<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
Current Report
0-16715
----------------------
Commission File Number
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
October 16, 1995
--------------------------------
Date of Report
(Date of Earliest Event Reported)
PHONETEL TECHNOLOGIES, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1462198
-------------------------- --------------------------
(State of Incorporation) (I.R.S. Identification No.)
1127 Euclid Avenue
650 Statler Office Tower
Cleveland, Ohio 44115-1601
--------------------------------------------------
Address and zip code of principal executive offices
(216) 241-2555
-----------------------------
Registrant's telephone number
<PAGE> 2
Sequential Page 2 of 4 Pages
============================
PART I
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 16, 1995, the Registrant entered into an Agreement and Plan of
Merger (the "Agreement") with its wholly owned subsidiary, PhoneTel II Inc., an
Ohio corporation ("PhoneTel II") and Public Telephone Corporation, an Indiana
corporation ("Public") wherein Public was merged with and into PhoneTel II (the
"Merger"). Pursuant to the Merger the Shareholders of Public received, in the
aggregate, 1,349,290 shares of Registrant's Common Stock, $.01 par value in
exchange for all the outstanding Public Common Shares. The Merger
consideration was determined as a result of arms length negotiations between
unrelated parties.
The assets of Public (the "Acquired Assets") consisted of approximately 1,200
pay telephones installed on locations, together with enclosures, inventory of
uninstalled pay telephones, parts, vehicles, computers and contracts pursuant
to which the acquired pay telephones are installed in property owned by others.
The Registrant will continue to operate Public's business in substantially the
same manner as it was operated by Public.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
Registrant herein states that it is impracticable to provide at the time of
this filing all of the requisite financial information to accompany this
Current Report on Form 8-K pursuant to the Rules and Regulations of The
Securities and Exchange Act of 1934. Registrant has attached the Financial
Statements with Supplemental Material for Public for the years ended June 30,
1995, 1994 and 1993. Registrant has commenced the preparation of the remainder
of the requisite financial statements and pro forma information and anticipates
that this Report will be supplemented by amendment to include said statements
when prepared within the time permitted by the aforementioned Rules and
Regulations.
<PAGE> 3
Sequential Page 3 of 4 Pages
============================
EXHIBITS
- --------
(a) Financial Statements of Business Acquired:
1. Public Telephone Corporation Financial Statements
Years Ended June 30, 1995 and 1994
2. Public Telephone Corporation Financial Statements
Years Ended June 30, 1994 and 1993
3. Public Telephone Corporation Financial Statements
Year Ended June 30, 1993
(b) Pro Forma Financial Information:
No pro forma financial information submitted
(c) Other Exhibits:
1. Agreement and Plan of Merger
<PAGE> 4
Sequential Page 4 of 4 Pages
============================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHONETEL TECHNOLOGIES, INC.
(Registrant)
Date: October 31, 1995 /s/ Daniel J. Moos
- ------------------------------- -------------------------------
Daniel J. Moos
Executive Vice President,
Treasurer and
Chief Financial Officer
<PAGE> 1
PUBLIC TELEPHONE CORPORATION
Financial Statements
June 30, 1995 and 1994
<PAGE> 2
<TABLE>
PUBLIC TELEPHONE CORPORATION
Table of Contents
Page
________________________________________________________________________________
<S> <C>
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Statement of income 2
Balance sheet 3
Statement of stockholders' equity 4
Statement of cash flows 5
Notes to financial statements 6
</TABLE>
<PAGE> 3
GEO. S. OLIVE & CO. LLC
CERTIFIED PUBLIC ACCOUNTANTS [LOGO]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Public Telephone Corporation
Fort Wayne, Indiana
We have audited the accompanying balance sheet of Public Telephone
Corporation as of June 30, 1995, and the related statements of
income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit. The financial
statements of Public Telephone Corporation as of June 30, 1994 were
audited by other auditors whose report dated August 9, 1994
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Public
Telephone Corporation at June 30, 1995, and the results of its
operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Geo. S. Olive & Co. LLC
Fort Wayne, Indiana
September 13, 1995
202 WEST BERRY STREET, SUITE 500, FORT WAYNE, INDIANA 48802-2272 (219) 460-4000
FAX: (219) 428-2235 OFFICES LOCATED IN INDIANA AND ILLINOIS MEMBER OF MOORES
ROWLAND INTERNATIONAL
<PAGE> 4
PUBLIC TELEPHONE CORPORATION
Statement of Income
YEAR ENDED JUNE 30 1995 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Net Sales
Coin calls $1,790,559 1,173,743
Noncoin calls 549,215 509,814
Service and other 128,441 89,497
---------------------------
2,468,215 1,773,054
---------------------------
Operating Expenses
Telephone charges 718,922 417,791
General and administrative 929,053 591,000
Commissions 242,590 209,329
Field services and collection 160,345 80,083
Depreciation, telephone equipment 254,846 155,693
---------------------------
2,305,756 1,453,896
---------------------------
Operating Income 162,459 319,158
---------------------------
Other Income (Expense)
Interest expense 354,320 (144,682)
Loss on sale of fixed assets (265,970) (71,953)
Other Income 1,805
---------------------------
90,155 (216,635)
---------------------------
NET INCOME (LOSS) $ 252,614 $ 102,523
===========================
See notes to financial statements.
</TABLE>
(2)
<PAGE> 5
<TABLE>
PUBLIC TELEPHONE CORPORATION
BALANCE SHEET
June 30 1995 1994
- -------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 68,645 $ 508,016
Accounts receivable
Coin 18,099 9,354
Noncoin 23,747 79,000
Employees 12,301
Prepaid expenses 19,521 10,730
Telephone parts 30,054 15,442
-------------------------
Total current assets 172,367 622,542
-------------------------
PROPERTY AND EQUIPMENT, NET 2,138,551 1,772,579
-------------------------
OTHER ASSETS
Intangible assets, net 100,954 128,551
Security deposits 27,668 27,668
-------------------------
128,622 156,219
-------------------------
$2,439,540 $2,551,340
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to officers $ 18,733
Current maturities of long-term debt $ 784,547 657,557
Accounts payable, trade 63,278 27,622
Accrued expenses 95,814 79,874
-------------------------
Total current liabilities 943,639 783,786
-------------------------
LONG-TERM DEBT, net of current portion 1,355,741 1,217,291
-------------------------
DEFERRED COMPENSATION 37,239 14,650
-------------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value
Authorized, 10,000,000 and 100,000 shares
Issued and outstanding, 0 shares
Class A common stock, no par value
Authorized, 15,000,000 and 10,000,000 shares
Issued and outstanding 1,056 and 899 shares 922,334 899,000
Class B common stock, no par value
Authorized, 100,000 shares
Issued and outstanding, 0 shares
Retained earnings (deficit) (819,413) (363,387)
-------------------------
102,921 535,613
-------------------------
2,439,540 $ 2,551,340
========================
<FN>
See notes to financial statements.
</TABLE>
(3)
<PAGE> 6
<TABLE>
PUBLIC TELEPHONE CORPORATION
Statement of Stockholders' Equity
NUMBER RETAINED
OF COMMON EARNINGS TREASURY
SHARES STOCK (DEFICIT) STOCK TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, JULY 1, 1993 951 $ 951,000 $ (465,910) $ (61,000) $ 424,090
Net income 102,523 102,523
Retirement of treasury stock (61) (61,000) 61,000
Issuance of stock 9 9,000 9,000
-----------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1994 899 899,000 (363,387) 0 535,613
Net income (loss) (456,026) (456,026)
Issuance of stock 157 23,334 23,334
-----------------------------------------------------------------------------------------------
BALANCES, JUNE 30, 1995 1,056 $ 922,334 $ (819,413) $ 0 $ 102,921
===============================================================================================
<FN>
See notes to financial statements.
</TABLE>
(4)
<PAGE> 7
PUBLIC TELEPHONE CORPORATION
Statement of Cash Flows
YEAR ENDED JUNE 30 1995 1994
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Operating Activities
Net Income (loss) $ (456,026) $ 102,523
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 331,834 189,666
Loss on sale of equipment 265,970 64,015
Changes in assets and liabilities
Accounts receivable 34,207 (84,604)
Prepaid and sundry assets (23,403) 21,400
Accounts payable, trade 60,656 1,542
Accrued expenses 15,940 76,558
Deferred compensation 22,589 14,650
----------- ----------
Net cash provided by operating activities 251,767 385,750
----------- ----------
Investing Activities
Proceeds from sale of property and equipment 15,523 10,140
Increase in security deposits (27,668)
Acquisition of Aaron Communication Services, Inc. assets (47,659) (115,252)
Acquisition of TTC Investments assets (438,000)
Other acquisitions of property and equipment (329,611) (319,547)
----------- ----------
Net cash used by investing activities (361,747) (890,327)
----------- ----------
Financing Activities
Principal payments on long-term debt (674,101) (468,443)
Proceeds received from notes payable 400,000 90,272
Financing fees paid (59,891)
Proceeds from notes payable officers 18,733
Proceeds received an sale-leaseback transactions 1,318,000
Proceeds received from issuance of stock 4,601 9,000
----------- ----------
Net cash provided (used) by financing activities (329,391) 967,682
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (439,371) 462,985
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 508,016 45,031
----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 68,645 $ 508,016
=========== ==========
Supplemental Cash Flow* Information
Notes payable Issued in connection with acquisition
of assets 139,341 $ 645,617
Deferred financing costs included in accounts payable 25,000
Notes payable to officers converted to common stock 18,733
Cash paid for interest 358,132
Purchase of Wonder Pay Telephone Company assets
under capital lease obligation 360,000
Purchase of fixed assets under capital lease obligation 40,200
See notes to financial statements.
</TABLE>
(5)
<PAGE> 8
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Public Telephone Corporation (PTC or the Company) owns, operates, and
maintains pay telephones connected to the network of regulated
telephone companies at various third-party property owner locations,
primarily located in Indiana, Illinois, Ohio, and Michigan. The
Company also derives revenue from routing calls to operator service
companies. The Company commenced significant installation and
operation of pay telephones in April 1992.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, including telephone,
installation, and related costs. Assets acquired under capital
leases are recorded at the present value of lease payments, including
bargain purchase options expected to be exercised. Net gains or
losses on sales of telephone equipment leased back under capital lease
arrangements are deferred as a component of capital lease assets.
Depreciation and amortization are provided on the straight-line method
over the estimated useful lives of the assets commencing when the
property or equipment is installed and placed in service.
INTANGIBLE ASSETS
The Company has various intangible assets including noncompetition
agreements, organization costs, goodwill, and financing fees.
Amortization is computed using the straight-line method over the
following lives:
<TABLE>
YEARS
-------------------------------------------------------------------------
<S> <C>
Consulting and noncompetition agreements 3
Organization costs 3
Goodwill 3
Financing fees 4
</TABLE>
BAD DEBTS
Trade accounts receivable are considered fully collectible; therefore,
no allowance for bad debts has been provided.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of bank deposits in federally
insured accounts. From time to time during the year, the Company's
cash accounts exceeded federally insured limits.
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments, if any, purchased with an original
maturity of three months or less to be cash equivalents.
(6)
<PAGE> 9
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
RECLASSIFICATIONS
Certain amounts presented in prior year financial statements have been
reclassified to conform to the current year presentation.
ACQUISITIONS
On August 30, 1993, the Company acquired certain public pay telephone
operations of Aaron Communication Service, Inc. for approximately
$457,000. The purchase price was financed with capital leases and
seller financing of approximately $115,000 and $342,000.
On January 5, 1994, the Company acquired substantially all the assets
of TTC Investments, a public pay telephone company, for approximately
$742,000. The purchase price was financed with capital leases and
seller financing of approximately $438,000 and $304,000.
On July 7, 1994, the purchase agreement with Aaron Communication
Service, Inc. was amended to include approximately 142 more phones not
purchased in the original agreement on August 30, 1993. The purchase
price was financed with long-term notes and seller financing of
approximately $131,000.
On September 13, 1994, the Company acquired substantially all of the
assets of Wonder Pay Telephone Company, a public pay telephone
company, for $360,000. The purchase price was financed with a capital
lease of $360,000.
The acquisitions have been accounted for using the purchase method
and, accordingly, the acquired assets have been recorded at their fair
values at the date of acquisition. The purchase price allocations
resulted in goodwill of approximately $71,000 and covenants not to
compete of approximately $50,000 during the year ended June 30, 1994.
- PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
JUNE 30 1995 1994
---------------------------------------------------------------------------------
<S> <C> <C>
Telephone equipment $ 2,543,462 $ 1,968,895
Furniture and fixtures 61,121 49,204
Vehicles 24,676 24,476
------------------------------
Total cost 2,629,259 2,042,575
Accumulated depreciation and amortization (490,708) (269,996)
------------------------------
$ 2,138,551 $ 1,772,579
==============================
------------------------------
</TABLE>
(7)
<PAGE> 10
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
- INTANGIBLE ASSETS
Intangible assets consist of the following:
JUNE 30 1995 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Noncompete agreements $ 49,600 $ 49,600
Goodwill 70,778 70,778
Organization costs 18,622 18,622
Financing fees 59,891 25,000
----------------------------------
Total cost 198,891 164,000
Accumulated amortization (97,937) (35,449)
----------------------------------
$ 100,954 $ 128,551
==================================
</TABLE>
- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30 1995 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable, ranging from 12%-16.2%, payable in monthly
payments of $26,423 including Interest, final payment due
May 1999, collateralized by substantially all of the
Company's assets $ 620,203 $ 260,628
Notes payable, ranging from 5.6%-8%, payable in monthly
payments of $12,397 including interest, final payment due
March 1997, collateralized by substantially all of the
Company's assets 160,400 353,114
Note payable, noninterest bearing, payable in monthly
payments of $960 including interest (paid off during 1995) 5,147
Obligations under capital leases 1,359,685 1,255,959
-------------------------------
2,140,288 1,874,848
Current maturities (784,547) (657,557)
-------------------------------
$ 1,355,741 $ 1,217,291
===============================
</TABLE>
(8)
<PAGE> 11
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30
-------------------------------------------------------------------------------------------
<S> <C>
1997 $ 190,726
1998 109,707
1999 88,081
2000 6,891
Long-term maturities of capital leases 960,336
---------------
$ 1,355,741
===============
</TABLE>
- LEASES
The Company is obligated under various capital leases including capital
leases arising out of sale and lease back transactions for telephone
equipment that expire at various dates over the next four years. At
June 30, 1995 and 1994, the gross amounts of equipment and related
accumulated amortization recorded under capital leases were as follows;
<TABLE>
<CAPTION>
JUNE 30 1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
Telephones and related equipment $ 1,545,184 $ 1,378,038
Accumulated amortization (305,464) (184,572)
-------------------------------
$ 1,239,720 $ 1,193,466
===============================
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
The Company also has three operating leases, primarily for office space
that expire over the next two years. These leases generally contain
renewal options for periods ranging from one to two years. Rental
expense for these leases consisted of $32,914 and $24,872 for the years
ended June 30, 1995 and 1994.
(9)
<PAGE> 12
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Future minimum lease payments for the office space and capital leases,
including bargain purchase options expected to be exercised and the
expected net cost of warrants and related put options granted to the
lessor, for each fiscal year ending June 30 follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEARS ENDING JUNE 30 LEASES LEASES
-------------------------------------------------------------------------------------------------
<S> <C> <C>
1996 $ 618,530 $ 11,400
1997 586,171 1,900
1998 414,901
1999 188,667
2000 15,900
--------------------------------
Total minimum lease payments 1,824,169 $ 13,300
Amounts representing Interest (464,484) ===============
---------------
Present value of net minimum capital lease payments $ 1,359,685
===============
</TABLE>
The capital lease agreements require the Company to pledge the related
telephone site leases as additional collateral. At June 30, 1995,
approximately 800 such site leases were so pledged.
- INCOME TAX
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1995 1994
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of federal statutory to actual tax
expense (benefit)
Federal statutory income tax at 34% $ (155,049) $ 34,857
Graduated tax rates (11,623)
Change in valuation reserve 167,123 (49,000)
Other (12,074) 25,766
--------------------------------
Actual tax expense $ 0 $ 0
================================
</TABLE>
(10)
<PAGE> 13
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
The components of deferred taxes are as follows;
<TABLE>
<CAPTION>
JUNE 30 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accrual to cash adjustment $ 6,474 $ 6,474
Differences in depreciation methods (290,797) (159,000)
Deferred compensation 13,778 8,000
Other 20,943 3,526
Not operating loss carryforward 481,725 206,000
Valuation allowance (232,123) (65,000)
-------------------------------
$ 0 $ 0
===============================
Assets $ 522,920 $ 224,000
Liabilities (290,797) (159,000)
Valuation allowance (232,123) (65,000)
-------------------------------
$ 0 $ 0
===============================
</TABLE>
The valuation allowance at June 30, 1995 is $232,123 and was
increased by $167,123 during the current year.
At June 30, 1994, the Company incurred a net operating loss for tax
reporting purposes, for financial statement purposes, a provision in
lieu of income taxes of $38,000 was offset primarily by a decrease in
the deferred tax assets valuation allowance.
