January 14, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street NW
Washington, DC 20549
RE: Peoples Telephone Company, Inc. - Definitive Proxy Statement in respect
of Special Meeting of Shareholders to be held February 14, 1997.
Ladies and Gentlemen:
Pursuant to our discussions, we are hereby filing by means of EDGAR the
definitive proxy statement and related proxy materials (the "Proxy Materials")
in respect of a Special Meeting of Shareholders of Peoples Telephone Company,
Inc. (the "Company") to be held on February 14, 1997. The Company anticipates
first mailing the definitive version of the Proxy Materials to shareholders on
or about January 14, 1997.
Thank you for your cooperation.
Very truly yours,
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ Francis J. Harkins, Jr.
Vice President and Associate General Counsel
FJH/pam
cc: Ira Rosner, Esq.
Brian Heller, Esq.
<PAGE>
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
<PAGE>
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:
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on February 14, 1997
_______________
TO THE SHAREHOLDERS OF PEOPLES TELEPHONE COMPANY, INC.:
Notice is hereby given that a Special Meeting of Shareholders of Peoples
Telephone Company, Inc. (the "Company") will be held on Friday, February 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 consider and vote upon a proposal to amend the Company's Restated
Certificate of Incorporation, as amended (the "Charter"), in order to increase
the number of authorized shares of the Company's common stock to 75,000,000
shares and the number of authorized shares of Company's preferred stock to
5,000,000 shares;
2. To consider and vote upon a proposal to amend the Charter to permit the
Company to grant preemptive and preferential rights to acquire shares of the
Company's capital stock pursuant to contractual agreements;
3. To consider and ratify the grant of certain stock options granted
outside of the Company's stock option plans; and
4. To transact such other business as may properly come before the Special
Meeting and any and all adjournments and postponements thereof.
The Board of Directors has fixed the close of business on December 31, 1996
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the Special 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 Special Meeting.
<PAGE>
Whether or not you plan to attend the Special 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 Special Meeting.
By Order of the Board of Directors,
/s/ Francis J. Harkins, Vice President and Secretary
January 14, 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.
<PAGE>
PEOPLES TELEPHONE COMPANY, INC.
PROXY STATEMENT
_______________________
SPECIAL MEETING OF SHAREHOLDERS
To Be Held On February 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 Special Meeting of Shareholders of the Company to be held
on February 14, 1997 (the "Special Meeting") and at any adjournments or
postponements of the Special Meeting.
The Special Meeting will be held at the Radisson Mart Plaza Hotel at 711
Northwest 72nd Avenue, Miami, Florida 33126, on February 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 January 14, 1997. The principal
executive offices of the Company are located at 2300 N.W. 89th Place, Miami,
Florida 33172.
OUTSTANDING STOCK AND VOTING RIGHTS
On July 19, 1995, the Company issued to UBS Partners, Inc. ("UBS Partners")
150,000 shares of Series C Preferred Stock for gross proceeds of $15.0 million.
Pursuant to the terms of the Series C Preferred Stock, the holders of the Series
C Preferred Stock are currently entitled to elect two members of the Board of
Directors of the Company. 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. UBS Partners
has elected Mr. Charles J. Delaney and Mr. Justin S. Maccarone to serve on the
Board of Directors of the Company.
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 December 31, 1996 as the record date (the "Record Date") for the
determination of shareholders entitled to notice of, and to vote at, the Special
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 holder may nevertheless attend the
meeting, revoke the proxy and vote in person. As of the date of this Proxy
Statement,
1
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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 Special Meeting.
At the close of business on December 31, 1996, there were 16,194,684 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 Series C Preferred Stock or Common Stock of the Company at the close
of business on December 31, 1996 is entitled to notice of the meeting and to
vote, in person or by proxy, 19.04762 votes for each share of Series C Preferred
Stock and one (1) vote for each share of Common 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 Special Meeting. Under the laws of
the State of New York (in which the Company is incorporated), the approval of
each of the proposals will require the affirmative vote of a majority of the
total outstanding shares entitled to vote thereon. Therefore, as to all matters
to be voted on by shareholders at the Special Meeting, abstentions and broker
non-votes (instances where brokers are prohibited from exercising discretionary
authority for beneficial owners who have not returned a proxy) have the same
effect as a vote against a matter. Abstentions and broker non-votes will be
counted in the determination of a quorum. The Company has been informed that UBS
Partners will cast its 2,857,143 votes in favor of each of the proposals set
forth herein.
