<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1993
__________________________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
_______________________ ___________________
Commission file number: 0-873
___________________________________________________
PACIFIC TELECOM, INC.
(Exact name of registrant as specified in its charter)
State of Washington 91-0644974
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
805 Broadway, P.O. Box 9901, Vancouver, Washington 98668-8701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206)696-0983
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, no
par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 4, 1994, there were 39,608,264 shares of Common Stock
outstanding. The aggregate market value (based upon the average bid and
asked prices) of Common Stock held by nonaffiliates of Pacific Telecom, Inc.
on that date was approximately $129,334,000.
DOCUMENTS INCORPORATED BY REFERENCE
___________________________________
Part Into
Document Which Incorporated
________ __________________
Portions of 1993 Annual Report
to Shareholders Parts I and II
Portions of Proxy Statement for
1994 Annual Meeting of Shareholders Part III
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
________
<C> <S> <C>
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
___________
PART I
______
Item 1 Business
Introduction . . . . . . . . . . . . . . . . . . . . . . . . 4
Telecommunications Operations . . . . . . . . . . . . . . . . 4
Local Exchange Companies . . . . . . . . . . . . . . . . . 4
Long Lines . . . . . . . . . . . . . . . . . . . . . . . . 6
Alaska Market Restructuring . . . . . . . . . . . . . . . . 7
Cellular Operations . . . . . . . . . . . . . . . . . . . . 8
Pacific Telecom Cable . . . . . . . . . . . . . . . . . . . 9
International Communications . . . . . . . . . . . . . . . 10
Other Communications Subsidiaries and Partnerships . . . . 11
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . 12
General . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Local Exchange Companies . . . . . . . . . . . . . . . . . 12
Long Lines . . . . . . . . . . . . . . . . . . . . . . . . 14
Competition . . . . . . . . . . . . . . . . . . . . . . . . 15
Environment . . . . . . . . . . . . . . . . . . . . . . . . 17
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Construction Program . . . . . . . . . . . . . . . . . . . . 18
Acquisition Program . . . . . . . . . . . . . . . . . . . . . 18
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4 Submission of Matters to a Vote of Security Holders . . . . . 20
Item 4A Executive Officers of the Registrant . . . . . . . . . . . . . 20
PART II
_______
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . 22
Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . 22
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . 22
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . 22
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . 22
PART III
________
Item 10 Directors and Executive Officers of the Registrant . . . . . . 23
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . 23
Item 12 Security Ownership of Certain Beneficial Owners and Management 23
Item 13 Certain Relationships and Related Transactions . . . . . . . . 23
PART IV
_______
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 24
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendices
Financial Statements and Supplementary Data
Statements of Ratio of Earnings to Fixed Charges
List of Subsidiaries
</TABLE>
<PAGE>
DEFINITIONS
When the following terms are used in the text, they will have the meanings
indicated:
<TABLE>
<CAPTION>
TERM MEANING
____ _______
<S> <C>
Alaska Spur A portion of the North Pacific Cable
that links Alaska and the lower 48
states
APUC Alaska Public Utilities Commission
AT&T AT&T Communications, Inc.
Alascom Alascom, Inc., a wholly-owned
subsidiary of PTI
CPUC Colorado Public Utilities Commission
Company PTI and its subsidiaries
FCC Federal Communications Commission
GCI General Communication, Inc.
IDB IDB Communications Group, Inc.
ICH International Communications
Holdings, Inc., a wholly-owned
subsidiary of PTI
JSA The Joint Services Agreement between
AT&T and Alascom for the provision
of certain interstate services to
Alaska
LEC Local exchange company
MSA Metropolitan statistical area
MTS Message toll service
NECA National Exchange Carrier
Association
North Pacific Cable A submarine fiber optic cable
between the U.S. and Japan
POP Population equivalents in a cellular
RSA or MSA
PTC Pacific Telecom Cable, Inc., an 80
percent owned subsidiary of PTI
PT Cellular Pacific Telecom Cellular, Inc., a
wholly-owned subsidiary of PTI
PT Transmission Pacific Telecom Transmission
Services, Inc., a wholly-
owned subsidiary of PTI
PTI Pacific Telecom, Inc., a Washington
corporation
RSA Rural service area
TRT TRT Communications, Inc.
U.S. United States of America
USF Universal Service Fund
USWC US WEST Communications, Inc.
WATS Wide area telephone service
WUTC Washington Utilities and
Transportation Commission
</TABLE>
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<PAGE>
PART I
Item 1. BUSINESS
________
Introduction
____________
PTI was organized in 1955 to provide telephone service to suburban
and rural communities principally in the Pacific Northwest. Since that time,
the Company has grown significantly through acquisitions and expanded its
service offerings in several areas within the telecommunications industry.
This expansion included the provision of long distance services in the State
of Alaska, investments in cellular telephone operations and international
communications, including the construction of a trans-Pacific fiber optic
cable. Over the past few years, the Company's strategy has been to focus on
its core business of providing local exchange service to suburban and rural
markets and to divest its diversified portfolio of noncore businesses. This
strategy is being implemented through the acquisition of LECs, the sale of
certain international operations, the consolidation and sale of cellular
holdings, and ongoing efforts to achieve a satisfactory restructuring of the
Alaska long distance marketplace. With the completed sale of TRT and upon
closing of the pending sale of two additional noncore operations, the Company
will have exited from all of its material noncore businesses.
PTI has been a majority-owned subsidiary of PacifiCorp since 1973.
At December 31, 1993, PacifiCorp beneficially owned approximately 87 percent
of PTI's common stock.
Telecommunications Operations
_____________________________
Local Exchange Companies
________________________
The Company's LECs operate under a common business name and logo, PTI
Communications. This marketing concept was established in 1991 to create a
unified identity for the local operations, improve communication with
customers and assist in the marketing of new products and services. As one
of the major independent telephone companies in the U.S., the Company's LECs
provide both local telephone service and access to the long distance network
for customers in their respective service areas. The Company presently
operates 20 LECs within eleven states comprised of 398,700 access lines in
253 exchanges. The average number of access lines per exchange is
approximately 1,576, reflecting the lower population density generally found
in the Company's service areas which are rural in nature. The Company's
largest exchange in terms of access lines is in Kalispell, Montana, which had
21,976 access lines at December 31, 1993. Service areas are located
primarily in the states of Alaska, Montana, Oregon, Washington and Wisconsin.
States also served, but to a lesser extent, include Colorado, Idaho, Iowa,
Minnesota, Nevada and Wyoming. (See "Regulation - General.") The Company
provides service to its suburban and rural customer base through centralized
administrative services.
During the five years ended December 31, 1993, the number of access
lines served by the Company increased from 239,600 to 398,700. Approximately
69,000, 3,200 and 1,100 access lines were added in 1990, 1992 and 1993,
respectively, as a result of the acquisitions of several LECs located in the
Midwest. The LECs have also experienced strong internal access line growth
in certain service areas, as evidenced by a five percent increase in access
lines served during 1993. The Company anticipates that access line growth in
the future will come from population growth in current service areas and
acquisitions.
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<PAGE>
The Company's LECs have replaced virtually all of their
electromechanical switches with digital switches that provide significant
space savings, higher reliability and expanded business and residential
service capabilities. High volume traffic routes continue to be upgraded
with fiber optic or digital microwave systems to meet customer needs for
special services. The fiber optic systems provide increased transmission
capabilities at a lower cost. Basic exchange telecommunications radio
systems have been installed to provide local service to new and existing
customers in more remote areas. The Company has nearly completed the
conversion of all multi-party lines to single-party lines. Approximately one
percent of the Company's access lines were multi-party at the end of 1993.
The LECs have contracts with interexchange carriers under which the
Company provides billing and collection services. During 1992, the Company
signed an agreement to provide these services for AT&T through 2001, and an
agreement with Independent NECA Services, a clearinghouse service bureau, to
provide these services for other carriers for a minimum of two years. In
Alaska, the Company's LECs have similar agreements with Alascom.
In addition to its basic telephone service, the Company offered
enhanced services, such as caller identification, name display, automatic
call back, auto recall and call trace, to certain areas of Washington on a
trial basis under the Custom Local Area Signaling Service (CLASS). The
Company began providing these services in Washington on a permanent basis in
January 1994 and plans to make enhanced services available on a trial basis
to other service areas during 1994. The Company's existing switching
equipment provides these services with minimal software and hardware
enhancements. Some of the Company's switching equipment also has other
enhanced service capabilities, such as voice messaging and call forwarding,
that are being offered to certain of its customers in Washington. The LECs
also sell and lease, on a nonregulated basis, customer premise (i.e.,
telephone) equipment primarily for use by residential customers. As part of
this program, residential and business customers are offered maintenance
services on a monthly fee basis.
The Company continues to seek expansion of its local exchange
operations through acquisition. In July 1993, the Company acquired Casco
Telephone Company (Casco), an LEC in Wisconsin, for cash and shares of the
Company's common stock aggregating approximately $4.7 million. The Company
acquired shares in the market in an amount approximating those used in the
acquisition. Casco has approximately 1,100 access lines, 1,100 cable
television subscribers and 18,900 pro-rata cellular POPs in Wisconsin.
In August 1993, the Company signed a definitive agreement with USWC
under which the Company would acquire certain rural telephone exchange
properties in Colorado. The properties represent 45 exchanges that serve
approximately 50,000 access lines. The Company will pay approximately $207
million for these properties at closing, subject to a purchase price
adjustment mechanism, based principally on the estimated book value of the
assets to be acquired. Current estimates of book value indicate that the
purchase price may be less than $207 million. The Company intends to fund
the Colorado acquisition through external debt and internally generated
funds. In an attempt to satisfy certain regulatory concerns in Colorado, the
Company also entered into a construction contract with USWC in July 1993 that
requires the Company to construct and upgrade plant in the properties
subject to the agreement. Under the contract, the Company acts as
general contractor for USWC. The construction and upgrade program will
accelerate single-party
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<PAGE>
service and digital switching required by the CPUC. During 1993, the
Company spent $5.7 million under this contract. Expenditures of $28 million
are projected to be made under the contract in 1994. If the transaction does
not close, USWC is required to reimburse the Company for all of the Company's
expenditures under the construction contract including interest.
The Company filed an application for approval of the transaction with
the CPUC in August 1993 and approval, with conditions, was received in early
March 1994. The parties to the transaction are reviewing the conditions of
the CPUC approval. The Company has also submitted filings with the FCC in
which the Company has requested waivers from the FCC to reclassify the
exchanges from USWC's study area in Colorado to the Company's study area in
Colorado and to permit rate of return regulation on the exchanges being
acquired. Approval of the study area waiver would qualify these exchanges
for receipt of support from the USF, as the cost to provide service in these
exchanges exceeds the national average. Approval of rate of return
regulation would allow the Company to replace the incentive regulation
adopted for these exchanges by USWC. (See "Regulation - Local Exchange
Companies.") Certain local government approvals may also be needed.
Transition planning efforts have commenced and the Company expects to close
the transaction in late 1994.
On March 15, 1994, the Company signed letters of intent with USWC to
acquire certain rural exchange properties located in Oregon and Washington
from USWC for $183 million in cash, subject to certain purchase price
adjustments at closing. These properties represent 49 exchanges that serve
approximately 34,100 access lines. Many of these exchanges are contiguous to
or located near exchanges that the Company owns and operates in these states.
The transaction is subject to negotiation of a definitive purchase agreement
with USWC, which is expected to be completed in early April. Completion of
the transaction will also be dependent on corporate, regulatory and
governmental approvals, all of which should be received by late 1994 or early
1995. The Company expects to fund the acquisition of these properties
through the issuance of external debt and the use of internally generated
funds.
Long Lines
__________
Through Alascom, the Company provides intrastate and interstate MTS,
WATS, private line, leased channel and other communications services within
Alaska and between Alaska and the rest of the world. Alascom's facilities
interconnect with 22 LECs and the military bases within Alaska and with the
interstate and international long distance network. Virtually all services
are provided in accordance with tariffs filed with the appropriate regulatory
agencies. (See "Regulation - Long Lines - Interstate Revenues" for
information concerning Alascom's settlements arrangement with AT&T for
interstate services.)
Alascom uses both satellite and terrestrial facilities in providing
service. In August 1991, Alascom transferred all interstate MTS and certain
interstate private line services from satellite facilities to the Alaska
Spur. (See "Telecommunications Operations - Pacific Telecom Cable.")
Satellite facilities continue to provide intrastate MTS, WATS and private
line services, link remote areas of Alaska to the long distance network (both
interstate and intrastate) and serve as alternate routing for vital customer
services.
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<PAGE>
Alascom operates 17 satellite transponders on Aurora II, a
communication satellite that replaced Alascom's original satellite in 1991.
Alascom purchased one transponder in July 1993 and leases 16 transponders
under an operating lease that expires in mid-1998. Telemetry, tracking,
control and in-orbit protection services are provided under contract by GE
American Communications, Inc. for the projected service life of the
satellite.
Alascom owns 168 satellite transmit and receive earth stations
(including nine transportable earth stations), a 50 percent interest in 46
earth stations used generally for service throughout Alaska and 10 additional
earth stations located in the lower 48 states, Hawaii, Panama, Russia and
Saudi Arabia. Alascom routinely upgrades earth stations with digital
technology to provide enhanced communication services. Approximately 70
percent of the earth station circuits are digital. Alascom has digital
switching equipment located at its toll centers in Anchorage, Fairbanks and
Juneau. It also owns and operates major terrestrial microwave systems
(primarily digital) that provide communications between Anchorage and
Fairbanks and Anchorage and the cities on the Kenai Peninsula. The microwave
system also interconnects Anchorage with leased Canadian facilities at the
Canadian border and with Haines, Juneau and Ketchikan in the rugged terrain
of southeastern Alaska. Alascom owns and operates the communications system
along the Trans-Alaska Pipeline that is used to monitor and control the flow
of oil through the pipeline.
Alaska's geographic location makes the state strategically important
for the military. Alascom has numerous private line facilities serving the
government, including several transportable earth stations used to support
military communication needs. In 1993, the Company sold four transportable
earth stations to the U.S. Department of Defense. Alascom continues to
operate one transportable earth station in Saudi Arabia, which provides
telecommunication services under an agreement with the U.S. Department of
Defense. Alascom is participating in a joint venture providing international
MTS and private line service to several locations in the eastern part of
Russia.
Alaska Market Restructuring
___________________________
In 1985, the FCC established a Federal-State Joint Board (FCC CC
Docket No. 83-1376) to review the interstate market structure of Alaska and
to reconcile various existing and emerging federal policies affecting
universal service, rate integration and competition. On October 29, 1993,
the Federal-State Joint Board released a Final Recommended Decision (FRD),
which proposed modifications to the existing structure for interstate service
in and to Alaska. Among other matters, the FRD proposed termination of the
JSA between Alascom and AT&T, effective September 1, 1995; the payment by
AT&T to Alascom of $150 million for accelerated cost recovery in two equal
installments of $75 million each on March 1, 1994 and September 1, 1995; a
requirement that AT&T continue to utilize Alascom's facilities for the
origination and termination of interstate traffic on a declining scale for a
period of two and one-half years following termination of the JSA; and the
creation by Alascom of an interstate tariff for carrier services based upon
an as yet to be developed allocation of costs between rural and nonrural
locations.
On November 29, 1993, Alascom filed an Application for Review
(Application) of the FRD with the FCC. In the Application, Alascom cited
multiple substantive and procedural errors contained in the FRD, which it
believes render the FRD legally defective and contrary to the public
interest.
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<PAGE>
AT&T and GCI subsequently made filings in opposition to Alascom's
Application. To date, the FCC has taken no action on either the FRD or
Alascom's Application. By statute, the FCC has the sole and final authority
with respect to issues in this proceeding, and may adopt, modify and adopt,
or reject the FRD. As a practical matter, since a majority of the FCC
Commissioners sit on the Joint Board, final actions taken by the FCC often
reflect the recommendations of the Joint Board.
On October 12, 1993, the Company and AT&T entered into an agreement,
under which the parties may exchange proprietary information relating to
Alascom's structure and operations. The purpose of the agreement was to
promote the possibility of a negotiated resolution of some or all of the
outstanding issues relating to the JSA and the restructuring of the Alaska
interstate market. Under the terms of the agreement, the substance and
progress of any negotiations between the parties are generally not
disclosable. Alascom continues its efforts to correct perceived errors in
the FRD and to achieve a satisfactory alternative resolution to the Alaska
interstate market issues, but is unable to predict the outcome of this
matter.
Cellular Operations
___________________
The Company's wholly-owned subsidiary, PT Cellular, is a holding
company with subsidiaries in Alaska, Michigan, Minnesota, Oregon, South
Dakota, Washington and Wisconsin. The Company has ownership interests with
respect to 29 MSAs and RSAs and manages 11 of these interests in Alaska,
Michigan, South Dakota and Wisconsin. The Company also manages five other
RSA interests in Minnesota. Revenues from cellular operations represented
approximately two percent of total Company revenues in 1993.
Cellular mobile telephone service is being provided or developed in
areas designated as RSAs or MSAs within boundaries defined by the FCC.
Cellular systems provide local and long distance telephone services through
mobile radio telephones (cellular phones) that are generally either hand-held
or mounted in vehicles. These cellular phones transmit and receive radio
signals to and from transmitter, receiver and signaling equipment (cell
sites). Cell sites in an RSA or MSA are located in a manner that will allow
for the most complete coverage of an area. Each cell site is connected to a
switching facility that controls the cellular system of the specific RSA or
MSA and connects the cellular customer to the conventional wireline local and
long distance telephone networks or to other cellular phone users in the
area.
The following table sets forth the Company's POP ownership by state as of
December 31, 1993.
<TABLE>
<CAPTION>
Non-
State Controlled (1) Controlled Total
_____ __________ __________ _________
<S> <C> <C> <C>
Alaska 201,000 - 201,000
Michigan 315,000 - 315,000
Minnesota - 23,567 23,567
Oregon - 96,194 96,194
South Dakota 16,147 - 16,147
Washington - 44,819 44,819
Wisconsin 688,646 627,407 1,316,053
_________ _______ _________
Total 1,220,793 791,987 2,012,780
_________ _______ _________
_________ _______ _________
</TABLE>
(1) Represents interests with respect to
RSAs and MSAs where the Company has an
ownership position and manages the
operations.
- 8 -
<PAGE>
The Company plans to increase its ownership interests in certain
cellular properties in order to achieve ownership control and to consolidate
the Company's cellular service areas into larger contiguous units for
operating efficiencies. This plan may be accomplished through the exchange
of existing cellular interests and/or future acquisitions. In 1993, the
Company sold its interests in an RSA where it had a noncontrolling position
and exchanged an RSA where it had a controlling position. In 1993, the
Company also increased its ownership interests in an RSA and gained a
controlling interest in an MSA, both of which are in Wisconsin. The Company
recognized after-tax gains on these transactions totaling $.8 million. The
Company has budgeted $17.9 million for the development of cellular operations
over the next three years.
In 1993, the Company obtained 18,900 pro-rata POPs through an LEC
acquisition in Wisconsin and another 75,150 POPs in Wisconsin through the
purchase of certain cellular ownership interests. All of the cellular
properties in which the Company has an ownership interest are operational.
Customers served by the cellular operations controlled by the Company
increased 65 percent in 1993, 70 percent in 1992 and 100 percent in 1991.
Pacific Telecom Cable
_____________________
PTC, which is owned 80 percent by PTI and 20 percent by Cable &
Wireless plc (C&W), a United Kingdom corporation, is involved in the
operation, maintenance and sale of capacity of a submarine fiber optic cable
between the U.S. and Japan, known as the North Pacific Cable. The eastern
end of the cable is operated by PTC. The western end is operated by
International Digital Communications, Inc. (IDC), a Japanese corporation.
Major IDC shareholders include C. Itoh & Co., Ltd, Toyota Motor Corporation,
Pacific Telesis International and C&W.
The North Pacific Cable is the first submarine fiber optic cable to
provide direct service between the U.S. and Japan. In addition, through the
Alaska Spur, it provides the first digital fiber optic link between Alaska
and the lower 48 states. Service between the U.S. and Japan is carried on
three, 420 Mbit/s digital fiber optic pairs, providing a total capacity of
1,260 Mbit/s. Service between Alaska and the lower 48 states is carried on
one, 420 Mbit/s digital fiber optic pair. On the eastern end, the cable
lands at Pacific City, Oregon and Seward, Alaska. From the landing stations,
traffic is transmitted to carrier access centers near Portland, Oregon and
Anchorage, Alaska for interconnection with digital communications facilities
serving the lower 48 states and Alaska and with facilities transmitting
traffic to foreign countries. In 1991, PTC sold capacity on the Alaska Spur
and capacity in the landing station facilities at Pacific City, Oregon and
Seward, Alaska to Alascom for approximately $56 million. In December 1992,
Alascom sold 11 percent of the Alaska Spur's capacity to GCI. On the western
end, the cable lands at Miura, Japan, and traffic is transmitted to IDC's
carrier access centers in Tokyo, Yokohama and Osaka for interconnection with
Japanese domestic service providers. For service to points beyond Japan, IDC
has constructed a 75-mile submarine cable from Miura to Chikura where it
interconnects with other international cables. IDC also participates in the
Asia Pacific Cable system that links Miura with Hong Kong, Singapore, Taiwan
and Malaysia.
Construction and laying of the North Pacific Cable were completed in
December 1990, the system was made available for commercial traffic in May
1991 and final system acceptance occurred in November 1991.
- 9 -
<PAGE>
Forty-one private and government-owned telecommunications firms representing
25 countries have purchased approximately 51 percent of the cable's 17,010
circuit capacity. PTC recognized revenues of $4.9 million in 1993, $10.8
million in 1992 and $30.9 million in 1991 related to cable and backhaul
capacity sales, excluding the Alaska Spur revenues.
The cable system is operating under a warranty of one to eight years
depending on the component of the system. The cable contractor has agreed to
certain remedies, including providing industry support programs and enhanced
repair arrangements. The Company reduced the cable inventory carrying value
by $19.2 million in 1993 as a result of the agreement with the cable
contractor and increased cash and accounts receivable by a corresponding
aggregate amount.
PTC continues to market the remaining 49 percent of unsold capacity.
Marketing efforts have included the completion of tests demonstrating the
feasibility of transmitting international high-quality television signals via
fiber optics using the North Pacific Cable. Based on the Company's estimates
of growth in trans-Pacific demand for communications capacity and the
availability of other sources of capacity over the next five years, PTC
believes that a majority of the remaining capacity can be sold in that time
frame.
PTC, IDC and C&W (Founders) are responsible for procuring maintenance
for the North Pacific Cable and have renewed the existing maintenance
arrangements with Cable & Wireless (Marine) Limited for an additional five-
year period beginning in April 1994. Thereafter, the contract has annual
renewal options for up to five years. The Founders continue to seek
arrangements for a maintenance vessel to be available for service on the
western end of the cable. The majority of maintenance service costs are
passed on to owners of capacity on the cable.
PT Transmission provides restoration services for the eastern end of
the North Pacific Cable under the terms of its tariff. In the event of a
cable failure, restoration services are provided via a PT Transmission
satellite earth station located at Moores Valley, Oregon.
International Communications
____________________________
Since 1990, the Company had reported ICH as a discontinued operation
for financial statement reporting purposes. In October 1993, the Company
purchased the remaining minority interest in ICH, which held investments in
international telecommunications subsidiaries, including TRT. TRT provides
international record messaging, message telephone and private line service
between the U.S. and foreign countries, as well as special domestic
communications services. The 14.9 percent minority interest in ICH was
purchased from a subsidiary of France Cables et Radio.
On September 23, 1993, the Company completed the sale of TRT, the
major operating subsidiary of ICH, and a smaller subsidiary, to IDB for 4.5
million shares of IDB common stock and $1 million in cash. The agreement
provided for the transfer of certain tangible assets and lease obligations
from TRT to ICH. Based on the market value of IDB stock at closing, the
Company recognized an after-tax gain from discontinued operations of $60.4
million on the sale of TRT and the smaller subsidiary. The IDB common stock
was registered and sold in a secondary public offering in November 1993 and
the Company received $45 per share before commissions and expenses. The
$190.9 million in proceeds received by ICH from the sale of IDB
- 10 -
<PAGE>
stock was paid to PTI in the form of intercompany note repayments and
dividends. PTI used these funds to reduce its long-term and short-term debt.
(See Notes 3, 4 and 12 to the Consolidated Financial Statements incorporated
herein by reference.)
Other Communications Subsidiaries and Partnerships
__________________________________________________
In May 1984, the Company entered into a 50 percent partnership, Bay
Area Teleport, involved in designing, constructing, operating and marketing a
regional microwave system and satellite earth station complex near
San Francisco, California. During 1991, the partnership was restructured.
Under the restructure agreement, the Company received 100 percent of Bay Area
Teleport, which is currently held by PTI Harbor Bay, Inc., a wholly-owned
subsidiary. After the restructure, Bay Area Teleport was reorganized into
two corporations, Niles Canyon Earth Station, Inc. (Niles Canyon), which
provides satellite uplink and downlink services, and Bay Area Teleport, Inc.,
which provides transmission services principally in the greater San Francisco
Bay Area. In the transaction involving the sale of TRT, the Company also
sold Niles Canyon to IDB. Proceeds related to the sale of the IDB stock
received in exchange for the stock of Niles Canyon amounted to $4.3 million.
(See "Telecommunications Operations - International Communications"
concerning this transaction.)
The Company also owns Upsouth Corporation (Upsouth), which owns an
earth station complex near Atlanta, Georgia and another near Carteret, New
Jersey.
In October 1993, the Company agreed to sell PTI Harbor Bay and
Upsouth to IntelCom Group, Inc. (IntelCom:ITR) for 853,147 shares of IntelCom
stock and $.2 million in cash. The Company will also receive at least
250,000 more shares of IntelCom common stock in lieu of debt that will not be
assumed by the purchaser. The Company will be granted certain demand and
piggyback registration rights for the IntelCom stock it receives and expects
the transaction to close in the first half of 1994. Based on recent prices
for IntelCom stock, the Company could record a pre-tax gain ranging from $7
million to $10 million on this transaction, excluding selling commissions and
other expenses. The actual gain or loss realized will be dependent on
IntelCom's stock price when the shares are sold. The transaction is subject
to necessary regulatory approvals. IntelCom provides alternative local
network access, local area networks and systems integration, as well as
operating a full-service domestic and international satellite uplink
teleport.
In 1989, the Company acquired three AM/FM combination radio stations
in Oregon, Nevada and Idaho in an effort to protect an investment made when
the Company was investing in non-telecommunications businesses. In 1992, the
AM radio station in Idaho was contributed to an institution of higher
education. The Company also has signed a letter of intent to sell the FM
station in Idaho and is waiting for regulatory approval of the sale, which is
expected to close in the first half of 1994.
- 11 -
<PAGE>
Regulation
__________
General
_______
Alascom and the Company's LECs operate in an industry that is subject
to extensive regulation by the FCC and state regulatory agencies. Virtually
all services, both local and long distance, are provided in accordance with
tariffs filed with the appropriate regulatory agencies. The
telecommunications industry continues to undergo change as a result of a
series of regulatory and judicial proceedings regarding the deregulation of
certain aspects of the industry. The FCC and some state regulatory agencies
are exploring alternative forms of regulation that depart from traditional
rate of return regulation for telecommunications companies. These
alternatives include possibilities of opening local exchange franchises to
encourage greater competition. The effects of any such alternative form of
regulation on the Company's LECs is uncertain.
Interstate and certain international services provided by Alascom are
governed by tariffs filed with the FCC. The Company's LECs are governed by
tariffs filed with the FCC for interstate access services provided to
interexchange carriers. The FCC also licenses other aspects of the Company's
telecommunications operations, including the construction and operation of
its microwave, cable and radio facilities and its satellite and earth
stations.
As part of its regulation, the FCC prescribes a Uniform System of
Accounts (USOA) that dictates the account structure and accounting policies
used by both Alascom and the LECs. The FCC also establishes the principles
and procedures (separations procedures) that allocate telephone investment,
operating expenses and taxes between interstate and intrastate jurisdictions
for the Company's LEC operations and Alascom. Generally, the state
regulatory agencies have adopted the USOA and the principles and procedures
prescribed by the FCC.
To discourage carriers from subsidizing the cost of nonregulated
business activities and to protect customers from unjust and unreasonable
rates, the FCC and certain state regulatory commissions have adopted
accounting and cost allocation rules for segregating the costs of regulated
services and nonregulated services. The rules are based on fully distributed
costing principles. In addition to segregating costs, the accounting
policies prescribe guidelines for recording transactions between affiliates,
require monitoring of jurisdictional earnings of various services and set
forth a process for auditing the allocation procedures.
The Company's cellular interests are regulated by the FCC with
respect to the construction, operation and technical standards of cellular
systems and the licensing and designation of geographic boundaries of service
areas. Certain states also require operators of cellular systems to satisfy a
state certification process to serve as cellular operators.
Local Exchange Companies
________________________
The facilities of the Company's LECs are used principally to provide
local telephone service and customer access to the long distance network.
The costs of providing services are allocated between the interstate and
intrastate jurisdictions.
Interstate service costs (both traffic sensitive and nontraffic
sensitive) are recovered through an access charge plan under which LEC and
NECA tariffs filed with the FCC allow for charges to interexchange carriers
for access to customers. The traffic sensitive costs are recovered
- 12-
<PAGE>
either directly through access charges or through settlements with NECA. The
nontraffic sensitive portion (subscriber loop) of these interstate-related
costs is recovered through a settlement process with NECA. The nontraffic
sensitive revenue pool administered by NECA is funded by a subscriber line
charge to individual customers, interexchange carrier access charges and
long-term support payments by nonpooling LECs. Since January 1, 1991, the
interstate rate-of-return authorized by the FCC for LECs' interstate access
services, has been 11.25 percent. The USF administered by NECA compensates
companies whose nontraffic sensitive costs per subscriber are greater than an
established threshold over the national average. Due to the suburban and
rural nature of its operations, most of the Company's LECs receive this
compensation, as the cost of providing local service in rural areas generally
exceeds the national average.
In November 1993, based on a concern over recent growth in the size
of the USF, a Federal-State Joint Board issued a recommended decision to the
FCC proposing the adoption of interim USF rules. These interim rules
recommend that an indexed cap be placed on USF growth to allow the USF to
grow at a rate no greater than the rate of growth in the U.S.'s total working
local loops. The interim rules are intended to allow moderate growth in the
total level of the USF while the FCC and the Federal-State Joint Board
undertake a re-evaluation of the USF assistance mechanism. The Federal-State
Joint Board proposed that the interim rules remain in effect for two years.
The FCC adopted the Joint Board recommendation at the end of 1993. As most
of the Company's LEC operations receive USF compensation, significant changes
to the USF assistance mechanism could affect the Company's future results.
The Company believes that placing the indexed cap on USF growth may have a
negative impact on the Company's revenues, but the impact is not expected to
be material. In addition, the Company may request a revenue increase at the
state level to offset some or all of the lost assistance where USF proceeds
are used to maintain lower rates.
As an alternative for rate-of-return regulation, the FCC adopted
optional incentive regulation for LECs beginning in 1991. Due to specific
constraints, including the requirement that all LECs under common ownership
must adopt incentive regulation when it is adopted by any LEC in the group,
it is unlikely that the Company will adopt this form of regulation in the
near future. NECA has recently filed with the FCC its own recommendation for
an incentive regulation plan. The Company intends to monitor the progress of
NECA's efforts and evaluate its options if an alternative regulation plan is
implemented.
In September 1993, the Company filed, in compliance with FCC Docket
No. 91-213, to restructure its interstate switched access transport prices
consistent with the related proposal of the Telephone Utilities Exchange
Carrier Association, which was ultimately approved by the FCC in December
1993 and made effective January 1, 1994. The local transport restructure
proceeding accomplished a further unbundling of exchange carrier switched
access services. The new structure is expected to promote network efficiency
by moving access prices for local transport closer to cost.
In 1993, the Wisconsin Public Service Commission (WPSC) mandated a
new service, effective December 1, 1993, called Extended Community Calling
(ECC). This service extends local calling areas to allow customers to reach
their local areas of interest without incurring long distance charges, even
if exchange boundaries are crossed. These areas of interest generally
extend 15-miles from the customer's home exchange. The Company believes that
ECC
- 13 -
<PAGE>
will cause immaterial reductions in the Company's billing and collection
revenues and access revenues, which reductions are expected to be offset in
part by ECC revenues.
In Washington, a process was started in 1990 to restructure rates to
allow the conversion of all multi-party to single-party lines, to eliminate
touchtone charges and to offer certain customers Extended Area Service (EAS).
In August 1993, the Company proposed additional revisions to rates for
further extension of EAS to substantially all of its Washington customers.
By the end of 1994, all lines in Washington are expected to be single-party,
with approximately 98 percent having EAS capabilities. In May 1993, toll
free calling was implemented for the entire Flathead Valley in Montana.
Evolution to single-party service in Montana was completed during 1993.
These changes are not expected to have a significant effect on the financial
results of the Company.
The Company received authorization from the Oregon Public Utilities
Commission to implement revised depreciation rates retroactive to January 1,
1993. This adjustment increased the depreciation rate and increased
operating expenses by $2.2 million. In addition, the Company has a
depreciation study on file with the WUTC for its LEC operations in the state
of Washington. The Company is in negotiation with the WUTC to resolve issues
relating to the proposed depreciation rate increase. The Company has also
agreed to provide a depreciation study to the APUC.
Long Lines - Interstate Revenues
________________________________
Alascom's interstate MTS and WATS revenues are presently derived
through the JSA with AT&T providing for cost-based settlements determined in
accordance with historical practices and regulatory procedures. The entire
Alaska interstate long distance market, including these procedures and the
settlement arrangement, have been under review by a Joint Board for several
years. Prior to 1991, AT&T, GCI and Alascom submitted proposals to the Joint
Board recommending alternative market structures in Alaska. None of these
proposals were acted upon by the Joint Board or the FCC. In December 1991,
the Company and AT&T signed an agreement to transfer to AT&T the provision of
interstate and international MTS and WATS services then currently provided in
Alaska by Alascom. This agreement terminated in January 1993 without
implementation. In October 1993, the Joint Board issued a final
recommendation concerning the restructuring of the interstate
telecommunications market for Alaska. That recommendation is awaiting FCC
action. (See "Telecommunications Operations - Alaska Market
Restructuring.")
Long Lines - Access Charges
___________________________
While Alascom's interstate MTS and WATS revenues continue to be
determined under the JSA with AT&T, Alascom purchases access to the local
network under an access tariff and billing and collection services under a
separate contract. These charges for interstate access services are
determined using access charge procedures used by LECs in the contiguous 48
states. (See "Regulation - Local Exchange Companies.") Interstate access
charges and billing and collection charges are included under the JSA with
AT&T.
Alascom makes payments for intrastate access charges through a state
access tariff. The access charge system was implemented in 1991 to
accommodate intrastate competitive entry. (See "Competition - Long Lines
- - - -Intrastate.")
- 14 -
<PAGE>
The Alaska Exchange Carriers Association coordinates the filing of access
tariffs and the pooling of costs. The adoption of intrastate access charges
has had no material adverse effect on the Company's results of operations.
Alascom purchases intrastate billing and collection services under a separate
contract.
Long Lines - Alaska Spur
________________________
In November 1989, Alascom filed an application with the FCC seeking
authorization to acquire the Alaska Spur. (See "Telecommunications
Operations-Pacific Telecom Cable.") On May 13, 1991, the FCC granted Alascom
authorization to acquire and operate the Alaska Spur, subject to certain
conditions. Alascom requested the FCC to issue a revised order without the
conditions and did not accept the authorization. Subsequently, the FCC
issued temporary authorization for Alascom to acquire and operate the
Alaska Spur, subject to periodic renewal. The Alaska Spur was placed into
service in August 1991. The request for reconsideration of the order is
still pending before the FCC. The FCC has granted Alascom a renewal of the
temporary authorization through August 8, 1994. In December 1992, Alascom
sold 11 percent of the Alaska Spur's capacity to GCI.
Competition
___________
Local Exchange Companies
________________________
The Company's LECs have experienced little competition in providing
basic services, primarily due to the suburban and rural nature of their
service territories. Competition from the development of alternative
networks by other carriers and of private networks (bypass) by government
agencies and large corporate customers has resulted in minor diversions of
traffic from the Company's LECs. To date, the Company has also experienced
little competition from cable TV providers and wireless technologies.
Competition from these sources may increase if regulators open basic
telephone service to cable TV operators and as wireless technologies advance.
However, investment by others in facilities will be required to provide
competitive service and these investments will be based on appropriate
economic opportunities and demand for such services. The Company believes it
is well positioned to meet this type of competition and that price and
service are the significant competitive factors in dealing with alternative
networks, bypass and other forms of competition.
With respect to access service, the Company's LECs may face
competition from several sources in the future. Alternative or competitive
access carriers (CAPs) have, in various parts of the country, constructed
facilities which bypass those of the local exchange carrier to provide access
between customers and interexchange carriers. The location and extent of
such activity is determined by a number of factors, including applicable
state and federal regulatory policies, and economic and market conditions in
the area. A number of interexchange carriers have also announced or
implemented programs to construct facilities which bypass those of local
exchange companies. AT&T has entered into an acquisition agreement with a
major cellular company, McCaw Cellular Communication, in part for the
apparent purpose of reducing its dependence upon local exchange companies for
access services. MCI has announced a program for construction of facilities
in twenty major metropolitan areas, also for the purpose, in part, of
reducing its dependence upon local exchange companies for access services.
