<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
JANUARY 3, 1997
---------------------------------
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
PHONETEL TECHNOLOGIES, INC.
-----------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-1462198
------------------------ --------------------------
(STATE OF INCORPORATION) (I.R.S. IDENTIFICATION NO.)
1127 EUCLID AVENUE
650 STATLER OFFICE TOWER
CLEVELAND, OHIO 44115-1601
---------------------------------------------------
ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES
(216) 241-2555
-----------------------------
REGISTRANT'S TELEPHONE NUMBER
<PAGE> 2
PART I
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 1, 1997, PhoneTel Technologies., Inc. the Registrant (or "Company")
completed the acquisition of Cherokee Communications, Inc., ("Cherokee" or
"Sellers") whereby the Company, acquired 14,000 public pay telephones (located
primarily in Texas, New Mexico, Utah, Montana and Colorado) of which
approximately 726 were under contract waiting to be installed the equipment
being on hand for substantially all of those phones, and parts and supplies
inventory for a purchase price consisting of:
<TABLE>
<CAPTION>
<S> <C>
Acquired installed and uninstalled pay telephones and
locations under contract $52,847,750
Non-competition agreement with three of the executives
and owners of Cherokee who are now employees
and officers of the Company. 1,249,998
Transaction cost 1,125,216
-----------
55,222,964
Contingent consideration paid into escrow:
Additional consideration payable if
interstate operator service rate caps are
not implemented during:
1997 - payable on January 3, 1998 3,000,000
1998 - payable on January 3, 1999 3,000,000
Amount retained for "true-up" adjustments 1,000,000
-----------
Total $62,222,964
===========
</TABLE>
In addition, the Company acquired certain outstanding accounts receivable,
including dial-around compensation, prepaids and deposits, and coin in the
installed pay telephones aggregating $5,888,088, and assumed accounts payable,
accrued expenses, and vehicle debt aggregating $3,407,961, both of which were
adjustments to the purchase price above.
On January 14, 1997, the Company completed the acquisition of 1,250 installed
public pay telephones (located in Texas) parts and supplies inventories and
certain other assets of Texas Coinphone for a purchase price of approximately
$3,700,000.
The Cherokee and Texas Coinphone acquisitions were recorded as purchases and the
differences between the aggregate fair values of the tangibles assets acquired
and the total purchase price, approximately $30,000,000, were recorded as
acquired pay telephone location contracts and will be amortized over the
estimated average remaining economic life of the acquired pay telephone location
contracts. All purchase price allocations for the aquisitions are preliminary
in nature and are subject to change within twelve months following each
acquisition based on refinements as actual data becomes available.
The acquisitions of Cherokee and Texas Coinphone were completed using a portion
of the net proceeds from the Company's debt and equity offerings completed on
December 18, 1996. The Company sold 6,750,000 shares of its Common Stock, par
value $0.01, ("Common Stock") to the public at $3.00 per share, or $20,250,000
before expenses (the "Company Equity Offering") and $125,000,000 aggregate
principal amount of its 12% Senior Notes, due 2000, (the "Company Debt
Offering").
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired. The following financial
statements for Cherokee Communications, Inc. as of and for the years ended
September 30, 1995 and 1994 are set forth in Exhibit 99.1 hence and
incorporated herein by reference. The financial statements for the year ended
September 30, 1996 will be filed by amendment to Form 8-K on or before February
15, 1997.
1. Cherokee Communications, Inc.
Audited Financial Statements:
Independent Auditors' Report
Balance Sheets as of September 30, 1995 and 1994
Statements of Income for the years ended September 30, 1995, 1994
and 1993
Statements of Cash Flows for the years ended September 30 1995, 1994,
and 1993
Notes to Financial Statements
<PAGE> 3
(b) Pro Forma financial information. The following unaudited pro forma
condensed financial statements as of and for the year ended December 31, 1995
and as of and for the nine months ended September 30, 1996 as set forth in
Exhibit 99.2 hence and incorporated herein by reference:
1. Introduction to Unaudited Pro Forma Combined Condensed Financial
Information.
2. Cherokee Communications, Inc., Texas Coinphone, Amtel Communications,
Inc. and Combined Companies (Debtor-in-Possession), Payphones of
America, Inc., International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina Company), Paramount
Communications Systems, Inc., World Communications, Inc., Public
Telephone Corporation, and PhoneTel Technologies, Inc. - Unaudited Pro
Forma Combined Condensed Statement of Operations for the Year Ended
December 31, 1995.
3. Cherokee Communications, Inc., Texas Coinphone, Amtel Communications,
Inc. and Combined Companies (Debtor-in-Possession), Payphones of
America, Inc., International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina Company), Paramount
Communications Systems, Inc., World Communications, Inc., Public
Telephone Corporation, and PhoneTel Technologies, Inc. - Footnotes to
the Unaudited Pro Forma Combined Condensed Statement of Operations for
the Year Ended December 31, 1995.
4. Cherokee Communications, Inc., Texas Coinphone, Amtel Communications,
Inc. and Combined Companies (Debtor-in-Possession), Payphones of
America, Inc., International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina Company), Paramount
Communications Systems, Inc., and PhoneTel Technologies, Inc. -
Unaudited Pro Forma Combined Condensed Statement of Operations for the
Nine Months Ended September 30, 1996.
5. Cherokee Communications, Inc., Texas Coinphone, Amtel Communications,
Inc. and Combined Companies (Debtor-in-Possession), Payphones of
America, Inc., International Pay Phones, Inc. (a Tennessee company),
International Pay Phones, Inc. (a South Carolina Company), Paramount
Communications Systems, Inc., World Communications, Inc., Public
Telephone Corporation, and PhoneTel Technologies, Inc. - Footnotes to
the Unaudited Pro Forma Combined Condensed Statement of Operations for
the Nine Months Ended September 30, 1996.
6. Cherokee Communications, Inc., Texas Coinphone and PhoneTel
Technologies, Inc. - Unaudited Pro Forma Combined Condensed Balance
Sheet at September 30, 1996.
7. Cherokee Communications, Inc., Texas Coinphone and PhoneTel
Technologies, Inc. - Footnotes to the Unaudited Pro Forma Combined
Condensed Balance Sheet at September 30, 1996.
(c) Exhibits
Exhibit No. Document
- ----------- --------
10.1 Agreement and Plan of Merger dated as of November 21, 1996 among
PhoneTel Technologies, Inc., PhoneTel CCI, Inc., Cherokee
Communications, Inc. and all of the shareholders of Cherokee
Communications, Inc. (Incorporated by reference from Amendment No. 2 to
the Company's Registration Statement on Form SB-2, Registration No.
333-13767, filed December 12, 1996.)
10.2 Amendment to Agreement and Plan of Merger dated as of December 31, 1996
among PhoneTel Technologies, Inc., PhoneTel CCI, Inc., Cherokee
Communications, Inc., Bill H. Bailey, Jr., Edward L. Marshall, Jerry T.
Beddow, C. Nelson Trimble, Berthel Fisher & Company Investments, Inc.,
Capital Southwest Corporation, Capital Southwest Venture Corporation,
Banc One Capital Partners, L.P. (collectively the "Sellers"); and Bill
H. Bailey, Jr. and J. Bruce Duty,
<PAGE> 4
as Seller Representatives.
10.3 Escrow Agreement dated as of November 21, 1996 among Commerica Bank -
Texas, as escrow agent, Cherokee Communications, Inc., Bill H. Bailey,
Jr., and J. Bruce Duty, as duly authorized agents for all of the
shareholders of Cherokee Communications, Inc., PhoneTel Technologies,
Inc. and Bill H. Bailey, Jr., Jerry T Beddow, and Edward L. Marshall,
individually. (Incorporated by reference from Amendment No. 2 to the
Company's Registration Statement on Form SB-2, Registration No.
333-13767, filed December 12, 1996.)
10.4 Asset Purchase Agreement dated January 13, 1997, among PhoneTel
Technologies, Inc., an Ohio Corporation, Texas Coinphone, a Texas
general partnership, Pete W. Catalena and Dennis H. Goehring.
99.1 Financial Statements of Cherokee Communications, Inc. listed in Item
7(a).
99.2 Unaudited Pro Forma Financial Statements listed in Item 7(b).
<PAGE> 5
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: January 21, 1997 By: /s/ Peter G. Graf
------------------------------
Peter G. Graf
Chairman of the Board and
Chief Executive Officer
<PAGE> 6
Exhibit Index
Exhibit No. Document
- ----------- --------
10.1 Agreement and Plan of Merger dated as of November 21, 1996
among PhoneTel Technologies, Inc., PhoneTel CCI, Inc.,
Cherokee Communications, Inc. and all of the shareholders of
Cherokee Communications, Inc. (Incorporated by reference from
Amendment No. 2 to the Company's Registration Statement on
Form SB-2, Registration No. 333-13767, filed December 12,
1996.)
10.2 Amendment to Agreement and Plan of Merger dated as of December
31, 1996 among PhoneTel Technologies, Inc., PhoneTel CCI, Inc.,
Cherokee Communcations, Inc., Bill H. Bailey, Jr., Edward L.
Marshall, Jerry T. Beddow, C. Nelson Trimble, Berthel Fisher &
Company Investments, Inc., Capital Southwest Corporation,
Capital Southwest Venture Corporation, Banc One Capital
Partners, L.P. (collectively the "Sellers"); and Bill H.
Bailey, Jr. and J. Bruce Duty, as Seller Representatives.
10.3 Escrow Agreement dated as of November 21, 1996 among Commercia
Bank - Texas, as escrow agent, Cherokee Communications, Inc.,
Bill H. Bailey, Jr., and J. Bruce Duty, as duly authorized
agents for all of the shareholders of Cherokee Communications,
Inc., PhoneTel Technologies, Inc. and Bill H. Bailey, Jr.,
Jerry T. Beddow, and Edward L. Marshall, individually.
(Incorporated by reference from Amendment No. 2 to the
Company's Registration Statement on Form SB-2, Registration
No. 333-13767, filed December 12, 1996.)
10.4 Asset Purchase Agreement dated January 13, 1997, among
PhoneTel Technologies, Inc., an Ohio Corporation, Texas
Coinphone, a Texas general partnership, Pete W. Catalena and
Dennis H. Goehring.
99.1 Financial Statements of Cherokee Communications, Inc. as
listed in Item 7(a)
99.2 Unaudited pro forma financial statements as listed in Item
7(b)
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "AMENDMENT"), dated as
of December 31, 1996, among PhoneTel Technologies, Inc., an Ohio corporation
(the "Buyer"); PhoneTel CCI, Inc., a Texas corporation and wholly owned
subsidiary of the Buyer ("Merger Sub"); Cherokee Communications, Inc., a Texas
corporation ("CCI"); Bill H. Bailey, Jr., Edward L. Marshall, Jerry T. Beddow,
C. Nelson Trimble, Berthel Fisher & Company Investments, Inc., Capital Southwest
Corporation, Capital Southwest Venture Corporation, Banc One Capital Partners,
L.P. (together with CCI, collectively the "Sellers"); and Bill H. Bailey, Jr.
and J. Bruce Duty, as Seller Representatives.
W I T N E S S E T H:
--------------------
WHEREAS, the Buyer, Merger Sub and the Sellers entered into that
certain Agreement and Plan of Merger, dated as of November 21, 1996 (the
"AGREEMENT"), whereby they agreed to cause Merger Sub to merge with and into
CCI; and
WHEREAS, pursuant to the terms of the Agreement, the Closing Date is to
occur between January 2, 1997 and January 31, 1997; and
WHEREAS, the Buyer, the Sellers, Merger Sub and Seller Representatives
have agreed to close the transactions contemplated by the Agreement on January
3, 1997, but desire the Merger to be effective for financial accounting purposes
as of January 1, 1997, on the terms and conditions provided in this Amendment;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
I.
GENERAL TERMS
-------------
A.TERMS DEFINED IN AGREEMENT. As used in this Amendment, except as may
otherwise be provided in Sections 1.2 and 1.3 hereof, all capitalized terms
shall have the meanings ascribed to them in the Agreement.
B.AMENDED DEFINITIONS. The following terms which are defined in Article
IX of the Agreement are amended in their entirety to read as follows:
"Contract Phones" shall mean the telephones to be installed by
CCI pursuant to location contracts entered into by CCI, provided the
locations for installation of such telephones have been selected and
approved consistent with standards employed by CCI immediately prior to
October 16, 1996.
"First Rate Cap Year" shall mean the twelve-month period from
the Effective Time through the first anniversary of the Effective Time.
-1-
<PAGE> 2
"Post-Closing Period" shall mean any taxable year beginning on
or after January 1, 1997.
"Pre-Closing Period" shall mean any taxable year which ends on
or before December 31, 1996.
"Second Rate Cap Year" shall mean the twelve-month period from
the end of the First Rate Cap Year through the second anniversary of
the Effective Time.
"Straddle Period" shall mean any taxable year that begins
before and ends after the Effective Time.
C.NEW DEFINITIONS. The following terms are hereby added as defined
terms in Article IX of the Agreement to read in their entirety and be located as
follows:
1.The following shall be added after the defined term
"Straddle Period" and before the defined term "Surviving Corporation":
"Subsidiaries" shall mean Cherokee Communications, Inc., a South Dakota
corporation, and Cherokee Communications, Inc., a Nevada corporation.
2.The following shall be added after the defined term "Merger"
and before the defined term "Merger Sub": "Merger Effective Time" shall mean the
close of business on the date on which the Articles of Merger have been duly
filed with the Texas Secretary of State or such other time as is agreed upon by
the parties and specified in the Articles of Merger.
II.
REVISIONS TO AGREEMENT
----------------------
A.MERGER EFFECTIVE TIME; EFFECTIVE TIME. Sections 1.1, 1.2, 1.11 and
1.12 of the Agreement are hereby amended by replacing the defined term
"Effective Time" with the defined term "Merger Effective Time". Section 1.4(c)
of the Agreement is hereby amended by replacing the defined term "Closing Date"
with the defined term "Effective Time".
B.CONSIDERATION ADJUSTMENTS--FIRST QUARTER. Section 1.4(b) of the
Agreement is hereby amended to read in its entirety as follows:
"(b) FIRST QUARTER EBITDA. Intentionally Omitted."
C.CONSIDERATION ADJUSTMENTS--INSTALLED PHONES. Section 1.4(d) of the
Agreement is hereby amended to read in its entirety as follows:
"(d) INSTALLED PHONES. If the number of Installed Phones as of
the Effective Time is less than 14,000, the Consideration (as
adjusted pursuant to Sections 1.4(a), (b), and (c)) shall be
decreased by $3,950 multiplied by the difference between
14,000 and the number of Installed
-2-
<PAGE> 3
Phones as of the Effective Time. For purposes of this Section
1.4(d), the number of Installed Phones shall include up to 900
Contract Phones."
D.CONSIDERATION ADJUSTMENTS--CONTRACT PHONES. The Agreement is hereby
amended by adding the following as Section 1.4(f) to read in its entirety as
follows:
"(f) CONTRACT PHONES. If the number of Installed Phones as of
the Effective Time is less than 14,000, the Consideration (as
adjusted pursuant to Sections 1.4(a), (b), (c), (d) and (e))
shall be decreased: (i) by $150 per Contract Phone for which
equipment to complete installation is held in inventory as of
the Effective Time, and (ii) by $1,000 per Contract Phone for
which equipment to complete installation is not in inventory
as of the Effective Time. For purposes of this Section 1.4(f),
the number of Contract Phones with respect to which the
Consideration will be adjusted shall equal the difference
between 14,000 and the number of Installed Phones as of the
Effective Time, not to exceed 900. For purposes of this
Section 1.4(f), the Consideration shall be adjusted first with
respect to Contract Phones for which equipment to complete
installation is held in inventory as of the Effective Time and
then, to the extent necessary, with respect to Contract Phones
for which equipment to complete installation is not in
inventory as of the Effective Time."
E.THE CLOSING. Section 1.8 of the Agreement is hereby amended to read
in its entirety as follows:
"1.8 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 Gardere & Wynne, L.L.P., 3000 Thanksgiving Tower,
Dallas, Texas 75201 (or such other place as the Buyer and
Seller Representatives may agree) on January 3, 1997 (the
"Closing Date"), simultaneously with the execution of the
other agreements, documents, instruments and writings to be
executed and delivered pursuant hereto or in connection
herewith (collectively, the "Other Documents"). At the
Closing, the actions described in Sections 1.6(b), 1.8, 1.9
and 1.10 hereof shall be taken. All such actions shall be
deemed to have occurred simultaneously. On the Closing Date,
the Buyer and CCI will cause appropriate Articles of Merger
(the "Articles of Merger") to be filed with the Secretary of
State of Texas in such form and executed as provided in
Article 5.04 of the Texas Business Corporation Act.
Notwithstanding that for state law purposes the Merger will be
effective at the Merger Effective Time, the parties agree
that, except as otherwise provided herein, for purposes of
allocating the rights and responsibilities of the parties
under this Agreement, the Merger shall be deemed effective as
of 12:01 a.m., January 1, 1997, and such time is hereafter
referred to as the "Effective Time"."
-3-
<PAGE> 4
F.REPRESENTATIONS AND WARRANTIES. The second sentence of the
introductory paragraph of Article III of the Agreement is hereby amended to read
in its entirety as follows:
"All references to CCI in this Article III shall refer to CCI,
the Subsidiaries, and CCI's investments in CID, but not the
Excluded Assets, except for Sections 3.1(a) and (c), 3.4, and
3.6."
G.SUBSIDIARIES. Section 3.1 of the Agreement is hereby amended to read
in its entirety as follows:
"3.1 ORGANIZATION AND STANDING; SUBSIDIARIES. (a) CCI
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. Cherokee
Communications, Inc., a South Dakota corporation, is a
corporation duly organized, validly existing and in good
standing under the laws of the State of South Dakota. Cherokee
Communications, Inc., a Nevada corporation, is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Nevada. CID Communications, S.A. de
C.V. ("CID") is a corporation duly organized, validly existing
and in good standing under the laws of Mexico.
(b) CCI has all requisite corporate power and
authority to own, lease and operate the properties and assets
it now owns, leases and operates and to carry on its business
and operations as now being conducted. CCI 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 it owns, leases or operates, (ii)
the conduct of its business and operations as currently and
heretofore conducted or (iii) any other circumstance makes
such qualification necessary, except where the failure to be
so qualified or licensed would not have a material adverse
effect on CCI.
