<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(MARK ONE)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 0-16715
PHONETEL TECHNOLOGIES, INC.
---------------------------
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
OHIO 34-1462198
------------------------------- ------------------------------------
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1127 EUCLID AVENUE, SUITE 650, STATLER OFFICE TOWER 44115-1601
- --------------------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(216) 241-2555
--------------
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days. Yes X NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: as of NOVEMBER 12, 1996, 7,639,709
SHARES OF THE REGISTRANT'S COMMON STOCK $.01 PAR VALUE, WERE OUTSTANDING.
Transitional Small Business Disclosure Format (check one): YES NO X
--- ---
1
<PAGE> 2
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996.............................. 3
Statements of Consolidated Operations for the Nine and
Three Months Ended September 30, 1995 and 1996...... 4
Statements of Consolidated Cash Flows for the Nine
Months Ended September 30, 1995 and 1996............ 5
Statements of Changes in Mandatorily Redeemable
Preferred Stock and Non-Mandatorily Redeemable
Preferred Stock, Common Stock and Other
Shareholders' Equity as of December 31, 1995
and September 30, 1996.............................. 7
Notes to Consolidated Financial Statements............ 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 20
PART II. OTHER INFORMATION
Item 2. Changes in Securities................................. 27
Item 6. Exhibits and Reports on Form 8-K...................... 28
SIGNATURES................................................................. 31
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
1995 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash $713,462 $655,734
Accounts receivable, net of allowance for doubtful
of $40,000 and $100,961, respectively 901,508 2,423,060
Other current assets 185,634 247,426
------------------ ------------------
Total current assets 1,800,604 3,326,220
Property and equipment, net 14,099,111 31,682,061
Intangible assets, net 11,592,157 39,226,619
Other assets 1,425,384 705,473
------------------ ------------------
$28,917,256 $74,940,373
================== ==================
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt - related parties - $5,234,953
Current portion of long-term debt - others $1,010,412 1,370,673
Current portion of obligation under capital leases 288,972 803,336
Accounts payable 2,772,306 2,969,681
Accrued expenses 1,610,100 3,149,690
Deferred revenues - 600,000
Other unusual charges and contractual settlements 962,338 516,392
------------------ ------------------
Total current liabilities 6,644,128 14,644,725
Long-term debt - related parties (amounts due at
maturity $1,732,500 and $36,282,293, respectively) 1,732,500 31,053,337
Long-term debt - others 7,586,001 3,832,781
Obligations under capital leases 3,243,965 7,225,722
14% cumulative preferred stock mandatorily redeemable
(redemption amount $6,978,963, due June 30, 2000) - 6,539,053
Non-mandatorily redeemable preferred stock,
common stock and other shareholders' equity 9,710,662 11,644,755
================== ==================
$28,917,256 $74,940,373
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Nine Months Ended September 30 Three Months Ended September 30
------------------------------ -------------------------------
1995 1996 1995 1996
------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
REVENUES:
Coin calls $7,689,786 $16,988,697 $2,694,457 $6,577,353
Non-coin 3,301,969 9,308,538 996,474 4,016,008
Other 965,148 2,018,191 387,910 916,555
------------------ ------------------ ------------------- -------------------
11,956,903 28,315,426 4,078,841 11,509,916
------------------ ------------------ ------------------- -------------------
OPERATING EXPENSES:
Line and transmission charges 3,340,812 6,800,782 1,240,385 2,934,575
Location commissions 2,163,464 4,101,195 647,099 1,564,465
Other operating expenses 4,132,850 8,102,314 1,450,140 3,054,863
Depreciation and amortization 2,164,822 8,876,238 732,331 3,563,353
Selling, general & administrative 1,982,489 3,757,559 637,062 1,358,835
Other unusual charges and
contractual settlements 1,418,530 5,517,753 1,418,530 183,239
------------------ ------------------ ------------------- -------------------
15,202,967 37,155,841 6,125,547 12,659,330
------------------ ------------------ ------------------- -------------------
Loss from operations (3,246,064) (8,840,415) (2,046,706) (1,149,414)
------------------ ------------------ ------------------- -------------------
OTHER INCOME (EXPENSE):
Interest expense - related parties - (3,588,420) - (1,771,530)
Interest expense - others (304,105) (551,243) (83,875) (278,998)
Interest income 12,412 - 5,824 -
------------------ ------------------ ------------------- -------------------
(291,693) (4,139,663) (78,051) (2,050,528)
------------------ ------------------ ------------------- -------------------
Loss before extraordinary item (3,537,757) (12,980,078) (2,124,757) (3,199,942)
Extraordinary item:
Loss on debt restructuring - (267,281) - -
------------------ ------------------ ------------------- -------------------
NET LOSS ($3,537,757) ($13,247,359) ($2,124,757) ($3,199,942)
================== ================== =================== ===================
Earnings per share calculation:
Preferred dividend payable in cash (232,251) - (77,417) -
Preferred dividend payable in kind - (211,293) - (100,671)
Accretion of 14% Preferred to its
redemption value - (58,272) - (34,153)
Premium on redemption of 10%
Preferred, 8% Preferred and
7% Preferred - (2,002,386) - -
------------------ ------------------ ------------------- -------------------
Net loss applicable to
common shareholders ($3,770,008) ($15,519,310) ($2,202,174) ($3,334,766)
================== ================== =================== ===================
Net loss per common share before
extraordinary item ($2.22) ($3.54) ($1.15) ($0.58)
================== ================== =================== ===================
Net loss per common share ($2.22) ($3.60) ($1.15) ($0.58)
================== ================== =================== ===================
Weighted average number of shares 1,695,280 4,305,130 1,909,997 5,746,785
================== ================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended September 30
-----------------------------------------
1995 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss ($3,537,757) ($13,247,359)
Adjustments to reconcile net loss to net
cash flow from operating activities:
Depreciation and amortization 2,164,822 8,876,238
Issuance of Nominal Value Warrants - 3,886,140
Stock issued in lieu of cash payments 90,552 20,619
Accretion of related parties debt - 1,182,544
Accretion of other debt - 45,921
Non-cash interest expense - 7,012
Loss on debt restructuring - 338,546
Loss on disposal of assets - 2,544
Increase in allowance for doubtful accounts 4,000 60,961
Amortization of deferred revenues - (600,000)
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable (453,438) (1,063,630)
Other current assets 114,207 (61,792)
Accounts payable 564,682 (500,520)
Accrued expenses (209,515) 851,842
Other unusual charges and
contractual settlements 1,189,833 (445,946)
------------------ ------------------
(72,614) (646,880)
------------------ ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of International Pay Phones, Inc. - (4,827,480)
Acquisition of Paramount Communications Systems - (9,780,644)
Acquisition of Pay Phones of America, Inc. - (200,000)
Acquisition of Amtel Communications - (7,222,496)
Acquisition of World and Public Telephone (50,828) (350,568)
Deferred charges on pending acquisitions (868,496) (73,226)
Deferred charges on pending stock and debt offerings - (114,235)
Deferred revenues - signing bonus - 1,200,000
Purchases of intangible assets (206,683) (625,153)
Change in other assets (82,051) (426,372)
Proceeds from sale of assets - 500
Purchases of property and equipment (120,703) (2,358,982)
------------------ ------------------
(1,328,761) (24,778,656)
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended September 30
-----------------------------------------
1995 1996
------------------ ------------------
<S> <C> <C>
CONTINUED
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from debt issuances $1,400,000 -
Proceeds from related party debt - $41,000,000
Proceeds from shareholder debt - 575,000
Principal payments on borrowings (1,313,060) (10,539,531)
Proceeds from issuance of preferred and
common stock and other 1,850,412 -
Dividends paid (40,375) -
Debt financing costs - (4,473,107)
Redemption of 10% Preferred and 8% Preferred - (1,117,371)
Equity financing costs (83,212) (87,535)
Proceeds from warrant and option exercises 35,000 10,352
------------------ ------------------
1,848,765 25,367,808
------------------ ------------------
(Decrease) increase in cash 447,390 (57,728)
Cash at beginning of period 478,756 713,462
------------------ ------------------
Cash at end of period $926,146 $655,734
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE PREFERRED STOCK AND
NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
---------------------------------------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
MANDATORILY REDEEMABLE PREFERRED STOCK
14 % CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK
Balance at beginning of year - - - -
Redemption of 7% Preferred - - 3,625.00 $217,500
Redemption of 8% Preferred - - 14,143.33 848,600
Redemption of 10% Preferred - - 16,668.00 1,000,000
Conversion of debt - - 59,695.39 3,581,723
Acquisition of Paramount Communications - - 8,333.33 375,768
Acquisition of International Payphones - - 5,453.14 245,896
Dividends payable-in-kind - - 8,397.86 211,294
Accretion of carrying value to amount
payable at redemption [June 30, 2000] - - - 58,272
TOTAL MANDATORILY REDEEMABLE
---------------- ---------------- ---------------- ----------------
PREFERRED STOCK - - 116,316.05 $6,539,053
================ ================ ================ ================
NON-MANDATORILY REDEEMABLE PREFERRED
STOCK, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
7 % CUMULATIVE CONVERTIBLE
REDEEMABLE PREFERRED STOCK
Balance at beginning of year 2,500 $200,000 2,500 $200,000
Redemption of 7% Preferred - - (2,500) (200,000)
---------------- ---------------- ---------------- ----------------
Balance at end of period 2,500 $200,000 - -
================ ---------------- ================ ----------------
8 % CUMULATIVE REDEEMABLE
PREFERRED STOCK
Balance at beginning of year 12,200 $981,084 12,200 $981,084
Redemption of 8% Preferred - - (12,200) (981,084)
---------------- ---------------- ---------------- ----------------
Balance at end of period 12,200 $981,084 - -
================ ---------------- ================ ----------------
10 % CUMULATIVE REDEEMABLE
PREFERRED STOCK
Balance at beginning of year 1,496 $1 1,496 $1
Redemption of 10% Preferred - - (1,496) (1)
---------------- ---------------- ---------------- ----------------
Balance at end of period 1,496 $1 - -
================ ---------------- ================ ----------------
10 % CUMULATIVE NON-VOTING
REDEEMABLE PREFERRED STOCK
Balance at beginning of year - - 530,534 $5,305,340
Acquisition of World Communications, Inc. 530,534 $5,305,340 - -
Redemption of 10% Preferred - - (530,534) (5,305,340)
---------------- ---------------- ---------------- ----------------
Balance at end of period 530,534 $5,305,340 - -
================ ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE PREFERRED STOCK AND
NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
---------------------------------------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(CONTINUED)
SERIES A SPECIAL CONVERTIBLE
PREFERRED STOCK
Balance at beginning of year - - - -
---------------- ---------------- ---------------- ---------------
Balance at end of period - - - -
================ ---------------- ================ ----------------
SERIES B SPECIAL CONVERTIBLE
PREFERRED STOCK
Balance at beginning of year - - - -
---------------- ---------------- ---------------- ---------------
Balance at end of period - - - -
================ ---------------- ================ ----------------
COMMON STOCK
Balance at beginning of year 1,522,158 $15,222 2,855,350 $28,554
Issuance of stock for services 91,383 914 4,400 44
Private sales of stock 472,056 4,720 - -
Exercise of warrants and options 8,333 83 1,035,137 10,351
Conversion of debt to equity 30,231 303 - -
Acquisition of World Communications, Inc. 402,500 4,025 - -
Acquisition of Public Telephone Corporation 304,879 3,049 - -
Acquisition of International Payphones - - 555,589 5,555
Acquisition of Payphones of America - - 166,666 1,667
Acquisition of Amtel Communications - - 2,162,163 21,622
Acquisition escrow deposits 23,810 238 (23,810) (238)
Redemption of 10% Non-Voting Preferred - - 884,214 8,842
---------------- ---------------- ---------------- ---------------
Balance at end of period 2,855,350 $28,554 7,639,709 $76,397
================ ---------------- ================ ----------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of year $8,755,364 $16,649,559
Issuance of stock for services 528,532 20,574
Private sales of stock 2,010,067 -
Exercise of warrants and options 34,917 -
Acquisition of World Communications, Inc. 2,712,852 -
Conversion of debt to equity 137,375 -
Acquisition of Public Telephone Corporation 2,054,902 -
Acquisition escrow deposits 149,762 (149,762)
Financing costs (83,212) (87,535)
Acquisition of International Payphones - 2,790,042
Acquisition of Paramount Communications - 443,510
Acquisition of Payphones of America - 309,999
Acquisition of Amtel Communications - 4,616,218
Warrants issued with debt 349,000 6,411,500
Issuance of Nominal Value Warrants - 4,240,941
Redemption of 10% Non-voting Preferred - 5,296,498
---------------- ----------------
Balance at end of period $16,649,559 $40,541,544
---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE> 9
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN MANDATORILY REDEEMABLE PREFERRED STOCK AND
NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Year Ended Nine Months Ended
December 31, 1995 September 30, 1996
---------------------------------------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
(CONTINUED)
ACCUMULATED DEFICIT
Balance at beginning of year ($7,303,804) ($13,453,876)
Net loss for the period (6,109,697) (13,247,359)
Dividends paid on 7% and 8% Preferred (40,375) -
14% Preferred dividend payable-in-kind - (211,293)
Accretion of 14% Preferred carrying value - (58,272)
Redemption of 7% Preferred - (17,500)
Redemption of 8% Preferred - (293,516)
Redemption of 10% Preferred - (1,691,370)
---------------- ----------------
Balance at end of period ($13,453,876) ($28,973,186)
---------------- ----------------
TOTAL NON-MANDATORILY REDEEMABLE
PREFERRED STOCK, COMMON STOCK AND
OTHER SHAREHOLDERS' EQUITY $9,710,662 $11,644,755
================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE> 10
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB
and Item 310(b) of Regulation S-B. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31,
1995.
Certain amounts relating to the three and nine months ended September 30,
1995 have been reclassified to conform to the current quarter
presentation. The reclassifications have no impact on total assets,
shareholders' equity or net loss as previously reported.
2. ACQUISITIONS AND MERGERS
On September 16, 1996, the Company completed the acquisition of the
outstanding stock of Payphones of America, Inc. ("POA"), pursuant to
which the Company acquired 3,115 installed public pay telephones,
$373,283 in current assets and $727,323 in current liabilities for a
purchase price, consisting of: (i) $500,000 in cash; (ii) 166,666
unregistered shares of the Company's Common Stock, par value $0.01
("Common Stock"), with a value of $311,665, or $1.87 per share; (iii)
assumption of capital lease obligations of $7,750,000; (iv) notes payable
to the selling shareholders in the face amount of $3,634,114 (pursuant to
the purchase agreement, the notes payable are to be reduced for the
excess of acquired current liabilities over acquired current assets, or
$311,693, resulting in a net amount due of $3,322,421); (v) assumption of
other debt, $234,890; (vi) two five year non-competition and consulting
agreements with two of the selling shareholders, valued at $307,264; and
(vii) $166,748 in related acquisition expenses.
On September 13, 1996, the Company completed the acquisition of certain
assets from ACI-HDT Supply Company, Amtel Communications Services, Amtel
Communications Correctional Facilities, Amtel Communications, Inc. and
Amtel Communications Payphones, Inc. (all California corporations and
Debtors-in-Possession) collectively referred to as "Amtel". The acquired
assets included 6,872 installed public pay telephones and inventory of an
additional 728 public pay telephones and related parts inventory for a
purchase price consisting of: (i) $7,000,000 in cash; (ii) 2,162,163
shares of the Company's Common Stock, with a value of $4,637,840, or
$2.15 per share; and (iii) approximately $675,122 in related acquisition
expenses.
10
<PAGE> 11
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
2. ACQUISITIONS AND MERGERS (CONTINUED)
The Amtel and POA acquisitions were recorded as purchases and the
differences between the aggregate fair values of the tangibles assets
acquired and the total purchase price, $13,546,504, (an intangible) was
recorded as acquired public pay telephone location contracts and
non-competition agreements ($307,264 was assigned to the POA
non-competition agreements) and will be amortized over the estimated
average remaining life of the acquired location contracts (54 months for
Amtel's contracts, 72 months for POA's contracts, and 60 months for POA's
non-competition agreements). The results of operations of POA and Amtel
are included in the results of operations of the Company from August 1,
1996 (the effective date of the POA acquisition) and September 13, 1996,
respectively.
