<PAGE> 1
================================================================================
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>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
PHONETEL TECHNOLOGIES, INC.
(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)(1) 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: ...........................................................
================================================================================
<PAGE> 2
PHONETEL TECHNOLOGIES, INC.
North Point Tower, 7th Floor
1001 Lakeside Avenue
Cleveland, OH 44114-1195
(216) 241-2555
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON FRIDAY, JUNE 26, 1998
------------------------
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 the American
Stock Exchange, 86 Trinity Place, New York, NY 10006 on Friday, June 26, 1998,
at 9:00 A.M., Eastern Daylight Time, for the following purposes:
1. To elect a Board of Directors consisting of five (5) directors; and
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on May 7, 1998 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
TAMMY L. MARTIN
Secretary
Cleveland, Ohio
May 11, 1998
<PAGE> 3
PHONETEL TECHNOLOGIES, INC.
North Point Tower, 7th Floor
1001 Lakeside Avenue
Cleveland, Ohio 44114-1195
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
JUNE 26, 1998
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 26, 1998 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, 1997 are first being
mailed on or about May 11, 1998 to shareholders of record at the close of
business on May 7, 1998. 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 May 7, 1998 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 March 31,
1998, the Company had 16,551,507 shares of Common Stock outstanding.
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 election as
Directors of the nominees as specified herein.
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.
<PAGE> 4
PROPOSAL 1
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 five (5).
The Board of Directors of the Company has designated Joseph Abrams, Peter
Graf, George Henry, Aron Katzman, 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 1997 Annual Meeting. The nominees
elected at the Meeting are to serve until the end of the 1999 Annual Meeting of
Shareholders and until their successors are duly elected and qualified.
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 May 7, 1998. The five (5)
candidates receiving the most votes cast by shareholders, in person or by proxy,
at the Meeting shall be elected Directors. Under the Ohio General Corporation
Law ("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 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 election 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 CURRENT DIRECTORS AND NOMINEES
<TABLE>
<CAPTION>
TENURE AS DIRECTOR AND
NAME AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
------------ -------------------------------------------
<S> <C>
JOSEPH ABRAMS, Served as a Director of the Company since September 1995. Mr. Abrams is
Age 61 also a director of 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.
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
TENURE AS DIRECTOR AND
NAME AND AGE PRINCIPAL OCCUPATION DURING LAST FIVE YEARS
------------ -------------------------------------------
<S> <C>
PETER G. GRAF, Served as a Director, Chairman and Chief Executive Officer of the Company
Age 60 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 as 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, Served as a Director of the Company since April 1990. Mr. Henry has been
Age 44 the Managing Director of G. Howard Associates, Inc., a private investment
firm, since 1986. Mr. Henry is also Chairman and Chief Executive Officer
of Access Television Network and Chairman of The Recovery Network.
ARON KATZMAN, Served as a Director of the Company since September 1995. Mr. Katzman is
Age 59 President of New Legends, Inc., a country club/residential community in
the St. Louis, Missouri area, and Chairman and Chief Executive Officer of
Roman Company, a company engaged in the manufacturing and distribution of
fashion costume jewelry. Previously, Mr. Katzman was founder and former
director of Medicine Shoppe, Inc., a franchiser of pharmacies, and
Chairman and Chief Executive Officer of Roman Company 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.
STEVEN RICHMAN, Served as a Director of the Company since September 1995. Mr. Richman is
Age 54 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 1997, the Board of Directors held nine meetings and took action by
unanimous written consent on four other occasions.
The Board of Directors of the Company has a Compensation Committee,
Nominating Committee and an Audit Committee, none of which held any meetings in
1997.
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 Com-
3
<PAGE> 6
pany) 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 1997, 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. On April 6, 1998, the Board authorized the issuance of 25,000
warrants to purchase Common Stock of the Company to each non-employee Director,
at an exercise price of $1.875 per share, as compensation for services rendered
during the 1997 service year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Peter Graf served as a member of the Compensation Committee of the Board of
Directors during 1997 and also served as Chief Executive Officer of the Company.
