<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report
0-16715
----------------------
Commission File Number
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
March 15, 1996
----------------------
Date of Report
(Date of Earliest Event Reported)
PHONETEL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1462198
------------------------ ---------------------------
(State of Incorporation) (I.R.S. Identification No.)
1127 Euclid Avenue
650 Statler Office Tower
Cleveland, Ohio 44115-1601
---------------------------------------------------
Address and zip code of principal executive offices
(216) 241-2555
-----------------------------
Registrant's telephone number
page 1 of 3 pages
<PAGE> 2
PART I
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 15, 1996, PhoneTel Technologies, Inc., the Registrant (or "Company")
completed the following acquisitions:
On November 22, 1995, the Company entered into an agreement and Plan
of Merger to acquire the outstanding common stock of International Pay
Phones, Inc. of South Carolina and International Pay Phones, Inc. of
Tennessee (collectively "IPP"), companies affiliated through common
ownership and management. Under the terms of the Agreements, the
Company acquired 2,101 installed phones for a purchase price of
$3,367,212 in cash, and 555,589 restricted shares of the Company's
Common Stock, par value $0.01, ("Common Stock"), plus 5,453 shares of
the Company's 14% Convertible Cumulative Redeemable Preferred Stock,
(immediately convertible into 54,530 shares of Common Stock), plus
warrants to purchase 117,785 shares of the Company's Common Stock at a
nominal per share exercise price. Additionally, the Company assumed
approximately $1,754,000 in liabilities. The purchase price included
the purchase of two five year non-compete agreements, valued at
$40,000, for two of IPP's former officers.
On November 16, 1995, the Company entered into a Share Purchase
Agreement with Paramount Communications Systems, Inc. ("Paramount").
Under the terms of the Agreement, the Company acquired 2,528 installed
phones for a cash purchase price of $9,618,553, plus 8,333 shares of
14% Convertible Cumulative Redeemable Preferred Stock (immediately
convertible into 83,330 shares of Common Stock), plus warrants to
purchase 179,996 shares of the Company's Common Stock at a nominal per
share exercise price. Additionally the Company assumed approximately
$733,000 in liabilities. The purchase price included a five year
consulting and non-compete agreement, valued at $50,000 for one of
Paramount's former officers.
The assets of IPP and Paramount consisted of 4,626 pay telephones installed on
locations, together with enclosures, inventory of uninstalled pay telephones,
parts, vehicles, computers and contracts pursuant to which the acquired pay
telephones are installed on property owned by others. The acquisitions of IPP
and Paramount will be accounted for using the purchase method and, accordingly,
the purchase price will be allocated to the net assets, based on their
estimated fair values.
ITEM 5. OTHER EVENTS
CHANGES IN STOCKHOLDERS' EQUITY
Subsequent to December 31, 1995, the Company created three new classes of
preferred stock: (i) Series A Special Convertible Preferred Stock, $0.20 par
value, 250,000 authorized shares, immediately convertible into 20 shares of
Common Stock, and non-voting, ("Series A Preferred"); (ii) Series B Special
Convertible Preferred Stock, $0.20 par value, 250,000 authorized shares,
immediately convertible into 20 shares of Common Stock, and non-voting ("Series
B Preferred"); and (iii) 14% Convertible Cumulative Redeemable Preferred Stock,
without par value, $60 Stated Value, non-voting, June 30, 2000, mandatory
redemption date at a redemption price of $60 per share, 200,000 authorized
shares, and immediately convertible into 10 shares of Common Stock ("14%
Preferred").
CHANGES IN LONG-TERM DEBT
In a transaction consummated on March 15, 1996, the Company borrowed additional
funds of $30,530,954 (out of a total credit facility commitment of $37,250,000)
from Internationale Nederlanden (U.S.) Capital Corporation and one other lender
(collectively know as "ING"). The Company has available under the credit
facility $6.7 million to fund future acquisitions and for general working
capital purposes. The Company used the funds to complete the Paramount and IPP
acquisitions, repaid all outstanding long-term debt and capital lease
obligations which had a secured interest in the Company's installed phones,
redeemed certain series of Preferred Stock and paid related transaction fees.
The ING credit facility requires monthly interest payments at prime plus 5%.
Principal payments commence September 1997, with the amount of the principal
payment contingent upon numerous factors, including the borrowing base and cash
flow of the Company. All of the Company's installed phones are pledged as
collateral to the ING credit facility.
The majority of the ING credit facility (currently $29 million) can be converted
into Series B Preferred at the ratio of 833 shares for each $100,000 in
outstanding debt and interest. Additionally, ING received warrants to purchase
204,824 shares of 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 difference between the exercise price of Series A
Preferred and the estimated fair value of the warrants on the date of grant will
be recorded as interest expense over the term of the ING credit facility. The
Company has estimated the annual non-cash interest expense to be $3,000,000.
Concurrent with the ING transaction, the Company redeemed the 10% Cumulative
Preferred, the 8% Preferred, and the 7% Preferred. The redemption price was
$1,117,371 and 34,434 shares of 14% Preferred. In the aggregate, $6,475,011 of
the Company's outstanding obligations, including portions of the purchase price
for the pending acquisitions, was liquidated by issuing 107,918 shares of 14%
Preferred.
Warrants to purchase 2,018,946 shares of Common Stock at a nominal exercise
price per share ("Nominal Value Warrants") were issued in conjunction with the
IPP and Paramount acquisitions, redemption of the 10% Cumulative Preferred, 8%
Preferred, and the 7% Preferred, and conversion of certain debt of the Company
to the 14% Preferred.
The Company has reserved 13,966,026 shares of Common Stock for issuance under
the following scenarios: (1) conversion of $29,000,000 of ING outstanding debt
into 241,667 shares of Series B Preferred Stock which is then immediately
convertible into 4,833,333 shares of Common Stock; (2) exercising of warrants to
purchase 204,824 shares of Series A Preferred Stock at $0.20 per share,
immediately convertible into 4,096,480 shares of Common Stock; (3) conversion of
107,918 shares of 14% Preferred into 1,079,179 shares of Common Stock; (4)
conversion, upon Shareholder approval, of 530,534 shares of 10% Non-Voting
Preferred into 885,992 shares of Common Stock; (5) the exercising of 2,018,946
Nominal Value Warrants; (6) the exercising of 580,351 warrants at prices ranging
from $5.70 to $15.75 per share; and (7) the exercising of 471,745 stock options
at prices ranging from $3.00 to $19.50 per share.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The Company herein states that it is impracticable to provide at the time of
this filing all of the requisite financial information to accompany this
Current Report in Form 8-K pursuant to the Rules and Regulations of The
Securities and Exchange Act of 1934. IPP's and Paramount's independent
auditors are in the process of completing and preparing the required financial
statements and footnotes for the year ended December 31, 1995. Upon receipt of
the audited financial statements of IPP and Paramount, the Company will
commence the preparation of the pro forma information and anticipates that this
Report will be supplemented by amendment to include said statements within the
time permitted by the aforementioned Rules and Regulations.
page 2 of 3 pages
<PAGE> 3
EXHIBITS
(a) Financial Statements of Business Acquired:
1. International Pay Phones, Inc. of South Carolina Financial
Statements For the Year Ended December 31, 1994
2. International Payphones, Inc. of Tennessee Financial Statements
For the Year Ended December 31, 1994 and for the Nine Months
Ended September 30, 1995
3. Paramount Communications Systems, Inc. Financial Statements
For the Years Ended December 31, 1994, 1993, and 1992.
(b) Pro Forma Financial Information:
Pro forma financial information to be submitted by amendment to Form
8-K within the time permitted.
(c) Other Exhibits:
1. Agreement and Plan of Merger between PhoneTel Technologies,
Inc. and International Pay Phones, Inc. (a South Carolina
company) dated November 22, 1995, and all amendments thereto.
2. Agreement and Plan of Merger between PhoneTel Technologies,
Inc. and International Pay Phones, Inc. (a Tennessee company)
dated November 22, 1995, and all amendments thereto.
3. Share Purchase Agreement between PhoneTel Technologies, Inc.
and Paramount Communications Systems, Inc., dated November 16,
1995, and all amendments thereto.
4. Credit Agreement dated as of March 15, 1996 among PhoneTel
Technologies, Inc., Various Lenders and Internationale
Nederlanden (U.S.) Capital Corporation.
5. Security Agreement dated as of March 15, 1996 among PhoneTel
Technologies, Inc., Public Telephone Corporation, World
Communications, Inc., Northern Florida Telephone Corporation
and Paramount Communications Systems, Inc. and Internationale
Nederlanden (U.S.) Capital Corporation as Agent for itself and
certain other lenders.
6. Warrant Purchase Agreement dated as of March 15, 1996 between
PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
7. Registration Rights Agreement dated March 15, 1996 between
PhoneTel Technologies, Inc. and Internationale Nederlanden
(U.S.) Capital Corporation and Cerberus Partners, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PhoneTel Technologies, Inc.
(Registrant)
Date: April 1, 1996 /s/ Peter G. Graf
---------------------------
Peter G. Graf
Chairman of the Board and
Chief Executive Officer
page 3 of 3 pages
<PAGE> 4
EXHIBIT A-2
INTERNATIONAL PAYPHONES, INC.
Financial statements
September 30, 1995 amd December 31, 1994
<PAGE> 5
International Payphones, Inc.
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Auditors' opinion 1
Balance Sheets, September 30, 1995 and December 31, 1994 2
Statements of Earnings and Retained Earnings, For the nine month period and
year ended September 30, 1995 and December 31, 1994 3
Statements of cash flows, for the nine months and year ended September 30, 1995
and December 30, 1994. 4
Notes to financial statements, September 30, 1995 and December 31, 1994 5
</TABLE>
<PAGE> 6
SEWELLL/MCCANDLESS, CPA'S, PA
CERTIFIED PUBLIC ACCOUNTANTS
SUITE 100, SAPELO BUILDING
HILTON HEAD ISLAND, SOUTH CAROLINA 29928
Member of the Telephone (803) 785-2060
American Institute of CPAs Fax (803) 842-6501
South Carolina Association of CPAs
To The Stockholders
International Payphones, Inc.
Hilton Head Island, South Carolina
We have audited the accompanying Balance Sheets of International Payphones, Inc.
(a Tennessee corporation) as of September 30, 1995 and December 31, 1994, and
the related Statements of Earnings and Retained Earnings and Cash Flows for the
nine month period and year then ended. These financial statements are the
responsibility of the management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Payphones, Inc.
and the results of its operations and its cash flows for the nine month period
ended September 30, 1995 and the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
/s/____________Sewell, CPA
November 22, 1995
1
<PAGE> 7
INTERNATIONAL PAYPHONES, INC.
BALANCE SHEETS
September 30, 1995 and December 31, 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
ASSETS
<S> <C> <C>
Current Assets
Cash $ 26,044.85 $ 25,530.67
Accounts receivable - trade 51,494.31 35,913.21
Other amounts receivable (Note D) 18,322.86 25,574.54
Parts and supplies inventory 11,625.00 11,625.00
---------- ----------
Total current assets 107,487.02 98,643.42
Property and Equipment
Property and equipment (Notes B and F) 744,819.89 720,142.61
Accumulated depreciation (511,944.71) (455,592.94)
---------- ----------
Net Property and Equipment 232,875.18 264,549.67
---------- ----------
TOTAL ASSETS $ 340,362.20 $ 363,193.09
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt (Note F) $ 67,023.47 $ 48,761.05
Accounts payable - trade 1,914.15 7,822.66
Accrued payroll and payroll taxes 1,983.20 10,265.07
Other accrued liabilities (Note E) 34,211.91 24,220.91
Deferred income taxes (Note C) 6,000.00 5,100.00
---------- ----------
Total current liabilities 111,132.73 96,169.69
Long-term debt - net of current portion (Note F) 74,833.35 81,515.83
---------- ----------
TOTAL LIABILITIES 185,966.08 177,685.52
Shareholders' Equity
Common stock 3,321.00 3,321.00
Additional paid-in capital 106,000.00 106,000.00
Retained earnings 45,075.12 76,186.57
---------- ----------
Total shareholders' equity 154,396.12 185,507.57
---------- ----------
TOTAL LIABILITIES AND EQUITY $ $ 340,362.20 $ 363,193.09
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 8
INTERNATIONAL PAYPHONES, INC.
STATEMENTS OF EARNINGS AND RETAINED EARNINGS
For the nine month period ended September 30, 1995 and the year ended December
31, 1994
1995 1994
----------- ------------
Revenue $ 886,672.41 $ 1,135,734.73
Direct costs
Access fees 233,637.13 299,918.06
Commissions locations 147,179.21 174,710.50
Phone supplies, repairs 81,952.04 78,708.14
----------- ------------
462,768.38 553,336.70
----------- ------------
Gross Profit 423,904.03 582,398.03
General and Administrative expenses 313,680.91 428,756.04
Depreciation expense 63,780.59 96,689.77
----------- ------------
377,461.50 525,445.81
----------- ------------
Earnings from operations 46,442.53 56,952.22
Other income (expense):
Interest expense (8,816.26) (20,919.23)
Gain (loss) on sale of assets 916.16 (2,731.45)
----------- ------------
Earnings before taxes 38,542.43 33,301.54
Provision for State excise taxes (Note C) 2,300.00 2,535.00
----------- ------------
Net earnings 36,242.43 30,766.54
BEGINNING RETAINED EARNINGS 76,186.57 88,677.65
----------- ------------
112,429.00 119,444.19
Less dividend distributions (67,353.88) (43,257.62)
----------- ------------
ENDING RETAINED EARNINGS $ 45,075.12 $ 76,186.57
=========== ============
The accompanying notes are an integral part of this statement.
3
<PAGE> 9
INTERNATIONAL PAYPHONES, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and year ended December 31, 1994
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income (loss) $ 36,242.43 $ 30,766.54
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities
Depreciation 63,780.59 96,689.77
(Gain) loss on disposal of property (916.16) 2,731.45
(Increase) decrease in accounts receivable (15,581.10) (4,610.68)
(Increase) decrease in inventories -- 32,152.00
Increase (decrease) in accounts payable (5,908.51) (16,981.09)
Increase (decrease) in deferred income taxes 900.00 (5,280.00)
Increase (decrease) in other accrued expenses 9,991.00 3,112.86
Increase (decrease) in payroll taxes (8,281.87) 9,691.53
---------- ----------
Total adjustments 43,983.95 117,505.84
---------- ----------
Net Cash Provided (Used) by Operating Activities 80,226.38 148,272.38
Cash Flows From Investing Activities
Proceeds from sale of assets 18,250.06 5,312.20
Purchases of fixed assets -- (18,225.16)
Leasehold improvements -- (10,274.42)
---------- ----------
Net Cash Provided (Used) by Investing Activities 18,250.06 (23,187.38)
Cash Flows From Financing Activities
Proceeds from long-term debt -- 30,893.30
Decrease in other amounts receivable 7,251.60 29,012.38
Repayment of long-term debt (16,833.29) (52,552.75)
Repayment of capital lease obligations (21,026.77) (59,859.12)
Repayment of stockholder loans -- (22,575.20)
Dividends paid (67,353.88) (43,257.62)
---------- ----------
Net Cash Provided (Used) by Financing Activities (97,962.34) (118,349.01)
---------- ----------
NET INCREASE (DECREASE) IN CASH 514.10 6,735.99
CASH AT BEGINNING OF YEAR 25,530.67 18,794.88
---------- ----------
CASH AT END OF YEAR $ 26,044.77 $ 25,530.67
========== ==========
Supplemental Disclosures
- ------------------------
Noncash Investing and Financing Activities
Assets acquired through capital lease $ (49,440.00) $ (66,598.00)
Capital lease used to acquire assets 49,440.00 66,598.00
Cash Paid During the Year for:
Interest $ 8,816.00 $ 20,919.00
Income taxes 1,400.00 2,535.00
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 10
INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 1995 and December 31, 1994
Note A - General
International Payphones, Inc. is a Tennessee corporation formed in 1985 to
sale, install, lease and maintain pay telephone equipment. The majority of the
Company's operations are in the eastern region of the the state of Tennessee
where it owns approximately 500 telephones and receives pay telephone coin
income and long distance commissions. Under agreements with pay phone site
location owners, the Company collects the pay phone coin revenue and the long
distance commission income and pays a percentage of this revenue to the site
location owner each month. These agreements cover periods ranging from five to
twenty years. Approximately thirty to forty percent of the Company's revenue is
received under agreements with two long distance telecommunications companies.
These agreements are between an affiliate of the Company, Resort Hospitality
Services, and the two long distance carriers.
Note B - Property and equipment
Property and equipment is stated at cost and is depreciated using the
straight-line method over useful lives ranging from 5 to 7 years for equipment
and vehicles and 31.5 years for leasehold improvements. Repairs and maintenance
are charged to expense when incurred and improvements which substantially
prolong the useful lives of the assets involved are capitalized and depreciated.
The cost of assets classified by major categories is as follows:
1995 1994
---------- ----------
Furniture & fixtures $ 58,120.58 $ 58,120.58
Office equipment 35,998.97 35,998.97
Telephone equipment 515,563.78 466,123.78
Leasehold improvements 74,802.66 74,802.66
Vehicles 60,333.90 85,096.62
---------- ----------
Total cost 744,819.89 720,142.61
Note C - Income taxes
The Company is an S corporation for Federal income tax purposes. As a
result, no provision for Federal income taxes is made by the Company because the
individual stockholders' report and pay Federal income tax on their allocated
percentage of the Company's net earnings. The Company does pay Tennessee state
excise tax on its net earnings at a 6% tax rate.
There are timing differences in how items of income and expense reported on
the tax return and in the financial statements. These differences involve trade
receivables for long distance commission income which is reported as income when
earned in the financial statements but is reported as received for tax purposes.
In addition, depreciation expense is claimed under IRS Code Section 179 and
using accelerated writeoff methods for tax purposes, while the straight-line
writeoff method is used for financial reporting. State excise tax is provided
for in the financial statements as the items of income and deduction are
recognized therein regardless of when they are reported on the income tax
return. As a result of the timing differences, deferred tax liabilities of
$6,000 and $5,100, respectively, have been accrued at September 30, 1995 and
December 31, 1994. In addition, income tax expense at September 30, 1995
includes $900 in deferred state excise taxes.
5
<PAGE> 11
INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATENENTS - Continued
September 30, 1995 and December 31, 1994
Note D - Other amounts receivable:
The Company is affiliated through common stock ownership and control with
other companies involved in the telecommunications industry. Loans to these
affiliates on open account totaled $ 4,786 at September 30, 1995 and $ 19,886 at
December 31, 1994. Loans to employees at September 30, 1995 and December 31,
1994 totaled $ 7,937 and $ 3,450, repectively. Finally, estimated tax deposits
of $ 5,600 at September 30, 1995 and equipment lease deposits of $ 2,239 at
December 31, 1994 are included in other amounts receivable.
Note E - Other accrued liabilities:
Other accrued liabilities include the Company's estimate of unpaid site
commissions. Under agreements with its sits owners, commissions are payable
after the end of the month in which the net coin and long distance revenue is
received. As of September 30, 1995 and December 31, 1994, the Company has
accrued three and two months, respectively, of unpaid site commissions.
Note F - Long-term debt:
Long-term debt at September 30, 1995 and December 31, 1994 includes the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note payable to First National Bank of Gatlinburg
dated November 2, 1994 in the face amount of $ 17,000
payable in 18 monthly installments of $ 1,000 including
interest at prime plus 1.5% $ 7,216.17 $ 15,269.36
Note payable to Conquest Communications dated in
December, 1993 in the face amount of $ 25,000 payable
in monthly installments with interest. - 5,117.01
Note payable to First Union Bank of Georgia
dated October 11, 1993 in the face amount of $ 24,763
payable in 60 monthly installments of $ 487 including
interest at 6.75%. This note is collateralized by a
1994 Ford Explorer. - 19,773.54
Notes payable (two) to First Union Bank of South
Carolina dated September 17, 1993 in the face amounts
of $ 15,022 each, both payable in 60 monthly install-
ments of $ 292 including interest at 6.25%. These notes
are collateralized by two 1993 Ford cargo vans. 19,172.04 23,457.12
Note payable to First Tennessee Bank
dated January 31, 1994 in the face amount of $ 13,893
payable in 60 monthly installments of $ 289 including
interest at 9.00%. This note is collateralized by a
1994 Toyota Corolla. 10,038.85 11,681.97
Note payable to Nationsbank of South Carolina
dated December 14, 1993 in the face amount of $ 15,596
payable in 60 monthly installments of $ 309 including
interest at 7.00%. This note is collateralized by a
1994 Ford Econoline. 10,674.63 12,867.48
</TABLE>
6
<PAGE> 12
INTERNATIONAL PAYPHONES, INC.
NOTES TO THE FINANCIAL STATENENTS - Continued
September 30, 1995 and December 31, 1994
<TABLE>
<S> <C> <C>
Note F - Long-term debt (continued):
Note payable to First National Bank of Gatlinburg
dated August 28, 1995 in the face amount of $ 25,000
payable in 23 monthly installments of $ 1,000 including
interest at prime plus 2.362%. This note is collateralized
by pay phones and royalty contracts. 24,231.50 -
Capitalized lease purchase agreement dated January 26,
1994 in the original sum of $ 66,370, due in 36 monthly
installments of $ 2,139 through December, 1996,
decreasing to $ 1,123 through March, 1997, including sales
tax and finance charges at 14%. This agreement is
collateralized by pay telephone equipment and calls for
a $ 1 purchase option by the lessee at the end
of the lease period. 28,049.30 42,110.40
Capitalized lease purchase agreement dated May 5,
1995 in the original sum of $ 49,440, due in 36 monthly
installments of $ 1,842 through March, 1998, including
sales tax and finance charges at 19%. This agreement is
collateralized by pay telephone equipment and allows
for a purchase option by the lessee at the end of the
lease period. 42,474.33 -
------------ -------------
141,856.82 130,276.88
Less current portion (67,023.47) (48,761.05)
------------ -------------
$ 74,833.35 $ 81,515.83
============ =============
</TABLE>
Note C - Operating leases
The Company leases its office space from one of the stockholders under an
oral agreement at a monthly rate of $ 1,000 plus utilities, taxes, repairs,
maintenance and leasehold improvements.
The Company also leases three vehicles under separate non-cancellable
operating lease agreements dated March 25, 1993, January 22, 1994 and April 21,
1995. These agreements call for monthly lease payments of $ 509, $ 1,006, and
$444, respectively, including sales tax. Each agreement allows for additional
charges for excess milage upon expiration of the lease. All maintenance, taxes,
insurance and operating expenses are the responsibility of the lessee. Future
minimum annual lease payments under the vehicle leases are as follows:
Year ended December 31, 1995 $ 22,183.00
Year ended December 31, 1996 18,936.00
Year ended December 31, 1997 11,371.00
Year ended December 31, 1998 1,333.00
-------------
Totals $ 53,823.00
7
<PAGE> 13
EXHIBIT A-1
FINANCIAL STATEMENTS
INTERNATIONAL PAY PHONES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1994
MILLER SHERRILL BLAKE CPA PA
<PAGE> 14
INTERNATIONAL PAY PHONES, INC.
TABLE OF CONNENTS
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENT
Balance Sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statement 5-8
SUPPLEMENTARY INFORMATION REPORT 9
Schedule of Cost of Goods Sold 10
Schedule of General and Admministrative Expenses 11
MILLER SHERRILL BLAKE CPA PA
<PAGE> 15
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MILLER SHERRILL BLAKE CPA PA Charlotte Office Lincolnton Office Shelby Office
Certified Public Accountants 2415 Tuckaseegee Road 232 East Main Street 825 S. Washington Street
P.O. Box 668307 P.O. Box 782 P.O. Box 3026
Charlotte, NC 28266 Lincolnton, NC 28093 Shelby, NC 28150
(704) 732-2234
(704) 394-3156 (704) 332-4217 - Clt. Line (704) 482-4358
(704) 392-9741 - FAX (704) 732-6041 - FAX (704) 481-0455 - FAX
</TABLE>
January 17, 1996
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Pay Phones, Inc.
107 Dave Warlick Dr.
Lincolnton, North Carolina 28092
We have audited the accompanying balance sheet of International Pay Phones, Inc.
(a South Carolina corporation) as of December 31, 1994, and the related
statements of income and retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Pay Phones, Inc.
as of December 31, 1994, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
MILLER SHERRILL BLAKE CPA PA
_____________________________
For the Firm
<PAGE> 16
INTERNATIONAL PAY PHONES, INC.
BALANCE SHEET
December 31, 1994
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 13,939
Accounts Receivable 80,984
-----------
TOTAL CURRENT ASSETS 94,923
-----------
PROPERTY AND EQUIPMENT
Leasehold Improvements 16,000
Office Furniture and Equipment 27,441
Vehicles 146,295
Telephone Equipment 2,134,307
Accumulated Depreciation (1,155,533)
-----------
TOTAL PROPERTY AND EQUIPMENT 1,168,510
-----------
OTHER ASSETS
Covenants Not to Compete - Net of Amortization 143,695
Goodwill - Net of Amortization 21,900
Deferred Tax Asset 35,800
-----------
TOTAL OTHER ASSETS 201,395
-----------
TOTAL ASSETS $ 1,464,828
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 93,151
Bank Overdraft 17,982
Notes Payable 166,645
Notes Payable - Related Party 61,903
Current Portion of Long-Term Debt 264,089
-----------
TOTAL CURRENT LIABILITIES 603,770
-----------
LONG-TERM LIABILITIES
Notes Payable - Less Current Portion 724,379
Obligations under Capital Leases - Less Current Portion 137,819
-----------
TOTAL LONG-TERM LIABILITIES 862,198
-----------
TOTAL LIABILITIES 1,465,968
-----------
STOCKHOLDERS' EQUITY
Common Stock 10,000
Additional Paid - In - Capital 57,224
Retained Earnings (68,364)
-----------
TOTAL STOCKHOLDERS' EQUITY (1,140)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,464,828
===========
</TABLE>
See Independent Auditors' Report and Notes to Financial Statement
Page Two
MILLER SHERRILL BLAKE CPA PA
<PAGE> 17
INTERNATIONAL PAY PHONES, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
Sales $ 2,631,627
Cost of Goods Sold 1,950,062
---------
GROSS PROFIT 681,565
Operating Expenses
- ------------------
General And Administrative Expenses 435,365
Depreciation Expense 389,201
Interest Expense 103,697
-----------
TOTAL OPERATING EXPENSES 928,263
-----------
INCOME FROM OPERATIONS (246,698)
Other (Income) Expense
- ----------------------
Miscellaneous Income (2,076)
(Gain) Loss on Sale of Assets 28,571
-----------
Total Other (Income) Expense 26,495
Income Before Corporate Taxes (273,193)
Deferred Tax Benefit Provision (35,800)
-----------
NET INCOME (237,393)
BEGINNING RETAINED EARNINGS 169,029
-----------
ENDING RETAINED EARNINGS $ (68,364)
===========
See Independent Auditors' Report and Notes to Financial Statement
Page Three
MILLER SHERRILL BLAKE CPA PA
<PAGE> 18
INTERNATIONAL PAY PHONES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
Net Cash Flow From Operating Activities:
Net Income (237,393)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 389,201
Net (increase) decrease in receivables (24,429)
Net increase (decrease) in accounts payable and accrued expenses 50,764
Net increase (decrease) in accrued taxes (3,791)
Net change in deferred tax asset/liability 35,800
Gain on sale of property and equipment 28,571
-------
Net Cash Provided (Used) by Operating Activities 238,723
-------
Cash Flow From Investing Activities:
Purchase of equipment (186,716)
-------
Net Cash Provided (Used) by Investing Activities (186,716)
Cash Flow From Financing Activities:
Payments to settle short-term debt (133,405)
Payments to settle long-term debt (352,114)
Proceeds from short-term debt 206,903
Proceeds from long-term debt 260,736
Payments under capital lease obligations (43,290)
-------
Net Cash Provided (Used) by Financing Activities (61,170)
-------
Net Increase (Decrease) In Cash and Cash Equivalents (9,163)
Cash and Cash Equivalents at beginning of year 23,102
-------
Cash and Cash Equivalents at end of year 13,939
=======
Supplemental Disclosures
Interest Paid 103,697
=======
Income Taxes Paid 3,587
=======
See Independent Auditors' Report and Notes to Financial Statement
Page Four
MILLER SHERRILL BLAKE CPA PA
<PAGE> 19
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Business Activity
- -----------------
International Pay Phones, Inc. was incorporated under the laws of the State of
South Carolina on May 29, 1990. The Company purchases or leases pay phones from
suppliers and installs them in various locations throughout the southeastern
United States. Revenue is generated through contracts established with the
property owners regarding the use of the phones.
Cash
- ----
Cash includes cash in bank and instruments with maturities of 30 days or less.
Depreciation
- ------------
Depreciation is computed using the straight-line and the accelerated cost
recovery methods.
NOTE B - RELATED PARTY TRANSACTIONS
- -----------------------------------
The Company has the following notes payable due to related parties as of
December 31, 1994:
Amounts payable to officers due on demand $ 5,000
Amounts payable to shareholders due on demand 50,000
Amounts payable to corporations related through common
ownership due on demand 6,903
------
$ 61,903
======
The Company rents its operating facility from a partnership related through
common ownership. The rent expense totaled $14,934 for the year ended December
31, 1994.
NOTE C - RETIREMENT PLAN
- ------------------------
The Company sponsors a 401(k) plan covering all of the eligible employees who
elect to participate. The Company matches 50% of each employees deferred salary
up to a maximum of 2% of compensation. The contribution was $5,847 for 1994.
See Independent Auditors' Report
Page Five
MILLER SHERRILL CPA PA
<PAGE> 20
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NOTE D - LONG-TERM DEBT
- -----------------------
<S> <C>
Long-term debt consists of the following notes:
Note Payable - NationsBank $ 13,293
Due in monthly installments of $327.26 which includes interest calculated at 7.5%.
Matures in November of 1998. Secured by vehicle.
Note Payable - NationsBank 13,295
Due in monthly installments of $327.26 which includes interest calculated at 7.5%.
Matures in November of 1998. Secured by vehicle.
Note Payable - First Union National Bank 11,677
Due in monthly installments of $292.10 which includes interest calculated at 6.25%.
Matures in September of 1998. Secured by vehicle.
Note Payable-First Union National Bank 11,677
Due in monthly installments of $292.10 which includes interest calculated at 6.25%.
Matures in September of 1998. Secured by vehicle.
Note Payable - First Union National Bank 12,702
Due in monthly installments of $327.49 which includes interest calculated at 7.5%.
Matures in October of 1998. Secured by vehicle.
Note Payable - Ford Motor Credit 16,539
Due in monthly installments of $395.81 which includes interest calculated at 11.75%.
Matures in June of 1999. Secured by vehicle.
Note Payable - First Union National Bank 15,486
Due in monthly installments of $357.26 which includes interest calculated at 7.75%.
Matures in March of 1999. Secured by vehicle.
Note Payable - Ford Motor Credit 16,802
Due in monthly installments of $401.09 which includes interest calculated at 7.75%.
Matures in January of 1999. Secured by vehicle.
Note Payable - First National Bank 528,493
Due in monthly installments of $11,686.55 which includes interest calculated at
prime plus 2%. Matures in September of 1999. Secured by phone equipment,
guarantees by officers, and assignment of life insurance.
</TABLE>
See Independent Auditors' Report
Page Six
MILLER SHERRILL BLAKE CPA PA
<PAGE> 21
MILLER SHERRILL BLAKE CPA PA
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NOTE D - LONG-TERM DEBT - (Continued)
- -------------------------------------
<S> <C>
Note Payable- Karl Baker $ 231,643
Due in monthly installments of $5,219.19 which includes interest calculated at 8.0%.
Matures in April of 1999. Secured by phone equipment.
Note Payable - First Union National Bank 9,998
Due in monthly installments of $666.67 principle plus interest calculated at 10.0%.
Matures in April of 1996. Secured by assets of the company.
Note Payable - Elcotel 24,411
Due in monthly installments of $1,341 which includes interest calculated at 16.049%.
Matures in September of 1996. Secured by phone equipment and guaranteed by
officers.
-------
906,016
Less: Current Maturities (181,637)
-------
Total Long-Term Debt $ 724,379
=======
</TABLE>
Maturities of long-term debt in each of the next five years are as follows:
1995 $ 181,637
1996 193,141
1997 194,620
1998 209,562
1999 127,056
-------
$ 906,016
=======
NOTE E - INCOME TAXES
- ---------------------
Under Financial Accounting Standards Board Statement No. 109, deferred
tax assets and liabilities are determined based on the differences between the
financial statement and tax basis of assets and liabilities and are measured
using enacted tax rates.
Net deferred tax assets in the accompanying balance sheet include the following
components:
Deferred tax asset arising from:
Net operating loss carryforward $ 34,300
Temporary differences - Principally depreciation methods 1,500
-------
Total deferred tax asset $ 35,800
The Company has unused net operating losses available for carryforward to offset
future taxable income. The net operating loss carryforward was $228,776 at
December 31, 1994 and will expire in the year 2009.
See Independent Auditors' Report
Page Seven
MILLER SHERRILL BLAKE CPA PA
<PAGE> 22
INTERNATIONAL PAY PHONES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994
NOTE F - LEASES
- ---------------
The Company is the lessee of telephone equipment under capital leases expiring
in various years through 1997. The assets and liabilities under capital leases
are recorded at the lower of the present value of the minimum lease payments or
the fair value of the asset. The assets are depreciated over the lower of their
related lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense for the year ended
December 31, 1994. The following is a summary of property held under capital
leases:
Telephone Equipment $ 292,845
Accumulated Depreciation (35,686)
-------
$ 257,159
=======
Minimum future lease payments under capital leases as of December 31, 1994 for
each of the next five years are as follows:
1995 $ 82,452
1996 94,760
1997 43,059
1998 0
1999 0
-------
$ 220,271
=======
NOTE G - CONTINGENCIES
- ----------------------
The Company is party to a contingent payment contract with Karl Baker for
$25,000. The agreement states that if contracts purchased from Mr. Baker remain
in effect for a specified time period the payment will be made. However, if
contracts are lost, the $25,000 is reduced by $1,000 per occurrence.
NOTE H - SUBSEQUENT EVENTS
- --------------------------
The shareholders of International Pay Phones, Inc. are negotiating to sell all
outstanding shares of stock to PhoneTel Technologies, Inc. The transaction has
not been finalized as of the date this statement was issued.
NOTE I - LINE OF CREDIT
- -----------------------
The Company has a line of credit for $150,000 that expires in March of 1995. At
December 31, 1994 the Company has outstanding $100,000 on the line of credit.
Interest is calculated at 10.50%. Loan is guaranteed by officers and their
spouses.
NOTE J - STOCKHOLDERS' EQUITY
- -----------------------------
The Company has 100,000 shares of $1 par common stock authorized and 10,000
shares outstanding at December 31, 1994.
See Independent Auditors' Report
Page Eight
MILLER SHERRILL BLAKE CPA PA
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MILLER SHERRILL BLAKE CPA PA Charlotte Office Lincolnton Office Shelby Office
Certified Public Accountants 2415 Tuckaseegee Road 232 East Main Street 825 S. Washington Street
P.O. Box 668307 P.O. Box 782 P.O. Box 3026
Charlotte, NC 28266 Lincolnton, NC 28093 Shelby, NC 28150
(704) 732-2234
(704) 394-3156 (704) 332-4217 - Clt. Line (704) 482-4358
(704) 392-9741 - FAX (704) 732-6041 - FAX (704) 481-0455 - FAX
</TABLE>
INDEPENDENT AUDITORS' REPORT
ON SUPPLEMENTAL INFORMATION
To the Board of Directors and Stockholders
International Pay Phones, Inc.
Our report on our audit of the basic financial statements of International Pay
Phones, Inc. for December 31, 1994 appears on page one. This audit was made for
the purpose of forming an opinion on the basic financial statements taken as a
whole. The additional information contained in Schedules I - II is presented
for the purposes of additional analysis and is not a required part of the basic
financial statements. Such information has not been subjected to the auditing
procedures applied in the audit of the basic financial statements, and,
accordingly, we express no opinion on it.
MILLER SHERRILL BLAKE CPA PA
____________________________
For the Firm
<PAGE> 24
INTERNATIONAL PAY PHONES, INC.
SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31,1994
SCHEDULE I
Cost of Goods Sold
- ------------------
Line Charges $ 839,834
Telephone Commissions 475,349
Salaries 327,212
Telephone Supplies 154,885
Auto Expenses 46,808
Other Labor 44,644
Commissions - Sales 34,870
Armored Car Service 17,449
Auto Insurance 5,637
Equipment Rental 1,149
Freight 2,225
---------
Total Cost Of Goods Sold $1,950,062
=========
See Independent Auditors' Report on Supplementary Information
Page Ten
MILLER SHERRILL BLAKE CPA PA
<PAGE> 25
INTERNATIONAL PAY PHONES, INC.
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31,1994
SCHEDULE II
General and Administrative Expenses
- -----------------------------------
Salary - Officers $ 83,651
Payroll Taxes 33,125
Advertising 3,135
Amortization 25,451
Answering Service 1,278
Bank Service Charges 7,826
Contributions 800
Dues and Subscriptions 8,177
Entertainment 10,230
Group Insurance 11,969
General Insurance 14,201
Officer Life Insurance 1,221
Lease Expense 9,392
Taxes and Licenses 14,992
Moving Expense 600
Office Expense 23,162
Pager Expense 8,380
Retirement Contribution 5,847
Postage 9,723
Professional Fees 15,535
Rent 21,274
Repairs and Maintenance 2,910
Convention Expense 5,143
Storage 6,411
Telephone 62,274
Travel 38,447
Uniforms 2,772
Utilities 7,439
-------
Total General and Administrative Expenses $435,365
=======
See Independent Auditors' Report on Supplementary Information
Page Eleven
MILLER SHERRILL BLAKE CPA PA
<PAGE> 26
Exhibit A-3
[KPMG LOGO]
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
Financial Statements
December 31, 1994, 1993 and 1992
(With Independent Auditors' Report Thereon)
<PAGE> 27
KPMG Peat Marwick LLP
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Paramount Communications Systems, Inc.:
We have audited the accompanying balance sheets of Paramount Communications
Systems, Inc. as of December 31, 1994, 1993 and 1992, and the related statements
of income, shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Paramount Communications
Systems, Inc. as of December 31, 1994, 1993 and 1992, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
March 10, 1995
<PAGE> 28
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
BALANCE SHEETS
December 31, 1994 ,1993 and 1992
<TABLE>
<CAPTION>
Assets 1994 1993 1992
------ ---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 198,549 159,990 89,253
Accounts receivable 258,931 265,745 331,825
Other current assets 30,274 82,383 71,708
---------- --------- ---------
Total current assets 487,754 508,118 492,786
Property and equipment, net (note 2) 714,693 1,256,379 1,509,774
Intangible assets, less accumulated amortization of
$471,044 in 1994, $341,318 in 1993 and $210,843
in 1992 256,331 386,057 366,532
Other assets 15,188 3,203 60,063
---------- --------- ---------
$1,473,966 2,153,757 2,429,155
========== ========= =========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses 177,908 175,383 652,232
Location commissions payable 55,043 57,283 44,205
Accrued interest payable -- 1,668 12,668
Sales tax payable 16,252 20,000 22,175
Shareholder distributions payable 384,620 376,989 163,163
Current maturities of notes payable - related parties
(note 3) 436,619 448,353 329,261
---------- --------- ---------
Total current liabilities 1,070,442 1,079,676 1,223,704
Long-term portion of notes payable - related parties
(note 3) 276,555 656,187 686,560
---------- --------- ---------
Total liabilities 1,346,997 1,735,863 1,910,264
---------- --------- ---------
Shareholders' equity:
Common stock, $1 par value; 100 shares authorized,
issued and outstanding 100 100 100
Additional paid-in capital 19,900 19,900 19,900
Retained earnings 106,969 397,894 498,891
---------- --------- ---------
Total shareholders' equity 126,969 417,894 518,891
Commitments and contingencies (note 4)
---------- --------- ---------
$1,473,966 2,153,757 2,429,155
========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 29
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENTS OF INCOME
Years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenues:
Coin calls $ 3,685,295 3,454,573 2,462,105
Non-coin calls 2,030,194 2,090,038 1,975,358
----------- --------- ---------
Total revenues 5,715,489 5,544,611 4,437,463
----------- --------- ---------
Operating costs and expenses:
Telephone charges 1,748,270 1,735,964 1,496,395
Commissions 676,304 598,368 458,339
Selling, general and administrative 2,099,203 2,139,160 1,594,112
Depreciation and amortization 770,429 741,380 615,111
----------- --------- ---------
Total operating costs and expenses 5,294,206 5,214,872 4,163,957
----------- --------- ---------
Operating income 421,283 329,739 273,506
----------- --------- ---------
Other income (expense):
Interest and other income (expense) (4,686) 2,966 64,706
Interest expense (72,902) (90,768) (66,833)
----------- --------- ---------
Total other expenses (77,588) (87,802) (2,127)
----------- --------- ---------
Net income $ 343,695 241,937 271,379
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 30
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended December 31, 1994 ,1993 and 1992
<TABLE>
<CAPTION>
Common Stock Additional
---------------- paid-in Retained
Shares Amount capital earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1992 100 $ 100 19,900 372,529 392,529
Net income -- -- -- 271,379 271,379
Distributions -- -- -- (145,017) (145,017)
--- -------- ------ ------- -------
Balances at December 31, 1992 100 100 19,900 498,891 518,891
Net income -- -- -- 241,937 241,937
Distributions -- -- -- (342,934) (342,934)
--- -------- ------ ------- -------
Balances at December 31, 1993 100 100 19,900 397,894 417,894
Net income -- -- -- 343,695 343,695
Distributions -- -- -- (634,620) (634,620)
--- -------- ------ ------- -------
Balances at December 31, 1994 100 $ 100 19,900 106,969 126,969
=== ======== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 31
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994 ,1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 343,695 241,937 271,379
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of plant and
equipment 582,753 552,954 461,730
Amortization of intangible assets 129,726 130,475 95,430
Amortization of deferred asset 57,950 57,951 57,951
Loss on write-off of property and equipment 14,980 -- --
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 6,814 66,080 (283,542)
Increase in other current assets (5,841) (10,675) (62,481)
Increase in other assets (270) (1,091) (108,207)
Increase (decrease) in other current liabilities (5,131) (476,946) 471,074
----------- ------- -------
Net cash provided by operating activities 1,124,676 560,685 903,334
----------- ------- -------
Cash flows from investing activities:
Purchases of equipment (59,625) (299,559) (745,347)
Proceeds from sale of equipment 3,578 -- 44,220
Purchase of investments (11,715) -- --
Purchase of intangible assets -- (150,000) (219,875)
----------- ------- -------
Net cash used in investing activities (67,762) (449,559) (921,002)
----------- ------- -------
Cash flows from financing activities:
Increase in notes payable - related party 200,000 795,906 722,998
Distributions to shareholders (626,989) (129,108) (48,177)
Repayments of notes payable - related parties (591,366) (707,187) (662,085)
----------- ------- -------
Net cash provided by (used in) financing
activities (1,018,355) (40,389) 12,736
----------- ------- -------
Net (decrease) increase in cash and cash
equivalents 38,559 70,737 (4,932)
Cash and cash equivalents at beginning of year 159,990 89,253 94,185
----------- ------- -------
Cash and cash equivalents at end of year $ 198,549 159,990 89,253
=========== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 74,570 101,768 63,345
=========== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 32
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Paramount Communications Systems, Inc. (the "Company"), a Florida
corporation, was formed in March, 1987 as a result of the deregulation
of the telephone industry. The Company is a Subchapter S corporation in
the business of installing, maintaining and operating pay telephones
throughout South Florida.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization on property and equipment are calculated on a
straight-line basis over five years, the estimated useful lives of the
assets.
(d) INTANGIBLE ASSETS
Intangible assets consist of non-compete agreements and location
contracts. The non-compete agreements are being amortized on a
straight-line basis over their duration (five years) and expire through
July, 1998. The location contracts are amortized over two and one-half
years and expire through June, 1995.
(e) RECOGNITION OF REVENUE
Revenues from coin calls and non-coin calls are recognized as calls are
made. When revenue on a telephone call is recorded, an expense is also
recorded for fees associated with the call. Revenue from the telephone
service agreement is recognized in the month of service.
(f) INCOME TAXES
The Company is a Subchapter S corporation. As such, no provision is
made for income taxes as income or loss is included in the tax returns
of the shareholders.
(g) CONCENTRATIONS OF CREDIT AND BUSINESS RISK
Receivables have a significant concentration of credit risk in the
telecommunications industry. In addition, receivables are generated by
the Company's pay telephones located in the state of Florida. No single
customer accounted for more than 5% of the Company's sales.
(Continued)
<PAGE> 33
-2-
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
(h) DISTRIBUTIONS
The Company generally distributes 100 percent of tax-basis profits to
its shareholders annually.
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Installed pay telephones and related equipment $2,845,325 2,846,898 2,553,413
Furniture, fixtures and office equipment 35,525 35,525 29,450
Automobiles 26,328 26,328 26,328
Leasehold improvements 4,025 4,025 4,025
Warehouse equipment 1,772 1,772 1,772
---------- --------- ---------
2,912,975 2,914,548 2,614,988
Less accumulated depreciation and amortization 2,198,282 1,658,169 1,105,214
---------- --------- ---------
$ 714,693 1,256,379 1,509,774
========== ========= =========
</TABLE>
Depreciation and amortization of property and equipment was $582,753,
$552,954 and $461,730 in 1994, 1993 and 1992, respectively.
(3) RELATED PARTY TRANSACTIONS
(a) NOTES PAYABLE - RELATED PARTIES
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Notes payable to various related parties,
principal and interest payable monthly at
rates ranging from 8% to 10%, due from
March, 1993 to April, 1997, collateralized
by installed pay telephones and related
equipment 713,174 1,104,540 1,015,821
Less current maturities of notes payable -
related parties 436,619 448,353 329,261
-------- ------- -------
Long-term portion of notes
payable - related parties $276,555 656,187 686,560
======== ======= =======
</TABLE>
Interest expense paid to related parties relating to the above amounted
to $72,902, $90,768 and $66,833 in 1994, 1993 and 1992, respectively.
(Continued)
<PAGE> 34
-3-
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Aggregate maturities of notes payable - related parties subsequent to
December 31, 1994 are as follows:
1995 $ 436,619
1996 276,555
---------
$ 713,174
=========
(b) PAYROLL ALLOCATION - RELATED PARTY
Included in selling, general and administrative expenses is an
allocation of payroll for certain service personnel working for various
related party companies under common ownership. The allocation is based
on management's estimate of the amount of time each employee provides
each related company.
(c) COMMISSION REVENUE - RELATED PARTY
Operator assisted service commissions received from a company under
common ownership which are included in non-coin call revenue amounted
to $-0- in 1994, $241,438 in 1993 and $186,231 in 1992.
(4) OPERATING LEASE - RELATED PARTY
The Company occupies a facility under a lease with a related party which expired
on May 31, 1993. Under the terms of the lease, the Company has the right to
renew the lease for a five-year period which began immediately after the end of
the initial term. The Company has not renewed the lease and currently leases the
facility on a month-to-month basis. The lease provides that the Company pay its
proportional share of the building's taxes, maintenance, insurance and other
related occupancy expenses.
Rent expense for the years ended December 31, 1994, 1993 and 1992 was $23,373,
$22,135 and $22,141, respectively.
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
among
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
and
ALL OF THE SHAREHOLDERS OF
INTERNATIONAL PAY PHONES, INC.
November 22, 1995
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
----------------------------
Agreement and Plan of Merger (the "Agreement"), dated as of November
22, 1995, among PhoneTel Technologies, Inc., an Ohio corporation (the
"Parent"), International Pay Phones, Inc. a South Carolina corporation
(together with all Subsidiaries thereof, "the Company"), and all of the
shareholders of the Company (collectively, the "Sellers"), whose names,
addresses and holdings in the Company are set forth on Exhibit A hereto.
WHEREAS, the Company is engaged in the business of owning and
operating microprocessor-based pay telephones and engaging in the sale,
installation and maintenance of pay telephones; and
WHEREAS, the Boards of Directors of the Parent and the Company
have each approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the merger of the Company into Buyer
upon the terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of the Parent and the Company have each approved this Agreement and
the merger of the Company with and into the Buyer in accordance with the
<PAGE> 3
terms of this Agreement and the Business Corporation Act of 1988 of the State
of South Carolina (the "BCA"); and
WHEREAS, for United State federal income tax purposes, it is
intended that the Merger (as defined herein) shall qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and this Agreement is intended to be and is adopted as a
plan of reorganization within the meaning of Section 368 of the Code;
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties set forth herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
----------
1.1 THE MERGER. Upon the terms and subject to conditions
of this Agreement and in accordance with the BCA at the Effective Time, the
Company shall be merged with and into the Buyer (the "Merger") and the separate
corporate existence of the Company shall cease. After the Merger, the Buyer
shall continue as the surviving corporation (sometimes hereinafter referred to
as the "Surviving Corporation"). The Merger shall have the
2
<PAGE> 4
effects as provided in the applicable provisions of the BCA. Without limiting
the generality of the foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and the Buyer shall vest in
the Surviving Corporation and, except as otherwise provided for in this
Agreement, all obligations, duties, debts and liabilities of the Company and
the Buyer shall be the obligations, duties, debts and liabilities of the
Surviving Corporation.
1.2 CONVERSION OF SHARES. At the Effective Time:
(a) Each share of common stock, no par value, of the
Company ("Company Shares") outstanding immediately prior to the Effective Time
shall be converted into the right to receive a percentage of the Consideration
equal to the percentage such Company Share represents of all Company Shares.
The consideration (the "Consideration") shall equal the sum of (i) the excess
of (A) the product of $3800 and the Company Phones Amount, over (B) $45,000,
subject to adjustment as set forth in Section 1.4 hereof (to be paid one half
in cash and one half in certificates representing Parent Shares, valued at the
Stock Price plus (ii) the product of $1,000 and
3
<PAGE> 5
the Customer Phones Amount (to be paid in Parent Shares, valued at the Stock
Price).
(b) Each share of common stock of Buyer outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
1.3 CLOSING PAYMENT. (a) Not later than three business
days prior to the Closing, Seller's Representative shall deliver to Buyer a
good faith estimate of the adjustments to the Consideration as of the Closing
Date, including all the detail required by Section 1.4 hereof.
(b) At the Closing, Parent shall pay to Seller
Representative (for distribution Pro Rata to Sellers) an amount equal to the
Consideration which would be payable if adjusted pursuant to Section 1.4 (using
the good faith estimates delivered pursuant to paragraph (a) above); provided
that such amount shall be reduced by $375,000 (one-half in cash and one-half in
Parent Shares, valued at the Stock Price).
1.4 CONSIDERATION ADJUSTMENTS.
4
<PAGE> 6
(a) COMPANY PHONE AMOUNT. The Consideration shall
be adjusted to reflect the actual Company Phones Amount and the Customer Phones
Amount, as provided in Section 1.2(a). In addition, the Consideration shall be
further adjusted by the following calculations, provided that the adjustments
in Paragraph (b) shall be made before any adjustments are made pursuant to
paragraph (c).
(b) LENGTH OF CONTRACT; AVERAGE INCOME.
(i) If at the Closing Date the Average Term
is less than 30 months, then the Consideration shall be reduced by
multiplying (A) the amount calculated pursuant to Section 1.2(a)(i)
(as adjusted by Section 1.4(a)), by (B) a fraction, the numerator of
which will be the Average Term and the denominator of which will be
30.
(ii) If the Average Income is less than $115
per phone then the Consideration shall be reduced by multiplying (A)
the amount calculated pursuant to Section 1.2(a)(i) (as adjusted by
Section 1.4(a) and 1.4(b)(i)) by (B) a fraction, the numerator of
which will be
5
<PAGE> 7
the Average Income and the denominator of which will be 115.
(c) OTHER ADJUSTMENTS.
(i) The Consideration shall be decreased by
an amount equal to the excess of (A) all Liabilities of the Company as
of the Closing over (B) the sum of all Current Assets. For purposes
of this paragraph 1.4(c)(i), all amounts specified in clauses (ii) and
(iii) below or in respect of telephone bills due on or after the
Closing Date shall be disregarded.
(ii) The Consideration shall be decreased by
the amount owing in respect of any telephone bills received by the
Company on or before the Closing Date which are due prior to the
Closing Date but not paid by the Company or Sellers on or before the
Closing Date.
(iii) The Consideration shall be increased
by the excess of (A) the amount accrued as of the Closing Date as
receivables from AT&T, Opticon, and third and fourth quarter APCC (but
only to the extent such amount is received by the Company within 150
days after the Closing Date) over (B) the amount of all site
commissions accrued but not
6
<PAGE> 8
paid as of the Closing Date. In the event the amount specified in
clause (B) above exceeds the amount in clause (A) above, the
Consideration shall be decreased by the amount of such excess.
(iv) The Consideration shall be decreased by
the amount of all indebtedness or other Liabilities relating to the
vehicles specified in Schedule 5.18(d) to the Disclosure Schedule.
(d) The number of Parent Shares to be issued
hereunder shall be adjusted to account for any stock splits, reverse stock
splits, stock dividends, or any similar transaction with respect to Parent
Shares.
(e) As soon as practicable after the Closing Date
(but in any event not more than 150 days after the Closing Date), the Parent
shall cause to be prepared and delivered to Seller Representative and the
Escrow Agent a schedule (the "Adjustment Schedule") which shows, as of the
Closing Date, the calculation of the Consideration as provided in Section
1.2(a) and as adjusted pursuant to this Section 1.4.
(i) Upon receipt of the Adjustment Schedule,
Seller Representative shall have the right during the succeeding 10-
7
<PAGE> 9
day period to examine the Adjustment Schedule and all records used to
prepare such Adjustment Schedule. Seller Representative shall notify
Parent in writing, on or before the last day of the 10-day period, of
any good faith objections to the Adjustment Schedule, setting forth a
reasonably specific description of such objections and the dollar or
other amount, as the case may be, of each objection.
(ii) If Seller Representative in good faith
objects to the Adjustment Schedule, Seller Representative and Parent
shall attempt to resolve any such objections within 10 days of
Parent's receipt of such objections. If Parent and Seller
Representative are unable to resolve the matter within such 10-day
period, they shall jointly appoint a mutually acceptable firm of
independent certified public accountants (or, if they cannot agree on
a mutually acceptable firm, they shall cause their respective
accounting firms to select such firm) within five days after the end
of such 10-day period. The fees of such independent certified public
8
<PAGE> 10
accountants shall be divided equally between Parent and the Seller
Representative (on behalf of all Sellers). Such firm's resolution of
the dispute shall be conclusive and binding upon the Sellers and
Parent.
(iii) The Adjustment Schedule shall be
deemed complete upon the earlier of (A) the eleventh (11th) day after
Parent's delivery of the Adjustment Schedule to Seller Representative,
unless prior to such day Seller Representative shall have notified
Parent of a dispute in accordance with paragraph (i), and (B) the
resolution of all disputes, pursuant to paragraph (ii). Within two
business days following completion of the Adjustment Schedule as
aforesaid, either
(A) Parent shall pay Seller Representative, on behalf of
Sellers, the amount, if any, by which the Consideration (as
adjusted) exceeds the amount paid pursuant to Section 1.3(b);
or
(B) Seller Representative, on behalf of Sellers, shall
pay to Buyer the amount, if any, by which the amount paid
pursuant to Section 1.3(b) exceeds the Consideration (as
adjusted).
9
<PAGE> 11
(C) All payments pursuant to this Section 1.4(e)(iii)
shall be 50% cash and 50% Parent Shares (valued at the Stock
1.5 Escrow.
------
(a) Simultaneously herewith, Parent, the Company,
Seller Representative (on behalf of the Sellers) and Bethea, Jordan & Griffin,
P.A., as escrow agent (the "Escrow Agent") are entering into an Escrow
Agreement in the form attached hereto as Exhibit B, and Parent is depositing
$225,000 (the "Escrow Amount") with the escrow agent, to be held and disposed
of by the Escrow Agent pursuant to the Escrow Agreement. In the event the
Closing does not occur due to (i) a material breach of this Agreement by Parent
or (ii) the failure of the conditions set forth in Section 6.1(f) hereof (which
failure has not been waived by Parent), Seller Representative (on behalf of all
Sellers, Pro Rata) shall be entitled to receive the entire Escrow Amount, as
liquidated damages, and shall have no other rights or remedies in respect of
this Agreement. Within three business days after such receipt, the Seller
Representative may sell to Parent for cash, at $1.05 per Parent Share, all of
the Parent Shares theretofore constituting a part of the Escrow Amount.
(b) At the Closing, Parent shall deposit an
additional $150,000 with the Escrow Agent, which shall become part of the
Escrow Amount.
10
<PAGE> 12
(c) Delivery of funds and Parent Shares by the
Escrow Agent to the applicable parties shall be pursuant to the terms of the
Escrow Agreement.
(d) All sums deposited by Parent with the Escrow
Agent shall be 50% cash and 50% Parent Shares (valued at the Stock Price).
1.6 APPOINTMENT OF THE SELLER REPRESENTATIVE. Each
Seller hereby irrevocably appoints Nickey Maxey (the "Seller Representative")
as such Seller's attorney-in-fact and representative, to do any and all things
and to execute any and all documents in such Seller's name, place and stead in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, to accept on such Seller's behalf any amount
payable to such Seller under this Agreement, to pay on such Seller's behalf any
amount due from such Seller under this Agreement (subject to a right of
reimbursement from such Seller), to give or receive, on such Seller's behalf,
any notice or instruction under this Agreement, or to amend, terminate or
extend, or waive the terms of, this Agreement. The Parent and Buyer shall be
entitled to rely, as being binding upon such Seller, upon any document or other
writing executed by the Seller Representative, and the Parent and Buyer shall
not be
11
<PAGE> 13
liable to any Seller for any action taken or omitted to be taken by the Parent
and Buyer in reliance thereon.
1.7 The Closing.
-----------
(a) Upon the terms and subject to the conditions
contained in this Agreement, the Closing of the transactions contemplated
hereby (the "Closing") will take place at the offices of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York on a date mutually
agreeable to all parties, but no earlier than December 1, 1995 and no later
than January 10, 1996 or such other date as Buyer and the Company shall
reasonably agree (the "Closing Date"), simultaneously with the execution of the
other agreements, documents, instruments and writings executed and delivered
pursuant hereto or in connection herewith (collectively, the "Other
Documents").
(b) At the Closing, the actions described in
Sections 1.7, 1.8, 1.9, 1.10 and 1.11 hereof are being taken. All such actions
shall be deemed to have occurred simultaneously.
(c) On the Closing Date, the Buyer and the Company
will cause an appropriate Certificate of Merger (the "Certificate of Merger")
to be executed and filed with the Secretary of State of South Carolina (the
12
<PAGE> 14
"Secretary of State") in such form and executed as provided in the BCA. The
Merger shall become effective on the date on which the Certificate of Merger
has been duly filed with the Secretary of State or such time as is agreed upon
by the parties and specified in the Certificate of Merger, and such time is
hereinafter referred to as the "Effective Time".
1.8 DELIVERIES BY THE SELLERS. At the Closing, the
Sellers are delivering to the Buyer (unless previously delivered) the
following:
(a) stock certificates representing the Shares,
accompanied by stock powers duly endorsed in blank or accompanied by duly
executed instruments of transfer, with all necessary transfer tax and other
revenue stamps affixed thereto;
(b) receipts for the payment provided for by Section
1.3(b) hereof;
(c) Certificates of Good Standing for the Company
from the South Carolina Secretary of State and from the Secretary of State of
each state in which the Subsidiaries, if any, of the Company are organized;
(d) the stock books, stock ledgers and minute books
of the Company (all other records of the Company being located on the premises
of the Company);
13
<PAGE> 15
(e) Certificates of Non-Foreign Status, duly
executed by each of the Sellers, which is attached hereto as Exhibit C;
(f) certificates in substantially the form attached
hereto as Exhibit D, duly executed by each Seller, representing to the Buyer
certain matters in connection with the Securities Act;
(g) certified resolutions of the Boards of Directors
of the Company approving this Agreement and the Other Documents and the
transactions contemplated hereby and thereby;
(h) certified resolutions of the shareholders of the
Company approving this Agreement and the Other Documents and the transactions
contemplated hereby and thereby;
(i) a letter from the independent public accountants
of the Company, certifying that no material adverse change has occurred in the
financial condition of the Company since June 30, 1995;
(j) all Permits required to be obtained before the
Buyer may legally operate the businesses of the Company;
(k) all consents, assignments or waivers required
to be obtained in connection with the Contracts,
14
<PAGE> 16
in order for the Buyer to assume the operations and conduct the business of the
Company without the breaching provisions of any Contract;
(l) executed Consulting and Non-Competition
Agreements, in the forms attached hereto as Exhibits E and J, between the
Parent and Jeff Huffman and Hugh Collins, respectively (the "Consulting
Agreements");
(m) a certificate from an officer of the Company
certifying that all representations and warranties contained in Article III are
true and correct as of the Closing Date;
(n) an executed Voting Agreement between Parent and
each of the Sellers in the form attached hereto as Exhibit F (the "Voting
Agreement");
(o) an executed Registration Rights Agreement
between Buyer and each of the Sellers in the form attached hereto as Exhibit G
(the "Registration Rights Agreement"); and
(p) the executed Continuity of Interest Agreement,
in the form attached hereto as Exhibit I, among Parent and the Sellers.
15
<PAGE> 17
1.9 DELIVERIES BY THE BUYER. At the Closing, the Buyer
is delivering to the Sellers (unless previously delivered) the following:
(a) the payments provided for in Section 1.3(b)
hereof;
(b) the Buyer's Shares provided for in Sections 1.2
and 1.3.
(c) a certificate evidencing the good standing of
the Buyer under the laws of the state of South Carolina and a certificate
evidencing the good standing of the Parent under the laws of the state of Ohio;
(d) certified resolutions of the Boards of Directors
of both the Parent and the Buyer approving this Agreement and the transactions
contemplated hereby;
(e) to each of the Sellers, an executed Voting
Agreement;
(f) to each of the Sellers, an executed Registration
Rights Agreement; and
(g) to Jeff Huffman and Hugh Collins, executed
Consulting Agreements.
1.10 CERTIFICATE OF INCORPORATION; BY-LAWS. Pursuant to
the Merger, (A) the Certificate of Incorporation of the Buyer, as in effect
immediately
16
<PAGE> 18
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation (except that the name of the Surviving Corporation
set forth in the Certificate of Incorporation shall be International Pay
Phones, Inc.) and (B) the By-laws of the Buyer, as in effect immediately prior
to the Effective Time, shall be the By-laws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation and
such By-laws.
1.11 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
(a) The directors of the Buyer immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until their successors shall have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws.
(b) The officers of the Buyer immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office until
17
<PAGE> 19
their respective successors are duly elected and qualified, or their earlier
death, resignation or removal.
(c) Parent shall cause Nickey Maxey to be appointed
to the Board of Directors of Parent, effective as of the Closing.
1.12 SCHEDULED PHONES. (a) In the event that the Company
installs any Scheduled Phones after the Closing Date ("After- Installed
Phones"), Parent shall pay to the Sellers, Pro Rata, as additional
Consideration, an amount equal to the excess of (i) the product of (A) $3,800
(adjusted as set forth in paragraph (b) below) and (B) the number of
After-Installed Phones over (ii) the total cost of installing such
After-Installed Phones, including, without limitation, commissions. Such
amount shall be paid 50% in cash and 50% in Parent Shares (valued at the Stock
Price).
(b) If the average monthly net income (calculated as gross
revenues minus telephone bills and commissions) for the After- Installed Phones
during the period ending September 30, 1996 (the "After-Installed Average
Income") is less than $115 per phone then the amount calculated pursuant to
Section 1.12(a)(i)(A) shall be multiplied by a fraction, the numerator of which
will be
18
<PAGE> 20
the After-Installed Average Income and the denominator of which will be 115.
(c) The amount required to be paid pursuant to this Section
1.12 shall be paid as soon as practicable following September 30, 1996.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
---------------------------------------------
Each Seller severally represents and warrants to the Buyer as
follows:
2.1 AUTHORIZATION; BINDING OBLIGATION. Each of this
Agreement and the Other Documents to which it is a party have been duly and
validly executed and delivered by such Seller and, assuming due authorization,
execution and delivery by the Buyer, constitute a legal, valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms. Such Seller has the legal capacity and all requisite power and
authority, whether corporate or otherwise, to execute and deliver this
Agreement and the Other Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby and to perform such Seller's
obligations hereunder and thereunder. Such execution, delivery and
consummation has been duly and
19
<PAGE> 21
validly authorized by all necessary action on the part of such Seller, and, in
the case of each Seller which is a trust, has also been duly and validly
authorized by the trust or trustee of such trust, and no other corporate
proceedings on the part of such Seller are necessary to authorize such
execution, delivery and consummation. No power of attorney has been granted by
such Seller with respect to either any matter relating to the Company or the
Shares, or to the business, operations or assets of the Company.
2.2 TITLE TO THE SHARES. Such Seller is, or will at
Closing be, the record and beneficial owner of, and had, or will then have,
good and marketable title to, the number of Company Shares set forth next to
such Seller's name on Exhibit A hereto, free and clear of all Encumbrances
other than those set forth on Schedule 2.2 of the Disclosure Schedule. Except
as set forth on Schedule 2.2 of the Disclosure Schedule, (i) such Company
Shares are not subject to any restrictions on transferability other than those
imposed by the Securities Act and applicable state securities laws and (ii)
there are no options, warrants, calls, commitments or rights of any character
to purchase or otherwise acquire Company Shares from such Seller pursuant to
which
20
<PAGE> 22
such Seller may be obligated to sell or transfer any of such Company Shares.
2.3 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth on Schedule 2.3 of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) in the case of each Seller which is a trust,
conflict with any provision of the indenture (or other similar organizational
documents) of such Seller, (b) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, or any other
action by, any Governmental Authority by such Seller, (c) violate any Law of
any Governmental Authority which may be applicable to such Seller, or by which
any of such Seller's businesses, properties or assets (including, without
limitation, such Seller's Company Shares) may be bound or affected or (d)
violate, breach, or conflict with, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or any obligation to pay or result in the
imposition of any Encumbrance upon any of the property (including, without
21
<PAGE> 23
limitation, such Seller's Company Shares)) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Encumbrance, Contract,
Permit, Order, or other instrument or obligation to which such Seller is a
party or by which any of such Seller's businesses, properties or assets
(including, without limitation, such Seller's Company Shares) may be bound or
affected.
2.4 FEES TO BROKERS OR OTHER PARTIES. Buyer and the
Sellers shall each pay their own expenses in connection with this transaction,
therefore, except as provided herein, neither the Buyer nor any Sellers has or
will have any obligation to pay any counsel's, accountant's, broker's,
finder's, investment banker's, financial advisor's or similar fee to any party,
in connection with this Agreement or the Other Documents, or the transactions
contemplated hereby or thereby; notwithstanding this provision, the Buyer will
pay a commission to Robert Stanton, as previously disclosed to Seller by Buyer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF COMPANY AND SELLERS
----------------------
22
<PAGE> 24
The Company, and the Sellers jointly and severally represent
and warrant to the Parent as follows:
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES. The
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of South Carolina. The Company has no
subsidiaries. The Company has all requisite corporate power and authority to
own, lease and operate the properties and assets it now owns, operates and
leases and to carry on the businesses and operations as currently and
heretofore conducted. The Company is duly qualified or licensed to do business
and is in good standing in each of the jurisdictions in which (i) the character
or location of the properties and assets the Company owns, leases or operates,
(ii) the conduct of the Company's business and operations as currently and
heretofore conducted or (iii) any other circumstance makes such qualification
necessary.
3.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE RECORDS. (a)
The Sellers have heretofore delivered to the Parent complete and correct
copies, with all amendments thereto, of the Certificate or Articles of
Incorporation and By-laws of the Company, as currently in effect. The minute
books of the Company have been made
23
<PAGE> 25
available to the Parent for its inspection, and such minute books contain
complete and correct records of all meetings, and consents in lieu of a
meeting, of the Board of Directors of the Company (and any committees thereof)
and the shareholders since the respective incorporations of the Company, and
accurately reflect all transactions referred to therein. The stock books and
ledgers of the Company have been made available to the Parent for its
inspection, and such books and ledgers are complete and correct in all
respects.
(b) The Sellers have made available to the Buyer
all accounting, and financial books and records (the "Accounting Books and
Records") which relate to the business of the Company. Such books and records
are true, accurate and complete, have been maintained on a basis consistent
with past practice and GAAP, and fairly present the Company's financial
condition and results of operations as set forth in the Audited Financial
Statements.
3.3 AUTHORIZATION. The Company has the requisite
corporate power and authority to execute, deliver and perform the obligations
under this Agreement and the Other Documents and to consummate the transactions
contemplated hereby and thereby. All
24
<PAGE> 26
corporate proceedings on the part of the Company which are necessary to
execute, deliver and perform this Agreement and the Other Documents and to
consummate the transactions contemplated hereby and thereby have been duly
authorized and taken. This Agreement and the Other Documents have been duly
and validly executed by the Company, and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms. No powers of attorney have been granted and are currently in
force by the Company with respect to any matter relating to the Company or the
Company's business, operations or assets.
3.4 THE COMPANY CAPITALIZATION. The authorized capital
stock of the Company consists of 100,000 Company Shares, 10,000 of which are
issued and outstanding and owned by the Sellers as set forth on Exhibit A
hereto. The Company has no other class of capital stock authorized or
outstanding. None of the Company's shares of capital stock have been reserved
for any purpose. All of the Company Shares are duly authorized and validly
issued, fully paid, nonassessable and were not issued in violation of any
preemptive rights. There are no (i) options, warrants, calls, commitments or
rights of any character to purchase or
25
<PAGE> 27
otherwise acquire from the Company shares of capital stock of any class, (ii)
outstanding securities of the Company that are convertible into or exchangeable
or exercisable for shares of any class of capital stock of the Company, (iii)
options, warrants or other rights to purchase from the Company any such
convertible or exchangeable securities, or (iv) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any capital stock of the Company, any options, warrants or rights, pursuant
to which, in any of the foregoing cases, the Company is or would be subject or
bound.
3.5 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth on Schedule 3.5(a) of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) conflict with any provision of the Articles of
Incorporation or By-laws (or other similar organizational documents) of the
Company, (b) require any consent, waiver, approval, authorization or permit of,
or filing with or notification to, or any other action by, any Governmental
Authority by the Company, except for filings
26
<PAGE> 28
required to transfer rights under the Permits, (c) violate any Law of any
Governmental Authority applicable to the Company, or by which any of the
Company's business, properties or assets may be bound or affected or (d)
violate, breach, or conflict with, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or any obligation to pay or result in the
imposition of any Encumbrance upon any of the property) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
Encumbrance, Contract, Permit, Order, or other instrument or obligation to
which the Company is a party or by which any of the Company's business,
properties or assets may be bound or affected.
3.6 FINANCIAL STATEMENTS. The Sellers are furnishing to
the Buyer the unaudited financial statements of the Company as of, and for the
years ended, December 31 in each of the years 1991 through 1994 and the
unaudited financial statements for the Company as of September 30, 1995, and
for the period then ended (collectively, the "Financial Statements"). The
Financial Statements are attached hereto as Exhibit H. The Financial
Statements have been prepared from and in
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accordance with the books and records of the Company in accordance with GAAP,
and, except as noted therein, consistently applied and maintained throughout
the periods indicated. The Financial Statements fairly present in all
respects, (i) the assets, liabilities and financial condition of the Company,
as at the date thereof, except as set forth on Schedule 3.6(a) of the
Disclosure Schedule, and (ii) the results of operations and cash flows of the
Company for the periods then ended. Except as set forth on Schedule 3.6(b) of
the Disclosure Schedule, the statements of income and retained earnings and
cash flows included in the Financial Statements do not contain any material
items of special or nonrecurring income not earned in the ordinary course of
business and consistent with applicable industry standards and practice.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set
forth on Schedule 3.7 of the Disclosure Schedule, the Company does not have any
liabilities or obligations arising from or relating to its business and
operations of any nature (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due) which
were not reflected or reserved against in the Financial
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<PAGE> 30
Statements, except for liabilities or obligations incurred since June 30, 1995
in the ordinary course of business and consistent with past practice. All
reserves established by the Company and set forth in the Financial Statements
were determined in accordance with GAAP. Schedule 3.7 of the Disclosure
Schedule sets forth a true, complete and accurate list of all liabilities or
obligations of the Company at the Closing with respect to borrowed money
(including accounts payable and accrued expenses), letters of credit, and any
notes, bonds or similar instruments or under any capitalized leases of the
Company. The transactions contemplated hereby will not cause the acceleration
of or otherwise adversely affect the terms or conditions of such liabilities or
obligations.
3.8 ACCOUNTS RECEIVABLE. Schedule 3.8 of the Disclosure
Schedule sets forth a true, complete and accurate list of all Accounts
Receivable generated in connection with the Company Phones as of October 31,
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1995. All Accounts Receivable reflected in the Financial Statements and all
Accounts Receivable acquired or generated since August 31, 1995 by the Company
(i) arose from bona fide transactions in the ordinary course of business
consistent with past practice, (ii) are valid and genuine, (iii) are not
subject to any counterclaim or setoff and (iv) are not subject to any
Encumbrance. Except as set forth on Schedule 3.8, as of the Closing Date (i)
no Account Receivable has been outstanding for more than 90 days, (ii) no
telephone service operator has refused or threatened to refuse to pay its
obligations for any reason and (iii) no Account Receivable debtor is insolvent
or is the subject of a bankruptcy petition.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth on Schedule 3.9 of the Disclosure Schedule, since December 31, 1994:
(i) the Company has operated its business in
the ordinary course consistent with past practice;
(ii) there has not been any material
adverse change in the businesses, results of operations,
assets, liabilities, financial condition or (except for
matters which apply to United States businesses
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generally) any material adverse change in the prospects of the
Company;
(iii) the Company has not entered into any
agreements binding the Company, incurred any losses, undertaken any
obligations, waived any rights, made any financial commitments, sold,
transferred or otherwise encumbered any assets, nor taken any other
action which may adversely affect the position of Parent in the
business of the Company as heretofore operated;
(iv) the Company has not transferred,
disposed of, abandoned or permitted to lapse or otherwise failed to
preserve any Permit or other form of authorization issued by a
Governmental Authority;
(v) the Company has not taken any actions
which might reasonably affect the capital stock of the Company or the
rights of holders thereof;
(vi) the Company has not made any change in
any accounting methods, principles or practices (including, without
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limitation, changes in depreciation or amortization policies or rates
or relating to the establishment of accrual of reserves) or any
material election with respect to Taxes;
(vii) the Company has not terminated or
amended, breached, or failed to perform in all material respects all
obligations under any Contract and no other party thereto has
terminated or amended, breached, or failed to perform in all material
respects all of its obligations under any Contract;
(viii) the Company has not experienced any
actual or, to the knowledge of the Company and the Sellers, threatened
employee disputes, work stoppages or slow-downs or had any material
change in its relationship with its employees, salesmen, distributors,
or independent contractors;
(ix) the Company has not failed to replenish
its inventories and supplies in a normal and customary manner
consistent with past practice; and
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(x) the Company has not agreed, whether in
writing or otherwise, to take any action described in this Section
3.9.
3.10 PROPERTIES AND ASSETS. The Company has good, valid
and marketable title to all Equipment and other assets (whether personal or
mixed, tangible or intangible (and whether or not fully depreciated or
expensed)) used in their respective business and operations, and such items are
subject to no Encumbrance or arrangement for use by any third party, other than
those set forth on Schedule 3.10 of the Disclosure Schedule. All Equipment is
usable, in good working condition, free of any material defects and suitable
for the purposes of its intended and current operational use.
3.11 CONTRACTS. Schedule 3.11 of the Disclosure Schedule
sets forth a complete and correct list of all Material Contracts as of the
Closing. Complete and correct copies of all written Contracts including any
and all amendments and other modifications thereto have been delivered to or
have been made available for inspection by the Buyer. All written Contracts
and all oral Material Contracts (x) are valid and binding obligations of the
Company and the other parties thereto, (y) are in full force and effect and are
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enforceable as to the Company and the other parties thereto, in accordance with
their respective terms, and (z) have not been amended or terminated except in
the ordinary course of business consistent with past practice. The Company is
not in default under nor has it breached in any respect any Contract. The
aggregate obligations of the Company with respect to oral Contracts which do
not constitute Material Contracts do not exceed $10,000. No other party to any
Contract (i) has breached such Contract or is in default thereunder, (ii) has
given notice that it intends to terminate such Contract or (iii) has altered,
in any way adverse to the Company, its performance under such Contract. No
event or condition has occurred (or is alleged by any other party to a Contract
to have occurred) which, with or without due notice or lapse of time or both,
would constitute a breach or event of default on the part of the Company, would
provide a basis for a valid claim or acceleration under any Contract as against
the Company or would prevent the Company from exercising and obtaining the full
benefits of any rights or options contained therein.
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3.12 COMPLIANCE WITH LAWS AND PERMITS.
(a) Except as set forth on Schedule 3.12(a) of the
Disclosure Schedule, the business and operations of the Company have been
conducted and are now being conducted in all material respects in compliance
with all Laws and Orders of all Governmental Authorities having jurisdiction
over the Company and all Permits relating to any of its properties or
applicable to its business.
(b) Except as and to the extent set forth on
Schedule 3.12(b) of the Disclosure Schedule, the Company possesses all Permits
necessary to own and operate its property and assets and to conduct its
business as it is currently conducted. Such Permits are valid, subsisting in
full force and effect, and the Company has fulfilled its obligations under each
of the Permits, and no event has occurred or condition or state of facts exists
which constitutes or, after notice or lapse of time or both, would constitute a
default or violation under any of the Permits or would permit revocation or
termination of any of the Permits. No proceeding which might involve the
revocation or termination of any such Permits is pending or, to the knowledge
of the Company or the Sellers, threatened.
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(c) the Company has made all filings and received
all approvals in connection with the Permits which are necessary for the Buyer
to own and operate the property and assets of the Company and to conduct the
Company's businesses as they have currently and have heretofore been conducted.
3.13 LITIGATION AND ARBITRATION. (a) Since the date of
the Company's incorporations, no claim, action, cause of action, suit,
proceeding, inquiry, investigation or Order has been initiated, brought or
commenced, or been pending or threatened, against the Company or affecting its
businesses, operations or assets (including actions by or before any
administrative body, arbitration or mediation panel or Governmental Authority),
except as set forth on Schedule 3.13(a) of the Disclosure Schedule. No Order
of any Governmental Authority, arbitrator or mediator is outstanding against
the Company, its business, operations or assets. Neither the Company nor any
of the Sellers has knowledge of any fact or circumstance which could reasonably
be expected to result in any other claim, action, cause of action, suit,
proceeding, inquiry, investigation or Order against the Company or affecting
its business, operations or assets.
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(b) No claim, action, suit, proceeding, inquiry
or investigation has been instituted which threatens to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
by this Agreement or the Other Documents.
3.14 EMPLOYEE MATTERS. The Company has no employee plans
or agreements in effect. The Company has taken no actions which might
reasonably be expected to result in any violations of ERISA. The consummation
of the transactions contemplated by this Agreement will not entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided herein. There are no pending, threatened or anticipated
claims by or on behalf of any employee of the Company.
3.15 LABOR RELATIONS. (a) Except as set forth on
Schedule 3.15(a) of the Disclosure Schedule, (i) there are no labor issues
affecting the Company. The Company has at all times been in compliance with
all applicable Laws in respect of employment and employment practices.
3.16 TAXES. (a) The Company only files a state income
tax return in South Carolina and North Carolina.
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(b) The Company has duly and timely filed all Tax
Returns required to be filed on or before the Closing Date, and all such Tax
Returns are complete and correct in all material respects.
(c) Except as set forth on Schedule 3.16(c) of
the Disclosure Schedule, the Company has timely paid all Taxes due or claimed
to be due from it by any taxing authority.
(d) Except as set forth on Schedule 3.16(d) of
the Disclosure Schedule, the Company has complied in all respects with all
applicable Laws relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of
the Code or similar provisions under any foreign laws) and have, within the
time and within the manner prescribed by Law, withheld from employee wages and
paid over to the proper Governmental Authorities all amounts required to be
withheld and paid over under all applicable Laws.
(e) There are no Encumbrances for Taxes upon the
Company's assets except for statutory liens for current Taxes not yet due.
(f) The Company has not requested any extension
of time within which to file any Tax Return in
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respect of any fiscal year which has not since been filed. Except as set forth
on Schedule 3.16(f) of the Disclosure Schedule, there are no outstanding
waivers or comparable consents regarding the application of the statute of
limitations with respect to any Taxes or Tax Returns that has been given by the
Company.
(g) Except as set forth on Schedule 3.16(g) of
the Disclosure Schedule, no federal, state, local or foreign audits or other
administrative proceedings or court proceedings have been initiated or are
presently pending with regard to any Taxes or Tax Returns of the Company.
(h) The Company is not required to include in
income any adjustment pursuant to Section 481(a) of the Code, by reason of a
voluntary change in accounting method (nor has any taxing authority proposed in
writing to the Company any such adjustment or change of accounting method).
(i) The Company is not a party to, is not bound
by, nor has any obligation under, any Tax sharing agreement or similar contract
or arrangement.
(j) No powers of attorney have been granted by
the Company with respect to any matter relating to Taxes which is currently in
force.
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(k) The Company has not filed a consent pursuant
to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company.
(l) Except as set forth on Schedule 3.16(l) of
the Disclosure Schedule, the Company is not a party to any agreement, contract,
or arrangement that will result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code.
(m) None of the income recognized for federal,
state, local or foreign Income Tax purposes by the Company during the period
beginning from [July 1, 1995] to the date hereof will be derived other than in
the ordinary course of business.
3.17 INTELLECTUAL PROPERTY. The Company owns or has the
right to use all Intellectual Property used in or necessary to conduct the
businesses as currently conducted, in each case without the payment of any
royalties. The activities and products of the Company do not infringe upon the
Intellectual Property rights of any other Person. To the knowledge of the
Company and the
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Sellers, there are no infringements by third parties of any Intellectual
Property owned by the Company.
3.18 ENVIRONMENTAL MATTERS. The Company is and has been
in compliance with, and there are no outstanding allegations (for
which the Company has been provided notice) by any Person that the Company is
not or has not been in compliance with, all applicable Laws relating to
pollution, the preservation of the environment and the discharge or release of
hazardous materials into the environment or workplace ("Environmental Laws").
The Company does not require any environmental permits to
conduct its business and operations. The Company has not indemnified or agreed
to indemnify any other Person for any liability under, or violation of,
Environmental Laws.
3.19 INSURANCE. Schedule 3.19(a) of the Disclosure
Schedule sets forth a complete and correct list as of the Closing of all
primary, excess and umbrella policies, bonds and other forms of insurance, and
renewals thereof, owned or held by or on behalf of or providing insurance
coverage to or for the benefit of the Company (copies of which have previously
been provided to the Parent), with the amount of coverage, cost and expiration
date set forth next to each policy thus
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listed. All of such insurance policies are in full force and effect, all
premiums currently payable or previously due have been paid, no notice of
cancellation or termination has been received with respect to any such policy
and no assignment of proceeds or Encumbrance exists with respect to the
proceeds of any such policy. Except as and to the extent set forth on Schedule
3.19(b) of the Disclosure Schedule, there are no pending claims against such
policies. All such policies will remain in full force and effect upon
execution and delivery of this Agreement and the Other Documents and the
consummation of the transactions contemplated hereby and thereby.
3.20 BANK ACCOUNTS. Schedule 3.20 of the Disclosure
Schedule sets forth a complete and correct list of (i) the names and locations
of all financial institutions at which the Company maintains a checking
account, deposit account, securities account, safety deposit box or other
deposit or safekeeping arrangement, (ii) the number or other identification of
all such accounts and arrangements and (iii) the names of all persons
authorized to draw thereon or have access thereto.
3.21 CUSTOMERS AND SUPPLIERS. Schedule 3.21(a) sets forth
a complete and correct list of (i) the names
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of those customers generating the greatest revenues for the Company (listing
such number of customers as would, in the aggregate, generate at least 40% of
the Company's total revenues) and the amount of revenues generated by each such
customer in the Company's fiscal year ended December 31, 1994 and (ii) the
names of suppliers to whom the Company paid more than $25,000 in the Company's
fiscal year ended December 31, 1994 and the approximate total purchases by the
Company from each such supplier during such year. Except as and to the extent
set forth on Schedule 3.21(b) of the Disclosure Schedule, there have been no
adverse changes in the relationships between the Company and its customers and
suppliers since January 1, 1995. The Company has not been provided with any
notice that any supplier, manufacturer or customer intends to cease doing
business with the Company. To the knowledge of the Company and the Sellers,
there are no facts or circumstances (including, without limitation, the
transactions contemplated by this Agreement and the Other Documents) that could
reasonably be expected to have an adverse affect on the Company's relationships
with its customers, suppliers and manufacturers.
3.22 AFFILIATE TRANSACTIONS. Schedule 3.22 of the
Disclosure Schedule sets forth a correct and complete
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list of all arrangements or transactions (other than salary, bonus and benefits
generally available to the employees of the Company) between the Company and
the Sellers or any affiliate or associate of the Sellers, or any business or
entity in which the Sellers or any affiliate or associate of any of the
Sellers, has any direct or indirect interest (the "Sellers' Affiliates"), that
involves an obligation or commitment on the part of or for the benefit of the
Company or such Sellers' Affiliate of more than $1,000 in any calendar year
(the "Affiliate Transactions").
3.23 DISCLOSURE. The Sellers have not failed to disclose
to the Buyer any facts material to the Company's business, results of
operations, assets, liabilities, financial condition and prospects. No
representation or warranty by the Sellers in this Agreement and no statement by
the Sellers in any Other Document (including the Schedules), contains any
untrue statement of a material fact or omits to state any material fact
necessary, in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading.
3.24 PRIOR ACQUISITIONS. No claims, amounts owed,
liabilities, Encumbrances, legal proceedings or any
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other obligations of any kind are due or were incurred or outstanding in
connection with any acquisitions made by the Company, except as already
recorded on the Financial Statements heretofore delivered to the Buyer.
3.25 COMPANY PHONES AMOUNT. There were 1,425 Company
Phones in operation as of the close of business on October 31, 1995.
3.26 CONSENTS; WAIVERS; ASSIGNMENTS; PERMITS. The Sellers
or the Company will, prior to the Closing, have obtained and
delivered to Parent (i) all Permits or consents to transfer which are required
to be obtained before the Surviving Corporation may legally operate the
Company's business, (ii) all consents or waivers which would be required in
order to not breach any Contracts to which the Company is a party and (iii) all
consents, waivers, assignments and assumptions pertaining to the Surviving
Corporation's assumption of the Company's debts, a complete listing of which is
set forth on Schedule 3.26 of the Disclosure Schedule.
3.27 RECENT PERFORMANCE. As to the businesses of the
Company (i) the average remaining term of the location contracts is 30 months
and (ii) the average net income for 1995 (calculated as gross revenues minus
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telephone bills and commissions) is $115 per month on a per phone basis.
3.28 CASH. Sellers and the Company have taken no steps to
deplete the cash of the Company prior to Closing and have maintained sufficient
cash prior to the Closing to cover ordinary payables due after the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
--------------------------------------------
The Parent represents and warrants to the Sellers as follows:
4.1 ORGANIZATION AND STANDING. The Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio. The Parent has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business and operations as it is now being conducted.
4.2 AUTHORIZATION; BINDING OBLIGATION. The Parent has
all requisite corporate power and authority to execute and deliver this
Agreement and the Other Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. The
46
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execution and delivery of this Agreement and the Other Documents by the Parent
and the consummation of the transactions contemplated hereby and thereby by the
Parent have been duly and validly authorized by the Board of Directors of the
Parent and no other corporate proceedings on the part of the Parent are
necessary to authorize this Agreement or the Other Documents or to consummate
the transactions contemplated hereby or thereby. This Agreement and the Other
Documents have been validly executed and delivered by the Parent and, assuming
due authorization, execution and delivery by the Sellers, constitute legal,
valid and binding obligations of the Parent, enforceable against the Parent in
accordance with their terms.
4.3 INVESTMENT PURPOSE. The Parent is acquiring the
Company Shares for its own account without a view to any distribution thereof
in violation of the securities laws of the United States of America or any
state thereof.
4.4 CAPITALIZATION.
(a) As of the date hereof, the authorized capital
stock of Parent consists of: (i) 22,500,000 common shares ("PhoneTel Common
Shares"), $.01 par value 16,033,276 of which are issued and outstanding, and
(ii)
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2,500,000 shares of Preferred Stock, $.01 par value, of which (A) 2,125 shares
have been designated Preferred Stock, $100 par value, of which no shares are
outstanding; (B) 6,500 shares have been designated Convertible Preferred Stock,
without par value, $100 stated value, cumulative and redeemable, of which no
shares are outstanding; (C) 3,880 shares have been designated Preferred Stock,
without par value, $1,000 stated value, cumulative and redeemable, of which
1,496 shares are outstanding; (D) 16,000 shares have been designated 8%
Preferred Stock, without par value, $100 stated value, cumulative and
redeemable, of which 12,200 shares are outstanding; (E) 2,500 shares have been
designated 7% Convertible Preferred Stock, without par value, $100 stated
value, cumulative and redeemable, all of which shares are outstanding; (F)
550,000 shares have been designated as 10% Preferred Stock, without par value,
$10 stated value, cumulative ("10% Non-Voting Stock"), of which 530,534 shares
are outstanding; and (G) 1,918,995 shares are not yet designated nor issued.
As of the date hereof, there are outstanding options, warrants or other rights
to purchase 5,316,795 Parent Shares, and 6,826,171 Parent Shares are reserved
for issuance pursuant to pending acquisition agreements. In
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addition, Parent has committed to propose an amendment to its Articles of
Incorporation providing that each share of 10% Non-Voting Stock may be
converted into 10 Parent Shares. Parent has no other class of capital stock
authorized or issued and outstanding. All of the Parent shares of capital
stock issued are duly authorized and validly issued, fully paid, nonassessable
and not issued in violation of any preemptive rights.
(b) Except as set forth above, as of the date hereof
there are no (i) options, warrants, calls, commitments or right of any
character to purchase or otherwise acquire from Parent shares of capital stock
of any class, (ii) outstanding securities of Parent that are convertible into
or exchangeable or exercisable for shares of any class of stock of Parent,
(iii) options, warrants or other rights to purchase from Parent any such
convertible or exchangeable securities, or (iv) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance
of any capital stock of Parent, any options, warrants or rights, pursuant to
which, in any of the foregoing cases, Parent is or would be subject or bound;
no other shares of Parent's capital stock have been reserved for any purpose.
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ARTICLE V
ADDITIONAL COVENANTS
--------------------
5.1 Taxes.
-----
(a) Notwithstanding any other provision of this
Agreement to the contrary, the Sellers shall assume and promptly pay all sales,
use, privilege, transfer, documentary, gains, stamp, duties, recording and
similar Taxes and fees (including penalties, interest and additions) imposed
upon any party incurred in connection with the exchange of Shares for Parent
Shares and cash (collectively, "Transfer Taxes"), and Sellers shall, at their
own expense, procure any stock transfer stamps required by, and accurately file
all necessary Tax Returns and other documentation with respect to, any Transfer
Tax.
(b) The Sellers shall prepare or cause to be
prepared, and file or cause to be filed on a timely basis all Tax Returns of
the Company with respect to all periods ending on or before the Closing Date,
which Tax Returns shall be made available to Buyer for review two weeks prior
to filing such Tax Returns. The Sellers shall pay all Taxes shown to be due
and payable thereon.
(c) The Sellers and the Parent shall cooperate,
and shall cause their respective officers,
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employees, agents, auditors and representatives to cooperate, (i) in preparing
and filing the Tax Returns and (ii) with respect to any audit or other
administrative or court proceedings with respect to Taxes and Tax Returns of
the Company for periods ending on or before the Closing Date, including, in
each case, maintaining and making available to each other all records necessary
in connection with Taxes payable with respect to such Tax Returns and in
resolving all disputes and audits and refunds with respect to such Tax Returns
and Taxes and any earlier Tax Returns and Taxes of the Company. No election
may be made by the Company with respect to the Taxes of the Company without the
Parent's written consent if such election will adversely affect the Parent.
(d) The Sellers shall promptly notify the Parent of
any notices or materials received from any Governmental Authority which relate
to the business or operations of the Company.
5.2 FURTHER ASSURANCES; COOPERATION. (a) The parties
shall, from time to time before and after the Closing, upon the request of any
other party and without further consideration, execute, acknowledge and deliver
in proper form any further instruments, and take such
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further actions as such other party may reasonably require, to carry out
effectively the intent of this Agreement and the Other Documents.
(b) The Sellers shall cooperate with the Company
and the Parent in connection with any claim, action, suit, proceeding,
inquiry or investigation with any other Person which relates to the
execution and delivery of this Agreement or the Other Documents, or the
consummation of the transactions contemplated hereunder and thereunder.
5.3 NOTIFICATION OF CERTAIN MATTERS. Each of the parties
hereto shall promptly notify the other parties, in the manner provided in
Section 8.10 hereof, of (i) the filing or other initiation of any claim,
action, suit, proceeding, inquiry or investigation which relates to the
execution and delivery of this Agreement or the Other Documents, or the
consummation of the transactions contemplated hereunder or thereunder, (ii) any
circumstance or development which could adversely impair or affect its ability
to perform its obligations under this Agreement and the Other Documents, (iii)
any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions
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contemplated by this Agreement and the Other Documents or (iv) any notice or
other communication from any Governmental Authority in connection with the
transactions contemplated by this Agreement and the Other Documents.
5.4 CONFIDENTIALITY. (a) Sellers and the Company agree
that they will not (and, in the case of the Company and each Seller which is a
corporation, will cause its officers to not) at any time after the Closing,
without the prior written consent of the Buyer, disclose or use any information
obtained during the negotiation or due diligence process nor any other
confidential information (relating to either the Parent or the Company)
otherwise obtained except (i) as may be necessary in connection with their tax
filing and reporting obligations and (ii) to the extent required by Law.
(b) Parent agrees that it will not (and will cause
its officers to not) at any time before the Closing, without the prior written
consent of the Company, disclose or use any information obtained during the
negotiation or due diligence process nor any other confidential information
(relating to the Company) otherwise obtained except (i) as may be necessary in
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connection with financing and reporting obligations and (ii) to the extent
required by Law.
5.5 PUBLICITY. The Sellers and Parent shall not issue
any press release or make any public statement regarding the transactions
contemplated hereby, without the prior approval of Parent and Seller
Representative, respectively, which approval shall not be unreasonably
withheld.
5.6 Expenses.
--------
(a) Except as otherwise specifically provided for
herein, each party hereto shall be solely responsible for all expenses incurred
by it or on its behalf in connection with the preparation and execution of this
Agreement and the Other Documents and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the fees and
expenses of its counsel, accountants, brokers, finders, financial advisors and
other representatives.
(b) The Sellers and the Buyer agree that in the
event any dispute between them, either occurring under, relating to or in
connection with any of the provisions of this Agreement or the Other Documents,
is submitted to a Governmental Authority or other appropriate entity, then all
costs and expenses of the
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parties (including reasonable legal fees) shall be paid by the party against
whom a determination by such Governmental Authority or entity is made or, in
the absence of a determination wholly against one party, as such Governmental
Authority or entity shall direct.
5.7 DUE DILIGENCE. Until the Closing Date, Sellers and
Buyer will allow one another to examine all books and records of the other as
is necessary to the completion of the transaction contemplated herein.
5.8 INTERIM CONDUCT OF BUSINESS. Except as otherwise
contemplated by this Agreement, during the period from the date hereof to the
Closing, the Company shall, and Sellers shall cause the Company to (i) operate
the businesses of the Company only in the ordinary course of business
consistent with past practices, (ii) maintain, keep and preserve the respective
assets of the Company, and (iii) use all best efforts to preserve intact the
present organizations of the Company, keep available the services of the
present employees of the Company, and preserve the Company's relationships with
customers, suppliers, licensors, licensees, contractors and others having
significant business dealings with the Company. Without limiting the
generality of the foregoing, from the date of this Agreement to the Closing
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Date, the Company shall not, and Sellers shall not permit the Company to,
without the prior written consent of Parent (which consent may be withheld in
the Parent's sole discretion):
(a) (i) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights
to purchase or otherwise) any shares of the capital stock of the Company or any
other securities or equity equivalents, (ii) split, combine or reclassify any
shares of such capital stock or (iii) amend the terms of any such securities or
agreements outstanding on the date hereof;
(b) amend or propose to amend the certificate of
incorporation or by-laws of the Company;
(c) (i) incur or assume any indebtedness or issue
or sell any debt securities or warrants or rights to acquire any
debt securities, (ii) assume, guarantee, endorse or otherwise become liable
(whether directly, contingently or otherwise) for the obligations of any other
person, (iii) make any loans, advances or capital contributions to, or
investments in, any other person or (iv) install any telephones without the
prior written consent of Parent;
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(d) sell, lease, transfer or otherwise dispose of
any of its assets, or permit any assets of the Company to suffer any lien
thereupon, except that the Company may transfer to its stockholders the
vehicles listed in Schedule 5.8(d) of the Disclosure Schedule, subject to all
liabilities related thereto;
(e) change any of the accounting principles or
practices used by the Company (except as required by GAAP);
(f) enter into, adopt, amend or terminate any
employee benefit plan, increase in any manner the compensation or
fringe benefits of any officer or employee or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing;
(g) enter into or offer to enter into any
employment or consulting agreement with any person;
(h) install, or agree to install, any telephones
which, if installed prior to the Closing, would constitute Company
Phones, without the prior written consent of Parent (which will not be
unreasonably withheld), except as set forth in Schedule 5.8(h) of the
Disclosure Schedules (the "Scheduled Phones");
(i) pay any dividend or make any other distribution
to the Sellers with respect to their Shares;
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(j) (i) enter into, amend or terminate any Material
Contract or (ii) take any action or fail to take any action that, with or
without notice or lapse of time, would constitute a default under any Material
Contract; or
(k) take, or agree in writing or otherwise to take,
any of the foregoing actions or any action which would make any representation
or warranty of the Company or Sellers contained in this Agreement untrue or
incorrect as of the date when made or as of any future date or which could
prevent the satisfaction of any condition to Closing set forth in Article VI
hereof.
5.9 DELIVERY OF FINANCIAL STATEMENTS. Sellers shall
cause to be prepared and delivered to Buyer prior to February 10, 1996, audited
consolidated financial statements of the Company as of December 31, 1994 and
December 31, 1995 and for the years then ended, certified by the Company's
independent public accountant, and accompanied by their reports therein.
