LOAN PURCHASE AGREEMENT AND TRANSFER AND ASSIGNMENT OF SHARES

 

 

                             LOAN PURCHASE AGREEMENT

                      AND TRANSFER AND ASSIGNMENT OF SHARES

 

      THIS LOAN PURCHASE   AGREEMENT   AND TRANSFER AND   ASSIGNMENT OF SHARES (the

"AGREEMENT")   is entered   into as of   September   3, 2004 by and among   MOBILEPRO

CORP. ("PARENT"),   a Delaware corporation,   its wholly-owned   subsidiary,   DAVEL

ACQUISITION CORP., a Delaware corporation (the "BUYER"),   DAVEL   COMMUNICATIONS,

INC., a Delaware   corporation (the "Company"),   and certain   stockholders of the

Company listed on Exhibit A hereto (collectively, the "SELLING LENDERS").

 

                                    RECITALS

 

      A. The Selling   Lenders desire to sell,   transfer and assign to the Buyer,

and the Buyer   desires to purchase   the loans of the Company held by the Selling

Lenders and enforceable against the Company in the outstanding principal amounts

and for the   purchase   price for each such loan set forth on   Exhibit B attached

hereto (the "COMPANY DEBT").

 

      B.   Contemporaneously   with the purchase of the Company Debt by the Buyer,

(i) the Selling   Lenders shall transfer and assign to the Buyer on the terms set

forth in this   Agreement   all of the   issued and   outstanding   shares of capital

stock of the Company   held by the Selling   Lenders and their   affiliates   as set

forth on Exhibit B attached   hereto   (the   "SHARES")   as such   Exhibit   shall be

updated at Closing   regarding   the number of Shares held by each Selling   Lender

and its   affiliates;   and (ii) in   consideration   for the Buyer   purchasing that

portion   of the   Company   Debt held by   Cerberus   Partners,   L.P.   ("CERBERUS"),

Cerberus   shall   transfer   and assign to the Buyer all of its   right,   title and

interest in and to the   obligations   of the Company   evidenced   by that   certain

$1,000,000   Subordinated   Promissory   Note dated   November   17,   1999,   and that

certain Security   Agreement   related thereto also dated November 17, 1999, among

PhoneTel   Technologies,   Inc., Cherokee   Communications,   Inc. and Cerberus (the

"CERBERUS   SUBORDINATED   DEBT") and (iii) Styx   Partners,   L.P.   ("Styx")   shall

transfer and assign to the Buyer on the terms set forth in this Agreement all of

the Shares held by Styx.

 

      C. To facilitate the transactions contemplated herein (the "TRANSACTIONS")

and as a   condition   to the   consummation   thereof,   the Buyer   and the   Selling

Lenders require that the Company be a party to this   Agreement,   and the Company

is willing to   participate   in the   Transactions   on the terms set forth in this

Agreement for such purpose.   Furthermore, as consideration for the Transactions,

the Buyer is willing to   covenant   and agree with the Company for the benefit of

stockholders   of the Company who are not Selling   Lenders or   affiliates   of the

Selling   Lenders   (collectively,   the "MINORITY   STOCKHOLDERS")   to purchase the

remaining   shares   of   capital   stock   of   the   Company   held   by   the   Minority

Stockholders on the terms set forth in this Agreement.

 

      In   consideration   of the foregoing and the   representations,   warranties,

covenants and agreements set forth in this Agreement,   the parties hereto hereby

agree as follows:

 

 

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1.     SALE OF THE COMPANY DEBT; TRANSFER AND ASSIGNMENT OF THE SHARES; CLOSING

 

      1.1 SALE OF THE COMPANY DEBT.   Subject to the terms and conditions of this

Agreement,   at the Closing (as   hereinafter   defined),   the Selling Lenders will

sell,   transfer and assign the Company Debt and all   documents   and   instruments

evidencing   the   Company   Debt to the Buyer,   and the Buyer will   purchase   such

Company   Debt from the Selling   Lenders.   Without   limiting the   foregoing,   the

Selling Lenders will transfer and assign to the Buyer all of their right,   title

and interest in that certain Amended, Restated and Consolidated Credit Agreement

dated as of July 24, 2002 by and among Davel Financing Company, L.L.C., PhoneTel

Technologies, Inc., Cherokee Communications,   Inc., Davel Communications,   Inc.,

the   domestic   subsidiaries   of   each   of the   foregoing   and   Foothill   Capital

Corporation,   as Agent,   and the   lenders set forth   therein,   as amended by the

First   Amendment   and   Waiver to   Amended,   Restated,   and   Consolidated   Credit

Agreement   dated as of March 31,   2003 by and   among   Davel   Financing   Company,

L.L.C.,   PhoneTel   Technologies,   Inc.,   Cherokee   Communications,   Inc.,   Davel

Communications,   Inc.,   the domestic   subsidiaries   of each of the foregoing and

Foothill Capital   Corporation,   as Agent, and the lenders set forth therein, the

Second   Amendment   and   Waiver to   Amended,   Restated   and   Consolidated   Credit

Agreement   dated as of February 24, 2004 and the Third   Amendment   and Waiver to

Amended, Restated, and Consolidated Credit Agreement dated as of August 11, 2004

(collectively,   the "CREDIT AGREEMENT"), the Amended, Restated, and Consolidated

Security   Agreement   dated   as of July 24,   2002 by and   among   Davel   Financing

Company,   L.L.C., PhoneTel Technologies,   Inc., Cherokee   Communications,   Inc.,

Davel   Communications,   Inc., the domestic subsidiaries of each of the foregoing

and Foothill   Capital   Corporation,   as Agent, and the lenders set forth therein

(the "SECURITY   AGREEMENT"),   and all of the other   documents,   instruments   and

agreements   between the   Company and the Selling   Lenders or made by the Company

for the   benefit of the Selling   Lenders to evidence or secure the Company   Debt

(collectively   and with the Credit Agreement and Security   Agreement,   the "LOAN

DOCUMENTS").   Copies of each of the Credit Agreement and Security   Agreement are

attached hereto as Exhibit C and Exhibit D, respectively.