(c) CCI has no investment in any corporation,
partnership or other entity except CID and the Subsidiaries.
CCI has good and valid title to such number of shares of
common stock of CID which constitutes 50% of the outstanding
shares of the only equity security of CID, free and clear of
any Encumbrances. CCI has good and valid title to all
outstanding shares of common stock of the Subsidiaries, free
and clear of any Encumbrances."
H.RECENT EBITDA. The Agreement is hereby amended by adding the
following as Section 3.26 to read in its entirety as follows:
"3.26 EBITDA. EBITDA for October 1996 plus November 1996
is at least $1,172,349."
-4-
<PAGE> 5
I.TAX RETURNS. The fourth sentence of Section 5.1(b) of the Agreement
is hereby amended to read in its entirety as follows:
"To the extent permissible under applicable law, all such Tax
Returns shall be prepared and filed in a timely manner consistently
with CCI's past practices."
J.EXCLUDED ASSETS. The first sentence of Section 5.9 of the Agreement
is hereby amended to read in its entirety as follows:
"Prior to the Effective Time, the Sellers shall cause the
assets relating to CCI's hospitality division listed on
Exhibit H hereto (the "Excluded Assets") (and any related
liabilities) to be transferred out of CCI and to be acquired
and assumed by the Sellers or one or more other parties (other
than CCI or the Buyer)."
K.CONDITIONS TO CLOSING. Section 6.1(f) of the Agreement is hereby
amended to read in its entirety as follows:
"(f) EBITDA. The EBITDA for October 1996 plus November 1996
shall be at least $1,172,349."
L.TAX INDEMNIFICATION. Section 7.7 of the Agreement is hereby amended
as follows:
1.Section 7.7(a)(ii) of the Agreement is hereby amended to
read in its entirety as follows:
"(ii) any Straddle Period, but only with respect to the
portion of such Straddle Period ending on December 31, 1996
and in the manner provided in paragraph 7.7(d) hereof and"
2.Section 7.7(b) of the Agreement is hereby amended by
replacing the phrase "Without limiting the generality of Section 7.7(a) above"
in the first sentence thereof with the phrase "Notwithstanding anything to the
contrary contained herein":
3.Section 7.7(c)(ii) of the Agreement is hereby amended to
read in its entirety as follows:
"(ii) any Straddle Period, but only with respect to the
portion of such Straddle Period beginning on January 1, 1997
and in the manner provided in paragraph 7.7(d) hereof."
4.Section 7.7(d) of the Agreement is hereby amended by
replacing the words "the Closing Date" with the words "December 31, 1996".
5.Section 7.7(e) of the Agreement is hereby amended by adding
the following to the end thereof:
-5-
<PAGE> 6
", provided, however, that CCI shall, to the extent permitted
under applicable law, elect to carry back any loss
attributable to any compensation deduction generated by the
exercise of stock options on January 1, 1997 by Management
Sellers, or the use of capital contribution of cash by Mr.
Bill H. Bailey, Jr. on January 1, 1997 related thereto."
6.Section 7.7(f) of the Agreement is hereby amended by adding
the following sentence after the end of the third sentence thereof:
"Notwithstanding anything to the contrary contained herein,
the Buyer shall pay to the Sellers all Tax refunds resulting
from the carry back of any loss attributable to any
compensation deduction generated by the exercise of stock
options on January 1, 1997 by Management Sellers on, or the
use of capital contribution of cash by Mr. Bill H. Bailey, Jr.
January 1, 1997 related thereto."
7.Section 7.7(h) of the Agreement is hereby amended by
replacing the words "the day after the Closing Date" with the words "January 1,
1997".
M.AMENDED SCHEDULE. Schedule 2.2 of the Agreement is hereby deleted in
its entirety and replaced by Schedule 2.2 attached to this Amendment.
III.
MISCELLANEOUS
-------------
A.EXTENT OF AMENDMENTS. Except as otherwise expressly provided herein,
the Agreement, and the other instruments and agreements referred to therein are
not amended, modified or affected by this Amendment. Except as expressly set
forth herein, all of the terms, conditions, covenants, representations,
warranties and all other provisions of the Agreement are herein ratified and
confirmed and shall remain in full force and effect.
B.REFERENCES. On and after the date on which this Amendment becomes
effective, the terms, "Agreement," "this Agreement," "hereof," "herein,"
"hereunder" and terms of like import, when used herein or in the Agreement
shall, except where the context otherwise requires, refer to the Agreement, as
amended by this Amendment, and as may be further amended from time to time.
-6-
<PAGE> 7
[Agreement continued on following page]
-7-
<PAGE> 8
C.COUNTERPARTS. This Amendment 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.
IN WITNESS WHEREOF, the parties hereto executed this Amendment as of
the day and year first above written.
PHONETEL TECHNOLOGIES, INC.
By:
-------------------------------------------
Peter G. Graf
Chairman and Chief Executive Officer
PHONETEL CCI, INC.
By:
-------------------------------------------
Peter G. Graf
Chairman and Chief Executive Officer
CHEROKEE COMMUNICATIONS, INC.
By:
-------------------------------------------
Bill H. Bailey, Jr.
Chairman and Chief Executive Officer
SELLERS:
----------------------------------------------
BILL H. BAILEY, JR., individually
----------------------------------------------
EDWARD L. MARSHALL, individually
----------------------------------------------
JERRY T. BEDDOW, individually
----------------------------------------------
C. NELSON TRIMBLE, individually
-8-
<PAGE> 9
BERTHEL FISHER & COMPANY
INVESTMENTS, INC.
By:
---------------------------
James D. Thorp
President
CAPITAL SOUTHWEST CORPORATION
By:
---------------------------
J. Bruce Duty
Senior Vice President
CAPITAL SOUTHWEST VENTURE
CORPORATION
By:
---------------------------
J. Bruce Duty
Senior Vice President
BANC ONE CAPITAL PARTNERS, L.P.
By BOCP Corporation
General Partner
By:
---------------------------
Suzanne B. Kriscunas
Authorized Signer
SELLER REPRESENTATIVES:
------------------------------
BILL H. BAILEY, JR.
------------------------------
J. BRUCE DUTY
-9-
<PAGE> 10
SCHEDULE 2.2
Restrictions on Transferability
1. Amended and Restated Shareholders Agreement dated May 21,
1993, among CCI, Bill H. Bailey, Jr., Capital Southwest
Corporation, a Texas corporation; Capital Southwest Venture
Corporation, a Nevada corporation; Banc One Capital Partners
Corporation, a Texas corporation; and Berthel Fisher &
Company, Inc., an Iowa corporation. This agreement supersedes
the Shareholders Agreement dated December 31, 1992.
2. Amendment No. 1 to the Amended and Restated Shareholders
Agreement (dated as of May 21, 1993) dated November 2, 1995,
made and entered into by and among Bill H. Bailey, Jr.;
Capital Southwest Corporation, a Texas corporation; Capital
Southwest Venture Corporation, a Nevada corporation; Banc One
Capital Partners Corporation, a Texas corporation; Berthel
Fisher & Co., Inc., an Iowa corporation; CCI; and Network
Operator Services, Inc., a Texas corporation.
3. Agreement dated May 21, 1993 between CCI, Berthel Fisher &
Company, Inc. and Berthel Fisher & Company Financial Services,
Inc. This Agreement consolidated the terms of four letter
agreements dated June 5, 1992, October 6, 1992, December 3,
1992 and April 12, 1993 between these parties.
4. See Items 2-7 of Schedule 3.5(a) only to the extent the lessor
may terminate lease upon the Merger.
5. Loan and Warrant Purchase Agreement (the "Agreement") dated
May 21, 1993, between Banc One Capital Partners Corporation
and CCI pursuant to which Banc One Capital Partners
Corporation granted CCI a term loan in the amount of
$5,000,000 (to be paid contemporaneously with the Closing).
6. 1992 Incentive Stock Option Plan, as may be amended
contemporaneously with the Closing (the "Plan"), and the
options issued pursuant to the Plan.
7. Option Agreement dated November 2, 1995 between Bill H.
Bailey, Jr. and Network Operator Services, Inc. (to be
terminated contemporaneously with the Closing).
8. 1,143,000 Shares owned by Bailey are pledged to Network
Operator Services, Inc. (to be released contemporaneously with
the Closing).
-10-
<PAGE> 1
Exhibit 10.4
ASSET PURCHASE AGREEMENT
among
PHONETEL TECHNOLOGIES, INC.,
TEXAS COINPHONE
and
ALL OF THE PARTNERS OF TEXAS COINPHONE
dated as of
January 13, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
ARTICLE I
<S> <C> <C>
PURCHASE AND SALE OF THE ASSETS; THE CLOSING............................................. 2
1.1 Purchase and Sale........................................................................ 2
1.2 Consideration............................................................................ 4
1.3 Closing Payment.......................................................................... 4
1.4 Consideration Adjustments................................................................ 5
1.5 Adjustment Schedule...................................................................... 6
1.6 Escrow................................................................................... 9
1.7 The Closing.............................................................................. 9
1.8 Deliveries by the Seller and Partners.................................................... 10
1.9 Deliveries by the Buyer.................................................................. 11
1.10 Allocation of the Consideration......................................................... 12
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH PARTNER........................................... 12
2.1 Authorization; Binding Obligation........................................................ 13
2.2 Consents and Approvals; No Violation..................................................... 13
2.3 Fees To Brokers or Other Parties. ....................................................... 14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PARTNERS............................................... 14
3.1 Organization and Standing. .............................................................. 15
3.2 Organizational Documents and Records..................................................... 15
3.3 Authorization; Binding Obligation........................................................ 15
3.4 Consents and Approvals; No Violation..................................................... 17
3.5 Financial Statements. ................................................................... 18
3.6 Absence of Undisclosed Liabilities....................................................... 19
3.7 Accounts Receivable...................................................................... 19
3.8 Equipment................................................................................ 20
3.9 Absence of Certain Changes or Events..................................................... 20
3.10 Properties and Assets................................................................... 22
3.11 Contracts............................................................................... 23
3.12 Compliance with Laws and Permits........................................................ 24
3.13 Litigation and Arbitration.............................................................. 25
3.14 Employee Matters........................................................................ 26
3.15 Labor Relations......................................................................... 26
3.16 Taxes................................................................................... 27
3.17 Intellectual Property................................................................... 28
3.18 Environmental Matters................................................................... 28
3.19 Insurance............................................................................... 29
3.20 Bank Accounts........................................................................... 30
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
3.21 Customers and Suppliers................................................................. 30
3.22 Affiliate Transactions.................................................................. 31
3.23 Disclosure.............................................................................. 31
3.24 Prior Acquisitions...................................................................... 32
3.26 The Seller Phones....................................................................... 32
3.27 Average Net Income...................................................................... 32
3.28 Location Contracts...................................................................... 33
3.29 Average Term............................................................................ 33
3.30 Capitalization.......................................................................... 33
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER................................. 34
4.1 Organization and Standing............................................................... 34
4.2 Authorization; Binding Obligation....................................................... 34
4.3 Consents and Approvals; No Violation. .................................................. 35
4.4 Knowledge of Buyer...................................................................... 36
ARTICLE V
ADDITIONAL COVENANTS............................................. 37
5.1 Transfer and Other Taxes; Preparation and Filing
of Tax Returns; Payment of Taxes........................................................ 37
5.2 Further Assurances; Cooperation......................................................... 37
5.3 Notification of Certain Matters......................................................... 38
5.4 Confidentiality and Exclusivity......................................................... 38
5.5 Publicity............................................................................... 39
5.6 Expenses................................................................................ 40
5.7 Due Diligence........................................................................... 40
5.8 Interim Conduct of Business............................................................. 41
5.9 Forwarding of Payments Received......................................................... 43
5.10 Permits................................................................................. 43
5.11 Employees............................................................................... 43
5.12 Consents; Waivers; Assignments. ........................................................ 44
5.13 Non-Competition......................................................................... 44
5.14 Non-Solicitation........................................................................ 45
ARTICLE VI
CONDITIONS..................................................... 45
6.1 Conditions Precedent to Obligations of the Buyer........................................ 45
6.2 Conditions Precedent to Obligations of the Seller
and the Partners........................................................................ 47
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION......................................... 48
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
7.1 Survival of Representations and Warranties........................................... 48
7.2 Statements as Representations........................................................ 49
7.3 Indemnification by the Seller and the Partners....................................... 49
7.4 Indemnification by the Buyer. ....................................................... 51
7.5 Indemnification Procedures........................................................... 51
ARTICLE VIII
MISCELLANEOUS................................................ 55
8.1 Parties in Interest; No Third Party
Beneficiaries........................................................................ 55
8.2 Exhibits and Disclosure Schedule..................................................... 55
8.3 Entire Agreement. ................................................................... 55
8.4 Waiver of Compliance................................................................. 56
8.5 Validity............................................................................. 56
8.6 Counterparts......................................................................... 56
8.7 Headings............................................................................. 57
8.8 GOVERNING LAW........................................................................ 57
8.9 Notices.............................................................................. 57
8.10 Termination or Abandonment........................................................... 59
8.11 Effect of Termination................................................................ 60
ARTICLE IX
DEFINITIONS................................................. 60
9.1 Definitions.......................................................................... 60
</TABLE>
EXHIBIT A - Bill of Sale
EXHIBIT B - Assumed Liabilities
EXHIBIT C - Escrow Agreement
EXHIBIT D - The Partners
EXHIBIT E - Financial Statements
EXHIBIT F - Permits Required
EXHIBIT G - Consents Required
EXHIBIT H - Certificate of Non-Foreign Status
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<PAGE> 5
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of
January 13, 1997, among PhoneTel Technologies, Inc. (the "Buyer"), an Ohio
corporation, Texas Coinphone (the "Seller"), a Texas general partnership, and
Pete W. Catalena and Dennis H. Goehring, all of the Partners of the Seller
(each, a "Partner" together, the "Partners").
WHEREAS, the Seller is engaged in the business of owning and
operating microprocessor-based pay telephones (the "Business"); and
WHEREAS, the Buyer desires to purchase, and the Seller desires
to sell, all of the assets and property owned by the Seller and related to the
Business and 5% of the capital stock (the "Shares") of International
Communication Solutions, Inc. (collectively, the "Assets"), upon the terms and
subject to the conditions set forth herein;
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 ASSETS; THE CLOSING
1.1 Purchase and Sale
-----------------
(a) Upon the terms and subject to the
conditions hereof, and in reliance upon the representations, warranties and
agreements contained herein, at the Closing (as defined in Section 1.7 hereof)
the Seller will sell, assign, transfer and deliver to the Buyer, and the Buyer
will accept and purchase from the Seller, free and clear of all Encumbrances,
the Assets. The Assets shall not include the name "Texas Coinphone", provided
that (i) the Seller and the Partners shall not use the name "Texas Coinphone"
(or any confusingly similar name) in connection with any pay telephone business
and (ii) the Buyer shall be entitled to use the name "Texas Coinphone" for a
reasonable transition period.
(b) INSTRUMENTS OF CONVEYANCE. To effectuate the
sale, assignment, transfer and conveyance contemplated by this Article I, the
Seller will execute and deliver to the Buyer at the Closing (i) all bills of
sale (including a bill of sale in the form of Exhibit A hereto), deeds,
documents or instruments of sale, assignment, transfer or conveyance
(collectively, the
2
<PAGE> 7
"Bills of Sale"), as the Buyer shall reasonably deem necessary or appropriate to
vest in the Buyer good, valid and marketable title to all of the Assets, (ii) a
valid assignment of all of the Seller's right, title and interest in all of the
Assets which are contracts, leases or licenses and (iii) one or more stock
certificates for the Shares, in each case free and clear of any Encumbrances,
including assistance in the transfer of any required consents and Permits from
municipalities.
(c) LIABILITIES ASSUMED OR NOT ASSUMED BY
THE BUYER. In connection with the purchase of Assets, this Agreement or
otherwise, the Buyer shall not assume or in any manner be or become responsible
for any Liabilities of the Seller or its affiliates except those Liabilities set
forth on Exhibit B hereto (the "Assumed Liabilities"). Without limiting the
foregoing, the Buyer shall not be liable for any and all liabilities and
obligations, direct and indirect, fixed or contingent, for (i) Taxes payable
with respect to the sale of the Assets by the Seller to the Buyer, (ii) Taxes
attributable to or incurred in connection with the Assets prior to or on the
Closing Date, (iii) Taxes of the Seller or the Partners for any Taxable Period,
or (iv) any claims
3
<PAGE> 8
or legal actions against the Seller relating to matters prior to Closing.
1.2 Consideration
-------------
(a) Upon the terms and subject to the conditions
hereof, in reliance upon the representations, warranties, covenants and
agreements of the Seller and the Partners contained herein, the Buyer will
deliver to the Seller an amount equal to the product of $3,050 and the number of
the Seller Phones as of the Closing Date, minus $550 for each of the Seller
Phones acquired from Amtel Communications, Inc. or its affiliates, subject to
adjustment pursuant to Section 1.4 hereof (the "Consideration").
(b) The foregoing payment shall constitute the full
purchase price for the Assets. Any portion of the Escrow Amount (as defined
herein) paid to the Buyer shall be deemed a reduction in the purchase price
required to be paid by the Buyer for the Assets.
1.3 Closing Payment.
---------------
(a) Not later than three business days prior to the
Closing, the Seller shall deliver to the Buyer a good faith estimate of the
adjustments to the Consideration required by Section 1.4 hereof, as of the
4
<PAGE> 9
Closing Date, including all the detail required by Section 1.4 hereof.
(b) At the Closing, the Buyer shall pay
to the Seller by wire transfer or certified check an amount equal to the
Consideration which would be payable if adjusted pursuant to Section 1.4 (using
the good faith estimate delivered pursuant to paragraph (a) above); provided
that such amount shall be reduced by the Escrow Amount.
1.4 Consideration Adjustments.
-------------------------
(a) THE SELLER PHONES. The Consideration shall be
adjusted to reflect the actual number of Seller Phones as of the Closing Date.
