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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
DATED AS OF
JULY 5, 1998
BY AND AMONG
DAVEL HOLDINGS, INC.,
DAVEL COMMUNICATIONS GROUP, INC.
AND
PEOPLES TELEPHONE COMPANY, INC.
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TABLE OF CONTENTS
PAGE
ARTICLE 1 THE MERGER................................................................................ 2
SECTION 1.01 The Merger................................................................. 2
SECTION 1.02 Conversion of Shares....................................................... 2
SECTION 1.03 Exchange of Shares......................................................... 3
SECTION 1.04 Certain Adjustments; Effect of Consummation of the
Davel/PhoneTel Merger...................................................... 7
SECTION 1.05 Stock Options, Warrants and Restricted Stock............................... 8
ARTICLE 2 THE SURVIVING CORPORATION................................................................. 10
SECTION 2.01 Articles of Incorporation.................................................. 10
SECTION 2.02 Bylaws..................................................................... 10
SECTION 2.03 Directors and Officers..................................................... 10
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................. 10
SECTION 3.01 Corporate Organization..................................................... 10
SECTION 3.02 Authorization.............................................................. 11
SECTION 3.03 Capital Stock.............................................................. 11
SECTION 3.04 Subsidiaries............................................................... 11
SECTION 3.05 Consents and Approvals; No Violation....................................... 12
SECTION 3.06 SEC Reports and Financial Statements....................................... 13
SECTION 3.07 Absence of Undisclosed Liabilities......................................... 13
SECTION 3.08 Changes.................................................................... 13
SECTION 3.09 Investigations; Litigation................................................. 14
SECTION 3.10 Contracts and Commitments.................................................. 15
SECTION 3.11 Environmental and Safety Matters........................................... 16
SECTION 3.12 Taxes...................................................................... 16
SECTION 3.13 Employment Agreements...................................................... 17
SECTION 3.14 Change of Control Provisions............................................... 17
SECTION 3.15 Employee Benefit Plans..................................................... 17
SECTION 3.16 Licenses................................................................... 18
SECTION 3.17 Real Estate Leases......................................................... 19
SECTION 3.18 Real Property.............................................................. 19
SECTION 3.19 Intellectual Property...................................................... 19
SECTION 3.20 Compliance with Other Instruments and Laws................................. 20
SECTION 3.21 Employees.................................................................. 20
SECTION 3.22 Information Supplied....................................................... 20
SECTION 3.23 Certain Fees............................................................... 20
SECTION 3.24 Opinion of Financial Advisor............................................... 21
SECTION 3.25 Voting Requirements........................................................ 21
SECTION 3.26 State Takeover Statutes.................................................... 21
SECTION 3.27 Payphones.................................................................. 21
SECTION 3.28 Average Net Revenue........................................................ 21
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TABLE OF CONTENTS
PAGE
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ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT.................................................. 21
SECTION 4.01 Corporate Organization.................................................... 22
SECTION 4.02 Authorization............................................................. 22
SECTION 4.03 Capital Stock............................................................. 22
SECTION 4.04 Subsidiaries.............................................................. 23
SECTION 4.05 Consents and Approvals; No Violations..................................... 23
SECTION 4.06 SEC Reports and Financial Statements...................................... 24
SECTION 4.07 Absence of Undisclosed Liabilities........................................ 24
SECTION 4.08 Changes................................................................... 25
SECTION 4.09 Investigations; Litigation................................................ 25
SECTION 4.10 Environmental and Safety Matters.......................................... 26
SECTION 4.11 Certain Fees.............................................................. 26
SECTION 4.12 Taxes..................................................................... 27
SECTION 4.13 Change of Control Provisions.............................................. 27
SECTION 4.14 Licenses.................................................................. 27
SECTION 4.15 Compliance with Other Instruments and Laws................................ 27
SECTION 4.16 Employees................................................................. 28
SECTION 4.17 Information Supplied...................................................... 28
SECTION 4.18 Opinion of Financial Advisor.............................................. 28
SECTION 4.19 Voting Requirements....................................................... 28
SECTION 4.20 State Takeover Statutes................................................... 28
SECTION 4.21 No Company Shares......................................................... 29
SECTION 4.22 Rights.................................................................... 29
SECTION 4.23 Financing................................................................. 29
ARTICLE 5 COVENANTS OF THE COMPANY.................................................................. 29
SECTION 5.01 Conduct of Business by the Company Pending the Merger..................... 29
SECTION 5.02 Stockholders' Meeting..................................................... 31
SECTION 5.03 Access to Information..................................................... 31
SECTION 5.04 No Solicitation........................................................... 31
SECTION 5.05 Corporate Organization.................................................... 32
SECTION 5.06 Termination Option Agreement.............................................. 32
SECTION 5.07 Preferred Stock and Senior Notes.......................................... 32
ARTICLE 6 COVENANTS OF PARENT AND HOLDINGS.......................................................... 33
SECTION 6.01 Access to Information..................................................... 33
SECTION 6.02 Newco Incorporation; Obligations of Newco................................. 33
SECTION 6.03 Indemnification........................................................... 33
SECTION 6.04 Stockholders' Meeting..................................................... 34
SECTION 6.05 Parent Financing.......................................................... 34
SECTION 6.06 Employee Matters.......................................................... 34
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SECTION 6.07 Financial Disclosure...................................................... 35
SECTION 6.08 Conduct of Business of Parent Pending the Merger.......................... 35
ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY....................................................... 36
SECTION 7.01 Reasonable Best Efforts................................................... 36
SECTION 7.02 Certain Filings........................................................... 37
SECTION 7.03 Public Announcements...................................................... 37
SECTION 7.04 Further Assurances........................................................ 37
SECTION 7.05 Notices of Certain Events................................................. 37
SECTION 7.06 Preparation of the Form S-4 and the Proxy Statement....................... 38
SECTION 7.07 Letters of Accountants.................................................... 39
SECTION 7.08 Affiliates................................................................ 39
SECTION 7.09 Nasdaq Listing............................................................ 40
SECTION 7.10 Tax Treatment............................................................. 40
SECTION 7.11 Pooling of Interests...................................................... 40
SECTION 7.12 Representations........................................................... 40
SECTION 7.13 Confidentiality........................................................... 41
ARTICLE 8 CONDITIONS TO THE MERGER.................................................................. 41
SECTION 8.01 Conditions to the Obligations of Each Party............................... 41
SECTION 8.02 Conditions to the Obligations of Parent and Holdings...................... 42
SECTION 8.03 Conditions to the Obligations of the Company.............................. 43
ARTICLE 9 TERMINATION............................................................................... 43
SECTION 9.01 Termination............................................................... 43
SECTION 9.02 Waiver.................................................................... 45
SECTION 9.03 Closing................................................................... 45
SECTION 9.04 Effect of Termination; Termination Fee.................................... 45
ARTICLE 10 MISCELLANEOUS............................................................................. 46
SECTION 10.01 Notices................................................................... 46
SECTION 10.02 Survival of Representations and Warranties................................ 47
SECTION 10.03 Amendments; No Waivers.................................................... 47
SECTION 10.04 Expenses.................................................................. 47
SECTION 10.05 Successors and Assigns.................................................... 48
SECTION 10.06 Governing Law............................................................. 48
SECTION 10.07 Counterparts; Effectiveness............................................... 48
SECTION 10.08 Headings; Schedules....................................................... 48
SECTION 10.09 Obligations of Parent and Holdings........................................ 48
SECTION 10.10 No Third Party Beneficiaries.............................................. 49
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DEFINED TERMS
Term Page Number
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Acquisition Proposal............................................... 32
Adjusted Option.................................................... 8
Adjusted Warrant................................................... 8
Affected Employee.................................................. 34
Agreement.......................................................... 1
Average Net Revenue................................................ 21
Certificate of Merger.............................................. 2
Certificates....................................................... 3
Closing............................................................ 45
Closing Date....................................................... 45
Code............................................................... 1
Common Stock Trust................................................. 5
Company............................................................ 1
Company Award...................................................... 9
Company Common Stock............................................... 3
Company Material Adverse Effect.................................... 10
Company Reports.................................................... 13
Company Stock Option Plans......................................... 8
Company Stockholder Approval....................................... 21
Company Stockholders Meeting....................................... 31
Davel/PhoneTel Merger.............................................. 7
Davel/PhoneTel Merger Agreement.................................... 7
Disclosure Document................................................ 37
Disparate Adverse Effect........................................... 36
Effective Time..................................................... 2
Environmental Laws................................................. 16
ERISA.............................................................. 17
Excess Shares...................................................... 5
Exchange Act....................................................... 12
Exchange Agent..................................................... 3
Exchange Fund...................................................... 3
Exchange Ratio..................................................... 3
Financing.......................................................... 29
Form S-4........................................................... 20
GAAP............................................................... 13
Governmental Entity................................................ 12
Holdings........................................................... 1
Holdings Common Stock.............................................. 7
HSR Act............................................................ 12
Indemnified Parties................................................ 33
Intellectual Property.............................................. 19
Investigation...................................................... 14
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DEFINED TERMS
Term Page Number
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knowledge of Parent................................................... 26
knowledge of the Company.............................................. 14
Letter................................................................ 29
Licenses.............................................................. 18
Location Owners....................................................... 16
Merger................................................................ 2
Merger Consideration.................................................. 3
New York Law.......................................................... 2
Newco................................................................. 1
Notes................................................................. 32
Parent................................................................ 1
Parent Common Stock................................................... 3
Parent Investigation.................................................. 25
Parent Material Adverse Effect........................................ 22
Parent Reports........................................................ 24
Parent Rights......................................................... 29
Parent Stock Option Plans............................................. 9
Parent Stockholder Approval........................................... 22
Parent Stockholders Meeting........................................... 34
Parent Subsidiaries................................................... 23
Parent Subsidiary..................................................... 23
PhoneTel.............................................................. 38
Plans................................................................. 17
Pooling Affiliate..................................................... 40
Proxy Statement....................................................... 12
SEC................................................................... 12
Securities Act........................................................ 12
Share................................................................. 3
Site Location Agreements.............................................. 19
Subsidiaries.......................................................... 11
Subsidiary............................................................ 11
Surviving Corporation................................................. 2
Termination Option Agreement.......................................... 1
Transaction........................................................... 2
Warrants.............................................................. 8
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement") is made and entered into as of July 5, 1998, by and among Davel
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Holdings, Inc., a Delaware corporation ("Holdings"), Davel Communications Group,
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Inc., an Illinois corporation ("Parent"), and Peoples Telephone Company, Inc., a
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New York corporation (the "Company").
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RECITALS
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WHEREAS, the Boards of Directors of Parent, Holdings and the Company
deem it advisable and in the best interests of the stockholders of such
corporations to effect a merger of Miami Merger Corp., a New York corporation to
be formed as a wholly owned subsidiary of Parent (or, if the Davel/PhoneTel
Merger (as defined below) is consummated prior to or at the Effective Time (as
defined below), of Holdings) ("Newco"), with and into the Company pursuant to
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this Agreement;
WHEREAS, the respective Boards of Directors of Parent, Holdings and
the Company have approved the merger of Newco with and into the Company and the
Board of Directors of the Company has unanimously resolved to recommend that it
be approved by the stockholders of the Company;
WHEREAS, it is intended that the Merger (as defined below) qualify as
a tax-free reorganization under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
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WHEREAS, for accounting purposes, it is intended that the Merger (as
defined below) be accounted for as a "pooling of interests;"
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent and the Company have entered into a Termination
Option Agreement dated as of the date of this Agreement (the "Termination Option
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Agreement"), pursuant to which the Company has granted Parent an option to
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purchase shares of common stock of the Company under certain circumstances;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.01 The Merger.
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(a) At the Effective Time (as defined in Section 1.01(b)
hereof), Newco shall be merged (the "Merger") with and into the Company in
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accordance with the New York Business Corporation Law ("New York Law"),
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whereupon the separate existence of Newco shall cease, and the Company
shall be the surviving corporation (the "Surviving Corporation"). The
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Merger and the other transactions contemplated hereby are sometimes
hereinafter referred to as the "Transaction."
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(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Company
and Newco will cause a certificate of merger to be executed, verified and
delivered for filing by the New York Department of State (the "Certificate
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of Merger") and make all other filings or recordings required by New York
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Law in connection with the Merger. The Merger shall become effective at
such time as the Certificate of Merger is duly filed by the New York
Department of State and any additional requirements of New York Law are
complied with or at such later time as is specified in the Certificate of
Merger (the "Effective Time").
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(c) From and after the Effective Time, the Surviving Corporation
shall possess all the assets, rights, privileges, powers and franchises and
be subject to all of the liabilities, restrictions, disabilities and duties
of the Company and Newco, all as provided under New York Law.
SECTION 1.02 Conversion of Shares.
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(a) At the Effective Time and by virtue of the Merger and
without any action on the part of the holders thereof:
(i) each share of common stock of the Company held by the
Company as treasury stock or owned by Parent, Holdings, Newco or any
subsidiary of either of them immediately prior to the Effective Time
shall be canceled, and no payment shall be made with respect thereto;
provided, however, that any shares of common stock of the Company as
to which the Company, Holdings or Parent is or may be required to act
as a fiduciary or in a similar capacity shall not be canceled but,
instead, shall be treated as set forth in Section 1.02(a)(iii) below;
(ii) each share of capital stock of Newco outstanding
immediately prior to the Effective Time shall be converted into and
become one share of capital stock of the Surviving Corporation with
the same rights and privileges as the shares so converted and shall
constitute the only outstanding shares of capital stock of the
Surviving Corporation; and
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(iii) subject to Section 1.03(e) and Section 1.04 hereof,
each share (a "Share") of common stock of the Company, $0.01 par value
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per share (the "Company Common Stock"), outstanding immediately prior
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to the Effective Time shall, except as otherwise provided in clause
(i) of this subsection, be converted into the right to receive .235
(the "Exchange Ratio") fully paid and nonassessable shares of common
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stock, no par value (the "Parent Common Stock"), of Parent (the
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"Merger Consideration"). As of the Effective Time, all such Shares
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shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate
representing any such Company Common Stock shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration and any cash in lieu of fractional shares of Parent
Common Stock to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 1.03 hereof,
without interest.
SECTION 1.03 Exchange of Shares.
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(a) As of the Effective Time, Parent or Holdings, as applicable,
shall enter into an agreement with ChaseMellon Shareholder Services,
L.L.C., as exchange agent for the Merger (the "Exchange Agent"), which
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shall provide that Parent or Holdings, as applicable, shall deposit with
the Exchange Agent as of the Effective Time, for the benefit of the holders
of Shares, for exchange in accordance with this Article 1, through the
Exchange Agent, certificates representing the shares of Parent Common Stock
or, if applicable, Holdings Common Stock (as defined below) (such shares of
Parent Common Stock or Holdings Common Stock, together with any dividends
or distributions with respect thereto with a record date after the
Effective Time, any Excess Shares (as defined in Section 1.03(e) hereof)
and any cash (including cash proceeds from the sale of the Excess Shares)
payable in lieu of any fractional shares of Parent Common Stock being
hereinafter referred to as the "Exchange Fund") issuable pursuant to
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Section 1.02 hereof in exchange for outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time,
the Exchange Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Company Common Stock (the "Certificates") whose shares were
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converted into the right to receive the Merger Consideration, pursuant to
Section 1.02 hereof, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent
and shall be in such form and have such other provisions as Parent or, if
applicable, Holdings may reasonably specify) and (ii) instructions for use
in surrendering the Certificates in exchange for certificates representing
the Merger Consideration, as applicable. Upon surrender of a Certificate
for cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor a certificate representing that
number of whole shares of Parent Common Stock or, if applicable, Holdings
Common Stock which such holder has the right to receive pursuant to the
provisions of this Article 1, certain dividends or other distributions in
accordance with Section 1.03(c) hereof and cash in lieu of any fractional
share of Parent Common Stock or, if applicable, Holdings Common Stock
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in accordance with Section 1.03(e) hereof, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Shares which is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent
Common Stock or, if applicable, Holdings Common Stock may be issued to a
person other than the person in whose name the Certificate so surrendered
is registered if such Certificate is properly endorsed or otherwise in
proper form for transfer and the person requesting such issuance pays any
transfer or other taxes required by reason of the issuance of shares of
Parent Common Stock or, if applicable, Holdings Common Stock to a person
other than the registered holder of such Certificate or establishes to the
satisfaction of Parent that such tax has been paid or is not applicable.
