<PAGE> 1
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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
XXXXX
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
PHONETEL TECHNOLOGIES, INC.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
(216) 241-2555
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 30, 1997
-------------------------
To the Shareholders of PhoneTel Technologies, Inc.:
The Annual Meeting of Shareholders of PhoneTel Technologies, Inc. (the
"Company"), an Ohio corporation, will be held at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, 43rd Floor, New York, New York
10022, on Monday, June 30, 1997 at 9:00 A.M., Eastern Daylight Time, for the
following purposes:
1. To approve an amendment to the Amended and Restated Code of
Regulations of the Company to establish a classified Board of
Directors and adopt related provisions; and
2. To elect a Board of Directors consisting of six Directors. If
the proposed amendment to the Company's Amended and Restated
Code of Regulations establishing a classified Board of
Directors (Proposal 1 above) is adopted, the six Directors
will be elected to a classified Board of Directors on which
three Directors will serve until the next Annual Meeting of
Shareholders and until their successors are duly elected and
qualified and three Directors will serve until the 1999 Annual
Meeting of Shareholders and until their successors are duly
elected and qualified. If the proposed amendment is not
adopted, all six Directors will be elected to serve until the
next Annual Meeting of Shareholders and until their successors
are duly elected and qualified; and
3. To ratify and approve the PhoneTel Technologies, Inc. 1997
Stock Incentive Plan; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
<PAGE> 3
Shareholders of record at the close of business on June 3, 1997 will be
entitled to vote at the Annual Meeting and at any adjournment thereof. All
shareholders are cordially invited to attend the Annual Meeting. The Company
urges you to assure your representation at the Annual Meeting by signing and
returning the enclosed proxy in the postage prepaid envelope provided. The
giving of this proxy does not affect your right to vote in person if you attend
the Annual Meeting.
By Order of the Board of Directors
/s/ Tammy L. Martin
Tammy L. Martin
Secretary
Cleveland, Ohio
June 6, 1997
<PAGE> 4
PHONETEL TECHNOLOGIES, INC.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
-------------------------
PROXY STATEMENT
-------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 30, 1997
MATTERS TO BE CONSIDERED AT THE MEETING
This Proxy Statement is being furnished in connection with the
solicitation of proxies by and on behalf of the Board of Directors of PhoneTel
Technologies, Inc. (the "Company" or "PhoneTel") for use at the Annual Meeting
of Shareholders to be held on June 30, 1997 or at any adjournment thereof (the
"Meeting") for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders. This Proxy Statement and the accompanying proxy,
together with the Company's Annual Report for the year ended December 31, 1996
are first being mailed on or about June 6, 1997 to shareholders of record at the
close of business on June 3, 1997. The Company will pay the cost of soliciting
proxies.
The only business which the Board of Directors intends to present or
knows that others will present at the Meeting is as set forth in the attached
Notice of Annual Meeting of Shareholders. If any other matters are properly
presented at the Meeting for action to be taken thereon, the persons named in
the enclosed form of proxy and acting thereunder will have discretion to vote on
such matters in accordance with their best judgment.
VOTING, PROXIES AND REVOCABILITY
Shareholders of record at the close of business on June 3, 1997 are
entitled to notice of and to vote at the Meeting. Each shareholder of record is
entitled to one vote on each matter for each share then held of the Company's
Common Stock, $.01 par value ("Common Stock"). As of the close of business on
May 5, 1997, the Company had 16,097,200 shares of Common Stock outstanding.
- 1 -
<PAGE> 5
A majority of the shares of Common Stock entitled to vote at
the Meeting must be represented at the Meeting in person or by proxy in order to
constitute a quorum for the transaction of business. Proxies marked as
abstentions and broker non-votes will be considered as present at the Meeting
for purposes of determining the existence of a quorum.
Executed proxies which are returned will be voted as specified therein.
If no specification is made, the proxies will be voted FOR the approval of the
proposed amendments to the Company's Amended and Restated Code of Regulations
(the "Code of Regulations"), FOR the election as Directors of the nominees as
specified herein, and FOR the ratification and approval of the PhoneTel
Technologies, Inc. 1997 Stock Incentive Plan.
A shareholder giving a proxy has the power to revoke it at any time
before it is exercised by filing, with the Secretary of the Company at the above
address, either an instrument revoking the proxy or a duly executed proxy
bearing a later date. A proxy will be revoked automatically if the shareholder
who executed it is present at the Meeting and votes in person.
The Meeting may be adjourned and additional proxies solicited if, at
the time of the Meeting, the votes necessary to approve any of the proposed
actions have not been obtained. Any adjournment of the Meeting will require the
affirmative vote of a majority of the Common Stock represented at the Meeting,
in person or by proxy, even if less than a quorum.
-------------------------
PROPOSAL 1
-------------------------
AMENDMENT OF THE CODE OF REGULATIONS TO
ESTABLISH A CLASSIFIED BOARD OF DIRECTORS
PROPOSED AMENDMENT TO THE CODE OF REGULATIONS
The Board of Directors has unanimously approved and recommends that the
shareholders approve the proposal to amend the Company's Code of Regulations in
order to classify the Board into two classes, serving staggered two-year terms
and to adopt certain related amendments to the Code of Regulations. The "related
amendments" to the Code of Regulations would also (a) provide that Directors can
only be removed for "cause" during their term, and (b) require a 75% vote of
shareholders to change these amendments, increase or decrease the size of the
Board of Directors or remove Directors from office for "cause." The proposed
amendment to establish a classified Board of Directors and the related
amendments to the Code of Regulations are collectively referred to as the
"Proposed Amendment."
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<PAGE> 6
Section 1 of Article III of the Code of Regulations currently provides
for a single class of Directors to be elected to serve for one year. Under the
Ohio General Corporation Law ("OGCL"), a code of regulations may provide for the
classification of Directors. If the Proposed Amendment is approved by
shareholders, Section 1 would provide for the classification of the Board of
Directors into two classes, one of which would be elected each year. Initially,
however, members of both classes would be elected at the 1997 Meeting. As
explained under "Proposal 2: Election of Directors" below, if the Proposed
Amendment is adopted, the slate of six (6) Directors proposed for election at
the Meeting would be proposed to be elected for two separate classes as follows:
three (3) Directors, constituting the "Class I Directors," would be elected for
a term expiring at the 1998 Annual Meeting of Shareholders and three (3)
Directors, constituting the "Class II Directors," would be elected for a term
expiring at the 1999 Annual Meeting of Shareholders. At each annual meeting
after the 1997 Meeting, Directors would be elected to succeed those Directors
whose terms expire, with each newly elected Director to serve until the second
succeeding Annual Meeting of Shareholders and until such Director's successor
shall be elected and qualified.
Section 5 of Article III of the Code of Regulations sets forth the
procedures for the removal of a Director. Currently, Directors may be removed
from office, without assigning any cause, by the vote of the holders of a
majority of the voting power entitling them to elect Directors in place of those
to be removed. The Proposed Amendment provides that Directors may only be
removed by shareholders for cause and only by a vote of 75% of the voting power
entitling shareholders to elect Directors in place of those to be removed.
Article VIII of the Code of Regulations sets forth the procedure for
amending or repealing the Code of Regulations. It currently provides that any
Regulation may be amended or repealed by the affirmative vote of the holders of
shares entitling them to exercise a majority of the voting power of the Company,
at any annual or special meeting of the shareholders, or, without such meeting,
by the written consent of the holders of shares entitling them to exercise
two-thirds of the voting power. Under the Proposed Amendment to Article VIII,
the affirmative vote of the holders of 75% of the shares having voting power on
such proposal will be required to amend or repeal Section 1 or Section 5 of
Article III or Article VIII of the Company's Code of Regulations relating to
the Proposed Amendment. Other provisions of the Code of Regulations would
continue to be subject to amendment or repeal by a simple majority vote of
shareholders. The Board believes that this amendment is necessary to preserve
the protections afforded by those provisions, since, absent such amendment, an
acquiror who possesses a simple majority of the Company's voting power could use
his voting power to unilaterally amend the Code of Regulations and eliminate
each of these protections.
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<PAGE> 7
If the Proposed Amendment is adopted, the first two paragraphs of
Article III, Section 1 of the Company's Code of Regulations will be deleted in
their entirety and replaced with the following:
Section 1. Powers, Number, Qualification, Term, Quorum and Vacancies.
All of the authority of the Corporation shall be exercised by or under
the direction of the Board of Directors. For their own government, the
Directors may adopt bylaws that are not inconsistent with the Articles
or these Regulations.
The number of Directors shall be not less than six (6) persons nor more
than nine (9) persons, as determined from time to time by the Board of
Directors provided that if all of the shares of the Corporation are
owned of record by one or two shareholders, the number of Directors may
be less than six (6) but not less than the number of shareholders.
Except as hereinafter provided, Directors shall be elected at the
Annual Meeting of Shareholders and the Board of Directors shall be
divided into two classes, as nearly equal in number as possible and
each of which shall have at least three (3) Directors, which classes
shall be designated as "Class I Directors" and "Class II Directors". At
the 1997 Meeting, each Class I Director shall be elected to serve for a
period of one year and until his successor is elected or until his
earlier resignation, removal from office or death. At the 1997 Meeting,
each Class II Director shall be elected to serve for a period of two
years and until his successor is elected or until his earlier
resignation, removal from office, or death. At each succeeding Annual
Meeting of Shareholders beginning in 1998, successors to the Class of
Directors whose term expires at that annual meeting shall be elected
for a two-year term and until his successor shall have been elected and
shall qualify, or until his earlier death, resignation or removal. If
the number of Directors is changed, any increase or decrease in the
number of Directors shall be apportioned by the Board among the two
classes so that the number of Directors in each class remain as nearly
equal as possible; provided, however, that no decrease in the number of
Directors shall shorten the term of any incumbent Director. A Director
elected to fill a vacancy shall hold office during the term to which
his predecessor had been elected and until his successor shall have
been elected and shall qualify, or until his earlier death, resignation
or removal.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect
Directors at any
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<PAGE> 8
annual or special meeting of shareholders, the election, term of
office, filling of vacancies and other features of such directorships
shall be governed by the terms of the Articles of Incorporation, as
amended from time to time, applicable thereto, and such Directors so
elected shall not be divided into classes pursuant to this Article III
unless expressly provided by such terms.
