===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
PACIFIC TELECOM, INC.
(Name of Issuer)
AMENDMENT NO. 3
PACIFICORP
PacifiCorp Holdings, Inc.
Pacific Telecom, Inc.
PXYZ Corporation
(Names of Persons Filing Statement)
COMMON STOCK, NO PAR VALUE
(Title of Class of Securities)
694876 10 3
(CUSIP Number of Class of Securities)
James H. Huesgen Richard T. O'Brien
Pacific Telecom, Inc. PacifiCorp
805 Broadway 700 NE Multnomah Street
Vancouver, WA 98668-9901 Suite 1600
(360) 905-5800 Portland, Oregon 97232
(503) 731-2000
(Names, Addresses and Telephone Numbers of Persons Authorized
to Receive Notices and Communications on Behalf of Persons Filing Statement)
with copies to:
John M. Schweitzer John J. Huber
Eva M. Kripalani Latham & Watkins
Stoel Rives 1001 Pennsylvania Avenue, N.W.
900 SW Fifth Avenue Suite 1300
Suite 2300 Washington, D.C. 20004-2505
Portland, Oregon 97204 (202) 637-2200
(503) 224-3380
This statement is filed in connection with (check the appropriate box):
(a) /X/ The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1],
Regulation 14C [17 CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c)
[section 240.13e-3(c)] under the Securities Exchange Act of 1934.
(b) / / The filing of a registration statement under the Securities Act
of 1933.
(c) / / A tender offer.
(d) / / None of the above.
Check the following box if soliciting materials or information
referred to in checking box (a) are preliminary copies: X
_________________________
CALCULATION OF FILING FEE
Transaction Amount of
Valuation* Filing Fee
- -------------------------------------------------------------------------------
$158,728,260 $ 31,745.65
* For purposes of calculating fee only. This amount assumes the purchase of
5,290,942 shares of common stock at $30.00 in cash per share. The amount
of the filing fee calculated in accordance with Regulation 240.0-11 of
the Securities Exchange Act of 1934 equals 1/50 of one percentum of the
value of the shares to be purchased.
/ X / Check box if any part of the fee is offset by Rule 0-11(a)(2) and
identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the
Form of Schedule and the date of its filing.
Amount Previously Paid: $31,745.65
Form of Registration No.: N/A
Filing Party: Same as above.
Date Filed: April 7, 1995
===============================================================================
Page 1 of 12 Pages. Exhibit Index on Page 11.
<PAGE>2
INTRODUCTORY STATEMENT
This Amendment No. 3 to the Transaction Statement on Schedule 13E-3 (this
"Amendment No. 3") is being filed by Pacific Telecom, Inc., a Washington
corporation ("Pacific Telecom"), PacifiCorp Holdings, Inc., a Delaware
corporation and the owner of approximately 86.6 percent of the outstanding
common stock of Pacific Telecom ("Holdings"), PXYZ Corporation, a Washington
corporation and newly formed, wholly owned subsidiary of Holdings ("Merger
Sub"), and PacifiCorp, an Oregon corporation and the parent company of Holdings,
for the purpose of amending the Transaction Statement on Schedule 13E-3
originally filed by the parties on April 7, 1995 and amended by Amendment No. 1
filed on May 22, 1995 and Amendment No. 2 filed on June 5, 1995. Pacific
Telecom, Holdings and Merger Sub are parties to an Agreement and Plan of Merger
dated as of March 9, 1995 (the "Merger Agreement"), which provides for the
merger (the "Merger") of Merger Sub with and into Pacific Telecom, in which
Pacific Telecom will be the corporation surviving after the Merger, the holders
of all then-outstanding shares of the common stock, without par value ("PTI
Common Stock") of Pacific Telecom other than Holdings will become entitled to
receive $30.00 per share in cash, and Holdings will become the holder of all
outstanding equity securities of Pacific Telecom.
This Amendment No. 3 relates to a solicitation of proxies by the Board of
Directors of Pacific Telecom in connection with an Annual Meeting of the
shareholders of Pacific Telecom (the "Annual Meeting"), currently scheduled to
be held in September, 1995. At the Annual Meeting, shareholders will be asked to
vote upon proposals (i) to approve the Merger Agreement and (ii) to elect a
slate of ten directors.
The cross-reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location of the information
required to be included in response to the Items of Schedule 13E-3 in the
revised preliminary proxy statement of Pacific Telecom (the "Revised Preliminary
Proxy Statement") which is included as Exhibit (d) to this Statement. All
cross-references below are to captions and subcaptions in the text of, or
appendices to, the Revised Preliminary Proxy Statement without reference to the
Form of Proxy, Letter to Shareholders or Notice of Meeting. The information in
the Revised Preliminary Proxy Statement is hereby expressly incorporated by
reference, each cross-reference below being deemed to be an incorporation by
reference of the portions of the Revised Preliminary Proxy Statement referred to
and the response to each Item being qualified in its entirety by the provisions
of the Revised Preliminary Proxy Statement.
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) See "Meeting Information--Introduction" and "--Solicitation,
Revocation and Use of Proxies."
(b) See "Meeting Information--Voting Information."
(c)-(d) See "Market Price and Dividend Information for PTI Common Stock."
(e) Not applicable.
<PAGE>3
(f) See "Certain Transactions in PTI Common Stock."
ITEM 2. IDENTITY AND BACKGROUND.
Pacific Telecom is the issuer of PTI Common Stock and, together with
Holdings, Merger Sub and PacifiCorp, is filing this Amendment No. 3.
(a)-(d), (g) See "Information Concerning Holdings and PacifiCorp and Their
Directors and Executive Officers."
(e)-(f) None.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) (1) See "Special Factors--Background of the Merger" and "Certain
Transactions With Management and Others."
(2) See "Special Factors--Background of the Merger" and "--Reasons of
PacifiCorp and Holdings for the Merger."
(b) See "Special Factors--Background of the Merger" and "Certain
Transactions in PTI Common Stock."
ITEM 4. TERMS OF THE TRANSACTION.
(a) See "The Merger Agreement."
(b) See "The Merger Agreement" and "Special Factors--Interests of Certain
Persons in the Merger; Conflicts of Interest."
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) See "Special Factors--Certain Effects of the Merger," "--Conduct of
Business After the Merger" and "--Financing the Merger."
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) See "Special Factors--Financing the Merger."
(b) See "Special Factors--Expenses of the Transactions."
(c) See "Special Factors--Financing the Merger."
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) See "Special Factors--Background of the Merger," "--Reasons of
PacifiCorp and Holdings for the Merger," "--Certain Effects of the Merger,"
"--Interests of Certain Persons in the Merger; Conflicts of Interest" and
"--Certain Federal Income Tax Consequences."
<PAGE>4
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(f) See "Special Factors--Background of the Merger,"
"--Recommendations of the Board of Directors of Pacific Telecom and the Special
Committee," "--Opinions of Smith Barney and CS First Boston" and "--Reasons of
PacifiCorp and Holdings for the Merger." See also "The Merger
Agreement--Conditions to the Merger."
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(b) See "Special Factors--Background of the Merger,"
"--Recommendations of the Board of Directors of Pacific Telecom and the Special
Committee," "--Opinions of Smith Barney and CS First Boston," "--Reasons of
PacifiCorp and Holdings for the Merger" and "--Opinion of Financial Advisor to
PacifiCorp."
(c) See "Special Factors--Background of the Merger," "--Opinions of Smith
Barney and CS First Boston" and "Opinion of Financial Advisor to PacifiCorp."
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) See "Security Ownership of Certain Beneficial Owners and Management"
and "Information Concerning Holdings and Pacificorp and Their Directors and
Executive Officers."
(b) See "Certain Transactions in PTI Common Stock."
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
See "Special Factors--Interests of Certain Persons in the Merger;
Conflicts of Interest" and "Executive Compensation."
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH
REGARD TO THE TRANSACTION.
(a)-(b) See "Meeting Information--Voting Information" and "Special
Factors-- Recommendations of the Board of Directors of Pacific Telecom and the
Special Committee."
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) See "Special Factors--Rights of Dissenting Shareholders."
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) See "Selected Financial Data; Pro Forma Financial Information" and
"Incorporation of Certain Documents by Reference."
(b) Not applicable.
<PAGE>5
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a)-(b) See "Meeting Information--Solicitation, Revocation and Use of
Proxies" and "Special Factors--Interests of Certain Persons in the Merger;
Conflicts of Interest."
ITEM 16. ADDITIONAL INFORMATION.
Any additional information is set forth in the Proxy Statement.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit Number Description
-------------- -----------
*(a) Credit Agreement dated as of April 27, 1995 among
PacifiCorp Holdings, Inc., and the banks listed
therein and Morgan Guaranty Trust Company of New
York, as agent
*(b)(1) Opinion of Smith Barney Inc.--see Exhibit C to the
Proxy Statement
*(b)(2) Presentation Materials of Smith Barney Inc. dated
February 13, 1995
*(b)(3) Presentation Materials of Smith Barney Inc. dated
February 15, 1995
*(b)(4) Presentation Materials of Smith Barney Inc. dated
March 8, 1995
*(b)(5) Opinion of CS First Boston Corporation--see
Exhibit D to the Proxy Statement
*(b)(6) Presentation Materials of CS First Boston
Corporation dated March 8, 1995
*(b)(7) Opinion of Salomon Brothers Inc--see Exhibit E to
the Proxy Statement
*(b)(8) Presentation Materials of Edgar, Dunn & Company
dated November 17, 1993
*(b)(9) Presentation Materials of SRI International dated
April 25, 1994
__________________
* Document was previously filed as an exhibit to Schedule 13E-3
<PAGE>6
*(b)(10) Presentation Materials of Edgar, Dunn & Company
dated November 1, 1994
*(b)(11) Presentation Materials of Salomon Brothers Inc
dated August 1994
*(b)(12) Presentation Materials of Salomon Brothers Inc
dated October 1994
*(b)(13) Presentation Materials of Smith Barney Inc. dated
January 25, 1995
*(b)(14) Presentation Materials of Salomon Brothers Inc
dated February 1995 (Special Committee)
*(b)(15) Presentation Materials of Salomon Brothers Inc
dated February 1995 (Valuation)
(b)(16) Presentation Materials of Smith Barney Inc. dated
July 1995
(d) Revised Preliminary Proxy Statement dated
August __, 1995, together with Form of Proxy,
Letter to Shareholders and Notice of Meeting
*(e) Sections 23B.13.010 through 23B.13.310 of the
Washington Business Corporation Act - see Exhibit B
to the Proxy Statement (previously filed)
__________________
* Document was previously filed as an exhibit to Schedule 13E-3
<PAGE>7
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: August 3, 1995
PACIFIC TELECOM, INC.
By JAMES H. HUESGEN
--------------------------------------
James H. Huesgen
Executive Vice President
and Chief Financial
Officer
<PAGE>8
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 3, 1995
PACIFICORP HOLDINGS, INC.
By RICHARD T. O'BRIEN
----------------------------------------
Richard T. O'Brien
Senior Vice President
<PAGE>9
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 3, 1995
PXYZ CORPORATION
By RICHARD T. O'BRIEN
-----------------------------------------
Richard T. O'Brien
President
<PAGE>10
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: August 3, 1995
PACIFICORP
By RICHARD T. O'BRIEN
----------------------------------------
Richard T. O'Brien
Vice President
<PAGE>11
EXHIBIT INDEX
Sequentially
Exhibit Numbered
No. Description Page
------- ----------- -------------
*(a) Credit Agreement dated as of April 27, 1995 among
PacifiCorp Holdings, Inc., the Banks listed therein
and Morgan Guaranty Trust Company of New York,
as agent
*(b)(1) Opinion of Smith Barney Inc. - see Exhibit C to the
Proxy Statement
*(b)(2) Presentation Materials of Smith Barney Inc. dated
February 13, 1995
*(b)(3) Presentation Materials of Smith Barney Inc. dated
February 15, 1995
*(b)(4) Presentation Materials of Smith Barney Inc. dated
March 8, 1995
*(b)(5) Opinion of CS First Boston Corporation - see
Exhibit D to the Proxy Statement
*(b)(6) Presentation Materials of CS First Boston Corporation
dated March 8, 1995
*(b)(7) Opinion of Salomon Brothers Inc - see Exhibit E to
the Proxy Statement
*(b)(8) Presentation Materials of Edgar, Dunn & Company
dated November 17, 1993
*(b)(9) Presentation Materials of SRI International dated
April 25, 1994
*(b)(10) Presentation Materials of Edgar, Dunn & Company
dated November 1, 1994
__________________
* Document was previously filed as an exhibit to Schedule 13E-3
<PAGE>12
*(b)(11) Presentation Materials of Salomon Brothers Inc dated
August 1994
*(b)(12) Presentation Materials of Salomon Brothers Inc dated
October 1994
*(b)(13) Presentation Materials of Smith Barney Inc. dated
January 25, 1995
*(b)(14) Presentation Materials of Salomon Brothers Inc dated
February 1995 (Special Committee)
*(b)(15) Presentation Materials of Salomon Brothers Inc dated
February 1995 (Valuation)
(b)(16) Presentation Materials of Smith Barney Inc. dated
July 1995
(d) Revised Preliminary Proxy Statement
dated August __, 1995, together with Form of Proxy,
Letter to Shareholders and Notice of Meeting
*(e) Sections 23B.13.010 through 23B.13.310 of the
Washington Business Corporation Act - see Exhibit B
to the Proxy Statement
__________________
* Document was previously filed as an exhibit to Schedule 13E-3
MARGINAL IMPACT ON BUNYUN TRANSACTION
(dollars in thousands)
<TABLE>
<CAPTION>
===========================================================================
Assuming Transaction Closes 12/31/95
--------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA $0 $54,605 $60,491 $61,691 $62,029
EBIT 0 29,230 34,887 35,769 36,363
Net Income 0 5,391 8,402 8,733 9,443
Total Debt 204,619 193,000 199,874 169,961 139,385
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================
Assuming Transaction Closes 12/31/96
--------------------------------------------------------
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA $0 $0 $54,605 $60,491 $61,691
EBIT 0 0 29,230 34,887 35,769
Net Income 0 0 5,391 8,402 8,733
Total Debt 0 204,619 193,000 199,874 169,961
=========================================================================
</TABLE>
"MARCH 1995" VERSUS "JULY 1995" FIVE YEAR BUSINESS PLAN
(dollars in thousands)
<TABLE>
<CAPTION>
============================================================================================
March Plan (Without Generic Acquisitions) Versus July Plan (With Bunyun Transaction)
============================================================================================
============================================================================================
Assumes All 3 Transactions Close on 12/31/95
============================================================================================
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA
Without Generics - 3/95 $253,473 $262,660 $284,157 $305,566 $325,449
With Bunyun - 7/95 253,473 317,265 344,648 367,257 387,478
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $54,605 $60,491 $61,691 $62,029
EBIT
Without Generics - 3/95 $147,321 $153,352 $168,670 $182,145 $195,509
With Bunyun - 7/95 147,321 182,582 203,557 217,914 231,872
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $29,230 $34,887 $35,769 $36,363
Interest Expense
Without Generics - 3/95 $38,383 $36,366 $35,185 $31,308 $28,563
With Bunyun - 7/95 38,383 50,481 49,132 44,437 39,545
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $14,115 $13,947 $13,129 $10,982
Net Income
Without Generics - 3/95 $64,532 $69,719 $80,504 $92,479 $103,920
With Bunyun - 7/95 64,532 75,104 88,906 101,212 113,363
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $5,391 $8,402 $8,733 $9,443
Total Debt
Without Generics - 3/95 $526,810 $510,569 $474,686 $427,904 $363,423
With Bunyun - 7/95 731,429 703,569 674,560 597,865 502,808
------- ------- ------- ------- -------
Enhancement/(Reduction) $204,619 $193,000 $199,874 $169,961 $139,385
</TABLE>
"MARCH 1995" VERSUS "JULY 1995" FIVE YEAR BUSINESS PLAN
(dollars in thousands)
<TABLE>
<CAPTION>
============================================================================================
March Plan (With Generic Acquisitions) Versus July Plan (With Bunyun Transaction)
============================================================================================
============================================================================================
Assumes All 3 Transactions Close on 12/31/95
============================================================================================
1995 1996 1997 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA
With Generics - 3/95 $253,473 $313,133 $337,378 $391,166 $412,729
With Bunyun - 7/95 253,473 317,265 344,648 367,257 387,478
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $4,132 $7,270 ($23,909) ($25,251)
EBIT
With Generics - 3/95 $147,321 $183,379 $201,040 $234,030 $248,686
With Bunyun - 7/95 147,321 182,582 203,557 217,914 231,872
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 ($797) $2,517 ($16,116) ($16,814)
Interest Expense
With Generics - 3/95 $38,383 $58,646 $57,128 $65,022 $60,023
With Bunyun - 7/95 38,383 50,481 49,132 44,437 39,545
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 ($8,165) ($7,996) ($20,585) $20,478)
Net Income
With Generics - 3/95 $64,532 $72,465 $84,839 $100,792 $114,297
With Bunyun - 7/95 64,532 75,104 88,906 101,212 113,363
------- ------- ------- ------- -------
Enhancement/(Reduction) $0 $2,639 $4,067 $420 ($934)
Total Debt
With Generics - 3/95 $794,810 $793,431 $898,316 $837,462 $735,443
With Bunyun - 7/95 731,429 703,569 674,560 597,865 502,808
------- ------- ------- ------- -------
Enhancement/(Reduction) ($63,381) ($89,862) ($223,756) ($239,597) ($232,635)
</TABLE>
OTHER FACTORS CONSIDERED
<TABLE>
<CAPTION>
Weighted Average Cost of Capital
- -----------------------------------------------------------------------------
March 1995 July 1995 Difference
---------- --------- ----------
<S> <C> <C> <C>
PTI New Issue Cost of Debt 8.1% 7.1% 1.0%
Cost of Equity (Average) 12.3% 10.9% 1.3%
Weighted Average Cost of Capital (Average) 9.0% 8.5%
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stock Price Trading Performance of Comparable Companies
- ------------------------------------------------------------------------------
Median
<S> <C>
Median Stock Price Change Since March 8, 1995:
All Comparables (1) 7.43%
Selected Comparables (2) -4.69%
- ------------------------------------------------------------------------------
<FN>
(1) Includes: Ameritech, Bell Atlantic, BellSouth, GTE, NYNEX, Pacific
Telesis, SBC, US West, Lincoln, SNET, TDS, Alltel, Century, Cincinatti
Bell, and Frontier.
(2) Includes: Lincoln, Frontier, TDS, Citizen Utilities, Century Telephone,
SNET and Pacific Telesis.
</TABLE>
UPDATED VALUATION ANALYSIS
<TABLE>
<CAPTION>
VALUATION METHODOLOGIES USING NEAR-TERM PROJECTIONS
3/95 Analysis 7/95 Analysis Difference
------------------ ------------------ ------------------
Equity Value Per Equity Value Per
Share Range Share Range Difference
------------------ ------------------ ------------------
Low - High Low - High Low - High
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>Premiums Paid in Minority
Squeezeout Transaction $30.01 $30.76 $30.01 $30.76 $0.00 $0.00
Near-Term Projections
Component Valuation $28.10 $33.67 $28.10 $33.67 $0.00 $0.00
Valuation Matrix $30.00 35.00 30.00 35.00 0.00 0.00
----------------------------------------------------------------------------------------
Average Price Per Share $29.05 $34.34 $29.05 $34.34 $0.00 $0.00
----------------------------------------------------------------------------------------
Note: Bunyun Transaction does not impact the valuations using near-term projections.
</TABLE>
UPDATED VALUATION ANALYSIS
<TABLE>
<CAPTION>
VALUATION METHODOLOGIES USING LONG-TERM PROJECTIONS
(Assuming Closure of
Bunyun Transaction)
------------------
3/95 Analysis 7/95 Analysis Difference
------------------ ------------------ ------------------
7/95 Plan
Equity Value Per Equity Value Per Better/(Worse)
Share Range Share Range than 3/95 Plan
------------------ ------------------ ------------------
Low - High Low - High Low - High
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Discounted Cash Flow Analysis
With Generic Acquisitions - 3/95 $36.08 $40.71 $38.86 $43.39 $2.78 $2.68
Without Generic Acquisitions - 3/95 34.57 38.30 38.86 43.393 $4.29 $5.09
Present Value of Future Stock Price
With Generic Acquisitions - 3/95 $35.17 $38.72 $37.19 $40.98 $2.02 $2.26
Without Generic Acquisitions - 3/95 32.42 35.66 37.19 40.98 $4.77 $5.32
</TABLE>
<PAGE>
PACIFIC TELECOM, INC.
805 Broadway
Vancouver, Washington 98668
August ___, 1995
Dear Shareholder:
You are cordially invited to attend the Annual
Meeting of Shareholders of Pacific Telecom, Inc., a Washington
corporation ("Pacific Telecom"), to be held on September ___, 1995
at __________________________________________________,
commencing at _______________ Pacific Time (the "Annual
Meeting").
At the Annual Meeting, you will be asked to consider
and vote upon a proposal to approve the merger (the "Merger")
of Pacific Telecom with a newly formed wholly owned subsidiary
of PacifiCorp Holdings, Inc. ("Holdings"), the owner of
approximately 86.6 percent of the outstanding common stock of
Pacific Telecom ("PTI Common Stock"), pursuant to which Pacific
Telecom will become a wholly owned subsidiary of Holdings and
shareholders other than Holdings (the "Minority Shareholders")
will receive $30.00 per share in cash in exchange for their PTI
Common Stock (other than shares as to which dissenters' rights
are perfected). Holdings is a wholly owned subsidiary of
PacifiCorp, an Oregon corporation.
A special committee of the Board of Directors of
Pacific Telecom consisting of four independent directors (the
"Special Committee"), with the advice of its own legal and
financial advisors, has recommended the Merger, and the Merger
has been unanimously adopted and approved by the Board of
Directors of Pacific Telecom. The Special Committee has
received written opinions from Smith Barney Inc. and CS First
Boston Corporation to the effect that the merger consideration
of $30.00 per share to be paid to the Minority Shareholders is
fair to such shareholders from a financial point of view. In
addition to the vote required by Washington law, the
affirmative vote of the holders of a majority of the
outstanding shares held by the Minority Shareholders is
necessary to approve the Merger.
At the Annual Meeting, you will also be asked to
elect a Board of Directors consisting of ten persons, including
the six current directors and four additional directors
designated by Holdings, to serve until their respective
successors are duly elected and qualified. The directors so
elected will serve as directors of Pacific Telecom whether or
not the Merger is consummated. Upon the election of such
nominees, a majority of the Board of Directors of Pacific
Telecom will consist of individuals who are designees of
Holdings or directors or officers of PacifiCorp or Holdings.
THE BOARD OF DIRECTORS OF PACIFIC TELECOM RECOMMENDS
THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AND FOR
THE ELECTION OF THE NOMINEES FOR DIRECTOR.
It is important that your shares be represented at
the Annual Meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AT YOUR EARLIEST CONVENIENCE IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE. Your shares of PTI Common
Stock will be voted in accordance with the instructions you
have given in your proxy. If you attend the Annual Meeting,
you may vote in person if you wish, even though you have
previously returned your proxy card. Your prompt cooperation
will be greatly appreciated.
Very truly yours,
Charles E. Robinson
Chairman of the Board
<PAGE>1
PACIFIC TELECOM, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
August, 1995
To the Shareholders of Pacific Telecom, Inc.:
NOTICE IS HEREBY GIVEN that the 1995 Annual Meeting
of Shareholders of PACIFIC TELECOM, INC. ("Pacific Telecom")
will be held at ____________________________________________ at
_______________ on September ___, 1995 for the following purposes:
(1) to consider and vote upon a proposal to approve
an Agreement and Plan of Merger, pursuant to which (a) PXYZ
Corporation ("Merger Sub"), a Washington corporation and a
wholly owned subsidiary of PacifiCorp Holdings, Inc., a
Delaware corporation ("Holdings"), will be merged with and into
Pacific Telecom (the "Merger") and (b) each outstanding share
of Pacific Telecom's common stock ("PTI Common Stock") owned by
Holdings shall be cancelled, each outstanding share of PTI
Common Stock owned by shareholders other than Holdings (the
"Minority Shareholders") (other than shares as to which
dissenters' rights are perfected) will be converted into the
right to receive $30.00 per share in cash and each outstanding
share of capital stock of Merger Sub will be converted into one
share of PTI Common Stock;
(2) to elect a board of ten directors, consisting of
the six current directors and four additional directors
designated by Holdings; and
(3) to transact such other business as may properly
come before the meeting and any adjournments or postponements
thereof.
A copy of the Proxy Statement relating to the Annual
Meeting (which includes, as Exhibit A thereto, a copy of the
Agreement and Plan of Merger) is attached to this notice and
incorporated herein by reference.
Only holders of record of PTI Common Stock at the
close of business on July 31, 1995 will be entitled to notice of
and to vote at the meeting and any adjournments or
postponements thereof. The meeting is subject to adjournment
from time to time as the shareholders present in person or by
proxy determine. In addition to the vote required by
Washington law, the affirmative vote of the holders of a
majority of the outstanding shares of PTI Common Stock held by
the Minority Shareholders is necessary to approve the Merger.
As the record and beneficial owner of approximately
86.6 percent of the issued and outstanding shares of PTI Common
Stock, Holdings will have the ability to cause the election of
at least nine of the directors nominated for election.
Holdings has advised Pacific Telecom that it intends to vote
its shares of PTI Common Stock equally in favor of the election
of each of the nominees.
<PAGE>2
Holders of PTI Common Stock who comply with the
requirements of Sections 23B.13.010 through 23B.13.310 of the
Washington Business Corporation Act (the "WBCA") are entitled
to assert dissenters' rights with respect to the proposed
Merger and to obtain payment of the fair value of their shares
if the proposed Merger is consummated. A copy of
Sections 23B.13.010 through 23B.13.310 of the WBCA is attached
as Exhibit B to the proxy statement that accompanies this
Notice. See "The Merger--Rights of Dissenting Shareholders" in
the proxy statement.
All shareholders are cordially invited to attend the
meeting in person.
Whether or not you plan to attend, please sign and
return the accompanying form of proxy in the enclosed stamped
envelope. If no instructions are given on the accompanying
form of proxy, the shares represented by the proxy will be
voted at the Annual Meeting FOR approval of the Merger
Agreement, FOR election of the nominees for director and in
accordance with this Proxy Statement on any other business that
may properly come before the Annual Meeting and any
postponement or adjournment thereof. If you do not return the
accompanying form of proxy, your shares will not be voted in
favor of approval of the Merger Agreement and will not be voted
in favor of election of the nominees for director. If you are
present at the Annual Meeting, you may withdraw your proxy and
vote in person. We appreciate your giving this matter your
prompt attention.
By Order of the Board of Directors
Donn T. Wonnell
Vice President and Corporate
Secretary
Vancouver, Washington
August ___, 1995
<PAGE>
PACIFIC TELECOM, INC.
805 BROADWAY
VANCOUVER, WASHINGTON 98668
_______________
PROXY STATEMENT
_______________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER ___, 1995
This proxy statement (the "Proxy Statement") is being
furnished to the shareholders of Pacific Telecom, Inc., a
Washington corporation ("Pacific Telecom"), in connection with
the annual meeting of shareholders of Pacific Telecom (the
"Annual Meeting") to be held on September ___, 1995 at _______
____ Pacific Time, at ________________________________________
___________. The accompanying proxy is being solicited by
Pacific Telecom's Board of Directors and is to be voted at
the Annual Meeting and at any adjournments or postponements
thereof.
At the Annual Meeting, holders of shares of common
stock of Pacific Telecom ("PTI Common Stock") will consider and
vote upon (i) a proposal to approve an Agreement and Plan of
Merger, dated as of March 9, 1995 (together with the exhibits
thereto, the "Merger Agreement"), by and among Pacific Telecom,
PacifiCorp Holdings, Inc., a Delaware corporation ("Holdings"),
and PXYZ Corporation, a Washington corporation and a wholly
owned subsidiary of Holdings ("Merger Sub"), and (ii) the
election of ten directors, consisting of the six current
directors and four additional directors designated by Holdings.
Holdings is a wholly owned subsidiary of PacifiCorp, an Oregon
corporation, and owns approximately 86.6 percent of the
outstanding shares of PTI Common Stock. In connection with the
Merger Agreement, PacifiCorp and Pacific Telecom have entered
into a related agreement dated as of March 9, 1995 (the
"PacifiCorp Agreement"), pursuant to which PacifiCorp has made
certain representations and warranties and has agreed to
undertake certain obligations with respect to the Merger. A
copy of the Merger Agreement (which includes the PacifiCorp
Agreement as an exhibit) is attached to this Proxy Statement as
Exhibit A.
HOLDERS OF PTI COMMON STOCK WHO COMPLY WITH THE
REQUIREMENTS OF SECTIONS 23B.13.010 THROUGH 23B.13.310 OF THE
WASHINGTON BUSINESS CORPORATION ACT (THE "WBCA") ARE ENTITLED
TO ASSERT DISSENTERS' RIGHTS WITH RESPECT TO THE PROPOSED
MERGER AND TO OBTAIN PAYMENT OF THE FAIR VALUE OF THEIR SHARES
IF THE PROPOSED MERGER IS CONSUMMATED. A COPY OF
SECTIONS 23B.13.010 THROUGH 23B.13.310 OF THE WBCA IS ATTACHED
TO THE PROXY STATEMENT AS EXHIBIT B. SEE "THE MERGER--RIGHTS
OF DISSENTING SHAREHOLDERS."
_______________
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION
NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
<PAGE>2
The Merger Agreement provides that Merger Sub will be
merged with and into Pacific Telecom (the "Merger"), with
Pacific Telecom being the surviving corporation after the
Merger. In the Merger, each outstanding share of PTI Common
Stock owned by Holdings will be cancelled, each outstanding
share of PTI Common Stock owned by shareholders other than
Holdings (the "Minority Shareholders") (other than shares as to
which dissenters' rights are perfected) will be converted into
the right to receive a cash payment of $30.00 (the "Merger
Consideration"), and each outstanding share of Merger Sub
common stock ("Merger Sub Stock") will be converted into one
share of PTI Common Stock. Thus, as a result of the Merger,
Pacific Telecom will become a wholly owned subsidiary of
Holdings and the Minority Shareholders will receive the Merger
Consideration, without interest, in exchange for their shares.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY PACIFIC TELECOM. THIS PROXY STATEMENT DOES
NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION
TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH
SOLICITATION IN SUCH JURISDICTION. THE DELIVERY OF THIS PROXY
STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
PACIFIC TELECOM SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF. PACIFIC TELECOM UNDERTAKES NO OBLIGATION TO UPDATE THE
INFORMATION CONTAINED HEREIN SUBSEQUENT TO THE DATE HEREOF.
On August ___, 1995, the high and low sales prices for
PTI Common Stock as reported on the Nasdaq National Market were
____ and ____, respectively, and the last reported sale price was
____ per share.
The approximate date on which this Proxy Statement
and the accompanying proxy are first being mailed to
shareholders is August ___, 1995.
THE DATE OF THIS PROXY STATEMENT IS AUGUST ___, 1995.
<PAGE>i
TABLE OF CONTENTS
Page
----
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
MEETING INFORMATION. . . . . . . . . . . . . . . . . . . . . 10
Introduction . . . . . . . . . . . . . . . . . . . . . . 10
Matters To Be Considered at the Meeting. . . . . . . . . 10
Voting Information . . . . . . . . . . . . . . . . . . . 10
Solicitation, Revocation and Use of Proxies. . . . . . . 11
SPECIAL FACTORS. . . . . . . . . . . . . . . . . . . . . . . 12
Background of the Merger . . . . . . . . . . . . . . . 12
Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee . . . . . 34
Opinions of Smith Barney and CS First Boston . . . . . 38
Opinion of Smith Barney . . . . . . . . . . . . . . .38
Opinion of CS First Boston. . . . . . . . . . . . . .49
Reasons of PacifiCorp and Holdings for the Merger. . . .54
Opinion of Financial Advisor to PacifiCorp . . . . . . .56
Certain Effects of the Merger. . . . . . . . . . . . . .66
Conduct of Business After the Merger . . . . . . . . . .67
Conduct of Business if the Merger Is Not Consummated . .67
Regulatory Approvals . . . . . . . . . . . . . . . . . .68
Interests of Certain Persons in the Merger;
Conflicts of Interest . . . . . . . . . . . . . . . .68
Rights of Dissenting Shareholders. . . . . . . . . . . .69
Certain Federal Income Tax Consequences
of the Merger . . . . . . . . . . . . . . . . . . . .71
Financing the Merger . . . . . . . . . . . . . . . . . .73
Expenses of the Transaction. . . . . . . . . . . . . . .74
SELECTED FINANCIAL DATA;
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . 75
CERTAIN FINANCIAL FORECASTS. . . . . . . . . . . . . . . . . 79
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . 90
General. . . . . . . . . . . . . . . . . . . . . . . . .90
Effective Time . . . . . . . . . . . . . . . . . . . . .90
Conversion of Shares; Surrender of Stock
Certificates; Payment for Shares. . . . . . . . . . .90
Representations and Warranties . . . . . . . . . . . . .91
General . . . . . . . . . . . . . . . . . . . . . . .91
Offers, Proposals and Intention To Sell . . . . . . .92
<PAGE>ii
Covenants. . . . . . . . . . . . . . . . . . . . . . . .92
Indemnification of Officers and Directors. . . . . . . .94
Conditions to the Merger . . . . . . . . . . . . . . . .94
Waiver, Amendment and Termination. . . . . . . . . . . .95
Fees and Expenses. . . . . . . . . . . . . . . . . . . .96
MARKET PRICE AND DIVIDEND INFORMATION
FOR PTI COMMON STOCK . . . . . . . . . . . . . . . . . .96
ELECTION OF DIRECTORS . . . . . . . . . . . . . . . . . . . .97
Information as to Nominees for Directors . . . . . . . .98
Information with Respect to Meetings
and Committees. . . . . . . . . . . . . . . . . . . .99
Director Compensation. . . . . . . . . . . . . . . . . 100
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . .101
Summary Compensation Table . . . . . . . . . . . . . . 101
Severance Arrangements . . . . . . . . . . . . . . . . 102
Retirement Plans . . . . . . . . . . . . . . . . . . . 102
Personnel Committee Report on Executive Compensation . 104
Overview. . . . . . . . . . . . . . . . . . . . . . 104
Compensation Program Components . . . . . . . . . . 104
CEO Compensation. . . . . . . . . . . . . . . . . . 106
Performance Graph. . . . . . . . . . . . . . . . . . . 108
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS. . . . . . .110
CERTAIN TRANSACTIONS IN PTI COMMON STOCK . . . . . . . . . .110
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . .113
INFORMATION CONCERNING HOLDINGS AND PACIFICORP
AND THEIR DIRECTORS AND EXECUTIVE OFFICERS. . . . . . .114
INDEPENDENT AUDITORS . . . . . . . . . . . . . . . . . . . .120
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . .120
SHAREHOLDER PROPOSALS. . . . . . . . . . . . . . . . . . . .120
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
EXCHANGE ACT OF 1934. . . . . . . . . . . . . . . . . .120
<PAGE>iii
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . .121
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . .121
EXHIBITS
A - Agreement and Plan of Merger
B - Sections 23B.13.010 through 23B.13.310
of the Washington Business Corporation Act
C - Opinion of Smith Barney Inc.
D - Opinion of CS First Boston Corporation
E - Opinion of Salomon Brothers Inc
<PAGE>1
SUMMARY
The following is a summary of certain information
contained or incorporated by reference in this Proxy Statement.
The following summary is not intended to be complete and is
qualified in its entirety by reference to the more detailed
information contained in this Proxy Statement and the Exhibits
hereto or incorporated herein by reference. Shareholders are
urged to review the entire Proxy Statement carefully.
THE ANNUAL MEETING; RECORD DATE; QUORUM
The Annual Meeting of Shareholders of Pacific Telecom
will be held on September ___, 1995 at _______________, Pacific
Time, at __________________________________________________.
Only holders of record of PTI Common Stock at the close of
business on July 31, 1995 are entitled to notice of and to vote
at the Annual Meeting. On that date, there were 39,616,123
shares of PTI Common Stock outstanding, with each share
entitled to cast one vote with respect to matters other than
the election of directors, as to which cumulative voting will
apply. The presence (in person or by proxy) of the holders of
a majority of the outstanding shares of the PTI Common Stock is
necessary to constitute a quorum at the Annual Meeting. See
"Meeting Information--Introduction" and "--Voting Information."
MATTERS TO BE CONSIDERED AT THE MEETING; VOTING INFORMATION;
VOTE REQUIRED
At the Annual Meeting, shareholders will consider and
vote upon a proposal to approve the Merger Agreement, a copy of
which is attached as Exhibit A to this Proxy Statement and is
incorporated by reference herein. In addition, the
shareholders will be asked to elect ten directors. Under the
Merger Agreement, approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the
outstanding shares of PTI Common Stock held by the Minority
Shareholders. Under the WBCA, approval of the Merger Agreement
also requires the affirmative vote of the holders of two-
thirds of the outstanding PTI Common Stock. In the election of
directors, the holders of PTI Common Stock have cumulative
voting rights. Holdings has advised Pacific Telecom that it
intends to vote for approval of the Merger Agreement and to
vote its shares of PTI Common Stock equally in favor of the
election of each of the nominees for director. See "Meeting
Information--Matters To Be Considered At The Meeting" and "--
Voting Information."
STRUCTURE OF THE MERGER
Pursuant to the Merger Agreement, Merger Sub will
merge with and into Pacific Telecom, with Pacific Telecom being
the surviving corporation after the Merger. Each outstanding
share of PTI Common Stock held by the Minority Shareholders
(other than shares as to which dissenters' rights are perfected)
will be converted into the right to receive the Merger
Consideration, without interest. Each outstanding share of
PTI Common Stock held by Holdings will be cancelled without
<PAGE>2
consideration. Each outstanding share of Merger Sub Stock will
be converted into the right to receive one share of PTI Common
Stock. See "The Merger Agreement--General" and "--Conversion
of Shares; Surrender of Stock Certificates; Payment for Shares."
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF
PACIFIC TELECOM AND THE SPECIAL COMMITTEE
A special committee of the Board of Directors,
consisting solely of directors of Pacific Telecom who are not
employees of Pacific Telecom or employees or directors of
PacifiCorp or Holdings or any of their other affiliates (the
"Special Committee"), has unanimously determined, based
primarily upon the opinions of Smith Barney Inc. ("Smith
Barney") and CS First Boston Corporation ("CS First Boston"),
that the Merger Agreement is fair to, and in the best interests
of, the Minority Shareholders. After considering the
recommendation of the Special Committee, the Board of Directors
of Pacific Telecom has determined that the Merger Agreement is
fair to, and in the best interests of, Pacific Telecom and its
shareholders, has unanimously approved and adopted the Merger
Agreement and recommends that the Minority Shareholders vote
FOR the proposal to approve the Merger Agreement. See "Special
Factors--Background of the Merger" and "--Recommendations of
the Board of Directors of Pacific Telecom and the Special
Committee."
OPINIONS OF FINANCIAL ADVISORS
Each of Smith Barney and CS First Boston, both
nationally recognized investment banking firms, has rendered a
written opinion to the Special Committee to the effect that,
subject to the assumptions set forth therein, as of the date of
this Proxy Statement, the Merger Consideration is fair to the
Minority Shareholders, from a financial point of view. The
full text of the written opinions of Smith Barney and CS First
Boston, which set forth the assumptions made, procedures
followed, matters considered and limits of review, are attached
hereto as Exhibits C and D, respectively. MINORITY
SHAREHOLDERS ARE URGED TO AND SHOULD READ SUCH OPINIONS
CAREFULLY AND IN THEIR ENTIRETY. See "Special Factors--
Opinions of Smith Barney and CS First Boston."
Salomon Brothers Inc ("Salomon Brothers"), also a
nationally recognized investment banking firm, has rendered a
written opinion to the effect that, subject to the assumptions
set forth therein, as of March 9, 1995, the Merger
Consideration was fair to PacifiCorp, from a financial point of
view. The opinion does not address the fairness of the Merger
Consideration to the Minority Shareholders. The full text of
the written opinion of Salomon Brothers, which sets forth the
assumptions made, procedures followed, matters considered and
limits of review, is attached hereto as Exhibit E. SUCH
OPINION SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY. See
"Special Factors--Opinion of Financial Advisor to PacifiCorp."
<PAGE>3
REASONS OF HOLDINGS AND PACIFICORP FOR THE MERGER
Holdings determined to pursue a merger transaction
with Pacific Telecom for the following reasons: (i) to better
position Holdings and Pacific Telecom to take advantage of
possible synergies between the electric and telecommunications
businesses, without the constraints of actual or perceived
conflicts with the minority interest; (ii) to simplify the
corporate structure and eliminate certain expenses associated
with duplication of functions and Pacific Telecom's reporting
obligations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), with respect to the publicly held
minority interest; (iii) to improve PacifiCorp's earnings per
share growth prospects due to the higher earnings growth
prospects expected in the telecommunications industry as
compared to the electric utility industry; and (iv) to
facilitate more efficient capital allocation decisions between
PacifiCorp, Holdings and Pacific Telecom, which will become
increasingly important in view of Pacific Telecom's planned
acquisition activity. See "Special Factors--Reasons of
PacifiCorp and Holdings for the Merger."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, Pacific Telecom will
become a wholly owned subsidiary of Holdings. Upon the
effectiveness of the Merger, shareholders of Pacific Telecom,
other than Holdings, will no longer have any continuing
interest in Pacific Telecom. PTI Common Stock will no longer
be traded on the Nasdaq National Market, and the registration
of PTI Common Stock under the Exchange Act will be terminated.
See "Special Factors--Certain Effects of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Merger Agreement provides that the directors and
officers of Pacific Telecom at the effective time of the Merger
(the "Effective Time") shall be the initial directors and
officers of Pacific Telecom after the Merger. Holdings has
agreed to cause Pacific Telecom to maintain for the benefit of
current directors and officers of Pacific Telecom, for six
years after the Merger, director and officer liability
insurance and the indemnification rights currently provided for
in articles of incorporation and bylaws of Pacific Telecom and
its subsidiaries. PacifiCorp has also agreed to indemnify
current directors of Pacific Telecom with respect to certain
matters. Dr. Nancy Wilgenbusch is a member of the Board of
Directors of both Pacific Telecom and PacifiCorp. Certain
executive officers of Pacific Telecom are participants in a
severance plan providing for the payment of severance benefits
if their employment is terminated without cause. See "Special
Factors--Interests of Certain Persons in the Merger; Conflicts
of Interest," "The Merger Agreement--Indemnification of
Officers and Directors" and "Executive Compensation--Severance
Arrangements."
CONDUCT OF BUSINESS AFTER THE MERGER
Following consummation of the Merger, it is expected
that the business and operations of Pacific Telecom will be
continued by Pacific Telecom substantially
<PAGE>4
as they are currently being conducted. Except for the Merger
and as otherwise described in Pacific Telecom's prior filings
with the Securities and Exchange Commission (the "SEC"), neither
Holdings nor PacifiCorp has any current intention to sell or
dispose of all or any material portion of the PTI Common Stock
or the business or assets of Pacific Telecom, and neither
Holdings nor PacifiCorp has any present plans or proposals that
would result in any other extraordinary corporate transaction
such as a merger, reorganization, liquidation, relocation of
operations, sale or transfer of assets involving Pacific Telecom
or any material change in Pacific Telecom's corporate structure,
business or composition of its management. Holdings will
continue to evaluate Pacific Telecom's business and operations
and will make such changes as are deemed appropriate. Pursuant
to the Merger Agreement, (i) the members of the Board of
Directors of Pacific Telecom immediately prior to the Merger,
including the four additional directors designated for election
by Holdings pursuant to the Merger Agreement, will be the
initial directors of Pacific Telecom following the Merger and
(ii) the officers of Pacific Telecom immediately prior to the
Merger will be the initial officers of Pacific Telecom following
the Merger. See "Special Factors-- Conduct of Business After
the Merger."
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, it is expected that
the business and operations of Pacific Telecom will continue to
be conducted substantially as they are currently being
conducted. Pacific Telecom will continue to be controlled by
Holdings, and the Board of Directors of Pacific Telecom will
include the four additional directors nominated by Holdings for
election at the Annual Meeting. In such event, following the
Annual Meeting a majority of the members of the Board of
Directors of Pacific Telecom will consist of individuals who
are designees of Holdings or directors or officers of
PacifiCorp or Holdings. In addition, in such event, Holdings
may purchase additional PTI Common Stock from time to time,
subject to availability at prices deemed acceptable to
Holdings, pursuant to a merger transaction, tender offer, open
market or privately negotiated transactions or otherwise on
terms more or less favorable to the Minority Shareholders than
the terms of the Merger. However, Holdings has made no
determination as to any future transactions if the Merger is
not consummated. See "Special Factors--Conduct of Business if
the Merger is Not Consummated."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for PTI Common Stock pursuant to
the Merger will be a taxable transaction for federal income tax
purposes under the Internal Revenue Code of 1986, as amended,
and also may be a taxable transaction under applicable state,
local, foreign and other tax laws. See "Special Factors--
Certain Federal Income Tax Consequences of the Merger."
DISSENTERS' RIGHTS
Holders of PTI Common Stock who comply with the
requirements of Sections 23B.13.010 through 23B.13.310 of the
WBCA are entitled to assert dissenters'
<PAGE>5
rights with respect to the proposed Merger and to obtain payment
of the fair value of their shares if the proposed Merger is
consummated. A copy of Sections 23B.13.010 through 23B.13.310
of the WBCA is attached to the Proxy Statement as Exhibit B.
See "Special Factors-- Rights of Dissenting Shareholders."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of
Articles of Merger with the Secretary of State of the State of
Washington. The filing will occur promptly after all
conditions to the Merger contained in the Merger Agreement have
been satisfied or waived. Pacific Telecom and Holdings
anticipate that the Merger will be consummated immediately
following the Annual Meeting. See "The Merger Agreement--
General" and "--Effective Time."
PAYMENT AGENT; SURRENDER OF STOCK CERTIFICATES
Holdings has designated LaSalle National Trust, N.A.
as the payment agent (the "Payment Agent") for the Merger.
Promptly after the Effective Time, the Payment Agent will send
to each Minority Shareholder (other than those shareholders
holding shares as to which dissenters' rights are perfected) a
letter of transmittal advising as to the procedures for
surrendering certificates representing shares of PTI Common
Stock in exchange for the Merger Consideration. CERTIFICATES
SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF TRANSMITTAL IS
RECEIVED.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Pacific Telecom, on one
hand, and Holdings and Merger Sub, on the other hand, to
consummate the Merger are subject to the satisfaction or waiver
at or prior to the Effective Time of the following conditions,
among others: (i) approval of the Merger Agreement by the
holders of a majority of the outstanding shares of PTI Common
Stock held by the Minority Shareholders and by the holders of
two-thirds of the outstanding shares of PTI Common Stock; (ii)
the absence of any statute, rule, injunction or order making
illegal the consummation of the Merger; (iii) the receipt of
all required authorizations, consents and approvals, subject to
certain exceptions; (iv) the performance of and compliance
with, in all material respects, all agreements and obligations
contained in the Merger Agreement required to be performed or
complied with at or prior to the Effective Time; (v) the
absence of any governmental action or proceeding seeking to
prohibit consummation of the Merger that is deemed by counsel
more likely than not to be successful; and (vi) the correctness
in all material respects of all representations and warranties
of the parties to the Merger Agreement. The obligations of
Holdings and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver of certain additional conditions,
including the absence of any material adverse change with
respect to Pacific Telecom. See "The Merger Agreement--
Conditions to the Merger."
<PAGE>6
WAIVER, AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT
Any provision of the Merger Agreement may be waived
at any time by the party entitled to the benefits of that
provision. Except for the provisions relating to
indemnification and insurance for Pacific Telecom's current
directors and officers following the Merger, the Merger
Agreement may be amended or supplemented at any time except
that, after approval of the Merger Agreement by the
shareholders of Pacific Telecom, no amendment may be made that
decreases the Merger Consideration or in any other way
materially adversely affects the Minority Shareholders without
the further approval of such shareholders. See "The Merger
Agreement--Waiver, Amendment and Termination."
The Merger Agreement may be terminated at any time
prior to the Effective Time, before or after approval of the
Merger Agreement by the shareholders of Pacific Telecom:
(i) by mutual consent of Pacific Telecom and Holdings; (ii) by
Pacific Telecom or Holdings if the Effective Time has not
occurred on or before September 30, 1995, subject to certain
exceptions; (iii) by Holdings or Pacific Telecom if the other
party breaches its obligations under the Merger Agreement in
any material respect; (iv) by Holdings or Pacific Telecom if
consummation of the Merger is prohibited by any final,
nonappealable order, decree or injunction; (v) by Holdings or
Pacific Telecom if the shareholders of Pacific Telecom fail to
approve the Merger; and (vi) by Holdings or Merger Sub if the
Special Committee or the Board of Directors of Pacific Telecom
shall have withdrawn or modified, in any manner adverse to
Holdings or Merger Sub, its recommendation or approval of the
Merger or the Merger Agreement. See "The Merger Agreement--
Waiver, Amendment and Termination."
<PAGE>7
SUMMARY FINANCIAL DATA
The following table sets forth summary selected
historical consolidated financial information for Pacific
Telecom and its subsidiaries for the six-month periods ended
June 30, 1995 and 1994, and each of the five years in the
period ended December 31, 1994. The consolidated financial
data for the six months ended June 30, 1995 and 1994 are
derived from the unaudited consolidated financial information
of Pacific Telecom not included herein, but incorporated by
reference. In management's opinion, this unaudited information
has been prepared on a basis consistent with the audited
consolidated financial statements of Pacific Telecom
incorporated herein by reference. The results of operations
for the six months ended June 30, 1995 are not indicative of
results which may be expected for the entire year due to, among
other things, the pending sale of Alascom, Inc. The
consolidated financial data of Pacific Telecom for each of the
five years in the period ended December 31, 1994 are derived
from the audited consolidated financial statements of Pacific
Telecom not included herein, but incorporated by reference.
The following financial information should be read in
conjunction with the historical consolidated financial
statements and notes thereto of Pacific Telecom included in
Pacific Telecom's Quarterly Report on Form 10-Q for the period
ended June 30, 1995 (the "1995 Form 10-Q") and Pacific
Telecom's 1994 Annual Report on Form 10-K (the "1994 Form 10-K"),
which are each incorporated herein by reference.