At June 30, 1995, PTC had net operating loss carryforwards for tax
purposes of approximately $1,302,000, which expire as follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30
-----------------------------------------------------------------------------------------------------
<S> <C>
2005 $ 43,000
2006 88,000
2007 43,000
2008 217,000
2009 165,000
2010 746,000
----------------
$ 1,302,000
================
</TABLE>
(11)
<PAGE> 14
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
Of these loss carryover amounts, approximately $138,000 are subject to
limitation on their use in accordance with Internal Revenue Code
Section 382. This section restricts the annual usage of loss
carryovers when a significant change in ownership has occurred. In
the event of any future changes in ownership, loss carryovers
available for utilization could be further limited or restricted.
- EMPLOYMENT AGREEMENTS
The Company has employment agreements with two of its principal
officers through June 1996. The agreements provide for base
compensation, a portion of which may be deferred, annual bonuses
aggregating 6% of income before taxes, and incentive bonuses based on
improvement in the Company's book value per share. The incentive
bonuses range from an aggregate of 40 shares upon achieving a book
value of $637.50 per share to 320 shares upon achieving a book value
of $2,120.76 per share. The bonuses are payable in cash or Class A
common shares at the election of the Company. The agreements contain
specific provisions in the event the employees voluntarily terminate
for good reason or are terminated without cause or within 18 months of
a change in control, as defined. The aggregate commitment for future
salaries at June 30, 1995, excluding bonuses, under these agreements
is $265,000 and is contingent on the future performance of duties. The
aggregate contingent liability at June 30, 1995 should the employees
be terminated is $525,000, plus three times the average annual bonus
paid prior to the termination.
The employment agreements also granted the officers the right to
purchase a total of 157 Class A shares at 25% of the Company's June
30, 1994 book value, which was exercised by the officers in September
1994. The officers are required to offer the Company a right of first
refusal upon sale of such shares at the greater of market value in
excess of $1,000 per share or 25% of the Company's book value per
share at the end of the preceding fiscal year.
The officers have an option to convert all Class A common shares
issued in connection with the stock purchase rights and annual and
incentive bonuses into Class B common stock at a rate of 2.2 Class B
common shares for each Class A common share. The conversion option Is
nonassignable and the officers must reconvert their Class B common
shares to the Class A common shares to liquidate them.
- WARRANTS TO PURCHASE COMMON STOCK
In connection with certain capital lease financing, the Company issued
warrants to a lessor representing the right to purchase 45 shares of
Class A common stock for $1,000 per share. Twenty-five of the
warrants expire on June 28, 1998 and the remaining twenty expire
September 12, 1998. The lessor has the option to require the Company
to repurchase any shares acquired through the exercise of the warrants
for $4,241 per share. The lessor's option expires May 31, 1998 and
August 31, 1998. If the lessor does not purchase the shares covered
by the warrants, the Company will be required to redeem the warrants
for $3,181 per warrant at the end of the lease term.
(12)
<PAGE> 15
PUBLIC TELEPHONE CORPORATION
NOTES TO FINANCIAL STATEMENTS
- COMMITMENTS AND CONTINGENCIES
The Company is the defendant in a lawsuit alleging a breach of contract
and requesting damages of $51,000 plus attorney fees. Management
believes that such litigation and claims will be resolved without
material effect on the Company's financial position.
- ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising costs
were $54,057 and $900 for the years ended June 30, 1995 and 1994.
(13)
<PAGE> 1
PUBLIC TELEPHONE CORPORATION
Financial Statements
June 30, 1994
(With Independent Auditors' Report Thereon)
<PAGE> 2
KPMG Peat Marwick LLP [LOGO]
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46204-2452
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
PUBLIC TELEPHONE CORPORATION:
We have audited the accompanying balance sheet of Public
Telephone Corporation as of June 30, 1994, and the related
statements of operations, changes in stockholders' equity and
cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit. The accompanying financial
statements of Public Telephone Corporation as of June 30, 1993,
and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended were
audited by other auditors whose report thereon dated August 13,
1993 referred to a change in the Company's depreciation method,
as discussed in note 2, and included an explanatory paragraph
related to the Company's ability to continue as a going concern.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Public Telephone Corporation as of June 30, 1994, and the
results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
August 9, 1994
<PAGE> 3
PUBLIC TELEPHONE CORPORATION
Balance Sheets
June 30, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 508,016 45,031
Accrued revenue:
Coin 9,354 3,750
Non-coin 79,000 -
Prepaid expenses 10,730 1,916
Telephone parts 15,442 45,656
--------- ---------
TOTAL CURRENT ASSETS 622,542 96,353
--------- ---------
Furniture and equipment, at cost:
Telephone equipment 1,968,894 698,907
Furniture and fixtures 49,205 31,900
Vehicles 24,476 2,800
--------- ---------
2,042,575 733,607
Less accumulated depreciation and amortization 269,996 119,609
--------- ---------
1,772,579 613,998
Intangible assets, net of accumulated amortization of
$35,449 and $11,084 128,551 7,537
Security deposits 27,668
--------- ---------
$ 2,551,340 717,888
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to related parties 18,733 -
Current portion, long-term debt 316,791 90,977
Current portion, capital lease obligations 340,766 44,893
Accounts payable 27,622 1,080
Accrued expenses 94,524 3,316
--------- ---------
TOTAL CURRENT LIABILITIES 798,436 140,266
Long-term debt, less current portion 302,098 48,134
Capital lease obligations, less current portion 915,193 105,398
--------- ---------
TOTAL LIABILITIES 2,015,727 293,798
--------- ---------
Stockholders'equity:
Preferred stock, no stated value, 100,000 shares authorized,
none issued or outstanding - -
Class A common stock, no par value 10,000,000 shares authorized,
899 and 951 shares issued and 899 and 890 shares outstanding 899,000 951,000
Class B common stock, no par value, 100,000 shares authorized,
none issued and outstanding - -
Accumulated deficit (363,387) (465,910)
--------- ---------
535,613 485,090
Treasury stock, at cost, 61 Class A common shares - (61,000)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 535,613 424,090
--------- ---------
$ 2,551,340 717,888
========= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
PUBLIC TELEPHONE CORPORATION
Statements of Operations
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revenues:
Coin calls $ 1,173,743 475,997
Non-coin calls 509,814 118,751
Service and other 89,497 35,215
-------- --------
1,773,054 629,963
-------- --------
Costs and operating expenses:
Telephone charges 417,791 145,236
Commissions 209,329 79,993
Field services and collection 80,083 52,285
Depreciation - telephone equipment 155,693 94,071
Selling, general and administrative 591,00O 401,838
-------- --------
1,453,896 773,423
-------- --------
OPERATING INCOME (LOSS) 319,158 (143,460)
Interest expense 144,682 24,649
Other expense 71,953 10,092
-------- --------
NET INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE 102,523 (178,201)
Cumulative effect of change in depreciation method - 34,397
-------- --------
NET INCOME (LOSS) $ 102,523 (143,804)
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 5
PUBLIC TELEPHONE CORPORATION
Changes in Stockholders' Equity
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
PTC Class PTC Class PTC/IL PTC Common PTC/IL Retained
A Common B Common Common Stock Additional earnings Treasury
Stock Stock Stock Subscribed paid capital (deficit) Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992 $ 585,000 - 396 15,000 70,349 (167,851) - 502,894
Receipt of subscription receivable 15,000 - - (15,000) - - - -
Issuance of 126 shares at
$ 1,000 per share 126,000 - - - - - - 126,000
Purchase of 100 shares at
$ 1,000 per share - - - - - - (100,000) (100,000)
Merger of companies 225,000 - (396) - (70,349) (154,255) - -
Purchase of 65 shares at
$ 1,000 per share - - - - - - (65,000) (65,000)
Issuance of 104 treasury shares
at $ 1,000 per share - - - - - - 104,000 104,000
Net loss - - - - - (143,804) - (143,804)
-------- ------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1993 951,000 - - - - (465,910) (61,000) 424,090
Retirement of treasury stock (61,000) - - - - - 61,000 -
Issuance of 9 shares at
$ 1,000 per share 9,000 - - - - - - 9,000
Net income - - - - - 102,523 - 102,523
-------- ------- ------- ------- ------- ------- ------- -------
Balance at June 30, 1994 $ 899,000 - - - - (363,387) - 535,613
======== ======= ======= ======= ======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
PUBLIC TELEPHONE CORPORATION
Statements of Cash Flows
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 102,523 (143,804)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 189,666 107,949
Loss on disposal of property and equipment 64,015 21,350
Cumulative effect of change in depreciation method - (34,397)
Changes in operating assets and liabilities:
Accrued revenue (84,604) 1,800
Prepaid expenses and other current assets 21,400 (2,067)
Accounts payable and accrued expenses 92,750 (7,495)
---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 385,750 (56,664)
---------- ----------
Cash flows from investing activities:
Acquisition of Aaron Communication Service, Inc. assets (115,252) -
Acquisition of TTC Investments assets (438,000) -
Other acquisitions of property and equipment (319,547) (388,403)
Proceeds from sale of property and equipment 10,140 42,249
Increase in security deposits (27,668) -
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (890,327) (346,154)
---------- ----------
Cash flows from financing activities:
Principal payments on notes payable (256,111) (68,166)
Proceeds received from notes payable 90,272 122,960
Proceeds received from notes payable, officers 18,733 -
Principal payments on notes payable-former stockholders for
repurchase of stock - (106,000)
Principal payments on capital leases (212,332) (17,695)
Proceeds received on sale-leaseback transactions 1,318,000 -
Proceeds from collection of notes receivable - 1,400
Proceeds received from issuance of stock 9,000 245,000
Payments made to repurchase stock - (15,000)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 967,562 162,499
---------- ----------
Net change in cash 462,985 (240,319)
Cash and cash equivalents, beginning of year 45,031 285,350
---------- ----------
Cash and cash equivalents, end of year $ 508,016 45,031
========== ==========
Supplemental disclosure of non-cash investing and financing activities:
Notes payable issued in connection with acquisition of assets 645,617 7,200
Capital lease obligations for new equipment - 153,480
Interest-bearing notes issued to reacquire 150 Class A common shares - 150,000
Deferred financing costs included in accounts payable 25,000 -
Cash paid during 1994 and 1993 for interest totaled $137,201 and $25,055, respectively.
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
June 30, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
General
-------
Public Telephone Corporation (PTC or the Company) owns, operates and
maintains pay telephones connected to the network of regulated telephone
companies at various third-party property owner locations. The Company
also derives revenue from routing calls to operator service companies.
The Company commenced significant installation and operation of pay
telephones in April, 1992. The Company previously was incorporated and
operated under the name American Public Telephone Company. The name was
changed in year 1993 after a merger with a company whose operations are
similar to the Company's and which commenced operations in January, 1991.
Recognition of Revenue and Operating Expenses
---------------------------------------------
Revenues are recognized when earned. Coin call and non-coin call
(alternate operator service) revenues and related expenses are
recognized at the time the call is made. For other services,
revenue is recognized when services are rendered to the customer. Prior
to 1994, coin and non-coin call revenues were recognized as collected and
call related expenses were recognized as bills were received. The
cumulative effect of the change to the accrual basis for recognizing
call-related revenues and expenses at July 1, 1993 was not material.
Cash Equivalents
----------------
Cash equivalents include highly liquid investments purchased with an
original maturity of three months or less.
Intangible Assets
-----------------
Intangible assets include goodwill and covenants not to compete arising
from purchases of pay telephone operations, deferred financing costs and
organization and start-up costs. Amortization is provided on a
straight-line basis over the following periods:
<TABLE>
<S> <C>
Goodwill 3 years
Non-compete agreements 3 years
Other intangible assets 2 - 5 years
</TABLE>
Property and Equipment
----------------------
Property and equipment are recorded at cost, including telephone,
installation and related costs. Assets acquired under capital leases are
recorded at the present value of lease payments, including bargain
purchase options expected to be exercised. Net gains or losses on sales
of telephone equipment leased back under capital lease arrangements are
deferred as a component of capital lease assets. Depreciation and
amortization are provided on the straight-line method over the estimated
useful lives of the assets commencing when the property or equipment is
installed and placed in service.
(Continued)
<PAGE> 8
2
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
Effective July 1, 1993, the Company extended the estimated useful lives
of its telephone assets from five to ten years to more properly reflect
the true economic lives of the assets and to better align the Company's
depreciable lives with industry practice. This change in estimate
resulted in 1994 depreciation expense being lower than amounts computed
assuming a five year life by approximately $165,000.
Income Taxes
------------
The Company provides income taxes in accordance with the Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities and
assets for the differences between the financial statement and tax basis
amounts of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. Deferred tax
assets are reported net of a valuation allowance when realization is
uncertain.
(2) CHANGE IN ACCOUNTING PRINCIPLE
------------------------------
During 1993, PTC changed its method of depreciation from an accelerated
method to the straight-line method for all existing and newly acquired
property and equipment. Management feels that the straight-line method
more accurately depicts actual depreciation due to the nature of the
assets. The cumulative effect of this change in accounting method
reduced the 1993 net loss by $34,397.
(3) ACQUISITIONS
------------
On August 30, 1993, the Company acquired certain public pay telephone
operations of Aaron Communication Service, Inc. for approximately
$457,000. The purchase price was financed with capital leases and seller
financing of approximately $115,000 and $342,000, respectively.
On January 5, 1994, the Company acquired substantially all the assets
of TTC Investments, a public pay telephone company, for approximately
$742,000. The purchase price was financed with capital leases and seller
financing of approximately $438,000 and $304,000, respectively.
The acquisitions have been accounting for using the purchase method
and, accordingly, the acquired assets have been recorded at their fair
values at the date of acquisition. The purchase price allocations
resulted in goodwill of approximately $71,000 and covenants not to
compete of approximately $50,000.
(4) MERGER
------
On March 18, 1993, the Company merged with Public Telephone Corporation
(PTC/IL), an Illinois corporation whose operations are similar to those
of PTC. The transaction was affected through the issuance of 225 Class A
common shares of the Company stock for all of the issued and outstanding
shares of PTC/IL. The merger has been accounted for as a pooling of
interests and, accordingly, the 1993 statement of operations reflects the
companies combined results of operations for the full year.
(Continued)
<PAGE> 9
3
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
Net revenues and net loss of the individual entities are as follows:
<TABLE>
<CAPTION>
Company PTC/IL Combined
-------- -------- --------
<S> <C> <C> <C>
Nine months ended March 31, 1993:
Revenues $ 41,481 360,731 402,212
Net loss (164,113) (7,310) (171,423)
</TABLE>
(5) LONG--TERM DEBT
Long-term debt at June 30, consists of the following:
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
12% notes payable in varying monthly principal and
interest installments through November, 1996 $ 260,628 -
6% note payable in monthly principal and interest
installments of $10,755 through August, 1996 261,585 -
7.5% note payable in monthly principal and interest
installments of $2,548 through December, 1994 14,959 43,251
8% note payable in monthly principal and interest
installments of $896 through June, 1995 10,295 19,800
Non-interest bearing note payable in monthly princi-
pal installments of $960 through October, 1994 2,880 14,400
8% note payable July, 1994 35,182 -
7% notes payable in monthly principal and interest
payments of $371 through February, 1997 11,093 -
Other 2,267 10,460
--------- ---------
598,889 87,911
Notes payable to former stockholders:
8.5% due in monthly principal and interest
installments of $2,000 through April, 1995 20,000 44,000
Other - 7,200
--------- ---------
TOTAL LONG-TERM DEBT 618,889 139,111
Less current portion 316,791 90,977
--------- ---------
LONG-TERM DEBT, LESS CURRENT PORTION $ 302,098 48,134
========= =========
</TABLE>
The long-term notes payable are generally secured by the
assets of the Company including property and equipment.
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal year
ending
-----------
<S> <C>
1995 $ 316,791
1996 252,733
1997 49,365
---------
$ 618,889
=========
</TABLE>
(Continued)
<PAGE> 10
4
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
(6) CAPITAL LEASE AGREEMENTS
------------------------
Property and equipment at June 30 includes assets held under
capital leases including capital leases arising out of
sale-leaseback transactions as follows:
1994 1993
<TABLE> ---- ----
<S> <C> <C>
Telephones and related equipment $1,378,038 169,633
Less accumulated amortization 184,572 12,805
---------- -------
$1,193,466 156 828
========== =======
Future lease payments, including bargain purchase options
expected to be exercised and the expected net cost of warrants
and related put options granted to the lessor (see note 12), for
each fiscal year ending June 30 follows:
1995 $ 526,699
1996 510,837
1997 406,707
1998 224,908
1999 106,032
----------
1,775,183
Less amount representing interest 519,224
----------
Present value of future lease payments 1,255,959
Current portion 340,766
----------
Capital lease obligations, less current $ 915,193
portion ==========
</TABLE>
The capital lease agreements require the Company to pledge the
related telephone site leases as additional collateral. At June
30, 1994, approximately 650 such site leases were so pledged.