If the Proposed Amendment is adopted, Article III, Section 5 of the
Company's Code of Regulations will be deleted in its entirety and replaced with
the following:
Section 5: Removal of Director.
No Director may be removed, by shareholders or otherwise, during the
term of office for which such Director was elected, except for good
cause, and if removed by shareholders for good cause, only by a vote of
holders of shares of capital stock carrying 75% of the votes entitled
to be cast for the election of Directors generally.
If the Proposed Amendment is adopted, Article VIII of the Company's
Code of Regulations will be deleted in its entirety and replaced with the
following:
ARTICLE VIII
AMENDMENTS
The regulations of the Corporation shall be subject to alteration,
amendment or repeal, and new regulations not inconsistent with any
provision of the Articles or Incorporation or statute, may be made,
either by the affirmative vote of the holders of shares entitling them
to exercise a majority of the voting power of the Corporation, at any
annual or special meeting of the shareholders or, without such meeting,
by the written consent of the holders of shares entitling them to
exercise two-thirds of the voting power; provided, however, that the
first three paragraphs of Article III, Section 1; Article III, Section
5 in its entirety; and this proviso of Article VIII, may not be
amended, rescinded or otherwise modified except upon the affirmative
vote of the holders of shares of capital stock carrying 75% of the
votes entitled to be cast on such matter. If the regulations are
amended or new regulations are adopted without a meeting of the
shareholders, the Secretary of the Corporation shall mail a copy of the
amendment or the new regulations to each shareholder who would have
been entitled to vote thereon and did not participate in the adoption
thereof.
The Board of Directors believes that classification of the Board of
Directors as provided in the Proposed Amendment will promote continuity and
stability of the
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<PAGE> 9
Company's management and policies in the future, since it is possible that half
of the Directors at any given time will have prior experience as Directors of
the Company. Although the Company has had no difficulty in the past maintaining
continuity, the Board of Directors considers it advisable to provide the
additional assurance of continuity that is afforded by the classification of
Directors.
It should be noted also that the classification provision will apply to
every election of Directors, whether or not a change in the Board would be
beneficial to the Company and its shareholders and whether or not a majority of
the Company's shareholders believes that such a change would be desirable.
Therefore, adoption of the amendment to the Code of Regulations may have
significant effects on the ability of the shareholders of the Company to change
the composition of the incumbent Board of Directors. However, the Board of
Directors believes that the classification of Directors will permit it to
represent more effectively the interests of all shareholders and to respond
prudently to circumstances created by the demand or actions of a minority
shareholder or group. There has been an increasing number of attempts by
individuals and entities to acquire significant minority positions in public
companies with the intent of obtaining actual control of such companies by
electing their own slate of Directors, or by achieving some other goal, such as
the repurchase of their shares at a premium, by threatening to obtain such
control. These insurgents often can elect a majority of a company's Board of
Directors through a proxy contest or otherwise even though they do not own a
majority of the company's outstanding shares. The Proposed Amendment to the Code
of Regulations may discourage such purchases because its provisions would
operate to moderate the pace of any change in control of the Board of Directors
by extending the time required to elect a majority of the Directors. At least
two shareholders meetings, instead of one, will be required to effect a change
in control of the Board. In addition, since the shareholders may elect to
cumulate their votes in an election of Directors and there will be fewer
Directors to be elected at each annual meeting as a result of the Amendment, a
greater number of shares will be required to ensure the election of a single
Director.
Under existing law and the current Code of Regulations, if no provision
to the contrary is contained in the Articles or the Code of Regulations, a
Director may be removed from office, with or without cause, upon the vote of the
holders of a majority of the voting power entitling them to elect Directors in
place of those to be removed. The Proposed Amendment would change this by
prohibiting the removal of a Director during the term for which such Director
was elected except for cause, and then only upon a 75% vote of shareholders. The
purpose of this provision is to make it more difficult for a hostile acquiror to
gain control of the Board of Directors by effecting the removal of Directors
previously elected by the shareholders who are antagonistic to the hostile
acquiror's plans.
Under the current Code of Regulations, the holders of a majority of the
voting power of the Company may amend or repeal any provision of the Code of
Regulations
- 6 -
<PAGE> 10
at an annual or special meeting. Under the Proposed Amendment, the specific
provisions in the Code of Regulations which are being amended could not be
amended or rescinded without a 75% vote of shareholders. The vote required for
amendment or rescission of any other provision of the Code of Regulations would
be unaffected. The purpose of this provision is to ensure that the effect of the
other amendments considered in the Proposed Amendment would not be circumvented
by a simple majority of the shareholders.
For the same reasons, the adoption of the Proposed Amendment may also
deter certain mergers, tender offers or other future takeover attempts which
some or a majority of shareholders may deem to be in their best interests. In
addition, the Proposed Amendment would delay shareholders who do not like the
policies of the Board of Directors from removing a majority of the Board for two
years, unless they can show cause and obtain the requisite vote.
The Board has no knowledge of any present effort to gain control of the
Company through the accumulation of stock or to organize a proxy contest.
Moreover, there has been no problem in the past or at the present time with
management continuity or stability. However, particularly in view of the
current environment of increasing stock accumulations and proxy contests facing
public companies, the Board believes that it is prudent and in the interests of
shareholders generally to provide the advantage of greater assurance of
continuity of Board composition and policies which will result from the adoption
of the Proposed Amendment. The Board believes such advantage outweighs any
disadvantage relating to discouraging potential acquirors from making an effort
to obtain control of the Company.
The Board does not believe that the Articles or the Code of Regulations
of the Company presently contain any provisions which should be viewed as having
an "anti-takeover" effect. The Board does not presently intend to propose any
other amendments to the Articles or the Code of Regulation of the Company which
may have the effect of discouraging a takeover attempt.
Ohio corporation law requires prior shareholder approval of any
"control share acquisition" of certain Ohio corporations, including the Company.
However, in 1989, the Company amended its Articles in accordance with Section
1701.831 of the OGCL to provide that the provisions of Section 1701.831 of the
OGCL shall not apply to control share acquisitions of the Company's shares.
Ohio corporation law also includes "merger moratorium" provisions that,
in general, prohibit certain Ohio corporations, including the Company (an
"issuing public corporation"), from entering into a merger, consolidation or
other specified transaction ("Regulated Transaction") with any person who,
together with related parties, has the right to exercise 10% or more of the
voting power of the issuing public corporation in the election of Directors
("interested shareholder"), for a period of three years after
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<PAGE> 11
the date on which such person became an interested shareholder ("share
acquisition date"), unless, prior to such share acquisition date, the Directors
of the issuing public corporation approved either the Regulated Transaction or
the purchase of shares which resulted in such person becoming an "interested
shareholder." After the three-year period, the issuing public corporation may
engage in a Regulated Transaction with the interested shareholder only if (a)
the transaction is approved by the affirmative vote of the holders of at least
two-thirds of the voting power of the issuing public corporation and by at least
a majority of the disinterested shares or (b) certain "fair price" requirements
are satisfied with respect to the consideration payable in the transaction to
the holders of disinterested shares.
Ohio law further requires that any offeror making a control bid for any
securities of a "subject company" pursuant to a tender offer must file
information specified in the Ohio Securities Act with the Ohio Division of
Securities when the bid commences. The Ohio Division of Securities must then
decide, within three calendar days, whether it will suspend the bid under the
statute. If it does so, it must initiate hearings on the suspension within 10
calendar days of the suspension date and make a determination, within 16
calendar days of the suspension date, of whether to maintain the suspension.
For this purpose, a "control bid" is the purchase of, or an offer to purchase,
any equity security of a subject company from a resident of Ohio that would, in
general, result in the Offeror acquiring 10% or more of the outstanding shares
of such company. A "subject company" includes any company with both (a) its
principal place of business or principal executive office in Ohio or assets
located in Ohio with a fair market value of at least $1,000,000 and (b) more
than 10% of its record or beneficial equity security holders resident in Ohio,
or more than 10% of its equity securities owned of record or beneficially by
Ohio residents, or more than 1,000 of its record or beneficial equity security
holders resident in Ohio.
The Company and its shareholders are subject to the "merger moratorium"
laws whether or not the Proposed Amendment is adopted. The Proposed Amendment is
not part of a comprehensive plan of the Board or management to implement a
series of "anti-takeover" measures and neither the Board nor management
presently intends to propose any other or additional amendments to the Company's
Articles or Code of Regulations that may have such an effect.
VOTE REQUIRED
The affirmative vote of the holders of shares entitling them to
exercise a majority of the voting power of the Company is required for the
adoption of the Proposed Amendment to the Code of Regulations. An abstention
from voting any share or a broker non-vote with respect to this Proposal will
have the same effect as a vote against the Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
ADOPTION OF THE PROPOSED AMENDMENT TO THE CODE OF REGULATIONS.
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-------------------------
PROPOSAL 2
ELECTION OF DIRECTORS
-------------------------
The Company's Code of Regulations provides for a Board of Directors
consisting of no less than four (4) nor more than nine (9) Directors. The Code
of Regulations provides that the Board may change the number of Directors within
said numbers specified. The Board has fixed the number of Directors at six (6).
The Board of Directors of the Company has designated Joseph Abrams,
Peter Graf, George Henry, Aron Katzman, Nickey Maxey and Steven Richman as
nominees for election as Directors of the Company. Each of the nominees was
elected to their current Director position by shareholders at the 1996 Annual
Meeting. The Company presently has one class of Directors. In the event that the
shareholders of the Company do not approve Proposal 1, all of the nominees
elected at the Meeting are to serve until the end of the 1998 Annual Meeting of
Shareholders and until their successors are duly elected and qualified.
