AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated October
21, 1994, among PEOPLES TELEPHONE COMPANY, INC., a New York
corporation ("Peoples"), PEOPLES ACQUISITION CORPORATION, a
Pennsylvania corporation ("PAC"), TELECOIN COMMUNICATIONS, LTD., a
Pennsylvania corporation ("Telecoin"), and GILBERT A. MENDELSON,
DAVID T. MAGRISH, LOUIS SWARTZ, HOWARD SIEGEL AND HARVEY OSTROW
(collectively, the "Shareholders")(Mr. Mendelson and Mr. Magrish
may be referred to collectively herein as the "Executive
Officers").
RECITALS
1. The Shareholders are the record and beneficial owners of
all of the issued and outstanding shares of Telecoin's capital
stock.
2. The Shareholders have duly authorized the merger of
Telecoin with PAC on the terms and subject to the conditions set
forth in this Agreement.
AGREEMENT
In consideration of the mutual representations, warranties and
covenants and subject to the conditions contained in this
Agreement, the parties agree:
ARTICLE I
MERGER
Subject to the terms and conditions of this Agreement, on the
date of this Agreement (the "Effective Time"):
(i) Upon the filing of Articles of Merger, Telecoin is
hereby merged with and into PAC (the "Merger") in accordance with
the applicable provisions of the Pennsylvania Business Corporation
Law ("PBCL"). PAC shall be the surviving corporation (the
"Surviving Corporation") and the separate existence of Telecoin
shall cease.
(ii) The Merger shall in all respects have the effect
provided for in Section 1921 of the PBCL. Telecoin and PAC shall
file Articles of Merger, substantially in the form attached to this
Agreement as Exhibit A, with the Pennsylvania Secretary of State.
(iii) The Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation of PAC in effect
at the Effective Time.
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(iv) The Bylaws of the Surviving Corporation shall be the
By-Laws of PAC in effect at the Effective Time.
(v) From and after the Effective Time, the members of the
Board of Directors of the Surviving Corporation shall consist of
the members of the Board of Directors of PAC immediately prior to
the Effective Time, each of such persons to serve until his
successor is elected and qualified or until his earlier death,
resignation or removal.
(vi) From and after the Effective Time, the officers of the
Surviving Corporation shall consist of the officers of PAC
immediately prior to the Effective Time, in the same capacity or
capacities and each such officer shall serve until his successor is
elected and qualified or until his earlier death, resignation or
removal.
ARTICLE II
CONSIDERATION
Section 2.1 Consideration. By virtue of the Merger and
without any action on the part of any Shareholder of Telecoin:
(a) Each share of common stock, par value $1.00 per share, of
Telecoin ("Telecoin Common Stock"), that is held by Telecoin as
treasury stock shall be canceled.
(b) Each share of capital stock of PAC that is issued and
outstanding immediately prior to the Merger shall remain
outstanding, and each certificate evidencing ownership of any such
shares shall evidence ownership of the same number of shares of the
Surviving Corporation.
(c) Upon surrender of all the certificates by the
Shareholders of Telecoin representing all the Telecoin Common
Stock, Peoples shall pay to the Shareholders the aggregate
consideration (the "Total Consideration") of seven million and four
thousand dollars ($7,004,000) (the "Base Price") plus X in the
following formula if X is a positive number or minus X in the
following formula if X is a negative number (the "Adjustment"):
X = Y - Z
X = The dollar amount of the increase or decrease in
the Base Price;
Y = The total of all Telecoin's cash on hand, current
accounts receivable, less those accounts receivable
deemed uncollectible by Peoples (in accordance with
Section 7.6 of this Agreement) plus all prepaid
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charges or advances as of the Closing, (except line
deposits held by a local exchange company for the
benefit of Telecoin). In the event a current
account receivable is not deemed uncollectible by
Peoples as provided above and that current account
receivable is not collected within 90 days after
the date of this Agreement, (i) the current account
receivable shall be deemed a non-current account
receivable for purposes of the Adjustment, (ii) the
account receivable shall not be utilized in
calculating the Adjustment and (iii) the Surviving
Corporation shall assign the account receivable to
the Telecoin Liquidating Trust ("TLT");
Z = The total of all of Telecoin's liabilities as of
the Closing as ultimately determined or settled as
mutually agreed upon by the parties, including but
not limited to, any liability to Intellicall, Inc.
("Intellicall") arising out of Telecoin's
utilization of the Intellicall I*Star technology
prior to the Closing; provided, however, to the
extent any such liabilities are covered by
insurance, the difference between (i) the actual
liability and (ii) the amount Peoples and/or PAC
receives from the insurance carrier in connection
with that liability, shall be utilized in
calculating the total liabilities as set forth
above.
The Adjustment shall be determined on or before 90 days after
the Closing Date. Peoples and the Shareholders will cooperate in
good faith to prepare the Adjustment. If the parties are unable to
reach a mutual agreement on the Adjustment within 120 days after
the Closing, the disputed items shall be referred within 7 days to
a firm of independent certified public accountants mutually agreed
upon by the parties (which accountants are not currently retained
and have not been retained by any of the parties for a period of
three years immediately prior to the date of this Agreement). The
certified public accountants so selected shall determine that
portion of the Adjustment which is in dispute within 60 days
following selection, and its determination shall be final and
binding on the parties. All costs and fees shall be paid by the
parties equally.
(d) Peoples shall pay an additional amount (the "Additional
Amount") to the Shareholders as set forth in this paragraph.
Telecoin has secured pay telephone placement agreements with the
third party property owners, lessees and lessors listed on Schedule
2.1(d) which grant Telecoin the exclusive right to provide pay
telephone service at those third party locations but Telecoin has
not installed pay telephones at those third party locations
(collectively, the "Third Party Locations"). For each pay telephone
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installed by the Surviving Corporation at a Third Party Location
which is the subject of at least a three-year telephone placement
agreement on terms and conditions reasonably acceptable to Peoples
in its sole discretion, Peoples will pay the Shareholders an
amount, in cash or cash equivalent, within 150 days after
installation, based on the average net revenue (as defined below)
generated by each installed pay telephone during the first full
three months immediately after installation as follows:
Net Revenue Per Telephone per month Additional Amount
$131 or more $1,400
$121 - $130 $1,200
$111 - $120 $1,000
$101 - $110 $ 800
$85 - $100 $ 600
Less than $85 0
Net revenue shall be defined as the sum of (i) the gross coin
collected by or on behalf of the Surviving Corporation, (ii) the
non-coin commission, including surcharges, collected by or on
behalf of the Surviving Corporation, (iii) in the event Peoples
serves as its own operator services provider the gross revenue
generated by operator assisted calls, less all line charges,
billing, collection and validation charges, bad debt and other
costs directly attributable to the carrying of the calls, and (iv)
all dial around compensation collected by the Surviving
Corporation, reduced by the sum of (a) local exchange company and
long distance telephone charges, (b) commissions paid to Property
Owners, (c) any signing bonus paid to the Property Owner amortized
over the initial term of the Placement Agreement and (d) a $40 per
month service and collection charge per installed telephone.
Section 2.2 Payment of the Total Consideration.
(a) Peoples shall deliver to each Shareholder a wire transfer
or check equal to his pro rata allocation of $572,948.35 in the
aggregate, which pro rata allocation shall be determined in
accordance with Schedule 2.2 (the "Initial Cash Payment").
(b) Peoples agrees to deliver to each Shareholder his pro
rata allocation of $742,636.65 in the aggregate (the "Stock
Payment") in shares of Peoples common stock, par value $.01 per
share (the "Peoples Common Stock"), which pro rata allocation shall
be determined in accordance with Schedule 2.2, upon the earlier of:
(i)January 31, 1995, or (ii) the date a registration statement
including the Peoples Common Stock is declared effective by the
United States Securities and Exchange Commission (the "SEC"), but
in no event prior to January 2, 1995. For purposes of this
Section, the aggregate number of shares to be delivered to the
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Shareholders shall be determined by dividing $742,636.65 by the
average closing price of one share of Peoples Common Stock for the
five days immediately preceding the Closing Date, as reported on
the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") (the
"Average Closing Price"). The Peoples Common Stock, upon issuance,
shall be subject to the restrictions of Rule 144 promulgated by the
SEC under the Securities Act of 1933, as amended (the "Act"), until
properly disposed of in accordance with the terms of Rule 144 or
another exemption from the registration requirements of the Act or
until the Common Stock is registered by Peoples pursuant to Section
7.3 of this Agreement. In the event the price of one share of
Peoples' common stock is less than the Average Closing Price on the
day immediately preceding the date the Peoples Common Stock
representing the Stock Payment is registered in accordance with
Section 7.3 (the "Registration Date"), the aggregate number of
shares to be delivered to the Shareholders shall be determined by
dividing $742,636.65 by the average closing price of one share of
Peoples Common Stock for the five days immediately preceding the
Registration Date, as reported on NASDAQ.
