<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, 1994
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 Identification No.)
incorporation or organization)
805 Broadway
P.O. Box 9901
Vancouver, Washington 98668-8701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (360) 905-5800
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 3, 1995, there were 39,616,123 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 $160,093,000.
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
TABLE OF CONTENTS
PAGE NO.
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................................... 7
Pacific Telecom Cable................................. 8
Other Communications Subsidiaries and Partnerships.... 9
Regulation.............................................. 10
General............................................... 10
Local Exchange Companies.............................. 10
Long Lines............................................ 11
Competition............................................. 12
Environment............................................. 14
Employees............................................... 14
Construction Program.................................... 14
Acquisition Program..................................... 15
Item 2 Properties................................................ 15
Item 3 Legal Proceedings......................................... 15
Item 4 Submission of Matters to a Vote of Security Holders....... 16
PART II
_______
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters..................................... 17
Item 6 Selected Financial Data................................... 18
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 19
Item 8 Financial Statements and Supplementary Data............... 35
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 51
PART III
________
Item 10 Directors and Executive Officers of the Registrant........ 51
Item 11 Executive Compensation.................................... 52
Item 12 Security Ownership of Certain Beneficial
Owners and Management................................... 55
Item 13 Certain Relationships and Related Transactions............ 56
PART IV
_______
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K..................................... 57
Signatures ........................................................ 60
Appendices
Statements of Ratio of Earnings to Fixed Charges
List of Subsidiaries
<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 Corp.
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.
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
U.S. United States of America
USF Universal Service Fund
USWC US WEST Communications, Inc.
WATS Wide area telephone service
</TABLE>
3
<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 expansion of 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 certain cellular
holdings, and ongoing efforts to complete the sale of the Alaska long distance
operations to AT&T. Upon completion of the pending sale of Alascom to AT&T, the
Company will have resolved its uncertainties related to the Alaska long
distance market. The sale of two noncore operations in 1993 successfully
completed the Company's exit from its material noncore businesses.
PTI has been a majority-owned subsidiary of PacifiCorp since 1973. At
December 31, 1994, PacifiCorp, through a wholly-owned subsidiary, PacifiCorp
Holdings, Inc. (Holdings), beneficially owned approximately 87 percent of PTI's
common stock. On March 9, 1995, PacifiCorp and PTI announced a definitive
merger agreement pursuant to which a newly-formed, wholly-owned subsidiary of
Holdings will merge with and into PTI. Under the agreement, the holders of the
approximately 5.3 million shares of common stock of PTI not held by Holdings
will receive $30 in cash in exchange for each share of PTI common stock. As a
result of the merger, PTI would become an indirect, wholly-owned subsidiary of
PacifiCorp. The merger is conditioned upon, among other things, affirmative
approval of the merger by holders of a majority of the shares held by the
unaffiliated public shareholders.
On November 1, 1994, Holdings originally proposed to acquire the shares
not owned by it for $28 per share in cash. Promptly thereafter, PTI's Board of
Directors formed a Special Committee of independent directors to receive,
study, negotiate and make recommendations to the PTI Board regarding that
proposal. The merger agreement was unanimously approved by the Board of
Directors of PTI as fair to, and in the best interests of, PTI's public
minority shareholders upon the unanimous recommendation of the Special
Committee. In connection with its recommendation of the transaction, the
Special Committee received the written opinions of Smith Barney Inc. and CS
First Boston Corporation, to the effect that the consideration to be received
by the minority shareholders in the merger is fair, from a financial point of
view, to such holders.
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. At February 28, 1995, the Company operated
15 LECs within eleven states comprised of approximately 471,000 access lines in
297 exchanges. The average number of access lines per exchange is approximately
1,586, 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 23,390 access lines
at December 31, 1994. Of the Company's 252 exchanges at December 31, 1994, 143
serve less than 1,000 access lines. Service areas are located primarily in the
states of Alaska, Colorado, Montana, Oregon, Washington and Wisconsin. States
also served, but to a lesser extent, include Idaho, Iowa, Minnesota, Nevada and
Wyoming. (See "Regulation - General.") The Company provides centralized
administrative services to field operations from its corporate offices in
Vancouver, Washington.
4
<PAGE>
During the five years ended December 31, 1994, the number of access lines
served by the Company increased from 252,700 to 418,000. As a result of the
acquisitions of several LECs located in the Midwest, the Company added
approximately 69,000 access lines in 1990, 3,200 in 1992 and 1,100 in 1993.
Approximately 50,000 access lines in Colorado were added in February 1995 upon
completion of the purchase of rural telephone exchange assets from USWC. (See
Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Acquisitions" for more information concerning the
Colorado acquisition.) The LECs have also experienced strong internal access
line growth in certain service areas, as evidenced by a 4.8 percent increase in
access lines served during 1994. The Company anticipates that access line
growth in the future will come from acquisitions and population growth in
current service areas.
Excluding the Colorado properties recently acquired from USWC, the Company
has completed the conversion of all multi-party lines to single-party lines.
Approximately 60 percent of the multi-party lines in these newly acquired
Colorado exchanges were converted to single-party service by the end of
1994, and the Company expects that these exchanges will be fully converted to
single-party service by December 31, 1995.
The LECs have contracts with interexchange carriers under which the
Company provides billing and collection services. The Company has an agreement
to provide these services for AT&T and an agreement with Independent NECA
Services (INS), a clearinghouse service bureau, to provide these services for
other carriers for varying periods of time, some with automatic renewals and
some terminating in 1995 and 1996. In Alaska, the Company's LECs have similar
agreements with Alascom.
Effective March 6, 1995, AT&T started billing and collection for most of
its toll messages in the western areas served by the Company, and will do so in
the midwest areas served by the Company beginning in April 1995. This change is
expected to reduce the Company's billing and collection revenues by
approximately $1 million in 1995 compared to 1994. It is anticipated that this
reduction will be partially offset by the effects of increased message volumes
billed due to acquisitions and billing for additional carriers through the
agreement with INS.
In addition to its basic telephone service, the Company offers enhanced
services, such as caller name and number identification, automatic call back,
auto recall and call trace, to certain of its service areas under the Custom
Local Area Signaling Service (CLASS). CLASS services were offered to certain of
the Company's customers in Washington, Montana and Wisconsin in 1994. The
Company is evaluating the offering of CLASS services in 1995 to certain Alaska,
Colorado and Oregon markets and additional markets in Washington and Wisconsin.
The Company's existing switching equipment provides these services with minimal
software and hardware enhancements. Some of the Company's switching equipment
has other enhanced service capabilities, such as voice messaging, that are
being offered to its customers where available. The Company also offers certain
customers custom calling features like call forwarding, call waiting and speed
dial. The LECs also sell and lease, on a nonregulated basis, customer premise
(i.e., telephone) equipment for use by residential and business customers. As
part of this program, residential and business customers are offered
maintenance services on a monthly fee basis. In 1994, revenues from these
services totalled $1.4 million.
The Company continues to seek expansion of its local exchange operations
through acquisition. In February 1995, the Company acquired certain rural
telephone exchange assets in Colorado from USWC. The assets represent 45
exchanges that serve approximately 50,000 access lines. The Company paid
approximately $200 million for these assets at closing. The Company funded the
Colorado acquisition through short-term bank borrowings and anticipates
repaying these borrowings with proceeds from the sale of Alascom. In an attempt
to satisfy certain regulatory concerns in Colorado, the Company also entered
into a construction contract with USWC in July 1993 that required the Company
to construct and upgrade plant related to the acquired assets. Under the
contract, the Company acted as general contractor on behalf of USWC. The
construction and upgrade program accelerated single-party service and digital
switching required by the CPUC. During 1993 and 1994, the Company spent an
aggregate of $30.1 million under this contract. The Company has added the
amounts expended under the contract to its construction work in progress or
plant in service accounts for these exchanges.
The Company has received an order from the FCC granting the waivers to
reclassify the exchanges from USWC's regulatory study area in Colorado to the
Company's regulatory study area in Colorado and to permit rate of return
regulation on the exchanges served by the acquired assets. Included in the
study area waivers was permission for these exchanges to be eligible to receive
support from the USF, as the cost to provide service in these exchanges exceeds
the national average. The FCC waivers will allow the
5
<PAGE>
Company to replace the incentive regulation adopted for these exchanges by USWC
with cost based rate of return regulation, which is consistent with the
Company's other LEC operations. (See "Regulation - Local Exchange Companies"
for additional information concerning new USF limitations.)
In May 1994, the Company signed definitive purchase agreements to acquire
certain rural telephone exchange assets in Oregon and Washington from USWC. The
assets to be acquired by the Company represent 49 exchanges that serve
approximately 35,000 access lines. Many of these exchanges are contiguous to or
located near other rural exchanges that the Company owns and operates in these
states. The combined price for these assets of approximately $180 million in
cash is subject to certain adjustments, including adjustments for actual book
value of the assets at closing. The Company will not assume any financial
liabilities from USWC in the transactions. Applications seeking Washington
Utilities and Transportation Commission and Oregon Public Utilities Commission
approvals and FCC study area and price cap waivers were filed in the second
quarter of 1994. The FCC order approving the Colorado transaction grandfathered
the FCC waiver requests for the Oregon and Washington assets, permitting them
to be evaluated without application of a newly imposed restriction limiting the
redistribution of USF funding. (See "Regulation - Local Exchange Companies" for
additional information about changes in the USF.) Completion of the
transactions with USWC is also dependent on other regulatory and governmental
approvals, receipt of which is expected to occur prior to the end of 1995. The
Company expects to fund the acquisition of these assets through proceeds from
the sale of Alascom to AT&T, 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. All interstate MTS and certain interstate private line services are
provided via the Alaska Spur. (See "Telecommunications Operations - Pacific
Telecom Cable.") Satellite facilities 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.
Alascom operates 18 satellite transponders on a communication satellite
that replaced Alascom's original satellite in 1991. Alascom purchased two
transponders, one in 1994 and one in 1993, and leases 16 transponders under an
operating lease that expires in mid-1998. 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. Telemetry, tracking, control and
in-orbit protection services are provided under contract by GE American
Communications, Inc. for the projected remaining service life of the satellite
estimated at 8 years.
Alascom owns 173 satellite transmit and receive earth stations (including
12 transportable earth stations), a 50 percent interest in 46 earth stations
used generally for service throughout Alaska and 7 additional earth stations
located in the lower 48 states, 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. 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.
6
<PAGE>
ALASKA MARKET RESTRUCTURING
In October 1994, the Company signed an agreement to sell the stock of
Alascom to AT&T in a transaction providing $365 million in proceeds. Under the
terms of the agreement, AT&T will pay $290 million in cash for the Alascom
stock and for settlement of all past cost study issues. AT&T has also agreed to
allow PTI to retain a $75 million transition payment made by AT&T to Alascom in
July 1994 pursuant to an FCC order. AT&T made a down payment of $30 million to
the Company upon signing the stock purchase agreement, which would be applied
to the final $75 million transition payment required in the FCC order if the
sale failed to close. The remaining $260 million is to be paid when the
transaction closes. Closing of the sale of Alascom is subject to certain
conditions, including receipt of state and federal regulatory approvals that
are expected to be received during the first half of 1995. The Company has
agreed to provide accounting, data processing and human resource service
support for up to 15 months following the sale to allow for a smooth transition
in exchange for certain equipment that the Company intends to incorporate in
its LEC operations. The Company anticipates recognizing a material gain from
the sale of Alascom. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Forecast" for
information about this gain.
The JSA and the entire telecommunications market in Alaska have been under
review by a Joint Board of the FCC and state regulators over the past ten
years. In May 1994, the FCC, based on recommendations of the Joint Board,
ordered a restructuring of the Alaska telecommunications market. Among other
matters, the FCC order would have required termination of the JSA between
Alascom and AT&T, effective January 1, 1996; the payment by AT&T to Alascom of
$150 million for transition payments in two equal installments of $75 million
each; AT&T to continue utilizing 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 allocation of costs
between rural and nonrural locations. Although the FCC order remains in effect,
the agreement to sell Alascom to AT&T was reached as a solution to issues that
remained unresolved by the order. Alascom filed a petition for review of the
FCC order with the United States Court of Appeals for the District of Columbia
in June 1994. This petition has been stayed pending completion of the proposed
transaction with AT&T.
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 10 of these interests in Alaska, Michigan and
Wisconsin. The Company also manages five other RSAs in Minnesota. Revenues from
cellular operations represented approximately three percent of total Company
revenues in 1994.
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 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 Company believes that the creation of a large regional automatic call
delivery area is important to the continued success of its cellular operations.
During 1994, the Company's cellular properties in Wisconsin and Michigan were
networked with the major MSA markets in Wisconsin and with all of the markets
in rural Minnesota. This provided the Company's Wisconsin and Michigan
customers with one of the largest regional automatic call delivery areas
available in the U.S. The Company plans to continue its efforts to expand its
presence in the Midwest and to network with additional major MSA markets in
Minnesota, Michigan and Illinois in early 1995. The provision of automatic call
delivery services within the region simplifies the process by which customers
receive cellular calls in the areas that they travel most often, thus
increasing the convenience and value of their cellular service.
7
<PAGE>
The Company continues to test and evaluate digital cellular technology and
is preparing to provide digital cellular service when market forces warrant its
deployment. The Company does not anticipate that in the near future it will be
required to deploy digital cellular technology solely to increase the capacity
of its cellular systems.
The following table sets forth the Company's POP ownership by state as of
December 31, 1994.
Non-
State Controlled(1) Controlled Total
-------------------------------------------------------------------------------
Alaska 201,000 -- 201,000
Michigan 315,000 -- 315,000
Minnesota -- 23,567 23,567
Oregon -- 107,035 107,035
South Dakota -- 16,147 16,147
Washington -- 41,152 41,152
Wisconsin 688,646 627,407 1,316,053
-------------------------------------------------------------------------------
Total 1,204,646 815,308 2,019,954
===============================================================================
(1) Represents interests with respect to RSAs and MSAs where the Company has an
ownership position and manages the operations.
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. On January 18, 1995, the Company
signed a letter of intent to sell 20 percent of its interest in the Alaska RSA
#1 market (Fairbanks) for cash and notes receivable. The letter of intent also
provides options for the buyer to increase its ownership of the market to a
maximum level of 49 percent over a two-year period. Consummation of the
transaction is subject to negotiation of definitive agreements and certain
corporate approvals. This sale is not anticipated to have a significant impact
on the financial results of the Company. The Company has budgeted $20.6 million
for the development of cellular operations over the next three years.
Customers served by the cellular operations controlled by the Company
increased 61 percent in 1994, 65 percent in 1993 and 70 percent in 1992.
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 was 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. 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
8
<PAGE>
1991. Forty-three private and government-owned telecommunications firms
representing 26 countries have purchased approximately 53 percent of the
cable's 17,010 circuit capacity. PTC recognized revenues of $4.6 million in
1994, $4.9 million in 1993 and $10.8 million in 1992 related to cable and
backhaul capacity sales.
PTC continues to market the remaining 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, interconnectivity between
existing and planned cable systems and the North Pacific Cable, the
availability of other sources of capacity over the next five years and the
possible development of alternative business uses of the cable, the Company
believes that the inventory value of the cable system at December 31, 1994 can
be recovered.
The original three-year warranty on the North Pacific Cable system's
submersible plant and terminal equipment ended on November 11, 1994. This
warranty covered the repeaters, electronics, cable and branching unit. Testing
to verify the status of the system was completed prior to warranty expiration.
Results of the completed tests indicated that the North Pacific Cable system
was operating at or above contracted levels before an outage in February 1995.
This outage is under investigation. Extended warranties for certain components
of the North Pacific Cable system will continue in effect until November 2001.
These extended warranties apply to the majority of the cable supplied by the
manufacturers.
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.
OTHER COMMUNICATIONS SUBSIDIARIES AND PARTNERSHIPS
On April 29, 1994, the Company completed the sale of two wholly-owned
noncore subsidiaries, PTI Harbor Bay, Inc. and Upsouth Corporation, to IntelCom
Group, Inc. (IntelCom) (AMEX:ITR) for 1,183,147 shares of IntelCom common stock
and $.2 million in cash. On October 17, 1994, the Company sold its IntelCom
stock in an underwritten public offering. Cash proceeds of $15.9 million and a
gain of $1.0 million, net of tax and selling expenses, were recognized in 1994.
PTI Harbor Bay, Inc. provides transmission services principally in the greater
San Francisco Bay Area. Upsouth Corporation owns an earth station complex near
Atlanta, Georgia and another near Carteret, New Jersey. The net assets of PTI
Harbor Bay, Inc. and Upsouth Corporation prior to the sale were classified in
"Other current assets."
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
and the Company recognized a tax benefit. The Company sold the FM station in
Idaho in July 1994 and recognized a pre-tax loss of $.3 million. On February
28, 1995, the Company completed the sale of the Oregon stations and recognized
no gain or loss on the transaction. The Company also has agreements to sell the
remaining stations in Nevada and is waiting for regulatory approval of the
sales, which are expected to close in the first half of 1995. Due to their
pending sale, the net assets of the radio stations were classified as "Other
current assets" at December 31, 1994. The Company expects to recover its
investment in these entities as the result of these transactions.
9
<PAGE>
REGULATION
__________
GENERAL
The Company's LECs and Alascom 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, Congress and some state regulatory agencies are pursuing alternative forms
of regulation that depart from traditional rate of return regulation for
telecommunications companies such as the Company. These alternatives include
the possible opening of local exchange franchises to competition. The effects
of any such alternative forms of regulation on the Company's LECs is uncertain.
The Company's LECs are governed by tariffs filed with the FCC for
interstate access services provided to interexchange carriers. Interstate and
certain international services provided by Alascom are governed by tariffs
filed with the FCC. 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
the LECs and Alascom. 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 or NECA tariffs
filed with the FCC allow for charges to interexchange carriers for access to
customers. The traffic sensitive costs are recovered either directly through
access charges or through cost based settlements with NECA. The nontraffic
sensitive portion (subscriber loop) of these interstate-related costs is
recovered through a settlement process with NECA. The subscriber loop
represents investment in plant from the central office to the customer's
premise. 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 loop 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.
Based on a concern over recent growth in the size of the USF, a
Federal-State Joint Board proposed interim USF rules that were adopted by the
FCC in 1993. These interim rules place an indexed cap on USF growth to allow
the USF to grow at a rate no greater than the rate of growth in the nation's
total work-
10
<PAGE>
ing 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
1994 and 1995. 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, a reduction in USF revenues
will shift revenue requirement to the intrastate jurisdiction where 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.
In 1994, Congress considered legislation (S. 1822) that would rewrite the
1934 Communications Act. Efforts to pass comprehensive telecommunications
legislation are expected to continue in 1995. Based upon statements of
Congressional leaders, it is expected that the 1995 effort, much like the 1994
effort, will address universal service concepts and the support mechanisms
necessary to sustain them.
On January 5, 1995, the FCC issued its order granting the Company a study
area waiver and price cap waiver associated with the Company's purchase of USWC
assets in Colorado. The order clears the way for the purchased assets to fully
participate in the USF and allows them to be operated on a rate of return as
opposed to price cap basis. The order also implemented new standards on
transactions having an impact on the USF. Any future transaction that would
cause a shift of USF payments exceeding one percent of the total fund will be
held to a higher standard of review by the FCC. However, the Company's pending
waiver requests associated with the Company's purchase of USWC Washington and
Oregon assets were grandfathered and will be evaluated without application of
the one percent cap.
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 for interstate purposes in
the near future. NECA has recently filed its own recommendation for an
incentive regulation plan with the FCC. The Company will monitor the progress
of NECA's efforts and evaluate its options if an alternative regulation plan is
implemented.
In early 1995, the Company's largest Wisconsin LEC filed proposed local
exchange and intrastate access rate changes with the Wisconsin Public Service
Commission, which would become effective June 1, 1995. The proposed rate design
would be revenue neutral with lower revenues from interexchange access and
services offset by increased local exchange revenues of approximately $.6
million. Extended Area Service (EAS), which extends local calling areas, would
not be part of the basic rates and would be measured on a minute of use basis
or a flat rate optional service. Management does not believe that these changes
will significantly impact the Company's financial results.
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 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 were single-party, with approximately 98 percent having EAS
capabilities.
In December 1994, the Company received an order from the APUC to implement
revised depreciation rates retroactive to January 1, 1994. This adjustment
decreased the depreciation rate, which resulted in an annual increase in
operating income of $3.6 million. The income was recognized in the last quarter
of 1994. There are no other LEC depreciation rate adjustments currently pending
with any of the Company's regulatory commissions.
LONG LINES
Long Lines - Interstate Revenues
Through September 1994, Alascom's interstate MTS and WATS revenues were
derived through the JSA with AT&T. Based on a May 1994 FCC order, the JSA is
scheduled to be terminated on January 1, 1996. Since that order was received,
the Company has agreed to sell the stock of Alascom to AT&T. Long lines
interstate revenues from October 1994 until the sale closes are recognized
based on the interim cash settlement amounts outlined in the stock sale
agreement. These monthly payments are fixed at historically projected
settlement amounts. Prior to signing the agreement in October 1994, long lines
recognized revenue under the JSA based on the current computation of the
revenue requirements. (See "Telecommunications Operations - Alaska Market
Restructuring.")
11
<PAGE>
Long Lines - Access Charges
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.")
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
Alascom purchased and operates the Alaska Spur under a temporary
authorization from the FCC which expires on August 8, 1995. 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 the Company
believes that these investments will be made only if appropriate economic
opportunities and demand for such services exist. The Company also 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 providers
(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. This
activity is most prominent in the business districts of large urban areas. A
number of interexchange carriers have also announced or implemented programs to
construct facilities which bypass those of local exchange companies. This
competitive activity pressures LECs to lower access rates. There are also
political pressures supporting lower access rates.
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 ratio of
residential to business access lines for the Regional Bell Operating Companies
averages two to one, while the Company's LECs average three to one. 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 seeking to find ways to
benefit from changes which may occur as competition increases.
12
<PAGE>
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 2.7 percent in 1994, 6.2
percent in 1993 and 11.9 percent in 1992. 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 in 1994 and in 1993 and six percent in 1992. 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. Intrastate
minute volumes increased 5.0 percent in 1994 and 1.7 percent in 1993 but
decreased 7.3 percent in 1992.
Cellular Operations
Under FCC guidelines, two licenses to provide cellular service were
granted in each MSA and RSA. 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 June 1994, the FCC modified the rules issued in September 1993
governing broadband Personal Communications Services (PCS). The FCC defined the
PCS license areas based on 51 major and 493 basic trading areas (MTA and BTA,
respectively). Under the PCS rules as modified, the FCC created six licensed
frequency blocks representing 120 MHz of spectrum and identified 20 MHz of
spectrum for unlicensed PCS. The licensed spectrum was divided into two 30 MHz
MTA blocks, one 30 MHz BTA block and three 10 MHz BTA blocks. The FCC began the
broadband PCS auction process in December 1994 by auctioning the MTA licenses.
The auctions for the BTA licenses are expected to be initiated by the second
quarter of 1995. The Company's cellular operations are eligible to participate
in the PCS auctions subject to certain limitations established by the FCC. The
PCS license term is set at 10 years with 30 MHz licensees required to cover
one-third of the POPs within five years and two-thirds of the POPs within ten
years; 10 MHz licensees are required to cover one-quarter of the POPs within
five years. Although the Company is not planning on bidding for PCS licences,
it continues to monitor PCS developments and evaluate its opportunities in the
PCS market.
13
<PAGE>
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 over the next three years. The North Pacific Cable also competes
with available capacity on international communication 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, 1994, the Company had 2,762 employees, approximately 39
percent of whom were members of six different bargaining units. These units are
represented by the International Brotherhood of Teamsters, the International
Brotherhood of Electrical Workers, Communication Workers of America or the NTS
Employee Committee. During 1994, negotiations were completed on three
collective bargaining agreements governing 392 employees. Negotiations on three
contracts covering 692 employees commenced in 1994 and continued into 1995.
Relations with represented and non-represented employees continue to be
generally good.
As a result of the pending sale of Alascom, the Company's workforce would
no longer include the 632 full-time employees of Alascom. PTI would retain all
liabilities related to Alascom's retired employees in accordance with the
Company's retirement plans while AT&T would make available its plans to
existing Alascom employees at closing under terms of the stock purchase
agreement.
CONSTRUCTION PROGRAM
____________________
The Company financed its 1994 construction program primarily through
internally generated funds. Construction expenditures for 1994 and estimated
expenditures for 1995 through 1997, including expenditures relating to assets
acquired or to be acquired from USWC of $24.4 million, $34.9 million, $19.9
million and $15.8 million for 1994, 1995, 1996 and 1997, respectively, are as
follows (in millions):
Plan
---------------------------
1994 1995 1996 1997
-----------------------------------------------------------------------------
LECs $110.9 $108.7 $109.5 $99.0
Long Lines 22.2 7.1 -- --
PT Cellular 9.8 8.5 5.0 7.1
Other 5.3 3.2 2.6 2.6
-----------------------------------------------------------------------------
Total $148.2 $127.5 $117.1 $108.7
=============================================================================
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 1995 from internally
generated funds.
14
<PAGE>
ACQUISITION PROGRAM
___________________
The Company continues to seek expansion of its local exchange operations
and cellular interests through the acquisition of additional local exchange
companies and assets and cellular properties that complement its existing
properties and operations. 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 "Telecommunications Operations - Local Exchange
Companies" and Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Pro Forma Financial Information" and
"Financial Forecast" for information regarding pending acquisitions of USWC
assets in 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 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 leases 16 transponders on a satellite through an
operating lease with a term of 69 months. The Company also purchased and placed
in service two additional transponders on this satellite, one in 1993 and one
in 1994. (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.
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 73 percent of the 225,000
square-foot building. The Company owns its mainframe computer and leases most
of the other 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,
two of which are 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 financial results.
15
<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 Transmission 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 were suing PTI and other defendants for state securities and common law
fraud allegedly committed in 1984, 1986 and 1988 and four plaintiffs were suing
PTI alone for breach of an alleged promise to provide financial support to
AmNet in 1984. Plaintiffs sought 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
affirmed the trial court's judgment in all respects. On October 19, 1994,
plaintiffs filed a petition for review of the Court of Appeals' decision with
the Oregon Supreme Court. On December 27, 1994, the Oregon Supreme Court denied
the plaintiffs' petition for review. Plaintiffs have not filed for
reconsideration or further review, and the case now appears concluded.
Werboff v. Robinson, et al. (Superior Court of Washington for Clark
___________________________________________________________________
County)
_______
The Company and certain other defendants, including the members of the
Company's Board of Directors, were sued in the Superior Court of Washington for
Clark County, regarding Holdings' offer to acquire the common shares
representing the 13 percent minority interest of the Company. The plaintiff in
the action alleged, among other things, that he was a shareholder of the
Company, that the offer of $28 per share made by Holdings was inadequate and
that the members of the Board of Directors of the Company breached their
fiduciary duty to the public shareholders of the Company. The plaintiff sought
certification of the case as a class action on behalf of all public
shareholders of the Company and sought to enjoin the proposed transaction or,
in the alternative, to be awarded rescissory damages in an unspecified amount
if the transaction closed. On February 3, 1995, the action was dismissed as
prematurely filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No information is required to be reported pursuant to this item.
16
<PAGE>
PART II
_______________________________________________________________________________
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
PRICE RANGE FOR QUARTERS ENDED
(Source: NASDAQ)
Sale Price
---------------------------------------
1994 1993
----------------- -----------------
HIGH LOW High Low
---------------------------------------------------------------------------
First Quarter $27 $22 1/2 $24 3/4 $22 1/2
Second Quarter $25 3/8 $20 3/4 $24 $21
Third Quarter $26 3/4 $21 $28 3/4 $23
Fourth Quarter $30 3/4 $22 3/4 $28 1/2 $24 1/2
_______________________________________________________________________________
The Company's common stock is traded over-the-counter under NASDAQ symbol
PTCM. As of December 31, 1994, there were 4,033 holders of record of the
Company's common stock.
CASH DIVIDEND PAYMENT DATES
PER Per
SHARE Share
------------------------------------------------------------------------------
MARCH 7, 1994 $.33 March 1, 1993 $.33
JUNE 6, 1994 $.33 June 7, 1993 $.33
SEPTEMBER 5, 1994 $.33 September 6, 1993 $.33
DECEMBER 5, 1994 $.33 December 6, 1993 $.33
------------------------------------------------------------------------------
Dividends are normally declared in the quarter during which they are paid.
See Note 12 of Notes to Consolidated Financial Statements included under Item 8
hereof for information concerning restrictions on the payment of dividends.
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994 1993 1992 1991 1990(1)
---------------------------------------------------------------------------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues $ 704,962 $ 702,111 $ 698,175 $ 719,991 $ 677,883
Operating expenses 540,321 560,463 558,701 559,567 522,904
---------------------------------------------------------------------------------------------------
Net operating income 164,641 141,648 139,474 160,424 154,979
Interest expense (34,754) (44,273) (52,140) (54,955) (39,500)
Gain on sale of subsidiaries and
investments (2) 2,073 1,340 28,601 28,262 18,548
Other income (expense), net (3) (9,795) (15,811) (16,161) (13,302) 3,444
---------------------------------------------------------------------------------------------------
Income before income taxes 122,165 82,904 99,774 120,429 137,471
Income taxes 40,766 23,846 32,526 30,893 42,061
---------------------------------------------------------------------------------------------------
Income from continuing
operations 81,399 59,058 67,248 89,536 95,410
Gain (loss) from discontinued
operations (4) -- 60,444 (45,741) (8,431) (5,186)
---------------------------------------------------------------------------------------------------
Net income 81,399 119,502 21,507 81,105 90,224
Preferred dividends -- -- -- -- 5
---------------------------------------------------------------------------------------------------
Net income applicable to
common stock $ 81,399 $ 119,502 $ 21,507 $ 81,105 $ 190,219
===================================================================================================
Average number of common
shares outstanding 39,612 39,584 39,526 39,477 38,768
DATA PER COMMON SHARE:
Income from continuing
operations $ 2.05 $ 1.49 $ 1.70 $ 2.27 $ 2.46
Gain (loss) from discontinued
operations -- 1.53 (1.16) (.22) (.13)
---------------------------------------------------------------------------------------------------
Net income $ 2.05 $ 3.02 $ .54 $ 2.05 $ 2.33
===================================================================================================
Dividends declared and paid $ 1.32 $ 1.32 $ 1.305 $ 1.235 $ 1.13
BALANCE SHEET DATA:
Total assets $1,442,951 $1,482,224 $1,607,289 $1,748,570 $1,787,622
Net assets of discontinued
operations -- -- 99,195 153,070 153,996
Long-term debt, net of
current maturities 376,997 426,669 571,585 528,391 480,940
Shareholders' equity 667,773 638,711 569,846 598,524 563,906
==================================================================================================
</TABLE>
(1) In August 1990, PTI acquired North-West Telecommunications, Inc.
(North-West) for $272 million. Through North-West, PTI acquired four LECs
with approximately 64,500 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 1994, a $2.3
million pre-tax gain on the sale of PTI Harbor Bay, Inc. and Upsouth
Corporation. The gain in 1993 included 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 TU 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 1994, $.02 per share in 1993, $.45 per share in 1992, $.54 per
share in 1991 and $.36 per share in 1990.
18
<PAGE>
(3) The increase in other expense in 1991 resulted from a $5.9 million
increase in noncore business valuation adjustments and an $8.8 million
decrease in interest income. The Company recognized interest income in
1990 related to the funds advanced to PacificCorp Holdings, Inc. for the
North-West acquisition, the settlement of a dispute with an Alaska LEC and
a favorable resolution of income tax audit issues.
(4) International Communications Holdings, Inc. (ICH) had been shown as a
discontinued operation for financial statement reporting purposes through
September 1993 when TRT Communications, Inc. (TRT), its major subsidiary,
was sold. The remaining investment in ICH is now reported as a continuing
operation. See Note 7 to Consolidated Financial Statements included under
Item 8 hereof 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. Interest expense in 1994
decreased as proceeds from the sale of TRT were used to reduce outstanding
debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In October 1994, PTI signed an agreement to sell the stock of Alascom to
AT&T. The agreement was reached after the FCC ordered the restructuring of the
Alaska telecommunications market in May 1994. Among other things, the FCC order
required the termination of the JSA between AT&T and Alascom effective January
1, 1996 and the payment by AT&T to Alascom of a $150 million transition payment
in two installments of $75 million each. Although the FCC order remains in
effect, the agreement to sell Alascom to AT&T was reached as a solution to
issues that remained unresolved by the order.
In the transaction, the Company will receive $365 million in proceeds.
Under the terms of the agreement, AT&T will pay $290 million in cash for the
Alascom stock and for settlement of all past cost study issues. The Company
will retain the $75 million transition payment made by AT&T to Alascom in July
1994. AT&T made a down payment of $30 million to the Company upon signing the
stock purchase agreement, which would be applied to the final $75 million
transition payment required in the FCC order if the transaction failed to
close. The $30 million down payment received from AT&T is included in "Other
long-term liabilities" at December 31, 1994, pending closing of the
transaction. The Company anticipates recognizing a material gain from the sale
of Alascom. (See "Financial Forecast" below for more information about this
gain.)
In November 1994, PacifiCorp Holdings, Inc. (Holdings), owner of
approximately 87 percent of PTI's outstanding common stock, proposed a merger
transaction in which it would have acquired the 13 percent minority interest of
PTI for $28 per share in cash. Following a study of the proposal by a Special
Committee of the PTI Board of Directors and upon the unanimous recommendation
of the Special Committee and the full PTI Board of Directors, a definitive
merger agreement was signed by Holdings and PTI on March 9, 1995. Under the
merger agreement, the minority shareholders of PTI common stock would receive
$30 in cash for each share held and PTI would become an indirect, wholly-owned
subsidiary of PacifiCorp. The merger is conditioned upon, among other things,
affirmative approval of the merger by holders of a majority of the
approximately 5.3 million shares held by the unaffiliated public shareholders.
The Company is expecting to add approximately 85,000 access lines in 1995
due to various acquisitions of rural exchange assets from USWC. The purchase of
the Colorado assets for approximately $200 million in cash, serving
approximately 50,000 access lines, closed in February 1995, while the purchase
of the assets in Oregon and Washington for approximately $180 million in cash,
serving about 35,000 access lines, is expected to close in the second half of
1995. Proceeds from the sale of Alascom, external debt issuances and internally
generated funds are expected to be used to fund the acquisitions. (See "Pro
Forma Financial Information" and "Financial Forecast" below for more
information regarding these transactions.)
19
<PAGE>
RESULTS OF OPERATIONS
_____________________
<TABLE>
<CAPTION>
% %
INCREASE Increase
(in millions except per share amounts) 1994 (DECREASE) 1993 (Decrease) 1992
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations $81.4 38 % $ 59.1 (12)% $ 67.2
Net gain (loss) from discontinued
operations -- * 60.4 * (45.7)
----------------------------------------------------------------------------------------------------------
Net income $81.4 (32)% $119.5 456 % $ 21.5
==========================================================================================================
Average shares outstanding 39.6 39.6 39.5
Per share:
Income from continuing operations $2.05 38 % $ 1.49 (12)% $ 1.70
Gain (loss) from discontinued operations -- * 1.53 * (1.16)
----------------------------------------------------------------------------------------------------------
Net income $2.05 (32)% $ 3.02 455 % $ .54
==========================================================================================================
* Not a meaningful number
</TABLE>
In 1994, income from continuing operations increased $22.3 million from
1993 mainly due to long lines interstate settlement revenues, a depreciation
rate decrease for Alaska local exchange operations, lower interest expense
reflecting lower debt levels, and higher 1993 noncore investment valuation
adjustments.
In 1993, income from continuing operations decreased $8.2 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 revised revenue
estimates for long lines and increased USF support and access line growth for
the Company's local exchange business.
OPERATING REVENUES
__________________
The Company operates predominately in the telecommunications industry,
providing voice, data, video and other services through local exchange and long
lines operations. There are substantial similarities in the operations of and
revenues derived from these activities. The Company is involved with
cellular operations which generate revenues from retail and foreign roamer
activities, as well as from management of cellular properties for other owners.
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. In 1994, 49 percent of consolidated operating
revenues were contributed by long lines, 45 percent by local exchange
companies, three percent by cellular operations and three percent by cable and
backhaul capacity sales and related cable services. In 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. Certain
revenues from the Company's rate of return regulated operations are based on
estimates that are subject to subsequent adjustments as refined operational
information becomes available.
LOCAL NETWORK SERVICE revenues increased $15.2 million in 1994 and $7.7
million in 1993. Internal access line growth in the local exchange companies of
4.8 percent for both 1994 and 1993 increased revenues by $4.9 million and $6.0
million during 1994 and 1993, respectively. Revenues related to access line
growth were higher in 1993 compared to 1994 due to the multi-party to
single-party conversions during 1993. Enhanced and extended calling area
services also increased 1994 and 1993 local network service revenues by $9.1
million and $1.1 million, respectively. Local network service revenue increases
generated by extended area service resulted in decreases in network access
service, long distance network service and other revenues for the local
exchange companies.
NETWORK ACCESS SERVICE revenues are charges to common carriers for access
to the local exchange companies' networks. These revenues decreased $15.3
million in 1994 and increased $9.0 million in 1993. The effect of increased
extended calling area services in local network service caused network access
20
<PAGE>
service revenues to decline by $5.7 million in 1994 and $.5 million in 1993.
Revenue adjustments from revised estimates for prior years decreased $4.0
million in 1994 and increased $.3 million in 1993. Network access service
revenues decreased $5.1 million in 1994 and $.8 million in 1993 because of
decreases in the operating expenses used in setting interstate access rates.
Reduced charges in 1994 are mainly attributable to lower depreciation and
corporate support costs. Reduced charges in 1993 are mainly attributable to the
effects of a 1992 early retirement program. Increased USF support, which
recovers a portion of nontraffic sensitive costs that are above the national
average, increased network access service revenues by $7.5 million in 1993. The
acquisition of local exchange companies in 1993 and internal access line growth
increased network access service revenues by $1.5 million in 1993.
Based on a concern over recent growth in the size of the USF, a
Federal-State Joint Board proposed interim USF rules that were adopted by the
FCC in 1993. These interim rules placed an indexed cap on USF growth to allow
the USF to grow at a rate no greater than the rate of growth in the nation'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 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
1994 and 1995. As most of the Company's local exchange operations receive USF
compensation, significant changes to the USF assistance mechanism could affect
the Company's results. Revenues derived from the USF assistance mechanism were
$30.0 million in 1994, $30.5 million in 1993 and $25.3 million in 1992. With
the purchase of USWC assets in Colorado and the pending purchase of assets in
Oregon and Washington, revenues received under the USF could double in 1996
over 1994 levels. 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, a reduction in USF revenues will
shift revenue requirement to the intrastate jurisdiction where 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 local service rates
and access charges.
LONG DISTANCE NETWORK SERVICE revenues increased $9.4 million in 1994.
This increase was primarily due to the settlement of all open revenue studies
relating to the JSA, which resulted in a long lines interstate revenue increase
of $18.7 million. Long lines interstate revenues from October 1994 until the
sale closes are recognized based on interim cash settlement amounts outlined in
the stock sale agreement. Improvement in intrastate revenue relating to
increased intrastate billed minutes added $3.2 million to long distance network
service in 1994. Reducing long distance network service revenues were the $6.3
million decline in revenue recovery for interstate access expenses due to
Anchorage Telephone Utility (ATU) exiting the NECA traffic sensitive pools, the
$4.7 million revenue effects of other long lines reduced operating expenses and
a $3.2 million decrease from a reduction in long lines rate base relating
mainly to the $75 million transition payment received in July 1994. Excluding
the effect of ATU exiting the NECA pool, interstate access revenue grew $2.0
million in 1994 from increased common carrier network usage. 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 satellite transponders in 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 revenue 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 in 1993 were also offset in part by higher long
lines revenue settlement adjustments of $5.6 million and a net foreign message
toll service revenue settlement increase of $2.0 million. The Company estimates
that its share of the intrastate market in Alaska was approximately 78 percent
at December 31, 1994, as compared to approximately 79 percent at December 31,
1993.
PRIVATE LINE SERVICE revenue declined by $5.6 million in 1994 and $6.6
million in 1993. As a result of the Company's decision to exit noncore
subsidiary operations, private line revenues decreased by $7.3 million in 1994
and $2.9 million in 1993. Partially offsetting the 1994 decrease were increased
revenues of $1.7 million relating to private line services provided by long
lines operations. Revenues amounting to $3.9 million in 1992 for services
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 leased those services.
SALES OF CABLE CAPACITY revenues represent amounts recorded from
activities relating to the North Pacific Cable (NPC) and its backhaul system.
At December 31, 1994, approximately 53 percent of the
21
<PAGE>
cable's capacity had been sold with two percent sold in 1994, one percent sold
in 1993 and four percent sold in 1992. 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 over the next three years. The Company believes that competition
with AT&T for capacity sales has slowed sales on the NPC. 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
six outages on the cable since turn-up in May 1991, three from external causes,
two due to failed components with differing causes and one under investigation,
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 last outage on the
cable system occurred in February 1995. The original three-year warranty on the
NPC system's submersible plant and terminal equipment ended on November 11,
1994. This warranty covered the repeaters, electronics, cable and branching
unit. Testing to verify the status of the system was completed prior to
warranty expiration. Results of the completed tests indicated that the NPC
system was operating at or above contracted levels before the outage in
February 1995. Extended warranties for certain components of the NPC system
will continue in effect until November 2001. These extended warranties apply to
the majority of the cable supplied by the manufacturers. As a result of an
agreement between PTC, Cable & Wireless plc and International Digital
Communications, Inc. and the cable contractor, the contractor has agreed to
provide industry support programs and enhanced repair arrangements if needed.
During 1993, the Company reduced the cable inventory carrying value by $19.2
million. This reduction was offset by increases in cash and accounts
receivable.
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.
Based on current estimates of the discounted net cash flow from remaining
capacity sales, the Company believes that the inventory value of the cable
system at December 31, 1994 can be recovered. These estimates are based on
anticipated growth in trans-Pacific demand for communications capacity,
interconnectivity between existing and planned cable systems and the NPC, the
availability of other sources of capacity and the possible development of
alternative business uses of the NPC.
CELLULAR AND OTHER operating revenues decreased by $.5 million in 1994 and
increased by $12.7 million in 1993. Growth in retail and foreign roamer
revenues boosted cellular revenues by $9.6 million and $5.9 million in 1994 and
1993, respectively, as several cell sites were turned up in the second half of
1992, acquisitions were completed and customer penetration increased. Increased
extended area local network services reduced local exchange operations billing
and collection revenues by $2.0 million during 1994. 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 declined by $1.7 million in 1994 and grew by $3.1 million in 1993. The
income effect of long lines resale activities were mainly offset by changes in
plant support expense. Cable maintenance and restoration revenue decreased
other revenue by $1.1 million in 1994 and increased other revenue by $3.2
million in 1993 due to additional circuit activations and submarine system
sales and repairs in 1993. Declining noncore subsidiary activity resulted in a
decrease in other revenue of $1.0 million in 1994 and $1.3 million in 1993.
Other operating revenues decreased by $1.1 million in 1993 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.
The composite market penetration rate for cellular operations controlled
by the Company is 2.5 percent and ranges from 1 percent in a developing rural
RSA to 4.5 percent in an established MSA. The composite average monthly retail
revenue per customer for the cellular operations controlled by the Company is
$44 and by market ranges from $30 to $100; the composite average monthly total
revenue per customer is $77 and ranges by market from $59 to $173.
22
<PAGE>
OPERATING EXPENSES
__________________
The Company adopted Statement of Financial Accounting Standards (SFAS) 106
on January 1, 1993, which increased postretirement expense by $3.0 million in
1993 and an additional $1.0 million in 1994, thereby causing increases in plant
support, other operating expense, customer operations and administrative
support.
PLANT SUPPORT expense decreased by $4.3 million in 1994 and increased by
$4.6 million in 1993. Equipment resale costs included in plant support
decreased 1994 expenses by $1.6 million and increased 1993 expenses by $3.0
million. Noncore subsidiary plant support expense decreased $1.0 million in
1994 and $2.2 million in 1993. Cellular growth caused plant support increases
of $1.0 million during 1994. One-time long lines services provided in Saudi
Arabia increased plant support and other revenue by $3.2 million in 1993.
DEPRECIATION AND AMORTIZATION expense was lower by $5.9 million in 1994.
This was due mainly to the $5.6 million effect of a depreciation rate decrease
ordered by the APUC for Alaska local exchange operations. Additionally,
depreciation in 1994 was reduced by $2.7 million from the sale of noncore
subsidiaries and by $2.1 million from the decrease in Alascom depreciable plant
balances resulting from the $75 million transition payment received in July
1994. Offsetting these decreases in 1994 were a $3.4 million increase resulting
from growth in plant in service in local exchange operations and an $.8 million
increase due to the purchase of transponders by long lines in 1993 and 1994.
Depreciation and amortization expense decreases in 1993 of $4.7 million include
$7.3 million relating to the sale of 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.
LEASED CIRCUITS expense declined $4.0 million in 1994, of which $2.4
million related to noncore business activities that were sold and $1.1 million
related to a cable outage in 1993. Leased circuits expense rose by $11.7
million in 1993 mainly due to the operating lease expense for several 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.
