-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kuwb4DYVJovFsnzf/aWnfHc8D03cHVeDGzw5/fYXV9tqTw8HYHoWjQrm2eMNBFu5 wuFf+UHuOcpUAyK9P+PKZw== 0000950144-98-009824.txt : 19980817 0000950144-98-009824.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950144-98-009824 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES TELEPHONE COMPANY INC CENTRAL INDEX KEY: 0000819694 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATION SERVICES, NEC [4899] IRS NUMBER: 132626435 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12443 FILM NUMBER: 98688123 BUSINESS ADDRESS: STREET 1: 2300 NORTHWEST 89TH PL CITY: MIAMI STATE: FL ZIP: 33172 BUSINESS PHONE: 3055939667 MAIL ADDRESS: STREET 1: 2300 NORTHWEST 89TH PLACE CITY: MIAMI STATE: FL ZIP: 33172 10-Q 1 PEOPLES TELEPHONE COMPANY, INC FORM 10-Q 6/30/98 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: JUNE 30, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) Of the Securities Exchange Act of 1934 Commission File Number: 001-12443 PEOPLES TELEPHONE COMPANY, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW YORK 13-2626435 ------------------------------- ---------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) I.D. No.) 2300 NORTHWEST 89TH PLACE, MIAMI, FLORIDA 33172 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (305) 593-9667 (Registrant's telephone number, including area code) -------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.01 Par Value, outstanding at August 5, 1998: 16,212,434 shares. 2 Part I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEOPLES TELEPHONE COMPANY, INC. CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31, 1998 1997 --------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 6,223 $ 22,834 Restricted cash 929 920 Accounts receivable, net of allowance for doubtful accounts of $4,744 in 1998 and $4,936 in 1997 22,767 17,061 Inventories 2,445 2,125 Prepaid expenses and other current assets 2,225 2,631 --------- --------- Total current assets 34,589 45,571 Property and equipment, net 48,924 48,237 Location contracts, net 22,932 23,936 Intangible assets, net 633 824 Goodwill, net 8,900 4,084 Deferred income taxes 3,407 3,407 Other assets, net 4,972 5,258 --------- --------- Total assets $ 124,357 $ 131,317 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable and current maturities of long-term debt $ 210 $ 634 Current portion of obligations under capital leases 510 536 Accounts payable and accrued expenses 23,506 22,722 Accrued interest payable 5,633 5,702 Income and other taxes payable 2,844 2,844 --------- --------- Total current liabilities 32,703 32,438 Notes payable and long-term debt 100,000 100,000 Obligations under capital leases 947 275 --------- --------- Total liabilities 133,650 132,713 --------- --------- Commitments and contingencies -- -- Redeemable Preferred Stock: Cumulative convertible preferred stock; Series C, $.01 par value; 160 shares authorized; 150 shares issued and outstanding, $100 per share liquidation value 13,790 13,711 Preferred stock dividends payable 3,432 2,573 --------- --------- Total preferred stock 17,222 16,284 --------- --------- Common shareholders' deficit: Preferred stock; $.01 par value; 4,240 shares authorized; none issued and outstanding -- -- Convertible preferred stock; Series B, $.01 par value; 600 shares authorized; none issued and outstanding -- -- Common stock; $.01 par value; 75,000 shares authorized; 16,212 shares in 1998 and 16,209 shares in 1997 issued and outstanding 162 162 Capital in excess of par value 58,360 59,291 Accumulated deficit (82,522) (75,108) Accumulated other comprehensive loss (2,515) (2,025) --------- --------- Total common shareholders' deficit (26,515) (17,680) --------- --------- Total liabilities less shareholders' deficit $ 124,357 $ 131,317 ========= =========
The accompanying notes are an integral part of these financial statements. 2 3 PEOPLES TELEPHONE COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED JUNE 30, --------------------------- 1998 1997 ---------- ---------- Revenues: Coin calls $ 20,275 $ 19,293 Non-coin calls 9,079 10,173 -------- -------- Total revenues 29,354 29,466 Costs and expenses: Telephone charges 6,849 7,327 Commissions 8,458 7,998 Field service and collection 5,491 4,914 Depreciation and amortization 5,624 5,352 Selling, general and administrative 3,061 2,926 -------- -------- Total costs and expenses 29,483 28,517 -------- -------- Operating (loss) income (129) 949 Other expenses: Interest expense, net 3,265 3,280 -------- -------- Loss from continuing operations before income taxes (3,394) (2,331) Income taxes -- -- -------- -------- Loss from continuing operations (3,394) (2,331) Loss from discontinued operations -- (620) -------- -------- Net loss (3,394) (2,951) Dividends and accretion on preferred stock (636) (302) -------- -------- Net loss applicable to common shareholders $ (4,030) $ (3,253) ======== ======== Loss per common share (basic and diluted): Loss from continuing operations $ (0.25) $ (0.16) Loss from discontinued operations -- (0.04) -------- -------- Net loss $ (0.25) $ (0.20) ======== ======== Weighted average common shares outstanding 16,212 16,195 ======== ========
The accompanying notes are an integral part of these financial statements. 3 4 PEOPLES TELEPHONE COMPANY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 -------- -------- Revenues: Coin calls $ 39,528 $ 37,233 Non-coin calls 17,720 20,284 -------- -------- Total revenues 57,248 57,517 Costs and expenses: Telephone charges 14,147 14,740 Commissions 16,287 15,564 Field service and collection 10,568 9,660 Depreciation and amortization 11,102 10,608 Selling, general and administrative 6,063 5,861 -------- -------- Total costs and expenses 58,167 56,433 -------- -------- Operating (loss) income (919) 1,084 Other expenses: Interest expense, net 6,495 6,628 -------- -------- Loss from continuing operations before income taxes (7,414) (5,544) Income taxes -- -- -------- -------- Loss from continuing operations (7,414) (5,544) Loss from discontinued operations -- (1,305) -------- -------- Net loss (7,414) (6,849) Dividends and accretion on preferred stock (937) (603) -------- -------- Net loss applicable to common shareholders $ (8,351) $ (7,452) ======== ======== Loss per common share (basic and diluted): Loss from continuing operations $ (0.52) $ (0.38) Loss from discontinued operations -- (0.08) -------- -------- Net loss $ (0.52) $ (0.46) ======== ======== Weighted average common shares outstanding 16,212 16,195 ======== ========
The accompanying notes are an integral part of these financial statements. 4 5 PEOPLES TELEPHONE COMPANY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (7,414) $ (6,849) Adjustments to reconcile net loss to net cash (used in) Provided by operating activities: Depreciation and amortization 11,102 10,608 Amortization of deferred financing costs 393 510 Changes in operating assets and liabilities: Accounts receivable (5,706) (7,247) Inventories (49) 560 Prepaid expenses and other current assets 406 36 Other assets (596) 219 Accounts payable and accrued expenses 784 1,457 Accrued interest payable (69) 8 Income and other taxes payable -- (32) Net effect of discontinued operations and assets held for sale -- 1,350 -------- -------- Net cash (used in) provided by operating activities (1,149) 620 CASH FLOWS FROM INVESTING ACTIVITIES Property and equipment additions (1,670) (1,941) Proceeds from sale of assets -- 233 Payments for acquisition of Indiana Telcom assets (11,317) -- Payments for certain contracts (1,598) (2,234) Restricted cash (9) (886) -------- -------- Net cash used in investing activities (14,594) (4,828) CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (424) (285) Principal payments under capital lease obligations (451) (641) Exercise of stock options and warrants 7 2 -------- -------- Net cash used in financing activities (868) (924) -------- -------- Net decrease in cash and cash equivalents (16,611) (5,132) Cash and cash equivalents at beginning of period 22,834 12,556 -------- -------- Cash and cash equivalents at end of period $ 6,223 $ 7,424 ======== ========
The accompanying notes are an integral part of these financial statements. 5 6 PEOPLES TELEPHONE COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) NOTE 1 - UNAUDITED INTERIM INFORMATION The accompanying interim consolidated financial data for Peoples Telephone Company, Inc. (the "Company") and subsidiaries, are unaudited; however, in the opinion of management, the interim data include all adjustments necessary for a fair presentation of the results for the interim periods. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the three months and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. The interim unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1997 as set forth in the Company's 1997 Annual Report on Form 10-K. NOTE 2 - INVESTMENTS AND OTHER COMPREHENSIVE LOSS Investments in debt and equity securities are accounted for in accordance with Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES ("SFAS 115"). The Company's investment in Global Telecommunications Solutions, Inc. ("GTS") is classified as "available for sale" and reported at fair value with unrealized gains or losses, net of tax, recorded as a separate component of shareholders' deficit. The Company's investment in GTS common stock at June 30, 1998 was approximately $0.6 million, net of approximately $2.5 million of unrealized losses. As of January 1, 1998, the Company adopted SFAS No. 130, REPORTING COMPREHENSIVE INCOME ("SFAS 130"). SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 had no impact on the Company's net loss or shareholders' deficit. SFAS 130 requires unrealized gains or losses on the Company's available-for-sale securities, which, prior to adoption, were reported separately in shareholders' deficit, to be included in other comprehensive loss. Prior year financial statements have been reclassified to conform to the requirements of SFAS 130. The components of the comprehensive loss are as follows: FOR THE THREE MONTHS ENDED JUNE 30, --------------------- 1998 1997 ------- ------- Net loss .......................... $(3,394) $(2,951) Unrealized loss on investment ..... (617) (682) ------- ------- Comprehensive loss ................ $(4,011) $(3,633) ======= ======= FOR THE SIX MONTHS ENDED JUNE 30, --------------------- 1998 1997 ------- ------- Net loss .......................... $(7,414) $(6,849) Unrealized (loss) gain on investment ....................... (490) 554 ------- ------- Comprehensive loss ................ $(7,904) $(6,295) ======= ======= 6 7 PEOPLES TELEPHONE COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) NOTE 3 - EARNINGS PER SHARE For the quarter and six months ended June 30, 1998 and 1997, the treasury stock method was used to determine the dilutive effect of options and warrants on earnings per share data. The following table summarizes the loss from continuing operations and the weighted average number of shares outstanding used in the computation of loss from continuing operations per common share in accordance with SFAS No. 128, EARNINGS PER SHARE.