- 15 -
<PAGE>
The Company believes that the activities of CAPs and the major
interexchange carriers, at present, do not pose a direct, material threat to
the Company's revenues due to the rural nature of its operations. The
Company anticipates that competition in services and facilities will evolve
over time in its LEC service areas. The Company is reviewing the potential
effect such competitive activity may have on its operations and is analyzing
ways to benefit from changes which may occur as competition increases.
Long Lines - Interstate
_______________________
In 1982, the FCC authorized a variety of carriers to provide
interstate services in Alaska in competition with Alascom. GCI, a carrier
providing private line, MTS and WATS equivalent services to and from
Alaska, attracted a significant number of customers as LECs converted to
equal access in Anchorage, Fairbanks, Juneau and other areas. Although rates
were a significant competitive issue during the introduction of equal access,
the rate advantage enjoyed by GCI prior to rate integration was reduced with
the integration of toll rates in January 1987 and subsequent nationwide
annual rate reductions through 1990. As a result of these rate reductions
and other factors, Alascom has experienced growth in interstate billed
minutes of 6.2 percent in 1993, 11.9 percent in 1992 and 10.4 percent in
1991. The Company believes that with minimal rate differences, service is
currently the predominant competitive factor in the Alaska interstate market.
In January 1990, GCI filed a petition for rulemaking with the FCC
seeking to abolish the present prohibition against construction of duplicate
earth station facilities in rural Alaska. GCI stated that it desired to
extend its services to rural Alaska over a five-year period. Alascom
opposed GCI's petition, as being contrary to the public interest. The FCC
has taken no action with regard to the GCI petition.
Long Lines - Intrastate
_______________________
In 1990, the Alaska Legislature enacted legislation that authorized
intrastate competition and the APUC established specific regulations for
competition that allowed facilities-based competition in some areas, but
prohibited construction of duplicative facilities in most remote locations.
The APUC also designed a competitive framework under which high costs of
providing service in rural locations are shared by Alascom and its
competitors through the LEC access charge pooling mechanism.
Intrastate competition in Alaska commenced in May 1991. Competition
has been introduced in approximately 90 percent of the Company's intrastate
market. The Company's intrastate long distance service revenues, net of
related access charges, accounted for approximately five percent of the
Company's total revenues for 1993 and six percent in 1992 and 1991. As a
result of competition, intrastate minute volumes increased 1.7 percent in
1993 and decreased 7.3 percent in 1992 and 4.9 percent in 1991. The Company
has mounted a marketing campaign in response to this competition and believes
that price and service are the significant competitive factors in this
market.
- 16 -
<PAGE>
Cellular Operations
___________________
Under FCC guidelines, two licenses were granted in each MSA and RSA
to provide cellular service. All of the MSAs and RSAs in which the Company
has an ownership interest are operational. The Company believes that price
and service are significant competitive factors in the cellular market. A
competitive threat to cellular operations from other wireless communications
technologies also exists. This threat may increase as these technologies are
developed in the future.
In September 1993, the FCC allocated 160 megahertz (MHz) of spectrum
for Personal Communications Services (PCS). The FCC created seven licensed
frequency blocks representing 120 MHz of spectrum and identified 40 MHz of
spectrum for unlicensed PCS. The licensed spectrum was channelized into two
30 MHz blocks, one 20 MHz block and four 10 MHz blocks. The FCC defined the
PCS license areas based on 51 Major and 492 Basic Trading Areas (MTA
and BTA, respectively), as defined by Rand McNally. PCS licenses will be
awarded through an auction process starting not earlier than May 1994. The
Company's cellular operations are eligible to participate in the PCS auction
subject to certain limitations established by the FCC. The PCS license term
is set at 10 years with requirements to cover 33 percent of the POPs
within five years, 67 percent within seven years and 90 percent of the POPs
within ten years. The Company is monitoring PCS developments and evaluating
its alternatives under the proposed PCS licensing rules.
Cable Operations
________________
The North Pacific Cable is currently the only operating cable between
the U.S. and the western Pacific that has available capacity for sale. AT&T
placed a cable into service between the U.S. and Japan in late 1992. This
cable competed directly with the North Pacific Cable for subscribers. AT&T
has stated that all capacity on its cable has been subscribed. AT&T has
announced plans for an additional cable system between the eastern and
western Pacific for completion in the period from 1995 to 1997. The North
Pacific Cable also competes with available capacity on international
satellites.
Environment
___________
Compliance with federal, state and local provisions relating to
protection of the environment has had no significant effect on the capital
expenditures or earnings of the Company. Future effects of compliance with
environmental laws are not expected to be material, but environmental laws
could become more stringent over time.
Employees
_________
At December 31, 1993, the Company had 2,834 employees, approximately
41 percent of whom were members of seven different bargaining units. These
units are represented by one of the International Brotherhood of Teamsters,
the International Brotherhood of Electrical Workers, Communication Workers of
America or the NTS Employee Committee. During 1993, negotiations were
completed on two collective bargaining agreements governing 144 employees.
Negotiations on six contracts covering 1,180 employees are planned in 1994.
Relations with represented and non-represented employees continue to be
generally good.
- 17 -
<PAGE>
Construction Program
____________________
The Company financed its 1993 construction program primarily through
internally generated funds. Construction expenditures for 1993 and estimated
expenditures for 1994 through 1996, excluding expenditures for the
construction contract with USWC amounting to $5.7 million in 1993 and
estimated at $28 million for 1994, are as follows (in millions):
<TABLE>
<CAPTION>
Plan
_________________________
1993 1994 1995 1996
____ ____ ____ ____
<S> <C> <C> <C> <C>
LECs $ 73.7 $ 79.6 $ 98.4 $ 94.2
Long Lines 17.9 28.6 12.2 10.5
PT Cellular 7.4 6.8 5.8 5.3
Other 3.6 8.8 2.4 2.2
_____ _____ _____ _____
Total $102.6 $123.8 $118.8 $112.2
_____ _____ _____ _____
_____ _____ _____ _____
</TABLE>
The estimates of construction costs set forth above are subject to
continuing review and adjustment. The Company anticipates that it will be
able to finance substantially all of its construction programs for 1994 from
internally generated funds. Estimated increases in LEC construction
expenditures in 1995 and 1996 relates mainly to the acquisition of USWC
properties in Colorado anticipated at the end of 1994.
Acquisition Program
___________________
The Company expects to complete additional acquisitions as attractive
opportunities become available. The Company's strategy is to acquire rural
or suburban local exchange properties with operating characteristics similar
to existing properties of the Company. These opportunities will allow the
Company to leverage LEC investments by providing data processing and
administration through its centralized systems. The Company seeks to realize
economies of scale through these acquisitions, particularly where the
properties are near the Company's current operations or are of sufficient
size to support moving into a new geographic area. (See "Item 1. Business -
Telecommunications Operations - Local Exchange Companies" for information
regarding pending acquisitions of USWC properties in Colorado, Oregon and
Washington.)
Item 2. PROPERTIES
_______
The telephone properties of the Company's LECs include central office
equipment, microwave and radio equipment, poles, cables, rights of way, land
and buildings, customer premise equipment, vehicles and other work equipment.
Most of the Company's division headquarters buildings, telephone exchange
buildings, business offices, warehouses and storage areas are owned by the
Company's LECs and are pledged to secure long-term debt. In addition,
certain of the LECs' microwave facilities, central office equipment and
warehouses are located on leased land. Such leases are not considered
material, and their termination would not substantially interfere with the
operation of the Company's business. (See "Item 1. Business -
Telecommunications Operations - Local Exchange Companies" for information
regarding the states in which the Company has LEC operations.)
The properties of Alascom include toll centers with toll switching
facilities, microwave and radio equipment, satellite transmit and receive
- 18 -
<PAGE>
earth stations, submarine cables (including the Alaska Spur), land, warehouse
and administrative buildings, as well as transportation and other work
equipment. Although Alascom owns most of its buildings, much of its
telecommunications equipment is located on leased property. In addition,
Alascom leases certain microwave and satellite circuits to carry both
interstate and intrastate communications. The Company owned 16 transponders
on Aurora II until October 1992 when the transponders were sold and leased
back on an operating lease basis for a 69-month period. Aurora II was
launched in May 1991 to replace the Company's original satellite and was
placed in service in July 1991. The Company purchased and placed in service
one additional transponder on Aurora II in 1993. (See "Item 1. Business -
Telecommunications Operations - Long Lines" for information concerning other
properties of Alascom.)
PT Cellular's subsidiaries are partners in partnerships that own or
lease switching facilities, cell site towers, cell site radio equipment and
other equipment required to furnish cellular service to the areas they serve.
(See "Item 1. Business - Telecommunications Operations - Cellular Operations"
for information regarding the states in which the Company has cellular
operations.)
The properties of PTC and PT Transmission include a satellite
transmit and receive earth station, located at Moores Valley, Oregon, fiber
optic cables, land, buildings, operating facilities and business offices, all
of which are owned. In addition, PTC leases a duplicate cable for backup
between Pacific City, Oregon and Portland, Oregon and business office space.
PTC also holds in inventory its portion of the unsold capacity in the North
Pacific Cable and backhaul facilities.
Almost all the properties of ICH were sold in 1993 to IDB. However,
ICH owns land, buildings and office equipment in Florida. ICH is obligated
under a lease for office space in Washington D.C., which housed TRT's
administrative offices. ICH is actively pursuing the lease or sublease
of these properties. ICH has leased the Florida building and equipment to
IDB for three years with renewal options for an additional four years.
(See Item 1. "Business - Telecommunications Operations - International
Communications" for information concerning the sale of ICH's major operating
subsidiary to IDB.)
The Company's executive, administrative, purchasing and certain
engineering functions are headquartered in Vancouver, Washington. The
Company has a 50 percent ownership interest in its headquarters building and,
through a long-term lease, occupies approximately 72 percent of the 225,000
square-foot building. The Company leases most of the equipment used in
conjunction with providing data processing services.
Item 3. LEGAL PROCEEDINGS
_________________
The Company is a party to various legal claims, actions and
complaints, one of which is described below. Although the ultimate
resolution of legal proceedings cannot be predicted with certainty,
management believes that disposition of these matters will not have a
material adverse effect on the Company's consolidated results of operations.
- 19 -
<PAGE>
Loewen, et al. v. Galligan, et al. (Circuit Court for the State of Oregon,
__________________________________________________________________________
County of Multnomah)
____________________
In November 1991, former shareholders of American Network, Inc.
(AmNet) filed a third amended complaint against PTI and others, suing
individually and also derivatively on behalf of AmNet for damages
allegedly arising out of the acquisition of AmNet by United States
Transamerica Systems, Inc. (USTS), a subsidiary of ITT Corporation, in 1988
and various alleged wrongs in connection with certain transactions that
occurred in 1984 and 1986 between AmNet or its subsidiaries and PTI or
between AmNet and other parties. At the time of the acquisition by USTS, PTI
owned 36.4 percent of the common shares of AmNet. The third amended
complaint revised the plaintiffs' 1984 and 1986 fraud claims and changed the
plaintiffs under all claims. As a result, differing plaintiff groups are now
suing PTI and other defendants for state securities and common law fraud
allegedly committed in 1984, 1986 and 1988 and four plaintiffs are suing PTI
alone for breach of an alleged promise to provide financial support to AmNet
in 1984. Plaintiffs seek to recover damages from PTI in the amount of
plaintiffs' lost investments, plaintiffs' costs, disbursements and reasonable
attorney fees, and punitive damages of $100 million. On August 19, 1992, the
court granted defendants' motions for summary judgment against all claims in
the third amended complaint. Judgment in favor of defendants was entered on
November 23, 1992 and plaintiffs' appeal to the Oregon Court of Appeals is
pending.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
___________________________________________________
No information is required to be reported pursuant to this item.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
____________________________________
The executive officers of PTI are as set forth below:
Name Age Position
____ ___ ________
Charles E. Robinson 60 Chairman, President, Chief Executive
Officer and Director
James H. Huesgen 44 Executive Vice President and Chief
Financial Officer
Donn T. Wonnell 47 Vice President, Regulatory Affairs and
Corporate Secretary
Wesley E. Carson 43 Vice President, Human Resources
Brian M. Wirkkala 53 Vice President, Treasurer
Donald A. Bloodworth 37 Vice President, Revenue Requirements
and Controller
- 20 -
<PAGE>
The executive officers of PTI are elected annually for one year and
hold office until their successors are elected and qualified. There are no
family relationships among them.
Mr. Robinson was elected Chairman of the Board in February 1989.
In April 1982, he was elected Director, President and Chief Operating
Officer. He became Chief Executive Officer in April 1985. Mr. Robinson is
also President and Chairman of the Board of Alascom and a member of
PacifiCorp's Corporate Policy Group.
Mr. Huesgen, a CPA, was elected Executive Vice President and
Chief Financial Officer in October 1990. He had served as Vice President,
Accounting and Financial Planning since February 1989 and as Controller since
July 1986.
Mr. Wonnell, an attorney, was elected Vice President, Regulatory
Affairs and Corporate Secretary in February 1991. Prior to joining the
Company, he was engaged in the private practice of law and in corporate
development activities.
Mr. Carson, an attorney, was elected Vice President, Human
Resources in November 1991. He had served as Manager, Employee Relations
since February 1990 and as Manager, Labor Relations since February 1989.
Prior to joining PTI in 1989, he had served as Manager, Industrial Relations
at TRT Telecommunications Corporation since May 1984.
Mr. Wirkkala was elected Vice President, Treasurer in February
198l.
Mr. Bloodworth, a CPA, was elected Vice President, Revenue
Requirements and Controller in April 1993. From October 1987 to April 1993,
he was employed by PacifiCorp Financial Services, Inc., most recently as Vice
President and Treasurer. Additionally, from January 1992 to April 1993, he
served as Vice President and Treasurer of PacifiCorp Holdings, Inc. and
Assistant Treasurer of PacifiCorp. Mr. Bloodworth served in various
management and supervisory accounting positions at the Company from March
1983 to October 1987.
- 21 -
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
_________________________________________________
The information required by this item is included under "Common Stock
Prices/Dividends" on page 41 of the Company's 1993 Annual Report to
Shareholders and is incorporated herein by reference. See page 62 attached
hereto.
Item 6. SELECTED FINANCIAL DATA
_______________________
The information required by this item is included under "Selected
Financial Data" on page 16 of the Company's 1993 Annual Report to
Shareholders and is incorporated herein by reference. See page 37 attached
hereto.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
_________________________________________________
The information required by this item is included under "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 17 through 24 of the Company's 1993 Annual Report to Shareholders and
is incorporated herein by reference. See pages 38 through 45 attached
hereto.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
___________________________________________
The information required by this item is incorporated by reference
from the Company's 1993 Annual Report to Shareholders or filed with this
Report as listed in Item 14 hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
________________________________________________
No information is required to be reported pursuant to this item.
- 22 -
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
_______________________________________
The information required by this item is incorporated by reference to
"Election of Directors" in the Company's definitive proxy statement for its
1994 Annual Meeting of Shareholders filed or to be filed not later than 120
days after the end of the fiscal year covered by this Report. Information
about the executive officers of the Company is included in Part I of this
Report under Item 4A.
Item 11. EXECUTIVE COMPENSATION
______________________
The information required by this item is incorporated by reference to
"Executive Compensation" in the Company's definitive proxy statement for its
1994 Annual Meeting of Shareholders filed or to be filed not later than l20
days after the end of the fiscal year covered by this Report.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
________________________________________
The information required by this item is incorporated by reference to
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement for its 1994 Annual Meeting of
Shareholders filed or to be filed not later than 120 days after the end of
the fiscal year covered by this Report.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
______________________________________________
The information required by this item is incorporated by reference to
"Certain Transactions" in the Company's definitive proxy statement for its
1994 Annual Meeting of Shareholders filed or to be filed not later than 120
days after the end of the fiscal year covered by this Report.
- 23 -
<PAGE>
PART IV
<TABLE>
<CAPTION>
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K Page References
____________________________________________ _______________
<S> <C>
(a) The following documents are filed as part of this Report.
(1) Index to Consolidated Financial Statements:
Consolidated Statements of Income for the
years ended December 31, 1993, 1992 and 1991 46*
Consolidated Balance Sheets at December 31, 1993 and 1992 47*
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1993, 1992 and 1991 48*
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1992 and 1991 49*
Notes to Consolidated Financial Statements 50 - 60*
Independent Auditors' Report 61*
(2) Supplemental Schedules**:
Independent Auditors' Consent and Report on Schedules 29
V - Property, plant and equipment 30 - 32
VI - Accumulated depreciation 33 - 35
X - Supplementary income statement information 36
</TABLE>
* Page references are to the incorporated portion of the Annual Report to
Shareholders of the Registrant for the year ended December 31, 1993,
which portion is appended hereto.
** All other schedules have been omitted because of the absence of the
conditions under which they are required or because the required
information is included elsewhere in the financial statements
incorporated by reference in this Report.
- 24 -
<PAGE>
(3) Exhibits:
2 Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc. and the Registrant dated August 30, 1993.
3A Restated Articles of Incorporation of the Registrant, as amended June
13, 1990. (Incorporated by reference to Exhibit 3A of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1990, File No. 0-873.)
3B Bylaws of the Registrant, as amended and restated effective April 30,
1993.
4 Indenture dated as of September 20, 1991, between the Company and The
First National Bank of Chicago, as Trustee for the Series B Medium-
Term Notes. (Incorporated by reference to Exhibit 4 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991, File No. 0-873.)
In reliance upon Item 601(4)(iii) of Regulation S-K, various instruments
defining the rights of holders of long-term debt of the Registrant and
its subsidiaries are not being filed because the total amount authorized
under each such instrument does not exceed 10 percent of the total assets
of the Registrant and its subsidiaries on a consolidated basis. The
Registrant hereby agrees to furnish a copy of any such instrument to the
Commission upon request.
*10A Executive Bonus Plan, dated October 26, 1990. (Incorporated by
reference to Exhibit 10B of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1990, File No. 0-873.)
10B Intercompany Borrowing Agreement between the Registrant, Inner
PacifiCorp, Inc. (now PacifiCorp Holdings, Inc.) and certain other
affiliated companies dated as of April 1, 1991. (Incorporated by
reference to Exhibit 10A of the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1991, File No. 0-873.)
10C Management Services Agreement between the Registrant and Pacific Power &
Light Company. (Incorporated by reference to Exhibit 10D of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1980, File No. 0-873.)
10D Lease Agreement between Northwestel, Inc. and Alascom, Inc., dated
January 3, 1990. (Incorporated by reference to Exhibit 10D of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1992, File No. 0-873.)
*10E PacifiCorp Supplemental Executive Retirement Plan 1988 Restatement.
(Incorporated by reference to Exhibit 10(q) of PacifiCorp's Form 10-K
for the year ended December 31, 1987, File No. 1-5152.)
*10F Pacific Telecom, Inc. Long-Term Incentive Plan 1994 Restatement dated as
of January 1, 1994.
- 25 -
<PAGE>
*10G PacifiCorp Long-Term Incentive Plan 1993 Restatement.
*10H Form of Restricted Stock Agreement under the PacifiCorp Long-Term
Incentive Plan 1993 Restatement.
10I Credit Agreement dated as of November 13, 1991. (Incorporated by
reference to Exhibit 10M of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991, File No. 0-873.)
10J Lease Intended for Security dated March 12, 1993, among Alascom, Inc.,
as lessee, Norwest Bank Minnesota, as Agent, and certain institutions as
lessors. (Incorporated by reference to Exhibit 10K of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992, File
No. 0-873.)
*10K Non-employee Directors' Stock Compensation Plan dated April 5, 1993.
(Incorporated by reference to Exhibit 10L of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992, File No. 0-
873.)
*10L Executive Deferred Compensation Plan dated as of January 1, 1994.
12 Statements re Computation of Ratios.
13 Registrant's Annual Report to Shareholders for the year ended December
31, 1993. Except as specifically incorporated by reference herein, the
Annual Report shall not be deemed filed as part of this Report on Form
10-K.
21 Subsidiaries
23 Independent Auditors' Consent and Report on Schedules - Included on page
29 of this Annual Report on Form 10-K.
_________________
* This exhibit constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
On Form 8-K dated November 19, 1993, under Item 5. "Other Events," the
Company reported the sale of IDB Communications Group, Inc. common
stock.
- 26 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PACIFIC TELECOM, INC.
March 25, 1994 By JAMES H. HUESGEN
(Date) _____________________________
James H. Huesgen
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE AND CAPACITY DATE
______________________ ____
CHARLES E. ROBINSON
____________________________________
(Charles E. Robinson) March 25, 1994
Chairman, President, Chief Executive
Officer and Director
JAMES H. HUESGEN
____________________________________
(James H. Huesgen) March 25, 1994
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
DONALD A. BLOODWORTH
____________________________________
(Donald A. Bloodworth) March 25, 1994
Vice President Revenue
Requirements/Controller
- 27 -
<PAGE>
SIGNATURE AND CAPACITY DATE
______________________ ____
JOYCE E. GALLEHER
____________________________________
(Joyce E. Galleher) March 25, 1994
Director
ROY M. HUHNDORF
____________________________________
(Roy M. Huhndorf) March 25, 1994
Director
DONALD L. MELLISH
____________________________________
(Donald L. Mellish) March 25, 1994
Director
SIDNEY R. SNYDER
____________________________________
(Sidney R. Snyder) March 25, 1994
Director
NANCY WILGENBUSCH
____________________________________
(Nancy Wilgenbusch) March 25, 1994
Director
- 28 -
<PAGE>
EXHIBIT 23
DELOITTE & TOUCHE _____________________________________________________
_________________ 3900 US Bancorp Tower Telephone: (503)222-1341
[LOGO] 111 SW Fifth Avenue Facsimile: (503)224-2172
Portland, Oregon 97204-3698
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
Pacific Telecom, Inc.:
We consent to the incorporation by reference in Registration Statement No. 33-
42577 on Form S-3 and Registration Statement No. 33-52600 on Form S-8 of our
report dated January 26, 1994 (which expresses an unqualified opinion and
includes an explanatory paragraph relating to a change in method of accounting
for other postretirement benefits and income taxes in the year ended December
31, 1993), incorporated by reference in this Annual Report on Form 10-K of
Pacific Telecom, Inc.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedules of Pacific Telecom, Inc.,
listed in Item 14. These financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
DELOITTE & TOUCHE
March 23, 1994
_______________
Deloitte Touche
Tohmatsu
International
- 29 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1993
(In thousands)
_____________________________________________________________________________________________________________________
<CAPTION>
Additions
________________________
Acquired in
Balance Connection
at with Other Balance
Beginning Purchase of Changes at End
Classification of Year At Cost Subsidiaries Retirements (A) of Year
___________________________________ __________ ________ ____________ ___________ _______ __________
<S> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $ 527,233 $ 41,441 $ 3,017 $42,826 $ (226) $ 528,639
Poles, Cable and Conduit 520,051 41,250 1,062 6,969 587 555,981
Buildings and Towers 184,778 3,901 849 (2,645) 950 193,123
Earth Stations 143,728 2,845 21,710 31 124,894
Satellite 7,800 7,800
Other 218,921 6,848 7,800 10,490 (1,342) 221,737
_________ ________ ______ ______ ______ _________
1,594,711 104,085 12,728 79,350 - 1,632,174
Nonutility Plant 15,824 454 1,524 107 17,695
Construction in Progress (net) 21,368 (6,309) 16 552 14,523
_________ _______ ______ ______ ______ _________
TOTAL $1,631,903 $ 98,230 $14,268 $80,009 $ - $1,664,392
_________ _______ ______ ______ ______ _________
_________ _______ ______ ______ ______ _________
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 30 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1992
(In thousands)
____________________________________________________________________________________________________________________
<CAPTION>
Additions
________________________
Acquired in
Balance Connection
at with Other Balance
Beginning Purchase of Changes at End
Classification of Year At Cost Subsidiaries Retirements (A) of Year
__________________________________ _________ _______ ____________ ___________ _______ __________
<S> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $ 517,015 $ 55,694 $2,069 $ 46,221 $(1,324) $ 527,233
Poles, Cable and Conduit 497,517 31,664 2,898 11,972 (56) 520,051
Buildings and Towers 178,076 7,647 400 1,176 (169) 184,778
Earth Stations 151,269 5,629 13,897 727 143,728
Satellite 84,593 84,593
Other 205,495 24,720 3,431 15,190 465 218,921
_________ _______ _____ _______ _____ _________
1,633,965 125,354 8,798 173,049 (357) 1,594,711
Nonutility Plant 17,502 147 124 2,306 357 15,824
Construction in Progress (net) 37,015 (15,872) 225 21,368
_________ _______ _____ _______ _____ _________
TOTAL $1,688,482 $109,629 $9,147 $175,355 $ - $1,631,903
_________ _______ _____ _______ _____ _________
_________ _______ _____ _______ _____ _________
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 31 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
YEAR ENDED DECEMBER 31, 1991
(In thousands)
_____________________________________________________________________________________________________________________
<CAPTION>
Additions
________________________
Acquired in
Balance Connection
at with Other Balance
Beginning Purchase of Changes at End
Classification of Year At Cost Subsidiaries Retirements (A) of Year
___________________________________ _________ _______ ____________ ___________ _______ _________
<S> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $ 489,006 $ 62,750 $18,004 $ 52,868 $ 123 $ 517,015
Poles, Cable and Conduit 408,791 93,396 806 5,730 254 497,517
Buildings and Towers 171,365 6,227 3,086 3,390 788 178,076
Earth Stations 147,545 17,031 806 16,846 2,733 151,269
Satellite 81,223 84,593 81,223 84,593
Other 185,662 18,923 17,793 16,139 (744) 205,495
_________ _______ ______ _______ _____ _________
1,483,592 282,920 40,495 176,196 3,154 1,633,965
Nonutility Plant 21,996 630 5,433 309 17,502
Construction in Progress (net) 167,089 (127,649) 1,038 (3,463) 37,015
_________ _______ ______ _______ _____ _________
TOTAL $1,672,677 $155,901 $41,533 $181,629 $ - $1,688,482
_________ _______ ______ _______ _____ _________
_________ _______ ______ _______ _____ _________
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 32 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1993
(In thousands)
_____________________________________________________________________________________________________________________________
<CAPTION>
Additions
_______________________________
Balance Salvage
at Charged Charged Added Realized Other Balance
Beginning to to Other Through Retire- Less Cost Changes at End
Classification of Year Income Accounts Acquisition ments to Remove (A) of Year
___________________________________ _________ _______ ________ ___________ _______ __________ _______ _________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $228,905 $ 44,584 $ 19 $1,138 $32,477 $ 1,425 $ 348 $243,942
Poles, Cable and Conduit 198,148 30,225 460 6,688 (798) 14 221,361
Buildings and Towers 78,665 7,876 133 295 377 (161) 395 86,826
Earth Stations 91,179 9,561 17,475 205 (133) 83,337
Satellite - 247 1 246
Other 94,335 9,831 3,010 289 11,444 3,948 (890) 99,079
________ _______ _____ _____ ______ ______ _____ _______
691,232 102,324 3,162 2,182 68,462 4,619 (266) 734,791
Nonutility Plant 4,761 773 439 107 138 266 6,270
________ _______ _____ _____ ______ ______ _____ _______
TOTAL $695,993 $103,097 $3,162 $2,621 $68,569 $ 4,757 $ - $741,061
________ _______ _____ _____ ______ ______ _____ _______
________ _______ _____ _____ ______ ______ _____ _______
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 33 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1992
(In thousands)
_____________________________________________________________________________________________________________________________
<CAPTION>
Additions
_______________________________
Balance Salvage
at Charged Charged Added Realized Other Balance
Beginning to to Other Through Retire- Less Cost Changes at End
Classification of Year Income Accounts Acquisition ments to Remove (A) of Year
___________________________________ _________ _______ ________ ___________ _______ __________ _______ _________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $225,315 $ 44,916 $ 233 $ 715 $42,831 $1,144 $(587) $228,905
Poles, Cable and Conduit 174,835 26,760 1,630 5,319 251 (9) 198,148
Buildings and Towers 73,007 6,862 427 125 1,139 (868) 251 78,665
Earth Stations 87,693 10,206 9,156 2,137 299 91,179
Satellite 4,221 7,299 11,520 -
Other 92,296 10,436 1,942 542 14,837 3,910 46 94,335
_______ _______ _____ _____ ______ _____ ___ _______
657,367 106,479 2,602 3,012 84,802 6,574 - 691,232
Nonutility Plant 3,945 752 123 14 73 4,761
_______ _______ _____ _____ ______ _____ ___ _______
TOTAL $661,312 $107,231 $2,725 $3,026 $84,875 $6,574 $ - $695,993
_______ _______ _____ _____ ______ _____ ___ _______
_______ _______ _____ _____ ______ _____ ___ _______
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 34 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1991
(In thousands)
_____________________________________________________________________________________________________________________________
<CAPTION>
Additions
_______________________________
Balance Salvage
at Charged Charged Added Realized Other Balance
Beginning to to Other Through Retire- Less Cost Changes at End
Classification of Year Income Accounts Acquisition ments to Remove (A) of Year
____________________________________ _________ _______ ________ ___________ _______ _________ _______ _________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Telecommunications plant in service:
Central Office Equipment $203,774 $ 44,681 $1,657 $ 8,325 $ 36,780 $ 3,665 $ (7) $225,315
Poles, Cable and Conduit 154,067 26,762 333 5,730 (701) 104 174,835
Buildings and Towers 66,058 7,994 651 1,135 2,468 (538) 175 73,007
Earth Stations 88,683 11,764 703 211 15,924 2,248 8 87,693
Satellite 78,083 7,361 81,223 4,221
Other 84,185 11,889 2,937 1,334 10,028 2,419 (440) 92,296
_______ _______ _____ ______ _______ ______ _____ _______
674,850 110,451 5,948 11,338 152,153 7,093 (160) 657,367
Nonutility Plant 5,337 516 351 2,422 3 160 3,945
_______ _______ _____ ______ _______ ______ _____ _______
TOTAL $680,187 $110,967 $6,299 $11,338 $154,575 $7,096 $ - $661,312
_______ _______ _____ ______ _______ _____ _____ _______
_______ _______ _____ ______ _______ _____ _____ _______
<FN>
(A) Transfers and miscellaneous adjustments
</TABLE>
- 35 -
<PAGE>
<TABLE>
PACIFIC TELECOM, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(In thousands)
_______________________________________________________________________
<CAPTION>
CHARGED TO
COSTS AND EXPENSES
____________________________
ITEM 1993 1992 1991
______________________________ ____ ____ ____
Taxes, other than income taxes:
<S> <C> <C> <C>
Real estate and personal property $ 9,658 $ 8,818 $ 9,353
State excise 5,561 4,772 3,847
Other 2,890 1,216 727
Taxes charged to administrative
functions (3,282) (944) (1,076)
______ ______ ______
$14,827 $13,862 $12,851
______ ______ ______
______ ______ ______
Advertising Expense $ 4,024 $ 5,524 $ 7,003
______ ______ ______
______ ______ ______
(Included in administrative support and customer operations expense)
</TABLE>
Maintenance (plant support expense), depreciation and amortization are
disclosed separately in the consolidated financial statements.
- 36 -
<PAGE>
FINANCIAL SECTION 1993 ANNUAL REPORT
______
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Year Ended December 31, 1993 1992 1991 1990(1) 1989
___________________________________________________________________________________________________________
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $ 709,059 $ 704,529 $ 724,424 $ 682,858 $ 577,691
Operating expenses 568,242 565,886 564,831 528,710 443,886
___________________________________________________________________________________________________________
Net operating income 140,817 138,643 159,593 154,148 133,805
Interest expense (44,273) (52,140) (54,955) (39,500) (33,387)
Gain on sale of subsidiaries and
investments(2) 1,340 28,601 28,262 18,548 --
Other income(expense), net (14,980) (15,330) (12,471) 4,275 4,150
___________________________________________________________________________________________________________
Income before income taxes 82,904 99,774 120,429 137,471 104,568
Income taxes 23,846 32,526 30,893 42,061 29,449
___________________________________________________________________________________________________________
Income from continuing operations 59,058 67,248 89,536 95,410 75,119
Gain(Loss)from discontinued
operations(3) 60,444 (45,741) (8,431) (5,186) (1,584)
___________________________________________________________________________________________________________
Net income 119,502 21,507 81,105 90,224 73,535
Preferred dividends -- -- -- 5 18
___________________________________________________________________________________________________________
Net income applicable to
common stock $ 119,502 $ 21,507 $ 81,105 $ 90,219 $ 73,517
===========================================================================================================
Average number of common shares
outstanding 39,584 39,526 39,477 38,768 38,395
DATA PER COMMON SHARE:
Income from continuing operations $ 1.49 $ 1.70 $ 2.27 $ 2.46 $ 1.96
Gain (Loss) from discontinued
operations 1.53 (1.16) (.22) (.13) (.05)
___________________________________________________________________________________________________________
Net income $ 3.02 $ .54 $ 2.05 $ 2.33 $ 1.91
===========================================================================================================
Dividends declared and paid $ 1.32 $ 1.305 $ 1.235 $ 1.13 $ 1.02
BALANCE SHEET DATA:(4)
Total assets $1,486,324 $1,607,289 $1,748,570 $1,787,622 $1,158,686
Net assets of discontinued operations -- 99,195 153,070 153,996 119,822
Long-term debt, net of current
maturities 426,669 571,585 528,391 480,940 291,815
Shareholders' equity 638,711 569,846 598,524 563,906 491,671
===========================================================================================================
</TABLE>
(1) In August 1990, Pacific Telecom, Inc. (PTI) acquired North-West
Telecommunications, Inc. (North-West)for $272 million. Through North-West,
PTI acquired four local exchange companies (LECs) with approximately 64,500
<PAGE>
access lines and ownership interests in certain cellular properties.
Interest expense increased in 1991 due to additional interest expense
incurred as a result of amounts borrowed to acquire North-West.
(2) The gain on sale of subsidiaries and investments included, in 1993, the sale
of a cellular property in Washington. The gains in 1992 included a $21.4
million gain on the sale of Catalina Marketing Corporation common stock and
a $7.2 million gain from cellular property sales and exchanges. The gains
in 1991 included a $22.2 million gain on the sale of T.U. International,
Inc. and a $6.1 million gain on the sales of cellular interests. The gain
in 1990 included the $18.5 million gain from the sale of Petroleum
Communications, Inc. These transactions had an after-tax earnings per share
effect of $.02 per share in 1993, $.45 per share in 1992, $.54 per share in
1991 and $.36 per share in 1990.
(3) International Communications Holdings, Inc. (ICH) had been shown as a
discontinued operation for financial statement reporting purposes through
September 1993. The remaining investment in ICH is now reported as a
continuing operation. See Note 12 to the Consolidated Financial Statements
for information concerning the $60.4 million after-tax gain on the sale of
ICH's major operating subsidiary recorded in 1993 and a $45.7 million
after-tax loss recorded in 1992.
(4) The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes," on January 1, 1993. The Company has
restated prior years' balance sheets to record the assets and liabilities
relating to this change. See Note 9 to the Consolidated Financial Statements
for information concerning the adoption of SFAS 109.
PACIFIC TELECOM, INC.
16
- 37 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
______
During 1993, PTI and its subsidiaries (Company) completed the sale of TRT
Communications, Inc. (TRT), the major international telecommunications
subsidiary of ICH. This transaction resulted in the exchange of TRT stock for
stock of IDB Communications Group, Inc. (IDB), an international voice, data and
video transmission service provider. The Company recorded a $60.4 million
after-tax gain on the exchange and sale of IDB stock. Proceeds of $195.2 million
received from the sale of IDB stock in November 1993 were used to reduce the
Company's short-term borrowings. See Notes 4 and 12 to the Consolidated
Financial Statements.
In August 1993, the Company signed a definitive agreement (Agreement) with
US WEST Communications, Inc. (USWC) under which the Company will acquire certain
rural telephone exchange properties in Colorado from USWC. The properties
represent 45 exchanges that serve approximately 50,000 access lines. Completion
of this transaction will be dependent upon the receipt of appropriate regulatory
approvals, which are expected by the end of 1994. The Company will pay
approximately $207 million for these properties at closing, subject to a
purchase price adjustment mechanism based principally on the estimated book
value of the assets to be acquired. Current estimates of book value indicate
that the purchase price may be less than $207 million.
On March 15, 1994, the Company signed letters of intent with USWC to
acquire certain rural exchange properties in Oregon and Washington from USWC for
$183 million in cash, subject to certain purchase price adjustments at closing.
These properties represent 49 exchanges that serve approximately 34,100 access
lines. The transaction is subject to negotiation of a definitive purchase
agreement with USWC and corporate, regulatory and governmental approvals.
