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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. 4
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 BOLEY JONES & GREY 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
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$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
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PAGE 1 OF 12 PAGES. EXHIBIT INDEX ON PAGE 11.
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INTRODUCTORY STATEMENT
This Amendment No. 4 to the Transaction Statement on Schedule 13E-3 (this
"Amendment No. 4") 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 and Amendment
No. 3 filed on August 4, 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. 4 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"), to be held on
September 27, 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
definitive proxy statement of Pacific Telecom (the "Definitive 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 Definitive
Proxy Statement without reference to the Form of Proxy, Letter to Shareholders
or Notice of Meeting. The information in the Definitive 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 Definitive
Proxy Statement referred to and the response to each Item being qualified in its
entirety by the provisions of the Definitive 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.
(f) See "Certain Transactions in PTI Common Stock."
2
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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. 4.
(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."
3
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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.
4
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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
5
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EXHIBIT NUMBER DESCRIPTION
-------------- -----------
*(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) Definitive Proxy Statement dated August 24,
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
6
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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 24, 1995
PACIFIC TELECOM, INC.
By /s/ James H. Huesgen
----------------------------------
James H. Huesgen
Executive Vice President
and Chief Financial
Officer
7
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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 24, 1995
PACIFICORP HOLDINGS, INC.
By /s/ Richard T. O'Brien
----------------------------------
Richard T. O'Brien
Senior Vice President
8
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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 24, 1995
PXYZ CORPORATION
By /s/ Richard T. O'Brien
----------------------------------
Richard T. O'Brien
President
9
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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 24, 1995
PACIFICORP
By /s/ Richard T. O'Brien
----------------------------------
Richard T. O'Brien
Senior Vice President and
Chief Financial Officer
10
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EXHIBIT INDEX
Sequentially
Numbered
Exhibit 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
11
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Sequentially
Numbered
Exhibit No. Description Page
------------ ----------- ------------
*(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) Definitive Proxy Statement dated August 24, 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
12
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PACIFIC TELECOM, INC.
805 BROADWAY
VANCOUVER, WASHINGTON 98668
AUGUST 24, 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 27, 1995 at The Red Lion Hotel, Jantzen Beach, 909 North Hayden
Island Drive, Portland, Oregon, commencing at 10:00 a.m. 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
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PACIFIC TELECOM, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 27, 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 The Red Lion Hotel,
Jantzen Beach, 909 North Hayden Island Drive, Portland, Oregon at 10:00 a.m.,
Pacific Time on September 27, 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 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 $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.
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
1
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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 24, 1995
2
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PACIFIC TELECOM, INC.
805 BROADWAY
VANCOUVER, WASHINGTON 98668
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 27, 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 27, 1995 at 10:00 a.m.,
Pacific Time, at The Red Lion Hotel, Jantzen Beach, 909 North Hayden Island
Drive, Portland, Oregon. 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.
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 22, 1995, the high and low sales prices for PTI Common Stock as
reported on the Nasdaq National Market were 29 7/8 and 29 3/4, respectively, and
the last reported sale price was 29 7/8 per share.
The approximate date on which this Proxy Statement and the accompanying
proxy are first being mailed to shareholders is August 24, 1995.
THE DATE OF THIS PROXY STATEMENT IS AUGUST 24, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
SUMMARY.................................................................................................... 1
MEETING INFORMATION........................................................................................ 7
Introduction............................................................................................. 7
Matters To Be Considered at the Meeting.................................................................. 7
Voting Information....................................................................................... 7
Solicitation, Revocation and Use of Proxies.............................................................. 7
SPECIAL FACTORS............................................................................................ 8
Background of the Merger................................................................................. 8
Recommendations of the Board of Directors of Pacific Telecom and the Special Committee................... 22
Opinions of Smith Barney and CS First Boston............................................................. 25
Opinion of Smith Barney................................................................................ 25
Opinion of CS First Boston............................................................................. 32
Reasons of PacifiCorp and Holdings for the Merger........................................................ 36
Opinion of Financial Advisor to PacifiCorp............................................................... 37
Certain Effects of the Merger............................................................................ 44
Conduct of Business After the Merger..................................................................... 44
Conduct of Business if the Merger Is Not Consummated..................................................... 44
Regulatory Approvals..................................................................................... 45
Interests of Certain Persons in the Merger; Conflicts of Interest........................................ 45
Rights of Dissenting Shareholders........................................................................ 45
Certain Federal Income Tax Consequences of the Merger.................................................... 47
Financing the Merger..................................................................................... 48
Expenses of the Transaction.............................................................................. 49
SELECTED FINANCIAL DATA; PRO FORMA FINANCIAL INFORMATION................................................... 50
CERTAIN FINANCIAL FORECASTS................................................................................ 54
THE MERGER AGREEMENT....................................................................................... 61
General.................................................................................................. 61
Effective Time........................................................................................... 62
Conversion of Shares; Surrender of Stock Certificates; Payment for Shares................................ 62
Representations and Warranties........................................................................... 63
General................................................................................................ 63
Offers, Proposals and Intention To Sell................................................................ 63
Covenants................................................................................................ 63
Indemnification of Officers and Directors................................................................ 64
Conditions to the Merger................................................................................. 65
Waiver, Amendment and Termination........................................................................ 66
Fees and Expenses........................................................................................ 66
MARKET PRICE AND DIVIDEND INFORMATION FOR PTI COMMON STOCK................................................. 66
ELECTION OF DIRECTORS...................................................................................... 68
Information as to Nominees for Directors................................................................. 68
Information with Respect to Meetings and Committees...................................................... 69
Director Compensation.................................................................................... 69
EXECUTIVE COMPENSATION..................................................................................... 71
Summary Compensation Table............................................................................... 71
Severance Arrangements................................................................................... 71
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Retirement Plans......................................................................................... 72
Personnel Committee Report on Executive Compensation..................................................... 73