 

      1.2 TRANSFER AND ASSIGNMENT OF THE SHARES;   SALE OF CERBERUS   SUBORDINATED

DEBT.

 

      (a) For no additional   consideration,   at the Closing, the Selling Lenders

will transfer and assign,   or cause the transfer and   assignment   of, the Shares

that they hold to the   Buyer,   and the Buyer   will take such   assignment   of the

Shares from the Selling Lenders.

 

      (b) In consideration   for the Buyer purchasing that portion of the Company

Debt that is held by Cerberus,   and subject to the terms and   conditions of this

Agreement,   at the Closing,   (i) Cerberus   will transfer and assign to the Buyer

all of its right,   title and interest in and to the Cerberus   Subordinated Debt,

and the Buyer will take such assignment of the Cerberus   Subordinated   Debt from

Cerberus   and (ii) Styx will   transfer and assign to the Buyer all of its right,

title and interest in and to the Shares that it holds.

 

 

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      1.3 PURCHASE   PRICE.   The purchase   price (the   "PURCHASE   PRICE") for the

Company   Debt   will   be   $14,550,000   in   the   aggregate,   plus   the   Additional

Adjustment   Amount (as   hereinafter   defined)   to be paid to each of the Selling

Lenders.   The Purchase Price will be allocated   among the Selling Lenders as set

forth on Exhibit B to this Agreement as such Exhibit shall be updated at Closing

regarding   the   expenses   and   outstanding   Company   Debt.   The   Purchase   Price

allocation and the percentage   for payment of the Additional   Adjustment   Amount

correspond to each Selling Lender's respective interest in the total outstanding

principal   amount of the Company Debt,   subject to an adjustment of the Purchase

Price to compensate Wells Fargo Foothill, Inc. and Cerberus for certain expenses

they have incurred on behalf of the Selling Lenders.

 

      1.4 BUYER   DEPOSIT.   Within   one   business   day of the   execution   of this

Agreement,   the Buyer will   deposit   $1,000,000   (the "BUYER   DEPOSIT")   into an

escrow account established with a third party escrow agent pursuant to the Buyer

Deposit Escrow Agreement in the form of Exhibit J attached hereto.   In the event

that the Closing takes place,   the Buyer   Deposit   shall be applied   against the

Purchase   Price and the amount of the   Purchase   Price   required to be delivered

pursuant to Section 1.6.2(a)   hereunder shall be so reduced by the amount of the

Buyer Deposit.   In the event that the Buyer fails to consummate the Transactions

contemplated   by this   Agreement and this Agreement is terminated by the Selling

Lenders pursuant to Section 10.1(g)   hereunder,   the Buyer Deposit shall be paid

to each of the Selling Lenders in the same allocations set forth on Exhibit B to

this Agreement,   subject to an adjustment of such allocation to compensate Wells

Fargo   Foothill,   Inc. and Cerberus for certain   expenses   they have incurred on

behalf of the Selling   Lenders.   In the event that this   Agreement is terminated

for any other reason, the Buyer Deposit shall be refunded to the Buyer.

 

      1.5   CLOSING.   The   purchase and sale of the Company Debt and the transfer

and   assignment   of the Shares will take place at the   offices of Schiff   Hardin

LLP, 1101 Connecticut Avenue, NW, Suite 600, Washington, DC 20036, at 10:00 a.m.

Eastern   Standard Time, on a date which shall be no later than fifteen (15) days

following the satisfaction or, if permissible,   the waiver of the conditions set

forth in Sections 7, 8 and 9 hereof (the   "CLOSING   DATE") or at such other time

and place as the Buyer,   the Company and the Selling Lenders mutually agree upon

(which time and place are referred to in this Agreement as the "CLOSING").

 

      1.6 CLOSING OBLIGATIONS. At the Closing:

 

             1.6.1 Each Selling Lender will deliver to the Buyer:

 

                  (a)   a   duly    executed    Transfer   and    Assignment   of   Debt

Obligations,   Credit   Agreement and Security   Agreement in the form of Exhibit E

attached hereto;

 

                  (b)   certificates   representing the number of Shares that such

Selling   Lender   has   agreed to sell   hereunder   as shown on   Exhibit B attached

hereto,   duly   endorsed   (or   accompanied   by duly   executed   stock   powers) for

transfer to the Buyer;

 

                   (c) a   mutual   release   of   claims   in the form of   Exhibit   F

attached   hereto   (the   "MUTUAL   RELEASE")    executed   by   such   Selling   Lender

explicitly   releasing   certain   claims such Selling   Lender may have against the

Company,   which   Mutual   Release is not   intended   to release the Company or its

Subsidiaries   from any of their   respective (i)   obligations   created under this

Agreement or the Company Ancillary   Agreements,   (ii) obligations under the Loan

Documents,   (iii)   obligations   under   the   Cerberus   Subordinated   Debt or (iv)

obligations   under a certain   Agreement   to Exchange   Indebtedness   for Personal

Property between the Company and the Selling Lenders;

 

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                  (d) a duly executed   Registration Rights Agreement in the form

of Exhibit H attached hereto;

 

                  (e) a certificate executed by each Selling Lender representing

and warranting to the Buyer that each of such Selling   Lender's   representations

and warranties in this Agreement was accurate in all material respects as of the

date of this   Agreement and is accurate in all material   respects as of the date

of the Closing Date;

 

                  (f) a duly executed   Resignation   and   Appointment of Agent in

the form of Exhibit L attached hereto; and

 

                  (g) a duly executed   Stockholder   Escrow Agreement in the form

of Exhibit I. attached hereto.