Until surrendered as contemplated by this Section 1.03, each Certificate
shall be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender the Merger Consideration, which the
holder thereof has the right to receive in respect of such Certificate
pursuant to the provisions of this Article 1, certain dividends or other
distributions in accordance with Section 1.03(c) hereof and cash in lieu of
any fractional share of Parent Common Stock or Holdings Common Stock in
accordance with Section 1.03(e) hereof. No interest shall be paid or will
accrue on any cash payable to holders of Certificates pursuant to the
provisions of this Article 1.
(c) No dividends or other distributions with respect to Parent
Common Stock or, if applicable, Holdings Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock or Holdings
Common Stock represented thereby, and, in the case of Certificates
representing Company Common Stock, no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 1.03(e) hereof,
and all such dividends, other distributions and cash in lieu of fractional
shares of Parent Common Stock or, if applicable, Holdings Common Stock
shall be paid by Parent or, if applicable, Holdings to the Exchange Agent
and shall be included in the Exchange Fund, in each case until the
surrender of such Certificate in accordance with this Article 1. Subject
to the effect of applicable escheat or similar laws, following surrender of
any such Certificate there shall be paid to the holder of the certificate
representing whole shares of Parent Common Stock or Holdings Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such whole
shares of Parent Common Stock or Holdings Common Stock, and, in the case of
Certificates representing Company Common Stock, the amount of any cash
payable in lieu of a fractional share of Parent Common Stock or, if
applicable, Holdings Common Stock to which such holder is entitled pursuant
to Section 1.03(e) hereof, and (ii) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Common Stock or Holdings Common Stock.
(d) All shares of Parent Common Stock or, if applicable,
Holdings Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms of this Article 1 (including any
cash paid pursuant to this Article 1) shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the
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Company Common Stock theretofore represented by such Certificates, subject,
however, to the Surviving Corporation's obligation to pay any dividends or
make any other distributions with a record date prior to the Effective Time
which may have been declared or made by the Company on such shares of
Company Common Stock which remain unpaid at the Effective Time, and there
shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article 1, except as otherwise provided by law.
(e) (i) No certificates or scrip representing fractional
shares of Parent Common Stock or, if applicable, Holdings Common Stock
shall be issued upon the surrender for exchange of Certificates, no
dividend or distribution of Parent or, if applicable, Holdings shall
relate to such fractional share interests and such fractional share
interests will not entitle the owner thereof to vote or to any rights
of a stockholder of Parent or Holdings.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of whole
shares of Parent Common Stock or, if applicable, Holdings Common Stock
delivered to the Exchange Agent by Parent or Holdings pursuant to
Section 1.03(a) hereof over (B) the aggregate number of whole shares
of Parent Common Stock or, if applicable, Holdings Common Stock to be
distributed to former holders of Company Common Stock pursuant to
Section 1.03(b) hereof (such excess being herein called the "Excess
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Shares"). Following the Effective Time, the Exchange Agent shall, on
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behalf of former holders of Certificates representing Company Common
Stock, sell the Excess Shares at then-prevailing prices on the Nasdaq
National Market, all in the manner provided in Section 1.03(e)(iii)
hereof.
(iii) The sale of the Excess Shares by the Exchange Agent shall
be executed on the Nasdaq National Market in round lots to the extent
practicable. The Exchange Agent shall use reasonable efforts to
complete the sale of the Excess Shares as promptly following the
Effective Time as, in the Exchange Agent's sole judgment, is
practicable consistent with obtaining the best execution of such sales
in light of prevailing market conditions. Until the net proceeds of
such sale or sales have been distributed to the holders of
Certificates formerly representing Company Common Stock, the Exchange
Agent shall hold such proceeds in trust for such holders (the "Common
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Stock Trust"). The Surviving Corporation shall pay all commissions,
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transfer taxes and other out-of-pocket transaction costs, including
the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent
shall determine the portion of the Common Stock Trust to which each
former holder of Company Common Stock is entitled, if any, by
multiplying the amount of the aggregate net proceeds comprising the
Common Stock Trust by a fraction, the numerator of which is the amount
of the fractional share interest to which such former holder of
Company Common Stock is entitled (after taking into account all shares
of Company Common Stock held at the
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Effective Time by such holder) and the denominator of which is the
aggregate amount of fractional share interests to which all former
holders of Company Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 1.03(e)(ii)
and (iii) hereof, the Surviving Corporation may elect at its option,
exercised prior to the Effective Time, in lieu of the issuance and
sale of Excess Shares and the making of the payments hereinabove
contemplated, to pay each former holder of Company Common Stock an
amount in cash equal to the product obtained by multiplying (A) the
fractional share interest to which such former holder (after taking
into account all shares of Company Common Stock held at the Effective
Time by such holder) would otherwise be entitled by (B) the closing
price for a share of Parent Common Stock or, if applicable, Holdings
Common Stock as reported on the Nasdaq National Market (as reported in
The Wall Street Journal, or, if not reported thereby, any other
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authoritative source) on the Closing Date, and, in such case, all
references herein to the cash proceeds of the sale of the Excess
Shares and similar references shall be deemed to mean and refer to the
payments calculated as set forth in this Section 1.03(e)(iv).
(v) As soon as practicable after the determination of the
amount of cash, if any, to be paid to holders of Certificates formerly
representing Company Common Stock with respect to any fractional share
interests, the Exchange Agent shall make available such amounts to
such holders of Certificates formerly representing Company Common
Stock subject to and in accordance with the terms of Section 1.03(c)
hereof.
(f) Any portion of the Exchange Fund which remains undistributed
to the holders of the Certificates for six months after the Effective Time
shall be delivered to Parent or, if applicable, Holdings, upon demand, and
any holders of the Certificates who have not theretofore complied with this
Article 1 shall thereafter look only to Parent or, if applicable, Holdings
for payment of their claims for Merger Consideration, any dividends or
distributions with respect to Parent Common Stock or Holdings Common Stock,
as applicable, and any cash in lieu of fractional shares of Parent Common
Stock or Holdings Common Stock.
(g) None of Parent, Holdings, the Company nor the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common
Stock or Holdings Common Stock, any dividends or distributions with respect
thereto, any cash in lieu of fractional shares of Parent Common Stock or
Holdings Common Stock or any cash from the Exchange Fund, in each case,
delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall not have been
surrendered prior to two years after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration, any dividends
or distributions payable to the holder of such Certificate or any cash
payable to the holder of such Certificate formerly representing Company
Common Stock pursuant to this Article 1, would otherwise escheat to or
become the property of any Governmental Entity (as defined in Section 3.05
hereof)), any such
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Merger Consideration, dividends or distributions in respect of such
Certificate or such cash shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.
(h) The Exchange Agent shall invest any cash included in the
Exchange Fund, as directed by Parent or, if applicable, Holdings, on a
daily basis. Any interest and other income resulting from such investments
shall be paid to Parent or, if applicable, Holdings.
(i) If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required
by the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration and, if
applicable, any unpaid dividends and distributions on shares of Parent
Common Stock or Holdings Common Stock deliverable in respect thereof and
any cash in lieu of fractional shares, in each case, due to such person
pursuant to this Agreement.
SECTION 1.04 Certain Adjustments; Effect of Consummation of the
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Davel/PhoneTel Merger.
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(a) If after the date hereof and on or prior to the Effective
Time the outstanding shares of Parent Common Stock (or, if applicable,
Holdings Common Stock) or Company Common Stock shall be changed into a
different number, class or series of shares or any other security by reason
of any reclassification, recapitalization, reorganization, merger, business
combination, split-up, stock split, combination or exchange of shares, or
any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, or any similar event shall occur,
the Exchange Ratio (and/or the security or securities to be issued to the
holders of Company Common Stock) shall be appropriately adjusted to provide
the effects contemplated by this Agreement prior to such reclassification,
recapitalization, reorganization, merger, business combination, split-up,
stock split, combination, exchange or dividend or similar event.
(b) Notwithstanding anything contained herein to the contrary,
in the event that the effective time of the Davel Merger (as defined in and
contemplated by the Agreement and Plan of Merger and Reorganization, dated
June 11, 1998 (the "Davel/PhoneTel Merger Agreement"), by and among Parent,
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Holdings, D Subsidiary, Inc., PT Merger Corp. and PhoneTel Technologies,
Inc. (the "Davel/PhoneTel Merger")) shall have occurred simultaneously with
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or prior to the Effective Time, Parent, Holdings and the Company agree that
the first sentence of Section 1.02(a)(iii) shall be deemed, effective at
the effective time of the Davel/PhoneTel Merger, to be deleted in its
entirety and replaced with the following: "subject to Section 1.03(e) and
Section 1.04 hereof, each share (a "Share") of common stock of the Company,
$.01 par value per share (the "Company Common Stock"), outstanding
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immediately prior to the Effective Time shall, except as otherwise provided
in clause (i) of this subsection, be converted into the right to receive
.235 (the "Exchange
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Ratio") fully paid and nonassessable shares of common stock ("Holdings
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Common Stock"), par value $.01 per share, of Holdings (the "Merger
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Consideration")." In addition, the parties hereto agree that, in such
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event, all provisions of this Agreement that contemplate an exchange of
Parent Common Stock for Company Common Stock in the Merger shall be deemed
to contemplate in lieu thereof an exchange of Holdings Common Stock for
Company Common Stock in the Merger and, with respect to options, warrants
and other outstanding rights to purchase Company Common Stock, an exchange
of equivalent instruments with respect to Holdings Common Stock. Parent and
Holdings shall cause Newco to agree in writing with Parent, Holdings and
the Company to take the actions required to be taken by it pursuant to this
Agreement.
SECTION 1.05 Stock Options, Warrants and Restricted Stock.
--------------------------------------------
(a) As of the Effective Time, (i) each outstanding employee stock
option to purchase Company Common Stock granted under the Company's
incentive and stock option plans (collectively, the "Company Stock Option
--------------------
Plans") or otherwise, shall be converted into an option (an "Adjusted
----- --------
Option") to purchase the number of shares of Parent Common Stock (or, if
------
the Davel/PhoneTel Merger shall have occurred prior to or at the Effective
Time, Holdings Common Stock) equal to the number of shares of Company
Common Stock subject to such options immediately prior to the Effective
Time multiplied by the Exchange Ratio (rounded to the nearest whole number
of shares of Parent Common Stock or, if applicable, Holdings Common Stock),
at an exercise price per share equal to the exercise price for each such
share of Company Common Stock subject to such option divided by the
Exchange Ratio (rounded down to the nearest whole cent), and all references
in each such option to the Company shall be deemed to refer to Parent or
Holdings, as appropriate; provided, however, that the adjustments provided
-------- -------
in this clause (i) with respect to any options which are "incentive stock
options" (as defined in Section 422 of the Code) or which are described in
Section 423 of the Code shall be effected in a manner consistent with the
requirements of Section 424(a) of the Code, (ii) Parent (or, if applicable,
Holdings) shall assume the obligations of the Company under the Company
Stock Option Plans and (iii) each outstanding warrant to purchase Company
Common Stock (the "Warrants") shall be converted into a warrant (an
--------
"Adjusted Warrant") to purchase the number of shares of Parent Common Stock
-----------------
(or, if applicable, Holdings Common Stock) equal to the number of Company
Common Stock shares subject to such Warrants immediately prior to the
Effective Time multiplied by the Exchange Ratio (rounded to the nearest
whole number of shares of Parent Common Stock or, if applicable, Holdings
Common Stock), at an exercise price per share equal to the exercise price
for each such share of Company Common Stock subject to such Warrant divided
by the Exchange Ratio (rounded down to the nearest whole cent), and all
references in each such Warrant to the Company shall be deemed to refer to
Parent or Holdings, as appropriate. The other terms of each Adjusted
Option and Adjusted Warrant, and the plans or agreements under which they
were issued (including accelerated vesting of options which shall occur by
virtue of the consummation of the Merger, to the extent required by the
terms of the Company Stock Option Plans, the agreements under which the
options were granted, or employment agreements), shall continue to apply in
accordance with their terms. The date of grant of each Adjusted Option and
Adjusted Warrant shall be the date on which the corresponding option or
warrant was granted. Prior to the Effective Time,
-8-
the Company shall use its reasonable best efforts, subject to Section 7.11,
to obtain any consents from holders of options or warrants to purchase
Shares that are necessary to give effect to the transactions contemplated
by this Section 1.05(a).
(b) As of the Effective Time, (i) each outstanding award
(including restricted stock, deferred stock, phantom stock, stock
equivalents and stock units) (each a "Company Award") under the Company
-------------
Stock Option Plans shall be converted into the same instrument of Parent
(or, if applicable, Holdings), in each case with such adjustments (and no
other adjustments) to the terms of such Company Awards as are necessary to
preserve the value inherent in such Company Awards without any detrimental
effect to the holder thereof and (ii) Parent (or, if applicable, Holdings)
shall assume the obligations of the Company under the Company Awards. The
other terms of each Company Award, and the plans or agreements under which
they were issued, shall continue to apply in accordance with their terms.
(c) The Company, Parent and Holdings agree that each of the
Company Stock Option Plans and each of the applicable Parent or Holdings
stock option plans (the "Parent Stock Option Plans") shall be amended, to
-------------------------
the extent necessary, to reflect the transactions contemplated by this
Agreement, including, but not limited to the conversion of each Share of
Company Common Stock held or to be awarded or paid pursuant to such benefit
plans, programs or arrangements into shares of Parent Common Stock or, if
applicable, Holdings Common Stock on a basis consistent with the
transactions contemplated by this Agreement. The Company, Parent and
Holdings agree to submit the amendments to the Parent Stock Option Plans or
the Company Stock Option Plans to their respective stockholders, if such
submission is determined to be necessary by counsel to the Company or
Parent and Holdings after consultation with one another; provided, however,
-------- -------
that such approval shall not be a condition to the consummation of the
Merger.
(d) Parent (or, if applicable, Holdings) shall (i) reserve for
issuance the number of shares of Parent Common Stock (or, if applicable,
Holdings Common Stock) that will become subject to the benefit plans,
programs and arrangements referred to in this Section 1.05 and (ii) issue
or cause to be issued the appropriate number of shares of Parent Common
Stock (or, if applicable, Holdings Common Stock) pursuant to applicable
plans, programs and arrangements, upon the exercise or maturation of rights
existing thereunder on the Effective Time or thereafter granted or awarded.
No later than the Effective Time, Parent (or, if applicable, Holdings)
shall prepare and file with the SEC an effective registration statement on
Form S-8 (or other appropriate form) registering a number of shares of
Parent Common Stock (or, if applicable, Holdings Common Stock) necessary to
fulfill its obligations under this Section 1.05. Such registration
statement shall be kept effective (and the current status of the prospectus
required thereby shall be maintained), if then required by the SEC, for at
least as long as Adjusted Options, Adjusted Warrants or Company Awards
remain outstanding.
(e) As soon as practicable after the Effective Time, Parent (or,
if applicable, Holdings) shall deliver to the holders of the options
granted under the Company Stock Option Plans, Warrants and Company Awards
appropriate notices setting forth such
-9-
holders' rights pursuant to the respective Company Stock Option Plans and
the agreements evidencing the grants of such options, Warrants and Company
Awards and that such options, Warrants and Company Awards and the related
agreements shall be assumed by Parent and shall continue in effect on the
same terms and conditions (subject to the adjustments required by this
Section 1.05 after giving effect to the Merger).
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.01 Articles of Incorporation. At the Effective Time, the
-------------------------
articles of incorporation of Newco as in effect immediately prior to the
Effective Time shall be the articles of incorporation of the Surviving
Corporation until amended in accordance with applicable law, except that the
name of the Surviving Corporation shall be "Peoples Telephone Company, Inc."
SECTION 2.02 Bylaws. At the Effective Time, the bylaws of Newco as
------
in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until amended in accordance with applicable law.