In addition, the Consideration shall be further adjusted by the following
calculations:
(b) RECEIVABLES AND PAYABLES. The Consideration shall
be increased by the excess of (A) all receivables as of the Closing Date
actually collected by the Buyer, including receivables for dial around
compensation, over (B) the amount of all site commissions and other accounts
payable accrued or payable in respect of all periods ending prior to the Closing
Date. In the event the amount specified in clause (B) above exceeds
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<PAGE> 10
the amount in clause (A) above, the Consideration shall be decreased by the
amount of such excess.
(c) AVERAGE TERM. If at the Closing Date the Average
Term is less than 34 months, then the Consideration (as adjusted pursuant to
Sections 1.4(a) and (b)) shall be further adjusted by multiplying it by a
fraction, the numerator of which is the Average Term and the denominator of
which is 34.
(d) AVERAGE INCOME. If the Average Income is less
than $90 per phone then the Consideration shall be reduced by multiplying (A)
the amount calculated pursuant to Section 1.2(a) (as adjusted by Section 1.4(a),
(b) and (c) by (B) a fraction, the numerator of which will be the Average Income
and the denominator of which will be 90.
(e) LIABILITIES. The Consideration shall be decreased
by the amount of any Liabilities of the Seller assumed by the Buyer as of the
Closing.
1.5 Adjustment Schedule.
-------------------
(a) As soon as practicable after the Closing Date
(but in any event not more than 90 days after the Closing Date), the Buyer shall
cause to be prepared and delivered to the Seller and the Escrow Agent
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<PAGE> 11
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 Section 1.4.
(b) Upon receipt of the Adjustment Schedule, the
Seller shall have the right during the succeeding 10-day period to examine the
Adjustment Schedule and all records used to prepare such Adjustment Schedule.
The Seller shall notify the Buyer 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 amount
of each objection.
(c) If the Seller in good faith objects to the
Adjustment Schedule, the Seller and the Buyer shall attempt to resolve any such
objections within 10 days of Buyer's receipt of such objections. If the Buyer
and the Seller 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
7
<PAGE> 12
independent certified public accountants shall be divided equally between the
Buyer and the Seller. Such firm's resolution of the dispute shall be conclusive
and binding upon the Seller and the Buyer.
(d) 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 the Seller, unless prior to such day the Seller shall
have notified the Buyer of an objection in accordance with Section 1.5(b), and
(ii) the resolution of all objections, pursuant to Section 1.5(c). Within two
business days following completion of the Adjustment Schedule as aforesaid,
either
(A) The Buyer shall pay the Seller the
amount, if any, by which the Consideration (as adjusted) exceeds the
amount paid pursuant to Section 1.3(b); or
(B) The Seller (or the Partners, Pro Rata)
shall pay to the Buyer the amount, if any, by which the amount paid
pursuant to Section 1.3(b) exceeds the Consideration (as adjusted).
All payments pursuant to this Section 1.5(d) shall be made by wire transfer or
certified check.
8
<PAGE> 13
1.6 Escrow.
------
(a) Simultaneously herewith, the Buyer,
the Seller, the Partners and West, Webb, Allbritton & Gentry, P.C., as escrow
agent (the "Escrow Agent") are entering into an Escrow Agreement in the form
attached hereto as Exhibit C, and the Buyer is depositing $150,000 (as may be
increased by paragraph (b) below, 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 a material breach of this Agreement
by the Buyer, the Seller shall be entitled to receive the entire Escrow Amount,
as liquidated damages, and the Seller and the Partners shall have no other
rights or remedies in respect of this Agreement.
(b) At the Closing, the Buyer shall deposit an
additional $180,000 with the Escrow Agent, which shall become part of the Escrow
Amount.
(c) Delivery of funds by the Escrow Agent to the
applicable parties shall be pursuant to the terms of the Escrow Agreement.
1.7 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 LLP, 919 Third Avenue, New
9
<PAGE> 14
York, New York (or such other place as the Buyer and the Seller may agree),
simultaneously with the execution of the other agreements, documents,
instruments and writings to be executed and delivered pursuant hereto or in
connection herewith (collectively, the "Other Documents"), on a date mutually
agreeable to all parties, but no later than January 15, 1997 (the "Closing
Date"); PROVIDED, that at the written request of the Buyer, the Seller shall
extend the latest date of Closing until February 15, 1997, during which time no
penalties shall attach to the Buyer and during which time all provisions of this
Agreement shall remain in full force and effect. At the Closing, the actions
described in Sections 1.6(b), 1.8 and 1.9 hereof shall be taken. All such
actions shall be deemed to have occurred simultaneously.
1.8 DELIVERIES BY THE SELLER AND PARTNERS. At the Closing, the
Seller and the Partners shall deliver to the Buyer (unless previously delivered)
the following:
(a) the Bill of Sale;
(b) a receipt for the payment provided for by Section
1.3(b) hereof;
(c) 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 Seller without breaching the
10
<PAGE> 15
provisions of any Contract, as required by Section 5.14 hereof;
(d) a certificate from the Partners certifying that
all representations and warranties contained in Articles II and III are true and
correct in all material respects as of the Closing Date;
(e) a Certificate of Non-Foreign Status for the
partnership in the form attached hereto as Exhibit H; notwithstanding anything
to the contrary set forth herein, if Seller fails to provide Buyer with such
Certificate, Buyer shall be entitled to withhold the requisite amounts from the
Consideration in accordance with Section 1445 of the Code; and
(f) one or more certificates representing the Shares
issued in the name of the Buyer.
1.9 DELIVERIES BY THE BUYER. At the Closing, the Buyer shall
deliver to the Seller (unless previously delivered) the following:
(a) the payment provided for in Section 1.3(b)
hereof;
(b) to the Escrow Agent, the payment provided for in
Section 1.6(b) hereof;
(c) certified resolutions of the Board of Directors
of the Buyer approving this Agreement and the transactions contemplated hereby;
and
11
<PAGE> 16
(d) a certificate from an officer of the Buyer
certifying that all representations and warranties contained in Article IV are
true and correct in all material respects as of the Closing Date.
1.10 ALLOCATION OF THE CONSIDERATION. As soon as practicable,
Buyer and Seller shall agree upon the allocation of the Consideration among each
class of assets (as determined under and in accordance with the requirements of
Section 1060 of the Code). Each of Buyer and Seller shall report for federal and
state income and all other Tax purposes (including, without limitation, for
purposes of Section 1060 of the Code) the purchase of the Assets in a manner
consistent with such agreement and in a manner consistent with all applicable
rules and regulations. Each of Buyer and Seller shall timely file a Form 8594 in
accordance with the requirements of Section 1060 of the Code and this Section
1.10.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH PARTNER
Each Partner severally represents and warrants to the Buyer as
follows:
12
<PAGE> 17
2.1 AUTHORIZATION; BINDING OBLIGATION. This Agreement has
been, and each of the Other Documents to which he is required to be a party will
be, duly and validly executed and delivered by such Partner and, assuming due
authorization, execution and delivery by the other party, constitutes or, in the
case of the Other Documents, will constitute a legal, valid and binding
obligation of such Partner, enforceable against such Partner in accordance with
its terms. Such Partner has the legal capacity and all requisite power and
authority to execute and deliver this Agreement and the Other Documents to which
he is (or is required to be) a party and to consummate the transactions
contemplated hereby and thereby and to perform such Partner's obligations
hereunder and thereunder. No power of attorney has been granted by such Partner
with respect to any matter relating to the Seller or the Seller's business.
2.2 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth
on Schedule 2.2 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) 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
13
<PAGE> 18
Partners, (b) violate any Law of any Governmental Authority applicable to the
Partners, or by which any of their business, properties or assets may be bound
or affected or (c) 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
either Partner is a party or by which any of his business, properties or assets
may be bound or affected.
2.3 FEES TO BROKERS OR OTHER PARTIES. Neither Partner has or
will have any obligation to pay any 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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLER
AND THE PARTNERS
The Seller and the Partners jointly and severally represent
and warrant to the Buyer as follows:
14
<PAGE> 19
3.1 ORGANIZATION AND STANDING. The Seller is a general
partnership duly organized and validly existing under the laws of the State of
Texas. The Seller has all requisite partnership power and authority to own,
lease and operate the properties and assets it now owns, operates and leases and
to carry on its businesses and operations as currently and heretofore conducted.
The Seller conducts business only in the State of Texas.
3.2 ORGANIZATIONAL DOCUMENTS AND RECORDS. (a) The Partners
have heretofore delivered to the Buyer complete and correct copies, with all
amendments thereto, of the Seller's partnership agreement or similar
organizational documents, as currently in effect. The books and ledgers of the
Seller have been made available to the Buyer for its inspection, and such books
and ledgers are complete and correct in all respects.
(b) The Partners 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 Seller. Such books and records have been
maintained on a basis consistent with past practice and GAAP, and fairly reflect
the basis for the Seller's financial condition and results of operations as set
forth in the Financial Statements.
3.3 Authorization; Binding Obligation.
---------------------------------
(a) The Seller has the requisite partnership power and
15
<PAGE> 20
authority to execute, deliver and perform its obligations under this Agreement
and each of the Other Documents and to consummate the transactions contemplated
hereby and thereby. All partnership proceedings on the part of the Seller which
are necessary to execute, deliver and perform this Agreement and each of the
Other Documents and to consummate the transactions contemplated hereby and
thereby have been duly authorized and taken. This Agreement has been, and at or
prior to the Closing the Other Documents required to be executed by the Seller
will be duly and validly executed by the Seller, and, assuming due
authorization, execution and delivery by the Buyer, constitute (or will
constitute) valid and binding obligations of the Seller, enforceable against the
Seller in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization, or
other laws affecting creditors' rights generally or by the availability of
equitable remedies generally. No power of attorney has been granted and is
currently in force by the Seller with respect to any matter relating to the
Seller or its business, operations or assets.
(b) The Partners are the only Persons having any
interest in the ownership of the Seller. Attached as Exhibit D hereto is a list
of all interests of the Seller held by the Partners.
16
<PAGE> 21
3.4 CONSENTS AND APPROVALS; NO VIOLATION. Except as set forth
on Schedule 2.2 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 partnership
agreement or similar organizational documents of the 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 the
Seller, (c) violate any Law of any Governmental Authority applicable to the
Seller, or by which any of its 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 Seller is a party or by which any of its business, properties or assets may
be bound or affected except where such violation, breach, conflict or default
will be cured at or prior to the Closing or would
17
<PAGE> 22
not have a material adverse effect on the ability of the Seller to satisfy its
obligations in this Agreement.
3.5 FINANCIAL STATEMENTS. The Partners have furnished to the
Buyer the unaudited financial statements for the Seller as of, and for the years
ended, December 31 in each of the years 1994 and 1995, and as of September 30,
1996 and for the nine months then ended, (together with the notes thereto) (the
"Financial Statements"). The Financial Statements are attached hereto as Exhibit
E. The Financial Statements have been prepared from and in accordance with the
books and records of the Seller in accordance with GAAP (subject, in the case of
interim financial statements, to normal year-end adjustments and any other
adjustments described therein), consistently applied and maintained throughout
the periods indicated. The Financial Statements fairly present, in all material
respects, (a) the assets, liabilities and financial condition of the Seller, as
at the dates thereof, and (b) the results of operations and cash flows of the
Seller for the periods then ended. The statements of income and retained
earnings and cash flows included in the Financial Statements do not and will 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.
18
<PAGE> 23
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. The Seller does not
have any material 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 Statements,
except for liabilities or obligations incurred since September 30, 1996 in the
ordinary course of business and consistent with past practice.
3.7 ACCOUNTS RECEIVABLE. Schedule 3.7 of the Disclosure
Schedule sets forth a true, complete and accurate list of all Accounts
Receivable generated in connection with the Seller Phones as of September 30,
1996. All Accounts Receivable reflected in the Financial Statements and all
Accounts Receivable acquired or generated since September 30, 1996 by the Seller
(a) arose from bona fide transactions in the ordinary course of business
consistent with past practice, (b) to the knowledge of the Seller and the
Partners are valid and genuine, (c) to the knowledge of the Seller and the
Partners are not subject to any counterclaim or setoff and (d) are not subject
to any Encumbrance. Except as set forth on Schedule 3.7, (i) no Account
Receivable has been outstanding for more than 90 days, (ii) no operator service
provider has refused or threatened to refuse to
19
<PAGE> 24
pay its obligations for any reason and (iii) no Account Receivable debtor is
insolvent or is the subject of a bankruptcy petition.
3.8 EQUIPMENT. (a) At the Closing, all Equipment will be
transferred by the Seller to the Buyer free and clear of any Encumbrance. All
Equipment which is reflected in the Financial Statements is valued at the lower
of cost (on a first-in, first-out basis) or market in accordance with GAAP
consistently applied and maintained throughout the periods. All Equipment
disposed of by the Seller since September 30, 1996 has been disposed of only (i)
in the ordinary course of the Seller's business and (ii) at prices and under
terms that are consistent with past practice.
(b) All purchase money security agreements relating
to any item of Equipment have been or will be released prior to the Closing, or
consents, assignments or waivers acceptable to the Buyer will be obtained and
delivered to the Buyer.
(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.
3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
on Schedule 3.9 of the Disclosure Schedule, since September 30, 1996:
20
<PAGE> 25
(a) the Seller has operated its business in the
ordinary course consistent with past practice;
(b) there has not been any material adverse change in
the business, results of operations, assets, liabilities, financial condition or
prospects of the Seller;
(c) the Seller has not entered into any agreements
binding the Seller, 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 the Buyer in the Business of the Seller, taken as a whole, as
heretofore operated;
(d) the Seller 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;
(e) the Seller 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;
(f) the Seller has not terminated or amended,
breached, or failed to perform in all material
21
<PAGE> 26
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;
(g) the Seller has not experienced any
actual or, to the knowledge of the Seller and the Partners, threatened employee
disputes, work stoppages or slow-downs or had any material change in its
relationship with its employees, salesmen, distributors, or independent
contractors;
(h) the Seller has not failed to replenish its
Inventory and supplies in a normal and customary manner consistent with past
practice; and
(i) the Seller has not agreed, whether in writing or
otherwise, to take any action described in this Section 3.9.
3.10 PROPERTIES AND ASSETS. At the Closing, the Seller will
transfer to the Buyer 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, free of
any Encumbrance or arrangement for use by any third party. Such Equipment and
assets constitute all equipment and assets necessary for the operation of the
Business.
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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 (a) are valid and binding obligations of the Seller and the
other parties thereto, (b) are in full force and effect and are enforceable as
to the Seller and the other parties thereto, in accordance with their respective
terms and (c) have not been amended or terminated except in the ordinary course
of business consistent with past practice. The Seller is not in default under
nor has it breached in any respect any Contract. The aggregate obligations of
the Seller with respect to oral Contracts which do not constitute Material
Contracts do not exceed $10,000. No other party to any Contract has (i) to the
knowledge of the Seller and the Partners breached such Contract or is in default
thereunder, (ii) given notice that it intends to terminate such Contract or
(iii) to the knowledge of the Seller and the Partners altered, in any way
adverse to the Seller, its performance under such Contract. No event or
condition has occurred (or is alleged by any other party to a Contract to have
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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 Seller, would provide
a basis for a valid claim or acceleration under any Contract as against the
Seller or would prevent the Seller 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 Seller 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 Seller 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 Seller possesses all Permits necessary
to own and operate its property and assets and to conduct its business as it is
currently conducted. Such Permits are valid and subsisting in full force and
effect, and the Seller has materially fulfilled its obligations under each of
the Permits, and to the knowledge of the Seller and the Partners no event has
occurred or condition or state of facts exists which constitutes or, after
notice or lapse
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of time or both, would constitute a default or violation under any such Permit
or would permit revocation or termination of such Permit. No proceeding which
might involve the revocation or termination of any such Permit is pending or, to
the knowledge of the Seller or the Partners, threatened.
(c) The Seller has made or will, prior to the Closing
make, all filings and received or will, prior to the Closing, receive all
approvals in connection with the Permits which are necessary for the Buyer to
own and operate the property and assets of the Seller and to conduct the
Seller's business as it has currently and has heretofore been conducted.
3.13 LITIGATION AND ARBITRATION. (a) 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 Seller 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 3.13(a) of the Disclosure Schedule. No Order of
any Governmental Authority, arbitrator or mediator is outstanding against the
Seller, its business, operations or assets. Neither the Seller, nor any of the
Partners, has knowledge of any fact or circumstance which could
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reasonably be expected to result in any other claim, action, cause of action,
suit, proceeding, inquiry, investigation or Order against the Seller 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 Seller has no employee plans or
agreements in effect except for a 401(k) plan, a group health plan and a group
life insurance plan, none of which will be transferred to the Buyer. The Seller
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
Seller 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 Seller.
3.15 LABOR RELATIONS. There are no labor issues affecting the
Seller. The Seller 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. Except as set forth on Schedule 3.16 of the
Disclosure Schedule:
(a) The Seller has (i) duly and timely filed with the
appropriate Governmental Authorities all Tax Returns required to be filed by it,
and all such Tax Returns are true, complete and correct in all material
respects, and (ii) has timely paid all Taxes due or claimed to be due from it by
any taxing authority.
(b) The Seller 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 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.
(c) There are no Encumbrances for Taxes upon the
Seller's assets except for statutory liens for current Taxes not yet due.
(d) The Seller 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 and no outstanding waivers or comparable consents regarding
the application of the statute of limitations
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with respect to any Taxes or Tax Returns have been given by the Seller.
(e) No federal, state, local or foreign audits or
other administrative proceedings or court proceedings exist or have been
initiated or are presently pending with regard to any Taxes or Tax Returns of
the Seller.
3.17 INTELLECTUAL PROPERTY. The Seller 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. The
activities and products of the Seller do not infringe upon the Intellectual
Property rights of any other Person. To the knowledge of the Seller and the
Partners, there are no infringements by third parties of any Intellectual
Property owned by the Seller.