Overview............................................................................................... 73
Compensation Program Components........................................................................ 73
CEO Compensation....................................................................................... 75
Performance Graph........................................................................................ 76
CERTAIN TRANSACTIONS WITH MANAGEMENT AND OTHERS............................................................ 77
CERTAIN TRANSACTIONS IN PTI COMMON STOCK................................................................... 77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 79
INFORMATION CONCERNING HOLDINGS AND PACIFICORP AND THEIR DIRECTORS AND EXECUTIVE OFFICERS.................. 80
INDEPENDENT AUDITORS....................................................................................... 84
OTHER MATTERS.............................................................................................. 84
SHAREHOLDER PROPOSALS...................................................................................... 84
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934....................................... 84
AVAILABLE INFORMATION...................................................................................... 85
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 85
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
</TABLE>
ii
<PAGE>
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 27, 1995 at 10:00 a.m., Pacific Time, at The Red Lion Hotel, Jantzen
Beach, 909 North Hayden Island Drive, Portland, Oregon. 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 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 terms of the Merger Agreement
are 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
1
<PAGE>
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."
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
2
<PAGE>
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
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'
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
3
<PAGE>
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."
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."
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<PAGE>
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 then
pending sale of Alascom, Inc, which closed on August 7, 1995. 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)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
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
</TABLE>
------------------------------
(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.
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<PAGE>
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 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 22, 1995, the high and low sales prices for PTI Common
Stock as reported on the Nasdaq National Market were 29 7/8 and 29 3/4,
respectively, and the last reported sale price was 29 7/8. SHAREHOLDERS ARE
URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THEIR SHARES.
6
<PAGE>
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 27, 1995 at 10:00 a.m.
Pacific Time, at The Red Lion Hotel, Jantzen Beach, 909 North Hayden Island
Drive, Portland, Oregon, 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
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 182,206 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
7
<PAGE>
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 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.
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
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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 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
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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, SRI noted that
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 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 SRI 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
telecommunications 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 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
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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 to PacifiCorp-- 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 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
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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 had 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 had 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 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 to take 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 in 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 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 and the knowledge
of Salomon Brothers of Pacific Telecom and the telecommunications industry, a
purchase price of $27 to
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$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 of $25 per
share at the time of the presentation 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 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 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 Brothers' 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.
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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 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; (vii) certain documents evidencing the material
financing arrangements between PacifiCorp, Holdings and PTI; (viii)
documentation relating to the then 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
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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 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
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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 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
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
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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, 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 acquisition of all
of the outstanding
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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.
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
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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 (i) to terminate consideration of a transaction with Pacific
Telecom; (ii) 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 (iii) 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
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 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
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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. Second, 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.
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 and
$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 $30.00 per
share 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
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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 its 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
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, 1995. That
meeting also included presentations from representatives of Smith Barney, CS
First Boston and the Special Committee's legal counsel. 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.
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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 (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 Mr. 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
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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
transactions contemplated thereby. 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 interests 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 (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
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($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 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 expenses
incurred by each of them in connection
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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 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
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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 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 that 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 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
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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 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
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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.
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.
VALUATION MATRIX. 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 Valuation
Matrix, 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 Valuation Matrix, 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 Valuation Matrix, Smith Barney arrived at a valuation range
for Pacific Telecom of $29.05 to $34.33 per share of Pacific Telecom Common
Stock.
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
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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 13.0
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.
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 preannouncement 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
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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.
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") and 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 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
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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, assuming it were eventually consummated in
the form being negotiated by management of Pacific Telecom. See Note 2(d) of
"Certain Financial Forecasts--Summary of Accounting Policies and Significant
Assumptions for the Financial Forecast." 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.