Parent shall provide to Sellers and to the Company's independent public
accountants such access to the books, records and facilities of the Company as
shall be reasonably necessary for Sellers to satisfy their obligations under
this Section 5.9. Parent shall pay all fees of the
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Company's independent public accountants for the audits of the 1994 and 1995
financial statements of the Company; the Company estimates such fees will be
approximately $30,000.
5.10 PAYMENT OF THE TELEPHONE BILLS. The Company shall,
prior to the Closing, pay all telephone bills received by it prior to the
Closing.
5.11 LEASES. Parent and Seller's Representative shall
negotiate in good faith with a goal of executing a lease with respect to all
space required by the Surviving Corporation.
ARTICLE VI
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT.
The obligation of the Parent to consummate the transactions contemplated hereby
is subject to the satisfaction or waiver (subject to applicable law) on or
before the Closing Date, of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND
WARRANTIES Each of the representations and warranties of the Sellers and the
Company contained in this Agreement, the Disclosure Schedule, or in any Other
Document to be executed and delivered by the Sellers or the Company on
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or before the Closing Date pursuant hereto shall have been true and correct in
all material respects when made, and shall be true and correct in all material
respects as of the Closing Date as though made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS.
The Sellers and the Company shall have performed and complied with all of the
covenants and agreements contained in this Agreement to be performed or
complied with by them at or before the Closing.
(c) ADVERSE PROCEEDINGS. No claim,
action, suit, investigation or governmental proceeding shall be pending and no
Law of any Governmental Authority shall be enacted, rendered or in force, which
would render it unlawful, as of the Closing Date, to effect the transactions
contemplated by this Agreement and the Other Documents to be executed and
delivered pursuant hereto.
(d) CONSENTS AND APPROVALS. All
necessary consents, approvals or waivers from third parties and Governmental
Authorities shall have been received.
(e) AT&T CONTRACT. Resort
Hospitality Services International, Inc. ("Resort"), a South Carolina
corporation, shall enter into an agreement with Parent, pursuant to which it
will: (i) continue to pay all AT&T
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commissions to the Surviving Corporation in accordance with prior custom
(through the term of the existing contract and through the term of any
extensions or renewals thereof, for as long as such revenues are received from
AT&T), (ii) use its best efforts to maintain or increase the revenue stream
paid pursuant to the AT&T contract, (iii) have no recourse against Parent or
the Surviving Corporation in connection with any commissions that were paid or
accrued prior to the Closing, and (iv) indemnify Buyer against any liability,
whether direct or indirect, to AT&T in connection with any such adjustment.
(f) The Stock Price shall be equal
to or greater than $0.75.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY AND THE SELLERS. The obligations of the Company and the Sellers to
consummate the transactions contemplated hereby are subject to the satisfaction
or waiver (subject to applicable Law) on or before the Closing Date of each of
the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Parent
contained in this Agreement or in any Other Document to be executed and
delivered by the Parent on or
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before the Closing Date pursuant hereto shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects as of the Closing Date as though made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS. The
Parent shall have performed and complied with all of the covenants and
agreements contained in this Agreement to be performed or complied with by the
Parent at or before the Closing.
(c) ADVERSE PROCEEDINGS. No claim,
action, suit, investigation or governmental proceeding shall be pending, and no
Law of any Governmental Authority shall be enacted, rendered or in force, which
would render it unlawful, as of the Closing Date, to effect the transactions
contemplated by this Agreement and the Other Documents to be executed and
delivered pursuant hereto.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNIFICATION
---------------------------
7.1 SURVIVAL OF REPRESENTATIONS
AND WARRANTIES. All representations and warranties of the Sellers and the
Parent contained herein or made pursuant hereto shall survive the Closing and
any investigation at any time made by or on behalf of any party hereto until
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June 30, 1997 except that the representations and warranties contained in
Sections 3.16 (Taxes) and 3.13 (Litigation and Arbitration) shall both survive
until 90 days following the expiration (with valid extensions) of the
applicable statute of limitations. Provided that a claim with respect to a
breach of representation or warranty is made within the applicable period in
accordance with the provisions of Section 7.5 or Section 7.6 hereof, such claim
and any related claims may continue to be asserted beyond such period.
7.2 STATEMENTS AS
REPRESENTATIONS. All statements contained herein or in any Schedule contained
in the Disclosure Schedule or in any Exhibit hereto shall be deemed
representations and warranties within the meaning of Sections 7.1, 7.3(i), and
7.4(i) hereof.
7.3 INDEMNIFICATION BY THE
SELLERS. Subject to the provisions of this Article VII, each Seller shall
jointly and severally indemnify, defend and hold harmless the Buyer, any
parent, subsidiary or affiliate of the Buyer, and any director, officer,
employee, agent or advisor of any of them, or any of their respective
successors or assigns (a "Buyer Indemnified Party"), from and against any and
all Losses asserted against, resulting to, imposed upon or incurred by any
Buyer
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Indemnified Party, directly or indirectly, by reason of or resulting from:
(i) the breach of or any
inaccuracy in any of the representations and warranties of
the Sellers or the Company contained in or made pursuant to any
section of this Agreement, or any facts or circumstances
constituting such breach or inaccuracy;
(ii) the breach or
nonperformance of any covenant or agreement of the Sellers or the
Company contained in or made pursuant to this Agreement or any
facts or circumstances constituting such breach or nonperformance;
and
(iii) any and all Taxes
imposed upon the Company or Sellers with respect to any
taxable period (or any portion thereof) ending on or before the
Closing Date.
7.4 INDEMNIFICATION BY THE
PARENT. Subject to the provisions of this Article VII, the Parent shall
indemnify, defend and hold harmless the Sellers, any parent, subsidiary or
affiliate of the Sellers, and any director, officer, employee, agent or advisor
of any of them or any of their respective heirs, successors or
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assigns (a "Seller Indemnified Party"), from and against any and all Losses
asserted against, resulting to, imposed upon or incurred by any Seller
Indemnified Party, directly or indirectly, by reason of or resulting from:
(i) the breach of or any inaccuracy in any of the
representations and warranties of the Parent contained in or made
pursuant to this Agreement or any facts or circumstances
constituting such breach or inaccuracy; and
(ii) the breach or non-performance of any agreement
of the Parent contained in or made pursuant to this Agreement or
any facts or circumstances constituting such breach or
nonperformance.
7.5 Indemnification Procedures.
--------------------------
(a) NOTICE. If any legal proceeding shall be
threatened or instituted or any claim or demand shall be asserted by any Buyer
Indemnified Party or Seller Indemnified Party in respect of which
indemnification may be sought under the provisions of this Agreement, the
party seeking indemnification (the "Claiming Party") shall promptly cause
written notice of the assertion of any such claim, demand or proceeding of
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which it has knowledge to be forwarded to the party from whom it is claiming
indemnification (the "Indemnitor"). Such notice shall contain a reference to
the provisions hereof or of such other agreement, instrument or certificate
delivered pursuant hereto, in respect of which such claim is being made, and
shall specify, in reasonable detail, the amount of such Loss if determinable at
such time. The Claiming Party's failure to give the Indemnitor prompt notice
shall not preclude the Claiming Party from seeking indemnification from the
Indemnitor unless the Claiming Party's failure has materially prejudiced the
Indemnitor's ability to defend the claim, demand or proceeding.
(b) THIRD PARTY CLAIMS. If the
Claiming Party seeks indemnification from the Indemnitor as a result of a claim
or demand being made by a third party (a "Third Party Claim"), the Indemnitor
shall have the right to promptly assume the control of the defense of such
Third Party Claim, including, at its own expense, employment by it of counsel
reasonably satisfactory to the Claiming Party. The Claiming Party may, in its
sole discretion and at its own expense, employ counsel to represent it in the
defense of the Third Party Claim, and in such event counsel for the Indemnitor
shall cooperate
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with counsel for the Claiming Party in such defense, provided that the
Indemnitor shall direct and control the defense of such Third Party Claim or
proceeding. Except with the written consent of the Claiming Party, the
Indemnitor shall not consent to the entry of any judgment nor enter into any
settlement of such Third Party Claim which (i) does not include as an
unconditional term thereof the release of the Claiming Party from all liability
in respect of such Third Party Claim and (ii) results in the imposition on the
Claiming Party of any remedy other than money damages; provided, however, that
the Claiming Party shall not unreasonably withhold or delay its consent to the
entry of any judgment or any settlement of a Third Party Claim. If the
Indemnitor elects not to exercise its rights to assume the defense of the Third
Party Claim, or if injunctive relief is sought which would have an adverse
effect on the Claiming Party, the Claiming Party may, but shall have no
obligation to, defend against such Third Party Claim or legal proceeding in
such manner as it may deem appropriate, and the Claiming Party may compromise
or settle such Third Party Claim and proceeding without the Indemnitor's
consent so long as the Claiming Party acts
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in a commercially reasonable manner (without regard to the Claiming Party's
indemnification rights hereunder).
(c) PAYMENT. After any final
judgment or award shall have been rendered by a court, arbitration board or
administrative agency of competent jurisdiction and the time in which to appeal
therefrom shall have expired, or a settlement shall have been consummated, or
the Claiming Party and the Indemnitor shall arrive at a mutually binding
agreement with respect to each separate matter alleged to be indemnified by the
Indemnitor hereunder, the Claiming Party shall forward to the Indemnitor notice
of any sums due and owing by it with respect to such matter (in accordance with
Section 8.10 hereof) and the Indemnitor shall pay all of the sums so owing to
the Claiming Party within 10 days after the date of such notice.
Notwithstanding the foregoing, the obligation of Sellers to indemnify under
this Article VII shall be limited to 50% of the aggregate Consideration; such
indemnification obligation shall be satisfied 50% in cash (by wire transfer,
certified or bank cashier's check) and 50% in Parent Shares (valued at the
Stock Price).
(d) ESCROW. To the extent that the
Escrow Amount has not been released pursuant to the Escrow Agreement, the Buyer
Indemnified Party's right to
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indemnification and to be held harmless pursuant to Section 7.3 hereof must
first be asserted against the Escrow Amount.
7.6 Certain Tax Indemnification
---------------------------
Procedures: Notice Requirements; Control Of Proceedings.
- --------------------------------------------------------
(a) If a notice of deficiency,
proposed adjustment, adjustment, assessment, audit, examination,
suit, dispute or other claim (a "Tax Claim") shall be delivered, sent,
commenced, or initiated to or against any Buyer Indemnified Party by any taxing
authority with respect to Taxes for which the Sellers have agreed to indemnify
any Buyer Indemnified Party, Parent shall promptly notify the Sellers'
Representative in writing of the Tax Claim. If any such Tax Claim shall be
delivered, sent, commenced or initiated to or against the Sellers by the
relevant taxing authority, the Sellers shall promptly notify Parent in writing
of such Tax Claim.
(b) The Sellers' Representative may,
upon timely notice to Parent, assume and control the defense of any such Tax
Claim at their own cost and expense and with their own counsel. If the
Sellers' Representative elects to assume the defense of any such Tax Claim,
notwithstanding anything to the contrary contained herein, (i) the Seller's
Representative shall consult with
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Parent and shall not enter into any settlement with respect to any such Tax
Claim without Parent's prior written consent if the effect of such settlement
would be to increase the liability for Taxes of Buyer for any taxable period;
(ii) the Sellers shall keep Parent informed of all material developments and
events relating to such Tax Claim; and (iii) at its own cost and expense,
Parent shall have the right to participate in (but not to control) the defense
of such Tax Claim.
(c) In connection with any Tax Claim
that the Sellers' Representative does not timely elect to control pursuant to
Section 7.6, such contest shall be controlled by the Parent, and the Sellers
agree to cooperate with the Parent and its affiliates in pursuing such contest.
Parent shall keep the Sellers informed of all material developments and events
relating to such Tax claim and Sellers, at their own cost and expense, shall
have the right to participate in (but not control) the defense of such Tax
claim. Nothing contained herein shall be construed as limiting Parent's right
to indemnification under this Article VII.
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ARTICLE VIII
MISCELLANEOUS
-------------
8.1 CONSENT TO SERVICE. Each
Seller hereby designates and appoints the Seller Representative as its
authorized agent upon whom process may be served in any suit, proceeding or
other action against such Seller instituted by the Buyer and relating to this
Agreement. Such designation and appointment shall, to the extent permitted by
law, be irrevocable, unless and until a successor authorized agent acceptable
to the Buyer shall have been appointed by the Sellers, such successor shall
have accepted such appointment and written notice thereof shall have been given
to the Buyer. Each Seller further agrees that service of process upon such
authorized agent or successor shall be deemed in every respect service of
process upon such Seller in any such suit, proceeding or other action. Each
Seller further agrees to take any and all action, including the execution and
filing of all such instruments and documents, as may be necessary to continue
such designation and appointment of such authorized agent in full force and
effect.
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8.2 Parties In Interest; No Third Party Beneficiaries.
-------------------------------------------------
(a) This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and
obligations of the Parent and the Sellers hereunder may not be assigned by any
of the parties hereto without the prior written consent of the other parties,
except that the Parent may assign its rights and obligations hereunder to
Buyer, PROVIDED, HOWEVER, that the Parent shall remain liable for all of its
obligations and those of Buyer hereunder.
(b) This Agreement is not intended, nor shall it
be construed, to confer upon any Person except the parties hereto and their
heirs, successors and permitted assigns any rights or remedies under
or by reason of this Agreement, except for the rights of Buyer Indemnified
Parties and Seller Indemnified Parties under Article VII hereof.
8.3 EXHIBITS AND DISCLOSURE SCHEDULE. All Exhibits
annexed hereto and the Disclosure Schedule referred to herein are hereby
incorporated in and made a part of this Agreement as if set forth in full
herein.
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8.4 ENTIRE AGREEMENT. This
Agreement, including the Exhibits hereto and the documents, schedules,
certificates and instruments referred to herein, embody the entire agreement
and understanding of the parties hereto in respect of the transactions
contemplated by this Agreement. This Agreement supersedes all prior
agreements, arrangements and understandings of the parties with respect to such
transactions.
8.5 WAIVER OF COMPLIANCE. No
amendment, modification, alteration, supplement or waiver of compliance with
any obligation, covenant, agreement, provision or condition hereof or consent
pursuant to this Agreement shall be effective unless evidenced by an instrument
in writing executed by all of the parties or in the case of a waiver, the party
against whom enforcement of any waiver, is sought. Any waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement,
provision or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
8.6 VALIDITY. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other
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provisions of this Agreement, each of which shall remain in full force and
effect.
8.7 COUNTERPARTS. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
8.8 HEADINGS. The table of
contents, article and section headings contained in this Agreement are for
convenience only and shall not control or affect in any way the meaning or
interpretation of the provisions of this Agreement.
8.9 GOVERNING LAW. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the conflicts of law principles of
such jurisdiction.
8.10 NOTICES. All notices,
requests, claims, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
telecopied (with confirmation of receipt), delivered by nationally-recognized
overnight express service or sent by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses:
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(a) If to the Buyer to:
PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Telephone: (216) 241-2555
Telecopy: (216) 241-2574
Attention: Chief Executive Officer
Copy to:
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: Stephen M. Banker, Esq.
(b) If to a Seller:
Seller's address, as set forth on Exhibit A
hereto.
Copy to:
Bethea, Jordan & Griffin, P.A.
Suite 400
Shelter Cove Executive Park
23-B Shelter Cove Lane
P.O. Drawer 3
Hilton Head Island, SC 29938-0038
Telephone: (803) 785-2171
Telecopy: (803) 686-5991
Attention: Robert M. Deeb, Jr., Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
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8.11 TERMINATION. This Agreement may be terminated by
either the Parent or the Company if the Closing has not occurred on or prior to
January 31, 1996. If any party terminates this Agreement pursuant to this
Section 8.11, all obligations of the parties hereunder shall terminate without
any liability of any party to any other party (except for any liability of any
party then in breach and except as provided, however, that the provisions of
Sections 5.4 and 5.6 and the last sentence of Section 5.9 shall survive
termination of this Agreement.)
8.12 EFFECTIVENENESS. This Agreement shall not be effective until
it and the Tennessee Agreement have been signed by all parties.
ARTICLE IX
DEFINITIONS
-----------
9.1 DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings set forth below(such meanings to be
equally applicable to both the singular and plural forms of the terms defined):
"ACCOUNTING BOOKS AND RECORDS" shall have the meaning set
forth in Section 3.2(b) hereof.
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"ACCOUNTS RECEIVABLE" shall mean all of the accounts
receivable and notes receivable of the Company, as set forth on Schedule 3.8
"ADJUSTMENT SCHEDULE" shall have the meaning set forth in
Section 1.4(e) hereof.
"AFFILIATE TRANSACTIONS" shall have the meaning set forth in
Section 3.22 hereof.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"AUDITED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 3.6 hereof.
"AVERAGE INCOME" shall mean the average monthly net income
for 1995 (calculated as gross revenues minus telephone bills and
commissions) for (i) the Company Phones (as defined herein) and (ii) the
Company Phones (as defined in the Tennessee Agreement).
"AVERAGE TERM" shall mean the average remaining term of the
written contracts for the placement of (i) Company Phones (as defined herein)
and (ii) Company Phones (as defined in the Tennessee Agreement); provided that,
in calculating the term of any such contract, any renewal at the option of the
Company shall be considered part of the term; and further provided that such
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calculation shall be weighted to take into account the number of telephones
under each such contract.
"BCA" shall mean the Business Corporation Act of 1988 of the
State of South Carolina
"BUYER" shall mean a wholly owned subsidiary of Parent to be
established by Parent prior to the Closing.
"BUYER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.3 hereof.
"CERTIFICATE OF MERGER" shall have the meaning set forth in
Section 1.7.
"CLAIMING PARTY" shall have the meaning set forth in section
7.5 hereof.
"CLOSING" shall have the meaning set forth in Section 1.7
hereof.
"CLOSING DATE" shall have the meaning set forth in Section
1.7 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPANY" shall mean International Pay Phones, Inc., a South
Carolina corporation and all of its subsidiaries, if any.
"COMPANY PHONES" shall mean microprocessor based pay
telephones owned and operated by the Company, and which are active and
generating income.
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"COMPANY PHONES AMOUNT" shall mean the aggregate number of
microprocessor based pay telephones owned and operated by the Company, and
which are active and generating income as of the Closing Date; provided that
such amount shall not include any telephones purchased or installed after the
date hereof unless specifically accepted by Parent in writing.
"COMPANY SHARES" or "SHARES" shall mean each share of Common
Stock, no par value per share, of the Company, outstanding immediately prior to
the Effective Time.
"CONSIDERATION" shall have the meaning set forth in Section
1.2(a) hereof.
"CONSULTING AGREEMENT" shall have the meaning set forth in
Section 1.8(l) hereof.
"CONTRACTS" shall mean and include all leases, contracts,
agreements, licenses, License Agreements, purchase orders, invoices, sales
orders, instruments evidencing indebtedness for borrowed money, mortgages or
other documents securing any indebtedness for borrowed money, commitments and
understandings, written or oral, and all amendments or modifications thereto,
to which the Company is a party or by which the Company is bound.
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"CURRENT ASSETS" shall mean all cash, current accounts
receivable and all cash equivalents of the Company as of the Closing Date.
"CUSTOMER PHONE AMOUNT" shall mean the number of telephones
operated by the Company and owned by third parties as of the Closing Date.
"DISCLOSURE SCHEDULE" shall mean the disclosure schedule
delivered in connection herewith.
"EFFECTIVE TIME" shall have the meaning set forth in
Section 1.7 hereof.
"ENCUMBRANCE" shall mean any lien, encumbrance, proxy, voting
trust arrangement, pledge, security interest, collateral security agreement,
financing statement (and similar notices) filed with any Governmental
Authority, claim (including any claim as defined in the Code), charge,
equities, mortgage, pledge, objection, title defect, option, restrictive
covenant or restriction on transfer of any nature whatsoever, and the
interest of the lessor in any property subject to a capital lease.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in
Section 3.18.
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"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any trade or business, whether or
not incorporated, which (within the meaning of Section 4001 of ERISA) would, in
conjunction with the Company and TN, be deemed a "single employer".
"EQUIPMENT" shall mean all the Company Phones, all Inventory
and all other items of plant and equipment (including, without limitation,
vehicles, furniture, computers, office equipment and office supplies) which are
owned, leased or otherwise used by the Company in the operations of its
businesses.
"ESCROW AGENT" shall have the meaning set forth in Section
1.5(a) hereof.
"ESCROW AMOUNT" shall have the meaning set forth in Section
1.5(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.6 hereof.
"GAAP" shall mean generally accepted accounting principles as
in effect on the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean any government or
political subdivision thereof, whether federal, state, local or foreign,
or any agency,
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department, commission, board, bureau, court, tribunal, body, administrative or
regulatory authority or instrumentality of any such government or political
subdivision.
"INCOME TAXES" shall mean all Taxes based upon or measured by
income.
"INDEMNITOR" shall have the meaning set forth in Section
7.5(a) hereof.
"INTELLECTUAL PROPERTY" shall mean (i) all computer software
applications (whether licensed or otherwise and whether customized or
otherwise), U.S. and foreign patents and patent applications, registered and
unregistered copyrights and copyright applications (including copyrights in
proprietary computer software and databases), trademarks, service marks, trade
dress, logos, trade names and similar business identifiers, including, in each
case, all registrations and applications therefor, (ii) all trade secrets,
know-how, formulae, processes, inventions (whether patentable or unpatentable)
and other technical information and (iii) the goodwill of the business
symbolized by any of the foregoing.
"INVENTORY" shall mean and include all inventory owned or
held by the Company and used in the
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conduct of its business and operations, including raw materials, components,
repair parts, works-in-progress, finished goods and other similar items,
whether new or used.
"LAW" shall mean any law (including common law), rule,
regulation, restriction (including zoning), code, statute, ordinance, order,
writ, injunction, judgment, decree or other requirement of a Governmental
Authority.
"LIABILITIES" shall mean any obligations or liabilities of any
nature whether known or unknown, accrued, absolute, contingent or otherwise,
and whether due or to become due of Company and its affiliates.
"LOSSES" shall mean and include all demands, claims, actions,
causes of action, assessments, damages, losses, liabilities, judgments,
settlements, fines, penalties, sanctions, costs and expenses (including,
without limitation, interest, penalties, reasonable attorneys' fees and
expenses as incurred, and all other reasonable costs of investigating and
defending third party claims as incurred).
"MATERIAL CONTRACT" shall mean any Contract that (i) is with
any of the Sellers' Affiliates, (ii) involves an obligation or commitment of
more than $5,000
83
<PAGE> 85
or (iii) which otherwise is material to either the Company's financial
conditions, results of operations, assets, liabilities, businesses or, to the
knowledge of the Company and the Sellers, the prospects of the Company.
"MERGER" shall have the meaning set forth in Section 1.1.
"ORDER" shall mean any order, judgment, injunction, award,
decree, writ, rule or similar action of any Governmental Authority.
"OTHER DOCUMENTS" shall have the meaning set forth
in Section 1.7 hereof.
"PARENT" shall mean PhoneTel Technologies, Inc.
"PARENT SHARES" shall mean shares of the Common Stock, $.01
par value, of the Parent.
"PERMITS" shall mean any franchise, license, certificate,
approval, identification number, registration, permit, authorization, order or
approval of, and any required registration with, any Governmental Authority.
"PERSON" shall mean any individual, partnership, firm, trust,
association, corporation, joint venture, joint stock company, unincorporated
organization, Governmental Authority or other entity.
84
<PAGE> 86
"PRO RATA" shall mean proportionate to the percentage
ownership of all Company Shares outstanding.
"RESORT" shall have the meaning set forth in Section 6.1(f).
"SCHEDULED PHONES" shall have the meaning set forth in
Section 5.8(h) hereof.
"SECRETARY OF STATE" shall have the meaning set forth
in Section 1.7.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SELLER INDEMNIFIED PARTY" shall have the meaning set forth
in Section 7.4 hereof.
"SELLER REPRESENTATIVE" shall have the meaning set forth in
Section 1.6 hereof.
"SELLERS" shall have the meaning set forth in the preamble.
"SELLERS' AFFILIATES" shall have the meaning set forth in
Section 3.22 hereof.
"STOCK PRICE" shall mean the lesser of $1.05 per Parent Share
or the average of the closing prices for the Parent Shares on the ten trading
days ending two days prior to the Closing Date, adjusted to account for any
85
<PAGE> 87
stock splits, reverse stock splits, stock dividends or any similar transaction
with respect to Parent Shares.
"SURVIVING CORPORATION" shall have the meaning set forth in
Section 1.1.
"TAX RETURN" shall mean any return, report, information
return or other document (including any related or supporting information)
with respect to Taxes.
"TAXES" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
Governmental Authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, capital stock, transfer,
franchise, payroll, withholding, social security or other taxes, including any
interest, penalties or additions attributable thereto.
"TENNESSEE AGREEMENT" shall mean the Agreement and Plan of
Merger, of even date herewith, among International PayPhones, Inc., a Tennessee
corporation, all of the shareholders thereof and Parent.
"THIRD PARTY CLAIM" shall have the meaning set forth in
Section 7.5 hereof.
"VOTING AGREEMENT" shall have the meaning set forth in Section
1.8(n).
86
<PAGE> 88
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, on the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:__________________________
Name:
Title: Chairman and CEO
INTERNATIONAL PAY
PHONES,INC.
By:__________________________
Name:
Title: Chairman and CEO
87
<PAGE> 89
THE SHAREHOLDERS OF
INTERNATIONAL PAY PHONES,INC.:
________________________________
[Seller name]
88
<PAGE> 90
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Closing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Consideration Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.6 Appointment of the Seller Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.7 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.8 Deliveries by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.9 Deliveries by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.10 Certificate of Incorporation; By-Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.11 Directors and Officers of the Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.12 Scheduled Phones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
2.1 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.2 Title to the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Fees To Brokers or Other Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF COMPANY AND SELLERS
3.1 Organization and Standing; Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.2 Organizational Documents and Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.4 The Company Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.5 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.7 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.8 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.9 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 91
<TABLE>
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3.10 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.12 Compliance with Laws and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.13 Litigation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.15 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.21 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.22 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.24 Prior Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.25 Company Phones Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.26 Consents; Waivers; Assignments; Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.27 Recent Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.28 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.2 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.3 Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE V
ADDITIONAL COVENANTS
5.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.2 Further Assurances; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.7 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.8 Interim Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.9 Delivery of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.10 Payment of the Telephone Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
</TABLE>
ii
<PAGE> 92
<TABLE>
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ARTICLE VI
6.1 Conditions Precedent to Obligations of the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
6.2 Conditions Precedent to Obligations of the Company and the Sellers . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
7.2 Statements as Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.3 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.4 Indemnification by the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
7.5 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.6 Certain Tax Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE VIII
MISCELLANEOUS
8.1 Consent to Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.3 Exhibits and Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
8.5 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.6 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.11 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.12 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE IX
DEFINITIONS
9.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
</TABLE>
iii
<PAGE> 93
Exhibit A - List of Sellers
Exhibit B - Escrow Agreement
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Securities Act Certificate
Exhibit E - Huffman Consulting and Non-Competition Agreement
Exhibit F - Voting Agreement
Exhibit G - Registration Rights Agreement
Exhibit H - Financial Statements
Exhibit I - Continuity of Interest Agreement
Exhibit J - Collins Consulting and Non-Competition Agreement
iv
<PAGE> 94
AMENDMENT NO. 1
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
Amendment No. 1, dated as of January 16, 1996 ("Amendment No.
1"), to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Pay Phones, Inc., a South Carolina corporation
("Company"), and the shareholders of the Company (collectively, the "Sellers").
Parent and Sellers entered into the Original Agreement on
November 22, 1995. Parent and Sellers desire to amend the Original Agreement
to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. Alton L. Huffman is hereby added as a party to the Original
Agreement. Exhibit A to the Original Agreement is hereby
deleted and Exhibit A attached to this Amendment No. 1 is
hereby substituted in its place.
2. The Closing as defined in Section 1.7(a) of the Original
Agreement shall take place on or before February 29, 1996, as
may be mutually agreed by Buyer and Sellers, and the term
"Closing Date", as defined and used in the Original Agreement,
shall be amended to mean the date on which the Closing
actually takes place.
<PAGE> 95
3. The term "Buyer" as used in the Original Agreement is hereby
deleted and replaced with the term "Parent" as defined and
used in the Original Agreement.
4. The term "Buyer" is hereby eliminated as a defined term from
Section 9.1 of the Original Agreement.
5. The following Section 1.4(c)(v) is added to the Original
Agreement:
"The Consideration shall be increased by an amount
equal to the Company's net operating loss, before
depreciation and amortization, from January 11, 1996
through the date of Closing as reflected on the
Company's income statement which shall be prepared on
the date of Closing in accordance with generally
accepted accounting practices."
6. Section 8.2(a) of the Original Agreement is hereby amended to
add the following language at the end of such Section:
", and, from and after the Closing Date, Parent may
assign its rights hereunder to any party providing
financing to Parent."
7. If the merger of the Company into Parent (the "Merger")
contemplated by the Original Agreement, as hereby amended, has
not been consummated by February 1, 1996, then the $225,000
deposit held pursuant to the Escrow Agreement shall be
disbursed to Sellers by Bethea, Jordan & Griffin, P.A.
("Escrow Agent"), PROVIDED, HOWEVER, that (i) such $225,000
shall be credited as a partial payment of the Consideration if
the Merger is later consummated and (ii) if either of (a) the
Closing of the Merger or (b) the closing of Parent's pending
financing arrangements with ING are not closed on or prior to
February 29, 1996 due to a breach by the Company or Sellers of
the Original Agreement, as hereby amended, then the Escrow
Agent shall not disburse any funds to Sellers and, if
2
<PAGE> 96
previously disbursed, Sellers shall promptly (and in any event
within two Business Days after Parent's written request) repay
to Parent the entire $225,000 previously disbursed from the
Escrow.
8. The Original Agreement and the Escrow Agreement are hereby
amended to provide that (a) the total amount to be held by the
Escrow Agent pursuant to the Escrow Agreement after Closing
shall be $187,500, (b) the cash portion of such $187,500 shall
be held by the Escrow Agent in an interest bearing account
with interest accruing to the Sellers, (c) the claim period
provided for in the Escrow Agreement shall be shortened to
provide that the Escrow Agent shall hold the $187,500, and
that claims can be made, only for a period of six (6) months,
and (d) the amounts to be released to Sellers' Representative
in the first six months of the Escrow shall be reduced by
one-half.
9. The parties agree to execute a formal Amendment to the Escrow
Agreement prior to Closing incorporating the changes and
modifications set forth in paragraph 8 of this Amendment No.
1.
10. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, all Exhibits and Schedules thereto
and all documents executed in connection therewith shall
continue in full force and effect and shall remain enforceable
and binding in accordance with their terms.
11. This Amendment No. 1 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original and all of which constitute,
collectively, one agreement.
12. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York.
13. In the event of a conflict between the terms and conditions of
the Original Agreement and
3
<PAGE> 97
the terms and conditions of this Amendment No. 1, then the
terms and conditions of this Amendment No. 1 shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:
----------------------------------
Name:
Title:
SELLERS:
-------------------------------------
Jeff Huffman
-------------------------------------
Nickey Maxey
-------------------------------------
Alton L. Huffman
-------------------------------------
Hugh Collins
4
<PAGE> 98
EXHIBIT A
---------
<TABLE>
<CAPTION>
SELLERS
-------
Name and Address Percentage
- ---------------- Number of ----------
Shares
------
<S> <C> <C>
Nickey Maxey 4,500 45
19-B Bow Circle
Hilton Head Island, SC
29928
Alton L. Huffman 2,250 22.5
107 Dave Warlick Drive
Lincolnton, NC
28092
Jeff Huffman 2,250 22.5
107 Dave Warlick Drive
Lincolnton, NC
28092
</TABLE>
5
<PAGE> 99
<TABLE>
<S> <C> <C>
Hugh Collins 1,000 10
19-B Bow Circle
Hilton Head, SC
29928
</TABLE>
6
<PAGE> 100
AMENDMENT NO. 2
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
Amendment No. 2, dated as of February 23, 1996 ("Amendment No.
2"), to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Pay Phones, Inc., a South Carolina corporation
("Company"), and the shareholders of the Company (collectively, the "Sellers").
Parent, the Company and Sellers entered into the Original
Agreement on November 22, 1995. The Original Agreement was amended pursuant to
Amendment No. 1, dated as of January 16, 1996, among Parent, the Company and
Sellers ("Amendment No. 1"). Parent, the Company and Sellers desire to further
amend the Original Agreement to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. Section 1.1 of the Original Agreement, as amended by Amendment
No. 1, is hereby deleted and replaced with the following:
1.1 THE MERGER. Upon the terms and subject to
conditions of this Agreement and in accordance with Chapter 17
of the Revised Code of the State of Ohio (the "GCL") at the
Effective Time, the Company shall be merged with and into the
Parent (the "Merger") and the separate corporate existence of
the Company shall cease. After the Merger, the Parent shall
continue as the surviving corporation (sometimes hereinaf-
<PAGE> 101
ter referred to as the "Surviving Corporation"). The Merger
shall have the effects as provided in the applicable
provisions of the GCL. Without limiting the generality of the
foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and the
Parent shall vest in the Surviving Corporation and, except as
otherwise provided for in this Agreement, all obligations,
duties, debts and liabilities of the Company and the Parent
shall be the obligations, duties, debts and liabilities of the
Surviving Corporation.
2. Section 1.7(c) of the Original Agreement, as amended by
Amendment No. 1, is hereby deleted and replaced with the
following:
(c) On the Closing Date, the Parent and the
Company will cause an appropriate Certificate of Merger to be
executed and filed with the Secretary of State of South
Carolina in such form and executed as provided in the BCA.
The Parent and the Company will also cause an appropriate
Certificate of Merger to be executed and filed with the
Secretary of State of Ohio in such form and executed as
provided in the GCL. The Merger shall become effective on the
date on which both the South Carolina and Ohio Certificates of
Merger have been duly filed with the Secretaries of State or
such time as is agreed upon by the parties and specified in
the Ohio Certificate of Merger, and such time is hereinafter
referred to as the "Effective Time".
3. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, as amended by Amendment No. 1, all
Exhibits and Schedules thereto and all documents executed in
connection therewith shall continue in full force and effect
and shall remain enforceable and binding in accordance with
their terms.
4. This Amendment No. 2 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original
2
<PAGE> 102
and all of which constitute, collectively, one agreement.
5. This Amendment No. 2 shall be governed by and construed in
accordance with the laws of the State of New York.
6. In the event of a conflict between the terms and conditions of
the Original Agreement and the terms and
conditions of this Amendment No. 2, then the terms and
conditions of this Amendment No. 2 shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
---------------------------
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:
---------------------------
Name:
Title:
SELLERS:
------------------------------
Jeff Huffman
------------------------------
Nickey Maxey
------------------------------
Alton L. Huffman
------------------------------
Hugh Collins
3
<PAGE> 103
TIME EXTENSION AGREEMENT
FOR
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
AND
TERMINATION OF THE ESCROW AGREEMENT
AMONG
BETHEA, JORDAN & GRIFFIN, P.A.
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
[South Carolina]
Time Extension Agreement, dated as of
March 1, 1996 ("Extension Agreement"), respecting the Agreement and Plan of
Merger, dated as of November 22, 1995, as amended as of January 16, 1996 and
February 23, 1996 (the "Original Agreement"), among PhoneTel Technologies,
Inc., an Ohio corporation ("Parent"), International Pay Phones, Inc., a South
Carolina corporation ("Company"), and the shareholders of the Company
(collectively, the "Sellers"), and termination of the Escrow Agreement, dated
as of November 22, 1995, as amended as of February 29, 1996, (the "Escrow
Agreement"), among Bethea, Jordan & Griffin, P.A. (the "Escrow Agent"), Parent
and Sellers.
Parent, the Company and Sellers desire
to extend the effectiveness of all agreements and documents in connection with
the Original Agreement, as amended. Parent, Sellers and the Escrow Agent
desire to terminate all provisions of the Escrow Agreement.
NOW THEREFORE, in consideration of the
agreements herein set forth and for other valuable consideration, the receipt
and adequacy of which are hereby
<PAGE> 104
acknowledged, Parent, the Company and Sellers covenant and agree as follows:
1. The Original Agreement, all exhibits and schedules thereto and all
documents executed in connection therewith shall exist in the exact
form as previously executed, except as provided in this Extension
Agreement. Any reference to the Original Agreement in any exhibit or
schedule to the Original Agreement or in any document executed in
connection therewith shall be deemed to incorporate this Extension
Agreement.
2. The effective dates of documents and agreements executed in connection
with the Original Agreement which have expired are hereby extended
until 5 p.m. New York City time on March 15, 1996.
3. All terms, provisions and conditions of the Original Agreement, all
exhibits and schedules thereto and all documents executed in
connection therewith shall continue in full force and effect and shall
remain enforceable and binding in accordance with their terms until 5
p.m. New York City time on March 15, 1996.
4. The Closing as defined in Section 1.7(a) of the Original Agreement
shall be on or before March 15, 1996, and the term "Closing Date" as
defined and used in the Original Agreement, shall be deemed to mean
March 15, 1996 for all purposes relating to accounting and pur- chase
price adjustments, irrespective of whether March 15, 1996 is the
actual date of the Closing.
5. Section 1.2(a) of the Original Agreement, which defines Consideration,
is hereby deleted and replaced in its entirety with the following:
1.2(a) Each share of common stock, no
par value, of the Company ("Company Shares") outstanding imme- diately
prior to the Effective Time shall be converted into the right to
receive a percentage of the Consideration equal to the per- centage
such Company Share represents of all Company Shares. The
consideration (the
2
<PAGE> 105
"Consideration") shall equal the sum of (i) the excess of (A) the
product of $3,800 and the Company Phones Amount, over (B) $45,000,
minus $112,500, subject to adjustment as set forth in Section 1.4
hereof (to be paid one half in cash and one half in certificates
representing Parent Shares, valued at the Stock p rice); plus (ii) the
product of $1,000 and the Customer Phones Amount (to be paid in Parent
Shares, valued at the Stock Price); plus (iii) $95,663.50; plus (iv)
4,035 shares of Parent's 14% Convertible Preferred Stock, no par
value, $60 stated value; plus (v) warrants to purchase 87,161 shares
of Parent's Common Stock at $.01 per share.
6. Section 1.5 of the Original Agreement, referring to the Escrow
Agreement and amounts contributed thereto, shall be deleted from the
Original Agreement at the Closing Date.
7. The Escrow Agreement shall be terminated at the Closing Date. Any
amounts currently held in escrow shall be paid in accordance with the
terms of the Escrow Agreement.
8. The proviso contained in Paragraph 6(ii) to Amendment No. 1, dated as
of January 16, 1996, to the Original Agreement shall have no further
force and effect.
9. If the Merger is consummated, Parent shall reimburse Nickey Maxey for
the amount of reasonable expenses incurred by him for his trip to New
York on March 12, 1996 in relation to the Closing.
10. Except as previously revised or herein amended, all terms, provisions
and conditions of the Original Agreement, and all documents executed
in connection therewith shall continue in full force and effect and
remain enforceable in accordance with their terms.
11. This Extension Agreement may be executed in any number of identical
counterparts, each of which shall for all purposes be deemed an
original
3
<PAGE> 106
and all of which constitute, collectively, one agreement.
12. This Extension Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
13. In the event of a conflict between the terms and conditions of the
Original Agreement and the terms and conditions of this Extension
Agreement, then the terms and conditions of this Extension Agreement
shall prevail.
4
<PAGE> 107
IN WITNESS WHEREOF, the parties hereto
have executed this Extension Agreement, effective as of the date and year first
above written.
PHONETEL TECHNOLOGIES, INC.
By:
-------------------------------
PETER GRAF
Chairman
INTERNATIONAL PAY PHONES, INC.
By:
-------------------------------
Name:
Title:
SELLERS
By:
-------------------------------
NICKEY MAXEY
as Shareholders' Representative
BETHEA, JORDAN & GRIFFIN, P.A.
By:
-------------------------------
ROBERT DEEB
Escrow Agent
5
<PAGE> 108
EXHIBIT C-1
AMENDMENT NO. 1
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
Amendment No. 1, dated as of January 16, 1996 ("Amendment No.
1"), to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Pay Phones, Inc., a South Carolina corporation
("Company"), and the shareholders of the Company (collectively, the "Sellers").
Parent and Sellers entered into the Original Agreement on
November 22, 1995. Parent and Sellers desire to amend the Original Agreement
to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. Alton L. Huffman is hereby added as a party to the Original
Agreement. Exhibit A to the Original Agreement is hereby
deleted and Exhibit A attached to this Amendment No. 1 is
hereby substituted in its place.
2. The Closing as defined in Section 1.7(a) of the Original
Agreement shall take place on or before February 29, 1996, as
may be mutually agreed by Buyer and Sellers, and the term
"Closing Date", as defined and used in the Original Agreement,
shall be amended to mean the date on which the Closing
actually takes place.
<PAGE> 109
3. The term "Buyer" as used in the Original Agreement is hereby
deleted and replaced with the term "Parent" as defined and
used in the Original Agreement.
4. The term "Buyer" is hereby eliminated as a defined term from
Section 9.1 of the Original Agreement.
5. The following Section 1.4(c)(v) is added to the Original
Agreement:
"The Consideration shall be increased by an amount
equal to the Company's net operating loss, before
depreciation and amortization, from January 11, 1996
through the date of Closing as reflected on the
Company's income statement which shall be prepared on
the date of Closing in accordance with generally
accepted accounting practices."
6. Section 8.2(a) of the Original Agreement is hereby amended to
add the following language at the end of such Section:
", and, from and after the Closing Date, Parent may
assign its rights hereunder to any party providing
financing to Parent."
7. If the merger of the Company into Parent (the "Merger")
contemplated by the Original Agreement, as hereby amended, has
not been consummated by February 1, 1996, then the $225,000
deposit held pursuant to the Escrow Agreement shall be
disbursed to Sellers by Bethea, Jordan & Griffin, P.A.
("Escrow Agent"), PROVIDED, HOWEVER, that (i) such $225,000
shall be credited as a partial payment of the Consideration if
the Merger is later consummated and (ii) if either of (a) the
Closing of the Merger or (b) the closing of Parent's pending
financing arrangements with ING are not closed on or prior to
February 29, 1996 due to a breach by the Company or Sellers of
the Original Agreement, as hereby amended, then the Escrow
Agent shall not disburse any funds to Sellers and, if
2
<PAGE> 110
previously disbursed, Sellers shall promptly (and in any event
within two Business Days after Parent's written request) repay
to Parent the entire $225,000 previously disbursed from the
Escrow.
8. The Original Agreement and the Escrow Agreement are hereby
amended to provide that (a) the total amount to be held by the
Escrow Agent pursuant to the Escrow Agreement after Closing
shall be $187,500, (b) the cash portion of such $187,500 shall
be held by the Escrow Agent in an interest bearing account
with interest accruing to the Sellers, (c) the claim period
provided for in the Escrow Agreement shall be shortened to
provide that the Escrow Agent shall hold the $187,500, and
that claims can be made, only for a period of six (6) months,
and (d) the amounts to be released to Sellers' Representative
in the first six months of the Escrow shall be reduced by
one-half.
9. The parties agree to execute a formal Amendment to the Escrow
Agreement prior to Closing incorporating the changes and
modifications set forth in paragraph 8 of this Amendment No.
1.
10. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, all Exhibits and Schedules thereto
and all documents executed in connection therewith shall
continue in full force and effect and shall remain enforceable
and binding in accordance with their terms.
11. This Amendment No. 1 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original and all of which constitute,
collectively, one agreement.
12. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York.
13. In the event of a conflict between the terms and conditions of
the Original Agreement and
3
<PAGE> 111
the terms and conditions of this Amendment No. 1, then the
terms and conditions of this Amendment No. 1 shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:
----------------------------------
Name:
Title:
SELLERS:
-------------------------------------
Jeff Huffman
-------------------------------------
Nickey Maxey
-------------------------------------
Alton L. Huffman
-------------------------------------
Hugh Collins
4
<PAGE> 112
EXHIBIT A
---------
<TABLE>
<CAPTION>
SELLERS
-------
Name and Address Percentage
- ---------------- Number of ----------
Shares
------
<S> <C> <C>
Nickey Maxey 4,500 45
19-B Bow Circle
Hilton Head Island, SC
29928
Alton L. Huffman 2,250 22.5
107 Dave Warlick Drive
Lincolnton, NC
28092
Jeff Huffman 2,250 22.5
107 Dave Warlick Drive
Lincolnton, NC
28092
</TABLE>
5
<PAGE> 113
<TABLE>
<S> <C> <C>
Hugh Collins 1,000 10
19-B Bow Circle
Hilton Head, SC
29928
</TABLE>
6
<PAGE> 114
AMENDMENT NO. 2
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
Amendment No. 2, dated as of February 23, 1996 ("Amendment No.
2"), to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Pay Phones, Inc., a South Carolina corporation
("Company"), and the shareholders of the Company (collectively, the "Sellers").
Parent, the Company and Sellers entered into the Original
Agreement on November 22, 1995. The Original Agreement was amended pursuant to
Amendment No. 1, dated as of January 16, 1996, among Parent, the Company and
Sellers ("Amendment No. 1"). Parent, the Company and Sellers desire to further
amend the Original Agreement to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. Section 1.1 of the Original Agreement, as amended by Amendment
No. 1, is hereby deleted and replaced with the following:
1.1 THE MERGER. Upon the terms and subject to
conditions of this Agreement and in accordance with Chapter 17
of the Revised Code of the State of Ohio (the "GCL") at the
Effective Time, the Company shall be merged with and into the
Parent (the "Merger") and the separate corporate existence of
the Company shall cease. After the Merger, the Parent shall
continue as the surviving corporation (sometimes hereinaf-
<PAGE> 115
ter referred to as the "Surviving Corporation"). The Merger
shall have the effects as provided in the applicable
provisions of the GCL. Without limiting the generality of the
foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and the
Parent shall vest in the Surviving Corporation and, except as
otherwise provided for in this Agreement, all obligations,
duties, debts and liabilities of the Company and the Parent
shall be the obligations, duties, debts and liabilities of the
Surviving Corporation.
2. Section 1.7(c) of the Original Agreement, as amended by
Amendment No. 1, is hereby deleted and replaced with the
following:
(c) On the Closing Date, the Parent and the
Company will cause an appropriate Certificate of Merger to be
executed and filed with the Secretary of State of South
Carolina in such form and executed as provided in the BCA.
The Parent and the Company will also cause an appropriate
Certificate of Merger to be executed and filed with the
Secretary of State of Ohio in such form and executed as
provided in the GCL. The Merger shall become effective on the
date on which both the South Carolina and Ohio Certificates of
Merger have been duly filed with the Secretaries of State or
such time as is agreed upon by the parties and specified in
the Ohio Certificate of Merger, and such time is hereinafter
referred to as the "Effective Time".
3. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, as amended by Amendment No. 1, all
Exhibits and Schedules thereto and all documents executed in
connection therewith shall continue in full force and effect
and shall remain enforceable and binding in accordance with
their terms.
4. This Amendment No. 2 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original
2
<PAGE> 116
and all of which constitute, collectively, one agreement.
5. This Amendment No. 2 shall be governed by and construed in
accordance with the laws of the State of New York.
6. In the event of a conflict between the terms and conditions of
the Original Agreement and the terms and
conditions of this Amendment No. 2, then the terms and
conditions of this Amendment No. 2 shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
---------------------------
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:
---------------------------
Name:
Title:
SELLERS:
------------------------------
Jeff Huffman
------------------------------
Nickey Maxey
------------------------------
Alton L. Huffman
------------------------------
Hugh Collins
3
<PAGE> 117
TIME EXTENSION AGREEMENT
FOR
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
AND
TERMINATION OF THE ESCROW AGREEMENT
AMONG
BETHEA, JORDAN & GRIFFIN, P.A.
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[South Carolina]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
[South Carolina]
Time Extension Agreement, dated as of
March 1, 1996 ("Extension Agreement"), respecting the Agreement and Plan of
Merger, dated as of November 22, 1995, as amended as of January 16, 1996 and
February 23, 1996 (the "Original Agreement"), among PhoneTel Technologies,
Inc., an Ohio corporation ("Parent"), International Pay Phones, Inc., a South
Carolina corporation ("Company"), and the shareholders of the Company
(collectively, the "Sellers"), and termination of the Escrow Agreement, dated
as of November 22, 1995, as amended as of February 29, 1996, (the "Escrow
Agreement"), among Bethea, Jordan & Griffin, P.A. (the "Escrow Agent"), Parent
and Sellers.
Parent, the Company and Sellers desire
to extend the effectiveness of all agreements and documents in connection with
the Original Agreement, as amended. Parent, Sellers and the Escrow Agent
desire to terminate all provisions of the Escrow Agreement.
NOW THEREFORE, in consideration of the
agreements herein set forth and for other valuable consideration, the receipt
and adequacy of which are hereby
<PAGE> 118
acknowledged, Parent, the Company and Sellers covenant and agree as follows:
1. The Original Agreement, all exhibits and schedules thereto and all
documents executed in connection therewith shall exist in the exact
form as previously executed, except as provided in this Extension
Agreement. Any reference to the Original Agreement in any exhibit or
schedule to the Original Agreement or in any document executed in
connection therewith shall be deemed to incorporate this Extension
Agreement.
2. The effective dates of documents and agreements executed in connection
with the Original Agreement which have expired are hereby extended
until 5 p.m. New York City time on March 15, 1996.
3. All terms, provisions and conditions of the Original Agreement, all
exhibits and schedules thereto and all documents executed in
connection therewith shall continue in full force and effect and shall
remain enforceable and binding in accordance with their terms until 5
p.m. New York City time on March 15, 1996.
4. The Closing as defined in Section 1.7(a) of the Original Agreement
shall be on or before March 15, 1996, and the term "Closing Date" as
defined and used in the Original Agreement, shall be deemed to mean
March 15, 1996 for all purposes relating to accounting and pur- chase
price adjustments, irrespective of whether March 15, 1996 is the
actual date of the Closing.
5. Section 1.2(a) of the Original Agreement, which defines Consideration,
is hereby deleted and replaced in its entirety with the following:
1.2(a) Each share of common stock, no
par value, of the Company ("Company Shares") outstanding imme- diately
prior to the Effective Time shall be converted into the right to
receive a percentage of the Consideration equal to the per- centage
such Company Share represents of all Company Shares. The
consideration (the
2
<PAGE> 119
"Consideration") shall equal the sum of (i) the excess of (A) the
product of $3,800 and the Company Phones Amount, over (B) $45,000,
minus $112,500, subject to adjustment as set forth in Section 1.4
hereof (to be paid one half in cash and one half in certificates
representing Parent Shares, valued at the Stock p rice); plus (ii) the
product of $1,000 and the Customer Phones Amount (to be paid in Parent
Shares, valued at the Stock Price); plus (iii) $95,663.50; plus (iv)
4,035 shares of Parent's 14% Convertible Preferred Stock, no par
value, $60 stated value; plus (v) warrants to purchase 87,161 shares
of Parent's Common Stock at $.01 per share.
6. Section 1.5 of the Original Agreement, referring to the Escrow
Agreement and amounts contributed thereto, shall be deleted from the
Original Agreement at the Closing Date.
7. The Escrow Agreement shall be terminated at the Closing Date. Any
amounts currently held in escrow shall be paid in accordance with the
terms of the Escrow Agreement.
8. The proviso contained in Paragraph 6(ii) to Amendment No. 1, dated as
of January 16, 1996, to the Original Agreement shall have no further
force and effect.
9. If the Merger is consummated, Parent shall reimburse Nickey Maxey for
the amount of reasonable expenses incurred by him for his trip to New
York on March 12, 1996 in relation to the Closing.
10. Except as previously revised or herein amended, all terms, provisions
and conditions of the Original Agreement, and all documents executed
in connection therewith shall continue in full force and effect and
remain enforceable in accordance with their terms.
11. This Extension Agreement may be executed in any number of identical
counterparts, each of which shall for all purposes be deemed an
original
3
<PAGE> 120
and all of which constitute, collectively, one agreement.
12. This Extension Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
13. In the event of a conflict between the terms and conditions of the
Original Agreement and the terms and conditions of this Extension
Agreement, then the terms and conditions of this Extension Agreement
shall prevail.
4
<PAGE> 121
IN WITNESS WHEREOF, the parties hereto
have executed this Extension Agreement, effective as of the date and year first
above written.
PHONETEL TECHNOLOGIES, INC.
By:
-------------------------------
PETER GRAF
Chairman
INTERNATIONAL PAY PHONES, INC.
By:
-------------------------------
Name:
Title:
SELLERS
By:
-------------------------------
NICKEY MAXEY
as Shareholders' Representative
BETHEA, JORDAN & GRIFFIN, P.A.
By:
-------------------------------
ROBERT DEEB
Escrow Agent
5
<PAGE> 1
EXHIBIT C-2
AGREEMENT AND PLAN OF MERGER
among
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
(Tennessee)
and
ALL OF THE SHAREHOLDERS OF
INTERNATIONAL PAY PHONES, INC.
November 22, 1995
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
----------------------------
Agreement and Plan of Merger (the "Agreement"), dated as of November
22, 1995, among PhoneTel Technologies, Inc., an Ohio corporation (the
"Parent"), International Pay Phones, Inc. a Tennessee corporation (together
with all Subsidiaries thereof, "the Company"), and all of the shareholders of
the Company (collectively, the "Sellers"), whose names, addresses and holdings
in the Company are set forth on Exhibit A hereto.
WHEREAS, the Company is engaged in the business of owning and
operating microprocessor-based pay telephones and engaging in the sale,
installation and maintenance of pay telephones; and
WHEREAS, the Boards of Directors of the Parent and the Company
have each approved, and deem it advisable and in the best interests of their
respective shareholders to consummate, the merger of the Company into Buyer
upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of
Directors of the Parent and the Company have each approved this Agreement and
the merger of the Company with and into the Buyer in accordance with the
<PAGE> 3
terms of this Agreement and the Business Corporation Act of the State of
Tennessee (the "BCA"); and
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger (as defined herein) shall qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and this Agreement is intended to be and is adopted as a plan of
reorganization within the meaning of Section 368 of the Code;
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties set forth herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
----------
1.1 THE MERGER. Upon the terms and subject to conditions
of this Agreement and in accordance with the BCA at the Effective Time, the
Company shall be merged with and into the Buyer (the "Merger") and the separate
corporate existence of the Company shall cease. After the Merger, the Buyer
shall continue as the surviving corporation (sometimes hereinafter referred to
as the "Surviving Corporation"). The Merger shall have the
2
<PAGE> 4
effects as provided in the applicable provisions of the BCA. Without limiting
the generality of the foregoing, upon the Merger, all the rights, privileges,
immunities, powers and franchises of the Company and the Buyer shall vest in
the Surviving Corporation and, except as otherwise provided for in this
Agreement, all obligations, duties, debts and liabilities of the Company and
the Buyer shall be the obligations, duties, debts and liabilities of the
Surviving Corporation.
1.2 CONVERSION OF SHARES. At the Effective Time:
(a) Each share of common stock, par value $1.00 per
share, of the Company ("Company Shares") outstanding immediately prior to the
Effective Time shall be converted into the right to receive a percentage of the
Consideration equal to the percentage such Company Share represents of all
Company Shares. The consideration (the "Consideration") shall equal the sum of
(i) the excess of (A) the product of $3800 and the Company Phones Amount, over
(B) $15,000, subject to adjustment as set forth in Section 1.4 hereof (to be
paid one half in cash and one half in certificates representing Parent Shares,
valued at the Stock Price) plus (ii) the sum of (A) the product of $1,000 and
the
3
<PAGE> 5
Customer Phones Amount plus (B) $25,000 (to be paid in Parent Shares, valued at
the Stock Price).
(b) Each share of common stock of Buyer outstanding
immediately prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation.
1.3 CLOSING PAYMENT. (a) Not later than three business
days prior to the Closing, Seller's Representative shall deliver to Buyer a
good faith estimate of the adjustments to the Consideration as of the Closing
Date, including all the detail required by Section 1.4 hereof.
(b) At the Closing, Parent shall pay to Seller
Representative (for distribution Pro Rata to Sellers) an amount equal to the
Consideration which would be payable if adjusted pursuant to Section 1.4 (using
the good faith estimates delivered pursuant to paragraph (a) above); provided
that such amount shall be reduced by $125,000 (one-half in cash and one-half in
Parent Shares, valued at the Stock Price).
1.4 Consideration Adjustments.
-------------------------
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(a) COMPANY PHONE AMOUNT. The Consideration shall
be adjusted to reflect the actual Company Phones Amount and the Customer Phones
Amount, as provided in Section 1.2(a). In addition, the Consideration shall be
further adjusted by the following calculations, provided that the adjustments
in Paragraph (b) shall be made before any adjustments are made pursuant to
paragraph (c).
(b) Length Of Contract; Average Income.
----------------------------------
(i) If at the Closing Date the Average Term
is less than 30 months, then the Consideration shall be reduced by
multiplying (A) the amount calculated pursuant to Section 1.2(a)(i),
(as adjusted by Section 1.4(a)), by (B) a fraction, the numerator of
which will be the Average Term and the denominator of which will be
30.
(ii) If the Average Income is less than $115
per phone then the Consideration shall be reduced by multiplying (A)
the amount calculated pursuant to Section 1.2(a)(i) (as adjusted by
Section 1.4(a) and 1.4(b)(i)) by (B) a fraction, the numerator of
which will be
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the Average Income and the denominator of which will be 115.
(c) Other Adjustments.
-----------------
(i) The Consideration shall be decreased by
an amount equal to the excess of (A) all Liabilities of the Company as
of the Closing over (B) the sum of all Current Assets. For purposes
of this paragraph 1.4(c)(i), all amounts specified in clauses (ii) and
(iii) below or in respect of telephone bills due on or after the
Closing Date shall be disregarded.
(ii) The Consideration shall be decreased by
the amount owing in respect of any telephone bills received by the
Company on or before the Closing Date which are due prior to the
Closing Date but not paid by the Company or Sellers on or before the
Closing Date.
(iii) The Consideration shall be increased
by the excess of (A) the amount accrued as of the Closing Date as
receivables from AT&T, Opticon, and third and fourth quarter APCC (but
only to the extent such amount is received by the Company within 150
days after the Closing Date) over (B) the amount of all site
commissions accrued but not
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paid as of the Closing Date. In the event the amount specified in
clause (B) above exceeds the amount in clause (A) above, the
Consideration shall be decreased by the amount of such excess.
(iv) The consideration shall be decreased by
the amount of all indebtedness or other Liabilities relating to the
vehicles specified in Schedule 5.18(d) to the Disclosure Schedule.
(d) The number of Parent Shares to be issued
hereunder shall be adjusted to account for any stock splits, reverse stock
splits, stock dividends, or any similar transaction with respect to Parent
Shares.
(e) As soon as practicable after the Closing Date
(but in any event not more than 150 days after the Closing Date), the Parent
shall cause to be prepared and delivered to Seller Representative and the
Escrow Agent a schedule (the "Adjustment Schedule") which shows, as of the
Closing Date, the calculation of the Consideration as provided in Section
1.2(a) and as adjusted pursuant to this Section 1.4.
(i) Upon receipt of the Adjustment Schedule,
Seller Representative
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shall have the right during the succeeding 10-day period to examine
the Adjustment Schedule and all records used to prepare such
Adjustment Schedule. Seller Representative shall notify Parent in
writing, on or before the last day of the 10-day period, of any good
faith objections to the Adjustment Schedule, setting forth a
reasonably specific description of such objections and the dollar or
other amount, as the case may be, of each objection.
(ii) If Seller Representative in good faith
objects to the Adjustment Schedule, Seller Representative and Parent
shall attempt to resolve any such objections within 10 days of
Parent's receipt of such objections. If Parent and Seller
Representa-tive are unable to resolve the matter within such 10-day
period, they shall jointly appoint a mutually acceptable firm of
independent certified public accountants (or, if they cannot agree on
a mutually acceptable firm, they shall cause their respective
accounting firms to select such firm) within five days after the end
of such 10-day period. The fees
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of such independent certified public accountants shall be divided
equally between Parent and the Seller Representative (on behalf of all
Sellers). Such firm's resolution of the dispute shall be conclusive
and binding upon the Sellers and Parent.
(iii) The Adjustment Schedule shall be
deemed complete upon the earlier of (A) the eleventh (11th) day after
Parent's delivery of the Adjustment Schedule to Seller Representative,
unless prior to such day Seller Representative shall have notified
Parent of a dispute in accordance with paragraph (i), and (B) the
resolution of all disputes, pursuant to paragraph (ii). Within two
business days following completion of the Adjustment Schedule as
aforesaid, either
(A) Parent shall pay Seller Representative, on behalf of
Sellers, the amount, if any, by which the Consideration (as
adjusted) exceeds the amount paid pursuant to Section 1.3(b);
or
(B) Seller Representative, on behalf of Sellers, shall
pay to Buyer the amount, if any, by
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which the amount paid pursuant to Section 1.3(b) exceeds the
Consideration (as adjusted).
(C) All payments pursuant to this Section 1.4(e)(iii)
shall be 50% cash and 50% Parent Shares (valued at the Stock Price)
1.5 Escrow.
------
(a) Simultaneously herewith, Parent, the Company,
Seller Representative (on behalf of the Sellers) and Bethea, Jordan & Griffin,
P.A., as escrow agent (the "Escrow Agent") are entering into an Escrow
Agreement in the form attached hereto as Exhibit B, and Parent is depositing
$75,000 (the "Escrow Amount") with the escrow agent, to be held and disposed of
by the Escrow Agent pursuant to the Escrow Agreement. In the event the Closing
does not occur due to (i) a material breach of this Agreement by Parent or (ii)
the failure of the condition set forth in Section 6.1(f) hereof (which failure
has not been waived by Parent), Seller Representative (on behalf of all
Sellers, Pro Rata) shall be entitled to receive the entire Escrow Amount, as
liquidated damages, and shall have no other rights or remedies in respect of
this Agreement. Within three business days after such receipt, the Seller
Representative may sell to Parent for cash, at $1.05 per Parent Share, all of
the Parent Shares theretofore constituting a part of the Escrow Amount.
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(b) At the Closing, Parent shall deposit an
additional $50,000 with the Escrow Agent, which shall become part of the Escrow
Amount, and the Jail Escrow Amount.
(c) Delivery of funds and Parent Shares by the
Escrow Agent to the applicable parties shall be pursuant to the terms of the
Escrow Agreement.
(d) All sums deposited by Parent with the Escrow
Agent shall be 50% cash and 50% Parent Shares (valued at the Stock Price),
except the Jail Escrow Amount.
1.6 APPOINTMENT OF THE SELLER REPRESENTATIVE. Each
Seller hereby irrevocably appoints Nickey Maxey (the "Seller Representative")
as such Seller's attorney-in-fact and representative, to do any and all things
and to execute any and all documents in such Seller's name, place and stead in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, to accept on such Seller's behalf any amount
payable to such Seller under this Agreement, to pay on such Seller's behalf any
amount due from such Seller under this Agreement (subject to a right of
reimbursement from such Seller), to give or receive, on such Seller's behalf,
any notice or instruction under this Agreement, or to amend, terminate or
extend, or waive the terms of, this Agreement. The Parent and Buyer shall be
entitled
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to rely, as being binding upon such Seller, upon any document or other writing
executed by the Seller Representative, and the Parent and Buyer shall not be
liable to any Seller for any action taken or omitted to be taken by the Parent
and Buyer in reliance thereon.
1.7 The Closing.
-----------
(a) Upon the terms and subject to the conditions
contained in this Agreement, the Closing of the transactions contemplated
hereby (the "Closing") will take place at the offices of Skadden, Arps, Slate,
Meagher & Flom, 919 Third Avenue, New York, New York on a date mutually
agreeable to all parties, but no earlier than December 1, 1995 and no later
than January 10, 1996 or such other date as Buyer and the Company shall
reasonably agree (the "Closing Date"), simultaneously with the execution of the
other agreements, documents, instruments and writings executed and delivered
pursuant hereto or in connection herewith (collectively, the "Other
Documents").
(b) At the Closing, the actions described in
Sections 1.7, 1.8, 1.9, 1.10 and 1.11 hereof are being taken. All such actions
shall be deemed to have occurred simultaneously.
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(c) On the Closing Date, the Buyer and the Company
will cause an appropriate Articles of Merger (the "Articles of Merger") to be
executed and filed with the Secretary of State of Tennessee (the "Secretary of
State") in such form and executed as provided in the BCA. The Merger shall
become effective on the date on which the Articles of Merger has been duly
filed with the Secretary of State or such time as is agreed upon by the parties
and specified in the Certificate of Merger, and such time is hereinafter
referred to as the "Effective Time".
1.8 DELIVERIES BY THE SELLERS. At the Closing, the
Sellers are delivering to the Buyer (unless previously delivered) the
following:
(a) stock certificates representing the Shares,
accompanied by stock powers duly endorsed in blank or accompanied by duly
executed instruments of transfer, with all necessary transfer tax and other
revenue stamps affixed thereto;
(b) receipts for the payment provided for by Section
1.3(b) hereof;
(c) Certificates of Good Standing for the Company
from the Tennessee Secretary of State and from
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the Secretary of State of each state in which the Subsidiaries, if any, of the
Company are organized;
(d) the stock books, stock ledgers and minute books
of the Company (all other records of the Company being located on the premises
of the Company);
(e) Certificates of Non-Foreign Status, duly
executed by each of the Sellers, which is attached hereto as Exhibit C;
(f) certificates in substantially the form attached
hereto as Exhibit D, duly executed by each Seller, representing to the Buyer
certain matters in connection with the Securities Act;
(g) certified resolutions of the Boards of Directors
of the Company approving this Agreement and the Other Documents and the
transactions contemplated hereby and thereby;
(h) certified resolutions of the shareholders of the
Company approving this Agreement and the Other Documents and the transactions
contemplated hereby and thereby;
(i) a letter from the independent public accountants
of the Company, certifying that no material adverse change has occurred in the
financial condition of the Company since June 30, 1995;
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<PAGE> 16
(j) all Permits required to be obtained before the
Buyer may legally operate the businesses of the Company;
(k) all consents, assignments or waivers required to
be obtained in connection with the Contracts, in order for the Buyer to assume
the operations and conduct the business of the Company without the breaching
provisions of any Contract;
(l) an executed Consulting and Non-Competition
Agreement, in the form attached hereto as Exhibit E, between the Parent and
Nickey Maxey ("Consulting Agreement");
(m) a certificate from an officer of the Company
certifying that all representations and warranties contained in Article III are
true and correct as of the Closing Date;
(n) an executed Voting Agreement between Parent and
each of the Sellers in the form attached hereto as Exhibit F (the "Voting
Agreement");
(o) an executed Registration Rights Agreement
between Buyer and each of the Sellers in the form attached hereto as Exhibit G
(the "Registration Rights Agreement"); and
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<PAGE> 17
(p) the executed Continuity of Interest Agreement,
in the form attached hereto as Exhibit I, among Parent and the Sellers.
1.9 DELIVERIES BY THE BUYER. At the Closing, the Buyer
is delivering to the Sellers (unless previously delivered) the following:
(a) the payments provided for in Section 1.3(b)
hereof;
(b) the Buyer's Shares provided for in Sections 1.2
and 1.3.
(c) a certificate evidencing the good standing of
the Buyer under the laws of the state of South Carolina and a certificate
evidencing the good standing of the Parent under the laws of the state of Ohio;
(d) certified resolutions of the Boards of Directors
of both the Parent and the Buyer approving this Agreement and the transactions
contemplated hereby;
(e) to each of the Sellers, an executed Voting
Agreement;
(f) to each of the Sellers, an executed Registration
Rights Agreement and
(g) to Nickey Maxey, an executed Consulting
Agreement.
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1.10 CERTIFICATE OF INCORPORATION; BY-LAWS. Pursuant to
the Merger, (A) the Certificate of Incorporation of the Buyer, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation (except that the name of the
Surviving Corporation set forth in the Certificate of Incorporation shall be
International Pay Phones, Inc.) and (B) the By-laws of the Buyer, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law, the Certificate of
Incorporation and such By-laws.
1.11 Directors And Officers Of The Surviving Corporation.
---------------------------------------------------
(a) The directors of the Buyer immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
of the Surviving Corporation until their successors shall have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and By-laws.
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(b) The officers of the Buyer immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office until their respective successors are duly elected and
qualified, or their earlier death, resignation or removal.
(c) Parent shall cause Nickey Maxey to be appointed
to the Board of Directors of Parent, effective as of the Closing.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
---------------------------------------------
Each Seller severally represents and warrants to the Buyer as
follows:
2.1 AUTHORIZATION; BINDING OBLIGATION. Each of this
Agreement and the Other Documents to which it is a party have been duly and
validly executed and delivered by such Seller and, assuming due authorization,
execution and delivery by the Buyer, constitute a legal, valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms. Such Seller has the legal capacity and all requisite power and
authority, whether corporate or otherwise, to execute and deliver this
Agreement and the Other Documents to which
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<PAGE> 20
it is a party and to consummate the transactions contemplated hereby and
thereby and to perform such Seller's obligations hereunder and thereunder.
Such execution, delivery and consummation has been duly and validly authorized
by all necessary action on the part of such Seller, and, in the case of each
Seller which is a trust, has also been duly and validly authorized by the trust
or trustee of such trust, and no other corporate proceedings on the part of
such Seller are necessary to authorize such execution, delivery and
consummation. No power of attorney has been granted by such Seller with
respect to either any matter relating to the Company or the Shares, or to the
business, operations or assets of the Company.
2.2 TITLE TO THE SHARES. Such Seller is the record and
beneficial owner of, and had good and marketable title to, the number of
Company Shares set forth next to such Seller's name on Exhibit A hereto, free
and clear of all Encumbrances other than those set forth on Schedule 2.2 of the
Disclosure Schedule. Except as set forth on Schedule 2.2 of the Disclosure
Schedule, (i) such Company Shares are not subject to any restrictions on
transferability other than those imposed by the Securities Act and applicable
state securities
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laws and (ii) there are no options, warrants, calls, commitments or rights of
any character to purchase or otherwise acquire Company Shares from such Seller
pursuant to which such Seller may be obligated to sell or transfer any of such
Company Shares.
2.3 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth on Schedule 2.3 of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) in the case of each Seller which is a trust,
conflict with any provision of the indenture (or other similar organizational
documents) of such Seller, (b) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, or any other
action by, any Governmental Authority by such Seller, (c) violate any Law of
any Governmental Authority which may be applicable to such Seller, or by which
any of such Seller's businesses, properties or assets (including, without
limitation, such Seller's Company Shares) may be bound or affected or (d)
violate, breach, or conflict with, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
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termination, cancellation or acceleration or any obligation to pay or result in
the imposition of any Encumbrance upon any of the property (including, without
limitation, such Seller's Company Shares)) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Encumbrance, Contract,
Permit, Order, or other instrument or obligation to which such Seller is a
party or by which any of such Seller's businesses, properties or assets
(including, without limitation, such Seller's Company Shares) may be bound or
affected.
2.4 FEES TO BROKERS OR OTHER PARTIES. Buyer and the
Sellers shall each pay their own expenses in connection with this transaction,
therefore, except as provided herein, neither the Buyer nor any Sellers has or
will have any obligation to pay any counsel's, accountant's, broker's,
finder's, investment banker's, financial advisor's or similar fee to any party,
in connection with this Agreement or the Other Documents, or the transactions
contemplated hereby or thereby; notwithstanding this provision, the Buyer will
pay a commission to Robert Stanton, as previously disclosed to Seller by Buyer.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
OF COMPANY AND SELLERS
----------------------
The Company, and the Sellers jointly and severally represent
and warrant to the Parent as follows:
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Tennessee. The Company has no subsidiaries. The
Company has all requisite corporate power and authority to own, lease and
operate the properties and assets it now owns, operates and leases and to carry
on the businesses and operations as currently and heretofore conducted. The
Company is duly qualified or licensed to do business and is in good standing in
each of the jurisdictions in which (i) the character or location of the
properties and assets the Company owns, leases or operates, (ii) the conduct of
the Company's business and operations as currently and heretofore conducted or
(iii) any other circumstance makes such qualification necessary.
3.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE RECORDS. (a)
The Sellers have heretofore delivered to the Parent complete and correct
copies, with all
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amendments thereto, of the Certificate or Articles of Incorporation and By-laws
of the Company, as currently in effect. The minute books of the Company have
been made available to the Parent for its inspection, and such minute books
contain complete and correct records of all meetings, and consents in lieu of a
meeting, of the Board of Directors of the Company (and any committees thereof)
and the shareholders since the respective incorporations of the Company, and
accurately reflect all transactions referred to therein. The stock books and
ledgers of the Company have been made available to the Parent for its
inspection, and such books and ledgers are complete and correct in all
respects.
(b) The Sellers have made available to the Buyer
all accounting, and financial books and records (the "Accounting Books and
Records") which relate to the business of the Company. Such books and records
are true, accurate and complete, have been maintained on a basis consistent
with past practice and GAAP, and fairly present the Company's financial
condition and results of operations as set forth in the Audited Financial
Statements.
3.3 AUTHORIZATION. The Company has the requisite
corporate power and authority to execute,
23
<PAGE> 25
deliver and perform the obligations under this Agreement and the Other
Documents and to consummate the transactions contemplated hereby and thereby.
All corporate proceedings on the part of the Company which are necessary to
execute, deliver and perform this Agreement and the Other Documents and to
consummate the transactions contemplated hereby and thereby have been duly
authorized and taken. This Agreement and the Other Documents have been duly
and validly executed by the Company, and constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms. No powers of attorney have been granted and are currently in
force by the Company with respect to any matter relating to the Company or the
Company's business, operations or assets.
3.4 THE COMPANY CAPITALIZATION. The authorized capital
stock of the Company consists of 1,000 Company Shares, all of which are issued
and outstanding and owned by the Sellers as set forth on Exhibit A hereto. The
Company has no other class of capital stock authorized or outstanding. None of
the Company's shares of capital stock have been reserved for any purpose. All
of the Company Shares are duly authorized and validly issued, fully paid,
nonassessable and were not issued in
24
<PAGE> 26
violation of any preemptive rights. There are no (i) options, warrants, calls,
commitments or rights of any character to purchase or otherwise acquire from
the Company shares of capital stock of any class, (ii) outstanding securities
of the Company that are convertible into or exchangeable or exercisable for
shares of any class of capital stock of the Company, (iii) options, warrants or
other rights to purchase from the Company any such convertible or exchangeable
securities, or (iv) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company, any options, warrants or rights, pursuant to which, in any of the
foregoing cases, the Company is or would be subject or bound.
3.5 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth on Schedule 3.5(a) of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) conflict with any provision of the Articles of
Incorporation or By-laws (or other similar organizational documents) of the
Company, (b) require any consent,
25
<PAGE> 27
waiver, approval, authorization or permit of, or filing with or notification
to, or any other action by, any Governmental Authority by the Company, except
for filings required to transfer rights under the Permits, which filings have
been made, (c) violate any Law of any Governmental Authority applicable to the
Company, or by which any of the Company's business, properties or assets may be
bound or affected or (d) violate, breach, or conflict with, or constitute (with
or without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration or any obligation to pay or
result in the imposition of any Encumbrance upon any of the property) under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, Encumbrance, Contract, Permit, Order, or other instrument or
obligation to which the Company is a party or by which any of the Company's
business, properties or assets may be bound or affected.
3.6 FINANCIAL STATEMENTS. The Sellers are furnishing to
the Buyer the unaudited financial statements of the Company as of, and for the
years ended, December 31 in each of the years 1991 through 1994 and the
unaudited financial statements for the Company as of September 30, 1995, and
for the period then ended
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<PAGE> 28
(collectively, the "Financial Statements"). The Financial Statements are
attached hereto as Exhibit H. The Financial Statements have been prepared from
and in accordance with the books and records of the Company in accordance with
GAAP, and, except as noted therein, consistently applied and maintained
throughout the periods indicated. The Financial Statements fairly present in
all respects, (i) the assets, liabilities and financial condition of the
Company, as at the date thereof, except as set forth on Schedule 3.6(a) of the
Disclosure Schedule, and (ii) the results of operations and cash flows of the
Company for the periods then ended. Except as set forth on Schedule 3.6(b) of
the Disclosure Schedule, the statements of income and retained earnings and
cash flows included in the Financial Statements do not contain any material
items of special or nonrecurring income not earned in the ordinary course of
business and consistent with applicable industry standards and practice.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set
forth on Schedule 3.7 of the Disclosure Schedule, the Company does not have any
liabilities or obligations arising from or relating to its business
27
<PAGE> 29
and operations of any nature (whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due) which
were not reflected or reserved against in the Financial Statements, except for
liabilities or obligations incurred since June 30, 1995 in the ordinary course
of business and consistent with past practice. All reserves established by the
Company and set forth in the Financial Statements were determined in accordance
with GAAP. Schedule 3.7 of the Disclosure Schedule sets forth a true, complete
and accurate list of all liabilities or obligations of the Company at the
Closing with respect to borrowed money (including accounts payable and accrued
expenses), letters of credit, and any notes, bonds or similar instruments or
under any capitalized leases of the Company. The transactions contemplated
hereby will not cause the acceleration of or otherwise adversely affect the
terms or conditions of such liabilities or obligations.
3.8 ACCOUNTS RECEIVABLE. Schedule 3.8 of the Disclosure
Schedule sets forth a true, complete and accurate list of all Accounts
Receivable generated in
28
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connection with the Company Phones as of October 31, 1995. All Accounts
Receivable reflected in the Financial Statements and all Accounts Receivable
acquired or generated since August 31, 1995 by the Company (i) arose from bona
fide transactions in the ordinary course of business consistent with past
practice, (ii) are valid and genuine, (iii) are not subject to any counterclaim
or setoff and (iv) are not subject to any Encumbrance. Except as set forth on
Schedule 3.8, as of the Closing Date (i) no Account Receivable has been
outstanding for more than 90 days, (ii) no telephone service operator has
refused or threatened to refuse to pay its obligations for any reason and (iii)
no Account Receivable debtor is insolvent or is the subject of a bankruptcy
petition.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth on Schedule 3.9 of the Disclosure Schedule, since December 31, 1994:
(i) the Company has operated its business in
the ordinary course consistent with past practice;
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(ii) there has not been any material adverse
change in the businesses, results of operations, assets, liabilities,
financial condition or (except for matters which apply to United
States businesses generally) any material adverse change in the
prospects of the Company;
(iii) the Company has not entered into any
agreements binding the Company, incurred any losses, undertaken any
obligations, waived any rights, made any financial commitments, sold,
transferred or otherwise encumbered any assets, nor taken any other
action which may adversely affect the position of Parent in the
business of the Company as heretofore operated;
(iv) the Company has not transferred,
disposed of, abandoned or permitted to lapse or otherwise failed to
preserve any Permit or other form of authorization issued by a
Governmental Authority;
(v) the Company has not taken any actions
which might reasonably affect the
30
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capital stock of the Company or the rights of holders thereof;
(vi) the Company has not made any change in
any accounting methods, principles or practices (including, without
limitation, changes in depreciation or amortization policies or rates
or relating to the establishment of accrual of reserves) or any
material election with respect to Taxes;
(vii) the Company has not terminated or
amended, breached, or failed to perform in all material respects all
obligations under any Contract and no other party thereto has
terminated or amended, breached, or failed to perform in all material
respects all of its obligations under any Contract;
(viii) the Company has not experienced any
actual or, to the knowledge of the Company and the Sellers, threatened
employee disputes, work stoppages or slow-downs or had any material
change in its relationship with its employees, salesmen, distributors,
or independent contractors;
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(ix) the Company has not failed to replenish
its inventories and supplies in a normal and customary manner
consistent with past practice; and
(x) the Company has not agreed, whether in
writing or otherwise, to take any action described in this Section
3.9.
3.10 PROPERTIES AND ASSETS. The Company has good, valid
and marketable title to all Equipment and other assets (whether personal or
mixed, tangible or intangible (and whether or not fully depreciated or
expensed)) used in their respective business and operations, and such items are
subject to no Encumbrance or arrangement for use by any third party, other than
those set forth on Schedule 3.10 of the Disclosure Schedule. All Equipment is
usable, in good working condition, free of any material defects and suitable
for the purposes of its intended and current operational use.
3.11 CONTRACTS. Schedule 3.11 of the Disclosure Schedule
sets forth a complete and correct list of all Material Contracts as of the
Closing. Complete and correct copies of all written Contracts including any
and all amendments and other modifications thereto have been delivered to or
have been made
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available for inspection by the Buyer. All written Contracts and all oral
Material Contracts (x) are valid and binding obligations of the Company and the
other parties thereto, (y) are in full force and effect and are enforceable as
to the Company and the other parties thereto, in accordance with their
respective terms, and (z) have not been amended or terminated except in the
ordinary course of business consistent with past practice. The Company is not
in default under nor has it breached in any respect any Contract. The
aggregate obligations of the Company with respect to oral Contracts which do
not constitute Material Contracts do not exceed $10,000. No other party to any
Contract (i) has breached such Contract or is in default thereunder, (ii) has
given notice that it intends to terminate such Contract or (iii) has altered,
in any way adverse to the Company, its performance under such Contract. No
event or condition has occurred (or is alleged by any other party to a Contract
to have occurred) which, with or without due notice or lapse of time or both,
would constitute a breach or event of default on the part of the Company, would
provide a basis for a valid claim or acceleration under any Contract as against
the Company or would
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prevent the Company from exercising and obtaining the full benefits of any
rights or options contained therein.
3.12 Compliance With Laws And Permits.
--------------------------------
(a) Except as set forth on Schedule 3.12(a) of the
Disclosure Schedule, the business and operations of the Company have been
conducted and are now being conducted in all material respects in compliance
with all Laws and Orders of all Governmental Authorities having jurisdiction
over the Company and all Permits relating to any of its properties or
applicable to its business.
(b) Except as and to the extent set forth on
Schedule 3.12(b) of the Disclosure Schedule, the Company possesses all Permits
necessary to own and operate its property and assets and to conduct its
business as it is currently conducted. Such Permits are valid, subsisting in
full force and effect, and the Company has fulfilled its obligations under each
of the Permits, and no event has occurred or condition or state of facts exists
which constitutes or, after notice or lapse of time or both, would constitute a
default or violation under any of the Permits or would permit revocation or
termination of any of the Permits. No proceeding which might involve the
revocation or
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termination of any such Permits is pending or, to the knowledge of the Company
or the Sellers, threatened.
(c) the Company has made all filings and received
all approvals in connection with the Permits which are necessary for the Buyer
to own and operate the property and assets of the Company and to conduct the
Company's businesses as they have currently and have heretofore been conducted.
3.13 LITIGATION AND ARBITRATION. (a) Since the date of
the Company's incorporations, no claim, action, cause of action, suit,
proceeding, inquiry, investigation or Order has been initiated, brought or
commenced, or been pending or threatened, against the Company or affecting its
businesses, operations or assets (including actions by or before any
administrative body, arbitration or mediation panel or Governmental Authority),
except as set forth on Schedule 3.13(a) of the Disclosure Schedule. No Order
of any Governmental Authority, arbitrator or mediator is outstanding against
the Company, its business, operations or assets. Neither the Company nor any
of the Sellers has knowledge of any fact or circumstance which could reasonably
be expected to result in any other claim, action, cause of action, suit,
proceeding, inquiry, investigation or Order against
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the Company or affecting its business, operations or assets.
(b) No claim, action, suit, proceeding, inquiry
or investigation has been instituted which threatens to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
by this Agreement or the Other Documents.
3.14 EMPLOYEE MATTERS. The Company has no employee plans
or agreements in effect. The Company has taken no actions which might
reasonably be expected to result in any violations of ERISA. The consummation
of the transactions contemplated by this Agreement will not entitle any current
or former employee or officer of the Company or any ERISA Affiliate to
severance pay, unemployment compensation or any other payment, except as
expressly provided herein. There are no pending, threatened or anticipated
claims by or on behalf of any employee of the Company.
3.15 LABOR RELATIONS. (a) Except as set forth on
Schedule 3.15(a) of the Disclosure Schedule, (i) there are no labor issues
affecting the Company. The Company has at all times been in compliance with
all applicable Laws in respect of employment and employment practices.
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3.16 TAXES. (a) the Company is a small business
corporation and has had in effect since incorporation a valid election to be
treated as an "S" corporation for federal income tax purposes under the Code
and in the State of Tennessee, and neither the Company nor the Sellers has
taken or caused or permitted to be taken any action during such periods that
would have caused or permitted to be taken any action during such periods that
would have caused a termination of such S election. The Company only files a
state income tax return in Tennessee.
(b) The Company has duly and timely filed all Tax
Returns required to be filed on or before the Closing Date, and all such Tax
Returns are complete and correct in all material respects.
(c) Except as set forth on Schedule 3.16(c) of
the Disclosure Schedule, the Company has timely paid all Taxes due or claimed
to be due from it by any taxing authority.
(d) Except as set forth on Schedule 3.16(d) of
the Disclosure Schedule, the Company has complied in all respects with all
applicable Laws relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes
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pursuant to Sections 1441 and 1442 of the Code or similar provisions under any
foreign laws) and have, within the time and within the manner prescribed by
Law, withheld from employee wages and paid over to the proper Governmental
Authorities all amounts required to be withheld and paid over under all
applicable Laws.
(e) There are no Encumbrances for Taxes upon the
Company's assets except for statutory liens for current Taxes not yet due.
(f) The Company has not requested any extension
of time within which to file any Tax Return in respect of any fiscal year which
has not since been filed. Except as set forth on Schedule 3.16(f) of the
Disclosure Schedule, there are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns that has been given by the Company.
(g) Except as set forth on Schedule 3.16(g) of
the Disclosure Schedule, no federal, state, local or foreign audits or other
administrative proceedings or court proceedings have been initiated or are
presently pending with regard to any Taxes or Tax Returns of the Company.
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(h) The Company is not required to include in
income any adjustment pursuant to Section 481(a) of the Code, by reason of a
voluntary change in accounting method (nor has any taxing authority proposed in
writing to the Company any such adjustment or change of accounting method).
(i) The Company is not a party to, is not bound
by, nor has any obligation under, any Tax sharing agreement or similar contract
or arrangement.
(j) No powers of attorney have been granted by
the Company with respect to any matter relating to Taxes which is currently in
force.
(k) The Company has not filed a consent pursuant
to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by the Company.
(l) Except as set forth on Schedule 3.16(l) of
the Disclosure Schedule, the Company is not a party to any agreement, contract,
or arrangement that will result, separately or in the aggregate, in the payment
of any "excess parachute payments" within the meaning of Section 280G of the
Code.
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(m) None of the income recognized for federal,
state, local or foreign Income Tax purposes by the Company during the period
beginning from [July 1, 1995] to the date hereof will be derived other than in
the ordinary course of business.
3.17 INTELLECTUAL PROPERTY. The Company owns or has the
right to use all Intellectual Property used in or necessary to conduct the
businesses as currently conducted, in each case without the payment of any
royalties. The activities and products of the Company do not infringe upon the
Intellectual Property rights of any other Person. To the knowledge of the
Company and the Sellers, there are no infringements by third parties of any
Intellectual Property owned by the Company.
3.18 ENVIRONMENTAL MATTERS. The Company is and has been
in compliance with, and there are no outstanding allegations (for which the
Company has been provided notice) by any Person that the Company is not or has
not been in compliance with, all applicable Laws relating to pollution, the
preservation of the environment and the discharge or release of hazardous
materials into the environment or workplace ("Environmental Laws").
The Company does not require any environmental permits to
conduct its business and operations. The
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Company has not indemnified or agreed to indemnify any other Person for any
liability under, or violation of, Environmental Laws.
3.19 INSURANCE. Schedule 3.19(a) of the Disclosure
Schedule sets forth a complete and correct list as of the Closing of all
primary, excess and umbrella policies, bonds and other forms of insurance, and
renewals thereof, owned or held by or on behalf of or providing insurance
coverage to or for the benefit of the Company (copies of which have previously
been provided to the Parent), with the amount of coverage, cost and expiration
date set forth next to each policy thus listed. All of such insurance policies
are in full force and effect, all premiums currently payable or previously due
have been paid, no notice of cancellation or termination has been received with
respect to any such policy and no assignment of proceeds or Encumbrance exists
with respect to the proceeds of any such policy. Except as and to the extent
set forth on Schedule 3.19(b) of the Disclosure Schedule, there are no pending
claims against such policies. All such policies will remain in full force and
effect upon execution and delivery of this Agreement and the Other Documents
and the consummation of the transactions contemplated hereby and thereby.
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3.20 BANK ACCOUNTS. Schedule 3.20 of the Disclosure
Schedule sets forth a complete and correct list of (i) the names and locations
of all financial institutions at which the Company maintains a checking
account, deposit account, securities account, safety deposit box or other
deposit or safekeeping arrangement, (ii) the number or other identification of
all such accounts and arrangements and (iii) the names of all persons
authorized to draw thereon or have access thereto.
3.21 CUSTOMERS AND SUPPLIERS. Schedule 3.21(a) sets forth
a complete and correct list of (i) the names of those customers generating the
greatest revenues for the Company (listing such number of customers as would,
in the aggregate, generate at least 40% of the Company's total revenues) and
the amount of revenues generated by each such customer in the Company's fiscal
year ended December 31, 1994 and (ii) the names of suppliers to whom the
Company paid more than $25,000 in the Company's fiscal year ended December 31,
1994 and the approximate total purchases by the Company from each such supplier
during such year. Except as and to the extent set forth on Schedule 3.21(b) of
the Disclosure Schedule, there have been no adverse changes in the
relationships between
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the Company and its customers and suppliers since January 1, 1995. The Company
has not been provided with any notice that any supplier, manufacturer or
customer intends to cease doing business with the Company. To the knowledge of
the Company and the Sellers, there are no facts or circumstances (including,
without limitation, the transactions contemplated by this Agreement and the
Other Documents) that could reasonably be expected to have an adverse affect on
the Company's relationships with its customers, suppliers and manufacturers.
3.22 AFFILIATE TRANSACTIONS. Schedule 3.22 of the
Disclosure Schedule sets forth a correct and complete list of all arrangements
or transactions (other than salary, bonus and benefits generally available to
the employees of the Company) between the Company and the Sellers or any
affiliate or associate of the Sellers, or any business or entity in which the
Sellers or any affiliate or associate of any of the Sellers, has any direct or
indirect interest (the "Sellers' Affiliates"), that involves an obligation or
commitment on the part of or for the benefit of the Company or such Sellers'
Affiliate of more than $1,000 in any calendar year (the "Affiliate
Transactions").
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3.23 DISCLOSURE. The Sellers have not failed to disclose
to the Buyer any facts material to the Company's business, results of
operations, assets, liabilities, financial condition and prospects. No
representation or warranty by the Sellers in this Agreement and no statement by
the Sellers in any Other Document (including the Schedules), contains any
untrue statement of a material fact or omits to state any material fact
necessary, in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading.
3.24 PRIOR ACQUISITIONS. No claims, amounts owed,
liabilities, Encumbrances, legal proceedings or any other obligations of any
kind are due or were incurred or outstanding in connection with any
acquisitions made by the Company, except as already recorded on the Financial
Statements heretofore delivered to the Buyer.
3.25 COMPANY PHONES AMOUNT. There were 485 Company Phones
in operation as of the close of business on October 31, 1995.
3.26 CONSENTS; WAIVERS; ASSIGNMENTS; PERMITS. The Sellers
or the Company will, prior to the Closing, have obtained and delivered to
Parent (i) all Permits or consents to transfer which are required to be
obtained
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before the Surviving Corporation may legally operate the Company's business,
(ii) all consents or waivers which would be required in order to not breach any
Contracts to which the Company is a party and (iii) all consents, waivers,
assignments and assumptions pertaining to the Surviving Corporation's
assumption of the Company's debts, a complete listing of which is set forth on
Schedule 3.26 of the Disclosure Schedule.
3.27 RECENT PERFORMANCE. As to the businesses of the
Company (i) the average remaining term of the location contracts is 30 months
and (ii) the average net income for 1995 (calculated as gross revenues minus
telephone bills and commissions) is $115 per month on a per phone basis.
3.28 CASH. Sellers and the Company have taken no steps to
deplete the cash of the Company prior to Closing and have maintained sufficient
cash prior to the Closing to cover ordinary payables due after the Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
--------------------------------------------
The Parent represents and warrants to the Sellers as follows:
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4.1 ORGANIZATION AND STANDING. The Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Ohio. The Parent has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business and operations as it is now being conducted.
4.2 AUTHORIZATION; BINDING OBLIGATION. The Parent has
all requisite corporate power and authority to execute and deliver this
Agreement and the Other Documents to which it is a party and to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
Other Documents by the Parent and the consummation of the transactions
contemplated hereby and thereby by the Parent have been duly and validly
authorized by the Board of Directors of the Parent and no other corporate
proceedings on the part of the Parent are necessary to authorize this Agreement
or the Other Documents or to consummate the transactions contemplated hereby or
thereby. This Agreement and the Other Documents have been validly executed and
delivered by the Parent and, assuming due authorization, execution and delivery
by the
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Sellers, constitute legal, valid and binding obligations of the Parent,
enforceable against the Parent in accordance with their terms.
4.3 INVESTMENT PURPOSE. The Parent is acquiring the
Company Shares for its own account without a view to any distribution thereof
in violation of the securities laws of the United States of America or any
state thereof.
4.4 Capitalization.
--------------
(a) As of the date hereof, the authorized capital
stock of Parent consists of: (i) 22,500,000 common shares ("PhoneTel Common
Shares"), $.01 par value 16,033,276 of which are issued and outstanding, and
(ii) 2,500,000 shares of Preferred Stock, $.01 par value, of which (A) 2,125
shares have been designated Preferred Stock, $100 par value, of which no shares
are outstand-ing; (B) 6,500 shares have been designated Convertible Preferred
Stock, without par value, $100 stated value, cumulative and redeemable, of
which no shares are outstanding; (C) 3,880 shares have been designated
Preferred Stock, without par value, $1,000 stated value, cumulative and
redeemable, of which 1,496 shares are outstanding; (D) 16,000 shares have been
designated 8% Preferred Stock, without par value, $100 stated value,
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cumulative and redeemable, of which 12,200 shares are outstanding; (E) 2,500
shares have been designated 7% Convertible Preferred Stock, without par value,
$100 stated value, cumulative and redeemable, all of which shares are
outstanding; (F) 550,000 shares have been designated as 10% Preferred Stock,
without par value, $10 stated value, cumulative ("10% Non-Voting Stock"), of
which 530,534 shares are outstanding; and (G) 1,918,995 shares are not yet
designated nor issued. As of the date hereto, there are outstanding options,
warrants or other rights to purchase 5,316,795 Parent Shares, and 6,826,171
Parent Shares are reserved for issuance pursuant to pending acquisition
agreements. In addition, Parent has committed to propose an amendment to its
Articles of Incorporation providing that each share of 10% Non-Voting Stock may
be converted into 10 Parent Shares. Parent has no other class of capital stock
authorized or issued and outstanding. All of the Parent shares of capital
stock issued are duly authorized and validly issued, fully paid, nonassessable
and not issued in violation of any preemptive rights.
(b) Except as set forth above, as of the date hereof
there are no (i) options, warrants, calls, commitments or right of any
character to purchase or
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otherwise acquire from Parent shares of capital stock of any class, (ii)
outstanding securities of Parent that are convertible into or exchangeable or
exercisable for shares of any class of stock of Parent, (iii) options, warrants
or other rights to purchase from Parent any such convertible or exchangeable
securities, or (iv) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of
Parent, any options, warrants or rights, pursuant to which, in any of the
foregoing cases, Parent is or would be subject or bound; no other shares of
Parent's capital stock have been reserved for any purpose.
ARTICLE V
ADDITIONAL COVENANTS
--------------------
5.1 Taxes.
-----
(a) Notwithstanding any other provision of this
Agreement to the contrary, the Sellers shall assume and promptly pay all sales,
use, privilege, transfer, documentary, gains, stamp, duties, recording and
similar Taxes and fees (including penalties, interest and additions) imposed
upon any party incurred in connection with the exchange of Shares for Parent
Shares
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and cash (collectively, "Transfer Taxes"), and Sellers shall, at their own
expense, procure any stock transfer stamps required by, and accurately file all
necessary Tax Returns and other documentation with respect to, any Transfer
Tax.
(b) The Sellers shall prepare or cause to be
prepared, and file or cause to be filed on a timely basis all Tax Returns of
the Company with respect to all periods ending on or before the Closing Date,
which Tax Returns shall be made available to Buyer for review two weeks prior
to filing such Tax Returns. The Sellers shall pay all Taxes shown to be due
and payable thereon.
(c) The Sellers and the Parent shall cooperate, and
shall cause their respective officers, employees, agents, auditors and
representatives to cooperate, (i) in preparing and filing the Tax Returns and
(ii) with respect to any audit or other administrative or court proceedings
with respect to Taxes and Tax Returns of the Company for periods ending on or
before the Closing Date, including, in each case, maintaining and making
available to each other all records necessary in connection with Taxes payable
with respect to such Tax Returns and in resolving all disputes and audits and
refunds with respect to such Tax Returns
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and Taxes and any earlier Tax Returns and Taxes of the Company. No election
may be made by the Company with respect to the Taxes of the Company without the
Parent's written consent if such election will adversely affect the Parent.
(d) The Sellers shall promptly notify the Parent of
any notices or materials received from any Governmental Authority which relate
to the business or operations of the Company.
5.2 FURTHER ASSURANCES; COOPERATION. (a) The parties
shall, from time to time before and after the Closing, upon the request of any
other party and without further consideration, execute, acknowledge and deliver
in proper form any further instruments, and take such further actions as such
other party may reasonably require, to carry out effectively the intent of this
Agreement and the Other Documents.
(b) The Sellers shall cooperate with the Company
and the Parent in connection with any claim, action, suit, proceeding, inquiry
or investigation with any other Person which relates to the execution and
delivery of this Agreement or the Other Documents, or the consummation of the
transactions contemplated hereunder and thereunder.
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5.3 NOTIFICATION OF CERTAIN MATTERS. Each of the parties
hereto shall promptly notify the other parties, in the manner provided in
Section 8.10 hereof, of (i) the filing or other initiation of any claim,
action, suit, proceeding, inquiry or investigation which relates to the
execution and delivery of this Agreement or the Other Documents, or the
consummation of the transactions contemplated hereunder or thereunder, (ii) any
circumstance or development which could adversely impair or affect its ability
to perform its obligations under this Agreement and the Other Documents, (iii)
any notice or other communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement and the Other Documents or (iv) any
notice or other communication from any Governmental Authority in connection
with the transactions contemplated by this Agreement and the Other Documents.
5.4 CONFIDENTIALITY. (a) Sellers and the Company agree
that they will not (and, in the case of the Company and each Seller which is a
corporation, will cause its officers to not) at any time after the Closing,
without the prior written consent of the Buyer, disclose
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or use any information obtained during the negotiation or due diligence process
nor any other confidential information (relating to either the Parent or the
Company) otherwise obtained except (i) as may be necessary in connection with
their tax filing and reporting obligations and (ii) to the extent required by
Law.
