February 25, 1997



PERSONAL AND CONFIDENTIAL

VIA FAX
303/706-1926

Mr. David A. Arvizu
8426 Green Island Circle
Littleton, CO   80134

Dear Dave:

We are  pleased  to  extend  this  offer of  employment  to you as  Senior  Vice
President-Marketing  &  Sales  for  local  and  regional  markets  with  Peoples
Telephone Company,  Inc.,  ("Peoples").  The terms of your employment will be as
follows:

1. Base Salary: You will receive a base salary of $140,000 per annum, which will
be paid bi-monthly and reviewed annually.

2.  Bonus:  You will be eligible  for an annual  bonus of 50% of base salary for
on-target  performance.  A percentage  of this will be based on overall  company
performance  and a percentage  based on  achievement  of personal  goals,  to be
mutually  agreed  in  advance  by the two of us.  At  that  time,  we will  also
establish  criteria for over  achievement of this bonus level. The bonus will be
paid quarterly and trued-up at year-end.

3.Equity Plan: As a company executive, you will be eligible for participation in
the company's Executive Stock Option Plan. Your anticipation in the plan will be
at the rate of 80,000 options,  vesting over 5 years, according to the following
traunches;  fair market value (at time of signing of this offer),  $4.25, $5.25,
$6.25, and $7.25, in equal traunches of 16,000 shares each.

4.Savings  Plan:  You will be eligible to  participate  in the Company's  401(k)
savings plan, the details of which are enclosed, beginning January 1, 1998.

5.Vacation:  In addition  to company  holidays,  you will be eligible  for three
weeks' annual vacation.
<PAGE>

Mr. David A. Arvizu
February 25, 1997
Page 2

6.  Relocation:  In lieu of a  company  relocation  program,  we will  provide a
sign-on  bonus of  $45,000  upon  joining  Peoples  Telephone  to  apply  toward
relocating yourself and your family from Denver to Miami. Of course, we would be
happy to provide any advice to help smooth the transition.

7. Benefit Plans: You will be eligible to participate in the Company's  medical,
disability, and life insurance plans, the details of which are enclosed.

8.Termination: Should your employment be terminated without cause ( cause' to be
Peoples' standard  definition of cause),  you will be eligible for a termination
payment equal to a half a year's base salary.

Dave, pursuant to our discussions,  Neil, Alan and I are convinced that you will
be effective on our team and that your leadership will significantly enhance our
results.  Moreover,  we  believe  that  you are our  kind of  person  and  that,
together,  we can build the kind of  company  with  which we will be proud to be
affiliated.

We hope that you will  accept  our  offer of  employment  (contingent  upon your
successful  completion of the drug test) by signing this letter and returning it
to my attention by March 3. This offer is with the understanding that you devote
your full time to the  business of Peoples.  We look  forward to you joining our
team on March 17.

Sincerely,



/s/ E. Craig Sanders
E. Craig Sanders


I accept this offer of employment as set forth in this letter.

/s/ David A. Arvizu                     February 25, 1997
David A. Arvizu
<PAGE>

                                LETTER AGREEMENT
                                
                         March 17, 1997



Mr. David A. Arvizu
Peoples Telephone Company, Inc.
2300 N.W. 89th Place
Miami, Florida  33172


Dear Mr. Arvizu:


          This is to confirm our agreement as further set forth herein that:

     1. Peoples Telephone Company, Inc. (the "Company") relies upon you and your
expertise  and wishes to continue  to take  advantage  of and benefit  from such
experience and,  therefore,  wishes to enter into this Letter  Agreement and you
wish to enter into this Letter Agreement.