PROPOSAL 1
APPROVAL OF AMENDMENT OF CERTIFICATE OF INCORPORATION TO
INCREASE AUTHORIZED SHARES OF COMMON STOCK AND PREFERRED
STOCK
On December 18, 1996, the Board approved the amendment of Paragraph FOURTH
of the Company's Restated Certificate of Incorporation, as amended (the
"Charter"), to increase the number of authorized shares of Common Stock from
25,000,000 shares to 75,000,000 shares and the number of shares of Preferred
Stock, par value $.01 per share, from 4,900,000 shares to 5,000,000 shares
("Amendment 1"). If the proposal is adopted, Paragraph FOURTH of the Charter
will read in its entirely as follows:
"FOURTH: Capital Stock. The total number of shares of all classes of
Capital Stock which the Corporation shall have the authority to issue
and have outstanding is 80,000,000 of which 75,000,000 shall be Common
Stock, par value $.01 per share, and 5,000,000 shall be Preferred
Stock, par value $.01 per share, of which 600,000 shares shall be the
Corporation's Series B Preferred Stock and 160,000 shares shall be the
Corporation's Series C Cumulative Convertible Preferred Stock. The
shares may be issued from time to time as authorized by the Board of
Directors without further approval of shareholders. The consideration
for the issuance of the shares shall not be less than the par value.
Future services shall not constitute payment or part payment for the
issuance of shares of the Corporation. The consideration for the
shares shall be cash, tangible or intangible property, labor or
services actually performed for the Corporation, or any combination of
the foregoing. In the absence of actual fraud in the transaction, the
value of such property, labor or services as determined by the Board
of Directors of the Corporation, shall be conclusive. Upon payment of
such consideration, such shares shall be deemed to be fully paid and
nonassessable.
I. Common Stock. Each share of Common Stock shall have the same
relative rights as and be identical in all respects with all the other
shares of Common Stock.
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<PAGE>
II. Preferred Stock. The Preferred Stock may be issued in series by
the Board of Directors from time to time, each series with such dividend
rights, voting rights, liquidation preferences, redemption rights,
conversion rights and other rights and preferences as the Board of
Directors may from time to time provide, as authorized by applicable law."
Purposes and Reasons for Amendment 1
The Company has proposed Amendment 1 because the Board believes it to be in
the best interests of Company to have additional shares of Common Stock
available for issuance for general corporate purposes, including possible future
stock dividends, equity financings and mergers and acquisitions and stock based
compensation plans. If Amendment 1 is adopted, the increased number of
authorized shares of Common Stock will be available for issuance from time to
time, for such purposes and consideration and on such terms as the Board may
approve, and no further vote of the shareholders of the Company will be
required, except as may be provided under the New York Business Corporation Law
in certain circumstances, or as may be required by the rules of the American
Stock Exchange, Inc. (the "AMEX").
On the Record Date, there were 16,194,684 shares of Common Stock
outstanding, an aggregate of 6,566,538 shares reserved for issuance pursuant to
exercise of options granted under the Company's 1993 Non-Employee Director Stock
Option Plan, 1987 Non-Qualified Stock Plan for Non-Employee Directors, 1987
Non-Qualified Stock Option Plan and 1994 Stock Incentive Plan, each as amended
to date, various other options and warrants and upon conversion of the Series C
Preferred Stock. Accordingly, there were only 2,238,778 shares of Common Stock
available for issuance on the Record Date for general corporate purposes such as
equity financings, stock based compensation and mergers and acquisitions. Given
the small number of available unissued shares, the Company may not be able to
take advantage of opportunities to raise equity capital or effect acquisitions
through the issuance of stock without the need to amend the Charter. If
Amendment 1 were not to be adopted, the issuance of additional shares of Common
Stock could be impeded by the delay and expense incident to calling a special
meeting of the Company's shareholders to approve an increase in the number of
authorized shares of Common Stock in cases where such a meeting would not
otherwise be required.
The timing of the actual issuance of additional shares of Common Stock, if
any, will depend upon market conditions, the specific purpose for which the
stock is to be issued, and other similar factors. Any additional issuance of
Common Stock could have a dilutive effect on existing holders of Common Stock.
While the Company currently has no specific agreements or understandings for the
issuance of any unreserved shares of Common Stock for which authorization is
sought, the Company may pursue mergers with, or acquisitions of businesses or
acquisitions of assets related to, the pay telephone industry which could
enhance the Company's existing business, and could issue shares of Common Stock
in such transactions. Some of these acquisitions could be material in relation
to the Company's revenues and assets.
The terms of the additional shares of Common Stock for which authorization
is sought will be identical with the terms of the shares of Common Stock
currently authorized and outstanding, and Amendment 1 will not affect the terms,
or the rights of the holders, of such shares. The Common Stock has no cumulative
voting, conversion, preemptive or subscription rights and is not redeemable.
Under Paragraph FOURTH of the Charter, as presently enacted, the Board has
the authority to issue up to 5,000,000 shares of Preferred Stock having such
terms (including voting powers, preferences and rights
3
<PAGE>
and qualifications, limitations or restrictions thereof) as the Board may
determine by resolution. At this time, 600,000 shares of Preferred Stock have
been designated Series B Preferred Stock (the "Series B Preferred Stock") and
160,000 shares of Preferred Stock have been designated Series C Preferred Stock.
The Series B Preferred Stock has been reserved for issuance upon certain
warrants to purchase such shares held by Creditanstalt American Corporation (the
"CAC Warrants") and none is presently outstanding. Of the Series C Preferred
Stock, 150,000 shares were issued and sold to UBS Partners as described
elsewhere herein. All 100,000 shares of the Company's Series A Preferred Stock
have been canceled and may not be reissued and, under New York law, such
cancellation had the effect of reducing the authorized Preferred Stock.