Smith Barney found that the Proposed Transaction had no material effect on
the value of PTI Common Stock under the valuation analyses conducted that used
near-term projections: the Minority Buy-Out Premium Analysis, the Component
Valuation Analysis and the Valuation Matrix. Smith Barney found that the
Proposed Transaction (assuming the Proposed Transaction is consummated on
December 31, 1996 and that the additional forecast information provided by
management of Pacific Telecom regarding the pro forma effect of the Proposed
Transaction, which additional forecast information had not been finalized due to
certain due diligence limitations imposed on PTI management, are achieved) and
the decline in interest rates between March 1995 and July 1995 had the following
effect on the valuation analyses that use long-term projections: (i) the
valuation range under the Discounted Cash Flow Analysis with Future Acquisitions
changed from a low of $36.08 and a high of $40.71 to a low of $38.86 and a high
of $43.39, differences of $2.78 and $2.68, respectively; (ii) the valuation
range under the Discounted Cash Flow Analysis without Future Acquisitions
changed from a low of $34.57 and a high of $38.30 to a low of $38.86 and a high
of $43.39, differences of $4.29 and $5.09, respectively; (iii) the valuation
range under the Present Value of Future Stock Price Analysis with Future
Acquisitions changed from a low of $35.17 and a high of $38.72 to a low of
$37.19 and a high of $40.98, differences of $2.02 and $2.26, respectively; and
(vi) the valuation range under the Present Value of Future Stock Price Analysis
without Future Acquisitions changed from a low of $32.42 and a high of $35.66 to
a low of $37.19 and a high of $40.98, differences of $4.77 and $5.32,
respectively.
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
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$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.
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 that CS
First Boston deemed relevant.
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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 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 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
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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 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 million 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 million 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 million 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.
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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 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. See
Note 2(d) of "Certain Financial Forecasts--Summary of Accounting Policies and
Significant Assumptions for the Financial Forecast." 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 that 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 any time
in the future. The projections used by CS First Boston are based on numerous
variables and assumptions that 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
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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
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.
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Each of PacifiCorp and Holdings has concluded that the Merger is fair to the
Minority Shareholders based on the following factors:
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 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 (at 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
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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 senior management of
Pacific Telecom and senior management of 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 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
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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, 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, 17.5x to 23.3x 1994 EBITDA and 11.6x 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.
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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 US 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, 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
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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
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, 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,
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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 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
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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
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 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.
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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.
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.
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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.
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
45
<PAGE>
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 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 to so 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 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
46
<PAGE>
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, 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 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.
47
<PAGE>
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 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.
48
<PAGE>
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.
<TABLE>
<S> <C>
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
----------
----------
<FN>
------------------------
(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.
</TABLE>
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.
49
<PAGE>
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 then 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)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
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)......... (3,792) (867) (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
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
50
<PAGE>
(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.
51
<PAGE>
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 dated as of October 1, 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 closed the Alascom Sale on
August 7, 1995. Pacific Telecom expects to close the purchase of assets in
Oregon and Washington before the end of October 1995 for approximately $180
million, 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.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED, IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL (A) (B) US WEST PRO FORMA
CONSOLIDATED HISTORICAL ELIMINATION SALE OF ASSET CONSOLIDATED
JUNE 30, 1995 PTI ALASCOM REVERSAL ALASCOM ACQUISITIONS PTI
------------------------------------ ------------ ----------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets.................... $ 246.5 $ (100.9) $ 11.2 $ 28.4 $ (32.3)(c) $ 152.9
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 $ (193.5) $ 145.2 $ 1,574.6
------------ ----------- ----------- --------- ----------- ------------
------------ ----------- ----------- --------- ----------- ------------
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 68.6 -- 746.6
------------ ----------- ----------- --------- ----------- ------------
Total liabilities and
capitalization................. $ 1,672.3 $ (282.5) $ 233.1 $ (193.5) $ 145.2 $ 1,574.6
------------ ----------- ----------- --------- ----------- ------------
------------ ----------- ----------- --------- ----------- ------------
</TABLE>
52
<PAGE>
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 $260.5 million received at closing of the sale of
Alascom in August 1995 and the $30 million deposit in "Other long-term
liabilities" received in October 1994 were offset by Pacific Telecom's
basis in Alascom, and net gain on sale. The actual gain to be realized on
the sale will be approximately $66 million, which is lower than indicated
on the pro forma balance sheet as the sales price is fixed and the
Company's carrying value in Alascom increased as Alascom's earnings were
recognized and affiliated account balances changed between June 30, 1995
and the August 1995 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.
53
<PAGE>
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 which 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. 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 October 1995. In addition, when the forecasts were
prepared, Pacific Telecom anticipated closing the sale of the stock of Alascom
to AT&T during the first half of 1995, subject to receipt of FCC approval of the
transfer of various licenses and permits. The Alascom sale closed on August 7,
1995. The primary effect of not consummating the Alascom Sale during the first
half of 1995 was a postponement of the gain on the sale to a later period in
which the sale occurred. Financial forecast information reflecting these
transactions and other material transactions enumerated under "Summary of
Significant Forecast Assumptions" are presented below. See Item 5. "Other
Information" and Note 6 of the notes to the consolidated financial statements
contained in the 1995 Form 10-Q, which are incorporated herein by reference, for
additional information relating to the sale of Alascom. See Item 1.
"Business--Telecommunications,
54
<PAGE>
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."