3.18 ENVIRONMENTAL MATTERS. The Seller is and has been in
compliance with, and there are no outstanding allegations for which the Seller
or any Partner has been provided notice by any Person that the Seller 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 any hazardous
waste, hazardous substance, pollutant or contaminant including, without
limitation, gasoline, diesel fuel and other petroleum hydrocarbons into the
environment or
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workplace ("Environmental Laws"). The Seller does not require any environmental
permits to conduct its business and operations. The Seller 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 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 Seller (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 3.19(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 until 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 (a) the names and locations of all
financial institutions at which the Seller maintains a checking account, deposit
account, securities account, safety deposit box or other deposit or safekeeping
arrangement, (b) the number or other identification of all such accounts and
arrangements and (c) 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 (a) the names of those customers generating the
greatest revenues for the Seller (listing such number of customers as would, in
the aggregate, generate at least 40% of the Seller's total revenues) and the
amount of revenues generated by each such customer in the Seller's fiscal year
ended September 30, 1996 and (b) the names of suppliers to whom the Seller paid
more than $25,000 in the Seller's fiscal year ended September 30, 1996 and the
approximate total purchases by the Seller 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 Seller and its customers and suppliers since September 30, 1996. The
Seller has not been provided
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with any notice that any supplier, manufacturer or customer intends to cease
doing business with the Seller. To the knowledge of the Seller and the Partners,
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 Seller'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 Seller) between the Seller and any of the Partners or any
affiliate or associate of any of the Partners, or any business or entity in
which any of the Partners or any affiliate or associate of any of the Partners,
has any direct or indirect interest (the "Partners' Affiliates"), that involves
an obligation or commitment on the part of or for the benefit of the Seller or
such Partners' Affiliate of more than $5,000 in any calendar year (the
"Affiliate Transactions").
3.23 DISCLOSURE. Neither the Seller nor any of the Partners
has failed to disclose to the Buyer any facts material to the Seller's business,
results of operations, assets, liabilities, financial condition and
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prospects. No representation or warranty by the Seller or any of the Partners in
this Agreement and no statement by the Seller or any of the Partners in any
Other Document (including the Disclosure 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
Seller, except as already recorded on the Financial Statements heretofore
delivered to the Buyer.
3.25 FEES TO BROKERS OR OTHER PARTIES. Except as provided
herein, neither the Seller nor any Partner has or will have any obligation to
pay any 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.
3.26 THE SELLER PHONES. As of Closing there will be at least
1,150 Seller Phones.
3.27 AVERAGE NET INCOME. As of Closing, the Average Income
shall be at least $90 per Seller Phone, or
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such lesser amount as shall be used to adjust the Consideration pursuant to
Section 1.4(d) hereof.
3.28 LOCATION CONTRACTS. Except as set forth in Section 3.28
of the Disclosure Schedule, no material location contract with respect to any
Seller Phone has a remaining term of less than 12 months.
3.29 AVERAGE TERM. The Average Term as of Closing will be 34
months, or such lesser number as shall be used to adjust the Consideration
pursuant to Section 1.4(c) hereof.
3.30 CAPITALIZATION. The authorized capital stock of ICS
consists of 3,000 Common Shares, $.01 par value, 1,000 of which are issued and
outstanding on the date hereof and owned by the Seller. ICS has no other class
of capital stock authorized or outstanding. None of ICS' shares of capital stock
have been reserved for any purpose, except for the issuance of 250 shares on
January 15, 1997. At the closing all Shares will be duly authorized and validly
issued, fully paid, nonassessable and 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 shares of capital stock of ICS of any
class, (ii) outstanding securities that are convertible into or exchangeable or
exercisable for shares of any class of capital stock of ICS, (iii) options,
warrants or other
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rights to purchase any such convertible or exchangeable securities, or (iv)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance or voting of any capital stock of ICS, any options,
warrants or rights, pursuant to which, in any of the foregoing cases, ICS is or
would be subject or bound. The Buyer will not be subject to any liability by
reason of becoming a stockholder of ICS.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller and the
Partners 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 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 each of 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
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execution and delivery of this Agreement and each of 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 has been, and
the Other Documents will be validly executed and delivered by the Buyer and,
assuming due authorization, execution and delivery by the Seller and the
Partners, constitute (or will constitute) legal, valid and binding obligations
of the Buyer, enforceable against the Buyer in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights generally or by the availability of equitable remedies generally.
4.3 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 Code of Regulations of the Buyer, (b) require any
consent, waiver, approval, authorization or
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permit of, or filing with or notification to, or any other action by, any
Governmental Authority by the Buyer, (c) violate any law of any Governmental
Authority applicable to the Buyer, or by which any of its 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 Buyer is a party or by which any of its business,
properties, or assets may be bound or affected, except where such violation,
breach, conflict or default will be cured at or prior to the Closing or would
not have a material adverse effect on the ability of the Buyer to satisfy its
obligations in this Agreement.
4.4 KNOWLEDGE OF BUYER. To the knowledge of the Chairman,
Chief Executive Officer, Chief Administrative Officer and General Counsel of the
Buyer, as of the date hereof none of the Seller's or the Partners'
representations and warranties set forth in Article II or Article III is untrue
in any material respect.
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ARTICLE V
ADDITIONAL COVENANTS
5.1 TRANSFER AND OTHER TAXES; PREPARATION AND FILING OF TAX
RETURNS; PAYMENT OF TAXES. Notwithstanding any other provision of this Agreement
to the contrary, each party shall assume and promptly pay all sales (including,
without limitation, bulk sales), use, privilege, transfer, documentary, gains,
stamp, duties, recording and similar Taxes and fees (including any penalties,
interest or additions) imposed upon such party incurred in connection with the
transactions contemplated by this Agreement (collectively, the "Transfer
Taxes"), and the Seller shall, at its own expense, accurately file all necessary
Tax Returns and other documentation with respect to, any Transfer Tax.
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 Partners shall cooperate with the Seller and the Buyer
in connection with any claim, action, suit, proceeding, inquiry or investigation
with
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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 8.9 hereof, of (a) 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, (b) any circumstance or
development which could adversely impair or affect its ability to perform its
obligations under this Agreement and the Other Documents, (c) 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 (d) 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 and Exclusivity.
-------------------------------
(a) Each of the parties hereto agrees that it will not at
any time, without the prior written consent of the other parties , disclose or
use any
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information obtained during the negotiation or due diligence process nor any
other confidential information (relating to either the Buyer or the Seller)
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;
provided that, (A) to the extent possible, each party shall furnish the other
with five Business Days advance notice of such disclosure or use and (B) the
restrictions of this Section 5.4(a) shall not apply after the Closing to the
Buyer's use of information concerning the Business. The provisions of this
Section 5.4 will survive the expiration or termination of this Agreement for any
reason.
(b) The Seller and each Partner agree not to engage
in any negotiations with any party (other than the Buyer) to sell or otherwise
transfer or agree to sell or transfer any of the Assets.
5.5 PUBLICITY. Except as required by Law, none of the parties
shall issue any press release or make any public statement regarding the
transactions contemplated hereby, without the prior approval of the other
parties, which approval shall not be unreasonably withheld. The Buyer shall not
issue a press release to any of the local media in Texas without the prior
approval of the Seller.
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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, except that the Seller may pay any such expenses of the
Partners prior to the Closing.
(b) The Seller, the Partners 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, the Seller will
allow the Buyer and its representatives and agents access a reasonable number of
times during
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normal business hours upon reasonable notice to examine all books and records of
the Seller.
5.8 INTERIM CONDUCT OF BUSINESS. Except as otherwise
contemplated by this Agreement, during the period from the date hereof to the
Closing, the Seller shall, and the Partners shall cause the Seller to, (i)
operate the business of the Seller only in the ordinary course of business
consistent with past practice, (ii) maintain, keep and preserve the assets of
the Seller, and (iii) use its best efforts to (A) preserve intact the present
organization of the Seller, (B) keep available the services of the present
employees of the Seller and (C) preserve the Seller's relationships with
customers, suppliers, licensors, licensees, contractors and others having
significant business dealings with the Seller. Without limiting the generality
of the foregoing, from the date of this Agreement, the Seller shall not, and the
Partners shall not permit the Seller to, without the prior written consent of
the Buyer (which consent may not be unreasonably withheld:
(a) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver any partnership interests of the Seller or any
equivalents thereof;
(b) incur or assume any indebtedness or issue or sell any debt
securities or warrants or rights to
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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;
(c) permit any assets of the Seller to suffer any lien
thereupon;
(d) change any of the accounting principles or practices used
by the Seller (except as required by GAAP);
(e) 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;
(f) enter into or offer to enter into any employment or
consulting agreement with any person;
(g)(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;
(h) sell, lease, transfer or otherwise dispose of any of its
assets;
(i) install, or agree to install, any telephones, except with
the written Consent of the Buyer;
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(j) make any election with respect to the Taxes or Tax Returns
of the Seller without the Buyer's written consent;
(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 Seller or the Partners contained in this Agreement materially 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 FORWARDING OF PAYMENTS RECEIVED. The Seller shall
immediately remit to the Buyer any monies received in respect of the Business
after the Closing.
5.10 PERMITS. The Seller and the partners at the Seller's sole
cost and expense will use commercially reasonable efforts to cause all Permits
or consents to transfer which are required to be obtained for the Buyer to
legally own and operate the Assets, a complete listing of which is set forth on
Exhibit F hereto, to be issued or fully assigned to the Buyer within 90 days
after the Closing Date.
5.11 EMPLOYEES. The Seller shall permit the Buyer access to
all employees of the Seller at reasonable times. Upon or after the Closing, the
Buyer may employ any employee of the Seller, upon such terms as the Buyer and
such employee may agree. The Buyer shall have no
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obligation to employ any employee of the Seller, and shall have no obligation in
respect of their employment with the Seller, including any obligation in respect
of the termination of such employment. For a period of at least 120 days after
the Closing Date, the Seller shall not employ any of the technicians who are
employed in connection with the Business other than Robin Shaw and Brad Burgess
who will remain employed with the Seller and whose services will be made
available to the Buyer for a period of up to 120 days following Closing.
5.12 CONSENTS; WAIVERS; ASSIGNMENTS. The Seller or the
Partners will, prior to the Closing, have obtained and delivered all consents,
waivers, assignments and assumptions which would be required in order to not
breach any Contracts to which the Seller is a party, a complete listing of which
is set forth on Exhibit G hereto.
5.13 NON-COMPETITION. For a period commencing on the Closing
Date and continuing for three years thereafter, none of the Seller or the
Partners shall, without the prior written consent of the 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 form or have a
proprietary interest in, any enterprise or business which sells, leases,
maintains, owns or operates pay telephones, other than telephones installed in
any correctional facility. The parties hereto acknowledge that the business of
the
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Buyer and its affiliates will be conducted throughout the United States and
agree that such geographic scope is reasonable.
5.14 NON-SOLICITATION. The Seller and the Partners agree that,
for a period commencing on the Closing Date hereof and continuing for five years
after the Closing Date, none of the Seller or the Partners shall, directly or
indirectly, (a) purchase or otherwise acquire, or attempt to purchase or
otherwise acquire, any of the assets of the Buyer (or any subsidiary thereof);
(b) solicit, entice or persuade, or attempt to solicit, entice or persuade, any
employee of the Buyer or its affiliates, or any client then under contract with
the Buyer or any of its affiliates to terminate his employment by or contractual
relationship with the Buyer or its affiliates or to become employed by or to
enter into contractual relations with a competitor of the Buyer or its
affiliates; or (c) persuade or attempt to persuade customers, potential
customers, suppliers or potential suppliers of the Buyer and its affiliates to
divert their business to any other entity or individual.
ARTICLE VI
CONDITIONS
6.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. The
obligation of the Buyer to consummate the transactions contemplated hereby is
subject to the
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satisfaction or waiver by the Buyer (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 Seller and the Partners contained
in this Agreement, the Disclosure Schedule, or in any Other Document to be
executed and delivered by the Seller or the Partners on or before the Closing
Date pursuant hereto (i) shall have been true and correct in all material
respects when made, and (ii), except for those representations and warranties
which, by their terms, speak only as of the date hereof, 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 Seller and the
Partners 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
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<PAGE> 51
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 by the Seller and the Buyer.
6.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE
PARTNERS. The obligations of the Seller and the Partners to consummate the
transactions contemplated hereby are subject to the satisfaction or waiver by
the Seller (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 Buyer contained in this Agreement
or in any Other Document to be executed and delivered by the Buyer on or before
the Closing Date pursuant hereto (i) shall have been true and correct in all
material respects when made, and (ii), except for those representations and
warranties which, by their terms, speak only as of the date hereof, 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 Buyer shall have
performed and complied with all of the covenants and agreements contained in
this Agreement to
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<PAGE> 52
be 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 Seller, the Partners 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 March
31, 1998 except that the representations and warranties contained in Sections
3.13 (Litigation and Arbitration) and 3.16 (Taxes) shall both survive until 45
days following the expiration of the applicable statute of limitations
(including extensions thereof). 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
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<PAGE> 53
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(a), 7.3(b) and 7.4(a) hereof.
7.3 INDEMNIFICATION BY THE SELLER AND THE PARTNERS.
(a) Subject to the provisions of this Article VII,
each Partner 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 incurred by any Buyer
Indemnified Party, directly or indirectly, by reason of or resulting from the
breach of or any inaccuracy in any of the representations and warranties of such
Partner contained in or made pursuant to Article II hereof, or any facts or
circumstances constituting such breach or inaccuracy.
(b) Subject to the provisions of this Article VII,
the Seller and each Partner shall, jointly
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<PAGE> 54
and severally, indemnify, defend and hold harmless each Buyer Indemnified Party
from and against any and all Losses asserted against, resulting to, imposed upon
or incurred by such 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 Seller or the Partners contained
in or made pursuant to any Section of this Agreement (other than a
Section in Article II hereof), or any facts or circumstances
constituting such breach or inaccuracy;
(ii) the breach or nonperformance of any covenant or
agreement of the Seller or the Partners contained in or made pursuant
to this Agreement or any facts or circumstances constituting such
breach or nonperformance;
(iii) any Liabilities of the Seller or ICS other than
the Assumed Liabilities including, without limitation, any and all
liabilities and obligations, direct and indirect, fixed or contingent,
for (A) Taxes payable with respect to the sale of the Assets by the
Seller to the Buyer, (B) Taxes attributable to or incurred in
connection with the Assets prior to or on the Closing Date, (C) Taxes
of the Seller or the Partners for any Taxable Period,
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<PAGE> 55
or (iv) any claims or legal actions against the
Seller relating to matters prior to the Closing; and
(iv) any litigation or legal claims
against the Seller or for which the Seller is or may
be liable.
7.4 INDEMNIFICATION BY THE BUYER. Subject to the provisions of
this Article VII, the Buyer shall indemnify, defend and hold harmless the
Partners, the Seller, any parent, subsidiary or affiliate of the Seller, 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:
(a) the breach of or any inaccuracy in any of the
representations and warranties of the Buyer contained in or made
pursuant to this Agreement or any facts or circumstances constituting
such breach or inaccuracy;
(b) 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
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<PAGE> 56
(c) any claims or legal actions relating
to the Business for periods after the Closing.
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 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' failure has materially prejudiced the Indemnitor's ability to
defend the claim, demand or proceeding or unless the notice was given after the
expiration of the applicable period specified in Section 7.1.
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<PAGE> 57
(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. After the
Indemnitor has assumed such defense, the Claiming Party shall not consent to the
entry of any judgment nor enter into any settlement without the consent of the
Indemnitor, which consent shall not be unreasonably withheld. Except with the
written consent of the Claiming Party, the Indemnitor shall not consent to the
entry of any judgment or 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,
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<PAGE> 58
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 with the Indemnitor's consent,
which shall not be unreasonably withheld or delayed.
(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 8.9 hereof) and
the Indemnitor shall pay all of the sums so owing to the Claiming Party by wire
transfer, certified
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<PAGE> 59
or bank cashier' check within 10 days after the date of such notice.
ARTICLE VIII
MISCELLANEOUS
8.1 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and permitted assigns. This Agreement and the rights and
obligations of the Buyer, the Seller and the Partners hereunder may not be
assigned by any of the parties hereto without the prior written consent of the
other parties.
(b) This Agreement is not intended, nor shall it be
construed, to confer 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.
8.2 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.
8.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits
hereto and the documents,
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<PAGE> 60
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.
8.4 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.
8.5 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.
8.6 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which
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shall be deemed an original but all of which together shall constitute one and
the same instrument.
8.7 HEADINGS. The table of contents, article and section
headings contained in this Agreement are for convenience only and shall not
control or affect in any way the meaning or interpretation of the provisions of
this Agreement.
8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH JURISDICTION.
8.9 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.
1127 Euclid Avenue
Cleveland, Ohio 44115
Telephone: (216) 241-2555
Telecopy: (216) 241-2574
Attention: Chairman
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Copy to:
Skadden, Arps, Slate,
Meagher & Flom LLP
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 Partner:
Partner's address, as set forth on Exhibit G
hereto.
Copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 700
Houston, Texas 77002-5895
Telephone: (713) 650-2773
Telecopy: (713) 951-3800
Attention: Ross D. Margraves, Jr., Esq.
(c) If to the Seller:
Texas Coinphone
2706 Finfeather
Bryan, TX 77801
Telephone: (409) 775-2336
Telecopy: (409) 775-4393
Attention: Dennis H. Goehring
Copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 700
Houston, Texas 77002-5895
Telephone: (713) 650-2773
Telecopy: (713) 951-3800
Attention: Ross D. Margraves, 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
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<PAGE> 63
notice of a change of address shall be deemed given only upon receipt.
8.10 TERMINATION OR ABANDONMENT. This Agreement shall
terminate on January 15, 1997 (or February 15, 1997 if the Closing shall have
been extended pursuant to Section 1.7), upon notice by either the Seller or the
Buyer to the other if the Closing has not been consummated by such date.
Notwithstanding anything contained in this Agreement to the contrary, this
Agreement may be terminated and abandoned at any time prior to the Closing:
(a) by the mutual written consent of the Seller and
the Buyer;
(b) by the Seller or the Buyer, if any court of
competent jurisdiction or governmental body, authority or agency having
jurisdiction shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable;
(c) by the Seller if any of the conditions provided
for in Section 6.2 shall have become incapable of fulfillment, and shall not
have been waived by Seller; or
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<PAGE> 64
(d) by the Buyer if any of the conditions provided
for in Section 6.1 shall have become incapable of fulfillment, and shall not
have been waived by the Buyer.
8.11 EFFECT OF TERMINATION. If any party terminates this
Agreement pursuant to Section 8.10 above, 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 shall survive termination
of this Agreement.