<TABLE>
<CAPTION>
Six Months Ended
June 30 Years Ended December 31,
-------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $374,055 $336,328 $704,962 $702,111 $698,175 $719,991 $677,883
Operating expenses 288,407 266,885 540,321 560,463 558,701 559,567 522,904
- ---------------------------------------------------------------------------------------------------------
Net operating income 85,648 69,443 164,641 141,648 139,474 160,424 154,979
- ---------------------------------------------------------------------------------------------------------
Income from continuing
operations 37,139 33,434 81,399 59,058 67,248 89,536 95,410
Gain (loss) from discontinued
operations (1) -- -- -- 60,444 (45,741) (8,431) (5,186)
- ---------------------------------------------------------------------------------------------------------
Net income applicable to
common stock $37,139 $33,434 $81,399 $119,502 $21,507 $81,105 $90,219
- ---------------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 39,616 39,609 39,612 39,584 39,526 39,477 38,768
Data Per Common Share:
Income from continuing
operations $ .94 $ .84 $ 2.05 $ 1.49 $ 1.70 $ 2.27 $ 2.46
Gain (loss) from discontinued
operations -- -- -- 1.53 (1.16) (.22) (.13)
- ---------------------------------------------------------------------------------------------------------
Net income $ .94 $ .84 $ 2.05 $ 3.02 $ .54 $ 2.05 $ 2.33
- ---------------------------------------------------------------------------------------------------------
Dividends declared and paid $ .66 $ .66 $ 1.32 $ 1.32 $ 1.305 $ 1.235 $ 1.13
- ---------------------------------------------------------------------------------------------------------
Book value $17.11 $16.25 $16.85 $16.13 $14.41 $15.16 $14.31
Balance Sheet Data:
Total assets $1,672,339 $1,471,762 $1,442,951 $1,482,224 $1,607,289 $1,748,570 $1,787,622
Long-term debt, net of
current maturities 376,175 410,931 376,997 426,669 571,585 528,391 480,940
Shareholders' equity 677,986 643,801 667,773 638,711 569,846 598,524 563,906
- ----------------------------
(Footnote on following page)
<PAGE>8
<FN>
(1) 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 in the 1994 Form 10-K and
incorporated herein by reference 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.
</TABLE>
CERTAIN FINANCIAL FORECASTS
Certain forecasts of Pacific Telecom's future
operating performance prepared by management of Pacific Telecom
in January 1995 were furnished to the Special Committee and to
Smith Barney, CS First Boston and Salomon Brothers in connection
with their review of the proposed Merger. Such forecasts were
prepared in the ordinary course of business and were not
prepared in contemplation of the proposed Merger. Accordingly,
such forecasts do not give effect to the Merger and do not
reflect any benefits that might be realized by Holdings and
PacifiCorp upon consummation of the Merger.
In July 1995, in connection with the review by the
Special Committee and by Smith Barney and CS First Boston of the
effect on the fairness of the Merger Consideration of a proposed
transaction involving the acquisition of additional rural local
exchange assets by Pacific Telecom, management of Pacific
Telecom was asked to prepare additional forecast information to
reflect the effect of the proposed transaction, which
information was furnished to the Special Committee, Smith
Barney, CS First Boston, Holdings and Salomon Brothers. Except
in connection with the preparation of such additional forecast
information, the forecasts have not been updated since the date
of their preparation. Such forecasts necessarily involve
estimates as to the future which may or may not prove to be
accurate and reflect numerous assumptions as to matters beyond
the control of Pacific Telecom. Actual results may vary from
those reflected in the forecasts. Pacific Telecom does not
intend to update or publicly revise the forecasts. In addition,
no assurance can be given that the proposed transaction will
occur or, if it occurs, that it will occur in the form
contemplated by the additional forecast information. For
information concerning the forecasts, see "Certain Financial
Forecasts."
MARKET PRICE AND DIVIDEND
INFORMATION FOR PTI COMMON STOCK
On November 1, 1994, the last full trading day prior
to the public announcement of Holdings' initial offer to
purchase PTI Common Stock at $28.00 per share, the high and low
sales prices reported for shares of PTI Common Stock on the
Nasdaq National Market were $24 3/4 and $23 3/4, respectively,
and the last reported sale price was $24 1/4. On March 8,
1995, the last full trading day prior to the public
announcement of the Merger Agreement, the high and low sale
prices
<PAGE>9
reported for shares of PTI Common Stock on the Nasdaq
National Market were $31 1/8 and $29 3/8, respectively, and the
last reported sale price was $31 1/8. On August ___, 1995, the
high and low sales prices for PTI Common Stock as reported on
the Nasdaq National Market were ____ and ____, respectively,
and the last reported sale price was ____. SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
<PAGE>10
MEETING INFORMATION
INTRODUCTION
This Proxy Statement is being furnished to the
shareholders of Pacific Telecom in connection with the
solicitation of proxies by the Board of Directors of Pacific
Telecom from the holders of outstanding shares of PTI Common
Stock for use at the Annual Meeting to be held on September ___,
1995 at _______________ Pacific Time, at ______________________
____________________________, and at any adjournments or
postponements thereof.
MATTERS TO BE CONSIDERED AT THE MEETING
At the Annual Meeting, the shareholders will be asked
to consider and vote upon a proposal to approve the Merger
Agreement. In addition, the shareholders will be asked to
elect ten directors, including the six current directors and
four additional directors designated by Holdings.
VOTING INFORMATION
Holders of record of PTI Common Stock at the close of
business on July 31, 1995 are entitled to vote at the Annual
Meeting. On that date 39,616,123 shares of PTI Common Stock
were issued and outstanding and held by approximately 3,869
holders of record. Each outstanding share of PTI Common Stock
is entitled to one vote on all matters other than the election
of directors, as to which cumulative voting will apply as
described below. The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of PTI Common
Stock entitled to vote at the Annual Meeting is necessary to
constitute a quorum for the transaction of business at such
meeting. Abstentions and broker nonvotes are counted for
purposes of determining whether a quorum exists at the Annual
Meeting, but have no effect in determining the number of votes
received by a nominee. However, proxies that reflect
abstentions will have the same effect as a no vote with respect
to the Merger because approval by the holders of a majority of
the outstanding shares held by the Minority Shareholders is
required under the Merger Agreement, as described below.
The Merger cannot be effected unless, among other
conditions, the Merger Agreement is approved by the holders of
a majority of the outstanding shares of PTI Common Stock held
by the Minority Shareholders and by the holders of two-thirds
of the outstanding shares of PTI Common Stock. As of July 31,
1995, approximately 5,290,942 shares of PTI Common Stock were
held by the Minority
<PAGE>11
Shareholders. Accordingly, the affirmative vote of 2,645,472
shares of PTI Common Stock held by the Minority Shareholders is
a condition to the obligation of Pacific Telecom to consummate
the Merger.
Holdings, which, as of the date hereof, owns
34,325,181 shares of PTI Common Stock, representing
approximately 86.6 percent of the votes entitled to be cast,
has advised Pacific Telecom that it intends to vote for
approval of the Merger Agreement and to vote its shares equally
in favor of the election of each of the nominees for director.
As of July 31, 1995, the directors and executive officers of
Pacific Telecom, Holdings and PacifiCorp owned a total of
181,779 shares of PTI Common Stock, consisting of approximately
0.46 percent of all PTI Common Stock outstanding.
In the election of directors, the holders of PTI
Common Stock have cumulative voting rights, which means each
shareholder has the right to give one candidate as many votes
as the number of directors multiplied by the number of his or
her shares or to distribute votes among any number of
candidates on the same principle. If the authority to vote for
directors is granted to them, the persons named on the
accompanying form of proxy will have the discretionary
authority to vote on a cumulative basis. Directors are elected
by a plurality of the votes cast by the holders of shares
entitled to vote at the Annual Meeting if a quorum is present.
SOLICITATION, REVOCATION AND USE OF PROXIES
Pacific Telecom will pay the costs of soliciting
proxies from its shareholders and the costs of preparing and
mailing this Proxy Statement, proxy and any other material
furnished to the shareholders by Pacific Telecom in connection
with the Annual Meeting. In addition to the solicitation of
proxies by mail, certain of Pacific Telecom's directors,
officers and employees may solicit proxies by telephone,
telecopy and personal contact, without separate compensation
for such activities. Copies of solicitation materials will be
furnished to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of PTI Common Stock, and such
persons will be reimbursed for their reasonable expenses
incurred in connection therewith. In addition, Georgeson &
Company Inc., 88 Pine Street, Wall Street Plaza, New York, New
York 10005 (telephone (212) 440-9800), has been engaged to
solicit proxies on behalf of Pacific Telecom for a fee of
$7,500 plus expenses.
Any person giving a proxy in the form accompanying
this Proxy Statement has the power to revoke it at any time
before it is exercised. The proxy may be revoked by filing with
the Secretary of Pacific Telecom an instrument of revocation or
a duly executed proxy bearing a later date. Such filing shall
be made to the attention of the Secretary of Pacific Telecom by
mailing or delivering such filing to Pacific Telecom's principal
executive offices located at 805 Broadway, Vancouver, Washington
98668. The proxy
<PAGE>12
may also be revoked by affirmatively electing to vote
in person while attending the meeting. However, a shareholder
who attends the meeting need not revoke his or her proxy and
vote in person unless he or she wishes to do so. All valid
proxies will be voted at the meeting in accordance with the
instructions given. If no instructions are given, the shares
represented by the proxy will be voted at the Annual Meeting
FOR approval of the Merger Agreement, FOR the directors and in
accordance with this Proxy Statement on any other business that
may properly come before the Annual Meeting and any
postponement or adjournment thereof.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Since 1973, Pacific Telecom has been a majority-
owned subsidiary of Holdings. As of the date of this Proxy
Statement, Holdings owns approximately 86.6 percent of the
outstanding PTI Common Stock.
During late 1993 and 1994, in connection with its
periodic review of the financial results, operations and
prospects of Holdings' principal subsidiaries, including
Pacific Telecom, management of PacifiCorp and Holdings began to
give increased attention to the technological developments in
the telecommunications industry and the asset acquisition and
disposition strategies of Pacific Telecom. Telecommunications
industry consultants were retained by PacifiCorp and Pacific
Telecom in late 1993 to provide a technological analysis of the
telecommunications industry, Pacific Telecom's competitive
position within the industry and the technological, regulatory
and competitive risks faced by Pacific Telecom.
At a meeting held in November 1993, management of
PacifiCorp and Holdings informed PacifiCorp's Board of
Directors that it planned to review strategic alternatives with
regard to Pacific Telecom and to present a recommendation to
the Board. At that meeting, representatives of Edgar, Dunn &
Company ("Edgar Dunn"), a management consulting firm retained
by PacifiCorp, presented the results of its report dated
November 17, 1993 (the "1993 Edgar Dunn Materials") concerning
the competitive risks facing Pacific Telecom arising from
technological developments, possible changes in the regulatory
environment and changes in customer demand. To ensure broad
applicability of the results, Edgar Dunn selected four Pacific
Telecom companies accounting for 21 percent of Pacific
Telecom's access lines. Edgar Dunn assessed the external
environment and evaluated the relative cost position of Pacific
Telecom's installed wire line facilities versus other
technology options. Edgar Dunn determined that over the next
decade Pacific Telecom will encounter increased competition,
especially in more densely populated urban areas and that
rural areas will also be vulnerable to competition over time
as cost support and technology costs decline.
<PAGE>13
Nonetheless, Edgar Dunn concluded that, with appropriate
planning, Pacific Telecom could counter competitive threats and
take advantage of future growth in telecommunications service
markets. To do this, Edgar Dunn suggested that Pacific Telecom
develop a competitive strategy focusing on its rural service
territories. In conclusion, Edgar Dunn determined that Pacific
Telecom was well positioned in the industry, that Pacific
Telecom had ample opportunity to plan an appropriate response to
potential competitive threats and to take advantage of new
opportunities and that these efforts would require substantial
resources, managerial and technical expertise and financial
support for strategic positioning. The 1993 Edgar Dunn
Materials serve only as an assessment of the technological risks
facing Pacific Telecom, did not contemplate and do not address
any aspect of the Merger and do not constitute a recommendation
to any shareholder of Pacific Telecom as to how such shareholder
should vote at the Annual Meeting. A copy of the 1993 Edgar
Dunn Materials has been filed as an exhibit to the Rule 13e-3
Transaction Statement filed pursuant to the Exchange Act (the
"Schedule 13E-3") and is available for inspection and copying at
the principal offices of Pacific Telecom during Pacific
Telecom's normal business hours by any Minority Shareholder or
any representative of a Minority Shareholder that has been so
designated in writing. A copy of the 1993 Edgar Dunn Materials
shall be provided to any Minority Shareholder or any
representative of a Minority Shareholder who has been so
designated in writing on written request and at the expense of
the requesting Minority Shareholder or representative. The
summary of the 1993 Edgar Dunn Materials set forth in this Proxy
Statement is qualified in its entirety by reference to the full
text of such materials. Edgar Dunn is a general management
consulting firm founded in 1978. Edgar Dunn's headquarters are
located in San Francisco and it has offices in Atlanta and
London. Edgar Dunn's focus is on rate regulated industries and
financial institutions. Since the early 1980s, Edgar Dunn has
provided management consulting services to both PacifiCorp and
Pacific Telecom in a variety of areas. For services rendered in
connection with the 1993 Edgar Dunn Materials, which were billed
on an hourly basis, Edgar Dunn received $154,050. In addition,
Edgar Dunn was reimbursed for its out-of-pocket expenses in the
amount of $31,065.
From time to time during 1993 and 1994, PacifiCorp
received overtures from various investment banking firms
offering to represent PacifiCorp in connection with the sale of
its investment in Pacific Telecom, but there was never any
indication that any of those firms represented a prospective
buyer, and none of the firms was retained. In addition,
approximately two years ago, the exact dates being uncertain,
PacifiCorp received separate inquiries from two other telephone
companies asking whether PacifiCorp would consider selling its
investment in Pacific Telecom. Both companies were advised
that PacifiCorp had no interest in selling its investment in
Pacific Telecom, and no further discussions ensued. In
the summer of 1994, in connection with preliminary discussions
with another
<PAGE>14
utility regarding a possible independent power project joint
venture, representatives of Holdings raised the possibility of
expanding the joint venture to include its interest in Pacific
Telecom. The other utility indicated that it had no interest in
investing in the telecommunications business, and those
discussions were terminated. Other than the foregoing, neither
PacifiCorp nor Holdings has engaged in any discussions with
third parties regarding a possible sale of Pacific Telecom since
January 1, 1993. See "The Merger Agreement-- Representations
and Warranties."
In February 1994, PacifiCorp management, in
conjunction with its presentation of PacifiCorp's five-year
business plan to PacifiCorp's Board of Directors, presented an
analysis of various alternatives with respect to Pacific
Telecom, including the potential purchase of the minority
interest in Pacific Telecom, maintenance of the status quo and
a sale of Pacific Telecom. PacifiCorp's newly elected Chief
Executive Officer informed the PacifiCorp Board that management
had not yet formulated a recommendation regarding a strategic
plan for PacifiCorp's investment in Pacific Telecom.
At a meeting of the Holdings Board held on August 9, 1994,
management of Pacific Telecom made a presentation that included
materials derived from a report dated April 25, 1994 (the "SRI
Materials"), prepared by SRI International, an independent
consulting firm ("SRI"). SRI had been retained by Pacific
Telecom to provide an independent assessment of whether Pacific
Telecom's rural exchange business provided a viable growth
opportunity for continuing investment or whether additional
investment would be inadvisable due to threats posed by new
technology, new competitors and changes in the regulatory
environment. The SRI Materials focused primarily on Pacific
Telecom's business in the Midwest. SRI used as its starting
point the information and analyses contained in the 1993 Edgar
Dunn Materials. In its materials, SRI analyzed regulatory,
competitive and technological threats posed to Pacific
Telecom's business. SRI stated that the most serious threat
posed to Pacific Telecom's businesses comes from bypass
technology, but that Pacific Telecom's broad customer base
minimizes vulnerability to such competition. SRI concluded
that, although bypass technology could seriously erode revenues
for a small number of Pacific Telecom's exchanges, it did not
have the potential to undermine Pacific Telecom's entire local
exchange business. SRI determined that the alleged
technological threats actually presented Pacific Telecom with
additional opportunities to exploit and position Pacific
Telecom's business for partnering with other types of
technology. As more thoroughly set forth in the SRI Materials,
SRI found no serious threat to Pacific Telecom's Midwest region
business as of the time of the study and found that Pacific
Telecom was well positioned to deal with new competitive technologies.
Moreover, these new technologies, especially cellular, cable
television and personal communication systems, constitute
emerging opportunities for Pacific Telecom to expand its
revenues. In conclusion, SRI noted that the Midwest region
constituted an
<PAGE>14
excellent model by which Pacific Telecom could manage and expand
its rural local exchange business in an increasingly competitive
environment. SRI also noted that Pacific Telecom had the time
and resources to position itself for long-term development and
that its Midwest region has valuable assets that it believed should
prove attractive for growth and partnering alliances. SRI recommended
that Pacific Telecom continue to identify specific bypass
targets and incursions and develop models that quantify probable
revenue impact. SRI also recommended that Pacific Telecom
benchmark its other rural exchange regions against its Midwest
regions to determine vulnerabilities to competition and new
technologies. Finally, SRI recommended that Pacific Telecom
develop individual action plans for the rural exchange
businesses and develop an overall strategic plan, including
strategic alliances. The SRI Materials were directed only to
the management of technological issues faced by Pacific Telecom.
The SRI Materials were prepared by SRI at the request of
Pacific Telecom in the ordinary course of Pacific Telecom's
business. The SRI Materials did not contemplate and do not
address any aspect of the Merger and do not constitute a
recommendation to any shareholder of Pacific Telecom as to how
such shareholder should vote at the Annual Meeting. A copy of
the SRI Materials has been filed as an exhibit to the Schedule
13E-3 and is available for inspection and copying at the
principal offices of Pacific Telecom during Pacific Telecom's
normal business hours by any Minority Shareholder or any
representative of a Minority Shareholder that has been so
designated in writing. A copy of the SRI Materials shall be
provided to any Minority Shareholder or any representative of a
Minority Shareholder who has been so designated in writing upon
written request and at the expense of the requesting Minority
Shareholder or representative. The summary of the SRI Materials
set forth in this Proxy Statement is qualified in its entirety
by reference to the full text of such report. SRI is a
nonprofit research and consulting firm and has conducted
numerous market studies of new telecommunication services.
Prior to preparation of the SRI Materials, SRI provided other
consulting services to Pacific Telecom. For services rendered
in connection with preparing the SRI Materials, Pacific Telecom
paid SRI a total of $76,512, which includes reimbursement of
SRI's out-of- pocket expenses.
On August 15, 1994, PacifiCorp engaged Salomon
Brothers to assist as financial advisor in respect of
PacifiCorp's investment in Pacific Telecom.
During August and September 1994, management of
PacifiCorp and Holdings met with representatives of Salomon
Brothers to discuss strategic alternatives with respect to
Pacific Telecom. During the course of those meetings, Salomon
Brothers presented certain background materials relating to
Pacific Telecom. The background materials discussed various
alternatives in respect of Pacific Telecom, including the
potential acquisition by Holdings of the minority interest in
Pacific Telecom. The materials then
<PAGE>16
outlined various strategic benefits to PacifiCorp and Holdings
of a going private transaction. The materials set forth Pacific
Telecom's contribution to PacifiCorp in terms of revenue,
earnings before interest and taxes ("EBIT") and assets. The
materials examined the recent trading history and related data
in respect of PTI Common Stock. The materials then reviewed
illustrative valuation parameters in respect of Pacific Telecom.
The materials set forth an illustrative range of implied
overall firm values of Pacific Telecom from $1,373 million to
$1,858 million, mathematically derived from a wide range of
share prices of $22.75 to $35.00. This share price range of
$22.75 to $35.00 was selected as an illustration rather than
derived from a valuation analysis. Because of its illustrative
nature, this range was very wide and outside the parameters of
an appropriate actual value range for Pacific Telecom. The
materials also set forth related illustrative values of the
telephone and non-telephone segments of the business of Pacific
Telecom. In these illustrations, the value attributed to
Pacific Telecom's telephone business is not based on any
financial analysis, but is the arithmetically calculated
difference between the values assigned to Pacific Telecom's
other businesses and the total firm value mathematically derived
from the $22.75 to $35.50 per share range. The comparable
presentation and discounted cash flow ("DCF") data by segment
presented in the materials was in all material respects the same
in terms of form of presentation and content as that set forth
below under "Opinion of Financial Advisor --Comparable
Transaction Methodology." The materials presented by Salomon
Brothers then considered various transaction considerations and
possible transaction structure alternatives. The materials also
set forth various strategies in connection with the relevant
approach and potential forms of consideration. For certain
important limitations in respect of this summary, see "Opinion
of Financial Advisor to PacifiCorp-- Summary." For certain
important limitations in respect of the engagement of Salomon
Brothers, see "Opinion of Financial Advisor to PacifiCorp." A
copy of the presentation materials of Salomon Brothers used at
the August meeting has been filed as an exhibit to the Schedule
13E-3 and is available for inspection and copying at the
principal offices of Pacific Telecom during Pacific Telecom's
normal business hours by any Minority Shareholder or any
representative of a Minority Shareholder that has been so
designated in writing. A copy of such materials shall be
provided to any Minority Shareholder or any representative of a
Minority Shareholder who has been so designated in writing upon
written request and at the expense of the requesting Minority
Shareholder or representative. This summary of such materials
does not purport to be complete and thus is qualified in all
respects by the materials filed as an exhibit and by the
important limitations referenced above. IN ADDITION, IN
CONNECTION WITH SUCH PRESENTATION AND SUCH BACKGROUND
MATERIALS, SALOMON BROTHERS DID NOT, AND WAS NOT REQUESTED BY
THE BOARD OF DIRECTORS OF PACIFICORP TO, MAKE ANY
RECOMMENDATION AS TO THE FORM OR SPECIFIC AMOUNT OF
CONSIDERATION TO BE PAID PURSUANT TO THE MERGER AGREEMENT OR
OTHERWISE. THE PRESENTATION AND BACKGROUND MATERIALS DO NOT
ANALYZE THE MERGER CONSIDERATION, WERE PREPARED FROM THE
PERSPECTIVE OF
<PAGE>17
PACIFICORP AND DO NOT ADDRESS THE FAIRNESS TO
THE MINORITY SHAREHOLDERS, FROM A FINANCIAL POINT OF VIEW OR
OTHERWISE, OF THE CONSIDERATION TO BE RECEIVED BY THE MINORITY
SHAREHOLDERS IN ANY TRANSACTION (INCLUDING THE MERGER), NOR DO
THEY CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF PACIFIC
TELECOM IN RESPECT OF THE MERGER OR ANY OTHER TRANSACTION.
As a result of the August and September 1994
meetings, management of PacifiCorp and Holdings reached the
conclusion that PacifiCorp should retain its investment in
Pacific Telecom. Management of PacifiCorp and Holdings based
their conclusions on several factors, the material factors
being the higher earnings growth prospects in the
telecommunications industry than in the electric utility
industry, the fact that other utilities were exploring
telecommunications as a diversification alternative, the
perception among the investment community that there could be
beneficial synergies between electric and telecommunications
businesses and the fact that a cash sale of Pacific Telecom
would generate significant tax liability to Holdings and that
Holdings had no current investment alternative for the sale
proceeds. Once the decision had been made by management of
PacifiCorp and Holdings that Holdings should retain its
investment in Pacific Telecom, it was then necessary to decide
whether to maintain the status quo or attempt to acquire the
minority interest. Management of PacifiCorp and Holdings
concluded that, given the size of Holdings' investment, the
anticipated increases in the debt to be incurred by Pacific
Telecom as a result of Pacific Telecom's acquisition plans and
the resulting increase in risk associated with Holdings'
investment, it was advisable for Holdings to have greater
control over Pacific Telecom, which management of PacifiCorp
and Holdings believed was best accomplished by acquiring the
minority interest. For additional information concerning the
factors leading to the decision to acquire the minority
interest of Pacific Telecom, see "--Reasons of PacifiCorp and
Holdings for the Merger."
On November 1, 1994, the PacifiCorp Board met to
consider management's recommendations with respect to
PacifiCorp's investment in Pacific Telecom. The meeting began
with a report by management of the basis for its conclusion that
PacifiCorp's investment in Pacific Telecom should be retained.
Representatives of Edgar Dunn then presented the results of
Edgar Dunn's report dated November 1, 1994 (the "1994 Edgar Dunn
Materials), which updated the analysis contained in the 1993
Edgar Dunn Materials. The 1994 Edgar Dunn Materials noted that
the wireless revolution and the video revolution had fueled
changes in customer demand, which in turn had driven
technological advances and increased competition. Additionally,
there has been a desire on the part of local exchange companies,
interexchange carriers and cable television companies to
diversify into each other's related, existing markets. Certain
companies have made preemptive movements into other markets to
forestall the loss of market position and to forestall entry
into those markets by other companies. Notwithstanding the
<PAGE>18
increased competition, Edgar Dunn concluded that potential
competition facing Pacific Telecom's local exchange business
continued to be manageable and that, in the near term, Pacific
Telecom's local exchange franchises would maintain their value.
Edgar Dunn recommended that Pacific Telecom continue to review
changes in the industry and their potential impact on Pacific
Telecom's local telephone properties and explore and evaluate
ways for taking advantage of selective, technologically driven
growth opportunities. The 1994 Edgar Dunn Materials serve only
as an assessment of the technological risks facing Pacific
Telecom, do not address any aspect of the Merger and do not
constitute a recommendation to any shareholder of Pacific
Telecom as to how such shareholder should vote at the Annual
Meeting. A copy of the 1994 Edgar Dunn Materials has been
filed as an exhibit to the Schedule 13E-3 and is available for
inspection and copying at the principal offices of Pacific
Telecom during Pacific Telecom's normal business hours by any
Minority Shareholder or any representative of a Minority
Shareholder that has been so designated in writing. A copy of
such materials shall be provided to any Minority Shareholder or
any representative of a Minority Shareholder who has been so
designated in writing on written request and at the expense of
the requesting Minority Shareholder or representative. The
summary of the 1994 Edgar Dunn Materials set forth in this
Proxy Statement is qualified in its entirety by reference to
the full text of such report. For services rendered in
connection with the 1994 Edgar Dunn Materials, which were
billed on an hourly basis, Edgar Dunn received $22,050. In
addition, Edgar Dunn was reimbursed for its out-of-pocket
expenses in the amount of $2,529.
Following the presentation by Edgar Dunn, management
discussed the following alternatives with respect to its
investment in Pacific Telecom: maintaining the status quo,
increasing Holdings' involvement in management of Pacific
Telecom without increasing its stock ownership of Pacific
Telecom and increasing both Holdings' involvement in management
and its ownership. Management explained that, for the reasons
discussed below under "--Reasons of PacifiCorp and Holdings for the
Merger," management had concluded that Holdings should acquire
the minority interest of Pacific Telecom.
Representatives of Salomon Brothers then made a
presentation to the PacifiCorp Board. The presentation set
forth certain information concerning the historical stock price
and performance of Pacific Telecom. The presentation then
turned to a discussion of certain data in respect of Pacific
Telecom. The presentation noted that the nonaccess line
businesses of Pacific Telecom had an estimated value of $581
million, implying a value for Pacific Telecom's access line
business of $881 million, or $2,159 per access line based upon
the approximately current share price of $25. For a more
complete discussion of this method of analysis, see "Opinion of
Financial Advisor to PacifiCorp--Segment Approach--General."
The analysis then compared the
<PAGE>19
implied telephone company valuation of Pacific Telecom with the
implied value of five comparable independent telephone
companies. The value per access line of the independent
companies was $1,681 on average, compared to $2,159 for Pacific
Telecom based on the approximately current $25 share price. The
access line value/telephone revenue of the independent companies
was 2.4x on average, compared to 2.7x for Pacific Telecom based
on the approximately current $25 share price. The access line
value/telephone earnings before interest, taxes, depreciation
and amortization ("EBITDA") of the independent companies was
5.4x on average, compared to 6.2x for Pacific Telecom based on
the approximately current $25 share price. The access line
value/telephone EBIT of the independent companies was 9.1x on
average, compared to 10.9x for Pacific Telecom based on the
approximately current $25 share price. The material presented
at the November Board meeting then stated that, based on various
assumptions, the knowledge of Salomon Brothers of Pacific
Telecom and the telecommunications industry, a purchase price of
$27 to $28 per share for PTI Common Stock (or an 8 percent to 12
percent premium to the market price of approximately $25 per
share at that time) should be considered. The materials then
set forth, in summary form, categories of data discussed more
fully under "Opinion of Financial Advisor to PacifiCorp." In
conclusion, the presentation materials stated that Pacific
Telecom's trading value at the time of the presentation of $25
per share implied a 6.2x multiple of telephone EBITDA in respect
of Pacific Telecom's telephone operations. Accordingly, such
figure and other results suggested to Salomon Brothers that, at
such time, Pacific Telecom was not trading at a discount to
other independent telephone companies. Nevertheless, the
valuation per access line of Pacific Telecom was consistent with
the revenue, cash and growth characteristics of Pacific
Telecom's access lines. The presentation further concluded that
applying a 7.0x multiple (based on selected publicly announced
telephone transactions) to the telephone EBITDA of Pacific
Telecom's access lines implied a value of the telephone business
of Pacific Telecom of $995 million, which when added to the
value of the nonaccess line businesses of $581 million,
supported a purchase price of $27 to $28 per share. For a
discussion of certain important limitations concerning the
summary of these presentation materials, see "Opinion of
Financial Advisor to PacifiCorp" and "Opinion of Financial
Advisor to PacifiCorp--Summary." A copy of these presentation
materials has been filed as an exhibit to the Schedule 13E-3 and
is available for inspection and copying at the principal offices
of Pacific Telecom during Pacific Telecom's normal business
hours by any Minority Shareholder or any representative of a
Minority Shareholder that has been so designated in writing. A
copy of such materials shall be provided to any Minority
Shareholder or any representative of a Minority Shareholder who
has been so designated in writing upon written request and at
the expense of the requesting Minority Shareholder or
representative. This summary of such materials does not purport
to be complete and thus is qualified in all respects by the
materials filed as an exhibit and by the important limitations
referenced above. IN ADDITION, IN
<PAGE>20
CONNECTION WITH SUCH PRESENTATION AND SUCH BACKGROUND
MATERIALS, SALOMON DID NOT, AND WAS NOT REQUESTED BY THE BOARD
OF DIRECTORS OF PACIFICORP TO, MAKE ANY RECOMMENDATION AS TO
THE FORM OR SPECIFIC AMOUNT OF CONSIDERATION TO BE PAID
PURSUANT TO THE MERGER AGREEMENT OR OTHERWISE. THE
PRESENTATION AND BACKGROUND MATERIALS DO NOT ANALYZE THE MERGER
CONSIDERATION, WERE PREPARED FROM THE PERSPECTIVE OF PACIFICORP
AND DO NOT ADDRESS THE FAIRNESS TO THE MINORITY SHAREHOLDERS,
FROM A FINANCIAL POINT OF VIEW OR OTHERWISE, OF THE
CONSIDERATION TO BE RECEIVED BY THE MINORITY SHAREHOLDERS IN
ANY TRANSACTION (INCLUDING THE MERGER), NOR DO THEY CONSTITUTE
A RECOMMENDATION TO ANY SHAREHOLDER OF PACIFIC TELECOM IN
RESPECT OF THE MERGER OR ANY OTHER TRANSACTION.
Counsel to PacifiCorp then reviewed possible
structures for the acquisition of the minority interest of
Pacific Telecom. There was a discussion of the possible
transaction structures, after which the Board concluded that
Holdings should pursue a transaction involving a negotiated
agreement with a special committee of independent Pacific
Telecom directors in which minority shareholders would receive
cash in exchange for their shares. For additional information
concerning the alternative structures considered and reasons
for their rejection, see "--Reasons of PacifiCorp and Holdings
for the Merger." After further discussion, PacifiCorp decided
that Holdings should proceed with an offer to acquire the
minority interest at $28.00 per share in cash (the "Initial
Offer"). Determination of the $28.00 per share price was based
on Salomon's evaluation as set forth above. A letter
containing the Initial Offer was sent to Pacific Telecom late
in the day on November 1, and PacifiCorp publicly announced the
Initial Offer on November 2, 1994.
In its press release announcing the Initial Offer,
PacifiCorp noted that the transaction was subject to the
preparation and execution of definitive agreements, the receipt
of regulatory approvals and third- party consents and the
satisfaction of other conditions customary for such
transactions. PacifiCorp also announced that Salomon Brothers
had been retained as its financial advisor in connection with
the Initial Offer. Pacific Telecom announced on November 2,
1994 that it had received the Initial Offer.
On November 7, 1994, the Board of Directors of
Pacific Telecom met to consider the Initial Offer. At that
meeting, the Board of Directors of Pacific Telecom determined
that any proposed business combination between Pacific Telecom
and Holdings should be reviewed and negotiated by members of
the Board of Directors of Pacific Telecom who were not also
officers of Pacific Telecom or directors of Holdings or its
other affiliates. Accordingly, the Board of Directors of
Pacific Telecom unanimously approved the appointment of the
Special Committee, consisting of Mr. Donald L. Mellish
(Chairman), Mr. Roy M. Huhndorf, Ms. Joyce E. Galleher and the
Honorable Sidney R. Snyder, to receive, study, negotiate and
make
<PAGE>21
recommendations to the Board of Directors of Pacific
Telecom concerning the Initial Offer. The Board of Directors
of Pacific Telecom also authorized the Special Committee to
retain legal counsel and financial advisors to assist the
Special Committee in its review and consideration of the
Initial Offer.
Also on November 7, 1994, a lawsuit was filed by an
alleged shareholder of Pacific Telecom seeking to bring a class
action lawsuit on behalf of all shareholders of Pacific Telecom
against Pacific Telecom, PacifiCorp, Holdings and each member
of the Board of Directors of Pacific Telecom. The plaintiff
claimed, among other things, that the $28.00 per share price
offered by Holdings in the Initial Offer was inadequate and
that the members of the Board of Directors of Pacific Telecom
had breached their fiduciary duty to the Minority Shareholders.
On February 3, 1995, this lawsuit was dismissed, without
prejudice, as premature.
Shortly after its formation, the Special Committee
retained Latham & Watkins as its legal counsel. Thereafter,
the Special Committee and its legal counsel discussed the
procedures to be followed in evaluating the Initial Offer,
including the retention of financial advisors. After
conducting interviews of several nationally recognized
investment banking firms, the Special Committee retained Smith
Barney to serve as financial advisor to the Special Committee,
assist in negotiations with Holdings and, if requested, render
an opinion as to the fairness, from a financial point of view,
of the consideration to be received by the Minority
Shareholders in the Initial Offer or in any other business
combination involving Pacific Telecom and Holdings. Prior to
its retention by the Special Committee, Smith Barney had
rendered financial advisory services to Pacific Telecom and
financing and underwriting services to PacifiCorp and its
affiliates with respect to matters unrelated to the Initial
Offer. In addition to Smith Barney, CS First Boston was also
retained by the Special Committee to render, if requested, an
opinion as to the fairness, from a financial point of view, of
the consideration to be received by the Minority Shareholders in
the Initial Offer or any other business combination involving
Pacific Telecom and Holdings.
From mid-November 1994 through January 1995, the
Special Committee and its legal and financial advisors reviewed
certain financial and other information concerning Pacific
Telecom and Holdings. The materials reviewed by the financial
and legal advisors consisted principally of (i) historical
income statements, balance sheets and cash flow statements of
Pacific Telecom for the last three fiscal years, both in
consolidated form and by business segment; (ii) the Pacific
Telecom five-year business plan (see "Certain Financial
Forecasts"); (iii) back-up data relating to the foregoing;
(iv) corporate records of Pacific Telecom, including minutes of
proceedings of the Board of Directors and related materials;
(v) recent publicly filed annual and quarterly reports of
PacifiCorp; (vi) correspondence between management of Pacific
Telecom and the management of PacifiCorp and Holdings;
<PAGE>22
(vii) certain documents evidencing the material financing
arrangements between PacifiCorp and Holdings and PTI;
(viii) documentation relating to the pending sale of Alascom,
Inc. ("Alascom") to AT&T Corp. ("AT&T") for $365 million (the
"Alascom Sale"); and (ix) documentation relating to certain
pending and proposed transactions involving Pacific Telecom.
Also during such period, Smith Barney and CS First Boston met
with representatives of Pacific Telecom, and Smith Barney met
with representatives of Holdings on a number of occasions, and
reviewed and discussed, among other things, (i) Pacific
Telecom's business and historical and projected financial
performance; (ii) Pacific Telecom's five-year business plan;
(iii) certain pending and proposed transactions involving
Pacific Telecom; and (iv) the background of the timing of, and
Holdings' reasons for, the Initial Offer. During discussions
with PacifiCorp's financial advisors, Smith Barney inquired
whether the common stock of PacifiCorp would be available as
consideration in any possible business combination and was
informed by Holdings' financial advisors that the Initial Offer
was limited to cash and that PacifiCorp would not include
common stock of PacifiCorp in the consideration to be received
by the Minority Shareholders. During this period, Smith Barney
and CS First Boston also discussed valuation analyses and
methodologies. On December 22, 1994, Smith Barney and CS First
Boston briefed the Special Committee and its counsel on the
status of the examinations that had been conducted, and Smith
Barney briefed them on the results of discussions with
Holdings.
On January 21, 1995, the Special Committee met with
its financial and legal advisors and certain officers of
Pacific Telecom and considered the terms of the Initial Offer
and certain other issues concerning Pacific Telecom and Smith
Barney's discussions with Holdings. The January 21, 1995
meeting began with a presentation by certain officers of Pacific
Telecom concerning, among other things, (i) the current and
projected future financial performance of Pacific Telecom;
(ii) the long-range business plan of Pacific Telecom, as
described under "Selected Financial Data; Pro Forma Financial
Information" and "Certain Financial Forecasts"; (iii) the
effect on Pacific Telecom's earnings of the Alascom Sale;
(iv) the status of several acquisitions of rural local exchange
carriers ("LECs") that Pacific Telecom was considering for
acquisition in the near-term; and (iv) actual and foreseeable
competition to Pacific Telecom in the LEC and cellular
businesses. During this presentation, Pacific Telecom's
officers explained that Pacific Telecom's long-range business
plan contemplated the completion of the disposition by Pacific
Telecom of its non-core businesses, including the resolution of
the Alaska telecommunications market restructuring through the
Alascom Sale and investment in rural telecommunications assets.
The officers indicated that Pacific Telecom planned to finance
these LEC acquisitions through (i) redeployment of funds
received from the Alascom Sale and other divestitures and
(ii) obtaining additional debt financing, which was expected
to be available due to Pacific Telecom's low debt-to-equity
ratio relative to peer
<PAGE>23
companies in the same or similar industries.
The Pacific Telecom officers further explained that Pacific
Telecom was in the process of implementing this plan, as
evidenced by the Alascom Sale, the sale of Pacific Telecom's
international division and certain other assets and the pending
acquisitions (the "Pending Acquisitions") of certain rural LEC
assets in Colorado, Washington and Oregon from US West
Communications, Inc. ("USWC"). See "Certain Financial
Forecasts." The officers also informed the Special Committee
that Pacific Telecom (i) was planning to submit bids to acquire
certain other rural LECs; (ii) was discussing possible
additional rural LEC acquisitions with certain other parties;
and (iii) had factored into its projected financial results
additional acquisitions of then unidentified rural
telecommunications assets as such assets became available for
purchase at assumed dates (all such acquisitions, other than
the Pending Acquisitions, are referred to collectively as the
"Future Acquisitions"). Certain portions of management's
presentation to the Special Committee on January 21 included
material derived from the SRI Materials described above.
Also at the January 21, 1995 meeting, representatives
of Smith Barney made a preliminary presentation that included
(i) a discussion of the scope and results of Smith Barney's due
diligence review; (ii) a review of the terms of the Initial
Offer; (iii) a discussion of the historical financial
performance of Pacific Telecom and certain transactions
previously effected by Pacific Telecom; (iv) a discussion of
Pacific Telecom's financial information, business plans and
projections provided to the advisors and to the Special
Committee by management of Pacific Telecom; (v) a review of the
valuation methodologies that it was using in connection with
its valuation of the PTI Common Stock and evaluation of the
Initial Offer; (vi) a discussion of the terms of other recent
transactions similar to the Initial Offer; (vii) an analysis of
the historical and projected future trading price of the PTI
Common Stock; and (viii) a discussion of the financial
performance and trading prices of certain companies comparable
to Pacific Telecom. Representatives of CS First Boston also
reviewed the due diligence investigation conducted and the
examination of the Initial Offer being undertaken by CS First
Boston. The Special Committee then discussed the presentations
of Pacific Telecom management and Smith Barney, as well as the
status of the review being conducted by CS First Boston, and
considered possible alternatives to the Initial Offer, including
increasing the amount of the cash consideration to be received
by the Minority Shareholders, as well as an increase in the cash
consideration coupled with the issuance to each Minority
Shareholder of rights or other similar securities (the "Rights")
that would provide additional consideration to the Minority
Shareholders in the event that Holdings, after consummating the
acquisition of the shares held by the Minority Shareholders,
sold Pacific Telecom to a third party within a certain period of
time. The Rights were discussed due to a concern expressed by
the Special Committee that Holdings might have the opportunity
to dispose of 100 percent of the PTI Common Stock to a third
party after
<PAGE>24
acquisition of the shares from the Minority Shareholders.
After further discussion, the Special Committee determined to
seek to improve the Initial Offer by requesting an increase in
the amount of cash to be paid for each share of PTI Common
Stock and by introducing to Holdings the concept of issuing the
Rights. After that discussion, the Special Committee
instructed Smith Barney to discuss with Salomon Brothers two
possible approaches: (i) an increase in the per share
consideration to a price in the "high 30's" and (ii) a smaller
increase in the per share cash consideration coupled with the
Rights.
On January 25, 1995, Smith Barney met with Salomon
Brothers to discuss the terms of the Initial Offer and informed
Salomon Brothers that the Special Committee desired an increase
in the price per share of PTI Common Stock to be received by
the Minority Shareholders to a price in the "high 30's," which
Smith Barney supported in a presentation that included (i) a
discussion of the historical financial performance of Pacific
Telecom and certain transactions previously effected by Pacific
Telecom; (ii) a discussion of Pacific Telecom's financial
information, business plans and projections provided to Smith
Barney by management of Pacific Telecom; (iii) a review of the
valuation methodologies that it was using in connection with
its valuation of the PTI Common Stock and evaluation of the
Initial Offer; and (iv) an analysis of the historical and
projected future trading price of PTI Common Stock.
Smith Barney and Salomon Brothers met again on
February 3, 1995, at which meeting Salomon Brothers presented a
critique of the Smith Barney valuation and its own valuation of
the shares of PTI Common Stock held by the Minority Shareholders
and the methodologies and analyses supporting such valuation.
Salomon Brothers stated to Smith Barney that Salomon Brothers
continued to believe that a purchase price of $28.00 should be
acceptable. The substance of the Salomon Brothers response was
contained in certain presentation materials. In general, the
presentation discussed the discount rates applied by Smith
Barney, inclusion of Future Acquisitions in the Smith Barney
analysis and, in the view of Salomon Brothers, inclusion of the
premium suggested by the Smith Barney analysis. In discussing
the discount rates utilized by Smith Barney, Salomon Brothers
first pointed out that, in connection therewith, Smith Barney
assumed a 50 percent debt/total capitalization ratio based on
book accounting, whereas Salomon Brothers suggested use of
market value weightings of debt/total capitalization. According
to the Salomon Brothers materials, applying market value
weightings to debt/total capitalization ratios would produce a
ratio of 30.9 percent, as opposed to 50 percent. Salomon
Brothers also discussed the assumed level of systematic risk
associated with Pacific Telecom's stock price (i.e., the equity
beta) utilized by Smith Barney. As a general matter, Salomon
Brothers stated that an equity beta of 0.84-0.97 should be
utilized as opposed to the equity beta of 0.67 utilized by Smith
Barney. Salomon Brothers also
<PAGE>25
discussed the market risk premium of 5.7 percent utilized by
Smith Barney, particularly because Salomon Brothers believed
such percentage was at the low end of the available range of
risk premiums. After taking into account such adjustments and
applying only those changes to the Smith Barney DCF analysis in
respect of Pacific Telecom, Salomon Brothers set forth adjusted
Smith Barney valuations ranging from $27.45 to $24.05 per share
compared to Smith Barney's valuation of $33.30 per share to
$29.29 per share. In addition, in recalculating Smith Barney's
analysis of the present value of future stock prices, Salomon
Brothers set forth an adjusted range of values of $28.70 to
$26.48 as compared to the range set forth by Smith Barney of
$31.81 to $29.28 per share. Salomon Brothers next discussed
Smith Barney's consideration of the impact of unidentified
acquisitions in its valuation of Pacific Telecom. Salomon
Brothers pointed out that an acquiror of a particular company
should not be expected to pay for "value" created by
unidentified future acquisitions and thus such acquisitions
should not be considered. Salomon Brothers also reiterated
PacifiCorp's position that the valuation of Pacific Telecom
should not take into account the premium suggested by the Smith
Barney analysis. Salomon Brothers noted that Smith Barney
applied a premium to theoretical prices, such as those derived
from a DCF analysis, which, according to Salomon Brothers,
resulted in "double counting." In addition, the terminal
multiples were significantly higher than those observed in
actual merger and acquisition transactions. Finally, Salomon
Brothers reviewed its own analysis of Pacific Telecom, the
substance of which is more fully discussed below under "Opinion
of Financial Advisor to PacifiCorp." For certain important
limitations in respect of this summary, see "Opinion of
Financial Advisor to PacifiCorp--Summary." For certain
important limitations in respect of the engagement of Salomon
Brothers, see "Opinion of Financial Advisor to PacifiCorp." A
copy of the presentation materials in respect of the response by
Salomon Brothers to the Smith Barney analysis has been filed as
an exhibit to the Schedule 13E-3 and is available for inspection
and copying at the principal offices of Pacific Telecom during
Pacific Telecom's normal business hours by any Minority
Shareholder or any representative of a Minority Shareholder that
has been so designated in writing. A copy of such materials
shall be provided to any Minority Shareholder or any
representative of a Minority Shareholder who has been so
designated in writing upon written request and at the expense of
the requesting Minority Shareholder or representative. This
summary of such material does not purport to be complete and
thus is qualified in all respects by the materials filed as an
exhibit to the Schedule 13E-3 and by such important limitations
discussed above. IN ADDITION, IN CONNECTION WITH SUCH
PRESENTATION AND SUCH BACKGROUND MATERIALS, SALOMON BROTHERS DID
NOT, AND WAS NOT REQUESTED BY THE BOARD OF DIRECTORS OF
PACIFICORP TO, MAKE ANY RECOMMENDATION AS TO THE FORM OR
SPECIFIC AMOUNT OF CONSIDERATION TO BE PAID PURSUANT TO THE
MERGER AGREEMENT OR OTHERWISE. THE PRESENTATION AND BACKGROUND
MATERIALS DO NOT ANALYZE THE MERGER CONSIDERATION, WERE PREPARED
FROM THE PERSPECTIVE OF PACIFICORP AND DID NOT ADDRESS THE
FAIRNESS TO THE MINORITY SHAREHOLDERS,
<PAGE>26
FROM A FINANCIAL POINT OF VIEW OR OTHERWISE, OF THE
CONSIDERATION TO BE RECEIVED BY THE MINORITY SHAREHOLDERS IN ANY
TRANSACTION (INCLUDING THE MERGER), NOR DO THEY CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF PACIFIC TELECOM IN RESPECT
OF THE MERGER OR ANY OTHER TRANSACTION.
Following further discussion, Smith Barney introduced
the alternative discussed by the Special Committee of
increasing the amount of the per share consideration to a price
below the "high 30's" and including the Rights in the
consideration to be received by the Minority Shareholders.
Salomon Brothers, after further consultation with Holdings,
indicated that, because Holdings had no present intention to
sell Pacific Telecom, Holdings did not believe that it was
appropriate to issue the Rights as part of the consideration to
be received by the Minority Shareholders. Salomon Brothers
also indicated that Holdings was not, at that time, prepared to
increase the price for the PTI Common Stock above $28.00 per
share. See the summary of the Salomon Brothers analysis with
respect thereto in the immediately preceding paragraph.
On February 5, 1995, the Special Committee, its legal
counsel and Smith Barney met to discuss developments in the
negotiations between Smith Barney and Salomon Brothers since
January 21, 1995, to review the discussion concerning financial
analyses between Smith Barney and Salomon Brothers and to
formulate the response of the Special Committee. At that
meeting, Smith Barney summarized its discussions with Salomon
Brothers and certain differences between the valuation analyses
of Smith Barney and those of Salomon Brothers. Smith Barney
explained that, in its view, Salomon Brothers' valuation of
Pacific Telecom did not take into account sufficiently the
potential positive effect of the Future Acquisitions on Pacific
Telecom's future financial performance and that Smith Barney and
Salomon Brothers had differing views as to the possible effect
of the Pending Acquisitions on Pacific Telecom's future
financial performance. Smith Barney also indicated that
differences between Salomon Brothers' valuation of the PTI
Common Stock (from the perspective of PacifiCorp) and the
valuation of Smith Barney (from the perspective of the Minority
Shareholders of Pacific Telecom) also resulted, in part, from
differing assumptions concerning the weighted average cost of
capital for Pacific Telecom.
At that meeting, the Special Committee also discussed
contacts on February 5, 1995 between representatives of Pacific
Telecom and Texas Pacific Group, Inc. ("Texas Pacific"). A
representative of Texas Pacific had called the Chief Executive
Officer of Pacific Telecom, who had referred the
representatives of Texas Pacific to the Special Committee. In
the conversations with representatives of the Special Committee
on February 5, 1995, the representatives of Texas Pacific
expressed an interest in acquiring all, but not less than all,
of the outstanding shares of PTI Common Stock, but did not make
an offer. Because the expression of interest contemplated the
<PAGE>27
acquisition of all of the outstanding PTI Common Stock, the
Special Committee determined to inform the other members of the
Board of Directors of Pacific Telecom of the contacts and
instructed Smith Barney to communicate the substance of the
contacts to Salomon Brothers.
Following further discussions, the Special Committee
also determined to continue negotiations concerning the
appropriate price per share for the PTI Common Stock held by
the Minority Shareholders. The Special Committee and its
advisors also discussed the possibility of structuring the
terms and conditions of any possible transaction with Holdings
in a manner that would address certain concerns of the Special
Committee, including Holdings' position that Rights should not
be included as part of the consideration to be received by the
Minority Shareholders. After this discussion, the Special
Committee determined that it should propose that any agreement
with Holdings include, among other things, a representation
from Holdings to the effect that neither Holdings nor
PacifiCorp had any current intention to sell the stock or
business of Pacific Telecom to a third party and an additional
representation that neither Holdings nor PacifiCorp had
received any offer or indication of interest from a third party
regarding the purchase of Pacific Telecom except as disclosed
to Pacific Telecom (collectively, the "Special
Representations"). The Special Committee also agreed that the
consummation of any merger or other transaction between Pacific
Telecom and Holdings should be conditioned upon the affirmative
vote of the holders of a majority of the shares of PTI Common
Stock held by the Minority Shareholders (the "Minority
Shareholder Approval"). Following that discussion, the Special
Committee instructed Smith Barney to contact Salomon Brothers
to discuss an increase of the per share consideration to
$34.00, to request that Holdings consider the Special
Representations and the Minority Shareholder Approval condition
and to inform Salomon Brothers of the contact from the third
party.