If the shareholders of the Company approve Proposal 1, the Board of
Directors will be classified into two classes and the Board, acting upon the
recommendation of its Nominating Committee, has nominated and recommends the
re-election of Messrs. Henry, Katzman and Richman as "Class I Directors" for a
term expiring at the end of the Annual Meeting of Shareholders to be held in
1998, and the re-election of Messrs. Abrams, Graf and Maxey as "Class II
Directors" for a term expiring at the end of the Annual Meeting of Shareholders
to be held in 1999. See "Proposal 1: Amendment to the Code of Regulations to
Establish a Classified Board of Directors."
Shareholders are entitled to one vote for each share of Common Stock
held in their name of record as of the close of business on June 3, 1997. The
six (6) candidates receiving the most votes cast by shareholders, in person or
by proxy, at the meeting shall be elected Directors. Under the OGCL, if notice
in writing is given by any shareholder to the President, a Vice President or the
Secretary of the Company, not less than forty-eight (48) hours before the time
fixed for holding the meeting, that the shareholder desires that the voting for
election of Directors shall be cumulative, and if an announcement of the giving
of such notice is made upon the convening of the meeting by the Chairman or the
Secretary of the meeting or by or on behalf of the shareholder giving such
notice, each shareholder will have cumulative voting rights. If cumulative
voting rights are invoked, then each shareholder shall be entitled to as many
votes as shall equal the number of shares of Common Stock he or she owns
multiplied by the number of Directors to be elected, and the shareholder
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<PAGE> 13
may cast all of such votes for a single nominee or any two or more nominees, as
the shareholder may desire.
Proxies solicited hereunder granting authority to vote on the election
of Directors will be voted for the reelection by shareholders of each of the
nominees for election as Directors. An abstention from voting any share, or a
broker non-vote with respect to the election of any nominee for Director, will
not affect the election of Directors. In the event that cumulative voting is in
effect, the persons authorized in the enclosed form of proxy and acting
thereunder shall select, and said persons shall have the authority to cumulate
such voting power as they possess and distribute their votes among the nominees
so as to assure the election of as many such nominees, as possible. In the event
that any of the nominees becomes unavailable for any reason prior to the
Meeting, the persons authorized in the enclosed form of proxy and acting
thereunder may either vote such shares for a substitute nominee or for a reduced
number of nominees, as they may deem advisable. The Company, however, has no
reason to believe that any of the nominees will not be available.
BIOGRAPHICAL INFORMATION CONCERNING NOMINEES
<TABLE>
<CAPTION>
NAME AND AGE TENURE AS DIRECTOR AND PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
- ------------ ------------------------------------------------------------------
<S> <C>
Joseph Abrams, Age 60 Served as a Director of the Company since September 1995.
Mr. Abrams is also a director of Merisel, Inc., a public company
that distributes micro computer hardware and software,
and Spectrum Signal Processing, Inc., a public company that
specializes in digital signal solutions. Mr. Abrams was a co-
founder of and served as the President of AGS Computers
from 1967 to 1991. Since 1991, Mr. Abrams has been a
private investor.
Peter G. Graf, Age 59 Served as a Director, Chairman and Chief Executive Officer of the
Company since July 1995. Mr. Graf is licensed as an attorney and
certified public accountant and serves as an officer and/or director
of various privately-held companies and the Managing Partner of an
accounting firm. From 1991 to September 1995, Mr. Graf served as
Vice Chairman of USA Mobile Communications Holdings, Inc.
George H. Henry, Age 43 Served as a Director of the Company since April 1990. Mr.
Henry has been the President of G. Howard Associates, Inc.,
a private investment firm, since 1986. Mr. Henry is also on
the Board of Directors of Biovail International Corporation and
is a trustee of Mitchell College.
</TABLE>
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<PAGE> 14
<TABLE>
<CAPTION>
<S> <C>
Aron Katzman, Age 58 Served as a Director of the Company since September 1995. Mr. Katzman is
President of New Legends, Inc., a country club/residential community in the St.
Louis, Missouri area, and Chairman and Chief Executive Officer of Decorating Den
of Missouri, a company engaged in the selling of decorating franchises in
Missouri. Previously, Mr. Katzman was founder and former director of Medicine
Shoppe, Inc., a franchisor of pharmacies, and Chairman and Chief Executive
Officer of Roman Company, a manufacturer and distributor of fashion costume
jewelry, from 1984 until it was sold in 1994. Mr. Katzman was formerly a
director and officer of World Communications, Inc., which was merged into the
Company in September 1995.
Nickey B. Maxey, Age 40 Served as a Director of the Company since April 1996 and as Vice Chairman of the
Company since February 1997. Mr. Maxey was founder and President of
International Pay Phones, Inc., a Tennessee company, and International Pay
Phones, Inc., a South Carolina company, for more than five years prior to the
acquisition of said companies by the Company in March 1996. Since 1990, Mr.
Maxey has owned and operated Resort Hospitality Services of South Carolina,
Resort Hospitality Services of Tennessee and Resort Hospitality Services
International, a group of affiliated companies which are resellers of long
distance services.
Steven Richman, Age 53 Served as a Director of the Company since September 1995. Mr. Richman is the
principal owner and has served as the Chief Executive Officer of Fabric
Resources International for more than the past five years. Mr. Richman was the
co-founder and an officer of Cable Systems USA, an officer at Cellular Systems
USA, and a director of USA Mobile Communications Holdings, Inc. Mr. Richman has
been a director of Cable Systems USA II since 1989.
</TABLE>
Meetings and Committees of the Board of Directors
During 1996, the Board of Directors held seven meetings and took action
by unanimous written consent on two other occasions.
The Board of Directors of the Company has a Compensation Committee and
an Audit Committee, neither of which held any meetings in 1996. The Board of
Directors also has a Nominating Committee which held no meetings in 1996.
- 11 -
<PAGE> 15
The Compensation Committee has the authority to decide upon and make
recommendations with respect to executive compensation matters. Joseph Abrams,
Peter Graf and George Henry are members of the Compensation Committee. Joseph
Abrams was elected as Chairman of the Compensation Committee.
The Audit Committee has the authority to recommend to the Board of
Directors the independent accountants to audit the Company's financial
statements, to meet with the independent accountants and to review the Company's
financial statements, results of audits and fees charged. Peter Graf, Aron
Katzman and Steven Richman are members of the Audit Committee. Aron Katzman was
elected as Chairman of the Audit Committee.
The Nominating Committee evaluates the composition of the Board of
Directors and makes recommendations to the Board of Directors as to nominees
(including any nomination of qualified candidates submitted in writing by
shareholders to the Secretary of the Company) for Director to be submitted to
the shareholders. Joseph Abrams, Peter Graf and Steven Richman are members of
the Nominating Committee. Peter Graf was elected Chairman of the Nominating
Committee.
During 1996, all Directors attended at least 75% of the aggregate total
number of the meetings of the Board and Committees on which they served.
Compensation of Directors
The Company's Code of Regulations provides that the Board of Directors
may compensate Directors for serving on the Board and reimburse them for any
expenses incurred as a result of Board meetings. Directors' fees have been
approved by the Board of Directors and are payable only to non-employee
Directors. Directors' fees to such non-employee Directors, representing service
for 1995 and 1996, remained unpaid at December 31, 1996. On May 7, 1997, the
Board authorized non-employee Director compensation in the amount of $20,000 per
year, for a total of $40,000, to be paid in 10,000 unregistered shares of the
Company's Common Stock as compensation to each non-employee Director for
services rendered for the 1995 and 1996 service years. The shares so awarded
were valued at $4.00 per share, which was the market value of the Company's
Common Stock on February 4, 1997, the date on which the Board initially
considered this manner of compensation for non-employee Directors.
- 12 -
<PAGE> 16
EXECUTIVE OFFICERS
The Company has two executive officers other than Messrs. Graf and
Maxey.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS TENURE AS AN OFFICER AND BUSINESS EXPERIENCE DURING THE LAST FIVE
- ------------------ -----------------------------------------------------------------
YEARS
-----
<S> <C>
Tammy L. Martin Served as Executive Vice President and Chief Administrative Officer of the
Age 32 Company since April 1996 and has been General Counsel and Secretary of the
Company since September 1995. Previously, Ms. Martin served as Associate Legal
Counsel for the Company during 1993 and 1994. Prior to joining the Company, Ms.
Martin was in private legal practice from 1992 to 1993 and was self-employed as
an accountant from 1990 to 1992.
Richard P. Kebert Served as Chief Financial Officer and Treasurer of the Company since September
Age 50 1996. Prior to joining the Company, Mr. Kebert was an independent consultant.
From 1994 to 1996, he was Vice President--Finance and Administration of Acordia
of Cleveland, Inc. For 12 years prior thereto, Mr. Kebert held several senior
management positions with Mr. Coffee, inc., including Vice President of
Administration and Secretary, respectively. Mr. Kebert is a certified public
accountant.
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE-IN-CONTROL
ARRANGEMENTS.
On September 22, 1995, the Company entered into an employment agreement
with the Company's former Senior Vice President, Gary Pace, pursuant to the
terms of the acquisition of World Communications, Inc. ("World"). The agreement
with Mr. Pace entitles him to annual salaries during the two-year term of the
agreement of $110,000 and $120,000, respectively, as well as certain bonuses.
- 13 -
<PAGE> 17
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation for
services rendered during the three year period ended December 31, 1996 paid to
the Company's Chief Executive Officer (the "CEO") and to each of the Company's
two most highly compensated executive officers who were serving as executive
officers at December 31, 1996 and each of whose total salary and bonus for
fiscal 1996 exceeded $100,000.
================================================================================
SUMMARY COMPENSATION TABLE
================================================================================
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
--------------------------------------------------
Long-
Term
Other Restrict- Securities Incen- All Other
Name Annual ed Underlying tive Com-
and Compen- Stock Options/ Pay- pen-
Principal Salary Bonus sation Award(s) SARs outs sation
Position Year ($) ($) ($) ($) (#) ($) ($)
--------- ---- ------ ------ ------ ------- ------- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter G. Graf (a) 1996 -- -- -- -- -- -- --
Chairman, Chief 1995 -- -- -- -- -- -- --
Executive Officer 1994 -- -- -- -- -- -- --
and Director
Tammy L. Martin 1996 98,123 106,892 -- -- -- -- --
Executive Vice
President, Chief
Administrative
Officer, General
Counsel and
Secretary
Gary Pace 1996 112,307 20,000 -- -- -- -- --
Former Senior
Vice President
<FN>
(a) Mr. Graf has received no compensation for his service as Chief
Executive Officer.