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 hereof.
"ACCOUNTS RECEIVABLE" shall mean all of the accounts
receivable of the Seller.
"ADJUSTMENT SCHEDULE" shall have the meaning set forth in
Section 1.5 hereof.
"AFFILIATE TRANSACTIONS" shall have the meaning set forth in
Section 3.22 hereof.
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"ASSETS" shall have the meaning set forth in the preamble.
"ASSUMED LIABILITIES" shall have the meaning set forth in
Section 1.1(c) hereof.
"AVERAGE INCOME" shall mean the gross revenues minus telephone
bills and commissions (assuming dial-around compensation is based on the state
of the law existing prior to September 20, 1996) for the Seller Phones; provided
that (a) for Seller Phones installed on or prior to September 30, 1996, the
Average Income shall be measured from January 1, 1996 (or, if later, the date of
installation) through December 31, 1996 and (b) for Seller Phones installed
after September 30, 1996, the Average Income shall be measured from the date of
installation through April 30, 1997.
"AVERAGE TERM" shall mean the average remaining term of the
written contracts for the placement of the Seller Phones; provided that, in
making such calculation (a) a Seller Phone without a written contract shall be
treated as if there is a contract with no remaining term; (b) any renewal at the
option of the Seller shall be considered part of the term; (c) any contract
which automatically renews unless the other party gives notice of its intention
to terminate the contract or permit it to expire, shall be deemed to terminate
as if such notice is given at the earliest permissible date; and (d) such
calculation shall be weighted to take into account the number of telephones
under each such contract.
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"BUYER" shall mean PhoneTel Technologies, Inc., an Ohio
corporation.
"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(a) 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.
"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
other documents securing any indebtedness for borrowed money, commitments and
understandings, written or oral, and all amendments or modifications thereto, to
which the Seller is a party or by which the Seller is bound.
"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
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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 hereof.
"EQUIPMENT" shall mean all telephones, 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 Seller 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 trade or business, whether or
not incorporated, which (within the meaning of Section 4001 of ERISA) would, in
conjunction with the Seller, be deemed a "single employer".
"ESCROW AGENT" shall have the meaning set forth in Section
1.6(a) hereof.
"ESCROW AMOUNT" shall have the meaning set forth in Section
1.6(a) hereof as may be modified by Section 1.6(b) hereof.
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"FCC" shall mean the Federal Communications Commission.
"FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 3.5 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.
"ICS" shall mean International Communication Solutions, Inc.,
a Texas corporation.
"INDEMNITOR" shall have the meaning set forth in Section 7.5
hereof.
"INTELLECTUAL PROPERTY" shall mean (a) 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
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applications therefore, (b) all trade secrets, know-how, formulae, processes,
inventions (whether patentable or unpatentable) and other technical information
and (c) the goodwill of the business symbolized by any of the foregoing.
"INVENTORY" shall mean and include all inventory owned or held
by the Seller 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.
"LIABILITIES" shall mean any obligations or liabilities of the
Seller of any nature, whether known or unknown, accrued, absolute, contingent or
otherwise, and whether due or to become due of the Seller or its affiliates,
provided that normal, recurring monthly expenses incurred during the month of
the Closing Date shall be allocated between the Buyer and the Seller according
to the number of days occurring before and after the Closing Date.
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"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 Seller's Affiliates, (ii) involves an obligation or commitment of
more than $25,000 or (iii) which otherwise is material to the Seller's financial
condition, results of operations, assets, liabilities, business or, to the
knowledge of the Seller or any of the Partners, the prospects of the Seller.
"1996 AUDIT" shall have the meaning set forth in Section 3.5
hereof.
"ORDER" shall mean any order, judgment, injunction, award,
decree, writ, rule or similar action of any Governmental Authority.
"OTHER DOCUMENTS" shall have the meaning set forth in Section
1.7 hereof.
"PARTNER" and "PARTNERS" shall have the meaning set forth in
the Preamble.
"PARTNER'S AFFILIATES" shall have the meaning set forth in
Section 3.22 hereof.
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"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
(including those required by local business ordinances and regulations of public
utility commissions).
"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 in accordance with the percentage of the
Partners' ownership interests in the Seller, as set forth on Exhibit D hereto.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SELLER" shall have the meaning set forth in the preamble.
"SELLER INDEMNIFIED PARTY" shall have the meaning set forth in
Section 7.4 hereof.
"SELLER PHONES" shall mean the microprocessor-based pay
telephones owned by the Seller which are active and generating income for the
Seller, but not including (a) any telephones installed after the date hereof not
approved for purchase by the Buyer, (b) any telephones at
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locations which, at the Closing Date, are not open for business or (c)
telephones installed in correctional facilities.
"SHARES" shall have the meaning set forth in the preamble.
"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
taxing 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 7.6(b) hereof.
"TRANSFER TAXES" shall have the meaning set forth in Section
5.1(a) hereof.
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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: Peter G. Graf
Title: Chairman and
Chief Executive Officer
TEXAS COINPHONE
By:
----------------------------------------
Name: Dennis H. Goehring
Title: General Partner
------------------------------------------
Pete W. Catalena
------------------------------------------
Dennis H. Goehring
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SCHEDULE I
ASSETS OF THE BUSINESS
INSTALLED PAY TELEPHONES
LOCATION CONTRACTS FOR INSTALLED PAY TELEPHONES
AND PAY TELEPHONES NOT YET INSTALLED
PAY TELEPHONES NOT YET INSTALLED
SPARE PARTS
CASH IN INSTALLED PAY TELEPHONES AS OF THE
CLOSING DATE
10 HOUSINGS
HANDSETS
KEYPADS
28 INTELLICALL 3000 BOARDS
8 INTELLICALL I STAR BOARDS
2 INTELLICALL ASTRATEL BOARDS
11 PROTEL BOARDS
7 ELCOTEL BOARDS
2 CHAIRS
1 SECRETARIAL DESK
1 DESK
3 COMPUTERS
SOFTWARE PROGRAMS/INTELLICAL/PROTEL/ELCOTEL
1 SAFE
1 COIN COUNTER
2 SETS REPAIR TOOLS-LINEMAN'S TEST SET/DIGIT GRABBER
1 DODGE TRUCK
1 TOYOTA TRUCK
1 LADDER
20 PEDESTALS & ENCLOSURES
[MORE?]
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EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Cherokee Communications, Inc.:
We have audited the accompanying balance sheets of Cherokee Communications,
Inc. (the Company) as of September 30, 1995 and 1994, and the related statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1995. 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, such financial statements present fairly, in all material
respects, the financial position of the Company at September 30, 1995 and 1994,
and the results of its operations and its cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Dallas, Texas
November 17, 1995
<PAGE> 2
CHEROKEE COMMUNICATIONS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 668,778 $ 780,962
Short-term cash investments..................................... 150,000
Trade accounts receivable, less allowance for doubtful accounts
of $264,803 and $255,965, respectively (Notes 6 and 10)...... 4,453,192 4,251,894
Inventories (Note 6)............................................ 137,036 78,792
Prepaid expenses and other current assets (Note 10)............. 303,273 213,863
Deferred income tax benefits (Note 9)........................... 108,717 112,718
----------- -----------
Total current assets.................................... 5,670,996 5,588,229
Property and equipment -- net (Notes 2, 3 and 6).................. 12,935,453 11,334,863
Site licenses -- net (Note 1)..................................... 1,941,467 2,221,780
Investment in and advances to affiliates (Note 5)................. 164,549 30,188
Deferred income tax benefits (Note 9)............................. 93,704
Other assets -- net (Note 4)...................................... 681,754 890,856
----------- -----------
TOTAL.............................................. $21,394,219 $20,159,620
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable -- receivable financing (Note 6)................... $ 659,604 $ 1,705,174
Current portion of other notes payable (Note 6)................. 1,491,767 1,395,338
Current portion of capital lease obligations (Note 7)........... 1,094,381 1,616,814
Accounts payable................................................ 310,358 267,755
Accrued telecommunication and other expenses.................... 2,971,935 2,575,808
Income taxes payable............................................ 256,140 368,143
----------- -----------
Total current liabilities............................... 6,784,185 7,929,032
Long-term liabilities:
Notes payable, less current portion (Note 6).................... 6,605,835 5,295,294
Capital lease obligations, less current portion (Note 7)........ 780,593 2,139,216
Deferred income tax liability (Note 9).......................... 342,359
----------- -----------
Total long-term liabilities............................. 7,728,787 7,434,510
Commitments and contingencies (Notes 7 and 11)
Shareholders' equity (Note 8):
Convertible redeemable preferred stock.......................... 2,400,000 2,400,000
Common stock warrants, with mandatory redemption requirements... 1,087,000 1,087,000
Common stock, no par value; 15,000,000 shares authorized,
5,320,467 and 5,312,467 shares issued and outstanding,
respectively................................................. 351,903 343,183
Additional paid-in capital...................................... 10,630 10,630
Retained earnings............................................... 3,031,714 955,265
----------- -----------
Total shareholders' equity.............................. 6,881,247 4,796,078
----------- -----------
TOTAL.............................................. $21,394,219 $20,159,620
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 3
CHEROKEE COMMUNICATIONS, INC.
STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Telecommunications revenues:
Pay phone coin calls................................ $14,036,665 $10,797,869 $ 7,258,037
Automated operator, routed calls.................... 17,049,394 16,425,708 13,543,072
Other (Note 5)...................................... 505,581 641,899 825,694
----------- ----------- -----------
Total....................................... 31,591,640 27,865,476 21,626,803
Operating costs and expenses:
Telephone charges................................... 7,851,842 7,257,272 4,956,950
Commissions......................................... 4,909,445 4,341,260 3,258,932
Telecommunication fees and validation............... 1,821,930 1,834,389 1,843,614
Depreciation and amortization (Note 2).............. 4,298,090 4,284,734 3,218,450
Field operations personnel.......................... 2,016,935 1,610,952 1,191,829
Chargebacks and doubtful accounts................... 1,104,896 784,636 1,046,353
Selling, general and administrative (Note 10)....... 5,520,405 4,634,890 3,714,601
----------- ----------- -----------
Total....................................... 27,523,543 24,748,133 19,230,729
----------- ----------- -----------
Operating income...................................... 4,068,097 3,117,343 2,396,074
Other income (expense):
Interest expense.................................... (1,450,249) (1,682,465) (1,345,065)
Amortization of debt discount....................... (181,167) (181,167) (75,486)
Interest income..................................... 57,278 20,329 20,731
Equity in earnings (losses) of affiliates (Note
5)............................................... (34,608) (226,625) (6,948)
Gain on equipment sales and other (Note 3).......... 1,160,238 67,917 84,325
----------- ----------- -----------
Total....................................... (448,508) (2,002,011) (1,322,443)
----------- ----------- -----------
Income before income taxes............................ 3,619,589 1,115,332 1,073,631
Provision for income taxes (Note 9)................... 1,399,140 512,402 418,508
----------- ----------- -----------
Net income.................................. $ 2,220,449 $ 602,930 $ 655,123
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 4
CHEROKEE COMMUNICATIONS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON COMMON STOCK ADDITIONAL RETAINED
-------------------- STOCK -------------------- PAID-IN EARNINGS
SHARES AMOUNT WARRANTS SHARES AMOUNT CAPITAL (DEFICIT)
------- ---------- ---------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1992....... -- $ -- $ -- 5,000,000 $ 5,000 $ 10,630 $ (50,788)
Issuance of preferred
stock...................... 240,000 2,400,000
Cash dividends on preferred
stock...................... (108,000)
Issuance of common stock..... 312,467 338,183
Issuance of common stock
warrant (Note 8)........... 1,087,000
Net income................... 655,123
------- ---------- ---------- --------- -------- ------- ----------
Balance, September 30, 1993.... 240,000 2,400,000 1,087,000 5,312,467 343,183 10,630 496,335
Cash dividends on preferred
stock...................... (144,000)
Net income................... 602,930
------- ---------- ---------- --------- -------- ------- ----------
Balance, September 30, 1994.... 240,000 2,400,000 1,087,000 5,312,467 343,183 10,630 955,265
Cash dividends on preferred
stock...................... (144,000)
Proceeds from exercise of
common stock options....... 8,000 8,720
Net income................... 2,220,449
------- ---------- ---------- --------- -------- ------- ----------
Balance, September 30, 1995.... 240,000 $2,400,000 $1,087,000 5,320,467 $351,903 $ 10,630 $3,031,714
======= ========== ========== ========= ======== ======= ==========
</TABLE>
See notes to financial statements.
<PAGE> 5
CHEROKEE COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities:
Net income.................................................. $ 2,220,449 $ 602,930 $ 655,123
Noncash items in net income:
Depreciation and amortization............................. 4,298,090 4,284,734 3,218,450
Amortization of debt discount............................. 181,167 181,167 75,486
Equity in earnings (losses) of affiliates................. 34,608 226,625 6,948
Deferred income taxes..................................... 440,064 88,456 (35,731)
Gain on sale of property and equipment.................... (1,136,894) (51,854) (59,491)
Cash from (used for) changes in operating working capital:
Trade accounts receivable................................. (201,298) (946,867) (1,933,366)
Inventories............................................... (58,244) 58,875 (137,667)
Prepaid expenses and other current assets................. (89,410) (56,234) (70,710)
Accounts payable and accrued liabilities.................. 438,730 619,244 424,157
Income taxes payable...................................... (112,003) 335,672 (91,743)
----------- ----------- -----------
Net cash from operating activities...................... 6,015,259 5,342,748 2,051,456
----------- ----------- -----------
Investing Activities:
Additions to property and equipment......................... (5,794,108) (4,059,111) (5,224,466)
Increase in site licenses................................... (440,220) (433,746) (753,966)
Increase in other assets.................................... (79,353) (644,428)
Proceeds from sale of property and equipment................ 2,041,310 96,905 108,700
Investments in and advances to affiliates................... (218,767) (40,591) (333,329)
Distributions from affiliates............................... 49,798 60,427 55,765
Sale (purchase) of short-term cash investments.............. 150,000 (150,000)
----------- ----------- -----------
Net cash used for investing activities.................. (4,291,340) (4,526,116) (6,791,724)
----------- ----------- -----------
Financing Activities:
Issuance of (payments on) note payable -- receivable
financing................................................. (1,045,570) 161,812 1,543,362
Issuance of other notes payable............................. 4,048,753 2,122,523 9,333,355
Payments on notes payable and capital lease obligations..... (4,704,006) (2,948,227) (7,950,674)
Issuance of common stock.................................... 8,720
Issuance of preferred stock................................. 2,400,000
Cash dividends on preferred stock........................... (144,000) (144,000) (108,000)
----------- ----------- -----------
Net cash from (used for) financing activities........... (1,836,103) (807,892) 5,218,043
Increase (decrease) in cash and cash equivalents.............. (112,184) 8,740 477,775
Cash and cash equivalents:
Beginning of year........................................... 780,962 772,222 294,447
----------- ----------- -----------
End of year................................................. $ 668,778 $ 780,962 $ 772,222
=========== =========== ===========
Supplemental information:
Interest paid............................................... $ 1,462,519 $ 1,635,052 $ 1,230,562
=========== =========== ===========
Income taxes paid........................................... $ 1,091,368 $ 23,000 $ 568,861
=========== =========== ===========
Noncash investing and financing activities:
Equipment and other assets acquired under capital lease
obligations and debt.................................... $ -- $ 367,500 $ 2,718,189
=========== =========== ===========
Common stock issued for financing costs................... $ -- $ -- $ 338,183
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE> 6
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Cherokee Communications, Inc. (the Company) owns, operates and
maintains pay telephone systems connected to the network of regulated telephone
companies throughout the United States at various third-party property owner
locations. In connection with the telephone systems, the Company also derives
revenue from routing calls to operator service companies and through its own
automated operator system (AOS) installed in its telephones. A summary of owned
and managed phones at September 30 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Owned............................................... 9,333 8,182 6,320
Managed............................................. 276 233 235
----- ----- -----
Total..................................... 9,609 8,415 6,555
===== ===== =====
</TABLE>
REVENUES from coin and noncoin calls are recognized at the time the calls
are made and are dependent on service provided by the long-distance carriers.
Accounts receivable primarily includes revenues generated from calls completed
through the Company's AOS and from commissions to be received from operator
service companies. An allowance for doubtful accounts is provided at the time of
revenue recognition for the estimated settlement ("true-up") for actual
chargebacks made by the telephone companies, based on historical experience. The
"true-up" for actual chargebacks is typically made within six months. Also, the
related telecommunication expenses are accrued for the costs for validating,
transmitting, and billing and collecting calls completed through the AOS, as
well as for commissions to be paid to third-party property owners.
CASH EQUIVALENTS represent highly liquid investments with initial or
remaining maturities at the date of purchase of three months or less. Short-term
cash investments consist of certificates of deposit with maturities greater than
three months.
INVENTORIES, which primarily consist of telephone booth enclosures and
related parts, are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT are stated at cost less accumulated depreciation and
amortization. Cost of telecommunications equipment includes the initial line
hook-up charges, sales commissions, labor and other charges incurred for
installing pay phones. Depreciation and amortization are provided primarily
using the double declining balance method, later switching to the straight-line
method over the following estimated useful lives of the related assets:
buildings, 20 years; leasehold improvement, 25 years; telecommunications
equipment, seven years and ten years; telecommunications software licenses, four
years; vehicles, computer equipment and software, five years; and furniture and
office equipment, five to seven years. Beginning October 1, 1993, the Company
began depreciating newly acquired telecommunications equipment over a ten-year
period using the straight-line method (see Note 2). Refurbishment, repairs and
maintenance costs are expensed as incurred.
SITE LICENSES are stated at the cost of site licenses acquired in asset
acquisitions, less accumulated amortization of $2,690,403 and $2,224,277 at
September 30, 1995 and 1994, respectively. Amortization is provided using the
straight-line method over the terms of the related site license agreements,
generally two to seven years.
OTHER ASSETS are amortized using the straight-line method over the
following periods: deferred financing costs over the life of the respective
financing agreement; and noncompete agreements and patents, five years.
<PAGE> 7
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
DEFERRED FEDERAL INCOME TAXES are provided under the asset and liability
method for temporary differences in the recognition of income and expense for
tax and financial reporting purposes and for the expected benefit of tax credit
carryforwards.