FORECAST CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FORECAST
HISTORICAL -----------------------------------------------------
YEAR ENDING DECEMBER 31, 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED, IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Local network service........................... $ 97.0 $ 121.6 $ 152.5 $ 159.6 $ 181.3 $ 190.7
Network access service.......................... 168.5 256.5 317.9 328.5 368.2 376.0
Long distance and private line service.......... 330.2 112.6 -- -- -- --
Cellular and other.............................. 109.3 118.8 136.4 151.2 168.3 183.1
----------- --------- --------- --------- --------- ---------
Total operating revenues.................... 705.0 609.5 606.8 639.3 717.8 749.8
----------- --------- --------- --------- --------- ---------
OPERATING EXPENSES:
Plant support................................... 144.3 124.8 108.2 112.5 123.0 126.7
Depreciation and amortization................... 100.9 106.2 129.7 136.3 157.1 164.0
Access expense.................................. 92.9 38.0 -- -- -- --
Other operating expense......................... 53.9 53.6 56.0 58.6 65.1 67.7
Customer operations............................. 72.8 63.8 59.1 61.0 66.6 69.2
Administrative support.......................... 75.6 75.8 70.4 69.9 72.0 73.5
----------- --------- --------- --------- --------- ---------
Total operating expenses.................... 540.4 462.2 423.4 438.3 483.8 501.1
----------- --------- --------- --------- --------- ---------
OPERATING INCOME.................................. 164.6 147.3 183.4 201.0 234.0 248.7
----------- --------- --------- --------- --------- ---------
OTHER INCOME (EXPENSE):
Interest expense................................ (34.8) (38.4) (58.7) (57.1) (65.0) (60.0)
Gain on sale of Alascom......................... -- 75.2 -- -- -- --
Other........................................... (7.6) (4.0) (6.3) (4.6) (2.6) 0.8
----------- --------- --------- --------- --------- ---------
Total other income (expense)--net........... (42.4) 32.8 (65.0) (61.7) (67.6) (59.2)
----------- --------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........................ 122.2 180.1 118.4 139.3 166.4 189.5
INCOME TAXES...................................... 40.8 41.6 46.0 54.4 65.7 75.2
----------- --------- --------- --------- --------- ---------
NET INCOME........................................ $ 81.4 $ 138.5 $ 72.4 $ 84.9 $ 100.7 $ 114.3
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
NET INCOME PER SHARE.............................. $ 2.05 $ 3.50 $ 1.83 $ 2.14 $ 2.54 $ 2.88
----------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- ---------
</TABLE>
55
<PAGE>
FORECAST CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FORECAST
HISTORICAL ----------------------------------------------------------
DECEMBER 31, 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------
<CAPTION>
(UNAUDITED, IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 9.9 $ 6.5 $ 6.5 $ 6.5 $ 6.5 $ 6.5
Accounts receivable................... 110.8 56.8 60.8 62.5 65.1 67.1
Inventory--North Pacific
Cable................................ 62.8 54.2 45.3 36.5 23.3 14.5
Material and supplies................. 14.8 11.5 21.7 22.1 28.7 29.0
Other................................. 16.0 11.1 11.2 11.3 11.4 11.5
---------- ---------- ---------- ---------- ---------- ----------
Total current assets................ 214.3 140.1 145.5 138.9 135.0 128.6
Investments............................. 123.6 120.0 121.6 123.8 130.0 140.2
Net plant in service.................... 825.5 1,050.7 1,086.3 1,174.0 1,177.3 1,145.4
Intangible and other assets............. 279.6 543.6 527.9 576.2 557.3 535.6
---------- ---------- ---------- ---------- ---------- ----------
Total assets........................ $ 1,443.0 $ 1,854.4 $ 1,881.3 $ 2,012.9 $ 1,999.6 $ 1,949.8
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
LIABILITIES AND CAPITALIZATION
Current liabilities:
Currently maturing long-term debt..... $ 15.6 $ 6.9 $ 7.0 $ 7.2 $ 18.2 $ 8.0
Notes payable......................... 21.7 121.4 111.0 90.4 73.2 26.4
Accounts payable...................... 69.5 60.3 60.1 60.6 60.9 61.1
Other................................. 68.3 45.7 52.9 53.4 58.6 59.2
---------- ---------- ---------- ---------- ---------- ----------
Total current liabilities........... 175.1 234.3 231.0 211.6 210.9 154.7
Long-term debt.......................... 377.0 666.5 675.4 800.7 746.0 701.0
Deferred income taxes and unamortized
investment tax credits................. 109.8 115.5 116.3 118.2 113.3 106.8
Other long-term liabilities............. 113.3 84.2 85.3 79.0 81.4 82.9
Shareholders' equity.................... 667.8 753.9 773.3 803.4 848.0 904.4
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
capitalization..................... $ 1,443.0 $ 1,854.4 $ 1,881.3 $ 2,012.9 $ 1,999.6 $ 1,949.8
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
56
<PAGE>
FORECAST CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FORECAST
HISTORICAL -----------------------------------------------------
YEAR ENDING DECEMBER 31, 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
<CAPTION>
(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>
57
<PAGE>
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
</TABLE>
* EBITDA--Earnings before interest, taxes, depreciation and
amortization. EBITDA was one of the measures used by the financial
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.
