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SCHEDULE
14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934 (Amendment No.)
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement
( ) Confidential, for Use of Commission Only (as permitted by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Peoples Telephone Company, Inc.
(Name of Registrant as Specified in Its Charter)
Peoples Telephone Company, Inc.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
(X ) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
( ) Fee paid previously with preliminary materials
( ) Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
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fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing:
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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PEOPLES TELEPHONE COMPANY, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 14, 1997
________________________
TO THE SHAREHOLDERS OF PEOPLES TELEPHONE COMPANY, INC.:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Peoples Telephone Company, Inc. (the "Company") will be held on
Monday, July 14, 1997 at 10:00 a.m., at the Radisson Mart Plaza Hotel at 711
Northwest 72nd Avenue, Miami, Florida 33126, for the following purposes:
1. To elect three persons to the Company's Board of Directors (with the holders
of Common Stock and Series C Cumulative Convertible Preferred Stock voting
together as a single class), as more fully described in the accompanying Proxy
Statement, to hold office until the next Annual Meeting and until their
respective successors are duly elected and qualified; and
2. To consider and vote upon a proposal to approve the adoption of the 1997
Incentive Plan; and
3. To transact all other business that may properly come before the Annual
Meeting and all adjournments of the Annual Meeting.
The Board of Directors has fixed the close of business on Tuesday, June 3,
1997 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Annual Meeting and any adjournment or postponement
thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the accompanying Proxy Statement for further information
with respect to the business to be transacted at the Annual Meeting. Whether or
not you plan to attend the Annual Meeting, please complete, sign, date and
return the enclosed proxy card promptly. The return of the enclosed proxy card
will not affect your right to revoke your proxy or to vote in person if you do
attend the Annual Meeting.
By Order of the Board of Directors,
/s/ Francis J. Harkins
Francis J. Harkins, Vice President and Secretary
June 13, 1997
THIS IS AN IMPORTANT MEETING AND ALL SHAREHOLDERS ARE INVITED TO ATTEND THE
MEETING IN PERSON. THOSE SHAREHOLDERS WHO ARE UNABLE TO ATTEND IN PERSON SHOULD
PROMPTLY EXECUTE AND RETURN THE ENCLOSED PROXY CARD. SHAREHOLDERS WHO EXECUTE A
PROXY CARD MAY ATTEND THE MEETING, REVOKE THEIR PROXY AND VOTE THEIR SHARES IN
PERSON.
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PEOPLES TELEPHONE COMPANY, INC.
PROXY STATEMENT
_______________________
ANNUAL MEETING OF SHAREHOLDERS
To Be Held On July 14, 1997
_______________________
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors (the "Board") of Peoples Telephone Company, Inc., a New
York corporation (the "Company"), of proxies from the holders of common stock,
par value $.01 per share ("Common Stock"), and Series C Cumulative Convertible
Preferred Stock, par value $.01 per share ("Series C Preferred Stock"), of the
Company for use at the Annual Meeting of Shareholders of the Company to be held
on Monday, July 14, 1997 (the "Annual Meeting") and at any adjournments or
postponements of the Annual Meeting.
The Annual Meeting will be held at the Radisson Mart Plaza Hotel at 711
Northwest 72nd Avenue, Miami, Florida 33126, on Monday, July 14, 1997, at 10:00
a.m. It is expected that this Proxy Statement and a proxy will be mailed to the
shareholders of the Company on or about June 13, 1997. The principal executive
offices of the Company are located at 2300 N.W. 89th Place, Miami, Florida
33172.
OUTSTANDING STOCK AND VOTING RIGHTS
The Company has currently outstanding 150,000 shares of Series C Preferred
Stock. The holders of the Series C Preferred Stock are currently entitled to
elect two members of the Board. The terms of the Series C Preferred Stock also
provide that as long as the Series C Preferred Stock is entitled to elect at
least one director, the Board shall consist of no more than six directors. The
holder of the Series C Preferred Stock has elected Mr. Charles J. Delaney and
Mr. Justin S. Maccarone to serve on the Board and has informed the Company that
it intends to re-elect such directors.
The holders of the Series C Preferred Stock are entitled to vote on all
matters submitted to the shareholders of the Company for a vote together with
the holders of the Common Stock, voting together as a single class, with each
share of Common Stock entitled to one vote per share and each share of Series C
Preferred Stock entitled to one vote for each share of Common Stock issuable
upon conversion of the Series C Preferred Stock.
In accordance with the Bylaws of the Company, the Board has fixed the close
of business on June 3, 1997 as the record date for the determination of
shareholders entitled to notice of, and to vote at, the Annual Meeting. Only
shareholders of record at the close of business on that date will be entitled to
vote. Each shareholder who submits a proxy on the accompanying form has the
power to revoke it by notice of revocation directed to the proxy-holders or to
the Company at any time before it is voted. Unless specific voting instructions
are indicated on the proxy, proxies which are properly executed will be voted
FOR the proposals set forth on the proxies. Although a shareholder may have
given a proxy, the shareholder may nevertheless attend the meeting, revoke the
proxy and vote in person. As of the date of this Proxy Statement, the Board
knows of no business other than the proposals described herein which is to be
submitted to the shareholders of the Company at the Annual Meeting.
At the close of business on June 3, 1997, there were 16,195,434 shares of
Common Stock outstanding and 150,000 shares of Series C Preferred Stock
(convertible into 2,857,143 shares of Common Stock) outstanding. Every holder of
record of Common Stock or Series C Preferred Stock of the Company at the close
of business on June 3, 1997
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is entitled to notice of the meeting and to vote, in person or by proxy, one (1)
vote for each share of Common Stock and 19.04762 votes for each share of Series
C Preferred Stock, as the case may be, held by such holder. A majority of the
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum at the Annual Meeting. Under the laws of the State of New York (in which
the Company is incorporated), the election of directors requires a plurality of
the votes cast with respect to the election of directors at the Annual Meeting,
while the approval of the 1997 Incentive Plan will require the affirmative vote
of a majority of the total outstanding shares entitled to vote thereon. As to
the election of directors, abstentions and broker non-votes (instances where
brokers are prohibited from exercising discretionary authority for beneficial
owners who have not returned a proxy) will not affect the outcome of such
voting. As to the approval of the 1997 Incentive Plan, however, abstentions and
broker non-votes will have the same effect as a vote against the proposal.
Abstentions and broker non-votes will be counted in the determination of a
quorum. The Company has been informed that the holder of the Series C Preferred
Stock will cast its 2,857,143 votes in favor of the proposals set forth herein.
PROPOSAL 1
ELECTION OF DIRECTORS
As discussed under "Outstanding Stock and Voting Rights," the holders of
the Series C Preferred Stock have the right to elect two of the directors of the
Company. With regard to the remaining directors, the Board of Directors has
nominated the three persons listed below to serve as directors of the Company
until the next Annual Meeting of Shareholders and until their successors are
duly elected and qualified. Proxies cannot be voted for more than three persons.
With the exception of Mr. Robert E. Lund and Mr. E. Craig Sanders, none of the
nominees listed below or the directors elected by the holders of the Series C
Preferred Stock is a current or former employee of the Company or its
subsidiaries. It is intended that proxies will be voted for the nominees listed
below, all of whom are presently serving as directors of the Company.
To the best of the Company's knowledge, each of the nominees for director
is able and intends, if elected, to serve on the Board of Directors. If, prior
to the Annual Meeting, any of the nominees should become unable to serve for any
reason, the persons named as proxies will have full discretion to vote for all
other persons who are nominated. The names and ages of, and certain other
information about, the nominees for election are set forth below:
Jody Frank, age 45, 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 Inc. and, after Smith Barney Inc. acquired the
assets of Shearson Lehman Inc. in 1994, of Smith Barney Inc.
Robert E. Lund, age 53, was elected as a director of the Company in May
1994. Since December 1996, he has served as Chief Executive Officer of Intrepid
Tech, Inc., a technology services company. He served as Chief Executive Officer
of the Company from November 1995 until May 1996 and as President from February
1996 until May 1996. From December 1994 through December 1995, Mr. Lund served
as President and Chief Executive Officer of S2 Software, Inc., a software
company. Mr. Lund served as Chief Operating Officer of Newtrend, L.P., a
provider of software and professional services, from February 1993 until October
1994 (when Newtrend, L.P. was sold). From 1990 to 1992, Mr. Lund was Chairman
and Chief Executive Officer of International Telecharge, Inc., a
telecommunications company.
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E. Craig Sanders, age 52, has served as President, Chief Executive Officer
and a director of the Company since May 1996. From 1995 to 1996, Mr. Sanders was
a partner of PSN Ventures, L.L.C., a company which identifies investment
opportunities in the telecommunications industry. From 1994 to 1995, Mr. Sanders
served as Chairman and Chief Executive Officer of Matrix Telecom, Inc., a
privately held long distance company. From 1982 to 1994, Mr. Sanders was an
employee of Sprint Corporation, and held the office of Senior Vice President for
Product Management from 1991 until 1994.
The Board of Directors recommends a vote FOR the proposal to elect the three
nominees to the Board.
As discussed under "Outstanding Stock and Voting Rights" above, the holder
of the Series C Preferred Stock has indicated to the Company that it intends to
re-elect Mr. Charles J. Delaney and Mr. Justin S. Maccarone to serve as
directors of the Company. Certain information about Messrs. Delaney and
Maccarone is set forth below:
Charles J. Delaney, age 37, has served as a director of the Company since
July 1995. Since January 1993, Mr. Delaney has been President of UBS Capital
LLC, a wholly-owned subsidiary of Union Bank of Switzerland and an affiliate of
UBS Partners, Inc., the holder of the outstanding Series C Preferred Stock.
Since May 1989, Mr. Delaney has been Managing Director in charge of the
Leveraged Finance Group of the Corporate Banking Division of Union Bank of
Switzerland. Mr. Delaney is also a director of Specialty Foods Corporation, SDW
Holding Corporation, RU Corporation, Van deKamps Inc. and Cinnabon
International, Inc.
Justin S. Maccarone, age 38, has served as a director of the Company since
June 1996. Since 1993, Mr. Maccarone has been a Managing Director of UBS Capital
LLC, an affiliate of UBS Partners, Inc. Before that time, Mr. Maccarone was a
Senior Vice President of GE Capital Corporation. Mr. Maccarone is also a
director of American Sports Product Group, Inc., Astor Corporation,
Communication Supply Corporation and Cinnabon International, Inc.
PROPOSAL 2
APPROVAL OF 1997 INCENTIVE PLAN
The Board has adopted, subject to shareholder approval, a new Incentive
Plan (the "1997 Incentive Plan"). The purposes of the 1997 Incentive Plan are
(a) to promote the identity of interests between shareholders and employees by
encouraging and creating significant ownership of Common Stock of the Company by
officers and other employees of the Company and its subsidiaries, (b) to attract
and retain the services of qualified and capable employees, upon whose judgment,
talents and special effort the successful conduct of the Company's operations
and its plans to return to profitability are largely dependent, and (c) to
provide additional incentives and motivation toward targeted superior
performance.