SECTION 2.03 Directors and Officers. From and after the Effective
----------------------
Time, until successors are duly elected or appointed in accordance with
applicable law, (a) the directors of Newco immediately prior to the Effective
Time shall constitute all of the directors of the Surviving Corporation, and (b)
the officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Holdings that:
SECTION 3.01 Corporate Organization. The Company is a corporation
----------------------
duly organized, validly existing and in good standing under the laws of the
State of New York, and has all requisite corporate power and authority to own,
operate and lease its properties and assets and to carry on its business as it
is now being conducted. Except as set forth on Schedule 3.01 hereto, the
-------------
Company is duly qualified to do business and is in good standing in each
jurisdiction in which the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary, except where
the failure to be so qualified or to be in good standing will not, individually
or in the aggregate, have a material adverse effect on the business, assets,
condition (financial or otherwise) or results of operations of the Company and
the Subsidiaries taken as a whole, except for the impact of any order or
determination by the Federal Communications Commission or Federal appellate
court concerning compensation paid by interexchange carriers and local exchange
carriers to payphone service providers as provided in the Federal Communications
Commission CC Docket No. 96-128, Implementation of the Pay Telephone
Reclassification and
-10-
Compensation Provisions of the Telecommunications Act of 1996 (a "Company
-------
Material Adverse Effect").
- -----------------------
SECTION 3.02 Authorization. The Company has the necessary corporate
-------------
power and authority to enter into this Agreement and the Termination Option
Agreement and, subject to Company Stockholder Approval (as defined below), to
carry out its obligations hereunder and thereunder. The execution and delivery
of this Agreement and the Termination Option Agreement by the Company, the
performance by the Company of its obligations hereunder and thereunder and the
consummation by the Company of the transactions contemplated hereby and thereby
have been duly and validly authorized by the Company's Board of Directors, have
been unanimously approved by the Board of Directors prior to either Parent,
Holdings or Newco becoming an "interested shareholder" as defined in Section
912(a)(10) of New York Law and have been approved as otherwise required by the
Company's certificate of incorporation, as amended. Except for the approval of
this Agreement, the Termination Option Agreement and the Merger by the Company's
stockholders, no other corporate proceeding on the part of the Company is
necessary for the execution and delivery of this Agreement and the Termination
Option Agreement by the Company, the performance of the Company's obligations
hereunder and thereunder or the consummation by the Company of the transactions
contemplated hereby and thereby. This Agreement and the Termination Option
Agreement have been duly and validly executed and delivered by the Company and
are legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws affecting creditors' rights generally or by the availability of
equitable remedies generally.
SECTION 3.03 Capital Stock. As of June 29, 1998, the authorized
-------------
capital stock of the Company consisted of: (a) 75,000,000 shares of Company
Common Stock, of which there were 16,212,434 shares issued and outstanding (and
no shares held in the Company's treasury) and (b) 5,000,000 shares of preferred
stock, $.01 par value per share, consisting of (i) 600,000 shares designated as
Series B Preferred Stock, of which no shares are issued and outstanding, (ii)
160,000 shares designated as Series C Cumulative Convertible Preferred Stock, of
which 150,000 shares are issued and outstanding, and (iii) 4,240,000 shares
undesignated as to series, of which no shares are issued and outstanding. All
of the outstanding capital stock of the Company and all of the outstanding
shares of capital stock of the Company's Subsidiaries (as defined in Section
3.04 hereof) have been validly issued and are fully paid, nonassessable and free
of preemptive rights with no personal liability attaching to the ownership
thereof. As of June 12, 1998, except for options to acquire not more than
2,599,908 shares of Company Common Stock pursuant to stock options and warrants
to acquire not more than 975,000 shares of Company Common Stock or 700,000
shares of Series B Convertible Preferred Stock and except for 2,857,143 shares
of Company Common Stock issuable upon the conversion of the outstanding shares
of Series C Cumulative Convertible Preferred Stock, there were no outstanding
subscriptions, options, warrants, rights, contracts or other arrangements or
commitments obligating the Company to issue any shares of its capital stock or
any securities convertible into or exchangeable for shares of its capital stock.
SECTION 3.04 Subsidiaries. Schedule 3.04 hereto lists all direct
------------ -------------
and indirect subsidiaries of the Company (each, a "Subsidiary" and collectively,
----------
the "Subsidiaries"). Except as listed in Schedule 3.04 hereto, the Company does
------------ -------------
not directly or indirectly own any interest in any
-11-
other corporation, partnership, joint venture or other business association or
entity. Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and authority to own, operate and lease its
properties and assets and to carry on its business as it is now being conducted.
Except as set forth on Schedule 3.04 hereto, each Subsidiary is duly qualified
-------------
to do business and is in good standing in each jurisdiction in which the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure to be so
qualified or to be in good standing would not, individually or in the aggregate,
be reasonably expected to have a Company Material Adverse Effect. Except as set
forth on Schedule 3.04 hereto, all outstanding shares of capital stock of each
-------------
Subsidiary are validly issued, fully paid and nonassessable and are owned by the
Company or another Subsidiary free and clear of any liens, claims or
encumbrances.
SECTION 3.05 Consents and Approvals; No Violation. Except as set
------------------------------------
forth on Schedule 3.05 hereto and except for (a) applicable requirements of the
-------------
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Securities Act") and the Securities Exchange Act of 1934, as amended, and
--------------
the rules and regulations thereunder (the "Exchange Act"), including the filing
------------
with and clearing by the United States Securities and Exchange Commission (the
"SEC") of a proxy statement relating to the Company Stockholders Meeting (as
- ----
defined in Section 5.02 hereof) and the Parent Stockholders Meeting (as defined
in Section 6.04 hereof), as amended or supplemented from time to time (the
"Proxy Statement"), (b) the filing of a Pre-Merger Notification and Report Form
- ----------------
by the Company and the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
---
Act"), (c) the filing of the Certificate of Merger as required by New York Law,
(d) such filings and consents as may be required under any environmental law
pertaining to any notification, disclosure or required approval triggered by the
Transaction, (e) filing with the American Stock Exchange and the SEC with
respect to the delisting and deregistration of the shares of Company Common
Stock and (f) such consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings as may be required under public utility,
telecommunication or payphone laws, rules or regulations of any state or
municipality or under the corporation, takeover or blue sky laws of various
states, no filing with or prior notice to, and no permit, authorization, consent
or approval of, any federal, state, local, foreign or other governmental
department, commission, board, bureau, agency or instrumentality (each, a
"Governmental Entity") is necessary for the consummation by the Company of the
- --------------------
Transaction. Neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions contemplated
hereby nor compliance by the Company with any of the provisions hereof will (i)
conflict with or result in any violation of any provision of the certificate of
incorporation, as amended, or bylaws of the Company or any Subsidiary, (ii)
except as set forth on Schedule 3.05, result in a violation or breach of, or
-------------
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Company or any
Subsidiary is a party or by which any of them or any of their properties or
assets may be bound, or, (iii) assuming that all filings, consents and approvals
contemplated by the first sentence of this Section 3.05 have been or shall have
been made or obtained, violate any federal, state, local or foreign order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets, excluding from the foregoing
clauses (ii) and (iii) violations, breaches or defaults which, either
individually or in the aggregate, would not reasonably
-12-
be expected to have a Company Material Adverse Effect or impair materially the
Company's ability to perform its obligations hereunder or prevent or materially
delay the consummation of the Transaction. The New York Security Takeover
Disclosure Act (Section 1600 et seq. of the New York Law) does not apply to the
-- ---
execution and delivery of this Agreement or the consummation of the Merger and
the other transactions contemplated hereby.
SECTION 3.06 SEC Reports and Financial Statements.
------------------------------------
(a) Since December 31, 1994, the Company has filed all required
forms, reports and documents with the SEC required to be filed by it
pursuant to the Securities Act and the Exchange Act (hereinafter
collectively referred to as the "Company Reports"), all of which have
---------------
complied in all material respects with all applicable requirements of the
Securities Act and the Exchange Act. The Company has previously made
available to Parent copies of all such Company Reports.
(b) None of the Company Reports, including, without limitation,
any financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) Except as set forth on Schedule 3.06 hereto, the
-------------
consolidated balance sheets and the related consolidated statements of
operations, stockholders' equity and changes in financial position
(including, without limitation, the related notes thereto) of the Company
and the Subsidiaries included in the financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
and in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 present fairly, in all material respects, the consolidated
financial position of the Company and the Subsidiaries as of their
respective dates, and the results of consolidated operations and changes in
consolidated financial position for the periods then ended, all in
conformity with generally accepted accounting principles ("GAAP") applied
----
on a consistent basis, except as otherwise noted therein, and subject in
the case of unaudited interim financial statements to normal year-end audit
adjustments and the absence of notes thereto.
SECTION 3.07 Absence of Undisclosed Liabilities. Neither the
----------------------------------
Company nor any Subsidiary has any liabilities (whether absolute, accrued or
contingent), except: (a) liabilities, obligations or contingencies that are
accrued or for which adequate reserves have been provided in the consolidated
balance sheet of the Company and the Subsidiaries as of March 31, 1998 or
reflected in the notes thereto or in the notes to the Company's financial
statements as at and for the year ended December 31, 1997, (b) liabilities
incurred since December 31, 1997 in the ordinary course of business, (c)
liabilities disclosed in Schedule 3.07 hereto or (d) any liabilities which,
-------------
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect.
-13-
SECTION 3.08 Changes. Since December 31, 1997, and except as set
-------
forth in the Company Reports filed prior to the date of this Agreement, and
except as otherwise disclosed in Schedule 3.08 hereto or as otherwise provided
-------------
in this Agreement:
(a) there have been no events or circumstances that would
constitute a Company Material Adverse Effect, provided that, for purposes
of this Section 3.08(a), any effect that could have been reasonably
expected to result from the execution of this Agreement or the transactions
contemplated hereby or the announcement thereof will not be deemed to
constitute a Company Material Adverse Effect;
(b) except as permitted by this Agreement, there has been no
direct or indirect redemption, purchase or other acquisition of any shares
of the Company's capital stock, or any declaration, setting aside or
payment of any dividend or other distribution by the Company in respect of
the Company's capital stock, or any issuance of any shares of capi tal
stock of the Company, or any granting to any person of any option to
purchase or other right to acquire shares of capital stock of the Company
or any stock split or other change in the Company's capitalization;
(c) neither the Company nor any Subsidiary has entered into or
agreed to enter into any new or amended contract with any labor unions
representing employees of the Company or any Subsidiary;
(d) neither the Company nor any Subsidiary has entered into or
agreed to enter into any new or amended contract with any of the officers
thereof or otherwise increased the compensation payable to the officers or
directors of any such entity;
(e) neither the Company nor any Subsidiary has (i) entered into
or amended in any material respect any bonus, incentive compensation,
deferred compensation, profit sharing, retirement, pension, group insurance
or other benefit plan except as required by law or regulations or (ii) made
any contribution to any such plan except for contributions specifically
required by law or pursuant to the terms thereof; and
(f) the Company has not made any change in accounting methods,
principles or practices materially and adversely affecting its assets,
liabilities or business, except in accordance with GAAP.
SECTION 3.09 Investigations; Litigation.
--------------------------
(a) Except as described in Schedule 3.09(a), and other than
----------------
reviews pursuant to the HSR Act, there are no pending or, to the knowledge
of the Company, threatened, investigations, reviews or inquiries by any
Governmental Entity with respect to the Company or any Subsidiary or, to
the knowledge of the Company, with respect to the activities of any
officer, director or employee of the Company (an "Investigation"), other
-------------
than Investigations which, if the resolution thereof were adverse, would
not, individually or in the aggregate, have a Company Material Adverse
Effect. For the purpose of this Agreement,
-14-
"knowledge of the Company" shall be deemed to mean the actual knowledge,
after reasonable inquiry, of any executive officer of the Company.
(b) Except as described in Schedule 3.09(b) hereto, (i) there are
----------------
no actions or proceedings pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary before any court or before
any administrative agency or administrative officer or executive, whether
federal, state, local or foreign, which seek to enjoin the Merger or which,
if adversely determined, would, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (ii)
there are no outstanding domestic or foreign judgments, decrees or orders
against the Company or any Subsidiary that, individually or in the
aggregate, would reasonably be expected to have a Company Material Adverse
Effect, (iii) neither the Company nor any Subsidiary is in violation of,
and none of them has received any claim or notice that it is in violation
of, any federal, state, local or foreign laws, statutes, rules, regulations
or orders promulgated or judgments entered by any Governmental Entity,
which violations, individually or in the aggregate, would reasonably be
expected to have a Company Material Adverse Effect; and (iv) as of the date
of this Agreement, there are no actions pending, or to the knowledge of the
Company, threatened against the directors or any director of the Company
alleging a breach of such directors' or director's fiduciary duties that,
individually or in the aggregate, would reasonably be expected to have a
Company Material Adverse Effect.
SECTION 3.10 Contracts and Commitments.
-------------------------
(a) Except as set forth on the attached Schedule 3.10 or in the
-------------
Company Reports, the Company is not nor is any Subsidiary, with respect to
its business, a party to any oral or written contract:
(i) that prohibits the Company or any of its Subsidiaries
from freely engaging or competing, in any material respect, in its
line of business anywhere in the world;
(ii) that is not on arms-length terms;
(iii) that is material to the Company and its Subsidiaries,
taken as a whole, and by its terms may be terminated upon consummation
of the Merger;
(iv) that commits the Company or any of its Subsidiaries to
purchase or sell any properties or assets outside of the ordinary
course of business for consideration in excess of $250,000; or
(v) that, other than Site Location Agreements (as defined
below), involves an unfulfilled obligation, individually or in the
aggregate, to one party in excess of $250,000 and is not terminable by
the Company or any of its Subsidiaries upon less than 60 calendar
days' notice for a cost of not less than $100,000.
-15-
(b) Except as specifically disclosed in the attached Schedule
--------
3.10, (i) since December 31, 1997, none of the Company's or any
----
Subsidiary's customers, suppliers, outside service providers or sources of
referral has indicated that it will stop or materially decrease the rate of
business done with or referred to either the Company or any such
Subsidiary.
(c) The Company has made available to Parent a true and correct
copy of all written contracts which are referred to on the attached
Schedule 3.10, together with all amendments, exhibits, attachments, waivers
-------------
or other changes thereto.
SECTION 3.11 Environmental and Safety Matters. Except as described
--------------------------------
in the Company Reports or on Schedule 3.11 hereto, (a) the Company and each of
-------------
its Subsidiaries are in compliance with all applicable Federal, state, local and
foreign laws and regulations and all judicial and administrative orders and
determinations relating to pollution or protection of the environment or of
human health (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata) (collectively, "Environmental Laws"),
------------------
except for non-compliance that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, which
compliance includes, but is not limited to, the possession by the Company and
each of its Subsidiaries of permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof; (b) neither the Company nor any of the Subsidiaries has
received written notice of, or, to the knowledge of the Company, is the subject
of, any actions, causes of action, claims, investigations, demands or notices by
any person alleging liability under or non-compliance with any Environmental Law
that would, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect; and (c) there has not been by the Company or
any of the Subsidiaries any treatment, storage, disposal or release of any
hazardous or toxic material, substance or waste or of petroleum, or any
fractions or by-products thereof, at any of their current or, to the knowledge
of the Company, former properties or facilities or any current or, to the
knowledge of the Company, former offsite properties and facilities used in the
business of the Company or the Subsidiaries (in each case, other than properties
or facilities where payphones are located pursuant to Site Location Agreements
with location providers ("Location Owners")) in a manner or at levels that
---------------
require or are reasonably likely to require investigation, removal or
remediation under Environmental Laws that would, either individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.12 Taxes.
-----
(a) Each of the Company and the Subsidiaries has filed all tax
returns and reports required to be filed by it and all such returns and
reports are complete and correct in all materials respects, or requests for
extensions to file such returns or reports have been timely filed, granted
and have not expired, except to the extent that such failures to file, to
be complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not reasonably be expected to have a
Company Material Adverse Effect. Each of the Company and the Subsidiaries
has timely paid (or the Company has paid on its behalf) all taxes that have
become due and payable, except to the extent the failure to pay such taxes
individually or in the aggregate would not reasonably be expected to have a
Company Material Adverse Effect, and the most recent financial statements
contained in the Company Reports reflect an adequate reserve in accordance
with GAAP for all taxes payable
-16-
by the Company and the Subsidiaries for all taxable periods and portions
thereof accrued through the date of such financial statements.
(b) Except as set forth on Schedule 3.12(b) hereto, no
----------------
deficiencies for any taxes have been proposed, asserted or assessed against
the Company or any of the Subsidiaries that are not adequately reserved
for, except for deficiencies that individually or in the aggregate would
not reasonably be expected to have a Company Material Adverse Effect.