Peter G. Graf, the Company's Chairman and Chief Executive Officer, received
no monetary compensation for his service during 1997. During the year, Mr. Graf
received a grant of 450,000 stock options, which vests over a three-year period.
The number of Mr. Graf's options was set at a level based upon his lack of
monetary compensation and is believed by the Company to be competitive in the
telecommunications industry.
Compensation Committee members Peter Graf and Joseph Abrams received
nominal value warrants and are holders of the Company's 14% Preferred Stock,
which are described below. See "Certain Relationships and Related Transactions."
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed of two non-employee Directors and the Company's Chairman and Chief
Executive Officer. The Committee is responsible for reviewing and approving the
compensation paid to executive officers of the Company, including salaries,
bonuses and stock options. Following review and approval by the Committee,
action pertaining to executive compensation is reported to the full Board of
Directors.
Compensation Philosophy
The Company's compensation of executive officers and its philosophy
regarding executive compensation is comprised of the following characteristics:
(i) Competitive base salary; and
(ii) Granting Stock Options as a portion of the total
compensation which vest over a certain number of years and
have an exercise price equal to the market price on the date
of grant; and
4
<PAGE> 7
(iii) Granting performance-based bonuses. Given the Company's
recently demonstrated growth pattern and recently enacted
federal legislation affecting the pay telephone industry,
the Company believes its executive compensation should be
designed to allow the Company to attract, motivate and
retain executives of a high caliber to permit the Company's
continued growth. The Company takes into account the
compensation paid at similarly situated companies, both
within and outside of the pay telephone industry, when
determining executive compensation. The Company believes
that by granting stock options to purchase the Company's
Common Stock to its executives which vest over a certain
number of years, it will be able to encourage executives to
remain with the Company. Additionally, individual
performance of the executive is considered as a factor in
determining executive compensation, as well as the overall
performance of the Company, which includes, but is not
limited to earnings, revenue growth, cash flow and earnings
per share. The committee also uses subjective criteria it
deems relevant in its reasonable discretion.
Respectfully submitted,
Joseph Abrams, Chairman
Peter G. Graf
George H. Henry
EXECUTIVE OFFICERS
The Company has two executive officers other than Mr. Graf.
<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
Age 33 the 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.
Richard P. Kebert Served as Chief Financial Officer and Treasurer of the Company since
Age 51 September 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. 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 entitled him to annual salaries during the two-year term of the
agreement of $110,000 and $120,000, respectively, as well as certain bonuses.
Pursuant to its terms, the employment agreement with Mr. Pace expired on
September 22, 1997 and was not renewed.
On September 1, 1996, the Company entered into an employment agreement with
the Company's Chief Financial Officer, Richard P. Kebert. The agreement with Mr.
Kebert entitled him to an annual salary of $120,000 during the eighteen (18)
month term (the "Term") of the agreement, as well as a minimum incentive bonus.
The agreement was automatically extended for a one-year period at the end of its
term.
5
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth a summary of all compensation for services
rendered during the three-year period ended December 31, 1997 paid to the
Company's Chief Executive Officer (the "CEO") and to each of the Company's most
highly compensated executive officers who were serving as executive officers at
December 31, 1997 and each of whose total salary and bonus for fiscal 1997
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- ----------------------------------------------------------- ---------------------- --------------------
OTHER SECURITIES LONG-
NAME ANNUAL RESTRICTED UNDERLYING TERM ALL OTHER
AND COMPEN- STOCK OPTIONS/ INCENTIVE COMPEN-
PRINCIPAL SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
--------- ---- ------ ----- ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter G. Graf(a) 1997 -- -- -- -- 450,000(b) -- --
Chairman, Chief 1996 -- -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- -- --
and Director
Tammy L. Martin 1997 132,000 48,061 -- -- 200,000(c) -- 3,160(d)
Executive Vice 1996 98,123 106,892
President, Chief
Administrative
Officer, General
Counsel and
Secretary
Richard P. Kebert 1997 120,000 14,922 -- -- 30,000(e) -- 4,700(f)
Chief Financial 1996 54,615 -- -- -- -- -- 1,600(f)
Officer and
Treasurer
</TABLE>
- ---------------
(a) Mr. Graf has received no cash compensation for his service as Chief
Executive Officer.