To further the objective of linking compensation to corporate performance,
the 1997 Incentive Plan is designed to provide meaningful incentive
opportunities for employees who are responsible for the success of the Company
and who are in a position to make significant contributions towards its
objectives. The Board believes that stock options and other awards under the
1997 Incentive Plan will be an extremely important component of compensation
paid by the Company. Such awards are intended to attract and motivate high
caliber management and employees, to reward the extraordinary efforts required
of the Company's management and employees to return the Company to profitability
and to enhance the Company's ability to retain such personnel. It is the current
intention of management that stock options
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be granted to executives and other employees as an incentive to meet certain
operational and financial performance goals. Subsequent grants will in large
part depend on the achievement of those goals.
The 1997 Incentive Plan has been designed to preserve for the Company the
federal income tax deduction for certain types of compensation paid under the
plan in accordance with Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), including performance awards, options, stock appreciation
rights, and other stock-based awards.
No Further Awards
If approved by the shareholders, the 1997 Incentive Plan will replace the
Company's current 1987 Non- Qualified Stock Option Plan, 1987 Non-Qualified
Stock Option Plan for Non-Employee Directors and 1994 Stock Incentive Plan, and
no further awards will be made under such plans.
A copy of the 1997 Incentive Plan is included as an exhibit to this proxy
statement, and the summary of the plan set forth below is qualified in its
entirety by reference to the complete plan.
General
The 1997 Incentive Plan provides for the grant of performance awards, stock
options, stock appreciation rights, dividend equivalents, and other stock-based
awards, or combinations of these awards. The 1997 Incentive Plan has been
designed to provide the Company flexibility to design incentive compensation
programs which encourage enhanced employee and Company performance. The
individuals eligible to participate in the 1997 Incentive Plan are the
directors, officers, and other employees and consultants of the Company and its
subsidiaries whose performance significantly contributes to the success of the
Company. The Company currently has five directors, eleven officers and
approximately 450 non-officer employees. Generally, awards are granted for no
consideration other than services. Awards may be granted alone or in addition
to, in tandem with, or in substitution for any other award under the 1997
Incentive Plan, other awards under other plans of the Company, or other rights
to payment from the Company. Awards granted in addition to or in tandem with
other awards may be granted either at the same time or at different times.
A total of 1,350,000 shares of Common Stock are reserved and available for
awards under the 1997 Incentive Plan. Shares forfeited, or related to an award
which terminates without issuance of shares, will again be available for
issuance under the 1997 Incentive Plan. The closing price of a share of the
Company's Common Stock on the American Stock Exchange on June 3, 1997 was $3.38.
A maximum of 500,000 shares (or the equivalent fair market value thereof
for awards payable other than in shares but valued by reference to shares) may
be made subject to performance awards and other stock-based awards subject to
performance criteria in any year. The maximum payout of such awards in any year
may not exceed 150% of the amount thereof, or 750,000 shares in the aggregate
and 187,500 shares to any individual. A maximum of 750,000 shares may be made
subject to options or stock appreciation rights in any year. No participant may
receive awards covering or representing more than 25% of the maximum number of
shares which may be made subject to such types of awards in any year.
Notwithstanding the foregoing, awards of Options granted in connection with an
employee's initial employment by the Company shall not count toward or be
subject to such limitations, in which case the effective limitation would be the
then available number of shares under the 1997 Incentive Plan.
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<TABLE>
<CAPTION>
No awards have been granted under the 1997 Incentive Plan. Except as
described below, because awards under the 1997 Incentive Plan are within the
discretion of the Compensation Committee of the Board (the "Committee"),
benefits that would have been received by participants in the last fiscal year
if the 1997 Incentive Plan had been in effect, and benefits that will be
received by participants in the future, are not determinable.
Pursuant to employment agreements entered into during 1996, the Company has
agreed to grant stock options with respect to Common Stock as follows:
Number of Securities Exercise Vesting Expiration
Name and Position Underlying Option Price Date(1) Date
- ----------------- --------------------- -------- --------- -------------
($/Share)
<S> <C> <C> <C> <C>
E. Craig Sanders 100,000 $2.50 12/31/96 07/31/2006
President and Chief 100,000 4.25 12/31/96 07/31/2006
Executive Officer 100,000 5.25 12/31/97 07/31/2006
100,000 6.25 12/31/97 07/31/2006
200,000 7.25 12/31/98 07/31/2006
Neil N. Snyder III 33,333 3.38 12/31/97 09/13/2001
Executive V. P. and 33,333 4.25 12/31/97 09/13/2001
Chief Operating Officer 33,333 5.25 12/31/98 09/13/2001
33,333 6.25 12/31/98 09/13/2001
66,668 7.25 12/31/99 09/13/2001
</TABLE>
______________________________
(1) All options vest immediately upon a change in control of the Company.
It is anticipated that 500,000 of Mr. Sanders' options and all of Mr.
Snyder's options will be issued under the 1997 Incentive Plan. The balance of
Mr. Sanders' options were issued under the Company's 1987 Non-Qualified Stock
Option Plan. As of June 3, 1997, the market value of the shares underlying the
options of Mr. Sanders and Mr. Snyder was $3.38 per share based upon the closing
price of the Company's Common Stock on the American Stock Exchange.
Administration
The 1997 Incentive Plan will be administered by the Committee, consisting
of two or more directors each of whom must be an "Outside Director" within the
meaning of Section 162(m) of the Code and the regulations thereunder and a
"Non-Employee Director" as defined under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Committee, which
currently consists of three such directors, is authorized to designate
participants, determine the type and number of awards to be granted, set terms
and conditions of awards, and make all determinations which may be necessary or
advisable for the administration of the 1997 Incentive Plan.
Stock Options and SARs
Stock options, including incentive stock options ("ISOs") and non-qualified
stock options, entitle the participant to purchase shares of Common Stock at
prescribed prices. Stock appreciation rights ("SARs") entitle the participant to
receive the excess of the fair market value of a share of Common Stock on the
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date of exercise over the grant price of the SAR. SARs may be granted alone or
in tandem with options. The exercise price of an option and the grant price of
an SAR may not be less than the fair market value per share of the Common Stock
on the date of grant. The majority of options granted under the Company's
current policy are granted at prices above fair market value and vest over an
extended period of time (e.g., five years). Stock options and SARs are
exercisable at such times and subject to such terms and conditions as
established by the Committee, except no option or SAR may have a term exceeding
10 years. Options may be exercised by payment of the exercise price in cash,
Common Stock, outstanding awards or other property as the Committee may
determine from time to time. It is anticipated that stock options will
constitute the principal form of compensation under the 1997 Incentive Plan;
however, the mix of award types is subject to Committee discretion and
ultimately may vary.
Performance Awards
Performance awards confer upon a participant rights payable or exercisable
based on the attainment of certain performance objectives during specified
awards periods. Performance awards may be denominated in shares of Common Stock,
may be payable in cash, other awards or other property, and may be subject to
such forfeiture conditions, restrictions, and other terms as the Committee may
specify.
Performance awards have not heretofore been utilized by the Company for
incentive compensation. If utilized in the future, it is currently anticipated
that the Committee will establish at the beginning of each fiscal year written
goals and target incentive awards for participants, including the officers named
in the Summary Compensation Table, based on performance in the following areas:
revenue enhancement, net income, earnings before interest, taxes, depreciation
and amortization (EBITDA), cost reduction, margin improvement, selling, general
and administrative expenses, return on equity, return on investment, and sales
growth. The targeted awards would be established based upon a percentage of base
salary and payouts of awards would be based on the degree of achievement of the
relevant performance goals, subject to minimums and maximums. Before any payment
of a performance award could occur, the Committee would have to certify that the
performance goals had been satisfied. The Committee believes that it would be
inappropriate to disclose specific goals which are confidential business
information, the disclosure of which would adversely affect the Company and its
shareholders. It is currently anticipated that annual payouts, if performance
awards were utilized by the Company, would not exceed 100% of a participant's
base salary. Based upon the current base salary of the Company's current Chief
Executive Officer and the other executive officers identified in the Summary
Compensation Table, the maximum annual performance award which could be earned
by a participant in the 1997 Incentive Plan would be $300,000. Assuming growth
in the target awards to reflect inflation and competitive practice, the maximum
annual performance award payable to a participant in the 1997 Incentive Plan
could rise to $356,000 during the next five years.
The same performance criteria and limits would be applicable to other
stock-based awards subject to performance criteria.
Dividend Equivalents
Dividend equivalents confer on participants the right to receive, currently
or on a deferred basis, cash, stock, other awards, or other property equal in
value to dividends paid on a specific number of shares. Dividend equivalents may
be paid directly to participants or may be deemed to be reinvested in additional
stock awards or otherwise. The Company has never paid a dividend on its Common
Stock and has not heretofore utilized dividend equivalents for incentive
compensation.
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Other Stock-Based Awards
The Committee may also grant awards that are denominated in, valued in
whole or in part by reference to, or otherwise based on or related to Common
Stock. The Committee determines the terms and conditions of such awards,
including any consideration to be paid to exercise awards, any performance
objectives to be attained, the period during which awards will be outstanding,
and forfeiture conditions and restrictions. The Company has not heretofore
utilized other stock-based awards for incentive compensation.
Other Terms of Awards
Awards may be settled in cash, Common Stock, other awards or other
property. The Committee may require or permit participants to defer the
distribution of all or part of an award in accordance with such terms and
conditions as the Committee may establish, including payment of interest or
dividend equivalents on any deferred amounts. The Committee may place shares or
other property in trusts or make other arrangements to provide for payment of
the Company's obligations under the 1997 Incentive Plan.
Awards may not be pledged or otherwise encumbered and generally are not
transferable except by will or by the laws of descent and distribution. A
participant may designate a beneficiary to exercise such person's rights and
receive distributions under the 1997 Incentive Plan upon such person's death.
Amendment, Termination and Adjustments; No Repricing
The Board may amend, suspend or terminate the 1997 Incentive Plan without
the consent of shareholders or participants, except that shareholder approval
will be sought within one year after such Board action if shareholder approval
is required by any applicable law or regulation or rule of a stock exchange, or
if the Board in its discretion determines that obtaining such approval is
advisable. The Committee may also amend, accelerate, suspend or terminate any
outstanding award and any related agreement; provided, however, that the
Committee may not, without the approval of the shareholders, reduce the exercise
price of an outstanding stock option or cancel an outstanding option and replace
it with an option having a lower exercise price (except as provided in the
following paragraph). No amendment or termination may impair the rights of a
participant under any outstanding award without his or her consent. The 1997
Incentive Plan will continue until such time as it is terminated by the Board.