In October 1993, a Federal-State Joint Board issued a final recommended
decision concerning the restructuring of the interstate telecommunications
<PAGE>
market for Alaska, including changes to the existing Joint Services Agreement
(JSA) between Alascom and American Telephone and Telegraph Company (AT&T). The
final recommendation includes termination of the JSA effective September 1,
1995, two accelerated cost recovery payments totalling $150 million, and
purchase of services from Alascom by AT&T for a two and one-half year period
following the termination of the JSA. The final recommendation also includes the
creation by Alascom of an interstate tariff for carrier services based upon an
allocation of costs between rural and nonrural locations. The Federal
Communications Commission (FCC) has the power to decide the issues in this
proceeding. The FCC's rules do not prescribe a period within which a decision
must be rendered. Meanwhile, Alascom and AT&T entered into an agreement in
October 1993, to exchange proprietary information relating to Alascom's
structure and operations. The purpose of the agreement was to promote the
possibility of a negotiated resolution of the Alaska interstate market issues.
The Company continues to pursue resolution of these issues, but is unable to
predict the outcome of this matter.
<TABLE>
<CAPTIONS>
RESULTS OF OPERATIONS
% %
INCREASE Increase
(in millions except per share amounts) 1993 (DECREASE) 1992 (Decrease) 1991
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Income from continuing operations $ 59.1 (12)% $67.2 (25)% $89.5
Net gain (loss) from discontinued operations 60.4 (45.7) (8.4)
____________________________________________________________________________________________________________________
Net income $119.5 456% $21.5 (73)% $81.1
====================================================================================================================
Average common shares outstanding 39.6 39.5 39.5
Per common share:
Income from continuing operations $ 1.49 (12)% $1.70 (25)% $2.27
Gain (Loss) from discontinued operations 1.53 (1.16) (.22)
____________________________________________________________________________________________________________________
Net income $ 3.02 455% $ .54 (74)% $2.05
====================================================================================================================
</TABLE>
In 1993, income from continuing operations decreased $8.1 million from 1992
mainly because 1992 included a $13.5 million after-tax gain on the sale of
Catalina Marketing Corporation's common stock, which was partially offset by
valuation adjustments of noncore investments. In addition, decreases in revenues
resulting from rate base reductions for long lines operations and decreased
private line services were offset by favorable out-of-period revenue adjustments
for long lines and increased Universal Service Fund (USF) support and access
line growth for the Company's local exchange business.
PACIFIC TELECOM, INC.
17
- 38 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
______
<PAGE>
In 1992, net income from continuing operations decreased 25 percent from
1991 due to lower sales of capacity on the North Pacific Cable, lower long lines
out-of-period revenue adjustments, and lower intrastate revenues resulting from
a full year of intrastate competition in Alaska and an intrastate rate decrease
implemented in July 1991. A reduction in capitalized interest during
construction also contributed to the decrease in net income in 1992. These
decreases were partially offset by access line growth in the Company's local
exchange business.
OPERATING REVENUES
The Company operates predominantly in the telecommunications industry,
providing voice, data, video and other services through long lines and local
exchange operations. There are substantial similarities in the operations of and
revenues derived from these activities. The Company is also involved in the
operation and maintenance of the North Pacific Cable. Revenues from this project
are recognized from the sale of capacity on the cable and backhaul system and
from maintenance and restoration services provided for the cable. For 1993, 48
percent of consolidated operating revenues were contributed by long lines, 45
percent by local exchange companies, three percent by cable and backhaul
capacity sales and related cable services, and two percent by cellular
operations. For 1992, 49 percent of consolidated operating revenues were
contributed by long lines, 44 percent by local exchange companies, three percent
by cable and backhaul capacity sales and related cable services, and one percent
by cellular operations. The revenues of the Company have been classified into
the following service categories.
<TABLE>
<CAPTION>
% %
INCREASE Increase
(in millions) 1993 (DECREASE) 1992 (Decrease) 1991
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Local network service $ 81.8 10% $ 74.1 8% $ 68.4
Network access service 183.9 5 174.9 4 168.2
Long distance network service 262.5 (5) 275.4 (4) 286.1
Private line service 63.8 (9) 70.4 7 66.0
Sales of cable capacity 4.9 (55) 10.8 (65) 30.9
Other 112.2 13 98.9 (6) 104.8
____________________________________________________________________________________________________________________
Total operating revenues $709.1 1% $704.5 (3)% $724.4
====================================================================================================================
</TABLE>
LOCAL NETWORK SERVICE revenues increased by $6.0 million in 1993 and $4.1
million in 1992 due mainly to the effects of the 4.8 percent and 6.2 percent
internal access line growth in the local exchange companies during 1993 and
1992, respectively. Enhanced and extended area services also increased 1993
local network service revenues by $1.1 million. Extended area service increases
were partially offset by a decrease in network access service revenues for the
local exchange companies. An August 1991 local service rate increase for
North-West Telephone increased local network service revenues $1.3 million in
1992.
NETWORK ACCESS SERVICE revenues are charges to common carriers for access
to the local exchange companies' networks. Network access service revenues
decreased $.8 million in 1993 and increased $2.7 million in 1992 because of
changes in the operating expenses used in setting interstate access rates. These
reduced charges in 1993 are mainly attributable to the 1992 early retirement
<PAGE>
program. The acquisition of local exchange companies in 1993 and 1992 increased
network access service revenues by $.6 million and $.9 million, respectively.
Increased USF support, which helps fund nontraffic sensitive costs that are
above the national average, increased network access service revenues by $7.5
million in 1993 and $6.9 million in 1992. Increases in network access service
revenues in 1992 were partially offset by a $2.4 million decrease due to lower
local exchange out-of-period revenue adjustments and by a $1.1 million decrease
resulting from rate reductions for intrastate access services of North-West
Telephone.
In November 1993, based on a concern over recent growth in the size of the
USF, a Federal-State Joint Board issued a recommended decision to the FCC
proposing the adoption of interim USF rules. These interim rules recommend that
an indexed cap be placed on USF growth to allow the USF to grow at a rate no
greater than the rate of growth in the U.S.'s total working local loops. The
interim rules are intended to allow moderate growth in the total level of the
USF, while the FCC and a new Federal-State Joint Board undertake a reevaluation
of the USF assistance mechanism. The FCC adopted the Joint Board recommendation
at the end of 1993. The Federal-State Joint Board proposed that the interim
rules remain in effect for two years. As most of the Company's LEC operations
receive USF compensation, significant changes to the USF assistance mechanism
could affect the Company's results. The Company believes that placing the
indexed cap on USF growth will have a negative impact on the Company's revenues,
but the impact is not expected to be material.
LONG DISTANCE NETWORK SERVICE revenues decreased $12.9 million in 1993.
This decrease reflected the $10.5 million revenue effect of reduced long lines
rate base resulting mainly from the sale of Aurora II satellite transponders in
PACIFIC TELECOM, INC.
18
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MANAGEMENT'S DISCUSSION AND ANALYSIS
______
late 1992. Contributing to the revenue decline were the $4.7 million revenue
effect of long lines recoverable expense reductions and a $2.6 million revenue
decrease due to the effect of lower average rates per minute for intrastate
message toll services. Intrastate minute volumes for 1993 message toll service
increased two percent over 1992 levels, contributing $1.3 million of increased
revenues. The revenue decreases were also offset in part by higher long lines
out-of-period revenue adjustments of $5.6 million and a net foreign message toll
service revenue settlement increase of $2.0 million. Long distance network
service revenues decreased $10.7 million in 1992. This decrease resulted from
reductions in long lines out-of-period revenue adjustments of $11.6 million and
lower intrastate revenues of $9.3 million due to the introduction of competition
in Alaska in May 1991 and the effects of a $6.1 million annual intrastate rate
decrease beginning in July 1991. As a result of competition, intrastate minute
volumes for 1992 were seven percent below volumes for 1991. Competition has been
introduced to approximately 90 percent of the Company's intrastate market,
including the major population centers of Alaska. The Company estimates that its
share of the intrastate market was approximately 79 percent at December 31,
1993, as compared to approximately 80 percent at December 31, 1992. Reductions
in long distance network service revenues in 1992 were partially offset by
increased interstate revenues of $10.9 million relating to an increased rate of
return and increased recoverable expenses.
PRIVATE LINE SERVICE revenue declined by $6.6 million in 1993 and increased
by $4.4 million in 1992. Revenues amounting to $3.9 million in 1992 for services
<PAGE>
provided on the Alaska Spur portion of the North Pacific Cable were not received
in 1993 as a result of the sale of a portion of the cable in late 1992 to a
company that previously used those services. As a result of the Company's
decision to exit noncore subsidiary operations, private line revenues decreased
by $2.9 million in 1993.
SALES OF CABLE CAPACITY revenues represent amounts recorded from activities
relating to the North Pacific Cable and its backhaul system. At December 31,
1993, approximately 51 percent of the cable's capacity had been sold with 36
percent sold in 1990, 10 percent sold in 1991, four percent sold in 1992 and one
percent sold in 1993. The Company continues to market the remaining cable
capacity. AT&T completed construction of a submarine fiber optic cable between
the U.S. and Japan and placed it in service in late 1992. AT&T has stated that
all the capacity on that cable has been subscribed. AT&T has announced plans for
an additional cable system in the Pacific for completion between 1995 and 1997.
The Company believes that competition with AT&T for capacity sales has slowed
sales on the North Pacific Cable. The Company also believes that cable capacity
sales were negatively affected by adverse economic conditions in Japan and other
Far East countries. In addition, as a result of five outages on the cable since
turn-up in May 1991, three from external causes and two due to failed components
with differing causes, an adverse market perception as to the reliability of the
cable may exist. This perception may have contributed to the slowing in sales of
capacity and may continue to have an adverse effect on future sales. The cable
system is operating under a warranty of one to eight years depending on the
component of the system. The cable contractor has agreed to certain remedies,
including providing industry support programs and enhanced repair arrangements.
During 1993, the Company reduced the cable inventory carrying value by $21.7
million. This reduction was offset by increases in cash, accounts receivable and
cost of cable sales.
The Company is investigating use of the North Pacific Cable to provide
video transmission services. Successful tests of such services were completed in
1993. These services are geared toward television broadcasters and program
distributors, and will allow secure digital transmission of news gathering and
programming, while avoiding delays encountered with satellite transmissions.
Pricing of these services is anticipated to be competitive with existing
international satellite providers.
The Company continues to market the remaining cable capacity. Based on the
Company's estimates of growth in trans-Pacific demand for communications
capacity, traffic from existing and planned interconnections with other cables
in Southeast Asia and the availability of other sources of capacity over the
next five years, the Company believes that a majority of the remaining capacity
can be sold in that time frame.
OTHER operating revenues increased by $13.3 million in 1993. Growth in
retail and foreign roamer revenues boosted cellular revenues by $5.9 million, as
several cell sites were turned up in the second half of 1992 and acquisitions
were completed. In the third quarter of 1993, the long lines subsidiary
recognized a one-time other revenue item of $3.2 million relating to service in
Saudi Arabia. Long lines equipment resale revenue also grew by $3.6 million. The
income effect of these long lines revenue increases was mainly offset by
increased plant support expense. Cable maintenance and restoration revenue
increased other revenue by $3.2 million due to additional circuit activations
and submarine system sales in 1993. Declining noncore subsidiary activity
resulted in a decrease in other revenue of $1.3 million in 1993. Other operating
revenues decreased by $1.1 million and $9.2 million in 1993 and 1992,
respectively, due to a reduction of operations in Saudi Arabia, where the
Company was providing services under agreements with the U.S. Department of
Defense and AT&T. Other revenues also decreased in 1992 due to a $3.9 million
reduction from the sale of North-West's printing and publishing subsidiaries in
April 1991, a $2.5 million reduction in directory revenues and a $1.4 million
reduction in contract service revenues in Alaska. These decreases were partially
<PAGE>
offset by a $6.0 million increase in revenues derived from North Pacific Cable
maintenance and restoration services, and by increases of $4.0 million from the
growth in cellular operations.
PACIFIC TELECOM, INC.
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS
______
OPERATING EXPENSES
<TABLE>
<CAPTION>
% %
INCREASE Increase
(in millions) 1993 (DECREASE) 1992 (Decrease) 1991
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Plant support $125.0 4% $120.1 2% $117.5
Depreciation and amortization 106.8 (4) 111.5 (3) 115.2
Leased circuits 32.6 56 20.9 (26) 28.2
Access expense 95.5 (2) 97.8 5 93.5
Other operating expense and taxes 50.0 -- 50.0 (8) 54.1
Cost of cable sales 2.5 (68) 7.7 (51) 15.8
Customer operations 70.6 5 67.0 9 61.2
Administrative support 85.2 (6) 90.9 15 79.3
____________________________________________________________________________________________________________________
Total operating expenses $568.2 --% $565.9 --% $564.8
====================================================================================================================
</TABLE>
The Company adopted SFAS 106 on January 1, 1993, which increased
postretirement expense by $3.0 million in 1993, thereby causing increases in
plant support, other operating expense, customer operations and administrative
support.
The Company offered early retirement to certain employees of its long lines
subsidiary in Alaska and certain corporate employees in 1991. The Company also
offered early retirement to an additional group of corporate employees and
employees of certain local exchange companies in 1992. These early retirements
resulted in a total workforce reduction of 226 employees and one-time expenses
of $6.7 million in 1991 and $7.3 million in 1992, net of curtailment gains. See
Note 5. A portion of these expenses relating to regulated operations was
recovered through access revenues and settlements.
PLANT SUPPORT expense increased by $4.9 million in 1993. Long lines
services provided in Saudi Arabia and equipment resale costs increased plant
support and other revenue by $6.2 million. Noncore subsidiary plant support
expense decreased $2.2 million. Plant support expense increases in 1992 included
$4.0 million relating to cable maintenance for a full year for the North Pacific
Cable, $2.6 million for increased local exchange companies' maintenance and $1.5
million relating to Bay Area Teleport, Inc. (BAT) operations. BAT, a business
providing regional microwave and satellite earth station services in the San
Francisco, California area, became a wholly-owned subsidiary during the fourth
quarter of 1991 following the restructuring of a 50 percent owned partnership.
These increases were partially offset by decreases of $4.3 million relating to
operations in Saudi Arabia and $1.0 million resulting from the 1991 early
retirement program.
<PAGE>
DEPRECIATION AND AMORTIZATION expense decreases in 1993 include $7.3
million relating to the sale of the Aurora II satellite transponders in October
1992 and $1.4 million due to certain long lines property being retired or fully
depreciated. Offsetting these decreases were increases of $2.2 million due to an
increase in the depreciation rate for Oregon local exchange companies and $1.2
million for cellular operations relating mainly to the turn-up of new cell sites
and acquisitions. Depreciation and amortization expense decreases in 1992
included $4.1 million relating to reduced operations in Saudi Arabia and $2.3
million due to certain customer premise equipment and buried coaxial cable
becoming fully depreciated. These decreases were partially offset by a $1.5
million increase in depreciation relating to increased local exchange company
plant in service and a $1.5 million increase relating to BAT operations. The
Company is involved in regulatory proceedings with the Alaska, Washington and
Wisconsin utility commissions in an attempt to increase depreciation rates.
LEASED CIRCUITS expense rose by $11.7 million in 1993 mainly due to the
operating lease expense for the Aurora II satellite transponders of $9.0
million. Other increases in 1993 include $1.2 million for noncore subsidiaries
and $.9 million for long lines retroactive billings and new contracts. Leased
circuits expense decreased in 1992 primarily because the Company paid $7.0
million in 1991 to lease transponders on an interim satellite until Aurora II
was placed into service. Leased circuits expense in 1992 also included a $1.4
million decrease reflecting reduced operations in Saudi Arabia. The 1992
decreases were partially offset by a $1.1 million increase relating to
restoration facilities for the North Pacific Cable.
OTHER OPERATING EXPENSE AND TAXES stayed the same in 1993 and 1992 with no
material offsetting items. Decreases in 1992 included $3.6 million due to the
April 1991 sale of the printing and publishing subsidiaries of North-West
Telecommunications, Inc. (North-West) and $3.4 million due to expenses incurred
for the 1991 early retirement program. These decreases were partially offset by
increased expenses of $1.8 million mainly due to the computerization of
engineering records and other contract services for long lines and $.5 million
for the 1992 early retirement program.
PACIFIC TELECOM, INC.
20
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MANAGEMENT'S DISCUSSION AND ANALYSIS
______
CUSTOMER OPERATIONS expense increased $3.6 million in 1993 mainly due to
cellular costs of $2.0 million relating to customer growth and acquisitions. In
addition, local exchange company directory assistance and expenses related to
growth caused an increase of $1.0 million in 1993. Customer operations expense
increases in 1992 included $2.4 million relating to local exchange company
acquisitions and access line growth, $2.3 million due to growth in cellular
operations, $.8 million for data base access to verify calling card numbers and
$.5 million for the 1992 early retirement program.
ADMINISTRATIVE SUPPORT expense declined in 1993 mainly because 1992
included $6.4 million of costs relating to the early retirement program in 1992.
Administrative support expense increases in 1992 included the early retirement
costs, $6.5 million relating to the development of new customer support and
billing software and $2.6 million for long lines regulatory proceedings. These
increases in 1992 were partially offset by a $1.1 million decrease relating to
the 1991 early retirement program, $.6 million due to reduced cable operation
costs and $.5 million resulting from the sale of North-West's printing and
publishing subsidiaries.
<PAGE>
OTHER INCOME (EXPENSE)
<TABLE>
<CAPTION>
% %
INCREASE Increase
(in millions) 1993 DECREASE) 1992 (Decrease) 1991
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Interest expense $(44.2) (15)% $(52.2) (5)% $(55.0)
Interest during construction -- -- -- (100) 5.6
Interest income .9 (18) 1.1 (54) 2.4
Gain on sale of subsidiaries and investments 1.3 (95) 28.6 1 28.3
Minority interest (.6) 500 (.1) (95) (2.0)
Other (15.3) (6) (16.3) (12) (18.5)
____________________________________________________________________________________________________________________
Total other income (expense) $(57.9) 49% $(38.9) (1)% $(39.2)
====================================================================================================================
</TABLE>
INTEREST EXPENSE was $9.2 million lower in 1993 due to lower short-term
borrowing levels, partially offset by a $1.3 million unfavorable rate variance.
Interest expense decreased in 1992 as a result of lower interest rates. See Note
4.
INTEREST DURING CONSTRUCTION in 1991 was attributable to the construction
of the replacement satellite and construction of the North Pacific Cable. Both
were placed in service during 1991.
GAIN ON SALE OF SUBSIDIARIES AND INVESTMENTS included a $1.3 million gain
on the sale of a cellular property in September 1993, a $21.4 million gain on
the sale of Catalina Marketing Corporation common stock in March 1992, a $7.2
million gain from cellular sales and exchanges in September and December of
1992, a $22.2 million gain on the sale of T.U. International, Inc. in September
1991 and a $6.1 million gain on the sales of cellular interests in December
1991. The Company has signed a definitive agreement to sell two noncore
businesses. The sale is expected to be completed during the first half of 1994.
See "Dispositions" below. With this sale, the Company will have exited all of
its material noncore businesses.
MINORITY INTEREST in 1993 and 1992 related primarily to the 20 percent
minority shareholder's interest in income from the North Pacific Cable project
and various cellular interests.
OTHER expense in 1993 included $7.9 million of valuation adjustments on
certain noncore businesses, $2.6 million of amortization relating to goodwill
and excess cost on cellular investments, $3.4 million of corporate support
costs, and $1.2 million of noncore business losses. Other expense in 1992
included valuation adjustments of $13.4 million on certain noncore businesses
and $4.0 million of corporate costs. These expenses were partially offset by a
$1.9 million pre-tax gain on the sale of capacity by Alascom on the Alaska Spur.
<PAGE>
<PAGE>
INCOME TAXES
<TABLE>
<CAPTION>
(in millions) 1993 1992 1991
_____________________________________________________________________________
<S> <C> <C> <C>
Income tax expense $23.8 $32.5 $30.9
Effective income tax rate 28.8% 32.6% 25.7%
</TABLE>
The lower 1993 effective income tax rate resulted from a favorable
settlement of state income taxes for 1992. The 1991 effective income tax rate
was lower due to income tax benefits recognized from the favorable resolution of
tax audit issues with the IRS.
PACIFIC TELECOM, INC.
21
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MANAGEMENT'S DISCUSSION AND ANALYSIS
______
The Company adopted SFAS 109 "Accounting for Income Taxes" on January 1,
1993. The Company has restated prior year balances to reflect the adoption of
SFAS 109. See Note 9. The effect of SFAS 109 on prior years' income tax expense
was not material and, therefore, previously reported amounts have not been
restated.
INFLATION
The effects of inflation on the Company's regulated businesses are not
significant to ongoing operations. A substantial portion of the Company's
operating assets are utilized in regulated communications services. Under the
ratemaking principles currently prescribed by regulatory commissions, only the
historical cost of plant is recoverable in revenues as depreciation. While the
ratemaking process gives no recognition to the current cost of replacing plant,
based upon past practices, the Company has been allowed to recover and earn on
the increased cost of its net investment when replacement of facilities actually
occurs. Operating assets of the Company's nonregulated businesses account for
approximately 19 percent of the Company's total assets, net of the North Pacific
Cable inventory. Inflation could have a significant impact if these assets were
replaced, depending on the rate of inflation, advances in technology and the
timing of these expenditures.
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
(in millions) Plan 1994 1993 1992 1991
_____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Capital expenditures:
Satellite and Alaska Spur $ -- $ -- $ -- $ 91
Long lines 29 18 22 31
Local exchange companies 79 74 69 69
Cellular 7 7 10 3
Other 9 4 8 16
_____________________________________________________________________________________________
124 103 109 210
Inventory -- North Pacific Cable -- -- -- 71
_____________________________________________________________________________________________
Total capital expenditures $124 $103 $109 $281
=============================================================================================
Acquisitions $207 $ 16 $ 17 $ 20
=============================================================================================
</TABLE>
CAPITAL EXPENDITURES
The Company's capital expenditures during 1993 and 1992 were funded
primarily through internally generated cash of $180.3 million and $177.1
million, respectively. Capital expenditures during 1991 were funded primarily
through internally generated cash of $110.2 million and short-term borrowings.
The decrease in internally generated cash for 1991 reflected the reduction in
accounts payable relating to payments made during 1991 for the North Pacific
Cable. The Company expects to fund its capital expenditures in 1994 primarily
through internally generated cash.
Capital expenditures during 1993 related mainly to network upgrades and
growth in the Company's operations. See "Acquisitions" below for information
concerning a contract with USWC to upgrade facilities for properties that the
Company intends to purchase from USWC. The Company does not have any other major
construction projects underway at the present time.
The North Pacific Cable was placed into service during May 1991 and final
system acceptance occurred in November 1991. The final costs of the eastern end
of the cable system, in which the Company has an 80 percent interest, including
the Alaska Spur, was $231 million. Approximately $127 million of this amount was
expended during 1991. These payments were funded through internally generated
cash, short-term borrowings and proceeds from sales of cable capacity. Based on
the Company's estimates of growth in trans-Pacific demand for communications
capacity and the availability of other sources of capacity over the next five
years, the Company believes that a majority of the remaining capacity can be
sold in that time frame.
A satellite, Aurora II, replacing the Company's original satellite was
launched in May 1991 and was placed in service in July 1991. The Company paid
$85 million for the 16 transponders that it owned on Aurora II. The 1991
payments of $35 million were funded through internally generated cash and
short-term borrowings. In March 1992, the Company issued $67.2 million in
short-term notes to certain lenders. These notes matured in October 1992, at
PACIFIC TELECOM, INC.
22
<PAGE>
- 43 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
______
which time the Company sold the 16 transponders on Aurora II to the lenders,
retired the debt and leased those transponders back over a 69-month period. This
lease is accounted for as an operating lease. See Note 10. In 1993, the Company
paid $8.0 million to purchase one additional transponder on this satellite and
the right of first refusal to purchase an additional transponder within one
year.
ACQUISITIONS
The Company continues to seek expansion of its local exchange operations
and cellular interests through the acquisition of additional local exchange
companies and cellular properties that complement its existing properties and
operations. In 1993, the Company acquired a local exchange company in Wisconsin,
with 1,100 access lines, and increased its ownership interest in existing
cellular properties and operations. In 1992, the Company acquired two local
exchange companies, with a total of 3,200 access lines and several new cellular
interests, and increased its ownership interest in existing cellular properties.
In August 1993, the Company signed a definitive agreement (Agreement) with
USWC under which the Company will acquire certain rural telephone exchange
properties in Colorado from USWC. The properties represent 45 exchanges that
serve approximately 50,000 access lines. The Company will pay approximately $207
million for these properties at closing, subject to a purchase price adjustment
mechanism, based principally on the estimated book value of the assets to be
acquired. Current estimates of book value indicate that the purchase price may
be less than $207 million. Completion of this transaction will be dependent upon
receipt of appropriate regulatory approvals, expected to be received by the end
of 1994. Under a contract with USWC, the Company acts as a general contractor to
construct and upgrade single-party service and digital switching for the
properties subject to the Agreement. These improvements are a result of a
regulatory requirement of the Colorado Public Utilities Commission. Projected
expenditures for 1994 are $28 million. If the transaction does not close, USWC
is required to reimburse the Company for all of the Company's expenditures under
the contract including interest.
On March 15, 1994, the Company signed letters of intent with USWC to
acquire certain rural exchange properties located in Oregon and Washington from
USWC for $183 million in cash, subject to certain purchase price adjustments at
closing. These properties represent 49 exchanges that serve approximately 34,100
access lines. Many of these exchanges are contiguous to or located near
exchanges that the Company owns and operates in these states. The transaction is
subject to negotiation of a definitive purchase agreement with USWC, which is
expected to be completed in early April. Completion of the transaction will also
be dependent on corporate, regulatory and governmental approvals, all of which
should be received by late 1994 or early 1995.
The Company expects to fund the acquisitions through the issuance of
external debt and the use of internally generated funds. Future local exchange
company acquisitions may require a significant amount of funding depending on
the Company's success in pursuing its strategy. The Company expects to fund such
acquisitions through a combination of internally generated funds, external debt
and may, if necessary to maintain appropriate capitalization ratios, consider
equity issuances to help fund the acquisitions.
In September 1993, the FCC allocated several blocks of spectrum for
Personal Communications Services (PCS). The FCC will be auctioning licenses to
operate these PCSs in mid-1994. The Company, as well as several of the Company's
cellular licensees, are eligible to bid on PCS licenses subject to certain
<PAGE>
limitations established by the FCC. The Company is evaluating the effects of
PCSs on the Company's operations both with and without potential ownership of
PCS licenses. The Company may consider debt issuances to help fund the purchase
of licenses and the construction of the networks for PCSs if it chooses to
participate in the auctioning process.
DISPOSITIONS
In October 1993, the Company agreed to sell two wholly-owned noncore
subsidiaries, PTI Harbor Bay, Inc. and Upsouth Corporation to IntelCom Group,
Inc. (IntelCom:ITR), for 853,147 shares of IntelCom stock and $.2 million in
cash. The Company will also receive at least 250,000 more shares of IntelCom
common stock in lieu of debt that will not be assumed by the purchaser. Based on
recent prices for IntelCom stock, the Company could record a pre-tax gain
ranging from $7 million to $10 million on this transaction, excluding selling
commissions and other expenses. The actual gain or loss realized will be
dependent on IntelCom's stock price when the shares are sold. The net assets of
these subsidiaries are being shown in other current assets until the sale
closes, which is expected to occur in the first half of 1994.
DISCONTINUED OPERATIONS
In September 1993, the Company concluded the sale of TRT, the major
operating subsidiary of ICH, and a smaller subsidiary to IDB for 4.5 million
shares of IDB common stock and $1 million in cash. The Company recognized an
after-tax gain from discontinued operations of $60.4 million. See Note 12. The
$195.2 million in proceeds received from the sale of the IDB stock in 1993 was
used mainly to repay short-term debt. See Note 4.
PACIFIC TELECOM, INC.
23
- 44 -
MANAGEMENT'S DISCUSSION AND ANALYSIS
______
During 1992, the Company recorded an after-tax loss from discontinued
operations of $45.7 million, of which $10.4 million represented the 1992
operating losses of ICH and $35.3 million represented an additional valuation
adjustment reflecting the agreement with IDB and the market value of IDB common
stock at December 31, 1992. The Company's carrying value of its investment in
ICH at December 31, 1992 was approximately $99.2 million, including the pre-tax
effects of the adjustments mentioned above.
<PAGE>
<PAGE>
LONG-TERM AND SHORT-TERM DEBT
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
_______________________________________________________________________________
(in millions)
<S> <C> <C> <C>
Long-term debt $427 $572 $528
Short-term debt 25 71 234
Currently maturing long-term debt 16 31 12
_______________________________________________________________________________
$468 $674 $774
===============================================================================
Debt as a percent of total capitalization 42% 54% 56%
===============================================================================
</TABLE>
In 1993, debt decreased as the proceeds from the sale of IDB stock in
November were used to repay short-term debt instruments. Currently maturing
long-term debt decreased due to the retirement of Series A Medium-Term Notes in
1993. A $40 million term note and $15 million of the Series A Medium-Term Notes
maturing in 1994 have been classified as long-term debt based on management's
intent and the Company's ability to support this debt on a long-term basis.
In 1992, long-term debt increased as a result of replacing short-term debt
with Series B Medium-Term Notes and other debt that matured in more than one
year. Short-term debt decreased due to the increase in long-term debt mentioned
above and due to payments on debt with the $67 million received on the sale of
satellite transponders, the cash received on the sale of Catalina Marketing
Corporation common stock and the cash received from the sale of capacity on the
North Pacific Cable and Alaska Spur during 1992. Currently maturing long-term
debt increased due to Series A Medium-Term Notes maturing in 1993.
The Company has access to funds through its $300 million revolving credit
agreement. At December 31, 1993, nothing was outstanding under this agreement.
See Note 3. The revolving credit agreement also serves as backup for a $100
million commercial paper program, under which nothing was outstanding at
December 31, 1993. The Company had $18 million outstanding under other available
banking arrangements and $6.9 million due to the minority owner of a Company
subsidiary at December 31, 1993.
The Company has a $150 million Series B Medium-Term Note program, under
which $74.5 million of notes were outstanding at December 31, 1993, with terms
of two to 15 years and an average annual interest rate of 7.24%. The Company
also has approval from the Rural Telephone Bank to borrow $23.3 million in
additional REA debt for certain construction projects. In 1992, Standard &
Poor's reduced the rating of the Company's Medium-Term Notes from A- to BBB+.
This reduction is not expected to result in a material increase in the interest
rate on new issuances of the Company's Medium-Term Notes.
The Company currently has a definitive agreement with USWC to purchase
local telephone properties in Colorado for approximately $207 million and a
letter of intent to purchase similar properties in Oregon and Washington for
approximately $183 million. The Company expects to fund these acquisitions
through the issuance of external debt and internally generated funds.
Any temporary cash or liquidity requirements during 1994 will be met
through utilization of funds available under the revolving credit agreement or
temporary advances from PacifiCorp Holdings. See Note 2. Long-term liquidity
requirements will be met through utilization of funds available under the
revolving credit agreement, which term ends in November 1995 and is renewable on
an annual basis with the consent of the banks, temporary advances from
PacifiCorp Holdings or the issuance of additional Series B Medium-Term Notes.
<PAGE>
FUTURE ACCOUNTING CHANGES
Financial accounting standards that have been adopted, but are not yet in
effect, are not applicable or are not expected to have a material effect on the
Company's results of operations and statement of financial position.
PACIFIC TELECOM, INC.
24
- 45 -
<PAGE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
______
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
_________________________________________________________________________________________________________
(In thousands except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Local network service $ 81,783 $ 74,094 $ 68,392
Network access service 183,862 174,903 168,210
Long distance network service 262,528 275,467 286,065
Private line service 63,765 70,373 66,045
Sales of cable capacity 4,943 10,797 30,888
Other 112,178 98,895 104,824
__________________________________________________________________________________________________________
Total operating revenues 709,059 704,529 724,424
__________________________________________________________________________________________________________
OPERATING EXPENSES:
Plant support (Note 2) 125,010 120,146 117,542
Depreciation and amortization 106,796 111,480 115,163
Leased circuits (Note 2) 32,628 20,911 28,212
Access expense (Note 2) 95,462 97,805 93,516
Other operating expense 35,192 36,190 41,278
Cost of cable sales 2,500 7,686 15,830
Customer operations 70,612 66,913 61,183
Administrative support 85,215 90,893 79,256
Taxes other than income taxes 14,827 13,862 12,851
__________________________________________________________________________________________________________
Total operating expenses 568,242 565,886 564,831
__________________________________________________________________________________________________________
OPERATING INCOME 140,817 138,643 159,593
__________________________________________________________________________________________________________
OTHER INCOME (EXPENSE):
Interest expense (44,273) (52,140) (54,955)
Interest during construction -- -- 5,623
Interest income 932 1,089 2,398
Gain on sale of subsidiaries and investments (Note 13) 1,340 28,601 28,262
Minority interest (580) (92) (1,955)
Other (15,332) (16,327) (18,537)
__________________________________________________________________________________________________________
Total other income (expense) (57,913) (38,869) (39,164)
__________________________________________________________________________________________________________
INCOME BEFORE INCOME TAXES 82,904 99,774 120,429
INCOME TAXES (Note 9) 23,846 32,526 30,893
__________________________________________________________________________________________________________
INCOME FROM CONTINUING OPERATIONS 59,058 67,248 89,536
GAIN (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX (Note 12) 60,444 (45,741) (8,431)
__________________________________________________________________________________________________________
NET INCOME APPLICABLE TO COMMON STOCK $119,502 $ 21,507 $ 81,105
==========================================================================================================
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 39,584 39,526 39,477
==========================================================================================================
INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS $1.49 $1.70 $2.27
==========================================================================================================
NET INCOME PER COMMON SHARE $3.02 $ .54 $2.05
<PAGE>
==========================================================================================================
The accompanying notes are an integral part of these financial statement.
</TABLE>
PACIFIC TELECOM, INC.
25
- 46 -
CONSOLIDATED FINANCIAL STATEMENTS
______
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1993 1992
___________________________________________________________________________________________________
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 4,861 $ 9,735
Accounts receivable 103,155 106,035
Accounts and notes receivable -- affiliates (Note 2) 2,039 970
Material and supplies (At average cost) 15,967 14,737
Inventory -- North Pacific Cable 65,753 87,441
Other (Note 13) 32,493 19,510
___________________________________________________________________________________________________
Total current assets 224,268 238,428
Net assets of discontinued operations (Note 12) -- 99,195
Investments (Note 7) 105,818 101,669
Cost of acquisitions in excess of equity 210,152 209,193
Plant in service:
Telecommunications 1,632,174 1,594,711
Other 17,695 15,824
Less accumulated depreciation 741,061 695,993
___________________________________________________________________________________________________
908,808 914,542
Construction work in progress 14,523 21,368
___________________________________________________________________________________________________
Net plant 923,331 935,910
Deferred charges (Note 9) 22,755 22,894
___________________________________________________________________________________________________
Total assets $1,486,324 $1,607,289
===================================================================================================
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Currently maturing long-term debt $ 16,429 $ 31,531
Notes payable (Note 4) 24,903 71,066
Accounts payable 54,430 47,244
Income taxes payable -- 3,268
Accrued liabilities 49,928 47,436
Accrued toll settlements 17,756 19,438
___________________________________________________________________________________________________
Total current liabilities 163,446 219,983
Long-term debt (Note 3) 426,669 571,585
Deferred income taxes (Note 9) 153,455 126,675
Unamortized investment tax credits 18,326 23,326
Other long-term liabilities (Note 9) 68,947 81,555
Minority interest 16,770 14,319
Shareholders' equity:
Common stock, $.50 stated value
-- authorized 200,000,000 shares
-- outstanding 1993 -- 39,608,767 shares, 1992 -- 39,544,863 shares 19,805 19,772
Additional paid-in capital 205,842 204,276
Retained earnings (Note 3) 413,064 345,798
___________________________________________________________________________________________________
Total shareholders' equity 638,711 569,846
Commitments and contingencies (Notes 10 and 11)
___________________________________________________________________________________________________
Total liabilities and capitalization $1,486,324 $1,607,289
===================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
PACIFIC TELECOM, INC.
26
- 47 -
<PAGE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
______
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
_________________ Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
_______________________________________________________________________________________________________________________________
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1991 39,408 $19,704 $200,689 $343,513 $563,906
Stock issued for employee benefits 79 40 2,217 2,257
Net income 81,105 81,105
Deduct common stock dividends ($1.235 per share) 48,744 48,744
_______________________________________________________________________________________________________________________________
BALANCE, DECEMBER 31, 1991 39,487 19,744 202,906 375,874 598,524
Stock issued for acquisitions 58 28 1,370 1,398
Net income 21,507 21,507
Deduct common stock dividends ($1.305 per share) 51,583 51,583
_______________________________________________________________________________________________________________________________
BALANCE, DECEMBER 31, 1992 39,545 19,772 204,276 345,798 569,846
STOCK ISSUED FOR EMPLOYEE BENEFITS 72 36 1,901 1,937
ODD-LOT STOCK BUY-BACK (8) (3) (192) (195)
UNEARNED STOCK COMPENSATION (Note 5) (143) (143)
NET INCOME 119,502 119,502
DEDUCT COMMON STOCK DIVIDENDS ($1.32 PER SHARE) 52,236 52,236
_______________________________________________________________________________________________________________________________
BALANCE, DECEMBER 31, 1993 39,609 $19,805 $205,842 $413,064 $638,711
===============================================================================================================================
The Company has 152,000 shares of $25 stated value, 6 percent cumulative Preferred Stock authorized, but no shares are
outstanding.