Except as set forth on Schedule 3.12(b) hereto, there is no action, suit,
----------------
taxing authority proceeding or audit now in progress, pending, or, to the
knowledge of the Company, threatened against or with respect to the Company
or any of the Subsidiaries.
SECTION 3.13 Employment Agreements. Except as disclosed in Schedule
--------------------- --------
3.13 hereto, there are no employment, consulting, severance or indemnification
- ----
contracts or agreements between the Company or any Subsidiary, on the one hand,
and any directors, officers or other employees of the Company or any Subsidiary,
on the other hand, other than those that are terminable at will for less than
$100,000 in the aggregate.
SECTION 3.14 Change of Control Provisions. Except as disclosed in
----------------------------
Schedule 3.14 hereto, none of the contracts or agreements set forth in Section
- -------------
3.13 hereof and none of the Company's or any Subsidiary's employee benefit
plans, programs or arrangements contains any provision that would become
operative as the result of the Merger or any other transactions contemplated by
this Agreement.
SECTION 3.15 Employee Benefit Plans.
----------------------
(a) Except as set forth on Schedule 3.15 hereto, all of the (i)
-------------
Plans (as defined in subsection (b) of this Section 3.15), and (ii) other
bonus, insurance, pension, profit sharing, retirement, health, and other
benefit plans, stock option plans and stock purchase or ownership plans
currently maintained by the Company or any of the Subsidiaries or to which
the Company or any of the Subsidiaries is a party may be terminated by the
Surviving Corporation following the Effective Time without material
financial penalty or premium and there will be no obligation of the
Surviving Corporation or Parent following the Effective Time to issue any
shares of their respective capital stock pursuant to any of the foregoing
or otherwise following the Effective Time. Except as set forth in Schedule
--------
3.15 hereto, no payment by the Company or any of the Subsidiaries to any
----
person (whether payable or distributable pursuant to the foregoing
agreements and plans, this Agreement or otherwise) will be nondeductible by
the Company or any of the Subsidiaries for federal income tax purposes
because of Section 280G of the Code.
(b) Except as set forth on Schedule 3.15 hereto, all employee
-------------
benefit plans within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by the
-----
Company or any of the Subsidiaries since December 31, 1997 (collectively,
the "Plans") are in material compliance with, and have been administered
-----
and operated in all material respects in accordance with, the terms of such
Plans and applicable law, and the Internal Revenue Service has determined
that each such Plan which is intended to be "qualified" within the meaning
of Section 401(a) of the Code
-17-
is so qualified and that each related trust is exempt from tax under
Section 501(a) of the Code. No event which constitutes a "reportable event"
as defined in Section 4043 of ERISA for which the 30-day notice requirement
to the Pension Benefit Guaranty Corporation has not been waived has
occurred and is continuing with respect to any Plan subject to Title IV of
ERISA. No material liability under any statutes, orders, governmental rules
or regulations applicable to any Plan, including, without limitation, ERISA
and the Code, has been or may reasonably be expected to be incurred with
respect to any Plan (other than liabilities for premiums to the Pension
Benefit Guaranty Corporation and the payment of contributions and benefits
in the ordinary course) that has not been satisfied in full. No Plan has
been terminated pursuant to Title IV of ERISA. No event has occurred and no
condition exists with respect to any Plan which presents a material risk of
termination or partial termination of any Plan, which could reasonably be
anticipated to result in material liability on the part of the Company or
any of the Subsidiaries. Full payment has been made, or provision has been
made therefor in the Company's or a Subsidiary's financial statements or
records, of all amounts which the Company or any of the Subsidiaries were
required under the terms of the Plans to have paid as contributions to such
Plans on or prior to the date hereof and no Plan which is subject to Part 3
of Subtitle B of Title I of ERISA has incurred any "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412 of
the Code), whether or not waived. Neither the Company nor any of the
Subsidiaries nor, to the knowledge of the Company, any other "disqualified
person" or "party in interest" (as defined in Section 4975 of the Code and
Section 3(14) of ERISA, respectively) has engaged in any nonexempt
prohibited transactions in connection with any Plan (or its related trust)
with respect to which the Company, any of the Subsidiaries, or any officer,
director, employee of the Company or any of the Subsidiaries or, to the
knowledge of the Company, any trustee, administrator or other fiduciary of
any Plan, would be subject to either a civil penalty pursuant to Section
502(i) of ERISA or a tax imposed by Section 4975 of the Code nor, to the
knowledge of the Company, will the consummation of the transactions
contemplated by this Agreement constitute such a transaction. Except as
disclosed on Schedule 3.15 hereto, no claim, action or litigation has been
-------------
made, commenced or, to the knowledge of the Company, threatened with
respect to any Plan (other than routine claims for benefits). No Plan or
related trust owns any securities in violation of Section 407 of ERISA. No
withdrawal by the Company or any of the Subsidiaries, partial or complete,
within the meaning of Title IV of ERISA, has occurred or may be reasonably
expected to occur with respect to any Plan which is a multiemployer plan
which would create a material liability not adequately reserved against by
the Company. With respect to each employee pension benefit plan (as defined
in Section 3(2) of ERISA) which is a defined benefit plan and is not a
multiemployer plan, the assets of such Plan available to meet the accrued
liabilities of such Plan would exceed such liabilities, based on the
actuarial assumptions used for plan termination. The Company has paid, or
has set up an adequate reserve for the payment of, all liabilities under
each Plan.
SECTION 3.16 Licenses. Except as set forth on Schedule 3.16 hereto,
-------- -------------
the Company and its Subsidiaries have obtained all permits, concessions, grants,
franchises, licenses and other federal, state, local or foreign governmental
authorizations and approvals (collectively, "Licenses") material, individually
--------
or in the aggregate, to the conduct of the business of the Company and the
Subsidiaries taken as a whole. All of such Licenses are in full force and
effect and, to the
-18-
knowledge of the Company, will not be impaired or adversely affected by the
Transaction in a manner or to a degree that would reasonably be expected to have
a Company Material Adverse Effect. There is not pending or, to the knowledge of
the Company, threatened any domestic or foreign suit or proceeding with respect
to the suspension, revocation, cancellation, modification or non-renewal of any
of such Licenses, and, except as set forth on Schedule 3.16, no event under the
-------------
control of the Company has occurred that (whether with notice or lapse of time,
or both) would reasonably be expected to result in a suspension or revocation of
or failure to renew any of the Licenses, the loss of which would reasonably be
expected to have a Company Material Adverse Effect.
SECTION 3.17 Real Estate Leases. Schedule 3.17 hereto sets forth a
------------------ -------------
list of (a) all leases and subleases under which the Company or any of the
Subsidiaries is lessor or lessee of any real property, together with all
amendments, supplements, nondisturbance agreements and other agreements
pertaining thereto, (b) all options held by the Company and the Subsidiaries or
contractual obligations on the part of the Company and the Subsidiaries to
purchase or acquire any interest in real property and (c) all options granted by
the Company and the Subsidiaries or contractual obligations on the part of the
Company and the Subsidiaries to sell or dispose of any interest in real
property, in each case, other than site location agreements between the Company
or any of the Subsidiaries and Location Owners ("Site Location Agreements").
------------------------
SECTION 3.18 Real Property. Schedule 3.18 hereto lists all real
------------- -------------
property owned, as of the date of this Agreement, by the Company and its
Subsidiaries. Each of the Company and its Subsidiaries has good and marketable
title in fee simple to its respective real properties set forth on Schedule 3.18
-------------
hereto, in each case, to the knowledge of the Company, free and clear of all
liens, except for (a) liens set forth on Schedule 3.18 hereto, (b) mechanics',
-------------
construction, carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business, (c) liens for taxes and other
governmental charges that are not due and payable or which may thereafter be
paid without penalty, (d) minor survey exceptions, reciprocal easement
agreements and other customary liens on title to real property that (i) were not
incurred in connection with any indebtedness, (ii) do not render title to the
property encumbered thereby unmarketable and (iii) do not, individually or in
the aggregate, materially adversely affect the value of or the use of such
property for its present purposes, and (e) liens in favor of Parent or Holdings.
SECTION 3.19 Intellectual Property.
---------------------
(a) All of the patents, registered trademarks, registered service
marks, registered copyrights, application for any of the foregoing and
material unregistered trademarks, service marks, copyrights, trade names
and corporate names material to the conduct, as of the date of this
Agreement, of the business of the Company and its Subsidiaries taken as a
whole (collectively, "Intellectual Property") are set forth on Schedule
--------------------- --------
3.19. To the knowledge of the Company and except as set forth on Schedule
---- --------
3.19, (i) the Company and its Subsidiaries owns and possesses all right,
----
title and interest in and to, or possess the valid and enforceable right to
use, the Intellectual Property; (ii) the Company has not received any
notice of, and neither the Company nor any of its Subsidiaries has any
knowledge of any potential claim of any, infringement of or
misappropriation from any third party with respect to any material item of
Intellectual Property; and (iii) the Company and
-19-
its Subsidiaries are not currently infringing and, except as set forth on
Schedule 3.19, have not infringed any intellectual property of any other
-------------
person. To the knowledge of the Company, the transactions contemplated by
this Agreement will not impair in any material respect any item of
Intellectual Property.
(b) The Company has taken or is taking all commercially
reasonable measures to ensure that none of the computer software, computer
firmware, computer hardware (whether general or special purpose) or other
similar or related items of automated, computerized or software systems
that are material to the conduct of the Company's business will
malfunction, will cease to function, will generate incorrect data or will
produce incorrect results in any material respect when processing,
providing or receiving (i) date-related data from, onto and between the
twentieth and twenty-first centuries or (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
SECTION 3.20 Compliance with Other Instruments and Laws. Except as
------------------------------------------
set forth on Schedule 3.20, neither the Company nor any Subsidiary is in
-------------
violation of any term of its articles of incorporation, as amended, or bylaws,
or in violation of any mortgage, indenture, instrument or agreement relating to
indebtedness for borrowed money or of any judgment, decree or order which names
the Company or any Subsidiary or in violation of any term of any other material
instrument, contract or agreement to which it is a party or by which it or any
of its properties or assets is bound, except to the extent that any such
violation would not reasonably be expected to have a Company Material Adverse
Effect. Except as set forth on Schedule 3.20, the Company's and each
-------------
Subsidiary's businesses are in compliance in all material respects with all
federal, state, local or foreign statutes, laws, ordinances, rules, governmental
regulations, permits, concessions, grants, franchises, licenses or other
governmental authorizations or approvals applicable to the operation of such
business, except to the extent that the failure to be in compliance would not
reasonably be expected to have a Company Material Adverse Effect.
SECTION 3.21 Employees. Except as set forth on Schedule 3.21
--------- -------------
hereto, to the knowledge of the Company, as of the date of this Agreement, no
key employee, or group of employees of the Company has any plans to terminate
employment with the Company. Without limiting the generality of Section 3.20
hereof, the Company has complied in all material respects with all laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity and collective bargaining, and it does not have any
material labor relations problems (including without limitation threatened or
actual strikes or work stoppages or material grievances).
SECTION 3.22 Information Supplied. None of the information supplied
--------------------
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 is filed with the SEC, at any
--------
time it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (ii) the Proxy Statement will, at the date it is first mailed
to the Company's stockholders or at the time of the Company Stockholders
-20-
Meeting (as defined below), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form in
all material respects with the requirements of the Exchange Act, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by
Parent specifically for inclusion or incorporation by reference in the Proxy
Statement.
SECTION 3.23 Certain Fees. Except in connection with the engagement
------------
of Goldman, Sachs & Co., neither the Company nor any Subsidiary has employed any
broker or finder or incurred any liability for any financial advisory, brokerage
or finders' fees or commissions in connection with the transactions contemplated
hereby.
SECTION 3.24 Opinion of Financial Advisor. The Company has received
----------------------------
the oral opinion of Goldman, Sachs & Co., to be confirmed in writing, to the
effect that the Exchange Ratio pursuant to this Agreement is fair from a
financial point of view to holders of Company Common Stock.
SECTION 3.25 Voting Requirements. The affirmative vote of the
-------------------
holders of two-thirds of the outstanding shares of Company Common Stock and the
Series C Cumulative Convertible Preferred Stock voting as a single class with
each share of such Preferred Stock entitled to one vote for each share of
Company Common Stock issuable upon the conversion thereof and the holders of a
majority of the outstanding shares of such Preferred Stock voting as a separate
class ("Company Stockholder Approval") at the Company Stockholders Meeting is
----------------------------
the only vote of the holders of any class or series of the Company's capital
stock necessary to approve and adopt this Agreement and the transactions
contemplated hereby. The Board of Directors of the Company has duly and validly
approved and taken all corporate action required to be taken by the Company
Board of Directors for the consummation of the transactions contemplated by this
Agreement.
SECTION 3.26 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has approved this Agreement and the consummation of the Merger and the
other transactions contemplated hereby and, assuming that none of Parent,
Holdings or Newco was and is an "interested shareholder" within the meaning of
such Section 912 of New York Law, such approval constitutes approval of the
Merger and the other transactions contemplated by this Agreement by the Board of
Directors of the Company under the provisions of Section 912 of New York Law
such that Section 912 of New York Law does not apply to the Merger or the other
transactions contemplated by this Agreement. No other New York takeover
statute, and, to the knowledge of the Company, no other state takeover statute,
is applicable to the Merger or the other transactions contemplated by this
Agreement.
SECTION 3.27 Payphones. Except as disclosed on Schedule 3.27
--------- -------------
hereto, as of June 26, 1998, the Company had good and marketable title to at
least 43,244 payphones in operation, subject to enforceable site location
agreements. As of June 26, 1998, such site location agreements have an average
remaining term of at least 33 months.
-21-
SECTION 3.28 Average Net Revenue. The Average Net Revenue is at
-------------------
least $70.00 per payphone in operation as of June 26, 1998. For purposes of
this Agreement, "Average Net Revenue" for such payphones shall mean the average
-------------------
of the monthly gross revenues minus telephone bills and commissions (excluding
dial-around compensation) for the 3 months prior to March 31, 1998. Average Net
Revenue from operator service providers shall only include revenues received by
the Company from such providers.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
SECTION 4.01 Corporate Organization. Each of Parent and Holdings is
----------------------
a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation, with all requisite corporate power and
authority to own, operate and lease its properties and assets and to carry on
its businesses as now being conducted. Except as set forth in Schedule 4.01
-------------
hereto, each of Parent and Holdings is duly qualified to do business and in good
standing in each jurisdiction in which the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a Parent Material Adverse
Effect. As used herein, "Parent Material Adverse Effect" shall mean a material
------------------------------
adverse effect on the business, assets, condition (financial or otherwise) or
results of operations of Parent, Holdings and their respective subsidiaries
taken as a whole, except for the impact of any order or determination by the
Federal Communications Commission or Federal appellate court concerning
compensation paid by interexchange carriers and local exchange carriers to
payphone service providers as provided in the Federal Communications Commission
CC Docket No. 96-128, Implementation of the Pay Telephone Reclassification and
Compensation Provisions of the Telecommunications Act of 1996.
SECTION 4.02 Authorization. Each of Parent and Holdings has the
-------------
necessary corporate power and authority to enter into this Agreement and,
subject to the approval of this Agreement by the affirmative vote of at least a
majority of the outstanding shares of Parent Common Stock or, if applicable, the
affirmative vote of at least a majority of the outstanding shares of Holdings
Common Stock ("Parent Stockholder Approval"), to carry out its obligations
---------------------------
hereunder. The execution and delivery of this Agreement by Parent and Holdings,
the performance by Parent and Holdings of their respective obligations hereunder
and the consummation by Parent and Holdings of the transactions contemplated
hereby have been duly and validly authorized by the respective Boards of
Directors of Parent and Holdings. Except for the Parent Stockholder Approval,
no other corporate proceeding on the part of either Parent or Holdings is
necessary for the execution and delivery of this Agreement by such party, the
performance of its obligations hereunder or the consummation by either such
party of the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Parent and Holdings and is a legal, valid and
binding obligation of Parent and Holdings, enforceable against each of them in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency,
-22-
moratorium, reorganization or other laws affecting creditors' rights generally
or by the availability of equitable remedies generally.