On March 15, 1996, the Company completed the acquisition of the
outstanding common stock of International Pay Phones, Inc. (a South
Carolina company) and International Pay Phones, Inc. (a Tennessee
company) (collectively "IPP"), companies affiliated through common
ownership and management. In connection with the acquisition of IPP, the
Company acquired 2,101 installed public pay telephones for a purchase
price consisting of: (i) $3,496,487 in cash; (ii) 555,589 unregistered
shares of the Company's Common Stock; (iii) 5,453.14 unregistered shares
of 14% Convertible Cumulative Redeemable Preferred Stock ("14%
Preferred"); and (iv) warrants to purchase 117,785 shares of the
Company's Common Stock at a nominal exercise price per share ("Nominal
Value Warrants"). Additionally, the Company assumed approximately
$1,757,000 in liabilities, of which $1,551,796 was repaid by the Company
on March 15, 1996. The cash purchase price included three five year
non-competition agreements, with an aggregate value of $60,000, with
three of IPP's former officers.
On March 15, 1996, the Company completed a Share Purchase Agreement with
Paramount Communications Systems, Inc. (a Florida corporation)
("Paramount"). Under the terms of the Agreement, the Company acquired
2,528 installed public pay telephones for a purchase price consisting of:
(i) $9,618,553 in cash; (ii) 8,333.33 shares of 14% Preferred; and (iii)
Nominal Value Warrants to purchase 179,996 shares of the Company's Common
Stock. In addition, the Company assumed outstanding liabilities of
approximately $733,000, of which $697,947 was repaid on March 15, 1996.
The purchase price included a five year consulting and non-compete
agreement, valued at $50,000, with one of Paramount's former officers.
11
<PAGE> 12
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
2. ACQUISITIONS AND MERGERS (CONTINUED)
The IPP and Paramount acquisitions were recorded as purchases and the
differences between the aggregate fair values of the tangibles assets
acquired and the total purchase price, $9,531,404, (an intangible) was
recorded as acquired public pay telephone location contracts and
non-competition agreements ($110,000 was assigned to the IPP and
Paramount non-competition agreements) and will be amortized over the
estimated average remaining life of the acquired location contracts (60
months for IPP and Paramount's contracts and 60 months for IPP and
Paramount's non-competition agreements). The results of operations of IPP
and Paramount are included in the results of operations of the Company
from March 15, 1996.
On October 16, 1995, the Company consummated its acquisition of the
outstanding common stock of Public Telephone Corporation (an Indiana
corporation) ("Public Telephone") in a transaction accounted for as a
purchase. The Company acquired current assets of $54,742, approximately
1,200 installed public pay telephones, assumed approximately $2,800,000
in debt and outstanding liabilities of Public Telephone and issued
224,879 unregistered shares of the Company's Common Stock to the
shareholders of Public Telephone. In connection with the acquisition, the
Company entered into five year non-competition agreements with two of
Public Telephone's former owners which require both cash payments and the
issuance, in the aggregate, of 80,000 unregistered shares of the
Company's Common Stock.
On September 22, 1995, the Company consummated its merger with World
Communications, Inc. (a Missouri corporation) ("World") in a transaction
accounted for as a purchase. The Company acquired current assets of
$256,571 and 3,237 installed public pay telephones, assumed approximately
$6,900,000 in debt and outstanding liabilities of World and issued
402,500 unregistered shares of the Company's Common Stock and 530,534
shares of the Company's 10% Non-Voting Redeemable Preferred Stock, which
was subsequently converted to 884,214 unregistered shares of Common Stock
on June 28, 1996.
The Public Telephone and World acquisitions were recorded as purchases
and the differences between the aggregate fair values of the tangibles
assets acquired and the total purchase price, $9,305,168, (an intangible)
was recorded as acquired public pay telephone location contracts and
non-competition agreements ($798,479 was assigned to the Public Telephone
non-competition agreements and $315,286 was assigned to the World
non-competition agreements) and will be amortized over the estimated
average remaining life of the acquired location contracts (36 months for
Public Telephone and World's contracts, 60 months for Public Telephone's
non-competition agreements and 24 months for World's non-competition
agreements). The results of operations of Public Telephone and World are
included in the results of operations of the Company from October 16,
1995 and September 22, 1995, respectively.
12
<PAGE> 13
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
2. ACQUISITIONS AND MERGERS (CONTINUED)
Set forth below is the Company's unaudited pro forma condensed statement
of operations data as though the World, Public Telephone, IPP, Paramount,
Amtel and POA acquisitions had occurred at the beginning of 1995 and as
though the IPP, Paramount, Amtel and POA acquisitions had occurred at the
beginning of 1996.
<TABLE>
<CAPTION>
Pro Forma Selected Results of Operations Data
---------------------------------------------
Nine Months Ended September 30 Three Months Ended September 30
------------------------------ -------------------------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $ 44,595,053 $ 45,308,800 $ 15,006,667 $ 15,069,188
Net loss before
extraordinary item (13,871,600) (16,083,544) (5,643,428) (4,790,789)
Net loss applicable
to common shareholders (14,501,750) (16,325,859) (5,853,478) (4,925,603)
Net loss per common share (2.74) (2.46) (1.07) (0.65)
</TABLE>
The unaudited pro forma results above are not necessarily indicative of
either actual results of operations that would have occurred had the
acquisitions been made at the beginning of 1995 or 1996, or of future
results. The pro forma statement of operations data includes adjustments
related to the depreciation and amortization of tangible and intangible
assets, reductions in certain operating, other, and selling, general, and
administrative expenses, interest expense on borrowings used to finance
the acquisitions and the weighted average number of common shares
outstanding after giving effect to the acquisitions.
PENDING ACQUISITIONS
The Company has entered into a letter of intent dated October 16, 1996,
to acquire all of the capital stock of Cherokee Communications, Inc.
("Cherokee") for a purchase price of $54,000,000 plus related fees and
expenses, subject to certain purchase price adjustments, which may
include an increase of up to $6,000,000 in cash or Common Stock payable
in two equal installments due January 1998 and 1999, if the FCC fails to
implement certain rate caps, rate guidelines or third party preferences
during 1997 or 1998, as the case may be. In addition, the Company will
pay $1,250,000 in connection with certain non-competition agreements.
Cherokee, headquartered in Jacksonville, Texas, is the fifth largest
independent public pay telephone operator in the United States. At
September 30, 1996, Cherokee owned and operated 12,344 public pay
telephones in 14 states, of which approximately 85% were located in
Texas, New Mexico, Colorado, Utah, and Montana.
13
<PAGE> 14
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
2. ACQUISITIONS AND MERGERS (CONTINUED)
The Company has entered into a letter of intent dated October 9, 1996 to
acquire 1,200 installed public pay telephones from Texas Coinphone
(collectively with Cherokee the "Pending Acquisitions") for a purchase
price of approximately $3,700,000, subject to certain purchase price
adjustments. Texas Coinphone owns and operates approximately 1,200 public
pay telephones in Dallas, Houston, and San Antonio, Texas.
The Company expects to fund the acquisitions of Cherokee and Texas
Coinphone with the proceeds from a contemplated debt offering expected to
be completed in the fourth quarter of 1996.
3. PROPERTY AND EQUIPMENT
As of December 31, 1995 and September 30, 1996, property and equipment
consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31 September 30
(in years) 1995 1996
---------- ---- ----
<S> <C> <C> <C>
Telephones, boards, enclosures and cases 3-7 $ 16,386,987 $ 36,992,307
Furniture, fixtures and other equipment 3-5 989,300 1,752,387
Leasehold improvments 2-5 231,466 246,609
------------ ------------
17,607,753 38,991,303
Less - accumulated depreciation (3,508,642) (7,309,242)
------------ ------------
$ 14,099,111 $ 31,682,061
============ ============
</TABLE>
4. INTANGIBLE ASSETS
As of December 31, 1995 and September 30, 1996, intangible assets
consisted of the following:
<TABLE>
<CAPTION>
Amortization Period December 31 September 30
(in months) 1995 1996
----------- ---- ----
<S> <C> <C> <C>
Value assigned to location contracts
acquired and installation of public
pay telephones 36-120 $ 13,403,126 $ 39,627,197
Debt restructuring costs 40 - 5,802,908
Non-competition agreements 24-60 1,513,765 2,090,690
State operating certifications 60 466,796 498,470
------------ ------------
15,383,687 48,019,265
Less: Accumulated amortization (3,791,530) (8,792,646)
------------ ------------
$ 11,592,157 $ 39,226,619
============ ============
</TABLE>
14
<PAGE> 15
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
5. LONG-TERM DEBT - RELATED PARTIES
On March 15, 1996, the Company entered into a Credit Agreement (the
"Credit Agreement") with Internationale Nederlanden (U.S.) Capital
Corporation ("ING") and Cerberus Partners, L.P. ("Cerberus" and, together
with ING, the "Lenders"), pursuant to which the Lenders agreed to lend
the Company up to $37,250,000. On March 15, 1996, the Company borrowed
$30,530,954 pursuant to the Credit Agreement. During the second quarter
of 1996, the Company borrowed an additional $1,692,500 under the Credit
Agreement. The initial borrowings under the Credit Agreement were used to
complete the Paramount and IPP acquisitions, to repay $8,503,405 of
outstanding debt and $3,173,931 of outstanding obligations under capital
leases, to redeem the 10% Cumulative Redeemable Preferred Stock ("10%
Preferred"), 8% Cumulative Redeemable Preferred Stock ("8% Preferred"),
and 7% Cumulative Convertible Redeemable Preferred Stock ("7%
Preferred"), and to pay related transaction fees. The additional
borrowings of $1,692,500 were used for the Amtel acquisition deposit
($1,300,000) and working capital.
On September 13, 1996, concurrent with the acquisition of Amtel, the
Lenders amended the Credit Agreement to increase the maximum borrowings
available under the Credit Agreement to $41,000,000. The Company then
borrowed an additional $8,776,546 and used $5,950,000 of the proceeds to
complete the Amtel and POA acquisitions and the remainder of the
proceeds, $2,826,546, for working capital and payment of certain related
acquisition expenses. As of September 30, 1996, borrowings of $41,000,000
were outstanding and there was no additional borrowing availability under
the Credit Agreement
The Credit Agreement requires monthly interest payments at the Alternate
Base Rate (as defined therein) plus 5% and contains various covenants
restricting the Company's ability to pay dividends or incur additional
debt, among other conditions, and also contains financial covenants
requiring minimum net worth, working capital and earnings before
interest, depreciation and amortization among other covenants. The Credit
Agreement also contains a subjective acceleration clause which states
that in the event of a material adverse change in the business, as
determined by the Lenders, the Lenders can call the debt at their
discretion. The Lenders have waived their right to exercise this
subjective acceleration clause through December 31, 1997.
Pursuant to the Credit Agreement amendments dated September 13, 1996,
principal payments commence in April 1997, and continue monthly and/or
quarterly through June 1999 at which time the remaining principal balance
is due. The amount of the principal payment is contingent upon numerous
factors, including the borrowing base and cash flow of the Company. Based
on amounts borrowed under the Credit Agreement at September 30, 1996, the
estimated principal payment due April 30, 1997 would be $2,972,222, with
monthly principal payments of $222,222 thereafter until December 31,
1997, and quarterly principal payments of $634,375 commencing September
30, 1997, increasing to $1,087,500 quarterly for 1998 and $1,268,750 at
March 31, 1999.
15
<PAGE> 16
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
5. LONG-TERM DEBT - RELATED PARTIES (CONTINUED)
All of the Company's installed public pay telephones, excluding those
acquired from POA which are pledged to another creditor, are pledged as
collateral to the Credit Agreement.
The Company was not in compliance with various financial covenants
contained in the Credit Agreement at June 30, 1996 and subsequently
received a waiver of such non-compliance from the Lenders. The Credit
Agreement was amended on October 8, 1996 to make the covenants less
restrictive. At September 30, 1996 the Company was in compliance with the
covenants.
A portion of the borrowings under the Credit Agreement (currently
$29,000,000) can be converted into Series B Special Convertible Preferred
Stock ("Series B Preferred"), at the ratio of 833 shares for each
$100,000 in outstanding debt and accrued interest. Additionally, in
connection with the execution of the original Credit Agreement on March
15, 1996, ING and Cerberus each received 102,412 warrants (204,824
warrants in the aggregate and referred to herein as the "Lenders'
Warrants"), which would collectively allow them to purchase up to 204,824
shares of Series A Special Convertible Preferred Stock ("Series A
Preferred"), at an exercise price of $0.20 per share. Each share of
Series A Preferred and Series B Preferred is convertible into 20 shares
of Common Stock. The debt under the Credit Agreement was initially
recorded net of an allocation of the fair value of the Lenders' Warrants,
such fair value being determined using the Black-Scholes valuation model.
The Company recorded non-cash interest expense (accretion of debt) of
$621,536 for the three months ended September 30, 1996 and $1,182,544 for
the nine months ended September 30, 1996.
16
<PAGE> 17
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
6. PREFERRED STOCK MANDATORILY REDEEMABLE
As of December 31, 1995 and September 30, 1996, preferred stock
mandatorily redeemable consisted of the following:
<TABLE>
<CAPTION>
December 31 September 30
1995 1996
---- ----
<S> <C> <C>
14% Cumulative Redeemable Convertible Preferred Stock ($60 stated value
- 200,000 shares authorized; 107,918.19 shares issued and
outstanding at September 30, 1996; cumulative dividends issuable of
8,397.86 shares, valued at $211,294; mandatory
redemption amount of $6,978,963 due June 30, 2000) - $6,539,053
</TABLE>
The Company records dividends, declared and undeclared, at their fair
market value and recognizes the difference between the carrying value of
the 14% Preferred and the mandatory redemption amount, through monthly
accretions, using the interest method. For the three and nine months
ended September 30, 1996, the carrying value of the 14% Preferred was
increased by $34,153 and $58,272, respectively, through accretions. Each
share of 14% Preferred is entitled to receive a quarterly dividend of
0.035 shares of 14% Preferred. Each share of 14% Preferred is convertible
into 10 shares of Common Stock.
7. NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER
SHAREHOLDERS' EQUITY
As of December 31, 1995 and September 30, 1996, non-mandatorily
redeemable preferred stock, common stock, and other shareholders' equity
consisted of the following:
<TABLE>
<CAPTION>
December 31 September 30
1995 1996
---- ----
<S> <C> <C>
10% Cumulative Nonvoting Redeemable Preferred Stock ($10 stated value -
550,000 shares authorized; 530,534 shares issued and outstanding at
December 31, 1995, redeemed on June 28, 1996) $ 5,305,340 -
Series A Special Convertible Preferred Stock ($0.20 par value, $0.20
stated value - 250,000 shares authorized; no shares issued) - -
Series B Special Convertible Preferred Stock ($0.20 par value, $120
stated value - 250,000 shares authorized; no shares issued) - -
</TABLE>
17
<PAGE> 18
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
7. NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER
SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
December 31 September 30
1995 1996
---- ----
<S> <C> <C>
10% Cumulative Redeemable Preferred Stock ($1,000 stated value - 3,880
shares authorized; 1,496 shares issued and outstanding at December
31, 1995, redeemed on March 15, 1996) 1 -
8% Cumulative Redeemable Preferred Stock ($100 stated value - 16,000
shares authorized; 12,200 shares issued and outstanding at December
31, 1995, redeemed on March 15, 1996) 981,084 -
7% Cumulative Convertible Redeemable Preferred Stock ($100 stated
value - 2,500 shares authorized, issued and outstanding at December
31, 1995, redeemed on March 15, 1996) 200,000 -
Common Stock
($0.01 par value - 50,000,000 shares authorized; 2,855,350 and
7,639,709 shares issued and outstanding at December 31, 1995 and
September 30, 1996) 28,554 76,397
Additional paid-in capital 16,649,559 40,541,544
Accumulated deficit (13,453,876) (28,973,186)
----------- -----------
$ 9,710,662 $ 11,644,755
=========== ============
</TABLE>
On February 23, 1996, the Company created three new classes of preferred
stock: (i) Series A Preferred; (ii) Series B Preferred; and (iii) 14%
Preferred.
On March 15, 1996, concurrent with the Credit Agreement, the Company
redeemed the 10% Cumulative Redeemable Preferred Stock ("10% Preferred"),
8% Preferred, and 7% Preferred. The redemption price was comprised of
cash payments aggregating $1,117,371 and 34,436.33 shares of 14%
Preferred. In the aggregate, $6,269,487 of the Company's outstanding
obligations, including portions of the purchase price for the IPP and
Paramount acquisitions, was liquidated by issuing 107,918.19 shares of
14% Preferred.
