a) the
Indemnifying Party shall have no obligations under the
indemnification provisions of Sections 8.1 and 8.2 unless the
indemnified party provides written notice of a claim for
indemnification under Sections 8.1 or 8.2 within one year after the
Closing; and (b) in no event shall the aggregate indemnifiable
amount of the Executive Officers exceed the Total Consideration.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Survival of Representations and Warranties. All
of the respective representations and warranties of the parties to
this Agreement shall survive the consummation of the transactions
contemplated by this Agreement for twelve months after the Closing.
All covenants of the parties to this Agreement shall survive the
consummation of the transactions contemplated by this Agreement.
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Section 9.2 Brokers' Commission. Peoples will indemnify and
hold harmless Telecoin, the Executive Officers and the Shareholders
from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or
retained by Peoples or PAC to bring about, or to represent it in,
the transactions contemplated by this Agreement. The Shareholders
and the Executive Officers will indemnify and hold harmless Peoples
from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or
retained by any of the Shareholders or Telecoin to bring about, or
to represent them in, the transactions contemplated by this
Agreement.
Section 9.3 Amendment and Modification. The parties to this
Agreement may amend, modify and supplement this Agreement but only
in writing and such writing must be signed by all the parties.
Section 9.4 Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors, assigns, heirs, estates, beneficiaries, executors and
legal and personal representatives.
Section 9.5 Entire Agreement. This instrument and the
Exhibit and Schedules attached to this Agreement contain the entire
agreement of the parties with respect to the Merger and the other
transactions contemplated in this Agreement, and supersede all
prior understandings and agreements of the parties with respect to
the subject matter of this Agreement. Any reference in this
Agreement shall be deemed to include the Exhibits and the
Schedules.
Section 9.6 Headings. The descriptive headings in this
Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
Section 9.7 Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be
deemed an original.
Section 9.8 Notices. Any notice, request, information or
other document to be given hereunder to any of the parties by any
other party shall be in writing and delivered personally, sent by
certified mail, postage prepaid, overnight courier delivery or by
fax transmission as follows:
One Mellon Bank Center
500 Grant Street, Suite 2828
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Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
Attention:
with a copy to:
If to the Executive Officers:
Gilbert A. Mendelson
One Mellon Bank Center
500 Grant Street, Suite 2828
Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
David T. Magrish
One Mellon Bank Center
500 Grant Street, Suite 2828
Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
If to the Shareholders:
Louis Swartz
212 Briar Ridge Road
Turtle Creek, Pennsylvania 15145
Howard Siegel
2808 Fernwald Road
Pittsburgh, Pennsylvania 15217
Harvey Ostrow
5525 Bartlett Street
Pittsburgh, Pennsylvania 15217
If to Peoples: Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida 33172
Attention: Robert D. Rubin,
President
Facsimile: (305) 477-9890
Any party may change the address to which notices under this
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Agreement are to be sent to it by giving written notice of a change
of address in the manner provided in this Agreement for giving
notice. Any notice delivered personally shall be deemed to have
been given on the date it is so delivered, and any notice delivered
by registered or certified mail, overnight courier delivery or by
fax shall be deemed to have been given on the date it is received.
Section 9.9 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Florida applicable to contracts made and to be performed in Florida
without reference to the choice of law principles.
Section 9.10 Expenses. Except as specifically provided in
this Agreement, all accounting, legal and other costs and expenses
incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring
those fees, costs and expenses.
Section 9.11 Waiver. Any party to this Agreement may extend
the time for or waive the performance of any of the obligations of
the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of
the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by the parties.
No such waiver shall operate or be construed as a waiver of any
subsequent act or omission of the parties.
Section 9.12 Severability. If at any time subsequent to the
date of this Agreement, any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but
the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other
provision of this Agreement.
Section 9.13 Attorney's Fees. If any legal action is commenced
to enforce the decision of the arbitration panel procured in
accordance with Section 9.15, or if any equitable proceeding is
brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may
be entitled.
Section 9.14 Construction. This Agreement shall be construed
without regard to any presumption or other rule requiring
construction against the party causing this Agreement to be drafted.
If any words in this Agreement have been stricken out or otherwise
eliminated (whether or not any other words or phrases have been
added) and the stricken words initialed by the party against whom the
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words are construed, this Agreement shall be construed as if the
words so stricken out or otherwise eliminated were never included in
this Agreement and no implication or inference shall be drawn from
the fact that those words were stricken out or otherwise eliminated.
Section 9.15 Arbitration. Except for an action seking equitable
relief as contemplated by this Agreement, any dispute or claim
arising under or with respect to this Agreement or the breach thereof
shall be resolved by arbitration in Dade County, Florida under the
Florida Arbitration Code, Chapter 682, Florida Statutes, before a
panel of three arbitrators, one appointed by the Executive Officers,
one appointed by Peoples. The two arbitrators so named shall appoint
a third arbitrator within 30 days after the first party receives
notice of the appointment of the second arbitrator. The decision or
the award of a majority of the arbitrators shall be final and binding
upon the parties. Any arbitral award may be entered as a judgment or
order in any court of competent jurisdiction. The successful or
prevailing party or parties (as determined by the arbitration panel)
shall be entitled to recover reasonable attorneys' fees and other
costs incurred in the arbitration proceeding, in addition to any
other relief to which it or they may be entitled
[intentionally left blank]
32
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the day and year first above
written.
PEOPLES TELEPHONE COMPANY, INC.
By:______________________________________
Jeffrey Hanft,
Chief Executive Officer
PEOPLES ACQUISITION CORPORATION
By:_____________________________________
Jeffrey Hanft,
President
TELECOIN COMMUNICATIONS, LTD.
By:______________________________________
Gilbert A. Mendelson,
Chairman of the Board and Chief
Executive Officer
ATTEST:
By:___________________________
Printed name:
Secretary
THE EXECUTIVE OFFICERS
By:_____________________________________
Gilbert A. Mendelson
By:_____________________________________
David T. Magrish
33
<PAGE>
THE SHAREHOLDERS
By:_____________________________________
Louis Swartz
By:_____________________________________
Howard Siegel
By:_____________________________________
Harvey Ostrow
34
EMPLOYMENT AGREEMENT
Agreement (the "Agreement") dated as of June 22, 1994 (the "Execution
Date") between PEOPLES TELEPHONE COMPANY, INC., a New York corporation (the
"Company"), and LARRY ELLMAN (the "Employee").
RECITALS
WHEREAS, the Company is presently engaged in the business of owning and
operating telephone and wire communication systems and other businesses (the
"Business"); and
WHEREAS, the Employee has many years of business experience and the
Employee and the Company desire to enter into this Agreement, subject to the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants set forth in this Agreement:
1. Employment and Term.
a. During the term of this Agreement, the Company agrees to employ
the Employee and the Employee agrees to serve as an employee of the Company as
hereinafter provided. The term (the "Term of Employment") shall begin on June
22, 1994 and shall end on June 22, 1997.
2. Duties.
a. The Employee agrees during the Term of Employment to perform the
duties of the President of the Pay Telephone Division and to perform such other
duties and assignments of an executive nature relating to the business of the
Company as the board of directors of the Company directs. During the Term of
Employment the Employee shall, except during customary vacation periods and
periods of illness, devote all of his business time and attention to the
performance of the duties under this Agreement and to promote the best interests
of the Company. The Employee shall report to and shall be subject to the
supervision of the Chief Executive Officer, the Executive Vice President and the
Chief Operating Officer only. The Employee shall not, either during or outside
of normal business hours, directly or indirectly, engage in any aspect of the
telecommunications business
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for or on behalf of any entity other than the Company, nor engage in any
activity inimical to the best interests of the Company.
3. Compensation and Related Matters.
a. Base Salary. The Employee shall receive an annual base salary as
follows: (i) during the first year of this Agreement, the Employee shall receive
a salary in the amount of $150,000 (the "Base Salary"); (ii) during the second
year of this Agreement, the Employee shall receive a salary in an amount equal
to the Base Salary plus 10% (the "Adjusted Base Salary), if such Adjusted Base
salary is approved by the Company's Board of Directors; and (iii) during the
third year of this Agreement, the Employee shall receive a salary in an amount
equal to the Adjusted Base Salary plus 10% (the "Second Adjusted Base Salary"),
if such Second Adjusted Base salary is approved by the Company's Board of
Directors. The Employee shall receive the Base Salary, the Adjusted Base Salary
and the Second Adjusted Base Salary during the term of this Agreement in
substantially equal monthly or bi-weekly installments in accordance with the
normal practice of the Company.
b. The Annual Bonus. The Employee shall receive an annual bonus
(the "Bonus") equal to not less than $25,000. The Bonus shall be payable no
later than the 31st day after the end of each year during the term of this
Agreement. The Bonus shall not exceed 100% of the Employee's annual salary as
provided in Section 3(a) above for any year during the term of this Agreement.
c. Stock Options. The Company shall grant the Employee a right to
purchase 45,000 shares of common stock of the Company effective as of the
Execution Date of this Agreement at a price per share of $5.6875.
Unless otherwise agreed, the foregoing options shall vest one
third (1/3) upon execution of the Employment Agreement, one third (1/3) after
twelve (12) months following that date and one third (1/3) after twenty-four
(24) months following that date. In addition, the Employee may receive
additional stock option grants subject to approval of the Board of Directors and
on the terms approved by the Board of Directors.
d. Car Allowance. The Company shall pay the Employee a car
allowance during the term of this Agreement in an amount up to $500 per month to
reimburse the Employee for his automobile expenses, including car/lease
payments, insurance costs and related automobile expenses.
e. Fringe Benefits. During the Term of Employment, the Company
shall provide Employee with individual medical insurance at the Company's
expense, through a major medical/group hospitalization insurance provider
determined by the Company, in its sole and absolute discretion. Additionally,
the Employee shall enjoy the customary benefits afforded to its employees. The
Employee also shall be entitled to participate in employee benefit plans now or
hereafter provided or made available to the Company's employees generally, such
as life insurance, and pension, retirement and stock option plans. Nothing in
this Agreement shall require the Company to establish, maintain or continue any
of the fringe benefits already in existence for employees of the Company and
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<PAGE>
nothing in this Agreement shall restrict the right of the Company to amend,
modify or terminate such fringe benefit programs.
f. Vacations. During the Term of Employment, the Employee shall be
entitled each year to vacations as are customarily taken by the Company's
executive officers. The Company shall not pay the Employee any additional
compensation for any vacation time not used by the Employee.
g. Relocation costs. The Company shall pay the cost of moving the
Employee's household furnishings and personal property and insuring same against
loss from Baltimore, Maryland to Miami, Florida. Such cost shall be approved by
the Company prior to the Employee's incurrence of same. Additionally, the
Company agrees to provide Employee with the use of a furnished apartment in Dade
County, Florida through August 1994. No other relocation costs of any type will
be borne by the Company.
4. Termination.
This Agreement may be terminated prior to the expiration of the term
set forth in Section 1 above as follows:
a. Death. This Agreement shall terminate upon the death of the
Employee, and the Company shall have no further obligation under this Agreement
to make any payments to, or bestow any benefits on, his beneficiary or
beneficiaries from and after the date of the Employee's death, other than
payments or benefits accrued and due and payable to him prior to the date of
death pursuant to this Agreement.
b. Disability. The Company may terminate the Employee's employment
under this Agreement if as a result of his incapacity due to accident or
illness, the Employee shall have been unable to satisfactorily perform his
normal duties under this Agreement for a period of six months. Except as
specifically provided in this Section 4, the Company shall have no further
obligation under this Agreement to make any payments to, or bestow any benefits
on, the Employee from and after the date of the termination.
c. Cause. The Company may terminate the Employee's employment under
this Agreement for Cause at any time. For purposes of this Agreement, the
Company shall have "Cause" to terminate the Employee's employment if he (1)
engages in one or more acts constituting a felony or involving fraud or serious
moral turpitude; (2) refuses (except by reason of incapacity due to accident or
illness) to perform his duties; or (3) engages in misconduct injurious to the
Company. In the event of a termination for Cause, the Company shall have no
further obligation under this Agreement to make any payments to, or bestow any
benefits on, the Employee from and after the date of the termination, other than
payments or benefits accrued and due and payable to him prior to the date of
termination.