(b) Parent agrees that it will not (and will cause
its officers to not) at any time before the Closing, without the prior written
consent of the Company, disclose or use any information obtained during the
negotiation or due diligence process nor any other confidential information
(relating to the Company) otherwise obtained except (i) as may be necessary in
connection with financing and reporting obligations and (ii) to the extent
required by Law.
5.5 PUBLICITY. The Sellers and Parent shall not issue
any press release or make any public statement regarding the transactions
contemplated hereby, without the prior approval of Parent and Seller
Representative, respectively, which approval shall not be unreasonably
withheld.
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5.6 Expenses.
--------
(a) Except as otherwise specifically provided for
herein, each party hereto shall be solely responsible for all expenses incurred
by it or on its behalf in connection with the preparation and execution of this
Agreement and the Other Documents and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the fees and
expenses of its counsel, accountants, brokers, finders, financial advisors and
other representatives.
(b) The Sellers and the Buyer agree that in the
event any dispute between them, either occurring under, relating to or in
connection with any of the provisions of this Agreement or the Other Documents,
is submitted to a Governmental Authority or other appropriate entity, then all
costs and expenses of the parties (including reasonable legal fees) shall be
paid by the party against whom a determination by such Governmental Authority
or entity is made or, in the absence of a determination wholly against one
party, as such Governmental Authority or entity shall direct.
5.7 DUE DILIGENCE. Until the Closing Date, Sellers and
Buyer will allow one another to examine all
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books and records of the other as is necessary to the completion of the
transaction contemplated herein.
5.8 INTERIM CONDUCT OF BUSINESS. Except as otherwise
contemplated by this Agreement, during the period from the date hereof to the
Closing, the Company shall, and Sellers shall cause the Company to (i) operate
the businesses of the Company only in the ordinary course of business
consistent with past practices, (ii) maintain, keep and preserve the respective
assets of the Company, and (iii) use all best efforts to preserve intact the
present organizations of the Company, keep available the services of the
present employees of the Company, and preserve the Company's relationships with
customers, suppliers, licensors, licensees, contractors and others having
significant business dealings with the Company. Without limiting the
generality of the foregoing, from the date of this Agreement to the Closing
Date, the Company shall not, and Sellers shall not permit the Company to,
without the prior written consent of Parent (which consent may be withheld in
the Parent's sole discretion):
(a) (i) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options,
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warrants, commitments, subscriptions, rights to purchase or otherwise) any
shares of the capital stock of the Company or any other securities or equity
equivalents, (ii) split, combine or reclassify any shares of such capital stock
or (iii) amend the terms of any such securities or agreements outstanding on
the date hereof;
(b) amend or propose to amend the certificate of
incorporation or by-laws of the Company;
(c) (i) incur or assume any indebtedness or issue
or sell any debt securities or warrants or rights to acquire any debt
securities, (ii) assume, guarantee, endorse or otherwise become liable (whether
directly, contingently or otherwise) for the obligations of any other person,
(iii) make any loans, advances or capital contributions to, or investments in,
any other person or (iv) install any telephones without the prior written
consent of Parent;
(d) sell, lease, transfer or otherwise dispose of
any of its assets, or permit any assets of the Company to suffer any lien
thereupon, except that the Company may transfer to its stockholders the
vehicles listed in Schedule 5.8(d) of the Disclosure Schedule, subject to all
liabilities related thereto;
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(e) change any of the accounting principles or
practices used by the Company (except as required by GAAP);
(f) enter into, adopt, amend or terminate any
employee benefit plan, increase in any manner the compensation or fringe
benefits of any officer or employee or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing;
(g) enter into or offer to enter into any employment
or consulting agreement with any person;
(h) install, or agree to install, any telephones
which, if installed prior to the Closing, would constitute Company Phones,
without the prior written consent of Parent (which will not be unreasonably
withheld);
(i) pay any dividend or make any other distribution
to the Sellers with respect to their Shares except for a dividend of $30,000;
(j) (i) enter into, amend or terminate any Material
Contract or (ii) take any action or fail to take any action that, with or
without notice or lapse of time, would constitute a default under any Material
Contract; or
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(k) take, or agree in writing or otherwise to take,
any of the foregoing actions or any action which would make any representation
or warranty of the Company or Sellers contained in this Agreement untrue or
incorrect as of the date when made or as of any future date or which could
prevent the satisfaction of any condition to Closing set forth in Article VI
hereof.
5.9 DELIVERY OF FINANCIAL STATEMENTS. Sellers shall
cause to be prepared and delivered to Buyer prior to February 10, 1996, audited
consolidated financial statements of the Company as of December 31, 1994 and
December 31, 1995 and for the years then ended, certified by the Company's
independent public accountants, and accompanied by their reports therein.
Parent shall provide to Sellers and to the Company's independent public
accountants such access to the books, records and facilities of the Company as
shall be reasonably necessary for Sellers to satisfy their obligations under
this Section 5.9. Parent shall pay all fees of the Company's independent
public accountants for the audits of the 1994 and 1995 financial statements of
the Company; the Company estimates such fees (together with similar fees under
the South Carolina Agreement) will be approximately $30,000.
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5.10 PAYMENT OF THE TELEPHONE BILLS. The Company shall,
prior to the Closing, pay all telephone bills received by it prior to the
Closing.
5.11 LEASES. Parent and Seller's Representative shall
negotiate in good faith with a goal of executing a lease with respect to all
space required by the Surviving Corporation.
5.12 S CORPORATION STATUS. The Company and Sellers shall
maintain the status of the Company as an S corporation for federal and state
income Tax purposes until the Closing Date.
ARTICLE VI
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PARENT.
The obligation of the Parent to consummate the transactions contemplated hereby
is subject to the satisfaction or waiver (subject to applicable law) on or
before the Closing Date, of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND
WARRANTIES Each of the representations and warranties of the Sellers and the
Company contained in this Agreement, the Disclosure Schedule, or in any Other
Document to be executed and delivered by the Sellers or the Company on
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or before the Closing Date pursuant hereto shall have been true and correct in
all material respects when made, and shall be true and correct in all material
respects as of the Closing Date as though made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS.
The Sellers and the Company shall have performed and complied with all of the
covenants and agreements contained in this Agreement to be performed or
complied with by them at or before the Closing.
(c) ADVERSE PROCEEDINGS. No claim,
action, suit, investigation or governmental proceeding shall be pending and no
Law of any Governmental Authority shall be enacted, rendered or in force, which
would render it unlawful, as of the Closing Date, to effect the transactions
contemplated by this Agreement and the Other Documents to be executed and
delivered pursuant hereto.
(d) CONSENTS AND APPROVALS. All
necessary consents, approvals or waivers from third parties and Governmental
Authorities shall have been received.
(e) AT&T CONTRACT. Resort
Hospitality Services International, Inc. ("Resort"), a South Carolina
corporation, shall enter into an agreement with Parent, pursuant to which it
will: (i) continue to pay all AT&T
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commissions to the Surviving Corporation in accordance with prior custom
(through the term of the existing contract and through the term of any
extensions or renewals thereof, for as long as such revenues are received from
AT&T), (ii) use its best efforts to maintain or increase the revenue stream
paid pursuant to the AT&T contract, (iii) have no recourse against Parent or
the Surviving Corporation in connection with any commissions that were paid or
accrued prior to the Closing, and (iv) indemnify Buyer against any liability,
whether direct or indirect, to AT&T in connection with any such adjustment.
(f) The Stock Price shall be equal
to or greater than $0.75.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY AND THE SELLERS. The obligations of the Company and the Sellers to
consummate the transactions contemplated hereby are subject to the satisfaction
or waiver (subject to applicable Law) on or before the Closing Date of each of
the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND
WARRANTIES. Each of the representations and warranties of the Parent contained
in this Agreement or in any Other Document to be executed and delivered by the
Parent on or
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before the Closing Date pursuant hereto shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects as of the Closing Date as though made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS. The
Parent shall have performed and complied with all of the covenants and
agreements contained in this Agreement to be performed or complied with by the
Parent at or before the Closing.
(c) ADVERSE PROCEEDINGS. No claim,
action, suit, investigation or governmental proceeding shall be pending, and no
Law of any Governmental Authority shall be enacted, rendered or in force, which
would render it unlawful, as of the Closing Date, to effect the transactions
contemplated by this Agreement and the Other Documents to be executed and
delivered pursuant hereto.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNIFICATION
-------------------------------
7.1 SURVIVAL OF REPRESENTATIONS
AND WARRANTIES. All representations and warranties of the Sellers and the
Parent contained herein or made pursuant hereto shall survive the Closing and
any investigation at any time made by or on behalf of any party hereto until
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June 30, 1997 except that the representations and warranties contained in
Sections 3.16 (Taxes) and 3.13 (Litigation and Arbitration) shall both survive
until 90 days following the expiration (with valid extensions) of the
applicable statute of limitations. Provided that a claim with respect to a
breach of representation or warranty is made within the applicable period in
accordance with the provisions of Section 7.5 or Section 7.6 hereof, such claim
and any related claims may continue to be asserted beyond such period.
7.2 STATEMENTS AS
REPRESENTATIONS. All statements contained herein or in any Schedule contained
in the Disclosure Schedule or in any Exhibit hereto shall be deemed
representations and warranties within the meaning of Sections 7.1, 7.3(i), and
7.4(i) hereof.
7.3 INDEMNIFICATION BY THE
SELLERS. Subject to the provisions of this Article VII, each Seller shall
severally indemnify, defend and hold harmless the Buyer, any parent, subsidiary
or affiliate of the Buyer, and any director, officer, employee, agent or
advisor of any of them, or any of their respective successors or assigns (a
"Buyer Indemnified Party"), from and against any and all Losses asserted
against, resulting to, imposed upon or
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incurred by any Buyer Indemnified Party, directly or indirectly, by reason of
or resulting from:
(i) the breach of or any inaccuracy in any
of the representations and warranties of the Sellers or the
Company contained in or made pursuant to any section of this
Agreement, or any facts or circumstances constituting such
breach or inaccuracy;
(ii) the breach or nonperformance of
any covenant or agreement of the Sellers or the Company contained
in or made pursuant to this Agreement or any facts or
circumstances constituting such breach or nonperformance; and
(iii) any and all Taxes imposed upon
the Company or Sellers with respect to any taxable period (or any
portion thereof) ending on or before the Closing Date. Without
limiting the generality of the foregoing, Sellers shall
indemnify, defend and hold harmless any Buyer Indemnified Party
from and against any and all Losses asserted against, resulting
to, imposed upon or incurred by any Buyer Indemnified
Party, directly or
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indirectly, by reason or resulting from any and all Taxes imposed upon
the Company or the Sellers arising directly or indirectly from (i) the
failure of the Company to be an S corporation or the termination of
the Company's status as an S corporation and (ii) the imposition of
any Taxes on the Company for any taxable period in which the Company's
election of subchapter S status was in effect (including but not
limited to those Taxes described in Section 1374 and 1375 of the
Code).
7.4 INDEMNIFICATION BY THE
PARENT. Subject to the provisions of this Article VII, the Parent shall
indemnify, defend and hold harmless the Sellers, any parent, subsidiary or
affiliate of the Sellers, and any director, officer, employee, agent or advisor
of any of them or any of their respective heirs, successors or assigns (a
"Seller Indemnified Party"), from and against any and all Losses asserted
against, resulting to, imposed upon or incurred by any Seller Indemnified
Party, directly or indirectly, by reason of or resulting from:
(i) the breach of or any inaccuracy in any
of the representations and warranties of the Parent contained
in or made pur-
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suant to this Agreement or any facts or circumstances
constituting such breach or inaccuracy; and
(ii) the breach or non-performance
of any agreement of the Parent contained in or made pursuant to
this Agreement or any facts or circumstances constituting such
breach or nonperformance.
7.5 Indemnification Procedures.
--------------------------
(a) NOTICE. If any legal
proceeding shall be threatened or instituted or any claim or demand shall be
asserted by any Buyer Indemnified Party or Seller Indemnified Party in respect
of which indemnification may be sought under the provisions of this Agreement,
the party seeking indemnification (the "Claiming Party") shall promptly cause
written notice of the assertion of any such claim, demand or proceeding of
which it has knowledge to be forwarded to the party from whom it is claiming
indemnification (the "Indemnitor"). Such notice shall contain a reference to
the provisions hereof or of such other agreement, instrument or certificate
delivered pursuant hereto, in respect of which such claim is being made, and
shall specify, in reasonable detail, the amount of such Loss if
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determinable at such time. The Claiming Party's failure to give the Indemnitor
prompt notice shall not preclude the Claiming Party from seeking
indemnification from the Indemnitor unless the Claiming Party's failure has
materially prejudiced the Indemnitor's ability to defend the claim, demand or
proceeding.
(b) THIRD PARTY CLAIMS. If the
Claiming Party seeks indemnification from the Indemnitor as a result of a claim
or demand being made by a third party (a "Third Party Claim"), the Indemnitor
shall have the right to promptly assume the control of the defense of such
Third Party Claim, including, at its own expense, employment by it of counsel
reasonably satisfactory to the Claiming Party. The Claiming Party may, in its
sole discretion and at its own expense, employ counsel to represent it in the
defense of the Third Party Claim, and in such event counsel for the Indemnitor
shall cooperate with counsel for the Claiming Party in such defense, provided
that the Indemnitor shall direct and control the defense of such Third Party
Claim or proceeding. Except with the written consent of the Claiming Party,
the Indemnitor shall not consent to the entry of any judgment nor enter into
any settlement of such Third Party Claim which (i) does not include as an
unconditional term
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thereof the release of the Claiming Party from all liability in respect of such
Third Party Claim and (ii) results in the imposition on the Claiming Party of
any remedy other than money damages; provided, however, that the Claiming Party
shall not unreasonably withhold or delay its consent to the entry of any
judgment or any settlement of a Third Party Claim. If the Indemnitor elects
not to exercise its rights to assume the defense of the Third Party Claim, or
if injunctive relief is sought which would have an adverse effect on the
Claiming Party, the Claiming Party may, but shall have no obligation to, defend
against such Third Party Claim or legal proceeding in such manner as it may
deem appropriate, and the Claiming Party may compromise or settle such Third
Party Claim and proceeding without the Indemnitor's consent so long as the
Claiming Party acts in a commercially reasonable manner (without regard to the
Claiming Party's indemnification rights hereunder).
(c) PAYMENT. After any final
judgment or award shall have been rendered by a court, arbitration board or
administrative agency of competent jurisdiction and the time in which to appeal
therefrom shall have expired, or a settlement shall have been consummated, or
the Claiming Party and the Indemnitor shall arrive at a
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<PAGE> 70
mutually binding agreement with respect to each separate matter alleged to be
indemnified by the Indemnitor hereunder, the Claiming Party shall forward to
the Indemnitor notice of any sums due and owing by it with respect to such
matter (in accordance with Section 8.10 hereof) and the Indemnitor shall pay
all of the sums so owing to the Claiming Party within 10 days after the date of
such notice. Notwithstanding the foregoing, the obligation of Sellers to
indemnify under this Article VII shall be limited to 50% of the aggregate
Consideration; such indemnification obligation shall be satisfied 50% in cash
(by wire transfer, certified or bank cashier's check) and 50% in Parent Shares
(valued at the Stock Price).
(d) ESCROW. To the extent that the
Escrow Amount has not been released pursuant to the Escrow Agreement, the Buyer
Indemnified Party's right to indemnification and to be held harmless pursuant
to Section 7.3 hereof must first be asserted against the Escrow Amount.
7.6 Certain Tax Indemnification
---------------------------
Procedures: Notice Requirements; Control
-----------------------------------------
of Proceedings.
--------------
(a) If a notice of
deficiency, proposed adjustment, adjustment, assessment, audit, examination,
suit, dispute or other claim (a "Tax Claim") shall be
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delivered, sent, commenced, or initiated to or against any Buyer Indemnified
Party by any taxing authority with respect to Taxes for which the Sellers have
agreed to indemnify any Buyer Indemnified Party, Parent shall promptly notify
the Sellers' Representative in writing of the Tax Claim. If any such Tax Claim
shall be delivered, sent, commenced or initiated to or against the Sellers by
the relevant taxing authority, the Sellers shall promptly notify Parent in
writing of such Tax Claim.
(b) The Sellers' Representative may,
upon timely notice to Parent, assume and control the defense of any such Tax
Claim at their own cost and expense and with their own counsel. If the
Sellers' Representative elects to assume the defense of any such Tax Claim,
notwithstanding anything to the contrary contained herein, (i) the Sellers'
Representative shall consult with Parent and shall not enter into any
settlement with respect to any such Tax Claim without Parent's prior written
consent if the effect of such settlement would be to increase the liability for
Taxes of Buyer for any taxable period; (ii) the Sellers shall keep Parent
informed of all material developments and events relating to such Tax Claim;
and (iii) at its own cost and expense, Parent shall have the
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right to participate in (but not to control) the defense of such Tax Claim.
(c) In connection with any Tax Claim
that the Sellers' Representative does not timely elect to control pursuant to
Section 7.6, such contest shall be controlled by the Parent, and the Sellers
agree to cooperate with the Parent and its affiliates in pursuing such contest.
Parent shall keep the Sellers informed of all material developments and events
relating to such Tax Claim and Sellers, at their own cost and expense, shall
have the right to participate in (but not control) the defense of such Tax
Claim. Nothing contained herein shall be construed as limiting Parent's right
to indemnification under this Article VII.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 CONSENT TO SERVICE. Each
Seller hereby designates and appoints the Seller Representative as its
authorized agent upon whom process may be served in any suit, proceeding or
other action against such Seller instituted by the Buyer and relating to this
Agreement. Such designation and appointment shall, to the extent permitted by
law, be irrevocable, unless and until a
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successor authorized agent acceptable to the Buyer shall have been appointed by
the Sellers, such successor shall have accepted such appointment and written
notice thereof shall have been given to the Buyer. Each Seller further agrees
that service of process upon such authorized agent or successor shall be deemed
in every respect service of process upon such Seller in any such suit,
proceeding or other action. Each Seller further agrees to take any and all
action, including the execution and filing of all such instruments and
documents, as may be necessary to continue such designation and appointment of
such authorized agent in full force and effect.
8.2 Parties In Interest; No
-----------------------
Third Party Beneficiaries.
- -------------------------
(a) This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by, the parties
hereto and their respective successors and permitted assigns. This Agreement
and the rights and obligations of the Parent and the Sellers hereunder may not
be assigned by any of the parties hereto without the prior written consent of
the other parties, except that the Parent may assign its rights and obligations
hereunder to Buyer, PROVIDED, HOWEVER, that the Parent shall remain
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liable for all of its obligations and those of Buyer hereunder.
(b) This Agreement is not intended,
nor shall it be construed, to confer upon any Person except the parties hereto
and their heirs, successors and permitted assigns any rights or remedies under
or by reason of this Agreement, except for the rights of Buyer Indemnified
Parties and Seller Indemnified Parties under Article VII hereof.
8.3 EXHIBITS AND DISCLOSURE
SCHEDULE. All Exhibits annexed hereto and the Disclosure Schedule referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein.
8.4 ENTIRE AGREEMENT. This
Agreement, including the Exhibits hereto and the documents, schedules,
certificates and instruments referred to herein, embody the entire agreement
and understanding of the parties hereto in respect of the transactions
contemplated by this Agreement. This Agreement supersedes all prior
agreements, arrangements and understandings of the parties with respect to such
transactions.
8.5 WAIVER OF COMPLIANCE. No
amendment, modification, alteration, supplement or waiver of compliance with
any obligation, covenant, agreement,
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provision or condition hereof or consent pursuant to this Agreement shall be
effective unless evidenced by an instrument in writing executed by all of the
parties or in the case of a waiver, the party against whom enforcement of any
waiver, is sought. Any waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement, provision or condition shall not operate
as a waiver of, or estoppel with respect to, any subsequent or other failure.
8.6 VALIDITY. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, each of
which shall remain in full force and effect.
8.7 COUNTERPARTS. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
8.8 HEADINGS. The table of
contents, article and section headings contained in this Agreement are for
convenience only and shall not control or affect in any way the meaning or
interpretation of the provisions of this Agreement.
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8.9 GOVERNING LAW. This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York without giving effect to the conflicts of law principles of
such jurisdiction.
8.10 NOTICES. All notices,
requests, claims, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
telecopied (with confirmation of receipt), delivered by nationally-recognized
overnight express service or sent by registered or certified mail (postage
prepaid, return receipt requested) to the parties at the following addresses:
(a) If to the Buyer to:
PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Telephone: (216) 241-2555
Telecopy: (216) 241-2574
Attention: Chief Executive Officer
Copy to:
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: Stephen M. Banker, Esq.
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(b) If to a Seller:
Seller's address, as set forth on Exhibit A
hereto.
Copy to:
Bethea, Jordan & Griffin, P.A.
23-B Shelter Cove Lane, Suite 400
P.O. Drawer 3
Hilton Head Island, SC 29938-0038
Telephone: (803) 785-2171
Telecopy: (803) 686-5991
Attention: Robert M. Deeb, Jr., Esq.
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
8.11 TERMINATION. This Agreement may be terminated by
either the Parent or the Company if the Closing has not occurred on or prior to
January 31, 1996. If any party terminates this Agreement pursuant to this
Section 8.11, all obligations of the parties hereunder shall terminate without
any liability of any party to any other party (except for any liability of any
party then in breach and except as provided, however, that the provisions of
Sections 5.4 and 5.6 and the last sentence of Section 5.9 shall survive
termination of this Agreement.)
8.12 EFFECTIVENESS. This Agreement shall not be effective until it and
the South Carolina Agreement have been signed by all parties.
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ARTICLE IX
DEFINITIONS
-----------
9.1 DEFINITIONS. For purposes of this Agreement,
the following terms shall have the meanings set forth below (such meanings to
be equally applicable to both the singular and plural forms of the terms
defined):
"ACCOUNTING BOOKS AND RECORDS" shall have the meaning set
forth in Section 3.2(b) hereof.
"ACCOUNTS RECEIVABLE" shall mean all of the accounts
receivable and notes receivable of the Company, as set forth on Schedule 3.8
"ADJUSTMENT SCHEDULE" shall have the meaning set forth in
Section 1.4(e) hereof.
"AFFILIATE TRANSACTIONS" shall have the meaning set forth in
Section 3.22 hereof.
"AGREEMENT" shall have the meaning set forth in the Preamble.
"ARTICLES OF MERGER" shall have the meaning set forth in
Section 1.7.
"AUDITED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 3.6 hereof.
"AVERAGE INCOME" shall mean the average monthly net income for
1995 (calculated as gross revenues minus
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telephone bills and commissions) for (i) the Company Phones (as defined herein)
and (ii) the Company Phones (as defined in the South Carolina Agreement).
"AVERAGE TERM" shall mean the average remaining term of the
written contracts for the placement of (i) Company Phones (as defined herein)
and (ii) Company Phones (as defined in the South Carolina Agreement); provided
that, in calculating the term of any such contract, any renewal at the option
of the Company shall be considered part of the term; and further provided that
such calculation shall be weighted to take into account the number of
telephones under each such contract.
"BCA" shall mean the Business Corporation Act of 1988 of the
State of South Carolina
"BUYER" shall mean a wholly owned subsidiary of Parent to be
established by Parent prior to the Closing.
"BUYER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.3 hereof.
"CLAIMING PARTY" shall have the meaning set forth in section
7.5 hereof.
"CLOSING" shall have the meaning set forth in Section 1.7
hereof.
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"CLOSING DATE" shall have the meaning set forth in Section 1.7
hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMPANY" shall mean International Pay Phones, Inc., a
Tennessee corporation and all of its subsidiaries, if any.
"COMPANY PHONES" shall mean microprocessor based pay
telephones owned and operated by the Company, and which are active and
generating income.
"COMPANY PHONES AMOUNT" shall mean the aggregate number of
microprocessor based pay telephones owned and operated by the Company, and
which are active and generating income as of the Closing Date, but excluding
any telephones located at any correctional facility; provided that such amount
shall not include any telephones purchased or installed after the date hereof
unless specifically accepted by Parent in writing.
"COMPANY SHARES" or "SHARES" shall mean each share of Common
Stock, par value $1 per share, of the Company, outstanding immediately prior to
the Effective Time.
"CONSIDERATION" shall have the meaning set forth in Section 1.2(a) hereof.
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"CONSULTING AGREEMENT" shall have the meaning set forth in
Section 1.8(l) hereof.
"CONTRACTS" shall mean and include all leases, contracts,
agreements, licenses, License Agreements, purchase orders, invoices, sales
orders, instruments evidencing indebtedness for borrowed money, mortgages or
other documents securing any indebtedness for borrowed money, commitments and
understandings, written or oral, and all amendments or modifications thereto,
to which the Company is a party or by which the Company is bound.
"CURRENT ASSETS" shall mean all cash, current accounts
receivable and all cash equivalents of the Company as of the Closing Date.
"CUSTOMER PHONE AMOUNT" shall mean the number of telephones
operated by the Company and owned by third parties as of the Closing Date.
"DISCLOSURE SCHEDULE" shall mean the disclosure schedule
delivered in connection herewith.
"EFFECTIVE TIME" shall have the meaning set forth in Section
1.7 hereof.
"ENCUMBRANCE" shall mean any lien, encumbrance, proxy, voting
trust arrangement, pledge, security interest, collateral security agreement,
financing statement (and similar notices) filed with any
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Governmental Authority, claim (including any claim as defined in the Code),
charge, equities, mortgage, pledge, objection, title defect, option,
restrictive covenant or restriction on transfer of any nature whatsoever, and
the interest of the lessor in any property subject to a capital lease.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in
Section 3.18.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any trade or business, whether or
not incorporated, which (within the meaning of Section 4001 of ERISA) would, in
conjunction with the Company and TN, be deemed a "single employer".
"EQUIPMENT" shall mean all the Company Phones, all Inventory
and all other items of plant and equipment (including, without limitation,
vehicles, furniture, computers, office equipment and office supplies) which are
owned, leased or otherwise used by the Company in the operations of its
businesses.
"ESCROW AGENT" shall have the meaning set forth in Section
1.5(a) hereof.
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"ESCROW AMOUNT" shall have the meaning set forth in Section
1.5(a).
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.6 hereof.
"GAAP" shall mean generally accepted accounting principles as
in effect on the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean any government or
political subdivision thereof, whether federal, state, local or foreign, or any
agency, department, commission, board, bureau, court, tribunal, body,
administrative or regulatory authority or instrumentality of any such
government or political subdivision.
"INCOME TAXES" shall mean all Taxes based upon or measured by
income.
"INDEMNITOR" shall have the meaning set forth in Section
7.5(a) hereof.
"INTELLECTUAL PROPERTY" shall mean (i) all computer software
applications (whether licensed or otherwise and whether customized or
otherwise), U.S. and foreign patents and patent applications, registered and
unregistered copyrights and copyright applications (including copyrights in
proprietary computer software and databases), trademarks, service marks, trade
dress, logos,
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trade names and similar business identifiers, including, in each case, all
registrations and applications therefor, (ii) all trade secrets, know-how,
formulae, processes, inventions (whether patentable or unpatentable) and other
technical information and (iii) the goodwill of the business symbolized by any
of the foregoing.
"INVENTORY" shall mean and include all inventory owned or held
by the Company and used in the conduct of its business and operations,
including raw materials, components, repair parts, works-in-progress, finished
goods and other similar items, whether new or used.
"JAIL ESCROW AMOUNT" shall mean $35,000 in Parent Shares,
valued at the Stock Price.
"JAIL PHONES CONTRACT" shall mean the contract in place on the
date hereof between the Company and the appropriate authorities for the
placement of telephones in correctional institutions.
"LAW" shall mean any law (including common law), rule,
regulation, restriction (including zoning), code, statute, ordinance, order,
writ, injunction, judgment, decree or other requirement of a Governmental
Authority.
"LIABILITIES" shall mean any obligations or liabilities of any
nature whether known or unknown,
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accrued, absolute, contingent or otherwise, and whether due or to become due of
Company and its affiliates.
"LOSSES" shall mean and include all demands, claims, actions,
causes of action, assessments, damages, losses, liabilities, judgments,
settlements, fines, penalties, sanctions, costs and expenses (including,
without limitation, interest, penalties, reasonable attorneys' fees and
expenses as incurred, and all other reasonable costs of investigating and
defending third party claims as incurred).
"MATERIAL CONTRACT" shall mean any Contract that (i) is with
any of the Sellers' Affiliates, (ii) involves an obligation or commitment of
more than $5,000 or (iii) which otherwise is material to either the Company's
financial conditions, results of operations, assets, liabilities, businesses
or, to the knowledge of the Company and the Sellers, the prospects of the
Company.
"MERGER" shall have the meaning set forth in Section 1.1.
"ORDER" shall mean any order, judgment, injunction, award,
decree, writ, rule or similar action of any Governmental Authority.
"OTHER DOCUMENTS" shall have the meaning set forth in Section
1.7 hereof.
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"PARENT" shall mean PhoneTel Technologies, Inc.
"PARENT SHARES" shall mean shares of the Common Stock, $.01
par value, of the Parent.
"PERMITS" shall mean any franchise, license, certificate,
approval, identification number, registration, permit, authorization, order or
approval of, and any required registration with, any Governmental Authority.
"PERSON" shall mean any individual, partnership, firm, trust,
association, corporation, joint venture, joint stock company, unincorporated
organization, Governmental Authority or other entity.
"PRO RATA" shall mean proportionate to the percentage
ownership of all Company Shares outstanding.
"RESORT" shall have the meaning set forth in Section 6.1(f).
"SECRETARY OF STATE" shall have the meaning set forth in
Section 1.7.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SELLER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.4 hereof.
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"SELLER REPRESENTATIVE" shall have the meaning set forth in
Section 1.6 hereof.
"SELLERS" shall have the meaning set forth in the preamble.
"SELLERS' AFFILIATES" shall have the meaning set forth in
Section 3.22 hereof.
"SOUTH CAROLINA AGREEMENT" shall mean the Agreement and Plan
of Merger, of even date herewith, among International PayPhones, Inc., a South
Carolina corporation, all of the shareholders thereof and Parent.
"STOCK PRICE" shall mean the lesser of $1.05 per Parent Share
or the average of the closing prices for the Parent Shares on the ten trading
days ending two days prior to the Closing Date, adjusted to account for any
stock splits, reverse stock splits, stock dividends or any similar transaction
with respect to Parent Shares.
"SURVIVING CORPORATION" shall have the meaning set forth in
Section 1.1.
"TAX RETURN" shall mean any return, report, information return
or other document (including any related or supporting information) with
respect to Taxes.
"TAXES" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
Governmental
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Authority, including, but not limited to, income, gross receipts, excise,
property, sales, gain, use, license, capital stock, transfer, franchise,
payroll, withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto.
"THIRD PARTY CLAIM" shall have the meaning set forth in
Section 7.5 hereof.
"VOTING AGREEMENT" shall have the meaning set forth in Section
1.8(n).
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, on the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
--------------------
Name:
Title: Chairman and CEO
INTERNATIONAL PAY
PHONES,INC.
By:
--------------------
Name:
Title:
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<PAGE> 90
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES,
INC.:
------------------------
[Seller name]
------------------------
[Seller name]
------------------------
[Seller name]
------------------------
[Seller name]
------------------------
[Seller name]
------------------------
[Seller name]
89
<PAGE> 91
TABLE OF CONTENTS
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ARTICLE I
THE MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Conversion of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Closing Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Consideration Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.5 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.6 Appointment of the Seller Representative . . . . . . . . . . . . . . . . . . . 11
1.7 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.8 Deliveries by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.9 Deliveries by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.10 Certificate of Incorporation; By-
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.11 Directors and Officers of the
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
2.1 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . 18
2.2 Title to the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.3 Consents and Approvals; No
Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.4 Fees To Brokers or Other Parties . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF COMPANY AND SELLERS
3.1 Organization and Standing;
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Organizational Documents and
Corporate Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.4 The Company Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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3.5 Consents and Approvals; No
Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.7 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 27
3.8 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.9 Absence of Certain Changes or
Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.10 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.11 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.12 Compliance with Laws and Permits . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.13 Litigation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.15 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.17 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.18 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.20 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.21 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.22 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.23 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.24 Prior Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.25 Company Phones Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.26 Consents; Waivers; Assignments;
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.27 Recent Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.28 Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.2 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . 46
4.3 Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE V
ADDITIONAL COVENANTS
5.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.2 Further Assurances; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
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5.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.7 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
5.8 Interim Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.9 Delivery of Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.10 Payment of the Telephone Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.11 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.12 S Corporation Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
ARTICLE VI
6.1 Conditions Precedent to Obligations of the Parent. The obligation of the
Parent to consummate the transactions contemplated hereby is subject to
the satisfaction or waiver (subject to applicable law) on or before the Closing
Date, of each of the following conditions: . . . . . . . . . . . . . . . . . . . . . . 59
6.2 Conditions Precedent to Obligations of the Company and the Sellers . . . . . . . . . . 61
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 62
7.2 Statements as Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.3 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
7.4 Indemnification by the Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
7.5 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
7.6 Certain Tax Indemnification Procedures: Notice Requirements; Control of Proceedings . 69
ARTICLE VIII
MISCELLANEOUS
8.1 Consent to Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
8.2 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . 72
8.3 Exhibits and Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
</TABLE>
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8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.5 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
8.6 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
8.11 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE IX
DEFINITIONS
9.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Exhibit A - List of Sellers
Exhibit B - Escrow Agreement
Exhibit C - Certificate of Non-Foreign Status
Exhibit D - Securities Act Certificate
Exhibit E - Consulting and Non-Competition Agreement
Exhibit F - Voting Agreement
Exhibit G - Registration Rights Agreement
Exhibit H - Financial Statements
Exhibit I - Continuity of Interest Agreement
</TABLE>
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<PAGE> 95
AMENDMENT NO. 1
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAY PHONES, INC.
[Tennessee]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAY PHONES, INC.
Amendment No. 1, dated as of January 16, 1996 ("Amendment No.
1"), to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Pay Phones, Inc., a Tennessee corporation
("Company"), and the shareholders of the Company (collectively, the "Sellers").
Parent and Sellers entered into the Original Agreement on
November 22, 1995. Parent and Sellers desire to amend the Original Agreement
to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. The Closing as defined in Section 1.7(a) of the Original
Agreement shall take place on or before February 29, 1996, as
may be mutually agreed by Parent and Sellers, and the term
"Closing Date", as defined and used in the Original Agreement,
shall be amended to mean the date on which the Closing
actually takes place.
2. The term "Buyer" as used in the Original Agreement is hereby
deleted and replaced with the term "Parent" as defined and
used in the Original Agreement.
<PAGE> 96
3. The term "Buyer" is hereby eliminated as a de
fined term from Section 9.1 of the Original Agreement.
4. The following Section 1.4(c)(v) is added to the
Original Agreement:
"The Consideration shall be increased by an amount
equal to the Company's net operating loss, before
depreciation and amortization, from January 11, 1996
through the date of Closing as reflected on the
Company's income statement which shall be prepared on
the date of Closing in accordance with generally
accepted accounting practices."
5. Section 8.2(a) of the Original Agreement is hereby amended to
add the following language at the end of such Section:
", and, from and after the Closing Date, Parent may
assign its rights hereunder to any party providing
financing to Parent."
6. If the merger of the Company into Parent (the "Merger")
contemplated by the Original Agreement, as hereby amended, has
not been consummated by February 1, 1996, then the $75,000
deposit held pursuant to the Escrow Agreement shall be
disbursed to Sellers by Bethea, Jordan & Griffin, P.A.
("Escrow Agent"), PROVIDED, HOWEVER, that (i) such $75,000
shall be credited as a partial payment of the Consideration if
the Merger is later consummated and (ii) if either of (a) the
Closing of the Merger or (b) the closing of Parent's pending
financing arrangements with ING are not closed on or prior to
February 29, 1996 due to a breach by the Company or Sellers of
the Original Agreement, as hereby amended, then the Escrow
Agent shall not disburse any funds to Sellers and, if
previously disbursed, Sellers shall promptly (and in any event
within two Business Days after Parent's written request) repay
to Parent the entire $75,000 previously disbursed from the
Escrow.
2
<PAGE> 97
7. The Original Agreement and the Escrow Agreement are hereby
amended to provide that (a) the total amount (exclusive of the
Jail Escrow Amount) to be held by the Escrow Agent pursuant to
the Escrow Agreement after Closing shall be $62,500, (b) the
cash portion of the $62,500 shall be held by the Escrow Agent
in an interest bearing account with interest accruing to the
Sellers, (c) the claim period provided for in the Escrow
Agreement shall be shortened to provide that the Escrow Agent
shall hold the $62,500, and that claims can be made, only for
a period of six (6) months, and (d) the amounts to be released
to Seller's Representative in the first six months of the
Escrow shall be reduced by one-half. The Original Agreement
and the Escrow Agreement shall also be amended to reduce the
Jail Escrow Amount to $17,500.
8. The parties agree to execute a formal Amendment to the Escrow
Agreement prior to Closing incorporating the changes and
modifications set forth in paragraph 7 of this Amendment No. 1.
9. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, all Exhibits and Schedules thereto
and all documents executed in connection therewith shall
continue in full force and effect and shall remain enforceable
and binding in accordance with their terms.
10. This Amendment No. 1 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original and all of which constitute,
collectively, one agreement.
11. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York.
12. In the event of a conflict between the terms
and conditions of the Original Agreement and the terms and
conditions of this Amendment No. 1, then the terms and
conditions of this Amendment No. 1 shall prevail.
3
<PAGE> 98
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:________________________________
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:________________________________
Name:
Title:
SELLERS:
_____________________________
Nickey Maxey
_____________________________
Hugh Collins
4
<PAGE> 99
AMENDMENT NO. 2
TO
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAYPHONES, INC.
[Tennessee]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAYPHONES, INC.
Amendment No. 2, dated as of February 23, 1996 ("Amendment No. 2"),
to the Agreement and Plan of Merger, dated as of November 22, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Payphones, Inc., a Tennessee corporation ("Company"),
and the shareholders of the Company (collectively, the "Sellers").
Parent, the Company and Sellers entered into the Original Agreement
on November 22, 1995. The Original Agreement was amended pursuant to Amendment
No. 1, dated as of January 16, 1996 among Parent, the Company and Sellers
("Amendment No. 1"). Parent, the Company and Sellers desire to further amend
the Original Agreement to make the changes set forth below.
NOW THEREFORE, in consideration of the agreements herein set forth
and for other valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Parent and Sellers covenant and agree as follows:
1. Section 1.1 of the Original Agreement, as amended by Amendment No.
1, is hereby deleted and replaced with the following:
1.1 THE MERGER. Upon the terms and subject to
conditions of this Agreement and in accordance with Chapter 17 of
the Revised Code of the State of Ohio (the "GCL") at the Effective
Time, the Company shall be merged with and into the Parent (the
"Merger") and the separate corporate existence of the Company shall
cease. After the Merger, the Parent shall continue as the
surviving corporation (sometimes hereinaf-
<PAGE> 100
ter referred to as the "Surviving Corporation"). The Merger shall
have the effects as provided in the applicable provisions of the
GCL. Without limiting the generality of the foregoing, upon the
Merger, all the rights, privileges, immunities, powers and
franchises of the Company and the Parent shall vest in the
Surviving Corporation and, except as otherwise provided for in
this Agreement, all obligations, duties, debts and liabilities
of the Company and the Parent shall be the obligations, duties,
debts and liabilities of the Surviving Corporation.
2. Section 1.7(c) of the Original Agreement, as amended by Amendment
No. 1, is hereby deleted and replaced with the following:
(c) On the Closing Date, the Parent and the Company
will cause appropriate Articles of Merger (the "Articles of
Merger") to be executed and filed with the Secretary of State of
Tennessee in such form and executed as provided in the BCA. The
Parent and the Company will also cause an appropriate Certifi- cate
of Merger (the "Certificate of Merger") to be executed and filed
with the Secretary of State of Ohio in such form and executed as
provided in the GCL. The Merger shall become effective on the date
on which the Articles of Merger and the Certificate of Merger has
been duly filed with the appropriate Secretary of State or such
time as is agreed upon by the parties and specified in the
Certificate of Merger, and such time is hereinafter referred to as
the "Effective Time".
3. Except as herein amended, all terms, provisions and conditions of
the Original Agreement, as amended by Amendment No. 1, all exhibits
and Schedule thereto and all documents executed in connection
therewith shall continue in full force and effect and shall remain
enforceable and binding in accordance with their terms.
2
<PAGE> 101
4. This Amendment No. 2 may be executed in any number of identical
counterparts, each of which shall for all purposes be deemed an
original and all of which constitute, collectively, one agreement.
5. This Amendment No. 2 shall be governed by and construed in
accordance with the laws of the State of New York.
6. In the event of a conflict between the terms
and conditions of the Original Agreement and the
terms and conditions of this Amendment No. 2, then the terms and
conditions of this Amendment No. 2 shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_________________________________
Name:
Title:
INTERNATIONAL PAY PHONES, INC.
By:_________________________________
Name:
Title:
SELLERS:
_____________________________
Nickey Maxey
_____________________________
Hugh Collins
3
<PAGE> 102
TIME EXTENSION AGREEMENT
FOR
THE AGREEMENT AND PLAN OF MERGER
AMONG
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAYPHONES, INC.
[Tennessee]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAYPHONES, INC.
AND
TERMINATION OF THE ESCROW AGREEMENT
AMONG
BETHEA, JORDAN & GRIFFIN, P.A.
PHONETEL TECHNOLOGIES, INC.
INTERNATIONAL PAYPHONES, INC.
[Tennessee]
AND
THE SHAREHOLDERS OF INTERNATIONAL PAYPHONES, INC.
[Tennessee]
Time Extension Agreement, dated as of March 1, 1996 ("Extension
Agreement"), respecting the Agreement and Plan of Merger, dated as of November
22, 1995, as amended as of January 16, 1996 and February 23, 1996 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Parent"), International Payphones, Inc., a Tennessee corporation ("Company"),
and the shareholders of the Company (collectively, the "Sellers"), and
termination of the Escrow Agreement, dated as of November 22, 1995, as amended
as of February 29, 1996, (the "Escrow Agreement"), among Bethea, Jordan &
Griffin, P.A. (the "Escrow Agent"), Parent and Sellers.
Parent, the Company and Sellers desire to extend the effectiveness of
all agreements and documents in connection with the Original Agreement, as
amended. Parent, Sellers and the Escrow Agent desire to terminate all
provisions of the Escrow Agreement.
NOW THEREFORE, in consideration of the agreements herein set forth and
for other valuable consideration, the receipt and adequacy of which are hereby
<PAGE> 103
acknowledged, Parent, the Company and Sellers covenant and agree as follows:
1. The Original Agreement, all exhibits and schedules thereto and all
documents executed in connection therewith shall exist in the exact form
as previously executed, except as provided in this Extension Agreement.
Any reference to the Original Agreement in any exhibit or schedule to
the Original Agreement or in any document executed in connection
therewith shall be deemed to incorporate this Extension Agreement.
2. The effective dates of documents and agreements executed in connection
with the Original Agreement which have expired are hereby extended until
5 p.m. New York City time on March 15, 1996.
3. All terms, provisions and conditions of the Original Agreement, all
exhibits and schedules thereto and all documents executed in connection
therewith shall continue in full force and effect and shall remain
enforceable and binding in accordance with their terms until 5 p.m. New
York City time on March 15, 1996.
4. The Closing as defined in Section 1.7(a) of the Original Agreement shall
be on or before March 15, 1996, and the term "Closing Date" as defined
and used in the Original Agreement, shall be deemed to mean March 15,
1996 for all purposes relating to accounting and purchase price
adjustments, irrespective of whether March 15, 1996 is the actual date of
the Closing.
5. Section 1.2(a) of the Original Agreement, which defines Consideration,
is hereby deleted and replaced in its entirety with the following:
1.2(a) Each share of common stock, par value $1.00 per share,
of the Company ("Company Shares") outstanding immediately prior to the
Effective Time shall be converted into the right to receive a percentage
of the Consideration equal to the percentage such Company Share
represents of all Company Shares.
2
<PAGE> 104
The consideration (the "Consideration") shall equal the sum of (i) the
excess of (A) the product of $3,800 and the Company Phones Amount, over
(B) $15,000, minus $37,500 subject to adjustment as set forth in Section
1.4 hereof (to be paid one half in cash and one half in certificates
representing Parent Shares, valued at the Stock Price); plus (ii) the sum
of (A) the product of $1,000 and the Customer Phones Amount plus (B)
$25,000 (to be paid in Parent Shares, valued at the Stock Price); plus
(iii) $33,611.50 paid either by bank check, cashier's check or wire
transfer of immediately available funds; plus (iv) 1,418 shares of
Parent's 14% Convertible Preferred Stock, no par value, $60 stated value;
plus (v) warrants to purchase 30,624 shares of Parent's Common Stock at
an initial exercise price of $.01.
6. Section 1.5 of the Original Agreement, referring to the Escrow Agreement
and amounts contributed thereto, shall be deleted from the Original
Agreement at the Closing Date.
7. The Escrow Agreement shall be terminated at the Closing Date. Any
amounts currently held in escrow shall be paid in accordance with the
terms of the Escrow Agreement.
8. The proviso contained in Paragraph 6(ii) to Amendment No. 1, dated as of
January 16, 1996, to the Original Agreement shall have no further force
and effect.
9. Except as previously revised or herein amended, all terms, provisions
and conditions of the Original Agreement, and all documents executed in
connection therewith shall continue in full force and effect and remain
enforceable in accordance with their terms.
10. This Extension Agreement may be executed in any number of identical
counterparts, each of which shall for all purposes be deemed an original
and all of which constitute, collectively, one agreement.
3
<PAGE> 105
11. This Extension Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
12. In the event of a conflict between the terms and conditions of the
Original Agreement and the terms and conditions of this Extension
Agreement, then the terms and conditions of this Extension Agreement
shall prevail.
4
<PAGE> 106
IN WITNESS WHEREOF, the parties hereto have executed this Extension
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:______________________________
PETER GRAF
Chairman
INTERNATIONAL PAYPHONES, INC.
By:______________________________
Name:
Title:
SELLERS
By:______________________________
NICKEY MAXEY
as Shareholders' Representative
BETHEA, JORDAN & GRIFFIN, P.A.
By:______________________________
ROBERT DEEB
Escrow Agent
5
<PAGE> 1
EXHIBIT C-3
SHARE PURCHASE AGREEMENT
among
PHONETEL TECHNOLOGIES, INC.,
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
and
ALL OF THE SHAREHOLDERS
of
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
November 16, 1995
<PAGE> 2
<TABLE>
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ARTICLE I
PURCHASE AND SALE OF THE SHARES; THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Closing Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.4 Delivery of Escrow Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.5 Appointment of the Sellers' Representative . . . . . . . . . . . . . . . . . . . . . . 7
1.6 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.7 Deliveries by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.8 Deliveries by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.9 Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.10 Post-Closing Price Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Title to the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PCS AND SELLERS . . . . . . . . . . . . . . . . . . . . . 15
3.1 Organization and Standing; [Subsidiaries] . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Organizational Documents and Corporate Records . . . . . . . . . . . . . . . . . . . . 16
3.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 PCS Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.7 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.8 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.9 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.10 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.11 Properties and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.12 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.13 Compliance with Laws and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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3.14 Litigation and Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.15 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.16 Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.19 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
3.21 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.22 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.23 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.25 Prior Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.26 PCS Phones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.27 Consents; Waivers; Assignments; Permits . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER . . . . . . . . . . . . . . . . . . . . . . . 38
4.1 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.2 Authorization; Binding Obligation . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.3 Investment Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.4 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE V
ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.1 Transfer and Similar Taxes; Tax Returns . . . . . . . . . . . . . . . . . . . . . . 40
5.2 Further Assurances; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.3 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.7 Forwarding of Payments Received . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.8 S Corporation Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.9 Financial Updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.10 Interim Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VI
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.1 Conditions Precedent to Obligations of the Buyer . . . . . . . . . . . . . . . . . . 50
6.2 Conditions Precedent to Obligations of the Sellers . . . . . . . . . . . . . . . . . 51
</TABLE>
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ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.1 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 52
7.2 Statements as Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.3 Indemnification by the Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.4 Indemnification by the Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.5 Limitations on Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.6 General Indemnification Event . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.7 Tax Indemnification Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.8 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
7.9 Consideration Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.1 Consent to Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.2 Parties in Interest; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . 66
8.3 Exhibits and Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.5 Waiver of Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
8.6 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.11 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
ARTICLE IX
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
9.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
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<PAGE> 5
SHARE PURCHASE AGREEMENT
------------------------
Share Purchase Agreement (the "Agreement"), dated November 16,
1995, among PhoneTel Technologies, Inc. (the "Buyer"), an Ohio corporation,
Paramount Communications Systems, Inc. (together with all Subsidiaries thereof,
"PCS"), a Florida corporation, and all of the shareholders of PCS (individually
a "Seller," and collectively, the "Sellers"), whose names, addresses and
holdings in PCS are set forth on Exhibit A hereto.
WHEREAS, PCS is engaged in the business of owning and
operating microprocessor-based pay telephones and engaging in the installation
and maintenance of pay telephones; and
WHEREAS, the Sellers are the beneficial and record owners of
all of the issued and outstanding common shares (the "Common Shares"), $1.00
par value, of Paramount Communications Systems, Inc.; and
WHEREAS, the Buyer desires to purchase, and the Sellers desire
to sell, all of such Common Shares, upon the terms and conditions set forth
herein; and
NOW, THEREFORE, in consideration of the mutual agreements,
covenants, representations and warranties set forth herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
<PAGE> 6
ARTICLE I
PURCHASE AND SALE OF THE SHARES; THE CLOSING
--------------------------------------------
1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions hereof, at the Closing (as defined in Section 1.6 hereof) each of
the Sellers will sell, assign, transfer and deliver to the Buyer, and the Buyer
will accept and purchase from each of the Sellers, free and clear of all
Encumbrances, the Shares. The number and percentage of outstanding Shares
being sold by each of the Sellers is set forth opposite such Seller's name on
Exhibit A hereto.
1.2 CONSIDERATION.
(a) In connection with the aforementioned purchase,
the Buyer will provide the following consideration (the "Consideration"),
subject to adjustment as provided for by Section 1.3 hereof:
(i) $9.45 million (the "Closing Payment"),
subject to adjustment as provided in subsection (ii) below, paid
either by bank check, cashier's check or wire transfer of immediately
available funds;
(ii) Upon written request by the Sellers'
Representative prior to the Closing, the amount set forth in
subsection (i)
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above after adjustment in accordance with Section 1.3 hereof shall be
reduced and one Buyer Share shall be substituted for each dollar of
such reduction; and
(iii) $0.5 million (the "Escrow Amount")
which shall be deposited into an escrow account with Stuart & Walker,
P.A., as escrow agent (the "Escrow Agent"), simultaneously with the
execution of this Agreement, to be held and disposed of by the Escrow
Agent pursuant to the Escrow Agreement referred to in Section 1.9(a)
hereof. In the event the Closing does not occur due to a material
breach of this Agreement by Buyer, Sellers shall be entitled to
receive the entire Escrow Amount, as liquidated damages, and shall
have no other rights in respect of this Agreement.
(b) The foregoing payments shall constitute the full
purchase price for the Shares. Any portion of the Escrow Amount paid to the
Buyer shall be deemed a reduction in the purchase price required to be paid by
the Buyer for the Shares.
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<PAGE> 8
(c) Each of the Sellers shall be entitled to receive
such percentage of the payment made pursuant to subsection (a)(i) and (ii) of
this Section 1, and shall have such percentage interest in the payment to the
Escrow Agent made pursuant to subsection (a)(iii) of this Section 1 as is set
forth opposite such Seller's name on Exhibit A hereto.
1.3 CLOSING PRICE ADJUSTMENT. (a) If the number of PCS
Phones as of the Closing Date is greater than the PCS Phones Amount, the
Consideration shall be increased by the product obtained by multiplying an
amount to be mutually agreed upon by Buyer and the Sellers' Representative
(which shall be between $2500 and $4000), by the excess of (i) the number of
PCS Phones as of the Closing Date over (ii) the PCS Phones Amount. For
purposes of this Section 1.3(a), PCS Phones added after November 16, 1995 shall
be counted only to the extent approved by Buyer. If the amount to be paid for
the additional phones is disputed, then $2,500 would be paid at Closing, and if
the net to operator shows an average of $120 per month after ninety days, then
an additional $1,500 would be paid.
(b) If the number of PCS Phones as of the Closing
Date is less than the PCS Phones Amount, the
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<PAGE> 9
Consideration shall be decreased by the product obtained from multiplying
$4,000 by the excess of (i) the PCS Phones Amount over (ii) the number of PCS
Phones as of the Closing Date.
(c) The Consideration shall be reduced by the
amount, if any, by which (x) the aggregate liabilities of PCS as of the Closing
Date exceeds (y) the current assets of PCS as of the Closing Date (excluding
any amounts payable pursuant to Section 5.11 hereof).
(d) The Consideration shall be reduced by the amount
of all severance pay for the termination of any employees of PCS terminated by
PCS within one business day after the Closing, consistent with past practice of
PCS. Buyer shall notify Seller's Representative of the employees to be
terminated within two days prior to the Closing.
(e) As soon as practicable after the Closing Date,
the Buyer shall cause to be prepared and delivered to Sellers' Representative
and the Escrow Agent a schedule (the "Adjustment Schedule") which shows, as of
the Closing Date, each of the following items: (i) the current assets of PCS as
of the Closing Date, (ii) all liabilities of PCS as of the Closing Date, (iii)
the number of PCS Phones as of the Closing Date and (iv) the
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<PAGE> 10
aggregate adjustments to Consideration as required by this Section 1.3.
(f) Upon receipt of the Adjustment Schedule,
Sellers' Representative shall have the right during the succeeding 10 business
day period to examine the Adjustment Schedule and all records used to prepare
such Adjustment Schedule. Sellers' Representative shall notify the Buyer and
the Escrow Agent in writing, on or before the last day of the 10 business day
period, of any good faith objections to the Adjustment Schedule, setting forth
a reasonably specific description of such objections and the dollar or other
amount, as the case may be, of each objection.
(g) If Sellers' Representative in good faith objects
to the Adjustment Schedule, Sellers' Representative and the Buyer shall attempt
to resolve any such objections within 10 days of the Buyer's receipt of such
objections. Upon such resolution, Buyer and Sellers' Representative shall
notify the Escrow Agent and furnish instructions for the delivery of funds from
the Escrow Account, and consistent with this Section 1.3. If the Buyer and
Sellers' Representative are unable to resolve the matter within such 10
business day period, they shall jointly appoint a mutually acceptable firm of
independent
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<PAGE> 11
certified public accountants (or, if they cannot agree on a mutually acceptable
firm, they shall cause their respective accounting firms to select such firm)
within five days after the end of such 10 business day period, and shall notify
the Escrow Agent of the identity of such firm. The fees of such independent
certified public accountants shall be divided equally between the Buyer and the
Sellers. Such firm's resolution of the dispute shall be conclusive and binding
upon the Sellers and the Buyer.
(h) The Adjustment Schedule shall be deemed complete
upon the earlier of (i) the eleventh (11th) day after the Buyer's delivery of
the Adjustment Schedule to Sellers' Representative, unless prior to such day
Sellers' Representative shall have notified the Buyer of a dispute in
accordance with paragraph (f), and (ii) the resolution of all disputes,
pursuant to paragraph (g). Within two business days following completion of
the Adjustment Schedule as aforesaid, either
(A) Buyer shall pay Sellers, Pro Rata, the
amount, if any, by which the Consideration (as adjusted) exceeds the
amount paid at the Closing pursuant to Section 1.2(a); or
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<PAGE> 12
(B) Sellers shall pay to Buyer the amount,
if any, by which the amount paid at the Closing pursuant to Section
1.2(a) exceeds the Consideration (as adjusted).
1.4 DELIVERY OF ESCROW AMOUNT. Delivery of the Escrow
Amount by the Escrow Agent to the applicable parties shall be made pursuant to
the terms of the Escrow Agreement.
1.5 APPOINTMENT OF THE SELLERS' REPRESENTATIVE. Each
Seller hereby irrevocably appoints Albert J. Miniaci and Dominick F. Miniaci
(either, the "Sellers' Representative") as such Seller's attorney-in-fact and
representative, to do any and all things and to execute any and all documents
in such Seller's name, place and stead in connection with this Agreement and
the transactions contemplated hereby, including, without limitation, to accept
on such Seller's behalf any amount payable to such Seller under this Agreement,
to give or receive, on such Seller's behalf, any notice or instruction under
this Agreement, or to amend, terminate or extend, or waive the terms of, this
Agreement. The Buyer shall be entitled to rely, as being binding upon such
Seller, upon any document or other writing executed by the Sellers'
Representative, and the Buyer shall not
8
<PAGE> 13
be liable to any Seller for any action taken or omitted to be taken by the
Buyer in reliance thereon.
1.6 THE CLOSING. Upon the terms and subject to the
conditions contained in this Agreement, the Closing of the transactions
contemplated hereby (the "Closing") will take place at the offices of Skadden,
Arps, Slate, Meagher & Flom, 919 Third Avenue, New York, New York on or prior
to January 15, 1996, simultaneously with the execution of the other agreements,
documents, instruments and writings executed and delivered pursuant hereto or
in connection herewith (collectively, the "Other Documents"), and shall become
effective as of January 1, 1996 (the "Closing Date"). Notwithstanding the
prior sentence, the "Tax Closing Date" shall be the date on which the Closing
occurs. At the Closing, the actions described in Sections 1.7, 1.8 and 1.9
hereof are being taken. All such actions shall be deemed to have occurred
simultaneously.
1.7 DELIVERIES BY THE SELLERS. At the Closing, the Sellers
are delivering to the Buyer (unless previously delivered) the following:
(a) stock certificates representing the Shares,
accompanied by stock powers duly endorsed in blank or accompanied by duly
executed instruments of
9
<PAGE> 14
transfer, with all necessary transfer tax and other revenue stamps affixed
thereto;
(b) a receipt for the payments provided for by
Sections 1.2(a)(i) and (ii) hereof;
(c) a Certificate of Good Standing for Paramount
Communications Systems, Inc. from the Florida Secretary of State;
(d) the resignations of all of the officers and
directors of PCS;
(e) the stock books, stock ledgers and minute books
of PCS (all other records of PCS being located on the premises of PCS);
(f) a certificate in substantially the form attached
hereto as Exhibit C, duly executed by each Seller, representing to the Buyer
certain matters in connection with the Securities Act;
(g) certified resolutions of the Board of Directors
of Paramount Communications Systems, Inc. approving this Agreement and the
Other Documents and the transactions contemplated hereby and thereby;
(h) all Permits required to be obtained before the
Buyer may legally operate PCS's businesses (which does not include a permit
from the Public Service Commission of the State of Florida);
10
<PAGE> 15
(i) A certificate from an officer of Paramount
certifying that all representations and warranties contained in Article III are
true and correct as of the Closing Date;
(j) A certificate from each Seller certifying that
all representations and warranties contained in Article II are true and correct
as of the Closing Date; and
(k) all consents, assignments or waivers required to
be obtained in connection with the Contracts, in order for the Buyer to assume
the operations and conduct the business of PCS without the breaching provisions
of any Contract listed on Exhibit D hereto;
(l) a Certificate of Non-Foreign Status, duly
executed by each Seller, in the form attached hereto as Exhibit D;
(m) an executed Consulting and Non-Competition
Agreement between Buyer and Albert Miniaci, in the form attached hereto as
Exhibit E (the "Consulting Agreement");
(n) an executed Voting Agreement among Buyer and
each of the Sellers in the form attached hereto as Exhibit F (the "Voting
Agreement"); and
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<PAGE> 16
(o) an executed Registration Rights Agreement among
Buyer and each of the Sellers in the form attached hereto as Exhibit G (the
"Registration Rights Agreement").
1.8 DELIVERIES BY THE BUYER. At the Closing, the Buyer is
delivering (unless previously delivered) the following:
(a) To the Sellers, the payments provided for in
Sections 1.2(a)(i) and (ii) hereof;
(b) To the Sellers, a certificate evidencing the
good standing of the Buyer under the laws of the state of Ohio; and
(c) To the Sellers, certified resolutions of the
Board of Directors of the Buyer approving this Agreement and the
transactions contemplated hereby.
(d) To the Sellers, an executed Voting Agreement;
(e) To the Sellers, an executed Registration Rights
Agreement;
(f) To Albert Miniaci, an executed Consulting
Agreement; and
(g) To the Sellers, a certificate certifying that
all representations and warranties
12
<PAGE> 17
contained in Article IV are true and correct as of the Closing Date.
1.9 ESCROW AGREEMENT. Simultaneously with the execution of
this Agreement, the Sellers, the Buyer and the Escrow Agent will enter into the
escrow agreement attached hereto as Exhibit E (the "Escrow Agreement"),
pursuant to which the Escrow Amount will be held in escrow in order to satisfy
claims of the Buyer and secure obligations of the Sellers.
1.10 POST-CLOSING PRICE ADJUSTMENT. Between sixty (60) and
ninety (90) days following the Closing Date, all amounts owed by any of the
parties pursuant to Sections 3.6, 3.7 and 3.8 hereof shall be paid by such
owing party directly to the party owed and, in the case of any such amounts
owed to Buyer, such amounts shall not be drawn from the Escrow Amount.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
---------------------------------------------
Each Seller severally represents and warrants to the Buyer as
follows:
2.1 AUTHORIZATION; BINDING OBLIGATION. Each of this
Agreement and the Other Documents have been duly and validly executed and
delivered by such Seller and,
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<PAGE> 18
assuming due authorization, execution and delivery by the Buyer, constitute a
legal, valid and binding obligation of such Seller, enforceable against such
Seller in accordance with its terms. Each Seller has the legal capacity and
all requisite power and authority, whether corporate or otherwise, to execute
and deliver this Agreement and the Other Documents and to consummate the
transactions contemplated hereby and thereby and to perform such Seller's
obligations hereunder and thereunder. Such execution, delivery and
consummation has been duly and validly authorized by all necessary action on
the part of such Seller, and, in the case of each Seller which is a trust, has
also been duly and validly authorized by the trust and trustee of such trust,
and no other corporate proceedings on the part of such Seller are necessary to
authorize such execution, delivery and consummation. Except as set forth in
Section 1.5 hereof, no power of attorney has been granted by such Seller with
respect to any matter relating to PCS or the Shares, or PCS's business,
operations or assets.
2.2 TITLE TO THE SHARES. Immediately prior to the Closing,
each Seller was the record and beneficial owner of, and had good and marketable
title to, the number of Shares set forth next to each such Seller's
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<PAGE> 19
name on Exhibit A hereto, free and clear of all Encumbrances other than those
set forth on Schedule 2.2 of the Disclosure Schedule. Except as set forth on
Schedule 2.2 of the Disclosure Schedule, (i) such Shares are not subject to any
restrictions on transferability other than those imposed by the Securities Act
and applicable state securities laws and (ii) there are no options, warrants,
calls, commitments or rights of any character to purchase or otherwise acquire
Shares from such Seller pursuant to which such Seller may be obligated to sell
or transfer any of such Shares. At the Closing, the Buyer is acquiring good
and marketable title to such Shares, free and clear of all Encumbrances.
2.3 CONSENTS AND APPROVALS; NO VIOLATION. Except as set
forth on Schedule 2.3 of the Disclosure Schedule, neither the execution and
delivery of this Agreement and the Other Documents, nor the consummation of the
transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof, will (a) in the case of each Seller which is a trust,
conflict with any provision of the Indenture (or other similar organizational
documents) of such Seller, (b) require any consent, waiver, approval,
authorization or permit of, or filing with or notification to, or any other
action by,
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any Governmental Authority by such Seller, (c) violate any Law of any
Governmental Authority which may be applicable to such Seller, or by which any
of such Seller's businesses, properties or assets (including, without
limitation, such Seller's Common Shares) may be bound or affected or (d)
violate, breach, or conflict with, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration or any obligation to pay or result in the
imposition of any Encumbrance upon any of the property (including, without
limitation, such Seller's Common Shares)) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, Encumbrance, Contract,
Permit, Order, or other instrument or obligation to which such Seller is a
party or by which any of such Seller's businesses, properties or assets
(including, without limitation, such Seller's Common Shares) may be bound or
affected.
2.4 BROKERS. Neither the Buyer nor PCS has or will have
any obligation to pay any broker's, finder's, investment banker's, financial
advisor's or similar fee in connection with this Agreement or the Other
Documents, or the transactions contemplated hereby or thereby, by
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reason of any action taken by or on behalf of such Seller..
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PCS AND SELLERS
-------------------------------------------------
PCS and the Sellers jointly and severally represent and
warrant to the Buyer as follows:
3.1 ORGANIZATION AND STANDING; SUBSIDIARIES. Paramount
Communications Systems, Inc. ("Paramount") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida.
Paramount has no subsidiaries. PCS has all requisite corporate power and
authority to own, lease and operate the properties and assets it now owns,
operates and leases and to carry on its business and operations as currently and
heretofore conducted. PCS is duly qualified or licensed to do business and is
in good standing in each of the jurisdictions in which (i) the character or
location of the properties and assets PCS owns, leases or operates, (ii) the
conduct of PCS's business and operations as currently and heretofore conducted
or (iii) any other circumstance makes such qualification necessary.
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3.2 ORGANIZATIONAL DOCUMENTS AND CORPORATE RECORDS.
(a) Either the Sellers or PCS have heretofore
delivered to the Buyer complete and correct copies, with all amendments thereto,
of the Certificate of Incorporation, Articles of Incorporation and By-laws of
PCS, as currently in effect. The minute books of PCS have been made available
to the Buyer for its inspection, and such minute books contain complete and
correct records of all meetings, and consents in lieu of a meeting, of PCS's
Board of Directors (and any committees thereof) and its shareholders since PCS's
incorporation, and accurately reflect all transactions referred to therein. The
stock books and ledgers of PCS have been made available to the Buyer for its
inspection, and such books and ledgers are complete and correct in all
respects.
(b) Either the Sellers or PCS have made available
to the Buyer all accounting, corporate and financial books and records (the
"Accounting Books and Records") which relate to the business of PCS. Such
books and records are true, accurate and complete, have been maintained on a
basis consistent with past practice and GAAP (except that records for internal
use only may not be in accordance with GAAP), and fairly reflect the
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basis for PCS's financial condition and results of operations as set forth in
the Audited Financial Statements.
3.3 AUTHORIZATION. PCS has the requisite corporate power
and authority to execute, deliver and perform its obligations under
this Agreement and the Other Documents and to consummate the transactions
contemplated hereby and thereby. All corporate proceedings on the part of PCS
which are necessary to execute, deliver and perform this Agreement and the
Other Documents and to consummate the transactions contemplated hereby and
thereby have been duly authorized and taken. This Agreement and the Other
Documents have been duly and validly executed by PCS, and constitute valid and
binding obligations of PCS, enforceable against PCS in accordance with their
terms. No power of attorney has been granted and is currently in force by PCS
with respect to any matter relating to PCS or PCS's business, operations or
assets.
3.4 PCS CAPITALIZATION. The authorized capital stock of
PCS consists of 100 Common Shares, $1.00 par value, all of which are issued and
outstanding and owned by the Sellers as set forth on Exhibit A hereto. PCS has
no other class of capital stock authorized or
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outstanding. None of PCS's shares of capital stock have been reserved for any
purpose. All of the Shares are duly authorized and validly issued, fully paid,
nonassessable and were not issued in violation of any preemptive rights. There
are no (i) options, warrants, calls, commitments or rights of any character to
purchase or otherwise acquire from PCS shares of capital stock of any class,
(ii) outstanding securities of PCS that are convertible into or exchangeable or
exercisable for shares of any class of capital stock of PCS, (iii) options,
warrants or other rights to purchase from PCS any such convertible or
exchangeable securities, or (iv) contracts, commitments, agreements,
understandings or arrangements of any kind relating to the issuance of any
capital stock of PCS, any options, warrants or rights, pursuant to which, in
any of the foregoing cases, PCS is or would be subject or bound.
3.5 CONSENTS AND APPROVALS; NO VIOLATION. Neither the
execution and delivery of this Agreement and the Other Documents, nor the
consummation of the transactions contemplated hereby or thereby, nor compliance
with any of the provisions hereof, will (a) conflict with any provision of the
Articles of Incorporation or By-laws (or other similar organizational
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documents) of PCS, (b) require any consent, waiver, approval, authorization or
permit of, or filing with or notification to, or any other action by, any
Governmental Authority by PCS, except for filings required to transfer rights
under the Permits, which filings have been, or will be prior to Closing, made,
(c) violate any Law of any Governmental Authority applicable to PCS, or by
which any of PCS's business, properties or assets may be bound or affected or
(d) violate, breach, or conflict with, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration or any obligation to pay or result in
the imposition of any Encumbrance upon any of the property) under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture,
Encumbrance, Contract, Permit, Order, or other instrument or obligation to
which PCS is a party or by which any of PCS's business, properties or assets
may be bound or affected.
3.6 FINANCIAL STATEMENTS. The Sellers are furnishing to
the Buyer the audited financial statements of PCS as of December 31 in each of
the years 1992 through 1994 (together with the notes thereto), certified by
PCS's independent public accountants, and accompanied
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by their reports thereon (collectively, the "Audited Financial Statements").
The Sellers are furnishing to the Buyer the unaudited financial statements for
PCS as of August 31, 1995 and (together with the notes thereto) (collectively,
with the Audited Financial Statements, the "Financial Statements"). The
Financial Statements are attached hereto as Exhibit G. The Financial
Statements have been prepared from and in accordance with the books and records
of PCS in accordance with GAAP (except that the unaudited financial statements
do not include footnotes required by GAAP), and, except as noted therein,
consistently applied and maintained throughout the periods indicated. The
Financial Statements fairly represent, in all respects, (i) the assets,
liabilities and financial condition of PCS, as at the date thereof, except as
set forth on Schedule 3.6(a) of the Disclosure Schedule, and (ii) the results
of operations and cash flows of PCS for the periods then ended. Except as set
forth on Schedule 3.6(b) of the Disclosure Schedule, the statements of income
and retained earnings and cash flows included in the Financial Statements do
not contain any material items of special or nonrecurring income not earned in
the ordinary course of business and consistent with applicable industry
standards and practice.
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3.7 ABSENCE OF UNDISCLOSED LIABILITIES. As of the Closing
Date, PCS has no liabilities or obligations arising from or relating to its
business and operations of any nature (whether absolute, accrued, fixed,
contingent, liquidated, unliquidated or otherwise and whether due or to become
due). As of the Closing Date, PCS has no liabilities or obligations with
respect to borrowed money (including accounts payable and accrued expenses),
letters of credit, and any notes, bonds or similar instruments or under any
capitalized lease of PCS. If any liabilities referred to herein do exist,
Seller shall refund such amount to Buyer within 90 days subsequent to the
Closing Date and the Consideration shall be adjusted accordingly.
3.8 ACCOUNTS RECEIVABLE. All Accounts Receivable reflected
in the Financial Statements and all Accounts Receivable acquired or generated
since August 31, 1995 by PCS (i) arose from bona fide transactions in the
ordinary course of business consistent with past practice, (ii) are valid and
genuine, (iii) are not subject to any counterclaim or setoff and (iv) are not
subject to any Encumbrance. Except as set forth on Schedule 3.8 of the
Disclosure Schedule, as of the Closing Date (i) no Telephone Service Operator
has
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refused or threatened to refuse to pay its obligations for any reason and (ii)
no Account Receivable debtor is, to the best of PCS and Sellers' knowledge,
insolvent or is the subject of a bankruptcy petition.
3.9 EQUIPMENT. (a) All Equipment is owned by PCS free and
clear of any Encumbrance. All Equipment which is reflected in the Financial
Statements is valued at cost in accordance with GAAP consistently applied and
maintained throughout the periods. All Equipment disposed of by PCS since
September 27, 1995 has been disposed of only (i) in the ordinary course of
PCS's business and (ii) at prices and under terms that are consistent with past
practice. PCS's assets do not include any materials in the possession of
others.
(b) No purchase money security agreements or financing
statements are in effect which relate to any item of Equipment.
(c) All Equipment is usable, in good working condition, free
of any material defects and suitable for the purposes of its intended and
current operational use.
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth on Schedule 3.10 of the Disclosure Schedule, since September 27, 1995:
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(i) PCS has operated its business in the
ordinary course consistent with past practice;
(ii) there has not been any material
adverse change in the business, results of operations, assets,
liabilities, financial condition or (except for matters which apply to
United States businesses generally) any material adverse change in the
prospects of PCS;
(iii) PCS has not entered into any
agreements binding PCS, incurred any losses, undertaken any
obligations, waived any rights, made any financial commitments, sold,
transferred or otherwise encumbered any assets, nor taken any other
action which may adversely affect the position of Buyer in the
business of PCS as heretofore operated;
(iv) PCS has not transferred, disposed of,
abandoned or permitted to lapse or otherwise failed to preserve any
Permit or other form of authorization issued by a Governmental
Authority;
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(v) PCS has not taken any actions which
might reasonably affect the capital stock of PCS or the rights of
holders thereof;
(vi) PCS has not made any change in any
accounting methods, principles or practices (including, without
limitation, changes in depreciation or amortization policies or rates
or relating to the establishment of accrual of reserves) or any
material election with respect to Taxes;
[(vii) PCS has not terminated or amended,
breached, or failed to perform in all material respects all of its
obligations under, any Contract, and no other party thereto has
terminated or amended, breached, or failed to perform in all material
respects all of its obligations under any Material Contract or under
any group of Contracts which, in the aggregate, would be material;
[(viii) PCS has not experienced any actual
or, to the knowledge of PCS and the Sellers, threatened employee
disputes, work stoppages or slow-downs or had any material
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change in its relationship with its employees, salesmen, distributors, or
independent contractors;
[(ix) PCS has not failed to replenish its
inventories and supplies in a normal and customary manner consistent
with past practice; and
(x) PCS has not agreed, whether in writing
or otherwise, to take any action described in this Section 3.10.
3.11 PROPERTIES AND ASSETS. PCS has good, valid and
marketable title to all Equipment and other assets (whether personal or mixed,
tangible or intangible (and whether or not fully depreciated or expensed)) used
in its business and operations, and such items are subject to no Encumbrance or
arrangement for use by any third party, other than those set forth on Schedule
3.11 of the Disclosure Schedule.
3.12 CONTRACTS. Schedule 3.12 of the Disclosure Schedule
sets forth a complete and correct list of all Material Contracts as of the
Closing. Complete and correct copies of all written Contracts including any
and all amendments and other modifications thereto have been delivered to or
have been made
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available for inspection by the Buyer. All written Contracts and all oral
Material Contracts (i) are valid and binding obligations of PCS and the other
parties thereto, (ii) are in full force and effect and are enforceable as to
PCS and the other parties thereto, in accordance with their respective terms,
and (iii) have not been amended or terminated except in the ordinary course of
business consistent with past practice. PCS is not in default under nor has it
breached in any respect any Contract. Schedule 3.12 of the Disclosure Schedule
sets forth a true and complete list of all installed locations and accounts
which do not have a contract or which are governed by an oral contract. No
other party to any Contract (i) has breached such Contract or is in default
thereunder, (ii) has given notice, to the knowledge of any Seller, that it
intends to terminate such Contract or (iii) has altered, in any way adverse to
PCS, its performance under such Contract. No event or condition has occurred
(or is alleged by any other party to a Contract to have occurred) which, with
or without due notice or lapse of time or both, would constitute a breach or
event of default on the part of PCS, would provide a basis for a valid claim or
acceleration under any Contract as against PCS or would prevent PCS from
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exercising and obtaining the full benefits of any rights or options contained
therein. The telephone location contracts of PCS have an average remaining
life per PCS Phone of forty-two (42) months. All PCS Phones are installed
pursuant to written location Contracts, except for not more than 150 PCS
Phones; to Sellers' knowledge such PCS Phones not subject to written Contracts
have been in place since 1993, and are not under any threat of removal or
termination.
3.13 COMPLIANCE WITH LAWS AND PERMITS.
(a) Except as set forth on Schedule 3.13(a) of the
Disclosure Schedule, the business and operations of PCS have been conducted and
are now being conducted in all material respects in compliance with all Laws
and Orders of all Governmental Authorities having jurisdiction over PCS and all
Permits relating to any of its properties or applicable to its business.
(b) Except as and to the extent set forth on
Schedule 3.13(b) of the Disclosure Schedule, PCS possesses all Permits
necessary to own and operate its property and assets and to conduct its
business as it is currently conducted. Such Permits are valid, subsisting in
full force and effect, and PCS has fulfilled its obligations under each of the
Permits, and no event has
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occurred or condition or state of facts exists which constitutes or, after
notice or lapse of time or both, would constitute a default or violation under
any of the Permits or would permit revocation or termination of any of the
Permits. No proceeding which might involve the revocation or termination of
any such Permits is pending or, to the knowledge of PCS or the Sellers,
threatened.
(c) PCS has made all filings and received all
approvals in connection with the Permits which are necessary for the Buyer to
own and operate the property and assets of PCS and to conduct PCS's business as
it is currently and has heretofore been conducted.
3.14 LITIGATION AND ARBITRATION. (a) Since January 1, 1992,
no claim, action, cause of action, suit, proceeding, inquiry, investigation or
Order has been initiated, brought or commenced, or been pending or threatened,
against PCS or affecting its business, operations or assets (including actions
by or before any administrative body, arbitration or mediation panel or
Governmental Authority), except as set forth on Schedule 3.14(a) of the
Disclosure Schedule. No Order of any Governmental Authority, arbitrator or
mediator is outstanding against PCS, its business, operations or assets.
Neither PCS nor any of the Sellers has knowledge
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of any fact or circumstance which could reasonably be expected to result in any
other claim, action, cause of action, suit, proceeding, inquiry, investigation
or Order against PCS or affecting its business, operations or assets.
(b) No claim, action, suit, proceeding, inquiry
or investigation has been instituted which threatens to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
by this Agreement or the Other Documents.
3.15 EMPLOYEE MATTERS. PCS has no employee plans or
agreements in effect, other than a 401K plan which is in compliance with all
applicable laws and regulations. PCS has taken no actions which might
reasonably be expected to result in any violations of ERISA or the Code. The
consummation of the transactions contemplated by this Agreement will not
entitle any current or former employee or officer of PCS or any ERISA Affiliate
to severance pay, unemployment compensation or any other payment, except as
expressly provided herein. There are no pending, threatened or anticipated
claims by or on behalf of any employee of PCS.
3.16 LABOR RELATIONS. Except as set forth on Schedule 3.16
of the Disclosure Schedule, (i) there is no
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labor issues affecting PCS. PCS has at all times been in compliance with all
applicable Laws in respect of employment and employment practices.
3.17 TAXES. (a) PCS is a small business corporation and has
had in effect since its incorporation a valid election to be treated as an "S"
corporation for federal income tax purposes under the Code and in the State of
Florida, and none of PCS or the Sellers has taken or caused or permitted to be
taken any action during such periods that would have caused or permitted to be
taken any action during such periods that would have caused a termination of
such S election.
(b) PCS has duly and timely filed all Tax Returns
required to be filed by it on or before the Closing Date or has received a
valid extension, and all such Tax Returns are complete and correct in all
material respects.
(c) Except as set forth on Schedule 3.17(c) of
the Disclosure Schedule, PCS has timely paid all Taxes due or claimed to be due
from it by any taxing authority.
(d) Except as set forth on Schedule 3.17 of the
Disclosure Schedule, PCS has complied in all respects with all applicable Laws
relating to the payment
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and withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under any
foreign laws) and has, within the time and within the manner prescribed by Law,
withheld from employee wages and paid over to the proper Governmental
Authorities all amounts required to be withheld and paid over under all
applicable Laws.
(e) There are no Encumbrances for Taxes upon
PCS's assets except for statutory liens for current Taxes not yet due.
(f) PCS has not requested any extension of time
within which to file any Tax Return in respect of any fiscal year which has not
since been filed. Except as set forth on Schedule 3.17(f) of the Disclosure
Schedule, there are no outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any Taxes or Tax
Returns that has been given by PCS.
(g) Except as set forth on Schedule 3.17(g) of
the Disclosure Schedule, no federal, state, local or foreign audits or other
administrative proceedings or court proceedings have been initiated or are
presently pending with regard to any Taxes or Tax Returns of PCS.
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(h) PCS is not required to include in income any
adjustment pursuant to Section 481(a) of the Code, by reason of a voluntary
change in accounting method (nor has any taxing authority proposed in writing
to PCS any such adjustment or change of accounting method).
(i) PCS is not a party to, is not bound by, nor
has any obligation under, any Tax sharing agreement or similar contract or
arrangement.
(j) No power of attorney has been granted by PCS
with respect to any matter relating to Taxes which is currently in force.
(k) PCS has not filed a consent pursuant to
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such term is defined in
Section 341(f)(4) of the Code) owned by PCS.
(l) Except as set forth on Schedule 3.17(l) of
the Disclosure Schedule, PCS is not a party to any agreement, contract, or
arrangement that will result, separately or in the aggregate, in the payment of
any "excess parachute payments" within the meaning of Section 280G of the Code.
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(m) None of the income recognized for federal,
state, local or foreign Income Tax purposes by PCS during the period beginning
from [July 1, 1995] to the date hereof will be derived other than in the
ordinary course of business.
3.18 INTELLECTUAL PROPERTY. PCS owns or has the right to use
all Intellectual Property used in or necessary to conduct its business as
currently conducted, in each case without the payment of any royalties. PCS is
the sole and exclusive owner of the name "Paramount Communications Systems,
Inc." free and clear of all Encumbrances. The activities and products of PCS
do not infringe upon the Intellectual Property rights of any other Person. To
the knowledge of PCS and the Sellers, there are no infringements by third
parties of any Intellectual Property owned by PCS.
3.19 ENVIRONMENTAL MATTERS. PCS is and has been in
compliance with, and there are no outstanding allegations (for which PCS has
been provided notice) by any Person that PCS is not or has not been in
compliance with, all applicable Laws relating to pollution, the preservation of
the environment and the discharge or release of Hazardous Materials into the
environment or workplace ("Environmental Laws").
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PCS does not require any environmental permits to conduct its
business and operations. PCS has not indemnified or agreed to indemnify any
other Person for any liability under, or violation of, Environmental Laws.
3.20 INSURANCE. Schedule 3.20(a) of the Disclosure Schedule
(which will be delivered to Buyer within five (5) days after the date hereof)
sets forth a complete and correct list as of the date hereof of all primary,
excess and umbrella policies, bonds and other forms of insurance, and renewals
thereof, owned or held by or on behalf of or providing insurance coverage to or
for the benefit of PCS (copies of which have previously been provided to the
Buyer), with the amount of coverage, cost and expiration date set forth next to
each policy thus listed. All of such insurance policies are in full force and
effect, all premiums currently payable or previously due have been paid, no
notice of cancellation or termination has been received with respect to any
such policy and no assignment of proceeds or Encumbrance exists with respect to
the proceeds of any such policy. Except as and to the extent set forth on
Schedule 3.20(b) of the Disclosure Schedule (which will be delivered to Buyer
within five (5) days after the date hereof), there are no pending claims
against such policies. All such
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policies will remain in full force and effect upon execution and delivery of
this Agreement and the Other Documents and the consummation of the transactions
contemplated hereby and thereby, except that certain life insurance policies,
listed on Schedule 3.20(c) hereto (which will be delivered to Buyer within five
(5) days after the date hereof), shall be retained by or transferred to the
Sellers.
3.21 WARRANTIES. There are no express or implied warranties
outstanding with respect to any products or services sold, distributed,
serviced or licensed by PCS (other than those imposed by applicable Law).
3.22 AFFILIATE TRANSACTIONS. Schedule 3.22 of the Disclosure
Schedule sets forth a correct and complete list of all arrangements or
transactions (other than salary, bonus and benefits generally available to the
employees of PCS) between PCS and the Sellers or any affiliate or associate of
the Sellers, or any business or entity in which the Sellers or any affiliate or
associate of any of the Sellers, has any direct or indirect interest (the
"Sellers' Affiliates"), that involves an obligation or commitment on the part
of or for the benefit of PCS or such Sellers' Affiliate of more than
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$1,000 in any calendar year (the "Affiliate Transactions").
3.23 BROKERS. Neither the Buyer nor PCS has or will have any
obligation to pay any broker's, finder's, investment banker's, financial
advisor's or similar fee in connection with this Agreement or the Other
Documents, or the transactions contemplated hereby or thereby, by reason of any
action taken by or on behalf of the Sellers or PCS.
3.24 DISCLOSURE. The Sellers have not failed to disclose to
the Buyer any facts material to PCS's business, results of operations, assets,
liabilities, financial condition and prospects. No representation or warranty
by the Sellers in this Agreement and no statement by the Sellers in any Other
Document (including the Disclosure Schedule), contains any untrue statement of
a material fact or omits to state any material fact necessary, in order to make
the statements made herein or therein, in light of the circumstances under
which they were made, not misleading.
3.25 PRIOR ACQUISITIONS. No claims, amounts owed,
liabilities, Encumbrances, legal proceedings or any other obligations of any
kind are due or were incurred or outstanding in connection with any
acquisitions made by
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PCS, except as already recorded on the Financial Statements heretofore
delivered to the Buyer.
3.26 PCS PHONES. There are 2,486 PCS Phones in operation as
of the close of business as of the date hereof.
3.27 CONSENTS; WAIVERS; ASSIGNMENTS; PERMITS. The Sellers
or PCS have obtained and delivered (i) all Permits or consents to transfer which
are required to be obtained before the Buyer may legally operate PCS's
businesses, (ii) all consents or waivers which would be required in order to not
breach any Contracts to which PCS is a party and (iii) all consents, waivers,
assignments and assumptions which are required pertaining to the Buyer's
assumption of PCS's debts, a complete listing of which is set forth on Schedule
3.27 of the Disclosure Schedule.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
-------------------------------------------
The Buyer represents and warrants to the Sellers as follows:
4.1 ORGANIZATION AND STANDING. The Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Ohio. The Buyer
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has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business and operations as it is now
being conducted.
4.2 AUTHORIZATION; BINDING OBLIGATION. The Buyer has all
requisite corporate power and authority to execute and deliver this Agreement
and the Other Documents and to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Other Documents by the Buyer
and the consummation of the transactions contemplated hereby and thereby by the
Buyer have been duly and validly authorized by the Board of Directors of the
Buyer and no other corporate proceedings on the part of the Buyer are necessary
to authorize this Agreement or the Other Documents or to consummate the
transactions contemplated hereby or thereby. This Agreement and the Other
Documents have been validly executed and delivered by the Buyer and, assuming
due authorization, execution and delivery by the Sellers, constitute legal,
valid and binding obligations of the Buyer, enforceable against the Buyer in
accordance with their terms.
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4.3 INVESTMENT PURPOSE. The Buyer is acquiring the Shares
for its own account without a view to any distribution thereof in violation of
the securities laws of the United States of America or any state thereof.
4.4 BROKERS. Neither the Sellers nor PCS has or will have
any obligation to pay any broker's, finder's, investment banker's, financial
advisor's or similar fee in connection with this Agreement or the Other
Documents, or the transactions contemplated hereby or thereby, by reason of any
action taken by or on behalf of the Buyer.
4.5 PERMIT. Buyer has a permit from the Public Service
Commission necessary for it to own and operate pay telephones in the State of
Florida.
ARTICLE V
ADDITIONAL COVENANTS
--------------------
5.1 TRANSFER AND SIMILAR TAXES; TAX RETURNS.
(a) Notwithstanding any other provision of this
Agreement to the contrary, the Sellers shall assume and promptly pay all sales,
use, privilege, transfer, documentary, gains, stamp, duties, recording and
similar Taxes and fees (including any penalties,
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interest or additions) imposed upon any party incurred in connection with the
sale of the Shares by the Sellers to the Buyer (collectively, the "Transfer
Taxes"), and the Sellers shall, at their own expense, procure any stock
transfer stamps required by, and accurately file all necessary Tax Returns and
other documentation with respect to, any Transfer Tax.
(b) The Sellers shall prepare or cause to be
prepared, and file or cause to be filed on a timely basis all Tax Returns of
the Company with respect to all periods ending on or before the Tax Closing
Date, which Tax Returns shall be made available to the Buyer for review two
weeks prior to filing such Tax Returns. The Sellers shall pay all Taxes shown
to be due and payable thereon.
(c) Buyer shall prepare or cause to be prepared,
and file or cause to be filed on a timely basis all Tax Returns of the Company
other than those provided for in Section 5.1(b) hereof. Subject to Article VI,
Buyer shall cause PCS to pay all Taxes shown to be due and payable thereon. In
connection with any Tax Return relating to a Straddle Period, no later than ten
(10) Business Days before such Tax Returns are filed, Buyer
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shall provide drafts of such Tax Returns to the Sellers' Representative for his
reasonable review and consent.
(d) The Sellers and the Buyer shall cooperate, and
shall cause their respective, officers, employees, agents, auditors and
representatives to cooperate, (i) in preparing and filing the Tax Returns and
(ii) with respect to any audit or other administrative or court proceedings in
connection with any Tax Returns of PCS for periods ending on or before the
Closing Date, in each case including maintaining and making available to each
other all records necessary in connection with Taxes payable with respect to
such Tax Returns and in resolving all disputes and audits and refunds with
respect to such Tax Returns and Taxes. No election may be made by PCS with
respect to the Taxes of PCS without the Buyer's written consent if such
election will adversely affect the Buyer.
(e) PCS and the Sellers shall promptly notify the
Buyer of any notices or materials received from any Governmental Authority
which relate to the business, operations or filings of PCS, and Buyer shall
promptly notify Sellers of any notices or materials received from any
Governmental Authority which affects Sellers.
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5.2 FURTHER ASSURANCES; COOPERATION. (a) The parties
shall, from time to time after the Closing, upon the request of any other party
and without further consideration, execute, acknowledge and deliver in proper
form any further instruments, and take such further actions as such other party
may reasonably require, to carry out effectively the intent of this Agreement
and the Other Documents.
(b) The Sellers shall cooperate with PCS and the
Buyer in connection with any claim, action, suit, proceeding, inquiry or
investigation with any other Person which relates to the execution and delivery
of this Agreement or the Other Documents, or the consummation of the
transactions contemplated hereunder and thereunder.
5.3 NOTIFICATION OF CERTAIN MATTERS. Each of the parties
hereto shall promptly notify the other parties, in the manner provided in
Section 8.10 hereof, of (i) the filing or other initiation of any claim,
action, suit, proceeding, inquiry or investigation which relates to the
execution and delivery of this Agreement or the Other Documents, or the
consummation of the transactions contemplated hereunder or thereunder, (ii) any
circumstance or development which could adversely
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impair or affect its ability to perform its obligations under this Agreement
and the Other Documents, (iii) any notice or other communication from any third
party alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement and the Other
Documents or (iv) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this Agreement
and the Other Documents.
5.4 CONFIDENTIALITY.
(a) PCS and the Sellers agree that they will not
(and, in the case of PCS and each Seller which is a corporation, will cause its
officers to not) at any time after the Closing, without the prior written
consent of the Buyer, disclose or use any information obtained during the
negotiation or due diligence process nor any other confidential information
(relating to either the Buyer or PCS) otherwise obtained except (i) as may be
necessary in connection with their tax filing and reporting obligations and
(ii) to the extent required by Law (including applicable securities laws).
(b) PCS, Sellers and Buyer agree that they will not
disclose any confidential information
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relating to this transaction or any party hereto prior to the Closing, except
as may be required by law.
5.5 PUBLICITY. The Sellers shall not issue any press
release or make any public statement regarding the transactions contemplated
hereby, without the prior approval of the Buyer, which approval shall not be
unreasonably withheld. The Sellers' Representative shall have the right to
approve any press release relating to the PCS acquisition prior to its release.
5.6 EXPENSES.
(a) Except as otherwise specifically provided for
herein, each party hereto shall be solely responsible for all expenses incurred
by it or on its behalf in connection with the preparation and execution of this
Agreement and the Other Documents and the consummation of the transactions
contemplated hereby and thereby, including, without limitation, the fees and
expenses of its counsel, accountants, brokers, finders, financial advisors and
other representatives.
5.7 INTENTIONALLY OMITTED.
5.8 S CORPORATION STATUS. PCS and the Sellers shall
maintain the status of PCS as an S Corporation for federal and state income Tax
purposes until the Closing Date..
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5.9 FINANCIAL UPDATES. Sellers will provide to Buyer
monthly financial statements of PCS, promptly after they became available,
through the Closing.
5.10 INTERIM CONDUCT OF BUSINESS. Except as otherwise
contemplated by this Agreement, during the period from the date hereof to the
Closing, PCS shall, and Sellers shall cause PCS to (i) operate the business of
PCS only in the ordinary course of business consistent with past practice, (ii)
maintain, keep and preserve PCS' assets, and (iii) use its best efforts to
preserve intact the present organization of PCS, keep available the services of
the present employees of PCS, preserve PCS' relationships with customers,
suppliers, licensors, licensees, contractors and others having significant
business dealings with PCS. Without limiting the generality of the foregoing,
from the date of this Agreement to the Closing Date, PCS shall not, and Sellers
shall not permit PCS to, without the prior written consent of Buyer (which
consent may be withheld in Buyer's sole discretion):
(a) (i) authorize for issuance, issue, sell,
deliver or agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights
to purchase
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or otherwise) any shares of the capital stock of PCS or any other securities or
equity equivalents, (ii) split, combine or reclassify any shares of such
capital stock or (iii) amend the terms of any such securities or agreements
outstanding on the date hereof;
(b) amend or propose to amend the certificate of
incorporation or by-laws of PCS;
(c) (i) incur or assume any indebtedness or issue
or sell any debt securities or warrants or rights to acquire any
debt securities, (ii) assume, guarantee, endorse or otherwise become liable
(whether directly, contingently or otherwise) for the obligations of any other
person or (iii) make any loans, advances or capital contributions to, or
investments in, any other person;
(d) permit any assets of PCS to suffer any lien
thereupon;
(e) change any of the accounting principles or
practices used by PCS (except as required by GAAP);
(f) enter into, adopt, amend or terminate any
employee benefit plan, increase in any manner the compensation or fringe
benefits of any officer or employee (except for salary increases in the
normal course of
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business) or enter into any contract, agreement, commitment or arrangement to
do any of the foregoing;
(g) enter into or offer to enter into any
employment or consulting agreement with any person;
(h) (i) enter into, amend or terminate any material
contract or (ii) take any action or fail to take any action that, with or
without notice or lapse of time, would constitute a default under any
material contract;
(i) pay any dividends or distributions to
shareholders (other than cash dividends);
(j) sell, lease, transfer or otherwise dispose of
assets used or useful in the business of PCS, except in the ordinary course of
business; or
(k) take, or agree in writing or otherwise to take,
any of the foregoing actions or any action which would make any representation
or warranty of PCS or Sellers contained in this Agreement untrue or incorrect
as of the date when made or as of any future date or which could prevent the
satisfaction of any condition to Closing set forth in Article VI hereof.
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5.11 RECEIVABLES.
(a) Peter Graf and Albert Miniaci shall jointly
write a letter to Southern Bell, People's (AT&T), APCC, GPT, USLD, GTE, TelCom
USA, Sprint and any other long distance or local exchange carriers specifying
that all refunds or other consideration due and payable to PCS in respect of
all periods through December 31, 1995 shall be payable to the Dominick F.
Miniaci, P.A. Trust Account. If PCS or Buyer receives any such amounts (or any
other receivables in respect of periods ending on or before December 31, 1995
(including coins in the box as specified in the INET Daily Cash Report) after
the Closing, such amounts will be forwarded to such Trust Account on a monthly
basis.
(b) In the event Sellers receive any sums after the
Closing in respect of periods after December 31, 1995, Sellers shall forward
such amounts to PCS.
5.12 NON-COMPETITION.
(a) For a period of two years commencing at the
Closing Date, Seller, Dominick F. Miniaci and Frank Miniaci, shall not, without
the prior written consent of Buyer, directly or indirectly own, operate,
manage, be employed by, be an agent of, act as a consultant for, financially
support, lease property to or
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from or have a proprietary interest in, any enterprise or business which sells,
leases, maintains, owns or operates pay telephones in any part of the state of
Florida. Such parties acknowledge that the business of Buyer will be conducted
throughout the state of Florida and agree that such geographic scope is
reasonable.
(b) Notwithstanding any provision to the contrary
contained herein, such parties shall not be prohibited from owning less than 5%
of the outstanding equity securities of any publicly-held corporation,
including in the pay telephone business.
5.13 NON-SOLICITATION. Sellers, Dominick F. Miniaci and Frank
Miniaci, agree that for a period of five years from the date hereof, they will
not, directly or indirectly, (i) purchase or otherwise acquire or attempt to
purchase or otherwise acquire, any of the assets of Buyer (or any subsidiary
thereof); (ii) solicit, entice or persuade, or attempt to solicit, entice or
persuade, any employee of Buyer or its affiliates, or any client then under
contract with Buyer or any of its affiliates to terminate his employment by or
contractual relationship with Buyer or its affiliates or to become employed by
or to enter into contractual relations with a competitor of Buyer or its
affiliates;
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or (iii) persuade or attempt to persuade customers, potential customers,
suppliers or potential suppliers of Buyer and its affiliates to divert their
business to any other entity or individual.
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ARTICLE VI
CONDITIONS TO CLOSING
---------------------
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. The
obligation of the Buyer to consummate the transactions contemplated hereby is
subject to the satisfaction or waiver (subject to applicable law) on or before
the Closing of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Sellers and PCS contained in
this Agreement, the Disclosure Schedule, or in any Other Document to be
executed and delivered by the Sellers or PCS on or before the Closing pursuant
hereto shall have been true and correct in all material respects when made, and
shall be true and correct in all material respects as of the Closing as though
made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS. The Sellers and PCS
shall have performed and complied with all of the covenants and agreements
contained in this Agreement to be performed or complied with by them at or
before the Closing.
(c) ADVERSE PROCEEDINGS. No claim, action, suit,
investigation or governmental proceeding
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shall be pending and no Law of any Governmental Authority shall be enacted,
rendered or in force, which would render it unlawful, as of the Closing, to
effect the transactions contemplated by this Agreement and the Other Documents
to be executed and delivered pursuant hereto.
(d) CONSENTS AND APPROVALS. All necessary consents,
approvals or waivers from third parties and Governmental Authorities shall have
been received.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to consummate the transactions contemplated
hereby are subject to the satisfaction or waiver (subject to applicable Law)
on or before the Closing of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES.
Each of the representations and warranties of the Buyer contained in this
Agreement or in any Other Document to be executed and delivered by the Buyer on
or before the Closing pursuant hereto shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects as of the Closing as though made on and as of such date.
(b) PERFORMANCE OF AGREEMENTS. The Buyer shall have
performed and complied with all of the covenants and agreements contained in
this Agreement to be
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performed or complied with by the Buyer at or before the Closing.