18
<PAGE> 19
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------
7. NON-MANDATORILY REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER
SHAREHOLDERS' EQUITY (CONTINUED)
The $2,002,386 excess of the redemption price of the preferred issues
redeemed over their aggregate carrying value was recorded as a reduction
of earnings available to common shareholders as of March 31, 1996.
On March 15, 1996, Nominal Value Warrants to purchase 2,018,942 shares of
Common Stock were issued in conjunction with the IPP and Paramount
acquisitions, redemption of the 10% Preferred, 8% Preferred and 7%
Preferred, and conversion of certain related party debt of the Company to
the 14% Preferred. Certain holders of the 14% Preferred are deemed
related parties. The warrants expire on March 13, 2001. An independent
valuation company estimated the fair market value of the Nominal Value
Warrants to be $4,974,673, using the Black-Scholes valuation model, of
which $3,886,139 (the amount attributable to the warrants provided to
related parties in connection with the redemption of the 10% Preferred,
8% Preferred, and 7% Preferred shares and conversion of certain debt) was
recorded as an unusual charge in the Company's statement of operations
for the three months ended March 31, 1996.
During April and May 1996, warrants representing 972,487 shares of Common
Stock were exercised, and total proceeds to the Company were $9,725. Of
the total warrants exercised, 539,989 shares of Common Stock were issued
to an officer of the Company. On July 22, 1996, Nominal Value Warrants
representing 62,650 shares of Common Stock were exercised by an officer
of the Company, and total proceeds to the Company were $627.
On June 27, 1996, the shareholders of the Company approved an amendment
to the Articles of Incorporation which authorizes the Company to have
outstanding 60,000,000 shares; of which 50,000,000 shares are to be
classified as Common Stock and 10,000,000 shares as Preferred Stock. The
shareholders also approved conversion rights to the 10% Cumulative
Non-voting Redeemable Preferred Stock ("10% Redeemable Preferred"). Each
share of 10% Redeemable Preferred is convertible into 1.6667 shares of
Common Stock at any time by the shareholder or the Company. On June 28,
1996, the Company converted the outstanding 10% Redeemable Preferred into
884,214 shares of Common Stock.
8. SUBSEQUENT EVENTS
On October 9, 1996, the Company filed a Registration Statement on Form
SB-2 with the Securities and Exchange Commission ("SEC") relating to the
proposed offering of approximately $25,000,000 of Common Stock by the
Company. On October 31, 1996, the Company filed a Registration Statement
on Form SB-2 with the SEC relating to the proposed offering of
approximately $110,000,000 of senior unsecured notes. The Company
anticipates completing both offerings during the fourth quarter of 1996.
There can be no assurances, however that either offering will be
completed or that the terms will remain the same.
The registration statements relating to these offerings filed with the
SEC have not yet become effective, and the securities may not be sold
nor may offers to buy be accepted prior to the time the applicable
registration statements become effective. This Form 10-QSB shall not
constitute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any state in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.
19
<PAGE> 20
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITIONS AND MERGERS
Pending Acquisitions
The Company has entered into a letter of intent dated October 16, 1996, to
acquire all of the capital stock of Cherokee Communications, Inc. ("Cherokee")
for a purchase price of $54,000,000 plus related fees and expenses, subject to
certain purchase price adjustments, which may include an increase of up to
$6,000,000 in cash or Common Stock payable in two equal installments due January
1998 and 1999, if the FCC fails to implement certain rate caps, rate guidelines
or third party preferences during 1997 or 1998, as the case may be. In addition,
the Company will pay $1,250,000 in connection with certain non-competition
agreements. Cherokee, headquartered in Jacksonville, Texas, is the fifth largest
independent public pay telephone operator in the United States. At September 30,
1996, Cherokee owned and operated 12,344 public pay telephones in 14 states, of
which approximately 85% were located in Texas, New Mexico, Colorado, Utah, and
Montana.
The Company has entered into a letter of intent dated October 9, 1996 to acquire
1,200 installed public pay telephones from Texas Coinphone for a purchase price
of approximately $3,700,000, subject to certain purchase price adjustments.
Texas Coinphone owns and operates 1,200 public pay telephones in Dallas,
Houston, and San Antonio, Texas.
The Company expects to fund the acquisitions of Cherokee and Texas Coinphone
with the proceeds from a contemplated debt offering expected to be completed in
the fourth quarter of 1996.
Completed Acquisitions
On September 16, 1996, the Company completed the acquisition of the outstanding
stock of Payphones of America, Inc. ("POA"), pursuant to which the Company
acquired 3,115 installed pay telephones, approximately $373,283 in current
assets and approximately $727,323 in current liabilities for a purchase price
consisting of: (i) $500,000 in cash; (ii) 166,666 unregistered shares of the
Company's Common Stock, with a value of $311,665, or $1.87 per share; (iii)
assumption of capital lease obligations of $7,750,000; (iv) notes payable to the
selling shareholders in the face amount of $3,634,114 (pursuant to the purchase
agreement, the notes payable are to be reduced for the excess of acquired
current liabilities over acquired current assets, or $311,693, resulting in a
net amount due of $3,322,421); (v) assumption of other debt, $234,890; (vi) two
five year non-competition and consulting agreements with two of the selling
shareholders, valued at $307,264; and (vii) $166,748 in related acquisition
expenses.
On September 13, 1996, the Company completed the acquisition of certain assets
from ACI-HDT Supply Company, Amtel Communications Services, Amtel Communications
Correctional Facilities, Amtel Communications, Inc. and Amtel Communications
Payphones, Inc. (all California corporations and Debtors-in-Possession)
collectively referred to as "Amtel". The acquired assets included 6,872
installed telephones and inventory of an additional 728 pay telephones for a
purchase price consisting of: (i) $7,000,000 in cash; (ii) 2,162,163 shares of
the Company's Common Stock, with a value of $4,637,840, or $2.15 per share; and
(iii) $675,122 in related acquisition expenses.
20
<PAGE> 21
The Amtel and POA acquisitions were recorded as purchases and the differences
between the aggregate fair values of the tangible assets acquired and the total
purchase price, $13,546,504, (an intangible) was recorded as acquired public pay
telephone location contracts and non-competition agreements ($307,264 was
assigned to the POA non-competition agreements) and will be amortized over the
estimated average remaining life of the acquired location contracts (54 months
for Amtel's contracts, 72 months for POA's contracts, and 60 months for POA's
non-competition agreements). The results of operations of POA and Amtel are
included in the results of operations of the Company from August 1, 1996 (the
effective date of the POA acquisition) and September 13, 1996, respectively.
On March 15, 1996 the Company completed the acquisition of the outstanding
common stock of International Pay Phones, Inc. (a South Carolina company) and
International Pay Phones, Inc. (a Tennessee company) (collectively "IPP"),
companies affiliated through common ownership and management. The Company
acquired 2,101 installed public pay telephones for a purchase price consisting
of: (i) $3,496,487 in cash; (ii) 555,589 unregistered shares of the Company's
Common Stock; (iii) 5,453.14 shares of 14% Preferred (immediately convertible
into 54,530 shares of Common Stock); and (iv) Nominal Value Warrants to purchase
117,785 shares of the Company's Common Stock. Additionally, the Company assumed
approximately $1,757,000 in liabilities, of which $1,551,796 was repaid by the
Company on March 15, 1996. The cash purchase price included three five year
non-competition agreements, with an aggregate value of $60,000, with three of
IPP's former officers.
On March 15, 1996, the Company completed a Share Purchase Agreement with
Paramount Communications Systems, Inc. ("Paramount"). Under the terms of the
Agreement, the Company acquired 2,528 installed public pay telephones for a
purchase price consisting of: (i)$9,618,553 in cash; (ii) 8,333.33 shares of 14%
Preferred Stock (immediately convertible into 83,330 shares of Common Stock);
and (iii) Nominal Value Warrants to purchase 179,996 shares of the Company's
Common Stock. In addition, the Company assumed outstanding liabilities of
approximately $733,000, of which $697,947 was repaid on March 15, 1996. The
purchase price included a five year consulting and non-competition agreement,
valued at $50,000, with one of Paramount's former officers.
The IPP and Paramount acquisitions were recorded as purchases and the
differences between the aggregate fair values of the tangibles assets acquired
and the total purchase price, $9,531,404, (an intangible) was recorded as
acquired public pay telephone location contracts ($110,000 was assigned to the
IPP and Paramount non-competition agreements) and will be amortized over the
estimated average remaining life of the acquired location contracts (60 months
for IPP and Paramount's contracts and 60 months for IPP and Paramount's
non-competition agreements). The results of operations of IPP and Paramount are
included in the results of operations of the Company from March 15, 1996.
RESULTS OF OPERATIONS
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Revenues. Revenues increased $16,358,523, or 136.8% from $11,956,903 for the
nine months ended September 30, 1995, to $28,315,426 for the nine months ended
September 30, 1996. This increase is attributable primarily to an increase in
the number of installed public pay telephones, which increased by 16,473, or
194.5%, from 8,470 at September 30, 1995 to approximately 24,943 at September
30, 1996,
21
<PAGE> 22
with the majority of the increase occurring in the third and fourth quarters of
1995 and the first and third quarters of 1996 due to the Company's recent
acquisitions.
Revenues from coin calls increased $9,298,911, or 120.9%, from $7,689,786 for
the nine months ended September 30, 1995 to $16,988,697 for the nine months
ended September 30, 1996. Non-coin revenues increased $6,006,569,or 181.9%, from
$3,301,969 for the nine months ended September 30, 1995 to $9,308,538 for the
nine months ended September 30, 1996. The increases were primarily due to the
acquisition and installation of public pay telephones producing additional
revenues and, to a lesser extent, to the increases in coin calls resulting from
the continuation of the 1994 program which offered customers a three minute long
distance call anywhere in the continental United States for $0.75 (the "$0.75
Long Distance Call Program" subsequently changed to $1.00 for the first three
minutes in some locations). However, the increase in non-coin revenue was offset
in part by a reduction in operator assisted calls as a result of aggressive
dial-around advertising by long distance carriers such as AT&T and MCI
Communications Corporation ("MCI").
Other revenues increased $1,053,043, or 109.1%, from $965,148 for the nine
months ended September 30, 1995 to $2,018,191 for the nine months ended
September 30, 1996. This increase was primarily the result of an increase in the
number of public pay telephones and increased revenues from dial-around calls.
Operating Expenses. Total operating expenses increased $21,952,874, or 144.4%,
from $15,202,967 for the nine months ended September 30, 1995 to $37,155,841 for
the nine months ended September 30, 1996. Operating expenses represented 127.1%
of total revenues for the nine months ended September 30, 1995 and 131.2% of
total revenues for the nine months ended September 30, 1996. The percentage
increase was due to other unusual charges and contractual settlements and higher
depreciation and amortization as a result of recent acquisitions, offset in part
by lower operating expenses.
Line and transmission charges increased $3,459,970, or 103.6%, from $3,340,812
for the nine months ended September 30, 1995 to $6,800,782 for the nine months
ended September 30, 1996. Line charges represented 27.9% of total revenues for
the nine months ended September 30, 1995 and 24.0% of total revenues for the
nine months ended September 30, 1996, a decrease of 3.9%. The dollar increase in
line and transmission charges was, in part, due to additional public pay
telephones acquired from World, Public Telephone, IPP and Paramount, the
increases in coin calls resulting from the $0.75 Long Distance Call Program,
and to a lesser extent, the acquisitions of POA (completed September 16, 1996
with an effective purchase date of August 1, 1996) and Amtel (completed
September 13, 1996), as well as increases in certain local telephone company
line charges. The percentage decrease was due to lower line charges for
the acquired companies.
Location commissions increased $1,937,731, or 89.6%, from $2,163,464 for the
nine months ended September 30, 1995 to $4,101,195 for the nine months ended
September 30, 1996. Location commissions represented 18.1% of total revenues for
the nine months ended September 30, 1995 and 14.5% of total revenues for the
nine months ended September 30, 1996, a decrease of 3.6%. The dollar increase is
due to location agreements from public pay telephones acquired in the
acquisitions of World, Public Telephone, IPP and Paramount, and to a lesser
extent the location agreements acquired in the acquisitions of POA and Amtel,
while the percentage decrease is due to such location agreements having lower
commission rates than those from the Company's existing public pay telephones.
22
<PAGE> 23
Other operating expenses (consisting of personnel costs, rents, utilities,
repair and maintenance of the phones, operator services processing fees and
property and sales taxes), increased $3,969,464, or 96.0%, from $4,132,850 for
the nine months ended September 30, 1995 to $8,102,314 for the nine months ended
September 30, 1996. Other operating expenses represented 34.6% of total revenues
for the nine months ended September 30, 1995 and 28.6% of total revenues for the
nine months ended September 30, 1996, a decrease of 6%. The dollar increase was
primarily the result of higher personnel costs, rent, utilities and service
related expenses attributable to the outsourcing of operator services and to the
acquisitions of World, Public Telephone, IPP and Paramount, and to a lesser
extent, the acquisitions of Amtel and POA, the increase in the Company's public
pay telephone base, and the additional field personnel to accommodate the
increased business. The percentage decrease reflects the economies of scale
resulting from those acquisitions that the Company has already realized. Such
economies of scale come primarily from the elimination of costs associated with
the closing of certain offices, the elimination of redundant executive and
administrative personnel in billing and other operations areas and leveraging
the Company's existing field technicians. Additional economies of scale are
expected to be realized from the Amtel and POA acquisitions made in September
1996, resulting in the further decrease of other operating expenses as a
percentage of total revenues for the full year 1996.
Depreciation and amortization increased $6,711,416, or 310.0%, from $2,164,822
for the nine months ended September 30, 1995 to $8,876,238 for the nine months
ended September 30, 1996. Depreciation and amortization represented 18.1% of
total revenues for the nine months ended September 30, 1995 and 31.3% of total
revenues for the nine months ended September 30, 1996, an increase of 13.2%. The
dollar and percentage increases were primarily due to the Company's acquisitions
and expansion of its public pay telephone base and purchases of additional
computer equipment, service vehicles and software to accommodate the Company's
growth.
Selling, general and administrative ("SG&A") expenses increased $1,775,070, or
89.5%, from $1,982,489 for the nine months ended September 30, 1995 to
$3,757,559 for the nine months ended September 30, 1996. SG&A represented 16.6%
of total revenues for the nine months ended September 30, 1995 and 13.3% of
total revenues for the nine months ended September 30, 1996, a decrease of 3.3%.
The dollar increase was primarily the result of the acquisitions of World,
Public Telephone, IPP and Paramount, and to a lesser extent, the acquisitions of
Amtel and POA. The percentage decrease reflects the economies of scale resulting
from those acquisitions that the Company has already realized.
Other unusual charges and contractual settlements increased $4,099,223, or 289%
from $1,418,530 for the nine months ended September 30, 1995 to $5,517,753 for
the nine months ended September 30, 1996. For the nine months ended September
30, 1996, other unusual charges and contractual settlements consists primarily
of: (i) the settlement of contractual obligations under certain employment
contracts, $330,627; (ii) the settlement of other contractual obligations,
$210,599; (iii) the write-off of selected assets in connection with the
continued evaluation of the Company's operations and certain one-time charges
for changes to the operations of the Company, $459,743; (iv) losses recognized
on the early pay-off of obligations under capital leases and other debt
concurrent with the debt restructuring completed on March 15, 1996, $630,645;
and (v) the estimated fair market value of the Nominal Value Warrants charged to
operations on March 15, 1996, $3,886,139. Other unusual charges and contractual
settlements represented 11.9% of total revenues for the nine months ended
September 30, 1995, and 19.5% of total revenues for the nine months ended
September 30, 1996, an increase of 7.6%.
23
<PAGE> 24
Other income (expense). Other income (expense) is comprised of interest expense
incurred on debt with related parties and others and interest income. Total
other expense (net of interest income) increased $3,847,969, or 1,319.2%, from
$291,693 for the nine months ended September 30, 1995 to $4,139,663 for the nine
months ended September 30, 1996. Other expenses represented 2.4% of total
revenues for the nine months ended September 30, 1995 and 14.6% of total
revenues for the nine months ended September 30, 1996, an increase of 12.2%. The
dollar and percentage increases were due to the financing obtained for the
acquisitions completed in 1996. Related party interest expense was $3,588,420
for the nine months ended September 30, 1996, representing 12.7% of total
revenues. Included in related party interest expense was non-cash interest
expense of $1,182,544, or 4.2% of total revenues for the nine months ended
September 30, 1996, representing the accretion of the debt under the Credit
Agreement to its maturity amount.