FOR THE THREE MONTHS ENDED JUNE 30, ----------------------- 1998 1997 -------- -------- Loss from continuing operations ............................... $ (3,394) $ (2,331) Deduct: Cumulative preferred stock dividend requirement ...... (263) (263) Cumulative adjustment for preferred stock dividend compounding ............................... (334) -- Preferred stock issuance cost accretion .............. (39) (39) -------- -------- Loss from continuing operations applicable to common shareholders .................. $ (4,030) $ (2,633) ======== ======== Weighted average common shares outstanding ........... 16,212 16,195 ======== ======== Basic and diluted loss per share ..................... $ (0.25) $ (0.16) ======== ========
FOR THE SIX MONTHS ENDED JUNE 30, ----------------------- 1998 1997 -------- -------- Loss from continuing operations ............................... $ (7,414) $ (5,544) Deduct: Cumulative preferred stock dividend requirement ...... (525) (525) Cumulative adjustment for preferred stock dividend compounding ............................... (334) -- Preferred stock issuance cost accretion .............. (78) (78) -------- -------- Loss from continuing operations applicable to common shareholders .................. $ (8,351) $ (6,147) ======== ======== Weighted average common shares outstanding ........... 16,212 16,195 ======== ======== Basic and diluted loss per share from continuing operations ........................................ $ (0.52) $ (0.38) ======== ========
Diluted loss per share is equal to basic loss per share since the conversion of preferred shares and the exercise of outstanding options and warrants would be anti-dilutive for all periods presented. 7 8 PEOPLES TELEPHONE COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) NOTE 4 - LONG-TERM DEBT During June 1998, the Company executed an amendment to the Fourth Amended and Restated Loan and Security Agreement which modified the Company's financial covenants in the Company's $20 million credit facility with Creditanstalt Corporate Finance, Inc. (formerly known as "Creditanstalt-Bankverein) (the "Credit Facility") as of June 30, 1998. The interest rate on balances outstanding under the Credit Facility varies based upon the leverage ratio maintained by the Company. Outstanding principal balances are due in full in the year 2000. Interest is payable monthly for loans based on the prime rate and quarterly for loans based on the LIBOR rate. A commitment fee of 1/2 of 1% is charged on the aggregate daily available balance of the Credit Facility. The Credit Facility is secured by substantially all of the Company's assets and contains certain covenants which, among other things, require the Company to maintain certain cash flow levels and interest coverage ratios and places certain restrictions on the payment of dividends. At June 30, 1998, the Company had no amounts borrowed under the Credit Facility and was in compliance with the financial covenants. NOTE 5 - INCOME TAXES For the three and six months ended June 30, 1998, the Company recorded deferred tax assets and deferred tax asset valuation allowances of approximately $1.3 and $2.8 million, respectively. Valuation allowances were provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. NOTE 6 - LOSS FROM DISCONTINUED OPERATIONS In the fourth quarter of 1997, the Company sold the operating assets of its inmate telephone division. The accompanying Consolidated Statement of Operations for the three and six months ended June 30, 1997 and the Consolidated Statement of Cash Flows for the six months ended June 30, 1997 have been restated to present results of the former inmate telephone division as discontinued operations. For the three months and six months ended June 30, 1997, the Company reported approximately $0.6 million and $1.3 million in losses from discontinued operations, respectively. NOTE 7 - ACQUISITION OF INDIANA TELCOM CORPORATION On January 12, 1998, the Company acquired the operating assets of Indiana Telcom Corporation for approximately $11.3 million in cash. The acquisition was accounted for as a purchase, and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on appraisals and other estimates of their underlying fair values. The allocation of the purchase price is preliminary, pending finalization of appraisals and other estimates. The excess of the purchase price over the fair value of net assets acquired of $5.6 million was recorded as goodwill and is being amortized over 5 years. 8 9 PEOPLES TELEPHONE COMPANY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 AND JUNE 30, 1997 (UNAUDITED) NOTE 8 - MERGER AGREEMENT WITH DAVEL COMMUNICATIONS GROUP On July 5, 1998, the Company entered into a definitive merger agreement with Davel Communications Group, Inc. and Davel Holdings, Inc. (collectively "Davel"). Under the terms of the agreement, which has been approved by the Board of Directors of each company, holders of common stock of the Company will receive 0.235 of a share of Davel common stock for each outstanding share of Company common stock and the Company will become a wholly owned subsidiary of Davel (the "Merger"). The transaction, which is intended to close in the fourth quarter of 1998, is subject to the approval of the shareholders of both companies, receipt of required regulatory approvals and other customary conditions. Consummation of the Merger is conditioned on its eligibility for pooling-of-interests accounting treatment. The transaction is also subject to conversion of the Company's Series C Cumulative Convertible Preferred Stock into common stock and receipt by Davel of financing for, and successful consummation of, a cash tender offer for the Company's 12 1/4% Senior Notes due 2002 (the "Senior Notes"), pursuant to which a minimum of 85% of the aggregate outstanding principal amount of $100 million shall have been tendered. Davel plans to refinance the Senior Notes through a combination of high yield debt and a senior credit facility. No assurance can be given that all of the conditions for the consummation of the proposed Merger will be satisfied. As of June 30, 1998, the Company had incurred approximately $0.6 million in accounting, legal and advisory costs relating to the pending business combination. These costs have been recorded in other assets on the Company's Consolidated Balance Sheet and will be recognized in results of operations upon the consummation of the Merger. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis compares the quarter and six months ended June 30, 1998 to the quarter and six months ended June 30, 1997 and should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and in conjunction with Management's Discussion and Analysis appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Statements in Management's Discussion and Analysis relating to matters that are not historical facts are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such known and unknown risks, uncertainties and other factors include, but are not limited to, the following: the impact of competition, especially in a deregulated environment (including the ability of the Company to implement higher market-based rates for local coin calls and compete against other telecommunications services, such as wireless), uncertainties with respect to the implementation and effect of the Telecommunications Act of 1996, including any new rule-making by the Federal Communications Commission ("FCC") or litigation which may seek to modify or overturn the FCC orders implementing such act or portions thereof, particularly in the area of Dial-Around Compensation, as defined below, the ongoing ability of the Company to deploy its public payphones in favorable locations, the Company's ability to continue to implement operational improvements, the ability of the Company to efficiently integrate acquisitions of other telephone companies and the Company's ability to consummate the planned business combination with Davel Communications Group, Inc. Such factors and others are set forth more fully in the Company's 1997 Annual Report on Form 10-K and the consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. OVERVIEW On January 12, 1998, the Company acquired the operating assets of Indiana Telcom Corporation ("Indiana Telcom") for approximately $11.3 million in cash. This transaction added approximately 2,600 public pay telephones, located primarily in Indiana and adjacent Midwestern states, and was largely financed with the proceeds from the sale of the Company's inmate division assets in December 1997. On July 5, 1998, the Company entered into a definitive merger agreement with Davel Communications Group, Inc. and Davel Holdings, Inc. (collectively "Davel"). Under the terms of the agreement, which has been approved by the Board of Directors of each company, holders of common stock of the Company will receive 0.235 of a share of Davel common stock for each outstanding share of Company common stock and the Company will become a wholly owned subsidiary of Davel (the "Merger"). The transaction, which is intended to close in the fourth quarter of 1998, is subject to the approval of the shareholders of both companies, receipt of required regulatory approvals and other customary conditions. Consummation of the Merger is conditioned on its eligibility for pooling-of-interests accounting treatment. The transaction is also subject to conversion of the Company's Series C Cumulative Convertible Preferred Stock into common stock