Following that meeting, Smith Barney contacted
Salomon Brothers and informed Salomon Brothers of the contact
by Texas Pacific and held discussions concerning the price per
share to be received by the Minority Shareholders and the other
matters addressed in the February 5, 1995 meeting of the
Special Committee. Although Salomon Brothers indicated that
Holdings would consider the Special Committee's proposal
concerning the Special Representations and the Minority
Shareholder Approval, Salomon Brothers indicated that Holdings
would not increase the purchase price to $34.00 per share.
During such discussions, Salomon Brothers also indicated that
Holdings' position would not be affected by the Texas Pacific's
expression of interest, because Holdings did not intend to
dispose of its interest in Pacific Telecom and that Salomon
Brothers had so advised Texas Pacific. Texas Pacific had no
further contact with Salomon Brothers, Holdings or PacifiCorp
regarding Pacific Telecom and no offer was ever made by Texas
Pacific.
<PAGE>28
The Special Committee met again on February 6, 1995,
during which meeting Smith Barney informed the Special
Committee of the status of negotiations. Following that
meeting, legal counsel to the Special Committee contacted Mr.
William J. Glasgow, then the Chief Executive Officer of
Holdings and the Chief Financial Officer of PacifiCorp, and, at
the instruction of the Special Committee, informed him that the
Special Committee would be willing to consider a per share
consideration of $32.50 in cash, subject to the negotiation of
a merger agreement that would include the Special
Representations and the Minority Shareholder Approval
condition. On February 7, 1995, Mr. Glasgow contacted
representatives of Smith Barney and informed them that,
although Holdings desired to complete a transaction as soon as
possible, Holdings was not prepared to increase significantly
the per share consideration to be received by the Minority
Shareholders. Mr. Glasgow further indicated that the Board of
Directors of Holdings had instructed him to complete
negotiations concerning the material terms of any negotiated
transaction between Pacific Telecom and Holdings as soon as
possible and that, if negotiations were not completed soon, the
Board of Directors of Holdings would convene a meeting to
discuss Holdings' available alternatives. Mr. Glasgow
suggested that representatives of Holdings, the Special
Committee and their respective advisors meet in person as soon
as possible.
The Special Committee held meetings on February 7,
1995 and again on February 8, 1995 with its legal counsel and
Smith Barney and discussed the status of negotiations and
determined that two of the four members of the Special
Committee, accompanied by Smith Barney and legal counsel,
should meet with Mr. Glasgow, Salomon Brothers and Holdings'
legal counsel. A meeting between Mr. Mellish and Mr. Huhndorf
of the Special Committee and Mr. Glasgow was scheduled for
February 15, 1995. At the February 8, 1995 meeting, the
Special Committee also discussed the possible alternatives that
Holdings could pursue in the event that Holdings and the
Special Committee reached an impasse. The alternatives that
the Special Committee believed could be available to Holdings
were: to terminate consideration of a transaction with Pacific
Telecom, to commence a tender offer for the shares of PTI
Common Stock held by the Minority Shareholders followed by a
short-form merger without first reaching an agreement with the
Special Committee or to use Holdings' voting power to assert
greater control over the Board of Directors. The Special
Committee noted that each of these alternatives could involve a
share price for the PTI Common Stock lower than the Initial
Offer or otherwise remove entirely any opportunity for the
Minority Shareholders to realize a significant premium to
historical trading values for their PTI Common Stock. Given
that the Special Committee viewed each of these alternatives as
less attractive to the Minority Shareholders than a negotiated
transaction, it undertook to continue to negotiate with
Holdings and its representatives in order to obtain the highest
<PAGE>29
possible cash price for the PTI Common Stock held by the
Minority Shareholders.
The Special Committee met again on February 11, 1995
to prepare for the February 15, 1995 meeting with Mr. Glasgow
and Holdings' other representatives. At the February 11, 1995
meeting, Smith Barney presented an updated financial analysis
concerning Pacific Telecom and again reviewed the alternatives
that might be available to Holdings in the event an agreement
could not be reached, as summarized above.
On February 15, 1995, Mr. Mellish and Mr. Huhndorf of
the Special Committee met in Seattle, Washington with
Mr. Glasgow and other members of Holdings' management.
Representatives of Smith Barney and the Special Committee's
legal counsel were also present, as were representatives of
Salomon Brothers and legal counsel for Holdings. In the course
of discussions, Mr. Glasgow expressed Holdings' views
concerning the Initial Offer and Salomon Brothers made a
presentation concerning its valuation analysis and the manner
in which its analysis differed from that of Smith Barney.
Salomon Brothers also provided the Special Committee and its
representatives with a written presentation supporting its
analysis. These presentation materials contained a general
summary of the analysis by Salomon Brothers of Pacific Telecom,
which is more fully described below under "Opinion of Financial
Advisor to PacifiCorp." These presentation materials also
contained a general summary of the discussion by Salomon
Brothers of the Smith Barney analysis described above.
Following such discussion, Smith Barney distributed
to Holdings' representatives a summary of the differences
between the valuation assumptions of Smith Barney and those of
Salomon Brothers prepared in August 1994 and February 1995. In
its summary, Smith Barney identified four significant factors
that it believed contributed to the disparity between the
firms' valuations of PTI Common Stock:
(1) Smith Barney analyzed Pacific Telecom's value
using several valuation methodologies, conducted such analyses
using Pacific Telecom's 1995-1996 forecasts adjusted for
consummation of the Alascom Sale and the Pending Acquisitions
(the "Short-Term Forecasts"), Pacific Telecom's 1995-1999
forecasts as so adjusted (the "Long-Term Forecasts Without
Future Acquisitions") and Pacific Telecom's 1995-1999 forecasts
adjusted for the consummation of the Alascom Sale, the Pending
Acquisitions and the Future Acquisitions (the "Long-Term
Forecasts With Future Acquisitions") (the Long-Term Forecasts
Without Future Acquisitions together with the Long-Term
Forecasts With Future Acquisitions being hereinafter referred
to as the "Long-Term Forecasts") and took into account Pacific
Telecom's projected value under various future acquisition
scenarios. Salomon Brothers' analysis was
<PAGE>30
based on only one valuation methodology and did not take into
account the effects of the Future Acquisitions.
(2) Smith Barney and Salomon Brothers used different
weighted average cost of capital ("WACC") figures in their
analyses: Smith Barney used a WACC of 8 percent to 10 percent
and Salomon Brothers used a WACC of 10 percent to 13 percent.
In Smith Barney's view, the difference in the WACCs used was
due to two factors. First, the firms used differing measures
of risk ("beta"). Although both firms used betas published by
BARRA, an independent financial consulting firm, Salomon
Brothers used Pacific Telecom's historical beta, and Smith
Barney used Pacific Telecom's predicted beta. Smith Barney
noted in its summary that BARRA recommends that predicted beta,
rather than historical beta, be used to forecast market
sensitivity. Secondly, the firms used different debt to
capitalization ratios. Smith Barney used the book value of
equity to determine the debt to capitalization ratio, whereas
Salomon Brothers used the market value of equity. Smith Barney
noted in its summary that although Salomon Brothers' position
is correct for nonregulated companies, for highly regulated
companies such as the majority of Pacific Telecom's operations,
the book value of equity, in Smith Barney's view, is the
appropriate measure because regulators use the book value of
equity in the rate-making process.
(3) Smith Barney considered the Short-Term Forecasts
and the Long-Term Forecasts that took into account the benefits
derived from "unidentified future acquisitions" of rural LEC
properties. Salomon Brothers did not consider the scenarios
incorporating such "unidentified future acquisitions."
(4) Salomon Brothers' DCF analysis did not include a
minority buy-out premium, which premium was included in the
analysis conducted by Smith Barney.
After additional discussion, the representatives of
Holdings indicated that Holdings continued to believe that the
per share price reflected in the Initial Offer was fair to the
Minority Shareholders, but that they would consider
recommending to the Board of Directors of Holdings an increase
of the consideration to be received by the Minority
Shareholders by $1.00 per share or, perhaps, slightly more.
Holdings' representatives indicated, however, that in no event
would Holdings increase its offer to the level proposed by the
Special Committee. Before conclusion of the meeting, Holdings'
representatives indicated that, in the event that agreement
could not be reached concerning the per share consideration to
be received by the Minority Shareholders, Holdings would then
consider its alternatives. After this meeting, a telephonic
conference call was held by the full Special Committee, legal
counsel and Smith Barney to review the discussions with
Holdings.
<PAGE>31
The Special Committee met again with representatives
of Smith Barney and legal counsel on February 21, 1995 to
consider its response to the matters discussed at the
February 15, 1995 meeting. The Special Committee was informed
that Mr. Mellish had spoken with Mr. Frederick W. Buckman, the
Chief Executive Officer of PacifiCorp, that morning and that
Mr. Buckman had stated that Holdings might be willing to reach
an agreement at a price between $29.25 per share to $29.50 per
share of PTI Common Stock. The members of the Special
Committee then engaged in a discussion as to what price per
share they would be willing to recommend to the Minority
Shareholders. The Special Committee further discussed the
financial analyses with Smith Barney. After further
deliberation, the Special Committee determined to inform
Holdings that, subject to receipt of fairness opinions from its
financial advisors and the completion of negotiation of an
agreement and plan of merger between Holdings and Pacific
Telecom containing the Special Representations, a Minority
Shareholder Approval condition and other terms acceptable to
the Special Committee, the Special Committee was prepared to
consider favorably a transaction involving consideration
in the amount of $30.00 per share.
Following that meeting, representatives of Smith
Barney communicated the Special Committee's position concerning
the proposed consideration, the Special Representations and the
Minority Shareholder Approval condition to Mr. Glasgow, who
indicated that he would be willing to recommend a transaction
at a $30.00 price if agreement could be reached regarding the
proposed representations and the approval condition, as well as
the other terms and conditions of a definitive agreement and
plan of merger.
On February 23, 1995, Holdings provided the Special
Committee and its advisors with a draft agreement and plan of
merger, and, between February 23 and March 8, 1995, legal
counsel to Holdings and the Special Committee negotiated the
terms and conditions of the agreement, including the Special
Representations and the Minority Shareholder Approval
condition.
On March 3, 1995, a joint meeting of the Board of
Directors of Holdings and the Executive Committee of the Board
of Directors of PacifiCorp (the "Executive Committee") was held
to discuss the status of the negotiations and to review the
draft agreement and plan of merger and the draft agreement
between Pacific Telecom and PacifiCorp pursuant to which
PacifiCorp would make certain representations and undertake
certain obligations with respect to the Merger. At that joint
meeting, Mr. Glasgow, who had resigned his positions with
PacifiCorp and it affiliates on February 28, 1995 to become a
partner in a venture capital firm, but continued to handle
negotiations with the Special Committee in his capacity as a
consultant to PacifiCorp, reviewed the status of the
negotiations. Counsel to PacifiCorp and Holdings reviewed the
terms and provisions of the
<PAGE>32
draft agreements and responded to questions of the directors. A
representative of Salomon Brothers made a presentation as to the
basis underlying Salomon Brothers' determination that a $30.00
per share price for PTI Common Stock would be fair to PacifiCorp
and rendered the oral opinion of Salomon Brothers (subsequently
confirmed in writing) to the effect that such price was fair,
from a financial point of view, to PacifiCorp. Salomon Brothers
did not, and was not requested to, make any recommendation as to
the form or amount of consideration to be paid pursuant to the
Merger Agreement. Salomon Brothers did not address the fairness
to the Minority Shareholders, from a financial point of view or
otherwise, of the consideration to be received by the Minority
Shareholders in the Merger. See "Opinion of Financial Advisor
to PacifiCorp." After discussion, the Holdings Board approved
the draft agreement and plan of merger in the form presented to
the Board at the meeting, subject to receipt by the Special
Committee of fairness opinions from Smith Barney and CS First
Boston, the recommendation of the Special Committee that the
Board of Directors of Pacific Telecom approve and adopt the
agreement and plan of merger and the recommendation of the Board
of Directors of Pacific Telecom that the Minority Shareholders
approve the agreement and plan of merger and the Merger. The
Holdings Board authorized the execution and delivery of an
agreement and plan of merger substantially in the form
presented, subject to the foregoing conditions and changes as
approved by Mr. Buckman within specified parameters, including
that the proposed merger consideration not exceed $30.00 per
share.
After the conditional approval of the Merger
Agreement by the Holdings Board, the Executive Committee
approved the draft agreement between Pacific Telecom and
PacifiCorp, subject to the same conditions upon which the
Holdings Board approved the draft agreement and plan of merger,
and authorized execution and delivery of an agreement
substantially in the form presented, subject to changes as
approved by Mr. Buckman within the same parameters specified by
the Holdings Board.
At the March 4, 1995 meeting of the Special
Committee, its legal counsel reported on the status of the
negotiations concerning the draft agreement and plan of merger.
The Special Committee also tentatively scheduled its next
meeting for March 8, 1995. From March 3 through March 8, 1995,
counsel for Holdings and counsel for the Special Committee had
a number of discussions to resolve open issues on the draft
agreement and plan of merger and related matters.
The Special Committee met on the evening of March 8,
1995 and the early morning of March 9, 1995 (Eastern Standard
Time) to consider the draft agreement and plan of merger and
the changes made thereto since March 4, 1994. That meeting
also included presentations from representatives of Smith
Barney, CS First Boston and the Special Committee's legal
counsel.
<PAGE>33
The Special Committee's legal counsel reviewed the
process of the negotiations that had led to the draft
agreement, reviewed the terms and provisions of the draft
agreement and answered questions of the Special Committee.
Certain members of Pacific Telecom's management then summarized
the status of Pacific Telecom's acquisition program, including
the status and timing of certain possible acquisitions that
Pacific Telecom's management was considering. Representatives
of Smith Barney and CS First Boston each made a presentation as
to their respective valuation analyses of the PTI Common Stock.
See "--Opinions of Smith Barney and CS First Boston."
Following each presentation, the Special Committee received the
oral opinion (subsequently confirmed in writing) of each of
Smith Barney and CS First Boston to the effect that, as of
March 9, 1995, the Merger Consideration was fair, from a
financial point of view, to the Minority Shareholders.
After further discussion, the Special Committee
concluded, based primarily on the opinions of Smith Barney and
CS First Boston and, in part, on the other factors described
below under "--Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee," that the terms of
the Merger were fair to, and in the best interests of, the
Minority Shareholders and unanimously recommended that the
Pacific Telecom Board of Directors (i) approve and adopt the
Merger Agreement in the form presented to the Special Committee
at such meeting; (ii) determine that the Merger was fair to, and
in the best interests of, the Minority Shareholders; and (iii)
recommend that the Minority Shareholders approve the Merger
Agreement and the Merger.
In a meeting of the Board of Directors of Pacific
Telecom held immediately after the meeting of the Special
Committee, the Board of Directors of Pacific Telecom
unanimously approved and adopted the Merger Agreement,
authorized the execution thereof, determined that the Merger
was fair to, and in the best interests of, the Minority
Shareholders, and recommended that the Minority Shareholders
approve the Merger Agreement and the Merger.
The Merger Agreement was executed and delivered by
the respective parties on March 9, 1995, in the form attached
hereto as Exhibit A.
After execution of the Merger Agreement, Pacific
Telecom's management continued to pursue Pacific Telecom's
previously announced long-term business plan, particularly its
plan to increase its investment in rural telecommunications
assets. Among other things, management engaged in discussions
regarding potential acquisitions of additional local exchange
assets. During May and June 1995, the Special Committee was
briefed by management on these efforts, including discussions
relating to a possible letter of intent with a third party to
acquire additional local exchange assets
<PAGE>34
(the "Proposed Transaction"). After discussing the possible
terms of the Proposed Transaction with Pacific Telecom's
management, the Special Committee asked that the possible terms
of the Proposed Transaction and certain additional forecast
information to reflect the Proposed Transaction be provided to
Smith Barney and CS First Boston to determine whether
consummation of the Proposed Transaction would have any impact
on the ability of such firms to reaffirm their respective
fairness opinions as of the date of this Proxy Statement, as
required by the Merger Agreement. In addition, on July 13,
1995, Mr. Mellish, the Chairman of the Special Committee,
telephoned Michael C. Henderson, the President of Holdings, and
requested that, in view of the Proposed Transaction, Holdings
consider increasing the Merger Consideration. Mr. Henderson
subsequently advised Mr. Mellish by telephone that Holdings
would not increase the Merger Consideration. A press release to
that effect was disseminated on July 14, 1995.
On July 24, 1995, the Special Committee met with Smith
Barney and CS First Boston. Although the Special Committee did
not request the formal opinion of either firm, it sought a
status report as to whether either firm anticipated any
difficulty in reaffirming their respective fairness opinions as
of the date of this Proxy Statement, even if they assumed
ultimate consummation of the Proposed Transaction on the
possible terms being negotiated by management of Pacific
Telecom. Each firm reported that they anticipated no such
difficulty. After meeting with Smith Barney and CS First
Boston, the Special Committee unanimously determined, based on
the factors described below, to continue to recommend the Merger
and the Merger Agreement as fair to, and in the best interests
of, the Minority Shareholders.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS OF PACIFIC TELECOM
AND THE SPECIAL COMMITTEE
At a meeting of the Special Committee commencing on
March 8, 1995, the Special Committee unanimously determined
that the Merger Agreement was fair to, and in the best
interests of, the Minority Shareholders and recommended that
the Board of Directors of Pacific Telecom approve and adopt the
Merger Agreement and the transactions contemplated therein. At
a meeting of the Board of Directors of Pacific Telecom held
immediately following the meeting of the Special Committee,
based on the recommendation of the Special Committee and
considering the fairness opinions received from Smith Barney
and CS First Boston, the Board of Directors of Pacific Telecom
unanimously (i) determined that the Merger was fair to, and in
the best interests of, the shareholders of Pacific Telecom;
(ii) approved and adopted the Merger Agreement and the
transactions contemplated thereby and authorized the execution,
delivery and performance thereof by Pacific Telecom; and
(iii) resolved to recommend that the shareholders of Pacific
Telecom approve the Merger Agreement and the
<PAGE>35
transactions contemplated therein. The Special Committee
unanimously reaffirmed these findings and recommendations at a
meeting held on July 24, 1995. ACCORDINGLY, THE BOARD OF
DIRECTORS OF PACIFIC TELECOM RECOMMENDS THAT THE SHAREHOLDERS OF
PACIFIC TELECOM APPROVE THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
The Board of Directors of Pacific Telecom believes
that the terms of the Merger Agreement are fair to, and in the
best interests of, Pacific Telecom and its shareholders. In
reaching its conclusion, the Board of Directors of Pacific
Telecom adopted the recommendation of the Special Committee as
set forth below.
The Special Committee, in reaching its conclusion
that the Merger was fair to, and in the best interest of, the
Minority Shareholders and in determining to recommend approval
of the Merger Agreement and the Merger to the Board of
Directors of Pacific Telecom, considered a number of factors,
including, without limitation, the following:
1. The oral and written presentations of Smith
Barney and CS First Boston to the Special Committee on March 8,
1995 and the written opinions of Smith Barney and CS First
Boston dated March 9, 1995 to the effect that, as of the date of
each such opinion and based upon and subject to certain matters
stated in each such opinion, the Merger Consideration was fair,
from a financial point of view, to the Minority Shareholders.
The Special Committee also considered significant the
requirement that such opinion be reaffirmed as of the date of
this Proxy Statement. See "--Opinions of Smith Barney and CS
First Boston." THE OPINIONS OF SMITH BARNEY AND CS FIRST
BOSTON, DATED AS OF THE DATE HEREOF, ARE ATTACHED HERETO AS
EXHIBITS C AND D, RESPECTIVELY. THE SHAREHOLDERS OF PACIFIC
TELECOM ARE URGED TO READ EACH SUCH OPINION CAREFULLY IN ITS
ENTIRETY.
2. The Special Committee's conclusion that the
Merger Consideration represented the highest price that
Holdings would be willing to pay in acquiring the PTI Common
Stock held by the Minority Shareholders.
3. The terms of the Merger Agreement, including,
without limitation, the amount and form of consideration, the
nature of the parties' representations, warranties, covenants
and agreements and the conditions to the obligations of
Holdings and Pacific Telecom. In this regard, the Special
Committee considered significant: (i) the Minority Shareholder
Approval condition to the consummation of the Merger that
requires that the Merger Agreement be approved by the
affirmative vote of the holders of a majority of the shares of
the PTI Common Stock held by the Minority Shareholders and
(ii) the Special Representations of Holdings and PacifiCorp set
forth in the Merger Agreement and in the PacifiCorp Agreement
to the effect that
<PAGE>36
(a) other than transactions disclosed in Pacific Telecom's prior
filings with the SEC, neither PacifiCorp nor Holdings had any
current plan or intention to sell or otherwise dispose of any
material portion of the PTI Common Stock or the assets of
Pacific Telecom and (b) to the best knowledge of Holdings and
PacifiCorp, neither PacifiCorp nor Holdings had received any
offer or "proposal" (as defined in the Merger Agreement) to
purchase any material portion of the capital stock or assets of
Pacific Telecom. See "The Merger Agreement--Representations and
Warranties."
4. The possibility that, in the absence of a merger
agreement, Holdings could increase its ownership of the PTI
Common Stock in a transaction not approved by Pacific Telecom
or the Special Committee.
5. The fact that the Merger Consideration
represented a 23.7 percent premium over the last reported sale
price of the PTI Common Stock on the day immediately preceding
the announcement of the Initial Offer ($24.25 per share) and a
7.1 percent premium over the Initial Offer. The Special
Committee did note that the last reported sale price of the PTI
Common Stock on the day immediately preceding the announcement
of the execution of the Merger Agreement ($31.125 per share)
exceeded the Merger Consideration. The Special Committee
understood, based on Smith Barney's estimate of the number of
shares of PTI Common Stock traded on the Nasdaq National Market
between the announcement of the Initial Offer and March 8,
1995, that approximately 18.8 percent of such shares reflected
a trading price in excess of $30.00 per share.
6. The Special Committee's knowledge of the
business, financial condition, results of operations and
prospects of Pacific Telecom and the Special Committee's
understanding of the effect thereon of the Alascom Sale, the
Pending Acquisitions, the Future Acquisitions, the Proposed
Transaction and certain other transactions recently completed,
proposed or contemplated by Pacific Telecom. See "Certain
Financial Forecasts."
7. The historical trading prices of the PTI Common
Stock. In particular, the Special Committee noted that the
reported trading price of the PTI Common Stock had not exceeded
$30.00 per share during the three year period prior to the
announcement of the Initial Offer.
8. The availability of dissenters' rights to the
Minority Shareholders who vote against approval of the Merger
Agreement and perfect such rights under the applicable
provisions of the WBCA. See "--Rights of Dissenting
Shareholders."
In view of the number and disparate nature of the
factors considered by the Special Committee, the Special
Committee did not assign relative weights to the factors
considered in reaching its conclusions. The
<PAGE>37
Special Committee did, however, rely primarily upon the
presentations and opinions of Smith Barney and CS First Boston
described in paragraph 1 above.
According to Smith Barney's and CS First Boston's DCF
analyses, the value of Pacific Telecom as a going concern was
between (i) $27.66 and $32.57 in the case of Smith Barney (for
a midpoint of $30.11) and (ii) $23.25 to $35.50 in the case of
CS First Boston (for a midpoint of $29.38). The Special
Committee considered that the Merger Consideration exceeded
$29.74, the median of the midpoints of $30.11 and $29.38. As
indicated in the 1994 Form 10-K, Pacific Telecom's book value
was $16.86 per share as of December 31, 1994. The Special
Committee gave the book value of Pacific Telecom little
consideration because it was well below the consideration being
discussed. Since January 1, 1993, Pacific Telecom has purchased
a total of 261,946 shares of PTI Common Stock at an average
purchase price of approximately $23.63 per share. See "Certain
Transactions in PTI Common Stock." The Special Committee gave
little weight to such repurchases of PTI Common Stock because
such repurchases occurred at the then- current market price
which, with the exception of the repurchases made after the
announcement of the Initial Offer, were at a price substantially
below the consideration being discussed with Holdings.
The Merger Consideration was below the numerical
values that resulted from certain valuation analyses conducted
by Smith Barney and CS First Boston. See "--Opinions of Smith
Barney and CS First Boston." Because the Special Committee was
advised by each of Smith Barney and CS First Boston that their
respective analyses should be considered as a whole, the
Special Committee did not give any weight to individual
valuation methodology or analysis but, as discussed above,
determined that the Merger Consideration is fair to and in the
best interests of the Minority Shareholders based primarily
upon the oral and written fairness opinions of each of Smith
Barney and CS First Boston.
The members of the Special Committee (as well as the
other directors of Pacific Telecom) are indemnified by Pacific
Telecom under Pacific Telecom's Articles of Incorporation and
Bylaws, related indemnification contracts and the applicable
provisions of the WBCA (and, pursuant to the Merger Agreement
and the PacifiCorp Agreement, by Holdings and PacifiCorp) with
respect to their actions in connection with the Merger. See
"The Merger Agreement--Indemnification of Officers and
Directors." As compensation for the services of the members of
the Special Committee, Pacific Telecom has agreed to pay
additional directors' fees of $20,000 to the Chairman of the
Special Committee and $15,000 to each of the other members of
the Special Committee. Pacific Telecom has also agreed to pay
each member of the Special Committee $750 for each meeting held
by the Special Committee and to reimburse the members of the
Special Committee for
<PAGE>38
expenses incurred by each of them in connection with the Merger.
Such compensation is in addition to the compensation payable to
all directors of the Pacific Telecom, including the directors
comprising the Special Committee. See "Election of
Directors--Director Compensation" and "Security Ownership of
Certain Beneficial Owners and Management."
OPINIONS OF SMITH BARNEY AND CS FIRST BOSTON
Opinion of Smith Barney
Smith Barney was retained by the Special Committee
and Pacific Telecom to act as financial advisor to the Special
Committee in connection with the Merger. In connection with
such engagement, the Special Committee requested that Smith
Barney evaluate the fairness, from a financial point of view,
of the Merger Consideration. On March 8, 1995, Smith Barney
delivered to the Special Committee an oral opinion
(subsequently confirmed in writing) to the effect that, as of
the date of such opinion and based upon and subject to certain
matters stated therein, the Merger Consideration was fair, from
a financial point of view, to the Minority Shareholders. Smith
Barney has confirmed such opinion by delivery of a written
opinion dated the date hereof. Except as described below, the
assumptions made, matters considered and limitations on the
review undertaken in the March 8, 1995 opinion are substantially
the same as those contained in the opinion dated the date hereof
and attached hereto as Exhibit C.
In arriving at its opinion, Smith Barney reviewed the
draft Merger Agreement and held discussions with certain senior
officers, directors and other representatives and advisors of
Pacific Telecom and the Special Committee concerning the
business, operations and prospects of Pacific Telecom. Smith
Barney participated in discussions and negotiations among
representatives of Pacific Telecom and Holdings and their
financial and legal advisors. Smith Barney examined certain
publicly available business and financial information relating
to Pacific Telecom and PacifiCorp, as well as certain financial
forecasts and other data for Pacific Telecom that were provided
to Smith Barney by the senior management of Pacific Telecom.
See "Certain Financial Forecasts." Smith Barney reviewed the
financial terms of the Merger as set forth in the draft Merger
Agreement in relation to, among other things, Pacific Telecom's
historical and forecasted earnings and the capitalization and
financial condition of Pacific Telecom. Smith Barney also
considered, to the extent publicly available, the financial
terms of certain other transactions that Smith Barney deemed
comparable to the Merger and analyzed certain financial and
other publicly available information relating to the businesses
of other companies whose operations Smith Barney considered
comparable to the operations of Pacific Telecom. In addition
to the foregoing, Smith Barney conducted such other analyses
and examinations and considered such other financial, economic
and market criteria as Smith Barney
<PAGE>39
deemed necessary to arrive at its opinion. Smith Barney noted
that its opinion was necessarily based upon financial, stock
market and other conditions and circumstances existing and
disclosed to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and
relied, without independent verification, upon the accuracy and
completeness of all financial and other information publicly
available or furnished to or otherwise discussed with Smith
Barney. With respect to financial forecasts and other
information provided to or otherwise discussed with Smith
Barney, Smith Barney was informed by the management of Pacific
Telecom that such forecasts and other information were
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Pacific
Telecom as to the expected future financial performance of
Pacific Telecom. In addition, Smith Barney did not make or
obtain an independent valuation or appraisal of the assets or
liabilities (contingent or otherwise) of Pacific Telecom. No
limitations were imposed by the Special Committee on Smith
Barney with respect to the investigations made or procedures
followed by Smith Barney in rendering its opinion. Smith
Barney was not asked to, and did not, solicit acquisition
proposals from any third parties. A copy of the written
materials provided by Smith Barney and distributed to the
Special Committee on March 8, 1995 in connection with the
delivery of its opinion, a copy of Smith Barney's written
presentation materials dated January 25, 1995 used at the
meeting between Smith Barney and Salomon Brothers that was held
on that date, a copy of Smith Barney's draft report to the
Special Committee dated February 13, 1995, a copy of Smith
Barney's written presentation to Salomon Brothers, PacifiCorp
and Holdings dated February 15, 1995, which summarized certain
differences in the valuation methodologies used by Smith Barney
and Salomon Brothers and a copy of the written materials
provided by Smith Barney and distributed to the Special
Committee at the meeting of the Special Committee held on July
24, 1995, have been filed as exhibits to the Schedule 13E-3 and
are available for inspection and copying at the principal
offices of Pacific Telecom during Pacific Telecom's normal
business hours by any Minority Shareholder or any representative
of a Minority Shareholder that has been so designated in
writing. A copy of such materials shall be provided to any
Minority Shareholder or any representative of a Minority
Shareholder who has been so designated in writing upon written
request and at the expense of the requesting Minority
Shareholder or representative.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY
DATED THE DATE HEREOF, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS EXHIBIT C TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. PACIFIC TELECOM'S
SHAREHOLDERS ARE URGED TO CAREFULLY READ THE ATTACHED OPINION
IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE MERGER
<PAGE>40
CONSIDERATION FROM A FINANCIAL POINT OF VIEW AND HAS BEEN
PROVIDED SOLELY FOR THE USE OF THE SPECIAL COMMITTEE IN ITS
EVALUATION OF THE MERGER, DOES NOT ADDRESS ANY OTHER ASPECT OF
THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF PACIFIC TELECOM AS TO HOW SUCH SHAREHOLDER SHOULD
VOTE AT THE ANNUAL MEETING. THE SUMMARY OF THE OPINION OF SMITH
BARNEY SET FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Special Committee,
Smith Barney performed a variety of financial and comparative
analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the
analyses underlying Smith Barney's opinion. The preparation of
a fairness opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant
methods of financial analyses and the application of those
methods to the particular circumstances and, therefore, such an
opinion is not readily susceptible to summary description. In
arriving at its opinion, Smith Barney did not attribute any
particular weight to any analysis or factor considered by it,
but instead made qualitative judgments as to the significance
and relevance of each analysis and factor. Although certain
assumptions underlying Smith Barney's judgments and conclusions
were discussed generally with the Special Committee and are
summarized below, Smith Barney and the Special Committee did not
discuss in detail specific qualitative judgments with respect to
each analysis and factor and such qualitative judgments are not
included in the written materials presented to the Special
Committee which are filed as exhibits to the Schedule 13E-3.
Accordingly, Smith Barney believes that its analyses must be
considered as a whole and that selected portions of its analyses
and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses,
Smith Barney made numerous assumptions with respect to Pacific
Telecom and industry performance, general business, economic,
market and financial conditions and other matters, many of which
are beyond the control of Pacific Telecom, such as the impact of
competition on the business of Pacific Telecom and the
telecommunications industry generally, industry growth and the
absence of any material adverse change in the financial
condition and prospects of Pacific Telecom or the
telecommunications industry or in the financial markets in
general. The assumptions primarily relate to Smith Barney's
reliance, as described above, on the reasonableness of the
forecasts prepared by Pacific Telecom and to Smith Barney's
judgment as to the appropriateness of other assumptions, which
are described herein in connection with the summary of its
analyses. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do
not purport to be appraisals or to reflect the prices at which
<PAGE>41
businesses or securities actually may be sold. Accordingly,
such analyses and estimates are inherently subject to
substantial uncertainty.
Smith Barney's general approach in its analysis of
the fairness of the Merger Consideration was to utilize a
variety of methodologies to derive theoretical public market
prices for Pacific Telecom and to then add to such theoretical
public market prices a "minority buy-out premium." Smith
Barney derived this minority buy-out premium by analyzing the
premiums over preannouncement market prices paid in other
transactions involving the acquisition by majority shareholders
of the stock held by minority shareholders. Smith Barney then
applied this minority buy-out premium to its valuation
analyses; however, as Smith Barney advised the Special
Committee, the minority buy-out premium is only an arithmetic
mean, does not represent a minimum or a maximum for any
particular minority buy-out transaction and may be higher or
lower with respect to any particular transaction because of
differences in facts and circumstances, and Smith Barney further
advised the Special Committee that the minority buy-out premium
utilized in its analyses was derived from data from these
previous minority buy-outs, which data was calculated by
comparing the actual price paid for the subject shares to the
actual trading value of such shares at the times indicated, and
that in deriving certain of its ranges of values, Smith Barney
applied the minority buy-out premium to its calculation of
Pacific Telecom's theoretical public market value (the
"Minority Buy-Out Premium"). Smith Barney used, among other
valuation analyses, a historical stock price analysis, a
component valuation analysis, a public market valuation
analysis, a DCF analysis, a future stock price analysis, a
comparable company analysis and a comparable transaction
analysis. Certain of these methodologies used the Short-Term
Forecasts, which were not adjusted for the Future Acquisitions.
See "Certain Financial Forecasts." Other methodologies used the
Long-Term Forecasts Without Future Acquisitions and the
Long-Term Forecasts With Future Acquisitions.
In presenting its valuation analyses, Smith Barney
advised the Special Committee that, typically, valuation
analyses based on short-term projections and valuation analyses
based on long-term projections result in comparable ranges of
values. However, because Pacific Telecom has undertaken certain
restructuring efforts the benefits of which are not expected to
be realized in the short-term, the Long-Term Forecasts reflect
values in excess of the Short-Term Forecasts. In addition,
Smith Barney advised the Special Committee of the uncertainty
inherent in long-term projections generally and that the
discount rates applied to the Long-Term Forecasts are an attempt
to mitigate against such uncertainty, including the uncertainty
of the successful consummation of Future Acquisitions.
MINORITY BUY-OUT PREMIUM ANALYSIS. Smith Barney
analyzed the premiums paid in certain transactions of $20
million or more from 1989
<PAGE>42
through 1994 for which there is publicly available information,
in which the majority shareholder purchased between 5 percent
and 50 percent of the company's outstanding shares of common
stock from the minority shareholders, based on stock prices four
weeks prior to the announcement of such transaction as compared
to the final per share offer price, including transactions in
the health care, telecommunications, entertainment, consumer
goods and financial services fields, among others. The median
premium for such transactions with cash merger consideration was
24.8 percent, and for all such transactions with various forms
of merger consideration, the median premium was 25 percent.
Applying these premiums to the price of a share of PTI Common
Stock four weeks before announcement of the transaction, Smith
Barney derived an implied valuation range of $30.74 to $30.78
per share.
Smith Barney also performed a similar analysis based
on the premium of the final per share offer price of such
transactions compared to the initial per share offer price in
such transactions. The median premium for such transactions
with cash merger consideration was 10 percent, and for all such
transactions with various forms of merger considerations, the
median premium was 4.4 percent. Applying these premiums to the
Initial Offer price for a share of PTI Common Stock, Smith
Barney derived an implied valuation range for PTI Common Stock
of $29.24 to $30.79 per share. Finally, applying these
premiums both to the price of a share of PTI Common Stock four
weeks before announcement of the transaction and to the Initial
Offer price, Smith Barney derived an implied valuation range
for PTI Common Stock of $30.01 to $30.76 per share.
HISTORICAL STOCK PRICE ANALYSIS. Smith Barney
analyzed the prices at which shares of Pacific Telecom's Common
Stock traded after the date of announcement of the Initial Offer
through March 3, 1995. This analysis showed that 81.2 percent
of traded shares of PTI Common Stock traded during such period
at or under $30.00 per share and 18.8 percent of traded shares
of PTI Common Stock traded during such period at over $30.00 per
share. The weighted average of daily closing prices during this
period was $29.88. Smith Barney noted that during the
three-year period prior to the date of announcement of the
Initial Offer, the highest price per share of PTI Common Stock
was $28.75.
Smith Barney also analyzed the trading activity in
PTI Common Stock in the last hour and last 15 minutes of each
of the 20 trading days prior to March 9, 1995. On 10 of those
days, 50 percent or more of the shares traded were traded
within the last hour of the trading day; on six of those days,
75 percent or more of the shares traded were traded within the
last hour; and on five of those days, 50 percent or more of the
shares traded were traded within the last 15 minutes. The
share price rose or remained the same during the last trading
hour on 19 of the 20 trading days.
<PAGE>43
VALUATIONS USING SHORT-TERM FORECASTS
Component Valuation Analysis. Based on Pacific
Telecom's Short-Term Forecasts, Smith Barney analyzed Pacific
Telecom's public market value as the aggregate of the 1996
estimated value of the following lines of business of Pacific
Telecom: LEC properties, cellular properties and North Pacific
Cable. The results of this analysis were adjusted for the
Alascom Sale and the Pending Acquisitions, but not adjusted for
the Future Acquisitions. In its analysis of the low- and high-
range values of Pacific Telecom's LEC properties, Smith Barney
used low and high estimates of enterprise value as a multiple
of estimated 1996 EBITDA (4.75x and 5.25x, respectively), which
estimates Smith Barney extrapolated from the median enterprise
value as a multiple of estimated 1995 EBITDA of the low growth
and high growth comparable independent telephone companies
analyzed under the comparable company analysis described below.
See "--Opinion of Smith Barney--Valuations Using Long-Term
Forecasts." The analysis resulted in a valuation range for
Pacific Telecom of $22.48 to $26.93 and, after applying a
Minority Buy-Out Premium of 25 percent, of $28.10 to $33.67 per
share of PTI Common Stock.
Public Market Valuation Analysis. Smith Barney
also analyzed Pacific Telecom's equity market value, enterprise
value, net income, dividend yield and EBITDA implied by various
values of a share of PTI Common Stock. Under this analysis,
the Merger Consideration resulted in multiples of (i) Pacific
Telecom's forecasted calendar 1996 net income of 17.0x; (ii)
Pacific Telecom's forecasted 1996 EBITDA of 6.4x; and (iii) a
dividend yield on PTI Common Stock of 4.4 percent. The Public
Market Valuation Analysis, which is used to evaluate, based on
Pacific Telecom's consolidated near-term financial performance,
the price at which the PTI Common Stock would trade if it were a
publicly held liquid security, resulted in a valuation of $24.00
to $28.00 per share of PTI Common Stock and, adjusted for a
Minority Buy-Out Premium of 25 percent, resulted in a valuation
range of between $30.00 and $35.00 per share.
Averaging the low value of the range derived through
the Component Valuation Analysis (adjusted for a Minority Buy-
Out Premium of 25 percent) with the low value of the range
derived through the Public Market Valuation Analysis, and
averaging the high value of the range derived through the
Component Valuation Analysis (adjusted for a Minority Buy-Out
Premium of 25 percent) and the high value of the range derived
through the Public Market Valuation Analysis, Smith Barney
arrived at a valuation range for Pacific Telecom of $29.05 to
$34.33 per share of Pacific Telecom Common Stock.
<PAGE>44
VALUATIONS USING LONG-TERM FORECASTS
Discounted Cash Flow Analysis. Smith Barney
performed a DCF analysis of the projected free cash flow of
Pacific Telecom for the second half of 1995 and the years 1996
through 1999, assuming, among other things, discount rates of
8.0 percent to 10.0 percent and terminal multiples of EBITDA of
5.50x to 6.25x. Utilizing these assumptions and based on
Pacific Telecom's Long-Term Forecasts Without Future
Acquisitions, Smith Barney arrived at estimated ranges of
equity values per share of PTI Common Stock and summarized
these values at a range of between approximately $27.66 to
$30.64. After applying a Minority Buy-Out Premium of 25
percent, Smith Barney arrived at estimated ranges of equity
values per share of between approximately $34.57 to $38.30.
Using Pacific Telecom's Long-Term Forecasts With Future
Acquisitions, and applying the same discount rate and terminal
multiple assumptions, Smith Barney arrived at estimated ranges
of equity values per share of PTI Common Stock and summarized
these values at a range of between approximately $28.87 to
$32.56. After applying a Minority Buy-Out Premium of 25
percent, Smith Barney arrived at estimated ranges of equity
values per share of between approximately $36.08 to $40.71.
Present Value of Future Stock Price Analysis.
Smith Barney also analyzed the present value of the future
stock price and discounted dividend stream of a share of PTI
Common Stock, assuming discount rates of 12.0 percent to 130
percent, multiples of 1999 projected earnings per share ("EPS")
of 15.5x to 16.5x and dividends as projected by Pacific
Telecom. This analysis reflected the benefits anticipated from
estimated earnings accretion due to Future Acquisitions.
Utilizing these assumptions and based on the Long-Term
Forecasts Without Future Acquisitions, Smith Barney arrived at
estimated ranges of equity values per share of PTI Common Stock
and summarized these values at a range of between approximately
$26.90 and $29.52. Using the Long-Term Forecasts With Future
Acquisitions, and applying the same discount rate, terminal
multiple and dividend assumptions, Smith Barney arrived at
estimated ranges of equity values per share of PTI Common Stock
of between approximately $29.11 and $31.97.
The Discounted Cash Flow Analysis and the Present
Value of Future Stock Price Analyses together resulted in an
average valuation range for PTI Common Stock of between
approximately $27.28 to $30.08 per share and, after applying a
Minority Buy-Out Premium of 25 percent, of $33.50 to $36.98 per
share of PTI Common Stock using the Long-Term Forecasts Without
Future Acquisitions. Using the Long-Term Forecasts With Future
Acquisitions, the combined analyses resulted in an average
valuation range for PTI Common Stock of between approximately
$28.99 to $32.27 and, after applying a Minority Buy-Out Premium
of 25 percent, of between approximately $35.63 and $39.71 per
share.
<PAGE>45
Comparable Company Analysis. Using publicly
available information, Smith Barney analyzed, among other
things, the market values and trading multiples of regional
bell operating companies ("RBOCs") and substantially all major
publicly traded independent LECs. The comparable companies
analyzed were Ameritech Corporation, Bell Atlantic Corporation,
BellSouth Corporation, GTE Corporation, NYNEX Corporation,
Pacific Telesis Group, Southwestern Bell Corporation and US
WEST, Inc. (the "RBOCs & GTE"), Lincoln Telecommunications
Company, Southern New England Telecommunications Corporation
and Telephone & Data Systems, Inc. (the "Lower Growth
Independents"), and ALLTEL Corporation, Century Telephone
Enterprises, Inc., Cincinnati Bell, Inc., Frontier Corporation
and Citizens Utilities Company (the "Higher Growth
Independents" and, together with the RBOCs & GTE and the Lower
Growth Independents, the "Comparable Companies"). Smith Barney
compared current stock prices to projected calendar 1994 and
1995 EPS of the Comparable Companies. The projected calendar
1994 and 1995 multiples of stock prices to EPS ("Price-Earnings
Multiples") of the RBOCs & GTE were between 10.7x and 14.7x
(with a mean of 13.6x and a median of 13.9x) and between 10.9x
and 13.5x (with a mean of 12.6x and a median of 12.9x),
respectively. The projected calendar 1994 and 1995 Price-
Earnings Multiples of the Lower Growth Independents were
between 6.9x and 14.5x (with a mean of 11.2x and a median of
12.0x) and between 7.1x and 13.5x (with a mean of 10.8x and a
median of 11.7x), respectively. The projected calendar 1994
and 1995 Price-Earnings Multiples of the Higher Growth
Independents were between 15.5x and 23.0x (with a mean of 19.2x
and a median of 18.7x) and between 14.2x and 17.5x (with a mean
of 16.0x and a median of 15.9x), respectively. The pre-
announcement projected calendar 1995 and 1996 Price-Earnings
Multiples of Pacific Telecom were 12.2x and 15.6x,
respectively. The Merger Consideration equated to
multiples of Pacific Telecom's forecasted calendar 1995 and
1996 net income of 23.8x and 17.0x, respectively.
Smith Barney also compared the enterprise values to,
among other things, forecasted calendar 1995 EBITDA. The
multiples of forecasted calendar 1995 EBITDA of the RBOCs & GTE
were between 4.3x to 5.9x (with a mean of 5.1x and a median of
5.1x). The multiples of forecasted 1995 EBITDA of the Lower
Growth Independents were between 3.5x to 5.7x (with a mean of
4.5x and a median of 4.4x). The multiples of forecasted 1995
EBITDA of the Higher Growth Independents were between 5.3x to
7.9x (with a mean of 6.4x and a median of 5.6x). The median
multiple of forecasted 1995 EBITDA of the Lower Growth
Independents and Higher Growth Independents was 5.6x. Pacific
Telecom's preannouncement multiple of forecasted calendar 1995
EBITDA was 5.7x, and the multiple of forecasted calendar 1995
EBITDA as of March 3, 1995 was 6.6x. The Merger Consideration
equated to a multiple of Pacific Telecom's forecasted calendar
1995 EBITDA of 7.8x and a multiple of forecasted calendar 1996
EBITDA of 6.4x.
<PAGE>46
Smith Barney compared the profit margins, historic
revenue growth and forecasted EPS growth of the Comparable
Companies with those of Pacific Telecom. The median net income
profit margin for the RBOCs & GTE was 12.0 percent, for the
Lower Growth Independents it was 10.0 percent and for the
Higher Growth Independents it was 10.7 percent. Pacific
Telecom's net income profit margin was 11.1 percent. The
median five-year compound annual growth rate ("CAGR") for the
RBOCs & GTE was 2.4 percent, for the Lower Growth Independents
it was 5.8 percent and for the Higher Growth Independents it
was 10.2 percent. Pacific Telecom's five-year CAGR was -0.1
percent. The median five-year estimated growth for the RBOCs &
GTE was 6.8 percent, for the Lower Growth Independents it was
7.8 percent and for the Higher Growth Independents it was 12.3
percent. Pacific Telecom's five-year estimated growth was 7.0
percent. All forecasted net income estimates for the
Comparable Companies were based on the consensus estimates of
selected investment banking firms, and all forecasted net
income estimates for Pacific Telecom were based on forecasts of
Pacific Telecom's management. All multiples were based on
closing stock prices as of March 3, 1995.
Smith Barney also analyzed the market value of the
following publicly traded cellular companies: U.S. Cellular,
CommNet Cellular Inc. and Centennial Cellular (together, the
"Most Comparable Cellular Companies"), LIN Broadcasting,
Cellular Communications, Vanguard Cellular, Contel Cellular and
AirTouch Communications. Smith Barney based its selection of
comparable companies primarily on the composition of their POP
(population equivalent) profiles and ownership structures. Of
the selected comparable companies, the Most Comparable Cellular
Companies had demographic profiles most comparable to those of
Pacific Telecom's cellular properties, which primarily serve
rural populations and had ownership structures that most closely
approximated that of Pacific Telecom. Using its analysis of the
Most Comparable Cellular Companies, Smith Barney arrived at a
range of values per POP of $81.90 to $141.30. This range of
values served to support the utilization of the $95 to $119
range of values derived for Pacific Telecom's cellular
properties in the component valuation analysis described above.
Selected Merger and Acquisition Transaction Analysis.
Using publicly available information, Smith Barney analyzed the
implied transaction multiples in merger and acquisition
transactions in the last five years for which there is publicly
available information involving LEC companies in excess of $50
million and in which the target was an independent telephone
company with rural LEC operations. Smith Barney also performed
an analysis of merger and acquisition transactions since 1990
for which there is publicly available information involving LEC
or cellular companies in which the target company's operations
were similar to those of Pacific Telecom. The transactions
analyzed in these analyses were: ALLTEL Corporation/Citizens
<PAGE>47
Utilities Company, GTE Telephone Ops.-Access Lines/Citizens
Utilities Company, GTE-Georgia Telephone Operations/ALLTEL
Corporation, Central Telephone Co. of OH/Century Telephone
Enterprises, Centel-MN,IA/Rochester Telephone Corp., Centel-
Iowa/Rochester Telephone Corp. and Centel-MN/Rochester
Telephone Corp. (the "Selected LEC Acquisitions") and Centel
Corp./Sprint Corp., SLT Communications Inc./ALLTEL Corporation,
San Marcos Telephone and SM Telecorp./Century Telephone
Enterprises and Contel Corp./GTE Corporation (the "Selected LEC
and Cellular Acquisitions"). The mean and median multiples of
latest 12 months' EBITDA as of the announcement date of the
Selected LEC Acquisitions were 8.6x and 9.0x, respectively.
The mean and median multiples of latest 12 months' EBITDA as of
the announcement date of the transaction for Selected LEC and
Cellular Acquisitions were 12.0x and 11.8x, respectively.
Smith Barney also analyzed those private LEC
acquisitions for which Pacific Telecom was able to provide
information. These acquisitions were: US WEST
Colorado/Pacific Telecom, US WEST Montana/Consortium, US WEST
Wyoming/Consortium, US WEST Oregon/Pacific Telecom, US WEST
Washington/Pacific Telecom, Northwest
Telecommunications/Pacific Telecom, Missouri Telephone Company/
ALLTEL, Anchorage Telephone Utility/Pacific Telecom and
acquisitions of several other small rural privately held LECs,
certain of which were acquired by Pacific Telecom, including
Urban Telephone, Volcano Telephone Company, Anchorage Telephone
Utility, Viroqua Telephone Company, Lakeshore Telephone
Company, North-West Telephone Company, Turtle Lake Telephone
Co., Inc., Postville Telephone Company, Thorp Telephone Co.,
Delta County Telecom, Inc., Minot Telephone Company, Wayside
Telcom, Inc., Farmers Telephone Company, Mid-Plains Telephone,
Inc., Northland Telephone Company, Missouri Telephone Company,
Arizona Telephone Company, Helix Telephone Company, Casco
Telephone Company and Rib Lake Cellular for Wisconsin RSA #2,
Inc. (the "Private LEC Transactions"). The mean and median
midpoint multiples of EBITDA for the Private LEC Transactions
were 9.2x and 9.1x, respectively.
In July 1995, the Special Committee requested that
Smith Barney update its March 8, 1995 opinion to determine
whether, as of the date of this Proxy Statement, the Merger
Consideration is fair, from a financial point of view, to the
Minority Shareholders. The Special Committee informed Smith
Barney that in the regular course of implementing its
acquisition plans, Pacific Telecom was considering the Proposed
Transaction, for which a letter of intent was being negotiated.
The Special Committee requested that, in the course of updating
its March 8, 1995 opinion, Smith Barney consider the possible
effect on the fairness of the Merger Consideration of the
Proposed Transaction. In updating its fairness opinion, Smith
Barney reviewed and analyzed certain financial projections
provided by Pacific Telecom, which projections include the pro
forma effect of the Proposed Transaction,
<PAGE>48
assuming it were eventually consummated in the form being
negotiated by management of Pacific Telecom. Smith Barney
concluded that, as of the date of this Proxy Statement, the
Merger Consideration is fair, from a financial point of view, to
the Minority Shareholders.