ACCESS EXPENSE decreased $2.5 million in 1994 and $2.3 million in 1993 due
to the $6.3 million and $2.6 million effects in those years of ATU exiting NECA
traffic sensitive pools and developing its own stand alone tariff. Partially
offsetting this decrease in 1994 was an increase of $2.2 million relating to
increased facility costs associated with access services and an increase of
$2.0 million due to higher common carrier network usage.
OTHER OPERATING EXPENSE AND TAXES increased by $2.8 million in 1994 and
remained constant in 1993 and 1992. Other operating expense increased $.8
million in 1994 due to cellular customer growth. Other taxes increased $.9
million in 1994 as a result of higher plant balances and appraised values for
property tax calculations and other miscellaneous state and local taxes.
CUSTOMER OPERATIONS expense grew by $2.2 million in 1994. Cellular
customer growth and the incremental cost to acquire new cellular customer
subscriptions increased customer support expense by $3.1 million. Partially
offsetting this increase was a decrease resulting from lower long lines
operator costs as this function was automated in 1994. Customer operations
expense increased $3.7 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.
ADMINISTRATIVE SUPPORT expense declined $8.8 million in 1994, with $7.9
million of the decrease mainly relating to lower corporate support and employee
benefit costs and $2.4 million due to the sale of other noncore subsidiaries.
Administrative support expense declined $5.7 million in 1993 mainly because
1992 included $6.4 million of costs relating to the early retirement program in
1992.
OTHER INCOME (EXPENSE)
______________________
INTEREST EXPENSE in 1994 and 1993 was lower by $14.5 million and $9.2
million, respectively, due to lower short-term borrowing levels, partially
offset by the effects of interest rate increases which increased interest
expense by $5.0 million and $1.3 million in those respective years.
23
<PAGE>
GAIN ON SALE OF SUBSIDIARIES AND INVESTMENTS included a $2.3 million gain
on the sale of PTI Harbor Bay, Inc. and Upsouth Corporation in April 1994, 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, and $7.2 million in gains from cellular sales and exchanges in
September and December of 1992. In October 1994, the Company signed a
definitive agreement to sell the stock of Alascom to AT&T. The sale is expected
to be completed in the first half of 1995 and to result in a material gain. See
"Dispositions" below.
MINORITY INTEREST in 1994, 1993 and 1992 related primarily to the 20
percent minority shareholders' interest in income from the North Pacific Cable
project and various cellular interests.
OTHER expense was lower by $5.6 million in 1994 and $1.0 million in 1993.
Other expense in 1994 included $3.7 million of corporate support costs, $1.4
million of costs relating to the buyout of an interest rate swap agreement,
$1.8 million of valuation adjustments to immaterial noncore investments and
businesses, $1.1 million in advisory fees relating to the proposed buyout of
the Company's minority interest and Alascom sale, $1.2 million for the net
effect of recording cellular excess cost and goodwill amortization and equity
income, and $1.3 million of other miscellaneous losses. (See Note 10 to
Consolidated Financial Statements included in Item 8 hereof.) 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.
INCOME TAXES
____________
(in millions) 1994 1993 1992
------------------------------------------------------------------------------
Income tax expense $40.8 $23.8 $32.5
Effective income tax rate 33.4% 28.8% 32.6%
The lower 1993 effective income tax rate resulted from a favorable
settlement of state income taxes for 1992.
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, not
including the North Pacific Cable inventory, were approximately 18 percent of
the Company's total assets. 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.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
(in millions) Plan 1995 1994 1993 1992
-----------------------------------------------------------------------------
Capital expenditures:
Local exchange companies $109 $111(a) $ 74 $ 69
Long Lines 7 22 18 22
Cellular 9 10 7 10
Other 3 5 4 8
-----------------------------------------------------------------------------
Total capital expenditures $128 $148 $103 $109
=============================================================================
Acquisitions $380 $ -- $ 16 $ 18
=============================================================================
(a) Includes $30.1 million incurred to upgrade Colorado assets acquired from
USWC in February 1995.
24
<PAGE>
CAPITAL EXPENDITURES
____________________
The Company's capital expenditures during 1994, 1993 and 1992 were funded
primarily through internally generated cash of $141.4 million, $180.4 million
and $177.1 million, respectively. The Company expects to fund its capital
expenditures in 1995 primarily through internally generated cash. Net cash
provided by operating activities in 1994 was reduced by $63.8 million for taxes
paid on the transition payments received and to be received from AT&T totalling
$150 million. The cash used to make this tax payment directly relates to the
$75 million in cash received in July 1994 for the first transition payment
included in cash flows from investing activities. However, Generally Accepted
Accounting Principles require that income tax expenses be offset against cash
from operating activities; whereas, the cash received is classified in cash
flows from investing activities. This tax payment had little effect on net
income as the increase in current income tax expense was mostly offset by a
reduction in deferred income tax expense.
Capital expenditures during 1994 and 1993 related mainly to network
upgrades and growth in the Company's operations. The costs associated with the
contract with USWC to upgrade facilities for assets that the Company purchased
from USWC in Colorado also increased local exchange company expenditures in
1994. (See "Acquisitions" below for information concerning this contract.) The
Company does not have any other major construction projects underway at the
present time.
In 1993 and 1994, the Company purchased two additional transponders on a
satellite on which it leases 16 transponders. The lease is accounted for as an
operating lease.
ACQUISITIONS
____________
The Company continues to seek expansion of its local exchange operations
and cellular interests through the acquisition of additional local exchange
companies and assets and cellular properties that complement its existing
properties and operations. In February 1995, the Company acquired certain rural
telephone exchange assets in Colorado from USWC. The assets include
approximately 50,000 access lines that service 45 exchanges. The Company paid
approximately $200 million for these assets at closing. Under a contract with
USWC, the Company acted as a general contractor to construct and upgrade
single-party service and digital switching for the assets subject to the
agreement. These improvements are a result of a regulatory requirement of the
Colorado Public Utilities Commission. During 1993 and 1994, the Company spent
$30.1 million under this contract. Projected expenditures for 1995 are $20.7
million. At year end 1994, the total expenditures under the contract were
included in "Construction work in progress" on the balance sheet. 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 May 1994, the Company signed definitive purchase agreements to acquire
certain rural telephone exchange assets in Oregon and Washington from USWC. The
assets to be acquired by the Company represent 49 exchanges that service
approximately 35,000 access lines. Many of these exchanges are contiguous to or
located near other rural exchanges that the Company owns and operates in these
states. The combined price for these assets of approximately $180 million in
cash is subject to certain adjustments, including adjustments for actual book
value of the assets at closing. The Company will not assume any financial
liabilities from USWC in the transactions. Completion of the transactions with
USWC is dependent on regulatory and governmental approvals, receipt of which is
expected to occur prior to the end of 1995.
The Colorado acquisition was funded through short-term bank borrowings,
including advances under the Company's $300 million revolving credit agreement.
The Company anticipates repaying these borrowings with proceeds from the sale
of Alascom. The Company expects to fund the Oregon and Washington acquisitions
with proceeds from the sale of Alascom, the issuance of external debt and
internally generated funds. Other local exchange company acquisitions in the
future 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 and external debt. If the
Company is successful in acquiring larger local exchange properties, it would
consider equity issuances if necessary, to help fund the acquisitions and
maintain acceptable credit ratings.
In September 1993, the FCC allocated several blocks of spectrum for
Personal Communications Services (PCS). The FCC began the broadband PCS auction
process in December 1994 by auctioning major trading area licenses. The
auctions for the basic trading area licenses are expected to be initiated by
25
<PAGE>
the second quarter of 1995. The Company, as well as several of the Company's
cellular licensees, are eligible to bid on PCS licenses subject to certain
limitations established by the FCC. Although the Company does not plan to bid
for PCS licenses, it continues to monitor PCS developments and evaluate its
opportunities in the PCS market.
DISPOSITIONS
____________
On April 29, 1994, the Company completed the sale of two wholly-owned
noncore subsidiaries, PTI Harbor Bay, Inc. and Upsouth Corporation, to IntelCom
Group, Inc. (IntelCom:ITR) for 1,183,147 shares of IntelCom common stock and
$.2 million in cash. On October 17, 1994, the Company sold its IntelCom stock
in an underwritten public offering. Cash proceeds of $15.9 million and a gain
of $1.0 million, net of tax and selling expenses, were recognized in 1994. The
net assets of these subsidiaries were shown in "Other current assets" at
December 31, 1993.
See "Pro Forma Financial Information" and "Financial Forecast" below and
Note 16 to Consolidated Financial Statements included in Item 8 hereof for
information concerning the pending sale of Alascom to AT&T.
DISCONTINUED OPERATIONS
_______________________
In September 1993, the Company concluded the sale of TRT Communications,
Inc., the major operating subsidiary of International Communications Holdings,
Inc. (ICH), and the stock of a smaller subsidiary to IDB Communications Group,
Inc. (IDB) for 4.5 million shares of IDB common stock and $1 million in cash.
The market value of IDB stock increased during 1993 resulting in the Company
recognizing an after-tax gain from discontinued operations of $60.4 million.
(See Note 7 to Consolidated Financial Statements included in Item 8 hereof.)
The $195.2 million in proceeds received from the sale of the IDB stock in 1993
were used mainly to repay short-term debt.
LONG-TERM AND SHORT-TERM DEBT
_____________________________
December 31, 1994 1993 1992
------------------------------------------------------------------------------
(in millions)
Long-term debt $377 $427 $572
Short-term debt 22 25 71
Currently maturing long-term debt 16 16 31
------------------------------------------------------------------------------
$415 $468 $674
==============================================================================
Debt as a percent of total capitalization 38% 42% 54%
==============================================================================
In 1994, net proceeds from the down payment for the sale of Alascom and
the transition payment received from AT&T and the sale of IntelCom stock were
used to repay long-term debt. 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. Short-term borrowings from other available banking
arrangements at December 31, 1994, of $25 million 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.
The Company has access to funds through its $300 million revolving credit
agreement which has been renewed for a five-year term ending in November 1999.
At December 31, 1994, no borrowings were outstanding under this agreement. (See
Note 12 to Consolidated Financial Statements included in Item 8 hereof.) The
revolving credit agreement also serves as backup for a $100 million commercial
paper program, under which nothing was outstanding at December 31, 1994. The
Company had $37.0 million outstanding under other available banking
arrangements, $7.8 million due to GE American Communications, Inc. for the
purchase of a satellite transponder and $1.9 million due to the minority owner
of a Company subsidiary at December 31, 1994. The Colorado asset acquisition in
February 1995 was funded through short-term bank borrowings.
26
<PAGE>
The Company has a $150 million Series B Medium-Term Note program, under
which $72.5 million of notes were outstanding at December 31, 1994, with terms
of one to 12 years and an average annual interest rate of 7.9 percent. The
Company also has approval from the Rural Telephone Bank to borrow $20.9 million
in additional REA debt for certain construction projects.
Any temporary cash or liquidity requirements during 1995 will be met
through utilization of funds available under the revolving credit agreement or
temporary advances from Holdings. (See Note 2 to Consolidated Financial
Statements included in Item 8 hereof.) Long-term liquidity requirements will be
met through utilization of funds available under the revolving credit
agreement, which term ends in November 1999, or the issuance of additional
Series B Medium-Term Notes.
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.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
___________________________________________
The accompanying unaudited pro forma consolidated balance sheet as of
December 31, 1994 reflects the Company's consolidated financial position
excluding the assets and liabilities of Alascom and including the local
exchange assets acquired in Colorado and to be acquired in Oregon and
Washington. The Company signed a definitive agreement on September 30, 1994 to
sell the stock of Alascom to AT&T for $365 million (including the $75 million
transition payment received in July 1994). The Company closed the purchase of
assets in Colorado from USWC on February 15, 1995 for $200 million and expects
to close the purchase of assets in Oregon and Washington for approximately $180
million before the end of 1995 after the receipt of certain regulatory
approvals and subject to certain purchase price adjustments at closing. The pro
forma balance sheet assumes the sale and purchases occurred on December 31,
1994. See Item 1. "Business - Telecommunications Operations - Alaska Market
Restructuring" and Note 16 "Pending Sale of Alascom, Inc." of the notes to the
consolidated financial statements in Item 8 hereof for additional information
relating to the pending sale of Alascom. See "Acquisitions" above and Item 1.
"Business - Telecommunications Operations - Local Exchange Companies" for
additional information relating to the acquisitions of local exchange assets
from USWC.
The unaudited pro forma consolidated balance sheet and related notes
should be read in conjunction with the consolidated financial statements and
related notes for the year ended December 31, 1994 included in Item 8 hereof.
<TABLE>
<CAPTION>
PRO FORMA BALANCE SHEET
(UNAUDITED, IN MILLIONS)
Historical (a) (b) US WEST Pro forma
Consolidated Historical Elimination Sale of Asset Consolidated
December 31, 1994 PTI Alascom Reversal Alascom Acquisitions PTI
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets $ 214.3 $ (82.7) $ 13.1 $260.0 $(265.5)(c) $ 139.2
Investments 123.6 (0.1) 204.4 (204.4) (4.0) 119.5
Net plant in service 825.5 (185.5) -- -- 237.1 877.1
Intangible and other assets 279.6 (7.4) -- -- 182.3 454.5
------------------------------------------------------------------------------------------------------------------
Total assets $1,443.0 $(275.7) $217.5 $ 55.6 $ 149.9 $1,590.3
==================================================================================================================
LIABILITIES AND CAPITALIZATION
Current liabilities $ 175.1 $ (69.9) $ 21.0 $ 5.9 $ -- $ 132.1
Long-term debt 377.0 -- -- -- 118.6(c) 495.6
Deferred income taxes and
unamortized investment
tax credits 109.8 (1.8) -- -- (16.8) 91.2
Other long-term liabilities 113.3 (7.5) -- (30.0) 48.1 123.9
Shareholders' equity 667.8 (196.5) 196.5 79.7 -- 747.5
------------------------------------------------------------------------------------------------------------------
Total liabilities and
capitalization $1,443.0 $(275.7) $217.5 $ 55.6 $ 149.9 $1,590.3
==================================================================================================================
</TABLE>
27
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
PRO FORMA ADJUSTMENTS - The accompanying pro forma consolidated balance
sheet as of December 31, 1994 consists of the historical balance sheet of the
Company (after elimination of affiliated transactions and interest), less the
historical balance sheet of Alascom, plus the assets purchased in Colorado and
an estimate for the assets to be purchased in Oregon and Washington and certain
liabilities related to these acquisitions, plus certain pro forma adjustments
described below:
a. Affiliated balances between the Company and its subsidiaries and
Alascom eliminated in the consolidation process were restored on the pro forma
balance sheet. The affiliated balances between PTI and Alascom were added to
PTI's investment in Alascom. The affiliated balances between the other PTI
subsidiaries and Alascom were reclassified to the proper nonaffiliated line
item.
b. Cash proceeds of $260 million to be received at closing the sale of
Alascom and the $30 million deposit in "Other long-term liabilities" received
in October 1994 were offset by the Company's investment in Alascom, income tax
liability from the gain on the sale and net gain on sale. The actual gain to be
realized on the sale will be lower than indicated on the pro forma balance
sheet as the Company's basis in Alascom will increase as Alascom's earnings are
recognized and affiliated account balances change between December 31, 1994 and
closing.
c. Cash proceeds received from the sale of Alascom have been applied to
the purchase of assets from USWC. Amounts needed for the purchases in excess of
the Alascom proceeds and cash on hand were assumed to be borrowed on a
long-term basis.
FINANCIAL FORECAST
__________________
GENERAL. The financial forecast set forth below was derived from the
Company's internal Five Year Business Plan, which was prepared by the Company's
management and presented to its Board of Directors in early February 1995 as
part of the board's normal review and oversight procedures. The Five Year
Business Plan was prepared in the ordinary course of the Company's business and
was not prepared in contemplation of the pending proposal by Holdings to
acquire the shares of the Company's common stock held by the minority public
shareholders. Accordingly, the financial forecast does not give effect to the
proposed merger.
CERTAIN IMPORTANT CAVEATS AND LIMITATIONS. Financial forecasts involve
estimates as to the future which, notwithstanding the fact that they are
presented with numeric specificity, may or may not prove to be accurate. The
financial forecast set forth below reflects numerous assumptions as to industry
performance, general business and economic conditions, regulatory and legal
requirements, taxes and other matters, many of which are beyond the control of
the Company. Similarly, these materials assume certain future business
decisions which are subject to change. Among other things, the financial
forecast assumes the ability of the Company to consummate future acquisitions
in the rural telecommunications business which have not been identified. As
discussed elsewhere in this Report, the Company is actively seeking
acquisitions which could occur earlier or later than forecasted, or not at all.
Moreover, Deloitte & Touche LLP, independent auditors for the Company, have not
examined, compiled or applied agreed-upon procedures to the financial forecast
set forth below and, consequently, assume no responsibility therefor. In
addition, no other independent expert has reviewed any of these materials.
THERE CAN BE NO ASSURANCE THAT THE RESULTS PREDICTED BY THE FINANCIAL
FORECAST SET FORTH BELOW WILL BE REALIZED. ACTUAL RESULTS WILL VARY FROM THOSE
REPRESENTED BY THE FINANCIAL FORECAST, AND THOSE VARIATIONS MAY BE MATERIAL.
THE INCLUSION OF THE FINANCIAL FORECAST SHOULD NOT BE REGARDED AS A
REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE FORECASTED RESULTS
WILL BE ACHIEVED. RECIPIENTS OF THIS REPORT ARE CAUTIONED TO CONSIDER CAREFULLY
THE FOREGOING AND THE NOTES AND ASSUMPTIONS SET FORTH BELOW WHILE REVIEWING THE
FINANCIAL FORECAST. IN ADDITION, THE COMPANY HAS NOT UPDATED THE FORECAST TO
REFLECT DEVELOPMENTS OCCURRING AFTER JANUARY 21, 1995, THE DATE THE FORECAST
WAS PREPARED. THE COMPANY DOES NOT INTEND TO UPDATE OR PUBLICLY REVISE THE
FORECAST.
BACKGROUND. The Company completed the acquisition of local exchange assets
in Colorado from USWC in February 1995 and anticipates completing the
acquisition of additional local exchange assets from USWC in Oregon and
Washington before , the end of 1995. In addition, the Company has an agreement
to sell the stock of Alascom to AT&T. The Company anticipates closing this sale
during the first half of 1995. Financial forecast information reflecting these
transactions and other material transactions
28
<PAGE>
enumerated under "Summary of Significant Forecast Assumptions" are presented
below. See Item 1. "Business - Telecommunications Operations - Alaska Market
Restructuring" and Note 16 "Pending Sale of Alascom, Inc." of the notes to the
consolidated financial statements in Item 8 hereof for additional information
related to the pending sale of Alascom. See "Acquisitions" above and Item 1.
"Business - Telecommunications Operations - Local Exchange Companies" for
additional information relating to the acquisitions of local exchange assets
from USWC.
<TABLE>
<CAPTION>
FORECAST CONSOLIDATED STATEMENTS OF INCOME
Historical Forecast
--------------------------------------------------------
Year Ending December 31, 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
(Unaudited, in millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network service $ 97.0 $121.6 $152.5 $159.6 $181.3 $190.7
Network access service 168.5 256.5 317.9 328.5 368.2 376.0
Long distance and private
line service 330.2 112.6 -- -- -- --
Cellular and other 109.3 118.8 136.4 151.2 168.3 183.1
----------------------------------------------------------------------------------------------------------------
Total operating revenues 705.0 609.5 606.8 639.3 717.8 749.8
----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Plant support 144.3 124.8 108.2 112.5 123.0 126.7
Depreciation and amortization 100.9 106.2 129.7 136.3 157.1 164.0
Access expense 92.9 38.0 -- -- -- --
Other operating expense 53.9 53.6 56.0 58.6 65.1 67.7
Customer operations 72.8 63.8 59.1 61.0 66.6 69.2
Administrative support 75.6 75.8 70.4 69.9 72.0 73.5
----------------------------------------------------------------------------------------------------------------
Total operating expenses 540.4 462.2 423.4 438.3 483.8 501.1
----------------------------------------------------------------------------------------------------------------
OPERATING INCOME 164.6 147.3 183.4 201.0 234.0 248.7
----------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (34.8) (38.4) (58.7) (57.1) (65.0) (60.0)
Gain on sale of Alascom -- 75.2 -- -- -- --
Other (7.6) (4.0) (6.3) (4.6) (2.6) 0.8
----------------------------------------------------------------------------------------------------------------
Total other income
(expense) - net (42.4) 32.8 (65.0) (61.7) (67.6) (59.2)
----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 122.2 180.1 118.4 139.3 166.4 189.5
INCOME TAXES 40.8 41.6 46.0 54.4 65.7 75.2
----------------------------------------------------------------------------------------------------------------
NET INCOME $ 81.4 $138.5 $ 72.4 $ 84.9 $100.7 $114.3
================================================================================================================
NET INCOME PER SHARE $ 2.05 $ 3.50 $ 1.83 $ 2.14 $ 2.54 $ 2.88
================================================================================================================
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
FORECAST CONSOLIDATED BALANCE SHEETS
Historical Forecast
----------------------------------------------------------
December 31, 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
(Unaudited, in millions)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 9.9 $ 6.5 $ 6.5 $ 6.5 $ 6.5 $ 6.5
Accounts receivable 110.8 56.8 60.8 62.5 65.1 67.1
Inventory -- North
Pacific Cable 62.8 54.2 45.3 36.5 23.3 14.5
Material and supplies 14.8 11.5 21.7 22.1 28.7 29.0
Other 16.0 11.1 11.2 11.3 11.4 11.5
----------------------------------------------------------------------------------------------------------------
Total current assets 214.3 140.1 145.5 138.9 135.0 128.6
Investments 123.6 120.0 121.6 123.8 130.0 140.2
Net plant in service 825.5 1,050.7 1,086.3 1,174.0 1,177.3 1,145.4
Intangible and other assets 279.6 543.6 527.9 576.2 557.3 535.6
----------------------------------------------------------------------------------------------------------------
Total assets $1,443.0 $1,854.4 $1,881.3 $2,012.9 $1,999.6 $1,949.8
================================================================================================================
LIABILITIES AND CAPITALIZATION
Current liabilities:
Currently maturing
long-term debt $ 15.6 $ 6.9 $ 7.0 $ 7.2 $ 18.2 $ 8.0
Notes payable 21.7 121.4 111.0 90.4 73.2 26.4
Accounts payable 69.5 60.3 60.1 60.6 60.9 61.1
Other 68.3 45.7 52.9 53.4 58.6 59.2
----------------------------------------------------------------------------------------------------------------
Total current liabilities 175.1 234.3 231.0 211.6 210.9 154.7
Long-term debt 377.0 666.5 675.4 800.7 746.0 701.0
Deferred income taxes and
unamortized investment
tax credits 109.8 115.5 116.3 118.2 113.3 106.8
Other long-term liabilities 113.3 84.2 85.3 79.0 81.4 82.9
Shareholders' equity 667.8 753.9 773.3 803.4 848.0 904.4
----------------------------------------------------------------------------------------------------------------
Total liabilities and
capitalization $1,443.0 $1,854.4 $1,881.3 $2,012.9 $1,999.6 $1,949.8
================================================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
FORECAST CONSOLIDATED STATEMENTS OF CASH FLOWS
Historical Forecast
------------------------------------------------------------
Year Ending December 31, 1994 1995 1996 1997 1998 1999
----------------------------------------------------------------------------------------------------------------
(Unaudited, in millions)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 81.4 $ 138.5 $ 72.4 $ 84.9 $ 100.7 $ 114.3
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 107.8 113.5 137.0 143.5 163.7 170.6
Deferred income taxes and
investment tax credits, net (62.3) (1.1) 3.4 4.3 (2.4) (3.9)
Gain on sale of Alascom -- (75.2) -- -- -- --
Other 14.4 (13.1) (8.9) (7.8) (7.9) (8.0)
---------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 141.3 162.6 203.9 224.9 254.1 273.0
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (148.2) (127.5) (153.8) (115.9) (142.8) (119.0)
Cost of assets acquired -- (625.7) -- (165.6) -- --
Investments in and advances
to affiliates (4.7) (2.7) 4.0 5.9 5.4 5.5
Proceeds from sales of assets 122.6 261.6 0.4 0.4 0.4 0.4
---------------------------------------------------------------------------------------------------------------
Net cash used by investing
activities (30.3) (494.3) (149.4) (275.2) (137.0) (113.1)
---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt (3.2) 74.7 (10.4) (20.6) (17.2) (46.8)
Proceeds from issuance of long-term
debt 8.0 436.2 14.9 165.5 10.2 --
Dividends paid (52.3) (52.3) (53.1) (54.6) (56.3) (57.9)
Payments of long-term debt (58.5) (129.3) (5.9) (40.0) (53.8) (55.2)
---------------------------------------------------------------------------------------------------------------
Net cash provided (used)
by financing activities (106.0) 329.3 (54.5) 50.3 (117.1) (159.9)
---------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS 5.0 (2.4) -- -- -- --
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 4.9 8.9 6.5 6.5 6.5 6.5
---------------------------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS
AT END OF YEAR $ 9.9 $ 6.5 $ 6.5 $ 6.5 $ 6.5 $ 6.5
===============================================================================================================
</TABLE>
31
<PAGE>
SUMMARY OF ACCOUNTING POLICIES AND
SIGNIFICANT ASSUMPTIONS FOR THE FINANCIAL FORECAST
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- The forecast financial
statements have been prepared using accounting principles and policies
generally consistent with those used by the Company in its historical financial
presentations for the year ended December 31, 1994. See Note 1 "Summary of
Significant Accounting Policies" in the notes to the consolidated financial
statements included in Item 8 hereof.
2. SUMMARY OF SIGNIFICANT FORECAST ASSUMPTIONS
A. GENERAL ASSUMPTIONS -- As noted above, the financial forecast was
prepared as part of the Company's normal budgeting process, assuming the
Company would remain an 86.6 percent owned subsidiary of Holdings for the
entire forecasted period. The forecast was prepared prior to the
completion of the 1994 consolidated financial statements and, therefore,
the initial basis for the financial forecast was not the historical
statements for 1994. Variations from historical 1994 results and balances
in the forecast's initial basis do not have a material effect on the
information presented in the five-year forecast.
B. DISPOSITION OF ALASCOM, INC. -- The forecast assumes that the
Company will close the sale of Alascom to AT&T at the end of May 1995.
After-tax proceeds from the sale were estimated at $256 million.
Management has assumed that the Company will recognize a $74 million
after-tax gain from the sale. Proceeds will be used to finance the
acquisitions of assets from USWC in Colorado, Oregon and Washington. (See
"Acquisition Assumptions" below.) Alascom's results of operations are
included in the 1994 historical amounts and the 1995 forecast through May
1995 as follows (in millions):
1994 1995
Actual Forecast
-----------------------------------------------------------
Operating Revenues $343.5 $135.1
Operating Expenses 262.8 111.3
-----------------------------------------------------------
Operating Income $ 80.7 $ 23.8
===========================================================
EBITDA* $115.4 $ 37.6
===========================================================
*EBITDA - Earnings before interest, taxes, depreciation and
amortization
C. ACQUISITION ASSUMPTIONS -- The Company closed the acquisition of
local exchange assets from USWC in Colorado in February 1995 at a purchase
price of $200 million. In the forecast, management has assumed that
substantially all of the purchase price was borrowed at an average
interest rate of 6.5 percent to fund the acquisition. These borrowings
were assumed to be repaid at the end of May 1995 with proceeds from the
sale of Alascom. In the forecast, the purchase of the USWC assets in
Oregon and Washington was assumed to close at the end of June 1995 at a
final adjusted purchase price of $170 million. Management has assumed the
Company would borrow an additional $106 million to complete the funding
for the purchase of these local exchange assets at an assumed average
interest rate of 6.5 percent. This interest rate assumes financing through
short-term, floating-rate debt. In 1993, the Company lowered its debt
balances by retiring debt with proceeds received from the sale of the
Company's international operations. The actual timing of the closings for
the Oregon and Washington asset acquisitions is dependent upon the receipt
of certain regulatory approvals, a process over which the Company has no
control. Consequently, the closings may occur later than anticipated.
The five-year forecast also assumes that the Company will acquire
additional local exchange assets serving access lines in rural and
suburban areas for $268 million and $166 million in cash at the end of
1995 and 1997, respectively. The forecast assumes that the financial
results from operations of these unidentified acquisitions will be similar
to other known acquisition opportunities that
32
<PAGE>
the Company is currently evaluating. Long and short-term borrowings with
an assumed average interest rate of 8.1 percent are assumed to be used to
finance the acquisitions. Should the Company not be successful in
completing these unidentified acquisitions, forecast amounts would be (in
millions):
1995 1996 1997 1998 1999
--------------------------------------------------------------------------
Operating Revenues $609.5 $533.8 $563.3 $594.9 $624.5
Operating Income 147.3 153.4 168.7 182.1 195.5
Net Income 138.5 69.7 80.5 92.5 103.9
EBITDA 253.5 262.7 284.1 305.6 325.4
Debt 526.8 510.6 474.0 427.9 363.4
Equity 753.9 770.6 796.4 832.6 878.7
Cash Provided by Operations 162.6 182.0 193.8 207.1 220.7
Construction Expenditures 127.5 117.1 108.7 112.1 105.8
D. ACCESS LINE GROWTH -- Management has assumed that internal access
line growth of between 4.5 percent and 5.0 percent, annually for its
combined local exchange operations, will continue throughout the five-year
forecast. The Company has experienced this level of access line growth for
the past six years.
E. OPERATING REVENUES AND EXPENSES -- For the Company's existing local
exchange operations, the operating revenues and expenses have been
estimated for the next five years using projections of historical results,
adjusted for access line growth, the effects of increases due to assumed
general inflation of 3.0 percent to 3.5 percent, annually, and certain
planned operating efficiencies. Management has assumed that the regulatory
environment in which it operated in 1994 will continue to exist through
1999 and that competition within its service areas will not increase
significantly. Management has assumed that future legislative changes
regarding the telecommunications regulatory structure will not abandon
interstate support for the higher cost rural areas. To the extent there
are changes in the support mechanisms, management has assumed that the
Company can successfully pursue rate rebalancing on a revenue neutral
basis. Although the five-year forecast assumptions do not include new
revenues that might arise from technological changes, management has
assumed that future technological changes may result in opportunities to
develop new services which will generate additional revenues to help
offset changes, if any, in the high cost support mechanisms that the
Company may not recover through rate rebalancing from interstate to state
jurisdictions. For the areas served by the newly acquired local exchange
assets, revenue estimates are based on the number of access lines served
by the assets and an estimate of the minutes of use those lines would
generate. The resulting usage estimate is then multiplied by the rate
element assumed to be adopted by the Company at the closing of the
acquisitions. This rate element is based either on estimated revenue
requirement calculations or on existing rates for the entity selling the
assets.
The forecast assumes no material revenue increases as a result of
rate case activity. Any adjustments to rates resulting from the current
rate proceeding in Wisconsin or in the rate proceeding scheduled for
Colorado in three years are assumed to be revenue neutral.
Operating expenses for the acquired assets were developed by
estimating the necessary staffing requirements to support their unique
service and geographic territories. In addition, expenses were estimated
based upon the Company's experience as a local telephone service provider
in similar geographic areas and its experiences in completing similar
acquisitions of comparable size.
F. CONSTRUCTION EXPENDITURES -- Management has assumed a normal
managed construction program to replace and upgrade property as needed due
to retirement or obsolescence with expenditures of $92.6 million in 1995,
$97.3 million in 1996, $92.9 million in 1997, $96.3 million in 1998 and
$92.2 million in 1999. In the areas where the Company plans to acquire
additional local exchange assets, management has assumed that construction
expenditures will be necessary to upgrade systems to meet service
requirements established by governing regulatory authorities and to meet
the service standard maintained by the Company. These expenditures are
assumed to total $34.9 million in 1995, $56.5 million in 1996, $23.0
million in 1997, $46.5 million in 1998 and $26.8 million in 1999.
G. NORTH PACIFIC CABLE -- The forecast assumes that the Company will
be successful in either selling the remaining capacity on the North
Pacific Cable, or using its available, unsold capacity to develop a
business in the international high-quality television transmission market.
The North Pacific Cable experienced an outage in February 1995 after this
financial forecast was prepared. While the
33
<PAGE>
cable system has returned to operation, the cause of the outage is still
under investigation. The results of that investigation may have an
impact on the Company's ability to fully recover its remaining $62.8
million investment in the North Pacific Cable.
H. CELLULAR OPERATIONS -- Cellular operations were assumed to grow
consistent with the cellular industry's customer penetration estimates.
Customer growth was assumed to average 24 percent annually over the next
five years. Management plans to manage its pricing structure and vertical
service offerings to stabilize average monthly customer revenue. The
forecast assumes no expenditures for pursuit or integration of Personnel
Communications Systems (PCS) licenses. Management has assumed that the
impact of competition by PCS providers will be minimal in the five-year
forecast period due to delays in the bidding process and the time required
by the successful bidders to build competing PCS systems. In the interim,
management intends to digitize part of its cellular network to reduce its
unit cost structure so that its cellular operations can be cost
competitive with other wireless options. The forecast has assumed ongoing
ownership of non-controlled properties and no impairment of cellular
investments. However, in those cellular markets where the Company owns a
minority interest, managing cellular operations to avoid such impairments
is beyond the Company's control.
I. INTEREST RATES -- Management has assumed that it can borrow funds
to finance its acquisition and construction programs and repay outstanding
debt as it matures using internally generated funds and funds available
under its existing unissued Series B Medium-Term Note program ($75.5
million unissued at December 31, 1994), a new $150 million Series C
Medium-Term Note program commencing at the end of 1995 and the $300
million revolving credit agreement. Interest rates on borrowings to fund
the acquisitions of local exchange assets are enumerated in "Note 2C"
above. Management has assumed that the weighted average interest rate on
its outstanding floating and fixed rate debt at December 31, 1994 of 7.6
percent can be maintained though the five-year forecast period for debt
other than debt incurred for newly acquired assets.
J. INCOME TAXES -- The statutory federal income tax rate was assumed
to remain at 35 percent throughout the forecast period. In the 1995
forecast, the effective tax rate was estimated at 23.1 percent. This rate
is low because the Company's assumed tax basis in Alascom at closing is
expected to be slightly less than the selling price of the Alascom stock.
The Company's basis in Alascom increased as a result of the FCC ordered
transition payments of $150 million by AT&T to Alascom.
K. AVERAGE SHARES OUTSTANDING AND DIVIDEND PAYMENTS -- No equity
issuances have been assumed during the forecast period. Earnings per share
were calculated based on 39,620,000 average shares outstanding for each
forecast year. The financial forecast for dividend payments assumed no
increase in the dividend during 1995, a $.02 per share increase in 1996
and $.04 per share increases each year for 1997, 1998 and 1999.
34
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1994.
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, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 9 in the consolidated financial statements, the
Company changed its method of accounting for other postretirement benefits in
the year ended December 31, 1993.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 15, 1995 (March 9, 1995 as to the definitive merger agreement discussed
in Note 2)
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 auditors.
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 auditors, internal auditors
and management to review the scope of work scheduled and the results of work
completed. The independent auditors 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
Charles E. Robinson James H. Huesgen
Chairman, President and Chief Executive Officer Executive Vice President and
Chief Financial Officer
35
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
_________________________________
<CAPTION>
Year Ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C>
OPERATING REVENUES:
Local network service $ 96,944 $ 81,783 $ 74,094
Network access service 168,530 183,862 174,903
Long distance network service 271,977 262,528 275,467
Private line service 58,193 63,765 70,373
Sales of cable capacity 4,567 4,943 10,797
Cellular and other 104,751 105,230 92,541
-----------------------------------------------------------------------------------
Total operating revenues 704,962 702,111 698,175
-----------------------------------------------------------------------------------
OPERATING EXPENSES:
Plant support 117,694 122,024 117,470
Depreciation and amortization (Note 3) 100,879 106,796 111,480
Leased circuits 26,618 30,639 18,893
Access expense (Note 2) 92,929 95,462 97,805
Other operating expense 35,116 33,219 34,530
Cost of cable sales 2,977 2,500 7,686
Customer operations 72,780 70,612 66,913
Administrative support 75,616 84,384 90,062
Taxes other than income taxes 15,712 14,827 13,862
-----------------------------------------------------------------------------------
Total operating expenses 540,321 560,463 558,701
-----------------------------------------------------------------------------------
OPERATING INCOME 164,641 141,648 139,474
-----------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (34,754) (44,273) (52,140)
Interest income 1,716 932 1,089
Gain on sale of subsidiaries and investments (Note 5) 2,073 1,340 28,601
Minority interest (975) (580) (92)
Other (10,536) (16,163) (17,158)
-----------------------------------------------------------------------------------
Other income (expense) -- net (42,476) (58,744) (39,700)
-----------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 122,165 82,904 99,774
INCOME TAXES (NOTE 6) 40,766 23,846 32,526
-----------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 81,399 59,058 67,248
GAIN (LOSS) FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAX (NOTE 7) -- 60,444 (45,741)
-----------------------------------------------------------------------------------
NET INCOME $ 81,399 $119,502 $ 21,507
===================================================================================
Average number of shares outstanding 39,612 39,584 39,526
===================================================================================
INCOME PER SHARE FROM CONTINUING OPERATIONS $2.05 $1.49 $1.70
===================================================================================
NET INCOME PER SHARE $2.05 $3.02 $.54
===================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
36
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
___________________________
<CAPTION>
December 31, 1994 1993
-------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 9,883 $ 4,861
Accounts receivable 108,977 99,055
Accounts and notes receivable -- affiliates (Note 2) 1,832 2,039
Material and supplies (at average cost) 14,775 15,967
Inventory -- North Pacific Cable 62,777 65,753
Other 16,045 32,493
-------------------------------------------------------------------------------------------------
Total current assets 214,289 220,168
Investments (Note 10) 123,610 129,897
Plant in service:
Telecommunications (Note 3) 1,550,553 1,557,042
Other 22,115 17,695
Less accumulated depreciation 799,797 736,082
-------------------------------------------------------------------------------------------------
772,871 838,655
Construction work in progress 52,667 14,523
-------------------------------------------------------------------------------------------------
Net plant 825,538 853,178
Intangible assets -- net 252,870 256,226
Deferred charges 26,644 22,755
-------------------------------------------------------------------------------------------------
Total assets $1,442,951 $1,482,224
=================================================================================================
LIABILITIES AND CAPITALIZATION
Current liabilities:
Currently maturing long-term debt (Note 12) $ 15,601 $ 16,429
Notes payable (Note 11) 21,713 24,903
Accounts payable 69,515 50,330
Accrued liabilities 46,371 49,928
Accrued access and unearned revenue 21,892 17,756
-------------------------------------------------------------------------------------------------
Total current liabilities 175,092 159,346
Long-term debt (Note 12) 376,997 426,669
Deferred income taxes (Note 6) 95,966 153,455
Unamortized investment tax credits 13,809 18,326
Other long-term liabilities 97,131 68,947
Minority interest 16,183 16,770
Shareholders' equity:
Common stock, $.50 stated value
-- authorized 200,000,000 shares
-- outstanding 1994 -- 39,619,623 shares, 1993 -- 39,608,767 shares 19,810 19,805
Additional paid-in capital 206,231 205,985
Unearned stock compensation (Note 8) (442) (143)
Retained earnings (Note 12) 442,174 413,064
-------------------------------------------------------------------------------------------------
Total shareholders' equity 667,773 638,711
Commitments and contingencies (Notes 4 and 14)
-------------------------------------------------------------------------------------------------
Total liabilities and capitalization $1,442,951 $1,482,224
=================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
37
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
__________________________________________________________
<CAPTION>
Additional Unearned Total
Common Stock Paid-in Stock Retained Shareholders'
----------------
Shares Amount Capital Compensation Earnings Equity
----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992 39,487 $19,744 $202,906 $ -- $375,874 $598,524
Shares issued for acquisitions 217 108 4,726 4,834
Share purchases (159) (80) (3,356) (3,436)
Net income 21,507 21,507
Cash dividends ($1.305 per share) (51,583) (51,583)
----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 39,545 19,772 204,276 -- 345,798 569,846
Shares issued for benefits 66 34 1,767 1,801
Share purchases (2) (1) (58) (59)
Unearned stock compensation
(Note 8) (143) (143)
Net income 119,502 119,502
Cash dividends ($1.32 per share) (52,236) (52,236)
----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 39,609 19,805 205,985 (143) 413,064 638,711
SHARES ISSUED FOR BENEFITS 13 6 293 299
SHARE PURCHASES (2) (1) (47) (48)
UNEARNED STOCK COMPENSATION
(NOTE 8) (299) (299)
NET INCOME 81,399 81,399
CASH DIVIDENDS ($1.32 PER SHARE) (52,289) (52,289)
----------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 39,620 $19,810 $206,231 $(442) $442,174 $667,773
==========================================================================================================
The Company has 152,000 shares of $25 stated value, six percent cumulative Preferred Stock authorized, but no shares are
outstanding.
The accompanying notes are an integral part of these financial statements.
</TABLE>
38
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
_____________________________________
<CAPTION>
Year Ended December 31, 1994 1993 1992
---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 81,399 $ 59,058 $ 67,248
Adjustments to reconcile income from
continuing operations to net cash provided
by operating activities:
Depreciation and amortization 107,784 115,748 116,821
Deferred income taxes and investment tax credits,
net (62,329) (7,251) (6,711)
Gain on sale of subsidiaries and investments (2,073) (1,340) (28,601)
(Gains) losses from unconsolidated entities, net (3,135) (503) 4,365
Accounts receivable and other current assets (8,089) 47,836 (5,177)
Inventory -- North Pacific Cable 2,977 2,500 8,857
Accounts payable and accrued liabilities 22,168 (29,304) 13,120
Other 2,666 (6,363) 7,155
---------------------------------------------------------------------------------------------
Net cash provided by operating activities 141,368 180,381 177,077
---------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction expenditures (148,248) (102,618) (108,716)
Cost of businesses acquired -- (15,536) (13,270)
Investments in and advances to affiliates (4,726) (7,447) (14,511)
Proceeds from Alaska restructuring (Note 16) 105,000 -- --
Proceeds from sales of assets 17,656 200,552 118,022
---------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (30,318) 74,951 (18,475)
---------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt (3,190) (53,066) (163,428)
Proceeds from issuance of long-term debt 8,006 3,042 84,026
Purchase of common stock (48) (59) (3,436)
Dividends paid (52,289) (52,236) (51,583)
Payments of long-term debt (58,507) (157,887) (24,877)
---------------------------------------------------------------------------------------------
Net cash used by financing activities (106,028) (260,206) (159,298)
---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 5,022 (4,874) (696)
CASH AND TEMPORARY CASH INVESTMENTS AT BEGINNING OF YEAR 4,861 9,735 10,431
---------------------------------------------------------------------------------------------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF YEAR $ 9,883 $ 4,861 $ 9,735
=============================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the year $ 36,692 $ 45,681 $ 52,378
Income taxes paid during the year 102,324 48,574 37,225
NONCASH INVESTING ACTIVITIES:
Liabilities assumed in connection with the
acquisition of subsidiaries -- 3,548 3,889
Liabilities disposed of in connection with the sale
of subsidiaries 53 87 --
Common stock issued in connection with acquisitions -- -- 4,834
Common stock issued for employee benefits 299 1,801 --
---------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
39
<PAGE>
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 and for all cellular partnerships in which a Company
subsidiary is a partner. All appropriate intercompany transactions and balances
have been eliminated. The 1993 and 1992 consolidated financial statements
reflect certain reclassifications to conform to the 1994 presentations.
(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 7).
(c) Industry segmentation -- Although regulatory requirements impose
structural separation in its operations, the Company operates predominately 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.
Depreciation and amortization are provided using the straight-line method based
on the estimated service lives of the various classes of depreciable assets.
Amounts charged to operations for depreciation expense reflect methods
prescribed by regulators in the Company's regulated operations and, given the
Company's operating environment, do not materially differ from estimated useful
life determinations used to calculate depreciation estimates of the Company's
nonregulated operations. These depreciation estimates and methods are applied
consistently in both regulated and public financial presentations. The composite
depreciation rate for depreciable telecommunications plant was 6.4 percent in
1994, 6.9 percent in 1993 and 7.4 percent in 1992. The depreciation rate
decrease in 1994 is mainly due to the rate decrease ordered by the Alaska Public
Utilities Commission for Alaska local exchange operations. The depreciation
rate decrease in 1993 is attributable to the sale of the transponders on the
satellite in late 1992.
(f) Cash and cash equivalents -- The Company considers all investments with
original maturities less than 90 days to be cash equivalents.
(g) Income taxes -- In 1993, the Company retroactively adopted Statement of
Financial Accounting Standards (SFAS) 109 "Accounting for Income Taxes" and
restated prior year financial statements. The statement prescribes the liability
method of accounting for income taxes, which requires that deferred income taxes
be provided for all differences between the financial statement and tax bases of
assets and liabilities. Deferred income taxes result primarily from differences
between the financial statement and tax bases of depreciable assets and certain
acquired assets, as well as employment related expenses not currently
deductible.
Excess deferred income taxes on regulated assets and liabilities
resulting from the decrease in the 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.
(h) Intangible assets -- These costs are primarily for franchises of local
exchange and cellular companies acquired and goodwill established with the
retroactive adoption of SFAS 109 and are being amortized generally over 40
years. Accumulated amortization of these costs at December 31, 1994 and 1993 was
$33,448,000 and $25,903,000, respectively. Intangible assets related to
nonconsolidated investments are included in "Investments" on the balance sheet.