(7) OPERATING LEASES
----------------
PTC has operating leases for office space which require aggregate
monthly rental payments of $2,475. The lease terms expire
through January, 1995. Total rental expense for the year ended
June 30, 1994 was $24,872.
(8) INCOME TAXES
------------
In 1993, the Company incurred a loss for both tax and financial
statement purposes. In 1994, the Company also incurred a net
operating loss for tax purposes; for financial statement purposes, a
provision in lieu of income taxes of approximately $38,000 was offset
primarily by a decrease in the deferred tax assets valuation allowance.
(Continued)
<PAGE> 11
5
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
The tax effects of differences in financial statement and tax
basis amounts of assets and liabilities that result in
significant portions of deferred tax assets and liabilities at
June 30 are as follows:
<TABLE>
1994 1993
---- ----
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, principally due
to depreciation
$ 159,000 38,000
------- ------
Deferred tax assets:
Net operating loss carryforward 206,000 152,000
Deferred compensation 8,000 -
Other 10,000 -
Valuation allowance (65,000) (114,000)
------- -------
TOTAL DEFERRED TAX ASSETS 159,000 38,000
------- -------
Net deferred tax asset (liability) $ - -
======= =======
</TABLE>
At June 30, 1994, PTC had net operating loss (NOL) carryforwards for tax
purposes of approximately $556,000, which expire as follows:
<TABLE>
Fiscal year
ending
------
<S> <C>
2005 $ 43,000
2006 88,000
2007 43,000
2008 217,000
2009 165,000
--------
$556,000
========
</TABLE>
Of these loss carryover amounts, approximately $138,000 are subject to
limitation on their use in accordance with Internal Revenue Code section
382. This section restricts the annual of loss carryovers when a
significant change in ownership has occurred, such as the merger discussed
in note 4. In the event of any future changes in ownership, loss carryovers
available for utilization could be further limited or restricted.
(9) CONTINGENT LIABILITIES
----------------------
The Company is involved in various claims and other legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material
adverse effect on the Company's financial position or results of
operations.
(10) RELATED PARTY TRANSACTIONS
--------------------------
The Company has two notes payable to officers and shareholders.
All such notes payable are due on demand with interest at 8%
payable monthly.
(Continued)
<PAGE> 12
6
PUBLIC TELEPHONE CORPORATION
Notes to Financial Statements
(11) EMPLOYMENT AGREEMENTS
---------------------
The Company has employment agreements with two of its principal officers
through June 1996. The agreements provide for base compensation, a
portion of which may be deferred, annual bonuses aggregating 6% of income
before taxes, and incentive bonuses based on improvement in the Company's
book value per share. The incentive bonuses range from an aggregate of 40
shares upon achieving a book value of $637.50 per share to 320 shares upon
achieving a book value of $2,120.76 per share. The bonuses are payable in
cash or Class A common shares at the election of the Company. The
agreements contain specific provisions in the event the employees
voluntarily terminate for good reason or are terminated without cause or
within 18 months of a change in control, as defined. The aggregate
commitment for future salaries at June 30, 1994, excluding bonuses, under
these agreements is $415,000. The aggregate contingent liability at June
30, 1994 should the employees be terminated is $525,000, plus three times
the average annual bonus paid prior to the termination.
The employment agreements also grant the officers the right to purchase
a total of 157 Class A shares at 25 percent of the Company's June 30, 1994
book value. The officers are required to offer the Company a right of
first refusal upon sale of such shares at the greater of market value in
excess of $1,000 per share or 25% of the Company's book value per share at
the end of the preceding fiscal year.
The officers have an option to convert all Class A common shares issued
in connection with the stock purchase rights and annual and incentive
bonuses into Class B common stock at a rate of 2.2 Class B common shares
for each Class A common share. The conversion option is non assignable
and the officers must reconvert their Class B common shares to the Class
A common shares to liquidate them.
(12) WARRANTS TO PURCHASE COMMON STOCK
---------------------------------
In connection with certain capital lease financing, the Company issued
warrants to a lessor representing the right to purchase 25 shares of Class
A common stock for $1,000 per share. The warrants expire on June 30,
1998. The lessor has the option to require the Company to repurchase any
shares acquired through the exercise of the warrants for $4,000 per share.
The lessor's option expires May 31, 1998. If the lessor does not purchase
the shares covered by the warrants, the Company will be required to redeem
the warrants for $3,000 per warrant at the end of the lease term.
<PAGE> 1
Coopers Certified Public Accountants
&Lybrand
PUBLIC TELEPHONE CORPORATION
----------
Financial Statements
for the year ended June 30, 1993
------
<PAGE> 2
Coopers certified public accountants
&Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors,
Public Telephone Corporation.
We have audited the accompanying balance sheet of Pubic Telephone
Corporation as of June 30, 1993, and the related statements of
operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Public
Telephone Corporation as of June 30, 1993, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the financial statements, the Company changed
its depreciation method of property, plant and equipment in fiscal 1993.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to
the financial statements, the Company has suffered recurring losses from
operations and has limited liquidity which raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Coopers & Lybrand
Fort Wayne, Indiana,
August 13, 1993.
1
<PAGE> 3
Financial Statements
<PAGE> 4
<TABLE>
<CAPTION>
PUBLIC TELEPHONE CORPORATION
BALANCE SHEET
As of June 30, 1993
--------
ASSETS
Current assets:
<S> <C>
Cash $ 45,031
Accounts receivable 3,750
Prepaid expenses 1,916
Telephone parts 45,656
--------
Total current assets 96,353
Property, plant and equipment, at cost:
Telephone equipment 529,274
Capital lease assets 169,633
Furniture and fixtures 31,900
Vehicles 2 800
--------
733,607
Less accumulated depreciation and
amortization 119,609
--------
613,998
Intangible assets, net of accumulated
amortization of $11,084 7,537
--------
$717,888
========
<FN>
The accompanying notes are an integral part
of the financial statements.
</TABLE>
2
<PAGE> 5
<TABLE>
LIABILITIES
<S> <C>
Current liabilities:
Accounts payable $ 1,080
Accrued expenses 3,316
Current portion, long-term debt (Note 5) 90,977
Current portion, capital lease obligation (Note 6) 44,893
--------
Total current liabilities 140,266
Long-term debt, less current portion (Note 5) 48,134
Capital lease obligation, less current
portion (Note 6) 105,398
--------
Total liabilities 293,798
--------
STOCKHOLDERS' EQUITY
Class A common stock, no par value, 100,000
shares authorized, 951 shares issued and
890 shares outstanding 951,000
Class B common stock, no par value, 100,000
shares authorized, none issued and outstanding -
Preferred stock, no stated value, 100,000 shares
authorized, none issued and outstanding
Accumulated deficit (465,910)
--------
485,090
--------
Treasury stock, at cost, 61 class A common shares (61,000)
--------
Total stockholders' equity 424,090
--------
$717,888
========
</TABLE>
2
<PAGE> 6
<TABLE>
PUBLIC TELEPHONE CORPORATION
STATEMENT OF OPERATIONS
For the year ended June 30, 1993
--------
<S> <C>
Revenue:
Coin revenue $ 475,997
Non coin revenue 118,751
Service and other 35,215
---------
629,963
Operating expenses:
Salesman commissions 45,130
Site owner commissions 79,993
Telephone line charges 145,236
Depreciation - telephone equipment 94,071
---------
Gross margin 265,535
Administrative expenses 353,383
Selling expenses 55,612
---------
Operating loss (143,460)
Other expense 10,092
Interest expense 24,649
---------
Net loss before cumulative effect
of a change in accounting
principle (178,201)
Cumulative effect of change in
depreciation method (Note 3) 34,397
---------
Net loss $(143,804)
=========
<FN>
The accompanying notes are an integral part
of the financial statements.
</TABLE>
3
<PAGE> 7
<TABLE>
PUBLIC TELEPHONE CORPORATION
CHANGES IN STOCKHOLDERS' EQUITY
for the year ended June 30, 1993
--------
<CAPTION>
PTC/IL
PTC Common PTC/IL Common PTC Common Additional
Stock Stock Stock Subscribed paid capital
---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Balance at June 30, 1992 $585,000 $ 396 $ 15,000 $ 70,349
Receipt of subscription
receivable 15,000 - (15,000) -
Issuance of 126 shares
at $1,000 per share 126,000 - - -
Purchase 100 shares at
$1,000 per share - - - -
Merger of companies (Note 4) 225,000 (396) - (70,349)
Purchase 65 shares at
$1,000 per share - - - -
Issuance of 104 treasury
shores at $1,000 per share - - - -
Net loss - - - -
-------- ------ -------- --------
Balance at June 30, 1993 $951,000 $ - $ - $ -
======== ====== ======== ========
<CAPTION>
Retained
earnings Treasury
(deficit) stock Total
--------- -------- --------
<S> <C> <C> <C>
Balance at June 30, 1992 $(167,851) - $502,894
Receipt of subscription
receivable - - -
Issuance of 126 shares
at $1,000 per share - - 126,000
Purchase 100 shares at
$1,000 per share - (100,000) (100,000)
Merger of companies (Note 4) (154,255) - -
Purchase 65 shares at
$1,000 per share - (65,000) (65,000)
Issuance of 104 treasury
shares at $1,000 per share - 104,000 104,000
Net loss (143,804) - (143,804)
--------- -------- --------
Balance at June 30, 1993 $(465,910) $(61,000) $424,090
========= ======== ========
<FN>
The accompanying notes are an integral part
of the financial statements.
</TABLE>
4
<PAGE> 8
<TABLE>
PUBLIC TELEPHONE CORPORATION
STATEMENT OF CASH FLOWS
For the year ended June 30, 1993
--------
<S> <C>
Cash flows from operating activities:
Net loss $(143,804)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 107,949
Loss on sale of assets 21,350
Cumulative effect of change in
depreciation method (34,397)
Changes in assets and liabilities:
Accounts receivable 1,800
Prepaid expenses 2,940
Telephone parts (5,007)
Accounts payable (1,538)
Accrued expenses (5,957)
--------
Net cash used in operating activities (56,664)
--------
Cash flows from investing activities:
Telephone equipment acquisitions and other (388,403)
Proceeds from sale of assets 42,249
--------
Net cash used in investing activities (346,154)
--------
Cash flows from financing activities:
Principal payments on notes payable (68,166)
Proceeds received from notes payable 122,960
Principal payments on notes payable -
former stockholders for repurchase of stock (106,000)
Principal payments on capital leases (17,695)
Proceeds from collection of notes receivable 1,400
Proceeds received from issuance of stock 245,000
Payments made to repurchase stock (15,000)
--------
Net cash provided by financing activities 162,499
--------
Net change in cash (240,319)
Cash, beginning of year 285,350
--------
Cash, end of year $ 45,031
========
Supplemental disclosure of non cash investing and financing activities:
During fiscal 1993 the Company reacquired 150 shares of stock by issuing
$150,000 interest bearing notes. Capital lease obligations of $153,480 were
incurred during the period when the Company entered into leases for new
equipment. A note payable to a stockholder of $7,200 was issued in exchange
for new equipment.
Cash paid during the period for interest: $ 25,055
========
<FN>
The accompanying notes are an integral
part of the financial statements.
</TABLE>
5
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS
-------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
General
- -------
Public Telephone Corporation (PTC) owns, operates and maintains pay telephones
connected to the network of regulated telephone companies at various third
party property owner locations. PTC also derives revenue from routing calls
to operator service companies. PTC commenced significant installation and
operation of pay telephones in April, 1992. PTC previously was incorporated
and operated under the name American Public Telephone Company. The name was
changed in fiscal 1993 after a merger with a company whose operations are
similar to PTC's and which commenced operations in January, 1991.
Intangible Assets
- -----------------
Included under this caption are deferred financing costs, organization and
start-up costs. Deferred financing costs are amortized over the term of the
debt to which the costs relate using the straight-line method (approximately
30 months). Organization and start-up costs are amortized over a period of
five years using the straight-line method.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are recorded at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the respective
assets commencing when the equipment is installed and placed in service.
Costs and related accumulated depreciation are removed from the accounts for
assets retired from service and a gain or loss on disposition is recorded in
income when realized. Expenditures for normal repairs and maintenance are
charged to expense as incurred.
Income Taxes
- ------------
PTC accounts for certain income and expense items differently for financial
reporting and income tax purposes. Provisions for deferred taxes are made in
recognition of these temporary differences in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
6
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS (Continued)
-------
2. GOING CONCERN
------------------
PTC has experienced recurring losses from operations, negative cash flow
from operations and its current liabilities exceed its current assets by
approximately $43,900. These factors raise substantial doubt about
PTC's ability to continue as a going concern. Management is currently
seeking additional financing to support operations. PTC is a start up
organization having operated only fifteen months, however, PTC has
experienced significant growth in revenue and anticipates similar growth
during the next year and beyond. This aggressive growth has occurred
through acquisitions of pay telephones (telephones in service grew from
approximately 110 at June 30, 1992 to approximately 350 at June 30,
1993). Subsequent to year-end, PTC purchased an additional 170 pay
telephones already in service. PTC has successfully obtained financing
to support growth and management is confident that sufficient financing will
be available in the future.
The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
3. CHANGE IN ACCOUNTING PRINCIPLE
----------------------------------
During fiscal 1993, PTC changed its method of depreciation from an
accelerated method to the straight-line method for all existing and newly
acquired assets included in property, plant and equipment. Management
feels that the straight-line method more accurately depicts actual
depreciation due to the nature of their assets. The cumulative affect of
this change in accounting method reduced the current year net loss by
$34,397. If the straight-line depreciation method had been used in
fiscal 1992 to compute depreciation expense, the companies net loss for
fiscal 1992 would have been reduced by approximately $8,000.
4. MERGER
---------
On March 18, 1993, PTC merged with Public Telephone Corporation (PTC/IL), an
Illinois corporation whose operations are similar to those of the Company.
The transaction was affected through the issuance of 225 common shares of
PTC stock for all of the issued and outstanding shares of PTC/IL. The
merger has been accounted for as a pooling of interests and accordingly, the
statement of operations reflects the combined year-to-date results of
operations.
Net revenues and net earnings of the individual entities are as follows:
<TABLE>
<CAPTION>
Nine months ending
March 31, 1993: PTC PTC/IL Combined
--- ------ --------
<S> <C> <C> <C>
Net revenues 41,481 360,731 402,212
Net earnings (loss) (164,113) (7,310) (171,423)
</TABLE>
7
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS (Continued)
-------
5. LONG-TERM DEBT
-----------------
Long-term debt at June 30, 1993 consisted of the following:
<TABLE>
<S> <C>
7.5% note due in monthly principal and
interest installments of $2,548 through
December 22, 1994 $ 43,251
8% note due in monthly principal and
interest installments of $896 through
June 8, 1995 19,800
Note payable due in monthly principal
installments of $960 through October 11, 1994 14,400
Other 10,460
--------
87,911
Notes payable to former stockholders:
------------------------------------
8.5% note due in monthly principal and
interest installments of $2,000 through
April 15, 1995 44,000
Other 7,200
--------
Total outstanding debt 139,111
Less current maturities 90,977
--------
$ 48,134
========
The aggregate maturities of the above long-term debt obligation are as
follows:
Fiscal year
ending
-----------
1994 $ 90,977
1995 48,134
--------
$139,111
========
</TABLE>
8
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (Continued)
-------
6. CAPITAL LEASE AGREEMENTS
- ---------------------------
Amounts capitalized in connection with capital leases have been included in
property, plant and equipment as follows:
<TABLE>
<CAPTION>
1993
----
<S> <C>
Telephones and related equipment $169,633
Less accumulated depreciation 12,805
--------
$156,828
========
Lease amortization has been included in accumulated depreciation and
depreciation expense.
Future lease payments are as follows for each fiscal year ending June 30:
1994 $ 66,303
1995 67,645
1996 48,724
1997 9,648
--------
192,320
Less amount representing interest 42,029
--------
Present value of future lease payments 150,291
Current portion 44,893
--------
Capital lease obligations, net of current
portion $105,398
========
</TABLE>
7. OPERATING LEASES
- -------------------
PTC leases office space with aggregate monthly rental payments of
$1,550. The lease terms expire in March, 1994 and August, 1994. Total
rental expense for the period ending June 30, 1993 was $16,790.
9
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (Continued)
-------
8. INCOME TAXES
---------------
PTC calculated its income tax provision in accordance with the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). SFAS 109 requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
At June 30, 1993, PTC had net operating loss (NOL) carryovers for tax purposes
of approximately $375,000, which will expire as follows:
<TABLE>
<CAPTION>
Fiscal year NOL
ending amount
----------- ------
<S> <C>
2005 $ 43,000
2006 88,000
2007 43,000
2008 201,000
--------
$375,000
========
</TABLE>
Of these loss carryover amounts, approximately $138,000 is subject to
limitation on its use in accordance with Internal Revenue Code section 382.
This section restricts the annual usage of loss carryovers when a significant
change in ownership has occurred, such as the merger discussed in Note 4.