and receipt by Davel of financing for, and successful consummation of, a cash tender offer for the Company's 12 1/4% Senior Notes due 2002 (the "Senior Notes"), pursuant to which a minimum of 85% of the aggregate outstanding principal amount of $100 million shall have been tendered. Davel plans to refinance the Senior Notes through a combination of high yield debt and a senior credit facility. No assurance can be given that all of the conditions necessary for the consummation of the proposed Merger will be satisfied. The Company's 10 11 merger with Davel is independent of and not contingent on consummation of Davel's proposed merger with PhoneTel Technologies, Inc. As of June 30, 1998, the Company had incurred approximately $0.6 million in accounting, legal and advisory costs relating to the pending business combination. These costs have been recorded in other assets on the Company's Consolidated Balance Sheet and will be recognized in results of operations on consummation of the Merger. REVENUES The Company primarily derives its revenues from coin and non-coin calls. Coin revenue is generated exclusively from calls made by depositing coins in the Company's public pay telephones. Coin revenue represented approximately 69.1% and 65.5% of total revenues for the quarters ended June 30, 1998 and 1997, respectively, and 69.0% and 64.7% of total revenues for the six months ended June 30, 1998 and 1997, respectively. Coin revenue increased 5.1% to $20.3 million during the quarter ended June 30, 1998, and increased approximately 6.2% to $39.5 million for the six months ended June 30, 1998, as compared to the same periods in 1997. The Company's average installed public pay telephone base was approximately 42,700 phones and 38,600 phones for the six month periods ended June 30, 1998 and 1997, respectively. Coin revenue on a per phone basis decreased by 4.8% and 3.8% for the quarter and the six months ended June 30, 1998, respectively, as compared to the same periods in 1997. The decrease in coin revenue on a per phone basis is primarily attributable to the higher than expected call suppression resulting from the implementation of higher market-based local calling rates following local coin rate deregulation. The Company believes that the magnitude of the call suppression should decrease as public pay phone consumers become accustomed to the market-based local coin rates, although there can be no assurances that this will occur. The Company also believes that the decrease is the result of, among other things, the increased usage of alternative methods of calling such as prepaid calling cards and wireless technologies and the operation of more public pay telephones in close proximity to the Company's telephones. A significant portion of the Company's revenues is derived from compensation mandated by the FCC under the Telecommunications Act of 1996 for access code and 1-800 subscriber calls ("Dial-Around Compensation"). In accordance with the FCC's initial orders thereunder, the Company recorded Dial-Around Compensation at the rate of $45.85 per pay phone per month (an assumed 131 calls multiplied by $0.35 per call) during the first and second quarters of 1997. As a result of court challenges, the FCC modified this rate during the fourth quarter of 1997 to $0.284 per call for per call compensation from October 7, 1997 forward. The FCC also tentatively concluded that the same $0.284 per call rate should govern compensation obligations during the period from November 7, 1996 through October 6, 1997 and that the allocation method between long-distance carriers would be determined in a separate order. The Company recorded the net effect of this rate change as a Provision for Dial- Around Compensation Adjustment in the third quarter of 1997. For the period from November 7, 1996 through October 6, 1997, the Company has collected approximately $10.1 million from carriers for Dial-Around Compensation. At June 30, 1998, the Company's accounts receivable include approximately $6.3 million of accrued revenue for Dial-Around Compensation from this period which will be billed after final resolution of the allocation obligations of the IXCs as determined by the FCC. See "Business - Public Pay Telephone Industry Overview", "Business - Regulation" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Provision for Dial-Around Compensation Adjustment" appearing in the Company's Form 10-K for the year ended December 31, 1997 for a more complete discussion. Non-coin revenue, in addition to Dial-Around Compensation, is derived from calling card calls, credit card calls, collect calls and third-party billed calls placed from the Company's public pay telephones. The Company currently uses AT&T and Sprint to act as its primary national operator service providers. When the call is completed through the third-party operator service provider, the Company records as revenue the amount it receives 11 12 from the third-party operator service provider which represents a negotiated percentage of the total amount the caller pays for the call. The Company is continuing to experience a shift in call traffic from operator service calls, for which the Company receives a percentage of the revenue generated by those calls, to access code calls for which the Company receives a flat rate per phone or per call Dial-Around Compensation amount. Due to aggressive advertising campaigns by long-distance companies promoting the use of access code calls, the Company believes that the decrease in non-coin revenue due to the changes in call traffic patterns is likely to continue. Subject to possible changes resulting from the appeal of the FCC's Dial-Around Compensation orders, these decreases in non-coin revenue are currently being offset to some extent by changes in the amount of compensation due to the Company for Dial-Around Compensation. Non-coin revenue represented approximately 30.9 % and 34.5% of total revenues for the quarters ended June 30, 1998 and 1997, respectively, and approximately 31.0% and 35.3% for the six months ended June 30, 1998 and 1997, respectively. For the quarter ended June 30, 1998, revenues from non-coin calls decreased 10.8%, to approximately $9.1 million, compared to the quarter ended June 30, 1997. For the six months ended June 30, 1998 and 1997, non-coin revenues decreased 12.6%, to approximately $17.7 million from $20.3 million. These decreases were primarily attributable to the decrease in the rate for Dial-Around Compensation as noted above. After adjusting for the rate change for Dial-Around Compensation from $0.35 to $0.284 per call, revenues for the six months ended June 30, 1997 would have been $2.0 million lower than originally reported and revenues for the quarter ended June 30, 1997 would have been $1.0 million lower than originally reported. Using these adjusted figures, non-coin revenues in the first six months of 1998 would have been approximately $0.5 million, or 2.9%, lower than for the first six months of 1997 and non-coin revenues for the quarter ended June 30, 1998 would have been approximately $0.1 million, or 0.9%, lower than for the quarter ended June 30, 1997, primarily due to the lower revenue per call received by the Company for dial-around calls compared to operator service calls. OPERATING EXPENSES Operating expenses include telephone charges, commissions, field service and collection expenses and selling, general and administrative expenses. Telephone charges consist of local line charges paid to Local Exchange Carriers which include the costs of basic service and transport of local coin calls, long-distance transmission charges and network costs and billing, collection and validation costs. Commissions represent payments to property owners for revenues generated by the Company's telephones located on their properties. Field service and collection expenses represent the costs of servicing and maintaining the telephones on an ongoing basis, costs of collecting coin from the telephones and other related operational costs. Selling, general and administrative expenses primarily consist of payroll and related costs, legal and other professional fees, promotion and advertising expenses, property, gross receipts and certain other taxes, corporate travel and entertainment and various other expenses. Total operating expenses were approximately 81.3% and 78.6% of total revenues for the quarters ended June 30, 1998 and 1997, respectively. For the six months ended June 30, 1998, total operating expenses were 82.2% of total revenue as compared to 79.7% for the same period in 1997. Telephone charges decreased as a percentage of total revenues to 23.4% for the quarter ended June 30, 1998, compared to 24.9% for the same period in 1997. For the six months ended June 30, 1998 and 1997, telephone charges were 24.7% and 25.6% of total revenues, respectively. The Company continues to experience decreased telephone charges as a result of regulatory changes and competition within the local/intraLATA service market. Commissions as a percentage of total revenues for the three months ended June 30, 1998 increased to approximately 28.8% as compared to 27.1% for the same period of the prior year. For the six months ended June 12 13 30, 1998 and 1997, commissions were approximately 28.4% and 27.1% of total revenues, respectively. The increase in commissions as a percentage of revenues for the three months and six months ended June 30, 1998 and 1997 was primarily attributable to increased