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<PAGE>
5. Non-Competition.
a. The Employee hereby covenants and agrees that, except with the
written consent of the Company, the Employee will not, during the Term of
Employment and for one year after the end of the Term of Employment, alone or in
association with others as principal, officer, agent, employee, director or
stockholder of any corporation, partnership, association or other entity, or
through the lending of capital, lending of money or property, or rendering of
services or otherwise, (i) engage in any business all or part of which is, at
the time, competitive with the business then conducted by the Company, directly
or indirectly, in any state in which the Company then operates (ii) solicit or
attempt to solicit any person (natural or otherwise) who had entered into an
agreement with the Company to conduct its business; and (iii) solicit or attempt
to solicit any person employed by the Company to leave their employment or not
fulfill their contractual responsibility, whether or not the employment or
contracting is full-time or temporary, pursuant to a written or oral agreement,
or for a determined period or at will.
6. Company's Right to Injunctive Relief; Attorneys' Fees.
a. The Employee acknowledges that the Employee's services to the
Company are of a unique character which gives them a special value to the
Company, the loss of which cannot reasonably or adequately be compensated in
damages in an action at law, and that a breach of this Agreement will result in
irreparable and continuing harm to the Company, and that therefore, in addition
to any other remedy which the Company may have at law or in equity, the Company
shall be entitled to injunctive relief for a breach of this Agreement by the
Employee. The Employee and the Company agree that the prevailing party in any
action to enforce any breach of any covenant in this Agreement shall be
reimbursed by the other party for all expenses and reasonable attorneys' fees
incurred by that party to enforce this Agreement.
7. Trade Secrets and Confidential Information.
a. The Employee acknowledges that the Company's business depends to
a significant degree upon the possession of information which is not generally
known to others, and that the profitability of the Company's business requires
that this information remain proprietary to the Company.
b. The Employee shall not except as required in the course of
employment by the Company, disclose or use during or subsequent to the Term of
Employment, any confidential information relating to the Company's business of
which Employee becomes aware by reason of being employed by the Company or to
which Employee gains access. Such information includes, but is not limited to,
lists of property owners, data, records, computer programs, manuals, processes,
methods and intangible rights which are either developed by the Employee during
the Term of Employment or to which the Employee has access. All records and
equipment and other materials relating in any
4
<PAGE>
way to any confidential information relating to property owners or to the
Company's business shall be and remain the Company's sole property during and
after the Term of Employment.
c. Upon termination of employment, the Employee shall promptly
return to the Company all materials and all copies of materials involving any
confidential information in the Employee's possession or control. The Employee
agrees to represent to the Company that he has complied with the provisions of
this Section 7 upon termination of employment.
d. The Employee acknowledges that he is not a party to any agreement
which may restrict his employment with the Company.
8. Miscellaneous.
a. The captions in this Agreement are not part of its provisions,
are merely for reference and have no force or effect. If any caption is
inconsistent with any provision of this Agreement, such provision shall govern.
b. This Agreement is made in and shall be governed by and construed
in accordance with the laws of the State of Florida, without giving effect to
conflict of law principles.
c. To the extent that the terms set forth in this Agreement or any
word, phrase, clause or sentence is found to be illegal or unenforceable for any
reason, such word, phrase, clause or sentence shall be modified or deleted in
such manner so as to afford the Company the fullest protection commensurate with
making this Agreement, as modified, legal and enforceable under applicable laws,
and the balance of this Agreement shall not be affected thereby, the balance
being construed as severable and independent.
d. All notices given under this Agreement shall be in writing and
shall be sent by registered or certified mail or delivered by hand and, if
intended for the Company, shall be addressed to it or delivered to it at 2300
N.W 89th Place, Miami, Florida 33172 to the attention of Robert D. Rubin,
Executive Vice President. If intended for the Employee, notices shall be
delivered personally or shall be addressed (if sent by mail) to the Employee's
then current residence address as shown on the Company's records, or to such
other address as the Employee directs in a notice to the Company. All notices
shall be deemed to be given on the date received at the address of the addressee
or, if delivered personally, on the date delivered.
e. As used in this Agreement where appropriate, the masculine shall
include the feminine; where appropriate, the singular shall include the plural
and the plural shall include the singular.
f. This Agreement contains all obligations and understandings
between the parties relating to the subject of this Agreement and merges all
prior discussions, negotiations and
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<PAGE>
agreements, if any, between them, and none of the parties shall be bound by any
conditions, definitions, understandings, warranties or representations other
than as expressly provided or referred to in this Agreement. This Agreement is
intended to cancel and supersede all existing agreements between the Employee
and the Company.
g. This Agreement may be modified only by a written instrument
properly executed by the parties to this Agreement.
h. No waiver by any party to this Agreement, whether expressed or
implied, of its rights under any provision of this Agreement shall constitute a
waiver of the party's rights under the provisions at any other time or a waiver
of the party's rights under any other provision of this Agreement.
i. The Employee and the Company agree that the prevailing party in
any action to enforce any breach of any covenant in this Agreement shall be
reimbursed by the other party for all expenses and reasonable attorneys' fees
incurred by that party to enforce this Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Agreement as of the day and year first above written.
PEOPLES TELEPHONE COMPANY, INC.
By: ____________________________
Robert D. Rubin
Executive Vice President
THE EMPLOYEE
By: ____________________________
Larry Ellman
6
PEOPLES TELEPHONE COMPANY
1987 NON-QUALIFIED STOCK OPTION PLAN
1. Purpose. The purpose of this Non-Qualified Stock Option Plan (the
"Plan") is to further the best interests of PEOPLES TELEPHONE COMPANY and its
subsidiaries (the "Company") by encouraging directors, officers and employees of
the Company to acquire a proprietary stake in the Company and its future growth.
It is the view of the Company that it may achieve this goal by granting stock
options.
2. Option Shares. 150,000 shares of the Common Stock of the Company, par
value $.01 per share (the "Stock"), are hereby reserved for issuance upon the
exercise of the stock options granted under the Plan (the "Options"). The Stock
may be issued pursuant to such Options either from the Company's authorized but
unissued Stock or from the Company's issued but not outstanding Stock (treasury
stock). Should any Options granted hereunder not be exercised in the time
allowed for such exercise, the shares of Stock relating to such lapsed Options
shall be available for issuance pursuant to Options subsequently granted under
the Plan.
3. Administration of this Plan. This Plan shall be administered by a
committee of the Board of Directors of the Company (the "Committee"). The
Committee may exercise any and all of the powers and functions of the Company's
Board of Directors pursuant to this Plan as described herein.
Subject to the provisions of the Plan, the Committee shall have
authority to (i) adopt, amend and rescind its rules, regulations and procedures
as it deems advisable in the administration of the Plan, (ii) construe and
interpret the Plan and (iii) the administration of the Plan. All decisions,
determinations and interpretations of the Committee shall be final, conclusive
and binding on all persons holding an Option granted pursuant to the Plan
("Optionees").
Neither the Committee nor any member thereof shall be liable for any
action or determination take or made in good faith with respect to the Plan or
any Option granted thereunder.
4. Eligibility. All directors, officers and employees of the Company
designated by the Committee shall be eligible to receive Options under the Plan.
5. Grant of Options. In making its selection of those eligible to
receive Options and determining the number of shares to be granted pursuant to
each Option, the Committee may consider any factors that it may, in its sole
discretion, deem relevant. Each grant of an Option pursuant to this Plan shall
be made within ten (10) years from the date of adoption of this Plan by the
Company's Board of Directors (the "Adoption Date"). Each grant of an Option
pursuant to this Plan shall be made upon such terms and conditions as may be
determined by the Committee at the time of grant, subject to the terms,
conditions and limitation set forth in this Plan.
<PAGE>
6. Option Price. The purchase price per share of Stock placed under an
Option pursuant to this Plan (the "Option Price") shall be determined by the
Committee, but in no event may such price be below the fair market value of such
Stock on the business day immediately preceding the date of the grant. The
Committee shall determine or adopt rules to determine such fair market value.
7. Duration of Option. An Option granted hereunder shall be effective
(hereinafter called the "Option Period") upon the date it is granted, and shall
continue until the later of (i) a date set by the Committee at the time of grant
or (ii) ten years after the date of grant. In addition, and in limitation of
the above, the Option Period of any Option shall terminate 30 days after the
termination of the Optionee's employment by the Company for any reason, except
the death or disability of the Optionee. In the event of the termination of
employment due to the death or disability o the Optionee, the Option Period of
the Option held by him upon the date of such termination shall terminate upon
the earlier of (a) six months after the date of the Optionee's death or
termination due to disability, as the case may be, or (b) the date of
termination of such Option determined by the first sentence of this Section. In
the event of termination of an Optionee's employment due to the death of the
Optionee, such Optionee's Options may be exercised during such six month period
by his estate or by the person who acquired the right to exercise such Options
through bequest or inheritance.
8. Nontransferability of Options. No Option granted pursuant to this
Plan may be transferred by any Optionee otherwise than by will or by the laws of
descent and distribution; further, during the lifetime of any Optionee, Options
granted hereunder may be exercised only by such Optionee.
9. Termination of the Plan. This Plan shall terminate upon the close of
business ten (10) years from the Adoption Date unless it shall gave been sooner
terminated by reason of there having been granted and fully exercised Options
covering the entire 150,000 shares of Stock subject to this Plan. Upon such
termination, no further Options may be granted hereunder. If, after termination
of this Plan as provided above, there are outstanding Options which have not
been fully exercised, such Options shall remain in effect in accordance with
their terms and shall remain subject to the terms of this Plan.
10. Exercise of Options. An Option granted pursuant to this Plan shall be
exercisable at any time within the Option Period, subject to the terms and
conditions of such Option. Exercise of any Option shall be made by the
delivery, during the period that such Option shall be made by the delivery,
during the period that such Option is exercisable, to the Company, in person or
by mail, of (i) written notice from the Optionee and (ii) the payment of the
aggregate purchase price of all shares as to which such Option is then exercised
and the payment of any required federal income tax withholding. Such aggregate
purchase price shall be paid to the Company in cash, Stock or any other class of
equity securities of the Company (such Stock and other class of equity
securities of the Company are hereinafter collectively referred to as the
"Company Stock"), or in a combination of cash or Company Stock at the time of
exercise.
There may not, however, be any payment by an Optionee of the exercise
price in
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<PAGE>
whole or in part with shares of Company Stock at a time when the Company is
Insolvent (as hereinafter defined) or when such payment would make the Company
Insolvent, or as such payment may otherwise be prohibited by any applicable
state or Federal statute, rule or regulation, or any rule or regulation of any
stock exchange upon which Company Stock is traded, or if Company Stock is traded
on a recognized stock quotation service, which may be the National Association
of Securities Dealers Automated Quotations System ("NASDAQ"), any rule or
regulation of NASDAQ. For purposes of this Plan, "Insolvent" shall mean the
inability of the Company to pay it debts as they become due in the usual course
of its business. Company Stock utilized in full or partial payment of the
exercise price shall be valued at fair market value on the date of exercise of
the Option. The Committee shall determine or enact rules to determine the fair
market value of any Company Stock.
Notwithstanding anything to the contrary contained herein, no written
notice shall be effective under this Section 10 unless it requests the exercise
of Options for one hundred (100) shares or an integral multiple thereof; except
to the extent necessary to make full exercise of the Options in the event that
only an odd lot remains. Upon the exercise of an Option in compliance with the
provisions of this Section, and upon the receipt by the Company of the payment
for the Stock so taken up, the Company shall (i) deliver or cause to be
delivered to the Optionee so exercising his Option a certificate or certificates
for the number of shares of Stock with respect to which the Option is so
exercised any payment is so made, and (ii( register or cause such shares to be
registered in the name of the exercising Optionee.