(c) ADVERSE PROCEEDINGS. No claim, action, suit,
investigation or governmental proceeding shall be pending, and no Law of any
Governmental Authority shall be enacted, rendered or in force, which would
render it unlawful, as of the Closing Date, to effect the transactions
contemplated by this Agreement and the Other Documents to be executed and
delivered pursuant hereto.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNIFICATION
---------------------------
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of the Sellers and the Buyer contained herein or
made pursuant hereto shall survive the Closing and any investigation at any
time made by or on behalf of any party hereto until May 31, 1997 except that
the representations and warranties contained in Section 3.17 (Taxes) shall
survive until 90 days following the expiration with valid extensions of the
applicable statute of limitations. Provided that a claim with respect to a
breach of representation or warranty is made within the applicable period in
accordance with the provisions of Section 6.8
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hereof, such claim and any related claims may continue to be asserted beyond
such period.
7.2 STATEMENTS AS REPRESENTATIONS. All statements contained
herein or in any Schedule contained in the Disclosure Schedule or in any
Exhibit hereto shall be deemed representations and warranties within the
meaning of Sections 7.1, 7.3(a), 7.3(b)(i) and 7.4(i) hereof.
7.3 INDEMNIFICATION BY THE SELLERS.
(a) Subject to the provisions of this Article VII,
each Seller shall severally indemnify, defend and hold harmless the Buyer and
any of its respective successors or assigns (a "Buyer Indemnified Party"), from
and against any and all Losses asserted against, resulting to, imposed upon or
incurred by any Buyer Indemnified Party by reason of or resulting from:
(i) the material breach of or any material
inaccuracy in any of the representations and warranties of the Sellers
or PCS contained in or made pursuant to any section of this Agreement
(other than a section in Article III hereof), or any facts or
circumstances constituting such breach or inaccuracy;
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(ii) the breach or nonperformance of any
covenant or agreement of the Sellers or PCS contained in or made
pursuant to this Agreement or any facts or circumstances constituting
such breach or nonperformance; and
(iii) Income Taxes of PCS in respect of all
taxable periods ending on or before the Closing Date including,
without limitation, Taxes of PCS relating to, or attributable to, the
Tax Notices.
7.4 INDEMNIFICATION BY THE BUYER. Subject to the provisions
of this Article VII, the Buyer shall indemnify, defend and hold harmless the
Sellers and any of their respective heirs, successors or assigns (a "Seller
Indemnified Party"), from and against any and all Losses asserted against,
resulting to, imposed upon or incurred by any Seller Indemnified Party,
directly or indirectly, by reason of or resulting from:
(i) the material breach of or any material
inaccuracy in any of the representations and warranties of the Buyer
contained in or made pursuant to this Agreement
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or any facts or circumstances constituting such breach or inaccuracy;
(ii) the breach or non-performance of any
agreement of the Buyer contained in or made pursuant to this Agreement
or any facts or circumstances constituting such breach or
nonperformance; and
(iii) actions taken by PCS subsequent to the
Closing.
7.5 LIMITATIONS ON INDEMNIFICATION.
(a) The indemnifications in favor of the Buyer
Indemnified Parties contained in Section 7.3(b)(i) hereof shall not be
effective until the aggregate dollar amount of all Losses indemnified against
under such Section exceeds $25,000 (the "Sellers' Threshold Amount"), in which
case the Buyer Indemnified Parties shall be entitled to indemnification for all
Losses.
(b) The indemnifications in favor of the Seller
Indemnified Parties contained in Section 6.4(i) hereof shall not be effective
until the aggregate dollar amount of all Losses indemnified against under such
Section exceeds $25,000 (the "Buyer's Threshold Amount"), in which case the
Seller Indemnified Parties shall be entitled to indemnification for all Losses.
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7.6 GENERAL INDEMNIFICATION EVENT. A "GENERAL
INDEMNIFICATION EVENT" means any and all Losses, asserted against, resulting
to, imposed upon or incurred by any Buyer Indemnified Party directly or
indirectly, by reason of or resulting from a breach of any agreement, covenant,
representation or warranty of the Sellers or PCS contained in or made pursuant
to this Agreement, or any facts or circumstances constituting such a breach.
7.7 TAX INDEMNIFICATION.
(a) Seller shall indemnify, defend, and hold
harmless the Buyer Indemnified parties from and against any and all Losses
asserted against, resulting to, imposed upon or incurred by Buyer or any of its
subsidiaries, directly or indirectly, by reason of or resulting from any and
all Taxes imposed upon PCS or the Sellers (i) with respect to any taxable
period (or any portion thereof) ending on or before the Tax Closing Date (such
Taxes are hereinafter referred to as "Pre-Closing Taxes" and such periods as
"Pre-Closing Periods") and (ii) with respect to any taxable period beginning
before the Tax Closing Date and ending after the Tax Closing Date (such Taxes
are hereinafter referred to as "Straddle Taxes" and such periods as "Straddle
Periods") but only with respect to the portion of such Straddle Period
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ending on the close of the Tax Closing Date and in the manner provided in
paragraph 7.7(d) hereof.
(b) Without limiting the generality of Section
7.6(a) above, Seller shall indemnify, defend, and hold harmless the Buyer
Indemnified parties from and against any and all Losses asserted against,
resulting to, imposed upon or incurred by Buyer or any of its subsidiaries,
directly or indirectly, by reason of or resulting from any and all Taxes
imposed upon PCS or the Sellers arising directly or indirectly from (i) the
failure of PCS to be an S corporation or the termination of PCS's status as an
S corporation and (ii) the imposition of any Taxes on PCS for any taxable
period in which PCS's election of subchapter S status was in effect (including
but not limited to those Taxes described in Sections 1374 and 1375 of the
Code).
(c) Buyer shall indemnify, defend and hold each of
the Sellers harmless, at any time after the Closing, from and against any and
all Indemnifiable Losses, asserted against, resulting to, imposed upon or
incurred by any Seller Indemnified Party, directly or indirectly, by reason of
or resulting from any and all Taxes imposed upon PCS with respect to (i) any
taxable period beginning after the Tax Closing Date (such Taxes
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are hereinafter referred to as "Post-Closing Taxes" and such periods as
"Post-Closing Periods") and (ii) any Straddle Taxes for any Straddle Period,
but only with respect to the portion of such Straddle Period beginning the day
after the Tax Closing Date and in the manner provided for in paragraph 7.7(d)
hereof.
(d) For purposes of determining the amount of Taxes
for or which relate to a Straddle Period, the Tax Closing Date shall be treated
as the last day of a taxable period, and the portion of any such Tax that is
allocable to the taxable period that is so deemed to end on and include the Tax
Closing Date: (i) in the case of Taxes that are either (x) based upon or
related to income or receipts or (y) imposed in connection with any sale or
other transfer or assignment of property (real or personal, tangible or
intangible), shall be deemed equal to the amount which would be payable if the
period for which such tax is assessed ended on and included the Tax Closing
Date, and (ii) in the cases of Taxes other than Taxes described in clause (i)
hereof, shall be computed on a per diem basis.
(e) If a notice of deficiency, proposed adjustment,
adjustment, assessment, audit, examination, suit, dispute or other claim (a
"Tax Claim") shall be
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delivered, sent, commenced, or initiated to or against PCS by any taxing
authority with respect to Taxes for which one party to this Agreement is
entitled to indemnification from another party, PCS shall promptly notify the
Sellers' Representative in writing of the Tax Claim. If a Tax Claim with
respect to Taxes for which one party to this Agreement is entitled to
indemnification from another party shall be delivered, sent, commenced or
initiated to or against the Sellers by the relevant taxing authority, the
Sellers shall promptly notify Buyer in writing of such Tax Claim.
(f) The Sellers' Representative may, upon timely
notice to Buyer, assume and control the defense of a Tax Claim involving only
Pre-Closing Taxes at their own cost and expense and with their own counsel. If
the Sellers' Representative elects to assume the defense of any such Tax Claim,
notwithstanding anything to the contrary contained herein, (i) the Sellers'
Representative shall consult with Buyer and shall not enter into any settlement
with respect to any such Tax Claim without the Buyer's prior written consent if
the effect of such settlement would be to increase the liability for Taxes of
PCS for and Post-Closing Period; (ii) the Sellers shall keep the Buyer informed
of all material
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developments and events relating to such Tax Claim; and (iii) at its own cost
and expense, Buyer shall have the right to participate in (but not to control)
the defense of such Tax Claim.
(g) In connection with the contest of any Tax Claim
that relates to (i) any taxable period ending after the Closing Date (to the
extent such periods do not constitute Straddle Periods), (ii) any Straddle
Period and (iii) any Tax Claim that the Sellers' Representative has the ability
to control but does not timely elect to control pursuant to Section 7.7 (f),
such contest shall be controlled by the Buyer, and the Sellers agree to
cooperate with the Buyer and its affiliates in pursuing such contest. In
connection with any such contest that relates to (ii) or (iii) above, the Buyer
shall keep the Sellers informed of all material developments and events
relating to such Tax claim and Sellers, at their own cost and expense, shall
have the right to participate in (but not control) the defense of such Tax
claim. Nothing contained herein shall be construed as limiting Buyer's right
to indemnification under this Article VII.
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7.8 INDEMNIFICATION PROCEDURES.
(a) NOTICE. If any legal proceeding shall be
threatened or instituted or any claim or demand shall be asserted by any Buyer
Indemnified Party or Seller Indemnified Party in respect of which
indemnification may be sought under the provisions of this Agreement, the party
seeking indemnification (the "Claiming Party") shall promptly cause written
notice of the assertion of any such claim, demand or proceeding of which it has
knowledge to be forwarded to the party from whom it is claiming indemnification
(the "Indemnitor"). Such notice shall contain a reference to the provisions
hereof or of such other agreement, instrument or certificate delivered pursuant
hereto, in respect of which such claim is being made, and shall specify, in
reasonable detail, the amount of such Loss if determinable at such time. The
Claiming Party's failure to give the Indemnitor prompt notice shall not
preclude the Claiming Party from seeking indemnification from the Indemnitor
unless the Claiming Party's failure has materially prejudiced the Indemnitor's
ability to defend the claim, demand or proceeding.
(b) THIRD PARTY CLAIMS. If the Claiming Party seeks
indemnification from the Indemnitor as a
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result of a claim or demand being made by a third party (a "Third Party Claim"),
the Indemnitor shall have the right to promptly assume the control of the
defense of such Third Party Claim, including, at its own expense, employment
by it of counsel reasonably satisfactory to the Claiming Party. The Claiming
Party may, in its sole discretion and at its own expense, employ counsel to
represent it in the defense of the Third Party Claim, and in such event counsel
for the Indemnitor shall cooperate with counsel for the Claiming Party in such
defense, provided that the Indemnitor shall direct and control the defense of
such Third Party Claim or proceeding. Except with the written consent of the
Claiming Party, the Indemnitor shall not consent to the entry of any judgment
nor enter into any settlement of such Third Party Claim which (i) does not
include as an unconditional term thereof the release of the Claiming Party from
all liability in respect of such Third Party Claim and (ii) results in the
imposition on the Claiming Party of any remedy other than money damages;
provided, however, that the Claiming Party shall not unreasonably withhold or
delay its consent to the entry of any judgment or any settlement of a Third
Party Claim. If the Indemnitor elects not to exercise its rights to assume
the defense
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of the Third Party Claim, or if injunctive relief is sought which would have
an adverse effect on the Claiming Party, the Claiming Party may, but shall have
no obligation to, defend against such Third Party Claim or legal proceeding in
such manner as it may deem appropriate, and the Claiming Party may compromise or
settle such Third Party Claim and proceeding without the Indemnitor's consent so
long as the Claiming Party acts in a commercially reasonable manner (without
regard to the Claiming Party's indemnification rights hereunder). The parties
agree that the right to jointly defend against any actions which may impact both
parties is hereby granted (provided that the party other than the Claiming Party
shall be solely liable for its costs and expenses in connection with such joint
defense), and it is understood that the Sellers shall incur the costs for
actions relating to PCS which occurred prior to Closing.
(c) PAYMENT. After any final judgment or award
shall have been rendered by a court, arbitration board or administrative agency
of competent jurisdiction and the time in which to appeal therefrom shall have
expired, or a settlement shall have been consummated, or the Claiming Party and
the Indemnitor shall arrive at a mutually binding agreement with respect to
each separate
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matter alleged to be indemnified by the Indemnitor hereunder, the Claiming
Party shall forward to the Indemnitor notice of any sums due and owing by it
with respect to such matter (in accordance with Section 8.10 hereof) and the
Indemnitor shall pay all of the sums so owing to the Claiming Party by wire
transfer, certified or bank cashier's check within 10 days after the date of
such notice.
(d) ESCROW. To the extent that the Escrow Amount
has not been released pursuant to the Escrow Agreement, the Buyer Indemnified
Party's right to indemnification and to be held harmless pursuant to Section
7.3 hereof must first be asserted against the Escrow Amount.
7.9 CONSIDERATION ADJUSTMENT. Unless otherwise required by
law, the parties shall treat any payments made pursuant to this Article VII as
an adjustment to the Consideration for federal, state, and local income tax
purposes.
ARTICLE VIII
MISCELLANEOUS
-------------
8.1 CONSENT TO SERVICE. Each Seller hereby designates and
appoints the Sellers' Representative as
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its authorized agent upon whom process may be served in any suit, proceeding or
other action against such Seller instituted by the Buyer and relating to this
Agreement. Such designation and appointment shall, to the extent permitted by
law, be irrevocable, unless and until a successor authorized agent acceptable
to the Buyer shall have been appointed by the Sellers, such successor shall
have accepted such appointment and written notice thereof shall have been given
to the Buyer. Each Seller further agrees that service of process upon such
authorized agent or successor shall be deemed in every respect service of
process upon such Seller in any such suit, proceeding or other action. Each
Seller further agrees to take any and all action, including the execution and
filing of all such instruments and documents, as may be necessary to continue
such designation and appointment of such authorized agent in full force and
effect.
8.2 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and permitted assigns. This Agreement and the rights and
obligations of the Buyer and the Sellers hereunder may
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not be assigned by any of the parties hereto without the prior written consent
of the other parties, except that the Buyer may assign its rights and
obligations hereunder to any Designated Subsidiary, PROVIDED, HOWEVER, that the
Buyer shall remain liable for all of its obligations and those of any
Designated Subsidiary hereunder.
(b) This Agreement is not intended, nor shall it be
construed, to confer upon any Person except the parties hereto and their heirs,
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
8.3 EXHIBITS AND DISCLOSURE SCHEDULE. All Exhibits annexed
hereto and the Disclosure Schedule referred to herein are hereby incorporated
in and made a part of this Agreement as if set forth in full herein.
8.4 ENTIRE AGREEMENT. This Agreement, including the
Exhibits hereto and the documents, schedules, certificates and instruments
referred to herein, (a) embody the entire agreement and understanding of the
parties hereto in respect of the transactions contemplated by this Agreement
and (b) supersedes all prior agreements, arrangements and understandings of the
parties with respect to such transactions except the
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Confidentiality Agreement Between Firms, which shall survive.
8.5 WAIVER OF COMPLIANCE. No amendment, modification,
alteration, supplement or waiver of compliance with any obligation, covenant,
agreement, provision or condition hereof or consent pursuant to this Agreement
shall be effective unless evidenced by an instrument in writing executed by all
of the parties or in the case of a waiver, the party against whom enforcement
of any waiver, is sought. Any waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement, provision or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent
or other failure.
8.6 VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect.
8.7 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
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<PAGE> 75
8.8 HEADINGS. The table of contents, article and section
headings contained in this Agreement are for convenience only and shall not
control or affect in any way the meaning or interpretation of the provisions of
this Agreement.
8.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the conflicts of law principles of such jurisdiction.
8.10 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, telecopied (with confirmation of
receipt), delivered by nationally-recognized overnight express service or sent
by registered or certified mail (postage prepaid, return receipt requested) to
the parties at the following addresses:
(a) If to the Buyer to:
PhoneTel Technologies, Inc.
650 Statler Office
1127 Euclid Avenue
Cleveland, Ohio 44144
Telephone: (216) 241-2555
Telecopy: (216) 241-2574
Attention: Chief Executive Officer
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<PAGE> 76
Copy to:
Skadden, Arps, Slate,
Meagher & Flom
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Telecopy: (212) 735-2000
Attention: N.J. Terris, Esq.
(b) If to a Seller:
Dominick F. Miniaci, Esq.
821 East Broward Boulevard
Fort Lauderdale, FL 33301
and:
Albert Miniaci
1411 Southwest 31st Avenue
Pompano Beach, Florida 33069
or to such other address as the person to whom notice is to be given may have
previously furnished to the other in writing in the manner set forth above,
provided that notice of a change of address shall be deemed given only upon
receipt.
8.11 TERMINATION.
(a) This Agreement may be terminated by PCS at any
time on or after January 16, 1996, if the Closing has not occurred, provided
PCS and Sellers are not then in material breach of this Agreement.
(b) This Agreement may be terminated by either the
Buyer or PCS if the Closing has not occurred on or prior to January 31, 1996.
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<PAGE> 77
8.12 ARBITRATION. Except as otherwise provided herein, all
disputes between the parties hereto in respect of this Agreement and the
matters contemplated hereby which arise on or before June 30, 1996 shall be
resolved by arbitration in accordance with the rules of the American
Arbitration Association and submitted to the Commercial Division of the
American Arbitration Association in Miami, Florida.
ARTICLE IX
DEFINITIONS
-----------
9.1 DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meanings set forth below (such meanings to be
equally applicable to both the singular and plural forms of the terms
defined):
"ACCOUNTING BOOKS AND RECORDS" shall have the meaning set
forth in Section 3.2(b) hereof.
"ACCOUNTS RECEIVABLE" shall mean all of the accounts
receivable and notes receivable of PCS.
"ADJUSTMENT SCHEDULE" shall have the meaning set forth
in Section 1.3(d) hereof.
"AFFILIATE TRANSACTIONS" shall have the meaning set forth in
Section 3.22 hereof.
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<PAGE> 78
"AUDITED FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 3.6 hereof.
"BUYER" shall mean PhoneTel Technologies, Inc., an Ohio
corporation.
"BUYER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.3(a) hereof.
"BUYER SHARES" shall mean shares of the Common Stock,
$.01 par value, of the Buyer.
"BUYER'S THRESHOLD AMOUNT" shall have the meaning set forth
in Section 7.5(b) hereof.
"CLOSING" shall have the meaning set forth in Section 1.6
hereof.
"CLOSING DATE" shall have the meaning set forth in
Section 1.6 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMON SHARES" shall mean the Common Shares, $.01 par value,
of Paramount Communications Systems, Inc.
"CONSIDERATION" shall have the meaning set forth in Section
1.2 hereof.
"CONTRACTS" shall mean and include all leases, contracts,
agreements, licenses, License Agreements, purchase orders, invoices, sales
orders, instruments evidencing indebtedness for borrowed money, mortgages
or
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<PAGE> 79
other documents securing any indebtedness for borrowed money, commitments and
understandings, written or oral, and all amendments or modifications thereto,
to which PCS is a party or by which PCS is bound.
"DESIGNATED SUBSIDIARY" shall mean one or more existing or to
be formed Subsidiaries of the Buyer designated to carry out all or part of the
transactions contemplated by this Agreement and the Other Documents.
"DISCLOSURE SCHEDULE" shall mean the disclosure schedule
delivered in connection herewith.
"ENCUMBRANCE" shall mean any lien, encumbrance, proxy, voting
trust arrangement, pledge, security interest, collateral security agreement,
financing statement (and similar notices) filed with any Governmental Authority,
claim (including any claim as defined in the Code), charge, equities, mortgage,
pledge, objection, title defect, option, restrictive covenant or restriction on
transfer of any nature whatsoever, and the interest of the lessor in any
property subject to a capital lease.
"ENVIRONMENTAL LAW" shall have the meaning set forth in
Section 3.19 hereof.
"EQUIPMENT" shall mean all PCS Phones, all Inventory and all
other items of plant and equipment
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<PAGE> 80
(including, without limitation, vehicles, furniture, computers, office
equipment and office supplies) which are owned, leased or otherwise used by PCS
in the operations of its businesses.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean any entity that, together with
PCS, would constitute a "single employer" for purposes of Section 414 of the
Code.
"ESCROW AGENT" shall have the meaning set forth in Section
1.2(a)(iii) hereof.
"ESCROW AGREEMENT" shall have the meaning set forth in Section
1.9(a) hereof.
"ESCROW AMOUNT" shall have the meaning set forth in Section
1.2(a)(iii) hereof.
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.6 hereof.
"GAAP" shall mean generally accepted accounting principles as
in effect on the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean any government or
political subdivision thereof, whether federal, state, local or foreign,
or any agency, department, commission, board, bureau, court, tribunal,
76
<PAGE> 81
body, administrative or regulatory authority or instrumentality of any such
government or political subdivision.
"HAZARDOUS MATERIAL" shall mean any substance that is defined
as a "hazardous waste," "hazardous substance," "pollutant" or
"contaminant" under any Environmental Law or whose presence requires an
investigation or remediation under any Environmental Law, including, without
limitation, gasoline, diesel fuel and other petroleum hydrocarbons.
"INDEMNITOR" shall have the meaning set forth in Section
7.8(a) hereof.
"INTELLECTUAL PROPERTY" shall mean (i) all computer software
applications (whether licensed or otherwise and whether customized or
otherwise), U.S. and foreign patents and patent applications, registered and
unregistered copyrights and copyright applications (including copyrights in
proprietary computer software and databases), trademarks, service marks, trade
dress, logos, trade names and similar business identifiers, including, in each
case, all registrations and applications therefor, (ii) all trade secrets,
know-how, formulae, processes, inventions (whether patentable or unpatentable)
and other technical information and (iii)
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<PAGE> 82
the goodwill of the business symbolized by any of the foregoing.
"INVENTORY" shall mean and include all inventory owned or held
by PCS and used in the conduct of its business and operations, including raw
materials, components, repair parts, works-in-progress, finished goods and
other similar items, whether new or used.
"LAW" shall mean any law (including common law), rule,
regulation, restriction (including zoning), code, statute, ordinance, order,
writ, injunction, judgment, decree or other requirement of a Governmental
Authority.
"LOSSES" shall mean and include all demands, claims, actions,
causes of action, assessments, damages, losses, liabilities, judgments,
settlements, fines, penalties, sanctions, costs and expenses (including,
without limitation, interest, penalties, reasonable attorneys' fees and
expenses as incurred, and all other reasonable costs of investigating and
defending third party claims as incurred).
"MANAGEMENT SELLERS" shall mean Albert J. Miniaci and Dominick
F. Miniaci.
"MATERIAL CONTRACT" shall mean any Contract that (i) is with
any of the Sellers' Affiliates, (ii)
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<PAGE> 83
involves an obligation or commitment of more than $[5,000] or (iii) which
otherwise is material to PCS's financial condition, results of operations,
assets, liabilities, business or, to the knowledge of PCS and the [Management
Sellers], PCS's prospects.
"ORDER" shall mean any order, judgment, injunction, award,
decree, writ, rule or similar action of any Governmental Authority.
"OTHER DOCUMENTS" shall have the meaning set forth in Section
1.6 hereof.
"PCS" shall mean Paramount Communications Systems, Inc., a
Florida corporation, and allof its subsidiaries.
"PCS PHONES" shall mean the microprocessor-based pay
telephones owned [and operated] by PCS which are active and generating income.
"PCS PHONES AMOUNT" shall mean the aggregate number of PCS
Phones in operation at the close of business on September 27, 1995, totalling
2,500 PCS Phones.
"PERMITS" shall mean any franchise, license, certificate,
approval, identification number, registration, permit, authorization, order or
approval
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<PAGE> 84
of, and any required registration with, any Governmental Authority.
"PERSON" shall mean any individual, partnership, firm, trust,
association, corporation, joint venture, joint stock company, unincorporated
organization, Governmental Authority or other entity.
"PRE-CLOSING PERIOD" shall have the meaning set forth in
Section 7.7 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SELLER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.4 hereof.
"SELLERS' REPRESENTATIVE" shall have the meaning set forth in
Section 1.5 hereof.
"SELLERS" shall have the meaning set forth in the preamble.
"SELLERS' AFFILIATES" shall have the meaning set forth in
Section 3.22 hereof.
"SELLERS' THRESHOLD AMOUNT" shall have the meaning set forth
in Section 7.5(a) hereof.
"SHARES" shall mean the [ ] Common Shares issued and
outstanding as of the Closing.
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<PAGE> 85
"STRADDLE PERIOD" shall have the meaning set forth in Section
7.7 hereof.
"TAX CLOSING DATE" shall mean the date on which the Closing
occurs.
"TAX RETURN" shall mean any return, report, information return
or other document (including any related or supporting information) with
respect to Taxes.
"TAXES" shall mean all taxes, charges, fees, duties, levies,
penalties or other assessments imposed by any federal, state, local or foreign
Governmental Authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, capital stock, transfer,
franchise, payroll, withholding, social security or other taxes, including any
interest, penalties or additions attributable thereto.
"THIRD PARTY CLAIM" shall have the meaning set forth in
Section 7.8(b) hereof.
"TRANSFER TAXES" shall have the meaning set forth in Section
5.1(a) hereof.
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<PAGE> 86
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, on the day and year first above written.
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
By:
--------------------------------
Name:
Title:
THE SELLERS:
-----------------------------------
[Seller name]
-----------------------------------
[Seller name]
-----------------------------------
[Seller name]
-----------------------------------
[Seller name]
-----------------------------------
[Seller name]
-----------------------------------
[Seller name]
82
<PAGE> 87
---------------------------------
[Seller name]
---------------------------------
[Seller name]
---------------------------------
[Seller name]
---------------------------------
[Seller name]
---------------------------------
[Seller]
By:
------------------------------
Name:
Title:
THE BUYER
PHONETEL TECHNOLOGIES, INC.
By:
------------------------------
Name:
Title: Chairman and CEO
83
<PAGE> 88
AMENDMENT NO. 1
TO
SHARE PURCHASE AGREEMENT
AMONG
PHONETEL TECHNOLOGIES, INC.
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
AND
THE SHAREHOLDERS OF PARAMOUNT
COMMUNICATIONS SYSTEMS, INC.
<PAGE> 89
Amendment No. 1, dated as of January 4, 1996 ("Amendment No.
1"), to the Share Purchase Agreement, dated as of November 16, 1995 (the
"Original Agreement"), among PhoneTel Technologies, Inc., an Ohio corporation
("Buyer"), Paramount Communications Systems, Inc., a Florida corporation
("Seller"), and the shareholders of Seller (collectively with Seller, the
"Sellers").
Buyer and Sellers entered into the Original Agreement on
November 16, 1995. Buyer and Sellers desire to amend the Original Agreement to
make the changes set forth below.
NOW THEREFORE, in consideration of the Agreements herein set
forth and for other valuable consideration, the receipt and adequacy of which
are hereby acknowledged, Buyer and Sellers covenant and agree as follows:
1. The Closing as defined in Section 1.6 of the Original
Agreement shall be on or prior to January 31, 1996, as may be
mutually agreed by Buyer and Sellers, and the term "Closing
Date", as defined and used in the Agreement, shall be amended
to mean the date the Closing actually takes place
2. In Section 5.11 of the Original Agreement "December 31, 1995"
is deleted and replaced with "Closing Date".
3. Section 8.2(a) of the Original Agreement is hereby amended to
add the following language at the end of such Section:
", and, from and after the Closing Date, Buyer may
assign its rights hereunder to any party providing
financing to Buyer."
4. Except as herein amended, all terms, provisions and conditions
of the Original Agreement, all Exhibits and Schedules thereto
and all documents executed in connection therewith shall
continue in full force and effect and remain enforceable in
accordance with their terms.
2
<PAGE> 90
5. This Amendment No. 1 may be executed in any number of
identical counterparts, each of which shall for all purposes
be deemed an original and all of which constitute,
collectively, one agreement.
6. This Amendment No. 1 shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_____________________________________
Name: PETER GRAF
Title: CHAIRMAN AND CEO
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
By:_____________________________________
Name: ALBERT J. MINIACI
Title: PRESIDENT
SELLERS:
FRANK MINIACI REVOCABLE
LIVING TRUST, FRANK MINIACI,
TRUSTEE
ALBERT J. MINIACI IRREVOCABLE
TRUST, ROSE MINIACI, TRUSTEE
DOMINICK F. MINIACI IRREVO-
CABLE TRUST, ROSE MINIACI,
TRUSTEE
3
<PAGE> 91
DOMINICK F. MINIACI TRUST,
DOMINICK MINIACI, TRUSTEE
By: __________________________
DONMINCK F. MINIACI
as Seller's Reprensentative
______________________________
ALBERT J. MINIACI
4
<PAGE> 92
TIME EXTENSION AGREEMENT
FOR
THE SHARE PURCHASE AGREEMENT
AMONG
PHONETEL TECHNOLOGIES, INC.
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
AND
THE SHAREHOLDERS OF PARAMOUNT
COMMUNICATIONS SYSTEMS, INC.
AND
TERMINATION OF THE ESCROW AGREEMENT
AMONG
STUART & WALKER, P.A.
PHONETEL TECHNOLOGIES, INC.
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
AND
THE SHAREHOLDERS OF PARAMOUNT
COMMUNICATIONS SYSTEMS, INC.
5
<PAGE> 93
Time Extension Agreement, dated as of March 1, 1996 ("Extension Agreement"),
respecting the Share Purchase Agreement, dated as of November 16, 1995, as
amended as of January 12, 1996 (the "Original Agreement"), among PhoneTel
Technologies, Inc., an Ohio corporation ("Parent"), Paramount Communications
Systems, Inc., a Florida corporation ("Seller"), and the shareholders of the
Seller (collectively with Seller, the "Sellers"), and Termination of the Escrow
Agreement, dated as of November 16, 1995, as amended as of February 29, 1996,
(the "Escrow Agreement"), among Stuart and Walker, P.A. (the "Escrow Agent"),
Parent and Sellers.
Parent and Sellers desire to extend the effectiveness of all agreements and
documents in connection with the Original Agreement. Parent, Sellers and the
Escrow Agent desire to terminate all provisions of the Escrow Agreement.
NOW THEREFORE, in consideration of the agreements herein set forth and for
other valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Parent, Sellers and, with regard to the Escrow Agreement, the
Escrow Agent covenant and agree as follows:
2.
The Original Agreement, all exhibits and schedules thereto and all documents
executed in connection therewith shall exist in the exact form as previously
executed, except as provided in this Extension Agreement. Any reference to the
Original Agreement in any exhibit or schedule to the Original Agreement or in
any document executed in connection therewith shall be deemed to incorporate
this Extension Agreement.
3.
The effective dates of documents and agreements executed in connection with the
Original Agreement which have expired are hereby extended until 5 p.m. New York
City time on March 15, 1996.
6
<PAGE> 94
4.
All terms, provisions and conditions of the Original Agreement, all exhibits
and schedules thereto and all documents executed in connection therewith shall
continue in full force and effect and shall remain enforceable and binding in
accordance with their terms until 5 p.m. New York City time on March 15, 1996.
5.
The Closing as defined in Section 1.6 of the Original Agreement shall be on or
before March 15, 1996 and the term "Closing Date" as defined and used in the
Original Agreement, shall be deemed to mean March 15, 1996 for all purposes
relating to accounting and purchase price adjustments, irrespective of whether
March 15, 1996 is the actual Closing Date.
6.
Section 1.2(a) of the Original Agreement, which defines Consideration, is
hereby deleted and replaced in its entirety with the following:
1.2(a) (i)$10,150,000 less $625,000
(the "Closing Payment"), subject to adjustments as provided in subsection (ii)
below, paid either by bank check, cashier's check or wire transfer of
immediately available funds, (ii) 8,333 shares of Parent's 14% Convertible
Preferred Stock, no par value, $60 stated value; and (iii) warrants to purchase
179,996 shares of Parent's Common Stock at an initial exercise price of $.01.
7.
Section 1.3(a) of the Original Agreement, which defines a Closing Price
Adjustment, is hereby deleted and replaced in its entirety with the following:
1.3(a) If the number of PCS Phones as of the Closing Date is greater
than the PCS Phones Amount, the Consideration shall be increased by the product
obtained by multiplying $4000 by the excess
7
<PAGE> 95
of (i) the number of PCS Phones as of the Closing Date over (ii) the PCS Phones
Amount.
8.
Section 1.3(d) of the Original Agreement, which defines a Closing Price
Adjustment, is hereby deleted and replaced in its entirety with the following:
1.3(d) The Consideration shall be reduced by the amount of all severance pay
for the termination of any employees of PCS terminated by PCS within three
business days after the Closing, consistent with past practice of PCS. Buyer
shall notify Seller's Representative of the employees to be terminated within
three business days after the Closing.
9.
Parent hereby agrees to reimburse Dominick Miniaci for the amount of reasonable
expenses incurred by him as Sellers' Representative for trips to New York on
February 29, 1996 and March 13, 1996 in relation to the Closing.
10.
Parent hereby agrees to reimburse Jeff Passman the amount of reasonable
expenses to be incurred by him for a proposed trip to Las Vegas in April 1996
in relation to an APCC show and convention.
11.
Sections 1.2(a)(iii) and 1.9 of the Original Agreement, referring to the Escrow
Agreement and amounts contributed thereto, are hereby deleted from the Original
Agreement.
12.
Article IV of the Original Agreement is hereby amended by adding the following
sections:
4.6 SEC REPORTS. Buyer has filed all
reports, statements, forms and documents with the Securities Exchange
Commission ("SEC") that it was required to file since December 31, 1993 (the
"SEC Reports"), all of which have complied in all material
8
<PAGE> 96
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), and the Exchange Act. As of their respective
dates, each such report, statement, form or document, including without
limitation any financial statements or schedules included therein, did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
4.7 NASD TRADING. Buyer's Common
Stock is traded over the counter in the NASD's small capitalization market.
13.
The Escrow Agreement is hereby terminated. Any amounts currently held in
escrow shall be paid in accordance with the terms of the Escrow Agreement.
14.
The proviso contained in Paragraph 4(ii) to Amendment No. 1, dated as of
January 12, 1996, to the Original Agreement shall have no further force and
effect.
15.
Except as previously revised or herein amended, all terms, provisions and
conditions of the Original Agreement, and all documents executed in connection
therewith shall continue in full force and effect and remain enforceable in
accordance with their terms.
16.
This Extension Agreement may be executed in any number of identical
counterparts, each of which shall for all purposes be deemed an original and
all of which constitute, collectively, one agreement.
17.
This Extension Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
9
<PAGE> 97
18.
In the event of a conflict between the terms and conditions of the Original
Agreement and the terms and conditions of this Extension Agreement, then the
terms and conditions of this Extension Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this Extension Agreement,
effective as of the date and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_____________________________________
PETER GRAF
Chairman
PARAMOUNT COMMUNICATIONS
SYSTEMS, INC.
By:_____________________________________
ALBERT MINIACI
President
SELLERS
By:_____________________________
DOMINICK MINIACI
as Sellers' Representative
STUART & WALKER, P.A.
By:_____________________________
FRANK WALKER
Escrow Agent
10
<PAGE> 1
EXHIBIT C-4.
================================================================================
U.S. $37,250,000
CREDIT AGREEMENT
DATED AS OF MARCH 15, 1996
AMONG
PHONETEL TECHNOLOGIES, INC.
AS THE BORROWER,
VARIOUS LENDERS
AND
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION,
AS THE AGENT FOR THE LENDERS
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C> <C>
ARTICLE 1. DEFINITIONS
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
1.4. Accounting and Financial Determinations . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 2. COMMITMENTS
2.1. Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.1.1. Revolving A Loan Commitment . . . . . . . . . . . . . . . . . . . . . 27
2.1.2. Revolving B Loan Commitment . . . . . . . . . . . . . . . . . . . . . 27
2.1.3. Term Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.1.4. Agent and Lenders Not Required to Extend
Credit under Revolving Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2. Changes in Advance Formula; Establishment
of Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2.1. Advance Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.2.2. Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.3. Commitment and Agent's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.4. Increased Costs; Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.5. Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 3. LOANS AND NOTES
3.1. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.2. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.3. Principal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.3.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . 33
3.3.2. Prepayment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
3.3.3. Revolving Loans on Borrower's Behalf . . . . . . . . . . . . . . . . . 36
3.3.4 Reduction of Revolving Loan Commitment . . . . . . . . . . . . . . . . 36
3.4. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.4.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.4.2. Post-Default Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.4.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.4.4. Rate Determinations . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.5. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
3.6. Payments, Interest Rate Computations, Other
Computations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
3.7. Proration of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
3.8. Setoff... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.9. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE 4. CONDITIONS TO LOANS
4.1. Initial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.1.1. Resolutions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4.1.2. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.1.3. Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . 43
4.1.4. Additional Equity, etc. . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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4.1.5. Release of Liens on Assets . . . . . . . . . . . . . . . . . . . . . . 43
4.1.6. No Contest, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4.1.7. Certificate as to Completed Conditions,
Warranties, No Default, etc. . . . . . . . . . . . . . . . . . . . . . 43
4.1.8. Documents Relating to Equity Investments . . . . . . . . . . . . . . . 44
4.1.9. Compliance with Requirements of Law . . . . . . . . . . . . . . . . . 44
4.1.10. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.1.11. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . 44
4.1.12. Subsidiary Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . 44
4.1.13. Security Documents and Perfection . . . . . . . . . . . . . . . . . . 45
4.1.14. Employment Agreements; Compensation . . . . . . . . . . . . . . . . . 45
4.1.15. Pension and Welfare Liabilities . . . . . . . . . . . . . . . . . . . 46
4.1.16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.1.17. Financial Information, etc. . . . . . . . . . . . . . . . . . . . . . 46
4.1.18. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
4.1.19. Review of Borrower's Operations . . . . . . . . . . . . . . . . . . . 47
4.1.20. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.1.21. Other Documents, Certificates, etc. . . . . . . . . . . . . . . . . . 47
4.1.22. Letter to Accountants . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2. All Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.2.1. Compliance with Warranties,
No Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4.2.2. Borrowing Request, etc. . . . . . . . . . . . . . . . . . . . . . . . 48
4.2.3. Satisfactory Legal Form . . . . . . . . . . . . . . . . . . . . . . . 49
4.2.4. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.2.5. Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
4.2.6. Change in Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 5. WARRANTIES, ETC.
5.1. Organization, Power, Authority, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 49
5.2. Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
5.3. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.4. Financial Information; Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5.5. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.6. Absence of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.7. Litigation, Legislation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
5.8. Regulations G, T, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.9. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.10. Taxes..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.11. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
5.12. Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5.13. Ownership of Properties; Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.14. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.15. Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
5.16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.17. Certain Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.18. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.19. No Burdensome Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
5.20. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.21. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.22. Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
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5.23. Condition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.24. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.25. Acquisition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
5.26. Trade Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.27. Absence of Takeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.28. Communications Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.29. Capitalization and Ownership of the Borrower . . . . . . . . . . . . . . . . . . . . . 59
5.30. Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.31. No Integration of Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
5.32. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
ARTICLE 6. COVENANTS
6.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
6.1.1. Financial Information, etc. . . . . . . . . . . . . . . . . . . . . . 61
6.1.2. Maintenance of Corporate Existence, etc. . . . . . . . . . . . . . . . 63
6.1.3. Foreign Qualification . . . . . . . . . . . . . . . . . . . . . . . . 63
6.1.4. Payment of Taxes, etc. . . . . . . . . . . . . . . . . . . . . . . . . 64
6.1.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
6.1.6. Notice of Default, Litigation, etc. . . . . . . . . . . . . . . . . . 65
6.1.7. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 66
6.1.8. Maintenance of Properties, etc. . . . . . . . . . . . . . . . . . . . 67
6.1.9. Maintenance of Licenses and Permits . . . . . . . . . . . . . . . . . 67
6.1.10. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.1.11. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . 67
6.1.12. Interest Rate Protection . . . . . . . . . . . . . . . . . . . . . . . 67
6.1.13. Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.1.14. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.1.15. Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . 68
6.1.16. Telephone Placement Agreements . . . . . . . . . . . . . . . . . . . . 68
6.1.17. Cash Management System . . . . . . . . . . . . . . . . . . . . . . . . 68
6.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
6.2.1. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
6.2.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
6.2.4. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . 71
6.2.5. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.2.6. Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 75
6.2.7. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
6.2.8. Restricted Payments, etc. . . . . . . . . . . . . . . . . . . . . . . 76
6.2.9. Take or Pay Contracts; Sale/Leasebacks . . . . . . . . . . . . . . . . 77
6.2.10. Consolidation, Merger, Subsidiaries, etc. . . . . . . . . . . . . . . 77
6.2.11. Asset Dispositions, etc. . . . . . . . . . . . . . . . . . . . . . . . 78
6.2.12. Modification of Organic Documents, etc. . . . . . . . . . . . . . . . 78
6.2.13. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . 78
6.2.14. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . . . . 79
6.2.15. Change in Accounting Method . . . . . . . . . . . . . . . . . . . . . 79
6.2.16. Change in Fiscal Year End . . . . . . . . . . . . . . . . . . . . . . 79
6.2.17. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . 79
6.2.18. Limitation on Restrictions on
Subsidiary Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.2.19. Communications Laws . . . . . . . . . . . . . . . . . . . . . . . . . 79
6.2.20. Issuance of Series B Special Preferred
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Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE 7. EVENTS OF DEFAULT
7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
7.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . 80
7.1.2. Non-Performance of Certain Covenants . . . . . . . . . . . . . . . . . 80
7.1.3. Defaults Under Other Loan Documents
Non-Performance of Other Obligations . . . . . . . . . . . . . . . . . 80
7.1.4. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . . . . 80
7.1.5. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.1.6. Default on Other Indebtedness, etc. . . . . . . . . . . . . . . . . . 81
7.1.7. Failure of Valid, Perfected
Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 81
7.1.8. Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.1.9. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
7.1.10. Loss of Permits, etc. . . . . . . . . . . . . . . . . . . . . . . . . 82
7.1.11. Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . . . 83
7.1.12. 10% Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
7.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
ARTICLE 8. CONVERSION
8.1. Conversion Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.2. Conversion Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
8.3. Effect on Reclassification, Consolidation,
Merger or Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.4. Taxes on Shares Issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.5. Reservation of Shares; Shares to be Fully Paid;
Compliance with Government Requirements;
Listing of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
8.6. Notice to Lenders Prior to Certain Actions . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE 9. THE AGENT
9.1. Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
9.2. Funding Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9.3. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
9.4. Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9.5. Loans by the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
9.7. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
ARTICLE 10. MISCELLANEOUS
10.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
10.2. Notices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
10.3. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
10.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
10.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
10.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.7. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.8. Counterparts, Effectiveness, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
10.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
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10.11. Sale and Transfers, Participations, etc. . . . . . . . . . . . . . . . . . . . . . . . 96
10.12. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
10.13. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
10.14. Change in Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
10.15. Waiver of Jury Trial, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
10.16. Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
10.17. Usury Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
10.18. Conflict in Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
</TABLE>
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SCHEDULES AND EXHIBITS
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Schedule 1 - Disclosure Schedule
Schedule 2 - Form of Telephone Placement Agreement
Schedule 3 - Cash Management System
Schedule 4 - Ineligible Telephones
Exhibit A-1 - Revolving A Note
Exhibit A-2 - Revolving B Note
Exhibit A-3 - Term Note
Exhibit B - Borrowing Base Certificate
Exhibit C - Borrowing Request
Exhibit D - Compliance Certificate
Exhibit E - Transfer Supplement
Exhibit F - Joinder for Interest Rate Contract Counterparty
Exhibit G - Notice of Conversion
</TABLE>
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of March 15, 1996, among PHONETEL
TECHNOLOGIES, INC., an Ohio corporation (the "BORROWER"), various lenders as
are, or may become, parties hereto (individually a "LENDER" and, collectively,
the "LENDERS"), and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION, a
Delaware corporation, as Agent for the Lenders.
W I T N E S S E T H:
- ------------------------------------------------
RECITALS.
- --------
A. The Borrower desires to obtain from the Lenders (i) a
Revolving A Loan Commitment in an aggregate amount of up to Six Million Dollars
($6,000,000), (ii) a Revolving B Loan Commitment in an aggregate amount of up
to Two Million Two Hundred Fifty Thousand Dollars ($2,250,000), and (iii) a
Term Loan of up to Twenty-Nine Million Dollars ($29,000,000) in the aggregate;
and
B. The Lenders are willing, on the terms and conditions
hereinafter set forth (including, without limitation, ARTICLES 2 and 4), to
extend such credit facilities; and
C. The Loans will be used in the manner described in SECTION 3.9
below;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"ACCOUNT" means any "account" (as such term is defined in
Section 9-106 of the UCC) of the Borrower or any of its Subsidiaries arising
from the sale or lease of goods or providing of services.
"ACCOUNT DEBTOR" means any Person who is or may become
obligated to the Borrower or any of its Subsidiaries under, with respect to, or
on account of, an Account.
"ACQUISITION AGREEMENTS" means, collectively, (a) the
IPP-South Carolina Acquisition Agreement, (b) the IPP-Tennessee
<PAGE> 8
Acquisition Agreement and (c) the PCS Acquisition Agreement.
"ACQUISITIONS" means, collectively, (a) the IPP-South Carolina
Acquisition, (b) the IPP-Tennessee Acquisition and (c) the PCS Acquisition.
"AFFECTED LENDER" has the meaning set forth in clause (f) of
SECTION 2.4.
"AFFILIATE" of any Person means any other Person which,
directly or indirectly, controls or is controlled by or under common control
with such Person (excluding any trustee under, or any committee with
responsibility for administering, any Plan). A Person shall be deemed to be
"controlled by" any other Person if such other Person possesses, directly or
indirectly, power:
(a) to vote 5% or more of the securities having ordinary
voting power for the election of directors of such Person; or
(b) to direct or cause the direction of the management or
policies of such Person whether by contract or otherwise;
PROVIDED, HOWEVER, that for purposes of this Agreement no Lender (solely
because of its status as a Lender under this Agreement or by virtue of holding
any warrants or non-voting Stock) shall be deemed to be an Affiliate of the
Borrower.
"AGENT" means ING as agent for the Lenders pursuant hereto, or
such other Person as shall have subsequently been appointed as the successor
agent pursuant to SECTION 9.4.
"AGREEMENT" means, on any date, this Credit Agreement as
originally in effect on the Closing Date and as thereafter from time to time
amended, supplemented, amended and restated, or otherwise modified and in
effect.
"APPROVAL" means each and every approval, consent, filing and
registration by or with any federal, state or other regulatory authority
(domestic or foreign) necessary to authorize or permit the execution, delivery
or performance of this Agreement, the Notes or any other Loan Document, for the
granting of any security contemplated hereby or thereby, for the validity or
enforceability hereof or thereof, or for the consummation of the transactions
contemplated by the Loan Documents, including, without limitation, the
Acquisitions.
"AUTHORIZED OFFICER" means, relative to any Loan Party, those
officers of such Loan Party whose signatures, incumbency and authority shall
have been certified to the Agent and the Lenders pursuant to SECTION 4.1.1 or
which may be certified after the Closing Date in a certificate conforming to
the requirements of SECTION 4.1.1(A).
2
<PAGE> 9
"AVERAGE NUMBER OF TELEPHONES" means, with respect to all
Telephones during any period, (a) the sum of the number of days each of such
Telephones is operational during such period DIVIDED BY (b) the number of days
in such period.
"BLOCKED ACCOUNTS" is defined in SCHEDULE 3.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWER PLEDGE AGREEMENT" means the Stock and Notes Pledge
Agreement, dated as of the date hereof, pursuant to which the Borrower will
pledge to the Agent, for itself and the ratable benefit of the Lenders, all of
the issued and outstanding stock of its Subsidiaries and all Subsidiary Notes
issued to it by its Subsidiaries, as security for the Obligations, as such
agreement may be amended, supplemented or otherwise modified from time to time.
"BORROWING" means the Loans or portions thereof made by the
Lenders on the same Business Day pursuant to the same Borrowing Request in
accordance with SECTION 3.1.
"BORROWING BASE" means, as of any date, (a) with respect to
Revolving A Loans and the Term Loan, (i) the number of Eligible Telephones at
such date MULTIPLIED BY the lesser of (x) $2,000 or (y) the Eligible Telephone
Average Present Value as of such date, MINUS (ii) reserves established from
time to time pursuant to SECTION 2.2.2 hereof, and (b) with respect to
Revolving B Loans, the number of Eligible Telephones at such date MULTIPLIED BY
$125. Notwithstanding the previous sentence, the Borrowing Base with respect
to Revolving A Loans and the Term Loan for the period beginning on the Closing
Date and ending on the first date after April 30, 1996 on which the Borrower is
required to deliver a Borrowing Base Certificate pursuant to SECTION 6.1(G)
shall be the number of Eligible Telephones MULTIPLIED BY $2,000.
"BORROWING BASE CERTIFICATE" means a certificate of the chief
executive, accounting or financial Authorized Officer of the Borrower in the
form of EXHIBIT B attached hereto.
"BORROWING REQUEST" means a loan request and certificate duly
executed by an Authorized Officer of the Borrower in the form of EXHIBIT C
attached hereto.
"BUSINESS DAY" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations
of the Borrower and its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, are or would
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<PAGE> 10
be classified as capitalized leases.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any direct obligation issued or guaranteed by the
United States of America or any agency or instrumentality thereof and backed by
the full faith and credit of the United States of America, or issued by any
state or political subdivision or public instrumentality thereof, (i) which
has a remaining maturity at the time of purchase of not more than one year or
(ii) which is subject to a repurchase agreement with any Lender or any Eligible
Lending Institution exercisable within six months from the time of purchase so
long as such direct obligation remains in the possession of the Borrower or in
the possession of any Lender and (iii) which, in the case of obligations of any
state or political subdivision or public instrumentality thereof, is rated AA
or better by Moody's Investors Service, Inc.;
(b) certificates of deposit, time deposits, demand
deposits and bankers' acceptances, having a remaining maturity at the time of
purchase of not more than one year, issued by any Lender or by any Eligible
Lending Institution;
(c) corporate obligations rated Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation, having a
remaining maturity at the time of purchase of not more than one year; and
(d) shares of funds registered under the Investment
Company Act of 1940, as amended, having assets of at least $100,000,000 which
invest only in obligations described above and which shares are rated by
Moody's Investors Service, Inc. or Standard & Poor's Corporation in one of the
two highest rating categories assigned by such agencies for obligations of such
nature.
"CASH FLOW" means, for any period, an amount equal to (without
duplication) the consolidated Net Income of the Borrower and its Subsidiaries,
PLUS depreciation, amortization and other non-cash charges (including, without
limitation, provision for Taxes) of the Borrower and its Subsidiaries, MINUS
non-cash credits and revenues of the Borrower and its Subsidiaries, PLUS
decreases in the Borrower's and its Subsidiaries' working capital (excluding
changes in cash, Cash Equivalent Investments and current maturities of
Indebtedness), MINUS increases in the Borrower's and its Subsidiaries' working
capital (excluding changes in cash, Cash Equivalent Investments and current
maturities of Indebtedness).
"CERTIFICATE OF AMENDMENT" means the Certificate of Amendment
to the Articles of Incorporation of the Borrower filed with the Secretary of
State of Ohio on March 13, 1996 relating to the Series B Special Preferred
Stock.
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<PAGE> 11
"CHANGE IN CONTROL" means the occurrence of any of the
following: (a) any Person or group of Persons shall have acquired beneficial
ownership of more than 25% of the outstanding Stock of the Borrower (within the
meaning of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934,
as amended, and the applicable rules and regulations thereunder) other than as
a result of (i) the conversion of Term Notes into Stock of the Borrower or (ii)
any other acquisition of Stock of the Borrower by any Lender; (b) during any
period of 12 consecutive months (whether commencing before or after the Closing
Date), individuals who on the first day of such period were directors of the
Borrower (together with any replacement or additional directors who were
nominated or elected by a majority of directors then in office) cease to
constitute a majority of the Board of Directors of the Borrower; (c) the
failure of Peter G. Graf to be the Chairman of the Board of Directors of the
Borrower and to be actively involved in the management of the Borrower; or (d)
the failure of Peter G. Graf to own at least 70% of the Stock of the Borrower
which he owns on the Closing Date.
"CHARGES" means all federal, state, county, city, municipal,
local, foreign or other governmental (including, without limitation, PBGC) (a)
taxes at the time due and payable and (b) levies, assessments, charges, liens,
claims or encumbrances upon or relating to (i) the Collateral, (ii) the
Obligations, (iii) the Borrower's and its Subsidiaries' employees, payroll,
income or gross receipts, (iv) the Borrower's and its Subsidiaries' ownership
or use of their assets, or (v) any other aspect of the Borrower's and its
Subsidiaries' business.
"CLOSING DATE" means the date of the initial Borrowing
hereunder.
"COLLATERAL" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by the Borrower or any
Subsidiary in and upon which a Lien is granted to the Agent, for its benefit
and the ratable benefit of the Lenders, under any of the Loan Documents.
"COLLECTION ACCOUNT" shall mean an account of the Agent
specified from time to time to the Borrower into which amounts on deposit in
the Borrower's Concentration Accounts shall be swept on a daily basis in
accordance with the terms of the cash management system required to be
maintained by the Borrower under SECTION 6.1.17.
"COMMITMENT" means, collectively, the Lenders' Revolving Loan
Commitments as the same may be reduced from time to time pursuant to the terms
of this Agreement.
"COMMON STOCK" means shares now or hereafter authorized of any
class of common stock of the Borrower and any other capital stock of the
Borrower, however designated, that has the right
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<PAGE> 12
(subject to any prior rights of any other class or series of stock of the
Borrower) to participate in any distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up of the Borrower and in the
earnings of the Borrower without limit as to per share amount, and shall
include, without limitation, the presently authorized 22,250,000 shares of
Common Stock, $0.01 par value per share, of the Borrower.
"COMMONLY CONTROLLED ENTITY" means an entity or trade or
business, whether or not incorporated, which is from time to time a member of a
controlled group or a group under common control with the Borrower within the
meaning of Sections 414(b), 414(c), 414(m) or 414(o) of the IRC or Section
4001(a)(14) of ERISA.
"COMPLIANCE CERTIFICATE" means a certificate duly executed by
the chief executive, accounting or financial Authorized Officer of the Borrower
in the form of EXHIBIT D attached hereto, together with such changes as the
Required Lenders may from time to time reasonably request through the Agent for
purposes of monitoring the Borrower's compliance herewith.
"CONCENTRATION ACCOUNT" is defined in SCHEDULE 3.
"CONFIDENTIAL INFORMATION" has the meaning set forth in
SECTION 10.13 of this Agreement.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period,
without duplication, the sum of:
(a) the gross dollar amount of additions and capital
repairs during such period to property, plant, equipment and other fixed assets
of the Borrower and its Subsidiaries, including those additions and capital
repairs made in the ordinary course of business,
plus
----
(b) the aggregate amount of Capitalized Lease Liabilities
incurred during such period by the Borrower and its Subsidiaries.
"CONTRACTUAL OBLIGATION" means, relative to any Person, any
provision of any security issued by such Person or of any Instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound, excluding, in the case of the Borrower and any of its
Subsidiaries, the Loan Documents.
"CONVERSION RATE" is defined in SECTION 8.1.
"COST SAVINGS FACTOR" means, on any date of calculation, a
number added to Telephone Average EBITDA for the purpose of calculating
Eligible Telephone Average Present Value. The Cost
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<PAGE> 13
Savings Factor on any date of calculation shall be equal to the amount set
forth below opposite the period below during which such date of calculation
occurs:
Cost Savings
Period Factor
------ ------------
Closing Date through June 30, 1996 $300
July 1, 1996 through September 30, 1996 290
October 1, 1996 through December 31, 1996 260
January 1, 1997 through March 31, 1997 200
April 1, 1997 through June 30, 1997 125
July 1, 1997 through September 30, 1997 60
October 1, 1997 through December 31, 1997 20
January 1, 1998 through Stated Maturity Date 0
"CURRENT RATIO" means, at any date, the ratio at such date of
(A) current assets at such date, to (B) current liabilities at such date,
determined on a consolidated basis for the Borrower and its Subsidiaries in
accordance with GAAP.
"DEFAULT" means any Event of Default or any condition or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DESIGNATED REMAINING YEARS" means, with respect to any
Telephone Placement Agreement at any date, a number equal to the lesser of (a)
10 years or (b) the sum of (i) the number of years (rounded to the nearest
whole year) from such date until the date of expiration for such Telephone
Placement Agreement plus (ii) 5 years.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached
hereto as SCHEDULE 1, as it may be amended, supplemented or otherwise modified
from time to time by the Borrower with the consent of the Required Lenders as
provided in SECTION 4.2.2.
"DOLLAR" and the sign "$" mean lawful money of the United
States.
"EBITDA" means, for any period, an amount equal to Net Income
PLUS (to the extent deducted in determining Net Income) interest expense,
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, in each case for the Borrower and its
Subsidiaries on a consolidated basis.
"ELIGIBLE LENDING INSTITUTION" means a financial institution
having a branch or office in the United States and having capital and surplus
and undivided profits aggregating at least $100,000,000 and rated Prime-1 or
better by Moody's Investors
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<PAGE> 14
Service, Inc. or A-1 or better by Standard & Poor's Corporation.
"ELIGIBLE TELEPHONE AVERAGE PRESENT VALUE" means, as of any
date, the quotient of (i) the aggregate of the amounts calculated with respect
to each Eligible Telephone equal to the product of (x) Periodic Telephone
Income MULTIPLIED BY (y) the Designated Remaining Years for the Telephone
Placement Agreement relating to such Eligible Telephone (such Periodic
Telephone Income and Designated Remaining Years determined as of the last day
of the calendar month most recently ended for which financial statements are
required to have been delivered pursuant to SECTION 6.1.1(B)), discounted at
the rate of 20% per annum (with reference to the number of years constituting
such Designated Remaining Years), DIVIDED BY (ii) the number of Eligible
Telephones on such date.
"ELIGIBLE TELEPHONES" means only those Telephones (a) in which
the Agent, for its benefit and the ratable benefit of the Lenders, has a first
priority security interest, (b) which are located in the continental United
States, (c) which are identified on the Borrowing Base Certificate most
recently delivered by the Borrower pursuant to SECTION 6.1.1(G), (d) which are
in full operation, (e) which, in the opinion of the Required Lenders, are in
good operating condition and are not obsolete or unmerchantable, and (f) which
are subject to a valid Telephone Placement Agreement and a valid OSP Agreement,
PROVIDED, HOWEVER, that a Telephone shall not be deemed to be an Eligible
Telephone if the Required Lenders, in their reasonable judgment, determine that
such Telephone should not be included in such definition regardless of whether
such Telephone meets the requirements of clauses (a) through (f).
Notwithstanding the foregoing, for purposes of calculating the Borrowing Base,
Eligible Telephones shall be deemed to include the 518 Telephones owned by the
Borrower or one of its Subsidiaries as of the Closing Date which do not meet
one or more of the requirements of eligibility set forth above as more
particularly described SCHEDULE 4, provided that each such Telephone shall
either (i) meet each of the requirements of eligibility set forth above or (ii)
be replaced by a new Eligible Telephone installed by the Borrower or one of its
Subsidiaries after the Closing Date, before any new Eligible Telephones shall
increase the number of Eligible Telephones used to calculate the Borrowing
Base.
"ENVIRONMENT" means soil, surface waters, ground waters, land,
streams, sediments, surface or subsurface strata and ambient air.
"ENVIRONMENTAL LAWS" means all federal, state, local and
foreign laws or regulations, codes, common law, consent agreements, orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution or protection of the Environment, natural
resource or occupational health and safety.
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<PAGE> 15
"ENVIRONMENTAL LIABILITIES AND COSTS" means all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including
all reasonable fees, disbursements and expenses of counsel, expert and
consulting fees and costs of investigation and feasibility studies), fines,
penalties, settlement costs, sanctions and interest incurred as a result of any
claim or demand, by any Person, whether based in contract, tort, implied or
express warranty, strict liability, criminal or civil statute, any
Environmental Law, permit, order, variance or agreement with a Governmental
Authority or other Person, arising from or related to the administration of any
Environmental Law or arising from environmental, health or safety conditions or
a release or threatened release resulting from the past, present or future
operations of the Borrower or its Subsidiaries or affecting any of their
properties, or any release or threatened release for which the Borrower or any
of its Subsidiaries is otherwise responsible under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together with
the regulation thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"EVENT OF DEFAULT" means any of the events set forth in
SECTION 7.1.
"EXCESS CASH FLOW" means, for any period, the sum of (A) Cash
Flow for such period, PLUS (B) the amount of principal repayments received by
the Borrower or any of its Subsidiaries during such period in respect of notes
receivable held by the Borrower or any of its Subsidiaries, MINUS (C) the sum
of (x) repayments of the Loans pursuant to SECTION 3.3.1(I) and scheduled
repayments of other Indebtedness (including Capitalized Lease Obligations)
during such period and (y) actual payments of Taxes during such period, MINUS
(D) the lesser of (x) the amount of Consolidated Capital Expenditures made by
the Borrower and its Subsidiaries during such period and (y) the amount of
Consolidated Capital Expenditures permitted to be made by the Borrower and its
Subsidiaries during such period under SECTION 6.2.5.
"FACILITY FEE LETTER" means that certain letter agreement
dated as of the date hereof between the Lenders party to this Agreement on the
Closing Date and the Borrower.
"FAIR SALEABLE VALUE BALANCE SHEETS" means a hypothetical
consolidated balance sheet of the Borrower and its Subsidiaries and a
hypothetical balance sheet of each Subsidiary of the Borrower, in each case,
prepared by the Borrower or its Subsidiaries based on the respective Pro Forma
Balance Sheets and setting forth (a) in the case of the Borrower, (i) the
consolidated assets of the
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<PAGE> 16
Borrower and its Subsidiaries (restated at the fair saleable value thereof),
(ii) the consolidated liabilities of the Borrower and its Subsidiaries
(including all liabilities and obligations of the Borrower and its
Subsidiaries, fixed or contingent, direct or indirect, disputed or undisputed,
and whether or not required to be reflected on a balance sheet prepared in
accordance with GAAP), and (iii) the excess of such assets over such
liabilities and (b) in the case of each Subsidiary of the Borrower, (i) the
assets of such Subsidiary (restated at the fair saleable value thereof), (ii)
the liabilities of such Subsidiary (including all liabilities and obligations
of such Subsidiary, fixed or contingent, direct or indirect, disputed or
undisputed, and whether or not required to be reflected on a balance sheet
prepared in accordance with GAAP), and (iii) the excess of such assets over
such liabilities.
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
interest rate per annum equal for each day during such period to:
(a) the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York; or
(b) if such rate is not so published for any day which is
a Business Day, the arithmetic average of the quotations for such transactions
received by the Agent, in its sole discretion, either from (i) three federal
funds brokers of recognized standing selected by the Agent in its sole
discretion or (ii) the Reference Lenders.
"FINANCING STATEMENTS" means the financing statements under
the Uniform Commercial Codes of the applicable jurisdictions, filed with
respect to the Security Documents pursuant to clause (e) of SECTION 4.1.13.
"FISCAL QUARTER" means any quarter of a Fiscal Year.
"FISCAL YEAR" means, subject to SECTIONS 6.2.16 and 10.14,
each twelve month accounting period of the Borrower ending on December 31st
thereafter; references to a Fiscal Year with a number corresponding to any
calendar year (E.G., the "1996 Fiscal Year") refer to the Fiscal Year ending on
December 31st in such calendar year.
"FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio
of (a) an amount equal to EBITDA to (b) Borrower's Fixed Charges during such
period.
"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,
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<PAGE> 17
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 during
such period, PLUS (d) provisions for taxes for such period, MINUS (e)
decreases in the Borrower's and its Subsidiaries' 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' working capital (excluding changes in cash, Cash Equivalent
Investments and current maturities of Indebtedness) during such period.
"FOREIGN LENDER" means any Lender organized under the laws of
a jurisdiction outside the United States.
"F.R.S. BOARD" means the Board of Governors of the Federal
Reserve System (or any successor).
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"HEREIN", "HEREOF", "HERETO", "HEREUNDER" and similar terms
contained in this Agreement or any other Loan Document refer to this Agreement
or such other Loan Document, as the case may be, as a whole and not to any
particular Section, clause or provision of this Agreement or such other Loan
Document.
"HSR ACT" has the meaning set forth in SECTION 6.1.14.
"INCLUDING" means including without limiting the generality of
any description preceding such term.
"INDEBTEDNESS" of any Person means, without duplication,
(a) all obligations of such Person for borrowed money
(including all notes payable and drafts accepted representing extensions of
credit) and all obligations evidenced by bonds, debentures, notes or other
similar instruments on which interest charges are customarily paid;
(b) all obligations, contingent or otherwise, relative to
the face amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all Capitalized Lease Liabilities of such Person (to
the extent required by GAAP to be included on the balance sheet of such
Person);
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<PAGE> 18
(d) whether or not so included as liabilities in
accordance with GAAP:
(i) all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade accounts
payable for other than borrowed money arising in the ordinary course
of business) and indebtedness secured by a Lien on property owned or
being purchased by such Person (including indebtedness arising under
conditional sales or other title retention agreements), whether or not
such indebtedness shall have been assumed by such Person or is limited
in recourse; and
(ii) all obligations of such Person in respect of, and
obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise assure a creditor against loss in respect of,
Indebtedness of another Person of the type described in clause (a),
(b), (c) or (d)(i), above, or clause (e) below;
(e) net obligations under Interest Rate Contracts; and
(f) all obligations of such Person to redeem, purchase or
otherwise retire or extinguish any of its Stock at a fixed or determinable date
(whether by operation of a sinking fund or otherwise), at another's option or
upon the occurrence of a condition not solely with the control of such Person
(E.G., redemption from future earnings).
"INDEMNIFIED LIABILITIES" means any and all actions, causes of
action, suits, losses, costs, liabilities, damages and expenses incurred by or
asserted or awarded against any Lender Party and against which the Borrower has
indemnified the Lender Parties as provided in SECTION 10.4.
"ING" means Internationale Nederlanden (U.S.) Capital
Corporation.
"ING ALTERNATE BASE RATE" means a fluctuating rate of interest
per annum equal to the higher of:
(a) the arithmetic average of rates of interest announced
by each of the Reference Lenders from time to time at such Reference Lender's
principal New York City office as its prime (or base) rate for U.S. domestic
commercial loans; and
(b) the Federal Funds Rate from time to time in effect
plus 1/2 of 1% (0.50%).
Changes in the rate of interest on Loans shall take effect on the date of each
change in the ING Alternate Base Rate. The Agent shall give notice promptly to
the Borrower and the Lenders of
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<PAGE> 19
changes in the ING Alternate Base Rate.
"INSOLVENCY" or "INSOLVENT" means, at any particular time, a
Multiemployer Pension Plan is insolvent within the meaning of Section 4245 of
ERISA.
"INSTRUMENT" means any contract, agreement, letter of credit,
indenture, mortgage, warrant, deed, certificate of title, document or writing
(whether by formal agreement, letter or otherwise) under which any obligation
is evidenced, assumed or undertaken, any Lien (or right or interest therein) is
granted or perfected, or any property (or right or interest therein) is
conveyed.
"INTELLECTUAL PROPERTY" means, collectively, (a) patents,
patent rights and patent applications, copyrights and copyright applications,
trademarks, trademark rights, trade names, trade name rights, service marks,
service mark rights, applications for registration of trademarks, trade names
and service marks, fictitious names registrations and trademark, trade name and
service mark registrations, including, without limitation, the name "PhoneTel
Technologies", and all derivations thereof, and (b) patent licenses, trademark
licenses, copyright licenses and other licenses to use any of the items
described in clause (a), and any other items necessary to conduct or operate
the business of the Borrower and its Subsidiaries.
"INTEREST EXPENSE" means, for any period, the Borrower's
consolidated interest expense accrued during such period in respect of all
Indebtedness of the Borrower and its Subsidiaries PROVIDED, HOWEVER, the effect
of the 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 a result of the issuance of warrants in connection therewith
shall not be taken into account when calculating Interest Expense.
"INTEREST RATE CONTRACT" means any interest rate cap
agreement, interest rate collar agreement, interest rate swap agreement or
other agreement or arrangement designed to protect against fluctuations in
interest rates.
"INTEREST RATE CONTRACT COUNTERPARTY" means any counterparty
to an Interest Rate Contract which the Borrower is required to enter into
pursuant to SECTION 6.1.12.
"INTERNAL REVENUE SERVICE" means the Internal Revenue Service
of the United States of America.
"INVESTMENT" means, relative to any Person:
(a) any loan or advance made by such Person to any other
Person (excluding commission, travel and similar advances to
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<PAGE> 20
officers and employees made in the ordinary course of business);
(b) any ownership or similar interest held by such Person
in any other Person; and
(c) the purchase of any debt or equity securities or
instruments issued by any other Person (including, without limitation, Stock,
notes, debentures, drafts and acceptances, trust certificates, partnership
interests or units or membership interests in limited liability companies).
The amount of any Investment of the nature referred to in clause (a) or (b)
shall be the original principal or capital amount thereof less all returns of
principal or equity thereon (and without adjustment by reason of the financial
condition of such other Person) and shall, if made by the transfer or exchange
of property other than cash, be deemed to have been made in an original
principal or capital amount equal to the fair market value of such property.
"IPP-SOUTH CAROLINA" means International Pay Phones, Inc., a
South Carolina Corporation.
"IPP-SOUTH CAROLINA ACQUISITION" means the acquisition by the
Borrower of IPP-South Carolina pursuant to a merger of IPP-South Carolina into
the Borrower in exchange for the "Consideration" (as such term is defined in
the IPP-South Carolina Acquisition Agreement) pursuant to the terms and
conditions of the IPP-South Carolina Acquisition Agreement.
"IPP-SOUTH CAROLINA ACQUISITION AGREEMENT" means that certain
Agreement and Plan of Merger, dated November 22, 1995, among Borrower,
IPP-South Carolina and the "Sellers" identified therein and any amendments or
other modifications related to the foregoing.
"IPP-TENNESSEE" means International Pay Phones, Inc., a
Tennessee Corporation.
"IPP-TENNESSEE ACQUISITION" means the acquisition by the
Borrower of IPP-Tennessee pursuant to a merger of IPP-Tennessee into the
Borrower in exchange for the "Consideration" (as such term is defined in the
IPP-Tennessee Acquisition Agreement) pursuant to the terms and conditions of
the IPP-Tennessee Acquisition Agreement.
"IPP-TENNESSEE ACQUISITION AGREEMENT" means that certain
Agreement and Plan of Merger, dated November 22, 1995, among Borrower,
IPP-Tennessee and the "Sellers" identified therein and any amendments or other
modifications related to the foregoing.
"IRC" means the Internal Revenue Code of 1986, as
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<PAGE> 21
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of the IRC also refer to any successor sections.
"LENDER" means (a) any of the various lenders as are, or may
become, parties hereto, and (b) each Interest Rate Contract Counterparty that
is a Lender pursuant to clause (a) of this definition and has executed and
delivered a joinder agreement in the form of EXHIBIT F attached hereto, duly
executed by such Interest Rate Contract Counterparty and delivered to the
Agent.
"LENDER PARTIES" means, collectively, the Agent and each
Lender, and each of their respective successors and assigns, and each of the
respective officers, directors, employees, attorneys and agents of the Agent
and each Lender and of each of their respective successors and assigns,
indemnified by the Borrower as provided in SECTION 10.4.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, lien (statutory or other), adverse
claim or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any financing lease involving substantially
the same economic effect as any of the foregoing and the filing of any
financing statement under the UCC or comparable law of any jurisdiction).
"LOAN" means, as the context may require, any Revolving Loan
or all or any portion of the Term Loan.
"LOANS" means the Revolving Loans and the Term Loan.
"LOAN DOCUMENTS" means, collectively, this Agreement, the
Notes, each Security Document, the Facility Fee Letter, the Subsidiary
Guaranty, each Borrowing Request, any Interest Rate Contract entered into by
the Borrower with a Lender, and each other Instrument executed and delivered by
the Borrower or any of its Subsidiaries, as of the date hereof or at any time
thereafter, in connection with the transactions contemplated by this Agreement,
in each case, as amended, modified or supplemented from time to time.
"LOAN PARTY" means any of the Borrower, the Borrower's
Subsidiaries and any Affiliate of any of them which is a party to any of the
Loan Documents.
"LOSS" means any loss, damage, destruction, theft, or seizure
of, or any other casualty with respect to, or any condemnation of, any property
or asset of any Person in an amount in excess of $50,000 individually or
$100,000 in the aggregate for any Fiscal Year; and the "AMOUNT" of any Loss
means (i) if such
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asset or property is repaired or replaced, the greater of (A) the cost to
repair or replace the property or asset that was the subject of such Loss and
(B) the amount of insurance proceeds or condemnation awards payable as a result
of such Loss, and (ii) if such asset or property is not repaired or replaced,
the amount of insurance proceeds or condemnation awards payable as a result of
such loss.
"MATERIAL ADVERSE CHANGE" means a material adverse change in
(a) the condition (financial or otherwise), operations, performance, business,
properties or prospects of the Borrower and its Subsidiaries taken as a whole;
or (b) the rights and remedies of the Lenders or the Agent under the Loan
Documents; or (c) the ability of the Borrower to repay the Obligations or of
the Borrower or any Subsidiary to perform their respective obligations under
the Loan Documents; or (d) the legality, validity or enforceability of any Loan
Document; or (e) the Liens granted the Agent for the benefit of the Lenders
pursuant to the Security Documents.
"MATURITY" means relative to any Loan or portion thereof, the
earlier of such Loan's Stated Maturity Date or such other date when such Loan
or portion thereof shall be or become due and payable in accordance with the
terms of this Agreement, whether by required repayment, prepayment,
declaration, acceleration or otherwise.
"MAXIMUM OVERHEAD EXPENSE" means, for any period, all expenses
of the Borrower and its Subsidiaries for such period classified as "Other
Operating Expenses" and "Sales, General and Administrative Expense", determined
on a consolidated basis in accordance with GAAP and as reported by the Borrower
for such period on a basis consistent with the financial statements referenced
in clauses (i) and (ii) in SECTION 5.4(A).
"MINIMUM GROSS MARGIN PERCENTAGE - NON-COIN CALLS" means, for
any period, a number (expressed as a percentage) equal to (a) "Non-Coin
Revenue" plus commissions minus "O/S Processing Expense" as reported by the
Borrower for such period on a basis consistent with the financial statements
referenced in clauses (i) and (ii) of SECTION 5.4(A) DIVIDED BY (b) "Non-Coin
Revenue" (to the extent included in clause (a)).
"MONTHLY PAYMENT DATE" means the last day of each calendar
month or, if such day is not a Business Day, the immediately preceding Business
Day.
"MULTIEMPLOYER PENSION PLAN" means a Multiemployer Plan which
is subject to Subtitle E of Title IV of ERISA.
"MULTIEMPLOYER PLAN" means a Plan which is a "multiemployer
plan" within the meaning of Section 3(37) of ERISA.
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"NET BALANCE" is defined in SCHEDULE 3.
"NET CASH PROCEEDS" means, with respect to any sale or
disposition of assets, (A) the gross cash proceeds received from such sale or
disposition MINUS (B) the sum of (x) all reasonable out-of-pocket fees and
expenses incurred in connection with such sale or disposition PLUS (y) all
taxes incurred in connection with such sale or disposition PLUS (z) the
outstanding principal amount of Indebtedness (other than the Loan) required to
be repaid under the terms thereof as a result of such sale or disposition,
PROVIDED, HOWEVER, that nothing contained in this definition shall be deemed
to be a consent to any sale or disposition that is not otherwise permitted by
the Loan Documents.
"NET INCOME" means, as to any Person, for any period, the net
income (or loss) of such Person for such period, determined in accordance with
GAAP, but excluding extraordinary gains or losses for such period.
"NET WORTH" means, at any time, the total shareholder's equity
of the Borrower and its Subsidiaries as determined on a consolidated basis in
accordance with GAAP, PROVIDED, HOWEVER, the effect of the 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 a result of the
issuance of warrants in connection therewith shall not be taken into account
when calculating Net Worth.
"NOTE" means, as the context may require, any Term Note or any
Revolving Note.
"NOTES" means, collectively, all of the Term Notes and all of
the Revolving Notes.
"OBLIGATIONS" means all obligations of the Borrower with
respect to the repayment or performance of any obligations (monetary or
otherwise) of the Borrower arising under or in connection with this Agreement,
the Notes and the other Loan Documents.
"ORGANIC DOCUMENT" means, relative to any Person, its articles
or certificate of incorporation or certificate of limited partnership or
organization, its bylaws, partnership or operating agreement or other
organizational documents, and all stockholders agreements, voting trusts and
similar arrangements applicable to any of its Stock or partnership interests or
other ownership interests.
"OSP AGREEMENT" means any agreement with an operator service
provider pursuant to which commissions, fees or surcharges are to be paid to
the Borrower or one of its Subsidiaries on all or a portion of the long
distance traffic relating to any pay
17
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telephones owned or leased by or to the Borrower or one of its Subsidiaries.
"PARTICIPANT" means the banks or other entities that purchase
participating interests in any Loan, Note, Revolving Loan Commitment or other
interest hereunder, as provided in clause (a) of SECTION 10.11.
"PBGC" means the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"PCS" means Paramount Communications Systems, Inc., a Florida
corporation.
"PCS ACQUISITION" means the acquisition by the Borrower from
all of the shareholders of PCS of 100% of the issued and outstanding Stock of
PCS in exchange for the "Consideration" (as such term is defined in the PCS
Acquisition Agreement) pursuant to the terms and conditions of the PCS
Acquisition Agreement.
"PCS ACQUISITION AGREEMENT" means that certain Share Purchase
Agreement, dated November 16, 1995, among the Borrower, PCS and the "Sellers"
identified therein and any amendments or other modifications related to the
foregoing.
"PENSION PLAN" means any Plan which is subject to the
provisions of Title IV of ERISA, or to the provisions of Section 302 of ERISA
or Section 412 of the IRC.
"PERIODIC TELEPHONE INCOME" means, as of any date, the sum of
(i) Telephone Average EBITDA for the most recent three-month period ending on
or prior to such date MULTIPLIED BY four (4), PLUS (ii) the Cost Savings Factor
as of such date, PROVIDED, HOWEVER, that notwithstanding anything contained in
this definition to the contrary, as of any date prior to June 30, 1996 the
Telephone Average EBITDA shall be equal to (a) the Telephone Average EBITDA
from April 1, 1996 until the last day of the calendar month ending on or prior
to such date and (b) such Telephone Average EBITDA for such period shall not be
multiplied by four (4) but shall be multiplied by (i) twelve (12) if such date
is prior to May 30, 1996, and (ii) six (6) if such date is after May 30, 1996
prior to June 30, 1996.
"PERSON" means any natural person, corporation, partnership,
limited liability company, firm, association, government, governmental agency
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"PLAN" shall mean, at a particular time, any employee benefit
plan (within the meaning of Section 3(3) of ERISA), which is covered by ERISA
and in respect of which the Borrower, a Subsidiary or a Commonly Controlled
Entity is (or, if such plan
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were terminated at such time, would under Section 4069 of ERISA be deemed to
be) an "employer" as defined in Section 3(5) of ERISA.
"POST-DEFAULT RATE" means (a) in the case of each Loan, the
sum of the rate per annum otherwise applicable to such Loan from time to time
PLUS two percent (2%) per annum and (b) in the case of all other Obligations,
the ING Alternate Base Rate PLUS seven percent (7%) per annum; PROVIDED,
HOWEVER, that in all cases where the Post-Default Rate is being applied as a
result of an Event of Default under SECTION 7.1.1 then in such cases the
Post-Default Rate shall mean a rate of interest equal to twenty-one percent
(21%) per annum.
"PREFERRED STOCK" means shares now or hereafter authorized of
any class of capital stock of the Borrower other than Common Stock, and shall
include, without limitation, the presently authorized 2,500,000 shares of
Preferred Stock, $.01 par value, of which (i) 2,125 shares have been designated
Preferred Stock, $100 par value, of which no shares are outstanding, (ii) 6,500
shares have been designated Convertible Preferred Stock, without par value,
$100 stated value, cumulative and redeemable, of which no shares are
outstanding, (iii) 3,880 shares have been designated Preferred Stock, without
par value, $1,000 stated value, cumulative and redeemable, of which no shares
are outstanding, (iv) 16,000 shares have been designated 8% Preferred Stock,
without par value, $100 stated value, cumulative and redeemable, of which no
shares are outstanding, (v) 2,500 shares have been designated 7% Convertible
Preferred Stock, without par value, $100 stated value, cumulative and
redeemable, of which no shares are outstanding, (vi) 550,000 shares have been
designated 10% Preferred Stock, without par value, $10 stated value,
cumulative, of which 530,534 shares are outstanding, (vii) 250,000 shares have
been designated Series A Special Convertible Preferred Stock, $.20 par value,
of which no shares are outstanding, (viii) 250,000 shares have been designated
Series B Special Convertible Preferred Stock, $.20 par value, of which no
shares are outstanding, (ix) 200,000 shares have been designated 14%
Convertible Preferred Stock, without par value, $60 stated value, of which
107,918 shares are outstanding and (x) 1,218,995 shares are undesignated and
unissued.
"PREPAYMENT FEE" means the fee payable by the Borrower to the
Lenders prior to or concurrently with any prepayment as required under SECTION
3.3.2.
"PRO FORMA BALANCE SHEETS" means, collectively, (a) the
consolidated PRO FORMA balance sheet of the Borrower and its Subsidiaries as of
the Closing Date, prepared by the Borrower based on the financial statements
described in clauses (i) and (ii) of SECTION 5.4 and after giving effect to the
consummation of the transactions contemplated by the Acquisition Agreements and
the consummation of the transactions contemplated hereby, including the making
of the initial Loans on the Closing Date and (b) the PRO
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FORMA balance sheet of each of the Borrower's Subsidiaries as of the Closing
Date, prepared by such Subsidiaries based on the financial statements described
in clause (ii) of SECTION 5.4 and after giving effect to the consummation of
the transactions contemplated by the Acquisition Agreements and the
consummation of the transactions contemplated hereby, including the making of
the initial Loans on the Closing Date.
"PROJECTIONS" means, collectively, (a) the statements of
operations of the Borrower for the Fiscal Years 1996-2000 inclusive, dated
March 14, 1996, prepared by the Borrower on a monthly basis for the 1996 Fiscal
Year and on a quarterly basis for all Fiscal Years thereafter, together with
supporting details and a statement of underlying assumptions, and (b) the
projected balance sheets, statements of operations and changes in cash flows
of the Borrower for the Fiscal Years 1996-2000 inclusive, dated March 12, 1996,
prepared by Brenner Securities Corporation on an annual basis, together with
supporting details and a statement of underlying assumptions, all of which have
been delivered to the Lenders prior to the Closing Date.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness incurred to
finance part or all of (but not more than) the purchase price of equipment in
which neither the Borrower nor any of its Subsidiaries had at any time prior to
such purchase an interest.
"PURCHASING LENDER" means any Person purchasing all or any
part of the rights and obligations under this Agreement and the Notes of any
Lender pursuant to a Transfer Supplement in accordance with SECTION 10.11.
"QUARTERLY PAYMENT DATE" means the last day of each March,
June, September and December, or, if such day is not a Business Day, the
immediately preceding Business Day.
"QUOTED PRICE" of Common Stock for each day means the last
reported sales price of Common Stock on such day as reported by NASDAQ or, if
Common Stock is listed on a national security exchange, the last reported sales
price of Common Stock on such exchange (which shall be for consolidated trading
if applicable to such exchange) on such day, or if not so reported or listed,
the average of the last reported bid and ask prices of Common Stock on such
day, in each case as appropriately adjusted for any stock splits or reverse
stock splits occurring after the Closing Date.
"REFERENCE LENDERS" means, collectively, The Chase Manhattan
Bank, N.A. (or any successor thereto), Citibank, N.A. and Morgan Guaranty Trust
Company of New York.
"REGISTER" means the register for the recordation of the names
and addresses of the Lenders and the Revolving Loan Commitment of, and the
principal amounts of the Loans owing to,
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each Lender from time to time, as provided in clause (c) of SECTION 10.11.
"REGISTRATIONS RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated of even date herewith, between the Borrower and the Lenders,
as in effect on the date hereof and as hereafter amended, supplemented,
restated or otherwise modified.
"REGULATORY CHANGE" means, as to any or all of the Lenders or
the Agent, any change (including, without limitation, any change in the
interpretation) occurring after the Closing Date in any (or the adoption after
such date of any new):
(a) United States federal or state law or foreign law
applicable to the Agent or such Lender; or
(b) regulation, interpretation, directive, guideline or
request (whether or not having the force of law) applicable to the Agent or
such Lender of any court or Governmental Authority charged with the
interpretation or administration of any law referred to in clause (a) or of any
central bank or fiscal, monetary or other authority having jurisdiction over
the Agent or such Lender.
"REORGANIZATION" means with respect to any Multiemployer
Pension Plan, the condition that such plan is in reorganization within the
meaning of such term as used in Section 4241 of ERISA.
"REPLACEMENT LENDER" has the meaning set forth in clause (f)
of SECTION 2.4 of this Agreement.
"REPORTABLE EVENT" means (i) a reportable event described in
Section 4043 of ERISA and regulations thereunder (other than any Reportable
Event described in Section 4043(b)(2) or (7)), (ii) a withdrawal by a
"substantial employer" (within the meaning of Section 4001(a)(2) of ERISA) from
a Single Employer Plan to which more than one employer contributes, as referred
to in Section 4063(b) of ERISA, or (iii) a cessation of operations at a
facility causing more than twenty percent (20%) of participants under a Single
Employer Plan to be separated from employment, as referred to in Section
4062(e) of ERISA.
"REQUIRED LENDERS" means, (a) Lenders having, in the
aggregate, 66-2/3% or more of the aggregate of the Revolving Loan Commitment
plus the outstanding principal amount of the Term Loan or (b) if the Revolving
Loan Commitments shall have been terminated, whether pursuant to this Agreement
or otherwise, Lenders having, in the aggregate, 66-2/3% of the aggregate of the
outstanding principal amount of the Loans.
"REQUIREMENTS OF LAW" means, as to any Person, the Organic
Documents of such Person, and all federal, state and local laws, rules,
regulations, orders, decrees or other determinations
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of an arbitrator, court or other Governmental Authority, including, without
limitation, all disclosure and other requirements of ERISA, the requirements of
Environmental Laws and Environmental Permits, the requirements of OSHA, in each
case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject.
"RESPONSIBLE OFFICER" means the Chief Executive Officer, the
President, the Chief Financial Officer, the Treasurer or the Director of
Accounting of the Borrower.
"REVOLVING A LOAN" means relative to any Lender, any loan made
by such Lender to the Borrower pursuant to SECTION 2.1.1.
"REVOLVING A LOAN AVAILABILITY" means, on any date, the excess
of (a) the lesser of (i) the Revolving A Loan Commitment Amount or (ii) the
excess of (x) the Borrowing Base for Revolving A Loans and Term Loan minus (y)
the outstanding principal balance of the Term Loan, MINUS (b) the then
aggregate principal amount of all outstanding Revolving A Loans.
"REVOLVING A LOAN COMMITMENT" means the collective commitments
of the Lenders to make Revolving A Loans pursuant to SECTION 2.1.1.
"REVOLVING A LOAN COMMITMENT AMOUNT" means $6,000,000 as such
amount may be reduced from time to time pursuant to SECTION 3.3.4.
"REVOLVING A LOAN COMMITMENT TERMINATION DATE" means the
earliest of:
(a) the applicable Stated Maturity Date;
(b) immediately and without further action upon the
occurrence of any Event of Default described in SECTION 7.1.4;
(c) immediately when any other Event of Default shall
have occurred and be continuing and either:
(i) any Loans shall be declared to be due and
payable pursuant to SECTION 7.3; or
(ii) in the absence of such declaration, the
Agent, acting at the direction of the Required Lenders, shall give
notice to the Borrower that the Revolving A Loan Commitment has been
terminated; and
(d) immediately upon the occurrence of a Change in
Control.
"REVOLVING A NOTE" means a promissory note of the
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Borrower dated the date hereof and substantially in the form of EXHIBIT A-1
attached hereto, and shall also refer to all other promissory notes accepted
from time to time in substitution therefor or renewal thereof.
"REVOLVING B LOAN" means relative to any Lender, any Loan made
by such Lender to the Borrower pursuant to SECTION 2.1.2.
"REVOLVING B LOAN AVAILABILITY" means, on any date, the excess
of (a) the lesser of (i) the Revolving B Loan Commitment Amount or (ii) the
Borrowing Base for Revolving B Loans MINUS (b) the then aggregate principal
amount of all outstanding Revolving B Loans.
"REVOLVING B LOAN COMMITMENT" means the collective commitments
of the Lenders to make Revolving B Loans pursuant to SECTION 2.1.2.
"REVOLVING B LOAN COMMITMENT AMOUNT" means $2,250,000 as such
amount may be reduced from time to time pursuant to SECTION 3.3.4.
"REVOLVING B LOAN COMMITMENT TERMINATION DATE" means the
earliest of:
(a) the applicable Stated Maturity Date;
(b) immediately and without further action upon the
occurrence of any Event of Default described in SECTION 7.1.4;
(c) immediately when any other Event of Default shall
have occurred and be continuing and either:
(i) any Loans shall be declared to be due and
payable pursuant to SECTION 7.3; or
(ii) in the absence of such declaration, the
Agent, acting at the direction of the Required Lenders, shall give
notice to the Borrower that the Revolving B Loan Commitment has been
terminated; and
(d) immediately upon the occurrence of a Change in
Control.
"REVOLVING B NOTE" means a promissory note of the Borrower
dated the date hereof and substantially in the form of EXHIBIT A-2 attached
hereto, and shall also refer to all other promissory notes accepted from time
to time in substitution therefor or renewal thereof.
"REVOLVING LOAN COMMITMENT AMOUNT" means, collectively, the
Revolving A Loan Commitment Amount and the Revolving B Loan
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Commitment Amount.
"REVOLVING LOAN COMMITMENT" means, collectively, the Revolving
A Loan Commitment and the Revolving B Loan Commitment.
"REVOLVING LOANS" means relative to any Lender, any Loans made
by such Lender to the Borrower pursuant to SECTION 2.1.1 or SECTION 2.1.2.
"REVOLVING NOTES" means, collectively, all of the Revolving A
Notes and all of the Revolving B Notes.
"REVOLVING PERCENTAGE" of any Lender means, at any time, in
respect of the Revolving Loan Commitment and the Revolving Loans, the
percentage set forth opposite such Lender's signature hereto under the caption
"Percentage", as the same may be adjusted pursuant to SECTION 10.11.
"SECURITIES LEGEND" is defined in clause (j) of SECTION 10.11.
"SECURITY AGREEMENT" means the Security Agreement, dated as of
the date hereof, made by the Borrower and each of its Subsidiaries in favor of
the Agent, for its benefit and the benefit of the Lenders, as such agreement
may be amended, supplemented or otherwise modified from time to time.
"SECURITY DOCUMENTS" means, collectively, the Security
Agreement, the Trademark Assignments, the assignment of "key-man" life
insurance described in SECTION 6.1.5 and of the Interest Rate Contracts
described in SECTION 6.1.12 to the extent that the Interest Rate Contract
Counterparty is a Lender, the Borrower Pledge Agreement, the Subsidiary Pledge
Agreement, the Assignment of Rights under Acquisition Agreements described in
clause (b) of SECTION 4.1.13, and each other Instrument at any time delivered
in connection with this Agreement to secure the Obligations.
"SENIOR INTEREST COVERAGE RATIO" means, for any period, the
ratio of (a) EBITDA for such period to (b) Interest Expense for such period.
"SERIES B SPECIAL PREFERRED STOCK" means the 250,000 shares of
Series B Special Convertible Preferred Stock of the Borrower, $0.20 par value
per share, authorized pursuant to the Certificate of Amendment, of which no
shares are outstanding as of the Closing Date.
"SINGLE EMPLOYER PLAN" means any Plan which is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"SOLVENT" means, with respect to any Person on a particular
date, that on such date (i) the fair value of the assets
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of such Person (both at fair valuation and at present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities,
including, without limitation, contingent and unliquidated liabilities, of such
Person, (ii) such Person is able to pay all liabilities of such Person as they
mature, and (iii) such Person does not have unreasonably small capital with
which to carry on its business. In computing the amount of contingent or
unliquidated liabilities at any time, such liabilities will be computed at the
amount which, in light of all the facts and circumstances existing at such
time, represents the amount that can reasonably be expected to become an actual
or matured liability.
"STATED MATURITY DATE" means:
(a) with respect to the Revolving A Loans, June 30, 1999;
(b) with respect to the Revolving B Loans, March 31,
1997; and
(c) with respect to the Term Loan, June 30, 1999.
"STOCK" means all shares of capital stock of or in a
corporation, whether voting or non-voting, and including, without limitation,
common stock and preferred stock.
"SUBSIDIARY" of any corporation means any other corporation,
partnership or limited liability company greater than 50% of the outstanding
shares of Stock or other ownership interests having ordinary voting power for
the election of directors (or others serving equivalent functions) is owned
directly or indirectly by such corporation, and, except as otherwise indicated
herein, references to Subsidiaries shall refer to Subsidiaries of the Borrower.
"SUBSIDIARY GUARANTY" means the Guaranty of all the
Obligations, dated as of the date hereof, made by the Borrower's Subsidiaries,
jointly and severally, in favor of the Agent and the Lenders.
"SUBSIDIARY NOTE" means each promissory note executed by a
Subsidiary of the Borrower payable to the order of the Borrower, each in the
amount of Twenty Million Dollars ($20,000,000), as amended, supplemented,
restated or otherwise modified from time to time.
"SUBSIDIARY PLEDGE AGREEMENT" means the Stock and Notes Pledge
Agreement, dated as of the date hereof, pursuant to which World Communications,
Inc., a Missouri corporation and a wholly owned Subsidiary of the Borrower,
will pledge to the Agent, for its benefit and the ratable benefit of the
Lenders, all of the issued
25
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and outstanding stock of its Subsidiaries, as such agreement may be amended,
supplemented or otherwise modified from time to time.
"TANGIBLE NET WORTH" means, at any time, Net Worth less all
intangible assets, as determined for the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP, with such intangible assets to
include, in any event, goodwill.
"TAXES" means all taxes, levies, imposts, deductions, charges
or withholdings, and all liabilities with respect thereto, EXCLUDING, in the
case of each Lender and the Agent, taxes imposed on its net income and
franchise taxes imposed on it.
"TELEPHONE" shall mean a microprocessor-based non-cellular
telephone through which a user may initiate a call payable only by coins or by
credit card, collect or third number billing procedures and which has been
installed for operation.
"TELEPHONE AVERAGE EBITDA" means, with respect to any period,
the quotient of (a) the aggregate EBITDA during such period DIVIDED BY (b) the
Average Number of Telephones during such period.
"TELEPHONE PLACEMENT AGREEMENT" shall mean any agreement
between the Borrower or one of its Subsidiaries and another Person pursuant to
which the Borrower or such Subsidiary installs one or more Telephones on
property or properties owned, leased or operated by such Person and pays to
such Person a fee or percentage of revenues earned from such Telephone(s), and
such other compensation as may be provided pursuant thereto, in return for such
installation right.
"TERM LOAN" means, collectively, the loans, in an aggregate
principal amount of $29,000,000, made by the Lenders on the Closing Date to the
Borrower pursuant to SECTION 2.1.3.
"TERM NOTE" means a promissory note of the Borrower dated the
date hereof and substantially in the form of EXHIBIT A-3 attached hereto, and
shall refer to all other promissory notes accepted from time to time in
substitution therefor or renewal thereof.
"TERM PERCENTAGE" of any Lender means, at any time, in respect
of the Term Loan, the percentage set forth opposite such Lender's signature
hereto under the caption "Percentage", as the same may be adjusted pursuant to
SECTION 10.11.
"TERM NOTE SHARES" is defined in clause (j) of SECTION 10.11.
"TRADEMARK ASSIGNMENTS" means the Collateral Assignment and
Security Agreements (Trademarks), each dated as of the date hereof, made by the
Borrower and certain of its Subsidiaries in
26
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favor of the Agent, for its benefit and the ratable benefit of the Lenders.
"TRANSFER SUPPLEMENT" means a Transfer Supplement,
substantially in the form of EXHIBIT E, executed pursuant to SECTION 10.11.
"UCC" means the Uniform Commercial Code of the State of New
York, as in effect from time to time.
"UNITED STATES" or "U.S." means the United States of America,
its 50 States and the District of Columbia.
"WRITTEN" or "IN WRITING" means any form of written
communication or a communication by means of telex, telecopier device,
telegraph or cable.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise
defined or the context otherwise requires, terms for which meanings are
provided in this Agreement shall have such meanings when used in the Disclosure
Schedule and each Note, Borrowing Base Certificate, Borrowing Request,
Compliance Certificate, notice and other communication delivered from time to
time in connection with this Agreement or any other Loan Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise
specified, references in this Agreement and in each other Loan Document to any
Article or Section are references to such Article or Section of this Agreement
or such other Loan Document, as the case may be, and unless otherwise
specified, references in any Article, Section, or definition to any clause are
references to such clause of such Section, Article or definition.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS.
Unless otherwise specified, all accounting terms used herein or in any other
Loan Document shall be interpreted, all accounting determinations and
computations hereunder or thereunder shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared
in accordance with GAAP.
ARTICLE 2.
COMMITMENTS
SECTION 2.1. LOAN COMMITMENTS. Subject to the terms and
conditions of this Agreement (including ARTICLE 4), each Lender severally and
for itself alone agrees to provide: (a) its Revolving Percentage of the
Revolving A Loan Commitment; (b) its Revolving Percentage of the Revolving B
Loan Commitment; and (c) its Term Percentage of the Term Loan, each as more
fully described in this SECTION 2.1.
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SECTION 2.1.1. REVOLVING A LOAN COMMITMENT. Subject to the
limitations set forth in SECTION 2.1.4, each Lender will from time to time on
any Business Day occurring during the period commencing on the Closing Date and
continuing to (but not including) the Revolving A Loan Commitment Termination
Date, make Revolving A Loans, in amounts not to exceed when aggregated with all
such Lender's Revolving A Loans such Lender's Revolving Percentage of the
Revolving A Loan Commitment Amount, to the Borrower equal to its Revolving
Percentage of the aggregate amount of any Borrowing of Revolving A Loans
requested by the Borrower to be made on such Business Day in accordance with
SECTION 3.1.
SECTION 2.1.2. REVOLVING B LOAN COMMITMENT. Subject to the
limitations set forth in SECTION 2.1.4, each Lender will from time to time on
any Business Day occurring during the period commencing on the Closing Date and
continuing to (but not including) the Revolving B Loan Commitment Termination
Date, make Revolving B Loans, in amounts not to exceed when aggregated with all
such Lender's Revolving B Loans such Lender's Revolving Percentage of the
Revolving B Loan Commitment Amount, to the Borrower equal to its Revolving
Percentage of the aggregate amount of any Borrowing of Revolving B Loans
requested by the Borrower to be made on such Business Day in accordance with
SECTION 3.1.
SECTION 2.1.3. TERM LOAN COMMITMENT. On the Closing Date,
each Lender will make a single Term Loan to the Borrower equal to such Lender's
respective Term Percentage of $29,000,000.