In the event of certain changes affecting the shares of Common Stock (such
as a stock dividend or distribution, recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, spin-off, combination,
repurchase or share exchange, or other similar corporate transaction or event),
the Committee may adjust the aggregate number or kind of shares which may be
issued under the 1997 Incentive Plan and terms of outstanding awards as it deems
to be appropriate in order to prevent dilution or enlargement of participants'
rights under the 1997 Incentive Plan. The Committee may also make adjustments in
the terms and conditions of awards in recognition of unusual or nonrecurring
events affecting the Company or any subsidiary or their financial statements or
changes in applicable laws, regulations, or accounting principles.
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Federal Income Tax Implications
The Company believes that under present law, the following federal income
tax consequences generally arise with respect to awards granted under the 1997
Incentive Plan. The grant of an option or SAR (including a stock-based award in
the nature of a purchase right) will create no tax consequences for the
participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the alternative minimum tax may apply) and the
Company will receive no deduction at that time. Upon exercising an option other
than an ISO (including a stock-based award in the nature of a purchase right),
the participant must generally recognize ordinary income equal to the difference
between the exercise price and fair market value of the freely transferable and
nonforfeitable stock acquired on the date of the exercise, and upon exercising
an SAR, the participant must generally recognize ordinary income equal to the
cash or the fair market value of the freely transferable and nonforfeitable
stock received. In each case, the Company will be entitled to a deduction equal
to the amount recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option, SAR, or other stock-based award in the nature of a purchase right
generally will result in short-term or long-term capital gain or loss (except in
the event that shares issued pursuant to the exercise of an ISO are disposed of
within two years after the date of grant or within one year after the transfer
of the shares to the participant) measured by the difference between the sale
price and the participant's tax basis in such shares (or the exercise price of
the option in the case of shares acquired by exercise of an ISO and held for the
applicable ISO holding periods). Generally, there will be no tax consequences to
the Company in connection with disposition of shares acquired under an option or
other award, except that the Company will be entitled to a deduction (and the
participant will recognize ordinary taxable income) if shares acquired upon
exercise of an ISO are disposed of before the applicable ISO holding periods
have been satisfied.
With respect to awards granted under the 1997 Incentive Plan that may be
settled either in cash or in Common Stock or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of stock or other property received less any
amount paid therefor. The Company will be entitled to a deduction for the same
amount. With respect to awards involving Common Stock or other property that is
restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the fair market value of the shares or other property received less any amount
paid therefor at the time the shares or other property become transferable or
not subject to a substantial risk of forfeiture, whichever occurs earlier. The
Company will be entitled to a deduction for the same amount at the same time the
participant recognizes ordinary income. A participant may elect to be taxed at
the time of receipt of shares or other property rather than upon lapse of
restrictions on transferability or the substantial risk of forfeiture, in which
case the Company will be entitled to a deduction at the same time.
In each instance described above, the deduction available to the Company
may be limited, as to the Chief Executive Officer and the Company's four other
most highly compensated executives, by Section 162(m) of the Code, which places
a $1 million limit on the deduction that may be taken for compensation paid to
any such officer unless such compensation is based on the attainment of
"objective" performance goals established in advance by a committee of two or
more outside directors, and paid pursuant to a plan approved by shareholders.
The 1997 Incentive Plan is designed to enable the Company to meet the
requirements for deductibility as to performance awards, stock options, SARs,
and other performance-based awards subject to performance criteria if the 1997
Incentive Plan is approved by shareholders.
The foregoing provides only a general description of the applicability of
federal income tax laws to certain types of awards under the 1997 Incentive
Plan. Different tax rules may apply with respect to participants who are
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subject to Section 16 of the Exchange Act, when they acquire stock in a
transaction deemed to be a nonexempt purchase under that statute or within six
months of an exempt grant of a derivative security under the 1997 Incentive
Plan. The summary does not address the effects of other federal taxes or taxes
imposed under state, local or foreign tax laws.
The Board of Directors unanimously recommends a vote "FOR" approval of the 1997
Incentive Plan.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Pursuant to employment agreements entered into during 1996, the Company has
agreed to grant stock options to executive officers E. Craig Sanders and Neil N.
Snyder III. A portion of Mr. Sanders' options and all of Mr. Snyder's options
will be issued under the 1997 Incentive Plan. See Proposal 2, Approval of 1997
Incentive Plan--General.
MEETINGS AND COMMITTEES OF THE BOARD
Fourteen meetings of the Board of Directors were held during 1996. Each of
the directors of the Company participated, during the period of 1996 when he was
a director, in at least 75% of the total of the meetings of the Board of
Directors and the meetings of the committees on which the Board member served.
For the Board of Directors as a whole, average attendance at Board and committee
meetings during 1996 was 95%.
The Compensation Committee held five meetings during 1996. The Compensation
Committee's responsibilities include, among other things, recommending salary
adjustments, establishing bonuses, granting options to employees and determining
the terms of those options. No additional fees were paid to directors for
serving on the Compensation Committee in 1996. The members of the Compensation
Committee are Messrs. Delaney, Frank and Maccarone.
The Audit Committee held two meetings during 1996. The Audit Committee's
responsibilities include, among other things, recommending independent auditors
to the Board, reviewing the scope of audit functions of the independent auditors
and reviewing audit reports rendered by the independent auditors. The members of
the Audit Committee are Messrs. Delaney, Lund and Maccarone.
The full Board of Directors, a majority of which are non-employee
directors, acts as the Nominating Committee and nominated directors for election
at the 1997 Annual Meeting of Shareholders. The Board of Directors will consider
nominees for director that are recommended by shareholders. Nominees for
election at the 1998 Annual Meeting of Shareholders should be submitted to the
Board of Directors not later than February 13, 1998.
Director Compensation
Currently, all directors 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 (or re-
election) by the shareholders of the Company at an annual meeting of
shareholders, 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 10,000 shares of Common Stock of the Company. Non-employee directors
who are chosen to fill a newly created directorship or vacancy in the Board of
Directors are also granted an option to purchase 10,000 shares
9
<PAGE>
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. All of the directors of the Company are reimbursed
for all travel and other expenses incurred in attending meetings. Pursuant to an
agreement with the Company, director Jody Frank received $10,000 in 1996 for
services as a director, in addition to the compensation described above. No
further payments by the Company are called for under such agreement.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
10
<PAGE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock of the Company as of June 3, 1997
(except as otherwise indicated) 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 current director, (iii) each executive officer named in the
Summary Compensation Table included elsewhere herein, and (iv) all directors and
executive officers of the Company, as a group. Except as otherwise indicated,
the persons named in the table have sole voting and investment power with
respect to the shares shown as beneficially owned by them.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class
- ------------------------ ----------------------- -----------------
<S> <C> <C>
Charles J. Delaney - -
Jody Frank 234,262(2)(3) 1.44%
Robert E. Lund 111,350(2) *
Justin S. Maccarone - -
E. Craig Sanders 200,000(4) 1.22%
Bonnie S. Biumi 100,000(4) *
Lawrence T. Ellman 45,000(4) *
Bruce W. Renard 85,000(4) *
C. Keith Pressley 5,000(4) *
All directors and
executive officers as a group 780,612 4.63%
(11 persons)
Heartland Group
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202 3,858,100(5)(6) 23.82%
UBS Partners, Inc.
299 Park Avenue
New York, New York 10171 2,887,143(5)(7) 15.13%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109 1,946,690(5)(8) 12.02%
KAIM Non-Traditional, L.P.
1800 Avenue of the Stars,
2nd Floor
Los Angeles, California 90067 889,200(5)(9) 5.49%
Creditanstalt American Corp.
245 Park Avenue
New York, New York 10167 850,000(5)(10) 5.03%
</TABLE>
_________________________
*Less than one percent.
(footnotes on next page)
11
<PAGE>
(1) Includes shares of Common Stock issuable upon the exercise of stock options,
which are exercisable within 60 days of June 3, 1997.
(2) Includes options to purchase shares of Common Stock granted to the following
directors: 125,000 to Jody Frank (at an average exercise price of $7.21 per
share); and 100,000 to Robert E. Lund (at an average exercise price of $4.23 per
share).
(3) Includes 3,812 shares owned by Jody Frank as custodian for Aaron Frank,
Rebekah Frank and Lucy Frank, Mr. Frank's minor children.
(4) Includes options to purchase 435,000 shares of Common Stock granted to the
following executive officers: 200,000 to E. Craig Sanders (at an average
exercise price of $3.38 per share); 100,000 to Bonnie S. Biumi (at an average
exercise price of $5.69 per share); 45,000 to Lawrence T. Ellman (at an average
exercise price of $5.69 per share); 85,000 to Bruce W. Renard (at an average
exercise price of $3.79 per share); and 5,000 to C. Keith Pressley (at an
average exercise price of $5.13).
(5) Information provided by Schedule 13D and/or 13Gs filed by such persons. The
Company has not independently verified such information.
(6) Of such shares, Heartland Group has sole voting power as to 3,188,000 shares
and sole dispositive power as to 3,858,100 shares.
(7) Includes: (i) options to acquire 30,000 shares of Common Stock of the
Company at an average exercise price of $3.62, held for the benefit of UBS
Partners, Inc. by directors Charles J. Delaney and Justin S. Maccarone; and
(ii) 2,857,143 shares of Common Stock issuable upon conversion of 150,000 shares
of Preferred Stock currently outstanding. All of the outstanding Preferred Stock
is owned by UBS Partners, Inc. (a wholly-owned subsidiary of Union Bank of
Switzerland).
(8) Wellington Management Company ("Wellington"), an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, has
reported in a Schedule 13G that it is the beneficial owner of 1,946,690 shares
of the Company's Common Stock held of record by Wellington's clients. Wellington
shares dispositive power over all such shares and shares voting power as to
284,890 of such shares. Wellington's Schedule 13G discloses that one of its
clients, Vanguard Explorer Fund, Inc. ("Vanguard"), has the right to receive, or
to direct the receipt of, dividends from, or other proceeds from the sale of,
more than 5% of the outstanding Common Stock of the Company. Vanguard, the
mailing address of which is P.O. Box 2600, Valley Forge, Pennsylvania
19482-2600, has reported in its own Schedule 13G that it is the beneficial owner
of 1,225,000 shares of the Company's Common Stock, or 7.56% of the outstanding
Common Stock. Vanguard has the sole power to vote and shared power to dispose of
such shares.
(9) Of such shares, KAIM Non-Traditional, L.P. has shared voting and dispositive
power as to 889,200 shares and sole voting and dispositive power as to 15,000
shares.
(10) Includes 700,000 currently exercisable warrants.