(c) Peoples shall deliver to the Executive Officers a 30 day
promissory note in the form of Exhibit D attached hereto in the
amount of $200,000 (the "Principal") which Principal shall bear
simple interest at the rate of 7.75% annually.
(d) Subject to adjustment and Peoples' right of set-off as
provided in this Agreement, 90 days after the Closing Peoples shall
deliver to each Shareholder a check or wire transfer equal to his
pro rata allocation of the difference between (i) the Total
Consideration, and (ii) the sum of (a) the Initial Cash Payment and
(b) the Stock Payment.
(e) Not less than twenty (20) days prior to the 365th day
following the Closing Date, Peoples shall provide the Executive
Officers with a written notice containing (i) a summary of the
liabilities which were used in determining any Adjustment (the
"Adjustment Liabilities") and evidence reasonably satisfactory to
the Executive Officers that Peoples has actually paid such
Adjustment Liabilities, and (ii) a description of the nature and
amount of any other liabilities which it believes, in good faith,
are in existence and were not taken into account in determining the
amount of the Adjustment which should be expressly assumed by the
Shareholders (the "Additional Liabilities"). With respect to the
Additional Liabilities, such notice shall include a reasonably
detailed description of such Additional Liabilities, and any other
information reasonably necessary to adequately advise the Executive
Officers concerning such Additional Liabilities. To the extent
that any such Additional Liabilities are covered by insurance, the
Shareholders shall be responsible for the difference between (i)
the actual liability and (ii) the amount Peoples and/or PAC
receives from the insurance carrier in connection with that
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Additional Liability.
If Peoples and the Executive Officers are unable to reach a
mutual agreement of the appropriateness of the assumption by the
Shareholders of any Additional Liabilities within thirty (30) days
following the first anniversary of the Closing Date, the disputed
items shall be referred within seven (7) days thereafter to a firm
of independent certified public accountants mutually agreed upon by
the parties (which accountants are not currently retained and have
not been retained by any of parties for a period of three years
immediately prior to the date of this Agreement) to determine the
appropriateness of assumption by the Shareholders of any disputed
items. The independent certified public accountants so selected
shall make a determination with respect to such disputed items
within sixty (60) days following its selection and its
determination shall be final and binding. All costs and fees of
such accountants shall be paid by the parties equally.
If Peoples and the Executive Officers (or the firm of
independent certified public accountants) establish that there are
Additional Liabilities in existence which the Shareholders are
obligated to assume and pay, the parties shall cooperate in good
faith to arrange a method to satisfy such Additional Liabilities.
The Executive Officers shall be entitled, at their cost and
expense, to contest and defend by all appropriate legal proceedings
any Additional Liabilities or unpaid Adjustment Liabilities which
are determined to be the obligation of the Shareholders. If
requested by the Executive Officers, Peoples and/or PAC agree to
cooperate with the Executive Officers in reasonably contesting any
Additional Liabilities or Adjustment Liabilities and to take such
action as reasonably may be requested to reduce or eliminate any
loss in respect of such liabilities. In such event, the Executive
Officers shall reimburse Peoples and/or PAC for any reasonable
expenses incurred in so cooperating or acting at the request of the
Executive Officers.
The Executive Officers shall pay or cause the payment of any
Additional Liabilities or Adjustment Liabilities which are
determined to be the obligation of the Shareholders within fifteen
(15) business days after the amount of any such liabilities is
finally determined either mutual agreement of the parties to this
Agreement or pursuant to the final unappealable judgment of a court
of competent jurisdiction.
To the extent that any of the Adjustment Liabilities consist
of contingent or contested liabilities, which contingent or
contested liabilities were declared contingent or contested
liabilities by the Shareholders in writing during the determination
of the Adjustment (the "Contingent/Contested Liabilities") and
which Contingent/Contested Liabilities are determined not to be
owing, Peoples shall pay each Shareholder his pro rata allocation
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of an amount equal to the difference between (i) the
Contingent/Contested Liability, and (ii) the amount which Peoples
was required to pay in connection with the Contingent/Contested
Liability, together with interest at the rate of 7.75% (for those
Adjusted Liabilities declared Contingent only), within 15 business
days after such Contingent/Contested Liability is determined not to
be due and owing by mutual agreement of the Executive Officers and
Peoples or pursuant to a final unappealable judgment of a court of
competent jurisdiction.
ARTICLE III
CLOSING
Section 3.1 Time and Place of the Closing. The closing of
the transactions contemplated by this Agreement (the "Closing")
shall be held at the offices of Peoples, 2300 N.W. 89th Place,
Miami, Florida 33172, on October 21, 1994, or at such other time as
mutually agreed upon by the parties (the "Closing Date").
Section 3.2 Procedure at the Closing. At the Closing, the
parties agree to take the following steps in the order listed below
(provided, however, that upon their completion all of these steps
shall be deemed to have occurred simultaneously):
(a) Telecoin and PAC shall cause the Articles of Merger to be
executed and filed with the office of the Pennsylvania Secretary of
State as provided in Section 1926 of the PBCL;
(b) Each Shareholder shall deliver certificates representing
his shares of Telecoin Common Stock, duly endorsed or accompanied
by duly executed stock powers and with all requisite transfer tax
stamps attached;
(c) Legal Counsel for Telecoin shall deliver a legal opinion
to Peoples in substantially the form of Exhibit C to this
Agreement;
(d) Telecoin shall deliver to Peoples resolutions adopted by
Telecoin's board of directors approving the transactions
contemplated by this Agreement, certified by Telecoin's corporate
secretary;
(e) Telecoin shall deliver to Peoples the unanimous written
consent of Telecoin's shareholders approving the transactions
contemplated by this Agreement, certified by Telecoin's corporate
secretary;
(f) Peoples shall deliver to Telecoin resolutions adopted by
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Peoples' board of directors approving the transactions contemplated
by this Agreement, certified by Peoples' corporate secretary;
(g) PAC shall deliver to Telecoin resolutions adopted by PAC's
board of directors approving the transactions contemplated by this
Agreement, certified by PAC's corporate secretary;
(h) Peoples and Partacol Partners, Ltd. ("Partacol") shall
cause the consulting agreement substantially in the form of Exhibit
D hereto (the "Consulting Agreement") to be duly executed and
delivered;
(i) Peoples shall deliver to each Shareholder his pro rata
allocation of the Initial Cash Payment; and
(j) Peoples shall deliver to each Shareholder his pro rata
allocation of the Stock Payment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
TELECOIN AND THE EXECUTIVE OFFICERS
In order to induce Peoples and PAC to enter into this
Agreement and to consummate the transactions contemplated under
this Agreement, Telecoin and the Executive Officers hereby make the
following representations and warranties each of which is relied
upon by Peoples and PAC regardless of any other investigation made
or information obtained by Peoples or PAC:
Section 4.1 Organization, Power and Authority of the Company.
Telecoin is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Pennsylvania
and has the requisite corporate power and authority to own or lease
its properties and to carry on its business as it is now being
conducted. Schedule 4.1 contains a true and complete copy of the
Articles of Incorporation and By-laws of Telecoin, as amended to
the date of this Agreement. A true and complete copy of Telecoin's
minute book has been provided to Peoples.
Section 4.2 Capitalization. The authorized capital stock of
Telecoin consists of 100,000 shares of Telecoin Common Stock.
Except for the Telecoin Common Stock, there are no other authorized
classes of capital stock of Telecoin. There are issued and
outstanding 19,000 shares of Telecoin Common Stock. All issued and
outstanding shares of Telecoin Common Stock are validly issued,
fully paid and non-assessable and are not subject to any restriction
on transfer under the Articles of Incorporation or By-laws of
Telecoin. Two thousand Seven hundred (2,700) shares of Telecoin
Common Stock are held in the treasury of Telecoin. There are no
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outstanding (i) securities convertible into or exchangeable for any
capital stock of Telecoin; (ii) options, warrants or other rights
to purchase or subscribe to capital stock of Telecoin or securities
convertible into or exchangeable for capital stock of Telecoin; or
(iii) commitments, agreements or understandings of any kind
relating to the issuance of any capital stock of Telecoin, and such
convertible or exchangeable securities or any such options,
warrants or rights.
Section 4.3 Due Authorization; Binding Obligation. Telecoin
has the requisite corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement. This Agreement has been duly and validly executed and
delivered by Telecoin and is the legal, valid and binding
obligation of Telecoin, enforceable in accordance with its terms.