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. Pacific Telecom has
received all regulatory approvals required in connection with the Oregon
and Washington asset acquisitions and currently expects to close those
acquisitions before the end of October 1995.
58
<PAGE>
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):
<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):
<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>
59
<PAGE>
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 million 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 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
60
<PAGE>
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.
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.
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,
61
<PAGE>
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.
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.
62
<PAGE>
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 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. Holdings and Pacific Telecom have also
agreed to give prompt
63
<PAGE>
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 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
64
<PAGE>
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
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.
65
<PAGE>
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.
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 "--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
March 8, 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 22, 1995, the high and low sales prices for PTI Common
Stock as reported on the Nasdaq National Market were 29 7/8 and 29 3/4,
respectively, and the last reported sale price was 29 7/8.
66
<PAGE>
QUARTERLY HIGH AND LOW SALE PRICES
<TABLE>
<CAPTION>
QUARTERLY
HIGH LOW DIVIDEND
--------- --------- -----------
<S> <C> <C> <C>
1995
----------------------------------------------------------------------------------------
First Quarter........................................................................... $ 315/8 $ 293/8 $ .33
Second Quarter.......................................................................... 301/4 291/2 .33
Third Quarter (through August 22, 1995)................................................. 297/8 293/4 --
<CAPTION>
1994
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter........................................................................... 27 221/2 .33
Second Quarter.......................................................................... 253/8 203/4 .33
Third Quarter........................................................................... 263/4 21 .33
Fourth Quarter.......................................................................... 303/4 223/4 .33
<CAPTION>
1993
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter........................................................................... 243/4 221/2 .33
Second Quarter.......................................................................... 24 21 .33
Third Quarter........................................................................... 283/4 23 .33
Fourth Quarter.......................................................................... 281/2 241/2 .33
</TABLE>
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.
67
<PAGE>
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 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.
CURRENT DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
-------------------------- --- ---------------------------------------------------------------------- -----------
<S> <C> <C> <C>
Joyce E. Galleher+ 65 Secretary-Treasurer, JODI (real estate, equipment leasing), Poulsbo, 1982
Washington
Roy M. Huhndorf*+ 55 President and Chief Executive Officer, Cook Inlet Region, Inc. (native 1991
regional corporation), Anchorage, Alaska
Donald L. Mellish*+ 67 Director and Chairman, Executive Committee of the National Bank of 1992
Alaska, Anchorage, Alaska
Charles E. Robinson* 61 Chairman, Chief Executive Officer and President, Pacific Telecom; 1982
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
Sidney R. Snyder+ 69 President, Sid's Super Market, Inc.; Washington State Senator, 1973
Olympia, Washington
Nancy Wilgenbusch 47 President, Marylhurst College, Portland, Oregon; Director, PacifiCorp 1990
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
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
-------------------------- --- ---------------------------------------------------------------------- -----------
Nolan E. Karras 50 Investment Adviser, Karras & Associates, Inc., an investment advisory
firm, Roy, Utah; Director, PacifiCorp; Director, Holdings
<S> <C> <C> <C>
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 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 equal 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
69
<PAGE>
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.
70
<PAGE>
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ------------------------------------------
--------------------------------------- LONG-TERM
NAME AND PRINCIPAL ANNUAL OTHER ANNUAL RESTRICTED INCENTIVE ALL OTHER
POSITION SALARY BONUS COMPENSATION(1) STOCK 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 1993 387,500 232,500 -- 85,500(4) 185,865(5) 12,611
Executive Officer and 1992 375,000 -- -- -- 380,419(5) 12,006
Chairman of the Board
of Directors
James H. Huesgen, 1994 194,202 145,940 -- 55,125(3) -- 9,051
Executive Vice 1993 184,200 96,700 -- -- 111,967(5) 9,691
President and Chief 1992 175,850 -- 1,528 -- 209,696(5) 10,268
Financial Officer
Donn T. Wonnell, Vice 1994 154,103 83,351 -- 44,100(3) -- 8,726
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, 1993 83,370 46,000 -- -- 22,392(5) 4,518
Revenue Requirements 1992 -- -- -- -- -- --
and Controller
Wesley E. Carson, Vice 1994 117,658 44,119 10 22,050(3) -- 8,433
President, Human 1993 111,451 41,800 -- -- 35,001(5) 6,416
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 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
71
<PAGE>
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
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 YEARS OF CREDITED SERVICE
ANNUAL PAY AT --------------------------------------------------
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.
</TABLE>
72
<PAGE>
<TABLE>
<S> <C>
(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 YEARS OF CREDITED SERVICE
QUALIFIED -----------------------------------------------------
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>
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
73
<PAGE>
not restricted to those included in the preparation of the performance graph set
forth below, but include over 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 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
74
<PAGE>
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
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
75
<PAGE>
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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PTI S&P 500 PEER GROUP
<S> <C> <C> <C>
1989 $100.00 $100.00 $100.00
1990 112.24 96.89 90.10
1991 120.73 126.28 98.90
1992 122.38 135.88 110.19
1993 137.16 149.52 129.72
1994 166.67 151.55 116.42
</TABLE>
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
DOW JONES TELEPHONE SYSTEM INDEX ADDITIONAL COMPANIES
-------------------------------------------------------- --------------------------------------------------------
<S> <C>
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.