(b) On February 4, 1997, Mr. Graf received a grant of 450,000 stock options
pursuant to the Company's 1997 Stock Incentive Plan, at an exercise price of
$4.00 per share, which vests over a three-year period.
(c) On May 7, 1997, Ms. Martin received a grant of 200,000 stock options
pursuant to the Company' s 1997 Stock Incentive Plan, at an exercise price
of $2.69 per share, which vests over a three-year period.
(d) Represents value of personal usage of Company provided vehicle.
(e) On September 17, 1997, Mr. Kebert received a grant of 30,000 stock options
pursuant to the Company's 1997 Stock Incentive Plan, at an exercise price of
$2.50 per share, which vests over a three-year period.
(f) Represents automobile allowance.
GRANTS IN FISCAL 1997
At the Annual Meeting of Shareholders held on June 30, 1997, the
shareholders ratified and approved the PhoneTel Technologies, Inc. 1997 Stock
Incentive Plan (the "1997 Plan"). Pursuant to the 1997 Plan, on February 4,
1997, the Board of Directors granted 450,000 options to Peter G. Graf and
180,000 options to Nickey B. Maxey, a former officer and Director, at an
exercise price of $4.00 per share. Upon Mr. Maxey's resignation from the Board
of Directors on December 8, 1997, 180,000 options previously granted were
forfeited prior to vesting. On May 7, 1997, the Board granted 200,000 options to
Tammy L. Martin at an exercise price of $2.69 per share, and on September 17,
1997, the Board granted 762,400 options in varying numbers to all employees of
the Company, each at an exercise price of $2.50 per share. The September grant
included 30,000 options granted to Richard P. Kebert who is a named
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<PAGE> 9
executive officer. As of March 24, 1998, 112,000 of the employee options
previously granted had been forfeited prior to vesting as a result of employee
terminations or resignations.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF GRANT DATE
NUMBER OF TOTAL PRESENT VALUE
SECURITIES OPTIONS/SARS BASED ON BLACK-
UNDERLYING GRANTED TO EXERCISE SCHOLES
OPTIONS/SARS EMPLOYEES IN OR OPTION PRICING
GRANTED FISCAL BASE PRICE EXPIRATION MODEL
NAME (#) YEAR ($/SHARE) DATE ($)
---- ------------ ---------------- ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Peter G. Graf 450,000 28.3% 4.00 02/03/07 1,543,500
Chairman, Chief Executive
Officer, and Director
Tammy L. Martin 200,000 12.6% 2.69 05/06/07 462,000
Executive Vice President
Chief Administration
Officer, General Counsel
and Secretary
Richard P. Kebert 30,000 1.9% 2.50 09/16/07 64,200
Chief Financial Officer
and Treasurer
</TABLE>
The following table sets forth certain information as of December 31, 1997
about unexercised stock options held by the named executive officers. No stock
options were exercised by such persons during 1997. As of December 31, 1997,
none of the stock options, other than 333 shares held by Ms. Martin, shown in
this table were exercisable.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED MONEY
OPTIONS OPTIONS
SHARES AT FY-END AT FY-END
ACQUIRED VALUE (#) ($)
NAME AND ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
PRINCIPAL POSITION (#) ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Peter G. Graf -- -- 450,000 --
Chairman,
Chief Executive
Officer and Director
Tammy L. Martin -- -- 333 --
Executive Vice President, 200,000 49,500
Chief Administrative Officer,
General Counsel
and Secretary
Richard P. Kebert -- -- 30,000 13,125
Chief Financial Officer
and Treasurer
</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,
7
<PAGE> 10
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, 1997, or prior fiscal years.