     2. The  Company  and you agree  that in case of a "Change in  Control"  (as
defined in Exhibit A attached hereto),  if you are (a) terminated  without cause
by the Company or any successor thereof, for a period beginning three (3) months
before and ending twelve (12) months after the Change of Control,  (b) are asked
to assume lesser duties  and/or title or duties  inconsistent  with your current
position  without your consent or (c) the Company's  corporate  headquarters  is
moved or you are required to be based at any office or location  other than that
of the Company's present corporate  headquarters  which change of location would
require  you to commute  more than  fifty  (50) miles in excess of your  commute
prior to such change ("Termination Date"), in addition to any other benefits due
you from the  Company  and  without  affecting  any such other  compensation  or
benefits  owed to you,  the  Company  shall pay you within five (5) days of such
Termination  Date as severance  pay (i) a lump sum amount equal to fifty percent
(50%) of your annual base salary at the highest rate in effect during the twelve
(12) months  immediately  preceding the Termination Date plus (ii) any bonus you
may be eligible  for under any Company  bonus plan (such amount to be paid as if
any and all goals and  conditions to such bonus payment had been met) plus (iii)
all options  granted to you by the Company shall vest if not already vested (and
shall not be subject to any thirty (30) day exercise rule unless  exemption from
such  rule  shall be  prohibited  by the plan  under  which  such  options  were
granted).

<PAGE>

Mr. David A. Arvizu
Peoples Telephone Company, Inc.
March 17, 1997
Page 2


     3.  This  Letter  Agreement  shall  be  binding  upon the  Company  and any
successors and assigns thereof.

     4.  Termination  for cause for purposes of this letter,  and the  Company's
offer letter of February 25, 1997 previously  delivered to you, shall be defined
as:  (1)  conviction  of a felony;  (2)  engages in one or more acts of fraud or
moral turpitude;  (3) misappropriates  Company assets; (4) engages in misconduct
injurious to the Company;  and (5) if the Board  determines you have  materially
and willfully failed to perform your duties.

     Please sign in the space provided below and return this form to me.

                              Very truly yours,

                              PEOPLES TELEPHONE COMPANY, INC.


                              By: /s/ E. Craig Sanders           
                                   E. Craig Sanders
                                   President/Chief Executive Officer


Agreed and Accepted
this 17th day of March, 1997:


/s/ David A. Arvizu
David A. Arvizu
Senior Vice President - Sales and Marketing

<PAGE>
                                    EXHIBIT A


     For purposes of this Agreement, a "Change in Control" means:

          (1) the acquisition of beneficial  ownership,  direct or indirect,  of
     equity  securities of the Company by any person (as that term is defined in
     Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
     (the "Exchange Act")) which, when combined with all other securities of the
     Company beneficially owned,  directly or indirectly by that person,  equals
     or exceeds 50% of (i) either the then outstanding shares of common stock of
     the Company (the  "Outstanding  Company Common Stock") or (ii) the combined
     voting  power of the then  outstanding  voting  securities  of the  Company
     entitled to vote generally in the election of directors  (the  "Outstanding
     Company  Voting  Securities");   provided,   however,  that  the  following
     acquisitions shall not constitute a Change of Control:  (i) any acquisition
     by the  Company or any of its  subsidiaries,  (ii) any  acquisition  by any
     employee  benefit plan (or related  trust)  sponsored or  maintained by the
     Company  or  any  of its  subsidiaries  or  (iii)  any  acquisition  by any
     corporation with respect to which,  following such  acquisition,  more than
     75% of,  respectively,  the then outstanding shares of common stock of such
     corporation  and the combined voting power of the then  outstanding  voting
     securities of such  corporation  entitled to vote generally in the election
     of directors is then beneficially owned, directly or indirectly,  by all or
     substantially  all of the  individuals and entities who were the beneficial
     owners,   respectively,   of  the  Outstanding  Company  Common  Stock  and
     Outstanding Company Voting Securities immediately prior to such acquisition
     in substantially the same proportions as their ownership, immediately prior
     to  such  acquisition,   of  the  Outstanding   Company  Common  Stock  and
     Outstanding Company Voting Securities, as the case may be; or