 

      1.6.2 The Buyer will deliver to the Selling Lenders:

 

            (a) The   Purchase   Price paid by wire   transfers of funds to each of

the Selling Lenders (pursuant to their respective wire transfer instructions set

forth on Exhibit A to this   Agreement) in accordance   with the   allocations   set

forth on Exhibit B to this Agreement;

 

             (b) a duly executed   Transfer and   Assignment   of Debt   Obligations,

Credit Agreement and Security Agreement in the form of Exhibit E attached hereto

for each Selling Lender;

 

            (c)   Warrants   to   purchase   an   aggregate   of   5,000,000   shares of

Parent's   common stock at $0.30 (thirty cents) per share, in the form of Exhibit

G attached   hereto,   which Warrants shall be allocated among the Selling Lenders

as set forth in Exhibit B attached hereto;

 

            (d) the Registration Rights Agreement in the form attached hereto as

Exhibit H duly executed by Parent;

 

            (e) a certificate   executed by the Buyer and Parent representing and

warranting   to the Company and the Selling   Lenders that each of the Buyer's and

Parent's   representations   and   warranties in this Agreement was accurate in all

material   respects   as of the   date of this   Agreement   and is   accurate   in all

material   respects as of the date of the Closing Date (giving full effect to any

supplements to the Disclosure Letter that were delivered by the Buyer and Parent

to the Selling Lenders prior to the Closing Date in accordance with Sections 8.1

and 8.2 hereof);

 

            (f) a duly executed Resignation and Appointment of Agent in the form

of Exhibit L attached hereto; and

 

            (g) the Stockholder   Escrow Agreement in the form attached hereto as

Exhibit I duly executed by Parent.

 

 

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      1.6.3 The   Company   will   deliver to the Buyer or the   Selling   Lenders as

indicated:

 

            (a) to the   Selling   Lenders,   the   Mutual   Release   in the   form of

Exhibit F attached hereto executed by the Company   explicitly   releasing certain

claims   against the Selling   Lenders;   which   Mutual   Release is not intended to

release any of the Selling Lenders or their affiliates from obligations   created

under this   Agreement   or any of the Selling   Lender   Ancillary   Agreements   (as

hereinafter defined);

 

            (b) to the Buyer and   Parent,   at the Buyer's   expense,   opinions of

counsel that no regulatory   approvals or consents are required in advance of the

Closing in connection with the Transactions in the following states: California,

Florida, Georgia,   Illinois,   Mississippi,   North Carolina, New Mexico, New York

and Virginia; and

 

            (c) to the Buyer and Parent a   certificate   executed   by the Company

representing   and   warranting to the Buyer and Parent that each of the Company's

representations   and   warranties in this   Agreement was accurate in all material

respects   as of the   date of this   Agreement   and is   accurate   in all   material

respects as of the date of the Closing (giving full effect to any supplements to

the Company Disclosure Letter that was delivered by the Company to the Buyer and

Parent   prior   to the   Closing   Date in   accordance   with   Sections   9.1 and 9.2

hereof).

 

      1.7 PURCHASE OF REMAINING   COMPANY SHARES.   The Buyer covenants and agrees

with the Company for the benefit of the Minority Stockholders to purchase all of

the approximately 4.8% of the shares of capital stock of the Company held by the

Minority Stockholders (the "PUBLIC SHARES") according to the following terms:

 

            1.7.1 Not later than 180 days after the Closing   Date,   the Buyer or

Parent shall offer to purchase the Public Shares from the Minority   Stockholders

by tender offer,   short-form   merger or such other   transaction as Parent elects

(the "TENDER   OFFER").   The purchase price offered to the Minority   Stockholders

shall be an amount per share of not less than $0.015,   which may be paid in cash

or securities of Parent.

 

            1.7.2 Prior to making the Tender Offer, the Buyer or Parent,   at its

sole   expense,   shall retain a reputable   investment   banker or other   financial

advisor to render an opinion as to the fairness, from a financial point of view,

of the terms of the Tender Offer to the   Minority   Stockholders   (the   "FAIRNESS

OPINION").   In the   event   that   such   financial   advisor   declines   to render a

Fairness   Opinion   for   the   reason   that   the   price   offered   to the   Minority

Stockholders for the Public Shares is insufficient, then the Buyer or Parent may

increase the price per Public Share offered to the Minority Stockholders.