The net deferred income taxes at June 30, 1993 were comprised of the
following:
<TABLE>
<S> <C> <C>
Deferred tax liability $ -
Deferred tax asset $114,000
Valuation allowance (114,000) -
-------- --------
Net deferred income taxes $ 0
========
</TABLE>
At June 30, 1993, the deferred tax asset primarily resulted from tax net
operating loss carryforwards and differences in depreciation expense for
financial statement and tax purposes. The deferred tax asset at June 30, 1993
was reduced by a valuation allowance to zero as the realization of the asset
is uncertain.
10
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PHONETEL TECHNOLOGIES, INC.,
PHONETEL II, INC.
AND
PUBLIC TELEPHONE CORPORATION
DATED OCTOBER 16, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION> PAGE
----
ARTICLE I
<S> <C> <C>
TERMS OF MERGER; THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 DELIVERIES BY PTC AND SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.6 DELIVERIES BY BUYER AND PHONETEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 RELATED MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
ARTICLE II
<TABLE>
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES OF . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 ORGANIZATION AND STANDING; SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE
RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 SELLER CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 CONSENTS AND APPROVALS; NO VIOLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.8 COMPLIANCE WITH LAWS AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.9 LITIGATION AND ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.10 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 SELLER PHONES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12 TELCO CHARGES AND LOCATION COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.13 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
ARTICLE III
<TABLE>
<S> <C> <C> <C>
REPRESENTATIONS AND WARRANTIES OF BUYER AND PHONETEL . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 CONSENTS AND APPROVALS; NO VIOLATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 ABSENCE OF UNDISCLOSED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.6 ABSENCE OF CERTAIN CHANGES OF EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.7 COMPLIANCE WITH LAWS AND PERMITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.8 LITIGATION AND ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.9 TELCO CHARGES AND LOCATION COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ARTICLE IV
<TABLE>
<S> <C> <C>
FURTHER ASSURANCES; COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . 24
4.1 FURTHER ASSURANCES; COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
i
<PAGE> 3
ARTICLE V
<TABLE>
<S> <C> <C>
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 25
5.2 INDEMNIFICATION OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 INDEMNIFICATION OF SELLER SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 ASSERTION OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
ARTICLE VI
<TABLE>
<S> <C> <C>
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.1 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . 27
6.2 EXHIBITS AND DISCLOSURE SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 WAIVER OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.5 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.6 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.7 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.9 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
ARTICLE VII
<TABLE>
<S> <C> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
0105359.02-New York Server 3a ii Draft September 29, 1995 - 7:03 pm
<PAGE> 4
INDEX OF EXHIBITS TO
AGREEMENT AND PLAN OF MERGER
A - Certificate of Merger
B - Seller Shareholders Listing
C - Stockholder Representations and Warranties Certificate
D - Registration Rights Agreement
E - Escrow Agreement
F - Non-Competition Agreement - Thomas J. Martin
G - Non-Competition Agreement - James R. Martin
0105359.02-New York Server 3a iii Draft September 29, 1995 - 7:03 pm
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (this "Agreement") is entered into on
this 16th day of October, 1995, by and among PhoneTel Technologies, Inc.
("PhoneTel"), an Ohio corporation, PhoneTel II, Inc. ("Sub" or "Buyer"), an
Ohio corporation and wholly-owned subsidiary of PhoneTel, and Public Telephone
Corporation ("PTC" or "Seller"), an Indiana corporation.
WHEREAS, the parties hereto desire that Sub be merged with and into PTC
in accordance with the terms and conditions herein contained; and
WHEREAS, it is intended that the Merger shall qualify as a tax-free
reorganization pursuant to Section 368 (a) of the Code (as defined herein), and
this Agreement is intended to be and hereby is adopted as a plan of
reorganization within the meaning of Section 368 of the Code.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
1
<PAGE> 6
ARTICLE I
TERMS OF MERGER; THE CLOSING
1.1 MERGER. On the date hereof, Sub shall be merged into and with PTC
(the "Merger"). PTC shall be the surviving corporation of the Merger and shall
continue to exist and to be governed by the laws of the State of Indiana. The
Merger shall be consummated pursuant to the terms of this Agreement and the
Articles of merger (substantially in the form attached hereto as Exhibit A)
(the "Articles of Merger"), all of which shall have been approved and adopted
by the Board of Directors and shareholders of PTC, and the Board of Directors
of PhoneTel and Buyer. The Merger shall become effective upon filing the
Articles of Merger with the Secretary of State of the State of Indiana (the
"Secretary of State") in accordance with the Indiana Business Corporation Law
(the "Effective Time"). At the Effective Time, the separate corporate
existence of Sub shall cease and PTC shall continue as the surviving
corporation of the merger and a direct wholly-owned subsidiary of PhoneTel
(which shall continue to operate under the name Public Telephone Corporation).
0105359.02-New York Server 3a 2 Draft September 29, 1995 - 7:03 pm
<PAGE> 7
1.2 CONSIDERATION. Shareholders of PTC (the "Shareholders"), listed on
Exhibit B attached hereto, shall be entitled to receive, in the aggregate,
1,349,290 shares ("Shares"), of PhoneTel common stock, $.01 par value (the
"Consideration"), in exchange for all of the shares of common stock, no par
value, of PTC (the "Seller Shares"). PROVIDED, HOWEVER, that the Consideration
will be reduced by the aggregate amount of any liabilities of the Seller
(including, but not limited to, payables and costs of termination and
non-competition agreements) which are in excess of $2,212,230 and which are not
offset by cash or cash equivalents (including, but not limited to, receivables)
and provided also that the escrowed shares will be remitted to Phonetel in
applicable amounts to effect any such purchase price reduction; such adjustment
shall not take effect until the aggregate amount of excess liabilities is at
least $50,000 greater than the value of any unrecorded amounts which become due
and payable to PTC subsequent to the closing as proceeds pursuant to
settlements and/or judgments resulting from actions settled or pending as of
the date hereof against the City of Chicago, Illinois and Ameritech, and orders
issued by the Illinois Commerce
0105359.02-New York Server 3a 3 Draft September 29, 1995 - 7:03 pm
<PAGE> 8
Commission, the FCC and the Michigan Taxing Authority concerning retroactive
tax credits.
1.3 CERTIFICATES. Certificates representing (i) the number of Shares
constituting the Consideration (ii) less 175,000 Shares shall be delivered to a
representative designated by the shareholders (the "Shareholder
Representative"), to be distributed on a pro rata basis to each Shareholder, as
soon as practicable after Closing, in accordance with the percentages set forth
opposite each Shareholder's name on Exhibit B. Certificates representing
175,000 Shares (the "Escrow Shares") will be delivered to Shambaugh, Kast, Beck
& Williams, as Escrow Agent, (the "Escrow Agent") pursuant to an escrow
agreement being entered into simultaneously herewith in substantially the form
attached hereto as Exhibit E.
1.4 CLOSING. The consummation of the transactions contemplated hereby
(the "Closing") is taking place at the offices of Skadden, Arps, Slate, Meagher
& Flom, 919 Third Avenue, New York, NY 10022 on October 16, 1995 (the "Closing
Date"), simultaneously with the execution of this Agreement, the Certificate of
Merger and the other agreements, documents, instruments and writings executed
and delivered pursuant hereto or in connection herewith (collectively the
"Other Documents").
0105359.02-New York Server 3a 4 Draft September 29, 1995 - 7:03 pm
<PAGE> 9
1.5 DELIVERIES BY PTC AND SHAREHOLDERS. PTC and the Shareholders are
delivering the following to Buyer and PhoneTel:
(a) Stock certificates representing all of the Seller Shares,
accompanied by stock powers (duly endorsed in blank) or other duly executed
instruments of transfer;
(b) A Stockholder Representations and Warranties Certificate from each
Shareholder, in substantially the form attached hereto as Exhibit C;
(c) A certificate, duly executed by an officer of PTC, representing to
Buyer and PhoneTel that Exhibit B is an accurate and complete list of all
Shareholders and that there are no other Seller Shares issued and outstanding;
and
(d) Certified resolutions of the Board of Directors and the
Shareholders of PTC approving this Agreement, the other Documents and the
transactions contemplated hereby and thereby.
1.6 DELIVERIES BY BUYER AND PHONETEL. Buyer and PhoneTel are
delivering or will deliver the following to Seller:
(a) 1,174,290 Shares, for distribution to Seller Shareholders;
0105359.02-New York Server 3a 5 Draft September 29, 1995 - 7:03 pm
<PAGE> 10
(b) 175,000 Shares for delivery to the Escrow Agent;
(c) Certified resolutions of the Board of Directors and Shareholders of
Buyer, approving this Agreement and the Other Documents and transactions
contemplated hereby and thereby;
(d) Certified resolutions of the Board of Directors of PhoneTel approving
this Agreement, the Other Documents and the transactions contemplated hereby
and thereby; and
(e) The Certificate of Merger, to be filed with the Secretary of State.
1.7 RELATED MATTERS.
(a) NON-COMPETITION AGREEMENTS. At the closing, Thomas J. Martin and
James R. Martin are entering into the agreements to not compete with PhoneTel
which are attached hereto as Exhibits F and G, respectively, (the
"Non-Competition Agreements").
(b) REGISTRATION RIGHTS AGREEMENT. At the Closing, PhoneTel and Buyer are
entering into the registration rights agreement which is attached hereto as
Exhibit E (the "Registration Rights Agreement")
0105359.02-New York Server 3a 6 Draft September 29, 1995 - 7:03 pm
<PAGE> 11
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller represents and warrants to Buyer and PhoneTel as follows:
2.1 ORGANIZATION AND STANDING; SUBSIDIARIES.
(a) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Indiana. Seller has all requisite
corporate power and authority to own, lease and operate the properties and
assets it now owns, operates and leases and to carry on its business and
operations as currently and heretofore conducted. Schedule 2.1 is a complete
listing of all jurisdictions in which Seller is presently doing business.
Seller is duly qualified or licensed to do business and is in good standing in
all such jurisdictions.
(b) Seller has no subsidiaries. As used in this Agreement, a subsidiary
of an entity shall mean (i) any corporation for which such entity (or any
subsidiary of such entity) is entitled to elect a majority of the directors, by
virtue of its ownership of more than 50% of the outstanding securities having
ordinary voting power, or otherwise, or (ii) any partnership, joint venture or
other entity which such entity (or any subsid-
0105359.02-New York Server 3a 7 Draft September 29, 1995 - 7:03 pm
<PAGE> 12
iary of such entity) controls, by virtue of its ownership of more than 50% of
the entity, or otherwise.
(c) Seller has taken all actions necessary to enable Buyer to assume,
without any adverse effect, all of Seller's rights and interests in all joint
ventures.
2.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE RECORDS.
(a) Seller has heretofore delivered to Buyer complete and correct copies
of the Articles of Incorporation and Bylaws of Seller, as currently in effect
and including all amendments thereto. The minute books of Seller have been
made available to Buyer for its inspection and contain complete and correct
records of all meetings, and consents in lieu of a meeting, of Seller's Board
of Directors (and any committees thereof) and of Seller's shareholders held or
executed since Seller's incorporation, and such records accurately reflect all
transactions referred to therein. The stock books and ledgers of Seller have
been made available to Buyer for its inspection, and such books and ledgers are
complete and correct in all material respects.
(b) Seller has made available to Buyer all accounting, corporate and
financial books and records
0105359.02-New York Server 3a 8 Draft September 29, 1995 - 7:03 pm
<PAGE> 13
(the "Accounting Books and Records") which relate to the business of Seller.
2.3 AUTHORIZATION. Seller has the requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement and the
Other Documents and to consummate the transactions contemplated hereby and
thereby. All corporate proceedings on the part of Seller which are necessary
to execute, deliver and perform this Agreement and the other Documents and to
consummate the transactions contemplated hereby and thereby have been duly
authorized and taken. Upon execution, this Agreement and all Other Documents
to which Seller is a party will constitute valid and binding obligations of
Seller and shall be enforceable against Seller in accordance with their terms.
2.4 SELLER CAPITALIZATION. As of the date hereof, the authorized capital
stock of Seller consists of 15,000,000 shares of Class A common stock, no par
value ("Seller Shares"), 100,000 shares of Class B common stock, no par value,
and 10,000,000 shares of preferred stock, no par value. 966 Seller Shares are
issued and outstanding as of the date hereof, all of which are owned by the
Shareholders. Seller has no other class of capital stock authorized or
outstanding. None of Seller's
0105359.02-New York Server 3a 9 Draft September 29, 1995 - 7:03 pm
<PAGE> 14
shares of capital stock have been reserved for any purpose. All outstanding
Seller Shares are duly authorized, validly issued, fully paid and nonassessable
and were not issued in violation of any preemptive rights. There are no (i)
options, warrants, calls, commitments, or rights of any character to purchase
or otherwise acquire from Seller shares of capital stock of any class, (ii)
outstanding securities of Seller that are convertible into or exchangeable or
exercisable for shares of any class of capital stock of Seller, (iii) options,
warrants or other rights to purchase from Seller any such convertible or
exchangeable securities, (iv) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of any
capital stock of Seller, nor (v) options, warrants or rights, pursuant to
which, in any of the foregoing cases, Seller is or would be subject or bound.
2.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) conflict with any provision of the Articles of
Incorporation or Bylaws (or other similar organizational documents) of Seller,
(b)
0105359.02-New York Server 3a 10 Draft September 29, 1995 - 7:03 pm
<PAGE> 15
require any consent, waiver, approval, authorization or Permit of, or filing
with or notification to, or any other action by, any Governmental Authority by
Seller, (c) violate any Law or any restriction imposed by any Governmental
Authority which might be applicable to Seller, or by which any of Seller's
business, properties or assets may be bound or affected nor (d) violate,
breach, or conflict with, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration of any obligation to pay or result in the imposition of any
Encumbrance upon any of the property) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, Encumbrance, contract,
Permit, order or other instrument or obligation to which Seller is a party or
by which any of Seller's business, properties or assets may be bound or
affected
2.6 ABSENCE OF UNDISCLOSED LIABILITIES.
Schedule 2.6 of the Disclosure Schedule sets forth a true, complete and
accurate list of all liabilities of Seller at the Closing, including all
Encumbrances attaching to any of Seller's Assets. Except as set forth on
Schedule 2.6 of the Disclosure Schedule, Seller had no liabilities arising from
or relating to its
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business and operations of any nature (whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due) and any and all liabilities or obligations incurred since June 30, 1995
were incurred in the ordinary course of business and consistent with past
practice.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 2.7 of the Disclosure Schedule, since June 30, 1995:
(i) Seller has operated its business in the ordinary course consistent
with past practice;
(ii) there has not been any material adverse change in the business,
results of operations, assets, liabilities, financial condition or (except for
matters which apply to United States businesses generally) any material adverse
change in the prospects of Seller; and
(iii) Seller has not incurred any material damage, destruction or loss
(whether or not covered by insurance) to its owned or leased property or
assets.
2.8 COMPLIANCE WITH LAWS AND PERMITS.
(a) The business and operation of Seller have been conducted and are
now being conducted in all
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material respects in compliance with all Laws and Orders of all Governmental
Authorities having jurisdiction over Seller and all Permits relating to any of
its properties or applicable to its business.
(b) Seller possesses all Permits necessary to own and operate its property
and assets and to conduct its business as it is currently conducted. Such
Permits are valid, subsisting in full force and effect, and Seller has
fulfilled its material obligations under each of the Permits, and no event has
occurred or condition or state of facts exists which constitutes or, after
notice or lapse of time or both, would constitute a default or violation under
any of the Permits or would permit revocation or termination of any of the
Permits. No proceeding which might involve the revocation or termination of
any such Permits is pending or, to the knowledge of Seller, threatened.
(c) Seller has made all filings and received all approvals relating to the
Permits which are necessary in order for Buyer to legally and validly own and
operate the property and assets of Seller and to conduct Seller's business as
it is currently and has heretofore been conducted.
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2.9 LITIGATION AND ARBITRATION.
(a) No claim, action, cause of action, suit, proceeding, inquiry,
investigation or Order by or before any Governmental Authority, administrative
body or arbitration or mediation panel is pending or, to the best of Seller's
knowledge, threatened, against Seller or which is otherwise pending or
threatened and might affect the business, operations, or assets of Seller,
except as set forth on Schedule 2.9 of the Disclosure Schedule. No order of
any Governmental Authority, arbitrator or mediator is outstanding against
Seller, its business, operations or assets. Seller has no knowledge of any
fact or circumstance which would reasonably be expected to result in any other
claim, action, cause of action, suit, proceeding, inquiry, investigation or
Order being filed which would be against Seller or which might affect its
business, operations or assets.
(b) To the best of Seller's knowledge, no claim, action, suit, proceeding,
inquiry or investigation has been instituted which threatens to restrain or
prohibit or to otherwise challenge the legality or validity of the transactions
contemplated by this Agreement or the Other Documents.
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2.10 BROKERS. Seller has no obligation to pay any brokers, finders,
investment bankers, financial advisors or similar fee in connection with this
Agreement or the other Documents or the transactions contemplated hereby or
thereby, by reason of any action taken by or on behalf of Seller.