</TABLE>
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
77
<PAGE>
registered in the name of the recipient and held by Pacific Telecom until the
shares vest; (ii) 181,500 shares were acquired 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>
AVERAGE
NUMBER OF PRICE PER DOLLAR VALUE
DATE SHARES SHARE OF SHARES HIGH LOW
-------------------------------------- ----------- ------------ ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
1993
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 30.00 30.00
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
78
<PAGE>
officer of PacifiCorp, Holdings or Pacific Telecom has effected any 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 OF PRICE PER
NAME TRANSACTION SHARES SHARE NATURE OF TRANSACTION
-------------------------------------- ----------- ----------- ----------- ------------------------------------
<S> <C> <C> <C> <C>
Charles E. Robinson................... 6/30/95 153.0158 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
Diana E. Snowden...................... 6/30/95 10.0627 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
Donald A. Bloodworth.................. 6/30/95 11.0608 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
Wesley E. Carson...................... 6/30/95 7.9877 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
James H. Huesgen...................... 6/30/95 100.3194 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
Brian M. Wirkkala..................... 6/30/95 98.9179 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
Donn T. Wonnell....................... 6/30/95 42.2931 $ 29.24 Acquisition of shares by Trustee
with contributions previously
directed to fund
</TABLE>
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
79
<PAGE>
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 SHARES
OF PACIFIC NUMBER OF SHARES
TELECOM COMMON OF PACIFICORP
BENEFICIAL OWNER 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 43,191
<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>
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.
80
<PAGE>
<TABLE>
<CAPTION>
SHARES OF PTI
COMMON STOCK
NAME AND RESIDENCE OR PRINCIPAL OCCUPATION, POSITION, BENEFICIALLY APPROXIMATE
BUSINESS ADDRESS OFFICE OR EMPLOYMENT OWNED PERCENTAGE
---------------------------- -------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
PACIFICORP HOLDINGS, INC.
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
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 (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 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), 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
EXECUTIVE OFFICERS
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)
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
SHARES OF PTI
COMMON STOCK
NAME AND RESIDENCE OR PRINCIPAL OCCUPATION, POSITION, BENEFICIALLY APPROXIMATE
BUSINESS ADDRESS OFFICE OR EMPLOYMENT OWNED PERCENTAGE
---------------------------- -------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Richard T. O'Brien Senior Vice President and Chief Financial Officer -- --
of PacifiCorp (since August 1995) and Senior Vice
President, Holdings (since August 1993); Vice
President of PacifiCorp (August 1993-August 1995);
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 -- --
<CAPTION>
PACIFICORP
<S> <C> <C> <C>
DIRECTORS
Kathryn A. Braun Executive Vice President, Western Digital -- --
Corporation, 8105 Irvine Center Drive, Irvine, CA
92718
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)
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
SHARES OF PTI
COMMON STOCK
NAME AND RESIDENCE OR PRINCIPAL OCCUPATION, POSITION, BENEFICIALLY APPROXIMATE
BUSINESS ADDRESS OFFICE OR EMPLOYMENT OWNED PERCENTAGE
---------------------------- -------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
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
Nancy Wilgenbusch President, Marylhurst College, Marylhurst, Oregon 2,711 *
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 Chief Executive Officer, 79,410 *
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)
<FN>
------------------------
* Less than 1 percent of the outstanding shares of PTI Common Stock.
</TABLE>
<TABLE>
<CAPTION>
SHARES OF PTI
COMMON STOCK
NAME AND RESIDENCE OR PRINCIPAL OCCUPATION, POSITION, BENEFICIALLY APPROXIMATE
BUSINESS ADDRESS OFFICE OR EMPLOYMENT OWNED PERCENTAGE
---------------------------- -------------------------------------------------- ----------------- ---------------
<S> <C> <C> <C>
Daniel L. Spalding (See above) -- --
Dennis P. Steinberg Senior Vice President (since May 1994), Vice -- --
President (1990-1994), PacifiCorp
Thomas J. Imeson Vice President, PacifiCorp -- --
Robert F. Lanz Vice President, PacifiCorp -- --
Sally A. Nofziger (See above) -- --
Richard T. O'Brien (See above) -- --
</TABLE>
83
<PAGE>
<TABLE>
<CAPTION>
SHARES OF PTI
COMMON STOCK
NAME AND RESIDENCE OR PRINCIPAL OCCUPATION, POSITION, BENEFICIALLY APPROXIMATE
BUSINESS ADDRESS OFFICE OR EMPLOYMENT OWNED PERCENTAGE
---------------------------- -------------------------------------------------- ----------------- ---------------
William E. Peressini (See above) -- --
<S> <C> <C> <C>
Jacqueline S. Bell (See above) -- --
</TABLE>
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 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.