 

            1.7.3 At the   Closing,   the Buyer or Parent shall   deposit   $450,000

(the "ESCROW   AMOUNT")   into an escrow   account   established   with a third-party

escrow agent pursuant to the Escrow   Agreement in the form of Exhibit I attached

hereto (the "STOCKHOLDER   ESCROW   AGREEMENT").   In the event the Buyer or Parent

complete   the Tender   Offer as   described   in this   Section 1.7 and purchase all

Public Shares   tendered by Minority   Stockholders in connection with such Tender

Offer, then the Escrow Amount,   together with any interest earned thereon, shall

be paid to the Selling Lenders. In the event the Tender Offer is not made within

180 days after the   Closing   Date,   (a) the   Escrow   Amount,   together   with any

interest earned thereon,   shall be paid to the Minority Stockholders in the same

proportion   that the number of Public Shares held by each   Minority   Stockholder

bears   to   the   total   number   of   Public   Shares   then   held   by   all   Minority

Stockholders,   and (b) the Buyer   and   Parent   shall be   jointly   and   severally

obligated to pay immediately   $450,000 (the "ADDITIONAL   ADJUSTMENT   AMOUNT") to

the Selling Lenders by wire transfer (pursuant to their respective wire transfer

instructions   set forth on Exhibit A to this   Agreement) in accordance   with the

allocations set forth on Exhibit B to this Agreement. The Buyer and Parent shall

bear the costs of   establishing   and   maintaining   the escrow   account until the

Escrow Amount is distributed as provided in this Section 1.7.3.

 

 

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            1.7.4 The parties acknowledge and agree that the obligations imposed

by   this   Section   1.7   are   for   the   benefit   of   the   Minority   Stockholders.

Accordingly,   the Buyer and Parent agree that the Minority Stockholders shall be

entitled   to   enforce   the   provisions   of   this   Section   1.7   as   third   party

beneficiaries.

 

      1.8 CLOSING BALANCE SHEET. The Company covenants and agrees to provide the

Buyer   within   thirty   (30) days after the end of the month in which the Closing

occurs a balance sheet   reflecting the assets and   liabilities of the Company as

of the last day of the month in which the Closing   occurs (the "CLOSING   BALANCE

SHEET"). The Closing Balance Sheet shall be reasonably detailed and shall (a) be

prepared in   accordance   with the books and records of the   Company,   (b) fairly

present the financial   condition of the Company as of the date therein indicated

consistent with past practice,   and (c) be prepared in accordance with generally

accepted accounting principles applied on a consistent basis.

 

       1.9 FURTHER   ASSURANCES.   The Selling   Lenders   agree that, if at any time

after the Closing,   the Buyer   considers   or is advised that any further   deeds,

assignments or assurances are reasonably necessary or desirable to vest, perfect

or confirm in the Buyer title to any property or rights of the Selling   Lenders,

the Selling   Lenders will execute and deliver any and all   documents   (including

without   limitation,   the   execution,   amendment   or   supplementation   of deeds,

assignments,   financing   statements and continuation   statements relating to any

collateral   securing   the Company Debt for filing   under the   provisions   of the

Uniform   Commercial Code or any similar statute of any applicable   jurisdiction)

and do all other things necessary or desirable to vest, perfect or confirm title

to such   property or rights in the Buyer and   otherwise to carry out the purpose

of this Agreement.

 

      1.10   Regulatory   Receipts.   With   respect to the   Agreement   to   Exchange

Indebtedness   for   Personal   Property   (the   "EXCHANGE   AGREEMENT")   between the

Company and the Selling Lenders,   among other parties,   the parties hereto agree

as follows with respect to the payment of the Assigned   Regulatory   Receipts (as

defined in the   Exchange   Agreement)   by the Credit   Parties   (as defined in the

Exchange Agreement) to the Selling Lenders, that:

 

            1.10.1   Effective as of the Closing Date, in   consideration   for the

sale by the Selling Lenders of the Company Debt to the Buyer,   each of the Buyer

and Parent shall take all commercially   reasonable action necessary to cause the

Credit Parties to fully comply with the terms of the Exchange Agreement.

 

 

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            1.10.2   Each of the Buyer and Parent   shall not take any action that

would materially   adversely affect the Selling Lenders' right to receive payment

of the Assigned Regulatory Receipts under the Exchange Agreement.

 

            1.10.3 The   obligations   of the Buyer and Parent   under this Section

1.10 shall be binding on each of the Buyer and   Parent's   respective   successors

and assigns.

 

2.     REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

      The Company   hereby   represents   and warrants,   except as set forth on the

Company Disclosure Letter delivered to the Buyer herewith,   which may be updated

to reflect immaterial changes that occur after signing and prior to the Closing,

as follows:

 

            2.1   ORGANIZATION   AND GOOD   STANDING.   The   Company and each of its

Subsidiaries (as hereinafter   defined) is a corporation duly organized,   validly

existing and in good standing   under the laws of the state of its   incorporation

or a   limited   liability   company   duly   formed,   validly   existing   and in good

standing under the laws of the state of its formation,   has the corporate   power

and   authority   to own,   operate   and lease its   properties   and to carry on its

business as now conducted and as proposed to be conducted, and is qualified as a

foreign   corporation or limited liability company in each jurisdiction listed on

Section 2.1 of the Company Disclosure Letter. Except as listed on Section 2.1 of

the   Company   Disclosure   Letter,   the   Company   does not own or lease   any real

property,   has no   employees   and does not   maintain a place of   business in any

foreign   country or in any state of the United States other than Ohio in which a

failure to be so   qualified   could   reasonably   be   expected   to have a Material

Adverse Effect (as hereinafter defined) on its present or proposed operations or

financial condition.