The Company has, therefore, reviewed the following reports of Reporting
Persons received on or before March 31, 1998: 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, 1997, 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, 1997
(collectively, the "Forms"). No Forms were received by the Company 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, 1998. 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
NAME AND ADDRESS OF COMMON STOCK PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ ----------
<S> <C> <C>
DIRECTORS/NOMINEES
- ------------------
Peter G. Graf(a) 1,665,016 9.7%
Chairman, Chief Executive
Officer and Director
1001 Lakeside Avenue, 7th Floor
Cleveland, OH 44114-1195
George H. Henry(b) 365,376 2.2%
Director
6860 Sunrise Court
Coral Gables, FL 33133
Steven Richman(c) 278,965 1.7%
Director
9 Beech Lane
Kings Point, NY 11024
Aron Katzman(d) 270,546 1.6%
Director
10 Layton Lane
St. Louis, MO 63124
Joseph Abrams(e) 224,950 1.4%
Director
85 Old Farm Road
Bedminster, NJ 07921
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF COMMON STOCK PERCENTAGE
OF BENEFICIAL OWNER BENEFICIALLY OWNED OF CLASS
------------------- ------------------ ----------
<S> <C> <C>
NAMED EXECUTIVE OFFICERS
- ------------------------
Tammy L. Martin(f) 67,000 *
Executive Vice President,
Chief Administrative Officer,
General Counsel and Secretary
1001 Lakeside Avenue, 7th Floor
Cleveland, OH 44114-1195
Richard P. Kebert -- --
Chief Financial Officer
and Treasurer
1001 Lakeside Avenue, 7th Floor
Cleveland, OH 44114-1195
Executive Officers and Directors(g) 3,224,417 16.4%
as a group (7 persons)
5% BENEFICIAL OWNERS
- --------------------
ING (U.S.) Investment Corporation(h) 2,048,240 11.0%
135 East 57th Street
New York, NY 10022
Cerberus Partners, L.P.(i) 1,922,540 10.5%
950 Third Avenue, 20th Floor
New York, NY 10022
Dwight E. Lee(j) 935,100 5.6%
530 Fifth Avenue, 2nd Floor
New York, NY 10036
Gabriel Capital, L.P.(k) 1,100,764 6.4%
Ariel Fund Limited
450 Park Avenue
New York, NY 10022
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Less than 1.0%
(a) Includes warrants to purchase 33,231 shares of Common Stock
through December 31, 2000, warrants to purchase 41,833
shares of Common Stock through August 15, 2000, options to
purchase 150,000 shares of Common Stock through February 3,
2007 and 14% Preferred Stock (as defined herein) which is
convertible through June 30, 2000 into 331,228 shares of
Common Stock.
(b) Includes options to purchase 25,000 shares of Common Stock
through October 9, 1998.
(c) Includes Nominal Value Warrants (as defined herein) to
purchase 89,998 shares of Common Stock through March 31,
2001, 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 and warrants to purchase 3,244 shares of Common
Stock through August 29, 2000 held by his spouse and 14%
Preferred Stock which is convertible through June 30, 2000
into 55,205 shares of Common Stock.
(d) Includes 14% Preferred Stock which is convertible through
June 30, 2000 into 58,351 shares of Common Stock.
(e) Includes 14% Preferred Stock which is convertible through
June 30, 2000 into 77,287 shares of Common Stock.
(f) Includes options to purchase 333 shares of Common Stock
through January 3, 2000, and options to purchase 66,667
shares of Common Stock through May 6, 2007.
(g) Includes beneficial ownership of Common Stock described
above with respect to Messrs. Graf, Abrams, Henry, Katzman,
Richman, Kebert and Ms. Martin.