commission rates for new and renewed contracts. Field service and collection expenses as a percentage of total revenues were 18.7% and 16.7% for the second quarters of 1998 and 1997, respectively, and 18.5% and 16.8% for the six months ended June 30, 1998 and 1997, respectively. Field service and collection expenses increased as a percent of revenue primarily as a result of the higher amount recorded for Dial-Around Compensation revenue in the first six months of 1997, as discussed above. Field service and collection expenses increased approximately 11.8%, to approximately $5.5 million for the second quarter of 1998, as compared to the same period in 1997 and approximately 9.4%, to approximately $10.6 million for the six months ended June 30, 1998, as compared to the same period in 1997, due to the increase in the average number of phones. Field service and collection expenses on a per phone basis decreased by approximately 1.0% for the six months ended June 30, 1998 as compared to the same period in the prior year as a result of certain initiatives intended to achieve operational efficiencies. Selling, general and administrative expenses were slightly higher at approximately $3.1 million and $2.9 million for the second quarter of 1998 and 1997, respectively, and $6.1 million and $5.9 million for the six months ended June 30, 1998 and 1997, respectively. DEPRECIATION AND AMORTIZATION Depreciation is based on the cost of the telephones, booths, pedestals and other enclosures, related installation costs and line interconnection charges and is calculated on a straight-line method using a ten-year useful life for public pay telephones. Amortization is primarily based on acquisition costs including location contracts, goodwill, non-competition provisions, signing bonuses and sales commissions which are calculated on a straight-line method using estimated useful lives ranging from three to twenty years. Depreciation and amortization increased to $5.6 million for the quarter ended June 30, 1998, compared to $5.4 million for the same period in 1997. For the six months ended June 30, 1998 and 1997, depreciation and amortization expense was approximately $11.1 million and $10.6 million, respectively. These increases are primarily attributable to additional depreciation and amortization expenses related to the Indiana Telcom acquisition and to the renewal costs of location contracts. INTEREST EXPENSE For the second quarter of 1998, net interest expense was approximately $3.3 million, which was the same as interest expense in the same quarter in 1997. For the first six months of 1998, net interest expense remained consistent with net interest expense in the same period of 1997, at approximately $6.5 million and $6.6 million, respectively. BENEFIT FROM INCOME TAXES The Company currently records valuation allowances for 100% of the deferred tax assets generated from operating losses. The Company recorded deferred tax assets and deferred tax asset valuation allowances of approximately $1.3 million and $2.8 million for the three and six months ended June 30, 1998. NET LOSS Net loss for the three months ended June 30, 1998 was approximately $3.4 million as compared to $3.0 million for the first quarter of 1997. After adjusting for the rate change for Dial-Around Compensation, 1997's second quarter net loss would have been approximately $0.8 million greater. Using this adjusted figure for comparison, the net loss for the second quarter of 1998 would have been approximately $0.4 million, or 9.8%, lower 13 14 than the second quarter of 1997. For the six months ended June 30, 1998 and 1997, the Company had net losses of approximately $7.4 million and $6.8 million, respectively. After adjusting for the rate change for Dial-Around Compensation, 1997's six month net loss would have been approximately $1.6 million greater. Using this adjusted figure for comparison, the net loss for the first six months of 1998 would have been approximately $1.1 million, or 12.5%, lower than the first six months of 1997. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION EBITDA is not presented as an alternative to operating results or cash flow from operations as determined by Generally Accepted Accounting Principles ("GAAP"), but rather to provide additional information related to the ability of the Company to meet current trade obligations and debt service requirements. EBITDA should not be considered in isolation from, or construed as having greater importance than, GAAP operating income or cash flows from operations as a measure of an entity's performance. EBITDA from continuing operations was approximately $5.5 million for the quarter ended June 30, 1998, compared to $6.3 million for the same period in 1997. After adjusting for the rate change for Dial-Around Compensation, 1997's second quarter EBITDA would have been approximately $5.5 million. Using this adjusted figure, EBITDA for the second quarter of 1998 would have been the same as the second quarter of 1997. For the six months ended June 30, 1998 and 1997, the Company reported EBITDA from continuing operations of approximately $10.2 million and $11.7 million, respectively. After adjusting for the rate change for Dial-Around Compensation, 1997's six month EBITDA would have been approximately $1.6 million less. Using this adjusted figure for comparison, EBITDA for the first six months of 1998 would have been approximately $0.1 million, or 1.2%, higher than for the same period of the prior year. LIQUIDITY AND CAPITAL RESOURCES During the second quarter of 1998, the Company continued to finance its operations from current and prior period operating cash flow. For the six months ended June 30, 1998, the Company's operating cash flow was $(1.1) million compared to $0.6 million for the same period in 1997, due primarily to a higher net loss and an increase in other assets related to costs incurred in connection with the Merger. Accounts receivable, primarily due from carriers for Dial-Around Compensation, increased during the six months ended June 30, 1998, primarily due to payment delays as carriers implemented new payment systems for per-call compensation under the FCC's Dial-Around Compensation orders. Subsequent to June 30, the Company has received approximately $6.1 million in Dial-Around Compensation payments from various carriers with respect to fourth quarter 1997 and first quarter 1998 obligations. The allowance for doubtful accounts decreased by approximately $0.2 million, primarily as a result of the write-off of a portion of uncollectible inmate division accounts, offset somewhat by an increase in the allowance for uncollectible Dial-Around Compensation receivables. The Company's net working capital was approximately $1.9 million, with a current ratio of 1.1 to 1.0, at June 30, 1998. This compares with a net working capital of $13.1 million at December 31, 1997. The Company used $11.3 million of cash in January, 1998 to acquire the assets of Indiana Telcom. Under terms of the Company's Series C Cumulative Convertible Preferred Stock Agreement, the Preferred Stock cumulates dividends at an annual rate of 7%. The dividends are payable in cash, or, at the Company's option during the first three years, will cumulate. The Company's Indenture Agreement for its Senior Notes due 2002 allows cash payment of these dividends only in the event that the Company's fixed charge coverage ratio exceeds a certain value. As of June 30, 1998, the fixed charge coverage ratio did not exceed that value. As a result, and as permitted under the Preferred Stock Agreement, these dividends will continue to cumulate, until the Company's fixed charge coverage ratio exceeds that value. 14 15 During June, 1998, the Company executed an amendment to the Fourth Amended and Restated Loan and Security Agreement modifying certain financial covenants. At June 30, 1998, the Company was in compliance with the amended covenants and had no amounts borrowed under this $20 million credit facility. Based upon current expectations, the Company believes that cash flow from operations, together with amounts which may be borrowed under the amended credit facility, will be adequate for it to meet its working capital requirements, pursue its business strategy and service its obligations with respect to its 12 1/4% Senior Notes, although there can be no assurances that it will be able to do so. The preceding forward looking information is subject to a variety of factors and uncertainties, including the impact of competition on the Company's operations, the ultimate implementation and effect of the Telecommunications Act of 1996, the collectibility of amounts owed for Dial-Around Compensation and the ongoing ability of the Company to deploy its phones in favorable locations and to continue to implement operational improvements. 15 16 Part II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Shareholders held on June 16, 1998, the shareholders of the Company voted to re-elect Jody Frank, Robert E. Lund and E. Craig Sanders as Directors of the Company. The number of the votes cast for or withheld, and the number of broker non-votes, with respect to each of the nominees were as follows:
NOMINEE FOR AGAINST WITHHOLD AUTHORITY ABSTENTIONS BROKER NON-VOTES - ------- --- ------- ------------------ ----------- ---------------- Jody Frank 17,327,287 -- 87,365 -- -- Robert E. Lund 17,328,881 -- 85,771 -- -- E. Craig Sanders 17,278,331 -- 136,221 -- --