Amendment 1, if adopted, would have the effect of restoring the authority to
issue up to 5,000,000 shares of Preferred Stock of which 4,240,000 shares which
would be undifferentiated as to series. Amendment 1 will have no effect on the
Series B Preferred Stock or the Series C Preferred Stock. Other than the
potential issuance of the Series B Preferred Stock upon the exercise of the CAC
Warrants, the Company has no specific plans, agreements or understandings
regarding the issuance of any shares of Preferred Stock.
Possible Anti-Takeover Effects
Although it did not form a basis for the Board's decision to recommend
Amendment 1, the existence of additional authorized shares of Common Stock and
Preferred Stock could have the effect of rendering more difficult or
discouraging hostile takeover attempts. The Company is not aware of any existing
or planned effort on the part of any person to acquire the Company by means of a
merger, tender offer, solicitation of proxies in opposition to management or
otherwise, or to change the Company's management, nor is the Company aware of
any person having made any offer to acquire the capital stock or substantially
all of the assets of the Company.
No Dissenters' Rights of Appraisal
Dissenters' rights of appraisal will not be available under New York law
with respect to Amendment 1.
Effectiveness of Amendment 1
If the proposal is adopted, Amendment 1 will become effective upon the
filing of a Certificate of Amendment to the Charter with the Secretary of State
of the State of New York.
The Board unanimously recommends a vote FOR approval of Amendment 1 to
increase the number of authorized shares of Common Stock and Preferred Stock.
4
<PAGE>
PROPOSAL 2
APPROVAL OF AMENDMENT OF THE CHARTER TO PERMIT CERTAIN PREEMPTIVE
RIGHTS
On December 18, 1996, the Board approved the amendment of Paragraph EIGHTH
of the Charter to permit the Company to grant preferential or preemptive rights
to subscribe for, purchase or receive equity securities of the Company pursuant
to contractual agreements approved by the Board ("Amendment 2"). If the proposal
is adopted, Paragraph EIGHTH of the Charter will read in its entirety as
follows:
"EIGHTH: Except as provided by resolution of the Board of Directors of
the Corporation or in a written agreement (including, without
limitation, an amendment to the Certificate of Incorporation of the
Corporation designating the rights, preferences and other terms of a
series of Preferred Stock of the Corporation) approved by the Board of
Directors of the Corporation, no holder of shares of the Corporation
of any class, now or hereafter authorized, shall have any preferential
or preemptive right to subscribe for, purchase or receive any shares
of the Corporation of any class, now or hereafter authorized, or any
options or warrants for such shares, or any securities convertible
into or exchangeable for such shares, which may at any time be issued,
or offered for sale by the Corporation."
Purposes and Reasons for Amendment 2
On July 3, 1995, the Company entered into a Securities Purchase Agreement
(the "Purchase Agreement") with UBS Partners and Appian Capital Partners, L.L.C.
("Appian") pursuant to which UBS Partners purchased 150,000 shares of Series C
Preferred Stock for $15 million and Appian purchased for $100,000 a warrant
exercisable for up to 275,000 shares of Common Stock of the Company at a price
per share of $5.25 (the "Appian Warrant"). The Purchase Agreement, as originally
executed, included a provision granting to UBS Partners and Appian certain
preemptive rights to purchase capital stock of the Company if the Company were
to issue or sell capital stock other than pursuant to a registration statement
under the Securities Act of 1933, as amended, in connection with an acquisition,
pursuant to certain employee stock options, or as a dividend or other
distribution to all holders of Common Stock. In addition, the terms of the
Series C Preferred Stock and the Appian Warrant included a preferential
provision permitting the holders thereof to participate in pro rata
distributions to the holders of the Company's Common Stock of rights to acquire
securities or property of the Company. Because it was determined that such
preemptive and preferential rights could potentially violate Paragraph EIGHTH of
the Company's Charter, the Company, UBS Partners and Appian agreed that such
preemptive and preferential rights would not be effective to the extent
prohibited by such Paragraph EIGHTH and that the Company would submit for
shareholder approval an amendment of Paragraph EIGHTH which would permit such
preemptive and preferential rights to be effective. Accordingly, Amendment 2 has
been proposed as a result of the Purchase Agreement. In the event that Amendment
2 is not approved, such preemptive and preferential rights of UBS Partners and
Appian would not be effective to the extent described above but the Company, UBS
Partners and Appian have agreed to amend such rights in a mutually satisfactory
manner so that the intent thereof can be effected to the extent possible without
conflicting with Paragraph EIGHTH. The partners have yet to have any discussions
with respect to the terms of such potential amendment and no such terms are
currently contemplated.
The Board believes that Amendment 2 is in the best interests of the Company
and its shareholders because the ability to grant preemptive or preferential
rights provides the Company with additional flexibility when raising capital.