2. CHANGE IN DEPRECIABLE LIFE
Effective October 1, 1993, the Company increased the estimated useful life
of its telecommunications equipment acquired after that date from seven to ten
years. This was to more appropriately reflect the anticipated useful service
period for newly acquired equipment. The effect of this change in accounting
method reduced depreciation expense by approximately $293,000 and increased net
income during the 1994 period by approximately $193,000.
3. PROPERTY AND EQUIPMENT
Property and equipment at September 30 consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Telecommunications equipment:
Owned................................................... $12,577,986 $ 9,312,536
Under capital leases.................................... 5,725,587 6,328,695
Telecommunications software licenses...................... 2,214,455 1,880,832
Vehicles.................................................. 2,184,227 1,630,211
Furniture and office equipment............................ 686,820 491,401
Machinery................................................. 30,005 30,005
Land and buildings........................................ 75,747 73,787
----------- -----------
Total........................................... 23,494,827 19,747,467
Less accumulated depreciation and amortization............ 10,559,374 8,412,604
----------- -----------
Property and equipment -- net............................. $12,935,453 $11,334,863
=========== ===========
</TABLE>
In October 1994, the Company sold approximately 760 telephones, certain
other assets and related site agreements for approximately $1.7 million, which
resulted in a gain on the sale of assets of approximately $1 million.
4. OTHER ASSETS
Other assets at September 30 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred financing costs.................................... $1,113,451 $1,034,098
Patents..................................................... 46,009 46,009
Noncompete agreements....................................... 252,500 252,500
---------- ----------
Total............................................. 1,411,960 1,332,607
Less accumulated amortization............................... 730,206 441,751
---------- ----------
Other assets -- net......................................... $ 681,754 $ 890,856
========== ==========
</TABLE>
In connection with the subordinated debt financing in May 1993, the Company
paid certain investment banking fees of $365,992 in cash and $338,183 in common
stock of 312,467 shares (at $1.08 per share). These amounts were accounted for
as deferred financing costs.
<PAGE> 8
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. INVESTMENT IN AND ADVANCES TO AFFILIATES
The Company has a 50% investment in a partnership, Cherokee Public Phones
(CPP), which owns pay phones. The Company provides certain management and
recordkeeping services to CPP.
During 1993, the Company invested $80,000 for a 49% investment in a
corporate joint venture in Mexico, Corporaciones Interamericana De Desarrollo
Comunicaciones, S.A. de C.V. (CID), which owns and operates pay phones primarily
in Monterrey, Mexico. During the year ended September 30, 1994, the Company made
additional cash advances of $69,839. Total advances at September 30, 1994, of
$323,168 were converted to the investment in CID. In July 1994, an outside
investor invested $250,000 in CID, which reduced the Company's ownership
interest in CID to 33% as of September 30, 1994.
In March 1995, the Company invested $25,000 to acquire an additional 17%
interest in CID, increasing its ownership percentage to 50% as of September 30,
1995. Additional cash advances of $193,767 made to CID during the year are
included in the investment.
The Company has the following balances with these affiliates at September
30:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
CID -- Investment, at equity................................... $179,020 $ 44,659
CPP -- Equity interest in (net advances from) the
partnership.................................................. (14,471) (14,471)
-------- -------
Total................................................ $164,549 $ 30,188
======== =======
</TABLE>
Equity in earnings (losses) of affiliates consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
CID............................................... $(84,406) $(287,052) $(62,713)
CPP............................................... 49,798 60,427 55,765
--------- ---------- ---------
Total................................... $(34,608) $(226,625) $ (6,948)
========= ========== =========
</TABLE>
Transactions in the Company's financial statements arising from the above
arrangement with CPP are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Other revenue -- management fees.................. $ 47,637 $ 50,525 $ 39,559
Distributions from affiliates..................... 49,798 60,427 55,765
</TABLE>
6. NOTES PAYABLE
Notes payable to Zero Plus Dialing Inc. (ZPDI) of $659,604 and $1,705,174
at September 30, 1995 and 1994, respectively, are due on demand and bear
interest at prime plus 3% (11.75% at September 30, 1995). These notes represent
advances on trade accounts receivable being collected by ZPDI on behalf of the
Company, under an agreement which expires July 1, 1996, and are collateralized
by accounts receivable of $3,651,571 at September 30, 1995.
<PAGE> 9
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Long-term notes payable at September 30 consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Equipment notes:
Notes payable, Comerica Bank:
Revolving capital expenditure facility.................... $ 906,200 $ --
Revolving acquisition facility............................ 1,636,582
Note payable, Paycom, Inc. -- due in monthly installments
through July 1997 of $39,015, including interest at 15.0%,
collateralized by equipment, paid in 1995................. 1,038,157
Note payable, G.E. Capital -- due in monthly installments
through July 1995 of $58,141, including interest at 12.0%,
collateralized by equipment............................... 550,673
Notes payable, Tri Con Capital Corp. due in monthly
installments through May 1995, collateralized by
equipment................................................. 13,363
Other equipment notes payable............................... 131,327
---------- ----------
Total equipment notes............................. 2,674,109 1,602,193
Vehicle notes:
Notes payable, FMCC -- due in monthly installments of
$18,104, including interest ranging from 2.9% to 16.75%,
maturing through November 1998, collateralized by
automobiles............................................... $ 902,726 $ 743,407
Notes payable, GMAC -- due in monthly installments of
$1,210, including interest ranging from 7.0% to 9.0%,
maturing through October 1997, collateralized by
automobiles............................................... 22,630 32,070
Note payable, Lone Oak Bank -- due in monthly installments
through July 1996 of $475, including interest at 10.0%,
collateralized by an automobile........................... 9,521
---------- ----------
Total vehicle notes......................................... 925,356 784,998
Subordinated and other notes:
Subordinated note payable, Banc One Capital Partners
Corporation -- bearing interest at 12% payable quarterly
beginning July 1993, with principal due at maturity in May
1999, net of $649,181 and $830,347, respectively, of
unamortized debt discount assigned to common stock warrant
(see Note 8). Borrowings under this $5 million financing
commitment are unsecured and subject to certain financial
covenants and ratios...................................... 4,350,819 4,169,653
Notes payable insurance companies -- due in monthly
installments through June 1996, including interest,
unsecured................................................. 147,318 133,788
---------- ----------
Total subordinated and other notes payable.................. 4,498,137 4,303,441
---------- ----------
Total............................................. 8,097,602 6,690,632
Less current portion........................................ 1,491,767 1,395,338
---------- ----------
Long-term notes payable, less current portion............... $6,605,835 $5,295,294
========== ==========
</TABLE>
Notes payable to Comerica Bank consist of revolving credit loans under
which the Company may borrow up to $5 million under each credit facility ($10
million under the acquisition facility effective November 1, 1995 -- see Note
12), or the collateral base amount, which is equal to $1,200 per telephone. The
notes are collateralized by substantially all assets, subject to the preferences
of other notes payable, and the personal guaranty of the Company's majority
shareholder for $1 million. Outstanding principal on the capital expenditure
facility is payable in 48 equal monthly payments of $19,700 beginning August 1,
1995. Borrowings under the acquisition facility are payable in 36 and 48 equal
monthly payments beginning the month after
<PAGE> 10
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
advances are made. Interest is payable monthly at the prime rate plus 1% to 3%.
The interest rate margin is adjustable monthly based on a certain financial
ratio under the terms of the agreement. Interest rates on these notes were 9.75%
at September 30, 1995. Borrowings under the acquisition facility may occur
through January 24, 1997.
Maturities of long-term notes payable at September 30, 1995 (before
reduction for the $649,181 unamortized debt discount), are as follows:
<TABLE>
<S> <C>
1996............................................................. $1,491,767
1997............................................................. 1,171,235
1998............................................................. 760,757
1999............................................................. 5,323,024
----------
Total.................................................. $8,746,783
==========
</TABLE>
7. LEASE COMMITMENTS
The Company is leasing telecommunications equipment under capital leases,
and all of its operating facilities through operating leases. The Company leases
its primary office facility under an operating lease with a related party, as
discussed in Note 10. Rental expense for all operating leases was $174,808,
$116,009 and $111,890 for the years ended September 30, 1995, 1994 and 1993,
respectively. Future minimum rental payments required under these noncancelable
leases at September 30, 1995, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
---------- ---------
<S> <C> <C>
Year ending September 30:
1996............................................... $1,305,115 $ 135,361
1997............................................... 841,827 64,172
1998............................................... 0 35,696
1999............................................... 0 4,180
---------- --------
2,146,942 $ 239,409
========
Amount representing interest......................... 271,968
----------
Present value of minimum lease payments.............. 1,874,974
Less current portion................................. 1,094,381
----------
Capital lease obligations, less current portion...... $ 780,593
==========
</TABLE>
8. CAPITAL STOCK
DIVIDEND RESTRICTIONS -- Certain note payable agreements and preferred
stock instruments restrict the Company's ability to pay cash dividends on its
common stock.
CONVERTIBLE REDEEMABLE PREFERRED STOCK -- The Company has authorized and
issued 240,000 shares of nonvoting, cumulative convertible redeemable preferred
stock ($1.00 par value) for $2,400,000. Each share of preferred stock is
convertible into approximately 9.24 shares of common stock, subject to
adjustments in certain events, prior to December 31, 2000. The preferred stock
will be automatically converted in the event of an initial public offering.
Holders of the preferred stock are entitled to receive cumulative cash
dividends payable quarterly, at an annual rate of $.60 per share commencing
March 31, 1993, through January 1, 2003, and at an annual rate of $1.10 per
share commencing April 1, 2003. In liquidation, the preferred stock is entitled
to $10 per share.
<PAGE> 11
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Beginning on December 30, 2000, or at any time thereafter, the Company may,
at its option, redeem any number of outstanding shares of preferred stock at $10
per share, plus all accrued and unpaid dividends. At any time after December 31,
2002, and prior to December 31, 2010, holders of the preferred stock have the
option to sell, and the Company has the obligation to purchase, any number of
outstanding shares at the then-determined fair market value.
COMMON STOCK WARRANTS -- In connection with the subordinated debt financing
in May 1993, the Company issued warrants exercisable for 1,562,338 shares of
common stock at $1.08206 per share through May 1999. Upon certain occurrences or
after May 1998, the warrant holder may require the Company to redeem the
warrants at a specified price, which generally is a multiple of defined cash
flow. A fair value of $1,087,000 was assigned to the warrants when issued and is
accounted for as debt issue discount (see Note 6).
STOCK OPTIONS -- The stock option plan provides for granting incentive
stock options to key employees. Incentive stock options must have an exercise
price of at least the fair market value on the date of grant. Options may be
exercised in whole or in installments over ten years after the grant. All
options would become exercisable upon a public offering. The total aggregate
number of the Company's common stock that may be granted under this plan cannot
exceed 12.7% of the common stock, determined on a fully diluted basis, not to
exceed 1,471,000 shares. The Company has granted the following options which
vest over three years:
<TABLE>
<CAPTION>
OPTIONS EXERCISE PRICE
OUTSTANDING PER SHARE
----------- --------------
<S> <C> <C>
Granted:
December 1992............................................. 376,344 $ 1.09
March 1994................................................ 108,333 $ 1.09
Forfeited:
February 1994............................................. (26,882) $ 1.09
Exercised:
December 1994............................................. (8,000) $ 1.09
-------
Total options outstanding at September 30, 1995............. 449,795
=======
Options exercisable at September 30, 1995................... 261,087 $ 1.09
=======
</TABLE>
A summary of the Company's common shares reserved for future conversions or
issuances is as follows:
<TABLE>
<S> <C>
Convertible preferred stock............................................... 2,218,000
Common stock warrants..................................................... 1,562,338
Common stock options granted.............................................. 449,795
---------
Total shares contingently issuable........................................ 4,230,133
Common stock options available for future grants.......................... 986,323
---------
Total common shares reserved.................................... 5,216,456
=========
</TABLE>
<PAGE> 12
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. INCOME TAXES
Deferred income taxes under SFAS No. 109 represent the net tax effects of
(a) temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes
and (b) tax credit carryforwards. The tax effects of significant items
comprising the Company's net deferred tax benefits (liability) as of September
30, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Allowance for doubtful accounts, not currently deductible.... $ 90,033 $ 86,868
Accrued expenses, not currently deductible................... 18,684 17,108
All other.................................................... 8,742
--------- ---------
Total current asset.......................................... 108,717 112,718
Accelerated depreciation and amortization for tax purposes... (348,391) (253,457)
Alternative minimum tax (AMT) credit carryforwards........... 6,032 340,135
Other........................................................ 7,026
--------- ---------
Total noncurrent asset (liability)........................... (342,359) 93,704
--------- ---------
Net deferred tax asset (liability)................. $(233,642) $ 206,422
========= =========
</TABLE>
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Current........................................... $ 959,076 $423,946 $454,239
Deferred.......................................... 440,064 88,456 (35,731)
---------- -------- --------
$1,399,140 $512,402 $418,508
========== ======== ========
</TABLE>
A reconciliation between income taxes computed at the federal statutory
rate and income tax expense is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Income taxes computed at federal statutory rate... $1,230,661 $379,213 $365,034
State income taxes................................ 103,210 34,000 33,911
Expenses not deductible for tax purposes.......... 13,585 5,578 5,920
Nondeductible loss of foreign affiliate........... 28,590 67,642
Other............................................. 23,094 25,969 13,643
---------- -------- --------
Total................................... $1,399,140 $512,402 $418,508
========== ======== ========
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company leases its primary office facilities from a shareholder on a
monthly basis. The Company also conducts certain other transactions with this
shareholder and affiliated corporations which are 100%
<PAGE> 13
CHEROKEE COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
owned by the shareholder. Transactions and balances in the Company's financial
statements arising from the above arrangements are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
During the period:
Rent expense........................................ $49,200 $43,200 $43,200
Airplane charter expense............................ 96,470
Management and consulting fees expense.............. 3,750
Other operating expenses............................ 32,483 37,717
Note receivable from an employee at September 30, due
on demand (included in other current assets)........ 2,193 4,944
Accounts receivable from employees.................... 12,428 18,039 23,558
</TABLE>
Trade accounts receivable include $385,146 at September 30, 1995, due from
an operator service company, which is a co-owner in the Mexican joint venture
(Note 5) and is a significant lender to the Company's majority shareholder, who
has pledged approximately 20% of his common stock as collateral on the related
debt.
11. CONTINGENCIES
The Company is a defendant in various legal proceedings arising in the
ordinary course of business. Although the results of these matters cannot be
predicted with certainty, management believes the outcome will not have a
material adverse effect on the Company's financial position.
12. SUBSEQUENT TELEPHONE PURCHASE AND FINANCING
On November 1, 1995, the Company purchased approximately 1,600 telephones
and related assets and agreements for approximately $3.5 million. The purchase
was financed through the Company's revolving acquisition facility, which was
increased from $5 million to $10 million effective November 1, 1995.
* * * * * *
<PAGE> 1
EXHIBIT 99.2
INTRODUCTION
The following unaudited pro forma combined, condensed statement of operations
adjust the historical statements of operations data for the year ended December
31, 1995 and the nine months ended September 30, 1996 include adjustments to
give effect to: (i) the acquisition of World Communications Inc. ("World") on
September 22, 1995, Public Telephone Corporation ("Public") on October 15, 1995,
International Pay Phones, Inc. (a South Carolina company) ("IPP SC") and
International Pay Phones, Inc. (a Tennessee company) ("IPP TN") (collectively
"IPP"), on March 15, 1996, Paramount Communications Systems, Inc. ("Paramount")
on March 15, 1996, Pay Phones of America, Inc. ("POA") effective August 1, 1996
and ACI-HDT Supply Company, Amtel Communications Services, Amtel Communications
Correctional Facilities, Amtel Communications, Inc. and Amtel Communications
Payphones, Inc., Debtors-in- Possession, (collectively referred to as "Amtel")
on September 13, 1996; (ii) the funds Borrowed under the Credit Agreement; (iii)
the sale by the Company of $20 million of Common Stock pursuant to the Stock
Offering; (iv) the sale by the Company of $125 million of senior debt pursuant
to the Debt Offering and the application of the proceeds therefrom and (v) the
acquisition of Cherokee on January 3, 1997, and Texas Coinphone on January 14,
1997 (which were funded with the proceeds from the Equity Offering and the Debt
Offering).
The following unaudited pro forma combined condensed balance sheet as of
September 30, 1996, adjusts the historical balance sheet to give effect to: (i)
the Cherokee and Texas Coinphone acquisitions; (ii) the sale by the Company of
$20 million of Common Stock pursuant to the Equity Offering; and (iii) the sale
by the Company of $125 million of Senior Notes pursuant to the Debt Offering and
the application of the net proceeds therefrom, including the repayment of the
$41,000,000 borrowed pursuant to the credit facility ("Credit Agreement")
provided by Internationale Nederlanden (U.S.) Capital Corporation and Cerberus
Partners, L.P. (collectively known as "Lenders").
Cherokee's fiscal year ends on September 30, accordingly the historical and pro
forma information relating to Cherokee is for the nine month period ended June
30, 1996 and as of June 30, 1996. All purchase price allocations for the
acquisitions are preliminary in nature and are subject to change within twelve
months following each acquisition based on refinements as actual data becomes
available.
The pro forma adjustments are included in the unaudited pro forma
balance sheet as if the transactions had occurred on September 30, 1996 and in
the unaudited pro forma statements of operations as if the transactions had
occurred at the beginning of each period presented. The audited pro forma
combined condensed financial data should be read in conjunction with the
historical financial statements and notes thereto included elsewhere in this
filing, and are not necessarily indicative of the results of operations that
might have occurred if the transactions had taken place on the dates indicated
or which might occur in any future period.