No company, transaction or business used in the
comparable company and selected merger and acquisition
transactions analyses as a comparison is identical to Pacific
Telecom or the Merger. Accordingly, an analysis of the results
of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning
differences in financial and operating characteristics and
other factors that could affect the acquisition or public
trading value of the comparable companies or the business
segment or company to which they are being compared.
Pursuant to the terms of Smith Barney's engagement,
Pacific Telecom has agreed to pay Smith Barney for its services
in connection with the Merger an aggregate financial advisory
fee of $1,500,000, with $250,000 paid at the commencement of
the engagement, $750,000 paid upon delivery of its opinion and
$100,000 paid each month for five months. Pacific Telecom also
has agreed to reimburse Smith Barney for travel and other out-
of-pocket expenses incurred by Smith Barney in performing its
services, including the reasonable fees and expenses of its
legal counsel, which out-of-pocket expenses are limited to a
maximum of $40,000, unless otherwise approved by the Special
Committee, and to indemnify Smith Barney and related persons
against certain liabilities, including liabilities under the
federal securities laws, arising out of Smith Barney's
engagement.
Smith Barney has advised the Special Committee that
it has in the past provided financial advisory and investment
banking services to Pacific Telecom and has received fees for
the rendering of such services. Smith Barney has also provided
certain investment banking services to PacifiCorp related to
the underwriting of certain debt and equity securities and has
received fees for the rendering of such services. In addition,
Smith Barney and its affiliates (including The Travelers Inc.
and its affiliates) may maintain business relationships with
Pacific Telecom, PacifiCorp and their affiliates.
Smith Barney is a nationally recognized investment
banking firm and was selected by the Special Committee based on
Smith Barney's experience and expertise. Smith Barney
regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other
purposes.
<PAGE>49
Opinion of CS First Boston
CS First Boston was retained by the Special Committee
and Pacific Telecom to render an opinion in connection with the
Merger. CS First Boston is an internationally recognized
investment banking firm and was selected by the Special
Committee based on CS First Boston's experience and expertise.
As part of its investment banking business, CS First Boston is
regularly engaged in the valuation of businesses and securities
in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
In connection with CS First Boston's engagement, the
Special Committee requested that CS First Boston evaluate the
fairness, from a financial point of view, to the Minority
Shareholders of the Merger Consideration. On March 8, 1995, CS
First Boston rendered to the Special Committee its oral opinion
(subsequently confirmed in writing) to the effect that, as of
such date, the Merger Consideration was fair to the Minority
Shareholders from a financial point of view. CS First Boston
has confirmed such opinion by delivery of a written opinion
dated the date hereof. Except as described below, the
assumptions made, matters considered and limitations on the
review undertaken in the March 8, 1995 opinion are substantially
the same as those contained in the opinion dated the date hereof
and attached hereto as Exhibit D.
In arriving at its opinion, CS First Boston
(i) reviewed the draft Merger Agreement and certain publicly
available business and financial information relating to
Pacific Telecom; (ii) reviewed certain other information,
including financial forecasts, provided by Pacific Telecom;
(iii) met with management of Pacific Telecom to discuss the
business and prospects of Pacific Telecom; (iv) considered
certain financial and stock market data of Pacific Telecom and
compared that data with similar data for other publicly held
companies in businesses similar to those of Pacific Telecom;
(v) considered the financial terms of certain other business
combinations and other transactions recently effected; and (vi)
considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
which CS First Boston deemed relevant.
In connection with its review, CS First Boston did
not assume any responsibility for independent verification of
any of the information provided to or otherwise reviewed by CS
First Boston and relied upon its being complete and accurate in
all material respects. With respect to financial forecasts, CS
First Boston assumed that they were reasonably prepared on
bases reflecting the best currently available estimates and
judgments of management of Pacific Telecom as to the future
financial performance of
<PAGE>50
Pacific Telecom. In addition, CS First Boston did not make an
independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Pacific Telecom, nor was CS First
Boston furnished with any such evaluations or appraisals. CS
First Boston was not requested to, and did not, participate in
any negotiations with Holdings or PacifiCorp and their
respective representatives regarding the Merger, or solicit
third-party indications of interest in acquiring all or any part
of Pacific Telecom. CS First Boston's opinion is necessarily
based on information available to it and financial, economic,
market and other conditions and circumstances as they existed
and could be evaluated on the date of its opinion. Although CS
First Boston evaluated the fairness of the Merger Consideration
to the Minority Shareholders from a financial point of view, CS
First Boston was not asked to and did not recommend the specific
consideration payable in the Merger. No limitations were
imposed by the Special Committee on CS First Boston with respect
to the investigations made or procedures followed by CS First
Boston. A copy of the written materials provided by CS First
Boston and distributed to the Special Committee in connection
with the delivery of its opinion has been filed as an exhibit to
the Schedule 13E-3 and is available for inspection and copying
at the principal offices of Pacific Telecom during Pacific
Telecom's normal business hours by any Minority Shareholder or
any representative of a Minority Shareholder who has been so
designated in writing. A copy of such materials shall be
provided to any Minority Shareholder or representative of a
Minority Shareholder who has been so designated in writing upon
written request and at the expense of the requesting Minority
Shareholder or representative.
The full text of CS First Boston's written opinion,
dated the date hereof, which sets forth the matters considered
and limitations on the review undertaken, is attached as
Exhibit D to this Proxy Statement and is incorporated herein by
reference. MINORITY SHAREHOLDERS ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. CS First Boston's opinion
is directed only to the fairness of the Merger Consideration to
be received by the Minority Shareholders from a financial point
of view, does not address any other aspect of the Merger and
does not constitute a recommendation to any shareholder as to
how such shareholder should vote on the Merger. The summary of
the opinion of CS First Boston set forth in this Proxy
Statement is qualified in its entirety by reference to the full
text of such opinion.
In determining the appropriate fair value for PTI
Common Stock, CS First Boston analyzed Pacific Telecom using,
among others, the following valuation methodologies: (i)
estimated value of Pacific Telecom in the public equity market
as if it were widely held with broad institutional ownership
without a controlling shareholder; (ii) DCF analyses;
(iii) valuation by line of business; and (iv) premiums paid by
a majority shareholder to minority public shareholders of other
companies. In its analyses, CS First Boston used Pacific
Telecom's forecasts for the fiscal years ended December 31,
1995 to
<PAGE>51
December 31, 1999, adjusted for the Pending Acquisitions. See
"Certain Financial Forecasts." CS First Boston, in performing
the valuation using the aforementioned methodologies, developed
a range of values for PTI Common Stock that does not include any
of the benefits that would arise from a combination with or
acquisition by another party, including PacifiCorp, resulting in
a change in control of Pacific Telecom.
PUBLIC MARKET EQUITY VALUATION. CS First Boston
reviewed and compared certain historical and projected
financial, operating and stock market information of Pacific
Telecom (including, among others, revenue by segment, market
capitalization, share price, public float, insider ownership,
institutional and fund ownership, average daily trading volume,
debt-capital ratio, dividend yield, EBITDA margins, price
earnings multiples, dividend payout ratio, five year projected
earnings growth rate and projected earnings) to certain other
comparable large publicly traded independent telephone
companies. Although Pacific Telecom is currently publicly
traded, the purpose of this analysis was to estimate the value
at which PTI Common Stock might trade if it were widely held
instead of approximately 87 percent owned by Holdings, and
Pacific Telecom were more closely followed by the investment
research community as a result of broader institutional
ownership. In performing this analysis, CS First Boston
compared Pacific Telecom to Frontier Corporation (formerly
Rochester Telephone Corporation), Lincoln Telecommunications
Company and Southern New England Telecommunications, as well as
other comparable companies. In general, these companies were
found to trade at 1995 price earnings multiples of 12.0x to
13.0x. In its analysis, CS First Boston assumed that the
Alascom Sale and the Pending Acquisitions had occurred in
assessing Pacific Telecom's future earnings growth. Based on
Pacific Telecom's higher growth rates, stemming in large part
from a lower earnings base absent Alascom and the full impact
of the Pending Acquisitions in 1996, it was assumed that
Pacific Telecom would trade at 18.0x to 20.0x pro forma 1995
earnings per share of $1.34 (implying a value of $24.00 to
$26.75 per share) or 18.0x to 20.0x 1996 earnings per share of
$1.76 discounted to today's value at 12 percent (implying a
value of $28.25 to $31.50 per share). Based on this analysis,
CS First Boston estimated a value range for PTI Common Stock of
approximately $25.50 to $31.00 per share. No company used in
this analysis was identical to Pacific Telecom. The analysis
necessarily involved complex considerations and judgments
concerning differences in financial and operating
characteristics of the companies.
DISCOUNTED CASH FLOW ANALYSIS. CS First Boston
performed DCF analyses of the projected free cash flow of
Pacific Telecom for the fiscal years ended December 31, 1995
through December 31, 1999, based upon certain operating and
financial assumptions, forecasts and other information provided
by Pacific Telecom's management, adjusted for the sale of
Alascom and the Pending Acquisitions. The forecasts provided
to CS First Boston for Pacific
<PAGE>52
Telecom were through the fiscal year periods ended December 31,
1999. For purposes of such analysis, CS First Boston
utilized discount rates of 10 percent and 9 percent and applied
operating cash flow multiples of 5x, 6x and 7x to 1999 estimated
EBITDA to arrive at a terminal value for Pacific Telecom. This
analysis indicated a valuation range for Pacific Telecom of
approximately $23.25 to $35.50 per share of PTI Common Stock.
The analysis necessarily involved complex considerations and
judgments concerning differences in financial and operating
characteristics of the companies.
VALUATION BY LINE OF BUSINESS. CS First Boston
analyzed Pacific Telecom by the following lines of business:
local exchange companies, Pending Acquisitions, cellular
telephone operations, cable and transmission services and other
businesses. CS First Boston's valuation of Pacific Telecom's
local exchange business employed comparable publicly traded
companies and DCF analyses and resulted in a value range of
$1,150 to $1,350 million (including the Pending Acquisitions).
In valuing Pacific Telecom's cellular interests, CS First
Boston relied principally on a per POP valuation applied to
each individual market, based on comparable publicly traded
cellular telephone companies, which resulted in a value of $225
to $275 million. CS First Boston's valuation of the cable and
transmission business was based both on a book value analysis
and a DCF analysis, which resulted in a value of $40 to $50
million. Pacific Telecom's other businesses were valued at $25
million. In addition to valuing these lines of business, CS
First Boston included the net proceeds from the sale of Alascom
and deducted net total debt and the purchase price of the
Pending Acquisitions to arrive at an overall equity value range
for Pacific Telecom. This analysis indicated a per share
valuation range of approximately $24.25 to $30.75 per share of
PTI Common Stock. The analysis necessarily involved complex
considerations and judgments concerning differences in
financial and operating characteristics of the companies.
PREMIUMS PAID BY A MAJORITY SHAREHOLDER TO MINORITY
SHAREHOLDERS OF OTHER PUBLIC COMPANIES. CS First Boston also
analyzed premiums paid to public minority shareholders of other
companies by a majority shareholder. This analysis indicated
an average of premiums paid over the stock price four weeks
prior to the initial announcement of the proposed transaction
of approximately 24 percent, which implied a price per share of
PTI Common Stock held by the Minority Shareholders of $30.00.
The analysis indicated an average of premiums paid over the
stock price one day prior to such announcement of approximately
18 percent, which implied a price per share of PTI Common Stock
of $28.50.
SUMMARY VALUATION. Based on these analyses, and
other analyses and criteria it deemed relevant, including, but
not limited to, general economic considerations, recent equity
market conditions and other transactions in the
telecommunications industry, CS First Boston arrived at a
<PAGE>53
valuation range of $28.00 to $34.00 per share for PTI Common
Stock. None of the analyses summarized above were necessarily
indicative of the appropriate price per share for Holdings to
purchase PTI Common Stock from the Minority Shareholders.
Based on the analyses described above, CS First Boston
delivered a written fairness opinion to the Special Committee
that, as of the date of the Merger Agreement, the Merger
Consideration to be received by the Minority Shareholders in
the Merger was fair to such shareholders, from a financial
point of view.
In July 1995, the Special Committee requested that CS
First Boston update its March 8, 1995 opinion to determine
whether, as of the date of this Proxy Statement, the Merger
Consideration is fair, from a financial point of view, to the
Minority Shareholders. The Special Committee informed CS First
Boston that Pacific Telecom was considering the Proposed
Transaction. The Special Committee requested that, in the
course of updating its March 8, 1995 opinion, CS First Boston
consider the possible impact of the Proposed Transaction. In
updating its fairness opinion, CS First Boston reviewed and
analyzed certain financial projections provided by Pacific
Telecom, which projections included the pro forma effect of the
Proposed Transaction, assuming it were eventually consummated in
the form being negotiated by management of Pacific Telecom. CS
First Boston concluded that, as of the date of this Proxy
Statement, the Merger Consideration is fair, from a financial
point of view, to the Minority Shareholders.
The summary set forth above does not purport to be a
complete description of CS First Boston's valuation summary or
of the analyses performed by CS First Boston. The preparation
of such a summary necessarily is not susceptible to partial
analysis or summary description. The fact that any specific
analysis has been referred to in the summary above is not meant
to indicate that such analysis was given greater weight than
any other analysis. In performing its analyses, CS First
Boston made numerous assumptions with respect to industry
performance, general business and economic conditions and other
matters, many of which are beyond the control of Pacific
Telecom, such as the impact of competition on the business of
Pacific Telecom and the telecommunications industry generally,
industry growth and the absence of any material adverse change
in the financial condition and prospects of Pacific Telecom or
the telecommunications industry or in the financial markets in
general. The assumptions primarily relate to CS First Boston's
reliance, as described above, on the reasonableness of the
forecasts prepared by Pacific Telecom and to CS First Boston's
judgment as to the appropriateness of other assumptions which
are described generally herein in connection with the summary
of its analyses. The analyses performed by CS First Boston are
not necessarily indicative of actual future values or actual
future results, which may be significantly more or less
favorable than suggested by such analyses. The analyses do not
purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any
securities may trade at the present time or at
<PAGE>54
any time in the future. The projections used by CS First Boston
are based on numerous variables and assumptions which are
inherently unpredictable and must be considered not certain of
occurrence as projected. Accordingly, actual results could vary
significantly from those set forth in such projections.
Pursuant to the terms of CS First Boston's
engagement, Pacific Telecom paid CS First Boston for its
services in connection with the Merger a fee of $500,000, with
$200,000 paid at the commencement of the engagement and
$300,000 paid upon delivery of its March 9, 1995 opinion.
Pacific Telecom has also agreed to reimburse CS First Boston
for its out of pocket expenses, including reasonable fees and
expenses of legal counsel, of up to $40,000, unless otherwise
approved by the Special Committee, and to indemnify CS First
Boston and certain related persons or entities against certain
liabilities, including liabilities under the federal securities
laws, relating to or arising out of its engagement.
In the ordinary course of its business, CS First
Boston and its affiliates may actively trade the debt and
equity securities of both Pacific Telecom and Holdings for
their own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in
such securities. In the past, CS First Boston has provided
certain investment banking services to Pacific Telecom and has
received customary fees for such services.
REASONS OF PACIFICORP AND HOLDINGS FOR THE MERGER
As indicated above, Holdings owns approximately 86.6
percent of the outstanding shares of PTI Common Stock. The
purpose of the Merger is for Holdings to acquire beneficial
ownership of the remaining shares of PTI Common Stock. For
additional information concerning the factors leading to the
decision by Holdings to make its merger proposal, see "--
Background of the Merger."
Holdings determined to pursue a merger transaction
with Pacific Telecom for the following reasons: (i) to better
position Holdings and Pacific Telecom to take advantage of
possible synergies between the electric and telecommunications
businesses, without the constraints of actual or perceived
conflicts with the minority interest; (ii) to simplify the
corporate structure and eliminate certain expenses associated
with duplication of functions and Pacific Telecom's reporting
obligations under the Exchange Act with respect to the publicly
held minority interest; (iii) to improve PacifiCorp's earnings
per share growth prospects due to the higher earnings growth
prospects expected in the telecommunications industry as
compared to the electric utility industry; and (iv) to
facilitate more efficient capital allocation decisions between
PacifiCorp, Holdings and Pacific Telecom, which will become
increasingly important in view of Pacific Telecom's planned
acquisition activity. Holdings
<PAGE>55
rejected the alternative of increasing Holdings' involvement in
the management of Pacific Telecom without increasing its stock
ownership because such action would not have accomplished the
foregoing objectives.
Prior to making the Initial Offer, Holdings
considered alternative structures for acquiring Pacific
Telecom's minority interest, including (i) the acquisition of
PTI Common Stock directly from the Minority Shareholders for
cash; (ii) the acquisition of shares of PTI Common Stock from
the Minority Shareholders in exchange for common stock of
PacifiCorp ("PacifiCorp Common Stock"); and (iii) the
acquisition of PTI Common Stock from the Minority Shareholders
for a combination of cash and PacifiCorp Common Stock.
Holdings considered acquiring PTI Common Stock from the
Minority Shareholders by means of an open market purchase
program or through a tender offer, in either case to be followed
by a second step merger to acquire the remaining shares.
Holdings also considered a one-step merger or statutory share
exchange transaction.
Holdings opted for a structure involving an agreement
negotiated with a special committee of independent Pacific
Telecom directors. The primary consideration in choosing to
pursue a negotiated agreement over a unilateral transaction was
that PacifiCorp and Holdings believed it was important to
demonstrate a procedurally fair, arm's length negotiation
process in establishing fairness to the Minority Shareholders.
Holdings elected to pursue a cash transaction instead
of a transaction involving PacifiCorp Common Stock primarily
because of its relative simplicity. A structure involving
issuance of PacifiCorp Common Stock presented issues with
respect to regulatory approval by public utility regulatory
authorities and would have required registration with the SEC
of the PacifiCorp Common Stock to be issued, which could have
resulted in delays in consummating the transaction and
significant additional expense. In addition, the various
structures involving PacifiCorp Common Stock, except where
Pacific Telecom merged into Holdings, posed an unacceptable
risk that Holdings would recognize gain as a result of the
transaction. A structure in which Pacific Telecom merged into
Holdings was unacceptable because Holdings would have had to
assume Pacific Telecom's liabilities.
Holdings elected to pursue the Merger at this time
because of the belief of PacifiCorp and Holdings that, in view
of Pacific Telecom's recent and planned acquisition activity,
which will result in their increased exposure to the
telecommunications business, it is an appropriate time for
Holdings to have greater control over Pacific Telecom.
Each of PacifiCorp and Holdings has concluded that
the Merger is fair to the Minority Shareholders based on the
following factors:
<PAGE>56
1. The recommendations of and approvals by both the
Special Committee and the Board of Directors of Pacific Telecom
described under "--Recommendations of the Board of Directors of
Pacific Telecom and the Special Committee," receipt of which
was a condition to the fairness determination of PacifiCorp and
Holdings;
2. The receipt by the Special Committee of the opinions
of Smith Barney and CS First Boston that the Merger
Consideration is fair to the Minority Shareholders, from a
financial point of view, based on and subject to the
assumptions and qualifications set forth in such opinions,
which was also a condition to the fairness determination of
PacifiCorp and Holdings;
3. The fact that the principal terms of the Merger were
established through arm's length negotiation with the Special
Committee and its legal and financial advisors;
4. The fact that during the negotiations of the Merger
Agreement, the interests of the Minority Shareholders were
represented by the Special Committee and its independent legal
and financial advisors and the interests of PacifiCorp and
Holdings were represented by their legal and financial
advisors; and
5. The fact that consummation of the Merger is
conditioned upon approval by the holders of a majority of the
outstanding shares of PTI Common Stock held by the Minority
Shareholders.
In addition to the other factors considered by
PacifiCorp and Holdings in concluding that the Merger is fair
to the Minority Shareholders, PacifiCorp and Holdings adopted
the conclusion and analysis of the Special Committee and the
Board of Directors of Pacific Telecom, set forth under the
heading "--Recommendations of the Board of Directors of Pacific
Telecom and the Special Committee" above, that the Merger is
fair to and in the best interests of the Minority Shareholders.
PacifiCorp and Holdings did not attach relative weights to the
specific factors considered in reaching their conclusions as to
the fairness of the Merger, although they considered the arm's
length negotiations between the parties, the receipt by the
Special Committee of the opinions of Smith Barney and CS First
Boston and the recommendation of the Special Committee to be
the most significant factors.
OPINION OF FINANCIAL ADVISOR TO PACIFICORP
PacifiCorp retained Salomon Brothers to render an
opinion to PacifiCorp's Board of Directors concerning the
fairness to PacifiCorp of the Merger Consideration. Salomon
Brothers was not engaged to represent the interests of the
Minority Shareholders. See "--Opinions of Smith Barney and CS
First Boston." Salomon Brothers rendered an opinion to
PacifiCorp's
<PAGE>57
Board of Directors on March 9, 1995, the date of
the Merger Agreement, to the effect that, as of such date, the
consideration per share to be paid to the Minority Shareholders
in connection with the Merger was fair to PacifiCorp from a
financial point of view. The opinion confirmed the oral
opinion given by Salomon Brothers on March 3, 1995 (the meeting
at which such Board approved the Merger, subject to certain
conditions, including approval by Pacific Telecom's Board of
Directors). Salomon did not deliver to PacifiCorp's Board of
Directors any written report to accompany its fairness opinion.
At an earlier Board meeting, Salomon had provided written
materials that covered Salomon's methods of analyzing Pacific
Telecom, but did not address the Merger Consideration (which had
not been determined at the time of such meeting). No
limitations were imposed by the PacifiCorp Board of Directors
upon Salomon Brothers with respect to the investigations made or
the procedures followed by Salomon Brothers in rendering its
opinion, although, given the nature of Salomon's engagement,
Salomon did not solicit alternative purchasers for Pacific
Telecom or the shares owned by the Minority Shareholders.
SALOMON BROTHERS DID NOT, AND WAS NOT REQUESTED BY THE BOARD OF
DIRECTORS OF PACIFICORP TO, MAKE ANY RECOMMENDATION AS TO THE
FORM OR AMOUNT OF CONSIDERATION TO BE PAID PURSUANT TO THE
MERGER AGREEMENT.
The full text of Salomon Brothers' opinion, which sets
forth the assumptions made, general procedures followed, matters
considered and limits on the review undertaken, is attached as
Exhibit E to this Proxy Statement. SALOMON BROTHERS WAS
RETAINED TO ADVISE THE BOARD OF DIRECTORS OF PACIFICORP AND NOT
TO REPRESENT THE INTERESTS OF THE MINORITY SHAREHOLDERS. THE
SALOMON BROTHERS OPINION IS DIRECTED ONLY TO THE FAIRNESS, FROM
A FINANCIAL POINT OF VIEW, TO PACIFICORP OF THE MERGER
CONSIDERATION AND DOES NOT COVER ANY OTHER ASPECT OF THE MERGER.
IN PARTICULAR, THE OPINION DOES NOT ADDRESS THE FAIRNESS TO THE
MINORITY SHAREHOLDERS, FROM A FINANCIAL POINT OF VIEW OR
OTHERWISE, OF THE CONSIDERATION TO BE RECEIVED BY THE MINORITY
SHAREHOLDERS IN THE MERGER, OR CONSTITUTE A RECOMMENDATION TO
ANY SHAREHOLDER OF PACIFIC TELECOM IN RESPECT OF THE MERGER.
The summary of Salomon Brothers' opinion set forth below is
qualified in its entirety by reference to the full text of such
opinion attached as Exhibit E hereto. THE OPINION SHOULD BE
READ IN ITS ENTIRETY.
In connection with rendering its opinion, Salomon
Brothers reviewed drafts of the Merger Agreement provided to
Salomon Brothers and assumed that the definitive Merger
Agreement would not differ in any material respect from such
drafts. Salomon Brothers also reviewed certain publicly
available business and financial information relating to
Pacific Telecom, as well as certain other information,
including financial forecast information prepared by Pacific
Telecom and provided to Salomon Brothers by PacifiCorp. See
"Certain Financial Forecasts." Salomon Brothers discussed the
past and current operations and financial condition and
prospects of Pacific Telecom with its senior management and
senior management of
<PAGE>58
PacifiCorp. Salomon Brothers also considered certain publicly
available information with respect to other companies and
businesses that Salomon Brothers believed to be comparable to
Pacific Telecom and publicly available information with respect
to transactions involving the sale of other companies or
businesses that Salomon Brothers believed to be relevant to its
analysis. Salomon Brothers also considered such other
information, financial studies, analyses, investigations and
financial, economic, market and trading criteria that Salomon
Brothers deemed relevant.
In its review and analyses and in arriving at its
opinion, Salomon Brothers assumed and relied upon the accuracy
and completeness of the information reviewed by it for the
purpose of the opinion, and Salomon Brothers did not assume any
responsibility for independent verification of such information
or for any independent evaluation or appraisal of the assets of
Pacific Telecom. Salomon Brothers also took into account its
assessment of general economic, market and financial
conditions, as well as its experience in connection with
similar transactions. With respect to Pacific Telecom's
financial forecast information, Salomon Brothers assumed that
it had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management
of Pacific Telecom as to the future financial performance of
Pacific Telecom, and Salomon Brothers expressed no opinion with
respect to such forecast information or the assumptions on
which it was based. Salomon Brothers' opinion was necessarily
based solely upon information available to it and business,
market, economic and other conditions as they existed on, and
could be evaluated as of, the date of Salomon Brothers' opinion
and does not address the underlying business decision of
PacifiCorp to effect the Merger or constitute a recommendation
to any holder of shares of PTI Common Stock as to how such
holder should vote with respect to the Merger.
The following is a summary of the analyses undertaken
by Salomon Brothers in connection with Salomon Brothers
rendering its opinion to the Board of Directors of PacifiCorp
on March 9, 1995.
Comparable Public Company Methodology
The comparable public company methodology assessed
the fairness of the Merger Consideration to PacifiCorp by
analyzing how selected companies exhibiting comparable
operating and financial characteristics were valued in the
public market. Salomon Brothers identified the following
independent telephone companies as being comparable to Pacific
Telecom: ALLTEL Corporation, Cincinnati Bell, Inc., Frontier
Corporation, Lincoln Telecommunications Company and Southern
New England Telecommunications (collectively, the "Comparable
Group"). Salomon Brothers analyzed the following consolidated
financial measures of the Comparable Group based on publicly
available financial data of such
<PAGE>59
companies: ratio of the stock price trading level to earnings
("P/E Ratio") and the ratios of "firm value" (defined as equity
market value adjusted by adding long-term debt, preferred stock
and minority interest less cash and marketable securities) to
revenues, EBITDA and EBIT. The following results were produced
in this regard: (i) for the last 12 months ("LTM") (September
30, 1994) P/E Ratio-- Comparable Group (median = 16.5x, mean =
16.7x); (ii) for the P/E Ratio in respect of 1994
earnings--Comparable Group (median = 16.7x, mean = 15.9x);
(iii) for the P/E Ratio in respect of 1995 earnings--Comparable
Group (median = 14.8x, mean = 14.5x); (iv) ratio of firm value
to LTM (September 30, 1994) revenues --Comparable Group (median
= 2.0x, average = 2.2x); (v) ratio of firm value to LTM
(September 30, 1994) EBITDA--Comparable Group (median = 6.4x,
mean = 6.2x); and (vi) ratio of firm value to LTM (September 30,
1994) EBIT--Comparable Group (median = 9.7x, mean = 10.6x).
Based on the $30.00 per share offer price, Pacific Telecom's
implied multiples were as follows: (i) LTM (September 30, 1994)
P/E Ratio of 15.2x; (ii) P/E Ratio in respect of 1994 earnings
of 14.6x; (iii) P/E Ratio in respect of 1995 earnings of 18.4x;
(iv) ratio of firm value to 1994 revenues of 2.3x; (v) ratio of
firm value to 1994 EBITDA of 6.1x; and (vi) ratio of firm value
to 1994 EBIT of 9.8x.
Segment Approach
GENERAL. Salomon Brothers derived the implied value
of Pacific Telecom's access lines by computing the value of
Pacific Telecom's nonaccess line businesses and subtracting
that computed value from Pacific Telecom's aggregate firm
value, adjusted for the after-tax proceeds from the Alascom
Sale. Pacific Telecom's nonaccess line businesses include
cellular telephone services and the provision of submarine
fiber optic cable capacity between the United States and Japan.
For Pacific Telecom's cellular business, Salomon
Brothers reviewed and compared the financial and market
performance in respect of Pacific Telecom to the following
group of publicly traded cellular communications companies:
AirTouch Communications, Cellular Communications, Inc.,
Centennial Cellular Corp., LIN Broadcasting Corporation, United
States Cellular Corporation, PriCellular Corporation and
Vanguard Cellular Systems, Inc. Salomon Brothers examined
certain publicly available financial data of this group of
companies, including multiples of firm value to revenues,
EBITDA, net number of United States persons represented by the
interests owned and subscribers. The results of this analysis
were as follows: (i) for firm value as a multiple of net
POPs--Comparable Group (median = $214); (ii) for firm value as
a multiple of LTM revenue--Comparable Group (median = 9.0x);
(iii) for firm value as a multiple of LTM EBITDA--
median = 22.5x; (iv) for firm value as a multiple of 1995
EBITDA--Comparable Group (median = 16.2x); and (v) for firm
value as a multiple of subscribers--Comparable Group
(median = $7,163). In addition,
<PAGE>60
Salomon Brothers reported that PriCellular, which had
significant overlaps with Pacific Telecom (52.9 percent of
PriCellular's net POPs were in Pacific Telecom markets), traded
at $99 per POP. Also, Salomon Brothers reviewed the acquisition
price "per POP" in connection with the acquisition of numerous
and varied cellular telephone companies and properties from 1988
through 1994, which indicated a valuation range of $67 to $345
per POP in respect of such transactions. Based on this
analysis, Salomon Brothers valued the cellular business of
Pacific Telecom at $150 million to $200 million, which
represented $75 to $100 per POP, 17.5 to 23.3x 1994 EBITDA and
11.6 to 15.4x 1995 EBITDA. For Pacific Telecom's cable
business, Salomon Brothers valued such business at 90 percent of
its attributable book value, resulting in a value of $45 million
with respect thereto. The analysis of the businesses of Pacific
Telecom other than the local telephone exchange business thus
implied a value of from $1,094 million to $1,044 million for the
local exchange business in light of the Merger Consideration.
COMPARABLE LOCAL EXCHANGE BUSINESS APPROACH. Salomon
Brothers analyzed the implied value of the local exchange
business in the Merger Consideration by examining how the local
telephone exchange business of selected companies exhibiting
comparable operating and financial characteristics were valued
in the public market. For such analysis, Salomon Brothers
examined the local exchange business for the Comparable Group
and the following RBOCs: Ameritech Corporation, Bell Atlantic
Corporation, BellSouth Corporation, NYNEX Corporation, Pacific
Telesis Group, SBC Communications and U S WEST Communications,
Inc. Salomon Brothers analyzed the following financial
measures of the local exchange business for the Comparable
Group and the RBOCs based on publicly available financial data
of such companies: revenue per access line, telephone EBITDA
per access line; 1991-1993 CAGR of telephone revenues and
access lines and the ratio of telephone EBITDA and EBIT to
telephone revenues. The following results were produced in
this regard: (i) for LTM (December 31, 1993 in the case of
the RBOCs, September 30, 1994 in the case of the Comparable
Group, and December 31, 1994 in the case of Pacific Telecom)
telephone revenue per access line--RBOCs (median = $623,
mean = $635), Comparable Group (median = $696, mean = $707),
Pacific Telecom (actual = $770); (ii) for LTM (December 31,
1993 in the case of RBOCs, September 30, 1994 in the case of
the Comparable Group, and December 31, 1994 in the case of
Pacific Telecom) telephone EBITDA per access line--RBOCs
(median = $271, mean = $280), Comparable Group (median = $328,
mean = $326), Pacific Telecom (actual = $338); (iii) for 1991-
1993 telephone revenues CAGR--RBOCs (median = 2.9 percent,
mean= 2.5 percent), Comparable Group (median = 5.8 percent,
mean = 5.3 percent), Pacific Telecom (not applicable);
(iv) 1991-1993 CAGR of access lines--RBOCs (median = 2.9
percent, mean = 2.9 percent), Comparable Group (median = 3.0
percent, mean = 3.4 percent), Pacific Telecom (actual = 5.7
percent; Pacific Telecom experienced internal access line
growth of 4.8 percent, 6.2 percent and 5.0 percent in 1993,
1992 and 1991,
<PAGE>61
respectively); (v) for ratio of LTM (December 31, 1993 in the
case of RBOCs, September 30, 1994, in the case of Comparable
Group, and December 31, 1994 in the case of Pacific Telecom)
telephone EBITDA to telephone revenues-- RBOCs (median = 43.4
percent, mean = 44.3 percent), Comparable Group (median = 48.1
percent, mean = 45.9 percent) and Pacific Telecom (actual = 44.0
percent); and (vi) for ratio of LTM (December 31, 1993 in the
case of the RBOCs, September 30, 1994 in the case of the
Comparable Group, and December 31, 1994, in the case of Pacific
Telecom) telephone EBIT to telephone revenues--RBOCs (median =
23.1 percent, mean = 23.9 percent), Comparable Group (median =
29.4 percent, mean = 27.5 percent) and Pacific Telecom (actual =
25.3 percent). For the Comparable Group, Salomon Brothers also
examined the estimated firm value of the local telephone
exchange business of the Comparable Group and the ratio of such
firm value to telephone revenues, telephone EBITDA, telephone
EBIT and access lines. The following results were produced in
this regard: (i) for the ratio of telephone firm value to
telephone revenues-- Comparable Group (median = 2.0x, mean =
2.0x); (ii) for the ratio of telephone firm value to telephone
EBITDA--Comparable Group (median = 4.2x, mean = 4.4x); (iii) for
the ratio of telephone firm value to telephone EBIT--Comparable
Group (median = 7.1x, mean = 7.7x); and (iv) for the ratio of
telephone firm value to access lines--Comparable Group (median =
$1,376, mean = $1,397). The $1,094 million to $1,044 million
value range for the telephone business of Pacific Telecom
derived from the analysis described under "General" above
results in the following ranges of multiples: firm value of
telephone operations to telephone revenues (3.3x - 3.5x), firm
value of telephone operations to telephone EBITDA (7.6x - 7.9x),
firm value of telephone operations to telephone EBIT (13.1x -
13.8x) and firm value of telephone operations to access lines
($2,497 - $2,617).
DISCOUNTED CASH FLOW APPROACH. Salomon Brothers also
used the DCF approach to value the local telephone exchange
business of Pacific Telecom. The DCF approach estimated the
value of the local telephone exchange business by first
projecting the unleveraged free cash flows available from the
local telephone exchange business over five years and the
terminal value for the local telephone exchange business at the
end of that period and then discounting both the projected free
cash flows and the terminal value back to the present at an
appropriate discount rate. The range of terminal values was
calculated by applying certain multiples to Pacific Telecom's
estimated 1999 telephone EBITDA and then analyzed relative to
Pacific Telecom's estimated 1999 telephone revenues, 1999
telephone EBIT, 1999 telephone net income assuming Pacific
Telecom was not leveraged and 1999 telephone net income
assuming a certain level of leverage, in each case with respect
to the local telephone exchange business. The range of
terminal values in 1999 so calculated in respect of Pacific
Telecom's local exchange business was $1,004 million to
$1,406 million. The ratio of terminal value to 1999 revenues
ranged from 2.5x to 3.5x depending on the terminal value
<PAGE>62
utilized. The ratio of terminal value to 1999 EBIT ranged from
8.7x to 12.2x depending on the terminal value utilized. The
ratio of terminal value to 1999 net income assuming Pacific
Telecom was not leveraged ranged from 14.1x to 19.7x depending
on the terminal value utilized. The ratio of terminal value to
1999 net income assuming a certain level of leverage ranged
from 11.9x to 19.9x depending on the terminal value utilized.
The implied perpetuity growth rates, based on the range of
terminal values and weighted average costs of capital used,
ranged from 3.1 percent to 6.9 percent. The forecasted income
statement and cash flow information was prepared by Pacific
Telecom's management and provided to Salomon Brothers by
PacifiCorp management. See "Certain Financial Forecasts."
The discount rates utilized as part of the DCF
analysis were calculated using the capital asset pricing model,
which calculates the expected rate of return offered in the
capital markets by equivalent-risk assets. This financial
analysis takes into account the level of systematic risk
associated with a company's stock price (the equity beta) and
the market-weighted ratio of debt to equity. Salomon Brothers
used asset and equity betas of the Comparable Group as a
benchmark to estimate systematic risk. The beta selected was
comparable to the betas of the Comparable Group. The median
consolidated equity beta of the Comparable Group was .84, while
the historical consolidated equity beta of Pacific Telecom was
.97. The median consolidated asset beta of the Comparable
Group was .71, while the historical consolidated asset beta of
Pacific Telecom was .76. The median market weighted debt-
total capitalization ratio of the Comparable Group was 26.0
percent, while the market-weighted debt to total capitalization
ratio of Pacific Telecom was 30.9 percent. Based on this
analysis, Salomon Brothers used a range of weighted average
cost of capital of 10 percent to 13 percent. Based on a range
of terminal values and weighted average costs of capital,
Salomon Brothers indicated a range of DCF values for Pacific
Telecom's local telephone exchange business from $760 million
to $1,110 million.
COMPARABLE TRANSACTION APPROACH. The comparable
transaction approach to assessing the firm value of the local
telephone exchange business of Pacific Telecom assessed the
valuation multiples exhibited in other transactions involving
telephone companies. Specifically, Salomon Brothers reviewed
the following transactions: Citizens Utilities Company/GTE
Corporation (announced 1993), ALLTEL Corporation/GTE
Corporation (announced 1993), Sprint Corporation/Centel
Corporation (announced 1992), Century Telephone Enterprises,
Inc./Centel Corporation--Ohio (1991) Rochester Telephone
Corporation/Centel Corporation--Iowa and Minnesota (1991) and
GTE Corporation/Contel Corporation (1990). In analyzing this
group of transactions, Salomon Brothers examined the following
valuation and performance benchmarks based on publicly
available data: the ratio of firm value of the acquired local
exchange operations to telephone revenues,
<PAGE>63
telephone EBITDA, telephone EBIT and access lines; telephone
revenues, telephone EBITDA and telephone EBIT per access line;
and the ratio of telephone EBITDA and telephone EBIT to
telephone revenues. The following results were produced in this
regard: (i) for the ratio of telephone firm value to access
lines (median = $2,177, mean = $1,986, Pacific Telecom at the
$30.00 offer price = range of $2,617 to $2,497); (ii) for the
ratio of telephone firm value to telephone revenues (median =
2.9x, mean = 2.8x, Pacific Telecom at the $30.00 offer price =
range of 3.5x to 3.3x); (iii) for the ratio of telephone firm
value to telephone EBITDA (median = 6.2x, mean = 7.3x, Pacific
Telecom at the $30.00 offer price = range of 7.9x to 7.6x); (iv)
for the ratio of telephone firm value to telephone EBIT (median
= 11.2x, mean = 12.9x, Pacific Telecom at the $30.00 offer price
= range of 13.8x to 13.1x); (v) for the ratio of telephone
revenues per access line (median = $710, mean = $699, Pacific
Telecom = $770); (vi) for the ratio of telephone EBITDA per
access line (median = $216, mean = $206, Pacific Telecom =
$338); (vii) for the ratio of telephone EBIT per access line
(median = $122, mean = $164, Pacific Telecom = not applicable);
(viii) for the ratio of telephone EBITDA to telephone revenues
(median = 38.8 percent, mean = 40.2 percent, Pacific Telecom =
44 percent); and (ix) for the ratio of telephone EBIT to
telephone revenues (median = 20.9 percent, and mean = 22.6
percent, Pacific Telecom = 25.3 percent).
Comparable Transaction Methodology
Salomon Brothers reviewed the premiums paid to
noncontrol public interests in numerous (61) going private
transactions occurring between September 1985 and June 1994,
which transactions involved acquisitions through the payment of
cash or stock or a combination thereof. In reviewing these
transactions, Salomon Brothers examined the stock price one
month before the relevant transaction was announced and one day
before the relevant transaction was announced, respectively.
The review of the transactions produced the following results:
(i) for stock transactions the mean and median premiums paid in
respect of the stock price one month before the offer were 29.8
percent and 23.7 percent, respectively, and the mean and median
premiums paid in respect of the stock price one day before the
offer were 24.8 percent and 23.4 percent, respectively;
(ii) for cash transactions the mean and median premiums paid in
respect of the stock price one month before the offer were 41.8
percent and 41.6 percent, respectively, and the mean and median
premiums paid in respect of the stock price one day before the
offer were 35.1 percent and 34.1 percent, respectively; and
(iii) for transactions providing for a combination of cash and
stock, the mean and median premiums paid in respect of the
stock price one month before the offer were 37.3 percent and
36.9 percent, respectively, and the mean and median premiums
paid in respect of the stock price one day before the offer
were 31.2 percent and 29.2 percent, respectively. The
analysis also examined premiums paid one month before the offer
and one day before the offer in connection with cash-for-stock
acquisitions where the
<PAGE>64
relevant acquiror held in excess of 50 percent of the target at
the time of the offer. The review of the transactions produced
the following results: (i) for such acquisitions where the
acquiror held between 50 percent and 60 percent of the target at
the time of the offer, the mean and median premiums paid in
respect of the stock price one month before the offer were 32.5
percent and 30.2 percent, respectively, and the mean and median
premiums paid in respect of the stock price one day before the
offer were 38.6 percent and 33.3 percent, respectively; (ii) for
such transactions where the acquiror held between 60 percent and
70 percent of the target at the time of the offer, the mean and
median premiums paid in respect of the stock price one month
before the offer were 49.9 percent and 42.4 percent,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 44.2 percent
and 41.2 percent, respectively; (iii) for such transactions
where the acquiror held between 70 percent and 80 percent of the
target at the time of the offer, the mean and median premiums
paid in respect of the stock price one month before the offer
were 45.6 percent and 49.5 percent, respectively, and the mean
and median premiums paid in respect of the stock price one day
before the offer were 27.2 percent and 33.8 percent,
respectively; and (iv) for such transactions where the acquiror
held in excess of 80 percent of the target at the time of the
offer, the mean and median premiums paid in respect of the stock
price one month before the offer were 43.2 percent and 46.5
percent, respectively, and the mean and median premiums paid in
respect of the stock price one day before the offer were 26.2
percent and 27.6 percent, respectively. A similar analysis was
conducted in respect of stock-for-stock acquisitions. Such
review produced the following results: (i) for such
transactions where the acquiror held between 50 percent to 60
percent of the target at the time of the offer, the mean and
median premiums paid in respect of the stock price one month
before the offer were 33.2 percent and 23.6 percent,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 17.8 percent
and 11.7 percent, respectively; (ii) for such transactions where
the acquiror held between 60 percent and 70 percent of the
target at the time of the offer, the mean and median premiums
paid in respect of the stock price one month before the offer
were 13.6 percent and 16.9 percent, respectively, and the mean
and median premiums paid one day before the offer were 19.4
percent and 19.5 percent, respectively; (iii) for such
transactions where the acquiror held between 70 percent and 80
percent of the target at the time of the offer, the mean and
median premiums paid in respect of the stock price one month
before the offer were 43.0 percent and 43.0 percent,
respectively, and the mean and median premiums paid in respect
of the stock price one day before the offer were 42.2 percent
and 42.2 percent, respectively; and (iv) for such transactions
where the acquiror held in excess of 80 percent of the target at
the time of the offer, the mean and median premiums paid in
respect of the stock price one month before the offer were 40.5
percent and 37.8 percent, respectively, and the mean and median
premiums paid in respect of the stock price one day before the
offer
<PAGE>65
were 30.1 percent and 25.1 percent, respectively. The
Merger Consideration reflects a 20.1 percent premium to the
stock price in respect of Pacific Telecom one month before the
announcement of the Initial Offer and 24.5 percent to
the stock price in respect of Pacific Telecom one day before
the announcement of the Initial Offer.
Summary
No company or transaction used in the comparable
company or comparable transaction analyses summarized above is
identical to Pacific Telecom or the Merger. Accordingly, any
such analysis of the value of the Merger involves complex
considerations and judgments concerning differences in the
potential financial and operating characteristics of the
comparable companies and other factors in relation to the
trading and acquisition values of the comparable companies and
publicly announced transactions.
The foregoing summary does not purport to be a
complete description of the analyses performed by Salomon
Brothers. The preparation of financial analyses and fairness
opinions is a complex process and is not necessarily
susceptible to partial analysis or summary description.
Salomon Brothers believes that its analyses (and the summary
set forth above) must be considered as a whole and that
selecting portions of such analyses and of the factors
considered by Salomon Brothers, without considering all such
analyses and factors, could create an incomplete view of the
processes underlying the analyses conducted by Salomon Brothers
and its opinion. Salomon Brothers made no attempt to assign
specific weights to particular analyses. In performing its
analyses, Salomon Brothers made numerous assumptions with
respect to industry performance, general business, financial,
market and economic conditions and other matters, many of which
are beyond the control of Pacific Telecom. Any estimates
contained in Salomon Brothers' analyses are not necessarily
indicative of actual values or actual future results, which may
be significantly more or less favorable than as set forth
therein. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies
may actually be sold or the prices at which securities may
trade at the present time or any time in the future. Actual
values of companies and trading prices of securities depend on
several factors, including industry events, general economic,
market and interest rate conditions and other factors that
generally influence the price of securities.
Salomon Brothers is an internationally recognized
investment banking firm engaged in, among other things, the
valuation of businesses and their securities in connection with
mergers and acquisitions, restructurings, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
<PAGE>66
placements and valuations for estate, corporate and other
purposes. The PacifiCorp Board of Directors retained Salomon
Brothers based on Salomon Brothers' expertise in the valuation
of companies, as well as its familiarity with Pacific Telecom's
industry.
Salomon Brothers has previously rendered investment
banking and financial advisory services to PacifiCorp and
certain of its affiliates (including Pacific Telecom), in each
case for which Salomon Brothers received customary
compensation. In the ordinary course of its business, Salomon
Brothers actively trades the debt and/or equity securities of
PacifiCorp and certain of its affiliates (including Pacific
Telecom) for Salomon Brothers' own account and for the accounts
of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Pursuant to an engagement letter dated August 15,
1994, PacifiCorp has agreed to pay Salomon Brothers a fee of
$800,000, $150,000 of which has been paid and $650,000 of which
is payable upon the consummation of the Merger. PacifiCorp
also has agreed to reimburse Salomon Brothers for certain
expenses incurred in connection with its engagement and to
indemnify Salomon Brothers and certain related persons against
certain liabilities and expenses relating to or arising out of
its engagement, including certain liabilities under the federal
securities laws.
The opinion of Salomon Brothers was one of many
factors taken into consideration by the Board of Directors of
PacifiCorp in making its determination to approve the Merger.
The opinion of Salomon Brothers does not address the relative
merits of the Merger as compared to any alternative business
strategies that might exist for PacifiCorp or the effect of any
other transaction in which PacifiCorp might have engaged.
CERTAIN EFFECTS OF THE MERGER
If the Merger is approved, at the Effective Time, the
Minority Shareholders will cease to be shareholders of Pacific
Telecom and will not share in the future earnings or growth of
Pacific Telecom. Instead, each Minority Shareholder (other
than those shareholders holding shares as to which dissenters'
rights are perfected) will be entitled to receive the Merger
Consideration in exchange for their shares of PTI Common Stock
upon surrender of their stock certificates.
As a result of the Merger, Pacific Telecom will
become a wholly owned subsidiary of Holdings, the registration
of Pacific Telecom's Common Stock under the Exchange Act will
be terminated and PTI Common Stock will cease to be reported on
the Nasdaq National Market. If Holdings determines to
terminate Pacific Telecom's public medium-term note program,
Pacific Telecom will cease to file annual and quarterly reports
with the SEC.
<PAGE>67
CONDUCT OF BUSINESS AFTER THE MERGER
Holdings has no specific plans or proposals for
Pacific Telecom following the Merger. It is currently expected
that, following the Merger, the business and operations of
Pacific Telecom will be continued by Pacific Telecom
substantially as they are currently being conducted. Holdings
will continue to evaluate Pacific Telecom's business and
operations following the Merger and will make such changes as
are deemed appropriate. Pursuant to the Merger Agreement, the
members of the Board of Directors of Pacific Telecom
immediately prior to the Merger, including the four additional
directors designated by Holdings, will be the initial directors
of Pacific Telecom immediately following the Merger, and the
officers of Pacific Telecom immediately prior to the Merger
will be the initial officers of Pacific Telecom following the
Merger.
Except for the Merger and as otherwise described in
Pacific Telecom's prior filings with the SEC, neither
PacifiCorp nor Holdings has any present intention to sell any
material portion of the PTI Common Stock or any material
portion of the business or assets of Pacific Telecom, and
neither PacifiCorp nor Holdings has any present plans or
proposals that would result in an extraordinary corporate
transaction such as a merger, reorganization, liquidation,
relocation of operations or sale or transfer of assets
involving Pacific Telecom, or any of its subsidiaries, or any
material changes in Pacific Telecom's corporate structure,
business or composition of its management.
CONDUCT OF BUSINESS IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, it is expected that
the business and operations of Pacific Telecom will continue to
be conducted substantially as they are currently being
conducted. Pacific Telecom will continue to be controlled by
Holdings, and the Board of Directors of Pacific Telecom will
include the four additional directors designated by Holdings
for election at the Annual Meeting. Accordingly, following the
Annual Meeting a majority of the members of the Board of
Directors of Pacific Telecom will consist of individuals who
are designees of Holdings or directors or officers of
PacifiCorp or Holdings.
If the Merger is not consummated, Holdings may
purchase additional PTI Common Stock from time to time, subject
to availability at prices deemed acceptable to Holdings,
pursuant to a merger transaction, tender offer, open market or
privately negotiated transactions or otherwise on terms more or
less favorable to the Minority Shareholders than the terms of
the Merger. However, Holdings has made no determination as to
any future transactions if the Merger is not consummated.
<PAGE>68
REGULATORY APPROVALS
Pacific Telecom does not believe that any material
federal or state regulatory approvals, filings or notices are
required in connection with the Merger other than (i) such
approvals, filings or notices required pursuant to federal and
state securities laws and (ii) the filing of articles of merger
with the Secretary of State of the State of Washington.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF
INTEREST
Dr. Nancy Wilgenbusch is a member of the Board of
Directors of both Pacific Telecom and PacifiCorp.
Certain executive officers of Pacific Telecom are
participants in the Pacific Telecom Executive Officer Severance
Plan, pursuant to which participants who are involuntarily
terminated other than for cause are eligible to receive a
severance payment equal to twice the executive's total cash
compensation during the last full calendar year. See
"Executive Compensation--Severance Arrangements."
The Merger Agreement provides that the directors and
officers of Pacific Telecom at the Effective Time of the
Merger, which will include the additional directors designated
by Holdings, shall be the directors and officers of Pacific
Telecom after the Merger, until their respective successors are
duly elected or appointed and qualified.