Preferential or preemptive rights are often demanded by potential investors and
the inability to accommodate such demands may limit the Company's ability to
attract certain investors or may result in the Company receiving a lower price
for the securities it sells. Furthermore, the Board believes that
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Paragraph EIGHTH was originally included in the Charter to eliminate certain
statutory preemptive rights contained in the New York Business Corporation Law
but, as currently drafted, is overbroad and unduly restrictive. Amendment 2
would not require that preemptive rights be granted. It merely provides the
Board the discretion to approve the grant of preemptive rights in appropriate
circumstances.
Although such rights could take various forms, examples could include the
right to purchase newly issued shares of Company capital stock in an amount pro
rata to an investor's percentage ownership of the Company's capital stock , a
right of first refusal to purchase newly issued shares of capital stock (a "
right of first refusal") or the right to participate in certain distributions
made to holders of a class of capital stock other than the class held by such
investor (a "participation right"). If Amendment 2 is approved, the granting of
such rights would be limited solely by the business judgment and fiduciary
duties of the Board. Although it is not practicable to predict with any
certainty the potential material effects of grants of preemptive or preferential
rights on the Company's current shareholders, it is possible that the grant of a
right such as a right of first refusal described above could permit an investor
to accumulate a larger interest in the Company or the grant of a participation
right described above could have a dilutive effect on a distribution which would
otherwise be made to the holders of a class of capital stock. Other than the
above described preemptive and preferential rights granted to UBS Partners and
Appian, the Company has no agreements, understandings or plans involving the
grant of preemptive or preferential rights.
No Dissenters' Rights of Appraisal
Dissenters' rights of appraisal will not be available under New York law
with respect to Amendment 2.
Effectiveness of Amendment 2
If the proposal is adopted, Amendment 2 will become effective upon the
filing of a Certificate of Amendment to the Charter with the Secretary of State
of the State of New York.
The Board recommends a vote FOR approval of Amendment 2 to permit the
Company to grant preemptive or preferential rights to acquire capital stock.
Directors Delaney and Maccarone have abstained from voting upon Amendment 2 and
such recommendation because each of them was elected as a director by UBS
Partners, which would be entitled to preemptive and preferential rights as
described above if Amendment 2 is adopted.
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<TABLE>
<CAPTION>
PROPOSAL 3
RATIFICATION OF THE NON-PLAN OPTIONS
Prior to February 1995, the Company granted stock options to various
employees, officers and directors other than pursuant to stock option plans
approved by the shareholders. Such outstanding stock options are set forth below
(collectively, the "Non-plan Options").
Unexercised
Options
Market Value
No. of Shares of Under-
Underlying Grant Exercise Expiration lying Shares
Name and Position Options(1) Date Price Date at 12/31/96(2)
- ------------------ ------------- ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Richard Benito 60,000 10/1/88 $ 3.33 indefinite $191,400
Former Chief 10,000 8/19/91 $ 3.59 N/A(3) --
Operating Officer
Robert Benito 7,500 8/19/91 $ 3.59 N/A --
Former Employee
Bonnie S. Biumi 100,000 7/11/94 $ 5.69 7/11/99 319,000
Executive Vice
President/CFO
John Devito 60,000 10/1/88 $ 3.33 indefinite 191,400
Former Employee 15,000 8/19/91 $ 3.59 N/A --
Lawrence T. Ellman 45,000 7/11/94 $ 5.69 7/11/99 143,550
Executive Vice
President/President
- - National Accounts
Bernard Frank 7,500 5/5/87 $ 2.00 N/A --
Former Director 1,500 5/1/88 $ 0.33 N/A --
32,500 2/10/95 $ 5.06 2/10/00 103,675
Jody Frank 7,500 5/5/87 $ 2.00 N/A --
Director 30,000 11/18/93 $11.38 11/18/98 95,700
Jill Gabriel 7,500 8/19/91 $ 3.59 N/A --
Former Employee
Stuart A. Gauld 37,500 12/14/87 $ 2.00 N/A --
Former Director 18,750 8/3/89 $ 3.00 N/A --
22,500 11/29/90 $ 2.83 N/A --
15,000 8/19/91 $ 3.59 N/A --
22,500 12/13/91 $ 5.50 N/A --
______________
1 All share amounts and exercise prices adjusted to reflect subsequent stock
splits as applicable.
2 Based upon a closing share price on the AMEX of $3.19.
3 N/A indicates that options were exercised.
4 In connection with the termination of Mr. Hanft's employment with the Company,
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. Such
options and the underlying shares have been pledged to the Company to secure
certain indebtedness owed by Mr. Hanft to the Company.