SECTION 2.1.4. AGENT AND LENDERS NOT REQUIRED TO EXTEND
CREDIT UNDER REVOLVING LOAN COMMITMENT. No Lender shall be required to make
any Revolving Loan, if after giving effect thereto:
(a) the then aggregate outstanding principal amount of
all Revolving A Loans and the then aggregate outstanding principal amount of
the Term Loan would exceed the Borrowing Base for Revolving A Loans and Term
Loan; or
(b) the then aggregate outstanding principal amount of
all Revolving B Loans would exceed the Borrowing Base for Revolving B Loans; or
(c) the then aggregate outstanding principal amount of
all Revolving A Loans or all Revolving B Loans would exceed the Revolving A
Loan Commitment Amount or the Revolving B Loan Commitment Amount, respectively;
or
(d) the then aggregate outstanding principal amount of
such Lender's Revolving Loans would exceed its Revolving Percentage of the
Revolving Loan Commitment Amount; or
(e) the then aggregate outstanding principal amount of
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such Lender's Revolving A Loans or Revolving B Loans would exceed its Revolving
Percentage of the Revolving A Loan Commitment Amount or the Revolving B Loan
Commitment Amount, respectively.
Subject to the terms hereof, the Borrower may from time to time borrow, repay
and reborrow Revolving A Loans and Revolving B Loans, in all cases pursuant to
the Revolving A Loan Commitment or the Revolving B Loan Commitment,
respectively. The Term Loan or any portion thereof once repaid may not be
reborrowed.
SECTION 2.2. CHANGES IN ADVANCE FORMULA; ESTABLISHMENT OF
RESERVES.
SECTION 2.2.1. ADVANCE RATIOS. The Borrower acknowledges
that the advance formula provided for in the definition of "Borrowing Base" in
SECTION 1.1 has been established based upon the Required Lenders' determination
of the loan value of the Eligible Telephones as of the date of this Agreement.
Upon the occurrence and during the continuance of an Event of Default, based on
the Required Lenders' customary credit considerations, the Required Lenders, in
their sole discretion, may decrease the advance ratios against Eligible
Telephones, and any such decrease shall become effective immediately upon the
Agent's giving notice thereof to the Borrower, and shall remain in effect for
so long as such Event of Default continues.
SECTION 2.2.2. RESERVES. The Agent shall have the right to
establish, in such amounts, and with respect to such matters, as the Agent,
based on the Agent's customary credit considerations, shall deem necessary or
appropriate, reserves with respect to (i) Charges and Liens; (ii) Environmental
Liabilities and Costs; and (iii) sums as to which the Agent and the Lenders are
permitted to make Revolving Loans on the Borrower's behalf under SECTION 3.3.3
of this Agreement.
SECTION 2.3. COMMITMENT AND AGENT'S FEE.
(a) (i) The Borrower agrees to pay to the Agent for the
account of each Lender, a nonrefundable fee for the period from the Closing
Date to and including the Revolving A Loan Commitment Termination Date equal to
such Lender's Revolving Percentage of 1/2 of 1% (0.50%) per annum on the
difference between (A) the Revolving A Loan Commitment Amount and (B) the
average daily aggregate outstanding principal amount of all Revolving A Loans.
The commitment fee described in this subclause (i) shall be calculated on a
daily basis and shall be payable by the Borrower in arrears on each Monthly
Payment Date and on the Revolving A Loan Commitment Termination Date.
(ii) The Borrower agrees to pay to the Agent for the
account of each Lender, a nonrefundable fee for the period from the Closing
Date to and including the Revolving B Loan Commitment
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Termination Date equal to such Lender's Revolving Percentage of 1/2 of 1%
(0.50%) per annum on the difference between (A) the Revolving B Loan Commitment
Amount and (B) the average daily aggregate outstanding principal amount of all
Revolving B Loans. The commitment fee described in this subclause (ii) shall
be calculated on a daily basis and shall be payable by the Borrower in arrears
on each Monthly Payment Date and on the Revolving B Loan Commitment Termination
Date.
(b) The Borrower agrees to pay to the Agent, for its
account, an agent's fee of $35,000 per Fiscal Year. The agent's fee described
in this clause (b) shall be payable in advance on the Closing Date and on the
first day of each Fiscal Year thereafter prior to the Stated Maturity Date.
One-quarter (25%) of the agent's fee described in this clause (b) in respect of
each Fiscal Year shall be fully earned and nonrefundable on the first day of
each Fiscal Quarter of such Fiscal Year (except in the case of the 1996 Fiscal
Year where such percentage shall be fully earned and nonrefundable on the
Closing Date) such that the entire agent's fee in respect of any Fiscal Year
shall be fully earned and nonrefundable on the first day of the last Fiscal
Quarter of such Fiscal Year. Subject to SECTION 3.8, upon repayment in full of
all the Loans and termination of the Commitment, any portion of the agent's fee
which is then unearned shall be promptly refunded to the Borrower.
SECTION 2.4. INCREASED COSTS; CAPITAL ADEQUACY.
(a) The Borrower shall pay to each Lender from time to time
on demand such amounts as such Lender may determine to be reasonably necessary
to compensate it or its holding company for any costs which such Lender
determines are attributable to its making or maintaining Loans, or maintaining
Commitments hereunder or its obligation to make any such Loans hereunder, or
any reduction in any amount receivable by such Lender hereunder in respect of
any such Loans, Commitments or obligation, resulting from any Regulatory Change
which: (i) changes the basis of taxation of any amounts payable to such Lender
under this Agreement in respect of any of such Loans or Commitments (other than
taxes imposed on the overall net income of such Lender); or (ii) imposes or
modifies any reserve, special deposit, deposit insurance or assessment, minimum
capital, capital ratio or similar requirements relating to any extensions of
credit or other assets of, or any deposits with or other liabilities of, such
Lender or any holding company of such bank (including, without limitation, a
request or requirement which affects the manner in which any Lender or the
holding company of any thereof allocates capital resources to commitments,
including the Commitments and obligations of such Lender hereunder). Each
Lender will notify the Borrower of any event occurring after the date of this
Agreement which will entitle such Lender to compensation pursuant to this
clause (a) as promptly as practicable after it obtains knowledge thereof and
determines to
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request such compensation.
(b) Without limiting the effect of the foregoing
provisions of this SECTION 2.4 (but without duplication), the Borrower shall
pay to each Lender from time to time upon demand by such Lender such amounts as
the Lender may determine to be reasonably necessary to compensate such Lender
for any costs which it determines are attributable to the maintenance by it or
its holding company, pursuant to any law or regulation of any jurisdiction or
any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority, whether in effect on
the date of this Agreement or thereafter, of capital in respect of its Loans or
its obligation to make the Loans hereunder (such compensation to include,
without limitation, an amount equal to any reduction in return on assets or
equity of such Lender or its holding company to a level below that which it
could have achieved but for such law, regulation, interpretation, directive or
request). The Lender will notify the Borrower with a copy to the Agent) if it
is entitled to compensation pursuant to this clause (b) as promptly as
practicable after it determines to request such compensation.
(c) Each notice delivered by any Lender pursuant to this
SECTION 2.4 shall contain a statement of such Lender as to any such additional
amount or amounts (including calculations thereof in reasonable detail) which
shall, in the absence of manifest error, be conclusive of the matters stated
therein and be binding upon the Borrower. In determining such amount, any
Lender may use any method of averaging and attribution that it in good faith
shall deem applicable.
(d) Without prejudice to the survival of any other
agreement of the Borrower hereunder or under any other Loan Document, the
agreements and obligations of the Borrower contained in this SECTION 2.4 shall
survive the payment in full of principal, interest and other amounts payable
hereunder and under the Notes and the other Loan Documents.
(e) Notwithstanding anything in this SECTION 2.4 to the
contrary, to the extent that notice is given by any Lender to the Borrower of
any additional amount owing to such Lender under this SECTION 2.4 more than 360
days after the occurrence of the event giving rise to such obligation, such
Lender shall not be entitled to compensation under this SECTION 2.4 for any
amounts incurred or accruing 360 days prior to the giving of such notice to
Borrower.
(f) Upon the receipt by the Borrower from any Lender (an
"AFFECTED LENDER") of a claim for compensation pursuant to this SECTION 2.4 or
SECTION 3.5, the Borrower may (i) request one or more of the Lenders to acquire
all or part of such Affected Lender's Loans and Revolving Loan Commitment
(provided that no such other Lender shall have any obligation to so acquire or
assume all
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or any part of such Affected Lender's Loans and Revolving Loan
Commitment), or (ii) designate a Replacement Lender reasonably satisfactory to
the Agent. Any such designation of a Replacement Lender under clause (ii)
shall be subject to the prior written consent of the Agent, which consent shall
not be unreasonably withheld.
SECTION 2.5. INVESTMENT REPRESENTATIONS. Each Lender
represents and warrants that it is holding its Notes for its own account, for
investment purposes and not with a view to distribution thereof; PROVIDED,
HOWEVER, that the foregoing representation shall not be construed as imposing
any limitation on such Lender's right to transfer or sell any Loans or Notes
that is not otherwise expressly set forth in this Agreement or required under
applicable law. Each Lender agrees that it will not, directly or indirectly,
offer, transfer, sell, assign, pledge; hypothecate or otherwise dispose of any
of the Notes, any shares of Series B Preferred Stock or any Common Stock (or
solicit any offers to buy, purchase or otherwise acquire or take a pledge of
Notes, Series B Preferred Stock or Common Stock), except in compliance with the
Securities Act of 1933, as amended or otherwise modified from time to time.
Each Lender agrees that it will not transfer, sell, assign, pledge, hypothecate
or otherwise dispose of any Notes, Series B Preferred Stock or Common Stock if
any such disposition would cause the Borrower to be required to register any of
the foregoing pursuant to Section 12(g) of the Securities Exchange Act of 1934,
as amended or otherwise modified from time to time.
ARTICLE 3.
LOANS AND NOTES
SECTION 3.1. BORROWING PROCEDURE. By delivering a
Borrowing Request to the Agent at the Agent's Atlanta Office on or before 11:00
a.m., New York City time, on a Business Day, the Borrower may from time to
time request, (i) in the case of Revolving A Loans, on not less than two (2)
Business Days' nor more than three (3) Business Days' notice and (ii) in the
case of Revolving B Loans, on not less than one (1) Business Day notice, that a
Borrowing of Revolving Loans be made on the Business Day specified in such
Borrowing Request. The Borrowing Request shall specify whether such Borrowing
is to be made as Revolving A Loans or Revolving B Loans. Borrowings of
Revolving A Loans shall be in a minimum aggregate amount equal to $250,000 and
in integral multiples of $50,000 or, if less, the amount of the Revolving A
Loan Availability immediately prior to
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such Borrowing. Borrowings of Revolving B Loans shall be in a minimum
aggregate amount equal to $50,000 and in integral multiples of $50,000 or, if
less, the amount of the Revolving B Loan Availability immediately prior to such
Borrowing. Each Revolving Loan shall be made on the Business Day specified in
the Borrowing Request therefor (including the initial Revolving Loans to be
made on the Closing Date). On the day prior to such Business Day specified by
the Borrower, each Lender shall, on or before 2:00 p.m., New York City time,
deposit same day funds with the Agent in an amount equal to such Lender's
Revolving Percentage of the requested Borrowing, such deposit to be made to
such account as the Agent shall specify from time to time by notice to the
Lenders. On the Business Day specified by the Borrower in the Borrowing
Request, the proceeds of all Borrowings shall be made available to the Borrower
by wire transfer of such proceeds to such transferees, or to such accounts of
the Borrower, as the Borrower shall have specified in the Borrowing Request
therefor; PROVIDED, HOWEVER, that in each case the Agent shall be required to
make available to the Borrower the proceeds of any Borrowing only to the extent
received by it in same day funds from the Lenders. No Lender's obligation to
make any Loan shall be affected by any other Lender's failure to make any Loan.
SECTION 3.2. NOTES. All Loans made by each Lender shall
be evidenced:
(a) in the case of such Lender's portion of the Term
Loan, by a Term Note payable to the order of such Lender in a principal amount
equal to such Lender's Term Percentage of the Term Loan;
(b) in the case of such Lender's Revolving A Loans, by a
Revolving A Note payable to the order of such Lender in a principal amount
equal to such Lender's Revolving Percentage of the Revolving A Loan Commitment
Amount; and
(c) in the case of such Lender's Revolving B Loans, by a
Revolving B Note payable to the order of such Lender in a principal amount
equal to such Lender's Revolving Percentage of the Revolving B Loan Commitment
Amount.
The Borrower hereby irrevocably authorizes each Lender to make (or cause to be
made) appropriate notations on a grid schedule attached to such Lender's Notes
(or on a continuation of any such grid attached to any Note and made a part
thereof), which notations shall evidence, INTER ALIA, the date and outstanding
principal amount of the Loans evidenced thereby. The notations on any such
grid (and on any such continuation) indicating the outstanding principal amount
of such Lender's Loans shall be presumptive evidence of the principal amount
thereof owing and unpaid, but the failure to record any such amount on any such
grid (or on any such continuation) shall not limit or otherwise affect the
obligations of the Borrower hereunder or under such Note to make payments of
principal of or interest on such Loans when due.
SECTION 3.3. PRINCIPAL PAYMENTS. Repayments and
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prepayments of principal of the Loans shall be made in accordance with this
SECTION 3.3.
SECTION 3.3.1. REPAYMENTS AND PREPAYMENTS. The Borrower
will make payment in full of all unpaid principal of each Loan at its Stated
Maturity Date (or such earlier date as such Loan may become or be declared due
and payable pursuant to ARTICLE 7). Prior thereto, the Borrower:
(a) may, from time to time on any Business Day, make a
voluntary prepayment, in whole or in part, of the outstanding principal amount
of any Loans; PROVIDED, HOWEVER, that (i) all such voluntary prepayments shall
be in a minimum amount of $50,000 (subject to the Borrower's right to prepay in
full the entire unpaid principal amount of the Loans), (ii) such prepayment
shall require (x) in the case of Revolving Loans, at least five (5) Business
Days prior written notice to the Agent or (y) in the case of the Term Loan, at
least thirty (30) days prior written notice to the Agent, (iii) the Borrower
pays to the Lenders any Prepayment Fee required to be paid pursuant to SECTION
3.3.2, (iv) the Borrower may only prepay the Term Loan if the Revolving Loan
Commitment has been irrevocably terminated and there are no Revolving Loans
outstanding (unless all outstanding Revolving Loans are fully repaid and the
Revolving Loan Commitment is irrevocably terminated simultaneously with a
prepayment on the Term Loan), and (v) the Borrower may not prepay the Revolving
A Loans if there are any Revolving B Loans outstanding (unless all outstanding
Revolving B Loans are fully repaid simultaneously with a prepayment of the
Revolving A Loans);
(b) (i) shall, on any Business Day on which the sum
of (A) the aggregate outstanding principal amount of all Revolving A Loans and
(B) the aggregate outstanding principal amount of the Term Loan exceeds the
Borrowing Base for Revolving A Loans and Term Loan, make a mandatory prepayment
of the outstanding principal amount of Revolving A Loans and the Term Loan in
an amount equal to such excess amount (such prepayment to be applied first to
all of the Revolving A Loans until paid in full and then to the Term Loan);
(ii) shall, on any Business Day on which the
aggregate outstanding principal amount of all Revolving B Loans exceeds the
Borrowing Base for Revolving B Loans, make a mandatory prepayment of the
outstanding principal amount of the Revolving B Loans in an amount equal to
such excess amount;
(iii) shall, on any Business Day on which the aggregate
outstanding principal amount of all Revolving A Loans exceeds the Revolving A
Loan Commitment Amount, make a mandatory prepayment of the outstanding
principal amount of the Revolving A Loans in an amount equal to such excess
amount; and
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(iv) shall, on any Business Day on which the aggregate
outstanding principal amount of all Revolving B Loans exceeds the Revolving B
Loan Commitment Amount, make a mandatory prepayment of the outstanding
principal amount of the Revolving B Loans in an amount equal to such excess
amount;
(c) shall, concurrently with receipt by the Borrower or
any Subsidiary or the Agent of any condemnation awards with respect to any
Loss, make a mandatory prepayment of the Loans in an amount equal to such
condemnation awards;
(d) shall, within 180 days after receipt by the Borrower
or any Subsidiary or the Agent of any insurance proceeds with respect to any
Loss resulting from a casualty, make a mandatory prepayment of the Loans in an
amount by which such insurance proceeds exceed the actual cost incurred by the
Borrower or such Subsidiary to repair or replace the property or asset which
was the subject of the Loss or deemed Loss giving rise to such insurance
proceeds;
(e) shall, within 180 days after receipt by the Borrower
or any Subsidiary or the Agent of any insurance proceeds with respect to any
Loss resulting from a liability, make a mandatory prepayment of the Loans in an
amount by which such insurance proceeds exceed the amount of the liability to
be satisfied with such proceeds (to the extent such liability is so satisfied);
(f) shall, unless the Required Lenders shall have
otherwise agreed, concurrently with the receipt by the Borrower of any proceeds
of the life insurance policies described in clause (c) of SECTION 6.1.5, make a
mandatory prepayment of the Loans in an amount equal to the amount of such
insurance proceeds;
(g) shall prepay the entire outstanding principal amount
of the Loans together with accrued and unpaid interest and all of the
outstanding Obligations hereunder upon the occurrence of a Change in Control;
(h) shall, concurrently with the delivery of the
financial statements required to be delivered under SECTION 6.1.1(A),
commencing with the financial statements required to be delivered in respect of
the earliest of (x) the Fiscal Year ending December 31, 1997 or (y) the first
Fiscal Year during which an Event of Default shall have occurred, and
continuing thereafter with the delivery of such financial statements in respect
of each successive Fiscal Year (but in no event later than the date on which
such financial statements are required to be delivered pursuant to SECTION
6.1.1(A)), make a mandatory prepayment of the outstanding principal amount of
the Loans in an amount equal to the Excess Cash Flow with respect to such
Fiscal Year; and
(i) shall, beginning on September 30, 1997 and for each
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Quarterly Payment Date thereafter, make a mandatory prepayment of the Revolving
A Loans and the Term Loan in an amount equal to that percentage set forth
opposite such Quarterly Payment Date below MULTIPLIED BY the sum of (x) the
aggregate outstanding principal amount of the Revolving A Loans as of September
15, 1996, plus (y) the aggregate outstanding principal amount of the Term Loan
as of September 15, 1996, plus (z) the Revolving A Loan Availability (if any):
QUARTERLY PAYMENT DATE IN: PERCENTAGE
September, 1997 1.75%
December, 1997 1.75%
March, 1998 3.00%
June, 1998 3.00%
September, 1998 3.00%
December, 1998 3.00%
March, 1999 3.50%.
(j) shall, in accordance with the terms of the cash
management system required to be maintained by the Borrower under SECTION
6.1.17, make mandatory prepayments of the Revolving A Loans and the Revolving B
Loans in such amounts and at such times as are required pursuant to such cash
management system, whether by virtue of cash sweeps from Blocked Accounts and
Concentration Accounts into the Collection Account or as a result of Net
Balances of the Borrower and its Subsidiaries exceeding $150,000 on any
Business Day or otherwise (such mandatory prepayments to be applied first to
the payment in full of all outstanding Revolving B Loans, and thereafter to the
payment in full of all outstanding Revolving A Loans).
Unless expressly set forth to the contrary in this SECTION 3.3.1 or elsewhere
in the Agreement, any payments required to be made by the Borrower pursuant to
this SECTION 3.3.1 shall be applied to principal in the following order:
(i) FIRST, to the payment in full of all outstanding
Revolving A Loans,
(ii) SECOND, to the payment in full of all outstanding
Revolving B Loans, and
(iii) FINALLY, to the payment in full of the outstanding balance
of the Term Loan.
SECTION 3.3.2. PREPAYMENT FEE. Upon any prepayment of any
Loans on or prior to the later of (x) the date on which the Shelf Registration
Statement (as such term is defined in the Registration Rights Agreement) is
declared effective by the Securities and Exchange Commission or (y) the first
anniversary of Closing Date, whether in full or in part, in each case utilizing
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the proceeds of borrowed funds or the issuance of debt securities, the Borrower
shall be required to pay to the Lenders prior to or concurrently with such
prepayment a Prepayment Fee in an amount equal to one percent (1%) of the
amount of the Loans as of the date of the prepayment. Any Prepayment Fee shall
be paid by the Borrower to the Lenders as liquidated damages for the loss of
the bargain and shall not constitute a penalty.
SECTION 3.3.3. REVOLVING LOANS ON BORROWER'S BEHALF. The
Lenders are authorized to, and at their option may, make Revolving Loans on
behalf of the Borrower for payment of all fees, expenses, charges, costs,
principal and interest owed by the Borrower to the Lenders or the Agent under
this Agreement and the other Loan Documents. Such Revolving Loans shall be
made when and as the Borrower fails promptly to pay same, and all such
Revolving Loans shall constitute Revolving Loans made to the Borrower and
shall be secured by all of the Collateral. Following the making of any
Revolving Loans pursuant to this SECTION 3.3.3, such Lender shall promptly
notify the Borrower of the making of such Revolving Loans on the Borrower's
behalf and the aggregate principal amount of such Loans; PROVIDED THAT the
failure by any Lender to give such notice shall not affect the Borrower's
obligations under this Agreement or with respect to such Revolving Loans.
SECTION 3.3.4. REDUCTION OF REVOLVING LOAN COMMITMENT.
(a) The Borrower shall have the right, upon at least
thirty (30) days notice to the Agent, to reduce in whole or in part (ratably as
to all Lenders) the Revolving A Loan Commitment Amount and the Revolving B Loan
Commitment Amount, PROVIDED, HOWEVER, that the Revolving A Loan Commitment
Amount and the Revolving B Loan Commitment Amount of the Lenders shall not be
reduced to an amount which is less than the aggregate amount of the Revolving A
Loans and Revolving B Loans, respectively, then outstanding after giving effect
to any prepayments made in connection with such reduction, PROVIDED, FURTHER,
HOWEVER, that each partial reduction of the Revolving A Loan Commitment Amount
or the Revolving B Loan Commitment Amount shall be in an aggregate amount of
$1,000,000 or an integral multiple of $500,000 in excess thereof (or, if less,
the entire amount thereof), and the Borrower shall pay any Prepayment Fee
required under SECTION 3.3.2. Any notice given pursuant to this clause (a) of
SECTION 3.3.4 shall be irrevocable, and once the Revolving A Loan Commitment
Amount or the Revolving B Loan Commitment Amount, as the case may be, is
reduced pursuant to this clause (a) of SECTION 3.3.4, such amount thereafter
may not be reinstated or increased. The Borrower shall not be permitted to
reduce the Revolving B Loan Commitment Amount unless the Revolving A Loan
Commitment Amount has been reduced to zero in accordance with the terms hereof.
(b) The Revolving A Loan Commitment (and the Revolving A
Loan Commitment Amount) and the Revolving B Loan Commitment (and
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the Revolving B Loan Commitment Amount) shall be permanently reduced by the
amount of Net Cash Proceeds received by the Borrower or any of its Subsidiaries
in connection with any sale or disposition of assets to the extent the net book
value of the asset(s) sold or disposed together with the net book value of all
other assets sold or disposed during the term of this Agreement exceeds
$250,000. Any reduction pursuant to this clause (b) shall be applied first to
the Revolving A Loan Commitment Amount and then to the Revolving B Loan
Commitment Amount.
(c) On September 15, 1996, the Revolving A Loan
Commitment (and the Revolving A Loan Commitment Amount) shall be permanently
reduced (ratably as to all Lenders) by an amount equal to the difference
between the Revolving A Loan Commitment Amount and the amount of Revolving A
Loans outstanding on such date.
(d) The Revolving A Loan Commitment (and the Revolving A
Loan Commitment Amount) and the Revolving B Loan Commitment (and Revolving B
Loan Commitment Amount) shall be permanently reduced by the amount of any
prepayments required under clauses (c), (d), (e), (f), (g), (h) or (i) of
SECTION 3.3.1. Any reduction pursuant to this clause (d) shall be applied
first to the Revolving A Loan Commitment Amount and then to the Revolving B
Loan Commitment Amount.
SECTION 3.4. INTEREST. Interest on the outstanding
principal amount of the Loans and other outstanding Obligations shall accrue
and be payable in accordance with this SECTION 3.4.
SECTION 3.4.1. RATES. Subject to SECTION 3.4.3, Borrowings
shall accrue interest at the ING Alternate Base Rate as in effect from time to
time PLUS 5.00%.
SECTION 3.4.2. POST-DEFAULT RATES. From and after the
occurrence of an Event of Default and during the continuance thereof, the
Borrower shall pay interest (after as well as before judgment) on the
outstanding principal amount of all Loans and other Obligations at a rate per
annum equal to the Post-Default Rate applicable to such Loans and Obligations.
SECTION 3.4.3. PAYMENT DATES. Accrued interest on the Loans
shall be payable, without duplication:
(a) on Maturity;
(b) with respect to any portion of any Loan prepaid or
repaid pursuant to SECTION 3.3.1, on the date of such prepayment or repayment
is due as provided in SECTION 3.3.1 and, in the case of a voluntary prepayment,
on the date set forth in any notice required for such prepayment; and
(c) on each Monthly Payment Date, commencing with the
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first such day following the Closing Date.
Interest accruing at any Post-Default Rate and, to the extent permitted by
applicable law, interest on overdue amounts (including overdue interest), shall
be payable upon demand.
SECTION 3.4.4. RATE DETERMINATIONS. All determinations by
the Agent of the rate of interest applicable to any Loan shall be conclusive in
the absence of manifest error.
SECTION 3.5. TAXES. (a) Any and all payments by the
Borrower hereunder or under the Notes or any other Loan Document shall be made,
in accordance with this SECTION 3.5, free and clear of and without deduction
for any and all present or future Taxes. If the Borrower shall be required by
law to deduct any Taxes from or in respect of any sum payable hereunder or
under any Note to any Lender or the Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
3.5), such Lender or the Agent (as the case may be) receives an amount equal to
the sum it would have received had no such deductions been made, (ii) the
Borrower shall make such deductions and (iii) the Borrower shall pay the full
amount deducted to the relevant taxation authority or other authority in
accordance with applicable law;
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or intangibles taxes or any other excise
or property taxes, transfer taxes, charges or similar levies which arise from
any payment made hereunder or under the Notes or from the execution, delivery
or registration of, or otherwise with respect to this Agreement, the Notes, or
any other Loan Document;
(c) The Borrower will indemnify each Lender and the Agent
for the full amount of the taxes, charges and levies described in clauses (a)
and (b) of this SECTION 3.5 (including, without limitation, any such taxes,
charges and levies imposed by any jurisdiction on amounts payable under this
SECTION 3.5) paid by such Lender or the Agent (as the case may be) and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such taxes, charges and levies were
correctly or legally asserted. Payment under this clause (c) shall be made
within 10 days from the date such Lender or the Agent (as the case may be)
makes written demand therefor;
(d) Within 10 days after the date of any payment of
Taxes, the Borrower will furnish to the Agent, at its address referred to in
SECTION 10.2, the original or a certified copy of any receipt received by the
Borrower evidencing payment thereof;
(e) On or prior to the Closing Date and on or prior to
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the first Business Day of each calendar year thereafter, each Foreign Lender
shall provide the Agent and the Borrower with two properly executed original
Forms 4224 and 1001 (or any successor form) prescribed by the Internal Revenue
Service or other documents satisfactory to the Borrower and the Agent, and
properly executed Internal Revenue Service Forms W-8 or W-9, as the case may
be, certifying (i) as to such Foreign Lenders's status for purposes of
determining exemption from United States withholding taxes with respect to all
payments to be made to such Foreign Lender hereunder and under the Notes or
(ii) that all payments to be made to such Foreign Lender hereunder and under
the Notes are subject to such taxes at a rate reduced to zero by an applicable
tax treaty. Each Foreign Lender agrees to provide the Agent and the Borrower
with new forms prescribed by the Internal Revenue Service upon the expiration
or obsolescence of any previously delivered form, or after the occurrence of
any event requiring a change in the most recent forms delivered by it to the
Agent and the Borrower;
(f) In the event that the Agent or any Lender receives a
refund of any taxes paid on its behalf by the Borrower in accordance with this
SECTION 3.5, the Agent or such Lenders, as the case may be, shall pay such
refund to the Borrower; and
(g) Without prejudice to the survival of any other
agreement hereunder, the agreements and obligations contained in this SECTION
3.5 shall survive the payment in full of principal and interest hereunder and
under the Notes.
SECTION 3.6. PAYMENTS, INTEREST RATE COMPUTATIONS, OTHER
COMPUTATIONS, ETC. All payments by the Borrower pursuant to this Agreement,
the Notes or any other Loan Document, in respect of principal or interest on
the Notes shall be made by the Borrower to the Agent for the account of the
Lenders, PRO RATA according to their respective unpaid principal amounts of the
Notes. The payment of the commitment fee referred to in SECTION 2.3 shall be
made by the Borrower to the Agent for the account of the Lenders PRO RATA
according to their respective Revolving Percentages. All other amounts payable
to the Agent or any Lender under this Agreement or any other Loan Document
(except under SECTION 2.4) shall be paid to the Agent for the account of the
Person entitled thereto. All such payments required to be made to the Agent
shall be made, without setoff, deduction or counterclaim, not later than 2:00
p.m., New York City time, on the date due, in immediately available funds, to
the Collection Account. Funds received after that time shall be deemed to have
been received by the Agent on the next following Business Day. The Agent shall
promptly remit in the type of funds received to each Lender notified to the
Agent its share, if any, of such payments received by the Agent for the account
of such Lender or holder. All interest and fees shall be computed on the basis
of the actual number of days (including the first day but excluding the last
day) occurring during the period for which such interest or fee is payable over
a year comprised of
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360 days. Whenever any payment to be made shall otherwise be due on a day
which is not a Business Day, such payment shall be made on the immediately
preceding Business Day. For purposes of determining the Revolving A Loan
Availability and the Revolving B Loan Availability (a) all payments (including
cash sweeps) consisting of cash, wire, or electronic transfers in immediately
available funds shall be deemed received by the Agent on the day of deposit in
the Collection Account and notice to the Agent of such deposit, and (b) all
payments consisting of checks, drafts, or similar noncash items shall be deemed
received on the day of receipt of good funds following deposit in the
Collection Account (together with notice to the Agent of such deposit). For
the purposes of computing interest and fees hereunder, all payments received in
the form of cash sweeps from the Concentration Accounts will be credited on the
Business Day following the day on which such payments are deemed received for
purposes of the preceding sentence.
SECTION 3.7. PRORATION OF PAYMENTS. If any Lender shall
obtain any payment or other recovery (whether voluntary, involuntary, by
application of setoff or otherwise) on account of principal of or interest on
any Loan or other Obligations in excess of such Lender's or holder's PRO RATA
share of payments then or therewith obtained thereon by all Lenders, such
Lender which has received in excess of its PRO RATA share shall purchase from
the other Lenders such participations in such Notes or other Obligations held
by them as shall be necessary to cause such purchaser to share the excess
payment or other recovery ratably with each of them; PROVIDED, HOWEVER, that if
all or any portion of the excess payment or other recovery is thereafter
recovered from such purchasing holder, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.
The Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this SECTION 3.7 may, to the fullest extent permitted by
law, exercise all its rights of payment (including pursuant to SECTION 3.8)
with respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this SECTION 3.7 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
SECTION 3.7 to share in the benefits of any recovery on such secured claim.
SECTION 3.8. SETOFF. In addition to and not in limitation
of any rights of any Lender under applicable law, each Lender shall, upon the
occurrence and during the continuance of any Event of Default, have the right
to appropriate and apply to the payment of the Obligations owing to it (whether
or not then due), and (as security for such Obligations) the Borrower hereby
grants to each Lender, a continuing security interest in, any and all
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balances, credits, deposits, accounts or moneys of the Borrower then or
thereafter maintained with such Lender; PROVIDED, HOWEVER, that any such
appropriation and application shall be subject to the provisions of SECTION
3.7. Following any such appropriation and application pursuant to this SECTION
3.8, such Lender shall promptly provide the Borrower with notice of such
appropriation and application and the amount applied, provided, that the
failure by any Lender to give any such notice shall not affect the obligations
of the Borrower or impair any right of any Lender under this Agreement or
subject any Lender to any liability.
SECTION 3.9. USE OF PROCEEDS.
(a) The Borrower shall use the proceeds of the Term Loan
and the Revolving A Loans and Revolving B Loans made on the Closing Date (i) to
pay a portion of the "Consideration" (as such term is defined in each of the
Acquisition Agreements), (ii) to pay costs and expenses arising in connection
with the transactions contemplated hereby which are set forth in ITEM 1
("Transaction Costs") of the Disclosure Schedule (subject to the Required
Lenders' approval of such costs and expenses), (iii) to refinance certain
existing Indebtedness as listed on ITEM 3 ("Indebtedness to be Refinanced") of
the Disclosure Schedule, all as more specifically described in ITEM 2 ("Sources
and Uses") of the Disclosure Schedule, and (iv) to finance its general working
capital needs.
(b) The Borrower shall use the proceeds of (i) the
Revolving A Loans made after the Closing Date to finance acquisitions
(PROVIDED, HOWEVER, that this clause (i) shall not be construed to permit any
acquisitions which are otherwise prohibited by the terms of this Agreement or
the other Loan Documents), and (ii) the Revolving B Loans made after the
Closing Date to finance its continuing working capital needs; PROVIDED,
HOWEVER, that the Revolving B Loans shall not be used to repay any other
outstanding Loan.
(c) No part of the proceeds of any Loans shall be used
for any purpose which violates Regulations G, T, U or X of the F.R.S. Board.
ARTICLE 4.
CONDITIONS TO LOANS
SECTION 4.1. INITIAL LOANS. The obligations of the
Lenders to fund the initial Borrowings of Loans on the Closing Date, shall be
subject to the prior or concurrent satisfaction of each of the conditions
precedent set forth in this SECTION 4.1, except as the Required Lenders shall
otherwise consent.
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SECTION 4.1.1. RESOLUTIONS, ETC. The Agent shall have
received:
(a) a certificate, dated the date hereof, with
counterparts for each Lender, of the Secretary or an assistant secretary of
each Loan Party as to:
(i) resolutions of its Board of Directors, then in full
force and effect authorizing the execution, delivery and performance
of the Loan Documents to which such Loan Party is a party and the
related transactions contemplated thereby, and
(ii) the incumbency and signatures of those of its
officers authorized to act with respect to the Loan Documents to which
it is party, upon which certificate each Lender may conclusively rely
until it shall have received further certificates of the Secretary or
an assistant secretary of such Loan Party cancelling or amending such
prior certificates;
(b) copies of the Organic Documents of each Loan Party
certified by, in the case of the charters, the appropriate Governmental
Authority of the State of such Loan Party's incorporation and, in the case of
its other Organic Documents, such Loan Party's Secretary or assistant
secretary, which documents shall be satisfactory to the Agent;
(c) a so-called "good standing" certificate with respect
to each Loan Party from the appropriate Governmental Authority of the State of
its incorporation;
(d) evidence of qualification of each Loan Party to do
business in each other jurisdiction in which such Loan Party is required to
qualify; and
(e) such other documents (certified if requested) as any
Lender may reasonably request, with respect to this Agreement, the Notes, any
other Loan Document, the transactions contemplated hereby and thereby, or any
Organic Document, Contractual Obligation of the Borrower or any of its
Subsidiaries, or Approval.
SECTION 4.1.2. NOTES. The Agent shall have received for the
account of each Lender, such Lender's Notes, in each case duly executed and
delivered pursuant to clauses (a), (b) and (c) of SECTION 3.2.
SECTION 4.1.3. BORROWING BASE CERTIFICATE. The Agent shall
have received a Borrowing Base Certificate dated as of the Closing Date from
the chief financial Authorized Officer of the Borrower.
SECTION 4.1.4. ADDITIONAL EQUITY, ETC. The Borrower
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shall have issued shares of 14% PIK Preferred Stock for an aggregate issue
price, net of commissions, of not less than $3,795,000, and, after giving
effect to such issuance, as of the Closing Date, the Borrower's Net Worth shall
be not less than $17,796,000.
SECTION 4.1.5. RELEASE OF LIENS ON ASSETS. All Indebtedness
of the Borrower and any other Loan Party described in ITEM 3 ("Indebtedness to
be Refinanced") of the Disclosure Schedule shall have been repaid in full and
all holders of such Indebtedness shall have acknowledged such repayment,
released Borrower and its Subsidiaries from any liability in respect of such
Indebtedness, and released all Liens on the assets securing such Indebtedness
pursuant to UCC-3 termination statements and other Instruments as shall be
suitable or appropriate in connection therewith.
SECTION 4.1.6. NO CONTEST, ETC. On the Closing Date, no
litigation, arbitration, governmental investigation, injunction, proceeding or
inquiry shall be pending or, to the knowledge of the Borrower, threatened
which:
(a) seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the transactions
contemplated by or in connection with the Acquisition Agreements, this
Agreement or any Loan Document; or
(b) would, in the reasonable opinion of the Required
Lenders, be materially adverse to any of the parties hereto with respect to the
transactions contemplated hereby;
No litigation set forth in ITEM 4 ("Litigation") of the Disclosure Schedule in
the reasonable opinion of the Agent, could reasonably result in a Material
Adverse Change or give rise to any liability on the part of the Agent or any
Lender in connection with this Agreement or the other Loan Documents or the
transactions contemplated hereby or thereby.
SECTION 4.1.7. CERTIFICATE AS TO COMPLETED CONDITIONS,
WARRANTIES, NO DEFAULT, ETC. The Agent shall have received a certificate,
dated the Closing Date, with counterparts for each Lender, of the chief
financial Authorized Officer of the Borrower, to the effect that:
(a) all conditions precedent set forth in this SECTION
4.1 have been satisfied;
(b) all representations and warranties set forth in
ARTICLE 5 are true and correct in all material respects;
(c) all representations and warranties set forth in the
Loan Documents are true and correct in all material respects; and
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(d) no Default or Event of Default has occurred and is
continuing.
SECTION 4.1.8. DOCUMENTS RELATING TO EQUITY INVESTMENTS.
The terms and conditions of each of the stock subscription agreements pursuant
to which the 14% PIK Preferred Stock of the Borrower was issued shall in each
case be satisfactory in all respects to the Agent, and the Agent shall have
received copies of each of the foregoing documents certified as true and
correct by an Authorized Officer of the Borrower.
SECTION 4.1.9. COMPLIANCE WITH REQUIREMENTS OF LAW. The
Agent shall have received evidence satisfactory to it that the Borrower is in
compliance in all material respects with all other Requirements of Law and has
obtained and maintains in full force and effect (a) all licenses, permits and
approvals issued by Governmental Authorities necessary to carry on its business
(except where the failure to have any such license, permit or approval could
not result in a Material Adverse Change), and (b) all Approvals.
SECTION 4.1.10. OPINIONS OF COUNSEL. The Agent shall have
received opinion letters, dated the Closing Date and addressed to the Agent and
all Lenders, from Skadden, Arps, Slate, Meagher & Flom, counsel to the Borrower
and its Subsidiaries, in form and substance satisfactory to the Agent, and (b)
such other local counsel as requested by the Agent and covering such matters as
the Agent may reasonably request, including, without limitation, the
Acquisitions and the issuance of the additional equity required under SECTION
4.1.4; and
SECTION 4.1.11. CLOSING FEES, EXPENSES, ETC. The Agent shall
have received, for its own account, the facility fee payable pursuant to the
Facility Fee Letter and all costs and expenses which have been invoiced and are
payable upon the initial Borrowing pursuant to SECTION 10.3.
SECTION 4.1.12. SUBSIDIARY GUARANTY. The Agent shall have
received the Subsidiary Guaranty, duly executed by Authorized Officers of the
Loan Parties that are a party thereto.
SECTION 4.1.13. SECURITY DOCUMENTS AND PERFECTION. The Agent
shall have received:
(a) The Security Agreement, duly executed by an
Authorized Officer of the Borrower and each of its Subsidiaries (including,
without limitation, those Persons that shall become Subsidiaries of the
Borrower on the Closing Date);
(b) A satisfactory collateral assignment to the Agent,
for its benefit and the ratable benefit of the Lenders, of the Borrower's
rights under the Acquisition Agreements and all other
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documents executed or delivered pursuant to the Acquisition Agreements, duly
consented to by the "Sellers" under each of such Acquisition Agreements;
(c) The Borrower Pledge Agreement, duly executed by the
chief executive Authorized Officer of the Borrower;
(d) The Subsidiary Pledge Agreement, duly executed by the
chief executive Authorized Officer of World Communications, Inc.;
(e) Evidence of all filings of the Financing Statements
with respect to the Security Agreement and other Security Documents; searches
or other evidence as to the absence of any Liens (except those previously
disclosed to and consented to by the Lenders and those to be released in
accordance with SECTION 4.1.5); and evidence that all other actions (including
all actions necessary such that the Trademark Assignment is acceptable for
filing in the United States Patent and Trademark Office and the payment of all
documentary, intangibles, filing and recording taxes and fees) with respect to
the Liens created by the Security Documents have been taken as are necessary or
appropriate to perfect such Liens;
(f) All (i) stock certificates and undated stock powers
duly executed in blank relating thereto with respect to the pledged securities
under the Borrower Pledge Agreement, which pledged securities shall constitute
all outstanding Stock of the Borrower's Subsidiaries; (ii) Subsidiary Notes
pledged under the Borrower Pledge Agreement duly endorsed in blank; and (iii)
stock certificates and undated stock powers duly executed in blank relating
thereto with respect to the pledged securities under the Subsidiary Pledge
Agreement.
SECTION 4.1.14. EMPLOYMENT AGREEMENTS; COMPENSATION. The
Agent shall have received copies of all employment agreements to which the
Borrower is a party, and the Agent shall be reasonably satisfied in all
respects with the levels of compensation (including, without limitation, fees,
wages, salaries, deferred payment arrangements, stock options, incentive plans
and pension or employee benefit contributions) paid to key members of
management.
SECTION 4.1.15. PENSION AND WELFARE LIABILITIES. The Agent
shall have received, with counterparts for each of the Lenders (i) the most
recent actuarial valuation report, if any, for each Single Employer Plan, if
any, and a copy of Schedule B to the Annual Report on Form 5500 of the Internal
Revenue Service, if any, for each Single Employer Plan, if any, most recently
filed with the Internal Revenue Service, and (ii) a report prepared by the
Borrower in form and substance satisfactory to the Agent and each Lender
detailing any liabilities of the Borrower and each Subsidiary and Commonly
Controlled Entity for post-retirement
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benefits under Plans which are welfare benefit plans.
SECTION 4.1.16. INSURANCE. The Agent shall have received
evidence satisfactory to it that the insurance maintained by the Borrower and
its Subsidiaries is issued by an insurance company with a Best's rating of "A"
or better and a financial size category of not less than XII, is in amounts
reasonably satisfactory to the Agent, under policies naming the Agent, for its
benefit and the ratable benefit of the Lenders, as loss payee (in the case of
casualty insurance policies) and as additional insured (in the case of
liability policies), and otherwise complies with the requirements of this
Agreement and the Security Documents.
SECTION 4.1.17. FINANCIAL INFORMATION, ETC. The Agent shall
have received for each Lender, the historical financial statements referred to
in SECTION 5.4, the PRO FORMA Balance Sheets, the Fair Saleable Value Balance
Sheets and the Projections, and the Agent shall be satisfied in all respects
with such materials. Additionally, the Agent shall be satisfied in all
respects with materials contained on the Disclosure Schedule, including,
without limitation, the information contained on ITEM 1 ("Transaction Costs")
and ITEM 2 ("Sources and Uses").
SECTION 4.1.18. ACQUISITIONS. The Acquisition Agreements
shall be in full force and effect and shall not have been amended, modified or
supplemented without the Required Lenders' prior written consent; all
conditions precedent to the consummation by the Borrower of the transactions
contemplated by the Acquisition Agreements shall have been fully satisfied or,
with the prior written consent of the Required Lenders, waived; the Borrower
shall have delivered to the Agent evidence satisfactory to the Agent that the
Acquisitions shall be consummated simultaneously with the initial Borrowings in
accordance with the terms of the Acquisition Agreements; and the Borrower shall
have delivered to the Agent each of the following:
(a) resolutions of the boards of directors and, to the
extent required, the stockholders of the Borrower, certified by the Secretary
or an assistant secretary of the Borrower, to be duly adopted and in full force
and effect on the Closing Date, authorizing the execution, delivery and
performance by the Borrower of the Acquisition Agreements;
(b) resolutions of the boards of directors and, to the
extent required, the stockholders of IPP-South Carolina, IPP- Tennessee and
PCS, certified by the Secretary or an assistant secretary of the such Persons,
to be duly adopted and in full force and effect on the Closing Date,
authorizing the execution, delivery and performance by the such Persons of the
Acquisition Agreements;
(c) certified copies of all documents evidencing any
other necessary corporate action, consents and governmental
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approvals with respect to the consummation of the transactions contemplated by
the Acquisition Agreements;
(d) copies of all legal opinions delivered in connection
with each of the Acquisitions, if any, along with reliance letters in favor of
the Agent and the Lenders; and
(e) a certificate from the Chief Executive Officer of the
Borrower to the effect that attached thereto are true and correct copies of the
Acquisition Agreements and each of the material documents, instruments and
agreements executed and delivered pursuant to the Acquisition Agreements and
making such statements of fact concerning the Acquisitions and the other
transactions consummated pursuant to such agreements as the Agent shall
request.
SECTION 4.1.19. REVIEW OF BORROWER'S OPERATIONS. The Agent
or its representatives shall have completed their review of the Borrower's
management information systems, accounting, financial reporting and cash
management systems as well as the legal structure of each Loan Party and the
nature of each Loan Party's asset composition and contingent liabilities, and
the Agent shall be satisfied in all respects with the results of such review.
SECTION 4.1.20. MATERIAL CONTRACTS. The Agent shall have
received a certificate from an Authorized Officer of the Borrower to the effect
that attached thereto are true and correct copies of each of the items listed
on ITEM 14 ("Contracts") of the Disclosure Schedule, and the Agent shall be
satisfied in all respects with terms of such items.
SECTION 4.1.21. OTHER DOCUMENTS, CERTIFICATES, ETC. The
Agent shall have received such other documents, certificates, opinions of
counsel or other materials as it reasonably requests from any Loan Party.
SECTION 4.1.22. LETTER TO ACCOUNTANTS. The Agent shall have
received satisfactory evidence that the Borrower has delivered a letter to its
independent public accountants authorizing such public accountants to discuss
the Borrower's financial matters with the Agent and each Lender or any of their
respective representatives whether or not a representative of the Borrower is
present.
SECTION 4.2. ALL LOANS. Without duplication of any
conditions precedent required to be satisfied pursuant to SECTION 4.1, the
obligations of the Lenders to make any Loans, shall be subject to the
satisfaction of each of the additional conditions precedent set forth in this
SECTION 4.2.
SECTION 4.2.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC.
The representations and warranties set forth in ARTICLE 5
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shall have been true and correct in all material respects as of the date
initially made, and both before and after giving effect to the making of any
such Loan (except to the extent expressly stated to be as of an earlier date),
(a) such representations and warranties shall be true and
correct in all material respects with the same effect as if then made (except
to the extent expressly stated to be as of an earlier date);
(b) all representations and warranties set forth in the
Security Documents shall be true and correct in all material respects with the
same effect as if then made (except to the extent expressly stated to be as of
an earlier date);
(c) no material adverse development shall have occurred
in any such litigation, arbitration or governmental investigation or proceeding
so disclosed pursuant to SECTION 5.7 which renders such litigation, arbitration
or governmental investigation or proceeding likely to succeed in the reasonable
opinion of the Required Lenders and, if successful, could result in a Material
Adverse Change; and
(d) no Default or Event of Default shall have occurred
and be continuing.
SECTION 4.2.2. BORROWING REQUEST, ETC. The Agent shall have
received a duly completed Borrowing Request. The delivery of any such
Borrowing Request, and the acceptance by the Borrower of the proceeds of the
Loan requested thereby, shall constitute a representation and warranty by the
Borrower that on the date of such request, and before and after giving effect
to the making of such Loans and the application of any proceeds of such Loans,
all statements set forth in SECTION 4.2.1 are true and correct. In the event
that, in connection with the delivery of any such Borrowing Request the
Borrower is required to amend any Item of the Disclosure Schedule in order that
the statement set forth in clause (a) or (b) of SECTION 4.2.1 shall be true and
correct, the Borrower shall deliver to the Agent at least five (5) Business
Days prior to the date of the Borrowing requested or to be requested, a request
that such Item of the Disclosure Schedule be amended, and the Agent shall
promptly forward such request to the Lenders. To the extent that the Required
Lenders agree to such requested amendment or otherwise agree to make any Loans
after receipt of such request, the representations and warranties proposed to
be amended by such requested amendment to the Disclosure Schedule will be
deemed amended for purposes of this Agreement.
SECTION 4.2.3. SATISFACTORY LEGAL FORM. All documents
executed or submitted by or on behalf of the Borrower or any other Loan Party
shall be satisfactory in form and substance to the Agent and its counsel; the
Required Lenders shall have received all
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information, and such counterpart originals or such certified or other copies
of such Instruments, as the Required Lenders may reasonably request; and all
legal matters incident to the transactions contemplated by this Agreement shall
be satisfactory to the Required Lenders.
SECTION 4.2.4. MARGIN REGULATIONS. The making of such Loan
and the use of the proceeds thereof shall not violate Regulations G, T, U and X
of the F.R.S. Board.
SECTION 4.2.5. ADVERSE CHANGE. In the reasonable judgment
of the Required Lenders, no Material Adverse Change shall have occurred since
the Closing Date.
SECTION 4.2.6. CHANGE IN LAW. On the date of such
Borrowing, no change shall have occurred in applicable law, or in applicable
regulations thereunder or in interpretations thereof by any court or
Governmental Authority which, in the opinion of any Lender, would make it
illegal for such Lender to make the Loan required to be made on such date.
ARTICLE 5.
WARRANTIES, ETC.
In order to induce the Lenders and the Agent to enter into
this Agreement, to engage in the transactions contemplated herein and in the
other Loan Documents and to make the Loans, the Borrower represents and
warrants to the Agent and each Lender as set forth in this ARTICLE 5. Each and
all of the representations and warranties set forth in this ARTICLE 5 shall be
true and correct, assuming and after giving effect to the consummation of the
Acquisitions and the consummation of the other transactions contemplated by
this Agreement and the other Loan Documents.
SECTION 5.1. ORGANIZATION, POWER, AUTHORITY, ETC. Each of
the Borrower and its Subsidiaries (i) is a corporation validly organized and
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction where the failure to so qualify
could result in a Material Adverse Change, and (iii) has full power and
authority, and, except as set forth in ITEM 5 ("Governmental Licenses") of the
Disclosure Schedule, holds all governmental licenses, permits, registrations
and other approvals required under all Requirements of Law, to own and hold
under lease its property and to conduct its business as conducted prior to the
Closing Date and as contemplated to be conducted subsequent to the consummation
of the Acquisitions, including, without limitation, all Approvals. The
Borrower has full power and authority to enter into and perform its Obligations
under this Agreement, the Notes and each other Loan Document
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executed or to be executed by it and to obtain Loans hereunder.
SECTION 5.2. DUE AUTHORIZATION.
(a) The execution and delivery by the Borrower of this
Agreement, the Notes and each other Loan Document executed or to be executed by
it, and the incurrence and performance by the Borrower of the Obligations have
been duly authorized by all necessary corporate action, do not require any
Approval (except those Approvals already obtained), do not and will not
conflict with, result in any violation of, or constitute any default under, any
provision of any Organic Document or Contractual Obligation of any Loan Party
or any law or governmental regulation or court decree or order, and will not
result in or require the creation or imposition of any Lien on any Loan Party's
properties pursuant to the provisions of any Contractual Obligation of any Loan
Party other than the Loan Documents.
(b) The Certificate of Amendment has been duly adopted
pursuant to applicable law, has been duly filed with the Ohio Secretary of
State and is in full force and effect.
(c) No vote (including any vote under the rules of any
securities exchange or trading system or market on which any of the Borrower's
securities are listed or traded) on the part of the stockholders of the
Borrower is required to approve or authorize the Certificate of Amendment, any
of the transactions contemplated by this Agreement or any of the other Loan
Documents or the authorization or the issuance of the Series B Special
Preferred Stock pursuant to Article 8 or of Common Stock issuable upon
conversion of the Series B Special Preferred Stock.
(d) The issuance of the shares of Series B Special
Preferred Stock has been duly authorized and, when issued upon exercise of any
Lender's conversion rights under Article 8, such shares will have been validly
issued and will be fully paid and nonassessable and the issuance thereof will
not give rise to any preemptive rights. The issuance of the shares of Common
Stock issuable upon conversion of the Series B Special Preferred Stock has been
duly authorized and, when issued upon conversion of the Series B Special
Preferred Stock, such shares will have been validly issued and will be fully
paid and nonassessable and the issuance thereof will not give rise to any
preemptive rights. 250,000 shares of Series B Special Preferred Stock have
been duly reserved for issuance upon conversion of Term Notes pursuant to
Article 8 and 5,000,000 shares of Common Stock have been duly reserved for
issuance upon conversion of the Series B Special Preferred Stock. Except as
set forth in the Registration Rights Agreement and as set forth in ITEM 26
("Registration Rights") of the Disclosure Schedule, no Person has the right to
demand or any other right to cause the Borrower to file any registration
statement under the Securities Act relating to any securities of
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the Borrower or any right to participate in the any such registration.
SECTION 5.3. VALIDITY, ETC. This Agreement is, and the
Notes and each other Loan Document executed by the Borrower will upon the due
execution and delivery thereof constitute, the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms subject to the effect of any applicable bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights generally, and the
effect of general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
SECTION 5.4. FINANCIAL INFORMATION; SOLVENCY.
(a) Except as disclosed in ITEM 6 ("Exceptions to GAAP")
of the Disclosure Schedule, all balance sheets, all statements of operations,
stockholders' equity and cash flows, and all other financial information of the
Borrower which have been or shall hereafter be furnished by or on behalf of the
Borrower to each Lender and the Agent for the purposes of or in connection with
this Agreement or any transaction contemplated hereby, including:
(i)(A) the consolidated audited balance sheets of the
Borrower as of December 31, 1992, December 31, 1993 and December 31,
1994, and the related consolidated statements of income and cash flows
for each of the three (3) fiscal years of the Borrower ending December
31, 1992, December 31, 1993 and December 31, 1994, together with the
opinion thereon of Price Waterhouse LLP and unaudited statements of
income and cash flow of the Borrower for the nine-month period ending
September 30, 1995;
(B) the unaudited consolidated balance sheets of the
Borrower as of December 31, 1995 and the related consolidated
statements of income and cash flows for the Fiscal Year ending
December 31, 1995;
(ii) the Form 8-K of the Borrower as filed with the
Securities and Exchange Commission for the period ending June 30, 1995;
(iii)(A) the audited balance sheet of IPP-South
Carolina as of December 31, 1994 and the related statements of income
and cash flows for the fiscal year of IPP-South Carolina then ended;
together with the unaudited statements of income and cash flow of
IPP-South Carolina for the nine-month period ending September 30,
1995;
(B) the audited balance sheet of IPP-Tennessee as of
December 31, 1994 and the related statements of income and cash flows
for the fiscal year of IPP-Tennessee then ended;
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together with the audited statements of income and cash flow of
IPP-Tennessee for the nine-month period ending September 30, 1995;
(C) the audited balance sheets of PCS as of December 31,
1992, December 31, 1993 and December 31, 1994, and the related
consolidated statements of income and cash flows for each of the three
(3) fiscal years of PCS ending December 31, 1992, December 31, 1993,
and December 31, 1994; together with the unaudited statements of
income and cash flow of PCS for the nine-month period ending September
30, 1995;
(iv) the PRO FORMA Balance Sheets; and
(v) the Projections;
have been prepared in accordance with GAAP consistently applied (except to the
extent items in the Projections are based upon estimates) throughout the
periods involved and present fairly in all material respects the matters
reflected therein subject, in the case of unaudited statements, to changes
resulting from normal year-end audit adjustments and except as to the absence
of footnotes. As of the date hereof, neither the Borrower nor any of its
Subsidiaries has material contingent liabilities or material liabilities for
taxes, long-term leases or unusual forward or long-term commitments which are
not reflected in the financial statements described in clauses (i), (ii) and
(iii).
(b) Giving effect to the consummation of the transactions
contemplated by the Acquisition Agreements, the consummation of the
transactions contemplated by this Agreement and the other Loan Documents
(including the making of Loans), the Borrower and each of its Subsidiaries is
Solvent.
SECTION 5.5. MATERIAL ADVERSE CHANGE. Since December 31,
1994, there has been no Material Adverse Change and there has been no Material
Adverse Change in any industry in which the Borrower or any of its Subsidiaries
is engaged.
SECTION 5.6. ABSENCE OF DEFAULT. Neither the Borrower nor
any Subsidiary is in default in the payment of (or in the performance of any
obligation applicable to) any Indebtedness, or is in material default under any
regulation of any Governmental Agency or court decree or order, or is in
default under any Requirements of Law which default could result in a Material
Adverse Change.
SECTION 5.7. LITIGATION, LEGISLATION, ETC. Except as
disclosed in ITEM 4 ("Litigation") of the Disclosure Schedule, there is no
pending or, to the knowledge of the Borrower, threatened litigation,
arbitration or governmental investigation, proceeding or inquiry which, if
adversely determined, could result
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in a Material Adverse Change; and none of the proceedings set forth in such
ITEM 4 seeks to amend, modify or enjoin the transactions contemplated hereby
or, if adversely determined, could result in a Material Adverse Change. There
is no legislation, governmental regulation or judicial decision that could
result in a Material Adverse Change.
SECTION 5.8. REGULATIONS G, T, U AND X. Neither the
Borrower nor any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing
or carrying Margin Stock (as defined in F.R.S. Board Regulation G or U), and no
assets of the Borrower or any Subsidiary consist of Margin Stock. The Loans
hereunder will not be used for a purpose which violates, or would be
inconsistent with, F.R.S. Board Regulation G, T, U or X.
SECTION 5.9. GOVERNMENT REGULATION. Neither the Borrower
nor any Subsidiary is an "investment company" within the meaning of the
Investment Holding Company Act of 1940, as amended, or a "holding company," or
a "subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended, or
subject to regulation under the Federal Power Act, the Interstate Commerce Act
or any other federal or state law limiting its ability to incur Indebtedness or
to execute, deliver or perform the Loan Documents to which it is party.
SECTION 5.10. TAXES. Each of the Borrower and its present
or past Subsidiaries has filed all tax returns and reports required by law to
have been filed by it and has paid all taxes and Charges thereby shown to be
owing, except any such taxes or Charges which are being diligently contested in
good faith by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
SECTION 5.11. PENSION AND WELFARE PLANS. Except as
disclosed in ITEM 7 ("Benefit Plans") of the Disclosure Schedule,
(a) neither the Borrower nor any Subsidiary or Commonly
Controlled Entity has assumed any liability under (i) any employee benefit
plan, fund, program, arrangement, agreement or commitment disclosed in Schedule
5.17(a) of the Acquisition Agreements, or (ii) any other employee benefit plan,
fund, program, arrangement, agreement or commitment maintained by or on behalf
of or contributed to by or on behalf of any entity or trade or business which,
together with any of such corporations, is treated as a single employer under
Sections 414(b), (c), (m) or (o) of the IRC. Neither the Borrower nor any
Subsidiary or Commonly Controlled Entity shall be subject (directly or
indirectly) to any liability, tax or penalty whatsoever to any person
whomsoever with respect to any employee benefit plan, fund, program,
arrangement, agreement
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or commitment described in clause (i) or (ii) of the immediately preceding
sentence.
(b) No Reportable Event which could result in a Material
Adverse Change has occurred during the six-year period prior to the date on
which this representation is made or deemed made with respect to any Single
Employer Plan. The Borrower, each Commonly Controlled Entity, each Subsidiary,
each Plan, and each trust maintained pursuant to any such Plan have complied in
all material respects with the applicable provisions of ERISA, the IRC, and any
other applicable laws. Except as disclosed in ITEM 7 ("Benefit Plans") of the
Disclosure Schedule, the present value of all "benefit liabilities" (within the
meaning of Section 4001(a)(16) of ERISA) under each Single Employer Plan
maintained by the Borrower, any Subsidiary or any Commonly Controlled Entity
(based on those assumptions that would be used in a termination of each such
Plan) did not, as of the last annual valuation date for which an actuarial
valuation report has been done, exceed the value of the assets of such Plan as
of such date. Except as disclosed in such ITEM 7, neither the Borrower nor any
Commonly Controlled Entity or Subsidiary has incurred any liability to the PBGC
or to any other Person under Section 4062, 4063 or Section 4064 of ERISA on
account of the termination of, or its withdrawal from, a Single Employer Plan,
and no Lien has been imposed on the assets of the Borrower or any Commonly
Controlled Entity or Subsidiary under Section 4068 of ERISA. To the knowledge
of the Borrower and any Commonly Controlled Entities and Subsidiaries, there
does not exist any event or condition which would permit the institution of
proceedings to terminate any Single Employer Plan pursuant to Section 4042 of
ERISA. Except as disclosed in ITEM 7 of the Disclosure Schedule, no
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of IRC), whether or not waived, exists with respect to any Pension Plan.
The Borrower and each Commonly Controlled Entity and Subsidiary have timely
made in full each quarterly installment payment to any Pension Plan required
under Section 302(e) of ERISA or Section 412(m) of the IRC and have also made
full and timely payment of any other costs or expenses related to such a Plan.
The Borrower and all Commonly Controlled Entities and Subsidiaries have made
full and timely payment of all contributions to Multiemployer Plans required
under ERISA, the IRC or applicable collective bargaining agreements. Neither
the Borrower nor any Commonly Controlled Entity or Subsidiary has had a
complete or partial withdrawal from any Multiemployer Pension Plan and the
liability to which the Borrower or any Commonly Controlled Entity or Subsidiary
would become subject under ERISA if the Borrower or any such Commonly
Controlled Entity or Subsidiary were to withdraw completely from all
Multiemployer Pension Plans as of the valuation date most closely preceding the
date hereof is not in excess of $100,000. No such Multiemployer Pension Plan
has been terminated or is in Reorganization or Insolvent, nor, to the knowledge
of the Borrower and any Commonly Controlled Entities and Subsidiaries, is any
such
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Multiemployer Pension Plan likely to be terminated or to become in
Reorganization or Insolvent. To the knowledge of the Borrower and any
Commonly Controlled Entities and Subsidiaries, no "accumulated funding
deficiency" (as defined in Section 302 of ERISA or Section 412 of the IRC),
whether or not waived, exists with respect to any Multiemployer Plan. The
present value (determined using assumptions which are reasonable in respect of
the benefits provided and the employees participating) of the aggregate
liability of the Borrower and each Subsidiary and Commonly Controlled Entity
for post-retirement benefits to be provided to their current and former
employees under Plans which are welfare benefit plans (as defined in Section
3(1) of ERISA) is not in excess of $100,000. No written notice of liability
has been received with respect to the Borrower, any of its Subsidiaries, or any
Plan for any "prohibited transaction" (within the meaning of Section 4975 of
the IRC or Section 406 of ERISA), nor has any such prohibited transaction
resulting in material liability to the Borrower, any of its Subsidiaries
occurred. Neither the Borrower nor any Subsidiary or Commonly Controlled
Entity will, as a result of consummating the transactions contemplated by this
Agreement (pursuant to the provisions of the Agreement, by operation of law or
otherwise) (i) have incurred or become liable for any tax assessed by the
Internal Revenue Service for any alleged violations of Section 4975 of the IRC
or any civil penalty imposed by the Department of Labor for any alleged
violations of Section 406 of ERISA, (ii) have caused or permitted to occur any
"prohibited transaction" within the meaning of such Section 4975 of the IRC or
Section 406 of ERISA with respect to any Plan for which no exemption is
available or (iii) have incurred any liability to the PBGC (other than ordinary
and usual PBGC premium liability) or any liability for complete or partial
withdrawal to any Multiemployer Plan. Neither the Borrower nor any Subsidiary
is subject (directly or indirectly) to, and no facts exist which could subject
the Borrower or any Subsidiary (directly or indirectly) to, any other
liability, penalty, tax or lien whatsoever, which could result in a Material
Adverse Change and which is directly or indirectly related to any Plan,
including, but not limited to, liability for any damages or penalties arising
under Title I or Title IV of ERISA, liability for any tax or penalty resulting
from a loss of deduction under Section 404 or 419 of the IRC, any tax or
penalty under chapter 43 of the IRC, or any taxes or penalties under any other
applicable law, but excluding any liability to make contributions or pay
premiums to or under an ongoing Plan before the last due date on which such
contributions or premiums could be paid or made without penalty or to pay
benefits when due in accordance with Plan terms.
SECTION 5.12. LABOR CONTROVERSIES. Except as disclosed in
ITEM 8 ("Labor Controversies") of the Disclosure Schedule, there are no labor
controversies pending or, to the best knowledge of the Borrower, threatened,
relating to the Borrower or any Subsidiary. There is (i) no unfair labor
practice complaint pending against the
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Borrower, or any of its Subsidiaries or, to the best knowledge of the Borrower,
threatened against any of them, before the National Labor Relations Board, and
no grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Borrower or any of its
Subsidiaries or, to the best knowledge of the Borrower, threatened against any
of them, (ii) no strike, labor dispute, slowdown or stoppage is pending against
the Borrower or any of its Subsidiaries or, to the best knowledge of the
Borrower, threatened against the Borrower or any of its Subsidiaries and (iii)
no union representation question existing with respect to the employees of the
Borrower or any of its Subsidiaries. Each of the Borrower and its Subsidiaries
is in compliance in all material respects with all collective bargaining
agreements to which it is subject.
SECTION 5.13. OWNERSHIP OF PROPERTIES; COLLATERAL.
(a) Each of the Borrower and its Subsidiaries shall own good
title to all of its material personal properties and assets of any nature
whatsoever, free and clear of all Liens except as permitted pursuant to SECTION
6.2.3.
(b) Except to the extent otherwise consented to in
writing by the Required Lenders, the provisions of the Security Agreement are
effective to create in favor of the Agent for the benefit of the Agent and the
Lenders, a legal, valid and enforceable security interest in all right, title
and interest of the Loan Parties in the Collateral described therein, and, upon
the filing of the Financing Statements and any required filing in the United
States Patent and Trademark Office pursuant to SECTION 4.1.13, the Security
Documents will create a fully perfected first priority security interest in all
right, title and interest of the Loan Parties in all of the Collateral
described therein, to the extent that a security interest therein can be
perfected by such a filing, subject to no other Liens other than Liens
permitted by SECTION 6.2.3.
SECTION 5.14. INTELLECTUAL PROPERTY. Each of the Borrower
and its Subsidiaries owns or licenses all such Intellectual Property, and has
obtained assignments of all licenses and other rights, as the Borrower
considers necessary for or as are otherwise material to the conduct of the
business of the Borrower and its Subsidiaries as now conducted without,
individually or in the aggregate, any infringement upon rights of other Persons
which could result in a Material Adverse Change. All Intellectual Property
owned or licensed from third Persons described in this SECTION 5.14 is set
forth in ITEM 9 ("Intellectual Property") of the Disclosure Schedule.
SECTION 5.15. ACCURACY OF INFORMATION. All factual
information heretofore or contemporaneously furnished by or on behalf of the
Borrower in writing to the Agent or any Lender for
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purposes of or in connection with this Agreement or any transaction
contemplated hereby is true and accurate in every material respect on the date
as of which such information is dated or certified and as of the date of
execution and delivery of this Agreement by the Agent or such Lender and such
information is not incomplete by omitting to state any material fact necessary
to make such information not misleading. Neither this Agreement nor any
document or statement furnished to the Agent or any of the Lenders by or on
behalf of the Borrower contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein or therein not materially misleading.
SECTION 5.16. INSURANCE. All policies of insurance in
effect of any kind or nature owned by or issued to the Borrower and its
Subsidiaries, including policies of life, fire, theft, product liability,
public liability, property damage, other casualty, employee fidelity, workers'
compensation, property and liability insurance, (a) as of the Closing Date are
listed in ITEM 10 ("Insurance") of the Disclosure Schedule, (b) are, together
with all policies of employee health and welfare and title insurance, in full
force and effect, (c) comply in all respects with the applicable requirements
set forth herein and in the Security Documents and (d) are of a nature and
provide such coverage as is customarily carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower and its Subsidiaries operate. Neither the Borrower nor any of its
Subsidiaries provides any of its insurance through self-insurance except as
disclosed in ITEM 10 of the Disclosure Schedule.
SECTION 5.17. CERTAIN INDEBTEDNESS. ITEM 11
("Indebt-edness") of the Disclosure Schedule specifies all Indebtedness of the
Borrower and its Subsidiaries as of the Closing Date which (a) is for borrowed
money, or (b) is not incurred in the ordinary course of the business of the
Borrower or any Subsidiary in a manner and to the extent consistent with past
practice, or (c) is material to the financial condition, operations,
businesses, properties or prospects of the Borrower or any Subsidiary.
SECTION 5.18. ENVIRONMENTAL MATTERS. Except as disclosed
in ITEM 12 ("Environmental Matters") of the Disclosure Schedule to the best of
the Borrower's knowledge, the Borrower and each of its Subsidiaries are in
compliance in all material respects with all applicable Environmental Laws, and
there are no conditions or circumstances associated with the currently or
previously owned, operated, used or leased properties or current or past
operations of the Borrower or any Subsidiary which may give rise to
Environmental Liabilities and Costs which could result in a Material Adverse
Change or which may give rise to any Environmental Lien.
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SECTION 5.19. NO BURDENSOME AGREEMENTS. Neither the
Borrower nor any Subsidiary is a party to or has assumed any indenture, loan or
credit agreement or any lease or other agreement or instrument or subject to
any charter or other corporate restriction that could result in a Material
Adverse Change.
SECTION 5.20. CONSENTS. Except as disclosed in ITEM 13
("Consents") of the Disclosure Schedule the Borrower and its Subsidiaries have
all material permits and governmental consents and approvals necessary under
Requirements of Law or, in the reasonable business judgment of the Borrower,
deemed advisable under Requirements of Law, in connection with the transactions
contemplated hereby and the ongoing business and operations of the Borrower and
its Subsidiaries.
SECTION 5.21. CONTRACTS. Set forth in ITEM 14
("Contracts") of the Disclosure Schedule is an accurate and complete list of
all material Contractual Obligations of the Borrower and its Subsidiaries.
Each such material Contractual Obligation is in full force and effect in
accordance with the terms thereof. There are no material defaults by the
Borrower or any Subsidiary or, to the Borrower's knowledge after due inquiry,
any other default in existence under any such material Contractual Obligations,
in each case that could result in a Material Adverse Change.
SECTION 5.22. EMPLOYMENT AGREEMENTS. Set forth in ITEM 15
("Employment Contracts") of the Disclosure Schedule is a complete and accurate
list of each employment agreement to which the Borrower or any Subsidiary is a
party, or by which it is bound.
SECTION 5.23. CONDITION OF PROPERTY. All of the assets and
properties owned by, leased to or used by the Borrower and its Subsidiaries
material to the conduct of their business are in adequate operating condition
and repair, ordinary wear and tear excepted, and are free and clear of known
defects except for defects which do not substantially interfere with the use
thereof in the conduct of normal operations.
SECTION 5.24. SUBSIDIARIES. ITEM 16 ("Subsidiaries") of
the Disclosure Schedule sets forth all Subsidiaries of the Borrower as of the
Closing Date.
SECTION 5.25. ACQUISITION AGREEMENTS. The closing of the
transactions contemplated by the Acquisition Agreements shall occur on the
Closing Date simultaneously with the making of the initial Borrowings, and
Borrower has not waived or in any way amended, without the prior written
consent of the Required Lenders, any condition to the obligations to consummate
the Acquisitions. A true and complete copy of the Acquisition Agreements
(including all exhibits, schedules and amendments thereto) has been delivered
to the Agent. Borrower is not in default under the Acquisition
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Agreements or under any instrument or document to be delivered in connection
therewith. The representations and warranties made in the Acquisition
Agreements by Borrower and the other Persons which are parties thereto are true
and correct in all material respects on and as of the Closing Date as though
made on and as of such date.
SECTION 5.26. TRADE RELATIONS. Except as disclosed in ITEM
17 ("Termination of Material Contracts") of the Disclosure Schedule, as of the
Closing Date, there exists no actual or, to the best of Borrower's knowledge,
threatened termination, cancellation or limitation of, or any modification or
change in, the business relationship of the Borrower with any customer or group
of customers of the Borrower.
SECTION 5.27. ABSENCE OF TAKEOVER STATUTES. The Board of
Directors of the Borrower has approved for purposes of Chapter 1704 of the Ohio
Revised Code (Transactions Involving Interested Shareholders) the transactions
contemplated by this Agreement and the other Loan Documents and the issuance of
the Series B Special Preferred Stock upon conversion of the Term Notes pursuant
to Article 8 or the issuance of any shares of Common Stock upon conversion of
any Series B Special Preferred Stock. The provisions of Ohio Revised Code
Section 1707.041 with respect to "control bids" as defined in Ohio Revised Code
Section 1707.01(V)(1) do not apply to transactions contemplated by the Loan
Documents or the issuance of any shares of Series B Special Preferred Stock to
be issued pursuant to this Agreement or upon conversion of such shares. No
other "fair price," "moratorium," "control share acquisition," "business
combination," "shareholder protection," or similar antitakeover statute will
apply to the Agent or any Lender as a result of this Agreement or any of the
other Loan Documents or the authorization or issuance of Series B Special
Preferred Stock upon conversion of Notes pursuant to Article 8 or any shares of
Common Stock to be issued upon conversion of shares of Series B Special
Preferred Stock.
SECTION 5.28. COMMUNICATIONS ACT. None of the Borrower and
its Subsidiaries holds any licenses or conducts any business which would result
in the application of Section 310 of the Communications Act of 1934 as a result
of this Agreement or any of the other Loan Documents or the authorization or
issuance of any shares of capital stock to be issued upon conversion of Term
Notes pursuant to Article 8 of this Agreement or the authorization of Common
Stock upon conversion of the Series B Preferred Stock.
SECTION 5.29. CAPITALIZATION AND OWNERSHIP OF THE BORROWER.
On the Closing Date, the authorized capital stock of the Borrower consists of
22,500,000 shares of Common Stock, par value $0.01 per share, 2,780,017 of
which will be outstanding; 2,500,000 shares of Preferred Stock, $0.01 par
value, of which (i) 2,125 shares have been designated Preferred Stock, $100 par
value, of
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which no shares will be outstanding, (ii) 6,500 shares have been designated
Convertible Preferred Stock, without par value, $100 stated value, cumulative
and redeemable, of which no shares will be outstanding, (iii) 3,880 shares have
been designated Preferred Stock, without par value, $1,000 stated value,
cumulative and redeemable, of which no shares will be outstanding, (iv) 16,000
shares have been designated 8% Preferred Stock, without par value, $100 stated
value, cumulative and redeemable, of which no shares will be outstanding, (v)
2,500 shares have been designated 7% Convertible Preferred Stock, without par
value, $100 stated value, cumulative and redeemable, of which no shares will be
outstanding, (vi) 550,000 shares have been designated 10% Preferred Stock,
without par value, $10 stated value, cumulative, of which 530,534 shares will
be outstanding, (vii) 250,000 shares have been designated Series A Special
Convertible Stock, $.20 par value, of which no shares will be outstanding, and
(viii) 250,000 shares have been designated Series B Special Convertible
Preferred Stock, $.20 par value, of which no shares will be outstanding, (ix)
200,000 shares have been designated 14% Convertible Preferred Stock, without
par value, $60 stated value, of which 107,918 shares will be outstanding, and
(x) 1,218,995 shares are undesignated and unissued. All outstanding shares of
capital stock of the Borrower are duly authorized, validly issued, fully paid
and nonassessable, and are not, and will not have been, issued in violation of
any preemptive rights. Except as set forth in Item 24 (Preemptive Rights,
Options, Warrants) of the Disclosure Schedule, no issued, no authorized but
unissued and no treasury shares of capital stock of the Borrower are subject to
any preemptive right, option, warrant, right of conversion or purchase or any
similar right issued or granted by the Borrower or, to the knowledge of the
Borrower, by any of its shareholders. Except as set forth in the Organic
Documents of the Borrower, or in Item 25 (Voting and Transfer Agreements) of
the Disclosure Schedule, there are no agreements or understandings with respect
to the voting, sale or transfer of any shares of stock of the Borrower to which
the Borrower or any of its Subsidiaries is a party.
SECTION 5.30. SECURITIES LAWS. In reliance on the
investment representations contained in SECTION 2.5, the issuance and delivery
of Series B Special Preferred Stock upon the conversion of the Notes by the
Lenders and the issuance and delivery of Common Stock to the Lenders upon the
conversion of the Series B Special Preferred Stock, are and will be exempt from
the registration requirements of the Securities Act and all applicable state
securities laws, as such laws are currently in effect.
SECTION 5.31. NO INTEGRATION OF ISSUE. Neither the
Borrower nor any Person authorized or employed by the Borrower as agent, broker
or otherwise in connection with the offering of the Notes has offered the Notes
for sale to, or solicited any offers to buy the Notes from, or otherwise
approached or negotiated or communicated in respect thereof with, anyone other
than Lenders.
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Neither the Borrower nor any Person acting on behalf of the Borrower will sell
or offer any class of securities to, or solicit any offers to buy any class of
securities from, or otherwise approach, negotiate or communicate in respect
thereof with, any Person so as to require the registration of the Notes under
the Securities Act or any applicable state securities laws.
SECTION 5.32. NO CONFLICT. None of the transactions
contemplated by this Agreement or any of the other Loan Documents (including
the issuance of shares of Series B Special Preferred Stock upon conversion of
Notes or shares of Common Stock upon conversion of the Series B Special
Preferred Stock) will give rise to any payment or the acceleration of any
obligation (whether with or without the passage of time or upon the occurrence
of any event) to any director, officer or employee of the Borrower or any
Subsidiary.
ARTICLE 6.
COVENANTS
SECTION 6.1. AFFIRMATIVE COVENANTS. The Borrower agrees
with each Lender that until the Revolving Loan Commitment has terminated and
all Loans and Obligations (other than Obligations that expressly survive the
termination of this Agreement pursuant to SECTION 10.5) have been paid and
performed in full, the Borrower will perform the Obligations set forth in this
SECTION 6.1.
SECTION 6.1.1. FINANCIAL INFORMATION, ETC. The Borrower
will furnish, or will cause to be furnished, to each Lender and to the Agent
copies of its financial statements, reports and information:
(a) (i) promptly when available and in any event within
ninety (90) days after the close of each Fiscal Year, a consolidated
and consolidating balance sheet at the close of such Fiscal Year, and
related consolidated and consolidating statements of operations,
retained earnings, and cash flows for such Fiscal Year, of Borrower
and its Subsidiaries (with comparable information at the close of and
for the prior Fiscal Year), certified (in the case of consolidated
statements) without qualification by Price Waterhouse LLP or other
independent public accountants reasonably satisfactory to the Agent,
together with a report containing a description of projected business
prospects (including capital expenditures) and management's discussion
and analysis of financial condition and results of operation of
Borrower and its Subsidiaries;
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(ii) promptly when available and in any event
within ninety (90) days after the close of each Fiscal
Year, a letter report of such independent public
accountants at the close of such Fiscal Year to the effect
that they have reviewed the provisions of this Agreement
and the most recent Compliance Certificate being furnished
pursuant to clause (a)(iii) and are not aware of any
miscalculation in such Compliance Certificate relating to
the financial tests set forth in SECTION 6.2.4 or of any
default in the performance by the Borrower or any of its
Subsidiaries to be performed by such Loan Parties hereunder
or under any other Loan Document, except such
miscalculation or default, if any, as may be disclosed in
such statement; and
(iii) promptly when available and in any event within
ninety (90) days after the close of each Fiscal Year, a Compliance
Certificate calculated as of the computation date at the close of such
Fiscal Year; and
(b) promptly when available and in any event within (x)
forty-five (45) days after the close of each calendar month of the 1996 Fiscal
Year, or (y) thirty (30) days after the close of each calendar month of each
Fiscal Year other than the 1996 Fiscal Year:
(i) consolidated and consolidating balance sheets at the
close of such month, and consolidated and consolidating statements of
operations, retained earnings, and cash flows for such month and for
the period commencing at the close of the previous Fiscal Year and
ending with the close of such month, of Borrower and Subsidiaries
(with comparable information at the close of and for the corresponding
month of the prior Fiscal Year and for the corresponding portion of
such prior Fiscal Year and with comparable information set forth in
the Projections for the relevant period, PROVIDED, HOWEVER, that the
Borrower shall not be required to deliver comparisons to the prior
Fiscal Year for all financial statements relating to a calendar month
ending on or prior to December 31, 1996), certified by the principal
accounting or chief financial Authorized Officer of the Borrower,
together with a description of projected business prospects (including
Consolidated Capital Expenditures) and a brief report containing
management's discussion and analysis of the financial condition and
results of operations of the Borrower and its Subsidiaries (including
a discussion and analysis of any changes compared to prior results and
the Projections);
(ii) updates to the business plan described in clause
(e) hereof for the remaining term of Borrower's then current Fiscal
Year; and
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<PAGE> 70
(c) within thirty (30) days after the close of each
Fiscal Quarter, a Compliance Certificate calculated as of the computation date
at the close of such month;
(d) promptly upon receipt thereof, copies of all detailed
financial and management reports submitted to Borrower by its independent
public accountants in connection with each annual or interim audit made by such
independent public accountants of the books of Borrower or any Subsidiary;
(e) within ten (10) days prior to the end of each Fiscal
Year of the Borrower, a business plan of the Borrower and its Subsidiaries, in
form, scope and detail reasonably satisfactory to the Required Lenders, for the
twelve (12) months following the end of such Fiscal Year, including
consolidated and consolidating operating budgets prepared on a monthly basis
for such Fiscal Year, which budgets shall include estimated Consolidated
Capital Expenditures and other costs to be incurred by the Borrower and its
Subsidiaries, on a consolidated and consolidating basis, during the applicable
Fiscal Year, in each case, with accompanying detail, together with a report
containing management's discussion and analysis of the projected financial
condition and results of operations of the Borrower and its Subsidiaries;
(f) promptly after approved by the Borrower's Board of
Directors, any updates or revisions to any business plan described in the
preceding clause (e), in addition to those described in clause (b)(ii) above;
(g) (i) not later than Friday of each calendar week, a
Borrowing Base Certificate as of the last day of the preceding calendar week
and (ii) following a request by the Agent, within one (1) Business Day, a
Borrowing Base Certificate as of the day of such request;
(h) promptly upon the sending or filing thereof, copies
of all reports that the Borrower or any of its Subsidiaries sends to its
security holders generally, and copies of all reports and registration
statements that the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange;
(i) within sixty (60) days after the Closing Date, the
audited balance sheets of IPP-South Carolina, IPP-Tennessee and PSC as at the
Closing Date, certified without qualification by independent public accountants
acceptable to the Required Lenders, and in form and scope reasonably
satisfactory to the Required Lenders;
(j) no later than Thursday of each calendar week, a
detailed aged schedule, in a form satisfactory to the Required Lenders, of all
accounts payable of the Borrower and its
64
<PAGE> 71
Subsidiaries as of the last Business Day of the prior week; and
(k) such other information with respect to the financial
condition, business, property, assets, revenues and operations of the Borrower
and any Subsidiary as any Lender may (through the Agent) from time to time
reasonably request.
SECTION 6.1.2. MAINTENANCE OF CORPORATE EXISTENCE, ETC.
Except as permitted by SECTION 6.2.10, the Borrower will cause to be done at
all times all things necessary to maintain and preserve the corporate
existences of the Borrower and each Subsidiary.
SECTION 6.1.3. FOREIGN QUALIFICATION. The Borrower will,
and will cause each Subsidiary to, cause to be done at all times all things
necessary to be duly qualified to do business and be in good standing as a
foreign corporation in each jurisdiction where the failure to so qualify could
result in a Material Adverse Change. The Borrower will cause each of its
agents, if any, to be duly qualified to do business in, and at all times comply
with all applicable Requirements of Law of each jurisdiction where the failure
to so qualify or comply could result in a Material Adverse Change.
SECTION 6.1.4. PAYMENT OF TAXES, ETC. The Borrower will,
and will cause each Subsidiary to, pay and discharge, as the same become due
and payable, (a) all Charges against it or on any of its property, as well as
claims of any kind which, if unpaid, might become a Lien upon any one of its
properties, and (b) all lawful claims for labor, materials, supplies, services
or otherwise before any thereof become a default; PROVIDED, HOWEVER, that the
foregoing shall not require the Borrower or any Subsidiary to pay or discharge
any such Charge or claim so long as it shall be diligently contesting the
validity thereof in good faith by appropriate proceedings and shall have set
aside on its books adequate reserves in accordance with GAAP with respect
thereto.
SECTION 6.1.5. INSURANCE. In addition to any insurance
required to be maintained pursuant to any other Loan Document, the Borrower
will, and (with respect to the insurance described in clauses (a) and (b)
below) will cause each Subsidiary to, maintain or cause to be maintained with
insurance companies with a Best's rating of "A" or better:
(a) insurance with respect to its properties and business
against such casualties, contingencies and liabilities (including, without
limitation, business interruption insurance) and of such types and in such
amounts as is acceptable to the Agent and the Lenders and will furnish to the
Agent, annually at the policy renewal date, a certificate of an Authorized
Officer setting forth the nature and extent of all insurance maintained by the
Borrower and its Subsidiaries in accordance with this Section;
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<PAGE> 72
(b) within 60 days after the Closing Date and at all
times thereafter, a "key-man" life insurance policy from a reputable insurance
provider acceptable to the Required Lenders on the life of the Person that
serves as Chief Operating Officer, President or similar position within the
Borrower's organizational structure, which policy shall (i), at all times after
the date of its issuance, have a minimum face value of not less than $3,000,000
in the aggregate and (ii) be assigned to the Agent, for its benefit and the
ratable benefit of the Lenders. Further, the Borrower shall deliver to the
Agent such assignments, acknowledgments or other instruments as the Required
Lenders shall reasonably request in order to perfect the Agent's interest in
such policy.
Each such policy shall be issued by an insurance company with a Best's rating
of "A" or better and a financial size category of not less than XII, shall be
in effect on the Closing Date and the premiums for each such policy shall be
paid as such premiums shall come due. All policies of casualty insurance shall
contain an endorsement, in the form submitted to the Borrower by the Agent,
showing loss payable to the Agent, for its benefit and the ratable benefit of
the Lenders, as their interests may appear. All policies of liability
insurance, including, without limitation, all primary and umbrella liability
policies, shall name the Agent, for its benefit and the ratable benefit of the
Lenders, as additional insureds. The Borrower shall retain all the incidents
of ownership of the insurance maintained pursuant to this SECTION 6.1.5, but
shall not borrow upon or otherwise impair its right to receive the proceeds of
such insurance, other than customary financing of annual premiums. Subject to
clauses (d) and (e) of SECTION 3.3.1, so long as no Event of Default has
occurred and is continuing, the Borrower and its Subsidiaries shall have the
right to use the proceeds of casualty insurance to repair or replace damaged or
destroyed property and shall have the right to use the proceeds of business
interruption insurance for its ongoing business needs.
SECTION 6.1.6. NOTICE OF DEFAULT, LITIGATION, ETC. Upon a
Responsible Officer learning thereof, the Borrower will give prompt written
notice (with a description in reasonable detail) to the Agent of:
(a) the occurrence of any Default;
(b) the occurrence of any litigation, arbitration or
governmental investigation or proceeding not previously disclosed in writing by
the Borrower to the Lenders which has been instituted or, to the knowledge of
the Borrower, is threatened against, the Borrower or any Subsidiary or to which
any of its properties, assets or revenues is subject which, if adversely
determined, could result in a Material Adverse Change;
(c) any material development which shall occur in any
litigation, arbitration or governmental investigation or proceeding
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<PAGE> 73
previously disclosed by the Borrower to the Lenders pursuant to SECTION 5.7
which could result in a Material Adverse Change;
(d) the occurrence of any other circumstance which could
result in a Material Adverse Change;
(e) the occurrence of any Loss; and
(f) (i) the occurrence or expected occurrence of any
Reportable Event with respect to any Single Employer Plan, or any withdrawal
from, or the termination, Reorganization or Insolvency of any Multiemployer
Pension Plan, (ii) the institution of proceedings or the taking of any other
action by the PBGC or the Borrower or any Commonly Controlled Entity or
Subsidiary or any Multiemployer Pension Plan with respect to the withdrawal
from, or the termination, Reorganization or Insolvency of, any Single Employer
Plan or Multiemployer Pension Plan, or the receipt of notice by the Borrower or
any Commonly Controlled Entity or Subsidiary that the institution of any such
proceedings or the taking of any such action is under consideration or
anticipated, (iii) the institution of any proceedings or other action by the
Internal Revenue Service or the Department of Labor with respect to the minimum
funding requirements of any Pension Plan, or the receipt of notice by the
Borrower or any Commonly Controlled Entity or Subsidiary that the institution
of any such proceedings or the taking of any such action is under consideration
or anticipated, (iv) the occurrence or expected occurrence of any event which
could result in the incurrence of unpredictable contingent event benefits under
Section 302 of ERISA or Section 412 of the IRC with respect to any Pension
Plan, (v) any event or condition which could increase the liability of the
Borrower or any Commonly Controlled Entity or Subsidiary with respect to
post-retirement welfare benefits under any Plan, or (vi) the occurrence of any
other event or condition with respect to any Plan which could subject the
Borrower or any Subsidiary (directly or indirectly) to any tax, penalty or
liability under Title I or Title IV of ERISA, Section 404 or 419 and Chapter 43
of the IRC, or any other applicable laws, and in each case in clauses (i)
through (vi) above, such event or condition, together with all other events or
conditions, if any, could subject the Borrower or any Subsidiary (directly or
indirectly) to any tax, fine, penalty, or other liabilities in amounts which in
the aggregate could result in a Material Adverse Change. The Borrower will
deliver to each of the Lenders a true and complete copy of each annual report
(Form 5500) of each Plan (other than a Multi-Employer Plan) required to be
filed with the Internal Revenue Service, promptly after the filing thereof; and
(g) the condemnation or threat of condemnation with
respect to any property used or necessary in the conduct of the businesses of
the Borrower or any of its Subsidiaries.
SECTION 6.1.7. BOOKS AND RECORDS. The Borrower will, and
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<PAGE> 74
will cause each Subsidiary to, keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP and permit the Agent
and each Lender or any of their respective representatives, at reasonable times
and reasonable intervals upon one Business Day's notice, to visit all of its
offices, to discuss its financial matters with its officers and independent
public accountants and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any fees and expenses, including, without limitation, any
fees of its independent public accountants incurred in connection with the
Agent's or any Lender's exercise of its rights pursuant to this SECTION 6.1.7,
PROVIDED, HOWEVER, that unless an Event of Default has occurred and is
continuing the Borrower shall be required to pay such fees for not more than
two visits and examinations in each Fiscal Year.
SECTION 6.1.8. MAINTENANCE OF PROPERTIES, ETC. The Borrower
will: (a) maintain and preserve, and cause each of its Subsidiaries to maintain
and preserve, all of its properties (real and personal and including all
intangible assets), except obsolete properties, which are used or necessary in
the conduct of its business in good working order and condition, ordinary wear
and tear excepted, except that this clause (a) shall not apply to any
circumstance where noncompliance, together with all other noncompliances, could
not reasonably result in a Material Adverse Change; and (b) to the extent
Borrower deems advisable in its reasonable business judgment, forthwith repair
or replace, at its own expense, any such property or asset that suffers a Loss.
SECTION 6.1.9. MAINTENANCE OF LICENSES AND PERMITS. The
Borrower will maintain and preserve, and will cause each of its Subsidiaries to
maintain and preserve, all Intellectual Property, rights, permits, licenses,
approvals and privileges issued under or arising under any Requirements of Law,
except that this SECTION 6.1.9 shall not apply to any circumstance where
noncompliance, together with all other noncompliances, could not result in a
Material Adverse Change.
SECTION 6.1.10. EMPLOYEE PLANS. The Borrower will at all
times comply in all material respects with the provisions of ERISA and the IRC
which are applicable to any of the Plans, and cause each of its Subsidiaries so
to do.
SECTION 6.1.11. COMPLIANCE WITH LAWS. The Borrower will, and
will cause each Subsidiary to, comply with all applicable Requirements of Law;
PROVIDED, HOWEVER, that this SECTION 6.1.11 shall not apply to any circumstance
of noncompliance that together with all other noncompliances could not result
in a Material Adverse Change.
SECTION 6.1.12. INTEREST RATE PROTECTION. Within 180 days
after the Closing Date, the Borrower shall obtain and
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<PAGE> 75
thereafter maintain in full force and effect, from ING, or from an Eligible
Lending Institution, one or more Interest Rate Contracts, protecting the
Borrower against increases in the ING Alternate Base Rate in excess of 100
basis points above the ING Alternate Base Rate on the Closing Date for an
aggregate notional amount equal to at least $20,000,000, for a term of at least
three (3) years. ING shall make available to the Borrower various proposals
for Interest Rate Contracts. Should the Borrower obtain any proposal for
Interest Rate Contracts from a source other than ING, the Borrower agrees that
ING shall have a right to provide such Interest Rate Contracts on the same
terms as those set forth in such proposal. The Borrower will collaterally
assign such Interest Rate Contracts to the Agent, for its benefit and the
ratable benefit of the Lenders, pursuant to documentation acceptable to the
Agent, and the Borrower may secure any net obligations of the Borrower under
any such Interest Rate Contracts on a PARI PASSU basis with the Obligations.
SECTION 6.1.13. REAL ESTATE. If the Borrower or any of its
Subsidiaries shall acquire a fee or leasehold interest (other than office
leases) in real estate which the Required Lenders determine to be material to
the Borrower or such Subsidiary, the Borrower or such Subsidiary, as the case
may be, will execute a first priority mortgage, deed of trust or deed to secure
debt or leasehold mortgage, leasehold deed of trust or leasehold deed to secure
debt, as appropriate, in form and substance reasonably satisfactory to the
Required Lenders, in favor of the Agent, for its benefit and the ratable
benefit of the Lenders, and shall use its best efforts to deliver to the Agent
such title insurance policies, surveys and landlords' estoppel agreements with
respect thereto as the Required Lenders shall request.
SECTION 6.1.14. GOVERNMENTAL APPROVALS. The Borrower will
secure, and will cooperate with the Lenders in any case to secure, all
necessary consents, approvals, authorizations and exemptions from all
governmental authorities, (including the making of all filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT")) in connection with any conversion of Term Notes pursuant to Article 8
and the issuance of shares of Series B Special Preferred Stock in connection
therewith, and the issuance of shares of Common Stock upon the conversion of
such shares of Series B Special Preferred Stock. The Borrower shall be
responsible for the payment of all expenses with respect to all filings under
the HSR Act in connection with the foregoing, including but not limited to the
filing fees and the fees and expenses of counsel to each Lender in connection
therewith.
SECTION 6.1.15. ANTITAKEOVER STATUTES. The Borrower shall
take all action necessary to avoid the application of any "fair price,"
"moratorium," "control share acquisition," "business combination," "shareholder
protection" or similar antitakeover
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statute to the transactions contemplated by this Agreement or any of the other
Loan Documents.
SECTION 6.1.16. TELEPHONE PLACEMENT AGREEMENTS. With respect
to Telephone Placement Agreements entered into or renewed or extended after the
Closing Date, the Borrower shall only utilize and execute Instruments which are
in the form of Schedule 2 attached hereto.
SECTION 6.1.17. CASH MANAGEMENT SYSTEM. On or prior to April
15, 1996, the Borrower will establish and thereafter maintain at all times the
cash management system described in SCHEDULE 3.
SECTION 6.2. NEGATIVE COVENANTS. The Borrower agrees with
each Lender that until all Commitments have terminated and all Obligations
(other than Obligations that expressly survive the termination of this
Agreement pursuant to SECTION 10.5) have been paid and performed in full, the
Borrower will perform the Obligations set forth in this SECTION 6.2.
SECTION 6.2.1. BUSINESS ACTIVITIES. The Borrower will not,
and will not permit any Subsidiary to, engage in any business activity, except
those in which the Borrower is engaged on the Closing Date and such activities
as may be incidental or related thereto.
SECTION 6.2.2. INDEBTEDNESS. The Borrower will not, and
will not permit any Subsidiary to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness other than:
(a) Indebtedness in respect of the Loans and other
Obligations;
(b) Indebtedness in respect of the Interest Rate
Contracts required pursuant to SECTION 6.1.12 to the extent such do not
constitute Obligations;
(c) obligations that constitute Indebtedness solely by
virtue of being secured by Liens permitted under SECTION 6.2.3;
(d) Indebtedness in respect of liabilities resulting from
(i) endorsements of negotiable instruments in the ordinary course of business;
and (ii) surety bonds issued for the account of the Borrower or any of its
Subsidiaries in the ordinary course of business;
(e) Indebtedness existing on the Closing Date and set
forth in ITEM 18 ("Existing Indebtedness") of the Disclosure Schedule;
(f) Indebtedness of any Subsidiary owing to the
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<PAGE> 77
Borrower, provided that such Indebtedness is evidenced by a demand promissory
note that is pledged to the Agent, for its benefit and the benefit of the
Lenders, as security for the Obligations pursuant to the Borrower Pledge
Agreement;
(g) Capitalized Lease Liabilities PROVIDED that (i) the
aggregate amount thereof which in accordance with GAAP is attributable to
principal, together with the aggregate outstanding principal amount of all
Purchase Money Indebtedness of the Borrower and its Subsidiaries, does not
exceed $100,000 at any one time outstanding, (ii) payments under each
capitalized lease giving rise to such Capitalized Lease Liabilities shall be
made in equal periodic installments, (iii) such Capitalized Lease Liabilities
are not incurred to finance the purchase of Telephones and related equipment,
and (iv) the Consolidated Capital Expenditures financed by such Capitalized
Lease Liabilities are permitted under SECTION 6.2.5;
(h) Purchase Money Indebtedness PROVIDED that (i) the
amount of such Indebtedness, together with the amount of any outstanding
Capitalized Lease Liabilities of the Borrower and its Subsidiaries that in
accordance with GAAP are attributable to principal, does not exceed $100,000 at
any one time outstanding, (ii) such Indebtedness provides for the payment of
principal in equal periodic installments, (iii) such Purchase Money
Indebtedness is not incurred to finance the purchase of Telephones and related
equipment, and (iv) the Consolidated Capital Expenditures financed by such
Purchase Money Indebtedness are permitted under SECTION 6.2.5;
(i) extensions, refinancings, replacements and renewals
of any of the foregoing items described in clauses (a) through (h) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome covenants, rates of
interest, repayment terms or events of default upon the Borrower or its
Subsidiaries, as the case may be; and
(j) other Indebtedness not otherwise covered by clauses
(a) through (i) above not to exceed $100,000 in aggregate amount outstanding at
any time during the term of this Agreement.