For a discussion of the indemnification of, and
insurance for, directors and officers of Pacific Telecom, see
"The Merger Agreement--Indemnification of Officers and
Directors."
For a discussion of the financial advisory fees
payable to each of Smith Barney, CS First Boston and Salomon
Brothers, and information regarding their relationships with
Pacific Telecom, Holdings and PacifiCorp, see "--Opinions of
Smith Barney and CS First Boston" and "--Opinion of Financial
Advisor to PacifiCorp."
For a description of directors' fees payable to
members of the Special Committee, see "--Background of the
Merger."
See "Security Ownership of Certain Beneficial Owners
and Management" for information concerning ownership of PTI
Common Stock by directors and executive officers of Pacific
Telecom and "Information Concerning Holdings and PacifiCorp and
Their Directors and Executive Officers" for information
regarding ownership of PTI Common Stock by directors and
executive officers of Holdings and PacifiCorp.
<PAGE>69
In connection with the resignation of his positions
with PacifiCorp and its affiliates, Mr. William J. Glasgow
entered into a consulting agreement with PacifiCorp pursuant to
which he has provided, and will continue to provide, consulting
services in connection with various matters, including the
Merger. See "--Background of the Merger." The fees payable to
Mr. Glasgow under the consulting agreement are not specifically
related to performance of services in connection with the
Merger.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Sections 23B.13.010 through 23B.13.310 of
the WBCA, any Minority Shareholder who gives proper notice and
who does not vote in favor of the Merger (i.e., either votes
against the Merger or abstains from voting) will, upon proper
demand, have the right under the WBCA to obtain payment of the
fair value of his or her shares of PTI Common Stock. ANY
MINORITY SHAREHOLDER ELECTING TO EXERCISE DISSENTERS' RIGHTS
MUST FILE A WRITTEN NOTICE OF THIS INTENT WITH PACIFIC TELECOM,
ATTENTION OF THE SECRETARY, AT 805 BROADWAY, VANCOUVER,
WASHINGTON 98668, PRIOR TO THE VOTE, AND MUST NOT VOTE HIS OR
HER SHARES IN FAVOR OF THE MERGER. As provided in Section
23B.13.030 of the WBCA, a shareholder whose shares are held in
a brokerage account or by some other nominee must either have
the record holder of the shares file the dissenters' notice on
the shareholder's behalf or obtain the written consent of the
record holder and file the shareholder's dissenters' notice.
These documents must be filed with the Secretary of Pacific
Telecom prior to the vote on the Merger. A beneficial
shareholder of PTI Common Stock who chooses to exercise
dissenters' rights must exercise such rights with respect to
all shares of PTI Common Stock either beneficially held by such
shareholder or over which such shareholder has power to direct
the vote. A VOTE IN FAVOR OF THE MERGER WILL CONSTITUTE A
WAIVER OF DISSENTERS' RIGHTS. AN ABSTENTION OR BROKER NONVOTE
WILL NOT BE CONSIDERED A VOTE FOR THE MERGER. IF NO
INSTRUCTIONS WITH RESPECT TO THE MERGER ARE GIVEN IN AN
EXECUTED PROXY, THE SHARES REPRESENTED BY THE PROXY WILL BE
VOTED AT THE ANNUAL MEETING FOR APPROVAL OF THE MERGER AND WILL
THUS CONSTITUTE A WAIVER OF SUCH SHAREHOLDER'S DISSENTERS'
RIGHTS. A VOTE AGAINST THE MERGER, AN ABSTENTION OR A BROKER
NONVOTE WILL NOT SATISFY THE REQUIREMENT THAT WRITTEN NOTICE BE
FILED WITH PACIFIC TELECOM IN ORDER TO ASSERT DISSENTERS'
RIGHTS.
For the purpose of dissenters' rights, the fair value
of shares will be their value immediately prior to the
effectiveness of the Merger, excluding any appreciation or
depreciation in anticipation of the Merger unless exclusion
would be inequitable. Minority Shareholders considering
exercising their dissenters' rights should recognize that
the fair value of their shares of PTI Common Stock as determined
under Sections 23B.13.010 through
<PAGE>70
23B.13.310 of the WBCA could be more than, the same as, or less
than the amount that such Minority Shareholders are entitled to
receive pursuant to the Merger Agreement if they do not exercise
their dissenters' rights and seek appraisal of their shares of
PTI Common Stock.
If the Merger is approved by the requisite vote of
shareholders, Pacific Telecom will, within 10 days following
the effectiveness of the Merger, mail a notice to each Minority
Shareholder who gave Pacific Telecom due notice of his or her
intention to demand payment and who did not vote in favor of
the Merger. The notice will provide, among other things: (i)
the form of payment demand (including the date of the first
announcement to the news media or to the shareholders of the
terms of the Merger); (ii) where the payment demand must be
delivered; (iii) when and where the certificates for
certificated shares must be deposited; and (iv) the date by
which Pacific Telecom must receive the payment demand. A
Minority Shareholder who fails to make a timely or proper
demand for payment (including the deposit of certificates) in
accordance with the notice is not entitled to payment under the
WBCA for his or her shares. A Minority Shareholder who fails
to certify that he or she acquired beneficial ownership of the
shares prior to the date of the first announcement of the terms
of the Merger to the news media or to shareholders may not
receive immediate payment for his or her shares, as described
below with respect to After-Acquired Shares (as defined below).
Except with respect to those Minority Shareholders
who held After-Acquired Shares, Pacific Telecom will remit,
within 30 days of the later of the date of effectiveness of the
Merger or the date the payment demand is received, to all
Minority Shareholders who made proper demand, an amount that
Pacific Telecom estimates to be the fair value of their Pacific
Telecom shares, together with any interest that has accrued
from the effective date of the Merger until the date of
payment. The remittance will be accompanied by certain
financial information of Pacific Telecom, an explanation of how
the fair value of the shares was estimated and an explanation
of how the accrued interest was calculated. If Pacific Telecom
fails so to remit or if the dissenting Minority Shareholder
believes the amount remitted is less than the fair value of his
or her shares, the dissenting Minority Shareholder may send
Pacific Telecom his or her own estimate of the fair value of
the shares and amount of accrued interest due and demand
payment of the deficiency. The dissenting Minority Shareholder
must notify Pacific Telecom in writing of his or her estimate
within 30 days after the date Pacific Telecom mails its
remittance, if any. If Pacific Telecom and the dissenting
Minority Shareholder are unable to agree on a fair value within
60 days after the receipt of a demand for payment of a
deficiency, Pacific Telecom will petition that the fair value
of the shares and interest thereon be determined by an
appropriate court.
If a dissenting Minority Shareholder acquired his or
her shares of PTI Common Stock after the date set forth in the
dissenters' notice as the
<PAGE>71
date of the first announcement of the terms of the Merger to the
news media or to the shareholders ("After-Acquired Shares"),
Pacific Telecom may elect to withhold the payment described in
the preceding paragraph and to offer to pay fair value for the
After-Acquired Shares subject to such dissenting Minority
Shareholder's agreement to accept payment as satisfaction in
full of the dissenting claim. Pacific Telecom will send with
its offer an explanation of how the fair value of the
After-Acquired Shares was estimated and how the accrued interest
was calculated. If the dissenting Minority Shareholder believes
that the amount offered is less than the fair value of his or
her After-Acquired Shares, the dissenting Minority Shareholder
may send Pacific Telecom his or her own estimate of the fair
value of the After-Acquired Shares and amount of accrued
interest due. The dissenting Minority Shareholder must notify
Pacific Telecom in writing of his or her estimate within 30 days
after the date Pacific Telecom makes its offer. If Pacific
Telecom and the dissenting Minority Shareholder are unable to
agree on a fair value for the After-Acquired Shares within 60
days after the receipt of the dissenting Minority Shareholder's
estimate of the fair value of the After-Acquired Shares, Pacific
Telecom will petition that the fair value of the After-Acquired
Shares and interest thereon be determined by an appropriate
court.
With respect to a judicial proceeding commenced by
Pacific Telecom to determine the fair value of the shares and
interest thereon with respect to any shares of PTI Common Stock
(including After-Acquired Shares), the court will determine the
costs of such proceeding and will assess such costs against
Pacific Telecom, except that the court may assess such costs
against one or more of the dissenting Minority Shareholders
party to such proceeding, in amounts the court finds equitable,
to the extent that such court finds that the dissenting
Minority Shareholder acted arbitrarily, vexatiously or not in
good faith in demanding payment.
The foregoing summary is not, and does not purport to
be, a complete statement of dissenters' rights and is qualified
in its entirety by reference to Sections 23B.13.010 through
23B.13.310 of the WBCA, a copy of which is attached to this
Proxy Statement as Exhibit B.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a summary of certain federal income
tax consequences of the Merger to Minority Shareholders. To
the extent it relates to matters of law or legal conclusion,
this summary constitutes the opinion of Stoel Rives Boley Jones
& Grey, counsel to Pacific Telecom. This summary is based on
the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including Proposed Regulations and Temporary
Regulations) promulgated thereunder, official pronouncements
and judicial decisions, all as in effect on the date hereof,
all of which are subject to change, possibly with retroactive
effect. This summary does not purport to discuss all tax
<PAGE>72
consequences of the Merger to all Minority Shareholders. In
particular, the summary does not discuss the tax consequences
of the Merger to any Minority Shareholder that is an insurance
company, tax-exempt organization, financial institution,
foreign person or broker dealer or who acquired his or her
shares upon the exercise of options or otherwise as
compensation.
The receipt of cash by a shareholder of Pacific
Telecom in exchange for PTI Common Stock pursuant to the Merger
will be a taxable transaction for federal income tax purposes
and may also be a taxable transaction under applicable state,
local, foreign or other tax laws. In general, a shareholder
will recognize a gain or loss equal to the difference, if any,
between the amount of cash received for his or her stock in the
Merger (i.e., $30.00 per share) and the shareholder's adjusted
tax basis in such stock. A shareholder will recognize such
gain or loss as of the Effective Time. In general, such gain
or loss will be a capital gain or loss, provided the stock is a
capital asset in the hands of the holder at the Effective Time,
and will be a long-term capital gain or loss if the stock has
been held for more than one year at such time.
Holdings or the Payment Agent will be required to
withhold 31 percent of the gross proceeds payable to a
shareholder or other payee in the Merger unless the shareholder
or payee provides in a properly completed substitute Form W-9
his or her taxpayer identification number and certifies under
penalties of perjury that such number is correct and that the
shareholder is not subject to backup withholding, unless an
exemption applies under applicable law and regulations.
Therefore, unless such an exemption exists and is demonstrated
in a manner satisfactory to Holdings or its Payment Agent in
accordance with the instructions that will accompany the
substitute Form W-9, each shareholder should complete and sign
the substitute Form W-9 that will be made available to the
shareholder with the letter of transmittal, so as to provide
the information and certification necessary to avoid backup
withholding. See "The Merger Agreement--Conversion of Shares;
Surrender of Stock Certificates; Payment for Shares."
EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR WITH RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER IN HIS OR HER INDIVIDUAL CIRCUMSTANCES AND WITH
RESPECT TO THE STATE, LOCAL OR OTHER INCOME TAX CONSEQUENCES OF
THE MERGER. FURTHER, ANY SHAREHOLDER WHO IS A CITIZEN OF A
COUNTRY OTHER THAN THE UNITED STATES SHOULD CONSULT HIS OR HER
OWN TAX ADVISOR WITH RESPECT TO THE TAX TREATMENT IN SUCH COUNTRY OF
THE MERGER AND WITH RESPECT TO THE QUESTION OF WHETHER THE TAX
CONSEQUENCES DESCRIBED ABOVE MAY BE ALTERED BY REASON OF THE
PROVISIONS OF THE INTERNAL REVENUE CODE APPLICABLE TO FOREIGN
PERSONS OR THE
<PAGE>73
PROVISIONS OF ANY TAX TREATY APPLICABLE TO SUCH
SHAREHOLDER.
FINANCING THE MERGER
If the Merger is consummated, the total amount of the
Merger Consideration to be paid to the Minority Shareholders
and estimated fees and expenses payable by Holdings and
PacifiCorp will be approximately $160 million. Holdings plans
to borrow those funds pursuant to the $350 million Credit
Agreement dated as of April 27, 1995 between Holdings, the
banks named therein and Morgan Guaranty Trust Company of New
York, as agent. Revolving borrowings under the Credit
Agreement may not exceed a term of six months, are unsecured
and will bear variable interest at rates based on bids from
participating banks, certain prime rates, interbank borrowing
rates or certificate of deposit rates. Available funds under
the Credit Agreement at June 30, 1995 were approximately $320
million. Holdings plans to repay such borrowings out of its
cash flow, which consists primarily of dividends from its
subsidiaries, including Pacific Telecom.
Although Holdings will have the ability to change the
amount and timing of dividends paid by Pacific Telecom
following the Merger, Holdings presently intends that Pacific
Telecom will continue to pay approximately the same aggregate
amount of dividends to Holdings as it is currently paying to
all shareholders.
<PAGE>74
EXPENSES OF THE TRANSACTION
The following is an estimate of the costs and
expenses incurred or expected to be incurred in connection with
the Merger.
SEC Filing Fees . . . . . . . . . . . . . . . $ 31,746
Legal Fees and Expenses(1). . . . . . . . . . 850,000
Investment Banking Fees and Expenses(2) . . . 3,000,000
Printing and Mailing. . . . . . . . . . . . . 100,000
Special Committee Directors' Fees(3). . . . . 150,000
Accounting Fees and Expenses. . . . . . . . . 15,000
Miscellaneous . . . . . . . . . . . . . . . . 15,000
-----------
Total . . . . . . . . . . . . . . . . . . $ 4,161,746
===========
Under the Merger Agreement, all costs and expenses incurred by
Pacific Telecom, Holdings, PacifiCorp and Merger Sub will be
paid by the party that has incurred such costs and expenses,
whether or not the Merger is consummated.
_______________
(1) Includes fees of counsel for PacifiCorp, Holdings and
Pacific Telecom and counsel for the Special Committee.
(2) Includes fees of Salomon Brothers, Smith Barney and CS
First Boston. See "--Opinion of Financial Advisor to
PacifiCorp" and "--Opinions of Smith Barney and CS First
Boston."
(3) Members of the Special Committee will receive additional
directors' fees of $15,000, except for the Chairman who
will receive $20,000, plus $750 for each meeting of the
Special Committee attended.
<PAGE>75
SELECTED FINANCIAL DATA;
PRO FORMA FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
The following table sets forth selected historical
consolidated financial information for Pacific Telecom and its
subsidiaries for the six-month periods ended June 30, 1995
and 1994, and each of the five years in the period ended
December 31, 1994. The consolidated financial data for the
six months ended June 30, 1995 and 1994 are derived from the
unaudited consolidated financial information of Pacific Telecom
not included herein, but incorporated by reference. In
management's opinion, this unaudited information has been
prepared on a basis consistent with the audited consolidated
financial statements of Pacific Telecom incorporated herein by
reference. The results of operations for the six months
ended June 30, 1995 are not indicative of results which may be
expected for the entire year due to, among other things, the
pending sale of Alascom. The consolidated financial data of
Pacific Telecom for each of the five years in the period ended
December 31, 1994 are derived from the audited consolidated
financial statements of Pacific Telecom not included herein,
but incorporated by reference. The following financial
information should be read in conjunction with the historical
consolidated financial statements and notes thereto of Pacific
Telecom included in the 1995 Form 10-Q and the 1994 Form 10-K
and incorporated herein by reference. The consolidated
financial statements of Pacific Telecom for each of the five
years in the period ended December 31, 1994 have been audited
by Deloitte & Touche LLP, independent accountants. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
Six Months Ended
June 30 Years Ended December 31,
-------------- -----------------------------------------------
1995 1994 1994 1993 1992 1991 1990(1)
---- ---- ---- ---- ---- ---- -------
(In thousands, except per share data)
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $374,055 $336,328 $ 704,962 $ 702,111 $ 698,175 $ 719,991 $ 677,883
Operating expenses 288,407 266,885 540,321 560,463 558,701 559,567 522,904
- ---------------------------------------------------------------------------------------------------------
Net operating income 85,648 69,443 164,641 141,648 139,474 160,424 154,979
Interest expense (21,468) (17,917) (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) (25,260) (18,784) (9,795) (15,811) (16,161) (13,302) 3,444
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 60,388 50,659 122,165 82,904 99,774 120,429 137,471
Income taxes 23,249 17,225 40,766 23,846 32,526 30,893 42,061
- ---------------------------------------------------------------------------------------------------------
Income from continuing
operations 37,139 33,434 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 37,139 33,434 81,399 119,502 21,507 81,105 90,224
Preferred dividends -- -- -- -- -- -- 5
- ---------------------------------------------------------------------------------------------------------
Net income applicable to
common stock $37,139 $33,434 $81,399 $119,502 $21,507 $81,105 $90,219
- ---------------------------------------------------------------------------------------------------------
Average number of common
shares outstanding 39,616 39,609 39,612 39,584 39,526 39,477 38,768
Data Per Common Share:
Income from continuing
operations $ .94 $ .84 $ 2.05 $ 1.49 $ 1.70 $ 2.27 $ 2.46
Gain (loss) from discontinued
operations -- -- -- 1.53 (1.16) (.22) (.13)
- ---------------------------------------------------------------------------------------------------------
Net income $ .94 $ .84 $ 2.05 $ 3.02 $ .54 $ 2.05 $ 2.33
- ---------------------------------------------------------------------------------------------------------
Dividends declared and paid $ .66 $ .66 $ 1.32 $ 1.32 $1.305 $1.235 $ 1.13
- ---------------------------------------------------------------------------------------------------------
Book value $17.11 $16.25 $ 16.85 $ 16.13 $ 14.41 $ 15.16 $ 14.31
Balance Sheet Data:
Total assets $1,672,339 $1,471,762 $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 376,175 410,931 376,997 426,669 571,585 528,391 480,940
Shareholders' equity 677,986 643,801 667,773 638,711 569,846 598,524 563,906
- ---------------------------------------------------------------------------------------------------------
(Footnotes on following page)
<PAGE>76
<FN>
(1) In August 1990, Pacific Telecom acquired North-West
Telecommunications, Inc. ("North-West") for $272 million.
Through North-West, Pacific Telecom 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.
(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. Pacific
Telecom recognized interest income in 1990 related to the
funds advanced to Holdings for the North-West acquisition,
the settlement of a dispute with an Alaska LEC and a
favorable resolution of income tax audit issues.
(4) ICH had been shown as a discontinued operation for
financial statement reporting purposes through September
1993 when TRT was sold. The remaining investment in ICH
is now reported as a continuing operation. See Note 7 to
Consolidated Financial Statements included in the 1994
Form 10-K and incorporated herein by reference 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.
</TABLE>
<PAGE>77
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated
balance sheet as of June 30, 1995 reflects Pacific Telecom'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. Pacific Telecom 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). Pacific Telecom 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 June 30, 1995.
The unaudited pro forma consolidated balance sheet
and related notes should be read in conjunction with Pacific
Telecom's unaudited consolidated financial statements for the
period ended June 30, 1995 contained in the 1995 Form 10-Q and
the consolidated financial statements and related notes for the
year ended December 31, 1994 contained in the 1994 Form 10-K,
which are incorporated herein by reference.
<TABLE>
<CAPTION>
Pro Forma Consolidated Balance Sheet
(Unaudited, in millions)
Historical (a) (b) US WEST Pro forma
Consolidated Historical Elimination Sale of Asset Consolidated
March 31, 1995 PTI Alascom Reversal Alascom Acquisitions PTI
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets $ 246.5 $ (100.9) $ 11.2 $ 27.9 $(32.3)(c) $ 152.4
Investments 121.7 (.1) 221.9 (221.9) (4.0) 117.6
Net plant in service 954.0 (174.4) - - 114.5 894.1
Intangible and other assets 350.1 (7.1) - - 67.0(c) 410.0
------- ------- ----- ------ ----- -------
Total assets $1,672.3 $ (282.5) $233.1 $(194.0) $145.2 $1,574.1
Liabilities and Capitalization
Current liabilities $ 391.8 $ (60.0) $ 18.0 $(232.1)(c) $ - $ 117.7
Long-term debt 376.2 - - - 145.2(c) 521.4
Deferred income taxes and
unamortized investment
tax credits 108.3 (.5) - - - 107.8
Other long-term liabilities 118.0 (6.9) - (30.0) - 81.1
Shareholders' equity 678.0 (215.1) 215.1 68.1 - 746.1
------- ------- ----- ------ ----- -------
Total liabilities and
capitalization $1,672.3 $(282.5) $233.1 $(194.0) $145.2 $1,574.1
</TABLE>
<PAGE>78
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
Pro Forma Adjustments -- The accompanying pro forma
consolidated balance sheet as of June 30, 1995 consists
of the historical balance sheet of Pacific Telecom (after
elimination of affiliated transactions and interest), less
the historical balance sheet of Alascom, plus 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 Pacific Telecom and its
subsidiaries and Alascom eliminated in the
consolidation process were restored on the pro forma
balance sheet. The affiliated balances between
Pacific Telecom and Alascom were added to Pacific
Telecom's investment in Alascom. The affiliated
balances between the other Pacific Telecom
subsidiaries and Alascom were reclassified to the
proper nonaffiliated line item.
b. Cash proceeds of $260 million to be received at
closing of the sale of Alascom and the $30 million
deposit in "Other long-term liabilities" received in
October 1994 were offset by Pacific Telecom's basis
in Alascom, which will increase as Alascom's earnings
are recognized and affiliated account balances change
between June 30, 1995 and closing.
c. Cash proceeds received from the sale of Alascom have
been applied to short-term debt used to purchase
assets in Colorado, Oregon and Washington 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. The entire $67
million shown for intangible and other assets was
allocated to goodwill.
<PAGE>79
CERTAIN FINANCIAL FORECASTS
General. The financial forecast set forth below was
derived from Pacific Telecom's internal five-year business
plan, which was prepared by Pacific Telecom'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 Pacific Telecom's business and was not prepared in
contemplation of the Merger. Accordingly, the financial
forecast does not give effect to the proposed Merger and does
not reflect any benefits that might be realized by Holdings and
PacifiCorp upon consummation of the Merger. Copies of the
five-year business plan were provided to each of Salomon
Brothers, Smith Barney and CS First Boston in connection with
their engagements by PacifiCorp or Pacific Telecom, as the case
may be.
In considering the effect of the Proposed Transaction on
the fairness of the Merger Consideration, in July 1995 the
Special Committee requested that management of Pacific Telecom
prepare certain additional forecast information reflecting the
impact of the Proposed Transaction. Such additional forecast
information is described in Note 2(d) of "Summary of Accounting
Policies and Significant Assumptions for the Financial Forecast."
Certain Important Caveats and Limitations. Financial
forecasts involve estimates as to the future that,
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 that are beyond the control of
Pacific Telecom. Similarly, these materials assume certain
future business decisions which are subject to change. Among
other things, the financial forecast assumes the ability of
Pacific Telecom to consummate future acquisitions in the rural
telecommunications business that have not been identified. As
discussed elsewhere in this Proxy Statement and in the 1994
Form 10-K incorporated herein by reference, Pacific Telecom is
actively seeking acquisitions that could occur earlier or later
than forecasted, or not at all. Moreover, Deloitte & Touche
LLP, independent auditors for Pacific Telecom, 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 PACIFIC TELECOM OR ANY OTHER PERSON THAT THE
FORECASTED RESULTS WILL BE ACHIEVED. IN ADDITION, NO ASSURANCE
CAN BE GIVEN THAT THE PROPOSED TRANSACTION WILL OCCUR OR, IF IT
OCCURS, THAT IT WILL OCCUR IN THE FORM CONTEMPLATED BY THE
FINANCIAL FORECAST.
<PAGE>80
RECIPIENTS OF THIS PROXY STATEMENT ARE CAUTIONED TO CONSIDER
CAREFULLY THE FOREGOING AND THE NOTES AND ASSUMPTIONS SET FORTH
BELOW WHILE REVIEWING THE FINANCIAL FORECAST. IN ADDITION,
EXCEPT AS NOTED ABOVE, PACIFIC TELECOM HAS NOT UPDATED THE
FORECAST TO REFLECT DEVELOPMENTS OCCURRING AFTER JANUARY 21, 1995,
THE DATE THE FORECAST WAS PREPARED. PACIFIC TELECOM DOES NOT
INTEND TO UPDATE OR PUBLICLY REVISE THE FORECAST.
Background. Pacific Telecom 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, Pacific Telecom has an agreement to
sell the stock of Alascom to AT&T. When the forecasts were
prepared, Pacific Telecom anticipated closing this sale during
the first half of 1995, subject to receipt of FCC approval of
the transfer of various licenses and permits. The primary
effect of not consummating the Alascom Sale during the first
half of 1995 is a postponement of the gain on the sale to a
later period in which the sale occurs. Financial forecast
information reflecting these transactions and other material
transactions 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 contained in
the 1994 Form 10-K, and Item 5. "Other Events" in Pacific
Telecom's Current Report on Form 8-K dated March 31, 1995, which
are incorporated herein by reference, for additional information
relating to the pending sale of Alascom. See Item 1.
"Business--Telecommunications, Operations--Local Exchange
Companies" contained in the 1994 Form 10-K, which is
incorporated herein by reference, for additional information
relating to the acquisitions of local exchange assets from USWC.
As used in the discussion of the opinion of Smith
Barney herein, see "Opinions of Smith Barney and CS First
Boston--Opinion of Smith Barney," the term "Long-Term Forecasts
With Future Acquisitions" refers to the financial forecast for
the years 1995 to 1999 set forth below, which assumes the
consummation of future unidentified acquisitions in the rural
telecommunications business. The term "Short-Term Forecasts"
refers to the financial forecast information for the years 1995
and 1996 presented in Note 2(c) of "Summary of Accounting
Policies and Significant Assumptions for the Financial
Forecast," which accompanies the financial forecast below.
Similarly, the term "Long-Term Forecasts Without Future
Acquisitions" refers to the financial forecast information for
the years 1995 to 1999 presented in Note 2(c) of "Summary of
Accounting Policies and Significant Assumptions for the
Financial Forecast."
<PAGE>81
<TABLE>
<CAPTION>
Forecast Consolidated Statements of Income
Forecast
Historical ------------------------------------------
Year Ending December 31, 1994 1995 1996 1997 1998 1999
- ------------------------------------------------------------------------------------------------
(Unaudited, in millions except per share amounts)
Operating revenues:
<S> <C> <C> <C> <C> <C> <C>
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>
<PAGE>82
<TABLE>
<CAPTION>
Forecast Consolidated Balance Sheets
Forecast
Historical ---------------------------------------------------
December 31, 1994 1995 1996 1997 1998 1999
- -------------------------------------------------------------------------------------------------
(Unaudited, in millions)
Assets
<S> <C> <C> <C> <C> <C> <C>
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>
<PAGE>83
<TABLE>
<CAPTION>
Forecast Consolidated Statements of Cash Flows
Forecast
Historical ---------------------------------------------------
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
Investment 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>
<PAGE>84
SUMMARY OF ACCOUNTING POLICIES AND
SIGNIFICANT ASSUMPTIONS FOR THE FINANCIAL FORECAST
1. Summary of Significant Accounting Policies -- The forecast
financial statements were prepared using accounting
principles and policies generally consistent with those
used by Pacific Telecom 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
contained in the 1994 Form 10-K, which is incorporated
herein by reference.
2. Summary of Significant Forecast Assumptions
a. General Assumptions -- As noted above, the financial
forecast was prepared as part of Pacific Telecom's
normal budgeting process, assuming Pacific Telecom
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 assumed
that Pacific Telecom would 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
assumed that Pacific Telecom would recognize a $74 million
after-tax gain from the sale and that proceeds would 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):
<TABLE>
<CAPTION>
1994 1995
Actual Forecast
------ --------
<S> <C> <C>
Operating Revenues $343.5 $135.1
Operating Expenses 262.8 111.3
Operating Income $ 80.7 $ 23.8
EBITDA* $115.4 $ 37.6
<FN>
* EBITDA - Earnings before interest, taxes, depreciation and
amortization. EBITDA was one of the measures used by the
financial
</TABLE>
<PAGE>85
advisors in preparing their financial analysis of
Pacific Telecom. EBITDA is not a financial measure under
GAAP and is not an alternative to cash flows and net income
as presented in Pacific Telecom's financial statements.
EBITDA is not a financial measure under GAAP and is not an
alternative to cash flows and net income as presented in
Pacific Telecom's financial statements.
c. Acquisition Assumptions -- Pacific Telecom 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 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 assumed Pacific Telecom
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,
Pacific Telecom lowered its debt balances by retiring
debt with proceeds received from the sale of Pacific
Telecom'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
Pacific Telecom has no control. Consequently, the
closings may occur later than anticipated.
The five-year forecast also assumed that Pacific
Telecom would 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 assumed
that the financial results from operations of these
unidentified acquisitions would be similar to other
known acquisition opportunities that Pacific Telecom
is currently evaluating. Long- and short-term
borrowings with an assumed average interest rate of
8.1 percent were assumed to be used to finance the
acquisitions. Should Pacific Telecom not be
successful in completing these unidentified
acquisitions, forecast amounts would be (in
millions):
<PAGE>86
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
d. Subsequent Acquisition Activities -- In late April
1995, Pacific Telecom began evaluating the Proposed Transaction,
involving the potential acquisition of specific local exchange
access lines for $205 million in cash and nonmonetary
consideration consisting of selected cellular investments in
which Pacific Telecom has a noncontrolling interest. Consistent
with Pacific Telecom's acquisition strategy, the Proposed
Transaction also involves the possible exchange of certain of
its urban/suburban properties for more rural properties. The
evaluation was based upon the financial analysis of information
provided to Pacific Telecom pursuant to a nondisclosure
agreement as well as specific discussions regarding the subject
properties with the other party to the Proposed Transaction.
Operational due diligence of the subject properties has not been
performed and the results of such due diligence may affect
Pacific Telecom's assessment of this opportunity.
In conjunction with the evaluation of the Proposed Transaction,
the assumptions regarding the average interest rate for long-
and short- term borrowings were changed from 8.1 percent to 7.1
percent to reflect recent changes in external debt markets. The
unidentified acquisition amount for 1995 as discussed in Note
2(c) above was reduced to $63 million to reflect the integration
of the Proposed Transaction into the forecast. In addition,
network access revenues for existing local exchange operations
were reduced by $2.3 million and $2.4 million in 1998 and 1999,
respectively, for assumed rate reductions which could result
from the property exchange portion of the transaction. All
other assumptions related to Pacific Telecom's existing
operations and the USWC assets in Oregon, Colorado and
Washington remained the same. The estimated effect of the
Proposed Transaction on the five-year forecast and the
associated changes in assumptions have been furnished to the
Special Committee, Smith Barney, CS First Boston, Holdings and
Salomon Brothers and are summarized in the table below (amounts
in millions):
<PAGE>87
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Operating Revenues $609.5 $640.7 $676.6 $754.5 $786.9
Operating Income 147.3 189.7 211.2 244.3 259.7
Net Income 138.5 76.2 90.3 106.3 119.8
EBITDA 253.5 329.2 357.2 411.3 433.2
Debt 794.8 770.1 899.7 826.6 710.7
Equity 753.9 777.0 812.7 862.7 924.7
Cash Provided by Operations 147.6 227.6 237.7 270.8 291.2
Construction Expenditures 127.5 154.2 153.5 147.1 123.3
</TABLE>
Management has also modified its assumptions
concerning the Proposed Transaction to exclude the use of
nonmonetary consideration for the asset acquisition. As a
result, the amount for unidentified acquisitions in 1995 would
decrease. The effect would be to decrease net income by
approximately $1.0 to $1.7 million and EBITDA by approximately
$7.0 million in each of the years included in the five-year
forecast.
e. Access Line Growth -- Management assumed that
internal access line growth of between 4.5 percent and 5.0
percent annually for its combined local exchange operations
would continue throughout the five-year forecast. Pacific
Telecom has experienced this level of access line growth for the
past six years.
f. Operating Revenues and Expenses -- For Pacific
Telecom's existing local exchange operations, the operating
revenues and expenses were 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 assumed that the
regulatory environment in which it operated in 1994 would
continue to exist through 1999 and that competition within its
service areas would not increase significantly. Management
assumed that future legislative changes regarding the
telecommunications regulatory structure would not abandon
interstate support for the higher cost rural areas. To the
extent there are changes in the support mechanisms, management
assumed that Pacific Telecom could 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 assumed that future
technological changes may result in opportunities to develop new
services that would generate additional revenues to help offset
changes, if any, in the high- cost support mechanisms that
Pacific Telecom may not recover through rate rebalancing from
interstate to state jurisdictions. For the areas served by the
newly acquired local exchange assets, revenue estimates were
based on the number of access lines served by the assets and an
<PAGE>88
estimate of the minutes of use those lines would generate. The
resulting usage estimate was then multiplied by the rate element
assumed to be adopted by Pacific Telecom 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 assumed 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 were 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 Pacific Telecom's experience
as a local telephone service provider in similar geographic
areas and its experiences in completing similar acquisitions of
comparable size.
g. Construction Expenditures -- Management 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 Pacific Telecom plans to acquire additional local exchange
assets, management assumed that construction expenditures would
be necessary to upgrade systems to meet service requirements
established by governing regulatory authorities and to meet the
service standard maintained by Pacific Telecom. These
expenditures were 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.
h. North Pacific Cable -- The forecast assumed that
Pacific Telecom would 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. In May 1995, the North
Pacific Cable system manufacturers issued their final
investigation report on the cause of the February 5, 1995 system
outage. The report concluded that the outage was caused by
failure of components covered under existing contractual
warranty provisions. The North Pacific Cable system also
experienced an outage on May 23, 1995. The manufacturers'
investigation report on the May 23 outage concluded that the
outage was caused by an external agency hooking the cable and
dragging it on the seabed until the cable was damaged.
<PAGE>89
i. 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
assumed no expenditures for pursuit or integration of Personnel
Communications Systems ("PCS") licenses. Management assumed
that the impact of competition by PCS providers would 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
assumed ongoing ownership of noncontrolled properties and no
impairment of cellular investments. However, in those cellular
markets where Pacific Telecom owns a minority interest, managing
cellular operations to avoid such impairments is beyond Pacific
Telecom's control.
j. Interest Rates -- Management assumed that it could 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
2(c)" above. Management assumed that the weighted average
interest rate on its outstanding floating and fixed rate debt at
December 31, 1994 of 7.6 percent could be maintained though the
five-year forecast period for debt other than debt incurred for
newly acquired assets.
k. Income Taxes -- The statutory federal income tax rate was assumed
to remain at 35 percent throughout the forecast period. In the
1995 forecast period, the effective tax rate was estimated at
23.1 percent. This rate is low because Pacific Telecom's
assumed tax basis in Alascom at closing was expected to be
slightly less than the selling price of the Alascom stock.
Pacific Telecom's basis in Alascom increased as a result of the
FCC-ordered transition payments of $150 million by AT&T to
Alascom.
l. Average Shares Outstanding and Dividend Payments -- No equity
issuances were 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.
<PAGE>90
THE MERGER AGREEMENT
GENERAL
Pacific Telecom has entered into the Merger Agreement
attached to this Proxy Statement as Exhibit A with Holdings and
Merger Sub, pursuant to which Merger Sub will be merged with
and into Pacific Telecom with Pacific Telecom as the
corporation surviving the Merger. Merger Sub is a Washington
corporation with its principal executive offices located at 700
NE Multnomah, Suite 1600, Portland, Oregon 97232. Merger Sub
was incorporated by Holdings as a wholly owned subsidiary to
effect the Merger, and it is not anticipated that Merger Sub
will conduct any business prior to the Merger. See
"Information Concerning Holdings and PacifiCorp and Their
Directors and Executive Officers" for information about
Holdings and PacifiCorp.
At the time Pacific Telecom, Holdings and Merger Sub
entered into the Merger Agreement, PacifiCorp and Pacific
Telecom also entered into the PacifiCorp Agreement pursuant to
which PacifiCorp made certain representations and warranties
and agreed to undertake certain obligations with respect to the
Merger.
The following description is a summary of the
material provisions of the Merger Agreement and the PacifiCorp
Agreement, does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of
which is attached as Exhibit A to this Proxy Statement and is
incorporated herein by reference. A copy of the PacifiCorp
Agreement is included as Exhibit A to the Merger Agreement.
Shareholders are urged to read carefully the Merger Agreement
and the PacifiCorp Agreement.
EFFECTIVE TIME
At the Effective Time, which will occur as soon as
practicable following the satisfaction or waiver of certain
conditions, as described below, Merger Sub will merge with and
into Pacific Telecom with Pacific Telecom being the surviving
corporation after the Merger, each outstanding share of PTI
Common Stock held by Holdings will be cancelled, each
outstanding share of PTI Common Stock held by the Minority
Shareholders will be converted into the right to receive the
Merger Consideration and each outstanding share of Merger Sub
Stock will be converted into one share of PTI Common Stock.
Thus, after the Merger, Pacific Telecom will be a wholly owned
subsidiary of Holdings and the Minority Shareholders will have
no continuing interest in Pacific Telecom.
CONVERSION OF SHARES; SURRENDER OF STOCK CERTIFICATES; PAYMENT
FOR SHARES
As a result of the Merger, each share of PTI Common
Stock held by a Minority Shareholder at the Effective Time
(other than shares as to which dissenters' rights are perfected)
will be converted into the right to receive $30.00 in cash.
<PAGE>91
Promptly after the Effective Time, there will be sent
to each Minority Shareholder of record (other than those
shareholders holding shares as to which dissenters' rights are
perfected) a letter of transmittal advising such shareholder of
the procedures for surrendering the certificates representing
shares of PTI Common Stock to the Payment Agent designated by
Holdings in accordance with the Merger Agreement. At or prior
to the Effective Time, Holdings shall cause the Payment Agent
to receive the funds necessary to make the payments of the
Merger Consideration to the Minority Shareholders, which funds
may not be used for any other purpose.
To receive the Merger Consideration, each Minority
Shareholder will be required to surrender to the Payment Agent
the shareholder's stock certificate or certificates, together
with a duly executed letter of transmittal and related
documentation. CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL
THE LETTER OF TRANSMITTAL IS RECEIVED.
If payment is to be made to a person other than the
one in whose name the certificate surrendered is registered, it
will be a condition of such payment that the stock certificate
surrendered is properly endorsed or otherwise in proper form
for transfer and that the person requesting such payment shall
pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the
certificate surrendered or establish to the satisfaction of the
Payment Agent that such taxes have been paid or are not
applicable. Other than as described above, no service charges,
brokerage commissions or transfer taxes will be payable by the
Minority Shareholders in connection with the surrender of their
shares of PTI Common Stock. No interest will be paid or
accrued on the cash payable upon surrender of the certificate
or certificates, and after the Effective Time no dividends will
be paid to, or accrued for the benefit of, former holders of
PTI Common Stock. From and after the Effective Time, holders
of certificates formerly representing PTI Common Stock will
cease to have any rights with respect to such shares, except
the right to receive the amount of cash into which such shares
were converted in the Merger and any rights provided by law.
Upon the surrender and exchange of a certificate to
the Payment Agent, the holder will be paid the amount of cash
to which such holder is entitled under the Merger Agreement,
less any amount required to be withheld under applicable
federal income tax withholding regulations. A shareholder who
is a U.S. citizen and resident (other than a corporation) may
be able to avoid such withholding with respect to payment for
his or her shares by providing the Payment Agent with a correct
taxpayer identification number in accordance with the
instructions in the letter of transmittal. See "Special
Factors--Certain Federal Income Tax Consequences of the
Merger."
REPRESENTATIONS AND WARRANTIES
General
The Merger Agreement contains representations and
warranties by each of Pacific Telecom, Holdings and Merger Sub
with respect to, among other things, corporate organization,
corporate authority, the absence of required consents and
approvals and the
<PAGE>92
nonoccurrence of defaults under existing agreements and the
accuracy and completeness of information to be supplied by such
party for inclusion in this Proxy Statement and the Schedule
13E-3.
The Merger Agreement contains additional
representations of Pacific Telecom with respect to, among other
things, its capitalization, the accuracy of information
contained in and compliance with applicable requirements with
respect to its prior filings with the SEC, the absence of
certain material adverse changes since September 30, 1994, the
absence of any fees payable to brokers or finders other than as
disclosed therein and the receipt by the Special Committee of
opinions regarding the fairness of the Merger Consideration,
from a financial point of view, to the Minority Shareholders.
The Merger Agreement also contains a representation by Holdings
that it has available to it the funds necessary to consummate
the Merger. The Merger Agreement also contains a
representation that Holdings and Merging Sub have determined
that the Merger is fair to the Minority Shareholders.
The PacifiCorp Agreement contains representations and
warranties of PacifiCorp with respect to, among other things,
corporate organization, corporate authority, the absence of
required consents and approvals and the accuracy and
completeness of information to be supplied by it for inclusion
in this Proxy Statement and the Schedule 13E-3. The PacifiCorp
Agreement also contains a representation that PacifiCorp has
determined that the Merger is fair to the Minority
Shareholders.
Offers, Proposals and Intention To Sell
The Merger Agreement contains a representation by
Holdings that, since January 1, 1993, to the best of its
knowledge after due inquiry, none of PacifiCorp, Holdings or
Merger Sub has received any "proposal" or offer to purchase, or
solicited any proposal or offer to purchase, any material
portion of the stock or assets of Pacific Telecom, other than
transactions previously disclosed in Pacific Telecom's filings
with the SEC. For purposes of that representation, a
"proposal" may have been either written or oral, but must have
included a proposed or suggested price or possible range of
prices and, if made on behalf of a corporation, must have been
made by a responsible officer or representative of that
corporation. In the Merger Agreement, Holdings also represents
that neither it nor PacifiCorp has any current plan or intent
to sell or otherwise dispose of any material portion of the
stock or assets of PTI, other than transactions disclosed in
Pacific Telecom's prior filings with the SEC. The PacifiCorp
Agreement contains identical representations made by PacifiCorp.
COVENANTS
The Merger Agreement contains mutual covenants
pursuant to which Holdings, Pacific Telecom and Merger Sub have
agreed to use their respective best efforts to obtain any
necessary consents, permits, authorizations, approvals and
waivers to permit consummation of the Merger and to cooperate
in determining the need for and in making or obtaining any
required filings, consents, permits, authorizations, approvals
and waivers.
<PAGE>93
Holdings and Pacific Telecom have also agreed to
give prompt notice to the other of (i) any claims, actions,
proceedings or investigations commenced or, to the best
knowledge of the notifying party, threatened, involving or
affecting the notifying party or its assets that relate to the
Merger; (ii) the occurrence or failure to occur of any event
that would be likely to cause any representation or warranty of
the notifying party contained in the Merger Agreement to be
inaccurate in any material respect; and (iii) any material
failure of the notifying party to comply with or satisfy any
covenant or condition under the Merger Agreement. The
PacifiCorp Agreement contains similar covenants on the part of
PacifiCorp.
Pacific Telecom has agreed, subject to certain
specified exceptions or except as approved in writing by
Holdings, to conduct its business and the business of its
subsidiaries prior to the Effective Time in the ordinary course
and consistent with past practice and that, during the period
prior to the Merger, neither it nor any of its subsidiaries
will (i) propose or adopt any amendments to its articles of
incorporation or bylaws or make any change in Pacific Telecom's
Board of Directors except to increase the size of the Board to
accommodate the designees of Holdings; (ii) issue, sell or
repurchase any shares of its capital stock or other securities;
enter into any agreement, understanding or arrangement with
respect to the issuance, purchase or voting of shares of its
capital stock, or adjust, split, combine or reclassify any
securities or make any other changes in capital structure;
(iii) declare, set aside or pay any dividend or make any other
distribution with respect to Pacific Telecom's capital stock,
other than regular quarterly cash dividends not to exceed $.33
per share; (iv) grant any severance or termination pay (other
than pursuant to policies or agreements in effect on the date
of the Merger Agreement) or increase benefits payable under
severance or termination pay policies in effect on the date of
the Merger Agreement; or (v) except for salary increases or
other employee benefit arrangements made in the ordinary course
of business, adopt or amend any employee benefit plan,
agreement or arrangement. Pacific Telecom has also agreed (i)
not to solicit, initiate or encourage submission of proposals
or offers from any person relating to an acquisition of all or
a substantial portion of the assets of or equity interest in
Pacific Telecom or any of its subsidiaries (other than sales of
insubstantial assets in the ordinary course of business or
sales disclosed in prior filings with the SEC) or business
combination with PTI or any of its subsidiaries or, subject to
fiduciary duties under applicable law as advised by counsel,
participate in any negotiations regarding or furnish to any
other person any information with respect to or otherwise
cooperate in any way with any person with respect to any such
proposal or offer; (ii) not to settle or compromise any claim
for dissenters' rights without the prior written consent of
Holdings; (iii) to give and to cause its subsidiaries to give to
Holdings and Merger Sub and their respective representatives
full access to the premises, books and records of Pacific
Telecom and its subsidiaries and such other information
reasonably requested by Holdings; and (iv) to take all actions
requested by Holdings to cause to be elected to Pacific
Telecom's Board of Directors the nominees designated by Holdings.
Holdings has agreed to honor, in accordance with its
terms as in effect on the date of the Merger Agreement, the
Pacific Telecom Executive Officer Severance Plan. Holdings has
also agreed not to take any action to cause Pacific Telecom to
make any dividend or other distribution to Holdings with respect
to Holdings' PTI Common Stock otherwise than in accordance with
Pacific Telecom's existing dividend policies. The
<PAGE>94
PacifiCorp Agreement contains the same covenant with
respect to Pacific Telecom dividends on the part of PacifiCorp.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Merger Agreement provides that Pacific Telecom
will maintain, and that Holdings agrees to cause Pacific
Telecom to maintain, for six years after the Effective Time,
for the benefit of current directors and officers of Pacific
Telecom, (i) director and officer liability insurance providing
at least the same amounts and coverage as the policies
currently in effect; provided, however, that if the cost of
maintaining such insurance exceeds the current cost related to
providing such insurance by more than twice the current cost of
such insurance, Pacific Telecom will maintain such insurance
with the maximum amount of coverage obtainable at twice such
current cost and (ii) all rights to indemnification existing in
favor of the current directors and officers of Pacific Telecom
and its subsidiaries as provided in their respective articles
of incorporation or bylaws in effect on the date of the Merger
Agreement, in each case with respect to acts or omissions
occurring before the Effective Time (and certain Merger related
events occurring thereafter).
Pursuant to the PacifiCorp Agreement, PacifiCorp has
agreed to indemnify the current officers and directors of
Pacific Telecom with respect to acts or omissions occurring
before the Effective Time (and certain Merger related events
occurring thereafter) to the full extent a corporation is
permitted under Washington law to indemnify its own directors
and officers.
CONDITIONS TO THE MERGER
The respective obligations of Holdings and Merger
Sub, on the one hand, and Pacific Telecom, on the other hand,
to consummate the Merger are subject to certain conditions,
including the following: (i) approval of the Merger Agreement
and the Merger by the affirmative vote of a majority of the
outstanding shares of PTI Common Stock held by the Minority
Shareholders and by two-thirds of the outstanding shares of PTI
Common Stock and (ii) consummation of the Merger not being
prohibited by any order or injunction and the absence of any
legal action, statute or rule that would make illegal the
consummation of the Merger.
The obligation of Pacific Telecom to consummate the
Merger is subject to the satisfaction or waiver of certain
additional conditions, including that (i) the representations
and warranties of Holdings and Merger Sub in the Merger
Agreement shall be correct in all material respects on the date
of the Merger Agreement and on the Closing Date (as defined in
the Merger Agreement), Holdings and Merger Sub have performed
in all material respects their obligations to be performed
under the Merger Agreement at or prior to the Effective Time
and Pacific Telecom shall have received certificates to that
effect executed on behalf of Holdings and Merger Sub by an
executive officer; (ii) the representations and warranties of
PacifiCorp in the PacifiCorp Agreement shall be correct in all
material respects on the date of the Merger Agreement and on
the Closing Date, PacifiCorp has performed in all material
respects its obligations to be performed under the PacifiCorp
Agreement at or prior to the
<PAGE>95
Effective Time and Pacific Telecom shall have received a
certificate to that effect executed on behalf of PacifiCorp by
an executive officer; (iii) no governmental action or proceeding
shall have been commenced seeking to prohibit the consummation
of the Merger that in the opinion of the Special Committee's
counsel is more likely than not to be successful; and (iv)
Pacific Telecom shall have obtained all consents, approvals,
permits and authorizations required to be obtained in connection
with the Merger, except those that the failure to obtain would
not have a material adverse effect on the business, operations,
financial condition or prospects of Pacific Telecom and its
subsidiaries, taken as a whole.
The obligations of Holdings and Merger Sub to
consummate the Merger are subject to certain additional
conditions, including that (i) the representations and
warranties of Pacific Telecom are correct in all material
respects on the date of the Merger Agreement and on the Closing
Date, Pacific Telecom has performed in all material respects
its obligations to be performed under the Merger Agreement at
or prior to the Effective Time and Holdings and Merger Sub
shall have received a certificate to that effect executed on
behalf of Pacific Telecom by an executive officer; (ii) no
governmental action or proceeding shall have been commenced
seeking to prohibit the consummation of the Merger that in the
opinion of Holdings' counsel is more likely than not to be
successful; (iii) Holdings and Merger Sub shall have obtained
all consents, approvals, permits and authorizations required to
be obtained in connection with the Merger, except those that the
failure to obtain would not have a material adverse effect on
the business, operations, financial condition or prospects of
Pacific Telecom and its subsidiaries, taken as a whole; and
(iv) except as disclosed to Holdings prior to the date of the
Merger Agreement or in filings with the SEC, there shall not
have been any change or event since September 30, 1994 that has
resulted or may result in a material adverse change with respect
to Pacific Telecom and its subsidiaries, taken as a whole.
It will not be known until immediately prior to the
Effective Time whether all of the above conditions will have
been satisfied. As described below, each of the parties to the
Merger Agreement may, at its option, waive compliance with any
condition of its obligation to consummate the Merger.
WAIVER, AMENDMENT AND TERMINATION
Any provision of the Merger Agreement may be waived
at any time by the party that is, or whose shareholders are,
entitled to the benefits of that provision. Except for the
provisions relating to indemnification and insurance with
respect to Pacific Telecom's directors and officers following
the Merger, the Merger Agreement may be amended or supplemented
at any time, except that, after approval by the shareholders of
Pacific Telecom, no amendment may be made that decreases or
changes the form of the Merger Consideration or that in any
other way materially adversely affects the rights of the
Minority Shareholders (other than a termination of the Merger
Agreement) without the further approval of the Minority
Shareholders. Any waiver, amendment or supplement must be in
writing and signed by the party or parties intending to be
bound thereby.