The accompanying notes are an integral part of these financial statements.
</TABLE>
PACIFIC TELECOM, INC.
27
- 48 -
<PAGE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
______
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________________________________________________________
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 59,058 $ 67,248 $ 89,536
Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 115,748 116,821 119,242
Deferred income taxes and investment tax credits, net (7,251) (6,711) (16,387)
Gain on sale of subsidiaries and investments (1,340) (28,601) (28,580)
(Gains) Losses from unconsolidated entities, net (503) 4,365 9,676
Interest capitalized on equity funds -- -- (3,374)
Accounts receivable and other current assets 43,736 (5,177) 20,125
Inventory -- North Pacific Cable 2,500 8,857 21,490
Accounts payable and accrued liabilities (25,263) 13,120 (100,830)
Other (6,363) 7,155 (702)
_______________________________________________________________________________________________________________________________
Net cash provided by operating activities 180,322 177,077 110,196
_______________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (102,618) (108,716) (194,547)
Cost of businesses acquired (15,536) (16,706) (19,722)
Investments in and advances to affiliates (7,447) (14,511) (21,732)
Proceeds from sales of assets 200,552 118,022 48,539
_______________________________________________________________________________________________________________________________
Net cash provided (used) by investing activities 74,951 (21,911) (187,462)
_______________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in short-term debt (53,066) (163,428) 71,354
Increase in affiliated note -- -- 4,750
Proceeds from issuance of long-term debt 3,042 84,026 59,978
Dividends paid (52,236) (51,583) (48,744)
Payments of long-term debt (157,887) (24,877) (15,896)
_______________________________________________________________________________________________________________________________
Net cash (used) provided by financing activities (260,147) (155,862) 71,442
_______________________________________________________________________________________________________________________________
DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (4,874) (696) (5,824)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 9,735 10,431 16,255
_______________________________________________________________________________________________________________________________
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 4,861 $ 9,735 $ 10,431
===============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 45,681 $ 52,378 $ 48,511
Income taxes paid during the year 48,574 37,225 44,094
NONCASH INVESTING ACTIVITIES:
Liabilities assumed in connection with the acquisition of subsidiaries 2,548 3,889 3,944
Liabilities disposed of in connection with the sale of subsidiaries 87 -- 30,575
Common stock issued in connection with the acquisition of telephone
and cellular properties and employee benefits 1,571 1,398 2,257
===============================================================================================================================
<PAGE>
The accompanying notes are an integral part of these financial statements.
</TABLE>
PACIFIC TELECOM, INC.
28
- 49 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation -- The consolidated financial statements include
the accounts of Pacific Telecom, Inc. (PTI) and its subsidiaries (Company). The
equity method is used to account for those affiliated companies in which the
Company exerts significant influence through management agreements or ownership
of 20 to 50 percent. All appropriate intercompany transactions and balances have
been eliminated.
(b) Discontinued operations -- International Communications Holdings, Inc.
(ICH), the Company's international subsidiary, was shown as a discontinued
operation in the consolidated financial statements and notes through September
1993 (Note 12).
(c) Industry segmentation -- Although regulatory requirements impose
structural separation in its operations, the Company operates predominantly in
the telecommunications industry providing voice, data and video communication
services.
(d) Regulatory authorities -- The accounting policies of the Company are in
conformity with the requirements of the Federal Communications Commission (FCC)
and the regulatory agencies of the various states in which the Company operates.
(e) Telecommunications plant -- Telecommunications plant is stated at cost.
Additions to plant include direct costs and related indirect charges. At
December 31, 1993, telecommunications plant included $70,153,000 relating to
cellular franchises acquired. These assets are being amortized over 40 years.
Depreciation and amortization are provided using the straight-line method based
on the estimated service lives of the various classes of depreciable assets. The
composite depreciation rate for depreciable telecommunications plant was 6.6
percent in 1993, 7.1 percent in 1992 and 7.7 percent in 1991. The depreciation
rate decrease in 1993 is attributable to the sale of the transponders on the
Aurora II satellite in late 1992. The depreciation rate decrease in 1992 is
attributable to the addition of the Alaska Spur in late 1991, with a 25-year
life, and the effect of inside wiring being fully depreciated in 1991.
(f) Interest during construction -- In accordance with regulatory
requirements, the Company's regulated subsidiaries capitalize debt and equity
costs of funds applicable to their long-duration (one year or longer)
construction projects. In 1991, the majority of the interest capitalized related
to the construction of the North Pacific Cable system and the long lines
replacement satellite. There were no long-duration projects in 1992 or 1993.
(g) Cash and cash equivalents -- The Company considers all investments with
original maturities less than 90 days to be cash equivalents.
(h) Cost of acquisitions in excess of equity -- These costs are primarily
for franchises of local exchange companies acquired and goodwill established
with the retroactive adoption of Statement of Financial Accounting Standards
(SFAS) No. 109 "Accounting for Income Taxes" and are being amortized generally
over 40 years. Accumulated amortization of these costs at December 31, 1993 and
1992 was $26,891,000 and $18,645,000, respectively.
(i) Income taxes -- Effective January 1, 1993, the Company adopted SFAS
109. The statement prescribes the liability method of accounting for income
<PAGE>
taxes, which requires that deferred income taxes be provided for all differences
between the financial statement and tax bases of assets and liabilities.
Although the Company has historically provided deferred taxes on substantially
all items considered timing in nature under Accounting Principles Board No. 11
(the predecessor to SFAS 109), the Company has elected to restate certain prior
year balance sheet accounts to reflect the application of SFAS 109 to all items
not deemed temporary prior to the adoption of SFAS 109 (Note 9). Deferred income
taxes result primarily from differences between the financial statement and tax
bases of depreciable assets and certain acquired investments, as well as
employment related expenses not currently deductible. Excess deferred income
taxes on regulated assets and liabilities resulting from the decrease in federal
statutory rates under the Tax Reform Act of 1986, net of an increase arising
from the Revenue Reconciliation Act of 1993, are being amortized to income over
the composite book life of the related assets as required by regulatory
authorities. Investment tax credits relating to regulated telephone property,
plant and equipment have been deferred and are being amortized over the
estimated useful lives of the related assets.
(j) Inventory -- Inventory on the North Pacific Cable represents the
construction costs for the cable, which are carried at lower of cost or market
and charged to income on an average cost per unit basis as capacity in the cable
is sold. During 1993, inventory cost was reduced by approximately $19,200,000 as
a result of an agreement reached with the consortium that constructed the cable.
(k) Software capitalization -- The Company capitalizes initial operating
system software development costs, and expenses subsequent additions or
modifications to operating system software. The Company also capitalizes
application software that is purchased at a cost of $10,000 or more and with a
useful life in excess of one year.
PACIFIC TELECOM, INC.
29
- 50 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
(l) Revenue recognition -- The Company's subsidiaries participate with
other telephone companies in access revenue pools for certain interstate and
intrastate revenues, which are initially recorded based on estimates. Certain
long distance network service revenues are estimated under cost separations
procedures that base revenues on current operating costs and investments in
facilities to provide such services. All other revenues are recognized when
earned.
(m) Net income per common share -- Net income per common share is based on
the weighted average number of common shares outstanding during each of the
periods.
NOTE 2. TRANSACTIONS WITH RELATED PARTIES
Approximately 87 percent of the Company's outstanding common stock is
beneficially owned by PacifiCorp. The following is a summary of transactions
with PacifiCorp and various affiliates of the Company:
(a) Notes payable -- The Company has an agreement that permits temporary
cash advances to or from PacifiCorp Holdings, Inc. (PacifiCorp Holdings) at
short-term borrowing rates (Note 4). There were no borrowings from PacifiCorp
Holdings in 1993 or 1992. Interest expense on borrowings from PacifiCorp
Holdings was $62,000 in 1991. Interest income related to cash advances to
PacifiCorp Holdings was $53,000 in 1993, $115,000 in 1992 and $257,000 in 1991.
<PAGE>
(b) Accounts and notes receivable-affiliates -- These amounts generally
represent billings to affiliates for services provided by the Company, but in
1993 the amount represents primarily a tax refund receivable from PacifiCorp.
(c) Access expense -- The long lines subsidiary recognized approximately
$15,852,000 in 1993, $15,073,000 in 1992 and $12,721,000 in 1991 of interstate
and intrastate access expense related to the Company's local exchange companies
in Alaska. These amounts were recorded as network access service revenues by the
local exchange companies.
(d) Maintenance and backhaul -- The long lines subsidiary recognized
expenses totaling $3,019,000 in 1993, $2,736,000 in 1992 and $2,035,000 in 1991
for maintenance services on the Alaska Spur provided by the Company's cable
subsidiary. These amounts were included in plant support. The long lines
subsidiary also recorded lease expense of $643,000 in 1993, $566,000 in 1992 and
$346,000 in 1991 for the lease of backhaul circuits from the cable subsidiary.
These amounts were included in leased circuits expense. The cable subsidiary
recognized expenses totaling $1,843,000 in 1993, $1,957,000 in 1992 and
$1,140,000 in 1991 for restoration services provided by another PTI subsidiary.
These amounts were included in leased circuits expense. The rates charged for
this service are regulated by the FCC.
(e) Income taxes -- The Company participates with PacifiCorp in filing
consolidated income tax returns. The Company's income tax provisions are based
on a separate company calculation of income taxes.
(f) The Company rents its headquarters building from a 50 percent owned
partnership. Annual rent expense was $1,661,000 in 1993, 1992 and 1991.
(g) Space and power agreement -- The long lines subsidiary recognized
expenses totaling $571,000 in 1993, $484,000 in 1992 and $487,000 in 1991 for
the lease of space and power from a local exchange subsidiary. These amounts are
included in plant support expense.
PACIFIC TELECOM, INC.
30
- 51 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
NOTE 3. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993 1992
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C> <C>
2%-11.8% First mortgage notes payable under U.S. Government-sponsored
loan programs, maturities through 2028 $139,224 $138,213
9%-11.3% First mortgage notes, maturities through 1997 16,461 33,462
8%-12% Unsecured notes, maturities through 2007 24,913 28,441
8.75% Unsecured senior notes, maturities through 1996 18,000 24,000
5.4%-9.4% Unsecured medium-term notes, maturities through 2006 (a) 204,500 224,500
5.8% Unsecured term note, matures 1994 (a) 40,000 40,000
Unsecured revolving credit agreement (a) (b) -- 34,500
Commercial paper (a) -- 80,000
_______________________________________________________________________________________________________________________________
Total 443,098 603,116
Less current maturities 16,429 31,531
<PAGE>
_______________________________________________________________________________________________________________________________
Total long-term debt $426,669 $571,585
===============================================================================================================================
</TABLE>
(a) Based upon management's intent and the Company's ability to support the
debt on a long-term basis through its revolving credit agreement, all commercial
paper outstanding at December 31, 1992 and $34,500,000 of borrowings under the
revolving credit agreement were classified as long-term debt. The Company used
proceeds from the sale of IDB Communications Group, Inc. stock in November 1993
to repay the commercial paper and borrowings under the revolving credit
agreement (Note 12). At December 31, 1993, the Company classified $15,000,000 of
unsecured medium-term notes and the unsecured term note of $40,000,000, both
maturing in 1994, as long-term debt.
(b) On November 13, 1991, the Company entered into a $300,000,000 revolving
credit agreement. Borrowings under the revolving credit agreement bear interest
at rates based on bids from participating banks, certain prime rates, interbank
borrowing rates or certificate of deposit rates. The revolving credit agreement
has a three-year term originally ending in November 1994 that has been extended
through November 1995. It is renewable on a yearly basis upon consent of the
banks. Annual commitment fees on the revolving credit agreement are currently
.1875 percent of the total authorized amount. Available funds under the
revolving credit agreement at December 31, 1993 were $300,000,000.
At December 31, 1993, approximately $740,930,000 of telecommunications
plant in service was pledged as collateral under various loan agreements.
Certain agreements also contain provisions restricting the payment of cash
dividends. At December 31, 1993, consolidated retained earnings available for
dividends and other distributions was $195,901,000, all of which was available
from the retained earnings of subsidiaries.
Long-term debt maturing annually within each of the four years subsequent
to 1994 is as follows: 1995 -- $113,087,000; 1996 -- $11,685,000; 1997 --
$15,984,000; 1998 -- $28,506,000. Amounts maturing in 1995 include $55,000,000
of debt scheduled to mature in 1994 that the Company intends to refinance at
maturity on a long-term basis.
PACIFIC TELECOM, INC.
31
- 52 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
NOTE 4. SHORT-TERM DEBT
Short-term debt consisted of outstanding notes payable under borrowing
arrangements with various banks, other lenders and PacifiCorp Holdings (Note 2).
Information regarding short-term debt follows:
<TABLE>
<CAPTION>
At December 31 During the Year
___________________ ____________________________________
Average Average
Interest Maximum Average Interest
Balance Rate Outstanding Outstanding Rate
____________________________________________________________________________________________________________________________
(in thousands except percentages)
<PAGE>
<S> <C> <C> <C> <C> <C>
1993
NOTES PAYABLE -- BANKS $ 18,000 3.4% $165,844 $ 65,955 3.8%
NOTES PAYABLE -- OTHER 6,903 3.6 6,903 1,151 3.4
1992
Notes payable -- banks $ 71,066 3.9% $230,700 $162,750 4.2%
Notes payable -- other -- -- 7,903 4,223 4.1%
1991
Notes payable -- banks $226,465 5.3% $295,720 $230,782 6.7%
Notes payable -- PacifiCorp Holdings -- -- 7,000 943 6.6
Notes payable -- other 7,903 5.3 9,161 7,249 6.1
</TABLE>
The average interest rate is calculated by dividing the actual short-term
interest expense by the average daily weighted balance of short-term debt
outstanding for the year.
NOTE 5. PENSION PLAN
Substantially all employees of the Company, except those who are members of
the International Brotherhood of Teamsters and certain locals of the
International Brotherhood of Electrical Workers (IBEW), are covered under the
Company's pension plans. The plans provide benefits based upon an employee's
total years of service and compensation during the last 10 years of service. The
Company's policy is to fund annually up to the maximum amount of the unfunded
pension liability that can be deducted for federal income tax purposes. The
Company's unrecognized net asset resulting from the initial application of SFAS
No. 87 "Employer Accounting for Pensions", is being amortized over a 10-year
period ending in 1996. Net pension cost and funded status of the pension plans
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1993 1992 1991
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C>
Service cost of benefits earned $ 3,671 $ 4,066 $ 4,757
Interest cost on the projected benefit obligation 9,936 9,479 8,137
Actual gain on assets (11,272) (1,077) (23,004)
Net amortization and deferral (1,715) (4,793) 21,171
_______________________________________________________________________________________________________________________________
Total pension expense $ 620 $ 7,675 $ 11,061
===============================================================================================================================
Actuarial present value of benefit obligations:
Accumulated benefit obligation $119,505 $ 97,242 $ 86,368
===============================================================================================================================
Portion of accumulated benefit obligation vested $118,228 $ 96,308 $ 85,256
===============================================================================================================================
Projected benefit obligation $142,448 $123,714 $113,839
Plan assets at fair value, primarily listed stocks and bonds 138,683 120,525 123,190
_______________________________________________________________________________________________________________________________
Plan assets (less than) in excess of projected benefit obligation (3,765) (3,189) 9,351
Unrecognized net gain (136) (4,790) (9,339)
Unrecognized prior service (benefit) cost (2,477) 1,240 1,249
Unrecognized net asset remaining from initial application of SFAS No. 87 (8,282) (10,154) (12,027)
_______________________________________________________________________________________________________________________________
Pension liability at December 31 $(14,660) $(16,893) $(10,766)
<PAGE>
===============================================================================================================================
</TABLE>
PACIFIC TELECOM, INC.
32
- 53 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
Assumptions used to develop pension plan information were:
<TABLE>
<CAPTION>
1993 1992 1991
_______________________________________________________________________________________________________________________________
<S> <C> <C> <C>
Discount rate 7.5% 9.0% 9.0%(a)
Estimated long-term rate of return on assets 9.0% 9.0% 9.0%
Assumed rate of increase in compensation levels 5.0% 6.5% 6.5%
</TABLE>
(a) Discount rate used for the North-West pension plan in 1991 was 8.0%.
On January 1, 1993, the North-West pension plan was merged with the
Company's plan. Due to differences in the plans' provisions, the net
unrecognized prior service cost was reduced by $3,990,000.
In the fourth quarter of 1991, the Company offered an early retirement
program to certain employees of its long lines subsidiary in Alaska and certain
corporate employees. In 1991, the Company recognized an expense of $6,710,000
related to this early retirement program.
In the fourth quarter of 1991, members of the IBEW who are employees of the
Company's Alaska local exchange companies elected to leave the Company's pension
plan and enter the IBEW pension plan. A curtailment gain of $2,119,000 relating
to the IBEW members in Alaska is being amortized over the life of the contract
to offset pension costs the Company now pays to the IBEW.
In the fourth quarter of 1992, the Company offered another early retirement
program to an additional group of corporate employees and employees of certain
local exchange companies. In 1992, the Company recognized an expense of
$7,331,000 relating to this early retirement program.
The Company participates in PacifiCorp's K Plus Employee Stock Ownership
and Savings Plan. Under this plan, eligible employees may elect to contribute a
portion of their pay, within specified limits, to the Plan. The Company makes a
matching contribution of 50 percent of the employee's elective contribution.
Employee elective contributions subject to matching are limited to six percent
of pay. In addition, the Company makes a fixed contribution of two percent of
pay per year. The costs to the Company for these contributions in 1993, 1992 and
1991 were $2,838,000, $2,943,000 and $3,051,000, respectively. The Company and
PacifiCorp also have long-term incentive plans for certain executive employees
of the Company. Participants receive shares of the Company's common stock, plus
dividend equivalents in cash based on performance of the companies. The costs to
the Company for this benefit amounted to $734,000, $78,000 and $1,364,000 in
1993, 1992 and 1991, respectively.
In 1993, the Company adopted the Non-Employee Directors' Stock Compensation
Plan. Directors who are employees of the Company, its parent company, its
subsidiaries or any affiliated companies are not eligible to participate. The
participants' interests in the plan vest at 20 percent per year. The Company
recognized a total cost for this plan of $640,000 in 1993, which includes past
<PAGE>
service costs of $602,000.
NOTE 6. OTHER POSTRETIREMENT BENEFITS
The Company provides health care and life insurance benefits to eligible
retired employees. Substantially all employees of the Company, except those who
are members of the International Brotherhood of Teamsters, are covered under the
Company's postretirement health care and life insurance plans. The
postretirement health care and life insurance plans are noncontributory.
Generally, the health care plan pays stated percentages of most medical
expenses, reduced for any deductible and payments made by government programs.
Effective January 1, 1993, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." Under SFAS 106, the
Company must recognize the cost of postretirement benefits over the active
service period of its employees. The Company's policy is to fund annually the
maximum amount of postretirement benefit expense that can be deducted for
federal income tax purposes. In 1993, the Company funded a total of $5,703,000
into a 401(h) and a VEBA trust. The Company will recognize the transition
obligation, which represents the previously unrecognized prior service cost,
over a period of 20 years. At January 1, 1993, the Company had a transition
obligation of $38,356,000.
PACIFIC TELECOM, INC.
33
- 54 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
The net funded status for the combined plans is shown below at December 31,
1993 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $40,601
Fully eligible active plan participants 11,080
Other active plan participants 25,262
_______________________________________________________________________________________________________________________________
APBO 76,943
Plan assets at fair value, primarily listed stocks and bonds (8,682)
_______________________________________________________________________________________________________________________________
APBO in excess of plan assets 68,261
Unrecognized transition obligation (36,438)
Unrecognized prior service cost 742
Unrecognized net loss from changes in assumptions (13,419)
_______________________________________________________________________________________________________________________________
Accrued postretirement benefit cost $19,146
===============================================================================================================================
</TABLE>
Net periodic postretirement benefit cost for the year ended December 31,
1993 included the following components (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Service cost $1,835
<PAGE>
Interest cost on accumulated postretirement benefit obligation 5,055
Actual return on plan assets (233)
Amortization of transition obligation over 20 years 1,918
Net amortization and deferral 77
_______________________________________________________________________________________________________________________________
Net periodic postretirement benefit cost $8,652
===============================================================================================================================
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent. The expected long-term rate
of return on plan assets was nine percent. The assumed health care cost trend
rates were 14 percent, with decreases of one percent per year over nine years
and remaining at five percent thereafter for participants under 65 years of age
and 10 percent, with decreases of .56 percent per year over nine years and
remaining at five percent thereafter for participants over 65 years of age. The
health care cost trend rate assumptions have a significant effect on the amount
reported. Increasing the assumed health care cost trend rate by one percentage
point would increase the postretirement benefit obligation as of December 31,
1993 by $1,970,000, and the annual net periodic postretirement benefit costs
from continuing operations by $381,000.
NOTE 7. INVESTMENTS
The investment balances included interest bearing advances of $5,241,000
and $4,071,000 at December 31, 1993 and 1992, respectively, and are summarized
as follows:
<TABLE>
<CAPTION>
December 31, 1993 1992
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C> <C>
Equity investments:
Cellular partnerships $ 32,349 $ 29,778
Other equity investees 1,317 1,204
Cost investments:
Cellular partnerships 54,459 58,872
Other (a) 17,693 11,815
_______________________________________________________________________________________________________________________________
$105,818 $101,669
===============================================================================================================================
</TABLE>
(a) Other cost investments increased mainly due to the construction
contract relating to the purchase of telephone exchanges in Colorado (Note 11).
PACIFIC TELECOM, INC.
34
- 55 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
<PAGE>
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
_______________________ _______________________
CARRYING ESTIMATED Carrying Estimated
December 31, AMOUNT FAIR VALUE Amount Fair Value
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C>
Cash and temporary investments and net trade accounts (a) $ 55,625 $ 55,625 $ 69,496 $ 69,496
Investments at cost (Note 7) (b) 72,152 73,648 70,687 74,183
Long-term debt and notes payable (Notes 3 and 4) (c) 468,001 487,115 674,182 690,970
</TABLE>
(a) The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) The fair value of the cellular properties held as cost investments is
based on an individual analysis of each property, including published
information on recent sales of the same or similar properties, appraisals from
external parties and cash flow modeling. The fair values of the other
investments are estimated based on quoted market prices for these or similar
investments, or the investment's ability to return cash to the Company through
operations or through the sale of the investment.
(c) The fair value of the Company's long-term debt is estimated using the
discounted cash flow method based on the quoted market rates and prices for the
same or similar issues of the same remaining maturities. The discount rate is
determined using U.S. Treasury rates plus the average spread for the Company
quoted by several dealers. Prepayment penalties and other costs of debt
retirement are not reflected in these estimates.
The fair value of the interest rate swap agreement, obtained from the
counterparty of the swap agreement, was a net payable position of $2,904,000 at
December 31, 1993 and $2,844,000 at December 31, 1992. These values represent
the estimated amount the Company would pay to terminate the agreement at the
present time, taking into consideration current interest rates and the current
credit-worthiness of the counterparty.
NOTE 9. INCOME TAXES
The Company's effective combined state and federal income tax rate was 28.8
percent in 1993, 32.6 percent in 1992 and 25.7 percent in 1991. The difference
between taxes calculated as if the statutory federal tax rate of 35 percent (34
percent for 1992 and 1991) was applied to pretax income and the recorded tax
expense is due to the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rates $29,016 $33,923 $40,945
State income taxes 3,185 8,159 4,452
Federal benefit of state income taxes (1,115) (2,774) (1,514)
Amortization of investment tax credits (4,795) (5,441) (6,299)
Amortization of excess deferred income taxes (2,128) (3,755) (3,800)
Amortization of cost of acquisitions in excess of equity 1,994 1,486 1,477
<PAGE>
Other (2,311) 928 (4,368)
_______________________________________________________________________________________________________________________________
Recorded tax expense $23,846 $32,526 $30,893
===============================================================================================================================
Income tax expense for continuing operations consisted of:
Taxes currently provided $27,600 $39,208 $49,198
Deferred income taxes 1,041 (1,241) (12,006)
Investment tax credits, net (4,795) (5,441) (6,299)
_______________________________________________________________________________________________________________________________
$23,846 $32,526 $30,893
===============================================================================================================================
</TABLE>
Due to the regulatory nature of a substantial portion of the Company's
business, most of the increase in deferred tax expense resulting from the
federal income tax rate change from 34 percent to 35 percent, as enacted in the
Revenue Reconciliation Act of 1993, is reflected as a reduction in the
amortization of excess deferred income taxes in the current and future years.
PACIFIC TELECOM, INC.
35
- 56 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
Prior to adopting SFAS 109, the Company had not provided deferred income
taxes relating to the deduction of certain construction related expenses. The
Company has recorded additional deferred income taxes together with a regulatory
asset (included in deferred charges) representing the expected increase in
revenues necessary to pay taxes upon the future reversal of previously flowed
through tax benefits.
In addition, the Company has recorded a decrease in deferred income taxes
associated with the unamortized balance of excess deferred income taxes
resulting from the reduction in the federal income tax rate from 46 percent to
35 percent and the unamortized balance of deferred investment tax credits. A
corresponding regulatory liability (included in other long-term liabilities) has
been recorded to reflect the reduction in revenues expected to occur from the
future pass through of these benefits.
For certain acquisitions occurring between 1990 and 1992, the Company
assigned a portion of the acquisition price to the acquired company's interest
in partnerships operating cellular service areas. The amount so assigned is
treated as a temporary difference under SFAS 109. In applying SFAS 109 to those
acquisitions, the Company has restated certain prior year balance sheet amounts
by recording additional deferred income taxes with a corresponding increase in
the cost of acquisitions in excess of equity.
The restatement of December 31, 1992 balances resulting from the adoption of
SFAS 109 is as follows (in thousands):
<TABLE>
<CAPTION>
Deferred
Regulatory Cost in Income Regulatory
Asset Excess Taxes Liability
<S> <C> <C> <C> <C>
As previously reported at December 31, 1992 $ -- $162,856 $ 90,256 $ --
<PAGE>
Adjusted for SFAS 109 10,495 46,337 23,633 33,199
_______________________________________________________________________________________________________________________________
As restated at December 31, 1992 $ 10,495 $209,193 $113,889 $ 33,199
===============================================================================================================================
</TABLE>
The effect of SFAS 109 on prior years' income tax expense was not material
and, therefore, previously reported amounts have not been restated.
The deferred tax assets and liabilities recorded on the balance sheets as
of December 31, 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
__________________________ __________________________
DEFERRED TAX DEFERRED TAX Deferred Tax Deferred Tax
ASSETS LIABILITIES Assets Liabilities
_______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Depreciation differences $ -- $126,476 $ -- $120,474
Accrued pension and employment benefits 12,820 -- 13,031 --
Cellular acquisition adjustments -- 50,609 -- 46,337
Valuation adjustments and sale of subsidiaries' stock 8,116 -- 7,869 --
Other 15,269 -- 32,022 --
_______________________________________________________________________________________________________________________________
$36,205 $177,085 $52,922 $166,811
===============================================================================================================================
Current tax assets $12,575 $ -- $12,786 $ --
Noncurrent tax liabilities $ -- $153,455 $ -- $126,675
</TABLE>
PACIFIC TELECOM, INC.
36
- 57 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
NOTE 10. LEASE AND MAINTENANCE ARRANGEMENTS
The Company's operating lease and maintenance agreements relate to the use
of headquarters buildings, data processing and customer premise equipment,
satellite transponders, terrestrial communications circuits and cable
maintenance and backhaul. These agreements generally contain provisions or
options to renew the agreements at fair market rental rates. In October 1992,
the Company's 16 transponders on the Aurora II satellite were sold and leased
back under an operating lease agreement. Annualized lease expense through July
1998 will be approximately $11,549,000. At the end of the lease, the Company has
the option of either repurchasing the satellite or guaranteeing a minimum sales
price to a non-affiliated party. The Company has no material capital lease
obligations at this time. Under these noncancellable operating lease and
maintenance agreements, minimum annual rental commitments are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<PAGE>
_______________________________________________________________________________________________________________________________
(in thousands)
<S> <C>
1994 $ 33,817
1995 31,208
1996 30,028
1997 28,627
1998 47,303
1999 and beyond 65,903
_______________________________________________________________________________________________________________________________
Total minimum lease and maintenance payments $236,886
===============================================================================================================================
</TABLE>
Rent expense, net of sublease rental revenues of $225,000, $50,000 and
$138,000 in 1993, 1992 and 1991, respectively, approximated $45,744,000 in 1993,
$33,352,000 in 1992 and $38,325,000 in 1991.
The Company has an agreement for the provision of satellite telemetry,
tracking, control and protection services for approximately $5,747,000 per year
beginning in 1992 and terminating in 2001.
NOTE 11. COMMITMENTS AND CONTINGENCIES
In August 1993, the Company signed a definitive agreement with US WEST
Communications, Inc. (USWC) under which the Company has agreed to purchase
certain telephone exchange properties in Colorado for approximately
$207,000,000, subject to a purchase price adjustment mechanism, based
principally on the estimated book value of the assets to be acquired. Current
estimates of book value indicate that the purchase price may be less than $207
million. Completion of this transaction will be dependent upon appropriate
regulatory approvals, expected to be received in the latter part of 1994.
Expenditures under the Company's 1994 construction and capital expenditure
program are expected to approximate $123,800,000. Additionally, the Company
entered into a construction contract with USWC in July 1993 that requires the
Company to construct and upgrade plant in the properties that the Company has
agreed to purchase from USWC. Under the contract, the Company acts as general
contractor for USWC. The construction and upgrade program will accelerate
single-party service and digital switching required by the Colorado Public
Utilities Commission. During 1993, the Company spent $5,700,000 under this
contract. Projected expenditures for 1994 are approximately $28,000,000. If the
transaction does not close, USWC is required to reimburse the Company for all of
the Company's expenditures under the construction contract including interest.
There are currently no long-term construction projects underway.
As of December 31, 1993, the Company had 209,705 shares of common stock
reserved for issuance under its profit sharing and savings plan.
The Company is a party to various legal claims, actions and complaints.
Although the ultimate resolution of legal proceedings cannot be predicted with
certainty, management believes that disposition of these matters will not have a
material adverse effect on the Company's consolidated results of operations.
PACIFIC TELECOM, INC.
37
- 58 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
<PAGE>
NOTE 12. DISCONTINUED OPERATIONS
In January 1993, the Company signed an agreement to sell TRT
Communications, Inc. (TRT), a wholly-owned subsidiary of ICH, to IDB
Communications Group, Inc. (IDB). ICH had been reported as a discontinued
operation for financial statement reporting purposes.
On September 23, 1993, the Company completed the sale of TRT and a smaller
subsidiary to IDB for 4,500,000 shares of IDB common stock and $1,000,000 in
cash. Based on the market value of IDB stock at closing, the Company recognized
an after-tax gain from discontinued operations of $60,444,000, or $1.53 per
share, on the sale. The market value of the IDB stock increased during 1993. The
IDB common stock was registered and sold in a secondary public offering in
November 1993 and the Company received $45 per share before commissions and
expenses.
The results of operations in 1992 include an after-tax loss from
discontinued operations of $45,741,000, or $1.16 per share, of which $10,431,000
represents the 1992 operating losses of ICH and $35,310,000 represents a
valuation adjustment resulting from the agreement with IDB. The valuation
adjustment was based on the market value of IDB stock at the time the agreement
was signed in January 1993, adjusted for closing costs and fluctuations in IDB's
stock price. The Company recorded an after-tax loss from discontinued operations
of $8,431,000, or $.22 per share, in 1991. The Company has recorded tax expense
of $26,011,000 in 1993 and tax benefits of $22,800,000 in 1992 and $6,269,000 in
1991 relating to the discontinued operations of ICH.
NOTE 13. SALE OF SUBSIDIARIES AND INVESTMENTS
In October 1993, the Company agreed to sell PTI Harbor Bay, Inc. and
Upsouth Corporation to IntelCom Group, Inc. The net assets of these subsidiaries
of $13,941,000 are being shown in other current assets until the sale closes,
which is expected to occur in the first half of 1994.
In September 1993, the Company sold a cellular property which resulted in
proceeds of $2,183,000 and an after-tax gain of $827,000.
In March 1992, the Company sold its minority ownership interest in Catalina
Marketing Corporation, a company that develops, markets, installs and maintains
electronic scanner software and equipment for point of sale coupon distribution.
The Company received cash proceeds of $26,247,000 and recognized an after-tax
gain of $13,452,000 on the sale.
During 1992, the Company sold or transferred several cellular properties.
These transactions resulted in proceeds of $9,556,000 and after-tax gains of
$4,289,000.
On September 10, 1991, the Company sold its wholly-owned subsidiary, T.U.
International, Inc. (TUI). TUI through its wholly-owned subsidiary, CIDCOM S.A.,
provides mobile radio telephone service and cellular telephone service in parts
of Chile. The Company recognized a $17,419,000 after-tax gain on the sale.
In December 1991, the Company sold its wholly-owned cellular subsidiary in
Colorado for $5,600,000 in cash. The Company also concluded a cellular ownership
exchange in Idaho during 1991. After-tax gains of $3,726,000 were recognized on
these transactions.
PACIFIC TELECOM, INC.
38
- 59 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
______
<PAGE>
NOTE 14. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Dec. 31 Sept. 30 June 30 March 31
_______________________________________________________________________________________________________________________________
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
1993
OPERATING REVENUES $178,828 $182,924 $176,237 $171,070
OPERATING INCOME 37,749 36,383 34,341 32,344
INCOME FROM CONTINUING OPERATIONS 16,836 14,034 13,987 14,201
NET GAIN FROM DISCONTINUED OPERATIONS -- 60,444 -- --
NET INCOME 16,836 74,478 13,987 14,201
INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS .43 .35 .35 .36
NET INCOME PER COMMON SHARE .43 1.88 .35 .36
1992
Operating revenues $186,312 $182,293 $169,699 $166,225
Operating income 38,617 34,572 33,590 31,864
Income from continuing operations 19,619 14,672 11,853 21,104
Net loss from discontinued operations (39,241) (6,500) -- --
Net income (loss) (19,622) 8,172 11,853 21,104
Income per common share from continuing operations .50 .37 .30 .53
Net income (loss) per common share (.50) .21 .30 .53
===============================================================================================================================
</TABLE>
Net income from discontinued operations in the third quarter of 1993
resulted from the sale of TRT and a smaller subsidiary to IDB (Note 12). The
year 1993 included $2,327,000 of after-tax valuation adjustments in the third
quarter and $2,497,000 of after-tax valuation adjustments in the fourth quarter
for certain noncore businesses.
The first quarter of 1992 included a $13,452,000 after-tax gain from the
sale of a minority ownership interest in Catalina Marketing Corporation and
$4,200,000 of after-tax valuation adjustments for certain noncore businesses.
The fourth quarter included after-tax gains of $3,294,000 relating to cellular
property transactions and $1,155,000 resulting from a sale of 11 percent of the
Alaska Spur capacity. The fourth quarter also included $5,966,000 of after-tax
valuation adjustments for certain noncore businesses.
Net losses from discontinued operations in the third and fourth quarters of
1992 resulted from adjustments to the carrying value in ICH as described in Note
12.
PACIFIC TELECOM, INC.
39
- 60 -
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of Pacific Telecom, Inc.:
We have audited the accompanying consolidated balance sheets of Pacific
Telecom, Inc. and its subsidiaries as of December 31, 1993 and 1992, and the
<PAGE>
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements represent fairly, in
all material respects, the financial position of Pacific Telecom, Inc. and its
subsidiaries at December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 6 and 9 in the consolidated financial statements, the
Company changed its method of accounting for other postretirement benefits and
income taxes in the year ended December 31, 1993.
Deloitte & Touche
Portland, Oregon
January 26, 1994
REPORT OF MANAGEMENT
The management of Pacific Telecom, Inc. is responsible for preparing the
accompanying consolidated financial statements and for their integrity and
objectivity. These financial statements were prepared in accordance with
generally accepted accounting principles applied on a consistent basis and
include amounts that are based on management's best estimates and judgment.
Management also prepared the other information in this Annual Report and is
responsible for its accuracy and consistency with the financial statements.
Management of the Company maintains internal control systems that provide
reasonable assurance that assets are safeguarded, business is conducted in
accordance with management's authorization, transactions are properly recorded
and the financial statements are reliable. The Company also maintains a staff of
professional internal auditors whose responsibilities include monitoring the
effectiveness of the internal control system in coordination with the
independent accountants.
Management recognizes its responsibility to foster a strong ethical climate
to ensure the Company's affairs are conducted according to the highest standards
of personal and corporate conduct. The Company's published "Principles of
Business Conduct" policy addresses the necessity of ensuring open communication
within the corporation, avoiding potential conflicts of interest, complying with
all domestic and foreign laws, including those relating to financial reporting
and maintaining the confidentiality of proprietary information.
The Audit Committee of the Board of Directors, composed solely of outside
directors, meets periodically with the independent accountants, internal
auditors and management to review the scope of work scheduled and the results of
work completed. The independent accountants and internal auditors have free
access to the Audit Committee, without management present, to discuss the
results of their work and their evaluations of the adequacy of internal controls
and the quality of financial reporting.