12
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
The following sets forth the name, age and position of each of the
executive officers of the Company:
Name Age Position
- ---------------- --- ---------
<S> <C> <C>
E. Craig Sanders 52 President, Chief Executive Officer, Director
David A. Arvizu 48 Senior Vice President-Sales and Marketing
Bonnie S. Biumi 35 Chief Financial Officer, Executive Vice President
Lawrence T. Ellman 45 Executive Vice President/President-
National Accounts
C. Keith Pressley 53 President-Inmate Telecommunications Division
Bruce W. Renard 43 General Counsel and Executive Vice President-Legal
and Regulatory Affairs/Carrier Relations
Neil N. Snyder, III 50 Chief Operating Officer, Executive Vice President
</TABLE>
The principal occupation of each executive officer (other than E. Craig
Sanders) for at least the last five years is set forth below:
David A. Arvizu joined the Company in March 1997 as Senior Vice President
of Sales and Marketing for local and regional markets. From 1994 to 1997 Mr.
Arvizu served as Vice President-Western Region of Western Union Financial
Services, Inc. From 1991 to 1994, he was president of a sales, marketing and
consulting service for a co-op of independent Pepsi-Cola franchisees. Prior to
1991, Mr. Arvizu spent twenty years in sales and brand management positions with
PepsiCo Inc. and General Foods Corp.
Bonnie S. Biumi joined the Company in July 1994. Since that time she has
served as Chief Financial Officer and, since February 1996, has also served as
an Executive Vice President. 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 and held that office until February 1996 when he became
Executive Vice President-Sales. Since September 1996, he has served as Executive
Vice President/President-National Accounts. From 1990 until joining the Company,
Mr. Ellman was President of Atlantic Telco Joint Venture, an independent public
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.
C. Keith Pressley joined the Company in February 1994 as Vice President of
Management Information Systems. He became President of the Inmate
Telecommunications Division in June 1996. From 1991 to 1994, he was Director of
Information Systems for Smith International, Inc., an oil field services
company.
13
<PAGE>
Bruce W. Renard joined the Company as General Counsel and Vice
President-Regulatory Affairs in January 1992 and, since February 1996, has
served as General Counsel and Executive Vice President-Legal & Regulatory
Affairs/Carrier Relations. 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, Caparello, French and Madsen, managing the utility and
telecommunications law sections of the firm. Prior to that time, Mr. Renard
served as Associate General Counsel for the Florida Public Service Commission.
Neil N. Snyder III joined the Company in September 1996 as Executive Vice
President and Chief Operating Officer. Prior to joining the Company, Mr. Snyder
served as a career officer in the U.S. Army rising to the rank of Brigadier
General.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
14
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1996, 1995 and 1994, the compensation paid by the Company to its Chief Executive
Officer and each of the four remaining most highly compensated executive
officers for the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
-----------
Annual Compensation Shares
Name and ----------------------- Underlying All Other
Principal Position Year Salary Bonus Options(#) Compensation(1)
- ---------------------- ---- -------- ------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
E. Craig Sanders(2) 1996 $212,000 $130,000 600,000 -
President and Chief
Executive Officer
Robert E. Lund (3) 1996 161,000 50,000 60,000 -
1995 14,000 - 10,000 -
1994 - - 15,000 -
Bonnie S. Biumi, 1996 169,000 61,000 - $2,400
Chief Financial 1995 150,000 25,000 - 2,300
Officer, Executive 1994 66,000 - 100,000 -
Vice President
Lawrence T. Ellman 1996 167,000 43,000 - -
Executive Vice 1995 150,000 25,000 - -
President; President 1994 105,000 10,000 45,000 -
- - National Accounts
Bruce W. Renard, 1996 192,500 115,000(4) - -
Executive Vice 1995 172,000 25,000 50,000 400
President, Legal & 1994 150,000 - 20,000 2,000
Regulatory Affairs/
Carrier Relations,
General Counsel
C. Keith Pressley, 1996 112,000 10,500 - 1,800
President - Inmate 1995 100,000 - - 1,800
Telecommunications 1994 84,000 - 5,000 -
Division
</TABLE>
____________________
(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.
(footnotes continued on next page)
15
<PAGE>
<TABLE>
<CAPTION>
(2) Mr. Sanders joined the Company in May 1996.
(3) Mr. Lund served as Chief Executive Officer of the Company from November 1995
until May 1996 and as President from February 1996 until May 1996.
(4) Does not include a $50,000 bonus contingent on certain factors related to
the implementation of the Telecommunication Act of 1996.
The following table sets forth certain information with respect to stock
options granted during the year ended December 31, 1996 to the executive
officers named in the Summary Compensation Table:
Potential
Realizable
Value
OPTION GRANTS IN LAST FISCAL YEAR of Assumed
INDIVIDUAL GRANTS Annual Rates
----------------------------------------------- of Stock Price
Apreciation
Number of % of Total for Option
Securities Options Granted Exercise or Expira- Term(1)
Underlying to Employees in Base price tion -------------
Options Fiscal Year ($/share) Date 5% 10%
----------- --------------- ----------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Lund 50,000 5.75% $2.50 7/31/01 $34,535 $76,314
10,000 1.15 2.68 7/15/01 7,404 16,362
E. Craig Sanders 100,000 11.49 2.50 7/31/06 157,224 398,436
100,000(2) 11.49 4.25 7/31/06 -- 223,436
100,000(2) 11.49 5.25 7/31/06 -- 123,426
100,000(2) 11.49 6.25 7/31/06 -- 23,486
200,000(2) 22.99 7.25 7/31/06 -- --
</TABLE>
_____________________
(1) 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.
(2) Represents options that the Company is contractually obligated to issue that
have not yet been issued.
16
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1996 by the executive officers
named in the Summary Compensation Table and the fiscal year end value of
unexercised options:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Value of
Unexercised
Number of In-the-Money
Unexercised Options Options at
at Fiscal Year End Fiscal Year
End
------------------- ------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(s) Realized Unexercisable Unexercisable
- --------------- ---------------- --------- ------------------- -------------
<S> <C> <C> <C> <C>
E. Craig Sanders - - 200,000/400,000 $69,000/-
Robert E. Lund - - 100,000/- 39,600/-
Bonnie S. Biumi - - 66,666/33,334 -/-
Lawrence T. Ellman - - 30,000/15,000 -/-
Bruce W. Renard - - 68,333/16,667 25,000/12,500
C. Keith Pressley - - 5,000/- -/-
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with E. Craig Sanders,
the President and Chief Executive Officer of the Company. The employment
agreement is for a term commencing May 2, 1996 and ending on December 31, 1998.
The agreement provides for a base salary at the annual rate of $300,000, subject
to increase upon the review of the Board. The agreement provides for bonus
compensation based upon the attainment of performance targets. The agreement
provides for the grant of stock options for 600,000 shares of the Company's
Common Stock at exercise prices ranging from $2.50 to $7.25 per share, vesting
at various dates during the contract term. If the Company terminates Mr.
Sanders' employment without cause (except in the circumstances described in the
following sentence), the Company will pay Mr. Sanders an amount equal to 200% of
his base salary in effect on the date of the termination, as well as provide
those fringe benefits enjoyed by him at the date of his termination for a period
of two years or, to the extent Mr. Sanders is not eligible to participate in any
Company fringe benefit plans, the after tax value of such benefits. If, after a
change in control of the Company, Mr. Sanders' employment is terminated by the
Company without cause or terminated by Mr. Sanders for good reason, the Company
will pay him an amount equal to 200% of the sum of his base salary plus the
maximum bonus compensation which he would have been entitled to receive had the
Company achieved the performance targets to which bonus compensation is tied for
the year of such termination and will continue to provide him with those fringe
benefits enjoyed at the date of his termination for a period of two years or, to
the extent Mr. Sanders is not eligible to participate in any Company fringe
benefit plans, the after tax value of such benefits. In addition, upon a change
in control of the Company, all options granted to Mr. Sanders will vest.
Robert E. Lund served as Chief Executive Officer from November 1995 until
May 1996 under an agreement which provided that Mr. Lund would receive a salary
of $27,500 per month, in addition to other benefits and
17
<PAGE>
reimbursements, and was terminable by Mr. Lund or the Company upon 30 days
notice. The agreement was terminated in May 1996.
The Company is a party to an employment agreement with Bonnie S. Biumi, the
Chief Financial Officer and an Executive Vice President of the Company. The
employment agreement is for a term commencing July 11, 1994 and ending 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 agreement
provides for a base salary at the annual rate of $150,000, increasing 10% each
year, provided the Company has met certain income targets. The base salary may
also be increased annually by merit increases or at any time at the discretion
of the Board of Directors. Ms. Biumi may, at the sole discretion of the Company,
be granted a bonus. If the Company terminates Ms. Biumi's employment agreement
without cause or Ms. Biumi terminates the agreement for certain defined reasons,
the Company will pay Ms. Biumi (a) her base salary through the termination date
and (b) as severance pay a lump sum amount equal to 200% of Ms. Biumi's annual
base salary at the highest rate in effect during the 12 months immediately
preceding termination. Upon termination in connection with a change in control
of the Company, Ms. Biumi shall receive (a) her base salary through the
termination date, (b) all other benefits provided in the employment agreement in
connection with a change in control, (c) severance pay equal to 200% of her
annual base salary at the highest rate in effect during the 12 months
immediately preceding such termination and (d) options granted to Ms. Biumi
under the employment agreement will vest. Upon termination of her employment for
disability, Ms. Biumi is entitled to 100% of her base salary then in effect for
one year and 50% of her base salary for two additional years.
The Company is a party to an employment agreement with Lawrence T. Ellman,
Executive Vice President/President-National Accounts. The employment agreement
is for a term commencing June 22, 1994 and ending December 31, 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. The Company has no obligation to pay Mr. Ellman benefits upon
a termination for cause, disability or death. Upon termination in connection
with a change of control of the Company, Mr. Ellman shall receive (a) his base
salary through the termination date and (b) severance pay equal to 100% of his
annual base salary at the highest rate in effect during the 12 months
immediately preceding such termination.
The Company is a party to an employment agreement with Bruce W. Renard, the
Company's General Counsel and Executive Vice President -- Legal and Regulatory
Affairs/Carrier Relations. 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. If the Company terminates Mr. Renard's employment without cause
or Mr. Renard terminates the agreement for certain defined reasons, the Company
will pay Mr. Renard (a) his base salary through the date of termination and (b)
as severance pay a lump sum amount equal to 100% of Mr. Renard's salary in
effect during the 12 months immediately preceding termination. Mr. Renard's
employment agreement also provides that upon termination in connection with a
change in control, Mr. Renard shall receive (a) his base salary through the
termination date, (b) all other benefits provided in the employment agreement in
connection with a change in control, (c) as severance pay a lump sum amount
equal to 100% of his highest annual base salary in effect during the 12 months
immediately preceding the termination and (d) options granted to Mr. Renard
under the employment agreement will vest. Mr. Renard's agreement is otherwise
similar to that of Ms. Biumi.