The Company will recognize impairments to intangible assets if the market value
of the investment or the investment's ability to return cash to the Company
through operations or through sale do not equal or exceed the carrying value of
the investment, including related intangible assets (Notes 10 and 13).
40
<PAGE>
(i) 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.
(j) 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.
(k) 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. These estimates are subject to subsequent
adjustment as refined operational information becomes available.
(l) Net income per share -- Net income per share is based on the weighted
average number of common shares outstanding during each of the periods.
(m) Regulatory assets and liabilities -- At December 31, 1994 and 1993,
respectively, the Company had $8,193,000 and $9,308,000 in regulatory assets and
$14,196,000 and $23,554,000 in regulatory liabilities on its balance sheet. The
regulatory assets were included in "Deferred charges" and the regulatory
liabilities were included in "Other long-term liabilities." The regulatory
assets arose from the income tax benefits provided to current ratepayers for
pre-1987 tax deductible expenses that were capitalized on the books of the
Company and for which no deferred taxes were provided. These regulatory assets
are being reduced as the capitalized amounts are depreciated on the books and
those expenses are recovered. The regulatory liabilities are made up of two
items. The first relates to the excess deferred taxes that resulted from a
reduction in the federal tax rate from 46 percent to 35 percent. This excess
will not be paid to the federal government, but rather will reduce future
revenue requirements from customers over the average life of the assets that
generated the difference. In addition, the regulatory liability includes the tax
savings resulting from this reduced revenue requirement created by the
amortization of the excess deferred taxes. The second relates to a similar
reduction in revenue requirements due to the tax savings resulting from
amortization of deferred investment tax credits.
NOTE 2. TRANSACTIONS WITH RELATED PARTIES
Approximately 87 percent of the Company's outstanding common stock is owned
by PacifiCorp Holdings, Inc. (Holdings), a wholly-owned subsidiary of
PacifiCorp. In November 1994, Holdings proposed a merger transaction in which it
would have acquired the 13 percent minority interest of the Company for $28 per
share in cash. Following a study of the proposal by a Special Committee of the
PTI Board of Directors and upon the unanimous recommendation of the Special
Committee and the full PTI Board of Directors, a definitive merger agreement was
signed by Holdings and PTI on March 9, 1995. Under the merger agreement, the
minority shareholders of PTI common stock would receive $30 in cash for each
share held and PTI would become an indirect, wholly-owned subsidiary of
PacifiCorp. The merger is conditioned upon, among other things, affirmative
approval of the merger by holders of a majority of the approximately 5.3 million
shares held by the unaffiliated public shareholders. The following is a summary
of other 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 Holdings at short-term borrowing rates. There were no
borrowings from Holdings in 1994 or 1993. Interest income related to cash
advances to Holdings was $777,000 in 1994, $53,000 in 1993 and $115,000 in 1992.
(b) Accounts and notes receivable - affiliates -- These amounts generally
represent billings to affiliates for services provided by the Company, but in
1994 and 1993 the amount represents primarily a tax refund receivable from
Holdings.
(c) Access expense -- The long lines subsidiary recognized approximately
$18,332,000 in 1994, $15,852,000 in 1993 and $15,073,000 in 1992 of interstate
and intrastate access expense related to the Company's local exchange companies
in Alaska. Due to the tariffed nature of access charges, the amounts were
recorded as network access service revenues by the local exchange companies and
have not been eliminated in the consolidated financial statements.
41
<PAGE>
(d) 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.
(e) The Company rents its headquarters building from a 50 percent owned
partnership. Annual rent was $1,661,000 in 1994, 1993 and 1992, 50 percent of
which was included in administrative support.
NOTE 3. TELECOMMUNICATIONS PLANT IN SERVICE
The average lives and balances by category of "Telecommunications plant in
service" are (in thousands):
Average
December 31, Life 1994 1993
---------------------------------------------------------------------------
Central office equipment 13 $ 530,871 $ 528,639
Poles, cable and conduit 19 576,044 555,981
Building and towers 29 169,974 193,123
Earth stations 15 117,595 124,894
Satellite 12 14,183 7,800
Other 14 141,886 146,605
---------------------------------------------------------------------------
Telecommunications plant in service $1,550,553 $1,557,042
===========================================================================
Depreciation expense was $97,784,000, $103,894,000 and $107,986,000 for
1994, 1993 and 1992, respectively.
NOTE 4. LEASE AND MAINTENANCE ARRANGEMENTS
The Company's operating lease and maintenance agreements relate to the use
of headquarters buildings, certain 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 satellite were sold and leased back under
an operating lease agreement with annual lease payments through July 1998 of
$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 (in thousands):
Year Ended December 31, Alascom Other Total
---------------------------------------------------------------------------
1995 $ 22,303 $14,001 $ 36,304
1996 21,687 11,826 33,513
1997 21,241 10,502 31,743
1998 39,847 9,911 49,758
1999 5,786 4,703 10,489
2000 and beyond 61,225 5,026 66,251
---------------------------------------------------------------------------
Total minimum lease and maintenance payments $172,089 $55,969 $228,058
===========================================================================
Rent expense approximated $41,688,000 in 1994, $45,744,000 in 1993 and
$33,352,000 in 1992.
The Company has an agreement for the provision of Alascom's satellite
telemetry, tracking, control and protection services for approximately
$5,747,000 per year terminating in 2001. AT&T will assume the lease and
maintenance commitments of Alascom upon closing of the sale (Note 16).
42
<PAGE>
NOTE 5. SALE OF SUBSIDIARIES AND INVESTMENTS
On April 29, 1994, the Company completed the sale of PTI Harbor Bay, Inc.
and Upsouth Corporation, to IntelCom Group, Inc. for 1,183,147 shares of
IntelCom common stock and $200,000 in cash. On October 17, 1994, the Company
sold its IntelCom stock. Cash proceeds of $15,934,000 and a gain of $1,007,000,
net of tax and selling expenses, were recognized in 1994. The net assets of PTI
Harbor Bay, Inc. and Upsouth Corporation of $13,941,000 were shown in "Other
current assets" at December 31, 1993.
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.
NOTE 6. INCOME TAXES
The Company's effective combined state and federal income tax rate was 33.4
percent in 1994, 28.8 percent in 1993 and 32.6 percent in 1992. The difference
between taxes calculated as if the statutory federal tax rate of 35 percent (34
percent in 1992) were applied to pre-tax income and the recorded tax expense is
due to the following:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Tax expense at statutory rates $ 42,758 $29,016 $33,923
State income taxes 1,702 3,185 8,159
Federal benefit of state income taxes (596) (1,115) (2,774)
Amortization of investment tax credits (4,355) (4,795) (5,441)
Amortization of excess deferred income taxes (1,776) (2,128) (3,755)
Amortization of acquisition costs in excess of equity 2,086 1,994 1,486
Other 947 (2,311) 928
------------------------------------------------------------------------------------
Recorded tax expense $ 40,766 $23,846 $32,526
====================================================================================
Income tax expense for continuing operations consisted of:
Taxes currently provided $103,095 $27,600 $39,208
Deferred income taxes (57,974) 1,041 (1,241)
Investment tax credits (4,355) (4,795) (5,441)
------------------------------------------------------------------------------------
Income tax expense $ 40,766 $23,846 $32,526
====================================================================================
</TABLE>
The tax effect of significant items comprising the Company's net deferred
tax liability are as follows:
December 31, 1994 1993
--------------------------------------------------------------------------
(in thousands)
Deferred tax liabilities:
Property, plant and equipment $70,274 $126,476
Cellular acquisition adjustments 46,749 50,609
Deferred tax assets:
Employment related liabilities (14,893) (12,820)
Valuation adjustments (7,507) (8,116)
Reserve for self insurance (5,201) (4,759)
Other (422) (10,510)
--------------------------------------------------------------------------
Net deferred tax liability $89,000 $140,880
==========================================================================
Noncurrent tax liabilities $95,966 $153,455
Current tax assets (6,966) (12,575)
--------------------------------------------------------------------------
$89,000 $140,880
==========================================================================
43
<PAGE>
NOTE 7. 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. The remaining investment
in ICH is now reported as a continuing operation.
On September 23, 1993, the Company completed the sale of TRT and the stock
of 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 resulting in the gain. 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 included 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 estimated
fluctuations in IDB's stock price. Revenues, net of settlements, included in
discontinued operations in 1992 were $108,498,000. The Company recorded
tax expense of $26,011,000 in 1993 and tax benefits of $22,800,000 in 1992 with
respect to the discontinued operations of ICH.
NOTE 8. PENSION PLAN
Substantially all employees of the Company, except those who are members of
the International Brotherhood of Teamsters and one local of the International
Brotherhood of Electrical Workers (IBEW), are covered under the Company's
pension plan. The Company recognized costs of $3,110,000 and $1,065,000 during
1994, $3,342,000 and $874,000 during 1993 and no cost and $651,000 during 1992
for contributions to the International Brotherhood of Teamsters and IBEW pension
plans, respectively. The Company's plan provides benefits based upon an
employee's total years of service and the highest five years 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 87 "Employer Accounting for Pensions", is being amortized over a 10-year
period ending in 1996 for the Company's original plan and over a 20-year period
ending in 2006 for the North-West Telecommunications, Inc. plan that was merged
with the Company's plan on January 1, 1993. Net pension cost and funded status
of the pension plans are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
-----------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost of benefits earned $ 4,308 $ 3,671 $ 4,066
Interest cost on the projected benefit obligation 9,954 9,936 9,479
Actual loss (gain) on assets 1,592 (11,272) (1,077)
Net amortization and deferral (15,845) (1,715) (4,793)
-----------------------------------------------------------------------------------------------
Total pension expense $ 9 $ 620 $ 7,675
===============================================================================================
Actuarial present value of benefit obligations:
Accumulated benefit obligation $112,176 $119,505 $ 97,242
===============================================================================================
Portion of accumulated benefit obligation vested $111,041 $118,228 $ 96,308
===============================================================================================
Projected benefit obligation $131,530 $142,448 $123,714
Plan assets at fair value, primarily listed stocks and bonds 129,582 138,309 120,525
-----------------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (1,948) (4,139) (3,189)
Unrecognized net loss (gain) (4,393) 238 (4,790)
Unrecognized prior service (benefit) cost (2,291) (2,477) 1,240
Unrecognized net asset remaining from initial application
of SFAS 87 (6,409) (8,282) (10,154)
-----------------------------------------------------------------------------------------------
Pension liability $(15,041) $(14,660) $(16,893)
===============================================================================================
</TABLE>
44
<PAGE>
Assumptions used to develop pension plan information were:
December 31, 1994 1993 1992
--------------------------------------------------------------------------
Discount rate 8.5% 7.5% 9.0%
Estimated long-term rate of return on assets 9.0% 9.0% 9.0%
Assumed rate of increase in compensation levels 5.0% 5.0% 6.5%
The Company's pension liability at December 31, 1994 was included in "Other
long-term liabilities" on the balance sheet.
Due to differences in the Company and the North-West Telecommunications,
Inc. plans' provisions and the merging of these plans in 1993, the net
unrecognized prior service cost was reduced by $3,990,000.
In the fourth quarter of 1992, the Company offered an early retirement
program to a 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 1994, 1993 and
1992 were $2,991,000, $2,838,000 and $2,943,000, respectively. The Company and
PacifiCorp also have long-term incentive plans for certain executive employees
of the Company. Participants receive grants of restricted shares of the
Company's common stock based on past performance of the companies. The granted
shares generally vest over a four-year period. The costs to the Company for this
benefit amounted to $80,000, $734,000 and $78,000 in 1994, 1993 and 1992,
respectively. Awards granted under this plan that are not yet vested are
included as a contra balance in shareholders' equity under "Unearned stock
compensation."
In 1993, the Company adopted the Non-Employee Directors' Stock Compensation
Plan. Directors who are employees of the Company or any affiliated companies are
not eligible to participate. The participants' interest in the plan vests at 20
percent per year. The Company recognized a total cost for this plan of $640,000
in 1993, which includes past service costs of $602,000. Awards granted under
this plan that are not yet vested are included as a contra balance in
shareholders' equity under "Unearned stock compensation."
NOTE 9. 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 as long
as the Company's cost per retiree remains below $300 per month ($600 per family
per month). 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 adoption of SFAS 106 increased
postretirement benefit expenses by $3,000,000 in 1993 and an additional
$1,000,000 in 1994. 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. In addition, the Company funded $2,429,000 and
$2,672,000 in 1994 and 1993, respectively, by directly paying postretirement
benefit costs to third parties. The Company anticipates making additional tax
deductible contributions into the 401(h) and VEBA trusts for 1994 totalling
approximately $14,715,000. 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.
45
<PAGE>
The net funded status for the combined plans is shown below:
<TABLE>
<CAPTION>
December 31, 1994 1993
-------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees and dependents $ 37,119 $ 40,601
Fully eligible active plan participants 11,089 11,080
Other active plan participants 22,198 25,262
-------------------------------------------------------------------------------------
APBO 70,406 76,943
Plan assets at fair value, primarily listed stocks and bonds (8,503) (8,682)
-------------------------------------------------------------------------------------
APBO in excess of plan assets 61,903 68,261
Unrecognized transition obligation (34,521) (36,438)
Unrecognized prior service cost 675 742
Unrecognized net loss from changes in assumptions (1,666) (13,419)
-------------------------------------------------------------------------------------
Accrued postretirement benefit cost $ 26,391 $ 19,146
=====================================================================================
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993
-------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Service cost $2,307 $1,835
Interest cost on accumulated postretirement benefit obligation 5,836 5,055
Actual return on plan assets 180 (233)
Amortization of transition obligation over 20 years 1,918 1,918
Net amortization and deferral (620) 77
-------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $9,621 $8,652
=====================================================================================
</TABLE>
Assumptions used to develop the accumulated postretirement benefit obligation
information were:
December 31, 1994 1993
--------------------------------------------------------------------------
Discount rate 8.5% 7.5%
Estimated long-term rate of return on assets 9.0% 9.0%
Initial health care cost trend rate-under 65 11.0% 14.0%
Initial health care cost trend rate-over 65 10.0% 10.0%
Ultimate health care cost trend rate 5.5% 5.0%
The assumed health care cost trend rates gradually decrease over nine
years. 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, 1994 by $1,985,000, and the annual net periodic postretirement
benefit costs by $254,000.
The Company's long-term portion of the accrued postretirement benefit cost
appears in "Other long-term liabilities" and the current portion of the accrued
postretirement benefit cost appears in "Accrued liabilities" on the balance
sheet at December 31, 1994.
46
<PAGE>
NOTE 10. INVESTMENTS
The investment balances, which included interest bearing advances of
$4,000,000 and $5,241,000 at December 31, 1994 and 1993, respectively, are
summarized as follows:
December 31, 1994 1993
-------------------------------------------------------------------------
(in thousands)
Equity investments:
Cellular partnerships (a) $106,270 $110,120
Other equity investees 1,585 1,317
Cost investments:
Cellular partnerships 767 767
Other 14,988 17,693
-------------------------------------------------------------------------
Investments $123,610 $129,897
=========================================================================
(a) Cellular partnerships include goodwill established under SFAS 109 of
$23,814,000 in 1994 and $24,079,000 in 1993, which is net of accumulated
amortization of $2,767,000 and $2,149,000, respectively.
NOTE 11. SHORT-TERM DEBT
Short-term debt consisted of outstanding notes payable under borrowing
arrangements with various banks and other lenders. 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)
<S> <C> <C> <C> <C> <C>
1994
NOTES PAYABLE - BANKS $12,000 6.8% $ 20,000 $ 9,292 5.0%
NOTES PAYABLE - OTHER 9,713 8.4 11,713 5,164 5.6
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 4,233 4.1
</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.
47
<PAGE>
NOTE 12. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31, 1994(a) 1993
-----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
2%-11.8% First mortgage notes payable under U.S. Government-
sponsored loan programs, maturities through 2028 $142,766 $139,224
9%-11.3% First mortgage notes, maturities through 1999 16,307 16,461
8%-12% Unsecured notes, maturities through 2007 24,025 24,913
8.75% Unsecured senior notes, maturities through 1996 -- 18,000
5.9%-9.4% Unsecured medium-term notes, maturities through 2006 (b) 184,500 204,500
5.8% Unsecured term note, matured 1994 (b) -- 40,000
6.2% Other available banking arrangements (b) 25,000 --
-----------------------------------------------------------------------------------------
Total 392,598 443,098
Less current maturities 15,601 16,429
-----------------------------------------------------------------------------------------
Long-term debt $376,997 $426,669
=========================================================================================
</TABLE>
(a) The weighted average cost of long-term debt outstanding at December 31,
1994 was 7.6 percent.
(b) Based upon management's intent and the Company's ability to support the
debt on a long-term basis through its revolving credit agreement, $25,000,000 of
borrowings under other available banking arrangements at December 31, 1994,
were classified as long-term debt. 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. 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
7).
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 been renewed for a five-year term ending in November 1999. Annual commitment
fees on the revolving credit agreement are currently .125 percent of the total
authorized amount. Available funds under the revolving credit agreement at
December 31, 1994 were $300,000,000.
At December 31, 1994, approximately $786,586,000 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, 1994, consolidated retained earnings available for
dividends and other distributions were $234,939,000, all of which were available
from the retained earnings of subsidiaries.
Long-term debt maturing annually within each of the four years subsequent
to 1995 is as follows: 1996 -- $5,823,000; 1997 -- $16,005,000; 1998 --
$29,164,000; 1999 -- $37,228,000.
48
<PAGE>
NOTE 13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 December 31, 1993
---------------------- ----------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
----------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Cash and temporary investments and
net trade accounts (a) $ 51,177 $ 51,177 $ 55,625 $ 55,625
Investments at cost (Note 10) (b) 15,755 15,927 18,460 18,460
Long-term debt and notes payable
(Notes 11 and 12) (c) 414,311 405,562 468,001 487,115
</TABLE>
(a) The carrying amount approximates fair value because of the short
maturity of these instruments.
(b) 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 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. The Company terminated the agreement during 1994 at a cost of
$1,418,000 and currently has no other derivatives. The interest rate swap
agreement was initiated to limit the Company's exposure to interest rate
fluctuations with the intent to reduce interest expense.
NOTE 14. COMMITMENTS AND CONTINGENCIES
In May 1994, the Company signed definitive agreements with USWC under which
the Company has agreed to purchase certain telephone exchange assets in Oregon
and Washington for approximately $180,000,000. Completion of this transaction
will be dependent upon appropriate regulatory approvals, expected to be received
during 1995. Such regulatory approvals may establish service commitments for the
Company related to customers served by the assets to be acquired.
Expenditures under the Company's 1995 construction and capital expenditure
program are expected to approximate $127,496,000. This amount includes
$20,732,000 to construct and upgrade plant in Colorado that the Company
purchased from USWC. The construction and upgrade program will accelerate
single-party service and digital switching required by the Colorado Public
Utilities Commission. There are currently no long-term construction projects
underway.
As of December 31, 1994, 130,587 shares of common stock were reserved for
issuance under the Company's profit sharing and savings plan (Note 8).
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 financial results.
NOTE 15. SUBSEQUENT EVENT
On February 15, 1995, the Company closed the acquisition of local exchange
assets in Colorado from USWC. The Company acquired assets in 45 local exchanges
that serve approximately 50,000 access lines, largely in rural areas of
Colorado. The Company paid approximately $200,000,000 at closing for the assets
acquired, with funds being provided from short-term borrowings. These funds are
expected to be repaid with proceeds from the sale of Alascom (Note 16).
49
<PAGE>
NOTE 16. PENDING SALE OF ALASCOM, INC.
In October 1994, the Company signed an agreement to sell the stock of
Alascom to AT&T Corp. (AT&T) in a transaction providing $365,000,000 in
proceeds. Under the terms of the agreement, AT&T will pay $290,000,000 in cash
for the Alascom stock and for settlement of all past cost study issues. AT&T has
also agreed to allow PTI to retain a $75,000,000 transition payment, which was
used to reduce telecommunications plant, made by AT&T to Alascom in July 1994
pursuant to an FCC order. AT&T made a down payment of $30,000,000 to the Company
upon signing the stock purchase agreement, which
would be applied to the final $75,000,000 transition payment required in the FCC
order if the sale failed to close. The $30,000,000 down payment was shown in
"Other long-term liabilities" at December 31, 1994. The remaining $260,000,000
is to be paid when the transaction closes. Closing of the sale of Alascom is
subject to certain conditions, including receipt of state and federal regulatory
approvals that are expected to be received during the first half of 1995. The
Company anticipates recognizing a material gain from the sale of Alascom. The
Company has agreed to provide accounting, data processing and human resource
service support for up to 15 months following the sale to allow for a smooth
transition in exchange for certain equipment that the Company intends to
incorporate in its LEC operations.
Condensed financial information for Alascom is as follows:
December 31, 1994 1993
-----------------------------------------------------------------------------
(in thousands)
Current assets $ 82,680 $101,329
Net plant 185,527 274,705
Other assets 7,509 8,366
-----------------------------------------------------------------------------
Total assets $275,716 $384,400
=============================================================================
Current liabilities $ 69,872 $ 49,508
Long-term liabilities 9,383 90,059
Equity 196,461 244,833
-----------------------------------------------------------------------------
Total liabilities and equity $275,716 $384,400
=============================================================================
Twelve months ended December 31, 1994 1993 1992
-----------------------------------------------------------------------------
(in thousands)
Operating revenues $343,506 $337,843 $346,750
Operating income 80,651 59,454 60,067
NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1994 and 1993 are as follows:
Three Months Ended Dec. 31 Sept. 30 June 30 March 31
--------------------------------------------------------------------------------
(in thousands except per share amounts)
1994
OPERATING REVENUES $174,186 $194,448 $170,541 $165,787
OPERATING INCOME 40,246 54,952 34,782 34,661
NET INCOME 18,284 29,681 17,634 15,800
NET INCOME PER SHARE .46 .75 .44 .40
1993
Operating revenues $177,016 $181,317 $174,025 $169,753
Operating income 37,957 36,590 34,549 32,552
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 share from
continuing operations .43 .35 .35 .36
Net income per share .43 1.88 .35 .36
50
<PAGE>
Increased net income in the third quarter of 1994 resulted from the
settlement of all open revenue studies relating to the Joint Services Agreement,
which resulted in long lines interstate revenue increases of $18,706,000 (Note
16). Net income from discontinued operations in the third quarter of 1993
resulted from the sale of TRT and a smaller subsidiary to IDB (Note 7). 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
No information is required to be reported pursuant to this item.
PART III
________________________________________________________________________________
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows, with respect to each of the Company's directors,
his or her name, age, other positions and offices with the Company, principal
occupation or employment for the past five years and the year first elected a
director of the Company. Directors are elected annually by the Company's
shareholders. There are no family relationships between any directors or
executive officers of the Company. See Item 12. "Security Ownership of Certain
Beneficial Owners and Management" for information concerning stock ownership by
directors and certain executive officers.
<TABLE>
<CAPTION>
Director
Name Age Principal Occupation Since
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joyce E. Galleher 65 Secretary-Treasurer of JODI (real estate, equipment 1982
leasing), Poulsbo, Washington
Roy M. Huhndorf 54 President and Chief Executive Officer of Cook Inlet 1991
Region, Inc. (native regional corporation), Anchorage,
Alaska
Donald L. Mellish 67 Director and Chairman of the Executive Committee 1992
of the National Bank of Alaska, Anchorage, Alaska
Charles E. Robinson 61 Chairman, Chief Executive Officer and President of 1982
the Company; Chairman and Chief Executive Officer
from October 1990 to December 1992; President and
Chief Executive Officer from April 1985 to October 1990;
Chairman, Chief Executive Officer and
President of Alascom, Inc.
Sidney R. Snyder 68 President, Sid's Super Market, Inc.; Washington State 1973
Senator, Olympia, Washington
Nancy Wilgenbusch 47 President, Marylhurst College, Portland, Oregon; 1990
Director, PacifiCorp
</TABLE>
The executive officers of PTI are as set forth below:
<TABLE>
<CAPTION>
Name Age Position
--------------------------------------------------------------------------------------------
<S> <C> <C>
Charles E. Robinson 61 Chairman, President, Chief Executive Officer and Director
James H. Huesgen 45 Executive Vice President and Chief Financial Officer
Diana E. Snowden 47 Senior Vice President, Local Exchange Company Operations
Donn T. Wonnell 48 Vice President, Regulatory Affairs and Corporate Secretary
Donald A. Bloodworth 38 Vice President, Revenue Requirements and Controller
Wesley E. Carson 44 Vice President, Human Resources
Brian M. Wirkkala 54 Vice President and Treasurer
</TABLE>
51
<PAGE>
The executive officers of PTI are elected annually for one year and hold
office until their successors are elected and qualified.
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.
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.
Ms. Snowden was elected Senior Vice President, Local Exchange Company
Operations in December 1994. From May 1993 to November 1994, she had served as
Senior Vice President of Pacific Power & Light Company. Prior to that, she had
served as Vice President of Pacific Power & Light Company since 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. 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. 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.
Mr. Wirkkala was elected Vice President and Treasurer in February 198l.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities to the Company and its subsidiaries for fiscal years
ended December 31, 1994, 1993 and 1992 of those persons who were, at December
31, 1994, the Chief Executive Officer of the Company and the other four most
highly compensated executive officers of the Company.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------- ------------------------------------------
Other Restricted Long-Term All
Annual Annual Stock Incentive Other
Name and Principal Position Salary Bonus Compensation(1) Award Payouts Compensation(2)
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Charles E. Robinson, 1994 $403,500 $322,800 $ -- $87,294(3) $ -- $10,691
President, Chief Executive 1993 387,500 232,500 -- 85,500(4) 185,865(5) 12,611
Officer and Chairman of 1992 375,000 -- -- -- 380,419(5) 12,006
the Board of Directors
James H. Huesgen, 1994 194,202 145,940 -- 55,125(3) -- 9,051
Executive Vice President and 1993 184,200 96,700 -- -- 111,967(5) 9,691
Chief Financial Officer 1992 175,850 -- 1,528 -- 209,696(5) 10,268
Donn T. Wonnell, 1994 154,103 83,351 -- 44,100(3) -- 8,726
Vice President and 1993 145,601 54,600 -- -- 53,742(5) 8,383
Corporate Secretary 1992 134,800 -- -- -- 42,762(5) 8,718
Donald A. Bloodworth, 1994 127,861 47,944 356 22,050(3) -- 8,511
Vice President, Revenue 1993 83,370 46,000 -- -- 22,392(5) 4,518
Requirements and 1992 -- -- -- -- -- --
Controller
Wesley E. Carson, 1994 117,658 44,119 10 22,050(3) -- 8,433
Vice President, 1993 111,451 41,800 -- -- 35,001(5) 6,416
Human Resources 1992 101,050 -- -- -- 23,028(5) 6,536
</TABLE>
52
<PAGE>
(1) Amounts shown for 1994 include (a) $10 of interest earned on deferred
compensation accounts in excess of 120 percent of the applicable federal
long-term rate for each of Messrs. Bloodworth and Carson, and (b) $346 in tax
reimbursement for Mr. Bloodworth.
(2) Amounts shown for 1994 include (a) contributions to defined
contribution plans of $7,500 for each of Messrs. Robinson, Huesgen, Wonnell,
Bloodworth and Carson, and (b) premiums on term life insurance policies of
$3,191, $1,551, $1,226, $1,011 and $933 for Messrs. Robinson, Huesgen, Wonnell,
Bloodworth and Carson, respectively.
(3) Restricted stock grants made in connection with the 1994 restatement of
the Company's Long-Term Incentive Plan (Restated Plan). Dividends are payable
with respect to such shares from the date of grant. At December 31, 1994, the
aggregate value of all restricted stock holdings held by Mr. Robinson, Mr.
Huesgen, Mr. Wonnell, Mr. Bloodworth and Mr. Carson, based on the market value
of the shares at December 31, 1994, without giving effect to the diminution of
value attributable to the restrictions on such stock, were $106,890, $67,500,
$54,000, $27,000 and $27,000, respectively.
(4) Restricted stock grant made in connection with the 1993 restatement of
PacifiCorp's long-term incentive plan, in which Mr. Robinson is a participant.
Dividends are payable with respect to such shares from the date of grant.
(5) Prior to its restatement, the Company's Long-Term Incentive Plan had a
four-year performance cycle ending December 31, 1992. For that performance
cycle, the performance criteria were relative return on equity compared to an
industry composite and earnings per share growth. In connection with the
adoption of the Restated Plan, the Company terminated the performance cycle that
was to end December 31, 1994 and made prorated awards in December 1993 for that
performance cycle. The performance objectives for that performance cycle were
earnings per share growth and return on equity compared to a five-year Treasury
Bond rate.
DIRECTOR COMPENSATION
The Company's directors, other than Mr. Robinson, are each paid $12,000 per
year, $750 per board meeting and $900 for the chairperson or $750 for committee
members for committee meetings.
Ms. Galleher and Messrs. Huhndorf, Mellish and Snyder are members of the
Special Committee of PTI's Board of Directors formed in connection with the
proposed merger transaction in which Holdings would acquire the publicly held
minority interest of PTI. Mr. Mellish served as Chairman of the Special
Committee and received a fee of $20,000 and $750 per meeting attended. Each
other member of the Special Committee received a fee of $15,000 and $750 per
meeting attended.
Under the Company's Non-Employee Director Stock Compensation Plan,
directors of the Company who are not employees of the Company or any of its
subsidiaries or of PacifiCorp or any of PacifiCorp's subsidiaries are awarded
approximately $37,500 worth of the Company's common stock every five years.
Non-employee directors having fewer than five years of service remaining before
reaching retirement age receive stock awards equivalent to approximately $7,500
for each remaining year. The director's right to receive the stock awarded under
this provision of the plan accrues over the five-year period following the award
or shorter period to retirement and unaccrued shares are forfeited if the
recipient ceases to be a director prior to the end of the five-year period.
Accrued shares vest upon the director's retirement and are subject to forfeiture
prior to retirement if the director (a) fails to attend at least 50 percent of
the meetings of the Board of Directors or committee of which the director is a
member, (b) is removed by the Board of Directors for cause, or (c) becomes a
director of or is otherwise employed by a competing entity. The shares awarded
under the plan are purchased in the open market with funds supplied by the
Company, and the certificates representing the shares and the dividends earned
on the shares are then held by the Company until the shares vest. No awards were
made pursuant to this plan during 1994.
SEVERANCE ARRANGEMENTS
The Company adopted an Executive Officer Severance Plan effective January
1, 1994 under which certain executive officers of the Company, including Messrs.
Robinson, Huesgen, Wonnell and Carson, will receive a severance payment equal to
twice the executive's total cash compensation during the last full calendar year
upon termination of employment with the Company. The severance payment will be
made to the executive in 24 equal monthly payments following the date of the
termination of his employment,
53
<PAGE>
and the payments may be terminated by the Company if the executive accepts
employment with a competitor of the Company or its affiliates. The plan does not
apply to the termination of an executive for reasons of normal retirement, death
or total disability, or to a termination for cause or a voluntary termination.
"Voluntary termination" does not include a change in reporting relationship, a
material change in authority or a change in control of the ownership of the
Company that results in a change in position that is detrimental to the
executive officer, unless such change in reporting relationship, authority or
control is agreed to by the executive officer. Under the plan, "cause" for
termination includes any act by an executive that is materially contrary to the
interests of the Company or its affiliates and the willful and continued failure
by an executive to devote his full business time and efforts to the business
affairs of the Company or its affiliates. In February 1995, the Personnel
Committee of the Board of Directors extended the termination date of the plan
from December 31, 1995 to December 31, 1997.
RETIREMENT PLANS
The Company and many of its subsidiaries have adopted a noncontributory
defined benefit retirement plan (Retirement Plan) for their employees (other
than employees subject to collective bargaining agreements that do not provide
for coverage). Certain of the Company's executive officers, including Messrs.
Robinson, Huesgen and Wonnell, are also eligible to participate in PacifiCorp's
non-qualified Supplemental Executive Retirement Plan (SERP). The plans provide
benefits at retirement payable for life based on length of service with the
Company or its subsidiaries and average pay in the 60 consecutive months of
highest pay out of the last 120 months. Actuarially equivalent alternative forms
of benefits are also available at the participant's election. Retirement
benefits are reduced to reflect Social Security benefits. For participants in
both plans, pay includes salary and bonuses, as reflected in the Summary
Compensation Table. For participants in the Retirement Plan only, pay includes
base salary plus bonuses up to 10 percent of base pay, reduced by any
nonqualified salary reductions elected by the employee. Accrued benefits are
completely unvested until an employee has five years of service or reaches age
65, when the benefits become 100 percent vested. The SERP provides a normal
retirement benefit of 65 percent of final average pay reduced by the amount of
Social Security benefits and certain other retirement benefits. SERP
participants are eligible to receive full benefits after age 62 with 30 years of
service or at age 65 with at least 15 years of service. Participants in the SERP
are also entitled to receive reduced benefits upon early retirement after age 55
and at least five years of service.
The following table shows the estimated annual retirement benefit payable
upon normal retirement at age 65 as of January 1, 1995. Amounts in the table
reflect payments from the Retirement Plans and the SERP combined.
Final Average
Annual Pay at
Retirement Date Years of Credited Service
---------------------------------------------------------------------------
5 15 25 30
---------------------------------------------------------------------------
$ 200,000 $ 43,333 $130,000 $130,000 $130,000
400,000 86,667 260,000 260,000 260,000
600,000 130,000 390,000 390,000 390,000
800,000 173,333 520,000 520,000 520,000
1,000,000 216,667 650,000 650,000 650,000
(1) The benefits shown in the table above assume that the individual will
remain in the employ of the Company until normal retirement at age 65 and that
the plans will continue in their present form. Amounts shown above do not
reflect the Social Security offset.
(2) The number of credited years of service used to compute benefits under
the Retirement Plan for Messrs. Robinson, Huesgen and Wonnell are 30, 11 and 4.
54
<PAGE>
Messrs. Bloodworth and Carson are accruing benefits only under the
Retirement Plan. The following table shows the estimated annual benefits payable
under the Retirement Plan upon normal retirement at age 65 as of January 1,
1995:
Pension
Qualified
Salary Years of Credited Service
---------------------------------------------------------------------------
10 15 20 25 30
---------------------------------------------------------------------------
$ 50,000 $ 8,065 $12,097 $16,130 $20,162 $24,194
100,000 17,815 26,722 35,630 44,537 53,444
150,000 27,565 41,347 55,130 68,912 82,694
(1) Amounts shown above reflect Social Security Covered Compensation for a
participant turning age 65 in 1995. The number of credited years of service used
to compute benefits under the Retirement Plan for Messrs. Bloodworth and Carson
are 11 and 11, respectively.
(2) 1994 pension qualified salary used to compute Retirement Plan benefits
for Messrs. Bloodworth and Carson was $140,635 and $129,415, respectively.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership, as of January 31, 1995, of the Company's common stock and
common stock of PacifiCorp by (i) each director of the Company, (ii) each of the
executive officers named in the Summary Compensation Table and (iii) all
executive officers and directors of the Company as a group. As of January 31,
1995, each of the directors and executive officers identified below and all
executive officers and directors of the Company as a group owned less than one
percent of the Company's common stock and less than one percent of the common
stock of PacifiCorp. No person is known by the Company to be the beneficial
owner of more than five percent of the Company's common stock, except that, as
of January 31, 1995, PacifiCorp Holdings, Inc., a wholly-owned subsidiary of
PacifiCorp, was the beneficial owner of 34,325,181 shares of the Company's
common stock, which represents approximately 86.6 percent of the Company's
common stock. PacifiCorp Holdings, Inc. has pledged those shares to Chemical
Bank, as agent for a group of lenders, as security for repayment of certain
obligations of PacifiCorp Holdings, Inc. The address of PacifiCorp Holdings,
Inc. is 700 N.E. Multnomah, Suite 1600, Portland, OR 97232.
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Pacific Telecom PacifiCorp
Beneficial Owner Common Stock(1) Common Stock(1)
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Joyce E. Galleher 5,284 100
Roy M. Huhndorf 2,472 100
Donald L. Mellish 5,084 3,000
Charles E. Robinson 72,166 9,767
Sidney R. Snyder 7,769 --
Nancy Wilgenbusch 2,711 5,687
James H. Huesgen 22,875 2,978
Donn T. Wonnell 6,766 995
Donald A. Bloodworth 4,492 2,312
Wesley E. Carson 4,167 1,249
All executive officers and directors as a group (12 persons) 157,698 34,119
</TABLE>
(1) Includes ownership of (a) shares held by family members even though
beneficial ownership of such shares may be disclaimed, (b) shares granted and
subject to vesting as to which the individual has voting but not investment
power under one or more of the stock based compensation plans of the Company or
PacifiCorp, and (c) shares held for the account of such persons under the
PacifiCorp Compensation Reduction Plan.
55
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PacifiCorp provides certain corporate services to the Company, at
PacifiCorp's cost, under a Management Services Agreement. In addition, an
indirect subsidiary of PacifiCorp provides certain air transportation services
to the Company and its subsidiaries. For the year ended December 31, 1994,
billings to the Company under these agreements totaled $1,702,000. During 1994,
a subsidiary of PacifiCorp also billed the Company $884,000, primarily for
computer hardware lease payments, and PacifiCorp billed the Company $126,000 for
pole contact rental.
The Company provides certain computer services to PacifiCorp. During 1994,
the Company billed PacifiCorp $197,000 for these services.
Pursuant to the terms of an intercompany borrowing arrangement, from time
to time the Company and PacifiCorp Holdings, Inc. (Holdings) make open account
advances to each other. Advances are evidenced by notes, payable on demand, and
bear interest at a short-term market rate. No advances were made from Holdings
to the Company during 1994. The daily weighted average balance of advances to
Holdings was $15,309,000 during 1994, with a weighted average interest rate of
5.1 percent. No advances to Holdings were outstanding on December 31, 1994. The
Company joins with PacifiCorp in filing a consolidated federal income tax return
along with unitary state income tax returns and will pay an estimated
$101,500,000 to PacifiCorp for the Company's 1994 federal and state income
taxes.
Holdings entered into an agreement and plan of merger with the Company,
dated as of March 9, 1995, pursuant to which Holdings would acquire the 13
percent publicly held minority interest in the Company for $30 per share. See
Item 1. "Business -- Introduction" for additional information concerning the
proposed merger.
56
<PAGE>
PART IV
________________________________________________________________________________
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE REFERENCES
(a) The following documents are filed under Item 8 of this Report.
(1) Index to Consolidated Financial Statements:
Independent Auditors' Report 35
Consolidated Statements of Income for the years ended
December 31, 1994, 1993 and 1992 36
Consolidated Balance Sheets at December 31, 1994 and 1993 37
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1994, 1993 and 1992 38
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 39
Notes to Consolidated Financial Statements 40-51
(2) Supplemental Schedules*
*All 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 filed under Item 8 of this Report.
(3) Exhibits:
2 Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc. and the Registrant dated August 30, 1993.
(Incorporated by reference to Exhibit 2 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, File No. 0-873.)
2A Agreement for Purchase and Sale of Exchanges between US West
Communications, Inc., Telephone Utilities of Eastern Oregon, Inc. and the
Registrant dated May 5, 1994.
2B Agreement for Purchase and Sale of Exchanges between US WEST
Communications, Inc., Telephone Utilities of Washington, Inc. and the
Registrant dated May 5, 1994.
2C Stock Purchase Agreement by and among AT&T Corp. and the Registrant dated
October 1, 1994.
2D Agreement and Plan of Merger, dated as of March 9, 1995, by and among
Pacific Telecom, Inc., PacificCorp Holdings, Inc. and PXYZ Corporation.
(Incorporated by reference to Exhibit 2A of the Registrant's Current Report
on Form 8-K dated March 9, 1995, File No. 0-873.)
2E Agreement dated as of March 9, 1995, by and between PacifiCorp and Pacific
Telecom, Inc. (Incorporated by reference to Exhibit 2B of the Registrant's
Current Report on Form 8-K dated March 9, 1995, File No. 0-873.)
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.
(Incorporated by reference to Exhibit 3B of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993, File No. 0-873.)
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.
57
<PAGE>
*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, as
amended. (Incorporated by reference to Exhibit 10(i) of PacifiCorp's Form
10-K for the year ended December 31, 1994, File No. 1-5152.)
*10F Pacific Telecom, Inc. Long-Term Incentive Plan 1994 Restatement dated as
of January 1, 1994. (Incorporated by reference to Exhibit 10F of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993, File No. 0-873.)
*10G PacifiCorp Long-Term Incentive Plan 1993 Restatement. (Incorporated by
reference to Exhibit 10G of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, File No. 0-873.)
*10H Form of Restricted Stock Agreement under the PacifiCorp Long-Term
Incentive Plan 1993 Restatement. (Incorporated by reference to Exhibit 10H
of the Registrant's Annual Report on Form 10-K for the year ended December
31, 1993, File No. 0-873.)
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/A for the year ended December 31, 1992, File No.
0-873.)
*10L Executive Deferred Compensation Plan dated as of January 1, 1994 as
amended.
*10M Form of Restricted Stock Agreement under Pacific Telecom, Inc. Long-Term
Incentive Plan dated as of February 4, 1994. (Incorporated by reference to
Exhibit 10(o) of PacifiCorp's Annual Report on Form 10-K/A for the year
ended December 31, 1993, File No. 1-5152.)
*10N Executive Officer Severance Plan dated as of January 1, 1994.
10O Second Amendment to the Credit Agreement dated November 29, 1994.
12 Statements re Computation of Ratios
21 Subsidiaries
23 Independent Auditors' Consent
27 Financial Data Schedule
--------
*This exhibit constitutes a management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K.
On Form 8-K dated December 9, 1994, under Item 5. "Other Events," the
Company reported that the Special Committee of the Board of Directors of
the Company retained financial advisors and legal counsel to assist in
evaluating and responding to the offer made by PacifiCorp Holding, Inc. to
acquire the 13 percent minority interest in the Company. The Company also
reported information with respect to a lawsuit relating to the proposed
purchase of minority interest.
58
<PAGE>
On Form 8-K dated February 6, 1995, under Item 5. "Other Events," the
Company reported that litigation brought by certain minority shareholders
of the Company, in connection with the pending offer of PacifiCorp
Holding, Inc. to acquire the outstanding minority interest in the Company,
had been dismissed.
On Form 8-K dated February 15, 1995, under Item 2. "Acquisition and
Disposition of Assets," the Company reported the purchase of local
exchange assets in Colorado from US WEST Communications, Inc.
On Form 8-K dated March 9, 1995, under Item 5. "Other Events," the
Company reported an Agreement and Plan of Merger with PacifiCorp Holdings,
Inc. (Holdings) and PXYZ Corporation pursuant to which the Company would
become a wholly-owned subsidiary of Holdings and minority shareholders of
PTI common stock would receive $30 per share in cash for each share held.
59
<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 28, 1995 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 March 28, 1995
------------------------------------
(Charles E. Robinson)
Chairman, President, Chief Executive
Officer and Director
JAMES H. HUESGEN March 28, 1995
------------------------------------
(James H. Huesgen)
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
DONALD A. BLOODWORTH March 28, 1995
------------------------------------
(Donald A. Bloodworth)
Vice President, Revenue
Requirements and Controller
JOYCE E. GALLEHER March 28, 1995
------------------------------------
(Joyce E. Galleher)
Director
ROY M. HUHNDORF March 28, 1995
------------------------------------
(Roy M. Huhndorf)
Director
DONALD L. MELLISH March 28, 1995
------------------------------------
(Donald L. Mellish)
Director
SIDNEY R. SNYDER March 28, 1995
------------------------------------
(Sidney R. Snyder)
Director
NANCY WILGENBUSCH March 28, 1995
------------------------------------
(Nancy Wilgenbusch)
Director
60
<PAGE>
EXHIBIT 2A
AGREEMENT FOR
PURCHASE AND SALE
OF EXCHANGES
DATED AS OF MAY 5, 1994
BETWEEN
TELEPHONE UTILITIES OF EASTERN OREGON, INC.,
d/b/a PTI COMMUNICATIONS
A Wholly-Owned Subsidiary of Pacific Telecom, Inc.,
PACIFIC TELECOM, INC.
AND
U S WEST COMMUNICATIONS, INC.
CONFIDENTIAL
<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 5th day of May, 1994, by and between
U S WEST Communications, Inc., a Colorado corporation ("Seller"), and
Telephone Utilities of Eastern Oregon, Inc., d/b/a PTI Communications,
a corporation organized and existing under the laws of the State of
Oregon, a wholly-owned subsidiary of Pacific Telecom, Inc. ("Buyer")
and Pacific Telecom, Inc., ("PTI").
RECITALS
A. Seller currently has certain rights to provide and operate
wireline telecommunication services and owns certain assets used
to provide such services in Oregon, pursuant to a grant of
operating authority issued by the Public Utilities Commission
of Oregon ("OPUC"), which have been offered for sale.
B. Buyer desires to acquire the right to provide and operate
wireline telecommunication services and to purchase certain of
Seller's assets in the telephone exchanges, listed in Exhibit
A, in the State of Oregon (the "Exchanges"), and Seller wishes
to sell, assign and transfer the aforesaid right to provide and
operate the wireline telecommunication service and 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 1
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 Exchanges and Assets, except
for the Excluded Assets, to Buyer, and Buyer agrees to purchase and
receive the Exchanges and Assets from the Seller and assume Liabilities
after the Closing Date.