2.11 SELLER PHONES. There were at least 1200 Seller Phones in operation as
of the close of business on September 30, 1995. A complete and accurate list
of all Seller Phones is attached hereto as Schedule 2.11 of the Disclosure
Schedule. The aggregate monthly gross revenue as of the date of closing
divided by the number of Seller Phones is greater than $150.00, provided,
however, that Buyer shall have no action against Seller unless the aggregate
monthly gross revenue divided by the number of Seller Phones is less than
$145.00 as of the date of closing.
2.12 TELCO CHARGES AND LOCATION COMMISSION. Seller has paid all telephone
line charges to the local exchange companies and commissions to site location
owners which are due and payable as of the Closing, except as set forth on
Schedule 2.12 of the Disclosure Schedule, or, if not so paid, such unpaid
charges and commissions are immaterial and not likely to have a
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material adverse effect upon the operations of the business of PTC.
2.13 DISCLOSURE. Seller has disclosed to PhoneTel and Buyer any and all
facts which are material to Seller's business, results of operations, assets,
Liabilities, and financial condition. No representation or warranty by Seller
in this Agreement (including the Disclosure Schedule) and no statement by
Seller in any of the Other Documents or previously disclosed to PhoneTel or
Buyer, contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements made herein or therein,
in light of the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER AND PHONETEL
PhoneTel and Buyer represent and warrant to Seller as follows:
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Ohio. Buyer has all requisite
corporate power and authority to own, lease and operate the properties and
assets it now owns, operates and leases and to
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carry on its business and operations as currently and heretofore conducted.
Schedule 3.1 is a complete listing of all jurisdictions in which Buyer is
presently doing business, and Buyer is duly qualified or licensed to do
business and is in good standing in all such jurisdictions.
3.2 AUTHORIZATION. Buyer has the requisite corporate power and authority
to execute, deliver and perform their obligations under this Agreement and the
Other Documents and to consummate the transactions contemplated hereby and
thereby. All corporate proceedings on the part of Buyer which are necessary to
execute, deliver and perform this Agreement and the Other Documents and to
consummate the transactions contemplated hereby and thereby have been duly
authorized and taken. Upon execution, this Agreement and the Other Documents
will constitute valid and binding obligations of Buyer and shall be enforceable
against Buyer in accordance with their terms.
3.3 CAPITALIZATION.
(a) As of the date hereof, the authorized capital stock of Buyer consists
of (i) 22,500,000 Shares, 14,497,107 of which are issued and outstanding, and
(ii) 2,500,000 shares of Preferred Stock, $.01 par value, of
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which (A) 2,125 shares have been designated Preferred Stock, $100 par value, of
which no shares are outstanding; (B) 6,500 shares have been designated
Convertible Preferred Stock, without par value, $100 stated value, cumulative
and redeemable, of which no shares are outstanding; (C) 3,880 shares have been
designated Preferred Stock, without par value, $1,000 stated value, cumulative
and redeemable, of which 1,496 shares are outstanding; (D) 16,000 shares have
been designated as Preferred Stock, without par value, $100 stated value,
cumulative and redeemable, of which 12,200 shares are outstanding; (E) 2,500
shares have been designated 7% Convertible Preferred Stock, without par value,
$100 stated value, cumulative and redeemable, all of which shares are
outstanding; (F) 550,000 shares have been designated as 10% Non-Voting
Preferred Stock, without par value, of which 530,534 shares are outstanding;
and (G) 1,918,995 shares are not yet designated nor issued. PhoneTel has no
other class of capital stock authorized or issued and outstanding. All of the
PhoneTel shares of capital stock issued are duly authorized and validly issued,
fully paid, nonassessable and not issued in violation of any preemptive rights.
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(b) Except as set forth in Schedule 3.3(b), there are no (i) options,
warrants, calls, commitments or right of any character to purchase or otherwise
acquire from PhoneTel any shares of its capital stock, (ii) outstanding
securities of PhoneTel that are convertible into or exchangeable or exercisable
for shares of any class of stock of PhoneTel, (iii) options, warrants or other
rights to purchase from PhoneTel any such convertible or exchangeable
securities, (iv) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of
PhoneTel nor (v) any options, warrants or rights, pursuant to which, in any of
the foregoing cases, PhoneTel is or would be subject or bound; no other shares
of PhoneTel's capital stock have been reserved for any purpose.
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth on Schedule
3.4 of the Disclosure Schedule, neither the execution and delivery of this
Agreement and the other Documents, nor the consummation of the transactions
contemplated hereby or thereby, nor compliance with any of the provisions
hereof, will conflict with any provision of the Articles of Incorporation or
Code of Regulations (or other similar organizational documents) of Buyer, (b)
require any consent, waiver,
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approval, authorization or Permit of, or filing with or notification to, or any
other action by, any Governmental Authority by Buyer, (c) violate any Law of
any Governmental Authority which is applicable to Buyer, or by which any of
Buyer's business, properties or assets may be bound or affected nor (d)
violate, breach, or conflict with, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration of any obligation to pay or result in the
imposition of any Encumbrance upon any of the property) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, Encumbrance,
contract, Permit, Order or other instrument or obligation to which Buyer is a
party or by which any of the business, properties or assets of Buyer may be
bound or affected.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES.
(a) Except as set forth on Schedule 3.5 (a) of the Disclosure Schedule,
(i) Buyer had no liabilities arising from or relating to its business and
operations of any nature (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due) which
were not reflected in the financial statements (the "PhoneTel Financial State-
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<PAGE> 25
ments") from Form 10QSB for the quarter ended June 30, 1995, and (ii) any
liability or obligation incurred since June 30, 1995, was incurred in the
ordinary course of its business and consistent with past practice.
(b) Schedule 3.5 (b) of the Disclosure Schedule sets forth a true,
complete and accurate list of all liabilities of Buyer as of September 22,
1995.
3.6 ABSENCE OF CERTAIN CHANGES OF EVENTS. Except as set forth on
Schedule 3.6 of the Disclosure Schedule, since June 30, 1995:
(i) Buyer has operated its business in the ordinary course consistent
with past practice;
(ii) there has not been any material adverse change in the business,
results of operations, assets, liabilities, financial condition or (except for
matters which apply to United States businesses generally) any material adverse
change in the prospects of PhoneTel; and
(iii) Buyer has not incurred any material damage, destruction or loss
(whether or not covered by insurance) to its owned or leased property or
assets.
3.7 COMPLIANCE WITH LAWS AND PERMITS.
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(a) Except as set forth on Schedule 3.7 (a) of the Disclosure Schedule,
the business and operation of Buyer have been conducted and are now being
conducted in all material respects in compliance with all Laws and Orders of
all Governmental Authorities having jurisdiction over Buyer and all Permits
relating to any of its properties or applicable to its business.
(b) Except as set forth on Schedule 3.7(b) of the Disclosure Schedule,
Buyer possesses all Permits necessary to own and operate its property and
assets and to conduct its business as it is currently conducted. Such Permits
are valid, subsisting in full force and effect, and Buyer has fulfilled its
material obligations under each of the Permits, and no event has occurred or
condition or state of facts exists which constitutes or, after notice or lapse
of time or both, would constitute a default or violation under any of the
Permits or world permit revocation or termination of any of the Permits. No
proceeding which might involve the revocation or termination of any such
Permits is pending or, to the knowledge of Buyer, threatened.
(c) Except as set forth on schedule 3.7(c) of the Disclosure Schedule,
Buyer has made all filings and received all approvals in connection with the
Permits
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which are necessary for Buyer to own and operate the property and assets of
Buyer and to conduct Buyer's business as it is currently and has heretofore
been conducted.
3.8 LITIGATION AND ARBITRATION.
(a) No claim, action, cause of action, suit, proceeding, inquiry,
investigation or Order by or before any Governmental Authority, administrative
body or arbitration or mediation panel is pending or, to the best of Buyer's
knowledge, threatened, against Buyer, except as set forth on Schedule 4.8 of
the Disclosure Schedule. No Order of any Governmental Authority, arbitrator or
mediator is outstanding against Buyer, its business, operations or assets.
Buyer has no knowledge of any fact or circumstance which could reasonably be
expected to result in any other claim, action, cause of action, suit,
proceeding, inquiry, investigation or Order, against Buyer or affect its
business, Operations or assets.
(b) To the best of Buyer's knowledge, no claim, action, suit, proceeding,
inquiry or investigation has been instituted which threatens to restrain or
prohibit or to otherwise challenge the legality or validity of the transactions
contemplated by this Agreement or the Other Documents.
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3.9 TELCO CHARGES AND LOCATION COMMISSIONS. PhoneTel has paid all
telephone line charges to the local exchange companies and commissions to site
location owners which are due and payable as of the Closing, except as set
forth on Schedule 3.9 of the Disclosure Schedule, or if not so paid, such
unpaid charges and commissions are immaterial and not likely to have a material
adverse effect upon the operations of the business of PhoneTel.
ARTICLE IV
FURTHER ASSURANCES; COOPERATION
4.1 FURTHER ASSURANCES; COOPERATION.
(a) The parties shall from time to time after the Closing, upon the
request of any other party and without further consideration, execute,
acknowledge and deliver in proper form any further instruments or documents,
and take such further actions as such other party may reasonably require, to
carry out effectively the intent of this Agreement and the other Documents.
4.2 EXPENSES. Any expenses incurred by the parties in connection with or
execution of this Agreement and the Other Documents and the consummation of the
transactions contemplated hereby and thereby, including expenses of
accountants, counsel, brokers, finders,
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<PAGE> 29
financial advisors and other representatives shall be paid by the parties
incurring such expenses.
ARTICLE V
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties of Seller, Buyer contained herein or made pursuant hereto shall
survive the Closing and any investigation at any time made by or on behalf of
any party hereto until the earlier of (i) six months from the date hereof or
(ii) with respect to representations of Seller which affect the tax liabilities
of Buyer, two years from the date hereof. Notwithstanding the foregoing, if a
claim with respect to a breach of a representation and warranty is made within
the applicable period in accordance with the provisions hereinafter set forth,
such claim and any related claim may continue to be asserted after such period.
5.2 INDEMNIFICATION OF BUYER. The Shareholders of Seller agree to
indemnify Buyer from any Losses incurred by reason of any breach of
representation and warranty or covenant of Seller contained herein; provided,
however, that Buyer shall have a claim only for the value of the loss or losses
which, in the aggregate, exceed $100,000. The escrowed shares will be
available
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to buyer for the settlement of any claims pursuant to Section 5.4, in addition
to any other remedies to which the buyer may be entitled.
5.3 INDEMNIFICATION OF SELLER SHAREHOLDERS. Buyer agrees to indemnify
Seller's shareholders from any Losses incurred by reason of any breach of a
representation and warranty or covenant of Buyer contained herein; provided,
however, that a party shall have a claim only for the value of the loss or
losses which, in the aggregate, exceed $100,000.
5.4 ASSERTION OF CLAIMS.
(a) The parties shall be free to bring all differences of interpretation
and disputes arising in connection with this Agreement to the attention of the
other at any time without prejudicing their harmonious relationship and
operations hereunder, and the good offices and facilities of either party shall
be available at all times for the prompt and effective adjustment of any and
all such differences, either by mail, telephone or personal meeting under
friendly and courteous circumstances.
(b) If a party claims ("Claiming Party") that it is entitled to
indemnification under this Article, notice of such claim (the "Claim") shall be
given to
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the party from whom the Claiming Party seeks indemnification. The parties
shall negotiate in good faith to determine the validity and the value of the
Claim. If the parties cannot reach an agreement as to the value of the Claim,
then the Claim shall be submitted to a mutually acceptable party for
arbitration in accordance with the Commercial Rules of the American Arbitration
Association, and the decision of such arbitrator shall be final and binding
upon the parties for all arbitration rulings awarding less than $100,000 in
damages. The prevailing party in any action brought before an arbitrator or
any court shall be entitled to recover such costs, including fees and expenses
of counsel.
ARTICLE VI
MISCELLANEOUS
6.1 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties hereto and their respective successors and
permitted assigns. This Agreement and the rights and obligations of Seller,
Buyer hereunder may not be assigned by any of the parties hereto without the
prior written consent of the other parties, except that the Buyer may
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<PAGE> 32
assign its rights and obligations hereunder to a designated wholly-owned
subsidiary at any time.
(b) This Agreement is not intended, nor shall it be construed, to confer
any rights or remedies under or by reason of this Agreement upon any Person
except (i) the parties hereto, (ii) the shareholders of Seller and Buyer and
(iii) their heirs, successors and permitted assigns.
6.2 EXHIBITS AND DISCLOSURE SCHEDULE. All Exhibits attached hereto and
the Disclosure Schedule referred to herein are hereby incorporated in and made
a part of this Agreement as if set forth in full herein.
6.3 ENTIRE AGREEMENT. This Agreement and the Other Documents, including
all Exhibits, documents, schedules, certificates and instruments referred to
herein or therein, embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement. This
Agreement supersedes all prior agreements, arrangements and understandings of
the parties with respect to such transaction.
6.4 WAIVER OF COMPLIANCE. No amendment, modification, alteration,
supplement or waiver of compliance with any obligation, covenant, agreement,
provision or
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condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing executed by all of the parties
hereto, or, in the case of a waiver the party against whom enforcement of any
waiver is sought. Any waiver or failure to insist upon strict compliance with
such obligations, covenant, agreement, provision or condition shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure.
6.5 ENFORCEABILITY. If any term, provision, covenant or restriction of
this Agreement or the application thereof to any person or circumstance should
be held by an administrative agency or court of competent jurisdiction to be
invalid, void, or unenforceable, then the remainder of this Agreement and the
application of such term, provision, covenant, or restriction to other persons
or circumstances shall not be affected thereby, but rather shall be enforced to
the greatest extent permitted by law. Further, it is the intent of the parties
that if any term, provision, covenant, or restriction of the Agreement should
be held to be invalid, void, or unenforceable as applied to any person or
circumstance, then such term, provision, covenant, or restriction shall be
modified to the minimum extent neces-
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sary in order to render the same enforceable, consistent with the expressed
objectives of the parties hereto for entering into this Agreement.
6.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.7 HEADINGS. The table of contents, article and section headings
contained in this Agreement are for convenience only and shall not control or
affect in any way the meaning or interpretation of the provisions of this
Agreement.
6.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without giving effect to the
conflicts of law principles thereof.
6.9 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) at the time of delivery if personally delivered or telecopied
(with confirmation of receipt), (ii) the next day, if delivered by
nationally-recognized overnight express service, or (iii) in five (5) days, if
sent by registered
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or certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses:
(a) If to PhoneTel to:
PhoneTel Technologies, Inc.
650 Statler Office Building
1127 Euclid Avenue
Cleveland, Ohio 44115
Telephone Number: (216) 241-2555
Facsimile Number: (216) 241-2574
Attn: Daniel Moos
with copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone Number: (212) 735-3000
Facsimile Number: (212) 735-2000
Attn: N. J. Terris, Esq.
(b) if to PTC:
Public Telephone Corporation
Fort Wayne, Indiana
Telephone Number: (219) 436-0750
Facsimile Number: (219) 432-4084
Attn: President
with copy to:
Shareholder Representative/
Thomas J. Martin
6752 Covington Creek Trail
Fort Wayne, Indiana 46804
Telephone Number: (219) 432-2455
Facsimile Number: (219) 432-4084
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with copy to:
Shambaugh, Kast, Beck & Williams
600 Standard Federal Plaza
P. O. Box 11648
Fort Wayne, Indiana 46859-1648
(219) 423-1430
Attention: Edward E. Beck, Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be, deemed given only upon
receipt.
ARTICLE VII
DEFINITIONS
7.1 DEFINITIONS. For purposes of this Agreement, the following terms
shall have the meanings set forth below (such meanings to be equally applicable
to both the singular and plural forms of the terms defined):
"Buyer" shall mean PhoneTel II, Inc., an Ohio corporation and a
wholly-owned subsidiary of PhoneTel.
"Certificate of Merger" shall have the meaning set forth in Section 1.1
hereof.
"Closing" shall have the meaning set forth in Section 1.4 hereof.
"Closing Date" shall have the meaning set forth in Section 1.4 hereof.
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"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Disclosure Schedule" shall mean the disclosure schedule delivered in
connection herewith.
"Encumbrance" shall mean any lien, encumbrance, proxy, voting trust
arrangement, pledge, security interest, collateral security agreement,
financing statement (and similar notices) filed with any Governmental
Authority, claim (including any claim as defined in the Code), charge,
equities, mortgage, pledge, objection, title defect, option, restrictive
covenant or restriction on transfer of any nature whatsoever, and the interest
of the lessor in any property subject to a capital lease.
"GAAP" shall mean generally accepted accounting principles as in effect on
the date hereof.
"Governmental Authority" shall mean any government or political subdivision
thereof, whether federal, state, local or foreign, or any agency, department,
commission, board, bureau, court, tribunal, body, administrative or regulatory
authority or instrumentality of any such government or Political subdivision.