Extraordinary item. The Company recorded an extraordinary loss of $267,281,
representing 0.9% of total revenues for the nine months ended September 30,
1996. The extraordinary loss related to one-time costs that were incurred in
connection with the restructuring of the Company's long-term debt. Concurrent
with the restructuring of the Company's debt and the redemption of the 10%
Preferred, 8% Preferred, and 7% Preferred, the Company recorded the difference
between the carrying value of the 10% Preferred, 8% Preferred, and 7% Preferred
and the redemption price as an increase to the accumulated deficit of
$2,002,386.
EBITDA. EBITDA (income before interest, taxes, depreciation and amortization,
other unusual charges and contractual settlements, and the extraordinary loss on
debt restructuring) increased $5,216,288 or 1,546.5%, from $337,288 for the nine
months ended September 30, 1995 to $5,553,576 for the nine months ended
September 30, 1996. Based on the changes discussed above, EBITDA represented
2.8% of total revenues for the nine months September 30, 1995 and 19.6% for the
nine months ended September 30, 1996, an increase of 16.8%. EBITDA is not
intended to represent an alternative to operating income (as defined in
accordance with generally accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) as a measure of liquidity.
SEASONALITY
The Company completed two acquisitions which added approximately 4,400 public
pay telephones in 1995, and four acquisitions which added approximately 15,200
public pay telephones during the first nine months of 1996. The seasonality of
the Company's historical operating results has been affected by shifts in the
geographic concentrations of its public pay telephones resulting from such
acquisitions. In recent years, the Company acquired a large number of public pay
telephones in northern and western states of the United States. As a result of
such acquisitions, the Company has more recently experienced lower operating
results in the first quarter due to the effect of the cold weather in the
northern and western states on outdoor public pay telephone usage. Revenues are
typically highest in the fourth quarter because of the increased volume of calls
made during the holiday season.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
Credit Agreement
On March 15, 1996, the Company entered into a Credit Agreement (the "Credit
Agreement") with Internationale Nederlanden (U.S.) Capital Corporation ("ING")
and Cerberus Partners, L.P. ("Cerberus" and, together with ING, the "Lenders"),
pursuant to which the Lenders agreed to lend the Company up to $37,250,000. On
March 15, 1996, the Company borrowed $30,530,954 pursuant to the Credit
Agreement. During the second quarter of 1996, the Company borrowed an additional
$1,692,500 pursuant to the Credit Agreement. The initial borrowings under the
Credit Agreement were used to complete the Paramount and IPP acquisitions, to
repay $8,503,405 of outstanding debt and $3,173,931 of outstanding obligations
under capital leases, to redeem the 10% Cumulative Redeemable Preferred Stock
("10% Preferred"), 8% Cumulative Redeemable Preferred Stock ("8% Preferred"),
and 7% Cumulative Convertible Redeemable Preferred Stock ("7% Preferred"), and
to pay related transactions fees. The additional borrowings of $1,692,500 were
used for the Amtel acquisition deposit ($1,300,000) and working capital.
On September 13, 1996, concurrent with the acquisition of Amtel, the Lenders
amended the Credit Agreement to increase the maximum borrowings available under
the Credit Agreement to $41,000,000. The Company then borrowed an additional
$8,776,546 and used $5,950,000 of the proceeds to complete the Amtel and POA
acquisitions and the remainder of the proceeds, $2,826,546, for working capital
and payment of certain related acquisition expenses. As of September 30, 1996,
borrowings of $41,000,000 were outstanding and there was no additional borrowing
availability under the Credit Agreement.
The Credit Agreement requires monthly interest payments at the Alternate Base
Rate (as defined therein) plus 5% and contains various covenants restricting the
Company's ability to pay dividends or incur additional debt, among other
conditions, and also contains financial covenants requiring minimum net worth,
working capital and earnings before interest, depreciation and amortization
among other covenants. The Credit Agreement also contains a subjective
acceleration clause which states that in the event of a material adverse change
in the business, as determined by the Lenders, the Lenders can call the debt at
their discretion. The Lenders have waived their right to exercise this
subjective acceleration clause through December 31, 1997.
Pursuant to the Credit Agreement amendments dated September 13, 1996, principal
payments commence in April 1997, and continue monthly and/or quarterly through
June 1999 at which time the remaining principal balance is due. The amount of
the principal payment is contingent upon numerous factors, including the
borrowing base and cash flow of the Company. Based on amounts borrowed under the
Credit Agreement as of September 30, 1996, the estimated principal payment due
April 30, 1997 would be $2,972,222, with monthly principal payments of $222,222
thereafter till December 31, 1997, and quarterly principal payments of $634,375
commencing September 30, 1997, increasing to $1,087,500 quarterly for 1998 and
$1,268,750 at March 31, 1999. All of the Company's installed public pay
telephones, excluding those acquired from POA which are pledged to another
creditor, are pledged as collateral to the Credit Agreement.
The Company was not in compliance with various financial covenants contained in
the Credit Agreement at June 30, 1996 and subsequently received a waiver of such
non-compliance from the Lenders. The
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<PAGE> 26
Credit Agreement was amended on October 8, 1996 to make the covenants less
restrictive. At September 30, 1996 the Company was in compliance with the
covenants contained in the Credit Agreement.
A portion of the borrowings under the Credit Agreement (currently $29,000,000)
can be converted into Series B Special Convertible Preferred Stock ("Series B
Preferred"), at the ratio of 833 shares for each $100,000 in outstanding debt
and accrued interest. Additionally, in connection with the execution of the
original Credit Agreement on March 15, 1996, ING and Cerberus each received
102,412 warrants (204,824 warrants in total and referred to herein as the
"Lenders' Warrants"), which collectively allow them to purchase up to 204,824
shares of Series A Special Convertible Preferred Stock ("Series A Preferred"),
at an exercise price of $0.20 per share. Each share of Series A Preferred and
Series B Preferred is convertible into 20 shares of Common Stock. The debt under
the Credit Agreement was initially recorded net of an allocation of the fair
value of the Lenders' Warrants, such fair value being determined using the
Black-Scholes valuation model. The Company recorded non-cash interest expense
(accretion of debt) of $621,536 for the three months ended September 30, 1996
and $1,182,544 for the nine months ended September 30, 1996.
On March 15, 1996, Nominal Value Warrants to purchase 2,018,942 shares of Common
Stock were issued in conjunction with the IPP and Paramount acquisitions,
redemption of the 10% Preferred, 8% Preferred and 7% Preferred, and conversion
of certain related party debt of the Company to the 14% Preferred. Certain
holders of the 14% Preferred are deemed related parties. The warrants expire on
March 13, 2001. An independent valuation company estimated the fair market value
of the Nominal Value Warrants to be $4,974,673, using the Black-Scholes
valuation model, of which $3,886,139 (the amount attributable to the warrants
provided to related parties in connection with the redemption of the 10%
Preferred, 8% Preferred, and 7% Preferred shares and conversion of certain debt)
was recorded as an unusual charge in the Company's statement of operations for
the three months ended March 31, 1996.
At September 30, 1996, long-term debt, including the current portion and
obligations under capital leases and including the portion allocated to the
Lenders' Warrants, was $54,749,758 and consisted of: (i) related party debt
(payable to the Lenders and directors of the Company), including the current
portion and including the portion allocated to the Lenders' Warrants, of
$41,517,246, an increase of $39,784,746 as compared to $1,732,500 at December
31, 1995; (ii) capital leases of $8,029,058, an increase of $4,496,121 as
compared to $3,532,937 at December 31, 1995; (iii) notes payable to the selling
POA shareholders in the face amount of $3,634,114 (pursuant to the purchase
agreement, the notes payable are to be reduced for the excess of acquired
current liabilities over acquired current assets, or $311,693, resulting in a
net amount due of $3,322,421); and (iv) other long-term debt, including the
current portion, of $1,569,340, a decrease of $7,027,073 as compared to
$8,596,413 at December 31, 1995. The overall increase is primarily attributable
to debt incurred in connection with the acquisitions of IPP, Paramount, POA and
Amtel.
The Company had a working capital deficit of $11,318,505 at September 30, 1996,
compared to a working capital deficit of $4,843,524 at December 31, 1995, an
increase in the deficit of $6,474,981. Cash flows used in operating activities
increased $574,266 from $72,614 for the nine months ended September 30, 1995 to
$646,880 for the nine months ended September 30, 1996, mostly due to the larger
loss in 1996 offset by the issuance of the Nominal Value Warrants, depreciation
and amortization, and accretion of debt. Cash flows used in investing activities
increased $23,449,895 from $1,328,761 for the nine months ended September 30,
1995 to $24,778,656 for the nine months ended September 30, 1996, mostly due to
26
<PAGE> 27
the acquisitions of IPP, Paramount, POA and Amtel. Cash flows provided by
financing activities increased $23,519,403 from $1,848,765 for the nine months
ended September 30, 1995 to $25,367,808 for the nine months ended September 30,
1996.
The Company is seeking an amendment to the Credit Agreement to permit the
incurrence of additional borrowings of up to $2,000,000 to fund the deposits
required in connection with the Pending Acquisitions and for working capital
purposes. The Company intends to use a portion of the net proceeds from a
contemplated debt and equity offerings to repay the indebtedness under the
Credit Agreement.
Capital Expenditures
For the nine months ended September 30, 1996, the Company had capital
expenditures (exclusive of acquisitions) of $2,984,135, which were financed
through cash flows from operations and borrowings under the Credit Agreement.
Capital expenditures are principally for the expansion of the Company's
installed public pay telephone base and include purchases of telephones, related
equipment, site contracts, operating equipment and computer hardware. The
Company expects to make capital expenditures of approximately $225,000 during
the three months ended December 31, 1996 and approximately $4,100,000 during the
year ended December 31, 1997.
Management believes, but cannot assure, that cash flows from operations and
other financial alternatives, including contemplated debt and equity offerings
which are necessary to complete the Pending Acquisitions and could be used to
repay certain debt, will be sufficient to meet the Company's cash requirements
for working capital, capital expenditures and debt service over the next twelve
months.
PART II.OTHER INFORMATION
ITEM 2.CHANGES IN SECURITIES
Working capital restrictions and other limitations upon the payment of dividends
The Credit Agreement contains various covenants restricting the Company's
ability to pay dividends or incur additional debt, among other conditions, and
also contains financial covenants requiring the Company to maintain certain
financial ratios, including, among other things, minimum net worth, working
capital and earnings before interest, depreciation and amortization. The Company
was not in compliance with various financial covenants contained in the Credit
Agreement at June 30, 1996 and subsequently received a waiver of such
non-compliance from the Lenders. The Credit Agreement was amended on October 8,
1996 to make the covenants less restrictive. At September 30, 1996 the Company
was in compliance with the Loan Agreement covenants.
Recent sales of unregistered securities
On September 13, 1996, the Company issued 2,162,163 shares of Common Stock
valued at $4,637,840 to Amtel, as debtor-in-possession pursuant to a Chapter 11
bankruptcy proceeding, as partial consideration for the Amtel acquisition. Said
shares were issued pursuant to the exemption provided under Section 1145(a)(1)
of the Bankruptcy Code. On September 16, 1996, the Company issued 166,666 shares
of
27
<PAGE> 28
Common Stock valued at $311,665 to the former shareholders of POA, as partial
consideration for the POA acquisition. Said shares were issued pursuant to the
exemption from registration provided under Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 10-QSB
(A) EXHIBITS:
(10.1) Employment Agreement dated September 1, 1996, between PhoneTel
Technologies, Inc. and Richard Kebert.
(10.2) Separation Agreement dated July 29, 1996, between PhoneTel
Technologies, Inc. and Daniel J. Moos.
(10.3) First Amendment to Credit Agreement dated April 11, 1996, among
PhoneTel Technologies, Inc. and Internationale Nederlanden (U.S.)
Capital Corporation and Cerberus Partners, L.P.
(10.4) Sixth Amendment to Credit Agreement dated October 8, 1996,
among PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
(27) Financial Data Schedule
(B) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed by the Company
during the third quarter of 1996.
FORM 8-K/A-3 AMENDING FORM 8-K/A-1 AND FORM 8-K DATED MARCH 15,
1996:
(b) Pro Forma Financial Information:
1. Introduction to Unaudited Pro Forma Combined Condensed Financial
Information
2. International Payphones, Inc. (a South Carolina corporation),
International Payphones, Inc. (a Tennessee corporation),
Paramount Communications Systems, Inc. and PhoneTel Technologies,
Inc. - Unaudited Pro Forma Combined Condensed Balance Sheet at
December 31, 1995.
3. World Communications, Inc. and Public Telephone Corporation, as
adjusted, International Payphones, Inc. (a South Carolina
corporation), International Payphones, Inc. (a Tennessee
corporation), Paramount Communications Systems, Inc. and PhoneTel
Technologies, Inc. - Unaudited Pro Forma Combined Condensed
Statement of Operations for the Year Ended
28
<PAGE> 29
December 31, 1995.
4. International Payphones, Inc. (a South Carolina corporation),
International Payphones, Inc. (a Tennessee corporation),
Paramount Communications Systems, Inc. and PhoneTel Technologies,
Inc. - Unaudited Pro Forma Combined Condensed Financial
Information - Footnotes to Financial Information.
FORM 8-K DATED SEPTEMBER 13, 1996:
(a) Financial statements of businesses acquired:
1. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession)
Financial Statements for the Six Months
ended June 30, 1996 and for the Year Ended December 31, 1995
2. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession)
Combined Statement of Revenues and Direct Operating Expenses
for the Three Months Ended December 31, 1994
3. Payphones of America, Inc. and Subsidiary
Financial Statements for the Years Ended December 31, 1995
and 1994
4. Payphones of America, Inc. and Subsidiary
Unaudited Financial Statements:
Consolidated Balance Sheet as of June 30, 1995 and 1996
Consolidated Income Statement for the Six Months Ended June
30, 1995 and 1996
Consolidated Cash Flow Statement for the Six Months Ended
June 30, 1995 and 1996
(b) Pro Forma financial information:
1. Introduction to Unaudited Pro Forma Combined Condensed Financial
Information
2. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession), Payphones of America, Inc. and
Subsidiary, and PhoneTel Technologies, Inc. - Unaudited Pro Forma
Combined Condensed Balance Sheet at June 30, 1996
3. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession), Payphones of America, Inc. and
Subsidiary, International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina company),
Paramount Communications Systems, Inc., and PhoneTel
Technologies, Inc. - Unaudited Pro Forma Combined Condensed
Statement of Operations for the Six Months Ended June 30, 1996
4. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession), Payphones of America, Inc. and
Subsidiary, International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina company),
Paramount Communications Systems, Inc., World Communications,
Inc., Public Telephone Corporation, and PhoneTel
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<PAGE> 30
Technologies, Inc. - Unaudited Pro Forma Combined Condensed
Statement of Operations for the Year Ended December 31, 1995
5. Amtel Communications, Inc. and Combined Companies
(Debtor-in-Possession), Payphones of America, Inc. and
Subsidiary, International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina company),
Paramount Communications Systems, Inc., World Communications,
Inc., Public Telephone Corporation, and PhoneTel Technologies,
Inc. - Unaudited Pro Forma Combined Condensed Financial
Information Footnotes to Financial Information
(c) Other exhibits
1. Asset Purchase Agreement among PhoneTel Technologies, Inc., an
Ohio corporation, as Buyer, and ACI-HDT Supply Company, a
California corporation, Amtel Communications Services, a
California corporation, Amtel Communications Correctional
Facilities, a California corporation, Amtel Communication, Inc.,
a California corporation, Amtel Communications, Inc., a
California corporation, Amtel Communications Payphones, Inc., a
California corporation, as Seller, dated June 26, 1996, and all
amendments thereto
2. Amended and Restated Share Purchase Agreement among PhoneTel III,
Inc., Payphones of America, Inc. and All of the Shareholders of
Payphones of America, Inc., dated August 1, 1996, and all
amendments thereto
3. Second Amendment to Credit Agreement dated June __, 1996, among
PhoneTel Technologies, Inc. and Internationale Nederlanden (U.S.)
Capital Corporation and Cerberus Partners, L.P.
4. Third Amendment to Credit Agreement dated August 1, 1996, among
PhoneTel Technologies, Inc. and Internationale Nederlanden (U.S.)
Capital Corporation and Cerberus Partners, L.P.
5. Fourth Amendment to Credit Agreement dated September 13, 1996,
among PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
6. Fifth Amendment to Credit Agreement dated September 13, 1996,
among PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
30
<PAGE> 31
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PHONETEL TECHNOLOGIES, INC.