SECTION 4.03 Capital Stock. As of June 26, 1998, the authorized
-------------
capital stock of Parent consisted of: (a) 10,000,000 shares of Parent Common
Stock, of which 4,647,809 shares were issued and outstanding and no shares were
held in Parent's treasury and (b) 1,000,000 shares of preferred stock, par value
$.01 per share, of which, as of June 26, 1998, no shares were issued and
outstanding. All of the outstanding shares of capital stock of Parent have been
validly issued and are fully paid, nonassessable and free of preemptive rights
with no personal liability attaching to the ownership thereof. As of June 26,
1998, there were no outstanding subscriptions, options, warrants, rights,
contracts or other arrangements or commitments obligating Parent to issue any
shares of its capital stock or any securities convertible into or exchangeable
for shares of its capital stock, except pursuant to the Davel/PhoneTel Merger
Agreement and this Agreement and for options to acquire not more than 500,350
shares of Parent Common Stock pursuant to Parent's stock option plans and
warrants to acquire not more than 58,000 shares of Parent Common Stock. As of
June 26, 1998, the authorized capital stock of Holdings consisted of 1,000
shares of Holdings Common Stock, of which 1,000 shares were issued and
outstanding. All of the outstanding shares of capital stock of Holdings have
been validly issued and are fully paid, nonassessable and free of preemptive
rights with no personal liability attaching to the ownership thereof. As of
June 26, 1998, there were no outstanding subscriptions, options, warrants,
rights, contracts or other arrangements or commitments obligating Holdings to
issue any shares of its capital stock or any securities convertible into or
exchangeable for shares of its capital stock, except pursuant to the
Davel/PhoneTel Merger Agreement and this Agreement.
SECTION 4.04 Subsidiaries. Schedule 4.04 hereto lists all direct
------------ -------------
and indirect subsidiaries of Parent as of the date hereof (each, a "Parent
------
Subsidiary" and collectively, the "Parent Subsidiaries"). Except for the Parent
- ---------- -------------------
Subsidiaries and as set forth in Schedule 4.04 hereto, Parent does not directly
-------------
or indirectly own any interest in any other corporation, partnership, joint
venture or other business association or entity. Each Parent Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, operate and lease its properties and assets and to carry
on its business as it is now being conducted. Except as set forth in Schedule
--------
4.04, each Parent Subsidiary is duly qualified to do business and is in good
- ----
standing in each jurisdiction in which the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified or to be in good standing
would not, individually or in the aggregate, be reasonably expected to have a
Parent Material Adverse Effect. Except as set forth in Schedule 4.04 hereto,
-------------
all outstanding shares of capital stock of each Parent Subsidiary are validly
issued, fully paid and nonassessable and are owned by Parent or another Parent
Subsidiary free and clear of any liens, claims or encumbrances.
SECTION 4.05 Consents and Approvals; No Violations. Except for (a)
-------------------------------------
applicable requirements of the Securities Act and the Exchange Act, including
the filing with and clearing by the SEC of the Form S-4 and the Proxy Statement,
(b) the filing of a Pre-Merger Notification and Report Form by Parent or
Holdings and the expiration or termination of the waiting period under the HSR
Act, (c) the filing of the Certificate of Merger as required by New York Law,
(d) such filings and consents as may be required under any environmental law
pertaining to any
-23-
notification, disclosure or required approval triggered by the Transaction, (e)
filings with the Nasdaq Stock Market to permit the shares of Parent Common Stock
that are to be issued in the Transaction to be approved for listing on the
Nasdaq Stock Market, subject to official notice of issuance, and to continue to
be listed on the Nasdaq Stock Market following the Closing Date (as defined
below), and (f) such consents, approvals, orders, authorizations, notifications,
registrations, declarations and filings as may be required under public utility,
telecommunication or payphone laws, rules or regulations of any state or
municipality or under the corporation, takeover or blue sky laws of various
states, no filing with or prior notice to, and no permit, authorization, consent
or approval of any Governmental Entity is necessary for the consummation by
either Parent or Holdings of the Transaction. Except as set forth in Schedule
--------
4.05 hereto, neither the execution and delivery of this Agreement by Parent and
- ----
Holdings, nor the consummation by Parent and Holdings of the transaction
contemplated hereby nor compliance by Parent and Holdings with any of the
provisions hereof, will (i) conflict with or result in any violation of any
provision of the articles of incorporation or bylaws, or comparable
organizational documents, of Parent, Holdings or any Parent Subsidiary, (ii) at
the Effective Time, result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage indenture, license,
agreement or other instrument or obligation to which Parent, Holdings or any
Parent Subsidiary is a party or by which any of them or any of their respective
properties or assets may be bound, or (iii) assuming that all filings, consents
and approvals contemplated by the first sentence of this Section 4.05 have been
or shall have been made or obtained, violate any Federal, state, local or
foreign order, writ, injunction, decree, statute, rule or regulation applicable
to Parent, Holdings or any Parent Subsidiary or any of their properties or
assets, excluding from the foregoing clauses (ii) and (iii) violations, breaches
or defaults which would not, individually or in the aggregate, be reasonably
expected to have a Parent Material Adverse Effect or impair materially Parent's
ability to perform its obligations hereunder or prevent or materially delay the
consummation of the Transaction.
SECTION 4.06 SEC Reports and Financial Statements.
------------------------------------
(a) Since December 31, 1994, Parent has filed all required forms,
reports and documents with the SEC required to be filed by it pursuant to
the Securities Act and the Exchange Act (hereinafter collectively referred
to as the "Parent Reports"), all of which have complied in all material
--------------
respects with all applicable requirements of the Securities Act and the
Exchange Act.
(b) None of the Parent Reports, including, without limitation,
any financial statements or schedules included therein, at the time filed,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) The consolidated balance sheets and the related consolidated
statements of operations, stockholders' equity and changes in financial
position (including, without limitation, the related notes thereto) of
Parent and its consolidated subsidiaries included in the financial
statements contained in Parent's Annual Report on Form 10-K for the year
ended December 31, 1997 and in Parent's Quarterly Report on Form 10-Q for
the
-24-
quarter ended March 31, 1998 present fairly, in all material respects, the
consolidated financial position of Parent and its consolidated subsidiaries
as of their respective dates, and the results of consolidated operations
and changes in consolidated financial position for the periods then ended,
all in conformity with GAAP applied on a consistent basis, except as
otherwise noted therein, and in the case of unaudited interim financial
statements subject to normal year-end audit adjustments and the absence of
footnotes thereto.
SECTION 4.07 Absence of Undisclosed Liabilities. None of Parent,
----------------------------------
Holdings or any Parent Subsidiary has any liabilities (whether absolute, accrued
or contingent), except: (a) liabilities, obligations or contingencies that are
accrued or for which adequate reserves have been provided in the consolidated
balance sheet of Parent and the Parent Subsidiaries as of March 31, 1998 or
reflected in the notes thereto or in the notes to Parent's financial statements
as at and for the year ended December 31, 1997, (b) liabilities incurred since
December 31, 1997 in the ordinary course of business, (c) liabilities disclosed
in Schedule 4.07 hereto, or (d) any liabilities which, individually or in the
-------------
aggregate, have not had, and would not reasonably be expected to have, a Parent
Material Adverse Effect.
SECTION 4.08 Changes. Since December 31, 1997, and except as set
-------
forth in the Parent Reports filed prior to the date of this Agreement, and
except as otherwise disclosed in Schedule 4.08 hereto or as otherwise provided
-------------
by this Agreement:
(a) there have been no events or circumstances that would
constitute a Parent Material Adverse Effect, provided that, for purposes of
this Section 4.08(a), any effect that could have been reasonably expected
to result from the execution of this Agreement or the transactions
contemplated hereby or the announcement thereof will not be deemed to
constitute a Parent Material Adverse Effect;
(b) as of the date hereof, except as permitted or otherwise
contemplated by this Agreement, there has been no direct or indirect
redemption, purchase or other acquisition of any shares of Parent's capital
stock, or any declaration, setting aside or payment of any dividend or
other distribution by Parent in respect of Parent's capital stock, or any
issuance of any shares of capital stock of Parent, or any granting to any
person of any option to purchase or other right to acquire shares of
capital stock of Parent or any stock split or other change in Parent's
capitalization;
(c) as of the date hereof, none of Parent, Holdings or any Parent
Subsidiary has entered into or agreed to enter into any new or amended
contract with any labor unions representing employees of Parent, Holdings
or such Parent Subsidiary;
(d) as of the date hereof, none of Parent, Holdings or any Parent
Subsidiary has entered into or agreed to enter into any new or amended
contract with any of the officers thereof or otherwise increased the
compensation payable to the officers or directors of any such entity;
(e) as of the date hereof, none of Parent, Holdings or any Parent
Subsidiary has (i) entered into or amended in any material respect any
bonus, incentive
-25-
compensation, deferred compensation, profit sharing, retirement, pension,
group insurance or other benefit plan except as required by law or
regulations or (ii) made any contribution to any such plan except for
contributions specifically required by law or pursuant to the terms of such
plans; and
(f) none of Parent, Holdings or any Parent Subsidiary has made
any change in accounting methods, principles or practices materially and
adversely affecting its assets, liabilities or business, except in
accordance with GAAP.
SECTION 4.09 Investigations; Litigation.
--------------------------
(a) Except as described in Schedule 4.09 hereto, and other than
-------------
reviews pursuant to the HSR Act, there are no pending or, to the knowledge
of Parent, threatened investigations, reviews or inquiries by any
Governmental Entity with respect to Parent, Holdings or any Parent
Subsidiary or, to the knowledge of Parent, with respect to the activities
of any officer, director or employee of Parent (a "Parent Investigation"),
--------------------
other than Parent Investigations which, if the resolution thereof were
adverse, would not, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect. For the purpose of this
Agreement, "knowledge of Parent" shall be deemed to mean the actual
-------------------
knowledge, after reasonable inquiry, of any executive officer of Parent.
(b) Except as described in Schedule 4.09 hereto, (i) there are no
-------------
actions or proceedings pending or, to the knowledge of Parent, threatened
against Parent, Holdings or any Parent Subsidiary before any court or
before any administrative agency or administrative officer or executive,
whether federal, state, local or foreign, which seek to enjoin the Merger
or which, if adversely determined, would, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect, (ii) there
are no outstanding domestic or foreign judgments, decrees or orders against
either Parent or Holdings that, individually or in the aggregate, would
reasonably be expected to have a Parent Material Adverse Effect, (iii) none
of Parent, Holdings or any Parent Subsidiary is in violation of, and none
of them has received any claim or notice that it is in violation of, any
federal, state, local or foreign laws, statutes, rules, regulations or
orders promulgated or judgments entered by any Governmental Entity, which
violations, individually or in the aggregate, would reasonably be expected
to have a Parent Material Adverse Effect; and (iv) as of the date of this
Agreement, there are no actions pending or, to the knowledge of Parent,
threatened against the directors or any director of Parent alleging a
breach of such directors' or director's fiduciary duties that, individually
or in the aggregate, would reasonably be expected to have a Parent Material
Adverse Effect.
SECTION 4.10 Environmental and Safety Matters. Except as described
--------------------------------
in the Parent Reports, (a) Parent, Holdings and the Parent Subsidiaries are in
compliance with all applicable Environmental Laws, except for non-compliance
that would not, individually or in the aggregate, reasonably be expected to have
a Parent Material Adverse Effect, which compliance includes, but is not limited
to, the possession by Parent, Holdings and the Parent Subsidiaries of permits
and other governmental authorizations required under applicable Environmental
Laws, and compliance with the terms and conditions thereof; (b) none of Parent,
Holdings or any Parent
-26-
Subsidiary has received written notice of, or, to the knowledge of Parent, is
the subject of, any actions, causes of action, claims, investigations, demands
or notices by any person alleging liability under or non-compliance with any
Environmental Law that would, individually or in the aggregate, reasonably be
expected to have a Parent Material Adverse Effect; and (c) there has not been by
either Parent or Holdings any treatment, storage, disposal or release of any
hazardous or toxic material, substance or waste or of petroleum, or any
fractions or by-products thereof, at any of their current or, to the knowledge
of Parent, former properties or facilities or any current or, to the knowledge
of Parent, former offsite properties and facilities used in the business of
Parent, Holdings or any Parent Subsidiary (in each case, other than properties
or facilities where payphones are located pursuant to Site Location Agreements
with Location Owners) in a manner or at levels that require or are reasonably
likely to require investigation, removal or remediation under Environmental Laws
that would, either individually or in the aggregate, reasonably be expected to
have a Parent Material Adverse Effect.
SECTION 4.11 Certain Fees. Except as described in Schedule 4.11
------------ -------------
hereto, neither Parent nor Holdings has employed any broker or finder or
incurred any liability for any financial advisory, brokerage or finders' fees or
commissions in connection with the transactions contemplated hereby.
SECTION 4.12 Taxes.
-----
(a) Each of Parent, Holdings and the Parent Subsidiaries has
filed all tax returns and reports required to be filed by it and all such
returns and reports are complete and correct in all material respects, or
requests for extensions to file such returns or reports have been timely
filed, granted and have not expired, except to the extent that such
failures to file, to be complete or correct or to have extensions granted
that remain in effect individually or in the aggregate would not reasonably
be expected to have a Parent Material Adverse Effect. Each of Parent,
Holdings and the Parent Subsidiaries has timely paid (or Parent has paid on
its behalf) all taxes that have become due and payable, except to the
extent the failure to pay such taxes individually or in the aggregate would
not reasonably be expected to have a Parent Material Adverse Effect, and
the most recent financial statements contained in the Parent Reports
reflect an adequate reserve in accordance with GAAP for all taxes payable
by Parent, Holdings and the Parent Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial statements.
(b) No deficiencies for any taxes have been proposed, asserted or
assessed against Parent, Holdings or any Parent Subsidiary that are not
adequately reserved for, except for deficiencies that individually or in
the aggregate would not reasonably be expected to have a Parent Material
Adverse Effect. Except as set forth in Schedule 4.12 hereto, there is no
-------------
action, suit, taxing authority proceeding or audit now in progress,
pending, or, to the knowledge of Parent, threatened against or with respect
to any of Parent, Holdings or any Parent Subsidiary.
-27-
SECTION 4.13 Change of Control Provisions. Except as disclosed in
----------------------------
Schedule 4.13 hereto, none of the employment, consulting, severance or
- -------------
indemnification contracts or agreements between Parent, Holdings or any Parent
Subsidiary, on the one hand, and any directors, officers or other employees of
Parent, Holdings or such Parent Subsidiary, on the other hand, and none of
Parent's, Holdings' or any Parent Subsidiary's employee benefit plans, programs
or arrangements contains any change-in-control provision that would become
operative as a result of the Merger or the Davel/PhoneTel Merger.
SECTION 4.14 Licenses. Parent, Holdings and the Parent Subsidiaries
--------
have obtained all Licenses material, individually or in the aggregate, to the
conduct of the business of Parent, Holdings and the Parent Subsidiaries taken as
a whole. All of such Licenses are in full force and effect and, to the
knowledge of Parent, will not be impaired or adversely affected by the
Transaction in a manner or to a degree that would reasonably be expected to have
a Parent Material Adverse Effect. There is not pending or, to the knowledge of
Parent, threatened any domestic or foreign suit or proceeding with respect to
the suspension, revocation, cancellation, modification or non-renewal of any of
such Licenses, and, except as set forth in Schedule 4.14 hereto, no event under
-------------
the control of Parent has occurred that (whether with notice or lapse of time,
or both) would reasonably be expected to result in a suspension or revocation of
or failure to renew any of such Licenses, the loss of which would reasonably be
expected to have a Parent Material Adverse Effect.
SECTION 4.15 Compliance with Other Instruments and Laws. Except as
------------------------------------------
set forth in Schedule 4.15 hereto, none of Parent, Holdings or any Parent
-------------
Subsidiary is in violation of any term of its articles of incorporation or
bylaws or comparable organizational documents, or in violation of any judgment,
decree or order which names Parent, Holdings or any Parent Subsidiary or in
violation of any term of any other material instrument, contract or agreement to
which it is a party or by which it or any of its properties or assets is bound,
except to the extent that any such violation would not reasonably be expected to
have a Parent Material Adverse Effect. Except as set forth in Schedule 4.15,
-------------
the businesses of Parent, Holdings and the Parent Subsidiaries are in compliance
with all federal, state, local and foreign statutes, laws, ordinances, rules,
governmental regulations, permits, concessions, grants, franchises, licenses or
other governmental authorizations or approvals applicable to the operation of
such business, except to the extent that the failure to be in compliance would
not reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.16 Employees. Without limiting the generality of Section
---------
4.15 hereof, Parent has complied in all material respects with all laws relating
to the employment of labor, including provisions thereof relating to wages,
hours, equal opportunity and collective bargaining, and, to the knowledge of
Parent, it does not have any material labor relations problems (including,
without limitation, actual or threatened strikes or work stoppages or material
grievances).