</TABLE>
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<TABLE>
<CAPTION>
Unexercised
Options
Market Value
No. of Shares of Under-
Underlying Grant Exercise Expiration lying Shares
Name and Position Options(1) Date Price Date at 12/31/96(2)
- ------------------ ------------- ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Ronald Gelber 32,500 7/3/95 $ 4.16 7/3/00 103,675
Former Director
Kevin Gillis 3,750 2/15/90 $ 3.00 N/A --
Former Employee
Jeffrey Hanft 7,500 5/5/87 $ 2.00 N/A --
Former Director, 75,000 10/1/88 $ 3.33 N/A --
CEO/Chairman 112,500 8/3/89 $ 3.00 N/A --
75,000 8/19/91 $ 3.59 N/A --
250,000 2/16/94 $ 8.50(4) 9/30/01 797,500
Allen Leeds 82,500 9/1/86 $ 1.33 N/A --
Former Director 30,000 12/14/87 $ 2.00 N/A --
11,250 10/1/88 $ 3.33 N/A --
18,750 8/3/89 $ 3.00 N/A --
Robert Longhitano 60,000 9/28/92 $ 5.83 N/A --
Former Vice President
Robert Lund 15,000 8/2/93 $ 9.33 8/2/98 47,850
Director
Richard Militello 60,000 10/1/88 $ 3.33 N/A --
Former Executive 75,000 10/1/91 $ 4.00 N/A --
Vice President 37,500 11/6/92 $ 3.59 N/A --
- - Operations 150,000 2/16/94 $ 8.50 2/16/99 $478,500
William Moreland 15,000 12/14/87 $ 2.00 N/A --
Former Employee
Norman Nierenberg 7,500 5/5/87 $ 2.00 indefinite 23,925
Vice President
- - Sales
William Nutt 7,500 8/19/91 $ 3.59 N/A --
Former Employee
Craig Perry 22,500 5/1/92 $ 8.00 5/1/02 71,775
Former Employee
H. Clinton Pollack 7,500 5/5/87 $ 2.00 N/A --
Former Director 15,000 12/14/87 $ 2.00 N/A --
11,250 8/3/89 $ 3.00 N/A --
Bruce Renard 67,500 10/1/91 $ 4.00 N/A --
Executive Vice 50,000 1/1/95 $ 2.44 1/1/00 159,500
President -
Legal & Regulatory
Affairs/Carrier
Relations,
and General Counsel
Robert Rubin 150,000 8/3/89 $ 3.00 N/A --
Former President 45,000 8/19//91 $ 3.59 N/A --
and Director 133,333 2/16/94 $ 8.50 2/16/99 425,332
James Smith 64,000 8/19/91 $ 3.59 N/A --
Former President
Margarita Tolon 10,000 1/7/93 $ 4.00 N/A --
Former Chief
Financial Officer
Richard Whitman 30,000 11/18/93 $11.38 11/18/98 95,700
Former Director
Total 2,232,583
</TABLE>
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In all cases the Non-plan Options were granted by the Company in respect of
services rendered or to be rendered to the Company by such individuals as
incentive compensation. The Company has traditionally designed its compensation
plans to be competitive and to permit the Company to attract and retain the best
possible individuals given the Company's size and stage of development.
Furthermore, such compensation plans have been structured to provide incentives
for executive performance and to align the interests of executives with
shareholders by providing for a significant portion of incentive compensation in
the form of options to purchase Company Common Stock. Because the Non-plan
Options were granted at the fair market value of the Common Stock at the time of
grant, such options were designed to be of little or no value to the grantee
unless the Company's financial performance resulted in an increase in the fair
market value of its Common Stock. The Company believes that, in light of its
entrepreneurial nature, early stage of development, a desire to conserve cash
resources given the Company's acquisition program during the late 1980's and
early 1990's, and the competitiveness of its industry, stock options were and
are an important supplement to cash compensation necessary to attract and retain
qualified executives. The Non-plan Options were granted in the full Board's
discretion based upon its assessment of each individual recipient's performance
and contribution to the Company as well as the Company's overall financial
performance and other subjective criteria deemed relevant by the Board. Except
for grants to senior executive officers, Non-plan Options were not separately
acted upon by the Compensation Committee or Stock Option Committee of the Board.
The Non-plan Options were granted outside of the Company's shareholder approved
stock option plans due to a relatively limited number of shares available under
such plans relative to the Company's overall compensation needs and in order to
conserve the number of shares available thereunder for other employee grants.
Because the delay necessary to amend the Company's stock option plans would have
prevented the grant of options at the then fair market price of the Company's
Common Stock, the Board elected to issue the Non-plan Options. As noted below,
the Board was unaware of the need to obtain shareholder approval of the Non-plan
Options at the time they were granted and had it been aware, it would have made
the Non-plan Options subject to such approval. The Non-plan Options have been
disclosed over the years in the Company's proxy statements to the extent
required by the rules of the Securities and Exchange Commission or reflected in
the Company's financial statements. Of such Non-plan Options 1,282,250 shares
have been issued upon exercise for an aggregate consideration of $4,300,558. At
the Special Meeting, the shareholders of the Company will be asked to consider
and vote upon a proposal to ratify the Non-plan Options.
Federal Income Tax Implications. The following is a brief summary of the
federal income tax consequences generally applicable to the Non-plan Options,
which were all Non-Qualified Stock Options, based on present federal income tax
statutes, regulations and currently available interpretations thereof, all of
which are subject to change. The summary does not address the effects of other
federal taxes or taxes imposed under state, local or foreign tax laws.