The holders of the Company's Series C Cumulative Convertible Preferred Stock ("Preferred Stock") are entitled to elect two members of the Company's five member Board of Directors. Mr. Charles J. Delaney and Mr. Justin S. Maccarone, who were incumbent Directors, were re-elected by the holders of the Preferred Stock on June 16, 1998 and continue as Directors. The Preferred Stock is entitled to vote on all matters submitted to the shareholders for a vote together with the holders of the Company's Common Stock voting as a single class with each share of Preferred Stock entitled to one vote for each share of Common Stock issuable upon conversion. ITEM 5. OTHER INFORMATION On July 5, 1998, the Company entered into a definitive Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with Davel pursuant to which the Company would become a subsidiary of Davel and the holders of the outstanding common stock of the Company would receive 0.235 of a share of Davel common stock for each outstanding share of the Company's common stock. The exchange ratio is fixed and not subject to adjustment. Consummation of the merger is conditioned on a number of factors, including its approval by shareholders of both the Company and Davel, its eligibility for pooling-of-interests accounting treatment and the receipt of regulatory approvals, including termination or expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In addition to, and in connection with the Merger Agreement, the Company entered into a number of ancillary agreements. These agreements are more fully explained in the Company's current report on Form 8-K filed July 15, 1998 and filed as exhibits thereto. The foregoing is a summary only and is qualified in its entirety by reference to the Company's report on Form 8-K filed July 15, 1998. Any proxy received by the Company in connection with the 1999 Annual Meeting may confer discretionary authority to vote on any shareholder proposal not received by the Company by March 31, 1999. 16 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits:
EXHIBIT DESCRIPTION - ------- ----------- 2.2 Agreement and Plan of Merger and Reorganization dated as of July 5, 1998 by and among Davel Holdings, Inc., Davel Communications Group, Inc. and the Company.* 4.6 Fourth Amendment dated June 30, 1998 to the Fourth Amended and Restated Loan and Security Agreement between the Company and Creditanstalt Corporate Finance, Inc. (formerly known as Creditanstalt-Bakverein). 10.16 Corporate Governance, Liquidity and Voting Agreement by and among UBS Capital II LLC, Davel Communications Group, Inc., Davel Holdings, Inc. and the Company dated as of July 5, 1998.* 10.17 Termination Option Agreement dated as of July 5, 1998 by and among Davel Communications Group, Inc. and the Company.* 10.18 Voting Agreement dated as of July 5, 1998 by and between the Company and Mr. David R. Hill.* 10.19 Voting Agreement dated as of July 5, 1998 by and between the Company and Samstock, L.L.C.* 10.20 Employment Agreement dated as of June 26, 1998 between the Company and Larry Ellman. 27 Financial Data Schedule (for SEC use only) * Incorporated herein by reference to the Company's Current Report on Form 8-K filed July 15, 1998. (File No. 0001-12443)
(b) Reports on Form 8-K: None. 17 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PEOPLES TELEPHONE COMPANY, INC. REGISTRANT Date: August 14, 1998 /s/ WILLIAM A. BAUM ------------------------------------- William A. Baum On behalf of the registrant and as Chief Financial Officer 18 19 EXHIBIT INDEX EXHIBITS 4.6 Fourth Amendment dated June 30, 1998 to the Fourth Amended and Restated Loan and Security Agreement between the Company and Creditanstalt Corporate Finance, Inc. (formerly known as Creditanstalt-Bankverein). 10.20 Employment Agreement dated as of June 26, 1998 between the Company and Larry Ellman. 27 Financial Data Schedule (for SEC use only) 19 EX-4.6 2 4TH AMENDMENT DATED 6/30/98 1 Exhibit 4.6 FOURTH AMENDMENT TO THE FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT THIS FOURTH AMENDMENT TO THE FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Amendment") is made and entered into as of the 30th day of June, 1998, by and among PEOPLES TELEPHONE COMPANY, INC., a New York corporation ("Borrower"), each of the Lenders signatory hereto (hereinafter referred to individually as a "Lender" and collectively as the "Lenders"), and CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation, as successor agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, hereinafter referred to as the "Agent"); W I T N E S S E T H: WHEREAS, on March 12, 1990, Borrower entered into a certain Loan and Security Agreement, dated as of March 12, 1990, as amended (as so amended, the "Original Loan Agreement"), among Borrower, the banks party thereto and Creditanstalt-Bankverein, as agent (the "Original Agent"), pursuant to which such banks made available to Borrower a revolving credit facility; and WHEREAS, the Original Loan Agreement was superseded by that certain Amended and Restated Loan and Security Agreement, dated as of May 4, 1992 (the "First Restated Agreement") among the Borrower, the banks party thereto and the Original Agent; and WHEREAS, the First Restated Agreement was superseded by that certain Second Amended and Restated Loan and Security Agreement, dated as of March 29, 1993 (the "Second Restated Agreement") among Borrower and PTC Cellular, Inc., a Delaware corporation, as borrowers, the banks party thereto and the Original Agent; and WHEREAS, the Second Restated Agreement was superseded by that certain Third Amended and Restated Loan and Security Agreement, dated as of February 17, 1994 (the "Third Restated Agreement") among the Borrower, the lenders party thereto and the Original Agent; and WHEREAS, the Third Restated Agreement was superseded by that certain Fourth Amended and Restated Loan and Security Agreement, dated as of July 19, 1995 (the "Fourth Restated Agreement") among the Borrower, the lenders party thereto (the "Lenders") and the Original Agent; and WHEREAS, the Fourth Restated Agreement was amended on November 29, 1995 pursuant to a certain Waiver and First Amendment to Fourth Amended and Restated Loan Agreement, a certain Second Amendment to Fourth Amended and Restated Loan Agreement dated April 4, 1996 and a certain Third Amendment to Fourth Amended and Restated Loan Agreement dated March 26, 1997; 2 WHEREAS, Borrower has requested that the Lenders and the Agent agree to modify certain financial covenants for the fiscal quarter ending June 30, 1998; WHEREAS, the Lenders and the Agent are willing to modify such financial covenants on the condition that the Fourth Restated Agreement is amended as set forth herein; NOW, THEREFORE, for and in consideration of the foregoing premises, the mutual promises, covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. DEFINITIONS. All capitalized terms used herein and not expressly defined herein shall have the same respective meanings given to such terms in the Fourth Restated Agreement. 2. AMENDMENTS. The Fourth Restated Agreement is hereby further amended by deleting Sections 8.1 and 8.2 thereof in their entirety and by substituting therefor new Sections 8.1 and 8.2 to read as follows: 8.1 OPERATING CASH FLOW. Borrower shall maintain, as of the last day of each fiscal quarter of Borrower, Operating Cash Flow for the four fiscal quarter period then ending of not less than the amount set forth below opposite each such applicable period: APPLICABLE PERIOD AMOUNT ----------------- ------ 10/01/97 - 12/31/97 $22,500,000 01/01/98 - 03/31/98 $24,500,000 04/01/98 - 6/30/98 $23,000,000 07/01/98 - 09/30/98 $24,000,000 10/01/98 - 12/31/98 $22,500,000 01/01/99 - 03/31/99 $23,500,000 04/01/99 - 06/30/99 $24,500,000 07/01/99 - 09/30/99 $25,500,000 Each Fiscal Quarter Thereafter $26,500,000 8.2 INTEREST COVERAGE RATIO. Borrower shall maintain, as of the last day of each fiscal quarter, an Interest Coverage Ratio for the four fiscal quarter period then ending of not less than the ratio set forth below opposite each such applicable period: APPLICABLE PERIOD RATIO ----------------- ----- 10/01/97 - 12/31/97 1.50:1.00 01/01/98 - 06/30/99 1.75:1.00 Each Fiscal Quarter thereafter 2.00:1.00 2 3 3. CONDITIONS PRECEDENT. This Amendment shall not become effective unless and until the following conditions have been met, to the sole and complete satisfaction of the Lenders, the Agent and their respective counsel: (a) REPRESENTATIONS AND WARRANTIES. Giving effect to this Amendment, all of the representations and warranties made by Borrower under the Fourth Restated Agreement and the Loan Documents shall be true and correct in all material respects as of the date hereof with the same force and effect as if made on and as the date hereof except for such changes in such representations and warranties which do not constitute a Default or Event of Default, which do not, individually or in the aggregate, have a Material Adverse Effect and which have, to the extent required, been disclosed to the Agent and the Lenders pursuant to Section 6.2 or 6.8 of the Fourth Restated Agreement or otherwise; (b) NO MATERIAL ADVERSE CHANGE. Since December 31, 1997, there shall not have occurred any material adverse change in the assets, liabilities, business, operations or condition (financial or otherwise) of the Borrower, or any event, condition, or state of facts which would be expected to have a Material Adverse Effect subsequent to the date hereof; (c) DOCUMENTATION. The Agent and the Lenders shall have received this Amendment, duly executed and delivered to the Agent and the Lenders. 