</TABLE>
- 14 -
<PAGE> 18
GRANTS IN FISCAL 1996
There were no individual grants of stock options made during the year
ended December 31, 1996 to any of the named executive officers. The following
table sets forth certain information about unexercised stock options held by the
named executive officers at December 31, 1996. No stock options were exercised
by such persons during 1996.
================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FY-END OPTION VALUES
================================================================================
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FY-END
NAME ACQUIRED FY-END (#) ($)
AND ON EXER- VALUE RE- EXERCISABLE/ EXERCISABLE/
PRINCIPAL POSITION CISE (#) ALIZED ($) UNEXERCISABLE UNEXERCISABLE
---------------- ------- ------- ------------ -------------
<S> <C> <C> <C> <C>
Peter G. Graf -- -- -- --
Chairman,
Chief Executive Officer
and Director
Tammy L. Martin -- -- 333 --
Executive Vice President,
Chief Administrative Officer,
General Counsel
and Secretary
Gary Pace -- -- -- --
Former Senior
Vice President
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to the rules of the Securities Exchange Act of 1934 (the
"Act"), the Company is obligated to identify each person who, at any time during
the fiscal year, was a Director, officer and/or beneficial owner of more than
10% of any class of equity securities of the Company registered pursuant to
Section 12 of the Act, or any other person subject to Section 16 of the Act with
respect to the Company (a "Reporting Person") that failed to file on a timely
basis, as disclosed in the Forms (as defined below), reports required by Section
16(a) of the Act during the fiscal year ended December 31, 1996, or prior fiscal
years.
- 15 -
<PAGE> 19
The Company has, therefore, reviewed the following reports of Reporting
Persons received on or before April 30, 1997: Form 3--Initial Statement of
Beneficial Ownership of Securities and Form 4--Statement of Changes in
Beneficial Ownership of Securities, and amendments thereto, furnished to the
Company during the fiscal year ended December 31, 1996, and Form 5--Annual
Statement of Changes of Beneficial Ownership, and amendments thereto, furnished
to the Company with respect to the fiscal year ended December 31, 1996
(collectively, the "Forms"). No Forms were received during the period enumerated
which were not timely filed.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock owned by each Director of the Company,
each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock, the named executive officers and all Directors and
Officers as a group as of March 31, 1997. Unless otherwise indicated, the number
of shares of Common Stock owned by the named shareholders assumes the exercise
of the warrants or options that are exercisable within 60 days, the number of
which is separately referred to in a footnote, and the percentage shown assumes
the exercise of such warrants or options and assumes that no warrants or options
held by others are exercised. This information is based upon information
furnished by such persons and statements filed with the Commission and other
information known by the Company.
<TABLE>
<CAPTION>
======================================================================================================================
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF COMMON STOCK OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
======================================================================================================================
DIRECTORS
=========
<S> <C> <C>
Peter G. Graf (a)(l) 1,272,434 7.7%
Chairman, Chief Executive Officer
and Director
1127 Euclid Avenue, Suite 650
Cleveland, OH 44115-1601
Nickey B. Maxey (b)(l) 408,411 2.5%
Vice Chairman and Director
1127 Euclid Avenue, Suite 650
Cleveland, OH 44115-1601
</TABLE>
- 16 -
<PAGE> 20
<TABLE>
<CAPTION>
======================================================================================================================
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF COMMON STOCK OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
======================================================================================================================
<S> <C> <C>
George H. Henry (c) 350,376 2.2%
Director
6860 Sunrise Court
Coral Gables, FL 33133
Stuart Hollander (d) 323,559 2.0%
Director
32 Lake Forest
St. Louis, MO 63117
Steven Richman (e)(l) 261,734 1.6%
Director
9 Beech Lane
Kings Point, NY 11024
Aron Katzman (f)(l) 248,045 1.5%
Director
10 Layton Lane
St. Louis, MO 63124
Joseph Abrams (g)(l) 200,014 1.2%
Director
85 Old Farm Road
Bedminster, NJ 07921
NAMED EXECUTIVE OFFICERS
========================
Tammy L. Martin (h) 333 *
Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
1127 Euclid Avenue, Suite 650
Cleveland, OH 44115-1601
Gary Pace 142,910 0.9%
Former Senior Vice President
10050 Afton Place
St. Louis, MO 63123
</TABLE>
- 17 -
<PAGE> 21
<TABLE>
<CAPTION>
======================================================================================================================
NUMBER OF SHARES PERCENTAGE
NAME AND ADDRESS OF COMMON STOCK OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
======================================================================================================================
<S> <C> <C>
Executive Officers and Directors 3,211,059 19.1%
as a group (9 persons) (i)(l)
5% BENEFICIAL OWNERS
====================
ING (U.S.) Investment Corporation (j) 2,048,240 11.3%
135 East 57th Street
New York, NY 10022
Cerberus Partners, L.P. (k) 2,048,240 11.4%
450 Park Avenue
New York, NY 10022
</TABLE>
* Less than 1.0%
(a) Includes warrants to purchase 33,231 shares of Common Stock through
December 31, 1997, warrants to purchase 41,833 shares of Common Stock
through August 15, 2000 and 14% Preferred Stock (as defined herein)
which is convertible through June 30, 2000 into 288,646 shares of
Common Stock.
(b) Includes 14% Preferred Stock which is convertible through June 30, 2000
into 33,489 shares of Common Stock.
(c) Includes options to purchase 25,000 shares of Common Stock through
October 9, 1998.
(d) Includes 148,864 shares of Common Stock held by his spouse and 6,266
shares of Common Stock held by other family members.
(e) Includes Nominal Value Warrants (as defined herein) to purchase 89,998
shares of Common Stock through March 31, 2001, warrants to purchase
8,110 shares of Common Stock through December 31, 1997, warrants to
purchase 12,500 shares of Common Stock through August 15, 2000,
warrants to purchase 16,222 shares of Common Stock through August 29,
2000, 11,033 shares of Common Stock held by his spouse and 14%
Preferred Stock which is convertible through June 30, 2000 into 48,108
shares of Common Stock.
(f) Includes 14% Preferred Stock which is convertible through June 30, 2000
into 50,850 shares of Common Stock.
(g) Includes 14% Preferred Stock which is convertible through June 30, 2000
into 67,351 shares of Common Stock.
(h) Includes options to purchase 333 shares of Common Stock through January
3, 2000.
(i) Includes beneficial ownership of Common Stock described above with
respect to Messrs. Graf, Abrams, Henry, Hollander, Katzman, Maxey and
Richman, and Ms. Martin.
- 18 -
<PAGE> 22
(j) Reflects warrants to purchase the Series A Preferred Stock, which is
immediately convertible into 2,048,240 shares of Common Stock. ING
(U.S.) Investment Corporation is a wholly-owned subsidiary of
Internationale Nederlanden (U.S.) Capital Corporation ("ING"). In
December 1996, ING transferred those warrants to ING (U.S.) Investment
Corporation. All references to "ING" as holder of those warrants or as
a holder of shares of Common Stock refer to ING (U.S.) Investment
Corporation.
(k) Reflects warrants to purchase the Series A Preferred Stock, which is
immediately convertible into 1,798,240 shares of Common Stock.
(l) See "Certain Relationships and Related Transactions" for information
with respect to the 14% Preferred Stock and the Nominal Value Warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 15, 1996, warrants with a nominal value ("Nominal Value
Warrants") to purchase 2,018,942 shares of Common Stock expiring March 13, 2001,
were issued in conjunction with the acquisitions of International Pay Phones,
Inc., a Tennessee company, International Pay Phones, Inc., a South Carolina
company, and Paramount Communication Systems, Inc., redemption of the 10%
Cumulative Redeemable Preferred Stock, 8% Cumulative Redeemable Preferred Stock,
and 7% Cumulative Convertible Redeemable Preferred Stock, and conversion of
certain debt of the Company into the 14% Convertible Cumulative Redeemable
Preferred Stock ("14% Preferred Stock"). The 14% Preferred Stock accrues
dividends at the quarterly rate of 0.035 shares of 14% Preferred Stock per share
of 14% Preferred Stock and is redeemable by the Company for $60 per share plus
accrued and unpaid dividends at any time prior to June 30, 2000, at which date
the Company shall redeem all outstanding shares of 14% Preferred Stock at $60
per share. Each share of 14% Preferred Stock is convertible into 10 shares of
Common Stock. Concurrently with their exchange of debt and preferred stock for
the 14% Preferred Stock, the following Directors, Executive Officers and
security holders who at the time held 5% or more of the Common Stock, received
the amount of 14% Preferred Stock and Nominal Value Warrants shown below.