November 14, 1996 By: /s/ Peter G. Graf
-----------------------
Peter G. Graf
Chairman of the Board and
Chief Executive Officer
November 14, 1996 By: /s/ Richard Kebert
-----------------------
Richard Kebert
Chief Financial Officer and
Treasurer
(Principal Financial Officer and
Accounting Officer)
31
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement") is made and entered into as of this
1ST day of September, 1996, by and among PhoneTel Technologies, Inc.(the
"Corporation") and Richard Kebert (the "Executive").
WHEREAS, the Corporation desires to have the Executive provide services
to the Corporation as Chief Financial Officer, having determined that the
services of the Executive are of value to the Corporation, and the Executive
desires to be employed by the Corporation as Chief Financial Officer.
NOW THEREFORE, in consideration of the Executive's performance of the
duties set forth herein, and upon the other terms and conditions hereinafter
provided, the parties agree as follows:
1. Employment and Services.
------------------------
During the term of this Agreement, the Executive shall be employed as
Chief Financial Officer of the Corporation. As Chief Financial Officer, the
Executive shall render administrative and management services to the Corporation
such as are customarily performed by persons situated in similar executive
positions, and such other duties as the Chief Executive Officer ("CEO") and/or
Chief Administrative Officer ("CAO") of the Corporation may from time to time
direct. As an employee of the Corporation, the Executive shall report directly
to the CEO and/or CAO of the Corporation.
2. Term of Agreement
-----------------
The term of this Agreement shall continue for eighteen (18) months
beginning September 3, 1996 and ending on March 3, 1998. The Agreement shall
automatically be extended for an additional one-year period, unless the
Executive is notified that it shall not be extended one hundred twenty (120)
days prior to the expiration of the term or extended term of this Agreement.
3. Obligations of the Executive
----------------------------
The Executive agrees to devote his best efforts and his entire business
time to the business and affairs of the Corporation, and to discharge his
responsibilities hereunder. The Executive may serve on corporate, civic or
charitable boards or committees and may manage personal investments, so long as
such activities do not interfere in any material respect with the performance of
his responsibilities hereunder.
<PAGE> 2
4. Compensation.
-------------
a. SALARY. During the term of this Agreement, the Corporation
shall pay the Executive a salary of $120,000 per annum, which shall be paid at
regular intervals in accordance with the Corporation's normal payroll practices.
b. INCENTIVE BONUS. During the Term of this Agreement, the
Executive shall receive such annual bonus amount as the CEO of the Corporation
may determine; provided, however, that the annual bonus of Executive shall not
be less than $15,000 for any full calendar year of service hereunder. Such bonus
shall be paid within thirty (30) days after the completion of the annual audit
of the financial statements of the Corporation for such year, as evidenced by
the issuance of the written opinion of the auditors with respect thereto.
c. BENEFIT PLANS. The Executive shall be entitled to
participate in any plan of the Corporation relating to pension, deferred
compensation, profit-sharing, stock purchase, group life insurance, medical
insurance or other retirement or employee benefits that the Corporation may then
have in force for the benefit of its executive employees, and for which he is
otherwise eligible, including but not limited to paid family medical insurance,
paid long-term disability insurance, and paid family dental insurance. In the
event the Corporation institutes a stock option plan for its executives,
Executive shall be eligible to participate in such plan.
d. EXPENSE REIMBURSEMENT. In addition to the compensation
provided to the Executive pursuant to subparagraphs a., b. and c. hereof, and
upon receipt of proper documentation, the Corporation agrees to reimburse the
Executive for reasonable entertainment, travel, lodging and other miscellaneous
expenses incurred on its behalf and related to the performance of his duties
hereunder. The Corporation further agrees during the term of this Agreement to
provide the Executive with an automobile allowance of $400 per month. The
Corporation will provide and pay for Executive's monthly garage parking
expenses.
5. Vacations.
----------
The Executive shall be entitled to an annual paid vacation of three (3)
weeks per year. The timing of vacations shall be scheduled at a time mutually
agreed upon between the Executive and the CEO and/or CAO, but in no event shall
the Executive take more than two (2) weeks of vacation at any one time. The
Executive shall not be entitled to receive any additional compensation for his
unused vacation time.
2
<PAGE> 3
6. Termination of Employment.
--------------------------
a. The Executive's employment under this Agreement may be
terminated by the Corporation for Cause. Any termination of the Executive other
than for "Cause" shall not prejudice his right to receive:
(i) compensation in accordance with Paragraph 4 of
this Agreement for the remaining term thereof, and
(ii) the other benefits provided by this Agreement
for the remaining term thereof.
b. the Executive shall have no right to receive compensation
or other benefits under this Agreement for any period after the date of
termination for Cause. For purposes of this Agreement, termination for "Cause"
shall include termination because of the Executive's personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, or regulation (other than traffic violations or similar offenses),
habitual and excessive use of alcohol or controlled substances other than for
therapeutic reasons, or material breach of any provision of this Agreement.
c. The CEO shall have the authority to make the determinations
with respect to termination for Cause provided for under Subsections 6(a) and
(b) above.
d. This Agreement may be voluntarily terminated by the
Executive at any time upon ninety (90) days' written notice to the Corporation
or upon such shorter period as may be agreed upon between the Executive and the
CEO of the Corporation. In the event of such termination, the Corporation shall
be obligated only to continue to pay the Executive his salary up to the date of
termination and those retirement and/or employee benefits which have been earned
or become payable up to the date of termination.
e. If the Executive's employment terminates by reason of the
Executive's Disability, as defined in Paragraph 7, the Corporation shall pay the
Executive any benefits which pursuant to the terms of any compensation or
benefit plan have been earned and have become payable, but which have not yet
been paid to Executive, together with a pro rata portion of any additional
compensation that the Executive would have been entitled to receive in respect
of the year in which the Executive's date of termination occurs had he continued
in employment until the end of such calendar year; however, there shall be no
incentive bonus payable with respect to the year during which Executive's
employment is terminated.
3
<PAGE> 4
7. Disability.
-----------
Executive shall be deemed to be disabled and the Corporation
may terminate this Agreement if Executive shall, as a result of such Disability,
fail to perform the duties required hereunder for any two (2) months during a
consecutive three (3) month period. The Corporation may terminate the
Executive's employment after having established his Disability which results in
the Executive becoming eligible for long-term disability benefits. For purposes
of this Agreement, "Disability" means a physical or mental infirmity which
prevents the Executive from performing the essential functions of his position
under this Agreement. In the event the Executive's employment is terminated by
reason of Disability, he shall be entitled to the compensation and benefits
provided for under this Agreement for any period prior to the establishment of
the Executive's Disability during which he is unable to work due to a physical
or mental infirmity.
8. Non-Solicitation and Non-Competition.
-------------------------------------
a. The Executive agrees that during the term of this
Agreement, and for any period after the termination of this Agreement during
which he continues to receive compensation under this Agreement, he will not
directly or indirectly:
(i) Solicit, divert or take away any of the
customers, business or patronage of the Corporation or its subsidiaries or
affiliates; or
(ii) Induce or attempt to influence any employee of
the Corporation or its subsidiaries or affiliates to terminate his or her
employment therewith.
b. Executive agrees that during the term hereof and for six
(6) months from the date of the termination of Executive's employment hereunder,
Executive shall not compete with the Corporation, on behalf of himself or any
other person, firm, business or corporation, as follows: he shall not directly
or indirectly (i) engage in the pay telephone business; or (ii) request or
instigate any account or customer of the Corporation to withdraw, diminish,
curtail or cancel any of its business with the Corporation. The scope of this
agreement not to compete shall include any and all customers of the Corporation
and any state served by the Corporation which operates 500 or more pay
telephones at any time during the term hereof.
c. In the event of a breach or threatened breach of the
Executive of the provisions of this Paragraph 8, the Corporation, or any duly
authorized officer thereof, will be entitled to a temporary restraining order or
injunction.
9. Successors; Binding Agreement.
------------------------------
This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by his personal or legal
representatives, successors, heirs,
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distributees, devisees, legatees and permitted assigns. This Agreement and all
rights of the Corporation hereunder shall inure to the benefit of and be
enforceable by its successors and permitted assigns.
10. No Assignments.
---------------
This Agreement is personal to each of the parties hereto and
neither party may assign or delegate any of its rights or obligations hereunder
without first obtaining the written consent of the other party.
11. Notices.
--------
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested with postage prepaid, to the following addresses or to such other
address as either party may designate by like notice.
a. If to the Corporation, to:
PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: Chief Executive Officer and/or
Chief Administrative Officer
b. If to the Executive, to:
Richard Kebert
12115 Lyndway Drive
Valley View, Ohio 44125
and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.
12. Amendments.
-----------
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
13. Paragraph Headings.
-------------------
The Paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
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14. Severability.
-------------
The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
15. Governing Law.
--------------
This Agreement shall, except to the extent that Federal law shall be
deemed to preempt it, be governed by and construed and enforced in accordance
with the laws of Ohio.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
PHONETEL TECHNOLOGIES, INC.
By /s/ Peter G. Graf
---------------------------------------
Peter G. Graf,
Chairman and Chief Executive Officer
EXECUTIVE:
/s/ Richard Kebert
------------------------------------------
Richard Kebert
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Exhibit 10.2
SEPARATION AGREEMENT
This Separation Agreement (the "Agreement") is made and entered into
this 29th day of July, 1996, by and between PHONETEL TECHNOLOGIES, INC., an Ohio
corporation, and any and all of its subsidiaries (the "Company"), and DANIEL J.
MOOS, an individual residing at 7399 Stow Road, Hudson, Ohio 44236 (the
"Executive").
WHEREAS, a certain Employment Agreement dated May 1, 1995, has been
made and entered into between the Company and the Executive; and
WHEREAS, the Executive and the Company have mutually agreed to
terminate said Employment Agreement as of the date of this Agreement; and
WHEREAS, this Agreement is executed in connection with the termination
of said Agreement and is an incident thereto;
NOW THEREFORE, in consideration of the mutual promises contained
herein, the adequacy and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the Company and the Executive agree as
follows:
1.00 DEFINITIONS. The parties agree to defined terms as follows:
1.01 EMPLOYMENT AGREEMENT. As used in this Agreement, the term "Employment
Agreement" refers to the agreement between the Executive and the Company entered
into as of the first day of May, 1995.
1.02 SEPARATION DATE. As used in this Agreement the term "Separation Date" is
AUGUST 2, 1996.
<PAGE> 2
1.03 PERIOD OF ASSOCIATION As used in this Agreement, the term "Period of
Association" or "Executive's Association" refers to the Executive's entire
period of employment under the Employment Agreement or its predecessors and
periods of employment for which no written agreement was in force and continuing
until the execution of this agreement.
1.04 AFFILIATE. As used in this Agreement, the term "Affiliate" refers to any
other business conducted by the Company with respect to which the Company
derived twenty five percent (25%) or more of its revenues during the Executive's
Association.
1.05 CONFIDENTIAL INFORMATION. As used in this Agreement, the term "Confidential
Information" shall mean and include, to the extent applicable, (i) the
procedures, equipment, layout, distribution, methods, or engineering or
technical information used in the Company's operation; (ii) the agreements,
arrangements, plans, financial data, or policies, and marketing, sales, service
cost or other commercial information of the Company's business; (iii) the
descriptions, specifications, numbers, names, characteristics, costs, prices,
performance, suitability, and other information relating to the Products of the
Company; (iv) the names, addresses, contact persons, and purchasing histories,
preferences, prices, or frequency, and credit standing, and other information
relating to the Company's Customers; (v) the names, addresses, and sales
representatives, histories, preferences, prices, or frequency, and credit
standing, and other information relating to the Company's present suppliers;
(vi) the names and addresses of, amounts of compensation paid to, and the
performance of the Company's employees, officers and agents; and (vi) all
inventions and discoveries and all other trade secrets and information
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proprietary to the Company which are used in the Company's business and which
give the Company an opportunity to obtain an advantage over competitors who did
not know them. Notwithstanding the foregoing, the term "Confidential
Information" shall not include any information which is or becomes available to
the public other than as a result of a disclosure by the Executive.
1.06 CUSTOMER. As used in this Agreement, the term "Customer" shall mean any
person or entity that has ordered or purchased a material amount of Product from
the Company at any time during the past one (1) year or any person or entity
which is a party with the Company to a national account management contract. A
"material amount" as used herein includes products associated with not less than
twenty (20) pay telephones.
1.07 PRODUCTS. As used in this Agreement, the term "Products" shall mean pay
telephones.
1.08 OPTION AGREEMENTS. As used in this Agreement, the term "Option Agreement"
refers to the Amended and Restated Stock Option Agreements entered into between
the Company and the Executive as of March 1, 1995, April 1, 1995, and as amended
on September 15, 1995.
2.00 INTERPRETATIVE RULES. Whether or not capitalized, the following shall be
the method of interpreting the language of this Agreement.
2.01 TIME. Unless stated expressly otherwise, as used in this Agreement the time
of performance measured in days or months shall refer to whole calendar days or
months, but time measured in years refers to a period of twelve (12) consecutive
months without regard to the calendar year of which they are a part. Time
measured in months after an occurrence shall be the period calculated beginning
on the first of the month nearest to the occurrence and shall have added to or
subtracted from it the period
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remaining in the month of the occurrence. Rounding, if necessary, shall be back
in even numbered months and forward in odd numbered months of the calendar year.
2.02 HEADINGS. The headings contained for any provision hereof are for purposes
of reference and shall not modify, amend or affect the terms the Agreement.
2.03 AND/OR. As used in this Agreement, the terms "and," "or" and "and/or" and
their negatives are not to be construed to exclude the conjunctive connotation
by the disjunctive nor the disjunctive connotation by the conjunctive.
2.04 INCLUSION. As used in this Agreement, the term "including" or its variants
are not a term of limitation but of illustration.
2.05 PRONOUNS. As used in this Agreement, the male and female pronouns and the
singular and plural pronouns are interchangeable without change of meaning.
2.06 DIRECTLY OR INDIRECTLY. As used in this Agreement, "directly or indirectly"
means on the Executive's own account or as a shareholder, partner, joint
venture, principal, employee or representative or agent of or consultant to any
persons, firm, association, partnership, venture, corporation, family member or
other entity.
3.00 UNDERTAKINGS BY THE COMPANY. As and for part of its consideration, the
Company shall undertake the following:
3.01 SEVERANCE PAYMENTS. Effective upon the occurrence of dates shown below, the
Company shall pay to the Executive, and the Executive shall receive the sum
of $320,000.00 which shall be deemed compensation. This sum will be paid as
follows:
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<PAGE> 5
(i) Upon the execution by the Executive of this Agreement and the
general release of claims against the Company, attached hereto
as EXHIBIT B, the "Executive's General Release" NINETEEN
THOUSAND DOLLARS ($19,000.00).
(ii) Upon the Effective Date of the Executive's General Release (as
such date is defined in paragraph 2(b) of the Executive's
General Release), ONE THOUSAND DOLLARS ($1,000.00).
(iii) Upon the earlier of December 31, 1996, or the closing of a
sale of the Company to another company in the pay telephone
industry, or the completion of a recapitalization, in one
transaction or a series of transactions, or other financing
transaction in which additional equity or debt financing is
infused into the Company in a gross amount equal to or
exceeding cumulatively Ten Million Dollars ($10,000,000.00),
the sum of THREE HUNDRED THOUSAND DOLLARS ($300,000.00).
(iv) Upon the execution by the Executive of this Agreement, the
Company shall deliver to the Executive a Cognovit Promissory
Note, substantially in the form attached hereto as EXHIBIT E
(the "Note"), evidencing the Company's obligation to pay to
the Executive the amount of THREE HUNDRED THOUSAND DOLLARS
($300,000.00) as provided for in Section 3.01 (iii) above.
(v) The Company agrees to continue paying to the Executive,
regular salary which was in effect at the time of resignation
($105,000.00 annual), paid no less than every other week,
through and including August 2, 1996, normal payroll, covering
compensation through and including July 26, 1996.
(vi) The Company further agrees to provide written notice to any
such entity acquiring the Company or participating in the
recapitalization of the Company, no later than ten (10) days
prior to the closing of such sale or recapitalization and with
a copy to the Executive, setting forth the Company's
irrevocable instruction and agreement that the entire
principal amount of the Note and all interest accrued thereon
be paid to the Executive as of the closing of such acquisition
or recapitalization.
(vii) The Company further agrees that Executive may, at his
election, extend the due date of the Cognovit Promissory Note.
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(viii) Taxable reporting obligations, if any, will be the sole
responsibility of the Executive.