<PAGE>96
The Merger Agreement may be terminated at any time
prior to the Effective Time, before or after the approval of
the shareholders of Pacific Telecom, (i) by mutual consent of
the respective Boards of Directors of Pacific Telecom and
Holdings; (ii) by Holdings or Pacific Telecom if the Merger has
not been consummated by September 30, 1995 (provided the
terminating party's failure to fulfill any obligation under the
Merger Agreement may not have been a significant cause of the
failure to consummate the Merger); (iii) by Holdings or Pacific
Telecom if the other party shall have materially breached any
representation or warranty or failed to comply in any material
respect with any covenant under the Merger Agreement; (iv) by
Holdings or Pacific Telecom if the consummation of the Merger
is prohibited by any final, nonappealable order, decree or
injunction; (v) by Holdings or Pacific Telecom if the
shareholders of Pacific Telecom fail to approve the Merger
Agreement and the Merger; and (vi) by Holdings or Merger Sub if
the Special Committee or the Board of Directors of Pacific
Telecom shall have withdrawn or modified, in any manner adverse
to Holdings or Merger Sub, its recommendation or approval of
the Merger or the Merger Agreement. See "Special
Factors--Conditions to the Merger" for conditions to the
obligations of the parties to consummate the Merger.
FEES AND EXPENSES
The Merger Agreement provides that all costs and
expenses incurred in connection with the transactions
contemplated thereby will be paid by the party incurring such
expenses, whether or not the Merger is consummated.
MARKET PRICE AND DIVIDEND INFORMATION
FOR PTI COMMON STOCK
PTI Common Stock is traded over the counter under
Nasdaq National Market Symbol PTCM. As of July 31, 1995, there
were approximately 3,869 shareholders of record.
The following table shows the high and low sale
prices for PTI Common Stock as reported by the Nasdaq National
Market and cash dividends declared for each period indicated.
On November 2, 1994, PacifiCorp and Pacific Telecom announced
the Initial Offer. The high and low sale prices on November 1,
1994 were $24 3/4 and $23 3/4, respectively, and the last
reported sale price was $24 1/4. On March 9, 1995, Pacific
Telecom announced the signing of the Merger Agreement. On
August __, 1995, the high and low sale prices were $31 1/8 and
$29 3/8, respectively, and the last reported sale price was $31
1/8. Shareholders are urged to consult publicly available
sources for current market quotations for their shares. On
August __, 1995, the high and low sales prices for PTI Common
Stock as reported on the Nasdaq National Market were ____ and
____, respectively, and the last reported sale price was ____.
QUARTERLY HIGH AND LOW SALE PRICES
QUARTERLY
HIGH LOW DIVIDEND
---- --- --------
1995
- ----
First Quarter $31 5/8 $29 1/2 $.33
Second Quarter 30 1/4 29 1/2 .33
Third Quarter
(through August __, 1995) --
1994
- ----
First Quarter 27 22 1/2 .33
Second Quarter 25 3/8 20 3/4 .33
Third Quarter 26 3/4 21 .33
Fourth Quarter 30 3/4 22 3/4 .33
1993
- ----
First Quarter 24 3/4 22 1/2 .33
Second Quarter 24 21 .33
Third Quarter 28 3/4 23 .33
Fourth Quarter 28 1/2 24 1/2 .33
Pacific Telecom's ability to pay dividends on PTI
Common Stock is subject to restrictions under various loan
agreements. At June 30, 1995, approximately $152 million was
available for the payment of dividends and other distributions.
ELECTION OF DIRECTORS
At the Annual Meeting, ten directors are to be
elected to serve until their successors have been duly elected
and qualified, including four new directors designated by
Holdings.
All properly executed proxies will be voted, unless
otherwise specified, for the nominees listed below. If events
not now known or anticipated make any of the nominees unable to
serve, the proxies will be voted, at the discretion of the
holders thereof, for other nominees supported by the management
of Pacific Telecom in lieu of those unable to serve.
The persons named in the proxy will vote your PTI
Common Stock for the election of the persons listed below to
serve as directors unless contrary instructions are received.
The directors will be elected to hold office until their
successors are elected and qualified. The following table
shows, as to each nominee, his or her name, age, other
positions and offices with Pacific Telecom, principal
occupation or employment for the past
<PAGE>98
five years and the year first elected a director of Pacific
Telecom. See "Security Ownership of Certain Beneficial Owners
and Management" for information concerning stock ownership by
directors.
INFORMATION AS TO NOMINEES FOR DIRECTORS
The Board of Directors recommends a vote FOR the
election of these nominees as directors.
<TABLE>
<CAPTION>
CURRENT DIRECTORS
Director
Name Age Principal Occupation Since
- ---- --- -------------------- --------
<S> <C> <C> <C>
Joyce E. Galleher+ 65 Secretary-Treasurer, JODI (real 1982
estate, equipment leasing),
Poulsbo, Washington
Roy M. Huhndorf*+ 55 President and Chief Executive 1991
Officer, Cook Inlet Region, Inc.
(native regional corporation),
Anchorage, Alaska
Donald L. Mellish*+ 67 Director and Chairman, Executive 1992
Committee of the National Bank of
Alaska, Anchorage, Alaska
Charles E. Robinson* 61 Chairman, Chief Executive Officer 1982
and President, Pacific Telecom;
Chairman and Chief Executive Officer,
Pacific Telecom from October 1990
to December 1992; President and
Chief Executive Officer, Pacific
Telecom from April 1985 to October
1990; Chairman, Chief Executive
Officer and President, Alascom, Inc.
Sidney R. Snyder+ 69 President, Sid's Super Market, Inc.; 1973
Washington State Senator, Olympia,
Washington
<PAGE>99
Nancy Wilgenbusch 47 President, Marylhurst College, 1990
Portland, Oregon; Director,
PacifiCorp
HOLDINGS DESIGNEES
Michael C. Henderson 48 President and Chief Executive
Officer, Holdings (since March
1995); Senior Vice President, Holdings
(1994-March 1995); Director, President
and Chief Operating Officer (since 1993),
Executive Vice President (1992-1993) and
Senior Vice President (1991-1992),
PacifiCorp Financial Services, Inc.;
President, Sound Strategies, a
consulting firm located in Seattle,
Washington, 1990-1991; Chief Executive
Officer of Crescent Foods, Inc.,
Seattle, Washington, 1986-1990
Nolan E. Karras 50 Investment Adviser, Karras & Associates,
Inc., an investment advisory firm, Roy,
Utah; Director, PacifiCorp; Director,
Holdings
Paul M. Lorenzini 54 Senior Vice President, PacifiCorp
(since May 1994); President (1992-1994)
and Vice President (1989-1992),
Pacific Power & Light Company
Verl R. Topham 60 Director, Senior Vice President and
General Counsel, PacifiCorp (since
May 1994); Senior Vice President and
General Counsel of Holdings (since
June 1995); President, Utah Power &
Light Company (1989-1994)
<FN>
______________________________
* Member of the Executive Committee
+ Member of the Special Committee
</TABLE>
INFORMATION WITH RESPECT TO MEETINGS AND COMMITTEES
The Board of Directors has an Audit Committee and a
Personnel Committee, but does not have a nominating committee
or a compensation committee. The Audit Committee reviews the
independence of Pacific Telecom's independent auditors, the
work of internal auditors, the adequacy of internal controls,
the quality of financial reporting, accounting estimates
involving the use of significant management judgment and
Pacific Telecom's construction program. It also meets with the
independent auditors from time to time to discuss their audit
plans and to review their audit reports and findings. The
<PAGE>100
members of the Audit Committee are Messrs. Mellish and Snyder
and Dr. Wilgenbusch. There currently is no chairperson of the
Audit Committee. The Audit Committee met four times in 1994.
The Personnel Committee of the Board of Directors
makes recommendations to the Board of Directors on compensation
issues, including salary levels for officers and management
compensation plans, and administers executive compensation
plans as authorized by the Board. The Committee currently
consists of three directors, Ms. Galleher and Messrs. Snyder
and Huhndorf, none of whom is a current or former officer or
employee of Pacific Telecom or any of its subsidiaries or
PacifiCorp or any of its subsidiaries. The Chairman of the
Personnel Committee, Mr. Huhndorf, attends meetings of the
PacifiCorp personnel committee in order to ensure coordination
of compensation decisions among PacifiCorp's business units.
The Personnel Committee met three times in 1994. See
"Executive Compensation--Personnel Committee Report on
Executive Compensation."
Each director attended at least 75 percent of the
aggregate of the meetings of the Board and the committees of
which he or she was a member.
DIRECTOR COMPENSATION
Pacific Telecom'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. In 1994, there were six meetings of the Board of
Directors. For information regarding additional compensation paid
to the members of the Special Committee, see "Special
Factors--Background of the Merger."
Under Pacific Telecom's Non-Employee Director Stock
Compensation Plan, directors of Pacific Telecom who are not
employees of Pacific Telecom or any of its subsidiaries or of
PacifiCorp or any of PacifiCorp's subsidiaries are awarded
approximately $37,500 worth of Pacific Telecom'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
(i) fails to attend at least 50 percent of the meetings of the
Board of Directors or committee of which the director is a
member; (ii) is removed by the Board of Directors for cause; or
(iii) 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 Pacific
Telecom, and the certificates representing the shares and the
dividends earned on the shares are then held by Pacific Telecom
until the shares vest. No awards were made pursuant to this
plan during 1994.
<PAGE>101
EXECUTIVE COMPENSATION
The following table sets forth information concerning
compensation for services in all capacities to Pacific Telecom
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 Pacific Telecom and the other
four most highly compensated executive officers of Pacific
Telecom.
<TABLE>
<CAPTION>
Summary Compensation Table
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 Controller 1992 -- -- -- -- -- --
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
______________________________
<FN>
(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 Pacific Telecom's Long-Term Incentive Plan
(the "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 Messrs. Robinson, Huesgen, Wonnell, Bloodworth and
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, Pacific Telecom's Long-Term
Incentive Plan had a four-year performance cycle ending
December 31, 1992. For that performance cycle, the
performance
<PAGE>102
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, Pacific
Telecom 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.
</TABLE>
SEVERANCE ARRANGEMENTS
Pacific Telecom adopted an Executive Officer
Severance Plan effective January 1, 1994 under which certain
executive officers of Pacific Telecom, 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 if their employment is
terminated. The severance payment will be made to the
executive in 24 equal monthly payments following the date of
the termination of his employment, and the payments may be
terminated by Pacific Telecom if the executive accepts
employment with a competitor of Pacific Telecom 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, subject to
certain exceptions, voluntary termination. "Voluntary
termination" does not include voluntary termination by an
executive due to a change in reporting relationship, a material
change in authority or a change in control of the ownership of
Pacific Telecom 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 best interests of Pacific Telecom 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
Pacific Telecom or its affiliates. In October 1994, the
termination date of the plan was extended from December 31,
1995 to December 31, 1997.
RETIREMENT PLANS
Pacific Telecom 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 Pacific Telecom's executive
officers, including Messrs. Robinson, Huesgen and Wonnell, are
also eligible to participate in PacifiCorp's nonqualified
Supplemental Executive Retirement Plan ("SERP"). The plans
provide benefits at retirement payable for life based on length
of service with Pacific Telecom 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
<PAGE>103
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 Plan and the SERP combined.
<TABLE>
<CAPTION>
Final Average
Annual Pay at Years of Credited Service
Retirement Date 5 15 25 30
--------------- ---------------------------------------------------------
<S> <C> <C> <C> <C>
$ 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
_______________
<FN>
(1) The benefits shown in the table above assume that the
individual will remain in the employ of Pacific Telecom
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, respectively.
</TABLE>
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:
<TABLE>
<CAPTION>
Pension
Qualified Years of Credited Service
Salary 10 15 20 25 30
------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 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
_______________
<FN>
(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 6 and 13, respectively.
(2) 1994 pension qualified salaries used to compute Retirement
Plan benefits for Messrs. Bloodworth and Carson were
$140,635 and $129,415, respectively.
</TABLE>
<PAGE>104
PERSONNEL COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE PERSONNEL COMMITTEE OF THE BOARD OF DIRECTORS OF
PACIFIC TELECOM (THE "COMMITTEE") HAS FURNISHED THE FOLLOWING
REPORT ON EXECUTIVE COMPENSATION. THE FOLLOWING REPORT SHALL
NOT BE DEEMED INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO
ANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE
ACT, EXCEPT TO THE EXTENT THAT PACIFIC TELECOM SPECIFICALLY
INCORPORATES THIS INFORMATION BY REFERENCE, AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
Overview
The Committee's executive compensation policies are
designed to retain and to fairly compensate quality executives
who will manage Pacific Telecom's business effectively for the
benefit of its shareholders. To assist Pacific Telecom in
achieving those ends, the Committee retains the services of a
national consulting firm with special expertise in compensation
matters to assist in the design and monitoring of compensation
arrangements that are fair and competitive for the executives
and consistent with the objectives of the shareholders. The
Committee believes that Pacific Telecom's compensation plans
achieve an appropriate balance between incentives for long-
term success and those related to annual goals, which are
intended, over time, to result in sustained earnings and
dividend growth.
Qualifying compensation for deductibility under
Section 162(m) of the Internal Revenue Code, which limits to $1
million the annual deduction by a publicly held corporation of
compensation paid to any executive except with respect to
certain forms of incentive compensation that qualify for
exclusion, is one of many factors that Pacific Telecom
considers in designing its incentive compensation arrangements.
Pacific Telecom views the objectives outlined above as more
important than compliance with the technical requirements
necessary to exclude compensation from the deductibility limits
of Section 162(m). Nevertheless, Pacific Telecom anticipates
that the amount of compensation in excess of the deductibility
limits of Section 162(m) for all executive officers as a group
will not be material.
Compensation Program Components
Pacific Telecom has developed an executive
compensation system with three principal elements: (i) base
salary; (ii) annual incentive compensation; and (iii) long-
term incentive compensation. The Committee, assisted by its
consultant, reviews base salary levels annually and recommends
appropriate changes for each executive officer. In connection
with this process, the Committee evaluates total compensation
of executives in relation to telecommunications and general
industry companies of similar size as measured by revenues.
Companies used for the competitive compensation analysis are
not restricted to those included in the preparation of the
performance graph set forth below, but include over
<PAGE>105
80 percent of the companies identified. The Committee believes
that a broader range of companies is more representative of the
labor market in which Pacific Telecom must compete for executive
talent.
The Committee seeks to establish target cash
compensation at median competitive levels. During 1994, the
Committee recommended base salary increases for all executive
officers of Pacific Telecom. The Committee believed, based on
its review of data from general industry and telecommunications
companies, that increases were justified because total cash
compensation levels (base salary plus incentives) for the
executive group as a whole fell below competitive levels. The
Committee considered factors such as the nature, complexity and
diversity of Pacific Telecom's operations, the duties and
responsibilities of each executive position and the relevance
of the comparative data and weighted those factors in making
individual determinations as to the appropriate amount of total
cash compensation.
As part of placing a significant element of the
compensation package for executive officers of Pacific Telecom
at risk, executive officers of Pacific Telecom are eligible to
participate in the annual short-term Executive Bonus Plan. The
creation of this "at risk" portion of executive compensation is
intended to align compensation with shareholder interests.
Certain executive officers of Pacific Telecom as determined by
the Committee, including the executive officers named in the
Summary Compensation Table above, are eligible to participate
in this plan, which provides for cash awards based on
achievement of business performance objectives. Guideline
bonus percentages ranging from 15 percent to 40 percent of
salary are established for each participant and are based on a
subjective assessment of the relative impact of each position
on company growth and profitability. Under the Executive Bonus
Plan, payments are calculated by multiplying the guideline
bonus percentages by a performance factor tied to (i) Pacific
Telecom's return on average shareholder equity for the current
year in relation to the five-year Treasury Bond rate and (ii)
the compound annual growth rate in Pacific Telecom's net
income. For 1994 performance, however, the Committee
determined to modify the plan and use subjective measures.
Based on a recommendation by PacifiCorp, in December 1993 the
Committee recommended that 1994 awards be determined without
regard to the measures set forth in the Executive Bonus Plan,
which recommendation was approved by the Board. Accordingly,
incentive awards in 1994 were based on a subjective assessment
of Pacific Telecom's performance. The Alaska
telecommunications market restructuring was the most
significant business issue facing Pacific Telecom and, during
1994, management negotiated with AT&T an agreement for the
Alascom Sale that effectively resolves those issues in a manner
favorable to Pacific Telecom. In recognition of this
accomplishment, the Board approved incentive awards that
recognized each executive's contributions to Pacific Telecom's
achievements in 1994.
Executive officers of Pacific Telecom and its
subsidiaries are also eligible to participate in Pacific
Telecom's Long-Term Incentive Plan 1994
<PAGE>106
Restatement (the "Restated Plan"). The Restated Plan is
designed to provide stock-based incentives in the form of annual
grants of restricted stock coupled with a requirement that
participants invest their own personal resources in the stock of
Pacific Telecom or PacifiCorp. The Committee believes the
Restated Plan aligns the interests of executive employees more
closely with those of shareholders, provides greater opportunity
to link grant size to achievement of performance and increases
Pacific Telecom's ability to retain key employees. The Restated
Plan provides for grants of restricted stock based on past
performance rather than target awards for future performance
cycles. The Restated Plan provides that the Committee may vary
the grants each year based on a subjective assessment of Pacific
Telecom's overall performance in relation to long-term goals and
plans. In determining the individuals to whom awards will be
made and the amounts of the grants, the Committee considers
criteria such as the following: (i) total shareholder return
relative to peer companies; (ii) earnings per share growth over
time relative to peer companies; (iii) achievement of long-term
goals, strategies and plans; and (iv) maintenance of competitive
position. Shares awarded under the Restated Plan are subject to
such terms, conditions and restrictions as may be determined by
the Committee to be consistent with the purpose of the Restated
Plan and the best interests of Pacific Telecom. The
restrictions may include, without limitation, stock transfer
restrictions and forfeiture provisions designed to facilitate
the achievement by participants of specified stock ownership
goals.
Grants totalling 10,163 shares were made in February
1994 to six executive officers of Pacific Telecom. Grants made
to the executive officers named in the Summary Compensation
Table are reflected in the Summary Compensation Table. The
principal factor considered by the Committee in selecting the
participants and determining the level of grants in February
1994 was the Committee's subjective assessment of the potential
impact of each position on corporate strategy, policies and
investment and business decisions relating to the long-term
direction of Pacific Telecom. The Committee also took into
consideration competitive practices for positions at similar
levels in the industry and at PacifiCorp, the termination of
existing cycles under the Long-Term Incentive Plan, the fact
that prorated awards were made with respect to the performance
cycle that would have ended December 31, 1994 under the pre-
restatement plan and Pacific Telecom's strong financial
performance and success in attaining its long-term goals during
1993.
CEO Compensation
For 1994, the Committee approved a base salary
increase for Mr. Robinson of 4.3 percent based upon various
factors, including an assessment of Pacific Telecom's
performance as measured by return on equity and the successful
negotiations relating to the Alascom Sale, a recommendation by
the PacifiCorp personnel committee, consideration of
competitive pay data, and a subjective assessment of Mr. Robinson's
performance, including recognition that he played a
<PAGE>107
key role in guiding the negotiations with AT&T in connection
with the Alascom Sale.
Mr. Robinson's 1994 award under the Executive Bonus
Plan was also determined based on an assessment of Pacific
Telecom's return on equity performance and the Alascom Sale.
The number of shares of restricted stock awarded to Mr.
Robinson pursuant to the Restated Plan was determined on the
same basis as for other executive officers of Pacific Telecom,
as described above, also taking into account restricted stock
granted to him by PacifiCorp pursuant to the PacifiCorp long-
term incentive plan, described below, such that his total
restricted stock award was comparable to median competitive
levels.
Executive officers of Pacific Telecom, who are
designated by the personnel committee of PacifiCorp, are also
eligible to participate in the PacifiCorp long-term incentive
plan. Mr. Robinson is a participant in this plan, and the
costs of his participation are borne by Pacific Telecom. The
PacifiCorp plan, like the Restated Plan, provides for annual
grants of restricted stock coupled with a requirement that
participants invest their own personal resources in Common
Stock of PacifiCorp or Pacific Telecom. No grants were made
under the PacifiCorp plan during 1994.
PERSONNEL COMMITTEE
Roy M. Huhndorf
Joyce E. Galleher
Sidney R. Snyder
<PAGE>108
PERFORMANCE GRAPH
COMPARISON OF FIVE-YEAR CUMULATIVE
TOTAL RETURN AMONG PACIFIC TELECOM,
S&P 500 INDEX AND COMPANY PEER GROUP
THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT
INCORPORATING BY REFERENCE THIS PROXY STATEMENT INTO ANY FILING
UNDER THE SECURITIES ACT OF 1933 OR THE EXCHANGE ACT, EXCEPT TO
THE EXTENT THAT PACIFIC TELECOM SPECIFICALLY INCORPORATES THIS
INFORMATION BY REFERENCE, AND SHALL NOT OTHERWISE BE DEEMED
FILED UNDER SUCH ACTS.
The following graph provides a comparison of the
annual percentage change in Pacific Telecom's cumulative total
shareholder return on its Common Stock, with the cumulative
total return of the S&P 500 Index and a peer group consisting
of the Dow Jones Telephone Systems Index plus certain
additional companies not included in that index. The companies
included in the Dow Jones Telephone Systems Index and the
additional companies included in Pacific Telecom's peer group
are listed below. The comparison assumes $100.00 was invested
on December 31, 1989 in Pacific Telecom's Common Stock and in
each of the foregoing indices and assumes the reinvestment of
dividends.
PACIFIC TELECOM, INC.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
1989-1994
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
PTI $100 112.24 120.73 122.38 137.16 166.67
S&P 500 $100 96.89 126.28 135.88 149.52 151.55
Peer Group $100 90.10 98.90 110.19 129.72 116.42
<PAGE>109
* Dow Jones Telephone System Index Additional Companies
AirTouch Communications C-TEC Corporation
NEXTEL Communications Inc. Century Telephone Enterprises, Inc.
Vanguard Cellular Systems Inc. Citizens Utilities Company
GTE Corporation Lincoln Telecommunications Company
MCI Communications Corporation Frontier Corporation
Sprint Corporation Telephone & Data Systems, Inc.
ALLTEL Corporation
Ameritech Corporation
Bell Atlantic Corporation
Bellsouth Corporation
Cincinnati Bell, Inc.
NYNEX Corporation
Pacific Telesis Group
Southern New England
Telecommunications Corporation
Southwestern Bell Corporation
US WEST, Inc.
<PAGE>110
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS
PacifiCorp provides certain corporate services to
Pacific Telecom, at PacifiCorp's cost, under a Management
Services Agreement. In addition, an indirect subsidiary of
PacifiCorp provides certain air transportation services to
Pacific Telecom and its subsidiaries. For the year ended
December 31, 1994, billings to Pacific Telecom under these
agreements totaled $1,702,000. During 1994, a subsidiary of
PacifiCorp also billed Pacific Telecom $884,000, primarily for
computer hardware lease payments, and PacifiCorp billed Pacific
Telecom $126,000 for pole contact rental.
Pacific Telecom provides certain computer services to
PacifiCorp. During 1994, Pacific Telecom billed PacifiCorp
$197,000 for these services.
Pursuant to the terms of an intercompany borrowing
arrangement, from time to time Pacific Telecom and 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
Pacific Telecom 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.
Pacific Telecom joins with PacifiCorp in filing a consolidated
federal income tax return along with unitary state income tax
returns. Pacific Telecom paid $37,696,288 to PacifiCorp for
Pacific Telecom's 1993 federal and state income taxes and will
pay an estimated $101,500,000 to PacifiCorp for Pacific
Telecom's 1994 federal and state income taxes.
Pacific Telecom believes that all of the foregoing
transactions between PacifiCorp and Pacific Telecom were on
terms at least as favorable to Pacific Telecom as those which
could have been obtained from an independent third party.
For a description of the Merger Agreement, see "The
Merger Agreement."
CERTAIN TRANSACTIONS IN PTI
COMMON STOCK
Since January 1, 1993, Pacific Telecom has purchased
an aggregate of 261,946 shares of PTI Common Stock. Of those
shares, (i) 42,358 shares were acquired between April 1993 and
February 1994 in connection with grants of restricted stock
under the Pacific Telecom Non-Employee Director Stock
Compensation Plan and the Restated Plan pursuant to which
shares awarded are purchased in the open market with funds
supplied by Pacific Telecom, and the certificates representing
the shares are registered in the name of the recipient and held
by Pacific Telecom until the shares vest; (ii) 181,500 shares
were acquired
<PAGE>111
between May 1993 and July 1993 in the open market in connection
with an acquisition by Pacific Telecom of an LEC in the Midwest
and the shares were then issued to the shareholders of the
acquired entity in a merger transaction; (iii) 8,188 shares
were purchased between December 1, 1993 and February 15, 1994
in connection with an odd-lot tender offer program announced in
November 1993 pursuant to which Pacific Telecom offered to
acquire shares of PTI Common Stock from holders of fewer than
100 shares of PTI Common Stock as of November 12, 1993; and
(iv) 29,900 shares were purchased from the trustee of the
PacifiCorp K Plus Employee Savings and Stock Ownership Plan in
January 1995.
The prices paid for the foregoing acquisitions of PTI
Common Stock ranged from $21.875 on April 29, 1993 to $30.00 on
January 26, 1995. The purchases can be summarized as follows:
<TABLE>
<CAPTION>
Number of Average Price Dollar Value
Date Shares per Share of Shares High Low
- ---- --------- ------------- ------------ ---- ----
1993
- ----
<S> <C> <C> <C> <C> <C>
1st Quarter 0 $ -- $ 0 $ -- $ --
2nd Quarter 166,670 22.359 3,726,574 23.750 21.875
3rd Quarter 45,000 23.250 1,046,250 23.250 23.250
4th Quarter 7,685 25.466 195,706 25.466 25.466
1994
- ----
1st Quarter 12,691 25.531 324,013 25.750 25.250
2nd Quarter 0 -- 0 -- --
3rd Quarter 0 -- 0 -- --
4th Quarter 0 -- 0 -- --
1995
- ----
1st Quarter 29,900 30.000 897,000 -- --
2nd Quarter 0 -- 0 -- --
------- ------- ----------
TOTALS: 261,946 $ 23.629 $ 6,189,543
</TABLE>
Neither PacifiCorp nor Holdings has effected any
transactions in PTI Common Stock within the past 60 days.
Except for transactions effected pursuant to the PacifiCorp K
Plus Employee Savings and Stock Ownership Plan (the "K Plus
Plan"), which includes a PTI Common Stock investment fund to
which participants may direct a portion of their elective
contributions, no director or executive officer of PacifiCorp,
Holdings or Pacific Telecom has effected any
<PAGE>112
transaction in PTI Common Stock within the past 60 days.
Information regarding transactions effected pursuant to the K
Plus Plan is set forth below.
<TABLE>
<CAPTION>
Date of Number Price Nature of
Name Transaction of Shares per Share Transaction
- ---- ----------- --------- --------- -----------
<S> <C> <C> <C> <C>
Charles E. Robinson 6/30/95 153.0158 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Diana E. Snowden 6/30/95 10.0627 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Donald A. Bloodworth 6/30/95 11.0608 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Wesley E. Carson 6/30/95 7.9877 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
James H. Huesgen 6/30/95 100.3194 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Brian M. Wirkkala 6/30/95 98.9179 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
Donn T. Wonnell 6/30/95 42.2931 $29.24 Acquisition of shares
by Trustee with con-
tributions previously
directed to fund
</TABLE>
<PAGE>113
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information
regarding the beneficial ownership, as of June 30, 1995, of
PTI Common Stock and common stock of PacifiCorp by (i) each
director of Pacific Telecom; (ii) each of the executive
officers named in the Summary Compensation Table; and (iii) all
executive officers and directors of Pacific Telecom as a group.
As of June 30, 1995, each of the directors and executive
officers identified below and all executive officers and
directors of Pacific Telecom as a group owned less than 1
percent of PTI Common Stock and less than 1 percent of the
common stock of PacifiCorp. No person is known by Pacific
Telecom to be the beneficial owner of more than 5 percent of
PTI Common Stock, except that, as of June 30, 1995, Holdings
was the beneficial owner of 34,325,181 shares, representing
approximately 86.6 percent, of PTI Common Stock. The principal
business address of Holdings is 700 NE Multnomah, Suite 1600,
Portland, Oregon 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 . . . . . . . . . . . . . . . . . . . . . . . 79,410 13,408
Sidney R. Snyder. . . . . . . . . . . . . . . . . . . . . . . . . 7,769 --
Nancy Wilgenbusch . . . . . . . . . . . . . . . . . . . . . . . . 2,711 9,668
James H. Huesgen. . . . . . . . . . . . . . . . . . . . . . . . . 28,026 3,202
Donn T. Wonnell . . . . . . . . . . . . . . . . . . . . . . . . . 10,221 1,274
Donald A. Bloodworth. . . . . . . . . . . . . . . . . . . . . . . 6,180 2,515
Wesley E. Carson. . . . . . . . . . . . . . . . . . . . . . . . . 5,847 1,437
All executive officers and directors as a group (12 persons). . . 182,206 213,191
____________________
<FN>
(1) Includes ownership of (i) shares held by family members
even though beneficial ownership of such shares may be
disclaimed; (ii) 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 Pacific Telecom or PacifiCorp; and (iii) shares
held for the account of such persons under the PacifiCorp
Compensation Reduction Plan.
</TABLE>
<PAGE>114
INFORMATION CONCERNING HOLDINGS AND PACIFICORP
AND THEIR DIRECTORS AND EXECUTIVE OFFICERS
Holdings is a Delaware corporation and a wholly owned
subsidiary of PacifiCorp, an Oregon corporation that conducts a
retail electric utility business under the names Pacific Power
& Light Company and Utah Power & Light Company and engages in
power production and sales on a wholesale basis under the name
PacifiCorp. Holdings was formed in 1984 to hold the stock of
PacifiCorp's principal subsidiaries and to facilitate the
conduct of businesses not regulated as electric utilities.
Through Holdings, PacifiCorp indirectly owns approximately 86.6
percent of Pacific Telecom. In addition, Holdings owns 100
percent of Pacific Generation Company, which is engaged in the
independent power production and cogeneration business, and 100
percent of PacifiCorp Financial Services, Inc. ("PFS"). PFS
has sold substantial portions of its loan, leasing,
manufacturing and real estate investments and expects to
continue its disposition activities over the next several
years. PFS presently expects to retain only its tax-advantaged
investments in leveraged lease assets (primarily aircraft) and
low-income housing projects. The executive offices of
PacifiCorp and Holdings are located at 700 NE Multnomah, Suite
1600, Portland, Oregon 97232-4116.
The following is a list of the executive officers and
directors of Holdings and PacifiCorp; their respective
principal occupations, positions, offices or employments and
the number of shares beneficially owned by such persons and the
percentage of outstanding shares of PTI Common Stock
represented by such shares, as of June 30, 1995. Unless
otherwise indicated, all occupations, positions, offices or
employments listed opposite an individual's name have been held
by such individual during the course of the past five years.
Unless otherwise indicated, the business address of each
individual is PacifiCorp, 700 NE Multnomah, Suite 1600,
Portland, Oregon 97232-4116. All listed individuals are
citizens of the United States. All shares are held directly
with sole voting and sole investment power unless otherwise
indicated.
<TABLE>
<CAPTION>
Name and Principal Occupation, Shares of PTI
Residence or Position, Office Common Stock Approximate
Business Address or Employment Beneficially Owned Percentage
- ---------------- -------------------- ------------------ -----------
PACIFICORP HOLDINGS, INC.
-------------------------
<S> <C> <C> <C>
DIRECTORS
- ---------
Frederick W. Buckman Director, President -- --
and Chief Executive
Officer, PacifiCorp
(since February 1994);
President and Chief
Executive Officer
(1992-1994) and
President and Chief
Operating Officer
(1988-1992), Consumers
Power Company, Jackson,
Michigan
<PAGE>115
C. Todd Conover President and Chief -- --
Executive Officer,
the Vantage Company,
a business consulting
firm, Los Altos,
California (since 1992);
General Manager, Finance
Industry Group, Tandem
Computers Incorporated,
19191 Vallco Parkway,
LOC 4-57, Cupertino,
California 95014
(since 1994-1995);
President and Chief
Executive Officer,
Central Banks of
Colorado (1991-1992);
and Partner and National
Director-Bank Consulting,
KPMG Peat Marwick (1988-1991)
Michael C. Henderson President and Chief Execu- -- --
tive Officer, Holdings since
March 1995; Senior Vice
President, Holdings
(1994-March 1995); Director,
President and Chief Operating
Officer (since 1993),
Executive Vice President
(1992-1993) and Senior
Vice President (1991-1992),
PFS; President of Sound
Strategies, a consulting
firm located in Seattle,
Washington, 1990-1991;
Chief Executive Officer,
Crescent Foods, Inc.,
Seattle, Washington, (1986-1990)
Nolan E. Karras Investment Adviser, Karras -- --
& Associates, Inc., an
investment advisory firm
with offices at 4695
South 1900 West #3,
Roy, Utah 84067
___________________________
<FN>
* Less than 1 percent of the outstanding shares of PTI Common Stock.
</TABLE>
<PAGE>116
<TABLE>
<CAPTION>
Name and Principal Occupation, Shares of PTI
Residence or Position, Office Common Stock Approximate
Business Address or Employment Beneficially Owned Percentage
- ---------------- -------------------- ------------------ -----------
EXECUTIVE OFFICERS
- ------------------
<S> <C> <C> <C>
Daniel L. Spalding Senior Vice President -- --
(since 1992) and Vice
President (1987-1992),
PacifiCorp; Senior
Vice President of Holdings
Verl R. Topham Director, Senior Vice -- --
President and General Counsel,
PacifiCorp (since May 1994);
Senior Vice President and
General Counsel, PacifiCorp
Holdings (since June 1995);
President, Utah Power & Light
Company (1989-1994)
Richard T. O'Brien Vice President of PacifiCorp -- --
and Senior Vice President,
Holdings (since August 1993);
Senior Vice President,
Treasurer and Chief Financial
Officer (1992-1993) and Vice
President and Treasurer
(1989-1992), NERCO, Inc.,
PacifiCorp's former mining
and resource subsidiary
William E. Peressini Treasurer, PacifiCorp and -- --
Treasurer, Holdings since
January 1994); Executive
Vice President (1992-1994)
and Senior Vice President
and Chief Financial Officer
(1989-1992), PFS
Sally A. Nofziger Vice President and Corporate -- --
Secretary, PacifiCorp and
Secretary, Holdings
Jacqueline S. Bell Controller, PacifiCorp and -- --
Holdings
PACIFICORP
----------
DIRECTORS
- ---------
Kathryn A. Braun Executive Vice President, -- --
Western Digital Corporation,
8105 Irvine Center Drive,
Irvine, CA 92718
<PAGE>117
Frederick W. Buckman (See above) -- --
C. Todd Conover (See above) -- --
Richard C. Edgley Member, Presiding Bishopric, -- --
The Church of Jesus Christ
of Latter-day Saints,
50 East North Temple,
18th Floor, Salt Lake
City, Utah 84150
John C. Hampton Chairman and Chief -- --
Executive Officer,
Hampton Resources, Inc.,
a forest products company
with offices at Suite 400,
9400 SW Barnes Rd.,
Portland, Oregon 97225
Nolan E. Karras (See above) -- --
Keith R. McKennon Chairman of the Board -- --
of PacifiCorp (since
February 1994); formerly
Chairman (1992-1994) and
Chief Executive Officer
(1992-1993), Dow Corning
Corporation, Midland,
Michigan; Executive
Vice President and
Director, The Dow
Chemical Company
(1990-1992)
Robert G. Miller Chairman of the Board and -- --
Chief Executive Officer,
Fred Meyer, Inc., a retail
merchandising chain, with
offices at 3800 SE 22nd,
Portland, Oregon 97202
(since 1991; Executive
Vice President of Retail
Operations, Albertsons,
Inc. (1989-1991)
Verl R. Topham (see above)
Don M. Wheeler Chairman and Chief -- --
Executive Officer,
Wheeler Machinery Company,
an equipment sales, repair
and service firm with
offices at 4901 West
2100 South, Salt Lake
City, Utah 84120
<PAGE>118
Nancy Wilgenbusch President, Marylhurst 2,711 *
College, Marylhurst,
Oregon 97036
Peter I. Wold Partner, Wold Oil & Gas -- --
Company, an oil and gas
exploration and production
company, Casper, Wyoming
EXECUTIVE OFFICERS
- ------------------
Paul G. Lorenzini Senior Vice President, -- --
PacifiCorp (since May 1994);
President (1992-1994)
and Vice President
(1989-1992), Pacific
Power & Light Company
Charles E. Robinson Chairman, President and 79,410 *
Chief Executive Officer,
Pacific Telecom
John A. Bohling Senior Vice President, -- --
PacifiCorp (since February
1993); Executive Vice President,
Pacific Power & Light Company
(1991-1993); Senior Vice
President, Utah Power &
Light Company (1990-1991)
Shelley R. Faigle Senior Vice President, -- --
PacifiCorp (since 1993);
Vice President, PacifiCorp
(1992-1993); Vice President,
Pacific Power & Light
Company (1989-1992)
John E. Mooney Senior Vice President, -- --
PacifiCorp (since November
1994); Executive Vice
President, Utah Power &
Light Company (1991-1994);
Vice President, Pacific
Power & Light Company
(1990-1991)
Daniel L. Spalding (See above) -- --
Dennis P. Steinberg Senior Vice President -- --
(since May 1994), Vice
President (1990-1994),
PacifiCorp
<PAGE>119
Thomas J. Imeson Vice President, -- *
PacifiCorp
Robert F. Lanz Vice President, -- *
PacifiCorp
Sally A. Nofziger (See above) -- --
Richard T. O'Brien (See above) -- --
William E. Peressini (See above) -- --
Jacqueline S. Bell (See above) -- --
________________________
<FN>
* Less than 1 percent of the outstanding shares of PTI Common Stock.
</TABLE>
<PAGE>120
INDEPENDENT AUDITORS
Deloitte & Touche LLP are Pacific Telecom's
independent public accountants. Representatives of Deloitte &
Touche LLP are expected to be present at the Annual Meeting to
respond to appropriate questions of shareholders and make a
statement if they so desire. The consolidated financial
statements and schedules of Pacific Telecom for the three years
ended December 31, 1994, 1993 and 1992 incorporated herein by
reference to Pacific Telecom's 1994 Form 10-K have been audited
by Deloitte & Touche LLP. Such financial statements and
schedules have been incorporated herein by reference in
reliance on the reports of Deloitte & Touche LLP given on the
authority of such firm as experts in auditing and accounting.
OTHER MATTERS
The Board of Directors does not presently know of any
matters to be presented for consideration at the Annual Meeting
other than matters described in the Notice of Annual Meeting
mailed together with this Proxy Statement, but if other matters
are presented, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with
their best judgment. The proxy confers discretionary authority
to vote only with respect to matters that the Board of
Directors did not know within a reasonable time before the
mailing of these materials were to be presented at the Annual
Meeting.
SHAREHOLDER PROPOSALS
If the Merger is consummated, no public annual
meetings of shareholders of Pacific Telecom will be held in the
future. If the Merger is not consummated, because the date of
any such annual meeting cannot currently be determined,
shareholders will be informed (by press release or other means
determined reasonable by Pacific Telecom) of the date of such
meeting and the date that shareholder proposals for inclusion
in the proxy material must be received by Pacific Telecom,
which proposals must comply with the rules and regulations of
the SEC then in effect.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE
ACT OF 1934
Section 16(a) of the Exchange Act requires Pacific
Telecom's executive officers, directors and persons who own
more than 10 percent of the outstanding PTI Common Stock to
file reports of ownership and changes in ownership with
<PAGE>121
the SEC. Based solely on reports and other information
submitted by executive officers and directors, Pacific Telecom
believes that during the year ended December 31, 1994, and
prior fiscal years, each of its executive officers, directors
and persons who owns more than 10 percent of the outstanding
PTI Common Stock filed all reports required by Section 16(a).
AVAILABLE INFORMATION
Pacific Telecom is subject to the informational
requirements of the Exchange Act, and, in accordance therewith,
files reports, proxy statements and other information with the
SEC. Such reports and other information may be inspected and
copied or obtained by mail upon payment of the SEC's prescribed
rates at the public reference facilities maintained by the SEC
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549
and at the following regional offices of the SEC: New York
Regional Office, 7 World Trade Center, New York, New York
10048, and Chicago Regional Office, 500 West Madison Avenue,
14th Floor, Chicago, Illinois 60661.
This Proxy Statement includes information required to
be disclosed pursuant to Rule 13e-3 under the Exchange Act,
which governs "going private" transactions by certain issuers
or their affiliates. In accordance with such rule, Pacific
Telecom, PacifiCorp and Holdings have filed with the SEC, under
the Exchange Act, a Schedule 13E-3 with respect to the Merger.
This Proxy Statement does not contain all of the information
set forth in the Schedule 13E-3, parts of which are omitted in
accordance with the applicable regulations of the SEC. The
Schedule 13E-3, and any amendments thereto, including exhibits
filed as a part thereof, will be available for inspection and
copying at the offices of the SEC as set forth above.
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE
The following documents or portions thereof filed by
Pacific Telecom with the SEC are incorporated herein by
reference and are made a part hereof:
(a) Pacific Telecom's Annual Report on Form 10-K for
the year ended December 31, 1994;
(b) Pacific Telecom's Quarterly Report on Form 10-Q
for the quarterly periods ended March 31, 1995 and June 30,
1995; and
(c) Pacific Telecom's Current Reports on Form 8-K
dated February 6, 1995, February 15, 1995, March 9, 1995,
March 31, 1995 and July 14, 1995.
<PAGE>122
All documents filed by Pacific Telecom pursuant to
Sections 13, 14 or 15(d) of the Exchange Act subsequent to the
date of this Proxy Statement and prior to the date of the
Annual Meeting shall be deemed to be incorporated by reference
in this Proxy Statement and to be a part hereof from the
respective dates of filing of such documents with the SEC. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Proxy Statement to the
extent that a statement contained herein modifies or supersedes
such statement. Any such statement so modified or superseded
shall not be deemed, except as modified or superseded, to
constitute part of this Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY
REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON TO WHOM THIS PROXY STATEMENT IS
DELIVERED, ON WRITTEN OR ORAL REQUEST TO PACIFIC TELECOM AT
(360) 905-5800, ATTENTION: BRIAN M. WIRKKALA. IN ORDER TO
ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE ANNUAL MEETING,
REQUESTS MUST BE RECEIVED BY AUGUST ___, 1995.
PACIFIC TELECOM, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
_______________, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ___________________ and
_____________________, or either of them, with full power of
substitution, the undersigned's true and lawful attorneys to
vote all the Common Stock standing in the undersigned's name on
the Company's books at the close of business on ________, 1995
at the Annual Meeting of Shareholders of Pacific Telecom, Inc.
to be held at ___________________________________, _________
___________, ________, ____________, on ______, ________, 1995
at _________, and any adjournments or postponements thereof.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF
MARCH 9, 1995, BY AND AMONG PACIFIC TELECOM, INC.,
PACIFICORP HOLDINGS, INC. AND PXYZ CORPORATION
/ / FOR / / AGAINST / / ABSTAIN
2. ELECTION OF DIRECTORS / / WITHHOLD AUTHORITY / /
For all nominees listed to vote for all
below (except as nominees listed
indicated to the
contrary below)
Joyce E. Galleher
Michael C. Henderson
Roy M. Huhndorf
Nolan E. Karras
Paul M. Lorenzini
Donald L. Mellish
Charles E. Robinson
Sidney R. Snyder
Verl R. Topham
Nancy Wilgenbusch
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
- ---------------------------------------------------------------
The Board of Directors recommends a vote FOR the approval of
the above proposal and FOR the election of the above directors.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN
ACCORDANCE WITH INSTRUCTIONS, IF GIVEN. IF THIS PROXY IS
RETURNED UNMARKED, IT WILL BE VOTED FOR APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER, FOR THE DIRECTORS AND ON ANY
OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING IN
ACCORDANCE WITH THE PROXY STATEMENT. THE PROXIES MAY VOTE IN
THEIR DISCRETION AS TO OTHER MATTERS THAT MAY PROPERLY COME
BEFORE THE MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF. The undersigned hereby acknowledges receipt of the
notice of Annual Meeting of Shareholders dated _______, 1995
and the Proxy Statement furnished therewith.
Dated this day of _____, 1995
- ------------------------------------------------------------
- ------------------------------------------------------------
Shareholder(s)
Please sign exactly as shown [below]. When signing as an
attorney, executor, administrator, trustee or guardian,
please give full title. If more than one trustee, all
should sign. All joint owners must sign.
Please complete, date, sign and mail this proxy card promptly
in the enclosed envelope.
EXHIBIT A
AGREEMENT
and
PLAN OF MERGER
by and among
PACIFIC TELECOM, INC.,
PACIFICORP HOLDINGS, INC.
and
PXYZ CORPORATION
Dated as of March 9, 1995
TABLE OF CONTENTS
ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . 2
1.1 Effect of Merger . . . . . . . . . . . . . . . . . 3
1.2 Articles of Incorporation, etc.. . . . . . . . . . 3
1.2.1 Articles of Incorporation and Bylaws. . . . 3
1.2.2 Directors . . . . . . . . . . . . . . . . . 3
1.2.3 Officers. . . . . . . . . . . . . . . . . . 3
1.3 Conversion and Cancellation of Shares. . . . . . . 4
1.3.1 PTI Common Stock Held by Holdings . . . . . 4
1.3.2 PTI Common Stock Held by Minority
Shareholders. . . . . . . . . . . . . . . . 4
1.3.3 Merger Sub Common Stock . . . . . . . . . . 4
1.3.4 Payment for Minority Stock. . . . . . . . . 5
1.3.5 Lost, Stolen or Destroyed Certificates. . . 6
1.3.6 No Further Rights or Transfers. . . . . . . 6
1.3.7 Dissenting Shareholders . . . . . . . . . . 7
1.4 Closing. . . . . . . . . . . . . . . . . . . . . . 7
1.5 Subsequent Actions . . . . . . . . . . . . . . . . 7
ARTICLE II REPRESENTATIONS AND WARRANTIES. . . . . . . . 8
2.1 Representations and Warranties of PTI. . . . . . . 8
2.1.1 Organization and Good Standing. . . . . . . 8
2.1.2 Capitalization. . . . . . . . . . . . . . . 8
2.1.3 Corporate Authority; Authorization. . . . . 9
2.1.4 Consents and Approvals. . . . . . . . . . . 9
2.1.5 Proxy Statement and Schedule 13E-3. . . . . 10
2.1.6 Company SEC Reports and Financial
Statements. . . . . . . . . . . . . . . . . 11
2.1.7 Absence of Material Adverse Change. . . . . 12
2.1.8 Brokers and Finders . . . . . . . . . . . . 12
2.1.9 Fairness Opinions . . . . . . . . . . . . . 13
2.2 Representations and Warranties of Holdings and
Merger Sub . . . . . . . . . . . . . . . . . . . . 13
2.2.1 Organization and Good Standing. . . . . . . 13
2.2.2 Corporate Authority . . . . . . . . . . . . 13
2.2.3 Proxy Statement and Schedule 13E-3. . . . . 14
2.2.4 Required Approvals. . . . . . . . . . . . . 14
2.2.5 Prior Proposals and Offers; No Present
Intent to Sell. . . . . . . . . . . . . . . 15
2.2.6 Financing . . . . . . . . . . . . . . . . . 16
ARTICLE III COVENANTS . . . . . . . . . . . . . . . . . . 16
3.1 Proxy Materials and Schedule 13E-3 . . . . . . . . 16
3.2 Shareholder Approval . . . . . . . . . . . . . . . 17
3.3 Acquisition Proposals. . . . . . . . . . . . . . . 18
3.4 Dissenters' Rights . . . . . . . . . . . . . . . . 18
3.5 Conduct of Business of PTI . . . . . . . . . . . . 18
3.6 Access and Information . . . . . . . . . . . . . . 20
3.7 Certain Filings, Consents and Arrangements . . . . 20
3.7.1 Consents. . . . . . . . . . . . . . . . . . 20
3.7.2 Filings . . . . . . . . . . . . . . . . . . 20
3.8 Indemnification and Insurance. . . . . . . . . . . 21
3.9 Dividend Policy. . . . . . . . . . . . . . . . . . 22
3.10 Notification of Certain Matters. . . . . . . . . . 23
3.11 Fees and Expenses. . . . . . . . . . . . . . . . . 23
3.12 Election of Directors. . . . . . . . . . . . . . . 23
3.13 Employee Benefits. . . . . . . . . . . . . . . . . 23
3.14 Additional Agreements. . . . . . . . . . . . . . . 23
ARTICLE IV CONDITIONS. . . . . . . . . . . . . . . . . . 24
4.1 Conditions to the Obligations of The Parties . . . 24
4.1.1 Shareholder Approval. . . . . . . . . . . . 24
4.1.2 No Injunction . . . . . . . . . . . . . . . 24
4.2 Conditions to Obligation of PTI. . . . . . . . . . 24
4.2.1 Representations, Warranties, and
Covenants . . . . . . . . . . . . . . . . . 24
4.2.2 PacifiCorp Agreement. . . . . . . . . . . . 25
4.2.3 No Injunction.. . . . . . . . . . . . . . . 25
4.2.4 Fairness Opinions . . . . . . . . . . . . . 25
4.2.5 Consents and Approvals. . . . . . . . . . . 25
4.3 Conditions to Obligations of Holdings and
Merger Sub . . . . . . . . . . . . . . . . . . . . 26
4.3.1 Representations, Warranties, and
Covenants . . . . . . . . . . . . . . . . . 26
4.3.2 No Injunction.. . . . . . . . . . . . . . . 26
4.3.3 Material Adverse Change . . . . . . . . . . 26
4.3.4 Consents and Approvals. . . . . . . . . . . 26
ARTICLE V TERMINATION . . . . . . . . . . . . . . . . . 27
5.1 Termination. . . . . . . . . . . . . . . . . . . . 27
5.1.1 Mutual Consent. . . . . . . . . . . . . . . 27
5.1.2 Failure of Merger to Occur by Certain
Date. . . . . . . . . . . . . . . . . . . . 27
5.1.3 Actions Restraining the Merger. . . . . . . 27
5.1.4 Failure of Shareholders to Approve. . . . . 28
5.1.5 By PTI. . . . . . . . . . . . . . . . . . . 28
5.1.6 By Holdings . . . . . . . . . . . . . . . . 28
5.2 Effect of Termination. . . . . . . . . . . . . . . 28
ARTICLE VI MISCELLANEOUS AND GENERAL . . . . . . . . . . 29
6.1 Survival of Representations, Warranties and
Agreements . . . . . . . . . . . . . . . . . . . . 29
6.2 Waiver and Amendment . . . . . . . . . . . . . . . 29
6.3 Entire Agreement . . . . . . . . . . . . . . . . . 29
6.4 Headings . . . . . . . . . . . . . . . . . . . . . 30
6.5 Notices. . . . . . . . . . . . . . . . . . . . . . 30
6.6 Parties in Interest; Assignment. . . . . . . . . . 30
6.7 Specific Performance . . . . . . . . . . . . . . . 31
6.8 Public Statements. . . . . . . . . . . . . . . . . 31
6.9 Counterparts . . . . . . . . . . . . . . . . . . . 31
6.10 Choice of Law. . . . . . . . . . . . . . . . . . . 31
AGREEMENT AND
PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated
as of March 9, 1995, by and among PACIFIC TELECOM, INC., a
Washington corporation ("PTI"), PACIFICORP HOLDINGS, INC., a
Delaware corporation ("Holdings"), and PXYZ CORPORATION, a
Washington corporation ("Merger Sub").