The employment agreements above restrict the employee from competing with
the Company for one year in the areas in which the Company then operates
following termination of the agreement. Under Ms. Biumi's and Mr. Renard's
agreements, the Company may terminate an employment agreement without further
payment if the employee
18
<PAGE>
materially breaches his or her obligations and duties under the agreement or is
convicted of a felony under certain circumstances or upon the death of the
employee. Under Mr. Ellman's agreement, the Company may terminate the agreement
without further payment if the employee commits a felony involving serious moral
turpitude, refuses to perform his duties, or engages in misconduct injurious to
the Company.
The Company is a party to a change in control agreement with C. Keith
Pressley, President-Inmate Telecommunications Division. Upon termination in
connection with a change of control of the Company, Mr. Pressley shall receive
(a) his base salary through the termination date, (b) severance pay equal to 50%
of his annual base salary at the highest rate in effect during the 12 months
immediately preceding such termination and (c) all options granted to Mr.
Pressley will vest.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is composed of three non-employee directors. The Committee is
responsible for reviewing and approving the compensation paid to executive
officers of the Company, including salaries, bonuses and stock options.
Following review and approval by the Committee, actions pertaining to executive
compensation are reported to the full Board of Directors.
Compensation Philosophy
The Company's compensation philosophy is characterized by the following
three features: (i) competitiveness as to salary, (ii) granting only
performance-based bonuses and (iii) granting a significant portion of an
executive's compensation in stock options that vest over an extended period
(e.g., five years) with exercise prices at or above fair market value at the
time of grant. In light of the Company's past financial difficulties and
continuing efforts to return to profitability, and in light of the effects of
the passage of the Telecommunications Act of 1996 on the Company and the
telecommunications industry in general, the Company believes its compensation
program should be designed to allow the Company to attract, motivate and retain
executives of the highest caliber to permit the Company's future growth and
profitability. Since 1996, the new management of the Company has made special
efforts to ensure that the Company's compensation program is structured to
provide incentives for executive officer performance that promote continuing
improvement in the Company's financial results and long-term shareholder value.
As a general matter, executive compensation is set by the Company at levels
which take into account the compensation paid by companies of similar size and
complexity. The program is also designed to align the interests of the Company's
executives and its shareholders by providing for payment of a significant
portion of incentive compensation in the form of options to purchase the
Company's Common Stock. Such option grants generally vest over a period of years
to encourage executive retention. Moreover, each executive officer's
compensation is based upon both individual performance and Company performance.
Consideration is given to the Company's income, earnings per share, cash flow,
revenue growth, EBITDA and other factors. The contributions of each executive
officer to such items are evaluated in determining adjustments to salaries and
whether incentive awards will be made. Certain executive officers have entered
into employment contracts with the Company which take these factors into
consideration. The Committee also uses subjective criteria it deems relevant in
its reasonable business discretion.
Executive Compensation
As may be seen in the Summary Compensation Table included on page 15, the
compensation of executive officers consists of three principal parts, each of
which is reviewed by the Committee, consistent with the Company's
19
<PAGE>
compensation philosophy set forth above. Annual salaries shown in the table
represent the fixed portion of compensation for the year. Changes in salary
depend upon Company as well as individual performance. Given the Company's
recent financial performance, at the recommendation of the Chief Executive
Officer, the Company has frozen senior management salaries for 1997. The bonus
shown in the table paid to executive officers also depends on the performance of
the individual and the financial performance of the Company. The final component
of compensation arises from the Company's grant of stock options to executive
officers. The Company has a history of encouraging employee ownership of the
Company's stock. The Committee sets the number of options to be granted based
upon the recipient's performance. All options are granted at or above fair
market value (see, for example, "Option Grants in Last Fiscal Year" on page 16),
and, therefore, any value which ultimately accrues to the executive officer is
based entirely on the Company's performance, as perceived by investors who
establish the price for the Company's stock. As noted above, options granted by
the Company generally vest over an extended period.
Robert E. Lund joined the management of the Company as Chief Executive
Officer in November 1995 pending the Company's search for a permanent Chief
Executive Officer. Mr. Lund's compensation as an employee of the Company was set
at $27,500 per month, which salary he received from December 1995 until May
1996. This salary was set after arms-length negotiations between the Company and
Mr. Lund and was set at a level believed by the Company to be competitive for
the telecommunications industry. Mr. Lund received a $50,000 bonus in 1996 and
was granted 50,000 options in respect of his service as President and Chief
Executive Officer.
E. Craig Sanders became President and Chief Executive Officer of the
Company in May 1996. Mr. Sanders' base salary as an employee of the Company is
set at $300,000 annually and includes other terms as set forth in the
"Employment Agreements" section of this Proxy Statement. These terms were
established after arms-length negotiations between the Company and Mr. Sanders
and are believed by the Company to be appropriate for an executive of Mr.
Sanders' experience in the increasingly competitive and rapidly evolving
telecommunications industry.
Rules of the Securities and Exchange Commission require the inclusion in
this Proxy Statement of a graph of the cumulative total return to shareholders
during the previous 5 years in comparison with a broad market index and a peer
group index. The Company's record in this area is a factor of management's
performance considered by the Compensation Committee.
The Compensation Committee
Respectfully Submitted,
Charles J. Delaney
Jody Frank
Justin S. Maccarone
Compensation Committee Interlocks and Insider Participation
Robert E. Lund served as a member of the Compensation Committee of the
Board of Directors during 1996 and, from November 29, 1995 through May 1, 1996,
served as the Chief Executive Officer of the Company.
Compensation Committee member Jody Frank has outstanding loans from the
Company, which loans are described below. See "Certain Relationships and Related
Transactions."
20
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE GRAPH
The following graph shows a comparison of the five year cumulative return
(assuming reinvestment of any dividends) among the Company, the American Stock
Exchange Market Value Index ("AMEX"), the NASDAQ Total Return Index (US
Companies) ("ASDAQ-US"), and the NASDAQ Total Return Industry
Index-Telecommunications ("NASDAQ-Telecom"), a peer group selected by the
Company. This graph and table assume an investment of $100 in the Common Stock
and each index on December 31, 1991. Effective November 13, 1996, the Common
Stock of the Company began trading on the American Stock Exchange. Previously,
the Company's stock was traded on the NASDAQ's National Market System and the
SmallCap Market.
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
1991 1992 1993 1994 1995 1996
------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AMEX 100 101 121 110 139 148
NASDAQ-US 100 116 134 131 185 227
NASDAQ-Telecom 100 123 189 158 207 212
Company 100 115 150 47 24 33
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth certain information regarding the repricing
of stock options granted to executive officers of the Company in the last ten
years:
TEN-YEAR OPTION REPRICING
Length
Number of of
Securit- Orginal
ies Market Option
Underly- Price of Exercise Term Re-
ing Stock at Price at maining at
Options time of Time of Re- New Ex- Date of Re
Repriced Repricing pricing or ercise pricing or
Name Date Amended or Amendment Amendment Price Amendment
- -------------- ------- -------- ------------ ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey Hanft, 10/9/96 250,000 $4.25 $8.50 (1) 28 months
former
Chairman,
President and
Chief Executive
Officer
</TABLE>
________________________
(1) In connection with the termination of Mr. Hanft's employment with the
Company, Mr. Hanft agreed to pledge his options and the underlying shares to the
Company to secure certain prior indebtedness owed by Mr. Hanft to the Company.
As a part of the consideration for such pledge, in the event of a change in
control of the Company occurring on or prior to December 31, 1998, the exercise
price of Mr. Hanft's options will be adjusted to the market price prevailing
immediately prior to such change in control.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1996, the Company has engaged in the following
transactions with directors and/or executive officers of the Company,
shareholders listed in the security ownership table on page 11, or with
businesses with which they are associated:
As disclosed in previous proxy statements, the Company loaned certain funds
(the "Company Loans") to Jody Frank, and certain now former executive officers
of the Company (the "Borrowers") for the reasons described below. Each of the
Company Loans was made following approval by the members of the Board of
Directors who were not parties to the transactions 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 the 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.
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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, including an aggregate of $213,217 to Mr. Frank, of which $143,217 was to
refinance his bank loan and $70,000 was 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.
In February 1996, the Company agreed to restructure the full principal
amount of Mr. Frank's loans plus accrued interest in an aggregate amount of
$248,501. In connection with the restructuring, the Company received from Mr.
Frank a stock pledge agreement encumbering 35,000 shares of Common Stock of the
Company held by Mr. Frank. As restructured, $124,250.50 of Mr. Frank's loans are
evidenced by a non-recourse promissory note (which note limits enforcement of
the note to the 35,000 pledged shares of Common Stock) bearing interest at the
rate of 6.43% annually, and payable in full on February 1, 2001. The remaining
$124,250.50 is evidenced by a promissory note bearing interest at the rate of
6.19% annually and payable in five annual installments beginning on February 1,
2002. Except for such restructured loan and related pledge of Common Stock, Mr.
Frank has no indebtedness to the Company.
In April 1996, the Company amended its credit facility with
Creditanstalt-Bankverein to accomplish, among other things, the following: (i)
Creditanstalt-Bankverein waived defaults arising under the credit facility; and,
(ii) the line of credit under the credit facility was decreased from $40 million
to $10 million. At the same time, the Company decreased to $5.25 the exercise
price of the warrants held by Creditanstalt American Corporation to acquire
Common Stock or Series B Preferred Stock of the Company that had not already
been repriced. The warrants repriced in April 1996 consisted of warrants to
acquire 150,000, 300,000 and 50,000 shares at exercise prices of $8.00 per
share, $9.33 per share and $9.00 per share, respectively. On March 26, 1997, the
Company increased its credit facility with Creditanstalt-Bankverein from
$10,000,000 to $20,000,000. Since January 1, 1996 the Company has paid
Creditanstalt-Bankverein $425,000 in fees as a lender in connection with the
Company's credit facilities.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16 of the Securities Exchange Act of 1934, the Company's
directors, certain of its officers, and beneficial owners of more than 10% of
the outstanding Common Stock are required to file reports with the Securities
and Exchange Commission concerning their ownership of and transactions in the
Company's equity securities; such persons are also required to furnish the
Company with copies of such reports. Based solely upon the reports and related
information furnished to the Company, the Company believes that all such filing
requirements were complied with in a timely manner during and with respect to
1996 except that for Mr. Snyder one report regarding one transaction was filed
late.
CERTAIN INFORMATION AS TO INSURANCE
No shareholder action is required with respect to the following information
which is included to fulfill the requirements of Sections 725 and 726 of the
Business Corporation Law of the State of New York. Effective December 31, 1996,
the Company renewed insurance providing for reimbursement, with certain
exclusions and deductions, to (i) the Company for payments it makes to indemnify
directors and officers of the Company and its subsidiaries, and (ii) directors
and officers for losses, costs and expenses incurred by them in connection with
their acts in those capacities
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for which they are not indemnified by the Company. This insurance is provided to
the Company by Reliance Insurance Company and Genesis Insurance Company. The
cost of this insurance is $345,000 for a one year term.