          (2)  individuals  who, as of the date hereof,  constitute the Board of
     Directors  (the  "Incumbent  Board")  cease for any reason to constitute at
     least a majority of the Board of  Directors;  provided,  however,  that any
     individual  becoming  a  director  subsequent  to  the  date  hereof  whose
     election,  or nomination  for election by the Company's  shareholders,  was
     approved by a vote of at least a majority of the directors then  comprising
     the Incumbent  Board shall be considered as though such  individual  were a
     member of the  Incumbent  Board,  but  excluding  for this purpose any such
     individual whose initial  assumption of office occurs as a result of either
     an actual or threatened solicitation to which Rule 14a-11 of Regulation 14A
     promulgated  under the Exchange  Act applies or other actual or  threatened
     solicitation of proxies or consents; or

          (3) approval by the  shareholders of the Company of a  reorganization,
     merger  or  consolidation,  in each  case,  with  respect  to which  all or
     substantially  all of the  individuals and entities who were the beneficial
     owners,   respectively,   of  the  Outstanding  Company  Common  Stock  and
     Outstanding   Company   Voting   Securities   immediately   prior  to  such
     reorganization,   merger   or   consolidation   do  not,   following   such
     reorganization,  merger or  consolidation,  beneficially  own,  directly or
     indirectly, more than 75% of, respectively,  the then outstanding shares of
     common stock and the combined voting power of the then  outstanding  voting
     securities entitled to vote generally in the election of directors,  as the
     case may be, of the corporation resulting from such reorganization,  merger

<PAGE>

     or consolidation in substantially  the same proportions as their ownership,
     immediately  prior to such  reorganization,  merger or consolidation of the
     Outstanding Company Common Stock and Outstanding Company Voting Securities,
     as the case may be; or

          (4)  approval  by the  shareholders  of the  Company of (i) a complete
     liquidation  or  dissolution  of the  Company  or (ii)  the  sale or  other
     disposition of all or substantially all of the assets of the Company, other
     than to a corporation,  with respect to which  following such sale or other
     disposition, more than 75% of, respectively, the then outstanding shares of
     common stock of such  corporation and the combined voting power of the then
     outstanding  voting  securities  of  such  corporation   entitled  to  vote
     generally in the election of directors is then beneficially owned, directly
     or indirectly,  by all or substantially all of the individuals and entities
     who were the beneficial owners,  respectively,  of the Outstanding  Company
     Common Stock and Outstanding Company Voting Securities immediately prior to
     such sale or other  disposition  in  substantially  the same  proportion as
     their ownership,  immediately prior to such sale or other  disposition,  of
     the  Outstanding  Company  Common  Stock  and  Outstanding  Company  Voting
     Securities, as the case may be.

     The term "the sale or  disposition  by the Company of all or  substantially
all of the  assets  of the  Company"  shall  mean a sale  or  other  disposition
transaction or series of related transactions involving assets of the Company or
of any direct or indirect  subsidiary of the Company (including the stock of any
direct or indirect  subsidiary  of the Company) in which the value of the assets
or stock being sold or otherwise  disposed of (as measured by the purchase price
being paid therefor or by such other method as the Board of Directors determines
is appropriate in a case where there is no readily ascertainable purchase price)
constitutes  more than  two-thirds  of the fair market  value of the Company (as
hereinafter  defined).  The  "fair  market  value of the  Company"  shall be the
aggregate market value of the then outstanding  Company Common Stock (on a fully
diluted basis) plus the aggregated  market value of Company's other  outstanding
equity  securities.  The  aggregate  market  value of the shares of  Outstanding
Company Common Stock shall be determined by multiplying  the number of shares of
Outstanding  Company Common Stock (on a fully diluted basis)  outstanding on the
date of the execution and delivery of a definitive agreement with respect to the
transaction or series of related  transactions (the  "Transaction  Date") by the
average closing price of the shares of Outstanding  Company Common Stock for the
ten trading days  immediately  preceding  the  Transaction  Date.  The aggregate
market value of any other equity  securities  of the Company shall be determined
in a manner similar to that prescribed in the immediately preceding sentence for
determining  the  aggregate  market value of the shares of  Outstanding  Company
Common Stock or by such other method as the Board of Directors  shall  determine
is appropriate.