Charles E. Robinson James H. Huesgen
Chairman, President Executive Vice President
<PAGE>
and Chief Executive Officer and Chief Financial Officer
PACIFIC TELECOM, INC.
40
- 61 -
COMMON STOCK PRICES/DIVIDENDS
PRICE RANGE FOR QUARTERS ENDED
(Source: NASDAQ)
<TABLE>
<CAPTION>
Sale Price
_____________________________________
1993 1992
HIGH LOW High Low
_______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
FIRST QUARTER $24-3/4 $22-1/2 $25-3/4 $23-3/4
SECOND QUARTER 24 21 24-3/4 21-1/4
THIRD QUARTER 28-3/4 23 26 23
FOURTH QUARTER 28-1/2 24-1/2 26 22-1/2
______________________________________________________________________________________________________________________________
</TABLE>
Pacific Telecom's common stock is traded over-the-counter under NASDAQ symbol
PTCM. As of December 31, 1993, there were 4,435 holders of record of the
Company's common stock.
CASH DIVIDEND PAYMENT DATES
<TABLE>
<CAPTION>
Per Per
Share Share
_______________________________________________________________________________________________________________________________
<S> <C> <S> <C>
MARCH 1, 1993 $.33 March 2, 1992 $.315
JUNE 7, 1993 $.33 June 1, 1992 $.33
SEPTEMBER 6, 1993 $.33 August 31, 1992 $.33
DECEMBER 6, 1993 $.33 November 30, 1992 $.33
_______________________________________________________________________________________________________________________________
</TABLE>
LIST OF COMPANIES
<TABLE>
<CAPTION>
<S> <C> <C>
LOCAL EXCHANGE OPERATIONS ALASKA LONG DISTANCE
Alaska Division: Midwest Region: Alascom
Telephone Utilities of Alaska Casco Telephone CELLULAR TELEPHONE
Telephone Utilities of the Northland Footville Telephone Pacific Telecom Cellular
Northland Telephone OTHER COMPANIES
Western Region: North-West Telephone Bay Area Teleport*
Eagle Telecommunications Postville Telephone Cascade Autovon
Gem State Utilities Shell Lake Telephone PTI Broadcasting
Inter Island Telephone Sullivan Telephone Pacific Telecom Cable
<PAGE>
Northwestern Telephone Systems Thorp Telephone Pacific Telecom Transmission Services
Telephone Utilities of Eastern Oregon Turtle Lake Telephone Upsouth*
Telephone Utilities of Oregon Wayside Telephone
Telephone Utilities of Washington
Telephone Utilities of Wyoming
</TABLE>
In addition to the above, the Company owns investment positions in other
enterprises.
*Sale pending
PACIFIC TELECOM, INC.
41
- 62 -
<PAGE>
EXHIBIT 2
AGREEMENT FOR
PURCHASE AND SALE
OF EXCHANGES
DATED AS OF AUGUST 30, 1993
BETWEEN
EAGLE TELECOMMUNICATIONS, INC./COLORADO
A Wholly-owned Subsidiary of Pacific Telecom, Inc.
AND
U S WEST COMMUNICATIONS, INC.
<PAGE>
TABLE OF CONTENTS
RECITALS
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Sale and Transfer . . . . . . . . . . . . . . . . . . . . . 1
_________________
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . 1
______________
1.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
_______
1.4 Appraisal of the Assets. . . . . . . . . . . . . . . . . . . 2
_______________________
1.5 Allocation of the Purchase Price . . . . . . . . . . . . . . 2
________________________________
1.6 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
_____
1.7 Special Rebate . . . . . . . . . . . . . . . . . . . . . . . 3
______________
1.8 Construction Contract. . . . . . . . . . . . . . . . . . . . 3
_____________________
1.9 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . 4
________
ARTICLE 2
CLOSING
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
_______
2.2 Documents to be Delivered by Seller to Buyer . . . . . . . . 3
____________________________________________
2.3 Documents to be Delivered by Buyer to Seller . . . . . . . . 4
____________________________________________
2.4 Documents to be Delivered by Seller and Buyer
_____________________________________________
to Each Other. . . . . . . . . . . . . . . . . . . . . . . . 4
_____________
2.5 Further Assurance. . . . . . . . . . . . . . . . . . . . . . 4
_________________
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. . . . . . . . . . . . . . 5
__________________________________
3.2 Conditions to Seller's Obligations . . . . . . . . . . . . . 6
__________________________________
ARTICLE 4
ENVIRONMENTAL CONDITION; ASSETS "AS IS"
4.1 Central Office; Asbestos, Hazardous Materials. . . . . . . . 7
_____________________________________________
4.2 Outside Plant. . . . . . . . . . . . . . . . . . . . . . . . 8
_____________
4.3 DISCLAIMER OF WARRANTIES . . . . . . . . . . . . . . . . . . 9
________________________
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Buyer's Representations and Warranties . . . . . . . . . . . 9
______________________________________
5.2 Seller's Representations and Warranties. . . . . . . . . . . 11
_______________________________________
ARTICLE 6
COVENANTS
6.1 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . 12
__________________
6.2 Covenant of Seller . . . . . . . . . . . . . . . . . . . . . 13
__________________
6.3 Mutual Covenants . . . . . . . . . . . . . . . . . . . . . . 15
________________
I
<PAGE>
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Buyer . . . . . . . . . . . . . . . . . . 16
________________________
7.2 Buyer's Indemnification Threshold. . . . . . . . . . . . . . 17
_________________________________
7.3 Indemnification by Seller. . . . . . . . . . . . . . . . . . 17
_________________________
7.4 Seller's Indemnification Threshold . . . . . . . . . . . . . 17
__________________________________
7.5 Maximum Amount . . . . . . . . . . . . . . . . . . . . . . . 17
______________
7.6 Time Limitation. . . . . . . . . . . . . . . . . . . . . . . 17
_______________
7.7 Notice of Claims . . . . . . . . . . . . . . . . . . . . . . 18
________________
7.8 Defense by Indemnifying Party. . . . . . . . . . . . . . . . 18
_____________________________
7.9 Manner of Indemnification. . . . . . . . . . . . . . . . . . 19
_________________________
7.10 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 19
________
7.11 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . 19
_________
ARTICLE 8
TERMINATION
8.1 Termination By Buyer . . . . . . . . . . . . . . . . . . . . 19
____________________
8.2 Termination By Seller. . . . . . . . . . . . . . . . . . . . 19
_____________________
8.3 Termination By Buyer or Seller . . . . . . . . . . . . . . . 20
______________________________
8.4 Effect of Termination. . . . . . . . . . . . . . . . . . . . 20
_____________________
8.5 Reimbursement for Costs. . . . . . . . . . . . . . . . . . . 20
_______________________
ARTICLE 9
POST CLOSING MATTERS
9.1 Post Closing . . . . . . . . . . . . . . . . . . . . . . . . 20
____________
ARTICLE 10
ARBITRATION
10.1 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
______
10.2 Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
_____
10.3 No Discovery; Damages; Expenses. . . . . . . . . . . . . . . 21
_______________________________
10.4 Judicial or Administrative Action. . . . . . . . . . . . . . 22
_________________________________
ARTICLE 11
GENERAL
11.1 Time of the Essence. . . . . . . . . . . . . . . . . . . . . 22
___________________
11.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 22
_______
11.3 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 22
_______
11.4 Commissions. . . . . . . . . . . . . . . . . . . . . . . . . 23
___________
11.5 Payment of Expenses. . . . . . . . . . . . . . . . . . . . . 23
___________________
11.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 23
________
11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 23
____________
11.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . 23
______________________
11.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 23
__________
11.10 Additional Instruments and Assistance. . . . . . . . . . . . 24
_____________________________________
11.11 Seller's Control Over Authorized Facilities. . . . . . . . . 24
___________________________________________
11.12 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 24
_____________
11.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . 24
____________
11.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 24
__________
11.15 No Construction Against the Drafting Party . . . . . . . . . 24
__________________________________________
11.16 Integration. . . . . . . . . . . . . . . . . . . . . . . . . 24
___________
II
<PAGE>
AGREEMENT FOR PURCHASE AND SALE OF EXCHANGES
This Agreement for Purchase and Sale of Exchanges ("Agreement") is made
_________
and entered into as of the 30th day of August, 1993, by and among U S WEST
Communications, Inc., a Colorado corporation ("Seller"), Eagle
______
Telecommunications, Inc./Colorado, a corporation organized and existing under
the laws of the State of Colorado, a wholly-owned subsidiary of Pacific
Telecom, Inc. ("Buyer") and Pacific Telecom Inc., ("PTI").
_____
RECITALS
A. Seller currently owns certain assets used to provide wireline
telecommunication services in Colorado, pursuant to a grant of operating
authority issued by the State of Colorado, which have been offered for
sale.
B. Buyer desires to purchase Seller's assets in the telephone exchanges,
listed in Exhibit A, in the State of Colorado (the "Exchanges"), and
Seller wishes to sell, assign and transfer the aforesaid assets in the
Exchanges to Buyer.
C. Each defined term shall have the meaning set forth in this Agreement
where such term is first used or, if no definition is so set forth, the
meaning set forth in the "Glossary of Terms," attached hereto and
incorporated herein by this reference.
NOW, THEREFORE, for and in consideration of the foregoing and the mutual
covenants and agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Seller and Buyer agree as follows:
ARTICLE
PURCHASE AND SALE OF ASSETS
1.1 Sale and Transfer. Upon the terms and subject to the conditions
_________________
hereinafter set forth, Seller agrees to sell, convey, transfer, assign and
deliver all of the assets, except for the Excluded Assets, which are located
within the Exchanges and those assets which have been mutually agreed upon by
Seller and Buyer, all of which are set forth in Schedule 1.1 (the "Assets"),
and Buyer agrees to purchase and receive the Assets from Seller.
The term "Excluded Assets" shall have the meaning set forth in the
Glossary of Terms.
1.2. Purchase Price. Buyer shall pay Seller, as consideration for
______________
the Assets, a Total purchase price of $207,100,000.00 (the "Purchase Price"),
which Purchase Price shall be adjusted pursuant to Section 1.3(C).
1
<PAGE>
1.3 Payment. The Purchase Price shall be paid as follows:
_______
A. Earnest Money. On the execution date of this Agreement or
_____________
three (3) business days thereafter, Buyer shall deposit, in a financial
institution acceptable to Seller, an amount equal to Four Million Dollars
($4,000,000) in the form of a wire transfer of federal funds payable to the
order of Seller, for disposition in accordance with the terms of this Section.
At Closing, the earnest money and interest accrued thereon, shall be applied
towards the payment of the Purchase Price. In the event Buyer fails to
finalize the transaction for any reason, except as set forth in Sections 8.1
or 8.3(ii), and in view of the difficulty of determining the amount of damages
which may result to Seller from such failure to finalize the Agreement, Buyer
and Seller have mutually agreed that the earnest money shall be delivered to
Seller as liquidated damages, and not as a penalty, and this Agreement shall
thereafter become null and void. In the event Seller fails to finalize the
transaction, except as set forth in Sections 3.2 or 8.2, then Seller shall,
as soon as reasonably practicable thereafter and upon Buyer providing
reasonable proof thereof, reimburse Buyer for all of its reasonable costs and
fees incurred from and after August 23, 1993, not to exceed one hundred
thousand dollars ($100,000), in negotiating and seeking Governmental Approval
for this transaction, and this Agreement will thereafter become null and void.
In the event the transaction is not finalized for reasons set forth in Section
8.1 and/or 8.3(ii), Buyer shall receive the earnest money and interest accrued
thereon.
B. Remaining Balance. On the Closing Date, the Purchase Price
_________________
of $207,100,000.00, minus the earnest money and interest earned thereon plus
or minus the estimated Adjustment Factor as defined in Section 1.3(C)(i) shall
be payable to Seller, by wire transfer of immediately available funds to such
bank account(s) as Seller shall designate prior to Closing.
C. Adjustment to the Purchase Price.
________________________________
(i) Estimated Adjustment. From the last month end prior
____________________
to the Closing, Seller shall provide Buyer with the then current Net Book
Value of the Assets which shall be the basis for the estimated Purchase Price
to be paid at Closing. The Purchase Price shall be adjusted in accordance
with the following methodology ("Estimated Adjustment Factor"):
(a) 1.15 times all capital spending made outside
of any SOW(s) from year end 1992 through Closing, plus
(b) 1.0 times the Accounts Receivable, plus
(c) 1.0 times any proration for taxes, utilities,
leases and such other items as shall be mutually agreed to, plus or minus
(d) 1.61 times any other increases or decreases in
Net Book Value of the Assets resulting from corrections in the identification
of the Assets, reasonable, extraordinary and/or customary accounting
<PAGE>
adjustments made by Seller and/or adjustments required by Governmental
Authorities to the Net Book Value of the Assets at/or prior to Closing, minus
2
<PAGE>
(e) 1.15 times all book depreciation expenses
related to the Assets as identified and calculated in a manner consistent with
Schedule 1.1 from year end 1992 through Closing.
(ii) True-Up Adjustment. Sixty (60) days after Closing,
__________________
a true-up of the Estimated Adjustment Factor shall be made based on the
Closing Report required by Section 6.2(G). Such true-up amount will be paid
within 45 days thereafter in immediately available funds by Buyer, to Seller
to the extent that the actual adjustment calculated in a manner consistent
with Section 1.3(C)(i) ("Actual Adjustment Factor") is greater than the
Estimated Adjustment Factor. Such true-up amount will be paid within 45 days
thereafter in immediately available funds by Seller to Buyer to the extent
that the Actual Adjustment Factor is less than the Estimated Adjustment
Factor.
1.4 Appraisal of the Assets. The Buyer and Seller have mutually
_______________________
agreed to the appraised value of the depreciable tangible Assets as set forth
in Schedule 1.4.
1.5 Allocation of the Purchase Price. The Purchase Price for the
________________________________
Assets, the covenants set forth in Section 6.2(I), and any certificate of
public convenience and necessity or grant of operating authority (which
includes, but is not limited to all applicable state and federal certificates,
licenses, or franchises necessary for operating the Business) shall be
allocated as mutually agreed upon between Buyer and Seller no later than 60
days after Closing. In addition, it is understood and agreed between Buyer
and Seller that the Purchase Price for the Assets reflects among other things
the availability of additional revenue sources (excluding those amounts
obtained under traditional regulatory practices) to support the operation of
the Exchanges. Such allocation shall provide, by line item, proration for
taxes, utilities, leases, and such other items as shall be mutually agreed to
between Buyer and Seller.
1.6 Taxes. Buyer shall pay any and all sales, use or other transfer
_____
taxes ("Sales Tax") recording fees, notarial fees and other similar costs of
Closing incurred in connection with the sale, transfer, or assignment of the
Assets or otherwise on account of this Agreement or the transaction
contemplated hereby.
1.7 Special Rebate. Notwithstanding any other provision of this
______________
Agreement, Seller agrees to rebate to Buyer a portion of the Purchase Price
measured by the amount that the actual Sales Tax paid to Governmental
Authorities by Buyer pursuant to this Agreement, exceeds $2 million. The
total rebate of the Purchase Price to be paid by Seller to Buyer shall not
exceed the next $4 million of Sales Tax.
3
<PAGE>
1.8 Construction Contract. In the event that the Construction
_____________________
Contract and/or this Agreement is terminated for any reason, the Buyer shall
transfer and the Seller shall immediately acquire title to the assets
constructed pursuant to the Construction Contract by paying to Buyer, in
immediately available funds, on or before March 31, 1995, the costs and
expenditures as set forth in the SOW(s) and those costs set forth in Section
8.5. Any assets constructed in the Exchanges pursuant to the Construction
Contract shall not be considered when adjusting the Purchase Price at Closing
and shall have no effect on the Net Book Value of the Assets at Closing for
the purpose of adjusting the Purchase Price pursuant to Section 1.3.
1.9 Guaranty. PTI guarantees Buyer's obligations and ability to
________
pay the Purchase Price and Buyer's performance under this Agreement.
ARTICLE 2
CLOSING
2.1 Closing. The Closing of the purchase and sale of Assets (the
_______
"Closing") shall take place at such place as the parties shall mutually agree
upon at 10:00 o'clock a.m., local time, on the 15th day of the month following
the satisfaction or waiver of all the conditions precedent to Closing set
forth in Section 3 or on such other date as the parties mutually agree but in
no event later than the second anniversary date of this Agreement. The date
that the Closing actually occurs is referred to as the "Closing Date." If the
Closing is postponed, all references to the Closing Date in this Agreement
shall refer to the postponed date.
2.2 Documents to be Delivered by Seller to Buyer. At or prior to the
____________________________________________
Closing, Seller will deliver to Buyer:
A. certified copies of all Seller's resolutions pertaining to
the authorizations of this Agreement and the consummation of the transaction
contemplated herein by Seller;
B. duly executed bills of sale, assignments, and other
instruments of transfer, in form sufficient to convey to Buyer all of the
rights, title and interest of Seller in and to the Assets in accordance with
the terms hereof;
C. a certificate of Seller certifying as to the accuracy of
Seller's representations and warranties at and as of the Closing and that
Seller has materially performed and complied with all of the terms, provisions
and conditions to be performed and complied with at or before the Closing, the
form of which shall be mutually agreed upon between Buyer and Seller and
furnished at least 30 days prior to the Closing;
4
<PAGE>
D. a certificate of Seller certifying as to certain corporate
matters with respect to Seller, together with all of the attachments referred
to therein, the form of which shall be mutually agreed upon between Buyer and
Seller and furnished at least 30 days prior to the Closing;
E. the opinion of counsel to Seller, dated as of the Closing
Date, the form of which will be furnished to Buyer at least 30 days prior to
the Closing; and
F. such other certificates and documents as Buyer or its
counsel may reasonably request.
2.3 Documents to be Delivered by Buyer to Seller. At or prior to the
____________________________________________
Closing, Buyer will deliver to Seller:
A. The payment of the Purchase Price and the Estimated
Adjustment Factor;
B. Certified copies of all Buyer's resolutions pertaining to
the authorization of this Agreement and the consummation of the transactions
contemplated herein by Buyer.
C. a certificate of Buyer certifying as to the accuracy of
Buyer's representations and warranties at and as of the Closing and that Buyer
has performed and complied with all of the terms, provisions and conditions
to be performed and complied with, at or before the Closing, the form of which
shall be mutually agreed upon between Buyer and Seller and furnished at least
30 days prior to the Closing;
D. a certificate of Buyer certifying as to certain corporate
matters, together with all of the attachments referred to therein, the form
of which shall be mutually agreed upon between Buyer and Seller and furnished
at least 30 days prior to the Closing;
E. the opinion of counsel to Buyer, dated as of the Closing
Date, the form of which will be furnished to Seller at least 30 days prior to
the Closing; and
F. such other certificates and documents as Seller or its
counsel may reasonably request.
2.4 Documents to be Delivered by Seller and Buyer to Each Other. At
___________________________________________________________
or prior to the Closing, Seller and Buyer will execute and deliver or cause
to be executed and delivered to each other the Agreements set forth in
Schedule 2.4, regarding the Exchanges, upon mutually agreed terms and
conditions which are reasonable and standard in the industry.
2.5 Further Assurance. Except as otherwise provided herein, all
_________________
instruments of conveyance, assignment or transfer referred to herein, all sums
of money, and all records and data to be delivered as specified in this
Agreement shall be delivered at Closing (or if previously delivered so
5
<PAGE>
acknowledged). At least 30 days prior to Closing, Seller and Buyer shall
mutually agree on the specific date and time for the change of
telecommunications service to occur.
ARTICLE 3
CONDITIONS
3.1 Conditions to Buyer's Obligations. The obligation of Buyer to
_________________________________
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Buyer:
A. Representations and Warranties. All representations and
______________________________
warranties of Seller made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes contemplated by this Agreement or approved by Buyer in
writing, and there shall have been delivered to Buyer a certificate of Seller
to that effect, dated as of the Closing Date, signed by an authorized officer
of Seller with requisite authority.
B. Covenants. Seller shall have performed and complied in all
_________
material respects with all covenants and agreements required by this Agreement
to be performed by it on or prior to the Closing Date.
C. Consents. All authorizations, consents and approvals of,
________
filings and registrations with, and notifications to (collectively
"Governmental Approvals") any United States, state, or local governmental
entity or municipality or subdivision thereof or any authority, department,
Public Services Commission/Public Utility Commission, board, bureau, agency,
court or instrumentality thereof, the FCC, NECA, or REA (collectively,
"Governmental Authorities") necessary to consummate the transaction
contemplated by this Agreement shall have been obtained or made and shall be
in full force and effect. The terms and conditions of all Governmental
Approvals shall be acceptable to Buyer in all material respects, including,
but not limited to a Declaratory Ruling from the PUC affirming that the Net
Book Value of the Assets as computed and stated in Schedule 1.1 is recognized
for ratemaking purposes.
D. No Governmental Proceedings or Litigation. No preliminary
_________________________________________
or permanent injunction or other order or decree by any Governmental Authority
shall have been issued and remain in effect which prevents the transactions
contemplated by this Agreement, or which could reasonably be expected to have
a material adverse effect on the Assets, nor shall there have been instituted
any action or proceeding by any Governmental Authority, nor shall there have
been instituted any action or proceeding by any other person challenging the
acquisition by Buyer or the sale by Seller of the Assets, or otherwise seeking
to restrain or prohibit the consummation of the transaction contemplated
hereby, or seeking material damages in connection therewith, or which could
reasonably be expected to have a material adverse effect on the Assets.
6
<PAGE>
E. Hart-Scott-Rodino Act. All filings required to be made
_____________________
under the Hart-Scott-Rodino Act ("H-S-R"), if applicable, shall have been
made, and the waiting period thereunder shall have expired or early
termination thereof shall have been granted.
F. Certificates; Documents. Seller shall have delivered the
_______________________
certificates, opinions of counsel and other documents required by Sections 2.2
and 2.4.
3.2 Conditions to Seller's Obligations. The obligations of Seller to
__________________________________
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction, on or prior to the Closing Date, of each of the following
conditions, any of which may be waived by Seller:
A. Representations and Warranties. All representations and
______________________________
warranties of Buyer made in this Agreement shall be true and correct in all
material respects on and as of the Closing Date as though made at such time,
other than changes contemplated by this Agreement or approved by Seller in
writing, and there shall have been delivered to Seller a Certificate of Buyer
to that effect, dated the Closing Date, signed by authorized officers of
Buyer.
B. Covenants. Buyer shall have performed and complied in all
_________
material respects with all covenants and agreements required by this Agreement
to be performed by it on or prior to the Closing Date.
C. Consents. All Governmental Approvals of any Governmental
________
Authority necessary to consummate the transaction contemplated hereunder shall
have been obtained or made and shall be in full force and effect. The terms
and conditions of all Governmental Approvals must be acceptable to Seller, in
all material respects including but not limited to the PUC ruling that the
Gain from the transaction shall be retained by the Seller's shareholders and
furthermore that the Gain shall not be included in any future PUC
ratemaking/case proceeding.
D. No Governmental Proceeding or Litigation. No preliminary
________________________________________
or permanent injunction by any Government Authority shall have been issued and
remain in effect which prevents or delays the transactions contemplated by
this Agreement, nor shall there have been instituted any actions or proceeding
by any Governmental Authority, nor shall there have been instituted any action
or proceeding by any other person challenging the acquisition by Buyer or the
sale by Seller of the Assets, or otherwise seeking to prohibit the
consummation of the transaction contemplated hereby or seeking material
damages in connection therewith.
E. H-S-R Act. All filings required to be made under the H-S-R
_________
Act, if applicable, shall have been made, and the waiting period thereunder
shall have expired or early termination thereof shall have been granted.
7
<PAGE>
F. Committee and Board Approvals. The U S WEST MFJ Compliance
_____________________________
Decree Committee and the Board of Directors of U S WEST, Inc. shall have
approved this Agreement and the transactions contemplated hereby.
G. Certificates; Documents. Buyer shall have delivered the
_______________________
Certificates, Opinion of Counsel and other documents required by Section 2.3
and Buyer shall have delivered the agreements required by Section 2.4.
H. Financing. Within sixty (60) days following the execution
_________
of this Agreement, Buyer shall deliver to Seller, in a form reasonably
satisfactory to Seller, evidence of Buyer's ability to financially consummate
the transaction contemplated by this Agreement.
ARTICLE 4
ENVIRONMENTAL CONDITIONS; ASSETS "AS IS"
4.1 Central Office; Asbestos, Hazardous Materials. Buyer acknowledges
_____________________________________________
that it knows that the central office buildings of the Exchange(s) may have
been found to contain asbestos-containing materials, and that Buyer has
independently investigated the presence of asbestos-containing materials in
the central office buildings. In addition, Buyer acknowledges that it knows
that the central office buildings equipment may contain Hazardous Materials
which include, but may not be limited to, the following: mercury, PVC (Poly
vinyl Chloride), PCBs (polychlorinated biphenyls), lead, Beryllium chips,
Asbestos (wafers, washers, transit, tile), Krypton tubes, Radium Bromide
tubes, electrolyte acid in batteries. Buyer also acknowledges that it is
aware that certain Hazardous Materials are used in maintenance and operations
related to the equipment and related to the Property, and that such Hazardous
Materials may be present in the central office buildings. SELLER HEREBY
DISCLAIMS ALL WARRANTIES, WHETHER EXPRESSED OR IMPLIED, WITH
REGARD TO THE
CONDITION OR SAFETY OR PRESENCE OF HAZARDOUS MATERIALS IN
SAID CENTRAL
OFFICES.
Buyer agrees to take the Assets "as is" and without any warranty of
merchantability or fitness or any other warranties expressed or implied as it
relates to the environmental condition of the central offices. Buyer
understands and agrees that any responsibility for compliance with
environmental laws applicable to the ownership or use of the central offices
following the Closing, including the costs of any remediation or cleanup
associated with the central offices, or environmental liability associated
with the central offices, irrespective of when contamination occurred, is
assumed by Buyer at the Closing. Buyer understands that the Seller makes no
representations, warranties, or guarantees, whether express or implied, of any
kind, nature or type whatsoever with respect to the central offices, including
without limitation the appurtenances, facilities and improvements thereon,
or the value, marketability, feasibility, desirability or adaptability
8
<PAGE>
thereof or the compliance with environmental laws. Buyer has made all legal,
factual and other inquiries and investigations as Buyer deems necessary,
desirable or appropriate with respect to the central offices and the
appurtenances, facilities and improvements thereon, and Buyer is purchasing
the central offices based on Buyer's or its agent's inspection and examination
thereof. In addition, Buyer has relied on information and documentation
provided by Seller as well as Seller's representations set forth in this
Agreement. Buyer acknowledges that Seller has informed Buyer of the potential
presence of asbestos-containing materials in the Exchanges and in the central
offices, as well as other Hazardous Materials, and Buyer acknowledges that the
purchase price of the Assets reflects the potential presence of the asbestos-
containing materials and the Hazardous Materials, and environmental
liabilities that may be associated with the central offices.
4.2 Outside Plant. Except as otherwise provided for in this
_____________
Agreement, Buyer acknowledges that it knows that operations in the outside
plant may trigger certain environmental, industrial hygiene and safety
concerns. Such concerns may include, but are not limited to: the National
Environmental Policy Act ("NEPA") and mandated environmental assessments;
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
liability including liability associated with right-of-way easements; the
Clean Water Act including utility hole discharge, waste water, storm water,
asbestos transit, underground and above ground storage tanks; Resource
Conservation and Recovery Act ("RCRA") including the handling and disposition
of chemically treated utility poles hazardous materials and hazardous waste;
Hazardous Materials Transportation Act; Clean Air Act; and all similar Federal
state and local environmental laws, ordinances, rules or regulations. For
purposes of this Agreement, "environmental laws" shall mean and include the
laws referred to in the above paragraph. EXCEPT AS OTHERWISE PROVIDED
FOR IN
THIS AGREEMENT, SELLER HEREBY DISCLAIMS ALL WARRANTIES,
EXPRESS OR IMPLIED,
WITH REGARD TO THE CONDITION OR SAFETY OF SAID OUTSIDE PLANT
CONSISTENT WITH
PUBLIC POLICY.
Except as otherwise provided for in this Agreement, Buyer takes the
outside plant "as is" and without any warranty of merchantability or fitness
or any other warranties expressed or implied as it relates to the
environmental condition of the outside plant. Except as provided for in
Section 6.3(G), Buyer understands and agrees that any responsibility for
compliance with environmental laws applicable to the ownership or use of the
Assets following the Closing, including the costs of any remediation or
cleanup associated with the Assets, irrespective of when contamination
occurred, cleanup is assumed by Buyer at the Closing. Seller agrees that all
outside plant environmental claims which are incurred or based on facts which
arise on or before Closing, are the responsibility of Seller for the time
period set forth in Section 7.6. Except as otherwise provided for in this
Agreement, Buyer understands the Seller makes no warranties, representations
or guarantees, whether express or implied, of any kind, nature or type
whatsoever with respect to the Assets, or the value, marketability,
9
<PAGE>
feasibility, desirability or adaptability thereof, or the compliance with
environmental laws. Buyer has made all legal, factual and other inquiries and
investigations as Buyer deems necessary, desirable or appropriate with respect
to the outside plant, and Buyer is purchasing the Assets based on Buyer's own,
or its agent's inspection and examination thereof. In addition, Buyer has
relied on information and documentation provided by Seller as well as Seller's
representations set forth in this Agreement.
4.3 DISCLAIMER OF WARRANTIES. SELLER HEREBY DISCLAIMS ANY
AND ALL
________________________
REPRESENTATIONS OR WARRANTIES, EXPRESSED OR IMPLIED, EXCEPT AS
SPECIFICALLY
SET FORTH IN THIS AGREEMENT. SELLER IS NOT WARRANTING THE
CONDITION OR
USEFULNESS OF THE ASSETS, OR THEIR VALUE.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Buyer's Representations and Warranties. Buyer represents and
______________________________________
warrants to Seller that:
A. Organization. Buyer is a corporation duly incorporated,
____________
validly existing and in good standing under the laws of the State of Colorado,
and Buyer has full corporate power and authority to execute and deliver this
Agreement and to perform the transaction contemplated by this Agreement.
Buyer has obtained all corporate approvals necessary to consummate this
transaction, and authorize the execution, delivery and performance of this
Agreement and the agreements and contracts mentioned herein.
B. Corporate Authority. This Agreement and all other
___________________
agreements and instruments to be executed by Buyer in connection herewith
shall be duly and validly executed and delivered by Buyer. This Agreement and
the transaction contemplated hereby, when executed by Buyer, shall constitute
a valid and binding agreement of Buyer enforceable against Buyer in accordance
with its terms except to the extent that such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to creditors' rights generally and by principles of equity.
C. Governmental Authorizations. Except as set forth in
___________________________
Schedule 5.1(C), Buyer's execution and delivery of this Agreement or Buyer's
consummation of the transactions contemplated hereby does not require
authorization or approval of, or filing with, any governmental agency,
authority or other body or any other third persons.
D. Funds. On the Closing Date, Buyer shall have sufficient
_____
funds available to pay the Purchase Price and to consummate the transaction
contemplated hereby.
10
<PAGE>
E. Litigation. Except as set forth in Schedule 5.1(E), to the
__________
best of Buyer's knowledge, there are no actions, suits, proceedings, claims,
or investigations, either at law or in equity, on or before any Governmental
Authority, of any kind now pending or threatened suit, proceeding, claim, or
investigation, involving Buyer or any of its properties or assets that (i)
question the validity of this Agreement; or (ii) seeks to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Buyer
under this Agreement.
F. Investigation. Buyer, through its accountants, attorneys,
_____________
agents, employees, and others, has made prior to the Closing, such
investigations of the Assets and of the financial, legal, and other condition
and location of the Assets that it deems necessary or advisable with respect
to the transaction contemplated by this Agreement. Except for the Phase I
Environmental Site Assessments which shall be conducted pursuant to Section
6.3(G) , Buyer has diligently requested all information which it has deemed
pertinent, necessary or appropriate to an evaluation of this transaction, and
has conducted a thorough and independent investigation of all material aspects
of the Assets. The Buyer has carefully read and scrutinized all information
provided to it by Seller and its representatives, or which Buyer has obtained
through its independent investigation, and understands the fair implications
of this information. In addition, Buyer has relied on information and
documentation provided by Seller as well as Seller's representations and
warranties set forth in this Agreement. The Buyer has not received from the
Seller or from anyone acting or claiming to act on behalf of the Seller, any
accounting, tax, legal, or other advice with respect to this transaction, and
Buyer is relying solely on advice of its own accounting, tax, legal, and other
advisors. The Buyer has such knowledge, experience and sophistication in
financial and business matters as to enable it to evaluate all of the merits
and risks associated with this transaction.
G. Assets "As Is, Where Is". Buyer acknowledges that it is
________________________
acquiring the Assets in their "AS IS, WHERE IS" condition, and without any
warranty of merchantability or fitness or any other warranties expressed or
implied, except as otherwise provided herein.
5.2 Seller's Representations and Warranties. Seller represents and
_______________________________________
warrants to Buyer that:
A. Organization. Seller is a corporation duly incorporated,
____________
validly existing and in good standing under the laws of the State of Colorado
and has full power and authority to execute and deliver this Agreement.
Seller has authority to complete the transactions contemplated by this
Agreement subject only to obtaining the consents and approvals set forth in
Schedule 5.2(A).
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B. Authorization, Execution and Delivery. This Agreement and
_____________________________________
all other agreements and instruments to be executed by Seller in connection
herewith shall be duly and validly executed and delivered by Seller. This
Agreement and the transaction contemplated hereby, when executed by Seller,
shall constitute a valid, legal, and binding agreement by Seller enforceable
against Seller in accordance with its terms except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws relating to creditors' rights
generally and by principles of equity.
C. Title to Assets. The Assets, at the time of Closing, will
_______________
be owned and transferred by Seller to Buyer free and clear of all liens and
encumbrances.
D. Governmental Authorization. Except as set forth in Schedule
__________________________
5.2(D), no authorization or approval of, or filing with, any governmental
agency, authority or other body or any other third persons will be required
in connection with Seller's execution and delivery of this Agreement or
Seller's consummation of the transactions contemplated hereby.
E. Litigation. Except as set forth in Schedule 5.2(E), to the
__________
best of Seller's knowledge, there are no actions, suits, proceedings, claims,
or investigations, either at law or in equity, on or before any Governmental
Authority, of any kind now pending or threatened suit, proceeding, claim, or
investigation, involving Seller or any of its properties or assets that (i)
question the validity of this Agreement; or (ii) seeks to delay, prohibit or
restrict in any manner any actions taken or contemplated to be taken by Seller
under this Agreement.
F. Tax Matters. All taxes of any kind whatsoever due and
___________
payable by the Seller with respect to the Assets through the Closing Date will
have been paid in full . There are no liens for federal, state or local taxes
upon the assets, except for statutory liens for taxes or assessments not yet
delinquent or the validity of which is being contested in good faith by
appropriate proceedings.
Seller has filed or will cause to be filed, all federal,
state and local tax returns and reports of any kind (including, without
limitation, income, franchise, sales, use, excise, employment and real and
personal property) which Seller is obligated to file with respect to the
Assets for all periods up to and including the Closing date and shall pay all
taxes due on such returns.
Buyer and Seller agree that Seller will be liable for all
tax liabilities accrued or imputed by any tax or regulatory authority for
periods prior to Closing and Buyer will be liable for all tax liabilities
accrued or imputed by any tax or regulatory authority for periods after
Closing, except as set forth in Section 1.7.
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G. Offering Memorandum. To the best of Seller's knowledge,
___________________
Sections 3.3.1, 3.3.2 and 3.3.4 of Seller's Offering Memorandum for the Sale
of Selected Telephone Exchanges in the State of Colorado issued April 1, 1993,
are true and correct in all material respects as of April 1, 1993.
ARTICLE 6
COVENANTS
6.1 Covenants of Buyer. Buyer hereby covenants and agrees that from
__________________
the execution date hereof to the Closing Date:
A. Continued Efforts. Buyer will use its continual best
_________________
efforts to (i) cause to be fulfilled and satisfied all of the conditions to
the Closing to be performed or satisfied by Buyer; (ii) cause to be performed
all of the matters required of Buyer at the Closing; and (iii) take such steps
and do all such acts as may be necessary to make all of its warranties and
representations of Buyer true and correct as of the Closing Date with the same
effect as if the same had been made, and this Agreement had been dated, as of
the Closing Date.
B. Cooperation. Buyer agrees to cooperate with Seller with
___________
respect to (i) Seller's assignment to Buyer of the Assets hereunder and (ii)
Seller's restructuring of this transaction as an Internal Revenue Code sec.
1031 transaction, at no additional expense to Buyer; such cooperation to
include, without limitation, purchase of the Assets from an intermediary
corporation of Seller's choice, and execution of an Assignment and Conditional
Rescission Agreement and such other documents in connection with the
transaction as Seller may reasonably request. If Seller elects to pursue this
transaction as an Internal Revenue Code sec. 1031 transaction, notwithstanding
anything in this Agreement to the contrary, Seller shall fully indemnify,
defend and hold Buyer harmless from and against any and all liabilities
resulting therefrom, including but not limited to any tax impacts on Buyer or
the Assets, and further provided that Seller shall remain directly and
primarily bound by all other conditions, representations, warranties and
covenants contained herein and remedies related thereto.