RELATIONSHIP WITH THE COMPANY'S AUDITORS
The Company is not required to obtain shareholder approval or ratification
of its selection of its auditors under the laws of the State of New York, and
the Audit Committee and the Board of Directors reserve the right to make any
change in auditors at any time, and without shareholder approval, which the
Board of Directors and Audit Committee deem advisable or necessary.
Representatives of Ernst & Young LLP, the Company's current auditors, are
expected to be present at the Annual Meeting and will be afforded the
opportunity to make a statement, if they so desire, and will be available to
respond to appropriate questions from shareholders.
On December 15, 1995, the Board of Directors of the Company approved the
recommendation of the Audit Committee not to retain Price Waterhouse LLP, of
Miami, Florida, as the independent accountant chosen to audit the Company's
financial statements and approved the appointment of Ernst & Young LLP, Miami,
Florida, as the Company's independent accountant, which appointment of Ernst &
Young LLP became effective immediately.
Price Waterhouse LLP's reports on the financial statements of the Company
for 1993 and 1994, the last two fiscal years audited by such firm, did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified as
to audit scope or accounting principles. Their report on the Company's December
31, 1994 financial statements dated March 28, 1995, except as to the second
paragraph of Note 17 and as to Note 18, which were as of May 31, 1995, did
contain an explanatory paragraph with respect to certain matters which raised
substantial doubt about the Company's ability to continue as a going concern and
an explanatory paragraph with respect to certain then pending litigation.
During 1993 and 1994, and during the subsequent interim period preceding
the date of Price Waterhouse LLP's replacement, there was no disagreement with
Price Waterhouse LLP on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Price Waterhouse LLP, would
have caused Price Waterhouse LLP to make a reference to the subject matter of
the disagreement in connection with its reports.
On June 27, 1995, Price Waterhouse LLP reported to the Audit Committee that
the Company did not achieve proper cut-off of its quarterly financial
information for the first half of 1994 and that such failure, in its opinion,
constituted a material weakness. This matter was discussed by the Audit
Committee with Price Waterhouse LLP and the Company has addressed this matter by
implementing improved cut-off controls and establishing a policy of having its
independent accountants review quarterly information prior to its release. The
Company authorized Price Waterhouse LLP to respond fully to the inquiries of
Ernst & Young LLP regarding such matter.
OTHER MATTERS
Management is not aware of any other business that may come before the
Annual Meeting. However, if additional matters properly come before the Annual
Meeting, proxies will be voted at the discretion of the proxy- holders.
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SOLICITATION PROCEDURES
The cost of soliciting proxies will be borne by the Company. In addition,
the Company will reimburse brokers or other persons holding stock in their names
or in the names of their nominees for charges and expenses incurred in
forwarding proxies and proxy material to the beneficial owners. Solicitations
may also be made by employees of the Company, without additional compensation,
by use of the mails, telephone, telegraph or otherwise. The Company has retained
a proxy solicitation firm, D.F. King & Co., Inc., to assist in the solicitation
of proxies and estimates that such services will cost approximately $5,000 (plus
reasonable out-of-pocket expenses).
SHAREHOLDER PROPOSALS
Under the regulations applicable to the solicitation of proxies,
shareholder proposals intended to be presented at the 1998 Annual Meeting of
Shareholders of the Company must have been received by the Company not later
than February 13, 1998, at its principal executive offices, 2300 N.W. 89th
Place, Miami, Florida 33172, Attention: E. Craig Sanders, President, for
inclusion in the Proxy Statement relating to the 1998 Annual Meeting of
Shareholders.
By Order of the Board of Directors,
/s/ Francis J. Harkins
Francis J. Harkins, Vice President and Secretary
Miami, Florida
June 13, 1997
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EXHIBIT TO PROXY STATEMENT
PEOPLES TELEPHONE COMPANY, INC.
1997 Incentive Plan
SECTION 1. Purpose. The purpose of this 1997 Incentive Plan (the "Plan") of
Peoples Telephone Company, Inc. (together with any successor thereto, the
"Corporation") is (a) to promote the identity of interests between shareholders,
directors, officers, employees, and consultants of the Corporation by
encouraging and creating significant ownership of Common Stock of the
Corporation by directors, officers and other employees of the Corporation and
its subsidiaries; (b) to enable the Corporation to attract and retain qualified
directors, officers, employees, and consultants who contribute to the
Corporation's success by their ability, ingenuity and industry; and (c) to
provide meaningful long- term incentive opportunities for directors, officers,
employees, and consultants who are responsible for the success of the
Corporation and who are in a position to make significant contributions toward
its objectives.
SECTION 2. Definitions. In addition to the terms defined elsewhere in the
Plan, the following shall be defined terms under the Plan:
2.01. "Award" means any Performance Award, Option, Stock Appreciation
Right, Dividend Equivalent, or Other Stock-Based Award, or any other right or
interest relating to Shares or cash, granted to a Participant under the Plan.
2.02. "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
2.03. "Board" means the Board of Directors of the Corporation.
2.04. "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code shall be deemed to include
successor provisions thereto and regulations thereunder.
2.05. "Committee" means the Compensation Committee of the Board, or such
other Board committee as may be designated by the Board to administer the Plan,
or any subcommittee of either; provided, however, that the Committee and any
subcommittee thereof, shall consist of two or more directors, each of whom is a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act
and is also an "Outside Director" within the meaning of Section 162(m) of the
Code and the regulations thereunder.
2.06. "Corporation" is defined in Section 1.
2.07. "Covered Employee" has the same meaning as set forth in Section
162(m) of the Code, and the regulations thereunder.
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2.08. "Dividend Equivalent" means a right, granted to a Participant under
Section 6.03, to receive cash, Shares, other Awards, or other property equal in
value to dividends paid with respect to a specified number of Shares.
2.09. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include successor provisions thereto and regulations thereunder.
2.10. "Fair Market Value" means, with respect to Shares, Awards, or other
property, the fair market value of such Shares, Awards, or other property
determined by such methods or procedures as shall be established from time to
time by the Committee. Unless otherwise determined by the Committee, the Fair
Market Value of Shares as of any date shall be the closing sales price on that
date of a Share as reported on the stock exchange or automated stock quotation
system on which Shares may be listed or quoted; provided, that if there were no
sales on the valuation date but there were sales on dates within a reasonable
period both before and after the valuation date, the Fair Market Value shall be
the weighted average of the closing prices on the nearest date before and the
nearest date after the valuation date (the "Average"). The Average is to be
weighted inversely by the respective numbers of trading days between the selling
dates and the valuation date.
2.11. "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code.
2.12. "Non-Qualified Stock Option" means an Option that is not intended to
be an Incentive Stock Option.
2.13. "Option" means a right, granted to a Participant under Section 6.04,
to purchase Shares, other Awards, or other property at a specified price during
specified time periods. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
2.14. "Other Stock-Based Award" means a right, granted to a Participant
under Section 6.06, that relates to or is valued by reference to Shares.
2.15. "Participant" means a person who, as a director, officer, employee or
consultant of the Corporation or any Subsidiary, has been granted an Award under
the Plan.
2.16. "Performance Award" means a right, granted to a Participant under
Section 6.02, to receive cash, Shares, other Awards, or other property the
payment of which is contingent upon achievement of certain performance goals
specified by the Committee.
2.17. "Plan" is defined in Section 1.
2.18. "Rule 16b-3" means Rule 16b-3, as from time to time amended and
applicable to Participants, promulgated by the Securities and Exchange
Commission under Section 16 of the Exchange Act.
2.19. "Shares" means the Common Stock, $.01 par value, of the Corporation
and such other securities of the Corporation as may be substituted for Shares or
such other securities pursuant to Section 9.
2.20. "Stock Appreciation Right" means a right, granted to a Participant
under Section 6.05, to be paid an amount measured by the appreciation in the
Fair Market Value of Shares from the date of grant to the date of exercise
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of the right, with payment to be made in cash, Shares, other Awards, or other
property as specified in the Award or determined by the Committee.
2.21. "Subsidiary" means any corporation (other than the Corporation) with
respect to which the Corporation owns, directly or indirectly, more than 50% of
the total combined voting power of all classes of stock. In addition, any other
related entity may be designated by the Board as a Subsidiary, provided such
entity could be considered as a subsidiary according to generally accepted
accounting principles.
2.22. "Year" means a calendar year.
SECTION 3. Administration.
3.01. Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority to take the
following actions, in each case subject to and consistent with the provisions of
the Plan:
(i) to select and designate Participants;
(ii) to designate Subsidiaries;
(iii) to determine the type or types of Awards to be granted to each
Participant;
(iv) to determine the number of Awards to be granted, the number of Shares
to which an Award will relate, the terms and conditions of any Award
granted under the Plan (including, but not limited to, any exercise price,
grant price, or purchase price, the applicable performance goals, the
certification of achievement of such goals prior to the settlement of an
Award, any restriction or condition, any schedule for lapse of restrictions
or conditions relating to transferability or forfeiture, exercisability, or
settlement of an Award, and waivers or accelerations thereof, and waiver of
performance conditions relating to an Award, based in each case on such
considerations as the Committee shall determine), and all other matters to
be determined in connection with an Award;
(v) to determine whether, to what extent, and under what circumstances an
Award may be settled, or the exercise price of an Award may be paid, in
cash, Shares, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(vi) to determine whether, to what extent, and under what circumstances
cash, Shares, other Awards, or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee, or at the election of the Participant;
(vii) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(viii) to adopt, amend, suspend, waive, and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
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(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement, or other instrument
hereunder; and
(x) to make all other decisions and determinations as may be required under
the terms of the Plan or as the Committee may deem necessary or advisable
for the administration of the Plan.
3.02. Manner of Exercise of Committee Authority. Unless authority is
specifically reserved to the Board under the terms of the Plan, the Committee
shall have sole discretion in exercising such authority under the Plan. Any
action of the Committee with respect to the Plan shall be final, conclusive, and
binding on all persons, including the Corporation, Subsidiaries, Participants,
any person claiming any rights under the Plan from or through any Participant,
and shareholders. The express grant of any specific power to the Committee, and
the taking of any action by the Committee, shall not be construed as limiting
any power or authority of the Committee. A memorandum signed by all members of
the Committee shall constitute the act of the Committee without the necessity,
in such event, to hold a meeting, and the Committee shall establish other rules
governing meetings of the Committee. The Committee may delegate to officers or
managers of the Corporation or any Subsidiary the authority, subject to such
terms as the Committee shall determine, to perform administrative functions
under the Plan.