<TABLE>
<CAPTION>
========================== ============================ ======================
Value of Debt/Preferred Number of Nominal
Name of Beneficial Surrendered Value Warrants
Owner and Stated Value of 14% Issued
Preferred Stock Issued
========================== ============================ ======================
<S> <C> <C>
Peter G. Graf $1,500,000 539,989
Chairman, Chief
Executive Officer
and Director
</TABLE>
- 19 -
<PAGE> 23
<TABLE>
<CAPTION>
========================== ============================ ======================
Value of Debt/Preferred Number of Nominal
Name of Beneficial Surrendered Value Warrants
Owner and Stated Value of 14% Issued
Preferred Stock Issued
========================== ============================ ======================
<S> <C> <C>
Joseph Abrams $ 350,000 125,997
Director
Aron Katzman $ 264,250 95,128
Director
Steven Richman $ 250,000 89,998
Director
Nickey B. Maxey $ 174,032 62,650
Director
J&C Resources, Inc. $ 825,000 296,994
5% Owner
at 3/15/96
Southcoast Capital $ 600,000 143,994
Corporation
5% Owner
at 3/15/96
</TABLE>
In 1995, Mr. Graf loaned an aggregate of $1.25 million to the Company
at no interest. Such amounts were subordinated to the Company's other
indebtedness. In the first quarter of 1996, Mr. Graf loaned to the Company an
additional $260,000 under similar terms. On March 15, 1996, Mr. Graf and the
Company agreed to convert $1.5 million of such indebtedness into 25,000 shares
of 14% Preferred Stock and 539,989 Nominal Value Warrants. Additionally, in
1996, Mr. Graf loaned approximately $585,000 to the Company at an interest rate
of 13.25%, which was the interest rate charged by the Company's secured lenders
at that time. On December 31, 1996, Mr. Graf and the Company agreed to convert
approximately $248,000 of the principal amount of such indebtedness into 99,119
shares of Common Stock at $2.50 per share, representing the market price of the
Common Stock on the day the Company's Board of Directors approved the
conversion. On January 2, 1997, Mr. Graf and the Company agreed to convert the
remaining indebtedness of approximately $347,000, plus accrued interest of
$37,000, into 124,747 shares of Common Stock at $3.00 per share, representing
the market price of the Common Stock on the day the Company's Board of Directors
approved the conversion.
- 20 -
<PAGE> 24
In March 1996, a predecessor of Southcoast Capital Corporation
("Southcoast"), which at the time and prior to the consummation of an offering
of the Company's Common Stock in December 1996 (the "Company Equity Offering"),
was a 5% or more shareholder of the Company, was paid fees consisting of (i)
$600,000 in cash, (ii) 10,000 shares of 14% Preferred Stock valued at $600,000
and (iii) Nominal Value Warrants to purchase 143,944 shares of Common Stock for
providing financial advisory services to the Company in connection with a
certain credit agreement. In addition, in December 1995, a predecessor of
Southcoast received 56,666 shares of Common Stock and warrants to purchase
166,666 shares of the Company's Common Stock at an exercise price of $6.00 per
share through September 5, 2000 for services rendered in connection with the
acquisition of World and a working capital loan. Southcoast acted as the
Representative of the underwriters in the Company Equity Offering and received
$1,418,000 in December 1996 and $213,000 in January 1997 for its services in the
Company Equity Offering and $808,000 in January 1997 for providing financial
advisory services to the Company in connection with acquisition of Cherokee
Communications, Inc.
Internationale Nederlanden (U.S.) Capital Corporation ("ING") and
Cerberus Partners, L.P., each of which is a 5% or more shareholder and one of
the lenders under a certain credit agreement, received customary fees during
1995 and 1996 pursuant to the terms of said credit agreement, including fees
upon the prepayment and termination of said credit agreement in December 1996.
In addition, an affiliate of ING received approximately $656,000 in December
1996 for acting as co-underwriter in an offering of certain debt by the Company
(the "Company Debt Offering").
On September 22, 1995, the Company entered into a consulting agreement
with Stuart Hollander, the former Chairman of World, pursuant to the terms of
the acquisition of World. The agreement with Mr. Hollander entitles him to
annual salaries during the two-year term of the agreement of $125,000 and
$135,000, respectively.
- 21 -
<PAGE> 25
-------------------------
PROPOSAL 3
-------------------------
RATIFICATION AND APPROVAL OF 1997 STOCK INCENTIVE PLAN
BACKGROUND:
On May 5, 1987, the Company's Board of Directors and shareholders
approved the Company's Stock Incentive Plan (the "1987 Plan"). Pursuant to the
1987 Plan, both incentive stock options, which meet the requirements of Section
422A of the Internal Revenue Code of 1986 (the "Code") and non-qualified stock
options may be granted. Stock appreciation rights and restricted shares of
Common Stock ("Restricted Stock") may also be issued under the 1987 Plan.
Participation in the Plan is limited to employees of the Company other than
Officers and Directors. Pursuant to its terms the Plan terminated on May 4, 1997
and no stock options, stock appreciation rights or Restricted Stock may be
granted thereafter. In anticipation of the termination of the 1987 Plan, on
February 4, 1997, the Board of Directors adopted, subject to shareholder
approval, a new PhoneTel Technologies, Inc. 1997 Stock Incentive Plan (the "1997
Plan") in order to make 2,000,000 shares of the Company's Common Stock available
for distribution to the Company's Officers, Directors, employees and independent
contractors.
Consequently, the shareholders will be asked at the Annual Meeting of
Shareholders to vote on a proposal to ratify and approve the adoption of the
1997 Plan. To date, the Board has granted an aggregate of 830,000 options under
the 1997 Plan to the Chief Executive Officer, Vice Chairman and Chief
Administrative Officer, as set forth in the Table below, and it is anticipated
that additional options under the 1997 Plan will be granted during 1997;
however, the recipients and the number of shares subject to such additional
options have not yet been determined.
- 22 -
<PAGE> 26
<TABLE>
<CAPTION>
===============================================================================
NEW PLAN BENEFITS
- -------------------------------------------------------------------------------
PHONETEL TECHNOLOGIES, INC. 1997 STOCK INCENTIVE PLAN
- -------------------------------------------------------------------------------
NAME AND POSITION NUMBER OF UNITS
===============================================================================
<S> <C>
Peter G. Graf 450,000 (1)(3)
Chairman, Chief Executive Officer and Director
- -------------------------------------------------------------------------------
Tammy L. Martin 200,000 (2)(3)
Executive Vice President, Chief Administrative
Officer, General Counsel and Secretary
- -------------------------------------------------------------------------------
Nickey B. Maxey 180,000 (1)(3)
Vice Chairman and Director
===============================================================================
<FN>
(1) These options were granted on February 4, 1997 at $4.00 per share, the
fair market value of the Company's Common Stock at the date of grant.
(2) These options were granted on May 7, 1997 at $2.69 per share, the fair
market value of the Company's Common Stock at the date of grant.
(3) These options will become exercisable in equal installments of
one-third of the shares of the Company's Common Stock which are covered
by the stock option on each of the first three anniversary dates of the
grant, subject to earlier exercisability in accordance with the terms
of the 1997 Plan.
</TABLE>
The Company's Board has adopted the 1997 Plan as part of its policy to
further the long-term growth in earnings of the Company by providing incentives
to those Officers, Directors, certain other employees and independent
contractors who are or will be responsible for such growth; to facilitate the
ownership of the Company's Common Stock by such individuals, thereby more
closely identifying their interests with those of the Company's shareholders;
and to assist the Company in attracting and retaining Officers, Directors,
certain other employees and independent contractors with experience and ability.
Incentive plans such as the 1997 Plan are an important part of this policy. The
number of shares available for issuance under the plan will provide the Company
with greater flexibility in carrying out this policy and providing for full
exercisability of outstanding options upon the occurrence of a Change in Control
of PhoneTel will help reinforce participants' attention to their duties in the
event of a potential Change in Control. The Company's Board believes that the
1997 Plan reflects the best interest of the Company and recommends its approval
by shareholders.
- 23 -
<PAGE> 27
The summary that follows is subject to the actual terms of the 1997
Plan which is attached hereto as Annex A. The terms of the 1997 Plan require its
approval by the shareholders of the Company.
THE 1997 PLAN
The 1997 Plan provides for the granting of incentive stock options
("ISOs") and non-qualified stock options ("NSOs"). ISOs and NSOs are sometimes
together referred to herein as "options". Unless the 1997 Plan is earlier
terminated by the Company's Board, no option may be granted under the 1997 Plan
after the date that is ten years from the date the Plan is ratified and approved
by the shareholders.
The 1997 Plan is not subject to any provisions of ERISA, nor is the
1997 Plan a qualified plan within the meaning of Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
PLAN ADMINISTRATION
The 1997 Plan will be administered by a committee of the PhoneTel Board
(the "Committee") consisting of two or more Directors of PhoneTel who are
"non-employee Directors" within the meaning of Rule 16b-3 and who are "outside
directors" within the meaning of section 162(m) of the Code.
SECURITIES SUBJECT TO THE 1997 PLAN
Following approval of the 1997 Plan, 2,000,000 shares of treasury or
authorized but unissued shares of PhoneTel Common Stock will be available for
issuance under the 1997 Plan. As of May 5, 1997, the market price for the Common
Stock was $2.625 per share.
The 1997 Plan provides that, in the event of changes in the PhoneTel
Common Stock by reason of a merger, reorganization, consolidation,
recapitalization, common stock dividend, stock split or similar change relating
to the number or kind of outstanding shares, the Committee will make appropriate
adjustments in (i) the aggregate number of shares available for issuance under
the plan, (ii) the number of shares purchasable upon the exercise of any option
outstanding prior to such change and (iii) the purchase price to be paid upon
the exercise of such options. In the event of other changes in the PhoneTel
Common Stock, the Committee has the discretion to make equitable adjustments to
options previously granted under the 1997 Plan.
ELIGIBILITY
Following shareholder approval of the 1997 Plan, options may be granted
to selected key employees of the Company or its subsidiaries (including Officers
and
- 24 -
<PAGE> 28
those Directors who perform significant decision making functions in the daily
operations of the Company) and to non-employee independent contractors as
determined and selected by the Committee; provided, however, that ISOs may only
be granted to employees of PhoneTel and provided, further, that the aggregate
number of shares of PhoneTel Common Stock for which options may be granted to
any individual during any calendar year may not, subject to adjustment as
described above in "Securities Subject to the 1997 Plan," exceed forty percent
(40%) of the shares reserved for purposes of the plan.
EXERCISE OF OPTIONS
The exercise price of ISOs and NSOs shall be determined by the
Committee, but may not, in the case of ISOs, be less than one hundred percent
(100%) of the fair market value of the PhoneTel Common Stock on the date the
option is granted. The exercise price of options may, however, be adjusted in
accordance with the adjustment provisions described above in "Securities
Subject to the 1997 Plan." Upon the exercise of any option, the purchase price
must be fully paid in cash or by check, with PhoneTel Common Stock already owned
by and in possession of the optionee, or by a combination of the above.