R E C I T A L S
A. Holdings, a direct wholly-owned subsidiary of
PacifiCorp, an Oregon corporation ("PacifiCorp"), owns
34,325,181 shares, or approximately 86.6 percent, of the issued
and outstanding common stock, no par value, of PTI ("PTI Common
Stock").
B. Merger Sub is a direct, wholly-owned subsidiary of
Holdings, formed solely for the purposes of the transactions
contemplated by this Agreement.
C. The Board of Directors of each of Holdings, Merger
Sub and PTI believes that it is in the best interest of each
respective corporation and their respective shareholders to
consummate the merger of Merger Sub with and into PTI pursuant
to the applicable provisions of the Washington Business
Corporation Act (the "WBCA") and in accordance with the terms
and subject to the conditions of this Agreement (the "Merger").
D. Based upon the unanimous recommendation of the
special committee of the Board of Directors of PTI (the
"Special Committee"), the Board of Directors of PTI has
approved the Merger, with PTI to be the surviving corporation
and a wholly-owned subsidiary of Holdings following the Merger,
upon the terms and subject to the conditions set forth herein
and has recommended approval of this Agreement and the Merger
by the shareholders of PTI.
E. The Board of Directors of each of Holdings and Merger
Sub have approved this Agreement and the Merger, upon the terms
and conditions set forth herein.
F. Contemporaneous with the execution of this Agreement,
PacifiCorp is entering into an agreement in the form attached
hereto as Exhibit A (the "PacifiCorp Agreement") with PTI
pursuant to which PacifiCorp is assuming certain obligations in
connection with the transactions contemplated hereby.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual
representations, warranties, covenants, agreements and
conditions contained herein, the parties agree as follows:
ARTICLE I
THE MERGER
Pursuant to the WBCA, and subject to and in
accordance with the terms and conditions of this Agreement,
Merger Sub shall, at the Effective Time (as hereinafter
defined), be merged with and into PTI, the outstanding shares
of the capital stock of PTI held by Holdings shall be
cancelled, the outstanding shares of capital stock of PTI held
by shareholders other than Holdings (the "Minority
Shareholders") shall be converted into the right to receive the
Merger Consideration (as hereinafter defined), the outstanding
shares of the capital stock of Merger Sub shall be converted
into shares of the capital stock of PTI, all as described in
Section 1.3, and PTI shall execute Articles of Merger, to be
filed with the Secretary of State of the State of Washington on
the Closing Date (as hereinafter defined). The Merger shall
take effect (the "Effective Time") when, subject to and in
accordance with the terms and conditions of this Agreement,
Articles of Merger and such other documents as may be required
by the applicable provisions of the WBCA, in such form as are
required by and executed in accordance with the WBCA, are duly
filed with the Secretary of State of the State of Washington.
Such filings shall be made
as soon as practicable following the satisfaction or waiver of
the conditions set forth in Article IV of this Agreement.
1.1 Effect of Merger. At the Effective Time, Merger
Sub shall be merged with and into PTI in the manner and with
the effect provided by the WBCA, the separate corporate
existence of Merger Sub shall cease and thereupon Merger Sub
and PTI shall be a single corporation (the "Surviving
Corporation"). The outstanding shares of capital stock of PTI
held by Holdings shall be cancelled, the outstanding shares of
capital stock of PTI held by the Minority Shareholders shall be
converted into the right to receive the Merger Consideration,
and the outstanding shares of capital stock of Merger Sub shall
be converted into a like number of shares of the capital stock
of PTI, all on the basis, terms and conditions described in
Section 1.3.
1.2 Articles of Incorporation, etc. In addition to
the effects identified in Section 1.1:
1.2.1 Articles of Incorporation and Bylaws.
The Articles of Incorporation and Bylaws of PTI as in effect at
the Effective Time shall be the Articles of Incorporation and
Bylaws of the Surviving Corporation;
1.2.2 Directors. The directors of PTI at the
Effective Time shall be the directors of the Surviving
Corporation, until their respective successors shall be duly
elected or appointed and qualified; and
1.2.3 Officers. The officers of PTI at the
Effective Time shall be the initial officers of the Surviving
Corporation and will hold office from the Effective Time until
their respective successors are duly elected and qualified.
1.3 Conversion and Cancellation of Shares. The
manner and basis of cancelling the shares of PTI or converting
them into the right to receive cash and the manner and basis of
converting the shares of Merger Sub into shares of PTI shall be
as follows:
1.3.1 PTI Common Stock Held by Holdings. Each
of the 34,325,181 shares of PTI Common Stock held by Holdings
("Holdings Stock"), outstanding immediately before the
Effective Time, shall by virtue of the Merger and without any
action on the part of Holdings as the holder thereof, be
cancelled without payment of any consideration therefor and
shall cease to exist.
1.3.2 PTI Common Stock Held by Minority
Shareholders. Each share of PTI Common Stock held by the
Minority Shareholders (including, without limitation, PTI
Common Stock held in escrow for the benefit of participants in
PTI's Non-Employee Director Stock Compensation Plan and PTI's
Long-Term Incentive Plan 1994 Restatement) ("Minority Stock"),
outstanding immediately before the Effective Time (other than
shares with respect to which the holder thereof has properly
perfected dissenters' rights in accordance with the WBCA),
shall by virtue of the Merger and without any action on the
part of the holder thereof, be converted into the right to the
Merger Consideration in accordance with Section 1.3.4.
1.3.3 Merger Sub Common Stock. Each of the 100
shares of Merger Sub Common Stock, ("Merger Sub Stock"), issued
and outstanding immediately before the Effective Time shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become one share of PTI
Common Stock.
1.3.4 Payment for Minority Stock. Prior to the
Effective Time, Holdings shall designate a bank or trust
company with capital, surplus and undivided profits of at least
$100 million to act as the payment agent (the "Payment Agent")
in connection with the Merger. At or prior to the Effective
Time, Holdings shall take all steps necessary to enable and
cause the Payment Agent to receive the funds (the "Fund")
necessary to make the payments of Merger Consideration provided
for by this Agreement. Out of the Fund, the Payment Agent
shall, pursuant to irrevocable instructions, make the payments
of Merger Consideration provided for by this Agreement. The
Fund shall not be used for any other purpose. The Payment
Agent may invest portions of the Fund, as directed by Holdings
(so long as such instructions do not impair the Payment Agent's
ability to make the payments of Merger Consideration provided
for by this Agreement or otherwise impair the rights of holders
of Minority Stock). Any net earnings resulting from, or
interest or income produced by, such investments shall be paid
to the Surviving Corporation as and when requested by Holdings.
Holdings shall replace any monies lost through any investment
pursuant to this
Section 1.3.4. Promptly after the Effective Time, Holdings
shall cause the Payment Agent to mail to each record holder of
Minority Stock as of immediately prior to the Effective Time a
form of letter of transmittal and instructions for use in
effecting the surrender of certificates representing Minority
Stock for payment. After the Effective Time, each holder of
shares of Minority Stock outstanding immediately prior to the
Effective Time shall, upon surrender for cancellation of a
certificate or certificates representing such shares to the
Payment Agent, together with such letter of transmittal duly
executed and completed in accordance with the instructions
thereto, be entitled to receive an amount equal to $30.00 in
cash for each share of Minority Stock converted pursuant to the
provisions of Section 1.3.2 (the "Merger Consideration").
Subject to full compliance with this Agreement, any cash
provided to the Payment Agent pursuant to this Section 1.3.4
and not exchanged for certificates representing Minority Stock
within 180 days after the Effective Time will be returned by
the Payment Agent to the Surviving Corporation, which
thereafter shall act as the payment agent. Notwithstanding the
foregoing, neither the Payment Agent nor any party to this
Agreement shall be liable to any holder of Minority Stock for
any Merger Consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or
similar law.
1.3.5 Lost, Stolen or Destroyed Certificates.
In the event that any certificate representing Minority Stock
shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed, Holdings shall, or
shall cause the Payment Agent to, issue in exchange for such
lost, stolen or destroyed certificate the Merger Consideration
deliverable in respect thereof as determined in accordance with
this Agreement; provided, however, that Holdings may, in its
sole discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed
certificate to give Holdings a bond in such sum as it may
reasonably direct as indemnity against any claim that may be
made against Holdings with respect to the certificate alleged
to have been lost, stolen or destroyed.
1.3.6 No Further Rights or Transfers. At and
after the Effective Time, each holder of a certificate that
represented Minority Stock immediately prior to the Effective
Time shall cease to have any rights as a shareholder of PTI,
except for the right to surrender his or her certificate or
certificates in exchange for the Merger Consideration or to
perfect his or her right to receive payment for shares of
Minority Stock pursuant to RCW 23B.13.010 et seq. and Section
1.3.7 hereof (if such holder has validly exercised and
perfected the dissenters rights provided thereby), and there
shall be no transfers on the stock books of the Surviving
Corporation of any shares of PTI Common Stock which were
outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates formerly representing
Minority Stock are presented to the Surviving Corporation, they
shall be cancelled and exchanged solely for the Merger
Consideration.
1.3.7 Dissenting Shareholders. Shares of
Minority Stock outstanding immediately prior to the Effective
Time and held by shareholders who have validly perfected
dissenter's rights in accordance with RCW 23B.13.010 et seq.
("Dissenting Shares") shall not be converted as described in
Section 1.3.2 but shall from and after the Effective Time
represent only the right to receive such consideration as may
be determined to be due in accordance with RCW 23B.13.010
et seq. Each holder of Dissenting Shares who becomes entitled
to payment for his Dissenting Shares in accordance with RCW
23B.13.010 et seq. shall receive payment therefor from the
Surviving Corporation after the Effective Time (but only after
the amount thereof shall have been agreed upon or finally
determined pursuant to RCW 23B.13.010 et seq.).
Notwithstanding the foregoing, if any holder of Dissenting
Shares shall fail to perfect, effectively withdraw or otherwise
lose such rights either before or after the Effective Time,
such holder's Dissenting Shares shall be converted into the
right to receive the Merger Consideration in accordance with
the provisions of Section 1.3.2.
1.4 Closing. The closing of the Merger (the
"Closing") shall take place at the offices of Stoel Rives Boley
Jones & Grey, 900 SW Fifth Avenue, Suite 2300, Portland, Oregon
97204, at 10:00 a.m. on the date when the last of the
conditions set forth in Article IV hereof (other than
conditions that by their terms are to occur at Closing) shall
have been fulfilled or waived or on such other date as PTI and
Holdings may agree (the "Closing Date").
1.5 Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall reasonably
determine that any deeds, bills of sale, assignments,
assurances, or any other actions or things are necessary or
desirable to vest,
perfect, or confirm of record or otherwise in the Surviving
Corporation its right, title, or interest in, to, or under any
of the rights, properties, or assets of, PTI or Merger Sub
acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger or otherwise to
carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of PTI or Merger Sub, or
otherwise, all such deeds, bills of sale, assignments, and
assurances, and to take and do, in the name and on behalf of
PTI or Merger Sub or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect, or
confirm any and all right, title, and interest in, to, and
under such rights, properties, or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of PTI. PTI
hereby represents and warrants to Holdings and Merger Sub that:
2.1.1 Organization and Good Standing. Each of
PTI and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation and is duly qualified in good
standing as a foreign corporation in each jurisdiction where
the properties owned, leased or operated, or the business
conducted, by it require such qualification, except where the
failure to be so qualified would not have a material adverse
effect on PTI and its subsidiaries taken as a whole. Each of
PTI and its subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as it is now being conducted.
2.1.2 Capitalization. The authorized capital
stock of PTI consists of (i) 200,000,000 shares of common
stock, no par value, of which at February 28,
1995, there were 39,616,123 shares issued and outstanding (of
which 34,325,181 were held by Holdings and 5,290,942
constituted Minority Stock) and (ii) 152,000 shares of
Cumulative Preferred Stock, $25.00 par value, of which at
February 28, 1995, there were no shares outstanding. All
issued and outstanding shares of Common Stock are validly
issued, fully paid, nonassessable and free of preemptive
rights.
2.1.3 Corporate Authority; Authorization. PTI
has the corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized and approved by the Board of
Directors of PTI and no other corporate proceedings on the part
of PTI or any subsidiary of PTI are necessary to authorize this
Agreement and, except for the approval of this Agreement by its
shareholders and the filing of the Articles of Merger pursuant
to the WBCA, no other corporate proceedings on the part of PTI
are necessary to consummate the transactions contemplated by
this Agreement. This Agreement has been duly and validly
executed and delivered by PTI and constitutes a valid and
binding obligation of PTI enforceable against PTI in accordance
with its terms, except as enforcement may be affected by
applicable bankruptcy, insolvency, reorganization, moratorium,
or similar laws affecting the enforcement of creditors' rights
generally and except that the availability of the equitable
remedies of specific performance and injunctive relief are
subject to the discretion of the court before which any
proceeding may be brought.
2.1.4 Consents and Approvals. Except for
compliance with applicable requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), the securities laws
of the various states, shareholder approval of the Merger, the
filing of the Articles of Merger pursuant to the WBCA and any
necessary consents from the Federal Communications Commission
and any state telecommunications regulatory authorities, no
filing with, and no permit, authorization, consent or approval
of, any public body or authority is necessary for the execution
and delivery by PTI of this Agreement or the consummation by
PTI of the transactions contemplated by this Agreement,
excluding from the foregoing filings, permits, authorizations,
consents or approvals that, either individually or in the
aggregate, would not have a material adverse effect on the
business, operations, financial condition or prospects of PTI
and its subsidiaries taken as a whole. Neither the execution
and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the articles of
incorporation or bylaws of PTI or any of its subsidiaries, (ii)
result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, license, permit, agreement or other
instrument or obligation to which PTI or any of its
subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iii) violate any order,
writ, injunction, decree, statute, rule or regulation
applicable to PTI, any of its subsidiaries or any of their
properties or assets, excluding from the foregoing clauses (ii)
and (iii) violations, breaches or defaults that, either
individually or in the aggregate, would not have a material
adverse effect on the business, operations, financial condition
or prospects of PTI and its subsidiaries taken as a whole.
2.1.5 Proxy Statement and Schedule 13E-3. None
of the information supplied or to be supplied by PTI and the
Special Committee for inclusion in the Rule 13e-3 Transaction
Statement to be filed pursuant to the Exchange Act in
connection with the transactions contemplated hereby (the
"Schedule 13E-3") or the proxy statement (the "Proxy
Statement") to be filed pursuant to the Exchange Act with
respect to the meeting of shareholders (the "Shareholder
Meeting") called for the purpose of
approving this Agreement and the transactions contemplated
hereby, which, unless Holdings otherwise approves in writing,
will be the 1995 Annual Meeting of Shareholders of PTI, and any
amendments thereof or supplements thereto, will, on the
respective dates such materials are filed with the Securities
and Exchange Commission ("SEC"), at the time of the mailing of
the Proxy Statement or any amendment or supplement thereto, to
shareholders of PTI, at the time of the Shareholder Meeting and
at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they
were made, not misleading. If at any time prior to the
Effective Time any event with respect to PTI or its officers
and directors should occur which is required to be described in
an amendment of, or a supplement to, the Proxy Statement or the
Schedule 13E-3, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of
PTI. The Schedule 13E-3 will comply (with respect to PTI) in
all material respects, as to form, with the applicable
requirements of each of the Exchange Act and the respective
rules and regulations thereunder.
2.1.6 Company SEC Reports and Financial
Statements. PTI has heretofore furnished to Holdings complete
copies of all registration statements, reports, and other
required filings, including all amendments thereto, filed since
January 1, 1992 and on or before the date hereof with the SEC
(collectively, the "Company SEC Reports"). Since January 1,
1992, PTI has timely filed all registration statements, reports
and other filings required to be filed with the SEC under the
rules and regulations of the SEC. The Company SEC Reports,
including without limitation, any financial statements or
schedules included therein, when filed (a) did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which
they were made,
not misleading and (b) complied in all material respects with
the applicable requirements of the Securities Act of 1933 (the
"Securities Act") and the Exchange Act, as the case may be, and
the applicable rules and regulations thereunder. Other than as
disclosed by PTI in its filings with the SEC, each of the
financial statements of PTI (including any related notes and
schedules) contained in the Company SEC Reports comply as to
form in all material respects with applicable accounting
requirements and with the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied
on a consistent basis throughout the periods indicated (except
as otherwise indicated in such financial statements or in the
notes thereto or, in the case of the unaudited interim
statements, as permitted by the requirements of Form 10-Q) and
fairly present in all material respects (subject, in the case
of the unaudited statements, to normal recurring audit
adjustments) the consolidated financial position of PTI and its
consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the
periods then ended in accordance with GAAP.
2.1.7 Absence of Material Adverse Change.
Since September 30, 1994 and except as disclosed in the Company
SEC Reports or as otherwise disclosed to a responsible officer
of Holdings or PacifiCorp on or before the date hereof, here
has not been any material adverse change in the business,
operations, properties, assets, liabilities or condition
(financial or otherwise) of PTI and its subsidiaries taken as a
whole or any declaration of any dividend or other distribution
with respect to PTI's capital stock, other than regular
quarterly dividends paid in respect of PTI Common Stock.
2.1.8 Brokers and Finders. Neither PTI nor any
officer, director or employee of PTI has employed any broker,
finder or investment banker, or incurred any liability for any
brokerage or investment banking fees, commissions or finder's
fees, in connection with the transactions contemplated by this
Agreement, except that Smith
Barney, Inc. ("Smith Barney") has been engaged as the financial
advisor to the Special Committee and CS First Boston
Corporation ("CS First Boston") has been engaged to render an
opinion as to whether the Merger Consideration is fair, from a
financial point of view, to the Minority Shareholders, pursuant
to engagement letters that have been disclosed to Holdings.
2.1.9 Fairness Opinions. The Special Committee
has received the written opinion of each of Smith Barney and CS
First Boston (the "Fairness Opinions"), to the effect that, as
of the respective dates of such opinions, the Merger
Consideration is fair, from a financial point of view, to the
Minority Shareholders.
2.2 Representations and Warranties of Holdings and
Merger Sub. Holdings and Merger Sub hereby represent and
warrant to PTI that:
2.2.1 Organization and Good Standing. Holdings
and Merger Sub are corporations duly organized, validly
existing and in good standing under the laws of the States of
Delaware and Washington, respectively. Each of Holdings and
Merger Sub has all requisite corporate power and authority to
own and operate its properties and to carry on its business as
now being conducted.
2.2.2 Corporate Authority. Each of Holdings
and Merger Sub has the corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized and approved by
the Board of Directors of Holdings and Merger Sub and the sole
shareholder of Merger Sub and no other corporate proceedings on
the part of Holdings or Merger Sub are necessary to authorize
this Agreement or the consummation of the transactions
contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Holdings and Merger Sub and
constitutes a valid and binding agreement of Holdings and
Merger Sub, enforceable against each of
them in accordance with its terms, except as enforcement may be
affected by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of
the equitable remedies of specific performance and injunctive
relief are subject to the discretion of the court before which
any proceeding may be brought.
2.2.3 Proxy Statement and Schedule 13E-3. None
of the information supplied or to be supplied by PacifiCorp,
Holdings or Merger Sub for inclusion in the Schedule 13E-3 or
the Proxy Statement and any amendments thereof or supplements
thereto will, on the respective dates such materials are filed
with the SEC, at the time of the mailing of such Proxy
Statement or any amendment or supplement thereto to
shareholders of PTI, at the time of the Shareholder Meeting and
at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements
made therein, in light of the circumstances under which they
were made, not misleading. If at any time prior to the
Effective Time any event with respect to PacifiCorp, Holdings,
Merger Sub or any of their respective officers, directors or
affiliates should occur which is required to be described in an
amendment of, or a supplement to, the Proxy Statement or the
Schedule 13E-3, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC
and, as required by law, disseminated to the shareholders of
PTI. The Schedule 13E-3 will comply (with respect to
PacifiCorp, Holdings, Merger Sub and their respective officers,
directors and affiliates) in all material respects, as to form,
with the applicable requirements of each of the Exchange Act
and the respective rules and regulations thereunder.
2.2.4 Required Approvals. Except for
compliance with the applicable requirements of the Exchange
Act, the securities laws of the various states and the filing
of the Articles of Merger pursuant to the WBCA, no filing with,
and no
permit, authorization, consent or approval of, any public body
is necessary for the execution and delivery by Holdings or
Merger Sub of this Agreement or the consummation by Holdings or
Merger Sub of the transactions contemplated by this Agreement.
Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the
articles or certificate of incorporation (as the case may be)
or bylaws of PacifiCorp, Holdings or Merger Sub, (ii) result in
a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond,
mortgage, indenture, license, permit, agreement or other
instrument or obligation to which PacifiCorp, Holdings or
Merger Sub is a party or by which any of them or any of their
respective properties or assets may be bound or (iii) violate
any order, writ, injunction, decree, statute, rule or
regulation applicable to PacifiCorp, Holdings or Merger Sub, or
any of their respective properties or assets, excluding from
the foregoing clauses (ii) and (iii) violations, breaches or
defaults that, either individually or in the aggregate, would
not have a material adverse effect on the business, operations,
financial condition or prospects of such entity and its
subsidiaries taken as a whole.
2.2.5 Prior Proposals and Offers; No Present
Intent to Sell. Since January 1, 1993, to the best knowledge
of Holdings after due inquiry, none of PacifiCorp, Holdings or
Merger Sub has received any "proposal" or offer to purchase, or
solicited any proposal or offer to purchase, any material
portion of the stock or assets of PTI, other than transactions
disclosed in the Company SEC Reports (including, without
limitation, the sale of Alascom). For purposes of this Section
2.2.5 a "proposal" may be either written or oral, but must have
included a proposed or suggested price or possible range of
prices and, if made on behalf of a corporation, must have been
made by a
responsible officer or representative of that corporation.
Neither PacifiCorp nor Holdings has any current plan or intent
to sell or otherwise dispose of any material portion of the
stock or assets of PTI, other than transactions disclosed in
the Company SEC Reports (including, without limitation, the
sale of Alascom). The Schedule 13D of PacifiCorp filed in
respect of Holdings' ownership interest in PTI, as amended by
the form of amendment attached hereto as Exhibit B (the "13D
Amendment"), will fully comply with all of the requirements of
such Schedule including, without limitation, Item 4 thereof.
The 13D Amendment will be filed promptly after the execution of
this Agreement.
2.2.6 Financing. Holdings has available to it
the funds necessary to consummate the Merger and the other
transactions contemplated by this Agreement.
ARTICLE III
COVENANTS
3.1 Proxy Materials and Schedule 13E-3. As soon as
practicable after the date hereof, PTI will prepare and,
subject to prior approval by Holdings, file the Proxy Statement
and accompanying
proxy materials in preliminary form, and PTI and PacifiCorp,
Holdings and Merger Sub will prepare and file the Schedule
13E-3 with the SEC pursuant to the Exchange Act. PTI will
provide Holdings and Merger Sub with a reasonable opportunity
to review and approve the Proxy Statement and any amendments or
supplements thereto prior to filing them with the SEC.
Holdings and Merger Sub will provide PTI with a reasonable
opportunity to review and approve the Schedule 13E-3 and any
amendments thereto prior to filing with the SEC. PTI will use
its best efforts to, as soon as is practicable, have the Proxy
Statement cleared by the SEC. PTI, Holdings and Merger Sub
will use their respective best efforts to, as soon as is
practicable, have the Schedule 13E-3 cleared by the SEC. As
soon as is practicable, PTI will distribute to the shareholders
of PTI and file with the SEC the Proxy Statement and
accompanying materials in definitive form and Holdings, Merger
Sub and PTI will file with the SEC the Schedule 13E-3, as
amended. Each party to this Agreement shall, and shall cause
its respective officers, directors and affiliates to, cooperate
fully with each other in responding promptly to any comments of
the SEC in respect of any of the filings made by such persons
with the SEC in connection with the transactions contemplated
by this Agreement.
3.2 Shareholder Approval. PTI will take all action
necessary in accordance with applicable law and its governing
instruments to call, give notice of, convene, and hold the
Shareholder Meeting as promptly as practicable to consider and
vote upon the approvals of this Agreement, the Merger and such
other matters as are required or contemplated by this
Agreement. In order to facilitate the solicitation of Minority
Shareholders at the Shareholder Meeting, PTI shall retain a
proxy solicitation firm of national reputation and reasonably
acceptable to Holdings to assist in the solicitation of proxies
and shall permit Holdings to participate in the solicitation
process. The Special Committee has unanimously recommended to
the Board of Directors of PTI that the Merger is fair to and in
the best interests of the Minority Shareholders. Based upon
the recommendation of the Special Committee, the Board of
Directors of PTI has determined by a unanimous vote (except for
possible abstention by the director who also serves as a
director of PacifiCorp) that this Agreement is advisable and in
the best interests of the Minority Shareholders and recommends,
and subject to their respective fiduciary duties, (i) shall
continue to recommend, to the Minority Shareholders the
adoption and approval of this Agreement and the transactions
contemplated hereby and (ii) shall use their respective best
efforts to obtain the necessary approvals by its shareholders
of this Agreement and the transactions contemplated hereby.
Holdings and Merger Sub have each determined that the
transactions contemplated by this Agreement are fair to the
Minority Shareholders.
3.3 Acquisition Proposals. PTI will not, directly
or indirectly, through any officer, director, agent or
otherwise, solicit, initiate or encourage submission of
proposals or offers from any person (including any of its
officers or employees) relating to any acquisition or purchase
of all or a substantial portion of the assets of, or any equity
interest in, PTI or any of its subsidiaries (other than sales
of assets in the ordinary course of business which, in the
aggregate, do not involve a substantial portion of the assets
of PTI or any of its subsidiaries or sales disclosed in the
Company SEC Reports including, without limitation, the sale of
Alascom) or any business combination with PTI or any of its
subsidiaries, or, subject to fiduciary duties under applicable
law as advised by counsel, participate in any negotiations
regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing.
PTI represents and warrants that, as of the date of this
Agreement, no such negotiations or activities are in process
with respect to the foregoing. PTI shall promptly notify
Holdings if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made.
3.4 Dissenters' Rights. PTI shall not settle or
compromise any claim for dissenters' rights in respect of the
Merger without the prior written consent of Holdings.
3.5 Conduct of Business of PTI. During the period
from the date of this Agreement to the Effective Time, except
as specifically contemplated by this Agreement or as previously
disclosed in the Company SEC Reports or otherwise approved in
writing by Holdings, PTI and its subsidiaries shall not:
(a) conduct their respective businesses except
in the ordinary course of business and consistent with past
practice;
(b) propose or adopt any amendments to its
Articles of Incorporation or Bylaws or make any change in the
Board of Directors of PTI except as may be required to comply
with Section 3.12 of this Agreement;
(c) issue, sell or repurchase, or authorize or
propose the issuance, sale or repurchase of any shares of its
capital stock or any other securities or issue any securities
convertible into or exchangeable for, or options, warrants to
purchase, rights to subscribe for, calls or commitments of any
character whatsoever relating to, or enter into any agreement,
understanding or arrangement with respect to the issuance of,
any of its shares of capital stock or any other securities
(including securities of others), other than pursuant to the
PacifiCorp K Plus and Employee Stock Ownership Plan, or enter
into any agreement, understanding or arrangement with respect
to the purchase or voting of shares of its capital stock, or
adjust, split, combine or reclassify any of its securities, or
make any other changes in its capital structure;
(d) declare, set aside, pay or make any
dividend or other distribution or payment (whether in cash,
stock or property) with respect to, or purchase or redeem, any
shares of the capital stock of PTI, except for regular
quarterly cash dividends of no more than $.33 per share;
(e) take any action with respect to the grant
of any severance or termination pay (otherwise than pursuant to
policies or agreements of PTI or any of its subsidiaries in
effect on the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay
policies in effect on the date hereof; or
(f) except for salary increases or other
employee benefit arrangements made in the ordinary course of
business, adopt or amend any bonus, profit sharing,
compensation, pension, retirement, deferred compensation,
severance, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or
welfare of any employee.
3.6 Access and Information. PTI shall and shall
cause its subsidiaries to give to Holdings and Merger Sub and
their respective representatives full access to all the
premises and books and records of PTI and its subsidiaries and
shall cause its officers and officers of its subsidiaries and
their independent auditors to furnish to such persons such
financial and operating data and other information, including
access to the working papers of its independent auditors, with
respect to its business and properties as Holdings shall from
time to time reasonably request. No investigation pursuant to
this Section 3.6 shall affect or be deemed to modify any
representations or warranties made in this Agreement or the
conditions to the obligations of the parties to consummate the
Merger.
3.7 Certain Filings, Consents and Arrangements.
3.7.1 Consents. Holdings, Merger Sub and PTI
shall use their respective best efforts to obtain any necessary
consents, permits, authorizations, approvals and waivers to
permit the consummation of the transactions contemplated by
this Agreement, provided that PTI shall not, without the
consent of Holdings (which consent shall not be unreasonably
withheld), agree to any amendment to any material instrument or
agreement to which it is a party.
3.7.2 Filings. Holdings, Merger Sub and PTI
shall cooperate with one another (i) in promptly determining
whether any filings are required to be made or consents,
approvals, permits or authorizations are required to be
obtained under any federal, state or foreign law or regulation
or any consents, approvals or waivers are required to be
obtained from other parties to loan agreements or other
agreements or instruments material to PTI's business in
connection with the consummation of the Merger and (ii) in
promptly making any such filings, furnishing information
required in connection therewith and seeking timely to obtain
any such consents, permits, authorizations, approvals or
waivers.
3.8 Indemnification and Insurance.
(a) From and after the Effective Time, the
Surviving Corporation shall maintain, and Holdings agrees to
cause the Surviving Corporation to maintain for a period of at
least six years from the Effective Time for the benefit of
PTI's current directors and officers, (i) director and officer
liability insurance providing at least the same amounts and
coverage with respect to PTI's current directors and officers
as the current policies maintained by or on behalf of PTI, and
containing terms and conditions which are no less advantageous
with respect to matters existing or occurring on or prior to
the Effective Time (or, with respect to matters arising from or
in connection with Section 1.5 hereof, subsequent to the
Effective Time), and in the event any claim is made against
present directors of PTI that is covered, in whole or in part,
or potentially so covered by insurance, the Surviving
Corporation and Holdings shall do nothing that would forfeit,
jeopardize, restrict or limit the insurance coverage available
for that claim until the final disposition of that claim;
provided, however, that if the cost of maintaining such
insurance exceeds the current cost related to providing such
insurance (the "Current Cost") by more than twice the Current
Cost, then the Surviving Corporation shall maintain and
Holdings agrees to cause the Surviving Corporation to maintain
such director and officer liability insurance with the maximum
amount of coverage obtainable at twice such Current Cost, and
(ii) all rights to indemnification now existing in favor of the
present directors and officers of PTI and its respective
subsidiaries as provided in their respective articles of
incorporation or bylaws or otherwise in effect on the date
hereof (other than pursuant to this Agreement) shall survive
the Merger for a period of six years; provided, however, that
all such rights to indemnification with respect to any claim
asserted, made or originated prior to the expiration of such
six-year period shall survive until the final disposition of
such Claim (as hereinafter defined), and that during such
period, the Articles of Incorporation and
Bylaws of the Surviving Corporation shall not be amended to
reduce or limit the rights of indemnity of the present
directors and officers of PTI, or the ability of the Surviving
Corporation to indemnify them, nor to hinder, delay or make
more difficult the exercise of such rights of indemnity or the
ability to indemnify.
(b) Without limiting the foregoing, in any case in
which approval by the Surviving Corporation is required to
effectuate any indemnification under this Section 3.8, Holdings
shall cause the Surviving Corporation to direct, at the
election of the director of PTI seeking indemnification
hereunder, that the determination of any such approval shall be
made by independent counsel acceptable to Holdings selected by
such director of PTI seeking indemnification hereunder.
(c) This Section 3.8 shall survive the consummation
of the Merger. The provisions of this Section 3.8 are intended
to be for the benefit of, and shall be enforceable by the
present directors or officers of PTI, as the case may be. The
rights provided under this Section 3.8 shall be in addition to,
and not in lieu of, any rights to indemnity which any party may
have under the Articles of Incorporation or Bylaws of PTI or
the Surviving Corporation or any other agreements.
(d) An indemnified party under this Section 3.8
shall be free to determine, in such party's sole discretion,
which of the sources of indemnification or insurance available
hereunder that such party desires to pursue without in any
manner waiving any rights against other sources not initially
pursued. In addition, this Section 3.8 is not intended to
release or limit any insurer from the obligations undertaken by
it in any policy of insurance.
3.9 Dividend Policy. During the period from the
date of this Agreement to the Effective Time, Holdings shall
not take any action to cause PTI to make any dividend or other
distribution or payment to Holdings with respect to Holdings
Stock otherwise than in accordance with PTI's existing dividend
policies.
3.10 Notification of Certain Matters. Each of PTI
and Holdings shall give prompt notice to the other of (i) any
claims, actions, proceedings or investigations commenced or, to
the best of its knowledge, threatened, involving or affecting
the notifying party or any of its property or assets, that
relate to the Merger, (ii) the occurrence, or failure to occur,
of any event that would be likely to cause any representation
or warranty of the notifying party contained in this Agreement
to be untrue or inaccurate in any material respect, and (iii)
any material failure of the notifying party or of any officer,
director, employee or agent thereof, to comply with or satisfy
any covenant, condition or agreement to be complied with or
satisfied by it hereunder. No such notification shall affect
the representations or warranties of the parties or the
conditions to the obligations of the parties hereunder.
3.11 Fees and Expenses. All costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses (including, in the case of PTI, the costs of printing
and mailing the Proxy Statement), whether or not the Merger is
consummated.
3.12 Election of Directors. PTI agrees to take all
actions requested by Holdings to cause to be elected to PTI's
Board of Directors at the Shareholder Meeting such additional
directors as may be designated by Holdings.
3.13 Employee Benefits. Holdings agrees to honor,
from and after the Effective Time, in accordance with its terms
as in effect on the date of this Agreement, the Pacific
Telecom, Inc. Executive Officer Severance Plan effective
January 1, 1994.
3.14 Additional Agreements. Subject to the terms and
conditions hereof, each party shall use its best efforts
promptly to take, or cause to be taken, all actions and
promptly to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by
this Agreement.
ARTICLE IV
CONDITIONS
4.1 Conditions to the Obligations of The Parties.
The respective obligations of PTI, Holdings, and Merger Sub to
consummate the transactions contemplated by this Agreement are
subject to the satisfaction or waiver at or before the Closing
of each of the following conditions:
4.1.1 Shareholder Approval. This Agreement and
the Merger shall have been duly adopted and approved (A) by the
affirmative vote of the holders of at least a majority of the
Minority Stock and (B) by the requisite vote of the
shareholders of PTI in accordance with applicable law and its
Articles of Incorporation and Bylaws.
4.1.2 No Injunction. The consummation of the
Merger shall not be precluded by any order or injunction of a
court of competent jurisdiction (each party agreeing to use its
best efforts to have any such order reversed or injunction
lifted), and there shall not have been any action taken or any
statute, rule or regulation enacted, promulgated or deemed
applicable to the Merger by any government or governmental or
other regulatory agency, domestic or foreign, that makes
consummation of the Merger illegal.
4.2 Conditions to Obligation of PTI. The obligation
of PTI to consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver at or before
the Closing of the following additional conditions:
4.2.1 Representations, Warranties, and
Covenants. The representations and warranties of Holdings and
Merger Sub, including, without limitation, those relating to
PacifiCorp, contained in this Agreement shall be correct in all
material respects (a) at the date of this Agreement, and (b) on
and as of the Closing Date with the same effect as though made
on and as of such date, Holdings and Merger Sub shall have
performed in all material respects all of their respective
covenants and obligations hereunder theretofore to be
performed, and PTI shall have received at the Closing
certificates to that effect, dated the Closing Date, and
executed on behalf of Holdings by an executive officer of
Holdings and on behalf of Merger Sub by an executive officer of
Merger Sub.
4.2.2 PacifiCorp Agreement. PacifiCorp shall
have entered into the PacifiCorp Agreement, the representations
and warranties of PacifiCorp contained in the PacifiCorp
Agreement shall be correct in all material respects (a) at the
date of the PacifiCorp Agreement and (b) on and as of the
Closing Date with the same effect as though made on and as of
such date, and PacifiCorp shall have performed in all material
respects all of its covenants and obligations under the
PacifiCorp Agreement theretofore to be performed and PTI shall
have received at the Closing a certificate to that effect,
dated the Closing Date, and executed on behalf of PacifiCorp by
an executive officer of PacifiCorp.
4.2.3 No Injunction. No governmental action or
proceeding shall have been commenced that (a) in the opinion of
the Special Committee's counsel is more likely than not to be
successful and (b) seeks an injunction, a restraining order or
any other order seeking to prohibit, restrain, invalidate or
set aside the consummation of the Merger.
4.2.4 Fairness Opinions. Neither of the
Fairness Opinions shall have been modified withdrawn or revoked
as of the time of the mailing of the Proxy Statement to the
shareholders of PTI.
4.2.5 Consents and Approvals. All consents,
approvals, permits and authorizations required to be obtained
from governmental and regulatory authorities in connection with
the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby by PTI
shall have been obtained, except where the failure to obtain
such consents, approvals, permits and authorizations would not
have a
material adverse effect on the business, operations, financial
condition or prospects of PTI and its subsidiaries, taken as a
whole.
4.3 Conditions to Obligations of Holdings and Merger
Sub. The obligations of Holdings and Merger Sub to consummate
the transactions contemplated by this Agreement are subject to
the satisfaction or waiver at or before the Closing of the
following additional conditions:
4.3.1 Representations, Warranties, and
Covenants. The representations and warranties of PTI contained
in this Agreement shall be correct in all material respects (a)
at the date of this Agreement, and (b) as of the Closing with
the same effect as though made on and as of such date, except
for changes specifically contemplated by this Agreement, and
PTI shall have performed in all material respects all of its
respective covenants and obligations hereunder theretofore to
be performed, and Holdings and Merger Sub shall have received
at the Closing certificates to that effect, dated the Closing
Date, and executed on behalf of PTI by an executive officer of
PTI.
4.3.2 No Injunction. No governmental action or
proceeding shall have been commenced that (a) in the opinion of
Holding's counsel is more likely than not to be successful, and
(b) seeks an injunction, a restraining order or any other order
seeking to prohibit, restrain, invalidate or set aside
consummation of the Merger.
4.3.3 Material Adverse Change. Except as
disclosed in the Company SEC Reports or as otherwise disclosed
to a responsible officer of Holdings or PacifiCorp on or before
the date hereof, since September 30, 1994, there shall not have
been any change or event that has resulted in, or may result
in, any material adverse change in the business, operations,
properties, assets, liabilities or condition (financial or
otherwise) of PTI and its subsidiaries, taken as a whole.
4.3.4 Consents and Approvals. All consents,
approvals, permits and authorizations required to be obtained
from governmental and regulatory authorities in connection with
the execution and delivery of this Agreement and the
consummation of
the transactions contemplated hereby by Holdings shall have
been obtained, except where the failure to obtain such
consents, approvals, permits and authorizations would not have
a material adverse effect on the business, operations,
financial condition or prospects of Holdings and its
subsidiaries, taken as a whole.
ARTICLE V
TERMINATION
5.1 Termination. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the
Effective Time, whether before or after the Shareholder
Meeting:
5.1.1 Mutual Consent. By the mutual consent of
the Boards of Directors of Holdings and PTI;
5.1.2 Failure of Merger to Occur by Certain
Date. By either PTI or Holdings if the Effective Time shall
not have occurred on or before September 30, 1995, which date
may be extended by the mutual consent of the Boards of
Directors of Holdings and PTI; provided, however, that the
right to terminate this Agreement under this Section 5.1.2
shall not be available to a party whose failure (or whose
subsidiary's or parent corporation's failure) to fulfill any
obligation under this Agreement has been a significant cause
of, or in any significant respect resulted in, the failure of
the Effective Time to occur on or before September 30, 1995 or,
in the event of an extension by the mutual agreement of
Holdings and PTI, by such later date;
5.1.3 Actions Restraining the Merger. By
either Holdings or PTI if any court of competent jurisdiction
in the United States or other United States governmental body
shall have issued an order, decree or ruling or taken any other
action restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action shall
have become final and nonappealable;
5.1.4 Failure of Shareholders to Approve. By
either Holdings or PTI if the shareholders of PTI fail to duly
adopt and approve this Agreement and the Merger as contemplated
by Section 4.1.1;
5.1.5 By PTI. By PTI if (A) there is a
material breach of any of the representations and warranties of
PacifiCorp, Holdings or Merger Sub or (B) PacifiCorp, Holdings
or Merger Sub fail to comply in any material respect with any
of their respective covenants or agreements, in each case as
contained herein or in the PacifiCorp Agreement; or
5.1.6 By Holdings. By Holdings or Merger Sub
if (A) the Special Committee or the Board of Directors upon the
recommendation of the Special Committee shall have withdrawn or
modified in any manner adverse to Holdings or Merger Sub its
approval or recommendation of this Agreement or the Merger, or
(B) there is a material breach of any of the representations
and warranties of PTI or (C) PTI fails to comply in any
material respect with any of its covenants or agreements
contained herein.
5.2 Effect of Termination. Except as set forth
below in this Section 5.2 and as provided in Section 6.1, upon
the termination of this Agreement pursuant to Section 5.1, this
Agreement shall forthwith become null and void and no party to
this Agreement shall have any liability or further obligation
to the other party by reason of this Agreement, other than for
damages to the extent arising from a prior breach of this
Agreement.
ARTICLE VI
MISCELLANEOUS AND GENERAL
6.1 Survival of Representations, Warranties and
Agreements. The representations and warranties in this
Agreement shall terminate at the Effective Time or upon the
termination of this Agreement pursuant to Section 5.1, as the
case may be. The covenants and agreements contained in this
Agreement shall survive the Effective Time and shall continue
until they terminate in accordance with their terms. The
covenants and agreements contained in Sections 3.11, 5.2 and
this Section 6.1 shall survive termination of this Agreement in
accordance with their terms.
6.2 Waiver and Amendment. Any provision of this
Agreement may be waived at any time by the party that is, or
whose shareholders are, entitled to the benefits thereof.
Except for the provisions hereof relating to indemnification
and insurance as set forth in Section 3.8, this Agreement may
be amended or supplemented at any time, except that after
approval hereof by the shareholders of PTI, no amendment shall
be made which decreases the Merger Consideration, changes the
form of the Merger Consideration or that in any other way
materially adversely affects the rights of the Minority
Shareholders (other than a termination of this Agreement)
without the further approval of the Minority Shareholders. No
such waiver, amendment or supplement shall be effective unless
in writing and signed by the party or parties intended to be
bound thereby.
6.3 Entire Agreement. This Agreement (a) contains
the entire agreement among Holdings, Merger Sub and PTI with
respect to the Merger and the other transactions contemplated
hereby, and supersedes all prior agreements among the parties
with respect to such matters, and (b) is not intended to confer
upon any other persons any rights or remedies hereunder, except
as specifically provided for herein.
6.4 Headings. The descriptive headings contained
herein are for convenience and reference only and shall not
affect in any way the meaning or interpretation of this
Agreement.
6.5 Notices. All notices or other communications
hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
person, by cable, telegram, telex or other standard form of
telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested addressed as follows:
If to PTI: With copies to:
Pacific Telecom, Inc. Latham & Watkins
Attention: Special Committee Attention: John J. Huber
of the Board of Directors 1001 Pennsylvania Ave., NW
c/o James H. Huesgen Suite 1300
805 Broadway Washington, D.C. 20004-2505
Vancouver, WA 98660
If to Holdings or Merger Sub: With a copy to:
PacifiCorp Holdings, Inc. Stoel Rives Boley Jones & Grey
Attention: Richard T. O'Brien Attention: Henry H. Hewitt
700 NE Multnomah 900 SW Fifth Avenue
Suite 1600 Suite 2300
Portland, Oregon 97232 Portland, Oregon 97204
or to such other address as any party may have furnished to the
other parties in writing in accordance herewith.
6.6 Parties in Interest; Assignment. This Agreement
is binding upon and is solely for the benefit of the parties
and their respective successors, legal representatives and
assigns except that Sections 3.8 and 3.13 shall be for the
express benefit of the persons in the categories referred to
therein. Holdings shall have the right to assign to one or
more direct or indirect wholly owned subsidiaries of Holdings
any and all rights and obligations of Merger Sub under this
Agreement, including without limitation, the right to
substitute in Merger Sub's place such a subsidiary as one of
the
constituent corporations in the Merger (if such subsidiary
assumes all of the obligations of Merger Sub in connection with
the Merger). If Holdings exercises its right to so restructure
the transaction, PTI shall promptly enter into appropriate
agreements to reflect such restructuring. In any such event
the amounts to be paid to holders of Minority Stock shall not
be reduced, nor shall there be any material delay of the
Effective Time.
6.7 Specific Performance. The parties agree that
irreparable damage would occur if any of the provisions of this
Agreement are not performed in accordance with their specific
terms or are otherwise breached. It is agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the
terms and provisions hereof in any court of the United States
or any state having jurisdiction, in addition to any other
remedy to which any party is entitled at law or in equity.
6.8 Public Statements. The parties agree to consult
with each other prior to issuing any public announcement or
statement with respect to the Merger, if practicable. As soon
as is practicable following execution of this Agreement, the
parties will issue a joint press release announcing the
execution of this Agreement, which press release will be in the
form of Exhibit C hereto.
6.9 Counterparts. For the convenience of the
parties hereto, this Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an
original instrument, and all such counterparts shall together
constitute the same agreement.
6.10 Choice of Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of
Washington regardless of the laws that might otherwise govern
under applicable principles of conflicts of law.
(Signature pages to follow)
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of the
parties hereto as of the date first hereinabove written.
PACIFIC TELECOM, INC.
By CHARLES E. ROBINSON
----------------------------------
Title: Chief Executive Officer
PACIFICORP HOLDINGS, INC.
By RICHARD T. O'BRIEN
-----------------------------
Title: Senior Vice President
PXYZ CORPORATION
By RICHARD T. O'BRIEN
-----------------------------
Title: President
EXHIBITS TO THE
AGREEMENT AND PLAN OF MERGER
Exhibit Description (Section Reference)
A. Form of PacifiCorp Agreement (Recital F and
Section 4.2.2)
B. Form of Amendment to Schedule 13D to be filed by
PacifiCorp (Section 2.2.5)
C. Form of Joint Press Release (Section 6.8)
EXHIBIT A
AGREEMENT
This Agreement is dated as of March 9, 1995 between
PacifiCorp, an Oregon corporation ("PacifiCorp"), and Pacific
Telecom, Inc., a Washington corporation ("PTI").
RECITALS
A. PacifiCorp owns all of the issued and outstanding
capital stock of PacifiCorp Holdings, Inc., a Delaware
corporation ("Holdings"). On the date hereof, PTI, PXYZ
Corporation, a Washington corporation ("Merger Sub"), and
Holdings are entering into an Agreement and Plan of Merger (the
"Agreement and Plan of Merger") dated the date hereof and
providing, among other things, for the merger of Merger Sub
with and into PTI (the "Merger"). PTI has indicated that it
will not enter into the Agreement and Plan of Merger unless PTI
and PacifiCorp enter into this Agreement at the same time.
PacifiCorp is entering into this Agreement with PTI expressly
for the purpose of inducing PTI to enter into the Agreement and
Plan of Merger. Immediately following the Merger, Holdings
will own all of the issued and outstanding capital stock of
PTI.
B. PacifiCorp believes that it is in the best interests
of PacifiCorp and its shareholders to consummate the Merger.
AGREEMENT
In consideration of the execution by Company of the
Agreement and Plan of Merger and of the mutual covenants and
agreements set forth herein, PacifiCorp and PTI agree as
follows:
1. Defined Terms. Capitalized terms used herein
shall have the meanings assigned to them in the Agreement and
Plan of Merger unless otherwise defined herein.
2. Certain Representations.
(a) Organization and Good Standing. PacifiCorp
is a corporation duly organized and validly existing under the
laws of the State of Oregon. PacifiCorp has all requisite
corporate power and authority to own and operate its properties
and to carry on its business as now being conducted.
(b) Corporate Authority. PacifiCorp has full
corporate power and authority to execute and deliver this
Agreement and to undertake the obligations provided for herein.
The execution, delivery and performance of this Agreement by
PacifiCorp have been duly authorized by all requisite corporate
action and no further corporate proceedings on the part of
PacifiCorp are necessary to authorize this Agreement or to
undertake the obligations provided for herein. This Agreement
has been duly and validly executed and delivered by PacifiCorp
and constitutes a valid and binding agreement of PacifiCorp,
enforceable in accordance with its terms, except as enforcement
may be affected by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and except that the
availability of the equitable remedies of specific performance
and equitable relief are subject to the discretion of the court
before which any such proceeding may be brought.
(c) Proxy Statement and Schedule 13E-3. None
of the information supplied or to be supplied by PacifiCorp for
inclusion in the Schedule 13E-3 or the Proxy Statement and any
amendments thereof or supplements thereto will, on the
respective dates such materials are filed with the SEC, at the
time of the mailing of such Proxy Statement or any amendment or
supplement thereto to shareholders of PTI, at the time of the
Shareholder Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. If
at any time prior to the Effective Time any event with respect
to PacifiCorp or any of its officers, directors or affiliates
should occur which is required to be described in an amendment
of, or a supplement to, the Proxy Statement or the Schedule
13E-3, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the shareholders of PTI. The
Schedule 13E-3 will comply (with respect to PacifiCorp and its
officers, directors and affiliates) in all material respects,
as to form, with the applicable requirements of each of the
Exchange Act and the respective rules and regulations
thereunder.
(d) Required Approvals and Consents. Except
for compliance with the applicable requirements of the Exchange
Act and the securities laws of the various states, no filing
with, and no permit, authorization, consent or approval of, any
public body is necessary for the execution and delivery by
PacifiCorp of this Agreement or the consummation by PacifiCorp
of the transactions contemplated by this Agreement.
(e) Prior Offers; No Present Intent to Sell.
Since January 1, 1993, to the best knowledge of PacifiCorp,
after due inquiry, PacifiCorp has not received any "proposal"
or offer to purchase, or solicited any proposal or offer to
purchase, any material portion of the stock or assets of PTI,
other than transactions disclosed in Company SEC Reports
(including, without limitation, the sale of Alascom). For
purposes of this Section 2(e) a "proposal" may be either
written or oral, but must have included a proposed or suggested
price or possible range of prices and, if made on behalf of a
corporation, must have been made by a responsible officer or
representative of that corporation. PacifiCorp has no current
plan or intent to sell or otherwise dispose of any material
portion of the stock or assets of PTI, other than transactions
disclosed in Company SEC Reports (including, without
limitation, the sale of Alascom). The Schedule 13D of
PacifiCorp filed in respect of Holdings' ownership interest in
PTI, as amended by the 13D Amendment, fully complies with all
of the requirements of such Schedule, including, without
limitation, Item 4 thereof. The 13D Amendment will be filed
promptly after execution of this Agreement.