The Committee may impose additional conditions upon the right of an
Optionee to exercise an Option granted hereunder if such conditions are not
inconsistent with the terms of this Plan.
Upon exercise of an Option, the Committee may permit the issuance of
Stock prior to its full payment if satisfactory arrangements are made for its
prompt sale and for an escrow or similar arrangement with a financial
institution or brokerage house for payment to the Company of the full purchase
price of the Option.
11. Stock Appreciation Rights.
(a) The Committee, in its discretion, may at the time of exercise of
an Option, in conjunction with all or part of any Option granted under the Plan,
permit an Optionee to exercise the Option in an alternative manner based on the
appreciated value of the common stock subject to the Option (hereinafter
referred to as a "Stock Appreciation Right"); provided, however, that the final
Committee approval is needed in order to exercise a Stock Appreciation Right.
(b) Upon the exercise of a Stock Appreciation Right, an Optionee
shall be entitled to receive, at the option of the Committee, either (i) cash
equal to the "current value of the option" or (ii) the number of shares equal to
the "current value of the option" divided by the fair market value of one share
of stock on the date of exercise over the option price per share specified in
the related option, multiplied by the number of shares with respect to which the
Stock Appreciation Rights are
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being exercised. The fair market value of the stock shall be deemed to be the
closing price of the Company's common stock reported in the Over-the-Counter
market or, in the event no sale of the Company's stock shall have been reported
on that day, the closing price for the Company's stock on the next preceding day
when such stock as determined by the Committee in its discretion. The date of
exercise shall be deemed to be the day the Secretary of the Company receives
written notice to exercise the Option.
(c) The Optionee may express his desire to exercise his Option in the
form of Stock Appreciation Rights by his delivering written notice of exercise
to the Secretary of the Company stating such desire. Upon the Secretary's
receipt of the notice of exercise, the Committee shall have thirty (30) days to
mail to the Optionee its written approval or disapproval of the exercise of the
Stock Appreciation Right. The Committee's decision to approve or disapprove the
exercise shall be final and binding upon all concerned. In the event the
Committee's written decision on the exercise if not mailed to the Optionee
within thirty (30) days after delivery to the Secretary of the notice of
exercise, the Optionee shall be entitled to receive the number of shares
determined pursuant to Section 11(b) hereof. In the event the Committee
disapproves the exercise of the Stock Appreciation Right, the Optionee shall
have all rights pursuant to this Plan with respect to the exercisable shares as
if the Optionee had not exercised the Stock Appreciation Right.
In the event the term of the Option has lapsed during the Committee's
thirty (30) day review period described in this Section 11(c) and the Committee
disapproves the exercise of the Stock Appreciation Right, the Optionee shall be
entitled to an additional thirty (30) day period, beginning from the date he
receives notice of the Committee's disapproval, within which to purchase the
shares related to the disapproved Stock Appreciation Right by paying the Option
Price of such shares to the Company; provided, however, the thirty (30) day
period shall not extend beyond the period specified in Section 7 hereof.
(d) Upon the exercise and Committee approval of Stock Appreciation
Rights, the Option or part thereof to which such Stock Appreciation Rights is
related shall be deemed to have been exercised for the purpose of the limitation
of the number of shares of common stock to be issued under the Plan as set forth
in Section 2 hereof and for purposes of the limitation of the number of shares
of common stock to be issued under the Plan as set forth in Section 2 hereof and
for purposes of the limitation of the number of shares of common stock to be
issued pursuant to that Option.
12. Controlling Terms. Options granted pursuant hereto may include
conditions that are more (but not less) restrictive to the Optionee than the
conditions contained herein and, in such event, the more restrictive conditions
shall apply.
13. Purchase of Stock for Investment. Unless the Options and shares
covered by the Plan have been registered under the Securities Act 1933, as
amended (the "Securities Act"), pursuant to a registration statement filed with
the Securities and Exchange Commission and any other applicable regulatory
agency, or the Company has determined that such registration is unnecessary,
each Optionee exercising an Option under the Plan may be required by the Company
(i) to give a
4
<PAGE>
representation in writing that such shares are being acquired for the Optionee's
own account and not for the account or beneficial interest of any other person
or entity, and that such shares of Stock shall be acquired for the Optionee's
own investment and not with a view to or for resale in connection with the
distribution of al or any part thereof; (ii) to represent and acknowledge that
he is a sophisticated investor by virtue of his education, learning and other
investments and that he is knowledgeable and experienced in business and
financial matters and with respect to the business of the Company, in
particular; (iii) to represent and acknowledge that he has been furnished or has
otherwise obtained all information necessary to enable him to evaluate the
merits and risks of an investment in the shares of Stock and that he has had
access to any and all information he desires to enable him to evaluate the risks
and merits of an investment in the shares of Stock; and (iv) to covenant and
agree to restrictions governing the time and circumstances of disposition of the
shares of Stock being acquired by such exercise. In the event that the Company
requires any such representation or covenant, any shares of Stock so acquired
will bear an appropriate legend to signify the restrictions on such shares under
the applicable securities laws and that "stop-transfer" instructions will be
given to eh Company's registrar and transfer agent. To the extent necessary to
comply with the securities laws, regulations or orders of the Untied States or
any state, the Committee may, as a condition precedent to the exercise of an
Option, require the Optionee (or the legal representatives, legatees or
distributees, in the event of the Optionee's death or disability) to covenant
and agree to any other restrictions which the Committee believes to be necessary
or advisable to comply with any such laws, regulations or orders, including but
not limited to restrictions governing the time and circumstances of disposition
of the shares being acquired by exercise of such Option.
14. Requirements of Law. If any law, regulation or order of the Untied
States Securities and Exchange Commission, or of any other commission or agency
having jurisdiction, shall require the Company or the exercising Optionee to
take any action with respect to the shares of Stock acquired by the exercise of
an Option, then the date upon which the Company shall deliver or cause to be
delivered the certificate or certificates for the shares of Stock shall be
postponed until full compliance has been made with all such requirements of law
or regulation. Further, in the event that the Company shall determine that, in
compliance with the Securities Act or any other applicable statute or
regulation, it is necessary to register any of the shares of Stock with respect
to which an exercise of an Option has been made, or to qualify any such shares
for exemption from any of the requirements of the Securities Act or such other
applicable statute or regulations, then the Company shall take such action at
its own expense, but not until such an action has been completed shall the
Option shares be delivered to the exercising Optionee. Further, in the event
that the time of exercise of the Option the shares of Stock shall be listed on
any stock exchange, then if required by law or the exchange to do so, the
Company shall register the Option shares of Stock with respect to which exercise
is so made in accordance with the provisions of the Securities Act, any other
applicable law or regulation or any rules or regulations of any such exchange,
and the Company shall make prompt application for the listing of Option shares
on such exchange at the expense of the Company.
5
<PAGE>
15. No Exchange Act Registration Obligation. Notwithstanding any other
provision contained herein, the Company shall have no obligation to be
registered under the Securities and Exchange Act of 1934 (the "Exchange Act"),
to continue any such registration or to be current in this reporting obligations
under the Exchange Act.
16. No Rights Conferred upon Granting of Options. The Optionee shall not
have any rights as a shareholder of the Company with respect to any shares of
Stock prior to the date of issuance to the Optionee of the certificate or
certificates for such shares. Neither the Plan nor the Option confer on the
Optionee any right to be employed by the Company.
17. Adjustments. In the event of any reorganization, merger,
consolidation, acquisition, separation, recapitalization, split-up, combination,
exchange of shares or stock dividend of the Stock or shares convertible into the
Stock or similar corporate action, the number and class of shares of Stock
available pursuant to this Plan and any Options granted pursuant to this Plan,
together with the Option Prices, shall be adjusted by appropriate modifications
in this Plan and in any Options outstanding pursuant to this Plan. Any such
adjustment to the Plan or to Options or Option Prices shall be made by notice of
the Company's Board of Directors, whose determination shall be conclusive.
18. Amendment or Discontinuance of this Plan. The Company's Board of
Directors may amend, suspend or discontinue that Plan at any time without
restriction; provided, however, that such Board may not alter or amend or
discontinue or revoke or otherwise impair any outstanding Options that have been
granted pursuant tot this Plan and remain unexercised, except as provided in
Section 16 above, or except in the event that there is secured the written
consent of the holder of the outstanding Option proposed to be so altered or
amended. Nothing contained in this Section, however, shall in any way extend
the Option Period of any outstanding Option by an amendment, suspension or
discontinuance of the Plan.
In addition, notwithstanding any other provision in the Plan, in the
event of a change in any Federal or state law or regulation which would make the
exercise of all or part of an existing Option unlawful or subject the Company to
a penalty, the Company's Board of Directors may restrict such exercise without
the consent of the Optionee or other holder thereof in order to comply with such
law or regulation or to avoid such penalty.
19. Liquidation of the Company. In the event of the complete liquidation
or dissolution of the Company, other than as an incident to a merger,
reorganization or other adjustment referred to in Section 16 above, any Options
granted pursuant to this Plan and remaining unexercised shall be deemed
cancelled without regard to or without being limited by any other provisions of
this Plan.
20. Unsecured Obligation. Optionees shall not have any interest in any
fund or special asset of the Company by reason of the Plan. No trust fund shall
be created in connection with the Plan or any award thereunder, and there shall
be no required funding of amounts which may become payable to any Optionee.
6
<PAGE>
21. Governing Law. The Plan shall be governed by, construed and enforced
in accordance with the laws of the State of Florida.
22. Compliance with Rule 16b-3. It is the intent of the Committee that
all Options granted hereunder comply with the applicable provision of Rule 16b-3
of the Securities and Exchange Commission as presently in effect and as amended
from time to time. Therefore, this Plan may be amended in any manner deemed by
the Committee necessary or desirable to meet any provision or condition of Rule
16-3. Additionally, the Committee shall grant all Options in such a manner as
to comply with the applicable requirements of Rule 16b-3.
23. Approval. This Plan shall be adopted by the Company's Board of
Directors and approved by a majority of the shareholders of the Company.
7
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
1987 NON-QUALIFIED STOCK OPTION PLAN
FIRST AMENDMENT TO PLAN
The Peoples Telephone Company, Inc. 1987 Non-Qualified Stock Option Plan
(the "Plan") is hereby amended as follows:
1. The first sentence of Section 2 of the Plan is amended to read:
"350,000 shares of the Common Stock of the Company, par value
$.01 per share (the "Stock"), are hereby reserved for issuance upon
the exercise of stock options granted under the Plan (the "Options")."
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
1987 NON-QUALIFIED STOCK OPTION PLAN
SECOND AMENDMENT TO PLAN
The Peoples Telephone Company, Inc. 1987 Non-Qualified Stock Option Plan
(the "Plan") is hereby amended as follows:
1. The first sentence of Section 2 of the Plan is amended to read:
"700,000 shares of the Common Stock of the Company, par value
$.01 per share (the "Stock"), are hereby reserved for issuance upon
the exercise of stock options granted under the Plan (the "Options")."
<PAGE>
PROPOSED
PEOPLES TELEPHONE COMPANY, INC.
1987 NON-QUALIFIED STOCK OPTION PLAN
THIRD AMENDMENT TO PLAN
The Peoples Telephone Company, Inc. 1987 Non-Qualified Stock Option Plan
(the "Plan") is hereby amended as follows:
1. The first sentence of Section 2 of the Plan is amended to read:
"1,200,000 shares of the Common Stock of the Company, par value
$.01 per share (the "Stock"), are hereby reserved for issuance upon
the exercise of stock options granted under the Plan (the "Options")."
<PAGE>
PROPOSED
PEOPLES TELEPHONE COMPANY, INC.