3.03. Limitation of Liability. Each member of the Committee shall be
entitled to rely or act upon, in good faith, any report or other information
furnished to him by any officer or other employee of the Corporation or any
Subsidiary, the Corporation's independent certified public accountants, or any
executive compensation consultant or other professional retained by the
Corporation to assist in the administration of the Plan. No member of the
Committee, nor any officer or employee of the Corporation acting on behalf of
the Committee, shall be personally liable for any action, determination, or
interpretation taken or made in good faith with respect to the Plan, and all
members of the Committee and any officer or employee of the Corporation acting
on their behalf shall, to the extent permitted by law, be fully indemnified and
protected by the Corporation with respect to any such action, determination, or
interpretation.
SECTION 4. Shares Subject to the Plan. Subject to adjustment as provided in
Section 10, the total number of Shares reserved and available for Awards under
the Plan shall be 1,350,000. For purposes of this Section 4, the number of and
time at which Shares shall be deemed to be subject to Awards and therefore
counted against the number of Shares reserved and available under the Plan shall
be the earliest date at which the Committee can reasonably estimate the number
of Shares to be distributed in settlement of an Award or with respect to which
payments will be made; provided, however, that the Committee may adopt
procedures for the counting of Shares relating to any Award for which the number
of Shares to be distributed or with respect to which payment will be made cannot
be fixed at the date of grant to ensure appropriate counting, avoid double
counting (in the case of tandem or substitute awards), and provide for
adjustments in any case in which the number of Shares actually distributed or
with respect to which payments are actually made differs from the number of
Shares previously counted in connection with such Award.
If any Shares to which an Award relates are forfeited or the Award is
settled or terminates without a distribution of Shares (whether or not cash,
other Awards, or other property is distributed with respect to such Award), any
Shares counted against the number of Shares reserved and available under the
Plan with respect to such Award shall, to the extent of any such forfeiture,
settlement or termination, again be available for Awards under the Plan.
SECTION 5. Eligibility. Awards may be granted only to individuals who are
directors, officers or other employees and consultants of the Corporation or a
Subsidiary; provided, however, that no Award shall be granted to any member of
the Committee.
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SECTION 6. Specific Terms of Awards.
6.01 General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, subject to the provisions of Section 10.02, the
Committee may impose on any Award or the exercise thereof, at the date of grant
or thereafter, such additional terms and conditions, not inconsistent with the
provisions of the Plan and Section 162(m) of the Code, as the Committee shall
determine, including without limitation the acceleration of vesting of any
Awards or terms requiring forfeiture of Awards in the event of termination of
service as a director or employment by the Participant. Except as provided in
Sections 7.03 and 7.04, only services may be required as consideration for the
grant of any Award.
6.02. Performance Awards. Subject to the provisions of Section 7.01 and
7.02, the Committee is authorized to grant Performance Awards to Participants on
the following terms and conditions:
(i) Award and Conditions. A Performance Award shall confer upon the
Participant rights, valued as determined by the Committee, and payable to,
or exercisable by, the Participant to whom the Performance Award is
granted, in whole or in part, as determined by the Committee, conditioned
upon the achievement of performance criteria determined by the Committee.
(ii) Other Terms. A Performance Award may be denominated in Shares and may
be payable in cash, other Awards, or other property, and have such other
terms as shall be determined by the Committee.
6.03. Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to Participants. The Committee may provide that Dividend Equivalents
shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares or Awards, or otherwise reinvested; provided,
however, that the payment of Dividend Equivalents shall not be made contingent
upon a Participant's exercise of any Option awarded under Section 6.04..
6.04. Options: The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that,
except as provided in Section 7.03, such exercise price shall be not less
than the Fair Market Value of a Share on the date of grant of such Option.
(ii) Time and Method of Exercise. The Committee shall determine the time or
times at which an Option may be exercised in whole or in part, the methods
by which such exercise price may be paid or deemed to be paid, the form of
such payment, including, without limitation, cash, Shares, other Awards or
awards issued under other Corporation plans, or other property (including
notes or other contractual obligations of Participants to make payment on a
deferred basis, such as through "cashless exercise" arrangements), and the
methods by which Shares will be delivered or deemed to be delivered to
Participants. Options shall expire not later than ten years after the date
of grant.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, including but not limited to requirements related
to aggregate maximum fair market value of underlying Shares, minimum
exercise prices, Option duration and the requirement that no Incentive
Stock Option shall be granted more than ten years after the effective date
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of the Plan. Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options shall be interpreted,
amended, or altered, nor shall any discretion or authority granted under
the Plan be exercised, so as to disqualify either the Plan or any Incentive
Stock Option under Section 422 of the Code. In the event a Participant
voluntarily disqualifies an Option as an Incentive Stock Option, the
Committee may, but shall not be obligated, to make such additional Awards
or pay bonuses as the Committee shall deem appropriate to reflect the tax
savings to the Corporation which result from such disqualification.
6.05. Stock Appreciation Rights. The Committee is authorized to grant Stock
Appreciation Rights to Participants on the following terms and conditions:
(i) Right to Payment. A Stock Appreciation Right shall confer on the
Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one Share on the date
of exercise (or, if the Committee shall so determine in the case of any
such right, other than one related to an Incentive Stock Option, the Fair
Market Value of one Share at any time during a specific period before or
after the date of exercise) over (B) the grant price of the Stock
Appreciation Right as determined by the Committee as of the date of grant
of the Stock Appreciation Right, which, except as provided in Section 7.03,
shall be not less than the Fair Market Value of one Share on the date of
grant.
(ii) Other Terms. The Committee shall determine the time or times at which
a Stock Appreciation Right may be exercised in whole or in part, the method
of exercise, method of settlement, form of consideration payable in
settlement, method by which Shares will be delivered or deemed to be
delivered to Participants, and any other terms and conditions of any Stock
Appreciation Right. Stock Appreciation Rights shall expire not later than
ten years after the date of grant.
6.06. Other Stock-Based Awards. The Committee is authorized to grant to
Participants such other Awards that are denominated in, valued in whole or in
part by reference to, or otherwise based on or related to, Shares, as deemed by
the Committee to be consistent with the purposes of the Plan, including without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Shares, purchase rights and Awards valued by
reference to the value of Shares or the value of securities of or the
performance of specified Subsidiaries. The Committee shall determine the terms
and conditions of such Awards, which may include performance criteria. Shares
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6.06 shall be purchased for such consideration, paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Shares, other Awards, or other property, as the Committee shall determine.
SECTION 7. Certain Provisions Applicable to Awards.
7.01. Performance-Based Awards. Performance Awards, Dividend Equivalents
and certain Other Stock-Based Awards subject to performance criteria are
intended to be "qualified performance-based compensation" within the meaning of
Section 162(m) of the Code and shall be paid solely on account of the attainment
of one or more preestablished, objective performance goals within the meaning of
Section 162(m) and the regulations thereunder. Until otherwise determined by the
Committee, the performance goal shall be the attainment of preestablished
amounts of annual net income of the Corporation.
The payout of any such Award to a Covered Employee may be reduced, but not
increased, based on the degree of attainment of other performance criteria or
otherwise at the discretion of the Committee.
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7.02. Maximum Yearly Awards. A maximum of 500,000 Shares (or the equivalent
Fair Market Value thereof with respect to Awards valued in whole or in part by
reference to, or otherwise based on or related to, Shares) may be made subject
to Performance Awards and Other Stock-Based Awards subject to performance
criteria in any Year. The maximum payout of such Awards in any Year may not
exceed 150% of the amount thereof, or 750,000 Shares in the aggregate and
187,500 Shares in the case of any Participant. A maximum of 750,000 Shares may
be made subject to Options and Stock Appreciation Rights in any Year. No
Participant may receive Awards covering or representing more than 25% of the
maximum number of Shares which may be made subject to such types of Awards in
any Year. Notwithstanding the foregoing, awards of Options granted in connection
with an employee's initial employment with the Corporation or a Subsidiary shall
not count toward or be subject to such limitations. The Share amounts in this
Section 7.02 are subject to adjustment (i) by the Committee and (ii) under
Section 9, and are subject to the Plan maximum under Section 4.
7.03. Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution for any other
Award granted under the Plan or any award granted under any other plan of the
Corporation, any Subsidiary, or any business entity to be acquired by the
Corporation or a Subsidiary, or any other right of a Participant to receive
payment from the Corporation or any Subsidiary. If an Award is granted in
substitution for another Award or award, the Committee shall require the
surrender of such other Award or award in consideration for the grant of the new
Award. Awards granted in addition to or in tandem with other Awards or awards
may be granted either as of the same time as, or at a different time from, the
grant of such other Awards or awards. Subject to Section 9 hereof the per Share
exercise price of any Option, grant price of any Stock Appreciation Right, or
purchase price of any other Award conferring a right to purchase Shares:
(i) Granted in substitution for an outstanding Award or award shall be not
less than the lesser of the Fair Market Value of a Share at the date such
substitute award is granted or such Fair Market Value at that date reduced
to reflect the Fair Market Value at that date of the Award or award
required to be surrendered by the Participant as a condition to receipt of
the substitute Award; or
(ii) Retroactively granted in tandem with an outstanding Award or award
shall be not less than the lesser of the Fair Market Value of a Share at
the date of grant of the later Award or the date of grant of the earlier
Award or award.
7.04. Exchange Provisions. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Shares, other
Awards (subject to Section 7.03), or other property based on such terms and
conditions as the Committee shall determine and communicate to the Participant
at the time that such offer is made.
7.05. Term of Awards. The term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no event shall
the term of any Option or a Stock Appreciation Right granted in tandem therewith
exceed a period of ten years from the date of its grant (or such shorter period
as may be applicable under Section 422 of the Code).
7.06. Form of Payment Under Awards. Subject to the terms of the Plan and
any applicable Award Agreement, payments to be made by the Corporation or a
Subsidiary upon the grant or exercise of an Award may be made in such forms as
the Committee shall determine, including without limitation, cash, Shares, other
Awards, or other property, and may be made in a single payment or transfer, in
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installments, or on a deferred basis. Such payments may include,without
limitation, provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of Dividend
Equivalents in respect of installment or deferred payments denominated in
Shares.
SECTION 8. General Restrictions Applicable to Awards.
8.01. Restrictions Under Rule 16b-3.
8.01.1. Six-Month Holding Period. Unless a Participant could otherwise
transfer an equity security, derivative security, or Shares issued upon
exercise of a derivative security granted under the Plan without incurring
liability under Section 16(b) of the , (i) an equity security issued under
the Plan, other than an equity security issued upon exercise or conversion
of a derivative security granted under the Plan, shall be held for at least
six months from the date of acquisition, and (ii), with respect to a
derivative security issued under the Plan, at least six months shall elapse
from the date of acquisition of the derivative security to the date of
disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security; and (iii) any Award in the
nature of a Stock Appreciation Right must be held for six months from the
date of grant to the date of cash settlement.