 

      For purposes of this   Agreement,   the term "MATERIAL   ADVERSE EFFECT" when

used   in   connection   with   an   entity   means   any   change,   event,   occurrence,

development,   circumstance   or   effect,   whether   or   not   such   change,   event,

occurrence,   development,   circumstance   or   effect   is   caused   by or arises in

connection with a breach of a representation, warranty, covenant or agreement of

such   entity   in   this   Agreement,   that   is   or is   reasonably   likely   to   be,

individually   or in the aggregate,   materially   adverse to the business,   assets

(including intangible assets),   capitalization,   financial condition, operations

or results of operations, employees or prospects of such entity taken as a whole

with its   subsidiaries,   except   to the   extent   that any   such   change,   event,

circumstance or effect is caused by results from (i) changes in general economic

conditions,   (ii) changes affecting the industry   generally in which such entity

operates    (provided    that   such   changes   do   not   affect   such   entity   in   a

substantially   disproportionate   manner), (iii) changes in the trading price for

such entity's   capital   stock,   (iv) changes   caused by the taking of any action

required or permitted under this   Agreement,   or (v) any change in any law or in

generally accepted accounting principles or in the interpretation thereof.

 

      For purposes of this Agreement, the term "KNOWLEDGE" means with respect to

a party hereto, with respect to any matter in question, that any of the officers

of such party has actual knowledge of such matter after reasonable inquiry.

 

 

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      2.2 POWER, AUTHORIZATION AND VALIDITY.

 

            2.2.1 POWER AND CAPACITY.   The Company has the right,   power,   legal

capacity   and   authority   to enter into and perform its   obligations   under this

Agreement and the   Transactions   contemplated   hereunder,   and all agreements to

which   the   Company   is or will be a party   that   are   required   to be   executed

pursuant to this Agreement (the "COMPANY ANCILLARY AGREEMENTS").   The execution,

delivery and performance of this Agreement and the Company Ancillary   Agreements

have been duly and validly   approved and   authorized by the   Company's   Board of

Directors and the Selling Lenders (who   collectively   hold   approximately 95% of

the voting Common Stock of the Company),   as required by applicable   law and the

Company's certificate of incorporation and bylaws.

 

            2.2.2 NO FILINGS. No filing, authorization or approval, governmental

or otherwise,   is necessary to enable the Company to enter into,   and to perform

its   obligations   under,   this Agreement and the Company   Ancillary   Agreements,

except for (a) such   filings as may be required to comply with federal and state

securities   laws, (b) the approval of the Selling   Lenders of this Agreement and

the Transactions contemplated hereby, which approval has been obtained as of the

date of this   Agreement,   and (c) the   notices and   approvals   listed on Section

2.2.2 to the Company Disclosure Letter.

 

            2.2.3 BINDING   OBLIGATION.   This Agreement and the Company Ancillary

Agreements   are,   or when   executed by the   Company   will be,   valid and binding

obligations   of the Company   enforceable   in   accordance   with their   respective

terms,   except as to the effect, if any, of (a) applicable   bankruptcy and other

similar laws affecting the rights of creditors   generally,   and (b) rules of law

governing specific performance, injunctive relief and other equitable remedies.

 

      2.3 VALIDITY OF COMPANY   DEBT.   The Company has not   modified,   amended or

altered the Credit   Agreement   or the   Security   Agreement,   except as expressly

provided   in the   amendments   and   waivers   identified   in   Section   1.1 of this

Agreement.

 

      2.4   CAPITALIZATION.   The authorized   capital stock of Company consists of

(a) 1,000,000,000 shares of common stock, $0.01 par value per share (the "COMMON

STOCK"),   of which (i) 615,018,963   shares are issued and outstanding,   and (ii)

472,263 shares are issuable upon exercise of   outstanding   options and warrants,

and (b) 1,000,000   shares of convertible   preferred   stock,   $0.01 par value per

share (the   "PREFERRED   STOCK"),   none of which are issued and   outstanding.   No

other   shares of capital   stock or other   voting   securities   of the Company are

authorized,   issued or   outstanding.   All issued and   outstanding   shares of the

Common Stock have been duly authorized and were validly   issued,   are fully paid

and nonassessable,   are not subject to any right of rescission,   are not subject

to preemptive   rights by statute,   the certificate of incorporation or bylaws of

the Company,   or any agreement or document to which the Company is a party or by

which it is bound and have   been   offered,   issued,   sold and   delivered   by the

Company in compliance with all   registration or   qualification   requirements (or

applicable   exemptions   therefrom)   of applicable   federal and state   securities

laws.   The Company is not under any   obligation to register under the Securities

Act any of its presently   outstanding   securities or any securities   that may be

subsequently issued. There is no liability for dividends accrued but unpaid with

respect to the Company's outstanding securities.

 

 

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      2.5   SUBSIDIARIES.   Except   as   listed   on   Section   2.5   of   the   Company

Disclosure Letter (collectively the "SUBSIDIARIES" and each a "SUBSIDIARY"), the

Company does not have any subsidiaries or any interest,   direct or indirect,   in

any corporation,   partnership,   joint venture or other business entity.   Each of

the Subsidiaries is wholly owned by the Company. The Company's interest in other

business entities is listed in Section 2.5 of the Company Disclosure Letter.

 

      2.6 NO   VIOLATION   OF   EXISTING   AGREEMENTS.   Neither   the   execution   and

delivery   of   this   Agreement   nor   any   Company   Ancillary   Agreement,   nor the

consummation of the   Transactions   contemplated   hereby,   will conflict with, or

(with or   without   notice or lapse of time,   or both)   result in a   termination,

breach,   impairment   or violation of (a) any   provision   of the   certificate   of

incorporation   or bylaws of the   Company   or any   Subsidiary,   as   currently   in

effect,   (b) in any material   respect,   any material   instrument   or contract to

which the   Company or any   Subsidiary   is a party or by which the Company or any

Subsidiary is bound, or (c) any federal, state, local or foreign judgment, writ,

decree,   order,   statute,   rule or   regulation   applicable to the Company or any

Subsidiary   or their   respective   assets or   properties.   Except as set forth in

Section   2.6   of   the   Company    Disclosure   Letter,   the   consummation   of   the

Transactions   and the resulting   transfer to the Buyer of control of the Company

will not require the consent of any third party.