1987 NON-QUALIFIED STOCK OPTION PLAN
FOURTH AMENDMENT TO PLAN
The Peoples Telephone Company, Inc. 1987 Non-Qualified Stock Option Plan
(the "Plan") is hereby proposed as follows:
1. The first sentence of Section 2 of the Plan is proposed to read:
"1,400,000 shares of the Common Stock of the Company, par value
$.01 per share (the "Stock"), are hereby reserved for issuance upon
the exercise of stock options granted under the Plan (the "Options")."
PEOPLES TELEPHONE COMPANY
1987 NON-QUALIFIED STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The purpose of this Non-Qualified Stock Option Plan for Non-
Employee Directors (the "Plan") is to improve the ability of PEOPLES TELEPHONE
COMPANY (the "Company") to attract and retain highly-qualified non-employee
directors by encouraging such directors of the Company to acquire a proprietary
stake in the Company and its future growth. It is the view of the Company that
is may achieve its goal by granting stock options under the Plan.
2. OPTION SHARES. 75,000 shares of the Common Stock of the Company, par value
$.01 per share (the "Stock"), are hereby reserved for issuance upon the exercise
of the stock options granted under the Plan (the "Options"). The Stock may be
issued pursuant to such options either from the Company's authorized but
unissued Stock or from the Company's issued but not outstanding Stock (treasury
stock). Should any Options granted hereunder not be exercised in the time
allowed for such exercise, the shares of Stock relating to such lapsed Options
shall be available for issuance pursuant to Options subsequently granted under
the Plan.
3. ADMINISTRATION OF THIS PLAN. This Plan shall be administered by a
committee of three employees of the Company, none of whom are eligible for the
grant of options under the Plan (the"Committee").
Subject to the provisions of the Plan, the Committee shall have authority
to (i) adopt, amend and rescind the rules, regulations and procedures as it
deems advisable in the administration of the Plan, (ii) construe and interpret
the Plan and (iii) make all other determinations deemed necessary or advisable
for the administration of the Plan. All decisions, determinations and
interpretations of the Committee shall be final, conclusive and binding on all
persons holding an Option granted pursuant to the Plan ("Optionees").
Neither the Committee nor any member thereof shall be liable for any action
or determination taken or made in good faith with respect to the Plan or any
Option granted thereunder.
4. ELIGIBILITY. All non-employee directors of the Company designated by the
Committee shall be eligible to receive Options under the Plan.
5. GRANT OF OPTIONS. In making its selection of those eligible to receive
Options and determining the number of shares to be granted pursuant to each
Option, the Committee may consider any factors that it may, in its sole
discretion, deem relevant. Each grant of an Option pursuant to this Plan shall
be made within ten (10) years from the date of adoption of this Plan by the
Company's Board of Directors (the "Adoption Date"). Each grant shall be made
upon such terms and conditions as may determined by the Committee at the time of
grant, subject to the terms, conditions and limitations set forth in this Plan.
<PAGE>
6. OPTION PRICE. The purchase price per share of Stock placed under an
Option pursuant to this Plan (the "Option Price") shall be determined by the
Committee, but in no event may such price be below the fair market value of such
Stock on the business day immediately preceding the date of the grant. The
Committee shall determine or adopt rules to determine such fair market value.
7. DURATION OF OPTION. An Option granted hereunder shall be effective
(hereinafter called the "Option Period") upon the date it is granted, and shall
continue until the later of (i) a date set by the Committee at the time of grant
or (ii) ten years after the date of the grant. In addition, and in limitation
of the above, the Option Period of any Option shall terminate 30 days after the
Optionee voluntarily resigns as a director of the Company.
8. NONTRANSFERABILITY OF OPTIONS. No Option granted pursuant to this Plan
may be transferred by any Optionee otherwise than by will or by the laws of
descent and distribution; further, during the lifetime of the Optionee, options
granted hereunder may be exercised only by such Optionee.
9. TERMINATION OF THE PLAN. This Plan shall terminate upon the close of
business the (10) years from the Adoption Date unless it shall have been sooner
terminated by reason of there having been granted and fully exercised Options
covering the entire 75,000 shares of Stock subject to this Plan. Upon such
termination, no further Options may be granted hereunder. If, after termination
of this Plan as provided above, there are outstanding Options which have not
been fully exercised, such Options shall remain in effect in accordance with
their terms and shall remain subject to the terms of this Plan.
10. EXERCISE OF OPTIONS. An Option granted pursuant to this Plan shall be
exercisable at any time within the Option Period, subject to the terms and
conditions of such Option. Exercise of any Option shall be made by the
delivery' during the period that such Option is exercisable, to the Company, in
person or by mail, of (i) written notice from the Optionee stating that the
Optionee is exercising such Option and (ii) the payment of the aggregate
purchase price of all shares as to which such Option is then exercised and the
payment of any required federal income tax withholding. Such aggregate purchase
price shall be paid to the Company in cash, Stock or any other class of equity
securities of the Company (such Stock and other class of equity securities are
hereinafter collectively referred to as the "Company Stock")' or in a
combination of cash or Company Stock at the time of exercise.
There may not, however, be any payment by an Optionee of the exercise price
in whole or in part with shares of Company Stock at a time when the Company is
Insolvent (as hereafter defined) or when such payment would make the Company
Insolvent, or as such payment may otherwise be prohibited by any applicable
state or Federal statute, rule or regulation, or any rule or regulation of any
stock exchange upon which Company Stock is traded, or if Company Stock is traded
on a recognized stock quotation service, which may be the National Association
of Securities Dealers Automated Quotations System ("NASDAQ"), any rule or
regulation of NASDAQ. For the purposes of this Plan, "Insolvent" shall mean the
inability of the Company to pay its debts as they become due in the usual course
of its business. Company Stock utilized in full or partial payment of the
exercise
2
<PAGE>
price shall be valued at the fair market value on the date of exercise of the
Option. The Committee shall determine or enact rules to determine the fair
market value of any Company Stock.
Notwithstanding anything to the contrary contained herein, no written
notice shall be effective under this Section 10 unless it requests the exercise
of Options for one hundred (100) shares or an integral multiple thereof; except
to the extent necessary to make full exercise of the Options in the event that
only an odd lot remains. Upon the exercise of an Option in compliance with the
provisions of this Section, and upon receipt by the Company of the payment for
the Stock so taken up, the Company shall (i) deliver or cause to be delivered to
the Optionee so exercising the Option a certificate or certificates for the
number of shares of Stock with respect to which the Option is so exercised and
payment is so made, and (ii) register or cause such shares to be registered in
the name of the exercising Optionee.
The Committee may impose additional conditions upon the right of an
Optionee to exercise an Option granted hereunder if such conditions are not
inconsistent with the terms of this Plan.
Upon exercise of an Option, the Committee may permit the issuance of Stock
prior to its full payment if satisfactory arrangements are made for its prompt
sale and for an escrow or similar arrangement with a financial institution or
brokerage house for payment to the Company of the full purchase price of the
Option.
11. STOCK APPRECIATION RIGHTS.
(a) The Committee, in its discretion, may at the time of exercise of an
Option, in conjunction with all or part of any Option granted under the Plan,
permit an Optionee to exercise the Option in an alternative manner based on the
appreciated value of common stock subject to the Option (hereinafter referred to
as a "Stock Appreciation Right"); provided, however, that the final Committee
approval is needed in order to exercise a Stock Appreciation Right.
(b) Upon the exercise of a Stock Appreciation Right, an Optionee shall be
entitled to receive, at the option of the Committee, either (i) cash equal to
the "current value of the option" or (ii) the number of shares equal to the
"current value of the option" divided by the fair market value of one share of
stock on the date of exercise. The 'current value of the option" shall be equal
to the excess of the fair market value of one share of common stock on the date
of exercise over the option price per share specified in the relation option,
multiplied by the number of shares with respect to which the Stock Appreciation
Rights are being exercised. The fair market value of the stock shall be deemed
to be the closing price of the Company's common stock reported in the Over-the-
Counter market or, in the event no sale of the Company's stock shall have been
reported on that day, the closing price fro the Company's stock on the next
preceding day when such price was reported, or, if the Company's stock is not
actively traded on an organized market, the fair market value of such stock as
determined by the Committee in its discretion. The date of exercise shall be
deemed to be the day the Secretary of the Company receives written notice to
exercise the Option.
3
<PAGE>
(c) The Optionee may express his desire to exercise his Option in the form
of Stock Appreciation Rights by his delivering written notice of exercise to the
Secretary of the Company stating such desire. Upon the Secretary's receipt of
the notice of exercise, the Committee shall have thirty (30) days to mail the
Optionee its written approval or disapproval of the exercise of the Stock
Appreciation Right. The Committee's decision to approve or disapprove the
exercise shall be binding upon all concerned. In the event the Committee's
written decision on the exercise is not mailed to the Optionee within thirty
(30) days after delivery to the Secretary of the notice exercise, the Optionee
shall be entitled to receive the number of shares determined pursuant to Section
11(b) hereof. In the event the Committee disapproves the exercise of the Stock
Appreciation Right, the Optionee shall have all rights pursuant to this Plan
with respect to the exercisable shares as if the Optionee had not exercised the
Stock Appreciation Right.
In the event the term of the Option has lapsed during the Committee's
thirty (30) day review period describe in this Section 11(c) and the Committee
disapproves the exercise of the Stock Appreciation Right, the Optionee shall be
entitled to an additional thirty (30) day period, beginning fro the date he
receives notice of the Committee's disapproval, within which to purchase the
shares related to the disapproved Stock Appreciation Right by paying the Option
Price of such shares to the Company; provided, however, the thirty (30) day
period shall no extend beyond the period specified in Section 7 hereof.
(d) Upon the exercise and Committee approval of Stock Appreciation Rights,
the Option or part thereof to which such Stock Appreciation Rights is related
shall be deemed to have been exercised for the purpose of the limitation of the
number of shares of common stock to be issued under the Plan as set forth in
Section 2 hereof and for purposes of the limitation of the number of shares of
common stock to be issued pursuant to that Option.
12. CONTROLLING TERMS. Options granted pursuant hereto may include
conditions that are more (but not less) restrictive to the Optionee than the
conditions contained herein and, in such event, the more restrictive conditions
shall apply.
13. PURCHASE OF STOCK FOR INVESTMENT. Unless the Options and shared
covered by the Plan have been registered under the Securities as of 1933, as
amended (the "Securities Act"), pursuant to a registration statement filed with
the Securities and Exchange Commission and any other applicable regulatory
agency, or the Company has determined that such registration is unnecessary,
each Optionee exercising an Option under the Plan may be required by the Company
(i) to give a representation in writing that such shares are being acquired for
the Optionee's own account and not for the account or beneficial interest of any
other person or entity, and that such shares of Stock shall be acquired for the
Optionee's own investment and not with a view to or resale in connection with
the distribution of all or any part thereof; (ii) to represent and acknowledge
that he is a sophisticated investor by virtue of his education, learning and
other investments and that he is knowledgeable and experienced in business and
financial matters and with respect to the business of the Company; in
particular; (iii) to represent and acknowledge that he has been furnished or has
otherwise obtained all information necessary to enable him to evaluate the
merits and risks of an investment in the shares
4
<PAGE>
of Stock and that he has had access to any and all information he desires to
enable him to evaluate the risks and merits of and investment in the shares of
Stock; and (iv) to covenant and agree to restrictions governing the time and
circumstances of disposition of the shares of Stock being acquired by such
exercise. In the event that the Company requires any such representation or
covenant, any shares of Stock so acquired will bear an appropriate legend to
signify the restrictions on such shares under the applicable securities laws and
that "stop-transfer" instructions will be given to the Company's registrar and
transfer agent. To the extent necessary to comply with the securities laws,
regulations or orders of the United States or any state, the Committee may, as a
condition precedent to the exercise of an Option, require the Optionee (or the
legal representatives, legatees or distributees, in the event of the Optionee's
death or disability) to covenant and agree to any other restrictions which the
Committee believes to be necessary or advisable to comply with such laws,
regulations or orders, including but not limited to restrictions governing the
time and circumstances of disposition of the shares being acquired by exercise
of such Option.