1
1.2 Purchase Price. Buyer shall pay to Seller as consideration
______________
for the transfer of the right to provide and operate wireline
telecommunication service in the Exchanges and sale of the Assets, a
total purchase price of Eighty Two Million Four Hundred Thousand
Dollars $82,400,000.00, plus or minus the adjustments as set forth in
Section 1.3(C)(i) (the "Purchase Price").
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 Two
Million Dollars ($2,000,000) (the "Earnest Money") 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. Buyer shall
be responsible for all fees and costs associated with the Earnest
Money. 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 8.2 or 8.3(ii), 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 the execution
date of this Agreement, not to exceed Two Hundred Thousand Dollars
($200,000), 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 or 8.3(ii), Buyer shall receive the Earnest Money and
interest accrued thereon.
B. Remaining Balance. On the Closing Date, the Purchase
_________________
Price, minus the Earnest Money, plus or minus the adjustments, as set
forth in Section 1.3(C), 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) Adjustment. At least 30 days prior to Closing
__________
Seller shall provide to Buyer the then current Net Book Value of the
Assets dated within 45 days of the Closing Date (the "Then Current Net
Book Value"). If the difference between the Then Current Net
Book Value varies from the 12/31/93 Net Book Value of
2
CONFIDENTIAL
<PAGE>
the Assets as shown on Schedule 1.3(C) (the "Variance") by more than
$600,000 in the aggregate the Purchase Price shall be adjusted upward
or downward by multiplying the Variance by a factor of 1.4 (the
"Adjustment"). If the difference between the Then Current Net Book
Value and the 12/31/93 Net Book Value of the Assets is less than
$600,000 there shall be no adjustment to the Purchase Price. If the
Variance reflects an increase from the 12/31/93 Net Book Value of the
Assets to the Then Current Net Book Value the Purchase Price shall be
increased by the Adjustment. If the Variance reflects a decrease from
the 12/31/93 Net Book Value of the Assets the Purchase Price shall be
decreased by the Adjustment.
(ii) Proration. Any taxes, utilities, leases and such
_________
other items as shall be mutually agreed upon shall be prorated as of
the Closing Date and the Purchase Price shall be adjusted by such
proration multiplied by a factor of 1.0.
(iii) Accounts Receivable. The Purchase Price shall be
___________________
adjusted upward by an amount equal to all Accounts Receivables which
are purchased and assumed by Buyer, multiplied by a factor of 1.0.
1.4 Asset Verification. Seller has provided Buyer with a
__________________
copy of the Continuing Property Records for the Exchanges dated as of
12/31/93 ("CPRs"). Buyer has had a reasonable opportunity to verify
the accuracy of these records and Buyer has not noted any material
discrepancies in the CPRs .
1.5 Appraisal of the Assets. No later than sixty (60) days
_______________________
after Closing, the Buyer and Seller shall mutually agree to the
appraised value of the depreciable tangible Assets.
1.6 Allocation of the Purchase Price. The Purchase Price for
________________________________
the Assets, the covenants set forth in Section 6.2(H), and 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 sixty (60) days
after Closing. In addition, it is understood and agreed between Buyer
and Seller that the Purchase Price 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.
1.7 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
3
<PAGE>
sale, transfer, or assignment of the Assets or otherwise on account of
this Agreement or the transaction contemplated hereby.
1.8 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
_______
Exchanges and Assets (the "Closing") shall take place at Seller's
offices at 10:00 o'clock a.m., local time, on the second Tuesday of the
third 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 Seller and Buyer and furnished at least 30 days prior to the
Closing;
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 Seller and Buyer and furnished at least 30 days prior to the
Closing;
4
<PAGE>
E. the opinion of counsel to Seller, dated as of 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;
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 materially performed and complied with all of the terms,
provisions and conditions to be performed and complied with it 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.
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 acknowledged). The transfer of
telecommunications service from Seller to Buyer shall occur at 11:59
p.m. on the Closing Date or as otherwise mutually agreed.
5
<PAGE>
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.
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, OPUC, board, bureau, agency, court or
instrumentality thereof the FCC, NECA, or REA (collectively,
"Governmental Authorities") necessary to consummate the transaction
contemplated 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 Buyer's sole discretion.
D. No Governmental or Other Proceeding 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 Exchanges and 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
Exchanges and 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 Exchanges and Assets.
6
<PAGE>
E. Hart-Scott-Rodino Act. All filings required to be made
_____________________
under the Hart-Scott-Rodino Act ("H-S-R") 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.
G. Corporate Approval. The transaction shall have received
__________________
all necessary corporate and Board of Director approval(s) on or before
May 31, 1994.
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 Seller's sole discretion.
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
Exchanges and Assets or otherwise seeking to prohibit the consummation
of the transaction contemplated hereby or seeking material damages in
connection therewith.
7
<PAGE>
E. H-S-R Act. All filings required to be made under the
_________
H-S-R Act shall have been made, and the waiting period thereunder shall
have expired or early termination thereof shall have been granted.
F. Corporate Approvals. This transaction shall have
___________________
received all necessary corporate and Board of Director approval(s) on
or before May 31, 1994.
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.
ARTICLE 4
ENVIRONMENTAL CONDITIONS; EXCHANGES AND ASSETS "AS IS"
4.1 Central Office; Asbestos, Hazardous Materials. Buyer
_____________________________________________
acknowledges that it knows that the central office buildings and
adjacent structures, (the "Central Offices") appurtenances, facilities
and improvements thereon of the Exchange(s) and Assets may have been
found to contain asbestos-containing materials, and that Buyer has
independently investigated the presence of asbestos-containing
materials in the Central Offices. In addition, Buyer acknowledges that
it knows that the Central Office and equipment may contain Hazardous
Materials. 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 Offices. Except as expressly
provided for in this Agreement, SELLER HEREBY DISCLAIMS ALL WARRANTIES,
WHETHER EXPRESSED OR IMPLIED, WITH REGARD TO THE CONDITION OR SAFETY
OR PRESENCE OF HAZARDOUS MATERIALS AND ASBESTOS IN SAID CENTRAL
OFFICES.
Except as provided for in Section 6.3(H), Buyer agrees to take the
Exchanges and 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.
Except as provided for in Section 6.3(H), 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 Claim or
Liability associated with the Central Offices, irrespective of
when contamination occurred is assumed by Buyer at the Closing.
Except as provided for in this Agreement, BUYER UNDERSTANDS THAT
THE SELLER MAKES NO REPRESENTATIONS, WARRANTIES, OR
GUARANTEES, WHETHER EXPRESS OR IMPLIED, OF ANY KIND,
8
<PAGE>
NATURE OR TYPE WHATSOEVER WITH RESPECT TO THE CENTRAL OFFICES, OR THE
VALUE, MARKETABILITY, 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 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. Except as it relates to
those documents to be provided pursuant to Section 6.3(H), 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 reflects the potential presence of the
asbestos-containing materials and the Hazardous Materials and
environmental Claims or Liabilities that may be associated with the
Central Offices.
4.2 Outside Plant. Except as expressly 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 relating to Environmental Laws. EXCEPT AS EXPRESSLY
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 expressly 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(H), Buyer understands and agrees that any
responsibility for compliance with Environmental Laws applicable to the
ownership or use of the Exchanges and Assets following the Closing,
including the costs of any remediation or cleanup associated with the
Exchanges and Assets, irrespective of when contamination occurred, is
assumed by Buyer at the Closing. Seller agrees that all outside plant
environmental Claims or Liabilities 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
expressly provided for in this Agreement, Buyer understands
that Seller makes no warranties, representations or guarantees,
whether express or implied, of any kind, nature or type
whatsoever with respect to the Exchanges and Assets or the
value, marketability, 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 Exchanges and Assets based on
9
<PAGE>
Buyer's own, or its agent's inspection and examination thereof. In
making such investigation and inquires, Buyer has relied on information
and documentation provided by Seller as well as Seller's
representations expressly 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 HEREIN. SELLER IS NOT WARRANTING THE CONDITION
OR USEFULNESS OF THE EXCHANGES AND 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
Oregon. Except as provided in Section 3.1(G) Buyer has full corporate
power and authority to execute and deliver this Agreement and 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. Authorization, Execution, and Delivery. Except as
______________________________________
provided in 3.1(G) 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. Except as provided
in 3.1(G) 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 Claims, either at law or
in equity, on or before any Governmental Authority, of any kind now
pending or threatened or could reasonably form the basis of any such
Claim 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 Exchanges and Assets and of the
financial, legal, and other condition and location of the Exchanges and
Assets that it deems necessary or advisable with respect to the
transaction contemplated by this Agreement. Buyer has diligently
requested and has received all information which it has deemed
pertinent, necessary or appropriate to an evaluation of this
transaction, and, except for those documents requested in Schedule
6.3(H), has conducted a thorough and independent investigation of all
material aspects of the Exchanges and 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 making such investigation, Buyer has relied on
information and documentation provided by Seller as well as Seller's
representations and warranties expressly 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. Exchanges in Existing Study Areas for USF Purposes. Buyer
__________________________________________________
shall include the Exchanges and Assets in its existing Study Area for
USF purposes.
H. Assets "As Is, Where Is". Buyer acknowledges that it is
________________________
acquiring the Exchanges and 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 expressly 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
11
<PAGE>
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).
B. Authorization, Execution and Delivery. Except as set
_____________________________________
forth in Section 3.2(F), 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. Except as set forth
in Section 3.2(F) 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 except for those authorizations or approvals which
would not have a material adverse impact on the Buyer's use of the
Assets.
E. Litigation. Except as set out in Schedule 5.2(E), to the
__________
best of Seller's knowledge, there are no Claims, either at law or in
equity, on or before any Governmental Authority, of any kind now
pending, or threatened, 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 Exchanges and Assets through
the Closing Date will have been paid in full. There are no liens for
federal, state or local taxes upon the Exchanges or 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
12
<PAGE>
respect to the Assets for all periods up to and including the Closing
Date and shall pay all taxes due on such returns.
G. Offering Memorandum. To the best of Seller's knowledge
___________________
as of November 19, 1993, Sections 3.3.1, 3.3.3 and 3.3.4 of Seller's
Offering Memorandum for the Sale of Selected Telephone Exchanges in the
State of Oregon issued November 19, 1993, and as amended December 16,
1993 are true and correct in all material respects.
<PAGE>
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 Exchanges and 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. Within thirty (30) days after the execution
_________
date of this Agreement, Seller shall provide to Buyer a schedule of all
agreements that Buyer shall assume, from and after the Closing Date,
provided such agreements are within the normal course of business.
In addition, at least thirty (30) days prior to Closing, Seller
shall provide Buyer with a final schedule of all agreements
13
<PAGE>
to be reviewed and assumed by Buyer provided such agreement are within
the normal course of business.
D. 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.
E. Extended Area Service("EAS") Arrangement. Buyer agrees
________________________________________
to implement any future EAS Arrangements in the Exchanges pursuant to
OPUC order.
6.2 Covenant of Seller. Seller hereby covenants and agrees
__________________
that from the execution date hereof to the Closing Date:
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
Exchanges and Assets in Seller's possession or control. Seller shall
exercise its reasonable efforts to furnish or cause to be furnished to
Buyer and its representatives all data and information concerning the
Exchanges and 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; and (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.
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
applied on a consistent basis. Seller shall not undertake any
capital expenditures which in the aggregate exceeds $100,000.00
14
<PAGE>
without the prior approval of Buyer, which approval shall not be
unreasonably withheld or delayed.
E. Real Property. Seller shall convey, by Quit Claim Deed,
_____________
its real property located in the Exchanges to Buyer, together with the
rights 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 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.
G. Closing Report. Seller shall prepare and deliver to
______________
Buyer, within sixty (60) days after Closing, a report for the limited
purpose of assisting Buyer in establishing the closing Net Book Value
of the Assets, 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.
I. OPUC Docket No. UM 640. USWC will complete a "public
______________________
safety inspection" of all USWC lines and poles in the Exchanges by
December 31, 1994 pursuant to the terms of the Stipulation in UM 640.
This inspection shall locate and correct all low pole steps (lower than
8 feet), missing guy markers, hanging drops, and other public safety
hazards. All problems found during this inspection shall be corrected
by USWC at USWC's cost.
J. OPUC Docket UT-80. On or before Closing, Seller shall
_________________
refund all amounts due and payable to Seller's customers located in the
Exchanges, in accordance with OPUC Docket UT-80.
15
<PAGE>
6.3 Mutual Covenants.
________________
A. Confidentiality. Each party to this Agreement agrees to
_______________
hold all Confidential Information (as defined in the "Glossary of
Terms"), including but not limited to the Letter of Intent dated March
15, 1994 between Buyer and Seller, whether received before or after
entering into this Agreement, in confidence for a period of two (2)
years from the Closing Date, 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.
This Agreement will be filed on a confidential basis with the
OPUC.
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, shall be made
16
<PAGE>
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. OPUC filings. Within five (5) 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 OPUC) to apply for and receive
approval by the OPUC for the transfer of Assets and the grant of
operating authority or issuance of a Certificate of Convenience and
Necessity to Buyer and any other necessary OPUC approvals.
E. FCC Filings. Ten (10) days after the execution of this
___________
Agreement, or on such other date as the parties shall mutually agree,
Buyer and Seller agree to commence the process 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, Price Cap Waiver
approval and radio license approval.
F. Tax Liabilities. 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 6.1(B).
G. 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.
17
<PAGE>
H. Environmental Assessment. Buyer and Seller have agreed
________________________
that Seller shall only perform, at its sole expense, the environmental
projects as set forth in Schedule 6.3(H). Such projects shall be
performed in conformance with state and federal requirements (save and
except that Buyer and Seller have acknowledged and mutually agreed that
Seller shall not remediate or abate asbestos containing materials or
Hazardous Materials from Central Offices in the Exchanges). Seller
further agrees, at its sole cost, to: (i) replace all underground
storage tanks and remove all storage drums located within the Exchanges
as set forth in Schedule 6.4(H), in conformance with state and federal
requirements prior to Closing or such other date as mutually agreed to
by the Buyer and Seller and (ii) change the designation of the Central
Offices located in the Exchanges from large or small quantity
generators to no designation , as applicable, in conformance with state
and federal requirements prior to Closing.
I. OPUS Schedule. Seller shall adhere to its OPUS single
_____________
party conversion schedule, in the Exchanges identified on Schedule
6.3(I), by the dates set forth therein. In the event that this
transaction Closes prior to the dates set forth in Schedule 6.3(I),
Buyer shall complete the OPUS single party conversion schedule.
J. Transferred Assets Located Outside of the Exchanges.
___________________________________________________
Within thirty (30) days after the execution date of this Agreement,
Seller and Buyer shall mutually agree to the assets which are located
outside of the Exchanges which shall be transferred to Buyer. Said
transferred assets shall be set forth in Schedule 6.3(J).
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 and Liabilities, that may be incurred by
Seller arising from: (i) any breach of any representation or warranty;
or (ii) any breach of any covenant, obligation or agreement of Buyer
contained herein; or (iii) any and all Claims or Liabilities arising
out of or relating to the ownership or operation of the Exchanges and
Assets after the Closing provided such Claims or Liabilities are
incurred or based on facts after the Closing Date.
7.2 Buyer's Indemnification Threshold. Buyer shall not be
_________________________________
required to indemnify, defend or hold Seller harmless from and against
any Claims or Liabilities, incurred after the Closing Date, unless and
until such amount exceeds $250,000 per incident (the "Indemnity
Threshold"), and Buyer shall only be obligated to indemnify Seller with
18
<PAGE>
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 Claims or Liabilities that may be incurred by Buyer
arising from: (i) any breach of any representation or warranty; or (ii)
any breach of any covenant, obligation or agreement of Seller contained
herein; or (iii) except as provided in Article 4, any and all Claims
or Liabilities arising out of or relating to the ownership or operation
of the Exchanges and Assets prior to Closing provided such Claims or
Liabilities are incurred or based on facts on or prior to the Closing
Date.
7.4 Seller's Indemnification Threshold. Except for
__________________________________
liabilities referenced in Section 6.1(B), Seller shall not be required
to indemnify, defend or hold Buyer harmless from and against any Claims
or Liabilities, incurred on or before the Closing Date, unless and
until such amount exceeds the "Indemnity Threshold", and Seller shall
only be obligated to indemnify Buyer with respect to amounts that
exceed the Indemnity Threshold and then 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 Claims or 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 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 and Liabilities shall only apply to those Claims
or Liabilities 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, or
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 or Liabilities including but not
19
<PAGE>
limited to environmental Claims and Liabilities, occurring prior
to Closing.
7.7 Notice of Indemnification. 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 or Liability, within 60 business days, and, when
known, the facts constituting the basis for such Claim. In the event
that any notice of a right for indemnification is made hereunder as a
result of or in connection with any Claim or Liability 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
Claim or Liability arising therefrom. The Indemnified Party shall not
settle or compromise any Claim or Liability 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 the Indemnified Party and the Indemnifying Party
shall not have taken control of such suit after notification thereof
as provided in Section 7.7.
7.8 Defense by Indemnifying Party. In connection with any
_____________________________
Claim or Liability 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 expense. If the Indemnifying Party does not assume the defense
of any such Claim or Liability resulting therefrom, (a) the Indemnified
Party may defend against such Claim or Liability, in such manner as it
may deem appropriate, including, but not limited to, settling such
Claim or Liability (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.
20
<PAGE>
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 Claims or 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 Claims or Liabilities, then the Indemnified Party's
indemnification for Claims or Liabilities shall be limited to any
deductible and amounts in excess of the amounts actually collected by
the Indemnified Party for such Claims or Liabilities.
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.
B. If any Governmental Approval contains terms and
conditions unacceptable to Buyer, in Buyer's sole 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, in Seller's sole discretion,
21
<PAGE>
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 discovered 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) and
for the provisions of Section 6.3(A), 6.3(B), and 6.3(C), without
further liability on the part of any party hereto or its respective
shareholders, directors, officers or employees in respect thereof,
except as follows: (i) nothing herein shall relieve any party from
liability for any breach of this Agreement prior to termination under
Sections 8.1, 8.2 or 8.3, and (ii) the obligations of the parties
hereto set forth in Section 11.6 shall not be affected by a termination
of this Agreement.
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
measures set forth below:
A. Collection of Accounts Receivable. In the event
_________________________________
Buyer purchases the Accounts Receivables, 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,
22
<PAGE>
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 OPUC, 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 Exchanges and Assets 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"), 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.
23
<PAGE>
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 Bulk Sales. Buyer hereby waives compliance with the
__________
provisions of any applicable laws relating to bulk transfers in
connection with the transactions contemplated by this Agreement,
including without limitation the provisions of Oregon Code Annotated
regarding bulk transfers.
11.3 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
with a copy (which shall not constitute notice) to:
U S WEST, Inc.
7800 East Orchard Road
Englewood, CO 80111
Attention: Associate General Counsel
Corporation Transactions
24
<PAGE>
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
11.4 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.
11.5 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.
11.6 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.
11.7 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.
11.8 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
25
<PAGE>
binding and effective, even though no single counterpart has been
executed by both of the parties.
11.9 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.
11.10 Assignment. Except as set forth in Section 6.1(B), 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.
11.11 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.
11.12 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 OPUC.
11.13 Governing Law. This Agreement shall be construed in
_____________
accordance with the laws of the State of Oregon.
11.14 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 extent, shall not be affected thereby, and
each provision of this Agreement shall be enforced to the fullest
extent allowed by law.
11.15 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.
26
<PAGE>
11.16 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.
11.17 Integration. This Agreement, 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.
IN WITNESS WHEREOF, the parties to this Agreement have executed
it as of the date first above written.
BUYER:
TELEPHONE UTILITIES OF EASTERN PACIFIC TELECOM, INC.,
OREGON, INC., a Washington corporation
An Oregon Corporation
By: JAMES H. HUESGEN By: JAMES H. HUESGEN
__________________________ _________________________
Its: Executive Vice President & Its: Executive Vice President &
Chief Financial Officer Chief Financial Officer
_________________________ __________________________
Date: May 5, 1994 Date: May 5, 1994
________________________ ______________________
SELLER:
U S WEST COMMUNICATIONS, INC.,
a Colorado corporation
By: JOHN SCULLY
___________________________
Its: President and CEO
___________________________
Date: 5/6/94
__________________________
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, all
assets as identified on Seller's Continuing Property Records (CPRs) and
such other assets as set forth in Schedule 6.3(J), except the Excluded
Assets, of whatever kind, character and description, and those assets
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 OPUC to operate the System in the State of Oregon. For purposes
of this Agreement, Authorities does not include Seller's applications
for Authorities before the FCC and OPUC.
(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
28
<PAGE>
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;
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.
"Business" means the wireline telecommunications business of the
Exchanges as related to the Assets, the Property and the Authorities
in the State of Oregon.
"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,
as 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 confidential or
29
<PAGE>
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.
"Environmental Law" means the National Environmental Policy Act
("NEPA") and mandated environmental assessments, Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Sections 6901-6987, as amended by
the Hazardous and Solid Waste Amendments of 1984, the Compensation and
Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Sections 9601-9657, the
Hazardous Materials Transportation Act of 1975, 49 U.S.C.
Sections 1801-1812, the Toxic Substances Control Act, the Clean Air
Act, 42 U.S.C. Section 7401 et seq., the Federal Insecticide, Fungicide
and Rodenticide Act, 7 U.S.C. Section 136 et seq., the Clean Water Act,
33 U.S.C. Section 1251 et seq., the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et
seq., the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA"), and any substantially similar state or local
environmental law and any of these law(s) as may be amended from time
to time.
"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) the properties, assets, privileges, rights and interests (whether
tangible or intangible, real, personal or mixed), if any, as being
excluded from the Assets to be transferred to Buyer; (c) any insurance
policy, bond, letter of credit, or other similar item, and any cash
surrender value in regard thereto; (d) all books and records that
Seller is required by law to retain or that relate solely to internal
corporate matters; (e) 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;
(f) any pension, profit sharing or employee benefit plans; (g) any
assets, interests or property of Seller used in the operation of any
business conducted by Seller other than the operation of the
Assets; (h) the name U S WEST and all similar names and related
30
<PAGE>
marks and logos used or owned in connection with the provision of
telecommunications services in the Exchanges; (i) all portable test
equipment; (j) motor vehicles and associated motor vehicle general
stock; (k) materials and 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; (l) FCC licenses for air-to-ground,
cellular, or paging services held by either Seller, or any affiliate
of Seller; (m) all maintenance radio equipment and antennas; (n) Seller
coin pay stations serving the Safeway stores in the Burns Exchange; and
(o) backbone transiting toll facilities and associated fiber equipment
as shall be mutually agreed to between Buyer and Seller and as shall
be set forth in Schedule 1.1 within 60 days of the date of this
Agreement.
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.
"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.
"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 any of the Assets or to any person
or require remediation at the behest of any federal, state, or local
governmental agency under any Environmental Law.
"Liabilities," except as otherwise provided in this Agreement, any
and all obligations for Claims arising out of or relating to Buyer's
ownership or operation of the 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.
31
<PAGE>
"Net Book Value" means gross plant minus accumulated depreciation
which is true and accurate in all material respects and accounted for
on a consistent basis.
"OPUC" means the Public Utilities Commission in the State of
Oregon.
"OPUS" means One Party Universal Service as defined in an OPUC
Order in UT-85.
"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 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.
"USF" means the federal Universal Service Fund.
32
<PAGE>
EXHIBITS
TABLE OF EXHIBITS
A. LIST OF EXCHANGES
The above mentioned exhibit has been omitted. The Company agrees to
furnish supplementally a copy of the omitted exhibit to the Commission
upon request.
SCHEDULES
TABLE OF SCHEDULES
1.1 BACKBONE TRANSITING TOLL FACILITIES
1.3(C) 12/31/93 NET BOOK VALUE OF THE ASSETS
2.4 ADDITIONAL AGREEMENTS
5.1(C) GOVERNMENTAL AUTHORIZATIONS NECESSARY FOR BUYER TO
CONSUMMATE THE TRANSACTION
5.1(E) LITIGATION - BUYER
5.2(A) CORPORATE AUTHORIZATION NECESSARY FOR SELLER TO
CONSUMMATE THE TRANSACTION
5.2(D) GOVERNMENTAL AUTHORIZATIONS NECESSARY FOR SELLER
TO CONSUMMATE THE TRANSACTION
5.2(E) LITIGATION - SELLER
6.1(C) CONTRACTS TO BE ASSUMED BY BUYER
6.3(H) ENVIRONMENTAL PROJECTS
6.3(I) OPUS SCHEDULE
6.3(J) TRANSFERRED ASSETS LOCATED OUTSIDE OF THE EXCHANGE
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 2B
AGREEMENT FOR
PURCHASE AND SALE
OF EXCHANGES
DATED AS OF MAY 5, 1994
BETWEEN
TELEPHONE UTILITIES OF WASHINGTON, INC.,
d/b/a PTI COMMUNICATIONS
A Wholly-Owned Subsidiary of Pacific Telecom, Inc.,
PACIFIC TELECOM, INC.
AND
U S WEST COMMUNICATIONS, INC.
CONFIDENTIAL
<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 5th day of May, 1994, by and between
U S WEST Communications, Inc., a Colorado corporation ("Seller"), and
Telephone Utilities of Washington, Inc., d/b/a PTI Communications, a
corporation organized and existing under the laws of the State of
Washington, a wholly-owned subsidiary of Pacific Telecom, Inc.
("Buyer") and Pacific Telecom, Inc., ("PTI").
RECITALS
A. Seller currently has certain rights to provide and operate
wireline telecommunication services and owns certain assets used
to provide such services in Washington, pursuant to a grant of
operating authority issued by the Washington Utilities and
Transportation Commission of Washington ("WUTC"), which have
been offered for sale.
B. Buyer desires to acquire the right to provide and operate
wireline telecommunication services and to purchase certain of
Seller's assets in the telephone exchanges, listed in Exhibit
A, in the State of Washington (the "Exchanges"), and Seller
wishes to sell, assign and transfer the aforesaid right to
provide and operate the wireline telecommunication service and
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 1
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 Exchanges and Assets, except
for the Excluded Assets, to Buyer, and Buyer agrees to purchase and
receive the Exchanges and Assets from the Seller and assume Liabilities
after the Closing Date.
1
<PAGE>
1.2 Purchase Price. Buyer shall pay to Seller as
______________
consideration for the transfer of the right to provide and operate
wireline telecommunication service in the Exchanges and sale of the
Assets, a total purchase price of Ninety Two Million Six Hundred
Thousand Dollars $92,600,000.00 plus or minus the adjustments as set
forth in Section 1.3(C)(i) (the "Purchase Price"), plus the payment of
taxes as set forth in Section 1.7.
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 Two Million
Dollars ($2,000,000) (the "Earnest Money") 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. Buyer shall
be responsible for all fees and costs associated with the Earnest
Money. 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 8.2 or 8.3(ii), 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 the execution
date of this Agreement, not to exceed Two Hundred Thousand Dollars
($200,000), 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 or 8.3(ii), Buyer shall receive the Earnest Money and
interest accrued thereon.
B. Remaining Balance. On the Closing Date, the Purchase
_________________
Price, minus the Earnest Money, plus or minus the adjustments, as set
forth in Section 1.3(C), 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) Adjustment. At least 30 days prior to Closing
__________
Seller shall provide to Buyer the then current Net Book Value of the
Assets dated within 45 days of the Closing Date (the "Then
Current Net Book Value"). If the difference between the Then
2
CONFIDENTIAL
<PAGE>
Current Net Book Value varies from the 12/31/93 Net Book Value of the
Assets as shown on Schedule 1.3(C) (the "Variance") by more than
$600,000 in the aggregate the Purchase Price shall be adjusted upward
or downward by multiplying the Variance by a factor of 1.5 (the
"Adjustment"). If the difference between the Then Current Net Book
Value and the 12/31/93 Net Book Value of the Assets is less than
$600,000 there shall be no adjustment to the Purchase Price. If the
Variance reflects an increase from the 12/31/93 Net Book Value of the
Assets to the Then Current Net Book Value the Purchase Price shall be
increased by the Adjustment. If the Variance reflects a decrease from
the 12/31/93 Net Book Value of the Assets the Purchase Price shall be
decreased by the Adjustment.
(ii) Proration. Any taxes, utilities, leases and such
_________
other items as shall be mutually agreed upon shall be prorated as of
the Closing Date and the Purchase Price shall be adjusted by such
proration multiplied by a factor of 1.0.
(iii) Accounts Receivable. The Purchase Price shall be
___________________
adjusted upward by an amount equal to all Accounts Receivables which
are purchased and assumed by Buyer, multiplied by a factor of 1.0.
1.4 Asset Verification. Seller has provided Buyer with a
__________________
copy of the Continuing Property Records for the Exchanges dated as of
12/31/93 ("CPRs"). Buyer has had a reasonable opportunity to verify
the accuracy of these records and Buyer has not noted any material
discrepancies in the CPRs .
1.5 Appraisal of the Assets. No later than sixty (60) days
_______________________
after Closing, the Buyer and Seller shall mutually agree to the
appraised value of the depreciable tangible Assets.
1.6 Allocation of the Purchase Price. The Purchase Price for
________________________________
the Assets, the covenants set forth in Section 6.2(H), and 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 sixty (60) days
after Closing. In addition, it is understood and agreed between Buyer
and Seller that the Purchase Price 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.
1.7 Taxes. Seller shall pay the transfer taxes which may be
_____
associated with this transaction in accordance with Section
3
<PAGE>
82.08.050 and the excise taxes in accordance with Sections 82.45.080
and 82.46.050 of the Washington Revised Code. At Closing, Buyer shall
remit to Seller an amount equal to 7.9% of the Purchase Price for
payment of transfer taxes (provided, however, that in the event the
transfer taxes percentage is greater than 7.9%, Buyer shall remit to
Seller 100% of any additional amount for the payment of the transfer
taxes). At Closing, Buyer shall remit to Seller an amount equal to
Seller's payment pursuant to Sections 82.45.080 and 82.46.050 of the
Washington Revised Code and Buyer shall pay any and all recording fees,
notarial fees and other similar costs of Closing incurred in connection
with the sale, transfer, or assignment of the Exchanges and Assets or
otherwise on account of this Agreement or the transaction contemplated
hereby.
1.8 SOW. In the event that SOWs are entered into between
___
Seller and a subsidiary of PTI, as set forth in Section 6.1(F), and
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 SOW by paying to Buyer, in immediately
available funds, no later than ninety (90) days following such
termination, the costs and expenditures as set forth in the SOW and
those costs set forth in Section 8.5. Any assets constructed in the
Exchanges pursuant to the SOW 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(C)(i).
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
_______
Exchanges and Assets (the "Closing") shall take place at Seller's
offices at 10:00 o'clock a.m., local time, on the second Tuesday of the
third 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:
4
<PAGE>
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 Seller and Buyer and furnished at least 30 days prior to the
Closing;
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 Seller and Buyer and furnished at least 30 days
prior to the Closing;
E. the opinion of counsel to Seller, dated as of 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;
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 materially performed and complied with all of the terms,
provisions and conditions to be performed and complied with it 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
5
<PAGE>
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.
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 acknowledged). The transfer of
telecommunications service from Seller to Buyer shall occur at 11:59
p.m. on the Closing Date or as otherwise mutually agreed.
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.
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
6
<PAGE>
"Governmental Approvals") any United States, state, or local
governmental entity or municipality or subdivision thereof or any
authority, department, WUTC, board, bureau, agency, court or
instrumentality thereof the FCC, NECA, or REA (collectively,
"Governmental Authorities") necessary to consummate the transaction
contemplated 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 Buyer's sole discretion.
D. No Governmental or Other Proceeding 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 Exchanges and 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
Exchanges and 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 Exchanges and Assets.
E. Hart-Scott-Rodino Act. All filings required to be made
_____________________
under the Hart-Scott-Rodino Act ("H-S-R") 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.
G. Corporate Approval. The transaction shall have received
__________________
all necessary corporate and Board of Director approval(s) on or before
May 31, 1994.
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.
7
<PAGE>
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 Seller's sole discretion.
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
Exchanges and 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 shall have been made, and the waiting period thereunder shall
have expired or early termination thereof shall have been granted.
F. Corporate Approvals. This transaction shall have received
___________________
all necessary corporate and Board of Director approval(s) on or before
May 31, 1994.
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.
ARTICLE 4
ENVIRONMENTAL CONDITIONS; EXCHANGES AND ASSETS "AS IS"
4.1 Central Office; Asbestos, Hazardous Materials. Buyer
_____________________________________________
acknowledges that it knows that the central office buildings
and adjacent structures, (the "Central Offices") appurtenances,
facilities and improvements thereon of the Exchanges and Assets may
have been found to contain asbestos-containing materials, and
that Buyer has independently investigated the presence of
asbestos-containing materials in the Central Offices. In addition,
Buyer acknowledges that it knows that the Central Office and
8
<PAGE>
equipment may contain Hazardous Materials. 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 Offices. Except as expressly provided for in this Agreement,
SELLER HEREBY DISCLAIMS ALL WARRANTIES, WHETHER EXPRESSED OR IMPLIED,
WITH REGARD TO THE CONDITION OR SAFETY OR PRESENCE OF HAZARDOUS
MATERIALS AND ASBESTOS IN SAID CENTRAL OFFICES.
Except as provided for in Section 6.3(H), Buyer agrees to take the
Exchanges and 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.
Except as provided for in Section 6.3(H), 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 Claim or Liability
associated with the Central Offices, irrespective of when contamination
occurred, is assumed by Buyer at the Closing. Except as provided for
in this Agreement, 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, OR THE VALUE, MARKETABILITY, 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
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. Except as
it relates to those documents to be provided pursuant to Section
6.3(H), 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 reflects the potential
presence of the asbestos-containing materials and the Hazardous
Materials and environmental Claims or Liabilities that may be
associated with the Central Offices.
4.2 Outside Plant. Except as expressly 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 relating to Environmental Laws. EXCEPT AS EXPRESSLY
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.
9
<PAGE>
Except as expressly 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(H), Buyer understands and agrees that any
responsibility for compliance with Environmental Laws applicable to the
ownership or use of the Exchanges and Assets following the Closing,
including the costs of any remediation or cleanup associated with the
Exchanges and Assets, irrespective of when contamination occurred, is
assumed by Buyer at the Closing. Seller agrees that all outside plant
environmental Claims or Liabilities 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
expressly provided for in this Agreement, Buyer understands that Seller
makes no warranties, representations or guarantees, whether express or
implied, of any kind, nature or type whatsoever with respect to the
Exchanges and Assets or the value, marketability, 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 Exchanges and Assets based on Buyer's own, or its agent's
inspection and examination thereof. In making such investigation and
inquires, Buyer has relied on information and documentation provided
by Seller as well as Seller's representations expressly 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 HEREIN. SELLER IS NOT WARRANTING THE CONDITION
OR USEFULNESS OF THE EXCHANGES AND 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
Washington. Except as provided in Section 3.1(G) Buyer has full
corporate power and authority to execute and deliver this Agreement
and 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.
10
<PAGE>
B. Authorization, Execution, and Delivery. Except as
______________________________________
provided in 3.1(G) 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. Except as provided
in 3.1(G) 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.
E. Litigation. Except as set forth in Schedule 5.1(E), to
__________
the best of Buyer's knowledge, there are no Claims, either at law or
in equity, on or before any Governmental Authority, of any kind now
pending or threatened or could reasonably form the basis of any such
Claim 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 Exchanges and Assets and of the financial, legal,
and other condition and location of the Exchanges and Assets that it
deems necessary or advisable with respect to the transaction
contemplated by this Agreement. Buyer has diligently requested and has
received all information which it has deemed pertinent, necessary or
appropriate to an evaluation of this transaction, and, except for those
documents requested in Schedule 6.3(H), has conducted a thorough and
independent investigation of all material aspects of the Exchanges and
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 making such investigation,
Buyer has relied on information and documentation provided by Seller
as well as Seller's representations and warranties expressly set
forth in this Agreement. The Buyer has not received from the
11
<PAGE>
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. Exchanges in Existing Study Areas for USF Purposes. Buyer
__________________________________________________
shall include the Exchanges and Assets in its existing Study Area for
USF purposes.
H. Assets "As Is, Where Is". Buyer acknowledges that it is
________________________
acquiring the Exchanges and 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 expressly 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).
B. Authorization, Execution and Delivery. Except as set
_____________________________________
forth in Section 3.2(F), 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. Except as set forth
in Section 3.2(F) 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 except for those authorizations or
12
<PAGE>
approvals which would not have a material adverse impact on the Buyer's
use of the Assets.
E. Litigation. Except as set out in Schedule 5.2(E), to the
__________
best of Seller's knowledge, there are no Claims, either at law or in
equity, on or before any Governmental Authority, of any kind now
pending, or threatened, 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 Exchanges and Assets through
the Closing Date will have been paid in full. There are no liens for
federal, state or local taxes upon the Exchanges or 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.
G. Offering Memorandum. To the best of Seller's knowledge
___________________
as of November 19, 1993, Sections 3.3.1, 3.3.3 and 3.3.4 of Seller's
Offering Memorandum for the Sale of Selected Telephone Exchanges in the
State of Washington issued November 19, 1993, and as amended December
16, 1993 are true and correct in all material respects.
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 Exchanges and
13
<PAGE>
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. Within thirty (30) days after the execution
_________
date of this Agreement, Seller shall provide to Buyer a schedule of all
agreements that Buyer shall assume, from and after the Closing Date,
provided such agreements are within the normal course of business. In
addition, at least thirty (30) days prior to Closing, Seller shall
provide Buyer with a final schedule of all agreements to be reviewed
and assumed by Buyer provided such agreements are within the normal
course of business.
D. 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.
E. Extended Area Service ("EAS") Arrangement. Buyer agrees
_________________________________________
to implement any future EAS Arrangements in the Exchanges pursuant to
WUTC order.
F. Capital Improvement Projects. In the event that Seller
____________________________
and Buyer mutually agree to enter into SOWs, then Buyer shall undertake
certain Central Office and Outside Plant projects and/or additions
("Projects") in or on the Exchanges at Buyer's own cost, as Seller's
subcontractor, on terms and conditions set forth in the SOWs. The
title to all assets constructed pursuant to the SOWs 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 SOWs shall
be transferred to Seller and Seller shall pay Buyer for all Projects
in accordance with Section 1.8 hereof.
14
<PAGE>
6.2 Covenant of Seller. Seller hereby covenants and agrees
__________________
that from the execution date hereof to the Closing Date:
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
Exchanges and Assets in Seller's possession or control. Seller shall
exercise its reasonable efforts to furnish or cause to be furnished to
Buyer and its representatives all data and information concerning the
Exchanges and 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; and (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.
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 applied
on a consistent basis. Seller shall not undertake any capital
expenditures which in the aggregate exceeds $100,000.00 without the
prior approval of Buyer, which approval shall not be unreasonably
withheld or delayed.
E. Real Property. Seller shall convey, by Quit Claim Deed,
_____________
its real property located in the Exchanges to Buyer, together with the
rights 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 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
15
<PAGE>
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.
G. Closing Report. Seller shall prepare and deliver to
______________
Buyer, within sixty (60) days after Closing, a report for the limited
purpose of assisting Buyer in establishing the closing Net Book Value
of the Assets, 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.
I. Multi-Party Upgrades. Seller shall convert all existing
____________________
multi-party lines in the Exchanges to single party facilities no later
than December 31, 1994.
6.3 Mutual Covenants.
________________
A. Confidentiality. Each party to this Agreement agrees to
_______________
hold all Confidential Information (as defined in the "Glossary of
Terms"), including but not limited to the Letter of Intent dated March
15, 1994 between Buyer and Seller, whether received before or after
entering into this Agreement, in confidence for a period of two (2)
years from the Closing Date, 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
16
<PAGE>
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.
This Agreement will be filed on a confidential basis with the
WUTC.
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, 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. WUTC filings. Within five (5) days after the execution
____________
of this Agreement, or on such other date as the parties shall mutually
agree, Seller and Buyer agree to 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 WUTC) to apply for and receive approval by
the WUTC for the transfer of Assets and the grant of operating
authority or issuance of a Certificate of Convenience and Necessity to
Buyer and any other necessary WUTC approvals.
17
<PAGE>
E. FCC Filings. Ten (10) days after the execution of this
___________
Agreement, or on such other date as the parties shall mutually agree,
Buyer and Seller agree to commence the process 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, Price Cap Waiver
approval and radio license approval.
F. Tax Liabilities. 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 6.1(B).
G. 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.
H. Environmental Assessment. Buyer and Seller have agreed
________________________
that Seller shall only perform, at its sole expense, the environmental
projects as set forth in Schedule 6.3(H) and this Section 6.3(H). Such
projects shall be performed in conformance with state and federal
requirements (save and except that Buyer and Seller have acknowledged
and mutually agreed that Seller shall not remediate or abate asbestos
containing materials or Hazardous Materials from Central Offices in the
Exchanges). Seller further agrees, at its sole cost, to: (i) replace
all underground storage tanks and remove all storage drums located
within the Exchanges, as set forth in Schedule 6.3(H), in conformance
with state and federal requirements prior to Closing or such other date
as mutually agreed to by the Buyer and Seller, and (ii) change the
designation of the Central Offices located in the Exchanges from large
or small quantity generators to no designation , as applicable, 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 and Liabilities, that may be
incurred by Seller arising from: (i) any breach of any
representation or warranty; or (ii) any breach of any covenant,
obligation or agreement of Buyer contained herein; or (iii) any
and all Claims or Liabilities arising out of or relating to
the ownership or operation of the Exchanges and Assets after the
18
<PAGE>
Closing provided such Claims or Liabilities are incurred or based on
facts after the Closing Date.
7.2 Buyer's Indemnification Threshold. Buyer shall not be
_________________________________
required to indemnify, defend or hold Seller harmless from and against
any Claims or Liabilities, incurred after the Closing Date, 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 Claims or Liabilities that may be incurred by Buyer
arising from: (i) any breach of any representation or warranty; or (ii)
any breach of any covenant, obligation or agreement of Seller contained
herein; or (iii) except as provided in Article 4, any and all Claims
or Liabilities arising out of or relating to the ownership or operation
of the Exchanges and Assets prior to Closing provided such Claims or
Liabilities are incurred on or prior to the Closing Date.
7.4 Seller's Indemnification Threshold. Except for
__________________________________
liabilities referenced in Section 6.1(B), Seller shall not be required
to indemnify, defend or hold Buyer harmless from and against any Claims
or Liabilities, incurred on or before the Closing Date, unless and
until such amount exceeds the "Indemnity Threshold", and Seller shall
only be obligated to indemnify Buyer with respect to amounts that
exceed the Indemnity Threshold and then 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 Claims or 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 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 and Liabilities shall
only apply to those Claims or Liabilities for outside plant
indemnification, notice of which is given pursuant to this
Agreement to the other party on or before the expiration of the
19
<PAGE>
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, or 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 or
Liabilities including but not limited to environmental Claims and
Liabilities, occurring prior to Closing.
7.7 Notice of Indemnification. 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 or Liability, within 60 business days, and, when
known, the facts constituting the basis for such Claim. In the event
that any notice of a right for indemnification is made hereunder as a
result of or in connection with any Claim or Liability 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
Claim or Liability arising therefrom. The Indemnified Party shall not
settle or compromise any Claim or Liability 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 the Indemnified Party and the Indemnifying Party
shall not have taken control of such suit after notification thereof
as provided in Section 7.7.
7.8 Defense by Indemnifying Party. In connection with any
_____________________________
Claim or Liability 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 expense. If the Indemnifying Party does not assume the defense
of any such Claim or Liability resulting therefrom, (a) the Indemnified
Party may defend against such Claim or Liability, in such manner as it
may deem appropriate, including, but not limited to, settling such
Claim or Liability (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
20
<PAGE>
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 Claims or 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 Claims or Liabilities, then the Indemnified Party's
indemnification for Claims or Liabilities shall be limited to any
deductible and amounts in excess of the amounts actually collected by
the Indemnified Party for such Claims or Liabilities.
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.
B. If any Governmental Approval contains terms and
conditions unacceptable to Buyer, in Buyer's sole discretion, Buyer
shall not be obligated to effect the Closing and may terminate this
Agreement.
21
<PAGE>
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, in Seller's sole 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 discovered 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) and
for the provisions of Section 6.3(A), 6.3(B), and 6.3(C), without
further liability on the part of any party hereto or its respective
shareholders, directors, officers or employees in respect thereof,
except as follows: (i) nothing herein shall relieve any party from
liability for any breach of this Agreement prior to termination under
Sections 8.1, 8.2 or 8.3, and (ii) the obligations of the parties
hereto set forth in Section 11.6 shall not be affected by a termination
of this Agreement.
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 ninety (90) days following such
termination: (i) all property taxes paid or incurred by Buyer on the
assets constructed pursuant to the SOWs 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.
22
<PAGE>
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
measures set forth below:
A. Collection of Accounts Receivable. In the event Buyer
_________________________________
purchases the Accounts Receivables, 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 WUTC, 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 Exchanges and Assets shall be resolved by arbitration,
as prescribed herein. The Federal Arbitration Act, 9 U.S.C.
23
<PAGE>
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"), 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 Bulk Sales. Buyer hereby waives compliance with the
__________
provisions of any applicable laws relating to bulk transfers in
connection with the transactions contemplated by this Agreement,
including without limitation the provisions of the Washington Revised
Code regarding bulk transfers.