3. Proxy Materials and Schedule 13E-3. PacifiCorp
will cooperate fully with Holdings, Merger Sub and PTI in
preparing and filing the Schedule 13E-3 and in obtaining SEC
clearance of the Schedule 13E-3 as contemplated by Section 3.1
of the Agreement and Plan of Merger. PacifiCorp will cause its
officers and directors to cooperate fully with PTI in
responding promptly to any comments of the SEC in regard of any
of the filings made by such persons with the SEC in connection
with the transactions contemplated by this Agreement or the
Agreement and Plan of Merger.
4. Fairness of the Merger. PacifiCorp has
determined that the transactions contemplated by this Agreement
and the Agreement and Plan of Merger are fair to the Minority
Shareholders.
5. Certain Filings, Consents and Arrangements.
5.1 Consents. PacifiCorp shall use its best
efforts to obtain any necessary consents, permits,
authorizations, approvals and waivers required to be obtained
by it to permit the consummation of the transactions
contemplated by the Agreement and Plan of Merger.
5.2 Filings. PacifiCorp shall promptly
determine whether any filings are required to be made by it or
consents, approvals, permits or authorizations are required to
be obtained by it under any federal, state or foreign law or
regulation or any consents, approvals or waivers are required
to be obtained from other parties to loan agreements or other
agreements or instruments material to PacifiCorp's business in
connection with the consummation of the Merger and will
promptly make any such filings, furnish information required in
connection therewith and seek timely to obtain any such
consents, permits, authorizations, approvals or waivers.
6. Dividend Policy. During the period from the
date of this Agreement to the Effective Time, PacifiCorp shall
not take any action to cause PTI to make any dividend or other
distribution or payment to Holdings with respect to Holdings
Stock otherwise than in accordance with PTI's existing dividend
policies.
7. Indemnification. From and after the Effective
Time, PacifiCorp shall (to the extent specified in the
following sentence) indemnify, defend and hold harmless each
person who is now a director or officer of PTI against all
losses, claims, damages, costs, expenses or liabilities, or in
connection with any claim, action, suit, proceeding or
investigation (a "Claim"), arising out of the fact that such
person is a director or officer of PTI (or out of any action
taken by any such person on behalf of PTI), pertaining to any
matter existing or occurring on or prior to the Effective Time
(or, with respect to matters arising from or in connection with
Section 1.5 of the Agreement and Plan of Merger, subsequent to
the Effective Time) (including, without limitation, the
transactions contemplated by the Agreement and Plan of Merger),
whether asserted or claimed prior to, or on or after, the
Effective Time. In each case such indemnification shall be to
the full extent a corporation is permitted under Washington law
to indemnify its own directors and officers (and PacifiCorp
will pay expenses in advance of the final disposition of any
such action or proceeding to each such director of PTI seeking
indemnification hereunder to the full extent permitted by law).
8. Notification of Certain Matters. Each of
PacifiCorp and PTI shall give prompt notice to the other of (i)
any claims, actions, proceedings or investigations commenced
or, to the best of its knowledge, threatened, involving or
affecting the notifying party or any of its property or assets,
that relate to the Merger, (ii) the occurrence, or failure to
occur, of any event that would be likely to cause any
representation or warranty of the notifying party contained in
this Agreement or the Agreement and Plan of Merger to be untrue
or inaccurate in any material respect, and (iii) any material
failure of the notifying party or of any officer, director,
employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or
satisfied by it hereunder or under the Agreement and Plan of
Merger. No such notification shall affect the representations
or warranties of the parties or the conditions to the
obligations of the parties hereunder or under the Agreement and
Plan of Merger. Any notice properly given by PTI to Holdings
in compliance with the Agreement and Plan of Merger shall also
constitute notice of such matter to PacifiCorp hereunder.
9. Fees and Expenses. All costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such
expenses, whether or not the Merger is consummated.
10. Public Announcements. PacifiCorp agrees to
consult with PTI prior to issuing any public announcement or
statement with respect to the Merger, if practicable.
11. Assignment. This Agreement shall be binding
upon and is solely for the benefit of the parties and their
respective successors, legal representatives and assigns, and
is not intended to confer any benefit on any third party except
that Section 7 shall be for the express benefit of the persons
in the categories referred to therein. The rights under this
Agreement shall not be assigned by either party without the
prior written consent of the other.
12. Governing Law. This Agreement shall be governed
by the laws of the State of Washington applicable to contracts
made and to be performed therein.
13. Entire Agreement. This Agreement (a) contains
the entire agreement between PacifiCorp and PTI with respect to
the transactions contemplated by the Agreement and Plan of
Merger, and (b) supersedes all prior agreements between the
parties with respect to such matters.
14. Notices. All notices or other communications
hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in
person, by cable, telegram, telex or other standard form of
telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested addressed as follows:
If to PTI: With copies to:
Pacific Telecom, Inc. Latham & Watkins
Attention: Special Committee Attention: John J. Huber
of the Board of Directors 1001 Pennsylvania Ave., NW
c/o James H. Huesgen Suite 1300
805 Broadway Washington, D.C. 20004-2505
Vancouver, WA 98660
If to Holdings or Merger Sub: With a copy to:
PacifiCorp Holdings, Inc. Stoel Rives Boley Jones & Grey
Attention: Richard T. O'Brien Attention: Henry H. Hewitt
700 NE Multnomah 900 SW Fifth Avenue
Suite 1600 Suite 2300
Portland, Oregon 97232 Portland, Oregon 97204
or to such other address as any party may have furnished to the
other parties in writing in accordance herewith.
15. Specific Performance. The parties agree that
irreparable damage would occur if any of the provisions of this
Agreement are not performed in accordance with their specific
terms or are otherwise breached. It is agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the
terms and provisions hereof in any court of the United States
or any state having jurisdiction, in addition to any other
remedy to which any party is entitled at law or in equity.
16. Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed to
be an original, and such counterparts shall together constitute
but one and the same instrument.
(Signature pages to follow)
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first above
written.
PACIFICORP
By: FREDERICK W. BUCKMAN
---------------------------------
Title: Chief Executive Officer
PACIFIC TELECOM, INC.
By: CHARLES E. ROBINSON
---------------------------------
Title: Chief Executive Officer
EXHIBIT B
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 18)*
PACIFIC TELECOM, INC.
- -------------------------------------------------------------
(Name of Issuer)
Common Stock (no par value)
- -------------------------------------------------------------
(Title of Class of Securities)
694876 10 3
------------------------------
(CUSIP Number)
Richard T. O'Brien
PacifiCorp
700 NE Multnomah, Suite 1600
Portland, oregon 97232-4116
Telephone: (503) 731-2133
- -------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
March 9, 1995
------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of
this Schedule 13D, and is filing this schedule because of
Rule 13d-1(b)(3) or (4), check the following box / /.
Check the following box if a fee is being paid with the statement
/ /. (A fee is not required only if the reporting person:
(1) has a previous statement on file reporting beneficial
ownership of more than five percent of the class of securities
described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less
of such class.) (See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a
reporting person's initial filing on this form with respect to
the subject class of securities, and for any subsequent amendment
containing information which would alter the disclosures provided
in a prior cover page.
The information required on the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18
of the Securities Exchange Act of 1934 ("Act") or otherwise
subject to the liabilities of that section of the Act but shall
be subject to all other provisions of the Act (however, see the
Notes).
SCHEDULE 13D
CUSIP No. 694876 10 3
- -------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PacifiCorp Holdings, Inc. (formerly Inner PacifiCorp, Inc.)
93-0866672
- -------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) / /
- -------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------
4 SOURCE OF FUNDS*
BK
- -------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
- -------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH:
7 SOLE VOTING POWER
0
- -------------------------------------------------------------
8 SHARED VOTING POWER
34,325,181
- -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
- -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
34,325,181
- -------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
34,325,181
- -------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
- -------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
86.6%
- -------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- -------------------------------------------------------------
SCHEDULE 13D
CUSIP No. 694876 10 3
- -------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PacifiCorp 93-0246090
- -------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) / /
- -------------------------------------------------------------
3 SEC USE ONLY
- -------------------------------------------------------------
4 SOURCE OF FUNDS*
Not Applicable
- -------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e)
/ /
- -------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Oregon
- -------------------------------------------------------------
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
WITH
7 SOLE VOTING POWER
0
- -------------------------------------------------------------
8 SHARED VOTING POWER
34,325,181
- -------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0
- -------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
34,325,181
- -------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
34,325,181
- -------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES*
/ /
- -------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
86.6%
- -------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- -------------------------------------------------------------
PACIFICORP HOLDINGS, INC.
-------------------------
AMENDMENT NO. 18 TO
SCHEDULE 13D
------------
Item 1. Security and Issuer.
- ------ -------------------
PacifiCorp Holdings, Inc. (formerly Inner PacifiCorp,
Inc.), a Delaware corporation ("PacifiCorp Holdings"), amends its
statement on Schedule 13D (as previously amended, "Statement")
pertaining to the Common Stock, no par value ("Common Stock"),
of Pacific Telecom, Inc., a Washington corporation ("PTI"). This
Amendment No. 18 ("Amendment") amends the Statement to report the
transactions contemplated by that certain Agreement and Plan of
Merger dated as of March 9, 1995 (the "Merger Agreement"), by and
among PacifiCorp Holdings, PTI and PXYZ Corporation, a Washington
corporation and a wholly owned subsidiary of PacifiCorp Holdings
("Merger Sub"), pursuant to which PacifiCorp Holdings intends to
acquire the minority interest of PTI. PacifiCorp, an Oregon
corporation ("PacifiCorp"), which owns 100 percent of the
outstanding voting securities of PacifiCorp Holdings, joins in
this filing.
Item 2. Identity and Background.
- ------ -----------------------
PacifiCorp Holdings owns approximately 86.6% of PTI, 100%
of PacifiCorp Financial Services, Inc. ("PFS") and 100% of
Pacific Generation Company ("PGC"). These ownership interests
are the primary assets of PacifiCorp Holdings. PTI, through its
subsidiaries, provides local telephone service and access to the
long distance network in Alaska, seven other western states and
three midwestern states, provides intrastate and interstate long
distance communication services in Alaska, provides cellular
mobile telephone services and is engaged in sales of capacity in
and operation of a submarine fiber-optic cable between the U.S.
and Japan. PFS plans to continue sales of portions of its loan,
leasing and real estate investments over the next several years.
PGC is engaged in the independent power production and
cogeneration business.
PacifiCorp Holdings is a wholly owned subsidiary of
PacifiCorp, an electric utility that conducts a retail electric
utility business through Pacific Power & Light Company ("Pacific
Power") and Utah Power & Light Company ("Utah Power"), and
engages in power production and sales on a wholesale basis under
the name PacifiCorp. The Company furnishes electric service in
portions of seven western states: California, Idaho, Montana,
Oregon, Utah, Washington and Wyoming. The principal executive
offices of PacifiCorp and PacifiCorp Holdings are located at 700
NE Multnomah, Suite 1600, Portland, Oregon 97232-4116.
For a current list of the executive officers and
directors of PacifiCorp Holdings and PacifiCorp, along with the
other information required to be furnished with respect to such
executive officers and directors under this Item 2, see
Exhibit 1, which is incorporated herein by reference.
Neither PacifiCorp Holdings nor PacifiCorp has been,
during the last five years, (i) convicted in a criminal
proceeding (excluding traffic violations or similar
misdemeanors), or (ii) a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction which
resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to,
federal or state securities laws or finding any violation with
respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
- ------ -------------------------------------------------
PacifiCorp Holdings currently plans to finance the
proposed acquisition by borrowing some or all of the required
funds under the $500,000,000 Credit Agreement (the "Credit
Agreement") dated September 30, 1993 among PacifiCorp Holdings,
the banks listed therein, Bank of America National Trust and
Savings Association, as Co-Agent and Morgan Guaranty Trust
Company of New York, as Agent, a copy of which was filed as an
exhibit to Amendment No. 17 to the Statement. PacifiCorp
Holdings will need to obtain an amendment of certain borrowing
restrictions in the Credit Agreement to complete the transaction.
However, PacifiCorp Holdings is planning to replace the Credit
Agreement with a new credit facility that does not include those
restrictions.
Item 4. Purpose of Transaction.
- ------ ----------------------
The Merger Agreement, which is more fully described in
Item 6 of this Amendment, contemplates the merger (the "Merger")
of Merger Sub with and into PTI, with PTI as the corporation
surviving the Merger. In the Merger, each share of outstanding
Common Stock owned by PacifiCorp Holdings will be cancelled and
each share of Common Stock owned by shareholders other than
PacifiCorp Holdings will be converted into the right to receive
a cash payment of $30.00. Each outstanding share of the capital
stock of Merger Sub will be converted into one share of Common
Stock. As a result of the Merger, PTI would become a wholly
owned subsidiary of PacifiCorp Holdings.
The Merger Agreement includes an agreement by PTI to take
all actions requested by PacifiCorp Holdings to cause such
additional directors as may be designated by PacifiCorp Holdings
to be elected at the shareholder meeting at which the Merger will
be submitted to a vote of PTI's shareholders. The provision
reflects the current intention of PacifiCorp Holdings, regardless
of the outcome of the vote on the Merger, to increase the size
of the Board and to elect at the meeting an as yet undetermined
number of additional directors designated by PacifiCorp Holdings.
Consummation of the Merger will cause the Common Stock
to cease to be quoted on NASDAQ and will result in termination
of registration of the Common Stock under Section 12 of the
Exchange Act.
Item 5. Interest in Securities of the Issuer.
- ------ ------------------------------------
The information set forth below amends and restates the
information included under Item 5 of the Statement:
(a) - (b) The aggregate number of shares of Common Stock
beneficially owned by the persons named in response to Item 2,
and the number of shares of Common Stock with respect to which
there is sole power to vote or to direct the vote, shared power
to vote or to direct the vote, sole power to dispose or to direct
the disposition, or shared power to dispose or to direct the
disposition, are set forth on Exhibit 2, which is incorporated
herein by reference. Except as described in Exhibit 2, neither
PacifiCorp Holdings, PacifiCorp, nor, to the knowledge of
PacifiCorp Holdings or PacifiCorp, any director or officer of
either of them is the beneficial owner of any Common Stock.
(c) Information regarding transactions in shares of
Common Stock within the past 60 days by the persons named in
response to Item 2 is set forth on Exhibit 2. Except as
described in Exhibit 2, neither PacifiCorp Holdings, PacifiCorp
nor, to the knowledge of PacifiCorp Holdings, any director or
officer of either of them has bought or sold or otherwise
effected any transactions in shares of the Common Stock during
the past 60 days.
(d) - (e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships
- ------ -----------------------------------------------------
with Respect to Securities of the Issuer.
----------------------------------------
The Merger Agreement is attached hereto as Exhibit 3 and
incorporated herein by reference. As described above, the Merger
will have the effect of an acquisition by PacifiCorp Holdings of
all of the outstanding Common Stock currently owned by the
minority shareholders for a purchase price of $30.00 per share
in cash.
The Merger Agreement contains representations, warranties
and covenants customary in transactions of similar size and type,
including a covenant obligating PTI to conduct its business in
the ordinary course and consistent with past practice prior to
consummation of the Merger and not to take, or permit its
subsidiaries to take, certain actions, including amendment of
their respective articles of incorporation or bylaws or the
issuance of any securities (other than issuances by PTI of Common
Stock pursuant to the PacifiCorp K Plus and Employee Stock
Ownership Plan). The Merger Agreement also contains a covenant
of PacifiCorp Holdings with respect to indemnification of PTI's
directors and officers.
The Merger Agreement contains a number of closing
conditions, including (i) approval of the Merger by the
affirmative vote of the holders of at least a majority of the
outstanding shares held by shareholders other than PacifiCorp
Holdings, (ii) accuracy of certain representations and warranties
and compliance with the covenants in the Merger Agreement and
(iii) other conditions customary in transactions of similar size
and type. In addition, the obligations of PacifiCorp Holdings
and Merger Sub are conditioned upon the absence of any material
adverse change affecting the business or properties of PTI and
its subsidiaries. The obligations of PTI are also conditioned
upon (i) no withdrawal, modification or revocation of the
fairness opinions rendered to the Special Committee of PTI's
Board of Directors, and (ii) the accuracy of representations and
compliance with covenants contained in an agreement dated as of
March 9, 1995 between PacifiCorp and PTI (the "PacifiCorp
Agreement") pursuant to which PacifiCorp has agreed to, among
other things, cooperate with PacifiCorp Holdings in making
certain filings required under the Securities Exchange Act of
1934 with respect to the Merger and to provide indemnification
for certain matters to present directors and officers of PTI.
The PacifiCorp Agreement is attached hereto as Exhibit 4 and
incorporated herein by reference.
The Merger will close on the date when the last of the
required conditions to closing has been satisfied or waived, or
at such other time as may be agreed to by the parties.
Item 7. Material to be Filed as Exhibits.
- ------ --------------------------------
Exhibit 1, Directors and officers of corporations named
in Item 2.
Exhibit 2, Interests in Securities of PTI.
Exhibit 3, Agreement and Plan of Merger dated as of
March 9, 1995 by and among Pacific Telecom, Inc.,
PacifiCorp Holdings, Inc. and PXYZ Corporation.
Exhibit 4, Agreement dated as of March 9, 1995 between
PacifiCorp and Pacific Telecom, Inc.
After reasonable inquiry and to the best of my knowledge
and belief, I certify that the information set forth in this
statement is true, complete and correct.
DATED this 9th day of March, 1995.
PACIFICORP HOLDINGS, INC.
By RICHARD T. O'BRIEN
------------------------------
Richard T. O'Brien
Senior Vice President
Attention: Intentional misstatements or omissions of fact
constitute Federal criminal violations (See 18 U.S.C. 1001).
------------------------------------------------------------
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
1. Directors and Executive Officers of
Corporations named in Item 2.
2. Interests in Securities of
Pacific Telecom, Inc.
3. Agreement and Plan of Merger dated
as of March 9, 1995 by and among
Pacific Telecom, Inc., PacifiCorp
Holdings, Inc. and PXYZ Corporation.
4. Agreement dated as of March 9, 1995
between PacifiCorp and Pacific
Telecom, Inc.
EXHIBIT 1
DIRECTORS AND EXECUTIVE OFFICERS
OF PACIFICORP HOLDINGS, INC. and PACIFICORP
(Note: footnote (*) appears at end of this Exhibit 1)
The directors and executive officers of PacifiCorp
Holdings, Inc. and PacifiCorp are as follows:
<TABLE>
PacifiCorp Holdings, Inc.
-------------------------
<CAPTION>
Name Title Principal Occupation
<S> <C> <C>
Frederick W. Buckman Director President and Chief Executive
Officer of PacifiCorp*
C. Todd Conover Director General Manager, Finance
Industry Group, Tandem
Computers Incorporated, 19191
Vallco Parkway, LOC 4-57,
Cupertino, California 95014
A.M. Gleason Director Vice Chairman of Board of
Directors of PacifiCorp*
Michael C. Henderson Director and President Director and President of
PacifiCorp Holdings, Inc.*;
Director & President of PacifiCorp
Financial Services, Inc.*, a
financial services company with
offices at 825 NE Multnomah,
Suite 775, Portland, Oregon 97232
Nolan E. Karras Director Owner of Investment Management
& Research, Inc., an investment
advisory firm with offices at 4695
South 1900 West #3, Roy, Utah
84067
Richard T. O'Brien Senior Vice President Vice President of PacifiCorp*;
Senior Vice President of
PacifiCorp Holdings, Inc.*
Daniel L. Spalding Senior Vice President Senior Vice President of
PacifiCorp*; Senior Vice President
of PacifiCorp Holdings, Inc.*
William E. Peressini Treasurer Treasurer of PacifiCorp*;
Treasurer of PacifiCorp Holdings,
Inc.*
Sally A. Nofziger Secretary Vice President and Corporate
Secretary of PacifiCorp*;
Secretary of PacifiCorp Holdings,
Inc.*
Jacqueline S. Bell Controller Controller of PacifiCorp*;
Controller of PacifiCorp Holdings,
Inc.*
</TABLE>
All of the directors and executive officers of Pacific
Holdings, Inc. are U.S. citizens. The business address of each
individual listed above is the address shown for the
individual's principal occupation. None of the individuals
listed has been, during the last five years, (i) convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction which
resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation
with respect to such laws.
<TABLE>
PacifiCorp
----------
<CAPTION>
Name Title Principal Occupation
<S> <C> <C>
Kathryn A. Braun Director Executive Vice President, Western
Digital Corporation, 8105 Irvine
Center Drive, Irvine, CA 92718
Frederick W. Buckman Member of Corporate President and Chief Executive
Policy Group, Director Officer of PacifiCorp*
and President & Chief
Executive Officer
C. Todd Conover Director General Manager, Finance
Industry Group, Tandem
Computers Incorporated, 19191
Vallco Parkway, LOC 4-57,
Cupertino, California 95014
Richard C. Edgley Director Member of Presiding Bishopric,
The Church of Jesus Christ of
Latter-day Saints, 50 East North
Temple, 18th Floor, Salt Lake
City, Utah 84150
A.M. Gleason Director and Vice Vice Chairman of the Board of
Chairman of the Board PacifiCorp*
John C. Hampton Director Chairman and Chief Executive
Officer of Hampton Resources,
Inc., a forest products company
with offices at Suite 400, 9400 SW
Barnes Rd., Portland, Oregon
97225
Nolan E. Karras Director Owner of Investment Management
& Research, Inc., an investment
advisory firm with offices at 4695
South 1900 West #3, Roy, Utah
84067
Keith R. McKennon Director and Chairman Chairman of the Board of
of the Board of Directors PacifiCorp*
Robert G. Miller Director Chairman of the Board and Chief
Executive Officer of Fred Meyer,
Inc., a retail merchandising chain,
with offices at 3800 SE 22nd,
Portland, Oregon 97202
Verl R. Topham Director, Senior Vice Senior Vice President and
President and General General Counsel of PacifiCorp*
Counsel of PacifiCorp
Don M. Wheeler Director Chairman and Chief Executive
Officer, Wheeler Machinery
Company, an equipment sales,
repair and service firm with
offices at 4901 West 2100 South,
Salt Lake City, Utah 84120
Nancy Wilgenbusch Director President, Marylhurst College,
Marylhurst, Oregon, 97036
Paul G. Lorenzini Member of Corporate Senior Vice President of
Policy Group and Senior PacifiCorp*
Vice President of PacifiCorp
Charles E. Robinson Member of Corporate Chairman, President and Chief
Policy Group Executive Officer of Pacific
Telecom, Inc., a
telecommunications holding
company with offices at 805
Broadway, P.O. Box 9901,
Vancouver, Washington 98668
John A. Bohling Senior Vice President Senior Vice President of
PacifiCorp*
Shelley R. Faigle Senior Vice President Senior Vice President of
PacifiCorp*
John E. Mooney Senior Vice President Senior Vice President of
PacifiCorp*
Daniel L. Spalding Senior Vice President Senior Vice President of
PacifiCorp*; Senior Vice President
of PacifiCorp Holdings, Inc.*
Dennis P. Steinberg Senior Vice President Senior Vice President of
PacifiCorp*
Thomas J. Imeson Vice President Vice President of PacifiCorp*
Robert F. Lanz Vice President Vice President of PacifiCorp*
Sally A. Nofziger Vice President & Vice President and Corporate
Corporate Secretary Secretary of PacifiCorp*;
Secretary of PacifiCorp Holdings,
Inc.*
Richard T. O'Brien Vice President Vice President of PacifiCorp*;
Senior Vice President of
PacifiCorp Holdings, Inc.*
William E. Peressini Treasurer Treasurer of PacifiCorp*;
Treasurer of PacifiCorp Holdings,
Inc.*
Jacqueline S. Bell Controller Controller of PacifiCorp*;
Controller of PacifiCorp Holdings,
Inc.*
</TABLE>
All of the directors and executive officers of
PacifiCorp are U.S. citizens. The business address of each
individual listed above is the address shown for the
individual's principal occupation. None of the individuals
listed has been, during the last five years, (i) convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction which
resulted in a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation
with respect to such laws.
* The principal business and address of the corporation or
other organization for which the listed individual's principal
occupation is conducted is set forth at the first place at
which the name of such corporation or other organization
appears in this Exhibit 1.
EXHIBIT 2
INTERESTS IN SECURITIES OF
PACIFIC TELECOM, INC.
The beneficial ownership interests of PacifiCorp Holdings,
PacifiCorp and the directors and officers of each of them as of
December 31, 1994 are described below. The percentages are
calculated on the basis of 39,619,623 shares of Common Stock
outstanding as of December 31, 1994.
<TABLE>
PacifiCorp Holdings, Inc.
-------------------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 0 0%
or Direct the Vote
Shared Power to Vote 34,325,181 86.6%
or Direct the Vote
Sole Power to Dispose or 0 0%
to Direct the Disposition
Shared Power to Dispose or 34,325,181 86.6%
to Direct the Disposal
Total Beneficially Owned 34,325,181 86.6%
PacifiCorp Holdings has not bought or sold or otherwise effected any transactions in shares of
Common Stock during the past 60 days.
</TABLE>
<TABLE>
PacifiCorp
----------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 0 0%
or Direct the Vote
Shared Power to Vote 34,325,181 86.6%
or Direct the Vote
Sole Power to Dispose or 0 0%
to Direct the Disposition
Shared Power to Dispose or 34,325,181 86.6%
to Direct the Disposal
Total Beneficially Owned 34,325,181 86.6%
PacifiCorp has not bought or sold or otherwise effected any
transactions in shares of Common Stock during the past 60 days.
</TABLE>
<TABLE>
A.M. Gleason
------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 38,954.0523 *
or Direct the Vote
Shared Power to Vote 5,450** *
or Direct the Vote
Sole Power to Dispose or 38,954.0523 *
to Direct the Disposition
Shared Power to Dispose or 5,450** *
to Direct the Disposal
Total Beneficially Owned 44,404.0523** *
Mr. Gleason is a participant in the PacifiCorp K Plus Employee Savings and Stock Ownership
Plan ("K Plus Plan") and, pursuant to an election in effect since January 3, 1990, he has directed
that a portion of his elective contributions be invested in the Pacific Telecom, Inc. Common Stock
fund (the "PTI Stock Fund"). The Trustee of the K Plus Plan has acquired shares of Pacific
Telecom Common Stock with funds invested in the PTI Stock Fund within the past 60 days,
172.4667 of which were allocated to Mr. Gleason's account effective as of March 6, 1995. Mr.
Gleason has not bought or sold or otherwise effected any other transactions in shares of Common
Stock during the past 60 days.
<FN>
__________________
* Less than 1 percent
**Includes 2,739 shares held by Mr. Gleason's wife as to which Mr. Gleason disclaims
beneficial ownership.
</TABLE>
<TABLE>
Robert F. Lanz
--------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 2,228.8471 *
or Direct the Vote
Shared Power to Vote 0 0%
or Direct the Vote
Sole Power to Dispose or 2,228.8471 *
to Direct the Disposition
Shared Power to Dispose or 0 0%
to Direct the Disposal
Total Beneficially Owned 2,228.8471 *
Mr. Lanz is a participant in the K Plus Plan and, pursuant to an election in effect since
February 15, 1994, he has directed that a portion of his elective contributions be invested in the
PTI Stock Fund. The Trustee of the K Plus Plan has acquired shares of Pacific Telecom
Common Stock with funds invested in the PTI Stock Fund within the past 60 days, 17.5682 of
which were allocated to Mr. Lanz's account effective as of March 6, 1995. Mr. Lanz has not
bought or sold or otherwise effected any other transactions in shares of Common Stock during the
past 60 days.
<FN>
__________________
* Less than 1 percent
</TABLE>
<TABLE>
Charles E. Robinson
-------------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 72,166.3071 *
or Direct the Vote
Shared Power to Vote 0 0%
or Direct the Vote
Sole Power to Dispose or 72,166.3071 *
to Direct the Disposition
Shared Power to Dispose or 0 0%
to Direct the Disposal
Total Beneficially Owned 72,166.3071 *
Mr. Robinson is a participant in the K Plus Plan and, pursuant to an election in effect since
January 3, 1990, he has directed that a portion of his elective contributions be invested in the PTI
Stock Fund. The Trustee of the K Plus Plan has acquired shares of Pacific Telecom Common
Stock with funds invested in the PTI Stock Fund within the past 60 days, 166.3223 of which were
allocated to Mr. Robinson's account effective as of March 6, 1995. In February 1995, Mr.
Robinson received a grant of 6,600 shares of restricted stock pursuant to the Pacific Telecom
Long-Term Incentive Plan 1994 Restatement, which shares are scheduled to vest over a four-year
period commencing February 15, 1996. Mr. Robinson has not bought or sold or otherwise
effected any other transactions in shares of Common Stock during the past 60 days.
<FN>
__________________
* Less than 1 percent
</TABLE>
<TABLE>
Nancy Wilgenbusch
-----------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 2,711 *
or Direct the Vote
Shared Power to Vote 0 0%
or Direct the Vote
Sole Power to Dispose or 2,711 *
to Direct the Disposition
Shared Power to Dispose or 0 0%
to Direct the Disposal
Total Beneficially Owned 2,711 *
Dr. Wilgenbusch has not bought or sold or otherwise effected any transactions in shares of
Common Stock during the past 60 days.
<FN>
__________________
* Less than 1 percent
</TABLE>
<TABLE>
Thomas J. Imeson
----------------
<CAPTION>
Nature of Number of Percent of Total Number
Ownership Shares of Outstanding Shares
- --------- --------- -----------------------
<S> <C> <C>
Sole Power to Vote 287.2779 *
or Direct the Vote
Shared Power to Vote 0 0%
or Direct the Vote
Sole Power to Dispose or 287.2779 *
to Direct the Disposition
Shared Power to Dispose or 0 0%
to Direct the Disposal
Total Beneficially Owned 287.2779 *
Mr. Imeson has not bought or sold or otherwise effected any transactions in shares of Common
Stock during the past 60 days.
<FN>
__________________
* Less than 1 percent
</TABLE>
EXHIBIT C
Chris Hunter: (503) 731-2090
Scott Hibbs: (503) 731-2123
FOR IMMEDIATE RELEASE..BUSINESS & FINANCIAL EDITORS..March 9,
1995
PACIFICORP AND PACIFIC TELECOM, INC. ANNOUNCE DEFINITIVE MERGER
AGREEMENT FOR A $30.00 PER SHARE ACQUISITION
Portland, Oregon, March 9, 1995 -- PacifiCorp
(NYSE: "PPW") and Pacific Telecom, Inc. (Nasdaq National
Market: "PTCM") jointly announced today a definitive merger
agreement pursuant to which PacifiCorp Holdings, Inc., a
wholly-owned subsidiary of PacifiCorp, will acquire the
outstanding shares of Pacific Telecom not owned by it for
$30.00 per share in cash.
Under the terms of the agreement, a newly-formed,
wholly-owned subsidiary of PacifiCorp Holdings, Inc. will be
merged with and into Pacific Telecom and the holders of the
approximately 5.3 million shares of common stock of Pacific
Telecom not held by PacifiCorp Holdings, Inc. would receive
$30.00 in cash in exchange for each share of Pacific Telecom
common stock. As a result of the merger, Pacific Telecom 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. Additional information relating to the
merger, to be considered at Pacific Telecom's annual meeting,
the date of which has not yet been determined, will be set
forth in a proxy statement which
must be submitted to the Securities and Exchange Commission
before being mailed to shareholders.
PacifiCorp Holdings, Inc. presently owns
approximately 87% of the outstanding shares of Pacific Telecom.
On November 1, 1994, it proposed to acquire the shares not
owned by it for $28 per share in cash. Promptly thereafter,
Pacific Telecom formed a Special Committee of independent
directors to receive, study, negotiate and make recommendations
to the Board of Directors of Pacific Telecom regarding that
proposal. The merger announced today has been unanimously
approved by the Board of Directors of Pacific Telecom as fair
to, and in the best interests of, Pacific Telecom'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. The Board of Directors of
PacifiCorp has received a fairness opinion from Salomon
Brothers Inc to the effect that the consideration to be paid to
minority shareholders is fair, from a financial point of view,
to PacifiCorp.
EXHIBIT B
TITLE 23B. WASHINGTON BUSINESS CORPORATION ACT
CHAPTER 23B.13. DISSENTERS' RIGHTS
23B.13.010. Definitions
As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(2) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under RCW 23B.13.020 and who
exercises that right when and in the manner required by RCW
23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the effective
date of the corporate action to which the dissenter objects,
excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of
the corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
(5) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted
by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder.
23B.13.020. Right to dissent
(1) A shareholder is entitled to dissent from, and obtain
payment of the fair value of the shareholder's shares in the
event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required
for the merger by RCW 23B.11.030, 23B.11.080, or the articles
of incorporation and the shareholder is entitled to vote on the
merger, or (ii) if the corporation is a subsidiary that is
merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other
than in the usual and regular course of business, if the
shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan
by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year
after the date of sale;
(d) An amendment of the articles of incorporation that
materially reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share so
created is to be acquired for cash under RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or a
resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(2) A shareholder entitled to dissent and obtain payment
for the shareholder's shares under this chapter may not
challenge the corporate action creating the shareholder's
entitlement unless the action fails to comply with the
procedural requirements imposed by this title, RCW 25.10.900
through 25.10.955, the articles of incorporation, or the
bylaws, or is fraudulent with respect to the shareholder or the
corporation.
(3) The right of a dissenting shareholder to obtain
payment of the fair value of the shareholder's shares shall
terminate upon the occurrence of any one of the following
events:
(a) The proposed corporate action is abandoned or
rescinded;
(b) A court having jurisdiction permanently enjoins or
sets aside the corporate action; or
(c) The shareholder's demand for payment is withdrawn with
the written consent of the corporation.
23B.13.030. Dissent by nominees and beneficial owners
(1) A record shareholder may assert dissenters' rights as
to fewer than all the shares registered in the shareholder's
name only if the shareholder dissents with respect to all
shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each person
on whose behalf the shareholder asserts dissenters' rights.
The rights of a partial dissenter under this subsection are
determined as if the shares as to which the dissenter dissents
and the dissenter's other shares were registered in the names
of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights
as to shares held on the beneficial shareholder's behalf only
if:
(a) The beneficial shareholder submits to the corporation
the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts
dissenters' rights; and
(b) The beneficial shareholder does so with respect to all
shares of which such shareholder is the beneficial shareholder
or over which such shareholder has power to direct the vote.
23B.13.200. Notice of dissenters' rights
(1) If proposed corporate action creating dissenters'
rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters'
rights under this chapter and be accompanied by a copy of this
chapter.
(2) If corporate action creating dissenters' rights under
RCW 23B.13.020 is taken without a vote of shareholders, the
corporation, within ten days after [the] effective date of such
corporate action, shall notify in writing all shareholders
entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in RCW
23B.13.220.
23B.13.210. Notice of intent to demand payment
(1) If proposed corporate action creating dissenters'
rights under RCW 23B.13.020 is submitted to a vote at a
shareholders' meeting, a shareholder who wishes to assert
dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to
demand payment for the shareholder's shares if the proposed
action is effected, and (b) not vote such shares in favor of
the proposed action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section is not entitled to payment for
the shareholder's shares under this chapter.
23B.13.220. Dissenters' notice
(1) If proposed corporate action creating dissenters'
rights under RCW 23B.13.020 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of
RCW 23B.13.210.
(2) The dissenters' notice must be sent within ten days
after the effective date of the corporate action, and must:
(a) State where the payment demand must be sent and where
and when certificates for certificated shares must be
deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action and requires that
the person asserting dissenters' rights certify whether or not
the person acquired beneficial ownership of the shares before
that date;
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor
more than sixty days after the date the notice in subsection
(1) of this section is delivered; and
(e) Be accompanied by a copy of this chapter.
23B.13.230. Duty to demand payment
(1) A shareholder sent a dissenters' notice described in
RCW 23B.13.220 must demand payment, certify whether the
shareholder acquired beneficial ownership of the shares before
the date required to be set forth in the dissenters' notice
pursuant to RCW 23B.13.220(2)(c), and deposit the shareholder's
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the
shareholder's share certificates under subsection (1) of this
section retains all other rights of a shareholder until the
proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit
the shareholder's share certificates where required, each by
the date set in the dissenters' notice, is not entitled to
payment for the shareholder's shares under this chapter.
23B.13.240. Share restrictions
(1) The corporation may restrict the transfer of
uncertificated shares from the date the demand for their
payment is received until the proposed corporate action is
effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as
to uncertificated shares retains all other rights of a
shareholder until the effective date of the proposed corporate
action.
23B.13.250. Payment
(1) Except as provided in RCW 23B.13.270, within thirty
days of the later of the effective date of the proposed
corporate action, or the date the payment demand is received,
the corporation shall pay each dissenter who complied with RCW
23B.13.230 the amount the corporation estimates to be the fair
value of the shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date
of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(b) An explanation of how the corporation estimated the
fair value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment
under RCW 23B.13.280; and
(e) A copy of this chapter.
23B.13.260. Failure to take action
(1) If the corporation does not effect the proposed action
within sixty days after the date set for demanding payment and
depositing share certificates, the corporation shall return the
deposited certificates and release any transfer restrictions
imposed on uncertificated shares.
(2) If after returning deposited certificates and
releasing transfer restrictions, the corporation wishes to
undertake the proposed action, it must send a new dissenters'
notice under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270. After-acquired shares
(1) A corporation may elect to withhold payment required
by RCW 23B.13.250 from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to
news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold
payment under subsection (1) of this section, after taking the
proposed corporate action, it shall estimate the fair value of
the shares, plus accrued interest, and shall pay this amount to
each dissenter who agrees to accept it in full satisfaction of
the dissenter's demand. The corporation shall send with its
offer an explanation of how it estimated the fair value of the
shares, an explanation of how the interest was calculated, and
a statement of the dissenter's right to demand payment under
RCW 23B.13.280.
23B.13.280. Procedure if shareholder dissatisfied with payment
or offer
(1) A dissenter may notify the corporation in writing of
the dissenter's own estimate of the fair value of the
dissenter's shares and amount of interest due, and demand
payment of the dissenter's estimate, less any payment under RCW
23B.13.250, or reject the corporation's offer under RCW
23B.13.270 and demand payment of the dissenter's estimate of
the fair value of the dissenter's shares and interest due, if:
(a) The dissenter believes that the amount paid under RCW
23B.13.250 or offered under RCW 23B.13.270 is less than the
fair value of the dissenter's shares or that the interest due
is incorrectly calculated;
(b) The corporation fails to make payment under RCW
23B.13.250 within sixty days after the date set for demanding
payment; or
(c) The corporation does not effect the proposed action
and does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
sixty days after the date set for demanding payment.
(2) A dissenter waives the right to demand payment under
this section unless the dissenter notifies the corporation of
the dissenter's demand in writing under subsection (1) of this
section within thirty days after the corporation made or
offered payment for the dissenter's shares.
23B.13.300. Court action
(1) If a demand for payment under RCW 23B.13.280 remains
unsettled, the corporation shall commence a proceeding within
sixty days after receiving the payment demand and petition the
court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding
within the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the
superior court of the county where a corporation's principal
office, or, if none in this state, its registered office, is
located. If the corporation is a foreign corporation without a
registered office in this state, it shall commence the
proceeding in the county in this state where the registered
office of the domestic corporation merged with or whose shares
were acquired by the foreign corporation was located.
(3) The corporation shall make all dissenters, whether or
not residents of this state, whose demands remain unsettled,
parties to the proceeding as in an action against their shares
and all parties must be served with a copy of the petition.
Nonresidents may be served by registered or certified mail or
by publication as provided by law.
(4) The corporation may join as a party to the proceeding
any shareholder who claims to be a dissenter but who has not,
in the opinion of the corporation, complied with the provisions
of this chapter. If the court determines that such shareholder
has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding
is commenced under subsection (2) of this section is plenary
and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to
it. The dissenters are entitled to the same discovery rights
as parties in other civil proceedings.
(6) Each dissenter made a party to the proceeding is
entitled to judgment (a) for the amount, if any, by which the
court finds the fair value of the dissenter's shares, plus
interest, exceeds the amount paid by the corporation, or (b)
for the fair value, plus accrued interest, of the dissenter's
after- acquired shares for which the corporation elected to
withhold payment under RCW 23B.13.270.
23B.13.310. Court costs and counsel fees
(1) The court in a proceeding commenced under RCW
23B.13.300 shall determine all costs of the proceeding,
including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess
the costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the
court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of RCW 23B.13.200
through 23B.13.280; or
(b) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect to
the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for
any dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services should
not be assessed against the corporation, the court may award to
these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
Exhibit C
SMITH BARNEY INC.
March 9, 1995
The Special Committee of the Board of Directors
Pacific Telecom, Inc.
805 Broadway
Vancouver, WA 98668
Members of the Special Committee:
You have requested our opinion as to the fairness, from a
financial point of view, of the consideration to be received by
the holders of the common stock of Pacific Telecom, Inc. ("PTI"
or the "Company"), other than PacifiCorp and its affiliates
("PacifiCorp"), including but not limited to PacifiCorp
Holdings, Inc. ("PHI") (the holders of common stock of PTI,
other than PacifiCorp, are hereinafter collectively referred to
as the "PTI Minority Shareholders"), of the terms of the
Agreement and Plan of Merger, dated March 9, 1995 by and among
PTI, PHI, and PXYZ Corporation (together with the exhibits
thereto, including the Agreement dated March 9, 1995 between
PacifiCorp and the Company, the "Merger Agreement"). As more
fully described in the Merger Agreement, and subject to the
terms and conditions specified therein, PXYZ Corporation shall
be merged with and into PTI (the "Merger") and each outstanding
share of PTI common stock, other than shares held by PHI, shall
be converted into the right to receive $30.00 in cash (the
"Merger Consideration"), subject to dissenters appraisal
rights.
In arriving at our opinion, we reviewed the Merger
Agreement and held discussions with certain senior officers,
directors and other representatives and advisors of PTI
concerning the business, operations and prospects of PTI. We
participated in discussions and negotiations among
representatives of PTI and PHI and their financial and legal
advisors. We examined certain publicly available business and
financial information relating to PTI and PacifiCorp as well as
certain financial forecasts and other data for PTI which were
provided to us by the senior management of PTI. We reviewed
the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things, the Company's
historical and projected earnings and the capitalization and
financial condition of PTI. We also considered, to the extent
publicly available, the financial terms of certain other
transactions which we deemed comparable to the Merger and
analyzed certain financial and other publicly available
information relating to the businesses of other companies whose
operations we considered comparable to PTI. In addition, we
conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed
necessary to arrive at our opinion.
In rendering our opinion, we have assumed and relied,
without independent verification, upon the accuracy and
completeness of all financial and other information publicly
available or furnished to or otherwise discussed with us. With
respect to financial forecasts and other information provided
to or otherwise discussed with us, we have been informed by the
management of PTI that such forecasts and other information
were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of PTI as
to the expected future financial performance of PTI. We have
not made or been provided with an independent valuation or
appraisal of the assets or liabilities (contingent or
otherwise) of PTI. We were not asked to, and did not, solicit
acquisition proposals from any third parties. Our opinion is
necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to us as of
the date hereof.
Smith Barney has been engaged to render financial advisory
services to PTI in connection with the Merger and will receive
a fee for our services, a significant portion of which is
contingent upon the delivery of this opinion. We have in the
past provided financial advisory and investment banking
services to PTI and have received fees for the rendering of
such services. We have also provided certain investment
banking services to PacifiCorp related to the underwriting of
certain debt and equity securities and have received fees for
the rendering of such services. In addition, we and our
affiliates (including The Travelers Inc. and its affiliates)
may maintain business relationships with PTI, PacifiCorp and
their affiliates.
Our advisory services, and the opinion expressed herein,
are provided solely for the use of the Special Committee in its
evaluation of the proposed Merger and are not on behalf of, and
are not intended to confer rights or remedies upon, PacifiCorp,
any stockholder of PTI or PacifiCorp, or any person other than
PTI's Special Committee. Our opinion may not be published or
otherwise used or referred to, nor shall any public reference
to Smith Barney be made, without our prior written consent.
This opinion is not intended to be and shall not be deemed to
be a recommendation to any PTI Minority Shareholder to vote in
favor of the Merger.
Based upon and subject to the foregoing, our experience as
investment bankers, our work as described above and other
factors we deemed relevant, we are of the opinion that, as of
the date hereof, the Merger Consideration is fair from a
financial point of view to the PTI Minority Shareholders.
Very truly yours,
SMITH BARNEY INC.
Exhibit D
CS FIRST BOSTON
March 9, 1995
Special Committee of the Board of Directors
Pacific Telecom, Inc.
805 Broadway
P.O. Box 9901
Vancouver, WA 98668-8701
Dear Members of the Special Committee:
You have asked us to advise you with respect to the
fairness to the stockholders of Pacific Telecom, Inc. (the
"Company"), other than PacifiCorp Holdings, Inc. (together with
its affiliates other than the Company, the "Acquiror"), from a
financial point of view of the consideration to be received by
such stockholders pursuant to the terms of the Agreement and
Plan of Merger dated as of March 9, 1995 by and among
PacifiCorp Holdings, Inc., PXYZ Corporation and the Company
(together with the exhibits thereto, including the Agreement
dated March 9, 1995, between PacifiCorp and the Company, the
"Merger Agreement"). The Merger Agreement provides for the
merger (the "Merger") of a newly-formed, wholly-owned
subsidiary of the Acquiror with and into the Company. In the
Merger, the Company will become a wholly-owned subsidiary of
the Acquiror and each outstanding share of Common Stock not
held by the Acquiror will be converted into the right to
receive $30.00 in cash (the "Merger Consideration"), subject to
dissenters' appraisal rights. The Merger is conditioned upon,
among other things, the affirmative vote of the holders of at
least a majority of the shares of Common Stock not held by the
Acquiror.
In arriving at our opinion, we have reviewed the Merger
Agreement and certain publicly available business and financial
information relating to the Company. We have also reviewed
certain other information, including financial forecasts,
provided to us by the Company and have met with the Company's
management to discuss the business and prospects of the
Company.
We have also considered certain financial and stock market
data of the Company, and we have compared that data with
similar data for other publicly held companies in businesses
similar to those of the Company and we have considered the
financial terms of certain other business combinations and
other transactions which have recently been effected. We also
considered such other information, financial studies, analyses
and investigations and financial, economic and market criteria
which we deemed relevant.
In connection with our review, we have not assumed any
responsibility for independent verification of any of the
foregoing information and have relied on its being complete and
accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's management
as to the future financial performance of the Company. In
addition, we have not made an independent evaluation or
appraisal of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any
such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as
they exist and can be evaluated on the date hereof.
We have been engaged by the Special Committee to render a
fairness opinion in connection with the proposed Merger and
will receive a fee for our services, a significant portion of
which fee is contingent upon the delivery of this opinion.
In the past, we have performed certain investment banking
services for the Company and have received customary fees for
such services.
In the ordinary course of our business, CS First Boston
and its affiliates may actively trade the debt and equity
securities of both the Company and the Acquiror for their own
accounts and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information
of the Special Committee only in connection with its
consideration of the Merger, does not constitute a
recommendation to any stockholder as to how such stockholder
should vote on the proposed Merger and is not to be quoted or
referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other
document used in connection with the offering or sale of
securities, nor shall this letter be used for any other
purposes, without CS First Boston's prior written consent.
Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the Merger Consideration to be
received by the stockholders of the Company in the Merger is
fair to such stockholders, other than the Acquiror, from a
financial point of view.
Very truly yours,
CS FIRST BOSTON CORPORATION
CS FIRST BOSTON CORPORATION
EXHIBIT E
Salomon Brothers Inc
March 9, 1995
Board of Directors
PacifiCorp
700 N.E. Multnomah
Suite 1600
Portland, Oregon 97232-4116
To the Board of Directors:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to PacifiCorp (the
"Company") of the consideration per share to be paid to the
minority shareholders of Pacific Telecom, Inc. ("PTI") in
connection with the proposed merger (the "Merger") of PT Merger
Corporation, an indirect wholly owned subsidiary of the Company
("Sub"), into PTI, as contemplated by the Merger Agreement to
be dated as of March 9, 1995 (the "Merger Agreement"), among
PacifiCorp Holdings, Inc., a direct wholly owned subsidiary of
the Company, Sub and PTI. Pursuant to the Merger, those shares
of common stock of PTI owned by the minority shareholders of
PTI will be canceled and converted into the right to receive
$30 per share in cash.
In arriving at our opinion, we have reviewed the draft Merger
Agreement and draft of the related schedule provided to us and
assumed that the definitive Merger Agreement and related
schedule will not differ in any material respect from such
drafts. We also have reviewed certain publicly available
business and financial information relating to PTI, as well as
certain other information, including financial projections
prepared by PTI, provided to us by the Company. We have
discussed the past and current operations and financial
condition and prospects of PTI with its senior management and
senior management of the Company. We have considered certain
publicly available information with respect to other companies
and businesses that we believe to be comparable to PTI and
publicly available information with respect to transactions
involving the sale of other companies or businesses that we
believe to be relevant to our analysis. We have also
considered such other information, financial studies, analyses,
investigations and financial, economic, market and trading
criteria which we deemed relevant.
In our review and analysis and in arriving at our opinion, we
have assumed and relied on the accuracy and completeness of the
information reviewed by us for the purpose of this opinion and
we have not assumed any responsibility for independent
verification of such information or for any independent
evaluation or appraisal of the assets of PTI. We have also
taken into account our assessment of general economic, market
and financial conditions, as well as our experience in
connection with similar transactions. With respect to the
financial projections, we have assumed that they have been
reasonably prepared on bases reflecting the best currently
available estimates and judgments of PTI's management as to the
future financial performance of PTI and we express no opinion
with respect to such forecasts or the assumptions on which they
are based. Our opinion is necessarily based solely upon
information available to us and business, market, economic and
other conditions as they exist on, and can be evaluated as of,
the date of this letter and does not address the underlying
business decision of the Company to effect the Merger or
constitute a recommendation to any holder of shares of PTI as
to how such holder should vote with respect to the Merger.
We have acted as financial advisor to the Board of Directors of
the Company in connection with the Merger and will receive a
fee for our services. As you are aware, in the ordinary course
of our business, Salomon Brothers Inc trades the outstanding
debt and/or equity securities of the Company and certain of its
affiliates (including PTI) for our own account and for the
accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon
Brothers Inc has previously rendered certain investment banking
and financial advisory services to the Company and certain of
its affiliates (including PTI) for which we have received
customary compensation.
It is understood that this letter is for the information of the
Board of Directors of the Company only and is not to be quoted
or referred to, in whole or in part, in any registration
statement, prospectus, offering memorandum or proxy statement,
or in any other document used in connection with the offering
or sale of securities, nor shall this letter be used for any
other purposes, without the prior written consent of Salomon
Brothers Inc.
Based upon and subject to the foregoing, it is our opinion
that, as of the date hereof, the consideration per share to be
paid to the minority shareholders of PTI in connection with the
proposed Merger is fair to the Company from a financial point
of view.
Very truly yours,
SALOMON BROTHERS INC