SECTION 4.17 Information Supplied. None of the information supplied
--------------------
or to be supplied by Parent or Holdings for inclusion or incorporation by
reference in (i) the Form S-4 shall, at the time the Form S-4 is filed with the
SEC or at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading or (ii) the Proxy
Statement shall, at the date it is first mailed to Parent's stockholders (or, if
applicable, Holdings' stockholders) or at the time of the Parent
-28-
Stockholders Meeting (as defined below), contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Form S-4 shall
comply as to form in all material respects with the requirements of the
Securities Act, except that no representation or warranty is made by Parent with
respect to statements made or incorporated by reference in either the Form S-4
or the Proxy Statement based on information supplied by the Company for
inclusion or incorporation by reference therein.
SECTION 4.18 Opinion of Financial Advisor. Parent has received the
----------------------------
opinion of ABN AMRO Incorporated, dated June 28, 1998, to the effect that, as of
such date, the Merger Consideration to be paid by Parent in connection with the
Transaction is fair to Parent and its stockholders from a financial point of
view.
SECTION 4.19 Voting Requirements. Parent Stockholder Approval is
-------------------
the only vote of the holders of any class or series of Parent's capital stock
necessary to allow Parent to consummate the transactions contemplated hereby.
SECTION 4.20 State Takeover Statutes. To the knowledge of Parent,
-----------------------
assuming no shareholder of the Company will beneficially own 15 percent or more
of the outstanding Parent Common Stock after the Effective Time, no "fair
price," "moratorium," "control share acquisition" or other similar anti-takeover
statute or regulation enacted under state or federal law applicable to Parent is
applicable to the Transaction.
SECTION 4.21 No Company Shares. Neither Parent nor Holdings owns
-----------------
any shares of Company Common Stock.
SECTION 4.22 Rights. Assuming that no stockholder of the Company
------
shall, upon consummation of the Merger, become the beneficial owner of 15
percent or more of the shares of Parent Common Stock then outstanding, the
execution of this Agreement and the consummation of the Transaction do not and
will not result in the ability of any person to exercise any rights ("Parent
------
Rights") pursuant to the Rights Agreement dated as of April 22, 1998, between
- ------
Davel and ChaseMellon Shareholder Services, L.L.C., or enable or require any
Parent Rights to separate from the shares of the Parent Common Stock to which
they are attached or to be triggered or become exercisable.
SECTION 4.23 Financing. Parent has received a "highly confident"
---------
letter (the "Letter") from a responsible financing source that indicates the
------
belief that funds shall be available from third parties sufficient in the
aggregate to provide the funds necessary to effect the Debt Tender in accordance
with Section 5.07 hereof and to pay the fees and expenses related to the
Transaction (such necessary funds being referred to herein as the "Financing").
---------
The Letter has not been rescinded or withdrawn or amended in a manner adverse to
the Company. A copy of the Letter has been provided to the Company. Parent
knows of no fact or circumstance that is reasonably likely to result in the
inability of the Company, Parent or Holdings to receive the proceeds from such
Financing.
-29-
ARTICLE 5
COVENANTS OF THE COMPANY
SECTION 5.01 Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
The Company covenants and agrees that, from the date of this Agreement until the
Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 9.01 hereof, unless Parent shall otherwise
consent in writing or except as otherwise contemplated by this Agreement:
(a) the businesses of the Company and the Subsidiaries will be
conducted only in the ordinary and usual course; the Company will use its
reasonable best efforts to pre serve intact its business organization and
goodwill, keep available the services of its officers and employees and
maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with it and the Subsidiaries; and
the Company will promptly notify Parent and Newco of any event or
occurrence or emergency not in the ordinary and usual course of the
business of the Company or any Subsidiary that is material to the business
of the Company and the Subsidiaries, taken as a whole;
(b) the Company will not (i) amend its articles of incorporation
or bylaws or (ii) split, combine or reclassify the outstanding Shares or
declare, set aside or pay any dividend payable in cash, stock or property
with respect to the Shares;
(c) neither the Company nor any Subsidiary will issue or agree to
issue any additional shares of, or rights of any kind to acquire shares of,
its capital stock of any class other than the issuance of shares of capital
stock of a Subsidiary to the Company or Subsidiary directly wholly owned by
the Company or, with respect to the Company, Shares issuable upon (i)
exercise of outstanding stock options, (ii) exercise of outstanding
Warrants or warrants exercisable for Series B Convertible Preferred Stock
or (iii) conversion of the Series C Cumulative Convertible Preferred Stock;
(d) neither the Company nor any Subsidiary will enter into or
agree to enter into any new or amended contract or agreement with any labor
unions representing employees of the Company or any Subsidiary;
(e) except as contemplated by Section 5.04 hereto, the Company
will not authorize, recommend, propose or announce an intention to
authorize, recommend or propose, or enter into an agreement in principle or
an agreement with respect to any merger, consolidation or business
combination (other than the Merger), any acquisition or disposition of a
material amount of assets or securities (including, without limitation, the
assets or securities of any Subsidiary) or any material change in its
capitalization, or enter, other than in the ordinary course of business
consistent with past practice, into a material contract or any release or
relinquishment of any material contract rights;
(f) except as set forth on Schedule 5.01(f) hereto, the Company
----------------
will not, and will not permit any Subsidiary to, (i) enter into or amend
any employment, severance or
-30-
change-in-control agreement, or any bonus, incentive compensation, deferred
compensation, profit sharing, retirement, pension, group insurance or other
benefit plan except as required by law or regulations, or as expressly
provided by this Agreement or (ii) make any contribution to any such plan
except for contributions specifically required pursuant to the terms
thereof;
(g) the Company will not (i) except as set forth on Schedule
--------
5.01(g) hereto, create, incur or assume any long-term indebtedness for
-------
borrowed money (including, without limitation, obligations in respect of
capital leases) or, except in the ordinary course of business or except to
fund out-of-pocket costs incurred in connection with the transactions
contemplated hereby, create, incur, assume, maintain or permit to exist any
short-term indebtedness for borrowed money in an aggregate amount for the
Company and the Subsidiaries as a whole exceeding $250,000; (ii) except as
set forth on Schedule 5.01(g), assume, guarantee, endorse or otherwise
----------------
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person except wholly-owned Subsidiaries of
the Company in the ordinary course of business and consistent with past
practices; or (iii) make any loans, advances or capital contributions to,
or investments in, any other person other than a wholly-owned Subsidiary
(other than customary advances to employees and short-term investments
pursuant to customary cash management systems of the Company in the
ordinary course and consistent with past practice); and
(h) neither the Company nor any Subsidiary shall agree in writing
or otherwise to take (i) any action that it is prohibited from taking by
this Section 5.01 or (ii) any action that would constitute or is likely to
cause or result in a breach in any material respect of any covenant,
agreement, or representation or warranty set forth herein.
Subject to applicable law, the Company shall, during the period between the date
of this Agreement and the Effective Time, consult with Parent regarding Parent's
consideration of alternatives regarding the manner in which to best organize and
manage the business of the Company and Parent after the Effective Time and other
matters relating to transition planning; provided, however, that prior to the
-------- -------
Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, control and supervision over its operations and
nothing contained in this Section 5.01 shall be interpreted to give Parent or
Holdings, directly or indirectly, the right to control or direct the operations
of the Company and the Subsidiaries prior to the Effective Time.
SECTION 5.02 Stockholders' Meeting. Subject to Section 5.04 hereof,
---------------------
the Company shall cause a meeting of its stockholders to be duly called and held
as soon as reasonably practicable for the purpose of voting on the approval and
adoption of this Agreement and the Merger (the "Company Stockholders Meeting").
----------------------------
Subject to Section 5.04 hereof, the Board of Directors of the Company will (a)
unanimously recommend approval and adoption of this Agreement by the Company's
stockholders hereof and (b) use reasonable best efforts to obtain the necessary
approval by the Company's stockholders of this Agreement and the transactions
contemplated hereby.
SECTION 5.03 Access to Information. Subject to the terms of Section
---------------------
7.13 hereof, the Company will give Parent, its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours throughout the period prior to the
-31-
Effective Time to all of the offices, properties, business and marketing plans,
books, files and records of the Company and the Subsidiaries, will furnish to
Parent, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
persons may reasonably request and will instruct the Company's employees,
counsel and financial advisors to cooperate with Parent in its investigation of
the business of the Company and its Subsidiaries. The Company will furnish
promptly to Parent and Holdings (a) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of Federal or
state securities laws, and (b) all such other information concerning its
business, properties and personnel as Parent or Newco may reasonably request;
provided that no investigation pursuant to this Section 5.03 shall affect any
- --------
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
SECTION 5.04 No Solicitation.
---------------
(a) The Company shall not, and shall use reasonable best efforts
to cause its officers, directors, employees, investment bankers, attorneys,
accountants and other agents retained by it not to, initiate, solicit or
encourage any inquiries relating to, or the making of any, Acquisition
Proposal or engage in negotiations or discussions with, or furnish any
information to, any third party relating to any Acquisition Proposal.
Notwithstanding the foregoing or any other provision of this Agreement, the
Company (i) may participate in discussions or negotiations (including, as a
part thereof, making any counterproposal) with, or furnish information to,
any third party with respect to any Acquisition Proposal if the Company's
Board of Directors determines in good faith, after consultation with
counsel, that the failure to participate in such discussions or
negotiations or to furnish such information may constitute a breach of its
fiduciary duties under, or otherwise violate, applicable law, and (ii)
shall be permitted to (A) take and disclose to the Company's stockholders a
position with respect to an Acquisition Proposal or amend or withdraw such
position or its position with respect to the Merger, or (B) make disclosure
to the Company's stockholders, in each case, if the Company's Board of
Directors determines in good faith, after consultation with counsel, that
the failure to take such action may constitute a breach of its fiduciary
duties under, or otherwise violate, applicable law. As used herein,
"Acquisition Proposal" shall mean any proposal made by a third party, other
---------------------
than Parent, Holdings or Newco to acquire, directly or indirectly, (x) more
than 25% of the shares and/or voting power of the Company Common Stock then
outstanding pursuant to a merger, consolidation or other business
combination, purchase of shares, tender offer or exchange offer or similar
transaction, including, without limitation, any single or multi-step
transaction or series of related transactions or (y) all or a substantial
portion of the business or assets of the Company and the Subsidiaries.
(b) The Company shall advise Parent in writing of (i) the
receipt, directly or indirectly, of any inquiries relating to an
Acquisition Proposal promptly following such receipt, (ii) the status of
any discussions or negotiations with respect thereto, (iii) its intention
to enter into any agreement relating to an Acquisition Proposal at least 24
hours prior to executing any such agreement, and (iv) any actions taken
pursuant to Section 5.04(a) hereof promptly following such action.
Following the receipt, directly or indirectly, of any Acquisition Proposal
(or any inquiry referred to in clause (i) above), the Company shall
-32-
furnish to Parent either a copy of such Acquisition Proposal (or such
inquiry) or a written summary of such Acquisition Proposal (or such
inquiry).
SECTION 5.05 Corporate Organization. Notwithstanding anything to
----------------------
the contrary contained in this Agreement or in the Schedules hereto, the Company
and each Subsidiary shall use reasonable best efforts to be duly qualified and
in good standing on the Effective Date with the Secretary of State in each
jurisdiction in which the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary.
SECTION 5.06 Termination Option Agreement. The Company will fully
----------------------------
perform its obligations under the Termination Option Agreement.
SECTION 5.07 Preferred Stock and Senior Notes. Prior to the
--------------------------------
Effective Time, the Company shall (a) take all actions reasonably necessary to
allow all outstanding shares of preferred stock of the Company, including,
without limitation, all outstanding shares of the Series C Cumulative
Convertible Preferred Stock, to be converted into shares of Company Common Stock
in accordance with the terms of such preferred stock and (b) subject to the
receipt of funds sufficient for such purposes from the proceeds of the
Financing, use reasonable best efforts to (i) consummate a tender offer for all
of the Company's 12 1/4% Senior Notes due 2002 (the "Notes") at a price
-----
reasonably acceptable to Parent, pursuant to which at least 85% of the aggregate
outstanding principal amount of the Notes shall have been tendered (it being
understood and agreed that (A) Parent and Holdings will use their reasonable
best efforts to obtain the Financing and (B) any failure to receive tenders of
at least 85% of the aggregate outstanding principal amount of the Notes shall
not be a breach of the covenant set forth in this Section 5.07), (ii) procure
the consent of the requisite principal amount of the Notes to allow the Company
to amend the indenture governing the Notes in a manner reasonably satisfactory
to Parent and (iii) enter into a supplemental indenture with respect to the
Notes reflecting such amendments.
ARTICLE 6
COVENANTS OF PARENT AND HOLDINGS
Parent agrees that:
SECTION 6.01 Access to Information. Subject to the terms of Section
---------------------
7.13 hereof, Parent will give the Company, its counsel, financial advisors,
auditors and other authorized representatives reasonable access, in Parent's
reasonable discretion, during normal business hours throughout the period prior
to the Effective Time to all of the offices, properties, books, files and
records of Parent and the Parent Subsidiaries, will furnish to the Company, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information as such persons may
reasonably request and will, in Parent's reasonable discretion, instruct
Parent's employees, counsel and financial advisors to cooperate with the Company
in its investigation of the business of Parent and the Parent Subsidiaries.
Parent will furnish promptly to the Company (a) a copy of each report, schedule
and other document filed or received by it pursuant to the requirements of
Federal or state securities laws, and (b) all such other information concerning
-33-
its business, properties and personnel as the Company may reasonably request;
provided that no investigation pursuant to this Section 6.01 shall affect any
representation or warranty contained herein or the conditions to the obligations
of the parties to consummate the Merger.
SECTION 6.02 Newco Incorporation; Obligations of Newco. Newco will be
-----------------------------------------
incorporated for the sole purpose of acting as a vehicle for the facilitation of
the Transaction and will not undertake any activities other than those
specifically contemplated by this Agreement or otherwise required for such
purpose. Newco will have no subsidiaries. Parent or, if appropriate, Holdings
will take all action necessary to cause Newco to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
SECTION 6.03 Indemnification.
---------------
(a) Parent and Holdings shall indemnify, or shall cause the
Surviving Corporation to indemnify, to the fullest extent permitted under
New York Law, the present and former directors or officers of the Company
and the Subsidiaries (the "Indemnified Parties") in respect of actions
-------------------
taken prior to and including the Effective Time in connection with their
duties as directors or officers of the Company (including the transactions
contemplated hereby) for a period of not less than six years from the
Effective Time; provided that, in the event any claim or claims are
--------
asserted or made within such six-year period, all rights to indemnification
in respect of any such claim or claims shall continue until final
disposition of any and all such claims. Without limitation of the
foregoing, in the event any Indemnified Party becomes involved in such
capacity in any action, proceeding or investigation in connection with any
matter, including the transactions contemplated hereby, occurring prior to
and including the Effective Time, the Surviving Corporation, to the fullest
extent permitted and on such conditions as may be required by applicable
law, shall make advances for or reimburse such Indemnified Party for his
legal and other out-of-pocket expenses (including the cost of any
investigation and preparation) as incurred in connection therewith. In
addition, during such six-year period, the charter and by-laws of the
Surviving Corporation and its successors and assigns shall contain
provisions no less favorable to the present and former directors and
officers of the Company than those in effect in the Certificate of
Incorporation of the Company and the By-laws of the Company as in effect on
the date of this Agreement.
(b) For not less than six years after the Effective Time, Parent,
Holdings or the Surviving Corporation or their respective successors or
assigns shall maintain in effect directors' and officers' liability
insurance covering the Indemnified Parties who are currently covered by the
Company's existing directors' and officers' liability insurance, on terms
and conditions no less favorable to such directors and officers than those
in effect on the date hereof with respect to Parent's officers and
directors; provided, however, that in no event shall Parent or the
-------- -------
Surviving Corporation be required to pay an amount to maintain such
insurance covering the Indemnified Parties in excess of 200% of the amount
paid by the Company as of the date hereof for such coverage.