24
<PAGE>
11.3 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
with a copy (which shall not constitute notice) to:
U S WEST, Inc.
7800 East Orchard Road
Englewood, CO 80111
Attention: Associate General Counsel
Corporation 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
11.4 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.
11.5 Commissions. Each party represents and warrants that it
___________
has dealt with no broker or finder in connection with this
25
<PAGE>
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.
11.6 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.
11.7 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.
11.8 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.
11.9 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.
11.10 Assignment. Except as set forth in Section 6.1(B), 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.
11.11 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.
11.12 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
26
<PAGE>
of those facilities hereunder to the Buyer as approved by the FCC and
the WUTC.
11.13 Governing Law. This Agreement shall be construed in
_____________
accordance with the laws of the State of Washington.
11.14 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 extent, shall not be affected thereby, and
each provision of this Agreement shall be enforced to the fullest
extent allowed by law.
11.15 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.
11.16 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.
11.17 Integration. This Agreement, and the SOWs and 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.
27
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed
it as of the date first above written.
BUYER:
TELEPHONE UTILITIES OF PACIFIC TELECOM, INC.,
WASHINGTON, INC., a Washington corporation
A Washington Corporation
By: JAMES H. HUESGEN By: JAMES H. HUESGEN
_____________________________ ____________________________
Its: Executive Vice President & Its: Executive Vice President &
Chief Financial Officer Chief Financial Officer
____________________________ ___________________________
Date: May 5, 1994 Date: May 5, 1994
___________________ ___________________________
SELLER:
U S WEST COMMUNICATIONS, INC.,
a Colorado corporation
By: JOHN SCULLY
_____________________
Its: President and CEO
____________________
Date: 5/6/94
___________________
28
<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, all
assets as identified on Seller's Continuing Property Records (CPRs) and
such other assets as set forth in Schedule 6.3(J), except the Excluded
Assets, of whatever kind, character and description, and those assets
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 WUTC to operate the System in the State of Washington.
For purposes of this Agreement, Authorities does not include Seller's
applications for Authorities before the FCC and WUTC.
(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
29
<PAGE>
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;
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.
"Business" means the wireline telecommunications business of the
Exchanges as related to the Assets, the Property and the Authorities
in the State of Washington.
"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, as 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
30
<PAGE>
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 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.
"Environmental Law" means the National Environmental Policy Act
("NEPA") and mandated environmental assessments, Resource Conservation
and Recovery Act of 1976, 42 U.S.C. Sections 6901-6987, as amended by the
Hazardous and Solid Waste Amendments of 1984, the Compensation and
Liability Act, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Sections 9601-9657, the Hazardous
Materials Transportation Act of 1975, 49 U.S.C. Sections 1801-1812, the Toxic
Substances Control Act, the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. Section 136
et seq., the Clean Water Act, 33 U.S.C. Section 1251 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. Section 9601 et seq., the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA"), and any substantially
similar state or local environmental law and any of these law(s) as may
be amended from time to time.
"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) the properties, assets, privileges, rights and interests
(whether tangible or intangible, real, personal or mixed), if any, as
being excluded from the Assets to be transferred to Buyer; (c) any
insurance policy, bond, letter of credit, or other similar item, and
any cash surrender value in regard thereto; (d) all books and records
that Seller is required by law to retain or that relate solely to
internal corporate matters; (e) 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; (f) any pension, profit sharing or employee benefit plans; (g)
any assets, interests or property of Seller used in the operation of
any business conducted by Seller other than the operation of the
Assets; (h) the name U S WEST and all similar names and related
31
<PAGE>
marks and logos used or owned in connection with the provision of
telecommunications services in the Exchanges; (i) all portable test
equipment; (j) motor vehicles and associated motor vehicle general
stock; (k) materials and 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; (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; (n)
backbone transiting toll facilities and associated fiber equipment as
shall be mutually agreed to between Buyer and Seller and as shall be
set forth on Schedule 1.1 within sixty (60) days of the date of this
Agreement.
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.
"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.
"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 any of the Assets or to any person
or require remediation at the behest of any federal, state, or local
governmental agency under any Environmental Law.
"Liabilities," except as otherwise provided in this Agreement,
any and all obligations for Claims arising out of or relating to
Buyer's ownership or operation of the 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.
32
<PAGE>
"Net Book Value" means gross plant minus accumulated
depreciation which is true and accurate in all material respects and
accounted for on a consistent basis.
"WUTC" means the Washington Utilities and Transportation
Commission in the State of Washington.
"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 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.
"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.
"USF" means the federal Universal Service Fund.
33
<PAGE>
EXHIBITS
EXHIBIT A
LIST OF EXCHANGES
The above mentioned exhibit has been omitted. The Company agrees to
furnish supplementally a copy of the omitted exhibit to the Commission
upon request.
SCHEDULES
TABLE OF SCHEDULES
1.1 BACKBONE TRANSITING TOLL FACILITIES
1.3 (C) 12/31/93 NET BOOK VALUE OF THE ASSETS
2.4 ADDITIONAL AGREEMENTS
5.1(C) GOVERNMENTAL AUTHORIZATIONS NECESSARY FOR BUYER TO
CONSUMMATE THE TRANSACTION
5.1(E) LITIGATION - BUYER
5.2(A) CORPORATE AUTHORIZATION NECESSARY FOR SELLER TO
CONSUMMATE THE TRANSACTION
5.2(D) GOVERNMENTAL AUTHORIZATIONS NECESSARY FOR SELLER TO
CONSUMMATE THE TRANSACTION
5.2(E) LITIGATION - SELLER
6.1(C) CONTRACTS TO BE ASSUMED BY BUYER
6.3(H) ENVIRONMENTAL PROJECTS
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 2C
STOCK PURCHASE AGREEMENT
BY AND AMONG
AT&T CORP.,
PACIFIC TELECOM, INC.
AND
ALASCOM, INC.
DATED October 1, 1994
<PAGE>
TABLE OF CONTENTS
SECTION 1
SALE, PURCHASE AND TRANSFER OF ALASCOM STOCK
<TABLE>
<S> <C> <C>
1.1 Purchase and Sale..............................1
1.2 Consideration .................................1
1.3 Assumptions .................................2
</TABLE>
SECTION 2
REPRESENTATIONS AND WARRANTIES
OF PTI AND ALASCOM
<TABLE>
<S> <C> <C>
2.1 Due Authorization and Execution................3
2.2 Organization .................................3
2.3 Alascom Subsidiaries...........................3
2.4 Capitalization ................................3
2.5 Ownership of Shares ...........................4
2.6 Financial Statements ..........................4
2.7 Title to Assets ...............................4
2.8 Contracts, Agreements and Commitments..........4
2.9 Agreement Will Not Cause Breach................5
2.10 Real Property .................................5
2.11 Filings .................................7
2.12 Compliance with Law............................7
2.13 Litigation .................................7
2.14 Fees, Commissions and Expenses.................7
2.15 Absence of Change..............................8
2.16 No Undisclosed Liabilities.....................9
2.17 Regulatory Status..............................9
2.18 Regulatory Compliance..........................9
2.19 Environmental Protection.......................9
2.20 Labor Matters ................................11
2.21 Employee Benefit Plans........................11
2.22 Tax Matters .................................13
2.23 Insurance .................................15
2.24 Technology .................................15
2.25 Occupational Health and Safety ...............16
2.26 Worker's Compensation ........................17
2,27 Status of Real Property ......................17
2.28 JSA Claims .................................17
2.29 Information True and Correct .................17
</TABLE>
i
<PAGE>
SECTION 3
REPRESENTATIONS AND WARRANTIES OF AT&T
<TABLE>
<S> <C> <C>
3.1 Due Authorization and Execution...............17
3.2 Organization and Authority ...................18
3.3 Agreement Will Not Cause Breach...............18
3.4 Filings ...............................18
3.5 Investment Intent.............................18
3.6 Investigation and Experience..................18
3.7 Restricted Securities; Transfer Restrictions..19
3.8 Accredited Investor...........................19
3.9 Fees, Commissions and Expenses................19
3.10 Regulatory Status.............................19
3.11 JSA Claims....................................19
</TABLE>
SECTION 4
ADDITIONAL COVENANTS AND AGREEMENTS
<TABLE>
<S> <C> <C>
4.1 Access to Information.........................20
4.2 Conduct of Business...........................20
4.3 Limitation on Hiring..........................23
4.4 Regulatory Actions............................23
4.5 Novation of Government Contracts..............23
4.6 Other Consents................................24
4.7 Assignment of Certain Claims..................24
4.8 Employees ................................25
4.9 Termination of Intercompany Obligations.......25
4.10 Unpaid Benefit Expenses.......................26
4.11 Tax Provisions................................26
4.12 Environmental Inspection......................30
4.13 Covenants Not to Compete or Disclose..........33
4.14 Employee Benefit Plans........................34
4.15 Post-Closing Transactions.....................34
4.16 Covenants of Best Efforts and Good Faith......34
</TABLE>
SECTION 5
CONDITIONS TO CLOSING OF PTI AND ALASCOM
<TABLE>
<S> <C> <C>
5.1 Representations and Warranties ...............35
5.2 Performance ................................35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
5.3 Litigation ..............................35
5.4 Officer's Certificate.........................35
5.5 FCC and APUC Consent..........................35
5.6 Opinion of AT&T's Counsel.....................35
5.7 HSR Waiting Period; Prohibitions..............35
5.8 Representation Letter of AT&T ................35
</TABLE>
SECTION 6
CONDITIONS TO CLOSING OF AT&T
<TABLE>
<S> <C> <C>
6.1 Representations and Warranties................36
6.2 Performance ................................36
6.3 Litigation ................................36
6.4 Officers Certificate..........................36
6.5 FCC and APUC Consent..........................36
6.6 Opinions of PTI's Counsel.....................36
6.7 HSR Waiting Period; Prohibitions..............36
6.8 Comfort Letter................................36
6.9 Confirmed Audit...............................37
6.1 Accumulated Cash Flow.........................37
6.11 Use of Facilities.............................37
6.12 Taxes ..............................37
</TABLE>
SECTION 7
CLOSING, EXCHANGE AND DELIVERY
<TABLE>
<S> <C> <C>
7.1 Closing Date and Place of Closing.............37
7.2 Exchange and Delivery.........................37
</TABLE>
SECTION 8
TERMINATION
<TABLE>
<S> <C> <C>
8.1 Right of Parties to Terminate.................38
8.2 Effect of Termination.........................38
</TABLE>
SECTION 9
SURVIVAL OF REPRESENTATIONS
SECTION 10
INDEMNIFICATION
iii
<PAGE>
<TABLE>
<S> <C> <C>
10.1 Indemnification by AT&T ......................39
10.2 Indemnification by PTI........................40
10.3 Environmental Indemnity.......................40
10.4 Procedure for Indemnification.................41
10.5 Limitations ................................42
</TABLE>
SECTION 11
CONFIDENTIALITY
<TABLE>
<S> <C> <C>
11.1 Confidential Information......................42
11.2 Use of Confidential Information...............43
11.3 Return of Information.........................43
11.4 Securities Laws...............................43
11.5 Survival ................................43
</TABLE>
SECTION 12
MISCELLANEOUS
<TABLE>
<S> <C> <C>
12.1 Governing Law ................................44
12.2 Successors and Assigns........................44
12.3 Entire Agreement..............................44
12.4 Notices .................................44
12.5 Severability .................................45
12.6 No Third-Party Beneficiaries..................45
12.7 Counterparts ................................45
12.8 Construction and Interpretation...............45
12.9 Expenses .................................46
12.10 Public Statements and Press Releases..........46
12.11 Exclusive Dealings............................46
12.12 Specific Performance..........................46
12.13 Termination Fees..............................47
12.14 Assignment ..................................47
12.15 Time of the Essence...........................47
</TABLE>
Exhibit A Alascom Related Obligations
Exhibit B Form of Monthly Financial Statements
iv
<PAGE>
v
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made as of the
first day of October, 1994, by and among AT&T Corp., a New York
corporation, having its principal place of business at 32 Avenue of the
Americas, New York, NY ("AT&T"), Pacific Telecom, Inc., a Washington
corporation, having its principal place of business at 805 Broadway,
Vancouver, WA ("PTI") and Alascom, Inc., an Alaska corporation having
its principal place of business at 210 East Bluff Road, Anchorage, AK
("Alascom")
R E C I T A L S:
_______________
WHEREAS, PTI owns all of the issued and outstanding shares
of common voting stock of Alascom ("Alascom Stock"); and
WHEREAS, AT&T wishes to acquire, pursuant to the stock
purchase contemplated herein and subject to all the terms and
conditions hereof, the Alascom Stock from PTI, and PTI wishes to sell
to AT&T the Alascom Stock:
A G R E E M E N T:
_________________
NOW, THEREFORE, in consideration of the foregoing premises,
the mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto agree as follows:
SECTION 1
Sale, Purchase and Transfer of
Alascom Stock
______________________
1.1 PURCHASE AND SALE. PTI owns all of the issued and
_________________
outstanding Alascom Stock. Subject to all the terms and conditions
hereof and in reliance on the representations and warranties contained
herein, PTI agrees to sell all the Alascom Stock to AT&T and AT&T
agrees to buy all the Alascom Stock from PTI for the amount of
consideration set forth in Section 1.2.
1.2 CONSIDERATION.
_____________
(a) The consideration for all the Alascom Stock, for
settlement of the JSA Claims, and for the provision of services under
the Post Closing Services Agreement shall be Two Hundred
Ninety Million Dollars ($290,000,000) (the "Purchase Price"), of
which Two Hundred Sixty-Seven Million One Hundred Thousand
Dollars ($267,100,000) shall be consideration for the Alascom
Stock and the Post Closing Services Agreement and Twenty-two
1
<PAGE>
Million Nine Hundred Thousand Dollars ($22,900,000) shall be
consideration for the settlement of the JSA Claims.
(b) On the Closing Date (as hereinafter defined),
subject to the terms and conditions hereof and in reliance upon the
representations, warranties and agreements contained herein, (i) PTI
agrees to sell and deliver to AT&T, and AT&T agrees to purchase from
PTI all of the Alascom Stock, and (ii) AT&T agrees to deliver to PTI
Two Hundred Sixty Million Dollars ($260,000,000), by wire transfer of
immediately available funds to a bank and account designated in writing
by PTI.
(c) Upon execution of this Agreement, AT&T shall
deliver to PTI Thirty Million Dollars ($30,000,000) as a deposit
towards the Purchase Price by wire transfer of immediately available
funds to a bank and account designated in writing by PTI. The
$30,000,000 deposit shall be refundable to AT&T if this Agreement is
terminated prior to Closing, which refund may be implemented, at the
sole election of PTI and Alascom, by having Alascom credit the
$30,000,000 towards the payment of the second $75,000,000 transitional
payment (the "Second FRD Payment") due from AT&T on December 31, 1995
pursuant to the Federal Communications Commission's May 19, 1994
Memorandum Opinion and Order in CC Docket No. 83-1376 (the "FCC
____________________________
Final Order").
1.3 ASSUMPTIONS
___________.
(a) AT&T shall assume all debts, obligations and
liabilities of PTI which are related to Alascom and which are set forth
in Exhibit A, attached hereto and incorporated herein by reference.
(b) Except as expressly set forth herein, neither
AT&T, PTI nor Alascom assumes any liabilities or obligations of any
other party hereto to any third party, whether such liabilities are
known or unknown. AT&T shall not assume responsibility in any way,
directly or indirectly, for liabilities of Alascom or PTI that are
attributable to events or causes of action that arose in connection
with the provision of telecommunications service by Alascom, from or
within Alaska prior to the Closing Date. Neither PTI nor Alascom shall
assume responsibility in any way, directly or indirectly, for
liabilities of AT&T that are attributable to events or causes of action
that arose in connection with the provision of telecommunications
service by AT&T under the JSA to, from, or within Alaska prior to the
Closing Date. These liabilities or contingent liabilities include but
are not limited to liabilities arising out of litigation or other
claims with respect to rates, taxes, contracts, torts (including
business torts) or regulatory action. AT&T, PTI and Alascom shall each
take all reasonable actions (including the posting of bonds) which may
be necessary to prevent any person, firm or governmental authority from
having recourse against the others for any such liabilities, contingent
liabilities, claims or causes of action.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF PTI AND ALASCOM
_________________________________________________
PTI and Alascom hereby represent and warrant to AT&T
that, except as set forth in Alascom's disclosure schedule
attached hereto and incorporated herein by reference ("Alascom
2
<PAGE>
Disclosure Schedule"), the following representations and warranties are
true and correct on the date hereof.
2.1 DUE AUTHORIZATION AND EXECUTION. PTI and Alascom have
_______________________________
all necessary corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated herein. The
Boards of Directors of PTI and Alascom have duly authorized and
approved the execution and delivery of this Agreement and the
performance by PTI and Alascom of their obligations under this
Agreement. No other corporate proceeding or action on the part of PTI
and Alascom is necessary to authorize and approve the execution and
delivery of this Agreement or the performance by PTI and Alascom of
their obligations under this Agreement. This Agreement has been duly
and validly executed and delivered by PTI and Alascom and, assuming due
execution and delivery by AT&T, constitutes the legal, valid and
binding obligation of PTI and Alascom enforceable against PTI and
Alascom in accordance with its terms, except as such enforcement may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the enforcement of
creditors' rights in an action (whether considered at law or in equity)
generally or (b) equitable principles (whether considered in an action
at law or in equity).
2.2 ORGANIZATION. Each of PTI and Alascom is a corporation
____________
duly organized, validly existing and in good standing under the laws
of their respective states of incorporation. Alascom has all requisite
corporate power and authority to own, operate and lease its properties
and to carry on its business as now conducted. Alascom is duly
qualified or licensed to do business as a foreign corporation and is
in good standing in the states of California, Hawaii and Washington,
which are all the other jurisdictions that require such qualification
or licensing except where the failure to so qualify would not, in the
aggregate, have a material adverse effect on Alascom. PTI and Alascom
have provided to AT&T complete correct copies of its charter and
bylaws, each as amended to the date hereof.
2.3 ALASCOM SUBSIDIARIES. Alascom does not own, directly
____________________
or indirectly, 50% or more of the outstanding voting stock of any other
corporation and does not control nor is a general partner of any
partnerships.
2.4 CAPITALIZATION. Alascom's authorized capital stock
______________
consists of 10,000,000 shares of Common Stock, Twenty Dollars ($20.00)
par value, of which 3,603,740 shares are issued and outstanding. All
of the issued and outstanding shares of Alascom Stock are duly
authorized and validly issued, fully paid and nonassessable, with no
liability attaching to the holders thereof. The Alascom Stock is not
registered pursuant to the Securities Act of 1933 or under any
applicable state securities law. There are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or
issued by or binding upon Alascom for the purchase or acquisition of
any shares of its capital stock. Alascom is not subject to
any obligation, contingent or otherwise, (a) to repurchase shares of
Alascom Stock, (b) to issue or sell any shares of its
capital stock of any class or any securities convertible into
or exchangeable for any such shares, and no authorization
therefor has been given, or (c) to declare or pay a dividend
3
<PAGE>
on shares of Alascom Stock. All the issued and outstanding debt
securities of Alascom are identified in the Alascom Disclosure
Schedule.
2.5 OWNERSHIP OF SHARES. The Alascom Stock is owned
___________________
beneficially and of record by PTI free and clear of all liens, claims,
charges, encumbrances and restrictions. On the Closing Date, PTI will
have, without restriction and free and clear of all liens, claims,
charges and encumbrances, the full right, power and authority to
transfer all the shares of Alascom Stock to AT&T free and clear of any
liens, claims, encumbrances, charges and restrictions. There are no
voting trusts or agreements of similar effect to which the Alascom
Stock is subject and the transfer of the Alascom Stock to AT&T pursuant
to this agreement will not constitute (a) a breach or violation of or
default under any deed of trust, agreement or other instrument by which
PTI or the Alascom Stock may be bound nor (b) a violation of any law
or applicable order of any court or governmental agency.
2.6 FINANCIAL STATEMENTS. PTI and Alascom have provided to
____________________
AT&T the audited balance sheets of Alascom as of December 31, 1993 and
1992, and the related statements of income, shareholders' equity and
cash flows of Alascom for the two years ended December 31, 1993 , all
of which statements are accompanied by an auditor's report issued by
Deloitte & Touche, independent auditors ("Alascom Balance Sheet"). In
addition, PTI and Alascom have provided to AT&T the unaudited balance
sheet of Alascom as of August 31, 1994 (the "Alascom Balance Sheet
Date")and related unaudited statements of income, shareholders' equity
and cash flows of Alascom for the eight-month period ending on August
31, 1994. The audited and unaudited financial statements of Alascom
(and the notes with respect thereto) referred to in this Section 2.6
shall hereinafter collectively be referred to as the "Alascom Financial
Statements". The Alascom Financial Statements present fairly in all
material respects the financial position of Alascom as of the
respective dates indicated and the results of operations for the
respective periods indicated and, except for the absence of certain
notes thereto in the case of the unaudited financial statements of
Alascom, have been prepared in conformity with generally accepted
accounting principles consistently applied ("GAAP"), except as noted
therein, and the Vice President/Controller of PTI and, as to the
audited statements, Alascom's external auditors have so certified.
2.7 TITLE TO ASSETS. Alascom has good title to all material
_______________
assets reflected on the Alascom Balance Sheet (other than assets
disposed of since the Alascom Balance Sheet Date in the ordinary course
of business, which assets are not in the aggregate material to Alascom)
except for (1) liens for current taxes and assessments not yet past
due; (2) inchoate mechanics' and materialmen's liens for construction
in progress; and (3) workmen's, repairmen's, warehousemen's and
carriers' liens arising in the ordinary course of business. Alascom
owns or has rights to all assets necessary to conduct its business as
currently conducted.
2.8 CONTRACTS, AGREEMENTS AND COMMITMENTS. (a) Each of the
_____________________________________
contracts, agreements, leases, licenses and instruments to
which Alascom is a party or is bound which would require
over the full term thereof payments by or to Alascom of more
than $100,000 and which could not be terminated by Alascom
without liability on thirty days notice or less (individually a
4
<PAGE>
"Contract" and collectively the "Contracts") is a valid and binding
obligation of Alascom and, to the knowledge of Alascom, the other party
or parties thereto, enforceable in accordance with its terms. (b)
There have been no uncured or unwaived defaults by Alascom or, to the
knowledge of Alascom, the other party or parties thereto, under any of
the Contracts, and there are no facts or conditions that have occurred
or that are anticipated to occur which, through the passage of time or
the giving of notice, or both, would constitute a default by Alascom
or, to the knowledge of Alascom, by the other party or parties thereto,
or would cause the acceleration of any obligation of any party thereto
or the creation of a lien, mortgage, pledge, charge or encumbrance of
any kind upon any asset of Alascom. (c) Neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated herein will require the consent of any party to any
Contract. (d) Alascom is not currently renegotiating any Contract or
paying liquidated damages or any other amounts in lieu of performance
of such Contract. (e) There are no claims or disputes affecting any
Contract of any kind pending.
2.9 AGREEMENT WILL NOT CAUSE BREACH. Neither the execution
_______________________________
and delivery of, nor the consummation of the transactions contemplated
in, this Agreement will result in any of the following: (a) a default
or an event that, with notice or lapse of time, or both, would
constitute a default, breach or violation of (i) the charter, bylaws
or other governing instruments of Alascom or PTI or (ii) any contract,
agreement, license or instrument to which Alascom or PTI is a party or
by which it or its properties are bound; (b) an event that would permit
any person or entity, to terminate any contract, agreement, license or
instrument to which Alascom is a party or by which any of its
properties is bound or to accelerate the maturity of any indebtedness
or other obligation of Alascom; (c) the creation or imposition of any
lien, mortgage, pledge, charge or encumbrance of any kind upon any
asset of Alascom; (d) a violation or breach of any statute, ordinance,
rule or regulation applicable to Alascom or PTI or any writ, injunction
or decree of any court or governmental instrumentality to which Alascom
or PTI is a party or by which any of its properties is bound; (e) a
loss or adverse modification of any license, franchise or other
authorization granted to or otherwise held by Alascom; or (f) except
with regard to those matters discussed in Section 2.11 below, the
necessity to obtain the consent or approval of, or give notice to or
register with any government or nongovernment third party.
2.10 REAL PROPERTY. (a) The Alascom Disclosure Schedule
_____________
sets forth a summary description of all of the land, buildings and
other real property owned by Alascom (the "Owned Real Property"),
including a brief description of buildings and improvements thereon,
the name of the title holder thereto and the location thereof, the
nature of the ownership interest therein, and any indebtedness secured
by a mortgage or a lien thereon. Complete and correct copies of any
existing policies of title insurance of which Alascom is a beneficiary
and surveys with respect to the Owned Real Property, together with
legal descriptions thereof, have been delivered to AT&T.
(b) The Alascom Disclosure Schedule sets forth a
summary description of all of the land, buildings and other real
property leased by Alascom (the "Leased Real Property"), including in
each case the annual rental payable and the expiration date, option
periods and purchase options (if any), the nature of the leasehold
or other interest therein, and a brief description of the property
covered by the lease to such Leased Real Property and any
5
<PAGE>
improvements thereon. True and complete copies of all leases to the
Leased Real Property (the "Leases") have been made available to AT&T.
The Leases are in full force and effect according to their terms,
constitute the legal, valid and binding obligations of the respective
parties thereto and have not been amended or modified except as
disclosed in writing to AT&T. All rents and other payments required
to be made with respect to the Leased Real Property are current.
Alascom is not in default with respect to any of the Leased Real
Property, nor has any event occurred which with the passage of time,
the giving of notice, or both, would constitute an event of default or
otherwise would place Alascom in default under any of the Leases;
Alascom has not received any notice of any such default or event; and,
to the best of Alascom's knowledge, no landlord is in default under any
of the Leases, and no event has occurred which with the passage of
time, the giving of notice, or both, would constitute an event of
default or otherwise place any landlord in default thereunder. Between
the date hereof and the Closing Date, Alascom will not take any action
or fail to take any action which would permit any such default to occur
on its part. Alascom is not currently renegotiating any of the Leases
or paying liquidated damages or other amounts in lieu of performance
of any such Lease.
(c) The Owned Real Property and the Leased Real
Property (collectively, the "Real Property") comprise all of the real
estate used in, or necessary to conduct, the business operations, are
suitable for the purposes presently used by Alascom, and such use and
occupancy is in conformance with all applicable laws, rules,
regulations, permits, restrictive covenants, or deed restrictions.
With the exception of the Real Property, Alascom has no other interests
in real property.
(d) There are no parties in possession of any portion
of the Real Property as lessees or sublessees thereof, tenants at
sufferance or occupants period to period or, to the knowledge of
Alascom, trespassers.
(e) Alascom has not received written notice of any
pending or threatened special assessments affecting the Real Property,
or any part thereof, and Alascom has not received any written notice
that any such assessment has been proposed by any governmental
authority. All real estate taxes and penalties and interest due and
payable on or before the date hereof and for which Alascom is primarily
liable have been paid in full, except for any taxes, penalties and
interest being contested by Alascom in good faith, for which adequate
reserves have been provided in the Alascom Financial Statements.
(f) Except that the following representation is made
only to the best knowledge of Alascom with respect to unmanned sites,
the location, construction, occupancy, operation or use of the Real
Property (including the buildings, improvements, fixtures and equipment
located thereon) do not contravene any applicable requirements of law,
or any restrictive covenant or deed restriction (recorded or
otherwise), or any permit, affecting any of such property.
(g) There is no pending, or to the best of Alascom's
knowledge, threatened, litigation or administrative proceeding
(including but not limited to condemnation) which could adversely
affect title to the Real Property or any part thereof or the ability
of Alascom to perform any of its obligations hereunder or otherwise
affect the Real Property in any way. Alascom has not received any
notice of any action or proceeding pending, threatened or proposed to
change the zoning, master or site plan or building or other land use
ordinances affecting the Real Property, or to condemn any such
property.
6
<PAGE>
(h) Alascom has no knowledge of any condition, whether
occurring naturally or from any cause whatsoever, which prevents any
of the Real Property from having sufficient subjacent or lateral
support to adequately support any existing buildings or other
improvements, nor does any such existing building or other improvement
have defects not disclosed to AT&T by PTI.
(i) PTI has previously delivered to AT&T copies of any
required certificates of occupancy with respect to the Real Property.
2.11 FILINGS. Other than in connection with, or in
_______
compliance with, the Alaska Public Utilities Commission's rules and
regulations ("APUC"), the Federal Communications Commission rules and
regulations ("FCC"), and the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended ("HSR Act"), no authorization, consent or
approval of any domestic or foreign court or any public or governmental
body or authority is necessary for the consummation by PTI or Alascom
of the transactions contemplated in this Agreement.
2.12 COMPLIANCE WITH LAW. Alascom is not in violation of any
___________________
federal, state or local laws, regulations or orders relating to the
operation, conduct or ownership of the property or business of Alascom.
Alascom has filed all reports and other filings required to be filed
under applicable requirements of law in respect of its ownership, use,
or operation of its property. Alascom has all licenses, permits and
certificates from governmental agencies necessary for the conduct of
its business as now conducted. No claim has been made by any
governmental authority to the effect (a) that the business conducted
by Alascom fails to comply, in any respect, with any law, rule,
regulation or ordinance or (b) that a license, permit or order is
necessary with respect thereto (without such license, permit or order
having been obtained promptly after the receipt of notice of such
claim).
2.13 LITIGATION. There are no actions, suits, proceedings
__________
(whether adjudicatory, rulemaking, licensing or otherwise) or
investigations current or pending, or, to the best of PTI's or
Alascom's knowledge, threatened, in law or in equity, or by or before
any federal, state, municipal court or other governmental agency, or
before any arbitrator, by or against PTI or Alascom or which adversely
affects or may adversely affect Alascom or its assets, properties, or
business. To the best of PTI's or Alascom's knowledge, there is no
reasonable basis for any as yet unasserted claim or action against PTI
or Alascom which might have an adverse effect on Alascom or its assets,
properties, or business or any Employee Benefit Plan or Represented
Employee Benefit Plan (as hereinafter defined). Neither PTI nor Alascom
has received any notice of any action, suit or proceeding pending or
threatened which questions the legality or propriety of the
transactions set forth in this Agreement or any of the agreements to
be entered into pursuant hereto. Neither Alascom nor any of its assets
is subject to any judicial injunction, restraining order or mandatory
injunction, or any equivalent administrative order.
2.14 FEES, COMMISSIONS AND EXPENSES. Neither Alascom nor PTI
______________________________
has paid or agreed to pay, or received any claim with respect to, any
brokerage commissions, finders' fees or similar compensation in
connection with the transactions contemplated in this Agreement.
7
<PAGE>
2.15 ABSENCE OF CHANGE. Except as provided in this
_________________
Agreement, since the Alascom Balance Sheet Date:
(a) Alascom has (i) conducted its business only in the
usual and ordinary course, (ii) operated the business in accordance
with past practices; and (iii) used its best efforts to preserve good
business relationships with its employees, customers, suppliers and
other persons having business relationships with it;
(b) there has not been any change in the condition
(financial or otherwise), assets, liabilities, capitalization, business
or prospects of Alascom, other than changes arising in the ordinary
course of business none of which individually or in the aggregate has
been or will be materially adverse to the business operations or
business assets of Alascom, and there has not been any material
nonrecurring or extraordinary income received by Alascom;
(c) Alascom has not made or promised to make any
increase in any salaries or other compensation or benefits of any of
its employees, except in accordance with past practices in the ordinary
course of business;
(d) there has been no material damage to, destruction
or loss of, or claim resulting from the operation of Alascom or any
Alascom properties (whether or not covered by insurance);
(e) Alascom has not suffered any strike and there have
been no labor organizing efforts or grievances, litigation or other
labor trouble affecting Alascom's relationship with its employees, and
Alascom has not entered into any agreement or negotiation with any
labor union or other representative of any of its employees;
(f) Alascom has not incurred any indebtedness for
borrowed money, except in the ordinary course of business;
(g) Alascom has not mortgaged, pledged or subjected to
any material lien, lease, security interest or other encumbrance any
of its properties or assets, tangible or intangible;
(h) Alascom has not acquired or disposed of any assets
or properties in any transaction with any of its officers, directors,
shareholders or monthly salaried employees, or any relative by blood
or marriage of any of them, on terms that are more favorable than arms'
length or, except in the ordinary course of business, acquired or
disposed of any assets or properties of material value in any
transaction with any other person;
(i) Alascom has not forgiven or canceled any debts or
claims, or waived any rights except in the ordinary course of business;
(j) Alascom has not incurred any other liabilities or
obligations or given any guarantee (whether absolute, accrued,
contingent or otherwise), other than liabilities incurred in the
ordinary course of business; and
(k) there has not been any declaration or payment of,
or any agreement to declare or pay, any dividend or distribution in
respect of any equity interest or any direct or indirect redemption,
purchase or other acquisition of any of the capital stock of Alascom,
except as otherwise provided for in this Agreement.
8
<PAGE>
2.16 NO UNDISCLOSED LIABILITIES. Alascom has no material
__________________________
liabilities, fixed or contingent, known or unknown, liquidated or
accrued, by agreement or by operation of law other than (a) liabilities
set forth in the Alascom Financial Statements, (b) liabilities accruing
after the Alascom Balance Sheet Date in the ordinary course of business
or in accordance with this Agreement, none of which is a liability
which would have a material adverse effect on Alascom, and
(c) liabilities otherwise reflected herein or in the Alascom Disclosure
Schedule.
2.17 REGULATORY STATUS. There are no regulatory,
_________________
administrative or judicial proceedings in which Alascom is a plaintiff,
defendant, respondent or other named party, an adverse decision in
which would interfere with the timely receipt of any governmental or
regulatory license, permit, consent, approval, authorization,
qualification or order necessary for consummation of the transactions
described in this Agreement or would otherwise preclude or materially
delay the consummation of the transactions contemplated hereby, and
Alascom has no knowledge of any facts which could give rise to any such
proceedings.
2.18 REGULATORY COMPLIANCE. The Alascom Disclosure Schedule
_____________________
contains a list of (1) all licenses, permits, authorizations and
certificates granted by the FCC, the APUC and other communications
agencies to Alascom ("Regulatory Authorizations"); (2) all applications
for licenses, permits, authorizations or certificates filed on behalf
of Alascom, and pending before the FCC, the APUC and other
communications agencies and the status of each; and (3) all pending
complaints, inquiries or requests for further information directed to
Alascom by the FCC, the APUC and other communications agencies and any
formal complaint filed with the FCC, without regard to the date of
filing, if such complaint has not been resolved by an order, decree,
ruling or other action, no longer subject to appeal, of any court of
competent jurisdiction in the United States or other Federal, State or
local government body ("Final Order"). Alascom has performed and
complied with and is performing and complying in all respects with all
of the terms and provisions of such Regulatory Authorizations, the
Federal Communications Act, applicable state and foreign statutes
governing telecommunications and the rules and regulations of the FCC,
the APUC and other communications agencies. No complaints or
proceedings are pending or, to the knowledge of Alascom, threatened
that might reasonably be expected to result in a judgment or
determination by the FCC, the APUC, any court, other communications
agency or any other tribunal having jurisdiction, resulting in the
revocation, modification, nonrenewal or suspension of any such
authorizations, licenses, certificates or permits, the denial of any
pending application, the issuance of a cease and desist order or the
imposition of any penalty or sanction.
2.19 ENVIRONMENTAL PROTECTION.
________________________
(a) "Environmental Laws" means the Clean Air Act (42
USC Section 7401, et seq.), the Federal Water Pollution Control Act (33 USC
Section 1251, et seq.), the Solid Waste Disposal Act as amended by the
Resource Conservation and Recovery Act and the Hazardous and Solid
Waste Amendments (42 USC Section 6901, et seq.), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as
amended by the Superfund Amendment and Reauthorization Act of 1986
("CERCLA") (42 USC Section 9601), the Hazardous Materials Transportation
Act (49 USC Section 1801, et seq.), the Toxic Substances Control Act
(15 USC Section 2601, et seq.) and all other applicable federal,
state, local and foreign environmental statutes, laws,
9
<PAGE>
regulations, ordinances, licenses, permits, judgments, writs, decrees,
injunctions, policy requirements, adopted standards or orders of any
governmental entity in force and effect as of the Closing Date and
pertaining to the protection of the natural environment, including air,
water, groundwater, soil, noise and odor. "Hazardous Substance" means
(i) any chemicals, materials or substances that are as of the date
hereof defined as, or listed or included in the definition of, or
otherwise classified as "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous waste," "restricted
hazardous waste," "infectious waste," "toxic substances" or any other
formulations intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity,
reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any
applicable laws or publications promulgated pursuant thereto, (ii) any
oil, petroleum or petroleum derived substance, (iii) any drilling
fluids, produced waters or other wastes associated with the
exploration, development or production of crude oil, natural gas or
geothermal resources, (iv) any flammable substances or explosives, (v)
any radioactive materials, (vi) asbestos in any form which is friable
(as that term is defined in 15 USC Sec. 2642), (vii) urea formaldehyde
foam insulation, (viii) electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls in
excess of 50 parts per million, (ix) pesticides or (x) any other
chemical, material or substance, exposure to which is prohibited,
limited or regulated by any governmental entity and which may or could
pose a substantial health or safety hazard. "Release" shall mean the
actual, suspected or threatened release, spill, emission, leaking,
pumping, escape, injection, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment or into or out of
any Real Property or any other site or area where Hazardous Substances,
for which Alascom has legal liability under the Environmental Laws
(regardless of whether any legal action has been taken to establish or
enforce such liability) have come to be located ("Alascom Sites"),
including the movement of Hazardous Substances through or in the air,
soil, improvements, surface water or groundwater of the Alascom Sites
in a concentration such that investigatory, removal, remedial or other
response action legally could be required by any governmental agency
or court under applicable Environmental Laws. For the purposes of this
Agreement, a Release shall be deemed to be suspected if and only if
there is significant objective evidence that a Release has occurred.
"Remedial Work" means actions, including investigations, sampling,
analysis, and feasibility studies, necessary to clean-up, remove,
remediate, respond to, treat, or prevent the migration of, Hazardous
Substances due to a Release on or off the Alascom Sites or in the
environment (including soil, air, improvements, surface water and
groundwater), and includes actions to treat and/or dispose of wastes
or contaminants removed from the Alascom Sites.
(b) To the best knowledge of PTI and Alascom, after
reasonable investigation, the operations of Alascom are in compliance
in all material respects with all applicable Environmental Laws, and
Alascom has obtained all permits required by any Environmental Law for
the current operations of Alascom.
(c) There are no pending or, to the best knowledge of
PTI and Alascom, threatened Environmental Claims against Alascom.
"Environmental Claim" means any claim (whether based on negligence,
statutory liability, strict liability or otherwise) for personal
injury, property damage, environmental response costs or damage to
natural resources made, asserted or prosecuted by or on behalf of any
third party or government arising out of or relating to the Release of
Hazardous Substances or violation of Environmental Laws.
10
<PAGE>
(d) To the best knowledge of Alascom and PTI, after
reasonable investigation, (i) Section 2.19 of the Alascom Disclosure
Schedule discloses the environmental condition of the Alascom Sites and
(ii) there has been no Release of any Hazardous Substance which will
or may require Remedial Work under any Environmental Laws that will
have a material adverse effect upon any Alascom Site.
2.20 LABOR MATTERS. There are no work stoppages, formal
_____________
grievances, complaints or allegations of unfair labor practices or
similar occurrences pending or, to the knowledge of Alascom, threatened
between Alascom and any of its employees.
2.21 EMPLOYEE BENEFIT PLANS.
______________________
(a) With respect to all employees and former employees
of Alascom, neither Alascom nor PTI presently maintains, contributes
to or has any liability under (i) any plan, program or arrangement
which is an "employee pension benefit plan" as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or an "employee welfare benefit plan" as defined
in Section 3(1) of ERISA or (ii) any other bonus plan, stock option
arrangement, deferred compensation arrangement, employment contract or
any other similar plan, program or arrangement providing benefits to
employees or former employees. The plans, programs and arrangements
set forth as such in the Alascom Disclosure Schedule and sponsored by
or administered by PTI or Alascom are herein referred to as the
"Employee Benefit Plans." The plans, programs and arrangements set
forth as such in the Alascom Disclosure Schedule and sponsored by or
administered by Local 959 of the International Brotherhood of Teamsters
are herein referred to as the "Represented Employee Benefit Plans."
(b) Favorable determination letters have been received
from the Internal Revenue Service with respect to each Employee Benefit
Plan which is intended to comply with the provisions of Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"),
evidencing compliance with the relevant provisions of the Code. Each
such Employee Benefit Plan complies in all respects in form and in
operation with the requirements of the Code and the regulations
promulgated thereunder, including the requirements of a "qualified
plan" under Section 401(a) of the Code. No event has occurred that
will or could give rise to a disqualification or loss of tax-exempt
status of any such plan or trust.
(c) With respect to each Employee Benefit Plan, Alascom
has not failed to comply in any respect with any of the applicable
reporting, disclosure or other requirements of ERISA and the Code
(including COBRA) and there has been no nonexempt "prohibited
transaction" as described in Section 4975 of the Code or Section 406
of ERISA. Alascom has performed all of its obligations under all such
Employee Benefit Plans. There are no claims, suits, proceedings,
actions, audits or investigations (other than routine claims for
benefits) pending or, to the knowledge of PTI or Alascom, threatened
against such plans or their assets, or arising out of such Employee
Benefit Plans. There has been no act or omission by Alascom under
Section 414(b), (c), (m) or (o) of the Code that has given rise to or
may give rise to any fine, penalty, excise tax or related charge under
the Code or ERISA with respect to the Employee Benefit Plans.
11
<PAGE>
(d) Alascom does not have any liability for or in
connection with or arising out of any retiree medical, dental, and life
insurance benefits provided or to be provided to employees or retired
employees of Alascom under the Employee Benefit Plans.
(e) With respect to any Employee Benefit Plan which is
subject to Section 412 of the Code or Section 302 of ERISA, there has
been no "accumulated funding deficiency" within the meaning of Section
302 of ERISA or Section 412 of the Code (whether or not waived) and all
required installment payments have been timely made on the due date for
such installment payment in accordance with Section 412(m) of the Code.
With respect to the Employee Benefit Plans, all benefits owed by
Alascom and all applicable contributions and premium payments for all
periods ending prior to the Closing Date (including periods from the
first day of the then current plan year to the Closing Date) shall be
made or accrued prior to the Closing Date in accordance with past
practice and, with respect to each Employee Benefit Plan subject to
Title IV of ERISA, no less than the recommended minimum contribution
in the applicable actuarial report. If any such Employee Benefit Plan
subject to Title IV of ERISA were terminated on the Closing Date, the
fair market value of the assets of such plan would equal or exceed the
liability under such plan, determined on a "termination" basis.
(f) With respect to any Represented Employee Benefit
Plan to which Alascom is obligated to contribute, Alascom has not
failed to make any required contribution for any and all periods prior
to the Closing Date.
(g) Alascom has not incurred any current liability for
complete or partial withdrawal from any "multiemployer plan," as such
term is defined in Section 3(37) of ERISA. Alascom will not incur any
current liability with respect to any multiemployer plan (excluding
Represented Employee Benefit Plans to which Alascom is obligated to
contribute prior to or on the Closing) to which Alascom or members of
its controlled group (as described in Section 4001(a)(14) of ERISA) are
or were obligated to contribute. PTI and Alascom have provided to AT&T
the most recent IRS Form 5500, with the actuarial valuation attached
thereto, for each multiemployer plan indicating the funding status of
such plans and the potential withdrawal liability should Alascom
withdraw from such plans. To the best knowledge of PTI and Alascom,
the IRS Form 5500 was prepared in accordance with the Code and the
regulations and administrative requirements of the Internal Revenue
Service.
(h) Alascom has not incurred any liability to the
Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA
(other than premium payments which are not yet due and owing) that will
remain unpaid on the Closing Date. Alascom will not incur any
liability with respect to any plan subject to Title IV of ERISA
(excluding Employee Benefit Plans maintained by Alascom after the
Closing) maintained by Alascom or members of its controlled group
(within the meaning of Section 4001(a)(14) of ERISA. No Employee
Benefit Plan subject to Title IV of ERISA has been terminated, and no
proceeding by the PBGC to terminate any Employee Benefit Plan pursuant
to Title IV of ERISA has been instituted or threatened, no notice of
any such termination has been received and no condition exists or event
has occurred with respect to any Employee Benefit Plan which presents
a risk of liability under Title IV of ERISA to Alascom.
(i) There is no contract, arrangement, agreement
or plan covering any employee or former employee of
Alascom that could give rise to the payment by Alascom,
12
<PAGE>
directly or indirectly, of any amount that could constitute or be
deemed to be a "parachute" payment within the meaning of Code Section
280G.
(j) With respect to each of the Employee Benefit Plans,
PTI and Alascom have provided to AT&T true and complete copies of the
following, as applicable: (i) the plan documents, including any
related trust agreements, insurance contracts or other funding
arrangements, or a written summary of the terms and conditions of the
plan if there is no written plan document; (ii) the most recent
determination letter received from the Internal Revenue Service;
(iii) the two most recent IRS Forms 5500 and PBGC-1; (iv) the two most
recent actuarial valuations; (v) the two most recent financial
statements; (vi) all correspondence with the Internal Revenue Service,
the Department of Labor and the PBGC with respect to the past three
plan years other than IRS Form 5500 filings and PBGC premium payments;
and (vii) the most recent summary plan description. None of the above
documents contains a material misstatement of fact.