Options will have a term of up to ten years from the grant date or for
such lesser period as the Committee may determine. The Committee will also
determine when an option will first become exercisable; provided, however, that
(except in the case of a Change in Control) options granted under the 1997 Plan
shall not be exercisable within the six-month period subsequent to the date of
grant of the option. Options that are not exercised during their term will
expire without value.
Under the terms of the 1997 Plan, upon the occurrence of a "Change in
Control" (as defined in the 1997 Plan) of PhoneTel, each outstanding option that
is not then exercisable will become fully exercisable as of the date on which
the Change in Control occurs provided that the grant of such option was approved
in advance by the Committee.
DEATH - TERMINATION OF EMPLOYMENT - ASSIGNMENT
If an optionee's employment (or service as a non-employee independent
contractor) is terminated by reason of death or disability, any option otherwise
exercisable at the date of such termination will be exercisable for a period of
one year, or until the term of the option expires, whichever period is shorter.
If an optionee's employment (or service as a non-employee independent
contractor) is terminated for "Cause" (as defined in the 1997 Plan), any option
held by the optionee will expire as of the date of such termination of
employment (or service).
- 25 -
<PAGE> 29
If an optionee's employment (or service as a non-employee independent
contractor) is terminated for any other reason, any option otherwise exercisable
at the date of such termination will be exercisable for a period of 90 days or
until the term of the option expires, whichever period is shorter.
Options are not assignable except by will and the laws of descent and
distribution, and are exercisable during the optionee's lifetime only by the
optionee or the optionee's legal representative.
MODIFICATION - EXTENSION - RENEWAL
Subject to the terms of the 1997 Plan, the Committee may modify, extend
or renew outstanding options granted under the 1997 Plan, or accept the
surrender of outstanding options (to the extent not previously exercised) and
authorize the granting of new options in substitution therefor (to the extent
not previously exercised); provided, however, that no modification may, without
the consent of the optionee, alter the rights or obligations under any option
previously granted or under any circumstances adversely affect the status of an
ISO.
AMENDMENT - TERMINATION
The PhoneTel Board may terminate or amend the 1997 Plan at any time,
except that shareholder approval is required for any amendment that would (i)
increase the maximum number of shares of stock which may be issued under the
plan (except for adjustments as set forth in the plan), (ii) decrease the price
at which options may be granted; (iii) materially increase the benefits to
optionees under the plan, (iv) extend the period during which options may be
granted; (v) extend the maximum period after the date of grant during which
options may be exercised; or (vi) materially modify the eligibility or
participation requirements of the plan.
PAYMENT OF TAXES
PhoneTel has the authority to withhold an amount of PhoneTel Common
Stock, or require participants to remit an amount, sufficient to satisfy
federal, state and local withholding tax requirements in connection with any
exercise of an option.
CERTAIN FEDERAL INCOME TAX EFFECTS
The following discussion of certain relevant federal income tax effects
applicable to ISOs and NSOs granted under the 1997 Plan is a summary only, and
reference is made to the Code for a complete statement of all relevant federal
tax provisions. It is recommended that holders of ISOs or NSOs consult their tax
advisers before exercise of any such option and before disposing of any shares
of Common Stock acquired upon the exercise thereof.
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<PAGE> 30
NON-QUALIFIED STOCK OPTIONS
In the case of an NSO, an optionee generally will not be taxed upon the
grant of such an option. Rather, at the time of exercise of such NSO the
optionee will recognize ordinary income for federal income tax purposes in an
amount equal to the excess of the fair market value of the shares purchased over
the option price. The Company will generally be entitled to a tax deduction at
such time as, and in the same amount that, the optionee recognizes ordinary
income.
If shares acquired upon exercise of an NSO are later sold or exchanged,
then the difference between the sales price and the fair market value of such
stock on the date that ordinary income was recognized with respect thereto will
generally be taxable as long-term or short-term capital gain or loss (if the
stock is a capital asset of the optionee) depending upon whether the stock has
been held for more than one year after such date.
INCENTIVE STOCK OPTIONS
In the case of ISOs (which may only be granted to employees of
PhoneTel), an employee generally will not recognize taxable income upon the
grant of the ISO or upon its timely exercise.
If stock acquired pursuant to the timely exercise of an ISO is later
disposed of, the employee will, except as noted below with respect to a
"disqualifying disposition," recognize long-term capital gain or loss (if the
stock is a capital asset of the employee) equal to the difference between the
amount realized upon such sale and the option exercise price. Under these
circumstances, PhoneTel will not be entitled to any federal income tax deduction
in connection with either the exercise of the ISO or the sale of such stock by
the employee.
If, however, stock acquired pursuant to the exercise of an ISO is
disposed of by the employee prior to the expiration of two years from the date
of grant of the ISO or within one year from the date such stock is transferred
to the employee upon exercise (a "disqualifying disposition"), any gain realized
by the employee generally will be taxable at the time of such disqualifying
disposition as follows: (i) at ordinary income rates to the extent of the
difference between the option price and the fair market value of the stock on
the date the ISO is exercised and (ii) if the stock is a capital asset of the
employee, as short-term or long term capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the fair market value
of the stock on the date which governs the determination of his ordinary income;
provided, however, that if such disposition is a sale or exchange with respect
to which a loss (if sustained) would be recognized to the employee, then the
amount taxable as ordinary income to the employee will not exceed the excess, if
any, of the amount realized on such sale or exchange over the adjusted basis of
the stock. In
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<PAGE> 31
such case, PhoneTel may claim a federal income tax deduction at the time of such
disqualifying disposition for the amount taxable to the employee as ordinary
income. Any capital gain recognized by the employee will be long-term capital
gain if the employee's holding period for the stock at the time of disposition
is more than one year; otherwise it will be short-term.
The amount by which the fair market value of the stock on the exercise
date of an ISO exceeds the option price will be an item of adjustment for
purposes of the alternative minimum tax imposed by Section 55 of the Code.
EXERCISE WITH SHARES
According to a published ruling of the Internal Revenue Service, an
optionee who pays the option price upon exercise of an NSO, in whole or in part,
by delivering shares of PhoneTel's Common Stock already owned by the optionee
will recognize no gain or loss for federal income tax purposes on the shares
surrendered, but otherwise will be taxed according to the rules described above
for NSOs. See "Certain Federal Income Tax Effects - Non-Qualified Stock
Options." With respect to shares acquired upon exercise which are equal in
number to the shares surrendered, the basis of such shares will be equal to the
basis of the shares surrendered, and the holding period of the shares so
acquired will include the holding period of the shares surrendered. The basis of
any additional shares received upon exercise will be equal to the fair market
value of such shares on the date which governs the determination of the
optionee's ordinary income, and the holding period for such additional shares
will commence on such date.
The Treasury Department has issued proposed regulations that, if
adopted in their current form, would appear to provide for the following rules
with respect to the exercise of an ISO by surrender of previously owned shares
of PhoneTel Common Stock. If the shares surrendered in payment of the exercise
price of an ISO are "statutory option stock" (including stock acquired pursuant
to the exercise of an ISO) and if, at the date of surrender, the applicable
holding period for such shares has not been met, such surrender will constitute
a disqualifying disposition and any gain realized on such transfer will be
taxable to the optionee as discussed above with respect to disqualifying
dispositions of ISOs. See "Certain Federal Income Tax Effects - Incentive Stock
Options." Otherwise, when shares of PhoneTel Common Stock are surrendered upon
exercise of an ISO, in general, (i) no gain or loss will be recognized as a
result of the exchange, (ii) the number of shares received that is equal in
number to the shares surrendered will have a basis equal to that of the shares
surrendered and (except for purposes of determining whether a disposition will
be a disqualifying disposition) will have a holding period that includes the
holding period of the shares exchanged, and (iii) any additional shares received
will have a zero basis and will have a holding period that begins on the date of
the exchange. If any of the shares received are disposed of within two years of
the date of grant of the ISO or within one
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<PAGE> 32
year after exercise, the shares with the lowest basis will be deemed to be
disposed of first, and such disposition will be a disqualifying disposition
giving rise to ordinary income as discussed above.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock
present and entitled to vote, in person or by proxy, at the Meeting is required
for ratification and adoption of the 1997 Plan. An abstention from voting any
share will have the same effect as a vote against the Proposal. Broker non-votes
with respect to the Proposal will not affect the Proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION AND ADOPTION OF THE PHONETEL TECHNOLOGIES, INC. 1997 STOCK
INCENTIVE PLAN.
------------------------
RELATIONSHIP WITH THE COMPANY'S AUDITORS
The Company is not required to obtain shareholder approval or
ratification of its selection of its auditors under the laws of the State of
Ohio, and the Audit Committee and the Board of Directors reserve the right to
make any change in auditors at any time, and without shareholder approval, which
they deem advisable or necessary. Representatives of Price Waterhouse LLP, the
Company's current auditors, are expected to be present at the Annual Meeting and
will be afforded the opportunity to make a statement, if they so desire, and
will be available to respond to appropriate questions from shareholders.
--------------------------
ADDITIONAL INFORMATION
COST OF SOLICITATION OF PROXIES
The cost of soliciting proxies will be paid by the Company, including
expenses for preparing and mailing proxy solicitation materials. In addition to
use of the mails, proxies may be solicited by certain Officers, Directors and
regular employees of the Company, without extra compensation, by telephone,
telegraph or personal interview.
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<PAGE> 33
SHAREHOLDER PROPOSAL DEADLINE
A shareholder proposal intended to be presented to the 1998 Annual
Meeting must be received by the Company on or before February 5, 1998 to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. Said proposal should be addressed to Secretary,
PhoneTel Technologies, Inc., 650 Statler Office Tower, 1127 Euclid Avenue,
Cleveland, Ohio 44115-1601.
------------------------------
OTHER BUSINESS
The Company is not aware of any matters to be brought before the
Meeting. However, if other matters come before the Meeting, it is the intention
of the proxy holders named in the enclosed form of proxy to vote in accordance
with their discretion on such matters.