Except for any corporate action required by the Shareholders, and
any consents contemplated herein, no other action on the part of
any individual or other person or entity is necessary to authorize
this Agreement or for the consummation of the transactions
contemplated by this Agreement. Telecoin, the Executive Officers
and the Shareholders have duly executed this Agreement and
authorized the execution of this Agreement and the consummation of
the transactions contemplated by this Agreement as required under
the PBCL. The Shareholders have duly authorized the execution of
this Agreement and the consummation of the transactions
contemplated by this Agreement as required under the PBCL. Upon
obtaining all consents required by this Agreement, neither the
execution and delivery of this Agreement nor the consummation of
the transactions contemplated by this Agreement will: (i) conflict
with or violate any provision of Telecoin's Articles of
Incorporation or by-laws, or any law, ordinance or regulation or
any decree or order of any court or administrative or other
governmental body which is either applicable to, binding upon or
enforceable against Telecoin; (ii) except as set forth on Schedule
4.3(ii), to the best of the Executive Officers' knowledge result in
any breach of or default under any contract with any of Telecoin's
customers or any location owner and/or lessor where Telecoin's
assets are installed (collectively, the "Property Owners") or any
material mortgage, other contract, agreement, indenture, will,
trust or other instrument which is either binding upon or
enforceable against Telecoin or its assets; (iii) to the best of
Telecoin and the Executive Officers' knowledge, violate any legally
protected right of any individual or entity or give to any
individual or entity a right or claim against Peoples or PAC; or
(iv) materially impair any governmental or official license,
approval, permit or authorization of Telecoin to conduct its
business.
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Section 4.4 Financial Statements. Attached to this Agreement
as Schedule 4.4 are (i) the audited financial statements of
Telecoin for the period from January 1, 1992 through December 31,
1993 (collectively, the "Audited Financial Statements"), and (ii)
the unaudited financial statements of Telecoin for the period from
January 1, 1994 through August 31, 1994 (the "Unaudited Financial
Statements"). The Audited Financial Statements were prepared in
accordance with generally accepted accounting principles
consistently applied and are true, complete and correct and fairly
present the financial condition of Telecoin at such dates and
results of its operations for the periods ending on such dates and
do not include or omit to state any fact which renders those
statements misleading. The Unaudited Financial Statements (i) were
prepared in accordance with generally accepted accounting
principles consistently applied, except (a) the Unaudited Financial
Statements are subject to year end adjustments and (b)the unaudited
financial statements do not include footnotes, and (ii) are true,
complete and correct, except year end adjustments, and fairly
present the financial condition of Telecoin at such dates and
results of its operations for the periods ending on such dates and
do not include or omit to state any fact which renders those
statements misleading.
Section 4.5 No Undisclosed Liabilities. Except as set forth
on (i) the Audited Financial Statements, (ii) the Unaudited
Financial Statements, (iii) Schedule 4.5 or (iv) incurred in the
ordinary course of business since August 31, 1994, Telecoin has no
material liabilities or obligations (secured, unsecured, absolute,
accrued, asserted or unasserted) of any nature, whether as
principal, agent, partner, co-venturer, guarantor or in any other
capacity, or unrealized or anticipated losses; provided, however,
all undisclosed liabilities, whether material or otherwise, shall
be utilized in calculating the Adjustment as provided in Section
2.1.
Section 4.6 Licenses; Compliance. To the best of Telecoin's
and the Executive Officers' knowledge, Telecoin possesses all
licenses and other required governmental or official approvals,
permits, consents and authorizations, the failure of which to
possess would have a material adverse effect on the business,
financial condition, operations or results of operations of
Telecoin. Schedule 4.6 contains a complete list of all those
licenses, approvals, permits, consents and authorizations.
Telecoin is in compliance with (i) the terms of all such licenses,
approvals, permits, consents and authorizations, (ii) all laws,
ordinances, statutes and regulations where noncompliance would have
a material adverse effect on Telecoin and its business or assets,
and (iii) all judgments, orders, rulings or other decisions of any
governmental or other regulatory authority, court or arbitrator
having jurisdiction over Telecoin. Neither the execution, delivery
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or performance of this Agreement nor the performance of the
transactions contemplated by this Agreement will affect the
validity of any such licenses, approvals, permits and consents and
the same shall remain in full force and effect upon the
consummation of the transactions contemplated by this Agreement.
No approval, consent or authorization of or filing or registration
with any governmental or other regulatory authority, other than
those described on Schedule 4.6, is required by Telecoin for the
execution, delivery or performance of this Agreement or for the
consummation of the transactions contemplated by this Agreement.
Section 4.7 Relationships with Property Owners. Except as
set forth on Schedule 4.7, no written or oral communication from
any of Telecoin's customers which have entered into Telephone
Placement Agreements granting Telecoin the right to provide pay
telephone service (the "Property Owners") exists or has occurred
prior to the date of this Agreement and has been communicated to
the Executive Officers or any officer, manager or customer
relations personnel of Telecoin, which may indicate that any
Property Owner is reasonably likely to terminate its agreement with
Telecoin for any reason. Except as set forth on Schedule 4.7, none
of the Shareholders has any direct or indirect material interest in
any of the Property Owners.
Section 4.8 Placement Agreements and Expirations. Telecoin
has fully executed and delivered agreements with Property Owners
granting Telecoin the exclusive right to provide pay telephone
service (the "Placement Agreements")covering all of the locations
where Telecoin has pay telephones installed . Except as set forth
in Schedule 4.8(a), Telecoin has performed all of the obligations
required to be performed by it to date under the Placement
Agreements, and is not in default (with notice or lapse of time or
both) under any of the Placement Agreements. Telecoin has obtained
all necessary consents with respect to any Placement Agreement
containing a change in control provision or otherwise requiring
consent prior to the consummation of the transactions contemplated
by this Agreement prior to the date of this Agreement. Except as
otherwise provided in this Agreement, the consummation of the
transactions contemplated by this Agreement will in no way affect
the continuation, validity or effectiveness of any of the Placement
Agreements. Schedule 4.8(b) contains a true, correct and complete
list of the number of Placement Agreements which will expire in
each of the next ten (10) years.
Section 4.9 Termination of Placement Agreements. If any one
or more of the Property Owners which have entered into a Placement
Agreement gives notice to Peoples or PAC indicating its desire to
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terminate its respective Placement Agreement within 90 days after
the date of this Agreement and such Placement Agreement is
terminated (whether or not such termination occurs 90 days after
the Closing Date), then Peoples shall immediately offset the sum of
$2,800 from any amount which Peoples may owe the Shareholders
pursuant to this Agreement for each pay telephone which is removed
as a result of such termination; provided, however, in the event
the termination is a result of Peoples' or PAC's breach of the
terms and/or conditions of any Placement Agreement after the
Closing of the transactions contemplated by this Agreement, Peoples
shall not have the right of set-off as provided above. Peoples
agrees to use its reasonable efforts to enforce the Placement
Agreements after the date of this Agreement.
Section 4.10 Subsidiaries. Telecoin does not own, directly
or indirectly, any capital stock or equity securities of any
corporation or have any direct or indirect equity or ownership
interest in any business other than the business conducted by
Telecoin.
Section 4.11 Litigation Involving Telecoin. Except as set
forth on Schedule 4.11, there are no actions, suits, claims,
arbitration proceedings, or to the best of Telecoin's and the
Executive Officers' knowledge governmental investigations pending
or, to the best of Telecoin's and the Executive Officers'
knowledge, threatened against or affecting Telecoin or the
business, assets, or financial condition of Telecoin that may have
a material adverse effect on Telecoin and, to the best of
Telecoin's and the Executive Officers' knowledge, there are no
facts or circumstances which are reasonably likely to create a
basis for any of the foregoing. Telecoin and the Executive
Officers are not aware of any outstanding orders, decrees or
stipulations issued by any local, state or federal judicial
authority in any proceeding to which Telecoin is or was a party.