 

      2.7   LITIGATION.   Except   for the   matters   listed in   Section   2.7 of the

Company   Disclosure    Letter,    there   is   no   action,    proceeding,    claim   or

investigation   pending against the Company or any Subsidiary before any court or

administrative   agency   that   if   determined   adversely   to the   Company   or any

Subsidiary may   reasonably be expected to have a Material   Adverse Effect on the

Company or any Subsidiary, nor, to the best of Company's knowledge, has any such

action,   proceeding,   claim or investigation   been threatened.   There is, to the

best of the Company's   knowledge,   no reasonable   basis for any   stockholder   or

former stockholder of the Company, or any other person,   firm,   corporation,   or

entity,   to assert a claim   against the   Company or the Buyer   based   upon:   (a)

ownership or rights to ownership of any shares of the Company's   capital   stock,

(b) any   rights   as a   stockholder   of the   Company,   including   any   option   or

preemptive   rights or rights to notice or to vote,   or (c) any rights   under any

agreement among the Company and its stockholders.

 

      2.8 TAXES.   The Company and each of its Subsidiaries has filed all federal

and state tax returns and, to the best   knowledge of the Company,   all local and

foreign tax returns   required to be filed,   has paid or   established an adequate

accrual or reserve   for the   payment of all taxes known by the Company to be due

in respect of the periods for which returns have been filed,   has established an

adequate   accrual or reserve for the payment of all taxes   payable in respect of

the periods   subsequent to the periods covered by the most recent applicable tax

returns,   has made all necessary   estimated tax payments known by the Company to

be required to be paid, and has no material liability for taxes in excess of the

amount so paid or accruals or reserves so   established.   Neither the Company nor

any   Subsidiary   is delinquent in the payment of any tax or is delinquent in the

filing of any tax returns   known by the Company to be required to be filed,   and

no deficiencies for any tax have been threatened, claimed, proposed or assessed.

Except for the matters listed in Section 2.8 of the Company   Disclosure   Letter,

no tax return of the   Company   or any   Subsidiary   has ever been   audited by the

Internal Revenue Service or any state taxing agency or authority.   The tax basis

for the pay phones   owned by the   Company and its   Subsidiaries   is set forth on

Schedule   2.8 of the   Company   Disclosure   Schedule.   For the   purposes   of this

Section 2.8, the terms "TAX" and "TAXES" include all federal,   state,   local and

foreign income, gains, franchise, transaction, lease, service, excise, property,

sales, use, ad valorem, withholding,   employment,   license, payroll, occupation,

gross   receipts,   premium,   recording,   deed,   value   added or   transfer   taxes,

governmental   charges,   fees, levies or assessments (whether payable directly or

by withholding),   and, with respect to such taxes,   any estimated tax,   interest

and   penalties or additions to tax and interest on such   penalties and additions

to tax.

 

 

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      2.9   FINANCIAL   STATEMENTS.   The   Company   has   delivered   to the Buyer as

Section 2.9 to the Company   Disclosure   Letter (i) the Company's audited balance

sheet as of December 31, 2003 (the "BASE   BALANCE   SHEET") and income   statement

and   statement   of cash   flows for the year then ended   (collectively   the "BASE

FINANCIAL STATEMENTS"), and (ii) an unaudited balance sheet of the Company dated

as of July 31, 2004 (the   "INTERIM   BALANCE   SHEET")   and the related   unaudited

income   statement   and   statement of cash flows for the seven month period ended

July   31,   2004   (the   "INTERIM   FINANCIAL   STATEMENTS").   (The   Base   Financial

Statements and the Interim Financial Statements are collectively   referred to as

the "FINANCIAL STATEMENTS.") The Financial Statements (a) are in accordance with

the books and   records   of the   Company,   (b)   fairly   present   in all   material

respects   the   financial   condition   of the Company as of the   respective   dates

therein   indicated   and the results of   operations   for the   respective   periods

therein   specified,   and (c) have been   prepared in   accordance   with   generally

accepted accounting principles applied on a consistent basis. The Company has no

material debt, liability or obligation of any nature, whether accrued, absolute,

contingent or otherwise, and whether due or to become due, that is not reflected

or reserved against in the Financial Statements,   except for those that may have

been incurred after the date of the Financial   Statements in the ordinary course

of its   business,   consistent   with past   practice   and that are not material in

amount either individually or collectively.

 

      2.10 TITLE TO PROPERTIES. Except as listed on Schedule 2.10 of the Company

Disclosure   Letter,   the   Company   has good and   marketable   title to all of its

assets as shown on the   Interim   Balance   Sheet,   free and   clear of all   liens,

charges,   restrictions or encumbrances (other than for (a) taxes not yet due and

payable and (b) the liens and security interests in favor of the Selling Lenders

under   the Loan   Documents   and in   favor of   Cerberus   in   connection   with the

Cerberus   Subordinated   Debt).   All   machinery   and   equipment   included in such

properties   is in good   condition   and repair,   normal   wear and tear   excepted.

Except for the matters listed in Section 2.10 of the Company   Disclosure Letter,

all leases of real or personal   property to which the Company or any   Subsidiary

is a party are fully effective and afford the Company or the Subsidiary peaceful

and   undisturbed   possession   of the   subject   matter of the lease.   Neither the

Company nor any   Subsidiary is in violation of any zoning,   building,   safety or

environmental   ordinance,   regulation or   requirement or other law or regulation

applicable   to the   operation of owned or leased   properties   (the   violation of

which would have a Material Adverse Effect on its business), or has received any

written notice of violation with which it has not complied.