4. REPRESENTATIONS AND WARRANTIES; NO DEFAULT. Borrower hereby represents and warrants to the Agent and the Lenders that (a) giving effect to the amendments set forth in Section 2 of this Amendment, all of Borrower's representations and warranties contained in the Fourth Restated Agreement and the other Loan Documents are true and correct on and as of the date of Borrower's execution of this Agreement; (b) except in respect of the covenants referenced in Section 2 hereof, no Default or Event of Default has occurred and is continuing as of such date under any Loan Document; (c) Borrower has the power and authority to enter into this Agreement and to perform all of its obligations hereunder; (d) the execution, delivery and performance of this Agreement have been duly authorized by all necessary corporate action on the part of Borrower; and (e) the execution and delivery of this Agreement and performance thereof by Borrower does not and will not violate the Articles of Incorporation, By-laws or other organizational documents of the Borrower and does not and will not violate or conflict with any law, order, writ, injunction, or decree of any court, administrative agency or other governmental authority applicable to Borrower or its properties. 5. EXPENSES. Borrower agrees to pay, immediately upon demand by the Agent, all costs, expenses, attorneys' fees and other charges and expenses actually incurred by the Agent in connection with the negotiation, preparation, execution and delivery of this Agreement and any other instrument, document, agreement or amendment executed in connection with this Agreement. 6. DEFAULTS HEREUNDER. The breach of any representation, warranty or covenant contained herein or in any document executed in connection herewith, or the failure to serve or comply with any term or agreement contained herein shall constitute a Default or Event of Default 3 4 under the Fourth Restated Agreement and the Agent and the Lenders shall be entitled to exercise all rights and remedies they may have under the Fourth Restated Agreement, any other documents executed in connection therewith and applicable law. 7. REFERENCES. All references in the Fourth Restated Agreement and the Loan Documents to the Fourth Restated Agreement shall hereafter be deemed to be references to the Fourth Restated Agreement as amended hereby and as the same may hereafter be amended from time to time. 8. LIMITATION OF AGREEMENT. Except as especially set forth herein, this Agreement shall not be deemed to waive, amend or modify any term or condition of the Fourth Restated Agreement, each of which is hereby ratified and reaffirmed and which shall remain in full force and effect, nor to serve as a consent to any matter prohibited by the terms and conditions thereof. 9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, and any party hereto may execute any counterpart, each of which, when executed and delivered, will be deemed to be an original and all of which, taken together will be deemed to be but one and the same agreement. 10. FURTHER ASSURANCES. Borrower agrees to take such further action as the Agent or the Majority Lenders shall reasonably request in connection herewith to evidence the amendments herein contained to the Fourth Restated Agreement. 11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the successors and permitted assigns of the parties hereto. 12. GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of law. 4 5 13. NO CLAIM. Borrower hereby represents, warrants, acknowledges and agrees to and with the Lenders and Agent that (a) Borrower neither holds nor claims any right of action, claim, cause of action or damages, either at law or in equity, against the Lenders and Agent which arises from, may arise from, allegedly arise from, are based upon or are related in any manner whatsoever to the Fourth Restated Agreement and the Loan Documents or which are based upon acts or omissions of the Lenders or Agent in connection therewith and (b) the Obligations are absolutely owed to the Lenders and Agent, without offset, deduction or counterclaim. IN WITNESS WHEREOF, the parties hereto have executed this Amendment under seal as of the date first written above. "BORROWER" PEOPLES TELEPHONE COMPANY, INC. By: /s/ WILLIAM A. BAUM ------------------------------------------------- William A. Baum Senior Vice President and Chief Financial Officer Attest: /s/ BRUCE W. RENARD ---------------------------------------------- Bruce W. Renard Secretary [CORPORATE SEAL] [Signatures Continued On Next Page] 5 6 [Signatures Continued From Previous Page] "AGENT" CREDITANSTALT CORPORATE FINANCE, INC. By: /s/ ROBERT M. BIRINGER ----------------------------------------- Robert M. Biringer Executive Vice President By: /s/ WILLIAM E. MCCOLLUM, JR ----------------------------------------- Name: William E. McCollum Title: Senior Associate [Signatures Continued On Next Page] 6 7 [Signatures Continued From Previous Page] "LENDER" CREDITANSTALT CORPORATE FINANCE, INC. By: /s/ ROBERT M. BIRINGER ---------------------------------------- Robert M. Biringer Executive Vice President By: /s/ WILLIAM E. MCCOLLUM, JR ---------------------------------------- Name: William E. McCollum, Jr Title: Senior Associate 7 EX-10.20 3 EMPLOYMENT AGREEMENT 1 Exhibit 10.20 EMPLOYMENT AGREEMENT Agreement (the "Agreement") dated as of June 26, 1998 (the "Execution Date") between PEOPLES TELEPHONE COMPANY, INC., a New York corporation (the "Company"), and LARRY ELLMAN (the "Employee"). RECITALS WHEREAS, the Company is presently engaged in the business of owning and operating telephone and wire communication systems and other businesses (the "Business"); and WHEREAS, the Employee has many years of business experience and the Employee and the Company desire to enter into this Agreement. subject to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the promises and of the mutual covenants set forth in this Agreement: 1. EMPLOYMENT AND TERM. a. During the term of this Agreement, the Company agrees to employ the Employee and the Employee agrees to serve as an employee of the Company as hereinafter provided. The term (the "Term of Employment") shall begin on the date hereof and shall end on June 30, 2000. 2. DUTIES. a. The Employee agrees during the Term of Employment to perform the duties of the Executive Vice President, President-National Accounts, and to perform such other duties and assignments of an executive nature relating to the business of the Company as the board of directors of the Company directs. During the Term of Employment the Employee shall, except during customary vacation periods and periods of illness, devote all of his business time and attention to the performance of the duties under this Agreement and to promote the best interests of the Company. The Employee shall report to and shall be subject to the supervision of the Chief Executive Officer only. The Employee shall not, either during or outside of normal business hours, directly or indirectly, engage in any aspect of the telecommunications business for or on behalf of any entity other than the Company, nor engage in any activity inimical to the best interests of the Company. The Employee shall be based at the Company's principal executive offices located at 2300 Northwest N.W.89th Place, Miami, Florida, except for required travel relating to the Company's business to an extent substantially consistent with the Employee's duties hereunder. 2 3. COMPENSATION AND RELATED MATTERS. a. BASE SALARY. The Employee shall receive an annual base salary as follows: (i) during the first year of this Agreement, the Employee shall receive a salary in the amount of $172,000 (the "Base Salary"); and (ii) during the second year of this Agreement, the Employee shall receive a salary in an amount equal to the Base Salary plus 10% (the "Adjusted Base Salary), if such Adjusted Base salary is approved by the Company's Board of Directors. The Employee shall receive the Base Salary and the Adjusted Base Salary during the term of this Agreement in substantially equal monthly or bi-weekly installments in accordance with the normal payroll practice of the Company. b. THE ANNUAL BONUS. The Employee shall receive an annual bonus (the "Bonus") which shall be not less than $25,000 nor greater than 30 percent of the Employee's salary (as provided in Section 3(a) above) in effect during the one year period ending on the 30th day of June in each of the years 1998, 1999 and 2000 to which the Bonus relates. The Bonus shall be payable not later than the 31st day of July in each of the years 1998, 1999 and 2000; provided, however, that the Company shall pay to Employee $12,500 (less any applicable withholding taxes) within three business days after the execution of this Agreement by the Employee, such amount to be credited against the Company's obligation to pay any Bonus in respect of the one year period ending on June 30, 1998. The Bonus payable in respect of the one year period ending June 30, 1998 shall not be subject to reduction by virtue of the fact that this Agreement shall not have been in effect during the entirety of such period. c. STOCK OPTIONS. The Company shall be eligible to participate in the Company's 1997 Incentive Plan and other executive incentive plans, if any, subject to approval of the Board of Directors and on the terms approved by the Board of Directors or the appropriate committee