3.02 Upon execution of this Agreement and the execution of the General Release
of Claims by Executive, the Company will pay the sum of $5,000 to Gold,
Rotatori & Schwartz Co., L.P.A., 1500 Leader Building, Cleveland, Ohio
44114, attorneys for Executive as full and complete settlement of any and
all claims against the Company by Executive for attorney fees and
litigation expenses arising on or before the date of the Execution of the
Separation Agreement by Executive.
3.03 MEDICAL INSURANCE BENEFITS. The Company shall continue to provide the
Executive with hospitalization/health care, and dental insurance benefits,
family coverage, for a one (1) month period commencing on the August 1, 1996 and
continuing for a period ending AUGUST 31, 1996. It is the intention of the
Company that, absent a legal requirement upon it, the extension of these
insurance benefits shall not reduce the period in which the Executive may
purchase continuation coverage under COBRA Title X.
3.04 EMPLOYMENT AND OTHER EXPENSES. The Company agrees to reimburse the
Executive for any and all reasonable expenses incurred by the Executive through
the last day of regular employment. Thereafter, except as otherwise provided for
herein, or unless otherwise agreed in writing hereafter, no expense shall be
reimbursable to the Executive under the terms of this Agreement absent prior
written approval by the Company.
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<PAGE> 7
3.05 AUTOMOBILE. The Executive agrees to maintain the present lease arrangement
and automobile insurance for his Company Automobile under the lease between the
lessor and the Company, and the Company agrees, that commencing after August 1,
1996, it shall pay to such lessor the succeeding monthly lease payments until
the Company has remitted to the Executive in full the payment covered by the
Cognovit Promissory Note Exhibit "E". Within five (5) days after the end of that
period, the Executive shall return the vehicle to the Corporation. For purposes
hereof the Company Automobile is the BMW 325 used by the Executive prior to the
Separation Date.
3.06 STOCK OPTIONS. The Company hereby confirms its grant to the Executive
Options to purchase pre-reverse split three hundred thirty thousand (330,000)
Options under the Option Agreements as further amended herein. The Company
further confirms that this prior grant to the Executive of three hundred thirty
thousand (330,000) Options are fully vested as of the date hereof. The parties
agree that, notwithstanding anything to the contrary in this Agreement or the
Option Agreements, the Executive's original base exercise price for the Options
is One Dollar ($1.00) pre-split. The Option Agreements shall be amended in
accord with the following and to the effect of this provision:
3.061 The title of the Option Agreements wherever it appears shall be the:
"Amended and Restated Stock Option Agreement, as amended July 29, 1996."
3.062. As to the recitals:
A. The following recital shall be inserted in each Agreement after the
third recital:
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<PAGE> 8
WHEREAS, the Company and Optionee have entered into a Separation
Agreement fully terminating and replacing said Employment Agreement as of
midnight preceding July 29, 1996."
B. The term "Employment Agreement" shall have substituted for it the term
"Separation Agreement" wherever such term appears in the Option Agreements.
3.063 The last sentence of Section 1 of the Option Agreements, GRANT OF OPTIONS:
VESTING SCHEDULE, shall be amended to also read:
The Options shall vest as follows: one hundred thirty thousand pre-split
(130,000) on May 1, 1996 and two hundred thousand pre-split (200,000) on
July 29, 1996 as otherwise specified in the Separation Agreement, the
provisions of which are hereby incorporated herein by this reference.
3.064 Section 2 of the Option Agreements, TIMING OF EXERCISE, shall be deleted
and rewritten as follows;
The Optionee may exercise those Options which have vested (the "Vested
Options") at any time, in whole or in part, on or after the Separation
Date (as defined in the Separation Agreement) but before August 2, 2000.
3.065 Section 5 of the Option Agreements, EXPIRATION OF UNEXERCISED OPTIONS,
shall be amended to read as follows:
Notwithstanding any provision of this Option Agreement or the Separation
Agreement to the contrary, all vested Options expire as of midnight
preceding August 2, 2000 if not exercised, or forfeited earlier.
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<PAGE> 9
3.066 Section 13 of the Option Agreements, NOTICES, shall be amended to
substitute the name and title "Tammy Martin, Esq. General Counsel" for the name
and title of "Jerry H. Burger, Chief Executive Officer."
3.07 PERSONAL PROPERTY. The Company shall permit the Executive to remove, from
the premises, all his personal effects, and any personal files maintained by the
Executive. Unless otherwise agreed in writing hereafter, such removal of effects
shall be by close of business August 15, 1996.
4.00 UNDERTAKINGS BY THE EXECUTIVE
As and for part of its consideration the Executive shall undertake the
following, including the making of acknowledgments to the Company shown below
on which it may rely:
4.01 RESIGNATION. The Executive acknowledges he has resigned as officer,
employee, and director of any and all subsidiaries of the Corporation effective
AUGUST 2, 1996, in writing with evidence thereof attached as EXHIBIT A. Unless
additional time is granted in writing by the Company, and subject to the
Executive's right to remove personal property pursuant to Section 3.06 above,
the Executive shall vacate the premises of the Company by no later than 48 hours
after signature hereto subject to the Company's right of supervision, control
and access to the premises outside of business hours which will not be exercised
unreasonably. By this Agreement the Executive acknowledges he has voluntarily
resigned from his employment with the Company by mutual agreement.
4.02 SALARY. Except as otherwise expressly provided for herein, the Executive
agrees as of August 2, 1996 to cease from taking or requesting any further
compensation from the Company including, but not limited to, any claim for back
wages, vacation pay, personal or sick days, deferred compensation,
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<PAGE> 10
the Executive Incentive Plan payments or bonuses, unless otherwise agreed in
writing hereafter, in the ordinary course.
4.03 OTHER BENEFITS AND INSURANCE. The Executive acknowledges receipt of notice
hereby that he may have rights to convert the Company's disability and life
insurance policies to individual policies under their terms and at his sole
expense, providing the policies allow for said conversion. The Executive
acknowledges his participation in employee benefit plans and arrangements is
terminated as of midnight before August 2, 1996 and that he shall have the
rights and privileges as any other terminated participant.
4.04 RETURN OF PROPERTY. Upon execution of this Agreement, the Executive shall
immediately deliver to the Company a MasterCard and American Express Card and
all keys and security passes, all papers in his possession wheresoever they may
be located including documents or records of information not otherwise in the
Company's possession such as those concerning any part of the Company's
activities or concerning any part of the Executive's activities on behalf of the
Company and the Executive's own notes except that the Executive may retain
copies of such tangible things, documents, records or notes.
4.05 PROTECTION OF RIGHTS. The Executive shall assist the Company at its request
in the prosecution or defense of any action or proceeding relating to or arising
from any cause or matter whatsoever including matters pending in a court of law
or any agency or department of local, state or federal government related to the
Executive's Association with the Company, including, without limitation, giving
testimony and depositions, reviewing documents, and consulting with the Company
and its legal or financial counsel at such times and locations as may reasonably
be requested by the Company.
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4.06 CONFIDENTIALITY AND NONCOMPETE AGREEMENT.
4.061 The Executive, in exchange for the undertakings of this Agreement, agrees
that, within the geographical area of any county in any state wherein the
Company, as of the Separation Date, owns and operates pay telephones (the
"Territory") and until midnight on July 29, 1997:
A. The Executive will neither, directly or indirectly, solicit or
contact any Customers in the Territory presently served by the Company
for the purposes of engaging with such Customer in any business or
activity which is in competition with any Product of the Company nor
shall the Executive, directly or indirectly, become engaged in any
business or activity in the Territory which is in competition with any
Product of the Company nor shall the Executive otherwise divert or
attempt to divert any material portion of the existing business of the
Company or any Affiliate in the Territory except that the Executive shall
be permitted to engage in, among other noncompetitive activities, the
remarketing of long-distance, 1-Plus calling and/or cellular service to
any companies, entities, or individuals, and may engage in payphone
activities and business in the state of Nevada.
B. The Executive will not, either directly or indirectly, solicit,
induce, recruit or cause any person in the employ of the Company to
terminate his/her employment for the purpose of joining, associating or
becoming employed with any business or activity which is in competition
with any Product of the Company or any Affiliate; and
C. The Executive will not, either directly or indirectly, except
as required in the conduct of the Company's business, in the conduct of
complying with the terms of this Agreement, or otherwise as authorized in
writing by the Company, use, publish, disclose, appropriate or
communicate any Confidential Information which the Executive, in any way,
has acquired or may acquire during, or by reason of, the Executive's
Association with the Company for the purpose of engaging in any business
or activity within the Territory which is in competition with any Product
of the Company.
4.062 The Executive recognizes and acknowledges that the Company's Confidential
Information is unique and valuable and that loss of control thereof to any
person other than the Company may cause irreparable harm that is not remediable
by money damages. The Executive understands that all the
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Executive's promises under Section 4.061 above are material to the Company's
performance and that any material breach by the Executive shall constitute
irreparable harm to the Company.
4.063 The Executive understands that, in the event of a violation of the
provisions of Section 4.061 by the Executive, the Company shall have the full
right to seek injunctive relief in addition to any other existing remedies
available under this Agreement or by operation of law, without the requirement
of posting bond.
4.064 Notwithstanding the foregoing, the Company agrees that, in the event that
the Company fails to pay any sum of money due the Executive within seven (7)
days after the Company has received written notice from the Executive
specifically setting forth the Company's non payment, in addition to any other
existing remedies available under this Agreement or by operation of law, Section
4.061 shall cease and shall no longer be of any force or effect.
5.00 UNDERTAKINGS BY THE EXECUTIVE AND THE COMPANY:
As for part of the consideration hereunder, both the Company and the
Executive agree as follows:
5.01 TERMINATION OF AGREEMENTS. With the exception of the Option Agreements,
leased auto benefit, health insurance benefits and this Agreement, effective
upon the execution of this Agreement, the Employment Agreement and any and all
other agreements between the Company and the Executive, whether in writing or
otherwise, shall be fully terminated by this Agreement, such that the Employment
Agreement and such other agreements shall have no further force or effect. This
Agreement shall fully supersede the Employment Agreement and substitutes for the
recitation of all the terms and conditions of the relationship of the Executive
and the Company commencing on the Separation Date. Except as otherwise set forth
in this Agreement or the Option Agreement, the parties warrant that all claims,
rights, duties or privileges that either party could have otherwise demanded of
the other party pursuant to the Employment Agreement or such other agreements
are understood to be fully discharged hereby no further force and effect,
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except as provided in Paragraph 4.064, above.
5.02 PUBLICATION OF AGREEMENT. The parties agree that the exclusive method by
which information regarding the Executive's separation from employment with the
Company and the terms of this Agreement shall only be by a mutually acceptable
release of such information. The Executive's intent is to require
confidentiality of the terms of this Agreement except as may be required by law
for its enforcement or to comply with any government rule, regulation or mandate
including disclosures, if necessary, under the laws and regulations of the
Securities and Exchange Commission.
5.03 RELEASES. The parties shall exchange general releases of claims, damages,
losses and disputes as shown in attached EXHIBIT B by the Executive and EXHIBIT
C by the Company. The release by the Company EXHIBIT C shall be delivered to the
Executive upon the effective date of Paragraph 2(b) of the Executive's release,
EXHIBIT B.
6.00 MISCELLANEOUS PROVISIONS The Executive and Company further agree as
follows:
6.01 INDEMNITIES, OFFSETS. The Company and Executive agree as follows:
6.011 Should the Company become liable in any way to third parties with respect
to claims, demands or losses which such party has or made against the Executive
other than in his capacity as a former director, employee and/or officer of the
Company, any amounts paid in satisfaction shall be offset against the Note and
any Company undertakings still due including unexercised stock options upon
exercise thereof. To the extent that any offset is made pursuant to this Section
6.011, the Company shall provide to the Executive written notice fifteen (15)
days in advance of the amount to be offset with a description thereof.
Notwithstanding the foregoing, it is understood that for the period of
eight (8) years after the Separation Date, the Company shall defend the
Executive from any claims, demands, or losses due to liability of the Executive
as a director and/or officer of the Company to the extent and on the same basis
as the Company may defend and indemnify other directors and officers during that
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period to the full extent permitted under the Company's Articles of
Incorporation or Code of Regulations. The Company will undertake and pursue such
defense in good faith and in full cooperation with the Executive, likewise, and
for the same eight (8) year period, the Company will indemnify that Executive
for any claims, demands, or losses due to the liability of the Executive as a
director/and or officer of the Company, to the extent and on the same basis as
the Company may indemnify other directors and officers to the full extent
permitted under the Company's Articles of Incorporation or Code of Regulations,
except where a final, nonappealable order has been entered by a court of
competent jurisdiction, finding that Executive has engaged in fraud or gross
negligence. In such event, the Company will be entitled to recover from
Executive any reasonable attorney fees and litigation expenses incurred in the
defense of Executive.
6.02 SEVERABILITY. Should one or more of the provisions of this Agreement or its
attachments, in whole or in part, be held to be invalid or unenforceable for any
reason by a court of competent jurisdiction, such invalidity or unenforceability
shall not affect any other part or provision. Should any provision as to a
period of time or a geographic area for performance of any undertaking to be
found to be unreasonable by a court of competent jurisdiction, the Company shall
be entitled to enforce such provision for such time or in such area as may be
determined to be reasonable.
6.03 COUNTERPARTS. This Agreement may be executed in one or more counterparts
each of which shall be enforceable as an original.
6.04 NOTICES. Notices, demands and all communications provided for in this
Agreement shall be in writing and shall be deemed to have duly been given when
personally delivered by the Executive or by messenger service or mailed by U.S.
certified mail, return receipt requested, postage prepaid, addressed as follows:
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To the Executive: Daniel J. Moos
7399 Stow Road
Hudson, OH 44236
To the Company: PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: Tammy Martin, Esq.
A change of address for Notices may be made unilaterally by a party but shall be
made in conformity with this provision.
6.05 AMENDMENT AND WAIVER. This Agreement may be changed, modified or waived
only by a writing signed by the parties hereto affected by such change,
modification or waiver. Failure to enforce any provisions of this Agreement
shall not constitute a waiver. A waiver hereunder or failure to enforce any
provision shall not constitute a continuing waiver.
6.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall
inure to the benefit of only the parties hereto and their respective successors
and assigns. The Executive may not assign his rights under this Agreement to any
other person or entity without the prior written consent of the Company except
that this Agreement and all rights of the Executive hereunder shall be
enforceable by the Executive's personal representative, executor, administrator,
guardian, conservator, heirs, devisee and legatees. Unless otherwise provided,
any amounts due the Executive hereunder at the time of his death shall be paid
under the terms of this Agreement to his estate.
6.07 GOVERNING LAW AND FORUM. This Agreement shall be construed and enforced in
accordance with the laws of the State of Ohio applicable to contracts executed
or performed therein. All actions
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arising from or relating to this Agreement shall be commenced in a federal or
state court of competent jurisdiction located within Cuyahoga County, Ohio, and
the Company and Executive hereby consent to the exercise of jurisdiction by and
venue in any such court.
6.08 COMPLETE AGREEMENT. This Agreement constitutes the entire Agreement among
the parties and supersedes any prior written or oral promise, negotiation or
agreement. There are no oral or written collateral agreements and no oral or
written conditions, precedent or subsequent, other than as set forth in this
Agreement, which in any way modify, limit or affect the enforceability hereof.
IN WITNESS WHEREOF, Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has executed this Agreement, each
as of the date first above written.
EXECUTIVE
/s/ Daniel J. Moos
---------------------------
Daniel J. Moos
PHONETEL TECHNOLOGIES, INC.
By: /s/ Peter G. Graf
------------------------
Officer
Its: Chairman
-----------------------
Officer Title
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EXHIBIT A
EXECUTIVE'S RESIGNATION
To Whom it May Concern:
I hereby voluntarily resign my position as Officer, Employee, and Director of
PhoneTel Technologies, Inc. and any and all subsidiaries of PhoneTel
Technologies Inc., effective as of midnight August 2, 1996.
/s/ Daniel J. Moos
-------------------------
Daniel J. Moos
<PAGE> 18
EXHIBIT B
FULL RELEASE BY THE EXECUTIVE
THIS FULL RELEASE BY THE EXECUTIVE is made and entered into by and between
DANIEL J. MOOS ("Executive") and PHONETEL TECHNOLOGIES, INC. and any and all of
its subsidiaries ("Company") this 29th day of July, 1996.