C. Contracts. From and after Closing, Buyer shall assume,
_________
honor and fully and completely perform all of Seller's obligations under the
agreements set forth in Schedule 6.1(C). In addition, at least 30 days prior
to Closing, Seller shall provide Buyer a final schedule of all agreements to
be reviewed and assumed by Buyer which are in the normal course of business.
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D. Capital Improvement Projects. From the execution date of
____________________________
the Definitive Agreement to the Closing Date, Buyer or its affiliate shall
undertake, at Seller's request and upon the mutual agreement of the Parties,
all central office and outside plant projects and/or additions ("Projects")
in or on the Exchanges located in Yuma and Washington counties, in compliance
with the PUC's Rules Regarding Quality of Telecommunications Service,
specifically, PUC Rules 13, 14, 16-19, which specify the capabilities of basic
exchange telephone service, at Buyer's own cost, as Seller's subcontractor,
on terms and conditions set forth in the Master Construction Contract. Buyer
agrees to complete the Projects in the Exchanges located in Yuma and
Washington counties by December 31, 1993, subject to the terms of the
Construction Contract. In addition, commencing January 1, 1994, Buyer shall,
upon the reasonable request of Seller and upon mutual agreement of the
Parties, undertake all Projects (to be defined by future SOWs) within the
Exchanges in conformance with PUC Rules regarding Quality of
Telecommunications Service, specifically PUC Rules 13, 14, 16-19. The title
to all assets constructed pursuant to the Construction Contract shall be held
by Buyer or its affiliate. In the event that this transaction does not Close,
the title to all assets constructed pursuant to the Construction Contract
shall be transferred to Seller and Seller shall pay Buyer for all Projects in
accordance with Section 1.8.
E. Switch Changeout and Conversion of Multiparty Lines. Buyer
__________________________________________________
agrees to complete conversion of all multiparty access lines to single party
service, and convert all analog switching systems to digital switching
systems, by December 31, 1996.
F. Exchanges in Existing Study Areas for USF Purposes. Buyer
__________________________________________________
shall include the Assets within the Exchanges in their existing Study Area for
USF purposes.
G. Accounting Practices. Buyer shall comply with all FCC and
____________________
State Regulatory accounting practices. Buyer will not seek recovery of an
acquisition adjustment through its interstate or intrastate rates including
revenues received from federal or state Universal Service Funds. Provided,
however, that Buyer will not be precluded from recovering an acquisition
adjustment in the interstate jurisdiction, if such recovery becomes possible
as a result of FCC policy.
H. Extended Service Area ("EAS") Arrangement. Buyer agrees to
_________________________________________
implement any future EAS Arrangements in the Exchanges pursuant to PUC order.
6.2 Covenant of Seller. Seller hereby covenants and agrees that from
__________________
the execution date hereof to the Closing Date:
14
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A. Access to Information and Facilities. Seller will afford
____________________________________
Buyer and its representatives, at Buyers own expense, reasonable access during
normal business hours to all facilities, properties, books, accounts, records,
contracts and documents of or relating to the Assets in Seller's possession
or control. Seller shall exercise its reasonable and necessary efforts to
furnish or cause to be furnished to Buyer and its representatives all data and
information concerning the Assets as shall reasonably be requested or required
by Buyer, including, but not limited to, the information that may be necessary
for compliance with Federal Security and Exchange Commission requirements.
B. Continued Efforts. Seller will use its continual best
_________________
efforts to (i) cause to be fulfilled and satisfied all of the conditions to
the Closing to be performed or satisfied by Seller; (ii) cause to be performed
all of the matters required of Seller at the Closing; (iii) take such steps
and do such acts as may be necessary to make all of its warranties and
representations true and correct as of the Closing Date with the same effect
as if the same had been made, and this Agreement had been dated, as of the
Closing Date; and (iv) continue to provide utility service and operate as an
operating public utility.
C. Cooperation. Seller agrees prior to and if necessary after
___________
Closing, to cooperate with Buyer with respect to Seller's assignment to Buyer
of the Assets hereunder.
D. Maintenance of Assets. Seller shall keep all assets in a
_____________________
normal state of repair and operating efficiency and Seller shall maintain its
books and records in the normal and usual manner as heretofore mentioned.
E. Real Property. Seller shall convey its real property
_____________
located in the Exchanges to Buyer, together with the right of ways which are
by their terms assignable; provided, however, that in the event Seller's
facilities are located in any right of way to be transferred hereunder, the
right of way shall be treated as a joint use property.
F. Consent to Assignment. To the extent that the assignment
_____________________
of any contract or any permit shall require the consent of another person,
this Agreement shall not constitute an agreement to assign the contract or
permit if an attempted assignment would constitute a breach thereof. Seller
shall use its reasonable efforts to obtain the consent of any other party to
a contract, or the issuer of a permit or the assignment thereof to Buyer. If
any such consent is not obtained, to the extent permitted by applicable law,
Seller shall cooperate with Buyer to provide for Buyer the
benefit under such contract or permit, including enforcement, at the cost of
and for the benefit of Buyer, of any and all rights of Seller against any
other Party.
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G. Closing Report. Seller shall prepare and deliver to Buyer
______________
within sixty (60) days after Closing a report setting forth the actual Net
Book Value of the Assets and the Actual Adjustment Factor, as of the Closing
Date.
H. Wireline Telecommunications. Seller shall not install
___________________________
(except that Buyer and Seller have agreed that Seller may install fiber optic
and other facilities which transit through the Exchanges to other locations)
or operate, in the Exchanges, any wireline telecommunications physical plant
providing comparable services to those which are in place on the execution
date of this Agreement, for a period of three (3) years from the Closing.
6.3 Mutual Covenants.
________________
A. Confidentiality. Each party to this Agreement agrees to
_______________
hold all Confidential Information (as defined in the "Glossary of Terms"),
whether received before or after entering into this Agreement, in confidence
for a period of five (5) years from the date of receipt of the same, and
agrees that during such period each party will use the same solely for the
purposes of this Agreement. Each party agrees to make no more copies of such
Confidential Information than is reasonably necessary for the purposes,
consistent with this Agreement, for which it will be used. Each party agrees
that it will not make disclosure of any such Confidential Information received
from the other party to anyone except as specifically permitted by this
Agreement and as required by law, including but not limited to Securities and
Exchange Commission. Each party may disclose Confidential Information to its
employees to whom disclosure is necessary for the purposes set forth above,
provided that the disclosing party shall notify each such employee that
disclosure is made in confidence and instructs such employees that such
Confidential Information shall be kept in confidence by such employee in
accordance with this Agreement. Furthermore, each party may disclose such
Confidential Information to consultants and attorneys engaged by such party,
to partners and prospective partners, and to lenders, but only pursuant to a
written confidentiality agreement with such consultants and attorneys,
partners, prospective partners, and lenders the terms of which are
substantially the same as this Section 6.3(A), except that according to such
confidentiality agreement no further disclosure of the Confidential
Information shall be permitted. Each party also agrees that it will make
requests for Confidential Information of the other only if necessary to
accomplish the purposes set forth in this Agreement. The obligations set
forth herein shall be satisfied by each party through the exercise of the same
degree of care used to protect its own information of like importance.
If the sale contemplated by this Agreement is not consummated for any
reason, each party agrees to return to the other party all such Confidential
Information, including all copies thereof, immediately on request. The
obligations arising under this section shall survive any termination or
abandonment of this Agreement.
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B. Public Announcements. No public announcement of the
____________________
execution of this Agreement, except as necessary to obtain regulatory approval
or as otherwise required by law or securities regulations, shall be made
before the Closing without the mutual prior approvals of both Seller and
Buyer, which approval shall not be unreasonably withheld.
C. Cooperation. Each party covenants to use all reasonable
___________
efforts, commencing promptly on the execution and delivery of this Agreement,
to take, or cause to be taken in good faith, all actions, and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws
and regulations, expeditiously and practicably to consummate and make
effective the transactions contemplated by this Agreement, including but not
limited to using its reasonable efforts to obtain all necessary actions,
waivers, consents and approvals from third parties or governmental or
regulatory bodies, to effect all necessary filings with Governmental
Authorities and to consummate the agreements required in Schedule 2.4.
D. PUC Filings. Within 30 days after the execution of this
___________
Agreement, or on such other date as the parties shall mutually agree, Seller
and Buyer agree to jointly file any required application and to take such
reasonable action as may be necessary or helpful (including, but not limited
to making available witnesses, information, documents, and data requested by
the PUC) to apply for and receive approval by the PUC for the transfer of
Assets and the grant of operating authority or issuance of a Certificate of
Public Convenience and Necessity to Buyer and any other necessary PUC
approvals.
E. FCC Filings. Ninety (90) days after the execution date of
___________
this Agreement, or on such other date as the parties shall mutually agree,
Buyer and Seller agree to jointly file such applications and to take such
reasonable actions as may be necessary or appropriate to apply for and receive
approval by the FCC for the transfer of Assets to Buyer. The FCC approval
includes but is not limited to, Section 214 approval, Study Area approval
(which provides for authority to receive USF funding as available to any other
similar telephone companies in Colorado), Price Cap Waiver approval, and radio
license approval.
F. Costs. Except as otherwise specifically provided herein,
_____
each Party shall bear its own costs incurred in connection with this Agreement
and the other agreements and transactions contemplated hereby.
G. Environmental Assessment. Seller and Buyer have agreed to
________________________
provide for the performance of a Phase I Environmental Site Assessment,
conducted by an independent, licensed, bonded and insured environmental
consulting firm, of all central offices, garages and repeater sites and
associated real property located in the Exchanges. The costs for said Phase
I Environmental Site Assessment shall be equally shared between Seller and
Buyer. In the event Seller determines, in its reasonable discretion, as a
result of said assessments, that remediation is required (save and except that
17
<PAGE>
Buyer and Seller have acknowledged and mutually agreed that Seller shall not
remediate or abate asbestos containing materials or Hazardous Materials from
central office buildings in the Exchanges), Seller shall perform, at its sole
expense, such remediation in conformance with state and federal requirements.
Seller further agrees, at its sole cost, to replace all underground storage
tanks and remove all storage drums located within the Exchanges in conformance
with state and federal requirements prior to Closing.
ARTICLE 7
INDEMNIFICATION
7.1 Indemnification by Buyer. From and after the Closing Date, Buyer
________________________
shall indemnify, defend and hold Seller harmless from and against any and all
claims, losses, liabilities, damages, costs and expenses (including, without
limitation, attorneys' fees to the extent permitted by law) (collectively,
"Liabilities") that may be incurred by Seller arising from any breach of (i)
any representation or warranty or (ii) any covenant, obligation or agreement
of Buyer contained herein.
7.2 Buyer's Indemnification Threshold. Buyer shall not be required
_________________________________
to indemnify, defend or hold Seller harmless from and against any Liabilities,
incurred by Seller, unless and until such amount exceeds $250,000 per incident
(the "Indemnity Threshold"), and Buyer shall only be obligated to indemnify
Seller with respect to amounts that exceed the Indemnity Threshold and then
only to the extent provided herein.
7.3 Indemnification by Seller. From and after the Closing Date,
_________________________
Seller shall indemnify, defend and hold Buyer harmless from and against any
and all Liabilities that may be incurred by Buyer arising from any breach of
(i) any representation or warranty or (ii) any covenant, obligation or
agreement of Seller contained herein.
7.4 Seller's Indemnification Threshold. Except for liabilities
__________________________________
referenced in Section 6.1(B), Seller shall not be required to indemnify or
hold Buyer harmless from and against any Liabilities, incurred by Seller,
unless and until such amount exceeds $250,000 per incident, and Seller shall
only be obligated to indemnify Buyer with respect to amounts that exceed the
Indemnity Threshold and there only to the extent provided herein.
7.5 Maximum Amount. Except for liabilities referenced in Section
______________
6.1(B), the maximum aggregate amount of indemnification under Sections 7.1 or
7.3 that can be required of Seller or Buyer hereunder shall not exceed in the
aggregate 10% of the Purchase Price (the "Maximum Amount").
7.6 Time Limitation. The respective rights of Seller and Buyer to
_______________
indemnification for Liabilities arising under Section 7.1 or 7.3 as the case
may be, shall apply only to those claims for indemnification, notice of which
is given pursuant to this Agreement to the other party on or before the
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expiration of the eighteen (18) month anniversary date of the Closing, except
that the indemnification which relates to tax matters shall remain in effect
until the expiration of the applicable statute of limitation period. The
respective rights of Seller or Buyer to indemnification for environmental
claims shall only apply to those claims for outside plant indemnification,
notice of which is given pursuant to this Agreement to the other party on or
before the expiration of the third (3rd) anniversary date of the Closing.
Upon expiration of the time limitations set forth in this Section 7.6, Seller
shall have no liability for any environmental claims, losses, liabilities,
damages, costs and expenses, including attorneys fees for such liabilities
based on environmental laws, incidents, exposures occurring prior to the
Closing. In addition, upon expiration of the time limitations set forth in
this Section 7.6, it shall be conclusively presumed that the Buyer has
accepted and assumed all responsibilities for all claims, environmental
claims, losses, liabilities, damages, costs and expenses, including reasonable
attorney's fees, occurring prior to Closing. If Seller is adjudged liable for
Liabilities arising after the time limitations set forth in this Section 7.6
(save and except for fraud, reckless misconduct or conduct that is done
purposefully, with knowledge of such a character as to evince a reckless
disregard of consequences), Buyer shall remain responsible for all claims on
a dollar for dollar basis.
7.7 Notice of Claims. Notwithstanding any other provision contained
________________
in this Agreement, any party entitled to indemnification hereunder (the
"Indemnified Party") shall be deemed to have waived any right thereto unless
such party gives to the party from whom indemnification is sought (the
"Indemnifying Party") written notice of the claim, within 60 business days of
an officer of management's notice of such claim, and, when known, the facts
constituting the basis for such claim. In the event that any claim for
indemnification is made hereunder as a result of or in connection with any
claim or legal proceedings by a person who is not a party to this Agreement,
the notice to the Indemnifying Party shall specify, if known, the amount or
an estimate of the amount of the liability arising therefrom. The Indemnified
Party shall not settle or compromise any claim by a third party for which it
is entitled to indemnification hereunder without the prior written consent of
the Indemnifying Party, unless suit shall have been instituted against it and
the Indemnifying Party shall not have taken control of such suit after
notification thereof as provided in Section 7.6.
7.8 Defense by Indemnifying Party. In connection with any claim
_____________________________
giving rise to indemnity hereunder resulting from or arising out of any claim
or legal proceeding by a person who is not a party to this Agreement, the
Indemnifying Party at its sole cost and expense may (but shall not be required
to), upon written notice to the Indemnified Party, assume the defense of any
such claim or legal proceeding if it acknowledges to the Indemnified Party in
writing its obligation to indemnify the Indemnified Party with respect to such
claim. The Indemnified Party shall be entitled to participate in (but not
control) the defense of any such action, with its counsel and at its own
19
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expense. If the Indemnifying Party does not assume the defense of any such
claim or litigation resulting therefrom, (a) the Indemnified Party may defend
against such claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation (after giving
5 business days written notice of the same to the Indemnifying Party) on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of
such action, with its own counsel and at its own expense.
7.9 Manner of Indemnification. All indemnification payments under
_________________________
Article 7 shall be effected by payment of cash or delivery of a certified or
official bank check or, at payee's request, by wire transfer of immediately
available funds to an account designated by payee, in the amount of the
indemnified liability.
7.10 Remedies. The indemnity rights under Sections 7.1 and 7.3 shall
________
be the sole remedy for any breach of the representations and warranties of
Seller or Buyer as the case may be. In the event of a breach, or a threatened
or attempted breach, of any covenant of this Agreement by either party, the
other party shall, in addition to the indemnification provisions set forth in
Article 7 be entitled to (i) a temporary or permanent injunction against such
breach without the necessity of showing any actual damages, and (ii) a decree
for the specific performance of this Agreement.
7.11 Insurance. Prior to asserting any claim under this Agreement
_________
(other than with respect to Taxes), each Indemnified Party shall file, or
cause to be filed, a claim with respect to the indemnified Liabilities in
question under any insurance policies that may be maintained by such
Indemnified Party or any subsidiary, division or affiliate thereof. In the
event that any insurance policies maintained by the Indemnified Party would
cover any indemnified Liabilities, then the Indemnified Party's
indemnification for Liabilities shall be limited to any deductible and amounts
in excess of the amounts actually collected by the Indemnified Party for such
claims.
ARTICLE 8
TERMINATION
8.1 Termination By Buyer.
____________________
A. If any condition precedent to Buyer's obligation to effect the
Closing, as set forth in Section 3.1, is not satisfied and such condition is
not waived, if waivable, by Buyer on or prior to the Closing Date, Buyer shall
not be obligated to effect the Closing and may terminate this Agreement and
the Earnest Money, and all interest accrued thereon, shall immediately be
returned to Buyer.
20
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B. If any Governmental Approval contains terms and conditions
unacceptable to Buyer, in Buyer's reasonable discretion, Buyer shall not be
obligated to effect the Closing and may terminate this Agreement.
8.2 Termination By Seller.
_____________________
A. If any condition precedent to Seller's obligation to effect
the Closing, as set forth in Section 3.2, is not satisfied and such condition
is not waived, if waivable, by Seller on or prior to the Closing Date, Seller
shall not be obligated to effect the Closing and may terminate this Agreement.
B. If any Governmental Approval contains terms and conditions
unacceptable to Seller (including but not limited to the treatment of Gains
as set forth in Section 3.2(C)), in Seller's reasonable discretion, Seller
shall not be obligated to effect the Closing and may terminate this Agreement.
8.3 Termination By Buyer or Seller. (i) If Buyer or Seller have
______________________________
discover that any of the representations and warranties of the other party is
inaccurate in any material respect and, after consultation with such breaching
party, a satisfactory accommodation with respect to such inaccuracy shall not
have been reached; or (ii) if an order is issued by any Governmental Authority
to restrain, enjoin or prohibit the consummation of the transactions
contemplated by this Agreement, Buyer or Seller shall not be obligated to
effect the Closing and may terminate this Agreement.
8.4 Effect of Termination. In the event of the termination of this
_____________________
Agreement pursuant to Sections 8.1, 8.2 or 8.3, this Agreement shall
thereafter become void except as set forth in Section 1.3(A), without further
liability on the part of any party hereto or their respective shareholders,
director, officers or employees in respect thereof.
8.5 Reimbursement for Costs. In the event this Agreement is
_______________________
terminated for any reason other than for Buyer's breach, Seller agrees to pay
to Buyer, no later than March 31, 1995: (i) all property taxes paid or
incurred by Buyer on the assets constructed pursuant to the Construction
Contract and (ii) all interest carry costs computed at the Prime Rate
multiplied by the average outstanding balance of costs and expenditures as set
forth in the SOWs for the period beginning at the time Contractor incurred
such costs through the date of Seller's payment of said amounts. Provided,
however, Seller shall not be required to pay Buyer for any interest carrying
costs related to SOW Number One.
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ARTICLE 9
POST CLOSING MATTERS
9.1 Post Closing. In order to effectuate an orderly transition in the
____________
provisioning of telecommunications services to customers in the Exchanges,
Buyer and Seller agree to utilize the measurers set forth below:
A. Collection of Accounts Receivable. Seller agrees to
_________________________________
exercise its best efforts to assist Buyer, from and after the Closing Date,
in recovering all Accounts Receivables.
B. Notice to Customers. Seller and Buyer, shall jointly
___________________
provide written notification in Seller's final bill to each customer affected
by this Purchase and Sale of Assets that Seller is no longer the customer's
telecommunications provider and advising the customer of the name, address and
telephone number of the Buyer.
C. Customer Deposits. As of the Closing Date, all customer
_________________
deposits and advance payments for future services made to Seller by
residential and business customers in the Exchanges, which are allocable to
Seller and which have not previously been refunded to those customers, shall
be transferred to Buyer, unless Seller is required, by the PUC, to refund said
deposits to the customer, within 30 business days after Closing. Claims for
refunds of such deposits made to Buyer, whether written or oral, shall be
referred to Seller, in writing, within 3 business days of receipt.
D. Customer Relations. From and after the Closing, any
__________________
service related customer complaint due to telephone service provided prior to
Closing which can be reasonably resolved by Buyer, shall be resolved by Buyer,
without contribution or adjustment from Seller; provided, in the event that
Buyer cannot reasonably resolve such complaints, Buyer shall refer those
customers to Seller and Buyer shall promptly advise Seller in writing, of the
steps it took to resolve the complaint.
ARTICLE 10
ARBITRATION
10.1 Claims. All claims by Buyer or Seller by one against the other
______
arising out of or related in any manner to this Agreement or any of the Assets
and Property shall be resolved by arbitration, as prescribed herein. The
Federal Arbitration Act, 9 U.S.C. Sections 1 to 15, not state law, will govern
the arbitrability of all claims.
10.2 Rules. A single arbitrator engaged in the practice of law, who
_____
is knowledgeable about the telecommunications industry, telecommunications law
and who has at least eight (8) years of experience litigating in federal
district court, shall conduct the arbitration under the then current
commercial arbitration rules of the American Arbitration Association ("AAA"),
22
<PAGE>
unless otherwise provided herein. The arbitrator shall be selected in
accordance with AAA procedures. The arbitration shall be conducted in the AAA
office in Seattle, Washington.
10.3 No Discovery; Damages; Expenses. The Buyer and Seller shall allow
_______________________________
and participate in discovery in accordance with the Federal Rules of Civil
Procedure. The arbitrator shall rule on unresolved discovery disputes. The
arbitrator shall only have authority to award contractual damages and shall
not have the authority to award punitive or exemplary damages, other non-
compensatory damages or any other form of relief. Each party shall bear its
own costs and attorneys' fees. The arbitrator's decision and award shall be
final and binding, and judgment upon the award rendered by the arbitrator may
be entered in any court having jurisdiction thereof.
10.4 Judicial or Administrative Action. If any party files a judicial
_________________________________
or administrative action asserting claims subject to arbitration, as
prescribed herein, and the other party successfully stays such action and/or
compels arbitration of said claims, the party filing said action shall pay the
other party's costs and expenses incurred in seeking such stay and/or
compelling arbitration, including reasonable attorneys' fees.
ARTICLE 11
GENERAL
11.1 Time of the Essence. Time is of the essence with respect to each
___________________
and every term, condition, obligation and provision hereof, and failure to
timely perform or remedy any of the terms, conditions, obligations or
provisions hereof by either party shall constitute a material breach of and
a noncurable default under this Agreement by the party so failing to perform
(but which may be waived by the nonbreaching party).
11.2 Notices. All notices hereunder will be in writing and served by
_______
certified mail, return receipt requested. Notice shall be deemed to have been
duly given on the date mailed by the notifying party. Notices shall be sent
as follows:
If to Seller: U S WEST Communications, Inc.
1600 Bell Plaza, Room 1806
Seattle, Washington 98191
Manager-Exchange Carrier Properties,
Exchange Carrier Services
23
<PAGE>
with a copy (which shall not constitute notice)
to:
U S WEST, Inc.
Suite 480
7800 E. Orchard Road
Englewood, Colorado 80111
Attention: Associate General Counsel
Corporate Transactions
If to Buyer: Pacific Telecom, Inc.
805 Broadway
P.O. Box 9901
Vancouver, Washington 98668-8701
Attention: Chief Financial Officer
with a copy (which shall not constitute notice)
to:
Pacific Telecom, Inc.
805 Broadway
P.O. Box 9901
Vancouver, Washington 98668-8701
Attention: Vice President Regulatory
Affairs
11.3 Waivers. No failure of a party to enforce a provision of this
_______
Agreement will be construed as a general or a specific waiver of that
provision, or of a party's right to enforce that provision, or of a party's
right to enforce any other provision of this Agreement. No waiver of any
breach of any covenant or other provision herein contained shall be deemed to
be a waiver of any preceding or succeeding breach, or of any other covenant
or provision herein contained. No extension of time for performance of any
obligation or act shall be deemed to be an extension of the time for
performance of any other obligation or act.
11.4 Commissions. Each party represents and warrants that it has dealt
___________
with no broker or finder in connection with this Agreement and, insofar as it
knows, no broker or other person is entitled to any commission or finder's fee
in connection with the consummation of the transactions contemplated by this
Agreement.
11.5 Payment of Expenses. Except as otherwise provided herein, each
___________________
of the parties shall pay all costs and expenses incurred or to be incurred by
it in the negotiation and preparation of this Agreement and in consummating
and carrying out the transactions contemplated by this Agreement, whether or
not the transactions contemplated by this Agreement are consummated.
24
<PAGE>
11.6 Headings. The subject headings of the sections and subsections
________
of this Agreement are included only for purposes of convenience, and shall not
affect the construction or interpretation of any of its provisions.
11.7 Counterparts. This Agreement may be executed in one or more
____________
counterparts, each of which shall be deemed an original, and when each of the
parties hereto has executed and delivered to the other party one or more
counterparts this Agreement shall be binding and effective, even though no
single counterpart has been executed by both of the parties.
11.8 Successors and Assigns. This Agreement shall be binding on and
______________________
shall inure to the benefit of the parties hereto and their permitted
successors and assigns; provided, however, that no assignment shall be
permitted except as provided for in this Agreement.
11.9 Assignment. The rights and obligations of the parties to this
__________
Agreement or any interest in this Agreement shall not be assigned,
transferred, hypothecated, pledged or otherwise disposed of without the prior
written consent of the non-assigning party which consent may be withheld in
such party's sole discretion; provided, however, that any party hereto may,
without prior consent of the other party hereto, assign this Agreement in its
entirety to any parent or subsidiary entity.
11.10 Additional Instruments and Assistance. Each party hereto shall
_____________________________________
from time to time execute and deliver such further instruments, provide
additional information and render such further assistance as the other party
or its counsel may reasonably request in order to complete and perfect the
transactions contemplated herein.
11.11 Seller's Control Over Authorized Facilities. No provision of
___________________________________________
this Agreement shall be construed to abrogate Seller's control of and
responsibility for the operation of the authorized facilities of the Business
prior to the actual transfer of control of those facilities hereunder to the
Buyer as approved by the FCC and the PUC.
11.12 Governing Law. This Agreement shall be construed in accordance
_____________
with the laws of the State of Colorado.
11.13 Severability. If any term or provision of this Agreement is, to
____________
any extent, held or deemed to be invalid or unenforceable when applied to any
person or circumstance, the remaining provisions of this Agreement and the
enforcement of such provision to other persons or circumstances, or to another
25
<PAGE>
extent, shall not be affected thereby, and each provision of this Agreement
shall be enforced to the fullest extent allowed by law.
11.14 Amendments. This Agreement may not be modified, changed,
__________
supplemented or terminated, nor may any obligations hereunder be waived by a
party, except by written instrument signed by the party to be charged or by
its agent duly authorized in writing or as otherwise expressly permitted
herein.
11.15 No Construction Against the Drafting Party. Each party hereto
__________________________________________
acknowledges that such party and its counsel have reviewed this Agreement and
participated in its drafting. This Agreement shall not be construed against
either party for having prepared it.
11.16 Integration. This Agreement, the Construction Contract,
___________
including all schedules and exhibits attached hereto, constitutes the entire
agreement between the parties, and there are no agreements, understandings,
warranties or representations between the parties except as set forth or noted
herein. This Agreement is not made for the benefit of any person, firm,
corporation or association other than the parties hereto. The parties do not
intend to confer any benefit hereunder on any person, firm or corporation
other than the parties hereto.
26
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed it as of
the date first above written.
BUYER:
EAGLE TELECOMMUNICATIONS, INC./COLORADO PACIFIC TELECOM,
INC.
a Colorado corporation, a wholly-owned a Washington corporation,
subsidiary of Pacific Telecom, Inc.
By: /s/James H. Huesgen By: /s/James H. Huesgen
________________________ _____________________
James H. Huesgen James H. Huesgen
________________________ _____________________
Its: Executive VP & CFO Its: Executive VP & CFO
________________________ _____________________
Date:August 30, 1993 Date:August 30, 1993
________________________ _____________________
SELLER:
U S WEST COMMUNICATIONS, INC.,
a Colorado corporation
By: /s/A. G. Ames
________________________
A. G. Ames
________________________
Its: Pres. & CFO
________________________
Date:8/31/93
________________________
27
<PAGE>
GLOSSARY OF TERMS
For purposes of this Agreement, certain terms used in this Agreement and
not otherwise defined herein shall have the meanings designated below:
"Accounts Receivable" means all customer accounts receivable net of
___________________
doubtful accounts.
"Agreement" means all or any part of this Agreement, including Schedules
_________
and Exhibits, as any of the foregoing may be amended, modified or supplemented
in writing from time to time.
"Assets" shall mean, to the extent that they are by their terms
______
assignable, all of Seller's assets and properties in the Exchanges, except the
Excluded Assets of whatever kind, character and description and whether
tangible, intangible, real, personal or mixed.
(a) "Authorities" means (1) construction permits, licenses or
___________
authorizations granted by the FCC owned by Seller and used to develop and
operate the System; and (2) the licenses or operating right granted by the PUC
to operate the System in the State of Colorado. For purposes of this
Agreement, Authorities does not include Seller's applications for Authorities
before the FCC and PUC.
(b) "Interests" means all rights, privileges, benefits and
_________
interests under all contracts, agreements, consents, or licenses, permits or
certificates (except those included as Authorities and Realty), including
agreements, permits, leases and arrangements with respect to intangible or
personal property or interests therein; equipment leases; consents; agreements
with suppliers, customers and subscribers; business licenses; prepaid
expenses; any sales agent or sales affiliate agreements used or owned in
connection with the Operation of which it is a part.
(c) "Property" means all of Seller's physical facilities located
________
within the Exchanges and other assets necessary to conduct the business as
shall be mutually agreed upon between Buyer and Seller (including all of
Seller's coin station sets presently installed in the Exchanges except as set
forth in the Excluded Assets) that are in Seller's plant in service accounts
in accordance with Part 32 of the FCC Uniform System of Accounts ("USOA").
(d) "Realty" means all real property, or mixed real and personal
______
property within the Exchanges, including, without limitation: land,
structures, buildings, tower sites or antenna sites, easements, rights of way,
servitudes, licenses, agreements, arrangements or leases with respect to real
property interests;
28
<PAGE>
leasehold improvements, building improvements, or other improvements or
fixtures; and rights-of-way and other or similar properties owned by Seller
and used in the Business of which it is a part.
(e) "Records" means all records, including copies (or the
_______
originals at Seller's election) of all outside plant records, all central
office equipment records, all service records kept in the ordinary course of
Seller's business which identify and describe the customers being served by
Seller in the Exchanges, the service that is being provided to such customers
and those records which identify and describe the physical property
(including, but not limited to, cables, wires, and central office equipment)
being sold hereby.
"Authorities" is defined in subparagraph (a) of the definition of Assets.
___________
"Business" means the wireline telecommunications business of the
________
Exchanges as related to the Assets, the Property and the Authorities in the
State of Colorado.
"Claims" shall mean any and all liabilities, obligations, losses,
______
damages, deficiencies, demands, claims, penalties, settlements, judgments,
actions, proceedings and suits of whatever kind and nature and all reasonable
costs and expenses, including reasonable attorneys' fees.
"Closing" shall have the meaning specified in section 2.1.
_______
"Closing Date" shall have the meaning specified in section 2.1.
____________
"Communications Act" means the Federal Communications Act of 1934, a
__________________
amended, and all rules and regulations promulgated thereunder, which are in
effect at the date of this Agreement.
"Confidential Information" shall mean any and all technical or business
________________________
information furnished, in whatever form or medium, or disclosed by one party
to the other, including but not limited to, product and service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data, and personnel statistics, which are marked as
confidential or proprietary by the disclosing party, or, for information which
is disclosed orally, the disclosing party indicates to the other at the time
of disclosure the confidential or proprietary nature of the information and
confirms in writing to the receiving party within 30 days after such
disclosure that such information is confidential. For purposes of this
Agreement, any technical or business information of a third person furnished
or disclosed by one party to the other, and which is marked as
29
<PAGE>
confidential or proprietary or which is indicated orally by the disclosing
party to be confidential, shall be deemed Confidential Information of the
disclosing party unless otherwise specifically indicated in writing to the
contrary.
"Encumbrances" means any and all encumbrances, security interests, liens,
____________
taxes, claims, liabilities, options, commitments, charges, restrictions or
other obligations of whatsoever kind, quantity or nature, whether accrued,
absolute, contingent or otherwise, except the lien for ad valorem taxes or
other taxes not yet due and payable or being contested in good faith,
governmental conditions and restrictions under the Authorities and contractual
terms and conditions regarding the Interests and Realty of the Business.
"Exchange Area" means the geographical areas set forth and described in
_____________
Exhibit A.
_________
"Excluded Assets" means (a) Seller's cash on hand at the Closing; (b) any
_______________
insurance policy, bond, letter of credit, or other similar item, and any cash
surrender value in regard thereto; (c) all books and records that Seller is
required by law to retain or that relate solely to internal corporate matters;
(d) all claims, rights and interests in and to any refunds for Federal, state
or local franchise, income or other taxes or fees of any nature whatsoever for
periods prior to the Closing Date; (e) any pension, profit sharing or employee
benefit plans; (f) any assets, interests or property of Seller used in the
operation of any business conducted by Seller other than the operation of the
Assets; (g) the name U S WEST and all similar names and related marks and
logos used or owned in connection with the provision of telecommunications
services in the Exchanges; (h) all portable test equipment; (i) motor vehicles
and associated motor vehicle general stock; (j) materials, supplies, and
tools; provided however, that Seller shall make available to Buyer all
materials, supplies and specialized tools reasonably required for the
operation of the assets at no additional cost to Buyer; (k) improved mobile
telephone service equipment ("IMTS equipment") and applicable FCC licenses;
(l) FCC licenses for air-to-ground, cellular, or paging services held by
either Seller, or any affiliate of Seller; and (m) all maintenance radio
equipment and antennas and (n) Seller coin pay stations set forth in Exhibit
B.
The parties expressly agree that no assets relating to Yellow Pages or
classified directory advertising activities of Seller or any affiliate of
Seller shall be transferred in this transaction.
"FCC" means the Federal Communications Commission or any other Federal
___
agency which succeeds in whole or in part to its jurisdiction so far as the
subject matter of this Agreement is concerned.
30
<PAGE>
"FCC Approval" means the issuance on the release date of the FCC public
____________
notice of the FCC's grant of consent to the assignment of the FCC Authorities.
"Gains" shall mean the difference between the Purchase Price for the
_____
Assets and the Net Book Value of the Assets.
"Hazardous Materials" shall mean any substance, including, without
___________________
limitation, any asbestos, formaldehyde, flammables, explosives, and any
hazardous substance or toxic material which could presently or at any time in
the future cause a detriment to or impair the value or beneficial use of any
of the Assets, or constitute or cause a health, safety or environmental hazard
to the any of the Assets or to any person or require remediation at the behest
of any governmental agency.
"Interests" is defined in subparagraph (b) of the definition of Assets.
_________
"MFJ" shall mean the Modification of Final Judgment entered August 24,
___
1982 in United States v. Western Electric, et al., Case No. 82-0192, United
_________________________________________
States District Court, District of Columbia, and all subsequent orders of such
court in such action, and any judicial, legislative or regulatory amendments
or modifications thereof.
"Net Book Value" means gross plant minus accumulated depreciation which
______________
is true and accurate in all material respects.
"Prime Rate" means the prime rate as quoted by Chemical Bank.
__________
"PUC" means the Public Utilities Commission in the State of Colorado.
___
"PUC Approval" means the issuance of the PUC consent or order of its
____________
grant of consent to the assignment of the PUC Authorities.
"Purchase Price" shall have the meaning specified in section 1.2.
______________
"Realty" is defined in subparagraph (c) of the definition of Assets.
______
"SOW(s)" means, Statement(s) of Work as set forth in the Master
______
Construction Contract between U S WEST Communications, Inc. and Pacific
Telecom Service Company, dated July 28, 1993.
"System" means, as the context requires, Seller's service delivery
______
components in the Exchanges, including, without limitation, all equipment,
facilities, assets, properties, licenses, permits, grant of operating
31
<PAGE>
authority and other rights and authorities and related technical knowledge and
information, necessary for conduct of Seller's wireline telecommunications
services within the particular Exchanges.
32
<PAGE>
EXHIBITS
TABLE OF EXHIBITS
A. LIST OF EXCHANGES
B. COIN STATIONS RETAINED BY SELLER
The above mentioned exhibits have been omitted. The Company agrees to furnish
supplementally a copy of any omitted exhibit to the Commission upon request.
<PAGE>
SCHEDULES
1.1 LIST OF THE ASSETS
1.4 APPRAISED VALUE OF ASSETS
2.4 DOCUMENTS TO BE DELIVERED BY SELLER AND BUYER TO EACH
OTHER
5.1(C) GOVERNMENTAL AUTHORIZATION FOR BUYER TO COMPLETE
THE TRANSACTION
5.1(E) BUYER'S LITIGATION
5.2(A) CORPORATE COVENANTS AND APPROVALS NECESSARY FOR
SELLER TO COMPLETE
THE TRANSACTION
5.2(D) GOVERNMENTAL AUTHORIZATIONS NECESSARY FOR SELLER TO
COMPLETE THE
TRANSACTION
5.2(E) SELLER'S LITIGATION
6.1(C) CONTRACTS
The above mentioned schedules have been omitted. The Company agrees to
furnish supplementally a copy of any omitted schedule to the Commission upon
request.