2.22. TAX MATTERS
___________
(a) All Tax Returns for all periods ending on or
before the Closing Date that are or were required to be filed by or
with respect to Alascom, either separately or as a member of an
affiliated group of corporations, have been or will be filed on a
timely basis, and in accordance with the laws, regulations and
administrative requirements of each Taxing Authority. PTI will timely
file or cause to be filed all Tax Returns that will be required to be
filed after the Closing Date by or with respect to Alascom, either
separately or as a member of an affiliated group of corporations, for
all periods ending on or before the Closing Date in accordance with
applicable laws, regulations and administrative requirements. To the
best knowledge of PTI and Alascom, all such Tax Returns that have been
filed on or before the Closing Date were, when filed, and continue to
be, true, correct and complete. All such Tax Returns that are filed
after the Closing Date will, to the best knowledge of PTI, be true,
correct and complete when filed by PTI.
(b) PTI and Alascom have made available to AT&T all
reports of and written communications with respect to Alascom for all
open years from Internal Revenue Service agents and the corresponding
agents of other state, local and foreign governmental agencies who have
examined the respective books and records applicable to Alascom. The
Alascom Disclosure Schedule describes all adjustments to Tax Returns
filed by, or on behalf of, Alascom or any of its subsidiaries, for all
open taxable years, that have been proposed by any representative of
any Taxing Authority, and the Alascom Disclosure Schedule describes the
resulting Taxes, if any, proposed to be assessed. All deficiencies
proposed (plus interest, penalties and additions to tax that were or
are proposed to be assessed thereon, if any) as a result of such
examinations have been paid, reserved against, settled, or, as
described in the Alascom Disclosure Schedule, are being contested in
good faith by appropriate proceedings. Neither Alascom, nor PTI, nor
any affiliated party to any of them has given waivers or extensions (or
is or would be subject to a waiver or extension given by any other
entity) of any statute of limitations relating to the payment of Taxes
for which Alascom may be liable.
(c) Alascom has paid, or made provision for the
payment of, all Taxes that have or may become due for all periods
ending on or before the Closing Date, including, without limitation,
all Taxes reflected on the Tax Returns referred to in this
Section 2.22, or in any assessment, proposed assessment, or
notice, received by PTI, Alascom, or any affiliated party
13
<PAGE>
with respect to either Alascom or PTI, except such Taxes, if any, as
are set forth in the Alascom Disclosure Schedule that are being
contested in good faith and as to which adequate reserves (determined
in accordance with GAAP consistently applied) have been provided. The
charges, accruals and reserves with respect to Taxes on the books of
Alascom are determined in accordance with GAAP consistently applied and
are at least equal to Alascom's liability for Taxes. All Taxes that
Alascom is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to
the appropriate Taxing Authority. There are no liens with respect to
Taxes upon any of the properties or assets, real or personal, tangible
or intangible, of Alascom (except for Taxes not yet due).
(d) No consent to the application of
Section 341(f)(2) of the Code has been filed with respect to any
property or assets held or acquired or to be acquired by Alascom.
Neither PTI nor any of its affiliates shall make or cause to be made
any election that could result in any adverse tax consequences to
Alascom.
(e) There are no obligations under any tax sharing
agreement that may or will require that any payment be made by or to
Alascom after the Closing Date.
(f) No property owned by Alascom or any of the
Subsidiaries is property that AT&T or Alascom is or will be required
to treat as being owned by another person pursuant to the provisions
of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately before the enactment of the Tax Reform Act
of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
(g) Alascom (i) has not agreed to and is not required
to make any adjustment pursuant to Section 481(a) of the Code; (ii) has
no knowledge that the IRS has proposed any such adjustment or change
in accounting method with respect to Alascom, and (iii) does not have
any application pending with any Taxing Authority requesting permission
for any change in accounting method.
(h) PTI is not a foreign person within the meaning
of Section 1445 of the Code.
(i) There is no employment or employment related
contract, agreement, plan or arrangement covering any person that,
individually or collectively, as a consequence of this transaction
could give rise to the payment of any amount by AT&T or Alascom that
would not be deductible by AT&T or Alascom by reason of Section 280G
of the Code.
(j) Alascom does not own an interest in any (i)
domestic international sales corporation, (ii) foreign sales
corporation, (iii) controlled foreign corporation, or (iv) passive
foreign investment company.
(k) Alascom is not a party (other than as an
investor) to any industrial development bond.
(l) Alascom was not a party to any deferred
intercompany transaction that will be restored (pursuant to the
Section 1502 regulations) and will result in income or loss to Alascom
due to the contemplated transaction.
(m) During the consistency period (as defined in
Section 338(h)(4) of the Code with respect to the sale of the Alascom
Stock to AT&T) neither PTI nor any affiliate of PTI (as
defined in Section 338(h)(6) of the Code with respect to the
sale of the Alascom Stock to AT&T) has sold or will sell any
property or assets to AT&T or to any member of the affiliated
14
<PAGE>
group (as defined in Section 338(h)(5) of the Code) that includes AT&T.
The Alascom Disclosure Schedule lists all such PTI affiliates.
(n) To the actual knowledge of PTI and Alascom, the
affiliated group of which both PTI and Alascom are members (hereinafter
referred to as "PTI's Consolidated Group") has as its common parent a
corporation with respect to which AT&T or a member of AT&T's affiliated
group has never made an election under Section 338 of the Internal
Revenue Code of 1986, as amended. No member of PTI's Consolidated
Group has sold stock or assets to AT&T or any member of AT&T's
affiliated group (as defined by Section 1504 of the Code) after
January, 1990, other than in the ordinary course of its trade or
business.
(o) For purposes of this Agreement the following
terms shall have the meanings ascribed to them below:
(i) (a) "Income Taxes" means (i) federal, state
or local income or franchise taxes or other taxes imposed on or with
respect to net income or capital, together with any interest or
penalties or additions to tax imposed with respect thereto, and
(ii) any obligations under any agreements or arrangements with respect
to any Income Taxes described in clause (i) above.
(b) "Income Tax Returns" means federal, state or
local Tax Returns required to be filed with any Taxing Authority that
include any of Alascom or its subsidiaries that pertain to Income
Taxes.
(c) "Tax Returns" means returns, reports and
forms required to be filed with any Taxing Authority.
(d) "Taxes" means (i) any and all taxes (whether
federal, state, local or foreign) based upon or measured by income and
any other tax whatsoever, including, without limitation, gross
receipts, profits, sales, use, occupation, value added, ad valorem,
transfer, franchise, withholding, payroll, employment, excise, or
property taxes, together with any interest, penalties or additions to
tax imposed with respect thereto and (ii) any obligations under any
agreements or arrangements with respect to any Taxes described in
clause (i) above.
(e) "Taxing Authority" means any governmental
authority, domestic or foreign, having jurisdiction over the
assessment, determination, collection, or other imposition of Taxes.
(ii) the Closing Date shall be treated as
the last day of a taxable period whether or not the taxable period in
fact ends on the Closing Date.
2.23 INSURANCE. All physical properties and assets of
_________
Alascom are covered by fire and other insurance with responsible
companies against casualty and other losses as and to the extent
customarily obtained by companies engaged in the same general business.
Alascom is covered by public liability insurance in amounts believed
by PTI and Alascom to be reasonable and is covered for worker's
compensation in accordance with applicable state statutes.
2.24 TECHNOLOGY. Alascom owns, or is licensed or otherwise
__________
entitled to use rights to all patents, trademarks, trade
names, service marks, copyrights, mask work rights, trade
secret rights, and other intellectual property rights and any
applications therefor, and all maskworks, net lists, schematics,
technology, source code, know-how, computer software programs
and all other tangible information or material, that are
used or currently proposed to be used in the business of
15
<PAGE>
Alascom as currently conducted or as currently proposed to be conducted
within the twelve months following the date hereof (the "Alascom
Intellectual Property Rights"). The Alascom Disclosure Schedule lists
all patents, registered and unregistered copyrights, trade dress, trade
names trademarks, service marks and other company, product or service
identifiers, mask work rights, and any applications therefor, included
in the Alascom Intellectual Property Rights, and specifies the
jurisdictions in which each such Alascom Intellectual Property Right
has been issued or registered or in which an application for such
issuance and registration has been filed, including the respective
registration or application numbers. The Alascom Disclosure Schedule
also lists all licenses, sublicenses and other agreements as to which
Alascom is a party and pursuant to which Alascom or any other person
is authorized to use any Alascom Intellectual Property Right and
includes the identity of all parties thereto, a description of the
nature and subject matter thereof, the applicable royalty or other
consideration and the term thereof. Alascom is not as a result of the
execution and delivery of this Agreement or the performance of
Alascom's obligations hereunder will not be, in violation of any
license, sublicense or agreement described in the Alascom Disclosure
Schedule. Alascom has the right (and except as set forth in the
Alascom Disclosure Schedule is not contractually obligated to pay any
compensation to any third party in respect of the Alascom Intellectual
Property Rights) to the use of the Alascom Intellectual Property Rights
or the material covered thereby in connection with the services or
products in respect of which the Alascom Intellectual Property Rights
are being used. No claims with respect to the Alascom Intellectual
Property Rights have been asserted or, to the best knowledge of Alascom
and PTI after reasonable investigation, are threatened by any person,
nor does Alascom know of any claims (i) to the effect that the
manufacture, sale or use of any product or service as now used or
offered or proposed for use or sale by Alascom infringes on any
copyright, patent, trade secret, or other intellectual property right
(ii) against the use by Alascom of any Alascom Intellectual Property
Rights, or (iii) challenging the ownership, validity or effectiveness
of any of the Alascom Intellectual Property Rights. All patents and
registered trademarks, service marks, and other company, product, or
service identifiers and registered copyrights held by Alascom are valid
and subsisting. There is no material unauthorized use, infringement
or misappropriation of any of the Alascom Intellectual Property Rights
by any third party, including any employee or former employee of
Alascom; Alascom has not been sued or charged in writing as a defendant
in any claim, suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
other intellectual property rights and which has not been finally
terminated prior to the date hereof; there are no such charges or
claims outstanding; and Alascom has no infringement liability with
respect to any patent, trademark, service mark, copyright or other
intellectual property right of another. No Alascom Intellectual
Property Right is subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing
thereof by Alascom. Alascom has not entered into any agreement to
indemnify any other person against any charge of infringement of any
Alascom Intellectual Property Right.
2.25 OCCUPATIONAL HEALTH AND SAFETY. Alascom and the
______________________________
operations of its business are in compliance with all occupational
health and safety rules and regulations of applicable law and there
are no outstanding violations of such rules and regulations. PTI has
16
<PAGE>
provided AT&T with all inspection reports under occupational health and
safety provisions of applicable law and there are no outstanding
inspection orders made under such applicable law.
2.26 WORKERS' COMPENSATION. There are no notices of
_____________________
assessment, or any other communications related thereto which PTI or
Alascom has received from any workers' compensation board or similar
authorities in any jurisdictions where the Alascom business operations
are carried on and there are no assessments which are unpaid and there
are no facts or circumstances to the knowledge of PTI or Alascom which
may result in an increase in any direct or indirect liability to AT&T
from any applicable workers' compensation legislation, regulations or
rules as a result of the consummation of the transactions contemplated
hereby.
2.27 STATUS OF REAL PROPERTY. Section 2.19 of the Alascom
_______________________
Disclosure Schedule discloses to the best knowledge of PTI and Alascom
all of the Real Property which has been insulated with urea
formaldehyde foam insulation or fireproofed or insulated with any
asbestos fiber product.
2.28 JSA CLAIMS. Alascom has not transferred or assigned
__________
to any other party any Alascom JSA Claim or any cause of action, right
of recovery, or other claim whatsoever which Alascom may now have or
have had against AT&T arising out of the Alascom JSA Claims, nor has
Alascom assigned or transferred to any other party any of the
liabilities and obligations arising out of or in connection with, any
and all AT&T JSA Claims and any cause of action, right of recovery, or
other claim whatsoever which AT&T may now have or have had against
Alascom arising out of the AT&T JSA Claims.
2.29 INFORMATION TRUE AND CORRECT. PTI and Alascom shall use
____________________________
their best efforts to ensure the accuracy and completeness of all
documents furnished to AT&T or any of its representatives hereunder.
SECTION 3
Representations and Warranties of AT&T
______________________________________
AT&T represents and warrants to PTI and Alascom that the
following representations and warranties are true and correct on the
date hereof:
3.1 DUE AUTHORIZATION AND EXECUTION. AT&T has all necessary
_______________________________
corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated herein. The execution,
delivery and performance of this Agreement by AT&T and the consummation
by it of the transactions contemplated herein have been duly and
validly authorized and approved by the Board of Directors of AT&T and
no other corporate proceedings on the part of AT&T are or will be
necessary to authorize and approve the execution and delivery of this
Agreement or the performance by AT&T of its obligations
under this Agreement. This Agreement has been duly and validly
executed and delivered by AT&T and, assuming due execution and
delivery by PTI and Alascom, constitutes the legal, valid and
binding obligation of AT&T enforceable against AT&T in
accordance with its terms, except as such enforcement may
17
<PAGE>
be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting the enforcement of
creditors' rights in an action (whether considered at law or in equity)
generally or (b) equitable principles (whether considered at law or in
equity).
3.2 ORGANIZATION AND AUTHORITY. AT&T is a corporation duly
__________________________
organized, validly existing and in good standing under the laws of its
state of incorporation. AT&T has all requisite corporate power and
authority to own, operate and lease its properties and to carry on its
business as now conducted. AT&T is duly qualified or licensed to do
business as a foreign corporation and is in good standing in all
jurisdictions that require such qualification or licensing except where
the failure to so qualify would not, in the aggregate, have a material
adverse effect on AT&T.
3.3 AGREEMENT WILL NOT CAUSE BREACH. Neither the execution
_______________________________
and delivery of, nor the consummation of the transactions contemplated
in, this Agreement will result in any of the following: (a) a default
or an event of default that, with notice or lapse of time, or both,
would constitute a default, breach or violation of (i) the charter,
bylaws or other governing instruments of AT&T or (ii) any contract,
agreement, license or instrument to which AT&T is a party or by which
AT&T or its properties is bound; (b) an event that would permit any
person or entity to terminate a contract, agreement, license or
instrument to which AT&T is a party or by which AT&T or its properties
is bound, or to accelerate the maturity of any indebtedness or other
obligation of AT&T; (c) the creation or imposition of any lien,
mortgage, pledge, charge or encumbrance of any kind upon any asset of
AT&T; (d) a violation of any statute, ordinance, rule or regulation
applicable AT&T, or any writ, injunction or decree of any court or
governmental instrumentality to which AT&T is a party or by which AT&T
or its properties is bound; (e) a loss or adverse modification of any
license, franchise or other authorization granted to or otherwise held
by AT&T; or (f) the necessity for AT&T to obtain the consent or
approval of, or give notice to or register with any government or
nongovernment third party, except, in each of the cases set forth in
(a) through (f) above, subject to exceptions which will not,
individually or in the aggregate, have a material adverse effect.
3.4 FILINGS. Other than in connection with, or in compliance
_______
with, the FCC, the APUC and the HSR Act, no notice to or filing with,
and no authorization, consent or approval of, any domestic or foreign
court or any public or governmental body or authority is necessary for
the consummation by AT&T of the transactions contemplated in this
Agreement.
3.5 INVESTMENT INTENT. AT&T is acquiring the Alascom Stock
_________________
solely for investment for its own account and not with the view to, or
for resale in connection with, any distribution thereof. AT&T
understands that the Alascom Stock has not been registered under the
Securities Act by reason of specified exemptions therefrom which depend
upon, among other things, the bona fide nature of its investment intent
as expressed herein and as explicitly acknowledged hereby.
3.6 INVESTIGATION AND EXPERIENCE. AT&T has carefully
____________________________
reviewed the representations and warranties concerning PTI
and Alascom contained in this Agreement and
18
<PAGE>
understands that this investment involves substantial risks. AT&T has
had access to and has been provided with certain written information
and has had an opportunity to discuss Alascom's business, management
and financial affairs with PTI and Alascom's management. AT&T
acknowledges that the investment in Alascom Stock contemplated in this
Agreement involves a high degree of risk. AT&T is experienced in
evaluating and investing in companies such as Alascom and has knowledge
and experience in financial and business matters such that AT&T is
capable of evaluating the merits and risks of an investment in Alascom
and has the capacity to protect its own interests in connection with
this Agreement and the transactions contemplated herein.
3.7 RESTRICTED SECURITIES; TRANSFER RESTRICTIONS. AT&T
____________________________________________
understands that the Alascom Stock it is acquiring hereunder has not
been registered under the Securities Act and is characterized as
"Restricted Securities" under the federal securities laws inasmuch as
it is being acquired from PTI in a transaction not involving a public
offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act
only in certain limited sets of circumstances. In this connection,
AT&T represents that it is aware of and understands Rule 144 under the
Securities Act, as presently in effect. Additionally, AT&T
acknowledges that all transfers of Alascom Stock must comply with the
rules and regulations of the FCC and APUC.
3.8 ACCREDITED INVESTOR. AT&T is an "accredited investor"
___________________
within the meaning of Rule 501 under the Securities Act.
3.9 FEES, COMMISSIONS AND EXPENSES. AT&T has not paid or
______________________________
agreed to pay, nor received any claim with respect to, any brokerage
commissions, finders' fees or similar compensation in connection with
the transactions contemplated in this Agreement.
3.10 REGULATORY STATUS. Except for United States District
_________________
Court for the District of Columbia Civil Action No. 82-0192, United
States of America v. Western Electric Company and American Telephone
and Telegraph Company, and Federal Communications Commission CC Docket
No. 83-1376, there are no regulatory, administrative or judicial
proceedings in which AT&T or any of its affiliates is a plaintiff,
defendant, respondent or other named party, an adverse decision in
which would interfere with the timely receipt of any governmental or
regulatory license, permit, consent, approval, authorization,
qualification or order necessary for consummation of the transactions
described in this Agreement or would otherwise preclude or materially
delay the consummation of the transactions contemplated hereby, and
AT&T has no knowledge of any facts which could give rise to any such
proceedings.
3.11 JSA CLAIMS. AT&T has not transferred or assigned to
__________
any other party any AT&T JSA Claim or any cause of action, right of
recovery, or other claim whatsoever which AT&T may now have or have had
against Alascom arising out of the AT&T JSA Claims, nor has AT&T
assigned or transferred to any other party any or all of the
liabilities and obligations arising out of or in connection with, any
and all Alascom JSA Claims and any cause of action, right of
19
<PAGE>
recovery, or other claim whatsoever which Alascom may now have or have
had against AT&T arising out of the Alascom JSA Claims.
SECTION 4
ADDITIONAL COVENANTS AND AGREEMENTS
___________________________________
4.1 ACCESS TO INFORMATION.
_____________________
(a) PTI and Alascom agree that between the date of this
Agreement and the Closing Date, PTI and Alascom will cause its officers
to provide open access and regular, periodic information to AT&T, at
its own expense and during normal business hours, with respect to the
operations, financial results and position, activities, developments,
projects and prospects of Alascom. PTI and Alascom will cooperate with
AT&T and its representatives and counsel in the preparation of any
documents or other material which may be required by any governmental
agency.
(b) The parties agree that PTI (i) shall retain all
records in its possession at Closing relating to the operations of
Alascom for periods which, respectively, coincide with the periods of
indemnification provided for in this Agreement and (ii) shall afford
authorized representatives of AT&T, at its own expense and during
normal business hours, access to those records, upon reasonable notice,
for matters arising under the provisions of this Agreement. Nothing
herein contained shall or shall be deemed to alter the provisions of
Section 11 of this Agreement concerning confidentiality and non-
disclosure.
4.2 CONDUCT OF BUSINESS.
___________________
(a) Except with the written consent of AT&T which
consent shall not be unreasonably withheld, from and after the date of
this Agreement and until the Closing Date, except as otherwise
expressly provided for in this Agreement, PTI will cause Alascom to
conduct its affairs so that Alascom:
(i) will not incur any liability or obligation
(absolute or contingent) to any person except in the ordinary course
of business;
(ii) except for the refinancing of Alascom
indebtedness existing as of the date of this Agreement, will not incur
or agree to incur any indebtedness for borrowed money or otherwise, or
pay, redeem or otherwise discharge any indebtedness other than payment
of scheduled maturities;
(iii) will not permit all or any of its assets (real
or personal, tangible or intangible, or mixed) individually with a net
book value in excess of $100,000 to be sold, leased, licensed, or
otherwise disposed of or subjected to any mortgage, pledge, lien,
security interest or encumbrance of any kind, and will not grant any
option with respect to the purchase of such assets, except for the sale
of inventory in the ordinary course of business;
(iv) will not change or agree to change any terms
of employment of any officer or employee, including, without
limitation, the grant of any general increase in the rates of pay of
any of its hourly paid employees, the grant of any increase in the
salaries or other compensation of its officers or other salaried
employees, or the grant of any increase in the
pension, retirement or other employment benefits of any character
of, or the grant of any new benefits to, any of its officers
or employees other than normal merit increases in the ordinary
20
<PAGE>
course of business and consistent with past practices for employees
whose annual compensation is $50,000 or less;
(v) will not authorize any additional capital
expenditure or commitment for additions to property, plant or equipment
in excess of $100,000;
(vi) will not declare, set aside, or pay any
dividend on, or make any other distribution in respect of, or purchase
or otherwise acquire, any shares of its capital stock;
(vii) will not amend its charter or by-laws;
(viii) will not make any investment (by means of any
purchase of securities, capital contribution or otherwise) in any
corporation, firm, joint venture, partnership, trust or person except
for the investment of excess cash in short-term marketable securities;
(ix) will not make any loan or advance to or pay
any management or consulting fees or any other fees to any person or
entity, including any officer, director, employee, stockholder or
affiliate of Alascom except in the ordinary course of business or make
or grant any guarantee of any obligation or liability of any person or
entity, or any indemnification of any person or entity;
(x) will carry on its businesses diligently, in
the ordinary course and in substantially the same manner as heretofore,
in compliance with all requirements of law, regulations and existing
contractual commitments;
(xi) will use its best efforts to maintain and
preserve its business and its business organizations intact, to retain
necessary present employees, and to maintain and preserve for AT&T its
relationships with customers, suppliers and others having business
relationships with it and the good will of such persons;
(xii) will not waive or release any claim or right
or cancel any debt or claim held by it, or sell, assign, transfer,
distribute or otherwise dispose of any tangible assets or make any
additions to or other transactions involving any tangible assets other
than in the ordinary course of business;
(xiii) will not make any change in any method of
accounting or accounting practice, including without limitation any
change in depreciation or amortization policies or rates, except as
required by law, regulation or Financial Accounting Standards Board
pronouncements;
(xiv) will not do any act or omit to do any act, or
permit any act or omission to act, which will cause a breach of any
material contract or commitment to which Alascom is a party;
(xv) will not merge or consolidate, or enter into
any contract of merger or consolidation with any other corporation;
(xvi) will maintain in full force and effect all of
its present insurance coverage (or substantially equivalent coverage);
and
(xvii) will not create, issue, deliver, sell or
authorize or propose the issuance, delivery, sale or purchase of any
shares of the Alascom Stock or any other class of securities
whatsoever.
(b) Between the date of this Agreement and the Closing Date:
(i) PTI will cause the Board of Directors of Alascom
to be expanded from six to eight members and shall take
all such action as may be necessary or advisable to cause
21
<PAGE>
to be elected to the Board of Directors of Alascom two members of
suitable qualifications designated by AT&T, which members shall serve
from the date of election until the Closing Date or the date of
termination of this Agreement, whichever shall first occur;
(ii) Alascom shall continue to receive corporate
support services from PTI pursuant to the Affiliated Interest Agreement
by and between PTI and Alascom, consisting of tax services, accounting,
purchasing support, treasury support, data processing services, revenue
requirement support, regulatory services, executive services, human
resource services, legal services, corporate support and other
administrative support services consistent with past practices.
Notwithstanding any other provisions of this Agreement, Alascom shall:
(a) pay PTI for the cost of such services in accordance
with the Affiliated Interest Agreement by and between PTI and Alascom
and past practices, such payments not to exceed $1,100,000 per month,
except that Alascom payroll and payroll related expenses, employee
benefit expenses and ad valorem and similar taxes shall not be subject
to that cap and shall be paid separately by Alascom;
(b) make on a current basis any and all payments due to
any Alascom or PTI affiliated company arising from or in connection
with services for local exchange access, network services, space and
power, billing and collection, SS-7 connectivity, 800 data base access,
or other services currently being provided by such affiliate to Alascom
under separate contract or tariff in accordance with the terms and
conditions of such contracts as of the date of this Agreement and past
practices or of lawful and effective tariffs; and
(c) notwithstanding the tax sharing agreement, make on
a monthly basis any and all payments arising in connection with or with
regard to Taxes, provided however, that Alascom shall have no
obligation (and PTI shall have the entire obligation) to make payments
for (i) Income Taxes arising from or in connection with income
recognized on the books of Alascom for the month ended September 30,
1994 or thereafter as a result of the resolution of or in relation to
the JSA Claims or (ii) Income Taxes in excess of Seven Million Five
Hundred Thousand Dollars ($7,500,000) which remained unpaid as of
September 30, 1994, arising from or in connection with both the July
8, 1994 transitional payment made by AT&T to Alascom under the FCC
Final Order and to the Second FRD Payment.
(iii) PTI shall provide AT&T with copies of its
monthly unaudited internal financial statements of the operations of
Alascom substantially in the form of Exhibit B. The statements will
be delivered to AT&T within 15 days of the end of the month. PTI shall
also provide such back-up information for such monthly reports as AT&T
may reasonably request.
(c) Between the date of this Agreement and the
Closing Date, PTI will not transfer its shares of Alascom Stock to any
other person.
(d) As soon as practicable after the execution of
this Agreement, AT&T shall designate an individual who shall act as
AT&T's representative and shall be authorized to give Alascom AT&T's
consent under this Section 4.2. Alascom shall make office space
available for such representative at Alascom's headquarters location,
and PTI and the EVP and General Manager of Alascom shall
consult with such representative concerning matters referred to them
for decision and shall give good faith consideration to the
recommendations and suggestions of such representative in
light of all the facts and circumstances. The representative
22
<PAGE>
or his or her delegate will be permitted to attend the scheduled
negotiations pertaining to collective bargaining agreements as an
observer.
(e) No provision of this Agreement:
(i) shall or be deemed to affect a transfer
prior to Closing from Alascom to any entity of the legal and regulatory
responsibilities imposed upon Alascom by applicable federal or state
law, including without limitation ownership, control, and operation of
licensed facilities; nor
(ii) shall work to impair Alascom's ability to
respond to or to satisfy its obligations with respect to the public
interest, convenience and necessity in the event of emergency
circumstances, acts of God, natural disaster, war, civil commotion,
government imposition, or other acts beyond the reasonable control of
Alascom.
4.3 Limitation on Hiring
____________________. AT&T agrees that between the date
of this Agreement and a date twelve (12) months after any termination
of this Agreement pursuant to Section 8 hereof or the Closing Date,
whichever comes first (the "Release Date"), AT&T's Alaskan
communications services operations will not employ, whether as an
employee, independent contractor, consultant or otherwise, without the
consent of PTI, any PTI Employee. For the purposes of this Section
4.3, the term "PTI Employee" shall mean a person employed by PTI or
Alascom at anytime between the date of this Agreement and the Release
Date, provided however that employees of Alascom shall no longer be
considered PTI Employees after the Closing. PTI Employees shall, for
the purposes of this Section 4.3, continue to be deemed to be PTI
Employees for thirty days after they cease being employed by PTI or
Alascom.
4.4 REGULATORY ACTIONS.
__________________
(a) HSR ACT FILINGS
_______________. The parties shall, as promptly
as practicable after the date hereof but in no event later than
November 15, 1994, file the written notifications and submissions
required under the HSR Act and file, as promptly as practicable after
any request therefor, any additional information required under the HSR
Act.
(b) REGULATORY CONSENTS
___________________. The parties shall cooperate
and use their respective best efforts to obtain all consents and
approvals of the FCC and APUC required for the consummation of the
transactions contemplated by this Agreement and to defend such consents
and approvals in any administrative or judicial review proceeding and,
if such consents or approvals impose any condition on Alascom, to use
their best efforts to comply with or, if appropriate, attempt to remove
such condition. In furtherance thereof, the parties shall file with
the FCC and APUC, as promptly as practicable after the date hereof but
in no event later than December 15, 1994, all applications and other
filings that must be delivered to the FCC and APUC in order to obtain
such consents and approvals. These applications and other filings
shall include, but not be limited to, those necessary to transfer
control of Alascom to AT&T, including without limitation those required
by applicable rule, regulation, or order of the FCC and the APUC.
4.5 NOVATION OF GOVERNMENT CONTRACTS. As and when necessary
________________________________
after the date of this Agreement, Alascom shall notify the government
contract customers of Alascom that, as of the Closing, control over
Alascom will be transferred from PTI to AT&T. Promptly after
23
<PAGE>
the date hereof, PTI, Alascom and AT&T shall cooperate and use their
best efforts to seek and apply for novation agreements to the extent
required by law to each of the government contracts. To the extent
that the government authority will not enter into novation agreements
until after the Closing, the obtaining of those novation agreements
shall not be a condition to Closing.
4.6 OTHER CONSENTS. The parties agree to cooperate in
______________
obtaining any consents of any third parties (in addition to the FCC,
APUC, Justice Department, Federal Trade Commission or Government
Contract customers, whose consents or approvals are covered elsewhere
herein) required in connection with the transactions contemplated
hereunder. The parties agree that in the event a required consent is
not obtained prior to the Closing, PTI will, subsequent to the Closing,
cooperate with AT&T and Alascom in attempting to obtain such consent.
If after reasonable efforts such consent has not been obtained, PTI
will use its best efforts to provide Alascom with the rights and
benefits of the affected contract or agreement, and AT&T shall assume
the obligations and burdens thereunder for so long as Alascom receives
the benefits thereof.
4.7 RESOLUTION OF CERTAIN CLAIMS.
____________________________
(a) The parties recognize that Alascom may, under the
Joint Service Agreement between Alascom and AT&T accepted, approved and
mandated by the Federal Communications Commission in Memorandum
__________
Opinion and Order, 87 FCC 2d 25 (1981) (the "JSA"), have certain
_________________
claims for monies due Alascom from AT&T or its subsidiaries which are
subject to dispute (the "Alascom JSA Claims") and that AT&T or its
subsidiaries may, under the JSA, have certain claims for monies due
AT&T or its subsidiaries from Alascom which are also subject to dispute
(the "AT&T JSA Claims"; the AT&T JSA Claims and Alascom JSA Claims are
referred to collectively as the "JSA Claims"). The parties agree that
all the JSA Claims shall be extinguished and released upon Closing, and
to that end, the parties shall execute at Closing a document in form
and substance substantially as appears in the Alascom Disclosure
Schedule. From the date of this Agreement until either the Closing or
the termination of this Agreement, whichever occurs first:
(i) Alascom shall not transfer or assign to any
other party any Alascom JSA Claim or any cause of action, right of
recovery, or other claim whatsoever which Alascom may now or then have
against AT&T arising out of the Alascom JSA Claims, nor shall Alascom
assign or transfer to any other party any or all of the liabilities
and obligations arising out of or in connection with, any and all AT&T
JSA Claims and any cause of action, right of recovery, or other claim
whatsoever which AT&T may now or then have against Alascom arising out
of the AT&T JSA Claims, provided, however, that, immediately prior to
Closing, Alascom shall dividend up to PTI all of its rights and
interests in the Alascom JSA Claims.
(ii) AT&T shall not transfer or assign to any other
party any AT&T JSA Claim or any cause of action, right of recovery, or
other claim whatsoever which AT&T may now or then have against Alascom
arising out of the AT&T JSA Claims, nor shall AT&T assign or transfer
to any other party any or all of the liabilities and obligations
arising out of or in connection with, any and all Alascom JSA Claims
and any cause of action, right of recovery, or other claim whatsoever
which Alascom may now or then have against AT&T arising out of the
Alascom JSA Claims
24
<PAGE>
(b) AT&T, PTI, and Alascom agree that the execution and
Closing of this Agreement shall settle all issues, as between them,
arising in connection with the Federal-State Joint Board (FCC CC Docket
No. 83-1376), including matters pertaining to the restructuring of the
Alaska interstate market, and economic and technical arrangements in
such market.
(c) From the date of this Agreement until the Closing
or the termination of this Agreement, whichever occurs first, the JSA
shall remain in full force and effect. AT&T shall remain current in
its monthly payments to Alascom made under the historical interim
settlement procedures between AT&T and Alascom at the monthly interim
network settlement currently in effect. Alascom agrees to record
monthly revenue associated with the JSA until the Closing Date, equal
to the interim monthly settlement amount. In connection with such
interim network settlements under the JSA, no reduction in or offset
to Alascom's plant accounts shall occur with respect to any
transitional payment made or to be made by AT&T pursuant to the FCC
Final Order until actually received by Alascom.
(d) The parties agree that, upon Closing, AT&T and
Alascom shall waive and release any and all rights, claims or demands
that they may have against PTI arising out of or relating to the July
8, 1994 Seventy-Five Million Dollar ($75,000,000) payment made by AT&T
pursuant to the FCC Final Order and to that end shall execute at
Closing a document substantially in the form set forth in the Alascom
Disclosure Schedule.
4.8 EMPLOYEES
_________.
(a) Effective as of the Closing, AT&T shall cause
Alascom to adopt for its non-collectively bargained employees the
appropriate AT&T benefit plans, programs, policies, and arrangements
maintained by AT&T (the "AT&T Plans"). AT&T shall, where applicable,
provide credit for each Alascom employee's service with Alascom prior
to the Closing in the AT&T Plans for purposes of eligibility,
participation and vesting of benefits; provided, however, that the AT&T
Plans shall not recognize service with Alascom prior to the Closing for
purposes of service pension eligibility, accrual of pension benefits
or for purposes of benefits under the applicable AT&T short-term
sickness disability benefit plan and severance program.
(b) At least fourteen days prior to the Closing Date,
AT&T shall notify PTI which of the EVP and General Manager and his
direct reports (the "Senior Alascom Managers") AT&T desires to be
retained at Alascom after Closing ("Retained Employees"). Alascom
shall cause the Senior Alascom Managers who are not Retained Employees
to be removed from employment of Alascom prior to the Closing Date.
PTI shall be responsible for and pay and discharge any severance or
other compensation and benefits payable by Alascom or AT&T, if any,
which may be due to those Senior Alascom Managers who are not Retained
Employees as a result, directly or indirectly, of their removal from
Alascom employment hereunder. Other than as provided in this Section
4.8(b), PTI shall have no obligation or liability arising from or in
connection with layoffs, retirements or other workforce adjustments
occurring from and after the Closing.
4.9 TERMINATION OF INTERCOMPANY OBLIGATIONS. Except as
_______________________________________
otherwise provided in this Agreement, PTI shall cancel or cause to be
canceled all debts (including but not limited to loans, accrued
interest, advances, and accrued payments and fees) and unpaid
25
<PAGE>
Income Taxes identified in Section 4.2(b)(ii)(c)(i) and (ii) owing by
Alascom to PTI or its affiliates, and Alascom shall cancel all debts
(including but not limited to loans, accrued interest, advances, and
accrued payments and fees) owing by PTI or its affiliates to Alascom,
such cancellation to be effective on or before the Closing Date, except
that any notes receivable from PTI or its affiliates to Alascom which
were not recorded on the books of Alascom as of the date of this
Agreement shall not be so canceled but shall be paid by PTI to Alascom
immediately following the Closing. PTI shall provide to AT&T documents
evidencing such cancellation. The parties further agree that, from and
after the Closing, all existing intercompany agreements between PTI and
Alascom shall be terminated.
4.10 Unpaid Benefit Expenses. Subject to the terms and
_______________________
conditions of the applicable PTI plans, PTI shall be responsible for
and pay and discharge, or reimburse AT&T and Alascom for the payment
of, any and all expenses for or incurred in connection with medical,
dental, surgical, or hospital care or benefits, or benefits in the
event of sickness, accident, disability or death provided to or on
behalf of employees of Alascom where the event or events giving rise
to the expense occurred prior to the Closing Date; provided, however,
that PTI shall not be responsible for any expense for or incurred in
connection with medical, dental, surgical or hospital care or benefits
where the treatment or course of treatment was not initiated until
after the Closing Date even if the illness or injury giving rise to the
treatment or course of treatment arose prior to the Closing Date or
where the expense for which payment, discharge or reimbursement is
sought was incurred more than two years after the Closing Date. For
the purposes of the application of this Section 4.10, any disability
or similar payment made to an employee who has been determined to be
disabled on the Closing Date or who subsequently becomes classified as
disabled as a result of an illness or injury which arose prior to the
Closing Date and for which treatment or a course of treatment has
commenced prior to the Closing Date, shall be deemed an expense where
the event or events giving rise to the expense occurred prior to the
Closing Date.
4.11 TAX PROVISIONS.
______________
(a) Notwithstanding any other provision of this
Agreement, including Section 10 hereof, the indemnification provided
below shall apply to the full amount of liability covered therein
without floor or limitation.
(i) All Taxes that may become due and payable by
Alascom with respect to any period ending on or before the Closing Date
will be paid by PTI or other members of its affiliated group, without
any reimbursement or contribution by Alascom or AT&T.
(ii) PTI shall pay, indemnify and hold harmless AT&T
and Alascom, and their successors, from and against all liabilities for
Taxes of Alascom (excluding deferred Income Taxes as defined by GAAP,
so as to limit the liabilities for Taxes to apply to the accruable
taxes under the applicable tax statutes) attributable to taxable
periods ending on or before the Closing Date. Alascom and PTI shall
determine the amount, if any, of Taxes properly accruable for any
taxable period that does not in fact end on the Closing Date. Alascom
and PTI shall each bear its own costs in determining any amount due
under this Section 4.11(a). Any interest, penalties or additions to
tax accruing after the Closing Date with respect to a liability for
Taxes for which PTI is required to indemnify Alascom or AT&T pursuant
to this Section 4.11(a) shall be deemed to be attributable to a taxable
period ending on or before to the Closing Date.
26
<PAGE>
(iii) PTI shall be entitled to any refund of any
Taxes attributable to taxable periods ending on or before December 31,
1993, including interest thereon, promptly upon receipt thereof by AT&T
or Alascom. PTI shall have the right to determine whether any claim
for refund for such Taxes shall be made on behalf of AT&T or Alascom.
Notwithstanding the preceding sentence, neither AT&T nor Alascom shall
be required to file any claim for refund that it reasonably believes
to be fraudulent or without colorable basis in law. Notwithstanding
anything provided in this Section 4.11(a)(iii), AT&T reserves the right
to pay any proposed refund to PTI in lieu of the filing of any amended
tax return or claim for refund. If PTI elects to make such a claim for
refund, AT&T and Alascom shall cooperate fully in connection therewith.
PTI shall be responsible to reimburse AT&T and Alascom for reasonable
out-of-pocket expenses incurred in providing such cooperation.
(iv) Alascom shall be entitled to any refund of any
Taxes attributable to taxable periods beginning on or after January 1,
1994, including interest thereon, promptly upon receipt thereof by PTI
or its affiliates. Additionally and not withstanding Section
4.11(a)(iii), Alascom shall be entitled to any refund relating to the
tax treatment by Alascom of the accruals associated with the Alascom
JSA Claims as set forth and described in Section 4.11(a)(iv) of the
Alascom Disclosure Schedule (the "Accrued JSA Claims"). If Alascom is
precluded from obtaining a refund relating to the Accrued JSA Claims
due to a tax year being closed, PTI shall pay to AT&T an amount equal
to the tax refund Alascom would have been entitled to obtain but for
the tax year being closed. Alascom shall have the right to determine
whether any claims for refund for such Taxes relating to Alascom shall
be made on behalf of PTI or its affiliates. Notwithstanding the
preceding sentence, PTI shall not be required to file any claim for
refund that it reasonably believes to be fraudulent or without
colorable basis in law. Notwithstanding anything provided in this
Section 4.11(a)(iv), PTI reserves the right to pay any proposed refund
to Alascom in lieu of the filing of any amended tax return or claim for
refund. If Alascom elects to make such a claim for refund, PTI shall
cooperate fully in connection therewith. Alascom shall be responsible
to reimburse PTI for reasonable out-of-pocket expenses incurred in
providing such cooperation.
(b) Alascom shall include in its notice of any claim
for payment pursuant to this Section 4.11 a calculation of the amount
of the requested payment. For purposes of this Section 4.11 and the
calculation of any payment hereunder, interest, penalties or additions
to tax accruing after the Closing Date with respect to a liability for
Taxes which PTI is to be responsible for pursuant to this Section 4.11
shall be deemed to be attributable to a taxable period ending on or
before the Closing Date. If PTI disagrees with the calculation of the
payment, PTI and Alascom shall attempt to resolve such disagreement
for a period of 30 days. If the parties fail to reach an agreement at
the end of such period, such disagreement shall be submitted to a
nationally recognized firm of independent certified public accountants
mutually selected by PTI and Alascom, whose determination shall be
final and binding on all parties. The cost of such nationally
recognized firm of independent certified public accountants shall be
borne equally by PTI and Alascom. Within 20 days after the payment
calculation has been resolved or determined, as provided above, PTI
shall pay to Alascom such amounts as have been determined to be due
Alascom and its successor as a result of this Section 4.11.
(c) (i) After the Closing, AT&T shall give written
notice to PTI of any notification of audit of a tax return
for Alascom for any period prior to the Closing Date, or
27
<PAGE>
proposed adjustments to any items included in such a return, promptly
after receipt of notification of the audit or adjustments. PTI shall
be entitled to control and conduct only those aspects of audits,
examinations or proceedings relating to Alascom (a "Tax Contest") that
are related to (i) the liability for any Taxes which PTI would be
responsible for pursuant to this Section 4.11, or (ii) a claim for
refund for any Taxes that PTI is entitled to pursuant to this
Section 4.11. PTI's right to control and conduct a Tax Contest shall
be limited to amounts in dispute which would be paid by PTI or refunded
to PTI pursuant to this Section 4.11. With respect to a Tax Contest
which a party is entitled to control hereunder, such party shall have
the right to determine, in its sole discretion, such issues as (w) the
forum, administrative or judicial, in which to contest any proposed
adjustment, (x) the attorney and/or accountant to represent Alascom in
the Tax Contest, (y) whether or not to appeal any decision of any
administrative or judicial body, and (z) whether to settle any such Tax
Contest. Alascom shall deliver to PTI any power of attorney required
to allow PTI and its counsel to represent Alascom in connection with
the Tax Contest controlled by PTI hereunder and shall use their best
efforts to provide PTI with such assistance as may be reasonably
requested by PTI in connection with such Tax Contest. AT&T shall cause
Alascom to cooperate with PTI and take such action and execute such
agreements and documents as PTI shall reasonably request in order to
carry out the foregoing. Except with the prior written consent of PTI,
which consent shall not be unreasonably withheld, AT&T shall not permit
Alascom to enter into any agreement after the Closing extending the
statute of limitations or settling any asserted adjustments with
respect to or affecting any period prior to the Closing Date. PTI
shall reimburse Alascom for reasonable out-of-pocket expenses incurred
in providing such assistance. Notwithstanding the preceding, PTI shall
conduct such Tax Contest in a reasonable manner with respect to any
liability for Taxes for which AT&T or Alascom may be liable.
(ii) Notwithstanding Section 4.11(c)(i), PTI shall
consult in good faith with Alascom with respect to the conduct of, and
before entering into any settlement of, any Tax Contest.
Notwithstanding the preceding sentence, PTI shall neither consent nor
agree to the settlement of any Tax Contest that may have a material
adverse effect on the liability for Taxes of Alascom (for which Alascom
is not indemnified pursuant to this Section 4.11), or any affiliated
group of corporations of which Alascom has been or may become a member
without the prior written consent of Alascom which consent shall not
be unreasonably withheld.
(iii) AT&T shall inform PTI of any Tax Contest with
regard to any Tax Return of Alascom for a period ending after the
Closing Date that may result in an adjustment to PTI's (or any
affiliated group of corporations of which PTI is or was a member)
income, gain, loss or tax credits for any period ending on or before
or including the Closing Date. AT&T shall be entitled to control and
conduct any such Tax Contest. Costs of such Tax Contests are to be
borne by AT&T. AT&T shall consult in good faith with PTI with respect
to the conduct of, and before entering into any settlement of, any Tax
Contest that may have an adverse impact on the liability for Taxes of
PTI, or an affiliated group of corporations of which PTI is or has been
a member, but AT&T shall alone be entitled to determine whether, and
on what terms, any such settlement shall be entered into.
Notwithstanding any other provision of this Agreement, the failure of
AT&T to inform PTI of a Tax Contest shall not relieve PTI of any
liability for Taxes due, as a result of such Tax Contest, except to the
extent PTI can demonstrate that the failure to so notify materially
prejudiced PTI with respect to the Tax liability that resulted from
such Tax Contest.