14. REQUIREMENTS OF LAW. If any law, regulation or order of the United
States Securities and Exchange Commission, or if any other commission or agency
having jurisdiction, shall require the Company or the exercising Optionee to
take any action with respect to the shares of Stock acquired by the exercise of
an Option, then the date upon which the Company shall deliver or cause to be
deliver the certificate or certificates for the shares of Stock shall be
postponed until full compliance has been made with all such requirements of law
or regulation. Further, in the event that the Company shall determine that, in
compliance with the Securities Act or any other applicable statute or
regulation, it is necessary to register any of the shares of Stock with respect
to which an exercise of an Option has been made, or to qualify any such shares
for any exemption from any of the requirements of the Securities Act or such
other applicable statue or regulations, then the Company shall take such action
at its own expense, but not until such an action has been completed shall the
Option shares be delivered to the exercising Optionee. Further, in the event
that at the time of exercise of the Option the shares of Stock shall be listed
on any stock exchange, then if required by law or the exchange to do so, the
Company shall register the Option shares of Stock with respect to which exercise
is so made in accordance with the provisions of the Securities Act, any other
applicable law or regulation or any rules or regulations of any such exchange,
and the Company shall make prompt application for the listing of Option shares
on such exchange at the expense of the Company.
15. NO EXCHANGE ACT REGISTRATION OBLIGATION. Notwithstanding any other
provision contained herein, the Company shall have no obligation to be
registered under the Securities and Exchange Act of 1934 (the "Exchange Act"),to
continue any such registration or to be current in its reporting obligations
under the Exchange Act.
16. NO RIGHTS CONFERRED UPON GRANTING OF OPTIONS. The Optionee shall
not have any rights as a shareholder of the Company with respect to any shares
of Stock prior to the date of issuance to the Optionee of the certificate or
certificates for such shares. Neither the Plan nor the Option confer on the
Optionee any right to be employed by the Company.
5
<PAGE>
17. ADJUSTMENTS. In the event of any reorganization, merger,
consolidation, acquisition, separation, recapitalization, split-up, combination,
exchange of shares or stock dividend of the Stock or shares convertible into the
Stock or similar corporate action, the number and class of shares of Stock
available pursuant to this Plan and any Options granted pursuant to this Plan,
together with the Option Prices, shall be adjusted by appropriate modifications
in this Plan and in any Options outstanding pursuant to this Plan. Any such
adjustment to the Plan or to Options or Options Prices shall be made by notice
of the Company's Board of Directors, whose determination shall be conclusive.
18. AMENDMENT OR DISCONTINUANCE OF THIS PLAN. The Company's Board of
Directors may amend, suspend or discontinue this Plan at any time without
restriction; provided, however, that such Board may not alter or amend or
discontinue or revoke or otherwise impair any outstanding Options that have been
granted pursuant to this Plan and remain unexercised, except as provided in
Section 16 above, or except in the event that there is secured the written
consent of the holder of the outstanding Option proposed to be so altered or
amended. Nothing contained in this Section, however, shall in any way extend
the Option Period of any outstanding Option by an amendment, suspension or
discontinuance of the Plan.
In addition, notwithstanding any other provision in the Plan, in the event
of a change in any Federal or state law or regulation which would make the
exercise of all or part of an existing Option unlawful or subject the Company to
a penalty, the Company's Board of Directors may restrict such exercise without
the consent of the Optionee or other holder thereof in order to comply with such
law or regulation or to avoid such penalty.
19. LIQUIDATION OF THE COMPANY. In the event of the complete liquidation
or dissolution of the Company, other than as an incident to a merger,
reorganization or other adjustment referred to in Section 16 above, any Options
granted pursuant to this Plan and remaining unexercised shall be deemed
cancelled without regard to or without being limited by any other provisions of
this Plan.
20. UNSECURED OBLIGATION. Optionees shall no have any interest in any
fund or special asset of the Company by reason of the Plan. No trust fund shall
be created in connection with the Plan or any award thereunder, and there shall
be no required funding of amounts which may become payable to any Optionee.
21. GOVERNING LAW. The Plan shall be governed by, construed and
enforced in accordance with the laws of the State of Florida.
22. COMPLIANCE WITH RULE 16B-3. It is the intent of the Committee that
all Options granted hereunder comply with the applicable provisions of Rule
16b-3 of the Securities and Exchange Commission as presently in effect and as
amended from time to time. Therefore, this Plan may be amended in any manner
deemed by the Committee necessary or desirable to meet any provision or
condition of Rule 16b-3. Additionally, the Committee shall grant all Options in
such a
6
<PAGE>
manner as to comply with the applicable requirements of Rule 16b-3.
23. APPROVAL. This Plan shall be adopted by the Company's Board of
Directors and approved by a majority of the shareholders of the Company.
7
EXHIBIT 11.1
PEOPLES TELEPHONE COMPANY, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE (RESTATED)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1994
------- -------
<S> <C> <C>
Loss from continuing operations....................................................... $ (361) $(1,009)
Loss from discontinued operations..................................................... -- (1,048)
Extraordinary loss from extinguishment of debt, net................................... (2,894) --
------- -------
Net loss.............................................................................. $(3,255) $(2,057)
------- -------
------- -------
Number of shares:
Weighted average shares used in the per share computation............................. 15,829 15,611
------- -------
------- -------
Earnings per common and common equivalent share:
Loss from continuing operations....................................................... $ (.02) $ (.06)
Loss from discontinued operations..................................................... -- (.07)
Extraordinary loss from extinguishment of debt, net................................... (.18) --
------- -------
Net loss.............................................................................. $ (.20) $ (.13)
------- -------
------- -------
</TABLE>
EXHIBIT 12.1
PEOPLES TELEPHONE COMPANY, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
FOR THE YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------- ----------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
--------------------------------------------- --------- ---------------- ---------
1990 1991 1992 1993 1994 1994(1) 1994 1995 1995(1)
------ ------ ------ ------- -------- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense (gross)......... $1,978 $2,533 $2,923 $ 3,433 $ 8,197 $ 13,548 $ 1,525 $2,169 $ 2,961
Amortization of debt expenses.... 97 200 199 208 848 521 170 -- 139
Portion of rent expense
representative of the
interest factor................ 126 158 169 139 195 195 47 56 56
------ ------ ------ ------- -------- --------- ------- ------ ---------
Total fixed charges............ $2,201 $2,891 $3,291 $ 3,780 $ 9,240 $ 14,264 $ 1,742 $2,225 $ 3,156
Earnings:
Net (loss) income from continuing
operations before taxes........ $ 588 $3,122 $4,919 $ 6,865 $(12,362) $ (14,990) $(1,474) $ (577) $ (1,197)
Plus: fixed charges.............. 2,201 2,891 3,291 3,780 9,240 14,264 1,742 2,225 3,156
------ ------ ------ ------- -------- --------- ------- ------ ---------
Earnings....................... $2,789 $6,013 $8,210 $10,645 $ (3,122) $ (726) $ 268 $1,648 $ 1,959
Ratio of earnings to fixed charges 1.3x 2.1x 2.5x 2.8x -- (2) -- (3) -- (4) -- (5) -- (6)
<FN>
- ------------------------
(1) Interest expense has been adjusted for the year ended December 31, 1994 and
the quarter ended March 31, 1995, on a pro forma basis, to reflect the
Refinancing.
(2) For the year 1994, earnings were not sufficient to cover fixed charges by
approximately $12,362.
(3) On a pro forma basis 1994 earnings were not sufficient to cover fixed
charges by approximately $14,990.
(4) For the quarter ended March 31, 1994, earnings were not sufficient to cover
fixed charges by approximately $1,474.
(5) For the quarter ended March 31, 1995, earnings were not sufficient to cover
fixed charges by approximately $577.
(6) On a pro forma basis earnings for the quarter ended March 31, 1995 were not
sufficient to cover fixed charges by approximately $1,197.
</FN>
</TABLE>
EXHIBIT 21.1
PEOPLES TELEPHONE COMPANY, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- ---- -------------
<S> <C>
Campus Telephone Services, Inc. (DBA Telink, Inc.)............................................ Texas
PTC Cellular, Inc............................................................................. Delaware
Silverado Communications, Inc................................................................. Colorado
Southwest Inmate Pay Telephone Systems, Inc................................................... Texas
PTC Global Link, Inc.......................................................................... Florida
Global Access, Ltd............................................................................ Delaware
Telink, Inc................................................................................... Texas
Telink Telephone System, Inc.................................................................. Georgia
Peoples Acquisition Corporation............................................................... Pennsylvania
Peoples Telephone Company, Inc. (New Hampshire)............................................... New Hampshire
PTC Security Systems, Inc..................................................................... Florida
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Peoples Telephone Company, Inc. of our
report dated March 28, 1995, except as to the second paragraph of Note 17 and as
to Note 18, which are as of May 31, 1995, relating to the financial statements
of Peoples Telephone Company, Inc., which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended December 31, 1994 listed under Item 21(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also include this schedule. We also consent to the references to us under
the headings "Independent Certified Public Accountants" and "Selected Financial
Information" in such Prospectus. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Financial
Information."
/s/ PRICE WATERHOUSE LLP
Miami, Florida
July 26, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(Exact name of Trustee as specified in its charter)
TWO FIRST UNION CENTER
CHARLOTTE, NORTH CAROLINA 28288-1179 56-0900030
(Address of principal executive office) (Zip Code) (I.R.S. Employer
Identification No.)
PEOPLES TELEPHONE COMPANY, INC.
(Exact name of obligor as specified in its charter)
New York 13-2626435
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
2300 N W 89 Place
Miami, FL 33172
(Address of principal executive offices) (Zip Code)
12.25% SENIOR NOTES DUE JULY 15, 2002
(Title of the indenture securities)
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining
or supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee. (See
Note 2 on Page 5)
3. Voting Securities of the Trustee.
The following information is furnished as to each
class of voting securities of the Trustee:
As of June 30, 1995
_______________________________________________________________________________
Column A Column B
_______________________________________________________________________________
Title of Class Amount Outstanding
_______________________________________________________________________________
Common Stock, par value $3.33-1/3 a share 171,837,122 shares
4. Trusteeships under other indentures.
First Union National Bank of North Carolina is Trustee under
Indenture dated July 15, 1995 between Peoples Telephone
Company, Inc., and First Union National Bank of North
Carolina for the 12.25% Senior Notes due 2002.
5. Interlocking directorates and similar relationships with the obligor
or underwriters.
Neither the Trustee nor any of the directors or executive
officers of the Trustee is a director, officer, partner, employee,
appointee or representative of the obligor or of any underwriter for
the obligor.
(See Note 2 on Page 5)
2
<PAGE>
6. Voting securities of the Trustee owned by the obligor or its officials.
Voting securities of the Trustee owned by the obligor and its
directors, partners, executive officers, taken as a group, do not
exceed one percent of the outstanding voting securities of the Trustee.
(See Notes 1 and 2 on Page 5)
7. Voting securities of the Trustee owned by underwriters or their
officials.
Voting securities of the Trustee owned by any underwriter and
its directors, partners, and executive officers, taken as a group, do
not exceed one percent of the outstanding voting securities of the
Trustee.
(See Note 2 on Page 5)
8. Securities of the obligor owned or held by the Trustee.
The amount of securities of the obligor which the Trustee owns
beneficially or holds as collateral security for obligations in default
does not exceed one percent of the outstanding securities of the
obligor.
(See Note 2 on Page 5)
9. Securities of underwriters owned or held by the Trustee.
The Trustee does not own beneficially or hold as collateral
security for obligations in default any securities of an underwriter
for the obligor.
(See Note 2 on Page 5)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
The Trustee does not own beneficially or hold as collateral
security for obligations in default voting securities of a person, who,
to the knowledge of the Trustee (1) holds 10% or more of the voting
securities of the obligor or (2) is an affiliate, other than a
subsidiary, of the obligor.