thereof administering such plans. In the event of a Change in Control (as defined below) all Company options issued to the Employee prior to or after the date hereof shall vest in full automatically, provided, however, that if such accelerated vesting would cause a transaction resulting in such Change in Control for which pooling of interests accounting is desired not to be eligible for pooling of interests accounting treatment, then such acceleration shall not be effective to the extent required to permit such transaction to be so eligible. d. CAR ALLOWANCE. The Company shall pay the Employee a car allowance during the term of this Agreement in an amount up to $500 per month to reimburse the Employee for his automobile expenses, including car/lease payments, insurance costs and related automobile expenses. e. FRINGE BENEFITS. During the Term of Employment, the Company shall provide Employee with individual medical insurance at the Company's expense, through a major medical/group hospitalization insurance provider determined by the Company, in its sole and absolute discretion. Additionally, the Employee shall enjoy the customary benefits afforded to its employees. The Employee also shall be entitled to participate in employee benefit plans now or hereafter provided or made available to the Company's employees generally, such as life insurance, and pension and retirement plans. Nothing in this Agreement shall require the Company to establish, maintain or 2 3 continue any of the fringe benefits already in existence for employees of the Company and nothing in this Agreement shall restrict the right of the Company to amend, modify or terminate such fringe benefit programs. f. VACATIONS. During the Term of Employment, the Employee shall be entitled each year to four weeks of vacation. The Company shall not pay the Employee any additional compensation for any vacation time not used by the Employee; provided, however, that the Employee shall be paid the value of any unused vacation time upon any termination of this Agreement. g. INITIAL BONUS. In consideration of the Employee's execution of this Agreement, he shall be paid an Initial Bonus in the amount of $30,000, payable within 5 business days after his execution hereof. 4. TERMINATION. This Agreement may be terminated prior to the expiration of the term set forth in Section 1 above as follows: a. DEATH. This Agreement shall terminate upon the death of the Employee, and the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, his beneficiary or beneficiaries from and after the date of the Employee's death, other than payments or benefits accrued and due and payable to him prior to the date of death pursuant to this Agreement. b. DISABILITY. The Company may terminate the Employee's employment under this Agreement if as a result of his incapacity due to accident or illness, the Employee shall have been unable to satisfactorily perform his normal duties under this Agreement for a period of six months. Except as specifically provided in this Section 4, the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, the Employee from and after the date of the termination. c. CAUSE. The Company may terminate the Employee's employment under this Agreement for Cause at any time. For purposes of this Agreement, the Company shall have "Cause" to terminate the Employee's employment if he (1) engages in one or more acts constituting a felony or involving fraud or serious moral turpitude; (2) refuses (except by reason of incapacity due to accident or illness) to perform his duties; or (3) engages in gross misconduct materially injurious to the Company. Notwithstanding the foregoing, a termination for Cause shall not occur unless the Employee shall have been given notice of the existence of the basis for termination thereunder and shall have had 30 calendar days to cure such basis to the reasonable satisfaction of the Board of Directors. In the event of a termination for Cause, the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, the Employee from and after the date of the termination, other than payments or benefits accrued and due and payable to him prior to the date of termination. 3 4 d. GOOD REASON. The Employee may terminate his employment for "Good Reason". The Employee shall have "Good Reason" to terminate his employment any time if, after a Change in Control (as defined below), the Company (i) assigns to the Employee any duties that are inconsistent with the position described in Section 2 of this Agreement, (ii) reduces the Employee's Base Salary (or Adjusted Base Salary) or the maximum percentage thereof eligible to be paid as Bonus, (iii) diminishes significantly the Employee's then existing duties without his written consent, or (iv) requires the Employee to be based at any office or location other than the current Miami headquarters, which change of location would require the Employee to commute a distance from his primary residence in excess of the greater of (x) 50 miles and (y) 125 percent of the distance of such commute prior to such change of location. 5. NON-COMPETITION. a. The Employee hereby covenants and agrees that, except with the written consent of the Company, the Employee will not, during the Term of Employment and for one year after the end of the Term of Employment (i.e., until June 30, 2001), alone or in association with others as principal, officer, agent, employee, director or stockholder of any corporation, partnership, association or other entity, or through the lending of capital, lending of money or property, or rendering of services or otherwise, (i) engage in any business all or part of which is, at the time, competitive with the business then conducted by the Company, directly or indirectly, in any state in which the Company then operates; (ii) solicit or attempt to solicit any person (natural or otherwise) who had entered into an agreement with the Company to terminate or not renew such agreement; and (iii) solicit or attempt to solicit any person employed by the Company to leave their employment or not fulfill their contractual responsibility, whether or not the employment or contracting is full-time or temporary, pursuant to a written or oral agreement, or for a determined period or at will. Notwithstanding the foregoing, the Employee shall not be prohibited from mere ownership of not more than five percent of any class of securities of any entity which has a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. 6. COMPANY'S RIGHT TO INJUNCTIVE RELIEF; ATTORNEYS' FEES. a. The Employee acknowledges that the Employee's services to the Company are of a unique character which gives them a special value to the Company, the loss of which cannot reasonably or adequately be compensated in damages in an action at law, and that a breach of this Agreement will result in irreparable and continuing harm to the Company, and that therefore, in addition to any other remedy which the Company may have at law or in equity, the Company shall be entitled to injunctive relief for a breach of this Agreement by the Employee. The Employee and the Company agree that the prevailing party in any action to enforce any breach of any covenant in this Agreement shall be reimbursed by the other party for all expenses and reasonable attorneys' fees incurred by that party to enforce this Agreement. 4 5 7. TRADE SECRETS AND CONFIDENTIAL INFORMATION. a. The Employee acknowledges that the Company's business depends to a significant degree upon the possession of information which is not generally known to others, and that the profitability of the Company's business requires that this information remain proprietary to the Company. b. The Employee shall not except as required in the course of employment by the Company, disclose or use during or subsequent to the Term of Employment, any trade secret or other confidential information relating to the Company's business of which Employee becomes aware by reason of being employed by the Company or to which Employee gains access. Such information includes, but is not limited to, lists of property owners, data, records, computer programs, manuals, processes, methods and intangible rights which are either developed by the Employee during the Term of Employment or to which the Employee has access. All records and equipment and other materials relating in any way to any confidential information relating to property owners or to the Company's business shall be and remain the Company's sole property during and after the Term of Employment. c. Upon termination of employment, the Employee shall promptly return to the Company all materials and all copies of materials involving any trade secret or other confidential information in the Employee's possession or control. The Employee agrees to represent to the Company that he has complied with the provisions of this Section 7 upon termination of employment. d. The Employee acknowledges that he is not a party to any agreement which may restrict his employment with the Company. 8. MISCELLANEOUS. a. The captions in this Agreement are not part of its provisions, are merely for reference and have no force or effect. If any caption is inconsistent with any provision of this Agreement, such provision shall govern. b. This Agreement is made in and shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to conflict of law principles. c. To the extent that the terms set forth in this Agreement or any word, phrase, clause or sentence is found to be illegal or unenforceable for any reason, such word, phrase, clause or sentence shall be modified or deleted in such manner so as to afford the Company the fullest protection commensurate with making this Agreement, as modified, legal and enforceable under applicable laws, and the balance of this Agreement shall not be affected thereby, the balance being construed as severable and independent. 