</TABLE>
9
<PAGE> 12
<TABLE>
<S> <C>
(h) 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").
(i) Reflects warrants to purchase the Series A Preferred Stock,
which is immediately convertible into 1,798,240 shares of
Common Stock.
(j) Reflects beneficial ownership of Barker, Lee & Co. Limited
Partnership, J.M.R. Barker Foundation, Namakagon Associates,
L.P., Quaker Hill Associates, L.P. and Upland Associates
L.P.
(k) Includes warrants to purchase 270,116 shares of Common Stock
which expire in August through November of 2005 and 239,270
shares of Common Stock beneficially owned by Gabriel
Capital, L.P. and warrants to purchase 270,116 shares of
Common Stock which expire in August through November of 2005
and 321,262 shares of Common Stock beneficially owned by
Ariel Fund Limited.
</TABLE>
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 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 must 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 SURRENDERED NUMBER OF NOMINAL
AND STATED VALUE OF 14% VALUE WARRANTS
NAME OF BENEFICIAL OWNER PREFERRED STOCK ISSUED ISSUED
------------------------ ----------------------- -----------------
<S> <C> <C>
Peter G. Graf $1,500,000 539,989
Chairman, Chief Executive Officer and
Director
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
Former Director
J & C Resources, Inc. 825,000 296,994
5% Owner at 3/15/96
Southcoast Capital Corporation 600,000 143,994
5% Owner at 3/15/96
</TABLE>
On January 2, 1997, Mr. Graf and the Company agreed to convert indebtedness
of approximately $347,000, plus accrued interest of $37,000 into 124,747 shares
of restricted 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.
10
<PAGE> 13
Southcoast Capital Corporation ("Southcoast") acted as the representative
of certain underwriters in connection with an offering of the Company's equity
during 1996 for which it received $213,000 for services rendered, which was paid
in January 1997. In addition, Southcoast received $808,000 in January 1997 for
providing financial advisory services to the Company in connection with the
acquisition of Cherokee Communications, Inc.
On May 30, 1997, the Company entered into an agreement (the "Credit
Agreement") with various lenders (collectively referred to as the "Lenders").
ING is Agent for the Lenders and Transamerica Business Credit Corporation and
Finova Capital Corporation are Co-Agents for the Lenders. The Credit Agreement
provided a $75,000,000 commitment of which $60,000,000 was to be utilized for
future acquisitions ("Expansion Loan Commitment"), and $15,000,000 was to be
utilized for general working capital requirements. Borrowings accrue interest at
the ING Alternate Base Rate (as defined in the Credit Agreement) plus 1.50%. The
Lenders received customary fees in connection with the execution of the Credit
Agreement. The Credit Agreement matures on May 20, 2000 and all the Company's
installed public pay telephones are pledged as collateral. The Company borrowed
$17,700,000 under the Expansion Loan Commitment to complete certain acquisitions
during 1997. At December 31, 1997, the Company also borrowed $7,300,000 of the
Revolving Credit Commitment for interest payments due under the Company's
$125,000,000 12% Senior Notes and for general working capital purposes.
Subsequent to the September 16, 1997 Court ruling which vacated dial-around
compensation, and pursuant to certain terms of the Credit Agreement, the agent
gave notice to the Company that it was prohibited from making additional
borrowings under the Credit Agreement, without prior approval from the Lenders.
The Credit Agreement includes covenants which, among other things, require
the Company to maintain ratios as to fixed charges, debt to earnings, current
ratio and interest coverage (all as defined in the Credit Agreement). Other
covenants limit incurrence of additional long-term debt, the level of capital
expenditures, the incurrence of lease obligations and permitted investments.