(See Note 2 on Page 5)
11. Ownership of holders by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
The Trustee does not own beneficially or hold as collateral
security for obligations in default any securities of a person who, to
the knowledge of Trustee, owns 50 percent or more of the voting
securities of the obligor. (See Note 2 on Page 5)
3
<PAGE>
12. Indebtedness of the obligor to the Trustee.
The obligor is not indebted to the Trustee.
13. Defaults by the obligor.
Not applicable.
14. Affiliations with the underwriters.
No underwriter is an affiliate of the Trustee.
15. Foreign trustee.
Not applicable.
16. List of Exhibits.
(1) Articles of Association of the Trustee as now in effect.
Incorporated to Exhibit (1) filed with Form T-1
Statement included in Registration Statement No. 33-45946.
(2) Certificate of Authority of the Trustee to commence business.
Incorporated by reference to Exhibit (2) filed with Form T-1
Statement included in Registration Statement No. 33-45946.
(3) Authorization of the Trustee to exercise corporate trust
powers, if such authorization is not contained in the
documents specified in exhibits (1) and (2) above.
(4) By-Laws of the Trustee. Incorporated by reference to
Exhibit (4) filed with Form T-1 Statement included in
Registration Statement No. 33-45946.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939. Included at Page 6 of this
Form T-1 Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
4
<PAGE>
-----------------------------
NOTES
-----------------------------
1. Since the Trustee is a member of First Union Corporation, a bank holding
company, all of the voting securities of the Trustee are held by First Union
Corporation. The securities of First Union Corporation are described in Item 3.
2. Inasmuch as this Form T-1 is filed prior to the ascertainment by the
Trustee of all facts on which to base responsive answers to Items 2, 5, 6, 7, 8,
9, 10 and 11, the answers to said Items are based on incomplete information.
Items 2, 5, 6, 7, 8, 9, 10 and 11 may, however be considered as correct unless
amended by an amendment to this Form T-1.
5
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility and qualification to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of Charlotte, and State of North Carolina on the 26th day of July, 1995.
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(Trustee)
BY: /s/ EDMUND M. WIENER
----------------------
Edmund M. Wiener, Trust Officer
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in connection
with the proposed issuance by Peoples Telephone Company, Inc. 12.25%
Senior Notes due July 15, 2002, First Union National Bank of North Carolina, as
the Trustee herein named, hereby consents that reports of examinations of said
Trustee by Federal, State, Territorial or District authorities may be furnished
by such authorities to the Securities and Exchange Commission upon requests
therefor.
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
BY: /s/ DANIEL J. OBER
----------------------
Daniel J. Ober, Vice President
Dated: JULY 26, 1995
6
PEOPLES TELEPHONE COMPANY, INC.
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
12 1/4% SENIOR NOTES DUE 2002
OF
PEOPLES TELEPHONE COMPANY, INC.
PURSUANT TO THE PROSPECTUS DATED JULY , 1995
PEOPLES TELEPHONE COMPANY, INC. WILL ACCEPT ALL OLD NOTES (AS HEREINAFTER
DEFINED) TENDERED AND NOT WITHDRAWN PRIOR TO 4:00 P.M., NEW YORK CITY TIME,
ON AUGUST , 1995, UNLESS EXTENDED (THE 'EXPIRATION DATE'). TENDERS MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 4:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<TABLE>
<CAPTION>
The Exchange Agent is:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
<S> <C> <C>
By Facsimile: By Registered/Certified mail,
Overnight Courier or Hand: Confirm by
(803) - First Union National Bank of North Carolina Telephone:
Attention: 230 South Tryon Street, 8th Floor
Corporate Trust Division Charlotte, North Carolina 28288-1179 (803) -
Attention: Corporate Trust Division
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS SET
FORTH IN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus dated July ,
1995 (the 'Prospectus'), of PEOPLES TELEPHONE COMPANY, INC. (the
'Company'), and this Letter of Transmittal (the 'Letter of Transmittal'),
which together with the Prospectus constitutes the Company's offer (the
'Exchange Offer') to exchange $1,000 principal amount of its 12 1/4% Senior
Notes Due 2002 to be issued under CUSIP No. (the 'Exchange
Notes') for each $1,000 principal amount of its outstanding 12 1/4% Senior
Notes Due 2002 issued under CUSIP No. (the 'Old Notes').
Recipients of the Prospectus should read the requirements described in such
Prospectus with respect to eligibility to participate in the Exchange
Offer. Capitalized terms used but not defined herein have the meaning given
to them in the Prospectus.
This Letter of Transmittal is to be used only by a Holder of Old Notes
(i) if certificates representing Old Notes are to be forwarded herewith or
(ii) if delivery of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ('DTC' or the
'Book-Entry Transfer Facility') pursuant to the procedures set forth in the
section of the Prospectus entitled 'The Exchange Offer--Procedures for
Tendering Old Notes.'
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered Holder of Old Notes
promptly and instruct such registered Holder of Old Notes to tender on
behalf of the beneficial owner. If such beneficial owner wishes to tender
on his own behalf, such beneficial owner must, prior to completing and
executing this Letter of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in
such beneficial owner's name or obtain a properly completed bond power from
the registered Holder of Old Notes. The transfer of record ownership may
take considerable time.
In order to properly complete this Letter of Transmittal, a Holder of
Old Notes must (i) complete the box entitled 'Description of Old Notes,'
(ii) if appropriate, check and complete the boxes relating to book-entry
transfer, guaranteed delivery, Special Issuance Instructions and Special
Delivery Instructions, (iii) sign the Letter of Transmittal by completing
the box entitled 'Sign Here' and (iv) complete the Substitute Form W-9.
Each Holder of Old Notes should carefully read the detailed instructions
below prior to completing the Letter of Transmittal.
Holders of Old Notes who desire to tender their Old Notes for exchange
and (i) whose Old Notes are not immediately available, (ii) who cannot
deliver their Old Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date, or (iii) who are unable
to complete the procedure for book-entry transfer on a timely basis, must
tender the Old Notes pursuant to the guaranteed delivery procedures set
forth in the section of the Prospectus entitled 'The Exchange Offer--
Guaranteed Delivery Procedures.' See Instruction 2.
Holders of Old Notes who wish to tender their Old Notes for exchange
must, at a minimum, complete columns (1) through (3) in the box below
entitled 'Description of Old Notes' and sign the box below entitled 'Sign
Here.' If only those columns are completed, such Holder of Old Notes will
have tendered for exchange all Old Notes listed in column (3) below. If the
Holder of Old Notes wishes to tender for exchange less than all of such Old
Notes, column (4) must be completed in full. In such case, such Holder of
Old Notes should refer to Instruction 5.
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF OLD NOTES
<S> <C> <C> <C>
(1) (2) (3) (4)
PRINCIPAL AMOUNT
TENDERED FOR EXCHANGE
(ONLY IF DIFFERENT
OLD NOTE AMOUNT FROM
NAME(S) AND ADDRESS(ES) OF REGISTERED NUMBER(S)1 AGGREGATE COLUMN (3))
HOLDER OF OLD NOTE(S) (ATTACH SIGNED PRINCIPAL (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK) LIST IF NECESSARY) AMOUNT MULTIPLES OF $1,000)2
</TABLE>
1 Column (2) need not be completed by Holders of Old Notes tendering Old
Notes for exchange by book-entry transfer. Please check the appropriate
box below and provide the requested information.
2 Column (4) need not be completed by Holders of Old Notes who wish to
tender for exchange the principal amount of Old Notes listed in Column
(3). Completion of column (4) will indicate that the Holder of Old Notes
wishes to tender for exchange only the principal amount of Old Notes
indicated in column (4).
[ ] CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC
AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS
HEREINAFTER DEFINED) ONLY):
Name of Tendering Institution__________________________________________
Account Number_________________________________________________________
Transaction Code Number _______________________________________________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name of Registered Holder of Old Note(s)________________________________
Date of Execution of Notice of Guaranteed Delivery______________________
Window Ticket Number (if available)_____________________________________
Name of Institution which Guaranteed Delivery___________________________
Account Number (if delivered by book-entry transfer)____________________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name____________________________________________________________________
Address_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
2
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 6, 7 AND 8)
To be completed ONLY (i) if (a) Exchange Notes issued in exchange for Old
Notes, (b) certificates for Old Notes in a principal amount not exchanged
for Exchange Notes, or (c) Old Notes (if any) not tendered for exchange,
are to be issued in the name of someone other than the undersigned, or (ii)
if Old Notes tendered by book-entry transfer which are not exchanged are to
be returned by credit to an account maintained at the Book Entry Transfer
Facility.
Issue to:
Name_______________________________________________________________________
(Please Print)
Address____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
___________________________________________________________________________
(Tax Identification or Social Security No.)
Credit Old Notes not exchanged and delivered by book-entry transfer to the
DTC Book Entry Transfer Facility account set forth below:
___________________________________________________________________________
(Book Entry Transfer Facility Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1, 6, 7 AND 8)
To be completed ONLY if (a) Exchange Notes issued in exchange for Old
Notes, (b) certificates for Old Notes in a principal amount not exchanged
for Exchange Notes, or (c) Old Notes (if any) not tendered for exchange,
are to be mailed or delivered to someone other than the undersigned, or to
the undersigned at an address other than the address shown below the
undersigned's signature.
Mail or deliver to:
Name_______________________________________________________________________
(Please Print)
Address____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
___________________________________________________________________________
(Tax Identification or Social Security No.)
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUSTIONS CAREFULLY
LADIES AND GENTLEMEN:
Pursuant to the order by PEOPLES TELEPHONE COMPANY, INC. (the
'Company'), upon the terms and subject to the conditions set forth in the
Company's Prospectus dated July , 1995 (the 'Prospectus') and this Letter
of Transmittal (the 'Letter of Transmittal'), which together with the
Prospectus constitutes the Company's offer (the 'Exchange Offer') to
exchange $1,000 principal amount of its 12 1/4% Senior Notes Due 2002 to be
issued under CUSIP No. (the 'Exchange Notes') for each $1,000
principal amount of its outstanding 12 1/4% Senior Notes Due 2002 issued
under CUSIP No. (the 'Old Notes'). The undersigned hereby
tenders to the Company for exchange the Old Notes indicated above.
By executing this Letter of Transmittal and subject to and effective
upon acceptance for exchange of the Old Notes tendered for exchange
herewith, the undersigned will have irrevocably sold, assigned, transferred
and exchanged, to the Company, all right, title and interest in, to and
under all of the Old Notes tendered for exchange hereby, and hereby
appoints the Exchange Agent as the true and lawful agent and attorney-in-
fact (with full knowledge that the Exchange Agent also acts as agent of the
Company) of such Holder of Old Notes with respect to such Old Notes, with
full power of substitution to (i) deliver certificates representing such
Old Notes, or transfer ownership of such Old Notes on the account books
maintained by the Book-Entry Transfer Facility (together, in any such case,
with all accompanying evidences of transfer and authenticity), to the
Company, (ii) present and deliver such Old Notes for transfer on the books
of the Company, and (iii) receive all benefits and otherwise exercise all
rights and incidents of beneficial ownership with respect to such Old
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and
coupled with an interest.
The undersigned hereby represents and warrants that the undersigned is
the owner, and has a net long position within the meaning of Rule 14e-4
under the Securities Exchange Act as amended ('Rule 14e-4') equal to or
greater than the principal amount of Old Notes tendered hereby, and that
when such Old Notes are accepted for exchange by the Company, the Company
will acquire good and marketable title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any
adverse claims. The undersigned will, upon receipt, execute and deliver any
additional documents deemed by the Exchange Agent or the Company to be
necessary or desirable to complete the exchange, assignment and transfer of
the Old Notes tendered for exchange hereby.