Section 4.12 Taxes. Telecoin has filed, caused to be filed
or has obtained extensions to file all federal, state and local tax
returns which are required to be filed by it, and has paid or
caused to be paid, or has made adequate provision on its books in
accordance with GAAP amounts sufficient for the payment of, all
taxes as shown on said returns or on any assessment received by it,
to the extent that the taxes have become due, and has made all
estimated tax payments required to be made by it to avoid the
imposition of penalties, interest and other additions to tax. No
tax liens have been filed against Telecoin or its assets and
Telecoin has not been notified of, and Telecoin does not have
knowledge of, any claim being asserted with respect to any such
taxes. There is no action, suit, proceeding, investigation or
audit now pending or, to the best of Telecoin's and the Executive
Officers' knowledge, threatened against Telecoin in respect to any
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tax or assessment, nor is any claim for additional tax or
assessment being asserted by any tax authority. All taxes which
Telecoin is required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid
over to the proper governmental authorities on a timely basis. All
ad valorem taxes which have been assessed against Telecoin or its
assets which are due and owing have been paid. None of the prior
tax returns of Telecoin has been audited and none of the officers
of Telecoin has been contacted that such an audit may occur. True,
complete and correct copies of the Telecoin's tax returns for the
years 1991, 1992 and 1993 have been furnished to Peoples.
Section 4.13 Bank Accounts. Attached to this Agreement as
Schedule 4.13 is a true and complete list of the names and
addresses of all banks or other financial institutions in which
Telecoin has any accounts, deposits or safe-deposit boxes, and the
names of all persons authorized to draw on such accounts or
deposits or who have access to such safe-deposit boxes. As of the
Closing Date, no person will hold a power of attorney on behalf of
Telecoin. The books of account of Telecoin show all checks, notes
and drafts outstanding, and there are sufficient funds in the
accounts listed on Schedule 4.13 to pay any and all checks, notes
or drafts outstanding on the Closing Date but not yet presented on
said accounts.
Section 4.14 Real Property Owned or Leased. Telecoin does
not own any real property. Telecoin has provided true and complete
copies of all leases of real property (the "Leased Property") to
which Telecoin is a party, including all amendments and
modifications thereto (the "Leases"). Telecoin enjoys peaceful and
undisturbed possession of the Leased Property, and the Leases are
the valid and legally binding obligations of Telecoin, enforceable
against Telecoin in accordance with their respective terms, and are
in full force and effect. Telecoin has not received written notice
of default under any of the Leases, and Telecoin is not in material
default of any Leases, and no event has occurred which, with the
passage of time or the giving of notice or both, would constitute
a material default thereunder.
Section 4.15 Title to Assets. Schedule 4.15(a) sets forth a
list of all equipment, supplies, parts, computer equipment,
furniture and fixtures owned by Telecoin having an individual value
in excess of $100 (the "Assets"). Telecoin has valid leasehold
interests in all Leased Property and good and marketable title to
all of its other property, tangible or intangible, reflected in the
Audited Financial Statements and the Unaudited Financial
Statements, subject to liens for current taxes and assessments not
yet due and payable. Except as set forth on Schedule 4.15(b), all
13
of the Assets are free and clear of restrictions on or conditions
to transfer or assignment, and are free and clear of any mortgage,
lien, charge, encumbrance, security interest or other restrictions.
All of the tangible Assets of Telecoin are in good condition, in
good operating order and are fit for the purposes for which such
Assets are used or intended to be used, subject to normal wear and
tear, normal maintenance and obsolescence. All of Telecoin's
Assets have been maintained, repaired and/or replaced in a manner
consistent with industry practice.
Section 4.16 Material Contracts. Schedule 4.16(a) sets forth
a complete and correct list of each of the following types of
contracts or commitments (whether oral or written) to which
Telecoin is a party (collectively the "Contracts"): (i) Contracts
for the employment of any officer or employee and all bonus,
incentive compensation, profit-sharing, retirement, pension, group
insurance, death benefit or other fringe benefit plans, deferred
compensation or post-termination obligations; (ii) Contracts for
the future purchase of materials, inventory, supplies, services or
equipment; (iii) distributor agreements and contracts for the
purchase or sale of inventory or supplies; (iv) agreements or
arrangements for the purchase, sale or lease of any other assets;
(v) pledges, sales contracts, leases, security agreements or other
similar agreements with respect to Telecoin's properties; (vi)
leases of machinery or equipment not terminable without penalty by
Telecoin within 30 days notice; (vii) loan agreements, promissory
notes, guarantees, subordination or similar type agreements; (viii)
consulting agreements; (ix) any contract not otherwise covered by
clauses (i) through (viii) above which involves annual or aggregate
payments in excess of $100 and is not terminable without penalty
within 30 days notice. Telecoin has furnished to Peoples true,
complete and accurate copies of all Contracts. Except as set forth
in Schedule 4.16(b), Telecoin has performed all of the obligations
required to be performed by it to date under the Contracts, and is
not in default (with notice or lapse of time or both) under any of
the Contracts. Telecoin shall obtain all necessary consents with
respect to any Contract containing a change in control provision on
or prior to the Closing Date. The consummation of the transactions
contemplated by this Agreement will in no way affect the
continuation, validity or effectiveness of any of the Contracts.
Section 4.17 Insurance Policies. Schedule 4.17 sets forth a
list of all policies of insurance which Telecoin maintains in full
force and effect, all of which policies are in good standing.
Telecoin maintains such other insurance as may be required by law.
All premiums due on such policies have been paid and the aggregate
amount of all claims under such policies do not exceed policy
limits. There are no pending or, to the best knowledge of
Telecoin, threatened terminations, cancellations or premium
increases with respect to any such policies.
14
Section 4.18 ERISA. Set forth on Schedule 4.18 is a list and
brief description of each "employee pension benefit plan," as such
term is defined in Section 3(2) of ERISA maintained by Telecoin or
to which Telecoin contributes (the "Plan"). Telecoin does not
maintain or contribute to a defined benefit pension plan or a
"multiemployer plan" as such term is defined in Section 3(37) of
ERISA. Each Plan has substantially complied with the material
requirements of ERISA and other laws relating to employee pension
benefit plans. Telecoin has delivered to Peoples true and complete
copies of, with respect to each Plan, (i) the current Plan
document, (ii) the names and addresses of all trustees, (iii) the
most recent Annual Report Form 5500 or Form 5500-CR, and (iv) the
most recent Internal Revenue Service determination letter.
Telecoin has made all contributions required to be made to each
Plan under the terms of the Plan or applicable Law. No prohibited
transaction (as defined in Section 4975 of the Code) for which
there is no administrative, statutory or judicial exemption has
occurred with respect to a Plan.
Section 4.19 Labor Matters. Telecoin is not a party to any
collective bargaining agreements with its employees. Except as set
forth on Schedule 4.19, (i) Telecoin is in material compliance with
all federal, state and local laws regarding employment and
employment practices, conditions of employment, wages and hours and
occupational laws, (ii) Telecoin is not engaged in unfair labor
practices, and there are no unfair labor practice complaints
pending or, to the best of Telecoin's and the Executive Officers'
knowledge, threatened against Telecoin before the National Labor
Relations Board or any other governmental or regulatory board or
agency performing similar functions, (iii) there is no labor
strike, slowdown, work stoppage or dispute pending or, to the best
of Telecoin's and the Executive Officers' knowledge, threatened
against or involving Telecoin, and (iv) to the best of Telecoin's
and the Executive Officers' knowledge, none of the employees not
presently subject to collective bargaining agreements are engaged
in organizing or are members of any union or other employee group
that is seeking recognition as a bargaining unit.
Section 4.20 Absence of Changes. Except as set forth in
Schedule 4.20 or as otherwise disclosed in or contemplated by this
Agreement, since June 30, 1994, there has not been (i) any material
adverse change in the financial condition, assets, liabilities,
business or operations of Telecoin; (ii) any damage, destruction or
loss, whether or not covered by insurance, materially and adversely
affecting the properties, financial condition or business of
Telecoin; (iii) any change in the outstanding capital stock of
Telecoin; (iv) declared, paid or set aside for payment any dividend
or other distribution (whether in cash, stock, property or any
combination thereof) in respect of Telecoin Common Stock or any
cancellation, exercise or redemption or other acquisition by
15
Telecoin of any shares of the Telecoin Common Stock; (v) any
increase in the rate or terms of compensation payable or to become
payable by Telecoin to any of its officers, directors or key
employees or any increase in the rate or terms of contribution to
any Plans, except as required by law; (vi) incurred or agreed to
incur any liabilities or obligations (whether absolute, accrued,
contingent or otherwise), except as incurred in the ordinary course
of business consistent with past practices; (vii) made any material
capital expenditure or commitment for replacements or additions or
improvements; (viii) any change by Telecoin in accounting methods,
principles or practices; (ix) any disposal, mortgage, pledge or
other disposition of any of its assets other than in the ordinary
course of business; or (x) any other event, condition or
arrangement of any nature whatsoever which might have a material
adverse effect on the condition, business or operations of
Telecoin, excluding any such event, condition or arrangement
affecting the economy or business conditions generally.