On February 24, 1998, the Credit Agreement was amended to increase the
Revolving Credit Commitment to $20,000,000 and to decrease the Expansion Loan
Commitment to $55,000,000. The amount available for letters of credit under the
working capital commitment was reduced from $5,000,000 to $3,000,000 and certain
of the covenants were amended. The Lenders received customary fees in connection
with the amendment of the Credit Agreement. In February 1998, the Company
borrowed an additional $3,000,000 under the Revolving Credit Commitment. On
March 31, 1998, the Credit Agreement was further amended with respect to certain
financial covenants.
11
<PAGE> 14
PERFORMANCE GRAPH
Effective November 14, 1996, the Common Stock of the Company began trading
under the symbol "PHN" on the American Stock Exchange. Previously, the Company's
stock was traded on the NASDAQ's Small Cap Market.
The following graph shows a comparison of the five-year cumulative return
(assuming reinvestment of any dividends) among the Common Stock of the Company,
the S&P 500 Index ("S&P 500"), the Russell 2000 Index ("Russell 2000"), and a
peer group selected by the Company. The peer group consists of Peoples Telephone
Company, Inc. ("Peoples"), Communications Central Inc. ("CCI") and Davel
Communications Group, Inc. ("Davel"). In 1992, Peoples was the only company in
the peer group because CCI and Davel were not publicly traded until 1993. The
information in the graph assumes an investment of $100 in the Common Stock of
the Company and each index or group on December 31, 1992.
The stock price performance information shown in the following graph is
historical information and is not necessarily indicative of future price
performance. The stock price of the Company set forth below has been adjusted to
reflect a one for six reverse stock split which was effective on December 26,
1995.
COMPARISON OF FIVE YEAR CUMULATIVE APPRECIATION AMONG
PHONETEL, THE S&P 500, THE RUSSELL 2000 AND A PEER GROUP*
<TABLE>
<CAPTION>
MEASUREMENT PERIOD RUSSELL
(FISCAL YEAR COVERED) PEERS 2000 S&P 500 PHN
<S> <C> <C> <C> <C>
1992 100 100 100 100
1993 114 117 107 128
1994 106 113 105 196
1995 60 138 141 285
1996 86 164 170 53
1997 116 198 223 48
</TABLE>
* Assumes $100 is invested on 12/31/1992
------------------------
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
12
<PAGE> 15
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.
SHAREHOLDER PROPOSAL DEADLINE
A shareholder proposal intended to be presented to the 1999 Annual Meeting
must be received by the Company on or before December 21, 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., North Point Tower, 7th Floor, 1001 Lakeside Avenue,
Cleveland, Ohio 44114-1195.
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
------------------------------------
TAMMY L. MARTIN
Secretary
Cleveland, Ohio
May 11, 1998
------------------------
FORM 10-K REPORT
IN ADDITION TO ITS ANNUAL REPORT TO SHAREHOLDERS, THE COMPANY FILES AN
ANNUAL REPORT WITH THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K.
SHAREHOLDERS MAY, WITHOUT CHARGE, OBTAIN A COPY WITHOUT EXHIBITS BY WRITING TO
THE COMPANY, ATTENTION: SECRETARY, PHONETEL TECHNOLOGIES, INC., NORTH POINT
TOWER, 7TH FLOOR, 1001 LAKESIDE AVENUE, CLEVELAND, OHIO 44114-1195.
13
<PAGE> 16
PHONETEL TECHNOLOGIES, INC.
North Point Tower, 7th Floor
1001 Lakeside Avenue
Cleveland, Ohio 44114-1195
REVOCABLE PROXY
The undersigned hereby appoints Peter G. 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 May 7, 1998 by the undersigned, at
the Annual Meeting of Shareholders to be held on June 26, 1998 or any
adjournment thereof.
1. ELECTION OF BOARD OF DIRECTORS
<TABLE>
<S> <C>
[ ] 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.)
Joseph Abrams, Peter G. Graf, George H. Henry, Aron Katzman, Steven Richman
------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued, and to be dated and signed, on the other side)
(Continued from the other side)
2. 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: _______________, 1998
-----------------------------
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