84
<PAGE>
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 Reports 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.
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 SEPTEMBER 8, 1995.
85
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Directors and Shareholders of Pacific Telecom, Inc.:
We have audited the accompanying consolidated balance sheets of Pacific
Telecom, Inc. and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements represent fairly, in
all material respects, the financial position of Pacific Telecom, Inc. and its
subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 9 in the consolidated financial statements, the Company
changed its method of accounting for other postretirement benefits in the
year ended December 31, 1993.
DELOITTE & TOUCHE
Portland, Oregon
February 15, 1995 (March 9, 1995 as to the definitive merger agreement
discussed in Note 2)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL SET
FORTH BELOW AND FOR THE ELECTION OF THE DIRECTORS NAMED BELOW.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH 9, 1995, AND
BY AND AMONG PACIFIC TELECOM, INC., PACIFICORP HOLDINGS, INC. AND PITZ
CORPORATION.
FOR AGAINST ABSTAIN
/ / / / / /
2. ELECTION OF DIRECTORS
Nominees: Joyce E. Galleher, Michael C. Henderson, Roy M. Huhndorf, Nolan
E. Karras, Paul M. Lorenzini, Donald L. Mellish, Charles E.
Robinson, Sidney R. Synder, Verl R. Topham, Nancy Wilgenbusch
FOR all nominees listed WITHHOLD AUTHORITY to vote
(except as indicated to for all nominees listed
the contrary)
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEES'S NAME IN THE SPACE PROVIDED BELOW
--------------------------------------------------------------------
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Shareholders dated August 24, 1995 and the Proxy Statement furnished herewith.
Dated this ____________________ day of _________, 1995
______________________________________________________
______________________________________________________
Shareholder(s)
Please sign exactly as shown to left. When signing as an attorney,
administrator, executor, trustee or guardian, please give full title. If
there is 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.
PLEASE MARK INSIDE BLUE BOXES SO THAT THE
PROCESSING EQUIPMENT WILL RECORD YOUR VOTES
/\ FOLD AND DETACH HERE /\
PACIFIC TELECOM, INC.
The Red Lion Hotel
Jantzen Beach
909 North Hayden Island Drive
Portland, Oregon
10:00 A.M.
<PAGE>
PACIFIC TELECOM, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 27, 1995
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Charles E. Robinson and Dr. Nancy Wilgenbusch,
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 July 31, 1995 at the Annual
Meeting of Shareholders of Pacific Telecom, Inc. to be held at The Read Lion
Hotel, Jantzen Beach, 909 North Hayden Island Drive, Portland, Oregon, on
Wednesday, September 27, 1995 at 10:00 a.m. and any adjournments or
postponements thereof.
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.
/\ FOLD AND DETACH HERE /\
PACIFIC TELECOM, INC.
The Red Lion Hotel
Jantzen Beach
909 North Hayden Island Drive
Portland, Oregon
10:00 A.M.
<PAGE>
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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <C> <S> <C>
ARTICLE I THE MERGER.................................................................. 1
1.1 Effect of Merger............................................................ 2
1.2 Articles of Incorporation, etc.............................................. 2
1.2.1 Articles of Incorporation and Bylaws............................. 2
1.2.2 Directors........................................................ 2
1.2.3 Officers......................................................... 2
1.3 Conversion and Cancellation of Shares....................................... 2
1.3.1 PTI Common Stock Held by Holdings................................ 2
1.3.2 PTI Common Stock Held by Minority Shareholders................... 2
1.3.3 Merger Sub Common Stock.......................................... 2
1.3.4 Payment for Minority Stock....................................... 3
1.3.5 Lost, Stolen or Destroyed Certificates........................... 3
1.3.6 No Further Rights or Transfers................................... 3
1.3.7 Dissenting Shareholders.......................................... 3
1.4 Closing..................................................................... 4
1.5 Subsequent Actions.......................................................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES.............................................. 4
2.1 Representations and Warranties of PTI....................................... 4
2.1.1 Organization and Good Standing................................... 4
2.1.2 Capitalization................................................... 4
2.1.3 Corporate Authority; Authorization............................... 4
2.1.4 Consents and Approvals........................................... 5
2.1.5 Proxy Statement and Schedule 13E-3............................... 5
2.1.6 Company SEC Reports and Financial Statements..................... 6
2.1.7 Absence of Material Adverse Change............................... 6
2.1.8 Brokers and Finders.............................................. 6
2.1.9 Fairness Opinions................................................ 6
2.2 Representations and Warranties of Holdings and Merger Sub................... 7
2.2.1 Organization and Good Standing................................... 7
2.2.2 Corporate Authority.............................................. 7
2.2.3 Proxy Statement and Schedule 13E-3............................... 7
2.2.4 Required Approvals............................................... 7
2.2.5 Prior Proposals and Offers; No Present Intent to Sell............ 8
2.2.6 Financing........................................................ 8
ARTICLE III COVENANTS................................................................... 8
3.1 Proxy Materials and Schedule 13E-3.......................................... 8
3.2 Shareholder Approval........................................................ 8
3.3 Acquisition Proposals....................................................... 9
3.4 Dissenters' Rights.......................................................... 9
3.5 Conduct of Business of PTI.................................................. 9
3.6 Access and Information...................................................... 10
3.7 Certain Filings, Consents and Arrangements.................................. 10
3.7.1 Consents......................................................... 10
3.7.2 Filings.......................................................... 10
3.8 Indemnification and Insurance............................................... 10
3.9 Dividend Policy............................................................. 11
3.10 Notification of Certain Matters............................................. 11
3.11 Fees and Expenses........................................................... 11
3.12 Election of Directors....................................................... 11
</TABLE>
i
<PAGE>
<TABLE>
<C> <C> <S> <C>
3.13 Employee Benefits........................................................... 11
3.14 Additional Agreements....................................................... 11
ARTICLE IV CONDITIONS.................................................................. 12
4.1 Conditions to the Obligations of The Parties................................ 12
4.1.1 Shareholder Approval............................................. 12
4.1.2 No Injunction.................................................... 12
4.2 Conditions to Obligation of PTI............................................. 12
4.2.1 Representations, Warranties, and Covenants....................... 12
4.2.2 PacifiCorp Agreement............................................. 12
4.2.3 No Injunction.................................................... 12