Shareholders are urged to specify their choice on the matters to be
voted on at the Meeting and to date, sign and return the enclosed proxy in the
envelope provided. A prompt response is helpful and your cooperation will be
appreciated.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Tammy L. Martin
--------------------------------------
Cleveland, Ohio Tammy L. Martin
June 6, 1997 Secretary
-------------------------
FORM 10-KSB REPORT
IN ADDITION TO ITS ANNUAL REPORT TO SHAREHOLDERS, THE COMPANY FILES AN
ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-KSB.
SHAREHOLDERS MAY, WITHOUT CHARGE, OBTAIN A COPY WITHOUT EXHIBITS BY WRITING TO
THE COMPANY, ATTENTION: SECRETARY, PHONETEL TECHNOLOGIES, INC., 650 STATLER
OFFICE TOWER, 1127 EUCLID AVENUE, CLEVELAND, OHIO 44115-1601.
-------------------------
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<PAGE> 34
ANNEX A
PHONETEL TECHNOLOGIES, INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE. This Stock Incentive Plan (the "Plan") is intended to provide
an incentive to selected key employees (including officers and those
directors who perform significant decision making functions in the
daily operations of the Company) of PhoneTel Technologies, Inc. (the
"Company") and non-employee independent contractors of the Company and
any parent or subsidiary corporation to acquire a proprietary interest
in the Company, to continue as employees, and to increase their efforts
on behalf of the Company, as the case may be. Options granted pursuant
to the Plan may consist of incentive stock options ("ISOs") (within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code")) and non-qualified options. To the extent that any option
does not qualify as an ISO, it shall constitute a separate non-
qualified stock option.
2. ADMINISTRATIVE. A committee (the "Committee") appointed by the
Company's Board of Directors (the "Board") shall administer the Plan.
The Committee shall consist of at least two members, each of whom shall
(i) be a "non-employee Director", as defined in Rule 16b-3 of the
Securities and Exchange Act of 1934, as amended from time to time
(the "Act") and (ii) satisfy the definition of an "outside director"
for purposes of section 162(m) of the Code.
Subject to the provisions of the Plan, the Committee shall determine
the purchase price of the shares covered by each option, the employees
and non-employee independent contractors to whom, and the time or times
at which, options shall be granted, the number of shares to be covered
by each option, and the term of each option; provided, however, that
(except in the case of a Change in Control) options granted under the
Plan shall not be exercisable within the six-month period subsequent to
the date of the grant of the option, and provided further that the
aggregate number of shares for which options may be granted to any
individual during any calendar year may not, subject to adjustment as
provided in Section 7, exceed 40% of the Shares reserved for purposes
of the Plan in accordance with the provisions of Section 5. The
Committee also shall have the authority to interpret the Plan, to
prescribe, amend, and rescind rules and regulations relating to the
Plan, to determine the provisions of the respective option agreements
(which need not be identical), and to make all other determinations
considered necessary or advisable for the administration of the Plan.
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<PAGE> 35
The Board of Directors shall designate one Committee member as
chairperson and the Committee shall hold meetings at such times and
places as it shall consider advisable. A majority of the Committee
members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all of the Committee
members shall be fully as effective as if it had been made by a vote at
a meeting duly called and held. The Committee shall keep minutes of its
meetings and shall make such rules and regulations for the conduct of
its business as it shall consider advisable.
3. GRANTEES. Options may be granted to such employees (including but not
limited to officers and those directors who perform significant
decision-making functions in the daily operations of the Company) and
non-employee independent contractors of the Company and any parent or
subsidiary corporation (within the meaning of Code Section 424(e) and
(f) ("Affiliates)) as the Committee determines (each such individual a
"Grantee"); provided, however, ISOs shall only be granted to employees
of the Company.
4. EFFECTIVENESS AND TERMINATION OF PLAN. This Plan has been adopted by
the Company's Board of Directors and shall become effective as of the
date of its ratification and approval by the Company's voting
shareholders.
This Plan shall terminate on the earliest of:
(a) the tenth anniversary of the effective date as determined
under this Section;
(b) the date when all Common Shares of the Company, par value
$0.01 per share (the "Shares"), reserved for issuance under
the Plan shall have been acquired through exercise of options
granted under the Plan; or
(c) such earlier date as the Board of Directors may determine.
Any option outstanding under the Plan at the time of the Plan's
termination shall remain in effect in accordance with its terms and
those of the Plan.
5. THE SHARES. Subject to Section 7, the aggregate number of Shares which
may be issued under the Plan, as restated, shall be 2,000,000. Such
number of Shares may be set aside out of the authorized but unissued
Shares not reserved for any other purpose or out of Shares held in or
acquired for the treasury of the Company. If all or part of an option
shall terminate without being exercised, the Shares which were not
exercised may again be available for grant under the Plan.
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<PAGE> 36
6. GRANT AND TERMS OF OPTIONS. The Committee may grant options at any time
and from time to time before the termination of the Plan. Except as
provided below, options granted under the Plan shall be subject to the
following terms:
(a) PRICE. The purchase price of Shares upon exercise of an ISO
shall be no less than the fair market value of the Shares at
the time of grant; provided, however, if an ISO is granted to
a person owning shares of the Company possessing more than 10%
of the total combined voting power of all classes of shares of
the Company as defined in Code Section 422 ("10%
Shareholder"), the exercise price shall equal 110% of the fair
market value of the Shares at the time of grant. The fair
market value of the Shares shall be determined by and in
accordance with procedures established by the Committee whose
determination shall be final.
The exercise price of Shares subject to a non-qualified option
shall be determined by the Committee.
The exercise price shall be paid in full in United States
dollars in cash or by check at the time of exercise. The
Grantee shall pay a required withholding tax in full in United
States dollars in cash or by check at the time of exercise of
the option. The exercise price and any required withholding
tax also may be paid with (i) Shares already owned by, and in
the possession of, the Grantee or (ii) any combination of
United States dollars or Shares. Shares used to satisfy the
exercise price and any required withholding tax shall be
valued by the Committee in its sole discretion at their fair
market value as of the close of business on the day
immediately before the date of exercise. The exercise price
shall be subject to adjustment, but only as provided in
Section 7 hereof.
(b) LIMIT ON INCENTIVE STOCK OPTION AMOUNT. Notwithstanding any
provision contained herein to the contrary, the aggregate fair
market value (determined at the time the ISO is granted) of
Shares with respect to which ISOs are first exercisable by a
Grantee during any calendar year (under all plans of the
Company or affiliates) may not exceed $100,000.
(c) DURATION AND EXERCISE OF OPTIONS. An option may be granted for
a term which shall not be less than six months subsequent to
the date of the grant of the option and which shall not exceed
ten years from the date of grant; provided, however, an ISO
granted to a 10% Shareholder may have a term not exceeding
five years from the date of grant. Subject to the foregoing,
options shall be exercisable at such time and in such amounts
(up to the full amount thereof) as the Committee may determine
at the time of grant. If an option is exercisable in
installments, the
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<PAGE> 37
Committee shall determine what events, if any, will accelerate
the exercise of the options; however, in no event shall any
installment be exercisable within the six-month period
subsequent to the date of grant of the option.
(d) TERMINATION OF EMPLOYMENT. Except as otherwise determined by
the Committee, upon the termination of the Grantee's
employment (or service as a non-employee independent
contractor), the Grantee's right to exercise an option shall
be as follows:
(i) If the Grantee's employment (or service as a
non-employee independent contractor) is terminated
on account of permanent and total disability (as
defined in Code Section 22(e)(3)), the Grantee or the
Grantee's legal representative (or the Grantee's
estate if the Grantee dies after termination of
employment or service) may exercise the option to the
extent exercisable on the date of the Grantee's
termination of employment or service, at any time
within one year after termination of employment or
service but in no event after the expiration of the
term of the option.
(ii) If the Grantee's employment (or service as a
non-employee independent contractor) is terminated by
death, the Grantee's estate may exercise the option,
to the same extent exercisable by the Grantee on the
date of the Grantee's death, at any time within one
year after the Grantee's death, but in no event after
expiration of the term of the option.
(iii) If the Grantee's employment (or service as a
non-employee independent contractor) is terminated
involuntarily for "Cause", the Grantee's option shall
expire as of the date of the termination of
employment (or service). "Cause" under this Plan
means (1) material misconduct by the Grantee; (2) any
act by the Grantee that is materially adverse to the
Company; or (3) the Grantee's breach of any
employment, service or non-competition agreement with
the Company. "Cause" also has the meaning given to
that term, or any similar term, under any employment
or service agreement with the Company.
(iv) If the Grantee's employment (or service as a
non-employee independent contractor) is terminated
for any reason other than as described in clauses
(i), (ii), and (iii), the Grantee (or the Grantee's
estate if the Grantee dies after his service or
employment is terminated) may exercise the option, to
the same extent exercisable before the date of
termination of service or employment,
A-4
<PAGE> 38
within 90 days after such termination date but in no
event after the expiration of the term of the option.
(v) A Grantee's "estate" means the Grantee's legal
representative or any person who acquires the right
to exercise an option by reason of the Grantee's
death. The Committee may require the transferee of a
Grantee to supply it with written notice of the
Grantee's death or disability and to supply it with a
copy of the will (in the case of the Grantee's death)
or such other evidence as the Committee considers
necessary to establish the validity of the transfer
of an option. The Committee may also require the
agreement of the transferee to be bound by all the
terms of the Plan.
(e) TRANSFERABILITY OF OPTION. Options shall be transferable only
by will or the laws of descent and distribution and shall be
exercisable during the Grantee's lifetime only by the Grantee
or the Grantee's legal representative.
(f) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS. Subject to
the terms and within the limitations of the Plan, the
Committee may modify, extend, or renew outstanding options
granted under the Plan, or accept the surrender of outstanding
options (to the extent not previously exercised) and authorize
the granting of new options in substitution therefor (to the
extent not previously exercised). Notwithstanding the
foregoing, however, no modification of an option may, without
the consent of the Grantee, alter or impair any rights or
obligations under any option theretofore granted under the
Plan nor may any modification be made which would adversely
affect the status of an ISO as an incentive stock option under
Code Section 422.
(g) FORM OF OPTION AGREEMENT. Options for both ISOs and
non-qualified options shall be evidenced by such form of
agreement as the Committee approves.