"Law" shall mean any law (including common law), rule, regulation,
restriction (including zoning), code, statute, ordinance, order, writ,
injunction, judg-
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<PAGE> 38
ment, decree or other requirement of a Governmental Authority.
"Losses" shall mean and include all demands, claims, actions, causes of
action, assessments, damages, losses, liabilities, judgments, settlements,
fines, penalties, sanctions, costs and expenses (including, without limitation,
interest, penalties, reasonable attorneys' fees and expenses as incurred, and
all other reasonable costs of investigating and defending third party claims as
incurred).
"Merger" shall have the meaning set forth in Section 1.1 hereof.
"Order" shall mean any order, judgment, injunction, award, decree, writ,
rule or similar action of any Governmental Authority.
"Other Documents" shall have the meaning set forth in Section 1.3 hereof.
"Permits" shall mean any franchise, license, certificate, approval,
number, registration, permit, authorization, order or approval of, and any
required registration with, any Governmental Authority.
"Person" shall mean any individual, partnership, firm, trust, association,
corporation, joint ven-
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<PAGE> 39
ture, joint stock company, unincorporated organization, Governmental Authority
or other entity.
"PhoneTel" shall mean PhoneTel Technologies, Inc., an Ohio corporation.
"PhoneTel Financial Statements" shall have the meaning set forth in Section
4.5 hereof.
"PTC" shall mean Public Telephone Corporation, an Indiana corporation.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Seller" shall mean PTC.
"Seller Phones" shall mean the microprocessor-based pay telephones owned and
operated by Seller which are active and generating income.
"Seller Shares" shall mean the common shares, no par value, of Public
Telephone Corporation which are issued and outstanding as of the closing.
"Shares" shall mean the shares of Buyer's common stock, $.0l par value.
"Shareholders" shall have the meaning set forth in Section 1.2.
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<PAGE> 40
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the day and year first above written.
Public Telephone Corporation
By:______________________________
Thomas J. Martin, President
PhoneTel:
PHONETEL TECHNOLOGIES, INC.
By:______________________________
Name:
Title:
BUYER:
PHONETEL II, INC.
By:______________________________
Name:
Title:
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<PAGE> 41
<TABLE>
<CAPTION>
16-Oct-95 EXHIBIT B
08:58 PM
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
# PTC PNTL SHARES PNTL SHARES
STOCKHOLDER SHARES % ISSUED ESCROWED
- -------------------------------------------------------------------------------------------------------------------------
THOMAS J. MARTIN 184.0000 0.19048 223677 33332
JAMES R. MARTIN 114.0000 0.11801 138581 20652
- -------------------------------------------------------------------------------------------------------------------------
SAMUEL R. GREGORY, JR. 14.0000 0.01449 17019 2536
GERALD R. NOLAN, M.D. 5.0000 0.00518 6078 906
DELAWARE CHARTER (S.G.JR.IRA) 55.0000 0.05694 66859 9964
- -------------------------------------------------------------------------------------------------------------------------
KEVIN ACKERMAN 1.0000 0.00104 1216 181
RICHARD R. BOWLIN 48.0000 0.04969 58350 8696
W. LLOYD BRIDGES, M.D. - TRUST 20.0000 0.02070 24312 3623
- -------------------------------------------------------------------------------------------------------------------------
RICHARD C. & MARTHA EVANS-TRUST 10.0000 0.01035 12156 1812
RICHARD W. EVANS 5.0000 0.00518 6078 906
RYAN M. EVANS 5.0000 0.00518 6078 906
- -------------------------------------------------------------------------------------------------------------------------
CONSTANCE A. GREGORY, JR. 12.0000 0.01242 14587 2174
DANCO (G.R.N., M.D. IRA-FWNB) 50.0000 0.05176 60781 9058
W. LLOYD BRIDGES, M.D. 10.0000 0.01035 12156 1812
- -------------------------------------------------------------------------------------------------------------------------
GERALD H. GUYER 20.0000 0.02070 24312 3623
WILLIAM R. KLAEHN 55.0000 0.05694 66859 9964
MARVIN L. KOMISAROW 70.0000 0.07246 85093 12681
- -------------------------------------------------------------------------------------------------------------------------
PAINE WEBER (KRUEGER-IRA) 50.0000 0.05176 60781 9058
THOMAS J.MARTIN JR. 78.0000 0.08075 94818 14130
THOMAS J. MARTIN-TRUSTEE 1.0000 0.00104 1216 181
- -------------------------------------------------------------------------------------------------------------------------
JERALD L. MORGAN 45.0000 0.04658 54703 8152
LEWIS G. MORGAN 25.0000 0.02588 30391 4529
0.0000 0.0000 0.00000 0 0
- -------------------------------------------------------------------------------------------------------------------------
SKBW PARTNERSHIP 12.0000 0.01242 14587 2174
DANCO (D. SCHOUWEILER-FWNB) 5.0000 0.00518 6078 906
RICHARD C. SCHLOTT SR. 28.0000 0.02899 34037 5072
- -------------------------------------------------------------------------------------------------------------------------
DAVID E. SCHOUWEILER 4.0000 0.00414 4862 725
JEANNE R. SCHOUWEILER 10.0000 0.01035 12156 1812
SCOT C. SCHOUWEILER 25.0000 0.02588 30391 4529
- -------------------------------------------------------------------------------------------------------------------------
DANCO (S. SCHOUWEILER-FWNB) 5.0000 0.00518 6078 906
0.0000 0.0000 0.00000 0 0
------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
966.0000 1.00000000 1174290 175000
- -------------------------------------------------------------------------------------------------------------------------
NUMBER PTC SHARES 966
- -------------------------------------------------------------------------------------------------------------------------
NUMPER PNTL SHARES ESCROWED 175000
NUMBER PNTL SHARES ISSUED 1174290
-------------
- -------------------------------------------------------------------------------------------------------------------------
TOTAL PNTL SHARES 1349290
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
STOCKHOLDER REPRESENTATIONS AND WARRANTIES
------------------------------------------
This document is being delivered in connection with the proposed merger (the
"Merger") of PhoneTel II, Inc. ("Sub"), an Ohio corporation, and a wholly-owned
subsidiary of PhoneTel Technologies, Inc. ("PhoneTel"), an Ohio corporation,
with and into Public Telephone Corporation ("PTC"), pursuant to the Agreement
and Plan of Merger (the "Merger Agreement") to be entered into by and among
PTC, PhoneTel and Sub. As a result of the Merger, PTC will become a
wholly-owned subsidiary of PhoneTel. The undersigned holder (or holders, if
held jointly,) of shares of PTC Common Stock (the "Stockholder") understands
that, pursuant to the Merger, his/her shares of PTC Common Stock will be
converted into shares of PhoneTel Common Stock ("Shares").
NAME: ______________________________________________
(Please Type or Print)
NAME: ______________________________________________
(If Shares Are Held Jointly, Please Add
Additional Name)
ADDRESS: ____________________________________________
ADDRESS: ____________________________________________
SOCIAL SECURITY NUMBER: ___________________________
SOCIAL SECURITY NUMBER: ___________________________
NUMBER OF PTC SHARES HELD BY STOCKHOLDER: ___________
DATE: October _______, 1995
=======================================================
<PAGE> 43
PART I: CERTIFICATION OF INVESTOR STATUS
Based upon the definition of "accredited investor" in Exhibit A hereto, please
certify that:
Stockholder is an "accredited investor".
Stockholder Initials:__________
PART II: KNOWLEDGE AND EXPERIENCE
KNOWLEDGEABLE INVESTORS REPRESENTATIONS AND WARRANTIES. The Stockholder
hereby represents and warrants that the Stockholder has such knowledge,
experience and skill in evaluating and investing in issues of both equity and
debt securities, including securities of new and speculative companies, such
that he/she is capable of evaluating the merits and risks of an investment in
the Shares, and has such knowledge, experience and skill in financial and
business matters that he/she is capable of evaluating the merits and risks of
the prospective investment in the Shares and the suitability of the Shares as
an investment.
Stockholder Initials:__________
PART III: ADDITIONAL REPRESENTATIONS AND WARRANTIES
(a) The Stockholder is acquiring the Shares solely for his/her own
beneficial account, for investment purposes, and not with a view to, or for
resale in connection with, any distribution of the Shares. The undersigned
understands that the Shares have not been registered under the Securities Act
of 1933 or the securities laws of any state by reason of specific exemptions
under the provisions thereof which depend in part upon the investment intent of
the undersigned and of the other representations made by the Stockholder. The
Stockholder understands that PhoneTel is relying upon the representations
contained herein for the purpose of determining whether the Acquisition meets
the requirements for such exemptions.
2
<PAGE> 44
(b) The Stockholder has had an opportunity to ask questions, receive
answers and discuss the business, management and financial affairs of PhoneTel
and the terms and conditions of an investment in the Shares with, and has had
access to, the management of PhoneTel and the Stockholder has had the
opportunity to review the information received in connection with this
investment. The Stockholder is familiar with the business and financial
condition, properties, operations and prospects of PhoneTel and PTC and with
the terms of the Acquisition and the Merger Agreement.
(c) Neither PhoneTel nor any person acting on its behalf has offered the
Shares to the Stockholder by any form of general solicitation or general
advertising.
(d) (i) The Stockholder's financial situation is such that he/she can
afford to bear the economic risk of holding the Shares for an indefinite period
of time, has adequate means for providing for his/her current needs and
personal contingencies, and can afford to suffer the complete loss of his/her
investment in the Shares; (ii) in making his/her decision to acquire the Shares
pursuant to the Acquisition, the Stockholder has relied upon independent
investigations made by him/her and, to the extent believed by the Stockholder
to be appropriate, his/her representatives, including his/her own professional,
financial, tax and other advisors; and (iii) all information which the
Stockholder has provided to PhoneTel and its representatives including, without
limitation, information concerning the Stockholder and his/her financial
position is true, complete and correct as of the date hereof, and the
Stockholder agrees to promptly notify PhoneTel if at any time this ceases to be
the case.
(e) The Stockholder has good, valid and marketable title to, and legal
ownership of, the PTC Common Stock and, upon consummation of the Acquisition
the Stockholder will transfer to PhoneTel, and PhoneTel shall obtain, good,
valid and marketable record and beneficial ownership of all the PTC Common
Stock owned by the Stockholder, free and clear of any and all liens, options,
charges, restrictions (other than restrictions on transfer imposed by federal
or state securities laws) or encumbrances of any kind.
3
<PAGE> 45
(f) The Stockholder has previously received the current and historical
financial statements of PhoneTel, and has had an opportunity to thoroughly
review such information before making any investment decision regarding the
shares.
(g) Each Stockholder represents that he does not have any plan or intention
to sell, exchange, transfer by gift or otherwise dispose of a number of
PhoneTel Common Shares to be received by such Stockholder pursuant to the
Merger that would reduce such Stockholder's ownership of PhoneTel Common Shares
to a number of shares having a value, as of the date of the Merger, of less
than 51 percent of the value of the PTC Common Stock held by such Stockholder
as of the same date.
Stockholder Initials: ____________
PART IV: ACQUISITION
The Stockholder hereby approves the Acquisition and the Merger Agreement, in
the form previously furnished to him/her, with such changes therein as the
officers of PTC executing the Merger Agreement shall approve, provided that no
such change shall affect the number or type of Shares to be issued in
consideration for shares of PTC Common Stock. The Stockholder has read,
understands and, in consideration of PhoneTel's agreement to enter into the
Merger Agreement, hereby agrees to be bound by, the provisions of Sections 5.2
and 5.4 of the Merger Agreement and the provisions of the Registration Rights
Agreement.
PART V: APPOINTMENT OF THE STOCKHOLDER REPRESENTATIVES
Each Stockholder hereby irrevocably appoints Thomas J. Martin (the
"Stockholder Representative") as such Stockholder's attorney-in-fact and
representative, to do any and all things and to execute any and all documents
in such Stockholder's name, place and stead in connection with the Merger
Agreement and the transactions contemplated thereby, including, without
limitation, to accept on such Stockholder's behalf any amount payable to such
Stockholder under this Agreement, to give or receive, on such Stockholder's
behalf, any notice of instruction under the Merger Agreement, or to amend,
terminate or extend, or waive the terms of the Merger Agreement. The Buyer
shall be entitled to rely, as being binding upon
4
<PAGE> 46
such Stockholder, upon any document or other writing executed by the
Stockholder Representative, and the Buyer shall not be liable to any
Stockholder for any action taken or omitted to be taken by the Buyer in
reliance thereon.
IN WITNESS WHEREOF, the Stockholder has executed this document as of the
date set forth above.
__________________________
Stockholder
___________________________
(Additional Stockholder
Signature, If Held
Jointly)
Accepted and Agreed:
PHONETEL TECHNOLOGIES, INC.
By: _________________________
PHONETEL II, INC.
By: _________________________
Date: October 16, 1995.
5
<PAGE> 47
EXHIBIT A
---------
"Accredited investor" shall mean any person who comes within any of the
following categories, or who the issuer of the securities being offered or sold
reasonably believes comes within any of the following categories, at the time
of the sale of the securities to that person:
(1) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds $1,000,000;
(2) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that person's spouse
in excess of $300,000 in each of those years and has a reasonable expectation
of reaching the same income level in the current year;
(3) Any trust, with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the securities offered, whose purchase is
directed by a person who has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of the
prospective investment; and
(4) Any entity in which all of the equity owners are accredited investors.
dls
P:\work\eeb\ptc\ptc0006s.agr
dls
b:\0109640.02
6
<PAGE> 48
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") made and
entered into this 16th day of October, l995, by and between PhoneTel
Technologies, Inc. ("PhoneTel"), an Ohio corporation, and Public Telephone
Corporation ("PTC"), an Indiana corporation.
WHEREAS, PhoneTel, PhoneTel II, Inc. ("Sub"), an Ohio
corporation, a wholly-owned subsidiary of PhoneTel and PTC are parties to the
Agreement and Plan of Merger of even date herewith (the "Merger Agreement")
pursuant to which PTC will merge with and into Sub (the "Merger") and the
shareholders of PTC will receive shares of PhoneTel common stock $.0l par value
("PhoneTel Common Shares").
WHEREAS, the shareholders of PTC have requested that, in
connection with the Merger Agreement, PhoneTel provide a means of registering
PhoneTel Common Shares under the Securities Act of 1933, as amended (the
"Securities Act"), and PhoneTel is willing to provide such registration as
provided herein;
NOW, THEREFORE, in consideration of the premises and the
agreements herein contained, the parties hereto agree as follows:
1. SHELF REGISTRATION. As promptly as practicable, PhoneTel
shall file and use all reasonable efforts to cause to be declared effective a
"shelf" registration statement (the "Shelf Registration Statement") on any
appropriate form pursuant to Rule 415 (or similar rule that may be adopted by
the Securities and Exchange Commission (the "SEC") under the Securities Act for
all the PhoneTel Common Shares (i) issued in connection with the Merger or (ii)
issued or distributed in respect of such PhoneTel Common Shares by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, reorganization, merger, consolidation or otherwise
(collectively such PhoneTel Common Shares shall hereinafter be referred to as
the "Registrable Securities"), which form shall be available for the sale of
the Registrable Securities in accordance with the intended method or methods of
distribution thereof; PROVIDED, HOWEVER, that PhoneTel's obligations under this
<PAGE> 49
Section 1 shall not commence until the later of (i) 90 days following the
closing of a public primary equity offering by PhoneTel or (ii) such later date
acceptable to the managing underwriter or underwriters, if any, of such
offering. PhoneTel agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective and usable for resale of
Registrable Securities, for a period of twenty-four (24) months from the date
on which the SEC declares the Shelf Registration Statement effective or such
shorter period which will terminate when all the Registrable Securities covered
by the Shelf Registration Statement cease to be Registrable Securities (such
period shall hereinafter be referred to as the "Effective Period"); PROVIDED,
HOWEVER, that PhoneTel may elect that the Shelf Registration Statement not be
usable during any Blackout Period (as defined in Section 2 below).
2. BLACKOUT PERIOD. PhoneTel shall be entitled to elect that
the Shelf Registration Statement not be usable, for a reasonable period of
time, but not in excess of 90 days (a "Blackout Period"), if PhoneTel
determines in good faith that the use of the Shelf Registration Statement or
related prospectus) would interfere with any pending financing, acquisition,
corporate reorganization or any other corporate development involving PhoneTel
or any of its subsidiaries or would require premature disclosure thereof and
promptly gives the holders of Registrable Securities written notice of such
determination, containing a general statement of the reasons for such
postponement or restriction on use and an approximation of the anticipated
delay; PROVIDED, HOWEVER, that the aggregate number of days included in all
Blackout Periods during any consecutive 12 months during the Effective Period
shall not exceed 180 days.
3. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever PhoneTel proposes
to register any of its equity securities under the Securities Act (other than
the first registration after the date hereof) and the registration form to be
used may be used for the registration of Registrable Securities (a "Piggyback
Registration"), PhoneTel will give prompt written notice (in any event within
five business days after its receipt of notice of any exercise of
2
<PAGE> 50
other demand registration rights) to all holders of Registrable Securities of
its intention to effect such a registration and will, subject to paragraphs
(b), (c) and (d) below, include in such registration all Registrable Securities
with respect to which PhoneTel has received written requests for inclusion
therein within 15 days after the receipt of PhoneTel's notice.
(b) PRIORITY ON PRIMARY REGISTRATIONS. If a
Piggyback Registration is an underwritten primary registration on behalf of
PhoneTel (whether or not also on behalf of holders of PhoneTel's securities),
and the managing underwriters advise PhoneTel in writing that in their opinion
the number of securities requested to be included in such registration exceeds
the number which can be sold in such offering, PhoneTel will include in such
registration (i) first, the securities PhoneTel proposes to sell, (ii) second,
the Registrable Securities requested to be included in such registration, pro
rata among the holders of such Registrable Securities on the basis of the
number of shares then owned by such holders, and (iii) third, other securities
requested to be included in such registration.
(c) PRIORITY ON SECONDARY REGISTRATIONS. If a
Piggyback Registration is an underwritten secondary registration on behalf of
holders of PhoneTel's securities, and the managing underwriters advise PhoneTel
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering, PhoneTel will include in such registration (i) first, the securities
requested to be included therein by the holders demanding such registration,
(ii) second, the Registrable Securities requested to be included in such
registration, pro rata among such holders on the basis of the number of shares
then owned by each such holder and (iii) third, other securities requested to
be included in such registration.
(d) Nothing in this Section 3 will prohibit PhoneTel
from determining, at any time, not to file a registration statement or, if
filed,
3
<PAGE> 51
to withdraw such registration or terminate the registration related thereto.
4. SELECTION OF UNDERWRITERS. If any offering pursuant to a
Registration Statement is an underwritten offering, PhoneTel will select a
managing underwriter or underwriters to administer the offering.
5. REGISTRATION EXPENSES. PhoneTel will pay all of its
expenses in connection with the registration of Registrable Securities
(including registration and filing fees, printing costs, listing fees and the
fees and expenses of its counsel), and each holder shall pay all underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of such holder's Registrable Securities pursuant to any
registration statement filed pursuant to paragraph (a) or (b) above (a
"Registration Statement").
6. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY PHONETEL. PhoneTel agrees to
indemnify each holder of Registrable Securities, the underwriters
thereof, their respective officers and directors and each Person who
controls any of the foregoing (within the meaning of the Securities
Act), and any agent or investment adviser thereof against all losses,
claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) incurred by such party
pursuant to any actual or threatened action, suit, proceeding or
investigation arising out of or based upon (i) any untrue or alleged
untrue statement of material fact contained in the Registration
Statement, any prospectus or preliminary prospectus, or any amendment
or supplement to any of the foregoing or (ii) any omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus or a preliminary prospectus, in light of the circumstances
then existing) not misleading, except in each case insofar as the same
arise out of or are based upon, any such untrue statement or omission
made in reliance on and in conformity with information with respect to
such indemnified party furnished in writing to PhoneTel by such
indemnified
4
<PAGE> 52
party or its counsel expressly for use therein. Notwithstanding the
foregoing provisions of this paragraph (a), PhoneTel will not be
liable to any holder of Registrable Securities, any Person who
participates as an underwriter in the offering or sale of Registrable
Securities or any other Person, if any, who controls such holder or
underwriter (within the meaning of the Securities Act), under the
indemnity agreement in this paragraph (a) for any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or
expense that arises out of such holder's or other Person's failure to
send or give a copy of the final prospectus to the Person asserting an
untrue statement or alleged untrue statement or omission or alleged
omission at or prior to the written confirmation of the sale of the
Registrable Securities to such Person if such statement or omission
was corrected in such final prospectus and PhoneTel has previously
furnished copies thereof to such holder.
(b) Indemnification by Holders of Registrable
Securities. In connection with the Registration Statement, each
holder will furnish to PhoneTel in writing such information, including
with respect to the name, address and the amount of Registrable
Securities held by such holder, as PhoneTel reasonably requests for
use in such Registration Statement or the related prospectus and
agrees to indemnify and hold harmless PhoneTel, all other prospective
holders or any underwriter, as the case may be, and any of their
respective affiliates, directors, officers and controlling Persons
(within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any untrue or alleged
untrue statement of a material fact or any omission or alleged
omission of a material fact required to be stated in such Registration
Statement or prospectus or any amendment or supplement to either of
them or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances then existing) not
misleading, but only to the extent that any such untrue statement or
omission is made in reliance on and in conformity with information
with respect to such holder furnished in writing to PhoneTel by such
5
<PAGE> 53
holder or its counsel specifically for inclusion therein.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person
entitled to indemnification hereunder agrees to give prompt written notice to
the indemnifying party after the receipt by such indemnified party of any
written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such indemnified
party may claim indemnification or contribution pursuant to this Agreement
(provided that failure to give such notification shall not affect the
obligations of the indemnifying person pursuant to this Section 6 except to the
extent the indemnifying party shall have been actually prejudiced as a result
of such failure). In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under these indemnification provisions for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the defense
thereof other than reasonable costs of investigation, unless in the reasonable
judgment of any indemnified party a conflict of interest is likely to exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the reasonable fees and expenses of such additional counsel or counsels.
The indemnifying party will not be subject to any liability for any settlement
made without its consent (which will not be unreasonably withheld).
6
<PAGE> 54
(d) CONTRIBUTION. If the indemnification from the
indemnifying party provided for in this Section 6 is unavailable to the
indemnified party hereunder in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party in
connection with the actions which resulted in such losses, claims, damages,
liabilities and expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph (c) above, any legal and other fees and
expenses reasonably incurred by such indemnified party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6 were determined by PRO
RATA allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 6, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such underwriter has otherwise been required to pay by reason
of such untrue or
7
<PAGE> 55
alleged untrue statement or omission or alleged omission, and no holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities of such
holder were offered to the public (net of all underwriting discounts and
commissions) exceeds the amount of any damages which such holder has otherwise
been required to pay by reason of such untrue statement or omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 6, the
indemnifying parties shall indemnify each indemnified party to the full extent
provided in Section 6(a) or (b), as the case may be, without regard to the
relative fault of said indemnifying parties or indemnified party or any other
equitable consideration provided for in this paragraph (d).
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No holder of
Registrable Securities may participate in any underwritten offering hereunder
unless such holder (i) agrees to sell such holder's securities on the basis
provided in any underwriting arrangements approved by PhoneTel in its
reasonable discretion and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
8. RULE 144. For a period of three years following the date
hereof (or such shorter period as may permit the sale of Registrable Securities
under Rule 144 under the Securities Act without regard to the requirement of
"current public information"), PhoneTel covenants that it will file the reports
required to be filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations adopted by the SEC
thereunder (or, if PhoneTel is not required to file such reports, it will, upon
the request of any holder of Registrable Securities, make publicly available
other information so long as necessary to permit sales under Rule 144 under the
Securities Act), and it will
8
<PAGE> 56
take such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any holder of Registrable Securities, PhoneTel will deliver to such holder a
written statement as to whether it has complied with such requirements.
9. REMEDIES. Each holder of Registrable Securities in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement.
10. PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon, inure to the
benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and
obligations of PTC, PhoneTel and the shareholders of PTC hereunder may not be
assigned by any of the parties hereto without the prior written consent of the
other parties.
(b) This Agreement is not intended, nor shall it be
construed, to confer any rights or remedies under or by reason of this
Agreement upon any person except the parties hereto, the shareholders of PTC
and their heirs, successors and permitted assigns.
11. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter hereof. This Agreement supersedes all prior agreements, arrangements
and understandings of the parties with respect to such subject matter.
12. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
9
<PAGE> 57
13. HEADINGS. The section headings contained in this
Agreement arte for convenience only and shall not control or affect in any way
the meaning or interpretation of the provisions of this Agreement.
14. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri without giving
effect to the conflicts of law principles of such jurisdiction.
15. NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given at the time of delivery if personally delivered or telecopied
(with confirmation of receipt), the next day, if delivered by
nationally-recognized overnight express service, or five (5) days, if sent by
registered or certified mail (postage prepaid, return receipt requested) to the
parties at the following addresses:
(a) If to PhoneTel to:
PhoneTel Technologies, Inc.
650 Statler Office
1127 Euclid Avenue
Cleveland, Ohio 44115
Telephone Number: (216) 241-2555
Facsimile Number: (216) 241-2574
Attn: Daniel Moos
with copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
Telephone Number: (212) 735-3000
Facsimile Number: (212) 735-2000
Attn: N.J. Terris, Esq.
(b) If to PTC:
Thomas J. Martin
6752 Covington Creek Trail
Fort Wayne, IN 46804
(219) 632-2455
10
<PAGE> 58
with copy to:
Shambaugh, Kast, Beck & Williams
600 Standard Federal Plaza
P. O. Box 11648
Fort Wayne, IN 46859-1648
(219) 423-1430
Attention: Edward E. Beck
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
11
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, on the day and year first above written.
PUBLIC TELEPHONE CORPORATION
By: __________________________
Thomas J. Martin, President
PHONETEL TECHNOLOGIES, INC.
By: __________________________
Name:
Title:
12
<PAGE> 60
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT is made and entered into as of October
16, 1995 ("Escrow Agreement") by and among SHAMBAUGH, KAST, BECK & WILLIAMS, an
Indiana partnership, (the "Escrow Agent"), PUBLIC TELEPHONE CORPORATION, an
Indiana corporation, (the "Seller"), and PHONETEL TECHNOLOGIES, INC., an Ohio
corporation ("PhoneTel"). Capitalized terms used and not otherwise defined
herein shall have the meanings assigned to such terms in the Merger Agreement.
WHEREAS, PhoneTel, PhoneTel II, Inc. ("Sub"), an Ohio
corporation and a wholly-owned subsidiary of PhoneTel, and the Seller are
parties to an Agreement and Plan of Merger, dated as of the date hereof (the
"Merger Agreement"), pursuant to which the Seller will merge with and into a
subsidiary of PhoneTel;
WHEREAS, pursuant to Section 1.3 of the Merger Agreement, the
Seller and PhoneTel wish to deposit into escrow 175,000 shares of PhoneTel
common stock (the "Escrow Amount") being delivered to the Escrow Agent upon the
signing of the Merger Agreement;
WHEREAS, the Seller and PhoneTel wish to enter into this
Escrow Agreement providing for the terms and conditions upon which the Escrow
Amount will be held and released by the Escrow Agent, and the Escrow Agent
wishes to act as escrow agent pursuant to the terms and conditions of this
Escrow Agreement.
NOW, THEREFORE, in consideration of the premises and intending
to be legally bound hereby, the parties hereto agree as follows:
SECTION 1. DEPOSIT INTO ESCROW ACCOUNT. On the date of this
Agreement, PhoneTel is depositing the 175,000 shares of PhoneTel common stock
comprising the Escrow Amount into an escrow account established with the Escrow
Agent and entitled "PhoneTel Escrow Account" (the "Escrow Account").
<PAGE> 61
SECTION 2. PURPOSE OF ESCROW. The Escrow Amount shall be
held by Escrow Agreement for the purpose of effecting any necessary adjustment
in the number of shares of PhoneTel common stock to be distributed to the
Seller's shareholders as consideration for the merger, as provided in Section
1.2 of the Merger Agreement. Each share of PhoneTel common stock comprising
the Escrow Amount shall be valued at $1.00 for purposes of any adjustment to be
made pursuant to such Section 1.2 of the Merger Agreement.
SECTION 3. REINVESTMENT AND EARNINGS. The Escrow Agent is
hereby authorized to receive, in its capacity as Escrow Agent and on behalf of
the other parties hereto, all dividends, earnings, options, and splits to which
the shares which comprise the Escrow Amount would be entitled.
SECTION 4. ESCROW AND ESCROW DELIVERY. The Escrow Agent
shall hold the Escrow Amount until such time or times as the Escrow Agent
receives written instruction from the Shareholder Representative and PhoneTel
to deliver all or any part of the Escrow Amount to the Shareholder
Representative or to PhoneTel, as specified in the written instruction. Upon
receipt of the foregoing instructions, the Escrow Agent shall deliver the
Escrow Amount, or such portion thereof as specified in such instructions,
accordingly. In accordance with Section _____ of the Merger Agreement, it is
contemplated that 125,000 shares will be distributed ninety (90) days from the
date hereof and the remaining 50,000 shares will be distributed one (1) year
from the date hereof; PROVIDED, however, that if notice of a claim or dispute
regarding distribution of the Escrow Amount has been given prior to such dates,
delivery of such amounts shall be deferred until such time as all claims or
disputes have been settled between the parties and Escrow Agent has been
provided with written instructions from both parties. All deliveries to the
Seller pursuant to the foregoing instructions shall be deemed to have occurred
when such Shares are distributed by the Escrow Agent to the Shareholder
Representative, as hereinafter defined, for distribution among the Shareholders
of Seller in accordance with their respective interests. During the time that
the Escrow Amount is held by the Escrow Agent and until such delivery by the
Escrow Agent, the Seller and PhoneTel understand and agree that neither shall
be enti-
0102259.03-New York Server 3a 2 Draft September 5, 1995 - 5:32 pm
<PAGE> 62
tled to the Escrow Amount and that the Escrow Amount shall not be subject to
any lien, security interest or encumbrance of any kind placed thereon by either
of them.
SECTION 5. TERMINATION. This Escrow Agreement shall
terminate upon the distribution of the entire Escrow Amount held by the Escrow
Agent pursuant to this Agreement.
SECTION 6. SHAREHOLDER REPRESENTATIVE. As used herein, the
term "Shareholder Representative" shall refer to Thomas J. Martin. All
actions required or permitted to be taken by the Seller hereunder shall be done
and performed by the Shareholder Representative for and on behalf of the Seller
and each holder, as of the date hereof, of the common stock, no par value, of
Seller the (each, individually, a "Shareholder" and, together, the
"Shareholders"). The Escrow Agent shall be entitled to rely, as being binding
upon Seller and each of the Shareholders, upon any document or other writing
executed by the Shareholder Representative, and the Escrow Agent shall not be
liable to Seller or any Shareholder for any action taken or omitted to be taken
by the Shareholder Representative in reliance thereon. The Seller hereby
represents that each Shareholder has duly appointed the Shareholder
Representative as its lawful attorney-in-fact, with powers to consummate all
transactions contemplated hereby on each Shareholder's behalf.
SECTION 7. THIRD PARTY BENEFICIARIES. The provisions of this
Agreement shall inure to the benefit of and shall be enforceable by each
Shareholder and each shall be deemed to be a third party beneficiary hereunder.
SECTION 8. INDEMNIFICATION. The Seller and PhoneTel agree to
hold the Escrow Agent harmless and indemnify it from any loss or claim
whatsoever arising in conjunction with the performance of the duties of the
Escrow Agent, but only to the extent that the Escrow Agent has fully complied
with the provisions of this Escrow Agreement. Said indemnification shall
survive the termination of this Agreement.
SECTION 9. NOTICES. Any notices or other communications
required or permitted hereunder shall be given in writing and shall be
delivered by hand or air
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<PAGE> 63
courier or sent by certified or registered mail, postage prepaid, addressed as
follows:
If to PhoneTel, to:
PHONETEL TECHNOLOGIES, INC.
650 Statler Office
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: President/CEO
Copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: N.J. Terris, Esq.
or:
If to the Seller, to:
THOMAS J. MARTIN
6752 Covington Creek Trail
Fort Wayne, Indiana 46804
or:
If to the Escrow Agent, to:
SHAMBAUGH, KAST, BECK & WILLIAMS
600 Standard Federal Plaza
P. O. Box 11648
Fort Wayne, IN 46859-1648
Attention: Edward E. Beck
or to such other address as shall be furnished in writing by such party, and
any such notice or communication shall be effective and be deemed to have been
given as of (i) the date delivered, if sent by hand, (ii) the following day, if
sent by overnight courier or (iii) five days after the date of mailing, if sent
by regular mail.
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<PAGE> 64
SECTION 10. ENTIRE AGREEMENT. This Escrow Agreement is the
entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, with respect thereto.
SECTION 11. AMENDMENTS; WAIVER. This Escrow Agreement may be
amended, modified, superseded, cancelled, renewed or extended, and the terms
and conditions hereof waived, only by written instrument signed by the parties
hereto or, in the case of a waiver, the party waiving compliance.
SECTION 12. ASSIGNMENT. No assignment of any rights or
delegation of any obligations provided for herein may be made by any party
without the express written consent of all the other parties hereto.
SECTION 13. COUNTERPARTS. This Escrow Agreement may be
executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute one and the same instrument.
SECTION 14. GOVERNING LAW. This Agreement shall be construed
in accordance with and governed by the internal laws of the State of Indiana.
SECTION 15. BENEFIT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and the personal
representatives, executors, administrators, successors and assigns of each of
them.