The undersigned hereby further represents to the Company that (i) the
Exchange Notes to be acquired by the undersigned in exchange for the Old
Notes tendered hereby and any beneficial owner(s) of such Old Notes
('Beneficial Owner(s)') in connection with the Exchange Offer will be
acquired by the undersigned and such Beneficial Owner(s) in the ordinary
course of business of the undersigned and such Beneficial Owner(s), (ii)
the undersigned (if not a broker-dealer referred to in the last sentence of
this paragraph) and each Beneficial Owner are not participating and do not
intend to participate in the distribution of the Exchange Notes, (iii) the
undersigned and each Beneficial Owner have no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes,
(iv) the undersigned and each Beneficial Owner acknowledge and agree that
any person participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and
3
<PAGE>
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the Exchange Notes acquired by such person and
cannot rely on the position of the staff of the SEC set forth in no-action
letters that are discussed in the Prospectus under 'The Exchange Offer--
Purpose and Effect of the Exchange Offer,' (v) the undersigned and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iv) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the SEC, and (vi) neither the undersigned nor any Beneficial
Owner is an 'affiliate' of the Company, as defined under Rule 405 of the
Securities Act, except as otherwise disclosed to the Company, as the case may
be, in writing. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Old Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an 'underwriter' within
the meaning of the Securities Act.
For purposes of the Exchange Offer, the Company will be deemed to have
accepted for exchange, and to have exchanged, validly tendered Old Notes,
if, as and when the Company gives oral or written notice thereof to the
Exchange Agent. Tenders of Old Notes that have not been accepted for
exchange may be withdrawn at any time prior to 4:00 p.m., New York City
time, on the Expiration Date. See 'The Exchange Offer--Withdrawal Rights'
in the Prospectus. Any Old Notes tendered by the undersigned and not
accepted for exchange will be returned to the undersigned at the address
set forth above unless otherwise indicated in the box above entitled
'Special Delivery Instructions.'
The undersigned acknowledges that the Company's acceptance of Old Notes
validly tendered for exchange pursuant to any one of the procedures
described in the section of the Prospectus entitled 'The Exchange Offer'
and in the instructions hereto will constitute a binding agreement between
the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer.
Unless otherwise indicated in the box entitled 'Special Issuance
Instructions,' please return any Old Notes not tendered for exchange in the
name(s) of the undersigned. Similarly, unless otherwise indicated in the
box entitled 'Special Delivery Instructions,' please mail any certificates
for Old Notes not tendered or exchanged (and accompanying documents, as
appropriate) to the undersigned at the address shown below the
undersigned's signature(s). In the event that both 'Special Issuance
Instructions' and 'Special Delivery Instructions' are completed, please
issue the certificates representing the Exchange Notes issued in exchange
for the Old Notes accepted for exchange in the name(s) of, and return any
Old Notes not tendered for exchange or not exchanged to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation
pursuant to the 'Special Issuance Instructions' and 'Special Delivery
Instructions' to transfer any Old Notes from the name of the Holder of Old
Note(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered for exchange.
A tender for exchange of Old Notes pursuant to any one of the
procedures set forth in the section of the Prospectus entitled 'The
Exchange Offer' will constitute the tendering Holder of Old Note's
acceptance of the terms and conditions of the Exchange Offer as well as the
tendering Old Holder's representation and warranty that (i) such Holder of
Old Notes has a net long position (within the meaning of Rule 14e-4) equal
to or greater than the principal amount of the Old Notes being tendered
hereby and (ii) the tender of such Old Notes complies with Rule 14e-4 (to
the extent that Rule 14e-4 is applicable to such exchange).
IN ORDER TO VALIDLY TENDER OLD NOTES FOR EXCHANGE, HOLDERS OF OLD NOTES
MUST COMPLETE, EXECUTE, AND DELIVER THIS LETTER OF TRANSMITTAL.
Except as stated in the Prospectus, all authority herein conferred or
agreed to be conferred shall survive the death or incapacity of the
undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, personal representatives, successors and assigns of
the undersigned. Except as otherwise stated in the Prospectus, this tender
for exchange of Old Notes is irrevocable.
4
<PAGE>
SIGN HERE
___________________________________________________________________________
(Signature(s) of Owner(s))
Date:____________________________________________________________, 1995
Must be signed by the registered Holder of Old Note(s) exactly as
name(s) appear(s) on certificate(s) representing the Old Notes or on a
security position listing or by person(s) authorized to become registered
Old Note Holder(s) by certificates and documents transmitted herewith. If
signature is by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. (See
Instruction 6)
Name(s)____________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Please Print)
Capacity (full title)______________________________________________________
___________________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. (_________________________) ___________________
Tax Identification or Social Security Nos._________________________________
Please complete Substitute Form W-9
GUARANTEE OF SIGNATURE(S)
(Signature(s) must be guaranteed if required by Instruction 1)
Authorized Signature_______________________________________________________
Dated______________________________________________________________________
Name and Title_____________________________________________________________
(Please Print)
Name of Firm_______________________________________________________________
5
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by an eligible
guarantor institution which is a member of one of the following recognized
signature Guarantee Programs:
1. The Securities Transfer Agents Medallion Program (STAMP)
2. The New York Stock Exchange Medallion Signature Program (MSP)
3. The Stock Exchange Medallion Program (SEMP)
Signatures on this Letter of Transmittal need not be guaranteed (i) if this
Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered herewith and such registered holder(s) have not completed
the box entitled 'Special Issuance Instructions' or the box entitled
'Special Delivery Instructions' on this Letter of Transmittal or (ii) if
such Old Notes are tendered for the account of an Eligible Institution. IN
ALL OTHER CASES, ALL SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE
INSTITUTION.
2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES; GUARANTEED
DELIVERY PROCEDURE. This Letter of Transmittal is to be completed by
Holders of Old Notes (i) if certificates are to be forwarded herewith or
(ii) if tenders are to be made pursuant to the procedures for tender by
book-entry transfer or guaranteed delivery set forth in the section of the
Prospectus entitled 'The Exchange Offer.' Certificates for all physically
tendered Old Notes or any confirmation of a book-entry transfer (a 'Book-
Entry Confirmation'), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth on the cover of this Letter of
Transmittal prior to 4:00 p.m., New York City time, on the Expiration Date.
Holders of Old Notes who elect to tender Old Notes and (i) whose Old Notes
are not immediately available, (ii) who cannot deliver the Old Notes or
other required documents to the Exchange Agent prior to 4:00 p.m., New York
City time on the Expiration Date or (iii) who are unable to complete the
procedure for book-entry transfer on a timely basis, may have such tender
effected if: (a) such tender is made by or through an Eligible Institution;
(b) prior to 4:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent has received from such Eligible Institution a properly
completed and duly executed Letter of Transmittal (or a facsimile hereof)
and Notice of Guaranteed Delivery (by telegram, telex, facsimile
transmission, mail or hand delivery) setting forth the name and address of
the holder of such Old Notes, the certificate number(s) of such Old Notes
and the principal amount of Old Notes tendered for exchange, stating that
tender is being made thereby and guaranteeing that, within [five] New York
Stock Exchange trading days after the Expiration Date, the certificates
representing such Old Notes (or a Book- Entry Confirmation), in proper form
for transfer, and any other documents required by this Letter of
Transmittal, will be deposited by such Eligible Institution with the
Exchange Agent; and (c) certificates for all tendered Old Notes, or a Book
Entry Confirmation, together with a copy of the previously executed Letter
of Transmittal (or facsimile thereof) and any other documents required by
this Letter of Transmittal are received by the Exchange Agent within [five]
New York Stock Exchange trading days after the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING
HOLDER OF OLD NOTES. EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL
BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. NEITHER THIS LETTER OR
TRANSMITTAL NOR ANY OLD NOTES SHOULD BE SENT TO THE COMPANY.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders of Old Notes, by execution of this Letter of Transmittal
(or facsimile hereof, if applicable), waive any right to receive notice of
the acceptance of their Old Notes for exchange.
3. INADEQUATE SPACE. If the space provided in the box entitled
'Description of Old Notes' above is inadequate, the certificate numbers and
principal amounts of the Old Notes being tendered should be listed on a
separate signed schedule affixed hereto.
4. WITHDRAWALS. A tender of Old Notes may be withdrawn at any time
prior to 4:00 p.m., New York City time, on the Expiration Date by delivery
of written notice of withdrawal to the Exchange Agent at the address set
forth on the cover of this Letter of Transmittal. To be effective, a notice
of withdrawal of Old Notes must (i) specify the name of the person who
tendered the Old Notes to be withdrawn (the 'Depositor'), (ii) identify the
Old Notes to be withdrawn (including the certificate number or numbers and
aggregate principal amount of such Old Notes), (iii) be signed by the
Holder of Old Notes in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the applicable transfer agent register the transfer of
such Old Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. Withdrawals of tenders of Old Notes
may not be rescinded, and any Old Notes withdrawn will thereafter be deemed
not validly tendered for purposes of the Exchange Offer and no Exchange
Notes will be issued with respect thereto unless the Old Notes so withdrawn
are validly retendered. Properly withdrawn Old Notes may be retendered by
following one of the procedures described in the section of the Prospectus
entitled 'The Exchange Offer--Procedures for Tendering Old Notes' at any
time prior to 4:00 p.m., New York City time, on the Expiration Date.
5. PARTIAL TENDERS. (Not applicable to Holders of Old Notes who
tender Old Notes by book-entry transfer). Tenders of Old Notes will be
accepted only in integral multiples of $1,000 principal amount. If a tender
for exchange is to be made with respect to less than the entire principal
amount of any Old Notes, fill in the principal amount of Old Notes which
are tendered for exchange in column (4) of the box entitled 'Description of
Old Notes,' as more fully described in the footnotes thereto. In case of a
partial tender for exchange, a new certificate, in fully registered form,
for the remainder of the principal amount of the Old Notes, will be sent to
the Holders of Old Notes unless otherwise indicated in the appropriate box
on this Letter of Transmittal as promptly as practicable after the
expiration or termination of the Exchange Offer.
6. SIGNATURES ON THIS LETTER OF TRANSMITTAL, POWERS OF ATTORNEY AND
ENDORSEMENTS.
(a) The signature(s) of the Holder of Old Note(s) on this Letter of
Transmittal must correspond with the name(s) as written on the face of the
Old Notes without alteration, enlargement or any change whatsoever.
6
<PAGE>
(b) If tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter of Transmittal.
(c) If any tendered Old Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal and any necessary or
required documents as there are different registrations or certificates.
(d) When this Letter of Transmittal is signed by the Holder of the Old
Notes listed and transmitted hereby, no endorsements of Old Notes or
separate powers of attorney are required. If, however, Old Notes not
tendered or not accepted, are to be issued or returned in the name of a
person other than the Holder of such Old Note(s), then the Old Notes
transmitted hereby must be endorsed or accompanied by appropriate powers of
attorney in a form satisfactory to the Company, in either case signed
exactly as the name(s) of the Holder of Old Note(s) appear(s) on the Old
Notes. Signatures on such Old Notes or powers of attorney must be
guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
(e) If this Letter of Transmittal or Old Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the Company of their authority so to act
must be submitted.
(f) If this Letter of Transmittal is signed by a person other than the
registered Holder of Old Note(s) listed, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed
exactly as the name(s) of the registered Holder of Old Note(s) appear(s) on
the certificates. Signatures on such Old Notes or powers of attorney must
be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the
Company will pay all transfer taxes, if any, applicable to the transfer and
exchange of Old Notes pursuant to the Exchange Offer. If, however, issuance
of Exchange Notes is to be made to, or Old Notes not tendered for exchange
are to be issued or returned in the name of, any person other than the
Holder of Old Notes, the amount of any transfer taxes payable on account of
the transfer to such person will be imposed on and payable by the Holder of
Old Note(s) tendering Old Notes for exchange prior to the issuance of the
Exchange Notes.
8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If the Exchange Notes
are to be issued, or if any Old Notes not tendered for exchange are to be
issued or sent to someone other than the Holder of Old Notes or to an
address other than that shown above, the appropriate boxes on this Letter
of Transmittal should be completed. Holders of Old Notes tendering Old
Notes by book-entry transfer may request that Old Notes not accepted be
credited to such account maintained at the Book-Entry Transfer Facility as
such Holder of Old Notes may designate.