<PAGE>
EXHIBIT 3B
BYLAWS OF PACIFIC TELECOM, INC.
As Amended and Restated Effective April 30, 1993
ARTICLE I
SHAREHOLDERS
1.1 Annual Meeting.
______________ The annual meeting of
the shareholders shall be held on the fourth Friday in the
month of April in each year at a time to be determined by the
Board of Directors or on such other day as the Board of
Directors may fix by resolution for the purposes of electing
directors and transacting such other business as may come
before the meeting. If the day fixed for the annual meeting
is a legal holiday, the meeting shall be held on the next
succeeding business day.
1.2 Special Meeting.
_______________ Special meetings of the
shareholders may be called by the Chairman or by the Board of
Directors and shall be called by the Chairman at the request
of the holders of not less than one-tenth of all the
outstanding shares of the corporation entitled to vote at the
meeting.
1.3 Place of Meetings.
_________________ Meetings of the
shareholders shall be held at the principal business office of
the corporation or at such other place as may be determined by
the Board of Directors.
1.4 Notice of Meetings.
__________________ Written notice
stating the place, day and hour of the meeting and, in case of
a special meeting, the purpose or purposes for which the
meeting is called shall be mailed to each shareholder entitled
to vote at the meeting at the shareholder's address as it
appears on the stock transfer records of the corporation, with
postage thereon prepaid, not less than 10 nor more than 60
days before the date of the meeting, by or at the direction of
the Chairman, the Secretary or the officer or persons calling
the meeting.
1.5 Waiver of Notice.
________________ Whenever any notice is
required to be given to any shareholder of the
corporation, a waiver thereof in writing, signed by the
person or persons entitled to such notice and delivered to
the corporation, whether before or after the meeting, shall
be deemed equivalent to the giving of such notice.
Attendance at the meeting in person or by proxy waives
objection to lack of notice or defective notice of the
meeting unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the
meeting. A shareholder waives objection to consideration of a
particular matter at a meeting that is not within the purpose
-1-
<PAGE>
or purposes described in the meeting notice, unless the
shareholder objects to considering the matter when it is
presented.
1.6 Fixing of Record Date.
_____________________
(a) For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or of shareholders
entitled to receive payment of any dividend, or in order to
make a determination of shareholders for any other proper
purpose, the Board of Directors of the corporation may fix in
advance a date as the record date for any such determination
of shareholders. Such date shall in any case be not more than
70 days and in the case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action
requiring such determination of shareholders is to be taken.
(b) If no record date is fixed for the
determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, the record date shall be the
date before the day on which notice of the meeting is mailed.
If no record date is fixed for the determination of
shareholders entitled to receive payment of a distribution
(other than one involving a purchase, redemption, or other
acquisition of the corporation's own shares), the record date
shall be the date on which the Board of Directors adopted the
resolution declaring the distribution. If no record date is
fixed for determining shareholders entitled to a share
dividend, the record date shall be the date on which the Board
of Directors authorized the dividend.
(c) When a determination of shareholders
entitled to vote at any meeting of shareholders has been made
as provided in this section, such determination shall apply to
any adjournment thereof, unless the Board of Directors fixes a
new record date, which it must do if the meeting is adjourned
to a date more than 120 days after the date fixed for the
original meeting, or unless Washington law otherwise requires.
1.7 Voting Records.
______________ The officer or agent
having charge of the stock transfer books for shares of the
corporation shall make, at least 10 days before each
meeting of shareholders, a complete record of the shareholders
entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order and by voting
group, and within each voting group by class or
series of shares, with the address of and the number
of shares held by each. The record, for a period of 10 days
prior to such meeting and continuing through the meeting,
shall be made available for inspection by any shareholder or
such shareholder's agent or attorney at the corporation's
principal office or at a place identified in the meeting
notice in the city where the meeting will be held. Such
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<PAGE>
record shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of
any shareholder, or the shareholder's agent or attorney,
during the whole time of the meeting or any adjournment.
Failure to comply with the requirements of this section shall
not affect the validity of any action taken at such meeting.
1.8 Quorum.
______ A majority of the votes entitled
to be cast on a matter by a voting group constitutes a quorum
of that voting group for action on that matter. If a quorum
is present at a meeting, a majority may adjourn the meeting
from time to time to a different date, time or place without
further notice if the new date, time or place is announced at
the meeting before adjournment, except that if a new record
date for the adjourned meeting is or must be fixed, notice of
the adjourned meeting must be given to persons who are
shareholders as of the new record date. Once a share is
represented for any purpose at a meeting, other than solely to
object to holding the meeting or transacting business at the
meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of the
meeting unless a new record date is or must be fixed for the
meeting. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been
transacted at the meeting as originally held.
1.9 Manner of Acting.
________________
(a) If a quorum exists, action on a matter
shall be approved by a voting group if the votes cast within a
voting group favoring the action exceed the votes cast within
the voting group opposing the action, unless a greater number
of affirmative votes is required by the Articles of
Incorporation or by law. If the Articles of Incorporation or
Washington law provide for voting by two or more voting groups
on a matter, action on a matter is taken only when voted upon
by each of those voting groups counted separately. Action may
be taken by one voting group on a matter even though no action
is taken by another voting group.
(b) Any action which is required or permitted
to be taken by the shareholders at a meeting may be taken
without a meeting if one or more consents in writing, setting
forth the action so taken, are signed by all of the
shareholders entitled to vote on the matter and delivered to
the corporation. Such consent, which shall have the same
effect as a meeting vote, shall be filed with the minutes of
the corporation. If required by Washington law, all nonvoting
shareholders must be given written notice of the proposed
action at least ten days before the action is taken, unless
such notice is waived in a manner consistent with these
bylaws. Actions taken by consent of the shareholders are
effective when all consents are in the possession of the
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<PAGE>
corporation, unless otherwise specified in the consent. A
shareholder may withdraw consent only by delivering a written
notice of withdrawal to the corporation prior to the time that
all consents are in the possession of the corporation.
(c) Shareholders may participate in a meeting
of the shareholders by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other during the
meeting.
1.10 Proxies.
_______ A shareholder may appoint a
proxy to vote or otherwise act for the shareholder by signing
an appointment form, either personally or by an agent. No
appointment shall be valid after 11 months from the date of
its execution unless the appointment form expressly so
provides. An appointment of a proxy is revocable unless the
appointment is coupled with an interest. No revocation shall
be effective until written notice thereof has actually been
received by the Secretary of the corporation or any other
person authorized to tabulate votes.
1.11 Voting of Shares by Certain Holders.
___________________________________
(a) Shares standing in the name of another
corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the bylaws of such corporation may
prescribe or, in the absence of such provision, as the board
of directors of such corporation may determine.
(b) Shares held by an administrator, executor,
guardian or conservator may be voted by the holder, either in
person or by proxy, without a transfer of such shares into the
holder's name. Shares standing in the name of a trustee may
be voted by that trustee, either in person or by proxy, but no
trustee shall be entitled to vote shares without a transfer of
such shares into the trustee's name.
(c) Shares outstanding in the name of a
receiver may be voted by such receiver, and shares held by or
under the control of a receiver may be voted by such receiver
without the transfer thereof into the receiver's name if
authority to do so is contained in an appropriate order of the
court by which such receiver was appointed.
(d) A shareholder whose shares are pledged
shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares so
transferred.
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<PAGE>
(e) Shares held directly or indirectly by
another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation
is held by the corporation, shall not be voted at any meeting
or counted in determining the total number of outstanding
shares at any given time.
ARTICLE II
BOARD OF DIRECTORS
2.1 General Powers.
______________ All corporate powers shall
be exercised by or under the authority of, and the business
and affairs of the corporation shall be managed under the
direction of, its Board of Directors.
2.2 Number, Tenure and Qualification.
________________________________ The
number of directors of the corporation shall be not less than
three nor more than 14 as established from time to time by
resolution of the Board of Directors. The directors shall be
elected by the shareholders at each annual shareholders
meeting or at a special shareholders meeting called for that
purpose. The directors shall hold office until the next
annual meeting of the shareholders and until their successors
shall have been elected and qualified; provided, however, that
the term of office of any director shall not extend beyond the
regular quarterly meeting of the Board of Directors following
the date the director reaches age 70. Directors need not be
residents of the State of Washington or shareholders of the
corporation. The number of directors may be increased or
decreased from time to time by the Board of Directors within
the limits set forth, without amendment to the bylaws, but no
decrease shall have the effect of shortening the term of any
incumbent director.
2.3 Regular Meeting.
_______________ A regular meeting of the
Board of Directors shall be held without other notice than
this bylaw immediately after, and at the same place as, the
annual meeting of shareholders. The Board of Directors may
provide by resolution the time and place, either within or
without the State of Washington, for the holding of additional
regular meetings without other notice than the resolution.
2.4 Special Meeting.
_______________ Special meetings of the
Board of Directors may be called by or at the request of the
Chairman or by one-third of the directors. The person or
persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the
State of Washington, as the place for holding any special
meeting of the Board of Directors called by them.
2.5 Notice.
______ Notice of the date, time and place
of any special meeting of the Board of Directors shall be
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given at least two days prior to the meeting by notice
communicated in person, telephone, telegraph or other form of
wire or wireless communication that transmits a facsimile of
the notice, or by mail or private carrier. If mailed, notice
shall be deemed to be given when deposited in the United
States mail addressed to the director at the director's
business address, with postage thereon prepaid. Notice by all
other means shall be deemed effective when received by or on
behalf of the director. Neither the business to be transacted
at nor the purpose of any regular or special meeting of the
Board of Directors need be specified in the notice or waiver
of notice of such meeting.
2.6 Waiver of Notice.
________________ Whenever any notice is
required to be given to any director of the corporation, a
waiver thereof in writing signed by the person or persons
entitled to such notice and delivered to the corporation,
whether before or after the meeting, shall be deemed
equivalent to the giving of such notice. The attendance or
participation of a director at a meeting shall constitute a
waiver of notice of such meeting unless the director at the
beginning of the meeting, or promptly upon the director's
arrival, objects to holding the meeting or transacting
business at the meeting and does not thereafter vote for or
assent to action taken at the meeting.
2.7 Quorum.
______ A majority of the number of
directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business at any
meeting of the Board of Directors.
2.8 Manner of Acting.
________________
(a) If a quorum is present when a vote is
taken, the affirmative vote of the majority of the directors
present shall be the act of the Board of Directors unless a
different number is provided by law, the Articles of
Incorporation or these bylaws.
(b) Members of the Board of Directors may
participate in a board meeting by means of a conference
telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each
other during the meeting. Participation in a meeting by such
means shall constitute presence in person at the meeting.
(c) Any action which is required or permitted
to be taken by the directors at a meeting may be taken without
a meeting if one or more consents in writing setting forth the
action so taken are signed, either before or after the action
is taken, by all of the directors entitled to vote on the
matter and delivered to the corporation. Such consent, which
shall have the same effect as a meeting vote, shall be filed
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with the minutes of the corporation. Action taken by consent
of the directors is effective when the last director signs the
consent, unless the consent specifies a later effective date.
2.9 Vacancies.
_________ Any vacancy occurring in the
Board of Directors may be filled by the shareholders or by the
affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors or by a
sole remaining director. Any directorship to be filled by
reason of an increase in the number of directors of the
corporation may be filled by the Board of Directors for a term
of office continuing only until the next election of directors
by the shareholders. A director elected to fill a vacancy
shall be elected to serve until the next annual meeting of
shareholders and until a successor shall be elected and
qualified. A vacancy that will occur at a specific later date
may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs.
2.10 Compensation.
____________ By resolution of the Board
of Directors, the directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors
and may be paid a fixed sum for attendance at each meeting of
the Board of Directors or a stated salary as director. No
such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation
therefor.
2.11 Presumption of Assent.
_____________________ A director of the
corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless
(a) the director's dissent or abstention from the action is
entered in the minutes of the meeting; (b) a written dissent
or abstention from the action is filed with the person
presiding at the meeting before the adjournment thereof or
forwarded by certified or registered mail to the Secretary of
the corporation immediately after the adjournment of the
meeting; or (c) the director objects at the beginning of the
meeting, or promptly upon his or her arrival, to holding the
meeting or transacting business at the meeting. The right to
dissent shall not apply to a director who voted in favor of
the action.
2.12 Removal.
_______ All or any number of the
directors may be removed, with or without cause, by the
shareholders at a special meeting called expressly for that
purpose, and the meeting notice shall state that the purpose,
or one of the purposes, of the meeting is the removal of the
director or directors. A director may not be removed if the
number of votes sufficient to elect the director under
cumulative voting is voted against the director's removal.
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ARTICLE III
EXECUTIVE AND OTHER COMMITTEES
3.1 Designation.
___________ The Board of Directors, by
resolution adopted by the greater of (a) a majority of all
directors in office when the resolution is made or (b) the
number of directors required to take action by these bylaws or
the Articles of Incorporation, may designate from among its
members an Executive Committee and one or more other
committees each of which, to the extent provided in such
resolution and these bylaws, shall have and may exercise all
the authority of the Board of Directors. The designation of
committees and the delegation of authority to them shall not
operate to relieve the Board of Directors or any member
thereof of any responsibility imposed by law. No member of a
committee shall continue to be a member thereof after ceasing
to be a director of the corporation. The Board of Directors
shall have the power at any time to increase or decrease the
number of members of any committee, to fill vacancies thereon,
to change any member thereof and to change the functions or
terminate the existence thereof.
3.2 Powers.
______ During the interval between
meetings of the Board of Directors and subject to such
limitations as may be imposed by resolution of the Board of
Directors, the Executive Committee may have and may exercise
all the authority of the Board of Directors in the management
of the corporation, provided that the committee shall not have
the authority of the Board of Directors in reference to:
(a) declaring dividends or distributions, except according to
a general formula or method prescribed by the Board of
Directors; (b) approving or recommending to the shareholders
actions or proposals required by law to be approved by the
shareholders; (c) filling vacancies on the Board of Directors
or any committee thereof; (d) amending the bylaws;
(e) authorizing or approving the reacquisition of shares,
unless pursuant to a general formula or method specified by
the Board of Directors; (f) approving a plan of merger, not
requiring approval of the shareholders; or (g) authorizing or
approving the issuance or sale or contract for sale of shares,
or determining the designation and relative rights,
preferences, and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee,
or senior executive officer to approve the issuance or sale or
contract for sale of shares or determine the designation and
relative rights, preferences and limitations of a class or
series of shares, within limits specifically prescribed by the
Board of Directors.
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<PAGE>
3.3 Procedures; Meetings; Quorum.
____________________________
(a) The Board of Directors shall appoint a
chairman from among the members of each committee and shall
appoint a secretary who may, but need not, be a member of the
committee. The chairman shall preside at all meetings of the
committee and the secretary of the committee shall keep a
record of its acts and proceedings.
(b) Regular meetings of each committee, of
which no notice shall be necessary, shall be held on such days
and at such places as shall be fixed by resolution adopted by
the committee. Special meetings of a committee shall be
called at the request of the chairman or of any member of the
committee and shall be held upon such notice as is required by
these bylaws for special meetings of the Board of Directors,
provided that notice by word of mouth or telephone shall be
sufficient if received in the city where the meeting is to be
held not later than the day immediately preceding the day of
the meeting.
(c) Attendance or participation of any member
of a committee at a meeting shall constitute a waiver of
notice of the meeting, unless the member at the beginning of
the meeting, or promptly upon the member's arrival, objects to
holding the meeting or transacting business at the meeting and
does not thereafter vote for or assent to action taken at the
meeting. A majority of members of a committee shall be
necessary to constitute a quorum for the transaction of any
business, and the act of a majority of the members present at
a meeting at which a quorum is present shall be the act of the
committee. Members of a committee may participate in a meeting
of the committee by means of telephone or similar
communications equipment by means of which all persons
participating in the meeting can hear each other during the
meeting. Participation in a meeting by such means shall
constitute presence in person at the meeting.
(d) Any action which may be taken at a meeting
of a committee may be taken without a meeting if one or more
consents in writing setting forth the actions so taken are
signed, either before or after the action is taken, by all
members of the committee entitled to vote with respect to the
subject matter thereof and delivered to the corporation. The
consent shall have the same effect as a meeting vote.
ARTICLE IV
OFFICERS
4.1 Number.
______ The officers of the corporation
shall be a Chairman and a President (each of whom shall be
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<PAGE>
directors of the corporation), one or more Vice Presidents
(who may be distinguished from one another by such
designations as the Board of Directors may specify), a
Secretary, a Treasurer, and, if the Board of Directors shall
deem such an officer desirable, a Controller. Each of the
aforesaid officers shall be elected by the Board of Directors.
Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same
person.
4.2 Election and Term of Office.
___________________________ With the
exception of the initial election of any new officer or
assistant officer, or the initial election of an officer to
another or different office, which may be at any meeting of
the Board of Directors, the officers of the corporation shall
be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual
meeting of the shareholders. If the election of officers
shall not be held at the meeting, it shall be held as soon
thereafter as is convenient. Each officer shall hold office
until a successor shall have been duly elected and shall have
qualified or until the officer's death, resignation or removal
in the manner hereinafter provided.
4.3 Removal.
_______ Any officer or agent elected or
appointed by the Board of Directors may be removed by the
Board of Directors whenever in its judgment the best interests
of the corporation would be served thereby, but removal shall
be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or
agent shall not of itself create contract rights.
4.4 Vacancies.
_________ A vacancy in any office because
of death, resignation, removal, disqualification or otherwise
may be filled by the Board of Directors for the unexpired
portion of the term.
4.5 Chairman of the Board.
_____________________ The chairman shall
be the chief executive officer, shall, when present, preside
at all meetings of the shareholders and of the Board of
Directors (except that the Chairman may designate another
director to preside at meetings of the Board of Directors),
and shall perform such other duties as may be prescribed from
time to time by the Board of Directors.
4.6 President.
_________ The President shall be the
chief operating officer and shall perform such duties as may
be assigned from time to time by the Chairman or the Board of
Directors.
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<PAGE>
4.7 Vice Presidents.
_______________ Any Vice President shall
perform such duties as may be assigned from time to time by
the Chairman, the President or the Board of Directors.
4.8 Secretary and Treasurer.
_______________________ The Secretary and
Treasurer shall perform the duties usually pertaining to their
respective offices and such other duties as from time to time
may be assigned to each of them by the Chairman, the President
or the Board of Directors.
4.9 Salaries.
________ The salaries of the officers
shall be fixed from time to time by the Board of Directors or
in such manner as the Board of Directors shall authorize, and
no officer shall be prevented from receiving such salary
because the officer is also a director of the corporation.
ARTICLE V
INDEMNIFICATION
The corporation shall indemnify, to the fullest
extent not prohibited by law, any person who is made, or
threatened to be made, a party to an action, suit or
proceeding, whether civil, criminal, administrative,
investigative or otherwise (including an action, suit or
proceeding by or in the right of the corporation) by reason of
the fact that such person is or was a director, officer,
employee or agent of the corporation, or a fiduciary within
the meaning of the Employee Retirement Income Security Act of
1974 with respect to any employee benefit plan of the
corporation, or serves or served at the request of the
corporation as a director, officer, employee or agent, or as a
fiduciary of an employee benefit plan, of another corporation,
partnership, joint venture, trust or other enterprise. The
corporation shall pay for or reimburse the reasonable expenses
incurred by any such person in any such proceeding in advance
of the final disposition of the proceeding to the fullest
extent not prohibited by law. This Article shall not be
deemed exclusive of any other provisions for indemnification
or advancement of expenses of directors, officers, employees,
agents and fiduciaries that may be included in the Articles of
Incorporation or any statute, bylaw, agreement, general or
specific action of the Board of Directors, vote of
shareholders or other document or arrangement.
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<PAGE>
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares.
_______________________
(a) Certificates representing shares of the
corporation shall be in such form as shall be determined by
the Board of Directors. Such certificates shall be signed by
the Chairman, the President or a Vice President and by the
Secretary or an Assistant Secretary and may be sealed with the
seal of the corporation or a facsimile thereof. All
certificates for shares shall be consecutively numbered or
otherwise identified.
(b) The name and address of the person to whom
the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock
transfer books for the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled
and no new certificate shall be issued until the former
certificate for a like number of shares shall have been
surrendered and cancelled, except that in the case of a lost,
destroyed or mutilated certificate, a new one may be issued
therefor upon such terms and indemnity to the corporation as
the Board of Directors may prescribe.
6.2 Transfer of Shares.
__________________ Transfer of shares of
the corporation shall be made only on the stock transfer books
of the corporation by the holder of record thereof or by the
holder's legal representative, who shall furnish proper
evidence of authority to transfer, or by the holder's attorney
thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation. The person in
whose name shares stand on the books of the corporation shall
be deemed by the corporation to be the owner thereof for all
purposes.
6.3 Transfer Agent and Registrar.
____________________________ The Board of
Directors may from time to time appoint one or more Transfer
Agents and one or more Registrars for the shares of the
corporation, with such powers and duties as the Board of
Directors shall determine by resolution. The signatures of
the Chairman, the President, or Vice President and the
Secretary or Assistant Secretary upon a certificate may be
facsimiles if the certificate is manually signed on behalf of
a Transfer Agent or by a Registrar other than the corporation
itself or an employee of the corporation.
6.4 Officer Ceasing to Act.
______________________ In case any
officer who has signed or whose facsimile signature has been
placed upon a stock certificate shall have ceased to be such
officer before such certificate is issued, it may be issued by
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the corporation with the same effect as if the signer were
such officer at the date of its issuance.
6.5 Fractional Shares.
_________________ The corporation shall
not issue certificates for fractional shares.
ARTICLE VII
SEAL
The seal of the corporation shall be circular in
form and shall have inscribed thereon the name of the
corporation and the state of incorporation and the words
"Corporate Seal".
ARTICLE VIII
AMENDMENTS
These bylaws may be altered, amended or repealed
and new bylaws may be adopted by the Board of Directors at any
regular or special meeting, subject to repeal or change by
action of the shareholders of the corporation.
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EXHIBIT 10F
PACIFIC TELECOM, INC. LONG TERM INCENTIVE PLAN
1994 RESTATEMENT
<PAGE>
PACIFIC TELECOM, INC. LONG TERM INCENTIVE PLAN
1994 RESTATEMENT
Pacific Telecom, Inc., a Washington corporation (the
"Company"), amends and restates its Long Term Incentive Plan, as
adopted effective January 1, 1988, to provide in its entirety as
set forth herein. This Long Term Incentive Plan, as amended and
restated (the "Plan"), shall govern incentive awards made on or
after the date the Plan is approved by the Company's Board of
Directors(the "Board of Directors"). Approval of the Plan by the
Board of Directors shall not affect incentive awards to be made
with respect to performance cycles that began under the Company's
existing Long Term Incentive Plan prior to such approval, unless
the Company and the recipients of such awards agree otherwise.
1. PURPOSE. The Purpose of the Plan, as restated
herein,is to promote the long-term success of the Company by
providing stock-based incentives for selected executive employees
of the Company to exert their best efforts on behalf of the
Company and its shareholders. Awards under the Plan shall take
the form of grants of shares of the Company's Common Stock
("Common Stock"). Such shares shall be held by Plan participants
("Participants") subject to satisfaction of such vesting and
stock ownership restrictions as may be specified at the time of
grant.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 7, the total number of shares of Common Stock
that may be awarded under the Plan shall not exceed 200,000
shares. Shares awarded under the Plan shall be purchased on the
open market for delivery to Participants.
3. EFFECTIVE DATE AND DURATION OF PLAN.
3.1 EFFECTIVE DATE. The Plan shall become effective
on the date adopted by the Board of Directors; provided,
however, that no award under the Plan shall be deemed
effective until the Plan is approved by the affirmative
vote of the holders of a majority of the securities of the
Company represented and entitled to vote at a duly held
meeting of the Company's shareholders at which a quorum is
present. Any award made prior to shareholder approval of
the Plan shall be conditioned on and made subject to such
approval. Subject to this limitation, shares may be
awarded under the Plan at any time after the effective date
and before termination of the Plan.
3.2 DURATION AND EARLY TERMINATION. Unless earlier
terminated, the Plan shall continue in effect until all
shares available for awards under the Plan have been
awarded and all restrictions on such shares, if any, have
lapsed. The Board of Directors may suspend or terminate
the Plan at any time except with respect to outstanding
shares held subject to restrictions. Termination shall not
affect the forfeitability of shares awarded under the Plan.
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<PAGE>
4. ADMINISTRATION.
4.1 BOARD OF DIRECTORS. The Plan shall be
administered by the Board of Directors of the Company,
which shall determine and designate from time to time the
individuals to whom awards shall be made, the amount of the
awards and the other terms and conditions of the awards.
Subject to the provisions of the Plan, the Board of
Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, waive
or modify any restriction applicable to shares (except
those restrictions imposed by law) and make all other
determinations that are, in the judgment of the Board of
Directors, necessary or desirable for the administration of
the Plan. The interpretation and construction of the
provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of
Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related
agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and it shall be
the sole and final judge of such expediency.
4.2 COMMITTEE. The Board of Directors may delegate
to a committee of directors(the "Committee") any or all
authority for administration of the Plan. If authority is
delegated to a Committee, all references to the Board of
Directors in the Plan shall mean and relate to the
Committee except (i) as otherwise provided by the Board of
Directors, and (ii) that only the Board of Directors may
terminate or amend the Plan as provided in Sections 3.2 and
11.
4.3 OFFICER. The Board of Directors or the
Committee, as applicable, may delegate to an executive
officer of the Company authority to administer those
aspects of the Plan that do not involve selection of
Participants or decisions concerning the timing, pricing,
or amounts of awards. No officer to whom administrative
authority has been granted under this Section 4.3 may waive
or modify any restriction applicable to shares granted to
such officer under the Plan.
5. ELIGIBILITY. All executive employees of the Company
are eligible for selection as Participants. The Board of
Directors may, from time to time, select as Participants those
executive employees who the Board of Directors believes have made
or will make important contributions to the long-term performance
of the Company.
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<PAGE>
6. AWARDS.
6.1 GRANT CRITERIA. In determining the individuals
to whom awards under the Plan shall be made and the amounts
of the awards, the Board of Directors shall consider
criteria such as the following:
(a) Total shareholder return relative to peer
companies;
(b) Earnings per share growth over time relative
to peer companies;
(c) Achievement of long term goals, strategies
and plans; and
(d) Maintenance of competitive position.
6.2 RESTRICTIONS. Shares awarded shall be subject to
such terms, conditions, and restrictions as may be
determined by the Board of Directors to be consistent with
the purpose of the Plan and the best interests of the
Company. The restrictions may include, without limitation,
stock transfer restrictions and forfeiture provisions
designed to facilitate the achievement by Participants of
specified stock ownership goals.
6.3 AGREEMENTS. The Board of Directors may require
the recipient to sign an agreement as a condition of the
award.
7. CHANGES IN CAPITAL STRUCTURE. If the outstanding
Common Stock of the Company is hereafter increased or decreased
or changed into or exchanged for a different number or kind of
shares or other securities of the Company or of another corpo-
ration by reason of any reorganization, merger, consolidation,
plan of exchange, recapitalization, reclassification, stock
split-up, combination of shares or dividend payable in shares,
appropriate adjustment shall be made by the Board of Directors
in the number and kind of shares available for awards under the
Plan. Notwithstanding the foregoing, the Board of Directors
shall have no obligation to effect any adjustment that would or
might result in the issuance of fractional shares, and any
fractional shares resulting from any adjustment may be disre-
garded or provided for in any manner determined by the Board of
Directors. Any such adjustments made by the Board of Directors
shall be conclusive.
8. ACCELERATION UPON TERMINATION AFTER CHANGE IN CONTROL.
Notwithstanding any other provisions of the Plan or related
agreements, all restrictions affecting shares of Common Stock
awarded to a Participant under the Plan shall immediately lapse
upon termination of the Participant's employment within two years
after the date on which any one of the following events has taken
place:
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<PAGE>
8.1 TENDER OR EXCHANGE OFFER. A tender or exchange
offer, other than one made by the Company, is made for
Common Stock (or securities convertible into Common Stock)
and such offer results in a portion of those securities
being purchased and the offeror after the consummation of
the offer is the beneficial owner (as determined pursuant
to Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), directly or indirectly, of
at least 20 percent of the outstanding Common Stock; or
8.2 20 PERCENT OWNER. The Company receives a report
on Schedule 13D of the Exchange Act reporting the
beneficial ownership by any person of 20 percent or more of
the Company's outstanding Common Stock; or
8.3 BOARD OF DIRECTORS. During any period of 12
months or less, individuals who at the beginning of such
period constituted a majority of the Board of Directors
cease for any reason to constitute a majority thereof
unless the nomination or election of such new directors was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
such period.
9. STOCK CERTIFICATE LEGENDS. The certificates
representing shares of Common Stock awarded under the Plan shall
bear any legends required by the Board of Directors.
10. WITHHOLDING TAX. The Company may require any recipient
of an award under the Plan to pay to the Company in cash upon
demand amounts necessary to satisfy any applicable federal, state
or local tax withholding requirements. If the recipient fails
to pay the amount demanded, the Company may withhold that amount
from other amounts payable by the Company to the recipient,
including salary or fees for services, subject to applicable law.
11. AMENDMENT OF PLAN. The Board of Directors may at any
time, and from time to time, modify or amend the Plan in such
respects as it shall deem advisable because of changes in the law
while the Plan is in effect or for any other reason. Except as
provided in Sections 4.1 and 8, however, no change in an award
already granted shall be made without the written consent of the
recipient of such award.
12. APPROVALS. Should the approval of state and federal
authorities or agencies with jurisdiction in the matter be
required, the obligations of the Company under the Plan are
subject to the Company obtaining such approval. The Company will
use its best efforts to take steps required by state or federal
law or applicable regulations, including rules and regulations
of the Securities and Exchange Commission and any stock exchange
on which the Company's shares may then be listed, in connection
with the grants under the Plan. The foregoing notwithstanding,
the Company shall not be obligated to issue or deliver Common
Stock under the Plan if such issuance or delivery would violate
applicable state or federal securities laws.
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<PAGE>
13. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or
any award pursuant to the Plan shall (i) confer upon any employee
any right to be continued in the employment of the Company or
interfere in any way with the right of the Company by whom such
employee is employed to terminate such employee's employment at
any time, for any reason, with or without cause, or to decrease
such employee's compensation or benefits, or (ii) confer upon any
person engaged by the Company any right to be retained or
employed by the Company or to the continuation, extension,
renewal, or modification of any compensation, contract, or
arrangement with or by the Company.
14. RIGHTS AS A SHAREHOLDER. The recipient of an award
under the Plan shall have the right to vote all shares of Common
Stock awarded to such recipient and shall have the right to all
dividends and distributions payable in respect of such shares,
regardless of whether such shares have vested or are subject to
restrictions.
Adopted by Board of Directors: December 14, 1993
Approved by Shareholders: ,199
__
PACIFIC TELECOM, INC., a Washington
corporation
By Charles E. Robinson
__________________________
Executed: January 1,1994
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<PAGE>
EXHIBIT 10G
PACIFICORP LONG TERM INCENTIVE PLAN
1993 RESTATEMENT
<PAGE>
PACIFICORP LONG TERM INCENTIVE PLAN
1993 RESTATEMENT
PacifiCorp, an Oregon corporation (the "Company"),
amends and restates its Long Term Incentive Plan, as adopted
effective January 1, 1985 and amended by Amendment No. 1
effective October 25, 1985, to provide in its entirety as set
forth herein. This Long Term Incentive Plan, as amended and
restated (the "Plan"), shall govern incentive awards made on
or after the date the Plan is approved by the Company's board
of directors (the "Board of Directors"). Approval of the Plan
by the Board of Directors shall not affect incentive awards to
be made with respect to performance cycles that began under
the Company's existing Long Term Incentive Plan prior to such
approval, unless the Company and the recipients of such awards
agree otherwise.
1. PURPOSE AND ADOPTION BY SUBSIDIARIES.
1.1 PURPOSE. The purpose of the Plan, as restated
herein, is to promote the long-term success of the Company
and its Subsidiaries by providing stock-based incentives for
selected executive employees of the Company and its
Subsidiaries to exert their best efforts on behalf of the
Company and its shareholders. Awards under the Plan shall
take the form of grants of shares of the Company's Common
Stock ("Common Stock"). Such shares shall be held by Plan
participants ("Participants") subject to satisfaction of
such vesting and stock ownership restrictions as may be
specified at the time of grant.
1.2 SUBSIDIARIES. For purposes of this Plan, the term
"Subsidiary" shall mean any corporation that is a member,
together with the Company, of a controlled group of
corporations within the meaning of Internal Revenue Code
Section 1563 and that adopts this Plan with the Company's
approval. Awards under the Plan for any Participant
employed by a Subsidiary shall be the financial
responsibility of such Subsidiary. The Subsidiary's
agreement to be bound by this obligation and other terms of
the Plan shall be evidenced by a statement of adoption of
the Plan executed by the Subsidiary and by the Company. All
grants under the Plan to a participant employed by a
Subsidiary shall be treated for tax purposes as if made by
the Subsidiary and shall be reported accordingly.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as
provided in Section 7, the total number of shares of Common
Stock that may be awarded under the Plan shall not exceed
900,000 shares. Shares awarded under the Plan shall be
purchased on the open market for delivery to Participants.
1
<PAGE>
3. EFFECTIVE DATE AND DURATION OF PLAN.
3.1 EFFECTIVE DATE. The Plan shall become effective
on the date adopted by the Board of Directors; provided,
however, that no award under the Plan shall be deemed
effective until the Plan is approved by the affirmative vote
of the holders of a majority of the securities of the
Company represented and entitled to vote at a duly held
meeting of the Company's shareholders at which a quorum is
present. Any award made prior to shareholder approval of
the Plan shall be conditioned on and made subject to such
approval. Subject to this limitation, shares may be awarded
under the Plan at any time after the effective date and
before termination of the Plan.
3.2 DURATION AND EARLY TERMINATION. Unless earlier
terminated, the Plan shall continue in effect until all
shares available for awards under the Plan have been awarded
and all restrictions on such shares, if any, have lapsed.
The Board of Directors may suspend or terminate the Plan at
any time except with respect to outstanding shares held
subject to restrictions. Termination shall not affect the
forfeitability of shares awarded under the Plan.
4. ADMINISTRATION.
4.1 BOARD OF DIRECTORS. The Plan shall be
administered by the Board of Directors of the Company, which
shall determine and designate from time to time the
individuals to whom awards shall be made, the amount of the
awards and the other terms and conditions of the awards.
Subject to the provisions of the Plan, the Board of
Directors may from time to time adopt and amend rules and
regulations relating to administration of the Plan, waive or
modify any restriction applicable to shares (except those
restrictions imposed by law) and make all other
determinations that are, in the judgment of the Board of
Directors, necessary or desirable for the administration of
the Plan. The interpretation and construction of the
provisions of the Plan and related agreements by the Board
of Directors shall be final and conclusive. The Board of
Directors may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any related
agreement in the manner and to the extent it shall deem
expedient to carry the Plan into effect, and it shall be the
sole and final judge of such expediency.
4.2 COMMITTEE. The Board of Directors may delegate to
a committee of directors (the "Committee") any or all
authority for administration of the Plan. If authority is
delegated to a Committee, all references to the Board of
Directors in the Plan shall mean and relate to the Committee
except (i) as otherwise provided by the Board of Directors,
2
<PAGE>
and (ii) that only the Board of Directors may terminate or
amend the Plan as provided in Sections 3.2 and 11.
4.3 OFFICER. The Board of Directors or the Committee,
as applicable, may delegate to an executive officer of the
Company authority to administer those aspects of the Plan
that do not involve selection of Participants or decisions
concerning the timing, pricing, or amounts of awards. No
officer to whom administrative authority has been granted
under this Section 4.3 may waive or modify any restriction
applicable to shares granted to such officer under the Plan.
5. ELIGIBILITY. All executive employees of the Company
and its Subsidiaries are eligible for selection as
Participants. The Board of Directors may, from time to time,
select as Participants those executive employees who the Board
of Directors believes have made or will make important
contributions to the long-term performance of the Company and
its Subsidiaries.
6. AWARDS.
6.1 GRANT CRITERIA. In determining the individuals to
whom awards under the Plan shall be made and the amounts of
the awards, the Board of Directors shall consider criteria
such as the following:
(a) Total shareholder return relative to peer
companies;
(b) Earnings per share growth over time relative
to peer companies;
(c) Achievement of long term goals, strategies
and plans; and
(d) Maintenance of competitive position.
6.2 RESTRICTIONS. Shares awarded shall be subject to
such terms, conditions, and restrictions as may be
determined by the Board of Directors to be consistent with
the purpose of the Plan and the best interests of the
Company. The restrictions may include, without limitation,
stock transfer restrictions and forfeiture provisions
designed to facilitate the achievement by Participants of
specified stock ownership goals.
6.3 AGREEMENTS. The Board of Directors may require
the recipient to sign an agreement as a condition of the
award.