SECTION 6.04 Stockholders' Meeting. Parent shall cause a meeting of
--------------------
its stockholders (the "Parent Stockholders Meeting") to be duly called
---------------------------
and held as soon as reasonably
-34-
practicable for the purpose of voting on the approval of the issuance of Parent
Common Stock in the Merger. The Board of Directors of Parent will (a)
unanimously recommend approval of such issuance of Parent Common Stock by
Parent's stockholders and (b) use reasonable best efforts to obtain the
necessary approval by the Company's stockholders of such issuance of Parent
Common Stock.
SECTION 6.05 Parent Financing. Parent shall use reasonable best
----------------
efforts to, or to enable Holdings to, secure the Financing and to enter into
appropriate indentures, loan agreements or other agreements with respect to the
Financing.
SECTION 6.06 Employee Matters.
----------------
(a) Parent agrees that individuals who are employed by the
Company or any of the Subsidiaries immediately prior to the Closing Date
shall remain employees of the Company or such Subsidiary as of the Closing
Date (each such employee, an "Affected Employee"); provided, however, that
----------------- -------- -------
nothing contained herein shall confer upon any Affected Employee the right
to continued employment by the Company or any of the Subsidiaries for any
period of time after the Closing Date which is not otherwise required by
law.
(b) Holdings or Parent shall, or shall cause the Company or the
Parent Subsidiaries to, give Affected Employees full credit for purposes of
eligibility and vesting under any employee benefit plans or arrangements
maintained by Parent, the Company or any of the Parent Subsidiaries for
such Affected Employees' service with Parent, the Company or any affiliate
thereof to the same extent recognized immediately prior to the Closing
Date.
(c) Holdings or Parent shall, or shall cause the Company or the
Parent Subsidiaries to, (i) waive all limitations as to preexisting
conditions exclusions and waiting periods with respect to participation and
coverage requirements applicable to the Affected Employees under any
welfare benefit plans in which such employees may be eligible to
participate as of the Closing Date, other than limitations or waiting
periods that are already in effect with respect to such employees and that
have not been satisfied as of the Closing Date under any welfare plan
maintained for the Affected Employees immediately prior to the Closing
Date, and (ii) provide each Affected Employee with credit for any co-
payments and deductibles paid prior to the Closing Date in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans
that such employees are eligible to participate in as of the Closing Date.
(d) As of the Closing Date, Parent or Holdings shall, or shall
cause the Company or the Parent Subsidiaries to, provide coverage and
benefits to Affected Employees pursuant to the employee benefit plans or
arrangements (including, without limitation, the Plans) maintained by the
Company for such Affected Employees immediately prior to the Closing Date;
provided, however, that (i) this Section 6.06(d) shall not require Holdings
-------- -------
or Parent to provide or maintain any equity-based compensation plans of the
Company and (ii) except as provided in Section 1.05 hereof, nothing
contained herein shall confer upon any
-35-
Affected Employee the right to continued coverage and benefits pursuant to
such plans or arrangements after December 31, 1998.
(e) The Surviving Corporation shall continue to honor all
employment, severance, separation and other compensation agreements
existing as of the Closing Date between the Company or any of the
Subsidiaries with any officer or employee thereof, which are set forth on
Schedule 6.06(e).
----------------
SECTION 6.07 Financial Disclosure. Parent or, if applicable,
--------------------
Holdings shall use reasonable best efforts to publish financial results
(including combined sales and net income) covering at least 30 days of post-
Transaction operations within 45 days and, in any event, shall publish such
results within 75 days after the end of the first full calendar month following
the month in which the Closing Date occurs.
SECTION 6.08 Conduct of Business of Parent Pending the Merger.
------------------------------------------------
Parent and Holdings covenant and agree that, from the date of this Agreement
until the Effective Time or the date, if any, on which this Agreement is earlier
terminated pursuant to Section 9.01 hereof, unless the Company shall otherwise
consent in writing or except as otherwise contemplated in this Agreement:
(a) Parent and Holdings shall not (i) amend their respective
articles of incorporation or bylaws in a manner that would be reasonably
likely to have a Disparate Adverse Effect (as defined below), (ii) split,
combine or reclassify the outstanding Parent Common Stock or the
outstanding Holdings Common Stock in a manner that would be reasonably
likely to have a Disparate Adverse Effect or (iii) declare, set aside or
pay any dividend with respect to shares of Parent Common Stock or Holdings
Common Stock payable (A) in cash or property or (B) in stock or otherwise
in a manner that would be reasonably likely to have a Disparate Adverse
Effect;
(b) Parent, Holdings and the Parent Subsidiaries shall not enter
into any new line of business that is not substantially related to existing
or past businesses of Parent or the Parent Subsidiaries;
(c) Parent, Holdings and the Parent Subsidiaries shall not
acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or by any
one manner, any business or any corporation, partnership, association or
other business organization or division, or otherwise acquire or agree to
acquire any assets of any person that (i) would violate Section 6.08(b) or
(ii) is reasonably likely to materially delay or prevent the consummation
of the Financing or the Merger; and
(d) Parent, Holdings and the Parent Subsidiaries shall not agree
in writing or otherwise to take (i) any action that any of them is
prohibited from taking by this Section 6.08 or (ii) any action that would
constitute or is likely to cause or result in a breach in any material
respect of any covenant, agreement, or representation or warranty of Parent
or Holdings set forth herein.
-36-
For purposes of this Section 6.08, a change, circumstance or event shall be
deemed to have a "Disparate Adverse Effect" if the effect thereof on the holders
------------------------
of Company Common Stock, after giving effect to the Merger, is less favorable,
in any material respect, than the effect that such change, circumstance or event
has on the holders of Holdings Common Stock (after giving effect to the
Davel/PhoneTel Merger Agreement) or Parent Common Stock.
ARTICLE 7
COVENANTS OF PARENT AND THE COMPANY
The parties hereto agree that:
SECTION 7.01 Reasonable Best Efforts. Subject to the terms and
-----------------------
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement, provided that
nothing herein shall require Parent, the Surviving Corporation or Holdings to
hold, manage or operate any assets separately or to enter into any sale or
divestiture of assets, the effect of which would be to impair, in any material
respect, the full benefit of the Transaction to Parent and Holdings. The
Company, Parent and Newco shall each furnish to one another and to one another's
counsel all such information as may be required in order to accomplish the
foregoing actions. In connection with and without limiting the foregoing, the
Company and Parent shall (a) take all reasonable action necessary to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to the Merger, this Agreement or any of the other transactions
contemplated hereby and (b) if any state takeover statute or similar statute or
regulation becomes applicable to the Merger, this Agreement or any of the other
transactions contemplated hereby, take all reasonable action necessary to ensure
that the Merger and the other transactions contemplated hereby may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
SECTION 7.02 Certain Filings. The Company and Parent shall
---------------
cooperate with one another (a) in connection with the preparation of the Form S-
4, the Proxy Statement and any other disclosure document filed after the date
hereof pursuant to the Securities Act, the Exchange Act or any state securities
law (each a "Disclosure Document"), (b) in determining whether any other action
-------------------
by or in respect of, or filing with, any Governmental Entity or any actions,
consents, approvals or waivers are required to be obtained from parties to any
material contracts in connection with the consummation of the transactions
contemplated by this Agreement and (c) in seeking any such actions, consents,
approvals or waivers or making any such filings, furnishing information required
in connection therewith or with the Form S-4, the Proxy Statement and the
Disclosure Documents and seeking timely to obtain any such actions, consents,
approvals or waivers.
SECTION 7.03 Public Announcements. Parent and the Company shall
--------------------
consult with each other before issuing any press release or making any public
statement with respect to this Agreement and the transactions contemplated
hereby and, except as may be required by applicable
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law or any listing agreement with any national securities exchange, will not
issue any such press release or make any such public statement prior to such
consultation.
SECTION 7.04 Further Assurances. Upon the terms and subject to the
------------------
satisfaction of the conditions contained in this Agreement, each of the parties
hereto shall use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the Merger.
SECTION 7.05 Notices of Certain Events. The Company and Parent
-------------------------
shall promptly notify the other of:
(a) any notice or other communication from any person alleging
that the consent of such person is or may be required in connection with
the transactions contemplated by this Agreement;
(b) any notice or other communication from any Governmental
Entity in connection with the transactions contemplated by this Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge threatened against, relating to
or involving or otherwise affecting the Company or any Subsidiary, on the
one hand, or Parent or Newco, on the other hand, which relate to the
consummation of the transactions contemplated by this Agreement; and
(d) any action, event or occurrence that would constitute a
breach of any representation, warranty, covenant or agreement of it set
forth in this Agreement.
SECTION 7.06 Preparation of the Form S-4 and the Proxy Statement.
---------------------------------------------------
(a) As soon as practicable following the date of this Agreement,
the Company and Parent shall jointly prepare and file with the SEC the
Proxy Statement and Parent shall prepare and file with the SEC the Form S-
4, in which the Proxy Statement will be included as a prospectus. Each of
the Company and Parent shall use reasonable best efforts to have the Form
S-4 declared effective under the Securities Act as promptly as practicable
after such filing. The Company and Parent shall use their respective
reasonable best efforts to cause the Proxy Statement to be mailed to their
respective stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any
action (other than qualifying to do business in any jurisdiction in which
it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of the Parent Common Stock in the Merger and
the Company shall furnish all information concerning the Company and the
holders of the Shares as may be reasonably requested in connection with any
such action. No filing of, or amendment or supplement to, the Form S-4
will be made by Parent or to the Proxy Statement will be made by the
Company or Parent without providing the other party the opportunity to
review and comment thereon. Parent
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will advise the Company, promptly after it receives notice thereof, of the
time when the Form S-4 has become effective or any supplement or amendment
has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or any request by the SEC
for amendment of the Proxy Statement or the Form S-4 or comments thereon
and responses thereto or requests by the SEC for additional information. If
at any time prior to the Effective Time any information relating to the
Company or Parent, or any of their respective affiliates, officers or
directors, should be discovered by the Company or Parent which should be
set forth in an amendment or supplement to any of the Form S-4 or the Proxy
Statement, so that any of such documents would not include any misstatement
of a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, the party which discovers such information shall
promptly notify the other party hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and, to the extent required by law, disseminated to the stockholders of the
Company and Parent.
(b) The Company hereby (i) consents to the use of its name and,
on behalf of its subsidiaries and affiliates, the names of such
subsidiaries and affiliates and to the inclusion of financial statements
and business information relating to it and its subsidiaries and affiliates
(in each case, to the extent required by applicable securities laws) in any
registration statement or proxy statement prepared by Parent (or, if
applicable, Holdings) and PhoneTel Technologies, Inc. ("PhoneTel") in
--------
connection with seeking stockholder approval for the transactions
contemplated by the Davel/PhoneTel Merger Agreement, (ii) agrees to use all
reasonable efforts to obtain the written consent of any person or entity
retained by it which may be required to be named (as an expert or
otherwise) in such registration statement or proxy statement (provided,
--------
however, that the Company shall not be required to make any material
-------
payment to such person or entity in connection with the Company's efforts
to obtain any such consent), and (iii) agrees to cooperate, and agrees to
cause its subsidiaries and affiliates to cooperate, with any legal counsel,
investment banker, accountant or other agent or representative retained by
any of the parties specified in clause (i) in connection with the
preparation of any and all information required, as determined after
consultation with each party's counsel, to be disclosed by applicable
securities laws in any such registration statement or proxy statement.
(c) Parent hereby agrees to use reasonable best efforts to cause
PhoneTel (i) to consent to the use of its name and, on behalf of its
subsidiaries and affiliates, the names of such subsidiaries and affiliates
and to the inclusion of financial statements and business information
relating to PhoneTel and its subsidiaries and affiliates (in each case, to
the extent required by applicable securities laws) in any registration
statement or proxy statement prepared by Parent (or, if applicable,
Holdings) and the Company in connection with seeking stockholder approval
for the transactions contemplated by this Agreement, (ii) to use all
reasonable efforts to obtain the written consent of any person or entity
retained by PhoneTel which may be required to be named (as an expert or
otherwise) in such registration statement or proxy statement (provided,
--------
however, that Parent shall not be required to make any material payment to
-------
such person or entity in connection with Parent's efforts to obtain any
such consent), and (iii) to agree to cooperate, and to agree to cause its
subsidiaries and affiliates
-39-
to cooperate, with any legal counsel, investment banker, accountant or
other agent or representative retained by any of the parties specified in
clause (i) in connection with the preparation of any and all information
required, as determined after consultation with each party's counsel, to be
disclosed by applicable securities laws in any such registration statement
or proxy statement.
SECTION 7.07 Letters of Accountants.
----------------------
(a) Each of Parent and the Company shall use its reasonable best
efforts to cause to be delivered to the other party two letters from the
Company's independent accountants, one dated a date within two business
days before the date on which the Form S-4 shall become effective and one
dated a date within two business days before the Closing Date, each
addressed to Parent, in form and substance reasonably satisfactory to
Parent and the Company and customary in scope and substance for comfort
letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) Each of Parent and the Company shall use reasonable best
efforts to cause to be delivered to the other party and the other party's
independent accountants two letters from its independent accountants
addressed to Parent and the Company, one dated as of the date the Form S-4
is effective and one dated as of the Closing Date, in each case stating
that accounting for the Merger as a pooling of interests under Opinion 16
of the Accounting Principles Board and applicable SEC rules and regulations
is appropriate if the Merger is consummated in accordance with this
Agreement.
SECTION 7.08 Affiliates.
----------
(a) Not less than 45 days prior to the Effective Time, the
Company shall deliver to Parent a list of names and addresses of each
person who, in the Company's reasonable judgment, is an affiliate within
the meaning of Rule 145 of the rules and regulations promulgated under the
Securities Act or otherwise applicable SEC accounting releases with respect
to pooling of interests accounting treatment (each such person, a "Pooling
-------
Affiliate") of the Company. The Company shall provide Parent such
---------
information and documents as Parent shall reasonably request for purposes
of reviewing such list. The Company shall deliver or cause to be delivered
to Parent, not later than 30 days prior to the Effective Time, an affiliate
letter in the form attached hereto as Exhibit 7.08(a), executed by each of
---------------
the Pooling Affiliates of the Company identified in the foregoing list.
Parent shall be entitled to place legends as specified in such affiliate
letters on the certificates evidencing any of the Parent Common Stock to be
received by the Pooling Affiliates of the Company pursuant to the terms of
this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Parent Common Stock, consistent with the terms of
such letters.
(b) Not less than 45 days prior to the Effective Time, Parent
shall deliver to the Company a list of names and addresses of each person
who, in Parent's reasonable judgment, is a Pooling Affiliate of Parent.
Parent shall provide the Company such information and documents as the
Company shall reasonably request for purposes of
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reviewing such list. Parent shall deliver or cause to be delivered to the
Company, not later than 30 days prior to the Effective Time, an affiliate
letter in the form attached hereto as Exhibit 7.08(b), executed by each
---------------
Pooling Affiliate of Parent identified in the foregoing list.
SECTION 7.09 Nasdaq Listing. Parent or, if applicable, Holdings
--------------
shall use its reasonable best efforts to cause the Parent Common Stock or, if
applicable, Holdings Common Stock to be approved for listing on the Nasdaq Stock
Exchange, subject to official notice of issuance, as promptly as practicable
after the date hereof, and in any event prior to the Closing Date and to
continue to be listed on the Nasdaq Stock Exchange following the Effective Time.
SECTION 7.10 Tax Treatment. Each of Parent, Holdings and the Company
-------------
shall use reasonable best efforts to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code, including,
without limitation, forebearing from taking any action that would cause the
Merger not to qualify as a reorganization under the provisions of Section 368(a)
of the Code.
SECTION 7.11 Pooling of Interests. Each of Parent, Holdings and
--------------------
the Company shall use their respective reasonable best efforts to cause the
transactions contemplated by this Agreement, including the Merger, to be
accounted for as a pooling of interests under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations, and each of the
Company and Parent agrees that it will not knowingly take any action that would
cause such accounting treatment not to be obtained.
SECTION 7.12 Representations. Each of the Company, on the one hand,
---------------
and Parent and Holdings, on the other, (a) will use its reasonable best efforts
to take all action necessary to render true and correct as of the Closing Date
its representations and warranties contained in this Agreement, (b) will refrain
from taking any action that would render any such representation or warranty
untrue or incorrect as of such time, and (c) will perform or cause to be
satisfied each agreement, covenant or condition to be performed or satisfied by
it.