9
<PAGE>
There are no tax consequences to the optionee upon the grant of a
Non-Qualified Stock Option. Upon exercise thereof (whether the purchase price is
paid in cash or partly or entirely with shares of Common Stock already owned by
the optionee) the optionee will realize ordinary income in an amount measured by
the excess of the fair market value of the shares of Common Stock on the date of
exercise over the option price, and the Company will be entitled to a
corresponding deduction. Upon subsequent disposition of such shares of Common
Stock, the difference between the amount realized on disposition and the fair
market value of the Common Stock on the date of exercise will be treated as
short-term or long-term capital gain or loss. The Company, however, will not be
entitled to any further deduction at that time.
In the event a participant is subject to Section 16(b) of the Exchange Act,
unless the participant makes an election under Section 83(b) of the Code as
described below, the amount and timing of income recognition by the participant
(and deduction by the Company) relating to the receipt of stock by such
participant will be based on the fair market value of the stock on the date the
sale of such stock would not subject the holder to a suit under Section 16(b).
Under Section 83(b) of the Code, a recipient of stock from an employer, if
subject to Section 16(b) of the Exchange Act, may elect, within thirty days
after receipt (or exercise in case of options) of stock, to recognize ordinary
income on the date of receipt (or exercise) based on the fair market value of
the shares on that date. The Company will receive a deduction for an equivalent
amount at the time of the recipient's election. Any gain or loss recognized by
the participant upon a subsequent disposition of such shares will be long-term
or short-term capital gain or loss depending on the holding period of the
shares.
The amount which may be deducted by the Company with respect to
compensation paid to the chief executive officer and the four other most highly
compensated executives is limited to $1,000,000 per tax year for each
individual, subject to certain exceptions, including an exception for
performance-based compensation.
Purposes and Reasons for Ratification
At the time certain of the Non-plan Options were granted, the Company's
Common Stock was included for quotation on the NASDAQ National Market System
("NMS"). During the third quarter of 1996, NMS reviewed the Company's
eligibility for continued inclusion in NMS. As a result, it was determined that
the grants of certain of the Non-plan Options should have been submitted for
approval to the Company's shareholders pursuant to the rules of the NMS and
subsequently it was determined that all of the Non-Plan Options issued to
employees, officers and directors should also have been submitted for
shareholder approval under the New York Business Corporation Law. Although the
Company obtained legal counsel in connection with the issuance of the Non-plan
Options, it did not become aware of the failure to obtain shareholder approval
until after the NMS conducted its review and such failure was inadvertent. In
November 1996, the Company's Common Stock was listed for trading on the AMEX.
Although the grant of the Non-plan Options would not have violated AMEX rules
had the Company been listed on the AMEX at the time, the AMEX requested that the
Company seek shareholder ratification of the Non-plan Options in connection with
such AMEX listing. Accordingly, the Company committed to the AMEX that it would
seek shareholder ratification of the Non-plan Options at a special meeting.
The Board believes that it is in the best interests of the Company to
obtain ratification of the Non-plan Options. The Non-plan Options were not
issued so as to be contingent upon or subject to shareholder approval.
Accordingly, the Company's refusal to honor the exercise of such options could
result in claims
10
<PAGE>
against the Company seeking damages or other remedies. Furthermore, although the
AMEX has not informed the Company that it would delist the Common Stock if the
Company were to perform its obligations under the Non-plan Options if
ratification is not obtained, the AMEX may have discretion to take such action.
As a result, the Company could be placed in the position of jeopardizing the
continued listing of the Common Stock if it were to honor such options without
ratification. The Board believes that the loss of AMEX listing could have a
material adverse effect on the trading market for the Common Stock. The Board
believes that it is critical to the Company's ability to attract and retain
qualified employees that it maintain its reputation for honoring its
compensation commitments. As to those options which have been exercised,
ratification will eliminate potential legal uncertainty with respect to the
validity of shares issued upon such exercise. Ratification of the Non-plan
Options will permit the Company to honor its obligations, comply with legal
requirements under the New York Business Corporation Law and maintain the
listing of the Common Stock on the AMEX. The Company does not anticipate
granting options to employees, officers or directors in the future other than
pursuant to its shareholder approved stock option plans.
The Board of Directors unanimously recommends a vote "FOR" ratification of the
Non-plan Options.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Charles J. Delaney, a director of the Company, is President of UBS Capital
Corporation, a wholly-owned subsidiary of Union Bank of Switzerland and an
affiliate of UBS Partners. Justin S. Maccarone, a director of the Company, is a
Managing Director of UBS Capital, LLC, an affiliate of UBS Partners. UBS
Partners would be entitled to certain preemptive and preferential rights if
Amendment 2 described above is approved.
The validity of certain options held by Bonnie S. Biumi, the Company's
Executive Vice President and Chief Financial Officer, Lawrence T. Ellman, the
Company's Executive Vice President/President-National Accounts, Jody Frank, a
director of the Company, Robert Lund, a director of the Company, and Bruce
Renard, the Company's Executive Vice President-Legal and Regulatory
Affairs/Carrier Relations and General Counsel, would be affected by the outcome
of the vote upon Proposal 3.