WITNESSETH THAT:
WHEREAS, the parties desire to make arrangements for the orderly and
complete termination of their existing relationships;
WHEREAS, the Company has agreed to pay certain monies to Executive and
to provide certain undertakings for his benefit in return for Executive
releasing any claims he may have against the Company; and
WHEREAS, the parties desire to set forth that arrangement in writing.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the adequacy and sufficiency of which is hereby acknowledged,
the parties agree as to the term of the Full Release as follows:
1. Executive for the sole consideration given by PHONETEL TECHNOLOGIES,
INC. and identified below at Paragraph 2 does hereby, with the intention of
binding Executive and his heirs, executors, administrators, and assigns, (A)
expressly release and discharge the said PHONETEL TECHNOLOGIES, INC., and any
and all subsidiaries and successors or assigns, and its agents, officers,
directors, employees, shareholders, representatives and attorneys and any
subsidiary and/or related businesses (collectively herein referred to as
"PHONETEL"), as stated in paragraph 3, and (B) waives any right or interest in
reinstatement to employment by PHONETEL except as otherwise provided in
Paragraph 4.064 of the Separation Agreement between PHONETEL and Executive.
2. For consideration of the foregoing promises, actions and
forebearances by Executive, and for the Executive's waivers mentioned below,
PHONETEL shall:
(a) pay Executive the sum overall of $19,000.00 (NINETEEN
THOUSAND DOLLARS), upon the date of the execution hereof, and
1
<PAGE> 19
(b) provide as consideration for Executive signing this
Agreement and Release, a Special Severance Consideration in
the form of $1,000.00 (ONE THOUSAND DOLLAR).
Such Special Severance Consideration shall be due and payable
as of the effective date of this Paragraph 2(b). The Executive
understands that this Special Severance Consideration is of
benefit and value which the Executive would NOT be otherwise
entitled to receive from the Company upon the termination of
his employment. This Paragraph 2(b) constitutes a full and
complete release between the parties for all employment claims
which Executive may have against the Company including those
arising under the AGE DISCRIMINATION IN EMPLOYMENT ACT as of
the date that the Executive signs this Full Release since as
stated, the Full Release is all inclusive. The Executive has
been advised that he should consult with an attorney to review
this document before signing it. The Executive has until
August 19, 1996 (at least 21 days after the date this
Agreement was first given to the Executive) to sign this
Release and receive the above-mentioned Special Severance
Consideration and has seven (7) days after signing this
Agreement to revoke it. The seventh day after signature by the
Executive is the effective date for this Paragraph 2(b).
EXECUTIVE HEREBY ACKNOWLEDGES THAT HE HAS READ AND
UNDERSTANDS THE TERMS OF THIS PARAGRAPH 2(b) AND ELECTS TO
ACCEPT THE SPECIAL SEVERANCE CONSIDERATION STATED HEREUNDER AS
A FULL AND COMPLETE SETTLEMENT FOR ANY CLAIMS THAT HE MAY HAVE
AGAINST THE COMPANY INCLUDING THOSE ARISING UNDER THE AGE
DISCRIMINATION IN EMPLOYMENT ACT. HE FURTHER ACKNOWLEDGES THAT
HE HAS UP TO SEVEN (7) DAYS AFTER THE EXECUTION OF THIS FULL
RELEASE TO REVOKE THIS PORTION OF THE RELEASE AND THAT THE
SPECIAL SEVERANCE CONSIDERATION WILL NOT BE PROVIDED TO HIM
UNTIL THIS PARAGRAPH 2(b) BECOMES EFFECTIVE AFTER THAT SEVEN
(7) DAY PERIOD HAS PASSED.
(c) Enter into the Separation Agreement dated July 29, 1996.
3. This Full Release is both individually and jointly effective as to
PHONETEL from all claims, expenses and/or damages under any Federal, State, or
local laws, statutes, legislation and/or constitution for all claims or demands
whatsoever in law or equity that Executive may have for both economic and
non-economic damages including compensatory, punitive, incidental, and
consequential damages of every type including without limitations those in the
nature of pain, suffering, embarrassment, humiliation, emotional distress,
damage to personal and professional reputation, loss, expense, back pay, front
pay, deferred compensation, lost fringe benefits and special damages such as
medical expense incurred by Executive in any event arising by any occurrence
prior to the date of the Executive's signature hereto. Without limiting the
generality of the foregoing, this Full Release pertains to (i) any actions
sounding in tort, contract, defamation or privacy of any kind, and/or (ii) any
cause of action arising under Federal, State or local laws prohibiting any forms
of discrimination, and/or (iii) any claims growing out of an employer's
obligation, if any, to provide or offer any form of compensation, expenditure
reimbursements or fringe benefits including claims under the Employment
Agreement of
2
<PAGE> 20
May 1, 1995 its predecessors or any written agreement, plan, policy or employee
benefit plan or any unwritten agreement of employment, and/or (iv) any claims of
interference with contract or business relation or advantage, and (v) all of the
charges, claims, demands and causes of action asserted or which could have been
asserted and/or appealed by Executive in each event which arose by any
occurrence prior to the date of the Executive's signature hereto. Except as
provided in Paragraph 4.064 of the Separation Agreement between Executive and
PHONETEL, the Executive waives all of these rights with the further exception of
(i) rights for compensation or medical benefits under the Worker Compensation
Act of Ohio and (ii) claims under any employee retirement plan as defined under
the Employee Retirement Income Security Act that have not arisen as of this
date."
4. The Executive hereby instructs PHONETEL to make no income tax or
FICA tax withholdings.
5. It is understood that the above agreements by PHONETEL and Executive
are not to be construed as an admission by PHONETEL that it was liable or
responsible for personal injury, property loss, defamation, discrimination,
breach of contract, unfair employment practice, or interference with business
relation, or of any of the allegations noted above or any right or obligation
PHONETEL may have as an employer but that PHONETEL enters this Full Release to
buy its peace and fix its costs.
6. The Executive promises that he will exercise reasonable efforts to
maintain this Full Release in confidence so that neither any copy nor the
contents of this Full Release shall be disclosed by him to any person or entity
other than his attorneys and tax accountants and except that it may be disclosed
as required by law for its enforcement or to comply with any government rule,
regulation or mandate including disclosures, if necessary, pursuant to the laws
and regulations of the Securities and Exchange Commission. Executive understands
this promise is material to PHONETEL's performance and that any breach by
Executive shall constitute irreparable harm to PHONETEL such that PHONETEL may
seek immediate injunctive relief against the Executive in addition to any
remedies it may have at law.
7. This is the full agreement between PHONETEL and the Executive
relating to the subject matter hereof and the terms are contractual and not
recital and are controlled by the laws of the State of Ohio. Any provision
hereof found to be invalid or unenforceable by a court of competent jurisdiction
shall not affect the validity or enforceability of the remainder.
8. The Executive further states that he has read and fully understands
the foregoing Full Release and knows the contents hereof and states that he did
sign the same as his own free act and deed.
9. The effective date is the date of signature hereto except that the
effective date of Paragraph 2(b) is the seventh day thereafter.
3
<PAGE> 21
IN WITNESS WHEREOF, I have hereunto set my hand before two witnesses on
the date shown below.
/s/ T.L. Martin
- -------------------------------
WITNESS
/s/ Nickey Maxey
- -------------------------------
WITNESS
ACKNOWLEDGED AND AGREED:
PHONETEL TECHNOLOGIES, INC.
By: /s/ Peter G. Graf
-------------------------------
Officer
Its: Chairman
------------------------------
Officer Title
/s/ Daniel J. Moos
----------------------------------
Daniel J. Moos
Dated: July 29, 1996
4
<PAGE> 22
EXHIBIT C
FULL RELEASE BY THE COMPANY
THIS FULL RELEASE BY THE COMPANY is made and entered into by and between DANIEL
J. MOOS ("Executive") and PHONETEL TECHNOLOGIES, INC. and any and all of its
subsidiaries ("Company") this 29th day of July, 1996.
WITNESSETH THAT:
WHEREAS, the parties desire to make arrangements for the orderly and
complete termination of their existing employment relationship, and
WHEREAS, the Executive has agreed to provide certain undertakings for
the benefit of the Company in return for Company releasing any claims it may
have against the Executive,
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, the adequacy and sufficiency of which is hereby acknowledged,
the parties agree as to the term of the Full Release as follows:
1. The Company with the intention of binding itself and its successors
or assigns, and its agents, officers, employees, shareholders, representatives
and attorneys and any subsidiary and/or related businesses (collectively herein
referred to as "PHONETEL") for the sole consideration given by the Executive and
identified below at Paragraph 2 do hereby, (A) expressly release and discharge
the said Executive and his heirs, executors, administrators, and assigns , as
stated in paragraph 3, and (B) waive any right or interest in continued
employment of the Executive.
2. For consideration of the foregoing promises, actions and
forebearances by Company, and for the Company's waivers mentioned below, the
Executive has or shall, on or before signature hereto unless otherwise stated:
(a) Resign his position of director of any and all
subsidiaries, officer and employee of the Company;
(b) Agree to the termination of his Employment Agreement of
August 2, 1996 upon terms acceptable to the Company;
(c) Enter into and deliver to the Company a Full Release of
claims;
(d) Enter into the Separation Agreement dated July 29, 1996.
1
<PAGE> 23
3. This Full Release is effective as to the Executive from all claims,
expenses and/or damages under any Federal, State, or local laws, statutes,
legislation and/or constitution for all claims or demands whatsoever in law or
equity Company may have for both economic and non-economic compensatory damages
including without limitation any lost past or future profits, special damages or
expense, or damage in the nature of damage to reputation incurred or suffered by
Company. Without limiting the generality of the foregoing, this release pertains
to (i) any actions sounding in tort, contract, defamation or fraud of any kind,
and/or (ii) any claims under the Employment Agreement of May 1, 1995 its
predecessors or any written agreement, plan, policy or employee benefit plan or
any unwritten agreement of employment, and/or (iii) any claims of breach of
fiduciary duty, malpractice, and misfeasance, nonfeasance or malfeasance in
office, and/or (iv) any claims growing out of any obligation, if any, of a
director, officer or employee and/or (v) any claims of interference with
contract or business relation or advantage, and/or (vi) all of the charges,
claims, demands and causes of action asserted or which could have been asserted
and/or appealed by the Company which arose by any occurrence prior to the date
of the Company's signature hereto.
4. It is understood that the above agreements by the Executive and the
Company are not to be construed as an admission by the Executive that he was
liable or responsible for any of the allegations noted above but that the
Executive enters this Full Release to buy his peace and fix his costs.
5. The Company promises that it will maintain this Full Release in
confidence so that neither any copy nor the contents of this agreement shall not
be disclosed by him to any third person or entity other than its attorneys and
accountants and as may be mutually agreed with the Executive except that it may
be disclosed as required by law for its enforcement or to comply with any
government rule, regulation or mandate including disclosures, if necessary, the
laws and regulations of the Securities and Exchange Commission. The Company
understands this promise is material to the Executive's performance and that any
breach by the Company shall constitute irreparable harm to the Executive such
that the Executive may seek immediate injunctive relief against the Company in
addition to any remedies it may have at law.
6. This is the full agreement between the Company and the Executive and
the terms are contractual and not recital and are controlled by the laws of the
State of Ohio. Any provision hereof found to be invalid or unenforceable by a
court of competent jurisdiction shall not affect the validity or enforceability
of the remainder.
7. The effective date is the date of signature hereto.
2
<PAGE> 24
IN WITNESS WHEREOF, Company has caused this Agreement to be executed by
its duly authorized officer, each as of the date first above written.
PHONETEL TECHNOLOGIES, INC.
By: /s/ Peter G. Graf
-------------------------------
Officer
Its: Chairman
------------------------------
Officer Title
ACKNOWLEDGED AND AGREED: /s/ Daniel J. Moos, Executive
------------------
3
<PAGE> 25
EXHIBIT D
COGNOVIT PROMISSORY NOTE
$300,000.00 CLEVELAND, OHIO
JULY 29, 1996
FOR VALUE RECEIVED, PHONETEL TECHNOLOGIES, INC., an Ohio corporation
with principal offices located in Cleveland, Ohio ("Maker"), promises to pay to
the order of DANIEL J. MOOS, whose address is 7399 Stow Road, Hudson, Ohio 44236
("payee"), the principal sum of Three Hundred Thousand Dollars ($300,000.00)
together with interest on the outstanding principal balance from October 30,
1996 at the rate of eleven percent (11%) per annum.
Except as set forth below, or as extended by the parties in writing,
principal and accrued interest hereon shall be paid in one lump-sum installment
on December 31, 1996. If any payment hereon is to be made on a day which is not
a business day of the Maker, the payment otherwise due on such day shall be
payable on the next succeeding business day.
Notwithstanding the foregoing, if a Sale or Recapitalization (as
defined below) of the Maker occurs while any amounts owed hereunder are
outstanding, the outstanding indebtedness (including all accrued interest)
represented by this Note will become immediately due and payable as of the
closing of such Sale or Recapitalization. As used herein, a "Sale or
Recapitalization" of the Maker shall be considered to occur upon consummation of
any of the following:
(i) the sale of shares by the Maker to another company in the
pay telephone industry (a "Qualified Purchaser") or an issuance of additional
shares by the Maker to a Qualified Purchaser or a redemption of shares by the
Maker or other transaction, any of which would result in the acquisition,
directly or indirectly, by any Qualified Purchaser of shares of the Maker that,
when added to all other shares of the Maker in respect of which such Qualified
Purchaser may exercise or direct the exercise of voting power of the Maker,
would entitle such Qualified Purchaser, immediately after such acquisition,
directly or indirectly, to exercise or direct the exercise of the voting power
of the Maker in the election of directors of more than fifty percent (50%) of
such voting power;
(ii) a merger, consolidation, reorganization or other
transaction with a Qualified Purchaser which would, directly or indirectly,
produce the result described in (I) above;
1
<PAGE> 26
(iii) a sale, lease, exchange, transfer or other disposition
of all or substantially all of the Maker's assets or the liquidation or
dissolution of the Maker; or
(iv) the Maker, directly or indirectly, becomes party to a
recapitalization, reorganization or other financing transaction (or series of
such transactions) in which additional equity or debt financing is infused into
the Maker in a gross amount equal to or exceeding Ten Million Dollars
($10,000,000.00) cumulatively.
All payments of principal and interest shall be paid to the Payee in
lawful money of the United States, at Payee's address as set forth above, or at
such other place as the Payee shall have designated to the Maker in writing.
This Note is issued pursuant to the terms of that certain Separation
Agreement, dated as of even date herewith, by and between the Payee (as the
Executive) and the Maker (as the Company) (the "Separation Agreement"), the
terms of which are incorporated herein as if fully rewritten.
If any of the following events shall have occurred, Payee may, at this
option, declare the outstanding principal balance of and all accrued but unpaid
interest on this Note to be immediately due and payable without presentment,
demand, protest, or notice of any kind, all of which are hereby expressly
waived:
(1) failure to pay when due any principal or interest owed hereunder,
which failure continues for ten (10) calendar days following receipt of written
notice from Payee to Maker;
(2) any representation or warranty made by Maker in this Note or the
Separation Agreement shall be false or misleading in any material respect on the
date made;
(3) Maker becomes insolvent or bankrupt or admits in writing its
inability to pay its debt as they become due or makes an assignment for the
benefit of creditors, or of a trustee or receiver is appointed for Maker or for
the major part of its property and is not discharged within sixty (60) days
after such institution.
The Maker may, at any time, prepay all or any part of the unpaid
principal sum of an accrued unpaid interest in this Note, without premium or
penalty. Any such prepayment under this Note shall be applied first to accrued
unpaid interest on the principal amount of this Note then being prepaid and then
to principal.
2
<PAGE> 27
Any notice or demand upon the Maker shall be deemed to have been given
or serviced for all purposes hereof when mailed by certified mail, postage
prepaid, and addressed to the Maker at the address of the Maker set forth
hereinabove, or to such other address furnished in writing to the Payee by the
Maker for such purposes. No delay on the part of Payee in exercising any of his
options, powers or rights, or partial or single exercise thereof, shall
constitute a waiver thereof.
This Note has been made and executed in Cleveland, Cuyahoga County,
Ohio, and shall be construed according to the laws of the State of Ohio. If any
provision hereof is in conflict with any statute or rule of law of the State of
Ohio or is otherwise unenforceable for any reason whatsoever, then such
provision shall be deemed separable from and shall not invalidate any other
provision of this Note.
WAIVER OF JURY TRIAL. THE MAKER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF RELATING
TO THIS PROMISSORY NOTE.
The Maker waives presentment and demand for payment, notice of
dishonor, protest and notice of protest of this Note and agrees to pay any and
all costs of collection, when incurred, including, without limitation,
reasonable attorney's fees to the extent permitted under Ohio law.