SECTION 7.13 Confidentiality. Each of the Company and Parent will
---------------
hold, and will use its reasonable best efforts to cause its affiliates and its
and their respective officers, directors, employees, consultants, advisors and
agents to hold, in confidence, unless compelled to disclose by judicial or
administrative process or by other requirements of law, all trade secrets and
confidential information concerning the other party and its subsidiaries
furnished to it in connection with the transactions contemplated by this
Agreement, except to the extent that such information can be shown to have been
(a) previously known on a nonconfidential basis by the party receiving such
information, (b) in the public domain through no fault of the party receiving
such information or (c) lawfully available to the party receiving such
information from sources other than the other party; provided, however, that any
-------- -------
party so receiving such information may disclose such information to such
affiliates and officers, directors, employees, consultants, advisors and agents
so long as such persons are informed by such party of the confidential nature of
such information and are directed by such party to treat such information
confidentially; and provided further that the party receiving such information
-------- -------
shall be responsible for any disclosures of such information by any such
persons. If this Agreement is terminated, such confidence shall be maintained
and each of the Company and Parent will, and will use its reasonable best
efforts to cause its affiliates and its and their respective
-41-
officers, directors, employees, consultants, advisors and agents to, destroy or
deliver to the other party, upon request, all documents and other materials, and
all copies thereof, obtained by it or on its behalf from the other party in
connection with this Agreement that are subject to such confidence.
ARTICLE 8
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each Party. The
-------------------------------------------
obligations of the Company, Parent and Newco to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) this Agreement shall have been approved and adopted by the
stockholders of the Company in accordance with New York Law;
(b) if required by applicable law or regulation or the rules of
the Nasdaq Stock Market, the issuance of Parent Common Stock (or, if
applicable, Holdings Common Stock) in the Merger shall have been approved
by the stockholders of Parent (or, if applicable, Holdings);
(c) any applicable waiting period under the HSR Act relating to
the Merger shall have expired or been terminated;
(d) no provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of
the Merger;
(e) the Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a
stop order;
(f) the shares of Parent Common Stock (or, if applicable,
Holdings Common Stock) issuable to the Company's stockholders as
contemplated by this Agreement shall have been approved for listing on the
Nasdaq Stock Market, subject to official notice of issuance;
(g) all outstanding shares of the Series C Cumulative Convertible
Preferred Stock of the Company shall have been converted into Company
Common Stock; and
(h) Parent (or, if applicable, Holdings) shall have obtained the
Financing and entered into appropriate indentures, loan agreements, or
other agreements with respect to the Financing.
SECTION 8.02 Conditions to the Obligations of Parent and Holdings.
----------------------------------------------------
The obligations of Parent and Holdings to consummate the Merger are subject to
the satisfaction of the following additional conditions:
-42-
(a) the representations and warranties of the Company as set
forth in this Agreement shall be true and correct as if made on and as of
the Effective Time (other than those representations and warranties which
address matters only as of a certain date, which shall be true and correct
as of such certain date), except where the facts, circumstances or events
that cause or constitute the failure of such representations and warranties
to be true and correct (after giving effect to the disclosures made by the
Company in any disclosure schedules delivered pursuant hereto, but
disregarding any materiality qualifications contained within the body of
such representations and warranties) has not had and would not be
reasonably likely to have, in the aggregate, a Company Material Adverse
Effect and the Company shall have complied with or performed in all
material respects all agreements and covenants required to be complied with
or performed by it under this Agreement at or prior to the Closing Date;
(b) receipt by Parent of an opinion of its independent certified
public accountants stating that accounting for the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is
consummated in accordance with this Agreement;
(c) at least 85% of the aggregate outstanding principal amount of
the Notes shall have been tendered to the Company pursuant to and in
accordance with of Section 5.07 hereof; and
(d) Parent shall have received an opinion from Kirkland & Ellis,
counsel to Parent, dated as of the Closing Date, substantially to the
effect that the Merger will constitute a reorganization for U.S. federal
income tax purposes within the meaning of Section 368(a) of the Code. In
rendering such opinion, counsel to Parent shall be entitled to rely upon
usual and customary representations of shareholders and officers of Parent,
Holdings, the Company and others.
SECTION 8.03 Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following additional conditions:
(a) the representations and warranties of Parent as set forth in
this Agreement shall be true and correct as if made on and as of the
Effective Time (other than those representations and warranties which
address matters only as of a certain date, which shall be true and correct
as of such certain date), except where the facts, circumstances or events
that cause or constitute the failure of such representations and warranties
to be true and correct (after giving effect to the disclosures made by
Parent in any disclosure schedules delivered pursuant hereto, but
disregarding any materiality qualifications contained within the body of
such representations and warranties) has not had and would not be
reasonably likely to have, in the aggregate, a Parent Material Adverse
Effect and Parent and Holdings shall have complied with or performed in all
material respects all agreements and covenants required to be complied with
or performed by them under this Agreement at or prior to the Closing Date;
-43-
(b) receipt by the Company of an opinion of its independent
certified public accountants stating that accounting for the Merger as a
pooling of interests under Opinion 16 of the Accounting Principles Board
and applicable SEC rules and regulations is appropriate if the Merger is
consummated in accordance with this Agreement;
(c) the Company shall have received an opinion from Shearman &
Sterling, counsel to the Company, dated as of the Closing Date,
substantially to the effect that the Merger will constitute a
reorganization for U.S. federal income tax purposes within the meaning of
Section 368(a) of the Code. In rendering such opinion, counsel to the
Company shall be entitled to rely upon usual and customary representations
of shareholders and officers of Parent, Holdings, the Company and others;
and
(d) Samstock, L.L.C. and its affiliates shall continue to hold
the securities to be purchased by it pursuant to the Stock Purchase
Agreement, dated as of May 14, 1998, by and between Samstock, L.L.C. and
Parent and to be represented on Parent's or Holdings' Board of Directors as
contemplated thereby.
ARTICLE 9
TERMINATION
SECTION 9.01 Termination. This Agreement may be terminated and the
-----------
Transaction may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of the
Company):
(a) by mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if the Merger has not been
consummated by December 31, 1998; provided that no party may terminate this
--------
Agreement pursuant to this subsection if such party's failure to fulfill
any of its obligations under this Agreement shall have been the reason that
the Effective Time shall not have occurred on or before such date;
(c) by either the Company or Parent, if there shall be any law or
regulation that makes consummation of the Transaction illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining Parent
or the Company from consummating the Transaction is entered and such
judgment, injunction, order or decree shall have become final and
nonappealable;
(d) by either the Company or Parent, if this Agreement shall not
have been approved and adopted by the stockholders of the Company at the
Company Stockholders Meeting or if the issuance of Parent Common Stock (or,
if applicable, Holdings Common Stock) in the Merger shall not have been
approved by the stockholders of Parent (or, if applicable, Holdings) at
the Parent Stockholders Meeting;
-44-
(e) by Parent, if the Company's Board of Directors shall (i)
withdraw, modify or change its recommendation or approval in respect of
this Agreement or the Merger in a manner adverse to Parent or Holdings or
(ii) have recommended any Acquisition Proposal other than by Parent,
Holdings or Newco;
(f) by Parent, if any corporation, partnership, person, other
entity or group (as defined in Section 13(d)(3) of the Exchange Act) other
than Parent, Holdings or Newco or any of their respective subsidiaries or
affiliates shall have become the beneficial owner of more than 15% of the
outstanding Shares (either on a primary or a fully diluted basis) and such
beneficial owner files or is required to file a Schedule 13D with the SEC
describing any plan or proposal of such beneficial owner which would result
in its acquisition of additional securities of the Company, any change in
the present Board of Directors or management of the Company or any other
extraordinary corporate transaction involving the Company that could
prevent or materially delay the consummation of the Merger;
(g) by Parent (provided that Parent is not then in breach of its
obligations hereunder in any material respect), if the Company shall have
breached in any material respect any of its representations, warranties,
covenants or agreements contained herein, such that the condition to
consummation in Section 8.02(a) would not be fulfilled, and the Company
shall not have cured such breach within 30 days after the Company receives
written notice of such breach from Parent;
(h) by the Company, to allow the Company to enter into an
agreement in respect of an Acquisition Proposal which the Company's Board
of Directors has determined in the exercise of its fiduciary duties is more
favorable to the Company and its stockholders than the transactions
contemplated hereby (provided that the termination described in this
--------
subsection (h) shall not be effective unless and until the Company shall
have paid to Parent the fee described in Section 9.04(b) hereof);
(i) by the Company (provided that the Company is not then in
breach of its obligations hereunder in any material respect), if Parent
shall have breached in any material respect any of its representations,
warranties, covenants or agreements contained herein, such that the
condition to consummation in Section 8.03(a) would not be fulfilled, and
Parent shall not have cured such breach within 30 days after Parent
receives written notice of such breach from the Company; or
(j) by the Company, if the Davel/PhoneTel Merger Agreement has
been amended, or any obligation of PhoneTel thereunder has been waived, and
such waiver or amendment causes a material reduction in the value of the
Merger Consideration to the holders of Company Common Stock or any
reduction in the value of the Merger Consideration to the holders of
Company Common Stock that does not have the same relative impact on holders
of Parent Common Stock (or, after the Davel/PhoneTel Merger, on such
holders whose Parent Common Stock has been exchanged for Holdings Common
Stock).
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Such right of termination shall be exercised by written notice of termination
given by the terminating party to the other parties hereto in the manner
hereinafter provided. Any such right of termination shall not be an exclusive
remedy hereunder but shall be in addition to any other legal or equitable
remedies that may be available to any non-defaulting party hereto arising out of
any default hereunder by any other party hereto.
SECTION 9.02 Waiver. At any time prior to the Effective Time, the
------
parties hereto, by action taken by or pursuant to resolutions of their
respective Boards of Directors, may (a) extend the time for the performance of
any of the obligations or other acts of the parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) except for the requirements set
forth in Sections 8.01(a) through (f), waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
SECTION 9.03 Closing. Subject to the satisfaction of the conditions
-------
contained in Article 8 hereof, the closing of the Merger contemplated by this
Agreement (the "Closing") shall take place at the offices of Kirkland & Ellis
-------
in Chicago, Illinois as soon as practicable after the satisfaction or waiver of
all of the conditions to the Merger contained in Article 8 hereof or at such
other time and place as Parent and the Company shall agree (the "Closing Date").
------------
SECTION 9.04 Effect of Termination; Termination Fee.
--------------------------------------
(a) If this Agreement is terminated pursuant to Section 9.01
hereof, this Agreement shall become void and of no effect with no liability
on the part of any party hereto, except that the agreements contained in
Sections 7.13, 9.04(b) and 10.04 hereof shall survive the termination
hereof and the Termination Option Agreement shall survive in accordance
with its terms, and except that no such termination shall relieve any party
from liability for breach of this Agreement or failure by it to perform its
obligations hereunder.
(b) If (i) Parent or Holdings shall have terminated this
Agreement pursuant to clause (e) of Section 9.01 hereof or (ii) the Company
shall have terminated this Agreement pursuant to clause (h) of Section 9.01
hereof, then in either such case, the Company shall promptly, but in no
event later than two business days after the date of such failure to close
or termination, pay Parent a termination fee of $5,000,000 plus an amount,
not to exceed $1,000,000, equal to the actual and reasonably documented
out-of-pocket expenses incurred by Parent and Equity Group Investments,
Inc. directly attributable to the proposed acquisition of the Company,
including negotiation and execution of this Agreement and the attempted
financing and completion of the Merger, which fee and amount shall be
payable in same day funds. In no event shall the Company be required to
pay more than one termination fee and reimbursement of expenses pursuant to
this Section 9.04(b).
-46-
ARTICLE 10
MISCELLANEOUS
SECTION 10.01 Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including facsimile,
telex or similar writing) and shall be given,
if to Parent or Newco, to:
Davel Communications Group, Inc.
1429 Massaro Boulevard
Tampa, Florida 33619
Attention: General Counsel
Facsimile: (813) 626-9610
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, Illinois 60601
Attention: R. Scott Falk
Facsimile: (312) 861-2200
if to the Company, to:
Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida 33172
Attention: General Counsel
Facsimile: (305) 593-6116
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with copies to:
Steel Hector & Davis LLP
200 South Biscayne Blvd.
Miami, Florida 33131-2398
Attention: Ira N. Rosner, P.A.
Facsimile: (305) 577-7001
and
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Attention: John Madden, Esq.
Facsimile: (212) 848-7179
or such other address, telecopy or telex number as such party may hereafter
specify for the purpose by notice to the other parties hereto. Each such
notice, request or other communication shall be effective (a) if given by
facsimile or telex, upon confirmation of receipt, or (b) if given by any other
means, when delivered at the address specified in this Section 10.01.
SECTION 10.02 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties contained herein shall not survive the Effective
Time.
SECTION 10.03 Amendments; No Waivers.
----------------------
(a) Any provision of this Agreement may be amended or waived
prior to the Effective Time if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by the Company, Parent and
Newco or in the case of a waiver, by the party against whom the waiver is
to be effective; provided that after the adoption of this Agreement by the
--------
stockholders of the Company, no such amendment or waiver shall, without the
further approval of such stockholders, alter or change (i) the amount or
kind of consideration to be received in exchange for any shares of capital
stock of the Company, (ii) any term of the articles of incorporation of the
Surviving Corporation or (iii) any of the terms or conditions of this
Agreement if such alteration or change would adversely affect the holders
of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall
any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
SECTION 10.04 Expenses. Except as provided in Section 9.04 hereof,
--------
each party shall pay its own costs and expenses relating to this Agreement and
the transactions contemplated hereby, except that each of Parent and the Company
shall bear and pay one-half of the
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costs and expenses incurred in connection with the filing, printing and mailing
of the Form S-4 and the Proxy Statement (including SEC filing fees).
SECTION 10.05 Successors and Assigns. The provisions of this
----------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns; provided that no party may assign,
--------
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
SECTION 10.06 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the law of the State of New York applicable to
contracts executed in and to be performed in that State.
SECTION 10.07 Counterparts; Effectiveness. This Agreement may be
---------------------------
signed in any number of counterparts (including by means of telecopied signature
pages), each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
SECTION 10.08 Headings; Schedules.
-------------------
(a) Section headings used in this Agreement are for convenience
only and shall be ignored in the construction and interpretation hereof.
(b) The parties hereto acknowledge that certain matters set forth
in the Schedules to this Agreement are included for informational purposes
only, notwithstanding the fact that, because they do not rise above
applicable materiality thresholds or otherwise, they would not be required
to be set forth therein by the terms of this Agreement and that disclosure
of such matters shall not be taken as an admission by the Company or Parent
that such disclosure is required to be made under the terms of any
provision of this Agreement and in no event shall the disclosure of such
matters be deemed or interpreted to broaden or otherwise amplify the
representations and warranties contained in this Agreement or be used as a
basis for interpreting the materiality thresholds in this Agreement
(including, but not limited to, the terms "material," "materially,"
"materiality," "material adverse change," "material adverse effect" or
"Material Adverse Effect").
SECTION 10.09 Obligations of Parent and Holdings. Notwithstanding
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anything to the contrary contained in this Agreement: (a) Parent shall be
jointly and severally responsible, with Holdings, for the fulfillment of all of
the obligations of Holdings under this Agreement and for any breach by Holdings
of any representations, warranties, covenants and agreements of Holdings
contained in this Agreement; and (b) Holdings shall be jointly and severally
responsible for the fulfillment of all of the obligations of Parent under this
Agreement and for any breach by Parent of any representations, warranties,
covenants and agreements of Parent contained in this Agreement.
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SECTION 10.10 No Third Party Beneficiaries. Except for Section 6.03
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hereof, no provision of this Agreement is intended to, or shall, confer any
third party beneficiary or other rights or remedies upon any person other than
the parties hereto.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of
Merger and Reorganization to be duly executed by their respective authorized
officers as of the day and year first above written.
DAVEL COMMUNICATIONS GROUP, INC.
By: /s/ David Hill
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Name: David Hill
Title: Chairman
DAVEL HOLDINGS, INC.
By: /s/ David Hill
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Name: David Hill
Title: President
PEOPLES TELEPHONE COMPANY, INC.
By: /s/ E. Craig Sanders
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Name: E. Craig Sanders
Title: CEO/President