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<PAGE> 65
IN WITNESS WHEREOF, the parties hereto have affixed their
signatures to this Escrow Agreement upon the date first set forth above.
PUBLIC TELEPHONE CORPORATION
By: ______________________________
THOMAS J. MARTIN, President
PHONETEL TECHNOLOGIES, INC.
By: ________________________
Name: ______________________
Title: _____________________
SHAMBAUGH, KAST, BECK & WILLIAMS
By: ___________________________
Edward E. Beck
dls
P:\work\eeb\ptc\ptc0005s.agr
0102259.03-New York Server 3a 6 Draft September 5, 1995 - 5:32 pm
<PAGE> 66
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (this "Agreement"), dated as of October 16,
1995, between PhoneTel Technologies, Inc., an Ohio corporation ("PhoneTel"),
PhoneTel II, Inc., an Ohio corporation and wholly owned subsidiary of PhoneTel
("Sub"), and Thomas J. Martin ("Martin").
W I T N E S S E T H:
WHEREAS, Martin has heretofore served as President, Chairman and CEO of
Public Telephone Corporation, an Indiana Corporation ("Public");
WHEREAS, PhoneTel, Sub and Public have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of the date hereof, pursuant
to which, at the "Closing Date" (as such term is defined in the Merger
Agreement), Sub will be merged with and into Public;
WHEREAS, Public and PhoneTel are in the business of owning, leasing,
operating and maintaining pay telephones;
WHEREAS, PhoneTel recognizes that Martin possesses trade secrets and
confidential business information relating to Public as well as knowledge and
experience relating to the pay telephone industry and desires to prevent Martin
from (1) competing with the business operated by PhoneTel (or any subsidiary
thereof) or (2) soliciting the former, current or future customers or employees
of Public or PhoneTel (or any subsidiary thereof);
WHEREAS, in connection with the transactions contemplated in the Merger
Agreement, Martin will receive shares of PhoneTel common stock, $.01 par value
("PhoneTel Common Stock"), in exchange for his shares of Public common stock,
no par value ("Public Common Stock"); and
WHEREAS, Martin is agreeable to restrictions on his ability to compete
against and solicit from PhoneTel in accordance with the terms of this
Agreement.
<PAGE> 67
NOW, THEREFORE, in consideration of the execution, delivery and
performance of the Merger Agreement, and mutual premises and covenants herein
and therein contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, PhoneTel and Martin hereby
agree as follows:
1. TERM. The term of this agreement shall commence at the Closing
Date and continue for a period of five (5) years thereafter (the "Term").
2. NON-COMPETITION. (a) For a period of two years commencing at the
Closing Date, Martin shall not, without the prior written consent of PhoneTel,
directly or indirectly, own, operate, manage, be employed by, be an agent of,
act as a consultant for, advise, financially support, lease property to or
from, have a proprietary interest in or support in any other way, any
enterprise or business which sells, leases, maintains, owns or operates pay
telephones in any part of the United States of America in which PhoneTel is
conducting or will conduct its pay telephone business. Martin acknowledges
that the business of PhoneTel will be conducted on a national basis and agrees
that such geographic scope is reasonable.
(b) Notwithstanding any provision to the contrary contained
herein, Martin shall not be prohibited from owning less than 2% of the
outstanding equity securities of any publicly-held corporation.
3. NON-SOLICITATION. Martin agrees that, during the Term of this
agreement, he will not, directly or indirectly, (i) solicit, entice or
persuade, or attempt to solicit, entice or persuade, any employee of PhoneTel
or its affiliates, or any client then under contract with PhoneTel or any of
its affiliates to terminate his employment by or contractual relationship with
PhoneTel or its affiliates or to become employed by or to enter into
contractual relations with a competitor of PhoneTel or its affiliates or (ii)
persuade or attempt to persuade customers, potential customers, suppliers or
potential suppliers of PhoneTel and its affiliates to divert their business to
any other entity or individual.
4. CONFIDENTIALITY. Martin acknowledges that Public and PhoneTel
would be irreparably damaged if
<PAGE> 68
confidential information about Public were disclosed to or utilized on behalf
of any person, firm, corporation or other business organization which is in
competition in any respect with Public or PhoneTel. Martin covenants and
agrees that he will not at any time, and will cause his agents, affiliates and
associates not to at any time, without the prior written consent of PhoneTel,
disclose any such confidential information, except to employees and authorized
representatives of PhoneTel.
5. COMPENSATION; TAXES. In consideration for the agreements of Martin
contained herein, PhoneTel agrees to pay Martin a total of $129,239.50, $27,500
of which shall be payable in cash upon the Closing (as defined in the Merger
Agreement) and the other $101,739.50 of which shall be payable in the form of a
note (the "Note"), the terms of which shall govern the payment of such amount.
A copy of the Note is attached hereto as Exhibit 1. In addition, and in
further consideration for the agreements of Martin contained herein, PhoneTel
agrees to pay Martin 275,000 shares of PhoneTel Common Stock, payable six
months from the date hereof.
Martin hereby acknowledges that by virtue of this Agreement he is not
and will not become an employee of PhoneTel. Martin further acknowledges his
separate responsibility for all federal and state withholding taxes, Federal
Insurance Contribution Act taxes and workers' compensation and unemployment
compensation taxes, if applicable, and agrees to indemnify and hold the Company
harmless from any claim or liability therefor.
6. NECESSITY. Martin acknowledges that due to the uniqueness of his
skills and abilities and the uniqueness of the trade secrets, confidential
business lists, customer requirements and preferences, records and information
he possesses, the covenants set forth herein are reasonable and necessary for
the protection of PhoneTel. Martin further acknowledges that enforcement of
the covenants herein will not deprive him of his ability to earn a livelihood.
7. SPECIFIC PERFORMANCE. Martin acknowledges that the rights and
privileges granted to PhoneTel herein are of a special and unique character,
which gives them a peculiar value, the loss of which may not be reasonably
3
<PAGE> 69
or adequately compensated for by damages in an action at law, and that a breach
by Martin of this Agreement will cause PhoneTel irreparable injury and damage.
Accordingly, Martin hereby agrees that PhoneTel shall be entitled to remedies
of injunction, specific performance or other equitable relief, to prevent or
cure a breach of this Agreement. This provision shall not be construed as a
waiver of any other rights or remedies PhoneTel may have for damages or
otherwise.
8. PARTIAL INVALIDITY. The parties have entered into this Agreement
in good faith and for the reasons set forth in the recitals hereto and assume
and intend that this Agreement is legally binding. If, for any reason, this
Agreement is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective for
the widest geographical area and/or the longest period of time as may be
legally enforceable, it being understood that the compensation payable
hereunder is for the full Term and geographic area stated herein, and for all
the covenants of Martin. Any provision of this Agreement which is determined
to be invalid or unenforceable shall be ineffective only to the extent of such
invalidity or unenforceability without affecting the validity or enforceability
of any other provisions hereof. The provisions of this Section 8 shall not be
construed as a waiver of any other rights or remedies PhoneTel may have for
damages or otherwise.
9. BINDING EFFECT; MODIFICATIONS. This Agreement shall be binding
upon and shall inure to the benefit of the personal representatives, executors,
administrators, successors and assigns of the parties to this Agreement. This
Agreement contains the entire agreement of the parties and supersedes any and
all prior written agreements between the parties, and all prior and
contemporaneous oral statements with respect to the transactions contemplated
hereby. This Agreement may not be changed or terminated orally, but may only
be changed by an agreement in writing signed by each of the parties hereto.
10. SECTION CAPTIONS; COUNTERPARTS. Section and other captions
contained in this Agreement are for reference purposes only and are in no way
intended to describe, interpret, define or limit the scope, extent or
4
<PAGE> 70
intent of this Agreement or any provision hereof. This Agreement may be
executed in counterparts, each of which, when so executed, shall be deemed to
be an original, and such counterparts shall, together, constitute and be one
and the same instrument.
11. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York, applied without giving effect to any
conflict of laws principles.
12. NO RULE OF CONSTRUCTION. The parties acknowledge and agree that
no rule of construction shall apply to this Agreement which construes any
language, whether ambiguous, unclear or otherwise, in favor of or against any
party by reason of that party's role in drafting this Agreement.
13. NOTICES. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to PhoneTel or PhoneTel II:
PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: President
Telephone: (216) 241-2555
If to Martin:
Thomas J. Martin
6752 Covington Creek Trail
Fort Wayne, Indiana 46804
Telephone: (219) 432-2455
or to such other address as each party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
5
<PAGE> 71
IN WITNESS WHEREOF, the undersigned parties have hereunto set their
hands as of the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
PHONETEL II, INC.
By: ___________________________
Name:
Title:
_______________________________
THOMAS MARTIN
<PAGE> 72
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT (this "Agreement"), dated as of October 16,
1995, between PhoneTel Technologies, Inc., an Ohio corporation ("PhoneTel"),
PhoneTel II, Inc., an Ohio corporation and wholly owned subsidiary of PhoneTel
("Sub"), and James R. Martin ("Martin").
W I T N E S S E T H:
WHEREAS, Martin has heretofore served as Executive Vice President and
CFO of Public Telephone Corporation, an Indiana Corporation ("Public");
WHEREAS, PhoneTel, Sub and Public have entered into an Agreement and
Plan of Merger (the "Merger Agreement"), dated as of the date hereof, pursuant
to which, at the "Closing Date" (as such term is defined in the Merger
Agreement), Sub will be merged with and into Public;
WHEREAS, Public and PhoneTel are in the business of owning, leasing,
operating and maintaining pay telephones;
WHEREAS, PhoneTel recognizes that Martin possesses trade secrets and
confidential business information relating to Public as well as knowledge and
experience relating to the pay telephone industry and desires to prevent Martin
from (1) competing with the business operated by PhoneTel (or any subsidiary
thereof) or (2) soliciting the former, current or future customers or employees
of Public or PhoneTel (or any subsidiary thereof);
WHEREAS, in connection with the transactions contemplated in the Merger
Agreement, Martin will receive shares of PhoneTel common stock, $.01 par value
("PhoneTel Common Stock"), in exchange for his shares of Public common stock,
no par value ("Public Common Stock"); and
WHEREAS, Martin is agreeable to restrictions on his ability to compete
against and solicit from PhoneTel in accordance with the terms of this
Agreement.
<PAGE> 73
NOW, THEREFORE, in consideration of the execution, delivery and
performance of the Merger Agreement, and mutual premises and covenants herein
and therein contained and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, PhoneTel and Martin hereby
agree as follows:
1. TERM. The term of this agreement shall commence at the Closing
Date and continue for a period of five (5) years thereafter (the "Term").
2. NON-COMPETITION. (a) For a period of two years commencing at the
Closing Date, Martin shall not, without the prior written consent of PhoneTel,
directly or indirectly, own, operate, manage, be employed by, be an agent of,
act as a consultant for, advise, financially support, lease property to or
from, have a proprietary interest in or support in any other way, any
enterprise or business which sells, leases, maintains, owns or operates pay
telephones in any part of the United States of America in which PhoneTel is
conducting or will conduct its pay telephone business. Martin acknowledges
that the business of PhoneTel will be conducted on a national basis and agrees
that such geographic scope is reasonable.
(b) Notwithstanding any provision to the contrary contained herein,
Martin shall not be prohibited from (i) leasing, owning or operating pay
telephones on real property of which he is the sole owner or which is owned by
any corporation of which Martin or his spouse collectively own at least 51% of
the outstanding shares, (ii) owning less than 2% of the outstanding equity
securities of any publicly-held corporation or (iii) being employed by or
participating on pay telephone industry commissions and associations,
including, but not limited to, Michigan Public Telecommunication Association,
Illinois Public Telecommunication Association and IPTA, L.L.C.
3. NON-SOLICITATION. Martin agrees that, during the Term of this
agreement, he will not, directly or indirectly, (i) solicit, entice or
persuade, or attempt to solicit, entice or persuade, any employee of PhoneTel
or its affiliates, or any client then under contract with PhoneTel or any of
its affiliates to terminate his employment by or contractual relationship with
<PAGE> 74
PhoneTel or its affiliates or to become employed by or to enter into
contractual relations with a competitor of PhoneTel or its affiliates or (ii)
persuade or attempt to persuade customers, potential customers, suppliers or
potential suppliers of PhoneTel and its affiliates to divert their business to
any other entity or individual.
4. CONFIDENTIALITY. Martin acknowledges that Public and PhoneTel
would be irreparably damaged if confidential information about Public were
disclosed to or utilized on behalf of any person, firm, corporation or other
business organization which is in competition in any respect with Public or
PhoneTel. Martin covenants and agrees that he will not at any time, and will
cause his agents, affiliates and associates not to at any time, without the
prior written consent of PhoneTel, disclose any such confidential information,
except to employees and authorized representatives of PhoneTel.
5. COMPENSATION; TAXES. In consideration for the agreements of Martin
contained herein, PhoneTel agrees to pay Martin a total of $129,239.50, $27,500
of which shall be payable in cash upon the Closing (as defined in the Merger
Agreement) and the other $101,739.50 of which shall be payable in the form of a
note (the "Note"), the terms of which shall govern the payment of such amount.
A copy of the Note is attached hereto as Exhibit 1. In addition, and in
further consideration for the agreements of Martin contained herein, PhoneTel
agrees to pay Martin 205,000 shares of PhoneTel Common Stock, payable six
months from the date hereof.
Martin hereby acknowledges that by virtue of this Agreement he is not
and will not become an employee of PhoneTel. Martin further acknowledges his
separate responsibility for all federal and state withholding taxes, Federal
Insurance Contribution Act taxes and workers' compensation and unemployment
compensation taxes, if applicable, and agrees to indemnify and hold the Company
harmless from any claim or liability therefor.
6. NECESSITY. Martin acknowledges that due to the uniqueness of his
skills and abilities and the uniqueness of the trade secrets, confidential
business lists, customer requirements and preferences, records and information
he possesses, the covenants set forth herein
3
<PAGE> 75
are reasonable and necessary for the protection of PhoneTel. Martin further
acknowledges that enforcement of the covenants herein will not deprive him of
his ability to earn a livelihood.
7. SPECIFIC PERFORMANCE. Martin acknowledges that the rights and
privileges granted to PhoneTel herein are of a special and unique character,
which gives them a peculiar value, the loss of which may not be reasonably or
adequately compensated for by damages in an action at law, and that a breach by
Martin of this Agreement will cause PhoneTel irreparable injury and damage.
Accordingly, Martin hereby agrees that PhoneTel shall be entitled to remedies
of injunction, specific performance or other equitable relief, to prevent or
cure a breach of this Agreement. This provision shall not be construed as a
waiver of any other rights or remedies PhoneTel may have for damages or
otherwise.
8. PARTIAL INVALIDITY. The parties have entered into this Agreement
in good faith and for the reasons set forth in the recitals hereto and assume
and intend that this Agreement is legally binding. If, for any reason, this
Agreement is not binding because of its geographical scope or because of its
term, then the parties agree that this Agreement shall be deemed effective for
the widest geographical area and/or the longest period of time as may be
legally enforceable, it being understood that the compensation payable
hereunder is for the full Term and geographic area stated herein, and for all
the covenants of Martin. Any provision of this Agreement which is determined
to be invalid or unenforceable shall be ineffective only to the extent of such
invalidity or unenforceability without affecting the validity or enforceability
of any other provisions hereof. The provisions of this Section 8 shall not be
construed as a waiver of any other rights or remedies PhoneTel may have for
damages or otherwise.
9. BINDING EFFECT; MODIFICATIONS. This Agreement shall be binding
upon and shall inure to the benefit of the personal representatives, executors,
administrators, successors and assigns of the parties to this Agreement. This
Agreement contains the entire agreement of the parties and supersedes any and
all prior written agreements between the parties, and all prior and
contemporaneous oral statements with respect to the
4
<PAGE> 76
transactions contemplated hereby. This Agreement may not be changed or
terminated orally, but may only be changed by an agreement in writing signed by
each of the parties hereto.
10. SECTION CAPTIONS; COUNTERPARTS. Section and other captions
contained in this Agreement are for reference purposes only and are in no way
intended to describe, interpret, define or limit the scope, extent or intent of
this Agreement or any provision hereof. This Agreement may be executed in
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
11. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York, applied without giving effect to any
conflict of laws principles.
12. NO RULE OF CONSTRUCTION. The parties acknowledge and agree that
no rule of construction shall apply to this Agreement which construes any
language, whether ambiguous, unclear or otherwise, in favor of or against any
party by reason of that party's role in drafting this Agreement.
13. NOTICES. For the purposes of this Agreement, notices, demands
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to PhoneTel or PhoneTel II:
PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: President
Telephone: (216) 241-2555
5
<PAGE> 77
If to Martin:
James R. Martin
1808 North Wells, Apt. #3
Chicago, Illinois 60614
Telephone: (312) 642-0691
or to such other address as each party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6
<PAGE> 78
IN WITNESS WHEREOF, the undersigned parties have hereunto set their
hands as of the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By: _________________________
Name:
Title:
PHONETEL II, INC.
By: ___________________________
Name:
Title:
_______________________________
JAMES MARTIN