Section 4.21 Accuracy of Information. No representation,
statement or information contained in this Agreement and the
various Schedules attached to this Agreement, contains or shall
contain any untrue statement of a material fact or omit or shall
omit any material fact necessary to make the information contained
in this Agreement and the Schedules not misleading.
Section 4.22 Accuracy of Documents. All contracts,
instruments, agreements and other documents delivered by Telecoin
to Peoples for Peoples' review in connection with this Agreement
and the transactions contemplated hereby, including all articles of
incorporation, by-laws, corporate minutes, stock record books and
tax returns are true, correct and complete copies of all such
contracts, instruments, agreements and other documents.
Section 4.23 Proprietary Rights.
(a) Except as set forth on Schedule 4.23(c), there are no
trademarks, trademark applications, trade names, assumed names,
service marks, logos, patents, patent applications, copyrights and
copyright registrations, owned or licensed by Telecoin and used in
or necessary for the conduct of the business and operation of
Telecoin. (The foregoing together with all inventions, trade
secrets, customer lists and confidential processes, and all other
similar rights presently owned or licensed by Telecoin are the
"Proprietary Rights"). Except those proprietary rights currently
licensed by Telecoin and set forth on Schedule 4.23, no other
proprietary rights are used in or are necessary for the conduct of
the business and operation of Telecoin as presently conducted.
(b) To the best of Telecoin's and the Executive Officers'
16
knowledge, no Proprietary Rights or know-how used in or necessary
for the conduct of the business and operation of Telecoin conflict
with or infringe any similar rights or services of any other
person. No claims have been asserted by any person with respect to
the ownership, validity, license or use of the Proprietary Rights
or the production, provision of any services by Telecoin and there
is no basis for any such claim. Telecoin has taken all reasonable
measures to enforce, maintain and protect its interests and, to the
extent applicable, those of any third party, in the Proprietary
Rights.
(c) Schedule 4.23(c) accurately identifies all databases and
computer software owned, licensed or otherwise used in connection
with Telecoin's business.
Section 4.24 Investment Representation. The Shareholders
acknowledge that they are acquiring the Peoples Common Stock solely
for investment and not with a view to, or for resale in connection
with, any distribution thereof, except pursuant to an effective
registration statement under the Act, or pursuant to and in
compliance with an exemption from registration afforded by the Act
or the rules and regulations promulgated thereunder. The
Shareholders acknowledge that they have such knowledge and
experience in financial and business matters that they are capable
of evaluating the merits and risks of their investment hereunder.
Each of the Shareholders has received copies of Peoples' Annual
Reports on Form 10-K for the years ended December 31, 1992 and
December 31, 1993, Quarterly Report on Form 10-Q for the 3 months
ended March 31, 1994, proxy statement for the 1994 annual meeting
of shareholders and all other financial information they deem
necessary. The Shareholders have had an opportunity to ask
questions, receive answers concerning this Agreement and Peoples
and to obtain any additional information which they have requested.
Section 4.25 Compliance with Applicable Regulations. All of
Telecoin's Installed Pay Telephones are in material compliance with
all local, state and federal laws, ordinances, statutes,
regulations, orders, licenses, approvals, permits, certificates and
consents which are applicable to and binding on the operation of
the Telecoin's installed pay telephones, including, but not limited
to, the regulations promulgated by any applicable State Public
Service and/or Utilities Commission and the Federal Communications
Commission (the "Applicable Regulations"). In the event any of
Telecoin's installed pay telephones are not in material compliance
with the Applicable Regulations, Peoples shall bring each such
installed pay telephone into full compliance with the Applicable
Regulations and Peoples shall have the unilateral right to reduce
any amount it may owe to the Shareholders by any and all reasonable
costs it incurs to bring each such installed pay telephone into
full compliance with the Applicable Regulations; provided, however,
17
the definition of Applicable Regulations shall not include the
Americans with Disabilities Act of 1990.
Section 4.26 Subchapter S Status. Telecoin's election to be
treated as an S corporation under Section 1362 of the Internal
Revenue Code (i) is valid and in full force and effect on the date
of this Agreement, (ii) has at all times since the filing of such
election been valid (iii) since filing the S corporation election
with the Internal Revenue Service, Telecoin's S corporation status
has continued uninterrupted, and (iv) to the best of Telecoin's and
the Executive Officers' knowledge, none of the Shareholders has
taken any action which would invalidate or void, in any manner,
Telecoin's S corporation status.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PEOPLES AND PAC
In order to induce Telecoin, the Executive Officers and the
Shareholders to enter into this Agreement and to consummate the
transactions contemplated under this Agreement, Peoples and PAC
hereby make the following representations and warranties each of
which is relied upon by Telecoin and the Executive Officers
regardless of any other investigation made or information obtained
by Peoples or PAC:
Section 5.1 Organization, Power and Authority. PAC is a
corporation duly organized and validly existing under the laws of
the Commonwealth of Pennsylvania, with full corporate power and
authority to own or lease its properties and carry on its business
as it is now being conducted. Peoples is a corporation duly
organized and validly existing under the laws of the State of New
York, with full corporate power and authority to own or lease its
properties and carry on its business as it is now being conducted.
Section 5.2 Due Authorization; Binding Obligation. The
execution, delivery and performance of this Agreement and all other
agreements contemplated by this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action of Peoples and PAC,
respectively. This Agreement has been duly executed and delivered
by Peoples and PAC and is the valid and binding obligation of
Peoples and PAC enforceable in accordance with its terms. Neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated by this Agreement will: (i)
conflict with or violate any provision of the articles of
incorporation or by-laws of Peoples or PAC, or of any law,
ordinance or regulation or any decree or order of any court or
18
administrative or other governmental body which is either
applicable to, binding upon or enforceable against Peoples or PAC;
(ii) result in any breach of or default under an material mortgage,
contract, agreement, indenture, will, trust or other instrument
which is either binding upon or enforceable against Peoples or PAC
or their assets; (iii) violate any legally protected right of any
individual or entity or give to any individual or entity a right or
claim against Peoples or PAC; or (iv) impair or in any way limit
any governmental or official license, approval, permit or
authorization of Peoples or PAC.
Section 5.3 Litigation. Except as set forth on Schedule 5.3,
there are no actions, suits, claims, governmental investigations or
arbitration proceedings pending or threatened against or affecting
Peoples or the business, assets, or financial condition of Peoples
which could have a material adverse affect on Peoples or the
business, assets, or financial condition of Peoples and there are
no facts or circumstances which are reasonably likely to create a
basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any local, state or federal
judicial authority in any proceeding to which Peoples is or was a
party.
Section 5.4 Accuracy of Information. No representation,
statement or information contained in this Agreement and the
various Schedules attached to this Agreement, contains or shall
contain any untrue statement of a material fact or omit or shall
omit any material fact necessary to make the information contained
in this Agreement and the Schedules not misleading.
Section 5.5 Absence of Changes. Except as set forth in
Schedule 5.5, since March 31, 1994, there has not been (i) any
material adverse change in the financial condition, assets,
liabilities, business or operations of Peoples; (ii) any damage,
destruction or loss, whether or not covered by insurance,
materially and adversely affecting the properties, financial
condition or business of Peoples; (iii) any declared, paid or set
aside for payment of any dividend or other distribution (whether in
cash, stock, property or any combination thereof) in respect of the
Peoples' common stock or any cancellation, exercise or redemption
or other acquisition by Peoples of any shares of the its common
stock; (iv) any change by Peoples in accounting methods, principles
or practices, except as set forth in Peoples Form 10-K for the year
ended December 31, 1993 and the financial statements contained
therein and the notes thereto; or (v) any other event, condition or
arrangement of any nature whatsoever which has had a material
adverse effect on the condition, business or operations of Peoples,
excluding any such event, condition or arrangement affecting the
economy or business conditions generally.
19
Section 5.6 Due Diligence. As of the Closing Date, Peoples
has no actual knowledge of any breach of the representations and
warranties made by Telecoin and the Executive Officers in this
Agreement. In the event it is subsequently discovered that Peoples
had actual knowledge of a breach of any representation or warranty
made by Telecoin or the Executive Officers in this Agreement on the
Closing Date, Peoples hereby waives its right to complain of such
breach or to assert any claim with regard thereto.
Section 5.7 Peoples' Common Stock. When issued in accordance
with Section 2.2(b) of this Agreement, the Common Stock to be
issued to the Shareholders shall be validly issued, fully paid and
non-assessable and shall be free and clear of any liens or
encumbrances whatsoever.