8.01.2. Nontransferability. Awards which constitute derivative
securities (including any option, stock appreciation right, or similar
right) shall not be transferable by a Participant except by will or the
laws of descent and distribution (except pursuant to a beneficiary
designation authorized under Section 8.02) or, if then permitted under Rule
16b-3, pursuant to a qualified domestic relations order as defined under
the Code or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder, and, in the case of an Incentive Stock
Option or, if then required by Rule 16b-3, any other derivative security
granted under the Plan, shall be exercisable during the lifetime of a
Participant only by such Participant or his guardian or legal
representative.
8.01.3. Compliance with Rule 16b-3. It is the intent of the
Corporation that this Plan comply in all respects with Rule 16b-3 in
connection with any Award granted to a person who is subject to Section 16
of the Exchange Act. Accordingly, if any provision of this Plan or any
Award Agreement does not comply with the requirements of Rule 16b-3 as then
applicable to any such person, such provision shall be construed or deemed
amended to the extent necessary to conform to such requirements with
respect to such person.
8.02. Limits on Transfer of Awards; Beneficiaries. No right or interest of
a Participant in any Award shall be pledged, encumbered, or hypothecated to or
in favor of any party (other than the Corporation or a Subsidiary), or shall be
subject to any lien, obligation, or liability of such Participant to any party
(other than the Corporation or a
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Subsidiary). Unless otherwise determined by the Committee (subject to the
requirements of Section 8.01.2), no Award subject to any restriction shall be
assignable or transferable by a Participant otherwise than by will or the laws
of descent and distribution (except to the Corporation under the terms of the
Plan); provided, however, that a Participant may, in the manner established by
the Committee, designate a beneficiary or beneficiaries to exercise the rights
of the Participant, and to receive any distribution, with respect to any Award,
upon the death of the Participant. A beneficiary, guardian, legal
representative, or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
and any Award Agreement applicable to such Participant or agreement applicable
to such, except to the extent the Plan and such Award Agreement or agreement
otherwise provide with respect to such persons, and to any additional
restrictions deemed necessary or appropriate by the Committee.
8.03. Registration and Listing Compliance. The Corporation shall not be
obligated to deliver any Award or distribute any Shares with respect to any
Award in a transaction subject to any regulatory approval, registration, or any
other applicable requirement of federal or state law, or subject to a listing
requirement under any listing or similar agreement between the Corporation and
any national securities exchange or automatic stock quotation system, until such
approval or registration has been obtained and such laws, regulations, and
contractual obligations of the Corporation have been complied with in full,
although the Corporation shall be obligated to use its best efforts to obtain
any such approval and comply with such requirements as promptly as practicable.
8.04. Share Certificates. All certificates for Shares delivered under the
Plan pursuant to any Award or the exercise thereof shall be subject to such
stop-transfer order and other restrictions as the Committee may deem advisable
under applicable federal or state laws, rules and regulations thereunder, and
the rules of any national securities exchange or automated stock quotation
system on which Shares are listed or quoted. The Committee may cause a legend or
legends to be placed on any such certificates to make appropriate reference to
such restrictions or any other restrictions that may be applicable to Shares,
including under the terms of the Plan or any Award Agreement. In addition,
during any period in which Awards or Shares are subject to restrictions under
the terms of the Plan or any Award Agreement, or during any period during which
delivery or receipt of an Award or Shares has been deferred by the Committee or
a Participant, the Committee may require the Participant to enter into an
agreement providing that certificates representing Shares issuable or issued
pursuant to an Award shall remain in the physical custody of the Corporation or
such other person as the Committee may designate.
SECTION 9. Adjustment Provisions. In the event that the Committee shall
determine that any dividend or other distribution (whether in the form of cash,
Shares, or other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, spin-off, combination, repurchase, or
share exchange, or other similar corporate transaction or event, affects the
Shares such that an adjustment is determined by the Committee to be appropriate
in order to prevent dilution or enlargement of the rights of Participants under
the Plan, then the Committee shall, in such manner as it may deem equitable,
adjust any or all of (i) the number and kind of Shares which may thereafter be
issued in connection with Awards, (ii) the number and kind of Shares issued or
issuable in respect of outstanding Awards, and (iii) the vesting,
exercisability, exercise price, grant price, or purchase price relating to any
Award or, if deemed appropriate, make provision for a cash payment with respect
to any outstanding Award; provided, however, that in each case, with respect to
Incentive Stock Options, no such adjustment shall be authorized to the extent
that such authorization would cause the Plan to violate Section 422(b)(1) of the
Code. In addition, the Committee is authorized to make adjustments in the terms
and conditions of, and the criteria included in, any Award or Award Agreement in
recognition of unusual or nonrecurring events (including, without limitation,
events described in the preceding sentence) affecting the Corporation or any
Subsidiary or the financial statements of the Corporation or any Subsidiary, or
in response to changes in applicable laws, regulations, or accounting
principles. Notwithstanding anything to the contrary contained in the Plan, the
Committee shall not, without further approval of the shareholders
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of the Company, authorize the amendment of any outstanding Option to reduce the
exercise price of such Option, nor without such shareholder approval may the
Committee authorize the cancellation of an outstanding Option and its
replacement with an Option having a lower exercise price; provided, however,
that the foregoing shall not prohibit appropriate adjustments to Options in the
event of a stock split, reverse stock split, stock dividend or similar change to
the Company's capital structure.
SECTION 10. Changes to the Plan and Awards.
10.01. Changes to the Plan. The Board may amend, alter, suspend,
discontinue or terminate the Plan without the consent of shareholders or
Participants, except that any such amendment, alteration, suspension,
discontinuation, or termination shall be subject to the approval of the
Corporation's shareholders within one year after such Board action if such
shareholder approval is required by any federal or state law or regulation or
the rules of any stock exchange or automatic stock quotation system on which the
Shares may be listed or quoted, or if the Board in its discretion determines
that obtaining such shareholder approval is for any reason advisable; provided,
however, that, without the consent of an affected Participant, no amendment,
alteration, suspension, discontinuation, or termination of the Plan may impair
the rights of such Participant under any Award theretofore granted to him.
10.02. Changes to Awards. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted and any Award Agreement relating thereto; provided, however,
that, without the consent of an affected Participant, no such amendment,
alteration, suspension, discontinuation, or termination of any Award may impair
the rights of such Participant under such Award.
SECTION 11. General Provisions.
11.01. No Rights to Awards. No Participant or employee shall have any claim
to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants and employees.
11.02. No Shareholder Rights. No Award shall confer on any Participant any
of the rights of shareholder of the Corporation unless and until Shares are duly
issued or transferred to the Participant in accordance with the terms of the
Award.
11.03. Tax Withholding. The Corporation or any Subsidiary is authorized to
withhold from any Award granted, any payment relating to an Award under the
Plan, including from a distribution of Shares, or any payroll or other payment
to a Participant, amounts of withholding and other taxes due with respect
thereto, its exercise, or any payment thereunder, and to take such other action
as the Committee may deem necessary or advisable to enable the Corporation and
Participants to satisfy obligations for the payment of withholding taxes and
other tax liabilities relating to any Award. This authority shall include
authority to withhold or receive Shares or other property and to make cash
payments in respect thereof in satisfaction of Participant's tax obligations.
11.04. No Right to Employment. Nothing contained in the Plan or any Award
Agreement shall confer, and no grant of an Award shall be construed as
conferring, upon any employee any right to continue in the employ of the
Corporation or any Subsidiary or to interfere in any way with the right of the
Corporation or any Subsidiary to terminate his or her employment at any time or
increase or decrease his or her compensation from the rate in existence at the
time of granting of an Award.
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11.05. Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Corporation; provided, however,
that the Committee may authorize the creation of trusts or make other
arrangements to meet the Corporation's obligations under the Plan to deliver
cash, Shares, other Awards, or other property pursuant to any award, which
trusts or other arrangements shall be consistent with the "unfunded" status of
the Plan unless the Committee otherwise determines with the consent of each
affected Participant.
11.06. Other Compensatory Arrangements. The Corporation or any Subsidiary
shall be permitted to adopt other or additional compensation arrangements (which
may include arrangements which relate to Awards), and such arrangements may be
either generally applicable or applicable only in specific cases.
11.07. Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award. The Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in lieu of fractional
Shares or whether such fractional Shares or any rights thereto shall be
forfeited or otherwise eliminated.
11.08. Governing Law. The validity, construction, and effect of the Plan,
any rules and regulations relating to the Plan, and any Award Agreement shall be
determined in accordance with the laws of the State of Florida, without giving
effect to principles of conflicts of laws, and applicable federal law.
SECTION 12. Effective Date. The Plan shall be effective upon approval of
the Plan by holders of the Corporation's capital stock entitled to vote thereon.
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PEOPLES TELEPHONE COMPANY, INC.
ANNUAL MEETING OF SHAREHOLDERS
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints E. Craig Sanders, Bonnie S. Biumi, Bruce W.
Renard, or any one of them, with full power of substitution, the proxies of the
undersigned, to vote all shares of Common Stock or Series C Cumulative
Convertible Preferred Stock of Peoples Telephone Company, Inc. which the
undersigned would be entitled to vote if personally present at the Annual
Meeting of Shareholders to be held on July 14, 1997, at 10:00 a.m., at the
Radisson Mart Plaza Hotel at 711 Northwest 72nd Avenue, Miami, Florida 33126,
and at any adjournments thereof, as to the matters specified on the reverse
side, all as more fully described in the accompanying proxy statement. The Board
of Directors currently knows of no other matters to be presented at the Annual
Meeting. THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDER. IF NO DIRECTION IS GIVEN, SUCH SHARES WILL BE VOTED "FOR" THE
NOMINEES LISTED IN PROPOSAL ONE AND "FOR" PROPOSAL TWO.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN
PROPOSAL ONE AND "FOR" PROPOSAL TWO.
(Continued on reverse side)
<PAGE>
1. Election of Directors. Nominees: Jody Frank, Robert E. Lund
and E. Craig Sanders
FOR WITHHELD To withhold authority to vote for any individual
nominee, write that nominee's name in the space
provided below:
[ ] [ ] ______________________________________________
2. To approve the adoption of the 1997 Incentive Plan
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the proxy holders are authorized to transact and vote
upon all other business as may properly come before the meeting and all
adjournments of the meeting.
Please mark, date and sign as your name appears
hereon and return in the enclosed envelope. If
acting as executor, administrator, trustee,
guardian, etc., you should so indicate when
signing. If the signatory is a corporation, a
duly authorized officer should sign for the
corporation. If shares are held jointly, each
shareholder named should sign.
Date:____________________________________, 1997
_____________________________________________
Signature
_____________________________________________
Signature (if held jointly)