SECTION 6.2.3. LIENS. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to exist any Lien
upon any of its property, revenues or assets, whether now owned or hereafter
acquired, except:
(a) Liens in favor of the Agent or the Lenders granted
pursuant to any Loan Document;
(b) Liens identified in ITEM 19 ("Permitted Liens") of
the Disclosure Schedule evidencing rights of lessors in leased equipment and/or
purchase money liens on specific items of
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equipment;
(c) Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable with penalty
or being contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books;
(d) Liens of carriers, warehousemen, mechanics, and
materialmen incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings (which proceedings
have the effect of preventing the forfeiture or sale of the asset subject to
such Lien) and for which adequate reserves in accordance with GAAP shall have
been set aside on its books;
(e) Liens (other than Liens arising under ERISA or
Section 412(n) of the Code) incurred in the ordinary course of business in
respect of deposits made in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or benefits,
or to secure performance of tenders, statutory obligations, leases and
contracts (other than for borrowed money) entered into in the ordinary course
of business or to secure obligations on surety or appeal bonds;
(f) judgment Liens with respect to judgments to the
extent such judgments do not constitute an Event of Default described in
SECTION 7.1.9;
(g) Liens which arise by operation of law under Article 2
of the UCC in favor of unpaid sellers of goods, or liens in items or any
accompanying documents or proceeds of either arising by operation of law under
Article 4 of the UCC in favor of a collecting bank;
(h) easements (including, without limitation, reciprocal
easement agreements and utility agreements), rights-of-way, covenants,
consents, reservations, encroachments, variations and other restrictions,
charges or encumbrances (whether or not recorded) affecting the use of
property, which do not materially detract from the value of such property or
impair the use thereof;
(i) Liens securing Indebtedness permitted under clauses
(g) or (h) of SECTION 6.2.2;
(j) Leases and subleases granted to others in the
ordinary course of business not interfering in any material respect with any
business of the Borrower or any of its Subsidiaries;
(k) Liens which constitute rights of set-off of a
customary nature or bankers' liens with respect to amounts on deposit, whether
arising by operation of law or by contract, in
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connection with deposit accounts established with banks in the ordinary course
of business; and
(l) extensions, renewals or replacements of any Lien
referred to in paragraphs (a) through (k) above, provided that the principal
amount of the obligation secured thereby is not increased and that any such
extension, renewal or replacement is limited to the property originally
encumbered thereby.
SECTION 6.2.4. FINANCIAL CONDITION. The Borrower hereby
covenants and agrees as set forth below:
(a) FIXED CHARGE COVERAGE RATIO. The Borrower will not
permit its Fixed Charge Coverage Ratio for the twelve-month period ending on
the last day of any Fiscal Quarter to be less than the ratio set forth opposite
such Fiscal Quarter (for each Fiscal Quarter ending prior to March 31, 1997,
such ratio to be calculated as provided in clause (h) of this SECTION 6.2.4):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING: RATIO
---------------------- -----
<S> <C>
June 30, 1996 0.4
September 30, 1996 0.8
December 31, 1996 1.0
March 31, 1997 1.1
June 30, 1997 1.5
September 30, 1997 1.8
December 31, 1997 2.3
March 31, 1998 2.5
June 30, 1998 2.7
September 30, 1998 3.0
December 31, 1998 3.3
March 31, 1999 3.3
June 30, 1999 2.9
</TABLE>
(b) EBITDA. The Borrower will not permit EBITDA of the
Borrower and its Subsidiaries for the twelve-month period ending on the last
day of any Fiscal Quarter to be less than the amount set forth opposite such
Fiscal Quarter (for each Fiscal Quarter ending prior to March 31, 1997, such
amount to be calculated as provided in clause (h) of this SECTION 6.2.4):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING: AMOUNT
---------------------- ------
<S> <C>
June 30, 1996 $ 875,000
September 30, 1996 3,028,000
December 31, 1996 5,589,000
March 31, 1997 8,036,000
June 30, 1997 11,170,000
September 30, 1997 13,317,000
December 31, 1997 16,521,000
</TABLE>
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<PAGE> 80
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, 1998 16,914,000
June 30, 1998 17,458,000
September 30, 1998 18,017,000
December 31, 1998 18,704,000
March 31, 1999 19,130,000
June 30, 1999 19,739,000
</TABLE>
(c) CURRENT RATIO. The Borrower will not permit the
Current Ratio of the Borrower and its Subsidiaries on the last day of any
Fiscal Quarter 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 (9,170,000)
December 31, 1996 (8,149,000)
March 31, 1997 (7,455,000)
June 30, 1997 (5,157,000)
September 30, 1997 (2,535,000)
December 31, 1997 1,616,000
March 31, 1998 3,051,000
June 30, 1998 6,211,000
September 30, 1998 9,655,000
December 31, 1998 14,640,000
March 31, 1999 16,188,000
June 30, 1999 18,890,000
</TABLE>
(e) SENIOR INTEREST COVERAGE RATIO. The Borrower will
not permit the Senior Interest Coverage Ratio of the Borrower and its
Subsidiaries for the twelve-month period ending on the last day of any Fiscal
Quarter to be less than the ratio set forth opposite such Fiscal Quarter (for
each Fiscal Quarter ending prior to March 31, 1997, such ratio to be calculated
as provided in clause (h) of this SECTION 6.2.4):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING: RATIO
---------------------- -----
<S> <C>
June 30, 1996 0.9
September 30, 1996 1.6
December 31, 1996 2.0
March 31, 1997 2.3
June 30, 1997 3.4
September 30, 1997 4.4
December 31, 1998 5.8
March 31, 1998 6.9
June 30, 1998 8.4
</TABLE>
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<PAGE> 81
<TABLE>
<CAPTION>
<S> <C> <C>
September 30, 1998 10.6
December 31, 1998 14.3
March 31, 1999 18.2
June 30, 1999 24.8
</TABLE>
(f) MINIMUM GROSS MARGIN PERCENTAGE - NON-COIN CALLS.
The Borrower will not permit the Minimum Gross Margin Percentage - Non-Coin
Calls for the twelve-month period ending on the last day of any Fiscal Quarter
to be less than the percentage set forth opposite such Fiscal Quarter (for each
Fiscal Quarter ending prior to March 31, 1997, such percentage to be
calculated as provided in clause (h) of this SECTION 6.2.4):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING: PERCENTAGE
---------------------- ----------
<S> <C>
June 30, 1996 55.2%
September 30, 1996 55.2
December 31, 1996 55.2
March 31, 1997 54.2
June 30, 1997 54.4
September 30, 1997 54.7
December 31, 1997 56.0
March 31, 1998 56.2
June 30, 1998 56.4
September 30, 1998 56.6
December 31, 1998 56.8
March 31, 1999 56.7
June 30, 1999 56.7
</TABLE>
(g) MAXIMUM OVERHEAD EXPENSE. The Borrower will not
permit Maximum Overhead Expense of the Borrower and its Subsidiaries for the
twelve-month period ending on the last day of any Fiscal Quarter to be more
than the amount set forth opposite such Fiscal Quarter (for each Fiscal Quarter
ending prior to March 31, 1997, such amount to be calculated as provided in
clause (h) of this SECTION 6.2.4):
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING: AMOUNT
---------------------- ------
<S> <C>
June 30, 1996 $ 3,989,000
September 30, 1996 6,862,000
December 31, 1996 9,717,000
March 31, 1997 12,885,000
June 30, 1997 12,119,000
September 30, 1997 12,524,000
December 31, 1997 13,002,000
March 31, 1998 13,279,000
June 30, 1998 13,554,000
September 30, 1998 13,830,000
</TABLE>
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<PAGE> 82
<TABLE>
<S> <C> <C>
December 31, 1998 14,104,000
March 31, 1999 14,392,000
June 30, 1999 14,679,000
</TABLE>
(h) CALCULATIONS FOR STUB PERIODS. Notwithstanding any
thing contained herein to the contrary, for any period ending prior to March
31, 1997, calculation of all items relating to income or expense (including,
without limitation, EBITDA) and increases or decreases in working capital)
shall be made for the period commencing on the Closing Date and ending on the
date of determination.
SECTION 6.2.5. CAPITAL EXPENDITURES. The Borrower will not,
and will not permit any Subsidiary to, make or commit to make Consolidated
Capital Expenditures, except that the Borrower and its Subsidiaries may make
Consolidated Capital Expenditures during any Fiscal Year provided (x) no
Default or Event of Default has occurred and is continuing and (y) the
aggregate amount of Consolidated Capital Expenditures made during such Fiscal
Year does not exceed the amount set forth below opposite such Fiscal Year (in
the case of the 1996 Fiscal Year, for the period commencing on the Closing Date
to the end of such Fiscal Year):
FISCAL YEAR: AMOUNT
1996 $ 3,300,000
1997 4,000,000
1998 4,250,000
1999 4,325,000
PROVIDED, HOWEVER, that the Borrower and its Subsidiaries shall not make or
incur Consolidated Capital Expenditures prior to May 1, 1996 in excess of
$350,000 in the aggregate; PROVIDED, FURTHER HOWEVER, that the Borrower and its
Subsidiaries may not make or incur Consolidated Capital Expenditures in the
calendar month immediately following any calendar month where the Borrower and
its Subsidiaries experience negative cash flow on a consolidated basis (I.E.,
cash expenditures exceed cash revenues during such calendar month); PROVIDED,
FURTHER HOWEVER, that expenditures from insurance proceeds received upon the
occurrence of a Loss which are made to replace or repair damaged or destroyed
assets will not be included in the foregoing calculation for the Fiscal Year
such replacement or repair was made.
SECTION 6.2.6. LEASE OBLIGATIONS. The Borrower will not,
and will not permit any Subsidiary to, create or suffer to exist any obligation
for the payment of rent for any property under any operating lease or agreement
to lease having a term of one year or more, except for (a) leases in existence
on the Closing Date and described in ITEM 20 ("Leases") of the Disclosure
Schedule, and (b) any lease of real property entered into by the Borrower or
any
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Subsidiary after the Closing Date in the ordinary course of business; PROVIDED,
HOWEVER, that no such lease shall, to the best of the Borrower's knowledge,
subject the Borrower or any Subsidiary to Environmental Liabilities and Costs
and that the aggregate amount of payments due from the Borrower and its
Subsidiaries for all leases referred to in this SECTION 6.2.6, during each
Fiscal Year set forth below, is less than the amount set forth below opposite
such Fiscal Year (in the case of the 1996 Fiscal Year, for the period
commencing on the Closing Date to the end of such Fiscal Year):
FISCAL YEAR: AMOUNT
1996 $ 100,000
1997 100,000
1998 100,000
1999 100,000
SECTION 6.2.7. INVESTMENTS. The Borrower will not, and will
not permit any Subsidiary to, make, incur, assume or suffer to exist any
Investment in any other Person except:
(a) Cash Equivalent Investments;
(b) deposits for utilities, security deposits under
leases and similar prepaid expenses;
(c) Accounts arising in the ordinary course of business;
(d) Investments existing on the Closing Date and
disclosed in ITEM 21 ("Existing Investments") of the Disclosure Schedule;
(e) Investments by the Borrower in its Subsidiaries to
the extent such Investments are evidenced by demand promissory notes in
principal amounts equal to the amount of such Investments, payable to the
Borrower and pledged by the Borrower in favor of the Agent pursuant to the
Borrower Pledge Agreement;
(f) Investments arising under Interest Rate Contracts; and
(g) Investments consisting of deposit accounts of the
Borrower and its Subsidiaries maintained with banks in the ordinary course of
business.
SECTION 6.2.8. RESTRICTED PAYMENTS, ETC. The Borrower will
not declare, pay or make any dividend or distribution (in cash, property or
obligations) on any shares of any class of Stock (now or hereafter outstanding)
of the Borrower or on any warrants, options or other rights in respect of any
class of Stock (now or hereafter outstanding) of the Borrower or apply, or
permit any
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Subsidiary to apply, any of its funds, property or assets to the purchase,
redemption, sinking fund or other retirement of any shares of any class of
Stock (now or hereafter outstanding) of the Borrower or any rights, options or
warrants to subscribe for or purchase any shares of any class of Stock of the
Borrower, or make any deposit for any of the foregoing.
SECTION 6.2.9. TAKE OR PAY CONTRACTS; SALE/LEASEBACKS.
(a) Except as set forth on ITEM 23 ("Take or Pay
Contracts") of the Disclosure Schedule, the Borrower will not, and will not
permit any Subsidiary to, enter into or be a party to any arrangement for the
purchase of materials, supplies, other property or services if such arrangement
by its express terms requires that payment be made by the Borrower or such
Subsidiary regardless of whether or not such materials, supplies, other
properties or services are delivered or furnished to it; and
(b) The Borrower will not enter into, or permit any
Subsidiary to enter into, any arrangement with any Person providing for the
leasing by the Borrower or one or more Subsidiaries of any property or assets,
which property or assets has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person.
SECTION 6.2.10. CONSOLIDATION, MERGER, SUBSIDIARIES, ETC.
(a) The Borrower will not, and will not permit any
Subsidiary to, liquidate or dissolve, consolidate with, or merge into or with,
any other corporation, or purchase or otherwise acquire all or substantially
all of the assets of any Person (or of any division or business unit thereof),
except that any such Subsidiary may liquidate or dissolve voluntarily into, and
may merge with and into, the Borrower or any other wholly-owned Subsidiary (so
long as the Borrower or such wholly-owned Subsidiary is the surviving
corporation), PROVIDED, HOWEVER, that the Borrower shall be permitted to merge
with and into a Delaware corporation for the sole purpose of changing its state
of incorporation to the State of Delaware provided that (i) the shareholders of
the surviving corporation immediately after such merger are the shareholders of
the Borrower immediately prior to such merger, (ii) the number of authorized
and issued and authorized and unissued shares, and the respective classes and
series, of capital stock of the surviving corporation shall be the same as the
number of authorized and issued and authorized and unissued shares, and the
respective classes and series of capital stock of the Borrower immediately
prior to such merger, (iii) the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions of all classes and series of capital stock of the
surviving corporation shall be identical to the voting powers,
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<PAGE> 85
designations, preferences (including, without limitation, stated values and
liquidation preferences) and relative, participating, optional or other special
rights, and qualifications, limitations and restrictions of the respective
classes and series of the capital stock of the Borrower as in effect
immediately prior to such merger, (iv) the Lenders shall have received (A) an
assumption agreement in form and substance satisfactory to the Required
Lenders, duly executed by the surviving corporation and pursuant to which the
surviving corporation shall expressly assume all of the obligations of the
Borrower under this Agreement and the other Loan Documents, and (B) such
acknowledgments, certificates, instruments and legal opinions relating to such
merger and assumption agreement as the Required Lenders shall reasonably
request, and (v) the provisions of Section 203 of the Delaware General
Corporation Law would not apply to the Borrower, the Agent or any Lender, this
Agreement, any of the other Loan Documents or the authorization or the issuance
of the shares of capital stock to be issued pursuant to the Loan Documents or
upon conversion of such shares; and
(b) The Borrower will not, and will not permit any
Subsidiary to, create any Subsidiary or transfer any assets to any Subsidiary.
SECTION 6.2.11. ASSET DISPOSITIONS, ETC. The Borrower will
not, and will not permit any Subsidiary to, sell, transfer, lease or otherwise
dispose of, or grant options, warrants or other rights with respect to, any of
its assets (including Accounts and Stock of Subsidiaries) to any Person,
unless:
(a) such disposition constitutes a disposition of
obsolete or retired assets not used in the business of the Borrower and its
Subsidiaries; or
(b) the disposition is in the ordinary course of business
and the net book value of the asset to be disposed of does not exceed $100,000,
and together with the net book value of all other assets disposed of by the
Borrower or any Subsidiary pursuant to this clause (b) during the term of this
Agreement does not exceed $250,000, and solely cash is received therefor.
SECTION 6.2.12. MODIFICATION OF ORGANIC DOCUMENTS, ETC. The
Borrower will not consent to any amendment, supplement or other modification of
any of the terms or provisions contained in, or applicable to, the Certificate
of Incorporation or the By-Laws of the Borrower, except for any amendment,
supplement or other modification which does not adversely affect the Borrower's
ability to pay or perform the Obligations.
SECTION 6.2.13. TRANSACTIONS WITH AFFILIATES. Except as set
forth on Item 22 ("Transaction with Affiliates") of the Disclosure Schedule,
the Borrower will not, and will not permit any Subsidiary to, enter into, or
cause, suffer or permit to exist:
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<PAGE> 86
(a) any management contract or arrangement, consulting
agreement or arrangement, contract or arrangement relating to the allocation of
revenues, expenses or similar contract or arrangement requiring any payments to
be made by the Borrower or any Subsidiaries to any Affiliate; and
(b) any other transaction, arrangement or contract with
any of its other Affiliates which is on terms which are less favorable than are
obtainable from any Person which is not one of its Affiliates.
SECTION 6.2.14. INCONSISTENT AGREEMENTS. The Borrower will
not, and will not permit any Subsidiary to, enter into any material agreement
containing any provision which would be violated or breached in any material
respect by any Loan or by the performance by the Borrower or any Subsidiary of
its obligations hereunder or under any Loan Document.
SECTION 6.2.15. CHANGE IN ACCOUNTING METHOD. The Borrower
will not, and will not permit any Subsidiary to, make any change in accounting
treatment and reporting practices except as required by GAAP.
SECTION 6.2.16. CHANGE IN FISCAL YEAR END. The Borrower will
not change its Fiscal Year end without the Required Lenders' prior written
consent, which consent will not be unreasonably withheld but will not be given
with respect to more than one such change during the term of this Agreement.
SECTION 6.2.17. COMPLIANCE WITH ERISA. The Borrower shall
not, and shall not permit any Subsidiary to take, or fail to take, any action
with respect to a Plan, including, but not limited to, establishing, amending,
or terminating or withdrawing from any Plan, without first obtaining the
Required Lenders' written approval, where such action or failure to act could
result in any liabilities under the IRC, ERISA, or any other applicable law
which individually or in the aggregate could reasonably result in a Material
Adverse Change.
SECTION 6.2.18. LIMITATION ON RESTRICTIONS ON SUBSIDIARY
DIVIDENDS. The Borrower will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any such
Subsidiary to (a) pay dividends or make other distributions on its Stock or
other interests or participations in profits owned by Borrower or any
Subsidiary of Borrower or pay any Indebtedness owed to Borrower or any
Subsidiary of Borrower, (b) make loans or advances to Borrower or any
Subsidiary of Borrower or (c) transfer any of its property or assets to
Borrower or any Subsidiary of Borrower, except for such encumbrances and
restrictions existing under or by reason of this Agreement and the other Loan
Documents.
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SECTION 6.2.19. COMMUNICATIONS LAWS. Neither the Borrower nor
any of its Subsidiaries will acquire any licenses or conduct any business which
would result in the application of Section 310 of the Communications Act of
1934 as a result of this Agreement or any of the other Loan Documents or the
authorization or issuance of the Notes or any shares of capital stock to be
issued pursuant to the Loan Documents, or upon conversion of the Series B
Special Preferred Stock.
SECTION 6.2.20. ISSUANCE OF SERIES B SPECIAL PREFERRED STOCK.
The Borrower shall not issue any shares of Series B Special Preferred Stock
other than pursuant to the conversion of Term Notes in accordance with Article
8.
ARTICLE 7.
EVENTS OF DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. The term "EVENT OF
DEFAULT" shall mean any of the events set forth in this SECTION 7.1.
SECTION 7.1.1. NON-PAYMENT OF OBLIGATIONS. The Borrower
shall default:
(a) in the payment or prepayment when due of any
principal of any Loan; or
(b) in the payment when due of the interest payable in
respect of any Loan, the fees provided for in SECTION 2.3 hereof or any other
Obligations and such default shall continue unremedied for a period of five
days.
SECTION 7.1.2. NON-PERFORMANCE OF CERTAIN COVENANTS. The
Borrower shall default in the due performance and observance of any of its
obligations under SECTION 6.1 and such default shall continue unremedied for a
period of 10 Business Days after notice thereof shall have been given to the
Borrower by the Agent, or shall default in the due performance or observation
of any of its obligations under SECTION 6.2.
SECTION 7.1.3. DEFAULTS UNDER OTHER LOAN DOCUMENTS;
NON-PERFORMANCE OF OTHER OBLIGATIONS. Any "Event of Default" shall occur under
the other Loan Documents; or the Borrower or any Subsidiary shall default in
the due performance and observance of any other obligation, covenant or
agreement contained herein or in any other Loan Document and such default shall
continue unremedied for a period of ten (10) Business Days after notice thereof
shall have been given to the Borrower by the Agent.
SECTION 7.1.4. BANKRUPTCY, INSOLVENCY, ETC. The Borrower
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or any Subsidiary shall:
(a) become insolvent or generally fail to pay, or admit
in writing its inability to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other custodian for the
Borrower or any Subsidiary or any property of any thereof, or make a general
assignment for the benefit of creditors;
(c) in the absence of such application, consent or
acquiescence, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower or any Subsidiary or for a
substantial part of the property of any thereof, and such trustee, receiver,
sequestrator or other custodian shall not be discharged within sixty (60) days;
(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or proceeding under
any bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Borrower or any Subsidiary, and, if such case or
proceeding is not commenced by the Borrower or such Subsidiary, such case or
proceeding shall be consented to or acquiesced in by the Borrower or such
Subsidiary or shall result in the entry of an order for relief or shall remain
for sixty (60) days undismissed; or
(e) take any corporate action authorizing, or in
furtherance of, any of the foregoing.
SECTION 7.1.5. BREACH OF WARRANTY. Any representation or
warranty of the Borrower or any Subsidiary hereunder or in any other Loan
Document or in any other writing furnished by or on behalf of the Borrower or
such Subsidiary to the Agent or any Lender for the purposes of or in connection
with this Agreement or any such Loan Document is or shall be incorrect when
made in any material respect.
SECTION 7.1.6. DEFAULT ON OTHER INDEBTEDNESS, ETC. (a) Any
Indebtedness of the Borrower or any Subsidiary in an aggregate principal amount
exceeding $100,000 (i) shall be duly declared to be or shall become due and
payable prior to the stated maturity thereof, or (ii) shall not be paid as and
when the same becomes due and payable including any applicable grace period; or
(b) there shall occur and be continuing any event which constitutes an event of
default under any Instrument relating to any Indebtedness of the Borrower or
any Subsidiary in an aggregate principal amount exceeding $100,000, the effect
of which is to permit the holder or holders of such Indebtedness, or a trustee,
agent or other representative on behalf of such holder or holders, to cause
such Indebtedness to become due prior to its stated maturity.
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SECTION 7.1.7. FAILURE OF VALID, PERFECTED SECURITY
INTEREST. The security interest or Lien in the Collateral and all proceeds
thereof, securing the Obligations shall cease to be valid or perfected at any
time after the Closing Date PROVIDED, HOWEVER, that the failure of the Agent or
any Lender to file any necessary UCC continuation statements shall not be
deemed to constitute an Event of Default under this SECTION 7.1.7.
SECTION 7.1.8. EMPLOYEE PLANS. Any of the following events
shall occur with respect to any Plan: (i) any Person shall engage in any
"prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan and such "prohibited transaction" could result in
a Material Adverse Change, (ii) any "accumulated funding deficiency" (as
defined in Section 412 of the Code or Section 302 of ERISA) not disclosed in
ITEM 7 ("Benefit Plans") of the Disclosure Schedule, whether or not waived,
shall exist with respect to any Single Employer Plan, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Required Lenders,
likely to result in the termination of such Plan for purposes of Title IV of
ERISA, (iv) a notice of intent to terminate any Single Employer Plan for
purposes of Title IV of ERISA is issued by the plan administrator thereof
without the prior written consent of the Required Lenders, or the PBGC shall
commence proceedings to terminate any Single Employer Plan, (v) the Borrower or
any Commonly Controlled Entity or Subsidiary shall, or in the reasonable
opinion of the Required Lenders is likely to, incur any liability in connection
with a withdrawal from, or the Insolvency, Reorganization or termination of, a
Multiemployer Plan, (vi) the Borrower or any Commonly Controlled Entity or
Subsidiary shall fail to make any quarterly installment payment to a Pension
Plan required under Section 302(e) of ERISA or Section 412(m) of the Code,
(vii) the Borrower or any Commonly Controlled Entity or Subsidiary shall fail
to make any contribution to a Multiemployer Plan which is required under ERISA,
the Code or applicable collective bargaining agreements, or (viii) any other
event or condition shall occur or exist with respect to a Plan; and in each
case in clauses (i) through (viii) above, such event or condition, together
with all other such events or conditions, if any, could subject the Borrower or
any Subsidiary (directly or indirectly) to any tax, penalty or other
liabilities under Title I or Title IV of ERISA, Section 404 or 419 and Chapter
43 of the IRC or any other applicable law which in the aggregate could result
in a Material Adverse Change.
SECTION 7.1.9. JUDGMENTS. A final judgment which, with
other such outstanding final judgments against the Borrower and its
Subsidiaries (in each case to the extent not covered by insurance), exceeds an
aggregate of $250,000, shall be entered against the
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Borrower or any of its Subsidiaries and, within 30 days after entry thereof,
such judgment shall not have been discharged or execution thereof stayed
pending appeal, or, within 30 days after the expiration of any such stay, such
judgment shall not have been discharged.
SECTION 7.1.10. LOSS OF PERMITS, ETC. The expiration, loss,
termination, cancellation, revocation, forfeiture, suspension, diminution,
impairment of or failure to renew any Intellectual Property, right, permit,
license or approval which could result in a Material Adverse Change; or the
entry of any order of a court enjoining, restraining or otherwise preventing
the Borrower or any Subsidiary from conducting all or any material part of its
business affairs; or the cessation of business or dissolution of the Borrower.
SECTION 7.1.11. MATERIAL ADVERSE CHANGE. A Material Adverse
Changes occurs with respect to the Borrower or any of its Subsidiaries.
SECTION 7.1.12. 10% PREFERRED STOCK. The Borrower's 10%
Preferred Stock, without par value, $10 stated value, shall not be convertible
into Common Stock at any time after September 30, 1996 or such Preferred Stock
otherwise shall be subject to redemption by the Borrower at the option of the
holders thereof at any time after such date.
SECTION 7.2. ACTION IF BANKRUPTCY. If any Event of
Default described in SECTION 7.1.4 shall occur, the outstanding principal
amount of all outstanding Loans and all other Obligations shall automatically
be and become immediately due and payable, without notice or demand, and the
Agent, upon the direction of the Required Lenders, shall exercise any and all
rights and remedies available under this Agreement or any other Loan Document,
or available at law or in equity, at any time, in any order and in any
combination.
SECTION 7.3. ACTION IF OTHER EVENT OF DEFAULT. If any
Event of Default (other than any Event of Default described in SECTION 7.1.4)
shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Agent may, and upon the direction of the Required Lenders,
shall upon notice or demand, (a) declare all or any portion of the outstanding
principal amount of the Loans to be due and payable and any or all other
Obligations to be due and payable, whereupon the full unpaid amount of such
Loans and any and all other Obligations which shall be so declared due and
payable shall be and become immediately due and payable, without further
notice, demand, or presentment, and to the extent paid by the Borrower shall
constitute a prepayment under this Agreement and (b) exercise any and all
rights and remedies available under this Agreement or any other Loan Document,
or available at law or in equity, at any time, in any order and in any
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combination. Notwithstanding anything to the contrary set forth in this
SECTION 7.3, the Agent is permitted to act without the consent of the Required
Lenders pursuant to this SECTION 7.3, only if (a) the Agent reasonably believes
it should exercise the rights afforded to it under this SECTION 7.3 to protect
the interests of the Lenders, (b) the Agent shall have made due inquiry of each
Lender (i) having more than 33-1/3% of the aggregate of the Revolving Loan
Commitments plus the outstanding principal amount of the Term Loan or (ii) if
the Revolving Loan Commitments shall have been terminated, having more than
33-1/3% of the aggregate of the outstanding principal amount of the Loans as
to whether the Agent should act under this SECTION 7.3, and (c) such Lender(s)
fail(s) to respond to the Agent's inquiry within a reasonable period of time.
ARTICLE 8.
CONVERSION
SECTION 8.1. CONVERSION PRIVILEGE. Each Lender may, at
such Lender's option, any time prior to the satisfaction in full of all of the
outstanding principal under and accrued interest on such Lender's Term Note or
Term Notes, convert its Term Note or Term Notes, in whole or in part (in
amounts of $100,000 or integral multiples thereof), at 100% of the amount so
converted, into fully paid and non-assessable shares of Series B Special
Preferred Stock at a rate (the "CONVERSION RATE") of 833.3333 shares of Series
B Special Preferred Stock for each $100,000 of outstanding principal and
accrued interest so converted. All outstanding principal under and accrued
interest on the Term Notes may be converted as provided herein.
SECTION 8.2. CONVERSION PROCEDURE.
(a) To convert a Term Note or portion thereof, a Lender
must (i) complete and sign the notice set forth as Exhibit G hereto, (ii)
surrender such Term Note to the Borrower and (iii) furnish appropriate
endorsements and transfer documents if reasonably required by the Borrower.
(b) As promptly as practicable after the surrender of a
Term Note in compliance with this SECTION 8.2, the Borrower shall issue and
deliver to the Lender so surrendering such Term Note, or on such Lender's
written order, a certificate of certificates for the number of whole and
fractional shares of Series B Special Preferred Stock issuable upon the
conversion of such Term Note or portion thereof in accordance with the
provisions of this Article 8. If a Term Note shall be surrendered for partial
conversion, the Borrower shall execute and deliver to the Lender so
surrendering such Term Note without charge to such Lender, a new Term Note in
an
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aggregate principal amount equal to the unconverted portion of the surrendered
Term Note with no other changes in or to the terms thereof.
(c) Each conversion shall be deemed to have been effected
on the date on which the Term Note shall have been surrendered in compliance
with this SECTION 8.2, and the Person in whose name any certificate or
certificates issuable upon such conversion shall be deemed to have become on
said date the holder of record of the shares represented thereby; provided,
however, that any such surrender on any date when the stock transfer books of
the Borrower shall be closed shall constitute the Person in whose name the
certificates are to be issued as the record holder thereof for all purposes on
the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the Conversion Price in effect on the date upon which
the Term Note shall have been surrendered. The Borrower shall deliver
certificates for shares of Series B Special Preferred Stock reflecting such
conversion as directed by the converting Lender not later than 48 hours after
the surrender of the Term Note in accordance herewith.
SECTION 8.3. EFFECT ON RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE. In the event of (i) any reclassification or change of
outstanding shares of Borrower Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of subdivision or combination), (ii) any consolidation, merger or
combination of the Borrower with another corporation or entity as a result of
which holders of shares of Borrower Common Stock shall be entitled to receive
securities or other property (including cash) with respect to or in exchange
for such shares or (iii) any sale or conveyance of the property of the Borrower
as, or substantially as, an entirety to any other corporation or entity as a
result of which holders of shares of Common Stock shall be entitled to receive
securities or other property (including cash) with respect to or in exchange
for such shares, then the Borrower or the successor or purchasing corporation
or entity, as the case may be, shall enter into a supplemental agreement
providing that the Term Notes shall be convertible into the kind and amount of
securities or other property (including cash) receivable upon such
reclassification, exchange, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares issuable upon conversion of the
Term Notes immediately prior to such reclassification, exchange, consolidation,
merger, combination, sale or conveyance. Such supplemental agreement shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 8. The above
provision of this SECTION 8.3 shall similarly apply to successive
reclassifications, exchanges, consolidations, mergers, combinations, sales or
conveyances.
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SECTION 8.4. TAXES ON SHARES ISSUED. The issuance of stock
certificates on conversions of the Term Notes shall be made without charge to
the converting Lender for any tax in respect of the issuance thereof. The
Borrower shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of a stock
certificate in any name other than that of the converting Lender.
SECTION 8.5. RESERVATION OF SHARES; SHARES TO BE FULLY
PAID; COMPLIANCE WITH GOVERNMENT REQUIREMENTS; LISTING OF SHARES.
(a) The Borrower shall reserve, out of its authorized but
unissued shares or its shares held in treasury, sufficient shares of Series B
Special Preferred Stock to provide for the conversion in full of all Term
Notes that may be outstanding under this Agreement.
(b) The Borrower covenants that all shares of Series B
Special Preferred Stock which may be issued upon conversion of Term Notes will
upon issuance be fully paid and nonassessable by the Borrower and free from all
taxes, liens and charges with respect to the issue thereof.
(c) The Borrower covenants that if any shares to be
provided for the purpose of conversion of Term Notes require registration with
or approval of any governmental authority under any applicable federal or state
law (excluding federal or state securities laws) before such shares may be
validly issued upon conversion, the Borrower will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be.
(d) The Borrower covenants that if at any time shares of
Common Stock shall be listed on the New York Stock Exchange or any other
national securities exchange or on the Nasdaq Stock Market, the Borrower will,
if permitted by the rules of such exchange or market list and keep listed so
long as the shares shall be so listed on such exchange or market, all shares of
Common Stock into which Series B Special Preferred Stock may be converted.
SECTION 8.6. NOTICE TO LENDERS PRIOR TO CERTAIN ACTIONS.
In the event:
(a) the Borrower shall declare a dividend (or any other
distribution) on its shares (other than in cash out of retained earnings); or
(b) the Borrower shall authorize the granting to the
holders of its shares generally of rights or warrants to subscribe for or
purchase any shares of any class of its Stock or any other rights or warrants;
or
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(c) of any reclassification of shares of the Borrower
(other than a subdivision or combination of its outstanding shares, or a change
in par value, or from par value to no par value, or from par value to par
value), or of any consolidation or merger to which the Borrower is a party and
for which approval of any shareholders of the Borrower is required, or of the
sale or transfer of all or substantially all of the assets of the Borrower or;
(d) of the voluntary or involuntary dissolution,
liquidation or winding-up of the Borrower;
then in each such case, the Borrower shall cause to be mailed to each Lender,
as promptly as possible but in any event at least fifteen (15) days prior to
the applicable date hereinafter specified, a notice prepared by the Borrower
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, rights or warrants, or if a record is not to be taken,
the date as of which the holders of shares of record to be entitled to such
dividend, distribution, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or
occurring and the date as of which it is expected that holders of shares of
record shall be entitled to exchange their shares for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.
ARTICLE 9.
THE AGENT
SECTION 9.1. ACTIONS. Each Lender and the holder of each
Note authorize the Agent to act on behalf of such Lender or holder under this
Agreement and any other Loan Document and, in the absence of other written
instructions from the Required Lenders received from time to time by the Agent
(with respect to which the Agent agrees that it will, subject to the last two
sentences of this SECTION 9.1, comply, except as otherwise reasonably advised
by counsel), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof, together with such powers as may be reasonably incidental thereto.
Each Lender (including, without limitation, ING in its capacity as a Lender)
agrees (which agreement shall survive any termination of this Agreement) to
indemnify the Agent, severally but not jointly PRO RATA according to such
Lender's aggregate percentage of the Revolving Loan Commitments and the
principal amount of outstanding Term Loans, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any
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kind or nature whatsoever which may at any time be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of this
Agreement, the Notes, or any other Loan Document, including the reimbursement
of the Agent for all out-of-pocket expenses (including attorneys' fees)
incurred by the Agent hereunder or in connection herewith or in enforcing the
Obligations of the Borrower under this Agreement or any other Loan Document, in
all cases as to which the Agent is not reimbursed by the Borrower; PROVIDED
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements determined by a court of competent
jurisdiction in a final proceeding to have resulted primarily from the Agent's
gross negligence or wilful misconduct. Notwithstanding any other provision of
this Agreement to the contrary, the Agent shall not be required to take any
action hereunder or under any other Loan Document, or to prosecute or defend
any suit in respect of this Agreement or any other Loan Document, unless it is
indemnified to its reasonable satisfaction by the Lenders against loss, costs,
liability and expense. If any indemnity in favor of the Agent shall become
impaired, it may call for additional indemnity and cease to do the acts
indemnified against until such additional indemnity is given.
SECTION 9.2. FUNDING RELIANCE, ETC. Unless the Agent
shall have been notified by telephone, confirmed in writing, by any Lender by
5:00 p.m., New York City time, on the day prior to a Borrowing that such Lender
will not make available the amount which would constitute its Revolving
Percentage of such Borrowing on the date specified therefor, the Agent may
assume that such Lender has made such amount available to the Agent and, in
reliance upon such assumption, make available to the Borrower a corresponding
amount; PROVIDED, HOWEVER, that the Agent shall have no obligation to do so.
If such amount is made available by such Lender to the Agent on a date after
the date of such Borrowing, such Lender shall pay to the Agent on demand
interest on such amount at the Federal Funds Rate for the number of days from
and including the date of such Borrowing to the date on which such amount
becomes immediately available to the Agent, together with such other
compensatory amounts as may be required to be paid by such Lender to the Agent
pursuant to the Rules for Interbank Compensation of the Council on
International Banking or the Clearinghouse Compensation Committee, as the case
may be, as in effect from time to time. A statement of the Agent submitted to
any Lender with respect to any amounts owing under this SECTION 9.2 shall be
conclusive, in the absence of manifest error. If such amount is not in fact
made available to the Agent by such Lender within three Business Days after the
date of such Borrowing, the Agent shall be entitled to recover such amount,
with interest thereon at the rate per annum then applicable to the Loans
comprising such Borrowing, within five Business Days after demand, from the
Borrower.
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SECTION 9.3. EXCULPATION. Neither the Agent nor any of
its directors, officers, employees or agents shall be liable to any Lender for
any action taken or omitted to be taken by it under this Agreement, the Notes,
or any Loan Document, or in connection herewith or therewith, except for its
own wilful misconduct or gross negligence. The Agent shall not be responsible
to any Lender for any recitals, statements, representations or warranties
herein or in any certificate or other document delivered in connection herewith
or for the authorization, execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, or sufficiency of any of the Loan
Documents, the financial condition of the Borrower or any Subsidiary or the
condition or value of any of the Collateral, or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of any of the Loan Documents, the financial condition of the
Borrower or any Subsidiary or the existence or possible existence of any
Default. The Agent shall be entitled to rely upon advice of counsel
concerning legal matters and upon any notice, consent, certificate, statement
or writing which it believes to be genuine and to have been presented by a
proper Person.
SECTION 9.4. SUCCESSOR. The Agent may resign as such at
any time upon at least thirty (30) days' prior notice to the Borrower and all
Lenders, such resignation not to be effective until a successor Agent is in
place. The Agent shall be required to resign, upon the written request of the
Required Lenders, if it holds less than $10,000,000 of the Loans and
Commitments outstanding; PROVIDED, HOWEVER, that the Agent shall not be
required to resign pursuant to the terms of this sentence if the Agent's
Revolving Percentage plus its Term Percentage is equal to or greater than that
of each other Lender. If the Agent at any time resigns, the Required Lenders
may appoint another Lender as a successor Agent which shall thereupon become
the Agent hereunder. If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment, within 30 days
after the retiring Agent's giving notice of resignation, then the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be
one of the Lenders or a financial institution reasonably acceptable to the
Borrower organized under the laws of the United States and having a combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Agent hereunder by a successor Agent, such successor Agent shall
be entitled to receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and shall thereupon
succeed to and become vested with all rights, powers, privileges, and duties of
the retiring Agent, and the retiring Agent shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents.
SECTION 9.5. LOANS BY THE AGENT. The Agent shall have the
same rights and powers with respect to (a) the Loans made by it
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or any of its Affiliates and (b) the Notes held by it or any of its Affiliates,
as any Lender and may exercise the same as if it were not the Agent.
SECTION 9.6. CREDIT DECISIONS. Each Lender acknowledges
that it has, independently of the Agent and each other Lender, and based on
such financial information and such other documents, information and
investigations as it has deemed appropriate, made its own credit decision to
extend its Commitments, and to make the Loans. Each Lender also acknowledges
that it will, independently of the Agent and each other Lender, and based on
such other documents, information and investigations as it shall deem
appropriate at any time, continue to make its own credit decisions as to
exercising or not exercising from time to time any rights and privileges
available to it under this Agreement or any other Loan Document.
SECTION 9.7. COPIES, ETC. The Agent shall give prompt
notice to each Lender of each notice or request required or permitted to be
given to the Agent by the Borrower pursuant to the terms of this Agreement.
The Agent will distribute to each Lender each Instrument received for its
account and copies of all other communications received by the Agent from the
Borrower for distribution to the Lenders by the Agent in accordance with the
terms of this Agreement. Notwithstanding anything herein contained to the
contrary, all notices to and communications with the Borrower under this
Agreement and the other Loan Documents shall be effected by the Lenders through
the Agent.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.1. WAIVERS, AMENDMENTS, ETC.
(a) The provisions of this Agreement and of each Loan
Document may from time to time be amended, modified or waived, if such
amendment, modification or waiver is in writing and, (x) in the case of an
amendment or modification, is consented to by the Borrower and the Required
Lenders or (y) in the case of a waiver of any obligation of the Borrower or
compliance with any prohibition contained in this Agreement, is consented to by
the Required Lenders; PROVIDED, HOWEVER, that no such amendment, modification
or waiver:
(i) which would modify any requirement hereunder that any
particular action be taken by all the Lenders or by the Required
Lenders shall be effective unless consented to by each Lender;
(ii) which would modify this SECTION 10.1, change the
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definition of "Required Lenders," increase the Revolving Loan Commitment Amount
or change any Revolving Percentage or Term Percentage for any Lender, reduce
any fees payable to the Lenders described in ARTICLE 2 and ARTICLE 3, extend
the Revolving Loan Commitment Termination Date or subject any Lender to any
additional obligations shall be made without the consent of each Lender;
(iii) which would extend the due date for, or reduce the
amount of, any payment or prepayment of principal of or interest on
any Loan (or reduce the principal amount of or rate of interest on any
Loan) shall be made without the consent of the holder of the Note
evidencing such Loan; or
(iv) which would affect adversely the interests, rights,
compensation or obligations of the Agent QUA the Agent shall be made
without consent of the Agent.
(b) No failure or delay on the part of the Agent, any
Lender or the holder of any Note in exercising any power or right under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No notice to or demand on the Borrower in any case shall entitle it to any
notice or demand in similar or other circumstances. No waiver or approval by
the Agent, any Lender, or the holder of any Note under this Agreement or any
other Loan Document shall, except as may be otherwise stated in such waiver or
approval, be applicable to subsequent transactions. No waiver or approval
hereunder shall require any similar or dissimilar waiver or approval thereafter
to be granted hereunder.
(c) Neither any Lender nor the Agent shall be under any
obligation to marshal any assets in favor of the Borrower or any other party or
against or in payment of any or all of the Obligations. Recourse for security
shall not be required at any time. To the extent that the Borrower makes a
payment or payments to the Agent or the Lenders, or the Agent or the Lenders
enforce their security interests or exercise their rights of setoff, and such
payment or payments or the proceeds of such enforcement or setoff or any part
thereof are subsequently for any reason invalidated, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
state or federal law, common law or equitable cause, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred.
SECTION 10.2. NOTICES. All notices hereunder shall be
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in writing or by telecopy and shall be sufficiently given to the Agent, the
Lenders or the Borrower if addressed or delivered to them at the following
addresses:
If to the Agent: ING
135 East 57th Street
New York, New York 10022
Attention: Chief Credit Officer
Telecopier No.: (212) 750-8935
with copies to: ING
Atlanta Office
200 Galleria Parkway
Suite 950
Atlanta, Georgia 30339
Telecopier No.: (770) 951-1005
and a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Hector E. Llorens, Jr. Esq.
Telecopier No.: (404) 572-5100
If to any other Lender: At its address set forth beneath its name on the
signature pages hereof
If to the Borrower: PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: Chief Executive Officer,
Chief Financial Officer and
General Counsel
Telecopier No.: (216) 241-2574
with a copy to: Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Stephen M. Banker, Esq.
Telecopier No.: (212) 735-2000
or at such other address as any party may designate to any other party by
written notice. All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; when
received, if deposited in the mail, postage prepaid; when transmission is
verified, if telecopied; and on the next Business Day, if timely delivered to
an air courier guaranteeing overnight delivery.
SECTION 10.3. COSTS AND EXPENSES. The Borrower agrees to
pay all reasonable out-of-pocket expenses of the Agent and the Lenders party to
this Agreement on the Closing Date for the
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negotiation, preparation, execution, and delivery of this Agreement and each
other Loan Document, including schedules and exhibits, and any amendments,
waivers, consents, supplements, terminations, releases or other modifications
to this Agreement or any other Loan Document as may from time to time hereafter
be required (including the reasonable fees and expenses of counsel for the
Agent and the Lenders party to this Agreement on the Closing Date, or of any
consultants or other experts retained by the Agent and the Lenders party to
this Agreement on the Closing Date from time to time in connection therewith)
whether or not the transactions contemplated hereby are consummated, and to pay
all reasonable expenses of the Agent and the Lenders party to this Agreement on
the Closing Date (including reasonable fees and expenses of counsel to the
Agent and the Lenders party to this Agreement on the Closing Date, or of any
consultants or other experts retained by the Agent and the Lenders party to
this Agreement on the Closing Date) incurred in connection with the preparation
and review of the form of any Instrument relevant to this Agreement, the Notes
or any other Loan Document. The Borrower also agrees to pay and hold the Agent
and the Lenders harmless from any stamp, documentary, intangibles, transfer or
similar taxes or charges, and all recording or filing fees with respect to the
Loan Documents or any payments to be made thereunder and all title insurance
premiums, surveyors costs and valuation fees, and to reimburse the Agent and
each Lender upon demand for all reasonable out-of-pocket expenses (including
reasonable attorneys' fees and expenses) incurred by the Agent or such Lender
in enforcing the Obligations of the Borrower or any Subsidiary under this
Agreement or any other Loan Document or related Document or in connection with
any restructuring or "work-out" of any Obligations.
SECTION 10.4. INDEMNIFICATION. In consideration of the
execution and delivery of this Agreement by the Agent and each Lender, the
making of the Term Loan and the extension of the Revolving Loan Commitment, the
Borrower hereby indemnifies, exonerates and holds the Agent and each Lender,
each of their respective successors and assigns, each of the respective
officers, directors, employees, partners, attorneys and agents of the Agent and
each Lender and each of their respective successors and assigns (collectively,
the "LENDER PARTIES") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities (including, but not limited
to, Environmental Liabilities and Costs), damages and expenses (irrespective of
whether such Lender Party is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys' fees and disbursements
(the "INDEMNIFIED LIABILITIES"), incurred by the Lender Parties or any of them
or asserted or awarded against the Lender Parties or any of them as a result
of, or arising out of, or relating to:
(a) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of any Loan,
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including, without limitation, the Acquisitions;
(b) the use of any of the proceeds of the Loans by the
Borrower for any other purpose;
(c) any information furnished by the Borrower in
connection with the syndication of this Agreement;
(d) the making of any claim by any investment banking
firm, broker or third party in each case claiming through the Borrower or any
of its Subsidiaries or as a result of their relationship to such parties that
it is entitled to compensation from the Agent or any Lender in connection with
this Agreement;
(e) the entering into and performance of this Agreement
and any other Loan Document by any of the Lender Parties (other than the breach
by such Lender Party of this Agreement);
(f) the existence of any contaminant, in, under, on or
otherwise affecting any property owned, used, operated, or leased by Borrower
or any Subsidiary in the past, present, or future or any surrounding areas
affected by such property, regardless of whether the existence of the
contaminant is related to the past, present, or future operations of the
Borrower and its Subsidiaries, or their predecessors in interest or any other
Person; any Environmental Liabilities and Costs related to any property owned,
used, operated, or leased by Borrower or any Subsidiary in the past, present,
or future; any Environmental Liabilities and Costs related to the past,
present, or future operations of the Borrower or any Subsidiaries; any alleged
violations of any Environmental Law related to any property owned, used,
operated, or leased by Borrower or any Subsidiary in the past, present, or
future; any alleged violations of any Environmental Law related to the past,
present, or future operations of the Borrower or any Subsidiaries; the
performance of any remedial action that is related to any property owned, used,
operated, or leased by Borrower or any Subsidiaries in the past, present, or
future; the performance of any remedial action that is related to the past,
present, or future operations of the Borrower or any Subsidiaries; and the
imposition of any Lien on any property affected by this Agreement or any of the
other Loan Documents arising from any Environmental Liabilities or Costs;
(g) the breach in any material respect by Borrower of any
representation or warranty set forth in this Agreement or any Loan Document;
(h) the failure of Borrower to comply in any material
respect with any term, condition, or covenant set forth in this Agreement or
any Loan Document; or
(i) any claim, litigation, investigation or proceeding
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relating to any of the foregoing, whether or not the Agent or any Lender (or
any of their respective officers, directors, partners, employees or agents) is
a party thereto;
EXCEPT FOR any such Indemnified Liabilities arising for the account of a
particular Lender Party by reason of the relevant Lender Party's bad faith,
gross negligence or wilful misconduct as determined by a final and
nonappealable decision of a court of competent jurisdiction. If and to the
extent that the foregoing undertaking may be unenforceable for any reason, the
Borrower hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The foregoing indemnity shall become effective immediately
upon the execution and delivery hereof and shall remain operative and in full
force and effect notwithstanding the consummation of the transactions
contemplated hereunder, the repayment of any of the Loans made hereunder, the
invalidity or unenforceability of any term or provision of this Agreement or
any other Loan Document, or any investigation made by or on behalf of any
Lender or the Agent.
SECTION 10.5. SURVIVAL. The obligations of the Borrower
under SECTIONS 2.4, 3.5, 10.3 and 10.4, and the obligations of the Lenders
under SECTION 9.1, shall in each case survive any termination of this
Agreement. The representations and warranties made by the Borrower in this
Agreement, the Notes and in each other Loan Document shall survive the
execution and deliver of this Agreement, the Notes and each such other Loan
Document.
SECTION 10.6. SEVERABILITY. Any provision of this
Agreement, the Notes or any other Loan Document which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, the Notes or such
other Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.
SECTION 10.7. HEADINGS. The various headings of this
Agreement, the Notes and of each other Loan Document are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement, the Notes or such other Loan Document or any provisions hereof or
thereof.
SECTION 10.8. COUNTERPARTS, EFFECTIVENESS, ETC. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be executed by the Borrower and the Agent and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
executed on behalf of the Borrower and each Lender (or notice thereof
satisfactory to the Agent) shall have been received by the Agent and notice
thereof
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shall have been given by the Agent to the Borrower and each Lender.
SECTION 10.9. GOVERNING LAW; ENTIRE AGREEMENT. (a) THIS
AGREEMENT AND THE NOTES SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto.
(b) EACH PARTY TO THIS AGREEMENT HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN
NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR RELATED DOCUMENT, AND EACH HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER
AGREES THAT SUCH JURISDICTION SHALL BE EXCLUSIVE WITH RESPECT TO ANY SUCH
ACTION OR PROCEEDING BROUGHT BY IT AGAINST THE AGENT OR ANY LENDER. EACH PARTY
TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING.
(c) The Borrower hereby irrevocably designates, appoints
and empowers CT Corporation System, whose present address is 1633 Broadway, New
York, New York 10019, as its authorized agent to receive, for and on its
behalf and its property, service of process in the State of New York when and
as such legal actions or proceedings may be brought in the courts of the State
of New York or of the United States of America sitting in New York, and such
service of process shall be deemed complete upon the date of delivery thereof
to such agent whether or not such agent gives notice thereof to the Borrower,
or upon the earliest of any other date permitted by applicable law. The
Borrower shall furnish the consent of CT Corporation System so to act to the
Agent on or prior to the Closing Date. It is understood that a copy of said
process served on such agent will as soon as practicable be forwarded to the
Borrower, at its address set forth below, but its failure to receive such copy
shall not affect in any way the service of said process on said agent as the
agent of the Borrower. The Borrower irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or
proceeding by the mailing of the copies thereof by certified mail, return
receipt requested, postage prepaid, to it at its address set forth herein, such
service to become effective upon the earlier of (i) the date 10 calendar days
after such mailing or (ii) any earlier date permitted by applicable law. The
Borrower agrees that it will at all times continuously maintain an agent to
receive service of process in the State of New York on behalf of itself and its
properties and in the event that, for any reason, the agent named above or its
successor shall no longer serve as its agent to receive service of process in
the State of New York on its behalf,
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it shall promptly appoint a successor so to serve and shall advise the Agent
and the Lenders thereof (and shall furnish to the Agent the consent of any
successor agent so to act). Nothing in this SECTION 10.9 shall affect the
right of the Agent or any Lender to bring proceedings against the Borrower in
the courts of any other jurisdiction or to serve process in any other manner
permitted by applicable law.
SECTION 10.10. SUCCESSORS AND ASSIGNS. This Agreement 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 without the prior
written consent of all Lenders; and the rights of sale, assignment and transfer
of the Lenders are subject to SECTION 10.11.
SECTION 10.11. SALE AND TRANSFERS, PARTICIPATIONS, ETC.
(a) Any Lender may at any time sell to one or more
Participants participating interests in any Loan owing to such Lender, any Note
held by such Lender, the Revolving Loan Commitment of such Lender, or any other
interest of such Lender hereunder. In the event of any such sale by a Lender
of participating interests to a Participant, such Lender's obligations under
this Agreement shall remain unchanged and such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Note for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. The Borrower
agrees that if amounts outstanding under this Agreement and the Notes are due
or unpaid, or shall have been declared or shall have become due and payable
upon the occurrence of an Event of Default, each Participant shall be deemed to
have the right of setoff in respect of its participating interest in amounts
owing under this Agreement and any Note to the same extent as if the amount of
its participating interest were owing directly to it as a Lender under this
Agreement or any Note, PROVIDED that such right of setoff shall be subject to
the approval of the Required Lenders and to the obligations of such Participant
to share with the Lenders, and the Lenders agree to share with such
Participant, as provided in SECTION 3.7 as if the Participant were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of (i) SECTION 10.4 and (ii) SECTIONS 2.4 and 3.6, with respect to
its participation in the Commitments and the Loans outstanding from time to
time; PROVIDED, that no Participant shall be entitled to receive any greater
amount pursuant to the Sections referred to in clause (ii) than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred. No Lender shall grant
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any participation under which the Participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Loan Document except to
the extent such amendment or waiver would (i) extend the due date for, or
reduce the amount of, any payment or prepayment of principal of or interest on
the Loan or reduce the principal amount of or rate of interest on the Loan
(except in connection with a waiver of interest at the Post-Default Rate) (it
being understood that a waiver of any Default or Event of Default shall not
constitute a change in the terms of such participation, and that an increase in
the Loan shall be permitted without consent of any Participant if the
Participant's participation is not increased as a result thereof), (ii) release
a substantial part of the Collateral, or (iii) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement.
(b) Subject to the provisions of clause (g) of this
SECTION 10.11, with the consent of the Required Lenders and the consent of the
Borrower (which consent, in all instances, shall not be unreasonably withheld
or delayed), any Lender may at any time sell to any Purchasing Lender all or
any part in a minimum amount of $1,000,000, of its rights and obligations under
this Agreement and the Notes pursuant to a Transfer Supplement, executed by
such Purchasing Lender, such transferor Lender, the Agent and the Borrower.
Upon (i) such execution of such Transfer Supplement, and (ii) delivery of a
fully executed copy thereof to the Borrower, such Purchasing Lender shall for
all purpose be a Lender party to this Agreement and shall have all the rights
and obligations of a Lender under this Agreement, to the same extent as if it
were an original party hereto with a Revolving Percentage and Term Percentage
as set forth in such Transfer Supplement, and no further consent or action by
the Borrower, the Lenders or the Agent shall be required. Such Transfer
Supplement shall be deemed to amend this Agreement to the extent, and only to
the extent, necessary to reflect the addition of such Purchasing Lender and the
resulting adjustment of Revolving Percentages and Term Percentages arising from
the purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Notes. Upon
the consummation of any transfer to a Purchasing Lender pursuant to this
paragraph (b), the transferor Lender, the Agent and the Borrower shall make
appropriate arrangements so that, if required, replacement Notes are issued to
such transferor Lender and new Notes to the Purchasing Lender in the amount
equal to their respective Revolving Loan Commitments and outstanding Loans, as
appropriately adjusted pursuant to such Transfer Supplement.
(c) The Agent shall maintain at its address referred to
herein a copy of each Transfer Supplement delivered to it and the Register for
the recordation of the names and addresses of the Lenders and the Revolving
Loan Commitment of, and principal amount of the Loans owing to, each Lender
from time to time. The entries
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in the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders may treat each Person whose name is
recorded in the Register as the owner of the Loans recorded therein for all
purposes of this Agreement. The Register shall be available for inspection by
the Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of a Transfer Supplement executed by
a transferor Lender, the Agent and a Purchasing Lender together with payment by
such Purchasing Lender to the Agent, for the account of the Agent and not for
the account of the Lenders, of a registration and processing fee of $2,500, and
the Notes subject to such Transfer Supplement, the Agent shall (i) accept such
Transfer Supplement, (ii) record the information therein in the Register and
(iii) give prompt notice of such acceptance and recordation to the Lenders and
the Borrower.
(e) If, pursuant to this SECTION 10.11, any interest in
this Agreement or any Note is transferred to any Participant or Purchasing
Lender which is organized under the laws of any jurisdiction other than the
United States or any State thereof, the transferor Lender shall cause such
Participant or Purchasing Lender, concurrently with the effectiveness of such
transfer, (i) to represent to the transferor Lender (for the benefit of the
transferor Lender, the Agent and the Borrower) that under applicable law and
treaties no taxes will be required to be withheld by the Agent, the Borrower or
the transferor Lender with respect to any payments to be made to such
Participant or Purchasing Lender in respect of the Loans or Commitments, (ii)
to furnish to the transferor Lender, the Agent and the Borrower two properly
executed original Internal Revenue Service Forms 4224 or 1001 (or any
successor forms) and properly executed Internal Revenue Service Forms W-8 and
W-9, as the case may be, (wherein such Participant or Purchasing Lender claims
entitlement to complete exemption from the United States federal withholding
tax on all interest payments hereunder and all fees payable under SECTION 2.3)
and (iii) to agree (for the benefit of the transferor Lender, the Agent and the
Borrower) to provide the transferor Lender, the Agent and the Borrower new
Internal Revenue Service Forms 4224 or 1001 upon the expiration or obsolescence
of any previously delivered form or after the occurrence of any event requiring
a change in the most recent forms delivered by it to the Transferor Lender, the
Agent and the Borrower, and comparable statements in accordance with applicable
United States laws and regulations and amendments duly executed and completed
by such Participant or Purchasing Lender, and to comply from time to time with
all applicable United States laws and regulations with regard to such
withholding tax exemption.
(f) Notwithstanding anything to the contrary set forth in
this SECTION 10.11, but subject to the provisions of clause (g)
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of this SECTION 10.11, (i) any Lender may sell to any of its Affiliates all or
any part of its rights and obligations under this Agreement and the Notes, (ii)
any Lender may create a security interest in all or any portion of its rights
under this Agreement (including, without limitation, the Loans owing to it and
the Notes held by it) in favor of the Federal Reserve Bank in accordance with
Regulation A of the F.R.S. Board, and (iii) upon the occurrence and during the
continuance of an Event of Default, any Lender may sell to any Purchasing
Lender all or any part of its rights and obligations under this Agreement and
the Notes, in the case of clause (i) or (iii) above, notwithstanding that the
Borrower does not consent to such sale, provided such Lender has obtained the
consent of the Agent (which consent shall not be unreasonably withheld or
delayed) and otherwise meets the requirements of this SECTION 10.11. The Agent
agrees to waive the registration and processing fee set forth in clause (d) of
this SECTION 10.11 in connection with the exercise by any Lender of its rights
under clause (i) of the preceding sentence prior to April 15, 1996.
(g) If any transfer of a Term Note is not made pursuant
to an effective registration statement under the Securities Act, the Lender
desiring to transfer such Term Note will, if reasonably requested by the
Borrower, deliver to the Borrower an opinion of counsel, which may be counsel
to such Lender but which counsel must be reasonably satisfactory to the
Borrower (provided that King & Spalding and Lowenstein, Sandler, Kohl, Fisher &
Boylan shall be deemed reasonably satisfactory), reasonably satisfactory in
form, scope and substance to the Borrower, that such Term Note may be sold
without registration under the Securities Act, and the Purchasing Lender shall
upon purchase of such Term Note or portion thereof be deemed to have affirmed
and agreed to the investment representation set forth in SECTION 2.5. Each
Lender agrees that its Term Note will bear the following legend:
"THIS TERM NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION,
OR AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL TO
THE HOLDER) AS TO AN EXEMPTION, FROM THE
REGISTRATION PROVISIONS OF SAID ACT OR LAWS."
Each Lender further agrees that its Term Note will bear the following legend:
"THIS TERM NOTE IS SUBJECT TO THE TERMS OF A CREDIT
AGREEMENT, DATED AS OF MARCH 15, 1996, BETWEEN
PHONETEL TECHNOLOGIES, INC. (THE "BORROWER"), THE
LENDERS NAMED
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THEREIN, AND INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, AS AGENT FOR THE LENDERS, COPIES
OF EACH OF WHICH ARE ON FILE AT THE MAIN OFFICE OF
THE BORROWER. ANY SALE OR TRANSFER OF THE SECURITIES
EVIDENCED BY THIS TERM NOTE IS SUBJECT TO THE TERMS
OF SAID CREDIT AGREEMENT AND ANY SALE OR TRANSFER OF
SUCH SECURITIES IN VIOLATION OF SAID CREDIT AGREEMENT
SHALL BE INVALID."
(h) If any transfer of any shares of Series B Special
Preferred Stock or Common Stock issued upon conversion of Series B Special
Preferred Stock (any such shares, "TERM NOTE SHARES") is not made pursuant to
an effective registration statement under the Securities Act, the holder
desiring to transfer such Term Note Shares will, if reasonably requested by the
Borrower, deliver to the Borrower an opinion of counsel, which may be counsel
to such holder but which counsel must be reasonably satisfactory to the
Borrower (provided that King & Spalding and Lowenstein, Sandler, Kohl, Fisher &
Boylan shall be deemed reasonably satisfactory), reasonably satisfactory in
form, scope and substance to the Borrower, that such Term Note Shares may be
sold without registration under the Securities Act, as well as (i) an
investment covenant reasonably satisfactory to the Borrower signed by the
proposed transferee (except that no such covenant will be required in
connection with a transfer effected in accordance with Rule 144A under the
Securities Act), and (ii) an agreement by such transferee to the impression of
the restrictive legends set forth below on the Term Note Shares.
All Term Note Shares will bear the following legend (the "SECURITIES LEGEND"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS, SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION, OR AN
OPINION OF COUNSEL (WHICH MAY BE COUNSEL TO THE
HOLDER) AS TO AN EXEMPTION, FROM THE REGISTRATION
PROVISIONS OF SAID ACT OR LAWS."
Notwithstanding the foregoing provisions of this clause (h) of SECTION 10.11,
the restrictions upon the transferability of Term Note Shares and the
Securities Legend requirements set forth in this clause (h) of this SECTION
10.11 shall terminate as to any such Term Note Shares (i) when and so long as
such Term Note Shares shall have been effectively registered under the
Securities Act and
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disposed of pursuant thereto or (ii) when the Borrower shall have received an
opinion of counsel reasonably satisfactory to it that such Securities Legend is
not required in order to ensure compliance with the Securities Act. Whenever
the restrictions imposed by this clause (h) of SECTION 10.11 shall terminate
as to any Term Note Shares as hereinabove provided, the holder thereof shall be
entitled to receive from the Borrower, at the expense of the Borrower, a new
certificate or certificates for such Term Note Shares bearing the following
legend in place of the Securities Legend set forth above:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE TERMINATED
ON ______________, 19__, AND ARE OF NO FURTHER FORCE
AND EFFECT."
In addition, each certificate representing Term Note Shares will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS OF CLAUSE (H) OF SECTION 10.11
OF A CREDIT AGREEMENT, DATED AS OF MARCH 15, 1996,
BETWEEN PHONETEL TECHNOLOGIES, INC. (THE "COMPANY"),
THE LENDERS NAMED THEREIN, AND INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION ("ING") AS
AGENT FOR THE LENDERS, COPIES OF EACH OF WHICH ARE ON
FILE AT THE MAIN OFFICE OF THE COMPANY. ANY SALE OR
TRANSFER OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS OF SAID AGREEMENT
AND ANY SALE OR TRANSFER OF SUCH SECURITIES IN
VIOLATION OF SAID AGREEMENT SHALL BE INVALID."
SECTION 10.12. OTHER TRANSACTIONS. Nothing contained herein
shall preclude the Agent or any other Lender from engaging in any transaction,
in addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Affiliates in which the Borrower or such
Affiliate is not restricted hereby from engaging with any other Person.
SECTION 10.13. CONFIDENTIALITY. (a) The Lenders and the
Agent shall treat any information concerning the Borrower (whether prepared by
the Borrower, its advisors or otherwise) which has been or will be furnished by
or on behalf of the Borrower or any Subsidiary thereof (herein collectively
referred to as the "CONFIDENTIAL INFORMATION") in accordance with the customary
procedures for handling confidential information of this nature and
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<PAGE> 110
will not willfully disclose any Confidential Information to any other party,
except as otherwise provided herein. The Confidential Information will be used
solely in connection with the transactions contemplated by the Loan Documents
or as otherwise authorized by the Borrower. The term "Confidential
Information" does not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by the Agent,
the Lenders or their respective affiliates, directors, officers or employees,
or (ii) becomes available on a nonconfidential basis from a source other than
the Borrower, any of its Subsidiaries, or their advisors, provided that such
source is not known by the Agent or the Lenders to be bound by a
confidentiality agreement with or other obligation of secrecy to the Borrower
or any of its Subsidiaries.
(b) Notwithstanding the foregoing, (i) Confidential
Information may be disclosed to the Agent's and Lenders' affiliates, directors,
partners, officers, employees and advisors who are in a confidential
relationship with such Person or who are informed of the confidential nature of
such information, (ii) Confidential Information may be disclosed as reasonably
required by any proposed syndicate member or any proposed transferee or
participant in connection with the contemplated transfer of any Note or
participation therein or of any Loan Document or related document, PROVIDED
that any such proposed syndicate member or proposed transferee or participant
shall have agreed in writing for the Borrower's benefit to be bound by the
terms of this SECTION 10.13, and shall agree to return any Confidential
Information, and will not retain any copies, extracts or other reproductions in
whole or in part of such Confidential Information, if it does not become a
syndicate member, transferee or participant, (iii) Confidential Information may
be disclosed to the extent requested or required by bank regulators or auditors
or any administrative body or commission to whose jurisdiction the Agent or a
Lender may be subject, (iv) Confidential Information may be disclosed to the
extent required by law, regulation, subpoena, judicial order or legal process,
provided that notice of such requirement or order shall be promptly furnished
to the Borrower unless such notice is legally prohibited, (v) Confidential
Information may be disclosed to the extent required by the rules of any
securities exchange on which securities of the Agent or any Lender are listed
and traded, (vi) Confidential Information may be disclosed in connection with
the enforcement by the Agent or any Lender of its rights under the Loan
Documents or in connection with any litigation between any Loan Party and the
Agent or any Lender with respect to the Loan or any Loan Document, and (vii)
Confidential Information may be disclosed to the extent the Borrower consents
to such disclosure.
SECTION 10.14. CHANGE IN ACCOUNTING PRINCIPLES. If
(a) any changes in accounting principles from those used
in the preparation of the financial statements referred to in
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clause (a)(i) of SECTION 5.4 hereafter occur as a result of the promulgation of
rules, regulations, pronouncements or opinions by the Financial Accounting
Standards Board or the American Institute of Certified Public Accountants (or
successors thereto or agencies with similar functions) result in a change in
the method of calculation of financial covenants, standards or terms found in
this Agreement; or
(b) there is any change in the Borrower's Fiscal Year
with the Required Lenders' prior written consent pursuant to SECTION 6.2.16
hereof;
the parties hereto agree to enter into negotiations in order to amend such
financial covenants, standards or terms so as to equitably reflect such changes
with the desired result that the evaluations of the Borrower's financial
condition shall be the same after such changes as if such changes had not been
made; PROVIDED, HOWEVER, that, until the parties hereto have reached a
definitive agreement on such amendments the Borrower shall not change its
Fiscal Year and the Borrower's financial condition and operations shall
continue to be evaluated on the same principles as those used in the
preparation of the financial statements referred to in clause (a)(i) of SECTION
5.4.
SECTION 10.15. WAIVER OF JURY TRIAL, ETC. THE AGENT, THE
LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE
NOTES OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE AGENT, SUCH LENDERS,
OR THE BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND
SUCH LENDERS ENTERING INTO THIS AGREEMENT.
SECTION 10.16. LIMITATION OF LIABILITY. Neither the Agent,
the Lenders nor any Affiliate thereof shall have any liability with respect to,
and THE BORROWER HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON, ANY CLAIM
FOR ANY SPECIAL, INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
SUFFERED BY THE BORROWER IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY
RELATED TO THIS AGREEMENT, THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED
HEREIN, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH.
SECTION 10.17. USURY SAVINGS CLAUSE. Notwithstanding
anything to the contrary in this Agreement or any other Loan Document, if at
any time any rate of interest accruing on any Obligation, when aggregated with
all amounts payable by the Borrower or any other Loan Party under any of the
Loan Documents that are deemed or construed to be interest accrued or accruing
on such Obligation under applicable law, exceeds the highest rate of interest
permissible under any law which a court of competent
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jurisdiction shall, in a final determination, deem applicable to such Lender
with respect to such Obligation (each a "MAXIMUM LAWFUL RATE"), then in such
event and so long as the Maximum Lawful Rate would be so exceeded, such rate of
interest shall be reduced to the Maximum Lawful Rate; PROVIDED that if at any
time thereafter such rate of interest accruing on Obligations held by such
Lender is less than the Maximum Lawful Rate, the Borrower shall continue to pay
interest to such Lender at the Maximum Lawful Rate until such time as the total
interest received by such Lender in respect of the Obligations held by it is
equal to the total interest which such Lender would have received had interest
on all Obligations held by such Lender (but for the operation of this SECTION
10.17) accrued at the rate otherwise applicable under this Agreement and the
other Loan Documents. Thereafter, interest payable to such Lender in respect
of the Obligations held by it shall accrue at the applicable rate set forth in
this Agreement or other Loan Documents unless and until such rate again exceeds
the Maximum Lawful Rate, in which event this SECTION 10.17 shall again apply.
In no event, shall the total interest received by any Lender pursuant to the
terms hereof exceed the amount which such Lender could lawfully have received
had interest been calculated for the full term of this Agreement at the Maximum
Lawful Rate. In the event that the Maximum Lawful Rate is calculated pursuant
to this SECTION 10.17, (a) if required by applicable law, such interest shall
be calculated at a daily rate equal to the Maximum Lawful Rate divided by the
number of days in the year in which such calculation is made, and (b) if
permitted by applicable law, the Borrower and such Lender shall (i)
characterize any non-principal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effect thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the Loans
so that interest for the entire term of the Loans shall not exceed the Maximum
Lawful Rate. In the event that a court of competent jurisdiction,
notwithstanding the provisions of this SECTION 10.17 shall make a final
determination that any Lender has received interest in excess of the Maximum
Lawful Rate, such Lender shall, to the extent permitted by applicable law,
promptly apply such excess, FIRST to any interest due and outstanding under
this Agreement and the other Loan Documents, SECOND to any principal due and
payable under this Agreement and the Notes, THIRD to the remaining principal
amount of the Notes and FOURTH to other unpaid Obligations held by such
Lender, and thereafter shall refund any excess to the Borrower or as a court of
competent jurisdiction may otherwise order.
SECTION 10.18. CONFLICT IN LOAN DOCUMENTS. To the extent
there is any actual irreconcilable conflict between the provisions of this
Agreement and any other Loan Document, the provisions of this Agreement shall
prevail.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_______________________________
Peter G. Graf
Chairman and
Chief Executive Officer
Attest:____________________________________________
Name:
Title:
[CORPORATE SEAL]
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<PAGE> 114
PERCENTAGE
50% - Revolving INTERNATIONALE NEDERLANDEN (U.S.)
Percentage CAPITAL CORPORATION, AS AGENT AND AS
LENDER
50% - Term Percentage
By:_______________________________
James W. Latimer
Managing Director
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<PAGE> 115
50% - Revolving CERBERUS PARTNERS, L.P., AS LENDER
Percentage
By: Cerberus Associates, L.P., its
50% - Term Percentage general partner
By:__________________________
Stephen Feinberg
General Partner
Address for Notices:
950 Third Avenue
20th Floor
New York, New York 10022
Attention: Mr. Seth P. Plattus
Telecopier No: (212) 421-2847
with a copy to:
Lowenstein, Sandler, Kohl, Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attention: Robert G. Minion, Esq.
Telecopier No: (201) 992-5820
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SCHEDULE 1
----------
DISCLOSURE SCHEDULE
_______________________________________________________________
ITEM 1 (Transaction Costs)
ITEM 2 (Sources and Uses)
ITEM 3 (Indebtedness to be Refinanced)
ITEM 4 (Litigation)
ITEM 5 (Governmental Licenses)
ITEM 6 (Exceptions to GAAP)
ITEM 7 (Benefit Plans)
ITEM 8 (Labor Controversies)
ITEM 9 (Intellectual Property)
ITEM 10 (Insurance)
ITEM 11 (Indebtedness)
ITEM 12 (Environmental Matters)
ITEM 13 (Consents)
ITEM 14 (Contracts)
ITEM 15 (Employment Contracts)
ITEM 16 (Subsidiaries)
ITEM 17 (Termination of Material Contracts)
ITEM 18 (Existing Indebtedness)
ITEM 19 (Liens)
ITEM 20 (Leases)
ITEM 21 (Existing Investments)
ITEM 22 (Transactions with Affiliates)
ITEM 23 (Take or Pay Contracts)
ITEM 24 (Preemptive Rights, Options, Warrants)
ITEM 25 (Voting and Transfer Agreements)
ITEM 26 (Registration Rights)
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SCHEDULE 2
----------
TELEPHONE PLACEMENT AGREEMENT
____________________________________________________________________________
[Attach PhoneTel's Basic Telephone Placement Agreement]
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SCHEDULE 3
----------
CASH MANAGEMENT SYSTEM
_______________________________________________________________________________
The Borrower agrees to establish on or prior to April 15, 1996 (the
"EFFECTIVE DATE"), and to thereafter maintain at all times, the cash management
system described below:
1. Neither the Borrower nor any of its Subsidiaries shall
maintain any deposit, checking, operating or other bank account except for the
Coin Concentration Account and the Receivables Concentration Account described
below, and those accounts of the Borrower and its Subsidiaries identified below
in paragraph 12. The Borrower shall not permit the aggregate Net Balances in
its Disbursement Account and any other deposit account of the Borrower and its
Subsidiaries (other than the Blocked Accounts and Concentration Accounts), to
exceed on any Business Day $150,000. If as of the close of any Business Day
such Net Balances so exceed $150,000, the Borrower shall make a mandatory
prepayment of the Revolving A Loans and the Revolving B Loans on such Business
Day in the amount of such excess. As used herein "NET BALANCE" means the
amount of collected funds in an account less the amount of all unpaid checks,
drafts and other items drawn on such account.
2. Commencing on the Effective Date, the Borrower and its
Subsidiaries shall deposit or cause to be deposited, on the date of receipt
thereof, all cash collected from Telephones into one or more accounts
identified below in paragraph 12 as "Blocked Accounts" (collectively, the
"BLOCKED ACCOUNTS").
3. On or before the Effective Date, the Borrower shall have
established a concentration account in the Borrower's name (the "COIN
CONCENTRATION ACCOUNT") and a second concentration account in the Borrower's
name (the "RECEIVABLES CONCENTRATION ACCOUNT"), each at a bank reasonably
acceptable to the Required Lenders. The Coin Concentration Account and the
Receivables Concentration Account are collectively referred to as the
"Concentration Accounts".
4. On or before the Effective Date, each of the Borrower shall
have delivered to each account debtor with respect to its accounts receivables
an irrevocable notice and direction to mail all payments in respect of accounts
receivable to a lockbox established with the bank at which the Receivables
Concentration Account is established, which payments are to be deposited
directly by such bank into the Receivables Concentration Account in accordance
with the terms of the Receivables Concentration Account Agreement described
below. In the event that, notwithstanding the irrevocable notices and
directions given by the Borrower and its Subsidiaries to account debtors, the
Borrower or any its Subsidiaries receives any check or other item of payment
with respect to its accounts receivable the Borrower or such Subsidiary shall
hold such items in trust for the benefit of the Agent and deposit the same on
the date of receipt thereof in the Receivables Concentration Account.
-1-
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5. On or before the Effective Date, the banks at which the
Blocked Accounts are maintained shall have entered into tri-party blocked
account agreements (the "BLOCKED ACCOUNT AGREEMENTS") with the Agent, the
Borrower and any other depositor, in form and substance reasonably satisfactory
to the Required Lenders. Each such Blocked Account Agreement shall provide,
among other things, that (a) such bank executing such agreement has no rights
of set-off or recoupment or any other claim against such Blocked Account, other
than for payment of its service fees and other charges directly related to the
administration of such account, (b) such bank agrees to sweep on a daily basis
all amounts received in the Blocked Account to the Coin Concentration Account
and (c) the Agent has exclusive dominion and control of, and a first priority
security interest in, such Blocked Account.
6. On or before the Effective Date, the bank at which the Coin
Concentration Account is maintained shall have entered into a tri-party
concentration account agreement (the "COIN CONCENTRATION ACCOUNT AGREEMENT")
with the Agent and the Borrower, in form and substance reasonably satisfactory
to the Required Lenders. Such Coin Concentration Account Agreement shall
provide, among other things, that (a) such bank executing such agreement has no
rights of set-off or recoupment or any other claim against such Coin
Concentration Account, other than for payment of its service fees and other
charges directly related to the administration of such account, (b) such bank
agrees to sweep on a daily basis all amounts received in the Coin Concentration
Account to the Collection Account and (c) the Agent has exclusive dominion and
control of, and a first priority security interest in, the Coin Concentration
Account.
7. On or before the Effective Date, the bank at which the
Receivables Concentration Account is maintained, shall have entered into a
tri-party concentration account agreement (the "RECEIVABLES CONCENTRATION
ACCOUNT AGREEMENT") with the Agent and the Borrower, in form and substance
reasonably satisfactory to the Required Lenders. Such Receivables Accounts
Concentration Account Agreement shall provide, among other things, that (a)
such bank executing such agreement has no rights of set-off or recoupment or
any other claim against such Receivables Concentration Account, other than for
the payment of its service fees and other charges directly related to the
administration of such account, (b) such bank shall deposit all receipts from a
lockbox to be established with such bank into the Receivables Concentration
Account, (c) such bank agrees to sweep on a daily basis all amounts received in
the Receivables Concentration Account to the Collection Account, and (d) the
Agent has exclusive dominion and control of, and a first priority security
interest in, the Receivables Concentration Account.
8. The Borrower may maintain, in its name, an account (the
"DISBURSEMENT ACCOUNT") at a bank reasonably acceptable to the Required Lenders
into which the Agent shall, from time to time, deposit proceeds of Revolving A
Loans or Revolving B Loans made pursuant to SECTION 2.1.1 or SECTION 2.1.2 for
use solely in accordance with the provisions of SECTION 3.9. The Disbursement
Account as of the Closing Date is identified below in paragraph 12
-2-
2
<PAGE> 120
as the "Disbursement Account".
9. All amounts deposited in the Collection Account shall be
deemed received by the Agent in accordance with the terms of SECTION 3.6. In
no event shall any amount be so applied unless and until such amount shall have
been credited in immediately available funds to the Collection Account.
10. The Borrower hereby constitutes and irrevocably appoints, from
and after the Closing Date until payment in full of all Loans and the
termination of the Commitments, the Agent as its true and lawful attorney, with
full power of substitution, to demand, collect, receive and sue for all amounts
which may become due and payable under the Blocked Accounts, Coin Concentration
Account, and the Receivables Concentration Account, and to exercise all
withdrawal receipts or other orders for the Borrower or any of its Subsidiaries
in the Agent's own name or in the Borrower's or its Subsidiary's name or
otherwise, which the Agent deems necessary or appropriate to protect and
preserve its right, title and interest in such accounts.
11. Upon the request of the Required Lenders, the Borrower shall
forward to the Lenders, on a daily basis, evidence of the deposit of all items
of payment received by the Borrower into the Blocked Accounts, the Coin
Concentration Account and the Receivables Concentration Agreement, and copies
of all such checks and other items, in form and substance reasonably
satisfactory to the Required Lenders.
12. The following consists of all of the deposit, checking,
operating and other bank accounts of the Borrower and its Subsidiaries as of
the Closing Date.
(a) The Blocked Accounts described below:
Name/ABA # of Bank Account Number
------------------ ---------------
Bank of America-CA/122000661 12209-31976
Bank of Boston/011000390 542-44818
Bank of New York/021202719 610-4685593
Bank One-WV/043400065 625137419
Dubuque Bank & Trust-IA/
073900535 101761
Mercantile Bank-IL/081202759 850004895-7
First Union National Bank-NC/
053107659 2075287097380
Flagship Bank-MA/011032616 2025099612
-3-
3
<PAGE> 121
Key Bank-WA/125000574 2185001371
M & T Bank-NY/022000046 11475811
Merchants Bank-TX/113102044 0070108993
Bank of America-NV/122400724 245845037
First American-TN/064100674 3000041422
First Union National Bank-FL/
067006432 2168752468050
National City Bank-OH/041200144 2569167
NationsBank-TX/111317721 3590011436
NationsBank-VA/051400646 0010059122
NBD Bank-IN/074000052 07648456
Old Kent-MI/072402115 9104063
West One Bank-WA/125107833 6002625561
Huntington National Bank-OH/
044000024 01661388102
(b) The Disbursement Account described below:
Name/ABA # of Bank Account Number
------------------ --------------
Huntington National Bank-OH/
044000024 01669505107
(c) The following other accounts:
Name/ABA # of Bank Account Number
------------------ --------------
None.
-4-
4
<PAGE> 122
SCHEDULE 4
----------
INELIGIBLE TELEPHONES
______________________________________________________________________________
Description of
Telephones Cure
-------------- ----
193 Telephones located Approval of North
in North Carolina Carolina Public
Utility Commission
___ Telephones located Obtain valid
in Florida Telephone Placement
Agreement
___ Telephones located Obtain valid
in miscellaneous Telephone Placement
locations Agreement
-1-
1
<PAGE> 1
EXHIBIT C-5.
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (this "AGREEMENT"), dated as of March
15, 1996 among PHONETEL TECHNOLOGIES, INC., an Ohio corporation (the
"BORROWER"), PUBLIC TELEPHONE CORPORATION, an Indiana corporation ("PUBLIC"),
WORLD COMMUNICATIONS, INC., a Missouri corporation ("WORLD"), NORTHERN FLORIDA
TELEPHONE CORPORATION, a Florida corporation ("NORTHERN"), and PARAMOUNT
COMMUNICATIONS SYSTEMS, INC., a Florida corporation ("PARAMOUNT"; Public,
World, Northern and Paramount are hereinafter referred to individually as a
"SUBSIDIARY" and, collectively, as the "SUBSIDIARIES"; Borrower and the
Subsidiaries are hereinafter referred to individually as a "GRANTOR" and
collectively as the "GRANTORS"), and INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION, a Delaware corporation ("ING"), as Agent (in such capacity, the
"AGENT") for itself and the other lenders (ING and such other lenders,
collectively, the "LENDERS") as are, or may from time to time become, parties
to the Credit Agreement (as defined below).
W I T N E S S E T H:
--------------------
RECITALS.
- --------
A. Pursuant to a Credit Agreement, dated as of even date
herewith (as amended, restated, supplemented or otherwise modified from time to
time, the "CREDIT AGREEMENT"), among the Borrower, the Lenders and the Agent,
the Lenders will extend certain Loans to Borrower, as more specifically
described in the Credit Agreement; and
B. Pursuant to a Subsidiary Guaranty, dated as of even
date herewith (together with all amendments and other modifications, if any,
from time to time hereafter made thereto, the "SUBSIDIARY GUARANTY"), by the
Subsidiaries in favor of the Agent and the Lenders, the Subsidiaries have
guaranteed, jointly and severally, all of the Obligations of the Borrower under
the Credit Agreement, subject to the terms of the Subsidiary Guaranty; and
C. In order to induce the Lenders and the Agent to enter
into the Credit Agreement, and as a condition to the making of the Loans
thereunder, each of the Grantors has agreed to grant a continuing security
interest in and to the "Collateral" (as hereinafter defined) to secure the
"Secured Obligations" (as hereinafter defined);
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement and
not otherwise defined herein, when used in this Agreement including its
preamble and Recitals, shall have the respective meanings provided for in the
Credit Agreement. The following additional terms (whether or not underscored),
when used in this Agreement, shall have the following meanings:
"ACCOUNTS" means all "accounts" (as defined in the UCC), now
or hereafter owned or acquired by a Person or in which a Person now or
hereafter has or acquires any rights, and, in any event, shall mean and
include, without limitation, (a) all accounts receivable, contract rights, book
debts, notes, drafts and other obligations or indebtedness owing to such Person
arising from the sale or lease of goods or other property by it or the
performance of services by it (including, without limitation, any such
obligation which might be characterized as an account, contract right or
general intangible under the Uniform Commercial Code in effect in any
jurisdiction, as well as any sums owed to such Person under any OSP
Agreements), (b) all of such Person's rights in, to and under all purchase and
sales orders for goods, services or other property, and all of such Person's
rights to any goods, services or other property represented by any of the
foregoing (including returned or repossessed goods and unpaid sellers' rights
of rescission, replevin, reclamation and rights to stoppage in transit), (c)
all monies due to or to become due to such Person under all contracts for the
sale, lease or exchange of goods or other property or the performance of
services by it (whether or not yet earned by performance on the part of such
Person), and (d) all collateral security and guarantees of any kind given by
such Person with respect to any of the foregoing, in each case whether now in
existence or hereafter arising or acquired.
"CHATTEL PAPER" means any "chattel paper" (as defined in the
UCC) now or hereafter owned or acquired by a Person or in which a Person now or
hereafter has or acquires any rights.
"COLLATERAL" means, collectively:
(i) Accounts;
(ii) Inventory;
(iii) Chattel Paper;
(iv) Documents;
(v) Equipment;
(vi) Instruments;
(vii) General Intangibles;
2
<PAGE> 3
(viii) the Collateral Account, all cash
deposited therein from time to time, any investments made with such
cash and other monies and property of any kind of any Grantor in the
possession or under the control of the Agent or any Lender;
(ix) All other goods and personal property,
whether tangible or intangible;
(x) All books and records pertaining to any of
the Collateral (including, without limitation, customer lists, credit
files, computer programs, printouts and other computer materials and
records); and
(xi) All products and Proceeds of all or any of
the Collateral described in clauses (i) through (x) hereof.
Notwithstanding the foregoing, Collateral shall not include any property that
is the subject of the Borrower Pledge Agreement and the Subsidiary Pledge
Agreement.
"COLLATERAL ACCOUNT" means any cash collateral account
established by a Grantor for the benefit of and under the exclusive dominion
and control of the Agent, including, without limitation the Blocked Accounts
and the Concentration Accounts referenced in Schedule 3 to the Credit
Agreement.
"DOCUMENTS" means all "documents" (as defined in the UCC) or
other receipts covering, evidencing or representing goods, now or hereafter
owned or acquired by a Person or in which a Person now or hereafter has or
acquires rights.
"EQUIPMENT" means all "equipment" (as defined in the UCC), now
or hereafter owned or acquired by a Person or in which a Person now or
hereafter has or acquires rights, and, in any event, shall mean and include,
without limitation, all telephones (whether coin operated, non-coin operated or
both coin operated and non-coin operated), cables, telephone components
(whether assembled or disassembled), handsets, cords, microprocessors,
machinery, equipment, furnishings, fixtures, vehicles and computers and other
electronic data processing and other office equipment and any and all
additions, substitutions and replacements of any of the foregoing, together
with all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto.
"GENERAL INTANGIBLES" means all "general intangibles" (as
defined in the UCC), now or hereafter owned or acquired by a Person or in which
a Person now or hereafter has or acquires any rights, and, in any event, shall
mean and include, without limitation, all obligations or indebtedness owing to
a Person (other than Accounts) from whatever source arising, including, without
limitation, rights to indemnification (including, without limitation, rights to
3
<PAGE> 4
indemnification under the Acquisition Agreements) and all other rights arising
under the Acquisition Agreements, and all rights, title and interest which a
Person may now or hereafter have in or under all contracts (in addition to
contracts described in the definition of Accounts), Telephone Placement
Agreements, causes of action, franchises, tax refund claims, customer lists,
Intellectual Property, license royalties, goodwill, trade secrets, proprietary
or confidential information, data bases, business records, data, skill,
expertise, experience, processes, models, drawings, materials and records,
permits and licenses, warranties, manuals, software and all other intangible
property of every kind and nature.
"INSTRUMENTS" means all "instruments" or "letters of credit"
(each as defined in the UCC), including, without limitation, instruments, and
letters of credit evidencing, representing, arising from or existing in respect
of, relating to, securing or otherwise supporting the payment of, any of the
Accounts, including (but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances, now or hereafter owned or acquired by a Person
or in which a Person now or hereafter has or acquires any rights.
"INTELLECTUAL PROPERTY" means, collectively, (a) all systems
software and applications software, including, but not limited to, source code,
object code, screen displays and formats, program structure, sequence and
organization, and audiovisual elements, all formulas, processes, ideas and
know-how embodied in any of the foregoing, and all documentation and program
materials, user manuals, operations manuals, flowcharts, programer's notes,
outlines and specifications created in connection with any of the foregoing,
whether or not patentable or copyrightable, (b) concepts, discoveries,
improvements and ideas, (c) patents, patent rights and patent applications,
copyrights and copyright applications, Trademarks, including, without
limitation, the names "PhoneTel" and "Teletalk" and all derivations thereof,
and (d) patent licenses, Trademark Licenses, copyright licenses and other
licenses to use any of the items described in the foregoing clauses (a), (b),
(c) and (d) or any other items of a Person necessary for the conduct of its
business.
"INVENTORY" means all "inventory" (as defined in the UCC), now
or hereafter owned or acquired by a Person or in which a Person now or
hereafter has or acquires any rights, wherever located, and, in any event,
shall mean and include, without limitation, all raw materials, inventory and
other materials and supplies, work-in-process, finished goods, and any products
made or processed therefrom and all substances, if any, commingled therewith or
added thereto.
"PERFECTION CERTIFICATE" means a certificate dated as of even
date herewith, setting forth the corporate names, chief ex-
4
<PAGE> 5
ecutive office or principal places of business in each State and other current
locations of the Grantors and such other information as the Agent deems
reasonably pertinent to the perfection of security interests, completed and
supplemented with the schedules and attachments contemplated thereby to the
satisfaction of the Agent, and duly executed by the chief executive and chief
financial Authorized Officer of each of such Persons.
"PERMITTED LIENS" means the Security Interests and the Liens
on the Collateral permitted to be created, to be assumed or to exist pursuant
to Section 6.2.3 of the Credit Agreement.
"PROCEEDS" means all proceeds of, and all other profits,
rentals or receipts, in whatever form, arising from the collection, sale,
lease, exchange, assignment, licensing or other disposition of, or realization
upon, Collateral, including, without limitation all claims of a Person against
third parties for loss of, damage to or destruction of, or for proceeds payable
under, or unearned premiums with respect to, policies of insurance in respect
of, any Collateral, and any condemnation or requisition payments with respect
to any Collateral and the following types of property acquired with cash
proceeds: Accounts, Inventory, General Intangibles, Documents, Instruments and
Equipment.
"SECURED OBLIGATIONS" means (a) with respect to the Borrower,
the Obligations, including, without limitation (i) all principal of and
interest (including, without limitation, any interest which accrues after the
commencement of any case, proceeding or other action relating to the
bankruptcy, insolvency or reorganization of the Borrower) on any Loan under,
any Note issued pursuant to, and any other amount due from the Borrower under,
the Credit Agreement, and (ii) all amounts payable by the Borrower to an
Interest Rate Contract Counterparty that is a Lender pursuant to the terms of
the Credit Agreement, and (iii) all other obligations (monetary or otherwise)
to be performed by the Borrower under the Credit Agreement or any other Loan
Document; (b) with respect to any Grantor that is a party to the Subsidiary
Guaranty, all amounts payable and all obligations (monetary or otherwise) to be
performed by such Grantor under the Subsidiary Guaranty, including, without
limitation, the "Guaranteed Obligations" (as such term is defined in the
Subsidiary Guaranty); and (c) all renewals or extensions of any of the
foregoing.
"SECURITY INTERESTS" means the security interests granted
pursuant to SECTION 3, as well as all other security interests created or
assigned as additional security for the Secured Obligations pursuant to the
provisions of this Agreement.
"TRADEMARK LICENSE" means any written agreement now or
hereafter in existence granting to a Person any right to use any Trademark,
including, without limitation, the agreements described in SCHEDULE I to the
Trademark Assignment.
5
<PAGE> 6
"TRADEMARKS" means all of the following: (i) all trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature, whether now existing or
hereafter adopted or acquired, all registrations and recordings thereof, (ii)
all applications in connection therewith, including, without limitation,
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision thereof,
including, without limitation, those described in SCHEDULE I to the Trademark
Assignment, and (iii) all reissues, extensions or renewals thereof.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of New York; PROVIDED that if by reason of mandatory
provisions of law, the perfection or the effect of perfection or non-perfection
of the Security Interests in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than New York, "UCC" means
the Uniform Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect of
perfection or non-perfection.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Each Grantor represents
and warrants as follows:
(a) Such Grantor has good and marketable title to all of
its Collateral, free and clear of any Liens other than the Permitted Liens.
Except as listed on EXHIBIT B attached hereto, none of such Collateral consists
of contracts, agreements or other documents which by their terms prohibit an
assignment or pledge of such Collateral nor is any Collateral subject to any
agreement which prohibits assignment or pledge of such Collateral by such
Grantor.
(b) Such Grantor has not performed any act or acts that
could prevent the Agent from enforcing any of the terms of this Agreement.
Other than financing statements or other similar or equivalent documents or
instruments with respect to Permitted Liens, to such Grantor's knowledge, no
financing statement, mortgage, security agreement or similar or equivalent
document or instrument covering all or any part of the Collateral is on file or
of record in any jurisdiction, and no Collateral is subject to any Lien other
than Permitted Liens. No Collateral is in the possession of a Person (other
than such Grantor) asserting any claim thereto or security interest therein,
except that the Agent or its designee may have possession of Collateral as
contemplated hereby or by the Borrower Pledge Agreement.
6
<PAGE> 7
(c) All of the information set forth in the Perfection
Certificate is true and correct as of the date hereof.
(d) (i) When the UCC financing statements in appropriate
form are filed in the offices specified in the Perfection Certificate,
the Security Interests shall constitute valid and perfected security
interests in the Collateral, prior to all other Liens and rights of
others therein except for the Permitted Liens, to the extent that a
security interest therein may be perfected by filing pursuant to the
UCC.
(ii) When the Trademark Assignment is filed with the
United States Patent and Trademark Office, the Security Interests
shall constitute valid and perfected security interests in all right,
title and interest of the Grantor in all Trademarks of such Grantor,
prior to all other Liens and rights of others therein except for the
Permitted Liens, to the extent that a security interest in such
Trademarks may be perfected by a filing in such office.
(e) The Inventory and Equipment are insured in accordance
with the requirements of the Credit Agreement.
SECTION 3. THE SECURITY INTERESTS. (a) In order to secure the full
and punctual payment and performance of its Secured Obligations in accordance
with the terms thereof, each Grantor hereby grants, pledges, assigns,
hypothecates, sets over and conveys to the Agent, for its benefit and the
benefit of the Lenders, a continuing security interest in and to all Collateral
now or hereafter owned or acquired by such Grantor or in which such Grantor now
has or hereafter has or acquires any rights, and wherever located, excluding
any collateral consisting of chattel paper and general intangibles that are now
held by a Grantor as licensee, lessee or otherwise and that is listed on the
annexed EXHIBIT B to the extent that (i) such chattel paper and general
intangibles are not assignable or capable of being encumbered as a matter of
law or under the terms of the license, lease or other agreement applicable
thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law), without the consent of the licensor or
lessor thereof or other applicable party thereto and (ii) such consent has not
been obtained; PROVIDED, HOWEVER, that the foregoing grant of security interest
shall extend to, and the term "Collateral" shall include, (A) any and all
proceeds of such chattel paper and general intangibles to the extent that the
assignment or encumbering of such proceeds is not so restricted and (B) upon
any such licensor, lessor other applicable party's consent with respect to any
such otherwise excluded chattel paper or general intangibles being
7
<PAGE> 8
obtained, thereafter such chattel paper or general intangibles as well as any
and all proceeds thereof that might have theretofore have been excluded from
such grant of a security interest and the term "Collateral".
(b) The Security Interests are granted as security only
and shall not subject the Agent or any Lender to, or transfer to the Agent or
any Lender, or in any way affect or modify, any obligation or liability of any
Grantor with respect to any Collateral or any transaction in connection
therewith.
SECTION 4. FURTHER ASSURANCES; COVENANTS.
(a) GENERAL.
(i) No Grantor will change the location of its
chief executive office or principal place of business in any state
unless it shall have given the Agent thirty (30) days prior notice
thereof, executed and delivered to the Agent all financing statements
and financing statement amendments which the Agent may request in
connection therewith and delivered an opinion of counsel with respect
thereto in accordance with SECTION 4(A)(VIII). No Grantor shall
change the locations, or establish new locations, where it keeps or
holds any Collateral or any records relating thereto from the
applicable locations described in the Perfection Certificate unless
the Grantor shall have given the Agent fifteen (15) days prior notice
of such change of location, executed and delivered to the Agent all
financing statements and financing statement amendments which the
Agent may request in connection therewith and delivered an opinion of
counsel with respect thereto in accordance with SECTION 4(A)(VIII),
and the Grantor shall have complied with any other requirement in this
Agreement or any other Loan Document relating to the location of any
Collateral, PROVIDED, HOWEVER, that the Grantor may keep Collateral
at, or in transit to, any location described in the Perfection
Certificate. No Grantor shall in any event change the location, or
establish new locations, of any Collateral if such change would cause
the Security Interests in such Collateral to lapse or cease to be a
perfected first priority Security Interest.
(ii) No Grantor will change its name, identity or
corporate structure in any manner unless it shall have given the Agent
thirty (30) days prior notice thereof, executed and delivered to the
Agent all financing statements and financing statement amendments
which the Agent may request in connection therewith and delivered an
opinion of counsel with respect thereto in accordance with SECTION
4(A)(VIII).