ARTICLE VI
COVENANTS OF
TELECOIN, THE EXECUTIVE OFFICERS AND THE SHAREHOLDERS
Section 6.1 No Disclosure. Without the prior written consent
of Peoples, neither Telecoin, the Executive Officers nor the
Shareholders will disclose the existence of any term or condition
of this Agreement to any person or entity except that disclosure
may be made (a) to Telecoin's and the Shareholders' attorneys or
accountants and any lender or other person in a business
relationship with Telecoin to whom disclosure is necessary in order
to satisfy any of the conditions to the consummation of the
transactions contemplated by this Agreement, and (b) to the extent
the party making such disclosure believes in good faith that such
disclosure is required by law (in which case that party will
consult with Peoples prior to making such disclosure).
Section 6.2 Further Assurances. From time to time after the
date of this Agreement, the Executive Officers and the Shareholders
shall execute and deliver such other instruments and shall take
such other actions as Peoples may reasonably request to effectuate
the transactions contemplated by this Agreement.
Section 6.3 Restrictive Covenant
(a) To assure that Peoples will realize the value inherent in
the transactions contemplated by this Agreement, except as
otherwise specifically set forth in this Agreement, each
Shareholder, except Harvey Ostrow, on his own behalf, agrees with
Peoples that neither he, nor any of his affiliates (as such term is
defined in Rule 405 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended) (the
"Affiliate") shall, directly or indirectly, (as an individual,
20
partner, shareholder, director, officer, principal, agent,
employee, trustee, creditor, representative or in any relation or
capacity whatsoever), for a period of five years following the date
of this Agreement:
(i) compete with Peoples, PAC or any Affiliate of Peoples
in the business of installing, owning, operating, servicing or
maintaining pay telephones in the states in which Telecoin operates
on the Closing Date, except as specifically provided in the
Consulting Agreement; or
(ii) attempt to solicit or solicit the customers or
facilities serviced by Peoples, PAC or any of their Affiliates,
including, but not limited to, any Property Owner where Telecoin's
pay telephones are installed, to terminate, curtail or restrict
their relationship with Peoples, PAC or any of their Affiliates.
(b) The parties acknowledge that Gilbert A. Mendelson, David
T. Magrish and Howard Siegel are parties to that certain agreement
between Telnet and Intellicall, Inc. ("Intellicall") in connection
with the marketing of pre-paid long distance telephone calling
cards ("Debit Cards"). The parties agree that Mr. Mendelson's, Mr.
Magrish's and Mr. Siegel's marketing of Debit Cards supported by
Intellicall's Debit Card system shall not constitute a violation of
Section 6.3(a).
(c) If Section 6.3(a) of this Agreement, as applied to the
Executive Officers and the Shareholders or their respective
Affiliates or any other person is adjudged by a court to be invalid
or unenforceable, the same will in no way affect any other
provision of that Section or any other part of this Agreement, the
application of that provision in any other circumstances or the
validity or enforceability of this Agreement. If any provision, or
any part of any provision, is held to be unenforceable because of
the duration of the provision or the area covered by the provision,
the parties agree that the court making such determination will
have the power to reduce the duration and/or area of the provision,
and/or to delete specific words or phrases, and in its reduced form
Section 6.3(a) will then be enforceable.
(d) The Shareholders and Peoples each acknowledge that a
breach by the Shareholders or an Affiliate of any of them of the
provisions of Section 6.3(a) will cause Peoples irreparable harm
and monetary damages in an action at law would not provide an
adequate remedy. Accordingly, the Shareholders each agree that, in
addition to any other remedies (legal, equitable or otherwise)
available to Peoples, Peoples may seek and obtain injunctive relief
against the breach or threatened breach of the provisions of
Section 6.3(a) as well as all other rights and remedies available
at law and equity including, without limitation, the right to be
21
indemnified by the Shareholder committing such breach for all
claims, damages, actions and suits whatsoever for his breach of
Section 6.3(a) and Peoples' reasonable attorneys' fees, expenses
and costs incurred in enforcing any provisions of Section 6.3(a),
whether or not litigation is instituted, and if instituted, at pre-
trial, trial and appellate levels. Nothing contained in this
Section shall be construed as prohibiting Peoples and its
Affiliates from pursuing all other remedies available to them for
a breach or threatened breach of the provisions of Section 6.3(a),
including the recovery of compensatory and punitive damages from
the Shareholder commiting such breach. Each Shareholder further
acknowledges and agrees that the covenants contained in Section
6.3(a) are necessary for the protection of Telecoin's legitimate
business and professional duties, ethical obligations and
interests, and are reasonable in scope and content.
Section 6.4 Lock-Up Agreements. Simultaneous with the
execution of this Agreement, each of the Executive Officers and the
Shareholders which receive more than 15,000 shares of Peoples
Common Stock shall execute a lock-up agreement substantially in the
form attached to this Agreement as Exhibit B (the "Lock-Up
Agreement") whereby each such Executive Officer and Shareholder
shall agree not to sell more than 15,000 shares of the Peoples
Common Stock acquired pursuant to this Agreement in any calendar
month without the prior written consent of Peoples.
Section 6.5 Consulting Agreement. The Executive Officers
shall execute the Consulting Agreement simultaneous with the
Closing of the transactions contemplated by this Agreement.
ARTICLE VII
COVENANTS OF PEOPLES AND PAC
Section 7.1 Further Assurances. From time to time after the
date of this Agreement, Peoples and PAC shall execute and deliver
such other instruments and shall take such other actions as the
Shareholders may reasonably request to effectuate the transactions
contemplated by this Agreement.
Section 7.2 No Disclosure. Without the prior written consent
of the Shareholders, Peoples will not disclose the existence of any
term or condition of this Agreement to any person or entity except
that disclosure may be made to the extent the party making such
disclosure believes in good faith that such disclosure is required
by law (in which case that party will consult with the shareholders
prior to making such disclosure). Telecoin and the Shareholders
hereby acknowledge that Peoples may be required to disclose certain
information concerning the transactions contemplated by this
22
Agreement under the securities laws of the United States. Telecoin
and the Shareholders agree that Peoples will not be required to
obtain the prior written consent of the Shareholders to disclose
the existence of any term or condition of this Agreement if Peoples
believes such disclosure is required under the securities laws of
the United States.
Section 7.3 Registration of Common Stock. Peoples agrees to
use its reasonable efforts to cause the registration statement to
be declared effective by the SEC once Peoples commences such
registration. Peoples shall maintain the registration statement in
effect for a period of not less than three years after the date the
registration statement is declared effective by the SEC. Peoples
shall also take any action required to be taken under any
applicable state blue sky or securities laws in connection with the
resale of the shares of the Common Stock. The Shareholders shall
furnish all information to Peoples which may reasonably requested
by Peoples in connection with the preparation of any such
registration statement or any action as set forth above.
Additionally, Peoples agrees to cause each of the obligations set
forth on Schedule 7.4 to be paid as they become due and payable.
Section 7.4 Satisfaction of Telecoin's Long-Term Debt.
Peoples agrees to satisfy Telecoin's long term debt with the
Pennsylvania Capital Bank within 270 days after the Closing.
Additionally, Peoples agrees to execute and deliver to Berthel
Fisher, Pennsylvania Capital Bank and ITT Capital Finance (the
"Lenders") such assumption documents and corporate guarantees as
may be reasonably requested by the Lenders. Additionally, Peoples
agrees (i) to cause each of the obligations set forth on Schedule
7.4 (the "Personal Guaranteed Obligations") to be paid as they
become due and payable and (ii) to use its reasonable efforts to
remove the personal guarantees of the Executive Officers to the
Personal Guaranteed Obligations as soon as reasonably practicable.
Section 7.5 Consulting Agreement. Peoples shall execute the
Consulting Agreement simultaneous with the Effective Time.
Section 7.6 Telecoin Receivables. In the event Peoples, in
its sole discretion, deems any accounts receivable of Telecoin to
be uncollectible (the "Uncollectible Receivables"), those
Uncollectible Receivables shall not be utilized in calculating the
Adjustment and Peoples shall convey those Uncollectible Receivables
to TLT. At the Closing, Peoples shall provide TLT with a list of
each of the Uncollectible Receivables and a brief explanation why
Peoples has deemed such receivable uncollectible. After the
Closing, Peoples shall use its reasonable efforts to assist TLT in
collecting all amounts due to Telecoin in connection with the
Uncollectible Receivables. In the event the Surviving Corporation
or any of its Affiliates collects any monies due to Telecoin in
23
connection with the Uncollectible Receivables, Peoples shall
deliver those monies to TLT within 7 days after receipt.