4.2.4 Fairness Opinions................................................ 12
4.2.5 Consents and Approvals........................................... 12
4.3 Conditions to Obligations of Holdings and Merger Sub........................ 13
4.3.1 Representations, Warranties, and Covenants....................... 13
4.3.2 No Injunction.................................................... 13
4.3.3 Material Adverse Change.......................................... 13
4.3.4 Consents and Approvals........................................... 13
ARTICLE V TERMINATION................................................................. 13
5.1 Termination................................................................. 13
5.1.1 Mutual Consent................................................... 13
5.1.2 Failure of Merger to Occur by Certain Date....................... 13
5.1.3 Actions Restraining the Merger................................... 13
5.1.4 Failure of Shareholders to Approve............................... 14
5.1.5 By PTI........................................................... 14
5.1.6 By Holdings...................................................... 14
5.2 Effect of Termination....................................................... 14
ARTICLE VI MISCELLANEOUS AND GENERAL................................................... 14
6.1 Survival of Representations, Warranties and Agreements...................... 14
6.2 Waiver and Amendment........................................................ 14
6.3 Entire Agreement............................................................ 14
6.4 Headings.................................................................... 14
6.5 Notices..................................................................... 15
6.6 Parties in Interest; Assignment............................................. 15
6.7 Specific Performance........................................................ 15
6.8 Public Statements........................................................... 15
6.9 Counterparts................................................................ 15
6.10 Choice of Law............................................................... 15
</TABLE>
ii
<PAGE>
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.
<PAGE>
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.
2
<PAGE>
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
3
<PAGE>
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.
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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
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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.
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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
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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
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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
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(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
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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.
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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.
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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;
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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.
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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:
<TABLE>
<S> <C>
If to PTI: With copies to:
Pacific Telecom, Inc. Latham & Watkins
Attention: Special Committee of the Attention: John J. Huber
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
</TABLE>
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.
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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
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EXHIBITS TO THE
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION (SECTION REFERENCE)
--------- ------------------------------------------------------------------------------------------------------
<C> <S>
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)
(Exhibits B and C to the Agreement and Plan of Merger are omitted)
</TABLE>
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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
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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.
2
<PAGE>
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.
3
<PAGE>
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:
<TABLE>
<S> <C>
If to PTI: With copies to:
Pacific Telecom, Inc. Latham & Watkins
Attention: Special Committee of the Attention: John J. Huber
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 PacifiCorp: With a copy to:
PacifiCorp 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
</TABLE>
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.
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
4
<PAGE>
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
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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:
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(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.
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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.
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(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.
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EXHIBIT C
August 24, 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 the proxy statement relating to the Merger as filed with the Securities
and Exchange Commission and 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 has received a fee for our services, a
significant portion of which was contingent upon
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the delivery of our 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.
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EXHIBIT D
August 24, 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 Pacific Telecom, Inc.,
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 the Acquiror, PT Merger
Corporation and the Company (the "Merger Agreement"), which 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,
subject to dissenters' rights. The Merger is conditioned upon, among other
things, the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock not held by the Acquiror.
In arriving at our opinion, we have reviewed the Merger Agreement, the proxy
statement relating to the Merger as filed with the Securities and Exchange
Commission 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 Merger and have received a fee for our services. We
delivered a fairness opinion in connection with the Merger on March 9, 1995, and
received a fee for our services at such time.
In the past, we have performed certain investment banking services for the
Company and have received customary fees for such services.
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Special Committee of the Board of Directors
August 24, 1995
Page 2
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 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 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 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
By: __________/s/_Gordon Rich_________
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EXHIBIT E
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
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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,
/s/ SALOMON BROTHERS INC
---------------------------------------------
SALOMON BROTHERS INC
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