(iii) The Grantors will, from time to
time, at its expense, execute, deliver, file and record any
statement,
8
<PAGE> 9
assignment, instrument, document, agreement or other paper and take
any other action (including, without limitation, any filings with the
United States Patent and Trademark Office, Copyright or Patent filings
and any filings of financing or continuation statements under the UCC)
that from time to time may be necessary, or that the Agent may
request, in order to create, preserve, upgrade in rank (to the extent
required hereby), perfect, confirm or validate the Security Interests
or to enable the Agent and the Lenders to obtain the full benefits of
this Agreement, or to enable the Agent to exercise and enforce any of
its rights, powers and remedies hereunder with respect to any of the
Collateral. To the extent permitted by law, each Grantor hereby
authorizes the Agent to execute and file financing statements,
financing statement amendments or continuation statements without the
Grantor's signature appearing thereon. Each Grantor agrees that a
carbon, photographic, photostatic or other reproduction of this
Agreement or of a financing statement is sufficient as a financing
statement. The Grantors shall, jointly and severally, pay the costs
of, or incidental to, any recording or filing of any financing
statements, financing statement amendments or continuation statements
concerning the Collateral.
(iv) If any Grantor's Collateral exceeding in
value $50,000 in the aggregate is at any time in the possession or
control of any warehouseman, bailee (other than a carrier transporting
Inventory to a purchaser in the ordinary course of business) or any of
such Grantor's agents or processors, such Grantor shall notify in
writing such warehouseman, bailee, agent or processor of the Security
Interests created hereby, shall obtain such warehouseman's, bailee's,
agent's or processor's agreement in writing to hold all such
Collateral for the Agent's account subject to the Agent's
instructions, and shall cause such warehousemen, bailee, agent or
processor to issue and deliver to the Agent warehouse receipts, bills
of lading or any similar documents relating to such Collateral in the
Agent's name and in form and substance acceptable to the Agent.
(v) Each Grantor will immediately deliver and
pledge each Instrument to the Agent, appropriately endorsed to the
Agent, PROVIDED THAT so long as no Event of Default shall have
occurred and be continuing, such Grantor may retain for collection in
the ordinary course any Instruments (other than checks and drafts
constituting payments in respect of Accounts) received by it in the
ordinary course of business and the Agent shall, promptly upon request
of such Grantor, make appropriate arrangements for making any other
Instrument pledged by such Grantor available to it for purposes of
presentation, collection or renewal (any such arrangement to be
effected, to the extent deemed appropriate to the Agent,
9
<PAGE> 10
against trust receipt or like document).
(vi) No Grantor will (A) sell, transfer, lease,
exchange, assign or otherwise dispose of, or grant any option, warrant
or other right with respect to, any Collateral except that, subject to
the rights of the Agent and the Lenders hereunder if an Event
of Default shall have occurred and be continuing, the Grantors may
dispose of assets if such disposition is permitted by Section 6.2.11
of the Credit Agreement, whereupon, in the case of such a disposition,
sale or exchange, the Security Interests created hereby in such item
(but not in any Proceeds arising from such disposition, sale or
exchange) shall cease immediately without any further action on the
part of the Agent; or (B) create, incur or suffer to exist any Lien
with respect to any Collateral, except for the Permitted Liens.
(vii) The Grantors will, promptly upon
request, provide to the Agent all information and evidence it may
reasonably request concerning the Collateral, to enable the Agent to
enforce the provisions of this Agreement.
(viii) Prior to each date on which any
Grantor proposes to take any action contemplated by SECTION 4(A)(I) or
SECTION 4(A)(II), upon request of the Required Lenders such Grantor
shall, at its cost and expense, cause to be delivered to the Agent and
the Lenders an opinion of counsel, satisfactory to the Agent, to the
effect that all financing statements and amendments or supplements
thereto, continuation statements and other documents required to be
recorded or filed in order to perfect and protect the Security
Interests and priority thereof against all creditors of and purchasers
from such Grantor have been filed in each filing office necessary for
such purposes and that all filing fees and taxes, if any, payable in
connection with such filings have been paid in full.
(b) ACCOUNTS, ETC.
(i) Each Grantor shall use all reasonable efforts
consistent with prudent business practice to cause to be collected
from its Account Debtors, as and when due, any and all amounts owing
under or on account of each Account (including, without limitation,
Accounts which are delinquent, such Accounts to be collected in
accordance with lawful collection procedures) and apply forthwith upon
receipt thereof all such amounts as are so collected to the
outstanding balance of such Account. The costs and expenses
(including, without limitation, attorney's fees) of collection of
Accounts incurred by the Grantors or the Agent, shall be borne by the
Grantors, jointly and severally.
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<PAGE> 11
(ii) Upon the occurrence and during the
continuance of any Event of Default, upon request of the Agent,
each Grantor will promptly notify (and each Grantor hereby authorizes
the Agent so to notify) each Account Debtor in respect of any Account
or Instrument that such Collateral has been assigned to the Agent
hereunder, and that any payments due or to become due in respect of
such Collateral are to be made directly to the Agent or its designee.
(iii) Each Grantor will perform and comply in all
material respects with all of its obligations in respect of Accounts,
Instruments and General Intangibles.
(c) INVENTORY, ETC. The Grantors shall notify
the Agent immediately of any additional location where Inventory is
stored which is not listed in the Perfection Certificate.
(d) EQUIPMENT, ETC. The Grantors shall, (i) within ten
(10) days after a request by the Required Lenders, in the case of Equipment now
owned, and (ii) following a request by the Required Lenders pursuant to
subclause (i) above, within ten (10) days after acquiring any other Equipment,
deliver to the Agent, for the benefit of itself and the Lenders, any and all
certificates of title, and applications therefor, if any, of such Equipment and
shall cause the Agent, for the benefit of itself and the Lenders, to be named
as lienholder on any such certificate of title and applications. The Grantors
shall promptly inform the Agent of any material additions to or deletions from
the Equipment and shall not permit any such items to become a fixture to real
estate or an accession to other personal property.
(e) PATENTS, TRADEMARKS, ETC. The Grantors shall notify
the Agent immediately (i) of its acquisition after the Closing Date of any
patent, patent license, Trademark or Trademark License and (ii) if it knows, or
has reason to know, that any application or registration relating to any patent
or Trademark owned by or licensed to the Grantors is reasonably likely to
become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination
or development in, any proceeding in the United States Patent and Trademark
Office or any court) regarding any Grantor's ownership of any patent or
Trademark, its right to register the same, or to keep and maintain the same.
In the event that any patent, patent license, Trademark or Trademark License is
infringed, misappropriated or diluted by a third party, the Grantors shall
notify the Agent promptly after they learn thereof and shall, unless the
Grantors shall reasonably determine that any such action would be of immaterial
economic value, promptly sue for infringement, misappropriation or dilution and
to recover any and all damages for such infringement, misappropriation or
dilution, and take such other actions as the Grantors shall reasonably deem
appropriate under the circumstances to protect such patent, patent
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<PAGE> 12
license, Trademark or Trademark License. In no event shall the Grantors,
either themselves or through any agent, employee or licensee, file an
application for the registration of any patent or Trademark with the United
States Patent and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, unless not less than thirty (30)
days prior thereto it informs the Agent, and, upon issuance of such patent or
Trademark, executes and delivers any and all agreements, instruments, documents
and papers the Agent may reasonably request to evidence the Security Interests
in such patent or Trademark and the goodwill and general intangibles of the
Grantors relating thereto or represented thereby. Each Grantor hereby
constitutes the Agent its attorney-in-fact to execute and file all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed, and such power, being coupled with an interest, shall
be irrevocable until the Commitments have terminated and the Secured
Obligations are paid in full.
SECTION 5. REPORTING AND RECORDKEEPING. Each Grantor covenants and
agrees with the Agent and the Lenders that from and after the date of this
Agreement and until the Commitments have terminated, and all Secured
Obligations are paid in full.
(a) MAINTENANCE OF RECORDS GENERALLY. Such Grantor will
keep and maintain at its own cost and expense records of the Collateral,
complete in all material respects, including, without limitation, a record of
all payments received and all credits granted with respect to the Collateral
and all other dealings with the Collateral. Such Grantor will mark its books
and records pertaining to the Collateral to evidence this Agreement and the
Security Interests. All Chattel Paper will be marked with the following
legend: "This writing and the obligations evidenced or secured hereby are
subject to the security interest of Internationale Nederlanden (U.S.) Capital
Corporation, as Agent". For the Agent's and the Lenders' further security,
such Grantor agrees that the Agent and the Lenders shall have a security
interest in all of the Grantor's books and records pertaining to the Collateral
and, upon the occurrence and during the continuation of any Default or Event of
Default, the Grantor shall deliver and turn over full and complete copies of
any such books and records to the Agent or to its representatives at any time
on demand of the Agent. Prior to the occurrence of a Default or an Event of
Default and upon reasonable notice from the Agent, such Grantor shall permit
any representative of the Agent, at reasonable times and reasonable intervals
upon one Business Day's notice, to inspect such books and records and will
provide photocopies thereof to the Agent.
(b) SPECIAL PROVISIONS REGARDING MAINTENANCE OF RECORDS
AND REPORTING RE: ACCOUNTS, INVENTORY AND EQUIPMENT.
(i) Such Grantor shall keep complete and accurate
records of its Accounts. Upon the request of the
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<PAGE> 13
Agent, such Grantor shall deliver to the Agent all documents,
including, without limitation, repayment histories, present status
reports, relating to the Accounts so scheduled and such other matters
and information relating to the status of then existing Accounts as
the Agent shall reasonably request.
(ii) In the event any amounts due and owing in
excess of $50,000 individually or $100,000 in the aggregate are in
dispute between any Account Debtor and such Grantor, such Grantor
shall provide the Agent with written notice thereof promptly after
such Grantor's learning thereof explaining in detail the reason for
the dispute, all claims related thereto and the amount in controversy.
(iii) Such Grantor shall maintain itemized
records, accurate in all material respects, itemizing and describing
the kind, type, quality, quantity, location and book value of its
Inventory and Equipment and shall furnish the Agent with a current
schedule containing the foregoing information and upon request by the
Required Lenders.
(iv) Such Grantor will promptly upon, but
in no event later than five (5) Business Days after:
(A) Such Grantor's learning thereof, inform the
Agent, in writing, of any material delay in the Grantor's
performance of any of its material obligations to any Account
Debtor and of any assertion of any material claims, offsets or
counterclaims by any Account Debtor and of any allowances,
credits and/or other monies granted by such Grantor to any
Account Debtor, in each case involving amounts in excess of
$50,000 for any single Account or Account Debtor or in excess
of $100,000 in the aggregate for all Accounts and Account
Debtors; and
(B) such Grantor's receipt or learning thereof,
furnish to and inform the Agent of all material adverse
information relating to the financial condition of any Account
Debtor with respect to Accounts exceeding $50,000 individually
or $100,000 in the aggregate.
(iv) Such Grantor will promptly notify the Agent
in writing if any Account, the face value of which exceeds $10,000,
arises out of a contract with the United States of America, or any
department, agency, subdivision or instrumentality thereof, or of any
state (or department, agency, subdivision or instrumentality thereof)
where such state has a state assignment of claims act or other law
comparable to the Federal Assignment of Claims Act, and will take any
action required or requested by the Agent to give notice of the
Agent's security interest in such Accounts under
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<PAGE> 14
the provisions of the Federal Assignment of Claims Act or any
comparable law or act enacted by any state or local governmental
authority; and
(v) Such Grantor at its expense will cause
independent public accountants reasonably satisfactory to the Agent to
prepare and deliver to the Agent at any time and from time to time
promptly upon the Agent's reasonable request, the following reports:
(A) a reconciliation of all of its Accounts, (B) an aging of all of
its Accounts, (C) trial balances, and (D) a test verification of such
Accounts.
(c) FURTHER IDENTIFICATION OF COLLATERAL. Such Grantor
will if so requested by the Agent furnish to the Agent, as often as the Agent
reasonably requests, statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Agent may reasonably request, all in reasonable detail.
(d) NOTICES. In addition to the notices required by
SECTION 5(B) hereof, such Grantor will advise the Agent promptly, in reasonable
detail, (i) of any material Lien or claim made or asserted against any of the
Collateral, (ii) of any material adverse change in the composition of the
Collateral, and (iii) of the occurrence of any other event which would have a
material adverse effect on the aggregate value of the Collateral or on the
validity, perfection or priority of the Security Interests.
SECTION 6. COLLATERAL ACCOUNTS. In accordance with the terms of the
Credit Agreement, on or prior to April 15, 1996, each Grantor shall maintain
and abide by the cash management system described in Schedule 3 of the Credit
Agreement.
SECTION 7. GENERAL AUTHORITY. Each Grantor hereby irrevocably
appoints the Agent its true and lawful attorney, with full power of
substitution, in the name of such Grantor, the Agent, the Lenders or otherwise,
for the sole use and benefit of the Agent and the Lenders, but at such
Grantor's expense, to exercise, at any time from time to time all or any of the
following powers:
(i) to file the financing statements, financing
statement amendments and continuation statements referred to in
SECTION 4(A)(III),
(ii) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due with respect
to any Collateral or by virtue thereof,
(iii) to settle, compromise, compound,
prosecute or defend any action or proceeding with respect to any
Collateral,
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<PAGE> 15
(iv) to sell, transfer, assign or otherwise deal
in or with the Collateral or the proceeds or avails thereof, as fully
and effectually as if the Agent were the absolute owner thereof, and
(v) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments with reference
to the Collateral;
PROVIDED that the Agent shall not take any of the actions described in this
SECTION 7 except those described in clause (i) above unless an Event of Default
shall have occurred and be continuing.
SECTION 8. REMEDIES UPON EVENT OF DEFAULT.
(a) If any Event of Default has occurred and is
continuing, the Agent may exercise on behalf of the Lenders without further
notice, all rights and remedies under this Agreement, the Credit Agreement, the
Subsidiary Guaranty, any other Loan Document or that are available to a secured
creditor under the UCC or that are otherwise available at law or in equity, at
any time, in any order and in any combination, including the following (i) to
collect any and all Obligations from Borrower, (ii) to collect any and all
Guaranteed Obligations from any Subsidiaries under the Subsidiary Guaranty;
and, in addition, the Agent may (i) withdraw all cash, if any, in the
Collateral Account and investments made with amounts on deposit in the
Collateral Account, and apply such monies, investments and other cash, if any,
then held by it as Collateral as specified in SECTION 10 and (ii) sell the
Collateral or any part thereof at public or private sale, for cash, upon credit
or for future delivery, and at such price or prices as the Agent may deem
satisfactory. The Agent shall give each Grantor not less than ten days' prior
written notice of the time and place of any sale or other intended disposition
of such Grantor's Collateral, except any Collateral which is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Grantors agree that any such notice constitutes
"reasonable notification" within the meaning of Section 9-504(3) of the UCC (to
the extent such Section is applicable).
The Agent or any Lender may be the purchaser of any or all of the Collateral so
sold at any public sale (or, if the Collateral is of a type customarily sold in
a recognized market or is of a type which is the subject of widely distributed
standard price quotations or if otherwise permitted under applicable law, at
any private sale) and thereafter hold the same, absolutely, free from any right
or claim of whatsoever kind. The Grantors will execute and deliver such
documents and take such other action as the Agent deems necessary or advisable
in order that any such sale may be made in compliance with law. Upon any such
sale the Agent shall have the right to deliver, assign and transfer to the
purchaser
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<PAGE> 16
thereof the Collateral so sold. Each purchaser at any such sale shall hold the
Collateral so sold to it absolutely, free from any claim or right of any kind,
including any equity or right of redemption of the Grantors. To the extent
permitted by law, each Grantor hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such sale shall (1) in
case of a public sale, state the time and place fixed for such sale, and (2) in
the case of a private sale, state the day after which such sale may be
consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Agent may fix in the
notice of such sale. At any such sale the Collateral may be sold in one lot as
an entirety or in separate parcels, as the Agent may determine. The Agent
shall not be obligated to make any such sale pursuant to any such notice. The
Agent may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time
and place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of all or any part of
the Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Agent until the selling price is paid by the purchaser thereof,
but the Agent shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any
such failure, such Collateral may again be sold upon like notice. The Agent,
instead of exercising the power of sale herein conferred upon it, may proceed
by a suit or suits at law or in equity to foreclose the Security Interests and
sell the Collateral, or any portion thereof, under a judgment or decree of a
court or courts of competent jurisdiction. The Grantors shall remain liable,
jointly and severally, for any deficiency.
(b) For the purpose of enforcing any and all rights and
remedies under this Agreement, the Agent may (i) require the Grantors to, and
the Grantors agree that they will, at their expense and upon the request of the
Agent, forthwith assemble all or any part of the Collateral as directed by the
Agent and make it available at a place designated by the Agent which is, in the
Agent's opinion, reasonably convenient to the Agent and the Grantors, whether
at the premises of a Grantor or otherwise, (ii) to the extent permitted by
applicable law, enter, with or without process of law and without breach of the
peace, any premise where any of the Collateral is or may be located and,
without charge or liability to the Agent, seize and remove such Collateral from
such premises, (iii) have access to and use the Grantors' books and records,
computers and software relating to the Collateral, (iv) prior to the
disposition of the Collateral, store or transfer such Collateral without charge
in or by means of any storage or transportation facility owned or leased by the
Grantors, process, repair or recondition such Collateral or otherwise prepare
it for disposition in any manner and to the extent the Agent deems ap-
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<PAGE> 17
propriate and, in connection with such preparation and disposition, use without
charge any trademark, trade name, copyright, patent or technical process used
by the Grantors and (v) prior to the disposition of any pay phones, manage and
operate those pay phones, collect all payments, coins, income and profits from
those pay phones or that may otherwise relate to any Telephone Placement
Agreements, arrange for alternate telephone service with respect to any pay
phones and exercise any other right or remedy of a Grantor under, or with
respect to, any Telephone Placement Agreement (all at the expense of the
Grantors). Should the Agent (or any successor or assign of the Agent or any
agent or designee of any of the foregoing) notify any Person who is a party to
a Telephone Placement Agreement that an Event of Default has occurred and is
continuing, that Person is hereby irrevocably authorized and instructed to
follow any direction that it may receive in that notice (or any subsequent
notice) relating to that Telephone Placement Agreement and permit the Agent (or
any successor or assign or designee of Agent) to exercise all of any Grantor's
rights and remedies under that Telephone Placement Agreement as described
above.
(c) Without limiting the generality of the foregoing, if
any Event of Default has occurred and is continuing:
(i) the Agent may license, or sublicense, whether
general, special or otherwise, and whether on an exclusive or
non-exclusive basis, any patents or Trademarks included in the
Collateral throughout the world for such term or terms, on such
conditions and in such manner as the Agent shall in its sole
discretion determine;
(ii) the Agent may (without assuming any
obligations or liability thereunder), at any time and from time to
time, enforce (and shall have the exclusive right to enforce) against
any licensee or sublicensee all rights and remedies of the Grantors
in, to and under any patent licenses or Trademark Licenses and take or
refrain from taking any action under any thereof, and each Grantor
hereby releases the Agent and each of the Lenders from, and agrees to
hold the Agent and each of the Lenders free and harmless from and
against any claims arising out of, any lawful action so taken or
omitted to be taken with respect thereto EXCEPT FOR the Agent's or
such Lender's bad faith, gross negligence or wilful misconduct as
determined by a final and nonappealable decision of a court of
competent jurisdiction; and
(iii) upon request by the Agent, the
Grantors will execute and deliver to the Agent powers of attorney, in
form and substance satisfactory to the Agent, for the implementation
of any lease, assignment, license, sublicense, grant of option, sale
or other disposition of a patent or Trademark. In the event of any
such disposition pursuant to
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<PAGE> 18
this Section, the Grantors shall supply their know-how and expertise
relating to the manufacture and sale of the products bearing
Trademarks or the products or services made or rendered in connection
with patents, and its customer lists and other records relating to
such patents or Trademarks and to the distribution of said products,
to the Agent.
SECTION 9. LIMITATION ON DUTY OF AGENT IN RESPECT OF COLLATERAL.
Beyond reasonable care in the custody thereof, the Agent shall have no duty as
to any Collateral in its possession or control or in the possession or control
of any agent or bailee or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto. The Agent
shall be deemed to have exercised reasonable care in the custody of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property, and the Agent
shall not be liable or responsible for any loss or damage to any of the
Collateral, or for any diminution in the value thereof, by reason of the act or
omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Agent in good faith.
SECTION 10. APPLICATION OF PROCEEDS. Upon the occurrence and during
the continuance of an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral of any Grantor shall be
applied by the Agent in the following order of priorities:
FIRST, to payment of the reasonable out-of-pocket expenses of
such sale or other realization, including reasonable compensation to
agents and counsel for the Agent, and all reasonable out-of-pocket
expenses, liabilities and advances incurred or made by the Agent in
connection therewith, and any other unreimbursed expenses for which
the Agent or any Lender is to be reimbursed pursuant to Section 9.3 of
the Credit Agreement, or SECTION 13 hereof or any corresponding
provision of any of the other Loan Documents;
SECOND, to the ratable payment of accrued but unpaid interest
(including post-petition interest) and fees constituting Secured
Obligations of such Grantor;
THIRD, to the ratable payment of unpaid principal of the
Secured Obligations of such Grantor;
FOURTH, to the ratable payment of all other Secured
Obligations of such Grantor, until all such Secured Obligations shall
have been paid in full; and
FINALLY, to payment to such Grantor or its successors or
assigns, or as a court of competent jurisdiction
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<PAGE> 19
may direct, of any surplus then remaining from such proceeds.
The Agent may make distributions hereunder in cash or in kind or, on a ratable
basis, in any combination thereof.
SECTION 11. CONCERNING THE AGENT. The provisions of Article 8 of the
Credit Agreement shall inure to the benefit of the Agent in respect of this
Agreement and shall be binding upon the parties to the Credit Agreement in such
respect. In furtherance and not in derogation of the rights, privileges and
immunities of the Agent therein set forth:
(a) The Agent is authorized to take all such action as is
provided to be taken by it as Agent hereunder or otherwise permitted under the
Credit Agreement and all other action reasonably incidental thereto. As to any
matters not expressly provided for herein or therein, the Agent may request
instructions from the Lenders and shall act or refrain from acting in
accordance with written instructions from the Required Lenders or, in the
absence of such instructions, in accordance with its discretion.
(b) The Agent shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity, perfection,
priority or enforceability of the Security Interests, whether impaired by
operation of law or by reason of any action or omission to act on its part.
The Agent shall have no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by the Grantors.
SECTION 12. APPOINTMENT OF CO-AGENTS. At any time or times, in order
to comply with any legal requirement in any jurisdiction, the Agent may appoint
another bank or trust company or one or more other Persons reasonably
acceptable to the Required Lenders, either to act as co-agent or co-agents,
jointly with the Agent, or to act as separate agent or agents on behalf of the
Agent and the Lenders with such power and authority as may be necessary for the
effectual operation of the provisions hereof and specified in the instrument of
appointment (which may, in the discretion of the Agent, include provisions for
the protection of such co-agent or separate agent similar to the provisions of
SECTION 11).
SECTION 13. EXPENSES. In the event that any Grantor fails to comply
with the provisions of the Credit Agreement, this Agreement or any other Loan
Document, such that the value of any Collateral or the validity, perfection,
rank or value of the Security Interests are thereby diminished or potentially
diminished or put at risk, the Agent if requested by the Required Lenders may,
but shall not be required to, effect such compliance on behalf of such Grantor,
and the Grantors shall reimburse the Agent, jointly and severally, for the
reasonable costs thereof on demand. All reasonable insurance expenses and all
reasonable expenses of
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<PAGE> 20
protecting, storing, warehousing, appraising, insuring, handling, maintaining
and shipping the Collateral, any and all excise, stamp, intangibles, transfer,
property, sales, and use taxes imposed by any state, federal, or local
authority or any other Governmental Authority on any of the Collateral, or in
respect of periodic appraisals and inspections of the Collateral to the extent
the same may be requested by the Required Lenders from time to time (provided,
however, that unless an Event of Default has occurred and is continuing the
Required Lenders may only request two such appraisals and inspections during
any Fiscal Year), or in respect of the sale or other disposition thereof, shall
be borne and paid by the Grantors; and if the Grantors fail promptly to pay any
portion thereof when due, the Agent or any Lender may, at its option, but shall
not be required to, pay the same and charge the Grantors' accounts therefor,
and the Grantors agree to reimburse the Agent or such Lender therefor on
demand. All sums so paid or incurred by the Agent or any Lender for any of the
foregoing and any and all other sums for which the Grantors may become liable
hereunder and all reasonable costs and expenses (including attorneys' fees,
legal expenses and court costs) incurred by the Agent or any Lender in
enforcing or protecting the Security Interests or any of their rights or
remedies thereon shall be payable by the Grantors on demand and shall bear
interest (after as well as before judgment) until paid at the rate set forth in
Section 3.4.3 of the Credit Agreement and shall be additional Secured
Obligations hereunder.
SECTION 14. TERMINATION OF SECURITY INTERESTS; RELEASE OF COLLATERAL.
Upon the repayment in full of all Secured Obligations and the termination of
the Commitments, the Security Interests shall terminate and all rights to the
Collateral shall revert to the Grantors. At any time and from time to time
prior to such termination of the Security Interests, the Agent may release any
of the Collateral with the prior written consent of the Required Lenders;
PROVIDED, HOWEVER, that the Security Interest of the Agent in any Collateral
constituting an asset of which the Grantors may dispose under Section 6.2.11 of
the Credit Agreement shall automatically terminate and be released upon such
disposition by the Grantors without the necessity of any further action or
consent by the Agent or any Lender. Upon any such termination of the Security
Interests or release of Collateral, the Agent will, at the expense of the
Grantors, execute and deliver to the Grantors such documents as the Grantors
shall reasonably request, including but not limited to a UCC-3 termination
statement, to evidence the termination of the Security Interests or the release
of such Collateral, as the case may be.
SECTION 15. NOTICES. All notices hereunder shall be in writing or by
telecopy and shall be sufficiently given to the Agent, the Lenders or the
Grantors if addressed or delivered to them at, in the case of the Borrower, the
Agent and the Lenders, their respective addresses and telecopier numbers
specified in
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<PAGE> 21
Section 9.2 of the Credit Agreement (in each case with copies addressed as
provided in Section 9.2 of the Credit Agreement), and, in the case of the
Grantors that are Subsidiaries of the Borrower at, their respective addresses
and telecopier numbers specified in Section 15 of the Subsidiary Guaranty (in
each case with copies addressed as provided in Section 15 of the Subsidiary
Guaranty), or at such other address as any party may designate to any other
party by written notice. All such notices and communications shall be deemed
to have been duly given: at the time delivered by hand, if personally
delivered; when received if deposited in the mail, postage prepaid; when
transmission is verified, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight delivery.
SECTION 16. WAIVERS, NON-EXCLUSIVE REMEDIES. No failure on the part
of the Agent to exercise, and no delay in exercising and no course of dealing
with respect to, any right under the Credit Agreement, this Agreement or any
other Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise by the Agent or any Lender of any right under the Credit
Agreement, this Agreement or any other Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights in
this Agreement, the Credit Agreement and the other Loan Documents are
cumulative and are not exclusive of any other remedies provided by law. This
Agreement is a Loan Document executed pursuant to the Credit Agreement.
SECTION 17. SUCCESSORS AND ASSIGNS. This Agreement is for the
benefit of the Agent and the Lenders and their permitted successors and
assigns, and in the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable to the indebtedness
so assigned, may be transferred with such indebtedness. This Agreement shall
be binding on the Grantors and their successors and assigns; PROVIDED, HOWEVER,
that the Grantors may not assign any of their rights or obligations hereunder
without the prior written consent of the Agent and the Lenders.
SECTION 18. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Grantors and the Agent with the consent of the
Required Lenders.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO
THE EXTENT THAT PERFECTION (AND THE EFFECT OF PERFECTION AND NONPERFECTION) AND
CERTAIN REMEDIES MAY BE GOVERNED BY THE LAWS OF ANY JURISDICTION OTHER THAN NEW
YORK.
SECTION 20. SEVERABILITY. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (i) the other provisions hereof shall remain in
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<PAGE> 22
full force and effect in such jurisdiction and shall be liberally construed in
favor of the Agent and the Lenders in order to carry out the intentions of the
parties hereto as nearly as may be possible; and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
SECTION 21. SUPPLEMENT. In the event that any Subsidiary of the
Borrower is required, under the terms of the Credit Agreement or otherwise, to
grant a security interest in Collateral, such Subsidiary shall become a Grantor
hereunder and shall be bound by all of the terms and conditions hereof, upon
the delivery to the Agent of an executed counterpart of a Supplement to this
Security Agreement in the form of EXHIBIT A attached hereto.
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By: ______________________________
Peter G. Graf
Chairman and
Chief Executive Officer
Attest:_______________________________
Name:
Title:
[CORPORATE SEAL]
PUBLIC TELEPHONE CORPORATION
By: ______________________________
Peter G. Graf
Chief Executive Officer
Attest: ______________________________
Name:
Title:
[CORPORATE SEAL]
WORLD COMMUNICATIONS, INC.
By: ______________________________
Peter G. Graf
Chief Executive Officer
Attest: ______________________________
Name:
Title:
23
<PAGE> 24
[CORPORATE SEAL]
NORTHERN FLORIDA TELEPHONE CORPORATION
By: ______________________________
Peter G. Graf
Chief Executive Officer
Attest: ______________________________
Name:
Title:
[CORPORATE SEAL]
PARAMOUNT COMMUNICATIONS SYSTEMS, INC.
By: ______________________________
Peter G. Graf
Chief Executive Officer
Attest: ______________________________
Name:
Title:
[CORPORATE SEAL]
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, AS AGENT
By: ______________________________
James W. Latimer
Managing Director
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<PAGE> 25
EXHIBIT A
---------
to
Security Agreement
------------------
SUPPLEMENT TO SECURITY AGREEMENT
--------------------------------
THIS SUPPLEMENT TO SECURITY AGREEMENT (this "SUPPLEMENT"),
dated as of _____________ __, ____, is executed by [_________________],
[__________] (the "SUPPLEMENTING PARTY"), in favor of INTERNATIONALE
NEDERLANDEN (U.S.) CAPITAL CORPORATION, a Delaware corporation ("ING"), as
Agent (in such capacity, the "AGENT") for itself and the other lenders (ING and
such other lenders, collectively, the "LENDERS") as are, or may from time to
time become, parties to the Credit Agreement (as defined below). Terms used
herein but not defined herein shall have the meaning defined for those terms in
the Security Agreement (as defined below).
W I T N E S S E T H:
--------------------
RECITALS.
- ---------
A. PhoneTel Technologies, Inc., an Ohio corporation (the
"BORROWER"), the Lenders and the Agent have entered into a certain Credit
Agreement, dated as of March 15, 1996 (as amended, restated, supplemented or
otherwise modified, the "CREDIT AGREEMENT"); and
B. The Supplementing Party has become a Subsidiary of
the Borrower and as such is required to become a party to the Subsidiary
Guaranty pursuant to the Credit Agreement and Section 9.14 of that certain
Subsidiary Guaranty, dated as of March 15, 1996 (as amended, restated,
supplemented or otherwise modified, the "SUBSIDIARY GUARANTY"), by the
Guarantors from time to time party thereto in favor of the Agent and the
Lenders; and
C. Additionally pursuant to the Credit Agreement and
Section 21 of the Security Agreement, the Supplementing Party is required to
execute and deliver to the Agent this Supplement in order to secure its
obligations under the Subsidiary Guaranty, and the Supplementing Party desires
to execute and deliver this Supplement to satisfy such requirement and
condition; and
NOW, THEREFORE, in consideration of the premises the
Supplementing Party hereby agrees as follows:
SECTION 1. ADDITIONAL SECURITY INTERESTS. As security
for the payment and performance of the "Secured Obligations" (as such term is
defined in the Security Agreement), the Supplementing Party hereby grants to
the Agent for its benefit
1
<PAGE> 26
and the benefit of the Lenders a continuing security interest in and to all
Collateral now or hereafter owned or acquired by such Grantor or in which such
Supplementing Party now has or hereafter has or acquires any rights, and
wherever located.
SECTION 2. REPRESENTATIONS AND WARRANTIES. The
Supplementing Party, with respect to itself, hereby restates each
representation and warranty set forth in Section 2 of the Security Agreement as
of the date hereof.
SECTION 3. BINDING EFFECT. This Supplement shall become
effective when it shall have been executed by the Supplementing Party and
thereafter shall be binding upon the Supplementing Party and shall inure to the
benefit of the Agent and the Lenders. Upon the effectiveness of this
Supplement, this Supplement shall be deemed to be a part of and shall be
subject to all the terms and conditions of the Security Agreement. The
Supplementing Party shall not have the right to assign its rights hereunder or
any interest herein without the prior written consent of the Lenders.
SECTION 4. GOVERNING LAW; TERMS. THIS SUPPLEMENT SHALL
BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY, THE INTERNAL LAWS OF THE
STATE OF NEW YORK. Unless otherwise defined herein or in the Security
Agreement, terms defined in Article 9 of the UCC are used herein as therein
defined.
SECTION 5. EXECUTION IN COUNTERPARTS. This Supplement
may be executed in any number of counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Supplementing Party has caused this
Supplement to be duly executed and delivered by its dulyauthorized officer as
of the date first above written.
"Supplementing Party"
______________________________
By:_________________________
Name:
Title:
2
<PAGE> 27
Acknowledged and Agreed to:
INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, as Agent
By: ______________________________
Name:
Title:
3
<PAGE> 28
EXHIBIT B
---------
to
Security Agreement
------------------
COLLATERAL SUBJECT TO RESTRICTION ON ASSIGNMENT
-----------------------------------------------
[TO BE PROVIDED BY BORROWER]
1
<PAGE> 1
EXHIBIT C-6.
___________________________________________________________________
WARRANT PURCHASE AGREEMENT
BETWEEN
PHONETEL TECHNOLOGIES, INC.
AND
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
AND
CERBERUS PARTNERS, L.P.
Dated as of March 15, 1996
___________________________________________________________________
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Purchase and Sale of Warrants; Closing . . . . . . . . . . . . . . . 12
Section 3. Investment Representations . . . . . . . . . . . . . . . . . . . . . 13
Section 4. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 5. Warranties, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 7. Warrant Certificates . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8. Execution of Warrant Certificates . . . . . . . . . . . . . . . . . . 23
Section 9. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 10. Registration of Transfers and Exchanges . . . . . . . . . . . . . . . 23
Section 11. Warrants; Exercise of Warrants . . . . . . . . . . . . . . . . . . . 25
Section 12. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 13. Mutilated or Missing Warrant
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 14. Reservation of Warrant Shares . . . . . . . . . . . . . . . . . . . . 27
Section 15. Adjustment of Exercise Price and Number
of Warrant Shares Issuable . . . . . . . . . . . . . . . . . . . . . 28
(a) Reorganization of the Company 28
(b) When Issuance or Payment May be
Deferred 29
Section 16. Fractional Interests 29
Section 17. Notice to Warrant Holders 30
Section 18. Cash Distributions and Dividends 31
Section 19. Put Rights; Tag-Along Rights and
Registration Rights 32
(a) Put by Holders 32
(b) Closing 33
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(c) Restrictions on Purchase 34
(d) Tag-Along Rights 35
(e) Limitation on Put Rights of Others 36
(f) Severability 37
(g) Registration Rights 37
Section 20. Notices 37
Section 21. Costs and Expenses 38
Section 22. Indemnification 39
Section 23. Successors 40
Section 24. Termination 40
Section 25. Governing Law 40
Section 26. Benefits of this Agreement 40
Section 27. Counterparts 41
Section 28. Amendments; Waiver 41
Section 29. Waiver of Jury Trial 41
Section 30. Jurisdiction 41
Section 31. Specific Performance 42
Section 32. Confidentiality 42
Section 33. Entire Agreement 43
</TABLE>
<TABLE>
<S> <C>
Exhibit A Form of Warrant Certificate
Exhibit B Preemptive Rights, Options, Warrants, Rights of
Conversion and Purchase, etc.
Exhibit C Agreements Regarding Voting, Sale or Transfer
Exhibit D Registration Rights
Exhibit E Transactions with Affiliates
</TABLE>
ii
<PAGE> 4
WARRANT PURCHASE AGREEMENT
--------------------------
THIS WARRANT PURCHASE AGREEMENT (this "AGREEMENT") is made and
entered into as of March 15, 1996 by and between PHONETEL TECHNOLOGIES, INC.,
an Ohio corporation (the "COMPANY"), INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL
CORPORATION, a Delaware corporation ("ING") and CERBERUS PARTNERS, L.P., a
Delaware limited partnership ("CERBERUS") (ING and Cerberus, each the
"PURCHASER", and collectively, the "PURCHASERS").
W I T N E S S E T H:
--------------------
RECITALS:
- ---------
A. Simultaneously herewith, the Purchasers are entering
into a Credit Agreement, dated of even date herewith, among the Company, the
Purchasers and various other lenders that may become parties thereto (the
"LENDERS") and ING in its capacity as Agent for the Lenders;
B. It is a condition precedent to the initial extensions
of credit by the Purchasers to the Company contemplated by the Credit Agreement
that the Company agree to issue to the Purchasers Warrants initially
exercisable for 204,824 shares of Series A Special Convertible Preferred Stock,
par value $.20 per share, of the Company; and
C. The Purchasers and the Company desire to set forth in
this Agreement the terms and provisions of the Warrants and the conditions to
the issuance and sale thereof to the Purchasers;
NOW, THEREFORE, in consideration of the premises and the
agreements herein set forth and to induce the Purchasers to proceed with the
transactions contemplated by the Credit Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
SECTION 1. Definitions.
-----------
(a) DEFINED TERMS. Capitalized terms appearing herein
and not otherwise defined herein shall have the meanings ascribed thereto in
the Credit Agreement (irrespective of whether the Credit Agreement is in effect
or has been terminated). The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall, except
where the context otherwise requires, have the following meanings:
"ACQUISITION" means the acquisition by the Company or any of
its Subsidiaries of Telephones or rights to manage or service Telephones,
whether by acquisition of an operating division or
<PAGE> 5
business unit or assets of another Person, by acquisition of shares in another
Person, by merger or consolidation with another Person, by acquisition from a
vendor or otherwise.
"ADDITIONAL PUT EVENT" means any of the following:
(a) any representation or warranty of the Company under this Agreement or any
other Warrant Document or under the Credit Document or any other Loan Document
is or shall be incorrect when made in any material respect; (b) the Company
shall default in the due performance and observance of any of its obligations
under any Warrant Document; (c) an Event of Default shall have occurred due to
a default by the Company in the payment of any amount or other obligation due
under the Loan Documents or any other material Event of Default shall have
occurred under the Loan Documents; (d) a merger or consolidation of the Company
with or into any other Person (other than (i) a Permitted Merger, and (ii) a
merger with or into a corporation unaffiliated with the Company if 80% of the
assets of such corporation are directly related to the operation of Telephones
and 80% of the revenues of such corporation are derived directly from the
operation of Telephones) or any acquisition of the Company by means of a share
exchange; and (e) a Change of Control.
"AFFILIATE" of any Person means any other Person which,
directly or indirectly, controls or is controlled by or under common control
with such Person (excluding any trustee under, or any committee with
responsibility for administering, any Plan). A Person shall be deemed to be
"controlled by" any other Person if such other Person possesses, directly or
indirectly, power
(a) to vote 5% or more of the securities having ordinary
voting power for the election of directors of such
Person; or
(b) to direct or cause the direction of the management
or policies of such Person whether by contract or
otherwise;
PROVIDED THAT ING and Cerberus shall not be deemed to be an Affiliate of the
Company hereunder.
"AGENT" is defined in RECITAL A.
"AGREEMENT" means this Warrant Purchase Agreement as in effect
on the date hereof and as hereafter amended, supplemented, restated or
otherwise modified.
"APPROVAL" means each and every approval, consent, filing and
registration by or with any federal, state or other regulatory authority
(domestic or foreign) necessary to authorize or permit the execution, delivery
or performance of this Agreement or any other Warrant Document, or for the
validity or enforceability thereof.
2
<PAGE> 6
"AUTHORIZED OFFICER" means, relative to the Company, those of
the Company's officers whose signatures and incumbency shall have been
certified to the Agent and the Lenders pursuant to SECTION 4.1.(A)(II) of the
Credit Agreement.
"BELOW MARKET DILUTION SHARES" shall mean, in connection with
the issuance of any shares of Common Stock pursuant to an acquisition at a
price below the Fair Market Value per Share, the product of (i) the quotient of
(A) the Fair Market Value per Share on the date of issuance minus the price per
share of Common Stock issued in connection with such acquisition, divided by
(B) such Fair Market Value per Share, times (ii) the number of shares of Common
Stock so issued.
"BUSINESS DAY" means any day which is neither a Saturday or
Sunday nor a legal holiday on which banks are authorized or required to be
closed in New York, New York.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any direct obligation issued or guaranteed by the
United States of America or any agency or instrumentality thereof and backed by
the full faith and credit of the United States of America, or issued by any
state or political subdivision or public instrumentality thereof, (i) which
has a remaining maturity at the time of purchase of not more than six months or
(ii) which is subject to a repurchase agreement with any Lender or any Eligible
Lending Institution exercisable within six months from the time of purchase so
long as such direct obligation remains in the possession of the Company or in
the possession of any Lender and (iii) which, in the case of obligations of any
state or political subdivision or public instrumentality thereof, is rated A or
better by Moody's Investors Service, Inc.;
(b) certificates of deposit, time deposits, demand
deposits and bankers' acceptances, having a remaining maturity at the time of
purchase of not more than six months, issued by any Lender or by any Eligible
Lending Institution;
(c) corporate obligations rated Prime-1 by Moody's
Investors Service, Inc. or A-1 by Standard & Poor's Corporation, having a
remaining maturity at the time of purchase of not more than one (1) year; and
(d) shares of funds registered under the Investment
Company Act of 1940, as amended, having assets of at least $100,000,000 which
invest only in obligations described above and which shares are rated by
Moody's Investors Service, Inc. or Standard & Poor's Corporation in one of the
two highest rating categories assigned by such agencies for obligations of such
nature.
3
<PAGE> 7
"CERTIFICATE OF AMENDMENT" means the Certificate of Amendment
to the Articles of Incorporation of the Company filed with the Secretary of
State of Ohio on March 13, 1996 relating to the Series A Special Preferred
Stock.
"CHANGE OF CONTROL" means the occurrence of any of the
foregoing: (a) any Person or group of Persons shall have acquired beneficial
ownership of more than 25% of the outstanding Stock of the Company (within the
meaning of Section 13(d) or 14(d) of the Securities and Exchange Act of 1934,
as amended, and the applicable rules and regulations thereunder) other than as
a result of the issuance by the Company of Notes pursuant to the Credit
Agreement or the conversion thereof or of the exercise of the Warrants; (b)
during any period of 12 consecutive months (whether commencing before or after
the Closing Date), individuals who on the first day of such period were
directors of the Company (together with any replacement or additional directors
who are nominated or elected by a majority of directors then in office) cease to
constitute a majority of the Board of Directors of the Company; (c) the failure
of Graf to be the Chairman of the Board of Directors of the Company and to be
actively involved in the management of the Company; or (d) the failure of Graf
to own, beneficially and of record, 70% of the shares of Stock owned by Graf on
the Closing Date.
"CLOSING" means the closing of the sale and purchase of the
Warrants as contemplated hereby.
"CLOSING DATE" means the date of the Closing.
"COMMON STOCK" means shares now or hereafter authorized of any
class of common stock of the Company and any other capital stock of the
Company, however designated, that has the right (subject to any prior rights of
any other class or series of Stock) to participate in any distribution of the
assets upon voluntary or involuntary liquidation, dissolution or winding up of
the Company and in the earnings of the Company without limit as to per share
amount, and shall include, without limitation, the presently authorized
22,250,000 shares of Common Stock, $0.01 par value per share of the Company.
"Common Stock" shall not include preferred or special stock.
"COMPANY" is defined in the preamble to this Agreement.
"CONFIDENTIAL INFORMATION" is defined in SECTION 32.
"CONTRACT VALUE PER SHARE" means the value determined in
accordance with paragraphs (i), (ii) and (iii) below and shall equal the
highest number yielded by such determination:
(i) The Contract Value per Share determined pursuant to
this paragraph (i) shall be an amount equal to the average of the Quoted Prices
for Common Stock for the thirty (30) consecutive
4
<PAGE> 8
trading days commencing forty-five (45) trading days before the date of
determination.
(ii) The Contract Value per Share determined pursuant to
this paragraph (ii) shall equal the quotient of (A) five (5.0) times EBITDA,
MINUS (1) the outstanding principal amount of Funded Indebtedness as of the
last day of the fiscal month ending immediately prior to the date of
determination, PLUS (2) cash and Cash Equivalent Investments on the balance
sheet of the Company and its Subsidiaries as of the last day of the fiscal
month ending immediately prior to the date of determination, all determined in
accordance with GAAP, DIVIDED BY (B) the sum of (1) the number of shares of
Common Stock outstanding on the date of determination, PLUS (2) the number of
Warrant Shares purchasable and receivable upon exercise of the rights
represented by the Warrant Certificates as of the date of determination.
(iii) If (but only if) the Company is not a Public Company,
the Contract Value per Share determined pursuant to this paragraph (iii) shall
be the quotient of (A) the fair market value of the Company and its
Subsidiaries taken as a whole on the date of determination, taking into account
all the factors relevant thereto, including, without limitation, the price that
could be obtained from an arms'-length sale without time constraints of (1) all
or substantially all of the assets of the Company and the Subsidiaries subject
to or after satisfaction of all liabilities of the Company and the
Subsidiaries, excluding any tax or other liabilities incurred in connection
with such sale or (2) all of the Stock of the Company, whether by stock sale,
merger, consolidation or otherwise, DIVIDED BY (B) the sum (1) the number of
fully vested shares of Stock on the date of determination, PLUS (2) the number
of Warrant Shares purchasable and receivable upon exercise of the rights
represented by the Warrant Certificates as of the date of determination. In no
event shall the Contract Value per Share determined pursuant to this paragraph
(iii) be reduced or discounted on the basis that any securities to be valued on
the basis of such Contract Value per Share may represent the right to acquire a
minority interest in the Company or may not be freely transferable under
federal or state securities laws, or for any other reason. In any
circumstances in which the Contract Value per Share is to be determined
pursuant to this paragraph (iii), the Company shall give to the Holder (or, if
such determination affects less than all of the Holders, to the Holders so
affected) written notice of the proposed Contract Value per Share, as
determined in good faith by the Board of Directors of the Company. If, within
thirty (30) days after the date such notice is given, the Company and the
Required Holders agree upon the Contract Value per Share then the Contract
Value per Share for purposes of this paragraph (iii) shall be as so agreed. If
the Required Holders and the Company do not agree upon such Contract Value per
Share within such 30-day period, then the Required Holders and the Company shall
appoint a recognized investment banking firm of national
5
<PAGE> 9
reputation, reasonably acceptable to the Required Holders and the Company. If
the Company and the Required Holders cannot agree on the appointment of a
mutually acceptable investment banking firm, or if the firm so appointed
declines or fails to serve, then the Required Holders and the Company shall each
choose one such investment banking firm and the respective firms so chosen shall
appoint another recognized investment banking firm of national reputation. The
investment banking firm so selected shall appraise the value of the Company for
the purposes of this paragraph (iii), and such investment banking firm shall
make such appraisal (which shall be in the form of a written report signed by
such investment banking firm), and, for the purposes of determining the Contract
Value per Share pursuant to this paragraph (iii), such appraised value of the
Company determined as herein provided shall be final and conclusive and binding
on the Company and the Holders. All costs of appraisals shall be borne by the
Company.
"CONVERSION RATE" is defined in subparagraph (1)(iv) of the
Certificate of Amendment.
"CONVERTIBLE SECURITIES" is defined in subparagraph (l)(vii)
(C) of the Certificate of Amendment.
"CREDIT AGREEMENT" means the Credit Agreement, dated of even
date herewith, among the Company, the Purchasers and various other Lenders that
may become parties thereto and ING as Agent for the Lenders, as in effect on
the date hereof and as hereafter amended, supplemented, restated or otherwise
modified.
"EBITDA" means the net income of the Company and its
Subsidiaries, reported on a consolidated basis for the twelve-month period
immediately preceding the month of the date of determination, adjusted by
adding thereto the amount of all interest expense, depreciation, amortization
of intangible assets and other non-cash charges (to the extent deducted in
computing net income for such period) and taxes incurred, if any, that were
deducted in computing net income for such period, all determined in accordance
with GAAP as in effect on the Closing Date, but excluding the effect of the
accretion of the right to put Warrant Securities pursuant to this Agreement and
any original issue discount on the issuance of the Warrants; PROVIDED, HOWEVER
that if the Company or any of its Subsidiaries has effected an Acquisition
during such twelve-month period, EBITDA shall be calculated giving PRO FORMA
effect to such Acquisition as if such Acquisition was consummated (and any
Funded Indebtedness incurred in connection therewith was incurred) on the first
day of such period. In giving PRO FORMA effect to any Acquisition, EBITDA with
respect to Telephones acquired pursuant to such Acquisition shall be based upon
the Company's projected EBITDA with respect to such Telephones for the 12-month
period commencing with the month immediately following such Acquisition as
determined in good faith by the Board of Directors of the Company, but in any
event EBITDA shall be
6
<PAGE> 10
deemed to be not less than $600 per Telephone acquired pursuant to such
Acquisition. In giving PRO FORMA effect to any Funded Indebtedness incurred in
connection with an Acquisition, interest attributable to Funded Indebtedness
bearing a floating rate of interest shall be computed as if the rate in effect
on the date of determination had been the applicable rate for the entire
period.
"ELIGIBLE LENDING INSTITUTION" means a financial institution
having a branch or office in the United States and having capital and surplus
and undivided profits aggregating at least $100,000,000 and whose long-term
debt securities are rated Prime-1 or better by Moody's Investor Service, Inc.
or A-1 or better by Standard & Poor's Corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended or otherwise modified from time to time.
"EXERCISE PRICE" means $0.20 per Warrant Share, as adjusted
as herein provided.
"FAIR MARKET VALUE PER SHARE" means the fair market value of
a share of Common Stock as determined in accordance with subparagraph
(l)(vii)(H) of the Certificate of Amendment.
"FISCAL QUARTER" means any quarter of a Fiscal Year.
"FISCAL YEAR" means each twelve month accounting period of the
Company which ends on December 31; references to a Fiscal Year with a number
corresponding to any calendar year (E.G., the "1996 Fiscal Year") refer to the
Fiscal Year in which the majority of days in such Fiscal Year occur.
"FUNDED INDEBTEDNESS" means (i) the indebtedness under the
Credit Agreement, and (ii) all other indebtedness of the Company and its
Subsidiaries which matures more than one year from the date of its creation or
matures within one year from such date but is renewable or extendable, at the
option of the Company or any of its Subsidiaries, to a date more than one year
from such date or arises under an agreement which obligates the lender or
lenders to extend credit during a period of more than one year from such date.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States.
"GOVERNMENTAL AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GRAF" means Peter G. Graf.
"HOLDERS" means, collectively, the Purchasers and any
7
<PAGE> 11
subsequent registered holders, from time to time, of Warrant Securities.
"INDEMNIFIED LIABILITIES" is defined in SECTION 22.
"INDEMNIFIED PARTIES" is defined in SECTION 22.
"LEGALLY AVAILABLE FUNDS" means, with respect to any purchase
of Warrant Securities pursuant to SECTION 19(A), the amount of funds of the
Company legally available therefor under the corporate laws under which the
Company is organized and existing.
"LENDER" is defined in RECITAL A.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
charge, deposit arrangement, encumbrance, lien (statutory or other), adverse
claim (i.e., a claim that a transfer was or would be wrongful or that a
particular adverse person is the owner or has an interest in property),
security agreement or other arrangement of any kind or nature whatsoever that
entitles any creditor or obligee to be satisfied from any or all of the assets
of a debtor or obligor prior to the satisfaction of any claims of any other
creditor or obligee (including any conditional sale or other title retention
agreement, any financing lease involving substantially the same economic effect
as any of the foregoing and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction).
"LOAN" means, collectively, the Revolving Loans and the Term
Loan made by the Lenders to the Company pursuant to SECTION 2.1 of the Credit
Agreement.
"OBLIGATIONS" means all obligations of the Company with
respect to the repayment or performance of any obligations (monetary or
otherwise) of the Company arising under or in connection with the Credit
Agreement, the "Notes" or the other "Loan Documents" (as such terms are defined
in the Credit Agreement) and the Warrant Documents.
"ORGANIC DOCUMENT" means, relative to any Person, its articles
or certificate of incorporation or certificate of limited partnership, its
by-laws, partnership agreement or other organizational documents, and all
stockholders agreements, voting trusts and similar arrangements applicable to
any of its stock or partnership interests, in each case, as amended.
"PERMITTED MERGER" means the merger of the Company with and
into a Delaware corporation for the sole purpose of changing the Company's
state of incorporation to the State of Delaware, provided that (i) the
shareholders of the surviving corporation immediately after such merger are the
shareholders of the Company immediately prior to such merger, (ii) the number
of authorized and
8
<PAGE> 12
issued and authorized and unissued shares, and the respective classes and
series, of capital stock of the surviving corporation shall be the same as the
number of authorized and issued and authorized and unissued shares, and the
respective classes and series, of capital stock of the Company immediately prior
to such merger, (iii) the voting powers, designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations and restrictions of all classes and series of capital stock of the
surviving corporation shall be identical to the voting powers, designations,
preferences (including, without limitation, stated values and liquidation
preferences) and relative, participating, optional or other special rights, and
qualifications, limitations and restrictions of the respective classes and
series of the capital stock of the Company as in effect immediately prior to
such merger, (iv) the Holders shall have received (A) an assumption agreement in
form and substance satisfactory to the Required Holders, duly executed by the
surviving corporation and pursuant to which the surviving corporation shall
expressly assume all of the obligations of the Company under this Agreement and
the other Warrant Documents, and (B) such acknowledgments, certificates,
instruments and legal opinions relating to such merger and assumption agreement
as the Required Holders shall reasonably request, and (v) the provisions of
Section 203 of the Delaware General Corporation Law would not apply to the
Company or any Holder, this Agreement, any of the other Warrant Documents or any
of the Loan Documents or the authorization or the issuance of the Warrant
Securities or any shares of capital stock to be issued pursuant to the Loan
Documents.
"PERSON" means any natural person, corporation, partnership,
limited liability company, firm, association, government, governmental agency
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"PREFERRED STOCK" means shares now or hereafter authorized of
any class of capital stock of the Company other than Common Stock, and shall
include, without limitation, the presently authorized 2,500,000 shares of
Preferred Stock, $.01 par value, of which (i) 2,125 shares have been designated
Preferred Stock, $100 par value, of which no shares are outstanding, (ii) 6,500
shares have been designated Convertible Preferred Stock, without par value,
$100 stated value, cumulative and redeemable, of which no shares are
outstanding, (iii) 3,880 shares have been designated Preferred Stock, without
par value, $1,000 stated value, cumulative and redeemable, of which no shares
are outstanding, (iv) 16,000 shares have been designated 8% Preferred Stock,
without par value, $100 stated value, cumulative and redeemable, of which no
shares are outstanding, (v) 2,500 shares have been designated 7% Convertible
Preferred Stock, without par value, $100 stated value, cumulative and
redeemable, of which no shares are outstanding, (vi) 550,000 shares have been
designated 10% Preferred Stock,
9
<PAGE> 13
without par value, $10 stated value, cumulative, of which 530,534 shares are
outstanding, (vii) 250,000 shares have been designated Series A Special
Convertible Preferred Stock, $.20 par value, of which no shares are outstanding,
(viii) 250,000 shares have been designated Series B Special Convertible
Preferred Stock, $.20 par value, of which no shares are outstanding, (ix)
200,000 shares have been designated 14% Convertible Preferred Stock, without par
value, $60 stated value, of which 107,918 shares are outstanding and (x)
1,218,995 shares are undesignated and unissued.
"PROSPECTIVE PURCHASER" shall have the meaning set forth in
SECTION 19(D).
"PUBLIC COMPANY" means a company (i) which is subject to the
reporting requirements of Section 15(d) of the Exchange Act, or (ii) any of
whose securities are registered pursuant to Section 12(b) or 12(g) of the
Exchange Act.
"PURCHASE PRICE" is the amount payable to each Holder for such
Holder's Warrant Securities, as calculated in accordance with SECTION 19(A).
"PUT CLOSING DATE" is defined in SECTION 19(B).
"PUT NOTICE" is the written notice to the Company specifying
the number and type of Warrant Securities with respect to which the Put Right
is being exercised.
"PUT RIGHT" is the right of each Holder to require that the
Company purchase all or any portion of the Warrant Securities then owned by
such Holder.
"QUOTED PRICE" of Common Stock for each day means the last
reported sales price of Common Stock on such day as reported by NASDAQ or, if
Common Stock is listed on a national securities exchange, the last reported
sales price of Common Stock on such exchange (which shall be for consolidated
trading if applicable to such exchange) on such day, or if not so reported or
listed, the average of the last reported bid and asked prices of Common Stock
on such day, in each case as appropriately adjusted for any stock splits or
reverse stock splits occurring after the Closing Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated of even date herewith, between the Company and the Purchasers,
as in effect on the date hereof and as hereafter amended, supplemented,
restated or otherwise modified.
"REQUIRED HOLDERS" means Holders holding at least 66-2/3%
of the Warrant Securities outstanding (treating all Warrants as fully exercised
for the Warrant Shares to which Holders would be entitled upon exercise of such
Warrants) or, if any matter affects the interest of less than all of the
Holders, then Holders holding
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at least 66-2/3% of the Warrant Securities so affected, as the context may
require.
"REQUIRED LENDERS" is defined in the Credit Agreement.
"RESTRICTION ON PURCHASE" exists if, at the time of a Closing,
(i) the purchase of such Warrant Securities would result in a default under or
a breach of any Restrictive Provision (assuming that the covenants applicable
to the Company at the end of the Fiscal Quarter in which such purchase is to
occur were applicable on the date of such purchase), or (ii) the Company would
not have sufficient Legally Available Funds to pay the Purchase Price for the
Warrant Securities.
"RESTRICTIVE PROVISION" means any of the financial covenants
contained in Section 6.2.4 or the negative covenants contained in Section 6.2.8
of the Credit Agreement, in each case as the same may be amended from time to
time; PROVIDED, HOWEVER, that to the extent noncompliance with any such
covenant as a result of the purchase by the Company of Warrant Securities is
waived in accordance with Section 9.1 of the Credit Agreement such covenant
shall not constitute a Restrictive Provision.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SECURITIES LEGEND" is defined in SECTION 10.
"SELLING HOLDER" is defined in SECTION 19(C).
"SELLING HOLDER NOTICE" is defined in SECTION 19(D).
"SELLING HOLDER OFFER" is defined in SECTION 19(D).
"SERIES A SPECIAL PREFERRED STOCK" means the 250,000 shares of
Series A Special Convertible Preferred Stock of the Company, $.20 par value per
share, authorized pursuant to the Certificate of Amendment, of which no shares
are outstanding as of the Closing Date.
"SERIES B SPECIAL PREFERRED STOCK" means the 250,000 shares of
Series B Special Convertible Preferred Stock of the Company, $.20 par value per
share, authorized pursuant to the Certificate of Amendment, of which no shares
are outstanding as of the Closing Date.
"STOCK" means any capital stock of the Company.
"SUBSIDIARY" of any corporation means any other corporation
greater than 50% of the outstanding shares of capital
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<PAGE> 15
stock of which having ordinary voting power for the election of directors is
owned directly or indirectly by such corporation, and, except as otherwise
indicated herein, references to Subsidiaries shall refer to Subsidiaries of the
Company.
"SUBSTITUTE SECURITIES" is defined in SECTION 15(A).
"TELEPHONE" is defined in the Credit Agreement.
"TRANSFER AGENT" is defined in SECTION 14.
"WARRANT CERTIFICATES" means the certificates evidencing the
Warrants in the form of EXHIBIT A.
"WARRANT DOCUMENTS" means, collectively, this Agreement, the
Warrants, the Registration Rights Agreement and any other document, instrument
or agreement executed or delivered in connection with any of the foregoing to
which the Company is a party, but excluding the Credit Agreement and the other
Loan Documents (as defined in the Credit Agreement).
"WARRANT SECURITIES" means, collectively, the Warrants and
Warrant Shares.
"WARRANT SHARES" means the securities which a Holder may
acquire upon exercise of a Warrant, together with any other securities which
such Holder may acquire on account of any such securities, including, without
limitation, as the result of the Series A Special Preferred Stock being
converted into shares of Common Stock and/or any dividend or other distribution
on Common Stock, any split-up of such Common Stock, or in accordance with a
recapitalization, merger, consolidation, share exchange, reorganization or other
transaction or series of related transactions in which shares of Common Stock
are changed into or exchanged for securities of another corporation, or the
exercise of any preemptive right (or the exercise or conversion of any security
which such Holder may acquire in connection with the exercise of any preemptive
right) with respect to any such Common Stock.
"WARRANTS" means the warrants referred to in RECITAL B
evidenced by the Warrant Certificates, together with any warrants issued in
substitution or replacement therefor.
(b) CROSS-REFERENCES. Unless otherwise specified,
references in this Agreement to any Article or Section are references to such
Article or Section of this Agreement, and unless otherwise specified,
references in any Article, Section, or definition to any clause are references
to such clause of such Section, Article or definition.
(c) GENDER; USAGE. Whenever used herein the singular
number shall include the
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<PAGE> 16
plural, the plural shall include the singular, and the use of any gender shall
include all genders. The words "hereof," "herein" and "hereunder," and words of
similar import, when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
SECTION 2. PURCHASE AND SALE OF WARRANTS; CLOSING.
(a) Subject to the initial funding of the Loan, the Company
hereby agrees to sell to each Purchaser and, subject to the provisions of
SECTION 4, each Purchaser hereby agrees to purchase from the Company, Warrants
to purchase 2,048,224.5 shares of Series A Special Preferred Stock, for an
aggregate purchase price of $1.00 and other good and valuable consideration,
all of which shall be deemed to have been received by the Company upon the
initial funding of the Loan under the Credit Agreement.
(b) The sale and purchase of the Warrants shall take
place at the Closing at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York 10022 at 10:00 a.m. on March 15, 1996 or
such other place and time as may be agreed upon by the Purchasers and the
Company. At the Closing, the Company will deliver to each Purchaser Warrant
Certificates in the form of EXHIBIT A attached hereto evidencing the Warrants to
be purchased by such Purchaser (in such denomination or denominations as such
Purchaser may request and registered in its name or the name of its nominee),
dated the Closing Date.
SECTION 3. INVESTMENT REPRESENTATIONS. Each Purchaser
represents and warrants that it is purchasing the Warrants for its own account,
for investment purposes and not with a view to the distribution thereof;
PROVIDED, HOWEVER, that the foregoing representation shall not be construed as
imposing any limitation on such Purchaser's right to transfer any of the
Warrants that is not otherwise expressly set forth in the Warrant Documents or
required under applicable law. Each Holder agrees that it will not, directly
or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise
dispose of any of the Warrant Securities (or solicit any offers to buy,
purchase or otherwise acquire or take a pledge of the Warrant Securities),
except in compliance with the Securities Act. Each Holder agrees that it will
not transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of
the Warrant Securities if any such disposition would cause the Company to be
required to register any Warrant Securities pursuant to Section 12(g) of the
Exchange Act.
SECTION 4. CONDITIONS PRECEDENT. The obligation of
Purchasers to purchase the Warrants on the Closing Date pursuant to SECTION 2
hereof shall be subject to the prior or concurrent satisfaction of each of the
conditions precedent set forth in this SECTION 4, except as the Purchasers
shall otherwise consent:
(a) the accuracy of the representations set forth in
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<PAGE> 17
this Agreement and in the other Warrant Documents in all material respects;
(b) the compliance by the Company in all material
respects with all covenants and agreements required to be performed by it on or
prior to the Closing;
(c) the satisfaction of all of the conditions precedent
set forth in ARTICLE 4 of the Credit Agreement;
(d) the initial funding of the Loan under the Credit
Agreement;
(e) each Purchaser's receipt of Warrant Certificates
registered in such Purchaser's name (or in the name of a nominee of such
Purchaser) evidencing the Warrants;
(f) the Purchasers' receipt of the Registration Rights
Agreement with respect to the Warrants, in form and substance satisfactory to
Purchasers, duly executed and delivered by the Company and dated the Closing
Date;
(g) the Purchasers' receipt of a copy of the Company's
certificate of incorporation, certified by the Secretary of State of Ohio as of
a recent date;
(h) the Purchasers' receipt of a certificate of the
secretary or an assistant secretary of the Company, together with true and
correct copies of the resolutions of the Board of Directors authorizing or
ratifying the execution, delivery and performance of this Agreement and the
other Warrant Documents, and authorizing the creation and issuance of the
Warrants and the Warrant Shares; and setting forth the names of the Authorized
Officers of the Company executing this Agreement and the other Warrant
Documents, together with a sample of the true signature of each such Authorized
Officer;
(i) the Purchasers' receipt of certified copies of all
documents evidencing any other necessary corporate action, consents and
governmental approvals or filings (if any) with respect to this Agreement and
the other Warrant Documents;
(j) the Purchasers' receipt of an opinion, dated the
Closing Date, from Messrs. Skadden, Arps, Slate, Meagher & Flom, counsel to the
Company, in form and substance satisfactory to each Purchaser and its counsel,
and covering such matters as each Purchaser may reasonably request; and
(k) all proceedings taken in connection with the
transactions contemplated by this Agreement and the other Warrant Documents
shall be satisfactory in form and substance to each Purchaser and its counsel,
and each Purchaser and its counsel shall
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<PAGE> 18
have received copies (executed or certified as may be appropriate) of all
documents, instruments and agreements which such Purchaser or its counsel may
request in connection with the consummation of such transactions.
SECTION 5. WARRANTIES, ETC. In order to induce the
Purchasers to enter into this Agreement, to engage in the transactions
contemplated herein and in the other Warrant Documents and to purchase the
Warrants hereunder, the Company represents and warrants unto each Purchaser as
set forth in this SECTION 5, each and all of which representations and
warranties shall survive the execution and delivery of this Agreement and the
Closing hereunder:
(a) CREDIT AGREEMENT WARRANTIES. Each of the
representations and warranties of the Company set forth in the Credit Agreement
is true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date.
(b) POWER, AUTHORITY, ETC. The Company has full power
and authority to enter into and perform its obligations under this Agreement
and each of the other Warrant Documents.
(c) DUE AUTHORIZATION. The Certificate of Amendment has
been duly adopted pursuant to applicable law, has been duly filed with the Ohio
Secretary of State and is in full force and effect. The execution and delivery
by the Company of this Agreement and each of the other Warrant Documents, the
performance by the Company of its obligations hereunder and thereunder and the
issuance of the Warrant Securities by the Company have been duly authorized by
all necessary corporate action, do not require any Approval (except those
Approvals already obtained), do not and will not conflict with, result in any
violation of, or constitute any default under, any provision of any Organic
Document of the Company or any Subsidiary, any agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which it or any of its
property is bound, or any law or governmental regulation or court decree or
order and will not result in or require the creation or imposition of any Lien
on any of the Company's or any Subsidiary's properties pursuant to the
provisions of any such agreement or instrument. No vote (including any vote
under the rules of any securities exchange or trading system or market on which
any of the Company's securities are listed or traded) on the part of the
stockholders of the Company is required to approve or authorize the Certificate
of Amendment, any of the transactions contemplated by this Agreement, any of
the other Warrant Documents or any of the Loan Documents or the authorization
or the issuance of the Warrant Securities or any shares of capital stock to be
issued pursuant to the Loan Documents. None of the transactions contemplated
by this Agreement, any of the other Warrant Documents or any of the Loan
Documents (including the issuance of the Warrant Securities or any shares of
capital stock to be issued pursuant to the Loan Documents) will give rise to any
payment or the acceleration of any
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<PAGE> 19
obligation (whether with or without the passage of time or upon the occurrence
of any event) to any director, officer or employee of the Company or any
Subsidiary.
(d) ABSENCE OF TAKEOVER STATUTES. The Board of Directors
of the Company has approved for purposes of Chapter 1704 of the Ohio Revised
Code (Transactions Involving Interested Shareholders) the transactions
contemplated by this Agreement, the other Warrant Documents and the Loan
Documents and the issuance of the Warrant Securities and any shares of capital
stock to be issued pursuant to the Loan Documents and upon conversion of any
such shares. The provisions of Ohio Revised Code Section 1707.041 with respect
to "control bids" as defined in Ohio Revised Code Section 1707.01(V)(1) do not
apply to the transactions contemplated by the Warrant Agreement, the other
Warrant Documents and the Loan Documents or the issuance of the Warrant
Securities and any shares of Stock to be issued pursuant to the Loan Documents
or upon conversion of such shares. No other "fair price," "moratorium,"
"control share acquisition," "business combination," "shareholder protection,"
or similar antitakeover statute will apply to any Holder as a result of this
Agreement, any of the other Warrant Documents or any of the Loan Documents or
the authorization or issuance of the Warrant Securities or any shares of
capital stock to be issued pursuant to the Loan Documents. The Company is not
a party to, and is not subject to, any rights plan, rights agreement or similar
agreement, arrangement or understanding.
(e) COMMUNICATIONS ACT. None of the Company and its
Subsidiaries holds any licenses or conducts any business which would result in
the application of Section 310 of the Communications Act of 1934 as a result of
this Agreement, any of the other Warrant Documents, or any of the Loan
Documents or the authorization or issuance of the Warrant Securities or any
shares of capital stock to be issued pursuant to the Loan Documents.
(f) VALIDITY, ETC. This Agreement constitutes, and each
of the other Warrant Documents will upon the execution and delivery thereof
constitute, the legal, valid and binding obligations of the Company enforceable
in accordance with their respective terms, in each case subject to (i) the
effect of any applicable bankruptcy, insolvency, moratorium or similar laws
affecting creditors' rights generally, and (ii) the effect of general principles
of equity (regardless of whether considered in a proceeding in equity or at
law).
(g) CAPITALIZATION AND OWNERSHIP OF THE COMPANY. The
authorized capital stock of the Company consist of 22,500,000 shares of Common
Stock, par value $0.01 per share, 2,780,017 of which will be outstanding on the
Closing Date; 2,500,000 shares of Preferred Stock, $.01 par value, of which (i)
2,125 shares have been designated Preferred Stock, $100 par value, of which no
shares will be outstanding on the Closing Date, (ii) 6,500 shares have
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<PAGE> 20
been designated Convertible Preferred Stock, without par value, $100 stated
value, cumulative and redeemable, of which no shares will be outstanding on the
Closing Date, (iii) 3,880 shares have been designated Preferred Stock, without
par value, $1,000 stated value, cumulative and redeemable, of which no shares
will be outstanding on the Closing Date, (iv) 16,000 shares have been designated
8% Preferred Stock, without par value, $100 stated value, cumulative and
redeemable, of which no shares will be outstanding on the Closing Date, (v)
2,500 shares have been designated 7% Convertible Preferred Stock, without par
value, $100 stated value, cumulative and redeemable, of which no shares will be
outstanding on the Closing Date, (vi) 550,000 shares have been designated 10%
Preferred Stock, without par value, $10 stated value, cumulative, of which
530,534 shares will be outstanding on the Closing Date, (vii) 250,000 shares
have been designated Series A Special Convertible Preferred Stock, $.20 par
value, no shares of which will be outstanding on the Closing Date, (viii)
250,000 shares have been designated Series B Special Convertible Preferred
Stock, $.20 par value, no shares of which will be outstanding on the Closing
Date, (ix) 200,000 shares have been designated 14% Convertible Preferred Stock,
without par value, $60 stated value, of which 107,918 shares will be outstanding
on the Closing Date and (x) 1,218,995 shares are undesignated and unissued on
the Closing Date. All outstanding shares of capital stock of the Company are
duly authorized, validly issued, fully paid and nonassessable, and are not, and
will not have been, issued in violation of any preemptive rights. Except as set
forth in EXHIBIT B attached hereto, no issued, no authorized but unissued and no
treasury shares of capital stock of the Company are subject to any preemptive
right, option, warrant, right of conversion or purchase or any similar right
issued or granted by the Company or, to the knowledge of the Company, by any of
its shareholders. Except as set forth in the Organic Documents of the Company,
in Section 19 of this Agreement, or on EXHIBIT C attached hereto, there are no
agreements or understandings with respect to the voting, sale or transfer of any
shares of stock of the Company to which the Company or any of its Subsidiaries
is a party.
(h) AUTHORIZATION AND ISSUANCE OF WARRANTS. The issuance
of the Warrants has been duly authorized and, upon delivery to the Purchasers
of the Warrant Certificates therefor in accordance with the terms hereof, the
Warrants will have been validly issued and fully paid and nonassessable, free
and clear of all Liens and the issuance thereof will not give rise to any
preemptive rights. The issuance of the shares of Series A Special Preferred
Stock subject to the Warrants has been duly authorized and, when issued upon
exercise of the Warrants, such shares will have been validly issued and will be
fully paid and nonassessable and the issuance thereof will not give rise to any
preemptive rights. The issuance of the shares of Common Stock issuable upon
conversion of the Series A Special Preferred Stock has been duly authorized
and, when issued upon conversion of the Series A Special
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<PAGE> 21
Preferred Stock, such shares will have been validly issued and will be fully
paid and nonassessable and the issuance thereof will not give rise to any
preemptive rights. 250,000 shares of Series A Special Preferred Stock have been
duly reserved for issuance upon the exercise of the Warrants and 5,000,000
shares of Common Stock have been duly reserved for issuance upon the conversion
of the Series A Special Preferred Stock. Except as set forth in the
Registration Rights Agreement and as set forth on EXHIBIT D attached hereto, no
Person has the right to demand or any other right to cause the Company to file
any registration statement under the Securities Act relating to any securities
of the Company or any right to participate in the any such registration.
(i) SECURITIES LAWS. In reliance on the investment
representations contained in SECTION 3, the offer, issuance, sale and delivery
of the Warrants to the Purchasers, as provided in this Agreement, and the
issuance and delivery of Series A Special Preferred Stock upon the exercise of
the Warrants by the Purchasers and the issuance and delivery of Common Stock to
the Purchasers upon the conversion of the Series A Special Preferred Stock, are
and will be exempt from the registration requirements of the Securities Act and
all applicable state securities laws, as such laws are currently in effect.
(j) NO INTEGRATION OF ISSUE. Neither the Company nor any
Person authorized or employed by the Company as agent, broker or otherwise in
connection with the offering of the Warrants has offered the Warrants for sale
to, or solicited any offers to buy the Warrants from, or otherwise approached
or negotiated or communicated in respect thereof with, anyone other than
Purchasers. Neither the Company nor any Person acting on behalf of the Company
will sell or offer any class of securities to, or solicit any offers to buy any
class of securities from, or otherwise approach, negotiate or communicate in
respect thereof with, any Person so as to require the registration of the
Warrants under the Securities Act or any applicable state securities laws.
SECTION 6. COVENANTS. The Company agrees with each Holder
that, until the termination of this Agreement pursuant to SECTION 24 hereof,
the Company will perform the obligations set forth in this SECTION 6:
(a) FINANCIAL AND BUSINESS INFORMATION. At any time
during which the Company is not a Public Company, the Company will furnish, or
will cause to be furnished, to each Holder copies of the following financial
statements, reports and information:
(i) promptly when available and in any event
within ninety (90) days after the close of each Fiscal Year, a
consolidated and consolidating balance sheet at the close of
such Fiscal Year, and related consolidated and consolidating
statements of operations, retained
18
<PAGE> 22
earnings, and cash flows for such Fiscal Year, of the
Company and its Subsidiaries (with comparable information at
the close of and for the prior Fiscal Year), certified (in the
case of consolidated statements) without qualification by Price
Waterhouse LLP or other independent public accountants
reasonably satisfactory to the Required Holders, together with
a report containing a description of projected business
prospects (including capital expenditures) and management's
discussion and analysis of financial condition and results of
operation of the Company and its Subsidiaries;
(ii) at any time during which any
indebtedness shall be outstanding under the Credit Agreement,
promptly when available but in any event within thirty (30)
days after the close of each calendar month of each Fiscal
Year, consolidated and consolidating balance sheets at the
close of such month, and consolidated and consolidating
statements of operations, retained earnings, and cash flows
for such month and for the period commencing at the close of
the previous Fiscal Year and ending with the close of such
month, of the Company and its Subsidiaries (with comparable
information at the close of and for the corresponding month of
the prior Fiscal Year and for the corresponding portion of
such prior Fiscal Year), certified by the Chief Financial
Officer of the Company, together with a description of
projected business prospects (including capital expenditures)
and a brief report containing management's discussion and
analysis of the financial condition and results of operations
of the Company and its Subsidiaries (including a discussion
and analysis of any changes compared to prior results);
(iii) at any time during which all
outstanding indebtedness under the Credit Agreement shall have
been repaid in full, promptly when available and in any event
within forty-five (45) days after the close of each Fiscal
Quarter of each Fiscal Year, consolidated and consolidating
balance sheets at the close of such quarter, and consolidated
and consolidating statements of operations, retained earnings,
and cash flows for such quarter and for the period commencing
at the close of the previous Fiscal Year and ending with the
close of such Fiscal Quarter, of the Company and its
Subsidiaries (with comparable information at the close of and
for the corresponding Fiscal Quarter of the prior Fiscal Year
and for the corresponding portion of such prior Fiscal Year),
certified by the Chief Financial Officer of the Company,
together with a description of projected business prospects
(including capital expenditures) and a report containing
management's discussion and analysis of the
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<PAGE> 23
financial condition and results of operations of the
Company and its Subsidiaries (including a discussion and
analysis of any changes compared to prior results); and
(iv) promptly upon the sending or filing thereof,
copies of all reports that the Company sends to its security
holders generally.
(b) ISSUANCE OF ADDITIONAL WARRANTS. Within 10 days
following the first date on which the aggregate principal amount of the
Revolving B Loans exceeds $1,500,000, the Company shall issue to the Lenders,
ratably in accordance with such Lenders' Revolving Percentages on such date,
additional Warrants to purchase shares of Series A Special Preferred Stock
which are convertible into 0.31% of the outstanding common stock of the Company
on a fully-diluted basis as of the Closing Date (but without taking into
account the Term Notes or other the Series B Special Preferred Stock), for an
aggregate purchase price of $1.00 and other good and valuable consideration,
and the Company shall deliver to each Lender Warrant Certificates in the form
of EXHIBIT A attached hereto evidencing the Warrants to be issued to such
Lenders (in such denomination or denominations as such Lenders may request and
registered in its name or the name of its nominee), dated the date of such
issuance.
(c) MAINTENANCE OF CORPORATE EXISTENCES, ETC. The
Company will cause to be done at all times all things necessary to maintain and
preserve the corporate existences of the Company and its Subsidiaries.
(d) MAINTENANCE OF BOOKS AND RECORDS. The Company will,
and will cause each Subsidiary to, keep books and records reflecting all of its
business affairs and transactions in accordance with GAAP.
(e) INCONSISTENT AGREEMENTS. The Company will not, and
will not permit any Subsidiary to, enter into any agreement containing any
provision which would be violated or breached by the issuance of the Warrants
or the Warrant Shares or by the performance by the Company or any Subsidiary of
its obligations under this Agreement or under any other Warrant Documents.
(f) ORGANIC DOCUMENTS. So long as any Warrant Securities
are outstanding, the Company's certificate of incorporation shall contain the
provisions regarding the Series A Special Preferred Stock set forth in its
Organic Documents as constituted on the date hereof. The Company shall not
permit to occur any amendment, alteration or modification to its Organic
Documents, as constituted on the date hereof, the effect of which, in the
Purchasers' or the Required Holders' reasonable judgment, would be to impair or
adversely affect either the rights and benefits of Purchasers or the Holders or
the duties and obligations of the Company under this Agreement and the other
Warrant
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<PAGE> 24
Documents. The Company shall not adopt or enter into any rights plan, rights
agreement, or similar arrangement or understanding.
(g) TRANSACTIONS WITH AFFILIATES. Except as set forth on
EXHIBIT E, the Company will not, and will not permit any Subsidiary to, enter
into, or cause, suffer or permit to exist:
(i) any management contract or agreement, consulting
agreement or arrangement, contract or arrangement relating to the
allocation of revenues or expenses or similar contract or arrangement
requiring any payments to be made by the Company or any of its
Subsidiaries to any Affiliate, other than any arrangement solely among
the Company and its wholly-owned Subsidiaries; and
(ii) any other transaction, arrangement or contract with
any of its Affiliates which is on terms which are less favorable than
are obtainable in a transaction from any Person which is not one of
its Affiliates.
(h) ISSUANCE OF ADDITIONAL RIGHTS, OPTIONS AND
WARRANTS. The Company will not issue any rights, options or warrants
to subscribe for or purchase or otherwise acquire Common Stock or
Convertible Securities, whether or not the right to exercise such
rights, options or warrants or to convert or exchange such Convertible
Securities is immediately exercisable or is conditioned upon the
passage of time, an occurrence or non-occurrence of some other event,
or both; PROVIDED, HOWEVER, that:
(i) the Company may issue any such rights, options or
warrants to members of management of the Company (other than Graf)
pursuant to a management incentive plan approved by the Company's
Board of Directors provided (x) any such rights, options or warrants
granted pursuant to any such plan are granted in respect of any fiscal
year only upon meeting the Projections (as defined in the Loan
Documents) for such fiscal year and (y) the aggregate amount of Common
Stock for which any such rights, options or warrants may
be exercised, when taken together with the aggregate amount of any
Below Market Dilution Shares, shall not exceed 10% of the outstanding
Common Stock of the Company as of the Closing Date, and (z) such
rights, options or warrants granted in respect of any single fiscal
year shall not represent more than 50% of the maximum number of rights,
options or warrants that may be granted pursuant to such plan; and
(ii) subject to the Company's obligations under subparagraph
(1)(vii) of the Certificate of Amendment, the Company may issue
rights, options or warrants to purchase Common Stock to Graf.
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<PAGE> 25
(i) PREFERRED STOCK. The Company will not declare, pay
or make any dividend or distribution, in cash, property or obligations, on any
shares of Preferred Stock issued and outstanding as of the Closing Date
(including, without limitation, dividends or distributions by issuance of
shares of Stock or by accretion to the liquidation preference or stated value
of such Preferred Stock), except such dividends and distributions as accrue and
cumulate in accordance with the terms of such Preferred Stock as in effect on
the Closing Date. The Company will not apply, or permit any Subsidiary to
apply, any of its funds, properties or assets to the purchase, redemption,
sinking fund or other retirement of any shares of Preferred Stock issued and
outstanding as of the Closing Date, or make any deposit for any of the
foregoing, except that the Company may purchase or redeem such Preferred Stock
at such times as are required in accordance with the terms of such Preferred
Stock as in effect on the Closing Date and at a purchase or redemption price
not to exceed the stated value of such Preferred Stock plus accrued and unpaid
dividends (to the extent not added to the stated value thereof). The Company
will not issue any Preferred Stock having a stated value or liquidation
preference in excess of the issue price therefor. The Company will not effect a
conversion or exchange of any shares of Preferred Stock issued and outstanding
as of the Closing Date for other securities of the Company except that the
Company may convert such Preferred Stock into Common Stock in accordance with
the terms of such Preferred Stock as in effect on the Closing Date.
(j) ANTITAKEOVER STATUTES. The Company shall take all
action necessary to avoid the application of any "fair price," "moratorium,"
"control share acquisition," "business combination," "shareholder protection" or
similar antitakeover statute to the transactions contemplated by this Agreement,
any of the other Warrant Documents or any of the Loan Documents (including the
issuance of the Warrant Securities or any shares of capital stock to be issued
pursuant to the Loan Documents).
(k) REDEMPTIONS; EXTRAORDINARY DIVIDENDS. The Company (i)
shall not redeem, purchase or otherwise retire any Stock or any rights, options
or warrants to subscribe for or purchase any Stock, and (ii) shall not declare
or pay any extraordinary dividend or distribution on any shares of Stock.
(l) FCC LICENSES. Neither the Company nor any of its
Subsidiaries will acquire any licenses or conduct any business which would
result in the application of Section 310 of the Communications Act of 1934 (or
any similar provision) as a result of this Agreement, any of the other Warrant
Documents, or any of the Loan Documents or the authorization or issuance of the
Warrant Securities or any shares of capital stock to be issued pursuant to the
Loan Documents.
(m) GOVERNMENTAL APPROVALS. The Company will, and will
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cooperate with the Holders to, secure all necessary consents, approvals,
authorizations and exemptions from all governmental authorities (including the
making of all filings under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act")) in connection with the exercise of the
Warrants, the issuance of shares of Series A Special Preferred Stock upon
exercise of the Warrants and the issuance of shares of Common Stock upon the
conversion of such shares of Series A Special Preferred Stock. The Company
shall be responsible for all filing fees and other expenses with respect to all
filings under the HSR Act in connection with the foregoing.
(n) ISSUANCES OF SHARES. The Company will not issue any
shares of Series A Special Preferred Stock other than pursuant to the exercise
of the Warrants or Series B Special Preferred Stock other than pursuant to the
conversion of the Term Notes.
SECTION 7. WARRANT CERTIFICATES. The Warrant Certificates to
be delivered pursuant to this Agreement shall be in registered form only and
shall be in the form set forth as EXHIBIT A attached hereto.
SECTION 8. EXECUTION OF WARRANT CERTIFICATES. Warrant
Certificates shall be signed on behalf of the Company by its Chairman of the
Board or its President or a Vice President and by its Secretary or an Assistant
Secretary under its corporate seal. Each such signature upon the Warrant
Certificates may be in the form of a facsimile signature of the Chairman of the
Board, President, Vice President, Secretary or Assistant Secretary and may be
printed or otherwise reproduced on the Warrant Certificates and for that
purpose the Company may adopt and use the facsimile signature of any person who
shall have been Chairman of the Board, President, Vice President, Secretary or
Assistant Secretary, notwithstanding the fact that at the time the Warrant
Certificates shall be delivered or disposed of such person shall have ceased to
hold such office. The seal of the Company may be in the form of a facsimile
thereof and may be impressed, affixed, imprinted or otherwise reproduced on the
Warrant Certificates.
In case any officer of the Company who shall have signed any
of the Warrant Certificates shall cease to be such officer before the Warrant
Certificates so signed shall have been disposed of by the Company, such Warrant
Certificates nevertheless may be delivered or disposed of as though such person
had not ceased to be such officer of the Company; and any Warrant Certificate
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Warrant Certificate, shall be a proper officer of the
Company to sign such Warrant Certificate although at the date of the execution
of this Agreement such person was not such an officer.
SECTION 9. REGISTRATION. The Company shall number and
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register the Warrant Certificates in a register as they are issued. The
Company may deem and treat the registered holder(s) of the Warrant Certificates
as the absolute owner(s) thereof (notwithstanding any notation of ownership or
other writing thereon made by anyone) for all purposes and shall not be
affected by any notice to the contrary.
SECTION 10. REGISTRATION OF TRANSFERS AND EXCHANGES. The
Company shall from time to time register the transfer of any outstanding
Warrant Certificates in a Warrant register to be maintained by the Company upon
surrender of such Warrant Certificates accompanied by a written instrument or
instruments of transfer in form reasonably satisfactory to the Company, duly
executed by the registered Holder or Holders thereof or by the duly appointed
legal representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee(s) and the surrendered Warrant Certificate shall be cancelled and
disposed of by the Company. The Company agrees that it will make the Warrant
register available for inspection by the Holders during normal business hours at
its office and that the Holders may rely on the Warrant register for purposes of
complying with the preceding sentence.
The Warrants shall be transferable in whole or in part and, in
the event that a Warrant Certificate is transferred in respect of fewer than
all the Warrants evidenced by the Warrant Certificate, a new Warrant
Certificate evidencing the remaining Warrant or Warrants will be issued and
delivered pursuant to the provisions of this SECTION 10 and of SECTION 8.
If such transfer of Warrants is not made pursuant to an
effective registration statement under the Securities Act, the Holder will, if
reasonably requested by the Company, deliver to the Company an opinion of
counsel, which may be counsel to the Holder but which counsel must be
reasonably satisfactory to the Company (provided that King & Spalding and
Lowenstein, Sandler, Kohl, Fisher & Boylan shall be deemed reasonably
satisfactory), reasonably satisfactory in form, scope and substance to the
Company, that the Warrants may be sold without registration under the
Securities Act, as well as:
(1) an investment covenant reasonably
satisfactory to the Company signed by the proposed transferee (except that no
such covenant will be required in connection with a transfer effected in
accordance with Rule 144A under the Securities Act); and
(2) an agreement by such transferee to the
impression of the restrictive legends set forth below on the Warrant
Certificate.
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<PAGE> 28
The Holders agree that each Warrant Certificate and each
certificate representing Warrant Shares will bear the following
legend (the "SECURITIES LEGEND"):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION, OR
AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL TO THE
HOLDER) AS TO AN EXEMPTION, FROM THE REGISTRATION
PROVISIONS OF SAID ACT OR LAWS."
Notwithstanding the foregoing provisions of this SECTION 10, the restrictions
upon the transferability of the Warrant Certificates and the Securities Legend
requirement set forth above in this SECTION 10 shall terminate as to any of the
Warrant Securities (i) when and so long as such Warrant Security shall have
been effectively registered under the Securities Act and disposed of pursuant
thereto or (ii) when the Company shall have received an opinion of counsel
reasonably satisfactory to it that such Securities Legend is not required in
order to ensure compliance with the Securities Act. Whenever the restrictions
imposed by this SECTION 10 shall terminate as to any Warrant Security, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the expense of the Company, a new Warrant Certificate or
certificate for Warrant Shares bearing the following legend in place of the
Securities Legend set forth above:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE TERMINATED
ON ______________, 19__, AND ARE OF NO FURTHER FORCE
AND EFFECT."
The Holders further agree that each Warrant Certificate and
each certificate representing Warrant Shares will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS OF A WARRANT PURCHASE
AGREEMENT, DATED AS OF MARCH 15, 1996, BETWEEN
PHONETEL TECHNOLOGIES, INC. (THE "COMPANY") AND
INTERNATIONALE NEDERLANDEN (U.S.) CAPITAL CORPORATION
("ING") AND CERBERUS PARTNERS, L.P. ("CERBERUS"), AND
A REGISTRATION RIGHTS AGREEMENT, DATED AS OF MARCH 15,
1996, AMONG THE COMPANY, ING
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<PAGE> 29
AND CERBERUS, COPIES OF EACH OF WHICH ARE ON
FILE AT THE MAIN OFFICE OF THE COMPANY. ANY SALE OR
TRANSFER OF THE SECURITIES EVIDENCED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS OF THOSE
AGREEMENTS AND ANY SALE OR TRANSFER OF SUCH SECURITIES
IN VIOLATION OF SAID AGREEMENTS SHALL BE INVALID."
Warrant Certificates may be exchanged at the option of the
Holder(s) thereof when surrendered to the Company at its office for another
Warrant Certificate or other Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrants, including, without
limitation, upon an adjustment in the Exercise Price or in the number of
Warrant Shares purchasable upon exercise of the Warrants. Warrant Certificates
surrendered for exchange shall be cancelled and disposed of by the Company.
SECTION 11. WARRANTS; EXERCISE OF WARRANTS. Subject to the
terms of this Agreement, each Holder shall have the right, which may be
exercised at any time or from time to time prior to April 1, 2006, to receive
from the Company the number of fully paid and nonassessable Warrant Shares
which such Holder may at the time be entitled to receive on exercise of all or
any part of the Warrants and payment of the Exercise Price then in effect for
such Warrant Shares.
A Warrant may be exercised upon surrender to the Company at
its office designated for such purpose (the address of which is set forth in
SECTION 20) of the certificate or certificates evidencing the Warrants to be
exercised with the form of election to purchase attached thereto properly
completed and signed, upon payment to the Company of the Exercise Price for the
number of Warrant Shares in respect of which such Warrants are then exercised.
Payment of the aggregate Exercise Price shall be made in cash or by check
payable to the order of the Company.
Upon such surrender of Warrant Certificates and payment of the
Exercise Price, the Company shall issue and cause to be delivered with all
reasonable dispatch (and in any event within five (5) Business Days of such
surrender and payment) to or, subject to the provisions of SECTION 10, upon the
written order of the Holder, and in the name of the Holder or the Holder's
nominee, a certificate or certificates for the number of full Warrant Shares
issuable upon the exercise of such Warrants together with such other property
(including cash) and securities as may then be deliverable upon such exercise,
including cash for fractional Warrant Shares as provided in SECTION 16. Such
certificate or certificates shall be deemed to have been issued and the Person
so named therein shall be deemed to have become a holder of record of such
Warrant Shares as of the date of the surrender of such Warrant Certificates and
payment of the Exercise Price.
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The Warrants shall be exercisable, at the election of the
Holders thereof, either in full or from time to time in part, and, in the event
that a Warrant Certificate is exercised in respect of fewer than all of the
Warrant Shares issuable pursuant to such Warrant Certificate at any time prior
to the date of expiration of the Warrants, a new Warrant Certificate evidencing
the remaining Warrant or Warrants will be issued and delivered pursuant to the
provisions of this SECTION 11 and of SECTION 8.
All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled and disposed of by the Company. The Company shall keep
copies of this Agreement and any notices received hereunder available for
inspection during normal business hours at its office. The Company will
furnish, at its expense, copies of this Agreement and all such notices, upon
request, to any Holder of any Warrant Certificates.
SECTION 12. PAYMENT OF TAXES. The Company will pay all stamp
and transfer taxes in connection with the issuance, sale and delivery of the
Warrants hereunder, as well as all such taxes attributable to the initial
issuance of Warrant Shares upon the exercise of Warrants and payment of the
Exercise Price and upon the issuance of shares of Common Stock upon the
conversion of shares of Series A Special Preferred Stock. The Company will
not, however, be required to pay any tax or other similar charges imposed in
connection with any transfer of any Warrant Securities. Nothing herein shall
be construed as requiring the Company to pay any taxes imposed in respect of
income realized by any Holder upon the purchase, transfer or exercise of
Warrants or upon conversion of shares of Series A Special Preferred Stock.
SECTION 13. MUTILATED OR MISSING WARRANT CERTIFICATES. In
case any of the Warrant Certificates shall be mutilated, lost, stolen or
destroyed, upon receipt of an affidavit and reasonable indemnity from the
holder thereof stating that such Warrant Certificate has been mutilated, lost,
stolen or destroyed the Company shall issue, in exchange and substitution for
and upon cancellation of the mutilated Warrant Certificate, or in lieu of and
substitution for the Warrant Certificate lost, stolen or destroyed, a new
Warrant Certificate of like tenor and representing an equivalent number of
Warrants.
SECTION 14. RESERVATION OF WARRANT SHARES. The Company will
at all times reserve and keep available, free from preemptive or similar
rights, out of the aggregate of its authorized but unissued capital stock or
its authorized and issued capital stock held in its treasury, for the purpose
of enabling it to satisfy any obligation to issue Warrant Shares upon exercise
of Warrants, (i) the maximum number of shares of each class of capital stock
constituting a part of the Warrant Shares which may then be deliverable upon
the exercise of all outstanding Warrants and (ii) the maximum number of shares
of each class of Stock of the
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Company which may then be delivered upon the conversion into Common Stock of all
issued Warrant Shares. The Company shall cause all shares of Common Stock into
which Warrant Shares are convertible to be (x) listed (or to be listed subject
to notice of issuance) on each securities exchange on which shares of Common
Stock are listed, or (y) admitted for trading in any inter-dealer quotation
system on which shares of Common Stock are traded.
The Company or, if appointed, the transfer agent for shares of
each class of capital stock of the Company (the "TRANSFER AGENT") and every
subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of the Warrants will be irrevocably authorized and
directed at all times to reserve such number of authorized shares as shall be
required for such purpose. The Company will keep a copy of this Agreement on
file with the Transfer Agent and with every subsequent transfer agent for any
shares of the Company's capital stock issuable upon the exercise of the rights
of purchase represented by the Warrants or of the rights of conversion of the
Warrant Shares. The Company will furnish such Transfer Agent a copy of all
notices of adjustments, and certificates related thereto, transmitted to each
Holder pursuant to SECTION 17.
Before taking any action which would cause an adjustment
pursuant to SECTION 15 to reduce the Exercise Price below the then par value
(if any) of the Warrant Shares, the Company will take any corporate action
which may, in the opinion of its counsel (which may be counsel employed by the
Company), be necessary in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares at the Exercise Price as so
adjusted.
SECTION 15. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES ISSUABLE. The Exercise Price and the number of Warrant Shares
issuable upon the exercise of each Warrant are subject to adjustment from time
to time upon the occurrence of any of the events enumerated in this SECTION 15.
(a) REORGANIZATION OF THE COMPANY
In the event of any capital reorganization, recapitalization
or reclassification of the capital stock of the Company, or consolidation,
merger or amalgamation of the Company with another entity, any acquisition of
capital stock of the Company by means of a share exchange, or the sale, lease,
transfer, conveyance or other disposition of all or substantially all of its
assets to another entity, then, as a condition of such reorganization,
recapitalization, reclassification, consolidation, merger, amalgamation, share
exchange or sale, lease, transfer, conveyance or other disposition, lawful and
adequate provision shall be made whereby the Holders of the Warrant
Certificates shall thereafter have the right to purchase and receive, on the
basis and upon the terms and conditions specified in this Agreement and in
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lieu of the Warrant Shares immediately theretofore purchasable and receivable
upon the exercise of the rights represented by the Warrants, (i) such shares of
stock, securities, cash or property as may be issued or payable with respect to
or in exchange for a number of outstanding Warrant Shares equal to the number of
Warrant Shares immediately theretofore purchasable and receivable upon the
exercise of the rights represented by the Warrant Certificates had such
reorganization, recapitalization, reclassification, consolidation, merger,
amalgamation, share exchange or sale, lease, transfer, conveyance or other
disposition not taken place, and (ii) if such consolidation, merger,
amalgamation, share exchange, sale, lease, transfer, conveyance or other
disposition is with any Person (or any Affiliate of such Person) who shall have
made a purchase, tender or exchange offer which was accepted by the holders of
not less than twenty percent (20%) of the outstanding shares of Common Stock,
the Holders of the Warrants shall have been given a reasonable opportunity (and,
in no event, less than 30 days) to elect to receive, either (x) the stock,
securities, cash or property it would have received pursuant to clause (i)
immediately preceding or (y) the stock, securities, cash or property issued to
previous holders of the Common Stock in accordance with such offer, or the
equivalent thereof. In any such case appropriate provision shall be made with
respect to the rights and interests of the Holders of the Warrants to the end
that the provisions hereof (including, without limitation, provisions for
adjustment of the Exercise Price and of the number and type of securities
purchasable upon the exercise of the Warrants) shall thereafter be applicable,
as nearly as may be, in relation to any shares of stock, securities, cash or
property thereafter deliverable upon the exercise of the Warrants. The Company
shall not effect any such consolidation, merger, amalgamation, share exchange or
sale, lease, transfer, conveyance or other disposition unless prior to or
simultaneously with the consummation thereof the successor entity (if other than
the Company) resulting from such consolidation, merger or amalgamation, share
exchange or the entity purchasing or otherwise acquiring such assets or shares
(i) shall assume by a supplemental Warrant Agreement, satisfactory in form,
scope and substance to the Holders (which shall be mailed or delivered to the
Holders of the Warrants at the last address of such Holders appearing on the
books of the Company) the obligation to deliver to such Holders such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions, such Holders may be entitled to purchase (the "SUBSTITUTE
SECURITIES") and (ii) shall assume all of the other obligations of the Company
set forth in this Agreement and the Registration Rights Agreement. Following
such assumption such obligations shall apply to the Substitute Securities
rather than to the Warrants and the Warrant Shares. The foregoing provisions of
this paragraph shall similarly apply to successive reorganizations,
recapitalizations, reclassifications, consolidations, mergers, amalgamations,
share exchanges, sales, leases, transfers, conveyances or other dispositions.