<PAGE> 2
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Pro Forma
File:PFINC World, Public Adjustments
16-Jan-97 Telephone, for 1995
04:40:10PM PhoneTel IPP and and 1996
Technologies Paramount (a) Amtel POA Acquisitions
---------------- --------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues
Coin calls $12,130,189 $12,474,844 $9,689,179 $3,747,247 ($295,000)
Non-coin 3,776,501 5,771,598 5,459,411 4,418,667 (964,000)
Other 2,811,293 147,259 1,910,550 49,221 (1,612,000)
---------------- --------------- ---------------- ---------------- ----------------
18,717,983 18,393,701 17,059,140 8,215,135 (2,871,000)(b)
---------------- --------------- ---------------- ---------------- ----------------
Operating expenses:
Line and transmission
charges 5,475,699 6,377,191 6,862,015 3,599,271 (1,695,000)(c)
Location commissions 3,467,626 2,361,157 3,921,741 1,178,156 (1,067,000)(d)
Field operations 5,310,262 1,847,352 2,719,090 289,036 (3,027,000)(e)
Depreciation and
amortization 4,383,049 2,059,628 1,621,029 1,218,095 8,529,000 (f)
Selling, general and
administrative 3,200,742 5,229,060 15,103,091 1,911,624 (14,310,000)(g)
Other unusual charges
and contractual
settlements 2,169,503 - - - -
---------------- --------------- ---------------- ---------------- ----------------
24,006,881 17,874,388 30,226,966 8,196,182 (11,570,000)
---------------- --------------- ---------------- ---------------- ----------------
Loss from operations (5,288,898) 519,313 (13,167,826) 18,953 8,699,000
---------------- --------------- ---------------- ---------------- ----------------
Other income (expense):
Interest expense:
Related parties - - - - (7,009,000)(h)
Others (836,911) (1,109,102) (7,429,502) (971,141) 7,525,000 (i)
Interest income 16,112 21,320 - 415 -
Reorganization expenses - - (539,942) - 539,942 (j)
Other - (311,932) (429,967) (68,517) 429,967 (j)
---------------- --------------- ---------------- ---------------- ----------------
Total other income
(expense) (820,799) (1,399,714) (8,399,411) (1,039,243) 1,485,909
---------------- --------------- ---------------- ---------------- ----------------
Loss before income
taxes and
extraordinary item (6,109,697) (880,401) (21,567,237) (1,020,290) 10,184,909
Income taxes - 38,100 4,000 (277,720) (42,100)(k)
---------------- --------------- ---------------- ---------------- ----------------
Loss before
extraordinary item ($6,109,697) ($918,501) ($21,571,237) ($742,570) $10,227,009
================ =============== ================ ================ ================
Earnings per share:
Preferred dividend (309,668) (343,567) - - -
---------------- --------------- ---------------- ---------------- ----------------
Loss before
extraordinary item
applicable to
common shareholders ($6,419,365) ($1,262,068) ($21,571,237) ($742,570) $10,227,009
================ =============== ================ ================ ================
Loss per common share ($3.29)
================
Number of shares 1,950,561 1,083,694 2,162,163 166,666
================ =============== ================ ================
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma for
Adjustments 1995 and 1996
for Equity Acquisitions,
Offering Equity Offering
and Debt and Debt Texas
Offering Offering Cherokee Coinphone
------------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Coin calls - $37,746,459 $14,036,665 $846,210
Non-coin - 18,462,177 17,049,394 553,337
Other - 3,306,323 505,581 -
------------------ ---------------- ---------------- ----------------
- 59,514,959 31,591,640 1,399,547
------------------ ---------------- ---------------- ----------------
Operating expenses:
Line and transmission
charges - 20,619,176 9,673,772 513,036
Location commissions - 9,861,680 4,909,445 135,746
Field operations - 7,138,740 3,121,831 280,706
Depreciation and
amortization - 17,810,801 4,298,090 151,926
Selling, general and
administrative 11,134,517 5,520,405 357,197
Other unusual charges -
and contractual
settlements - 2,169,503 - -
------------------ ---------------- ---------------- ----------------
- 68,734,417 27,523,543 1,438,611
------------------ ---------------- ---------------- ----------------
Loss from operations - (9,219,458) 4,068,097 (39,064)
------------------ ---------------- ---------------- ----------------
Other income (expense):
Interest expense:
Related parties $7,009,000 (l) - - -
Others (13,498,000)(m) (16,319,656) (1,631,416) (57,561)
Interest income - 37,847 57,278 21,563
Reorganization expenses - - - -
Other - (380,449) 1,125,630 281,501
------------------ ---------------- ---------------- ----------------
Total other income
(expense) (6,489,000) (16,662,258) (448,508) 245,503
------------------ ---------------- ---------------- ----------------
Loss before income
taxes and
extraordinary item (6,489,000) (25,881,716) 3,619,589 206,439
Income taxes - (277,720) 1,399,140 -
------------------ ---------------- ---------------- ----------------
Loss before
extraordinary item ($6,489,000) ($25,603,996) $2,220,449 $206,439
================== ================ ================ ================
Earnings per share:
Preferred dividend - (653,235) - -
------------------ ---------------- ---------------- ----------------
Loss before
extraordinary item
applicable to
common shareholders ($6,489,000) ($26,257,231)(o) $2,220,449 $206,439
================== ================ ================ ================
Loss per common share ($2.17)(o)
================
Number of shares 6,750,000(n) 12,113,084
================== ================
<CAPTION>
- -------------------------------------------------------------------------
Pro Forma
Pro Forma for 1995 , 1996 and
Adjustments 1997 Acquisitions,
for 1997 Equity Offering
Acquisitions and Debt Offering
---------------- ---------------------
<S> <C> <C>
Revenues
Coin calls - $52,629,334
Non-coin ($1,105,000)(p) 34,959,908
Other - 3,811,904
---------------- ---------------------
(1,105,000) 91,401,146
---------------- ---------------------
Operating expenses:
Line and transmission
charges - 30,805,984
Location commissions - 14,906,871
Field operations (1,233,000)(p) 9,308,277
Depreciation and
amortization 8,010,000 (q) 30,270,817
Selling, general and
administrative (1,130,000)(r) 15,882,119
Other unusual charges
and contractual
settlements - 2,169,503
---------------- ---------------------
5,647,000 103,343,571
---------------- ---------------------
Loss from operations (6,752,000) (11,942,425)
---------------- ---------------------
Other income (expense):
Interest expense:
Related parties - -
Others 1,689,000 (s) (16,319,633)
Interest income (21,563)(t) 95,125
Reorganization expenses - -
Other (281,501)(u) 745,181
---------------- ---------------------
Total other income
(expense) 1,385,936 (15,479,327)
---------------- ---------------------
Loss before income
taxes and
extraordinary item (5,366,064) (27,421,752)
Income taxes - 1,121,420
---------------- ---------------------
Loss before
extraordinary item ($5,366,064) ($28,543,172)
================ =====================
Earnings per share:
Preferred dividend - (653,235)
---------------- ---------------------
Loss before
extraordinary item
applicable to
common shareholders ($5,366,064) ($29,196,407)
================ =====================
Loss per common share ($2.41)
=====================
Number of shares 12,113,084
=====================
</TABLE>
The accompanying Footnotes to the
Unaudited Pro Forma Combined Condensed Statement of Operations are an integral
part of these financial statements.
<PAGE> 3
FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(a) Represents the operations of World, Public Telephone, Paramount, IPP SC and
IPP TN for the period from January 1, 1995 through the date indicated.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
World Public Telephone Paramount IPP SC IPP TN
January 1, 1995 January 1, 1995 January 1, 1995 January 1, 1995 January 1, 1995
-September 21, -October 14, -December 31, -December 31, -December 31,
1995 1995 1995 1995 1995 Combined
--------------- ------------ ------------ ------------ ------------ ------------
Revenues:
Coin calls $ 2,791,016 $ 1,376,867 $ 3,751,744 $ 3,360,596 $ 1,194,621 $ 12,474,844
Non-coin 3,467,687 380,187 1,923,724 -- -- 5,771,598
Other 58,345 88,914 -- -- -- 147,259
------------ ------------ ------------ ------------ ------------ ------------
6,317,048 1,845,968 5,675,468 3,360,596 1,194,621 18,393,701
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses:
Line and transmission charges 2,706,199 535,771 1,543,956 983,204 608,061 6,377,191
Location commissions 852,944 196,243 696,443 615,527 -- 2,361,157
Field operating expenses 1,026,000 112,071 -- 709,281 -- 1,847,352
Depreciation and amortization 855,059 268,262 393,204 451,929 91,174 2,059,628
Selling, general and administrative 1,276,056 594,588 2,407,479 479,083 471,854 5,229,060
------------ ------------ ------------ ------------ ------------ ------------
6,716,258 1,706,935 5,041,082 3,239,024 1,171,089 17,874,388
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from operations (399,210) 139,033 634,386 121,572 23,532 519,313
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest expense (590,980) (304,664) (64,210) (149,248) -- (1,109,102)
Interest income 834 3,371 14,800 733 1,582 21,320
Other -- (226,701) (85,231) -- -- (311,932)
------------ ------------ ------------ ------------ ------------ ------------
Total other income (expense) (590,146) (527,994) (134,641) (148,515) 1,582 (1,399,714)
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (989,356) (388,961) 499,745 (26,943) 25,114 (880,401)
Income taxes -- -- -- 35,800 2,300 38,100
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) ($ 989,356) ($ 388,961) $ 499,745 ($ 62,743) $ 22,814 ($ 918,501)
============ ============ ============ ============ ============ ============
<CAPTION>
(b) Represents the estimated reduction in revenues for assets not acquired.
<S> <C>
-----------
Amtel $ 2,859,000
POA 12,000
-----------
$ 2,871,000
===========
<CAPTION>
(c) Represents estimated reduction in line and transmission charges to reflect
lower volumes at Amtel due to assets not acquired and better aggregate rates
due to overall increase in traffic in the Amtel regions.
(d) Represents estimated lower location commissions due to assets not acquired.
<S> <C>
----------
Amtel $800,000
Public Telephone 267,000
----------
$1,067,000
==========
</TABLE>
<PAGE> 4
(e) Represents estimated reduction in other operating expenses primarily
resulting from eliminating certain offices, redundant operating personnel,
costs of operations not acquired (principally Amtel) and elimination of
costs associated with the bankruptcy of Amtel.
<TABLE>
<S> <C>
----------
World, Public Telephone, IPP and Paramount $ 800,000
Amtel 2,132,000
POA 95,000
----------
$3,027,000
==========
</TABLE>
(f) Represents additional depreciation and amortization associated with the
acquired tangible and intangible assets.
<TABLE>
<CAPTION>
-----------------------------------------------
Lives
---------------------------------
Amount Tangible Intangible
------------ ------------- ----------------
(months)
<S> <C> <C> <C>
World, Public Telephone, IPP and Paramount $6,117,000 60 24-60
Amtel 1,008,000 60 54
POA 1,404,000 60 60-72
----------
$8,529,000
==========
</TABLE>
(g) Represents estimated reductions in selling, general and administrative
expenses resulting primarily from eliminating certain offices, executives
and administrative personnel, costs associated with operations not acquired
(principally Amtel), elimination of costs associated with the bankruptcy of
Amtel.
<TABLE>
<S> <C>
-----------
World, Public Telephone, IPP and Paramount $ 2,004,000
Amtel 11,361,000
POA 945,000
-----------
$14,310,000
===========
</TABLE>
(h) Represents additional interest expense for borrowings under the Credit
Agreement.
<TABLE>
<CAPTION>
-------------------------------------------------------
Amount Interest Pro Forma
Borrowed Rate Expense
---------------- --------------- ----------------
<S> <C> <C> <C>
To fund the acquisitions of World, Public Telephone, IPP and Paramount $32,223,484 13.25% $4,270,000
To fund the acquisitions of Amtel and POA and to pay related expenses
and other obligations 8,776,516 13.25% 1,163,000
Accretion of original issue debt discount 1,576,000
----------------
$7,009,000
================
</TABLE>
(i) Represents reduction in interest expense to reflect elimination of
separate Company borrowings, offset by interest expense on POA Sellers'
Notes.
<TABLE>
<S> <C>
-----------
World, Public Telephone, IPP and Paramount $ 650,000
Amtel 7,430,000
POA (555,000)
-----------
$7,525,000
===========
</TABLE>
<PAGE> 5
(j) Represents elimination of Amtel reorganization expense subsequent to Amtel's
filing of bankruptcy and elimination of non-recurring loss on disposal of
assets at Amtel.
(k) Represents elimination of income tax expense.
(l) Represents elimination of interest expense incurred under the Credit
Agreement.
(m) Represents increase in interest expense.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Amount Interest Months Interest
Outstanding Rate Outstanding Expense
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Debt pursuant to the Debt Offering 125,000,000 12% 12 $15,000,000
Interest savings on the POA Sellers' Notes and
repayment of capital leases. (1,502,000)
----------------
$13,498,000
================
</TABLE>
(n) Represents 6,750,000 shares of Common Stock to be sold pursuant to the
Company Stock Offering at $3.00 per share.
(o) Loss per share excludes an increase of the loss to common shareholders of
(i) $2,002,386 which was realized on redemption of the 10% Preferred, 8%
Preferred, and 7% Preferred; (ii) an extraordinary loss of $267,281 realized
on the restructuring of the Company's debt on March 15, 1996; and (iii) and
estimated extraordinary loss of $9,805,281 to be realized on the early
retirement of the borrowings under the Credit Agreement.
(p) Represents the estimated reduction in other operating expenses primarily to
eliminate redundant operations and operations personnel and the
reclassifications of chargebacks to non-coin revenue for the Cherokee to
conform to PhoneTel's presentation.
<TABLE>
<S> <C>
----------
Cherokee $ 40,000
Texas Coinphone 88,000
Reclassification of chargebacks 1,105,000
----------
$1,233,000
===========
</TABLE>
(q) Represents additional depreciation and amortization associated with the
acquired tangible and intangible assets for the 1997 Completed Acquisitions.
<TABLE>
<CAPTION>
-------------------------------------------------------
Lives
-----------------------------------
Amount Tangible Intangible
---------------- --------------- ----------------
(months)
<S> <C> <C> <C>
Cherokee $7,481,000 60 60-82
Texas Coinphone 529,000 60 72
----------------
$8,010,000
================
</TABLE>
<PAGE> 6
(r) Represents estimated reductions in selling, general and administrative
expenses to reflect the elimination of certain offices, executives and
administrative personnel.
<TABLE>
<S> <C>
-----------
Cherokee $1,000,000
Texas Coinphone 130,000
-----------
$1,130,000
===========
</TABLE>
(s) Represents the estimated reductions in interest expense to reflect
elimination of separate Company borrowings.
<TABLE>
<S> <C>
-----------
Cherokee $1,631,000
Texas Coinphone 58,000
-----------
$1,689,000
===========
</TABLE>
(t) Represents elimination of Texas Coinphone interest income.
(u) Represents elimination of Texas Coinphone other income which relates to
assets not acquired.
<PAGE> 7
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
File:PFINC Pro Forma
16-Jan-97 Adjustments
10:40:10PM PhoneTel IPP and for 1996
Technologies Paramount (a) Amtel (b) POA (c) Acquisitions
---------------- ---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Coin calls $16,988,697 $1,883,110 $6,653,874 $1,769,257 -
Non-coin 9,308,538 590,457 3,464,990 1,795,827 -
Other 2,018,191 15,113 87,968 831,179 ($28,000)(d)
---------------- ---------------- ---------------- --------------- ----------------
28,315,426 2,488,680 10,206,832 4,396,263 (28,000)
---------------- ---------------- ---------------- --------------- ----------------
Operating expenses:
Line and transmission
charges 6,800,782 585,463 3,440,664 814,759 -
Location commissions 4,101,195 376,269 2,322,097 509,461 -
Field operations 8,102,314 356,816 456,092 1,237,567 (247,000)(e)
Depreciation and
amortization 8,876,238 183,931 1,101,916 695,490 2,442,000 (f)
Selling, general and
administrative 3,757,559 492,244 3,161,957 1,149,506 (1,881,000)(g)
Other unusual charges
and contractual
settlements 5,517,753 - - - -
---------------- ---------------- ---------------- --------------- ----------------
37,155,841 1,994,723 10,482,726 4,406,783 314,000
---------------- ---------------- ---------------- --------------- ----------------
Loss from operations (8,840,415) 493,957 (275,894) (10,520) (342,000)
---------------- ---------------- ---------------- --------------- ----------------
Other income (expense):
Interest expense:
Related parties (3,588,420) - - - (815,000)(h)
Others (551,243) (30,881) (8,508) (388,768) (453,000)(i)
Interest income - - 2,248 4,111 -
Reorganization expenses - - (1,105,843) - 1,105,843 (j)
Other - (12,638) (1,342,615) (64,036) 1,342,615 (j)
---------------- ---------------- ---------------- --------------- ----------------
Total other income
(expense) (4,139,663) (43,519) (2,454,718) (448,693) 1,180,458
---------------- ---------------- ---------------- --------------- ----------------
Loss before income
taxes and
extraordinary item (12,980,078) 450,438 (2,730,612) (459,213) 838,458
Income taxes - - 5,667 - (5,667)(k)
---------------- ---------------- ---------------- --------------- ----------------
Loss before
extraordinary item ($12,980,078) $450,438 ($2,736,279) ($459,213) $844,125
================ ================ ================ =============== ================
Earnings per share :
Preferred dividend (269,565) - - - -
---------------- ---------------- ---------------- --------------- ----------------
Loss before
extraordinary item
applicable to
common shareholders ($13,249,643) $450,438 ($2,736,279) ($459,213) $844,125
================ ================ ================ =============== ================
Loss per common share ($3.08)
================
Number of shares 4,305,130 154,330 2,037,324 129,629
================ ================ ================ ===============
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
Adjustments for 1996 Pro Forma
for Equity Acquisitions, Pro Forma for 1996 and 1997
Offering Equity Offering Adjustments Acquisitions,
and Debt and Debt Texas for 1997 Equity Offering
Offering Offering Cherokee Coinphone Acquisitions and Debt Offering
-------------- ---------------- ------------ ---------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues
Coin calls - $27,294,938 $12,571,961 $910,263 - $40,777,162
Non-coin - 15,159,812 11,061,973 403,573 ($736,000)(p) 25,889,358
Other - 2,924,451 817,273 39,485 - 3,781,209
-------------- ---------------- ------------ ---------- --------------- -------------
- 45,379,201 24,451,207 1,353,321 (736,000) 70,447,729
-------------- ---------------- ------------ ---------- --------------- -------------
Operating expenses:
Line and transmission
charges - 11,641,668 6,451,165 459,477 - 18,552,310
Location commissions - 7,309,022 3,885,956 153,801 - 11,348,779
Field operations - 9,905,789 4,107,855 85,843 (878,000)(p) 13,221,487
Depreciation and
amortization - 13,299,575 3,831,645 56,398 6,065,000 (q) 23,252,618
Selling, general and
administrative - 6,680,266 4,909,963 432,635 (847,000)(r) 11,175,864
Other unusual charges
and contractual
settlements - 5,517,753 - - - 5,517,753
-------------- ---------------- ------------ ---------- --------------- -------------
- 54,354,073 23,186,584 1,188,154 4,340,000 83,068,811
-------------- ---------------- ------------ ---------- --------------- -------------
Loss from operations - (8,974,872) 1,264,623 165,167 (5,076,000) (12,621,082)
-------------- ---------------- ------------ ---------- --------------- -------------
Other income (expense):
Interest expense:
Related parties $4,375,000 (l) (28,420) - - - (28,420)
Others (10,416,000)(m) (11,848,400) (1,358,917) (51,325) 1,410,242 (s) (11,848,400)
Interest income - 6,359 3,645 - - 10,004
Reorganization expenses - - - - - -
Other - (76,674) (17,365) 123,236 (123,236)(t) (94,039)
-------------- ---------------- ------------ ---------- --------------- -------------
Total other income
(expense) (6,041,000) (11,947,135) (1,372,637) 71,911 1,287,006 (11,960,855)
-------------- ---------------- ------------ ---------- --------------- -------------
Loss before income
taxes and
extraordinary item (6,041,000) (20,922,007) (108,014) 237,078 (3,788,994) (24,581,937)
Income taxes - - (19,188) - - (19,188)
-------------- ---------------- ------------ ---------- --------------- -------------
Loss before
extraordinary item ($6,041,000) ($20,922,007) ($88,826) $237,078 ($3,788,994) ($24,562,749)
============== ================ ============ ========== =============== =============
Earnings per share :
Preferred dividend - (269,565) - - - (269,565)
-------------- ---------------- ------------ ---------- --------------- -------------
Loss before
extraordinary item
applicable to
common shareholders ($6,041,000) ($21,191,572)(o) ($88,826) $237,078 ($3,788,994) ($24,832,314)
============== ================ ============ ========== =============== =============
Loss per common share ($1.58)(o) ($1.86)
================ =============
Number of shares 6,750,000 (n) 13,376,413 13,376,413
============== ================ =============
</TABLE>
The accompanying Footnotes to
the Unaudited Pro Forma Combined Condensed Statement of Operations are an
integral part of these financial statements.