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 December 16, 1996
(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 the sole voting and investment power with
respect to the shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership(1) of Class
<S> <C> <C>
Charles J. Delaney -- --
Jody Frank 234,262(2)(3) 1.44%
Robert E. Lund 111,350(2) *
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership(1) of Class
- ------------------------- -------------------------- ---------
<S> <C> <C>
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 68,333(4) *
C. Keith Pressley 5,000(4) *
All directors and executive
officers 780,612 4.63%
as a group (9 persons)
Creditanstalt American Corp.
245 Park Avenue
New York, New York 10167 850,000(5)(6) 5.03%
Heartland Group
790 N. Milwaukee Street
Milwaukee, Wisconsin 53202 3,644,600(5) 22.50%
UBS Partners, Inc.
299 Park Avenue
New York, New York 10171 2,897,143(5)(7) 15.17%
Wellington Management Company
75 State Street
Boston, Massachusetts 02109 1,671,690(5) 10.32%
</TABLE>
_________________________
* Less than one percent.
(1) Includes shares of Common Stock issuable upon the exercise of stock options,
which are exercisable within 60 days of December 31, 1996.
(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 $8.32 per
share); and 100,000 to Robert E. Lund (at an average exercise price of $5.44 per
share).
(3) Includes 40,050 shares of Common Stock in a voting trust of which Jody Frank
is the beneficial owner. Also 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 418,333 shares of Common Stock granted to the
following executive officers: 200,000 to E. Craig Sanders (at an average
exercise price of $3.60 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); 68,333 to Bruce W. Renard (at an average
exercise price of $5.84 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.
12
<PAGE>
(6) Represents currently exercisable warrants received in connection with a
previous credit facility between the Company and Creditanstalt-Bankverein (of
which Creditanstalt American Corporation is a wholly- owned subsidiary) and
150,000 shares of Common Stock obtained upon the exercise of warrants in
connection with a previous credit facility. The currently exercisable warrants
expire March 12, 2000 and are exercisable for 700,000 shares of Common Stock or
the Company's Series-B Preferred Stock at a price of $5.25 per share. Each share
of Series B Preferred Stock is convertible into one share of Common Stock. See
"Certain Relationships and Related Transactions."
(7) Includes: (i) options to acquire 40,000 shares of Common Stock of the
Company at an average exercise price of $3.91, held for the benefit of UBS
Partners by former director Jeffrey Keenan and current 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 (a
wholly-owned subsidiary of Union Bank of Switzerland).
13
<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
Annual Compensation Awards
------------
Name and Shares
Principal Underlying All Other
Position Year Salary Bonus Options(#) Compensation(1)
- ----------- ------- ------- ------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
E. Craig Sanders (2) 1996 $212,000 -- 600,000 --
President and Chief
Executive Officer
Robert E. Lund (3) 1996 161,000 $50,000 60,000 --
1995 13,962 -- 10,000 --
1994 -- -- 15,000 --
Bonnie S. Biumi, 1996 169,000 25,000 -- $2,400
Chief Financial 1995 149,994 25,000 -- 2,300
Officer, Executive 1994 66,344 -- 100,000 --
Vice President
Lawrence T. Ellman 1996 167,000 25,000 -- --
Executive Vice 1995 149,994 25,000 -- --
President/President 1994 105,000 10,000 45,000 --
- National Accounts
Bruce W. Renard, 1996 192,500 25,000 -- --
Executive Vice 1995 171,635 25,000 50,000 355
President, Legal & 1994 150,000 -- 20,000 2,000
Regulatory Affairs/
Carrier Relations,
General Counsel
C. Keith Pressley, 1996 112,000 -- -- 1,800
President - Inmate 1995 100,000 -- -- 1,800
Telecommunications 1994 84,000 -- 5,000 --
Division
</TABLE>
________________________
(1) The amounts disclosed in this column include the Company's contributions on
behalf of the named executive officer to the Company's 401(k) retirement plan in
amounts equal to 25% of the executive officer's yearly participation in the
plan.
(2) Mr. Sanders joined the Company in May 1996.
(3) Mr. Lund served as Chief Executive Officer of the Company from November 1995
until May 1996 and as President from February 1996 until May 1996.
14
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth certain information with respect to stock
options granted during the year ended December 31, 1996 to the executive
officers named in the Summary Compensation Table:
OPTION GRANTS IN LAST FISCAL YEAR
Potential
INDIVIDUAL GRANTS Realizable
--------------------------------------------- Value of
% of Total Assumed Annual
Number of Options Rates of
Securities Granted to Exercise or Stock Price
Underlying Employees in Base price Expiration Apreciation for
Options Fiscal Year ($/share) Date Options Term(1)
---------- ------------- ---------- ---------- ----------------
5% 10%
----------------
<S> <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 11.49 $4.25 7/31/06 $267,280 $677,341
100,000 11.49 $5.25 7/31/06 $330,170 $836,715
100,000 11.49 $6.25 7/31/06 $393,059 $996,089
200,000 22.99 $7.25 7/31/06 $911,897 $2,310,927
</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.