Section 7.7 Telecoin Employee Benefit Plans. Telecoin
presently maintains the Telecoin Communications, Ltd. 401(k) Plan
(the "Plan"). Within thirty (30) days following the Closing Date,
PAC shall amend the Plan to the extent necessary to fully vest all
of the Plan participants who are or were active employees of
Telecoin on the Closing Date, and to permit those participants who
terminate employment on or immediately prior to the Closing Date to
receive a lump sum distribution of their account balances under the
Plan on or before March 31, 1995. PAC further agrees to terminate
the Plan as soon as possible following the Closing Date. So long
as the Plan is in effect, the Executive Officers shall remain
Trustees of the Plan, and PAC agrees to indemnify, defend and hold
harmless the Executive Officers from any and all liability arising
directly as a result of serving as Trustees, except for any
liability arising as a result of the Trustee's gross negligence or
willful misconduct.
Section 7.8 Retention of Records. Peoples agrees that it
shall retain all of Telecoin's corporate records for at least three
years after the Closing Date and that Peoples will provide the
Executive Officers with access to those corporate records during
Peoples' normal business hours for any reasonable purpose,
including the copying of those corporate records as necessary.
Section 7.9 Payment of Telecoin Payables. Peoples agrees to
pay, or cause PAC to pay, (i) all delinquent commissions as listed
on Schedule 4.16 (b) on or before October 24, 1994, (ii) all other
commissions listed on Schedule 7.9 and not listed on Schedule
4.16(b) on or before October 31, 1994, (iii) $26,701 to Alpern,
Rosenthal & Company on or before October 31, 1994, (iv) $26,701 to
Alpern, Rosenthal & Company on or before November 30, 1994, and (v)
all other Telecoin payables for which PAC is obligated to pay on or
before December 31, 1994.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Agreement by the Executive Officers to Indemnify.
The Executive Officers, jointly and severally, agree that they will
indemnify and hold Peoples and PAC harmless of all indemnifiable
damages of Peoples and PAC. For this purpose, "indemnifiable
damages" of Peoples and PAC means all expenses, losses, costs,
deficiencies, penalties, interest, liabilities and damages
24
(including related counsel fees and expenses) incurred or suffered
by Peoples or PAC (whether suit is instituted or not and, if
instituted, at any trial or appellate level) from: (a) any breach
or violation of any of the representations, warranties, covenants
or agreements made by Telecoin and/or the Executive Officers in
this Agreement or in any document or certificate delivered by
Telecoin and/or the Executive Officers pursuant to the provisions
of this Agreement, including any Schedule to this Agreement; (b)
any action, suit, claim or litigation involving Telecoin, the
Shareholders and/or the Executive Officers existing on the Closing
Date or arising after the Closing Date which is related to events
occurring prior to the Closing Date; provided, however, if an
action, suit, claim or litigation involving Telecoin, the
Shareholders and/or the Executive Officers arises after the Closing
and is related to events which occurred prior to and after the
Closing, the Executive Officers shall not be liable for damages
relating to the period after Peoples obtained actual knowledge of
the facts and circumstance which are the subject of the action,
suit, claim or litigation; (c) any occurrence, act or omission of
any director, officer, employee, consultant, or agent of Telecoin
which occurrence, act or omission occurred prior to the Closing
Date and which adversely affects Peoples' interest in the business
or operations of Telecoin; (d) from the failure of Telecoin to pay
any taxes which may be due and owing to any applicable taxing
authority for Telecoin's business operations prior to the Closing
Date; and (e) any liabilities or obligations of Telecoin, whether
absolute, accrued contingent or otherwise, arising out of
Telecoin's business or operations prior to the Closing Date,
whether existing as of the Closing Date or arising out of facts or
circumstances existing at or prior to the Closing Date and whether
or not these liabilities or obligations were known by Peoples on
the Closing Date. Without limiting the foregoing, with respect to
the measurement of "indemnifiable damages," Peoples and PAC shall
have the right to be put in the same financial position as they
would have been in had the representations and warranties of
Telecoin and/or the Executive Officers been true and correct and
had each of the covenants of Telecoin and the Executive Officers
been performed in full.
Section 8.2 Agreement by Peoples to Indemnify. Peoples
agrees that it will indemnify and hold the Executive Officers
harmless of all indemnifiable damages of the Executive Officers.
For this purpose, "indemnifiable damages" of the Executive Officers
means all expenses, losses, costs, deficiencies, penalties,
interest, liabilities and damages (including related counsel fees
and expenses) incurred or suffered by the Executive Officers
(whether suit is instituted or not and, if instituted, at any trial
or appellate level) from: (a) any breach or violation of any of
the representations, warranties, covenants or agreements made by
Peoples and/or PAC in this Agreement or in any document or
25
certificate delivered by Peoples and/or PAC pursuant to the
provisions of this Agreement, including any Schedule to this
Agreement, (b) any litigation involving Telecoin or the business
and operations of Telecoin related to events after the Closing Date
and (c) any liability incurred by Gilbert A. Mendelson or David T.
Magrish directly as a result of Peoples' failure to comply with its
obligations under Section 7.4 of this Agreement. Without limiting
the foregoing, with respect to the measurement of "indemnifiable
damages," the Executive Officers shall have the right to be put in
the same financial position as they would have been in had the
representations and warranties of Peoples and PAC been true and
correct and had each of the covenants of Peoples and PAC been
performed in full.
Section 8.3 Mitigation. Every person seeking indemnification
under this Agreement (the "Indemnified Party") shall correct or
mitigate, to the extent practicable, any Loss suffered by that
person for which indemnification is claimed and the indemnifying
party (the "Indemnifying Party") shall be liable only for the
amount thereof which is net of any insurance proceeds and other
amounts paid by, or offset against any amount owed to, any person
not a party to this Agreement (including any costs or expenses
incurred to so correct or mitigate). If a person which has a right
of indemnification under this Article VIII reasonably can, by
expenditure of money, mitigate or otherwise reduce or eliminate any
Loss for which indemnification would otherwise be claimed, that
person shall take that action and shall be entitled to
reimbursement for those expenditures and all related expenses.
Section 8.4 Procedure for Claims. The following procedures
shall be applicable with respect to indemnification for claims
arising in connection with any provision of this Agreement:
(a) Each Indemnified Party agrees that upon its obtaining
knowledge of facts indicating that there may be a basis for a claim
for indemnity under the provisions of this Agreement, including
receipt by it of notice of any demand, assertion, claim, action or
proceeding, judicial or otherwise, (these actions are collectively,
the "Claim"), with respect to any matter as to which it may be
entitled to indemnity under the provisions of the Agreement, it
will give prompt notice thereof in writing to the Indemnifying
Party together with a statement of all information respecting any
of the foregoing as it shall then have. The Indemnifying Party
shall not be obligated to indemnify the Indemnified Party for the
increased amount of any Claim which would otherwise have been
payable to the extent that the increase in the amount of the Claim
resulted from the lack of notice required by this provision.
(b) The Indemnifying Party is entitled at its cost and
expense to contest and defend by all appropriate legal proceedings
26
any Claim with respect to which it is called upon to indemnify the
Indemnified Party under the provisions of this Agreement; provided,
however, that notice of the intention so to contest shall be
delivered by the Indemnifying Party to the Indemnified Party within
a reasonable time in light of the circumstances then and there
existing. Any contest may be conducted in the name and on behalf
of the Indemnifying Party or the Indemnified Party as may be
appropriate. The contest shall be conducted by attorneys engaged
by the Indemnifying Party, but the Indemnified Party shall have the
right to participate in those proceedings and to be represented by
attorneys of its own choosing at its cost and expense. If the
Indemnified Party joins in any such contest, the Indemnifying Party
shall have full authority to determine all action to be taken. If
after that opportunity, the Indemnifying Party does not elect to
contest that Claim, the Indemnifying Party shall be bound by the
result obtained by the Indemnified Party. At any time after the
commencement of defense of any Claim, the Indemnifying Party may
request the Indemnified Party to agree in writing to the
abandonment of the contest or to the payment or compromise by the
Indemnifying Party of the asserted Claim, whereupon that action
shall be taken unless the Indemnified Party so determines that the
contest should be continued, and so notifies the Indemnifying Party
in writing within 15 days of the request from the Indemnifying
Party. In the event that the Indemnified Party determines that the
contest should be continued, the Indemnifying Party shall be liable
only to the extent of the lesser of: (i) the amount the other
party to the contested Claim has agreed to accept in payment or
compromise as of the time the Indemnifying Party made its request
therefor to the Indemnified Party; or, (ii) the amount for which
the Indemnifying Party may be liable with respect to that Claim by
reason of the provisions of this Agreement. All of the foregoing
is subject to the rights of any Indemnifying Party's insurance
carrier which is defending any of the above proceedings.