(h) OTHER TERMS AND CONDITIONS. Options may contain such other
provisions, which shall not be inconsistent with the terms of
the Plan, as the Committee considers appropriate.
7. ADJUSTMENTS IN THE SHARES. If the Shares, as presently constituted,
shall be changed into or exchanged for a different number or kind of
share or other securities of the Company or of another corporation
(whether by merger, reverse split, combination of shares, or otherwise)
or if the number of Shares shall be increased through the payment of a
share dividend, there shall be substituted for or added to each Share
theretofore appropriated or thereafter
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<PAGE> 39
subject or which may become subject to an option under this Plan, the
number and kind of shares or other securities into which each
outstanding Share shall be so changed, or for which each Share shall be
exchanged, or to which each Share shall be entitled, as the case may
be. The price and other terms of outstanding options shall also be
appropriately amended as may be necessary to reflect the foregoing
events. If there shall be any other change in the number or kind of the
outstanding Shares, or of any share or other securities into which the
Shares shall have been changed, or for which the Shares shall have been
exchanged, then, if the Committee shall, in its sole discretion,
determine that such change equitably requires an adjustment in any
option theretofore granted or which may be granted under the Plan, such
adjustments shall be made in accordance with that determination;
provided, however, with respect to ISOs, such adjustments shall be made
in accordance with Code Section 424.
Fractional shares resulting from any adjustment in options pursuant to
Section 7 may be settled in cash or otherwise as the Committee shall
determine. The Committee shall give notice of any adjustment to each
Grantee whose option has been adjusted and such adjustment (whether or
not notice is given) shall be effective and binding for all purposes of
the Plan.
8. CHANGE IN CONTROL.
(a) If, while unexercised options remain outstanding under the
Plan, a Change in Control (as defined in paragraph (b) of this
Section 8) shall occur, each outstanding option that is not
then exercisable shall become fully exercisable as of the date
on which the Change in Control shall occur, provided that the
grant of such option was approved in advance by the Committee.
(b) For purposes of this Section 8, a "Change in Control" shall be
deemed to have occurred if:
(i) any "person", as such term is used in Sections 13(d)
and 14(d) of the Act (other than the Company, any
trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
shareholders of the Company in substantially the same
proportions as their ownership of Stock of the
Company) is or becomes after the Effective Date the
"beneficial owner" (as defined in Rule 13d-3 under
the Act), directly or indirectly, of securities of
the Company (not including in the securities
beneficially owned by such person any securities
acquired directly from the Company or its affiliates)
A-6
<PAGE> 40
representing 25% or more of the combined voting power
of the Company's then outstanding securities; or
(ii) during any period of two consecutive years (not
including any period prior to the Effective Date),
individuals who, at the beginning of such period
constitute the Board, and any new director (other
than a director designated by a person who has
entered into an agreement with the Company to effect
a transaction described in clause (i), (iii) or (iv)
of this Section 8(b) whose election by the Board or
nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either
were directors at the beginning of the period or
whose election or nomination for election was
previously so approved, cease for any reason to
constitute at lease a majority thereof; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other
corporation, other than (A) a merger or consolidation
which would result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity), in combination
with the ownership of any trustee or other fiduciary
holding securities under an employee benefit plan of
the Company, at least 80% of the combined voting
power of the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or
consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no person acquires more than
50% of the combined voting power of the Company's
then outstanding securities; PROVIDED, HOWEVER, that
no such transaction shall be deemed to constitute a
Change in Control if the Board shall have approved
such merger or consolidation prior to shareholder
approval thereof, unless the Board, in its
discretion, shall determine otherwise; or
(iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or
substantially all of the Company's assets.
A-7
<PAGE> 41
9. SECURITIES LAW REQUIREMENTS. No option granted under this Plan shall be
exercisable in whole or in part, nor shall the Company be obligated to
sell any Shares subject to any option if such exercise, sale, or
settlement would, in the opinion of counsel for the Company, violate
the Securities Act of 1933 (or other Federal or State Statutes having
similar requirements), as may be in effect at that time. Each option
shall be subject to the further requirement that, if at any time the
Board of Directors determines that the listing or qualification of the
Shares subject to the option under any securities exchange requirements
or under any applicable law, or the consent or approval of any
governmental regulatory body, is necessary as a condition of, or in
connection with, the granting of the option or the issuance of Shares
under the option, the option may not be exercised in whole or in part
unless the listing, qualification, consent, or approval shall have been
effected or obtained free of any conditions unacceptable to the Board
of Directors.
10. AMENDMENT OF THE PLAN. The Board of Directors may amend the Plan,
correct any defect, supply any omission, or reconcile any inconsistency
in the Plan or in any option in the manner and to the extent it shall
consider desirable; provided, however, except as provided in Section 7
and this Section, unless the shareholders of the Company shall have
first approved thereof; (i) no option shall be exercisable more than
ten years after the date it is granted; (ii) the expiration date of the
Plan shall not be extended; and (iii) no amendment shall be of any
force and effect if the amendment increases the number of Shares
available for the granting of options under the Plan, decreases the
price at which options may be granted, materially increases the
benefits accruing to Grantee, or materially modifies the eligibility or
participation requirements of the Plan. In addition, no amendment of
the Plan may, without the consent of a Grantee, adversely affect the
Grantee's right under any option.
The Board of Directors also may amend or terminate the Plan in such
respect as the Board of Directors shall consider advisable to ensure
favorable Federal income tax treatment for the Company.
11. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Shares will be used for general corporate purposes.
12. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
impose no obligation upon the Grantee (or upon a transferee of a
Grantee) to exercise the option.
13. PLAN NOT A CONTRACT OF EMPLOYMENT. The Plan is not a contract of
employment, and the terms of employment of any Grantee, or the
relationship of any non-employee independent contractor with the
Company shall not be affected in any way by the Plan or related
instruments except as specifically provided therein.
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<PAGE> 42
The establishment of the Plan shall not be construed as conferring any
legal rights upon any Grantee of a continuation of employment, nor
shall it interfere with the right of the Company or any subsidiary to
discharge any Grantee and to treat the Grantee without regard to the
effect which that treatment might have upon him or her as a Grantee.
14. EXPENSES OF THE PLAN. The Company shall pay all expenses of the Plan.
15. COMPLIANCE WITH APPLICABLE LAW. Notwithstanding anything herein to the
contrary, the Company shall not be obligated to cause to be issued or
delivered any certificates for Shares pursuant to the exercise of an
option, unless and until the Company is advised by its counsel that the
issuance and delivery of those certificates is in compliance with all
applicable laws, regulations of governmental authorities, and the
requirements of any exchange upon which Shares are traded. The Company
shall in no event be obligated to register any securities pursuant to
the Securities Act of 1933 (as now in effect or as hereafter amended)
or to take any other action in order to cause the issuance and delivery
of such certificates to comply with any such law, regulation, or
requirement. The Board of Directors may require, as a condition of the
issuance and delivery of the certificates and to ensure compliance with
such laws, regulations, and requirements, that the Grantee make such
covenants, agreements, and representations as the Board of Directors
considers necessary or desirable.
16. GOVERNING LAW. Except to the extent preempted by federal law, the Plan
shall be construed and enforced in accordance with, and governed by,
Ohio law other than its conflicts of law provisions.
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<TABLE>
<S> <C>
PHONETEL TECHNOLOGIES, INC.
650 Statler Office Tower
1127 Euclid Avenue
Cleveland, Ohio 44115
REVOCABLE PROXY
The undersigned hereby appoints Peter Graf and Tammy L. Martin, or
either of them, as Proxies, each with the power of substitution and
resubstitution and hereby authorizes them to represent and to vote, as
designated below, all shares of common stock par value $.01 of PhoneTel
Technologies, Inc. held of record on June 3, 1997 by the undersigned, at
the Annual Meeting of Shareholders to be held on June 30, 1997 or any
adjournment thereof.
1. AMENDMENT TO THE AMENDED AND RESTATED CODE OF REGULATIONS TO ESTABLISH
A CLASSIFIED BOARD OF DIRECTORS
[ ] FOR ADOPTION OF PROPOSED AMENDMENT TO THE [ ] WITHHOLD AUTHORITY TO VOTE FOR ADOPTION OF PROPOSED
AMENDED AND RESTATED CODE OF REGULATIONS AMENDMENT TO THE AMENDED AND RESTATED CODE OF REGULATIONS
2. ELECTION OF BOARD OF DIRECTORS
[ ] FOR ALL NOMINEES LISTED BELOW [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write such nominee's name on the line set forth below.)
George H. Henry, Aron Katzman, Steven Richman, Joseph Abrams, Peter G. Graf, Nickey B. Maxey
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3. RATIFICATION AND APPROVAL OF THE PHONETEL TECHNOLOGIES, INC. 1997
STOCK INCENTIVE PLAN
[ ] FOR RATIFICATION AND APPROVAL OF THE 1997 STOCK [ ] WITHHOLD AUTHORITY TO VOTE FOR RATIFICATION
INCENTIVE PLAN AND APPROVAL OF THE 1997 STOCK INCENTIVE PLAN
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
4. In their discretion, the Proxies are authorized to vote upon such
other business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR ALL PROPOSALS. IF ANY OTHER MATTERS ARE PROPERLY
PRESENTED AT THE MEETING FOR ACTION TO BE TAKEN THEREUNDER, THIS PROXY
WILL BE VOTED ON SUCH MATTERS BY THE PERSONS NAMED AS PROXIES HEREIN IN
ACCORDANCE WITH THEIR BEST JUDGMENT.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE
ENCLOSED ENVELOPE.
Dated: , 1997
-----------------------------
Signature
-----------------------------
Signature if Held Jointly
(Important: Please sign name
as appears hereon indicating,
where proper, official
position or representative
capacity, in case of joint
holders, both should sign.)
[ ] Yes, I plan to attend the
meeting.
[ ] No, I do not plan to
attend the meeting.
THIS PROXY IS SOLICITED
ON BEHALF OF
THE BOARD OF DIRECTORS
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