15
<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
Number of Value of
Unexercised Unexercised In-
Options at the-Money Options
Fiscal Year End at Fiscal Year End
--------------- -----------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise(s) Realized Unexercisable Unexercisable
- --------------- ------------ --------- --------------- -----------------
<S> <C> <C> <C> <C>
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
Craig Sanders - - 200,000/400,000 69,000/-
C. Keith Pressley - - 5,000/- -/-
</TABLE>
COMPENSATION OF DIRECTORS
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 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.
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
16
<PAGE>
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 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) all options granted to Ms. Biumi
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 three year term commencing June 22, 1994 and ending June 22, 1997. The
agreement provides for a base salary at the annual rate of $150,000, increasing
10% each year with the approval of the Board of Directors, and a minimum annual
bonus of $25,000. 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.
17
<PAGE>
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) all options granted to Mr. Renard
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 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, an at-will employee of
the Company. 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.
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 participated in transactions
with the Company and has borrowed money from the Company since January 1, 1996,
which transactions and borrowings are described below.
In February 1995, after obtaining a fairness opinion indicating the
proposed sale of the assets for the agreed upon consideration was fair to the
Company from a financial point of view and after the transaction was approved by
the disinterested members of the Company's Board of Directors, the Company sold
substantially all of the assets of its prepaid calling card business to Global
Link Teleco Corporation ("Global Link") for approximately $6.3 million. Upon the
sale, the Company maintained the right to designate one member of Global Link's
Board of Directors. The Company received $1.0 million in cash, a $5.3 million
promissory note due February 1998, bearing interest at 8.5%, payable quarterly,
and shares of common stock
18
<PAGE>
of Global Link. As a result of the February 1995 transactions, the Company's
interest in the outstanding common stock of Global Link was 19.99%. At the time
of such transaction, Jody Frank was a director and shareholder of Global Link.
On March 1, 1996, Global Link consummated a merger transaction (the
"Merger") with Global Telecommunications Solutions, Inc. ("GTS"). In connection
with the Merger, the Company exchanged its outstanding notes and other
receivables including accrued interest and its 19.9% equity ownership in Global
Link for shares of GTS common stock, $0.6 million in cash and $1.5 million of
notes receivable with various due dates through September 1997. Jody Frank is a
shareholder of GTS.
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.
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.
OTHER MATTERS
Management is not aware of any other business that may come before the
Special Meeting. However, if additional matters properly come before the Annual
Meeting, proxies will be voted at the discretion of the proxy-holders.
19
<PAGE>
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 may elect to
retain a proxy solicitation firm to assist in the solicitation of proxies and
estimates that such services would cost approximately $3,000 (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 1997 Annual Meeting of
Shareholders of the Company must have been received by the Company not later
than December 31, 1996, 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 1997 Annual Meeting of
Shareholders.
By Order of the Board of Directors
/s/Francis J. Harkins, Vice President and Secretary
Miami, Florida
January 14, 1997
20
<PAGE>
PROXY
PEOPLES TELEPHONE COMPANY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Special Meeting of Shareholders
February 14, 1997
The undersigned shareholder of Peoples Telephone Company, Inc. (the "Company")
hereby appoints E. Craig Sanders and Bonnie S. Biumi, and each of them, as the
attorneys and proxies of the undersigned, with full power of substitution, to
vote all shares of Common Stock, par value $ .01 per share, and Series C
Cumulative Convertible Preferred Stock, par value $.01 per share, of the Company
which the undersigned would be entitled to vote if personally present at the
Special Meeting of Shareholders of the Company, to be held on Friday, February
14, 1997 at 10:00 a.m., at the Radisson Mart Plaza Hotel at 711 Northwest 72nd
Avenue, Miami, Florida 33126, and at any adjournment or postponement thereof, as
follows:
(continued and to be signed on other side)
fold and detach here-
Proposal 1. To approve an amendment of Paragraph FOURTH of the Company's
Restated Certificate of Incorporation, as amended (the "Charter"), to increase
the number of authorized shares of its Common Stock, par value $.01 per share,
from 25,000,000 shares to 75,000,000 shares and to increase the number of
authorized shares of its Preferred Stock, par value $.01 per share, from
4,900,000 shares to 5,000,000 shares.
( ) FOR
( ) AGAINST
( ) ABSTAIN
Proposal 2. To approve an amendment of Paragraph EIGHTH of the Charter to permit
the Company to grant preferential or preemptive rights to subscribe for,
purchase or receive equity securities of the Company pursuant to the approval of
the Board of Directors of the Company.
( ) FOR
( ) AGAINST
( ) ABSTAIN
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Proposal 3. To ratify the grant of certain stock options granted outside of the
Company's stock option plans.
( ) FOR
( ) AGAINST
( ) ABSTAIN
In their discretion, the proxy holders are authorized to vote upon such other
matters as may properly come before the meeting.
Unless otherwise specified, the shares of Common Stock and Series C Cumulative
Convertible Preferred Stock represented hereby will be voted "FOR" Proposal 1,
"FOR" Proposal 2 and "FOR" Proposal 3.
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)
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