28
<PAGE>
(iv) After the Closing, PTI shall give written
notice to Alascom or AT&T of any notification of audit of a tax return
for Alascom for any period after December 31, 1993, or any other period
during which there was an accrual of revenues associated with an
Accrued JSA Claim, or of proposed adjustments to any items included in
such a return, promptly after receipt of notification of the audit or
adjustments. Alascom shall be entitled to control and conduct only
those aspects of a Tax Contest that are related to a claim for refund
for any Taxes that Alascom is entitled to pursuant to this
Section 4.11. With respect to a Tax Contest which a party is entitled
to control hereunder, such party shall have the right to determine, in
its sole discretion, such issues as (w) the forum, administrative or
judicial, in which to contest any proposed adjustment, (x) the attorney
and/or accountant to represent Alascom in the Tax Contest, (y) whether
or not to appeal any decision of any administrative or judicial body,
and (z) whether to settle any such Tax Contest. PTI shall deliver to
Alascom and AT&T any power of attorney required to allow Alascom and
AT&T and its counsel to represent Alascom in connection with the Tax
Contest controlled by Alascom hereunder and shall use its best efforts
to provide Alascom with such assistance as may be reasonably requested
by Alascom in connection with such Tax Contest. PTI will cooperate
with Alascom and take such action and execute such agreements and
documents as Alascom shall reasonably request in order to carry out the
foregoing. Except with the prior written consent of Alascom, which
shall not be unreasonably withheld, PTI shall not enter into any
agreement after the Closing settling any asserted adjustments that
involve Alascom with respect to any period commencing after December
31, 1993. Alascom and AT&T shall reimburse PTI for reasonable out-of-
pocket expenses incurred in providing such assistance.
(d) PTI shall be liable for, and shall hold AT&T,
Alascom and any successor corporations thereto or affiliates thereof
harmless from and against, all Taxes with respect to the operations of
PTI and its affiliates, including any several liability of Alascom
under Treasury Regulation Section 1.1502-6 or under any comparable or similar
provision under state, local or foreign laws or regulations and from
and against any liability for Taxes incurred with respect to the sale
of Alascom.
(e) PTI shall prepare and file or cause to be prepared
and filed on a timely basis all Tax Returns with respect to Alascom for
taxable periods ending on or before the Closing Date. Alascom shall
prepare and file or cause to be prepared and filed all other Tax
Returns and reports of Alascom. If PTI shall determine after the
Closing that it is desirable to file an amended return for Alascom with
respect to any period prior to the Closing Date, PTI shall prepare and
submit to AT&T the amended return, other than a return included in its
ultimate parent corporation's consolidated federal or unitary state
filing, and AT&T shall cause such return to be filed within five (5)
business days after receipt thereof; provided, however, that PTI shall
________ _______
indemnify AT&T for any additional taxes incurred or to be incurred by
Alascom in periods following the Closing as a result of any such
amended return. AT&T agrees not to permit Alascom to file any amended
return after the Closing with respect to any period prior to the
Closing Date without the prior written consent of PTI, which consent
shall not be unreasonably withheld.
(f) AT&T, Alascom and PTI shall cooperate with each
other with respect to tax matters as follows:
(i) Following the date hereof, (x) PTI
shall give AT&T and Alascom, and their authorized
representatives, full access to its books and records (and permit
29
<PAGE>
AT&T and Alascom to make copies thereof) to the extent relating to
Alascom, as AT&T may reasonably request, (y) permit AT&T to make
inspections thereof during regular business hours, and (z) cause PTI's
officers and advisors (including, without limitation, its auditors,
attorneys, financial advisors and other consultants, agents and
advisors) to furnish AT&T with such financial, tax and other operating
data and other information with respect to the business and properties
of Alascom for periods ending before or including the Closing Date as
AT&T may reasonably request. AT&T shall cause Alascom to give PTI, and
its authorized representatives, access to its books and records (and
permit PTI to make copies thereof) to the extent relating to periods
prior to or including the Closing Date as PTI may reasonably request
for purposes of preparing Tax Returns and conducting proceedings
relating to Taxes.
(ii) After the Closing, the parties agree to
cooperate with each other by executing or causing to be executed any
required documents and by retaining and making available to each other
all work papers, records and notes of any kind, at all reasonable
times, for the purpose of allowing the appropriate party to complete
Tax Returns, respond to audits or inquiries, obtain refunds, verify
facts, negotiate settlements with Taxing Authorities and defend or
prosecute Tax Contests or claims. Such cooperation shall include
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided
hereunder and shall include providing copies of any relevant Tax
Returns and supporting work schedules. The party requesting assistance
hereunder shall reimburse the other parties for reasonable expenses
incurred in providing such assistance. Notwithstanding any other
provision of this Section 4.11(f), PTI hereby agrees that it will
retain, until all appropriate statutes of limitation (including any
extensions) expire, copies of all Tax Returns, supporting work
schedules and other records or information which may be relevant to
such Tax Returns, and that it will not destroy or otherwise dispose of
such materials without first providing AT&T with a reasonable
opportunity to review and copy such materials.
(g) Any tax allocation agreement or arrangement which,
prior to the Closing Date, may have been entered into by PTI on the one
hand and Alascom on the other hand shall be terminated as of the
Closing Date for all periods subsequent to the Closing Date.
(h) Neither AT&T nor PTI will elect to have the
provisions of Section 338(h)(10) of the Code apply to the "qualified
stock purchase" of Alascom Stock by AT&T.
(i) Neither PTI nor Alascom shall seek a Tax Refund
with respect to that portion of the Taxes paid in satisfaction of
Section 6.12, which relate to the Second FRD Payment. PTI and Alascom
further agree that upon execution of this Agreement, PTI and/or Alascom
will withdraw that portion of the request filed with the Internal
Revenue Service for a Ruling concerning the date on which the Second
FRD Payment will be taxable as income under the Internal Revenue Code.
Further, if and in the event that the Taxing Authority nonetheless
makes such a Tax Refund with respect to that portion of the Taxes so
paid, PTI agrees to remit that Tax Refund to Alascom.
4.12 Environmental Inspection
________________________. (a) Within 30 days of the
date of this Agreement, AT&T shall have the right to elect to require
an environmental inspection and audit of Alascom (the "Environmental
Audit"). The Environmental Audit shall be conducted as
follows:
30
<PAGE>
(i) The Environmental Audit shall be conducted by
one or more independent environmental consultants chosen by AT&T and
PTI (the "Environmental Consultants").
(ii) The Environmental Audit shall be completed as
expeditiously as reasonably possible, but in no event later than 180
days following AT&T's election to require such Audit, and a written
report (the Environmental Audit Report") provided to the parties.
(iii) The properties to be examined in the
Environmental Audit may include any and all of the Alascom Sites. The
Environmental Audit may also include interviews with employees of PTI
or Alascom or other persons with relevant knowledge and an examination
of relevant documents in PTI's or Alascom's possession or in the public
domain at state, local, or federal agencies or in data bases where
relevant information is available but excluding privileged documents
or communications. The cost of the audit up to $1,000,000 shall be
borne equally by AT&T and PTI, and AT&T shall bear any costs of the
audit in excess of $1,000,000.
(iv) The Environmental Audit shall address the
matters set forth in Section 2.19, including but not limited to:
(A) compliance with all applicable Environmental Laws in force and
effect as of the date of the Environmental Audit Report; (B) any
proceeding or investigation by a governmental authority evaluating
whether any Remedial Work is needed to respond to a Release of a
Hazardous Substance, and, if so, the Environmental Audit shall identify
the nature of that proceeding or investigation and the problem being
addressed; (C) whether any leaking is occurring or has occurred from
underground or above-ground storage tanks ("USTs") now or formerly
located at the Real Property and whether USTs currently located at the
Real Property are in compliance with federal, state or local
regulations governing USTs in effect applied to the Alascom operations
as currently conducted, and if such tanks are leaking or have leaked
or are determined not to be so in compliance with such regulations,
then the Environmental Audit shall recommend Remedial Work to address
the leak and/or achieve compliance; and (D) whether any of the Real
Property is constructed with or contains asbestos-containing material
and, if so, the Environmental Audit shall identify the approximate
location and condition of such material.
(v) As part of the Environmental Audit, the
Environmental Consultants shall identify recommended Remedial Work that
in their professional judgment they believe is necessary to achieve
compliance with the Environmental Laws, identify the nature and extent
of any such Remedial Work, recommend and develop in writing a detailed
cleanup action plan and provide information based upon which a
determination of the likely costs of implementing the cleanup action
plan can be made ("Recommended Remedial Work").
(vi) PTI shall, and shall cause Alascom to,
cooperate with the Environmental Consultants in their performance of
the Environmental Audit and provide AT&T and its representatives and
the Environmental Consultants and their subcontractors, after being
provided with reasonable, prior notice, with all required access to the
Real Property, PTI and Alascom employees who have knowledge about
matters that fall within the scope of the Environmental Audit, and all
relevant records, documents and other information, including any
reports or analyses prepared by consultants for or in the
possession of PTI or Alascom or any of their affiliates but
excluding privileged documents and communications. Further, PTI and
31
<PAGE>
Alascom agree to use their good faith efforts to secure access to
Alascom Sites not owned or controlled by PTI, Alascom or AT&T. As
appropriate, the Environmental Consultants may conduct reasonable
material, soil and groundwater sampling, or other physical testing or
inspection inside or outside buildings on the Real Property. All such
activities on the Alascom Sites will be conducted in a manner designed
to minimize to the extent reasonably practicable interference with
owner or occupier's use and enjoyment of the Alascom Sites. All
sampling shall be nondestructive where possible, and any damage caused
by such sampling will be promptly repaired by the Environmental
Consultants. All borings and excavations will be filled and all
monitoring wells constructed in accordance with applicable laws and
good engineering practice.
(vii) AT&T shall have the right to decide the scope
of the Environmental Audit, but will consult with PTI in good faith in
determining such matters as the properties to be examined, the nature
of the examination at each property and the draft work paper, provided
that the scope shall be consistent with the terms of this Section 4.13.
(b) If the expense of the Recommended Remedial Work set
forth in the Environmental Audit Report exceeds the sum of Four Million
Dollars ($4,000,000), PTI may, at its sole election, reject that Report
and terminate this Agreement, without further liability on the part of
any party hereto. PTI shall have thirty days following the receipt of
the Environmental Audit Report in which to notify AT&T of its election.
If PTI does not make such an election and give such notice within
thirty days, it will be deemed to have agreed to the Environmental
Audit Report results, and the Environmental Audit Report shall become
the "Confirmed Audit."
(c) Based upon the recommendations contained in the
Confirmed Audit, PTI, at its sole cost and expense, shall complete or
secure the completion of the Recommended Remedial Work on the Real
Property, and to the extent it can secure access to and permission for
such on reasonable terms and conditions on the Alascom Sites, as
described in the Confirmed Audit, in a timely and proper manner.
(d) The Recommended Remedial Work shall be conducted
by qualified environmental consultants and/or engineers satisfactory
to PTI and AT&T ("ECEs"), which ECEs shall be solely responsible for
obtaining all required approvals, permits or permissions necessary to
conduct the Recommended Remedial Work.
(e) If the Recommended Remedial Work is not completed
by the Closing Date, AT&T shall thereafter cooperate with PTI, the
Environmental Consultants and ECEs in the conduct of and verification
of the Recommended Remedial Work and provide reasonable access to the
Real Property, Alascom personnel and Alascom Sites, equivalent to that
afforded prior to the Closing Date.
(f) The ECEs selected by the parties shall provide AT&T
and PTI with periodic progress reports on the Recommended Remedial Work
and copies of all reports, sample results, manifests, contracts and
other documents related to such Recommended Remedial Work. Once the
ECEs have completed the Recommended Remedial Work, PTI and AT&T shall
direct the Environmental Consultants to review all such work and
determine whether it can certify that the Recommended Remedial Work
has been fully completed ("Certificate of Cleanup"). For purposes of
the Environmental Consultant's review, PTI, Alascom, AT&T and the ECEs
shall make available to the Environmental Consultants all records of
any kind regarding the Recommended Remedial Work. If the Environmental
Consultants determine that the Recommended Remedial Work is not
complete, the Environmental Consultants shall provide in
32
<PAGE>
writing a list of deficiencies, and PTI and Alascom will then complete
or cause the ECEs to complete such Recommended Remedial Work as is
required to obtain the Certificate of Cleanup from the Environmental
Consultants.
(g) The Environmental Consultants will simultaneously
send to PTI and Alascom and AT&T all correspondence, reports
(including, without limitation, draft reports), laboratory data and
field notes produced by the Environmental Consultants in connection
with the Environmental Audit. The Environmental Consultants will keep
AT&T and PTI and Alascom fully informed regarding the results of their
work and, to the maximum extent feasible, AT&T and PTI and Alascom will
participate in all meetings and telephone calls with the Environmental
Consultants concerning the formulation and accomplishment of the
Recommended Remedial Work, which will be scheduled during normal
business hours between 7:30 a.m. and 3:00 p.m. (Pacific Time). Without
limiting the foregoing, AT&T and PTI and Alascom shall have the right
to discuss with the Environmental Consultants the results of the
Environmental Audit and to comment on all reports and recommendations
by the Environmental Consultants (such comments to be made within seven
(7) business days following receipt). The Environmental Consultants
will provide AT&T and PTI and Alascom an estimated schedule of field
activities and site visits, updated from time to time.
(h) The Environmental Audit, any data, notes,
correspondence, reports or other information or documents produced or
collected by the Environmental Consultants in connection with the
Environmental Audit shall be considered Confidential Information, as
hereinafter defined. AT&T shall not disclose such Confidential
Information to any third party or initiate or have any direct contact
with any governmental agencies in connection with the Environmental
Investigation without PTI and Alascom's written consent. AT&T,
however, may disclose the Confidential Information to its employees,
attorneys, consultants, accountants and lenders who have a reasonable
need to know and use the information in connection with this
transaction and who have been informed in writing of AT&T's obligations
and have agreed to maintain the information as Confidential. If the
Environmental Audit reveals any conditions that applicable laws require
to be reported to any governmental agency, PTI and Alascom shall make
such reports. AT&T agrees to use all information provided for the sole
purpose of conducting the Environmental Audit, to hold all such
information Confidential pursuant to Section 11 and if this transaction
does not close, to return all documents to PTI and Alascom. PTI and
Alascom make no representation as to the accuracy of any items
delivered and AT&T acknowledges it is not entitled to rely on any such
information.
4.13 COVENANTS NOT TO COMPETE OR DISCLOSE. To protect
____________________________________
more effectively the interests that AT&T will acquire in Alascom's
business, PTI covenants and agrees that it will not, and will cause its
affiliates to not, for the period commencing on the Closing Date and
ending on the third annual anniversary of the Closing Date, directly
or indirectly through its affiliates or otherwise (whether as
principal, agent, independent contractor, partner or otherwise),
provide, market, offer or sell, or assist others in providing,
marketing, offering or selling, in the Alaska interexchange marketplace
whether for profit or not for profit, any products or services that are
within the scope of the business operations of Alascom, or which may
compete with or constitute substitutes for the products and services
provided or offered by Alascom, on the Closing Date.
In addition, PTI covenants and agrees that it will not,
and will cause its affiliates to not, disclose any
33
<PAGE>
confidential information or trade secrets relating to the business
operations of Alascom or to the customers of Alascom other than to
disclose the same to AT&T. It is agreed that damages and other similar
remedies cannot fully compensate AT&T for violation of this
Section 4.13 by PTI or its affiliates, and that AT&T shall be entitled
to injunctive relief to prevent violation or continuing violation
thereof. It is the intent and understanding of each party hereto that
if, in any action before any court, agency or tribunal legally
empowered to enforce this Section 4.13, any term, restriction, covenant
or promise in this Section 4.13 is found to be invalid, illegal or
unenforceable, then the parties shall meet and attempt to agree upon
a substitute term, restriction, covenant or promise which will, insofar
as practicable, achieve the contractual objectives of the invalidated
provision.
4.14 REPRESENTED EMPLOYEE BENEFIT PLANS. In the event that
__________________________________
it is determined that Alascom would incur a "withdrawal liability",
within the meaning of Title IV of ERISA, in excess of $20 million as
a result of its complete or partial withdrawal from the Represented
Employee Benefits Plans listed on the Alascom Disclosure Schedule that
are "multiemployer plans" within the meaning of Section 3(37) of ERISA
determined as of June 30, 1995, then PTI shall pay to AT&T the amount
by which such liability exceeds $20 million, such payment to be made
at the Closing or 60 days following receipt of the determination,
whichever is the latest to occur.
4.15 POST-CLOSING SERVICES AGREEMENT.
_______________________________
(a) At the Closing, AT&T, Alascom, and PTI shall
execute a Post-Closing Services Agreement substantially in the form set
forth in the Alascom Disclosure Schedule.
(b) Alascom shall transfer to PTI or its designee all
its right, title, and interest in the two Northern Telecom DMS 200/100
switches located at Juneau/Lena Point (one switch) and Fairbanks (one
switch). PTI shall remove the two switches at its sole cost and
expense without disruption of Alascom's ordinary business. The
transfer of right, title, and interest in the switches shall occur no
later than May 1,1996.
4.16 NORTHERN TELECOM LICENSES. AT&T shall use its best
_________________________
efforts to secure such licenses and consents from Northern Telecom as
may be necessary to permit Alascom to continue to operate the Fairbanks
and Juneau switches, until transferred to PTI, and the Anchorage and
Neklasson Lake switches from and after the Closing Date, including
without limitation executing a licensing and software agreement with
Northern Telecom substantially in the form set forth in the Alascom
Disclosure Schedule. PTI and Alascom shall use their best efforts to
assist and support AT&T in securing the said licenses and consents from
Northern Telecom. Further, for a period of eighteen months from and
after the Closing Date, AT&T and PTI shall cooperate in the provision
of support services by PTI associated with such switches, if and to the
extent such support services are necessary to permit Alascom to
continue to operate the said switches or any one of them during that
period. The terms and conditions under which PTI may provide such
support services shall be governed by the Post-Closing Services
Agreement, provided however, that all costs and expenses, direct and
indirect, incurred by PTI in providing such services shall be
separately paid by AT&T or Alascom to PTI.
34
<PAGE>
4.17 COVENANT OF BEST EFFORTS AND GOOD FAITH. Each party
_______________________________________
will use its best efforts and act in good faith to cause to be
satisfied all conditions to Closing to the extent in the control of
such party.
SECTION 5
Conditions to Closing of PTI and Alascom
________________________________________
The obligation of PTI and Alascom to consummate the Closing
is subject to the fulfillment on or prior to the Closing Date of each
of the following conditions, any of which may be waived in whole or in
part by PTI and Alascom:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
______________________________
warranties made by AT&T in Section 3 hereof shall be true and correct
on the Closing Date, except for such matters that will not,
individually or in the aggregate, have a material adverse effect on
AT&T.
5.2 PERFORMANCE. All covenants, agreements and conditions
___________
contained in Section 4 hereof to be performed or complied with by AT&T
on or prior to the Closing Date shall have been performed or complied
with in all material respects.
5.3 LITIGATION. There shall be no litigation, proceeding
__________
or investigation pending or, to the knowledge of AT&T, threatened which
could have a material adverse effect on AT&T or which asserts the
invalidity or illegality of, or seeks to restrain or prohibit the
performance of, this Agreement or of any action taken or to be taken
by AT&T pursuant to or in connection with the provisions of this
Agreement.
5.4 OFFICER'S CERTIFICATE. PTI shall have received a
_____________________
certificate executed by an officer of AT&T and dated as of the Closing
Date to the effect that the conditions set forth in Section 5.1 and 5.2
have been satisfied at and as of the Closing Date.
5.5 FCC AND APUC CONSENT. The parties shall have obtained
____________________
the last of all consents and approvals of the FCC and APUC as is
required for the consummation of the transactions contemplated by this
Agreement (the "FCC and APUC Consent").
5.6 OPINION OF AT&T'S COUNSEL. PTI shall have received from
_________________________
counsel for AT&T an opinion addressed to PTI, dated the Closing Date,
in a form reasonably acceptable to PTI.
5.7 HSR WAITING PERIOD; PROHIBITIONS. The HSR Act waiting
________________________________
period shall have expired or have been terminated, and there shall have
been no statute, rule, injunction or other order promulgated, enacted,
entered or enforced by any state, federal or foreign government or
governmental authority or by any court, domestic or foreign, of
competent jurisdiction which shall remain in effect which restrains,
prohibits or delays the performance of this Agreement.
35
<PAGE>
5.8 REPRESENTATION LETTER OF AT&T. PTI shall have received
_____________________________
from an officer of AT&T a representation letter addressed to Alascom's
independent certified public accountants, dated the Closing Date,
substantially in the form contained in the Alascom Disclosure Schedule.
SECTION 6
CONDITIONS TO CLOSING OF AT&T
_____________________________
The obligation of AT&T to consummate the Closing is subject
to the fulfillment on or prior to the Closing Date of each of the
following conditions, any of which may be waived in whole or in part
by AT&T:
6.1 REPRESENTATIONS AND WARRANTIES. Except as expressly
______________________________
provided for in this Agreement, the representations and warranties made
by PTI and Alascom in Sections 2.1 through 2.5, Section 2.9 as it
relates to PTI, Section 2.14, Section 2.15(f), (g), and (k), Section
2.22 (a), (j), (k), (l), (m), and (n), the first two sentences of
Section 2.22(b), Section 2.22(h), Section 2.22(i) as to AT&T, Section
2.25 as to PTI, and Section 2.29 shall be true and correct as of the
Closing Date. Except as expressly provided for in this Agreement, the
other representations and warranties made by PTI and Alascom in Section
2 hereof shall be true and correct as of the Closing Date, except for
such matters that would not, individually or in the aggregate, have a
material adverse effect on Alascom, assuming that the transactions
contemplated hereby have been consumated.
6.2 Performance. All covenants, agreements and conditions
___________
required by this Agreement to be performed or complied with by PTI and
Alascom on or prior to the Closing Date shall have been performed or
complied with in all material respects.
6.3 LITIGATION. There shall be no litigation, proceeding
__________
or investigation pending or, to the knowledge of PTI, threatened which
could have a material adverse effect on Alascom or which asserts the
invalidity or illegality of, or seeks to restrain or prohibit the
performance of, this Agreement or of any action taken or to be taken
by PTI or Alascom pursuant to or in connection with the provisions of
this Agreement.
6.4 OFFICERS CERTIFICATE. AT&T shall have received a
____________________
certificate executed by an officer of PTI and dated as of the Closing
Date to the effect that the conditions set forth in Section 6.1 and 6.2
have been satisfied at and as of the Closing Date.
6.5 FCC AND APUC CONSENT. The parties shall have obtained
____________________
the FCC and APUC Consents.
6.6 OPINIONS OF PTI'S COUNSEL. AT&T shall have received
_________________________
from counsel to PTI an opinion addressed to AT&T, dated the Closing
Date, in a form reasonably satisfactory to AT&T.
36
6.7 HSR WAITING PERIOD; PROHIBITIONS. The HSR Act waiting
________________________________
period shall have expired or have been terminated, and there shall have
been no statute, rule, injunction or other order promulgated, enacted,
entered or enforced by any state, federal or foreign government or
governmental authority or by any court, domestic or foreign, of
competent jurisdiction which shall remain in effect which restrains,
prohibits or delays the performance of this Agreement.
6.8 COMFORT LETTER. PTI shall have delivered to AT&T a
______________
letter, dated not more than two days prior to the Closing Date, from
independent certified public accountants for Alascom, in form and
substance as that contained in the Alascom Disclosure Schedule.
6.9 CONFIRMED AUDIT. The Confirmed Audit shall have been
_______________
completed in accordance with the procedures set forth in Section 4.12
of this Agreement.
6.10 ACCUMULATED CASH FLOWS. The Accumulated Cash Flows From
______________________
Operations from the date of this Agreement to the Closing Date shall
equal or exceed the amount of Twelve Million Five Hundred Thousand
Dollars ($12,500,000). For the purposes of this Section 6.10, the Cash
Flows From Operations for a calendar month shall mean the net income
for the month adjusted to reconcile net income to net cash provided by
operating activities, all as recorded for the month on the books of
Alascom in accordance with GAAP, but without adding back to net income
the amounts recorded for the month for depreciation and amortization
expense and without making any adjustments for cash flows from
investing or financing activities. The Accumulated Cash Flows From
Operations for a period shall mean the sum of the Cash Flows From
Operations for each complete calendar month falling within the period.
6.11 USE OF FACILITIES. All authorizations and consents
_________________
shall have been obtained and any actions shall have been taken which
are necessary to and required for the continued lawful operation of
Alascom's facilities from and after Closing, except where the failure
to obtain such authorizations or consents, or to take such actions,
will not have a material adverse effect on Alascom.
6.12 TAXES. Alascom or PTI shall have paid the Income Taxes
_____
on each of the July 8, 1994 transitional payment made by AT&T to
Alascom under the FCC Final Order, the Second FRD Payment, and the
Accrued JSA Claims.
37
<PAGE>
SECTION 7
CLOSING, EXCHANGE AND DELIVERY
______________________________
7.1 CLOSING DATE AND PLACE OF CLOSING. Unless otherwise
_________________________________
agreed by the parties in writing, the consummation of the transactions
described herein (the "Closing") shall take place at the offices of
PTI, 805 Broadway, Vancouver, WA, at three o'clock local time on
January 31, 1995 or, if the conditions described in Sections 5 and 6,
other than conditions that by their terms are to be satisfied at
Closing (the "Closing Conditions") have not then all been satisfied,
the final business day of the month in which occurs the satisfaction
of the last to occur of the Closing Conditions (the "Closing Date").
For Federal income tax purposes, the Closing shall be deemed to have
occurred at the close of business on the Closing Date.
7.2 EXCHANGE AND DELIVERY.
_____________________
(a) On the Closing Date, PTI shall deliver to AT&T the
Alascom Stock as provided in Section 1.2(b), and AT&T shall deliver to
PTI the cash consideration, as provided in Section 1.2(b). All stock
certificates delivered by PTI at the Closing shall be duly endorsed or
accompanied by a stock transfer power duly endorsed in blank, in form
acceptable for transfer on the books of Alascom as appropriate.
(b) On the Closing Date, PTI shall deliver to AT&T:
(i) The original certificates representing all the
issued and outstanding equity securities of Alascom;
(ii) The minute and stock books of Alascom,
accompanied in each case by the certificate of the corporate secretary
or an assistant corporate secretary of Alascom certifying that all
records with respect to matters subsequent to January 1, 1980 contained
therein are true, complete and correct;
(iii) Copies of the certificate of incorporation and
bylaws of Alascom accompanied by the certificate of the corporate
secretary or an assistant corporate secretary of Alascom certifying
that such documents have not been amended or modified except as
disclosed therein and are in full force and effect on the Closing Date;
(iv) Certificates of good standing for Alascom
issued by the jurisdiction of Alascom's incorporation and each
jurisdiction where Alascom is qualified to do business; and
(v) The written resignation, effective as of the
Closing Date, of each of the Senior Alascom Managers identified
pursuant to the procedures of Section 4.8 and each member of the Board
of Directors of Alascom.
(c) Each party will deliver to the other (i) executed
copies of the Post-Closing Services Agreements, (ii) corporate
secretaries' certificates as to relevant resolutions, incumbency of
officers and signatures, (iii) cross receipts for the Alascom Stock and
the payment therefor, (iv) an executed release of intercompany
obligations, and (v) such certificates, opinions and other documents
as are required by the provisions of this Agreement.
38
<PAGE>
SECTION 8
TERMINATION
___________
8.1 RIGHT OF PARTIES TO TERMINATE. This Agreement may be
_____________________________
terminated, in addition to the provisions of Section 4.12, (a) by the
mutual consent of PTI and AT&T; (b) by either PTI or AT&T by written
notice to the other party if the Closing shall not have occurred on or
prior to September 30, 1995; provided, however, that the
________ _______
right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose failure to fulfill or perform any
obligation under this Agreement has been a substantial cause of, or has
substantially resulted in, the failure of the Closing to occur on or
before such date; (c) by either PTI or AT&T in the event there is a
Final Order prohibiting the transactions contemplated hereby; (d) by
AT&T if a change in the business or condition, financial or otherwise,
of Alascom shall have occurred, or if Alascom shall have suffered a
loss or damage to any of its properties or assets, and such change,
loss or damage has had a material adverse effect on Alascom; (e) by PTI
in the event that AT&T is in material breach of any of its obligations
hereunder; and (f) by AT&T in the event that PTI or Alascom is in
material breach, respectively, of any of its obligations hereunder.
8.2 EFFECT OF TERMINATION. In the event of a termination
_____________________
pursuant to Section 8.1, the parties hereto shall be released from all
liabilities and obligations arising hereunder, except for those
obligations set forth in Section 11; provided, however, that
________ _______
neither AT&T, PTI nor Alascom shall be relieved from liabilities for
any material breach of any of their respective obligations hereunder.
SECTION 9
SURVIVAL OF REPRESENTATIONS
___________________________
The representations and warranties of the parties contained
in this Agreement or in any writing delivered pursuant to the
provisions of Section 7.2 of this Agreement shall survive the
consummation of the transactions contemplated herein and shall expire
on the third anniversary of the Closing Date, except for (i) those
matters as to which indemnification claims have been duly made prior
to such third anniversary until such claims are resolved, (ii)
representation and warranties regarding the Release of any Hazardous
Substances, which shall survuve until the fifth anniversary of the
Closing Date and (iii) representations and warranties regarding tax
matters (including, without limitation, the tax related representations
and warranties set forth in Section 2.21), which shall survuve until
sixty days after the statutory period during which a claim may be
brought by the appropriate taxing authority based upon the matters to
which the representation or warranty refers. The covenants and
agreements set forth herein shall survive the Closing in accordance
with their terms. The parties hereto, in executing and carrying out
the provisions of this Agreement, are relying solely on the
representations, warranties, covenants and agreements contained or
referred to herein and not upon any representation, warranty, covenant,
agreement, promise or information, written or oral, made by any person
or entity other than as specifically set forth herein.
39
<PAGE>
SECTION 10
INDEMNIFICATION
_______________
10.1 INDEMNIFICATION BY AT&T. In addition to any other
_______________________
indemnification or similar provision in this Agreement, AT&T hereby
agrees to indemnify, defend and hold harmless PTI, its directors,
officers, employees and agents from and against any and all
liabilities, losses, damages, and costs and attorney's and accountant's
fees and expenses, court costs, witness fees, and all other out-of-
pocket expenses incurred or suffered by PTI (individually and
collectively the "Damages") by reason of, resulting from, or in
connection with:
(a) any breach by AT&T of any of the representations,
warranties, covenants or agreements made by AT&T in this Agreement;
(b) any claim by or on behalf of a third party to the
extent arising from, by reason of, in connection with, in respect of,
or relating to, in each case at times from and after the Closing Date,
(i) the use, operation, maintenance, or ownership of Alascom's
properties, (ii) the conduct of the business of Alascom, or (iii) the
conduct of the business of AT&T insofar as it relates to Alascom, its
business, or its properties.
Each of clauses (a) and (b) set forth in this Section 10.1 is
independent of the other, and the failure of any matter for which
indemnification is sought to be covered by one such clause shall not
preclude indemnification under the other such clause.
Notwithstanding anything in this Section 10.1 to the contrary, AT&T
shall not be liable for, and shall not indemnify PTI or its directors,
officers, employees or agents from and against, any Damages to the
extent that the Damages arose out of or were caused by the negligent
or intentional acts or omissions of PTI or its directors, officers,
employees or agents.
10.2 INDEMNIFICATION BY PTI. In addition to any other
______________________
indemnification or similar provision in this Agreement, PTI agrees to
indemnify, defend, and hold harmless AT&T, its directors, officers,
employees and agents and any subsidiary (including, after the Closing,
Alascom) and affiliate of AT&T (collectively, the "AT&T Group") from
and against any and all liabilities, losses, damages, and costs and
attorney's and accountant's fees and expenses, court costs, witness
fees, and all other out-of-pocket expenses incurred or suffered by any
of the AT&T Group (individually and collectively, the "Losses") by
reason of, resulting from, or in connection with (a) an intentional or
knowing breach of any representation or warranty of PTI contained in
this Agreement or in any certificate or other document or instrument
delivered by PTI in accordance with Section 7.2 of this Agreement; (b)
any other breach of any representation or warranty of PTI contained
in this Agreement or in any certificate or other document or instrument
delivered by PTI in accordance with Section 7.2 of this Agreement; (c)
a breach of any agreement or covenant or any failure of PTI to perform
any of its obligations in this Agreement; or (d) any claim by or on
behalf of a third party to the extent arising from, by reason of, in
connection with, in respect of, or relating in to, in each case at
times prior to the Closing Date, (i) the use, operation, maintenance,
or ownership of Alascom's properties, (ii) the conduct of the business
of Alascom, or (iii) the conduct of the business of PTI insofar as it
related to Alascom, its business, or its properties. Each of clauses
(a) through (d) set forth in this Section 10.2 is independent of
40
<PAGE>
the others, and the failure of any matter for which indemnification is
sought to be covered by one or more of such clauses shall not preclude
indemnification under another one or more of such clauses.
Notwithstanding anything in this Section 10.2 to the contrary, PTI
shall not be liable for, and shall not indemnify the AT&T Group from
and against, any Losses to the extent that the Losses arose out of or
were caused by the negligent or intentional acts or omissions of the
AT&T Group.
10.3 ENVIRONMENTAL INDEMNITY.
_______________________
(a) PTI agrees to indemnify, defend and hold harmless
the AT&T Group from and against, and shall reimburse the AT&T Group
for, any and all losses, claims, liabilities, damages, injunctive
relief, injuries to person, property or natural resources, costs,
expenses, actions or causes of action, arising in connection with the
Release of any Hazardous Substances in, on, or at the Alascom Sites (an
"Environmental Loss"). The foregoing indemnity shall include, without
limitation, all costs for Remedial Work of any kind.
(b) Notwithstanding anything in this Section 10.3 to
the contrary, PTI shall not indemnify, defend and hold harmless the
AT&T Group from and against, and shall not reimburse the AT&T Group
for:
(i) any Environmental Loss (or Environmental Losses)
to the extent that it results (or they result) from a Release which
commences after the Closing Date or
(ii) in any case in which a negligent or intentional
act or omission of AT&T (or Alascom after the Closing Date) causes or
increases an Environmental Loss (or Environmental Losses), any
Environmental Loss (or Environmental Losses) above or beyond the
Environmental Loss (or Environmental Losses) that would have been
incurred or sustained in the absence of AT&T's (or Alascom's after the
Closing Date) negligent or intentional acts or omissions.
(c) The indemnification obligations under this Section
10.3 are not transferable and shall not be transferred to any third
party or parties.
10.4 PROCEDURE FOR INDEMNIFICATION. The procedure for
_____________________________
indemnification pursuant to this Section 10 shall be as follows:
(a) The party claiming indemnification (the
"Claimant") shall give written notice to the party from whom
indemnification is sought (the "Indemnitor") promptly after the
Claimant learns of any claim or proceeding covered by the foregoing
agreements to indemnify and hold harmless (the "Claim").
Notwithstanding any other provision contained in this Agreement,
Claimant shall be deemed to have waived any rights to indemnification
unless Claimant gives written notice to Indemnitor within sixty (60)
days of the date of Claimants' knowledge of facts constituting the
basis for such Claim; provided, however, that the Claimant's failure
________ _______
to give the Indemnitor such notice shall not bar the Claimant's right
to indemnification unless such failure has materially prejudiced the
Indemnitor 's ability to investigate or defend against or to
participate effectively with respect to the claim or proceeding.
(b) With respect to claims between the
parties, following receipt of notice from the Claimant
of a claim, the Indemnitor shall have thirty (30) days
to make any investigation of the claim that the
Indemnitor deems necessary or desirable. For the purpose of
41
<PAGE>
this investigation, the Claimant agrees to make available to the
Indemnitor and its authorized representatives the information relied
upon by the Claimant to substantiate the claim. If the Claimant and
the Indemnitor cannot agree as to the validity and amount of the claim
within the 30-day period (or any mutually agreed upon extension
thereof), the Claimant may seek appropriate legal remedies.
(c) With respect to third-party claims, the Indemnitor
shall have the right to assume, at its full cost and expense, the
entire control of all legal proceedings (including the selection of
counsel) if the Indemnitor agrees in writing that it shall be
responsible for and shall pay and discharge any liability, obligation,
cost or expense arising out of or in connection with such third-party
claim and subject to the right of the Claimant to participate (at its
full cost and expense and with counsel of its choice) in the defense,
compromise or settlement thereof. "Participate in the defense" means
and is limited to the right to review pleadings and depositions, to
attend proceedings, to make suggestions concerning the defense of any
such claim or proceeding (which suggestions the party defending such
claim agrees to consider in good faith) but does not include any right
to direct the defense of the claim or proceeding. The Claimant shall
cooperate fully in all respects with the Indemnitor in any such
defense, compromise or settlement, including, without limitation, by
making available to the Indemnitor all pertinent information under the
control of the Claimant. The Indemnitor will not compromise or settle
any such Claim or proceeding without the prior written approval of the
Claimant, which approval will not be unreasonably withheld. If such
prior written approval is withheld by the Claimant, and the proposed
settlement involves only the payment of money and is proposed by the
Indemnitor in good faith, the liability of the Indemnitor shall be
limited to the total sum representing the amount of the proposed
compromise or settlement and the amount of the Indemnitor 's fees and
expenses (including accounting expert witness and othercounsel fees)
accumulated at the time such approval is withheld.
10.5 Limitations. The provisions of this Section 10 apply
___________
only in the event that the Closing occurs and notice is given pursuant
to this Agreement. Subject to Section 8.2, if the Closing does not
occur, the parties shall have all rights and remedies available under
the law. An indemnity payment shall be due only to the extent of the
actual Loss or Damage suffered (i.e., reduced by any
____
offsetting or related asset or service received and by any recovery
from any third party, such as an insurer but not reduced by the amount
equal to any reduction in federal, state or local income, franchise or
other taxes occasioned by such loss or damage nor increased by an
amount equal to any increase in federal, state and local income,
franchise and other taxes occasioned by the indemnity payment) The
Indemnitor shall be liable for a Claim made under Section 10.2(b) or
10.2(d) only if the associated Loss, calculated as described above,
equals or exceeds $500,000, provided however that where the aggregate
amount of all Losses for Claims for which the individual Loss is less
than $500,000 exceeds $1,000,000, the Indemnitor shall be liable for
amounts in excess of $1,000,000. No breach of any one representation,
warranty or covenant shall be deemed to be a breach of more than one
representation, warranty or covenant to the end that neither PTI nor
AT&T shall be obligated to indemnify the other or others more than one
time for any particular Loss, Damage or Claim. Any
claim for indemnification hereunder shall be asserted in
the manner herein before provided on or before the third
anniversary of the Closing Date, except for (i) Claims
for indemnification for Environmental Losses under Section 10.3
42
<PAGE>
hereof, which shall be asserted on or before the fifth anniversary of
the Closing Date and (ii) Claims for indemnification arising under
Section 4.11, Section 2.22, and the representations and warranties of
Section 2.21 relating to taxes, which shall be asserted on or before
the sixtieth (60th) day following the termination of the applicable
statutory period therefore.. The aggregate amount of indemnification
payable by PTI under any provision of this Agreement shall in no event
exceed $100,000,000.
SECTION 11
Confidentiality
_______________
11.1 CONFIDENTIAL INFORMATION. The parties acknowledge and
________________________
continue to be bound to the terms and conditions of the Non-Disclosure
Agreement dated October 12, 1993, by and between PTI and AT&T.
Furthermore, each party receiving documentation or information (a
"Recipient") from the other party or its Affiliates (the "Owner")
agrees not to disclose to any third party any of such documentation or
information constituting "Confidential Information" (as hereinafter
defined). "Confidential Information" is defined as any information or
documentation disclosed by the Owner to the Recipient from January 1,
1994 until the Closing Date or earlier termination of this Agreement
pursuant to Section 8 hereof, with the exception of the following,
which are not considered Confidential Information:
(a) Information that is or becomes publicly available
through no wrongful act of such Recipient;
(b) Information obtained from third parties without
a breach of any other non-disclosure agreement; or;
(c) Information that is independently developed by
such Recipient without reference to the Confidential Information.
The above exceptions (a) through (c) shall be narrowly
construed and shall not be interpreted by the parties as justification
to disregard the obligations of confidence set forth herein, as where,
by way of example and not of limitation, individual portions of the
Confidential Information may be found to be within the exceptions or
where the Confidential Information is implicated by but not
specifically disclosed in information falling within the exception.
11.2 USE OF CONFIDENTIAL INFORMATION. The parties agree that
_______________________________
the Confidential Information will be used solely among the parties
involved with this transaction and for the sole purpose of this
transaction and shall not be disclosed to those employees of AT&T who
are performing work or are otherwise involved in the proceedings
arising from or in connection with the FCC Docket CC 83-1376, and that
the Confidential Information will be kept in the strictest confidence
by each of the parties; provided, however, that (i) the Confidential
________ _______
Information may be disclosed to directors, officers, employees and
representatives of each of the parties, any of whom
need to know such information for the purpose of
consummating the transactions contemplated hereunder (it being
understood that such directors, officers, employees and representatives
shall be informed of the confidential nature of the Confidential
Information and shall be directed to treat the Confidential Information
confidentially) and (ii) any of the Confidential Information may
43
<PAGE>
be disclosed if required by legal process or by operation of applicable
law. If any party is required by legal process or by operation of
applicable law to disclose any Confidential Information, it is agreed
that such party will provide the Owner with prompt notice of such
requirement so that the Owner may seek an appropriate protective order.
11.3 RETURN OF INFORMATION. In the event of termination of
_____________________
this Agreement pursuant to Section 8 hereof, all Confidential
Information shall be promptly returned to the Owner thereof or the
Recipient shall certify in writing as to its destruction.
11.4 SECURITIES LAWS. Each party acknowledges that it is
_______________
aware, and will advise its directors, officers, employees and
representatives who are informed as to the matters which are the
subject of this Agreement, that the U.S. securities laws prohibit any
person or entity who has material, nonpublic information concerning the
matters which are the subject of this Agreement from purchasing or
selling securities of a company which may be a party to a transaction
of the type contemplated herein.
11.5 SURVIVAL
________. The obligations of AT&T and PTI under this
Section 11 shall not expire upon the Closing and shall survive such
Closing or any termination of this Agreement pursuant to Section 8
hereof for a period of three years after such termination or Closing.
SECTION 12
MISCELLANEOUS
_____________
12.1 GOVERNING LAW. This Agreement shall be governed in all
_____________
respects by the laws of the State of Washington.
12.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
______________________
provided herein, the terms and provisions of this Agreement shall inure
to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
12.3 ENTIRE AGREEMENT. This Agreement, the Exhibits and
________________
Schedules hereto constitute the full and entire understanding and
agreement among the parties with regard to the subject matter hereof
and supersede all other prior agreements and understandings, both
written and oral, among the parties. This Agreement may not be
modified, changed or supplemented except by a written instrument signed
by the party or parties who may be adversely affected thereby or as
otherwise expressly permitted herein.
12.4 NOTICES. All notices, requests, demands and other
_______
communications which are required or may be given under this Agreement
shall be deemed to have been properly delivered if given by personal
delivery or by Federal Express or similar overnight courier, or by
facsimile transmission immediately followed by such personal delivery
or overnight courier, addressed as follows:
If to AT&T:
44
<PAGE>
AT&T Corp.
295 N. Maple Ave.
Basking Ridge, N.J. 07920
Attention: President, Consumer
Communication Services
with a copy to:
AT&T Corp.
295 N. Maple Ave.
Basking Ridge N.J. 07920
Attention: Vice President Law & Secretary
If to PTI or Alascom:
Pacific Telecom, Inc.
805 Broadway
Vancouver, WA 98668-9901
Attention: Executive Vice President, Chief
Financial Officer
with a copy to:
Pacific Telecom, Inc.
805 Broadway
Vancouver, WA 98668-9901
Attention: Vice President, Legal and Regulatory Affairs
12.5 SEVERABILITY. In case any provision of this Agreement
____________
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The parties agree to negotiate in good
faith a new, substitute provision or provisions which will achieve, so
far as practicable, the intent and purposes of the invalid, illegal or
unenforceable provision. Nothing contained in this Agreement shall
require any party to take any action which is contrary to any license,
permit, consent, approval, authorization, qualification or order of any
governmental agency or which is otherwise contrary to applicable law.
45
<PAGE>
12.6 NO THIRD-PARTY BENEFICIARIES. Nothing in this
____________________________
Agreement, express or implied, is intended or shall be construed to
confer upon or to give any person, firm or corporation, other than the
parties hereto and their affiliates, any rights or remedies under or
by reason of this Agreement.
12.7 COUNTERPARTS. This Agreement may be executed in any
____________
number of counterparts, each of which shall be an original, but all of
which together shall constitute one instrument.
12.8 Construction and Interpretation.
_______________________________
(a) The titles and subtitles of the sections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
(b) As used in this Agreement, the phrase "best
efforts" shall mean that the obligated party is required to make a
diligent and good faith effort to accomplish the applicable objective
using all resources reasonably available to it. Such obligation,
however, does not require an expenditure of funds or the incurrence of
a liability on the part of the obligated party where such expenditures
or liabilities would, in the aggregate, be significantly out of
proportion to the benefit to be derived from accomplishing the
applicable objective, nor does it require that the obligated party act
in a manner that would be contrary to normal commercial practices in
order to accomplish the objective. The fact that the objective is not
actually accomplished is no indication that the obligated party did not
in fact utilize its best efforts in attempting to accomplish the
objective.
(c) 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.
12.9 EXPENSES. Each party shall bear its own expenses with
________
respect to this Agreement and the transactions contemplated herein.