 

      2.11   ABSENCE OF CERTAIN   CHANGES.   Since the date of the Interim   Balance

Sheet, there has not been with respect to the Company or any Subsidiary:

 

            (a) any   change   in the   financial   condition,   properties,   assets,

liabilities,   business   or   operations   thereof   which   change,   by itself or in

conjunction with all other such changes,   whether or not arising in the ordinary

course of business, has had or will have a Material Adverse Effect thereon;

 

 

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            (b) any   contingent   liability   incurred   thereby as guarantor   with

respect to the obligations of others;

 

            (c) any material mortgage,   encumbrance or lien placed on any of the

material   properties   thereof (other than liens that may arise for taxes not yet

due and payable);

 

            (d) any material obligation or liability incurred thereby other than

obligations and liabilities incurred in the ordinary course of business;

 

            (e) any purchase or sale or other   disposition,   or any agreement or

other   arrangement for the purchase,   sale or other   disposition,   of any of the

material   properties   or assets   thereof   other than in the   ordinary   course of

business;

 

            (f) any   damage,   destruction   or loss,   whether   or not   covered by

insurance, materially and adversely affecting the properties, assets or business

thereof;   (g) any   declaration,   setting aside or payment of any dividend on, or

the making of any other   distribution   in respect of, the capital stock thereof,

any split,   combination or   recapitalization of the capital stock thereof or any

direct or   indirect   redemption,   purchase or other   acquisition   of the capital

stock thereof;

 

            (h) any labor   dispute or claim of unfair   labor   practices,   or any

change in the compensation   payable or to become payable to any of its officers,

employees or agents, or bonus payment or arrangement made to or with any of such

officers,   employees or agents, in either case, except in the ordinary course of

business, consistent with past practice;

 

            (i) any material change with respect to the management,   supervisory

or other key personnel thereof other than in the ordinary course of business;

 

            (j) any payment or discharge of a material lien or liability thereof

which lien or liability was not either reflected in the Interim Balance Sheet or

incurred in the ordinary course of business thereafter; or

 

            (k) any   obligation   or   liability   incurred   thereby   to any of its

officers, directors or stockholders or any loans or advances made thereby to any

of its   officers,   directors or   stockholders   except   normal   compensation   and

expense allowances payable to officers.

 

 

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      2.12 CONTRACTS AND COMMITMENTS. Except as set forth in Section 2.12 of the

Company   Disclosure   Letter,   neither   the Company   nor any   Subsidiary   has any

contract,   obligation or commitment (including any purchase agreement,   license,

lease or   franchise)   which is   material   to the   business of the Company or any

Subsidiary or which involves a potential   commitment in excess of $50,000 or any

stock   redemption or financing   agreement.   A copy of each agreement or document

listed in Section 2.12 of the Company   Disclosure   Letter has been   delivered to

Buyer's counsel. Neither the Company nor any Subsidiary is a party to or subject

to any contract   containing   covenants   purporting to limit the Company's or any

Subsidiary's   freedom to compete in any line of business in any geographic area.

Neither the Company nor any   Subsidiary is, nor, to the knowledge of the Company

is any other party thereto,   in breach or default in any material   respect under

any   contract or document   so listed in Section   2.12 of the Company   Disclosure

Letter,   which breach or default may   reasonably   be expected to have a Material

Adverse   Effect on the   Company or any   Subsidiary.   Neither the Company nor any

Subsidiary   is a party to any   contract   or   arrangement   which has had or could

reasonably   be expected   to have a Material   Adverse   Effect on its   business or

prospects. Neither the Company nor any Subsidiary has any material liability for

renegotiation of government contracts or subcontracts, if any.

 

 

      2.13 INTELLECTUAL   PROPERTY. The Company and its Subsidiaries own, or have

the right to use, sell or license all material   Intellectual Property Rights (as

defined   below)   necessary   or   required   for the   conduct   of their   respective

businesses   as presently   conducted   (such   Intellectual   Property   Rights being

hereinafter collectively referred to as the "COMPANY IP RIGHTS") and such rights

to use,   sell or license are   reasonably   sufficient   for such   conduct of their

respective businesses. The execution, delivery and performance of this Agreement

and the consummation of the Transactions contemplated hereby will not constitute

a material breach of any instrument or agreement   governing any Company IP Right

(the   "COMPANY   IP   RIGHTS   AGREEMENTS"),   will   not   cause   the   forfeiture   or

termination   or give rise to a right of forfeiture or termination of any Company

IP   Right   or   materially   impair   the   right   of   the   Company   or   any   of its

Subsidiaries   to use,   sell or license any   Company IP Right or portion   thereof

(except where such breach,   forfeiture or termination   would not have a Material

Adverse Effect on the Company and its Subsidiaries taken as a whole). Except for

any   Company   IP   Rights   Agreements   listed   in   Section   2.12   of the   Company

Disclosure   Letter,   neither the Company nor any   Subsidiary   has any   contract,

obligation or commitment to pay royalties,   honoraria, fees or other payments to

any person by reason of the ownership,   use, license, sale or disposition of the