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If the issuer of securities deliverable upon exercise of
Warrants under the supplemental Warrant Agreement is an Affiliate of the
formed, surviving, transferee or lessee entity, such issuer shall join the
supplemental Warrant Agreement.
(b) WHEN ISSUANCE OR PAYMENT MAY BE DEFERRED
In any case in which this SECTION 15 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event (i) issuing to the Holder of any Warrant exercised after such record date
the Warrant Shares issuable upon such exercise over and above the Warrant
Shares issuable upon such exercise on the basis of the Exercise Price prior to
such adjustment and (ii) paying to such Holder any amount in cash in lieu of a
fractional share pursuant to SECTION 16; PROVIDED, HOWEVER, that the Company
shall deliver to such Holder a bill or other appropriate instrument evidencing
such Holder's right to receive such additional Warrant Shares and cash upon the
occurrence of the event requiring such adjustment.
SECTION 16. FRACTIONAL INTERESTS. The Company shall not
be required to issue fractional Warrant Shares on the exercise of Warrants. If
more than one Warrant shall be presented for exercise in full at the same time
by the same Holder, the number of full Warrant Shares which shall be issuable
upon exercise thereof shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrants so presented. If any
fraction of the Warrant Shares would, except for the provisions of this SECTION
16, be issuable on the exercise of any Warrants (or specified portion
thereof), the Company shall pay an amount in cash equal to the product of (x)
the Fair Market Value per Share on the day immediately preceding the date the
Warrant is presented for exercise, multiplied by (y) the Conversion Rate,
multiplied by (z) such fraction.
SECTION 17. NOTICE TO WARRANT HOLDERS. Upon any
adjustment of the Exercise Price or number of Warrant Shares purchasable upon
exercise of the Warrants pursuant to SECTION 15 or subparagraph (1)(vii) of the
Certificate of Amendment and as otherwise required by SECTION 15 or
subparagraph (1)(vii) of the Certificate of Amendment, the Company shall
promptly thereafter (i) upon the reasonable request of the Required Holders,
cause to be filed with the Company a certificate of the independent certified
public accountants for the Company setting forth the Exercise Price and the
number and type of securities or other property constituting Warrant Shares
after such adjustment and setting forth in reasonable detail the method of
calculation and the facts upon which such calculations are based and, in the
case of an adjustment pursuant to SECTION 15(A) or subparagraph (1)(vii) of the
Certificate of Amendment, setting forth the number and type of securities or
other property constituting Warrant Shares (or
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<PAGE> 34
portion thereof) issuable, after such adjustment in the Exercise Price and
number of Warrant Shares purchasable upon exercise of the Warrants, upon
exercise of a Warrant and payment of the adjusted Exercise Price, and (ii) cause
to be given to each of the Holders of the Warrant Certificates written notice of
such adjustments, together with a copy of such certificate. Where appropriate,
such notice may be given in advance and included as a part of the notice
required to be given under the other provisions of this SECTION 17.
In the event:
(a) the Company shall authorize the issuance to holders
(although not necessarily to all such holders) of shares of Common Stock or
rights, options or warrants to subscribe for or purchase or otherwise acquire
shares of Common Stock or of any other securities or property (including
securities of any other issuer) or of any other subscription rights, options or
warrants; or
(b) the Company shall authorize the payment of any
dividend or distribution to holders of shares of Common Stock of cash, capital
stock or other securities or property (including securities of any other
issuer) of the Company; or
(c) of any capital reorganization, reclassification or
recapitalization of the capital stock of the Company, or any amalgamation,
consolidation or merger to which the Company is a party, or any acquisition of
capital stock of the Company through a share exchange, or of the sale, lease,
conveyance, transfer or other disposition of the properties and assets of the
Company substantially as an entirety, or a purchase, tender or exchange offer
for shares of Common Stock or other securities constituting part of the
Warrant Shares (whether by the Company or some other party); or
(d) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(e) the Company proposes to take any action which would
require an adjustment of the Exercise Price or number of Warrant Shares
purchasable upon exercise of the Warrants pursuant to SECTION 15 or
subparagraph (1)(vii) of the Certificate of Amendment;
then the Company shall cause to be given to each of the Holders, at least 20
days prior to the applicable record date hereinafter specified (or promptly in
the case of events for which there is no record date), a written notice stating
(as applicable) (i) the date as of which the holders of record of shares of
Common Stock entitled to receive any such rights, options, warrants or
dividends or distribution are to be determined, (ii) the date on which any such
reclassification, recapitalization or reorganization, consolidation, merger,
amalgamation, share exchange, sale, lease,
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<PAGE> 35
conveyance, transfer, disposition, dissolution, liquidation or winding up is
expected to become effective or be consummated, or (iii) the initial expiration
date set forth in any purchase, tender or exchange offer for shares of Common
Stock, and the date as of which it is expected that holders of record of shares
of Common Stock or other securities constituting a part of the Warrant Shares
(or securities into which the Warrant Shares may be converted) shall be entitled
to exchange such shares or securities for securities or other property, if any,
deliverable upon such reclassification, recapitalization, reorganization,
consolidation, merger, amalgamation, share exchange, sale, lease, conveyance,
transfer, disposition, dissolution, liquidation or winding up.
Nothing contained in this Agreement or in any of the Warrant
Certificates shall be construed as conferring upon the Holders thereof the
right to vote or to consent as stockholders in respect of the meetings of
stockholders or the election of members of the Board of Directors of the
Company or any other matter, or any rights whatsoever as stockholders of the
Company.
SECTION 18. CASH DISTRIBUTIONS AND DIVIDENDS. If the
Company pays a dividend or makes a distribution to the holders of its Common
Stock of any securities (other than capital stock for which an adjustment in
the Conversion Rate is made pursuant to subparagraph (1)(vii) of the
Certificate of Amendment) or property (including cash and securities of other
companies) of the Company, or any rights, options or warrants to subscribe for
or purchase securities (other than Common Stock) or property (including
securities of other companies) of the Company, then, simultaneously with the
payment of such dividend or the making of such distribution, and as a condition
precedent to its right to do so, it will pay or distribute to the Holders of
Warrant Certificates an amount of property (including, without limitation,
cash) and/or securities (including, without limitation, securities of other
companies) of the Company as would have been received by such Holders had they
exercised all of the Warrants represented by the Warrant Certificates and the
Warrant Shares issued upon such exercise had been converted into Common Stock,
in each case immediately prior to the record date (or other applicable date)
used for determining stockholders of the Company entitled to receive such
dividend or distribution. No adjustment to the Exercise Price shall be made for
the distribution of Convertible Securities or rights, options or warrants to
purchase Convertible Securities of the Company to the Holders pursuant to the
provisions of this SECTION 18.
SECTION 19. PUT RIGHTS; TAG-ALONG RIGHTS AND REGISTRATION
RIGHTS.
(a) PUT BY HOLDERS.
Unless the Required Holders have otherwise agreed in
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writing, at any time and from time to time on or after (i) the repayment in full
or in part of the Loan in each case utilizing the proceeds of borrowed funds or
the issuance of debt securities or (ii) the occurrence of an Additional Put
Event, the Put Right shall be exercisable by each of the Holders, PROVIDED,
HOWEVER, that ING agrees not to exercise its Put Right upon the occurrence of an
event specified in clause (i) until an event in clause (ii) occurs if the event
in clause (i) involves the use of proceeds of borrowed funds provided through a
credit facility for which ING serves as the administrative agent or the issuance
of debt securities pursuant to a private placement or public offering for which
ING or one of its Affiliates serves as a co-placement agent or co-lead
underwriter, and PROVIDED, FURTHER, with respect to each event specified in
clauses (i) and (ii) (other than an Additional Put Event within the meaning of
clause (c) of such definition in which case the put may be exercised with
respect to all Warrant Securities), the total number of Warrant Securities that
the Holders shall be entitled to put pursuant to this Section 19 shall not
represent more than the greater of (x) 6% of the shares of Common Stock
outstanding on a fully diluted basis on the date hereof, and (y) 20% of the
Warrant Securities held by such Holders (it being understood that each Holder
shall be entitled to put such Warrant Securities pro rata based upon the number
of Warrant Securities held by it). The Put Right shall be exercised by the
delivery of a Put Notice
After receipt of a Put Notice from any Holder, the Company
will promptly (and in any event within ten (10) days) give written notice (the
"EXERCISE NOTICE") to each of the other Holders of Warrant Securities that a
Put Right has been exercised. Each Holder will have the right to participate
in the Put Right and require the Company to repurchase all or any portion of
such Holder's Warrant Securities by delivering written notice to the Company
within ten (10) days following receipt of the Exercise Notice. All such
notices delivered by such other Holders will be deemed to have been delivered
as of the date of the initial Put Notice and taken together will be deemed to
be one exercise of the Put Right.
Upon the exercise by a Holder of the Put Right, the Purchase
Price payable to such Holder by the Company for such Holder's Warrant
Securities shall be as follows:
(i) in the case of Warrants, an amount determined by
subtracting (A) the aggregate Exercise Price for such Warrants then in effect
under the Warrant Agreement from (B) the product of (1) the Contract Value per
Share, MULTIPLIED BY (2) the number of shares of Common Stock that may be
acquired upon the conversion by such Holder of the shares of Series A Special
Preferred Stock that would be received upon exercise of such Holder's Warrants
with respect to which the Put Right is being exercised;
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(ii) in the case of Series A Special Preferred Stock, an
amount equal to the product of (A) the Contract Value per Share, MULTIPLIED BY
(B) the number of shares of Common Stock that may be acquired upon the
conversion by such Holder of the shares of Series A Special Preferred Stock
with respect to which the Put Right is being exercised; and
(iii) in the case of Common Stock, an amount equal to the product
of (A) the Contract Value per Share, multiplied by (B) the number of shares of
Common Stock with respect to which the Put Right is being exercised.
Promptly upon the receipt of a Put Notice pursuant to SECTION
19(A) the Company shall cause the Contract Value per Share to be determined,
and shall give written notice of the determination thereof to each Holder,
promptly upon the determination thereof and in any event within thirty (30)
days following the Company's receipt of the Put Notice.
The provisions of this SECTION 19(A) shall apply until the
termination of this Agreement pursuant to SECTION 24 to any Person who acquires
in any manner any Warrant Securities from any Holder.
(b) CLOSING.
Each closing of the purchase and sale of any Warrant
Securities pursuant to SECTION 19(A) shall take place on a date (a "PUT CLOSING
DATE") which is thirty (30) days after the giving of the Put Notice, provided
that if such day is not a Business Day such closing shall be on the next
succeeding Business Day. Payment of the Purchase Price shall be due and
payable in full on the Put Closing Date. The closing of such purchase and sale
of Warrant Securities shall take place at 10:00 a.m. on the Put Closing Date at
such location in Atlanta, Georgia, or New York, New York, as the Required
Holders may reasonably determine and notify the Company or at such other
location as may be agreed to by the Company and the Required Holders.
The Purchase Price shall be paid in full at each such closing,
by wire transfer of immediately available federal funds, and the Warrant
Securities to be repurchased at such closing shall be duly endorsed for
transfer. Such Warrant Securities shall be free and clear of all liens and
encumbrances of any kind, nature and description, other than applicable
restrictions under federal and state securities laws, and each Holder shall
represent and warrant to the Company to such effect with respect to such
Holder's Warrant Securities. The Company will pay all stamp and transfer taxes
in connection with the repurchase of the Warrant Securities hereunder.
(c) RESTRICTIONS ON PURCHASE.
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<PAGE> 38
The Company covenants and agrees that, other than the
Restrictive Provisions, it shall not, and shall not permit any of its
Subsidiaries to, without the prior written consent of the Required Holders,
enter into or agree to become subject to any term, condition, provision or
agreement that would conflict with or restrict in any way the performance of
the Company's obligations under this Agreement or that would by its terms
restrict the availability of Legally Available Funds with which to perform such
obligations.
Anything in this Agreement to the contrary notwithstanding,
the Company shall not be required to purchase Warrant Securities under SECTION
19(A) if at the time of closing of the purchase and sale of any Warrant
Securities pursuant to SECTION 19(A) there exists any Restrictions on Purchase.
Upon receipt of a Put Notice, if the Company's obligations
under SECTION 19(A) at the time of performance would be subject to Restrictions
on Purchase, then the Company (i) shall promptly use all reasonable efforts
(excluding the payment of waiver, consent or similar transactional fees, but
including reasonable documentation costs and other similar expenses) to cause
the Required Lenders to waive compliance with any such Restrictive Provisions
and/or to amend the Restrictive Provisions so as to permit the purchase of the
Warrant Securities pursuant to this Agreement, (ii) shall not repay, redeem,
purchase or otherwise retire any indebtedness for borrowed money of, or any
debt securities issued by, the Company in an amount or for a price or other
consideration in excess of the principal amount thereof, and (iii) shall not
declare or pay any dividend or distribution on any shares of Stock (other than
dividends that accrue and cumulate on Preferred Stock in accordance with the
terms of such Preferred Stock as is in effect on the date such Put Notice is
received by the Company).
If, notwithstanding the Company's reasonable efforts required
under this SECTION 19(C), the Company is unable to fulfill its obligations
under SECTION 19(A) because of the existence of one or more Restrictions on
Purchase, the Company shall give prompt written notice thereof to each Holder
exercising Put Rights, specifying in reasonable detail the nature thereof and
the extent, if any, to which the Company would be able to fulfill its
obligation to pay the Purchase Price within the Restrictions on Purchase.
If any Restrictions on Purchase exist on the proposed Put
Closing Date, then at the sole and independent election of each such Holder,
and pursuant to written notice given by any such Holder to the Company: (i)
such Holder's Put Right shall remain exercised and the closing of the purchase
and sale of Warrant Securities pursuant to such Holder's Put Right shall be
deferred until not more than five Business Days after all such Restrictions
35
<PAGE> 39
on Purchase cease to exist; PROVIDED, HOWEVER, that, as and to the extent that
such Restrictions on Purchase cease to exist, the Company shall promptly make
partial payments of the Purchase Price to such Holder, in which case there
shall be a series of such closings, each of which shall take place not more
than five Business Days after such Restrictions on Purchase have ceased to
exist to an extent that would permit such partial payments of the Purchase
Price in increments of not less than $100,000 ("PARTIALLY AVAILABLE FUNDS"); or
(ii) the exercise of such Holder's Put Right shall be rescinded and such Holder
shall reserve its right to exercise the Put Right at any subsequent time. In
the event that any Holders make the election provided in clause (i) of the
immediately preceding sentence, the Company shall purchase from such selling
Holders that number of Warrant Securities as may be purchased at the Purchase
Price using that portion of Partially Available Funds for such purchase as
equals the product of (a) all Partially Available Funds, and (b) the ratio of
(i) the Warrant Securities originally proposed to be sold by such Holders
electing to sell and not electing to rescind pursuant to clause (ii) of the
immediately preceding sentence, to (ii) the Warrant Securities originally
proposed to be sold by all Holders (treating all Warrants as fully exercised
for the Warrant Shares to which the Holders would be entitled upon exercise of
such Warrants). Such purchase shall be made from each selling Holder PRO RATA
based on the ratio of (i) the number of Warrant Securities originally proposed
to be sold by such Holder to (ii) the Warrant Securities originally proposed to
be sold by all Holders.
None of the provisions of this SECTION 19(C) shall be
construed to limit any other right or remedy under applicable law which any
Holder may have as a result of the failure by the Company to purchase Warrant
Securities as herein provided.
(d) TAG-ALONG RIGHTS.
Without limitation to the right of any Holder to exercise its
Put Right pursuant to SECTION 19(A), if at any time the Company or Graf shall
determine to enter into any transaction or series of transactions that would
result in a Change of Control (a "CHANGE OF CONTROL TRANSACTION") (any third
party proposing to enter into such transaction or transactions with the Company
or Graf being hereinafter referred to in this SECTION 19(D) as a "PROSPECTIVE
PURCHASER"), either the Company or Graf, as the case may be, and in either case
any Prospective Purchaser, shall first give written notice (the "OFFER NOTICE")
to all of the Holders, specifying the name and address of the Prospective
Purchaser and the number of shares, if any, of Stock proposed to be issued,
sold, transferred or otherwise disposed of by the Company or Graf, as
applicable, and setting forth in reasonable detail the price, structure and
other terms and conditions of the Change of Control Transaction, as applicable.
The Offer Notice shall represent the offer (the "OFFER") from the Prospective
Purchaser to each of the Holders of
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<PAGE> 40
the right to sell to the Prospective Purchaser as a condition to the
consummation of the proposed transaction described in the Offer Notice, all the
Warrant Securities then owned by each Holder to the Prospective Purchaser and,
at the option of the Holders, on the same terms and conditions (including price
and form of consideration) as are being offered by the Prospective Purchaser to
the Company or Graf, as the case may be, or at the Fair Market Value per Share,
determined as of the date of the Offer Notice. Each Holder shall have thirty
(30) days from the date of receipt of the Offer Notice to give written notice
of its intention to accept or reject the Offer. Failure to respond within such
thirty-day period shall be deemed notice of rejection. In the event that any
Holder gives written notice to the Company or Graf, as the case may be, and the
Prospective Purchaser of its intention to accept such Offer, then such written
notice, taken in conjunction with the Offer Notice, shall constitute a valid
and legally binding agreement, and each of the Holders so giving such written
notice shall be entitled to sell to the Prospective Purchaser,
contemporaneously with the consummation of the Change of Control Transaction,
all of the Warrant Securities at the price specified therefor by such Holder in
accordance with this SECTION 19(D). In the event that all of the Holders
reject or are deemed to have rejected the offer represented by the Offer
Notice, the Company or Graf, as applicable, shall be free to proceed to
consummate such Change of Control Transaction on the terms and conditions set
forth in the Offer Notice, provided that such sale is not otherwise prohibited
by any agreement between the Company and the Purchaser. In the event the
Company or Graf, as applicable, fails to complete the proposed sale, transfer
or other disposition within ninety (90) days after the Holder or Holders
rejected or were deemed to have rejected the Offer, such shares of Stock shall
again be subject to the provisions of this SECTION 19(D).
The provisions of this SECTION 19(D) shall apply until the
termination of this Agreement pursuant to SECTION 24 to any Person who acquires
in any manner any Warrant Securities from any Holder.
(e) LIMITATION ON PUT RIGHTS OF OTHERS. The Company
covenants and agrees that, neither the Company nor any of its Subsidiaries
shall, directly or indirectly, grant to any Person or agree to or otherwise
become obligated in respect of any rights to require the Company or any of its
Subsidiaries to purchase securities of the Company upon the demand of any
Person. The Company represents and warrants that neither it nor any of its
Subsidiaries has previously entered into any agreement granting any such rights
to any Person.
(f) SEVERABILITY. If any provision of this Agreement
shall be held or deemed to be, or shall in fact be, invalid, inoperative or
unenforceable as applied to any particular case in any jurisdiction or
jurisdictions, or in all jurisdictions or in
37
<PAGE> 41
all cases, because of the conflict of any provision with any constitution,
statute, rule or public policy, or for any other reason, such circumstances
shall not have the effect of rendering the provision or provisions in question,
invalid, inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to the extent that such other
provisions are not themselves actually in conflict with such constitution,
statute, rule or public policy, but this Agreement shall be reformed and
construed in any such jurisdiction or case as if such invalid, inoperative or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case.
(g) REGISTRATION RIGHTS. The Warrant Securities are
subject to and entitled to the benefit of certain registration rights, as more
fully set forth in the Registration Rights Agreement, which is incorporated
herein by reference.
SECTION 20. NOTICES. All notices, consents, approvals,
agreements and other communications provided hereunder shall be in writing or
by telex or telecopy and shall be sufficiently given to the Purchasers, the
Holders and the Company if addressed or delivered to them at the following
addresses:
If to ING: Internationale Nederlanden
(U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022
Attention: Chief Credit Officer
Telecopier No.: (212) 750-8935
with copies to: Internationale Nederlanden
(U.S.) Capital Corporation
Atlanta Office
200 Galleria Parkway
Suite 950
Atlanta, Georgia 30339
Telecopier No.: (770) 951-1005
and a copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attention: Hector E. Llorens, Jr., Esq.
Telecopier No.: (404) 572-5100
If to Cerberus: Cerberus Partners, L.P.
950 Third Avenue
20th Floor
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<PAGE> 42
New York, New York 10022
Attention: Mr. Seth P. Plattus
Telecopier No.: (212) 421-2847
with a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attention: Robert G. Minion, Esq.
Telecopier No.: (201) 992-5820
If to any other Holder: At its last known address appearing on the
books of the Company maintained for such
purpose
If to the Company: PhoneTel Technologies, Inc.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
Attention: Chief Executive Officer
Telecopier No.: (216) 241-2574
with a copy to: Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022-3897
Attention: Stephen M. Banker, Esq.
Telecopier No.: (212) 735-2000
or at such other address as any party may designate to any other party by
written notice.
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; when
received if deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when transmission is verified, if telecopied; and on the next
Business Day, if timely delivered to an air courier guaranteeing overnight
delivery.
SECTION 21. COSTS AND EXPENSES. The Company agrees to
pay all expenses of the Purchasers for the negotiation, preparation, execution,
and delivery of this Agreement and each other Warrant Document, and any
amendments, waivers, consents, supplements, or other modifications to this
Agreement or any other Warrant Document as may from time to time hereafter be
required (including the reasonable fees and expenses of counsel retained by the
Purchasers from time to time in connection therewith), whether or not the
transactions contemplated hereby are consummated, and to pay all reasonable
expenses of the Purchasers (including reasonable fees and expenses of counsel
to the Purchasers) incurred in connection with the consideration of legal
questions relevant hereto and thereto. Except as otherwise provided herein,
the
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<PAGE> 43
Company also agrees to reimburse the Purchasers and each Holder upon demand for
all reasonable expenses (including attorneys' fees and expenses) incurred by
the Purchasers or such Holder in enforcing the obligations of the Company under
this Agreement or any other Warrant Document or in connection with any
amendment, waiver, consent, supplement or other modification to this Agreement
or any Warrant Document. Except in connection with the exercise by any
Purchaser of any of its rights under SECTION 19 or under the Registration
Rights Agreement, and except as otherwise expressly provided herein and in the
other Warrant Documents, the Company shall have no obligation to reimburse the
Purchasers for any expenses incurred by the Purchasers in connection with any
subsequent transfer of the Warrants.
SECTION 22. INDEMNIFICATION. In consideration of the
transactions contemplated by this Agreement and the other Warrant Documents,
the Company hereby agrees to indemnify, exonerate and hold the Purchasers and
each Holder, each of their respective successors and assigns, each of the
respective officers, directors, employees, attorneys and agents of the
Purchasers and each Holder and each of their respective successors and assigns
(collectively, the "INDEMNIFIED PARTIES") free and harmless from and against
any and all actions, causes of action, suits, losses, costs, liabilities,
damages and expenses (irrespective of whether such Indemnified Party is a party
to the action for which indemnification hereunder is sought), including
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
the Indemnified Parties or any of them or asserted or awarded against the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to:
(a) the making of any claim by any investment banking
firm, broker or third party, claiming through the Company or as a result of the
relationship of such investment banking firm, broker or third party with the
Company, that it is entitled to compensation from any Indemnified Party in
connection with this Agreement or the transactions contemplated hereby;
(b) any claim, investigation, litigation, or proceeding
made or commenced by a third party related to this Agreement or any other
Warrant Documents, whether or not the Indemnified Party or
any other Indemnified Party is party thereto;
(c) the breach by the Company of any representation or
warranty set forth in this Agreement or in any other Warrant Document; or
(d) the failure of the Company to comply with all terms,
conditions, and covenants set forth in this Agreement or in any other Warrant
Document;
EXCEPT FOR any such Indemnified Liabilities arising for the account
40
<PAGE> 44
of a particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct as determined by a final and
nonappealable decision of a court of competent jurisdiction.
If and to the extent that the foregoing undertaking may be
unenforceable for any reason, the Company hereby agrees to make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The foregoing indemnity
shall become effective immediately upon the execution and delivery hereof and
shall remain operative and in full force and effect notwithstanding the
consummation of the transactions contemplated hereunder, the issuance or
exercise of the Warrants hereunder, the termination of this Agreement pursuant
to SECTION 24, the invalidity or unenforceability of any term or provision of
this Agreement or any other Warrant Document, or any investigation made by or
on behalf of any Holder or any Purchaser.
SECTION 23. SUCCESSORS. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Holders shall
bind and inure to the benefit of their respective successors and assigns,
including those by operation of law, merger, consolidation or as otherwise
provided in SECTION 15(A).
SECTION 24. TERMINATION. Except as otherwise provided
herein, this Agreement shall terminate when all Warrants have expired
unexercised in accordance with their terms and no Warrant Securities are
outstanding.
SECTION 25. GOVERNING LAW. THIS AGREEMENT AND THE
WARRANTS SHALL BE GOVERNED BY THOSE PROVISIONS OF THE CORPORATE
CODE OF THE JURISDICTION IN WHICH THE COMPANY IS INCORPORATED AND ARTICLE 8 OF
THE UNIFORM COMMERCIAL CODE OF THE JURISDICTION IN WHICH THE COMPANY IS
INCORPORATED WHICH ARE NECESSARILY APPLICABLE TO SECURITIES ISSUED BY A
CORPORATION INCORPORATED IN SUCH JURISDICTION AND OTHERWISE SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND FOR ALL PURPOSES
SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF SAID STATE.
SECTION 26. BENEFITS OF THIS AGREEMENT. Nothing in this
Agreement shall be construed to give to any Person other than the Company and
the Holders any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive benefit of
the Company and the Holders.
SECTION 27. COUNTERPARTS. This Agreement may be executed
in any number of counterparts and each such counterpart shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute one and the same instrument.
SECTION 28. AMENDMENTS; WAIVER. No provision of this
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<PAGE> 45
Agreement may be amended or waived except by an instrument in writing signed by
the party sought to be bound; PROVIDED, HOWEVER, that any amendment requested
or waiver sought from the Holders of any provision of this Agreement which
affects Holders generally may be given by the Required Holders and any waiver
so given shall be binding on all Holders; PROVIDED FURTHER, that the provisions
of SECTION 11 with respect to the type of securities for which the Warrants are
exercisable may not be changed without the consent of each Holder affected
thereby. No failure or delay by any party in exercising any right or remedy
hereunder shall operate as a waiver thereof, nor shall a waiver of a particular
right or remedy on one occasion be deemed a waiver of any other right or remedy
or a waiver of the same right or remedy on any subsequent occasion.
SECTION 29. WAIVER OF JURY TRIAL. EACH PURCHASER, EACH
HOLDER AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, ON THE WARRANTS OR ON ANY OF THE OTHER WARRANT DOCUMENTS, OR ARISING
OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, THE WARRANTS OR ANY OF THE
OTHER WARRANT DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE PURCHASERS, ANY HOLDER
OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PURCHASERS'
ENTERING INTO THIS AGREEMENT.
SECTION 30. JURISDICTION. The Company hereby agrees that
any legal action or proceeding against it with respect to this Agreement, the
Warrants or any of the other Warrant Documents may be brought in the courts of
the State of New York or of the United States of America sitting in New York as
any Holder may elect, and, by execution and delivery hereof, for itself and in
respect of its property it accepts and consents to, generally and
unconditionally, the jurisdiction of the aforesaid courts and agrees that such
jurisdiction shall be exclusive, unless waived by the Required Holders in
writing, with respect to any action or proceeding brought by it against such
Holders. The Company hereby irrevocably designates, appoints and empowers CT
Corporation System whose present address is 1633 Broadway, New York, New York
10019, as its authorized agent to receive, for and on its behalf and its
property, service of process in the State of New York when and as legal actions
or proceedings may be brought in the courts of the State of New York or of the
United States of America sitting in New York, and such service of process shall
be deemed complete upon the date of delivery thereof to such agent, or upon
the earliest of any other date permitted by applicable law. It is understood
that a copy of said process served on such agent will be forwarded to the
Company as soon as practicable, at its address set forth herein, but its
failure to receive such copy shall not affect in any way the service of said
process on said agent as the agent of the Company. The Company irrevocably
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of the copies thereof by certified
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<PAGE> 46
mail, return receipt requested, postage prepaid, to it at its address set forth
herein, such service to become effective upon the earlier of (i) the date 10
calendar days after such mailing and (ii) any earlier date permitted by
applicable law. The Company agrees that it will at all times continuously
maintain an agent to receive service of process in the State of New York on
behalf of itself and its properties and in the event that, for any reason, the
agent named above or its successor shall no longer serve as its agent to
receive service of process in the State of New York on its behalf, it shall
promptly appoint a successor so to serve and shall advise the Holders thereof.
The Company agrees that Sections 5-1401 and 5-1402 of the General Obligations
Law of the State of New York shall apply to this Agreement and each of the
other Warrant Documents and waives any right to stay or to dismiss
any action or proceeding brought before said courts on the basis of FORUM NON
CONVENIENS. Nothing herein shall affect the right of any Holder to bring
proceedings against the Company in the courts of any other jurisdiction or to
serve process in any other manner permitted by applicable law.
SECTION 31. SPECIFIC PERFORMANCE. The Company recognizes
that the rights of the Holders under this Agreement and the other Warrant
Documents are unique and, accordingly, the Holders shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder and thereunder by actions for
injunctive relief and specific performance to the extent permitted by law. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
or any of the other Warrant Documents and hereby agrees to waive in any action
for specific performance the defense that a remedy at law would be adequate.
This Agreement is not intended to limit or abridge any rights of the Holders
which may exist apart from this Agreement.
SECTION 32. CONFIDENTIALITY.
(a) Each Holder shall treat any information concerning
the Company (whether prepared by the Company, its advisors or otherwise) which
has been or will be furnished by or on behalf of the Company or any Subsidiary
thereof (herein collectively referred to as the "CONFIDENTIAL INFORMATION") in
accordance with such Holder's customary procedures for handling confidential
information of this nature and will not wilfully disclose any Confidential
Information to any other party, except as otherwise provided herein. The
Confidential Information will be used solely in connection with the
transactions contemplated by the Warrant Documents or as otherwise authorized
by the Company. The term "Confidential Information" shall not include, with
respect to any Holder, information which (i) is or becomes generally available
to the public other than as a result of a disclosure by such Holder, or its
affiliates, partners, directors, officers or employees, or
43
<PAGE> 47
(ii) becomes available on a non-confidential basis from a source other than the
Company, any of its Subsidiaries, or their respective affiliates, partners,
directors, officers, employees or advisors, provided that such source is not
known by such Holder to be bound by a confidentiality agreement with or other
obligation of secrecy to the Company or any of its Subsidiaries.
(b) Notwithstanding the foregoing, (i) Confidential
Information may be disclosed to the Holders' affiliates, partners, directors,
officers, employees and advisors who are in a confidential relationship with
such Person or who are informed of the confidential nature of such information,
(ii) Confidential Information may be disclosed as reasonably required by any
proposed transferee of Warrant Securities, provided that such proposed
transferee shall have agreed in writing for the Company's benefit to be bound
by the terms of this SECTION 32 and shall agree to return any Confidential
Information, and will not retain any copies, extracts or other reproductions in
whole or in part of such Confidential Information, if it does not become a
transferee of Warrant Securities, (iii) Confidential Information may be
disclosed to the extent requested or required by bank regulators or auditors or
any administrative body or commission to whose jurisdiction a Holder may be
subject, (iv) Confidential Information may be disclosed to the extent required
by law, regulation, subpoena, judicial order or legal process, provided that
notice of such requirement or order shall be promptly furnished to the Company
unless such notice is legally prohibited, (v) Confidential Information may be
disclosed to the extent required by the rules of any securities exchange on
which securities of any Holder are listed and traded, (vi) Confidential
Information may be disclosed in connection with the enforcement by any Holder
of its rights under the Warrant Documents or in connection with any litigation
between the Company and any Holder with resect to such Holder's Warrant
Securities or any Warrant Document, and (vii) Confidential Information may be
disclosed to the extent the Company consents to such disclosure.
SECTION 33. ENTIRE AGREEMENT. The parties hereto agree
that this Agreement, the Registration Rights Agreement, and the Loan Documents
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersedes all prior agreements and understandings between
them as to such subject matter; and there are no restrictions, agreements,
arrangements, oral or written, between any or all of the parties relating to
the subject matter hereof which are not fully expressed or referred to herein
or therein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the day and year first above written.
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<PAGE> 48
PHONETEL TECHNOLOGIES, INC.
By:_____________________________
Peter G. Graf
Chairman and
Chief Executive Officer
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By:________________________
James W. Latimer
Managing Director
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.P.,
its general partner
By:________________________
Stephen Feinberg
General Partner
Solely for purposes of
Section 19(d):
___________________________
Peter G. Graf
45
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EXHIBIT A
---------
FORM OF WARRANT CERTIFICATE
---------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION, OR AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL TO THE HOLDER)
AS TO AN EXEMPTION, FROM THE REGISTRATION PROVISIONS OF SAID ACT OR LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A
WARRANT PURCHASE AGREEMENT, DATED AS OF MARCH 15, 1996, BETWEEN PHONETEL
TECHNOLOGIES, INC. (THE "COMPANY") AND INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION ("ING") AND CERBERUS PARTNERS, L.P. ("CERBERUS") AND A
REGISTRATION RIGHTS AGREEMENT, DATED AS OF MARCH 15, 1996, AMONG THE COMPANY,
ING AND CERBERUS, COPIES OF EACH OF WHICH ARE ON FILE AT THE MAIN OFFICE OF THE
COMPANY. ANY SALE OR TRANSFER OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE
IS SUBJECT TO THE TERMS OF THOSE AGREEMENTS AND ANY SALE OR TRANSFER OF SUCH
SECURITIES IN VIOLATION OF SAID AGREEMENTS SHALL BE INVALID.
No. __
_______ Warrants
Warrant Certificate
PHONETEL TECHNOLOGIES, INC.
This Warrant Certificate certifies that _________________, or
registered assigns, is the registered holder of the number of Warrants (the
"WARRANTS") set forth above to purchase shares of Series A Special Convertible
Preferred Stock, par value $.20 per share (the "SERIES A SPECIAL PREFERRED
STOCK"), of PHONETEL TECHNOLOGIES, INC., an Ohio corporation (the "COMPANY").
Each Warrant entitles the holder upon exercise to receive from the Company one
fully paid and nonassessable share of Series A Special Preferred Stock (a
"WARRANT SHARE") at the initial exercise price (the "EXERCISE PRICE") of $0.20,
payable in lawful money of the United States of America, upon surrender of this
Warrant Certificate and payment of the Exercise Price, if applicable, at the
office of the Company designated for such purpose, subject to the conditions
set forth herein and in the Warrant Agreement referenced below. The Exercise
Price and number and type of Warrant Shares issuable upon exercise of the
Warrants are subject to adjustment upon the occurrence of certain events, as
set forth in the Warrant Agreement.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants, and are issued or to be issued pursuant to
a Warrant Purchase Agreement dated as of March 15, 1996 (the "WARRANT
AGREEMENT"), duly executed and
A-1
1
<PAGE> 50
delivered by the Company, ING and Cerberus, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, obligations and duties hereunder
of the Company and the holders of the Warrants (the words "holders" or "holder"
meaning the registered holders or registered holder). A copy of the Warrant
Agreement may be obtained by the holder hereof upon written request to the
Company.
The holder of Warrants evidenced by this Warrant Certificate
may exercise such Warrants under and pursuant to the terms and conditions of
the Warrant Agreement by surrendering this Warrant Certificate, with the form
of election to purchase attached hereto (and by this reference made a part
hereof) properly completed and executed, together with payment of the Exercise
Price in cash at the office of the Company designated for such purpose. In the
event that any exercise of Warrants evidenced hereby shall be for less than the
total number of Warrants evidenced hereby, there shall be issued by the Company
to the holder hereof or his or its registered assignee a new Warrant
Certificate evidencing the number of Warrants not exercised.
The Warrant Agreement provides that upon the occurrence of
certain events the Exercise Price set forth on the face hereof may, subject to
certain conditions, be adjusted. If the Exercise Price is adjusted, the
Warrant Agreement provides that the number of shares of Warrant Shares issuable
upon the exercise of each Warrant shall be adjusted. No fractional shares of
Warrant Shares will be issued upon the exercise of any Warrant, but the Company
will pay the cash value thereof determined as provided in the Warrant
Agreement.
The holder hereof possesses certain rights to require the
Company to purchase the Warrants (the "PUT RIGHTS"), and the holder hereof has
been granted certain rights to participate in a sale of the Common Stock of the
Company by certain shareholders of the Company (and certain of their successors
and assigns) all at the times specified in, and pursuant to the terms and
conditions set forth in, the Warrant Agreement.
The Holders of the Warrants are entitled to certain
registration rights as set forth in a Registration Rights Agreement dated as of
March 15, 1996, among the Company, ING and Cerberus (the "REGISTRATION RIGHTS
AGREEMENT"). By acceptance of this Warrant Certificate, the Holder hereof
agrees that upon exercise of any or all of the Warrants evidenced hereby, such
Holder will be bound by the Registration Rights Agreement. A copy of the
Registration Rights Agreement may be obtained by the holder hereof upon written
request to the Company.
Warrant Certificates, when surrendered at the office of the
Company by the registered holder thereof in person or by legal representative
or attorney duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, for another
Warrant Certificate or Warrant Certificates of like tenor evidencing in the
aggregate a like number of Warrants.
The Company may deem and treat the registered holder(s)
2
<PAGE> 51
thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding
any notation of ownership or other writing made hereon) for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company (other than the right to receive
dividends and distributions as set forth in SECTION 18 of the Warrant
Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be signed by its duly authorized officer and has caused its
corporate seal to be affixed hereunto or imprinted hereon.
Dated: _____________________
PHONETEL TECHNOLOGIES, INC.
By:__________________________
_______________________ Name:
Title:
[CORPORATE SEAL]
A-3
3
<PAGE> 52
FORM OF ELECTION TO PURCHASE
[To Be Executed Upon Exercise of Warrant]
The undersigned holder hereby represents that he or it is the registered holder
of this Warrant Certificate, and hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to receive ____________ shares
of Series A Special Convertible Preferred Stock, par value $.20 per share (the
"SERIES A SPECIAL PREFERRED STOCK"), of PHONETEL TECHNOLOGIES, INC. (the
"Company") and herewith tenders payment for such shares to the order of the
Company in the amount of $___________ in accordance with the terms hereof. The
undersigned requests that a certificate for such shares be registered in the
name of the undersigned or his/its nominee hereinafter set forth, and further
that such certificate be delivered to the undersigned at the address
hereinafter set forth or to such other person or entity as is hereinafter set
forth. If said number of shares is less than all of the shares of Series A
Special Preferred Stock purchasable hereunder, the undersigned requests that a
new Warrant Certificate representing the remaining balance of such shares be
registered in the name of the undersigned or his/its nominee hereinafter set
forth, and further that such Warrant Certificate be delivered to the
undersigned at the address hereinafter set forth or to such other person or
entity as is hereinafter set forth.
CERTIFICATE TO BE REGISTERED AS FOLLOWS:
----------------------------------------
Name:
Address:
CERTIFICATE TO BE DELIVERED AS FOLLOWS:
---------------------------------------
Name:
Address:
Date:____________________ _______________________________
(Signature must conform in all respects
to the name of the holder as specified
on the fact of the Warrant
Certificate, unless Form of Assignment
has been executed)
4
<PAGE> 53
FORM OF ASSIGNMENT
[To be executed upon Transfer of Warrant]
FOR VALUE RECEIVED, the undersigned registered holder of the
enclosed Warrant Certificate hereby sells, assigns and transfers unto
________________________________________ the right represented by such Warrant
Certificate to purchase _____________ shares of Series A Special Convertible
Preferred Stock, par value $.20 per share, of PHONETEL TECHNOLOGIES, INC. to
which such Warrant Certificate relates, and appoints __________________
_______________________________ Attorney to make such transfer on the books of
PHONETEL TECHNOLOGIES, INC. maintained for such purpose, with full power of
substitution in the premises.
Date:___________________ ______________________________
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
______________________________
(Street Address)
______________________________
(City) (State) (Zip Code)
A-5
5
<PAGE> 54
EXHIBIT B
---------
PREEMPTIVE RIGHTS, OPTIONS, WARRANTS
- --------------------------------------------------------
RIGHTS OF CONVERSION OR PURCHASE, ETC.
- ---------------------------------------------------------
B-1
1
<PAGE> 55
EXHIBIT C
---------
AGREEMENTS REGARDING VOTING, SALE OR TRANSFER
- -------------------------------------------------------------
C-1
1
<PAGE> 56
EXHIBIT D
---------
REGISTRATION RIGHTS
- ------------------------------------------------
D-1
1
<PAGE> 57
EXHIBIT E
----------
TRANSACTIONS WITH AFFILIATES
----------------------------
E-1
<PAGE> 1
EXHIBIT C-7.
___________________________________________________________________
REGISTRATION RIGHTS AGREEMENT
BETWEEN
PHONETEL TECHNOLOGIES, INC.
AND
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
AND
CERBERUS PARTNERS, L.P.
Dated as of March 15, 1996
___________________________________________________________________
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C>
Section 1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Registration of Securities by the Company . . . . . . . . . . . . . 4
Section 3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5. Conditions to Registration . . . . . . . . . . . . . . . . . . . . . 22
Section 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 7. Exchange Act Registration;
Rule 144 Reporting . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8. Limitation on Registration Rights of
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 9. Mergers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 10. Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 11. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 12. Waivers and Further Agreements . . . . . . . . . . . . . . . . . . . 31
Section 13. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 14. Assignment; Successors and Assigns . . . . . . . . . . . . . . . . . 32
Section 15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 17. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 18. Gender; Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 20. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 21. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 22. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . 34
Schedule I Agreements Containing Registration Rights
</TABLE>
<PAGE> 3
in Favor of Other Shareholders
ii
<PAGE> 4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made and
entered into as of March 15, 1996, by and between PHONETEL TECHNOLOGIES, INC.,
an Ohio corporation (the "COMPANY"), and INTERNATIONALE NEDERLANDEN (U.S.)
CAPITAL CORPORATION, a Delaware corporation ("ING") and CERBERUS PARTNERS,
L.P., a Delaware limited partnership ("CERBERUS") (ING and Cerberus, each the
"PURCHASER," and collectively, the "PURCHASERS").
W I T N E S S E T H:
-------------------
RECITALS.
- --------
A. Simultaneously herewith, the Purchasers are entering into a
Credit Agreement (as defined in Section 1), by and among the Company, the
Purchasers and various other lenders that may become parties thereto (the
"LENDERS") and ING in its capacity as Agent for the Lenders; and
B. It is a condition precedent to the initial extensions of
credit by the Purchasers to the Company contemplated by the Credit Agreement
that the Company agree to issue to the Purchasers Warrants initially
exercisable for _______ shares of Series A Special Convertible Preferred Stock,
par value $.20 per share, of the Company (the "SERIES A SPECIAL PREFERRED
STOCK"); and
C. Each Lender is entitled at such Lender's option, subject to
the terms and conditions of the Credit Agreement, to convert Term Notes (as
defined in the Credit Agreement) into shares of Series B Special Convertible
Preferred Stock, par value $.20 per share, of the Company (the "SERIES B
SPECIAL PREFERRED STOCK"); and
D. Shares of Series A Special Preferred Stock and Series B
Special Preferred Stock are convertible, at the option of each of the holders
thereof, into shares of Common Stock, par value $.01 per share, of the Company;
and
E. The Purchasers are unwilling to extend credit to the Company
pursuant to the Credit Agreement or to purchase the Warrants pursuant to the
Warrant Agreement (as defined in Section 1) unless they receive the assurances
set forth in this Agreement;
NOW, THEREFORE, in consideration of the recitals, of the Purchasers'
proceeding with the consummation of the transactions contemplated by the
Warrant Agreement and the Credit Agreement, and the mutual covenants
hereinafter set forth, the parties, intending to be legally bound, hereby agree
as follows:
SECTION 1. DEFINITIONS.
<PAGE> 5
(a) DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"AGREEMENT" means this Registration Rights Agreement as in effect on
the date hereof and as hereafter amended, supplemented, restated or otherwise
modified.
"AVAILABLE SECURITIES" is defined in SECTION 2.
"BUSINESS DAY" is defined in the Warrant Agreement.
"CERTIFICATE OF AMENDMENT" is the certificate of amendment to the
Company's Articles of Incorporation relating to the Series A Special Preferred
Stock and the Series B Special Preferred Stock.
"COMMON STOCK" is defined in the Warrant Agreement.
"COMPANY" is defined in the Preamble.
"CREDIT AGREEMENT" means the Credit Agreement, dated of even date
herewith, by and among the Purchasers, various Lenders signatory thereto, and
the Company, as in effect on the date hereof and as hereafter amended,
supplemented, restated or otherwise modified.
"EXCHANGE ACT" is defined in the Warrant Agreement.
"HOLDERS" shall mean, collectively, the Purchasers and any subsequent
registered holders, from time to time, of the Term Notes, the Series B Special
Preferred Stock, Common Stock issuable upon conversion of the Series B Special
Preferred Stock, or the Warrant Securities. Whenever the phrase "Holder of any
Registrable Securities" or any similar phrase is used herein, it shall also
include any holders of Warrants, Term Notes, Series A Special Preferred Stock,
Common Stock issuable upon conversion of the Series B Special Preferred Stock,
or Series B Special Preferred Stock.
"INDEMNIFIED PERSON" is defined in SECTION 6(A).
"INDEMNIFYING PERSON" is defined in SECTION 6(C).
"NASD" means the National Association of Securities Dealers, Inc.
"PERSON" is defined in the Warrant Agreement.
"PROSPECTUS" means each prospectus included as part of any
Registration Statement, as amended or supplemented, including each
2
<PAGE> 6
preliminary prospectus and all material incorporated by reference in such
prospectus.
"PURCHASER" is defined in the Preamble.
"QUOTED PRICE" is defined in the Warrant Agreement.
"REGISTRABLE SECURITIES" shall mean the shares of Common Stock issued
or issuable upon the conversion of shares of Series A Special Preferred Stock
or Series B Special Preferred Stock (including any conversion in accordance
with subparagraph (l)(vii) or subparagraph (m)(vii) of the Certificate of
Amendment), but excluding (i) shares that have been disposed of under a
Registration Statement, the Shelf Registration Statement or any other effective
registration statement, and (ii) shares distributed to the public pursuant to
Rule 144 under the Securities Act.
"REGISTRATION EXPENSES" is defined in SECTION 4(C).
"REGISTRATION STATEMENT" means any registration statement of the
Company which covers Registrable Securities pursuant to SECTION 2 of this
Agreement, including the Prospectus, amendments, including post-effective
amendments, and supplements to such registration statement and Prospectus and
all exhibits and all material incorporated by reference in such registration
statement.
"REQUIRED HOLDERS" shall mean the holders of Term Notes, shares of
Series B Special Preferred Stock and/or Warrant Securities which when fully
converted would represent at least two-thirds of the voting power of such
securities held by all of the Holders.
"SECURITIES ACT" is defined in the Warrant Agreement.
"SEC" is defined in the Warrant Agreement.
"SHELF PROSPECTUS" shall mean the prospectus included in the Shelf
Registration Statement, including any preliminary prospectus, and any amendment
or supplement thereto, including any supplement relating to the terms of the
offering of any portion of the Registrable Securities covered by the Shelf
Registration Statement, and in each case including all material incorporated by
reference therein.
"SHELF REGISTRATION" shall mean a registration required to be effected
pursuant to SECTION 3 hereof.
"SHELF REGISTRATION STATEMENT" shall mean a registration statement of
the Company (and any other entity required to be a registrant with respect to
such registration statement pursuant to the requirements of the Securities Act)
that covers all of the Registrable Securities to be offered on a delayed or
continuous
3
<PAGE> 7
basis pursuant to Rule 415 under the Securities Act, or any similar rule that
may be adopted by the SEC, and all amendments (including post-effective
amendments) to such registration statement, and all exhibits thereto and
materials incorporated by reference therein.
"SPECIFIED REGISTRABLE SECURITIES" is defined in SECTION 2(A).
"STOCK" is defined in the Warrant Agreement.
"WARRANT AGREEMENT" means the Warrant Purchase Agreement, dated of
even date herewith, by and between the Purchasers and the Company, as in effect
on the date hereof and as hereafter amended, supplemented, restated or
otherwise modified.
"WARRANT SECURITIES" is defined in the Warrant Agreement.
"WARRANTS" is defined in the Warrant Agreement.
(b) CROSS-REFERENCES. Unless otherwise specified,
references in this Agreement to any Article or Section are references to such
Article or Section of this Agreement, and unless otherwise specified,
references in any Article, Section, or definition to any clause are references
to such clause of such Section, Article or definition.
SECTION 2. REGISTRATION OF SECURITIES BY THE COMPANY.
(a) PIGGYBACK REGISTRATION. If at any time or from time to
time the Company shall propose to file on its behalf or on behalf of any of its
security holders a registration statement under the Securities Act on Form S-1,
S-2 or S-3 (or on any other form for the general registration of securities)
with respect to any class of securities (other than a Shelf Registration
Statement filed pursuant to Section 3), the Company shall in each case:
(i) promptly give written notice to each Holder
at least thirty (30) days before the anticipated filing date,
indicating the proposed offering price and describing the plan
of distribution;
(ii) include in such registration (and any related
qualification under blue sky or other state securities laws or
other compliance) and, at the request of any Holder, in any
underwriting involved therein, all the Registrable Securities
specified by any Holder or Holders of Registrable Securities
(the "SPECIFIED REGISTRABLE SECURITIES") in a written request
(the "REGISTRATION REQUEST") made within twenty (20) days
after receipt of such written notice from the Company; and
(iii) use its best efforts to cause the managing
4
<PAGE> 8
underwriter(s) of such proposed underwritten offering to
permit the Specified Registrable Securities to be included in
the Registration Statement for such offering on the same terms
and conditions as any similar securities of the Company
included therein.
Notwithstanding the foregoing, if the managing underwriter(s) of such offering
advise(s) the Holders of Specified Registrable Securities in writing that
marketing considerations require a limitation on the securities, other than the
securities the Company intends to sell, to be included in any Registration
Statement filed under this Section 2 to a certain number of shares (the
"Available Securities"), then the Company shall in such case be obligated to
such Holders only with respect to such number of Available Securities. Subject
to the registration rights of the holder of the Warrant to Purchase Common
Stock of the Company dated September 12, 1995 between PhoneTel and Gabriel
Capital, L.P., the holder of the Warrant to Purchase Common Stock of the
Company dated September 12, 1995 between PhoneTel and Ariel Fund, Ltd., the
former stockholders of World Communications, Inc. as beneficiaries of the
Registration Rights Agreement, dated September 22, 1995 (the "WORLD
REGISTRATION RIGHTS AGREEMENT"), and the former stockholders of Public
Telephone Corporation as beneficiaries of the Registration Rights Agreement
dated October 16, 1995 in each case as in effect on the date hereof, the
limitation on the number of Specified Registrable Securities will be imposed
pro rata (based upon the ratio of the number of shares of Specified Registrable
Securities which the managing underwriter(s) propose to include at the
anticipated initial public offering price to the number of Specified
Registrable Securities owned by each Holder) among all Holders of Specified
Registrable Securities.
Each Registration Request shall set forth the number or amount of
Specified Registrable Securities. Notwithstanding any other provision of this
Agreement to the contrary, neither the delivery of the notice by the Company
nor of the Registration Request by any Holder shall in any way obligate the
Company to file a Registration Statement and, notwithstanding such filing, the
Company may, at any time prior to the effective date thereof, in its sole
discretion, determine not to offer the securities to which the Registration
Statement relates without liability to any of the Holders. No registration of
Registrable Securities effected under this SECTION 2 shall relieve the Company
of its obligation to effect the registration of Registrable Securities pursuant
to SECTION 3.
(b) PIGGYBACK REGISTRATION PROCEDURES. If and when the
Company shall be required by the provisions of this SECTION 2 to effect the
registration of Registrable Securities under the Securities Act, the Company
will use its best efforts to effect such registration to permit the sale of
such Registrable Securities in accordance with the intended method or methods
of disposition thereof, and pursuant thereto it will, as expeditiously as
5
<PAGE> 9
possible:
(i) before filing a Registration Statement or Prospectus
or any amendments or supplements thereto, furnish to the Holders of
the Registrable Securities covered by such Registration Statement and
the underwriter(s), if any, copies of all such documents proposed to
be filed, which documents will be made available, on a timely basis,
for review by such Holders and underwriters;
(ii) prepare and file with the SEC such amendments and
post-effective amendments to any Registration Statement, and such
supplements to the Prospectus, as may be reasonably requested by any
Holder of Registrable Securities or the managing underwriter(s), if
any, or as may be required by the Securities Act, the Exchange Act or
by the rules, regulations or instructions applicable to the
registration form utilized by the Company or as may otherwise be
necessary to keep such Registration Statement effective until the
earlier of such time as all of the Registrable Securities covered by
such Registration Statement have been disposed of in accordance with
the intended method of disposition set forth in such Registration
Statement or Prospectus; and cause the Prospectus as so supplemented
to be filed pursuant to Rule 424 (or any successor rule) under the
Securities Act; and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with
the intended methods of disposition by the sellers thereof set forth
in such Registration Statement or Prospectus;
(iii) promptly notify the selling Holders of Registrable
Securities and the managing underwriter(s), if any, and if requested
by any such Person, confirm such advice in writing:
(a) of the filing of the Prospectus or any
supplement to the Prospectus and of the effectiveness of the
Registration Statement and/or any post-effective amendment,
(b) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information,
(c) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose,
(d) of the Company's becoming aware at any time
that the representations and warranties of the Company
6
<PAGE> 10
contemplated by paragraph (xiv)(a) below have ceased to be
true and correct,
(e) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threat of any proceeding for
such purpose, and
(f) of the existence of any fact which, to the
knowledge of the Company, results in the Registration
Statement, the Prospectus or any document incorporated therein
by reference containing an untrue statement of material fact
or omitting to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(iv) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration
Statement or any qualification referred to in paragraph (iii)(e) at
the earliest possible moment;
(v) if reasonably requested by the managing
underwriter(s) or the Required Holders of Registrable Securities being
sold in connection with an underwritten offering, immediately
incorporate in a supplement to the Prospectus or post-effective
amendment to the Registration Statement such information as the
managing underwriter(s) or the Required Holders of the Registrable
Securities being sold reasonably request to have included therein
relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to
the amount of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any
other terms of the underwritten (or best-efforts underwritten)
offering of the Registrable Securities to be sold in such offering;
and make all required filings of such supplement to the Prospectus or
post-effective amendment to the Registration Statement as soon as
notified of the matters to be incorporated in such supplement to the
Prospectus or post-effective amendment to the Registration Statement;
(vi) at the request of any selling Holder of Registrable
Securities, furnish to such selling Holder of Registrable Securities
and each managing underwriter, if any, without charge, at least one
signed copy of the Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
7
<PAGE> 11
(vii) deliver to each selling Holder of Registrable Securities
and the managing underwriter(s), if any, without charge, as many
copies of the Registration Statement, each Prospectus (including each
preliminary prospectus) and any amendment or supplement thereto (in
each case including all exhibits), as such Persons may reasonably
request, together with all documents incorporated by reference in such
Registration Statement or Prospectus, and such other documents as such
selling Holder may reasonably request in order to facilitate the
disposition of its Registrable Securities covered by such Registration
Statement; the Company consents to the use of each Prospectus and any
supplement thereto by each of the selling Holders of Registrable
Securities and the managing underwriter(s), if any, in connection with
the offering and sale of the Registrable Securities covered by each
Prospectus or any supplement thereto;
(viii) prior to any public offering of Registrable
Securities, register or qualify or reasonably cooperate with the
selling Holders of Registrable Securities, the managing
underwriter(s), if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling Holder or managing underwriter(s)
reasonably request(s) and do any and all other acts or things
necessary to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement;
(ix) cooperate with the selling Holders of Registrable
Securities and the managing underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any legends
restricting the transfer thereof; and enable such Registrable
Securities to be in such denominations and registered in such names as
the managing underwriters may request at least two Business Days prior
to any sale of Registrable Securities to the underwriters;
(x) use its best efforts to cause the Registrable
Securities covered by the applicable Registration Statement to be
registered with or approved by such United States, state and local
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof or the underwriters, if any, to consummate
the disposition of such Registrable Securities;
(xi) if any fact contemplated by paragraph (iii)(b) or
(iii)(f) above shall exist, promptly notify each Holder on whose
behalf Registrable Securities have been registered and promptly
prepare and furnish to such Holders a supplement or post-effective
amendment to the Registration Statement or the
8
<PAGE> 12
related Prospectus or any document incorporated therein by reference
and promptly file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, neither the
Registration Statement nor the Prospectus will contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
(xii) if requested by the Required Holders of the
Registrable Securities or by the managing underwriter(s), if any,
cause all Registrable Securities covered by the Registration Statement
to be (A) listed on each securities exchange on which securities of
the same class are then listed or (B) admitted for trading in any
inter-dealer quotation system on which securities of the same class
are then traded;
(xiii) not later than the effective date of the applicable
Registration Statement, provide a CUSIP number for all Registrable
Securities covered by the Registration Statement and provide the
applicable transfer agent with printed certificates for such
Registrable Securities which are in a form eligible for deposit with
Depository Trust Company;
(xiv) enter into agreements (including underwriting
agreements) and take all other reasonable actions in order to expedite
or facilitate the disposition of such Registrable Securities and in
such connection, except as otherwise provided, whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(a) make such representations and warranties to
the Holders selling such Registrable Securities and, in
connection with any underwritten offering, to the
underwriters, in form, substance and scope as are customarily
made by issuers to underwriters in similar underwritten
offerings;
(b) obtain opinions of counsel to the Company and
updates thereof addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered
in opinions requested in similar underwritten offerings and
such other matters as may be reasonably requested by such
Holders and underwriters, which counsel and opinions shall be
reasonably satisfactory (in form, scope and substance) to the
managing underwriters, if any, and the Required Holders of
such Registrable Securities;
(c) in connection with any underwritten offering,
obtain so-called "cold comfort" letters and updates
9
<PAGE> 13
thereof from the Company's independent certified public
accountants addressed to the selling Holders of Registrable
Securities and the underwriters, such letters to be in
customary form and covering matters of the type customarily
covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(d) if an underwriting agreement is entered into,
cause the same to set forth in full the indemnification and
contribution provisions and procedures of SECTION 6 (or such
other substantially similar provisions and procedures as the
underwriters shall reasonably request) with respect to all
parties to be indemnified pursuant to said SECTION 6; and
(e) deliver such documents and certificates as
may reasonably be requested by the Required Holders of the
Registrable Securities being sold, or the managing
underwriter(s), if any, to evidence compliance with this
paragraph (xiv) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by
the Company;
the foregoing to be done upon each closing under any underwriting or
similar agreement as and to the extent required thereunder and from
time to time as may reasonably be requested by any selling Holder of
Registrable Securities in connection with the disposition of
Registrable Securities pursuant to such Registration Statement, all in
a manner consistent with customary industry practice;
(xv) upon execution and delivery of such confidentiality
agreements as the Company may reasonably request, make available to
the Holders of the Registrable Securities being sold, any underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant retained by such Holders or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with the registration, at such time or times as the Person
requesting such information shall reasonably determine;
(xvi) otherwise use its best efforts to comply with the
Securities Act, the Exchange Act, all applicable rules and regulations
of the SEC and all applicable state blue sky and other securities
laws, rules and regulations, and make generally available to its
security holders an earnings statement satisfying the provisions of
Section 11(a) of the
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<PAGE> 14
Securities Act, as soon as practicable, but in no event later than
thirty (30) days after the end of the 12 calendar month period
commencing after the effective date of the Registration Statement;
(xvii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD); and
(xviii) prior to the filing of any document which is being
prepared for incorporation by reference into the Registration
Statement or the Prospectus, upon receipt of such confidentiality
agreements as the Company may reasonably request, provide copies of
such document to counsel to the selling Holders of Registrable
Securities, and to the managing underwriter(s), if any, and make the
Company's representatives available for discussion of such document.
If requested in writing by the Company or the lead underwriter, if any, of any
public offering effected pursuant to this SECTION 2, the Company and each
Holder owning Registrable Securities exercisable for or evidencing at least 1%
of outstanding Common Stock will execute and deliver an agreement undertaking
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of any shares of Common Stock (other than as
part of such underwritten public offering) within 7 days before or 120 days
after the effective date of a registration statement filed pursuant to this
SECTION 2.
SECTION 3. SHELF REGISTRATION.
(a) FILING OF SHELF REGISTRATION STATEMENT. Promptly
after the date hereof and in any event on or before June 1, 1996, the Company
shall cause to be filed the Shelf Registration Statement providing for the sale
by the Holders of all of the Registrable Securities in accordance with the
terms hereof, and the Company will use its best efforts to cause such Shelf
Registration Statement to be declared effective by the SEC on or before June
30, 1996. The Company agrees to use its best efforts to keep the Shelf
Registration Statement with respect to the Registrable Securities continuously
effective so long as any Holder holds Registrable Securities until such time as
each Holder has received an opinion of counsel to the Company (which opinion
and counsel shall be reasonably satisfactory to the Holder) to the effect that
each such Holder is permitted under Rule 144 to dispose of all of its
Registrable Securities within three months without such registration. The
Company further agrees to amend the Shelf Registration Statement if and as
required by the rules, regulations or instructions applicable to the
registration form used by the Company for such Shelf Registration Statement or
by the Securities
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<PAGE> 15
Act or any rules and regulations thereunder; PROVIDED, HOWEVER, that the
Company shall not be deemed to have used its best efforts to keep the Shelf
Registration Statement effective during the applicable period if it voluntarily
takes any action that would result in selling Holders not being able to sell
Registrable Securities covered thereby during that period, unless such action
is permitted by this Agreement or required under applicable law or the Company
has filed a post-effective amendment to the Shelf Registration Statement and
the SEC has not declared it effective. The Company may cause to be included
in the Shelf Registration Statement any securities of the Company held by
persons with registration rights under the agreements listed on SCHEDULE I to
the extent provided by such agreements and to permit such persons to exercise
any existing registration rights contained in the agreements listed on SCHEDULE
I.
(b) SHELF REGISTRATION PROCEDURES. In connection with
the obligations of the Company with respect to the Shelf Registration Statement
contemplated by this SECTION 3, the Company shall use its best efforts to
effect such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto it will, as expeditiously as possible:
(i) before filing a Shelf Registration Statement or Shelf
Prospectus or any amendments or supplements thereto, furnish to the
Holders of the Registrable Securities covered by such Shelf
Registration Statement and the underwriter(s), if any, copies of all
such documents proposed to be filed, which documents will be made
available, on a timely basis, for review by such Holders and
underwriters; and the Company will not file any Shelf Registration
Statement or amendment thereto or any Shelf Prospectus or any
supplement thereto to which the Required Holders of the Registrable
Securities covered by such Shelf Registration Statement or the
managing underwriter(s), if any, shall reasonably object;
(ii) prepare and file with the SEC, within the time period
set forth in SECTION 3(A) hereof, the Shelf Registration Statement,
which Shelf Registration Statement (a) shall be available for the sale
of the Registrable Securities in accordance with the intended method
or methods of distribution by the selling Holders thereof and (b)
shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required
by the SEC to be filed therewith;
(iii) (a) prepare and file with the SEC such amendments to
such Shelf Registration Statement as may be reasonably requested by
any Holder of Registrable Securities or the managing underwriter(s),
if any, or as may be required by the Securities Act, the Exchange Act
or by the rules, regulations
12
<PAGE> 16
or instructions applicable to the registration form utilized by the
Company or as may otherwise be necessary to keep such Shelf
Registration Statement effective for the applicable period; (b) cause
the Shelf Prospectus to be amended or supplemented as may be
reasonably requested by any Holder of Registrable Securities or the
managing underwriter(s), if any, or as may be required by the
Securities Act, the Exchange Act or by the rules, regulations or
instructions applicable to the registration form utilized by the
Company or as may otherwise be necessary to keep such Shelf
Registration Statement effective for the applicable period; (c) cause
the Shelf Prospectus as so amended or supplemented to be filed
pursuant to Rule 424 (or any successor rule) under the Securities Act;
(d) respond as promptly as practicable to any comments received from
the SEC with respect to the Shelf Registration Statement or any
amendment thereto; and (e) comply with the provisions of the
Securities Act with respect to the disposition of all securities
covered by such Shelf Registration Statement during the applicable
period in accordance with the intended method or methods of
distribution by the selling Holders thereof;
(iv) promptly notify the selling Holders of Registrable
Securities and the managing underwriter(s), if any, and if requested
by any such Person, confirm such advice in writing:
(a) of the filing of the Shelf Prospectus or any
supplement to the Shelf Prospectus and of the effectiveness of
the Shelf Registration Statement and/or any post-effective
amendment,
(b) of any request by the SEC for amendments or
supplements to the Shelf Registration Statement or the Shelf
Prospectus or for additional information,
(c) of the issuance by the SEC of any stop order
suspending the effectiveness of the Shelf Registration
Statement or the initiation of any proceedings for that
purpose,
(d) of the Company's becoming aware at any time
that the representations and warranties of the Company
contemplated by paragraph (xv)(a) below have ceased to be true
and correct,
(e) of the receipt by the Company of any
notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threat of any proceeding for
such purpose, and
(f) of the existence of any fact which, to the
13
<PAGE> 17
knowledge of the Company, results in the Shelf Registration
Statement, the Shelf Prospectus or any document incorporated
therein by reference containing an untrue statement of
material fact or omitting to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading;
(v) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Shelf Registration
Statement or any qualification referred to in paragraph (iii)(e) at
the earliest possible moment;
(vi) if reasonably requested by the managing
underwriter(s) or the Required Holders of Registrable Securities being
sold in connection with an underwritten offering, immediately
incorporate in a supplement to the Shelf Prospectus or post-effective
amendment to the Shelf Registration Statement such information as the
managing underwriter(s) or the Required Holders of the Registrable
Securities being sold reasonably request to have included therein
relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to
the amount of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and any
other terms of the underwritten (or best-efforts underwritten)
offering of the Registrable Securities to be sold in such offering;
and make all required filings of such supplement to the Shelf
Prospectus or post-effective amendment to the Shelf Registration
Statement as soon as notified of the matters to be incorporated in
such supplement to the Shelf Prospectus or post-effective amendment to
the Shelf Registration Statement;
(vii) at the request of any selling Holder of Registrable
Securities, furnish to such selling Holder of Registrable Securities
and each managing underwriter, if any, without charge, at least one
signed copy of the Shelf Registration Statement and any post-effective
amendment thereto, including financial statements and schedules, all
documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
(viii) deliver to each Holder of Registrable Securities and
the managing underwriter(s), if any, without charge, as many copies of
the Shelf Registration Statement, each Shelf Prospectus and any
amendment or supplement thereto (in each case including all exhibits),
as such Persons may reasonably request, together with all documents
incorporated by reference in such Shelf Registration Statement or
Shelf Prospectus, and such other documents as such selling Holder may
reasonably request in order to facilitate the disposition of its
Registrable Securities; the Company consents to the use of the
14
<PAGE> 18
Shelf Prospectus and any amendment or supplement thereto by each such
Holder of Registrable Securities and the underwriter(s), if any, in
connection with the offering and sale of the Registrable Securities
covered by the Shelf Prospectus or amendment or supplement thereto;
(ix) prior to the time the Shelf Registration Statement is
declared effective by the SEC, register or qualify the Registrable
Securities or reasonably cooperate with the selling Holders, the
underwriter(s), if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities
for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling Holder or managing underwriter(s), if
any, reasonably request(s), keep each such registration or
qualification effective during the period such Shelf Registration
Statement is required to be kept effective, and do any and all other
acts or things necessary to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Shelf
Registration Statement;
(x) cooperate with the selling Holders of Registrable
Securities and the managing underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any legends
restricting the transfer thereof; and enable such Registrable
Securities to be in such denominations and registered in such names as
the selling Holders or the managing underwriters, if any, may request
at least two Business Days prior to any sale of Registrable
Securities;
(xi) use its best efforts to cause the Registrable Securities
covered by the Shelf Registration Statement to be registered with or
approved by such United States, state and local governmental agencies
or authorities as may be necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
(xii) if any fact contemplated by paragraph (iv)(b) or (iv)(f)
above shall exist, promptly notify each Holder on whose behalf
Registrable Securities have been registered and promptly prepare and
furnish to such Holders a supplement or post-effective amendment to
the Shelf Registration Statement or the related Shelf Prospectus or
any document incorporated therein by reference and promptly file any
other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, neither the Shelf
Registration Statement nor the Shelf Prospectus will contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading;
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<PAGE> 19
(xiii) if requested by the Required Holders of the Registrable
Securities or by the managing underwriter(s), if any, cause all
Registrable Securities covered by the Shelf Registration Statement to
be (a) listed on each securities exchange on which securities of the
same class are then listed or (b) admitted for trading in any
inter-dealer quotation system on which securities of the same class
are then traded;
(xiv) not later than the effective date of the Shelf
Registration Statement, provide a CUSIP number for all Registrable
Securities covered by the Shelf Registration Statement and provide the
applicable transfer agent with printed certificates for such
Registrable Securities which are in a form eligible for deposit with
Depository Trust Company;
(xv) enter into agreements (including underwriting
agreements) and take all other reasonable actions in order to expedite
or facilitate the disposition of such Registrable Securities and in
such connection, except as otherwise provided, whether or not an
underwriting agreement is entered into and whether or not the
registration is an underwritten registration:
(a) make such representations and warranties to
the Holders selling such Registrable Securities and, in
connection with any underwritten offering, to the
underwriters, in form, substance and scope as are customarily
made by issuers to underwriters in similar underwritten
offerings;
(b) obtain opinions of counsel to the Company and
updates thereof addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered
in opinions requested in similar underwritten offerings and
such other matters as may be reasonably requested by such
Holders and underwriters, which counsel and opinions shall be
reasonably satisfactory (in form, scope and substance) to the
managing underwriters, if any, and the Required Holders of
such Registrable Securities;
(c) in connection with any underwritten offering,
to obtain so-called "cold comfort" letters and updates thereof
from the Company's independent certified public accountants
addressed to the selling Holders of Registrable Securities and
the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold
comfort" letters to underwriters in connection with similar
underwritten offerings;
(d) if an underwriting agreement is entered into,
16
<PAGE> 20
cause the same to set forth in full the indemnification and
contribution provisions and procedures of SECTION 6 (or such
other substantially similar provisions and procedures as the
underwriters shall reasonably request) with respect to all
parties to be indemnified pursuant to said SECTION 6; and
(e) deliver such documents and certificates as
may reasonably be requested by the Required Holders of the
Registrable Securities being sold, or the managing
underwriter(s), if any, to evidence compliance with this
paragraph (xiv) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by
the Company;
the foregoing to be done upon each closing under any underwriting or
similar agreement as and to the extent required thereunder and from
time to time as may reasonably be requested by any selling Holder of
Registrable Securities in connection with the disposition of
Registrable Securities pursuant to such Shelf Registration Statement,
all in a manner consistent with customary industry practice;
(xvi) upon execution and delivery of such confidentiality
agreements as the Company may reasonably request, make available to
the Holders of the Registrable Securities being sold, any underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney or accountant retained by such Holders or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such Holder, underwriter, attorney or accountant in
connection with the registration, at such time or times as the Person
requesting such information shall reasonably determine;
(xvii) otherwise use its best efforts to comply with the
Securities Act, the Exchange Act, all applicable rules and regulations
of the SEC and all applicable state blue sky and other securities
laws, rules and regulations, and make generally available to its
security holders, as soon as practicable, an earnings statement
satisfying the provisions of Section 11(a) of the Securities Act;
(xviii) cooperate and assist in any filings required to be
made with the NASD and in the performance of any due diligence
investigation by any underwriter (including any "qualified independent
underwriter" that is required to be retained in accordance with the
rules and regulations of the NASD); and
17
<PAGE> 21
(xix) prior to the filing of any document which is being
prepared for incorporation by reference into the Registration
Statement or the Prospectus, upon receipt of such confidentiality
agreements as the Company may reasonably request, provide copies of
such document to counsel to the selling Holders of Registrable
Securities, and to the managing underwriter(s), if any, and make the
Company's representatives available for discussion of such document.
(c) COVENANTS OF HOLDERS. In connection with and as a
condition to the Company's obligations with respect to the Shelf Registration
Statement pursuant to this SECTION 3, each Holder covenants and agrees that (i)
upon receipt of any notice from the Company contemplated by Section 3(b)(iv)
(in respect of the occurrence of an event contemplated by clause (f) of Section
3(b)(iv)), such Holder shall not offer or sell any Registrable Securities
pursuant to the Shelf Registration Statement until such Holder receives copies
of the supplemented or amended Shelf Prospectus contemplated by Section
3(b)(xii) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, such Holder will deliver
to the Company (at the expense of the Company) all copies in its possession,
other than permanent file copies then in such Holder's possession, of the Shelf
Prospectus as amended or supplemented at the time of receipt of such notice;
(ii) such Holder and any of its officers, directors or affiliates, if any, will
comply with the provisions of Rule 10b-6 and 10b-7 under the Exchange Act as
applicable to them in connection with sales of Registrable Securities pursuant
to the Shelf Registration Statement; and (iii) such Holder and any of its
officers, directors or affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in connection
with sales of Registrable Securities pursuant to the Shelf Registration
Statement.
(d) MECHANICS OF SHELF REGISTRATION. Each registration
effected pursuant to this SECTION 3 shall be effected by the filing of a Shelf
Registration Statement on Form S-1 or Form S-3 (provided that if Form S-3 is
used the Shelf Prospectus shall contain the information that would have been
required to be included therein had Form S-1 been used), unless the use of a
different form has been agreed upon in writing by the Required Holders;
PROVIDED, HOWEVER, that if the intended method of disposition by the requesting
Holders is to be an underwritten offering, the Company shall use such form of
Registration Statement as is acceptable to the underwriter(s). Whenever a
registration requested by one or more Holders pursuant to this SECTION 3 is for
an underwritten offering, only Registrable Securities which are to be
distributed by the underwriters may be included in such registration, without
the written consent of the Required Holders.
(e) BLACKOUT PERIOD. The Company shall be entitled to
18
<PAGE> 22
(i) postpone for not more than 45 days the filing of the Shelf Registration
Statement otherwise required to be prepared and filed by the Company pursuant
to SECTION 3, or (ii) elect that the Shelf Registration Statement not be
usable, for a reasonable period of time, but not in excess of 45 days (a
"Blackout Period"), if the Company determines in good faith that the
registration and distribution of Registrable Securities (or the use of the
Shelf Registration Statement or related Shelf Prospectus) would interfere with
any pending material financing, acquisition or corporate reorganization or
similar transaction involving the Company or any of its subsidiaries because it
would require premature disclosure thereof and promptly gives the Holders of
Registrable Securities written notice of such determination, containing a
general statement of the reasons for such postponement or restriction on use
and an approximation of the anticipated delay; PROVIDED, HOWEVER, that the
aggregate number of days included in all Blackout Periods during any
consecutive 12 months shall not exceed 90 days.
(f) HOLDBACK AGREEMENT. Subject to the provisions of
this sentence becoming effective in accordance with the immediately following
sentence, if (i) the Company shall file a registration statement (other than in
connection with the registration of securities issuable pursuant to an employee
stock option, stock purchase or similar plan or pursuant to a merger, exchange
offer or a transaction of the type specified in Rule 145(a) under the
Securities Act) with respect to its Common Stock and (ii) with reasonable prior
notice, the managing underwriter or underwriters advises the Company in writing
(in which case the Company shall notify the Holders) that a public sale or
distribution of Registrable Securities would adversely impact such offering,
then each Holder of Registrable Securities shall, to the extent not
inconsistent with applicable law, refrain from effecting any public sale or
distribution of Registrable Securities during the 10-day period prior to, and
during the 90-day period beginning on, the effective date of such registration
statement. The provisions set forth in the preceding sentence shall not become
effective until the Company shall have entered into agreements with the holders
of at least two-thirds of the shares entitled to registration rights pursuant
to the World Registration Rights Agreement providing that (i) such holders
agree to waive any priority to which they are entitled over the Holders in
connection with the exercise of incidental or piggyback registration rights and
instead agree that in connection with any reductions in the shares entitled to
participate in an underwritten offering such holders under the World
Registration Rights Agreement, the Holders and any other holders entitled to an
equal priority with the Holders will bear such reductions on a pro rata basis
based on the number of shares held by each such Person, and (ii) such holders
agree to a holdback agreement on terms no less favorable to the Company than
set forth in the preceding sentence.
SECTION 4. REGISTRATION EXPENSES.
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<PAGE> 23
(a) All expenses incident to the Company's performance of
or compliance with its obligations under this Agreement (excluding underwriting
discounts, selling commissions and brokerage fees, which will be paid by the
selling Holders) will be paid by the Company, regardless of whether Registrable
Securities are sold pursuant to any Registration Statement or Shelf
Registration Statement, including, without limitation:
(i) all registration, filing and listing fees;
(ii) fees and expenses of compliance with securities or
blue sky laws (including, without limitation, the fees and
disbursements of counsel for the underwriters, if any, or selling
Holders in connection with blue sky and state securities
qualifications of Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the
managing underwriter(s), if any, or the Required Holders of the
Registrable Securities covered by such Registration Statement or Shelf
Registration Statement may reasonably designate);
(iii) printing (including, without limitation, expenses
of printing or engraving certificates for the Registrable Securities
in a form eligible for deposit with Depository Trust Company and of
printing prospectuses), messenger, telephone and delivery expenses;
(iv) fees and disbursements of counsel for the Company
and, subject to SECTION 4(B), counsel for the selling Holders of the
Registrable Securities;
(v) fees and disbursements of all independent
certified public accountants of the Company (including, without
limitation, the expenses of any special audit and, in connection with
any underwritten offering, "cold comfort" letters required by or
incident to such performance);
(vi) Securities Act liability insurance if the Company
so desires or if the managing underwriters, if any, so require(s);
(vii) fees and expenses of other Persons (including
special experts) retained by the Company; and
(viii) fees and expenses associated with any NASD filing
required to be made in connection with any Registration Statement or
Shelf Registration Statement, including, if applicable, the fees and
expenses of any "qualified independent underwriter" (and its counsel)
20
<PAGE> 24
that is required to be retained in accordance with the rules and
regulations of the NASD.
The Company will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit, the
fees and expenses incurred in connection with the listing of the securities to
be registered on each securities exchange on which securities of the same class
are then listed or the qualification for trading of the securities to be
registered in each inter-dealer quotation system in which securities of the
same class are then traded, and rating agency fees.
(b) In connection with each Registration Statement or
Shelf Registration Statement required hereunder, the Company will reimburse the
Holders of Registrable Securities being registered pursuant to such
Registration Statement or Shelf Registration Statement for the reasonable fees
and disbursements of not more than one counsel chosen by the Required Holders
of the Registrable Securities being sold; the expense of any additional counsel
for the Holders shall be paid by the Holders.
(c) The term "REGISTRATION EXPENSES" shall mean the
expenses payable by the Company pursuant to the provisions of this SECTION 4.
SECTION 5. CONDITIONS TO REGISTRATION.
Each Holder's right to have Registrable Securities included in any
Registration Statement or Shelf Registration Statement filed by the Company in
accordance with the provisions of SECTION 2 or SECTION 3 shall be subject to
the following conditions:
(a) The Holders on whose behalf such Registrable
Securities are to be included shall be required to furnish the Company in a
timely manner with all information required by the applicable rules and
regulations of the SEC concerning the proposed method of sale or other
disposition of such securities, the identity of and compensation to be paid to
any proposed underwriters to be employed in connection therewith, and such
other information as may be reasonably required by the Company properly to
prepare and file such Registration Statement or Shelf Registration Statement in
accordance with applicable provisions of the Securities Act;
(b) If any such Holder desires to sell and distribute
Registrable Securities over a period of time, or from time to time, at then
prevailing market prices, then any such Holder shall execute and deliver to the
Company such written undertakings as the Company and its counsel may reasonably
require in order to assure full compliance with relevant provisions of the
Securities Act and
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the Exchange Act;
(c) In the case of any registration requested pursuant to
the provisions of SECTION 2, the offering price for any Registrable Securities
to be so registered shall be no less than for any securities of the same class
then to be registered for sale for the account of the Company or other security
holders, unless such Registrable Securities are to be offered from time to time
based on the prevailing market price;
(d) Upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (xi) of SECTION 2(B)
or paragraph (xii) of SECTION 3(B), such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the copies
of the supplemented Prospectus contemplated by such paragraph, or until it is
advised in writing by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus, and, if so directed by
the Company, such Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice; and
(e) In the case of any underwritten offering on behalf of
the Holders of Registrable Securities, such Holders will enter into such
agreements (including underwriting agreements and lock-up agreements) as the
managing underwriters shall reasonably request and as are customary in similar
circumstances.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. In the event of the
registration of any Registrable Securities under the Securities Act pursuant
to the provisions hereof, the Company will indemnify and hold harmless the
seller of such Registrable Securities, its partners, directors, officers,
employees and agents, each underwriter, broker and dealer, if any, who
participates in the offering or sale of such securities, and each other Person,
if any, who controls such seller or any such underwriter, broker or dealer
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act (each such Person being hereinafter sometimes referred to as
an "INDEMNIFIED PERSON", provided that for purposes of clauses (b), (c) and (d)
of this SECTION 6 "Indemnified Person" shall include the Company, its partners,
directors, officers, employees and agents, and each other Person, if any who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act) from and against any losses, claims,
damages, liabilities or expenses, joint or several, to which such indemnified
Person may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such
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losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained or incorporated by reference in any
Registration Statement, Shelf Registration Statement, Prospectus or Shelf
Prospectus or any amendment or supplement thereto, or any document incorporated
by reference therein, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each such Indemnified Person for any legal or other expenses reasonably
incurred by such Indemnified Person in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability (i) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made or incorporated by reference in the Registration Statement, Shelf
Registration Statement, Prospectus or Shelf Prospectus or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company by such Indemnified Person for use in preparation
thereof or (ii) arises out of the use of any Prospectus or Shelf Prospectus by
an Indemnified Party after the Company has provided such Indemnified Party with
the notice and supplement referred to in SECTION 2(B)(XI) or SECTION 3(B)(XII)
if such Prospectus or Shelf Prospectus is the subject of such notice. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Person and shall survive the transfer
of such Registrable Securities by such seller.
(b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES.
In the event of the registration of any Registrable Securities under the
Securities Act pursuant to the provisions hereof, each Holder on whose behalf
such Registrable Securities shall have been registered will indemnify and hold
harmless each and every Indemnified Person against any losses, claims, damages
or liabilities, joint or several, to which such Indemnified Person may become
subject under the Securities Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained or incorporated by reference in any
Registration Statement, Shelf Registration Statement, Prospectus or Shelf
Prospectus or any amendment or supplement thereto or any document incorporated
by reference therein, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, which untrue statement
or alleged untrue statement or omission or alleged omission has been made or
incorporated therein in reliance upon and in conformity with written
information furnished to the Company by such Holder
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<PAGE> 27
specifically stating that it is for use in preparation thereof, and will
reimburse each such Indemnified Person for any legal and other expenses
reasonably incurred by such Indemnified Person in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the liability of each Holder hereunder shall be limited to the
proceeds received by such Holder from the sale of Registrable Securities
covered by such Registration Statement or Shelf Registration Statement.
(c) PROCEDURE. Promptly after receipt by an Indemnified
Person of notice of the commencement of any action (including any governmental
investigation or inquiry), such Indemnified Person will, if such Indemnified
Person intends to make a claim in respect thereof against the party agreeing to
indemnify such Indemnified Person pursuant to paragraphs (a) or (b) hereof
(each such Person being hereinafter referred to as an "INDEMNIFYING PERSON"),
give written notice to such Indemnifying Person of the commencement thereof,
but the omission so to notify the Indemnifying Person shall not relieve the
Indemnifying Person from any of its obligations pursuant to the provisions of
this SECTION 6 except to the extent that the Indemnifying Person is actually
prejudiced by such failure to give notice. In case any such action is brought
against any Indemnified Person and it notifies an Indemnifying Person of the
commencement thereof, the Indemnifying Person shall be entitled to participate
in, and to the extent that it may wish, jointly with any other Indemnifying
Person similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such Indemnified Person, and after notice from the
Indemnifying Person to such Indemnified Person, the Indemnifying Person shall
not, except as hereinafter provided, be responsible for any legal or other
expenses subsequently incurred by such Indemnified Person in connection with
the defense thereof. No Indemnifying Person will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of a release from all liability in respect of such claim or
litigation.
Such Indemnified Person shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but the
fees and expenses of such counsel shall be the expense of such Indemnified
Person unless (a) the Indemnifying Person has agreed to pay such fees and
expenses or (b) the Indemnifying Person shall have failed to assume the defense
of such action or proceeding or has failed to employ counsel reasonably
satisfactory to such Indemnified Person in any such action or proceeding or (c)
the named parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Person and the Indemnifying Person and
such Indemnified Person shall have been advised by counsel that representation
of both parties by the same counsel would be inappropriate due to actual or
potential material differing interests between them (in which case, if such
Indemnified Person notifies the Indemnifying
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Person in writing that it elects to employ separate counsel at the expense of
the Indemnifying Person, the Indemnifying Person shall not have the right to
assume the defense of such action or proceeding on behalf of such Indemnified
Person). The Indemnifying Person shall not be liable for any settlement of any
such action or proceeding effected without its written consent, which consent
shall not unreasonably be withheld, delayed or conditioned, but if settled with
its written consent, or if there is a final judgment for the plaintiff in any
such action or proceeding, the Company agrees to indemnify and hold harmless
such Indemnified Persons from and against any loss or liability by reason of
such settlement or judgment.
(d) CONTRIBUTION. If the indemnification provided for in
this SECTION 6 is unavailable to a party that would have been an Indemnified
Person under this SECTION 6 in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein,
then each party that would have been an Indemnifying Person thereunder shall,
in lieu of indemnifying such Indemnified Person, contribute to the amount paid
or payable by such Indemnified Person as a result of such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Person on the one hand and the Indemnified Person on the other in connection
with the statement or omission which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission of a material
fact relates to information supplied by the Indemnifying Person or the
Indemnified Person and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in SECTION 6(C), any legal or other fees
or expenses reasonably incurred by such party in connection with the
investigation or defense of any action or claim. The Company and each Holder
of Registrable Securities agrees that it would not be just and equitable if
contribution pursuant to this SECTION 6 were determined by PRO RATA allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in this SECTION 6. Notwithstanding the
provisions of this SECTION 6(D), no Holder of Registrable Securities shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by it exceeds the amount of any
damages which such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
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<PAGE> 29
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Indemnification or, if appropriate, contribution, similar to that
specified in the preceding provisions of this SECTION 6 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
such securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
In the event of any underwritten offering of Registrable Securities
under the Securities Act pursuant to the provisions of SECTION 2 or SECTION 3,
the Company and each Holder on whose behalf such Registrable Securities shall
have been registered agree to enter into an underwriting agreement, in standard
form, with the underwriters, which underwriting agreement may contain
additional provisions with respect to indemnification and contribution in lieu
thereof.
SECTION 7. EXCHANGE ACT REGISTRATION; RULE 144 REPORTING.
The Company covenants and agrees that until such time as the Holders
no longer hold any Registrable Securities it will:
(a) if required by law, maintain an effective
registration statement (containing such information and documents as the SEC
shall specify) with respect to the Common Stock of the Company under Section
12(g) of the Exchange Act;
(b) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act (even if the
Company subsequently ceases to be subject to such reporting requirements);
(c) file with the SEC in a timely manner all reports and
documents required of the Company under the Securities Act and the Exchange
Act;
(d) furnish to any Holder promptly upon request (i) a
written statement by the Company as to its compliance with the reporting
requirements of Rule 144 (and any similar or successor rules) and of the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company (beginning after the Company becomes subject to
such reporting requirements), and (iii) such other reports and documents of the
Company and other information in the possession of or reasonably attainable by
the Company as such Holder may reasonably request in
26
<PAGE> 30
availing itself of any rule or regulation of the SEC allowing such Holder to
sell any such securities without registration; and
(e) take such further action as any Holder of Registrable
Securities may from time to time reasonably request to enable such Holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC.
The Company represents and warrants that such registration statement
or any information, document or report filed with the SEC in connection
therewith or any information so made public shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
not misleading. The Company agrees to indemnify and hold harmless (or to the
extent the same is not enforceable, make contribution to) the Holders, their
partners, officers, directors, employees and agents, each broker, dealer or
underwriter (within the meaning of the Securities Act) acting for any Holder in
connection with any offering or sale by such Holder of Registrable Securities
or any Person controlling (within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act) such Holder and any such
broker, dealer or underwriter from and against any and all losses, claims,
damages, liabilities or expenses (or actions in respect thereof) arising out of
or resulting from any breach of the foregoing representation or warranty, all
on terms and conditions comparable to those set forth in SECTION 6.
SECTION 8. LIMITATION ON REGISTRATION RIGHTS OF OTHERS.
The Company represents and warrants that, except as set forth on
SCHEDULE I to this Agreement, it has not granted to any Person the right to
request or require the Company to register any securities issued by the
Company. The Company covenants and agrees that after the date hereof, so long
as any Holder holds any Warrant Securities, Term Notes, Series B Special
Preferred Stock or Common Stock issuable upon conversion of Series B Special
Preferred Stock, the Company will not, directly or indirectly, grant to any
Person (except as provided in Section 3(a) hereof) or agree to or otherwise
become obligated in respect of (a) any registration rights of securities of the
Company upon the demand of any Person (including any shelf registration)
without the prior written consent of the Required Holders; or (b) rights of
registration in the nature or substantially in the nature of those set forth in
SECTION 2 unless such rights are expressly subject and subordinated to the
rights of registration of the Holders pursuant to SECTION 2 hereof on terms
reasonably satisfactory to the Required Holders.
SECTION 9. MERGERS, ETC.
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In addition to any other restrictions on mergers, consolidations and
reorganizations contained in the Credit Agreement, the Warrant Agreement or in
the certificate of incorporation, by-laws or agreements of the Company, the
Company covenants and agrees that it shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation and in which the Holders shall not have had the
right to receive cash for all their Registrable Securities, unless the
surviving corporation shall, prior to such merger, consolidation or
reorganization, agree in a writing satisfactory in form, scope and substance to
the Required Holders to assume the obligations of the Company under this
Agreement, and for such purpose references hereunder to "Registrable
Securities" shall be deemed to include the securities which such Holders would
be entitled to receive in exchange for Registrable Securities pursuant to any
such merger, consolidation or reorganization.
If, and as often as, there are any changes in the Registrable
Securities by way of stock split, stock dividend, combination or
classification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustments shall be made
in the provisions hereof as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Registrable Securities as so
changed.
SECTION 10. NOTICES, ETC.
All notices, consents, approvals, agreements and other communications
provided hereunder shall be in writing or by telex or telecopy and shall be
sufficiently given to the Purchasers, the Holders and the Company if addressed
or delivered to them at the following addresses:
If to ING: Internationale Nederlanden
(U.S.) Capital Corporation
135 East 57th Street
New York, New York 10022
Attention: Chief Credit Officer
Telecopier No.: (212) 750-8935
with copies to: Internationale Nederlanden
(U.S.) Capital Corporation
200 Galleria Parkway
Suite 950
Atlanta, Georgia 30339
Attention: James W. Latimer
Telecopier No.: (770) 951-1005
and to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
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Attention: Hector E. Llorens, Jr., Esq.
Telecopier No.: (404) 572-5100
If to Cerberus: Cerberus Partners, L.P.
950 Third Avenue
20th Floor
New York, New York 10022
Attention: Mr. Seth P. Plattus
Telecopier No.: (212) 421-2847
with a copy to: Lowenstein, Sandler, Kohl,
Fisher & Boylan
65 Livingston Avenue
Roseland, New Jersey 07068-1791
Attention: Robert G. Minion, Esq.
Telecopier No.: (201) 992-5820
If to any other Holder: At its last known address appearing on the books of
the Company maintained for such purpose
If to the Company: PhoneTel Technologies, Inc.
450 Statler Office Tower
41127 Euclid Avenue
Cleveland, Ohio 44115
Attention: Chief Executive Officer
Telecopier No.: (216) 241-2574
with a copy to: Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022-3897
Attention: Stephen M. Banker, Esq.
Telecopier No.: (212) 735-2000
or at any such other address as any party may designate to any other party by
written notice.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when received
if deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when transmission is verified, if telecopied; and on the next business
day, if timely delivered to an air courier guaranteeing overnight delivery.
SECTION 11. ENTIRE AGREEMENT.
The parties hereto agree that this Agreement and the agreements
specifically referred to in Section 33 of the Warrant Agreement constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior
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agreements and understandings between them as to such subject matter; and there
are no restrictions, agreements, arrangements, oral or written, between any or
all of the parties relating to the subject matter hereof which are not fully
expressed or referred to herein or therein.
SECTION 12. WAIVERS AND FURTHER AGREEMENTS.
Any waiver of any terms or conditions of this Agreement shall not
operate as a waiver of any other breach of such terms or conditions or any
other term or condition, nor shall any failure to enforce any provision hereof
operate as a waiver of such provision or of any other provision hereof;
PROVIDED, HOWEVER, that no such written waiver unless it by its own terms
explicitly provides to the contrary, shall be construed to effect a continuing
waiver of the provision being waived and no such waiver in any instance shall
constitute a waiver in any other instance or for any other purpose or impair
the right of the party against whom such waiver is claimed in all other
instances or for all other purposes to require full compliance with such
provision. Each of the parties hereto agrees to execute all such further
instruments and documents and to take all such further action as the other
parties may reasonably require in order to effectuate the terms and purposes of
this Agreement.
SECTION 13. AMENDMENTS.
This Agreement may not be amended nor shall any waiver, change,
modification, consent or discharge be effected except by an instrument in
writing executed by or on behalf of the party or parties against whom
enforcement of any amendment, waiver, change, modification, consent or
discharge is sought; PROVIDED, HOWEVER, that any waiver sought from the Holders
of any provision of this Agreement which affects the Holders generally, and any
action required to be taken by the Holders as a group pursuant to this
Agreement, shall be given or taken by the Required Holders, and any such waiver
or action so given or taken shall be binding on all Holders. No failure or
delay by any party in exercising any right or remedy hereunder shall operate as
a waiver thereof, and a waiver of a particular right or remedy on one occasion
shall not be deemed a waiver of any other right or remedy or a waiver of the
same right or remedy on any subsequent occasion.
SECTION 14. ASSIGNMENT; SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, legal
representatives, successors and permitted assigns, including, without
limitation, any Holders, from time to time of the Registrable Securities.
Anything in this Agreement to the contrary notwithstanding, the term "Holders"
as used in this Agreement shall be deemed to include the registered Holders
from
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time to time of the Warrant Securities, the Term Notes, the Series B Special
Preferred Stock and Common Stock issuable upon conversion of the Series B
Special Preferred Stock.
SECTION 15. SEVERABILITY.
If any provision of this Agreement shall be held or deemed to be, or
shall in fact be, invalid, inoperative or unenforceable as applied to any
particular case in any jurisdiction or jurisdictions, or in all jurisdictions
or in all cases, because any provision conflicts with any constitution,
statute, rule or public policy, or for any other reason, such circumstance
shall not have the effect of rendering the provision or provisions in question,
invalid, inoperative or unenforceable in any other jurisdiction or in any other
case or circumstance or of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable to the extent that such other
provisions are not themselves actually in conflict with such constitution,
statute, rule or public policy, but this Agreement shall be reformed and
construed in any such jurisdiction or case as if such invalid, inoperative or
unenforceable provision had never been contained herein and such provision
reformed so that it would be valid, operative and enforceable to the maximum
extent permitted in such jurisdiction or in such case.
SECTION 16. COUNTERPARTS.
This Agreement may be executed in two or more counterparts (each of
which need not be executed by each of the parties), each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument, and in pleading or proving any provision of this Agreement, it
shall not be necessary to produce more than one such counterpart.
SECTION 17. SECTION HEADINGS.
The headings contained in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
SECTION 18. GENDER; USAGE.
Whenever used herein the singular number shall include the plural, the
plural shall include the singular, and the use of any gender shall include all
genders. The words "hereof," "herein" and "hereunder," and words of similar
import, when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement.
SECTION 19. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
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IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK OTHER THAN THE CONFLICTS
OF LAWS PRINCIPLES THEREOF.
SECTION 20. TERMINATION.
The rights of any Holder under SECTIONS 2 and 3 of this Agreement
shall terminate as to any Registrable Securities when such Registrable
Securities have been effectively registered under the Securities Act and sold
pursuant to a Registration Statement or Shelf Registration Statement covering
such Registrable Securities. The indemnification and contribution provisions
of SECTIONS 6 and 7 shall survive any termination of this Agreement.
SECTION 21. EXPENSES.
The Company shall be obligated to pay to the Holders, on demand, all
costs and expenses (including, without limitation, court costs and attorneys'
fees and expenses and interest to the extent permitted by applicable law on
overdue amounts) paid or incurred in collecting any sums due from, or
enforcing any other obligations of, the Company.
SECTION 22. SPECIFIC PERFORMANCE.
The Company recognizes that the rights of the Holders under this
Agreement are unique and, accordingly, the Holders shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder by actions for injunctive relief and
specific performance to the extent permitted by law. The Company agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at
law would be adequate. This Agreement is not intended to limit or abridge any
rights of the Holders which may exist apart from this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:_____________________________
Peter G. Graf
Chairman and
Chief Executive Officer
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INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL CORPORATION
By:________________________
James W. Latimer
Managing Director
CERBERUS PARTNERS, L.P.
By: Cerberus Associates, L.P.,
its general partner
By:________________________
Stephen Feinberg
General Partner
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SCHEDULE I
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AGREEMENTS CONTAINING REGISTRATION RIGHTS
-----------------------------------------
IN FAVOR OF OTHER SHAREHOLDERS
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34