5 6 d. All notices given under this Agreement shall be in writing and shall be sent by registered or certified mail, by a nationally recognized overnight courier service or delivered by hand and, if intended for the Company, shall be addressed to it or delivered to it at 2300 N.W. 89th Place, Miami, Florida 33172 to the attention of E. Craig Sanders, President and Chief Executive Officer. If intended for the Employee, notices shall be delivered personally or shall be addressed (if sent by mail) to the Employee's then current residence address as shown on the Company's records, or to such other address as the Employee directs in a notice to the Company. All notices shall be deemed to be given, in the case of mailing, on the third business day after posting, in the case of a nationally recognized overnight courier service, on the first business day after such notice is deposited with such service, or, if delivered personally, on the date delivered. e. As used in this Agreement where appropriate, the masculine shall include the feminine; where appropriate, the singular shall include the plural and the plural shall include the singular. f. This Agreement contains all obligations and understandings between the parties relating to the subject of this Agreement and merges all prior discussions, negotiations and agreements, if any, between them, and none of the parties shall be bound by any conditions, definitions, understandings, warranties or representations other than as expressly provided or referred to in this Agreement. This Agreement is intended to cancel and supersede all existing agreements between the Employee and the Company. g. This Agreement may be modified only by a written instrument properly executed by the parties to this Agreement. h. No waiver by any party to this Agreement, whether expressed or implied, of its rights under any provision of this Agreement shall constitute a waiver of the party's rights under the provisions at any other time or a waiver of the party's rights under any other provision of this Agreement. i. The Employee and the Company agree that the prevailing party in any action to enforce any breach of any covenant in this Agreement shall be reimbursed by the other party for all expenses, and reasonable attorneys' fees incurred by that party to enforce this Agreement. j. The parties hereto agree and acknowledge that the Employment Agreement dated as of June 22, 1994 between such parties, as amended, terminated in accordance with its terms on December 31, 1997 and that neither party shall have any further obligation to, or claim or rights against, the other under such employment agreement. k. This Agreement and all of the Employee's rights, duties and obligations under this Agreement are personal in nature and shall not be assignable by the Employee. A purported assignment shall not be valid or binding on the Company. However, this Agreement shall inure to 6 7 the benefit of the heirs, personal representatives and estate of the Employee. This Agreement shall inure to the benefit of and be legally binding upon all successors and assigns of the Company. 9. TERMINATION UPON A CHANGE IN CONTROL. a. If after a Change in Control (i) the Employee's employment is terminated by the Company without Cause or (ii) is terminated by the Employee for Good Reason (as defined in Section 4(d) above) then (i) the Company shall pay the Employee his full Base Salary or Adjusted Base Salary, as the case may be, through the effective date of such termination (the "Termination Date") at the rate in effect at the Termination Date; (ii) the Employee shall receive all other compensation and benefits provided in this Agreement in connection with a termination of employment due to a Change in Control of the Company; and (iii) in lieu of any further salary payments to the Employee for periods subsequent to the Termination Date (but without affecting compensation or benefits to the Employee in accordance with the preceding clauses (i) and (ii)) and in consideration of the rights of the Company under Section 5 above, the Company shall pay as severance pay to the Employee on the fifth day following the Termination Date, a lump sum amount equal to 100 percent of the Employee's annual base salary at the highest rate in effect during the 12 months immediately preceding the Termination Date plus the maximum Bonus which the Employee would have been eligible to earn pursuant to Section 3(b) hereof as if the Company and the Employee achieved 100 percent of the performance targets for the year in which such termination occurs. In the event it shall be determined that any payment or distribution by the Company following a Change in Control (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any interest or penalties are incurred by the Employee with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount of Gross-Up Payment equal to the Excise Tax imposed upon the Payments. b. Section 9(a) above shall not be effective if under another section of this Agreement the Employee is entitled to a sum greater than 100 percent of his annual base salary in which case such other section shall apply in lieu of such Section 9(a). c. For purposes of this Agreement, a "Change in Control" means: (1) the acquisition of beneficial ownership, direct or indirect, of equity securities of the Company by any person (as that term is defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) which, when combined with all other securities of the Company beneficially owned, directly or indirectly by that person, equals or exceeds 50% of (i) either the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding 7 8 voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (i) any acquisition by the Company or any of its subsidiaries, (ii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (iii) any acquisition by any corporation with respect to which, following such acquisition, more than 75% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; (2) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened solicitation to which Rule 14a-11 of Regulation 14A promulgated under the Exchange Act applies or other actual or threatened solicitation of proxies or consents; (3) approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 75% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or (4) approval by the shareholders of the Company of (i) a complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, more than 75% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial 8 9 owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be. The term "the sale or disposition by the Company of all or substantially all of the assets of the Company" shall mean a sale or other disposition transaction or series of related transactions involving assets of the Company or of any direct or indirect subsidiary of the Company (including the stock of any direct or indirect subsidiary of the Company) in which the value of the assets or stock being sold or otherwise disposed of (as measured by the purchase price being paid therefor or by such other method as the Board determines is appropriate in a case where there is no readily ascertainable purchase price) constitutes more than two-thirds of the fair market value of the Company (as hereinafter defined). The "fair market value of the Company" shall be the aggregate market value of the then outstanding Company Common Stock (on a fully diluted basis) plus the aggregated market value of Company's other outstanding equity securities. The aggregate market value of the shares of Outstanding Company Common Stock shall be determined by multiplying the number of shares of Outstanding Company Common Stock (on a fully diluted basis) outstanding on the date of the execution and delivery of a definitive agreement with respect to the transaction or series of related transactions (the "Transaction Date") by the average closing price of the shares of Outstanding Company Common Stock for the ten trading days immediately preceding the Transaction Date. The aggregate market value of any other equity securities of the Company shall be determined in a manner similar to that prescribed in the immediately preceding sentence for determining the aggregate market value of the shares of Outstanding Company Common Stock or by such other method as the Board shall determine is appropriate. IN WITNESS WHEREOF, the parties to this Agreement have executed this Agreement as of the day and year first above written. PEOPLES TELEPHONE COMPANY, INC. By: /s/ E. CRAIG SANDERS ------------------------------------- E. Craig Sanders President and Chief Executive Officer THE EMPLOYEE By: /s/ LARRY ELLMAN ------------------------------------- Larry Ellman 9 EX-27 4 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 6,223,000 0 27,511,000 (4,744,000) 2,445,000 34,589,000 132,943,000 (84,019,000) 124,357,000 32,703,000 100,000,000 0 17,222,000 162,000 (26,515,000) 124,357,000 57,248,000 57,248,000 47,065,000 58,167,000 0 0 6,495,000 (7,414,000) 0 (7,414,000) 0 0 0 (7,414,000) (0.52) (0.52)
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