Company IP Rights which involves a potential commitment in excess of $50,000. To

the knowledge of the Company,   no Intellectual   Property owned by the Company or

any Subsidiary infringes any Intellectual Property Right of any other party; and

there is no pending or, to the best knowledge of the Company,   threatened   claim

or litigation contesting the validity,   ownership or right to use, sell, license

or dispose of any Company IP Right nor, to the best knowledge of the Company, is

there any basis for any such   claim,   nor has the   Company   received   any notice

asserting   that any   Company   IP Right or the   proposed   use,   sale,   license or

disposition   thereof   conflicts   or will   conflict   with the rights of any other

party,   nor, to the best   knowledge of the   Company,   is there any basis for any

such assertion.   The Company has taken reasonable and practicable steps designed

to   safeguard   and   maintain   the   secrecy   and    confidentiality   of,   and   its

proprietary   rights in, all material Company IP Rights. As used herein, the term

"INTELLECTUAL    PROPERTY   RIGHTS"   shall   mean   all   worldwide    industrial   and

intellectual property rights,   including,   without limitation,   patents,   patent

applications,   patent rights, trademarks,   trademark applications,   trade names,

service marks,   service mark applications,   copyright,   copyright   applications,

franchises,   licenses,   inventories,   know-how,   trade secrets,   customer lists,

proprietary   processes   and   formulae,   all source and object code,   algorithms,

architecture, structure, display screens, layouts, inventions, development tools

and all   documentation   and media   constituting,   describing   or relating to the

above, including, without limitation, manuals, memoranda and records.

 

 

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      2.14   COMPLIANCE WITH LAWS. The Company and each of its   Subsidiaries   has

complied, or prior to the Closing Date will have complied,   and is or will be at

the   Closing   Date   in   full   compliance,   in all   material   respects   with   all

applicable laws,   ordinances,   regulations,   and rules,   and all orders,   writs,

injunctions,   awards,   judgments, and decrees applicable to it or to the assets,

properties,   and business   thereof (the violation of which would have a Material

Adverse   Effect   upon its   business),   including,   without   limitation:   (a) all

applicable   federal   and   state   securities   laws and   regulations,   and (b) all

applicable   federal,   state, and local laws,   ordinances,   regulations,   and all

orders, writs, injunctions, awards, judgments, and decrees pertaining to (i) the

sale,   licensing,   leasing,   ownership,   or management   of its owned,   leased or

licensed   real or personal   property,   products and technical   data,   including,

without   limitation,   Section   276 of the   Telecommunications   Act of   1996,   as

amended by the   Federal   Communications   Commission   ("FCC")   to date,   and (ii)

safety, health, fire prevention, environmental protection, toxic waste disposal,

building   standards,   zoning and other similar matters.   Each of the Company and

its   Subsidiaries   has received all permits and approvals from, and has made all

filings with, third parties,   including the FCC and other appropriate federal or

state government agencies and authorities, that are necessary in connection with

its   present   business   and that if not   obtained or filed would have a Material

Adverse Effect on the Company. To the best of the Company's knowledge, there are

no legal or administrative   proceedings or investigations pending or threatened,

that, if enacted or determined adversely to the Company or any Subsidiary, would

result in any Material Adverse Effect to the Company or its Subsidiaries.

 

      2.15 INTERESTED PARTY TRANSACTIONS.   No current officer or director of the

Company or, to the best of Company's   knowledge,   any "affiliate" or "associate"

(as those terms are defined in Rule 405 promulgated under the Securities Act) of

any such person has had, either directly or indirectly,   a material interest in:

(i) any person or entity which purchases from or sells, licenses or furnishes to

the Company or any   Subsidiary   any   material   goods,   property,   technology   or

intellectual   or other   property   rights or services;   (ii) any person or entity

which   competes   with the Company or any   Subsidiary;   or (iii) any   contract or

agreement to which the Company or any   Subsidiary   is a party or by which it may

be bound or affected (except for normal compensation for services as an officer,

director or employee thereof).

 

      2.16 EMPLOYEES, ERISA AND OTHER COMPLIANCE.

 

            2.16.1   Except   as set   forth   in   Section   2.16.1   of   the   Company

Disclosure   Letter,   the   Company and its   Subsidiaries   do not have any written

employment   contracts or consulting   agreements   currently in effect that limits

their   ability to terminate   any of their   employees'   employment   or consulting

arrangements at will.

 

            2.16.2   Neither the Company nor any   Subsidiary (i) has ever been or

is now subject to a union organizing   effort,   (ii) is subject to any collective

bargaining   agreement with respect to any of its employees,   (iii) is subject to

any other   contract,   written or oral,   with any trade or labor union or similar

organization, or (iv) to the Company's knowledge, has any current material labor

disputes.   The Company and each of its   Subsidiaries   has   generally   good labor

relations,   and has no   knowledge   that   the   consummation   of the   Transactions

contemplated hereby will have a Material Adverse Effect on such labor relations,

and has no knowledge   that any of its key employees   intends to leave its employ

within the sixty (60) days following the Closing.

 

 

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            2.16.3 Section 2.16.3 of the Company   Disclosure   Letter   identifies

(i) each material written "employee benefit plan," as defined in Section 3(3) of

the Employee   Retirement Income Security Act of 1974, as amended ("ERISA"),   and

(ii) all other material written plans or agreements involving direct or indirect

compensation or benefits   (including any written   employment   agreements entered

into   between the Company or any   Subsidiary   and any employee of the Company or

any Subsidiary,   but excluding workers' compensation,   unemployment compensation

and other   government-mandated   programs) currently maintained or contributed to

by the Company or any Subsidiary   (collectively,   the "COMPANY EMPLOYEE PLANS").

For purposes of this Section   2.16.3,   "ERISA   AFFILIATE"   shall mean any entity

which is a member of (A) a   "controlled   group of   corporations,"   as defined in

Section 414(b) of the Co