(c) If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its
counsel in reasonably contesting any Claim which the Indemnifying
Party elects to contest or, if appropriate, in making any
counterclaim against the person asserting the Claim, or any
cross-complaint against any person and further agrees to take such
other action as reasonably may be requested by an Indemnifying
Party to reduce or eliminate any Loss for which the Indemnifying
Party would have responsibility, but the Indemnifying Party will
reimburse the Indemnified Party for any reasonable expenses
incurred by it in so cooperating or acting at the request of the
Indemnifying Party.
(d) The Indemnified Party agrees to afford the Indemnifying
Party and its counsel the opportunity to be present at, and to
participate in, conferences with all persons, including
27
governmental authorities asserting any Claim against the Indemnified
Party or conferences with representatives of or counsel for those
persons.
(e) The Indemnifying Party shall pay to the Indemnified Party
the amount to which the Indemnified Party may become entitled by
reason of the provisions of Article X of this Agreement within 15
business days after any the amount owed is finally determined
either by mutual agreement of the parties to this Agreement or
pursuant to the final unappealable judgment of a court of competent
jurisdiction and the Indemnifying Party agrees to pay all costs in
connection with obtaining any bond required to appeal any judgment.
Section 8.5 Right of Set-Off. In addition to any other rights
or remedies Peoples may have, it shall be entitled to withhold from
any amounts which Peoples may owe to the Shareholders under this
Agreement, the amount of any and all liabilities, losses, damages,
injuries, costs, expenses and reasonable counsel fees which: (i)
are sought by any party in any claims against Peoples which Peoples
is indemnified pursuant to Section 8.1; or (ii) which Peoples has
sustained arising from any breach of any covenant of the
Shareholders contained in this Agreement. Peoples shall have the
right to offset from such withheld amounts, as a post-closing
adjustment, any amount ultimately determined to be due and owing to
Peoples by way of indemnification or otherwise pursuant to this
Section, and Peoples shall not be liable for any amounts so set
off.
Section 8.6 Limitations on Indemnity. Notwithstanding any
provision contained in this Agreement to the Contrary: (a) the
Indemnifying Party shall have no obligations under the
indemnification provisions of Sections 8.1 and 8.2 unless the
indemnified party provides written notice of a claim for
indemnification under Sections 8.1 or 8.2 within one year after the
Closing; and (b) in no event shall the aggregate indemnifiable
amount of the Executive Officers exceed the Total Consideration.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Survival of Representations and Warranties. All
of the respective representations and warranties of the parties to
this Agreement shall survive the consummation of the transactions
contemplated by this Agreement for twelve months after the Closing.
All covenants of the parties to this Agreement shall survive the
consummation of the transactions contemplated by this Agreement.
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Section 9.2 Brokers' Commission. Peoples will indemnify and
hold harmless Telecoin, the Executive Officers and the Shareholders
from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or
retained by Peoples or PAC to bring about, or to represent it in,
the transactions contemplated by this Agreement. The Shareholders
and the Executive Officers will indemnify and hold harmless Peoples
from the commission, fee or claim of any person, firm or
corporation employed or retained or claiming to be employed or
retained by any of the Shareholders or Telecoin to bring about, or
to represent them in, the transactions contemplated by this
Agreement.
Section 9.3 Amendment and Modification. The parties to this
Agreement may amend, modify and supplement this Agreement but only
in writing and such writing must be signed by all the parties.
Section 9.4 Binding Effect. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective
successors, assigns, heirs, estates, beneficiaries, executors and
legal and personal representatives.
Section 9.5 Entire Agreement. This instrument and the
Exhibit and Schedules attached to this Agreement contain the entire
agreement of the parties with respect to the Merger and the other
transactions contemplated in this Agreement, and supersede all
prior understandings and agreements of the parties with respect to
the subject matter of this Agreement. Any reference in this
Agreement shall be deemed to include the Exhibits and the
Schedules.
Section 9.6 Headings. The descriptive headings in this
Agreement are inserted for convenience only and do not constitute
a part of this Agreement.
Section 9.7 Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be
deemed an original.
Section 9.8 Notices. Any notice, request, information or
other document to be given hereunder to any of the parties by any
other party shall be in writing and delivered personally, sent by
certified mail, postage prepaid, overnight courier delivery or by
fax transmission as follows:
One Mellon Bank Center
500 Grant Street, Suite 2828
29
Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
Attention:
with a copy to:
If to the Executive Officers:
Gilbert A. Mendelson
One Mellon Bank Center
500 Grant Street, Suite 2828
Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
David T. Magrish
One Mellon Bank Center
500 Grant Street, Suite 2828
Pittsburgh, Pennsylvania 15219
Facsimile: (412)392-0306
If to the Shareholders:
Louis Swartz
212 Briar Ridge Road
Turtle Creek, Pennsylvania 15145
Howard Siegel
2808 Fernwald Road
Pittsburgh, Pennsylvania 15217
Harvey Ostrow
5525 Bartlett Street
Pittsburgh, Pennsylvania 15217
If to Peoples: Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida 33172
Attention: Robert D. Rubin,
President
Facsimile: (305) 477-9890
Any party may change the address to which notices under this
30
Agreement are to be sent to it by giving written notice of a change
of address in the manner provided in this Agreement for giving
notice. Any notice delivered personally shall be deemed to have
been given on the date it is so delivered, and any notice delivered
by registered or certified mail, overnight courier delivery or by
fax shall be deemed to have been given on the date it is received.
Section 9.9 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Florida applicable to contracts made and to be performed in Florida
without reference to the choice of law principles.
Section 9.10 Expenses. Except as specifically provided in
this Agreement, all accounting, legal and other costs and expenses
incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring
those fees, costs and expenses.
Section 9.11 Waiver. Any party to this Agreement may extend
the time for or waive the performance of any of the obligations of
the other, waive any inaccuracies in the representations or
warranties by the other, or waive compliance by the other with any of
the covenants or conditions contained in this Agreement. Any such
extension or waiver shall be in writing and signed by the parties.
No such waiver shall operate or be construed as a waiver of any
subsequent act or omission of the parties.
Section 9.12 Severability. If at any time subsequent to the
date of this Agreement, any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but
the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other
provision of this Agreement.
Section 9.13 Attorney's Fees. If any legal action is commenced
to enforce the decision of the arbitration panel procured in
accordance with Section 9.15, or if any equitable proceeding is
brought for the enforcement of this Agreement, the successful or
prevailing party or parties shall be entitled to recover reasonable
attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may
be entitled.
Section 9.14 Construction. This Agreement shall be construed
without regard to any presumption or other rule requiring
construction against the party causing this Agreement to be drafted.
If any words in this Agreement have been stricken out or otherwise
eliminated (whether or not any other words or phrases have been
added) and the stricken words initialed by the party against whom the
31
words are construed, this Agreement shall be construed as if the
words so stricken out or otherwise eliminated were never included in
this Agreement and no implication or inference shall be drawn from
the fact that those words were stricken out or otherwise eliminated.
Section 9.15 Arbitration. Except for an action seking equitable
relief as contemplated by this Agreement, any dispute or claim
arising under or with respect to this Agreement or the breach thereof
shall be resolved by arbitration in Dade County, Florida under the
Florida Arbitration Code, Chapter 682, Florida Statutes, before a
panel of three arbitrators, one appointed by the Executive Officers,
one appointed by Peoples. The two arbitrators so named shall appoint
a third arbitrator within 30 days after the first party receives
notice of the appointment of the second arbitrator. The decision or
the award of a majority of the arbitrators shall be final and binding
upon the parties. Any arbitral award may be entered as a judgment or
order in any court of competent jurisdiction. The successful or
prevailing party or parties (as determined by the arbitration panel)
shall be entitled to recover reasonable attorneys' fees and other
costs incurred in the arbitration proceeding, in addition to any
other relief to which it or they may be entitled
[intentionally left blank]
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IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the day and year first above
written.
PEOPLES TELEPHONE COMPANY, INC.
By:______________________________________
Jeffrey Hanft,
Chief Executive Officer
PEOPLES ACQUISITION CORPORATION
By:_____________________________________
Jeffrey Hanft,
President
TELECOIN COMMUNICATIONS, LTD.
By:______________________________________
Gilbert A. Mendelson,
Chairman of the Board and Chief
Executive Officer
ATTEST:
By:___________________________
Printed name:
Secretary
THE EXECUTIVE OFFICERS
By:_____________________________________
Gilbert A. Mendelson
By:_____________________________________
David T. Magrish
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THE SHAREHOLDERS
By:_____________________________________
Louis Swartz
By:_____________________________________
Howard Siegel
By:_____________________________________
Harvey Ostrow
34