All filing fees charged with respect to any joint filings made by the
parties with respect to the actions contemplated by this Agreement
shall be paid one-half by PTI and one-half by AT&T.
12.10 PUBLIC STATEMENTS AND PRESS RELEASES. The parties
____________________________________
hereto covenant and agree that, except as provided below, each will not
make, issue or release a public announcement, press release, public
statement or public acknowledgment of the existence of, or reveal
publicly the terms, conditions and status of, the transactions provided
for herein without the prior written consent of the other party as to
the content and time of release of and the media in which such
statement or announcement is to be made; provided, however, that
________ _______
in the case of announcements which counsel for either party believes
such party is required by law or under stock exchange (or similar
securities trading) requirement to make, issue or release, the making,
issuing or releasing of any such announcement by such party shall not
constitute a breach of this Agreement if such party shall have given,
to the extent reasonably possible, not less than twenty-four (24)
hours' prior notice to the other party or parties and shall have
attempted, to the extent reasonably possible, to clear the
content and time of such announcement, statement, acknowledgment or
46
<PAGE>
revelation with the other party or parties. Each party hereto agrees
that it will not unreasonably withhold any such consent or clearance.
12.11 EXCLUSIVE DEALINGS. For so long as this Agreement
__________________
remains in effect, neither PTI, nor any person or entity acting on
PTI's behalf shall, directly or indirectly, solicit or seek the
initiation of any offer from, or conduct any negotiations with, any
person or entity concerning the acquisition of Alascom or substantially
all of Alascom's assets other than AT&T.
12.12 SPECIFIC PERFORMANCE. The parties agree that the
____________________
Alascom Stock constitutes unique property that cannot be readily
obtained on the open market and that AT&T would be irreparably injured
if this Agreement is not specifically enforced. The parties further
agree that as a result of the obligations and actions imposed upon PTI
or Alascom, or both, under this Agreement, PTI and Alascom will be
irreparably injured if this Agreement is not specifically enforced.
Therefore, each party shall have the right specifically to enforce the
other's performance under this Agreement, and each party agrees to
waive the defense in any such suit in which the other has an adequate
remedy at law and to interpose no opposition, legal or otherwise, as
to the propriety of specific performance as a remedy. Each party's
right to seek specific performance shall be in addition to, and not in
lieu of, any other rights or remedies that may be available to it in
the event of the other's breach or default hereunder.
12.13 TERMINATION FEE. In the event that the conditions to
_______________
Closing set forth in Section 6 are all met but AT&T fails to tender the
balance of the full Purchase Price or to purchase the Alascom Stock on
the Closing Date, AT&T shall, in addition to any other relief to which
PTI may be entitled, pay to PTI a termination fee in the amount of
Twenty-five Million Dollars ($25,000,000.00). In the event that the
conditions to Closing set forth in Section 5 are all met but PTI fails
to deliver and sell the Alascom Stock to AT&T on the Closing Date, PTI
shall, in addition to any other relief to which AT&T may be entitled,
pay to AT&T a termination fee in the amount of Twenty-five Million
Dollars ($25,000,000.00).
12.14 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 parties, which
consent may be withheld in such party's sole discretion; provided,
however, that any party hereto may, without prior consent of the other
parties hereto, assign this Agreement in its entirety to any parent or
wholly owned subsidiary entity.
12.15 TIME OF THE ESSENCE. Time is of the essence with
___________________
repect to each of the express time limits set forth in this Agreement
for the giving of notice or the performance of specific acts, and the
failure to give notice or to perform in accordance with such time
limits shall, except as expressly otherwise provided, constitue a
material breach of and noncurable default under this Agreement by the
party so failing to give notice or to perform (but which may be waived
by the non-breaching party).
47
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed and delivered by their proper and duly authorized
officers or representatives.
AT&T
____
AT&T Corp.
Attest:
By: WILLIAM V. CATUCCI W. PRESTON GRANBERY III
____________________________________________________
Name: William V. Catucci Asst. Secretary
Title: Vice President
_______________________
PTI
___
PACIFIC TELECOM, INC.
Attest
By: CHARLES E. ROBINSON MAUREEN CHRISTIE
_________________________________________________
Name: Charles E. Robinson Asst. Secretary
Title: Chairman, President and
Chief Executive Officer
________________________
Alascom
_______
ALASCOM, INC.
Attest
By: CHARLES E. ROBINSON
_________________________________________________
Name: Charles E. Robinson Secretary
Title: President
_______________________
48
<PAGE>
EXHIBIT 10L
CONFORMED COPY
______________
PACIFIC TELECOM, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
January 1, 1994
(As Amended Through Amendment No. 1)
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
<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.
EXECUTIVE DEFERRED COMPENSATION PLAN
January 1, 1994
(As Amended Through Amendment No. 1)
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, or who is eligible to participate in the
Company's Short Term Incentive Plan as of January 1, 1995, 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, or in the Company's Short Term Incentive Plan
<PAGE>
after January 1, 1995, 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 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.
2
<PAGE>
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.
(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
3
<PAGE>
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.
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
4
<PAGE>
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:
(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.
5
<PAGE>
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 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.
6
<PAGE>
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 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
7
<PAGE>
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:
(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.
11. EFFECTIVE DATE.
This Plan shall be effective January 1, 1994.
PLAN EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1994:
__________________________________________________
Adopted: December 14, 1993
PACIFIC TELECOM, INC.
By: CHARLES E. ROBINSON
___________________________
Executed: December 14, 1993
AMENDMENT NO. 1 EXECUTED AS FOLLOWS EFFECTIVE JANUARY 1, 1995:
_____________________________________________________________
Adopted: October 28, 1994
PACIFIC TELECOM, INC.
By: CHARLES E. ROBINSON
___________________________
Executed: December 2, 1994
8
<PAGE>
PACIFIC TELECOM, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION
_____________________________
Print Name
_____________________________
Address
_____________________________
Address
I elect to defer the following amount of my compensation:
Salary
$ per year
_________
%
_________
Bonus
$ per year
_________
All over $ per year
________
%
___________
I understand that if I wish to change or revoke my election
for a later fiscal year I must make a new election before the start
of that fiscal year. I understand that the choice of payment as to
the amounts deferred under this election is irrevocable. Future
elections may change the choice as to future deferrals only.
I elect to have my Payment Amount paid in one of the
following ways (check one):
[ ] In a lump sum.
[ ] By installments over ten years.
<PAGE>
I understand that the choice of payment as to the amounts
deferred under this election is irrevocable. Future elections may
change the choice as to future deferrals only.
I also understand that participation in the deferred
compensation plan is subject to all of the terms and conditions of
the plan, a copy of which has been delivered to me. I understand
that payments will be subject to federal or state withholding for
income or other taxes.
_____________________________
Signature
Executed , 1993
Accepted , 1993
PACIFIC TELECOM, INC.
By:__________________________
<PAGE>
EXHIBIT 10N
PACIFIC TELECOM, INC.
EXECUTIVE OFFICER SEVERANCE PLAN
(THE "PLAN")
PURPOSE
_______
It is the policy of Pacific Telecom, Inc. ("the Company") to pay
severance pay to an "Executive Officer" (as defined under Eligibility
below) in the event his employment is terminated or significantly
altered to the detriment of the Executive Officer for reasons other
than normal retirement, death, total disability, cause, or voluntary
termination (as set forth under Exclusions below).
EFFECTIVE DATE
______________
The Plan is effective January 1, 1994.
ADMINISTRATION
______________
The Plan shall be administered by the Personnel Committee (the
"Committee") of the Board of Directors. The Committee shall interpret
the Plan (including without limitation the interpretation of "cause"
and "significantly altered to the detriment of the Executive Officer"),
determine the amount of benefits, maintain records and generally be
responsible for seeing that the purposes of the Plan are accomplished.
ELIGIBILITY
___________
The President and Chief Executive Officer of Pacific Telecom, Inc. and:
(a) those who on the effective date of this Plan are Officers of
Pacific Telecom, Inc. who report directly to the President and Chief
Executive Officer; and (b) the Executive Vice President and General
Manager of Alascom, Inc.
SEVERANCE AMOUNT
________________
In the event that a participant's employment is terminated or
significantly altered to the detriment of the Executive Officer by the
Company for reasons other than normal retirement, death, total
disability, cause, or voluntary termination (as set forth under
Exclusions below), the Company will pay to the participant payments
equal to two times the participant's total cash compensation during the
last full calendar year. The payment will be made to the participant
in 24 equal monthly payments following the termination date and will
be reduced by any other compensation such as accrued vacation, etc.
These payments may be terminated by the Committee if the participant
accepts employment with a competitor of the Company or its affiliated
entities.
<PAGE>
EXCLUSIONS FROM THIS PLAN
_________________________
In the event the participant's termination is for any of the following
reasons, the provisions of this policy will not apply:
(1) Retirement
(2) Death
(3) Total disability
(4) Cause. "Cause" for termination by the Company shall include, but
shall not be limited to, the following conduct by the
participant:
(a) Any act that is materially contrary to the best interests
of the Company or its affiliated entities including fraud,
conviction of a felony or gross malfeasance.
(b) Willful and continued failure by the Executive Officer to
devote his full business time and efforts to the business
affairs of the Company, except that the Executive Officer
may serve as a director of other corporations if such
service involves no conflict of interest and is within
reasonable time commitments.
(5) Voluntary termination, except upon the occurrence of any of the
following events:
(a) A change in reporting relationship, unless agreed to by
the Executive Officer.
(b) A material change in authority ordered by the President
and Chief Executive Officer or Board of Directors unless
agreed to by the Executive Officer.
(c) A change in control of the ownership of Pacific Telecom,
Inc. or Alascom, Inc. which results in a change in
position which is detrimental to the Executive Officer,
unless agreed to by the Executive Officer.
FINANCING
_________
Benefit payments under the Plan shall constitute general obligations
of the Company in accordance with the terms of the Plan. A participant
shall have only an unsecured right to payment out of the general assets
of the Company.
TERMINATION OF THE PLAN
_______________________
The Plan shall terminate on December 31, 1995, unless extended by the
Committee.
<PAGE>
EXHIBIT 10O
SECOND AMENDMENT, dated as of November 29, 1994 (this
"Second Amendment") to the Credit Agreement dated as of November
________________
13, 1991 (as amended by the First Amendment, dated as of October
12, 1993 and as the same may be further amended, supplemented or
otherwise modified from time to time, the "Credit Agreement") among
________________
PACIFIC TELECOM, INC., a Washington corporation (the "Company"), the
_______
several banks parties thereto and hereto (collectively, the "Banks";
_____
individually, a "Bank") and CHEMICAL BANK, a New York banking
____
corporation, as successor by merger to Manufacturers Hanover Trust
Company, as agent (in such capacity, the "Agent") for the Banks
_____
thereunder.
W I T N E S S E T H:
_ _ _ _ _ _ _ _ _ _
WHEREAS, the Company has requested the Agent and the Banks
to consent to amend the Credit Agreement in the manner provided for
herein; and
WHEREAS, the Agent and the Banks are willing to consent to
the amendments of the Credit Agreement provided for herein, but only
and subject to the terms and conditions hereof;
NOW THEREFORE, in consideration of the premises contained
herein, the parties hereto agree as follows:
I. Amendment to the Credit Agreement.
_________________________________
1. Defined Terms. Unless otherwise defined in this
_____________
Section I, terms which are defined in the Credit Agreement and used
herein are so used as so defined. Unless otherwise indicated, all
Section, subsection and Schedule references are to the Credit
Agreement.
2. Amendment to Subsection 1.1 of the Credit Agreement
___________________________________________________
(Defined Terms). (a) Deletion of Certain Definitions. Subsection
_______________ _______________________________
1.1 of the Credit Agreement is hereby amended by deleting the
definitions of "C/D Margin", "Commitment Termination Date", "Eurodollar
Margin", "Level I Status", "Level II Status", "Level III Status", "MHT
Margin", "MHT Rate" and "MHT Loans" in their entirety and substituting
in lieu thereof the following new definitions:
"C/D Margin": a rate per annum equal to 0.4000% for
__________
any day on which Level I Status or Level II Status exists, (ii)
0.4250% for any day on which Level III Status or Level IV Status
exists and (iii) 0.4375% for any day on which Level V Status
exists.
"Commitment Termination Date": November 29, 1999,
___________________________
or, if such date is not a Working Day, the Working Day next
preceding such date.
<PAGE>
2
"Eurodollar Margin": a rate per annum equal to (i)
_________________
0.2750% for any day on which Level I Status or Level II Status
exists, (ii) 0.3000% for any day on which Level III Status or
Level IV Status exists and (iii) 0.3125% for any day on which
Level V Status exists.
"Level I Status": exists at any date if, at such
______________
date, the Company's Bond Rating is rated at or above the level
of A by S&P and A2 by Moody's.
"Level II Status": exists at any date if, at such
_______________
date, (i) the Company's Bond Rating is rated at or above the
level of BBB+ by S&P and Baa1 by Moody's and (ii) Level I Status
does not exist on such date.
"Level III Status": exists at any date if, at such
________________
date, (i) the Company's Bond Rating is rated at or above the
level of BBB by S&P and Baa2 by Moody's and (ii) Level I Status
or Level II Status does not exist on such date.
Every occurrence of the term "MHT Rate" in the Credit
Agreement is hereby deleted and replaced with the term "Alternate Base
Rate", defined as follows:
"Alternate Base Rate": for any day, a rate per
___________________
annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to the greater of (a) the Prime Rate in effect on such day
or (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean
__________
the rate of interest per annum publicly announced from time to
time by the Agent as its prime rate in effect at its principal
office in New York City (each change in the Prime Rate to be
effective on the date such change is publicly announced); and
"Federal Funds Effective Rate" shall mean, for any
____________________________
day, the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Agent from three federal funds
brokers of recognized standing selected by it. Any change in
the Alternate Base Rate due to a change in the Prime Rate or the
Federal Funds Effective Rate shall be effective on the effective
day of such change in the Prime Rate or the Federal Funds
Effective Rate, respectively.
Every occurrence of the term "MHT Rate Loans" in the Credit
Agreement is hereby deleted and replaced with the term "Alternate Base
Rate Loans", defined as follows:
<PAGE>
3
"Alternate Base Rate Loans": Committed Rate Loans
_________________________
hereunder at such time as they are made and/or are being
maintained at a rate of interest based upon the Alternate Base
Rate.
Every occurrence of the term "MHT Margin" in the Credit
Agreement is hereby deleted and replaced with the term "Alternate Base
Rate Margin", defined as follows:
"Alternate Base Rate Margin": a rate per annum equal
__________________________
to 0% per annum.
(b) Additions of Certain Definitions. Subsection 1.1 of
________________________________
the Credit Agreement is hereby amended by adding thereto the following
definitions in proper alphabetical order:
"Absolute Rate Bid Loan Request": any Bid Loan
______________________________
Request requesting the Bid Loan Banks to offer to make Bid Loans
at an absolute rate (as opposed to a rate composed of the
Applicable Index Rate plus or minus a margin).
"Applicable Index Rate": in respect of any Bid Loan
_____________________
requested pursuant to an Index Rate Bid Loan Request, the London
interbank offered rate for deposits in Dollars for the period
commencing on the date of such Bid Loan and ending on the maturity
date thereof which appears on Telerate Page 3750 as of 11:00 A.M.,
London time, two Working Days prior to the beginning of such
period.
"Bond Rating": the ratings of the Company's senior
___________
long-term unsecured debt by each of S&P and Moody's, provided
________
that in the event that such a rating is not available from S&P or
Moody's (so long as such rating agency is still in the business
of providing credit ratings), such rating agency will be deemed
to have assigned its lowest rating.
"Index Rate Bid Loan Request": any Bid Loan Request
___________________________
requesting the Bid Loan Banks to offer to make Bid Loans at an
interest rate equal to the Applicable Index Rate plus or minus a
margin.
"Information Memorandum": the Confidential
______________________
Information Memorandum, dated October, 1994, furnished by the
Agent to the Banks in respect of the Second Amendment.
"Level IV Status": exists at any date if, at such
_______________
date, (i) the Company's Bond Rating is rated at or above the level
of BBB- by S&P and Baa3 by Moody's and (ii) Level I Status, Level
II Status or Level III Status does not exist on such date.
<PAGE>
4
"Level V Status": exists at any date if, at such
______________
date, (i) the Company's Bond Rating is rated below the level of
BBB- by S&P and Baa3 by Moody's.
"Second Amendment": the Second Amendment, dated as of
________________
November 29, 1994, to this Agreement, between the Company and the
Agent, and consented to by the Banks.
"Second Amendment Effective Date": the date on which
_______________________________
the Agent shall have received counterparts of the Second
Amendment, duly executed by the Company and consented to by the
Banks.
(c) Amendment to Other Definitions. The following
______________________________
definition is hereby amended as follows:
"Consolidated Intangibles" is hereby amended by adding
________________________
the phrase "or to the provision of cellular services" to the
proviso at the end thereof.
3. Amendment to Subsection 2.2 of the Credit Agreement
___________________________________________________
(The Bid Loans). Subsection 2.2 of the Credit Agreement is hereby
_______________
deleted in its entirety and replaced with the following subsection 2.2:
"2.2 The Bid Loans. (a) The Company may borrow Bid
_____________
Loans from time to time on any Business Day (in the case of Bid
Loans made pursuant to an Absolute Rate Bid Loan Request) or any
Working Day (in the case of Bid Loans made pursuant to an Index
Rate Bid Loan Request) during the period from the Closing Date
until the date occurring one day prior to the Commitment
Termination Date in the manner set forth in this subsection 2.2
and in amounts such that the aggregate amount of Loans outstanding
at any time shall not exceed the aggregate amount of the
Commitments at such time. The loans set forth on Schedule VI
outstanding as of the Closing Date shall, upon such Closing Date,
be deemed to be Bid Loans hereunder for all purposes of this
Agreement.
(b) (i) The Company shall request Bid Loans by delivering
a Bid Loan Request to the Agent, not later than 12:00 Noon (New
York City time) four Working Days prior to the proposed Borrowing
Date (in the case of an Index Rate Bid Loan Request), and not
later than 12:00 Noon (New York City time) one Business Day prior
to the proposed Borrowing Date (in the case of an Absolute Rate
Bid Loan Request), provided, that in no event shall the
________
Company request a Bid Loan prior to the sixth Working Day (in the
case of an Index Rate Bid Loan Request) following the date of the
previous Bid Loan Request and prior to the third Business Day (in
the case of an Absolute Rate Bid Loan Request) following the
date of the previous Bid Loan Request. Each Bid Loan Request may
solicit bids for Bid Loans in an aggregate principal
amount of $10,000,000 or an integral multiple
<PAGE>
5
thereof and for not more than four alternative maturity
dates for such Bid Loans. The maturity date for each Bid Loan
shall be not less than 7 days nor more than 180 days after the
Borrowing Date therefor (and in any event not after the Commitment
Termination Date). The Agent shall promptly notify each Bid Loan
Bank by telex or facsimile transmission of the contents of each
Bid Loan Request received by it.
(ii) In the case of an Index Rate Bid Loan Request, upon
receipt of notice from the Agent of the contents of such Bid Loan
Request, any Bid Loan Bank that elects, in its sole discretion,
to do so, shall irrevocably offer to make one or more Bid Loans
at the Applicable Index Rate plus or minus a margin for each such
Bid Loan determined by such Bid Loan Bank in its sole discretion
for each such Bid Loan. Any such irrevocable offer shall be made
by delivering a Bid Loan Offer to the Agent, before 10:30 A.M.
(New York City time) three Working Days before the proposed
Borrowing Date, setting forth the maximum amount of Bid Loans for
each maturity date, and the aggregate maximum amount for all
maturity dates, which such Bid Loan Bank would be willing to make
(which amounts may, subject to subsection 2.2(a), exceed such Bid
Loan Bank's Commitment) and the margin above or below the
Applicable Index Rate at which such Bid Loan Bank is willing to
make each such Bid Loan. The Agent shall advise the Company
before 11:00 A.M. (New York City time) three Working Days before
the proposed Borrowing Date of the contents of each such Bid Loan
Offer received by it. If the Agent in its capacity as a Bid Loan
Bank shall, in its sole discretion, elect to make any such offer,
it shall advise the Company of the contents of its Bid Loan Offer
before 10:15 A.M. (New York City time) three Working Days before
the proposed Borrowing Date.
(iii) In the case of an Absolute Rate Bid Loan Request, upon
receipt of notice from the Agent of the contents of such Bid Loan
Request, any Bid Loan Bank that elects, in its sole discretion,
to do so, shall irrevocably offer to make one or more Bid Loans
at a rate of interest determined by such Bid Loan Bank in its sole
discretion for each such Bid Loan. Any such irrevocable offer
shall be made by delivering a Bid Loan Offer to the Agent, before
9:30 A.M. (New York City time) on the proposed Borrowing Date,
setting forth the maximum amount of Bid Loans for each maturity
date, and the aggregate maximum amount for all maturity dates,
which such Bid Loan Bank would be willing to make (which amounts
may, subject to subsection 2.2(a), exceed such Bid Loan Bank's
Commitment) and the rate of interest at which such Bid Loan Bank
is willing to make each such Bid Loan. The Agent shall
advise the Company before 10:00 A.M. (New York City time)
on the proposed Borrowing Date of the contents of
each such Bid Loan Offer received by it. If the
Agent in its capacity as a Bid Loan Bank shall,
<PAGE>
6
in its sole discretion, elect to make any such offer, it shall
advise the Company of the contents of its Bid Loan Offer before
9:15 A.M., New York City time, on the proposed Borrowing Date.
(iv) The Company shall before 11:30 A.M. (New York City
time) three Working Days before the proposed Borrowing Date (in
the case of Bid Loans requested by an Index Rate Bid Loan Request)
and before 10:30 A.M. (New York City time) on the proposed
Borrowing Date (in the case of Bid Loans requested by an Absolute
Rate Bid Loan Request) either, in its absolute discretion:
(A) Cancel such Bid Loan Request by giving the Agent
telephone notice to that effect, or
(B) accept one or more of the offers made by any Bid Loan
Bank or Bid Loan Banks pursuant to clause (ii) or clause (iii)
above by giving telephone notice to the Agent (immediately
confirmed by delivery to the Agent of a Bid Loan Confirmation) of
the amount of Bid Loans for each relevant maturity date to be made
by each Bid Loan Bank (which amount for each such maturity date
shall be equal to or less than the maximum amount for such
maturity date specified in the Bid Loan Offer of such Bid Loan
Bank, and for all maturity dates included in such Bid Loan Offer
shall be equal to or less than the aggregate maximum amount
specified in such Bid Loan Offer for all such maturity dates) and
reject any remaining offers made by Bid Loan Banks pursuant to
clause (ii) or clause (iii) above; provided,
________
however, that (x) the Company may not accept offers for Bid Loans
_______
for any maturity date in an aggregate principal amount in excess
of the maximum principal amount requested in the related Bid Loan
Request, (y) if the Company accepts any of such offers, it must
accept offers strictly based upon pricing for such relevant
maturity date and no other criteria whatsoever and (z) if two or
more Bid Loan Banks submit offers for any maturity date at
identical pricing and the Company accepts any of such offers but
does not wish to (or by reason of the limitations set forth in
subsection 2.2(a) or in clause (x) of the proviso, cannot) borrow
the total amounts offered by such Bid Loan Banks with such
identical pricing, the Company shall accept offers from all of
such Bid Loan Banks in an amount to be allocated
among them pro rata according to the amounts offered by
___ ____
such Bid Loan Banks (or as nearly pro rata as shall be practicable
___ ____
after giving effect to the requirement that Bid Loans made by a
Bid Loan Bank on a Borrowing Date for each relevant maturity date
shall be in a principal amount of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof).
(v) If the Company notifies the Agent that a Bid Loan
Request is cancelled pursuant to clause (iv)(A) above, the
<PAGE>
7
Agent shall give prompt telephone notice to the Bid Loan Banks,
and the Bid Loans requested thereby shall not be made.
(vi) If the Company accepts pursuant to clause (iv)(B) above
one or more of the offers made by any Bid Loan Bank or Bid Loan
Banks, the Agent shall promptly notify each Bid Loan Bank which
has made such an offer of the aggregate amount of such Bid Loans
to be made on such Borrowing Date for each maturity date and of
the acceptance or rejection of any offers to make such Bid Loans
made by such Bid Loan Bank. Each Bid Loan Bank which is to make
a Bid Loan shall, subject to subsection 4.2, before 12:00 Noon
(New York City time) on the Borrowing Date specified in the Bid
Loan Request applicable thereto, make available to the Agent at
its office set forth in subsection 9.2 the amount of Bid Loans to
be made by such Bid Loan Bank, in immediately available funds.
The Agent will make such funds available to the Company as soon
as practicable on such date at the Agent's aforesaid address. As
soon as practicable after each Borrowing Date, the Agent shall
notify each Bank of the aggregate amount of Bid Loans advanced on
such Borrowing Date and the respective maturity dates thereof.
(c) Within the limits and on the conditions set forth in
this subsection 2.2, the Company may from time to time borrow
under this subsection 2.2, repay pursuant to paragraph (d) below,
and reborrow under this subsection 2.2.
(d) The Company shall repay to the Agent for the account of
each Bid Loan Bank which has made a Bid Loan (or the Bid Loan
Assignee in respect thereof, as the case may be) on the maturity
date of each Bid Loan (such maturity date being that specified by
the Company for repayment of such Bid Loan in the related Bid Loan
Request) the then unpaid principal amount of such Bid Loan. The
Company shall not have the right to prepay any principal amount
of any Bid Loan.
(e) The Company shall pay interest on the unpaid principal
amount of each Bid Loan from the Borrowing Date to the stated
maturity date thereof, at the rate of interest determined pursuant
to paragraph (b) above (calculated on the basis of a 360-day year
for actual days elapsed), payable on the interest payment date or
dates specified by the Company for such Bid Loan in the related
Bid Loan Request as provided in the Bid Loan Note evidencing such
Bid Loan. If all or a portion of the principal amount of any Bid
Loan shall not be paid when due (whether at the stated maturity,
by acceleration or otherwise), such overdue principal amount
shall, without limiting any rights of any Bank under this
Agreement, bear interest from the date on which
such payment was due at a rate per annum which is
2% above the rate which would otherwise be applicable pursuant
<PAGE>
8
to the Bid Loan Note evidencing such Bid Loan until the
scheduled maturity date with respect thereto as set forth in the
Bid Loan Note evidencing such Bid Loan, and for each day
thereafter at a rate per annum which is 2% above the Alternate
Base Rate until paid in full (after as well as before judgment).
(f) The Bid Loan made by each Bid Loan Bank shall be
evidenced initially by a promissory note of the Company,
substantially in the form of Exhibit B with appropriate insertions
(a "Grid Bid Loan Note"), payable to the order of such Bid
__________________
Loan Bank and representing the obligation of the Company to pay
the unpaid principal amount of all Bid Loans made by such Bid
Loan Bank, with interest on the unpaid principal amount from time
to time outstanding of each Bid Loan evidenced thereby as
prescribed in subsection 2.2(e). Each Bid Loan Bank is hereby
authorized to record the date and amount of each Bid Loan made
by such Bank, the maturity date thereof, the date and amount of
each payment of principal thereof and the interest rate with
respect thereto on the schedule annexed to and constituting part
of its Grid Bid Loan Note, and any such recordation shall
constitute prima facie evidence of the accuracy of the
_____ _____
information so recorded; provided, however, that
________ _______
the failure to make any such recordation or any error in any such
recordation shall not affect the obligations of the Company
hereunder or under any Grid Bid Loan Note. Each Grid Bid Loan
Note shall be dated the Closing Date and each Bid Loan evidenced
thereby shall bear interest for the period from and including the
Borrowing Date thereof on the unpaid principal amount thereof
from time to time outstanding at the applicable rate per annum
determined as provided in, and such interest shall be payable as
specified in, subsection 2.2(e).
(g) Amounts advanced by a Bid Loan Bank pursuant to this
subsection 2.2 on a Borrowing Date which have the same maturity
date and interest rate shall be deemed to constitute one Bid Loan
so long as such amounts remain evidenced by the Grid Bid Loan
Note of such Bid Loan Bank; any such Bid Loan Bank that wishes
such amounts to constitute more than one Bid Loan and to have
each such Bid Loan evidenced by a separate promissory
note payable to such Bid Loan Bank, substantially in the
form of Exhibit C with appropriate insertions as to
Borrowing Date, principal amount and interest rate (an
"Individual Bid Loan Note"), shall notify the Agent
________________________
and the Company by telex or facsimile transmission of the
respective principal amounts of the Bid Loans (which principal
amounts shall not be less than $5,000,000 for any of such Bid
Loans) to be evidenced by each such Individual Bid Loan Note.
Not later than three Business Days after receipt of such notice,
the Company shall deliver to such Bid Loan Bank an Individual Bid
Loan Note payable to the order of such Bid Loan Bank in the
principal amount of each such Bid Loan and otherwise
<PAGE>
9
conforming to the requirements of this Agreement. Upon receipt
of such Individual Bid Loan Note, such Bid Loan Bank shall endorse
on the Schedule attached to its Grid Bid Loan Note the transfer
of such Bid Loan from such Grid Bid Loan Note to such Individual
Bid Loan Note.".
4. Amendment to Subsection 2.3 of the Credit Agreement
___________________________________________________
(Fees). Subsection 2.3 of the Credit Agreement is hereby
_____
amended by deleting paragraph (a) thereof in its entirety and
substituting in lieu thereof the following paragraph (a):
"(a) Facility Fees. The Company agrees to pay to the
_____________
Agent for the ratable account of each Bank a facility fee (the
"Facility Fee") from and including the Second Amendment
____________
Effective Date to the Commitment Termination Date, computed at
the rate of (i) 0.1000% per annum for any day on which Level I
Status exists, (ii) 0.1250% per annum for any day on which
Level II Status exists, (iii) 0.1500% per annum for any day on
which Level III Status exists, (iv) 0.2000% per annum for any
day on which Level IV Status exists and (v) 0.3125% per annum
for any day on which Level V Status exists, on the Commitment
of such Bank during the period for which payment is made,
payable quarterly on the last day of each March, June,
September and December and on the Commitment Termination Date
or such earlier date as the Commitments shall terminate as
provided herein, commencing on the first of such dates to occur
after the date hereof.".
5. Amendment to Subsection 2.4 of the Credit Agreement
___________________________________________________
(Termination or Reduction of Commitments; Extension of Commitment
_________________________________________________________________
Termination Date). Subsection 2.4 of the Credit Agreement is hereby
_________________
amended by deleting paragraph (d) thereto in its entirety.
6. Amendment to Subsection 3.2 of the Credit Agreement
___________________________________________________
(No Change). Subsection 3.2 of the Credit Agreement is hereby
___________
amended by deleting such Subsection in its entirety and replacing it
with the following Subsection 3.2:
"3.2 No Change. Since December 31, 1993, there has been
_________
no material adverse change in the business, operations,
property or financial or other condition of the Company and its
Subsidiaries taken as a whole which would materially adversely
affect the ability of the Company to perform its obligations
under this Agreement and the Notes, except as disclosed in the
Information Memorandum provided to each Bank.".
7. Amendment to Subsection 6.2 of the Credit Agreement
___________________________________________________
(Limitation on Liens). Paragraph (h) of Subsection 6.2 of the
_____________________
Credit Agreement is hereby amended by inserting the following phrase,
immediately following the phrase "on Schedule IV" therein:
<PAGE>
10
", and any Lien arising out of the refinancing, extension,
renewal or refunding of any Indebtedness of the Company
secured by any Lien listed on Schedule IV provided, that
________
(i) no such Lien arising out of such refinancing,
extension, renewal, or refunding shall exist against any
property other than the property referred to on Schedule
IV and (ii) the amount of Indebtedness in respect of such
Lien shall not exceed the amount of Indebtedness secured
by the Lien referred to in Schedule IV.".
8. Amendment to Subsection 6.6 of the Credit Agreement
___________________________________________________
(Ownership of Stock of Alascom). Subsection 6.6 of the Credit
_______________________________
Agreement is hereby amended by inserting the following proviso to the
end thereof, immediately following the word "Lien" therein:
", provided that the Company may sell the stock of Alascom
________
to AT&T Corp. on the terms and conditions described in the
Information Memorandum".
9. Amendment to Schedule I to Credit Agreement
___________________________________________
(Addresses and Commitments of Banks). Schedule I to the Credit
____________________________________
Agreement is hereby amended by deleting such Schedule in its entirety
and replacing it with the Schedule I annexed hereto as Annex 1.
10. Amendment to Schedule V to Credit Agreement
___________________________________________
(Litigation). Schedule V to the Credit Agreement is hereby amended
____________
by deleting such Schedule in its entirety and replacing it with the
Schedule V annexed hereto as Annex 2.
11. Amendment to Exhibit A to Credit Agreement (Form of
___________________________________________________
Committed Rate Note). Exhibit A to the Credit Agreement is hereby
____________________
amended by deleting such Exhibit in its entirety and replacing it with
the Exhibit A annexed hereto as Annex 3.
12. Amendment to Exhibit B to Credit Agreement (Form of
___________________________________________________
Grid Bid Loan Note). Exhibit B to the Credit Agreement is hereby
___________________
amended by deleting such Exhibit in its entirety and replacing it with
the Exhibit B annexed hereto as Annex 4.
13. Amendment to Exhibit C to Credit Agreement (Form of
___________________________________________________
Individual Bid Loan Note). Exhibit C to the Credit Agreement is
_________________________
hereby amended by deleting such Exhibit in its entirety and replacing
it with the Exhibit C annexed hereto as Annex 5.
14. Amendment to Exhibit F to Credit Agreement (Form of
___________________________________________________
Bid Loan Request). Exhibit F to the Credit Agreement is hereby
_________________
amended by deleting such Exhibit in its entirety and replacing it with
the Exhibit F annexed hereto as Annex 6.
15. Amendment to Exhibit G to Credit Agreement (Form of
___________________________________________________
Bid Loan Offer). Exhibit G to the Credit Agreement is hereby
_______________
<PAGE>
11
amended by deleting such Exhibit in its entirety and replacing it with
the Exhibit G annexed hereto as Annex 7.
II. Miscellaneous Provisions.
________________________
1. Consent to Amendment. Each Bank hereby consents to
____________________
the execution, delivery and performance of this Second Amendment.
2. Effectiveness. This Second Amendment shall become
_____________
effective as of the date (the "Second Amendment Effective Date")
_______________________________
that the Agent shall have received (a) counterparts of this Second
Amendment, duly executed by the Company and the Agent, and consented
to by the Banks; (b) with an original copy for each Bank, an opinion
of Stoel Rives Boley Jones & Grey, counsel to the Company, dated the
date hereof and addressed to the Agent and the Banks, in form and
substance satisfactory to the Agent; (c) a true and complete copy of
the resolutions duly adopted by the Board of Directors of the Company
in respect of this Second Amendment and the transactions contemplated
hereby, such resolutions in full force and effect since their adoption
(not having been amended, modified, revoked or rescinded) to and
including the date hereof and now in full force and effect being the
only corporate proceedings of the Company now in force relating to or
affecting the matters referred to therein; (d) for the account of each
Bank, a Committed Rate Note and a Grid Bid Loan Note, conforming to the
requirements of the Credit Agreement as amended by this Second
Amendment and executed by a duly authorized officer of the Company; and
(e) accrued Facility Fees to and including the Second Amendment
Effective Date shall have been paid to the Agent for the ratable
account of each Bank.
3. Representations and Warranties. The
______________________________
representations and warranties made by the Company in the Credit
Agreement after giving effect to this Second Amendment and the
transactions contemplated hereby shall be true and correct in all
material respects on and as of the Second Amendment Effective Date as
if made on such date, except where such representations and warranties
relate to an earlier date in which case such representations and
warranties shall be true and correct in all material respects as of
such earlier date; provided that all
________
references to the Credit Agreement in such representations and
warranties shall be and are deemed to mean this Second Amendment as
well as the Credit Agreement as amended hereby.
4. Continuing Effect; No Other Amendments. Except as
______________________________________
expressly amended hereby, all of the terms and provisions of the Credit
Agreement are and shall remain in full force and effect.
5. Expenses. The Company agrees to pay and reimburse
________
the Agent for all of its costs and expenses incurred in
connection with preparation, execution and delivery of this
Second Amendment and ancillary documents including, without
<PAGE>
12
limitation, the fees and disbursements of Simpson Thacher & Bartlett,
special counsel to the Agent.
6. Counterparts. This Second Amendment may be
____________
executed in any number of counterparts by the parties hereto, each of
which counterparts when so executed shall be an original, but all
counterparts taken together shall constitute one and the same
instrument.
7. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE
_____________
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF NEW YORK.
8. New Bank; Exiting Banks. As of the Second
_______________________
Amendment Effective Date, (i) Union Bank of Switzerland (the "New
___
Bank") shall become a Bank party to the Credit Agreement, and the
____
terms "Bank" and "Banks" as used in the Credit Agreement shall be
deemed to include the New Bank and the New Bank shall have all the
rights and obligations of a Bank under the Credit Agreement and (ii)
the Commitments of each of Barclays Bank PLC and Swiss Bank Corporation
shall be terminated and each such Bank shall no longer be a party to
the Credit Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly
authorized officers as of the date first above written.
PACIFIC TELECOM, INC.
By: BRIAN M. WIRKKALA
____________________________________
Title: Vice President and Treasurer
CHEMICAL BANK,
as Agent and as a Bank
By: BETH F. HERMAN
_______________________________
Title: BETH F. HERMAN
Vice President
THE BANK OF NOVA SCOTIA
By: MICHAEL BROWN
_______________________________
Title: Officer
THE BANK OF TOKYO, LTD.,
PORTLAND BRANCH
By: M.W. KRINGLEN
________________________________
Title: Vice President & Manager
BANQUE NATIONALE DE PARIS,
SAN FRANCISCO AGENCY
By: JUDITH A DOWLING KATHIE WOLFE
_________________________________________
Title: Vice President Vice President
BARCLAYS BANK PLC
By: GREG F. HURLEY
_______________________________
Title: Director
CIBC INC.
By: P. SAGGUA
_______________________________
Title: VP
<PAGE>
14
CREDIT SUISSE
By: WORTHINGTON STEPHEN M. FLYNN
__________________________________ ___________________________
Title: DAVID J. WORTHINGTON STEPHEN M. FLYNN
Member of Senior Management MEMBER OF SENIOR MANAGEMENT
THE FUJI BANK, LIMITED,
SAN FRANCISCO AGENCY
By: SHIGEO MATSUMOTO
_______________________________
Title: General Manager
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, SAN FRANCISCO AGENCY
By: YOH NAKAHARA
_______________________________
Title: General Manager
ISTITUTO BANCARIO SAN PAOLO
di TORINO
By: GLEN BINDER
_______________________________
Title: V.P.
By: ANNETTE BERGSTEN
________________________________
Title: AVP
KREDIETBANK N.V.
By: DIANE M. GRIMMIG
_______________________________
Title: Diane Grimmig
Vice President
By: R. SNAUFFER
_______________________________
Title: Robert Snauffer
Vice President
<PAGE>
15
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By: Y. KAMISAWA
_______________________________
Title: Yutaka Kamisawa
Deputy General Manager
By: _______________________________
Title:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: CARL J. MEHLDAU, JR.
______________________________
Title: CARL J. MEHLDAU, JR.
ASSOCIATE
SEATTLE-FIRST NATIONAL BANK
By: DAVID A. DEHLENDORF
_______________________________
Title: Vice President
SOCIETE GENERALE
By: GEORGE Y. L. CHEN
_______________________________
Title: V.P.
THE SUMITOMO BANK, LIMITED
By: HIROSHI AMANO
_______________________________
Title: GENERAL MANAGER
<PAGE>
16
SWISS BANK CORPORATION
By: DAVID L. PARROT David L. Parrot
_______________________________________
Title: Associate Director
Merchant Banking
By: HANS-UELI SURBER Hans-Ueli Suber
_______________________________________
Title: Executive Director
Merchant Banking
UNION BANK OF SWITZERLAND
By: JAMES I. CHU
_______________________________
Title: JAMES I. CHU
ASSISTANT VICE PRESIDENT
By: L. SCOTT SOMMERS
_______________________________
Title: L. SCOTT SOMMERS
VICE PRESIDENT
UNITED STATES NATIONAL BANK OF
OREGON
By: JANICE T. THEDE
_______________________________
Title: Vice President
<PAGE>
SCHEDULES AND EXHIBITS
Annex 1 SCHEDULE I ADDRESSES AND COMMITMENTS OF BANKS
Annex 2 SCHEDULE V LITIGATION
Annex 3 EXHIBIT A FORM OF COMMITTED RATE NOTE
Annex 4 EXHIBIT B FORM OF GRID BID LOAN NOTE
Annex 5 EXHIBIT C FORM OF INDIVIDUAL BID LOAN NOTE
Annex 6 EXHIBIT F FORM OF BID LOAN REQUEST
Annex 7 EXHIBIT G FORM OF BID LOAN OFFER
The above mentioned schedules and exhibits have been omitted.
The Company agrees to furnish supplementally a copy of any
omitted schedule or exhibit to the Commission upon request.
<PAGE>
<TABLE>
EXHIBIT 12
Pacific Telecom, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in millions)
<CAPTION>
Year Ended December 31,
_________________________________________________
1994 1993 1992 1991 1990
______ ______ ______ ______ ______
<C> <C> <C> <C> <C>
Earnings, as defined*:
Income from continuing operations
before income taxes $122.2 $ 82.9 $99.8 $120.4 $137.5
Add:
Fixed charges 48.6 59.5 63.2 67.7 49.2
Equity losses of less than 50%
owned persons - - 0.9 0.5 0.7
Minority interest 1.0 0.6 0.1 2.0 4.0
_____ _____ _____ _____ _____
Total earnings $171.8 $143.0 $164.0 $190.6 $191.4
_____ _____ _____ _____ _____
_____ _____ _____ _____ _____
Fixed charges:
Interest $34.7 $44.3 $52.1 $55.0 $40.1
Interest portion of rental expense 13.9 15.2 11.1 12.7 9.1
____ ____ ____ ____ ____
Total fixed charges $48.6 $59.5 $63.2 $67.7 $49.2
____ ____ ____ ____ ____
____ ____ ____ ____ ____
Ratio of earnings to fixed charges 3.5 2.4 2.6 2.8 3.9
____ ____ ____ ____ ____
____ ____ ____ ____ ____
<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>
<TABLE>
EXHIBIT 21
SUBSIDIARIES OF
PACIFIC TELECOM, INC.
<CAPTION>
Percentage State or Jurisdiction
Owned of Incorporation
__________ _____________________
<S> <C> <C>
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
Northland Telephone Company 100% Minnesota
North-West Telephone Company 100% Wisconsin
PTI TeleVideo, Inc. 100% Wisconsin
Thorp Cellular, 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
Postville Telephone Company 100% Iowa
PTI Broadcasting, Inc. 100% Oregon
Rib Lake Cellular for Wisconsin RSA #2, 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
Wayside Telcom, Inc. 100% Wisconsin
Wayside Cellular, Inc. 100% Wisconsin
The Wayside Telephone Company 100% Wisconsin
</TABLE>
<PAGE>
EXHIBIT 23
DELOITTE &
TOUCHE LLP
____________
3900 US Bancorp Tower Telephone: (503)222-1341
111 SW Fifth Avenue Facsimile: (503)224-2172
Portland, Oregon 97204-3698
INDEPENDENT AUDITOR'S CONSENT
Pacific Telecom, Inc.:
We consent to the incorporation by reference in Registration Statement
No. 33-42577 on Form S-3 and Registration Statement Nos. 33-52600 and
33-54425 on Form S-8 of our report dated February 15, 1995 (March 9,
1995 as to the definitive merger agreement discussed in Note 2) (which
expresses an unqualified opinion and includes an explanatory paragraph
relating to a change in method of accounting for other postretirement
benefits in the year ended December 31, 1993), appearing in this Annual
Report on Form 10-K of Pacific Telecom, Inc. for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
Portland, Oregon
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> OPUR1
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AT DECEMBER 31, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 808261
<OTHER-PROPERTY-AND-INVEST> 140887
<TOTAL-CURRENT-ASSETS> 214289
<TOTAL-DEFERRED-CHARGES> 26644
<OTHER-ASSETS> 252870
<TOTAL-ASSETS> 1442951
<COMMON> 19810
<CAPITAL-SURPLUS-PAID-IN> 205789
<RETAINED-EARNINGS> 442174
<TOTAL-COMMON-STOCKHOLDERS-EQ> 667773
0
0
<LONG-TERM-DEBT-NET> 351997
<SHORT-TERM-NOTES> 21713
<LONG-TERM-NOTES-PAYABLE> 25000
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 15601
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 360867
<TOT-CAPITALIZATION-AND-LIAB> 1442951
<GROSS-OPERATING-REVENUE> 704962
<INCOME-TAX-EXPENSE> 40766
<OTHER-OPERATING-EXPENSES> 540321
<TOTAL-OPERATING-EXPENSES> 581087
<OPERATING-INCOME-LOSS> 123875
<OTHER-INCOME-NET> (7722)
<INCOME-BEFORE-INTEREST-EXPEN> 116153
<TOTAL-INTEREST-EXPENSE> (34754)
<NET-INCOME> 81399
0
<EARNINGS-AVAILABLE-FOR-COMM> 81399
<COMMON-STOCK-DIVIDENDS> 52289
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 141368
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.05
</TABLE>