<PAGE> 8
FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(a) Represents the operations of IPP SC , IPP TN and Paramount for the period
from January 1, 1996 through March 15, 1996.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
IPP SC IPP TN Paramount Combined
---------------- ---------------- --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Coin calls $648,143 $193,203 $1,041,764 $1,883,110
Non-coin - - 590,457 590,457
Other 1,199 13,914 - 15,113
---------------- ---------------- --------------- ------------
649,342 207,117 1,632,221 2,488,680
---------------- ---------------- --------------- ------------
Operating expenses:
Line and transmission charges 234,659 74,923 275,881 585,463
Location commissions 115,660 28,752 231,857 376,269
Field operating expenses 68,844 21,630 266,342 356,816
Depreciation and amortization 82,614 19,399 81,918 183,931
Selling, general and administrative 195,643 100,538 196,063 492,244
---------------- ---------------- --------------- ------------
697,420 245,242 1,052,061 1,994,723
---------------- ---------------- --------------- ------------
Income (loss) from operations (48,078) (38,125) 580,160 493,957
---------------- ---------------- --------------- ------------
Other income (expense):
Interest expense (18,088) (1,423) (11,370) (30,881)
Other - - (12,638) (12,638)
---------------- ---------------- --------------- ------------
Total other income (expense) (18,088) (1,423) (24,008) (43,519)
---------------- ---------------- --------------- ------------
Income (loss) before income taxes (66,166) (39,548) 556,152 450,438
Income taxes - - - -
---------------- ---------------- --------------- ------------
Net income (loss) ($66,166) ($39,548) $556,152 $450,438
================ ================ =============== ============
</TABLE>
(b) Represents the operation of Amtel for the period January 1, 1996 through
September 12, 1996.
(c) Represents the operations of POA for the period January 1, 1996 through July
31, 1996.
(d) Represents the estimated reduction in revenues previously generated from
assets not acquired in the acquisition of POA.
(e) Represents the estimated reduction in other operating expenses primarily
resulting from eliminating certain offices, redundant personnel and costs of
operations not acquired (principally Amtel).
<TABLE>
<S> <C>
----------
Amtel $ 35,000
POA 212,000
----------
$247,000
==========
</TABLE>
(f) Represents additional depreciation and amortization associated with the
acquired tangibles and intangible assets.
<TABLE>
<CAPTION>
------------------------------------------------------
Lives
-----------------------------------
Amount Tangible Intangible
--------------- --------------- ----------------
(months)
<S> <C> <C> <C>
IPP and Paramount $ 745,000 60 60
Amtel 761,000 60 54
POA 936,000 60 60-72
---------------
$2,442,000
===============
</TABLE>
<PAGE> 9
(g) Represents estimated reductions in selling, general and administrative
expenses principally resulting from elimination of pre-petition expenses at
Amtel and redundant personnel.
<TABLE>
<S> <C>
------------
IPP and Paramount $ 239,000
Amtel 1,153,000
POA 489,000
------------
$1,881,000
============
</TABLE>
(h) Represents additional interest expense for borrowings under the Credit
Agreement to fund the acquisitions of Amtel and POA, net of $57,000 recorded
by the Company from the dates of acquisition through September 30, 1996.
<TABLE>
<CAPTION>
-------------------------------------------------------
Borrowed Interest Pro Forma
Amount Rate Expense
---------------- --------------- ----------------
<S> <C> <C>
$8,776,546 13.25% $815,000
================ =============== ================
</TABLE>
(i) Represents reduction in interest expense to reflect elimination of separate
Company borrowings offset by interest expense on POA Sellers' Notes.
<TABLE>
<S> <C>
-----------
Amtel $ 9,000
POA (462,000)
-----------
($453,000)
===========
</TABLE>
(j) Represents elimination of Amtel reorganization expenses subsequent to
Amtel's filing of bankruptcy and elimination of non-recurring loss on
disposal of assets at Amtel.
(k) Represents elimination of income tax expense.
(l) Represents elimination of interest expense incurred under the Credit
Agreement.
(m) Represents increase in interest expense.
<TABLE>
<CAPTION>
-----------------------------------------------------------
Amount Interest Months Interest
Outstanding Rate Outstanding Expense
---------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Debt pursuant to the Debt Offering 125,000,000 12% 6 $11,250,000
Interest savings on the POA Sellers' Notes and repayment of
capital leases. (834,000)
--------------
$10,416,000
==============
</TABLE>
(n) Represents 6,750,000 shares of Common Stock to be sold pursuant to the
Company Stock Offering at $3.00 per share.
(o) Loss per share excludes an increase of the loss to common shareholders of
(i) $2,002,386 which was realized on redemption of the 10% Preferred, 8%
Preferred, and 7% Preferred; (ii) an extraordinary loss of $267,281 realized
on the restructuring of the Company's debt on March 15, 1996; and (iii) and
estimated extraordinary loss of $9,805,281 to be realized on the early
retirement of the borrowings under the Credit Agreement.
<PAGE> 10
(p) Represents the estimated reduction in other operating expenses primarily to
eliminate redundant operations and operations personnel and the
reclassifications of chargebacks to non-coin revenue for the Cherokee to
conform to PhoneTel's presentation.
<TABLE>
<S> <C>
----------
Cherokee $ 76,000
Texas Coinphone 66,000
Reclassification of chargebacks 736,000
----------
$878,000
==========
</TABLE>
(q) Represents additional depreciation and amortization associated with the
acquired tangible and intangible assets for the 1997 Completed Acquisitions.
<TABLE>
<CAPTION>
-------------------------------------------------------
Lives
-----------------------------------
Amount Tangible Intangible
---------------- --------------- ----------------
(months)
<S> <C> <C> <C>
Cherokee $5,611,000 60 60-82
Texas Coinphone 454,000 60 72
----------------
$6,065,000
================
</TABLE>
(r) Represents estimated reductions in selling, general and administrative
expenses to reflect the elimination of certain offices, executives and
administrative personnel.
<TABLE>
<S> <C>
----------
Cherokee $750,000
Texas Coinphone 97,000
----------
$847,000
==========
</TABLE>
(s) Represents reduction in interest expense to reflect elimination of separate
Company borrowings.
<TABLE>
<S> <C>
------------
Cherokee $1,358,917
Texas Coinphone 51,325
------------
$1,410,242
============
</TABLE>
(t) Represents elimination of Texas Coinphone other income which relates to
assets not acquired.
<PAGE> 11
PHONETEL TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
16-Jan-97 Pro Forma Pro Forma
04:39:23 PM Adjustments for for Equity
File:PFBS PhoneTel Equity Offering and Offering and
Technologies Debt Offering Debt Offering Cherokee
----------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $655,734 $83,952,579 (a) $84,608,313 $364,691
Accounts receivable, net 2,423,060 - 2,423,060 3,712,950
Other current assets 247,426 - 247,426 210,439
----------------- ------------------- ------------------ -----------------
Total current assets 3,326,220 83,952,579 87,278,799 4,288,080
Property and equipment, net 31,682,061 - 31,682,061 16,354,960
Intangible assets, net 39,226,619 1,948,675 (b) 41,175,294 4,048,701
Other assets 705,473 - 705,473 665,044
----------------- ------------------- ------------------ -----------------
$74,940,373 $85,901,254 $160,841,627 $25,356,785
================= =================== ================== =================
Liabilities and Equity
Current liabilities:
Current long-term debt:
Payable to related parties $5,234,953 ($4,717,707)(c) $517,246 -
Payable to others 995,673 - 995,673 $2,982,325
Current portion capital leases 803,336 (656,947)(d) 146,389 977,433
Accounts payable 2,969,681 - 2,969,681 754,048
Accrued expenses 3,524,690 - 3,524,690 2,979,962
Deferred revenues 600,000 - 600,000 -
Other unusual items and
contractual settlements 516,392 - 516,392 -
----------------- ------------------- ------------------ -----------------
Total current liabilities 14,644,725 (5,374,654) 9,270,071 7,693,768
Long-term debt:
payable to related parties 31,053,337 (31,053,337)(c) - -
payable to others 3,832,781 121,677,579 (e) 125,510,360 10,636,237
Capital leases 7,225,722 (7,093,053)(d) 132,669 -
Deferred taxes - - - 342,359
14% preferred mandatorily
redeemable at $6,978,963 6,539,053 - 6,539,053 -
Other equity:
Preferred stock - - - 2,400,000
Common stock 76,397 67,500 (f) 143,897 351,903
Additional paid in capital 40,541,544 17,912,500 (f) 58,454,044 1,097,630
Accumulated deficit (28,973,186) (10,235,281)(f) (39,208,467) 2,834,888
----------------- ------------------- ------------------ -----------------
Total other equity 11,644,755 7,744,719 19,389,474 6,684,421
----------------- ------------------- ------------------ -----------------
$74,940,373 $85,901,254 $160,841,627 $25,356,785
================= =================== ================== =================
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma
Adjustments for for 1997 Acquisitions
File:PFBS Texas 1997 Equity Offering
Coinphone Acquisitions and Debt Offering
----------------- ------------------ -----------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash $80,895 ($61,974,877)(g) $23,079,022
Accounts receivable, net 55,140 186,117 (h) 6,377,267
Other current assets - 1,095,230 (h) 1,553,095
----------------- ------------------ -----------------------
Total current assets 136,035 (60,693,530) 31,009,384
Property and equipment, net 1,143,869 7,270,037 (i) 56,450,927
Intangible assets, net - 25,567,230 (i) 70,791,225
Other assets 35,420 5,301,973 (h) 6,707,910
----------------- ------------------ -----------------------
$1,315,324 ($22,554,290) $164,959,446
================= ================== =======================
Liabilities and Equity
Current liabilities:
Current long-term debt:
Payable to related parties - - $517,246
Payable to others $183,300 ($3,165,625)(j) 995,673
Current portion capital leases - (6,108)(k) 1,117,714
Accounts payable 39,472 (793,520)(l) 2,969,681
Accrued expenses 21,590 (197,417)(l) 6,328,825
Deferred revenues - - 600,000
Other unusual items and
contractual settlements - - 516,392
----------------- ------------------ -----------------------
Total current liabilities 244,362 (4,162,670) 13,045,531
Long-term debt:
payable to related parties - - -
payable to others 626,910 (11,263,147)(j) 125,510,360
Capital leases 40,578 (40,578)(k) 132,669
Deferred taxes - - 342,359
14% preferred mandatorily
redeemable at $6,978,963 - - 6,539,053
Other equity:
Preferred stock - (2,400,000)(m) -
Common stock 166,395 (518,298)(m) 143,897
Additional paid in capital - (1,097,630)(m) 58,454,044
Accumulated deficit 237,079 (3,071,967)(m) (39,208,467)
----------------- ------------------ -----------------------
Total other equity 403,474 (7,087,895) 19,389,474
----------------- ------------------ -----------------------
$1,315,324 ($22,554,290) $164,959,446
================= ================== =======================
</TABLE>
The accompanying Footnotes to the Unaudited Pro
Forma Combined Balance Sheet are an intergral part of these financial
statements.
<PAGE> 12
FOOTNOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
(a) Represents adjustments to cash
<S> <C>
-------------
Company Stock Offering proceeds, net of estimated expense $ 17,980,000
Company Debt Offering proceeds, net of expenses 118,475,000
Repayment of borrowings under Credit Agreement (41,000,000)
Fees payable on early retirement of borrowings under Credit Agreement (430,000)
Repayment of POA Sellers' Notes (3,322,421)
Repayment of capital lease obligation (7,750,000)
-------------
$ 83,952,579
=============
(b) Represents adjustments to the intangibles assets
-------------
Fees and expenses relating to the Company Debt Offering $ 6,525,000
Write-off unamortized fees pertaining to the Credit Agreement (4,576,325)
-------------
$ 1,948,675
=============
(c) Represents adjustments to current and long-term payable to related parties
-------------
Repay current portion of borrowings under Credit Agreement ($ 4,717,707)
=============
Repay long-term portion of borrowings under Credit Agreement ($ 31,053,337)
=============
(d) Represents adjustments to current and long-term obligations under capital
leases
-------------
Repay obligations under capital leases, current portion ($ 656,947)
=============
Repay obligations under capital leases, long-term obligations ($ 7,093,053)
=============
(e) Represents adjustments to long-term debt payable to others
-------------
Repayment of POA Sellers' Notes ($ 3,322,421)
Gross proceeds from Company Debt Offering 125,000,000
-------------
$121,677,579
=============
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
(f) Represents adjustment to other stockholders' equity
Common Stock
<S> <C>
------------
Issuance of 6,750,000 shares pursuant to the Company Stock Offering $ 67,500
============
Additional paid-in-capital
Proceeds from the sale of 6,750,000 shares of Common Stock at an offering price
of $3.00 per share, net of estimated transaction fees of $2,270,000 $17,912,500
============
Accumulated deficit
Warrant accretion - extraordinary loss on early retirement of borrowings under
the Credit Agreement ($ 5,228,956)
Write-off of unamortized debt costs relating to the early retirement of borrowings
under the Credit Agreement (4,576,325)
Fees payable on early retirement of borrowings under the Credit Agreement (430,000)
------------
($10,235,281)
============
(g) Represents adjustments to cash
------------
Purchase of Cherokee and payment of related fees ($58,497,503)
Cash acquired in Cherokee Acquisition 263,521
Purchase of Texas Coinphone (3,660,000)
Cash not acquired in Texas Coinphone acquisition (80,895)
------------
($61,974,877)
============
(h) Represents adjustments to accounts receivable, net and other assets to
eliminate assets not acquired:
Accounts receivable, net
------------
Cherokee $ 241,257
Texas Coinphone (55,140)
------------
$ 186,117
============
Other current assets
Cherokee $ 1,095,230
------------
$ 1,095,230
============
Other assets
Cherokee ($ 665,044)
Texas Coinphone (32,983)
Funds held pursuant to potential Rate Cap arrangements 6,000,000
------------
$ 5,301,973
============
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
(i) Represents adjustments to property and equipment, net and intangible assets,
net to reflect purchase price allocations
Property and equipment
<S> <C>
-----------
Cherokee $ 6,730,512
Texas Coinphone 539,525
-----------
$ 7,270,037
===========
Intangible assets
Telephone location contracts - Cherokee $22,293,063
Noncompetition agreements - Cherokee $ 1,249,998
Telephone location contracts - Texas Coinphone 2,024,169
-----------
$25,567,230
===========
(j) Represents adjustments to current and long-term debt to others
current long-term debt not acquired
-----------
Cherokee ($ 2,982,325)
Texas Coinphone (183,300)
-----------
($ 3,165,625)
===========
Long-term debt not acquired
Cherokee ($10,636,237)
Texas Coinphone (626,910)
-----------
($11,263,147)
===========
(k) Represents adjustments to current and long-term capital leases
-----------
Current portion of capital leases of Cherokee not acquired ($ 6,108)
===========
Long-term capital leases of Texas Coinphone not acquired ($ 40,578)
===========
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
(l) Represents adjustments to accounts payable and accrued expenses
Accounts payable not assumed
<S> <C>
-----------
Cherokee ($ 754,048)
Texas Coinphone (39,472)
-----------
($ 793,520)
===========
Accrued expenses not assumed, net of acquisition expenses
Cherokee ($ 543,327)
Texas Coinphone (21,590)
Acquisition expenses 367,500
-----------
($ 197,417)
===========
(m) Represents adjustments to the other shareholders' equity
-----------
Preferred stock of Cherokee redeemed prior to acquisition completion date ($2,400,000)
===========
Common stock eliminated
Cherokee ($ 351,903)
Texas Coinphone (166,395)
-----------
($ 518,298)
===========
Paid-in capital of Cherokee eliminated ($1,097,630)
===========
Retained earnings eliminated .
Cherokee ($2,834,888)
Texas Coinphone (237,079)
-----------
($3,071,967)
===========
</TABLE>