9. IRREGULARITIES. All questions as to the form of documents and the
validity, eligibility (including time or receipt), acceptance and
withdrawal of Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding. The Company
reserves the absolute right to reject any or all tenders for exchange of
any particular Old Notes that are not in proper form, or the acceptance of
which would, in the opinion of the Company or its counsel, be unlawful. The
Company reserves the absolute right to waive any defect, irregularity or
condition of tender for exchange with regard to any particular Old Notes.
The Company's interpretation of the terms of, and conditions to, the
Exchange Offer (including the instructions herein) will be final and
binding. Unless waived, any defect or irregularities in connection with the
Exchange Offer must be cured within such time as the Company shall
determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notice of any defects or irregularities in
Old Notes tendered for exchange, nor shall any of them incur any liability
for failure to give such notice. A tender of Old Notes will not be deemed
to have been made until all defects and irregularities with respect to such
tender have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the
Exchange Agent to the tendering holders, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration
Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive certain of the specified conditions as described under 'The Exchange
Offer--Conditions of the Exchange Offer' in the Prospectus in the case of
any Old Notes tendered (except as otherwise provided in the Prospectus).
11. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. If a Holder of
Old Notes desires to tender an Old Note pursuant to the Exchange Offer, but
the Old Note has been mutilated, lost, stolen or destroyed, such Holder of
Old Notes should write to or telephone the Trustee, at the address listed
below, concerning the procedures for obtaining replacement certificates for
such Old Notes, arranging for indemnification or any other matter that
requires handling by the Trustee:
First Union National Bank of North Carolina
230 South Tryon Street, 8th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Division
(803) -
12. REQUESTS FOR INFORMATION OR ADDITIONAL COPIES. Requests for
information or for additional copies of the Prospectus and this Letter of
Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover of this Letter of Transmittal.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE THEREOF, IF
APPLICABLE) TOGETHER WITH OLD NOTE CERTIFICATES, OR CONFIRMATION OF BOOK-
ENTRY OR THE NOTICE OF GUARANTEED DELIVERY, AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 4:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
7
<PAGE>
IMPORTANT TAX INFORMATION
Under current federal income tax law, a Holder of Old Notes whose
tendered Old Notes are accepted for exchange is required to provide the
Company (as payor), through the Exchange Agent, with such Holder's correct
taxpayer identification number ('TIN') on Substitute Form W-9 or otherwise
establish a basis for exemption from backup withholding. If such Holder of
Old Notes is an individual, the TIN is such Holder's social security
number. If the Exchange Agent is not provided with the correct taxpayer
identification number, the Holder of Old Notes may be subject to a penalty
imposed by the Internal Revenue Service. In addition, delivery of such Old
Note Holder's Exchange Notes may be subject to backup withholding.
Certain Holders of Old Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Exempt Holders of Old Notes should
indicate their exempt status on Substitute Form W-9. A foreign individual
may qualify as an exempt recipient by submitting to the Exchange Agent a
properly completed Internal Revenue Service Form W-8 (which the Exchange
Agent will provide upon request) signed under penalty of perjury, attesting
to the Holder's exempt status. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Company is required to withhold 31%
of any payment made to the Holder of Old Notes or other payee. Backup
withholding is not an additional federal income tax. Rather, the federal
income tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained from the Internal Revenue
Service.
SUBSTITUTE FORM W-9; TAXPAYER IDENTIFICATION NUMBER
To prevent backup withholding on payments that are made with respect to
Old Notes exchanged in the Exchange Offer, each Holder of Old Notes is
required to provide the Exchange Agent with either: (i) the Holder's
correct TIN by completing the form below, certifying that the TIN provided
on Substitute Form W-9 is correct (or that such Holder of Old Notes is
awaiting a TIN) and that (A) the Holder of Old Notes has not been notified
by the Internal Revenue Service that he or she is subject to backup
withholding as a result of a failure to report all interest or dividends or
(B) the Internal Revenue Service has notified the Holder of Old Notes that
he or she is no longer subject to backup withholding; or (ii) an adequate
basis for exemption.
The Holder of Old Notes is required to give the Exchange Agent the TIN
(e.g., social security number or employer identification number) of the
record owner of the Old Notes. If the Old Notes are held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance regarding which number to
report.
8
<PAGE>
PAYER'S NAME:_____________________________________________
SUBSTITUTE
FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER[EL]
IDENTIFICATION NUMBER (TIN)
PART 1--PLEASE PROVIDE YOUR TIN IN THE
BOX AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW
____________________________________________________
Social Security Number
OR__________________________________________________
Employer Identification Number
PART 2--Certification--Under Penalties of Perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number (or I am waiting for a number to be issued to me) and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (the 'IRS') that I am subject
to backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to
backup withholding.
Certificate instructions--You must cross out item (2) in Part 2 above if
you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax
return. However, if after being notified by the IRS that you were subject to
backup withholding you receive another notification from the IRS stating
that you are no longer subject to backup withholding, do not cross out
item (2).
SIGNATURE___________________________________ DATE______________________
PART 3--
Awaiting TIN [ ]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION
OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE
IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office or (b) I intend to mail or deliver such an
application in the near future. I understand that if I do not provide a
taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide
such a number.
SIGNATURE___________________________________ DATE______________________
9
<PAGE>
NOTICE OF GUARANTEED DELIVERY
TO BE USED IN CONNECTION WITH
PEOPLES TELEPHONE COMPANY, INC.
OFFER TO EXCHANGE
$1,000 PRINCIPAL AMOUNT OF ITS
12 1/4% SENIOR NOTES DUE 2002
FOR EACH OUTSTANDING
$1,000 PRINCIPAL AMOUNT OF ITS
12 1/4% SENIOR NOTES DUE 2002
As set forth in the Prospectus dated July , 1995 (the 'Prospectus')
of PEOPLES TELEPHONE COMPANY, INC. (the 'Company'), in the section entitled
'The Exchange Offer' and in the accompanying Letter of Transmittal, which
together with the Prospectus constitutes the Company's offer (the 'Exchange
Offer'), this form, or one substantially equivalent hereto, must be used by
any holder of the Company's 12 1/4% Senior Notes Due 2002 issued under
CUSIP No. (the 'Old Notes') who wishes to tender Old Notes pursuant to the
Exchange Offer and (i) whose Old Notes are not immediately available, (ii)
who cannot deliver the Old Notes or other required documents to the
Exchange Agent prior to 4:00 p.m., New York City time, on the Expiration
Date or (iii) who is unable to complete the book-entry transfer on a timely
basis. Such form may be delivered by facsimile transmission, if applicable,
mail or hand delivery to the Exchange Agent.
THE COMPANY WILL ACCEPT ALL OLD NOTES TENDERED PRIOR TO 4:00 P.M., NEW YORK
CITY TIME, ON , 1995 UNLESS EXTENDED (THE 'EXPIRATION DATE'). TENDERS MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 4:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
<TABLE>
<CAPTION>
The Exchange Agent is:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
<S> <C> <C>
By Facsimile: By Registered/Certified mail,
Overnight Courier or Hand: Confirm by
(803) - First Union National Bank of North Carolina Telephone:
Attention: 230 South Tryon Street, 8th Floor
Corporate Trust Division Charlotte, North Carolina 28288-1179 (803) -
Attention: Corporate Trust Division
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN
AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE NUMBER OTHER THAN TO THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby represents that the undersigned owns, and has a
net long position (within the meaning of Rule 14e-4 under the Securities
Exchange Act of 1934, as amended ('Rule 14e-4') ) equal to or greater than
the principal amount of the Old Notes tendered hereby and hereby tenders to
the Company in compliance with Rule 14e-4 and upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount
of Old Notes specified below pursuant to the guaranteed delivery procedures
set forth under the section of the Prospectus entitled 'The Exchange
Offer.' The undersigned hereby tenders the Old Notes listed below:
OLD NOTE CERTIFICATE NUMBERS PRINCIPAL AMOUNT TENDERED
(IF AVAILABLE)
If Old Notes will be tendered by SIGN HERE
book-entry transfer to the
Depository Trust Company:
_____________________________________
Name of Tendering Institution: Signature(s)
____________________________________ _____________________________________
_____________________________________
Name(s) (Please Print)
Account No._________________________ _____________________________________
Address
_____________________________________
City State Zip Code
_____________________________________
Area Code and Telephone No.
Date:________________________________
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTY)
The undersigned, an institution which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or is a commercial bank or trust company having an
office or correspondent in the United States (an 'Eligible Institution'),
guarantees (a) that the above named person(s) has (have) a net long
position (within the meaning of Rule 14e-4) equal to or greater than the
principal amount of the Old Notes tendered hereby, (b) that such tender of
Old Notes complies with Rule 14e-4 and (c) that delivery to the Exchange
Agent of either the Old Notes tendered hereby in proper form for transfer,
or confirmation of the book entry transfer of such Old Notes into the
Exchange Agent's account at The Depository Trust Company, pursuant to the
procedure for book-entry transfer set forth in the Prospectus, and any
other documents required by the Letter of Transmittal, all by 4:00 p.m.,
New York City time, on the [fifth] New York Stock Exchange trading day
following the Expiration Date.
SIGN HERE
___________________________________________________________________________
Eligible Institution (Please Print)
___________________________________________________________________________
___________________________________________________________________________
Signature(s)
___________________________________________________________________________
___________________________________________________________________________
Name(s) (Please Print)
___________________________________________________________________________
___________________________________________________________________________
Address
___________________________________________________________________________
City State Zip Code
___________________________________________________________________________
Area Code and Telephone No.
Date:_______________________________________
DO NOT SEND OLD NOTES WITH THIS FORM, ACTUAL TENDER OF OLD NOTES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, A COPY OF THE PREVIOUSLY EXECUTED
LETTER OF TRANSMITTAL.
INSTRUCTIONS
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and
any other documents required by this Notice of Guaranteed Delivery must be
received by the Exchange Agent at its address set forth on the cover hereof
prior to 4:00 p.m., New York City time, on the Expiration Date. The method
of delivery of this Notice of Guaranteed Delivery and all other required
documents to the Exchange Agent is at the election and risk of the Holder
but, except as otherwise provided below, the delivery will be deemed made
only when actually received by the Exchange Agent. If such delivery is by
mail, it is recommended that the Holder use properly insured, registered
mail with return receipt requested. For a full description of the
guaranteed delivery procedures, see the section of the Prospectus entitled
'The Exchange Offer.' In all cases, sufficient time should be allowed to
assure timely delivery. No Notice of Guaranteed Delivery should be sent to
the Company.
2. SIGNATURE ON THIS NOTICE OF GUARANTEED DELIVERY; GUARANTEE OF
SIGNATURES. If this Notice of Guaranteed Delivery is signed by the
registered Holder(s) of the Old Notes referred to herein, the signature
must correspond with the name(s) as written on the face of the Old Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered Holder(s) of any Old Notes listed, this Notice of Guaranteed
Delivery must be accompanied by appropriate bond powers signed as the
name(s) of the registered Holder(s) appear(s) on the face of the Old Notes
without alteration, enlargement or any change whatsoever.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company,
evidence satisfactory to the Company of the authority so to act must be
submitted with this Notice of Guaranteed Delivery.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance or for additional copies of the Prospectus and the
Letter of Transmittal may be directed to the Exchange Agent at its address
or telephone number set forth on the cover hereof.
CONSENT OF DIRECTOR DESIGNEE
The undersigned, who has been designated for election as a director of
Peoples Telephone Company, Inc., a New York corporation (the "Company"), by UBS
Capital Corporation, hereby (i) consents to being so designated for the position
of director of the Company and to serve as such if elected, and (ii) consents to
being named as a director designee in the Company's Registration Statement on
Form S-4 relating to the proposed exchange offer for the Company's 12 1-4%
Senior Notes due 2002, and all amendments thereto.
Executed this 24th day of July, 1995.
/s/ JEFFREY J. KEENAN
-----------------
Jeffrey J. Keenan