The Maker hereby authorizes any attorney-at-law to appear in any court
of record in the State of Ohio, or in any other state, territory or federal
district of the United States, at any time or times after any payment hereunder
becomes due (whether by acceleration of maturity or otherwise), and waive the
issuance and service of process, enter appearance and confess judgment against
the undersigned in favor of any holder of this Note for the amount then
appearing due, together with costs of suit and thereupon to release all errors
and waive all rights of appeal and stay of execution. The foregoing warranty of
attorney shall survive any judgment and should any judgment be vacated for any
reason, the Payee may nevertheless utilize the foregoing warrant of attorney in
thereafter obtaining an additional judgment or judgments against the Maker.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT TRIAL.
IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU WITHOUT YOUR
PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT FROM YOU
REGARDLESS OF ANY CLAIMS YOU MAY
3
<PAGE> 28
HAVE AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON
HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
WITNESS: PHONETEL TECHNOLOGIES, INC.
T.L. Martin By: /s/ Peter G. Graf
- -------------------------------- -----------------------------
Its: Chairman CEO
----------------------------
4
<PAGE> 1
Exhibit 10.3
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
April 11, 1996, among PHONETEL TECHNOLOGIES, INC., an Ohio corporation (the
"Borrower"), INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware
corporation ("ING") and CERBERUS PARTNERS, L.P., a Delaware limited partnership
("Cerberus"), constituting all of the Lenders under the Credit Agreement
referenced below, and ING in its capacity as Agent for the Lenders.
W I T N E S S E T H:
--------------------
RECITALS:
A. The Borrower, the Lenders and the Agent have entered into a certain
Credit Agreement, dated as of March 15, 1996 (the "Credit Agreement").
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Credit Agreement.
B. The Borrower has requested an amendment to the Credit Agreement to
revise Section 7.1.11 thereof.
C. The Lenders are agreeable to amending the Credit Agreement on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SECTION 7.1.11. Section 7.1.11 of the Credit
Agreement is hereby amended by deleting said section in its entirety and
inserting the following in lieu thereof:
SECTION 7.1.11. MATERIAL ADVERSE CHANGE. A
Material Adverse Change shall occur at any time;
PROVIDED, HOWEVER, that any Material Adverse Change
occurring prior to April 1, 1997 shall be deemed to
have occurred on April 1, 1997.
<PAGE> 2
SECTION 2. EFFECTIVENESS. This Amendment shall become effective upon
receipt by the Agent of a copy of this Amendment, duly executed by each of the
Borrower, the Lenders and the Agent, and duly acknowledged and consented to by
the Subsidiaries of the Borrower in the form attached to this Amendment.
SECTION 3. CONTINUING EFFECTIVENESS OF CREDIT AGREEMENT. The Credit
Agreement and each of the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, except as expressly amended or
modified by this Amendment.
SECTION 4. COST AND EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses of the Agent and each of the Lenders party to this
Amendment for the negotiation, preparation, execution and delivery of this
Amendment (including reasonable fees and expenses of counsel to the Agent and
such Lenders).
SECTION 5. HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of this Amendment or any provision hereof.
SECTION 6. COUNTERPARTS. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be executed by the Borrower,
the Lenders and the Agent and shall be deemed to be an original and all of which
shall constitute together but one and the same agreement.
SECTION 7. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK.
SECTION 8. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that the Borrower may not assign or
transfer its rights or obligations hereunder or under the Credit Agreement
except in accordance with the terms of the Credit Agreement.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_______________________________
Name:
Title:
[CORPORATE SEAL]
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION, in its
capacity as Agent and Lender
By:_______________________________
James W. Latimer
Managing Director
CERBERUS PARTNERS, L.P.
By: CERBERUS ASSOCIATES, L.P.,
its General Partner
By:___________________________
Stephen Feinberg, General Partner
- 3 -
<PAGE> 4
ACKNOWLEDGEMENT AND CONSENT
The undersigned hereby acknowledge receipt of a copy of the foregoing
Amendment, consent to the terms and provisions set forth therein, and agree that
the Subsidiary Guaranty dated as of March 15, 1996 (the "SUBSIDIARY GUARANTY")
made by each of the undersigned, jointly and severally, in favor of
Internationale Nederlanden (U.S.) Capital Corporation ("ING") and such other
Lenders as are, or may from time to time become, parties to the Credit
Agreement, and ING as Agent for such Lenders, will continue in full force and
effect without diminution or impairment notwithstanding the execution and
delivery of the Amendment. The undersigned further acknowledge and agree that,
upon effectiveness of the Amendment and from and after the date thereof, each
reference to the Credit Agreement in the Subsidiary Guaranty and each other Loan
Document (as such term is defined in the Credit Agreement) to which any of the
undersigned is a party shall mean and be a reference to the Credit Agreement as
amended by this Amendment.
PUBLIC TELEPHONE CORPORATION
By:_______________________________
Name:
Title:
[CORPORATE SEAL]
WORLD COMMUNICATIONS, INC.
By:_______________________________
Name:
Title:
[CORPORATE SEAL]
NORTH FLORIDA TELEPHONE CORPORATION
By:_______________________________
Name:
Title:
[CORPORATE SEAL]
- 4 -
<PAGE> 5
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
By:_______________________________
Name:
Title:
[CORPORATE SEAL]
- 5 -
<PAGE> 1
Exhibit 10.4
SIXTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (the "AMENDMENT"), dated as of
October 8, 1996, among PHONETEL TECHNOLOGIES, INC., an Ohio corporation (the
"BORROWER"), INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware
corporation ("ING") and CERBERUS PARTNERS, L.P., a Delaware limited partnership
("CERBERUS"), constituting all of the Lenders under the Credit Agreement
referenced below, and ING in its capacity as Agent for the Lenders.
W I T N E S S E T H:
--------------------
RECITALS:
A. The Borrower, the Lenders and the Agent have entered into a certain
Credit Agreement, dated as of March 15, 1996 (as amended to the date hereof, the
"CREDIT AGREEMENT"). Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Credit Agreement.
B. The Borrower has requested an amendment to the Credit Agreement to
revise certain financial covenants and other provisions.
C. The Lenders are agreeable to amending the Credit Agreement on the
terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO SECTION 1.1. Section 1.1 of the Credit
Agreement is hereby amended by deleting the definition of "Current Ratio" in its
entirety and inserting in lieu thereof the following:
"'CURRENT RATIO' means, at any date, the ratio at such date of
(A) current assets at such date, to (B) current liabilities at such
date (except that the current portion of indebtedness under the Credit
Agreement shall be excluded in determining current liabilities in
calculating the current ratio), determined on a consolidated basis for
the Borrower and its Subsidiaries (other than the POA Group) in
accordance with GAAP."
<PAGE> 2
SECTION 2. AMENDMENT TO SECTION 1.1. Section 1.1 of the Credit
Agreement is hereby amended by deleting the definition of "EBITDA" in its
entirety and inserting in lieu thereof the following:
"'EBITDA' means, for any period, an amount equal to Net Income
PLUS (to the extent deducted in determining Net Income) interest
expense, the effects of accretion, if any, of the right to put any
warrants for stock and the effect of original issue discount, if any,
which is attributable to indebtedness as the result of the issuance of
warrants in connection therewith, provisions for income taxes,
depreciation, amortization of intangible assets and other non-cash
charges, MINUS (to the extent included in determining Net Income)
non-cash credits and revenues (other than non-cash revenues from the
Intellicall Agreement, dated March, 1996, and similar arrangements), in
each case for the Borrower and its Subsidiaries (other than the POA
Group) on a consolidated basis."
SECTION 3. AMENDMENT TO SECTION 1.1. Section 1.1 of the Credit
Agreement is hereby amended by deleting the definition of "Fixed Charges" in its
entirety and inserting in lieu thereof the following:
"'FIXED CHARGES' means, for any period, the sum of (a)
Interest Expense during such period, PLUS (b) scheduled principal
repayments of Indebtedness (including, without limitation, scheduled
payments of principal in respect of Capitalized Lease Liabilities but
excluding scheduled repayments of the Obligations) during such period,
PLUS (c) Consolidated Capital Expenditures by the Borrower and its
Subsidiaries (other than the POA Group) during such period, PLUS (d)
provisions for income taxes for such period, MINUS (e) decreases in the
Borrower's and its Subsidiaries' (other than the POA Group) working
capital (excluding changes in cash, Cash Equivalent Investments and
current maturities of Indebtedness) during such period, and PLUS (f)
increases in Borrower's and its Subsidiaries' (other than the POA
Group) working capital (excluding changes in cash, Cash Equivalent
Investments and current maturities of Indebtedness) during such
period."
SECTION 4. AMENDMENT TO SECTION 3.3.4(e). Section 3.3.4(e) of the
Credit Agreement is hereby amended by deleting said section in its entirety and
substituting in lieu thereof the following:
"(e) The Revolving B Loan Commitment (and the Revolving B
Commitment Amount) shall be permanently reduced on each Monthly
- 2 -
<PAGE> 3
Payment Date set forth below by the amount set forth opposite such
Monthly Payment Date:
<TABLE>
<CAPTION>
Monthly Payment Date In: Amount
------------------------ ------
<S> <C>
April, 1997 $ 2,972,222
May, 1997 $ 222,222
June, 1997 $ 222,222
July, 1997 $ 222,222
August, 1997 $ 222,222
September, 1997 $ 222,222
October, 1997 $ 222,222
November, 1997 $ 222,222
December, 1997 $ 222,224."
</TABLE>
SECTION 5. AMENDMENT TO SECTION 6.2.4. Section 6.2.4 of the Credit
Agreement is hereby amended by deleting paragraphs (c) and (d) in their entirety
and inserting in lieu thereof the following:
"(c) CURRENT RATIO. The Borrower will not permit the Current
Ratio of the Borrower and its Subsidiaries on the last day of the
Fiscal Quarter ending on September 30, 1996 to be less than 0.3 and on
the last day of each Fiscal Quarter thereafter to be less than 0.6.
(d) TANGIBLE NET WORTH. The Borrower will not permit
its Tangible Net Worth on the last day of any Fiscal Quarter to be
less than the amount set forth opposite such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Quarter Ending: Amount
---------------------- ------
<S> <C>
June 30, 1996 ($9,775,000)
September 30, 1996 (19,250,000)
December 31, 1996 (17,200,000)
March 31, 1997 (15,300,000)
June 30, 1997 (12,700,000)
September 30, 1997 (10,450,000)
December 31, 1997 (7,500,000)
March 31, 1998 (2,750,000)
June 30, 1998 650,000
September 30, 1998 4,454,000
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<S> <C>
December 31, 1998 9,928,000
March 31, 1999 11,936,000
June 30, 1999 16,170,000."
</TABLE>
SECTION 6. AMENDMENT TO SECTION 6.2.4. Section 6.2.4 of the Credit
Agreement is hereby amended by deleting paragraph (i) in its entirety and
inserting in lieu thereof the following:
"(i) LIMITATIONS ON ADDITIONS TO PROPERTY, PLANT AND
EQUIPMENT AND PURCHASE OF INTANGIBLE ASSETS. The Borrower will not
permit the aggregate amount of additions to property, plant and
equipment plus the aggregate amount of additions to intangible
assets for the Borrower and its Subsidiaries during any calendar
month ending after September 30, 1996 and on or prior to December
31, 1997 to exceed $75,000."
SECTION 7. AMENDMENT TO SECTION 7.1.11. Section 7.1.11 of the Credit
Agreement is hereby amended by deleting said section in its entirety and
inserting the following in lieu thereof:
"SECTION 7.1.11. MATERIAL ADVERSE CHANGE. A Material Adverse
Change shall occur at any time; PROVIDED, HOWEVER, that any Material
Adverse Change occurring prior to December 31, 1997 shall be deemed to
occur on December 31, 1997 unless previously cured."
SECTION 8. EFFECTIVENESS. This Amendment shall become effective upon
receipt by the Agent of a copy of this Amendment, duly executed by each of the
Borrower, the Lenders and the Agent, and duly acknowledged and consented to by
the Subsidiaries of the Borrower in the form attached to this Amendment.
SECTION 9. CONTINUING EFFECTIVENESS OF CREDIT AGREEMENT. The Credit
Agreement and each of the other Loan Documents shall remain in full force and
effect in accordance with their respective terms, except as expressly amended or
modified by this Amendment.
SECTION 10. COST AND EXPENSES. The Borrower agrees to pay all
reasonable out-of-pocket expenses of the Agent and each of the Lenders party to
this Amendment for the negotiation, preparation, execution and delivery of this
Amendment (including reasonable fees and expenses of counsel to the Agent and
such Lenders).
- 4 -
<PAGE> 5
SECTION 11. HEADINGS. The various headings of this Amendment are
inserted for convenience only and shall not affect the meaning or interpretation
of this Amendment or any provision hereof.
SECTION 12. COUNTERPARTS. This Amendment may be executed by the parties
hereto in several counterparts, each of which shall be executed by the Borrower,
the Lenders and the Agent and shall be deemed to be an original and all of which
shall constitute together but one and the same agreement.
SECTION 13. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK.
SECTION 14. SUCCESSORS AND ASSIGNS. This Amendment shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that the Borrower may not assign or
transfer its rights or obligations hereunder or under the Credit Agreement
except in accordance with the terms of the Credit Agreement.
- 5 -
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
PHONETEL TECHNOLOGIES, INC.
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman & CEO
[CORPORATE SEAL]
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION, in its
capacity as Agent and Lender
By: /s/ James W. Latimer
-------------------------------
James W. Latimer
Managing Director
CERBERUS PARTNERS, L.P.
By: CERBERUS ASSOCIATES, L.P.,
its General Partner
By: /s/ Stephen Feinberg
-------------------------------
Stephen Feinberg, General Partner
(SIGNATURE PAGE TO THE SIXTH AMENDMENT TO CREDIT AGREEMENT)
<PAGE> 7
ACKNOWLEDGMENT AND CONSENT
The undersigned hereby acknowledge receipt of a copy of the foregoing
Amendment, consent to the terms and provisions set forth therein, and agree that
the Subsidiary Guaranty dated as of March 15, 1996 (the "SUBSIDIARY GUARANTY")
made by each of the undersigned, jointly and severally, in favor of
Internationale Nederlanden (U.S.) Capital Corporation ("ING") and such other
Lenders as are, or may from time to time become, parties to the Credit
Agreement, and ING as Agent for such Lenders, will continue in full force and
effect without diminution or impairment notwithstanding the execution and
delivery of the Amendment. The undersigned further acknowledge and agree that,
upon effectiveness of the Amendment and from and after the date thereof, each
reference to the Credit Agreement in the Subsidiary Guaranty and each other Loan
Document (as such term is defined in the Credit Agreement) to which any of the
undersigned is a party shall mean and be a reference to the Credit Agreement as
amended by this Amendment.
PUBLIC TELEPHONE CORPORATION
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman
[CORPORATE SEAL]
WORLD COMMUNICATIONS, INC.
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman
[CORPORATE SEAL]
(ACKNOWLEDGMENT AND CONSENT TO SIXTH AMENDMENT)
<PAGE> 8
NORTH FLORIDA TELEPHONE CORPORATION
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman
[CORPORATE SEAL]
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman
[CORPORATE SEAL]
PAYPHONES OF AMERICA, INC.
By: /s/ Peter G. Graf
-------------------------------
Name: Peter Graf
Title: Chairman
[CORPORATE SEAL]
(ACKNOWLEDGMENT AND CONSENT TO SIXTH AMENDMENT)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND THE FOOTNOTES
THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 655,734
<SECURITIES> 0
<RECEIVABLES> 2,524,021
<ALLOWANCES> 100,961
<INVENTORY> 0
<CURRENT-ASSETS> 3,326,220
<PP&E> 38,991,303
<DEPRECIATION> (7,309,242)
<TOTAL-ASSETS> 74,940,373
<CURRENT-LIABILITIES> 14,644,725
<BONDS> 0
<COMMON> 76,397
6,539,053
0
<OTHER-SE> 11,568,358
<TOTAL-LIABILITY-AND-EQUITY> 74,940,373
<SALES> 0
<TOTAL-REVENUES> 28,315,426
<CGS> 0
<TOTAL-COSTS> 37,155,841
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,139,663
<INCOME-PRETAX> (12,980,078)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,980,078)
<DISCONTINUED> 0
<EXTRAORDINARY> (267,281)
<CHANGES> 0
<NET-INCOME> (13,247,359)
<EPS-PRIMARY> (3.60)
<EPS-DILUTED> (3.60)
</TABLE>