7. CHANGES IN CAPITAL STRUCTURE. If the outstanding
Common Stock of the Company is hereafter increased or
decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Company or of
3
<PAGE>
another corporation by reason of any reorganization, merger,
consolidation, plan of exchange, recapitalization,
reclassification, stock split-up, combination of shares or
dividend payable in shares, appropriate adjustment shall be
made by the Board of Directors in the number and kind of
shares available for awards under the Plan. Notwithstanding
the foregoing, the Board of Directors shall have no obligation
to effect any adjustment that would or might result in the
issuance of fractional shares, and any fractional shares
resulting from any adjustment may be disregarded or provided
for in any manner determined by the Board of Directors. Any
such adjustments made by the Board of Directors shall be
conclusive.
8. ACCELERATION UPON TERMINATION AFTER CHANGE IN CONTROL.
Notwithstanding any other provisions of the Plan or related
agreements, all restrictions affecting shares of Common Stock
awarded to a Participant under the Plan shall immediately
lapse upon termination of the Participant's employment within
two years after the date on which any one of the following
events has taken place:
8.1 TENDER OR EXCHANGE OFFER. A tender or exchange
offer, other than one made by the Company, is made for
Common Stock (or securities convertible into Common Stock)
and such offer results in a portion of those securities
being purchased and the offeror after the consummation of
the offer is the beneficial owner (as determined pursuant to
Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), directly or indirectly, of at
least 20 percent of the outstanding Common Stock ; or
8.2 20 PERCENT OWNER. The Company receives a report
on Schedule 13D under the Exchange Act reporting the
beneficial ownership by any person of 20 percent or more of
the Company's outstanding Common Stock; or
8.3 BOARD OF DIRECTORS. During any period of
12 months or less, individuals who at the beginning of such
period constituted a majority of the Board of Directors
cease for any reason to constitute a majority thereof unless
the nomination or election of such new directors was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
such period.
9. STOCK CERTIFICATE LEGENDS. The certificates
representing shares of Common Stock awarded under the Plan
shall bear any legends required by the Board of Directors.
10. WITHHOLDING TAX. The Company may require any
recipient of an award under the Plan to pay to the Company in
cash upon demand amounts necessary to satisfy any applicable
federal, state or local tax withholding requirements. If the
recipient fails to pay the amount demanded, the Company may
4
<PAGE>
withhold that amount from other amounts payable by the Company
to the recipient, including salary or fees for services,
subject to applicable law.
11. AMENDMENT OF PLAN. The Board of Directors may at any
time, and from time to time, modify or amend the Plan in such
respects as it shall deem advisable because of changes in the
law while the Plan is in effect or for any other reason.
Except as provided in Sections 4.1 and 8, however, no change
in an award already granted shall be made without the written
consent of the recipient of such award.
12. APPROVALS. The obligations of the Company under the
Plan are subject to the approval of state and federal
authorities or agencies with jurisdiction in the matter. The
Company will use its best efforts to take steps required by
state or federal law or applicable regulations, including
rules and regulations of the Securities and Exchange
Commission and any stock exchange on which the Company's
shares may then be listed, in connection with the grants under
the Plan. The foregoing notwithstanding, the Company shall
not be obligated to issue or deliver Common Stock under the
Plan if such issuance or delivery would violate applicable
state or federal securities laws.
13. EMPLOYMENT AND SERVICE RIGHTS. Nothing in the Plan or
any award pursuant to the Plan shall (i) confer upon any
employee any right to be continued in the employment of the
Company or any Subsidiary or interfere in any way with the
right of the Company or any Subsidiary by whom such employee
is employed to terminate such employee's employment at any
time, for any reason, with or without cause, or to decrease
such employee's compensation or benefits, or (ii) confer upon
any person engaged by the Company or any Subsidiary any right
to be retained or employed by the Company or any Subsidiary or
to the continuation, extension, renewal, or modification of
any compensation, contract, or arrangement with or by the
Company or any Subsidiary.
14. RIGHTS AS A SHAREHOLDER. The recipient of an award
under the Plan shall have the right to vote all shares of
Common Stock awarded to such recipient and shall have the
right to all ordinary dividends payable in respect of such
shares, regardless of whether such shares have vested or are
subject to restrictions.
Adopted by Board of Directors: November 17, 1993
Approved by Shareholders: , 199
___
5
<PAGE>
EXHIBIT 10H
PACIFICORP LONG TERM INCENTIVE PLAN
1993 RESTATEMENT
RESTRICTED STOCK AGREEMENT
__________________________
This Restricted Stock Agreement ("Agreement") is made
effective as of , 19 , between
__________________ _____
PacifiCorp, an Oregon corporation (the "Company") and
_____________________
(the "Employee").
In consideration of the agreements set forth below,
the Company and the Employee agree as follows:
1. Stock Award. Pursuant to the Company's Long Term
___________
Incentive Plan, 1993 Restatement (the "Plan") and subject to
approval of such Plan by the Company's shareholders at the
Company's 1994 annual meeting of shareholders, the Company
hereby awards to the Employee
____________
shares (the "Grant Shares") of the Company's Common Stock for
calendar year 1994 (the "Grant Year"). The Grant Shares shall
be owned by the Employee subject to the terms and conditions
of this Agreement and the Plan, a copy of which has been
provided to the Employee. Capitalized terms not otherwise
defined herein shall have the meanings ascribed to them in the
Plan. The Company and the Employee agree that this award
shall terminate and supersede any rights to performance shares
associated with the 1992-1995 performance cycle that began
under the Company's Long Term Incentive Plan prior to adoption
of the Plan.
2. Shares Purchased on Open Market; Escrow.
_______________________________________
2.1 Market Purchase. As soon as practicable after
_______________
execution of this Agreement by the Company and the
Employee, the Company shall pay to a securities broker or
other third party an amount equal to the market price of
the Grant Shares, with instructions to purchase the Grant
Shares on the open market in the Employee's name and to
deliver the certificates representing the Grant Shares
into escrow pursuant to Section 2.2 of this Agreement.
For purposes of administrative convenience, the Company
shall have the authority to determine the number of
certificates to be issued in the Employee's name and the
denomination of each certificate.
2.2 Escrow. For purposes of facilitating the
______
enforcement of Sections 3 and 5 of this Agreement, the
Grant Shares purchased pursuant to Section 2.1 shall be
delivered to a person or persons designated by the Company
to serve as escrow holder (individually or jointly, as
applicable, the "Escrow Holder"). The Escrow Holder may
be an employee of the Company. Upon delivery into escrow
of the certificates representing the Grant Shares, the
Employee shall deliver to the Escrow Holder duly executed
stock powers with respect to each certificate. The Escrow
<PAGE>
Holder shall hold the certificates and associated stock
powers in escrow and shall release the Grant Shares to the
Company or the Employee, as applicable, only in accordance
with Section 7 of this Agreement. The Employee hereby
acknowledges that the Company's designee is appointed as
the Escrow Holder with the foregoing authorities as a
material inducement to make this Agreement and that said
appointment is coupled with an interest and is
irrevocable. The Employee agrees that said Escrow Holder
shall not be liable to any party to this Agreement (or to
any other party) for any actions or omissions unless the
Escrow Holder is grossly negligent with respect thereto.
3. Vesting of the Grant Shares; Forfeiture.
_______________________________________
3.1 Definition of "Termination of Employment". A
_________________________________________
"Termination of Employment" shall be deemed to occur on
the date on which the Employee ceases to be employed on a
continuous full time basis by the Company or a Subsidiary
of the Company for any reason or no reason, with or
without cause. The Employee shall not be treated as
having a Termination of Employment during the time the
Employee is receiving long term disability benefits
provided by the Company or a Subsidiary, unless the
Employee has received formal written notice of
termination.
3.2 Vesting.
_______
(a) Regular Vesting Schedule. 25 percent of
________________________
the Grant Shares shall become non-forfeitable
("Vested") on each succeeding February 15, starting
with the February 15 following the end of the Grant
Year, if the following two conditions are satisfied:
(i) The Employee does not have a
Termination of Employment prior to such
February 15; and
(ii) The Employee satisfies the Annual
Purchase Requirement described in Section 4 with
respect to the calendar year that ended on the
December 31 immediately preceding such
February 15.
(b) Accelerated Vesting. Any unvested Grant
___________________
Shares shall become fully Vested upon the occurrence
of any of the following:
(i) Termination of Employment, as defined
in Section 3.1, within two years after one of
the events described in Sections 8.1, 8.2 or 8.3
of the Plan;
2
<PAGE>
(ii) January 1 following the death of the
Employee;
(iii) January 1 following the Retirement of
the Employee after age 55 and completion of at
least 5 "years of service" within the meaning of
the tax qualified defined benefit plan
maintained by the Employee's employer or, if no
such defined benefit plan exists, the Company's
defined benefit plan; or
(iv) Receipt by the Employee of formal written
notice of termination following the permanent and
total disability of the Employee, which shall mean
any medically determinable physical or mental
impairment that renders the Employee unable to engage
in any substantial gainful activity and can be
expected to result in death or which has lasted or
can be expected to last for a continuous period of
not less than 12 months.
3.3 Forfeiture. An Employee shall forfeit to the
__________
Company all or a portion of the Grant Shares upon any
of the following:
(a) Termination of Employment. If the Employee
_________________________
has a Termination of Employment that is not described
in 3.2(b), the Employee shall forfeit any portion of
the Grant Shares that is not Vested under 3.2(a).
(b) Failure to Meet Annual Purchase
_______________________________
Requirement. If the Employee fails to meet the
___________
Annual Purchase Requirement described in Section 4
for a calendar year, the Employee shall forfeit the
Grant Shares that would have become Vested on the
February 15 following the end of that year under
3.2(a).
(c) Attempted Transfer of Shares Not Vested.
_______________________________________
If an attempt is made to assign, encumber, pledge or
otherwise transfer any Grant Shares before they are
Vested, in violation of Section 5, the Employee shall
forfeit all of the Grant Shares with respect to which
the attempt was made.
4. Annual Purchase Requirement.
___________________________
4.1 Definitions.
___________
(a) Target Shares. The term "Target Shares"
_____________
shall mean shares of PacifiCorp Common Stock and
Pacific Telecom, Inc. Common Stock "beneficially
owned" by the Employee within the meaning of
3
<PAGE>
Rule 16a-1(a)(2) promulgated under the Securities
Exchange Act of 1934. All shares granted under the
Plan shall constitute Target Shares, whether or not
Vested.
(b) Base Salary. The term "Base Salary" shall
___________
mean, with respect to each calendar year commencing
with the Grant Year, the Employee's annual regular
salary as in effect on January 1 of such calendar
year.
(c) Stock Ownership Target. The term "Stock
______________________
Ownership Target" shall mean, with respect to each
calendar year commencing with the Grant Year, a
dollar amount equal to _________ times the Employee's
Base Salary for such calendar year.
(d) Annual Purchase Percentage. The term
__________________________
"Annual Purchase Percentage" shall mean, with respect
to each calendar year commencing with the Grant Year,
the number equal to the total value of all of the
Target Shares purchased by or at the direction of the
Employee on the open market or under the Company's
K Plus Employee Savings and Stock Ownership Plan (the
"K Plus Plan") during the calendar year, less the
total value of all of the Target Shares with respect
to which the Employee disposed of beneficial
ownership during the calendar year, divided by the
Employee's Base Salary for the calendar year:
Value of Target Value of Target
Annual Shares Purchased - Shares Disposed
Purchase = of
__________________________________
Percent-
age Base Salary
; provided that for purposes of this calculation each
________
Target Share purchased or disposed of during the
calendar year shall be valued at the purchase or
disposition price thereof.
(e) Minimum Ownership Target. The term
________________________
"Minimum Ownership Target" shall mean, with respect
to each calendar year commencing with the Grant Year,
a dollar amount equal to _________ times the
Employee's Base Salary for such calendar year.
4.2 Annual Purchase Requirement.
___________________________
(a) Valuation. As soon as practicable
_________
following January 1 of each of the four calendar
years commencing with the Grant Year, the Company
shall conduct a valuation of all the Target Shares
held by the Employee on such January 1. For purposes
4
<PAGE>
of this valuation, each share of PacifiCorp Common
stock shall be deemed to have a value equal to the
average closing price of such stock on the New York
Stock Exchange over the 20 trading days immediately
preceding the January 1 of the year in which the
valuation is being conducted. Each share of Pacific
Telecom, Inc. Common Stock shall be deemed to have a
value equal to the average closing price of such
stock as quoted on the NASDAQ National Market over
the 20 trading days immediately preceding such
January 1.
(b) Stock Ownership Target Not Met. If the
______________________________
Target Shares held by the Employee as of January 1 of
a calendar year, when valued in accordance with (a),
have a value less than the Employee's Stock Ownership
Target for that year, the Employee shall purchase on
the open market or acquire under the K Plus Plan
(such obligation being referred to in this Agreement
as the "Annual Purchase Requirement") such number of
Target Shares as may be necessary to cause the
Employee's Annual Purchase Percentage (calculated
pursuant to paragraph 4.1(d) above), to equal or
exceed percent; provided, however, that
____________ _________________
the value of Target Shares to be purchased under the
Annual Purchase Requirement, when reduced by the
value of Target Shares disposed of during the year,
shall not exceed the difference between the value of
the Employee's holdings of Target Shares as of
January 1 of the calendar year and the Stock
Ownership Target.
(c) Stock Ownership Target Met. If the Target
__________________________
Shares held by the Employee as of January 1 of a
calendar year, when valued in accordance with (a),
have a value that equals or exceeds the Employee's
Stock Ownership Target for that year, the Annual
Purchase Requirement for such year shall be deemed to
be satisfied and the Employee shall have no
obligation to purchase additional Target Shares
during the year.
(d) Information Requested from Employee. The
___________________________________
Employee shall provide the Company with such
information, including evidence of beneficial
ownership of Target Shares and of purchases and
dispositions of Target Shares, as the Company may
reasonably request to administer the Annual Purchase
Requirement.
4.3 Waiver of Annual Purchase Requirement by Board
______________________________________________
of Directors.
____________
The Board of Directors of the Company, or a committee
thereof to which the Board of Directors has delegated
authority to administer the Plan (the "Plan
5
<PAGE>
Administrator"), may waive the Annual Purchase Requirement
for a given calendar year if the Plan Administrator finds,
in its absolute discretion, that compliance with the
Annual Purchase Requirement would result in extraordinary
hardship for the Employee.
4.4 Waiver of Annual Purchase Requirement by
________________________________________
Executive Officer. Any executive officer
_________________
to whom appropriate authority has been delegated pursuant
to Section 4.3 of the Plan may waive the Annual Purchase
Requirement for a given calendar year if (i) such officer
finds, in his or her absolute discretion, that compliance
with the Annual Purchase Requirement would result in
extraordinary hardship for the Employee and (ii) the
___
value of the Target Shares held by the Employee on
January 1 of the year exceeded the Minimum Ownership
Target.
5. Restriction on Transfer. The Employee shall not
_______________________
assign, encumber, pledge or otherwise transfer, voluntarily or
involuntarily, any Grant Shares that are not Vested.
6. Mergers, Consolidations or Changes in Capital
_____________________________________________
Structure. If, after the date of this Agreement, the
_________
outstanding Common Stock of the Company is increased or
decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Company or of
another corporation by reason of any reorganization, merger,
consolidation, plan of exchange, recapitalization,
reclassification, stock split-up, combination of shares or
dividend payable in shares, or in the event of any
consolidation, merger or plan of exchange involving the
Company pursuant to which the Company's Common Stock is
converted into cash, any Common Stock, other securities or
other consideration issued or distributed with respect to the
Grant Shares in any such transaction shall be subject to the
restrictions and conditions set forth herein, including the
escrow requirements of Sections 2 and 7.
7. Escrow. The certificates and associated stock powers
______
delivered to the Escrow Holder pursuant to Section 2.2 of this
Agreement shall be held in escrow until (i) receipt by the
Escrow Holder of a certificate of the Company certifying that
some or all of the Grant Shares have Vested, or (ii) receipt
by the Escrow Holder of a certificate of the Company
certifying that some or all of the Grant Shares have been
forfeited to the Company pursuant to Section 3.3. Upon
receipt by the Escrow Holder of one of the foregoing
certificates, the Escrow Holder shall deliver to the Employee
or the Company, as appropriate, certificates representing all
of the Grant Shares to which the Employee or the Company, as
applicable, is entitled.
8. No Right to Employment. Nothing in this Agreement or
______________________
the Plan shall (i) confer upon the Employee any right to be
continued in the employment of the Employee's employer or
interfere in any way with the right of such employer to
6
<PAGE>
terminate the Employee's employment at any time, for any
reason or no reason, with or without cause, or to decrease the
Employee's compensation or benefits, or (ii) confer upon the
Employee any right to the continuation, extension, renewal, or
modification of any compensation, contract or arrangement with
or by the Company.
9. Rights as Stockholder. Subject to Section 2.2 and
_____________________
the other provisions of this Agreement, the Employee shall be
entitled to all of the rights of a shareholder with respect to
the Grant Shares, including the right to vote such shares and
to receive ordinary dividends payable with respect to such
shares from the date of grant. The Employee acknowledges that
the certificates representing the Grant Shares may bear such
legends as may be required by law with respect to the rights
and restrictions applicable to the shares. The Employee
agrees that any dividends declared or paid in respect of the
Grant Shares prior to the Company's 1994 annual meeting of
shareholders shall be subject to forfeiture in the event
shareholder approval of the Plan is not obtained at the annual
meeting. If forfeiture occurs, the Employee shall promptly
pay to the Company the full amount of dividends received. If
the Employee fails to repay such forfeited dividends, the
Company shall have the right to withhold the amount of such
dividends from the Employee's salary or other amounts payable
to the Employee.
10. Withholding Taxes. The Company shall have the right
_________________
to require the Employee to remit to the Company, or to
withhold from other amounts payable to the Employee, as
compensation or otherwise, an amount sufficient to satisfy all
federal, state and local withholding tax requirements.
11. Approvals. The obligations of the Company under this
_________
Agreement and the Plan are subject to the approval of state
and federal authorities or agencies with jurisdiction in the
matter. The Company will use its best efforts to take steps
required by state or federal law or applicable regulations,
including rules and regulations of the Securities and Exchange
Commission and any stock exchange on which the Company's
shares may then be listed, in connection with the grant
evidenced by this Agreement. The foregoing notwithstanding,
the Company shall not be obligated to issue or deliver the
Grant Shares if such issuance or delivery would violate or
result in a violation of applicable state or federal
securities laws.
12. Miscellaneous.
_____________
12.1 Governing Law. This Agreement shall be
_____________
governed by and construed under the laws of the state of
Oregon, without regard to the choice of law principles
applied in the courts of such state.
7
<PAGE>
12.2 Severability. If any provision or provisions
____________
of this Agreement are found to be unenforceable, the
remaining provisions shall nevertheless be enforceable and
shall be construed as if the unenforceable provisions were
deleted.
12.3 Entire Agreement. This Agreement and the Plan
________________
constitute the entire agreement between the parties with
respect to the subject matter hereof and supersede all
prior and contemporaneous oral or written agreements
between the Company and the Employee relating to the
subject matter hereof.
12.4 Amendment. This Agreement may be amended or
_________
modified only pursuant to the Plan or by written consent
of the Company and the Employee.
12.5 Successors. This Agreement shall inure to the
__________
benefit of and be binding upon the Company and its
successors.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
COMPANY: PACIFICORP, an Oregon corporation
By:
_____________________________
Title:
__________________________
EMPLOYEE:
________________________________
[signature]
________________________________
[type or print name]
8
<PAGE>
EXHIBIT 10L
PACIFIC TELECOM, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
January 1, 1994
Pacific Telecom, Inc.
a Washington corporation
805 Broadway
Vancouver, WA 98668-9901
Company
<PAGE>
TABLE OF CONTENTS
Page
____
1. ADMINISTRATION; PLAN YEAR 1
2. ELIGIBILITY; DEFERRAL ELECTION 1
3. DEFERRED COMPENSATION ACCOUNT; TRUST 2
4. INSURANCE; PAYMENT AMOUNT 2
5. TIME AND MANNER OF PAYMENT 3
6. DEATH OR DISABILITY 4
7. WITHDRAWALS 5
8. AMENDMENT; TERMINATION 5
9. CLAIMS PROCEDURE 6
10. GENERAL PROVISIONS 6
11. EFFECTIVE DATE 8
i
<PAGE>
INDEX OF TERMS
Section Page
_______ ____
Account 3.1 2
Beneficiary 6.3 4
Committee 1.2 1
Company 1
Controlled Group of Corporations 5.1 2
Deferral Election 2.2 1
Disabled 6.6 4
Employer 1.1 1
Financial Hardship 7.2 5
Payment Amount 4.2 2
Participant 2.2 1
Plan 1 1
Plan Year 1.3 1
Trust 3.3 2
Trustee 3.3 2
Years of Service 5.2(b) 3
ii
<PAGE>
PACIFIC TELECOM, INC.
DEFERRED COMPENSATION PLAN
January 1, 1994
Pacific Telecom, Inc. Company
a Washington corporation
805 Broadway
Vancouver, WA 98668-9901
The purpose of this Plan is to create a deferred
compensation arrangement under which designated executive
employees of the Company and its affiliates may elect to defer
compensation from current pay.
1. ADMINISTRATION; PLAN YEAR.
1..1 The Plan shall apply to the Company and
affiliates of the Company for whom an eligible employee
performs services. The term "Employer" refers to the Company
and such an affiliate. An affiliate is a corporation or other
entity that has been designated an affiliate for this purpose
by the Company.
1..2 This Plan shall be administered by the
Personnel Committee of the Board of Directors (the Committee).
The Committee shall interpret the Plan, determine eligibility
and the amount of benefits, maintain records, determine
interest rates and generally be responsible for seeing that
the purposes of the Plan are accomplished. The Committee may
delegate all or part of its administrative duties to others.
1..3 The Plan year shall be a calendar year.
2. ELIGIBILITY; DEFERRAL ELECTION.
2..1 An executive employee of an Employer who is
eligible to participate in the Company's Long Term Incentive
Plan as of January 1, 1994 shall be eligible to participate in
this Plan. An executive employee of Employer who is first
designated as a participant in the Company's Long Term
Incentive Plan after January 1, 1994 shall be eligible to
participate in this Plan as of the January 1 following the
designation.
2..2 An eligible employee may elect to participate
for each Plan year by completing a Deferral Election in a form
prescribed by the Committee, signing it and returning it to
the Committee. The Deferral Election shall designate a dollar
<PAGE>
amount or percentage out of the employee's annual salary and
annual bonus, which dollar amount or percentage may be
different as between salary and bonus, to be deferred. To be
effective for a Plan year, the Deferral Election must be
returned before January 1 of the Plan year, except the
Deferral Election for the 1994 Plan year can be returned up to
January 30, 1994. An eligible employee who elects to defer
compensation for any Plan year shall be a participant in the
Plan.
2..3 The Company shall reduce the participant's
salary or bonus by the amounts deferred and shall credit such
amounts to the participant's Account under 3.1. Amounts due
for FICA taxes on the elected amounts will be withheld from
the participant's remaining salary and bonus.
3. DEFERRED COMPENSATION ACCOUNT; TRUST
3..1 Each participant shall have an Account in this
Plan. All deferred compensation amounts elected by a
participant shall be credited to the participant's Account.
3..2 Each participant's Account shall be credited
with interest until the entire Account has been paid out.
Interest shall be compounded monthly at the rate as of the
last business day of the preceding calendar quarter. The rate
of interest shall be the prime rate in effect at the principal
depository bank of the Company plus 1.75 percentage points.
3..3 The Company shall establish a trust with a financial
institution for payment of benefits under this Plan. The
trust shall be a grantor trust for tax purposes. The trust
shall provide that any assets contributed to the trustee shall
be used exclusively for payment of benefits under this Plan
except in the event the Company becomes insolvent, in which
case the trust fund shall be held for payment of the Company's
obligations to its general creditors.
4. INSURANCE; PAYMENT AMOUNT.
4..1 The trustee of the trust described in 3.3 may,
but is not obligated to, use the amounts deferred by a
participant to purchase life insurance on the life of the
participant. The trustee shall be the owner and sole
beneficiary of any such policies and shall pay any required
premiums.
4..2 The Payment Amount shall be the lesser of the
following amounts:
(a) The balance in the participant's
Account, including all interest credited under 2.3.
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<PAGE>
(b) The cash surrender value of the life
insurance purchased on the participant's life under
4.1, if such insurance is purchased.
5. TIME AND MANNER OF PAYMENT.
5..1 The Payment Amount shall be payable to a
participant under the Plan upon termination of all employment
of the participant with the controlled group of corporations
of which the Company is a member. For this purpose,
"controlled group of corporations" shall have the meaning
provided by Section 1563(a) of the Internal Revenue Code.
5..2 A participant's termination under 5.1 shall
constitute a retirement for purposes of this Plan if:
(a) The participant qualifies at the time
of termination for early, normal, or deferred
retirement under the Pacific Telecom Retirement Plan;
or
(b) At the time of termination the
participant is not a participant in the Pacific
Telecom Retirement Plan, has attained age 55 and has
completed five or more "Years of Service," under the
definition of such term in the Retirement Plan as in
effect at the time this Plan is adopted.
5..3 If the participant's termination under 5.1 is
not a retirement as described in 5.2, the Payment Amount shall
be paid to the participant on the 15th day of the month
following the date of the termination. If the termination is
a retirement, the Payment Amount shall be paid in one of the
following ways as selected under 5.4:
(a) In a lump sum on the January 15
following the date of termination.
(b) In ten substantially equal annual
installments beginning on the January 15 following
the date of termination.
5..4 In the participant's Deferral Election, the
participant shall select the form of payment under 5.3. A
participant's selection shall be irrevocable for deferrals
credited to the participant's Account while the selection is
in effect and any interest credited thereto. A participant
may change the form of payment by written notice to the
Committee. Such a change shall be effective on the first day
of the Plan year beginning after the Committee receives notice
of the change. A change of payment form shall apply only to
deferrals, and interest credited thereon, after the change
becomes effective.
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5..5 The Company may withhold from any payments any
deductions required by law.
6. DEATH OR DISABILITY.
6..1 A participant's Payment Amount shall be
payable under 6.2 through 6.6 on the participant's death or
disability regardless of the provisions of 5.
6..2 On death, the Payment Amount shall be paid as
follows:
(a) If the recipient is the surviving
spouse and the participant had selected installment
payout, by installments in accordance with the
selection, beginning within 30 days after the
participant's death.
(b) In all other cases, by a lump sum,
payable within 30 days after the participant's death.
6..3 An amount payable on death of a participant
shall be paid to the participant's beneficiary in the
following order of priority:
(a) To the surviving beneficiaries
designated by the participant in writing to the
Committee.
(b) To the participant's estate.
6..4 If a surviving spouse is receiving
installments and dies when a balance remains, the balance
shall be paid in a lump sum to the spouse's estate.
6..5 A participant temporarily disabled while
employed or receiving long-term disability benefits under a
plan described in 6.6 shall be treated as employed, and no
payments will be made under this Plan. If disability benefits
stop and disability continues, the Payment Amount shall be
paid in the manner selected under 5.4, with either the lump
sum or the first installment due within 30 days of the date
the disability benefits stop. If the participant dies, the
provisions applicable to death shall be followed. If the
participant ceases to be disabled and does not resume active
employment, the Payment Amount shall be paid in accordance
with 5.
6..6 A participant is disabled if the Committee
determines that either of the following apply:
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<PAGE>
(a) The participant is eligible to receive
long-term disability benefits under a plan maintained
by the Employer or an affiliate or would have been
eligible if covered by the Plan.
(b) In the absence of a plan under (a),
the participant is permanently and totally disabled
on the basis of comparable criteria.
7. WITHDRAWALS.
7..1 A participant or surviving spouse may withdraw
amounts from the Account before those amounts would otherwise
have been paid because of financial hardship, as determined by
the Committee. The withdrawal shall be limited to the amount
reasonably necessary to meet the financial hardship.
7..2 "Financial hardship" means a participant's or
surviving spouse's immediate and substantial financial need
that cannot be met from other reasonably available resources
and is caused by one or more of the following:
(a) Medical expenses for the participant
or surviving spouse, a member of the participant's
immediate family or household, or other dependent.
(b) Loss of or damage to a participant's
possessions or property due to casualty.
(c) Other extraordinary and unforeseeable
circumstances arising from events beyond the
participant's control.
7..3 The Committee shall establish guidelines and
procedures for implementing withdrawals. An application shall
be written, be signed by the participant or surviving souse
and include a statement of facts causing the financial
hardship and any other facts required by the Committee.
7..4 The withdrawal date shall be fixed by the
Committee. The Committee may require a minimum advance notice
and may limit the amount, time and frequency of withdrawals.
If the trust holds a life insurance policy on the life of the
participant, withdrawal shall be limited to the cash surrender
value of the policy.
8. AMENDMENT; TERMINATION.
8..1 The Company may amend this Plan effective the
first day of any month by notice to the participants, except
the rate of interest credited under
5
<PAGE>
3.2 may not be reduced without the consent of a participant as
to the participant's Account balance as of the date of the
reduction.
8..2 At any time the Company may terminate the Plan
and pay out all Payment Amounts to the participants, spouses
or other persons then entitled to the Payment Amounts and
thereby discharge all the benefit obligations of the Plan.
Upon such termination any assets remaining in the trust
provided for in 3.3 shall be returned to the Company.
8..3 If the Internal Revenue Service issues a final
ruling that any amounts deferred under this Plan will be
subject to current income tax, all amounts to which the ruling
is applicable shall be paid to the participants within 30
days.
9. CLAIMS PROCEDURE.
9..1 Any person claiming a benefit or requesting an
interpretation, ruling or information under the Plan shall
present the request in writing to the Committee, which shall
respond in writing as soon as practicable.
9..2 If the claim or request is denied, the written
notice of denial shall state:
(a) The reasons for denial, with specific
reference to the Plan provisions on which the denial
is based.
(b) A description of any additional
materials or information required and an explanation
of why it is necessary.
(c) An explanation of the Plan's claim
review procedure.
9..3 The initial notice of denial shall normally be
given within 90 days of receipt of the claim. If special
circumstances require an extension of time, the claimant shall
be so notified and the time limit shall be 180 days.
9..4 Any person whose claim or request is denied or
who has not received a response within 30 days may request
review by notice in writing to the Committee. The original
decision shall be reviewed by the Committee, which may, but
shall not be required to, grant the claimant a hearing. On
review, whether or not there is a hearing, the claimant may
have representation, examine pertinent documents and submit
issues and comments in writing.
9..5 The decision on review shall ordinarily be
made within 60 days. If an extension of time is required for
a hearing or other special circumstances, the claimant shall
be so notified and the time limit shall be 120 days. The
6
<PAGE>
decision shall be in writing and shall state the reasons and
the relevant plan provisions. All decisions on review shall
be final and bind all parties concerned.
10. GENERAL PROVISIONS.
10..1 If suit or action is instituted to enforce any
rights under this Plan, the prevailing party may recover from
the other party reasonable attorneys' fees at trial and on any
appeal.
10..2 Any notice under this Plan shall be in writing
and shall be effective when actually delivered or, if mailed,
when deposited as first class mail postage prepaid. Mail
shall be directed to the Company at the address stated in this
Plan, to the participant's last known home address shown in
the Company's records, or to such other address as a party may
specify by notice to the other parties. Notices to an
Employer or the Committee shall be sent to the Company's
address.
10..3 The rights of a participant under this Plan
are personal. Except for the limited provisions of 6, no
interest of a participant or one claiming through a
participant may be directly or indirectly assigned,
transferred or encumbered and no such interest shall be
subject to seizure by legal process or in any other way
subjected to the claims of any creditor.
10..4 Following termination of employment, a
participant shall not be an employee of an Employer or an
affiliate for any purpose, and payments under 5 and 6 shall
not constitute salary or wages. A participant shall receive
such payments as retirement benefits, not as compensation for
performance of any substantial services.
10..5 Amounts payable under this Plan shall be an
obligation of the Company and the trust provided by 3.3. If
an Employer merges, consolidates, or otherwise reorganizes or
if its business or assets are acquired by another company,
this Plan shall continue with respect to those eligible
individuals who continue in the employ of the successor
company. The transition of Employers shall not be considered
a termination of employment for purposes of this Plan. In
such an event, however a successor corporation may terminate
this Plan as to its participants on the effective date of the
succession by notice to participants within 30 days after the
succession.
10..6 The Committee may decide that because of the
mental or physical condition of a person entitled to payments,
or because of other relevant factors, it is in the person's
best interest to make payments to others for the benefit of
the person entitled to payment. In that event, the Committee
may in its discretion direct that payments be made as follows:
7
<PAGE>
(a) To a parent or spouse or a child of
legal age;
(b) To a legal guardian; or
(c) To one furnishing maintenance,
support, or hospitalization.
A. EFFECTIVE DATE.
This Plan shall be effective January 1, 1994.
Adopted: December 14, 1993
PACIFIC TELECOM, INC.
By: CHARLES E. ROBINSON
______________________________
Executed: December 14, 1993
8
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<TABLE>
<CAPTION>
EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
Year Ended December 31,
_______________________________________________________
1993 1992 1991 1990 1989
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $ 82.9 $ 99.8 $120.4 $137.5 $104.6
Add:
Fixed charges 59.5 63.2 67.7 49.2 40.0
Equity losses of less than 50%
owned persons - 0.9 0.5 0.7 0.1
Minority interest 0.6 0.1 2.0 4.0 -
_____ _____ _____ _____ _____
Total earnings $143.0$ 164.0 $190.6 $191.4 $144.7
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
Fixed charges:
Interest $44.3 $52.1 $55.0 $40.1 $30.0
Interest portion of rental expense 15.2 11.1 12.7 9.1 10.0
____ ____ ____ ____ ____
Total fixed charges $59.5 $63.2 $67.7 $49.2 $40.0
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Ratio of earnings to fixed charges 2.4 2.6 2.8 3.9 3.6
____ ____ ____ ____ ____
____ ____ ____ ____ ____
<FN>
* For the purpose of computing these ratios, "earnings" represents the aggregate of (a) income from
continuing
operations before income taxes, (b) fixed charges, (c) equity losses of less than 50% owned persons and
(d)
minority interest. Equity losses of less than 50% owned persons are added to income from continuing
operations before income taxes since the Company does not guarantee the debt of such persons. "Fixed
Charges" consist of interest charges and an estimated amount representing the interest portion of rental
expense.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF
PACIFIC TELECOM, INC.
Percentage State or Jurisdiction
Owned of Incorporation
__________ _____________________
Alascom, Inc. 100% Alaska
Cascade Autovon Company 100% Washington
Casco Telephone Company 100% Wisconsin
Eagle Telecommunications,
Inc./Colorado 100% Colorado
Eagle Valley Communications
Corporation 100% Colorado
Gem State Utilities
Corporation 96% Idaho
Indianhead Communications
Corporation 100% Wisconsin
Inter Island Telephone
Company, Inc. 100% Washington
International Communications
Holdings, Inc. 100% Delaware
North-West Telecommunications,
Inc. 100% Nevada
Northland Telephone Company 100% Minnesota
North-West Telephone Company 100% Wisconsin
Postville Telephone Company 100% Iowa
The Footville Telephone
Company 100% Wisconsin
Sullivan Telephone Company 100% Wisconsin
Turtle Lake Telephone
Co., Inc. 100% Wisconsin
Northwestern Telephone
Systems, Inc. 99% Oregon
Pacific Telecom Cable, Inc. 80% Delaware
Pacific Telecom Cellular, Inc. 100% Delaware
Pacific Telecom Cellular
of Alaska, Inc. 100% Alaska
Pacific Telecom Cellular
of I-5, Inc. 100% Washington
Pacific Telecom Cellular
of Michigan, Inc. 100% Michigan
Pacific Telecom Cellular
of Minnesota, Inc. 100% Minnesota
Pacific Telecom Cellular
of Oregon, Inc. 100% Oregon
Pacific Telecom Cellular
of South Dakota, Inc. 100% South Dakota
Pacific Telecom Cellular
of Washington, Inc. 100% Washington
Pacific Telecom Cellular
of Wisconsin, Inc. 100% Wisconsin
Pacific Telecom Service
Company 100% Washington
Pacific Telecom Transmission
Services, Inc. 100% Oregon
Price County Telephone
Cellular, Inc. 100% Wisconsin
PTI Broadcasting, Inc. 100% Oregon
PTI Harbor Bay, Inc. 100% Washington
Bay Area Teleport, Inc. 100% Delaware
Rib Lake Cellular for
Wisconsin RSA #2, Inc. 100% Wisconsin
Shell Lake Telephone
Company, Inc. 100% Wisconsin
Telephone Utilities, Inc. 100% Washington
Telephone Utilities of
Alaska, Inc. 100% Alaska
Telephone Utilities of
Eastern Oregon, Inc. 100% Oregon
Telephone Utilities of
the Northland, Inc. 100% Alaska
Telephone Utilities of
Oregon, Inc. 100% Oregon
Telephone Utilities of
Washington, Inc. 100% Washington
Telephone Utilities of
Wyoming, Inc. 100% Wyoming
Thorp Telephone Co. 100% Wisconsin
Upsouth Corporation 100% Georgia
Wayside Telcom, Inc. 100% Wisconsin
The Wayside Telephone
Company 100% Wisconsin
